CALGARY, Dec. 3, 2013 /CNW/ – Surge Energy Inc. (“Surge” or the “Company”) (TSX: SGY) is pleased to announce that it has now closed the previously announced acquisition (the “Acquisition”) of a high quality, low decline, operated, crude oil producing asset strategically located near Wainwright in the Company’s core area of Central Alberta (the “Assets”).
The Assets include over 980 barrels per day of primarily medium gravity crude oil production (with a historical nine percent annual decline), producing from the Sparky Formation. The purchase price for the Assets was $76.8 million.
As a result of the accretive Acquisition, together with better than anticipated operational and drilling results, Surge’s Board of Directors has now approved an increase in the Company’s annual dividend of four percent from $0.50 per share per year ($0.04166 per share per month), to $0.52 per share per year ($0.04333 per share per month). This increased dividend is to be paid on January 15, 2014 in respect of December, 2013 production, for the shareholders of record on December 31, 2013.
The Acquisition comprises an elite, operated, low decline crude oil property strategically located within Surge’s core operating area of Central Alberta. The production is focused in a large, medium gravity crude oil Sparky reservoir – with over 210 million barrels of estimated original oil in place (“OOIP”)1.
The Assets are under waterflood and currently possess a very low annual decline of nine percent, which is expected to provide significant annual free cash flow to Surge. The Acquisition fits with the Company’s focused business strategy and with Surge’s modest growth/dividend business model.
Surge management has identified significant upside with respect to the Assets, primarily from waterflood optimization and infill drilling.
As a result of the closing of the Acquisition, Surge now has over 1.3 Billion barrels estimated of light and medium gravity OOIP under the Company’s ownership and management.
Following the Acquisition, Surge has again revised upward the Company’s 2013 exit guidance and 2014 full year guidance, as set forth below.
|Surge 2014E Guidance2 3|
|2013E Exit Production||15,000boe/d(83% Oil/NGLs)|
|2014E Average Production (boe/d)||15,250boe/d(83% Oil/NGLs)|
|2014E Exit Production (boe/d)||15,500 (83% Oil/NGLs)|
|2P Reserves4||69.7 mmboe|
|RLI (based on 2013E exit production)||>12.5 years|
|2014E Capital Spending||$112 million|
|2014E Wells Drilled||48 wells|
|Surge 2014E Guidance2 3|
|2014E Funds from Operations (“FFO”)||$214 ($1.29 per share)|
|2014E Operational Netback||$42.78/boe|
|2014E Cash Flow Netback||$38.51/boe|
|Basic Shares Outstanding||167 million|
|Annual Dividend||$87 million|
|Basic Payout Ratio 2014E||40.9%|
|“All-in” Payout Ratio||93.8%|
|2014E Exit Net Debt||$290 million|
|2014E Net debt / 2014 FFO||1.35x|
|Bank Line||$470 million|
CONVERSION OF SUBSCRIPTION RECEIPTS
The purchase price for the Acquisition was financed, in part, by the net proceeds pursuant to the previously announced $63,273,000 equity financing of Subscription Receipts completed by Surge on November 28, 2013. With the closing of the Acquisition, Surge confirms that the escrow release condition of the Subscription Receipt Agreement dated November 28, 2013 has occurred and therefore, each outstanding Subscription Receipt of Surge has been automatically exchanged, without payment of additional consideration or further action, for one Common Share of Surge.
Trading in the Subscription Receipts on the Toronto Stock Exchange (“TSX”) has been halted and will remain halted until the close of business today, at which time the subscription receipts will be de-listed from the TSX. The Common Shares issued on exchange of the Subscription Receipts have commenced trading on the TSX.
Neither the Subscription Receipts nor the Common Shares have been nor will be registered under the United States Securities Act of 1933, as amended (the “Securities Act”) and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements of the Securities Act and applicable state securities laws. This press release shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the securities in the United States or any jurisdiction in which such offer, solicitation or sale would be unlawful.
Macquarie Capital Markets Canada Ltd. acted as financial advisor to Surge with respect to the Acquisition.
FORWARD LOOKING STATEMENTS:
This press release contains forward-looking statements. More particularly, it contains forward-looking statements concerning: (i) potential development opportunities and drilling locations associated with the Acquisition, (ii) the timing, amount and sustainability of dividends, (iii) primary and secondary recovery potentials and implementation thereof, (iv) oil & natural gas production growth during 2013 and 2014, (v) planned drilling, development and waterflood activities, (vi) estimated 2014 average and exit rates of production, (ix) estimated 2014 capital expenditures, wells drilled, decline rates, funds from operations, operating netback, cash flow netback and payout ratio, estimated 2014 year end net debt and net debt to funds from operations ratio; and (xi) the anticipated exceeding by Surge of the previously estimated 2013 exit rate of production.
The forward-looking statements contained in this press release are based on certain key expectations and assumptions made by Surge, including expectations and assumptions concerning the success of future drilling, development and completion activities, the performance of existing wells, the performance of new wells, the viability