CALGARY, Dec. 13, 2017 /CNW/ – Surge Energy Inc. (“Surge” or the “Company”) (TSX: SGY) announces that its Board of Directors has formally approved Surge’s 2018 capital expenditure and production guidance.
APPROVED GUIDANCE FOR 2018; CAPITAL EXPENDITURE BREAKDOWN
Pursuant to a Press Release dated October 26, 2017, Surge provided preliminary capital expenditure and production guidance for 2018.
In 2018 Surge now anticipates spending $98.75 million of total capital, broken down as follows:
Capital Category |
Amount |
Drill & Complete, Tie-in |
$68.75 million |
Waterflood |
$4 million |
Facilities |
$9 million |
Workovers |
$7 million |
Land, Capitalized G&A, other |
$10 million |
Total |
$98.75 million |
2018 Budget @ $57.50 |
2018 Budget @ $65.00 |
||
Adjusted Funds Flow Netbacks ($/boe) |
$21.80 |
$25.90 |
|
Adjusted Funds Flow ($MM) |
$128.6 |
$152.8 |
|
Per Share (Basic) |
$0.55 |
$0.66 |
|
All-in Sustainability Ratio |
95% |
80% |
|
Simple Payout Ratio |
17% |
14% |
|
Q4 Annualized Net Debt to Adjusted Funds Flow |
1.75x |
1.3x |
|
Pricing Assumptions |
|||
WTI ($US/bbl) |
$57.501 |
$65.00 |
|
CAD/USD Exchange Rate |
$0.765 |
$0.785 |
|
Natural Gas (AECO C/$GJ) |
$1.85 |
$1.85 |
|
WCS Differential ($US/bbl) |
-$15.002 |
-$15.002 |
|
MSW Differential ($US/bbl) |
-$3.00 |
-$3.00 |
Note 1: This WTI pricing forecast reflects strip pricing for crude oil in 2018 as at December 11th, 2018. |
Note 2: The Company has budgeted a 25% increase in 2018 WCS differentials as compared to 2017, to account |
Surge has increased the Company’s estimated 2018 capital expenditures slightly (from $95 million previously announced) to $98.75 million in anticipation of slightly higher service costs in 2018 as a result of rising crude oil prices.
Surge’s 2018 guidance provides estimated debt adjusted production per share growth of 6.3 percent, and adjusted funds flow per share growth of 26 percent, over 2017 estimates respectively.
OPERATIONS UPDATE
Surge’s low risk, development drilling and waterflood results at the Company’s Valhalla, Sparky, and Shaunavon core areas continue to exceed management’s budgeted expectations.
The Company has exceeded management’s 2017 production exit rate target of 15,850 boepd.
Valhalla – Exciting Results From Downspacing
Surge’s latest Doig light oil well at Valhalla, drilled in Q4 2017, is one of the longest horizontal wells drilled by the Company to date with over 2,000 meters of high quality lateral section, and a measured depth of 4,375 meters. With 26 stages, this well also has one of the highest number of frac intervals that the Company has employed to date at Valhalla.
This 200 meter in-fill well has now been on production for approximately three weeks; it is exhibiting excellent pressure response – with modest depletion; and it is producing at more than 1,300 boe/d, which is more than two times above Surge’s budgeted Valhalla Doig initial thirty day production rate of 650 boepd (over 80 percent light oil).
Surge management anticipates that this new Valhalla well will payout in approximately 11 weeks.
Surge estimates it now has more than 70 net additional locations for light oil in its inventory at Valhalla, comprised as follows:
- 40 gross (34 net) Doig locations;
- 10 gross (10 net) Montney locations;
- 21 gross (20.5 net) Doe Creek locations; and
- 14 gross (9.8 net) Charlie Lake locations.
The Company budgets the drilling of five net wells at Valhalla in 2018, providing an internally estimated drilling inventory of more than 12 years.
Sparky – New Discovery at Betty Lake
In late Q3 and early Q4 of 2017, Surge completed a 3D seismic program and successfully drilled its first well at the Company’s core Sparky Betty Lake asset; the Company estimates that this 100 percent working interest play has potential for more than 80 million barrels of net OOIP1 (with an internally estimated recovery factor of 10 percent on primary, and up to 30 percent with waterflood), and more than 35 additional internally estimated drilling locations.
Surge’s first Betty Lake well is producing at approximately 140 percent of the Company’s Sparky type curve.
Following Surge’s most recent Sparky core area acquisition in Q3 of 2017, the Company now estimates that its two new pools at Sounding Lake and Sounding Lake East have potential for more than 55 million of net-internally estimated OOIP (with an internally estimated recovery factor of 10 percent on primary and up to 30 percent with waterflood); adding up to 38 net additional internally estimated, low risk, Sparky development drilling locations.
Surge has also now drilled two successful step out Sparky wells at Provost – significantly extending the Company’s large OOIP pool to the southwest. Today, following field optimization, and after tying in the two new Provost development wells to Surge’s nearby Lakeview battery, management estimates that the operating expenses at Lakeview have dropped from $17.50 per boe at the time of acquisition in April of 2017, to less than $11.50 per boe forecast for 2018. Surge estimates it now has more than 25 low risk additional development drilling locations at Lakeview, together with waterflood upside.
Surge currently has 318 gross (311 net) internally estimated drilling locations in inventory in its Sparky core area. The Company anticipates drilling 25 net wells in this core operated area in 2018, a pace which provides more than 12 years of drilling inventory.
Shaunavon – Upper and Lower Shaunavon Results Confirm Upside
Surge’s exciting Upper Shaunavon “step-out” well, more than six kilometers to the north of the Company’s current development, continues to perform as a type curve well. This is a significant pool extension on Surge’s large contiguous 59 section land base. The well has confirmed numerous Upper Shaunavon follow-up locations.
The Company’s recent Lower Shaunavon well, drilled in Q3 2017 with the latest mono-bore and cemented liner technology, is performing above type curve. Surge has more than 70 internally estimated Lower Shaunavon locations.
Surge has also successfully converted four more Upper Shaunavon wells to injection, three of which are located at the large Upper Shaunavon pool extension that Surge discovered two years ago on the southern portion of the Company’s land block.
Surge currently has 246 gross (233 net) internally estimated drilling locations in inventory in its Shaunavon core area. The Company plans to bring 17 Upper and Lower Shaunavon wells on production in 2018 at this core operated asset, providing over 13 years of drilling inventory at the current pace.
FINANCIAL UPDATE – INCREASED CREDIT FACILITY
In late November, Surge’s revolving credit facility was expanded to a new level of $305 million, which represents a seven percent increase from the previous facility. Including the proceeds of Surge’s previously announced convertible debenture financing, Surge now has approximately $100 million of credit availability on its bank line.
Surge has also recently increased its currency hedges for 2018. The Company now has approximately 22 percent of its projected 2018 budget revenues hedged at rate of 0.7765 CAD/USD.
OUTLOOK – CONTINUED PER SHARE GROWTH IN 2018
Management’s stated goal is to be the best positioned light/medium gravity crude oil growth and dividend paying public company in our peer group in Canada.
Over the last 18 months, Surge has now increased production per share by more than 23 percent, increased its dividend by more than 26 percent, and upwardly revised production estimates four times – two times organically, and two times pursuant to accretive Sparky core area acquisitions.
In conjunction with putting forth Surge’s 2018 guidance, management has also completed an internally generated Five Year Business Model in which the Company can organically grow production per share at five to six percent per year, increase Surge’s dividend through growth in free cash flow, and reduce debt to less than one times adjusted funds flow – all at current guidance pricing. This five year growth model requires the drilling of less than 46 percent of the Company’s current internal inventory.
Surge will continue to grow its production base and location inventory in the Company’s three core areas – at Sparky, Shaunavon, and Valhalla – through, organic, low risk, development drilling, combined with strategic, high quality, core area acquisitions.
RESIGNATION OF DIRECTOR
Surge also announces that Mr. Colin Davies has tendered his resignation as a Director of the Company, effective December 12, 2017, due to the commitment required of Mr. Davies in connection with his recent appointment as Chief Executive Officer of an active private, Alberta based, oil company. The Board thanks Mr. Davies for his participation and contribution as a Director and as Chair of the Company’s Reserves Committee and wishes him well in his new endeavors.