Surge is also pleased to announce that it has closed an extension of the Company’s existing $335 million first-lien credit facility (“Credit Facility”). Maturity of the Credit Facility has been extended from March 31, 2021 to December 31, 2021 and the Company’s next semi-annual borrowing base redetermination has been extended to June 30, 2021.
Additionally, Export Development Canada (“EDC”) has joined Surge’s lending Syndicate, providing a $50.6 million injection of capital into the Company’s $335 million Credit Facility.
FOUR YEAR TERM FACILITY FINALIZED
Surge has closed the previously announced $40 million Term Facility under the BDC’s Business Credit Availability Program (“BCAP”) Mid-Market Financing Program, which provides the Company with a four year, non-revolving second lien Term Facility, maturing on November 17, 2024, at attractive interest rates.
In conjunction with closing, BDC and the Syndicate have agreed to fund an immediate initial draw of $32.5 million on the $40 million Term Facility. Surge will use these funds for the development of its high-quality, medium and light crude oil asset base which is expected to return the Company’s production to near pre-COVID-19 levels and, in turn, generate net asset value per share growth for its shareholders.
EXTENSION OF CREDIT FACILITY CONFIRMED
Concurrent with closing of the Term Facility, Surge’s lending Syndicate has also reconfirmed the Company’s existing $335 million Credit Facility.
Surge’s lending Syndicate has agreed to extend the maturity of the Company’s revolving and non-revolving facilities from March 31, 2021 to December 31, 2021. In addition, Surge’s next semi-annual borrowing base redetermination has been extended to June 30, 2021.
$50.6 MILLION EDC CREDIT FACILITY FUNDING COMPLETE
Concurrent with the above Credit Facility reconfirmation, EDC has provided $50.6 million in funding into Surge’s existing $335 million credit facility. This capital injection provides the Company with a significant new Syndicate banking partner in the Credit Facility.
The above Credit Facility reconfirmation and extension, in combination with the Term Facility, provides Surge with more than $75 million in available liquidity on its credit facilities1.
The Company appreciates the support and partnership of the BDC, EDC, and the entire Syndicate of lenders.
SURGE OUTLOOK: A COMPELLING VALUE PROPOSITION
Surge has a high quality, low decline, light and medium gravity crude oil asset and opportunity base. With the Company’s low (19 percent) annual production decline, high netbacks, large OOIP2 per section (conventional) crude oil assets, Surge provides investors with an excellent opportunity to participate in the ongoing crude oil price recovery.
The closing of more than $90 million in new credit commitments provides Surge with significant additional long term liquidity at reasonable interest rates, allowing the Company to pursue attractive development opportunities with a view to generating net asset value per share growth for its shareholders.
Surge anticipates strategically deploying capital into its Sparky play between now and spring breakup, which typically occurs in mid to late March each year. Management currently expects to provide 2021 guidance in January, 2021. Surge’s industry leading Sparky play has some of the best production efficiencies2 (<$10,000/boepd IP90), and internal rates of return (“IRR”) for drilling new wells in all of Canada. Surge estimates a weighted average, risked IRR, of greater than 50 percent2 for its entire 500 net well (14 year) Sparky drilling inventory at US $40 WTI per barrel flat pricing. These excellent risked returns are for primary drilling only, and do not include waterflood upside.
Additionally, Western Canadian Select (“WCS”) differentials have contracted meaningfully in the last several months, with WCS to WTI differentials currently over 20 percent tighter than the historical long term average. Surge anticipates that its Sparky play will benefit significantly from this tightening of long term WCS differentials, with cashflows, netbacks and reserve values in this premier conventional medium/light gravity crude oil asset increasing commensurately.
Management believes that Surge’s premium Sparky crude oil growth asset is unique within the Company’s entire peer group in Canada.