CALGARY, Feb. 8, 2016 /CNW/ – Surge Energy Inc. (“Surge” or the “Company”) announced the results of its independent reserves evaluation (the “Surge Sproule Report”) effective December 31, 2015 as prepared by Sproule Associates Limited (“Sproule”).
Surge delivered record results with respect to the Company’s 2015 year end reserves finding and development costs.
Surge’s focused operating strategy of utilizing capital to acquire, exploit and waterflood high quality reservoirs continues to provide excellent results. A large percentage of Surge’s current production base is comprised of high netback, large original oil in place (“OOIP”), crude oil reservoirs – with top tier development production efficiencies. These factors have contributed to a continued reduction in Surge’s annual corporate decline rate to 19 percent today.
Excellent drilling results, reductions in future development costs, and strong positive technical revisions across the Company’s high quality asset base have allowed Surge to deliver the lowest “all-in” finding and development costs in the Company’s six year history.
HIGHLIGHTS
- Surge’s “all-in” proved plus probable finding and development costs (including changes in future development capital (“FDC”)) for 2015 were $6.08 per boe – for predominantly light and medium gravity crude oil;
- Surge’s “all-in” proved plus probable producing finding and development costs for wells drilled in 2015 were $7.95 per boe;
- Year end 2015 reserves totaled 85.8 million barrels (78 percent oil and NGL’s) of proved plus probable reserves, which provides a reserve life index of greater than 16 years based on the Company’s budgeted 2016 average production rate of 14,000 boepd;
- Surge’s annual corporate decline has been confirmed by the Company’s independent reserve engineering firm to be 19 percent for proved developed producing and probable producing reserves;
- Based on Surge’s 2015 unhedged operating netback of $16.63 per boe, the Company generated a recycle ratio of 2.7 times for 2015 proved plus probable reserve additions;
- Utilizing Surge’s 2015 hedged operating netback of $23.81 per boe, the Company generated a recycle ratio of 3.9 times for 2015 proved plus probable reserve additions;
- In the first half of 2015, Surge closed the sale of several producing oil and gas properties located in Saskatchewan and Manitobafor proceeds of C$465 million to strategically position the Company’s balance sheet for a “lower for longer” scenario for crude oil prices. Surge sold approximately 5,200 boepd and 24.9 million boe of proven plus probable reserves, at metrics of approximately$90,000 per flowing boepd, and $18.69 per boe for proved plus probable reserves;
- Surge’s December 31, 2015 net asset value (“NAV”)1 per share is $4.88 – utilizing the much lower crude oil price deck posted by Surge’s independent engineering evaluators as set forth herein; and
- Over 55 percent of Surge’s December 31, 2015 total reserve value is in the proved developed producing and probable producing categories.
2015 YEAR END RESERVES
Highlights
- Surge drilled 15 wells in 2015, at a capital cost of $36.6 million, adding 4.6 million boe – providing a simple finding and development cost of $7.95 per boe (proved developed producing and probable producing reserves);
- Waterflood and improved recovery factors added 1.4 million boe (total proved plus probable reserves);
- Surge now books 224 total net undeveloped locations in the Company’s proved plus probable reserves category – out of a large inventory of 757 net locations. Of the booked locations, 59 are in the Upper Shaunavon play (an increase of 22 net locations) as a result of Surge’s very successful 2015 development drilling program; and
- Total proved plus probable FDC2 is $378 million.
The following table summarizes the Company’s reserves evaluated by independent reserves evaluators at December 31, 2015. The Surge Sproule Report was prepared in accordance with definitions, standards and procedures contained in the Canadian Oil and Gas Evaluation Handbook (“COGE Handbook”) and National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities (“NI 51-101”).
Summary of Reserves3 |
|||||
Oil and NGLs (mbbls) |
Gas (mmcf) |
Combined (mboe) |
Future Development Capital (FDC) ($M) |
||
Discounted @ 10% |
Undiscounted |
||||
Proved Developed Producing |
24,121 |
36,369 |
30,182 |
1,122 |
1,186 |
Proved Developed Non-Producing |
1,115 |
3,289 |
1,663 |
2,107 |
2,353 |
Proved Undeveloped |
15,104 |
34,955 |
20,930 |
246,951 |
313,097 |
Total Proved |
40,340 |
74,612 |
52,775 |
250,180 |
316,636 |
Probable Additional |
26,559 |
39,045 |
33,067 |
128,144 |
169,527 |
Total Proved plus Probable |
66,899 |
113,658 |
85,842 |
378,324 |
486,163 |
Summary of Before Tax Net Present Values (Forecast Pricing) |
|||||
As at December 31, 2015 |
|||||
BEFORE TAX NET PRESENT VALUE ($M) |
|||||
Discount Rate |
|||||
DESCRIPTION |
0% |
5% |
10% |
15% |
20% |
Proved Developed Producing |
839,764 |
617,465 |
489,636 |
406,465 |
348,017 |
Proved Developed Non-Producing |
38,564 |
31,004 |
25,435 |
21,251 |
18,040 |
Proved Undeveloped |
446,255 |
296,273 |
202,178 |
140,885 |
99,408 |
Total Proved |
1,324,583 |
944,742 |
717,249 |
568,601 |
465,465 |
Probable Additional |
1,166,187 |
647,234 |
420,354 |
297,120 |
221,488 |
Total Proved plus Probable4 |
2,490,770 |
1,591,976 |
1,137,603 |
865,721 |
686,953 |
Per basic share |
11.27 |
7.20 |
5.15 |
3.92 |
3.11 |
The reserves evaluation was based on Sproule forecast pricing and foreign exchange rates at January 1, 2016 as outlined below. The Sproule January 1, 2016 forecast pricing for West Texas Intermediate (“WTI”) oil and natural gas at AECO are US$45.00 per bbl andC$2.25 per MMBtu respectively.
Price Forecast |
Edmonton Light Crude Oil |
WTI Oil |
AECO Natural Gas |
Foreign Exchange Rate |
(CDN$/bbl) |
(US$/bbl) |
(CDN$/mmbtu) |
(US$/CDN$) |
|
2016 |
55.20 |
45.00 |
2.25 |
0.75 |
2017 |
69.00 |
60.00 |
2.95 |
0.80 |
2018 |
78.43 |
70.00 |
3.42 |
0.83 |
2019 |
89.41 |
80.00 |
3.91 |
0.85 |
2020 |
91.71 |
81.20 |
4.20 |
0.85 |
2021 |
93.08 |
82.42 |
4.28 |
0.85 |
2022 |
94.48 |
83.65 |
4.35 |
0.85 |
2023 |
95.90 |
84.91 |
4.43 |
0.85 |
2024 |
97.34 |
86.18 |
4.51 |
0.85 |
2025 |
98.80 |
87.48 |
4.59 |
0.85 |
2026 |
100.28 |
88.79 |
4.67 |
0.85 |
Thereafter |
1.5%/year |
1.5%/year |
1.5%/year |
0.85 |
FINDING AND DEVELOPMENT COSTS AND CAPITAL PROGRAM EFFICIENCY
In 2015 Surge enjoyed strong technical revisions across the Company’s high quality, waterflooded, large OOIP, light/medium gravity crude oil asset base. Layered in on top of this low base decline, Surge also delivered top tier drilling production efficiencies (with excellent rates of return) at the Company’s three core properties at Shaunavon, Valhalla and Sparky.
Surge also benefited from a significant reduction in all service costs with respect to drilling and completions. This has been reflected in the reduction of future development costs assigned to booked drilling locations.
Operationally, Surge successfully executed two mono-bore, Sparky development wells at Eyehill. The lower well costs associated with this well design were incorporated in the estimate of FDC for all of Surge’s Sparky locations.
Based on the evaluation of our petroleum and natural gas reserves prepared in accordance with NI 51-101 by our independent reserve evaluators, the historical efficiency of our capital programs is summarized as follows:
Five Year |
||||
2015 |
2014 |
Weighted |
||
Average |
||||
Excluding Future Development Costs |
||||
Proved ($/boe) |
||||
F&D costs5 |
$14.03 |
$23.99 |
$20.71 |
|
FD&A costs6 |
N/A |
$22.88 |
$25.25 |
|
Proved plus probable ($/boe) |
||||
F&D costs5 |
$15.33 |
$29.61 |
$15.70 |
|
FD&A costs6 |
N/A |
$15.97 |
$17.65 |
|
Proved plus Probable Recycle ratio |
||||
F&D costs5 |
1.6x |
1.5x |
2.3x |
|
FD&A costs6 |
N/A |
2.7x |
2.0x |
|
Including Future Development Costs2 |
||||
Proved ($/boe) |
||||
F&D costs5 |
$6.67 |
$22.57 |
$26.47 |
|
FD&A costs6 |
N/A |
$26.66 |
$28.37 |
|
Proved plus probable ($/boe) |
||||
F&D costs5 |
$6.08 |
$25.99 |
$22.68 |
|
FD&A costs6 |
N/A |
$19.55 |
$21.15 |
|
Proved plus Probable Recycle ratio7 |
||||
F&D costs5 |
3.9x |
1.7x |
1.6x |
|
FD&A costs6 |
N/A |
2.2x |
1.7x |
|
Operating netback per boe7 |
$23.81 |
$43.18 |
$35.51 |
OPERATIONAL UPDATE
In the first quarter of 2016 Surge budgeted for the drilling of three wells, and the completion of the Company’s new pipeline/compression project at Valhalla in NW Alberta.
At Shaunavon, Surge has drilled two 100 percent operated infill wells into the Upper Shaunavon formation. Both of these wells have been completed with multi-stage frac’s and are flowing oil wells – producing well above Surge’s type curve.
At Valhalla, Surge drilled a 100 percent working interest Doig infill well at the northern extension of the Company’s 160 million barrel OOIP, operated light oil pool. The well was drilled to 1,100 meters in horizontal length, and will be completed in the next few days with 17 frac stages. The well will be on production in early February.
Based on these continued excellent development drilling results, Surge anticipates adding over 1,200 bopd of light/medium net crude oil production from the first quarter of 2016 drilling program for a total capital expenditure of less than $6.9 million.
The Valhalla pipeline/compression project will be completed by the end of February, 2016 and will allow Surge to lower the Valhallafield pressures significantly. This project will also allow Surge to take up to 14 mmcf/d of associated sweet gas at Valhalla to nearby sweet plants – lowering the Company’s processing fees from $1.25/mcf to $0.60/mcf, and substantially reducing downtime at this core asset.
NEW NET ASSET VALUE
In the third quarter of 2015 Surge provided shareholders with an estimate of the Company’s NAV of $4.64 per share – utilizing Sproule’s lower third quarter 2015 price deck for crude oil and natural gas.
Surge’s new NAV, as of December 31, 2015, is estimated to be $4.88 per share – utilizing a much lower price deck than that used by Sproule in the third quarter of 2015.
Surge’s December 31, 2015 detailed NAV calculation is set forth below:
NAV ($M except share amounts) |
||
Proved Plus Probable Reserve Value NPV10 BT (incl. FDC) |
$ |
1,137,614 |
Undeveloped Land and Seismic |
$ |
105,977 |
Estimated Net Debt (unaudited) |
$ |
(164,000) |
Total Net Assets |
$ |
1,079,591 |
Basic Shares Outstanding (000’s) |
221,033 |
|
Fully Diluted Shares Outstanding (000’s) |
227,051 |
|
Estimated NAV per Basic Share |
$ |
4.88 |
Estimated NAV per Fully Diluted Share |
$ |
4.75 |