CALGARY, Jan. 14, 2019 /CNW/ – Surge Energy Inc. (“Surge” or the “Company”) (TSX: SGY) announces that its Board of Directors has formally approved the Company’s 2019 capital budget, production and operation guidance. Surge’s 2019 budget is consistent with its stated goal of delivering consistent shareholder returns through disciplined per share growth, as well as a sustainable dividend.
2019 GUIDANCE; SUSTAINABLE PRODUCTION WITH FLEXIBILITY TO GROW
Given the recent extreme volatility in both West Texas Intermediate (“WTI”) crude oil prices, and Canadian crude oil differentials, Surge has reduced its previously-announced preliminary 2019 capital budget from $160 million to $135 million. This reduction provides substantial flexibility to react to changing commodity prices, while allowing the Company to continue to deliver its sustainable dividend to shareholders. Surge’s first half 2019 capital budget targets an all-in payout ratio1 of less than 100 percent at current strip commodity prices2.
The Company’s 2019 capital budget will be focused on the continued development of its extensive portfolio of low-risk, large-OOIP3, light and medium gravity crude oil assets. Surge will execute this plan, while maintaining the Company’s low 23 percent corporate decline rate, and Surge’s estimated $130 million4 of credit availability. On the Company’s approved 2019 capital program of $135 million, Surge expects to deliver more than 20 percent growth in average production over 2018, with an average production rate of 22,000 boepd for 2019.
Surge will continue to monitor the impact of Canadian crude oil prices, the Alberta government production curtailments, as well as the advancement of export pipelines, and will be prepared to adjust the Company’s 2H 2019 capital program, as required.
Surge’s 2H 2019 capital spending forecast has further flexibility to be increased by an additional $25 million of exploration and development capital, if the outlook for Canadian crude oil pricing and egress improves. The decision to spend this incremental capital will be made by Surge’s Board of Directors prior to the end of Q2 2019. The additional capital would allow Surge to achieve a five percent exit growth rate for the year, exiting 2019 at over 23,000 boepd.
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1 This is a capital management measure which is defined in the Non-GAAP Financial Measures and Capital Management Measures section of this document |
2019 CAPITAL EXPENDITURE DETAILS
Capital Category |
2019 Total |
Drilling and completions |
$100 million |
Facilities, equipment and pipelines |
$25 million |
Other (land, seismic, G&A) |
$10 million |
Total exploration and development capital |
$135 million |
PRODUCTION AND COST GUIDANCE
2019e Average Production |
22,000 boepd (84% liquids) |
2019e Exit Production* |
22,000 boepd (84% liquids) |
2019e Operating Costs |
$15.45-$15.95 per boe |
2019e Transportation Costs |
$1.50-$1.75 per boe |
2019e General & Administrative Costs |
$1.75-$1.90 per boe |
*Note: Exit 2019 production growth would increase by five percent if the Company elects to increase its total 2019 capital budget by $25 million, and add an estimated 1,000 boepd of production in Q4 2019 |
OPERATIONAL HIGHLIGHTS
During the fourth quarter of 2018, the Company drilled 14 (net) wells distributed across Surge’s four core areas. Eight (net) of these wells were completed in Q4 2018, while the remainder will be coming on production early in Q1 2019.
Of note, the Company drilled and rig released its first two light oil wells in the newly acquired Greater Sawn area. In the Sparky core area, Surge drilled its first infill horizontal well in the operated Sparky MM pool. This well was in close proximity to multiple legacy vertical producers, and is currently onstream at 130 boepd after 30 days. This exciting result further supports Surge’s large Sparky core area drilling inventory of over 400 (net) internally estimated drilling locations5.
With the significant decline in commodity prices in Q4 2018, the Company has taken proactive measures to manage its assets and maximize cash flow from operating activities. As such, approximately 600 boepd of production has been restricted due to individual well economics, or delayed maintenance activities. These restrictions are expected to be in place until commodity prices recover to normalized levels.
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5 See Drilling Locations in the Forward Looking Statement section of this document. Of the 400 net internally estimated drilling locations 97 net locations are booked |
2019 OUTLOOK – SUSTAINABLE GROWTH, LONG TERM VALUE, INCOME
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 two and a half years Surge has continued to build and maintain the Company’s track record, delivering:
- consistent successful drilling and waterflood results;
- timely and accretive core area acquisitions;
- increased production over the last 10 financial quarters by more than 80 percent (84 percent oil and NGL’s);
- increased cash flow from operating activities per share by over 125 percent; and
- increased Surge’s dividend three times by a cumulative 33 percent, while maintaining a dividend payout ratio6 of under 20 percent.
On a very positive note, following the completion of several large refinery turn-arounds in the US refining complex in late 2018, significant increases in crude-by-rail exports from Canada, as well as the Alberta government curtailment order, Canadian crude oil prices have increased dramatically in the last few weeks. Western Canadian Select crude oil prices have now increased by over 550 percent, rising from an average of C$8.00 per barrel in December 2018, to over C$55/bbl7 recently.
Furthermore, following the December 2018 OPEC production cuts of 1.2 million barrels per day, WTI crude oil prices have shown significant strength of late; rising over US$9 per barrel, up from low of US$42.46 per barrel in December 2018 to over US$52 per barrel currently.
During these times of volatile commodity prices, the Company continues to focus on sustainability, balance sheet management, and cost controls to deliver consistent returns to Surge shareholders. Surge will also continue to manage its asset base in order to be positioned for growth when commodity prices recover to normalized levels.