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SGYAdded to a long position. Great growth prospect with a small divi.... Surge Energy increases NAV to $5.47 per share 2017-02-23 14:13 ET - News Release Mr. Paul Colborne reports SURGE ENERGY INC. ANNOUNCES 2016 YEAR END RESERVES; NEW NET ASSET VALUE OF $5.47 PER SHARE; AND $3.74 PER BOE FD&A Surge Energy Inc. has provided the results of its independent reserves evaluation effective Dec. 31, 2016, as prepared by Sproule Associates Ltd. Surge is pleased to announce an increase in the company's year-end 2016 net asset value (NAV) of more than 12 per cent per share over 2015, to $5.47 per share. The company also reported that its 2016 capital program resulted in a finding, development and acquisition (FD&A) cost of $3.74 per barrel of oil equivalent (boe), on a total proved plus probable basis, including changes in undiscounted future development costs (FDC). 2016 reserves highlights Surge's focused operating strategy of utilizing growth capital to acquire, exploit and waterflood high-quality, large original oil in place, conventional, sandstone reservoirs, continues to provide excellent results, as demonstrated by the following highlights: Increased the company's 2016 NAV by 12 per cent to $5.47 per common share; Delivered an FD&A cost of $3.74 per boe, on a total proved plus probable basis, including changes in undiscounted FDC; Reported a 2016 recycle ratio of 4.61 times FD&A, on a total proved plus probable basis, with oil prices averaging $43.15 (U.S.) West Texas Intermediate (WTI) per barrel -- the lowest annual price since 2004; Lowered the company's 2016 total proved plus probable finding and development (F&D) costs by 35 per cent to $3.98 per boe, as compared with $6.08 per boe in 2015; Delivered an F&D recycle ratio of 4.34 times on proved plus probable reserves, including changes in undiscounted future development costs; Proved developed producing reserves are 81 per cent light and medium gravity crude oil plus natural gas liquids; Achieved significant, repeatable reductions in future development capital in the Sproule report, reflecting the successful execution of mono-bore drilling technology in two of Surge's three core areas; Proved developed producing reserves value increased more than 21 per cent over 2015, from $442-million to more than $537-million on an NPV 10 basis (excluding acquisitions and divestitures); Replaced more than 130 per cent of 2016 production with the addition of 6.1 million barrels of oil equivalent of proved developed producing reserves (excluding acquisitions and divestitures); Reported a 2016 recycle ratio of 1.42 times F&D, on a proved developed producing basis; Proved and probable developed producing reserves represent over 55 per cent of Surge's total reserve value on an NPV 10 basis; Only 266 of Surge's 700-well inventory have been booked in the 2016 Sproule report; this conservative booking reflects FDC of 3.51 years of estimated 2017 funds flow; Capital in the Sproule report reflects conservative drilling and completion cost estimates that are approximately 15 per cent above the company's 2016 actual costs; Based on successful results from the company's continuing waterflood pilots, waterflood reserve bookings were initiated for the Upper Shaunavon and Sparky plays -- which bookings Surge believes to be conservative. 2016 independent reserves evaluation The evaluation of the company's reserves was done in accordance with the 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). Additional reserves information as required under NI 51-101 will be included in Surge's annual information form which will be filed on SEDAR on or before March 31, 2017. Independent reserve evaluator, Sproule, evaluated 100 per cent of Surge's total net present value reserves (calculated using a discount rate of 10 per cent). Reserves summary The attached tables summarize Surge's working interest oil, natural gas liquids and natural gas reserves and the net present values of future net revenue for these reserves (before taxes) using forecast prices and costs as set forth in the Sproule report. Oil NPV of future net Crude equivalent revenue discounted at oil and Natural total NGLs (2) gas (3) reserves 5% 10% 15% Gross reserves (Mbbl) (MMcf) (mboe) ($000s) ($000s) ($000s) Proved Proved producing 23,812 33,028 29,318 673,003 553,046 472,127 Proved non-producing 1,136 1,543 1,393 23,157 19,349 16,332 Proved undeveloped 16,621 31,015 21,790 352,199 254,775 188,937 Total proved 41,569 65,587 52,501 1,048,359 827,170 667,396 Probable 26,277 33,968 31,938 693,733 474,217 350,023 Total proved plus probable 67,846 99,555 84,439 1,742,092 1,301,388 1,027,419 (1) Amounts may not add due to rounding. (2) Includes light, medium, heavy and tight oil, and natural gas liquids. (3) Includes conventional natural gas, solution gas and coal bed methane. Net asset value The company's new NAV, as of Dec. 31, 2016, is estimated to be $5.47 per share -- utilizing Sproule's most recent price forecast. Surge's Dec. 31, 2016, detailed NAV calculation is set forth in the table. NAV ($M except share amounts) Proved plus probable reserve value NPV 10 BT (incl. FDC) $1,301,000 Undeveloped land and seismic $96,000 Estimated net debt (unaudited) $(162,000) Total net assets $1,235,000 Basic shares outstanding (000s) 225,755 Fully diluted shares outstanding (000s) 235,634 Estimated NAV per basic share $5.47 Estimated NAV per fully diluted share $5.24 Reserve life index (RLI) Surge aims to create shareholder value through the efficient development of high-quality oil and natural gas assets. The profitable growth of the company's reserves, combined with the sustainable production of these reserves, will generate long-term returns for its shareholders. In 2016, the company's total proved plus probable RLI increased by 6.5 per cent to 17.9 years demonstrating the sustainability that exists between the company's capital program, its reserve additions, and its production levels. The attached table highlights Surge historical RLI. Reserve life index (years) (1) 2016 2015 2014 Total proved 11.1 10.3 9.4 Total proved plus probable 17.9 16.8 15.3 (1) Calculated based on the amount for the relevant reserves category divided by the production forecast for the applicable year prepared by Sproule. Future development costs (FDC) Future development cost estimates reflect Sproule's best estimate of the costs required to bring the total proved and proved plus probable reserves on production. The company has 42.8 mmboe of total proved and probable undeveloped reserves assigned to $435.8-million of FDC. At a cost of $10.18 per boe, these future reserves generate $578-million of net present value discounted at 10 per cent. The total FDC represents 266 booked locations of Surge's 700-location inventory. The company estimates 2016 corporate capital expenditures at $74-million (unaudited) and an additional net negative of $11-million pursuant to acquisitions and divestitures. The Sproule report also includes a change in undiscounted FDC of a negative $50-million, of which approximately 50 per cent relates to the successful proven adoption of mono-bore technology in two of Surge's three core areas. During the year, the company completed the sale of non-core Northern Alberta producing assets for gross proceeds of $28-million. Late in 2016, the company completed a $15-million strategic, core-area acquisition of prospective light oil Montney acreage directly offsetting Surge's operated Valhalla light oil asset. Excitingly, the company sees up to 12 net Montney light oil drilling locations on this acreage. This core-area acquisition also provided Surge with a strategic working interest ownership in a large sour gas processing plant in the Valhalla area. Consequently, Surge's Valhalla production base has continued to realize operational efficiencies and stabilized run times. The attached table sets forth the schedule of FDC required to develop Surge's future undeveloped reserves (using forecast prices and costs). FUTURE DEVELOPMENT COSTS Total proved Total proved plus probable ($ thousands) ($ thousands) 2017 $44,857 $63,661 2018 93,303 124,037 2019 91,803 130,312 2020 59,554 87,259 2021 18,291 30,297 Remaining 0 264 Total (undiscounted) 307,809 435,830 Total (discounted at 10%) 251,124 354,504 Reserves performance ratios Surge believes that the recycle ratio is an important measure of profitability. It is measured by dividing the unhedged operating netback by the F&D costs per boe for the year. Throughout the year, the company realized significant improvements in capital efficiencies, improving Surge's proved plus probable F&D costs by 35 per cent to $3.98 per boe, compared with $6.08 per boe in 2015. With a 2016 unhedged operating netback of $17.25 per boe, Surge delivered an F&D recycle ratio of 4.34 times on proved plus probable reserves, including changes in undiscounted future development costs. Risk management update In early 2017, the company put in place 2,000 barrels per day of physical Western Canadian Select (WCS) differential collars at $12.75 (U.S.) by $18 (U.S.) for April through to December, 2017. Surge's continuing strategic hedging program protects the execution of the company's 2017 drilling program through spring breakup, at a crude oil price level as low as $39 (U.S.) WTI, while maintaining a first half of 2017 debt-to-cash-flow ratio of under 2.0 times (for example, at that low crude oil pricing assumption). Outlook -- strong profitability at strip crude oil prices Management's stated goal at Surge is to be the best-positioned public crude oil growth and dividend-paying company in Canada. As set forth above, in 2016 Surge delivered one of the lowest all-in FD&A finding costs (including change to FDC) of any light and medium gravity crude oil company in Canada. The company's 2016 recycle ratio of 4.61 times is the best in Surge's history -- providing excellent empirical support for the company's strong profitability in the current environment for crude oil prices. This very attractive recycle ratio was accomplished with 2016 oil prices averaging $43.15 (U.S.) WTI per barrel -- the lowest annual price since 2004. Surge management believes that the company's focused operating strategy, top production efficiencies, rigorous cost controls and excellent balance sheet will allow the company to continue to outperform its peer group in the future. We seek Safe Harbor. |
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