Surge Announces Upward Revision to 2014 Guidance, and 11 Percent
Increase in Dividend
Under the Arrangement, which was approved by Longview shareholders by a
99.9% majority, Longview shareholders received 0.975 of a Surge common
share for each Longview common share resulting in the issuance of
approximately 38 million Surge common shares (Surge share price of
As a result of the highly accretive Longview acquisition, Surge's Board
of Directors have now approved an 11 percent increase in the Company's
annual dividend from
STRATEGIC, ACCRETIVE TRANSACTION
The Longview acquisition fits squarely within Surge's defined operating
strategy of investing growth capital to acquire high quality, operated,
light and medium gravity crude oil reservoirs, with large original oil
in place ("OOIP"1) and low recovery factors. Surge now has over 1.9 billion barrels of
light and medium gravity OOIP under the Company's ownership and
management, more than 1,000 lower risk development drilling locations,
and a portfolio of high quality waterflood projects.
The Longview acquisition also fits very well with Surge's
dividend-paying growth business model, as Longview's high netback
properties possess a low annual decline of 19 percent, which provides
significant annual free cash flow to Surge for distribution to
Longview's assets fit seamlessly into Surge's core areas, including: the
Midale Marly light oil play trend in
The Longview acquisition is highly accretive to Surge shareholders on
all metrics, including funds flow, production and reserves per share
basis. In particular, this transaction was 22 percent accretive to Surge's
proved plus probable reserves per share, based on each parties'
As a result of the closing of the Arrangement, based upon the parties'
The following sets forth the metrics with respect to the acquisition of Longview:
1. Purchase Price:
The purchase price for Longview is
a) 38 million shares of Surge (Surge share price of
c) 9.3 million shares of Longview purchased at
2. Long Life Oil Reserves:
Longview's assets provide independently engineered Proven and Probable (P+P) reserves of: 37.6 million boe (80 percent oil and NGLs).
Reserve acquisition metrics for the Longview acquisition are:
Based on current production, the Longview reserves have a long reserve life index of approximately 18 years (P+P).
3. Light/Medium Oil Production:
Current production relating to the Longview acquisition is greater than 5,700 boepd, comprised of more than 80% oil.
On this basis, Surge is paying approximately
4. Low Decline:
The Longview properties have an estimated annual corporate production decline rate of 19 percent. Accordingly, Surge now has an estimated 22 percent annual corporate decline rate, one of the lowest in its peer group in
5. Annual Funds Flow:
Annual funds flow for Longview based on guidance pricing (as set out below) and using current production levels is estimated to be
Based on current production and using guidance pricing (as set out below), Surge estimates that the Company is paying approximately 4.8 times annualized funds flow for Longview.
6. Cost Savings and Synergies:
Surge anticipates achieving substantial operating cost reductions on the Longview properties. In addition, Surge is now forecasting combined general and administrative expenses of
7. Exciting Upside:
Surge has identified 166 gross (115 net) low risk development drilling locations on the Longview lands, the most significant of which are an additional 60 locations in the very active, light oil,
8. Producing Infrastructure:
The Longview acquisition includes key producing infrastructure, including batteries, pipelines, and waterflood facilities.
9. Undeveloped Land:
Longview has approximately 143,600 net acres of undeveloped land, of which 50,800 acres (83 sections) are fee lands located in south east
10. Operatorship and High Working Interests:
The Longview production is 83 percent operated, and the average working interest in the assets is greater than 75 percent.
UPWARD REVISION TO GUIDANCE
The following sets forth Surge's upwardly revised guidance estimates.
|Surge New Guidance||Previous Guidance|
|2014E Exit Production (boe/d)||21,350 (84% Oil/NGLs)||16,550 (84% Oil/NGLs)|
|RLI||>15 years based on 2014E exit production||>12.5 years based on 2014E Q1 production|
|2014E Capital Spending|
|2014E Wells Drilled||63/40.5 gross/net wells3||39/37.1 gross/net wells|
|Surge 2014E Guidance4,5,6||Previous 2014E Guidance4,7,8|
|Annualized Funds from Operations ("FFO")9|
|2014E Operational Netback|
|2014E Cash Flow Netback|
|Basic Shares Outstanding||217 million||179 million|
|Basic Payout Ratio 2014E||41.9%||40.3%|
|"All-in" Payout Ratio||89.8%||88.4%|
|2014E Exit Net Debt|
|Annualized Net Debt to FFO10||1.48x||1.12x|
In accordance with Surge's upwardly revised guidance set forth above, with a low "all-in" payout ratio of less than 90 percent, the Company's debt will be reduced by a forecast of more than
INCREASE DIVIDEND, DIRECTOR ADDITION AND OUTLOOK
As a result of the accretive Longview acquisition, Surge's Board of Directors has approved an 11 percent increase in the Company's annual dividend from
In conjunction with the Longview transaction, Surge has appointed Mr.
For the remainder of 2014 Surge will continue to focus growth capital
towards its high quality, large OOIP, light and medium gravity crude
With world crude oil prices well over US
Today, Surge has one of the highest-quality asset bases of any light oil
Surge has high, top decile netbacks, and a very low, lean cost
structure. The Company has an excellent balance sheet with over
Surge currently has more than a 10 year, low risk development drilling
inventory, together with a suite of excellent waterflood projects.
Management's low-risk business model and operating strategy calls for
4% per share annual growth in reserves, production and cashflow, plus a solid, sustainable, increasing dividend which is currently at 8.6%
annually. In addition, Surge has a very low "all-in" sustainability
ratio, which reduces debt each year and increases net asset value.
Management's goal is to deliver a 12 to 14 percent annualized total rate
of return - with an increasing, compounding dividend - over the long
Surge is an oil-weighted production and development company with high
quality, large OOIP, crude oil reservoirs. Management is focused on
delivering to its shareholders solid per share organic growth,
sustainable monthly dividends, and further growth through accretive
acquisitions of additional elite oil reservoirs. For further
information visit our website at www.surgeenergy.ca.
FORWARD LOOKING STATEMENTS:
This press release contains forward-looking statements. More
particularly, this press release includes, without limitation,
forward-looking statements concerning: (i) anticipated operating cost
reductions on the Longview properties; (ii) Surge's number of drilling
locations and drilling, development and waterflood opportunities, (iii)
estimated production decline rates, (iv) Longview's estimated annual
funds flow; (v) the estimated 2014 exit production rate of Surge; (vi)
estimated 2014 capital expenditures and drilling activity; (vii)
estimated Q4 2014 annualized funds flow from operations, (viii)
estimated 2014 operational and cash flow netback, (ix) estimated 2014
exit net debt, * estimated ratio of 2014 net debt to Q4 2014
annualized cash flow, (xi) forecast annual reductions in Surge's debt,
(xii) targeted rates of growth in reserves, production and cash flow,
(xiii) the sustainability of and potential for increases in Surge's
dividend, and (xiv) targeted annualized rates of total return.
The forward-looking statements contained in this press release are based
on certain key expectations and assumptions made by Surge, including,
but not limited to, expectations and assumptions concerning the success
of future drilling, development and completion activities, the
performance of existing wells, the performance of new wells, the
viability of waterflood projects, the availability and performance of
facilities and pipelines, the geological characteristics of Surge's
properties, the successful application of drilling, completion and
seismic technology, prevailing weather conditions, commodity prices,
royalty regimes and exchange rates, the application of regulatory and
licensing requirements and the availability of capital, labour and
services. Although Surge believes that the expectations and assumptions
on which the forward-looking statements are based are reasonable, undue
reliance should not be placed on the forward-looking statements because
Surge can give no assurance that they will prove to be correct.
Since forward-looking statements address future events and conditions,
by their very nature they involve inherent risks and uncertainties.
Actual results could differ materially from those currently anticipated
due to a number of factors and risks. These include, but are not
limited to, risks associated with the oil and gas industry in general
(e.g., operational risks in development, exploration and production;
delays or changes in plans with respect to exploration or development
projects or capital expenditures; the uncertainty of reserve estimates;
the uncertainty of estimates and projections relating to production,
costs and expenses, and health, safety and environmental risks),
commodity price and exchange rate fluctuations and uncertainties
resulting from potential delays or changes in plans with respect to
exploration or development projects or capital expenditures. Certain of
these risks are set out in more detail in Surge's Annual Information
Form which has been filed on SEDAR and can be accessed at www.sedar.com.
The forward-looking statements contained in this press release are made
as of the date hereof and Surge undertakes no obligation to update
publicly or revise any forward-looking statements or information,
whether as a result of new information, future events or otherwise,
unless so required by applicable securities laws.
Note: Boe means barrel of oil equivalent on the basis of 1 boe to 6,000
cubic feet of natural gas. Boe may be misleading, particularly if used
in isolation. A boe conversion ratio of 1 boe for 6,000 cubic feet of
natural gas is based on an energy equivalency conversion method
primarily applicable at the burner tip and does not represent a value
equivalency at the wellhead. Boe/d means barrel of oil equivalent per
Neither the TSX nor its Regulation Services Provider (as that term is
defined in the policies of the TSX) accepts responsibility for the
adequacy or accuracy of this release.
1 Original Oil in Place (OOIP) is the equivalent to
2 Calculated based on the before tax net present value of combined reserves, discounted at 10%, plus the estimated value of undeveloped land and less current net debt and working capital deficiency.
3 Includes 20 farmed out Viking locations at an average net working interest of 20%.
4 Management uses funds from operations (cash flow from operations before changes in non-cash working capital, legal settlement expenses, transaction costs and current tax on disposition) to analyze operating performance and leverage. Funds from operations as presented does not have any standardized meaning prescribed by IFRS and, therefore, may not be comparable with the calculation of similar measures for other entities.
5 Based on a Surge share price of
6 Based on 2014 Edmonton Par
7 Based on 2014 Edmonton Par
8 Based on a Surge share price of
9 Assumes a four percent growth rate on exit 2014 production of 21,350 boe/d and the annualized Q4 2014 FFO of
10 Assumes the annualized FFO per note 9, including repayment of debt with excess cashflow of