Mr. Paul Colborne reports
SURGE ENERGY INC. ANNOUNCES 2015 YEAR END RESERVES; OPERATIONAL UPDATE; AND NEW NET ASSET VALUE OF $4.88 PER SHARE
Surge Energy Inc. has released the results of its independent reserves evaluation, effective Dec. 31, 2015, as prepared by Sproule Associates Ltd.
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 comprises 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 per cent 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 barrel of oil equivalent -- 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 totalled 85.8 million barrels (78 per cent oil and natural gas liquids) 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 barrels of oil equivalent per day.
- Surge's annual corporate decline has been confirmed by the company's independent reserve engineering firm to be 19 per cent 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 Manitoba for proceeds of $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 Dec. 31, 2015, net asset value per share is $4.88 -- utilizing the much lower crude oil price deck posted by Surge's independent engineering evaluators as set forth herein.
- Over 55 per cent of Surge's Dec. 31, 2015, total reserve value is in the proved developed producing and probable producing categories.
Year-end 2015 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.
- Total proved plus probable FDC is $378-million.
The table summarizes the company's reserves evaluated by independent reserves evaluators at Dec. 31, 2015. The Surge Sproule report was prepared in accordance with definitions, standards and procedures contained in the Canadian Oil and Gas Evaluation Handbook and National Instrument 51-101.
SUMMARY OF RESERVES
Future development capital
Oil and NGLs Gas Combined Discounted @ 10% Undiscounted
(mbbl) (mmcf) (mboe) ($M) ($M)
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 85,842 378,324 486,163SUMMARY OF BEFORE TAX NET PRESENT VALUES (FORECAST PRICING)
BEFORE-TAX NET PRESENT VALUE
(In millions)
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 probable 2,490,770 1,591,976 1,137,603 865,721 686,953
Per basic share 11.27 7.20 5.15 3.92 3.11The reserves evaluation was based on Sproule forecast pricing and foreign exchange rates at Jan. 1, 2016, as outlined in the table. The Sproule Jan. 1, 2016, forecast pricing for West Texas Intermediate oil and natural gas at AECO is $45.00 (U.S.) per barrel and $2.25 per million British thermal units, respectively.
FORECAST PRICING
Price forecast Edmonton light crude oil WTI oil AECO natural gas Foreign exchange rate
($/bbl) (US$/bbl) ($/mmbtu) (US$/$)
2016 $55.20 $45.00 $2.25 0.75
2017 69.00 60.00 2.95 0.80
2018 78.43 70.00 3.42 0.83
2019 89.41 80.00 3.91 0.85
2020 91.71 81.20 4.20 0.85
2021 93.08 82.42 4.28 0.85
2022 94.48 83.65 4.35 0.85
2023 95.90 84.91 4.43 0.85
2024 97.34 86.18 4.51 0.85
2025 98.80 87.48 4.59 0.85
2026 100.28 88.79 4.67 0.85
Thereafter 1.5%/year 1.5%/year 1.5%/year 0.85Finding and development costs, and capital program efficiency
In 2015, Surge enjoyed strong technical revisions across the company's high-quality, waterflooded, large OOIP, light/medium-gravity crude oil asset base. Layered in on top of this low base decline, Surge also delivered top-tier drilling production efficiencies (with excellent rates of return) at the company's three core properties at Shaunavon, Valhalla and Sparky.
Surge also benefited from a significant reduction in all service costs with respect to drilling and completions. This has been reflected in the reduction of future development costs assigned to booked drilling locations.
Operationally, Surge successfully executed two monobore, Sparky development wells at Eyehill. The lower well costs associated with this well design were incorporated in the estimate of FDC for all of Surge's Sparky locations.
Based on the evaluation of the company's petroleum and natural gas reserves prepared in accordance with NI 51-101 by its independent reserve evaluators, the historical efficiency of the capital programs is summarized as shown in the table.
HISTORICAL EFFICIENCY OF CAPITAL PROGRAMS
Five-year
weighted
2015 2014 average
Proved ($/boe)
F&D costs $14.03 $23.99 $20.71
FD&A costs N/a $22.88 $25.25
Proved plus probable ($/boe)
F&D costs $15.33 $29.61 $15.70
FD&A costs N/a $15.97 $17.65
Proved plus probable recycle ratio
F&D costs 1.6x 1.5x 2.3x
FD&A costs N/a 2.7x 2.0x
Including future development costs
Proved ($/boe)
F&D costs $6.67 $22.57 $26.47
FD&A costs N/a $26.66 $28.37
Proved plus probable ($/boe)
F&D costs $6.08 $25.99 $22.68
FD&A costs N/a $19.55 $21.15
Proved plus probable recycle ratio
F&D costs 3.9x 1.7x 1.6x
FD&A costs N/a 2.2x 1.7x
Operating netback per boe $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 northwest Alberta.
At Shaunavon, Surge has drilled two 100-per-cent-operated infill wells into the Upper Shaunavon formation. Both of these wells have been completed with multistage fractures and are flowing oil wells -- producing well above Surge's type curve.
At Valhalla, Surge drilled a 100-per-cent-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 metres 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 barrels of oil per day 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 Valhalla field pressures significantly. This project will also allow Surge to take up to 14 million cubic feet per day of associated sweet gas at Valhalla to nearby sweet plants -- lowering the company's processing fees from $1.25/thousand cubic feet to 60 cents/thousand cubic feet 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 Dec. 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 Dec. 31, 2015, detailed NAV calculation is set forth in the table.
DETAILED NAV CALCULATION
(In millions, except per share)
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) 221,033
Fully diluted shares outstanding (000) 227,051
Estimated NAV per basic share $4.88
Estimated NAV per fully diluted share $4.75
We seek Safe Harbor.
© 2024 Canjex Publishing Ltd. All rights reserved.