Mr. Paul Colborne reports

SURGE ENERGY INC. ANNOUNCES THIRD QUARTER FINANCIAL & OPERATING RESULTS, AND AN OPERATIONS UPDATE ON THE LATEST DRILLING RESULTS IN SPARKY AND SE SASKATCHEWAN CORE AREAS

Surge Energy Inc. has released financial and operating results for the quarter ended Sept. 30, 2023, together with an update on Surge's latest drilling results.

Select financial and operating information is outlined herein and should be read in conjunction with the company's unaudited consolidated interim financial statements and management's discussion and analysis for the three and nine months ended Sept. 30, 2023, available on SEDAR+ and on Surge's website.

Q3 2023 financial and operating highlights

Surge's board and management continue to be optimistic regarding the outlook for crude oil prices based on a historically tight physical market, continuing geopolitical issues, as well as the significant underinvestment in the energy industry over the past several years. During Q3 2023, crude oil prices averaged approximately $82 (U.S.) WTI (West Texas Intermediate) per bbl, up from an average of approximately $74 (U.S.) WTI per bbl in Q2 2023.

During the third quarter of 2023, Surge delivered cash flow from operating activities of $71.3-million, an increase of 18 per cent compared with Q2 2023 cash flow from operating activities of $60.6-million. Additionally, the company delivered adjusted funds flow (AFF) of $86.9-million in Q3 2023, an increase of 35 per cent compared with Q2 2023 AFF of $64.6-million. Free cash flow (before dividends) of $40.0-million represented 46 per cent of AFF generated during the quarter.

In Q3 2023 Surge returned $11.9-million to its shareholders in the form of cash dividends pursuant to the company's annual base cash dividend of 48 cents per share (paid monthly) -- currently a 5.1-per-cent yield. Surge's base cash dividend payments in Q3 2023 represent 17 per cent of cash flow from operating activities, and 14 per cent of AFF, generated during the quarter.

During Q3 2023, Surge also reduced net debt by a further $25.5-million, primarily as a result of the significant free cash flow generated during the quarter. Over the first three quarters of 2023 Surge has now methodically reduced the company's net debt by $65.9-million.

Highlights from the company's Q3 2023 financial and operating results include:

• Achieved average daily production of 24,108 boepd (barrels of oil equivalent per day) (86-per-cent liquids) during Q3 2023, an increase of 13 per cent over Q3 2022 production of 21,380 boepd (86-per-cent liquids);
• Drilled 19 gross (16.3 net) wells, with activity focused on the company's Sparky and southeast (SE) Saskatchewan core areas;
• Reduced net debt by $25.5-million as compared with June 30, 2023, while concurrently completing Surge's successful Q3 2023 capital program for $43.9-million, and returning $11.9-million of cash dividends to shareholders;
• Subsequent to Q3 2023, on Oct. 19, 2023, Surge closed an oversubscribed $48.3-million bought deal financing of 8.5-per-cent convertible debentures with a syndicate of underwriters. Net proceeds from the offering will be used to finance the redemption of the company's 6.75-per-cent convertible unsecured subordinated debentures due June 30, 2024, as well as for general corporate purposes.

Operations update: continued drilling success in Sparky and SE Saskatchewan core areas

Sparky (Mannville)

During Q3 2023, Surge continued its core area Sparky development program, drilling a total of six gross (6.0 net) wells in the area.

For the first time in the company's history, Surge's Sparky core area Mannville production averaged 11,000 boepd (greater than 85-per-cent liquids; 23-degree API average crude oil gravity) during the quarter. The company has continued to systematically grow its Sparky core area production from zero boepd in 2010 to more than 11,500 boepd currently, and Surge has assembled an internally estimated 12-year development drilling inventory of more than 450 locations.

Surge's internal estimates now indicate that the company owns and controls more than one billion barrels of net original oil in place (OOIP) in its Sparky Mannville core area play trend.

In addition to consistent production growth, over the last three years Surge has drilled 17 multilateral wells in the Sparky and other Mannville formations. These multilateral wells are currently producing a combined 920 boepd, representing 8 per cent of Surge's current Sparky core area production.

During Q3 2023, the company drilled and brought on production two multilateral wells at Betty Lake and Hope Valley, producing at a combined 30-day initial production rate of 315 bopd. The multilateral well at Hope Valley is the company's first 12-leg multilateral open hole well, and management is encouraged by the initial rates from this strategic stepout well, as the well continues to clean up. Based off the success of the first two multilateral wells at Hope Valley, Surge is currently shooting a 46-square-kilometre 3-D seismic program. Following a technical interpretation of the 3-D seismic program, the company anticipates drilling follow-up multilateral development locations at Hope Valley in 2024.

Four additional multilateral Sparky wells are in Surge's drilling plan for Q4 2023 and early Q1 2024. The company has now identified over 125 multilateral locations within its Sparky (Mannville) core area.

SE Saskatchewan

During Q3 2023, Surge continued its core area SE Saskatchewan development program, drilling a total of 13 gross (10.3 net) wells in the area.

In SE Saskatchewan, Surge continues to drill some of the highest rate, light oil Frobisher wells of any operator in the province. The following chart illustrates the company's peer leading 184 bopd initial 90-day production rates (IP90) from 42 wells targeting the Frobisher formation over the last 18 months.

On average, Surge's Frobisher wells pay out in 12 weeks (at $80 (U.S.) WTI per bbl pricing), demonstrating the top-tier economics associated with the company's SE Saskatchewan drilling inventory. In Q4 2023, Surge plans to drill 12 gross (10.5 net) wells in SE Saskatchewan, all targeting the Frobisher formation.

In just over two years, Surge has grown its SE Saskatchewan core area to more than 400 million bbl (barrels) of net internally estimated OOIP, while growing production to more than 8,000 boepd (90-per-cent light oil) of high netback, light crude oil. Surge has now assembled an internally estimated seven-year drilling inventory of more than 275 net drilling locations in the Frobisher and Midale formations.

Outlook: premium asset quality drives superior returns

Surge is a publicly traded intermediate oil company focused on enhancing shareholder returns through free cash flow generation. The company's defined operating strategy is based on owning and developing high-quality, large OOIP, conventional light and medium gravity crude oil reservoirs, and using proven technology to enhance ultimate oil recoveries.

Surge has now assembled dominant operational positions in two of the top four crude oil plays in Canada in its Sparky (greater than 11,000 boepd; 85-per-cent medium gravity oil) and SE Saskatchewan (about 8,000 boepd; 90-per-cent light oil) core areas, as independently evaluated by a leading brokerage firm.

In Q4 2023, Surge will continue to execute its active drilling program in both the Sparky and SE Saskatchewan core areas. Surge remains on track to meet the company's 2023 production exit rate target of 25,000 boe per day.

Surge is well positioned to continue delivering attractive shareholder returns in 2023 and beyond, based on the following key corporate fundamentals:

• Ownership of more than 3.0 billion of net (internally estimated) OOIP; with a 7.7-per-cent recovery factor;
• Ownership of more than 120 million boe of proved plus probable reserves; long P+P (proved plus probable) reserve life index of greater than 13 years;
• Estimated 25,000 boepd 2023 exit production (87-per-cent liquids);
• 23-per-cent annual corporate decline;
• $335-million of annualized cash flow;
• $42 per boe operating netbacks (at $80 (U.S.) WTI pricing);
• $48-million annual cash dividend (48 cents per share annual dividend, paid monthly);
• More than 1,000 (net) internally estimated drilling locations providing a 13-year drilling inventory;
• $1.4-billion in tax pools (approximate four-year tax horizon at $80 (U.S.) WTI pricing);
• Total proved plus probable net asset value (NAV) of $22.37 per share and total proved NAV of $13.72 per share.

With cash flow strategically allocated between high rate of return capital expenditures, and the achievement of the company's previously announced net debt targets, management currently forecasts that the company will achieve its previously announced phase 2 return of capital net debt target in late Q1 2024 or early Q2 2024, based on current pricing.

We seek Safe Harbor.