Mr. Paul Colborne reports

SURGE ENERGY INC. ANNOUNCES RECORD ANNUAL PRODUCTION IN 2023; FOURTH QUARTER AND YEAR END FINANCIALS FOR 2023; 2023 YEAR END RESERVES

Surge Energy Inc. has released its financial and operating results for the quarter and year ended Dec. 31, 2023; and its year-end 2023 reserves as independently evaluated by Sproule Associates Ltd.

Surge's disciplined operating strategy involves focusing growth and development capital to high netback, low cost, light and medium gravity crude oil reservoirs, that possess large original oil in place (OOIP) and low recovery factors.

In Q4 2023 Surge achieved an average production rate of 25,050 boepd (barrels of oil equivalent per day) (86 per cent liquids), exceeding the company's 2023 public guidance production exit rate of 25,000 boepd. Additionally, Surge achieved record annual production in 2023 of 24,438 boe/d (86 per cent liquids), an increase of 15 per cent over 2022 average production of 21,262 boepd.

Financial and operational highlights

Surge's board and management are pleased to report that the company organically generated free cash flow before dividends (FCF) of $94-million in 2023, representing 35 per cent of 2023 cash flow from operating activities.

Additional financial and operating highlights for the quarter and year ended Dec. 31, 2023, include:

• Generated cash flow from operating activities of $79.7-million in Q4 2023;
• Reduced net debt by over $62-million in 2023 to $290.1-million, a decrease of 18 per cent;
• Distributed cash dividends to shareholders in the amount of $46.8-million in 2023;
• Reduced net operating expenses by $2.36 per boe over the course of 2023, from $22.26 per boe in Q1 2023 to $19.90 per boe in Q4 2023. This represents an 11-per-cent decrease in net operating expenses over the year;
• Repaid in full Surge's $47.9-million first lien term loan facility that was set to mature in December, 2024;
• Completed a new, oversubscribed, $48.3-million unsecured convertible debenture financing, with an attractive 8.50-per -cent interest rate;
• Finalized the early redemption of $34.5-million of previously issued unsecured convertible debentures that were set to mature on June 30, 2024 with no prepayment penalty;
• Executed a successful 2023 drilling program of 70 gross (64.5 net) wells, strategically focused on light and medium gravity crude oil in the company's conventional southeast Saskatchewan and Sparky core areas;
• Continued the company's focus on ESG (environmental, social and governance) efforts, highlighted by spending a total of $15.6-million on abandonment activities during the year. This resulted in Surge abandoning 132 gross wells during 2023, representing 1.9 wells abandoned for each new gross well drilled in 2023.

2023 year-end reserves highlights

Surge is pleased to announce the results of the independent reserves evaluation of the company's crude oil and natural gas assets, dated Feb. 9, 2024, and effective Dec. 31, 2023, in compliance with National Instrument 51-101 -- Standards of Disclosure for Oil and Gas Activities (NI 51-101) and in accordance with the Canadian Oil and Gas Evaluation Handbook (the reserve report).

Building off of the successful 2023 drilling program in the company's Sparky and SE Saskatchewan core areas, Surge continued to delineate and improve the company's reserve base through pool extensions, establishing new development fields and new exploration/appraisal drilling over the year.

Surge management is pleased to report that, even after giving effect to increases in industry wide inflationary cost estimates, and a reduction in Sproule's crude oil price deck, the company's 2023 total proved net asset value (TP NAV) is $11.27 per basic share. The company's new TP NAV includes 397 net booked locations of Surge's more than 1,000 net internally identified drilling locations. This new TP NAV is approximately 65-per-cent higher than Surge's current trading price of $6.92 per share.

With Surge's Dec. 31, 2023, reserve report, the company delivered the following:

• 117 million boe of total proved and probable (TPP) reserves;
• High oil weighting, with proved developed producing (PDP) reserves comprising 88 per cent light and medium oil and natural gas liquids, and TPP reserves comprised of 86 per cent light and medium oil and natural gas liquids;
• 543 gross (489 net) booked TPP drilling locations; 70 per cent of these locations are located in the company's Sparky and southeast Saskatchewan core areas;
• Reported a TPP NAV of $17.63 per basic share;
• Generated a TP NAV of $11.27 per basic share;
• Confirmed a PDP NAV of $5.66 per basic share;
• Delivered a TP finding, development and acquisition (FD&A) cost of $21.59/boe;
  • 1.8 times recycle ratio on a 2023 operating netback of $39.07/boe (before realized losses on financial contracts).
• Reported a strong reserve life index of 12.8 years on TPP reserves, 9.3 years on TP reserves and 4.7 years on PDP reserves;
• Replaced 102 per cent of production on a TP basis, and 80 per cent of production on a PDP basis;
• Total proved undeveloped (PUD) reserve net locations increased to 397 net, an increase of 31 locations over last year. All additional PUD locations were added in the Sparky and southeast Saskatchewan core areas.

Operations update

During 2023, Surge successfully drilled a total of 70 gross (64.5 net) wells spending a total of $181.6-million including expenditures on land, facilities and equipment. The company focused drilling operations primarily on its light and medium gravity crude oil assets in the Sparky and SE Saskatchewan core areas.

The 2023 drilling program consisted of 35 gross (35.0 net) wells in the Sparky core area and 35 gross (29.5 net) wells in SE Saskatchewan. Included in the Sparky drilling program were three gross (3.0 net) multilateral wells in Betty Lake, Hope Valley and Provost. The SE Saskatchewan drilling program was focused in the Frobisher formation -- with 31 gross (26.5 net) wells. Ninety per cent of the wells targeting the Frobisher formation (28 gross wells) were stacked multilateral wells.

In Q4 2023 Surge achieved an average production rate of 25,050 boepd (86 per cent liquids), exceeding the company's 2023 public guidance production exit rate of 25,000 boepd. Additionally, Surge achieved record annual production in 2023 of 24,438 boe/d (86 per cent liquids), an increase of 15 per cent over 2022 average production of 21,262 boepd.

The company achieved record annual production volumes in both its Sparky and SE Saskatchewan core operating areas in 2023. Sparky annual volumes grew 23 per cent to average 2023 production of more than 10,900 boepd, and SE Saskatchewan annual volumes increased 45 per cent to an average 2023 production level of 7,750 boepd.

During 2023, Surge safely executed eight operated gas plant and oil battery turnarounds at Valhalla, Provost, Betty Lake, Lakeview and Steelman. In addition, the company experienced four additional turnarounds at facilities operated by third parties (including the Sexsmith, Keyera, Steel Reef and TCPL gas plant turnarounds). Although several of these turnarounds were budgeted for by the company, the impact of the unscheduled turnarounds, in addition to non-core dispositions, reduced production for 2023 by approximately 450 boepd.

Surge has continued the company's operational momentum into early 2024, with four drilling rigs active in its Sparky and SE Saskatchewan core areas. Surge plans to drill 70 gross (70.0 net) wells in 2024, comprising 37 gross (37.0 net) Sparky wells and 33 gross (33.0 net) SE Saskatchewan wells, with total capital expenditures budgeted at $190-million.

In the Sparky core area, Surge's 2024 capital program will consist of 25 gross (25.0 net) net single-leg frac'ed Sparky horizontal wells, eight gross (8.0 net) net multileg Sparky wells and four gross (4.0 net) horizontal wells in the Lloydminster formation. In 2024, management is focused on the continued growth of Surge's multilateral well footprint in the Mannville stack, with approximately 30 per cent of drilling capital directed to multilateral development.

The company commenced Surge's winter drilling program in December of 2023, and has now completed the drilling of 14 gross (14.0 net) Sparky locations and 15 gross (14.5 net) wells in SE Saskatchewan. All wells from both the Q1 2024 Sparky and SE Saskatchewan drilling programs are anticipated to be completed and on production prior to March 31, 2024.

2023 year-end reserves

The company's reserves were independently evaluated by Sproule in accordance with National Instrument 51-101 -- Standards of Disclosure for Oil and Gas Activities (NI 51-101) effective Dec. 31, 2023. Surge's annual information form (the AIF) for the year ended Dec. 31, 2023, contains Surge's reserves data and other oil and natural gas information as mandated by NI 51-101.

The attached tables summarize Surge's working interest oil, natural gas liquids and natural gas reserves, and the net present values (NPV) of future net revenue for these reserves (before taxes) using forecast prices and costs as evaluated in the Sproule reserves report. The evaluation is based on Sproule's forecast pricing and exchange rates at Dec. 31, 2023, which is available on its website. All references to reserves in this release are to gross company reserves, meaning Surge's working interest reserves before deductions of royalties and before consideration of the company's royalty interests. The amounts in the attached tables may not add due to rounding.

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 11,500 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. Over 80 per cent of the company's current production and TPP NAV now comes from these two core areas.

In the first half of 2024, Surge continues to execute an active drilling program in both the Sparky and SE Saskatchewan core areas, with 29.7 net wells budgeted to be drilled.

Surge is well positioned to continue delivering attractive shareholder returns in 2024 and beyond, based on the following key corporate fundamentals:

• Ownership of more than 3.1 billion of net (internally estimated) OOIP; with an estimated 7.7 per cent recovery factor;
• Estimated 2024 average production 0f 25,000 boepd (87 per cent liquids);
• Estimated 24-per-cent annual corporate decline;
• Estimated 2024 cash flow from operating activities of $295-million;
• $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;
• $1.2-billion in tax pools (approximate four-year tax horizon at $75 (U.S.) WTI (West Texas Intermediate) pricing);
• Total proved plus probable net asset value (NAV) of $17.63 per share and total proved NAV of $11.27 per share.

With cash flow strategically allocated between high rate of return capital expenditures, debt repayment and cash dividends paid to shareholders, management currently forecasts that the company will achieve its previously announced phase 2 return of capital net debt target in H2 2024, based on current crude oil pricing.

We seek Safe Harbor.