Mr. Paul Colborne reports
SURGE ENERGY INC. ANNOUNCES CLOSING OF $58 MILLION SOUTHEAST SASKATCHEWAN LIGHT OIL ACQUISITION; UPWARD REVISION TO 2022 GUIDANCE
Surge Energy Inc. has completed the previously announced acquisition of Fire Sky Energy Inc. pursuant to an amalgamation under the provisions of the Business Corporations Act (Saskatchewan).
Fire Sky acquisition closed
Surge has been advised by Fire Sky that the amalgamation was approved by 97.6 per cent of the Fire Sky shares voted at the special meeting of Fire Sky shareholders to approve the transaction, held on Oct. 27, 2021.
The purchase price payable by Surge under the transaction was $58-million, composed of: (1) the issuance of approximately 11.2 million Surge common shares; and (2) the assumption of approximately $3.0-million of Fire Sky net debt (1), inclusive of transaction costs.
Corporate outlook; upward revisision to preliminary 2022 guidance
Surge anticipates significant free cash flow (1) generation (at current strip pricing) in 2022, through consistent and disciplined development of its high-quality, conventional crude oil asset base, including Surge's premier Sparky play in Alberta, complemented by its high-operating-netback (1), light oil, southeast Saskatchewan assets.
Following the completion by Surge and Fire Sky of their respective drilling programs to date in 2021, Surge anticipates achieving its previously announced guidance for the company's 2021 exit production rate of 21,500 barrels of oil equivalent per day.
Surge confirms the company's upwardly revised financial and operational guidance for 2022, as detailed herein.
* All additional pricing assumptions (WCS (Western Canadian Select): $13.50 (U.S.), EDM: $5 (U.S.), foreign exchange: 80 cents and AECO (Alberta Energy Company): $2.50 per thousand cubic feet) remain constant. Adjusted funds flow and cash flow from operating activities assume nil change in non-cash working capital.
Following the completion of the transaction, Surge has the following operational and financial attributes:
Over 2.6 billion barrels of net combined, internally estimated, conventional OOIP (original oil in place) (2) -- with a recovery factor to date of 6 per cent;
Combined proven plus probable year-end 2020 reserves of over 100 million barrels of oil equivalent (86 per cent liquids), generating a 13-year reserve life index;
Exit 2021 production forecast of 21,500 boe per day (86 per cent liquids weighted);
Estimated base corporate decline of 26 per cent;
A development drilling inventory of over 975 net locations (internally estimated) (3), providing a development drilling inventory of more than 13 years;
Production efficiencies (2) of approximately $15,600 per boe per day (IP 180);
Shares outstanding (basic): 83.4 million;
An estimated exit 2022 net debt to annualized fourth quarter 2022 adjusted funds flow of approximately 0.6 times at $75 (U.S.) WTI (West Texas Intermediate).
National Bank Financial Inc. acted as exclusive financial adviser, and ATB Capital Markets and Scotiabank acted as strategic advisers to Surge with respect to the transaction. McCarthy Tetrault LLP acted as legal adviser to Surge with respect to the transaction.
Peters & Co. Ltd. acted as exclusive financial adviser to Fire Sky. TingleMerrett LLP acted as legal adviser to Fire Sky with respect to the transaction.
(1) This is a non-generally accepted accounting principle financial measure.
(2) Note the company's oil and gas advisories.
(3) Note the company's drilling inventory.
We seek Safe Harbor.
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