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Surge Energy Inc (2)
Symbol SGY
Shares Issued 83,355,987
Close 2021-11-03 C$ 5.13
Recent Sedar Documents

Surge Energy earns $67.61-million in Q3

2021-11-03 19:28 ET - News Release

Mr. Paul Colborne reports

SURGE ENERGY INC. ANNOUNCES THIRD QUARTER FINANCIAL & OPERATING RESULTS

Surge Energy Inc. has released its financial and operating results for the quarter ended Sept. 30, 2021.

The company's financial and operating results for the third quarter of 2021 include only a partial quarter of operational and financial contribution from the previously announced acquisition of Astra Oil Corp., which closed on Aug. 18, 2021. Additionally, Surge's financial and operating results for the third quarter of 2021 include no impact from the previously announced acquisition of Fire Sky Energy Inc., which closed on Nov. 1, 2021.

Message to shareholders

During the third quarter of 2021, Surge completed the strategic acquisition of Astra, adding highly concentrated light oil reserves, production, land and operations in southeast Saskatchewan. Subsequent to the quarter, on Nov. 1, 2021, the company announced the closing of the acquisition of Fire Sky, a private company with light oil assets focused on southeast Saskatchewan for total consideration of $58-million. The Fire Sky acquisition expands Surge's position in its new southeast Saskatchewan core area, adding an additional 1,500 barrels of oil equivalent per day of light oil production.

These two strategic acquisitions are consistent with Surge's defined business model of acquiring high-quality, operated, light- and medium-gravity, conventional crude oil reservoirs with large original oil in place (OOIP (1)) and low recovery factors. Following these acquisitions, Surge is now a 21,500-barrel-of-oil-equivalent-per-day (86 per cent liquids) intermediate light- and medium-gravity oil producer, with over 975 internally estimated net development drilling locations (2), providing an estimated 13-year development drilling inventory (2).

In addition to the acquisitions, the company has now completed its second half 2021 23-gross-(23.0 net)-well Sparky drilling program, with a 100-per-cent success rate. All of the wells from the second half 2021 Sparky drilling program are scheduled to be on stream and optimized prior to the end of November, 2021.

During the third quarter of 2021, Surge's cash flow from operating activities increased by 218 per cent from $8.3-million in second quarter 2021 to $26.3-million in third quarter 2021. Additionally, the company's adjusted funds flow (3) also increased by 105 per cent from $13.6-million in second quarter 2021 to $27.8-million in third quarter 2021.

Surge's cash flow from operating activities and adjusted funds flow in third quarter 2021 were negatively impacted by realized losses on fixed-price commodity contracts, totalling $23.2-million. These required fixed-priced oil hedge positions were primarily entered into during the volatile price environment in 2020. Surge projects that, at current strip oil prices, the cash flow impact from these hedge positions will moderate significantly in the coming months as the hedges expire.

Production in third quarter 2021 averaged 17,642 boe per day, up 17 per cent from second quarter 2021 production levels of 15,132 boe per day. The company's third quarter 2021 production levels included only a partial quarter of production from the Astra acquisition and no impact from the Fire Sky acquisition.

Financial and operating highlights

(1) This is a non-generally accepted accounting principle financial measure.

(2) The company views this change calculation as not meaningful, or nm.

(3) The number of common shares has been adjusted retrospectively to reflect the one-for-8.5 share consolidation that was approved by the corporation's shareholders on Aug. 17, 2021.

Update on environmental, social and governance matters (ESG)

Surge continues to reduce the impact of its operations on the environment and is pleased to report that it has abandoned over 190 wells in the first nine months of 2021. The company spent $3.0-million on abandonment activities during the third quarter of 2021 and has now spent $6.6-million to date during 2021. These activities included the abandonment of inactive wellbores and the decommissioning of inactive pipelines throughout its operating areas.

Additionally, Surge has now completed the previously announced 45-kilometre gas-gathering infrastructure system in southeast Saskatchewan. This pipeline allows the company to conserve gas at critical facilities and is anticipated to reduce emissions by over 95 per cent from its main operating fields in the area.

Surge strives to be a leader in reducing the impact of its operations on the environment and is committed to producing energy in a safe, responsible and sustainable manner.

Outlook -- a top performer in 2022

Management remains excited regarding the company's exposure to rising crude oil prices in 2022, following its strategic positioning activities throughout 2021. The company anticipates generating significantly higher operating netbacks and cash flow from operating activities in 2022 at current commodity prices.

Surge is now a 21,500-barrel-of-oil-equivalent-per-day (86 per cent liquids) intermediate light- and medium-gravity oil producer, with over 975 net internally estimated development drilling locations, providing an estimated 13-year development drilling inventory.

Surge's upwardly revised exit 2021 and preliminary 2022 guidance is reconfirmed.

* All additional pricing assumptions (WCS (Western Canadian Select): $13.50 (U.S.) and EDM $4 (U.S.)), foreign exchange of 80 cents and AECO (Alberta Energy Company) of $3 per thousand cubic feet remain constant. Adjusted funds flow and cash flow from operating activities include estimated realized gain (loss) on financial contracts, and assume a nil change in non-cash working capital.

(4) This is a non-GAAP financial measure.

We seek Safe Harbor.

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