Mr. Paul Colborne reports
SURGE ENERGY INC. ANNOUNCES THIRD QUARTER FINANCIAL & OPERATING RESULTS; AND AN OPERATIONS UPDATE ON STRONG DRILLING RESULTS IN SE SASKATCHEWAN / SPARKY CORE AREAS
Surge Energy Inc. has released its financial and operating results for the quarter ended Sept. 30, 2022, and has provided an update on Surge's latest drilling results.
Q3 2022 financial and operating highlights:
Surge's board and management continue to be optimistic on the outlook for crude oil prices, based on a historically tight physical market, continuing geopolitical issues, and the significant underinvestment in the energy industry over the past several years.
During the third quarter of 2022, Surge delivered cash flow from operating activities of $69.2-million, an increase of 163 per cent as compared with Q3 2021 cash flow from operating activities of $26.3-million. Additionally, the company delivered adjusted funds flow (AFF) of $80.3-million in Q3 2022, an increase of 189 per cent compared with Q3 2021 AFF of $27.8-million.
Despite WTI (West Texas Intermediate) crude oil prices dropping by nearly $20 per barrel from Q2 2022 to Q3 2022, Surge's Q3 2022 AFF was $1.7-million higher as compared with Q2 2022, increasing from $78.6-million in Q2 2022 to $80.3-million. This quarter-over-quarter increase is due to the company's better-than-anticipated drilling results and the expiry of most of Surge's previously mandated fixed-price crude oil hedges.
In Q3 2022, Surge also returned $8.8-million to its shareholders in the form of cash dividends pursuant to the company's base cash dividend of 42 cents per share per annum (paid monthly). Annualized, the company's base cash dividend represents less than 13 per cent of Q3 2022 cash flow from operating activities.
During the quarter, Surge reduced net debt by 6 per cent from $280.1-million at June 30, 2022, to $264.3-million at Sept. 30, 2022.
Additional highlights from the company's Q3 2022 financial and operating results include:
Achieved average daily production of 21,380 barrels of oil equivalent per day (86 per cent liquids) during Q3 2022, an increase of over 21 per cent as compared with Q3 2021 production of 17,642 barrels of oil equivalent per day (84 per cent liquids);
- Successfully drilled 26 gross (20.7 net) wells, with activity focused in the company's Sparky and southeast Saskatchewan conventional light and medium gravity crude oil core areas;
- Reduced net debt by $15.9-million as compared with June 30, 2022, while concurrently completing Surge's successful Q3 2022 capital program for $42.4-million.
Operations update -- strong drilling success in southeast Saskatchewan and Sparky core areas
During Q3 2022, Surge continued its southeast Saskatchewan and Sparky drilling programs, drilling 26 gross (20.7 net) wells, with 17 gross (11.7 net) horizontal wells in southeast Saskatchewan targeting the Frobisher and Midale Formations, and 9.0 gross (net) horizontal wells in the Sparky core area.
As previously released, in Q2 2022 Surge was successful at a highly competitive Saskatchewan Crown Land Sale in the Steelman area, which added more than 40.0 (net) internally estimated, highly economic2, light oil Frobisher drilling locations2 to its inventory. As part of the company's southeast Saskatchewan Q3 2022 drilling program, 3 gross (3.0 net) Frobisher horizontal wells were drilled on the newly acquired lands. All three of these wells are currently on production and are exceeding internal type curve expectations.
The average 30 day initial production rates from Surge's latest three Steelman Frobisher wells is over 550 barrels of oil equivalent per day (90% light oil) per well, versus an internal type curve expectation of 250 barrels of oil equivalent per day2. Each of these three Steelman wells paid out in less than five weeks2 (at US$85 WTI3), demonstrating the top-tier economics associated with Surge's large eight year southeast Saskatchewan drilling inventory3.
Surge's exciting new drilling results, along with other nearby industry activity, have substantially de-risked the company's internal drilling inventory of up to 110 gross (80 net) locations in the Steelman area. Surge continues to be active at Steelman, with 6 gross (5.1 net) wells anticipated to be drilled during Q4 2022.
In the Sparky core area, Surge drilled 7.0 (net) horizonal wells at the company's operated Provost and Betty Lake properties. All of these Sparky wells are now on production, with a four well pad in Provost producing at a combined 30 day initial production rate of over 750 barrels of oil equivalent per day.
In Q3 2022, Surge's Sparky core area production exceeded 9,500 barrels of oil equivalent per day (>95% liquids; 26degree API average crude oil gravity) for the first time in the company's history, up over 675% from 1,200 barrels of oil equivalent per day seven years ago. Surge has a deep, 12 year Sparky drilling inventory3 of more than 425 internally estimated locations.
OUTLOOK: PREMIUM ASSET QUALITY DRIVES SUPERIOR RETURNS
Surge is an intermediate, publicly traded oil company, focused on enhancing shareholder returns through free cash flow generation. The Company's defined operating strategy is based on acquiring and developing high quality, conventional, light and medium gravity crude oil reservoirs, using proven technology to enhance ultimate oil recoveries.
Surge's Board and Management continue to be optimistic on the outlook for crude oil prices, based on a historically tight physical market, ongoing geopolitical issues, and the significant underinvestment in the global energy sector over the past several years.
Despite WTI crude oil prices dropping by nearly CAD$20 per barrel from Q2 2022 to Q3 2022, Surge's Q3 2022 AFF was $1.7-million higher than in Q2 2022, increasing from $78.6-million in Q2 2022 to $80.3-million in Q3 2022. This quarter over quarter increase is due to the company's better than anticipated drilling results, along with the expiry of most of the company's previously mandated fixed-price crude oil hedges.
During the third quarter of 2022, Surge returned to its shareholders cash dividends totaling over $8.8-million, pursuant to the company's base cash dividend of $0.42 per share per annum (paid monthly). Annualized, the company's base cash dividend represents less than 13 per cent of Q3 2022 cash flow from operating activities.
With cash flow strategically allocated between high rate of return capital projects 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 Q2 2023, based on US$80 WTI crude oil flat pricing.
We seek Safe Harbor.
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