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Surge Energy Inc
Symbol SGY
Shares Issued 335,068,916
Close 2020-04-14 C$ 0.255
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Surge Energy suspends dividend, guidance

2020-04-14 18:19 ET - News Release

Mr. Paul Colborne reports

SURGE ENERGY INC. ANNOUNCES COVID-19 PANDEMIC RESPONSE; CORPORATE UPDATE; ANNUAL GENERAL MEETING; DIVIDEND SUSPENSION

Surge Energy Inc. has provided an operational update.

COVID-19 -- protecting staff, families, service providers, stakeholders and the public

In response to the rapidly evolving COVID-19 pandemic, Surge has taken all possible steps to protect its staff, their families, its service providers, its stakeholders and the general public. Health and safety is Surge's No. 1 priority and the company has a dedicated team working on pro-active measures to limit COVID-19 from negatively impacting its employees and business.

At this time, Surge has taken the necessary steps to slow the spread of the virus, including heeding the government's advice for physical distancing. Surge has closed its Calgary office and staff are working remotely. Furthermore, Surge has mitigation plans in place for all field operations staff across Western Canada. These measures protect their health while they work diligently to ensure the safety and security of Surge's facilities as well as continuing to deliver reliable production. All of Surge's locations have implemented enhanced cleaning and sanitation measures.

Surge will continue to monitor the situation, taking guidance from health authorities, and will look for opportunities to participate in any activities that will slow the spread of the virus and "flatten the curve." Surge thanks its staff, their families, its partners and the communities in which it operates for their participation in these pro-active measures.

Corporate update

Both the COVID-19 pandemic and increased oil production from OPEC and Russia have dramatically decreased the price of crude oil in recent weeks. Accordingly, Surge's management and board acted quickly, taking decisive action to protect shareholders and the company's balance sheet. On March 9, 2020 ($31-(U.S.)-per-barrel WTI (West Texas Intermediate)), Surge reduced its dividend by 90 per cent. In addition, Surge suspended all major capital expenditures in early March, providing the company with greater operational and financial flexibility for the balance of 2020.

Furthermore, Surge has completed a comprehensive review of operating costs in all production areas, as the company continues to focus on further reducing its cost structure. On this basis, the company has elected to temporarily curtail up to 4,400 barrels of oil equivalent per day of lower-margin production in order to maximize corporate cash flows. Surge has the ability to restart this production in short order, as commodity prices increase. Additionally, Surge is selectively choosing to work over any wells that meet the company's internal economic hurdle rate of a six- to nine-month payout at current strip prices.

After executing these temporary production curtailments, based on the company's robust, continuing risk management program, Surge will now have approximately 50 per cent of its net, after-royalty Crown oil production hedged through the balance of 2020. Surge's excellent WTI hedge position has an average floor price of approximately $80 per barrel for the first half of 2020.

Surge's continuing risk management program encompasses not only WTI crude oil price hedges, but also includes very attractive WCS (Western Canadian Select) and MSW (Mixed Sweet Blend) oil differential hedges, as well as AECO and NYMEX natural gas hedge positions. For example, Surge has now locked in more than 65 per cent of its light oil differentials for the second and third quarters of 2020 at approximately $5 (U.S.) per barrel.

Surge has a very low corporate decline of 23 per cent. Operationally, the company's high-quality, large OOIP (original oil in place) conventional reservoirs continued to deliver excellent results during the first quarter of 2020. Surge completed its first quarter 2020 drilling program in early March, drilling 19 successful horizontal wells in seven different Sparky pools, which included the delineation of two new Sparky pool discoveries on its lands at Betty Lake North and Eyehill South.

Currently, 16 of the wells drilled in the quarter are on production, with initial production results performing at or above management's expectations. With these successful drilling results, the company's production exceeded 21,000 barrels of oil equivalent per day in March (prior to the temporary production curtailments), with three additional Sparky wells to be brought on production as crude oil prices improve.

Dividend suspension

Subsequent to Surge's March 9 press release, when Surge's management and board elected to reduce the company's dividend by 90 per cent, crude oil prices have continued to drop precipitously.

In light of this continued volatility in global crude oil markets, as well as the continuing impacts of the COVID-19 pandemic, the company is taking further steps to protect shareholder value and corporate cash flow by suspending its dividend (approximately $33.5-million in annualized savings when combined with the previously announced March 9 dividend reduction) until such time as Surge's management and board see a sustainable recovery in world crude oil prices.

As such, the last cash dividend payment prior to suspension will be on April 15, 2020, in respect of March, 2020, production, for the shareholders on record March 31, 2020, in the amount of 0.0833 cent per share, as declared on March 16, 2020.

Guidance

Given the unprecedented circumstances facing world crude oil markets, along with the aforementioned production curtailments, the company is also suspending its previously announced 2020 guidance and capital program of $98.5-million. Surge's capital expenditures were approximately $34-million in the first quarter, and the company's capital program will be reguided as commodity prices improve.

Annual general meeting

The company's annual general meeting of shareholders is currently scheduled for 3 p.m. on Tuesday, May 12, 2020. In light of the COVID-19 pandemic, the company will ensure that all government measures in effect on May 12, 2020, including physical distancing, will be adhered to at the annual meeting, and Surge does not plan to have a presentation at the conclusion of the meeting.

Given the current circumstances, the company strongly encourages registered shareholders and proxyholders not to attend the meeting in person. All shareholders are strongly encouraged to submit their vote by proxy ahead of the meeting in accordance with the instructions described in the company's information circular. In the event that Surge must adjust the meeting plans due to the COVID-19 situation, further information will be shared by way of news release as promptly as possible.

We seek Safe Harbor.

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