Mr. Paul Colborn reports
SURGE ENERGY INC. ANNOUNCES CLOSING OF $40-MILLION, 4 YEAR BDC TERM FACILITY; CONFIRMS EXTENSION OF CREDIT FACILITY MATURITY TO DEC. 31, 2021; RECEIPT OF $50.6-MILLION EDC CREDIT FACILITY COMMITMENT
Surge Energy Inc. has executed definitive agreements with the Business Development Bank of Canada (BDC), in partnership with the company's syndicate of lenders, for a non-revolving facility of $40-million, providing attractive interest rates over a four-year term.
Surge is also pleased to announce that it has closed an extension of the company's existing $335-million first-lien credit facility. Maturity of the credit facility has been extended from March 31, 2021, to Dec. 31, 2021, and the company's next semi-annual borrowing base redetermination has been extended to June 30, 2021.
Additionally, EDC has joined Surge's lending syndicate, providing a $50.6-million injection of capital into the company's $335-million credit facility.
Four-year term facility finalized
Surge has closed the previously announced $40-million term facility under the BDC's business credit availability program (BCAP) mid-market financing program, which provides the company with a four-year, non-revolving second-lien term facility, maturing on Nov. 17, 2024, at attractive interest rates.
In conjunction with closing, BDC and the syndicate have agreed to finance an immediate initial draw of $32.5-million on the $40-million term facility. Surge will use these funds for the development of its high-quality, medium and light crude oil asset base which is expected to return the company's production to near pre-COVID-19 levels and, in turn, generate net asset value per share growth for its shareholders.
Extension of credit facility confirmed
Concurrent with closing of the term facility, Surge's lending syndicate has also reconfirmed the company's existing $335-million credit facility.
Surge's lending syndicate has agreed to extend the maturity of the company's revolving and non-revolving facilities from March 31, 2021, to Dec. 31, 2021. In addition, Surge's next semi-annual borrowing base redetermination has been extended to June 30, 2021.
$50.6-million EDC credit facility funding complete
Concurrent with the above credit facility reconfirmation, EDC has provided $50.6-million in financing into Surge's existing $335-million credit facility. This capital injection provides the company with a significant new syndicate banking partner in the credit facility.
The above credit facility reconfirmation and extension, in combination with the term facility, provides Surge with more than $75-million in available liquidity on its credit facilities.
The company appreciates the support and partnership of the BDC, EDC and the entire syndicate of lenders.
Surge outlook: a compelling value proposition
Surge has a high-quality, low-decline, light and medium gravity crude oil asset and opportunity base. With the company's low (19-per-cent) annual production decline, high netbacks, large OOIP2 per section (conventional) crude oil assets, Surge provides investors with an excellent opportunity to participate in the crude oil price recovery.
The closing of more than $90-million in new credit commitments provides Surge with significant additional long-term liquidity at reasonable interest rates, allowing the company to pursue attractive development opportunities with a view to generating net asset value per share growth for its shareholders.
Surge anticipates strategically deploying capital into its Sparky play between now and spring breakup, which typically occurs in mid- to late-March each year. Management currently expects to provide 2021 guidance in January, 2021. Surge's industry leading Sparky play has some of the best production efficiencies (span class equals "xn-money" greater than $10,000 per barrels of oil equivalent per day IP90), and internal rates of return (IRR) for drilling new wells in all of Canada. Surge estimates a weighted average, risked IRR, of greater than 50 per cent for its entire 500 net well (14-year) Sparky drilling inventory at $40 (U.S.) West Texas Intermediate-per-barrel flat pricing. These excellent risked returns are for primary drilling only, and do not include water-flood upside.
Additionally, Western Canadian Select (WCS) differentials have contracted meaningfully in the last several months, with WCS to WTI differentials currently over 20 per cent tighter than the historical long-term average. Surge anticipates that its Sparky play will benefit significantly from this tightening of long-term WCS differentials, with cash flows, netbacks and reserve values in this premier conventional medium/light gravity crude oil asset increasing commensurately.
Management believes that Surge's premium Sparky crude oil growth asset is unique within the company's entire peer group in Canada.
The average IP90 from Surge's 2019 and 2020 programs (greater than 40 wells) was 125 boe/d. Using the weighted average capital expenditures of $1.15-million per well, and average production from the 2019 and 2020 programs of 125 boe/d, generates production efficiencies over these two years of span class equals "xn-money" greater than $10,000 per boepd on an IP90 basis.
We seek Safe Harbor.
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