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Surge Energy Details 1H21 Spending, Well Plan; Q4/Full Year 2020 Results

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   |    Monday,March 15,2021

Surge Energy Inc. reported its Q4/full year 2020 results as well as its 2021-22 outlook.

Outlook 2021/2022

1H/21 Plan

In 1H/21, the Company is completing a $39 million development drilling capital program, adding estimated production of more than 3,200 boepd (>90% medium/light oil).

Approximately 32 gross (32.0 net) wells will be drilled.

The Company is currently budgeting for a 2H/21 maintenance drilling program, allocating the incremental free cash flow to continued reduction of bank indebtedness.

Surge will be reforecasting 2021, and providing 2022 guidance, later on in March 2021.

4Q/Full Year 2020 Results

2020 Highlights:

• Achieved an all-in payout ratio¹ of less than 100 percent for 2020 while oil averaged less than US$40 WTI per barrel, generating cash flow from operating activities less payments on lease obligations of $64.1 million and employing a disciplined exploration and development program of $52.8 million;
• Generated realized hedging gains on financial contracts of over $20 million in 2020 pursuant to the Company’s ongoing strategic risk management program;
• Added over $90 million of new credit facility commitments, including a previously announced BDC financing ($40 million second lien) and a $51 million commitment by EDC into Surge’s existing first lien credit facility;
• Reduced net bank debt¹ by $36.5 million in 2020 from $313.6 million at December 31, 2019 to $277.1 million at December 31, 2020;
• Continued Surge’s focus on ESG, completing a total of $9.3 million on abandonment activities. This was funded using a combination of cash flow from operating activities, as well as grants received through the Alberta Site Rehabilitation Program;
• Achieved average daily production of 17,356 boepd (84% liquids) during the fourth quarter of 2020; consistent with the second and third quarters of 2020 despite no production additions from drilling activity during those periods and a significantly reduced exploration and development expenditure program as compared to the prior year;
• Prior to suspending major exploration and development expenditures in March 2020, successfully drilled 19 consecutive Sparky wells at an all-in cost of $22 million.
• Reduced P+PDP decline from 21% (2019YE) to 18%² (2020YE);
• Estimated Total P+P Net Asset Value of $2.43 per basic share and Total Proved Net Asset Value of $1.19 per basic share at a US $55 WTI Flat Price Deck³;
• Surge’s 401 net (427 gross) booked locations of undeveloped reserves in the Company’s new Sproule December 31, 2020 Engineering Report, have a Finding & Development (“F&D”) cost of $12.43/boe on a Proved plus Probable Undeveloped (“P+PUD”) reserves basis;
• 2020 Drilling (19 Wells) F&D was $12.05/boe PDP and $10.25/boe P+PDP;
• Increased Total P+P reserve life index to 16 years;

Ops Update

Surge’s high quality, low cost conventional reservoirs continued to deliver excellent results throughout the year. Surge completed a reduced Q1/20 drilling program in early March, drilling 19 successful horizontal wells in seven different Sparky pools. This program included the delineation of two new Sparky pool discoveries on its lands at Betty Lake North and Eyehill South.

In late Q4/20, Surge commenced a disciplined, 32 well drilling program, following the closing of the Company’s previously announced $40 million Term Facility under the Business Development Bank of Canada’s Business Credit Availability Mid-Market Financing Program. The Company drilled and rig released 13 gross (13.0 net) Sparky wells in late Q4/20. These wells have all now been completed and are anticipated to be on production in late Q1/21.

This drilling program continued into Q1/21, and the Company has rig released an additional 18 gross (18.0 net) wells to date in 2021, all in the Company’s Sparky core area. One additional (1.0 net) well is budgeted to be drilled in late Q1/21 into the Company’s large OOIP Montney turbidite pool in the Valhalla core area. This is a development offset location to the Company’s successful Montney horizontal well drilled and brought on production in Q4/19. This well had an IP30 oil rate of more than 1,000 bopd and has delivered cumulative production of over 215,000 barrels of light oil in one year.

ESG

Surge was recently allocated an additional $3.2 million under the Government of Alberta’s Site Rehabilitation Program (“SRP”) to abandon and reclaim well bores, pipelines, and well sites. To date, the Company has now received more than $14 million in grant funding from the Alberta SRP.

Surge will continue to be actively engaged with the Government of Alberta regarding additional SRP developments, as well as new developments in both Federal and Government of Saskatchewan programs, in order to accelerate the decommissioning of the Company’s asset retirement obligations.

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