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Surge Energy Ups 2021 Capex, Talks 2H21 Drilling Outlook

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   |    Thursday,May 13,2021

Surge Energy Inc. detailed its 2021 production exit guidance and preliminary 2022 capital and operating guidance.

2H 2021 Outlook, Expanded Plan

The 2H/21 capital program involves drilling up to 23 gross (23.0 net) wells in four distinct, large original oil in place (“OOIP”)1, shallow, conventional Sparky sandstone reservoirs. This targeted drilling program is expected to result in production additions of more than 2,400 boe per day for total drilling and completions expenditures of $32 million, resulting in production efficiencies of $13,250 per flowing boe on an IP180 basis1.

The expanded 2H/21 capital program is anticipated to deliver over 6 percent of cash flow per share growth for Surge’s shareholders in the current year (ie. in Q4/21), when compared to the Company’s previously planned 2H/21 maintenance-only capital program.

Preliminary 2022 Plan

The Company’s preliminary 2022 capital expenditure budget will continue to focus on production maintenance and free cash flow generation. Surge anticipates generating approximately $160 million ($0.42 per share2) in adjusted funds flow3 in 2022 at current oil prices of approximately US$65 WTI per barrel. With its low decline, shallow, large OOIP, conventional asset base, the Company is budgeting $83 million for its 2022 exploration & development capital program, maintaining production at 16,500 boepd (85% liquids).

On this basis, Surge anticipates generating $62 million ($0.16 per share) of free cash flow4 in 2022, representing a free cash flow yield5 of approximately 28 percent for the year.

Based upon the above, the Company’s 2H 2021 and preliminary 2022 guidance is as follows:

US $WTI per bbl

$65 WTI6

$60 WTI6

Total 2021(e) Exploration & Development Capital

$89 million

Exit 2021(e) Production

16,500 boepd (85% liquids)

Total 2022(e) Exploration & Development Capital

$83 million

Average & Exit 2022(e) Production

16,500 boepd (85% liquids)

2022(e) Cash flow From Operating Activities

$145 million

$121 million

Per share



2022(e) Adjusted Funds Flow

$160 million

$136 million

Per share



2022(e) Net Operating Expenses5

$16.45 – $16.95 per boe

2022(e) Transportation Expenses

$1.20 – $1.30 per boe

2022(e) General & Administrative Expenses

$1.95 – $2.05 per boe

Both the Company’s 2H/21 and preliminary 2022 capital program continue to focus capital on Surge’s extensive, 14 year drilling inventory of over 425 net Sparky core area locations7 – across multiple large OOIP, shallow, conventional reservoirs.

Outlook: 1H/21 Drilling Results

The Company will bring on an estimated 3,400 boepd of production from its 32 well 1H/21 drilling program, with results to date meeting or exceeding budgeted expectations. This production was added for “all-in” drilling and completion expenditures of $38 million, delivering production efficiencies of $11,175 per boe.

Over the last six years, Surge has amassed a dominant position in its core Sparky crude oil play, which is proving to be one of the premier, conventional, medium/light oil growth plays in Canada. Surge estimates a weighted average (risked) IRR of greater than 140 percent7 for the Company’s entire 425 net well (14 year) Sparky core area drilling inventory at US $60 WTI per barrel flat pricing. These excellent risked returns are for primary drilling only, and do not include waterflood upside.

With crude oil prices now up over 450%8 in the last 13 months, combined with the Company’s 85% oil and natural gas liquids weighting, Surge believes it is well-positioned to deliver continued cash flow per share growth and a free cash flow yield in 2022.

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