sgy_presentation_-_april_final__

Report
“POSITIONED FOR SUSTAINABILITY AND GROWTH”
April, 2014
TSX:SGY
www.surgeenergy.ca
FORWARD-LOOKING STATEMENTS
This presentation contains forward-looking statements. More particularly, this presentation contains statements concerning anticipated: (i) potential development
opportunities and drilling locations, expectations and assumptions concerning the success of future drilling and development activities, the performance of existing wells,
the performance of new wells, decline rates, recovery factors, the successful application of technology and the geological characteristics of Surge’s properties, (ii) cash
flow, (iii) the timing and amount of future dividend payments, (iv) oil & natural gas production growth during 2013 and 2014, (v) debt and bank facilities, (vi) hedging
results, (vii) primary and secondary recovery potentials and implementation thereof, (viii) potential acquisitions, (ix) potential dispositions, (x) drilling, completion and
operating costs, and (xiii) realization of anticipated benefits of acquisitions.
The forward-looking statements are based on certain key expectations and assumptions made by Surge, including expectations and assumptions concerning the performance
of existing wells and success obtained in drilling new wells, anticipated expenses, cash flow and capital expenditures and the application of regulatory and royalty regimes.
Although Surge believes that the expectations and assumptions on which the forward-looking statements are based are reasonable, undue reliance should not be placed on
the forward-looking statements because Surge can give no assurance that they will prove to be correct. Since forward-looking statements address future events and
conditions, by their very nature they involve inherent risks and uncertainties. Actual results could differ materially from those currently anticipated due to a number of
factors and risks. These include, but are not limited to, risks associated with the oil and gas industry in general (e.g., operational risks in development, exploration and
production; delays or changes in plans with respect to exploration or development projects or capital expenditures; the uncertainty of reserve estimates; the uncertainty of
estimates and projections relating to production, costs and expenses, and health, safety and environmental risks), commodity price and exchange rate fluctuations and
uncertainties resulting from potential delays or changes in plans with respect to exploration or development projects or capital expenditures. Certain of these risks are set
out in more detail in Surge’s Annual Information Form which has been filed on SEDAR and can be accessed at www.sedar.com.
The forward-looking statements contained in this presentation are made as of the date hereof and Surge undertakes no obligation to update publicly or revise any forwardlooking statements or information, whether as a result of new information, future events or otherwise, unless so required by applicable securities laws.
This presentation contains the term “netbacks” which is not a term recognized under IFRS Generally Accepted Accounting Principles (“GAAP”). The Company uses this
measure to help evaluate its performance as well as to evaluate acquisitions. The Company considers netbacks as a key measure as it demonstrates its profitability relative
to current commodity prices. Operating netbacks are calculated by taking total revenues (excluding derivative gains and losses) and subtracting royalties, operating expenses
and transportations costs on a per boe basis.
Note: Boe means barrel of oil equivalent on the basis of 1 boe to 6,000 cubic feet of natural gas. Boe may be misleading, particularly if used in isolation. A boe conversion
ratio of 1 boe for 6,000 cubic feet of natural gas is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value
equivalency at the wellhead. Boe/d means barrel of oil equivalent per day.
In this presentation: (i) mcf means thousand cubic feet; (ii) mcf/d means thousand cubic feet per day (iii) mmcf means million cubic feet; (iv) mmcf/d means million cubic
feet per day; (v) bbls means barrels; (vi) mbbls means thousand barrels; (vii) mmbbls means million barrels; (viii) bbls/d means barrels per day; (ix) bcf means billion cubic
feet; (x) mboe means thousand barrels of oil equivalent; (xi) mmboe means million barrels of oil equivalent and (xii) boe/d means barrels of oil equivalent per day.
2
RECENT DEVELOPMENTS
3

Q1/14 Drilling/Waterflood Results – Better Than Expected:
• 100% drilling success in Q1/14; exit rate increased to 16,850 boed (85% oil & NGLs)
and 21,350 boed (84% oil & NGLs) proforma strategic business combination with
Longview
• Large new pool discovery in the Upper Shaunavon
 125 mm OOIP
 Discovery well is > 300 bopd
 > 64 additional locations!

Announced a $429 million Strategic Business Combination on March 31, 2014:
• Adds more than 375 million boe of OOIP (1); post-closing Surge will have over 1.9
billion barrels of light and medium gravity OOIP under the Company's ownership and
management
• An excellent asset fit that is accretive on all metrics
• Proposed dividend increase of 11%; to $0.60/share
• Lowered “all-in” sustainability ratio to <89%

Solid Organic and Acquisition Reserve Results:
• Replaced 196% of production through organic 2P reserve additions on F&D (incl.
change in FDC) of $17.03/boe achieving a 2.5x recycle ratio;
• Four year weighted average F&D recycle ratio of 2.0x;
• 2P reserve additions on FD&A (incl. change in FDC) of $27.27/boe (1.5x recycle
ratio); and
• Increased Proved plus Probable reserves by 59% to 73.5 million boe
(1) Original Oil in Place (OOIP) is the equivalent to Total Petroleum Initially In Place (TPIIP) for the purposes of this press release. TPIIP is defined
as that quantity of petroleum that is estimated to exist originally in naturally occurring accumulations. It includes that quantity of petroleum that is
estimated, as of a given date, to be contained in known accumulations, prior to production, plus those estimated quantities in accumulations yet to be discovered.
There is no certainty that any portion of the undiscovered resources will be discovered. There is no certainty that it will be commercially viable to produce any portion
of the resources. A recovery project cannot be defined for this volume of TPIIP at this time, and as such it cannot be further sub-categorized. as defined in this presentation.
WHY OWN SURGE ENERGY?
 Low risk, high quality, crude oil asset and opportunity base;
>12 year RLI (with 2 years of FDC/cash flow); Very low “all-in”
sustainability ratio (<89%); NO DRIP
 Excellent replacement metrics/capital efficiencies
(<$29,000/boepd); 10 year inventory of low risk development
drilling locations; largely unbooked waterflood upside
 One of the best balance sheets in peer group
 Enterprise value(1) ~$1.4 billion; Market capitalization(1) >$1.1
billion; Excellent liquidity
(1) Based on a share price of $6.30.
4
SURGE ENERGY INC.
 Elite, operated, large OOIP crude oil reservoirs, with low recovery
factors; over 1.5 Billion barrels of OOIP under management - with
current recovery factor of 10%; proforma the LNV combination
over 1.9 Billion barrels of OOIP under management
 Strong balance sheet; ongoing risk management/hedging
program
 Experienced management team with proven track records
5
KEY VALUE DRIVERS (RISK ADJUSTED)
1. 3-5% organic annual per share growth in
reserves, production and cash flow; and
2. >8% dividend yield; and
3. Debt reduction (i.e. due to low
sustainability ratio); increases NAV; and
4. Accretive acquisitions.
6
ELITE, FOCUSED ASSET BASE
 EXPOSURE TO >1.5 BILLION BBLS OF OOIP
 10% OIL RECOVERED TO DATE
7
EXCELLENT CAPITAL EFFICIENCIES / REPLACEMENT METRICS
Capital
Efficiency
Rates of
Return
%
Drill/
Complete/
Equip
(100/100)
$18,950/boepd
78%
$2.00MM
105 boepd (100% oil)
125
Lower Shaunavon
$23,570/boepd
41%
$1.65MM
70 boepd (100% oil)
70
$14,300/boepd
130%
$4.3MM
300 boepd (66% oil)
672
$30,400/boepd
40%
$3.8 MM
$18,800/boepd
100%
$1.6 MM
85 boepd (100% oil)
100
$15,700/boepd
57%
$1.1MM
70 boepd (100% oil)
63
$22,500/boepd
44%
$0.9MM
40 boepd (100% oil)
33
$24,000/boepd
64%
$1.2MM
50 boepd (99% oil)
54
$27,500/boepd
26%
$1.1MM
40 boepd (100% oil)
42
Areas
Locations
(Gross / Net)
Upper Shaunavon
(269/262)
Valhalla
(46/38)
Nipisi
(37/37)
Eye Hill/Provost Sparky
180 day IP
125 boepd (100% oil)
Mboe/well
(on primary)
150
(103/100)
Macoun
(27/23)
Sask Viking
(138/112)
SE Sask –
Frobisher/Alida
(40/31)
Manson
(38/34)
8
SUMMARY OF QUALITY OIL RESERVOIRS –
LARGE OOIP(1) WITH LOW RECOVERY FACTORS
Avg. WI
Cum Oil
Recovery
Factor
Total Booked
Independent
Recovery
Factor P+P(2)
(% OOIP)
Internally
Estimated
Ultimate
Recovery Net
(Waterflood
with
Development
Drilling)
Property
Formation
OOIP (MMbbls)
Gross/Net
Drilling
Locations
Gross/Net
Western Alberta
Doig/Slave
Point/Bluesky
338/294
118/109
94%
1.6%
7.5%
22%
SE Alberta
Mannville
Group
472/389
143/137
84%
19.1%
23.2%
32%
SW Saskatchewan
Shaunavon/
Viking
484/475
507/474
97%
1.0%
4.6%
12%
Williston Basin
Mississippian
Group
463/368
105/88
83%
15.2%
18.9%
21%
1,757/1,526
873/808
89%
10.0%
14.2%
22%
TOTAL
•
•
•
•
•
•
•
9
Achieved Proved plus Probable (2P) F&D (incl. change in FDC) of $17.03/boe achieving a 2.5x recycle ratio.
Achieved 2P FD&A (incl. change in FDC) of $27.27/boe achieving a 1.5x recycle ratio.
Organic proved plus probable reserve additions replaced 196% of production.
Increased Proved plus Probable reserves by 59% to 73.5 million boe.
Increased Proved plus Probable Oil and NGLs reserves by 79%.
Oil and NGLs made up 78% of the Company's total Proved plus Probable reserves.
Surge's Net Asset Value (NAV) is estimated at $7.03 per basic share based on NPV10 BT 2P reserves of $1.497
billion.(2)
(1) December 31, 2013 reserves.
(2) Based on independent engineering reports as at December 31, 2013 (including the SE Saskatchewan asset acquisition that closed on Feb 14, 2014).
ELITE WATERFLOOD RESERVOIRS – LOW DECLINE
Current Properties Under Full Commercial Waterflood
Area
Silver
Wainwright
Formation
Start Date
2014 Decline
Current RF
Booked RF
Expected RF
Lloyd/
Cummings
1996
18%
12.6%
35.7%
39.0%
Sparky
1962
8%
32.0%
35.5%
37.1%
Current Waterflood Pilots
Formation
Start Date
# of
Injectors
Analog
Property
Bluesky
Q4 2012
1
N/A
Nipisi
Slave Point
Q2 2013
2
Shaunavon
Lower
Shaunavon
Q4 2013
5
Macoun
Midale
Q4 2013
1
Benson
1st hz injector in the pool; analog pool is commercial
Manson
Bakken
Q4 2013
2
Sinclair
Initial results are encouraging; analog pool is commercial
Area
Windfall
Comments
52,000 m3 injected; offset declines are flattening
3rd injector in Jan 2014; results to date encouraging;
analog pool is commercial
Piloting 200 and 400 m spacing; 3 analog pilots showing
Shaunavon
.
strong oil response.
Gift
.
2014 Waterflood Pilots
Silver – Eyehill
Sparky
Q2
1-2
Wainwright
New Q1/13 discovery; > 80 MM OOIP
Silver – Provost
Sparky
Q2
1-2
Wainwright
New Q1/13 discovery; > 45 MM OOIP
Doig
Q4
1
N/A
Viking
Q3
1
Dodsland
Valhalla
Sask Viking
10
WILLISTON BASIN
SE Sask (Midale/Frobisher/Alida)
Steelman
Rosebank
Macoun
Hastings
Ingoldsby
Silverton
Gainsborough
Alameda
• 342 MMbbls of OOIP (35-37 degree API)
• Current recovery factor 19.8% of OOIP
Surge Land
• Rates of return ~74% (1)
• 67 gross/54 net drilling locations
(2)
• Estimated 23% RF
(1) Based on Year 1 price of C$ 93.00/Bbl Edm Par, US$ 96.00/Bbl WTI, C$ 3.50/GJ
AECO, escalated at 2%/Year thereafter.
(2) As at January 1, 2014.
11
WILLISTON BASIN
Manson (Bakken/Three Forks)
• 76 MMbbls of OOIP (35 degree API)
• Current recovery factor 0.9% of OOIP
Manson
• Rates of return ~40% (1)
• 38 gross/34 net drilling locations remain at Manson(2)
• 2 injectors have been implemented in Q3; exciting early
response
• Based on successful waterflood implementation, Surge
estimates ultimate recovery of at least 13% of the
estimated 76 MMbbls of OOIP
Surge Land
Surge Wells
(1) Based on Year 1 price of C$ 93.00/Bbl Edm Par, US$ 96.00/Bbl WTI,
C$ 3.50/GJ AECO, escalated at 2%/Year thereafter.
(2) As of January 1, 2014.
12
SW SASKATCHEWAN
Shaunavon (Lower and Upper)
• >350 MMbbls of OOIP in the Lower and Upper Shaunavon
formations (medium gravity oil)
• Current recovery factor ~1.3%
• Rates of return in excess of 50% (1)
• 369 gross/362 net drilling locations in the Lower and Upper
Shaunavon based on 8 wells/section (2)
• >70 pump optimization opportunities with capital efficiencies of
< $7,500/bopd
• Elite, operated facilities, including: pipeline connected battery,
waterflood infrastructure, a nearby rail transloading facility,
and an existing rail marketing arrangement
• Significant unbooked upside from the successful implementation
of Q4 2013 waterflood as the assets are developed over time
Surge Land
Surge Wells
13
(1) Based on Year 1 price of C$ 93.00/Bbl Edm Par, US$ 96.00/Bbl WTI, C$ 3.50/GJ
AECO, escalated at 2%/Year thereafter.
SE ALBERTA
Silver/Wainwright Area (Cretaceous Sands)
Wainwright
• >435 MMbbls OOIP (23-31 degree API oil)
• Multi-zone, medium gravity crude at shallow depths (<1,000
meters)
• Current recovery factor of 19.1%
• Low-decline, high ROR assets that provide stable cash flow base
• Continued positive oil response from expanded waterflood
initiatives in two zones
• Control of key infrastructure
• Rates of return in excess of 100%
(1)
• 143 gross/137 net drilling locations
(2)
• Successful drilling/farm-in/acquisitions have resulted in capture of
two new Cretaceous oil pools in Silver Area (~125 MMbbls of OOIP
combined)
Silver
Surge Land
Surge Wells
Farm-in Lands
(1) Based on Year 1 price of C$ 93.00/Bbl Edm Par, US$ 96.00/Bbl WTI, C$ 3.50/GJ
AECO, escalated at 2%/Year thereafter.
(2) As at January 1 2014.
14
SW SASKATCHEWAN
Viking
Plenty
•
•
•
•
Dodsland
Operated; high working interests
High netback >$55/bbl
Rates of return ~34%
(1)
143 MMbbls of OOIP (37 degree API) in the Viking
formation
• Current recovery factor 0.5% of OOIP
• 138 gross/112 net drilling locations remain at SW
Saskatchewan Viking (2)
• Potential waterflood upside
Plato
Forgan
(1) Based on Year 1 price of C$ 93.00/Bbl Edm Par, US$ 96.00/Bbl WTI, C$ 3.50/GJ
AECO, escalated at 2%/Year thereafter.
(2) As at January 1, 2014.
Surge Land
Surge Wells
15
WESTERN ALBERTA
Valhalla South / Wembley (Doig)
• >160 MMbbls of combined OOIP at Valhalla and Wembley
Valhalla
(40 degree API light oil)
• Rates of return of >130% (1)
• Current recovery factor ~2.4% (2)
• 44 gross/37 net drilling locations at both Valhalla and Wembley
• Continue delineating large pool extension to the North
• Potential future waterflood candidate
Wembley
(1) Based on Year 1 price of C$ 93.00/Bbl Edm Par, US$ 96.00/Bbl WTI, C$
3.50/GJ AECO, escalated at 2%/Year thereafter.
(2) As at January 1, 2014
Surge Land
Surge Wells
16
WESTERN ALBERTA
Nipisi (Slave Point)
Analogue Slave Point Waterflood
• 115 MMbbls of combined OOIP (35-42 degree API) in the
Slave Point Formation at Nipisi North and Nipisi South
• Current recovery factor ~0.7% of OOIP
Gift
• Rates of return of ~50% (1)
Nipisi
• 37 gross/37 net Slave Point and Gilwood drilling
locations remain at Nipisi North and South (2)
• Commenced water injection during Q2 2013; exciting
early response
Nipisi South
• Based on successful waterflood implementation, Surge
estimates ultimate recovery of at least 20% of the
estimated 85 MMbbls of OOIP in the northern pool based
on offsetting analogous waterflooded pools
Surge Land
Surge Wells
Reef Margin Edge
17
(1) Based on Year 1 price of C$ 93.00/Bbl Edm Par, US$ 96.00/Bbl WTI, C$ 3.50/GJ
AECO, escalated at 2%/Year thereafter.
(2) As at January 1, 2014.
RISK MANAGEMENT/HEDGING STRATEGY
Oil Hedges
•
The Company has an orderly, on-going,
risk management / hedging program
designed to lock in future cash flows
to protect the Company’s capex
program and fund dividends.
•
Surge has nearly 5,000 barrels per day
of WTI oil hedged on average for 2014
at CAD$97.07, 2,750 barrels per day of
WTI oil hedged at CAD$96.70 for the
first half of 2015 and 2,000 barrels per
day of WTI oil hedged at CAD$93.27
for the second half of 2015 .
•
Surge has 7,586 mcf per day of AECO
natural gas hedged at CAD$3.61 for
the remainder of 2014, and 3,793 mcf
per day of AECO natural gas hedged at
CAD$3.87 for 2015.
49%
49%
Oil Volume
Currently Hedged
43%
5,000
Percentage of
Current Net Oil
Production Hedged
4,000
bbl/d
45%
26%
3,000
35%
25%
26%
19%
19%
15%
2,000
5%
1,000
0
-5%
Q1 2014
Q2 2014
Q3 2014
Q4 2014
Q1 2015
Time Period
Q2 2015
Q3 2015
Q4 2015
Average Oil Hedge Price
$120.00
Strip - C$ WTI
$110.00
Average C$ WTI Oil
Hedge Floor Price
$100.00
$90.00
$80.00
$70.00
$60.00
Dec-15
Nov-15
Oct-15
Sep-15
Aug-15
Jul-15
Jun-15
May-15
Apr-15
Mar-15
Feb-15
Jan-15
Dec-14
Nov-14
Oct-14
Sep-14
Aug-14
Jul-14
Jun-14
May-14
Apr-14
Mar-14
Feb-14
Jan-14
18
% Hedged of net after royalty volumes
55%
50%
6,000
WCS Differential
Hedges
bbls/d
hedged
WTI-less
USD$/bbl
1H 2014
2,500
$21.87
2H 2014
2,000
$22.71
2015
2,000
$22.71
EDM Light Differential
Hedges
bbls/d
hedged
WTI-less
USD$/bbl
Q1 2014
1,500
$8.23
Q2 2014
2,500
$7.90
Q3 2014
500
$8.70
Q4 2014
500
$8.70
SURGE – POSITIONED FOR SUSTAINABILITY
•
Low base decline 24%, high netbacks, excellent capital efficiencies
•
Very low “all-in” sustainability ratio of <89%; NO DRIP
•
Strong balance sheet; 2014 debt to funds flow ratio of <1.3x
•
Ongoing risk management/hedging program protects cash flow
19
SURGE – POSITIONED FOR GROWTH
•
Focused, high quality, crude oil asset and opportunity base; core properties
are 100% operated with working interests of >90%
•
Elite, large OOIP crude oil reservoirs – with low recovery factors;
>12 year RLI (only 2 years of FDC/cash flow)
•
Over 800 low risk development drilling locations provide >10 year
inventory
20
ANALYST COVERAGE
21
Financial Institution
Analyst
Email Address
AltaCorp. Capital
Don Rawson
[email protected]
BMO Capital Markets
Jim Byrne
[email protected]
Cannaccord Genuity
Anthony Petrucci
[email protected]
CIBC World Markets Inc.
Jeremy Kaliel
[email protected]
Cormark Securities Inc.
Todd Kepler
[email protected]
Desjardins Securities Inc.
TBD
TBD
Dundee Securities Corporation
Chad Ellison
[email protected]
FirstEnergy Capital Corp.
Cody R. Kwong
[email protected]
GMP Securities L.P.
Grant Daunheimer
[email protected]
Macquarie Securities Group
Ray Kwan
[email protected]
National Bank Financial
Dan Payne
[email protected]
Paradigm Capital
Ken Lin
[email protected]
Peters & Co. Limited
Dale Lewko
[email protected]
Raymond James
TBD
TBD
RBC Capital Markets
Shailender Randhawa
[email protected]
Scotia Capital Inc.
Cameron Bean
[email protected]
TD Securities
Juan Jarrah
[email protected]
CORPORATE PARTNERS
Advisors
Bankers:
National Bank of Canada
Bank of Nova Scotia
Canadian Imperial Bank of Commerce
ATB Financial
Toronto-Dominion Bank
JPMorgan Chase Bank, N.A.
Auditor:
KPMG LLP
Legal Counsel:
McCarthy Tétrault
Evaluation Engineers:
Sproule Associates Ltd.
McDaniel & Associates Consultants Ltd.
Registrar & Transfer Agent:
Olympia Trust Company
Investor Contacts:
Paul Colborne, President & CEO
Max Lof, CFO
2100, 635 – 8th Ave. SW, Calgary Alberta T2P 3M3
T: 403.930.1010 F: 403.930.1011
www.surgeenergy.ca
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