Surge Energy Inc. · TSX:SGY
Surge Energy — Investor Presentation (February 2013)
42 slides from Surge Energy's investor presentation, Feb 11, 2013
Slide 1: A Balanced Approach to Value Creation
“A Balanced Approach to Value Creation” February 2013 TSX:SGY
Slide 2: Forward-Looking Statements Advisory
Forward-Looking Statements Advisory This presentation contains forward-looking statements. More particularly, this presentation contains statements concerning anticipated: (i) capital expenditures for 2013 including the breakdown of planned expenditures by class and area, (ii) exploration, developme
Slide 3: Outline
Outline Surge Snapshot 2012 Year-End Reserves 2013 Budget and Guidance Operations Update Longer-Term Growth Initiatives 3
Slide 4: Surge Energy Inc. Corporate Profile
Surge Energy Inc. Corporate Profile LISTING MARKET CAPITALIZATION TSX: SGY > $265 million(1) OIL DRILLING INVENTORY NET UNDEVELOPED LAND > 585 gross (450 net) ~485,000 acres BASIC/FULLY DILUTED SHARES O/S BASIC/FULLY DILUTED INSIDER OWNERSHIP 71.2/79.8 million(2) 3% / 11% AVERAGE TRADING LIQUIDITY S
Slide 5: 2012 Year-End 2P Reserves Summary
(1)(2) 2012 Year-End 2P Reserves Summary Reserves by Category Value – NPV10% BT Reserves by Commodity Type PDNP 3% PUD PUD Gas 18% 23% PDNP 31% 3% PDP Probable 50% PDP 39% Probable Oil 35% 29% 64% NGLs 5% (1) Reserves evaluated by Sproule Associates Ltd. (“Sproule”) as at December 31, 2012. (2) Plea
Slide 6: 2012 Year-End Reserves Highlights
2012 Year-End Reserves Highlights 2012 3 Year Avg 2012 3 Year Avg $/boe $/boe Recycle Recycle Ratio(1) Ratio(2) 2P F&D Including ∆ in FDC 23.70 18.56 1.5 1.8 2P FD&A Including ∆ in FDC 23.32 21.16 1.5 1.6 • Increased 2P reserves by 43% from 2011 to 2012 • Increased 2P reserves per FD share by 29% fr
Slide 7: Net Asset Value (NAV) as at December 31, 2012
Net Asset Value (NAV) as at December 31, 2012 Proved + Probable (2P) Proved (1P) Proved Plus Probable Reserve Value (MM) $732 $523 (Including Future Development Capital)(1) Undeveloped Land (MM) $74 $74 (486,763 acres @ $150/acre) Estimated Net Debt (MM) (unaudited) ($220) ($220) Option & Performanc
Slide 8: 2013 Capital Expenditures & Guidance
2013 Capital Expenditures & Guidance • $140MM capital budget with a balanced focus between production growth (16% growth in average daily production per share) and unlocking additional value in its high quality, large DPIIP light oil assets o $124MM for 2013 drilling program o $9MM for waterflood im
Slide 9: 2013 Guidance
(1) 2013 Guidance PRODUCTION December Average 2013 Production (boe/d): 11,500 (73% oil and NGLs) Average 2013 Production (boe/d): 10,300 (~73% oil & NGLs) CAPITAL SPENDING Capital Expenditure: $140 MM (2) Operating Netback: $36.01 DEBT Bank Line: $290 MM Estimated Year-End Net Debt: $250MM (2.0X deb
Slide 10: Growth per Share
Growth per Share Forecasting 15% growth in production/basic share and 18% growth in cash flow/basic share in 2013 Production Cash Flow Reserves 152 Average Production (boe/d) 145 $1.62 2P Reserves (MMboe) Production (boe/d)/MM basic shares 648 Cash Flow ($MM) 126 $1.31 $1.54 518 557 Cash Flow per ba
Slide 11: 2012 & 2013 Capital Expenditure Comparison
(1) 2012 & 2013 Capital Expenditure Comparison 45% $45,000 2012 2013 40% $40,000 $48mm (2) $37,446 Capital efficiency per flowing barrel $57mm 35% $35,000 2013 Estimated Capital Efficiency per flowing barrel 30% $30,000 $28,967 Percentage of D&C Capex Budget $31mm 25% $25,000 $23,906 $33mm $33mm $20
Slide 12: 53% of 2013 Oil & NGL net production hedged
2 53% of 2013 Oil & NGL net production hedged 1H 2013: 3,500 bbl/d hedged at an average floor price of C$93.08 2H 2013: 2,850 bbl/d hedged at an average floor price of C$93.85 2014: 1,000 bbl/d hedged at an average floor price of C$91.83 Surge has 53% of 2013 net oil production hedged at $93.43 C$WT
Slide 13: WTI-Edmonton Light Differential Hedging
WTI-Edmonton Light Differential Hedging Q2 - Q4 2013: 33% of net oil & NGL production differentials hedged at an average discount to WTI of $7.84. 2,500 $- WTI-to-Edm Differential - Barrels Hedged $(2.00) Average WTI-to-Edm Differential Price Hedged 2,000 $(4.00) $(6.00) -$7.50 -$7.68 -$7.68 -$7.68
Slide 14: 50% of 2013 net natural gas production hedged
50% of 2013 net natural gas production hedged 2013: 8,440 mcf/d of gas hedged at an average price of $3.40/mcf 2014: 4,220 mcf/d of gas hedged at an average price of $3.70/mcf 12,000 $4.00 10,000 $3.50 Gas volume currently hedged (mcf/day) 8,000 $3.00 Average swapped price in mcf Gas price mcf/day i
Slide 15: Core Operating Areas
Core Operating Areas WESTERN ALBERTA SOUTH EAST ALBERTA WILLISTON BASIN Percent of 2012 Reserves: 75% 18% 7% Percent of 2013 Capex: 64% 26% 10% Net Undeveloped Land: ~260,000 acres ~134,000 acres ~91,000 acres Remaining Oil Drilling Locations: 108 gross (99 net) 62 gross (61 net) 310 gross (198 net)
Slide 16: Waterflood Portfolio
Waterflood Portfolio Exposure to ~570 mmbbls of DPIIP with <1% oil recovery to date Tight Oil Waterflood Property Existing Conventional and Future Tight Oil Waterflood Properties Valhalla South/ Core Areas: Windfall SE Alberta Nipisi Williston Basin Wembley Cretaceous Formation: Doig Bluesky Slave P
Slide 17: Western Alberta – Valhalla South/Wembley (Doig)
Western Alberta – Valhalla South/Wembley (Doig) Overview: (1) Valhalla South (Doig) • Valhalla South DPIIP increased by 15% to 115 mmbbls net (40 degree API light oil) from 99 mmbbls net • At Wembley, acquired 18 mmbbls gross/net DPIIP (40 degree API) • Current oil recovery <4% of DPIIP 2013 Initiat
Slide 18: Valhalla South (Doig) – Holding Applications
Valhalla South (Doig) – Holding Applications Overview: • Surge has received objections to holding applications before the ERCB, which are necessary to further downspace the Doig pool to its optimal development well density • Allegations are made that Halfway gas cross-flows into the Doig Formation a
Slide 19: Western Alberta - Nipisi/Gift (Slave Point/Gilwood)
Western Alberta - Nipisi/Gift (Slave Point/Gilwood) Overview: Analogue Slave Point Waterflood (1) • 115 mmbbls gross (115 mmbbls net) DPIIP (35-42 degree API) in the Slave Point Formation • Current oil recovery <1% of DPIIP 2013 Initiatives: • 4 gross (4 net) wells budgeted in the main block • Drill
Slide 20: Nipisi (Slave Point) Operations Update
Nipisi (Slave Point) Operations Update Highlights: • Confirmation of increased DPIIP • Successfully drilled down dip of the oil/water contact zone, increasing the DPIIP in the main block from 65 mmbbls to 85 mmbbls • All 9 wells drilled and completed in 2012 now have 90 days production data o Averag
Slide 21: Nipisi (Slave Point) – Well Data and Revised Economics
Nipisi (Slave Point) – Well Data and Revised Economics 500.0 100% (1) 2013 Type Curve(1) EUR: 200 mbbl 450.0 90% Best IP 30: 175 bbl/d Cost: $3.8mm 400.0 IRR: 53.6% 80% F&D: $19.00/bbl 350.0 NPVBT10: $3,345m 70% PIR: 2.48 Production Rate (boe/d) PE(12mo): $37,446/boed 300.0 60% Water Cut (%) 250.0 5
Slide 22: Williston Basin (Spearfish)
Williston Basin (Spearfish) Overview: Pierson (1) Waskada • 202 mmbbls gross (150 mmbbls net) DPIIP (36 degree API) Goodlands • Current oil recovery <1% of DPIIP CANADA USA • Continue technical review of ~85,000 net acres of undeveloped land in North Dakota Focus Area for Surge Landa 2012 North Dako
Slide 23: Waskada Pilot Waterflood Initiative
Waskada Pilot Waterflood Initiative Surge Land Surge Horizontal Producing Wells Planned Hz Well Conversions Injection Pipeline 16-3 Battery Highlights: • Modeled area for voidage replacement: NW Quarter of Section 3-002-26w1 • Injection pipeline (From 16-3 BTY to 15-3 pad, 14-3 pad, 11-3 pad and 10-
Slide 24: 100% Drilling Success in North Dakota
100% Drilling Success in North Dakota Area Operators: ARC Resources CNRL EOG Hess Legacy Penn West Petrobakken Renegade Surge Hz multi-frac Spearfish wells Planned 2013 vertical wells • Spearfish light oil play continues to be delineated in North Dakota – 44 Hz multi-frac wells have been drilled int
Slide 25: Western Alberta – Windfall (Bluesky)
Western Alberta – Windfall (Bluesky) Overview: • 60 mmbbls gross (60 mmbbls net) DPIIP (1) (36 degree API light oil) • Current oil recovery <1% of DPIIP • More than doubled Hz oil drill inventory since acquiring 2013 Initiatives: • Drill 1 gross (1 net) Hz multi-frac well • Convert additional Hz mul
Slide 26: Windfall – 2012 Hz Well Pilot Waterflood
Windfall – 2012 Hz Well Pilot Waterflood Surge Land Bluesky Cumulative Oil Recovered Surge Horizontal Producing Wells 9-9-59-15 W5 Horizontal Injector Highlights: • Commenced injection into Surge’s 9-9-59-15W5 well on Sept 25, 2012 • Injection rates currently meeting expectations at 750 bbls of wate
Slide 27: SE Alberta – (Cretaceous Sands)
SE Alberta – (Cretaceous Sands) Silver Overview: • Low-decline, high ROR assets that provide reliable base cash flow (1) • 141 mmbbls gross (133 mmbbls net) DPIIP (27-31 degree API) • Continue to see positive oil response from expanded Leela waterflood initiatives in two zones 2013 Initiatives: • Dr
Slide 28: Silver Lake (Cretaceous Sands) Waterflood Progress
Silver Lake (Createceous Sands) Waterflood Progress Highlights: • 16 mmbbls DPIIP with an estimated ultimate recovery factor of 40%. • Under waterflood since 2007. • Increased the injection and facility water handling capacity by 100% to 4,000 m3/d during July 2012. • Field production up 20% post ex
Slide 29: New Play Initiatives
New Play Initiatives Surge continues to be successful in capturing new oil resource and has added >140 mmbbls of internally estimated DPIIP since January 2012: o Wembley (Doig): 18 mmbbls DPIIP o Nipisi South (Slave Point): 30 mmbbls DPIIP o Utikuma (Slave Point): 14 mmbbls DPIIP o Provost (Cretaceo
Slide 30: Summary
Summary • Balanced Approach to Value Creation in 2013 o Forecasting double digit average daily production growth/basic share and cash flow/basic share o Focused on improving operational performance and capital efficiencies o Proactively maintaining the Company’s balance sheet flexibility • Significa
Slide 31: Appendix
—S$GRGE ENERGY INC
Slide 32: NI 51-101 - Standards of Disclosure for Oil and Gas Activities
NI 51-101 - Standards of Disclosure for Oil and Gas Activities • In accordance with National Instrument 51-101 - Standards of Disclosure for Oil and Gas Activities (NI 51-101), Sproule prepared the Surge Sproule Report. This report evaluated, as at December 31, 2012, approximately 97 percent of Surg
Slide 33: Surge Energy Inc. Business Plan
Surge Energy Inc. Business Plan EVOLVE INTO A TOP TIER INTERMEDIATE LIGHT OIL PRODUCER Acquire & Develop U N D E R E X P LOI T E D O I L R E S O U R C E P L AY S Identify Optimize & Capture Oil Recovery NEW OIL I N C LU D IN G R E S O U RC E P L AY S WAT E R F LOO D S 33
Slide 34: Valhalla South (Doig) Type Curve and Key Metrics
Valhalla South (Doig) Type Curve and Key Metrics 700 (1) Key Metrics: 600 Best Month Average 620 boe/d Production Rate: (76% oil and NGLs) 500 670 mboe Reserves/Well: (53% oil and NGLs) Production Rate 400 NPV/Well : $10.2 MM Profit/ Investment Ratio: 3.5 300 Rate of Return: >150% Payout (in years)
Slide 35: SE Alberta (Cretaceous Sands) Type Curve and Key Metrics
SE Alberta (Cretaceous Sands) Type Curve and Key Metrics 120 Key Metrics: (1) 100 Best Month Average 110 bbls/d (100% oil) Production Rate: Reserves/Well: 100 mboe (100% oil) Production Rate (bbls/d) 80 NPV/Well : $1.9 MM Profit/ Investment Ratio: 2.6 60 Rate of Return: >150% Payout (in years) 0.9 4
Slide 36: Windfall (Bluesky) Type Curve and Key Metrics
Windfall (Bluesky) Type Curve and Key Metrics 200 Key Metrics: (1) 180 Best Month Average >185 boe/d 160 Production Rate: (69% oil and NGLs) 250 mboe Reserves/Well: 140 (54% oil and NGLs) NPV/Well : $2.6 MM Production Rate 120 Profit/ Investment Ratio: 1.6 100 Rate of Return: >35% 80 Payout (in year
Slide 37: Waskada (Spearfish) Type Curve and Key Metrics
Waskada (Spearfish) Type Curve and Key Metrics 120 Key Metrics:(1) Best Month Average 100 100 bbls/d (100% oil) Production Rate: Reserves/Well: 70 mboe (100% oil) Production Rate (bbls/d) 80 NPV/Well : $2.1 MM Profit/ Investment Ratio: 1.6 60 Rate of Return: >55% Payout (in years) 1.5 40 Target Capi
Slide 38: North Dakota (Spearfish) Type Curve and Key Metrics
North Dakota (Spearfish) Type Curve and Key Metrics 140 (1) Key Metrics: 120 Best Month Average 125 bbls/d (100% oil) Production Rate: 100 Reserves/Well: 70 mboe (100% oil) Production Rate (bbls/d) NPV/Well : $1.2 MM 80 Profit/ Investment Ratio: 0.84 Rate of Return: >55% 60 Payout (in years) 2.0 Tar
Slide 39: Detailed Economics of Key Oil Resource Plays
Detailed Economics of Key oil Resource Plays Economic Valhalla South Windfall Nipisi SW Manitoba North Dakota South East Alberta Inputs/Outputs: (Doig) (1) (2) (Bluesky) (1) (2) (Slave Point) (1) (2) (Spearfish) (1) (Spearfish) (1) (Cretaceous Sands) Drill $2.8 MM $2.05 MM $1.7 MM $0.55 MM $0.70 MM
Slide 40: Directors and Officers
Directors and Officers Executive Most Recent Position Dan O’Neil President & CEO, Breaker Energy Ltd. President, Chief Executive Officer & Director Dan Brown Chief Operating Officer, Breaker Energy Ltd. Chief Operating Officer Max Lof Chief Financial Officer, Breaker Energy Ltd. Chief Financial Offi
Slide 41: Surge Analyst Coverage
Surge Analyst Coverage Financial Institution Analyst Email Address AltaCorp. Capital Don Rawson drawson@altacorpcapital.com BMO Capital Markets Jim Byrne jim.byrne@bmo.com CIBC World Markets Inc. Arthur Grayfer arthur.grayfer@cibc.com Cormark Securities Inc. Jonathan Fleming jfleming@cormark.com Des
Slide 42: Corporate Partners
Corporate Partners Advisors National Bank of Canada Bank of Nova Scotia Bankers: Canadian Imperial Bank of Commerce ATB Financial JPMorgan Chase Bank, N.A. Auditor: KPMG LLP Legal Counsel: Heenan Blaikie LLP Evaluation Engineers: Sproule Associates Registrar & Transfer Agent: Olympia Trust Company D