Surge Energy Inc. · TSX:SGY
Surge Energy — Investor Presentation (August 2018)
37 slides from Surge Energy's investor presentation, August 2018
Slide 1: Sustainable Conventional Resource Company
SUSTAINABLE CONVENTIONAL RESOURCE COMPANY TSX: SGY AUGUST, 2018
Slide 2: Reasons to Own Surge
REASONS TO OWN SURGE Value based with a strong focus on shareholder returns ▪ High quality, large OOIP, light/medium gravity crude oil asset base; 82% oil + liquids; low decline 24%; top tier capital efficiencies ▪ Excellent value proposition • 8 quarters of production + cash flow PER SHARE growth •
Slide 3: Continuing to Deliver Outstanding Results
CONTINUING TO DELIVER OUTSTANDING RESULTS Over the previous eight quarters Surge management has delivered: ▪ Five upward revisions to production guidance in ▪ Increase in unhedged funds flow and unhedged 24 months (twice organically, and three times cashflow per share of >120% from Q2/16 to through
Slide 4: Increasing Compounding Dividend
INCREASING COMPOUNDING DIVIDEND 31% Dividend Growth - Maintaining a Simple Payout of <20% $0.120 50% 45% $0.100 40% 35% $0.080 Simple Payout Ratio Annual Dividend 30% ($/Share) (%) $0.060 25% 20% $0.040 15% 10% $0.020 5% $- 0% $0.075 $0.085 $0.095 $0.100 Dividend Simple Payout 4 FOOTNOTES INCLUDED I
Slide 5: Generating Shareholder Returns
GENERATING SHAREHOLDER RETURNS The foundations for sustainability and the assets to deliver low to mid-teens annual returns Adjusted Capital Funds Flow Efficiencies Decline Netback <$22,000 per <25% CAD$24 per boe flowing boepd @ US$65 WTI (1) (Full Cycle) ✓ Strong balance sheet Foundation: ✓ Ample
Slide 6: 2018 Updated Guidance & Corporate Summary
2018 UPDATED GUIDANCE & CORPORATE SUMMARY Ticker Symbol TSX: SGY US$65 WTI(1) US$75 WTI(2) OPERATIONAL 2018 Average Production (boe/d) 16,585 16,585 2018 Exit Production (boe/d) 17,175 (82% liquids) 17,175 (82% liquids) 2018 Capital Spending $105 million $105 million Operating Expenses - 2H 2018 ($/
Slide 7: Elite Assets Focused in Three Core Areas
ELITE ASSETS FOCUSED IN THREE CORE AREAS Large OOIP pools in established conventional reservoir trends Surge 2018(e) Avg Est. Production: Total: 16,585 boe/d (82% Oil & NGL’s) Western Alberta Production: Total: ~6,850 boe/d (65% Oil & NGL’s) SE AB Production: Total: ~7,235 boe/d (90% Oil & NGL’s) Sh
Slide 8: Targeting Conventional Reservoirs
TARGETING CONVENTIONAL RESERVOIRS Surge focuses on reservoirs at the conventional end of the permeability spectrum Capital expenditures decrease, while recovery factors, rates of return, and profit to investment Ultimate Oil Recovery ratio increase, as reservoir quality improves. PIR & IRR Unconvent
Slide 9: Full Cycle Economic Drilling Inventory
“FULL CYCLE” ECONOMIC DRILLING INVENTORY 11 years of drilling locations with an average 89% risked IRR @ $65 WTI & $3 Henry Hub IRR*: 94% IRR*: 89% IRR*: 78% IRR*: 53% ✓ Strong balance sheet: 2017 Debt/CF = 1.25x ✓ Ample liquidity: ~60% drawn on bank line ✓ 7-8% production growth ✓ 2-3% dividend yie
Slide 10: Surge 5 Year Plan (Organic Growth)
SURGE 5 YEAR PLAN (ORGANIC GROWTH) SGY can grow organically to 20,000 boe/d in 5 years while generating FCF of $216MM Surge 5 Year Plan 25,000 $250 * 5 year plan uses only 47% of drilling inventory. 20,000 $200 2022 Free Cash Flow per year, $MM 2021 * Dividend kept constant at $0.095/sh 2020 56 dril
Slide 11: Large OOIP, Low Recovery Factors
LARGE OOIP, LOW RECOVERY FACTORS >1.8 Billion barrels of net OOIP; with up to 280+ Million net barrels remaining recoverable Estimated OOIP Drilling Locations Internally Estimated Ultimate Avg. CTD Oil Total Booked Independent (MMbbls) Gross/Net (1) Recovery Net Core Area Formations WI Recovery Reco
Slide 12: Three Core Conventional Reservoirs
THREE CORE CONVENTIONAL RESERVOIRS Applying proven technology to conventional reservoirs provides top tier performance and higher recovery factors U. Shaunavon Valhalla Doig Sparky Depth 1450m Depth 2000m Depth 725m Net Pay 4-10m Net Pay 15-35m Net Pay 4-12m Porosity 12-18% Porosity 6-10% Porosity 1
Slide 13: Sparky Under-Developed Compared to Similar Resource Trends
SPARKY UNDER-DEVELOPED COMPARED TO SIMILAR RESOURCE TRENDS Surge leading the charge with horizontal multi-stage fracs on the next big oil play Oil Play Comparison Alberta Sask Cum oil Recovery # of Hz Avg. oil OOIP Play Prod Factor wells Prod / Hz (Bbbl’s) (Bbl) (%) drilled (bbl/d) Sparky >11 1.0 <1
Slide 14: Sparky Core Acquisition
SPARKY CORE ACQUISITION Disciplined organic growth within strategic core areas ▪ The recent asset acquisition is the 4th major accretive Sparky core addition for Asset Acquisition Surge since 2013 and adds: Production 620boe/d • 85MMbbl’s of OOIP OOIP (MMbbls) 85 • Over 35 Sparky drilling locations
Slide 15: Southeast Alberta
SOUTHEAST ALBERTA Eyehill / Provost / Sounding Lake / Wainwright area’s – Oil saturated, stacked Cretaceous sands Wainwright ▪ Over 700 MMbbls of net OOIP (23-31° API oil) AB SK • ** >550MMbbls of net OOIP in the Sparky** ▪ 354/340 (gross/net) Total drilling locations Betty 91/89 (gross/net) booked
Slide 16: Sparky Eyehill Activity
SPARKY EYEHILL ACTIVITY >165MMbbl net OOIP estimated in the Sparky at Eyehill with 1.5MMbbl’s produced to date Eyehill - Sparky Type Log 06-14-037-03W4 Sparky Sands 06-14-37-3W4 Type Log ▪ Surge has drilled 6 Sparky horizontal wells at Eyehill in 2018. ▪ Surge has now captured and controls over 85%
Slide 17: Eyehill Sparky Waterflood Performance
EYEHILL SPARKY WATERFLOOD PERFORMANCE Waterflood pressure support flattening production profiles, and increasing EUR’s Eyehill SPKY - SGY Results vs Type Curve 160 100/12-10-037-03W4/00 Rate 102/13-10-037-03W4/00 Rate ▪ Injection commenced in December of 2015 140 Type Curve Rate ▪ Producing wells ar
Slide 18: Upper Shaunavon
UPPER SHAUNAVON Large contiguous land position in the >2.0Bbbl Upper Shaunavon trend R21W3 R19W3 Instow T10 T8 Reference: Table above sourced from Discovery Digest Volume 4, 2016 ▪ Total Shaunavon production (Upper & Lower) is currently over 2,500 bopd Dollard ▪ Upper Shaunavon is currently estimate
Slide 19: Upper Shaunavon Activity
UPPER SHAUNAVON ACTIVITY >275MMbbl (>265MMbbl net) OOIP on Surge lands in the Upper Shaunavon R20W3 R19W3 Shaunavon Type Log 15-25-005-20W3 T7 Upper Shaunavon A Sand Upper Shaunavon B Sand Upper Shaunavon C Sand T6 Lower Shaunavon T5 Progression of Upper Shaunavon Development SGY Lands Upper Shaunav
Slide 20: Upper Shaunavon Waterflood Response
UPPER SHAUNAVON WATERFLOOD RESPONSE Average production >70 bopd per well after 24 months U. Shaunavon Primary Type Curve vs Waterflood Production ▪ Waterflood: 9 horizontal Upper Shaunavon wells have been converted to injection 200 Waterflood Producers (9 Wells) Rate 180 • 5 horizontal injector conv
Slide 21: Northwest Alberta
NORTHWEST ALBERTA Large OOIP >595MMbbls net in concentrated high quality light oil reservoirs ▪ Large OOIP of >700 (595 net) MMbbls of high quality light oil (32-40° API) Valhalla OOIP: >300 mmbbl (257 mmbbl net) Nipisi ▪ Large development inventory of OOIP: 155 mmbbl 151/138 (gross/net) locations:
Slide 22: Northwest Alberta - Valhalla
NORTHWEST ALBERTA - VALHALLA Control of large OOIP stacked pay, light oil reservoirs, with working interest ownership in key facilities, and firm service agreements in place Stacked Reservoirs Sexsmith Depth Net OOIP Current 04-08-075-7W6 Formation Sour Gas Plant (m) (MMbbl) Recovery Doe Creek Oil P
Slide 23: Net Asset Value - $6.06 per Share
NET ASSET VALUE - $6.06 PER SHARE Strong Year End 2017 NAV supporting per share value YE 2017 NAV Breakdown SURGE Year End 2017 NAV*** ($241) $25 2P Reserves Value ($MM)* $1,552 $75 Reserves Value ($MM) Undeveloped Land $100 and Seismic ($MM)** Land est. ($MM) Estimated Net Debt ($MM) ($241) (unaudi
Slide 24: Positioned for Long Term Sustainability
POSITIONED FOR LONG TERM SUSTAINABILITY ▪ Low base decline <25%, high netbacks, excellent capital efficiencies ▪ Eight quarters of cost effective production and cash flow PER SHARE growth; ▪ $0.10/share annual dividend (<20% Dividend Payout Ratio); NO DRIP! ▪ Solid balance sheet; >$100 million credi
Slide 25: High Quality Crude Oil Asset Base
HIGH QUALITY CRUDE OIL ASSET BASE ▪ Focused, high quality, crude oil asset and opportunity base; 3 core areas are 100% operated, with working interests of ~90% ▪ Large OOIP crude oil reservoirs – with low recovery factors; >16 year RLI ▪ Over 700 net low risk development drilling locations provide >
Slide 26: Appendix
APPENDIX 26 FOOTNOTES INCLUDED IN THE BACK AS ENDNOTES
Slide 27: 2017 Year End Reserves
2017 YEAR END RESERVES $1.55 Billion of Total Proved plus Probable Reserves Value (NPVBT10) 2017 Year End Reserves(1) ▪ Surge replaced and Oil& NGLs Gas Total NPVBT10 Reserve Category (Mbbl) (MMcf) (Mboe) ($MM) added more than 170% of 2017 production with the Proved Producing 27,430 34,321 33,150 $6
Slide 28: Oil Hedging
OIL HEDGING Significant percentage of 2H 2018 production protected with a floor of near C$70 WTI & significant upside maintained (collars or puts acquired) 7,500 7,000 $80.00 6,500 6,000 $70.00 Weighed Average Floor Price per bbl (C$ WTI) 5,500 5,000 $60.00 4,500 bbl/d of C$ WTI Hedged 4,000 $50.00
Slide 29: Risk Management / Hedging Strategy
RISK MANAGEMENT / HEDGING STRATEGY The Company has an orderly, on-going, risk management / hedging program designed to lock in future cash flows to protect the Company’s capital program and fund dividends. Below is a list of Surge’s current hedging programs: WTI Oil Hedges Type Term bbl/d Currency P
Slide 30: Risk Management / Hedging Strategy
RISK MANAGEMENT / HEDGING STRATEGY The Company has an orderly, on-going, risk management / hedging program designed to lock in future cash flows to protect the Company’s capital program and fund dividends. Below is a list of Surge’s current hedging programs: Oil Differential Hedges Natural Gas Hedge
Slide 31: Fixing Interest Costs in a Rising Rate Environment
FIXING INTEREST COSTS IN A RISING RATE ENVIRONMENT Type Term Notional Amount (CAD$) Surge Receives Surge Pays Effective Fixed Rate SGY Pays Fixed-to-Floating Rate Swap Feb 2018 to Feb 2023 $100,000,000 Floating Rate Fixed Rate Effective All in Rate 5.13%1 Convertible Debenture Issuance Nov 2017 to D
Slide 32: Analyst Coverage
ANALYST COVERAGE Financial Institution Analyst Email Address Acumen Capital Partners Trevor Reynolds treynolds@acumencapital.com BMO Capital Markets Ray Kwan ray.kwan@bmo.com Canaccord Genuity Anthony Petrucci apetrucci@canaccordgenuity.com CIBC Dave Popowich dave.popowich@cibc.com Clarus Securities
Slide 33: Corporate Partners
CORPORATE PARTNERS Advisors National Bank of Canada Bank of Nova Scotia Canadian Imperial Bank of Commerce Toronto-Dominion Bank Bank of Montreal Bankers Syndicate: ATB Financial HSBC Bank Canada Wells Fargo Goldman Sachs BDC Capital Auditor: KPMG LLP Legal Counsel: McCarthy Tétrault Evaluation Engi
Slide 34: Forward-Looking Statements
FORWARD-LOOKING STATEMENTS FORWARD-LOOKING STATEMENTS This presentation contains forward-looking statements. More particularly, this presentation contains statements concerning anticipated: business strategies, plans and objectives; potential development opportunities and drilling locations, expecta
Slide 35: Endnotes
ENDNOTES Slide 2: (1) Based on Sproule’s independently audited reserves and Sproule’s December 31, 2017 Price Forecast, and does not include 2018 A&D activity or shares purchased by Surge as part of the NCIB. (2) Based off of US$65/bbl WTI, US$47/bbl WCS, 0.78 CAD/USD FX, $1.40/GJ AECO.; (3) This pr
Slide 36: Oil and Gas Advisory
OIL AND GAS ADVISORY "In this presentation, "Boe" means barrel of oil equivalent on the basis of 6 mcf of natural gas to 1 bbl of oil. Boe's may be misleading, particularly if used in isolation. A boe conversion ratio of 6mcf: 1 bbl is based on an energy equivalency conversion method primarily appli
Slide 37: Non-GAAP Measures
NON-GAAP MEASURES NON-GAAP MEASURES This presentation includes non-GAAP measures as further described herein. These non-GAAP measures do not have a standardized meaning prescribed by International Financial Reporting Standards (“IFRS or, alternatively, “GAAP”) and, therefore, may not be comparable w