Surge Energy Inc. · TSX:SGY
Surge Energy — Investor Presentation (March 2018)
35 slides from Surge Energy's investor presentation, March 2018
Slide 1: Sustainable Conventional Resource Company
SUSTAINABLE CONVENTIONAL RESOURCE COMPANY TSX: SGY MARCH, 2018
Slide 2: Reasons to Own Surge
REASONS TO OWN SURGE Value based with a strong focus on shareholder returns ▪ Experienced management team with proven track records ▪ High quality light/medium crude oil asset base; low decline <25%; top tier capital efficiencies ▪ Excellent value proposition • 2017 year end 2P NAV of $6.06 per comm
Slide 3: Continuing to Deliver Outstanding Results
CONTINUING TO DELIVER OUTSTANDING RESULTS Over the previous six quarters Surge management has delivered: ▪ Four upward revisions to production guidance ▪ Increase in unhedged cashflow by 83% and (twice organically, and twice with accretive unhedged cashflow per share by 75% from Q2/16 acquisitions);
Slide 4: Generating Shareholder Returns
GENERATING SHAREHOLDER RETURNS The foundations for sustainability and the assets to deliver low to mid-teens annual returns Cashflow Capital Netback Efficiencies Decline CAD$ 22/ boe @ <$22,000 per <25% US$57.50 WTI (1) flowing boepd (Full Cycle) ✓ Strong balance sheet Foundation: ✓ Ample liquidity(
Slide 5: 2018 Guidance & Corporate Summary
2018 GUIDANCE & CORPORATE SUMMARY Ticker Symbol TSX: SGY US$57.50 WTI(1) US$65.00 WTI(2) OPERATIONAL 2018 Average Production (boe/d) 16,150 16,150 2018 Exit Production (boe/d) 16,650 (82% liquids) 16,650 (82% liquids) Total Capital Spending $98.75 million $98.75 million Operating Expenses - 1H 2018
Slide 6: New Net Asset Value - $6.06 per Share
NEW NET ASSET VALUE - $6.06 PER SHARE Strong NAV supporting per share value 2017 NAV Breakdown SURGE 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) ($241) (unaudited) Seismic ($MM) Basic
Slide 7: 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 8: 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: 16,150 boe/d (82% Oil & NGL’s) Western Alberta Production: Total: ~6,150 boe/d (65% Oil & NGL’s) SE AB Production: Total: ~7,000 boe/d (90% Oil & NGL’s) Sh
Slide 9: Targeting Conventional Reservoirs
TARGETING CONVENTIONAL RESERVOIRS Surge focuses on reservoirs in the conventional end of the permeability spectrum Capital expenditures decrease, Ultimate Oil while recovery factors, rates of Recovery PIR return, and profit to investment & ratio increase, as reservoir IRR quality improves. Unconvent
Slide 10: Full Cycle Economic Drilling Inventory
“FULL CYCLE” ECONOMIC DRILLING INVENTORY 10 years of drilling locations with an average 78% risked IRR @ $55 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 11: 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 $36 MM to $380 MM 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 2
Slide 12: Large OOIP, Low Recovery Factors
LARGE OOIP, LOW RECOVERY FACTORS >1.77 Billion bbl’s net OOIP with up to >235 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 Recovery
Slide 13: 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 14: Core Area Primary Development Economics
CORE AREA PRIMARY DEVELOPMENT ECONOMICS Top tier capital efficiencies, replacement metrics and long life profit to investment ratio’s 2018 Budget Areas/Formations Profit to Capital Drill/ Internal EUR Core Locations Investment Payout NPV10 / Well Efficiency Complete/ Rates of (1) (1) 365 day IP Mboe
Slide 15: 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 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 <10% ~
Slide 16: Southeast Alberta
SOUTHEAST ALBERTA Eyehill / Provost / Sounding Lake / Wainwright area’s – Oil saturated, stacked Cretaceous sands Wainwright ▪ >700 MMbbls of net OOIP (23-31° API oil) AB SK • ** >500MMbbls of net OOIP in the Sparky** ▪ 324/321 (gross/net) Total drilling locations Betty 100/98 (gross/net) booked Lak
Slide 17: Sparky Eyehill Activity
SPARKY EYEHILL ACTIVITY >150MMbbl net OOIP estimated in the Sparky at Eyehill with <1% recovered to date Eyehill - Sparky Type Log 06-14-037-03W4 Sparky Sands 06-14-37-3W4 Type Log ▪ Surge drilled 13 Sparky horizontal wells at Eyehill in 2017. ▪ Surge has captured and controls over 80% of the total
Slide 18: 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 19: 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 2,650 bopd Dollard ▪ Upper Shaunavon is currently estimate
Slide 20: 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 21: 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 120 Waterflood Producers (9 Wells) Cum • 5 horizontal injector conversio
Slide 22: 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 153/140 (gross/net) locations:
Slide 23: 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 24: Positioned for Long Term Sustainability
POSITIONED FOR LONG TERM SUSTAINABILITY ▪ Low base decline <25%, high netbacks, excellent capital efficiencies ▪ $0.095/share annual dividend; NO DRIP! ▪ Excellent balance sheet 24 FOOTNOTES INCLUDED IN THE BACK AS ENDNOTES
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; >17 year RLI ▪ Over 700 low risk development drilling locations provide >10 y
Slide 26: Oil Hedging
OIL HEDGING Significant percentage of 2018 production protected with a floor of over C$65 WTI & significant upside maintained (collars or puts acquired) 8,000 7,500 $80.00 7,000 6,500 $70.00 Weighed Average Floor Price per bbl (C$ WTI) 6,000 5,500 $60.00 5,000 bbl/d of C$ WTI Hedged 4,500 $50.00 7,4
Slide 27: Risk Management / Hedging Strategy
RISK MANAGEMENT / HEDGING STRATEGY The Company has an orderly, on-going, risk management / hedging program designed to lock in future cash flows to protect the Company’s capital program and fund dividends. Below is a list of Surge’s current hedging programs: WTI Oil Hedges Type Term bbl/d Currency P
Slide 28: Risk Management / Hedging Strategy
RISK MANAGEMENT / HEDGING STRATEGY The Company has an orderly, on-going, risk management / hedging program designed to lock in future cash flows to protect the Company’s capital program and fund dividends. Below is a list of Surge’s current hedging programs: Oil Differential Hedges Natural Gas Hedge
Slide 29: Fixing Interest Costs in a Rising Rate Environment
FIXING INTEREST COSTS IN A RISING RATE ENVIRONMENT Type Term Notional Amount (CAD$) 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 30: 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 31: 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 32: 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 33: Endnotes
ENDNOTES Slide 2: (1) Based on Sproule’s independently audited reserves and Sproule’s December 31, 2017 Price Forecast. (2) Based on 2018e pricing averaging as follows: US$57.50 WTI/bbl; CAD$75 WTI/bbl; EDM CAD$71/bbl; WCS CAD$55/bbl; AECO CAD$1.85/mcf; (3) This presentation discloses drilling locat
Slide 34: 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 35: 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