Surge Energy Inc. · TSX:SGY
Surge Energy — Investor Presentation (August 2016)
32 slides from Surge Energy's investor presentation, August 2016
Slide 1: Sustainable Conventional Resource Company
SUSTAINABLE CONVENTIONAL RESOURCE COMPANY TSX: SGY AUGUST, 2016
Slide 2: Reasons to Own Surge
REASONS TO OWN SURGE 100% operated, high quality, low decline asset base High quality light/medium crude oil asset base; low decline < 23% NAV of $4.79 per share using Sproule and Associates pricing(1) • Alberta modern royalty framework expected to add $33 million to NAV or $0.15/per share(2)
Slide 3: Surge Energy
SURGE ENERGY Well positioned for growth and sustainable dividends Total Proved plus Probable Reserves of 80.7 mmboe(1) 2016(e) Exit Production Rate 13,000 boepd (76% oil) Low Decline of < 23% (RLI >17 years) Q2 2016 net debt: $134.6 million (~54% drawn on $250 million credit facility) Loca
Slide 4: Proactive Management
PROACTIVE MANAGEMENT Positioned to accelerate and grow as crude oil prices continue to rally Created over $763MM in liquidity since oil prices began to fall in 2014 • $512MM in accretive asset/facility sales • $117MM in dividend reductions (annualized) • $90MM in Capex reductions • $44MM in hedge
Slide 5: 2016 Capital Program
2016 CAPITAL PROGRAM Protecting NAV and balance sheet through conservative capital spending OPERATIONAL 2016(e) Exit Production (boe/d) 13,000 (76% Oil/NGLs) Capital Spending for 2016 ~$55 million • DCET $32.4 million • Waterflood $1.5 million • Facilities $6.2 million • Workover $7.2 million • Land
Slide 6: Cash Flow Sensitivities
CASH FLOW SENSITIVITIES Surge is well positioned to accelerate out of the downturn Production growth = compounding cash flow growth at higher oil prices: 2017 Growth Sensitivity Oil USD WTI $48* $55 $60 CAD $ $0.77 $0.80 $0.83 Production 13,000 13,500 14,027 FFO, MM$ 71.5 100.0 124.0 Capital, MM$ 55
Slide 7: Elite Assets Focused in Three Core Areas
ELITE ASSETS FOCUSED IN THREE CORE AREAS Large OOIP pools in established conventional reservoirs Surge 2016(e) Exit Production: Total: 13,000 boe/d (79% Oil & NGL’s) (~57% on AB Crown) Western Alberta Production: Total: ~6,300 boe/d (64% Oil & NGL’s) SE AB Production: Total: ~3,450 boe/d (87% Oil &
Slide 8: Core Area Details
CORE AREA DETAILS >1.5 Billion bbl’s net OOIP with up to ~190 Million net barrels remaining recoverable Drilling Locations Internally Estimated Ultimate OOIP (MMbbls) Gross/Net(2) Avg. CTD Oil Total Booked Independent (1) Recovery Net Core Area Formations WI Recovery Recovery Factor P+P (1) (Waterfl
Slide 9: Targeting Conventional Reservoirs
TARGETING CONVENTIONAL RESERVOIRS Large OOIP, high quality reservoirs tend to get larger over time Conventional reservoirs tend to outperform over time: • Year over year recovery factor reserve additions • Long life, low decline production • Higher ultimate recoveries • Enhanced oil recovery by ap
Slide 10: Conventional vs. Unconventional Reservoirs
CONVENTIONAL VS. UNCONVENTIONAL RESERVOIRS Surge targets reservoirs on the conventional end of the permeability spectrum Ultimate Oil Capital expenditures decrease, Recovery while recovery factors and ROR rates of return increase, as reservoir quality improves. Unconventional Conventional Reservoirs
Slide 11: 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 8 - 12m Porosity 12-18% Porosity 6-10% Poro
Slide 12: Top Tier Capital Efficiencies and Replacement Metrics
TOP TIER CAPITAL EFFICIENCIES AND REPLACEMENT METRICS Large inventory with excellent economics on August 2016 strip pricing 2016 Budget Areas/Formations Rates of Core Capital Drill/ Complete/ Payout(1) NPV10 / Mboe/well Locations Return (1) 180 day IP Area Efficiency Equip/ Tie-in (August 2016 Strip
Slide 13: Upper Shaunavon
UPPER SHAUNAVON Large contiguous undeveloped land position in the greater Upper Shaunavon trend R21W3 R19W3 Upper Shnvn Well Count Depth OOIP Cum Oil Peak Rate Current Rate T10 Instow Area/Pool Vt Hz (m) (MMbbl) (MMbbl) (bbl/d) (bbl/d) Instow 118 2 1,370 152 71 9,420 2,600 Dollard 109 5 1,400 179 10
Slide 14: Upper Shaunavon Activity
UPPER SHAUNAVON ACTIVITY >250MMbbl OOIP on Surge lands in the Upper Shaunavon R21W3 R20W3 R19W3 Upper Shaunavon A Sand T7 Upper Shaunavon B Sand Upper Shaunavon C Sand Lower Shaunavon T6 SGY Q2 ‘16 U. Shvn Hz Waterflood Support 192/16-36-005-19W3 193/13-31-005-19W3 On Prd June 2016 >100 bbls/d after
Slide 15: Upper Shaunavon Performance
UPPER SHAUNAVON PERFORMANCE Surge horizontal results in the Upper Shaunavon outperforming area average FOOTNOTES INCLUDED IN THE BACK AS ENDNOTES 15
Slide 16: Upper Shaunavon Waterflood Response
UPPER SHAUNAVON WATERFLOOD RESPONSE Production flattening above type curve at over 100 bopd after 10 months FOOTNOTES INCLUDED IN THE BACK AS ENDNOTES 16
Slide 17: Northwest Alberta
NORTHWEST ALBERTA Large OOIP >585MMbbls net in concentrated high quality light oil assets Large OOIP of >695 (585 net) MMbbls of high quality light oil (32-40° API) Valhalla OOIP: 228 mmbbl Large development inventory of (195 mmbbl net) Nipisi 189/177 (gross/net) locations: OOIP: 155 mmbbl (150
Slide 18: Northwest Alberta - Valhalla
NORTHWEST ALBERTA - VALHALLA Firm service agreements for Alliance and TCPL pipelines mitigate production restrictions Valhalla Doig ~140 MMbbls of net combined OOIP on Surge’s Sexsmith Valhalla and Wembley Lands (40° API light oil) Doe Creek Oil Pool >60MMbbl 04-08-075-7W6 Rates of return over 2
Slide 19: Valhalla Doig Performance
VALHALLA DOIG PERFORMANCE 2015/2016 drilling in Valhalla yielded 4 of the top oil wells in Canada North Valhalla Doig Recent drilling results outperforming type curve and exceeding expectations Optimization of drilling and completion techniques are improving results and lowering capex 02/15-06-0
Slide 20: Southeast Alberta - Sparky
SOUTHEAST ALBERTA - SPARKY Provost / Eyehill / Wainwright area’s – Oil saturated Cretaceous sands Wainwright Alberta Sask >470 MMbbls of net OOIP (23-31° API oil) Current recovery factor of ~14% Betty Lake Eyehill Sparky waterflood implemented in Q4 2014 Control of key infrastructure 167/1
Slide 21: Sparky Eyehill Activity
SPARKY EYEHILL ACTIVITY >90MMbbl net OOIP estimated in the Sparky at Eyehill R3W4 R2W4 Eyehill - Sparky Type Log 06-14-037-03W4 Sparky Sands 06-14-37-3W4 Type Log T37 Recently drilled and completed 5 consecutive Sparky horizontals using monobore design, lowering costs to an average of $1.15 millio
Slide 22: Positioned for Long Term Sustainability
POSITIONED FOR LONG TERM SUSTAINABILITY Low base decline <23%, high netbacks, excellent capital efficiencies $0.075 annual dividend; NO DRIP! Excellent balance sheet – one of the best in the peer group FOOTNOTES INCLUDED IN THE BACK AS ENDNOTES 22
Slide 23: 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 net low risk development drilling locations provide >
Slide 24: 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 capex program and fund dividends. Below is a list of Surge’s current hedging programs: Oil Hedges Natural Gas Hedges Floor Ceiling
Slide 25: Oil Hedging Philosophy
OIL HEDGING PHILOSOPHY Reflects management best efforts, not hedge policy 4,000 $78.33 $78.33 $80.00 3,500 $70.99 Ceiling $70.99 $70.00 C$ WTI - Average hedge Floor / Ceiling Price $66.57 3,000 Targeted Hedging level 2,500 $60.00 bbl/d Hedged $53.33 $53.33 2,000 Floor $50.00 $49.00 $49.00 1,500 $45.
Slide 26: 2015 Year End Reserves
2015 YEAR END RESERVES ~$1.1 Billion of Total Proved plus Probable Reserves Value (NPVBT10) 2015 Year End Reserves Proforma Sunset Asset Sale Oil& NGLs Gas Total Reserve Category NPVBT10 ($MM) (1) (Mbbl) (MMcf) (Mboe) Proved Producing 21,413 33,642 27,020 $442 Proved Non-Producing 1,114 3,288 1,662
Slide 27: 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 28: 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 29: 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 30: Endnotes
ENDNOTES Slide 2: (1) Based on Sproule's December 31, 2015 Price Forecast (2) Based on Sproule’s royalty sensitivity report prepared for Surge Energy Inc. June 2016. The royalty sensitivity report was generated using Surge’s December 31, 2015 reserves Slides 3 & 8: (1) December 31, 2015 reserves pro
Slide 31: 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 32: 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