Surge Energy Inc. · TSX:SGY

Surge Energy — Investor Presentation (May 2017)

34 slides from Surge Energy's investor presentation, May 2017

  1. Slide 1: Sustainable Conventional Resource Company

    SUSTAINABLE CONVENTIONAL RESOURCE COMPANY TSX: SGY MAY, 2017

  2. Slide 2: Reasons to Own Surge

    REASONS TO OWN SURGE 100% operated, high quality, low decline asset base  Experienced management team with proven track records  High quality light/medium crude oil asset base; low decline < 25%  Year end 2016 NAV of $5.47 per share using new Sproule pricing(1)  Return capital to shareholders th

  3. Slide 3: Outstanding Results

    OUTSTANDING RESULTS Continuing to execute a strong and sustainable business plan  Over the previous four quarters Surge management has delivered: • Three upward revisions to production guidance; >24% growth in production/share from Q2/16 to Q4/17; • A 27% increase in the dividend, while maintaining

  4. Slide 4: Fundamentals of Sustainability - Shareholder Returns

    FUNDAMENTALS OF SUSTAINABILITY - SHAREHOLDER RETURNS The foundations for sustainability and the assets to deliver low to mid-teens annual returns Cashflow Capital Netback Efficiencies Decline CAD$ 24.50/ boe <$22,000 per < 25% @ US$55 WTI flowing boepd (Full Cycle)  Strong balance sheet: 2017 Debt/

  5. Slide 5: Revised Guidance – April 2017

    REVISED GUIDANCE – APRIL 2017 Generating excess free cashflow at US$55 WTI 2017 Guidance at US$55 WTI(1) OPERATIONAL 2017 Average Production (boe/d) 14,450 (81 percent liquids) 2017 Exit Production (boe/d) 15,150 (82 percent liquids) Total Capital Spending (incl. Acquisitions) $124 million Est. Base

  6. Slide 6: Cash Flow Sensitivities

    CASH FLOW SENSITIVITIES Production growth = compounding cash flow growth at higher oil prices 2H 2017 Annualized Cashflow Sensitivity to Changes in US$ WTI(1) $200.0 $0.80 $180.0 $0.70 $160.0 $140.0 $0.60 Cashflow per Share (Basic) $120.0 $0.50 $ Millions $100.0 $0.40 $80.0 Free Cashflow After Divid

  7. Slide 7: Elite Assets Focused in Three Core Areas

    ELITE ASSETS FOCUSED IN THREE CORE AREAS Large OOIP pools in established conventional reservoirs Surge 2017(e) Avg Production: Total: 14,450 boe/d (81% Oil & NGL’s) (~57% on AB Crown) Western Alberta Production: Total: ~6,100 boe/d (64% Oil & NGL’s) SE AB Production: Total: ~5,000 boe/d (87% Oil & N

  8. Slide 8: Targeting Conventional Reservoirs

    TARGETING CONVENTIONAL RESERVOIRS Surge focuses on reservoirs in 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 Reser

  9. Slide 9: Large OOIP, Low Recovery Factors

    LARGE OOIP, LOW RECOVERY FACTORS >1.6 Billion bbl’s net OOIP with up to >227 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

  10. Slide 10: 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% Poro

  11. Slide 11: Top Tier Capital Efficiencies and Replacement Metrics

    TOP TIER CAPITAL EFFICIENCIES AND REPLACEMENT METRICS Large drilling inventory with excellent economics $55 WTI pricing 2017 Budget Areas/Formations Capital Internal EUR Core Drill/ Complete/ Payout(1) NPV10 / Locations Efficiency Rates of 365 day IP Mboe/well Area Equip/ Tie-in (Years) Well(1) Gros

  12. Slide 12: 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 3,000 Dollard bopd  Upper Shaunavon currently estimated t

  13. Slide 13: 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

  14. Slide 14: Upper Shaunavon Performance

    UPPER SHAUNAVON PERFORMANCE Surge exceeding expectations in the Upper Shaunavon Upper Shaunavon - SGY Results vs Type Curve 250.0 Budget 2017 SHVN TC Rate Budget 2017 SHVN TC Cum 200.0 Sproule YE2016 Type Curve Rate Sproule YE2016 Type Curve Cum SGY Wells Normalized Rate (34 wells) Rate (bopd), Cum

  15. Slide 15: Upper Shaunavon Waterflood Response

    UPPER SHAUNAVON WATERFLOOD RESPONSE Production flattening above type curve at ~100 bopd after >18 months Upper Shaunavon SGY Type Curve vs 193/13-31-5-19W3 ~80 bopd increase to date due to waterflood response 250 100.0 13-31 EUR 200 80.0 >300 Mbbl Cum Oil (mstb) 150 60.0 Rate (bopd) 100 40.0 100 bop

  16. Slide 16: Southeast Alberta

    SOUTHEAST ALBERTA Provost / Eyehill / Wainwright area’s – Oil saturated Cretaceous sands Wainwright Alberta Sask  >500 MMbbls of net OOIP (23-31° API oil)  Current recovery factor of ~13% (value is skewed to Betty Lake the high side due to +30% recovery at Wainwright)  Eyehill Sparky horizontal w

  17. Slide 17: Sparky Under-Developed Compared to Similar Resource Trends

    SPARKY UNDER-DEVELOPED COMPARED TO SIMILAR RESOURCE TRENDS Surge leading the pack 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% 470

  18. Slide 18: Sparky Eyehill Activity

    SPARKY EYEHILL ACTIVITY >100MMbbl 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 16 Sparky horizontals using monobore design, lowering costs to an average of ~$1.0 million per well

  19. Slide 19: Sparky Performance

    SPARKY PERFORMANCE Sparky play exceeding expectations Eyehill SPKY - SGY Results vs Type Curve 120 SGY Wells Normalized Rate (16 Wells) SGY Wells Avg. Cum Production Rate (bopd), Cumulative Oil Production (mbbls) Type Curve Rate 100 Type Curve Cum Sproule YE2016 Type Curve Rate Sproule YE2016 Type C

  20. Slide 20: Northwest Alberta

    NORTHWEST ALBERTA Large OOIP >615MMbbls net in concentrated high quality light oil reservoirs  Large OOIP of >736 (615 net) MMbbls of high quality light oil (32-40° API) Valhalla  Large development inventory of OOIP: 280 mmbbl Nipisi (237 mmbbl net) OOIP: 155 mmbbl 198/182 (gross/net) locations: (

  21. Slide 21: Northwest Alberta - Valhalla

    NORTHWEST ALBERTA - VALHALLA Working interest ownership in key facilities, and firm service agreements for Alliance and TCPL pipelines mitigate production restrictions Valhalla Doig  ~150 MMbbls of net combined OOIP on Surge’s Sexsmith Valhalla and Wembley Lands (40° API light oil) 04-08-075-7W6 Do

  22. Slide 22: Positioned for Long Term Sustainability

    POSITIONED FOR LONG TERM SUSTAINABILITY  Low base decline <25%, high netbacks, excellent capital efficiencies  $0.095 annual dividend; NO DRIP!  Excellent balance sheet – one of the best in the peer group FOOTNOTES INCLUDED IN THE BACK AS ENDNOTES 22

  23. 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 low risk development drilling locations provide >10 y

  24. Slide 24: 2016 Year End Reserves

    2016 YEAR END RESERVES ~$1.3 Billion of Total Proved plus Probable Reserves Value (NPVBT10) 2016 Year End Reserves(1)  Surge replaced more than Oil& NGLs Gas Total NPVBT10 Reserve Category (Mbbl) (MMcf) (Mboe) ($MM) (2) 130% of 2016 production with the addition of Proved Producing 23,813 33,028 29,

  25. Slide 25: Net Asset Value - $5.47 per Share

    NET ASSET VALUE - $5.47 PER SHARE Strong NAV supporting per share value SURGE 2016 NAV 2P Reserves Value ($MM)* $1,301 Undeveloped Land $96 and Seismic ($MM)** Estimated Net Debt ($MM) ($162) (unaudited) Basic Shares Outstanding (MM) 225.8 NAV/Share $5.47 *Based on Sproule’s December 31, 2016 price

  26. Slide 26: Oil Hedging

    OIL HEDGING Significant percentage of 2017 production protected with a floor of over C$65 WTI 5,500 $85.00 5,000 $75.00 4,500 Weighed Average Floor Price per bbl (C$ WTI) 4,000 $65.00 3,500 bbl/d of C$ WTI Hedged $55.00 3,000 4,750 bbl/d 2,500 $45.00 3,750 bbl/d 3,750 bbl/d 2,000 $35.00 2,500 bbl/d

  27. Slide 27: Risk Management / Hedging Strategy – 2017 Onwards

    RISK MANAGEMENT / HEDGING STRATEGY – 2017 ONWARDS 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 Oil Differe

  28. Slide 28: Risk Management / Hedging Strategy – 2017 Onwards

    RISK MANAGEMENT / HEDGING STRATEGY – 2017 ONWARDS 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: Natural Gas Hedges Swap Pr

  29. Slide 29: 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

  30. Slide 30: 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

  31. Slide 31: 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

  32. Slide 32: Endnotes

    ENDNOTES Slide 2: (1) Based on Sproule's December 31, 2016 Price Forecast (2) This presentation discloses drilling locations in three categories: (i) proved locations; (ii) probable locations; and (iii) unbooked locations. Proved locations and probable locations, which are sometimes collectively ref

  33. Slide 33: 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

  34. Slide 34: 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

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