Surge Energy Inc. · TSX:SGY

Surge Energy — Investor Presentation (March 2016)

32 slides from Surge Energy's investor presentation, March 2016

  1. Slide 1: Sustainable Conventional Resource Company

    SUSTAINABLE CONVENTIONAL RESOURCE COMPANY TSX: SGY MARCH, 2016

  2. 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 ~19%  NAV of $4.88 per share using Sproule and Associates new lower pricing(1)  Return capital to shareholders through dividend and share buyback option • $0.15/sh

  3. Slide 3: Surge Energy

    SURGE ENERGY Well positioned for growth and sustainable dividends  Total Proved plus Probable Reserves of 85.8 mmboe(1)  2016 Average Production Rate 14,000 boepd (76% oil)  Low Decline of ~19% (RLI >16 years)  Year End 2015 Net Debt: $160MM ($117 proforma Q1 asset & facility sales)  Bank line:

  4. Slide 4: 2015 Year End Highlights

    2015 YEAR END HIGHLIGHTS Positioned for a “lower for longer” crude oil price scenario; Top tier operational results  Completed $465MM in accretive asset sales at an average price of ~$90,000/boepd  Reduced OPEX by 20% and Gross G&A by 36% year over year  Drilled three of the top producing oil wel

  5. Slide 5: 2015 Year End Reserve Highlights

    2015 YEAR END RESERVE HIGHLIGHTS Maintained reserves and achieved historically low F&D with high quality, large OOIP reservoirs  “All-in” Proved plus Probable F&D of $6.08 per boe  Proved plus Probable reserves totaling 85.8 million barrels(1)  Maintained 99% of year end 2014 reserves (after a fu

  6. Slide 6: 2016 Capital Program

    2016 CAPITAL PROGRAM Protecting NAV and balance sheet through conservative capital spending OPERATIONAL Average Production (boe/d) for 2016 14,000 (76% Oil/NGLs) Capital Spending for 2016 $50 million • DCET $26.9 million • Waterflood $1.5 million • Facilities $6.2 million • Workover $7.7 million • L

  7. Slide 7: $50MM(e) Capex to Maintain 14,000 boe/d in 2016

    $50MM(e) CAPEX TO MAINTAIN 14,000 BOE/D IN 2016 Maintaining production with modest capital as a function of low corporate declines and excellent well results Estimated 2016 Capital Required to Maintain 14,000 boe/d IP365 Capital Allocation Capital / Well Total Capital # of Drills Production Adds Are

  8. Slide 8: Elite Assets Focused in Three Core Areas

    ELITE ASSETS FOCUSED IN THREE CORE AREAS Large OOIP pools in established conventional reservoirs Surge 2016 Avg. Production: Total: >14,000 boe/d (76% Oil & NGL’s) (~57% on AB Crown) Western Alberta Production: Total: ~7,800 boe/d (66% Oil & NGL’s) SE AB Production: Total: ~3,500 boe/d (88% Oil & NG

  9. Slide 9: Core Area Details

    CORE AREA DETAILS ~1.5 Billion bbl’s net OOIP with potential to recover an additional ~125 Million net unbooked bbl’s Internally Estimated Ultimate OOIP (MMbbls) Drilling Locations Avg. CTD Oil Total Booked Independent (1) Recovery Net Core Area Formations WI Recovery Recovery Factor P+P (1) (Waterf

  10. Slide 10: 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

  11. Slide 11: 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

  12. Slide 12: Three Core Conventional Reservoirs

    THREE CORE CONVENTIONAL RESERVOIRS Applying proven technology to conventional reservoirs helps provide 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%

  13. Slide 13: Top Tier Capital Efficiencies and Replacement Metrics

    TOP TIER CAPITAL EFFICIENCIES AND REPLACEMENT METRICS Large inventory with excellent economics using March 2016 strip pricing Areas/Formations Capital Rates of Drill/ Complete/ Mboe/well Core Area Locations Efficiency Return (1) Equip 180 day IP (on primary) (Gross / Net) (March 2016 Strip Pricing)

  14. Slide 14: Quality Waterflood Projects

    QUALITY WATERFLOOD PROJECTS Waterflood - increasing reserves & flattening declines Current Properties Under Commercial Waterflood Area Formation Start Date 2015 Decline Current RF Booked RF Expected RF Silver Lloyd/ Cummings 1996 10% 12.6% 35.7% 39.0% Wainwright Sparky 1962 8% 32.0% 35.5% 37.1% Mack

  15. Slide 15: Southwest Saskatchewan - Shaunavon

    SOUTHWEST SASKATCHEWAN - SHAUNAVON >450MM barrels of net OOIP in the Upper and Lower Shaunavon combined  >450 MMbbls of net OOIP in the Lower and Upper Shaunavon formations (medium gravity oil)  Current combined recovery factor ~1.2%  Rates of return in excess of 38%(1) for the Upper Shaunavon 

  16. Slide 16: Upper Shaunavon

    UPPER SHAUNAVON Large contiguous undeveloped land position in the greater Upper Shaunavon trend R21W3 R19W3 Area/Pool Well Count Depth OOIP Cum Oil Peak Rate Current Rate T10 Instow Vt Hz (m) (MMbbl) (MMbbl) (bbl/d) (bbl/d) Instow 118 2 1,370 152 71 9,420 2,480 Dollard 109 5 1,400 179 104 14,660 1,5

  17. Slide 17: 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 Q3 Waterflood Pilot 36-005-20W3 SGY Q1 ‘15 U. Shvn Hz T5 191/13-18-005-19W3 On Prd March 2015 IP (90) = 219 B

  18. Slide 18: Upper Shaunavon Performance

    UPPER SHAUNAVON PERFORMANCE Surge horizontal results in the Upper Shaunavon outperforming area average Upper Shaunavon Monthly Production vs Area Average 400 350 300 Rate (bopd), Cum Oil (mbbl) 250 200 150 Primary EUR 150Mbbl 100 50 0 0 12 24 Month FOOTNOTES INCLUDED IN THE BACK AS ENDNOTES 18

  19. Slide 19: Northwest Alberta

    NORTHWEST ALBERTA Large OOIP >700MMbbls in concentrated high quality light oil assets  Large OOIP of >700 (600 net) MMbbls of high quality light oil (32-40° API)  Current Production ~7,900 boe/d (66% Oil and Valhalla NGL’s) OOIP: 228 mmbbl (195 mmbbl net) Nipisi OOIP: 155 mmbbl (150 mmbbl net)  L

  20. Slide 20: Northwest Alberta - Valhalla

    NORTHWEST ALBERTA - VALHALLA Firm service agreements for Alliance and TCPL pipelines mitigates production restrictions Valhalla Doig  ~130 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 of 94

  21. Slide 21: Valhalla Doig Performance

    VALHALLA DOIG PERFORMANCE 2015 drilling in Valhalla yielded 3 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 02/15-06-075-8W

  22. Slide 22: Southeast Alberta - Sparky

    SOUTHEAST ALBERTA - SPARKY Provost / Eyehill / Wainwright area’s – Oil saturated Cretaceous sands Wainwright  >430 MMbbls of net OOIP (23-31° API oil)  Current recovery factor of ~15%  Current production: ~3,700 boe/d  Eyehill Sparky waterflood implemented in Q4 2014; Provost waterflood pilot ex

  23. Slide 23: Positioned for Long Term Sustainability

    POSITIONED FOR LONG TERM SUSTAINABILITY  Low base decline <19%, high netbacks, excellent capital efficiencies  $0.15 annual dividend; NO DRIP! ; Share buyback in place  Excellent balance sheet – one of the best in the peer group FOOTNOTES INCLUDED IN THE BACK AS ENDNOTES 23

  24. Slide 24: 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 >

  25. Slide 25: 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 Swap Price Fl

  26. Slide 26: 2015 Year End Reserves

    2015 YEAR END RESERVES ~$1.1 Billion of Total Proved plus Probable Reserves Value (NPVBT10) 2015 Year End Reserves Oil& NGLs Gas Total Reserve Category NPVBT10 ($MM) (1) (Mbbl) (MMcf) (Mboe) Proved Producing 24,121 36,369 30,182 $490 Proved Non-Producing 1,115 3,289 1,663 $25 Proved Undeveloped 15,1

  27. 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 Clarus Securities Inc. Josie Ho jho@clarussecurities.com Co

  28. Slide 28: Corporate Partners

    CORPORATE PARTNERS Advisors National Bank of Canada Bank of Nova Scotia Canadian Imperial Bank of Commerce Toronto-Dominion Bank Bankers Syndicate: Bank of Montreal ATB Financial HSBC Bank Canada Wells Fargo Goldman Sachs Auditor: KPMG LLP Legal Counsel: McCarthy Tétrault Evaluation Engineers: Sprou

  29. 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

  30. Slide 30: Endnotes

    ENDNOTES Slide 2: (1) Based on Sproule's December 31, 2015 Revised Price Forecast Slide 5: (1) Based on Sproule's December 31, 2015 Revised Price Forecast Slides 3 & 9: (1) December 31, 2015 reserves. (2) This presentation discloses drilling locations in three categories: (i) proved locations; (ii)

  31. 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

  32. 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

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