Surge Energy Inc. · TSX:SGY
Surge Energy — Investor Presentation (August 2014)
29 slides from Surge Energy's investor presentation, August 2014
Slide 1: Positioned for Long Term Sustainability and Growth
“POSITIONED FOR LONG TERM SUSTAINABILITY AND GROWTH” August, 2014 TSX:SGY www.surgeenergy.ca
Slide 2: Forward-Looking Statements
FORWARD-LOOKING STATEMENTS This presentation contains forward-looking statements. More particularly, this presentation contains statements concerning anticipated: (i) potential development opportunities and drilling locations, expectations and assumptions concerning the success of future drilling an
Slide 3: Recent Developments
RECENT DEVELOPMENTS Continued success in the Upper Shaunavon • 2 new “step-out” wells drilled in Q2: each currently producing >325 bopd with low water cuts • larger OOIP(1) than the 125 million net barrels originally estimated; >64 additional locations • plans to drill six more Upper Shaunavon wel
Slide 4: Why Own Surge Energy?
WHY OWN SURGE ENERGY? Low risk, high quality, crude oil asset and opportunity base; >15 year RLI (with 2 years of FDC/cash flow); Very low “all-in” sustainability ratio (<90%); NO DRIP Excellent replacement metrics/capital efficiencies (<$29,000/boepd); 10 year inventory of low risk development
Slide 5: Surge Energy Inc.
SURGE ENERGY INC. Elite, operated, large OOIP crude oil reservoirs, with low recovery factors; over 1.9 Billion barrels of net OOIP under management - with current recovery factor of 8% Strong balance sheet; ongoing risk management/hedging program Experienced management team with proven track
Slide 6: Key Value Drivers (Risk Adjusted)
KEY VALUE DRIVERS (RISK ADJUSTED) 1. 4% organic annual per share growth in reserves, production and cash flow; and 2. 7.5% dividend yield(1); and 3. Debt reduction (i.e. due to low sustainability ratio) increases NAV; and 4. Accretive acquisitions. (1) Based on a share price of $8.00. 6
Slide 7: Current Guidance
CURRENT GUIDANCE OPERATIONAL 2014E Exit Production (boe/d) 21,350 (84% Oil/NGLs) RLI >15 years based on 2014E exit production 2014E Capital Spending $142 million 2014E Wells Drilled 66/43.5 gross/net wells 1 2014 Decline 22% 2014 NAV/Share $8.23 FINANCIAL 2,3,4 Annualized Funds from Operations (“FFO
Slide 8: Elite, Focused Asset Base
ELITE, FOCUSED ASSET BASE Surge 2014 Exit Production: Total: 21,350 (84% Oil & NGL’s) Valhalla Nipisi Surge Core Sunset Properties Western Alberta Production: Total: ~7,000 (67% Oil & NGL’s) Westerose Wainwright Nevis Silver Manson Macklin Wapella Eyehill Viking SE AB/SW SK Production: Macoun Total:
Slide 9: Excellent Capital Efficiencies / Replacement Metrics
EXCELLENT CAPITAL EFFICIENCIES / REPLACEMENT METRICS Areas/Formations Rates of Drill/ Mboe/well Core Area Locations Capital Efficiency Return Complete/ 180 day IP (on primary) (Gross / Net) % Equip Valhalla $14,300/boepd 130% $4.3MM 300 boepd (66% oil) 672 (46/38) Western Alberta Nipisi $30,400/boep
Slide 10: Summary of Quality Oil Reservoirs – Large OOIP with Low Recovery Factors
SUMMARY OF QUALITY OIL RESERVOIRS – LARGE OOIP(1) WITH LOW RECOVERY FACTORS OOIP (MMbbls) Drilling Locations Cum Oil Total Booked Independent Internally Estimated Ultimate Avg. WI (2) Core Area Formations Recovery Recovery Factor P+P Recovery Net (Waterflood Factor with Development Drilling) Gross/N
Slide 11: Quality Waterflooded Reservoirs – Low Decline
QUALITY WATERFLOODED RESERVOIRS – LOW DECLINE Current Properties Under Full Commercial Waterflood Area Formation Start Date 2014 Decline Current RF Booked RF Expected RF Lloyd/ Silver 1996 18% 12.6% 35.7% 39.0% Cummings Wainwright Sparky 1962 8% 32.0% 35.5% 37.1% Macklin Sparky 2005 18% 10.4% 37.2%
Slide 12: SW Saskatchewan
SW SASKATCHEWAN Shaunavon (Lower and Upper) • >350 MMbbls of Net OOIP in the Lower and Upper Shaunavon formations (medium gravity oil) • Current recovery factor ~1.3% • Rates of return in excess of 136% (1) for the Upper Shaunavon • 369 gross/362 net drilling locations in the Lower and Upper Shaunav
Slide 13: Upper Shaunavon – Regional
Upper Shaunavon – Regional R21W3 R19W3 R18W3 T10 Leitchville T8 Leon Lake Dollard T6 T4 SGY Lands Upper Shaunavon Wells
Slide 14: Upper Shaunavon
Upper Shaunavon R20W3 R19W3 R18W3 OOIP 150+ mmbbl T7 (Upper Shaunavon B Sand only) 3D CPG Upper Shvn HZ Drill Outline 191/10-07-006-19W3 IP(90) = 218 BOPD Cum = 43.6 mbbl SGY Q1 Upper Shvn Hz Drill SGY Q2 Upper Shvn Drills T6 191/16-36-005-20W3 192/15-36-005-20W3 IP(90) = 250 BOPD 192/02-25-005-20W3
Slide 15: Williston Basin
WILLISTON BASIN SE Sask Midale, Macoun and Pinto Areas (Midale) Midale Macoun Pinto Surge Land • 103 MMbbls of Net OOIP (35-37 degree API) Surge Fee Land • Current recovery factor 10% of OOIP Surge Wells • Rates of return ~74% (1) • 118 gross/91 net drilling locations (2) (1) Based on Year 1 price o
Slide 16: Williston Basin
WILLISTON BASIN SE Sask Ingoldsby & Rosebank Areas (Frobisher/Alida) Rosebank • 242 MMbbls of Net OOIP (35-37 degree API) • Current recovery factor 17.4% of OOIP Ingoldsby • Rates of return ~64% (1) • 40 gross/31 net drilling locations (2) Gainsborough Workman Surge Land Surge Operated Wells (1) Bas
Slide 17: Williston Basin
WILLISTON BASIN Manson (Bakken/Three Forks) • 65 MMbbls of Net OOIP (35 degree API) • Current recovery factor 0.9% of OOIP Manson • Rates of return ~40% (1) • 38 gross/34 net drilling locations remain at Manson(2) • 2 injectors have been implemented in Q3; exciting early response • Based on successf
Slide 18: SW Saskatchewan
SW SASKATCHEWAN Viking Plenty • Operated; high working interests • High netback >$55/bbl Dodsland • Rates of return ~44% (1) • 127 MMbbls of Net OOIP (37 degree API) in the Viking formation • Current recovery factor 0.5% of OOIP • 138 gross/112 net drilling locations remain at SW Saskatchewan Viking
Slide 19: SE Alberta
SE ALBERTA Silver/Wainwright Area (Cretaceous Sands) Wainwright • >360 MMbbls of Net OOIP (23-31 degree API oil) • Multi-zone, medium gravity crude at shallow depths (<1,000 meters) • Current recovery factor of 19.1% • Low-decline, high ROR assets that provide stable cash flow base • Continued posit
Slide 20: SE Alberta
SE ALBERTA Nevis Area (Wabamun) • >80 MMbbls of Net OOIP (23-31 degree API oil) • Current recovery factor of 3.9% • Low-decline, high ROR assets that provide stable cash flow base • Continued positive oil response from expanded waterflood initiative • Control of key infrastructure • Rates of return
Slide 21: Western Alberta
WESTERN ALBERTA Valhalla South / Wembley (Doig) • >160 MMbbls of combined OOIP at Valhalla and Wembley Valhalla (40 degree API light oil) • Rates of return of >130% (1) • Current recovery factor ~2.4% (2) • 44 gross/37 net drilling locations at both Valhalla and Wembley • Continue delineating large
Slide 22: Western Alberta
WESTERN ALBERTA Nipisi (Slave Point) Analogue Slave Point Waterflood • 115 MMbbls of combined OOIP (35-42 degree API) in the Slave Point Formation at Nipisi North and Nipisi South • Current recovery factor ~0.7% of OOIP Gift • Rates of return of ~50% (1) Nipisi • 37 gross/37 net Slave Point and Gilw
Slide 23: Risk Management/Hedging Strategy
RISK MANAGEMENT/HEDGING STRATEGY The Company has an orderly, on-going, Oil Hedges • risk management / hedging program 10,000 65% designed to lock in future cash flows to protect the Company’s capex 9,000 51% 51% Oil Volume Currently Hedged 55% program and fund dividends. Percentage of After Royalty
Slide 24: Pro-Forma Reserve Bookings
PRO-FORMA RESERVE BOOKINGS Total 2P Total 2P FDC FDC / CF Company Reserves (MM) Ratio* (mmbbl) Surge 73.5 $391.2 - SE Sask Asset (RPL) 6.1 $25.2 - Longview 37.6 $215.5 - Pro-forma 117.2 $631.9 1.9* *Note: Assumes 2015E FFO of $326mm. 24
Slide 25: Pro-Forma Estimated 2013 Tax Pools
PRO-FORMA ESTIMATED 2013 TAX POOLS ESTIMATE TAX POOL (MM) Canadian Exploration Expense $24 Non-Capital Losses $147 Canadian Development Expense $329 Canadian Oil & Gas Property Expense $829 UCC $250 Share Issue Costs $19 Estimated Total $1,598 25
Slide 26: Surge – Positioned for Long Term Sustainability
SURGE – POSITIONED FOR LONG TERM SUSTAINABILITY • Low base decline 22%, high netbacks, excellent capital efficiencies • Very low “all-in” sustainability ratio of <90%; NO DRIP • Strong balance sheet; over $225 million of room on bank line • Ongoing risk management/hedging program protects cash flow
Slide 27: Surge – Positioned for Growth
SURGE – POSITIONED FOR GROWTH • Focused, high quality, crude oil asset and opportunity base; core properties are 100% operated with working interests of >90% • Elite, large OOIP crude oil reservoirs – with low recovery factors; >15 year RLI (only 2 years of FDC/cash flow) • Over 1,000 low risk devel
Slide 28: Analyst Coverage
ANALYST COVERAGE Financial Institution Analyst Email Address BMO Capital Markets Jim Byrne jim.byrne@bmo.com Canaccord Genuity Anthony Petrucci apetrucci@canaccordgenuity.com CIBC World Markets Inc. Jeremy Kaliel jeremy.kaliel@cibc.ca Cormark Securities Inc. Todd Kepler tkepler@cormark.com Dundee Se
Slide 29: Corporate Partners
CORPORATE PARTNERS Advisors National Bank of Canada Bank of Nova Scotia Canadian Imperial Bank of Commerce Toronto-Dominion Bank Bankers: Bank of Montreal JPMorgan Chase Bank, N.A. ATB Financial HSBC Bank Canada Auditor: KPMG LLP Legal Counsel: McCarthy Tétrault Sproule Associates Ltd. Evaluation En