Surge Energy Inc. · TSX:SGY
Surge Energy — Investor Presentation (March 2017)
33 slides from Surge Energy's investor presentation, March 2017
Slide 1: Sustainable Conventional Resource Company
SUSTAINABLE CONVENTIONAL RESOURCE COMPANY TSX: SGY MARCH, 2017
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% NAV of $5.47 per share using new Sproule pricing(1) Return capital to shareholders through a sustai
Slide 3: Fundamentals of Sustainability - Shareholder Returns
FUNDAMENTALS OF SUSTAINABILITY - SHAREHOLDER RETURNS The foundations for sustainability and the assets to deliver low to mid-teens annual returns Cashflow Capital Netback Efficiencies Decline CAD$ 24.50/ boe <$22,000 per < 25% @ US$55 WTI flowing boepd (Full Cycle) Strong balance sheet: 2017 Debt/
Slide 4: 2017 Guidance
2017 GUIDANCE(1) Generating excess free cashflow at US$55 WTI 2017 Guidance at US$55 WTI(1) OPERATIONAL 2017 Average Production (boe/d) 14,000 (80 percent liquids) 2017 Exit Production (boe/d) 14,450 (80 percent liquids) Total Capital Spending $85 million Est. Base Decline <25% Operating Expenses $1
Slide 5: 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,
Slide 6: 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 $5.47 *Based on Sproule’s December 31, 2016 price
Slide 7: Cash Flow Sensitivities
CASH FLOW SENSITIVITIES Production growth = compounding cash flow growth at higher oil prices 2017 Cashflow Sensitivity to Changes in US$ WTI(1) $180.0 $0.70 $160.0 $0.60 $140.0 Cashflow per Share (Basic) $120.0 $0.50 $ Millions $100.0 $0.40 $80.0 $0.30 $60.0 Free Cashflow After Dividend $0.20 and C
Slide 8: 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: 14,000 boe/d (80% Oil & NGL’s) (~57% on AB Crown) Western Alberta Production: Total: ~6,100 boe/d (64% Oil & NGL’s) SE AB Production: Total: ~4,300 boe/d (87% Oil & N
Slide 9: 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
Slide 10: Large OOIP, Low Recovery Factors
LARGE OOIP, LOW RECOVERY FACTORS >1.5 Billion bbl’s net OOIP with up to >220 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
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 4 - 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 drilling inventory with excellent economics on February strip pricing 2017 Budget Areas/Formations Capital Rates of EUR Core Drill/ Complete/ Payout(1) NPV10 / Locations Efficiency Return (1) 365 day IP Mboe/well Area Equip/ Tie-in (Februar
Slide 13: 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 over 3,500 bopd Dollard Upper Shaunavon currently estimated to have >26
Slide 14: Upper Shaunavon Activity
UPPER SHAUNAVON ACTIVITY >275MMbbl (>265MMbbl net) OOIP on Surge lands in the Upper Shaunavon R20W3 R19W3 T7 Upper Shaunavon A Sand Upper Shaunavon B Sand T6 Upper Shaunavon C Sand Lower Shaunavon T5 Progression of Upper Shaunavon Development SGY Lands Upper Shaunavon Oil Fairway SGY Upper Shaunavon
Slide 15: 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
Slide 16: 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 bopd
Slide 17: Southeast Alberta
SOUTHEAST ALBERTA 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 ~13% (value is skewed to Betty Lake the high side due to +30% recovery at Wainwright) Eyehill Sparky waterflood p
Slide 18: 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
Slide 19: 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 16 Sparky horizontals using monobore design, lowering costs to an average of ~$1.0 million per well
Slide 20: 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
Slide 21: 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: (
Slide 22: 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
Slide 23: Positioned for Long Term Sustainability
POSITIONED FOR LONG TERM SUSTAINABILITY Low base decline <25%, high netbacks, excellent capital efficiencies $0.085 annual dividend; NO DRIP! Excellent balance sheet – one of the best in the peer group FOOTNOTES INCLUDED IN THE BACK AS ENDNOTES 23
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; >17 year RLI Over 700 low risk development drilling locations provide >10 y
Slide 25: 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
Slide 26: 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
Slide 27: 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
Slide 28: 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 29: 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 30: 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 31: 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
Slide 32: 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 33: 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