Surge Energy Inc. (SGY.TO), which fell 4% Tuesday, announced its financial and operating results for the year ended December 31, 2012.
2012 ACHIEVEMENTS & HIGHLIGHTS:
Surge achieved significant growth in 2012. Funds from operations increased 60% to $92.2 million in 2012 as compared to 2011. Production grew 49% in 2012 as compared to 2011. Management continues to execute a strong risk management program which supports the protection of Surge's balance sheet. Surge remains well positioned with three core areas with an expanded oil drilling inventory of 585 gross (450 net) locations, internally estimated gross DPIIP5 of 685 million barrels of oil and multiple waterflood opportunities and exploration initiatives.
Surge has achieved operational efficiencies in each of its core areas, resulting in reductions in both operating costs per boe and general and administrative costs per boe in 2012 as compared to 2011. Surge continues to strive to become one of the lowest cost oil producers among its oil weighted peer group.
- Achieved a 99% success rate during 2012 drilling 62 gross (50.05 net) wells.
- Increased funds from operations per fully diluted share by 33% to $1.30 in 2012.
- Increased production per basic share by 21% in 2012.
- Reduced operating costs per boe by 25% in 2012.
- Reduced G&A per boe by 24% in 2012 and a 45% reduction since 2010.
- Increased its bank line to $290 million from $150 million during 2012.
- Strong risk management program supports the protection of the company's balance sheet. More than half of the company's forecast 2013 production is hedged with approximately one third of the Edmonton to WTI differential hedged for the last nine months of 2013.
- Approximately 92% of Surge's revenue resulted from oil and natural gas liquids production in 2012.
- Increased its oil and natural gas liquids production weighting by 17% to 70% in 2012 from 60% in 2011.
- Oil and NGLs made up 69% of the company's total Proved plus Probable reserves.
- Completed the accretive acquisition of a private company that added approximately 1,200 barrels per day (100% light oil) of focused, high quality, high netback and high working interest Slave Point/Gilwood light oil assets in January 2012.
- Expanded its oil drilling inventory to 585 gross (450 net) locations from 490 gross (350 net) locations and significantly increased its internally estimated DPIIP to greater than 685 gross million barrels from greater than 440 gross million barrels of oil.
- Significant waterflood progress with waterflood projects in Silver Lake, Windfall, Waskada and Nipisi underway or planned for early 2013.
- Increased Proved plus Probable reserves by 43% to 46.1 million boe over December 31, 2011 reserves of 32.2 million boe.
- Increased Proved plus Probable Reserves per share by 29% (fully diluted).
- Achieved Proved plus Probable finding, development and acquisition costs (FD&A) of $23.32 per boe, including the change in future development capital.
- Achieved a corporate recycle ratio of 1.5 with F&D costs of $23.70 per boe, including the change in FDC and based on Surge's estimated 2012 netback of $34.67 per boe6.
- Surge achieved Proved plus Probable recycle ratios of 2.8, 2.6 and 2.2 at Valhalla, Silver Area and Nipisi, respectively. These three areas represent approximately 82% of the reserves value.
- Increased Proved plus Probable Oil and NGLs reserves by 66 percent to 31.9 million barrels over December 31, 2011 reserves of 19.2 million barrels.
- Increased Net Present Value discounted at 10% Before Tax of Proved plus Probable reserves by 25% to $732 million compared to $588 million as at December 31, 20118.
- Surge's Net Asset Value ( NAV ) is estimated at $8.18 per basic share based on NPV10 BT Proved plus Probable (2P) reserves at December 31, 2012.
OUTLOOK & GUIDANCE - POSITIONED FOR CONTINUED LIGHT OIL GROWTH:
Surge's board of directors approved a capital budget of $140 million for 2013 with a balanced approach of production growth (approximately 16% growth in average daily production per share) and unlocking additional value in its high quality, large DPIIP light oil assets. Surge has allocated approximately $124 million to its 2013 drilling program, $9 million to waterflood implementation and optimization, $17 million to a combination of land, acquisitions, corporate and capitalized G&A expenditures and is planning $10 million of non-core dispositions late in the year. Surge is also pleased to announce that the Company's bank line was increased from $250 million to $290 million late in the fourth quarter of 2012, providing flexibility to execute the company's 2013 capital program.
In 2013, management's primary goals for Surge include improving operational performance, improving capital efficiencies, maintaining balance sheet flexibility with an effective risk management program and confirming the commercial viability of the company's waterflood program. In addition to Surge's Windfall waterflood pilot, which commenced injection during the third quarter of 2012, early in 2013 Surge implemented a horizontal well waterflood pilot at Waskada and will implement a waterflood program at Nipisi in the second quarter of 2013. In South East Alberta, two existing waterflood schemes will be optimized in 2013 and Surge will build new facilities and submit applications to commence two new schemes. The implementation of the waterflood pilots are an integral piece of Surge's strategy of increasing oil recovery factors throughout the company's oil portfolio, lowering corporate decline rates and maximizing shareholder value.
With this 2013 budget, Surge expects to achieve greater than 15% growth in average production per share and funds from operations per share while maintaining its balance sheet. Based on Surge's 2013 guidance, the company is forecasting growth in funds from operation per basic share of more than 235% since the company was recapitalized in 2010 with a compound annual growth rate of 50% over that time. Surge is forecasting growth in production per basic share of more than 70% since 2010 with a compound annual growth rate of 20% over that time.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
