SURGE ENERGY INC. ANNOUNCES THIRD QUARTER FINANCIAL AND OPERATING RESULTS; LATEST OPERATIONAL RESULTS; AND 2025 CAPITAL AND OPERATING BUDGET
CALGARY, AB, Nov. 6, 2024 /CNW/ - Surge Energy Inc. ("Surge" or the "Company") (TSX:SGY) is pleased to announce financial and operating results for the quarter ended September 30, 2024, as well as the Company's 2025 capital and operating budget as approved by Surge's board of directors (the "Board").
Select financial and operating information is outlined below and should be read in conjunction with the Company's unaudited interim financial statements and management's discussion and analysis for the three and nine months ended September 30, 2024, available at www.sedarplus.ca and on Surge's website at www.surgeenergy.ca.
MESSAGE TO SHAREHOLDERS
Surge has a high quality, light and medium gravity crude oil asset and opportunity base, with an internally estimated drilling inventory that supports more than 10 years of drilling1 - in two of the top four crude oil plays in North America2 (based on per well payout economics). Surge's management ("Management") and Board operate and manage the Company to maximize free cash flow available for shareholder returns, primarily through a sustainable base dividend and share buybacks, which have historically been shown to deliver superior returns to investors over time3.
Q3 2024 FINANCIAL AND OPERATIONAL HIGHLIGHTS
During Q3/24, Surge completed the strategic repositioning of the Company's debt capital structure with the closing of a $175 million, 5 year term, senior unsecured note financing ("Senior Unsecured Notes"). Concurrently, Surge repaid the Company's $126 million second-lien secured term facility, as well as all amounts drawn under Surge's first-lien revolving credit facility. The Company further strengthened Surge's financial position with an increase of $40 million to its first-lien revolving credit facility, which now stands undrawn at $250 million.
With the completion of the Senior Unsecured Note financing, substantially all of the Company's net debt4 has now been termed out through late 2028 (Surge's existing $48 million aggregate principal amount of convertible debentures), and late 2029 (the $175 million Senior Unsecured Notes).
As at September 30, 2024, Surge had $11.5 million of cash on hand, in addition to its undrawn $250 million first-lien revolving credit facility, as a result of these strategic debt capital transactions.
During Q3/24, Surge delivered adjusted funds flow ("AFF")4 of $72.7 million and cash flow from operating activities of $73.4 million.
Seasonally, Q3/24 represents a higher capital expenditure period for the Company due to increased drilling activity following the conclusion of spring breakup (and the removal of associated road bans) within Surge's operating areas. On this basis, in Q3/24, Surge spent $51.4 million on property, plant, and equipment expenditures, drilling 27 gross (24.2 net) wells in its Sparky and SE Saskatchewan core areas.
Even with the increased post-breakup drilling activity in Q3/24, the Company generated free cash flow ("FCF")4 of $21.3 million, representing 29 percent of AFF generated in Q3/24.
In Q3/24, Surge returned $12.7 million to its shareholders by way of the Company's annual base cash dividend of $0.52 per share (paid monthly), which represents 17 percent of AFF generated during the quarter.
Surge returned an additional $4.0 million to shareholders in Q3/24, through the Company's active normal course issuer bid ("NCIB"), repurchasing 621,700 shares during the quarter.
On a combined basis, Surge provided direct returns of approximately $17 million to the Company's shareholders in Q3/24 through the base dividend and the NCIB share repurchases. This represents approximately 23 percent of AFF returned to shareholders in the quarter.
In Q3/24, the Company continued to validate and expand Surge's large, new Sparky crude oil discovery at Hope Valley, drilling 3.0 gross (3.0 net) additional wells at the property. Surge now estimates over 80 multi-lateral drilling locations1 at Hope Valley. The Company is encouraged by the repeatability of its ongoing drilling results at Hope Valley as it moves into the full development phase of this new Sparky discovery.
Highlights from the Company's Q3 2024 financial and operating results include:
Increasing average daily production to 23,795 boepd (87 percent liquids) during Q3/24, as compared to 23,618 boepd (87 percent liquids) in Q2/24. Q3 was the first full quarter following the non-core asset sales of approximately 1,100 boepd that closed in late Q2/24, as announced on May 29, 2024;
Drilling 27 gross (24.2 net) wells, with activity focused in the Company's Sparky and SE Saskatchewan core areas;
Reducing net operating expenses4 by $1.50 per boe (seven percent) to $18.81 per boe in Q3/24, as compared to $20.31 per boe in Q2/24;
Providing additional term and reduced interest expense costs with the successful closing of Surge's $175 million Senior Unsecured Note financing. The Senior Unsecured Notes bear interest at a rate of 8.5% per annum and mature on September 5, 2029;
Repaying in full the Company's $126 million second-lien term facility;
Distributing $12.7 million to Surge's shareholders by way of the Company's $0.52 per share per annum base dividend (paid monthly); and
Returning an additional $4.0 million to shareholders by way of the Company's NCIB share repurchase program.
FINANCIAL AND OPERATING HIGHLIGHTS
FINANCIAL AND OPERATING HIGHLIGHTS
Three Months Ended September 30,
Nine Months Ended September 30,
($000s except per share and per boe)
2024
2023
% Change
2024
2023
% Change
Financial highlights
Oil sales
158,463
177,440
(11) %
477,213
479,634
(1) %
NGL sales
3,333
3,173
5 %
10,840
9,433
15 %
Natural gas sales
395
3,862
(90) %
5,478
12,855
(57) %
Total oil, natural gas, and NGL revenue
162,191
184,475
(12) %
493,531
501,922
(2) %
Cash flow from operating activities
73,420
71,315
3 %
213,809
186,429
15 %
Per share - basic ($)
0.73
0.72
1 %
2.12
1.90
12 %
Per share diluted ($)
0.72
0.71
1 %
2.08
1.85
12 %
Adjusted funds flowa
72,710
86,874
(16) %
218,002
214,845
1 %
Per share - basic ($)a
0.72
0.87
(17) %
2.16
2.19
(1) %
Per share diluted ($)
0.71
0.86
(17) %
2.13
2.13
— %
Net income (loss)c
17,263
16,583
4 %
(51,060)
45,427
nm
Per share basic ($)
0.17
0.17
— %
(0.51)
0.46
nm
Per share diluted ($)d
0.17
0.16
6 %
(0.51)
0.45
nm
Expenditures on property, plant and equipment
51,361
43,945
17 %
136,826
120,267
14 %
Net acquisitions and dispositions
(20)
231
nmb
(33,521)
(2,143)
nm
Net capital expenditures
51,341
44,176
16 %
103,305
118,124
(13) %
Net debta, end of period
247,314
286,295
(14) %
247,314
286,295
(14) %
Operating highlights
Production:
Oil (bbls per day)
19,988
20,188
(1) %
20,078
20,330
(1) %
NGLs (bbls per day)
779
659
18 %
832
669
24 %
Natural gas (mcf per day)
18,168
19,564
(7) %
19,167
19,396
(1) %
Total (boe per day) (6:1)
23,795
24,108
(1) %
24,105
24,232
(1) %
Average realized price (excluding hedges):
Oil ($ per bbl)
86.17
95.53
(10) %
86.74
86.42
— %
NGL ($ per bbl)
46.50
52.34
(11) %
47.57
51.63
(8) %
Natural gas ($ per mcf)
0.24
2.15
(89) %
1.04
2.43
(57) %
Netback ($ per boe)
Petroleum and natural gas revenue
74.09
83.17
(11) %
74.72
75.87
(2) %
Realized loss on commodity and FX contracts
(0.10)
(0.69)
(86) %
(0.49)
(0.83)
(41) %
Royalties
(14.88)
(15.05)
(1) %
(13.66)
(13.34)
2 %
Net operating expensesa
(18.81)
(20.82)
(10) %
(20.33)
(21.56)
(6) %
Transportation expenses
(1.39)
(1.31)
6 %
(1.26)
(1.56)
(19) %
Operating netbacka
38.91
45.30
(14) %
38.98
38.58
1 %
G&A expense
(2.35)
(2.13)
10 %
(2.34)
