CALGARY, AB, July 30, 2024 /CNW/ – Surge Energy Inc. (“Surge” or the “Company”) (TSX:SGY) is pleased to announce the Company’s financial and operating results for the quarter ended June 30, 2024, as well as an update on Surge’s latest operational achievements.
MESSAGE TO SHAREHOLDERS
Surge has a high quality, conventional light and medium gravity crude oil asset and opportunity base, with more than 85 percent of the Company’s production strategically focused in two of the top four crude oil plays in Canada (as independently evaluated)1.
Crude oil prices in Q2/24 averaged US$80.57 per bbl West Texas Intermediate (“WTI”), and combined with the US/CAD exchange rate, averaged C$110.38 WTI pricing per barrel in the quarter.
In Q2/24, the Company’s adjusted funds flow (“AFF”)2 increased by more than 32 percent to $82.8 million, up from $62.5 million in Q1/24. After Q2/24 expenditures on property, plant, and equipment of $36.1 million, Surge generated free AFF2 of $46.7 million in Q2/24, representing more than 56 percent of Q2/24 AFF.
Cash flow from operating activities increased by 10 percent as compared to Q1/24, up to $73.6 million in the second quarter of 2024 from the $66.8 million realized during the first quarter of 2024.
Strong cash flow from operating activities, combined with proceeds from the Company’s previously announced non-core asset sales, contributed to Surge realizing a substantial $61.2 million reduction in net debt2 during Q2/24.
The Company also distributed $12.1 million to shareholders in Q2/24 by way of Surge’s base cash dividend, representing just 14.6 percent of AFF generated in the quarter.
Additionally, the Company was able to further enhance shareholder returns by repurchasing approximately $1.0 million of Surge common shares during the last two weeks of June under the Company’s recently approved Normal Course Issuer Bid (“NCIB”).
With the $61.2 million reduction in net debt in Q2/24, Surge met the Company’s previously stated $250 million net debt target and reached Phase 2 of its Return of Capital Framework. With the commencement of Phase 2, and after giving effect to the recent 8 percent increase in the base dividend from $0.48 to $0.52 per share per year (paid monthly), the Company now forecasts having $48 million of excess free cash flow (“FCF”)2 to allocate annually, based on US$75 WTI pricing per barrel oil pricing3.
Surge’s Board and Management are strategically allocating this $48 million of excess FCF to share buybacks pursuant to the Company’s NCIB, and to further reductions of Surge’s net debt.
During Q2/24, Surge also announced a significant, new Sparky oil discovery at Hope Valley, and identified the potential for up to 100 multi-lateral drilling locations4 on the large, 32.5 net section contiguous land base that the Company now owns on the play. Furthermore, Surge’s technical interpretation of its recent 46 square kilometer 3-D seismic program has allowed the Company to de-risk future drilling locations in Hope Valley. The Company has now drilled and brought on production three multi-lateral oil wells at Hope Valley.
The latest Hope Valley well brought on production (the first well drilled utilizing the Company’s new 3-D seismic data), has exceeded Management’s type curve expectations, with an IP90 production rate of 236 bopd4.
FINANCIAL AND OPERATING HIGHLIGHTS
FINANCIAL AND OPERATING HIGHLIGHTS
Three Months Ended June 30,
Six Months Ended June 30,
($000s except per share and per boe)
2024
2023
% Change
2024
2023
% Change
Financial highlights
Oil sales
168,034
149,530
12 %
318,750
302,194
5 %
NGL sales
3,572
2,642
35 %
7,507
6,260
20 %
Natural gas sales
1,567
3,305
(53) %
5,083
8,993
(43) %
Total oil, natural gas, and NGL revenue
173,173
155,477
11 %
331,340
317,447
4 %
Cash flow from operating activities
73,604
60,608
21 %
140,389
115,114
22 %
Per share – basic ($)
0.73
0.62
18 %
1.40
1.18
19 %
Per share diluted ($)
0.73
0.60
22 %
1.40
1.15
22 %
Adjusted funds flowa
82,805
64,640
28 %
145,292
127,971
14 %
Per share – basic ($)a
0.82
0.66
24 %
1.44
1.31
10 %
Per share diluted ($)
0.82
0.64
28 %
1.44
1.27
13 %
Net income (loss)c
(64,693)
14,055
(560) %
(68,323)
28,844
(337) %
Per share basic ($)
(0.64)
0.14
(557) %
(0.68)
0.30
(327) %
Per share diluted ($)
(0.64)
0.14
(557) %
(0.68)
0.29
(334) %
Expenditures on property, plant and equipment
36,065
30,589
18 %
85,465
76,322
12 %
Net acquisitions and dispositions
(33,493)
(1,696)
nmb
(33,501)
(2,374)
nm
Net capital expenditures
2,572
28,893
(91) %
51,964
73,948
(30) %
Net debta, end of period
234,707
311,833
(25) %
234,707
311,833
(25) %
Operating highlights
Production:
Oil (bbls per day)
19,628
19,758
(1) %
20,124
20,403
(1) %
NGLs (bbls per day)
856
629
36 %
858
674
27 %
Natural gas (mcf per day)
18,805
18,458
2 %
19,672
19,310
2 %
Total (boe per day) (6:1)
23,618
23,463
1 %
24,261
24,295
— %
Average realized price (excluding hedges):
Oil ($ per bbl)
94.07
83.17
13 %
87.03
81.83
6 %
NGL ($ per bbl)
45.85
46.16
(1) %
48.06
51.31
(6) %
Natural gas ($ per mcf)
0.92
1.97
(53) %
1.42
2.57
(45) %
Netback ($ per boe)
Petroleum and natural gas revenue
80.57
72.82
11 %
75.04
72.19
4 %
Realized loss on commodity and FX contracts
(1.47)
(0.93)
58 %
(0.68)
(0.91)
(25) %
Royalties
(12.80)
(12.11)
6 %
(13.06)