Surge Energy To Acquire Crude Oil Producing Asset
Plans to acquire crude oil producing asset in Saskatchewan.
Surge Energy Inc. (TO: SGY) entered into a purchase and sale agreement with a large Canadian independent oil and gas company to acquire crude oil assets in the southwest area of Saskatchewan for C $240 million, the company announced in a press release.
Surge plans to acquire an elite, operated, medium gravity crude oil producing asset with original oil in place of over 250 million barrels and a recovery factor of less than 1.5%, the release said.
Contiguous Land Base, Operatorship, High Working Interests
The lands comprising the acquisition include 54 contiguous sections in one of the largest reservoirs in the Province of Saskatchewan. The lands located in the southwest area of Saskatchewan are 100% operated with an average working interest of 98%.
Large OOIP, Low Recovery Factors
Surge's detailed internal mapping indicates more than 230 million barrels of original oil in place in the Lower Shaunavon formation on the acquired lands with only 1.5% of the original oil in place recovered to date. Surge also maps an additional 20 to 30 million barrels of original oil in place in the Upper Shaunavon formation, which provides significant additional upside.
High Quality Reserves
The acquisition includes 10.62 million barrels of independently engineered reserves on a proven plus probable basis, according to a McDaniel engineering report effective April 1. This equates to a purchase price of C $22.59 per barrel. The McDaniel reserve report has only 61 gross locations booked, and does not include any reserves booked for waterflood upside, according to the release.
Solid Production Base, Attractive Netbacks
Current production is in excess of 3,600 barrels of oil per day of medium gravity crude oil, which equates to a purchase price of less than C $67,000 per flowing barrel of oil per day. Netbacks are greater than C $50 per barrel based on current pricing. The recycle ratio associated with the acquisition metrics is greater than two times.
Substantial Unbooked Upside
Surge estimates 210 gross unbooked crude oil drilling locations on the acquired lands in the Lower and Upper Shaunavon formation based on eight wells per section spacing in the Lower Shaunavon formation. The company also estimates significant unbooked upside for waterflood recovery as the assets are fully developed over time.
Additional Value
The acquired assets also include key producing infrastructure, including new crude oil batteries and pipelines and full tax pool coverage.
The acquisition is accretive to Surge on a debt-adjusted production and cash flow per share basis and is set to close on or before July 16.
In conjunction with the acquisition, Surge entered into a C $225 million bought deal financing issuing with a syndicate of underwriters led by Macquarie Capital Markets Canada Ltd. and including GMP Securities LP, National Bank Financial Inc., CIBC World Markets Inc., TD Securities Inc., Scotia Capital Inc., FirstEnergy Capital Corp., Dundee Securities Inc., and Cormark Securities Inc. Members of the Surge team will be participating in the Surge financing.
Surge plans to transition to a sustainable, moderate growth, dividend paying oil and gas company with high quality, focused, operated light and medium gravity crude oil assets.
Based upon the company's detailed modeling, which was completed pursuant to the transition to a sustainable growth and dividend model, together with the very positive effects of the cash flow accretion from the acquisition, Surge is now expecting a significant increase to the company's projected 2013 production exit rate and a substantially higher dividend than management had been modeling for Surge on a "stand alone" basis.
Surge Energy Inc. is an oil focused oil and gas company with operations in Alberta, Manitoba and North Dakota. The company is based in Calgary.