Surge Energy Inc. is pleased to announce its financial and operating results for the quarter ended September 30, 2021.
The Company's financial and operating results for the third quarter of 2021 include only a partial quarter of operational and financial contribution from the previously announced acquisition of Astra Oil Corp. ("Astra"), which closed on August 18, 2021. Additionally, Surge's financial and operating results for the third quarter of 2021 include no impact from the previously announced acquisition of Fire Sky Energy Inc. ("Fire Sky"), which closed on November 1, 2021.
MESSAGE TO SHAREHOLDERS
During the third quarter of 2021, Surge completed the strategic acquisition of Astra Oil Corp. ("Astra"), adding highly concentrated light oil reserves, production, land, and operations in SE Saskatchewan. Subsequent to the quarter, on November 1, 2021 the Company announced the closing of the acquisition of Fire Sky Energy Inc. ("Fire Sky"), a private company with light oil assets focused in SE Saskatchewan for total consideration of $58 million. The Fire Sky acquisition expands Surge's position in its new SE Saskatchewan core area, adding an additional 1,500 boepd of light oil production.
These two strategic acquisitions are consistent with Surge's defined business model of acquiring high quality, operated, light and medium gravity, conventional crude oil reservoirs with large original oil in place ("OOIP1) and low recovery factors. Following these acquisitions, Surge is now a 21,500 boepd (86 percent liquids) intermediate light and medium gravity oil producer, with over 975 internally estimated net development drilling locations2, providing an estimated 13 year development drilling inventory2.
In addition to the acquisitions the Company has now completed its 2H/21 23 gross (23.0 net) well Sparky drilling program, with a 100% success rate. All of the wells from the 2H/21 Sparky drilling program are scheduled to be on stream and optimized prior to the end of November 2021.
During the third quarter of 2021, Surge's cash flow from operating activities increased by 218 percent, from $8.3 million in Q2/21 to $26.3 million in Q3/21. Additionally, the Company's adjusted funds flow3 also increased by 105 percent, from $13.6 million in Q2/21 to $27.8 million in Q3/21.
Surge's cash flow from operating activities and adjusted funds flow in Q3/21 were negatively impacted by realized losses on fixed price commodity contracts, totaling $23.2 million. These required fixed priced oil hedge positions were primarily entered into during the volatile price environment in 2020. Surge projects that, at current strip oil prices, the cash flow impact from these hedge positions will moderate significantly in the coming months as the hedges expire.
Production in Q3/21 averaged 17,642 boepd, up 17 percent from Q2/21 production levels of 15,132 boe per day. The Company's Q3/21 production levels included only a partial quarter of production from the Astra acquisition and no impact from the Fire Sky acquisition.
UPDATE ON ENVIRONMENTAL, SOCIAL AND GOVERNANCE MATTERS ("ESG")
Surge continues to reduce the impact of its operations on the environment and is pleased to report that it has abandoned over 190 wells in the first nine months of 2021. The Company spent $3.0 million on abandonment activities during the third quarter of 2021 and has now spent $6.6 million to date during 2021. These activities included the abandonment of inactive well bores and the decommissioning of inactive pipelines throughout its operating areas.
Additionally, Surge has now completed the previously announced 45-kilometer gas gathering infrastructure system in SE Saskatchewan. This pipeline allows the Company to conserve gas at critical facilities and is anticipated to reduce emissions by over 95 percent from its main operating fields in the area.
Surge strives to be a leader in reducing the impact of its operations on the environment and is committed to producing energy in a safe, responsible, and sustainable manner.
OUTLOOK – A TOP PERFORMER IN 2022
Management remains excited regarding the Company's exposure to rising crude oil prices in 2022, following its strategic positioning activities throughout 2021. The Company anticipates generating significantly higher operating netbacks and cash flow from operating activities in 2022 at current commodity prices.
Surge is now a 21,500 boepd (86 percent liquids) intermediate light and medium gravity oil producer, with over 975 net internally estimated development drilling locations, providing an estimated 13 year development drilling inventory.
