Surge Energy Ups 2021 Capex, Talks 2H21 Drilling Outlook

2H 2021 Outlook, Expanded Plan

The 2H/21 capital program involves drilling up to 23 gross (23.0 net) wells in four distinct, large original oil in place (“OOIP”)¹, shallow, conventional Sparky sandstone reservoirs. This targeted drilling program is expected to result in production additions of more than 2,400 boe per day for total drilling and completions expenditures of $32 million, resulting in production efficiencies of $13,250 per flowing boe on an IP180 basis¹.

The expanded 2H/21 capital program is anticipated to deliver over 6 percent of cash flow per share growth for Surge’s shareholders in the current year (ie. in Q4/21), when compared to the Company’s previously planned 2H/21 maintenance-only capital program.

Preliminary 2022 Plan

The Company’s preliminary 2022 capital expenditure budget will continue to focus on production maintenance and free cash flow generation. Surge anticipates generating approximately $160 million ($0.42 per share²) in adjusted funds flow³ in 2022 at current oil prices of approximately US$65 WTI per barrel. With its low decline, shallow, large OOIP, conventional asset base, the Company is budgeting $83 million for its 2022 exploration & development capital program, maintaining production at 16,500 boepd (85% liquids).

On this basis, Surge anticipates generating $62 million ($0.16 per share) of free cash flow⁴ in 2022, representing a free cash flow yield⁵ of approximately 28 percent for the year.

Based upon the above, the Company’s 2H 2021 and preliminary 2022 guidance is as follows:

Both the Company’s 2H/21 and preliminary 2022 capital program continue to focus capital on Surge’s extensive, 14 year drilling inventory of over 425 net Sparky core area locations⁷ – across multiple large OOIP, shallow, conventional reservoirs.

Outlook: 1H/21 Drilling Results

The Company will bring on an estimated 3,400 boepd of production from its 32 well 1H/21 drilling program, with results to date meeting or exceeding budgeted expectations. This production was added for “all-in” drilling and completion expenditures of $38 million, delivering production efficiencies of $11,175 per boe.

Over the last six years, Surge has amassed a dominant position in its core Sparky crude oil play, which is proving to be one of the premier, conventional, medium/light oil growth plays in Canada. Surge estimates a weighted average (risked) IRR of greater than 140 percent⁷ for the Company’s entire 425 net well (14 year) Sparky core area drilling inventory at US $60 WTI per barrel flat pricing. These excellent risked returns are for primary drilling only, and do not include waterflood upside.

With crude oil prices now up over 450%⁸ in the last 13 months, combined with the Company’s 85% oil and natural gas liquids weighting, Surge believes it is well-positioned to deliver continued cash flow per share growth and a free cash flow yield in 2022.