Scotia Capital Tight Oil Waterflood Conference

Transcription

1 Uniquely positioned to deliver top tier performance Scotia Capital Tight Oil Conference January 2012 TSX:SGY

2 Forward-Looking Statements Advisory This presentation contains forward-looking statements. More particularly, this presentation contains statements concerning anticipated: (i) capital expenditures for 2012, (ii) exploration, development, drilling, construction and acquisition activities, (iii) average and exit oil & natural gas production during 2012, (iv) funds from operations, (v) debt and bank facilities, (vi) operating and transportation costs, (vii) royalties, (viii) hedging results, (ix) foreign exchange rates, (x) netbacks (xi) primary and secondary recovery potentials and implementation thereof, (xii) the weighting of Surge's production between oil and natural gas, (xiii) regulatory applications and the expected success thereof, and (xiv) realization of anticipated benefits of acquisitions. The forward-looking statements are based on certain key expectations and assumptions made by Surge, including expectations and assumptions concerning the performance of existing wells and success obtained in drilling new wells, anticipated expenses, cash flow and capital expenditures and the application of regulatory and royalty regimes. Although Surge believes that the expectations and assumptions on which the forward-looking statements are based are reasonable, undue reliance should not be placed on the forward-looking statements because Surge can give no assurance that they will prove to be correct. Since forward-looking statements address future events and conditions, by their very nature they involve inherent risks and uncertainties. Actual results could differ materially from those currently anticipated due to a number of factors and risks. These include, but are not limited to, risks associated with the oil and gas industry in general (e.g., operational risks in development, exploration and production; delays or changes in plans with respect to exploration or development projects or capital expenditures; the uncertainty of reserve estimates; the uncertainty of estimates and projections relating to production, costs and expenses, and health, safety and environmental risks), commodity price and exchange rate fluctuations and uncertainties resulting from potential delays or changes in plans with respect to exploration or development projects or capital expenditures. Certain of these risks are set out in more detail in Surge s Annual Information Form which has been filed on SEDAR and can be accessed at The forward-looking statements contained in this presentation are made as of the date hereof and Surge undertakes no obligation to update publicly or revise any forwardlooking statements or information, whether as a result of new information, future events or otherwise, unless so required by applicable securities laws. (i) Discovered Resources or "Discovered Petroleum Initially-In-Place" ( DPIIP ), first identified on page 6 of this presentation, are those quantities of petroleum estimated, as of a given date, to be contained in known accumulations prior to production. The recoverable portion of discovered petroleum initially-in-place includes production, reserves and contingent resources; the remainder is unrecoverable. "Contingent resources" are those quantities of petroleum estimated, as of a given date, to be potentially recoverable from known accumulations using established technology or technology under development, but which are not currently considered to be commercially recoverable due to one or more contingencies. Contingencies may include factors such as economic, legal, environmental, political, and regulatory matters, or a lack of markets. It is also appropriate to classify as Contingent Resources the estimated discovered recoverable quantities associated with a project in the early evaluation stage. There is no certainty that it will be commercially viable to produce any portion of the Contingent Resources. A recovery project cannot be defined for this volume of DPIIP at this time, and as such it cannot be further subcategorized. Note: Boe means barrel of oil equivalent on the basis of 1 boe to 6,000 cubic feet of natural gas. Boe may be misleading, particularly if used in isolation. A boe conversion ratio of 1 boe for 6,000 cubic feet of natural gas is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Boe/d means barrel of oil equivalent per day. In this presentation: (i) mcf means thousand cubic feet; (ii) mcf/d means thousand cubic feet per day (iii) mmcf means million cubic feet; (iv) mmcf/d means million cubic feet per day; (v) bbls means barrels; (vi) mbbls means thousand barrels; (vii) mmbbls means million barrels; (viii) bbls/d means barrels per day; (ix) bcf means billion cubic feet; (x) mboe means thousand barrels of oil equivalent; (xi) mmboe means million barrels of oil equivalent and (xii) boe/d means barrels of oil equivalent per day. 2

3 Surge Energy Corporate Profile TSX: SGY Listing >500 gross (390 net) Oil Drilling Inventory >500,000 acres Net Undeveloped Land 695 million(1) Market Capitalization 71 million Basic Shares O/S 78 million Fully Diluted Shares O/S (1) Based on Surge s past 30 day closing share price of $8.92 as at January 24,

4 2012 Guidance 2012 Guidance (1) Average 2012 Production: Exit 2012 Production: Capital Expenditure Including PrivateCo Acquisition: Capital Expenditure Excluding PrivateCo Acquisition: Planned 2012 Drills: Average Funds from Operations ( FFO ): 9,750 boe/d (74% oil and NGLs) 11,000 boe/d (77% oil and NGLs) $261 MM ($155 MM net of acquisitions) $155 million 56 gross (48.3 net) $133 MM Average FFO per basic share: $1.87 Annualized 2012 Exit FFO: $155 MM Annualized 2012 Exit FFO per basic share: $2.19 Operating Netback: (2) $42.72 Year End Net Debt Bank Line: $146 MM $175 MM (1) Based on US$93.00/bbl WTI, $3.25/GJ AECO, US$/CDN$ exchange rate of $0.97. (2) Netback assumptions: Revenue/boe: $68.88; Op. and Transportation Costs: $13.17/boe; Royalties/boe: $11.96; Hedging Loss/boe: $1.04 and calculated by subtracting royalties and operating costs from revenues. 4

5 Significant Production Growth Since April 13, 2010 Forecast 2012 Exit Production: 11,000 (77% oil & NGLs) 11,000 10,000 9,000 8, Forecast Exit Production Rate + PrivateCo: >9,000 boe/d (~71% oil & NGLs) BOE/day 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 April 13, 2010 Recap Q2 Q Q Exit Q1 Q2 Q Actual 5 Q4 Forecast 2011 Exit Q1 Q2 Q Q Exit

6 Surge Energy Inc. Business Plan Acquire underexploited oil resource plays Identify & capture land in new oil resource plays Evolve into a Top Tier Intermediate Oil & Gas Producer with a Continued Focus on Oil Implement waterfloodsto optimize the value of our oil properties 6

7 Surge Energy Core Operating Areas South East Alberta Net Undeveloped Land: ~150,000 acres Oil Drilling Locations: >65 gross (>60 net) Williston Basin Western Alberta (W5M) Net Undeveloped Land: ~240,000 acres Oil Drilling Locations: >105 gross (>90 net) 7 Net Undeveloped Land: ~100,000 acres Oil Drilling Locations: >325 gross (>230 net)

8 Surge s Current Portfolio of Tight Oil Assets Nipisi Slave point Net DPIIP: 56 mmbbls Valhalla South - Doig Net DPIIP: 99 mmbbls Windfall - Bluesky Net DPIIP: 57 mmbbls Williston Basin - Spearfish Net DPIIP: 150 mmbbls Tight Oil Property Existing Conventional s 8 Exposure to >360 mmbbls of DPIIP with <2% oil recovery to date

9 Summary of Unbooked High Impact Light Oil Plays Excluding Nipisi Net Unbooked Oil Hz Wells(1) (1) (2) (3) (4) (5) 9 Estimated Reserves / Well Estimated Capital / Well NPV10 BT/ Well(2) NPV10 BT Additions(2)(3) Per FD Share(4) Unbooked Adds Rates of Return mboe $MM $MM $MM $/share mboe % Valhalla South Doig Hz oil wells $4.9 $11.2 $257 $ ,340 >175 Manitoba Spearfish Hz oil wells $1.3 $1.7 $168 $2.40 6,930 >145 North Dakota Spearfish Hz oil wells $1.5 $0.8 $96 $1.37 7,200 >45 Windfall Bluesky Hz oil wells $3.6 $3.0 $114 $1.63 9,400 >40 Total Unbooked Value $636 $ ,870 Estimated NAV(5 ) $437 $7.18 Estimated NAV + Unbooked Value $1,073 $15.34 $556 Unbooked locations represented in the table are as at January 25, 2012 November 1st, 2011 strip pricing (Year 1: C$88.90/bbl Edm. Par/US$92.34 /bbl WTI; C$3.56/GJ AECO/$US 4.16/mmbtu NYMEX; C$/US$ exchange rate of $1.001) Assumes all wells are drilled immediately Based on Surge s fully diluted shares outstanding as at January 25, 2012 of 78 million Surge Estimated NAV is as at December 31, 2010

10 Potential Net Upside from Secondary Recovery Area Net DPIIP (mmbbls) Cumulative Oil Recovered To Date (%) Estimated Primary Recovery (mmbbls/%) Estimated Potential Incremental Secondary Recovery (mmbbls/%)(1) Valhalla South Doig % 9.9/10% 9.9/10% Windfall Bluesky % 5.7/10% 8.6/15% Manitoba & North Dakota Spearfish % 15.0/10% 7.5/5% Nipisi % 5.6/10% 5.6/10% TOTAL 362 <2.0% 36.2 /10% 31.3/9% (1) Based on initial internal estimates. Technical work is in the preliminary phase. Potential for Surge to recover >30 mmbbls of light oil by successfully implementing tight oil waterfloods. 10

11 Traditional Challenges of Tight Oil ing A tight oil reservoir of very low permeability cannot be economically developed using traditional vertical well waterflood patterns Conventional Inverted Nine-Spot Pattern 1 mile Conventional Oil Reservoir Line Drive Pattern 400 meter well spacing Tight Oil Reservoir* Line Drive Pattern 200 meter well spacing - water injector - oil producer *Tight oil reservoirs require very close injector/producer well spacing to achieve a timely waterflood response. However, the incremental capex required to execute these waterfloods using historical vertical well patterns results in uneconomic projects. 11

12 Hz Multi-frac Wells: The Tight Oil Enabler Hz multi-frac technology maximizes reservoir contact, which allows operators to maximize the Net Present Value of waterfloods by: Injecting water at economically viable throughput rates (>5% HCPVI/yr) Reducing the project drill, complete & equip capital cost by >60% compared to vertical well line drive development Minimizing surface disturbance and infrastructure costs including injection/gathering systems, road construction and lease rentals Tight Oil Vertical Well Line Drive Pattern Tight Oil Hz Well Line Drive Pattern Multi-frac Hz well waterflood patterns have the potential to reduce well count by approximately 5 times 200 meter well spacing - water injector 12 - oil producer 200 meter well spacing

13 2012/2013 Tight Oil Milestones Windfall Pilot Application Approved Commence Pilot Application Nipisi Waskada Coreflood Study Valhalla Coreflood Study 13 Monitor Pilot Performance Application/Reservoir Modeling Reservoir Modeling Application Approved Commercial Approval & Construction Complete Design Commence Battery Construction Pilot Application Approved Continue primary Hz well delineation and infill drilling to confirm pool continuity Commence Pilot Monitor Pilot Performance Feasibility Study

14 Windfall 2012 Hz Well Pilot Pilot Learning Objectives: Water Injectivity (> 225 bpwd equates to 5% HCPVI/year) 2. Response (timing, production increase) 3. Optimal Well Spacing (Pilot spacing ~ 300 metres) 4. Risked capital for Windfall pilot program ~$2 million

15 Windfall Full Field Development Scenario 8,000 Total Development: 46 Producers 46 Injectors > 8 MMBbls Incremental Oil Reserves 7, Add 8 Injectors Drill 12 Producers, Add 6 Injectors per Year 6,000 BOE/day 5, Drill 12 Producers, Add 4 Injectors 4, Drill 12 Producers, Add 4 Injectors 3, Pilot Water Injection 2,000 Commences Capital spending can be accelerated based on pilot success. Pilot results are expected for H , Base + Primary Infill Drilling Incremental Production Nov-22 Jun-22 Jan-22 Aug-21 Mar-21 Oct-20 May-20 Dec-19 Jul-19 Feb-19 Sep-18 Apr-18 Nov-17 Jun-17 Jan-17 Aug-16 Mar-16 Oct-15 May-15 Dec-14 Jul-14 Feb-14 Sep-13 Apr-13 Nov-12 Jun-12 Jan-12 0

16 Large Oil in Place Captured: Potential to More Than Double Company Reserves 25.8 mmboe >30 mmbbls >31 mmbbls Current P+P Reserves Unbooked Light Oil from Drilling Inventory Unbooked Light Oil from Tight Oil Watefloods Successful tight oil waterfloods at Windfall, Nipisi and Waskada could add more than $250 million of BT10NPV to Surge. Total risked capital for pilot projects is less than $4 million. Current drilling inventory and waterflood upside has the potential to grow Surge beyond 16,000 boe/d by the end of

17 Surge Energy Inc. Business Plan Acquire underexploited oil resource plays Identify & capture land in new oil resource plays Evolve into a Top Tier Intermediate Oil & Gas Producer with a Continued Focus on Oil Implement waterfloodsto optimize the value of our oil properties 17