A Sustainable Energy Company Generating Significant Free Cash Flow Yields - Corporate Presentation
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A Sustainable Energy
Company Generating
Significant Free Cash Flow
Yields
Corporate Presentation
January 2022
Corporate Guidance - 2022
Market Snapshot 86% Liquids-weighted
production
Focused on returns and
Basic Shares Outstanding 83.4 MM
enhancing free cash flow
Average Daily Volume 1.2 MM Shares
21,500
BOEPD
Production Forecast
2022 Exit while managing risk
Market Cap / Enterprise Value* $520 MM / $845 MM
Bank Line $150 MM
Bank Line Utilized 65% $124
MILLION
Sustainably-oriented 2022
capital budget
Greater Swan
Key Guidance & Assumptions** $70 WT $75 WTI $80 WTI
2022 Cash flow From Operating Activities*** $230 ($2.76/sh) $255 ($3.06/sh) $275 ($3.30/sh) Valhalla
2022 Free cash flow $106 ($1.27/sh) $131 ($1.57/sh) $151 ($1.81/sh)
2022 All-in payout ratio 54% 49% 45%
Sparky
2022 Exit net debt to exit cash flow from operating activities 0.98x 0.75x 0.64x
* Market Cap and Enterprise Value done at $6.25 per share SGY SE Saskatchewan
** All pricing variables include differentials: WCS US $13.00; EDM US$3.50, AECO $3.25, 0.785 FX CAD/USD
*** Assumes nil change in non-cash working capital. Shaunavon
Please see the Advisories section at the back of this presentation for further details regarding forward looking statements, oil and gas information,
2
and non-GAAP and other financial measures.
.
The Surge Advantage
$$$
High Operating
Netback, + Disciplined Capital
Allocation + Proven Track
Record = Free Cash
Conventional Strategies of Execution Flow
Assets
• Light/medium oil weighted asset base • Dominant positions in conventional • Proven management team with track • Focus on execution driving enhanced
with large OOIP & low recoveries Sparky and SE Saskatchewan oil plays record of execution free cash flow and financial flexibility
• Low risk, low-cost, low decline, • Multi-year, low risk development • Strong governance with significant • Targeting low net debt and leverage
conventional reservoirs provide better drilling inventory insider ownership = shareholder metrics; returning to a shareholder
PE’s, IRR’s, and PIR’s alignment returns-based model
• Low base decline underpinned by
current and future waterflood
operations
3 Please see the Advisories section at the back of this presentation for further details regarding forward looking statements, oil and gas information, and non-GAAP and other financial measures.
Sustainable Strategy
Focused on sustainable
DISCIPLINED
returns and enhancing CAPITAL ALLOCATION
Undertake low cost, high impact projects
free cash flow that support long-term sustainability
Surge executes on a simple, repeatable business FINANCIAL FLEXIBILITY
strategy: SUSTAINABLE
Focus on high return strategic
a
1. Develop high-quality, conventional oil reservoirs
opportunities to maximize free cash STRATEGY
flow and enhance liquidity
with proven technology and enhance recovery
through waterflood
2. Strategically allocate capital to highest return
opportunities to maximize free cash flow RESPONSIBLE
generation ESG PRINCIPLES
Continued focus on abandonment
3. Continue to grow our commitment to robust
program to reduce corporate
environment, social and governance (ESG)
principles decommissioning liability
4 Please see the Advisories section at the back of this presentation for further details regarding forward looking statements, oil and gas information, and non-GAAP and other financial measures.
Enhancing Financial Sustainability
2022
Significant free cash over
forecast over
2022
flow drives improved
fundamentals and
$255 cash flow
from $130 forecast
free cash
million operating million flow
provides visibility to
activities
shareholder returns
Accelerating a return to a sustainable, value-based, shareholder returns business model
• Completed two acquisitions in SE Saskatchewan • Added $130MM second lien 5-year term debt,
building a new core area and adding >5,000 boepd reconstituting the Company’s debt capital structure
of high operating netback, operated, crude oil and further improving financial flexibility
• Continued growth in the Company’s Sparky core • Closed a new, $150 million first lien secured credit
area having now grown production by over 600% facility
from 1,200 boepd in 2015 to over 9,000 boepd today
• > $50 million in available liquidity
5 Forecast 2022 cash flow from operating activities and free cash flow based on US$75 WTI guidance, and include differentials: WCS US $13.00; EDM US$3.50, AECO $3.25
Please see the Advisories section at the back of this presentation for further details regarding forward looking statements, oil and gas information, and non-GAAP and other financial measures
Advantages of Conventional reservoirs offer lower risk, predictable,
repeatable development with opportunity to improve
Conventional recovery factors
Reservoirs
Surge proactively targets low risk, conventional
reservoirs. Currently, Surge estimates it has over
2.6 Billion barrels of net OOIP, with a low ~6%
recovery factor.
Higher Capital Risk Lower Capital Risk
1. High permeability + conventional reservoirs Higher Decline Business / Operational Risk Lower Decline
lowers capital risk and decline profiles
2. Potential for greatly improved ultimate oil
Unconventional Reservoirs Conventional Reservoirs
recovery and greater IRR and PIR LOW PERMEABILITYL Extremely Tight Very Tight Tight Low Moderate High
HIGH PERMEABILITY
3. Enhanced oil recovery from waterflood
potential, mitigates decline rates, and adds
incremental barrels at a low cost
0.0001 0.001 0.01 0.1 1 10 100
Permeability (mD)
Please see the Advisories section at the back of this presentation Increasing permeability = higher quality reservoir
6 for further details regarding forward looking statements, oil and
gas information, and non-GAAP and other financial measures.
Spotlight: Sparky and SE Saskatchewan Surge offers exposure to two of the top five conventional oil growth plays in Canada
Sparky &
SE Saskatchewan provide 2022 Production
exceptional economics & ~65%
Combined Production
Weighting by Area
Sparky
a depth of drilling Weighting in 2022
SE Saskatchewan
Other Surge Assets
inventory
Sparky
Light/medium crude oil production with compelling returns. Low
on-stream costs with extensive drilling and waterflood inventory
2022 Capital
85%
provides excellent long term sustainable growth potential.
Weighting by Area
SE Saskatchewan
Combined Capital
Weighting in 2022 Sparky
Highly focused, operated asset base with very high light oil SE Saskatchewan
operating netbacks. Low-cost wells with short payouts. Potential Other Surge Assets
for continued area consolidation.
8 Please see the Advisories section at the back of this presentation for further details regarding forward
looking statements, oil and gas information, and non-GAAP and other financial measures.
Sparky: Over 11 Billion Barrel Trend
One of Canada’s Largest Accumulations of Oil
A One-of-a-Kind Position
Surge holds a dominant land position and has Alberta
drilled >55% of all horizontal multi-well frac
Saskatchewan
wells in the light/medium window.
Sparky Formation
Facts
• Large, well established, oil
First Production May 1922
producing formation
Original Oil in Place > 11 Bbbls in Western Canada Light / Medium
• Increasing market focus; being
Gravity Oil Window
Cum Production > 1 Bbbls
compared to emerging More than 20 API
Recovery Factor 20,000 • Conventional sandstones support
top-tier capital efficiencies
Hz Wells >860
• Shallow depth (700-900m)
Multi-Stage Hz >320 • Low geological risk due to 3D
seismic and thousands of vertical
Surge Drilled Multi-Stage Hz >180
penetrations
Surge Land
9 Data sourced from Canadian Discovery and Geoscout
Long-Term Growth Potential
Pad drilling, advanced horizontal multi-stage fracturing
technology, & multi-leg horizontal success has unlocked the
potential of the Sparky play >800 Million bbls
2x Well Payout in 400 net
Peer 1 Clearwater
• Low-cost drilling (DCET at $1.3MM
per well) Peer 2 Charlie Lake
• Focus on lighter oil gravity (20-31° Surge SE Sask
API) = higher operating netbacks Surge Sparky Low risk Sparky drilling locations
• >12-year drilling inventory with Peer 3 Pipestone
>9,000 boepd
additional waterflood upside Peer 4 Viking
• Per well economics with quick Peer 5 Bakken
payouts and excellent rates Peer 6 Midale
Production (93% oil)
• Proven waterflood potential Peer 7 Duvernay
(Wainwright pool at >35% recovery Peer 8 Cardium
factor)
>$150 million
Peer 9 Viking
0 2 4 6 8 10 12 14 16
# of years to reach 2x payout
Field level cash flow (at US$75/bbl WTI)
1Source: Raymond James Energy Research
CDN E&P Play Economics (90 play Type-Curves): When 2x Payout is Reached
Please see the Advisories section at the back of this presentation for further details regarding forward looking statements, oil and gas information, non-GAAP and other financial measures, and additional metrics.
10Surge Land
SE Saskatchewan: Midale Subcrop
Frobisher Subcrop
Alida Subcrop
Leveraging Past Success
Recent acquisitions highly accretive to 2022
debt adjusted cash flow and free cash Saskatchewan Manitoba
flow per share
The Surge management team has a strong track record of success in SE
Saskatchewan and is excited to unlock the potential of this new core area
Area benefits:
• Organic growth opportunities plus strategic acquisitions or tuck-in
consolidation
• Cost efficient drilling with on production capital of ~$0.9 MM per well
• Extremely quick turnaround from spud to on production in under 2 weeks
• High operating netback light oil production and reserves
• “Clean” assets with low liabilities; minimal inactive ARO
• Year-round access
North Dakota
11 Please see the Advisories section at the back of this presentation for further details regarding forward
looking statements, oil and gas information, and non-GAAP and other financial measures.Key Growth Driver
High operating netback light oil
production and reserves from
>$50/boe >240 Million bbls
operating netback at
low risk, proven conventional US$75 WTI = Top decile netbacks OOIP net to SGY (internally estimated)
reservoirs
2x Well Payout in 200 net
Key Operational Areas (lower is better)
Peer 1 Clearwater
S.E. Saskatchewan ~4,300 (>90% Light oil)
Peer 2 Charlie Lake
Low risk SE Saskatchewan drilling locations
Manitoba ~700 (~99% Light Oil) Surge SE Sask
Surge Sparky
SE Saskatchewan upside:
• Brings corporate light oil weighting to ~50%
Peer 3 Pipestone
Peer 4 Viking >5,000 boepd
Peer 5 Bakken
Production (91% oil)
• Very high operating netbacks Peer 6 Midale
• Significant runway of Mississippian development Peer 7 Duvernay
>$100 million
opportunities (+8 years) Peer 8 Cardium
• Low capital efficiencies in-line with the Sparky Peer 9 Viking
• Free cash flow generating assets 0 5 10 15 20
# of years to reach 2x payout
Of field level cash flow (at US$75/bbl WTI)
1Source: Raymond James Energy Research
CDN E&P Play Economics (90 play Type-Curves): When 2x Payout is Reached
12 Please see the Advisories section at the back of this presentation for further details regarding forward looking statements, oil and gas information, and non-GAAP and other financial measures.Committed to Strong ESG Principles
ESG and sustainability priorities balance the needs of multiple stakeholders
Surge ESG Priorities ESG in Action
• Published inaugural ESG report in December 2021
• Climate focus: Integrate climate risks and
opportunities within both Board and Executive • Integration of climate risks and opportunities within
management mandates both Board/Executive and TCFD mandates
• Community engagement: Positively impact • Established an ESG advisory committee focused on
communities where Surge operates supporting environmental projects and targets
• Safety above all else: Protect and maintain the well- • Over 260 wells abandoned in 2021
being of employees and contractors • Completed a 45 km gas gathering pipeline in SE
• Well abandonment: Continued focus on reducing our Saskatchewan allowing Surge to reduce flared gas
abandonment liability volumes in the region by ~95%
• Emissions reduction: Establish corporate emissions • Completed a gas conservation project in SW
baselines for Scope 1 and Scope 2 emissions Saskatchewan, conserving 90% of previously flared
gas
13The Surge Advantage
$$$
High Operating
Netback, + Disciplined Capital
Allocation + Proven Track
Record = Free Cash
Conventional Strategies of Execution Flow
Assets
• Light/medium oil weighted asset base • Dominant positions in conventional • Proven management team with track • Focus on execution driving enhanced
with large OOIP & low recoveries Sparky and SE Saskatchewan oil plays record of execution free cash flow and financial flexibility
• Low risk, low-cost, low decline, • Multi-year, low risk development • Strong governance with significant • Targeting low net debt and leverage
conventional reservoirs provide better drilling inventory insider ownership = shareholder metrics; returning to a shareholder
PE’s, IRR’s, and PIR’s alignment returns-based model
• Low base decline underpinned by
current and future waterflood
operations
14 Please see the Advisories section at the back of this presentation for further details regarding forward looking statements, oil and gas information, and non-GAAP and other financial measures.Appendix
Macro Oil With highly concentrated light oil reserves, production, land and
large OOIP reservoirs across the asset base, Surge is well
Price and positioned to benefit from rising oil prices.
Fundamentals Monthly WTI + WTI / EDM Differential (USD)
$100
• Crude oil prices have spiked up $90
since hitting their lows in April $80
2020 $70
$60
• World crude demand continues $50
to grow despite continued $40
COVID-19 pandemic $30
$20
• World crude supply is $10
constrained due to low $-
investment globally
• Canadian crude oil differentials WTI EDM Light Diff (USD/Bbl) WTI (USD/Bbl)
continue to trend below historic
averages
16Supporting Assets Greater Sawn
Concentrated Light Oil
>600 MMbbls net OOIP in
concentrated, conventional
Slave Point reefs
Valhalla
Shaunavon
Stacked pay multi-zone
potential Producing low decline, medium
Light oil (~40° API) with gravity crude oil with high
extensive area operating netbacks
infrastructure and access to
multiple egress options =
attractive operating
netbacks
17 Please see the Advisories section at the back of this presentation for further details regarding forward looking statements, oil and gas information, and non-GAAP and other financial measures.Leadership
Paul Colborne Jared Ducs Murray Bye Derek Christie Margaret Elekes
President & CEO CFO COO Senior VP, Geosciences Senior VP, Land & BD
Paul Colborne has over 24 years Jared Ducs is a Chartered Murray Bye is a Professional Derek Christie is a Senior Energy Margaret Elekes has more than 30
of experience in the oil and gas Accountant with more than 14 Engineer with more than 22 years Executive and Professional years of experience in the oil and
industry and has been involved in years of accounting and finance of engineering experience Geologist with over 28 years of gas industry focusing on
a leadership, executive or experience in the oil and gas including exploitation, wide-ranging experience across negotiations, acquisitions and
director capacity with over 30 oil industry. Mr. Ducs is a founding production, and reservoir in North American Basins in both divestitures in both Canada and
and gas and energy services member of Surge, having held Western Canada. Conventional and Unconventional the United States.
companies. several progressively senior Reservoir Exploration and
positions with the Company. Development.
18Board of Directors
Paul Colborne Robert Leach 2,5,6 Board Committees
President & CEO Independent Director
1. Chair of the Board
2. Member of the Compensation, Nominating and
Allison Maher 4,5 Corporate Governance Committee. Mr. Smith
Jim Pasieka1 serves as Chair.
Independent Director
Chairman 3. Member of the Environment, Health and Safety
Committee. Mr. O’Neil serves as Chair.
Dan O’Neil 3,4 4. Member of the Reserves Committee. Mr. Gilbert
Marion Burnyeat 2,3 Independent Director
serves as Chair.
Independent Director 5. Member of the Audit Committee. Ms. Maher
serves as Chair.
Murray Smith 2,3 6. Lead independent director of the Board.
Daryl H. Gilbert 2,4 Independent Director
Independent Director
Michelle Gramatke 5
Independent Director
19Analyst Coverage Financial Institution Analyst Email Address Acumen Capital Partners Trevor Reynolds treynolds@acumencapital.com BMO Capital Markets Ray Kwan ray.kwan@bmo.com Canaccord Genuity Anthony Petrucci apetrucci@canaccordgenuity.com Cormark Securities Inc. Garett Ursu gursu@cormark.com Stifel FirstEnergy Robert Fitzmartyn rjfitzmartyn@stifel.com National Bank Financial Dan Payne dan.payne@nbc.ca Peters & Co. Limited Dan Grager dgrager@petersco.com Raymond James Jeremy McCrea jeremy.mccrea@raymondjames.ca Schachter Energy Research Services Josef I. Schachter josef@schachterenergyreport.ca Velocity Trade Capital Mark Heim mark.heim@velocitytradecapital.com 20
WTI Hedging Summary
9,000 $90.00
8,000 $75.96 $75.72 $75.40 $80.00
$67.61 $68.48
7,000 $70.00
6,000 $60.00
Volumes (Bbl)
5,000 $50.00
4,000 $40.00
3,000 $30.00
2,000 $20.00
1,000 $10.00
0 $-
Qtr. 1 2022 Qtr. 2 2022 Qtr. 3 2022 Qtr. 4 2022 Qtr. 1 2023
Swaps Collars Producer 3-Ways Avg. Price Floor
All Prices displayed in Canadian Dollars (CAD)
21
All USD denominated hedges have been converted to CAD at a rate of $0.80 USD/CADHedging Detail Liquids
WTI Crude Oil Derivative Contracts Western Canadian Select Differential Contracts (Swaps)
Period Volumes Avg. Price
SWAPS COLLARS THREE-WAY COLLARS Q1 2022 2,500 -$15.82
Average Average Average Average Average Q2 2022
Period Volumes Avg. Price Volumes Bought Put Sold Call Volumes Bought Put Sold Call Sold Put 3,500 -$16.30
Q3 2022 2,500 -$16.68
Q1 2022 4,000 $75.27 2,500 $55.00 $71.88 1,000 $68.48 $88.40 $57.27 Q4 2022 4,000 -$16.31
Q1 2023 - -
Q2 2022 7,000 $77.83 - - - 1,500 $67.23 $88.60 $57.27
Q2 2023 - -
Q3 2022 4,000 $77.79 2,000 $71.59 $103.68 - - - - Q3 2023 - -
Q4 2023 - -
Q4 2022 4,000 $77.30 2,000 $71.59 $103.68 - - - -
Q1 2023 - - 3,000 $68.48 $97.75 - - - - Mixed Sweet Blend Differential Contracts (Swaps)
Period Volumes Avg. Price
Q2 2023 - - - - - - - - -
Q1 2022 4,500 -$5.89
Q3 2023 - - - - - - - - - Q2 2022 4,500 -$5.89
Q3 2022 4,500 -$5.89
Q4 2023 - - - - - - - - -
Q4 2022 4,500 -$5.89
Q1 2023 - -
All Prices displayed in Canadian Dollars (CAD)
Q2 2023 - -
All USD denominated hedges have been converted to CAD at a rate of $0.80 USD/CAD
Q3 2023 - -
WTI 3-way hedges consist of a sold put, a bought put and a sold call. For example, if a WTI 3-way is priced $60/$72.50/$90, Surge receives WTI+$12.50/bbl when WTI is at or below $60/bbl; Surge
receives $72.50/bbl when WTI is between $60/bbl and $72.50/bbl; Surge receives WTI when WTI is between $72.50/bbl and $90/bbl; and Surge receives $90/bbl when WTI is above $90/bbl. Q4 2023 - -
22Hedging Detail Natural Gas
Natural Gas Derivative Contracts
AECO Swaps
Chicago Collars AECO Collars Physical Swaps
Average Average Sold Average Average Average Sold
Volumes Bought Put Call Volumes Bought Put Volumes Bought Put Call Volumes Average Swap
Period MMBTU CAD/MMBTU CAD/MMBTU Gigajoules CAD/GJ Gigajoules CAD/GJ CAD/GJ Gigajoules CAD/GJ
Q1 2022 2,000 $5.76 $7.47 4,000 $3.21 - - - 2,000 $6.03
Q2 2022 - - - 3,500 $3.57 - - - 3,000 $4.70
Q3 2022 - - - 3,500 $3.57 - - - 3,000 $4.70
Q4 2022 - - - 3,174 $4.00 2,500 $2.90 $3.67 1,000 $4.70
Q1 2023 - - - 2,000 $4.31 2,000 $2.90 $3.91 - -
All Prices displayed in Canadian Dollars (CAD)
All USD denominated hedges have been converted to CAD at a rate of $0.80 USD/CAD
23Hedging Detail Interest Rate & Power
Interest Rate Hedges
Type Term Notional Amount (CAD) Surge Receives Surge Pays Fixed Rate Surge Pays
Semi-Annual Step Up
• Beginning at 1.786%
Fixed-to-Floating Rate Swap Feb 2018 – Feb 2023 $100,000,000 Floating Rate Fixed Rate
• Ending at 2.714%
• Averaging 2.479%
Fixed-to-Floating Rate Swap July 2019 – June 2024 $50,000,000 Floating Rate Fixed Rate 1.7850%
Surge Power Hedges
Q4/2021 2022 2023 2024 2025
8 $120
As power prices fluctuate significantly in winter months,
7
$100 power hedges protect against extreme price volatility.
6
~47%
$80
5
Price (CAD)
MWh
4 $60
3
$40 of forecast power use
2
$20
hedged through 2025
1
0 $0
Q4/2021 2022 2023 2024 2025
Hedges W.A. Hedged Price Forecasted Price
24Advisories - Forward-Looking Statements
This presentation contains forward-looking More particularly, this presentation contains statements concerning: Although Surge believes that the expectations and assumptions on which
Surge’s declared focus and primary goals; management’s expectations the forward-looking statements are based are reasonable, undue reliance
statements. The use of any of the words and plans with respect to the development of its assets and the timing should not be placed on the forward-looking statements because Surge
“anticipate”, “continue”, “estimate”, “expect”, thereof; Surge’s declared focus and primary goals; Surge’s drilling can give no assurance that they will prove to be correct. Since forward-
“may”, “will”, “project”, “should”, “believe” and inventory and locations; management’s expectations regarding looking statements address future events and conditions, by their very
commodity prices; Surge’s annual exploration and development capital nature they involve inherent risks and uncertainties. Actual results could
similar expressions are intended to identify expenditure program and budget and its flexibility to make differ materially from those currently anticipated due to a number of
forward-looking statements. These statements adjustments thereto; management’s expectations regarding production factors and risks. These include, but are not limited to, risks associated
involve known and unknown risks, uncertainties growth, 2022 average production; management’s expectations regarding with the condition of the global economy, including trade, public health
2022 estimated operating expenses, transportation expenses and (including the impact of COVID-19) and other geopolitical risks; risks
and other factors that may cause actual results general and administrative expenses; and Surge’s abandonment and associated with the oil and gas industry in general (e.g., operational risks
or events to differ materially from those reclamation program and management’s expectations regarding in development, exploration and production; delays or changes in plans
reductions in Surge’s decommissioning liability. with respect to exploration or development projects or capital
anticipated in such forward-looking statements.
expenditures; the uncertainty of reserve estimates; the uncertainty of
The forward-looking statements are based on certain key expectations estimates and projections relating to production, costs and expenses, and
and assumptions made by Surge, including expectations and assumptions health, safety and environmental risks); commodity price and exchange
the performance of existing wells and success obtained in drilling new rate fluctuations and constraint in the availability of services, adverse
wells; anticipated expenses, cash flow and capital expenditures; the weather or break-up conditions; uncertainties resulting from potential
application of regulatory and royalty regimes; prevailing commodity delays or changes in plans with respect to exploration or development
prices and economic conditions; development and completion activities; projects or capital expenditures; and failure to obtain the continued
the performance of new wells; the successful implementation of support of the lenders under Surge’s bank line. Certain of these risks are
waterflood programs; the availability of and performance of facilities and set out in more detail in Surge’s AIF dated March 9, 2021 and in Surge’s
pipelines; the geological characteristics of Surge’s properties; the MD&A for the period ended December 31, 2020, both of which have been
successful application of drilling, completion and seismic technology; the filed on SEDAR and can be accessed at www.sedar.com.
determination of decommissioning liabilities; prevailing weather
conditions; exchange rates; licensing requirements; the impact of The forward-looking statements contained in this presentation are made
completed facilities on operating costs; the availability and costs of as of the date hereof and Surge undertakes no obligation to update
capital, labour and services; and the creditworthiness of industry publicly or revise any forward-looking statements or information, whether
partners. as a result of new information, future events or otherwise, unless so
required by applicable securities laws.
25
.Advisories – Oil and Gas Information
The term “boe” means barrel of oil equivalent on the basis of 1 boe to 6,000 cubic means an estimate that is derived by Surge’s internal QRE’s and prepared in production. The drilling locations on which the Company actually drills wells will
feet of natural gas. Boe may be misleading, particularly if used in isolation. A boe accordance with National Instrument 51-101 - Standards of Disclosure for Oil and ultimately depend upon the availability of capitalces, costs, actual drilling results,
conversion ratio of 1 boe for 6,000 cubic feet of natural gas is based on an energy Gas Activities. All internal estimates contained in this new release have been additional reservoir information that is obtained and other factors. While certain of
equivalency conversion method primarily applicable at the burner tip and does not prepared effective as of Jan 1, 2021. the unbooked drilling locations have been de-risked by drilling existing wells in
represent a value equivalency at the wellhead. Given that the value ratio based on relative close proximity to such unbooked drilling locations, the majority of other
Production/capital efficiency (PE) is capital divided by production. For example, an
the current price of crude oil as compared to natural gas is significantly different unbooked drilling locations are farther away from existing wells where management
IP180 production efficiency is the total capital costs to drill and bring a well on
from the energy equivalency of 6:1, utilizing a conversion on a 6:1 basis may be has less information about the characteristics of the reservoir and therefore there is
production divided by the initial production over the first 180 days.
misleading as an indication of value. more uncertainty whether wells will be drilled in such locations and if drilled there
Internal rate of return (IRR) is the discount rate that makes the net present value of is more uncertainty that such wells will result in additional oil and gas reserves,
In this presentation: (i) mcf means thousand cubic feet; (ii) mcf/d means thousand all cash flows from a given project equal to zero. resources or production.
cubic feet per day (iii) MMcf means million cubic feet; (iv) MMcf/d means million
PIR: Profit to investment ratio (PIR) is calculated as the NPV from a project divided
cubic feet per day; (v) bbls means barrels; (vi) Mbbls means thousand barrels; (vii) Net of Surge March 25, 2021 disposition, total Sparky Core locations were >475 gross
by the capital investment ascribed to that project
MMbbls means million barrels; (viii) bbls/d means barrels per day; (ix) bcf means (>475 net). Of these, 116 gross (114 net) were booked Proved locations and 46 gross
billion cubic feet; (x) Mboe means thousand barrels of oil equivalent; (xi) MMboe Recovery Factor: defined as the percentage of hydrocarbons currently recovered or (44 net) booked Probable locations based on Sproule’s 2020YE reserves.
means million barrels of oil equivalent; (xii) boe/d and boepd means barrels of oil potentially recoverable from a known accumulation of such hydrocarbons
As of Jan 1, 2021 for Astra, and Mar 1, 2021 for Fire Sky, the combined SE
equivalent per day; and (xiii) NGLs means natural gas liquids.
Saskatchewan total booked locations were 269 gross (223.6 net), of these, 177 gross
(145.2 net) are Proved and 92 gross (78.4 net) are Probable locations based on
Reserves Drilling Locations Sproule’s year end evaluation of both companies.
This presentation contains certain oil and gas metrics and defined terms which do This presentation discloses drilling locations in two categories: (i) booked locations;
Net of Surge March 25, 2021 disposition, the pro forma Company (Surge + Astra +
not have standardized meanings or standard methods of calculation and therefore and (ii) unbooked locations. Booked locations are proved locations and probable
Fire Sky) will have over >1,050 gross (>975 net) drilling locations identified herein, of
such measures may not be comparable to similar metrics/terms presented by other locations derived from an external evaluation using standard practices as
these >450 gross (>400 net) are unbooked locations. Of the 562 net booked locations
issuers and may differ by definition and application. All oil and gas metrics/terms prescribed in the Canadian Oil and Gas Evaluations Handbook and account for
identified herein, 415 net are Proved locations and 147 net are Probable locations
used in this document are defined below: drilling locations that have associated proved and/or probable reserves, as
based on Sproule’s 2020YE reserves. Assuming an average number of net wells
applicable.
drilled per year of 75, Surge’s >975 net locations provide 13 years of drilling.
Original Oil in Place (“OOIP”) means Discovered Petroleum Initially In Place (“DPIIP”).
DPIIP is derived by Surge’s internal Qualified Reserve Evaluators (“QRE”) and Unbooked locations are internal estimates based on prospective acreage and Surge’s internally developed type curves (for Surge, Astra and Fire Sky) were
prepared in accordance with National Instrument 51-101 and the Canadian Oil and assumptions as to the number of wells that can be drilled per section based on constructed using a representative, factual and balanced analog data set, as of Jan 1,
Gas Evaluations Handbook (“COGEH”). DPIIP, as defined in COGEH, is that quantity of industry practice and internal review. Unbooked locations do not have attributed 2021 for Surge type curves, April 15, 2021 for Astra type curves and July 1, 2021 for
petroleum that is estimated, as of a given date, to be contained in known reserves or resources. Unbooked locations have been identified by Surge’s internal Fire Sky type curves. All locations were risked appropriately, and EUR’s were
accumulations prior to production. The recoverable portion of DPIIP includes certified Engineers, regulatory approvals, seasonal restrictions, oil and natural gas measured against OOIP estimates to ensure a reasonable recovery factor was being
production, reserves and Resources Other Than Reserves (ROTR). OOIP/DPIIP and priand Geologists (who are also Qualified Reserve Evaluators) as an estimation of achieved based on the respective spacing assumption. Other assumptions, such as
potential recovery rate estimates are based on current recovery technologies. There our multi-year drilling activities based on evaluation of applicable geologic, seismic, capital, operating expenses, wellhead offsets, land encumbrances, working interests
is significant uncertainty as to the ultimate recoverability and commercial viability engineering, production and reserves information. There is no certainty that the and NGL yields were all reviewed, updated and accounted for on a well by well basis
of any of the resource associated with OOIP/DPIIP, and as such a recovery project Company will drill all unbooked drilling locations and if drilled there is no certainty by Surge’s Qualified Reserve Evaluators. All type curves fully comply with Part 5.8 of
cannot be defined for a volume of OOIP/DPIIP at this time. “Internally estimated” that such locations will result in additional oil and gas reserves, resources or the Companion Policy 51 – 101CP.
26Advisories – Non-GAAP and Other Financial Measures
This presentation includes references to non-GAAP and other financial All-in Payout Ratio Free Cash Flow and Free Cash Flow Yield
measures used by the Company to evaluate its financial performance,
All-in payout ratio is a non-GAAP ratio, calculated as exploration and Free cash flow is a non-GAAP financial measure, calculated as cash flow
financial position or cash flow. These specified financial measures
development expenditures divided by cash flow from operating from operating activities less exploration and development capital
include non-GAAP financial measures and non-GAAP ratios, are not
activities. Management uses this measure to determine the amount of expenditures. Management uses free cash flow to determine the
defined by IFRS and therefore are referred to as non-GAAP and other
cash from operating activities that is used to reinvest in the exploration amount of funds available to the Company for future capital allocation
financial measures. Certain secondary financial measures in this
and development of its asset base. This measure is provided to allow decisions.
presentation – namely, “all-in payout ratio”, “free cash flow”, “free cash
readers to quantify the amount of cash from operating activities that is
flow per share”, “free cash flow yield”, “net debt”, “net debt to cash flow Free cash flow per share is a non-GAAP ratio, calculated using the same
being used to deploy into the Company’s exploration and development
from operating activities”, and “operating netback” are not prescribed weighted average basic and diluted shares used in calculating income
program. A ratio of less than 100% indicates that a portion of the cash is
by GAAP. These non-GAAP and other financial measures are included per share.
being retained by the Company and can be used to fund items such as
because management uses the information to analyze business
asset abandonment, repayment of debt, fund acquisitions or the costs Free cash flow yield is a non-GAAP ratio, calculated as free cash flow
performance, cash flow generated from the business, leverage and
related thereto, withholding tax obligations on stock-based divided by the number of basic shares outstanding, divided by the
liquidity, resulting from the Company’s principal business activities and
compensation or other items. Company’s share price at the date indicated herein. Management uses
it may be useful to investors on the same basis. None of these measures
this measure as an indication of the cash flow available for return to
are used to enhance the Company’s reported financial performance or
shareholders based on current share prices.
position. The non-GAAP and other financial measures do not have a
standardized meaning prescribed by IFRS and therefore are unlikely to
be comparable to similar measures presented by other issuers. They are
common in the reports of other companies but may differ by definition
and application. All non-GAAP and other financial measures used in this
document are defined below, and as applicable, reconciliations to the
most directly comparable GAAP measure for the year ended December
31, 2020, have been provided to demonstrate the calculation of these
measures:
27Advisories – Non-GAAP and Other Financial Measures cont’d
Net Debt and Net Debt to Cash Flow from Operating Activities Operating Netback
Net debt is a non-GAAP financial measure, calculated as bank debt, Operating netback is a non-GAAP financial measure, calculated as
term debt, plus the liability component of the convertible petroleum and natural gas revenue and processing and other
debentures plus current assets, less current liabilities, however, income, less royalties, realized gain (loss) on commodity and FX
excluding the fair value of financial contracts, decommissioning contracts, operating expenses, and transportation expenses.
obligations, and lease and other obligations. There is no comparable
Operating netback per boe is calculated as operating netback
measure in accordance with IFRS for net debt. This metric is used by
divided by total barrels of oil equivalent produced during a specific
management to analyze the level of debt in the Company including
period of time. There is no comparable measure in accordance with
the impact of working capital, which varies with the timing of
IFRS. This metric is used by management to evaluate the Company’s
settlement of these balances.
ability to generate cash margin on a unit of production basis.
Net debt to cash flow from operating activities is a non-GAAP ratio,
calculated as exit net debt divided by cash flow from operating
activities. Management uses this ratio to assess the time (in years)
that it would take to fund net debt based on the annualized cash
flow from operating activities.
28Corporate Information
TSX Lending Syndicate
SGY.TO
National Bank of Canada
ATB Financial
Bank of Montreal
BDC Capital
Export Development Canada
Auditor Registrar & Transfer Agent
KPMG LLP Odyssey Trust
Legal Counsel Investor Contacts
Surge Energy Inc.
2100, 635 – 8th Ave. SW, McCarthy Tétrault Paul Colborne, President & CEO
Calgary Alberta T2P 3M3 Jared Ducs, CFO
invest@surgeenergy.ca
T: 403.930.1010 Evaluation Engineers
F: 403.930.1011
Sproule
www.surgeenergy.ca
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