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“Positioned for sustainability and growth”

“Positioned for sustainability and growth”. April, 2014. FORWARD-LOOKING STATEMENTS.

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“Positioned for sustainability and growth”

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  1. “Positioned for sustainability and growth” April, 2014
  2. FORWARD-LOOKING STATEMENTS This presentation contains forward-looking statements. More particularly, this presentation contains statements concerning anticipated: (i) potential development opportunities and drilling locations, expectations and assumptions concerning the success of future drilling and development activities, the performance of existing wells, the performance of new wells, decline rates, recovery factors, the successful application of technology and the geological characteristics of Surge’s properties, (ii) cash flow, (iii) the timing and amount of future dividend payments, (iv) oil & natural gas production growth during 2013 and 2014, (v) debt and bank facilities, (vi) hedging results, (vii) primary and secondary recovery potentials and implementation thereof, (viii) potential acquisitions, (ix) potential dispositions, (x) drilling, completion and operating costs, and (xiii) 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 www.sedar.com. 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 forward-looking statements or information, whether as a result of new information, future events or otherwise, unless so required by applicable securities laws. This presentation contains the term “netbacks” which is not a term recognized under IFRS Generally Accepted Accounting Principles (“GAAP”). The Company uses this measure to help evaluate its performance as well as to evaluate acquisitions. The Company considers netbacks as a key measure as it demonstrates its profitability relative to current commodity prices. Operating netbacks are calculated by taking total revenues (excluding derivative gains and losses) and subtracting royalties, operating expenses and transportations costs on a per boe basis. 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.
  3. RECENT DEVELOPMENTS Q1/14 Drilling/WaterfloodResults – Better Than Expected: 100% drilling success in Q1/14; exit rate increased to 16,850 boed (85% oil & NGLs) and 21,350 boed(84% oil & NGLs) proforma strategic business combination with Longview Large new pool discovery in the Upper Shaunavon 125 mm OOIP Discovery well is > 300 bopd > 64 additional locations! Announced a $429 million Strategic Business Combination on March 31, 2014: Adds more than 375 million boe of OOIP (1); post-closing Surge will have over 1.9 billion barrels of light and medium gravity OOIP under the Company's ownership and management An excellent asset fit that is accretive on all metrics Proposed dividend increase of 11%; to $0.60/share Lowered “all-in” sustainability ratio to <89% Solid Organic and Acquisition Reserve Results: Replaced 196% of production through organic 2P reserve additions on F&D (incl. change in FDC) of $17.03/boeachieving a 2.5x recycle ratio; Four year weighted average F&D recycle ratio of 2.0x; 2P reserve additions on FD&A (incl. change in FDC) of $27.27/boe (1.5x recycle ratio); and Increased Proved plus Probable reserves by 59% to 73.5 million boe 3
  4. WHY OWN SURGE ENERGY? Low risk, high quality, crude oil asset and opportunity base; >12 year RLI (with 2 years of FDC/cash flow); Very low “all-in” sustainability ratio (<89%); NO DRIP Excellent replacement metrics/capital efficiencies (<$29,000/boepd); 10 year inventory of low risk development drilling locations; largely unbooked waterflood upside One of the best balance sheets in peer group Enterprise value(1) ~$1.4 billion; Market capitalization(1) >$1.1 billion; Excellent liquidity Based on a share price of $6.30.
  5. SURGE ENERGY INC. Elite, operated, large OOIP crude oil reservoirs, with low recovery factors; over 1.5 Billion barrels of OOIP under management - with current recovery factor of 10%; proforma the LNV combination over 1.9 Billion barrels of OOIP under management Strong balance sheet; ongoing risk management/hedging program Experienced management team with proven track records
  6. KEY VALUE DRIVERS (RISK ADJUSTED) 3-5% organic annual per share growth in reserves, production and cash flow; and >8% dividend yield; and Debt reduction (i.e. due to low sustainability ratio); increases NAV; and 4. Accretive acquisitions. 6
  7. ELITE, FOCUSED ASSET BASE EXPOSURE TO >1.5 BILLION BBLS OF OOIP 10% OIL RECOVERED TO DATE
  8. EXCELLENT CAPITAL EFFICIENCIES / REPLACEMENT METRICS
  9. SUMMARY OF QUALITY OIL RESERVOIRS – LARGE OOIP(1) WITH LOW RECOVERY FACTORS Achieved Proved plus Probable (2P) F&D (incl. change in FDC) of $17.03/boe achieving a 2.5x recycle ratio. Achieved 2P FD&A (incl. change in FDC) of $27.27/boe achieving a 1.5x recycle ratio. Organic proved plus probable reserve additions replaced 196% of production. Increased Proved plus Probable reserves by 59% to 73.5 million boe. Increased Proved plus Probable Oil and NGLs reserves by 79%. Oil and NGLs made up 78% of the Company's total Proved plus Probable reserves. Surge's Net Asset Value (NAV) is estimated at $7.03 per basic share based on NPV10 BT 2P reserves of $1.497 billion.(2) December 31, 2013 reserves. Based on independent engineering reports as at December 31, 2013 (including the SE Saskatchewan asset acquisition that closed on Feb 14, 2014).
  10. ELITE WATERFLOOD RESERVOIRS – LOW DECLINE
  11. WILLISTON BASINSE Sask (Midale/Frobisher/Alida) Steelman Rosebank Ingoldsby Macoun Hastings Silverton Gainsborough Alameda 342 MMbbls of OOIP (35-37 degree API) Current recovery factor 19.8% of OOIP Rates of return ~74%(1) 67 gross/54 net drilling locations (2) Estimated 23% RF Surge Land Based on Year 1 price of C$ 93.00/BblEdm Par, US$ 96.00/Bbl WTI, C$ 3.50/GJ AECO, escalated at 2%/Year thereafter. As at January 1, 2014.
  12. WILLISTON BASINManson (Bakken/Three Forks) 76 MMbbls of OOIP (35 degree API) Current recovery factor 0.9% of OOIP Rates of return ~40%(1) 38 gross/34 net drilling locations remain at Manson(2) 2 injectors have been implemented in Q3; exciting early response Based on successful waterflood implementation, Surge estimates ultimate recovery of at least 13% of the estimated 76 MMbbls of OOIP Surge Land Surge Wells Manson Based on Year 1 price of C$ 93.00/BblEdm Par, US$ 96.00/Bbl WTI, C$ 3.50/GJ AECO, escalated at 2%/Year thereafter. (2) As of January 1, 2014.
  13. SW SASKATCHEWANShaunavon (Lower and Upper) Surge Land >350 MMbbls of OOIP in the Lower and Upper Shaunavon formations (medium gravity oil) Current recovery factor ~1.3% Rates of return in excess of 50%(1) 369 gross/362 net drilling locations in the Lower and Upper Shaunavon based on 8 wells/section (2) >70 pump optimization opportunities with capital efficiencies of < $7,500/bopd Elite, operated facilities, including: pipeline connected battery, waterfloodinfrastructure, a nearby rail transloading facility, and an existing rail marketing arrangement Significant unbooked upside from the successful implementation of Q4 2013 waterflood as the assets are developed over time Surge Wells Based on Year 1 price of C$ 93.00/BblEdm Par, US$ 96.00/Bbl WTI, C$ 3.50/GJ AECO, escalated at 2%/Year thereafter.
  14. SE ALBERTASilver/Wainwright Area (Cretaceous Sands) Wainwright >435 MMbbls OOIP (23-31 degree API oil) Multi-zone, medium gravity crude at shallow depths (<1,000 meters) Current recovery factor of 19.1% Low-decline, high ROR assets that provide stable cash flow base Continued positive oil response from expanded waterflood initiatives in two zones Control of key infrastructure Rates of return in excess of 100% (1) 143 gross/137 net drilling locations (2) Successful drilling/farm-in/acquisitions have resulted in capture of two new Cretaceous oil pools in Silver Area (~125 MMbblsof OOIP combined) Surge Land Surge Wells Silver Farm-in Lands Based on Year 1 price of C$ 93.00/BblEdm Par, US$ 96.00/Bbl WTI, C$ 3.50/GJ AECO, escalated at 2%/Year thereafter. As at January 1 2014.
  15. SW SASKATCHEWANViking Surge Land Plenty Operated; high working interests High netback >$55/bbl Rates of return ~34% (1) 143MMbbls of OOIP (37 degree API) in the Viking formation Current recovery factor 0.5% of OOIP 138 gross/112 net drilling locations remain at SW Saskatchewan Viking (2) Potential waterflood upside Surge Wells Dodsland Plato Forgan Based on Year 1 price of C$ 93.00/BblEdm Par, US$ 96.00/Bbl WTI, C$ 3.50/GJ AECO, escalated at 2%/Year thereafter. As at January 1, 2014.
  16. WESTERN ALBERTAValhalla South / Wembley (Doig) Surge Land >160 MMbbls of combined OOIP at Valhalla and Wembley (40 degree API light oil) Rates of return of >130%(1) Current recovery factor ~2.4% (2) 44 gross/37 net drilling locations at both Valhalla and Wembley Continue delineating large pool extension to the North Potential future waterflood candidate Surge Wells Valhalla Wembley Based on Year 1 price of C$ 93.00/BblEdm Par, US$ 96.00/Bbl WTI, C$ 3.50/GJ AECO, escalated at 2%/Year thereafter. As at January 1, 2014 16
  17. WESTERN ALBERTANipisi (Slave Point) Analogue Slave Point Waterflood Surge Land 115 MMbbls of combined OOIP (35-42 degree API) in the Slave Point Formation at Nipisi North and Nipisi South Current recovery factor ~0.7% of OOIP Rates of return of ~50%(1) 37 gross/37 net Slave Point and Gilwood drilling locations remain at Nipisi North and South(2) Commenced water injection during Q2 2013; exciting early response Based on successful waterflood implementation, Surge estimates ultimate recovery of at least 20% of the estimated 85 MMbbls of OOIP in the northern pool based on offsetting analogous waterfloodedpools Surge Wells Gift Nipisi Nipisi South Based on Year 1 price of C$ 93.00/BblEdm Par, US$ 96.00/Bbl WTI, C$ 3.50/GJ AECO, escalated at 2%/Year thereafter. As at January 1, 2014. Reef Margin Edge
  18. RISK MANAGEMENT/HEDGING STRATEGY Oil Hedges The Company has an orderly, on-going, risk management / hedging program designed to lock in future cash flows to protect the Company’s capex program and fund dividends. Surge has nearly 5,000 barrels per day ofWTI oil hedged on average for 2014 at CAD$97.07, 2,750 barrels per day of WTI oil hedged at CAD$96.70 for the first half of 2015 and 2,000 barrels per day of WTI oil hedged at CAD$93.27 for the second half of 2015 . Surge has 7,586 mcf per day of AECO natural gas hedged at CAD$3.61 for the remainder of 2014, and 3,793 mcf per day of AECO natural gas hedged at CAD$3.87 for 2015. Average Oil Hedge Price
  19. SURGE – POSITIONED FOR SUSTAINABILITY Low base decline 24%, high netbacks, excellent capital efficiencies Very low “all-in” sustainability ratio of <89%; NO DRIP Strong balance sheet; 2014 debt to funds flow ratio of <1.3x Ongoing risk management/hedging program protects cash flow
  20. SURGE – POSITIONED FOR GROWTH Focused, high quality, crude oil asset and opportunity base; core properties are 100% operated with working interests of >90% Elite, large OOIP crude oil reservoirs – with low recovery factors; >12 year RLI (only 2 years of FDC/cash flow) Over 800 low risk development drilling locations provide >10 year inventory
  21. ANALYST COVERAGE
  22. CORPORATE PARTNERS 2100, 635 – 8th Ave. SW, Calgary Alberta T2P 3M3 T: 403.930.1010 F: 403.930.1011 www.surgeenergy.ca 22
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