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Press release from CNW Group

Surge Energy Inc. Announces Significant Exploration Drilling Success at Nipisi South, Valhalla and Silver Core Areas

Tuesday, March 12, 2013

Surge Energy Inc. Announces Significant Exploration Drilling Success at Nipisi South, Valhalla and Silver Core Areas06:30 EDT Tuesday, March 12, 2013CALGARY, March 12, 2013 /CNW/ - Surge Energy Inc. ("Surge" or the "Company") (TSX: SGY) is pleasedto announce significant new pool additions and pool extensions at three of its primary operating properties.Western Alberta:Nipisi South (Slave Point) - New Light Oil Pool DiscoverySurge has successfully drilled, completed and brought on production a horizontal well (13-36-76-9W5; 73 percent working interest or "WI") at Nipisi South for a total cost of $3.2 million.  The horizontal section of the well was not stimulated and accessed 800 meters of Slave Point reservoir.  The well is currently pumping over 325 barrels of light oil per day (237 barrels of oil per day net) with a twenty percent water cut.The well confirms the commercial viability of the estimated 30 million barrels of internally estimated DPIIP1 and the Company anticipates that at least ten gross (9.2 net) wells will be required to optimally develop the pool. Surge pooled a quarter section to complete the spacing unit in order to drill the 13-36 well and reduce risk exposure, which resulted in the 73 percent WI in that section. An additional section (100 percent WI) was recently acquired at a Crown land sale, offsetting Surge's four existing 100 percent WI sections.Nipisi (Slave Point)At Nipisi, Surge drilled and brought on production a horizontal multi-frac well (15-2-78-9W5; 100 percent WI). This well has been on production for one month and is meeting the Company's type curve expectations of best month average production rate of 175 barrels of light oil per day.Valhalla (Doig) - Northern Light Oil Pool Extension Surge recently drilled and brought on production its most northerly horizontal multi-frac well (13-7-75-8W6; 100 percent WI).  The well encountered very good reservoir quality over its 800 meters horizontal section and was frac'd with nine stages.  Surges operational staff was successful in reducing the total cost of this well by approximately 15 percent by significantly reducing the number of drilling days and improving the completion methodology.  The well has been on production for 15 days and has averaged approximately 1,560 boe per day (89 percent oil and NGLs).  The results of this successful two mile north step-out well from section 31-74-8W6 will further add to Surge's significant Doig light oil pool, previously internally estimated as 115 million barrels of DPIIP.  The Company estimates there to be an additional nine gross/net horizontal multi-frac follow-up locations in the northern part of the pool.Surge is currently drilling an additional horizontal multi-frac well (5-18-75-8W6; 100 percent WI) in the northern portion of the Valhalla Doig pool, which is expected to extend the northern portion of this elite asset even further.Surge also recently drilled an additional horizontal multi-frac well (13-31-74-8W6; 44 percent WI) that successfully encountered 710 meters of Doig reservoir.  The well is currently being frac'd with seven stages and is expected to be on production during the last week of March 2013.In the southern portion of the Valhalla Doig pool, Surge's 100 percent WI horizontal multi-frac well at 102/14-32-73-8W6 has reached total depth and will be completed immediately.  This well encountered 790 meters of Doig reservoir and will be frac'd with eight stages.  The well is expected to be on production in early April 2013.While Surge has resumed drilling operations on the southern portion of the Valhalla Doig pool under existing well spacing, the ERCB Hearing relating to Surge's holding applications to optimize development well density for the southern portion of the pool has been postponed until May 21, 2013. Surge anticipates a successful resolution for these holding applications during the third quarter of 2013.____________________________1 Discovered Petroleum Initially In Place (DPIIP) is defined as that quantity of oil that is estimated, as of a given date, to be contained in known accumulations prior to production. The recoverable portion of DPIIP includes production, reserves, and contingent resources; the remainder is unrecoverable.  There is no certainty that it will be commercially viable to produce any portion of the resources. A recovery project cannot be defined for this volume of DPIIP at this time, and as such it cannot be further sub-categorized.South East Alberta:Silver Area (Cretaceous Sands) - Two New Pool DiscoveriesSurge is pleased to announce excellent drilling results in two new pools in the Silver Area of South East Alberta.Surge has drilled and completed a 100 percent WI horizontal multi-frac well, which is now on production.  The well encountered 660 meters of Cretaceous section in this new pool and was frac'd with ten stages.  The well was placed on pump on February 28, 2013 and produced at rates of more than 300 barrels of oil per day during cleanup, which is significantly above Surge's type curve expectations of best month average production rate of 100 barrels of oil per day.  The well is currently being cleaned out as a result of minor frac sand flow back into the wellbore.  The well confirms the commercial viability of the 47 million barrels of internally estimated DPIIP in this pool. Surge has recently acquired another section of rights in this pool for a total current exposure of 4.75 net sections.  Surge estimates the potential for up to 20 additional drilling locations in this new pool based on 400 meter inter-well spacing.Surge has also drilled and completed another 100 percent WI horizontal well in the Silver Area into a new Cretaceous oil pool.  The well encountered 650 meters of horizontal section and is currently performing to Surge's type curve expectations of best month average production rate of 100 barrels of oil per day.  The well confirms the commercial viability of the 2.2 million barrels of internally estimated DPIIP in this pool.Williston Basin:North Dakota (Spearfish Light Oil)To date in 2013, five (2.1 net) non-operated Spearfish horizontal multi-frac wells have been brought on production. The remaining two (0.83 net) wells will be on production by the end of March 2013.  The wells that are currently producing are exceeding Surge's type curve expectations of best month average production of 125 barrels of oil per day.OUTLOOK - POSITIONED FOR CONTINUED LIGHT OIL GROWTHSurge is well positioned to meet or exceed its 2013 guidance.2013 Guidance:2Average Production:10,300 (73% oil and NGLs)Exit (December Average) Production:11,500 (73% oil and NGLs)Capital Expenditures:$140 millionAverage FFO:$110 millionAverage FFO per share (basic):$1.55Annualized December FFO:$124 millionAnnualized December FFO per share (basic):$1.74Average Operating Netback:$36.01Surge has assembled more than 585 gross (450 net) oil drilling locations, made significant progress in reducing its cost structure and increasing netbacks and gained exposure to an internally estimated DPIIP of more than 640 gross million barrels of oil, with multiple waterflood opportunities and exploration initiatives.Surge is committed to delivering top quartile corporate performance and creating value for shareholders by growing reserves, cash flow and production on a per share basis.Surge is an oil focused oil and gas company with operations throughout Alberta, Manitoba and North Dakota. Surge's common shares trade on the Toronto Stock Exchange under the symbol SGY.  Surge currently has 71.2 million basic and 79.9 million fully diluted common shares outstanding._______________________________2 Based on US$90.00/bbl WTI, C$82.40/bbl Edm Par, $3.00/mcf AECO, US$/CDN$ exchange rate of 1.000.Forward Looking Statements: This news release contains certain forward-looking information and statements within the meaning of applicable securities laws. The use of any of the words "expect", "anticipate", "continue", "estimate", "may", "will", "project", "should", "believe", "plans", "intends" and similar expressions are intended to identify forward-looking information or statements. In particular, but without limiting the foregoing, this news release contains forward-looking information and statements pertaining to the following: the recognition of additional resources, additional drilling locations, timing of the ERCB hearing and decision with respect to the Surge's holding applications at Valhalla, the volume and product mix of Surge's oil and gas production; future results from operations and operating metrics, and future exploration and development activities (including drilling plans) and related production and reserves expectations, the anticipated 2013 average and exit rates of production, anticipated cash flow and cash flow per share in 2013, average operating netbacks in 2013, the anticipated year end net debt and debt to trailing cash flow ratio and the development and growth potential of Surge's properties.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 press release 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.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 press release: (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; * mboe means thousand barrels of oil equivalent; and (xi) mmboe means million barrels of oil equivalent.Neither the TSX nor its Regulation Services Provider (as that term is defined in the policies of the TSX) accepts responsibility for the adequacy or accuracy of this release. SOURCE: Surge Energy Inc.For further information: Dan O'Neil, President and CEO     Surge Energy Inc. Phone: (403) 930-1020 Fax: (403) 930-1011 Email: doneil@surgeenergy.ca      Max Lof, CFO Surge Energy Inc. Phone: (403) 930-1021 Fax: (403) 930-1011 Email: mlof@surgeenergy.ca