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Surge Energy Inc.'s $225-million equity financing is a sizable piece of business for several dealers in a weak market, and an accompanying acquisition and strategic shift shows investor appetite for income remains strong.

There are several threads to this. First, the Calgary-based junior oil company, led by Paul Colborne, has agreed with Cenovus Energy Inc to acquire medium-gravity oil assets in Saskatchewan for $240-million. That will add 3,600 barrels a day of production right away and expose the company to as much as 230 million barrels of reserves in the lower Shaunavon formation, with just a tad recovered to date.

That would put forecast production for the first quarter of 2014 at 12,000 barrels of oil equivalent a day, up from a pre-acquisition estimate of 8,400.

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Along with the buy, Surge's board has decided to rejig its corporate mission to a growth-plus-dividend model that projects a 3 per cent- to 5-per cent annual expansion and a 40 cent per share yearly dividend that implies an 8 per cent yield.

Dividend-paying oil and gas companies have far outpaced the broad TSX capped energy index in total return this year, according to a recently launched index, showing investor demand for yield instruments did not die with the end of the energy trust era. To finance the acquisition and pay down debt, Surge is issuing 15 million units at $15 each, consisting of one common share and two subscription receipts with each component worth $5. The receipts are exchangeable one-for-one on closing of the asset deal.

The company said its managers will be participating in the bought deal, which is being led by Macquarie Capital Markets Canada Ltd.. The other underwriters are GMP Securities LP, National Bank Financial Inc., CIBC World Markets Inc., TD Securities Inc., Scotia Capital Inc., FirstEnergy Capital Corp., Dundee Securities Corp. and Cormark Securities Inc.

It has been a lean spring for energy financings, especially in the junior sector, though action has started to pick up recently. This week, Bonterra Energy Corp. issued $24-million of shares in a bought deal led by FirstEnergy, with proceeds earmarked for an increase in capital spending on the company's Alberta Cardium properties.

At the end of May, Pine Cliff Energy Ltd. did a $25-million offering, led by Paradigm Capital Inc., to finance an acquisition of Alberta assets.

Editor's note: An earlier version of this story incorrectly stated a 4 cent per share yearly dividend. This has been corrected.

(Jeffrey Jones is a Globe and Mail Business Reporter.)

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