Surge Energy (SGY.TO and ZPTAF) Update - Dec 21

[dan_s]

Note below is from Surge Energy's CEO.
This week the National Bank of Canada's research team published a report on the Mannville Oil Play that is home to Surge Energy's Sparky area, which is their #1 core area. If you'd like to see the full 20 page report, send me an email and I will forward it to you: dmsteffens@comcast.net
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And guess who is a leader on this ‘new’ (ie. the Mannville is not really new…..) , proven , shallow , low cost oil play?? Surge Energy !!

Over the last 8 -9 yrs we have grown Surge’s core Sparky oil play to:
> 1billion of net OOIP; < "Original Oil In Place"
~ 11,500 BOEPD(95% medium gravity oil ; 23API) ; consistent growth from ~ 1,000 boepd 9 yrs ago;
$190Cdn million per yr of field operating cash flow;
An inventory of > 450 locations(10 yr inventory); and
Full waterflood upside.

Think that we can organically grow the Sparky core area to > 15,000 boepd over the next 4-5 yrs!!

Nice to see the recognition for SGY in building a dominant operational position in one of the hottest , conventional oil plays in Canada. Enjoy the attached research from NBF!!

Thx. Paul
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At the time of this post SGY.TO was trading at $6.70Cdn and ZPTAF was trading at $4.97US < The exchange ratio is ~74%.
Surge pays month dividends of $0.04 per share ($0.48Cdn per year) for annualized yield of 7.16%

Yesterday I updated my forecast/valuation for SGY. My updated valuation is $14.87Cdn, which compares to First Call's price target of $13.33Cdn.
My valuation of ZPTAF is $11.00US.

In 2023 Surge is on pace to generate ~$284Cdn million of operating cash flow and $109Cdn million of free cash flow. This is more than enough to cover their grow capex and their dividends.

Surge has set debt reduction goals and they should reach the next target by mid-2024, which should allow them to increase the dividends.

They reached their production guidance rate of 25,000 Boepd in November, so year-over-year production growth should be ~15%. They have a lot of "Running Room", so double digit annual production growth is expected.

Bottomline: ZPTAF is one of my Top Picks for "Growth + Income".