Surge Energy (SGY-TSX) Valuation Update - May 13
Posted: Mon May 13, 2024 3:16 pm
I was on a 45-minute call with Surge today.
My updated valuation is $10.35US per share. < Trades on the OTC as ZPTAF at $5.08US today.
Notes from the call:
> 2023 was a solid year for Surge. They generated $2.75Cdn per share of operating cash flow and raised the dividend twice.
> PV10 Net Asset Value was $11.27Cdn at 12-31-2023 based only on 1P reserves per the 3rd party reserve report.
> Surge's operating cash flow has a "high torque" to the price of oil. See my previous post.
> Q1 production was 24,903 Boepd, 82.8% crude oil that sold for a realized price of $80.36Cdn/bbl (net of cash settlements on their hedges), despite high differentials.
> Differentials have significantly improved thanks to TMX pipeline opening, so realized oil price should be close to $90Cdn/bbl in Q2.
> Hedging program locks in free cash flow through 2025.
> 80% of production comes from two of the top five oil plays in Canada, where they have lots of high-quality drilling locations (over 1,500). 95% of this year's capex drilling program will be spent on these two core areas; Sparky and SE Saskatchewan.
> At Sparky they have over 1,000 development drilling locations where the multi-laterals should payout in less than a year if WTI stays over $75US.
> Key News heard today: Big Debt Reduction in Q2 will make them reach their Phase Two debt reduction goal. < So, their monthly dividends will be going up in Q3.
> They have two non-core asset sales packages on the market. Good offers for the large one (~900 Boepd). Sales proceeds should have them at their Phase Three debt reduction goal by year-end.
> 12 Canada based analyst cover SGY. Their current price targets range from $10Cdn to $14Cdn (average is $11.98Cdn).
> SGY.TO is trading at $6.97Cdn today.
My updated forecast has been posted to the EPG website.
My updated valuation is $10.35US per share. < Trades on the OTC as ZPTAF at $5.08US today.
Notes from the call:
> 2023 was a solid year for Surge. They generated $2.75Cdn per share of operating cash flow and raised the dividend twice.
> PV10 Net Asset Value was $11.27Cdn at 12-31-2023 based only on 1P reserves per the 3rd party reserve report.
> Surge's operating cash flow has a "high torque" to the price of oil. See my previous post.
> Q1 production was 24,903 Boepd, 82.8% crude oil that sold for a realized price of $80.36Cdn/bbl (net of cash settlements on their hedges), despite high differentials.
> Differentials have significantly improved thanks to TMX pipeline opening, so realized oil price should be close to $90Cdn/bbl in Q2.
> Hedging program locks in free cash flow through 2025.
> 80% of production comes from two of the top five oil plays in Canada, where they have lots of high-quality drilling locations (over 1,500). 95% of this year's capex drilling program will be spent on these two core areas; Sparky and SE Saskatchewan.
> At Sparky they have over 1,000 development drilling locations where the multi-laterals should payout in less than a year if WTI stays over $75US.
> Key News heard today: Big Debt Reduction in Q2 will make them reach their Phase Two debt reduction goal. < So, their monthly dividends will be going up in Q3.
> They have two non-core asset sales packages on the market. Good offers for the large one (~900 Boepd). Sales proceeds should have them at their Phase Three debt reduction goal by year-end.
> 12 Canada based analyst cover SGY. Their current price targets range from $10Cdn to $14Cdn (average is $11.98Cdn).
> SGY.TO is trading at $6.97Cdn today.
My updated forecast has been posted to the EPG website.