Surge - ZPTAF

[cmm3rd]

PPS has taken a beating, along with IPOOF. Anyone have any thoughts about why these small Cdn producers' PPS has been so pressured?

[ChuckGeb]

They do well at $80+ oil, not so much at 60 and 70. They need 80 to sustain their shareholder returns in form of buy backs and dividends. I am looking forward to Surge’s coming quarterly conference call. While they have paid down debt nicely their ability to continue their dividends needs to be confirmed.

[Petroleum economist]

I agree with Chuck.

Inplay Oil and Surge Energy are both very sensitive to oil prices. The oil price sensitivity is a consequence of the combination of (1) low realized oil prices, (2) high royalties and (3) high unit costs. The combination makes the profit margins at low oil prices tight.

Both Inplay and Surge have solid balance sheets, and I think that even at $ 70/bbl they will provide high shareholder returns.

Some numbers:
• Inplay realized oil prices are about $ 20-22/bbl below WTI. Those of surge are $ 13-16/bbl below WTI.
• Inplay pays 12% of its revenues as royalties, Surge 18%. The reason for the difference in royalties is that Surge has a higher oil component (83%) than Inplay (42%).
• Inplay (medium US$ 28/BoE) has lower unit costs (inclusive interest, depreciation, and overheads) than Surge (high $ 41/BoE).

With higher oil prices both should recover. My preference is for Inplay with more growth potential, and a lower PE.

[dan_s]

Both companies can maintain their high yield dividends as long as WTI stays above $65.