sustainable conventional resource company tsx: sgy … · apr-19, $71.29 $-$10 $20 $30 $40 $50 $60...

SUSTAINABLE CONVENTIONAL

RESOURCE COMPANY

TSX: SGY

AGM PRESENTATION

MAY 14, 2019

FOOTNOTES INCLUDED IN THE BACK AS ENDNOTES22

WORLD CRUDE OIL - SUPPLY AND DEMAND

FOOTNOTES INCLUDED IN THE BACK AS ENDNOTES33

DECOUPLING OF CRUDE OIL PRICES AND ENERGY STOCKS

FOOTNOTES INCLUDED IN THE BACK AS ENDNOTES44

CONSISTENT PRODUCTION GROWTH OVER 11 FINANCIAL QUARTERS

FOOTNOTES INCLUDED IN THE BACK AS ENDNOTES5

2019 SUSTAINABILITY ANALYSISCommodity Sensitivity (1)

WTI (USD) $55 $65 $75

FX (USD / CAD) $0.75 $0.75 $0.75

WTI (CAD$ / Bbl) $73.33 $86.67 $100.00

MSW-to-WTI Differential (US$ / Bbl) -$5.00 -$5.00 -$5.00

WCS-to-WTI Differential (US$ / Bbl) -$15.00 -$15.00 -$15.00

Capital Efficiency ($ / boepd) $25,500 $25,500 $25,500

2019e Cash Flow from Operating Activities(2) ($ MM) $171 $236 $291

Exploration and Development Capital ($ MM) $135 $135 $135

Dividend ($ MM) $31 $31 $31

Capital & Dividend ($ MM) $166 $166 $166

Cash Flow from Operating Activities in Excess of Capital &

Dividend ($ MM)$5 $70 $125

All-in Payout Ratio(3) 97% 70% 57%

(1) Based on production of 22,000 Boepd.

(2) Assumes $NIL working capital.

(3) See the Non-GAAP financial measures and Capital Management measures section of this document.5

FOOTNOTES INCLUDED IN THE BACK AS ENDNOTES6

SURGE DIVIDEND GROWTH

FOOTNOTES INCLUDED IN THE BACK AS ENDNOTES7

CASHFLOW NETBACK COMPARISONTOP QUARTILE CASHFLOW NETBACKS(1)

$0.00

$5.00

$10.00

$15.00

$20.00

$25.00

$30.00

$35.00

A B C D E Surge F G H I J K L M N O P Q R S

(1) Information taken from National Bank Financial’s “Energy Equity Compsheet” dated May 9, 2019.

Peer Group Avg.

Netback of $14.91

$0.00

$5.00

$10.00

$15.00

$20.00

$25.00

$30.00

$35.00

$40.00

$45.00

$50.00

Shaunavon Greater Sawn Sparky Valhalla

Ne

tba

cks b

y A

rea

8

TOP DECILE OPERATING NETBACKSSURGE’S FOUR CORE AREAS HAVE EXCELLENT OPERATING NETBACKS

Peer Group Avg.

Netback of $14.91

9

NORMALIZATION OF REALIZED PRICESSurge’s Realized Oil Price Improved Dramatically in Q1 2019

Dec-18, $18.98

Apr-19, $79.17

Dec-18, $8.12

Apr-19, $71.29

$-

$10

$20

$30

$40

$50

$60

$70

$80

$90

$100

Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Apr-19

Oil

Prices (

CA

D$)

WTI EDMN WCS

FOOTNOTES INCLUDED IN THE BACK AS ENDNOTES10

PRODUCT MIX 2019Less than 10% of WCS correlated barrels exposed to widening differentials

FOOTNOTES INCLUDED IN THE BACK AS ENDNOTES11

OIL HEDGING

All USD-denominated WTI hedges have been converted to CAD at a rate of $0.75 USD/CAD for the purposes of this graph.11

4,0

00

Bb

l/d

6,7

50

B

bl/d

5,7

50

B

bl/d

2,5

00

B

bl/d

1,5

00

B

bl/d 500

Bbl/d $-

$10.00

$20.00

$30.00

$40.00

$50.00

$60.00

$70.00

$80.00

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

Qtr. 2 2019 Qtr. 3 2019 Qtr. 4 2019 Qtr. 1 2020 Qtr. 2 2020 Qtr. 3 2020

WT

I per

Bbl (C

AD

)

Oil

Volu

me (

Bbl/D

)

Avg. Bbl/D Hedged Avg. Price Floor - CAD WTI / Bbl

FOOTNOTES INCLUDED IN THE BACK AS ENDNOTES12

OPERATIONS FOCUSED IN 4 CORE AREASHighly Economic Consistent Drilling Results

Valhalla:Total: ~5,300 boe/d

(65% Oil & NGL’s)

Sparky:Total: ~7,500 boe/d

(90% Oil & NGL’s)

Shaunavon:Total: ~2,500 boe/d

(100% Oil & NGL’s)

Surge 2019e Average Production

Total: 22,000 boe/d

(85% Oil & NGL’s)

Greater Sawn:Total: ~5,700 boe/d

(98% Oil & NGL’s)

Minors:

Total: ~1,000 boe/d

(50% Oil & NGL’s)

FOOTNOTES INCLUDED IN THE BACK AS ENDNOTES13

SPARKY – A DOMINANT POSITION Applying modern technology to a prolific Western Canadian formation

13

Medium Gravity

Oil Window

>20° API

Sparky Formation Facts(1)

First Production May 1922

Original Oil in Place > 11 Bbbls

Cum Production > 1 Bbbls

Recovery Factor <10%

Producing Wells > 20,000

Hz Wells / Multi-Stage Hz /

Surge Multi-Stage Hz>650 / >200 / >100

▪ The Sparky is a well established prolific oil producing

formation in Western Canada.

▪ Surge holds a dominant land position in the medium /

light gravity oil window and is applying modern

horizontal multi-stage fracturing technology.

Key Sparky Value Drivers:

• Shallow depth (700-900m).

• Low cost drilling (D,C&E at CAD$1.2MM per well).

• Low geological risk due to 3D seismic and thousands of

vertical penetrations.

• Focus on lighter oil gravity (23-31° API) = higher netbacks.

• Proven waterflood potential (Wainwright pool at >35%

recovery factor(1)).

AB SK

(1) Data sourced from Canadian Discovery and GeoScout

14

SPARKY WELL RESULTS

Producing Day IP180 bopd (Geoscout)

P10

P50

P90

P50: 91 bopd, Cap Eff: $13,736/bopd

IP180 Lognormal Distribution (oil only): 101 Surge wells over 6 years

(IP180 results within a given play follows a lognormal distribution)

P10: 130 bopd

P90: 54 bopd

SGY Sparky

• Well Cost: $1.25 MM

• Capital Efficiencies: $13,736/bopd

• EUR 120,000 bbls

• Inventory: >400 Sparky locations

• OOIP/section: 4 to18 MMbbls

• SGY Estimated Net OOIP >850 MMbbls

P10/P90 ratio: 2.4 (130/54)

Surge target’s a P10/P90 ratio of 6 or less (consistent results)

Production efficiencies calculated using P50 ($/bopd)

15

SAWN SLAVE POINT WELL RESULTS

Producing Day IP180 bopd (Geoscout)

P10

P50

P90

IP180 Lognormal Distribution (oil only): 43 wells over 6 years

P50: 190 bopd

Cap Eff: $16,842/bopd

SGY Sawn Slave Point

• Well Cost: $3.2 MM

• Capital Efficiencies: $16,842/bopd

• EUR: 186,000 bbls

• Inventory: >110 Slave Point Locations

• OOIP/section: 4 to 8 MMbbls

• SGY Estimated Net OOIP >690 MMbbls

P90: 120 bopd

P10: 296 bopd

P10/P90 ratio: 2.5 (296/120)

16

UPPER SHAUNAVON WELL RESULTSIP180 Lognormal Distribution (oil only): 65 Surge wells over 5 years

P10

P50

P90

Producing Day IP180 bopd (Geoscout)

SGY Upper Shaunavon

• Well Cost: $1.35 MM

• Capital Efficiencies: $11,440/bopd

• EUR: 90,000 bbls

• Inventory: >100 Upper Shaun Locations

• OOIP/section: 4 to 10 MMbbls

• SGY Estimated Net OOIP >225 MMbbls

P50: 118 bopd Cap Eff: $11,440/bopd

P10: 219 bopd

P90: 51 bopd

P10/P90 ratio: 4.3 (219/51)

17

DOIG WELL RESULTSIP180 Lognormal Distribution (oil only): 44 Surge wells over 8 years

P10

P50

P90

Producing Day IP180 bopd (Geoscout)

SGY Doig

• Well Cost: $4.0 MM

• Capital Efficiencies: $11,494/bopd

• EUR: 232,000 bbls

• Inventory: >32 Doig Locations

• OOIP/section: 5 to 20 MMbbls

• SGY Estimated Net OOIP >150 MMbbls

P10: 885 bopd

P90: 140 bopd

P50: 348 bopd, Cap Eff: $11,494/bopd

P10/P90 ratio: 6.3 (885/140)

18

SURGE – PROACTIVELY MANAGING AROSurge continues to abandon and reclaim inactive wells

▪ Over the past 5 years, Surge has abandoned over 495 wells, compared to only 177 net

new drills.

• Historically, Surge has completed well abandonments for less than ~70% of the stated government

amounts (i.e. AER).

▪ The Company has budgeted $6 million for decommissioning expenditures in 2019, which

is 45% more than required by the AER under the ABC program.

▪ Area Based Closure (“ABC”) is a voluntary program that allows operators to efficiently

utilize capital to address the abandonment of wells, facilities and pipelines.

• ABC allows Surge to concentrate its abandonment efforts on areas of choice instead of chasing ‘one off’

wells across the province.

▪ Surge has recently initiated an ABC program in its inactive Cherry natural gas property

(65 wells).

• Program scheduled to be finished within one year (initiated in January 2019, expected completion in Q3

2019);

• Expected to complete the Cherry ABC program for less than 55% the AER’s stated deemed liability

amount; and

• Surge is anticipating similar results in several of the Company’s other inactive fields.