Surge Energy Inc. Announces Record First Quarter 2012 Results; Doubling of Funds Flow per Share; Reiterates 2012 Production

 Surge Energy Inc. Announces Record First Quarter 2012 Results; Doubling of  Funds Flow per Share; Reiterates 2012 Production Guidance  CALGARY, May 9, 2012 /CNW/ - Surge Energy Inc. ("Surge" or the "Company")  (TSX:SGY) is pleased to announce its financial and operating results for the  three month period ended March 31, 2012 and to reiterate its 2012 production  guidance.  FINANCIAL AND OPERATING SUMMARY:                                      ($000s except per share amounts)                                                                            Three Months Ended March 31,                                          2012      2011    % change  Financial highlights                                                  Oil and NGL sales                         47,366    21,650       119%  Natural gas sales                          3,678     4,157      (12%)  Other revenue                                16        65       (75%)  Total oil, natural gas, and NGL                               revenue                                   51,060    25,872       97%  Funds from Operations(1)                  24,007     9,772       146%  Per share basic ($)                         0.34      0.17       100%  Per share diluted ($)                       0.33      0.17       94%  Net income (loss)                          2,657     (502)        nm  Per share basic ($)                         0.04    (0.01)        nm  Per share diluted ($)                       0.04    (0.01)        nm  Capital expenditures - petroleum &                            natural gas properties(2)                 54,898    35,538       54%  Capital expenditures - acquisitions &                         dispositions(2)                           104,398    9,462     1,003%  Total capital expenditures(2)             159,296   45,000       254%  Net debt at end of period(3)              158,769   81,445       95%                                                                    Operating highlights                                                  Production:                                                           Oil and NGL (bbls per day)                 6,110     3,090       98%  Natural gas (mcf per day)                 17,398    11,915       46%  Total (boe per day) (6:1)                  9,009     5,076       77%  Average realized price (excluding                             hedges):                                                              Oil and NGL ($ per bbl)                    85.19     77.86        9%  Natural gas ($ per mcf)                     2.32      3.88      (40%)  Realized loss on financial contracts                          ($ per boe)                               (0.94)    (1.62)      (42%)                                                                    Net back (excluding hedges) ($ per                            boe)                                                                  Oil, natural gas and NGL sales             62.28     56.64       10%  Royalties                                 (12.22)   (8.02)       52%  Operating expenses                        (11.66)   (16.73)     (30%)  Transportation expenses                   (1.78)    (2.54)      (30%)  Operating netback                          36.62     29.35       25%  G&A expenses                              (3.63)    (4.76)      (24%)  Interest expense                          (1.75)    (0.98)       79%  Corporate netback                          31.24     23.61       32%                                                                          Common shares (000s)                                                  Common shares outstanding, end of                             period                                    71,033    56,097       27%  Weighted average basic shares                                 outstanding                               70,474    56,095       26%  Stock option dilution (treasury                               method)                                    1,711        -         nm  Weighted average diluted shares                               outstanding                               72,185    56,095       29%  __________________________________________ (1) Management uses funds from operations (before changes in non-cash  working capital) to analyze operating performance and leverage. Funds from  operations as presented does not have any standardized meaning prescribed by  IFRS and therefore, may not be comparable with the calculation of similar  measures for other entities. (2) Please see capital expenditures note. (3) The Corporation defines net debt as outstanding bank debt plus or minus  working capital excluding the fair value of financial contracts.   ACHIEVEMENTS AND HIGHLIGHTS:     --  Funds from operations increased 146 percent to $24.0 million         during the first quarter of 2012 from $9.8 million during the         same period of 2011.     --  Funds from operations per share doubled to $0.34 during the         first quarter of 2012 from $0.17 during the same period of         2011.     --  Increased production by 77 percent to 9,009 boe per day during         the first quarter of 2012 from an average of 5,076 boe per day         during the first quarter of 2011.     --  Increased production per basic share by over 40 percent during         the first quarter of 2012 as compared to the first quarter of         2011.     --  Subsequent to the first quarter, Surge's bank line increased         from $175 million to $250 million, providing Surge considerable         financial flexibility to execute its 2012 capital program.          With net debt of $158.8 million at the end of the first         quarter, Surge now has $91.2 million of borrowing capacity         remaining.  Surge forecasts a year end debt to cash flow ratio         of approximately 1.1.     --  Reduced both operating costs and transportation costs per boe         by 30 percent in the first quarter of 2012 as compared to the         first quarter of 2011 with combined operating and         transportation costs decreasing from $19.27 per boe in the         first quarter of 2011 to $13.44 per boe in the first quarter of         2012.     --  Increased Surge's operating netback by 25 percent to $36.62 per         boe for the first quarter of 2012 as compared to $29.35 in the         first quarter of 2011.     --  Increased Surge's total oil drilling inventory to more than 570         gross (435 net) locations and its internally estimated DPIIP(4)         ("Discovered Petroleum Initially In Place") to 550 million         barrels of oil.     --  Achieved a 100 percent success rate drilling 18 gross (13.9         net) wells in the first quarter of 2012. Only 14 of the 18         wells drilled in the first quarter were producing at quarter         end, with the remainder to be completed and brought on         production during the second quarter of 2012.     --  The combination of drilling in early 2012 and closing of the         light oil acquisition in January 2012 drove the increase in         Surge's oil and natural gas liquids production weighting to 68         percent in the first quarter.     --  Approximately 93 percent of Surge's revenue resulted from oil         and natural gas liquids production, with less than seven         percent derived from natural gas production.     --  During the first quarter of 2012, Surge closed the accretive         acquisition of a private company with 1,200 barrels per day of         light oil production in the Nipisi/Gift area of Western         Alberta, targeting the Slave Point/Gilwood Formations.  ___________________________________________ (4) "Discovered Resources" or "Discovered Petroleum Initially-In-Place"  ("DPIIP"), are those quantities of petroleum estimated, as of a given date, to  be contained in known accumulations prior to production. The recoverable  portion of discovered petroleum initially-in-place includes production,  reserves and contingent resources; the remainder is unrecoverable. "Contingent  resources" are those quantities of petroleum estimated, as of a given date, to  be potentially recoverable from known accumulations using established  technology or technology under development, but which are not currently  considered to be commercially recoverable due to one or more contingencies.  Contingencies may include factors such as economic, legal, environmental,  political, and regulatory matters, or a lack of markets. It is also  appropriate to classify as Contingent Resources the estimated discovered  recoverable quantities associated with a project in the early evaluation  stage.There is no certainty that it will be commercially viable to produce  any portion of the Contingent Resources. A recovery project cannot be defined  for this volume of DPIIP at this time, and as such it cannot be further  sub-categorized.  OPERATIONS OVERVIEW:  Surge was active in each of its three core areas during the first quarter of  2012. The Corporation achieved a 100 percent success rate, with 18 gross  (13.9 net) wells drilled, averaging just over 9,000 boe per day in the quarter.  Through a combination of encouraging well results, extensive technical review,  increasing land position and increasing working interest, Surge has expanded  its oil drilling inventory from 490 gross (350 net) locations to 570 gross  (435 net) locations and its internally estimated DPIIP from greater than 440  gross million barrels of oil to 550 gross million barrels of oil. Surge will  focus its capital program, in the short-term, on drilling at each of its high  netback, 100 percent oil properties.  Nipisi/Gift (Slave Point/Gilwood), Western Alberta:  During the first quarter of 2012, Surge drilled its first two horizontal  multi-frac wells into the Slave Point Formation and completed its first two  directional wells into the Gilwood Formation. The two Slave Point wells were  completed and on production early in the second quarter and are currently  recovering very encouraging light oil volumes and minor remaining frac-fluid  volumes. Surge expects these two wells to exceed its well type curve  expectations of best month production rates of approximately 310 barrels per  day of light oil, estimated ultimate recovery of approximately 240 mbbls per  well, with an all-in capital cost of $4.2 million per well.  Surge is pleased to announce that it has increased its working interest from  approximately 88 percent to 100 percent on its existing lands at Nipisi  through two asset acquisitions. After completing an extensive technical  review of these lands, Surge is increasing its internal DPIIP estimate from 65  million barrels to 85 million barrels of light oil in the Slave Point  Formation with a cumulative oil recovery of less than one percent of DPIIP  recovered to date.  Surge also recently expanded its land position in the Slave Point trend, two  miles south of the Company's existing Slave Point pool by purchasing four net  sections of land. These lands have existing vertical well control with  historical production profiles and an internally estimated DPIIP of  approximately 30 million barrels.  Surge has significantly increased its drilling inventory in the Slave Point  Formation from 16 gross (15.7 net) to 44 gross (43.5 net) horizontal  multi-frac wells. Of these 44 gross (43.5 net) locations, 24 gross (23.5  net) are unbooked on a combined internal DPIIP estimate of approximately 115  million barrels. The well type curve of approximately 310 barrels per day of  light oil and estimated ultimate reserves of approximately 240 mbbls for the  area represents an average of the total identified locations.  Surge continues to make progress on the Nipisi Slave Point waterflood pilot.  The Company anticipates submitting a waterflood application during the third  quarter of 2012 with the first injection potentially by the end of 2012,  pending regulatory approvals. Based on successful waterflood implementation,  Surge anticipates that it will ultimately recover up to 20 percent of the 115  million barrels of DPIIP.  Sounding Lake and Silver Lake (Cretaceous Sands), South East Alberta:  During the first quarter, Surge drilled, completed and brought on production  three gross/net horizontal wells and evaluated the application of horizontal  technology in some of these new oil fairways. The Company has also been  actively executing tuck-in acquisitions in specific play fairways over the  past year and a half, which has added to its land position and drilling  inventory in the area.  Based on encouraging results from these wells, coupled with results from  similar drill results in the second half of 2011, Surge is pleased to announce  a new horizontal drilling location inventory of 78 gross (78 net) wells.  Only three gross (three net) wells have booked reserves. These 27-29 degree  API oil wells have robust economics, including best month forecasted  production rates of 110 barrels of oil per day, estimated ultimate recovery of  100 mbbls and an all-in cost of $1.4 million per well.  The Company also initiated a waterflood facility expansion at Silver Lake.  The scope of the expansion includes two new water injection wells, one well  conversion and facility expansion to handle an additional 12,000 barrels of  water per day. The expansion project is expected to be completed during the  third quarter of 2012.  Valhalla South (Doig), Western Alberta:  The Company drilled two gross (1.44 net) horizontal multi-frac wells in the  first quarter of 2012. The first well (102/10-07-074-08W6; 100 percent  working interest) was brought on production during the first quarter and the  second well (100/05-30-074-08W6, 44 percent working interest) was brought on  production during the second quarter. During the first quarter of 2012, the  Company continued drilling its third budgeted well (100/05-31-074-08W6, 44  percent working interest), with completion expected to occur in May.  Surge's 10-7 well is the Company's best performing well to date. The well  came on production February 21, 2012 and flowed back at an average rate 2,300  boe per day (81 percent light oil and NGLs) over a seven day period. After  73 days of being on production, the well is producing at an average rate of  1,070 boe per day (59 percent light oil and NGLs). The well was completed  with 12 frac stages over the 1,070 meter horizontal section.  As at December 31, 2011, Surge had 32 gross (23.9 net) horizontal multi-frac  wells remaining in inventory, of which 19 gross (14.3 net) wells were unbooked.  Williston Basin (Spearfish), Manitoba and North Dakota:  At Waskada, Surge drilled, completed and brought on production, three  gross/net horizontal multi-frac Spearfish light oil wells during the first  quarter. Including these three wells, Surge has a total of 21 gross/net  Spearfish oil wells producing to the Company's recently completed 16-3  battery. Based on the results of these most recent wells, as well as  historical production, Surge has adjusted its well type curve at Waskada to  reflect 100 barrels per day best month average production with recoverable  reserves of 70 mbbls and all-in costs of $1.3 million, generating an IRR  greater than 60 percent. Surge plans to implement a waterflood at Waskada  during the first quarter of 2013, pending waterflood study results and  production performance.  In North Dakota, Surge participated in the drilling and completion of seven  gross (2.5 net) non-operated horizontal multi-frac wells with two of its  working interest partners. Surge maintained a working interest of 40 percent  in six of the wells drilled and 15 percent in one of the wells drilled. Four  of the 40 percent working interest wells are now on production. Initial  results are very encouraging and they appear that they will exceed the  Company's best month average production well type curve of 125 barrels of oil  per day. All wells drilled are expected to be on production during the  second quarter of 2012.  As at December 31, 2011, Surge had 334 gross (212.6 net) horizontal multi-frac  Spearfish wells remaining in inventory, of which 297 gross (186.2 net) wells  were unbooked.  Windfall (Bluesky):  The Energy Resources Conservation Board (ERCB) has approved the waterflood  pilot at Windfall. The original horizontal multi-frac well (9-9-59-15W5, 100  percent working interest) has now been converted for water injection, the  water source application has been submitted and all major equipment for the  injection facility has been ordered. Surge expects to commence injection  during the third quarter, pending all regulatory approvals.  As at December 31, 2011, Surge had 38 gross (38 net) horizontal multi-frac  Bluesky wells remaining in inventory, of which 31 gross (31 net) wells were  unbooked.  Goose River (Nordegg/Duvernay):  Surge has now completed its evaluation of the horizontal multi-frac Nordegg  well (100/14-11-69-19W5M). The horizontal leg encountered better than  anticipated reservoir quality in two different Nordegg zones in the 1,080  meter lateral and the well was stimulated with 14 frac stages that averaged  approximately ten tons per stage. Approximately 50 barrels of 18-21 degree  API oil was recovered and the well has subsequently been suspended. With only  one hz well drilled on the 131 sections (83,840 acres) of land at Goose River,  Surge remains encouraged about the potential of the Nordegg and is currently  evaluating new completion techniques to allow for the production of the lower  API oil and plans to explore for potential lighter oil (higher API gravity) on  its lands. As the area is mostly winter only access, Surge continues to  formulate plans for late Q4 2012 and Q1 2013.  The recent industry announcement of a successful Duvernay well at Kaybob that  produced 650 boe per day (60 percent light oil) after a 16 day test period, 20  miles south of Surge's Goose River lands, continues to provide optimism that  significant Duvernay oil potential exists on the Company's lands. Surge  believes that its lands at Goose River are located in the oil generation  window for the Duvernay and is finalizing a strategy to evaluate the Duvernay  potential on its lands.  For further details on updated well economics discussed throughout this press  release, please see Surge's corporate presentation available on its website at  www.surgeenergy.ca.  OUTLOOK - POSITIONED FOR CONTINUED LIGHT OIL GROWTH  In just more than two years, Surge has positioned itself in three core areas,  assembled more than 570 gross (435 net) oil drilling locations and gained  exposure to an internally estimated DPIIP of more than 550 gross million  barrels of oil. Surge continues to add light oil resource to its portfolio  as shown with the accretive acquisition of a private company ("the Pradera  Acquisition") in January 2012. Through the acquisition, Surge acquired 1,200  barrels per day of high quality, high netback, focused Slave Point/Gilwood  light oil assets in the early stages of primary development in the Nipisi/Gift  area of Western Alberta. Surge now estimates there to be 115 million barrels  of DPIIP in the Slave Point pools with less than one percent of the oil  recovered to date. Surge believes there is potential to grow production to  2,500 barrels per day of oil over the next two years under primary development  and to more than 4,000 barrels per day of oil over the next few years with the  implementation of a successful waterflood program.  Pro-forma the Pradera Acquisition that closed in early January, Surge has more  than 36.7 million boe of proved plus probable reserves, of which, more than 23  million barrels are crude oil and NGLs. Additionally, the Corporation has  the potential to recover more than 82 million barrels of light oil through its  unbooked drilling inventory and the successful implementation of waterflood  programs at Valhalla South, Windfall, Nipisi/Gift, Williston Basin and South  East Alberta.  In 2012, Surge will continue to grow organically by drilling in each of its  core areas and will continue to make accretive acquisitions that fit its  business plan. Surge is committed to delivering top quartile corporate  performance and creating value for shareholders by growing reserves, cash flow  and production on a per share basis.  As a result of our successful development drilling results and strategic  acquisitions, Surge is well positioned to meet or exceed its 2012 guidance.   ___________________________________________________________________ |                                    |2012 Guidance(5)              | |____________________________________|______________________________| |Average Production:                 |9,750 boe/d (~72% oil & NGLs) | |____________________________________|______________________________| |Exit Production:                    |11,000 boe/d (~77% oil & NGLs)| |____________________________________|______________________________| |Capital Expenditures Including      |$270 million                  | |Acquisitions:                       |                              | |____________________________________|______________________________| |Capital Expenditures Excluding      |$155 million                  | |Acquisitions:                       |                              | |____________________________________|______________________________| |Funds from Operations ("FFO"):      |$120 million                  | |____________________________________|______________________________| |FFO per basic share:                |$1.69                         | |____________________________________|______________________________| |Annualized Exit FFO:                |$155 million                  | |____________________________________|______________________________| |Annualized Exit FFO per basic share:|$2.19                         | |____________________________________|______________________________| |Bank Line:                          |$250 million                  | |____________________________________|______________________________| |Year End Net Debt:                  |$175 million                  | |____________________________________|______________________________|  _________________________________ (5) Based on US$104.50/bbl WTI, Edm Par C$94.68, $1.98/GJ AECO, US$/CDN$  exchange rate of $0.9989.  FINANCIAL STATEMENTS AND MANAGEMENT'S DISCUSSION AND ANALYSIS:  Surge has filed with Canadian securities regulatory authorities its unaudited  financial statements for the three month period ended March 31, 2012 and the  accompanying Management's Discussion and Analysis ("MD&A"). These filings  are available for review at www.sedar.com or www.surgeenergy.ca.  ANNUAL GENERAL MEETING:  Surge's Annual General Meeting is scheduled for 3:00pm Mountain Standard Time  (MST) on Thursday May 10, 2012 at the Petroleum Club in the Devonian Room,  located at 319 - 5(th) Avenue SW, Calgary AB.  Surge is an oil focused oil and gas company with operations throughout Alberta  and in the Williston Basin. Surge's common shares trade on the Toronto Stock  Exchange under the symbol SGY. On May 8, 2012 Surge had 71.1 million basic  shares and 78.1 million fully diluted shares outstanding.  FORWARD LOOKING STATEMENTS:  This press release contains forward-looking statements. More particularly,  this press release contains statements concerning anticipated: (i) capital  expenditures for 2012, (ii) exploration, development, drilling,  constructionand acquisition activities, (iii) average and exit oil & natural  gas production during 2012, (iv) funds from operations, (v) debt and bank  facilities (vi) primary and secondary recovery potentials and implementation  thereof, (vii) regulatory applications and the expected success thereof, and  (viii) realization of anticipated benefits of acquisitions.  The forward-looking statements are based on certain key expectations and  assumptions made by Surge, including expectations and assumptions concerning  the performance of existing wells and success obtained in drilling new wells,  anticipated expenses, cash flow and capital expenditures and the application  of regulatory and royalty regimes.  Although Surge believes that the expectations and assumptions on which the  forward-looking statements are based are reasonable, undue reliance should not  be placed on the forward-looking statements because Surge can give no  assurance that they will prove to be correct. Since forward-looking statements  address future events and conditions, by their very nature they involve  inherent risks and uncertainties. Actual results could differ materially from  those currently anticipated due to a number of factors and risks. These  include, but are not limited to, risks associated with the oil and gas  industry in general (e.g., operational risks in development, exploration and  production; delays or changes in plans with respect to exploration or  development projects or capital expenditures; the uncertainty of reserve  estimates; the uncertainty of estimates and projections relating to  production, costs and expenses, and health, safety and environmental risks),  commodity price and exchange rate fluctuations and uncertainties resulting  from potential delays or changes in plans with respect to exploration or  development projects or capital expenditures. Certain of these risks are set  out in more detail in Surge's Annual Information Form which has been filed on  SEDAR and can be accessed at www.sedar.com.  The forward-looking statements contained in this press release are made as of  the date hereof and Surge undertakes no obligation to update publicly or  revise any forward-looking statements or information, whether as a result of  new information, future events or otherwise, unless so required by applicable  securities laws.  Note: Boe means barrel of oil equivalent on the basis of 1 boe to 6,000 cubic  feet of natural gas. Boe may be misleading, particularly if used in  isolation. A boe conversion ratio of 1 boe for 6,000 cubic feet of natural  gas is based on an energy equivalency conversion method primarily applicable  at the burner tip and does not represent a value equivalency at the  wellhead. Boe/d means barrel of oil equivalent per day.  In this press release: (i) mcf means thousand cubic feet; (ii) mcf/d means  thousand cubic feet per day (iii) mmcf means million cubic feet; (iv) mmcf/d  means million cubic feet per day; (v) bbls means barrels; (vi) mbbls means  thousand barrels; (vii) mmbbls means million barrels; (viii) bbls/d means  barrels per day; (ix) bcf means billion cubic feet; * mboe means thousand  barrels of oil equivalent; and (xi) mmboe means million barrels of oil  equivalent    Dan O'Neil, President and CEO Surge Energy Inc. Phone: (403)  930-1020 Fax: (403) 930-1011 Email:doneil@surgeenergy.ca  Max Lof, CFO Surge Energy Inc. Phone: (403) 930-1021 Fax: (403) 930-1011  Email:mlof@surgeenergy.ca  To view this news release in HTML formatting, please use the following URL:  http://www.newswire.ca/en/releases/archive/May2012/09/c5693.html  CO: Surge Energy Inc. ST: Alberta NI: OIL ERN   -0- May/09/2012 10:30 GMT    
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