SURGE ENERGY INC. ANNOUNCES SECOND QUARTER FINANCIAL & OPERATING RESULTS; INCREASED 2025 PRODUCTION GUIDANCE AND A LOWER CAPITAL BUDGET

Executive Summary

• Surge Energy Inc. reported financial and operating results for the second quarter ended June 30, 2025, highlighting production outperformance driven by successful drilling in its Sparky and SE Saskatchewan core areas.
• The Company upwardly revised its 2025 average production guidance from 22,500 boepd to 23,000 boepd and reduced its 2025 capital expenditure budget by $15 million to $155 million, citing improved capital efficiencies.
• Q2 2025 Adjusted Funds Flow (AFF) was $72.8 million, with Free Cash Flow (FCF) of $41.9 million. The Company returned $32.0 million to shareholders via dividends, share buybacks, and net debt reduction.

Key Details

• Q2 2025 Production: Average production was 23,589 boepd (89% liquids), exceeding the budgeted 22,500 boepd.
  • Oil: 20,332 bbl/d
  • NGLs: 554 bbl/d
  • Natural Gas: 16,217 mcf/d
• Financial Performance (Q2 2025):
  • Adjusted Funds Flow (AFF): $72.8 million.
  • Cash Flow from Operating Activities: $56.3 million.
  • Free Cash Flow (FCF): $41.9 million (58% of AFF).
  • Net Income: $31.9 million (vs. loss of $64.7 million in Q2 2024, which included a $96.5 million non-cash impairment charge).
  • Net Operating Expenses: $17.08 per boe (down 16% from $20.31 per boe in Q2 2024).
  • Operating Netback: $39.29 per boe.
• 2025 Guidance Revisions:
  • Production: Increased from 22,500 boepd to 23,000 boepd (90% liquids).
  • Capital Expenditures: Reduced from $170 million to $155 million (a $15 million decrease).
  • Free Cash Flow: Estimated annualized FCF increased to $105 million (from $85 million).
  • AFF: Estimated 2025 AFF increased to $280 million (from $275 million).
  • Dividends: Base dividend maintained at $0.52 per share annually ($52 million total).
• Drilling Operations:
  • Drilled 5 gross (5.0 net) wells in Q2 2025.
  • Hope Valley (Sparky Core): Drilled 3 additional open-hole multi-lateral horizontal wells (12 lateral legs each). Total 12 multi-lateral wells drilled with >3 months of production data.
  • Well Performance: The key discovery well (09-30-046-4W4) has produced >73,000 bbl over 17 months, currently producing significantly above internal type curve expectations. Average IP90 rate of 215 bopd for recent wells, exceeding type curve expectations of 168 bopd by >25%.
  • Inventory: Added 78 net drilling locations in 1H 2025. Total inventory >900 net locations (>12 years of drilling at current rates).
• Shareholder Returns & Balance Sheet:
  • Dividends paid: $12.9 million.
  • Share Buybacks: Returned $2.2 million via NCIB (431,100 shares repurchased).
  • Net Debt Reduction: Decreased by $16.9 million to $229.1 million as of June 30, 2025.
  • Credit Facility: $250 million first lien credit facility remained undrawn.
• Hedging: Hedged 8,750 bbl/d of Q3 2025 oil production with an average floor price of ~US$71 WTI per barrel.

Notable Quotes

• "As a result of continued, successful drilling results in Surge's two core areas, the Company is revising its 2025 operating and capital budget guidance."
• "Management is encouraged by the lower decline production profile of the initial wells drilled in the play... This well is currently producing significantly above Surge's internal type curve expectations."
• "The combination of increased 2025 production guidance levels, together with lower than budgeted exploration and development expenditures and net operating expenses, has resulted in an increase to the Company's estimated 2025 free cash flow."