Surge Announces $109 Million SE Saskatchewan Light Oil Acquisition, Upward Revision to 2014 Guidance, $70 Million Equity Fina...

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Surge Energy Inc. ("Surge" or the "Company") (TSX:SGY) announced today that it
has entered into an agreement to acquire (the "Acquisition") certain high
quality, low decline, operated, light oil producing assets strategically located
in the Company's core area of SE Saskatchewan (the "Assets"). The Assets include
an estimated annualized 1,250 boepd (97 percent oil) of high netback light crude
oil production. The purchase price for the Assets is $109 million, payable in
cash (the "Purchase Price"). 


As a result of the Acquisition, Surge will be revising upward the Company's 2014
guidance, as set forth below.


In addition, based on the accretive Acquisition, and better than anticipated
operational and drilling results, Surge will be increasing the Company's annual
dividend four percent from $0.52 per share per year ($0.04333 per share per
month), to $0.54 per share per year ($0.045 per share per month).


Furthermore, pursuant to the accretive Acquisition, even with the above increase
in Surge's dividend, the Company's "all-in" payout/sustainability ratio improves
from 92.1% to 91.0%. 


The closing of the Acquisition is subject to customary conditions including
receipt of applicable regulatory approvals and is expected to occur on or about
March 3rd, 2014 (the "Closing").


In conjunction with the Acquisition, Surge has entered into a $70 million bought
deal financing (the "Equity Financing") with a syndicate of underwriters led by
Macquarie Capital Markets Canada Ltd., which is described in further detail
below. Members of the Surge team will be participating in the Equity Financing.
The Equity Financing is subject to customary conditions including receipt of
applicable regulatory approvals and is expected to close on or about February 4,
2014.


ACQUISITION OVERVIEW 

The Acquisition comprises elite, operated, low decline light oil assets
strategically located within Surge's core operating area of SE Saskatchewan. The
production is focused in several large, high quality, light oil reservoirs -
with combined original oil in place ("OOIP")(1) of over 240 million barrels. 


The Assets possess a low annual decline of less than 18 percent, which will
provide significant annual free cash flow to Surge. The Acquisition fits very
well with the Company's focused business strategy, and with Surge's
dividend-paying / modest growth business model. 


Surge management has identified significant upside with respect to the Assets,
primarily from infill and stepout development drilling, and optimizations.


ACQUISITION METRICS 

The following sets forth the metrics with respect to the Acquisition:

1. Purchase Price: 

The Purchase Price for the Acquisition is $109 million, subject to normal
adjustments based on a January 1, 2014 effective date, and will be payable in
cash at Closing. 


2. Long Life Oil Reserves: 

The Acquisition adds Proven and Probable (P+P) reserves of 4.6 million boe as at
December 31, 2013 (96 percent crude oil), assessed internally by Surge
consistent with NI 51 - 101 guidelines. On this basis, Surge is paying $23.70
per barrel for P+P reserves. 


Based on current production, the Assets have a long reserve life index of more
than 10 years (P+P).


3. Production Metrics: 

Estimated annualized production relating to the Acquisition is approximately
1,250 boe per day, composed of more than 97 percent light gravity crude oil (36
degree API).


On this basis, Surge is paying approximately $87,200 per flowing barrel of
production with respect to the Acquisition.


4. Solid Netbacks and Strong Recycle Ratio:

Operating netbacks for the Assets are over $51 per barrel, based on guidance
pricing (as set out below), resulting in a recycle ratio of approximately 2.2
times in relation to the Acquisition.


5. Annual Cash Flow:

Annual cash flow from the Assets, based on guidance pricing (as set out below)
and using forecast average production for 2014 (less an annual decline of 18
percent), is estimated to be more than $21 million.


On this basis, Surge estimates that the Company is paying approximately 5.2
times annualized cash flow for the Acquisition.


6. Producing Infrastructure:

The Acquisition possesses key producing infrastructure, including batteries,
pipelines, and waterflood facilities.


7. Undeveloped Land:

The Assets include approximately 12,000 net acres of undeveloped land.

8. Operatorship and High Working Interests: 

The Assets have an average working interest of approximately 78 percent, and the
net production acquired is more than 90 percent operated.


EQUITY FINANCING

In connection with the Acquisition, Surge has entered into an agreement on a
"bought-deal" basis with a syndicate of underwriters (the "Underwriters") led by
Macquarie Capital Markets Canada Ltd., and including GMP Securities LP, National
Bank Financial Inc., CIBC World Markets Inc., Scotia Capital Inc., Dundee
Securities Ltd., FirstEnergy Capital Corp., Cormark Securities Inc., TD
Securities Inc., and Raymond James Ltd. for an offering of 11,112,000
subscription receipts ("Subscription Receipts") of the Company at a price of
CDN$6.30 per Subscription Receipt (the "Offering Price") with each Subscription
Receipt entitling the holder to receive one common share of the Company ("Common
Share") for aggregate gross proceeds of $70,005,600. The Underwriters will have
an over-allotment option to purchase up to an additional 15 percent of the
Subscription Receipts, on the same terms, exercisable in whole or in part at any
time up to the 30th day following initial closing of the Equity Financing.


The Company will apply to list the Subscription Receipts and the Common Shares
issuable pursuant to the Equity Financing on the Toronto Stock Exchange.


The net proceeds from the issuance of Subscription Receipts will be used to
partially fund the Acquisition.


The Equity Financing will be completed by way of short form prospectus in all of
the provinces of Canada and on a private placement basis in the United States
pursuant to exemptions from the registration requirements of the U.S securities
laws. The Equity Financing is subject to customary conditions including receipt
of applicable regulatory approvals and is expected to close on or about February
4, 2014.


The gross proceeds from the sale of Subscription Receipts will be held in escrow
pending the satisfaction of all conditions to the completion of the Acquisition,
provided that the closing date of the Acquisition is on or before April 30,
2014, upon which time each Subscription Receipt will entitle the holder to
receive a Common Share, without further payment or action on the part of the
holder, upon the closing of the Acquisition. If the Acquisition is not completed
on or before April 30, 2014 or is terminated at an earlier time, holders of
Subscription Receipts will receive, for each Subscription Receipt held, a cash
payment equal to the Offering Price and any interest earned thereon during the
term of the escrow. 


The Subscription Receipts will be eligible to receive all dividends that accrue
from the date hereof and prior to conversion of the Subscription Receipts into
Common Shares.


UPWARD REVISION TO 2014 GUIDANCE

The Acquisition is accretive to Surge's 2014 guidance estimates on a reserves,
production, and cash flow per share basis.


Furthermore, pursuant to the accretive Acquisition, even with the increase in
Surge's dividend referred to herein, the Company's "all-in"
payout/sustainability ratio improves from 92.1% to 91.0%. 


The following sets forth Surge's upwardly revised guidance for full year 2014
estimates. 


Operational: 



                                                                            
                                                        Surge 2014E Guidance
                               Surge 2014E Guidance   (After the Acquisition
                                      (Prior to the           and the Equity
                                    Acquisition)(2)            Financing)(2)
----------------------------------------------------------------------------
2014E Average Production                                                    
 (boe/d)                      15,250 (83% Oil/NGLs)    16,125 (84% Oil/NGLs)
----------------------------------------------------------------------------
2014E Exit Production                                                       
 (boe/d)                      15,500 (83% Oil/NGLs)    16,550 (84% Oil/NGLs)
----------------------------------------------------------------------------
2P Reserves(3)                           69.7 mmboe               74.3 mmboe
----------------------------------------------------------------------------
RLI (based on 2013E exit                                                    
 production)                greater than 12.5 years  greater than 12.5 years
----------------------------------------------------------------------------
2014E Capital Spending               $114.5 million             $116 million
----------------------------------------------------------------------------
2014E Wells Drilled                                                         
 (gross/net)                        38 / 36.1 wells          39 / 37.1 wells
----------------------------------------------------------------------------
2014 Decline                                    24%                      24%
----------------------------------------------------------------------------



Financial:



                                                                            
                                                        Surge 2014E Guidance
                               Surge 2014E Guidance   (After the Acquisition
                                      (Prior to the           and the Equity
                                    Acquisition)(2)            Financing)(2)
----------------------------------------------------------------------------
2014E Funds from            $221 million ($1.33 per  $236 million ($1.34 per
 Operations ("FFO")(4)                       share)  weighted average share)
----------------------------------------------------------------------------
2014E Operational Netback                $44.04/boe               $44.45/boe
----------------------------------------------------------------------------
2014E Cash Flow Netback                  $39.69/boe               $40.08/boe
----------------------------------------------------------------------------
Basic Shares Outstanding                167 million              178 million
----------------------------------------------------------------------------
Annual Dividend(4)                      $87 million              $95 million
----------------------------------------------------------------------------
2014E Dividend                      $0.52 per share          $0.54 per share
----------------------------------------------------------------------------
Yield(5)                                       8.3%                     8.6%
----------------------------------------------------------------------------
Basic Payout Ratio 2014E                      39.6%                    41.2%
----------------------------------------------------------------------------
"All-in" Payout Ratio                         92.1%                    91.0%
----------------------------------------------------------------------------
2014E Exit Net Debt                    $287 million             $326 million
----------------------------------------------------------------------------
2014E Exit Net Debt / FFO          less than 1.39x         less than 1.39x
----------------------------------------------------------------------------



INCREASED DIVIDEND 

As a result of the accretive Acquisition, together with better than expected
operational and drilling results, Surge will be increasing the Company's annual
dividend four percent from $0.52 per share per year ($0.04333 per share per
month) to $0.54 per share per year ($0.045 per share per month).


ADVISORS 

CIBC World Markets Inc., National Bank Financial Inc., and Scotia Capital Inc.
acted as financial advisors to Surge with respect to the Acquisition.


FORWARD LOOKING STATEMENTS: 

This press release contains forward-looking statements. More particularly, it
contains forward-looking statements concerning: (i) targeted growth in reserves,
production and cash flow per share, (ii) the sustainability of dividends, (iii)
potential growth through acquisitions, (iv) ultimate recovery factors at certain
of Surge's properties, (v) planned drilling, development and waterflood
activities, (vi) the potential number of drilling locations at certain of
Surge's properties, (vii) estimated 2014 average production rate, (viii)
estimated 2014 exit rate production, (ix) estimated 2014 capital expenditures,
wells drilled, decline rates, funds from operations, operating netback, cash
flow netback and payout ratio, (x) estimated 2014 year end net debt and net debt
to funds from operations ratio; (xi) timing and completion of the Acquisition,
including expectations and assumptions concerning timing of receipt of required
regulatory approvals and the satisfaction of other conditions to the completion
of the Acquisition, (xiii) potential development opportunities and drilling
locations associated with the Acquisition, expectations and assumptions
concerning the success of future drilling and development activities, the
performance of existing wells, the performance of new wells, the successful
application of technology and the geological characteristics of the Acquisition,
(xiv) the timing and amount of future dividend payments, (xvi) debt and bank
facilities, (xviii) primary and secondary recovery potentials and implementation
thereof, (xiv) decline rates, (xv) funds from operations, (xvi) operating and
cash flow netbacks, and (xvii) realization of anticipated benefits of
acquisitions. 


The forward-looking statements contained in this press release are based on
certain key expectations and assumptions made by Surge, including expectations
and assumptions concerning the success of future drilling, development and
completion activities, the performance of existing wells, the performance of new
wells, the viability of waterflood projects, the availability and performance of
facilities and pipelines, the geological characteristics of Surge's properties,
the successful application of drilling, completion and seismic technology,
prevailing weather conditions, commodity prices, royalty regimes and exchange
rates, the application of regulatory and licensing requirements and the
availability of capital, labour and services. 


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. 


Financial Outlooks 

The estimates of 2014 year end net debt, 2014 funds from operations and 2014
operating netback and cash flow netback contained in this press release are
financial outlooks within the meaning of applicable securities laws. These
financial outlooks have been prepared by management of Surge to provide an
outlook of Surge's anticipated funds from operations and netbacks for a full
year of operations with its current assets and based on management's
expectations and assumptions as to a number of factors, including commodity
pricing, production, operating expenses and royalties. Readers are cautioned
that this information may not be appropriate for any other purpose. Management
does not have firm commitments for all of the costs, expenditures, prices or
other financial assumptions used to prepare the financial outlooks or assurance
that such results will be achieved. The actual results of Surge will likely vary
from the amounts set forth in the financial outlooks and such variation may be
material. 


Surge and its management believe that the financial outlooks have been prepared
on a reasonable basis, reflecting the best estimates and judgments, and
represent, to the best of management's knowledge and opinion, Surge's expected
expenditures and results of operations following completion of the Acquisition.
However, because this information is highly subjective and subject to numerous
risks, including the risks discussed under the note regarding Forward Looking
Statements, it should not be relied on as necessarily indicative of future
results. Except as required by applicable securities laws, Surge undertakes no
obligation to update this information. 


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; (x) mboe means thousand
barrels of oil equivalent; and (xi) mmboe means million barrels of oil
equivalent. 


NO OFFER IN THE UNITED STATES 

This news release does not constitute an offer to sell or a solicitation of an
offer to buy any of the securities in the United States. The securities have not
been and will not be registered under the United States Securities Act of 1933,
as amended (the "U.S. Securities Act") or any state securities laws and may not
be offered or sold within the United States or to U.S. Persons unless registered
under the U.S. Securities Act and applicable state securities laws or an
exemption from such registration is available.


Neither the TSX nor its Regulation Services Provider (as that term is defined in
the policies of the TSX) accepts responsibility for the adequacy or accuracy of
this release. 


(1)Original Oil in Place (OOIP) is the equivalent to Discovered Petroleum
Initially In Place (DPIIP) for the purposes of this press release. DPIIP is
defined as quantity of hydrocarbons that are estimated to be in place within a
known accumulation, plus those estimated quantities in accumulations yet to be
discovered. There is no certainty that it will be commercially viable to produce
any portion of the resources. A recovery project cannot be defined for this
volume of DPIIP at this time, and as such it cannot be further sub-categorized. 


(2) Based on 2014 Edmonton Par $93.60/bbl; 2014 AECO gas $3.69/mcf and a 2014
CAD/USD exchange rate of $0.94.


(3) Based on independent and internally generated engineering reports as of
December 31, 2012 or later.


(4) Management uses funds from operations (cash flow from operations before
changes in non-cash working capital, legal settlement expenses, transaction
costs and current tax on disposition) 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.


(5) Based on a Surge share price of $6.30.


FOR FURTHER INFORMATION PLEASE CONTACT: 
Surge Energy Inc.
Paul Colborne
President & CEO
[phone]
[phone] (FAX)
[e-mail]


Surge Energy Inc.
Max Lof
CFO
[phone]
[phone] (FAX)
[e-mail]