Surge Energy (SGY) Q2 2024 earnings summary

Executive summary

• Achieved a 32% sequential increase in adjusted funds flow (AFF) to $82.8 million in Q2 2024, with free AFF of $46.7 million, representing 56% of AFF.

• Cash flow from operating activities rose 10% from Q1 2024 to $73.6 million.

• Net debt reduced by $61.2 million, reaching the $250 million target and entering Phase 2 of the Return of Capital Framework.

• Distributed $12.1 million in dividends and repurchased $1.0 million in shares under the NCIB.

• Announced a significant new Sparky oil discovery at Hope Valley, with three multi-lateral wells brought online.

Financial highlights

• Total Q2 2024 revenue was $173.2 million, up 11% year-over-year; oil sales increased 12%, NGL sales 35%, while natural gas sales declined 53%.

• Adjusted funds flow for Q2 2024 was $82.8 million, up 28% year-over-year.

• Net income for Q2 2024 was a loss of $64.7 million, impacted by a $96.5 million non-cash impairment charge on non-core properties.

• Net capital expenditures were $2.6 million in Q2 2024, down 91% year-over-year.

• Net debt at quarter-end was $234.7 million, a 25% reduction year-over-year.

Outlook and guidance

• Forecasts $100 million in free cash flow (FCF) for 2024 at US$75 WTI, representing 34% of estimated cash flow from operating activities.

• Estimated 2024 exit production of 24,000 boepd (87% liquids) and a 24% annual corporate production decline.

• Plans to allocate $48 million of excess FCF annually to share buybacks and further net debt reduction.

• Management will consider production per share growth and additional shareholder returns upon reaching a $170 million net debt target.