Surge Energy Inc. (TSX: SGY) reported today that it has entered an agreement with Astra Oil Corp. to purchase all of the latter’s issued and outstanding common shares for approximately $160 million. Astra Oil is an Alberta-based privately-held oil and natural gas producer with operations in South East Saskatchewan and South West Manitoba.
The company said the transaction will be funded with the issuance of Surge common shares and the assumption of Astra Oil’s net debt of approximately $15 million. The issuance of Surge common shares will be on a basis of 3.1746 Surge shares for every one Astra share.
Astra Oil’s current production is estimated at 4,100 boepd (87% light oil) with an operating netback of more than $42 per boe at US $65 WTI pricing. The light oil firm is also forecast to yield an annual net operating income of approximately $58.1 million over the next 12 months.
Surge President and CEO Paul Colborne said in a statement that following the acquisition, the company anticipates it will “generate free cash flow of more than $85 million in 2022 at US$65 WTI per barrel pricing.” Based on Surge’s pro forma of 608 million basic shares, this translates to $0.146 free cash flow per share in 2022.
Surge Energy updated its production guidance following the transaction. The company now pegs its 2021 exit production at 20,200 boepd (85% oil and liquids weighted). This also gives the company a re-entry into South East Saskatchewan, which it targets as a new core area based on its high light oil netbacks, low-cost production efficiencies, and quick drilling payouts.
The transaction is expected to close in August 2021, subject to the approval of both companies’ shareholders, regulatory approvals, and customary closing conditions. Currently, Astra Oil management and major shareholders, representing 68% stake, have already agreed to vote in favor of the transaction.
Surge Energy last traded at $0.68 on the TSX.
Information for this briefing was found via Sedar and the companies mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.