SURGE AND LONGVIEW ANNOUNCE $429 MILLION STRATEGIC BUSINESS
CALGARY, March 31, 2014/CNW/ – Surge Energy Inc. (TSX: SGY) (“Surge” or the “Company”)
and Longview Oil Corp. (TSX: LNV) (“Longview”) are pleased to announce today that they have
entered into an arrangement agreement, pursuant to which Surge has agreed to acquire all of the issued
and outstanding common shares of Longview by way of a plan of arrangement transaction. The
proposed transaction results in the formation of an elite, intermediate, light and medium oil focused,
dividend paying, growth company. The combined asset base will be strategically focused in the
Williston Basin and Central Alberta with significant complimentary reserves, production, land and
operations. The proposed transaction is accretive to Surge on all metrics, and adds concentrated
reserves, production, land, and operations that are contiguous with Surge’s existing core areas.
Pursuant to the arrangement agreement, Surge has agreed to acquire all of the Longview common
shares at an exchange ratio of 0.975 of a Surge common share for each Longview common share. The
exchange ratio implies a value of $5.99 per Longview share based on the closing price of Surge
common shares of $6.14 on the Toronto Stock Exchange (“TSX”) on March 31, 2014, and a premium
of approximately 35 percent to the closing price of Longview common shares on the TSX on February
7, 2014, the last trading day before Longview announced the receipt of a nonbinding proposal. In
addition, Surge will assume approximately $155 million of Longview net debt (including transaction
costs) to be outstanding upon completion of the proposed transaction. Accordingly, the proposed
transaction implies a value of approximately $429 million for Longview (including Surge’s previously
announced acquisition of 9.3 million Longview common shares, representing 19.8 percent of the
shares outstanding, at $4.45 per share).
2. Assuming the successful completion of the proposed transaction:
1) Surge’s projected 2014 production exit rate is now expected to increase to more than
21,000 boe/d (84 percent oil); and
2) Surge will increase its annual dividend 11 percent to $0.60 per share ($0.050 per share
per month) from $0.54 per share per annum ($0.045 per share per month) currently.
The above increase in guidance and dividend, as well as the significant operational overlap between
the two companies, will benefit both Surge and Longview shareholders. After taking into account the
exchange ratio, the dividend increase represents an increase of 22 percent in the annual dividend for
Longview shareholders.
STRATEGIC RATIONALE
1. The proposed transaction is consistent with Surge’s defined business model of acquiring elite,
operated, light and medium gravity crude oil reservoirs with large original oil in place (“OOIP1
”). On
this basis, Surge estimates Longview’s net OOIP is greater than 375 million barrels. Consequently,
post-closing Surge will have over 1.8 billion barrels of light and medium gravity OOIP under the
Company’s ownership and management.
Longview’s assets fit seamlessly into Surge’s core areas, including: the Midale Marly, light oil play
trend in SE Saskatchewan; the Sparky medium gravity oil play trend in Central Alberta; and within
Surge’s Central Alberta core area, where Longview has several large OOIP pools categorized by high
netbacks and low decline production.
2. 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.
3. Paul Colborne, President and CEO of Surge, stated: “We believe that this transaction is an exciting
opportunity for BOTH Surge and Longview shareholders. Shareholders in the combined company will
participate in one of the elite, light and medium oil, dividend paying, growth companies in Canada, and
receive a significant dividend increase, while benefitting from Surge’s peer group leading “all-in”
sustainability ratio, and an excellent balance sheet.”
Steven Sharpe, Chairman and Interim CEO of Longview, said: “We believe this transaction provides
Longview shareholders with the opportunity to crystallize a meaningful premium, and the opportunity
to participate in the exciting potential of the combined company going forward.”
SUMMARY OF TRANSACTION
The proposed transaction is expected to close in June, 2014. Completion of the proposed transaction is
subject to the approval of at least 66 2/3 percent of the Longview shareholders voting at a special
meeting and the approval of the majority of the minority of Longview shareholders after excluding the
votes cast in respect of the Longview common shares held by Surge. The special meeting of Longview
shareholders called to approve the proposed transaction is expected to be held in June 2014.
Completion of the proposed transaction is also subject to, among other things, the receipt of court
approval and other customary closing conditions.
The Board of Directors of Longview has unanimously approved the proposed transaction and, based in
part on a fairness opinion from BMO Capital Markets, Longview’s financial advisor, determined that
the proposed transaction is in the best interests of Longview and is fair to Longview shareholders. The
Longview Board of Directors has also resolved to recommend that Longview shareholders vote their
Longview common shares in favor of the proposed transaction. All of the directors and officers of
Longview, holding Longview common shares, have entered into lockup agreements pursuant to which
they have agreed to vote their Longview common shares in favour of the proposed transaction.
4 . Longview has agreed not to solicit or initiate any discussions regarding any other acquisition proposals
or sale of material assets. Longview has also granted Surge a 72 hour right to match any superior
proposal, and has agreed to pay a termination fee of $7.7 million to Surge in certain circumstances,
including if Longview recommends, approves or enters into an agreement with respect to a superior
proposal.
In accordance with the arrangement agreement, Longview shareholders will receive 0.975 of a Surge
common share for each Longview Share issued outstanding, and Surge will also assume an estimated
$155 million of Longview debt (including transaction costs) upon completion of the proposed
transaction. Based upon the exchange ratio discussed above, it is anticipated that Surge will issue
approximately 37.8 million common shares of Surge to Longview shareholders. Taking into account
Surge’s previously announced acquisition of 9.3 million Longview common shares, representing 19.8
percent of the common shares outstanding, at $4.45 per share, the weighted average acquisition price
per Longview common share paid by Surge would be $5.69 based on the closing price of Surge
common shares of $6.14 on the TSX on March 31, 2014.
Surge and Longview have agreed that a current director of Longview will be appointed to the Board of
Directors of Surge on closing of the proposed transaction.
OUTLOOK AND INCREASED GUIDANCE IN 2014
This proposed transaction is exciting for both Longview and Surge shareholders.
Proforma the proposed transaction, Longview shareholders will be able to participate in one of the
highest quality, light and medium gravity crude oil, dividend paying, growth companies in Canada
(with highly liquid daily trading volumes), and to receive a planned 22 percent increase in their
dividend, while benefitting from Surge’s peer group low, “all-in” payout ratio, of less than 89 percent.
Surge shareholders will benefit from an accretive transaction on all metrics, an excellent asset fit (as
described above), and an 11 percent increase in Surge’s annual dividend to $0.60 per share, while 5
maintaining Surge’s attractive balance sheet – with an estimated Q4/14 debt to annualized cash flow
ratio of 1.45 times (based on strip pricing).
Assuming the successful completion of the proposed transaction, Surge’s projected 2014 production
exit rate is now expected to increase to more than 21,000 boepd (84 percent crude oil).
In 2014 Surge will continue to focus growth capital towards elite, large OOIP, light and medium
gravity, crude oil reservoirs. Management’s primary goals for Surge include achieving 3-5 percent
organic annual per share growth in reserves, production, and cash flow, maintaining a sustainable
dividend, continued debt reduction from the Company’s low payout ratio, together with the pursuit of
high quality, accretive acquisitions.
Management of Surge will continue to maintain balance sheet flexibility with an effective risk
management program, and to pursue the Company’s extensive waterflood program. By the end of
2014, Surge now anticipates that over 75 percent of the Company’s producing assets will be under
waterflood. The implementation of these waterflood projects is an integral part of Surge’s strategy of
increasing oil recovery factors throughout the Company’s deep crude oil portfolio, lowering corporate
decline rates and maximizing shareholder value. The Company will also pursue continued, year over
year increases in recovery factors from these high quality assets through low risk development
activities, including in-fill and step out development drilling.
ADVISORS
Macquarie Capital Markets Canada Ltd. is acting as exclusive financial advisor to Surge with respect
to the proposed transaction. McCarthy Tétrault LLP is acting as legal advisor to Surge with respect to
the proposed transaction.
Scotiabank, GMP Securities L.P. and National Bank Financial are acting as strategic advisors to Surge
with respect to the proposed transaction.
BMO Capital Markets is acting as financial advisor, and Burnet, Duckworth & Palmer LLP is acting as
legal advisor to Longview with respect to the proposed transaction.
ABOUT SURGE
Surge is an oil-weighted production and development company with high quality, large OOIP, crude
oil reservoirs. Management is focused on delivering to its shareholders solid per share organic growth,
sustainable monthly dividends, and further growth through accretive acquisitions of additional elite oil
reservoirs. For further information visit our website at www.surgeenergy.ca.
ABOUT LONGVIEW
Longview is actively engaged in the business of oil and gas exploration, development, acquisition and
production in the provinces of Alberta and Saskatchewan. For further information visit our website
online at www.longviewoil.com.
FURTHER INFORMATION:
Paul Colborne, President & CEO Max Lof, CFO
Surge Energy Inc.
Phone: (403) 930-1507 Phone: (403) 930-1021
Fax: (403) 930-1011 Fax: (403) 930-1011
Email: pcolborne@surgeenergy.ca Email: mlof@surgeenergy.ca
Steven Sharpe, Chairman and Interim CEO
Carey Baker, VP, Finance & CFO
Longview Oil Corp.
Phone: 403-718-8100 Phone: (403) 718-8100
Email: ssharpe@longviewoil.com Email: cbaker@longviewoil.com
FORWARD LOOKING STATEMENTS:
This press release contains forward-looking statements. More particularly, this press release includes,
without limitation, forward-looking statements concerning: (i) the anticipated terms and timing for
closing of the proposed transaction; (ii) expectations and assumptions concerning timing of receipt of
required regulatory approvals and the satisfaction of other conditions to the completion of the proposed
transaction; (iii) estimated 2014 exit production rate of Surge; (iv) increase in dividend of Surge; (v)
realization of anticipated benefits of the proposed transaction; (vi) characteristics with respect to the
properties associated with Longview; (vii) timing of the special meeting of Longview shareholders; 7
(viii) estimated Q4 2014 debt to annualized cash flow ratio of Surge; (ix) Surge’s strategy with respect
to its waterflood program; and (x) Surge’s growth strategy and anticipated growth plans for 2014 and
beyond.
The forward-looking statements contained in this press release are based on certain key expectations
and assumptions made by Surge, including, but not limited to, expectations and assumptions that the
proposed transaction will close on the terms and the time expected, all regulatory approvals and other
conditions will be received or satisfied for closing the proposed transaction, 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, that the
conditions for the proposed transaction will not be satisfied or close on the terms expected, Surge will
not achieve the anticipated benefits of the proposed acquisition, 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.
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.
