Surge Energy has struck a deal to acquire Fire Sky Energy. This is a very good deal for Surge, which is a company that specializes in buying smaller rivals and/or assets from bigger companies. If the two operations and customer bases are compatible and if the price is right, it might make sense to manage them together.
The proposed transaction is to issue 11.2 million shares and assume net debt of about $3 million, thus increasing the company’s land holdings, production, and reserves by a factor of three. The transaction is expected to be completed within two months. After this deal, Surge expects to have a lot of concentrated light oil reserves and production.
Founded in 2012, Surge Energy Inc. is a public American energy company with its headquarters in Denver, Colorado. In August 2017, Surge acquired Astra Oil Corp., an oil and gas company headquartered in Calgary, Alberta. With the recent acquisition, Surge says that it expects to have a higher return on investment by drilling in southeast Saskatchewan. This region has low-cost production, quick drilling payouts, and high netbacks.
The Fire Sky assets produce an average of 1,500 barrels of oil equivalent (a unit of energy that combines natural gas and oil). Around 95% of the production is light oil. This light oil is produced in Surge’s core area in southeast Saskatchewan. Flush with cash, the company is generating above-average amounts of oil.
Surge focuses on buying high-quality, low-cost oil reservoirs with large original oil in place to get high net cash flow.