en.Wedoany.com Reported - Canada's Surge Energy Inc. (Toronto Stock Exchange: SGY) announced an upward revision to its 2026 year-end production guidance and an expansion of its second-half capital program.
The company's board of directors has approved expanding the 2026 capital program from C$150 million to C$175 million, with the additional C$25 million allocated to increased drilling and water injection projects. Accordingly, the 2026 year-end production guidance has been raised from the previous 23,000 barrels of oil equivalent per day to 24,000 barrels of oil equivalent per day, an increase of over 4%. Among this, the proportion of liquid hydrocarbons has increased from 88% to 89%.
The production growth is primarily driven by rising crude oil prices fueled by the macroeconomic environment. Ongoing conflicts between the U.S. and Iran in the Middle East continue to restrict oil transportation through the Strait of Hormuz, compounded by the Russia/Ukraine conflict, leading to declining global crude oil inventories and a "higher for longer" oil price scenario. Surge has significant financial sensitivity to rising oil prices, and combined with the company's strong balance sheet, its 2026 free cash flow generation is substantially higher than management's budget assumptions based on a WTI oil price of $65 per barrel.
According to an independent reserves report prepared by GLJ Ltd. as of December 31, 2025, using a fixed WTI price of $75 per barrel, the company's net asset value is: $11.04 per share for total proved reserves and $17.10 per share for proved plus probable reserves. Based on this, management is allocating up to C$5 million per month for share repurchases through the existing Normal Course Issuer Bid (NCIB).
Under the expanded capital program, an additional C$16 million will be used to drill 8 gross wells (8.0 net wells), including 4 single-leg fractured wells and 2 open-hole multi-lateral (OHML) wells in the core Sparky area, as well as 2 OHML wells in the core Southeast Saskatchewan area. The incremental production efficiency of this drilling program is expected to be approximately C$16,000 per barrel of oil equivalent per day, with a 6-month payback period based on the current WTI oil price curve, and costs are expected to be recovered by the end of 2026.
An additional C$9 million will be used to accelerate water injection projects, increasing the company's 2026 water injection capital by 75% from the initial budget of C$12 million to C$21 million. These funds will be used to expand the horizontal fractured water injection project in the Provost area of the core Sparky region and to increase the number of dedicated injection wells in the Hope Valley Sparky discovery area's OHML water injection pilot from 5 to 10.
Based on the realized WTI price for 2026 through May and the forward curve, the average WTI price for 2026 is expected to be approximately $85 per barrel. Estimated at an average WTI price of $80 per barrel, the company's revised 2026 projected adjusted funds flow is C$335 million (initial guidance was C$265 million), operating cash flow is C$320 million (initial guidance was C$245 million), and free cash flow is C$145 million (initial guidance was C$95 million), representing a 15% free cash flow yield. Management plans to return free cash flow to shareholders by paying an annual base dividend of C$51 million (C$0.52 per share per year), repurchasing approximately C$30 to C$40 million in shares, and reducing additional net debt.
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