Surge Energy Inc. agreed to acquire Astra Oil Corp., which the company said represents an “exciting reentry” into southeast Saskatchewan for the Surge team.

The Astra acquisition will be funded through the issuance of Surge common shares and the assumption of approximately CA$15 million of net debt for total consideration of roughly CA$160 million. The assets include more than 4,100 boe/d (90% liquids) of operated, light oil production with an operating netback of more than $42 per boe at US$65 WTI pricing.

Surge had previously exited the region through the sale of its southeast Saskatchewan and Manitoba assets in 2015 to Torc Oil & Gas Ltd. for CA$430 million. However, according to the June 22 release, the company’s management strategically targeted its reentry of the region based on its high light oil netbacks, low cost production efficiencies and quick drilling payouts.

“Surge’s operational track record of execution in southeast Saskatchewan, combined with proven in-house technical expertise, positions the company for both organic and acquisitive growth in this new core area,” the company said in the release.

The transaction will result in a high quality, well-positioned 20,200 boe/d (85% oil and liquids weighted), light and medium gravity, intermediate public oil company with two core growth areas in the Western Canadian Sedimentary Basin: Surge’s dominant position in the medium gravity Sparky crude oil play, and Astra’s southeast Saskatchewan light oil assets.

The Astra assets are also forecast to generate CA$58.1 million of net operating income1 over the next 12 months at US$65 WTI. As a result, Surge now anticipates to generate free cash flow of more than CA$85 million in 2022 at US$65 WTI per barrel pricing, providing free cash flow per share of $0.146 in 2022, according to Paul Colborne, president and CEO of Surge.

“We believe this transaction is an exciting opportunity for both Surge and Astra shareholders,” commented Colborne in the company release on June 22. “Shareholders in the combined company will have ownership in a sustainable, intermediate, light and medium gravity crude oil public company.”

In combination with the transaction, Surge also announced it had reached an agreement in principle with its lending syndicate to amend and extend its first lien credit facilities.

The transaction is expected to close in August. Concurrent with the closing, Surge will also enter a new CA$215 million credit facility as part of an agreement with its lending syndicate, announced June 22, to amend and extend its first lien credit facilities.

Scotiabank is exclusive financial adviser to Surge with respect to the transaction and has provided a fairness opinion to the Surge board of directors. ATB Capital Markets and BMO Capital Markets have been appointed strategic advisers to Surge on the transaction. McCarthy Tétrault LLP is providing legal council to Surge.

National Bank Financial Inc. is acting as exclusive financial adviser to Astra. Burnet, Duckworth & Palmer LLP is Astra’s legal adviser.

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