Surge Energy: A High-Yielding Energy Play
Surge Energy Inc. (Surge) is a Canadian-based oil and gas producer with a focus on the Western Canadian Sedimentary Basin. The company’s clean balance sheet, high Free Cash Flow (FCF) yield, and no expected cash taxes until 2030 make it an attractive investment opportunity for income-seeking investors.
Financially Robust
Surge’s financials are solid, with a debt-to-equity ratio of 0.2 and a net debt position of CAD 154 million as of Q3 2021. This low leverage allows the company to weather market volatility and maintain a strong financial position.
High FCF Yield
At an oil price of US$65 per barrel (WTI), Surge generates a robust FCF yield of 16%. This high FCF yield is a result of the company’s low operating costs, which average CAD 12.50 per barrel of oil equivalent (boe), and its efficient capital program. Surge’s capital expenditures are expected to be CAD 120-130 million in 2022, down from CAD 173 million in 2021.
Dividend Yield
In addition to its strong FCF yield, Surge also offers a generous dividend yield of over 8%. The company’s dividend is well-covered, with a payout ratio of approximately 40-45% based on Q3 2021 FCF.
Tax Advantage
Surge’s tax position is also favorable, with no cash taxes expected until 2030 due to its significant capital cost allowances and investment tax credits. This tax advantage provides the company with additional financial flexibility and allows it to reinvest in growth opportunities.
Implications for Individuals
For income-seeking investors, Surge’s high FCF yield and dividend yield make it an attractive addition to a diversified portfolio. The company’s solid financial position, efficient capital program, and favorable tax position provide a stable source of income and potential capital appreciation.
Implications for the World
At a broader level, Surge’s financial strength and efficiency could contribute to the energy sector’s recovery and growth. As the global economy recovers from the COVID-19 pandemic, demand for energy is expected to rebound. Companies like Surge, which can generate strong cash flows and reinvest in growth opportunities, will be well-positioned to benefit from this demand.
Conclusion
Surge Energy is a compelling investment opportunity for income-seeking investors. Its clean balance sheet, high FCF yield, and no expected cash taxes until 2030 provide a stable source of income and potential capital appreciation. Furthermore, Surge’s financial strength and efficiency could contribute to the energy sector’s recovery and growth, benefiting the global economy as a whole.
- Surge Energy is a Canadian-based oil and gas producer with a solid financial position.
- The company generates a high FCF yield of 16% at US$65 WTI and offers a dividend yield of over 8%.
- Surge’s tax position is favorable, with no cash taxes expected until 2030.
- For income-seeking investors, Surge’s high FCF yield and dividend yield make it an attractive addition to a diversified portfolio.
- Surge’s financial strength and efficiency could contribute to the energy sector’s recovery and growth, benefiting the global economy.
