06:42 AM EDT, 05/30/2024 (MT Newswires) -- National Bank has noted that Surge Energy Inc. ( ZPTAF ) overnight Wednesday provided an update of recent corporate activities, "reflecting a continued high-grading and acceleration of returns".

Among key takeaways, National cited a "strong update reflecting the strength of its progression of core value drivers in support of long-term shareholder returns and value". According to National, SGY is poised for a 22% return profile (vs. peers 21%) on leverage of 0.1x (vs. peers 0.3x) while trading at 2.1x 2025e EV/DACF (vs. peers 2.6x).

National maintained an Outperform rating an $11 Target on the stock.

In more detail, National noted Surge is "High-Grading its Asset Complexion". It said through accretive non-core asset sales ($37 mln, 1,100 boe/d; $37,000/boed or 3.7x P/CF), in addition to recent land sale activity in the Hope Valley Sparky project (32.5 sections of land), the company continues to high-grade its proportional exposure to its highest impact projects in the Sparky and SE Saskatchewan core.

- These transactions serve to drive an accretive augmentation to its asset backdrop, bolstering its long-duration, high-return drilling inventory (National estimates at near 15 years; +15%).

- As a reflection of the "quality" of the underlying assets, National notes the high quantum growth of its Sparky assets to date (12 mbbl/d from a standing start), and which should be complemented by an incremental 100 identified multilateral locations at Hope Valley where strong initial success has been noted (IP60 255 bbl/d).

National also noted "Optimized FCF to Accelerate Returns". Overall, National said, Surge's assets continue to support a significance of free cash, harvesting low capital efficiency and high netback production off of a low decline (24%), and as a result, it has attained its next debt inflection to support accelerating return of capital.

- With debt below $250 mln (or less than 0.9x D/CF at $75/bbl), the company is transitioning to a 50% return of FCF, which should see 7.2% cash yield returned through its INCREASED base dividend (+8%) and incremental returns from prospective buybacks on the order of 3-4% o/s, for a total funded return proposition of +10%.

- On its high-graded return plans, its next inflection is seen at $170 mln of net debt (less than 0.6x D/CF; to come mid-2025), which will support an augmentation of returns to 75% of FCF.