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RBC Dominion Securities Inc.

Shailender Randhawa, CFA (Analyst)

(Associate) (403) 299-6576 (403) 299-6958 shailender.randhawa@rbccm.com keith.mackey@rbccm.com

Keith Mackey, CFA

April 14, 2014

Sector Perform
TSX: SGY; CAD 6.59 Price Target CAD 7.00 Scenario Analysis*
Downside Scenario 5.00 15%
*Implied Total Returns

Surge Energy Inc.


High yield consolidator
Our view: We initiate coverage of Surge Energy with a Sector Perform rating and $7.00 price target. Reborn under credible management, we view Surge as a high yield consolidator with a stable financial outlook but an unclear organic growth trajectory due to its high dividend commitment.

Current Price 6.59

Price Target 7.00 15%

Upside Scenario 9.00 46%

Key points:
Credible management team. Oil patch heavy hitter Paul Colborne has quarterbacked a $1.1 billion acquisition campaign to grow dividends, while limiting capital reinvestment to 50% of cash flow. As competition for light oil assets in the E&P yield space intensifies, we think Surge will shift to an organic approach to deliver its 3-5% per share growth target. Current 9% yield reflects flat production outlook and a 38% basic payout ratio. We project Surges 21,350 boe/d (84% liquids) 2014 exit production rate to remain flat through 2016 based on a 25% decline rate with a $33,000 per flowing boe/d annual capital efficiency metric. Production per share is set to drop by 13% in 2014 as Surge builds drilling inventory. In our opinion, lowering the basic payout ratio closer to 30% through increased FCF generation is the key to improving growth visibility. Post Longview financial outlook: stable. Factoring in a mid-year close for the opportunistic $429 million Longview acquisition, which looks accretive to us, we expect Surge to exit 2014 with a forward net-debt-tocash-flow ratio of 1.6x, which leaves flexibility to further augment the portfolio with value-oriented deals. Formidable dividend commitment requires high oil prices. Post Longview, Surges annualized $129 million dividend payment rivals its sustaining capital. Excluding acquisitions, we estimate Surge requires C$96/bbl Edmonton Par prices to maintain production with an 100% effective payout ratio. Our $7.00 price target reflects a 1.0x multiple of the $7.24/share sum of our $6.80 adjusted base NAV plus $0.44 from risked development. Our price target maps to a 1.0x multiple of our base NAV and a 8.6% cash yield compared to peer averages of 1.1x and 6.3%, respectively. We think future multiple expansion requires higher unbooked resource exposure, a lower basic payout ratio to drive growth, and increased portfolio focus over time.

Key Statistics
Shares O/S (MM): Dividend: NAVPS: 216.1 0.60 6.96 Market Cap (MM): Yield: P/NAVPS: 1,424 9.1% 0.9x

RBC Estimates
FY Dec Cash Flow CFPS, Adj Diluted Production (boe/ d) Prod./Share (boe/m) P/ACFPS 2013A 120.2 1.23 10,767 40.11 5.4x 2014E 289.0 1.47 18,750 34.92 4.5x 2015E 318.3 1.47 21,250 35.89 4.5x 2016E 310.5 1.44 21,000 35.57 4.6x

All values in CAD unless otherwise noted.

Priced as of prior trading day's market close, EST (unless otherwise noted).

For Required Non-U.S. Analyst and Conflicts Disclosures, see page 35.

Surge Energy Inc.

Target/Upside/Downside Scenarios
Exhibit 1: Surge Energy Inc.
125 Weeks
12.50 10.50 8.50 6.50

Investment summary
We rate Surge Energy shares Sector Perform with a $7.00 price target.
22NOV11 - 14APR14
UPSIDE TARGET CURRENT 9.00 7.00 6.59

4.50

DOWNSIDE 5.00

2.50 60m 40m 20m 2012 2013 2014 N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A

Apr 2015

SGY.TO

Rel. S&P/TSX COMP IDX

MA 40 weeks

Source: Bloomberg and RBC Capital Markets estimates for Upside/Downside/Target

Target price/ base case Our base case and $7.00 price target reflects a flat per share production growth outlook through 2016 and a stable financial outlook as Surge builds scale and generates visible FCF for organic growth. Our base case maps to a 1.0x P/NAV multiple. Upside scenario Our upside valuation of $9.00 is based on successful development of the Upper Shaunavon, predictable 3 to 5% organic per share growth, with no change to the company's financial outlook. Our upside case maps to a 1.2x P/NAV multiple, with no change to our commodity outlook. Downside scenario Our downside valuation of $5.00 reflects inconsistent drilling results, dilutive transactions, and increased financial leverage, which could pressure Surge's current dividend. Our downside case maps to a 0.7x P/NAV multiple, with no change to our commodity outlook.

High Yield Consolidator. Our neutral stance reflects our belief that further accretive acquisitions are required to build scale and generate visible FCF for 3 to 5% organic growth. Implied total return weighted to 9% yield. We see flat production per share growth through 2016 based on a 25% decline rate, $33,000 per boe/d annual capital efficiency at a constant 100% effective payout ratio. Credible and well connected leadership. In our minds, Paul Colborne's strong relationships reflect an extensive track record of value creation, providing an intangible edge for Surge. Financial flexibility: adequate. We project Surge to exit 2014 with a forward net-debt-to-cash-flow ratio of 1.6x, which in our view leaves enough financial flexibility for additional value-oriented tuck-ins. Potential catalysts. Include results from initial Upper Shaunavon drilling, a Montney well at Valhalla, commercial scale waterflood success, and accretive acquisitions to extend Surge's RLI and lower its decline rate. Risks. Include variable drilling results, a prolonged decline in oil prices, fiscal changes, and access to capital and lower decline oil-weighted properties at a reasonable cost.

April 14, 2014

Shailender Randhawa

(403) 299-6576; shailender.randhawa@rbccm.com

Surge Energy Inc.

Key questions 1
Our view
1. Why is Surges current yield 300 to 500 basis points higher than its peers despite 85% effective payout and 1.6x leverage? Although Surge is living within its means in terms of balancing outflows with its cash generation, we think Surges higher yield reflects its high basic payout ratio strategy with a projected 38% rate versus 25% to 30% for similar oil-weighted peers such as Cardinal Energy, TORC Oil and Gas, and Whitecap Resources. In our minds, this explains Surges emphasis on waterflood piloting and increasing the scale of its operations. We believe lower corporate capital efficiency and a reduction in maintenance capital, which if successful, would free up cash for organic growth. We expect Surge to continue to acquire lower decline rate assets in 2014 to grow cash flow rather than cut its distribution. Further, a measured approach to future dividend increases could firm its growth outlook and lead to relative yield compression. We think the Longview acquisition is positive for Surge shareholders. On a pro forma basis, we see little impact to Surges corporate decline rate , slightly lower netbacks but increased drilling inventory in Southeast Saskatchewan, which we believe is Surges highest return on capital business. Arguably, Longviews 6,000 boe/d portfolio is more diversified than Surges and we see potential for non-core asset sales in time to reduce leverage or repurchase shares assuming Surges yield remains its most expensive source of capital. Key catalysts for Surge shares include extended production performance from its Upper Shaunavon Q1 well, three Viking wells at Forgan, tie-in of the Montney well at Valhalla; which could open up a new pool, and initial waterflood response from a number of key projects: Lower Shaunavon, Nipisi Slave Point, and at Silver Eyehill and Provost, two new pool discoveries. Factoring in 2014 acquisitions, Surges RLIs stand at 5.1 years on a PDP basis and 14.6 years on a 2P basis. For context, White caps PDP RLI stands at 6.5 years on a PDP basis and 15.0 years on a 2P basis. We think extending the PDP RLI closer to 6.0 years through waterflood projects and low-decline asset acquisitions would improve Surges relative multiple. In our view, the marketplace for low decline light-oil weighted assets remains very tight given the underlying demand from yield paying corporates to replace production and reserves. We think a high yield model tightens the margin for error when evaluating and structuring transactions, which places Surge at a disadvantage to lower yield peers. In simple terms, a higher yield model requires higher prices to remain sustainable than a low yield model, which inherently increases risk.

2.

Is the Longview acquisition positive or negative for Surge shareholders?

3.

What are Surges key operational catalysts in 2014.

4.

How does Surges reserve life stack up against other yield paying peers?

5.

How competitive is the asset market place and what are the risks for Surge?

April 14, 2014

Shailender Randhawa

(403) 299-6576; shailender.randhawa@rbccm.com

Surge Energy Inc.

Table of contents
Capital markets profile: Acquisitions facilitate dividend conversion ..................................... 5 Management profile: Decisive, well connected and aligned ................................................. 8 Valuation Comparables ........................................................................................................ 9 Base NAV and valuation build-up ....................................................................................... 10 Estimated base net asset value of $6.96 per share .................................................................. 10 Valuation approach and target price ....................................................................................... 10 Financial forecast ............................................................................................................... 11 Acquisitions preferred route for growth .................................................................................. 11 Key profitability drivers ...................................................................................................... 12 Longview transaction improves fundamentals ........................................................................ 12 Payout sensitivities ............................................................................................................ 15 Surges 38% basic payout ratio requires $96/bbl Edmonton Par price to maintain a 100% effective payout ratio ............................................................................................................... 15 Reserves profile .................................................................................................................. 16 Surges key assets overview ............................................................................................... 17 Diversified portfolio focused on conventional oil reservoirs ................................................... 17 Southeast Alberta ..................................................................................................................... 19 Western Alberta ....................................................................................................................... 20 Williston Basin .......................................................................................................................... 22 Southwest Saskatchewan ......................................................................................................... 23 Type curves .............................................................................................................................. 25 Shaunavon well economics and play valuation........................................................................ 26 Southeast Alberta Cretaceous well economics and play valuation ......................................... 27 Mississippian well economics and play valuation .................................................................... 28 Manson Bakken/Three Forks well economics and play valuation ........................................... 29 Price target impediments ................................................................................................... 30

April 14, 2014

Shailender Randhawa

(403) 299-6576; shailender.randhawa@rbccm.com

Surge Energy Inc.

Capital markets profile: Acquisitions facilitate dividend conversion


Surge Energy is an intermediate-sized E&P company with operations across Western Canada. Surges diversified upstream portfolio strategy emphasizes exploitation of large oil-in-place reservoirs with producing assets in Northwest and Southeast Alberta, Southwest Saskatchewan, and the Williston Basin in Southeast Saskatchewan and Manitoba. Formed as a recapitalization of Zapata Energy in 2010, Surge initially focused on growth via the drill-bit. In May 2013, Surge converted to a total return model and implemented a dividend. The conversion included the appointment of Chairman of the Board, Paul Colborne, as its new President and CEO, $43.6 million in non-core asset sales, and a shift to a rapid-fire acquisition strategy to increase cash generation. Since converting, Surge has completed five acquisitions totalling $708 million financed with $380 million of new equity to deepen its position in large oil-in-place reservoirs while also lowering its underlying corporate decline rate to 25%. In aggregate, the acquisitions equate to 8,730 boe/d (90% liquids) of newly acquired production at an average cost of $81,000 per flowing boe, which represents a 20% discount to the companys current valuation . Exhibit 2: Surges rapid-fire acquisition campaign totals 8,730 boe/d of production at an average cost of $81,000 per flowing boe/d Since converting to a total return model in May 2013, Surge has completed five acquisitions totaling $708 million with the pending $429 million Longview deal expected to close in June.
WTI Strip SGY Share (12 Price month) $6.14 $96.72 NYMEX Strip (12 month) $4.46

Date Type 31-Mar-2014 Corporate Acquisition

Transaction Longview Oil

Consideration $429 MM (45.8MM shares @ $6.14, $155 MM debt, 9.3 MM LNV shares @ $4.45)

Key Assets Acquired Longview: 5,816 boe/d production (81% liquids); 37.6 mmboe gross 2P reserves; 168,948 net acres undeveloped land

13-Jan-2014

Asset Acquisition

Southeast $109 MM Cash Saskatchewan

SE SK assets: 19,322 net acres (78% $6.41 w.i.); 1,250 boe/d production (97% liquids); 4.6 mmboe gross 2P reserves; 12,000 acres undeveloped land

$90.51

$4.20

6-Nov-2013

Asset Acquisition Corporate Acquisition/ Asset Acquisition Asset Acquisition

Central Alberta $76.8 MM Cash Central AB assets: 980 boe/d (77% w.i.) $6.64 production; (98% liquids); 5.4 mmboe gross 2P reserves PrivateCo/ Southwest Manitoba $282 MM (34.4 MM shares @ $5.99, $53 MM cash, $73 MM debt Combined: 2,900 boe/d (>90% w.i.) production (98% liquids); 9.7 mmboe gross 2P reserves $6.72

$93.85

$3.62

22-Oct-2013

$96.67

$3.78

11-Jun-2013

Southwest $240 MM Cash Saskatchewan

SW SK assets: 3,600 boe/d (98% w.i.) production; (100% liquids); 10.6 mmboe 2P gross reserves

$5.42

$93.98

$3.90

Source: Company reports, RBC Capital Markets

Recently, Surge announced a friendly agreement to acquire Longview Oil Corp for a total transaction value of $429 million. The purchase price includes Surges existing 9.3 million position in Longview shares, which it acquired in January at an attractive $4.45/share. The acquisition metrics on the Longview deal work out to $74,000 per flowing boe or about $12/boe (proved and probable, before FDC), which is lower than Surges 2013 $28/boe FD&A costs. We have modelled the transaction to close at the end of June assuming a favourable outcome from Longview shareholders. 5

April 14, 2014

Shailender Randhawa

(403) 299-6576; shailender.randhawa@rbccm.com

Surge Energy Inc.

Surge is targeting 3-5% organic per share production growth complemented by accretive acquisitions of light oil properties. The company enters 2014 producing 15,000 boe/d (83% liquids), 40% undrawn capacity on a $470 million credit facility, with a $116 million capital program (39 gross wells) prior to closing Longview. We have assumed an incremental $20 million in drilling capex for the Longview assets ahead of formal guidance from Surge. Based on our numbers, we project Surge to deliver -13% production per share growth in 2014 with a 85% effective payout ratio (dividends + capital expenditures/operating cash flow), and a 1.6x exit net-debt-to-forward-cash-flow ratio. Surge shares trade on the Toronto Stock Exchange under the ticker SGY with a current market capitalization of $1.2 billion. In addition, Surge has 1.1 million in-the-money warrants exercisable at an average price of $5.17. Surges current $0.54/share annual dividend is paid monthly - the dividend has been raised four times since July 2013 with a planned increase to $0.60 following the Longview acquisition. The company does not have a dividend reinvestment plan (DRIP) in place. Exhibit 3: Surge shares increased 31% from Conversion to their peak October 2013, but have since decreased 8%
06/11/13 - Shaunavon purchase announced Dividend: $0.40 per share Share Price: $5.42 06/11/13 - Announces transition to Dividend + Yield Producer Dividend: $0.40 per share Share Price: $5.42
$9 $8

10/22/13 - SW Manitoba/PrivateCo purchase announced Dividend: $0.50 per share Share Price: $6.72

11/06/13 - Central Alberta (Wainwright) purchase announced Dividend: $0.52 per share Share Price: $6.64
120

01/13/14 - SE Saskatchewan purchase announced (Renegade) Dividend: $0.54 per share Share Price: $6.34

Conversion Announced
Edmonton Par (C$/boe)
110 100 90 80 70 60 Nov- Dec13 13 Jan- Feb- Mar- Apr14 14 14 14 SGY [LHS] Edmonton Light [RHS]

SGY share price (C$)

$7 $6 $5 $4 $3 $2 $1 $0 May- Jun- Jul- Aug- Sep- Oct13 13 13 13 13 13 SGY Volumes [RHS] S&PTSX Energy Index [LHS - Rebased]

03/31/14 - Longview Oil purchase announced Dividend: $0.60 per share Share Price: $6.14

05/08/13 - Announces Paul Colborne appointed President and CEO and non-core asset disposition Share Price: $3.51

Source: Bloomberg, Company Reports and RBC Capital Markets

April 14, 2014

Shailender Randhawa

(403) 299-6576; shailender.randhawa@rbccm.com

Surge Energy Inc.

Exhibit 4: Surges portfolio contains a blend of low-decline assets across Western Canada
Western Alberta Valhalla (Located 40 km northwest of Grand Prairie) o 11,066 gross (11,066 net) developed acres 8,640, (8,026 net) undeveloped acres o Current production of 4,500 boe/d from Triassic Doig formation, 95% working interest o 22 gross (17.7 net) producing wells plus 8 gross (5.7 net) injectors o Light oil 40 API Nipisi/Gift (Located 50 km north of Slave Lake o 18,240 gross (17,265 net) acres o Current production of 3,500 boe/d from Slave Point and Gilwood formations o Slave Point 17 producing Hz wells (98.5 w.i.) o Gilwood 13 producing vertical wells (100% w.i.) o Waterflood commenced in 2013 with 3 injectors Longview Oil - Nevis (Located 50 km east of Red Deer) o Current production of 1,406 boe/d from Wabamun formation o Reserves of 18.6 bcfe net natural gas and 4.5 mmbbls net oil and NGL SW Saskatchewan Saskatchewan Viking o 138 (112 net) drilling locations o Light oil 37 API from horizontal multi-frac Viking wells Shaunavon o 21,835 gross (21,596 net) developed acres, 13,183 (12,787 net) undeveloped acres o Current production of 3,000 boe/d from Lower Shaunavon, 99% working interest o 131 gross (130 net) producing wells plus 7 gross (7 net) non-producing wells o Facilities: 17 mboe/d oil battery, water treatment and disposal

SE Alberta Wainwright o 24,252 gross (19,952 net) developed acres, 5,107, (3,291 net) undeveloped acres o Current production of 980 boe/d from Sparky formation, 95% working interest, 14% decline rate o 249 producing/injecting wells o Waterflood commenced in March 2014 o Medium oil 23 API Silver o Current production of 2,500 boe/d the Cretaceous sands, 15% decline rate o Waterflood at Lloyd and Cummings zones o Medium oil 23-31 API

Williston Basin (13,393 net acres) Manson o 1,846 gross (1,597 net) developed acres, 13,500 (12,675 net) undeveloped acres o Current production of 375 boe/d from Bakken and Mannville formations o Bakken ~300 boe/d, 35 API o Mannville ~75 boe/d, 25 API Macoun (Excluding Renegade Asset) o 1,910 gross (1,533 net) developed acres, 5,716 (5,444 net) undeveloped acres o Current production of 850 boe/d from Midale, 27 API Longview Oil o Current production of 2,370 boe/d from MIdale o Roughly 141,419 (115,800 net) prospective acres

Source: Company reports, RBC Capital Markets

April 14, 2014

Shailender Randhawa

(403) 299-6576; shailender.randhawa@rbccm.com

Surge Energy Inc.

Management profile: Decisive, well connected and aligned


Incumbent Chairman, Paul Colborne, took over as President and CEO in conjunction with Surges new strategic direction in May 2013. The majority of the senior management team remains intact following the dividend conversion with roots back to Breaker Energy, which was sold to NAL Oil and Gas for $400 million in late 2009. Mr. Colborne has a proven track record of value creation in the junior and intermediate E&P sector over the past 20-plus years. He has founded, grown, and sold five companies and is very familiar with the dividend model during the Trust era. Notable ventures include: Startech Energy from 1993 to 2001, which grew from 120 boe/d to over 15,000 boe/d when sold to ARC Energy Trust in 2001. He then started Crescent Point, serving as president and CEO until its re-organization into Crescent Point Energy Trust in 2003. In 2003, he moved on to StarPoint Energy, which was created as a spin-out of Crescent Point with $40 million of initial capital and production of less than 500 boe/d. StarPoint grew production to 30,000 boe/d in 2005 before a $4.5 billion merger with Acclaim Energy Trust to form Canetic in 2005, which was subsequently acquired by Penn West for $4.9 billion in 2008.

Mr. Colborne also serves on the board of a number of other E&P companies and is well connected in industry circles, which in our view, provides an intangible edge for Surge. Upon taking the helm, Mr. Colborne subscribed to a $2.5 million private placement at $3.57 per unit. Each unit consists of one common share and two common share performance warrants. Each performance warrant entitles the holder to purchase one common share at $4.46 per share for a period of five years. Collectively, Surges management and directors hold or control about 4.5% of the fully diluted shares outstanding, which preserves good shareholder alignment, in our view. Exhibit 5: Surges management team is well connected and incentivized to create shareholder value
Name Paul Colborne Max Lof Dan Brown Margaret Elekes Murray Bye Board Member Paul Colborne (Chairman) Dan O'Neil Robert Leach James Pasieka Keith Macdonald Colin Davies Murray Smith
Source: Company reports

Position President & CEO CFO COO VP Land VP Production Joined 2010

Experience Startech Energy, Cresecent Point Energy Trust, Star Point Energy Trust, Star Valley Oil & Gas Breaker Energy Breaker Energy Breaker Energy, Upton Resources, Phillips Petroleum EnCana Corporation Experience Startech Energy, Cresecent Point Energy Trust, Star Point Energy Trust, Star Valley Oil & Gas Breaker Energy, EnCana Corporation Custom Truck Sales, International Fitness Holdings Partner, McCarthy Tetrault LLP

O & G Experience 20+ years 25+ years 25+ years 20+ years 10+ years Other Directorships Legacy Oil & Gas, Cequence Energy Hyperion Exploration, Cathedral Energy Services Delaney Energy Services, Breaker Energy Breaker Energy Bellatrix Exploration, Madalena Ventures, Mountainview Energy

2010

2010 2010 2010

Bamako Investment Management Corinthian Energy, Acanthus Resources MLA Province of Alberta, Murray Smith & Associates

April 14, 2014

Shailender Randhawa

(403) 299-6576; shailender.randhawa@rbccm.com

Surge Energy Inc.

Valuation Comparables
In-line P/NAV and EV/DACF multiples
Surge trades in-line with similar oil-weighted Canadian small and mid-cap (companies with market capitalizations of less than $2.75B) dividend-paying E&Ps in terms of P/NAV and 2014 EV/DACF multiple. Surges 9% dividend yield is 2% above the peer group average, although both its leverage and effective payout ratios compare favourably. We think future multiple expansion requires higher unbooked resource exposure, a lower basic payout ratio to drive growth, and an increased portfolio focus over time. In addition to traditional P/NAV and EV/DACF multiples, we provide upstream trading metrics, growth rates, and debt levels for additional context. P/NAV multiple: Surge trades at a 0.9x NAV multiple compared to 0.9x for the peer group at RBCs price deck. Debt-adjusted cash flow multiple: Surge is trading at 5.9x 2014E enterprise value to debt-adjusted cash flow multiple compared to the peer group average of 5.9x. EV to production: In terms of 2014E production, Surge is trading at $102,500 per flowing boe/d compared to $82,300 for the peer group. Net debt to cash flow: Surges projected 2014 forward-net-debt-to-cash flow of 1.6x compares to the peer group average of 2.5x. Exhibit 6: Surge trades in line with peers based on P/NAV and EV/DACF multiples
EV/boe/d 2014E 2015E Argent Energy Cardinal Energy Lightstream Resources Long Run Exploration Parallel Energy TORC Oil & Gas Twin Butte Energy Whitecap Resources Average Surge Energy $80,400 $87,900 $81,900 $42,800 $64,900 $126,800 $49,900 $124,100 $82,338 $102,500 $91,300 $82,000 $81,200 $39,900 $64,000 $119,800 $45,000 $104,700 $78,488 $89,800 % Liquids 2014E 70% 90% 80% 51% 66% 86% 91% 73% 76% 84%
Net Debt ($MM) $268 $1 $2,207 $391 $231 $145 $317 $454

EV/ 2P boe $22.42 nmf $25.58 $19.67 $12.16 $80.96 $21.10 $41.42 $31.90 $39.70
Market Cap ($MM) $207 $588 $1,335 $682 $237 $1,187 $607 $2,655

DAPS Growth 2014E/2013E Prod CF -6% 38% -15% 9% 0% 12% 8% 3% 6% -7%


Enterprise Value ($MM) $475 $589 $3,542 $1,073 $468 $1,332 $924 $3,109

Current Yield 7% 4% 8% 7% 14% 4% 8% 5% 7% 9%


Price/ Base NAV (RBC) (Strip) 0.5x 1.1x 0.9x 1.0x 0.8x 1.1x 0.9x 1.3x 0.9x 0.7x 1.1x 1.1x 1.2x 1.0x 1.2x 1.0x 1.4x 1.1x 1.0x

Capex / CF 2014E 1.1x 0.4x 0.8x 0.8x 0.3x 0.6x 0.6x 0.6x 0.6x 0.5x

Net Debt /CF 2014E 5.7x nmf 3.3x 1.3x 4.6x 0.5x 1.1x 1.1x 2.5x 1.6x

-18% 140% -5% 16% 21% 35% 19% 23% 29% 20%

Ticker Argent Energy Cardinal Energy Lightstream Resources Long Run Exploration Parallel Energy TORC Oil & Gas Twin Butte Energy Whitecap Resources Average Surge Energy SGY AET.un CJ LTS LRE PLT.un TOG TBE WCP

Analyst SR SR MH SR SR SR MF SR

Price ($/share) $3.25 $15.30 $6.25 $5.37 $4.29 $12.74 $2.38 $13.23

EV/DACF 2014E 2015E 6.4x 6.2x 4.6x 3.4x 7.4x 6.4x 6.2x 6.5x 5.9x 5.9x 7.1x 6.2x 4.6x 3.3x 7.9x 6.3x 4.5x 5.5x 5.7x 5.6x

SR

$6.59

$1,175

$399

$1,574

0.9x

! = Restricted
SR = Shailender Randhawa, 403-299-6576, shailender.randhawa@rbccm.com MF = Mark Friesen, 403-299-2389, mark.j.friesen@rbccm.com MH = Michael Harvey, 403-299-6998, michael.harvey@rbccm.com
Source: Bloomberg, RBC Capital Markets estimates

April 14, 2014

Shailender Randhawa

(403) 299-6576; shailender.randhawa@rbccm.com

Surge Energy Inc.

Base NAV and valuation build-up


Estimated base net asset value of $6.96 per share
Our base NAV per share utilizes a blow-down scenario in which the companys pro forma (including Longview) reserves as of December 31, 2013 are allowed to decline naturally, with development of booked proven undeveloped and probable reserves rather than a goingconcern scenario. NAV per share, adjusted for the 37.8 million shares issued to acquire Longview, is calculated by taking the present value (8.5% discount rate) of the future cash flows and adjusting for balance sheet items such as net debt, and is based on our RBC Capital Markets commodity price deck, shown in Exhibit 7. Exhibit 7: We see $0.77/share of unrisked upside in SGY main plays We calculate a base net asset value of $7.24 based on Surges 116 mmboe of pro forma Proved and Probable Reserves assuming successful completion of the Longview acquisition.
Surge Energy NAV Breakdown & Price Target Rationale Reserves (mmboe) 111 5 NPV, Unrisked ($MM) ($/share) $2,075 $9.45 $101 $0.46 $100 $0.46 $2,276 $10.36 -$508 -$2.31 -$82 -$0.37 -$157 -$0.71 $1,529 $6.96 Risk Factor (%) 100% 100% 100% 100% 100% 100% 100% 100% NPV, Risked ($MM) ($/share) $2,075 $9.45 $101 $0.46 $100 $0.46 $2,276 $10.36 -$508 -$2.31 -$82 -$0.37 -$157 -$0.71 $1,529 $6.96 -$35 -$0.16 $1,494 $6.80

Proven plus Probable Reserves Land Value Other assets/liabilities and option proceeds Total Assets Net debt PV of G&A costs Other assets/liabilities and option proceeds Base Net Asset Value Less: Developed Land Value Adjusted Base NAV Unbooked Locations (#) Shaunavon (Upper and Lower) SE Alberta Cretaceous SE SK Mississipian Manson Bakken/Three Forks Total Adj. Base NAV + Unbooked Upside Price Target 1.0x (rounded) 215 64 42 27 348 Recovery per Well (mboe/well) 80 100 60 45

Unrisked Resource (mmboe) 17 6 3 1 27 143

NPV, Unrisked ($MM) ($/share) $85 $36 $43 $2 $166 $1,660 $0.39 $0.17 $0.20 $0.01 $0.77 $7.57 50% 50% 75% 75%

NPV, Risked ($MM) ($/share) $43 $18 $32 $2 $94 $1,588 $0.20 $0.08 $0.15 $0.01 $0.44 $7.24 $7.00

Source: RBC Capital Markets estimates

Valuation approach and target price


Our one-year price target of $7.00 for Surge is based on the following assumptions: 348 net unbooked drilling locations in its four major development areas with risk factors commensurate with the relative degree of derisking and economics. We have not factored incremental value for waterflood projects beyond booked 2P reserves. Our 1.0x target multiple reflects Surges stable financial outlook at the projected $0.60/share annual dividend (post Longview), diversified portfolio, and its high yield consolidation strategy to drive future growth. Our premium multiple rated stocks generally have higher unbooked resource exposure, a more visible organic growth trajectory, and lower relative yields which allow for accretive acquisitions.

April 14, 2014

10

Shailender Randhawa

(403) 299-6576; shailender.randhawa@rbccm.com

10

Surge Energy Inc.

Financial forecast
Acquisitions preferred route for growth
Exhibit 8: Our 2014 CFPS forecast is 7% above the Street consensus
600,000
Production (boe/d)
25,000 20,000 15,000 10,000 5,000 Liquids Gas

Capex (C$, m)

400,000

200,000

0 2012A
Organic

2013A

2014E
Acquisitions
2012A

2015E

0 2012A
Q1/14E $99.51 $5.49 13,111 14 15,425 $50.47 59,508 $ Q2/14E $97.58 $4.57 13,422 15 15,979 $48.51 56,479 $

2013A
Q3/14E $101.14 $4.61 18,029 22 21,721 $48.19 85,005 $ Q4/14E $101.85 $4.84 18,070 22 21,772 $49.94

2014E
2014E $100.03 $4.88 15,678 18 18,750 $49.23 289,036 $

2015E
2015E $98.58 $4.44 17,851 20 21,250 $45.74 318,289

2013A $93.40 $3.18 8,488 14 10,767 $41.85 120,198 $

Edmonton Par AECO Liquids Natural Gas boe/d Operating Netback Operating Cash Flow

[C$/bbl] [C$/mcf] bbls/d [mmcf/d] boe/d [C$/boe] [$000] $

$86.35 $2.38 6,181 16 8,873 $37.02 94,493 $

88,043 $

Source: Company reports, RBC Capital Markets estimates

Exhibit 9: Consensus estimates


RBC vs Street Consensus 2014E 2015E RBC Street RBC Street $1.47 $1.37 $1.47 $1.42 $96.00 $99.00 $92.00 $91.00

CFPS WTI

Source: Bloomberg, RBC Capital Markets estimates

In our view, Surges 2014 financial outlook appears stable based on a review of its production growth, cash flow profile, and balance sheet metrics. There are six key points: Production: Our 2014E forecast of 18,750 boe/d (84% liquids) maps to 74% absolute Y/Y growth, but -13% on a per share basis. A 1% increase in the decline rate lowers our fullyear production forecast by about 90 boe/d. Capital: We estimate Surge will spend about $146 million in 2014 including drilling on Longviews land, but excluding the $429 million acquisition price for the Longview shares. About 80% of capital is allocated to drilling, with the remainder split between waterflood work and facilities and other expenditures. Surge also closed a $109 million acquisition in early 2014, which was funded with a $80 million equity issue. Netbacks: As shown above, we forecast Surges 2014 field operating netback at $49/boe (pre-transportation) assuming a $12 discount to our Edmonton Par forecast, unit opex of $14.25 and a 16% average royalty rate. Cash flow: Our $1.47 2014E CFPS (FD) estimate is based on RBC Capital Markets outlook for C$100.00/bbl for Edmonton Par in 2014 with AECO natural gas prices of $4.88/mcf. Balance sheet: We project Surge to exit 2014 with a net-debt-to-forward-cash flow of 1.6x and $467 million drawn on its million bank line, with an upcoming borrowing base review in May. Risk management: Surges 2014 oil production is approximately 34% hedged at C$98/bbl, while 41% of gas production is hedged at $3.61.

April 14, 2014

11

Shailender Randhawa

(403) 299-6576; shailender.randhawa@rbccm.com

11

Surge Energy Inc.

Key profitability drivers


Longview transaction improves fundamentals
The following exhibits illustrate Surges relative positioning versus similar size, oil-weighted companies in RBCs coverage universe in terms of key profitability drivers. Overall, Surge has above-average field netbacks driven by liquids weighting, average corporate costs (G&A + interest), and an above-average debt-to-cash-flow ratio. Based on our analysis, the Longview transaction appears to be beneficial to Surge in terms of increased field netbacks and lower debt-to-cash flow ratio. Surges liquids weighting and resulting field netbacks (excluding hedging) rank favourably versus its peers. A combination with Longview would lower both the liquids weighting and netback, but would still leave the portfolio relatively well positioned from a pure cash generation standpoint, in our view. Exhibit 10: Surges portfolio features a high liquids weighting and above average netbacks Surges 84% liquids weighting ranks on the upper end of RBCs coverage universe, while field netbacks of $51/boe are also above the group average, reflecting medium oil weighted production, $14 to $15/boe unit opex and a 16% royalty rate.
$60.00

2014E Field Netback ($/boe)

$55.00 $50.00 $45.00

WCP

LTS

TOG SGY (Post LNV) SGY (Pre LNV) CJ


LNV

LRE
$40.00 $35.00 $30.00 $25.00 50% 55% 60% 65%

AET.un

TBE

PLT.un

70% 75% Liquids Weight

80%

85%

90%

95%

Source: Company reports, RBC Capital markets estimates

April 14, 2014

12

Shailender Randhawa

(403) 299-6576; shailender.randhawa@rbccm.com

12

Surge Energy Inc.

Exhibit 11: Surges interest costs per BOE and 2014E forward-net-debt-to-cash flow rank above peer group average A combination with Longview would lower Surges net-debt-to-cashflow.
2.5x

2014E Net Debt/Cash Flow

SGY (Pre LNV)


2.0x

LNV

SGY (Post LNV)


1.5x

LRE WCP

1.0x

TOG
0.5x

TBE

CJ
0.0x $$0.50 $1.00 $1.50 $2.00 $2.50 $3.00 $3.50 $4.00 Interest Cost ($/boe)
Source: Company reports, RBC Capital markets estimates

Exhibit 12: Surges corporate costs rank in the middle of the peer group Surges corporate costs (interest plus G&A) of $4.46/boe are roughly in the middle of the peer group. A combination with Longview appears positive from a cost standpoint, in our view.
AET.un

2014E Corporate Costs ($/boe)

$14 $12 $10

PLT.un
$8 $6 $4 $2 5,000 10,000 15,000 20,000 25,000 30,000 35,000 2014E Production (boe/d)

LNV CJ TOG

SGY (Pre LNV) TBE SGY (Post LNV) LRE WCP

Source: Company reports, RBC Capital markets estimates

April 14, 2014

13

Shailender Randhawa

(403) 299-6576; shailender.randhawa@rbccm.com

13

Surge Energy Inc.

Exhibit 13: Surges payout ratio is below 100% with a 14% total return
15/14 Debt-adj Prod. per share + Cash Yield

Surges effective payout ratio of 85% is below the group average with a 14% implied total return (organic growth plus cash yield) weighted to its current $0.54/share dividend which is set to increase to $0.60 post the Longview transaction.

19% 17% 15% 13% 11% 9% 7% 5% 3% 70% 80%

TBE SGY (Post LNV) TOG

WCP PLT.un LRE

SGY (Pre LNV) LTS LNV

90%

100% Effective Payout (Pre DRIP)

110%

120%

130%

Source: Company reports, RBC Capital markets estimates

April 14, 2014

14

Shailender Randhawa

(403) 299-6576; shailender.randhawa@rbccm.com

14

Surge Energy Inc.

Payout sensitivities
Surges 38% basic payout ratio requires $96/bbl Edmonton Par price to maintain a 100% effective payout ratio
In Exhibit 14 below, we summarize the effect of changes in Edmonton Par and AECO prices on Surges 2016E effective payout ratio (defined as capex plus cash dividends divided by cash flow) assuming an annualized current $0.60 per share dividend, no dividend reinvestment plan, and $185 million in capital spending. We used 2016 as a proxy for steady state growth, with no impact from acquisitions. At $4.00/mcf AECO and the assumptions above, we estimate Surge Energy requires a $96/bbl Edmonton Par price to maintain a 100% effective payout ratio and hold production flat at approximately 21,000 boe/d. Exhibit 14: Surges payout ratio sensitivities We estimate an Edmonton Par price of $96/bbl is required for Surge to maintain an effective payout ratio below 100% in 2016.
2016E All-in payout Ratio Edmonton Light (C$/bbl) $85 $3.00
AECO (C$/mcf)

2014E Al $105 86% 85% 84% 83% 82%

Ed

$90 122% 120% 118% 117% 115%

$95 107% 106% 104% 103% 101%

$100 95% 94% 93% 92% 91%

142% 140% 137% 135% 132%

$3.50 $4.00 $4.50 $5.00

Source: Company reports, RBC Capital markets estimates

Though growth rates differ in 2014, the oil price required for Surge to maintain a 100% effective payout ratio ranks in the middle of its closest peers. Under our current 2014 estimates, Surge has the highest basic (defined as dividends divided by cash flow) payout ratio amongst its peers at 38%, versus the 25% group average. Exhibit 15: Surge has the highest basic payout ratio in the group but can maintain a 100% payout ratio at $93.75 Edmonton Light in 2014E due to low capital reinvestment in acquired assets
$96 $94 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Cardinal Pre DRIP
Source: Company reports, RBC Capital Markets

Edmonton Light (C$/boe)

$92 $90 $88 $86 $84 $82 $80 $78 $76 $74 TORC Surge Post DRIP Long Run Whitecap Basic Payout Ratio

April 14, 2014

15

Shailender Randhawa

Basic Payout Ratio

(403) 299-6576; shailender.randhawa@rbccm.com

15

Surge Energy Inc.

Reserves profile
At year end 2013, Surge Energys proved plus probable reserve base stood at 73.5 mmboe with 78% weighted toward liquids crude oil and NGLs. Surges reserves are evaluated by Sproule and McDaniel and shown in Exhibit 16 below. The $109 million Southeast Saskatchewan acquisition completed in early 2014 adds 4.6 mmboe at $23.70/boe prior to future development costs (FDC), while the pending $429 million Longview deal adds 37.6 million boe at about $18/boe including FDC. Exhibit 16: Surges reserves are 35% PDP weighted vs. 45% average for dividend paying peers Surges reserves base is 35% proved developed with $454 million in future development capital requirements, roughly equal to four years of its 2014E capital budget.
Crude Oil [mbbl] Reserves Proven Probable Proven + Probable % PDP (of 2P) % PNP (of 2P) % PUD (of 2P) % Probable (of 2P) Reserve Engineers: 32,875 24,105 56,980 36% 1% 21% 42% Sproule/McDaniel Crude Oil Production 2012A 2013A 2014E 2015E CAGR (3 year) Proved Developed Proven Proven + Probable Reserve Replacement Efficiency FD&A Proven (inc FDC) FD&A Proven+Probable (inc FDC) Recycle Ratio Proven (excluding hedging) Recycle Ratio P+P (excluding hedging) FDC Per PUD FDC Per Probable
Source: Company reports, RBC Capital Markets estimates

Gas [mmcf]

Total [mboe]

% Liquids [%]

FDC [$mm]

63,711 35,161 98,872 34% 3% 28% 36%

43,493 29,965 73,459 35% 2% 23% 41%

76% 80% 78%

290 164 454

Gas [mmcf/d] 16.2 13.7 15.2 14.6 nmf 6.0 11.5 17.8 2012A $22.46 $18.79 1.5x 1.8x $14.37 $5.85

Total [boe/d] 8,873 10,767 16,125 15,250 20% 4.4 7.4 12.5 2013A $42.96 $28.06 1.0x 1.5x $17.50 $5.46

% Liquids [%] 70% 79% 84% 84%

[bbl/d] 6,181 8,488 13,585 12,811 27% 4.1 6.6 11.5

Reserve Life Index (years) - Based on 2014E Production

Key points on Surges reserves profile include: 1.5x recycle ratio based on $28/boe FD&A costs: Surges 2013 reserve replacement metrics rank towards the low end of oil-weighted peers. We think the recycle ratio should improve in 2014 based on our review of drilling plans and the Longview transaction, which adds similar margin barrels at reasonable costs. Scale required to convert value: Surges FDC costs of $454 million equal about four years of its 2014 capital budget prior to the Longview deal. 2014 FDC of $165 million in the reserves report exceeds the companys $116 million capital budget , which we think underscores the need for a larger producing asset base to produce out booked reserves in a timely fashion.
April 14, 2014

16

Shailender Randhawa

(403) 299-6576; shailender.randhawa@rbccm.com

16

Surge Energy Inc.

Surges key assets overview


Diversified portfolio focused on conventional oil reservoirs
Surge holds 503,000 net acres (113,000 with a one year expiry) across Western Canada with about 80% in Alberta and the remainder in the Williston Basin. Surges portfolio strategy targets exploitation of 1.4 billion barrels of original oil in place (OOIP) in conventional reservoirs with potential for increased recovery. Key assets are shown in the exhibits below. Exhibit 17: In terms of gross operated production, West Alberta is Surges largest operating asset, with Longview to comprise about one-quarter of production
Asset West Alberta Southeast Alberta Southwest Saskatchewan Williston Basin Longview Oil* Total Areas Valhalla, Nipisi Wainwright, Silver Shaunavon, Viking Manson, Macoun Nevis, Weyburn, Wapella, Steelman Gross Operated Production (boe/d) 8,000 3,500 3,700 2,000 5,816 23,016 % Total 35% 15% 16% 9% 25% 100%

*2013 average production Source: Company Reports, AccuMap and RBC Capital Markets

The announced Longview transaction would add 5,816 boe/d (81% liquids), 37.6 mmboe of 2P reserves and about 169,000 net undeveloped land acres. Key producing assets include Nevis, Alberta and SE SK. Exhibit 18: Surge Energys purchase of Longview adds roughly 6,000 boe/d across Alberta and Saskatchewan and 168,000 net undeveloped acres
Valhalla

Nipisi/Gift

Nevis: 1,406 boe/d production

Williston Basin: 2,370 boe/d, roughly 40% from recent Midale drilling

Nevis
RBC
Scale 1:5080495
0
Created in AccuMap Product of IHS Datum: NAD27
Copyright 1991-2014

Kilometers

Vol. 24 No. 02, Feb 20 2014 (403) 770-4646

Grid Information: DLS: IHS Enhanced Grid NTS: Theoretical Grid FPS: Theoretical Grid US: IHS US Grid

Author: kemackey Date: March 31, 2014 File: SGY Map All.MAP Scale: 1 : 5080495 Projection: Stereographic Center: N53.39927 W110.15537 DLS Version Information: AB: ATS 2.6 BC: PRB 2.0 SK: STS 2.5 MB: MLI07

Miles

Silver/ Wainwright
300 200

Dodsland Viking

Williston Basin

LAND LEGEND Land Lists: Longview Land SGY Land

Shaunavon

Created in AccuMap, a product of IHS

Source: AccuMap, RBC Capital Markets

April 14, 2014

17

Shailender Randhawa

(403) 299-6576; shailender.randhawa@rbccm.com

17

n Basin

Surge Energy Inc.

Exhibit 19: We estimate Surges corporate decline rate at 25% with about two-thirds of production brought on-stream since 2011 We estimate Surges 25% corporate decline rate from about 950 producing wells.
25,000

1,000 900 800 700

Production Rate [boe/d]

20,000

15,000

500
10,000

400 300

5,000

200 100 0
Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13

0 Jan-04

Pre 2005 Production 2008 Production 2012 Production

2005 Production 2009 Production 2013 Production

2006 Production 2010 Production Total Well Count

2007 Production 2011 Production

Exhibit 20: Recent licenses and inventory


Area Silver Shaunavon Valhalla Macoun Viking Nipisi Other Licences 15 11 7 7 4 1 1 Net Inventory 137.4 262 36.7 23 112 37 72 680

Note: Excludes Purchase of Renegade assets (January 9, 2014) and Longview Oil (March 31, 2014) Source: AccuMap, RBC Capital Markets

Total Licences 46

Surges 2014 capital program includes $116 million to drill 39 gross wells across the four areas prior to integration of the Longview assets, for which we anticipate $20 million of incremental capital in H2/14. In addition to new drilling, Surges game plan features base asset optimization work plus four separate waterflood pilots to flatten its decline rate and improve FCF generation. In our view, Surges current capital allocation is spread fairly thinly across its extensive asset base. Over time, we think greater focus could result in increased operational efficiencies, lower costs and an improved valuation. Recent licensing activity and the companys drilling plans point to Silver/Wainwright and Shaunavon as key growth drivers, with the latter much earlier in terms of secondary recovery. We view the bulk of Surges Viking lands as exploratory at this stage, while the Southeast Saskatchewan conventional business (Midale/Frobisher/Alida) and Western Alberta (Valhalla South and Nipisi) are reliable cash generators but could benefit from greater scale. Given the high payout financial framework, we think some portfolio rationalization is likely to occur down the road as Surge consolidates its assets.

Source: AccuMap, RBC Capital Markets estimates

April 14, 2014

18

Shailender Randhawa

(403) 299-6576; shailender.randhawa@rbccm.com

Well Count

600

18

Surge Energy Inc.

Southeast Alberta
Silver/Wainwright Areas
The Silver property is located near the Alberta/Saskatchewan border about 150 km south of Lloydminster. We estimate gross operated production from the area at roughly 2,500 boe/d, with a 15% decline rate from approximately 135 wells. Further north at Wainwright (not shown), Surge acquired 980 boe/d of production from Penn West in late 2013 for $76.8 million. In total, the company estimates the combined area holds 435 gross (365 net) million barrels of OOIP with a current 19.1% recovery factor. Surge is focused on medium gravity (23-31 degree API) oil production from relatively shallow (<1,000 metre) depths in the Cretaceous sands. Scale 1:436575 0 30 Exhibit 21: Silver Kilometers is a stable cash generator with a 15% decline rate
0 Miles 18

Scale 1:436575
0

RBC

Kilometers

30

Miles

18

File: SGY Silver Map.MAP LAND LEGEND Scale: 1 : 436575 Projection: Stereographic Land Lists: Center: N52.26817 W110.64211 Grid Information: DLS Version Information: DLS: IHS Enhanced Grid AB: Land ATS 2.6 Apache NTS: Theoretical Grid BC: PRB 2.0
Copyright 1991-2014

Created in AccuMap Product of IHS Datum: NAD27


Vol. 24 No. 01, Jan 16 2014 (403) 770-4646

Author: kemackey Date: February 18, 2014

R10 T42
F C G

R9

R8

R7

R6

R5

R4

R3

R2

R1W4

R28

R27W3 T42

FPS: Theoretical Grid US: IHS US Grid

TBE Land WELL LEGEND Bottom Hole Locations: SGL Land


A D F I K M

SK: MB:

STS 2.5 MLI07

Location C Suspended Service or Drain E Oil HSE Land Gas G Dry & Abandoned Suspended Oil J Abandoned Oil Suspended Gas Abandoned Gas L SGY Land Abandoned Service S Injection

T41

LAND LEGEND Land Lists: Apache Land TBE Land SGL Land
K G K

K K K C K E EG G E A I C E E E G AE G S E C G S E L GE A E E EE S J E I S K I I E G E C EE I A I S S J D C E E E CJ S C M E F E K I A E I S J E S I S L E S E M E F AJ F E S F E S I C

T41

WELL LISTS
N N S

T40

SGY All Wells SGY Hz Wells


T39

HSE Land SGY Land


J I M J I J J I I C E A A I I D I E E D J J E C A I I I I I E F I C I E I C D E E D J J J M M D I

S S S

T40

S S S

C EA C E S S AA ES E E S S S S A S

T39

T38

K EG K K CJ I A C J E K K J I II M E I D C I E G M I E K

D G E E II I E E E I E

T38

Silver
T37

K J I S E I AE G C EE A A E S EI S E G S EC E S K E S I J E A K I E S S E J G C I E K I E E S I AE G E I E GI G E K J I J C I K I S II E K E A M J J I E G I C EI D I C I CI J I I II K G K A E K I E G G ES K K C LS S S D M M M J I M I I G I E M E I E E I G C I CG G E I G I I K G I I I II E E I I JI S M M F D I I

K I I A E I E J I

S S S S S S S S S S S
E K A EA A C AC AC E EE E

T37

T36

T36
I E

T35

T35

T34

C K F K K

J K J E

K A K M F J I I I

LG L
R5 R4 R3 R2 R1W4 R29 R28W3

T34

R10

R9

R8

R7

R6

Created in AccuMap, a product of IHS

Source: AccuMap, RBC Capital Markets

As at January 1, 2014 Surge holds 130 gross and 124 net drilling locations at Silver and Wainwright. Also, Surge recently entered into a farm-in deal at Silver, shown in orange above, which provides access to approximately 20 additional sections. The Silver area includes one commercial waterflood project in the Silver/Cummings formation with a 37.5% booked (12.6% current) recovery factor, while Wainwright includes a Sparky waterflood which commenced in 1962 with a 35.5% booked (32.0% current) recovery factor. At Silver, Surge has two waterflood pilots (Eyehill and Provost) planned in Q2/14 targeting two 2013 discoveries with a combined 125 million barrels of OOIP. In 2014, Surge plans to drill 1 (1.0 net) development hz Cummings and Sparky well.

April 14, 2014

19

Shailender Randhawa

(403) 299-6576; shailender.randhawa@rbccm.com

19

Surge Energy Inc.

Western Alberta
Valhalla South
The Valhalla South property, located about 40 kilometres northwest of Grand Prairie, has current gross operated production of about 4,500 boe/d (93% w.i.). Surge holds 8,640 gross (8,026 net) undeveloped acres with 160 million barrels of OOIP and current recovery factor of 2.4%. Surge sees 46 gross (38.6 net) drilling locations in the area targeting 40 degree API light oil from tight sands, characterized by pay zones up to 50 metres. With the highest 301:104725 day IP0 and EURsScale in Kilometers Surges portfolio, the play provides attractive returns in terms of primary 7 development with potential for secondary recovery through further delineation. 0 In 2014, Surge plansMiles to drill four 4(3.4 net) hz wells at Valhalla, including a Q1 Montney well which is awaiting tie-in. Also, Surge drilled a step-out Doig well in Q1 that is tracking above its type curve assumptions. LAND LEGEND Land Lists: has 46 gross drilling locations at Valhalla Exhibit 22: Surge
SGY Land
R10 R9 R8 R7W6

RBC

Created in AccuMap Product of IHS Datum: NAD27


Copyright 1991-2014

Author: kemackey

Date: March 28, 2014 File: SGY Valhalla Map.MAP ScaleScale: 1:104725 1 : 104725 Projection: Stereographic Kilometers Center: N55.43245 W119.22482 DLS Version Information: AB: ATS 2.6 BC: PRB 2.0 SK: STS 2.5 MB: Miles MLI07

Vol. 24 No. 02, Feb 20 2014 (403) 770-4646

Grid Information: DLS: IHS Enhanced Grid NTS: Theoretical Grid FPS: Theoretical Grid 0 US Grid US: IHS

WELL LEGEND
Bottom Hole Locations:
A E G J

L Land Lists:

Location Oil Dry & Abandoned Abandoned Oil LAND Abandoned Gas

LEGEND K Suspended Gas

C F I

Suspended Gas Suspended Oil

Surface Hole Locations:


U Directional

SGY Land
V

Horizontal

24

19

20

21

22

23

24

19

20

21

22

23

24

19

20

21

WELL LISTS
N N S N S N S N S N S

SGY All Wells SGY Hz Wells CDOR Less Than 100 bbl/d CDOR 100 - 300 bbl/d
T75

13

18

17

16

15

14

C E S S K U V E E UI S UE S S I EE U V K G U S CA L
13 18 12

U K L

17

16

15

14

13

18

17

16

T75
V
8 9 10 11 12 7 8 9

12

10

11

AV G V J ES S
7

V
1 6 5 4 3 2 1

U K I

CDOR 300 - 500 bbl/d CDOR 500+ bbl/d


35 36 31 32 33 34 35 36

E E AS S E E EV E VS S AE S A S E V V
31

K C

J E

32

33

SGY 02-02 First well drilled into Montney formation. Awaiting tie-in.
3 2 1 6 34 35 36 27 26 25

31

32

26

25

30

29

28

27

26

25

EE E S S V I V E

E V

30

29

28

30

29

23

24

19

Valhalla
20 21 17 16 8 9

22

23

24

S
V

19 I E

S
V

20

T74
14 13 18 15 14 13

G C L

21

22

23

24

19

20

E S E E S S SI E
18

V I U E G G E

T74
16 15 14 13 18 17

17

V V E V
11 12 7 10 11 12

35

36

31

32

33

34

35

36

SS E U E E S A V EIS S I E S E V E G V S E E VS GI S S V E
7

EE

K U

10

11

12

31

32

33

34

35

36

31

32

T73
26 25 30 29 28 27 26 25 30 29

E
28 27 26 25 30 29

T73

R10

R9

R8

R7W6
Created in AccuMap, a product of IHS

Source: AccuMap, RBC Capital Markets

April 14, 2014

20

Shailender Randhawa

(403) 299-6576; shailender.randhawa@rbccm.com

20

Surge Energy Inc.

Nipisi/Gift (Slave Point)


Nipisi is located 50 kilometres north of the town of Slave Lake, Alberta. We estimate Nipisis gross operated production at approximately 3,500 boe/d with a 14% decline. Production is primarily from the Slave Point formation, which contains light gravity oil (35-42 degree API). Surge estimates 115 million barrels of OOIP in the area with a current recovery factor of 0.7%. Surges 18,240 gross (17,265 net) acres position is built via 2012 acquisitions including Pradera Resources in January for $106 million followed by two tuck-ins totalling $9.7 million. As at January 1, 2014, Surge had 27 net drilling locations remaining at Nipisi. Water injection commenced in the North Nipisi pool (85 million barrels OOIP) during Q2/13 and initial response from a couple of producers, shown below, looks encouraging. By our math, primary 7 development represents about 4 million barrels of incremental production and reserves, whereas successful secondary recovery could add another 10-15 million barrels over time. Exhibit 23: Surge commenced waterflooding at Nipisi in Q2/13 with response seen at various Scale 1:102812 wells 0 Kilometers 7
R10
S U E E U M
28

Scale 1:102812
0 Kilometers

RBC
0 Miles 4

Created in AccuMap Product of IHS Datum: NAD27


Copyright 1991-2014

Vol. 24 No. 02, Feb 20 2014 (403) 770-4646

Grid Information: DLS: IHS Enhanced Grid NTS: Theoretical Grid FPS: Theoretical Grid US: IHS US Grid

LAND LEGEND Date: March 25, 2014 File: SGY Nipisi Map.MAP Scale: 1 : 102812 Land Lists: Projection: Stereographic Center: N55.71376 W115.29086 Broker Land DLS Version Information: SGY Land
AB: BC: SK: MB: ATS 2.6 PRB 2.0 STS 2.5 MLI07

Author: kemackey

SGY 13-11 Injector Initiated: Jan 2014 G G Cumulative: 2 mboe


27 26 25

Miles

R9

R8W5
S S G E UE E E 29 J U U E E G G E S E

30

29

28

27

26

25

30

U G

G
19

E GE I
24 19

Bottom Hole Locations:


A D G J S

WELL LEGEND CNQ Land


T78

21

Location C Suspended DVN Land Service or Drain E Oil Dry & Abandoned I Suspended Oil Abandoned OilSGL Land M Abandoned Service Injection

16

LAND LEGEND SGY 10-10 Injector Land Lists: Initiated: Sept 2013 E S D Broker Land GS
22 23 24

G U

G 20

21

22

23

G E S ES U C E E J S GV S E SSA S S S E V V V S S G V E V C V S V U E EE V VV S V AS A S V S V U E G EA S E EE S S S E S V A V V S S S A E S S V A EE S S V V S
15 14 13 10 11 12 3 2 1

D E

Cumulative: 47 mboe
15 14 13 10 11 12

18

17

16

Surface Hole Locations:


U Directional

Harvest Land
V

Horizontal
4

SGY 12-02 Injector Initiated: May 2013 Cumulative: 156 mboe


3 2 1

G S SGY Land V
7 8 9

GA A

18

G G

SGY 07-02 J S I S I MaySProd: 86 bbl/d E E S E June Prod: 97 bbl/d E S S E E M E D E I I E July Prod: 72 bbl/d J G S E Aug Prod: 79 bbl/d
28 27 26 20 21 22 23 17 16

E E V J E E E I G
25

E J E E
24

G G
13

G G

M A G C G

15

J E

14

G M

T78

CNQ Land
6

Nipisi SGY 02-02


G J
7 8 9

10

J
11 12

WELL LISTS
N N S N S N S

DVN Land
5

G
6 5

All Wells
33 34

G
35 36

G G

SGL Land
31 32

G
33

E 34 I V

35

Slave Point Hz Wells SGY Slave Point Hz Wells SGY 2013 Injectors
21 22 28 27

G
26 25

Harvest Land
30 29 28

E S A S

36

31

C V C C

C G

32

G May Prod: 122 bbl/d G G June Prod: 104 bbl/d GU J July Prod: 130 bbl/dJ J S Aug Prod: 220 bbl/d E
4 3 2 33 34 35

I E J J G J V

G I I

36

J G M

27

26

25

30

29

28

27

26

G
23 24 19 20

J C S G
20 21 22 23

J SU J I I EG
21

22

I A G
23 24

G G
19

A G G G
13 18 17 16 15 14

T77
16 15

G J
14 13 18 17

G
16

G
15 14

E E 25 J G I G E I E J G M G D J 24 VC G D M J T77 I J G
13

10

G
11 12 7 8 9 10 11 12 7

G
8 9 10 11

G M

J I J
12

G G4 G

Nipisi South S S
A
6 5 4 3

G J V E S J

A A

G V
36

G G

T76
33

T76

34

35

36

31

32

33

34

35

31

32

33

34

35

36

R10

R9

R8W5
Created in AccuMap, a product of IHS

Source: AccuMap, RBC Capital Markets

Nevis (Wabamun)
Located 60 kilometres east of Red Deer, Alberta, Nevis is one of Longviews key producing assets. Nevis has current production of approximately 1,406 boe/d (41% liquids) primarily from the Wabamun formation, which contains light gravity oil (39 degree API) with associated natural gas and NGL production. Longviews year end 2013 reserves are estimated at 18.6 bcf net 2P natural gas and 4.5 million barrels of liquids. A water flood pilot has commenced in the eastern Nevis pool.

April 14, 2014

21

Shailender Randhawa

(403) 299-6576; shailender.randhawa@rbccm.com

21

Surge Energy Inc.

Williston Basin
Surges Williston basin acreage is spread across SE Saskatchewan and into SW Manitoba. The area includes a mix of higher return conventional drilling in the Midale/Frobisher/Alida formations partially acquired through the $109 million Renegade transaction in January 2014 plus Bakken/Three Forks development at Manson acquired in November 2013 for $135 million. Total OOIP for the region is about 376 million barrels of 35 degree API light oil with an 18.6% booked (15.2% current) recovery factor. Surges drilling inventory includes 41 net Mississippian locations along with 58 net wells in the Bakken at Manson, where the company is encouraged by a Q4/2013 waterflood pilot with two injectors. If successful, we estimate the waterflood could add up to 7 million barrels above Scale 1:186890 primary recovery. The purchase of Longview should add roughly 2,370 boe/d (99% liquids) and 0 Kilometers 13 13.7 mmboe of Proved plus Probable reserves, including 59,000 net acres (62% held by mineral title) of Midale prospective lands at 8Weyburn, Marly, and Pinto. In 2014, Surge plans to drill 3 0 Miles (2.3 net) horizontal Bakken development wells. We expect results from Q4/13 waterflood pilots in the Midale (Macoun) and the Bakken in late 2014. LAND LEGEND Exhibit 24: Surge and Longview have complementary asset bases in the Williston Basin Land Lists:
Scale 1:946619 SGY Land
R17 0
60

RBC

Created in AccuMap Product of IHS Datum: NAD27

February 20, 2014 Scale Date: 1:186890 File: SGY Manson Map.MAP Scale: 1 : 186890 Kilometers Projection: Stereographic Center: N50.19610 W101.36817 DLS Version Information: AB: ATS 2.6 BC: PRB 2.0 SK: Miles STS 2.5 MB: MLI07

Author: kemackey

0
Copyright 1991-2014

Vol. 24 No. 01, Jan 16 2014 (403) 770-4646

13

Grid Information: DLS: IHS Enhanced Grid NTS: Theoretical Grid FPS: Theoretical Grid 0 US: IHS US Grid

WELL LEGEND
Bottom Hole Locations:
A D G J

RBC

Land Lists:
0

Location Service or Drain Dry & Abandoned LAND Abandoned Oil

Scale 1:946619
SGY Land
Author: kemackey Kilometers

I Suspended Oil LEGEND

C E

Suspended Oil

R15

R13 Kilometers R11

R9 60

R7

R5

R3

R1W2

R32

R30

R28

R26W1 T19

Surfacein Hole Locations: Created AccuMap Product of IHS U Directional Datum: NAD27
Vol. 24 No. 02, Feb 20 2014 (403) 770-4646

T19
0
40

0 Grid Information: DLS: IHS Enhanced Grid NTS: Theoretical Grid FPS: Theoretical Grid N US: IHS US Grid

Copyright 1991-2014

WELL LISTS SGY Wells

Date: March 31, 2014 File: V SGY SESK Map.MAP Horizontal Scale: 1 : 946619 Projection: Stereographic Center: N49.82847 W102.63140 DLSMiles Version Information: AB: ATS 2.6 BC: PRB 2.0 SK: STS 2.5 MB: MLI07

Miles

40

T17

Williston Basin
LAND LEGEND Land Lists: Longview Land
E E A I I G G E E I I E A G J G E E G E S I G G S I E A E E D J M C A I I S J E G S M I I E I S J J E I J I G S I S E M E E E C E S I E E I I I E G G E E E G C E K G S I

T17
G I G E A G E A I E A G G G E A G C C G A E C E E

WELL LEGEND
Bottom Hole Locations:
A Location LAND LEGEND C Suspended or Drain D Service E Oil Land Lists: G Dry & Abandoned I Suspended Oil J Abandoned Oil K Suspended Longview Land Gas M Abandoned Service S Injection

T15

T15

Manson

WELL LISTS
N Longview Wells

T13
G C C

E A GE G E A C C C E E E E E E A E C GE E A GA EE G C G E E A G E D G G E E A A E E E E A G A G E E G G AE EE A E E G E J E E E E A E E E E EA A E J D E C A E CE A E E CG A E A G E A A E EC CCC E C C E E E A C C C C A CE G C A A EE CE C G A A G E E C E

T13

T11
E C J E I I C E

T11

G D I E I I

T9
G E G G E E G IG E D E E I D E C S C G J J E E C E J I E C J E D S E D E E M G J E I I D G J E M C J I E M S E A I J D E G E I J S J J D S G E E D J G E EJ G G IE J I G I J D E EJ E J G I E J C E I II I E I J G E J G

I E G D G D E E E A E D E E A I D E

T9

T7
C I E E E J D D G D J I

A G

G E E

I G

I G D EE E E

G E EE E E G E E E

T7
G E E E E E E E J EE E E EE E E E E EE E E E E E E EE E J EE E EE E E E E E E E G G E EE E G G I J I E E E G E E D E D E E E D I

T5

J E J EE G E E ED I E I G E E E G C II G

EE EE I J A E C E A J I J G S G I E I I E E G I E E E E C I E EI E EE EE G E E C C C E E E G E GG EE I E J D S G E E E J E G D E E J J E E E

Steelman
D E D E E S D E D E E S D G D J G E D E E I D I D J E D E D E D E E I AE E E I E E E G J I D G D GG J J E G E GJ G G E J E E J E A E G E C E E E J I

G J E

T5

Hastings
E E C E AE E E E

T3

Macoun

T3

T1

T1 R29 R27W1

R17

R15

R13

R11

R9

R7

R5

R3

R1W2

R33

R31

Created in AccuMap, a product of IHS

Source: AccuMap, RBC Capital Markets

April 14, 2014

22

Shailender Randhawa

(403) 299-6576; shailender.randhawa@rbccm.com

22

Surge Energy Inc.

Southwest Saskatchewan
Shaunavon
Shaunavon is located about 100 kilometres southwest of Swift Current, Saskatchewan. Surge acquired its Shaunavon assets in June 2013 shortly after converting to a dividend plus growth model. We estimate Surges gross operated production at about 3,000 boe/d of medium gravity oil all from the Lower Shaunavon zone. With only 1.96% recovered from a 220 million barrel OOIP reservoir, the asset provides considerable running room for future volume growth. Surge estimates 215 net drilling locations in the Lower Shaunavon plus another 64 in the Upper Shaunavon. The area has substantial existing infrastructure including gathering lines and operated oil batteries, which are pipeline and rail connected, plus a rail marketing agreement. Importantly, Surge has a 5 injector waterflood pilot project underway into the Lower Shaunavon formation testing 200m and 400m spacing, which is a key catalyst for the stock in 2014. Surge plans to drill eight gross (8 net) horizontal multi-frac wells in 2014. Scale 1:160989 Surges first horizontal Upper Shaunavon well, shown below (16 -36), was drilled in Q1/14 0 Kilometers 11 and was completed with a 21-stage frac over a 1,175 hz leg. The well is currently producing 0 Miles 7 at roughly 300 bbl/d, which is encouraging. Given the positive well results, wed expect Surge to increase capital spending in the area given the extensive infrastructure. Exhibit 25: Surge purchased Shaunavon in June 2013 LAND LEGEND
Land Lists:
R21
G

RBC

Scale 1:160989
0
Created in AccuMap Product of IHS Datum: NAD27
Vol. 24 No. 02, Feb 20 2014 (403) 770-4646

Copyright 1991-2014

0 Grid Information: DLS: IHS Enhanced Grid NTS: Theoretical Grid FPS: Theoretical Grid US: IHS US Grid
Bottom Hole Locations:

Author: kemackey Kilometers Date: March 31, 2014 File: SGY Shaunavon Map.MAP Scale: 1 : 160989 Projection: Stereographic Center: N49.45194 W108.55235 DLSMiles Version Information: AB: ATS 2.6 BC: PRB 2.0 SK: STS 2.5 MB: MLI07

11

WELL LEGEND
A Location LAND LEGEND C Suspended D Service or Drain E Oil Land Lists: F Gas G Dry & Abandoned I Suspended Oil J Abandoned Oil CPG Land Abandoned Service M S Injection

CPG Land SGY G G U Land

R20

V R19

R18

R17W3

Surface Hole Locations:


U Directional

SGY Land
V

Horizontal

WELL LISTS
N N S N S N S N S

T7

All Wells All Hz Wells SGY Lower Shaunavon Hz SGY Upper Shaunavon Hz Industry Upper Shaunavon Hz
T6

T5

T4

SS S G S S S S S S S S S S SS S SS S S S S S S S S S SS S S S SS S S S S S S S S S G G S G S S S S S S S S S S S S S SS S S S S S S S S S S Shaunavon S S S S S S S SS S S S S S S S S CPG 14-13 S S S S S S S S SS S S S S S S S S S S S Upper Shaunavon SGY 16-36 S S S S S S S S S S S S S S S S S S S S S S S S S S S S S S S S S S S On Prod: 2014/01/01 Upper Shaunavon S 30 Day Peak CDOR: 139 bbl/d S 100% w.i., 21 stage frac, S S S S S S S S S S S S 1,175 m reservoir section S S S S S S S S S S S S S S S S S S S S S S SS S S S S S S Currently producing ~300 S S S S SS S S S S S S S S S S S SS S S S S S SS S S S S S SS S S S S S bbl/d S S S G S SS S G CPG 03-14 S S S S SS S SS S F Upper Shaunavon S S S S S S S S S S S S S On Prod: 2010/11/01 S S CPG 14-06 S S S S S S S SS S 30 Day Peak CDOR: 144 bbl/d S S SS S S S S S S Upper Shaunavon S SS S SS S S On Prod: 2012/12/01 S S SS S CPG 03-14 S S S 30 Day Peak CDOR: 147 bbl/d S S S Upper Shaunavon S S S S S S S SS S SS S S SS S On Prod: 2011/08/01 S G 30 Day Peak CDOR: 342 bbl/d S S S S S
1 31 6 31 6 31

G E G S J E E M I G M E J C GE E I GA I VS E E E IM EE E S V V V VV VV V UJ VV E G E V G JJJ E EI I E I G V S EE J VEM I M S S IE E D G IM E E SI E E E EE E G S I E J G G G M S S SE E S S S G I I I G E E C E E E S I S IE S I E I G EG VC C G E EC E E G E G GE S S S D E ED E E E E E SI E G A E G I E EE E EE E E G E E EE E EJ I S E E M EG E E S G G G S J S SE G AA SE E S G M E U G G E S S IE E E G G S S G E V V M S V V V V V V V GV V V V V E V S SG S E E G G GE E G VD M GE G G I E EE EE E E G E SE M S G E M D EM G G E E E J EI G U E E V EE J VE V E GV G G E V VE EG A G M E I C G E G 6 E 1 V 6 G1 GV E 1 6 G E J G G A G V E V V AV A V V VV V E E E V V V V V V V V V V V E EV V GE G G DG GE UE E E V E G A 36 31 36 31 36 31 G VG G G G V E EV E E E E E E E E E E E G G V G A E E EV J E V E E G V V V V V V GE A A V V G VA G E E EE E E V E EE S G E G V E E EE G D V GG E E G V A A G G C C AC E GC G EES A G A AAAA E V G V VV ASE E E EG A G GV G E E VC G D E V V V E E E D E E E A D V V V V V V VV E VJ J D EE G G G E E E E E V V V VV A V EI E V VV V G E V G U A V E E G G GE E J G V E EV EI J V A E EG A E V VG G V DEDE E V EE EV E U V V V E E E E E E E E V E E E E E E E E E J E V G E E E A A AA G A J J G G G J D E JD G V G D G J V G E E E JV G V V V V V VG DG V V V V V V V V VV VV V VV V V EE V G E G A G A G EV J A E GVEV V V EV AI A V V E VG J M V A I E J E E I E E EG GG E I J G G AJ A E E EVA GVV E S I U VG V V V VE VE V EE E EE VE EE E E G EVEV E E E EEE VE V V V VVJ V V V V V V V V V V V E V V V V V V E E E G V G E U U G A G G G E A E V G G S V E U J C G 6 1 1 6 1 6 UE E E S EE VE G G I S E E V ES I E E EU E V A A E E G V V V GE E I EEE E VG E V E E EEG VAE VE V A E VV U E EV E VV G E A G EE S CE E E G C E E E V VG UE EG V 36 G E E 31 E G 36 31 36 31 G E G E S G GE E GG G C A G AE C I E E E E VV V V V V V V V V VV A V V V V V E E V V V V EV E A A V IA A E G G A VE S G C E E VS D G V J AV V G E G S VM G A G E E AG V VV VVE E VI A EE V V V VI E E A E VE G GV V V E V V VE I G V I V V G J S G V S E V E V G I I EE V V I EEI G G E A E E AE ES V V G V A AV A V SV E E V VJ V A E VE G E E V V V V V V E E E E I E E V E AE G G E E V E EE I V E ES SA G G V G I G V E S E A E V VA G E E E EV G V G GE A V EG V V G U V E E E EG V E V V E I E E V EE G I AV AA G VG AVV G E J E G G G V G E EJ E G G IV E G J E V VE A E G I G G V VV EV V V J VV CC V E I VEV V I G J I G A I E VG I I J S S S E G C E 6S G 1 6 1 6 S 1I E D G G SI A I J I S V E D IE E ES I UE I EG E E E U UG S E I E E EI I G I G J E G V E V E E E VV A A V E V E A EA E V IE E G E VE G A E E J G G 31 G E 36 G E 36 36 31 31 VVI G G G G EE G G A G G VV V VV VV V V EV VE V EV E V E G G G J EG V V VI G E G GG EE I I G J G I I G V D M I IE G A AV GE G E EE J E V V VGV V V V GG E V G EE G G IV EI G M I G E

T7

36

31

T6

36

31

T5

36

31

T4

SS S S S
V

R21

R20

R19

R18

R17W3
Created in AccuMap, a product of IHS

Source: AccuMap, RBC Capital Markets

April 14, 2014

23

Shailender Randhawa

(403) 299-6576; shailender.randhawa@rbccm.com

23

Surge Energy Inc.

Viking
Surge entered the Viking through the November 2013 acquisition of Flagstone Energy, for $147 million. We view the bulk of Surges Viking acreage outside the Greater Dodsland area as early stage and largely exploratory. The company estimates 143 million barrels of OOIP across its lands, which is fairly concentrated in the emerging Forgan area. Surge has 112 net drilling locations in the Viking play with a single injector waterflood pilot planned in Q3 at Dodsland. We generally like the fit of the Viking with a dividend-oriented model given its low well costs, high netbacks and quick payouts, but believe scale and running room are key ingredients for successful development. Surge plans to drill four gross (4 net) horizontal development wells in 2014. The company drilled 2 net Viking wells in Q1 plus 2 gross (0.4 net) wells through a farm-out. Exhibit 26: Surge has 112 net locations in the Viking and plans to drill four wells in 2014
R23 R22 R21 R20 R19 R18 R17 R16 R15 R14 R13 R12W3
EE EEEEE E E E E E E E E E EE E EE EE E E E E E EE E EE E E E E E E E E E EE E E E E E E E E EE E E E E E E E E E E EE E EE E E E T31 E E E E E E E EE E E I EE E E E EE E E II I E EE E E E E E E E E E E E E E E E E E E E E E E EEE E EE E E E E EE E E E EEE EE E E E E E E E E E E E E E E E E E E E E E EE E E E E E E EE EE E E E E E E 0 Kilometers 20 E E E E E E E E E E E E E E E E E E E EEE EE EE E E E E EE E E E E E EE E EE E E E EE E E E E E E EE E EE EE E E E EE E E EEE E E EE E E E EE E E E EE E E EE I EEE E E E EEEE E E E E E E EE E EE EEE E E EEE E E EE E E E E EE IE E E EE E E E E E E E E E E E E E EE EE E E E E E EE E E E EE E E EEE E E E E E E EE E E EE E E E E E E E E E E E E E EE EE E E E E E E E E E E E EEE EE EE E E EEEEE E E E E E E E E E E E E E E E E E E E EE E E E E E E EE E E E E E E E EE E E E E E E E E EE E E E E E EE E E EEE E EE E E E E E E E E E E E E E E E E E E E E E E E E E E E E E E E E E 0 Miles 17 T30 EE E EE E E EE E E E E E E EE E E E E E EE E E EE EE E E E E E EE E EE EE EE E E EE E E EE E E E E EE EE E EE E E EE E E E E EE E E E E E E E E E E E E E E E EE EE E E EEE EE E EE EE E E E E E E E E E E E E E E EE E E E EE E E EE E E E E E E E EE A E E E E E E E A A E EE E EE E E E E E EEE E E E E E E E EE E E E E EE E E E E E E E E E E E E E E E E E E E E E E E E EE E E EEE E E E E E E E E E E A E E E E E E E E E E E E E E E E E E E E E E E E E E E E EE E E E E EE E E E E E E E E E E E E E E EE E E E E E E E E E EEE EE E E T29 LAND LEGEND E E E E EE E E E Land Lists: E

Scale 1:407468
0 Kilometers 20

Miles

17

LAND LEGEND Land Lists: Teine Land

RBC

CVE Land CPG Land


Created in AccuMap Product of IHS Datum: NAD27
Copyright 1991-2014

E E

T31

Scale 1:407468

Author: kemackey RRX Land Date: March 27, 2014 File: SGY Dodsland Viking Map.MAP Scale: 1 : 407468 Projection: Stereographic WCP LandN51.36191 W108.40390 Center: DLS Version Information: AB: ATS 2.6 BC: PRB 2.0 SK: STS 2.5 MB: MLI07

T30

Vol. 24 No. 02, Feb 20 2014 (403) 770-4646

Grid Information: DLS: IHS Enhanced Grid NTS: Theoretical Grid FPS: Theoretical Grid US: IHS US Grid

PWT Land

S S S S S

Dodsland
T29

DVN (CNQ) Land WELL LEGEND


Bottom Hole Locations:
A E

Location Oil

SGY Land C Suspended


I

Suspended Oil

Teine Land CVE Land


T28 E
E E EE EE E E E

WELL LISTS
N N S N S

T28

Industry Viking Hz Wells SGY Viking Hz Wells SGY 2014 Hz Licences

CPG Land RRX Land

T27

WCP Land PWT Land DVN (CNQ) Land


E E E E E E E E E E E E I E E E E

EE E EE

Surge has licensed three Viking horizontal wells in 2014

T27

T26

SGY Land

EE EE E E E E E EEE E E E E E E E EE E E E E E E E E E E EE E E E E E E E E A E E E EE E E EE E E E E E EE E E E E EE E E E E E E E E E EE E E E E EE E E EE E EE E A E E E E E E E E E E E E E E E E E E E A E E E E E E E EE E E E E E E E E E E EE E E EE E E E E E E E E

Plato
E

S S S S S E S S E S S E E E E E SEE E
E E

T26

E E E E E E E

T25

E E

T24

SS S S S S SS S S S S S S S S S S S S S S S S S S S S S S Forgan S S S S S S S S S S E S S S S S S S S S S E S SS S
E A A A E A A A A EE EE EE E E E E E E E E E E A E E E EE E E E E E E EE E E E E EE E E E E E A E E E E E E E E E E E E EE E E E E E E A E A E A EA E E E AEE A EA E AA A A E E A A E E E E A E E E E A AA A E EE E A AA EE A EE E E A C E E A EA EE EA E E E E EE A E A E

E E

T25

T24

R23

R22

R21

R20

R19

R18

R17

R16

R15

R14

R13W3
Created in AccuMap, a product of IHS

Source: AccuMap, RBC Capital Markets

April 14, 2014

24

Shailender Randhawa

(403) 299-6576; shailender.randhawa@rbccm.com

24

Surge Energy Inc.

Type curves
Exhibit 27 below summarizes type curve performance for five of Surges key future development assets. Peak calendar day oil rates vary from 27 bbl/d in the Viking to 120 bbl/d in Southeast Saskatchewan at Silver and 80 bbl/d in the Shaunavon. Although there is variation in peak calendar day rates, all areas have oil weighting above 95%. Exhibit 27: Surge Energys recent hz wells have varying IP-30s, but are all highly liquids weighted
140 120 100

Calendar day rate (bbl/d)

80 60 40 20 0 1 2 3 4 5 6 7 Month 8 9 10 11 12

Shaunavon (138 Wells) SE SK - Industry (70 Wells)

Viking (34 Wells) Manson (72 Wells)

Silver (33 Wells)

Shaunavon (hz) Well count Peak 30 day calendar day rate (bbl/d) % liquids Average 90 day calendar day rate (bbl/d) Average 1st year recovery (bbl/d) Average total depth (m)
Source: AccuMap, RBC Capital Markets

Viking (hz) 34 27 96% 24 20 1,107

Silver (hz) 33 83 96% 64 50 1,258

Manson (Bakken/Three Forks) SE SK (hz) 70 118 95% 92 66 1,886 72 65 100% 54 40 1,831

138 80 97% 65 53 2,907

April 14, 2014

25

Shailender Randhawa

(403) 299-6576; shailender.randhawa@rbccm.com

25

Surge Energy Inc.

Shaunavon well economics and play valuation


At our long-term $95/bbl Edmonton Par oil price and $4.50/mcf AECO base case: We modelled horizontal drilling and completion costs of $1.65 million with an average Estimated Ultimate Recovery (EUR) of 80 mbbl and 30-day IP rate of 85 bbl/d (100% medium oil), which is on the upper end observed from 38 wells drilled to date, mainly into the Lower Shaunavon formation. After-tax NPVs of $800,000 per well with $60/bbl supply costs for a 15% pre-tax IRR. We calculate an annual capital efficiency of approximately $42,000 per flowing boe, which reflects 15,000 boe of recovery during the first 12 months. Cumulative recoveries of 20,000 boe/d in the first year drops the capital efficiency to $30,000 per flowing boe, but we think repeatability of results is needed to firm our assumptions. The per-well economics are highly sensitive to changes in oil prices, capital costs and ultimate recovery. A 10% change in either variable results in a 20%-35% change in NPV per well as shown below. Exhibit 28: Our Shaunavon hz economics include AT- NPVs of $800,000 with $60/bbl supply costs
Per Well Economics - SGY Shaunavon
Base Case Natural Gas Price (AECO) Oil Price (Edmonton Par) Go Forward Economics (Successful Well) Estimated Recovery Capital Costs/well(2) IRR (after-tax) NPV (after-tax) NPV (after-tax) Supply Cost (15% BT-IRR) Full Cycle Economics (Successful Well)(2, 3) IRR (after-tax) NPV (after-tax) NPV (after-tax) of Dev Land Implied F&D Costs Capital Efficiency [%] [$/boe] [$/acre] [$/boe] [$/boe/d] 27% $9.2 $7,376 $20.6 $41,993 $(300) $(200) $(100) $$100 $200 $300
(1, 2)

NPV Well Sensitivity (Go Forward) +/- 10% Change in:

[$/mcf] [$/bbl]

$ $

4.50 95.00

Recovery

[mboe] [$000] [%] [$000] [$/boe] [$/bbl]

85 $1,650 28% $803 $9.4 $60.0

Capital Costs

Oil Price

Gas Price

Opex

Pricing Edmonton Par C$ Quality/Transport Diff Realized Price Type Curve IP-30 IP-365 EUR % Liquids % NGL's % Gas (net of shrinkage, CO2) Decline Rate - Year 1 Decline Rate - Year 2 Decline Rate - Year 3 Decline Rate - Year 4 Decline Rate - Year 5 Decline Rate - Long Term

$/bbl $/bbl $/bbl

$ $ $

95.00 (16.15) 78.85

Costs D&C E&T Midstream Land Spacing Costs

$,000's $,000's $,000's $,000's acres $/acre

1,650 83 80 0

boe/d boe/d mboe % % % % % % % % %

90 42 85 100% 0% 0% 57% 27% 18% 14% 11% 6%

Operating Costs Gas $/mcf Liquids $/bbl Overhead $/boe Regime Well Type Fluid Type

$ $ $ SK OIL HZ Oil

11.00 1.00

(1) Excludes land, seismic, initial infrastructure and dry hole costs (2) Capital costs grossed-up for go-forward infrastructure costs (3) Includes land, seismic and initial infrastructure costs Source: RBC Capital Markets estimates

April 14, 2014

26

Shailender Randhawa

(403) 299-6576; shailender.randhawa@rbccm.com

26

Surge Energy Inc.

Southeast Alberta Cretaceous well economics and play valuation


At our long-term $95/bbl Edmonton Par oil price and $4.50/mcf AECO base case: We modelled horizontal drilling and completion costs of $1.6 million with an average Estimated Ultimate Recovery (EUR) of 100 mboe and 30-day IP rate of 85 bbl/d (95% medium oil) based on recent drilling on Surges lands. After-tax NPVs of $1 million per well with $58/bbl supply costs for a 15% pre-tax IRR. We calculate an annual capital efficiency of approximately $39,000 per flowing boe, which reflects 17,000 boe of recovery during the first 12 months which is broadly in-line with historical well performance. The per-well economics are highly sensitive to changes in oil prices, capital costs and ultimate recovery. A 10% change in either variable results in a 15%-35% change in NPV per well as shown below. Exhibit 29: Our Southeast Alberta hz economics include AT- NPVs of $1 million with $58/bbl supply costs
Per Well Economics - SGY SE AB
Base Case Natural Gas Price (AECO) Oil Price (Edmonton Par) Go Forward Economics (Successful Well)(1, 2) Estimated Recovery Capital Costs/well(2) IRR (after-tax) NPV (after-tax) NPV (after-tax) Supply Cost (15% BT-IRR) Full Cycle Economics (Successful Well) IRR (after-tax) NPV (after-tax) NPV (after-tax) of Dev Land Implied F&D Costs Capital Efficiency
(2, 3)

NPV Well Sensitivity (Go Forward) +/- 10% Change in:

[$/mcf] [$/bbl]

$ $

4.50 95.00

Recovery

[mboe] [$000] [%] [$000] [$/boe] [$/bbl]

100 $1,600 37% $1,029 $10.3 $58.0

Capital Costs

Oil Price

Gas Price
[%] [$/boe] [$/acre] [$/boe] [$/boe/d] 35% $10.1 $4,712 $17.9 $38,669 $(300) $(200) $(100) $$100 $200 $300

Opex

Pricing Edmonton Par C$ Quality/Transport Diff Realized Price Type Curve IP-30 IP-365 EUR % Liquids % NGL's % Gas (net of shrinkage, CO2) Decline Rate - Year 1 Decline Rate - Year 2 Decline Rate - Year 3 Decline Rate - Year 4 Decline Rate - Year 5 Decline Rate - Long Term

$/bbl $/bbl $/bbl

$ $ $

95.00 (10.45) 84.55

Costs D&C E&T Midstream Land Spacing Costs

$,000's $,000's $,000's $,000's acres $/acre

1,600 160 160 0

boe/d boe/d mboe % % % % % % % % %

85 46 100 95% 0% 5% 53% 27% 18% 14% 12% 6%

Operating Costs Gas $/mcf Liquids $/bbl Overhead $/boe Regime Well Type Fluid Type

$ $ $ AB OIL HZ Oil

1.00 12.00 1.00

(1) Excludes land, seismic, initial infrastructure and dry hole costs (2) Capital costs grossed-up for go-forward infrastructure costs (3) Includes land, seismic and initial infrastructure costs Source: RBC Capital Markets estimates

April 14, 2014

27

Shailender Randhawa

(403) 299-6576; shailender.randhawa@rbccm.com

27

Surge Energy Inc.

Mississippian well economics and play valuation


At our long-term $95/bbl Edmonton Par oil price and $4.50/mcf AECO base case: We modelled horizontal drilling and completion costs of $1.2 million with an average Estimated Ultimate Recovery (EUR) of 60 mboe and 30-day IP rate of 120 boe/d (95% light oil) based on recent drilling on Surges lands into the Midale and Frobisher/Alida formations. After-tax NPVs of $1.2 million per well with $50/bbl supply costs for a 15% pre-tax IRR. We calculate an annual capital efficiency of approximately $26,000 per flowing boe, which reflects 20,000 boe of recovery during the first 12 months, which is 15% conservative compared to recent well performance and factors in a Surges diverse land base. The per-well economics are highly sensitive to changes in oil prices and ultimate recovery. A 10% change in either variable results in a 20%-25% change in NPV per well as shown below. Exhibit 30: Our Mississippian hz economics include AT- NPVs of $1.2 million with $50/bbl supply costs
Per Well Economics - SGY Williston Mississpian
Base Case Natural Gas Price (AECO) Oil Price (Edmonton Par) Go Forward Economics (Successful Well)(1, 2) Estimated Recovery Capital Costs/well(2) IRR (after-tax) NPV (after-tax) NPV (after-tax) Supply Cost (15% BT-IRR) Full Cycle Economics (Successful Well)(2, 3) IRR (after-tax) NPV (after-tax) NPV (after-tax) of Dev Land Implied F&D Costs Capital Efficiency [%] [$/boe] [$/acre] [$/boe] [$/boe/d] 203% $19.2 $5,439 $22.7 $25,575 $(300) $(200) $(100) $$100 $200 $300 [mboe] [$000] [%] [$000] [$/boe] [$/bbl] 60 $1,200 295% $1,200 $19.9 $50.0 [$/mcf] [$/bbl] $ $ 4.50 95.00

NPV Well Sensitivity (Go Forward) +/- 10% Change in:

Recovery

Capital Costs

Oil Price

Gas Price

Opex

Pricing Edmonton Par C$ Quality/Transport Diff Realized Price Type Curve IP-30 IP-365 EUR % Liquids % NGL's % Gas (net of shrinkage, CO2) Decline Rate - Year 1 Decline Rate - Year 2 Decline Rate - Year 3 Decline Rate - Year 4 Decline Rate - Year 5 Decline Rate - Long Term

$/bbl $/bbl $/bbl

$ $ $

95.00 (4.75) 90.25

Costs D&C E&T Midstream Land Spacing Costs

$,000's $,000's $,000's $,000's acres $/acre

1,200 120 160 0

boe/d boe/d mboe % % % % % % % % %

120 54 60 95% 5% 5% 67% 36% 26% 20% 16% 6%

Operating Costs Gas $/mcf Liquids $/bbl Overhead $/boe Regime Well Type Fluid Type

$ $ $ SK OIL HZ OIL

0.50 10.00 1.00

(1) Excludes land, seismic, initial infrastructure and dry hole costs (2) Capital costs grossed-up for go-forward infrastructure costs (3) Includes land, seismic and initial infrastructure costs Source: RBC Capital Markets estimates

April 14, 2014

28

Shailender Randhawa

(403) 299-6576; shailender.randhawa@rbccm.com

28

Surge Energy Inc.

Manson Bakken/Three Forks well economics and play valuation


At our long-term $95/bbl Edmonton Par oil price and $4.50/mcf AECO base case: We modelled horizontal drilling and completion costs of $1.1 million with an average Estimated Ultimate Recovery (EUR) of 45 mbbl and 30-day IP rate of 70 bbl/d (100% light oil), which is on the upper end observed from 72 wells drilled to date, mainly into the Bakken. After-tax NPVs of $300,000 per well with $66/bbl supply costs for a 15% pre-tax IRR. We calculate an annual capital efficiency of approximately $40,000 per flowing boe, which reflects 12,000 boe of recovery during the first 12 months. The per-well economics are highly sensitive to changes in oil prices, capital costs and ultimate recovery. A 10% change in either variable results in a 35%-60% change in NPV per well as shown below. Exhibit 31: Our Bakken/Three Forks hz economics include AT- NPVs of $300,000 with $66/bbl supply costs
Per Well Economics - SGY Manson Bakken
Base Case Natural Gas Price (AECO) Oil Price (Edmonton Par) Go Forward Economics (Successful Well)(1, 2) Estimated Recovery Capital Costs/well(2) IRR (after-tax) NPV (after-tax) NPV (after-tax) Supply Cost (15% BT-IRR) Full Cycle Economics (Successful Well) IRR (after-tax) NPV (after-tax) NPV (after-tax) of Dev Land Implied F&D Costs Capital Efficiency
(2, 3)

NPV Well Sensitivity (Go Forward) +/- 10% Change in:

[$/mcf] [$/bbl]

$ $

4.50 95.00

Recovery

[mboe] [$000] [%] [$000] [$/boe] [$/bbl]

45 $1,100 20% $297 $6.6 $66.0

Capital Costs

Oil Price

Gas Price
[%] [$/boe] [$/acre] [$/boe] [$/boe/d] 19% $6.1 $1,278 $27.6 $39,743 $(200) $(150) $(100) $(50) $$50 $100 $150 $200

Opex

Pricing Edmonton Par C$ Quality/Transport Diff Realized Price Type Curve IP-30 IP-365 EUR % Liquids % NGL's % Gas (net of shrinkage, CO2) Decline Rate - Year 1 Decline Rate - Year 2 Decline Rate - Year 3 Decline Rate - Year 4 Decline Rate - Year 5 Decline Rate - Long Term

$/bbl $/bbl $/bbl

$ $ $

95.00 (19.00) 76.00

Costs D&C E&T Midstream Land Spacing Costs

$,000's $,000's $,000's $,000's acres $/acre

1,100 110 160 0

boe/d boe/d mboe % % % % % % % % %

70 31 45 95% 0% 5% 63% 32% 22% 17% 14% 6%

Operating Costs Gas $/mcf Liquids $/bbl Overhead $/boe Regime Well Type Fluid Type

$ $ $ MB OIL HZ Oil

1.00 12.00 1.00

(1) Excludes land, seismic, initial infrastructure and dry hole costs (2) Capital costs grossed-up for go-forward infrastructure costs (3) Includes land, seismic and initial infrastructure costs Source: RBC Capital Markets estimates

April 14, 2014

29

Shailender Randhawa

(403) 299-6576; shailender.randhawa@rbccm.com

29

Surge Energy Inc.

Price target impediments


Potential impediments to our price target include: 1) Variable drilling program results: Surges production growth targets and dividends depend on successfully drilling and completing wells from its 39 well program for $116 million. Variable well results below the companys type curve expectations could negatively affect cash generation, capital efficiency, and resulting payout ratios. 2) Prolonged decline in commodity prices: Based on our projections, the bulk of Surges cash flow is generated from its 84% liquids-weighted production base. Surge has hedged 34% of its 2014 liquids production (excluding basis swaps) at C$ WTI fixed contracts with an average floor price of $98.13/bbl to protect its capital program and dividend payment. We estimate 41% of the companys 2014 gas production is hedged at AECO $3.61/mcf, which is $3.5 million out-of-the money at our price deck. Exhibit: 32 Surges liquids production is 34% hedged and gas is 41% hedged in 2014E
Oil Hedges Q1 Q2 Q3 Q4 2014E Oil Hedges Q1 Q2 Q3 Q4 2014E Oil Hedges Q1 Q2 Q3 Q4 2014E Gas Hedges Q1 Q2 Q3 Q4 2014E Contract C$ WTI Fixed C$ WTI Fixed C$ WTI Fixed C$ WTI Fixed WTI Fixed Contract US$ WTI/Edm Light Differentials US$ WTI/Edm Light Differentials US$ WTI/Edm Light Differentials US$ WTI/Edm Light Differentials US$ WTI/Edm Light Differentials Contract US$ WTI/WCS Contracts Volumes US$ WTI/WCS Contracts Volumes US$ WTI/WCS Contracts Volumes US$ WTI/WCS Contracts Volumes US$ WTI/WCS Contracts Volumes Contract AECO Fixed AECO Fixed AECO Fixed AECO Fixed AECO Fixed Volumes (GJ/d) 7,586 7,586 7,586 7,586 7,586 Volumes (bbls/d) 2,828 3,000 2,000 2,000 2,457 Volumes (bbls/d) 2,483 5,000 2,000 1,000 2,621 Volumes (bbls/d) 4,758 6,000 5,850 4,756 5,341 % Production 36% 45% 32% 26% 34% % Production 19% 37% 11% 6% 17% % Production 22% 22% 11% 11% 16% % Production 52% 47% 32% 32% 41% Floor 97.04 98.86 98.09 98.35 98.13 Floor 8.23 7.90 8.54 8.70 8.18 Floor 21.48 21.31 22.71 22.71 21.93 Floor 3.61 3.61 3.61 3.61 3.61 Ceiling 97.04 98.86 98.09 98.35 98.13 Ceiling 8.23 7.90 8.54 8.70 8.18 Ceiling 21.48 21.31 22.71 22.71 21.93 Ceiling 3.61 3.61 3.61 3.61 3.61

Source: Company reports, RBC Capital Markets estimates

3) Fiscal: Horizontal drilling economics in Western Canada are highly sensitive to incentive programs offered by the provincial government, which lower initial royalty rates to encourage investment. Changes to such programs could significantly affect per-well economics. 4) Tax horizon: We project Surge to remain non cash-taxable through 2016 assuming $116 to $145 million in annual capital expenditures and $1.2 billion in existing tax pools. As Surges business model targets minimal capital reinvestment, higher prices would accelerate Surges tax horizon and reduce cash flow available for dividends and drilling. The company plans to
April 14, 2014

30

Shailender Randhawa

(403) 299-6576; shailender.randhawa@rbccm.com

30

Surge Energy Inc.

manage its tax horizon through development drilling and acquisitions to shield its cash income. 5) Ability to acquire and integrate assets: Given managements commitment to decline-rate management and free cash flow generation, successful execution of Surges business strategy requires the ongoing completion of accretive acquisitions of oil-weighted, lowdecline properties. A soft asset market or wide bid-ask spread for transactions could force Surge to rely more on higher-decline development to grow production, which would impact its sustainability ratios. Integrating assets seamlessly into a new corporate structure requires careful upfront planning and execution.

April 14, 2014

31

Shailender Randhawa

(403) 299-6576; shailender.randhawa@rbccm.com

31

Surge Energy Inc.

Exhibit 33: Surge CFPS and NAVPS sensitivities


NAVPS Sensitivity to Commodity Prices 2013 NAVPS (blow-down) $11.00
NAVPS

2013 NAVPS (blow-down) Edmonton Light (C$/bbl) $2.00 $3.00 $4.00 $5.00 $6.00 $70 $2.98 $3.35 $3.70 $4.03 $4.36 $0 $85 $5.16 $5.43 $5.69 $5.94 $6.18 $0 $100 $6.69 $6.96 $7.22 $7.47 $7.72 $0 WTI (US$/bbl) $115 $7.98 $8.25 $8.52 $8.77 $9.01 $0 $130 $9.09 $9.36 $9.62 $9.88 $10.12 $0 0.6x 1.0x 1.4x 1.8x 2.2x $70 $2.22 $3.70 $5.17 $6.65 $8.13 $0
AECO (C$/mcf)

Implied Share Price (C$4/mcf AECO) Edmonton Light (C$/bbl) $80 $3.41 $5.69 $7.96 $10.24 $12.52 $0 $90 $100 $4.33 $5.11 $7.22 $8.52 $10.11 $11.92 $13.00 $15.33 $15.89 $18.74 $0 $0 WTI (US$/bbl) $110 $5.77 $9.62 $13.47 $17.32 $21.17 $0

$9.00 $7.00 $5.00 $3.00 $70 $85 $100 $115 Long Term Edm. Par (C$/bbl) Assumption $2.00 $4.00 AECO (C$/mcf) $6.00 $130

NAVPS Sensitivity to Discount Rate 2013 NAVPS (blow-down) 2013 NAVPS (blow-down) (C$4/mcf AECO) $70 $3.82 $3.57 $3.34 $3.12 $2.91 $0 Edmonton Light (C$/bbl) $85 $100 $115 $5.86 $7.42 $8.75 $5.53 $7.03 $8.29 $5.21 $6.65 $7.87 $4.92 $6.31 $7.48 $4.65 $5.99 $7.11 $0 $0 $0 WTI (US$/bbl) $130 $9.88 $9.38 $8.91 $8.48 $8.07 $0 Implied Share Price (C$100/bbl Edmonton Light & C$4/mcf AECO) 0.6x $4.45 $4.22 $3.99 $3.79 $3.59 0.6x P/NAV Assumption 1.0x 1.4x 1.8x $7.42 $10.39 $13.36 $7.03 $9.84 $12.65 $6.65 $9.32 $11.98 $6.31 $8.83 $11.36 $5.99 $8.38 $10.77 1.0x 1.4x 1.8x P/NAV Assumption 2.2x $16.33 $15.46 $14.64 $13.88 $13.17 2.2x

$11.00
After Tax Discount Rate NAVPS

$9.00 $7.00 $5.00 $3.00 $70 9% $85 $100 $115 $130 Long Term Edm. Par (C$/bbl) Assumption 11% After Tax Discount Rate 2014E CFPS 12%

8% 9% 10% 11% 12%

After Tax Discount Rate

P/NAV Assumption

8% 9% 10% 11% 12%

Cash Flow Sensitivity to Commodity Prices 2014E CFPS Edmonton Light (C$/bbl) $2.00 $3.00 $4.00 $5.00 $6.00 $70 $0.96 $0.97 $0.99 $1.01 $1.03 $0 $85 $1.19 $1.20 $1.22 $1.24 $1.26 $0 $100 $1.42 $1.44 $1.45 $1.47 $1.49 $0 WTI (US$/bbl) $115 $1.65 $1.67 $1.68 $1.70 $1.72 $0 $130 $1.88 $1.90 $1.91 $1.93 $1.95 $0 7.0x 8.0x 9.0x 10.0x 11.0x $70 $5.53 $6.58 $7.62 $8.66 $9.70 $0
AECO (C$/mcf)
2014E EV/DACF Assumption

Implied Share Price (C$4/mcf AECO) Edmonton Light (C$/bbl) $80 $8.21 $9.63 $11.05 $12.48 $13.90 $0 $90 $100 $10.89 $13.56 $12.69 $15.75 $14.49 $17.93 $16.30 $20.12 $18.10 $22.31 $0 $0 WTI (US$/bbl) $110 $16.24 $18.80 $21.37 $23.94 $26.51 $0

$2.50 $2.00 $1.50 $1.00 $0.50 $0.00 $70 $2.00 $85 $100 $115 $6.00 $130 Long Term Edm. Par (C$/bbl) Assumption $4.00 AECO (C$/mcf)

Source: Company reports, RBC Capital Markets

CFPS

April 14, 2014

32

Shailender Randhawa

(403) 299-6576; shailender.randhawa@rbccm.com

32

Surge Energy Inc.

Exhibit 34: Surge operating and financial metrics


2013A
Assumptions WTI Henry Hub Foreign Exchange Edmonton Par Lloydminster Blend AECO Production Oil & NGLs Natural Gas Total YoY Growth % Liquids Income and Cash Flow Net Revenues Cash Expenses Operating Transportation G&A Interest Other Cash Pre-tax Cash Flow Non-Cash Expenses Depl, Depn & Amort Exploration and Dry Hole Impairments Other Non-Cash Pre-tax Income Current Tax Future Tax Net Income Plus Non -Cash Items Operating Cash Flow Other Operating Items (W/C, Abandonments) Consolidated Net Capital Investment Consolidated Net Financing Acquisitions (included above) Balance Sheet Cash Other Current Assets Total Current Assets Property, Plant & Equipment Other Long Term Assets Total Assets Bank Debt Current Liabilities Long-Term Debt ARO Deferred Taxes Total Liabilities Shareholders' Capital Retained Earnings Total Liabilities & Shareholders' Equity
Source: Company reports, RBC Capital Markets estimates

2014E
$96.00 $4.54 $0.89 $100.03 $86.78 $4.88

2015E
$92.00 $4.50 $0.88 $98.58 $87.25 $4.44

2016E
$92.50 $5.00 $0.90 $96.94 $84.94 $4.79

[US$/bbl] [US$/mcf] [US$/C$] [C$/bbl] [C$/bbl] [C$/mcf]

$98.01 $3.73 $0.97 $93.40 $76.30 $3.18

[bbls/d] [mmcf/d] [boe/d] [%] [%] [$000]

8,488 14 10,767 21% 79%

15,678 18 18,750 74% 84%

17,851 20 21,250 13% 84%

17,640 20 21,000 -1% 84%

213,881 49,405 8,511 12,186 9,648 12,441 121,690 82,410 1,997 51,189 33 (13,939) 1,492 (5,545) (9,886) 130,084 120,198 (7,171) (456,356) 406,484 (371,150) [$000] 39,294 39,294 1,337,431 1,376,725 279,619 84,828 85,172 72,912 522,531 919,083 (64,889) 1,376,725

434,596 97,681 12,371 13,000 17,508 5,000 289,036 150,561 138,475 36,696 101,779 187,257 289,036 (441,500) 152,464 (305,500)

487,796 120,224 12,798 16,000 20,485 318,289 178,397 139,892 37,071 102,821 215,468 318,289 (175,000) (143,289) -

478,804 119,132 12,297 17,000 19,872 310,503 184,462 126,041 33,401 92,640 217,863 310,503 (172,844) (137,659) -

39,294 39,294 1,628,371 1,667,665 466,516 84,828 85,172 109,608 746,124 995,564 (74,023) 1,667,665

39,294 39,294 1,624,973 1,664,267 451,987 84,828 85,172 146,679 768,666 995,564 (99,962) 1,664,267

39,294 39,294 1,613,355 1,652,649 443,087 84,828 85,172 180,080 793,167 995,564 (136,082) 1,652,648

April 14, 2014

33

Shailender Randhawa

(403) 299-6576; shailender.randhawa@rbccm.com

33

Surge Energy Inc.

Exhibit 35: Surge operating and financial metrics


2013A Netbacks Revenue (pre-hedging) Heging Gains (Losses) Revenue (post hedging) Royalties Operating Costs Field Netback (pre-transportation) Transportation Costs Field Netback G&A Costs Other Cash Costs EBITDA Margin Interest Pre-Tax Net Back Cash Taxes After-Tax Netback Royalties (as a % of pre-hedging revenue) Hedging % of Oil Production % of Gas Production % of Total Production Per Share Metrics EPS (Basic) EPS (f.d.) CFPS (Basic) CFPS (f.d.) CFPS YoY Growth Dividend per Share - Period Dividend Yield Production Per Share (f.d) Production Per Share Growth Reserves Per Share 2P Reserves Per Share Growth Weighted Average Shares Basic F.D. Ending Shares F.D. Debt and Liquidity Cash (year-end) Working capital Funded Debt Net Debt Net Debt to Total Capitalization Debt/Cash Flow (trailing) Debt/Cash Flow (1 yr fwd) Reserves, Valuation and Returns Reserves % Developed % Liquids Net Debt per boe (PDP) RLI - PDP RLI - 2P Market Cap TEV EV/DACF CROIC (Adjusted-NBV) CROIC (TEV)
Source: Company reports, RBC Capital Markets estimates

2014E $79.07 ($3.07) $76.00 ($12.50) ($14.27) $49.23 ($1.81) $47.42 ($1.90) ($0.73) $44.79 ($2.56) $42.23 $0.00 $42.23 16% 34% 39% 35% 0.52 0.52 1.49 1.47 20% 0.57 9% 34.92 -13% 0.54 22% 194,619 196,002 216,099 (31,948) 466,516 498,464 35% 1.7x 1.6x 115,659 35% 0% $

2015E $76.58 ($0.44) $76.14 ($13.25) ($15.50) $47.39 ($1.65) $45.74 ($2.06) $0.00 $43.67 ($2.64) $41.03 $0.00 $41.03 17% 15% 19% 16% 0.48 0.48 1.48 1.47 0% 0.60 9% 35.89 3% 0% 214,599 216,099 216,099 (31,948) 451,987 483,935 35% 1.5x 1.6x 115,659 35% 0% $

2016E $75.55 $0.00 $75.55 ($13.25) ($15.50) $46.80 ($1.60) $45.20 ($2.21) $0.00 $42.98 ($2.59) $40.40 $0.00 $40.40 18% 0% 0% 0% 0.43 0.43 1.45 1.44 -2% 0.60 9% 35.57 -1% 0% 214,599 216,099 216,099 (31,948) 443,087 475,035 36% 1.5x n/a 115,659 35% 0% 5.3x 15.1x 1,424,090 1,899,125 5.7x 24% 17%

[C$/boe] $69.19 ($2.13) $67.06 ($12.64) ($12.57) $41.85 ($2.17) $39.68 ($3.10) ($3.17) $33.42 ($2.45) $30.96 ($0.38) $30.58 18% 12% 15% 13% (0.10) (0.10) 1.23 1.23 -8% 0.27 4% 40.11 -12% 0.44 -64% 97,347 97,981 166,955 (31,948) 279,619 311,567 27% 2.6x 1.1x 73,459 35% 78% 12.09 $ 5.9x 16.8x 1,090,798 1,402,365 10.1x 11% 9%

[%] [%] [%] [%]

[$/share] [$/share] [$/share] [%] [$/share] [%] [boe/'000 shares] [%] [boe/share] [%] [000] [000] [000] [$000] [$000] [$000] [$000] [%] [x] [x] [mboe] [%] [%] [$/boe] [years] [years] [$000] [$000] [x] [%] [%]

1,424,090 1,922,554 5.9x 21% 16%

1,424,090 1,908,024 5.6x 24% 17%

April 14, 2014

34

Shailender Randhawa

(403) 299-6576; shailender.randhawa@rbccm.com

34

Surge Energy Inc.

Required disclosures
Non-U.S. analyst disclosure
Shailender Randhawa and Keith Mackey (i) are not registered/qualified as research analysts with the NYSE and/or FINRA and (ii) may not be associated persons of the RBC Capital Markets, LLC and therefore may not be subject to FINRA Rule 2711 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.

Conflicts disclosures
The analyst(s) responsible for preparing this research report received compensation that is based upon various factors, including total revenues of the member companies of RBC Capital Markets and its affiliates, a portion of which are or have been generated by investment banking activities of the member companies of RBC Capital Markets and its affiliates. Please note that current conflicts disclosures may differ from those as of the publication date on, and as set forth in, this report. To access current conflicts disclosures, clients should refer to https://www.rbccm.com/GLDisclosure/PublicWeb/ DisclosureLookup.aspx?entityId=1 or send a request to RBC CM Research Publishing, P.O. Box 50, 200 Bay Street, Royal Bank Plaza, 29th Floor, South Tower, Toronto, Ontario M5J 2W7. RBC Dominion Securities Inc. makes a market in the securities of Surge Energy Inc..

Explanation of RBC Capital Markets Equity rating system


An analyst's 'sector' is the universe of companies for which the analyst provides research coverage. Accordingly, the rating assigned to a particular stock represents solely the analyst's view of how that stock will perform over the next 12 months relative to the analyst's sector average. Although RBC Capital Markets' ratings of Top Pick (TP)/Outperform (O), Sector Perform (SP), and Underperform (U) most closely correspond to Buy, Hold/Neutral and Sell, respectively, the meanings are not the same because our ratings are determined on a relative basis. Ratings Top Pick (TP): Represents analyst's best idea in the sector; expected to provide significant absolute total return over 12 months with a favorable risk-reward ratio. Outperform (O): Expected to materially outperform sector average over 12 months. Sector Perform (SP): Returns expected to be in line with sector average over 12 months. Underperform (U): Returns expected to be materially below sector average over 12 months. Risk Rating As of March 31, 2013, RBC Capital Markets suspends its Average and Above Average risk ratings. The Speculative risk rating reflects a security's lower level of financial or operating predictability, illiquid share trading volumes, high balance sheet leverage, or limited operating history that result in a higher expectation of financial and/or stock price volatility.

Distribution of ratings
For the purpose of ratings distributions, regulatory rules require member firms to assign ratings to one of three rating categories - Buy, Hold/Neutral, or Sell - regardless of a firm's own rating categories. Although RBC Capital Markets' ratings of Top Pick(TP)/ Outperform (O), Sector Perform (SP), and Underperform (U) most closely correspond to Buy, Hold/Neutral and Sell, respectively, the meanings are not the same because our ratings are determined on a relative basis (as described below).
Distribution of ratings RBC Capital Markets, Equity Research As of 31-Mar-2014 Investment Banking Serv./Past 12 Mos. Rating BUY [Top Pick & Outperform] HOLD [Sector Perform] SELL [Underperform] Count 822 654 90 Percent 52.49 41.76 5.75 Count 303 170 11 Percent 36.86 25.99 12.22

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Shailender Randhawa

(403) 299-6576; shailender.randhawa@rbccm.com

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Surge Energy Inc.

References to a Recommended List in the recommendation history chart may include one or more recommended lists or model portfolios maintained by RBC Wealth Management or one of its affiliates. RBC Wealth Management recommended lists include a former list called the Prime Opportunity List (RL 3), the Guided Portfolio: Prime Income (RL 6), the Guided Portfolio: Large Cap (RL 7), the Guided Portfolio: Dividend Growth (RL 8), the Guided Portfolio: Midcap 111 (RL 9), the Guided Portfolio: ADR (RL 10), and the Guided Portfolio: Global Equity (U.S.) (RL 11). RBC Capital Markets recommended lists include the Strategy Focus List and the Fundamental Equity Weightings (FEW) portfolios. The abbreviation 'RL On' means the date a security was placed on a Recommended List. The abbreviation 'RL Off' means the date a security was removed from a Recommended List.

Equity valuation and risks


For valuation methods used to determine, and risks that may impede achievement of, price targets for covered companies, please see the most recent company-specific research report at https://www.rbcinsight.com or send a request to RBC Capital Markets Research Publishing, P.O. Box 50, 200 Bay Street, Royal Bank Plaza, 29th Floor, South Tower, Toronto, Ontario M5J 2W7.

Conflicts policy
RBC Capital Markets Policy for Managing Conflicts of Interest in Relation to Investment Research is available from us on request. To access our current policy, clients should refer to https://www.rbccm.com/global/file-414164.pdf or send a request to RBC Capital Markets Research Publishing, P.O. Box 50, 200 Bay Street, Royal Bank Plaza, 29th Floor, South Tower, Toronto, Ontario M5J 2W7. We reserve the right to amend or supplement this policy at any time.

Dissemination of research and short-term trade ideas


RBC Capital Markets endeavours to make all reasonable efforts to provide research simultaneously to all eligible clients, having regard to local time zones in overseas jurisdictions. Subject to any applicable regulatory considerations, "eligible clients" may include RBC Capital Markets institutional clients globally, the retail divisions of RBC Dominion Securities Inc. and RBC Capital Markets LLC, and affiliates. RBC Capital Markets' equity research is posted to our proprietary websites to ensure eligible clients receive coverage initiations and changes in rating, targets and opinions in a timely manner. Additional distribution may be done by the sales personnel via email, fax or regular mail. Clients may also receive our research via third party vendors. Please contact your investment advisor or institutional salesperson for more information regarding RBC Capital Markets research. RBC Capital Markets also provides eligible clients with access to SPARC on its proprietary INSIGHT website. SPARC contains market color and commentary, and may also contain Short-Term Trade Ideas regarding the securities of subject companies discussed in this or other research reports. SPARC may be accessed via the following hyperlink: https://www.rbcinsight.com. A Short-Term Trade Idea reflects the research analyst's directional view regarding the price of the security of a subject company in the coming days or weeks, based on market and trading events. A Short-Term Trade Idea may differ from the price targets and/or recommendations in our
April 14, 2014 Shailender Randhawa
(403) 299-6576; shailender.randhawa@rbccm.com

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Surge Energy Inc.

published research reports reflecting the research analyst's views of the longer-term (one year) prospects of the subject company, as a result of the differing time horizons, methodologies and/or other factors. Thus, it is possible that the security of a subject company that is considered a long-term 'Sector Perform' or even an 'Underperform' might be a short-term buying opportunity as a result of temporary selling pressure in the market; conversely, the security of a subject company that is rated a long-term 'Outperform' could be considered susceptible to a short-term downward price correction. Short-Term Trade Ideas are not ratings, nor are they part of any ratings system, and RBC Capital Markets generally does not intend, nor undertakes any obligation, to maintain or update Short-Term Trade Ideas. Short-Term Trade Ideas discussed in SPARC may not be suitable for all investors and have not been tailored to individual investor circumstances and objectives, and investors should make their own independent decisions regarding any Short-Term Trade Ideas discussed therein.

Analyst certification
All of the views expressed in this report accurately reflect the personal views of the responsible analyst(s) about any and all of the subject securities or issuers. No part of the compensation of the responsible analyst(s) named herein is, or will be, directly or indirectly, related to the specific recommendations or views expressed by the responsible analyst(s) in this report.
The Global Industry Classification Standard (GICS) was developed by and is the exclusive property and a service mark of MSCI Inc. (MSCI) and Standard & Poors Financial Services LLC (S&P) and is licensed for use by RBC. Neither MSCI, S&P, nor any other party involved in making or compiling the GICS or any GICS classifications makes any express or implied warranties or representations with respect to such standard or classification (or the results to be obtained by the use thereof), and all such parties hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability and fitness for a particular purpose with respect to any of such standard or classification. Without limiting any of the foregoing, in no event shall MSCI, S&P, any of their affiliates or any third party involved in making or compiling the GICS or any GICS classifications have any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the possibility of such damages.

Disclaimer
RBC Capital Markets is the business name used by certain branches and subsidiaries of the Royal Bank of Canada, including RBC Dominion Securities Inc., RBC Capital Markets, LLC, RBC Europe Limited, RBC Capital Markets (Hong Kong) Limited, Royal Bank of Canada, Hong Kong Branch and Royal Bank of Canada, Sydney Branch. The information contained in this report has been compiled by RBC Capital Markets from sources believed to be reliable, but no representation or warranty, express or implied, is made by Royal Bank of Canada, RBC Capital Markets, its affiliates or any other person as to its accuracy, completeness or correctness. All opinions and estimates contained in this report constitute RBC Capital Markets' judgement as of the date of this report, are subject to change without notice and are provided in good faith but without legal responsibility. Nothing in this report constitutes legal, accounting or tax advice or individually tailored investment advice. This material is prepared for general circulation to clients and has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. The investments or services contained in this report may not be suitable for you and it is recommended that you consult an independent investment advisor if you are in doubt about the suitability of such investments or services. This report is not an offer to sell or a solicitation of an offer to buy any securities. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of original capital may occur. RBC Capital Markets research analyst compensation is based in part on the overall profitability of RBC Capital Markets, which includes profits attributable to investment banking revenues. Every province in Canada, state in the U.S., and most countries throughout the world have their own laws regulating the types of securities and other investment products which may be offered to their residents, as well as the process for doing so. As a result, the securities discussed in this report may not be eligible for sale in some jurisdictions. RBC Capital Markets may be restricted from publishing research reports, from time to time, due to regulatory restrictions and/ or internal compliance policies. If this is the case, the latest published research reports available to clients may not reflect recent material changes in the applicable industry and/or applicable subject companies. RBC Capital Markets research reports are current only as of the date set forth on the research reports. This report is not, and under no circumstances should be construed as, a solicitation to act as securities broker or dealer in any jurisdiction by any person or company that is not legally permitted to carry on the business of a securities broker or dealer in that jurisdiction. To the full extent permitted by law neither RBC Capital Markets nor any of its affiliates, nor any other person, accepts any liability whatsoever for any direct or consequential loss arising from any use of this report or the information contained herein. No matter contained in this document may be reproduced or copied by any means without the prior consent of RBC Capital Markets. Additional information is available on request. To U.S. Residents: This publication has been approved by RBC Capital Markets, LLC (member FINRA, NYSE, SIPC), which is a U.S. registered broker-dealer and which accepts responsibility for this report and its dissemination in the United States. Any U.S. recipient of this report that is not a registered broker-dealer or a bank acting in a broker or dealer capacity and that wishes further information regarding, or to effect any transaction in, any of the securities discussed in this report, should contact and place orders with RBC Capital Markets, LLC. To Canadian Residents: This publication has been approved by RBC Dominion Securities Inc.(member IIROC). Any Canadian recipient of this report that is not a Designated Institution in Ontario, an Accredited Investor in British Columbia or Alberta or a Sophisticated Purchaser in Quebec (or similar permitted purchaser in any other province) and that wishes further information regarding, or to effect any transaction in, any of the securities discussed in this report should contact and place orders with RBC Dominion Securities Inc., which, without in any way limiting the foregoing, accepts responsibility for this report and its dissemination in Canada. To U.K. Residents: This publication has been approved by RBC Europe Limited ('RBCEL') which is authorized by the Prudential Regulation Authority and regulated by the Financial Conduct Authority ('FCA') and the Prudential Regulation Authority, in connection with its distribution in the United Kingdom. This material is not for general distribution in the United Kingdom to retail clients, as defined under the rules of the FCA. However, targeted distribution may be made to selected retail clients of RBC and its affiliates. RBCEL accepts responsibility for this report and its dissemination in the United Kingdom. To Persons Receiving This Advice in Australia: This material has been distributed in Australia by Royal Bank of Canada - Sydney Branch (ABN 86 076 940 880, AFSL No. 246521). This material has been prepared for general circulation and does not take into account the objectives, financial situation or needs of any recipient. Accordingly, any recipient should, before acting on

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Shailender Randhawa

(403) 299-6576; shailender.randhawa@rbccm.com

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Surge Energy Inc.

this material, consider the appropriateness of this material having regard to their objectives, financial situation and needs. If this material relates to the acquisition or possible acquisition of a particular financial product, a recipient in Australia should obtain any relevant disclosure document prepared in respect of that product and consider that document before making any decision about whether to acquire the product. This research report is not for retail investors as defined in section 761G of the Corporations Act. To Hong Kong Residents: This publication is distributed in Hong Kong by RBC Investment Services (Asia) Limited, RBC Investment Management (Asia) Limited and RBC Capital Markets (Hong Kong) Limited, licensed corporations under the Securities and Futures Ordinance or, by the Royal Bank of Canada, Hong Kong Branch, a registered institution under the Securities and Futures Ordinance. This material has been prepared for general circulation and does not take into account the objectives, financial situation, or needs of any recipient. Hong Kong persons wishing to obtain further information on any of the securities mentioned in this publication should contact RBC Investment Services (Asia) Limited, RBC Investment Management (Asia) Limited, RBC Capital Markets (Hong Kong) Limited or Royal Bank of Canada, Hong Kong Branch at 17/Floor, Cheung Kong Center, 2 Queen's Road Central, Hong Kong (telephone number is 2848-1388). To Singapore Residents: This publication is distributed in Singapore by the Royal Bank of Canada, Singapore Branch and Royal Bank of Canada (Asia) Limited, registered entities granted offshore bank and merchant bank status by the Monetary Authority of Singapore, respectively. This material has been prepared for general circulation and does not take into account the objectives, financial situation, or needs of any recipient. You are advised to seek independent advice from a financial adviser before purchasing any product. If you do not obtain independent advice, you should consider whether the product is suitable for you. Past performance is not indicative of future performance. If you have any questions related to this publication, please contact the Royal Bank of Canada, Singapore Branch or Royal Bank of Canada (Asia) Limited. To Japanese Residents: Unless otherwise exempted by Japanese law, this publication is distributed in Japan by or through RBC Capital Markets (Japan) Ltd., a registered type one financial instruments firm and/or Royal Bank of Canada, Tokyo Branch, a licensed foreign bank. . Registered trademark of Royal Bank of Canada. RBC Capital Markets is a trademark of Royal Bank of Canada. Used under license. Copyright RBC Capital Markets, LLC 2014 - Member SIPC Copyright RBC Dominion Securities Inc. 2014 - Member CIPF Copyright RBC Europe Limited 2014 Copyright Royal Bank of Canada 2014 All rights reserved

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Shailender Randhawa

(403) 299-6576; shailender.randhawa@rbccm.com

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