SGYRBCAp2014

RBC Dominion Securities Inc.Shailender Randhawa,CFA (Analyst)(403) [email protected]

Keith Mackey, CFA (Associate)(403) [email protected]

Sector PerformTSX: SGY; CAD 6.59Price Target CAD 7.00Scenario Analysis*

DownsideScenario

5.0015%

CurrentPrice

6.59

PriceTarget

7.0015%

UpsideScenario

9.0046%

*Implied Total Returns

Key StatisticsShares O/S (MM): 216.1Dividend: 0.60NAVPS: 6.96

Market Cap (MM): 1,424Yield: 9.1%P/NAVPS: 0.9x

RBC EstimatesFY Dec 2013A 2014E 2015E 2016ECash Flow 120.2 289.0 318.3 310.5CFPS, Adj Diluted 1.23 1.47 1.47 1.44Production (boe/d)

10,767 18,750 21,250 21,000

Prod./Share(boe/m)

40.11 34.92 35.89 35.57

P/ACFPS 5.4x 4.5x 4.5x 4.6x

All values in CAD unless otherwise noted.

April 14, 2014

Surge Energy Inc.High yield consolidatorOur view: We initiate coverage of Surge Energy with a Sector Performrating and $7.00 price target. Reborn under credible management, weview Surge as a high yield consolidator with a stable financial outlook butan unclear organic growth trajectory due to its high dividend commitment.

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 competitionfor light oil assets in the E&P yield space intensifies, we think Surge willshift to an organic approach to deliver its 3-5% per share growth target.

Current 9% yield reflects flat production outlook and a 38% basicpayout ratio. We project Surges 21,350 boe/d (84% liquids) 2014 exitproduction rate to remain flat through 2016 based on a 25% declinerate 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 buildsdrilling inventory. In our opinion, lowering the basic payout ratio closerto 30% through increased FCF generation is the key to improving growthvisibility.

Post Longview financial outlook: stable. Factoring in a mid-year closefor the opportunistic $429 million Longview acquisition, which looksaccretive to us, we expect Surge to exit 2014 with a forward net-debt-to-cash-flow ratio of 1.6x, which leaves flexibility to further augment theportfolio with value-oriented deals.

Formidable dividend commitment requires high oil prices. PostLongview, Surges annualized $129 million dividend payment rivals itssustaining capital. Excluding acquisitions, we estimate Surge requiresC$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 sumof 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 resourceexposure, a lower basic payout ratio to drive growth, and increasedportfolio focus over time.

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.

Target/Upside/Downside ScenariosExhibit 1: Surge Energy Inc.

60m40m20m

N D J F M A M J J A S O N2012

D J F M A M J J A S O N2013

D J F M2014

A

UPSIDE 9.00TARGET 7.00CURRENT 6.59DOWNSIDE 5.00

Apr 2015

12.5010.50

8.50

6.50

4.50

2.50

125 Weeks 22NOV11 - 14APR14

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 caseOur base case and $7.00 price target reflects a flat pershare production growth outlook through 2016 and a stablefinancial outlook as Surge builds scale and generates visibleFCF for organic growth. Our base case maps to a 1.0x P/NAVmultiple.

Upside scenarioOur upside valuation of $9.00 is based on successfuldevelopment of the Upper Shaunavon, predictable 3 to 5%organic per share growth, with no change to the company'sfinancial outlook. Our upside case maps to a 1.2x P/NAVmultiple, with no change to our commodity outlook.

Downside scenarioOur downside valuation of $5.00 reflects inconsistent drillingresults, dilutive transactions, and increased financial leverage,which could pressure Surge's current dividend. Our downsidecase maps to a 0.7x P/NAV multiple, with no change to ourcommodity outlook.

Investment summaryWe rate Surge Energy shares Sector Perform with a $7.00price target.

High Yield Consolidator. Our neutral stance reflects ourbelief that further accretive acquisitions are required tobuild scale and generate visible FCF for 3 to 5% organicgrowth.

Implied total return weighted to 9% yield. We see flatproduction per share growth through 2016 based on a 25%decline rate, $33,000 per boe/d annual capital efficiency ata constant 100% effective payout ratio.

Credible and well connected leadership. In our minds, PaulColborne's strong relationships reflect an extensive trackrecord of value creation, providing an intangible edge forSurge.

Financial flexibility: adequate. We project Surge to exit2014 with a forward net-debt-to-cash-flow ratio of 1.6x,which in our view leaves enough financial flexibility foradditional value-oriented tuck-ins.

Potential catalysts. Include results from initial UpperShaunavon drilling, a Montney well at Valhalla, commercialscale waterflood success, and accretive acquisitions toextend Surge's RLI and lower its decline rate.

Risks. Include variable drilling results, a prolonged declinein oil prices, fiscal changes, and access to capital and lowerdecline oil-weighted properties at a reasonable cost.

Surge Energy Inc.

April 14, 2014 Shailender Randhawa (403) 299-6576; [email protected] 2

3

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.

2. Is the Longview acquisition positive or negative for Surge shareholders?

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.

3. What are Surges key operational catalysts in 2014.

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.

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

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, Whitecaps 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.

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

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.

Surge Energy Inc.


4

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

Surge Energy Inc.


5

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

Date Type Transaction Consideration Key Assets Acquired

SGY Share

Price

WTI Strip

(12

month)

NYMEX

Strip (12

month)

31-Mar-2014 Corporate

Acquisition

Longview Oil $429 MM

(45.8MM shares

@ $6.14, $155

MM debt, 9.3

MM LNV shares

@ $4.45)

Longview: 5,816 boe/d production

(81% liquids); 37.6 mmboe gross 2P

reserves; 168,948 net acres

undeveloped land

$6.14 $96.72 $4.46

13-Jan-2014 Asset

Acquisition

Southeast

Saskatchewan

$109 MM Cash SE SK assets: 19,322 net acres (78%

w.i.); 1,250 boe/d production (97%

liquids); 4.6 mmboe gross 2P reserves;

12,000 acres undeveloped land

$6.41 $90.51 $4.20

6-Nov-2013 Asset

Acquisition

Central Alberta $76.8 MM Cash Central AB assets: 980 boe/d (77% w.i.)

production; (98% liquids); 5.4 mmboe

gross 2P reserves

$6.64 $93.85 $3.62

22-Oct-2013 Corporate

Acquisition/

Asset

Acquisition

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 $96.67 $3.78

11-Jun-2013 Asset

Acquisition

Southwest

Saskatchewan

$240 MM Cash 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.

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.

Surge Energy Inc.


6

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%

$0

$1

$2

$3

$4

$5

$6

$7

$8

$9

May-

13

Jun-

13

Jul-

13

Aug-

13

Sep-

13

Oct-

13

Nov-

13

Dec-

13

Jan-

14

Feb-

14

Mar-

14

Apr-

14

SGY

sh

are

pri

ce (

C$

)

60

70

80

90

100

110

120

Edm

on

ton

Par

(C

$/b

oe

)

SGY Volumes [RHS] SGY [LHS]S&PTSX Energy Index [LHS - Rebased] Edmonton Light [RHS]

Conversion Announced06/11/13 - Announces transition to

Dividend + Yield Producer

Dividend: $0.40 per share

Share Price: $5.42

06/11/13 - Shaunavon purchase

announced


Share Price: $5.42

10/22/13 - SW Manitoba/PrivateCo

purchase announced


Share Price: $6.72

11/06/13 - Central Alberta

(Wainwright) purchase announced


Share Price: $6.64

01/13/14 - SE Saskatchewan

purchase announced (Renegade)


Share Price: $6.34

03/31/14 - Longview Oil purchase

announced


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

Surge Energy Inc.


7

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

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 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

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

SW Saskatchewan

Saskatchewan Viking

o 138 (112 net) drilling locations

o Light oil 37 API from horizontal multi-frac Viking wells

Shaunavon


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

Surge Energy Inc.


8

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 Position Experience O & G Experience

Paul Colborne President & CEO Startech Energy, Cresecent Point Energy Trust, Star Point Energy Trust, Star

Valley Oil & Gas

20+ years

Max Lof CFO Breaker Energy 25+ years

Dan Brown COO Breaker Energy 25+ years

Margaret Elekes VP Land Breaker Energy, Upton Resources, Phillips Petroleum 20+ years

Murray Bye VP Production EnCana Corporation 10+ years

Board Member Joined Experience Other Directorships

Paul Colborne (Chairman) 2010 Startech Energy, Cresecent Point Energy Trust, Star Point Energy Trust, Star

Valley Oil & Gas

Legacy Oil & Gas, Cequence Energy

Dan O'Neil Breaker Energy, EnCana Corporation Hyperion Exploration, Cathedral

Energy Services

Robert Leach 2010 Custom Truck Sales, International Fitness Holdings Delaney Energy Services, Breaker

Energy

James Pasieka Partner, McCarthy Tetrault LLP Breaker Energy

Keith Macdonald 2010 Bamako Investment Management Bellatrix Exploration, Madalena

Ventures, Mountainview Energy

Colin Davies 2010 Corinthian Energy, Acanthus Resources

Murray Smith 2010 MLA Province of Alberta, Murray Smith & Associates Source: Company reports

Surge Energy Inc.


9

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

Capex Net Debt

Current / CF /CF

2014E 2015E EV/ 2P boe 2014E Prod CF Yield 2014E 2014E

Argent Energy $80,400 $91,300 $22.42 70% -6% -18% 7% 1.1x 5.7x

Cardinal Energy $87,900 $82,000 nmf 90% 38% 140% 4% 0.4x nmf

Lightstream Resources $81,900 $81,200 $25.58 80% -15% -5% 8% 0.8x 3.3x

Long Run Exploration $42,800 $39,900 $19.67 51% 9% 16% 7% 0.8x 1.3x

Parallel Energy $64,900 $64,000 $12.16 66% 0% 21% 14% 0.3x 4.6x

TORC Oil & Gas $126,800 $119,800 $80.96 86% 12% 35% 4% 0.6x 0.5x

Twin Butte Energy $49,900 $45,000 $21.10 91% 8% 19% 8% 0.6x 1.1x

Whitecap Resources $124,100 $104,700 $41.42 73% 3% 23% 5% 0.6x 1.1x

Average $82,338 $78,488 $31.90 76% 6% 29% 7% 0.6x 2.5x

Surge Energy $102,500 $89,800 $39.70 84% -7% 20% 9% 0.5x 1.6x

% Liquids

DAPS Growth

2014E/2013EEV/boe/d

Market Enterprise Price/

Price Cap Net Debt Value Base NAV EV/DACF

Ticker Analyst ($/share) ($MM) ($MM) ($MM) (RBC) (Strip) 2014E 2015E

Argent Energy AET.un SR $3.25 $207 $268 $475 0.5x 0.7x 6.4x 7.1x

Cardinal Energy CJ SR $15.30 $588 $1 $589 1.1x 1.1x 6.2x 6.2x

Lightstream Resources LTS MH $6.25 $1,335 $2,207 $3,542 0.9x 1.1x 4.6x 4.6x

Long Run Exploration LRE SR $5.37 $682 $391 $1,073 1.0x 1.2x 3.4x 3.3x

Parallel Energy PLT.un SR $4.29 $237 $231 $468 0.8x 1.0x 7.4x 7.9x

TORC Oil & Gas TOG SR $12.74 $1,187 $145 $1,332 1.1x 1.2x 6.4x 6.3x

Twin Butte Energy TBE MF $2.38 $607 $317 $924 0.9x 1.0x 6.2x 4.5x

Whitecap Resources WCP SR $13.23 $2,655 $454 $3,109 1.3x 1.4x 6.5x 5.5x

Average 0.9x 1.1x 5.9x 5.7x

Surge Energy SGY SR $6.59 $1,175 $399 $1,574 0.9x 1.0x 5.9x 5.6x

!= RestrictedSR = Shailender Randhawa, 403-299-6576, [email protected]

MF = Mark Friesen, 403-299-2389, [email protected]

MH = Michael Harvey, 403-299-6998, [email protected]

Source: Bloomberg, RBC Capital Markets estimates

Surge Energy Inc.


10

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 going-concern 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

Surge Energy

NAV Breakdown & Price Target Rationale

Risk

Reserves NPV, Unrisked Factor NPV, Risked

(mmboe) ($MM) ($/share) (%) ($MM) ($/share)

Proven plus Probable Reserves 111 $2,075 $9.45 100% $2,075 $9.45

Land Value $101 $0.46 100% $101 $0.46

Other assets/liabilities and option proceeds 5 $100 $0.46 100% $100 $0.46

Total Assets $2,276 $10.36 100% $2,276 $10.36

Net debt -$508 -$2.31 100% -$508 -$2.31

PV of G&A costs -$82 -$0.37 100% -$82 -$0.37

Other assets/liabilities and option proceeds -$157 -$0.71 100% -$157 -$0.71

Base Net Asset Value $1,529 $6.96 100% $1,529 $6.96

Less: Developed Land Value -$35 -$0.16

Adjusted Base NAV $1,494 $6.80

Unbooked Recovery Unrisked

Locations per Well Resource NPV, Unrisked NPV, Risked

(#) (mboe/well) (mmboe) ($MM) ($/share) ($MM) ($/share)

Shaunavon (Upper and Lower) 215 80 17 $85 $0.39 50% $43 $0.20

SE Alberta Cretaceous 64 100 6 $36 $0.17 50% $18 $0.08

SE SK Mississipian 42 60 3 $43 $0.20 75% $32 $0.15

Manson Bakken/Three Forks 27 45 1 $2 $0.01 75% $2 $0.01

Total 348 27 $166 $0.77 $94 $0.44

Adj. Base NAV + Unbooked Upside 143 $1,660 $7.57 $1,588 $7.24

Price Target 1.0x (rounded) $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.

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 Inc.


11

Financial forecast

Acquisitions preferred route for growth Exhibit 8: Our 2014 CFPS forecast is 7% above the Street consensus

0

200,000

400,000

600,000

2012A 2013A 2014E 2015E

Cap

ex (

C$

, m)

Organic Acquisitions

Liquids

Gas

0

5,000

10,000

15,000

20,000

25,000

2012A 2013A 2014E 2015E

Pro

du

ctio

n (

bo

e/d

)

2012A 2013A Q1/14E Q2/14E Q3/14E Q4/14E 2014E 2015E

Edmonton Par [C$/bbl] $86.35 $93.40 $99.51 $97.58 $101.14 $101.85 $100.03 $98.58

AECO [C$/mcf] $2.38 $3.18 $5.49 $4.57 $4.61 $4.84 $4.88 $4.44

Liquids bbls/d 6,181 8,488 13,111 13,422 18,029 18,070 15,678 17,851

Natural Gas [mmcf/d] 16 14 14 15 22 22 18 20

boe/d boe/d 8,873 10,767 15,425 15,979 21,721 21,772 18,750 21,250

Operating Netback [C$/boe] $37.02 $41.85 $50.47 $48.51 $48.19 $49.94 $49.23 $45.74

Operating Cash Flow [$000] 94,493$ 120,198$ 59,508$ 56,479$ 85,005$ 88,043$ 289,036$ 318,289$

Source: Company reports, 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 full-year 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.

Exhibit 9: Consensus estimates

RBC Street RBC StreetCFPS $1.47 $1.37 $1.47 $1.42WTI $96.00 $99.00 $92.00 $91.00

RBC vs Street Consensus2014E 2015E

Source: Bloomberg, RBC Capital Markets estimates

Surge Energy Inc.


12

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

SGY (Pre LNV)

SGY (Post LNV)

CJ

WCP

TBE

TOG

PLT.un

LTS

LRE

LNV

AET.un

$25.00

$30.00

$35.00

$40.00

$45.00

$50.00

$55.00

$60.00

50% 55% 60% 65% 70% 75% 80% 85% 90% 95%

Liquids Weight

20

14

E Fi

eld

Ne

tbac

k ($

/bo

e)

Source: Company reports, RBC Capital markets estimates

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.

Surge Energy Inc.


13

Exhibit 11: Surges interest costs per BOE and 2014E forward-net-debt-to-cash flow rank above peer group average

LNV

LRE

TOGTBE

WCP

CJ

SGY (Post LNV)

SGY (Pre LNV)

0.0x

0.5x

1.0x

1.5x

2.0x

2.5x

$- $0.50 $1.00 $1.50 $2.00 $2.50 $3.00 $3.50 $4.00

Interest Cost ($/boe)

20

14

E N

et

De

bt/

Cas

h F

low


Exhibit 12: Surges corporate costs rank in the middle of the peer group

SGY (Pre LNV)

SGY (Post LNV)CJ WCP

TBETOG

PLT.un

LRE

LNV

AET.un

$2

$4

$6

$8

$10

$12

$14

- 5,000 10,000 15,000 20,000 25,000 30,000 35,000

2014E Production (boe/d)

20

14

E C

orp

ora

te C

ost

s ($

/bo

e)


A combination with Longview would lower Surges net-debt-to-cash-flow.

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.

Surge Energy Inc.


14

Exhibit 13: Surges payout ratio is below 100% with a 14% total return

SGY (Pre LNV)

SGY (Post LNV)

WCPTBE

TOG

PLT.un

LTS

LRE

LNV

3%

5%

7%

9%

11%

13%

15%

17%

19%

70% 80% 90% 100% 110% 120% 130%

Effective Payout (Pre DRIP)

15

/14

De

bt-

adj P

rod

. pe

r sh

are

+ C

ash

Yie

ld


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.

Surge Energy Inc.


15

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

2016E All-in payout Ratio 2014E All-in payout Ratio (Post-DRIP)

Edmonton Light (C$/bbl) Edmonton Light (C$/bbl)

$85 $90 $95 $100 $105

$3.00 142% 122% 107% 95% 86%

$3.50 140% 120% 106% 94% 85%

$4.00 137% 118% 104% 93% 84%

$4.50 135% 117% 103% 92% 83%

$5.00 132% 115% 101% 91% 82%AEC

O (

C$

/mcf

)


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

$74

$76

$78

$80

$82

$84

$86

$88

$90

$92

$94

$96

Cardinal TORC Surge Long Run Whitecap

Edm

onto

n Li

ght

(C$/

boe)

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

Basi

c Pa

yout

Rat

io

Pre DRIP Post DRIP Basic Payout Ratio


We estimate an Edmonton Par price of $96/bbl is required for Surge to maintain an effective payout ratio below 100% in 2016.

Surge Energy Inc.


16

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

Crude Oil Gas Total % Liquids FDC

[mbbl] [mmcf] [mboe] [%] [$mm]

Reserves

Proven 32,875 63,711 43,493 76% 290

Probable 24,105 35,161 29,965 80% 164

Proven + Probable 56,980 98,872 73,459 78% 454

% PDP (of 2P) 36% 34% 35%

% PNP (of 2P) 1% 3% 2%

% PUD (of 2P) 21% 28% 23%

% Probable (of 2P) 42% 36% 41%

Reserve Engineers: Sproule/McDaniel

Crude Oil Gas Total % Liquids

Production [bbl/d] [mmcf/d] [boe/d] [%]

2012A 6,181 16.2 8,873 70%

2013A 8,488 13.7 10,767 79%

2014E 13,585 15.2 16,125 84%

2015E 12,811 14.6 15,250 84%

CAGR (3 year) 27% nmf 20%

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

Proved Developed 4.1 6.0 4.4

Proven 6.6 11.5 7.4

Proven + Probable 11.5 17.8 12.5

Reserve Replacement Efficiency 2012A 2013A

FD&A Proven (inc FDC) $22.46 $42.96

FD&A Proven+Probable (inc FDC) $18.79 $28.06

Recycle Ratio Proven (excluding hedging) 1.5x 1.0x

Recycle Ratio P+P (excluding hedging) 1.8x 1.5x

FDC Per PUD $14.37 $17.50

FDC Per Probable $5.85 $5.46

Source: Company reports, RBC Capital Markets estimates

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.

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.

Surge Energy Inc.


17

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 Areas

Gross Operated

Production (boe/d) % Total

West Alberta Valhalla, Nipisi 8,000 35%

Southeast Alberta Wainwright, Silver 3,500 15%

Southwest Saskatchewan Shaunavon, Viking 3,700 16%

Williston Basin Manson, Macoun 2,000 9%

Longview Oil* Nevis, Weyburn, Wapella, Steelman 5,816 25%

Total 23,016 100%

*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

Williston Basin

Nevis

Shaunavon

Dodsland

Viking

Valhalla

Nipisi/Gift

Silver/

Wainwright

Created in AccuMap, a product of IHS

RBC

Created in AccuMapProduct of IHSDatum: NAD27

Vol. 24 No. 02, Feb 20 2014(403) 770-4646Copyright 1991-2014

Author:Date:File:

Scale:Projection:

Center:

kemackeyApril 9, 2014SGY Map All.MAP1 : 5080495Stereographic N53.39927 W110.15537

Grid Information:DLS: IHS Enhanced GridNTS: Theoretical GridFPS: Theoretical GridUS: IHS US Grid

DLS Version Information:AB: ATS 2.6BC: PRB 2.0SK: STS 2.5MB: MLI07

Scale 1:50804950 300Kilometers

0 200Miles

LAND LEGEND

Land Lists:

Longview Land

SGY Land

Williston Basin

Nevis


RBC



Author:Date:File:

Scale:Projection:

Center:

kemackeyMarch 31, 2014SGY Map All.MAP1 : 5080495Stereographic N53.39927 W110.15537




0 200Miles

LAND LEGEND

Land Lists:

Longview Land

SGY Land

Nevis: 1,406 boe/d

production

Williston Basin: 2,370 boe/d,

roughly 40% from recent

Midale drilling

Source: AccuMap, RBC Capital Markets

Surge Energy Inc.


18

Exhibit 19: We estimate Surges corporate decline rate at 25% with about two-thirds of production brought on-stream since 2011

0

5,000

10,000

15,000

20,000

25,000

Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13

Prod

ucti

on R

ate

[boe

/d]

0

100

200

300

400

500

600

700

800

900

1,000

Wel

l Cou

nt

Pre 2005 Production 2005 Production 2006 Production 2007 Production2008 Production 2009 Production 2010 Production 2011 Production2012 Production 2013 Production Total Well Count

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

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.

We estimate Surges 25% corporate decline rate from about 950 producing wells.

Exhibit 20: Recent licenses and inventory

Area Licences Net Inventory

Silver 15 137.4

Shaunavon 11 262

Valhalla 7 36.7

Macoun 7 23

Viking 4 112

Nipisi 1 37

Other 1 72

Total Licences 46 680

Source: AccuMap, RBC Capital Markets estimates

Surge Energy Inc.


19

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 (

20

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 30-day IP and EURs in Surges portfolio, the play provides attractive returns in terms of primary development with potential for secondary recovery through further delineation.

In 2014, Surge plans to drill four (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.

Exhibit 22: Surge has 46 gross drilling locations at Valhalla

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Author:Date:File:

Scale:Projection:

Center:

kemackeyMarch 28, 2014SGY Valhalla Map.MAP1 : 104725Stereographic N55.43245 W119.22482




0 4Miles

WELL LEGEND Bottom Hole Locations:

A Location

E Oil

G Dry & Abandoned

J Abandoned Oil

L Abandoned Gas

C Suspended

F Gas

I Suspended Oil

K Suspended Gas

Surface Hole Locations:

U Directional V Horizontal

WELL LISTS

N SGY All Wells

SN SGY Hz Wells

SN CDOR Less Than 100 bbl/d

SN CDOR 100 - 300 bbl/d


SN CDOR 500+ bbl/d

LAND LEGEND

Land Lists:

SGY Land

SGY 02-02

First well drilled into

Montney formation.

Awaiting tie-in.


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Author:Date:File:

Scale:Projection:

Center:





0 4Miles


A Location

E Oil

G Dry & Abandoned

J Abandoned Oil

L Abandoned Gas

C Suspended

F Gas

I Suspended Oil

K Suspended Gas



WELL LISTS

N SGY All Wells

SN SGY Hz Wells




SN CDOR 500+ bbl/d

LAND LEGEND

Land Lists:

SGY Land

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SN SGY Hz Wells




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LAND LEGEND

Land Lists:

SGY Land

Surge Energy Inc.


21

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 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 wells

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kemackeyMarch 25, 2014SGY Nipisi Map.MAP1 : 102812Stereographic N55.71376 W115.29086




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WELL LISTS

N All Wells

SN Slave Point Hz Wells

SN SGY Slave Point Hz Wells

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LAND LEGEND

Land Lists:

Broker Land

SGY Land

CNQ Land

DVN Land

SGL Land

Harvest Land

SGY 10-10 Injector

Initiated: Sept 2013

Cumulative: 47 mboe

SGY 12-02 Injector

Initiated: May 2013

Cumulative: 156 mboe

SGY 13-11 Injector

Initiated: Jan 2014

Cumulative: 2 mboe

SGY 02-02

May Prod: 122 bbl/d

June Prod: 104 bbl/d

July Prod: 130 bbl/d

Aug Prod: 220 bbl/d

SGY 07-02

May Prod: 86 bbl/d

June Prod: 97 bbl/d

July Prod: 72 bbl/d

Aug Prod: 79 bbl/d


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.

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Author:Date:File:

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Author:Date:File:

Scale:Projection:

Center:





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LAND LEGEND

Land Lists:

Broker Land

SGY Land

CNQ Land

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SGL Land

Harvest Land

Surge Energy Inc.


22

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 primary recovery. The purchase of Longview should add roughly 2,370 boe/d (99% liquids) and 13.7 mmboe of Proved plus Probable reserves, including 59,000 net acres (62% held by mineral title) of Midale prospective lands at Weyburn, Marly, and Pinto. In 2014, Surge plans to drill 3 (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.

Exhibit 24: Surge and Longview have complementary asset bases in the Williston Basin


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IICI

G

GEEGEEEDEEGDI

G

I

GA

EEJECEESMEEEEJEMAEIJIMJGJJEDIIGIIEEDSEEEEEEDCJIEEJEEEEEECJJE

GCCDESDDEDEIDDEEEGGI

AEEEAEGDEEEGDI

EDIEED

GJEEGEGEG

IEJCE

IIEIGDI IECI

KEGEEEEEGCEIEGIEEIIII

ISIIECEJEMSEEEESESIESEIJGIGSGGJJIIEIJGSIIJIEJIEMSEEEEIEEDIJMEACEEIJEJIEIIEGIIEGEIASIIESEEEGE

GJGI EEEEIIIGIIAEEIEEGAEE

Manson

Macoun

Steelman

Hastings

Williston Basin

T1

T3

T5

T7

T9

T11

T13

T15

T17

T19

T1

T3

T5

T7

T9

T11

T13

T15

T17

T19

R27W1R29R31R33

Documents

SGYRBCAp2014