Growth and struggle are an inevitable part of a business’s success. Defining a business’s motive and being consistent at achieving it requires integrity, teamwork, excellence, safety, and transparency of a business or an organization. These five principles serve as pillars of success for a business’s growth which is what Surge Energy U.S Holdings Company is all about. With operations commencing in 2015 and currently led by CEO Linhua Guan, the independent oil and gas company is headquartered in Houston, Texas, United States of America. The team at Surge Energy goes leaps and bounds, ensuring that their focus on developing, acquiring, and exploiting oil and natural gas reserves is never going out of focus. The company operates in the Midland Basin of West Texas, one of the three primary sub-basins of the Permian Basin. Running for nearly six years, the company began working with an investment from China-based Shandong Xinchao Energy Corporation Limited, a publicly-traded company on the Shanghai Stock Exchange. It strategizes to build a long-term, sustainable U.S oil and gas company. From here onwards, Surge Energy began their journey, stepping into the business and making a name for themselves, defining themselves via what they laid their foundations on ‘Safety, Integrity, Teamwork, Excellence, and Transparency.’
Where Focus Goes, Energy Flows
It is self-explanatory that where one’s focus goes, energy drives towards the same. This was the case with Surge Energy. The company began with an investment from ‘Shandong.’ In May 2015, Shandong signed an agreement to buy its first resource, Hoople Field, and hired a group of skilled people to begin building Surge organization and take over operations of the new asset comprised of approximately 5,000 acres of land in Crosby County, TX. Surge’s team quickly grew to include experts providing oil-industry technical, operating, and business expertise, positioning the organization for increasing development in the productive Permian Basin. However, as Surge was assuming operatorship of Hoople in September 2015, a far more significant acquisition was in the works. In November 2015, Surge closed on the accession of the Moss Creek asset from two private equity-backed operation teams. This new asset consisted of roughly 80,000 leasehold acres in the Midland Basin alongside an enormous drilling and development inventory. The Moss Creek acreage extends between northern Howard County and southern Borden County of Texas. At the time of the acquisition, Moss Creek field included around 30 producing wells, ~6,500 BOE/D of production, and an enormous opportunity for development.
The initial drilling in 2016 and 2017 was primarily focused on Howard County, and Surge recorded strong production, reserves, and EBITDA growth. This growth resulted from the Surge team’s strong technical understanding to optimize geological locations and improve completion designs to focus on near-wellbore complexity, a method of hydraulic fracturing that improves results with shorter, more condensed fractures.
Borden County saw minimal development through 2016 due to challenging economic results. Most industry experts believed the Horseshoe Atoll, a geologic feature that runs across the intersection of Howard and Borden Counties, was the limit of economically viable oil wells.
Initial results from early wells in Borden County proved oil was present, but it was unknown whether the development could be economic. Throughout 2016 – 2018, Surge had implemented several technical improvements & innovations during the development of Howard County that improved project economics by:
- Investing in produced water transportation infrastructure to reduce the need for trucking produced water from oil wells to disposal facilities.
- Investing in produced water recycling infrastructure to reduce the amount of freshwater usage for hydraulic fracturing. Between 2017 and 2018, Surge constructed three locations within Moss Creek to receive and treat produced water, making the water acceptable for fracturing purposes. The environmental benefit of this process is substantial. One horizontal well frack utilizes, on average, 350,000 barrels of freshwater. The use of recycled water for fracking preserved 30 million barrels of fresh water in the region’s water table in 2019 for future use in either irrigation or domestic supply. In 2020, 7.5 million barrels of freshwater were preserved by Surge’s recycling of produced water.
- Optimizing landing zones to the most favorable location and focusing on staying in that zone while drilling the entire lateral portion of the well would result in higher productivity and reserves
- Reducing drilling times by over 50% from the previous operator performance would result in lower drilling costs
- Optimizing completions to maximize near-wellbore frack complexity would improve well performance
- Testing then implementing the use of regional Texas sands for fracturing procedures versus sands that had to be shipped from northern states, therefore reducing total well cost
These improvements in Howard County paved the way to the Borden County area in the initial drilling in 2017 and early 2018 with improved cost and productivity relative to the previously drilled wells. By the end of 2019, the output from Borden county comprised over 20% of the company’s overall oil & gas production.
The activities listed above exemplify Surge’s foundational principles. In addition, the effort to reduce costs while also removing trucks from the road and preserving groundwater are great examples of the team’s desire for excellence while progressing the company forward.
Building on the same principles, while the company’s well count and production continued to increase, Surge identified another opportunity in late 2019 for cost optimization with added environmental benefits. A large portion of Surge’s acreage is in a sparsely populated area of West Texas with minimal electrical infrastructure. The primary power source for the well sites was on-site generators that burn natural gas at approximately 108 MCF per day per generator. The emissions associated with these generators were a target for Surge to improve its environmental footprint while also saving costs.
Surge constructed a company-owned electrical substation, known as the Dragon Substation, to connect a 138 kV utility transmission system into its operated power line infrastructure in late 2019, resulting in improved supply security, reliability, and lower electrical costs. This Dragon substation was placed in service in January 2020, and well-site generator usage was immediately reduced by 32 units (from 56 to 24). Surge Energy continued the build-out of its operated
electrical infrastructure during 2020 by adding over 7 miles of power lines and other equipment, resulting in the removal of 21 additional well-site generators, leaving only three remaining in the field at year-end 2020.
The impact of the Dragon Substation and the method by which it was built was substantial for Surge’s operating costs and safety record. In addition, the transition from on-site generator power to electric grid power also had a significant positive impact on the environment.
Accomplishing Success Step by Step
Surge Energy is a prime example reflecting a leadership’s dedication to living by their principles and achieving set goals. The company followed strategies to be a sustainable oil company. With the execution of three more acquisitions between 2019 and 2021, Surge boasts an asset of approximately 113,000 net leasehold acres and production of over 46,000 BOE/D while the company’s disciplined financial strategies keep Surge’s balance sheet healthy. Most importantly, Surge’s leadership continues to focus on the safety and well-being of its employees, which CEO Linhua Guan deems to be the company’s most important asset. As a result, Surge was recently listed as one of the Houston Business Journal’s Best Places to Work in 2021. This is the second consecutive year for Surge to receive this honor.
In June 2021, Surge proudly celebrated a company milestone of producing its 100 millionth barrel of oil equivalent, bolstering its goal of being a long-term, sustainable oil & gas company. “Surge is proud to celebrate this significant achievement of reaching 100 million gross barrels of oil equivalent in our six-year history as a company,” stated Chief Executive Officer Linhua Guan. “This production has made a substantial economic impact in Texas as evidenced by over 1 billion dollars being distributed as royalty and tax payments.”
With all the efforts Surge Energy has put in, they have certainly adhered to the principles set up by the leadership for the team. As a result, the company has achieved a benchmark and has defined itself in a way like none other.