CALGARY, ALBERTA–(Marketwired – Feb. 17, 2016) – Gear Energy Ltd. (“Gear” or the “Company”) (TSX:GXE) is pleased to provide the following fourth quarter and year-end operating update to shareholders. For more information in conjunction with this release, please refer to Gear’s Annual Audited Financial Statements, Management’s Discussion and Analysis (“MD&A”) for the years ended December 31, 2015 and 2014, and 2015 Reserves Press Release titled “Gear Energy Ltd. Announces Year-End Reserves“, all of which are available for review on Gear’s website at www.gearenergy.com and on www.sedar.com.
Financial Summary
Three months ended | Twelve months ended | ||||||||||
(Cdn$ thousands, except per boe amounts) | Dec 31, 2015 | Dec 31, 2014 | Sep 30, 2015 | Dec 31, 2015 | Dec 31, 2014 | ||||||
FINANCIAL | |||||||||||
Cash flow from operations (1) | 4,682 | 20,602 | 7,416 | 39,208 | 76,044 | ||||||
Per weighted average diluted share | 0.06 | 0.29 | 0.10 | 0.54 | 1.12 | ||||||
Cash flow from operating activities | 3,801 | 13,425 | 9,873 | 40,545 | 65,922 | ||||||
Per weighted average diluted share | 0.05 | 0.19 | 0.14 | 0.56 | 0.97 | ||||||
Net loss | (26,501) | (29,999) | (63,360) | (96,519) | (13,080) | ||||||
Per weighted average diluted share | (0.35) | (0.42) | (0.89) | (1.34) | (0.20) | ||||||
Capital expenditures | 3,993 | 20,969 | 6,433 | 14,883 | 84,580 | ||||||
Net acquisitions (2) | – | (1,027) | – | (686) | 79,861 | ||||||
Net debt outstanding (1) | 65,972 | 98,404 | 71,753 | 65,972 | 98,404 | ||||||
Shares outstanding, weighted average, basic | 75,918 | 70,817 | 70,817 | 72,103 | 66,706 | ||||||
Shares outstanding, weighted average, diluted | 75,918 | 71,485 | 70,817 | 72,103 | 67,840 | ||||||
Shares outstanding, end of period | 85,484 | 70,817 | 70,817 | 85,484 | 70,817 | ||||||
OPERATING | |||||||||||
Production | |||||||||||
Oil and liquids (bbl/d) | 4,819 | 6,836 | 5,295 | 5,513 | 5,846 | ||||||
Natural gas (mcf/d) | 1,176 | 991 | 810 | 942 | 1,046 | ||||||
Total (boe/d) | 5,015 | 7,001 | 5,430 | 5,670 | 6,020 | ||||||
Average prices | |||||||||||
Oil and liquids ($/bbl) | 31.68 | 62.39 | 39.58 | 39.47 | 76.15 | ||||||
Natural gas ($/mcf) | 2.10 | 3.57 | 2.60 | 1.61 | 4.30 | ||||||
Oil equivalent ($/boe) | 30.93 | 61.42 | 38.98 | 38.84 | 74.69 | ||||||
Netback ($/boe) | |||||||||||
Commodity and other sales | 30.93 | 61.48 | 38.98 | 38.84 | 74.82 | ||||||
Royalties | 4.72 | 11.02 | 4.88 | 5.52 | 13.83 | ||||||
Operating costs | 16.63 | 19.94 | 17.53 | 17.72 | 20.96 | ||||||
Operating netback (before hedging) (1) | 9.58 | 30.52 | 16.57 | 15.60 | 40.03 | ||||||
Realized risk management gains (losses) | 3.86 | 3.98 | 1.80 | 7.34 | (0.99) | ||||||
Operating netback (after hedging) (1) | 13.44 | 34.50 | 18.37 | 22.94 | 39.04 | ||||||
General and administrative | 2.00 | 1.86 | 2.66 | 2.84 | 3.35 | ||||||
Interest | 1.28 | 1.31 | 1.34 | 1.36 | 1.36 | ||||||
Foreign exchange loss (gain) | 0.06 | (0.63) | (0.47) | (0.20) | (0.26) | ||||||
Corporate netback (1) | 10.10 | 31.96 | 14.84 | 18.94 | 34.59 | ||||||
TRADING STATISTICS ($ based on intra-day trading) |
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High | 1.10 | 4.86 | 1.86 | 2.62 | 6.41 | ||||||
Low | 0.40 | 1.96 | 0.67 | 0.40 | 1.96 | ||||||
Close | 0.53 | 2.50 | 0.68 | 0.53 | 2.50 | ||||||
Average daily volume (thousands) | 157 | 398 | 137 | 172 | 338 |
(1) | Cash flow from operations, net debt, operating netback and corporate netback, (or as sometimes referred to herein as cash flow netback), are non-GAAP measures and additional information with respect to these measures can be found under the heading “Non-GAAP Measures” in Gear’s MD&A. | |
(2) | Net acquisitions exclude non-cash items for decommissioning liability and deferred taxes and is net of post-closing adjustments |
HIGHLIGHTS
In light of continued oil price weakness, Gear focused on sustainability by adopting a cautious view throughout 2015. Of the total $39 million of cash flow generated through the year, $25 million or 64 per cent was directed towards reducing outstanding debt. In addition, Gear successfully raised net $9.5 million through an equity issuance in the fourth quarter of 2015. In total these activities resulted in net debt declining by 33 per cent from the prior year. In addition, $14.8 million, or 22 per cent of the total $66 million of current net debt was moved to a five year convertible debenture structure due in November 2020. With the remaining $14.2 million of cash flow Gear completed a 100 per cent successful 12 well horizontal heavy oil drilling program. The Gear team has a consistent track record of successfully and economically developing its asset base and remains confident in the strength and depth of its undeveloped opportunities. Gear believes that future capital investments can continue to yield strong positive rates of return with only a slight improvement in the oil price environment.
- Production for the fourth quarter was 5,015 boe/d, an eight per cent reduction from the third quarter of 2015 due to natural declines and the shut-in of approximately 200 boe/d of currently uneconomic production. Annual 2015 production of 5,670 boe/d represents a six per cent decline from 2014.
- During the year, Gear drilled 12 successful horizontal heavy oil wells in Wildmere, Paradise Hill and Morgan for a total capital cost of $10.1 million. An additional $4.1 million was invested in 20 vertical well recompletions, land, seismic, facilities, and minor acquisitions and divestments. The production and independently assessed reserves resulting from the total $14.2 million investment yielded a competitive rate of return of greater than 50 per cent, using the Petroleum Consultants Jan 2016 price forecast.
- Gear added over 20 sections of prospective land throughout 2015 for a cost of just over $1 million. Based on vertical well control, the majority of this new land appears to contain heavy oil bearing reservoirs. Management estimates that if future horizontal drilling is successful in accessing economic oil from these lands, the potential inventory of de-risked follow up locations could add over 150 new locations to the already extensive inventory of low risk drilling opportunities. In total, Gear management currently estimates the Company has an inventory of 396 undeveloped future potential drilling opportunities.
- Gear realized fourth quarter cash flow from operations of $4.7 million to bring total 2015 cash flow from operations to $39.2 million or $0.54 per weighted average share. Gear achieved a cash flow net back of $10.10/boe for the fourth quarter and $18.94/boe for the year. The results are significantly lower than the $31.96/boe and $34.59/boe achieved in 2014 primarily as a result of declining commodity prices that were partially offset on a per boe basis by lower operating costs, royalties, G&A and interest costs.
- Operating costs, including transportation, were $16.63/boe for the fourth quarter and $17.72/boe for 2015. The costs are a 17 per cent reduction from the fourth quarter of 2014, a five per cent reduction from the third quarter of 2015 and a 15 per cent reduction from the prior year.
- General and administrative costs were $2.00/boe for the fourth quarter and $2.84/boe for 2015. The costs are a 25 per cent reduction from the third quarter of 2015 and a 15 per cent reduction from the prior year.
- The net debt at December 31, 2015 was $66 million or 1.7 times 2015 cash flow. The net debt includes $14.8 million of four per cent coupon convertible debentures due November 2020.
- On February 1, 2016 Gear announced a reduced capital budget for the first half of 2016. In total approximately $1 million of non-discretionary capital will be invested, while the remaining cash flow and hedging gains will be directed towards continued reduction of outstanding debt. By focusing on balance sheet strength, Gear will retain optionality in planning future capital spending and be better able to maximize the returns on capital for the large inventory of low risk drilling and select acquisition opportunities.
- Gear recorded a total 2015 net loss of $96.5 million as the result of a $70.6 million after-tax impairment charge. This non-cash charge does not impact Gear’s cash flow from operations or its credit facilities and can be reversed in future periods if commodity prices recover.
GEAR ENERGY LTD. | |||||||||
BALANCE SHEETS (unaudited) | |||||||||
As at December 31 | |||||||||
(Cdn$ thousands) | 2015 | 2014 | |||||||
ASSETS | |||||||||
Current assets | |||||||||
Accounts receivable | $ | 5,872 | $ | 15,295 | |||||
Prepaid expenses | 2,101 | 2,078 | |||||||
Inventory | 3,440 | 6,810 | |||||||
Risk management contracts | 9,173 | 13,691 | |||||||
20,586 | 37,874 | ||||||||
Deferred income tax asset | 26,243 | 16,501 | |||||||
Property, plant and equipment | 178,905 | 320,343 | |||||||
Total assets | $ | 225,734 | $ | 374,718 | |||||
LIABILITIES | |||||||||
Current liabilities | |||||||||
Accounts payable and accrued liabilities | $ | 6,860 | $ | 23,687 | |||||
Conversion approval option | 1,800 | – | |||||||
Debt | 55,725 | 98,900 | |||||||
64,385 | 122,587 | ||||||||
Debentures | 12,230 | – | |||||||
Decommissioning liability | 54,959 | 74,114 | |||||||
Total liabilities | 131,574 | 196,701 | |||||||
SHAREHOLDERS’ EQUITY | |||||||||
Share capital | 241,535 | 231,067 | |||||||
Contributed surplus | 12,377 | 10,183 | |||||||
Deficit | (159,752 | ) | (63,233 | ) | |||||
Total shareholders’ equity | 94,160 | 178,017 | |||||||
Total liabilities and shareholders’ equity | $ | 225,734 | $ | 374,718 | |||||
GEAR ENERGY LTD. | ||||||||||||||||
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (unaudited) | ||||||||||||||||
For the years ended December 31 | ||||||||||||||||
(Cdn$ thousands) | ||||||||||||||||
Share Capital | Contributed Surplus | Deficit | Total Equity | |||||||||||||
Balance at December 31, 2013 | $ | 166,869 | $ | 9,446 | $ | (50,153 | ) | $ | 126,162 | |||||||
Issued on offering of common shares | 63,500 | – | – | 63,500 | ||||||||||||
Exercise of stock options | 3,346 | (874 | ) | – | 2,472 | |||||||||||
Share issue costs, net of deferred tax benefit of $881 | (2,648 | ) | – | – | (2,648 | ) | ||||||||||
Share-based compensation | – | 1,611 | – | 1,611 | ||||||||||||
Net loss for the year | – | – | (13,080 | ) | (13,080 | ) | ||||||||||
Balance at December 31, 2014 | $ | 231,067 | $ | 10,183 | $ | (63,233 | ) | $ | 178,017 | |||||||
Issued on offering of common shares | 11,000 | – | – | 11,000 | ||||||||||||
Share issue costs, net of deferred tax benefit of $197 | (532 | ) | – | – | (532 | ) | ||||||||||
Share-based compensation | – | 2,194 | – | 2,194 | ||||||||||||
Net loss for the year | – | – | (96,519 | ) | (96,519 | ) | ||||||||||
Balance at December 31, 2015 | $ | 241,535 | $ | 12,377 | $ | (159,752 | ) | $ | 94,160 | |||||||
GEAR ENERGY LTD. | |||||||||||||||||
STATEMENTS OF LOSS AND COMPREHENSIVE LOSS (unaudited) | |||||||||||||||||
Three Months Ended December 31 |
Twelve Months Ended December 31 |
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(Cdn$ thousands, except per share amounts) | 2015 | 2014 | 2015 | 2014 | |||||||||||||
Sales of crude oil, natural gas and natural gas liquids | $ | 14,274 | $ | 39,558 | $ | 80,374 | $ | 164,116 | |||||||||
Royalties | (2,178 | ) | (7,100 | ) | (11,415 | ) | (30,394 | ) | |||||||||
Other income | – | 42 | – | 289 | |||||||||||||
REVENUE | 12,096 | 32,500 | 68,959 | 134,011 | |||||||||||||
Gain on risk management contracts | 7,761 | 16,000 | 10,662 | 13,637 | |||||||||||||
19,857 | 48,500 | 79,621 | 147,648 | ||||||||||||||
EXPENSES | |||||||||||||||||
Operating | 7,672 | 12,840 | 36,671 | 46,049 | |||||||||||||
General and administrative | 923 | 1,197 | 5,882 | 7,351 | |||||||||||||
Share-based compensation | 518 | 635 | 2,194 | 1,611 | |||||||||||||
Interest and financing charges | 592 | 842 | 2,815 | 2,980 | |||||||||||||
Accretion | 325 | 450 | 1,508 | 1,453 | |||||||||||||
Depletion, depreciation and amortization | 8,564 | 15,429 | 40,399 | 48,330 | |||||||||||||
Impairment | 10,840 | 53,800 | 96,660 | 53,800 | |||||||||||||
Exploration expense | – | 3,284 | – | 3,284 | |||||||||||||
Gain on asset disposition | (15 | ) | – | (15 | ) | (540 | ) | ||||||||||
Loss (gain) on foreign exchange | 28 | (408 | ) | (429 | ) | (581 | ) | ||||||||||
29,447 | 88,069 | 177,685 | 163,737 | ||||||||||||||
Deferred tax (expense) recovery | (16,911 | ) | 9,570 | 9,545 | 3,009 | ||||||||||||
Net loss and comprehensive loss | $ | (26,501 | ) | $ | (29,999 | ) | $ | (96,519 | ) | $ | (13,080 | ) | |||||
Net loss per share, basic and diluted | $ | (0.35 | ) | $ | (0.42 | ) | $ | (1.34 | ) | $ | (0.20 | ) | |||||
GEAR ENERGY LTD. | |||||||||||||||||
STATEMENTS OF CASH FLOWS (unaudited) | |||||||||||||||||
Three Months Ended December 31 |
Twelve Months Ended December 31 |
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(Cdn$ thousands) | 2015 | 2014 | 2015 | 2014 | |||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES | |||||||||||||||||
Net loss | $ | (26,501 | ) | $ | (29,999 | ) | $ | (96,519 | ) | $ | (13,080 | ) | |||||
Add items not involving cash: | |||||||||||||||||
Unrealized (gain) loss on risk management contracts | (5,980 | ) | (13,436 | ) | 4,517 | (15,804 | ) | ||||||||||
Share-based compensation | 518 | 635 | 2,194 | 1,611 | |||||||||||||
Bad debt expense (recovery) | 20 | 9 | 9 | (1 | ) | ||||||||||||
Accretion | 325 | 450 | 1,508 | 1,453 | |||||||||||||
Depletion, depreciation and amortization | 8,564 | 15,429 | 40,399 | 48,330 | |||||||||||||
Impairment | 10,840 | 53,800 | 96,660 | 53,800 | |||||||||||||
Exploration expense | – | 3,284 | – | 3,284 | |||||||||||||
Gain on asset disposition | (15 | ) | – | (15 | ) | (540 | ) | ||||||||||
Deferred tax expense (recovery) | 16,911 | (9,570 | ) | (9,545 | ) | (3,009 | ) | ||||||||||
Decommissioning liabilities settled | (650 | ) | (728 | ) | (1,383 | ) | (2,636 | ) | |||||||||
Change in non-cash working capital | (231 | ) | (6,449 | ) | 2,720 | (7,486 | ) | ||||||||||
3,801 | 13,425 | 40,545 | 65,922 | ||||||||||||||
CASH FLOW FROM FINANCING ACTIVITIES | |||||||||||||||||
(Repayments) borrowings of debt under demand credit facility | (23,830 | ) | 12,238 | (43,175 | ) | 33,983 | |||||||||||
Issuance of debentures, net of issue costs | 13,990 | – | 13,990 | – | |||||||||||||
Issuance of share capital, net of share issue costs | 10,271 | – | 10,271 | 62,444 | |||||||||||||
431 | 12,238 | (18,914 | ) | 96,427 | |||||||||||||
CASH FLOW USED IN INVESTING ACTIVITIES | |||||||||||||||||
Property, plant and equipment expenditures | (3,993 | ) | (20,969 | ) | (14,883 | ) | (84,580 | ) | |||||||||
Acquisition and disposition of petroleum and natural gas properties | 14 | 738 | 699 | (83,141 | ) | ||||||||||||
Change in non-cash working capital | (253 | ) | (5,432 | ) | (7,447 | ) | 4,531 | ||||||||||
(4,232 | ) | (25,663 | ) | (21,631 | ) | (163,190 | ) | ||||||||||
DECREASE IN CASH AND CASH EQUIVALENTS | – | – | – | (841 | ) | ||||||||||||
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | – | – | – | 841 | |||||||||||||
CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | – | $ | – | $ | – | $ | – |