CALGARY, ALBERTA–(Marketwired – May 11, 2016) – Gear Energy Ltd. (“Gear” or the “Company”) (TSX:GXE) is pleased to provide the following first quarter operating update to shareholders. Gear’s Interim Financial Statements and related Management’s Discussion and Analysis (MD&A) for the period ended March 31, 2016 are available for review on Gear’s website at www.gearenergy.com and on www.sedar.com.
|Three months ended|
|(Cdn$ thousands, except per boe amounts)||March 31, 2016||March 31, 2015||Dec 31, 2015|
|Cash flow from operations (1)||3,985||12,210||4,682|
|Per weighted average basic and diluted share||0.05||0.17||0.06|
|Cash flow from operating activities||3,556||12,439||3,801|
|Per weighted average basic and diluted share||0.04||0.18||0.05|
|Net income (loss)||(1,716||)||(4,357||)||(26,501||)|
|Per weighted average basic and diluted share||(0.02||)||(0.06||)||(0.35||)|
|Net acquisitions (2)||(480||)||(132||)||–|
|Net debt outstanding (1)||59,550||83,313||65,972|
|Shares outstanding, weighted average, basic||85,484||70,817||75,918|
|Shares outstanding, weighted average, diluted||85,484||70,817||75,918|
|Shares outstanding, end of period||85,484||70,817||85,484|
|Oil and liquids (bbl/d)||4,192||6,466||4,819|
|Natural gas (mcf/d)||1,459||944||1,176|
|Oil and liquids ($/bbl)||20.90||35.93||31.68|
|Natural gas ($/mcf)||1.52||2.15||2.10|
|Oil equivalent ($/boe)||20.25||35.39||30.93|
|Commodity and other sales||20.25||35.39||30.93|
|Operating netback (before hedging)||3.28||11.20||9.58|
|Realized risk management gains||12.71||12.91||3.86|
|Operating netback (after hedging)||15.99||24.11||13.44|
|General and administrative||3.67||2.76||2.00|
|Foreign exchange (gain) loss||–||(0.52||)||0.06|
|TRADING STATISTICS ($ based on intra-day trading)|
|Average daily volume (thousands)||139||245||157|
|(1)||Cash flow from operations and net debt are non-GAAP measures and are reconciled to the nearest GAAP measures 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.|
The first quarter of the year began with another material decline in oil prices and continued uncertainty regarding the future price of oil. As previously announced, Gear chose to defer capital development plans to the second half of the year in order to take advantage of lower cost summer operations and to give the commodity markets an opportunity to stabilize. As a result of this decision, production was allowed to decline and cash flow was dedicated to further reducing outstanding debt.
Current and predicted future prices have now improved which provides Gear the opportunity to be more aggressive in planning capital spending to maximize value for the long term.
- Gear realized record low operating costs including transportation of $15.34 per boe during the first quarter despite the declines in production. The first quarter costs are down 14 per cent over the first quarter of 2015 and down eight per cent from the previous quarter. The reductions were achieved as a result of lower fuel and labor costs, increased operating efficiencies and the shut-in of high cost wells throughout 2015.
- Gear recorded record low royalty costs on a percentage basis and on a per boe basis during the first quarter of 2016. Total royalty expenses for the quarter were eight per cent or $1.63 per boe. These quarterly costs represent a 55 per cent decrease on a percentage basis and 74 per cent decrease on a per boe basis over the first quarter of 2015.
- During the quarter WCS heavy barrels traded at the lowest they ever have since inception of the WCS benchmark; Gear’s realized heavy oil price decreased significantly from $35.93 per bbl in the first quarter of 2015 to $20.90 per bbl in the first quarter of 2016. Forward oil markets have improved recently such that the current estimates of Gear realized pricing for the remaining three quarters of 2016 have climbed by almost 70 per cent to greater than $35 per bbl. This improvement is a result of stronger WTI pricing coupled with further compression in the percentage of WCS discount for heavy oil.
- Sales production for the first quarter averaged 4,435 boe per day, a decrease from the preceding quarter of 580 boe per day. This reduction is the result of natural declines, the temporary shut-in of uneconomic production and no offsetting production growth due to lack of capital investment. The current 2016 budget forecasts a return to activity in July of 2016 with a ten well horizontal drilling program that is anticipated to provide growth through the fourth quarter of 2016. Current production guidance for 2016 is an annual average of 4,000 boe per day
- Realized quarterly cash flow from operations of $4.0 million was a reduction of 67 per cent relative to the first quarter of 2015 and a 15 per cent reduction from the fourth quarter of 2015. The reduced cash flow is due to record low realized heavy oil prices in combination with lower production volumes. Cash flow for the quarter was dominated by realized hedging gains of $5.1 million.
- Capital expenditures for the quarter were a net credit after inclusion of a small non-core, non-producing asset disposition for $0.5 million. This capital credit in combination with quarterly cash flow resulted in a 10 per cent reduction in total net debt from $66.0 million at December 31, 2015 to $59.6 million at March 31, 2016. The net debt is inclusive of $14.8 million of convertible debentures due November 2020.