CALGARY, ALBERTA–(Marketwired – Aug. 3, 2016) – Gear Energy Ltd. (“Gear” or the “Company”) (TSX:GXE) is pleased to provide the following second quarter operating update to shareholders. Gear’s Interim Financial Statements and related Management’s Discussion and Analysis (MD&A) for the period ended June 30, 2016 are available for review on Gear’s website at www.gearenergy.com and on www.sedar.com.
Financial Summary
Three months ended | Six months ended | ||||||||||
(Cdn$ thousands, except per boe amounts) | Jun 30, 2016 | Jun 30, 2015 | Mar 31, 2016 | Jun 30, 2016 | Jun 30, 2015 | ||||||
FINANCIAL | |||||||||||
Cash flow from operations (1) | 8,333 | 14,900 | 3,985 | 12,317 | 27,110 | ||||||
Per weighted average diluted share | 0.10 | 0.21 | 0.05 | 0.14 | 0.38 | ||||||
Cash flow from operating activities | 5,066 | 14,432 | 3,556 | 8,622 | 26,871 | ||||||
Per weighted average diluted share | 0.06 | 0.20 | 0.04 | 0.10 | 0.38 | ||||||
Net (loss) income | (7,312) | (2,301) | (1,716) | (9,028) | (6,658) | ||||||
Per weighted average diluted share | (0.08) | (0.03) | (0.02) | (0.11) | (0.09) | ||||||
Capital expenditures | 1,165 | 4,286 | 101 | 1,267 | 4,457 | ||||||
Net acquisitions (2) | 26 | (553) | (480) | (454) | (685) | ||||||
Net debt outstanding (1) | 34,200 | 71,678 | 59,550 | 34,200 | 71,678 | ||||||
Weighted average shares, basic and diluted | 86,117 | 70,817 | 85,484 | 85,800 | 70,817 | ||||||
Shares outstanding, end of period | 114,234 | 70,817 | 85,484 | 114,234 | 70,817 | ||||||
OPERATING | |||||||||||
Production | |||||||||||
Oil and liquids (bbl/d) | 4,358 | 5,492 | 4,192 | 4,275 | 5,976 | ||||||
Natural gas (mcf/d) | 1,070 | 838 | 1,459 | 1,265 | 890 | ||||||
Total (boe/d) | 4,536 | 5,632 | 4,435 | 4,485 | 6,125 | ||||||
Average prices | |||||||||||
Oil and liquids ($/bbl) | 39.00 | 50.72 | 20.90 | 29.95 | 43.37 | ||||||
Natural gas ($/mcf) | 1.20 | 2.31 | 1.52 | 1.39 | 2.23 | ||||||
Oil equivalent ($/boe) | 37.75 | 49.81 | 20.25 | 29.10 | 42.06 | ||||||
Netback ($/boe) | |||||||||||
Commodity and other sales | 37.75 | 49.81 | 20.25 | 29.10 | 42.06 | ||||||
Royalties | 2.96 | 5.96 | 1.63 | 2.30 | 6.13 | ||||||
Operating costs | 13.44 | 18.66 | 15.34 | 14.38 | 18.26 | ||||||
Operating netback (before hedging) (1) | 21.34 | 25.19 | 3.28 | 12.41 | 17.67 | ||||||
Realized risk management gains (losses) | 4.91 | 9.37 | 12.71 | 8.76 | 11.28 | ||||||
Operating netback (after hedging) (1) | 26.25 | 34.56 | 15.99 | 21.17 | 28.95 | ||||||
General and administrative | 3.28 | 3.87 | 3.67 | 3.47 | 3.28 | ||||||
Transaction costs | 1.22 | – | – | 0.62 | – | ||||||
Interest | 1.56 | 1.42 | 1.53 | 1.54 | 1.40 | ||||||
Foreign exchange (gain) loss | – | 0.17 | – | – | (0.20) | ||||||
Drilling commitments | – | – | 1.19 | 0.59 | – | ||||||
Corporate netback (1) | 20.19 | 29.10 | 9.60 | 14.95 | 24.47 | ||||||
TRADING STATISTICS ($ based on intra-day trading) | |||||||||||
High | 0.82 | 2.60 | 0.61 | 0.82 | 2.62 | ||||||
Low | 0.46 | 1.78 | 0.25 | 0.25 | 1.38 | ||||||
Close | 0.61 | 1.88 | 0.54 | 0.61 | 1.88 | ||||||
Average daily volume (thousands) | 272 | 147 | 139 | 206 | 196 |
(1) | Cash flow from operations, net debt, operating netback and corporate netback are non-GAAP measures and additional information with respect to these measures can be found under the heading “Non-GAAP Measures“. |
(2) | Net acquisitions exclude non-cash items for decommissioning liability and deferred taxes and is net of post-closing adjustments. |
HIGHLIGHTS
On July 27, 2016, Gear completed the acquisition of Striker Exploration Corp. (“Striker”) in exchange for 76.2 million Gear shares and the assumption of approximately $9 million in net debt. The acquisition provides Gear with an additional 2,000 boe/d of 60 per cent light and medium oil production, approximately 90 net sections of undeveloped land, a new core focus area in the emerging Belly River light oil resource play, and a materially strengthened balance sheet. Gear currently estimates a total inventory of approximately 450 heavy and light oil drilling opportunities and plans on drilling its first well into the Belly River resource play in the fourth quarter of 2016. Gear will continue to aggressively target further strategic acquisition opportunities within its existing and new core areas. The following summarizes guidance for the full year 2016 and second half of 2016:
Full Year 2016 Guidance | H2 – 2016 Guidance | |||
Production – Annual (boe/d) (1) | 5,250 | 6,000 | ||
Exit Production (boe/d) | 6,400 | 6,400 | ||
Percent oil and liquids (%) | 88 | 85 | ||
Royalty rate (%) | 11 | 12 | ||
Operating costs ($/boe) | 14.00 – 16.00 | 14.00 – 16.00 | ||
General and administrative expense ($/boe) | 2.80 | 2.50 | ||
Interest expense ($/boe) | 1.25 | 1.00 | ||
Capital expenditures ($ millions) | 12.5 | 11.2 | ||
Year-end shares outstanding (millions) | 190.5 | 190.5 |
(1) Striker volumes are included commencing July 27, 2016.
- Realized quarterly cash flow from operations of $8.3 million, a 109 per cent increase from the first quarter of 2016. Gear increased its cash flow as a result of higher pricing, record low royalty rates, record low operating costs per boe, and a one-time adjustment of approximately $2.1 million relating to prior periods on revenue. Despite continued commodity price weakness, albeit improved from the first quarter, Gear was able to achieve a $21.34 per boe field netback and a $20.19 per boe cash flow net back. Annualizing cash flow from operations, Gear’s second quarter ratio of net debt to cash flow was 1.0 times. Gear continues to take prudent measures to strengthen its balance sheet in order to maintain financial flexibility through this low commodity price environment.
- Realized heavy oil prices recovered by 87 per cent in the second quarter of 2016 to $39.00 per barrel compared to the first quarter of 2016 price of $20.90 per barrel as a result of an increase in the WTI benchmark oil price, a narrowing of heavy oil differentials, and a stable Canadian dollar. Looking forward, Gear currently expects further commodity price volatility and potential weakness for the second half of 2016.
- Sales production for the second quarter averaged 4,536 boe per day, assisted by the reactivation of approximately 100 barrels per day of shut in production and a one-time adjustment of approximately 400 barrels per day relating to prior periods. These factors combined to help offset natural declines and limited development production additions due to minimal capital investment. With production from the Striker acquisition and new production from Gear’s drilling program, Gear expects to resume growth during the second half of 2016 and to exit the year at approximately 6,400 boe per day.
- During the second quarter Gear spudded one quad-lateral un-lined horizontal well into the Cummings at Wildmere. This well is now producing, with two additional quad-lateral wells also drilled but not yet on production to date in the third quarter of 2016. Following the successful completion of the Wildmere Cummings program, Gear plans to drill six additional wells in Paradise Hill, two wells in Wilson Creek, and one exploration well for the remainder of 2016 for a total of twelve wells.
- Achieved record low operating costs in the second quarter of $13.44 per boe or a 12 per cent decrease from the first quarter. Operating costs have fallen as a result of continuous cost saving measures and the benefit of shutting in high operating cost wells. For the full year 2016, operating costs are expected to range from $14 to $16 per boe.
- Completed a bought deal financing with net proceeds of approximately $18.8 million through the issuance of 28.75 million Gear shares at a price of $0.70 per Gear share with proceeds used to reduce indebtedness.
- Decreased net debt by a total of $25.3 million ($18.8 million from the financing and an additional $6.5 million from cash flow) to end the quarter with a net debt balance of $34.2 million, inclusive of $14.8 million of convertible debentures. Concurrent with the closing of the Striker acquisition, Gear entered into a credit agreement for $50 million of senior secured revolving credit facilities.
- Ended the second quarter with a Liability Management Ratio (“LMR”) in Alberta of 2.2. Gear expects its LMR to increase to approximately 2.6 following the Striker acquisition.