Throughout the fourth quarter of 2016 Gear completed the following items of note:
- Successfully drilled two full section Basal Belly River horizontal wells in Wilson Creek. The first well was fracture stimulated in early December and is currently flowing back. The second well is scheduled to be stimulated near the end of December. Gear is encouraged by the early results and looks forward to providing production updates as the wells stabilize post completion.
- Deferred drilling of the low risk exploratory horizontal heavy oil well in Hoosier, Saskatchewan to the first quarter of 2017 due to temporary surface land delays.
- As a result of the temporary delays in Wilson Creek and Hoosier, fourth quarter production is now expected to be approximately 6,000 boe per day, providing a solid foundation for 2017 growth.
- Successfully extended the maturity date of Gear’s Credit Facilities from May 31, 2017 to May 31, 2018 and confirmed an unchanged borrowing base of $50 million.
Gear is pleased to announce a 2017 capital budget of $45 million, targeting low risk production growth of approximately 15 per cent (fourth quarter to fourth quarter) with an annual average production rate of 6,400 boe per day and an estimated 2017 exit rate of approximately 7,200 boe per day. Capital investment is expected to more than offset the estimated 30 per cent base decline by focusing primarily on the continuation of high return development drilling through 2016. Management intends to fully fund the 2017 growth budget with forecasted cash flow at the current strip WTI oil price of approximately US $53 per barrel. Gear anticipates maintaining a strong balance sheet through 2017 with a forecasted reduction in the annual net debt to cash flow ratio to approximately 0.8 times. Gear will continue to monitor prices throughout the year with a vision to potential budget expansion if oil prices strengthen, however the focus will remain on the delivery of strong project returns and the maintenance of a solid balance sheet.
- Approximately $33 million, or 80 per cent of the budget will be dedicated to drilling low risk horizontal oil wells. The current plan includes the drilling of 31 gross (31 net) heavy oil wells primarily in Paradise Hill McLaren, Wildmere Cummings and Wildmere GP, one gross (one net) medium oil well in Killam, and six gross (5.2 net) light oil wells in Wilson Creek Basal Belly River and Brazeau Belly River for a total of 38 gross (37 net) wells. Of the 38 wells, 11 are expected to be multi-laterals and 10 are expected to be multi-stage fracs. Approximately 10 per cent of the drilling locations are classified as inventory expansion opportunities designed to push the boundaries of existing resources, or add new resources to the total corporate inventory.
- An additional $9 million of the budget will be focused on the implementation of pilot water floods in Wilson Creek and Killam, as well as a variety of small infrastructure projects, recompletions, land, seismic and corporate capital.
- The remaining $3 million will be focused on strategic abandonment and reclamation projects designed to maintain strong corporate liability ratios in both Alberta and Saskatchewan.
- Gear’s 2017 budget includes estimates for continued cost reductions when compared to 2016 results. Both royalties and operating costs are forecasted to remain relatively stable while general and administrative (“G&A”) and interest costs per unit are predicted to improve by 22 per cent and 44 per cent, respectively, as a result of increased production volumes and lower debt levels. The budget also includes a 6 per cent improvement in revenue per boe relative to WTI pricing as a result of the increased contribution of light oil to the commodity mix.
|Annual Production (boe/d)||6,400|
|Per cent heavy oil (%)||62|
|Per cent light/medium oil & NGLs (%)||24|
|Operating and Transportation Costs($/boe)||15.50|
|G&A Costs ($/boe)||2.15|
|Interest Costs ($/boe)||0.70|
|Capital and Abandonment Expenditures ($ million)||45|
|Planned Wells||38 gross (37 net)|
- The 2017 budget is based on assumptions of a realized Gear heavy oil price of approximately CAD$44 per barrel and a realized Gear light oil price of approximately CAD$63.50 per barrel which is equivalent to WTI price of US$53, a WCS heavy oil differential of US$16, a Gear heavy oil quality differential of CAD$5, a Gear light oil differential to WTI of CAD$6.50, and a foreign exchange rate of $0.76 CAD/US. In the event that commodity prices change, Gear will be flexible and adjust capital investments accordingly to balance future growth and balance sheet strength.