CALGARY, ALBERTA–(Marketwired – Aug. 9, 2017) – 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, 2017 are available for review on Gear’s website at www.gearenergy.com and on www.sedar.com.
|Three months ended||Six months ended|
|(Cdn$ thousands, per boe amounts)||Jun 30, 2017||Jun 30, 2016||Mar 31, 2017||Jun 30, 2017||Jun 30, 2016|
|Cash flow from operations (1)||10,248||8,333||8,729||18,977||12,317|
|Per weighted average basic share||0.05||0.10||0.05||0.10||0.14|
|Per weighted average diluted share||0.05||0.10||0.04||0.09||0.14|
|Cash flow from operating activities||5,362||5,066||12,245||17,607||8,622|
|Net income (loss)||3,001||(7,312)||2,986||5,987||(9,028)|
|Per weighted average basic share||0.02||(0.08)||0.02||0.03||(0.11)|
|Per weighted average diluted share||0.01||(0.08)||0.01||0.03||(0.11)|
|Net acquisitions (2)||127||26||(68)||59||(454)|
|Net debt outstanding (1)||43,409||34,200||46,745||43,409||34,200|
|Weighted average shares, basic (thousands)||192,922||86,117||192,840||192,881||85,800|
|Weighted average shares, diluted (thousands)||208,971||86,117||209,652||209,074||85,800|
|Shares outstanding, end of period (thousands)||192,935||114,234||192,915||192,935||114,234|
|Heavy Oil (bbl/d)||3,887||4,358||3,739||3,813||4,275|
|Light and Medium Oil (bbl/d)||1,412||–||1,085||1,249||–|
|Natural gas liquids (bbl/d)||322||–||217||270||–|
|Natural gas (mcf/d)||5,334||1,070||5,197||5,266||1,265|
|Heavy oil ($/bbl)||44.72||39.00||43.13||43.94||29.95|
|Light oil ($/bbl)||59.64||–||60.91||60.19||–|
|Natural gas liquids ($/bbl)||28.11||–||23.08||26.10||–|
|Natural gas ($/mcf)||2.91||1.20||3.00||2.96||1.39|
|Commodity and other sales||43.77||37.75||41.98||42.92||29.10|
|Operating netback (1)||21.03||21.34||21.73||21.36||12.41|
|Realized risk management gains (losses)||(0.77)||4.91||(1.24)||(0.99)||8.76|
|General and administrative||(2.13)||(3.28)||(3.00)||(2.54)||(3.47)|
|Corporate netback (1)||17.30||20.19||16.42||16.89||14.95|
|TRADING STATISTICS ($ based on intra-day trading)|
|Average daily volume (thousands)||253||272||553||403||206|
|(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” 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.|
- Realized quarterly cash flow from operations of $10.2 million, a 17 per cent increase from the first quarter cash flow of $8.7 million and the strongest quarterly cash flow Gear has realized in eight quarters. The increase in quarterly cash flow is primarily due to a 10 per cent increase in sales volumes to 6,510 boe per day and a slight increase in realized revenues per boe.
- Production through the second quarter was supported by the following:
- Wildmere: Five horizontal multi-lateral heavy wells have been drilled to date in 2017, three drilled in the first quarter and two drilled during the second quarter. Two of the wells were on production throughout the second quarter, contributing approximately 235 bbls per day to the quarterly total. The other three wells are expected to come on production in the third quarter
- Wilson Creek: Three Basal Belly River light oil wells have been drilled to date in 2017, all during the first quarter. In addition one well that was drilled in 2016 was fracture stimulated and brought on production in the first quarter. In total the four wells contributed over 700 boe per day over the second quarter. Several of the wells are continuing to be optimized.
- Paradise Hill: Four horizontal heavy oil wells were drilled in the first half of 2017 with two of those wells drilled in the first quarter and two more drilled in the second quarter. Two of the wells produced throughout the second quarter contributing approximately 165 bbls per day to the quarterly total. Subsequent to quarter end, seven more wells have been successfully drilled and are expected to be brought on production through the third quarter.
- Hoosier: One horizontal Success well has been drilled and brought on production to date in 2017. The well was drilled in the first quarter with production coming on early in the second quarter. The well contributed an average of 70 boe per day to the second quarter total. Further optimization efforts are underway.
- Realized a corporate netback of $17.30 per boe, a five per cent improvement over the first quarter of 2017. The improved netback is primarily the result of higher pricing and lower G&A costs, offset by higher operating costs.
- Operating costs for the second quarter increased to $17.78 per boe as a result of seasonal costs associated with trucking, production, and maintenance as well as road and lease repairs. Second quarter costs were also impacted by the remediation of two isolated spill events that are not expected to be recurring expenses. For the third and fourth quarters, operating costs are expected to decline to a more normalized level.
- In May 2017, Gear successfully increased its borrowing base for its credit facilities from $50 million to $55 million and extended the maturity date to May 30, 2019. Inclusive of the outstanding convertible debentures, Gear’s total borrowing capacity is currently $69 million. Net debt through the quarter decreased by $3.3 million to $43.4 million. For the second quarter, net debt to annualized cash flow was 1.1 times.
- As a result of strong production results to date, Gear is revising volume expectations upwards while maintaining the existing $45 million capital plan. First half production averaged just over 6,200 boe per day and with continued strong results from the ongoing drilling program, the second half production is predicted to be approximately 7,000 boe per day, yielding an annual average of 6,600 boe per day with a strong 2017 exit. Current expectations are that Gear will deliver approximately 18 per cent production growth from the fourth quarter of 2016 to the fourth quarter of 2017 while investing close to or within annual cash flow at current prices. The 2017 drilling program is now forecast to include a total of 34 wells (33 net), with the remaining activity focused in the core areas of Paradise Hill, Wildmere, Hoosier and Wilson Creek. At current strip pricing this program is expected to yield a net debt to cash flow for 2017 at or below 1.0 times.
|Revised 2017 Guidance||Previous 2017 Guidance||H1 2017 YTD Actuals|
|Per cent heavy oil (%)||63||62||61|
|Per cent light/medium oil & NGLs (%)||23||24||24|
|Royalty rate (%)||10||10||10.5|
|Operating costs ($/boe)||16.50||15.50||17.07|
|General and administrative expense ($/boe)||2.20||2.15||2.54|
|Interest expense ($/boe)||0.80||0.70||0.85|
|Capital and abandonment expenditures ($ millions)||45||45||25.7|