CALGARY, Feb. 21, 2018 /CNW/ – Gear Energy Ltd. (“Gear” or the “Company”) (TSX:GXE) is pleased to present the following results and analysis of its 2017 year-end independent reserve report prepared by GLJ Petroleum Consultants Ltd. (“GLJ”).
In 2017 Gear invested $49.5 million consisting of $47.8 million of development capital and $1.7 million in acquisition and divestiture (“A&D”) activity. The combined investment provided Gear with 26 per cent production growth and 52 per cent cash flow growth on an annual basis compared to 2016. Reserves growth was somewhat tempered in comparison primarily as a result of late year production additions requiring further production history to increase forecasted certainty, and the removal of undeveloped gas reserves due to lower pricing. For details on the annual operating results please see the Management’s Discussion and Analysis dated February 21, 2018, which is available on SEDAR at www.sedar.com.
HIGHLIGHTS
- Gear achieved the following reserves highlights through 2017 activity:
- Proved Developed Producing (“PDP”)
- 3.07 MMboe of additions at a Finding, Development and Acquisition (“FD&A”) cost of $16.21/boe including change in Future Development Capital (“FDC”)
- Reserves increased 10 per cent
- Replaced 129 per cent of 2017 annual production
- Recycle ratio of 1.4x based on 2017 operating netback of $22.09/boe
- Total Proved (“TP”)
- 3.05 MMboe of additions at an FD&A cost of $17.94/boe including change in FDC
- Reserves increased 5 per cent
- Replaced 128 per cent of 2017 annual production
- Recycle ratio of 1.2x on 2017 netback
- Total Proved plus Probable (“P+P”)
- 1.91MMboe of additions at an FD&A cost of $24.36/boe including change in FDC
- Reserves decreased 2 per cent
- Replaced 80 per cent of 2017 annual production
- Recycle ratio of 0.9x on 2017 netback
- Proved Developed Producing (“PDP”)
- Corporate liquids weighting increased from 81 to 86 per cent for the P+P reserves case. This increase was the result of continued successful oil development and the removal of several undeveloped gas drilling locations due to low forecasted future gas prices. The P+P category experienced a net negative technical revision of 1.45 MMboe, with 1.15 MMboe of that being a downward revision to low value gas reserves. Included in that revision was the removal of 0.73 MMBoe of undeveloped gas drilling opportunities in Gear’s Ekwan asset in North East British Columbia. The Ekwan revision added over $4.50/boe to the P+P FD&A cost in 2017.
- Management’s estimate of future potential inventory increased by 23 per cent from 2016 to 590 net drilling locations. The GLJ evaluation currently recognizes 80 net locations in the TP category and 150 in the P+P category. These booked locations represent only 14 and 25 per cent of the management estimates, respectively. The 150 net booked P+P locations include 37 multi-lateral horizontals, 88 single laterals and 25 vertical wells.
- Corporate Net Asset Values (“NAV”) at a 10 per cent discount factor are $0.82 per share for TP and $1.61 per share for P+P utilizing the GLJ January, 2018 price forecast, representing a respective 9 per cent and 15 per cent decrease from the prior year, primarily as a result of lower year over year heavy oil and gas price forecasts.
- Company Reserves Life Index (“RLI”) of 5.3 years for TP, and 8.1 years for P+P.
RESERVES SUMMARY
Year-end 2017 reserves were evaluated by independent reserves evaluator GLJ in accordance with the definitions, standards and procedures contained in the Canadian Oil and Gas Evaluation Handbook (“COGE Handbook”) and National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities (“NI 51-101”). A reserves committee, comprised of independent board members, reviews the qualifications and appointment of the independent reserves evaluator and reviews the procedures for providing information to the evaluators. The reserves evaluation was based on GLJ forecast pricing and foreign exchange rates at January 1, 2018. Reserves included herein are stated on a company gross basis (working interest before deduction of royalties without inclusion of any royalty interests) unless noted otherwise. Additional reserves information required under NI 51-101 will be included in Gear’s Annual Information Form to be filed on SEDAR on or before March 31, 2018.
The following tables outline Gear’s reserves as at December 31, 2017. No provision for interest, risk management contracts, debt service charges and general and administrative expenses have been made and it should not be assumed that the net present values of the reserves estimated by GLJ represents the fair market value of the reserves.
Reserves Summary at Dec 31, 2017 Using GLJ January 1, 2018 Forecast Prices and Costs |
||||||
Company Gross |
Light & |
Heavy Oil (Mbbl) |
NGL’s (Mbbl) |
Natural (MMcf) |
Equivalent (Mboe) |
Liquids (%) |
Proved Developed Producing |
2,148 |
3,913 |
509 |
8,043 |
7,910 |
83 |
Proved Non-Producing & Undeveloped |
1,488 |
3,815 |
232 |
6,105 |
6,554 |
84 |
Total Proved |
3,636 |
7,728 |
741 |
14,148 |
14,464 |
84 |
Total Probable |
2,235 |
7,282 |
422 |
6,606 |
11,039 |
90 |
Total Proved plus Probable |
5,871 |
15,010 |
1,163 |
20,754 |
25,503 |
86 |
Net Present Value of Future Revenues Before Income Taxes Under Forecast Prices and Costs |
|||||
Company Gross |
Undiscounted |
Discounted |
Discounted |
Discounted |
Discounted |
($ thousands) |
@ 5% |
@ 10% |
@ 15% |
@ 20% |
|
Proved Developed Producing |
166,881 |
145,701 |
130,501 |
118,959 |
109,809 |
Proved Non-Producing & Undeveloped |
103,803 |
81,608 |
64,762 |
51,996 |
42,188 |
Total Proved |
270,684 |
227,309 |
195,263 |
170,955 |
151,997 |
Total Probable |
277,654 |
200,890 |
154,565 |
123,931 |
102,292 |
Total Proved plus Probable |
548,338 |
428,199 |
349,828 |
294,886 |
254,288 |
Net Future Development Costs (“FDC”) Under Forecasted Prices and Costs |
|||
($ thousands) |
Proved |
Probable |
Total |
2018 |
25,791 |
8,139 |
33,930 |
2019 |
31,095 |
15,739 |
46,834 |
2020 |
26,848 |
25,304 |
52,152 |
2021 |
2,441 |
4,730 |
7,171 |
2022 |
– |
6,679 |
6,679 |
Subsequent Years |
– |
– |
– |
Undiscounted Total |
86,175 |
60,591 |
146,766 |
Discounted at 10% |
74,448 |
49,080 |
123,527 |
EFFICIENCY RATIOS
The following table highlights annual capital efficiency through finding and development (“F&D”) and FD&A costs per boe metrics.
2017 |
2016 |
||||
Reserves (mboes), Capital ($ thousands) |
Proved |
Proved plus |
Proved |
Proved plus |
|
Development Reserves Additions |
3,075 |
1,957 |
661 |
1,351 |
|
Net Acquisition Reserves Additions |
(29) |
(50) |
6,584 |
9,871 |
|
Total Reserves Additions |
3,046 |
1,907 |
7,245 |
11,222 |
|
Development capital |
47,765 |
47,765 |
14,422 |
14,422 |
|
Development change in FDC |
5,172 |
(3,028) |
1,462 |
10,586 |
|
Total development capital including FDC |
52,937 |
44,737 |
15,884 |
25,008 |
|
Net acquisition capital |
1,709 |
1,709 |
57,261 |
57,261 |
|
Net acquisition change in FDC |
– |
– |
37,674 |
48,685 |
|
Total net acquisition capital including FDC |
1,709 |
1,709 |
94,935 |
105,946 |
|
Total capital |
49,474 |
49,474 |
71,683 |
71,683 |
|
Total change in FDC |
5,172 |
(3,028) |
39,136 |
59,271 |
|
Total capital including FDC |
54,646 |
46,446 |
110,819 |
130,954 |
|
F&D costs with FDC per boe |
17.22 |
22.86 |
24.03 |
18.51 |
|
FD&A costs with FDC per boe |
17.94 |
24.36 |
15.30 |
11.67 |
|
3 Year average FD&A including FDC per boe |
16.26 |
19.22 |
23.19 |
20.42 |
|
Recycle ratio (FD&A with FDC) |
1.2 |
0.9 |
1.0 |
1.3 |
|
Reserves Life Index (“RLI”) |
|||||||||||
(years) |
2017 |
2016 |
2015 |
||||||||
Total Proved |
5.3 |
5.9 |
5.1 |
||||||||
Total Proved plus Probable |
8.1 |
9.7 |
9.0 |
Net Asset Value (“NAV”) at December 31, 2017 |
|||||
($ millions, except per share amounts) |
2017 |
2016 |
2015 |
||
Value of Company Interest Proved plus Probable |
|||||
Reserves Discounted at 10% (Before Tax) |
349.8 |
394.6 |
199.4 |
||
Undeveloped Land |
8.2 |
6.2 |
8.9 |
||
Net Debt |
(43.3) |
(37.0) |
(66.0) |
||
NAV |
314.7 |
363.8 |
142.3 |
||
Shares Outstanding (millions) |
195 |
192.6 |
85.5 |
||
NAV per Share |
1.61 |
1.89 |
1.66 |
RESERVES RECONCILIATION
Activity through 2017 was successful in adding reserves across all categories with the largest improvements categorized as Drilling Extensions and Technical Revisions. However, as a result of lower future commodity price forecasts these additions were offset by reductions categorized as Economic Factors. The reserves within the P+P case were the most influenced by this adjustment. The P+P reserves balance experienced a positive technical revision of 2.22 MMboe that was offset by a negative 3.67 MMboe economic adjustment, yielding a combined negative adjustment of 1.45 MMBoe. The main contributor to this adjustment occurred in Ekwan, B.C. where three undeveloped gas drilling locations were removed from the portfolio as a result of low gas prices. Although the negative 0.73 MMboe adjustment in Ekwan may appear large on a boe scale, on a value basis it should be noted that the year-end value in the 2016 GLJ report for these Ekwan locations was well under $1.00 per boe of booked P+P reserves before tax at a 10% discount. The other factor influencing the year over year reserves changes was a material drop in GLJ’s forecasted WCS heavy oil prices, with reductions from last year’s forecast ranging between 10 to 14 per cent.
Reserves Reconciliation Company Gross |
Heavy Oil |
Light & (Mbbl) |
Natural |
Natural |
Oil |
||
Proved Producing |
|||||||
Opening Balance, January 1, 2017 |
3,289 |
1,921 |
9,382 |
445 |
7,219 |
||
Technical Revisions |
861 |
246 |
1,325 |
114 |
1,442 |
||
Drilling Extensions |
1,294 |
427 |
669 |
77 |
1,910 |
||
Infill Drilling |
444 |
– |
– |
– |
444 |
||
Improved Recovery |
20 |
116 |
121 |
22 |
178 |
||
Acquisitions |
40 |
– |
– |
– |
40 |
||
Dispositions |
(4) |
(1) |
(132) |
(1) |
(28) |
||
Economic Factors |
(532) |
(109) |
(1,361) |
(52) |
(920) |
||
Production |
(1,500) |
(452) |
(1,961) |
(96) |
(2,374) |
||
Closing Balance, December 31, 2017 |
3,913 |
2,148 |
8,043 |
509 |
7,910 |
||
Total Proved |
|||||||
Opening Balance, January 1, 2017 |
6,527 |
3,677 |
17,168 |
727 |
13,792 |
||
Technical Revisions |
1,188 |
254 |
1,406 |
113 |
1,789 |
||
Drilling Extensions |
2,127 |
181 |
478 |
84 |
2,472 |
||
Infill Drilling |
143 |
– |
– |
– |
143 |
||
Improved Recovery |
20 |
245 |
147 |
26 |
316 |
||
Acquisitions |
40 |
– |
– |
– |
40 |
||
Dispositions |
(15) |
(1) |
(300) |
(3) |
(69) |
||
Economic Factors |
(803) |
(268) |
(2,789) |
(110) |
(1,645) |
||
Production |
(1,500) |
(452) |
(1,961) |
(96) |
(2,374) |
||
Closing Balance, December 31, 2017 |
7,728 |
3,636 |
14,148 |
741 |
14,464 |
||
Proved plus Probable |
|||||||
Opening Balance, January 1, 2017 |
13,862 |
6,006 |
29,267 |
1,225 |
25,971 |
||
Technical Revisions |
1,464 |
321 |
1,703 |
151 |
2,219 |
||
Drilling Extensions |
2,651 |
90 |
504 |
88 |
2,913 |
||
Infill Drilling |
– |
– |
– |
– |
– |
||
Improved Recovery |
30 |
380 |
241 |
43 |
493 |
||
Acquisitions |
55 |
– |
– |
– |
55 |
||
Dispositions |
(24) |
(8) |
(413) |
(5) |
(105) |
||
Economic Factors |
(1,527) |
(467) |
(8,587) |
(243) |
(3,669) |
||
Production |
(1,500) |
(452) |
(1,961) |
(96) |
(2,374) |
||
Closing Balance, December 31, 2017 |
15,010 |
5,871 |
20,754 |
1,163 |
25,503 |
FORECAST PRICES AND COSTS
Crude oil and natural gas benchmark reference pricing, inflation, and exchange rates utilized by GLJ as at January 1, 2018 were as follows:
Year
|
Inflation (%) |
Exchange (USD/CAD) |
WTI Cushing (40 API) (USD/bbl) |
Edmonton (40 API) (CAD/bbl) |
WCS (21 API) (CAD/bbl) |
AECO/NIT (CAD/mmbtu) |
2018 |
2.0 |
0.79 |
59.00 |
70.25 |
48.89 |
2.20 |
2019 |
2.0 |
0.79 |
59.00 |
70.25 |
53.16 |
2.54 |
2020 |
2.0 |
0.80 |
60.00 |
70.31 |
56.25 |
2.88 |
2021 |
2.0 |
0.81 |
63.00 |
72.84 |
59.26 |
3.24 |
2022 |
2.0 |
0.82 |
66.00 |
75.61 |
62.20 |
3.47 |
2023 |
2.0 |
0.83 |
69.00 |
78.31 |
65.06 |
3.58 |
2024 |
2.0 |
0.83 |
72.00 |
81.93 |
68.67 |
3.66 |
2025 |
2.0 |
0.83 |
75.00 |
85.54 |
72.29 |
3.73 |
2026 |
2.0 |
0.83 |
77.33 |
88.35 |
75.10 |
3.80 |
2027 |
2.0 |
0.83 |
78.88 |
90.22 |
76.96 |
3.88 |
2028+ |
2.0 |
0.83 |
+2.0%/yr |
+2.0%/yr |
+2.0%/yr |
+2.0%/yr |