CALGARY – Gear Energy Ltd. (“Gear” or the “Company”) (TSX:GXE) is pleased to present the following results and analysis of its 2019 year-end independent reserve report prepared by its independent evaluator Sproule Associates Limited (“Sproule”).
During 2019, Gear generated $61.8 million of funds from operations and reinvested $38.9 million, or 63 per cent, consisting of $37.0 million of development capital and $2.9 million directed towards abandonment and reclamation activities, offset by $1.0 million in net acquisition and divestiture (“A&D”) proceeds. The combined investment provided Gear with a slight increase (3%) in annual production year-over-year, and a minor reduction (minus 2%) in Proved Developed Producing reserves compared to 2018. In addition to keeping the Company’s reserves essentially stable, Gear was able to direct over $22 million towards a 24 per cent reduction in outstanding net debt and $0.7 million towards the acquisition of 1.6 million of Gear common shares pursuant to its Normal Course Issuer Bid that commenced in September 2019.
In prior years, for the purposes of calculating the value associated with the Company’s reserves, essentially all operating costs associated with inactive wells were included, but only abandonment and reclamations costs (“ARO”) for wells that had been specifically attributed reserves was included. As a result of changes in guidance in the COGE Handbook (as defined herein), the value associated with the 2019 year-end reserves now includes the full corporate ARO, including all the ARO associated with both active and inactive wells regardless of whether such wells had any attributed reserves. For the purposes of providing meaningful comparisons of the 2018 year-end reserves values to the 2019 year-end reserves values, the 2018 year end reserves values were re-evaluated to include full ARO as well.
For details on the annual operating results please see the Management’s Discussion and Analysis (“MD&A”) dated February 19, 2020, which is available on SEDAR at www.sedar.com.
HIGHLIGHTS
- Gear achieved the following reserves highlights through 2019 activity, compared to 2018 results including full corporate ARO costs:
Proved Developed Producing (“PDP”)
-
- 2.38 MMboe of additions
- Reserves decreased 2 per cent
- Reserves value on a Before Tax 10 per cent discounted basis (“BT10”) increased 6 per cent
- Replaced 94 per cent of 2019 annual production
- Finding, Development and Acquisition (“FD&A”) cost of $15.14/boe including change in Future Development Capital (“FDC”)
- Recycle ratio of 1.9x based on 2019 operating netback of $28.25/boe
Total Proved (“TP”)
-
- 1.66 MMboe of additions
- Reserves decreased 5 per cent
- Reserves value BT10 was unchanged
- Replaced 65 per cent of 2019 annual production
- FD&A cost of $20.26/boe including change in FDC
- Recycle ratio of 1.4x
Total Proved plus Probable (“P+P”)
-
- 1.02 MMboe of additions
- Reserves decreased 5 per cent
- Reserves value BT10 decreased 2 per cent
- Replaced 40 per cent of 2019 annual production
- FD&A cost of $30.49/boe including change in FDC
- Recycle ratio of 0.9x
- Corporate liquids weighting increased to 91 per cent from 90 per cent for the P+P reserves case. Both light/medium oil and Natural Gas Liquids (“NGLs”) increased 1% while heavy oil and gas dropped 1% with capital spending in 2019 directed towards lighter oil plays. Corporate P+P liquids reserves are now balanced 51 per cent heavy oil, 45 per cent light and medium oil, and 4 per cent NGLs.
- In aggregate, the reserves associated with the 2019 capital development program came in on target. Reserves additions across all categories were achieved primarily through a combination of the following:
- Successful new drilling in Wildmere and Tableland
- Recognition of waterflood response in Wilson Creek and Killam
- Base production outperformance in Paradise Hill
- Management’s annual estimate of future potential driling locations decreased to 500 net locations as a result of high grading the future inventory through increased use of multi-laterals, increased inter-well spacing, and the impacts of land expiries in 2019. The Sproule evaluation currently recognizes 109 net locations in the TP category and 182 in the P+P category. These booked locations represent 22 and 36 per cent of management’s estimates, respectively. The 182 net booked P+P locations include 42 multi-lateral horizontals, 119 single lateral horizontals and 21 vertical wells.
- Corporate Net Asset Values (“NAV”) BT10 are $0.45 per share for PDP, $0.72 per share for Proved plus Probable Developed Producing (“P+PDP”), $0.81 per share for TP and $1.65 per share for P+P utilizing the price forecast at January 1, 2020 used in the Sproule evaluation. These values represent a respective 34 per cent, 25 per cent, 9 per cent and 2 per cent increase from the prior year when full corporate ARO is included for both years.
- Additionally, Corporate NAV BT5 is $0.49 per share for PDP, $0.84 per share for P+PDP, $0.98 per share for TP, and $2.08 per share for P+P.
- The Reserves Life Index (“RLI”) for each category are 4.2 years for PDP, 6.6 years for TP, and 9.4 years for P+P. These values represent 8, 22 and 22 per cent improvements, respectively, when compared to the prior year.
RESERVES SUMMARY
Year-end 2019 reserves were evaluated by independent reserves evaluator Sproule 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 an average of price forecasts prepared by Sproule, GLJ Petroleum Consultants Ltd. and McDaniel & Associates Consulting Ltd. effective at January 1, 2020. 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, 2020.
The following tables outline Gear’s reserves as at December 31, 2019. 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 Sproule represents the fair market value of the reserves.
Reserves Summary at Dec 31, 2019 Using Sproule Costs and January 1, 2020 Evaluator Average Forecast Prices |
||||||
Company Gross
|
Light & |
Heavy Oil |
NGL’s |
Natural |
Equivalent |
Liquids |
Medium |
Gas |
Ratio |
||||
Oil |
||||||
(Mbbl) |
(Mbbl) |
(Mbbl) |
(MMcf) |
(Mboe) |
(%) |
|
Proved Developed Producing |
3,913 |
3,348 |
462 |
6,827 |
8,861 |
87 |
Proved Non-Producing & Undeveloped |
2,969 |
3,558 |
242 |
3,713 |
7,389 |
92 |
Total Proved |
6,882 |
6,906 |
704 |
10,540 |
16,249 |
89 |
Probable Developed Producing |
1,437 |
1,163 |
173 |
2,382 |
3,170 |
87 |
Probable Non-Producing & Undeveloped |
2,923 |
4,636 |
156 |
2,279 |
8,096 |
95 |
Total Probable |
4,360 |
5,799 |
329 |
4,661 |
11,265 |
93 |
Total Proved plus Probable |
11,242 |
12,705 |
1,033 |
15,201 |
27,515 |
91 |
Net Present Value of Future Revenues Including Full ARO Before Income Taxes Under Forecast Prices and Costs |
|||||
Company Gross |
Undiscounted |
Discounted |
Discounted |
Discounted |
Discounted |
($ thousands) |
@ 5% |
@ 10% |
@ 15% |
@ 20% |
|
Proved Developed Producing |
150,050 |
170,449 |
162,581 |
150,606 |
139,370 |
Proved Non-Producing & Undeveloped |
143,776 |
105,803 |
78,226 |
58,857 |
44,911 |
Total Proved |
293,826 |
276,252 |
240,807 |
209,463 |
184,281 |
Probable Developed Producing |
107,428 |
75,158 |
57,160 |
45,991 |
38,438 |
Probable Non-Producing & Undeveloped |
223,420
|
164,092
|
125,424
|
98,959
|
79,967
|
Total Probable |
330,848 |
239,250 |
182,584 |
144,950 |
118,405 |
Total Proved plus Probable |
624,674 |
515,502 |
423,390 |
354,413 |
302,686 |
Net Future Development Costs (“FDC”) Under Forecast Prices and Costs |
|||
($ thousands) |
Proved |
Probable |
Total |
2020 |
29,480 |
22,500 |
51,980 |
2021 |
51,219 |
27,895 |
79,114 |
2022 |
35,776 |
24,522 |
60,298 |
2023 |
25,051 |
7,567 |
32,618 |
2024 |
10,519 |
5,783 |
16,302 |
Subsequent Years |
0 |
20,623 |
20,623 |
Undiscounted Total |
152,046 |
108,890 |
260,936 |
Discounted at 10% |
125,535 |
86,149 |
211,684 |
EFFICIENCY RATIOS
The following table highlights annual capital efficiency through finding and development (“F&D”) and FD&A costs per boe metrics.
2019 |
2018 |
||||
Reserves (mboes), Capital ($ thousands) |
Proved
|
Proved plus Probable |
Proved
|
Proved plus Probable |
|
Development Reserves Additions |
1,659 |
981 |
1,637 |
234 |
|
Net Acquisition Reserves Additions |
1 |
40 |
3,511 |
5,777 |
|
Total Reserves Additions |
1,660 |
1,021 |
5,148 |
6,012 |
|
Development capital |
36,948 |
36,948 |
43,859 |
43,859 |
|
Development change in FDC |
(2,385) |
(4,880) |
7,292 |
5,803 |
|
Total development capital including FDC |
34,563 |
32,068 |
51,151 |
49,663 |
|
Net acquisition capital |
(937) |
(937) |
66,172 |
66,172 |
|
Net acquisition change in FDC |
0 |
0 |
60,964 |
113,249 |
|
Total net acquisition capital including FDC |
(937) |
(937) |
127,136 |
179,421 |
|
Total capital |
36,012 |
36,012 |
110,032 |
110,032 |
|
Total change in FDC |
(2,385) |
(4,880) |
68,256 |
119,052 |
|
Total capital including FDC |
33,627 |
31,131 |
178,287 |
229,084 |
|
F&D costs with FDC per boe |
20.84 |
32.68 |
31.26 |
211.86 |
|
FD&A costs with FDC per boe |
20.26 |
30.49 |
34.64 |
38.11 |
|
3 Year average FD&A including FDC per boe |
24.28 |
30.99 |
22.63 |
24.71 |
|
Recycle ratio (FD&A with FDC) |
1.4 |
0.9 |
0.6 |
0.6 |
Reserves Life Index (“RLI”) |
|||
(years) |
2019 |
2018 |
2017 |
Proved Developed Producing |
4.2 |
3.9 |
3.4 |
Total Proved |
6.6 |
5.4 |
5.3 |
Total Proved plus Probable |
9.4 |
7.7 |
8.1 |
Net Asset Value (“NAV”) at December 31, 2019 |
||
($ millions, except per share amounts) |
2019 |
2018 |
Value of Company Interest Proved plus Probable |
423.4 |
432.3 |
Reserves Discounted at 10% (Before Tax after ARO costs) |
||
Undeveloped Land |
6.1 |
12.8 |
Net Debt |
(69.8) |
(91.9) |
NAV |
359.7 |
353.2 |
Shares Outstanding (millions) |
217.6 |
219.0 |
NAV per Share |
1.65 |
1.61 |
RESERVES RECONCILIATION
Reserves Reconciliation |
Light & |
Natural |
|||||
Company Gross |
Medium |
Natural |
Gas |
Oil |
|||
Heavy Oil |
Oil |
Gas |
Liquids |
Equivalent |
|||
(Mbbl) |
(Mbbl) |
(MMcf) |
(Mbbl) |
(Mboe) |
|||
Proved Producing |
|||||||
Opening Balance, January 1, 2019 |
3,604 |
3,722 |
7,585 |
437 |
9,027 |
||
Technical Revisions |
861 |
779 |
669 |
95 |
1,846 |
||
Drilling Extensions |
415 |
40 |
97 |
8 |
479 |
||
Infill Drilling |
– |
60 |
161 |
10 |
97 |
||
Improved Recovery |
– |
62 |
145 |
8 |
94 |
||
Acquisitions |
– |
12 |
11 |
1 |
15 |
||
Dispositions |
– |
– |
– |
– |
– |
||
Economic Factors |
(47) |
(49) |
(290) |
(10) |
(153) |
||
Production |
(1,484) |
(714) |
(1,552) |
(86) |
(2,543) |
||
Closing Balance, December 31, 2019 |
3,348 |
3,913 |
6,827 |
462 |
8,861 |
||
Total Proved |
|||||||
Opening Balance, January 1, 2019 |
7,282 |
7,207 |
11,918 |
658 |
17,134 |
||
Technical Revisions |
380 |
400 |
47 |
110 |
898 |
||
Drilling Extensions |
782 |
40 |
150 |
8 |
856 |
||
Infill Drilling |
– |
205 |
223 |
18 |
261 |
||
Improved Recovery |
– |
62 |
145 |
8 |
94 |
||
Acquisitions |
– |
12 |
11 |
1 |
15 |
||
Dispositions |
– |
(12) |
(7) |
(1) |
(14) |
||
Economic Factors |
(54) |
(319) |
(395) |
(12) |
(450) |
||
Production |
(1,484) |
(714) |
(1,552) |
(86) |
(2,543) |
||
Closing Balance, December 31, 2019 |
6,906 |
6,882 |
10,540 |
705 |
16,249 |
||
Proved plus Probable |
|||||||
Opening Balance, January 1, 2019 |
13,749 |
11,472 |
16,962 |
990 |
29,037 |
||
Technical Revisions |
(812) |
(66) |
(355) |
89 |
(848) |
||
Drilling Extensions |
1,325 |
79 |
294 |
15 |
1,469 |
||
Infill Drilling |
– |
660 |
332 |
27 |
742 |
||
Improved Recovery |
13 |
54 |
65 |
10 |
87 |
||
Acquisitions |
– |
45 |
48 |
5 |
58 |
||
Dispositions |
– |
(15) |
(9) |
(1) |
(18) |
||
Economic Factors |
(86) |
(271) |
(584) |
(16) |
(471) |
||
Production |
(1,484) |
(714) |
(1,552) |
(86) |
(2,543) |
||
Closing Balance, December 31, 2019 |
12,705 |
11,242 |
15,201 |
1,033 |
27,515 |
FORECAST PRICES AND COSTS
Evaluator average crude oil and natural gas benchmark reference pricing, inflation, and exchange rates utilized by Sproule as at January 1, 2020 were as follows:
Year
|
Inflation (%) |
Exchange Rate (USD/CAD) |
WTI Cushing (40 API) (USD/bbl) |
Edmonton MSW (40 API) (CAD/bbl) |
WCS Hardisty (21 API) (CAD/bbl) |
AECO/NIT Spot (CAD/mmbtu) |
2020 |
0.00 |
0.760 |
61.00 |
72.64 |
57.57 |
2.04 |
2021 |
1.67 |
0.770 |
63.75 |
76.06 |
62.35 |
2.32 |
2022 |
2.00 |
0.785 |
66.18 |
78.35 |
64.33 |
2.62 |
2023 |
2.00 |
0.785 |
67.91 |
80.71 |
66.23 |
2.71 |
2024 |
2.00 |
0.785 |
69.48 |
82.64 |
67.97 |
2.81 |
2025 |
2.00 |
0.785 |
71.07 |
84.60 |
69.72 |
2.89 |
2026 |
2.00 |
0.785 |
72.68 |
86.57 |
71.49 |
2.96 |
2027 |
2.00 |
0.785 |
74.24 |
88.49 |
73.20 |
3.03 |
2028 |
2.00 |
0.785 |
75.73 |
90.31 |
74.80 |
3.09 |
2029 |
2.00 |
0.785 |
77.24 |
92.17 |
76.43 |
3.16 |
2030+ |
2.00 |
0.785 |
+2.0%/yr |
+2.0%/yr |
+2.0%/yr |
+2.0%/yr |