CALGARY, AB – Gear Energy Ltd. (“Gear” or the “Company“) (TSX: GXE) is pleased to announce that today it is issuing a notice of redemption to holders of its currently outstanding $12.7 million 7% Convertible Unsecured Subordinated Debentures due November 30, 2023 (the “Debentures“). As set out in the notice of redemption, the redemption date of the Debentures will be April 26, 2021 (the “Redemption Date“). The Debentures are redeemable for an amount equal to the principal amount of the Debentures plus accrued unpaid interest up to, but excluding, the Redemption Date.
With current strength in oil markets, this redemption will further enhance Gear’s exceptional balance sheet providing strategic optionality to consider future acquisitions or development capital expansions to take advantage of the Company’s deep inventory of drilling and waterflood opportunities. The redemption is anticipated to save the Company annualized interest costs of approximately $0.9 million or $0.45 per boe.
Utilizing existing guidance, no change to existing capital budget and current strip prices of approximately US$62.00 WTI and a US$11.50 WCS differential, the redemption is anticipated to improve forecasted 2021 exit net debt from approximately $21 million to approximately $8 million. This is forecast to provide Gear a 2021 ratio of net debt to funds from operations of 0.2 times.
Pursuant to the terms of the Debentures, the Company has elected to satisfy its obligation to pay all of the principal amount of the Debentures to be redeemed by issuing and delivering to the holders that number of common shares of the Company (the “Common Shares“) obtained by dividing such principal amount by 95% of the current market price of the Common Shares on the Redemption Date. For this purpose, the current market price will be calculated based on the volume weighted average trading price of the Common Shares on the Toronto Stock Exchange (the “TSX“) for the 20 consecutive trading days ending on the fifth trading day preceding the Redemption Date. The Company anticipates announcing the current market price to be used to calculate the number of Common Shares that each holder of Debentures will receive on the redemption of the Debentures on or about April 20, 2021. The accrued and unpaid interest on the Debentures up to (but excluding) the Redemption Date shall be paid in cash.
Prior to the redemption of the Debentures, each holder will have the right to convert their Debentures into Common Shares at a conversion price of $0.32 per Common Share (the “Conversion Price“) at any time on or prior to April 23, 2021. A holder electing to convert the principal amount of their Debentures will receive 3,125 Common Shares for each $1,000 principal amount of Debentures converted plus a cash payment for accrued unpaid interest up to, but excluding, the Conversion Date. No fractional shares will be issued on redemption or conversion but, in lieu thereof, the Company shall pay the cash equivalent thereof determined on the basis of the current market price of the Common Shares on the Redemption Date or conversion date, as applicable (less any tax required to be deducted, if any).
As the Debentures were issued in “book-entry only” form and are held by CDS Clearing and Depository Services Inc., beneficial holders of Debentures must contact their broker, dealer, bank, trust company or other nominee to exercise their right to convert their Debentures. Beneficial holders who intend to convert their Debentures should ensure that they contact their broker, dealer, bank, trust company or other nominee well in advance of the Redemption Date to ensure that they understand the procedure required to exercise their right of conversion. All holders of Debentures who fail to deliver a notice of conversion on or prior to April 23, 2021 (or such other earlier time as may be indicated by their broker, dealer, bank, trust company or other nominee) shall have their Debentures redeemed on the Redemption Date and shall receive that number of Common Shares obtained by dividing the Redemption Price by 95% of the current market price of the Common Shares on the Redemption Date, with such current market price calculated as indicated above.