CALGARY, Aug. 8, 2018 /CNW/ – 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, 2018 are available for review on Gear’s website at www.gearenergy.com and on www.sedar.com.
Financial Summary
Three months ended |
Six months ended |
||||||
(Cdn$ thousands, per boe amounts) |
Jun 30, 2018 |
Jun 30, 2017 |
Mar 31, 2018 |
Jun 30, 2018 |
Jun 30, 2017 |
||
FINANCIAL |
|||||||
Funds from operations (1) |
13,674 |
10,248 |
8,078 |
21,753 |
18,977 |
||
Per weighted average basic share |
0.07 |
0.05 |
0.04 |
0.11 |
0.10 |
||
Per weighted average diluted share |
0.07 |
0.05 |
0.04 |
0.11 |
0.09 |
||
Cash flow from operating activities |
8,596 |
5,362 |
14,787 |
23,383 |
17,607 |
||
Net income (loss) |
(1,869) |
3,001 |
(4,294) |
(6,163) |
5,987 |
||
Per weighted average basic share |
(0.01) |
0.02 |
(0.02) |
(0.03) |
0.03 |
||
Per weighted average diluted share |
(0.01) |
0.01 |
(0.02) |
(0.03) |
0.03 |
||
Capital expenditures |
6,385 |
6,161 |
9,243 |
15,628 |
24,945 |
||
Net acquisitions (2) |
10 |
127 |
390 |
400 |
59 |
||
Net debt (1) |
38,960 |
43,409 |
45,330 |
38,960 |
43,409 |
||
Weighted average shares, basic (thousands) |
195,045 |
192,922 |
194,968 |
195,007 |
192,881 |
||
Weighted average shares, diluted (thousands) |
195,045 |
208,971 |
194,968 |
195,007 |
209,074 |
||
Shares outstanding, end of period (thousands) |
195,213 |
192,935 |
194,968 |
195,213 |
192,935 |
||
OPERATING |
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Production |
|||||||
Heavy oil (bbl/d) |
4,774 |
3,887 |
4,231 |
4,504 |
3,813 |
||
Light and medium oil (bbl/d) |
1,232 |
1,412 |
1,197 |
1,215 |
1,249 |
||
Natural gas liquids (bbl/d) |
219 |
322 |
223 |
221 |
270 |
||
Natural gas (mcf/d) |
4,806 |
5,334 |
5,229 |
5,016 |
5,266 |
||
Total (boe/d) |
7,025 |
6,510 |
6,522 |
6,775 |
6,210 |
||
Average prices |
|||||||
Heavy oil ($/bbl) |
55.04 |
44.72 |
42.97 |
49.40 |
43.94 |
||
Light oil ($/bbl) |
75.67 |
59.64 |
64.53 |
70.21 |
60.19 |
||
Natural gas liquids ($/bbl) |
40.51 |
28.11 |
39.74 |
40.12 |
26.10 |
||
Natural gas ($/mcf) |
1.08 |
2.91 |
1.66 |
1.38 |
2.96 |
||
Netback ($/boe) |
|||||||
Commodity and other sales |
52.67 |
43.77 |
42.42 |
47.76 |
42.92 |
||
Royalties |
(5.06) |
(4.96) |
(4.95) |
(5.01) |
(4.49) |
||
Operating costs |
(17.16) |
(17.78) |
(15.83) |
(16.52) |
(17.07) |
||
Operating netback (1) |
30.45 |
21.03 |
21.64 |
26.23 |
21.36 |
||
Realized risk management gains (losses) |
(5.55) |
(0.77) |
(4.15) |
(4.88) |
(0.99) |
||
General and administrative |
(2.55) |
(2.13) |
(2.83) |
(2.69) |
(2.54) |
||
Interest |
(0.93) |
(0.83) |
(0.92) |
(0.92) |
(0.85) |
||
Other |
(0.02) |
– |
0.02 |
– |
(0.09) |
||
Corporate netback (1) |
21.40 |
17.30 |
13.76 |
17.74 |
16.89 |
||
TRADING STATISTICS ($ based on intra-day trading) |
|||||||
High |
1.37 |
0.94 |
1.01 |
1.37 |
1.26 |
||
Low |
0.68 |
0.60 |
0.66 |
0.66 |
0.60 |
||
Close |
1.35 |
0.74 |
0.70 |
1.35 |
0.74 |
||
Average daily volume (thousands) |
820 |
253 |
458 |
642 |
403 |
(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. |
MESSAGE TO SHAREHOLDERS
With this quarterly release, the team at Gear is pleased to report production above 7,000 boe per day with a liquids weighting of 89 per cent delivering a field netback of greater than $30 per boe. This is a netback number per boe that Gear shareholders have not seen since the fourth quarter of 2014. During that quarter in 2014 revenue was 14 per cent higher than it is this quarter however at the time royalties and operating costs per boe were 50 per cent and 14 per cent, respectively, higher as well. The combination of more stable oil prices and lower costs has provided an environment where the Gear team is excited to resume significant organic growth activity. Although only four wells were drilled during the second quarter, Gear will have two active rigs drilling for light and heavy oil throughout the third quarter, and into the fourth. In addition the Gear team is pleased to have further deleveraged during the second quarter with a reported net debt of $38.2 million, a 60 percent reduction from the previously mentioned fourth quarter of 2014, and a 14 percent reduction from the prior quarter in 2018. The Gear team remains cautiously optimistic regarding future commodity prices with recent positive news on two major oil pipeline developments and the continued crude-by-rail expansion.
QUARTERLY HIGHLIGHTS
- Realized quarterly funds from operations of $13.7 million, a 69 per cent increase from the first quarter funds from operations of $8.1 million. The quarterly increase is primarily due to an eight per cent increase in sales volumes to 7,025 boe per day and stronger liquids pricing.
- In the first quarter, as a result of limitations in shipping oil to market, Gear decided to temporarily slow its heavy oil production and built a record inventory of saleable oil in excess of 40,000 barrels. Egress problems were alleviated in the second quarter as a result of the seasonal increase in pipeline capacity, the improvement in rail services, and the temporary shut-down of a major oil sands project. As a result, Gear was able to sell those inventoried oil volumes throughout the second quarter of 2018 at improved prices. Gear estimates that approximately 500 barrels per day sold in the second quarter related to inventoried volumes.
- Heavy and light oil prices improved in the second quarter relative to the first quarter by $12.07 and $11.14 per barrel, respectively. The improvement in pricing was attributable to the increase in WTI benchmark pricing by approximately US$5 per barrel and the narrowing of the WCS differential by approximately US$5 per barrel. The stronger pricing resulted in a realized a field netback of $30.45 per boe, a 41 per cent improvement over the first quarter.
- Drilled and completed four gross (four net) wells during the second quarter with a 100 per cent success rate in Paradise Hill. Subsequent to June 30, 2018, Gear has drilled an additional six wells in Paradise Hill and two multi-stage fractured wells in Hoosier. In addition, Gear has recently initiated its light oil well drilling program in Wilson Creek. Second quarter production was somewhat reduced as several wells adjacent to active drilling operations were temporarily shut-in. As a result of the active summer drilling program, Gear is forecasting production to grow through the second half of the year.
- Improved the already strong balance sheet with net debt falling from $45.3 million in the first quarter to $39.0 million in the second quarter. The $39.0 million of net debt is inclusive of $13.6 million of convertible debentures (“debentures”). Starting in 2019, the remaining debentures can be redeemed by Gear provided that the 20 day volume weighted share price for Gear is greater than or equal to $1.09 per share. At any time up to the maturity or redemption date, debenture holders have the right to convert at a price of $0.87 per common share, which if all debentures were converted would result in the issuance of approximately 15.6 million Gear common shares. Net debt to annualized second quarter funds from operations was 0.7 times.
STEPPE RESOURCES INC. (“Steppe”)
- On July 23, 2018, Gear announced it had entered into an agreement for the acquisition of Steppe for approximately $70.4 million through a combination of 21.9 million Gear shares and the assumption of approximately $40.9 millionof net debt. Steppe’s assets consist primarily of a material land position and high netback light oil production of approximately 1,175 boe/d in Southeast Saskatchewan. The acquisition, which has been structured as a plan of arrangement under the Business Corporations Act (Alberta), is subject to certain conditions including the approval of Steppe shareholders, approval of the Court of Queen’s Bench and certain regulatory and third party approvals. The Steppe acquisition is expected to close by the end of the third quarter of 2018. In conjunction with the close of the acquisition, Gear expects to increase its credit facilities from $75 million to $115 million. Assuming the transaction closes at the end of the third quarter of 2018, Gear forecasts a fourth quarter 2018 annualized net debt to funds from operations ratio of 0.9 times (estimates are based on the following price assumptions: WTI – US$67/bbl, WCS differential – US$25/bbl, Edmonton Par differential – US$7/bbl, AECO – Cdn$1.50/GJ and FX – $0.77 USD/CAD).