CALGARY, May 9, 2018 /CNW/ - Gear Energy Ltd. ("Gear"
or the "Company") (TSX:GXE) is pleased to provide the following
first quarter operating update to shareholders. Gear's Interim
Financial Statements and related Management's Discussion and
Analysis ("MD&A") for the period ended March 31, 2018 are available for review on Gear's
website at www.gearenergy.com and on www.sedar.com.
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|
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Three months
ended
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(Cdn$ thousands,
except per boe amounts)
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March 31,
2018
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March 31,
2017
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Dec 31,
2017
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FINANCIAL
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|
|
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Funds from operations
(1)
|
8,078
|
8,729
|
14,613
|
|
Per weighted average
basic share
|
0.04
|
0.05
|
0.07
|
|
Per weighted average
diluted share
|
0.04
|
0.04
|
0.07
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Cash flow from
operating activities
|
14,787
|
12,245
|
9,964
|
Net income
(loss)
|
(4,294)
|
2,986
|
6,947
|
|
Per weighted average
basic share
|
(0.02)
|
0.02
|
0.04
|
|
Per weighted average
diluted share
|
(0.02)
|
0.01
|
0.03
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Capital
expenditures
|
9,243
|
18,784
|
12,307
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Net acquisitions
(2)
|
390
|
(68)
|
14
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Net debt outstanding
(1)
|
45,330
|
46,745
|
43,269
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Weighted average
shares, basic (thousands)
|
194,968
|
192,840
|
194,968
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Weighted average
shares, diluted (thousands)
|
194,968
|
209,652
|
211,310
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Shares outstanding,
end of period (thousands)
|
194,968
|
192,915
|
194,968
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|
|
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OPERATING
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Production
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Heavy oil
(bbl/d)
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4,231
|
3,739
|
4,760
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Light and medium oil
(bbl/d)
|
1,197
|
1,085
|
1,161
|
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Natural gas liquids
(bbl/d)
|
223
|
217
|
242
|
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Natural gas
(mcf/d)
|
5,229
|
5,197
|
5,566
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Total
(boe/d)
|
6,522
|
5,907
|
7,090
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Average
prices
|
|
|
|
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Heavy oil
($/bbl)
|
42.97
|
43.13
|
49.18
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Light and medium oil
($/bbl)
|
64.53
|
60.91
|
64.71
|
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Natural gas liquids
($/bbl)
|
39.74
|
23.08
|
27.79
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Natural gas
($/mcf)
|
1.66
|
3.00
|
1.90
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Netback
($/boe)
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|
|
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Commodity and other
sales
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42.42
|
41.98
|
46.06
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Royalties
|
(4.95)
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(3.97)
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(4.15)
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Operating
costs
|
(15.83)
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(16.28)
|
(16.03)
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Operating netback
(1)
|
21.64
|
21.73
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25.88
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Realized risk
management gains (losses)
|
(4.15)
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(1.24)
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(0.73)
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General and
administrative
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(2.83)
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(3.00)
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(1.92)
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Interest
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(0.92)
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(0.88)
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(0.83)
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Other
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0.02
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(0.19)
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-
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Corporate netback
(1)
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13.76
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16.42
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22.40
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TRADING
STATISTICS
($ based on intra-day
trading)
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|
|
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High
|
1.01
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1.26
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1.00
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Low
|
0.66
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0.76
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0.70
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Close
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0.70
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0.90
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0.85
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Average daily volume
(thousands)
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458
|
553
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468
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(1)
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Funds from
operations, net debt, operating netback and corporate netback are
non-GAAP measures and are reconciled to the nearest GAAP measures
under the heading "Non-GAAP Measures" in Gear's
MD&A.
|
(2)
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Net acquisitions
exclude non-cash items for decommissioning liability and deferred
taxes and is net of post-closing adjustments.
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MESSAGE TO SHAREHOLDERS
The team at Gear have worked tirelessly through the last few
years to manage external challenges and to set the Company up for
future success even in an environment of business uncertainty. Two
short years ago, Gear reported first quarter 2016 production of
4,435 boe/d and a net debt to funds from operations ratio of 3.7
times. Today, the team is forecasting to exit 2018 at more than
double the production and with an exceptionally strong net debt to
funds from operations ratio of approximately 0.5 times. In
addition, management's estimate of potential drilling locations has
increased by 50 per cent over the same time period. Although
temporary production restrictions were experienced in the first
quarter of 2018, the resultant oil inventory build-up is now being
sold at significantly higher prices and the outlook for the rest of
2018 and beyond is providing the team at Gear with significant
reasons for enthusiasm.
QUARTERLY HIGHLIGHTS
During the first quarter of 2018, Gear experienced temporary
limitations in its ability to ship oil to market. Heavy oil
pipeline shipping capacity out of Canada decreased starting in November 2017 due to a leak on the Keystone
pipeline which resulted in a backlog of oil inventory in
Western Canada. In addition,
crude-by-rail performance was challenged as a result of increased
crude-by-rail demand, strong grain production, increased
transportation of frac sand and extreme winter weather, all of
which strained the rail network. As a result, Gear was subjected to
approximately 30 per cent apportionment through the first quarter
on its heavy oil sales.
To manage these restrictions prudently while maximizing realized
pricing, Gear temporarily slowed its heavy oil production and built
a record inventory of saleable oil in excess of 40,000 barrels.
Total corporate productive capability for the first quarter was
estimated to be 7,350 boe per day with total first quarter sales
actually coming in at 6,522 boe per day. Starting in April 2018, oil egress has improved with reduced
pipeline apportionments and greater crude-by-rail availability
allowing Gear to start ramping base production back up and selling
its excess oil inventory at substantially higher prices.
- Realized quarterly funds from operations of $8.1 million, a seven percent decrease from the
prior year first quarter of $8.7
million and a 45 per cent decrease from the fourth quarter
of 2017 of $14.6 million. The lower
funds from operations are primarily due to the temporarily
restricted sales volumes and decreases in realized prices. Current
estimated field production is approximately 7,000 boe per day as
Gear continues to ramp up production that was artificially slowed
as a result of first quarter egress challenges. If the recent
improvements in heavy oil shipping capacity continue, Gear expects
to eliminate the majority of excess oil inventory throughout the
second quarter, providing an incremental boost to sales volumes in
the range of 400 barrels per day. Current expectations are that
second quarter sales production should again be in excess of 7,000
boe per day, similar to the fourth quarter of 2017.
- Realized revenue for the first quarter of $42.42 per boe compared to $41.98 per boe in the first quarter of 2017 and
$46.06 per boe in the fourth quarter
of 2017. The decrease in realized prices was driven by lower heavy
oil pricing as a result of widening WCS heavy oil differentials
which increased to $24.27 per barrel
in the first quarter of 2018 compared to a $14.58 per barrel discount in the first quarter
of 2017 and a $12.27 per barrel
discount in the fourth quarter of 2017. WCS differentials have
continued to be volatile, with May
2018 settled at a $16.62 per
barrel discount.
- Realized a first quarter operating netback of $21.64 per boe, very similar to the prior year
first quarter operating netback of $21.73 per boe and a decrease of $4.24 per boe or 16 per cent from the fourth
quarter as a result of lower realized pricing. Corporate netback
for the first quarter was $13.76 per
boe, a 16 per cent reduction from the prior year first quarter and
a decrease of $8.64 per boe or 39 per
cent from the fourth quarter of 2017 primarily as a result of
higher realized hedging losses.
- Despite the reduced production volumes during the quarter, Gear
was able to improve its operating expenses to $15.83 per boe, a three per cent reduction from
the prior year first quarter and a one per cent reduction from the
fourth quarter of 2017. Although Gear experienced higher in-field
trucking costs in order to manage inventory levels, these were
offset by deferring non-essential maintenance expenditures.
- Drilled and completed two gross (1.9 net) wells with a 100 per
cent success rate. The first well was a quad-lateral unlined
horizontal Cummings well into a new area outside Gear's existing
Wildmere asset. The well has averaged approximately 140 barrels of
oil per day over the last 30 days of production. The second well
was Gear's first extended reach Basal Belly River light oil well in
the Wilson Creek area. This 1.5
mile long well looks encouraging with peak IP30 rates to date of
approximately 250 boe per day (230 net). Both of these wells are
likely to be followed up with further drilling in the second half
of 2018. In addition, Gear was very active at crown land sales with
the acquisition of approximately 14,000 acres in a new medium oil
area and added land to its Wildmere core area.
- Successfully increased Gear's credit facilities to $75 million from $55
million following the semi-annual borrowing base review
completed subsequent to quarter end. Gear exited the first quarter
2018 with $45.3 million in net debt
which includes $13.7 million in
outstanding convertible debentures and $36.2
million borrowed against its credit facilities. Based on
current forward commodity pricing indications and internal
production and cost forecasts, Gear anticipates exiting the year
with an annualized fourth quarter 2018 net debt to funds from
operations ratio of approximately 0.5 times.
Forward-looking Information and Statements
This press
release contains certain forward-looking information and statements
within the meaning of applicable securities laws. The use of any of
the words "expect", "anticipate", "continue", "estimate",
"objective", "ongoing", "may", "will", "project", "should",
"believe", "plans", "intends", "strategy" and similar expressions
are intended to identify forward-looking information or statements.
In particular, but without limiting the foregoing, this press
release contains forward-looking information and statements
pertaining to the following: the 2018 exit production; the expected
annualized fourth quarter 2018 net debt to funds from operations
ratio; the expectation that excess oil inventory will be sold in
the second quarter for 2018 at higher pricing; second quarter sales
production expectations; and the follow-up drills to the two first
quarter wells drilled.
The forward-looking information and statements contained in this
press release reflect several material factors and expectations and
assumptions of Gear including, without limitation: that Gear will
continue to conduct its operations in a manner consistent with past
operations; the general continuance of current industry conditions;
the continuance of existing (and in certain circumstances, the
implementation of proposed) tax, royalty and regulatory regimes;
the accuracy of the estimates of Gear's reserves and resource
volumes; certain commodity price and other cost assumptions; and
the continued availability of adequate debt and equity financing
and funds from operations to fund its planned expenditures. Gear
believes the material factors, expectations and assumptions
reflected in the forward-looking information and statements are
reasonable but no assurance can be given that these factors,
expectations and assumptions will prove to be correct.
To the extent that any forward-looking information contained
herein may be considered a financial outlook, such information has
been included to provide readers with an understanding of
management's assumptions used for budgeting and developing future
plans and readers are cautioned that the information may not be
appropriate for other purposes. The forward-looking information and
statements included in this press release are not guarantees of
future performance and should not be unduly relied upon. Such
information and statements involve known and unknown risks,
uncertainties and other factors that may cause actual results or
events to differ materially from those anticipated in such
forward-looking information or statements including, without
limitation: changes in commodity prices; changes in the demand for
or supply of Gear's products; unanticipated operating results or
production declines; changes in tax or environmental laws, royalty
rates or other regulatory matters; changes in development plans of
Gear or by third party operators of Gear's properties, increased
debt levels or debt service requirements; inaccurate estimation of
Gear's oil and gas reserve and resource volumes; limited,
unfavorable or a lack of access to capital markets; increased
costs; a lack of adequate insurance coverage; the impact of
competitors; and certain other risks detailed from time to time in
Gear's public documents including in Gear's most current annual
information form which is available on SEDAR at www.sedar.com.
The forward-looking information and statements contained in this
press release speak only as of the date of this press release, and
Gear does not assume any obligation to publicly update or revise
them to reflect new events or circumstances, except as may be
required pursuant to applicable laws.
NON-GAAP Measures
This press release contains the
terms funds from operations, net debt, operating netback and
corporate netback, which do not have standardized meanings under
Canadian generally accepted accounting principles ("GAAP") and
therefore may not be comparable with the calculation of similar
measures by other companies. Management believes that these key
performance indicators and benchmarks are key measures of financial
performance for Gear and provide investors with information that is
commonly used by other oil and gas companies. Funds from operations
is calculated as funds from operating activities before changes in
noncash operating working capital and decommissioning liabilities
settled. Net debt is calculated as debt less current working
capital items, excluding risk management contracts. Operating
netbacks are presented both before and after taking into account
the effects of hedging and are calculated based on the amount of
revenues received on a per unit of production basis after royalties
and operating costs. Corporate netbacks are presented after taking
into account the effects of hedging and are calculated based on the
amount of revenues received on a per unit of production basis after
royalties, operating costs, general and administrative expenses,
interest and foreign exchange gain or loss. Additional information
relating to certain of these non-GAAP measures, including the
reconciliation between funds from operations and cash flow from
operating activities, can be found in the MD&A.
Barrels of Oil Equivalent
Disclosure provided herein
in respect of BOEs may be misleading, particularly if used in
isolation. A BOE conversion ratio of six Mcf to one Bbl is based on
an energy equivalency conversion method primarily applicable at the
burner tip and do not represent a value equivalency at the
wellhead. Additionally, given that the value ratio based on the
current price of crude oil, as compared to natural gas, is
significantly different from the energy equivalency of 6:1;
utilizing a conversion ratio of 6:1 may be misleading as an
indication of value.
Initial and Other Production Rates
Any references in
this document to initial production rates are useful in confirming
the presence of hydrocarbons, however, such rates are not
determinative of the rates at which such wells or other future
wells will continue production and decline thereafter.
Additionally, such rates may also include recovered "load oil"
fluids used in well completion stimulation. In addition, Gear has
disclosed the cumulative production of wells on certain Gear
properties; there is no certainty that other wells on such
properties will achieve such production levels. Readers are
cautioned not to place reliance on such rates in calculating the
aggregate production for Gear.
SOURCE Gear Energy Ltd.