CALGARY, AB, Feb. 17, 2021 /CNW/ - Gear Energy Ltd. ("Gear" or
the "Company") (TSX: GXE) is pleased to provide the following
fourth quarter operating update and reserves summary to
shareholders. Gear's Consolidated Financial Statements and related
Management's Discussion and Analysis ("MD&A") for the period
ended December 31, 2020 are available
for review on Gear's website at www.gearenergy.com and on
www.sedar.com.
Financial Summary
|
|
|
|
Three months
ended
|
Twelve months
ended
|
(Cdn$ thousands,
except per share, share and per
boe amounts)
|
Dec 31,
2020
|
Dec 31,
2019
|
Sep 30,
2020
|
Dec 31,
2020
|
Dec 31,
2019
|
FINANCIAL
|
|
|
|
|
|
Funds from operations
(1)
|
8,253
|
13,738
|
10,848
|
33,429
|
61,842
|
Per boe
|
15.41
|
21.68
|
20.09
|
17.24
|
24.34
|
Per weighted average
basic share
|
0.04
|
0.06
|
0.05
|
0.15
|
0.28
|
Cash flows from
operating activities
|
8,016
|
11,401
|
8,864
|
30,217
|
49,876
|
Net income
(loss)
|
39,349
|
(8,045)
|
(1,157)
|
(77,324)
|
(5,680)
|
Per weighted average
basic share
|
0.18
|
(0.04)
|
(0.01)
|
(0.36)
|
(0.03)
|
Capital
expenditures
|
386
|
12,603
|
715
|
12,441
|
36,989
|
Decommissioning
liabilities settled (2)
|
726
|
889
|
87
|
1,505
|
2,932
|
Net acquisitions
(dispositions) (3)
|
-
|
109
|
-
|
3
|
(976)
|
Net debt
(1)
|
52,864
|
69,752
|
60,544
|
52,864
|
69,752
|
Weighted average
shares, basic (thousands)
|
216,490
|
218,365
|
216,490
|
216,545
|
218,887
|
Shares outstanding,
end of period (thousands)
|
216,490
|
217,610
|
216,490
|
216,490
|
217,610
|
|
|
|
|
|
|
OPERATING
|
|
|
|
|
|
Production
|
|
|
|
|
|
Heavy oil
(bbl/d)
|
3,236
|
4,034
|
3,321
|
2,985
|
4,053
|
Light and medium oil
(bbl/d)
|
1,657
|
1,763
|
1,746
|
1,507
|
1,963
|
Natural gas liquids
(bbl/d)
|
182
|
269
|
174
|
169
|
238
|
Natural gas
(mcf/d)
|
4,477
|
4,935
|
3,761
|
3,825
|
4,252
|
Total
(boe/d)
|
5,821
|
6,888
|
5,868
|
5,298
|
6,962
|
Average
prices
|
|
|
|
|
|
Heavy oil
($/bbl)
|
36.16
|
49.17
|
40.27
|
32.64
|
53.87
|
Light and medium oil
($/bbl)
|
48.10
|
64.82
|
47.61
|
45.41
|
66.69
|
Natural gas liquids
($/bbl)
|
26.02
|
22.79
|
20.30
|
19.56
|
22.26
|
Natural gas
($/mcf)
|
2.69
|
2.36
|
2.25
|
2.24
|
1.63
|
Netback
($/boe)
|
|
|
|
|
|
Commodity and other
sales
|
36.68
|
47.97
|
39.00
|
33.55
|
51.94
|
Royalties
|
(4.38)
|
(5.52)
|
(3.48)
|
(3.51)
|
(5.71)
|
Transportation
costs
|
(1.96)
|
(2.16)
|
(2.71)
|
(2.20)
|
(2.20)
|
Operating
costs
|
(14.83)
|
(15.77)
|
(13.60)
|
(14.80)
|
(15.78)
|
Operating netback
(1)
|
15.51
|
24.52
|
19.21
|
13.04
|
28.25
|
Realized risk
management gain (loss)
|
4.67
|
0.58
|
5.35
|
8.85
|
(0.12)
|
General and
administrative
|
(2.41)
|
(2.13)
|
(2.28)
|
(2.67)
|
(2.17)
|
Interest
|
(2.25)
|
(1.30)
|
(2.19)
|
(2.00)
|
(1.65)
|
Realized (loss) gain
on foreign exchange
|
(0.11)
|
0.01
|
-
|
0.02
|
0.03
|
|
|
|
|
|
|
TRADING
STATISTICS
($ based on intra-day
trading)
|
|
|
|
|
|
High
|
0.31
|
0.48
|
0.25
|
0.50
|
0.88
|
Low
|
0.15
|
0.26
|
0.14
|
0.08
|
0.26
|
Close
|
0.29
|
0.46
|
0.16
|
0.29
|
0.46
|
Average daily volume
(thousands)
|
320
|
529
|
275
|
510
|
418
|
|
|
|
|
|
|
|
(1)
|
Funds from
operations, net debt and operating 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)
|
Decommissioning
liabilities settled includes expenditures made by both Gear and the
Federal Site Rehabilitation Program.
|
(3)
|
Net acquisitions
(dispositions) exclude non-cash items for decommissioning liability
and deferred taxes and is net of post-closing
adjustments.
|
MESSAGE TO SHAREHOLDERS
The fourth quarter of 2020 provided continued recovery from the
setbacks experienced earlier in the year as the result of an oil
price war and a Covid-induced global economic downturn. After
coming into the year with strong oil prices and an ambitious
$50 million capital budget, the Gear
team was quick to respond to the commodity price downturn by
deferring both production and capital spending while waiting out
the uncertainty. With a solid commodity price recovery having
recently occurred, the Company is now well positioned to resume its
strategies and planned activities to capitalize on its depth of
opportunities.
Gear halted its drilling program in early March 2020 after only 9 wells, and in April, Gear
materially reduced costs and was well on the way to shutting in and
storing oil to preserve value through the low oil price period.
Through these defensive moves, Gear was able to not only preserve,
but also improve the economic foundation of the company. By the end
of 2020, the Company restarted the majority of its shut-in
production, sold stored oil at significantly higher prices and
reduced outstanding net debt by over 24 per cent from year end
2019. In addition, Gear completed the semi-annual borrowing base
redetermination of its syndicated credit facilities with a maturity
extension to May 2022 and negotiated
the extension of the outstanding convertible debentures to 2023.
The drilling activity that was completed during 2020 included a
combination of low-risk infill drilling, core area step-out
drilling and the exciting first-well discovery of a new medium oil
play in Provost, Alberta . with
multi-well potential.
Gear's current $20 million capital
budget for 2021 builds on the recent sector recovery and includes
multiple follow up drilling and waterflooding activities to further
advance upon prior year's success. Underpinning these operational
activities, oil prices have increased significantly, with WTI
moving up from US$35.79 per barrel on
October 30, 2020 to today's price of
over US$60 per barrel, a level not
seen in well over a year. Heavy oil differentials also continue to
narrow with the forward curve approaching a Western Canadian Select
heavy oil differential of US$11 per
barrel this summer. All of this has translated into a forecast of
2021 funds from operations ("FFO") that is more than twice the
current guided 2021 capital expenditures.
Whereas 2020 was dominantly a defensive year of survival for
many junior oil weighted producers, 2021 is shaping up to be a year
of opportunity, where Gear should again have the option of
balancing excess FFO towards multiple strategic directions
including continued debt reduction, accelerated capital investment
and associated growth or other returns to shareholders. Although
the price recovery is still relatively recent (and we will continue
to monitor it diligently), the Gear team is very excited and poised
for the opportunity to refocus efforts again towards creating value
for its shareholders in 2021 and beyond.
FOURTH QUARTER HIGHLIGHTS
- Generated FFO for the fourth quarter of $8.3 million or $15.41 per boe. With minimal capital
expenditures, Gear decreased net debt by an additional $7.7 million to $52.9
million. Annualized quarterly net debt to FFO ratio was 1.6
times.
- Extended Gear's syndicated credit facilities maturity date to
May 2022 with a current borrowing
base of $65 million. Presently, Gear
is drawn $48 million and anticipates
having ample liquidity to execute the 2021 capital program.
- Successfully extended Gear's $13.2
million convertible debentures with a three year maturity
date extension to November 30, 2023,
an increase in the coupon rate from 4.0 per cent to 7.0 per cent
and a revision to the conversion price from $0.87 to $0.32 per
Gear common share.
2020 HIGHLIGHTS
- Generated $33.4 million of FFO or
$17.24 per boe through a highly
volatile commodity price year where WTI hit a historical low of
negative US$37 per barrel in
April 2020. FFO was supported by a
continued focus on maximizing revenue for every barrel produced,
maintaining a low cost structure and delivering record high
realized gains on risk management contracts of $17.2 million.
- Posted year-end net debt of $52.9
million with a net debt to FFO ratio of 1.6 times for the
year. This represents a substantial $16.9
million or 24 per cent reduction from year end 2019.
- Delivered production of 5,298 boe per day for 2020, hitting the
upper end of the annual guidance range of 5,200 – 5,300 boe per
day. Also achieved the lower end of the operating and
transportation cost guidance of $17.00 – $18.00
with actual full year operating and transportation cost of
$17.00 per boe. This was achieved
through prudent operating practices and better than expected
run-time on Gear's wells.
- Drilled nine gross (nine net) wells including seven heavy oil
wells consisting of four single lateral wells in Paradise Hill, two multi-lateral wells in
Lindbergh, and one single leg lined well in Frenchman's Butte, all
in the Lloydminster area of
Alberta; and two medium oil wells
consisting of one multi-stage fractured well in Killam and one multi-lateral well in
Provost, all in the east central
area of Alberta. The Provost well was a discovery well in a new
area on an eight section block of land. Gear anticipates
significant future development potential with this discovery under
both primary and secondary recovery schemes. Multiple new wells are
planned to be drilled in Provost
in 2021.
2021 OUTLOOK
- Through the first six weeks of 2021, Gear has successfully
drilled eight heavy oil wells in Paradise
Hill, with the first four of those wells being completed and
already starting to show initial oil production. Gear anticipates
drilling two more wells in Paradise
Hill prior to shutting down for spring break up.
- Gear's budgeted capital program details were released on
December 16, 2020 using an estimated
WTI oil price of US$45 per barrel and
a WCS differential estimate of US$14
per barrel. Those prices were expected to yield funds from
operations in excess of capital and further reduce debt to
contribute to Gear's already strong balance sheet. With the spot
market WTI oil price now trending approximately $15 per barrel higher and WCS differentials
tightening by over $2 per barrel, the
newly forecasted funds from operations are well over double the
current $20 million capital forecast.
Details of current 2021 estimated results using existing guidance
and various WTI price scenarios are as follows:
2021
|
Strip pricing
as
of Feb 16, 2021
|
WTI
US$50
|
WTI
US$55
|
WTI
US$60
|
WTI
US$65
|
Forecasted FFO
($ million)
|
46
|
34
|
42
|
48
|
53
|
Forecasted Net
Debt ($million)
|
26
|
38
|
30
|
24
|
19
|
Forecasted Net
Debt to FFO
|
0.6
|
1.1
|
0.7
|
0.5
|
0.4
|
WTI sensitivities are
run from February to December 2021 and assume a WCS diff of US$12,
an MSW and LSB diff of US$4, an FX of $0.79US/Cdn, and AECO of
C$2.80/GJ.
|
- Current forward strip pricing supports an estimated
$46 million of FFO in 2021, yielding
a forecasted $26 million of free FFO
in excess of the current $20 million
capital budget. This provides Gear with the ability to reduce
outstanding debt through 2021. With continued market stability and
the completion of the Spring credit facilities renewal, Gear will
consider a return to growth through investment in its deep
inventory of drilling across the three core areas, as well as the
acceleration of decline-reducing waterflood opportunities in
Killam and Wildmere.
- Through 2021, Gear plans to invest a total of $5.9 million towards abandonment and reclamation
activities through a combination of $1.1
million of Gear funding and an additional $4.8 million of Government funding under the Site
Rehabilitation Programs.
- Gear currently has hedged approximately 2,550 boe/d for 2021
under various structures of 3-way collars, enhanced swaps and
swaps. The risk management program has been cultivated to provide
both downside price protection along with participation to a WTI
price recovery. The current hedge contracts protect approximately
53 per cent of forecasted production after royalties with details
as follows:
|
|
|
|
|
|
Q1
2021
|
Q2
2021
|
Q3
2021
|
Q4
2021
|
Commodity
Structure
|
WTI Oil 3-way
collar
|
WTI Oil 3-way
collar
|
WTI Oil 3-way
collar
|
WTI Oil 3-way
collar
|
Price
($/bbl)
|
U$35x42x50
|
C$45x55x70.50
|
C$45x55x74
|
C$45x55x74
|
Volume
(bbl/d)
|
1,300
|
1,100
|
800
|
800
|
Commodity
Structure
|
WTI Oil Enhanced
Swap
|
WTI Oil Enhanced
Swap
|
WTI Oil 3-way
collar
|
WTI Oil 3-way
collar
|
Price
($/bbl)
|
U$46.50 w/ U$35
sold
put
|
C$65.85 w/ $C50
sold
put
|
C$45x55x71
|
C$45x55x71
|
Volume
(bbl/d)
|
800
|
1,200
|
800
|
800
|
Commodity
Structure
|
|
WTI Oil 3-way
collar
|
WTI Oil 3-way
collar
|
WTI Oil 3-way
collar
|
Price
($/bbl)
|
|
C$45x55x83
|
C$45x55x83
|
C$45x55x83
|
Volume
(bbl/d)
|
|
300
|
400
|
400
|
Commodity
Structure
|
AECO Swap
|
AECO Swap
|
AECO Swap
|
AECO Swap
|
Price
($/GJ)
|
2.75
|
2.75
|
2.75
|
2.75
|
Volume
(GJ/d)
|
2,400
|
2,400
|
2,400
|
2,400
|
Total
(boe/d)
|
2,479
|
2,979
|
2,379
|
2,379
|
YEAR END RESERVES EVALUATION
During 2020, Gear responded to the unprecedented commodity price
weakness and volatility by curtailing its planned $50 million budget in early March. Gear
generated $33.4 million of funds from
operations in 2020 and reinvested only $13.4
million, or 40 per cent, consisting of $12.4 million of development capital and
$1.0 million directed towards
abandonment and reclamation activities (not including any
government funding provided during the year). The limited
capital investment resulted in a 24 per cent reduction in
outstanding net debt at the expense of a decrease in annual
production and reserves year-over-year.
Compounding the reduction in reserves as a result of declines,
was a significant reduction in the evaluator average price forecast
that negatively impacted net present values and reserves amounts
due to economic limit cut-offs. New Canadian Oil and Gas Evaluation
Handbook ("COGE Handbook") recommendations state that evaluator's
price forecasts should now be within 20 per cent of the strip price
forecast at year end. In this case, the average evaluator forecast
for the WTI oil price was 2.4 per cent lower than the strip price
for 2021, 7.3 per cent higher for 2022 and16 per cent higher for
2023. Although this evaluator forecast could have been considered
reasonable at the time, the forecast for WTI is disjointed from
prevailing market realities and is now over US$10 per barrel lower than the current forward
strip for 2021 and does not achieve current spot price levels of
approximately US$60 per barrel until
the year 2029.
Consistent with 2019, and as per guidance in the COGE Handbook,
the independent reserves report includes the full corporate
abandonment and reclamation costs ('ARO'), including all of the ARO
associated with both active and inactive wells regardless of
whether such wells had any attributed reserves.
For details on the annual operating results please see the
Management's Discussion and Analysis ("MD&A") dated
February 17, 2021, which is available
on SEDAR at www.sedar.com.
RESERVES SUMMARY
Year-end 2020 reserves were evaluated by independent reserves
evaluator Sproule Associates Ltd. ("Sproule") in accordance with
the definitions, standards and procedures contained in the 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, 2021. 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,
2021.
The following tables outline Gear's reserves as at December 31, 2020. 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,
2020 Using Sproule Costs and Jan 1,
2021 Evaluator Average Forecast Prices
|
|
|
|
|
|
|
Company
Gross
|
Light &
Medium
Oil
(Mbbl)
|
Heavy
Oil
(Mbbl)
|
NGL's
(Mbbl)
|
Natural
Gas
(MMcf)
|
Equivalent
(Mboe)
|
Liquids
Ratio
(%)
|
Proved Developed
Producing5
|
3,406
|
2,483
|
302
|
6,085
|
7,205
|
86
|
Proved Non-Producing
& Undeveloped
|
2,310
|
2,950
|
142
|
2,342
|
5,793
|
93
|
Total
Proved
|
5,716
|
5,433
|
444
|
8,427
|
12,998
|
89
|
Probable Developed
Producing
|
1,397
|
937
|
110
|
2,204
|
2811
|
87
|
Probable
Non-Producing & Undeveloped
|
3,258
|
3,744
|
142
|
3,270
|
7,689
|
93
|
Total
Probable
|
4,655
|
4,681
|
252
|
5,474
|
10,500
|
91
|
Total Proved plus
Probable
|
10,371
|
10,114
|
696
|
13,901
|
23,498
|
90
|
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
|
15,014
|
66,883
|
73,787
|
71,463
|
67,414
|
Proved Non-Producing
& Undeveloped
|
72,993
|
50,602
|
35,528
|
25,158
|
17,802
|
Total
Proved
|
88,007
|
117,485
|
109,315
|
96,621
|
85,216
|
Probable Developed
Producing
|
60,632
|
55,057
|
41,548
|
32,591
|
26,745
|
Probable
Non-Producing &
Undeveloped
|
135,894
|
95,536
|
69,402
|
51,810
|
39,478
|
Total
Probable
|
196,526
|
150,593
|
110,950
|
84,401
|
66,223
|
Total Proved plus
Probable
|
284,533
|
268,079
|
220,265
|
181,022
|
151,439
|
Net Future Development Costs ("FDC") Under Forecast Prices
and Costs
|
|
|
|
($
thousands)
|
Proved
|
Probable
|
Total
|
2021
|
13,545
|
4,954
|
18,499
|
2022
|
26,498
|
39,125
|
65,623
|
2023
|
29,915
|
31,297
|
61,212
|
2024
|
27,858
|
18,817
|
46,675
|
2025
|
12,405
|
7,254
|
19,659
|
Subsequent
Years
|
0
|
8,186
|
8,186
|
Undiscounted
Total
|
110,221
|
109,633
|
219,854
|
Discounted at
10%
|
87,553
|
86,256
|
173,809
|
EFFICIENCY RATIOS
|
|
|
|
2020
|
2019
|
Reserves (mboes),
Capital ($ thousands)
|
Proved
|
Proved plus
Probable
|
Proved
|
Proved plus
Probable
|
Development Reserves
Additions
|
(1,186)
|
(1,732)
|
1,659
|
981
|
Net Acquisition
Reserves Additions
|
(127)
|
(346)
|
1
|
40
|
Total Reserves
Additions
|
(1,313)
|
(2,078)
|
1,660
|
1,021
|
|
|
|
|
|
Development
capital
|
11,775
|
11,775
|
36,948
|
36,984
|
Development change in
FDC
|
(41,825)
|
(41,082)
|
(2,385)
|
(4,880)
|
Total development
capital including FDC
|
(30,050)
|
(29,307)
|
34,563
|
32,068
|
|
|
|
|
|
Net acquisition
capital
|
3
|
3
|
(937)
|
(937)
|
Net acquisition
change in FDC
|
0
|
0
|
0
|
0
|
Total net acquisition
capital including FDC
|
3
|
3
|
(937)
|
(937)
|
|
|
|
|
|
Total
capital
|
11,778
|
11,778
|
36,012
|
36,012
|
Total change in
FDC
|
(41,825)
|
(41,082)
|
(2,385)
|
(4,880)
|
Total capital
including FDC
|
(30,047)
|
(29,304)
|
33,627
|
31,131
|
|
|
|
|
|
|
Estimated Future Finding and Development Costs
|
|
|
|
Proved
|
Proved plus
Probable
|
Future Development
Costs ($ thousands)
|
110,221
|
219,854
|
Undeveloped and
Non-producing Reserves (Mboe)
|
5,793
|
13,482
|
Future Finding and
Development Costs ($/boe)
|
19.03
|
16.31
|
Reserves Life Index ("RLI")
|
|
|
|
(years)
|
2020
|
2019
|
2018
|
Proved Developed
Producing
|
4.3
|
4.2
|
3.9
|
Total
Proved
|
6.9
|
6.6
|
5.4
|
Total Proved plus
Probable
|
10.7
|
9.4
|
7.7
|
RESERVES RECONCILIATION
|
|
|
|
|
|
Reserves
Reconciliation
Company
Gross
|
Heavy Oil
(Mbbl)
|
Light &
Medium
Oil
(Mbbl)
|
Natural
Gas
(MMcf)
|
Natural
Gas
Liquids
(Mbbl)
|
Oil
Equivalent
(Mboe)
|
Proved
Producing
|
|
|
|
|
|
|
Opening Balance,
January 1, 2020
|
3,348
|
3,913
|
6,827
|
464
|
8,861
|
|
|
Technical
Revisions
|
336
|
92
|
1,001
|
(81)
|
513
|
|
|
Drilling
Extensions
|
125
|
94
|
59
|
-
|
229
|
|
|
Infill
Drilling
|
-
|
-
|
-
|
-
|
-
|
|
|
Improved
Recovery
|
-
|
43
|
41
|
-
|
51
|
|
|
Acquisitions
|
-
|
12
|
16
|
1
|
16
|
|
|
Dispositions
|
-
|
(14)
|
(14)
|
(2)
|
(19)
|
|
|
Economic
Factors
|
(233)
|
(183)
|
(451)
|
(18)
|
(508)
|
|
|
Production
|
(1,093)
|
(551)
|
(1,394)
|
(62)
|
(1,938)
|
|
Closing Balance,
December 31, 2020
|
2,483
|
3,406
|
6,085
|
302
|
7,205
|
Total
Proved
|
|
|
|
|
|
|
Opening Balance,
January 1, 2020
|
6,906
|
6,882
|
10,540
|
705
|
16,249
|
|
|
Technical
Revisions
|
47
|
516
|
378
|
(142)
|
485
|
|
|
Drilling
Extensions
|
328
|
183
|
216
|
2
|
549
|
|
|
Infill
Drilling
|
-
|
16
|
19
|
2
|
21
|
|
|
Improved
Recovery
|
-
|
43
|
41
|
1
|
51
|
|
|
Acquisitions
|
-
|
12
|
16
|
1
|
16
|
|
|
Dispositions
|
(109)
|
(25)
|
(26)
|
(4)
|
(143)
|
|
|
Economic
Factors
|
(646)
|
(1,360)
|
(1,363)
|
(59)
|
(2,292)
|
|
|
Production
|
(1,093)
|
(551)
|
(1,394)
|
(62)
|
(1,938)
|
|
Closing Balance,
December 31, 2020
|
5,433
|
5,716
|
8,427
|
444
|
12,998
|
Proved plus
Probable
|
|
|
|
|
|
|
Opening Balance,
January 1, 2020
|
12,705
|
11,242
|
15,201
|
1,033
|
27,515
|
|
|
Technical
Revisions
|
(631)
|
149
|
620
|
(232)
|
(611)
|
|
|
Drilling
Extensions
|
497
|
307
|
212
|
1
|
841
|
|
|
Infill
Drilling
|
-
|
-
|
-
|
-
|
0
|
|
|
Improved
Recovery
|
-
|
72
|
62
|
1
|
83
|
|
|
Acquisitions
|
-
|
16
|
22
|
2
|
22
|
|
|
Dispositions
|
(321)-
|
(35)
|
(36)
|
(5)
|
(368)
|
|
|
Economic
Factors
|
(1,043)
|
(829)
|
(786)
|
(42)
|
(2,046)
|
|
|
Production
|
(1,093)
|
(551)
|
(1,394)
|
(62)
|
(1,938)
|
|
Closing Balance,
December 31, 2020
|
10,114
|
10,371
|
13,901
|
696
|
23,498
|
FORECAST PRICES AND COSTS
Sproule has adopted changes to the COGE Handbook that are
expected to come into effect in April 2021. This updated
pricing guidance recommends that forecasting not deviate more than
20% from the current strip pricing for the first two years of the
forecast. Discretion can be incorporated for the third year
based upon the judgement of the issuer. Pricing beyond the
third year should be adjusted by forecasted inflation in the given
year.
The evaluator average crude oil and natural gas benchmark
reference pricing, inflation, and exchange rates was utilized again
this year by Sproule. Gear's main product components under
Sproule's evaluator average forecast are down 26 to 28 per cent
from the previous year's price forecast. The Sproule
evaluator average forecast at December 31,
2020 is 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)
|
2021
|
0.00
|
0.77
|
47.17
|
55.76
|
44.63
|
2.78
|
2022
|
1.33
|
0.77
|
50.17
|
59.89
|
48.18
|
2.70
|
2023
|
2.00
|
0.76
|
53.17
|
63.48
|
52.10
|
2.61
|
2024
|
2.00
|
0.76
|
54.97
|
65.76
|
54.10
|
2.65
|
2025
|
2.00
|
0.76
|
56.07
|
67.13
|
55.19
|
2.70
|
2026
|
2.00
|
0.76
|
57.19
|
68.53
|
56.29
|
2.76
|
2027
|
2.00
|
0.76
|
58.34
|
69.95
|
57.42
|
2.81
|
2028
|
2.00
|
0.76
|
59.50
|
71.40
|
58.57
|
2.87
|
2029
|
2.00
|
0.76
|
60.69
|
72.88
|
59.74
|
2.92
|
2030
|
2.00
|
0.76
|
61.91
|
74.34
|
60.93
|
2.98
|
2031+
|
2.00
|
0.76
|
+2.0%/yr
|
+2.0%/yr
|
+2.0%/yr
|
+2.0%/yr
|
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: details of Gear's expected capital
program in 2021; Western Canadian Select heavy oil differential of
US$11 per barrel for the summer of
2021; forecasted 2021 FFO of that is over double the current guided
2021 $20 million capital plan; the
expectation that Gear should have the option of balancing excess
FFO towards multiple strategic directions including continued debt
reduction, accelerated capital investment and associated growth in
2021; the expectation that the anticipation of significant future
development potential in Provost
on both primary and secondary recovery schemes; Gear's anticipation
of drilling two more wells in Paradise
Hill prior to shutting down for spring break up; the
expectation of FFO in excess of capital and further reduction of
debt in 2021; the expectation that the newly forecasted funds from
operations are well over double the current $20 million capital forecast; the expected 2021
FFO, forecasted net debt and forecasted net debt to FFO based on
various commodity pricing scenarios; the expectation that with
continued market stability and the completion of the Spring credit
facilities renewal, Gear will consider a return to growth through
investment in its deep inventory of drilling across the three core
areas, as well as the acceleration of decline-reducing waterflood
opportunities in Killam and
Wildmere; the amount of abandonment and reclamation expenditures
expected in 2021 including the amount of Government funding to be
received for such expenditures; the expectation that current hedges
will protect approximately 53 per cent of forecasted production
after royalties in 2021; reserves and associated future net
revenue; expected future abandonment and reclamation costs; and the
expectation of filing Gear's Annual Information Form on SEDAR on or
before March 31, 2021.
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; the
continued availability of adequate debt and equity financing and
funds from operations to fund its planned expenditures; and certain
other guidance and assumptions as set out in the section entitled
2020 Guidance in the MD&A.. 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: the continuing impact of the COVID-19 pandemic; 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; any action taken by Gear's lenders to
reduce borrowing capacity or require repayment under its credit
facilities; any inability for Gear to repay any of its indebtedness
when due; 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.
Oil and Gas Metrics
This press release contains a
number of oil and gas metrics, including future finding and
development costs, reserves life index and operating netback, which
do not have standardized meanings or standard methods of
calculation and therefore such measures may not be comparable to
similar measures used by other companies. Such metrics have been
included herein to provide readers with additional measures to
evaluate the Company's performance; however, such measures are not
reliable indicators of the future performance of the Company and
future performance may not compare to the performance in previous
periods. Future finding and development costs are used as a measure
of capital efficiency. The calculation for future finding and
development costs is calculated by dividing future development
costs for proved plus probable reserves by the undeveloped and
non-producing reserves as included in the year end reserves report.
Reserves life index is calculated by dividing the reserves in each
category by the corresponding Sproule forecast annual production.
Operating netbacks are presented before 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.
NON-GAAP Measures
This press release contains the
terms funds from operations, net debt and operating 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 cash
flow 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. 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.
SOURCE Gear Energy Ltd.