Gear Energy Ltd. Announces Fourth Quarter and Year-End 2014 Results
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E-mailCALGARY, ALBERTA -- (Marketwired) -- 03/10/15 -- Gear Energy Ltd. ("Gear" or the "Company") (TSX: GXE) is pleased to provide the following fourth quarter and year-end operating update to shareholders. For more information in conjunction with this release, please refer to Gear's Annual Audited Financial Statements, Management's Discussion and Analysis (MD&A) for the years ended December 31, 2014 and 2013, and 2014 Reserves Press Release titled "Gear Energy Ltd. Announces 30 Per Cent Increase in Year-End Reserves and 312 Per Cent Replacement of 2014 Production", all of which are available for review on Gear's website at www.gearenergy.com and on www.sedar.com.
Financial Summary
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(Cdn$ thousands, except
per boe amounts) Three months ended Twelve months ended
Dec 31, Dec 31, Sept 30, Dec 31, Dec 31,
2014 2013 2014 2014 2013
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FINANCIAL
Cash flow from operations
(1) 20,602 8,309 22,580 76,044 35,103
Per weighted average
diluted share 0.29 0.15 0.31 1.12 0.65
Cash flow from operating
activities 13,425 7,765 21,428 65,922 39,511
Per weighted average
diluted share 0.19 0.14 0.30 0.97 0.73
Net (loss) income (29,999) (539) 8,914 (13,080) (1,059)
Per weighted average
diluted share (0.42) (0.01) 0.12 (0.20) (0.02)
Capital expenditures 20,969 17,440 27,314 84,580 53,559
Net acquisitions (2) (1,027) (29) 1,451 79,861 (92)
Net debt outstanding (1) 98,404 67,148 94,334 98,404 67,148
Shares outstanding,
weighted average, basic 70,817 53,956 70,798 66,706 53,932
Shares outstanding,
weighted average, diluted 71,485 54,392 72,314 67,840 54,158
OPERATING
Production
Oil and liquids (bbl/d) 6,836 4,369 6,529 5,846 3,786
Natural gas (mcf/d) 991 1,641 1,101 1,046 1,757
Total (boe/d) 7,001 4,642 6,712 6,020 4,079
Average prices
Oil and liquids ($/bbl) 62.39 62.91 79.72 76.15 69.18
Natural gas ($/mcf) 3.57 3.12 3.89 4.30 3.11
Oil equivalent ($/boe) 61.42 60.31 78.17 74.69 65.47
Netback ($/boe)
Commodity and other
sales 61.48 60.37 78.40 74.82 65.55
Royalties 11.02 15.15 14.97 13.83 15.27
Operating costs 19.94 16.72 21.78 20.96 17.90
Operating netback
(before hedging) 30.52 28.50 41.65 40.03 32.38
Realized risk management
gains (losses) 3.98 (3.53) (1.04) (0.99) (3.41)
Operating netback (after
hedging) 34.50 24.97 40.61 39.04 28.80
General and
administrative 1.86 4.31 3.20 3.35 3.94
Interest 1.31 1.24 1.16 1.36 1.46
Foreign exchange (gain)
loss (0.63) - (0.32) (0.26) -
Corporate netback 31.96 19.42 36.57 34.59 23.57
TRADING STATISTICS ($
based on intra-day
trading)
High 4.86 3.55 6.35 6.41 3.55
Low 1.96 2.55 4.40 1.96 2.55
Close 2.50 3.23 4.71 2.50 3.23
Average daily volume
(thousands) 398 374 197 338 374
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1. Cash flow from operations and net debt are non-GAAP measures and are
reconciled to the nearest GAAP measures 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.
HIGHLIGHTS
-- Record sales production for the fourth quarter averaging 7,001 barrels
of oil equivalent per day ("boe/d"), a 13 per cent increase per debt
adjusted share over 4,642 boe/d in the fourth quarter of 2013. Annual
production for 2014 was 6,020 boe/d, a 22 per cent increase per debt
adjusted share over 2013. Volumes were slightly lower than estimated due
to the shut-in of 150 boe/d of oil through the fourth quarter in
response to the reduced pricing environment.
-- Realized cash flow from operations of $20.6 million, an 85 per cent
increase per debt adjusted share from $8.3 million in the fourth quarter
of 2013. Annual cash flow from operations for 2014 was $76 million, an
80 per cent increase per debt adjusted share over 2013. The strong
growth in cash flow from operations was primarily the result of
increased volumes, lower costs on risk management contracts and
increased pricing.
-- Fourth quarter operating costs, including transportation, were $19.94
per boe, dropping eight per cent from the third quarter of 2014. This
quarter includes the benefits of continued success in optimizing the
higher cost assets acquired in April of 2014. Annual costs for 2014 came
in at $20.96 per boe. Guidance for 2015 includes further improvements in
the field with costs of $17.00 to $19.00 per boe predicted for the first
half of the year.
-- Gear significantly increased lands prospective for heavy oil development
through the acquisition completed in April 2014 as well as the
investment of $3.8 million at crown sales in Alberta and Saskatchewan.
Current land holdings are 89,000 acres undeveloped and 113,000 acres
developed, increased from 2013 amounts by 49 and 18 per cent
respectively.
-- Realized heavy oil prices decreased slightly from $62.91 per bbl in the
fourth quarter of 2013 to $62.39 per bbl in the fourth quarter of 2014
as a result of materially lower WTI pricing, offset by narrower WCS
heavy oil differentials and a weaker Canadian dollar. Starting in
November 2014, global crude oil prices decreased significantly as a
result of increased supply and softening demand. Based on the current
forward curve, Gear's realized heavy oil price for the first and second
quarter of 2015 is expected to range from $37 per bbl to $43 per bbl.
-- Effective November 11, 2014, Gear entered into a syndicated demand
facility with three banks and increased the borrowing limit from $100
million to $130 million. Year-end net debt was $98.4 million or 1.2
times annualized fourth quarter cash flow. Gear has adopted a
conservative approach to the first half of 2015 in light of the reduced
pricing environment and will limit organic capital expenditures to
approximately $3 million to further improve the balance sheet.
-- Gear executed an active drilling program with 19 gross (17.1 net) wells
drilled in the fourth quarter, bringing the 2014 total to 76 gross (68.6
net) wells drilled at a 91 per cent success rate. The diversified list
of key operational results are summarized as follows:
Wildmere Lloyd: The polymer pilot continues to exceed expectations, now tracking at more than a four-fold increase in production with no breakthrough to date. The pilot will see continued injection through 2015 to further characterize the amenability of this large reservoir to polymer recovery enhancement techniques. Seven (4.8 net) horizontal wells were drilled in Wildmere including one dry and abandoned ("D&A"). The average results from this small program were slightly below expectations; however the remaining inventory of Lloydminster drilling is estimated to yield improved results through the use of lined multi-lateral drilling technology.
Wildmere Cummings: There were 15 horizontal wells drilled, including a pool extension well to the Southeast and a dual lateral well in the Northwest. Production has been characterized by predictable initial rates, low water cuts and low sand production. The economics of future drilling are expected to improve materially through the application of unlined multi-lateral horizontal drilling. The next well to be drilled, once prices improve, is planned as a quad-lateral well. The current recognized inventory of opportunities in the Cummings play exceeds 100 potential horizontal legs.
Wildmere GP: Exceptional results were realized from the two dual laterals drilled in this area. Average rates of 130 to 180 bbl/d were experienced for the first full month of production. Gear currently expects to drill two follow up wells when prices recover.
Morgan: Gear participated in the drilling of seven gross (four net) Lloydminster wells including one dual lateral well. Post optimization, average 30 day rates have been significantly above expectations averaging 150 bbl/d gross per well. This area is believed to have approximately 12 more horizontal legs worth of drilling in inventory.
Maidstone: There were 13 horizontal wells drilled into the Cummings pool including one D&A. The results mimic those seen in the Wildmere Cummings yielding a similar future plan to target the superior economics available through multi-lateral unlined drilling. Four vertical wells were also drilled into the Waseca formation realizing average 30 day peak rates over 80 bbl/d per well.
Paradise Hill: Gear drilled two successful horizontal wells into this new play. For the first 30 days the average rates have been over 95 bbl/d of oil per well. Gear land holdings in the area have now grown to almost seven net sections and with continued strong production; this could represent a material new core area for Gear.
Exploration: Inclusive of previous highlights, Gear drilled nine exploratory wells through 2014 with five of them successfully encountering new oil pools or significantly extending the boundaries of existing reservoirs. After a successful discovery well in Frenchman's Butte, the step out well drilled into expiring land was wet, and two of the three follow ups to the original discovery well realized water cuts that are uneconomic to produce at the current oil price. Seismic will be required before any further drilling is considered in the area. The exploratory well in Baldwinton encountered primarily water in the Cummings formation, however the 10 section land position remains prospective and will require seismic to optimize future drilling.
GEAR ENERGY LTD.
BALANCE SHEETS (unaudited)
As at December 31
(Cdn$ thousands) 2014 2013
ASSETS
Current assets
Cash $ - $ 841
Accounts receivable 15,295 9,550
Prepaid expenses 2,078 1,210
Inventory 6,810 4,465
Risk management contracts 13,691 -
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37,874 16,066
Deferred income tax asset 16,501 12,611
Exploration and evaluation assets - 3,284
Property, plant and equipment 320,343 214,641
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Total assets $ 374,718 $ 246,602
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LIABILITIES
Current liabilities
Accounts payable, accrued liabilities and $ 23,687 $ 18,297
deferred credits
Risk management contracts - 2,113
Debt 98,900 64,917
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122,587 85,327
Decommissioning liability 74,114 35,113
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Total liabilities 196,701 120,440
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SHAREHOLDERS' EQUITY
Share capital 231,067 166,869
Contributed surplus 10,183 9,446
Deficit (63,233) (50,153)
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Total shareholders' equity 178,017 126,162
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Total liabilities and shareholders' equity $ 374,718 $ 246,602
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GEAR ENERGY LTD.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (unaudited)
For the years ended December 31
(Cdn$ thousands)
Total
Share Contributed Shareholders'
capital surplus Deficit equity
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Balance at December
31, 2012 $ 166,624 $ 7,126 $ (49,094) $ 124,656
Share-based
compensation - 2,320 - 2,320
Issued for share
awards 245 - - 245
Net loss for the
year - - (1,059) (1,059)
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Balance at December
31, 2013 $ 166,869 $ 9,446 $ (50,153) $ 126,162
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Issued on offering
of common shares 63,500 - - 63,500
Exercise of stock
options 3,346 (874) - 2,472
Share issue costs,
net of deferred tax
benefit of $880 (2,648) - - (2,648)
Share-based
compensation - 1,611 - 1,611
Net loss for the
year - - (13,080) (13,080)
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Balance at December
31, 2014 $ 231,067 $ 10,183 $ (63,233) $ 178,017
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GEAR ENERGY LTD.
STATEMENTS OF LOSS AND COMPREHENSIVE LOSS (unaudited)
(Cdn$ thousands, except per Three Months Ended Twelve Months Ended
share amounts) December 31 December 31
2014 2013 2014 2013
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Sales of crude oil, natural
gas and natural gas liquids $ 39,558 $ 25,758 $ 164,116 $ 97,462
Royalties (7,100) (6,470) (30,394) (22,726)
Other income 42 26 289 115
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REVENUE 32,500 19,314 134,011 74,851
Gain (loss) on risk management
contracts 16,000 (979) 13,637 (7,043)
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48,500 18,335 147,648 67,808
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EXPENSES
Operating 12,840 7,140 46,049 26,641
General and administrative 1,197 1,840 7,351 5,869
Share-based compensation 635 404 1,611 2,565
Interest and financing charges 842 528 2,980 2,179
Accretion of decommissioning
liability 450 196 1,453 681
Depletion, depreciation and
amortization 15,429 8,813 48,330 32,027
Impairment 53,800 - 53,800 -
Exploration expense 3,284 - 3,284 -
Gain on asset disposition - - (540) (238)
Gain on foreign exchange (408) - (581) -
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88,069 18,921 163,737 69,724
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Deferred tax recovery 9,570 47 3,009 857
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Net loss and comprehensive loss $ (29,999) $ (539) $ (13,080) $ (1,059)
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Net loss per share, basic and
diluted $ (0.42) (0.01) $ (0.20) (0.02)
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GEAR ENERGY LTD.
STATEMENTS OF CASH FLOWS
(unaudited)
(Cdn$ thousands) Three Months Ended Twelve Months Ended
December 31 December 31
2014 2013 2014 2013
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CASH FLOWS FROM OPERATING
ACTIVITIES
Net loss $ (29,999) $ (539) $ (13,080) $ (1,059)
Add items not involving
cash:
Unrealized (gain) loss on
risk management
contracts (13,436) (530) (15,804) 1,972
Share-based compensation 635 404 1,611 2,565
Bad debt expense 9 12 (1) 12
Accretion of 450 196 1,453 681
decommissioning
liability
Depletion, depreciation 15,429 8,813 48,330 32,027
and amortization
Impairment 53,800 - 53,800 -
Exploration expense 3,284 - 3,284 -
Gain on asset disposition - - (540) (238)
Deferred tax recovery (9,570) (47) (3,009) (857)
Decommissioning liabilities (728) (602)
settled (98) (2,636)
Change in non-cash working (6,449) 5,010
capital (446) (7,486)
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13,425 7,765 65,922 39,511
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CASH FLOW FROM FINANCING
ACTIVITIES
Borrowings of debt under 12,238 33,983 12,234
demand credit facility 12,246
Issuance of share capital, - 62,444 -
net of share issue costs -
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12,238 12,246 96,427 12,234
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CASH FLOW USED IN INVESTING
ACTIVITIES
Property, plant and
equipment expenditures (20,969) (17,411) (84,580) (53,664)
Proceeds on disposition of
petroleum and natural gas
properties 738 - (83,141) 200
Change in non-cash working
capital (5,432) (1,759) 4,531 2,560
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(25,663) (19,170) (163,190) (50,904)
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(DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS - 841 (841) 841
CASH AND CASH EQUIVALENTS, 841
BEGINNING OF PERIOD - - -
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CASH AND CASH EQUIVALENTS, $ $ $ - $
END OF PERIOD - 841 841
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The following are included
in cash flow from
operating activities:
Interest paid in cash $ 842 $ 528 $ 2,980 $ 2,179
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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: Guidance estimates; expected facility investments; decreased future dependence on propane; planned follow-up wells; the number of future drilling locations; reduced operating costs; timing of capital development program; volume growth and a number of other matters, including future results from operations and operating metrics; future costs, expenses and royalty rates; future interest costs; and future development, exploration, acquisition and development activities (including drilling plans) and related capital expenditures.
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 cash flow 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.
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.
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.
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 Production Rates
Any references in this document to initial production rates and 30 day production rates are useful in confirming the presence of hydrocarbons, however, such rates are not determinative of the rates at which such wells will continue production and decline thereafter and are not necessarily indicative of long-term performance or of ultimate recovery. Additionally, such rates may also include recovered "load oil" fluids used in well completion stimulation. While encouraging, readers are cautioned not to place reliance on such rates in calculating the aggregate production for Gear.
Contacts: Gear Energy Ltd. Ingram Gillmore President & CEO 403-538-8463 [email protected] Gear Energy Ltd. David Hwang Vice President Finance & CFO 403-538-8437 [email protected] www.gearenergy.com
Source: Gear Energy Ltd.
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