Gear Energy Ltd. Announces Fourth Quarter 2019 Operating Results
February 20, 20206:00 AM CNW
CALGARY – Gear Energy Ltd. (“Gear” or the “Company”) (TSX:GXE) is pleased to provide the following fourth quarter operating update to shareholders. Gear’s Consolidated Financial Statements and related Management’s Discussion and Analysis (“MD&A”) for the period ended December 31, 2019 are available for review on Gear’s website at www.gearenergy.com and on www.sedar.com.
Financial Summary
Three months endedTwelve months ended(Cdn$ thousands, except per share, share and per
boe amounts)Dec 31,
2019Dec 31,
2018Sep 30,
2019Dec 31,
2019Dec 31,
2018FINANCIALFunds from operations (1)13,7382,08915,96861,84235,418Per boe21.683.3225.0724.3414.28Per weighted average basic share0.060.010.070.280.18Cash flows from operating activities11,4011,53813,61349,87641,752Net (loss) income(8,045)10,5533,493(5,680)5,094Per weighted average basic share(0.04)0.050.02(0.03)0.03Capital expenditures12,6039,48211,80036,98943,859Decommissioning liabilities settled8891,4011,1702,9322,981Net acquisitions (dispositions) (2)109302115(976)66,172Net debt (1)(3)69,75291,90869,83769,75291,908Weighted average shares, basic (thousands)218,365219,013219,084218,887202,020Shares outstanding, end of period (thousands)217,610219,015218,873217,610219,015OPERATINGProductionHeavy oil (bbl/d)4,0344,0643,9294,0534,388Light and medium oil (bbl/d)1,7631,8342,0591,9631,374Natural gas liquids (bbl/d)269267218238244Natural gas (mcf/d)4,9354,0914,2954,2524,680Total (boe/d)6,8886,8476,9226,9626,786Average pricesHeavy oil ($/bbl)49.1722.4552.9353.8745.01Light and medium oil ($/bbl)64.8246.6865.8866.6963.73Natural gas liquids ($/bbl)22.7923.9526.7022.2634.26Natural gas ($/mcf)2.361.450.791.631.29Netback ($/boe)Commodity and other sales47.9727.6450.9751.9444.13Royalties(5.52)(3.44)(6.06)(5.71)(5.19)Operating costs(17.93)(17.13)(17.20)(17.98)(16.97)Operating netback (1)24.527.0727.7128.2521.97Realized risk management gain (loss)0.58(0.90)0.80(0.12)(4.29)General and administrative(2.13)(1.18)(2.03)(2.17)(2.08)Interest(1.30)(1.50)(1.52)(1.65)(1.10)Transaction costs–(0.19)––(0.21)Realized gain (loss) on foreign exchange0.010.020.110.03(0.01)TRADING STATISTICS($ based on intra-day trading)High0.481.230.600.881.47Low0.260.440.410.260.44Close0.460.570.470.460.57Average daily volume (thousands)529558406418592
(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)Net acquisitions (dispositions) exclude non-cash items for decommissioning liability and deferred taxes and is net of post-closing adjustments.(3)Net debt includes the risk management liability acquired through the Steppe Resources Inc. corporate acquisition. December 31, 2019 – nil, December 31, 2018 – $4.5 million, September 30, 2019 – $0.7 million.MESSAGE TO SHAREHOLDERSDespite ongoing macro volatility in the Canadian energy business, the Gear team delivered exceptional performance through 2019. With annual funds from operations exceeding capital investment by a healthy margin, Gear was able to reduce outstanding net debt by over 24 per cent, exiting 2019 with a strong balance sheet and a very competitive net debt to funds from operations ratio of 1.1 times. In the meantime, production was held essentially flat year over year, with a small increase in both the total liquids weighting and the portion of those liquids that are classified as light and medium oil. In addition, during 2019 Gear acquired 1.6 million of its common shares for the aggregate purchase price of $0.7 million pursuant to its Normal Course Issuer Bid (“NCIB”) that commenced in September 2019.The strong 2019 financial and operational results were assisted by an improved Canadian oil price environment compared to the challenges of 2018 and by continued executional success across three core assets. Although WTI oil prices declined year over year, from US $64.77 to $57.03 per barrel, the Canadian differentials compressed materially. In combination with the improvement in commodity mix, Gear’s realized pricing increased 18 per cent from $44.13 to $51.94 per boe. This factor combined with reduced losses on risk management contracts and a stable cost profile helped to drive an impressive 70 per cent year over year increase in annual funds from operations to a five-year record high figure of $24.34 per boe.Moving into 2020, the market has delivered some early volatility with WTI oil prices already fluctuating by over 24 per cent. However, Canadian differentials currently appear to be improving from the prices seen at the outset of the year to prices more in line with the expectations outlined in the Gear 2020 budget (See “Gear Energy Ltd. Provides 2020 Budget Guidance” dated December 18, 2019). The Gear team remain cautiously optimistic that 2020 will again support further value creation through a combination of production stability, continued improvement of the balance sheet and additional purchases of Gear’s common shares under the NCIB.QUARTERLY HIGHLIGHTSProduction for the fourth quarter of 6,888 boe per day was essentially unchanged from production in the third quarter of 6,922 boe per day.Generated $13.7 million of funds from operations ($21.68 per boe) compared to $2.1 million in the fourth quarter of 2018 and $16.0 million in the third quarter of 2019. The 558 per cent increase in the fourth quarter of 2019 was due to a significant narrowing of Canadian oil differentials which had suffered record low benchmark pricing in the fourth quarter of 2018 as a result of egress and inventory issues.Exited the quarter with net debt of $69.8 million and a net debt to quarterly annualized funds from operations of 1.3 times. Net debt included $64.3 million of bank debt, $13.2 million of convertible debentures, and positive working capital of $7.7 million.Successfully drilled two multi-lateral horizontal heavy oil wells in Wildmere, one multi-lateral horizontal heavy oil well in Maidstone, and two light oil wells in Tableland.ANNUAL HIGHLIGHTSReduced net debt by $22.2 million or 24 per cent from $91.9 million to $69.8 million as a result of strong funds from operations generation while essentially maintaining stable production and Proved Developed Producing reserves (See “Gear Energy Ltd. Announces 2019 Year-end Reserves” dated February 20, 2020). The net debt to annual funds from operations ratio came in at a very competitive 1.1 times.Delivered the highest funds from operation, both absolute and per boe, since 2014. Generated $61.8 million of funds from operations ($24.34 per boe) compared to $35.4 million ($14.28 per boe) in 2018. The 70 per cent increase in funds from operations per boe was due to a combination of stronger commodity prices, increased light oil production, reduced realized losses on risk management contracts, stable costs and a 3 per cent increase in annual production.Reported record high annual production of 6,962 boe per day with a 90 per cent liquids weighting (2018 – 89 per cent). Additionally, the light, medium, and NGL weighting improved to 32 per cent (2018 – 24 per cent) while the heavy oil weighting declined to 58 per cent (2018 – 65 per cent). These improvements were the result of a successful 2019 drilling program combined with the full annual impacts of the acquisition of Steppe Resources Inc. in late 2018.Drilled 16 gross (16 net) wells with a 100 per cent success rate including 10 heavy oil wells (10 net): eight in Wildmere and two in Maidstone; and six light oil wells (six net): five in Tableland and one in Wilson Creek. The 10 well heavy oil program met expectations by delivering an average peak IP30 rate per well of approximately 110 barrels per day. The first three wells in Tableland included two core area wells that delivered peak IP30 rates of approximately 200 and 300 barrels per day and a step out well with a peak IP30 rate closer to 150 barrels per day. The final two wells in Tableland continue to be optimized with peak IP30 rates to date of approximately 190 and 130 barrels per day.During 2019, Gear invested $2.9 million to abandon 77 wells at an average cost that was approximately half of what was estimated by the provincial regulators. Gear abandoned 4.8 times the number of wells that were drilled during the year. A similar amount is forecast to be invested in 2020.2020 OUTLOOKCommodity price volatility has been significant for the first two months of 2020. Early in January, WTI briefly touched US$65 per barrel as a result of plateauing US oil production, OPEC production cuts, and continued strong world demand. Since then, WTI has fallen to approximately US$54 as a result of concerns of an economic slowdown in China impacted by the coronavirus outbreak. As always, balance sheet strength is paramount, and Gear will be nimble in its capital deployment to ensure that annual capital expenditures approximate funds from operations.2020 Guidance remains unchanged and as follows:
2020 GuidanceAnnual Production (boe/d)7,000Heavy Oil Weighting (%)57Light/Medium Oil & NGL Weighting (%)33Fourth Quarter Production (boe/d)>7,400Fourth Quarter Light/Medium Oil & NGL weighting (%)37Royalties (%)11Operating and Transportation Costs ($/boe)18.00G&A Costs ($/boe)2.35Interest Costs ($/boe)1.35Capital Expenditures ($ million)46.5Abandonment Expenditures ($ million)3.5
GEAR ENERGY LTD.CONSOLIDATED BALANCE SHEETS (unaudited)As at December 31(Cdn$ thousands)20192018ASSETSCurrent assetsAccounts receivable$11,343$5,716Prepaid expenses3,1963,914Inventory6,5157,185Risk management contracts–3,23021,05420,045Deferred income tax asset23,28126,531Risk management contracts–1,644Property, plant and equipment317,035331,622Total assets$361,370$379,842LIABILITIESCurrent liabilitiesAccounts payable and accrued liabilities$13,348$12,475Convertible debentures12,705–Decommissioning liability2,8401,843Risk management contracts3,094–31,98714,318Debt64,25478,461Convertible debentures–12,297Decommissioning liability82,87486,839Total liabilities179,115191,915SHAREHOLDERS’ EQUITYShare capital335,455337,740Warrants–129Equity component of convertible debentures2,4982,519Contributed surplus18,09715,654Deficit(173,795)(168,115)Total shareholders’ equity182,255187,927Total liabilities and shareholders’ equity$361,370$379,842
GEAR ENERGY LTD.CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (unaudited)For the years ended December 31(Cdn$ thousands)ShareCapitalWarrantsEquity
Component of
Convertible
DebenturesContributed
SurplusDeficitTotal
EquityBalance at December 31, 2017$311,240$129$2,592$15,178$(173,209)$155,930Exercise of stock options1,355––(600)–755Issued as consideration on corporate–acquisition24,743–––24,743Share issue costs(7)––––(7)Issued on conversion of convertibledebentures409–(73)––336Share-based compensation–––1,076–1,076Net income for the year––––5,0945,094Balance at December 31, 2018$337,740$129$2,519$15,654$(168,115)$187,927Exercise of stock options51––(51)––Common shares repurchased(2,455)––1,713–(742)Warrant expiry–(129)–129––Issued on conversion of convertibledebentures119–(21)––98Share-based compensation–––652–652Net loss for the year––––(5,680)(5,680)Balance at December 31, 2019$335,455$–$2,498$18,097$(173,795)$182,255
GEAR ENERGY LTD.CONSOLIDATED STATEMENTS OF (LOSS) INCOME AND COMPREHENSIVE (LOSS) INCOME (unaudited)Three Months EndedDecember 31Twelve Months EndedDecember 31(Cdn$ thousands, except per share amounts)2019201820192018REVENUESales of crude oil, natural gas and natural gas liquids$30,396$17,408$131,989$109,316Royalties(3,497)(2,164)(14,513)(12,858)26,89915,244117,47696,458Realized gain (loss) on risk management contracts366(567)(300)(10,619)Unrealized (loss) gain on risk management contracts(6,426)21,283(12,440)14,64120,83935,960104,736100,480EXPENSESOperating11,36310,79045,69142,033General and administrative1,3507455,5175,163Interest and financing charges8219444,1862,728Depletion, depreciation and amortization12,59111,95950,33942,142Accretion4976302,1902,303Share-based compensation1452306521,076Gain on foreign exchange(596)(10)(753)(17)Gain on asset disposition––(776)(556)Bad debt expense113–113–Transaction costs–119751426,28425,407107,16695,386Deferred tax expense(2,600)–(3,250)–Net (loss) income and comprehensive (loss) income$(8,045)$10,553$(5,680)$5,094Net (loss) income per share, basic and diluted$(0.04)$0.05$(0.03)$0.03
GEAR ENERGY LTD.CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)Three Months EndedDecember 31Twelve Months EndedDecember 31(Cdn$ thousands)2019201820192018CASH FLOWS FROM OPERATING ACTIVITIESNet (loss) income$(8,045)$10,553$(5,680)$5,094Add items not involving cash:Unrealized loss (gain) on risk management contracts6,426(21,283)12,440(14,641)Depletion, depreciation and amortization12,59111,95950,33942,142Accretion4976302,1902,303Share-based compensation1452306521,076Gain on asset disposition––(776)(556)Unrealized gain on foreign exchange(589)–(686)–Bad debt expense113–113–Deferred tax expense2,600–3,250–Decommissioning liabilities settled(889)(1,401)(2,932)(2,981)Change in non-cash working capital(1,448)850(9,034)9,31511,4011,53849,87641,752CASH FLOWS FROM (USED IN) FINANCING ACTIVITIESBorrowings (repayments) of debt under credit facility1,93712,302(13,521)37,116Common shares repurchased(623)–(742)–Repayment of debt assumed on corporate acquisition–––(36,251)Issuance of share capital, net of share issue costs–44–7481,31412,346(14,263)1,613CASH FLOWS USED IN INVESTING ACTIVITIESProperty, plant and equipment expenditures(12,603)(9,482)(36,989)(43,859)Acquisition of petroleum and natural gas properties(127)(2)(133)(452)Disposition of petroleum and natural gas properties18–1,109556Cash received on corporate acquisition–––693Change in non-cash working capital(3)(5,093)400(303)(12,715)(14,577)(35,613)(43,365)DECREASE IN CASH AND CASH EQUIVALENTS–(693)––CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR–693––CASH AND CASH EQUIVALENTS, END OF YEAR$–$–$–$–Advisories & Contact
Gear Energy
LINKEDINFACEBOOKTWITTER
FOLLOW THE BOE REPORT
Sign up for the BOE Report Daily Digest E-mail
As Canadian rail blockade drags on, police use caution due to legacy of past violenceQuebec premier says police will dismantle rail blockade if injunction grantedThe latest on protests across Canada in support of anti-pipeline demonstratorsOil rises on supply woes; demand concerns from coronavirus easePine Cliff Energy Ltd. Provides Operational Update
Return to Home
LATEST HEADLINES
