CALGARY, Feb. 21, 2018 /CNW/ - Gear Energy Ltd.
("Gear" or the "Company") (TSX:GXE) is pleased to present the
following results and analysis of its 2017 year-end independent
reserve report prepared by GLJ Petroleum Consultants Ltd.
("GLJ").
In 2017 Gear invested $49.5
million consisting of $47.8
million of development capital and $1.7 million in acquisition and divestiture
("A&D") activity. The combined investment provided Gear with 26
per cent production growth and 52 per cent cash flow growth on an
annual basis compared to 2016. Reserves growth was somewhat
tempered in comparison primarily as a result of late year
production additions requiring further production history to
increase forecasted certainty, and the removal of undeveloped gas
reserves due to lower pricing. For details on the annual operating
results please see the Management's Discussion and Analysis dated
February 21, 2018, which is available
on SEDAR at www.sedar.com.
HIGHLIGHTS
- Gear achieved the following reserves highlights through 2017
activity:
-
- Proved Developed Producing ("PDP")
-
- 3.07 MMboe of additions at a Finding, Development and
Acquisition ("FD&A") cost of $16.21/boe including change in Future Development
Capital ("FDC")
- Reserves increased 10 per cent
- Replaced 129 per cent of 2017 annual production
- Recycle ratio of 1.4x based on 2017 operating netback of
$22.09/boe
- Total Proved ("TP")
-
- 3.05 MMboe of additions at an FD&A cost of $17.94/boe including change in FDC
- Reserves increased 5 per cent
- Replaced 128 per cent of 2017 annual production
- Recycle ratio of 1.2x on 2017 netback
- Total Proved plus Probable ("P+P")
-
- 1.91MMboe of additions at an FD&A cost of $24.36/boe including change in FDC
- Reserves decreased 2 per cent
- Replaced 80 per cent of 2017 annual production
- Recycle ratio of 0.9x on 2017 netback
- Corporate liquids weighting increased from 81 to 86 per cent
for the P+P reserves case. This increase was the result of
continued successful oil development and the removal of several
undeveloped gas drilling locations due to low forecasted future gas
prices. The P+P category experienced a net negative technical
revision of 1.45 MMboe, with 1.15 MMboe of that being a downward
revision to low value gas reserves. Included in that revision
was the removal of 0.73 MMBoe of undeveloped gas drilling
opportunities in Gear's Ekwan asset in North East British Columbia.
The Ekwan revision added over $4.50/boe to the P+P FD&A cost in 2017.
- Management's estimate of future potential inventory increased
by 23 per cent from 2016 to 590 net drilling locations. The GLJ
evaluation currently recognizes 80 net locations in the TP category
and 150 in the P+P category. These booked locations represent only
14 and 25 per cent of the management estimates, respectively. The
150 net booked P+P locations include 37 multi-lateral horizontals,
88 single laterals and 25 vertical wells.
- Corporate Net Asset Values ("NAV") at a 10 per cent discount
factor are $0.82 per share for TP and
$1.61 per share for P+P utilizing the
GLJ January, 2018 price forecast, representing a respective 9 per
cent and 15 per cent decrease from the prior year, primarily as a
result of lower year over year heavy oil and gas price
forecasts.
- Company Reserves Life Index ("RLI") of 5.3 years for TP, and
8.1 years for P+P.
RESERVES SUMMARY
Year-end 2017 reserves were evaluated by independent reserves
evaluator GLJ in accordance with the definitions, standards and
procedures contained in the Canadian Oil and Gas Evaluation
Handbook ("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 GLJ forecast
pricing and foreign exchange rates at January 1, 2018. 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,
2018.
The following tables outline Gear's reserves as at December 31, 2017. 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 GLJ
represents the fair market value of the reserves.
Reserves Summary
at Dec 31, 2017 Using GLJ January 1, 2018 Forecast Prices and
Costs
|
Company
Gross
|
Light &
Medium
Oil (Mbbl)
|
Heavy
Oil
(Mbbl)
|
NGL's
(Mbbl)
|
Natural
Gas
(MMcf)
|
Equivalent
(Mboe)
|
Liquids
Ratio
(%)
|
Proved Developed
Producing
|
2,148
|
3,913
|
509
|
8,043
|
7,910
|
83
|
Proved Non-Producing
& Undeveloped
|
1,488
|
3,815
|
232
|
6,105
|
6,554
|
84
|
Total
Proved
|
3,636
|
7,728
|
741
|
14,148
|
14,464
|
84
|
Total
Probable
|
2,235
|
7,282
|
422
|
6,606
|
11,039
|
90
|
Total Proved plus
Probable
|
5,871
|
15,010
|
1,163
|
20,754
|
25,503
|
86
|
Net Present Value
of Future Revenues Before Income Taxes Under Forecast Prices and
Costs
|
|
Company
Gross
|
Undiscounted
|
Discounted
|
Discounted
|
Discounted
|
Discounted
|
($
thousands)
|
|
@
5%
|
@
10%
|
@
15%
|
@
20%
|
Proved Developed
Producing
|
166,881
|
145,701
|
130,501
|
118,959
|
109,809
|
Proved Non-Producing
& Undeveloped
|
103,803
|
81,608
|
64,762
|
51,996
|
42,188
|
Total
Proved
|
270,684
|
227,309
|
195,263
|
170,955
|
151,997
|
Total
Probable
|
277,654
|
200,890
|
154,565
|
123,931
|
102,292
|
Total Proved plus
Probable
|
548,338
|
428,199
|
349,828
|
294,886
|
254,288
|
Net Future
Development Costs ("FDC") Under Forecasted Prices and
Costs
|
|
|
($
thousands)
|
Proved
|
Probable
|
Total
|
2018
|
25,791
|
8,139
|
33,930
|
2019
|
31,095
|
15,739
|
46,834
|
2020
|
26,848
|
25,304
|
52,152
|
2021
|
2,441
|
4,730
|
7,171
|
2022
|
-
|
6,679
|
6,679
|
Subsequent
Years
|
-
|
-
|
-
|
Undiscounted
Total
|
86,175
|
60,591
|
146,766
|
Discounted at
10%
|
74,448
|
49,080
|
123,527
|
EFFICIENCY RATIOS
The following table highlights annual capital efficiency through
finding and development ("F&D") and FD&A costs per boe
metrics.
|
|
|
|
|
|
2017
|
2016
|
Reserves (mboes),
Capital ($ thousands)
|
|
Proved
|
Proved plus
Probable
|
Proved
|
Proved plus
Probable
|
Development Reserves
Additions
|
|
3,075
|
1,957
|
661
|
1,351
|
Net Acquisition
Reserves Additions
|
|
(29)
|
(50)
|
6,584
|
9,871
|
Total Reserves
Additions
|
|
3,046
|
1,907
|
7,245
|
11,222
|
|
|
|
|
|
|
Development
capital
|
|
47,765
|
47,765
|
14,422
|
14,422
|
Development change in
FDC
|
|
5,172
|
(3,028)
|
1,462
|
10,586
|
Total development
capital including FDC
|
|
52,937
|
44,737
|
15,884
|
25,008
|
|
|
|
|
|
|
Net acquisition
capital
|
|
1,709
|
1,709
|
57,261
|
57,261
|
Net acquisition
change in FDC
|
|
-
|
-
|
37,674
|
48,685
|
Total net acquisition
capital including FDC
|
|
1,709
|
1,709
|
94,935
|
105,946
|
|
|
|
|
|
|
Total
capital
|
|
49,474
|
49,474
|
71,683
|
71,683
|
Total change in
FDC
|
|
5,172
|
(3,028)
|
39,136
|
59,271
|
Total capital
including FDC
|
|
54,646
|
46,446
|
110,819
|
130,954
|
|
|
|
|
|
|
F&D costs with
FDC per boe
|
|
17.22
|
22.86
|
24.03
|
18.51
|
FD&A costs with
FDC per boe
|
|
17.94
|
24.36
|
15.30
|
11.67
|
3 Year average
FD&A including FDC per boe
|
|
16.26
|
19.22
|
23.19
|
20.42
|
|
|
|
|
|
|
Recycle ratio
(FD&A with FDC)
|
|
1.2
|
0.9
|
1.0
|
1.3
|
|
|
|
|
|
|
Reserves Life
Index ("RLI")
|
|
|
|
|
|
|
|
|
|
|
|
(years)
|
|
|
|
|
|
|
|
|
2017
|
2016
|
2015
|
Total
Proved
|
|
|
|
|
|
|
|
|
5.3
|
5.9
|
5.1
|
Total Proved plus
Probable
|
|
|
|
|
|
|
|
|
8.1
|
9.7
|
9.0
|
Net Asset Value
("NAV") at December 31, 2017
|
|
|
|
|
($ millions, except
per share amounts)
|
|
2017
|
2016
|
2015
|
Value of Company
Interest Proved plus Probable
|
|
|
|
|
|
Reserves Discounted
at 10% (Before Tax)
|
|
349.8
|
394.6
|
199.4
|
Undeveloped
Land
|
|
8.2
|
6.2
|
8.9
|
Net Debt
|
|
(43.3)
|
(37.0)
|
(66.0)
|
NAV
|
|
314.7
|
363.8
|
142.3
|
Shares Outstanding
(millions)
|
|
195
|
192.6
|
85.5
|
NAV per
Share
|
|
1.61
|
1.89
|
1.66
|
RESERVES RECONCILIATION
Activity through 2017 was successful in adding reserves across
all categories with the largest improvements categorized as
Drilling Extensions and Technical Revisions. However, as a result
of lower future commodity price forecasts these additions were
offset by reductions categorized as Economic Factors. The reserves
within the P+P case were the most influenced by this adjustment.
The P+P reserves balance experienced a positive technical revision
of 2.22 MMboe that was offset by a negative 3.67 MMboe economic
adjustment, yielding a combined negative adjustment of 1.45 MMBoe.
The main contributor to this adjustment occurred in Ekwan, B.C.
where three undeveloped gas drilling locations were removed from
the portfolio as a result of low gas prices. Although the negative
0.73 MMboe adjustment in Ekwan may appear large on a boe scale, on
a value basis it should be noted that the year-end value in the
2016 GLJ report for these Ekwan locations was well under
$1.00 per boe of booked P+P reserves
before tax at a 10% discount. The other factor influencing the year
over year reserves changes was a material drop in GLJ's forecasted
WCS heavy oil prices, with reductions from last year's forecast
ranging between 10 to 14 per cent.
|
|
|
|
|
|
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, 2017
|
3,289
|
1,921
|
9,382
|
445
|
7,219
|
|
|
Technical
Revisions
|
861
|
246
|
1,325
|
114
|
1,442
|
|
|
Drilling
Extensions
|
1,294
|
427
|
669
|
77
|
1,910
|
|
|
Infill
Drilling
|
444
|
-
|
-
|
-
|
444
|
|
|
Improved
Recovery
|
20
|
116
|
121
|
22
|
178
|
|
|
Acquisitions
|
40
|
-
|
-
|
-
|
40
|
|
|
Dispositions
|
(4)
|
(1)
|
(132)
|
(1)
|
(28)
|
|
|
Economic
Factors
|
(532)
|
(109)
|
(1,361)
|
(52)
|
(920)
|
|
|
Production
|
(1,500)
|
(452)
|
(1,961)
|
(96)
|
(2,374)
|
|
Closing Balance,
December 31, 2017
|
3,913
|
2,148
|
8,043
|
509
|
7,910
|
Total
Proved
|
|
|
|
|
|
|
Opening Balance,
January 1, 2017
|
6,527
|
3,677
|
17,168
|
727
|
13,792
|
|
|
Technical
Revisions
|
1,188
|
254
|
1,406
|
113
|
1,789
|
|
|
Drilling
Extensions
|
2,127
|
181
|
478
|
84
|
2,472
|
|
|
Infill
Drilling
|
143
|
-
|
-
|
-
|
143
|
|
|
Improved
Recovery
|
20
|
245
|
147
|
26
|
316
|
|
|
Acquisitions
|
40
|
-
|
-
|
-
|
40
|
|
|
Dispositions
|
(15)
|
(1)
|
(300)
|
(3)
|
(69)
|
|
|
Economic
Factors
|
(803)
|
(268)
|
(2,789)
|
(110)
|
(1,645)
|
|
|
Production
|
(1,500)
|
(452)
|
(1,961)
|
(96)
|
(2,374)
|
|
Closing Balance,
December 31, 2017
|
7,728
|
3,636
|
14,148
|
741
|
14,464
|
Proved plus
Probable
|
|
|
|
|
|
|
Opening Balance,
January 1, 2017
|
13,862
|
6,006
|
29,267
|
1,225
|
25,971
|
|
|
Technical
Revisions
|
1,464
|
321
|
1,703
|
151
|
2,219
|
|
|
Drilling
Extensions
|
2,651
|
90
|
504
|
88
|
2,913
|
|
|
Infill
Drilling
|
-
|
-
|
-
|
-
|
-
|
|
|
Improved
Recovery
|
30
|
380
|
241
|
43
|
493
|
|
|
Acquisitions
|
55
|
-
|
-
|
-
|
55
|
|
|
Dispositions
|
(24)
|
(8)
|
(413)
|
(5)
|
(105)
|
|
|
Economic
Factors
|
(1,527)
|
(467)
|
(8,587)
|
(243)
|
(3,669)
|
|
|
Production
|
(1,500)
|
(452)
|
(1,961)
|
(96)
|
(2,374)
|
|
Closing Balance,
December 31, 2017
|
15,010
|
5,871
|
20,754
|
1,163
|
25,503
|
FORECAST PRICES AND COSTS
Crude oil and natural gas benchmark reference pricing,
inflation, and exchange rates utilized by GLJ as at January 1, 2018 were 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)
|
2018
|
2.0
|
0.79
|
59.00
|
70.25
|
48.89
|
2.20
|
2019
|
2.0
|
0.79
|
59.00
|
70.25
|
53.16
|
2.54
|
2020
|
2.0
|
0.80
|
60.00
|
70.31
|
56.25
|
2.88
|
2021
|
2.0
|
0.81
|
63.00
|
72.84
|
59.26
|
3.24
|
2022
|
2.0
|
0.82
|
66.00
|
75.61
|
62.20
|
3.47
|
2023
|
2.0
|
0.83
|
69.00
|
78.31
|
65.06
|
3.58
|
2024
|
2.0
|
0.83
|
72.00
|
81.93
|
68.67
|
3.66
|
2025
|
2.0
|
0.83
|
75.00
|
85.54
|
72.29
|
3.73
|
2026
|
2.0
|
0.83
|
77.33
|
88.35
|
75.10
|
3.80
|
2027
|
2.0
|
0.83
|
78.88
|
90.22
|
76.96
|
3.88
|
2028+
|
2.0
|
0.83
|
+2.0%/yr
|
+2.0%/yr
|
+2.0%/yr
|
+2.0%/yr
|
ADVISORY ON FORWARD-LOOKING STATEMENTS: This
press release contains certain forward-looking information and
statements within the meaning of applicable securities laws. In
particular, this press release contains forward-looking information
relating to, among other things: estimates of reserves and future
net revenue, estimated number of future drilling locations and
estimated future development capital. The use of any of the words
"expect", "continue", "estimate", "may", "will", "should",
"believe", "plans", "cautions" and similar expressions are intended
to identify forward-looking information or statements.
Forward-looking statements or information are based on a number of
material factors, expectations or assumptions of Gear which have
been used to develop such statements and information but which may
prove to be incorrect. Although Gear believes that the expectations
reflected in these forward-looking statements are reasonable, undue
reliance should not be placed on them because Gear can give no
assurance that they will prove to be correct. Since forward-looking
statements address future events and conditions, by their very
nature they involve inherent risks and uncertainties. In
particular, in addition to other factors and assumptions which may
be identified herein, assumptions have been made regarding: that
Gear's exploration and development activities will be successful or
that material volumes of petroleum and natural gas reserves will be
encountered, or if encountered can be produced on a commercial
basis; that additional drilling operations will be successful such
that further development activities is warranted; that Gear's
efforts to raise additional capital will be successful; that Gear
will continue to conduct its operations in a manner consistent with
past operations; results from drilling and development activities
will be consistent with past operations; the accuracy of the
estimates of Gear's reserve volumes; the general stability of the
economic and political environment in which Gear operates; drilling
results; field production rates and decline rates; the general
continuance of current industry conditions; the timing and cost of
pipeline, storage and facility construction and expansion and the
ability of Gear to secure adequate product transportation; future
commodity prices and heavy oil differentials; currency, exchange
and interest rates; regulatory framework regarding royalties, taxes
and environmental matters in the jurisdictions in which Gear
operates; and the ability of Gear to successfully market its oil
and natural gas products; the ability of Gear to obtain financing
on terms acceptable to Gear; and the continued availability of
credit under the Company's credit facilities.
Further, events or circumstances may cause actual results to
differ materially from those predicted as a result of numerous
known and unknown risks, uncertainties, and other factors, many of
which are beyond the control of Gear, including, without
limitation: changes in commodity prices and heavy oil
differentials; 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 actions by Gear's lenders to
reduce the availability under its credit facilities; inaccurate
estimation of Gear's oil and gas reserve and resource volumes;
limited, unfavourable 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 disclosure documents. Additional information
regarding some of these risk factors may be found under "Risk
Factors" in Gear's annual information form for the year ended
December 31, 2017, which is expected
to be filed on or before March 31,
2018. The reader is cautioned not to place undue reliance on
this forward-looking information. To the extent that any
forward-looking information contained herein may be considered
future oriented financial information or 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 statements contained in this press release are made
as of the date hereof and Gear undertakes no obligations to update
publicly or revise any forward-looking statements or information,
whether as a result of new information, future events or otherwise,
unless so required by applicable securities laws.
ADVISORY ON USE OF "BOEs": "BOEs" may be
misleading, particularly if used in isolation. A BOE conversion
ratio of six thousand cubic feet of natural gas to one barrel of
oil equivalent (6 mcf: 1 bbl) is based on an energy equivalency
conversion method primarily applicable at the burner tip and does
not represent a value equivalency at the wellhead. 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 on a 6:1 basis may be misleading as
an indication of value.
OIL AND GAS METRICS: This press release
contains a number of oil and gas metrics, including F&D,
FD&A, reserves life index, operating netback and recycle ratio,
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. F&D and FD&A costs are used as a measure of
capital efficiency. The calculation for F&D includes all
exploration, development capital for that period plus the change in
FDC for that period. This total capital including the change in the
FDC is then divided by the change in reserves for that period
incorporating all revisions for that same period. The calculation
for FD&A is calculated in the same manner except it also
accounts for any acquisition costs incurred during the period.
Reserves life index is calculated by dividing the reserves in each
category by the corresponding GLJ 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. Recycle ratio is defined as operating netback
per barrel of oil equivalent divided by either F&D or FD&A
costs on a per barrel of oil equivalent.
NET ASSET VALUE: For the purposes of
calculating the net asset value as presented herein, undeveloped
land has been based on internal estimates of the value of the
Company's undeveloped land. Net debt represents debt of the Company
less working capital items, excluding risk management contracts.
The number of shares outstanding does not include any shares
issuable on any securities of the Company that are convertible,
exchangeable or exercisable into shares of the Company.
DRILLING LOCATIONS: This press release
discloses drilling locations in three categories: (i) proved
locations; (ii) probable locations; and (iii) unbooked locations.
Proved locations and probable locations are derived from GLJ
reserves report as of December 31,
2017 and account for drilling locations that have associated
proved and/or probable reserves, as applicable. Unbooked locations
are internal estimates based on Gear's prospective acreage and an
assumption as to the number of wells that can be drilled per
section based on industry practice and internal review. Unbooked
locations have been identified by management as an estimation of
our multi-year drilling activities based on evaluation of
applicable geologic, seismic, engineering, production, pricing
assumptions and reserves information. There is no certainty that
Gear will drill all unbooked drilling locations and if drilled
there is no certainty that such locations will result in additional
oil and gas reserves, resources or production. The drilling
locations on which Gear actually drill wells will ultimately depend
upon the availability of capital, regulatory approvals, seasonal
restrictions, oil and natural gas prices, costs, actual drilling
results, additional reservoir information that is obtained and
other factors. While the majority of Gear's unbooked locations are
extensions or infills of the drilling patterns already recognized
by the independent evaluator, other unbooked drilling locations are
farther away from existing wells where management has less
information about the characteristics of the reservoir and
therefore there is more uncertainty whether wells will be drilled
in such locations and if drilled there is more uncertainty that
such wells will result in additional oil and gas reserves,
resources or production.
NON-GAAP MEASURES: This press release contains
the terms 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. Net debt is calculated as debt less current working
capital items, excluding risk management contracts. Operating
netback is 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 can be found in the MD&A.
SELECTED DEFINITIONS: The following terms used
in this press release have the meanings set forth
below:
"boe" means barrel of oil equivalent of natural
gas and crude oil on the basis of 1 boe for six thousand cubic feet
of natural gas (this conversion factor is and industry accepted
norm and is not based on either energy content or current
prices)
"Mbbl" means thousand barrels
"Mboe"
means 1,000 barrels of oil equivalent
"MMcf" means one
million cubic feet
"NGL" means natural gas
liquids
SOURCE Gear Energy Ltd.