Gear Energy Ltd. provides 2021 budget guidance Dec 19 2020 – MRM


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Well Permits in 2020

The map shows the Gear Energy well, facility and pipeline permits last 5 years, $15.8 million of the budget is focused on drilling 18 locations (17.5 net) including 14 Lloydminster area heavy oil wells, three Provost medium oil wells, and 1 gross (0.5 net) Southeast Saskatchewan light oil well

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Gear Energy Ltd. provides 2021 budget guidance, update to credit facilities and conclusion of strategic alternatives process

CALGARY, AB – Gear Energy Ltd. (“Gear“) (TSX: GXE) is pleased to announce that its Board of Directors have approved a $20 million capital budget for 2021 targeting stabilized production and continued improvement of the strong balance sheet.

Gear is also pleased to announce that the lenders under Gear’s syndicated credit facilities have completed the most recent borrowing base redetermination with the combined total capacity essentially unchanged at $70 million.  The maturity date of the credit facilities has been extended to May 27, 2022 and Export Development Canada (“EDC”) has been added to the syndicate of lenders.

In addition, Gear has terminated the previously disclosed strategic alternative process.

2021 BUDGET DETAILS

  • $15.8 million focused on drilling 18 locations (17.5 net) including 14 Lloydminster area heavy oil wells, three Provost medium oil wells, and 1 gross (0.5 net) Southeast Saskatchewan light oil well
  • $2.0 million invested in continued waterflood expansions, recompletions, workovers and field facility projects
  • $1.1 million directed to abandonment and reclamation activities (to be combined with a minimum of an additional $1.1 million of Federal Government funding)
  • $1.1 million towards land, seismic and other corporate costs

The budget is forecast to deliver the following results:

2021 Guidance
Annual Production (boe/d)5,400 – 5,500
Heavy Oil Weighting (%)55
Light/Medium Oil & NGL Weighting (%)33
Royalties (%)11
Operating plus Transportation Costs ($/boe)18.00
General and Administrative Costs ($/boe)2.15
Cash Interest Costs ($/boe)1.50
Capital and Abandonment Expenditures ($ million)20

The 2021 budget was modelled with a price forecast of WTI US$45/bbl, WCS differential of US$14/bbl, MSW and LSB differentials of US$5/bbl, AECO gas price of C$2.25/GJ and a foreign exchange of US$0.78/CDN$1.00. Under these assumptions, Gear is forecast to deliver:

  • Stabilized annual production of 5,400 to 5,500 boe per day with 55% of the production from heavy oil and 33% of the production from light/medium oil and NGLs
  • Funds from Operations that exceed the $20 million capital budget, with excess funds from operations expected to further reduce debt and contribute to Gear’s strong balance sheet
  • Continued improvement of Gear’s environmental footprint with planned well abandonments along with multiple lease and facility reclamations. To date, Gear has confirmed government grant funding of $2.2 million and expects to participate in additional grant funding in 2021 under the Federal Site Rehabilitation Program as managed by various provincial governments

In the event that commodity prices in 2021 exceed the estimated levels, the Gear team would look to balance the incremental funds from operations between further balance sheet enhancement and accelerated development of the extensive inventory of core area drilling and waterflood opportunities.

CREDIT FACILITIES UPDATE

Gear has received approval for the extension of its syndicated credit facilities maturity date to May 27, 2022 with a borrowing base of $70 million. Similar to the previous renewal, the borrowing base will be reduced by successive $5 million increments on both December 31, 2020 and March 31, 2021. Gear expects to exit 2020 with approximately $50 million in bank debt and anticipates that the Company will have ample liquidity to execute on the proposed 2021 budget. In addition, Gear would like to welcome EDC to its lending syndicate. The next semi-annual borrowing base redetermination is scheduled for May 31, 2021.

STRATEGIC PROCESS UPDATE

In August 2020, Gear announced that it had engaged a financial advisor to consider a number of possible strategic alterative transactions to improve liquidity, provide additional flexibility, and enhance shareholder value. Although the Gear team will continue to proactively evaluate any strategic opportunities to enhance shareholder value beyond traditional organic development, the formal process has now been concluded.

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