Gear Energy Ltd. (“Gear” or the “Company”) is pleased to provide the following second quarter operating results to shareholders. Gear's Interim Consolidated Financial Statements and related Management's Discussion and Analysis ("MD&A") for the period ended June 30, 2024 are available for review on Gear's website at www.gearenergy.com and on www.sedarplus.ca.
MESSAGE TO SHAREHOLDERS
With a new leadership team, Gear has taken a new strategic direction. Gear's vision is to be a leading junior oil and gas exploration and production company that is renowned for differentiated profitability, operational excellence and meaningful value creation for shareholders. Our mission is to maximize full cycle profits and deliver superior total shareholder returns by establishing dominant positions in our core operating areas. We are committed to simplifying and high grading the business that will allow us to build and leverage technical expertise, increase operational focus and create lasting strategic advantages. Our primary focus is developing and funding high-quality, internally generated organic growth opportunities.
Ultimately, we aim to position Gear as a high torque, pure organic growth company with a material inventory of low risk, top quartile oil and condensate development locations.
Gear will be focused on the following strategic priorities:
Building a talented and entrepreneurial team and foster a culture of accountability and continuous improvement
Execute strong capital programs that ensures disciplined capital allocation to the highest return projects
Establish improved operational efficiencies that increases the return on every shareholder dollar invested
Re-characterize existing assets by maximizing existing inventory and identifying new prospective opportunities
With this new direction, Gear has elected to redistribute capital spending towards the back end of the year and spilling into 2025. In doing so, we expect to pay down current net debt to near zero thereby creating a strong balance sheet for the future while maintaining the current monthly dividend. Meanwhile, the pause in investment will allow a thorough assessment and prioritization of the undeveloped opportunities currently owned by Gear as well as some new resource opportunities envisioned. We wish to ensure capital is invested into the very best ideas that are "oil price durable" and have repeatable follow-up activity. With this shift in capital expenditures, Gear plans on reducing the 2024 capital expenditures from $57 million to $40 million. Gear originally had planned to drill 22 gross (22 net) wells in 2024 and now plans to drill only 13 gross (13 net) wells while increasing the land and seismic budgets by approximately $4 million. This decision was driven by the commitment to maximize long-term shareholder value.
Concurrent with the reduction in capital expenditures and wells drilled, we are reducing our 2024 annual production guidance from 6,000 boe per day to a range of 5,400 to 5,600 boe per day. The revised guidance is a result of a reduced capital program and a voluntary shut-in of certain low netback gas wells due to the current low gas price environment.
Gear will constantly evaluate opportunities to invest shareholder capital, targeting superior long-term returns. As such, Gear may accordingly expand drilling later in 2024.
No changes are expected with Gear's monthly dividend at this time and based on current 2024 guidance figures and the forward outlook on pricing, Gear is forecasting its net debt to be near zero by the end of 2024.
QUARTERLY HIGHLIGHTS
Funds from operations for the second quarter of 2024 were $20.2 million, an increase of 33 per cent from the first quarter of 2024 as a result of higher commodity prices. Commodity prices increased in the second quarter through higher WTI prices, lower heavy and light oil differentials arising from the commencement of the TransMountain Pipeline expansion and a weaker Canadian dollar relative to the US dollar. Gear's realized heavy oil price increased from C$72.15 per barrel to C$88.20 per barrel while realized light and medium oil price increased from C$87.16 per barrel to C$101.19 per barrel. Natural gas prices continue to struggle, with Gear's realized natural gas price averaging $1.05 per mcf. Fortunately, Gear's production is 87 per cent liquids.
Gear continues to maintain a strong balance sheet, with a net debt to quarterly annualized funds from operations ratio of 0.1 times. Net debt decreased from $12.5 million on March 31, 2024 to $9.1 million on June 30, 2024. See "Non-GAAP and Other Financial Measures" in this press release.
Production for the second quarter of 2024 was 5,621 boe per day, a 2 per cent decrease over the 5,714 boe per day reported in the first quarter of 2024 due to the shut-in of some of the Company's gas wells as well as some unexpected downtime (refer to "Operating" in the table above for a breakdown of production by product type). In July 2024, Gear completed a second natural gas tie-in of associated gas from an oil well in Killam, Alberta to alleviate third party gas take-away constraints that is expected to alleviate production issues in that area.
Gear invested a total of $11.7 million of capital through the second quarter including the drilling of two medium oil wells in Killam, Alberta and two multi-lateral heavy oil wells in Wildmere, Alberta. Additionally, during the second quarter of 2024, Gear invested $1.4 million in pipelines and $0.8 million in land and seismic.
DIVIDEND
Gear confirms that the August 2024 monthly dividend of $0.005 per common share is to be paid on August 30, 2024, to shareholders of record on August 15, 2024. The dividend is designated as an "eligible dividend" for Canadian income tax purposes.