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Gear Energy Drills First Multi-Lateral Well for $1.1 MM

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Gear Energy Ltd. has provided the following second quarter operating update to shareholders. 

Highlights

• As a result of this discipline, Gear paid down existing debt, shut-in high cost production, continued its focus on being the lowest cost heavy oil producer, and reduced production declines with minimal capital during the first half of the year. Costs have now decreased materially and starting in June 2015, Gear commenced its 2015 drilling program.
• Gear decreased net debt in the second quarter by $11.6 million for a total reduction from year end 2014 of $26.7 million, or 27 per cent, exiting the second quarter with a ratio of net debt to annualized quarterly cash flow of 1.2 times. Gear has taken prudent measures to strengthen its balance sheet in order to maintain financial flexibility through this low commodity price environment.
• Sales production for the second quarter averaged 5,632 boe per day, a decrease from the first quarter of 992 boe per day. This reduction is the result of surface access issues associated with spring break up, natural declines, the temporary shut in of uneconomic production and no offsetting production growth due to limited capital investment. 
• Production for the remainder of 2015 is expected to remain relatively unchanged from the second quarter with current field production estimated to be approximately 5,650 boe/d.
• strong>During the quarter Gear drilled one well, with five more being drilled subsequent to quarter end. 
• strong>The first well was a successful single leg horizontal drilled into the McLaren at Paradise Hill resulting in average initial oil rates of 90 bbl per day for the first 28 days of production. Gear has amassed a sizeable land position in this area at a very low cost, is further encouraged by the success of the third well into this new area and looks forward to drilling up to four more adjacent wells by year end. 
• strong>The second well was Gear's first ever quadruple horizontal leg un-lined well drilled into the Cummings at Wildmere. This well was successfully drilled as planned, completed and equipped at a total cost of $1.1 million, or 22% below the original cost estimate. The well started producing oil in late July with the first 14 days averaging over 100 bbl per day and the last 7 days averaging over 150 bbl per day. The plan is to optimize the oil production while reducing sand inflow by slowly increasing the pump rate and drawing down the fluid level over the next few weeks of operation. The early results are preliminary but very encouraging. 
• Gear also drilled a dual leg un-lined horizontal well into the GP formation in Wildmere, two single leg horizontal wells and one dual leg horizontal well into the Lloydminster in Morgan with first oil expected in August.
• strong>The capital costs for the first five wells drilled after break up have averaged approximately 17 per cent below budget. As a result of this cost savings, capital guidance for 2015 has now been reduced by 11 per cent to a total capital budget of $25 million with no associated change in production expectations. Due to reduced costs in other areas of the business, both royalties and operating costs are now being guided lower as well, at 12 to 15 per cent for royalties and $17.00 to $19.00 per boe for operating costs.