Exploration & Production | Production Rates | Capital Markets | Capital Expenditure | Drilling Program

Gear Energy Increases 2015 Capex

Share Print Bookmark    |    Wednesday,November 12,2014

Gear Energy Ltd. has announced the approval of a $95 to $105 million development capital budget for 2015, designed to provide approximately 20 per cent growth in production and over 15 per cent growth on a per share basis.

The Board of Directors has approved a budget that targets low risk growth balanced between development drilling, cost reducing infrastructure opportunities and continued funding to expand and grow multiple new core heavy oil assets. The budget is estimated to provide value creation through production growth on a per debt adjusted share basis and will be funded entirely through a combination of cash flow and debt. Management will closely monitor prices, project returns and capital expenditures to ensure maintenance of a strong balance sheet.

Details of the 2015 budget are as follows:

Development drilling

Approximately 67 per cent of the 2015 budget will be dedicated to low risk growth opportunities. Gear plans to drill 61 gross (58 net) horizontal and vertical wells into existing core de-risked heavy oil pools. Included in this number are 26 gross, (24 net) multi-lateral horizontal wells to follow up on six multi-laterals drilled in 2014. Early results from these wells have been encouraging, with 70 to 100 per cent productivity increases relative to a single leg horizontal well, realized from only a 40 per cent increase in capital costs.

Inventory growth

As a result of successful land acquisition and exploration activities, Gear has again expanded the inventory of future growth opportunities. Undeveloped land grew by 40 per cent through 2014 and currently stands at over 130 net prospective sections. It is estimated that Gear will enter 2015 with approximately 410 net economic drilling locations across its core asset base. Gear intends to build upon this success by again dedicating approximately 20 per cent of the budget towards heavy oil inventory expansion. The funds will be invested in eight horizontal wells targeting new plays, as well as focused seismic and land acquisition prospects.

Facilities and corporate capital

Approximately six per cent of the capital budget will be invested in new and expanded facilities including gas gathering and water disposal systems designed to lower long term costs of operation. An additional seven per cent will be focused on corporate costs including workovers, tank upgrades, well abandonments and environmental reclamation.

The 2015 budget has been designed around a realized price of approximately $65 per barrel which is roughly equivalent to WTI price of $80US, a WCS heavy oil differential of $18US and a foreign exchange rate of $0.88 CAD/US. Gear will monitor realized prices closely throughout the year and employ a nimble and opportunistic investment strategy to accomplish meaningful growth while ensuring that the balance sheet remains strong. Ultimately Gear remains bullish on the long term outlook for heavy oil prices.