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

Gear Energy Reels in Spending for 2015

Share Print Bookmark    |    Wednesday,January 21,2015

Gear Energy Ltd. has announced operational highlights for the fourth quarter of 2014 and revised capital guidance for the first half of 2015.

2014 Operational update

Gear achieved record field production of approximately 7,275 boe/d in the fourth quarter of 2014. Estimated sales production for the quarter came in slightly lower at 7,000 boe/d due to rail car availability and pipeline apportionments. Fourth quarter sales production is a 15 per cent increase per debt adjusted share from the fourth quarter of 2013. Annual 2014 production is estimated at 6,030 boe/d, representing 26 per cent growth per debt adjusted share over the previous year. During the quarter Gear shut-in 150 bbl/d of oil production that was considered uneconomic as a result of declining prices.

Gear drilled 19 (17.5 net) wells during the quarter. Of the total, three (1.5 net) single leg wells that were drilled in the Morgan area significantly outperformed our expectations producing an average of 150 bbl/d of oil per well for the first 60 days. Gear has since followed up with two dual lateral horizontal wells in Morgan that will be brought on production in the first quarter. At Paradise Hill Gear drilled two horizontal wells that averaged over 100 bbl/d of oil per well during the first 30 days within a newly discovered oil pool that we believe covers more than four net sections.

In our continuing effort to maximize the value of our production, Gear completed two facility projects in the fourth quarter designed to lower future operating costs
Gear expects to release detailed fourth quarter and year-end 2014 results in mid-March 2015.

2015 Revised Guidance

Given the current weakness and uncertainty in the future price of oil, Gear has adopted a conservative approach to its capital program for the first half of 2015. At this time, the future price of oil is much higher than the current spot price based on forward strip pricing. We believe that returns on our existing inventory of drilling locations can be materially improved by delaying investment until we see the spot price of oil improve along with a significant reduction in service costs.

For the short term, our capital program will be limited to $3 million to focus on completing and bringing on production two dual lateral wells at Morgan and performing selective re-completion and optimization projects. Gear plans to dedicate excess cash flow to pay down net debt by an estimated $20 million during the first half of 2015. We will also shut-in an additional 350 bbl/d of high cost production resulting in increased net cash flow. The revised production estimate for the first half of 2015 is 6,400 boe/d.

Over the past six months the outlook for oil prices has fallen dramatically. On November 11, 2014, Gear announced its full year 2015 capital budget of $95 to $105 million. This budget was based upon a WTI price of US$80/bbl and a Gear realized price of CAD$65/boe. Two months later, Gear's estimated realized price has been reduced to under $35/boe. We expect that the current depressed prices across the industry will go a long way to re-balance supply and demand and ultimately bring the price of oil back to a more sustainable level. Fortunately, Gear has no material land expiries or drilling commitments and by focusing on reducing net debt will have the ability to remain flexible in planning capital spending to maximize value for the long term. In view of the reduced expenditures, shareholders and readers should no longer rely on the previously published 2015 guidance.