CALGARY, April 16, 2020 /CNW/ - Gear Energy Ltd.
("Gear") (TSX: GXE) announces revisions to the outlook
for the second quarter of 2020.
Oil prices continue to be depressed as a result of demand
destruction due to the impacts of COVID-19 on the global economy.
With this weakness and uncertainty in the price of oil looking to
extend through the second quarter of 2020, Gear has chosen to
immediately pursue reductions to the variable costs of the business
in an effort to maximize funds from operations. Protection of the
corporate balance sheet remains the top priority.
In addition to previously announced cuts to capital investment,
Gear has implemented a 20 per cent reduction in the salaries of all
permanent employees and in the directors' fees for our
non-management directors, as well as an immediate and aggressive
production storage and shut-in program. With approximately
two-thirds of field operating costs being classified as variable,
the prevailing low prices forecast for the second quarter of 2020
do not financially support production at current volume levels. By
limiting field operations, Gear intends to eliminate the variable
costs and maximize the resulting funds from operations. Annual
funds from operations are expected to continue to be supported by
substantial estimated gains on the 2020 risk management program
with annual hedged volumes of approximately 3,200 barrels of oil
per day.
Average and exit production for the first quarter of 2020 is
estimated to be approximately 6,700 boe per day (57% Heavy Oil, 28%
Light/Medium Oil, 12% Natural Gas and 3% NGLs). Through the second
quarter, production is forecast to be shut-in and stored subject to
various physical and financial restrictions. April sales production
is estimated to be approximately 3,600 boe per day and May
production is estimated to be approximately 800 boe per day.
Production is expected to remain at this curtailed level until such
time as Gear determines that operating and economic conditions
warrant bringing shut-in production back online. The Gear team
intends to remain flexible and opportunistic, keeping a close eye
on the commodity market and being prepared to resume full
production volume levels and expand capital investment if pricing
improves materially.
As a result of the volatile production levels, no associated per
unit cost guidance is being released at this time. Gear will
consider developing guidance for the remainder of 2020 at a later
date which will be highly contingent on oil prices and other macro
factors over the next few months. All previous guidance issued by
Gear regarding 2020 operations or financial results is withdrawn
and investors are cautioned to no longer rely on any such previous
guidance.
Forward-looking Information and Statements
As indicated in this press release, all previous guidance issued
by Gear regarding 2020 operations or financial results is
hereby withdrawn including, without limitation, the guidance
presented in the press release dated March
11, 2020 entitled " Gear Energy Ltd. Provides Revised
2020 Guidance and Operational Update" and the press release dated
December 18, 2019 entitled "Gear
Energy Ltd. Provides 2020 Budget Guidance". Investors are cautioned
to no longer rely on any such previous guidance.
This press release contains certain forward-looking information
and statements within the meaning of applicable securities laws.
The use of any of the words "expect", "anticipate", "continue",
"estimate", "objective", "ongoing", "may", "will", "project",
"should", "believe", "plans", "intends", "strategy" and similar
expressions are intended to identify forward-looking information or
statements. In particular, but without limiting the foregoing, this
press release contains forward-looking information and statements
pertaining to the following: Gear intent to limit field operations
to eliminate the variable costs and maximize the resulting funds
from operations; the expectation that annual funds from operations
will continue to be supported by substantial estimated gains on the
2020 risk management program; the expectation that production will
be shut-in and stored subject to various physical and financial
restrictions in the second quarter of 2020; the expectation of
April and May sales production; the expectation that production is
expected to remain at this curtailed level until such time as Gear
determines that operating and economic conditions warrant bringing
shut-in production back online; the intent of the Gear team to
remain flexible and opportunistic; and the intent of being prepared
to resume full production volume levels and expand capital
investment if pricing improves materially.
The forward-looking information and statements contained in this
press release reflect several material factors and expectations and
assumptions of Gear including, without limitation: that Gear will
continue to conduct its operations in a manner consistent with past
operations; the general continuance of current industry conditions;
the continuance of existing (and in certain circumstances, the
implementation of proposed) tax, royalty and regulatory regimes;
the accuracy of the estimates of Gear's reserves and resource
volumes; certain commodity price and other cost assumptions; that
all counterparties to contracts and transactions including hedges
will comply with their obligations pursuant to such contracts and
transactions; and the continued availability of adequate debt and
equity financing and funds from operations to fund its planned
expenditures. Gear believes the material factors, expectations and
assumptions reflected in the forward-looking information and
statements are reasonable, but no assurance can be given that these
factors, expectations and assumptions will prove to be correct. To
the extent that any forward-looking information contained herein
may be considered a financial outlook, such information has been
included to provide readers with an understanding of management's
assumptions used for budgeting and developing future plans and
readers are cautioned that the information may not be appropriate
for other purposes. The forward-looking information and statements
included in this press release are not guarantees of future
performance and should not be unduly relied upon. Such information
and statements involve known and unknown risks, uncertainties and
other factors that may cause actual results or events to differ
materially from those anticipated in such forward-looking
information or statements including, without limitation: changes in
commodity prices; changes in the demand for or supply of Gear's
products; unanticipated operating results or production declines;
changes in tax or environmental laws, royalty rates or other
regulatory matters; changes in development plans of Gear or by
third party operators of Gear's properties, increased debt levels
or debt service requirements; inaccurate estimation of Gear's oil
and gas reserve and resource volumes; limited, unfavorable or a
lack of access to capital markets; increased costs; a lack of
adequate insurance coverage; the impact of competitors; the risk
that counterparties to contracts and transactions including hedges
will not comply with their obligations pursuant to such contracts
and transactions; the risk that Gear's lenders take actions that
reduce availability of, or require repayment of, borrowings under
Gear's credit facilities; the risk that the COVID19 pandemic will
continue to seriously adversely impact demand for oil; the risk
that further actions taken by Russia and OPEC will result in further erosion
of commodity prices; and certain other risks detailed from time to
time in Gear's public documents including in Gear's most current
annual information form which is available on SEDAR at
www.sedar.com.
The forward-looking information and statements contained in this
press release speak only as of the date of this press release, and
Gear does not assume any obligation to publicly update or revise
them to reflect new events or circumstances, except as may be
required pursuant to applicable laws.
NON-GAAP Measures
This press release contains the term funds from operations,
which does not have a standardized meaning under Canadian generally
accepted accounting principles ("GAAP") and therefore may not be
comparable with the calculation of similar measures by other
companies. Management believes that this key performance indicator
and benchmark is a key measure of financial performance for Gear
and provide investors with information that is commonly used by
other oil and gas companies. Funds from operations is calculated as
cash flows from operating activities before changes in non-cash
operating working capital and decommissioning liabilities settled.
Management presents certain other metrics on a per unit (or boe)
basis. Per unit basis is calculated by the dividing the metric by
the average production in a period. For additional information on
the use of these measures including reconciliations to the most
directly comparable GAAP measures, if any, and their pertinent
relevance, please see Gear's most recent Management's Discussion
and Analysis on Gear's profile at www.sedar.com.
Barrels of Oil Equivalent
Disclosure provided herein in respect of BOEs may be misleading,
particularly if used in isolation. A BOE conversion ratio of six
Mcf to one Bbl is based on an energy equivalency conversion method
primarily applicable at the burner tip and do not represent a value
equivalency at the wellhead. Additionally, given that the value
ratio based on the current price of crude oil, as compared to
natural gas, is significantly different from the energy equivalency
of 6:1; utilizing a conversion ratio of 6:1 may be misleading as an
indication of value.
SOURCE Gear Energy Ltd.