Gear Energy Ltd. Announces First Quarter 2017 Operating Results

CALGARY, ALBERTA -- (Marketwired) -- 05/10/17 -- Gear Energy Ltd. ("Gear" or the "Company") (TSX: GXE) is pleased to provide the following first quarter operating update to shareholders. Gear's Interim Financial Statements and related Management's Discussion and Analysis ("MD&A") for the period ended March 31, 2017 are available for review on Gear's website at www.gearenergy.com and on www.sedar.com.

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                                                 Three months ended
(Cdn$ thousands, except per boe amounts)   March 31,   March 31,     Dec 31,
                                                2017        2016        2016
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FINANCIAL
Cash flow from operations (1)                  8,729       3,985       9,407
  Per weighted average basic share              0.05        0.05        0.05
  Per weighted average diluted share            0.04        0.05        0.05
Cash flow from operating activities           12,245       3,556       6,888
  Per weighted average basic share              0.06        0.04        0.04
  Per weighted average diluted share            0.06        0.04        0.04
Net income (loss)                              2,986     (1,716)    (12,191)
  Per weighted average basic share              0.02      (0.02)      (0.07)
  Per weighted average diluted share            0.01      (0.02)      (0.07)
Capital expenditures                          18,784         101       6,067
Net acquisitions (2)                            (68)       (480)        (74)
Net debt outstanding (1)                      46,745      59,550      36,967
Share outstanding, weighted average,         192,840      85,484     191,134
 basic (thousands)
Share outstanding, weighted average,         209,652      85,484     191,134
 diluted (thousands)
Shares outstanding, end of period            192,915      85,484     192,568

OPERATING
Production
  Heavy Oil (bbl/d)                            3,739       4,192       3,997
  Light and Medium Oil (bbl/d)                 1,085           -         989
  Natural gas liquids (bbl/d)                    217           -         308
  Natural gas (mcf/d)                          5,197       1,459       5,456
  Total (boe/d)                                5,907       4,435       6,203
Average prices
  Heavy oil ($/bbl)                            43.13       20.90       41.21
  Light oil ($/bbl)                            60.91           -       57.98
  Natural gas liquids ($/bbl)                  23.08           -       24.16
  Natural gas ($/mcf)                           3.00        1.52        3.07
Netback ($/boe)
  Commodity and other sales                    41.98       20.25       39.70
  Royalties                                   (3.97)      (1.63)      (3.76)
  Operating costs                            (16.28)     (15.34)     (16.25)
  Operating netback (1)                        21.73        3.28       19.69
  Realized risk management gains              (1.24)       12.71        0.24
   (losses)
  General and administrative                  (3.00)      (3.67)      (2.59)
  Interest                                    (0.88)      (1.53)      (0.85)
  Other                                       (0.19)      (1.19)           -
  Corporate netback (1)                        16.42        9.60       16.49

TRADING STATISTICS
($ based on intra-day trading)
High                                            1.26        0.61        1.18
Low                                             0.76        0.25        0.68
Close                                           0.90        0.54        1.18
Average daily volume (thousands)                 553         139         647
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(1) Cash flow from operations, net debt, operating netback and corporate
netback are non-GAAP measures and are reconciled to the nearest GAAP
measures under the heading "Non-GAAP Measures" in Gear's MD&A.
(2) Net acquisitions exclude non-cash items for decommissioning liability
and deferred taxes and is net of post-closing adjustments.

QUARTERLY HIGHLIGHTS

--  Realized quarterly cash flow from operations of $8.7 million, a seven
    per cent decrease from the fourth quarter cash flow of $9.4 million. The
    decrease in cash flow is primarily due to a decrease in sales volumes of
    296 boe per day to 5,907 boe per day as a result of temporary shut-in
    volumes to allow for drilling and an oil inventory build due to
    temporary surface access and pipeline constraints. First quarter field
    production was approximately 6,100 boe per day. Current field production
    is estimated to be 6,350 boe per day, with an additional estimate of 300
    boe per day behind pipe to be brought on production as field conditions
    improve.
--  Realized an operating netback of $21.73 per boe in the first quarter, an
    increase of $2.04 per boe or 10 per cent from the fourth quarter as a
    result of higher pricing. Corporate netback was relatively unchanged
    from the fourth quarter at $16.42 per boe.
--  In the first quarter, Gear executed a very active drilling program with
    the investment of $18.8 million of capital. Through the quarter there
    was noticeable upward pressure on service costs and some availability
    issues, specifically with respect to the fracture completion of wells in
    Wilson Creek and Hoosier. Encouraging initial production results in
    these areas offset cost pressures ensuring that economic returns are
    being achieved.
--  Drilled and completed 10 gross (9.8 net) wells with a 90 per cent
    success rate, including three wells in Wilson Creek, three wells in
    Wildmere Cummings, two wells in Paradise Hill, and two wells that were
    drilled for the first time in a new area called Hoosier. One additional
    well was completed in the first quarter in Wilson Creek that had been
    drilled in the previous quarter.
    --  Including two wells drilled in the fourth quarter, Gear has five new
        full section Basal Belly River horizontal wells of which four are
        currently producing in Wilson Creek with all wells exceeding our
        internal type curve. Production from the two original wells in
        Wilson Creek drilled in the fourth quarter of 2016 has averaged
        approximately 240 boe per day per well over the last two months of
        production. Two of the three new 2017 Wilson Creek wells came on
        production in April and are averaging initial, un-optimized rates of
        225 boe per day per well. The final drill has been completed and
        flow tested but wet surface conditions delayed production until
        later in May.
    --  Two of the three new Wildmere Cummings unlined multilateral wells
        are producing above expectations with an initial 30 day production
        rate of 185 barrels per day per well. The third well is currently
        awaiting pipeline tie-in and is expected to be brought on production
        in the second quarter.
    --  The two new Paradise Hill wells are producing as expected with 15
        further wells to be drilled after break-up in 2017. The McLaren
        formation in Paradise Hill continues to perform strongly, with the
        original three Gear horizontal wells drilled in 2014 and 2015
        already producing a cumulative average of 55,000 barrels of oil
        each, matching the original estimate of total recoverable oil.
        Presently, the three wells continue to produce oil at average rates
        of greater than 40 barrels per day.
    --  In Hoosier, Gear has amassed a large land position in this new core
        area. The first Hoosier well has just come on production at
        encouraging initial rates and Gear expects to continue drilling in
        this area later in 2017. The second Hoosier well experienced an
        underground blowout prior to reaching the target reservoir. The well
        was safely and effectively contained but ultimately had to be
        abandoned. All associated expenditures are expected to be fully
        insured. Furthermore, the incident does not sterilize any future
        potential inventory in the area.
--  Net debt increased $9.8 million in the first quarter from year-end as a
    result of an active first quarter drilling program. Gear expects its
    capital and abandonment expenditures to approximate cash flow for the
    full year 2017. With production volumes increasing and cash flow
    exceeding capital, net debt to cash flow is expected to decline for the
    remainder of 2017. Furthermore, at current strip pricing, net debt to
    cash flow for 2017 is forecasted to remain below 1.0 times. Gear is
    currently undergoing its semi-annual borrowing base review and
    preliminary indications are that Gear's credit facilities will increase
    from $50 to $55 million. The borrowing base is still subject to final
    credit approval from Gear's syndicated lenders and will not be finalized
    until later in May.
--  Gear continues to actively maintain a hedging program with 50 per cent
    of 2017 production hedged and 20 per cent of 2018 internally forecasted
    production hedged.
--  As noted in Gear's 2017 Management Information Circular for the annual
    shareholder meeting to be held today at 3:00 pm (Calgary time), two of
    Gear's directors have decided not to stand for re-election. Peter
    Verburg joined Gear's board in 2009 and has provided valuable counsel
    and direction to Gear over the years. Neil Roszell joined Gear's board
    in 2016 following the Striker Exploration Corp. ("Striker") acquisition
    and has been a valuable contributor to the transition of Striker's
    assets to Gear. Gear sincerely thanks Messrs Verburg and Roszell and
    wish both the best in their future endeavors.

Forward-looking Information and Statements

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: drilling, completion and optimization plans for Gear's Wilson Creek assets; expectation that results will offset cost pressures and help ensure economic returns; 2017 on production dates for a Wilson Creek and Wildmere Cummings well; 2017 wells to be drilled in Paradise Hill; the expectation that expenditures associated with an abandoned well will be fully insured; the non-sterilization of future Hoosier drilling inventory locations; 2017 capital expenditure plans; the expectation that the 2017 capital expenditure program will be funded solely from cash flow from operations; the expected 2017 net debt to cash flow ratio; and the final credit approval of Gear's borrowing base.

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; and the continued availability of adequate debt and equity financing and cash flow 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; 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 terms cash flow from operations, net debt, operating netback and corporate netback, which do not have standardized meanings 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 these key performance indicators and benchmarks are key measures of financial performance for Gear and provide investors with information that is commonly used by other oil and gas companies. Cash flow from operations is calculated as cash flow from operating activities before changes in noncash operating working capital and decommissioning liabilities settled. Net debt is calculated as debt less current working capital items, excluding risk management contracts. Operating netbacks are presented both before and after taking into account the effects of hedging and are calculated based on the amount of revenues received on a per unit of production basis after royalties and operating costs. Corporate netbacks are presented after taking into account the effects of hedging and are calculated based on the amount of revenues received on a per unit of production basis after royalties, operating costs, general and administrative expenses, interest and foreign exchange gain or loss. Additional information relating to certain of these non-GAAP measures, including the reconciliation between cash flow from operations and cash flow from operating activities, can be found in the MD&A.

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.

Initial and Other Production Rates

Any references in this document to initial production rates are useful in confirming the presence of hydrocarbons, however, such rates are not determinative of the rates at which such wells or other future wells will continue production and decline thereafter. Additionally, such rates may also include recovered "load oil" fluids used in well completion stimulation. In addition, Gear has disclosed the cumulative production of wells on certain Gear properties; there is no certainty that other wells on such properties will achieve such production levels. Readers are cautioned not to place reliance on such rates in calculating the aggregate production for Gear.

Contacts:
Ingram Gillmore
President & CEO
403-538-8463
[email protected]

David Hwang
Vice President Finance & CFO
403-538-8437
[email protected]
www.gearenergy.com

Source: Gear Energy Ltd.

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