Mr. Ingram Gillmore reports

GEAR ENERGY LTD. ANNOUNCES FIRST QUARTER 2023 OPERATING RESULTS

Gear Energy Ltd. has provided the following first quarter operating update to shareholders. Gear's interim condensed consolidated financial statements and related management's discussion and analysis for the period ended March 31, 2023, are available for review on Gear's website and on SEDAR.

Message to shareholders

The first quarter of 2023 was a busy one for Gear with significant activity occurring across the majority of the asset base. However, operational execution was partially offset by macro commodity price weakness and continuing inflationary pressure. The quarter experienced weaker commodity prices, including lower West Texas Intermediate (WTI) prices, wider Western Canada Select (WCS) heavy oil differentials and higher diluent blending costs. In response to these macro pressures, Gear has re-evaluated its capital plans for the rest of the year. The goals for 2023 remain the same: to strike a balance between strong returns on capital, production and reserves stability, continued dividends, and balance sheet strength. Although the first quarter of 2023 saw an increase in net debt due to the aggressive capital program, the second quarter is expected to reverse that course as capital investment is reduced through spring breakup. Additionally, funds from operations in the second quarter are estimated to improve over the first quarter due to improved oil prices and the new production associated with the recently invested capital. Despite these anticipated improvements, the Gear team has re-evaluated and optimized the 2023 budget to better reflect the current commodity price forecast. This will include a scaleback of planned capital, as well as a small reduction in associated production. Together, these adjustments will provide Gear with a more sustainable future and a strong foundation for incremental activity should prices improve further as the year progresses.

Quarterly highlights:

• Production for the first quarter of 2023 was 5,952 barrels of oil equivalent per day, a 4-per-cent increase over the 5,701 boe per day reported in the first quarter of 2022 and a 3-per-cent increase from the fourth quarter of 2022 of 5,755 boe per day. First quarter production was slightly lower than guided as a result of the four new wells drilled in Killam, Alta., in 2022 not being able to produce at full capacity due to a facility restriction through the quarter. This restriction resulted in lower initial rates but should assist the area production to remain stable for a longer period of time. Additionally, as noted below, Gear only drilled four of the originally planned six wells in the first quarter of 2023.
• Gear invested $18.4-million of capital through the first quarter of 2023. This included the drilling of four (four net) successful wells, including one unlined multilateral medium oil well in Provost, Alta., two multistage fractured heavy oil wells in Hoosier, Sask., and one unlined multilateral heavy oil well in Wildmere, Alta. In addition, Gear initiated or expanded water floods in Maidstone, Sask., Provost, Alta., Wilson Creek, Alta., and Tableland, Sask. Gear also fractured and completed two Tableland, Sask., light oil wells in the first quarter. Over the last 30 days, the six new wells cumulatively averaged approximately 650 boe per day of production. Gear's original plan was to drill six wells for the first quarter of 2023, but due to inflationary cost pressures and lower commodity prices, two wells were deferred to later in 2023.
• Funds from operations for the first quarter of 2023 were $13.0-million, a decrease of 31 per cent from the first quarter of 2022, as a result of lower commodity prices. WTI pricing fell from $94.29 (U.S.) per barrel in the first quarter of 2022 to $76.13 (U.S.) per barrel in the first quarter of 2023. In addition, WCS heavy oil differentials widened from $14.53 (U.S.) per barrel to $24.76 (U.S.) per barrel. Finally, heavy oil pricing was further negatively impacted due to higher diluent blending costs through the colder months, all of which resulted in a 41-per-cent-lower realized heavy oil price for Gear.
• Gear distributed $7.8-million of dividends or three cents per share through the first quarter of 2023, bringing the inception to date total cumulative distributions to $26.0-million, or $0.10 per share.
• Net debt to quarterly annualized funds from operations was 0.3 times, with net debt increasing from $2.2-million on Dec. 31, 2022, to $15.3-million on March 31, 2023. This increase was a result of capital expenditures and dividends exceeding funds from operations through the quarter. For the second quarter of 2023, with the reduction in capital spending and using the current outlook on commodity prices, net debt is forecasted to fall considerably.

Revised 2023 guidance

In light of continuing commodity price volatility, Gear has strategically reduced its planned 2023 capital expenditures by 12 per cent to $58-million. The optimized budget now includes 15 (14.5 net) wells across all three core areas. The reduced well count reflects a higher weighting to light oil opportunities than was planned with the original budget released in November of 2022. The new budget includes one medium oil well in Provost, Alta. (drilled in first quarter), four heavy oil wells in Hoosier, Sask. (two drilled in Q1, with two follow-ups planned in the second half of 2023), six multilateral heavy oil wells in the general Lloydminster area (one drilled in Q1), two light oil wells in Wilson Creek, Alta., and two light oil wells in Tableland, Sask. This compares with the original budget of 22 net wells with six of those originally planned in the first quarter of 2023. Annual production guidance has been reduced by approximately 3 per cent to range from 5,800 to 6,000 boe per day due to the reduced drill count to date (and go forward), as well as continuing capacity limitations at Gear's Killam oil facility and an unplanned third party infrastructure turnaround expected in central Alberta in the second quarter of 2023.

Total drill capital is forecast to be $40-million, with an additional $7-million invested in water floods in Wilson Creek, Tableland and Wildmere, $6-million invested in abandonment and reclamation activities, and the remaining capital dedicated to land, seismic and other corporate costs. Within the revised guidance, there are some associated increases in per-unit costs related to the lower annual volumes, continued inflationary pressures and the weaker forecasted commodity prices under the current forward strip.

We seek Safe Harbor.