Mr. Ingram Gillmore reports

GEAR ENERGY LTD. ANNOUNCES SECOND QUARTER 2023 OPERATING RESULTS AND AUGUST MONTHLY DIVIDEND OF $0.005 PER SHARE

Gear Energy Ltd. has provided second quarter operating results to shareholders. Gear Energy's interim consolidated financial statements and related management's discussion and analysis for the period ended June 30, 2023, are available for review on Gear Energy's website and on SEDAR.

Message to shareholders

Gear Energy is pleased to announce a strong second quarter, with funds from operations increasing over 30 per cent from the prior quarter as a result of improved pricing and reduced costs. The second quarter was a relatively quiet one from a drilling perspective with only one well being drilled through the quarter. While the second quarter is typically a low activity time due to spring breakup, Gear Energy strategically reduced activity early and restarted late while focusing efforts on realigning costs to the realities of the current commodity price environment. In addition, there was substantial progress made through the quarter in expanding our future drilling inventory through incremental land and seismic purchases.

With the release of a new optimized 2023 budget, a recalibration of the future dividend and activity moving full steam ahead in the field, Gear Energy is set up to exit the year with a stable production foundation, strong cash flow generation capability, a continued commitment to return value to shareholders, a solid inventory of future opportunities and a strong balance sheet.

Quarterly highlights:

• Production for the second quarter of 2023 was 5,742 barrels of oil equivalent per day, a 1-per-cent decrease over the 5,777 boe per day reported in the second quarter of 2022. Second quarter production was 4 per cent lower than the first quarter of 2023 due to a temporary third party gas plant turnaround in central Alberta, which has been completed, and as a result of natural declines. Additionally, Gear Energy continues to experience some minor constraints with third party gas take-away in Killam, Alta., which has restricted the amount of oil production in that area.
• Funds from operations for the second quarter of 2023 were $17.1-million, an increase of 31 per cent from the first quarter of 2023 as a result of higher commodity prices and lower transportation, operating, and general and administrative costs. Although West Texas Intermediate pricing fell from $76.13 (U.S.) per barrel in the first quarter of 2023 to $73.78 (U.S.) per barrel in the second quarter of 2023, Western Canadian Select heavy oil differentials improved significantly, narrowing from $24.76 (U.S.) per barrel to $15.06 (U.S.) per barrel. Finally, heavy oil pricing was further positively impacted due to lower diluent blending costs, all of which resulted in a 30-per-cent-higher realized heavy oil price for Gear Energy.
• A total of $7.4-million of capital was invested through the second quarter, including the drilling of one multilateral heavy oil well in Wildmere, Alta. The well was rig released in early July and has recently been put on production. Additionally, during the second quarter of 2023, $1.7-million was invested in land and seismic, $800,000 was invested in water flood advancements, and the rest was split between workovers, recompletions, facility improvements and other corporate costs.
• For the first six months of 2023, Gear Energy invested $2.4-million in undeveloped land and seismic on two exciting new heavy oil prospects. The first prospect is a 7.5-section contiguous block of oil sands rights with up to six stacked Mannville pay zones, which have the potential to contain large undeveloped oil in place. These reservoirs will ideally be targeted with unlined multilateral development, taking advantage of Gear Energy's long history of expertise with these operations. The second prospect is a two-section block offsetting successful lower Mannville production from peers in west-central Saskatchewan, which also has future multilateral unlined drilling potential. Initial development of these new prospects is forecast to begin in early to mid-2024.
• Gear Energy continues to dedicate significant effort toward expanding its inventory of future drilling opportunities. There are currently over 20 identified exploration targets, primarily in heavy oil, that are being prioritized for derisking and future development. If successful, a number of these opportunities have the potential scale to become new high-impact core areas, which could prove valuable. The optimized 2023 budget includes plans to target two of these new prospects by drilling four Upper Mannville horizontal wells in the second half of 2023 that could prove up substantial drillable inventory for 2024 and beyond.
• In 2021, Gear Energy entered into a 10-year transportation commitment with a third party that set up a gas conservation system in southeast Saskatchewan, where Gear Energy was previously flaring. In exchange for the infrastructure, the third party was to take all associated net revenue from the conserved natural gas and natural gas liquids until a certain payout was achieved. In the second quarter of 2023, Gear Energy fulfilled its commitment, more than eight years earlier than originally anticipated, as a result of higher volumes and higher-valued natural gas and natural gas liquids. Going forward, Gear Energy will see a decrease in its transportation expense starting in the third quarter of 2023.
• Net debt to quarterly annualized funds from operations was 0.2 times, with net debt falling slightly from $15.3-million on March 31, 2023, to $14.3-million on June 30, 2023.

Revised 2023 guidance

Gear Energy has strategically reduced its planned 2023 capital expenditures by an additional $8-million to $50-million. The new budget is designed to target an improved balance between high-return drilling, inventory expansion, a refined list of water flood opportunities and other non-discretionary expenses. Additionally, this budget better aligns Gear Energy's anticipated funds from operations and returns to shareholders to the current environment while still maintaining a strong balance sheet.

The modified budget includes 14 gross (13.6 net) wells across all three core areas, including: one medium oil well in Provost, Alta. (drilled in the first quarter), two heavy oil wells in Hoosier, Sask. (drilled in the first quarter), five single lateral lined horizontal heavy oil wells in the general Lloydminster area, four multilateral heavy oil wells in the general Lloydminster area (one drilled in the first quarter), one (0.6 net) light oil well in Wilson Creek, Alta., and one light oil well in Tableland, Sask. Although capital has been reduced by 14 per cent, annual production guidance has only been reduced by approximately 2 per cent from 5,800 to 6,000 boe per day to 5,700 to 5,900 boe per day due to the reconfiguration and timing of wells. In addition to the budget reduction, investments have also been balanced better through the second half of the year with approximately two-thirds of the remaining capital targeting the lower costs typically experienced in the third quarter and the final one-third to be invested during the fourth quarter.

Revised dividend

Gear Energy remains committed to returning profits to its shareholders in the form of a dividend. In the second quarter of 2023, Gear Energy distributed $7.8-million of dividends or three cents per share. Since inception, Gear Energy has distributed a cumulative $33.8-million of dividends to its shareholders, or 13 cents per share. Over the same time period, Gear Energy has observed inflationary cost pressures within its business and a general downward trend in realized commodity prices. To maintain its strong balance sheet while providing stable to growing production and reserves for the long term, Gear Energy will be required to reduce the monthly dividend, effective August, 2023, to 0.5 cent per share. Markets will be monitored closely, and in the event that commodity prices or costs significantly change, the amount of the monthly dividend may be revisited at the discretion of the board of directors.

The August, 2023, monthly dividend of 0.5 cent per common share is to be paid on Aug. 31, 2023, to shareholders of record on Aug. 15, 2023. The dividend is designated as an eligible dividend for Canadian income tax purposes.

We seek Safe Harbor.