Mr. Ingram Gillmore reports

GEAR ENERGY LTD. ANNOUNCES THIRD QUARTER 2023 OPERATING RESULTS AND 2024 BUDGET GUIDANCE

Gear Energy Ltd. has released its third quarter operating results to shareholders. Gear's interim consolidated financial statements and related management's discussion and analysis (MD&A) for the period ended Sept. 30, 2023, are available for review on Gear's website and on SEDAR+.

Message to shareholders

Gear is pleased with its strong third quarter results, with funds from operations increasing 23 per cent and net debt reduced by 7 per cent from the prior quarter. The third quarter was also active from a capital investment perspective as Gear drilled eight wells with an additional two wells rig released in October. As a result of the new wells, fourth quarter production is expected to average approximately 5,900 barrels of oil equivalent (boe) per day or an approximately 7-per-cent increase from the third quarter. Additionally, during the third quarter, Gear brought on stream one new heavy oil waterflood project, further advancing Gear's continued commitment to invest in long-life enhanced oil recovery opportunities.

With this third quarter release, Gear is also pleased to provide guidance for 2024, highlighted by a $57-million budget targeting steady growth, continued shareholder returns, maintenance of a strong balance sheet, further reductions in corporate liability, and the potential for incremental funds from operations less capital and abandonment expenditures, and dividends at oil prices above $74 (U.S.) WTI (West Texas Intermediate).

During the third quarter, Gear also announced the commencement of a formal process to explore, review and evaluate strategic repositioning alternatives with a view to enhancing shareholder value. The board of directors of Gear continues to undertake a comprehensive review to identify and consider a broad range of alternatives to enhance shareholder value, including, but not limited to, a merger, corporate sale, corporate restructuring, sale of select assets, purchase of assets, potential spinout of select assets, optimization of future capital allocation and return of capital strategies, or any combination of these alternatives. The strategic process is continuing and Gear does not intend to disclose developments unless the board has approved a specific transaction, or otherwise determines that disclosure is necessary or appropriate.

Quarterly highlights:

• Production for the third quarter of 2023 was 5,511 boe per day, a 4-per-cent decrease over the 5,742 boe per day reported in the second quarter of 2023, as a result of natural declines and the disposition of non-core heavy oil assets. Production is anticipated to average approximately 7 per cent higher in the fourth quarter of 2023, as all the new wells drilled during the summer and fall come on production and are optimized.
• Funds from operations for the third quarter of 2023 were $21.0-million, an increase of 23 per cent from the second quarter of 2023, as a result of higher commodity prices, and partially offset by higher royalties and operating costs. For the third quarter, realized prices improved from $69.10 per boe to $81.67 per boe due to a higher WTI price and a narrowing of both heavy and light oil differentials. Field netback of $45.08 per boe for the third quarter was a 27-per-cent increase from the second quarter.
• A total of $12.0-million of capital was invested through the third quarter, including the drilling of eight gross (eight net) wells: three single-leg lined heavy oil wells in Maidstone, Sask., three multilateral unlined heavy oil wells in Wildmere, Alta., and two single-leg lined heavy oil wells in Celtic, Sask. Subsequent to the quarter-end, two light oil wells in Tableland, Sask., were successfully rig released and are expected to be completed and on production in November.
• Gear continues to invest to reduce its abandonment and reclamation liability. For the first nine months of 2023, Gear has incurred $3.6-million in settling its decommissioning liabilities with 71 gross (68.1 net) wells abandoned and five gross (five net) leases reclaimed. Gear's undiscounted and unescalated decommissioning liability has fallen from $87.6-million at the start of 2023 to $78.4-million as at Sept. 30, 2023.
• In August, 2023, Gear closed a minor disposition of non-core heavy oil assets for nominal proceeds. The transaction included the disposition of 93 wells, 15 facilities and two pipelines that carried a decommissioning liability of $3.0-million. Production from the assets was approximately 120 boe per day.
• Net debt to quarterly annualized funds from operations was 0.2 times, with net debt falling 7 per cent from $14.3-million on June 30, 2023, to $13.3-million on Sept. 30, 2023.

2024 budget guidance

The board has approved a 2024 capital budget of $57-million designed to target the following four key strategic goals:

1. 3-per-cent to 4-per-cent annual production growth through investment into core area drilling and waterflood opportunities;
2. Continuation of the 0.5-cent-per-share monthly dividend;
3. Maintenance of the strong balance sheet;
4. Continued commitment to improving Gear's environmental footprint through abandonment and reclamation activities.

The details of the 2024 capital budget are as follows:

• $40.0-million (71 per cent) focused on drilling 22 gross (22 net) wells, including 13 Lloydminster area heavy oil wells, three Cold Lake, Alta., oil sands wells, three Killam, Alta., medium oil wells, two light oil wells in Wilson Creek, Alta., and one light oil well in southeast Saskatchewan;
• $5.3-million (10 per cent) invested in waterflood expansions, including continued expansion of various heavy oil water floods, continued expansion of the Killam medium oil water flood, expansion of the Tableland light oil water flood and further expansions of the light oil water floods in Wilson Creek. Gear continues to increase capital investment into waterflood projects to target increases in oil recovery factors and lowering production decline rates;
• $6.3-million (11 per cent) directed to continued reduction in liabilities associated with abandonment and reclamations;
• $5.0-million (8 per cent) invested in land, seismic, field capital projects, recompletions and other corporate costs.

The budget is forecasted to deliver results as shown in an attached table.

Using various WTI price forecasts for 2024 and assuming a WCS (Western Canadian Select) differential of $18 (U.S.) per barrel, MSW (medium sweet blend) and LSB (light sour blend) differentials of $5 (U.S.) per barrel, AECO gas price of $3 (Canadian) per gigajoule (GJ), and a foreign exchange of 73 U.S. cents per $1 (Canadian), Gear is forecasting 2024 funds from operations (FFO) as shown in an attached table.

On an annualized basis, Gear forecasts its 0.5-cent-per-share-per-month dividend to total approximately $16-million. Gear estimates that WTI would have to average $74 (U.S.) per barrel in order for FFO to equal the 2024 forecasted capital and abandonment expenditures of $57-million and the current annualized dividend. Any future increase in commodity prices beyond these base assumptions will provide incremental FFO less capital and abandonment expenditures and dividends, which would be dedicated to potential future capital expansions, cash-financed acquisitions, share buybacks and/or future dividend increases. Conversely, any future decrease in commodity prices may result in incremental debt and/or future dividend reductions.

We seek Safe Harbor.