Mr. Ingram Gillmore reports

GEAR ENERGY LTD. ANNOUNCES FOURTH QUARTER 2023 OPERATING RESULTS AND YEAR-END RESERVES SUMMARY AND THE FILING OF A NORMAL COURSE ISSUER BID

Gear Energy Ltd. has released its fourth quarter operating results and annual reserves summary to shareholders. Gear's consolidated financial statements and related management's discussion and analysis (MD&A) for the year ended Dec. 31, 2023, are available for review on Gear's website and on SEDAR+.

Message to shareholders

We are pleased to present the following results for 2023. It was a volatile year with WTI (West Texas Intermediate) oil prices oscillating by almost $30 (U.S.) per barrel, from the mid $60s (U.S.) to the mid $90s (U.S.) and then back down again. Heavy oil prices were also not immune to volatility, with the WCS (Western Canadian Select) differential ranging between a discount of approximately $11 (U.S.) per barrel up to $29 (U.S.) per barrel. Despite this volatility, Gear was able to deliver strong returns to shareholders, execute an efficient 2023 capital program, and maintain stable production and bank debt while adding proved developed producing (PDP) reserves at a finding, development and acquisition (FD&A) cost of $17.36 per boe (barrels of oil equivalent), yielding a competitive 2023 PDP recycle ratio of 2.0 times.

Now as we move into 2024, the team is excited to continue working on delivering similar results. With the strategic repositioning process behind us, we are ready to focus on continued success with core area drilling, water flood expansions, further derisking, and expansion of new drilling inventory and incremental returns to shareholders.

2023 annual highlights

• Generated $67.8-million of funds from operations (FFO) or $32.03 per boe, the third-highest ever achieved. The FFO was a 28-per-cent decrease from 2022 as a result of weaker pricing with revenue averaging $70.23 per boe for the year and the WTI oil benchmark price averaging $77.62 (U.S.) per barrel compared with $94.23 (U.S.) per barrel in 2022.
• Delivered production of 5,801 boe per day for 2023, a 1-per-cent increase from 2022 and unchanged on a per debt adjusted (DA) share basis.
• Distributed almost $24.9-million in dividends to shareholders during 2023, representing 9.5 cents per share, or an annual yield of almost 15 per cent relative to the year-end market capitalization. Total dividends since inception are now $45.6-million, or 17.5 cents per share including the February, 2024, declared amount.
• Invested $48.1-million to drill 14 gross (14 net) wells, installed and optimized multiple water flood projects, completed various recompletion opportunities and financed other corporate capital.
• Dedicated $6.1-million to the reduction of decommissioning activities resulting in 79 gross (76.3 net) wells being abandoned and 34 gross (34 net) wells being reclaimed throughout the year. Gear's decommissioning liability fell 7 per cent from $71.4-million at the end of 2022 to $66.1-million at the end of 2023.
• Maintained a strong balance sheet, with exit net debt of $14.1-million and annual net debt to FFO (funds from operations) ratio of 0.2 times.

Fourth quarter highlights

• Production for the fourth quarter of 2023 was 6,000 boe per day, a 9-per-cent increase from the third quarter production of 5,511 boe per day. The increase is attributed to new production from Gear's second half 2023 successful drilling program.
• During the fourth quarter of 2023, Gear drilled two gross (two net) light oil multistage fractured wells in Tableland, Sask. In total, Gear incurred $10.8-million of capital expenditures for the quarter. Approximately $700,000 of capital was incurred for prespending for Gear's 2024 capital program.
• FFO for the fourth quarter of 2023 was $16.7-million, a decrease of 20 per cent from the third quarter of 2023 as a result of lower commodity prices, partially offset by higher production. Fourth quarter realized prices decreased to $67.98 per boe from $81.67 per boe in the third quarter of 2023. Lower commodity prices were primarily driven by a decrease in the WTI benchmark oil price which averaged $78.32 (U.S.) per barrel in the fourth quarter and wider WCS heavy oil differentials, which averaged $21.86 (U.S.) per barrel in the fourth quarter. The outlook for WCS differentials has begun to improve through the first quarter and look to narrow further with the expectation that the Trans Mountain pipeline expansion will be commissioned in 2024.

2023 year-end reserves highlights

• Gear achieved the following reserves highlights through 2023 activity, compared with 2022 results including full corporate abandonment and reclamation obligation (ARO) costs.

Proved developed producing (PDP)

• 2.73 MMboe (million barrels of oil equivalent) of additions;
• Reserves increased 6 per cent, 4 per cent per DA share;
• Reserves value on a before-tax 10-per-cent-discounted basis (BT10) increased 4 per cent, 2 per cent on a per DA share basis;
• Replaced 129 per cent of 2023 annual production;
• Finding and development (F&D) costs and FD&A costs of $16.33/boe and 17.36/boe, respectively, including change in future development capital (FDC);
• Recycle ratio of 2.0 times based on 2023 operating netback of $35.37/boe (before hedging).

Total proved (TP)

• 2.29 MMboe of additions;
• Reserves increased 1 per cent, 1-per-cent decrease per DA share;
• Reserves value BT10 decreased 4 per cent and decreased 6 per cent on a per DA share basis;
• Replaced 108 per cent of 2023 annual production;
• F&D and FD&A cost of $18.90/boe and $19.95/boe, respectively, including change in FDC;
• Recycle ratio of 1.8 times.

Total proved plus probable (P+P)

• Total proved plus probable include:
  • 2.10 MMboe of additions;
  • Reserves were unchanged and decreased 2 per cent per DA share;
  • Reserves value BT10 decreased 6 per cent and decreased 8 per cent on a per DA share basis;
  • Replaced 99 per cent of 2023 annual production;
  • F&D and FD&A cost of $19.94/boe and $22.67/boe, respectively, including change in FDC;
  • Recycle ratio of 1.6x.
• The 2023 capital program was limited but very successful in delivering new wells that met or exceeded expectations. Reserves additions across all categories were achieved primarily through a combination of the following:
  • Successful new drilling in Wildmere, Soda Lake, Celtic, Provost, Hoosier and Tableland;
  • Base performance revisions in Paradise Hill, Wildmere and Wilson Creek;
  • Recognition of water flood implementation and/or response in Chigwell, Wildmere, Wilson Creek, Killam, Provost and Maidstone;
  • Economic factors as a percentage of annual reserves additions were 2 per cent, 12 per cent and 24 per cent for PDP, TP and P+P values, respectively.
• Management's annual estimate of future potential drilling locations increased 33 per cent from year-end 2022 to 447 unrisked net locations as a result of land purchases in Cold Lake and Soda Lake, drilling to derisk new inventory at Celtic and Soda Lake, and the continuous high grading of future inventory through increased use of multilaterals. The Sproule (as defined herein) evaluation currently recognizes 94 net locations in the TP category and 148 in the P+P category. These booked locations represent 21 and 33 per cent of management's estimates, respectively. The 148 net booked P+P locations include 25 multilateral horizontals, 108 single-lateral horizontals and 15 vertical wells.
• Utilizing the evaluator average price forecast at Jan. 1, 2024, Gear maintained 2023 net asset values (NAV) close to year-end 2022 figures with the weaker future price outlook offset by higher reserves. The new NAV amounts are 75 cents/share PDP, $1.04/share TP and $1.66/share P+P, all above the current share price trading range. Additional NAV values at various flat price scenarios and discount rates are highlighted within.
• Significantly increased the amount of reserves supported by water flooding to 32 per cent of total PDP bookings, supporting a record high PDP Reserves Life Index (RLI), now sitting comfortably at 5.3 years. TP RLI is 8.0 years P+P RLI is 11.0 years, both also record highs.
• Corporate liquids weighting increased to 87 per cent from 85 per cent for the P+P reserves case. Heavy oil increased by 1 per cent while gas decreased by 1 per cent. Corporate P+P reserves product mix remained relatively unchanged from the prior year with reserves consisting of 43 per cent heavy oil, 39 per cent light and medium oil, 5 per cent natural gas liquids (NGLs), and 13 per cent gas.

2024 outlook

After several years of consultation, planning and construction, the Trans Mountain pipeline expansion is set to be operational in 2024. The pipeline will positively impact the Canadian energy industry, adding 590,000 barrels of oil per day or approximately 17 per cent additional export capacity and providing a new market for Canadian oil. The expected tangible benefit will be through both a lower discount for realized Canadian oil prices relative to world oil market prices, a reduction in historical punitive differentials for heavy crude and the ability to export greater amounts of Canadian crude oil. Gear intends to take advantage of this forecasted price improvement by investing in further production growth opportunities throughout the year.

Capital and abandonment expenditures for 2023 were $54-million compared with the $50-million guidance for 2023. Spending in the fourth quarter of 2023 included additional spending in anticipation for the 2024 drill program as well as additional spending on abandonment and reclamation work.

Using various WTI price forecasts for 2024 and assuming a WCS differential of $16 (U.S.) per barrel, MSW differential of $5 (U.S.) per barrel, LSB differential of $6 (U.S.) per barrel, AECO gas price of $2 per GJ (gigajoule), and a foreign exchange of 74 U.S. cents per $1 (Canadian), Gear is forecasting 2024 FFO as shown in the attached table.

On an annualized basis, Gear forecasts its 0.5 cent per share per month dividend to total approximately $16.0-million. Gear estimates that WTI would have to average $75 (U.S.) per barrel in order for FFO to equal the 2024 forecasted capital and abandonment expenditures of $57.0-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 may 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, potential capital adjustments and/or future dividend reductions.

Normal course issuer bid

Gear is pleased to announce that the Toronto Stock Exchange (TSX) has granted approval for Gear to commence a normal course issuer bid (the NCIB).

Under the NCIB, Gear may purchase for cancellation up to 24,171,076 common shares of Gear, representing approximately 10 per cent of the public float, which is equal to the issued and outstanding shares of Gear as at the date hereof (262,249,821 shares) less the shares held by directors and officers of Gear. The total number of shares that Gear is permitted to purchase is subject to a daily purchase limit of 162,537 shares, representing 25 per cent of the average daily trading volume of 650,149 shares on the TSX calculated for the six-month period ended Jan. 31, 2024; however, Gear may make one block purchase per calendar week which exceeds the daily repurchase restrictions.

The NCIB is expected to commence on Feb. 26, 2024, and will terminate on the earlier of: (i) the date on which the company has acquired all shares sought pursuant to the NCIB; or (ii) to Feb. 25, 2025, unless earlier terminated at the option of the company, upon prior notice being given to the TSX. The shares will be purchased on behalf of Gear by a registered broker through the facilities of the TSX and through other alternative Canadian trading platforms at the prevailing market price at the time of such transaction. Pursuant to the terms of Gear's current credit facilities, shares may only be purchased if Gear's senior debt to earnings before interest, tax, depreciation and amortization ratio is less than 1.00:1.00, the credit facilities are less than 50 per cent drawn and the aggregate purchases (including any other distributions) for any fiscal year is no more than $32-million.

The actual number of shares purchased under the NCIB, the timing of purchases and the price at which the shares will be purchased will depend on future market conditions.

Gear believes that, from time to time, the market price of the shares may not fully reflect the underlying value of the shares and at such times the purchase of shares would be in the best interests of Gear. As a result of such purchases, the number of issued shares will be decreased and, consequently, the proportionate share interest of all remaining shareholders will be increased on a pro rata basis.

We seek Safe Harbor.