Mr. Kevin Johnson reports

GEAR ENERGY LTD. ANNOUNCES A TRANSFORMATIVE TRANSACTION PROVIDING SHAREHOLDERS WITH LIQUIDITY AND RETAINED OWNERSHIP IN A NEW GROWTH FOCUSED OIL COMPANY AND MONTHLY DIVIDEND

Gear Energy Ltd. has entered into an arrangement agreement with a large publicly traded company (the purchaser) pursuant to which the purchaser will acquire all of the issued and outstanding common shares of Gear, excluding its central Alberta, southeast Saskatchewan and Tucker Lake properties (collectively, the Newco assets), which will be transferred to a newly formed entity (Newco), for $110-million in cash, subject to adjustments as provided for in the agreement.

The transaction will be accomplished by way of a statutory plan of arrangement under the Business Corporations Act (Alberta). Under the terms of the arrangement, each holder of Gear shares will receive 60.7 cents in total consideration per Gear share, consisting of, at such Gear shareholder's election: (i) 60.7 cents in cash per Gear share; (ii) 0.3035 common share in Newco per Gear share; or (iii) a combination thereof, subject to proration and consideration caps set out in the arrangement.

Under the arrangement, Gear will transfer the Newco assets to Newco with the remainder of its properties, consisting of its Lloydminster heavy and medium oil assets (other than the Tucker Lake property) remaining with Gear which will be acquired by the purchaser. Newco will be led by the existing management team and board of directors of Gear.

Kevin Johnson, president and chief executive officer of Gear, commented: "I am pleased to announce the sale of Gear and its heavy oil assets in Lloydminster combined with the spinout and formation of Newco. This transaction results in both meaningful cash consideration to our shareholders and the creation of Newco, an organic growth-focused oil company positioned to unlock shareholder value from a high-quality, opportunity-rich asset base. At Gear, we are committed to identifying and pursuing strategies that maximize value for our shareholders, and this transaction is a direct result of that focus. We are confident that this transaction is in the best interests of Gear and our shareholders."

Transaction details

Pursuant to the terms of the arrangement, the purchaser will acquire all of the issued and outstanding Gear shares for cash consideration of approximately $110-million, subject to adjustments as provided for in the agreement, and the Newco assets will be transferred to Newco. The aggregate amount of cash payable to Gear shareholders pursuant to the transaction is expected to be $80-million. The balance of the cash consideration, after repayment of amounts outstanding under Gear's credit facilities, payment of transaction costs and adjustments pursuant to the agreement, will be contributed to Newco for general working capital purposes.

The transaction is expected to close in late January or February, 2025, subject to the receipt of all shareholder, stock exchange, court and regulatory approvals, and the satisfaction of other customary closing conditions.

The transaction will require approval by at least 66.67 per cent of the holders of Gear shares represented in person or by proxy at a special meeting of Gear shareholders to be called to consider the arrangement which is expected to occur in late January or February, 2025.

Further details regarding the arrangement, including details regarding Newco, will be included in Gear's management information circular and proxy statement to be mailed to Gear shareholders and filed on SEDAR+ in connection with the Gear meeting. A copy of the agreement will also be available for viewing on SEDAR+. All Gear shareholders are urged to read the circular once available as it will contain additional important information concerning the transaction.

Strategic rationale and key highlights

The board of directors and management of Gear continuously review options available to the company to ensure that shareholder value is being maximized and view the transaction as advantageous for Gear shareholders.

Key highlights of the transaction include:

• Meaningful cash consideration: Gear shareholders will have the opportunity to receive immediate cash consideration of up to 60.7 cents per Gear share, subject to the proration and consideration caps set out in the agreement.
• Creation of Newco: Through ownership of Newco, Gear shareholders will have the opportunity to unlock significant value by accelerating organic growth and delineating the future potential of the Newco assets.

Board of directors recommendation and support agreements

The Gear board has unanimously: (i) determined that the arrangement is in the best interests of Gear and the Gear shareholders; (ii) determined that the arrangement is fair to the Gear shareholders; (iii) approved the agreement and the transactions contemplated thereby; and (iv) recommends that the Gear shareholders vote in favour of the transaction at the Gear meeting.

Each of the directors and officers of Gear holding in aggregate 8 per cent of the Gear shares have entered into support agreements with the purchaser pursuant to which, among other things, such directors and officers have agreed to vote all of the Gear shares they own or control in favour of the transaction. The support agreements will be available on Gear's SEDAR+ profile.

ATB Securities Inc. has provided a verbal opinion to the Gear board that, as of the date thereof and subject to the assumptions, limitations and qualifications to be set forth in its written opinion, the consideration to be received by Gear shareholders under the arrangement is fair, from a financial point of view, to the Gear shareholders.

Gear assets

Current production from the Gear assets is approximately 3,700 boe/d (barrels of oil equivalent per day) (consisting of 3,400 bbl/d of heavy and medium crude oil, and 2,000 mcf/d (thousand cubic feet per day) of conventional natural gas), with a liquids weighting of 91 per cent. The Gear assets, which will remain with Gear and will be acquired by the purchaser pursuant to the arrangement, represent a more mature portion of Gear's portfolio.

The Gear assets also include facilities and gathering systems related to the oil and gas properties included in the acquisition of Gear by the purchaser.

Newco strategy

Newco is anticipated to be led by Kevin Johnson as president and chief executive officer, and Gear's current management team. Following closing of the transaction, Newco will focus on the development of the Newco assets, which have significant, fully financed growth potential.

Newco will retain 31 per cent of Gear's production, equating to approximately 1,700 boe/d (consisting of 1,100 bbl/d of light crude oil, 200 bbl/d of NGLs (natural gas liquids) and 2,000 mcf/d of conventional natural gas) with a liquids weighting of 80 per cent and a deep inventory to grow production and cash flow. Key characteristics of the Newco assets are summarized below:

• Central Alberta: Low decline, light oil production base supported by multiple Belly River waterfloods and stacked light oil growth opportunities analogous to local and regional industry drilling activity.
• Southeast Saskatchewan: Established light oil development in the Bakken/Torquay with waterflood potential and continuing evaluation of additional up-hole targets. In place gas conservation reduces the emissions footprint with increasing revenue through gas and NGL sales.
• Tucker Lake: A total of 1,920 hectares of undeveloped, heavy oil rights in the Cold Lake oil sands region with up to six prospective zones mapped. Recent offset development of the Mannville Waseca sand highlights the upside potential of this asset.

Newco's 2025 capital program, which is expected to be finalized and communicated to shareholders in the circular or by press release, will be fully financed, supported by internally generated cash flow and a $35-million new credit facility, to be provided by ATB Financial upon the closing of the transaction.

Advisers

Peters & Co. Ltd. acted as lead financial adviser to Gear in connection with the transaction. ATB Securities also acted as financial adviser to Gear in connection with the transaction.

Burnet, Duckworth & Palmer LLP is acting as legal counsel to Gear on the transaction.

December, 2024, monthly dividend

Gear confirms that the December, 2024, monthly dividend of 0.5 cent per Gear share is to be paid on Dec. 31, 2024, to Gear shareholders of record on Dec. 16, 2024. The dividend is designated as an eligible dividend for Canadian income tax purposes. Assuming completion of the transaction, this will be Gear's final monthly dividend.

We seek Safe Harbor.