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Gear Energy Ltd T.GXE

Alternate Symbol(s):  GENGF

Gear Energy Ltd. is an oil-focused exploration and production company. The Company carries on the business of acquiring, developing and holding interests in petroleum and natural gas properties and assets. Its operations are located in three core areas: Lloydminster Heavy Oil, Central Alberta Light/Medium Oil and Southeast Saskatchewan. The Company is also engaged in focused on improving oil recoveries through the application of water flood technology. The key properties in the Central Alberta Light asset include Wilson Creek, Ferrier, Killam, Drayton Valley, and Chigwell.


TSX:GXE - Post by User

Post by alhiemstraon Dec 04, 2024 4:41pm
270 Views
Post# 36345989

Still Awaiting The New Strategy - Seeking Alpha

Still Awaiting The New Strategy - Seeking Alpha

Gear Energy: Still Awaiting The New Strategy

Summary
  • Gear Energy has new management and a new Chairman.
  • The transformative announcement offers a new start with a far more energetic management.
  • Don Gray's stock purchase shows confidence in the new board and new management.
  • The company has a presence in heavy oil production and light oil production. Either or both could grow in the future.
  • The new management will likely grow newco, whereas before Peyto got all the attention.
  • I am Long Player. I focus on Oil and Gas stocks. I’m a retired CPA, and have a MBA and MA. I lead the investing group Oil & Gas Value Research.

 

Oil pump, oil industry equipment

 

bjdlzx

 

 
 

Gear Energy (OTCQX:GENGF) has new management, and a new Chairman of the Board, as noted in the last article. Management has been executing the interim strategy which was to finish what was begun at the end

 

 

 

I analyze oil and gas companies like Gear Energy and related companies in my service, Oil & Gas Value Research, where I look for undervalued names in the oil and gas space. I break down everything you need to know about these companies -- the balance sheet, competitive position and development prospects. This article is an example of what I do. But for Oil & Gas Value Research members, they get it first and they get analysis on some companies that is not published on the free site. Interested? Sign up here for a free two-week trial.

 
 

This article was written by

Long Player profile picture
Long Player
22.87K Followers
Long Player believes oil and gas is a boom-bust, cyclical industry. It takes patience, and it certainly helps to have experience. He has been focusing on this industry for years. He is a retired CPA, and holds an MBA and MA. He leads the investing group Oil & Gas Value Research. He looks for under-followed oil companies and out-of-favor midstream companies that offer compelling opportunities. The group includes an active chat room in which Oil & Gas investors discuss recent information and share ideas. Learn more.

Analyst’s Disclosure: I/we have a beneficial long position in the shares of PEYUF CDDRF either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Disclaimer: I am not an investment advisor, and this article is not meant to be a recommendation of the purchase or sale of stock. Investors are advised to review all company documents and press releases to see if the company fits their own investment qualifications.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

 
 

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Comments (55)

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D
Dream On '59
Today, 3:24 PM
Comments (793)
|
Everytime I read the statement I see something different - it is poorly written...
"TOTAL CONSIDERATION"

 

"will receive $0.607 in total consideration per Gear Share, consisting of, at such Gear Shareholder's election: (i) $0.607 in cash per Gear Share; (ii) 0.3035 common shares in Newco ("Newco Shares") per Gear Share; or (iii) a combination thereof, "

 

I would like to see an 'or' here but I guess it is not really necessary.

 

It says gear max cash is 80 million with 30 mil less debt retained by Newco. What if no one wants cash? WIll Newco get the total 110 million?

 

Timeline is also unrealistic.

 

"special meeting of Gear Shareholders to be called to consider the Arrangement which is expected to occur in late January or February 2025 (the "Gear Meeting")."

 

BUT they expect the transaction to be completed...

 

"The Transaction is expected to close in late January or February 2025"

 

No time is mentioned for the "Gear Shareholder's election"

 

This whole thing is not well thought out and thrown together.

 

The only good part...
"Assuming completion of the Transaction, this will be Gear's final monthly dividend"
So if we vote NO then maybe the dividend will be restored?
Comments please.
Long Player profile picture
@Dream On '59 Be careful about legal wording. It has only one definition in court and it is best if you know that definition. You don't get to choose all kinds of alternatives.
TopDoggie profile picture
TopDoggie
Today, 7:13 AM
Hopefully investors relations reply to one of the emails sent their way.
C
cjb1997
Yesterday, 11:17 AM
Comments (20)
|
It’s definitely a NO vote from me. This deal makes very little sense
 
7357851
02 Dec. 2024, 10:13 PM
It was just a few weeks ago that the author told us that $GXE was a "strong buy" based on its growth trajectory and its excellent balance sheet. He was partially correct insofar as the Co was generating sufficient FCF too easily cover its high dividend, eliminate the modest level of remaining debt, and if it wanted to, increase production and/or buy back shares. The stock was $0.45 USD when the author wrote his last article, but the financials supported his thesis.

 

Now, he writes an article telling us that "new Management", and the brilliant Don Grey, will take a company 1/3 the size of GXE, and make it great again. Bull.

 

This deal will hurt current shareholders, who will receive EITHER $0.607 CAD/sh (around $0.43USD) or 0.3 shares in Newco. Although some combination of cash and shares are possible, the formula is unknown and it is subject to caps. That is because the total consideration being paid for 2/3 of the production is a mere $110M CAD, which is far too low of price (the current market cap of GXE today is $142M CAD).

 

What is most disgusting about this transaction is that GXE has NCIB approval to buy back shares, and has purchased NOTHING. The buy back could be funded by current FCF particularly since the debt is virtually non-existent. Further, with every share purchased the company saves the 10% dividend, making the payback that much stronger.

 

Instead "New Management" decided that it wanted to be a deal maker and give up the value so that it could run an even smaller company (with even smaller economies of scale), but I suspect, still demand the same high salaries and benefits.

 

Fortunately, this deal requires 66.7% approval by all shareholders. Brilliant Don Grey, and his buddy, Wilson Wang, as well as the other "insiders" only control 8% of the stock. Institutions have no more than 4%. Therefore, retail investors have the power to tell "New Management" that this ill conceived transaction will not be approved. VOTE NO.
Long Player profile picture
Long Player
02 Dec. 2024, 10:21 PM
@7357851 Again, what is the worth of the new co? The newco has a lot of potential for light oil and you are giving up a fair amount of heavy oil production. So are the two worth the same or different?
Also why cannot management grow the new company? That is what they were hired to do.
You have a choice here. Most likely you will get some combination of cash and shares with insiders taking all their value in shares. If that is correct, then that should tell you something.
River18 profile picture
River18
02 Dec. 2024, 10:42 PM
@7357851
Very well said, and I agree 100% with everything you so well pointed out.
 
7357851
02 Dec. 2024, 10:49 PM
@Long Player Really? This deal is absolutely terrible for existing shareholders. Arguing that somehow the economies-of-scale favor a 1700 bbl/day Newco vs 5700 bbl/day GXE is nonsense. And as for the value of Newco, it isn't worth much, particularly because "new management" does not have the votes to push this deal across the end zone unless they sell a very tall tale. In short, your credibility is being stretched if you argue that GXE from a few weeks ago was a solid investment, and Newco today is just as great.

 

What is really tragic, is that with a little thought, this Company could have actually done very well once the market recovered from its current malaise. Remember, the balance sheet is strong, and FCF is fine. This is not 2014-2016, when most E&P had horrible financials. All management needed to do was invest $1-2M per quarter in buy backs, put a floor under the stock price, maintain production with low single -digit growth rates, manage costs, and focus on FCF. Admittedly, this is not sexy, but over time, she would have been lovely.
River18 profile picture
River18
02 Dec. 2024, 9:38 PM
One of the best moves I ever made in my investment career was selling ALL my GENGF shares back on 9/25/24 at $0.4417.

 

Don Gray should be ashamed to have had GXE and PRQ as stand alone companies, so that he could give out CEO salaries, instead of having these two being part of Peyto. As a matter of fact PTRUF traded a whopping 1000 shares back on 11/29/24. That makes Petrus even more of a dead as a doornail outfit than Gear.

 

Stay away from microcap companies with just 1700 boe/d of production. They are not going anywhere, except the shareholders pay the salaries of the c-suite and corporate office, when it could be run using 5 or 6 desks over at Peyto.
Long Player profile picture
Long Player
02 Dec. 2024, 10:09 PM
@River18 If they grow the company this time instead of ignoring it as was done for years, then that production will be considerably larger in a few years.
 
7357851
02 Dec. 2024, 10:54 PM
@Long Player So your argument is to take a 5700 bbl/day company, remove 2/3 of it for sub-standard consideration, and then build production from that lower base to perhaps 5000 bbl/day in what, 5 years? Please!
River18 profile picture
River18
02 Dec. 2024, 10:57 PM
@Long Player
Prior Gear management was trying to do the best they could do with the hand they got dealt. For many years they had trouble selling the heavy oil due to the huge discounts. Then they bought the light oil from Razor Energy, that eventually went BK with what they ended up keeping.
Gear and Petrus should have been part of Peyto all along, so that they could have deep pockets to carry them thru the tough times.
G
ggerry
02 Dec. 2024, 9:14 PM
Didn’t have to wait long! Interesting transaction.
Long Player profile picture
Long Player
02 Dec. 2024, 10:08 PM
@ggerry It is, now a lot will depend on what management does with the brand new company
River18 profile picture
River18
02 Dec. 2024, 10:59 PM
@Long Player
Maybe the newco can just sell what they have left to White Tundra, so they can go private for a while.
ToddKaz profile picture
ToddKaz
02 Dec. 2024, 11:01 PM
@ggerry Shareholders are getting ripped off. I am selling.

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