CALGARY, AB–(Marketwired – May 11, 2016) – Kelt Exploration Ltd. (TSX: KEL) (“Kelt” or the “Company”) has released its financial and operating results for the three months ended March 31, 2016. The Company’s financial results are summarized as follows:
Financial Highlights |
Three months ended March 31 | Change | ||||||||
(CA$ thousands, except as otherwise indicated) | 2016 |
2015 | % | |||||||
Revenue, before royalties and financial instruments | 40,398 |
39,383 | 3 | % | ||||||
Funds from operations(1) | 5,951 |
13,980 | -57 | % | ||||||
Basic ($/ common share)(1) | 0.04 |
0.11 | -64 | % | ||||||
Diluted ($/ common share)(1) | 0.04 |
0.11 | -64 | % | ||||||
Profit (loss) and comprehensive income (loss) | (25,918 |
) |
(16,524 | ) | -57 | % | ||||
Basic ($/ common share) | (0.15 |
) |
(0.13 | ) | -15 | % | ||||
Diluted ($/ common share) | (0.15 |
) |
(0.13 | ) | -15 | % | ||||
Total capital expenditures, net of dispositions | 23,405 |
77,700 | -70 | % | ||||||
Total assets | 1,268,268 |
966,613 | 31 | % | ||||||
Bank debt, net of working capital | 230,290 |
138,750 | 66 | % | ||||||
Shareholders’ equity | 822,229 |
635,708 | 29 | % | ||||||
Weighted average common shares outstanding (000s) | ||||||||||
Basic | 168,824 |
128,194 | 32 | % | ||||||
Diluted | 168,869 |
128,920 | 31 | % |
(1) Refer to advisory regarding non-GAAP measures |
Financial Statements
Kelt’s unaudited condensed consolidated interim financial statements and related notes for the quarter ended March 31, 2016 will be available to the public on SEDAR at www.sedar.com and will also be posted on the Company’s website at www.keltexploration.com on May 11, 2016.
Kelt’s operating results for the three months ended March 31, 2016 are summarized as follows:
Operational Highlights |
Three months ended March 31 | Change | ||||||||
(CA$ thousands, except as otherwise indicated) | 2016 |
2015 | % | |||||||
Average daily production | ||||||||||
Oil (bbls/d) | 5,873 |
4,957 | 18 | % | ||||||
NGLs (bbls/d) | 2,740 |
1,379 | 99 | % | ||||||
Gas (mcf/d) | 88,093 |
58,016 | 52 | % | ||||||
Combined (BOE/d) | 23,295 |
16,005 | 46 | % | ||||||
Production per million common shares (BOE/d)(1) | 138 |
125 | 10 | % | ||||||
Average realized prices, before financial instruments | ||||||||||
Oil ($/bbl) | 34.01 |
45.45 | -25 | % | ||||||
NGLs ($/bbl) | 14.24 |
25.73 | -45 | % | ||||||
Gas ($/mcf) | 2.33 |
3.05 | -24 | % | ||||||
Operating netbacks(1) ($/BOE) | ||||||||||
Oil and gas revenue | 19.06 |
27.34 | -30 | % | ||||||
Realized gain on financial instruments | – |
1.27 | – | |||||||
Average realized price, after financial instruments | 19.06 |
28.61 | -33 | % | ||||||
Royalties | (1.35 |
) |
(3.29 | ) | -59 | % | ||||
Production expense | (10.24 |
) |
(11.93 | ) | -14 | % | ||||
Transportation expense | (2.71 |
) |
(2.61 | ) | 4 | % | ||||
Operating netback(1) | 4.76 |
10.78 | -56 | % | ||||||
Drilling Activity | ||||||||||
Total wells | 3 |
7 | -57 | % | ||||||
Working interest wells | 2.5 |
5.5 | -55 | % | ||||||
Success rate on working interest wells | 100 |
% |
100 | % | 0 | % | ||||
Undeveloped land | ||||||||||
Gross acres | 642,122 |
511,550 | 26 | % | ||||||
Net acres | 518,725 |
339,783 | 53 | % |
(1) Refer to advisory regarding non-GAAP measures |
Message to Shareholders
Kelt achieved record production levels in the first quarter of 2016. Average production for the three months ended March 31, 2016 was 23,295 BOE per day, up 46% from average production of 16,005 BOE per day during the first quarter of 2015. Daily average production in the first quarter of 2016 was 16% higher than average production of 20,086 BOE per day in the fourth quarter of 2015.
Kelt’s realized average oil price was $34.01 per barrel, down 25% from $45.45 per barrel in the first quarter of 2015. The realized average NGLs price during the first quarter of 2016 was $14.24 per barrel, down 45% from $25.73 per barrel in the corresponding period of 2015. The realized average gas price was $2.33 per MCF, down 24% from the realized average gas price in the first quarter of 2015.
For the three months ended March 31, 2016, revenue was $40.4 million and funds from operations was $6.0 million ($0.04 per share, diluted). At March 31, 2016, bank debt, net of working capital was $230.3 million. Operating expenses of $10.24 per BOE continue to improve and were 14% lower compared to $11.93 per BOE in the first quarter of 2015. During 2016, Kelt will continue to work on infrastructure projects that are expected to further reduce operating costs.
During the three months ended March 31, 2016, Kelt drilled 3 gross (2.5 net) wells. Two wells (100% working interest) were drilled at Inga, British Columbia (“BC”), and one well (50% working interest) was drilled at Progress, Alberta. The Inga well, targeting a new Triassic Doig anomaly, and the Progress well, drilled as a follow-up to the original Progress Montney oil discovery well, are both expected to be completed in the second quarter.
Total capital expenditures, net of dispositions, were $23.4 million during the first quarter of 2016. Kelt spent $0.7 million on land, $13.3 million drilling and completing wells, and $10.5 million on infrastructure, primarily to equip and tie-in wells drilled and completed in the previous year and to optimize existing key infrastructure. On March 31, 2016, the Company completed a minor property disposition of certain non-core assets located at Boundary Lake, Alberta, for cash proceeds of $1.1 million, before closing adjustments.
Subsequent to March 31, 2016, Kelt has taken measures to improve financial liquidity. On April 7, 2016, the Company closed a private placement of 4.7 million common shares on a “CDE flow-through” basis at a price of $4.70 per share, resulting in net proceeds of $22.0 million. On May 3, 2016, Kelt closed the issuance of $90.0 million principal amount of 5.0% convertible subordinated unsecured debentures, resulting in net proceeds of approximately $86.5 million.
On April 28, 2016, Kelt closed an acquisition of oil and gas assets in its core area at Progress, Alberta, for cash consideration of $18.8 million, before closing adjustments. The acquisition included approximately 600 BOE per day of current production (60% light oil), 4,135 net acres of land, and infrastructure that is an integral part of Kelt’s existing light oil play at Progress.
During the second quarter of 2016, Kelt has budgeted downtime of approximately 7,200 BOE per day for a planned turnaround at the Progress Gas Plant that is expected to commence on or around May 28, 2016 and last just over two weeks. The Company has budgeted additional production downtime for other minor facility turnaround operations during the quarter. Recent forest fires in the vicinity of Fort St. John, BC, caused the Company production disruptions due to an evacuation order that required the West Stoddart Gas Plant to be temporarily shut-in. However, during this period, Kelt was able to mitigate certain production losses by diverting approximately 50% of its BC gas production to the McMahon Gas Plant. The West Stoddart Gas Plant is currently back on production. As a result of downtime, Kelt is forecasting second quarter 2016 production to average approximately 20,500 BOE per day.
Kelt has revised its 2016 outlook and guidance to reflect the aforementioned financing activities, the acquisition of assets at Progress and changes to forecasted commodity prices as follows:
- Average production of 21,500 BOE per day, up from previous guidance of 21,000 BOE per day;
- 2016 production mix is expected to be weighted 37% to oil & NGLs and 63% to gas;
- 2016 operating income is expected to be derived 86% from oil & NGLs and 14% from gas;
- Average WTI price of US$43.25 per barrel, up 11% from previous forecast;
- Average AECO gas price of $1.90 per GJ, down 24% from previous forecast;
- Total capital expenditures of $83.0 million, up 28% from previous guidance (mainly to reflect the acquisition of assets at Progress);
- Funds from operations of $50.0 million ($0.29 per share, diluted), down 9% from previous guidance; and
- Bank debt, net of working capital of $137.0 million (2.7x trailing funds from operations), down 38% from previous guidance.
On April 21, 2016, the Government of Alberta released further details of the Alberta Modernized Royalty Framework (“MRF”). The full extent of the impact of the MRF on the Company’s future financial condition and performance is still being evaluated, however, high productivity deep oil plays are expected to benefit the most. Kelt is exposed to such plays in its core Montney oil development areas at Pouce Coupe, Progress, LaGlace and Karr. The Company’s gas prospects appear to be value neutral under the MRF using current strip pricing.
In light of the current energy business environment with much lower oil and gas prices year-to-date in 2016, compared to 2015, Kelt is optimistic that it can take advantage of the downturn by continuing with its strategy with emphasis on low-cost land accumulation in its core operating areas. Management looks forward to updating shareholders with 2016 second quarter results on or about August 10, 2016.
Outlook and Guidance
The oil and gas industry in North America continues to operate in a challenging commodity price environment. Due to market instability and volatile commodity prices that have trended lower over the past twelve months, many oil and gas companies have reduced their capital spending plans. Ultimately, lower capital investment in oil and gas drilling can be expected to balance the supply and demand ratio. Kelt continues to remain optimistic about the long-term outlook for oil and gas commodity prices.
Kelt believes that the current business environment creates opportunities to add value at a reasonable cost. The cost to acquire land at Crown sales in the Company’s core operating areas has dropped significantly and service related costs to drill and complete wells have also declined substantially. In order to capitalize on opportunities in the current energy business environment, Kelt expects to remain active at Crown land sales. The Company is opportunity driven and is confident that it can continue to build on its current inventory of development projects by adding new exploration prospects.
The table below outlines the Company’s forecasted financial and operating guidance for 2016, updated from guidance previously disclosed in the Company’s press release dated March 8, 2016.
(CA$ millions, except as otherwise indicated) | Revised Guidance |
Previous Guidance | Change | |||||||
Average Production | ||||||||||
Oil and NGLs (bbls/d) | 7,950 |
7,360 | 8 | % | ||||||
Gas (mmcf/d) | 81,300 |
81,840 | -1 | % | ||||||
Combined (BOE/d) | 21,500 |
21,000 | 2 | % | ||||||
Production per million common shares (BOE/d) | 124 |
124 | 0 | % | ||||||
Forecasted Average Commodity Prices | ||||||||||
WTI oil price (US$/bbl) | 43.25 |
39.00 | 11 | % | ||||||
Canadian Light Sweet ($/bbl) | 51.05 |
48.40 | 5 | % | ||||||
NYMEX natural gas price (US$/MMBTU) | 2.35 |
2.50 | -6 | % | ||||||
AECO natural gas price ($/GJ) | 1.90 |
2.50 | -24 | % | ||||||
Forecasted Average Exchange Rate (US$/CA$) | 0.772 |
0.730 | 6 | % | ||||||
Capital Expenditures | ||||||||||
Drilling & completions | 41.0 |
37.0 | 11 | % | ||||||
Facilities, pipeline & well equipment | 15.0 |
17.0 | -12 | % | ||||||
Land and seismic | 10.0 |
11.0 | -9 | % | ||||||
Property acquisitions | 18.2 |
– | – | |||||||
Property dispositions | (1.2 |
) |
– | – | ||||||
Total Capital Expenditures | 83.0 |
65.0 | 28 | % | ||||||
Funds from operations | 50.0 |
55.0 | -9 | % | ||||||
Per common share, diluted | 0.29 |
0.32 | -9 | % | ||||||
Bank debt, net of working capital, at year-end(1) | 137.0 |
222.0 | -38 | % | ||||||
Weighted average common shares outstanding (millions) | 173 |
169 | 2 | % | ||||||
Common shares issued and outstanding (millions) | 174 |
169 | 3 | % |
(1) In addition to bank debt, the Company has $90.0 million principal amount of convertible debentures outstanding with a coupon of 5% maturing May 31, 2021. |
Forecast average production of 21,500 BOE per day in 2016 represents a 16% increase from average production of 18,577 BOE per day in 2015 and is estimated to be weighted 37% to oil and NGLs and 63% to gas. However, based on the Company’s forecasted commodity prices for 2016, 86% of forecasted operating income in 2016 is expected to be generated from oil and NGLs versus 14% from gas (previously, 81% of forecasted operating income in 2016 was expected to be generated from oil and NGLs versus 19% from gas).
During 2016, the Company is forecasting oil and gas prices to average WTI US$43.25 per barrel and AECO $1.90 per GJ, respectively. Sensitivities to changes in these prices are as follows: a 10% increase in the average WTI oil price forecast would increase funds from operations by $6.2 million or 12%; a 10% decrease in the average WTI oil price forecast would decrease funds from operations by $6.7 million or 13%; a 10% increase in the average AECO gas price forecast would increase funds from operations by $7.1 million or 14%; and a 10% decrease in the average AECO gas price forecast would decrease funds from operations by $7.4 million or 15%. The Company reviews its commodity price forecasts periodically and retains the flexibility to adjust its capital expenditure plans accordingly.
Royalties are expected to average 9.3% of oil and gas sales in 2016 (previously, 9.4%). During 2016, production and transportation expense (combined) is estimated to be $12.74 per BOE (previously, $13.06 per BOE), G&A expense is estimated to be $0.89 per BOE (unchanged from previous guidance) and interest expense is forecasted at $1.31 per BOE (previously, $1.07 per BOE).
After giving effect to the aforementioned production estimates, commodity price assumptions and estimated expenses: funds from operations for 2016 is forecasted to be approximately $50.0 million or $0.29 per common share, diluted. Kelt estimates that the Company’s bank debt, net of working capital, will be approximately $137.0 million as at December 31, 2016.
Changes in forecasted commodity prices and variances in production estimates can have a significant impact on estimated funds from operations and profit. Please refer to the cautionary statement on forward-looking statements and information set out below.
The information set out herein is “financial outlook” within the meaning of applicable securities laws. The purpose of this financial outlook is to provide readers with disclosure regarding Kelt’s reasonable expectations as to the anticipated results of its proposed business activities for 2016. Readers are cautioned that this financial outlook may not be appropriate for other purposes.