CALGARY, AB–(Marketwired – January 04, 2017) – Kelt Exploration Ltd. (“Kelt” or the “Company”) (TSX: KEL) has entered into a definitive purchase and sale agreement to dispose of oil and gas assets in the Karr area of Alberta. The effective adjustment date of the disposition is January 1, 2017 and closing is expected to occur on or about January 18, 2017. The gross proceeds payable to Kelt, prior to adjustments at closing, will be $100.0 million. The purchaser has provided Kelt with a deposit in the amount of $10.0 million that will be held in escrow until closing.
DIVESTMENT PROPERTY ATTRIBUTES
- At December 31, 2015, as evaluated by Sproule Associates Limited, proved reserves were 5.1 million BOE ($47.9 million of FDC required to develop proved reserves) and proved plus probable reserves were 12.7 million BOE ($113.3 million of FDC required to develop proved plus probable reserves) of which 34% were oil, 17% were NGLs and 49% were gas;
- Estimated average production for December 2016 based upon field reports was 1,303 BOE per day (34% oil, 16% NGLs and 50% gas);
- Land holdings include 16,480 gross acres (25.7 sections) and 16,400 net acres (25.6 sections) of which 9,920 gross acres (15.5 sections) and 9,840 net acres (15.4 sections) included Montney rights. Approximately 79% of net land holdings were classified as undeveloped by Kelt; and
- Tangible equipment includes a 100% interest in the Kelt Karr 10-21-65-3W6 oil battery and a 2.26% interest in the CNRL Karr 10-10-65-2W6 gas plant.
Kelt commenced development pad drilling on its Montney oil play at Karr in December 2016 and has now rig released the first well located at 102/13-28-065-03W6. The purchaser of the Karr assets has agreed to take over the completion operations of this well upon closing.
Kelt retains certain non-operated interests at Karr with current production of approximately 124 BOE per day and a 1.0% interest in the CNRL Karr 10-10-65-2W6 gas plant. The Company will endeavour to divest of these minor interests in the future.
At Inga in British Columbia, Kelt completed its second middle Montney well and commenced production from that well in December 2016. The well, which is located at 100/14-24-087-23W6, has been on production for 22 days. The IP22 rate (gross sales) is 1,461 BOE per day of which 71% is oil and liquids. The initial production results from this well are very encouraging as the Company continues to delineate the middle Montney at Inga.
In the upper Montney, Kelt has just completed the Fireweed well located at C-31-I/94-A-12 in the northeast part of its large contiguous BC land block. The Company plans to drill one more upper Montney well in the southeast part of its BC land block prior to spring break-up in 2017, after which, Kelt further plans to commence full development in the upper Montney at Inga by switching to pad drilling. The Company expects pad drilling will result in significant savings in per well capital expenditures, as well as lower per unit operating expenses upon the wells being brought on production.
At Pouce Coupe in Alberta, Kelt has now completed the drilling of a five well pad of which two wells were drilled in the lower-middle Montney (“D1”) and three wells were drilled in the upper-middle Montney (“D2”). Completion operations on these five wells are expected to commence by mid-January 2017.
In the current energy business environment, Kelt has continued to take advantage of lower industry-wide spending levels with its strategy of low-cost land accumulation in its core operating areas and significantly lower drilling and completion costs as the Company transitions to full scale development.
2017 OUTLOOK AND GUIDANCE
The Company’s Board of Directors has approved an increase in the Company’s 2017 capital expenditure budget to $144.6 million. A portion of the increase in capital spending will be used for facilities, whereby Kelt expects to increase both compression and pipeline gathering capacity in its core producing areas to accommodate production additions. After giving effect to the Karr property disposition, net capital spending in 2017 is expected to be approximately $42.0 million, down 69% from the Company’s previous capital expenditure budget of $134.0 million.
Kelt expects to drill 20 gross (17.8 net) wells in 2017, however, the Company expects to complete 26 gross (23.8 net) wells in 2017, as there are 6 gross (6.0 net) drilled but un-completed (“DUC”) wells from 2016.
The table below outlines Kelt’s forecasted financial and operating guidance for 2017, after giving effect to the Karr property disposition, as compared to the Company’s previous guidance for 2017:
|(CA$ millions, except as otherwise indicated)||2017
|NGLs (bbls/d)||2,500||2,800||– 11%|
|Production per million common shares (BOE/d)||131||131||0%|
|Forecasted Average Commodity Prices|
|WTI oil price (US$/bbl)||52.00||52.00||0%|
|Canadian Light Sweet ($/bbl)||65.24||65.24||0%|
|NYMEX natural gas price (US$/MMBTU)||3.05||3.05||0%|
|AECO natural gas price ($/GJ)||2.95||2.95||0%|
|Average Exchange Rate (US$/CA$)||0.749||0.749||0%|
|Drilling & completions||104.6||100.0||5%|
|Facilities, pipeline & well equipment||32.0||26.0||23%|
|Land, seismic & property acquisitions (net of dispositions)||(94.6)||8.0||–|
|Total Capital Expenditures||42.0||134.0||– 69%|
|Funds from operations||128.0||124.0||3%|
|Per common share, diluted||0.73||0.70||4%|
|Bank debt, net of working capital, at year-end (1)||52.0||148.0||– 65%|
|Net bank debt to trailing annual funds from operations ratio||0.4 x||1.2 x|
|Weighted average common shares outstanding (millions)||175.7||175.7||0%|
|Common shares issued and outstanding (millions)||175.7||175.7||0%|
|(1) In addition to bank debt, the Company has $90.0 million principal amount of convertible debentures outstanding with a coupon of 5% per annum, maturing May 31, 2021.|
Despite a significant rally in both oil and gas prices since Kelt prepared its initial 2017 estimates, the Company has not changed its forecasted oil and gas prices for 2017. WTI crude oil prices are forecasted to average US$52.00 per barrel in 2017, up 20% from an estimated average price of US$43.25 per barrel in 2016. AECO natural gas prices are forecasted to average $2.95 per GJ in 2017, up 45% from an estimated average price of $2.04 per GJ in 2016.
Forecast average production of 23,000 BOE per day in 2017 represents a 10% increase from forecast average production of 21,000 BOE per day in 2016 and is estimated to be weighted 40% to oil and NGLs and 60% to gas. However, based on the Company’s forecasted commodity prices for 2017, 69% of forecasted operating income in 2017 is expected to be generated from oil and NGLs versus 31% from gas. Kelt exited 2016 with approximately 20,000 BOE per day of production. Pad drilling production additions in 2017 from Inga/Fireweed in BC are anticipated to occur in the later part of 2017 and therefore are not fully reflected in the average production forecast for 2017. However, the Company expects 2017 exit production to be approximately 25% higher than 2016 exit production.
After giving effect to the aforementioned production estimates, commodity price assumptions, estimated expenses and the Karr property disposition: Funds from operations for 2017 is forecasted to be approximately $128.0 million or $0.73 per common share, diluted; Kelt estimates that the Company’s bank debt, net of working capital, will be approximately $52.0 million as at December 31, 2017; Royalties are expected to average 11.2% of oil and gas sales in 2017; During 2017, combined production and transportation expense is estimated to be $11.59 per BOE ($8.88 per BOE and $2.71 per BOE respectively); G&A expense is estimated to be $0.91 per BOE; and interest expense is forecasted at $0.83 per BOE.
Kelt expects to keep three rigs active in its core Montney operating areas of BC and Alberta during the first quarter of 2017. At spring break-up, the Company will re-evaluate its spending plans for the remainder of 2017. With continued improvement in oil and gas prices, Kelt may consider increasing its capital program for the balance of 2017 at that time.
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 advisories regarding forward-looking statements and to the cautionary statement below.