CALGARY, AB–(Marketwired – February 10, 2017) – Kelt Exploration Ltd. (“Kelt” or the “Company”) (TSX: KEL) is pleased to report on its oil & gas reserves and production for the year ended December 31, 2016.
Kelt’s audit of its 2016 annual consolidated financial statements has not been completed and accordingly all financial amounts relating to 2016 referred to in this news release are unaudited and represent management’s estimates. Readers are advised that these financial estimates are subject to audit and may be subject to change as a result.
Summary of Results
December 31, 2016 |
December 31, 2015 |
Percent Change | ||||
Proved plus Probable Reserves | ||||||
Oil and NGLs [Mbbls] | 71,893 | 54,377 | + 32% | |||
Gas [MMcf] | 733,037 | 576,779 | + 27% | |||
Combined [MBOE] | 194,066 | 150,507 | + 29% | |||
Finding, Development & Acquisition (“FD&A”) costs | ||||||
Proved, including future development capital (“FDC”) [$/BOE] | $ 4.86 | $ 21.90 | – 78% | |||
Proved plus probable, including FDC [$/BOE] | $ 3.47 | $ 11.36 | – 69% | |||
Estimated recycle ratio, proved plus probable reserves | 2.8 x | 0.7 x | ||||
Land Holdings [net acres] | ||||||
Developed | 208,984 | 208,895 | 0% | |||
Undeveloped | 647,770 | 521,413 | + 24% | |||
Total | 856,754 | 730,308 | + 17% | |||
Production | ||||||
Oil and NGLs [bbls/d] | 7,779 | 6,698 | + 16% | |||
Gas [Mcf/d] | 79,009 | 71,272 | + 11% | |||
Combined [BOE/d] | 20,947 | 18,577 | + 13% | |||
Net asset value [$M] | 1,825,395 | 1,130,117 | + 62% | |||
Net asset value per share – diluted | $ 9.20 | $ 6.65 | + 38% |
Production
Kelt achieved a record high calendar year average production in 2016. Average production for 2016 was 20,947 BOE per day, up 13% from average production of 18,577 BOE per day in 2015. Production per million shares was 121 BOE per day, up from 120 BOE per day in 2015. Production for 2016 was weighted 37% oil and NGLs and 63% gas. During the fourth quarter of 2016, gas plant outages and intermittent pipeline and facility downtime negatively impacted average production by approximately 1,900 BOE per day.
Average production for December 2016 (“2016 Exit Rate”) was 20,370 BOE per day, weighted 37% oil and NGLs and 63% gas. During the fourth quarter of 2016, Kelt drilled six wells that were uncompleted (“DUCs”) as at December 31, 2016. These DUCs are expected to be put on production in the first quarter of 2017 and therefore, production from these wells, is not included in the 2016 Exit Rate. After giving effect to the disposition of its Karr assets in January 2017, of which approximately 1,300 BOE per day of production was included in the 2016 Exit Rate, the Company is forecasting a 2017 Exit Rate of 25,000 BOE per day, up 31% from the 2016 Exit Rate, excluding disposed Karr production.
Reserves
Kelt retained Sproule Associates Limited (“Sproule”), an independent qualified reserve evaluator to prepare a report on its oil and gas reserves. The Company has a Reserves Committee which oversees the selection, qualifications and reporting procedures of the independent qualified reserves evaluator. Reserves as at December 31, 2016 and at December 31, 2015 were determined using the guidelines and definitions set out under National Instrument 51-101 (“NI 51-101”).
At December 31, 2016, Kelt’s proved plus probable reserves were 194.1 million BOE, up 29% from 150.5 million BOE at December 31, 2015. The Company’s net present value of proved plus probable reserves at December 31, 2016, discounted at 10% before tax, was $1.7 billion, an increase of 46% from $1.2 billion at December 31, 2015. This increase was achieved despite lower forecasted oil and gas prices for the majority of the future years in the December 31, 2016 evaluation (see “Commodity Prices” table below). Sproule’s forecasted commodity prices for 2017 used to determine the present value of the Company’s reserves at December 31, 2016, are USD 55.00/bbl for WTI oil and $3.26/GJ for AECO gas.
The following table outlines a summary of the Company’s reserves at December 31, 2016:
Summary of Reserves | ||||||||||
Oil & NGLs [Mbbls] |
Gas [MMcf] | Combined [MBOE] |
NPV10% BT ($M) |
NPV10% BT ($/BOE) | ||||||
Proved Developed Producing | 11,915 | 135,318 | 34,468 | $ 422,806 | $ 12.27 | |||||
Proved Developed Non-producing | 578 | 4,890 | 1,393 | $ 13,640 | $ 9.79 | |||||
Proved Undeveloped | 25,435 | 281,384 | 72,332 | $ 503,771 | $ 6.96 | |||||
Total Proved | 37,928 | 421,592 | 108,193 | $ 940,216 | $ 8.69 | |||||
Probable Additional | 33,965 | 311,445 | 85,873 | $ 790,474 | $ 9.21 | |||||
Total Proved plus Probable | 71,893 | 733,037 | 194,066 | $ 1,730,690 | $ 8.92 |
Proved developed producing reserves at December 31, 2016 were 34.5 million BOE, an increase of 2% from 33.8 million BOE at December 31, 2015. Total proved reserves at December 31, 2016 were 108.2 million BOE, up 29% from 83.8 million BOE at December 31, 2015. Proved plus probable reserves at December 31, 2016 were 194.1 million BOE, an increase of 29% from 150.5 million BOE at December 31, 2015.
The following table shows the change in reserves year-over-year by reserve category:
Change in Reserves – year over year | |||||
[MBOE] | December 31, 2016 | December 31, 2015 | Percent Change | ||
Proved Developed Producing | 34,467 | 33,836 | + 2% | ||
Proved Developed Non-producing | 1,393 | 2,152 | – 35% | ||
Proved Undeveloped | 72,333 | 47,847 | + 51% | ||
Total Proved | 108,193 | 83,835 | + 29% | ||
Probable Additional | 85,873 | 66,672 | + 29% | ||
Total Proved plus Probable | 194,066 | 150,507 | + 29% |
Future development capital (“FDC”) expenditures of $589 million are included in the evaluation for total proved reserves and are expected to be spent as follows: $113 million in 2017, $182 million in 2018, $135 million in 2019, $136 million in 2020, and $23 million thereafter. FDC expenditures of $948 million are included in the evaluation of proved plus probable reserves and are expected to be spent as follows: $146 million in 2017, $224 million in 2018, $225 million in 2019, $231 million in 2020 and $122 million thereafter.
The following table outlines FDC expenditures and future wells to be drilled by province, included in the December 31, 2016 proved plus probable reserve evaluation:
Future Development Capital Expenditures – Proved plus Probable Reserves | |||||||||||
December 31, 2016 | December 31, 2015 | ||||||||||
FDC ($M) | Net Wells | FDC/well ($M) | FDC ($M) | Net Wells | FDC/well ($M) | ||||||
Alberta Montney HZ wells | 260,716 | 49.3 | 5,288 | 276,625 | 41.8 | 6,618 | |||||
B.C. Montney HZ wells | 312,482 | 51.0 | 6,127 | 137,057 | 21.0 | 6,526 | |||||
Total Montney HZ Wells | 573,198 | 100.3 | 413,682 | 62.8 | |||||||
Other formations – HZ wells | 347,556 | 76.7 | 4,531 | 444,654 | 64.1 | 6,937 | |||||
Other expenditures | 26,863 | – | 9,847 | – | |||||||
Total FDC Expenditures | 947,617 | 177.0 | 868,183 | 126.9 |
The WTI oil price during the three years 2014 to 2016 averaged USD 61.71 per barrel. After a precipitous decline since 2014, Sproule is forecasting an average WTI oil price of USD 55.00 per barrel in 2017. Natural gas prices during the 2014 to 2016 period at AECO-C averaged $2.97 per GJ. Sproule is forecasting an average AECO-C gas price of $3.26 per GJ in 2017.
The following table outlines forecasted future prices that Sproule has used in their evaluation of the Company’s reserves:
Commodity Prices | ||||||||||||||||||
December 31, 2016 Evaluation | December 31, 2015 Evaluation | |||||||||||||||||
WTI Cushing Crude Oil [USD/bbl] | USD/CAD Exchange [USD] |
AECO-C Natural Gas [$/GJ] |
WTI Cushing Crude Oil [USD/ bbl] | USD/CAD Exchange [USD] | AECO-C Natural Gas [$/GJ] | |||||||||||||
2014 (historical) | 93.00 | 0.905 | 4.27 | 93.00 | 0.905 | 4.27 | ||||||||||||
2015 (historical) | 48.80 | 0.783 | 2.56 | 48.80 | 0.783 | 2.56 | ||||||||||||
2016 (historical/ future) | 43.32 | – 4% | 0.755 | + 1% | 2.07 | – 3% | 45.00 | 0.750 | 2.13 | |||||||||
2017 (future) | 55.00 | – 8% | 0.780 | – 2% | 3.26 | + 16% | 60.00 | 0.800 | 2.80 | |||||||||
2018 (future) | 65.00 | – 7% | 0.820 | – 1% | 3.10 | – 4% | 70.00 | 0.830 | 3.24 | |||||||||
2019 (future) | 70.00 | – 12% | 0.850 | 0% | 3.05 | – 18% | 80.00 | 0.850 | 3.71 | |||||||||
2020 (future) | 71.40 | – 12% | 0.850 | 0% | 3.71 | – 7% | 81.20 | 0.850 | 3.98 | |||||||||
2021 (future) | 72.83 | – 12% | 0.850 | 0% | 3.79 | – 7% | 82.42 | 0.850 | 4.06 | |||||||||
Note: Percent change in the above table shows the change in price used in the 2016 evaluation compared to the price used in the 2015 evaluation for the respective calendar years.
The Company’s net present value of proved plus probable reserves at December 31, 2016, discounted at 10% before tax, was $1.7 billion and the undiscounted future net cash flow, before tax, was $3.9 billion. The Company’s net present value of proved plus probable reserves, discounted at 10% after tax was $1.4 billion and the undiscounted future net cash flow, after tax, was $3.1 billion.
The following table is a net present value summary as at December 31, 2016:
Net Present Value Summary (before tax) | |||||
Undiscounted [$M] | NPV 5% [$M] | NPV 10% [$M] | |||
Proved Developed Producing | 623,758 | 503,989 | 422,806 | ||
Total Proved | 1,954,006 | 1,288,996 | 940,216 | ||
Total Proved plus Probable | 3,908,891 | 2,459,498 | 1,730,690 | ||
Net Present Value Summary (after tax) | |||||
Proved Developed Producing | 623,758 | 503,989 | 422,806 | ||
Total Proved | 1,691,722 | 1,144,735 | 850,164 | ||
Total Proved plus Probable | 3,122,274 | 1,999,636 | 1,424,542 |
During 2016, the Company’s capital expenditures, net of dispositions, resulted in proved plus probable reserve additions of 51.2 million BOE, resulting in 2P FD&A costs of $3.47 per BOE, including FDC expenditures. Proved reserve additions in 2016 were 32.0 million BOE, resulting in 1P FD&A costs of $4.86 per BOE, including FDC expenditures.
Despite a significant reduction in capital expenditures in 2016, Kelt was able to show significant reserve additions from new wells and from existing wells, which after an additional twelve months of production history, have exceeded previous type curve estimates. Estimated capital expenditures in 2016 were $98.3 million (unaudited), down 80% from $497.3 million in 2015. The Company considers the significant reduction in FD&A costs in 2016 to be a good result considering it also increased its undeveloped land acreage by 24% year-over-year by acquiring exploratory lands on two new Montney plays located at Oak/Flatrock in British Columbia and Pipestone/Wembley in Alberta.
The recycle ratio is a measure for evaluating the effectiveness of a company’s re-investment program. The ratio measures the efficiency of capital investment. It accomplishes this by comparing the operating netback per BOE to the same period’s reserve FD&A cost per BOE. Since inception, Kelt has successfully added high quality reserves at an all-in 2P FD&A cost of $11.36 per BOE. Since inception, corporate operating netbacks have averaged $14.01 per BOE, giving the Company an inception to date recycle ratio of 1.2 times. With the purchase and construction of facilities and infrastructure in 2015 and 2016, along with land and asset acquisitions during both years, Kelt has positioned itself to achieve further efficiencies in production additions and finding and development costs over the upcoming years, as it transitions to development/pad drilling.
Kelt’s 2016 capital investment program resulted in net reserve additions that replaced 2016 production by a factor of 4.2 times on a proved basis and 6.7 times on a proved plus probable basis.
The following table provides detailed calculations relating to FD&A costs for 2016 and 2015:
Year ended December 31, 2016 |
Year ended December 31, 2015 |
Inception to December 31, 2016 |
|||
1P Reserves | |||||
Capital expenditures [$000’s] (2016 unaudited) | 98,268 | 497,273 | 1,490,545 | ||
Change in FDC costs required to develop reserves [$000’s] | 57,241 | 148,500 | 588,541 | ||
Total capital costs [$000’s] | 155,509 | 645,773 | 2,079,086 | ||
Reserve additions, net [MBOE] | 32,010 | 29,489 | 128,699 | ||
FD&A cost, including FDC [$/BOE] | 4.86 | 21.90 | 16.15 | ||
Operating netback [$/BOE] (2016 unaudited) | 9.87 | 10.09 | 14.01 | ||
Recycle ratio – proved | 2.0 x | 0.5 x | 0.9 x | ||
2P Reserves | |||||
Capital expenditures [$000’s] (2016 unaudited) | 98,268 | 497,273 | 1,490,545 | ||
Change in FDC costs required to develop reserves [$000’s] | 79,416 | 362,900 | 947,616 | ||
Total capital costs [$000’s] | 177,684 | 860,173 | 2,438,161 | ||
Reserve additions, net [MBOE] | 51,211 | 58,150 | 214,572 | ||
FD&A cost, including FDC [$/BOE] | 3.47 | 14.79 | 11.36 | ||
Operating netback [$/BOE] (2016 unaudited) | 9.87 | 10.09 | 14.01 | ||
Recycle ratio – proved plus probable | 2.8 x | 0.7 x | 1.2 x |
Reserves Reconciliation
During 2016, 12.5 million BOE of proved plus probable reserves (8.1 million BOE of proved reserves) were added through positive technical revisions, primarily as a result of better well performance in both of Kelt’s core Montney prospects in British Columbia and Alberta.
A reconciliation of Kelt’s proved plus probable reserves is provided in the table below:
Proved Plus Probable Reserves | |||||
Oil & NGLs [Mbbls] |
Gas [MMcf] |
Combined [MBOE] |
|||
Balance, December 31, 2015 | 54,377 | 576,779 | 150,507 | ||
Extensions | 12,839 | 149,769 | 37,801 | ||
Infill drilling | 1,360 | 6,470 | 2,438 | ||
Technical revisions | 6,682 | 34,649 | 12,457 | ||
Acquisitions | 833 | 3,851 | 1,475 | ||
Dispositions | (139) | (239) | (178) | ||
Economic factors | (1,212) | (9,414) | (2,782) | ||
Net additions | 20,363 | 185,086 | 51,211 | ||
Less: 2016 Production [1] | (2,847) | (28,828) | (7,652) | ||
Balance, December 31, 2016 [2] | 71,893 | 733,037 | 194,066 |
[1] Sulphur production of 8,935 Lt (15 MBOE) has been excluded in the above table.
[2] Sulphur reserves of 1,990 MLt (3,317 MBOE) have been excluded in the above table.
A reconciliation of Kelt’s proved reserves is provided in the table below:
Proved Reserves | |||||
Oil & NGLs [Mbbls] |
Gas [MMcf] |
Combined [MBOE] |
|||
Balance, December 31, 2015 | 29,264 | 327,423 | 83,835 | ||
Extensions | 6,629 | 88,308 | 21,347 | ||
Infill drilling | 1,599 | 10,578 | 3,362 | ||
Technical revisions | 3,420 | 27,931 | 8,075 | ||
Acquisitions | 670 | 3,092 | 1,185 | ||
Dispositions | (102) | (178) | (132) | ||
Economic factors | (705) | (6,734) | (1,827) | ||
Net additions | 11,511 | 122,997 | 32,010 | ||
Less: 2016 Production [1] | (2,847) | (28,828) | (7,652) | ||
Balance, December 31, 2016 [2] | 37,928 | 421,592 | 108,193 |
[1] Sulphur production of 8,935 Lt (15 MBOE) has been excluded in the above table.
[2] Sulphur reserves of 1,048 MLt (1,747 MBOE) have been excluded in the above table.
Net Asset Value
Kelt’s net asset value at December 31, 2016 was $9.03 per share, up 36% from the previous year. Details of the calculation are shown in the table below:
Net Asset Value Per Share | |||
As at December 31, 2016 [$M] | As at December 31, 2015 [$M] | ||
P&NG reserves, NPV10% BT | 1,730,690 | 1,185,240 | |
Decommissioning obligations, NPV10% BT [unaudited] [1] | (9,462) | (13,047) | |
Undeveloped land | 212,528 | 168,674 | |
Bank debt, net of working capital [unaudited] | (138,044) | (211,461) | |
Proceeds from exercise of stock options [2] | 29,683 | 0 | |
Net asset value | 1,825,395 | 1,129,406 | |
Diluted common shares outstanding (000’s) [2] | 198,504 | 169,872 | |
Net asset value per share ($/share) | 9.20 | 6.65 |
[1] The net present value of decommissioning obligations included above is incremental to the amount included in the present value of P&NG reserves as evaluated by Sproule.
[2] The calculation of proceeds from exercise of stock options and the diluted number of common shares outstanding only include stock options that are “in-the-money” based on the closing price of KEL of $6.77 and $4.24 per common share respectively, as at December 31, 2016 and 2015. There were no “in-the-money” stock options at December 31, 2015.
[3] The 5% convertible debentures that mature on May 31, 2021 are convertible to common shares at $5.50 per share. At the December 31, 2016 closing price of $6.77, the convertible debentures are “in-the-money” and 16.4 million shares issuable upon conversion are included in diluted common shares outstanding.
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.