CALGARY, AB–(Marketwired – October 06, 2017) – Kelt Exploration Ltd. (“Kelt” or the “Company”) (TSX: KEL) has subscribed to TransCanada Corporation’s Dawn Long Term Fixed Price (LTFP) service and in addition, has entered into various natural gas sales contracts in order to provide the Company with exposure to diversified gas price hubs and reduce exposure to a single market.
Effective November 1, 2017, Kelt’s gas market sales portfolio will consist of the following contracts:
|Market Term (Sales)||Volume (MMBtu/d)||Percent @ Nov/1/17||Market Price|
|Nov/1/17 – Oct/31/27||23,695||31%||DAWN USD Daily Index|
|Nov/1/17 – Oct/31/20||15,000||20%||MALIN USD NGI FOM Index less US$0.70/MMBtu|
|Nov/1/17 – Oct/31/20||11,990||16%||SUMAS USD Monthly Index less US$0.679/MMBtu|
|Nov/1/17 – Oct/31/18||3,000||4%||SUMAS USD Monthly Index less US$0.76/MMBtu|
|Nov/1/17 – Oct/31/18 *||10,330||14%||CHICAGO City Gate USD Gas Daily Index|
|Nov/1/17 – Oct/31/18||11,305||15%||AECO CAD Daily (5A) Index|
|TOTAL (effective Nov/1/17)||75,320||100%|
|* The Company also has access to priority interruptible transportation service (“PITS”) equating to 25% (2,580 MMBtu/d) of its firm service volume on the Alliance pipeline system under which Kelt can increase the amount of gas sales from its British Columbia properties into the Chicago market.|
During 2017, Kelt expects that its oil and NGLs production will contribute approximately 76% of its aggregate operating income and gas production will contribute the remaining 24%.
Due to the recent volatility in AECO gas prices, Kelt has elected to temporarily shut-in approximately 21.4 MMcf/d of dry gas production (3,770 BOE/d including associated NGLs) at its Grande Cache and West Pouce Coupe properties in Alberta. AECO CAD Daily (5A) Index prices have averaged $1.55/GJ, $1.65/GJ and $0.93/GJ during the months of July, August and September 2017, respectively. The Company has elected to shut-in production at its dry gas properties due to the weakness in the current AECO price primarily caused by transportation bottlenecks on the entire Western Canadian pipeline transportation system. Kelt expects to keep this production shut-in until AECO prices improve or until November 1, 2017, at which time the Company can direct its gas to non-AECO priced contracts in its gas market sales portfolio. The impact to 2017 guidance based on previously forecasted commodity prices during a 30-day shut-in period with respect to these production volumes would reduce Kelt’s 2017 average production guidance of 22,500 BOE per day by 310 BOE per day (1.4%) and previously forecasted 2017 funds from operations of $124.0 million would be reduced by approximately $750,000 (0.6%).
In addition, the Company currently has approximately 4.8 MMcf/d of gas production (1,000 BOE/d including associated NGLs) behind pipe in British Columbia awaiting new compression. In light of the current low gas price environment, the Company has delayed adding compression in order to bring the behind pipe production on-stream and expects to time the production additions with its new gas price contracts starting in November 2017.
FLOW-THROUGH EQUITY FINANCING
Kelt has determined to issue, by way of a non-brokered private placement, 1.4 million common shares on a “flow-through” basis in respect of Canadian Development Expenses (“CDE”) at a price of $7.75 per share resulting in gross proceeds of $11.0 million (the “Private Placement”). Along with certain other subscribers, directors, officers and employees of the Company have subscribed to purchase approximately 8.3% of the Private Placement.
Kelt shall, pursuant to the provisions in the Income Tax Act (Canada), incur eligible CDE (the “Qualifying Expenditures”), after the closing date and prior to December 31, 2017 in the aggregate amount of not less than the total amount of the gross proceeds raised from the Private Placement. Kelt shall renounce the Qualifying Expenditures so incurred to the purchasers of the flow-through common shares with an effective date on or prior to December 31, 2017. The Private Placement is subject to certain conditions including normal regulatory approvals and specifically, the approval of the Toronto Stock Exchange. The common shares issued in connection with the Private Placement will be subject to a statutory hold period of four months plus one day from the date of completion of the Private Placement, in accordance with applicable securities legislation.
Closing for approximately 89% of the Private Placement is expected to occur on or about October 11, 2017. The remaining 11% of the Private Placement is expected to close on or around October 27, 2017.
This press release does not constitute an offer to sell or a solicitation of any offer to buy the common shares in the United States. The common shares have not been and will not be registered under the U.S. Securities Act of 1933 and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements of such Act.
Proceeds from the Private Placement will be used to increase the Company’s budgeted drilling and completion expenditures during the remainder of 2017. Kelt expects to increase its 2017 capital expenditure budget with the drilling of five wells on its second pad at Pouce Coupe, Alberta, targeting Montney Oil, where wells from the first multi-well pad at Pouce Coupe paid out in under a year during 2017 (in the current commodity price environment). These five new wells are expected to be completed in January 2018 and will be put on production thereafter into the Company’s expanded compression and pipeline infrastructure recently installed at Pouce Coupe.
At Inga, British Columbia, Kelt believes it has fully delineated the Upper Montney on its lands and expects to drill and complete five development wells off a pad. This operation is expected to commence in 2017 and is expected to be completed in the first quarter of 2018. The Company expects to drill its fifth Middle Montney well at Inga in the fourth quarter of 2017 as it continues to delineate the Middle Montney with encouraging results from the first four wells. Kelt has drilled its first Upper Middle (IBZ) well at Inga and expects to complete and test this well by the middle of November 2017.
At Wembley/Pipestone, Alberta, Kelt is targeting the Montney formation in the volatile oil window where the reservoir is expected to be over-pressured. The Company has completed its first exploration well located at 00/04-01-072-08W6. The well was completed using the ball drop hydraulic fracturing method. The horizontal lateral of the well was approximately 2,900 metres and the well was completed using slick-water comprising 50 fracture stages. The well cost approximately $5.7 million to drill and complete. After flowing the well back on a 12 day clean-up, the well, over the last five days of the test, produced average sales volumes of approximately 1,567 BOE per day (64% oil, 20% NGLs and 16% gas). The high NGLs (35% are condensate/pentane) are a result of the high heat value of the gas and the ensuing deep-cut recoveries at the Wembley Gas Plant where Kelt has an ownership interest. The well has now been tied in to the Wembley Gas Plant, however, due to a compressor failure at the plant, the well is not expected to be put on production until mid-November 2017. Given the encouraging results from its first exploration well, the Company expects to follow-up with at least three more wells on its large Wembley/Pipestone land block prior to the end of 2018.
Kelt expects to release its 2017 third quarter results on or about November 9, 2017. At that time, the Company expects to provide shareholders with 2018 guidance including forecasted capital expenditures, production and funds from operations.