CALGARY, Alberta, March 06, 2019 (GLOBE NEWSWIRE) — Kelt Exploration Ltd. (TSX:KEL) (“Kelt” or the “Company”) has released its financial and operating results for the fourth quarter and year ended December 31, 2018. The Company’s financial results are summarized as follows:
FINANCIAL HIGHLIGHTS | Three months ended December 31 | Year ended December 31 | ||||||
(CA$ thousands, except as otherwise indicated) | 2018 | 2017 | % | 2018 | 2017 | % | ||
Petroleum and natural gas revenue, before royalties | 100,350 | 80,838 | 24 | 389,277 | 257,557 | 51 | ||
Cash provided by operating activities | 63,656 | 36,458 | 75 | 186,383 | 115,222 | 62 | ||
Adjusted funds from operations (1) | 47,140 | 32,898 | 43 | 186,839 | 108,011 | 73 | ||
Basic ($/ common share) (1) | 0.26 | 0.18 | 44 | 1.02 | 0.61 | 67 | ||
Diluted ($/ common share) (1) | 0.26 | 0.18 | 44 | 1.01 | 0.61 | 66 | ||
Profit (loss) and comprehensive income (loss) | 2,843 | (5,389 | ) | -153 | 8,154 | (23,178 | ) | -135 |
Basic ($/ common share) | 0.02 | (0.03 | ) | -167 | 0.04 | (0.13 | ) | -131 |
Diluted ($/ common share) | 0.02 | (0.03 | ) | -167 | 0.04 | (0.13 | ) | -131 |
Total capital expenditures, net of dispositions | 70,332 | 55,778 | 26 | 285,498 | 127,977 | 123 | ||
Total assets | 1,423,521 | 1,276,567 | 12 | 1,423,521 | 1,276,567 | 12 | ||
Net debt (1) | 196,416 | 136,729 | 44 | 196,416 | 136,729 | 44 | ||
Convertible debentures | 78,390 | 74,517 | 5 | 78,390 | 74,517 | 5 | ||
Shareholders’ equity | 893,796 | 845,701 | 6 | 893,796 | 845,701 | 6 | ||
Weighted average shares outstanding (000s) | ||||||||
Basic | 183,994 | 178,220 | 3 | 182,576 | 176,466 | 3 | ||
Diluted | 184,682 | 179,898 | 3 | 184,393 | 177,920 | 4 |
(1) Refer to advisories regarding non-GAAP financial measures and other key performance indicators.
Financial Statements
Kelt’s audited annual consolidated financial statements and related notes for the year ended December 31, 2018 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 March 6, 2019.
Kelt’s operating results for the fourth quarter and year ended December 31, 2018 are summarized as follows:
OPERATIONAL HIGHLIGHTS | Three months ended December 31 | Year ended December 31 | ||||||||
(CA$ thousands, except as otherwise indicated) | 2018 | 2017 | % | 2018 | 2017 | % | ||||
Average daily production | ||||||||||
Oil (bbls/d) | 9,301 | 7,902 | 18 | 8,403 | 6,634 | 27 | ||||
NGLs (bbls/d) | 3,783 | 3,379 | 12 | 3,186 | 2,608 | 22 | ||||
Gas (mcf/d) | 93,759 | 82,689 | 13 | 92,502 | 77,330 | 20 | ||||
Combined (BOE/d) | 28,711 | 25,063 | 15 | 27,006 | 22,130 | 22 | ||||
Production per million common shares (BOE/d) (1) | 156 | 141 | 11 | 148 | 125 | 18 | ||||
Average realized prices, before financial instruments(1) | ||||||||||
Oil ($/bbl) | 38.77 | 65.13 | -40 | 65.82 | 59.10 | 11 | ||||
NGLs ($/bbl) | 27.75 | 29.62 | -6 | 33.81 | 27.72 | 22 | ||||
Gas ($/mcf) | 6.37 | 2.79 | 128 | 3.76 | 3.01 | 25 | ||||
Operating netbacks ($/BOE) (1) | ||||||||||
Petroleum and natural gas revenue | 37.99 | 35.06 | 8 | 39.49 | 31.89 | 24 | ||||
Cost of purchases | (1.05 | ) | (1.32 | ) | -20 | (2.19 | ) | (0.38 | ) | 476 |
Average realized price, before financial instruments(1) | 36.94 | 33.74 | 9 | 37.30 | 31.51 | 18 | ||||
Realized gain (loss) on financial instruments | (2.23 | ) | (0.32 | ) | 597 | (0.60 | ) | (0.13 | ) | 362 |
Average realized price, after financial instruments(1) | 34.71 | 33.42 | 4 | 36.70 | 31.38 | 17 | ||||
Royalties | (2.10 | ) | (3.12 | ) | -33 | (3.11 | ) | (2.92 | ) | 7 |
Production expense | (8.58 | ) | (11.01 | ) | -22 | (9.11 | ) | (10.05 | ) | -9 |
Transportation expense | (4.64 | ) | (3.11 | ) | 49 | (3.92 | ) | (3.13 | ) | 25 |
Operating netback (1) | 19.39 | 16.18 | 20 | 20.56 | 15.28 | 35 | ||||
Undeveloped land | ||||||||||
Gross acres | 710,981 | 755,455 | -6 | 710,981 | 755,455 | -6 | ||||
Net acres | 614,644 | 637,823 | -4 | 614,644 | 637,823 | -4 |
(1) Refer to advisories regarding non-GAAP financial measures and other key performance indicators.
Message to Shareholders
The Canadian energy sector experienced high volatility during 2018 with fluctuating commodity prices and macro headlines driven by political decisions and economic factors. WTI crude oil prices averaged a high of US$70.98 per barrel in July, then plummeting 30% to average US$49.52 per barrel in December. Canadian light oil prices and condensate prices also experienced much volatility during the year, trading at unprecedented discounts to the equivalent Canadian dollar WTI oil price during November and December. Kelt was able to mitigate the reduced revenue during the fourth quarter of 2018 resulting from the wide oil differentials through its diversified natural gas marketing strategy whereby the Company realized significantly higher gas prices compared to AECO and Station 2 pricing at its price points in the Sumas, Malin, Chicago and Dawn hubs.
Average production for the three months ended December 31, 2018 was a Company record high quarterly production of 28,711 BOE per day, up 15% compared to average production of 25,063 BOE per day during the fourth quarter of 2017. Daily average production in the fourth quarter of 2018 was 10% higher than average production of 26,204 BOE per day in the third quarter of 2018. In addition, Kelt achieved a record high calendar year average production in 2018. Average production for 2018 was 27,006 BOE per day, up 22% from average production of 22,130 BOE per day in 2017 and within the Company’s guidance range. Production for 2018 was weighted 43% oil and NGLs and 57% gas.
Kelt’s realized average oil price during the fourth quarter of 2018 was $38.77 per barrel, down 52% from $80.62 per barrel in the third quarter of 2018 and down 40% from $65.13 per barrel in the fourth quarter of 2017. The Company’s realized average NGLs price during the fourth quarter of 2018 was $27.75 per barrel, down 33% from $41.20 per barrel in the third quarter of 2017 and down 6% from $29.62 per barrel in the corresponding quarter of 2017. Kelt’s realized average gas price for the fourth quarter of 2018 was $6.37 per MCF, up 127% from $2.81 per MCF in the third quarter of 2017 and up 128% from the realized average gas price of $2.79 per MCF in the fourth quarter of the previous year.
For the three months ended December 31, 2018, revenue was $100.3 million and adjusted funds from operations was $47.1 million ($0.26 per share, diluted), compared to $80.8 million and $32.9 million ($0.18 per share, diluted) respectively, in the fourth quarter of 2017. At December 31, 2018, net debt was $196.4 million, up 44% from $136.7 million at December 31, 2017. The ratio of net debt to adjusted funds from operations for the year improved to 1.1 times at December 31, 2018 compared to 1.3 times at December 31, 2017.
Net capital expenditures incurred during the three months ended December 31, 2018 were $70.3 million and for the year ended December 31, 2018, net capital expenditures were $285.5 million. During 2018, the Company spent $168.7 million on drill and complete operations, $118.5 million on equipment, facilities and pipelines (includes $10.0 million of inventory) and $5.5 million on land and seismic. During the year, Kelt realized proceeds of $10.1 million from asset dispositions and incurred $2.9 million on asset acquisitions.
As at December 31, 2018, Kelt’s net working interest land holdings were 838,990 acres (1,310 sections) of which 614,644 net acres (960 sections) are undeveloped. Kelt is focused on long-term value creation by accumulating significant undeveloped land acreage on resource style plays, with a primary focus on Triassic Montney oil and liquids-rich gas plays. At December 31, 2018, Kelt’s net Montney land holdings were 511,851 acres (800 sections).
At December 31, 2018, Kelt had a significant inventory of drilled and completed horizontal wells, as well as horizontal wells that were drilled but not yet completed (DUCs). Capital expenditures incurred in 2018 associated with these wells were approximately $60.0 million, for which the benefit of production and income are expected to commence in 2019. At Wembley/Pipestone, the Company drilled and completed five horizontal wells and had one DUC horizontal well. Four of these wells are expected to be put on production in the third quarter of 2019 upon completion of the construction of the Tidewater Pipestone Sour Deep-Cut Gas Plant. At Fireweed, the Company had five DUC horizontal wells and on its initial 24-well pad at Inga, Kelt had four DUC horizontal wells. The Inga/Fireweed wells are expected to be put on production in the second and third quarters of 2019.
At Inga, Kelt expects to commence completion operations on the first six wells from its 24-well pad program in March 2019, which is located in an area that is expected to have high liquids ratios. Two wells were drilled targeting each of the Upper Montney, IBZ Middle Montney and Middle Montney formations. The Company plans to complete three wells (one in each formation) using the open hole ball-drop completion method with 50 fracture stages and three wells (one in each formation) using the plug and perf completion method with 28 fracture stages and 3 clusters per stage.
The open hole ball-drop fracturing method is a series of open-hole packers combined with ball-activated fracture ports between each set of packers that allow individual fracs to be pumped into low-permeability, tight-rock formations in order to access reservoir hydrocarbons in one continuous pumping operation. The plug and perf fracturing method is employed in wells with cemented liners, it involves pumping down a bridge plug and perforating guns on electric wireline. Fracture stimulation is pumped through the perforated clusters and the process is repeated along the length of the horizontal lateral until the entire wellbore has been stimulated.
In addition to the comparision of the two completion techniques, the initial six wells on the Inga pad will be monitored using both mircoseismic and chemical tracing techniques. The microseismic program will consist of approximately 20 surface monitoring stations strategically located around the pad, in addition to a 30-level, 3-component, 15 meter spacing downhole array in the 2-4-88-23W6 monitoring well. All six wells will also be chemically traced with both an Oil Soluble and Frac Fluid Tracer in 114 stages over the estimated 24 days of completion operations. This information will provide the Company with data to determine optimal horizontal spacing. Based on the results (productivity and costs) from the two completion methods, the Company will pick the more favourable method to complete the remaining 18 wells on the Inga 24-well pad.
At Wembley/Pipestone, Kelt expects to drill and complete seven horizontal wells during the first half of 2019. These wells, in addition to the four wells from the 2018 capital program, are expected to commence production in the third quarter of 2019 upon completion of the construction of the Tidewater Pipestone Sour Deep-Cut Gas Plant. During the fourth quarter of 2018, Kelt drilled an injection well located at 03-11-072-08W6 which is expected to significantly reduce completion costs and operating expenses. This well is expected to be operational for flowback of the 2019 wells.
2019 guidance
Kelt has not changed its previously reported 2019 Budget, however, the Company has prepared a 2019 Pro-forma case that reflects lower oil prices and lower capital expenditures, as summarized in the table below:
(CA$ millions, except as otherwise indicated) |
2019 Budget |
2019 Pro-forma | Percent Change | |||
Average Production | ||||||
Oil & NGLs (bbls/d) | 15,500 – 16,400 | 15,500 – 16,400 | N/C | |||
Gas (MMcf/d) | 105.0 – 112.0 | 105.0 – 112.0 | N/C | |||
Combined (BOE/d) | 33,500 – 34,500 | 33,500 – 34,500 | N/C | |||
Production per million common shares (BOE/d) | 174 – 179 | 174 – 179 | N/C | |||
Forecasted Average Commodity Prices | ||||||
WTI oil price (US$/bbl) | 67.50 | 55.00 | − 19% | |||
WTI differential to Mixed Sweet Blend Edmonton (CA$/bbl) | (19.43 | ) | (8.85 | ) | 54% | |
Mixed Sweet Blend Edmonton (CA$/bbl) | 66.97 | 63.75 | − 5% | |||
NYMEX natural gas price (US$/MMBtu) | 3.00 | 3.00 | N/C | |||
AECO natural gas price (US$/MMBtu) | 1.60 | 1.50 | − 6% | |||
Average exchange rate (US$/CA$) | 0.781 | 0.758 | − 3% | |||
Capital Expenditures | ||||||
Drilling & completions | 201.0 | 171.0 | − 15% | |||
Facilities, pipeline & well equipment | 60.0 | 60.0 | N/C | |||
Land, seismic & property acquisitions | 9.0 | 9.0 | N/C | |||
Net Capital Expenditures | 270.0 | 240.0 | − 11% | |||
Adjusted funds from operations | 240.0 | 220.0 | − 8% | |||
Per common share, diluted | 1.23 | 1.13 | − 8% | |||
Net debt, at year-end (1) | 225.0 | 220.0 | − 2% | |||
Net debt to adjusted funds from operations ratio | 0.9 x | 1.0 x | + 11% | |||
Weighted average common shares outstanding (MM) (1) | 192.4 | 192.4 | N/C |
(1) In addition to bank debt, the Company has $89.9 million principal amount of convertible debentures outstanding with a coupon of 5% per annum, maturing May 31, 2021. 2019 Budget and Pro-forma estimates have been prepared assuming the convertible debentures convert to 16.3 million common shares on July 1, 2019.
The Company will re-evaluate its spending plans for the remainder of 2019 after the first quarter is complete. Kelt expects to update shareholders with its updated 2019 forecasts at the same time as when it reports its 2019 first quarter results, on or about May 8, 2019.
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.
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 the calendar year 2019. Readers are cautioned that this financial outlook may not be appropriate for other purposes.