Calgary, Alberta – Kelt Exploration Ltd. (TSX: KEL) (“Kelt” or the “Company”) announces that it’s board of directors has approved a reduction in capital expenditures for 2020. The Company has reduced its capital expenditure budget by $80.0 million or 36% to $145.0 million (previously $225.0 million).
The energy industry continues to experience high volatility with lower crude oil prices driven by fears of a retraction in global economic growth and increases in crude oil supply as oil producing countries such as Saudi Arabia and Russia ramp up oil production during a period of heightened uncertainty caused by the COVID-19 pandemic. In addition, natural gas prices at most major U.S. gas hubs are trading at low levels coming out of a warmer than average winter in North America.
Kelt has taken measures to mitigate near term commodity price volatility by entering into fixed price swap contracts for the first half of 2020 on crude oil and for the summer of 2020 on natural gas.
The reduction in Kelt’s capital spending plans for the remainder of 2020 includes the deferral of the following projects:
- Drilling of an exploratory well at Oak/Flatrock;
- Completions of seven development wells at Oak/Flatrock;
- Construction of pipeline tie-ins, gas compression and an oil battery at Oak/Flatrock;
- Drilling of a well at Wembley/Pipestone;
- Completion of a well at Wembley/Pipestone;
- Construction of pipeline tie-ins at Wembley/Pipestone; and
- Drilling and completions of a five well pad at Fireweed.
The revised capital expenditure program will begin immediately with minimal activity in the second quarter of 2020.
Kelt has reduced its production forecast for 2020 by approximately 12% to reflect the delayed start-up of new wells resulting from the deferral of capital expenditures. The Company expects 2020 production to average between 34,000 and 36,000 BOE per day (previous forecast was 38,500 to 41,000 BOE per day). The revised 2020 production forecast would represent an increase of between 13% and 20% from average production of 29,961 BOE per day in 2019.
Given the significant recent decline in commodity prices, Kelt has reduced its 2020 commodity price assumptions as follows:
WTI Crude Oil (USD/bbl) : $39.50 (down 24% from $52.00).
[Note: WTI averaged USD $54.09 for the first two months of 2020, the annual forecast assumes WTI will average USD $36.60 from March 1, 2020 to December 31, 2020. Kelt has fixed the WTI price on 6,000 bbls/d of crude oil at CAD $75.63/bbl for March 2020 and on 4,000 bbls/d of crude oil at CAD $77.55/bbl from April 1, 2020 to June 30, 2020].
MSW Crude Oil (CAD/bbl) : $46.60 (down 24% from $61.50).
[Note: Kelt has fixed the differential between WTI and MSW on 1,000 bbls/d of crude oil at USD $4.60/bbl and on 3,000 bbls/d of crude oil at CAD $6.40/bbl for the period from April 1, 2020 to June 30, 2020].
NYMEX Natural Gas (USD/MMBtu) : $2.10 (down 7% from $2.25).
[Note: Kelt has fixed the NYMEX Henry Hub natural gas price on 45,000 MMBtu/d at CAD $2.83/MMBtu from April 1, 2020 to November 30, 2020. In addition, Kelt has fixed the CONWAY price on 500 bbls/d of propane at CAD 23.35/bbl for two years from April 1, 2020 to March 31, 2022. Starting in April 2020, the majority of the Company’s un-hedged propane volumes will be sold in Asia receiving Far East Index pricing when the Company commences processing gas at the Altagas Townsend Deep-Cut Gas Plant in British Columbia].
Exchange rate (USD/CAD) : $0.739 (down 3% from $0.758).
[Note: Kelt has entered into a collar on USD $3.0 million per month with a floor of USD $0.741 and a ceiling of USD $0.704 from April 2020 to December 2020, with an option to enter into an extendible fixed rate swap at USD $0.704 on USD $3.0 million per month for calendar 2021 only if the settlement exchange rate on December 31, 2020 is less than USD $0.704].
After giving effect to the revised production and commodity price forecasts, Kelt has reduced its forecast for 2020 adjusted funds from operations by 40% to $135.0 million. Bank debt, net of working capital (“net bank debt”) at December 31, 2020 is forecasted to be $310.0 million or 2.3 times adjusted funds from operations for the year.
The Company will continue to closely monitor market conditions during this period of global uncertainty and may make additional changes to the 2020 capital expenditure program if warranted.