Calgary, Alberta – Kelt Exploration Ltd. (TSX: KEL) (“Kelt” or the “Company”) is pleased to report on its oil & gas reserves and production for the year ended December 31, 2020. Kelt retained Sproule Associates Limited (“Sproule”), an independent qualified reserve evaluator to prepare a report on its oil and gas reserves.
The report is effective as of December 31, 2020. 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, 2020 and at December 31, 2019 were determined using the guidelines and definitions set out under National Instrument 51-101 (“NI 51-101”). Additional reserves disclosure as required under NI 51-101 will be included in Kelt’s Annual Information Form which will be filed on SEDAR on or before March 31, 2021.
The audit of Kelt’s 2020 annual consolidated financial statements has not been completed and accordingly all financial amounts relating to 2020 referred to in this press 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.
On August 21, 2020, Kelt completed the sale of its Inga/Fireweed/Stoddart assets (the “Inga Assets”), one of the Company’s four main divisions. During 2020, primarily during the period subsequent to the sale of the Inga Assets, Kelt was active operationally in its remaining three main divisions, resulting in increases in all categories of reserves compared to the previous year, despite a significant reduction in Sproule’s future commodity price forecasts that resulted in negative reserve revisions due to economic factors in the 2020 reserve report. Crude oil prices have moved significantly higher subsequent to December 31, 2020 and based on current prices, a significant portion of reserves that were written down due to economic factors would be reinstated.
Superior well performance and an improved cost structure led to significant positive technical revisions in the December 31, 2020 report. Refer to the table under the paragraph entitled “Reserves Reconciliation” for detailed information relating to reserve changes, by category, during the year.
RESERVES HIGHLIGHTS
Sproule, an independent qualified reserve evaluator, prepared the December 31, 2019 oil and gas reserves report. For illustrative purposes, the comparative December 31, 2019 amounts in the Reserves Highlights table below are pro-forma, excluding the Inga Assets (“pro-forma December 31, 2019”).
A table reconciling reported December 31, 2019 reserves information with pro-forma December 31, 2019 amounts is also included in this press release.
December 31, 2020 | Pro-forma December 31, 2019 [1] |
Change | |||
% Weight | Amount | % Weight | Amount | ||
Proved Developed Producing (“PDP”) Reserves | |||||
   Oil & NGLs [Mbbls] | 34% | 10,200 | 41% | 10,080 | + 1% |
   Gas [MMcf] | 66% | 116,437 | 59% | 88,011 | + 32% |
   Combined [MBOE] | 100% | 29,606 | 100% | 24,749 | + 20% |
Proved Reserves | |||||
   Oil & NGLs [Mbbls] | 40% | 37,903 | 38% | 32,792 | + 16% |
   Gas [MMcf] | 60% | 348,315 | 62% | 314,668 | + 11% |
   Combined [MBOE] | 100% | 95,956 | 100% | 85,237 | + 13% |
Proved plus Probable (“P+P”) Reserves | |||||
   Oil & NGLs [Mbbls] | 42% | 75,619 | 40% | 63,887 | + 18% |
   Gas [MMcf] | 58% | 618,975 | 60% | 574,399 | + 8% |
   Combined [MBOE] | 100% | 178,782 | 100% | 159,620 | + 12% |
Oil & NGLs Mix – P+P Reserves [Mbbls] | |||||
   Light Oil, Condensate and Pentane | 62% | 46,538 | 60% | 38,602 | + 21% |
   Butane | 10% | 7,678 | 10% | 6,372 | + 20% |
   Propane | 13% | 10,009 | 13% | 8,187 | + 22% |
   Ethane | 15% | 11,394 | 17% | 10,726 | + 6% |
   Total Oil & NGLs | 100% | 75,619 | 100% | 63,887 | + 18% |
Notes: [1] December 31, 2019 amounts are pro-forma, adjusted to exclude amounts relating to the Inga Assets which were sold in 2020. [2] Refer to advisories regarding Measurements and Abbreviations. |
RESERVES
The Company’s net present value of proved plus probable reserves at December 31, 2020, discounted at 10% before tax, was $932 million, a decrease of 16% from $1,111 million, pro-forma December 31, 2019. Despite an increase in reserves, the net present value decreased as a result of significantly lower forecasted oil and gas prices for the future years in the December 31, 2020 evaluation (see “Commodity Prices” table included below). Sproule’s forecasted commodity prices for 2021 used to determine the net present value of the Company’s reserves at December 31, 2020, are USD $46.00 per barrel for WTI oil, USD $3.00 per MMBtu for NYMEX Henry Hub natural gas and a USD/CAD exchange rate of USD $0.770.
Proved developed producing reserves at December 31, 2020 were 29.6 million BOE, an increase of 20% from 24.7 million BOE, pro-forma December 31, 2019. Total proved reserves at December 31, 2020 were 96.0 million BOE, up 13% from 85.2 million BOE, pro-forma December 31, 2019. Proved plus probable reserves increased by 19.2 million BOE or 12% from 159.6 million BOE, pro-forma December 31, 2019 to 178.8 million BOE at December 31, 2020.
The following table outlines a summary of the Company’s reserves by category as at December 31, 2020:
Summary of Reserves | ||||||
Oil & NGLs [Mbbls] |
Gas [MMcf] |
Combined [MBOE] |
NPV10% BT [$M] |
NPV10% BT [$/BOE] |
||
Proved Developed Producing | 10,200 | 116,437 | 29,606 | 202,517 | 6.84 | |
Total Proved | 37,903 | 348,315 | 95,956 | 429,977 | 4.48 | |
Total Proved plus Probable | 75,619 | 618,975 | 178,782 | 931,756 | 5.21 |
The following table shows the change in reserves year-over-year by reserve category:
Change in Reserves | ||||
[MBOE] | December 31, 2020 | Pro-forma December 31, 2019 |
Change in Reserves | Percent Change |
Proved Developed Producing | 29,606 | 24,749 | + 4,857 | + 20% |
Total Proved | 95,956 | 85,237 | + 10,719 | + 13% |
Total Proved plus Probable | 178,782 | 159,620 | + 19,162 | + 12% |
FUTURE DEVELOPMENT CAPITAL EXPENDITURES
Future development capital (“FDC”) expenditures of $537 million are included in the evaluation for total proved reserves and are expected to be incurred over five years as follows: $33 million in 2021, $144 million in 2022, $152 million in 2023, $115 million in 2024 and $93 million in 2025.
FDC expenditures of $927 million are included in the evaluation of proved plus probable reserves and are expected to be incurred over five years as follows: $49 million in 2021, $210 million in 2022, $255 million in 2023, $215 million in 2024 and $198 million in 2025.
The following table outlines FDC expenditures and future wells to be drilled by province, included in the December 31, 2020 reserve evaluation:
Future Development Capital Expenditures | ||||
December 31, 2020 Proved Reserves |
December 31, 2020 P+P Reserves |
|||
FDC [$M] | Net Wells | FDC [$M] | Net Wells | |
Alberta Montney wells | 397,535 | 73.3 | 670,593 | 121.3 |
British Columbia Montney wells | 24,329 | 4.0 | 58,076 | 11.0 |
Total Montney wells | 421,864 | 77.3 | 728,669 | 132.3 |
Other formations (including Doig/Charlie Lake) | 65,859 | 18.4 | 148,778 | 42.0 |
Other expenditures | 48,983 | ─ | 49,103 | ─ |
Total FDC Expenditures | 536,706 | 95.7 | 926,550 | 174.3 |
COMMODITY PRICE FORECAST
The WTI oil price during 2020 averaged USD $39.24 per barrel, 36% lower than Sproule’s 2020 forecast of USD $61.00 per barrel provided in the December 31, 2019 evaluation. Sproule is forecasting an average WTI oil price of USD $46.00 per barrel in 2021, a 29% decline from its previous forecast of USD $65.00 per barrel. The NYMEX gas price during 2020 averaged USD $2.08 per MMBtu, 26% lower than Sproule’s 2020 forecast of USD $2.80 per MMBtu provided in the December 31, 2019 evaluation. Sproule is forecasting an average NYMEX gas price of USD $3.00 per MMBtu in 2021., no change from its previous forecast.
The following table outlines forecasted future prices that Sproule has used in their evaluation of the Company’s reserves:
Commodity Prices | ||||||||||
December 31, 2020 Evaluation | December 31, 2019 Evaluation | |||||||||
WTI Cushing Crude Oil [USD/bbl] |
NYMEX Henry Hub [USD/MMBtu] |
USD/CAD Exchange [USD] |
WTI Cushing Crude Oil [USD/bbl] |
NYMEX Henry Hub [USD/MMBtu] |
USD/CAD Exchange [USD] |
|||||
2016 (historical) | 43.32 | 2.55 | 0.755 | 43.32 | 2.55 | 0.755 | ||||
2017 (historical) | 50.88 | 3.07 | 0.770 | 50.88 | 3.07 | 0.770 | ||||
2018 (historical) | 64.94 | 3.04 | 0.771 | 64.94 | 3.04 | 0.771 | ||||
2019 (historical) | 56.98 | 2.62 | 0.754 | 56.98 | 2.62 | 0.754 | ||||
2020 (historical/future) | 39.24 | − 36% | 2.08 | − 26% | 0.746 | − 2% | 61.00 | 2.80 | 0.760 | |
2021 (future) | 46.00 | − 29% | 3.00 | 0% | 0.770 | 0% | 65.00 | 3.00 | 0.770 | |
2022 (future) | 48.00 | − 28% | 3.00 | − 8% | 0.770 | − 4% | 67.00 | 3.25 | 0.800 | |
2023 (future) | 53.00 | − 22% | 3.00 | − 10% | 0.770 | − 4% | 68.34 | 3.32 | 0.800 | |
2024 (future) | 54.06 | − 22% | 3.06 | − 9% | 0.770 | − 4% | 69.71 | 3.38 | 0.800 | |
Note: Percent change in the above table shows the change in price used in the December 31, 2020 evaluation compared to the price used in the December 31, 2019 evaluation for the respective calendar years from 2020 to 2024. |
FINDING, DEVELOPMENT, ACQUISITION & DISPOSITION COSTS
During 2020, the Company’s capital expenditures, net of dispositions, resulted in net proved plus probable reserve dispositions of 273.1 million BOE, resulting in P+P finding, development, acquisition and disposition (“FDA&D”) costs of $6.89 per BOE, including FDC expenditures. Net proved reserve dispositions in 2020 were 119.5 million BOE, resulting in proved FDA&D costs of $10.01 per BOE, including FDC expenditures.
Estimated capital expenditures, after dispositions, in 2020 were negative $354.0 million (unaudited). The Company completed the disposition of reserves relating to the Inga Assets at a price that exceeded the FD&A cost to add reserves in all of the Company’s other assets. Despite significantly lower commodity prices in 2020, Kelt was able to generate a P+P recycle ratio of 1.2 times for the year.
The recycle ratio is a measure for evaluating the effectiveness of a company’s re-investment program. The ratio measures the efficiency of capital investment (or divestment). It accomplishes this by comparing the operating netback per BOE to the same period’s reserve FDA&D cost per BOE. With the construction of facilities and infrastructure in 2019 and 2020, along with historic land acquisitions, Kelt has positioned itself to achieve further efficiencies in production additions and finding and development costs over the upcoming years, as it continues to proceed with development and pad drilling.
The following table provides detailed calculations relating to FDA&D costs for 2020 and 2019:
Year ended December 31, 2020 | Year ended December 31, 2019 |
|
Proved Reserves | ||
Capital expenditures, net of dispositions [$M] (2020 unaudited) | (353,957) | 315,624 |
Change in FDC costs required to develop reserves [$M] | (842,190) | 507,348 |
Total capital costs [$M] | (1,196,147) | 822,972 |
Reserve additions, net of dispositions [MBOE] | (119,491) | 77,053 |
FDA&D cost, including FDC [$/BOE] | 10.01 | 10.68 |
Operating netback [$/BOE] (2020 unaudited) | 8.41 | 18.89 |
Recycle ratio – proved | 0.8 x | 1.8 x |
Proved plus Probable Reserves | ||
Capital expenditures, net of dispositions [$M] (2020 unaudited) | (353,957) | 315,624 |
Change in FDC costs required to develop reserves [$M] | (1,527,897) | 980,349 |
Total capital costs [$M] | (1,881,854) | 1,295,973 |
Reserve additions, net of dispositions [MBOE] | (273,064) | 169,217 |
FDA&D cost, including FDC [$/BOE] | 6.89 | 7.66 |
Operating netback [$/BOE] (2020 unaudited) | 8.41 | 18.89 |
Recycle ratio – proved plus probable | 1.2 x | 2.5 x |
RESERVES RECONCILIATION
Kelt’s 2020 capital investment program, excluding dispositions, resulted in proved plus probable reserve additions of 25.0 million BOE, that replaced pro-forma 2020 production by a factor of 4.3 times.
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, 2019 | 216,324 | 1,467,941 | 460,981 |
Extensions | 11,549 | 42,604 | 18,650 |
Technical revisions | 5,578 | 53,357 | 14,472 |
Economic factors | (3,173) | (29,979) | (8,170) |
Dispositions | (150,553) | (884,776) | (298,016) |
Additions, net of dispositions | (136,599) | (818,794) | (273,064) |
Less: 2020 Production [1] | (4,106) | (30,172) | (9,135) |
Balance, December 31, 2020 | 75,619 | 618,975 | 178,782 |
Note: [1] Sulphur production of 7,599 Lt (76 MMcfe or 13 MBOE) has been excluded in the above table. |
Continued outperformance of existing producing wells compared with the previous year’s forecasts resulted in significant positive technical revisions to both producing wells and offsetting future development locations. Kelt added 14.5 million BOE of P+P reserves resulting from positive technical revisions. The Company’s P+P reserves were reduced by 8.2 million BOE due to economic factors (primarily lower commodity price forecasts). Kelt expects to add back these reserves in the future as commodity prices increase from the forecasts used in the December 31, 2020 reserves evaluation.
NET ASSET VALUE
Kelt’s calculated net asset value per share at December 31, 2020 was $5.44, 202% above the $1.80 closing trading price of the Company’s common shares on the Toronto Stock Exchange on December 31, 2020. Details of the net asset value calculation are shown in the table below:
Net Asset Value per Share | ||
$ M | $/share | |
P&NG proved plus probable reserves, NPV10% BT [1] | 931,756 | 4.87 |
Undeveloped land | 80,196 | 0.42 |
Working capital surplus [unaudited] | 26,261 | 0.14 |
Proceeds from exercise of stock options [2] | 2,331 | 0.01 |
Net asset value | 1,040,544 | 5.44 |
Diluted common shares outstanding (000’s) [2] | 191,271 | |
Notes: [1] Includes the net present value of the Company’s estimated decommissioning obligations. [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 $1.80 as at December 31, 2020. All outstanding RSUs are included in diluted common shares outstanding. |
PRODUCTION
Kelt’s average production for 2020 was 24,992 BOE per day, down 17% from average production of 29,961 BOE per day in 2019. Production in 2020 only includes production from the Inga Assets up to the disposition date of August 21, 2020. Production for 2020 was weighted 45% oil and NGLs and 55% gas. Average production for 2020 was 2% above the Company’s guidance of 24,400 BOE per day. Average production for the fourth quarter of 2020 was 16,476 BOE per day, weighted 41% oil and NGLs and 59% gas.
Production for 2020 compared to 2019 is summarized in the following table:
$M unless otherwise stated | December 31, 2020 | December 31, 2019 | Change | ||
% Weight | Amount | % Weight | Amount | ||
Annual Average Production | |||||
Oil & NGLs [bbls/d] | 45% | 11,218 | 46% | 13,851 | – 19% |
Gas [Mcf/d] | 55% | 82,646 | 54% | 96,658 | – 14% |
Combined [BOE/d] | 100% | 24,992 | 100% | 29,961 | – 17% |
On August 21, 2020, Kelt completed the sale of its Inga Assets. Pro-forma production, excluding the Inga Assets, for 2020 compared to 2019 is summarized in the following table:
$M unless otherwise stated | Pro-forma December 31, 2020 |
Pro-forma December 31, 2019 |
Change | ||
% Weight | Amount | % Weight | Amount | ||
Pro-forma Annual Average Production | |||||
Oil & NGLs [bbls/d] | 40% | 6,322 | 38% | 6,247 | + 1% |
Gas [Mcf/d] | 60% | 57,708 | 62% | 61,744 | – 7% |
Combined [BOE/d] | 100% | 15,940 | 100% | 16,538 | – 4% |
RECONCILIATION OF DECEMBER 31, 2019 RESERVES
On August 21, 2020, Kelt completed the sale of its Inga Assets. The following table shows reserves amounts at December 31, 2019, as originally reported, and pro-forma excluding the Inga Assets:
$M unless otherwise stated | Reported December 31, 2019 |
Pro-forma December 31, 2019 |
Change | ||
% Weight | Amount | % Weight | Amount | ||
PDP Reserves | |||||
Oil & NGLs [Mbbls] | 44% | 21,522 | 41% | 10,080 | – 53% |
Gas [MMcf] | 56% | 163,994 | 59% | 88,011 | – 46% |
Combined [MBOE] | 100% | 48,854 | 100% | 24,749 | – 49% |
Proved Reserves | |||||
Oil & NGLs [Mbbls] | 46% | 103,292 | 38% | 32,792 | – 68% |
Gas [MMcf] | 54% | 727,740 | 62% | 314,668 | – 57% |
Combined [MBOE] | 100% | 224,582 | 100% | 85,237 | – 62% |
P+P Reserves | |||||
Oil & NGLs [Mbbls] | 47% | 216,324 | 40% | 63,887 | – 70% |
Gas [MMcf] | 53% | 1,467,941 | 60% | 574,399 | – 61% |
Combined [MBOE] | 100% | 460,981 | 100% | 159,620 | – 65% |
Oil & NGLs Mix – P+P Reserves [Mbbls] | |||||
Light Oil, Condensate and Pentane | 62% | 133,150 | 60% | 38,602 | – 71% |
Butane | 11% | 24,282 | 10% | 6,372 | – 74% |
Propane | 22% | 46,746 | 13% | 8,187 | – 82% |
Ethane | 5% | 12,146 | 17% | 10,726 | – 12% |
Total Oil & NGLs | 100% | 216,324 | 100% | 63,887 | – 70% |
Changes in forecasted commodity prices and variances in production estimates can have a significant impact on estimated reserves values, adjusted funds from operations and profit. Please refer to the cautionary statement on forward-looking statements and information set out below.