Calgary, Alberta – Kelt Exploration Ltd. (TSX: KEL) (“Kelt” or the “Company”) reports its financial and operating results to shareholders for the three and nine months ended September 30, 2021.
The Company’s financial results are summarized as follows:
FINANCIAL HIGHLIGHTS | Three months ended September 30 |
Nine months ended September 30 |
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(CA$ thousands, except as otherwise indicated) | 2021 | 2020 | % | 2021 | 2020 | % |
Petroleum and natural gas sales | 75,761 | 48,823 | 55 | 196,240 | 165,195 | 19 |
Cash provided by (used in) operating activities | 46,547 | (8,610) | 641 | 107,658 | 55,991 | 92 |
Adjusted funds from operations (1) | 36,336 | 9,002 | 304 | 93,239 | 48,074 | 94 |
Basic ($/ common share) (1) | 0.19 | 0.05 | 280 | 0.49 | 0.26 | 88 |
Diluted ($/ common share) (1) | 0.19 | 0.05 | 280 | 0.49 | 0.25 | 96 |
Net income (loss) and comprehensive income (loss) | 3,752 | (24,080) | 116 | 61,260 | (350,826) | 117 |
Basic ($/ common share) | 0.02 | (0.13) | 115 | 0.32 | (1.87) | 117 |
Diluted ($/ common share) | 0.02 | (0.13) | 115 | 0.32 | (1.87) | 117 |
Capital expenditures, net of dispositions | 71,162 | (497,321) | 114 | 146,393 | (378,427) | 139 |
Total assets | 872,212 | 824,751 | 6 | 872,212 | 824,751 | 6 |
Net debt (surplus) (1) | 28,174 | (132,263) | 121 | 28,174 | (132,263) | 121 |
Convertible debentures | – | 89,910 | (100) | – | 89,910 | (100) |
Shareholders’ equity | 668,561 | 576,862 | 16 | 668,561 | 576,862 | 16 |
Weighted average shares outstanding (000s) | ||||||
Basic | 188,842 | 188,126 | – | 188,688 | 187,939 | – |
Diluted | 191,092 | 188,740 | 1 | 190,299 | 188,677 | 1 |
(1) Refer to advisories regarding non-GAAP financial measures and other key performance indicators.
Financial Statements
Kelt’s unaudited consolidated interim financial statements and related notes for the quarter ended September 30, 2021 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 November 10, 2021.
Kelt’s operating results for the third quarter ended September 30, 2021 are summarized as follows:
OPERATIONAL HIGHLIGHTS | Three months ended September 30 |
Nine months ended September 30 |
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(CA$ thousands, except as otherwise indicated) | 2021 | 2020 | % | 2021 | 2020 | % |
Average daily production | ||||||
Oil (bbls/d) | 4,485 | 5,712 | (21) | 4,041 | 8,064 | (50) |
NGLs (bbls/d) | 3,004 | 4,286 | (30) | 3,120 | 4,644 | (33) |
Gas (mcf/d) | 72,789 | 74,672 | (3) | 73,195 | 90,861 | (19) |
Combined (BOE/d) | 19,621 | 22,443 | (13) | 19,360 | 27,852 | (30) |
Production per million common shares (BOE/d) (1) | 104 | 119 | (13) | 103 | 148 | (30) |
Net realized prices, before financial instruments(1) | ||||||
Oil ($/bbl) | 82.35 | 48.13 | 71 | 75.71 | 39.20 | 93 |
NGLs ($/bbl) | 42.45 | 16.33 | 160 | 36.51 | 13.59 | 169 |
Gas ($/mcf) | 4.32 | 2.24 | 93 | 3.68 | 2.20 | 75 |
Operating netbacks ($/BOE) (1) | ||||||
Petroleum and natural gas sales (“P&NG sales”) | 41.97 | 23.65 | 77 | 37.13 | 21.65 | 72 |
Cost of purchases | (0.60) | (0.85) | (29) | (0.87) | (0.83) | 5 |
Combined net realized price, before financial instruments(1) | 41.37 | 22.80 | 81 | 36.26 | 20.82 | 74 |
Realized gain (loss) on financial instruments | (3.04) | (3.49) | 13 | (1.93) | 1.68 | (215) |
Combined net realized price, after financial instruments(1) | 38.33 | 19.31 | 98 | 34.33 | 22.50 | 53 |
Royalties | (4.40) | (0.94) | 368 | (3.31) | (0.93) | 256 |
Production expense | (9.24) | (7.74) | 19 | (8.77) | (9.56) | (8) |
Transportation expense | (3.59) | (3.61) | (1) | (3.40) | (3.58) | (5) |
Operating netback (1) | 21.10 | 7.02 | 201 | 18.85 | 8.43 | 124 |
Land holdings | ||||||
Gross acres | 778,125 | 802,100 | (3) | 778,125 | 802,100 | (3) |
Net acres | 563,687 | 581,633 | (3) | 563,687 | 581,633 | (3) |
(1) Refer to advisories regarding non-GAAP financial measures and other key performance indicators.
Message to Shareholders
Kelt Exploration Ltd. (“Kelt” or the “Company”) reports its financial and operating results to shareholders for the third quarter ended September 30, 2021.
The COVID-19 pandemic has had a substantial impact on people’s lives and continues to impact the way companies conduct their business. Kelt’s highest priority remains the health and safety of its employees, partners and the communities where it operates. The Company is proud of the dedication of its workforce to maintain safe operations and business continuity during the pandemic.
Kelt’s average production for the three months ended September 30, 2021 was 19,621 BOE per day, up modestly from average production of 19,592 BOE per day during the second quarter of 2021. Average production for July and August 2021 was 21,526 BOE per day. The Company experienced production down time during the month of September 2021 due to a third-party facility turnaround maintenance program. The Progress Gas Plant, where the Company processes a significant amount of its gas production, was scheduled for a two-week turnaround maintenance operation (that typically occurs every four years) during September. However, the maintenance operation lasted close to the entire month of September. Kelt took advantage of the plant downtime to perform maintenance operations on its own facilities at Pouce Coupe/Progress during the month. In addition, during September, Kelt shut-in three high deliverability Pouce Coupe oil wells that had recently been put on production (associated gas from these wells are processed at the Progress Gas Plant) to complete two newly drilled adjacent Pouce Coupe oil wells. The completion of these two Pouce Couple oil wells had previously been planned for the fourth quarter of 2021. The Progress Gas Plant returned to full service at the end of September and all of Kelt’s production processed at the Plant, including the five new Pouce Coupe oil wells are currently on-stream.
Kelt’s realized average oil price during the third quarter of 2021 was $82.35 per barrel, up 71% from $48.13 per barrel in the third quarter of 2020. The realized average NGLs price during the third quarter of 2021 was $42.45 per barrel, up 160% from $16.33 per barrel in the same quarter of 2020. Kelt’s realized average gas price for the third quarter of 2021 was $4.32 per Mcf, up 93% from $2.24 per Mcf in the corresponding quarter of the previous year.
For the three months ended September 30, 2021, petroleum and natural gas sales were $75.8 million and adjusted funds from operations was $36.3 million ($0.19 per share, diluted), compared to $48.8 million and $9.0 million ($0.05 per share, diluted) respectively, in the third quarter of 2020. As at September 30, 2021, the Company had net debt of $28.2 million.
Net capital expenditures incurred during the three months ended September 30, 2021 were $71.2 million. During the third quarter of 2021, the Company spent $43.6 million on drill and complete operations and $35.3 million on facilities, pipelines and equipment. Kelt was able to bring forward the drill and complete operations on two Pouce Coupe oil wells that had previously been planned for the fourth quarter of 2021.
At Oak/Flatrock, Kelt commissioned the start-up of the newly constructed Oak 6-35 facility on November 3, 2021. There are currently 11 Montney wells connected to the facility. These wells continue to clean-up and initial production rates are meeting the Company’s expectations. Based on type curve estimates included in Kelt’s December 31, 2020 independently prepared reserves evaluation report and using the Company’s current internal 2022 commodity price forecast, these wells would generate approximately $5.4 million of operating cash flow per well in the first year at a netback of $26.50 per BOE resulting in a payback of drill and complete costs in approximately one year.
The Kelt owned Oak 6-35 facility has gas compression capability of 33.75 MMcf per day, oil handling capability of 6,290 barrels per day and water handling capability of 7,550 barrels per day. The Oak 6-35 facility is connected to a 16-inch NorthRiver Midstream Inc. (“NorthRiver”) main line which flows gas to the NorthRiver McMahon Gas Plant. Kelt has an agreement with NorthRiver for firm gas processing at the McMahon Gas Plant. In addition, Kelt has entered into marketing arrangements to sell gas produced from its Oak property to various gas pricing point hubs including Station 2, Chicago (ACE), Marcellus (TZ4 L300) and Sumas.
At Wembley/Pipestone, Kelt has commenced construction of Phase 1 of its Wembley East pipeline infrastructure and anticipates commencing construction of Phase 2 of the Wembley East pipeline infrastructure during the first quarter of 2022. Upon completion of pipeline infrastructure construction, Kelt expects to bring eight new Wembley/Pipestone Montney wells on-stream.
2021 Guidance Update
Kelt’s board of directors has approved an increase to the Company’s capital expenditure program for 2021. Kelt expects to spend between $190.0 and $200.0 million in 2021, up from its previous forecast of $175.0 million. The Company expects to bring forward $10.0 to $20.0 million of expenditures previously planned for 2022 to take advantage of current commodity prices. In doing so, the Company will put itself in a position to deliver additional production growth in 2022 by accelerating production start-up from certain wells.
Kelt continues to maintain its strong financial position. As at December 31, 2021, the Company expects to have net debt of between $7.6 and $17.6 million or only 0.1 times adjusted funds from operations. Subsequent to September 30, 2021, the Company entered into a new credit facility with a borrowing capacity of $100 million.
The average production forecast for 2021 remains unchanged from the Company’s previous forecast of 21,500 BOE per day. Adjusted funds from operations for 2021 is forecasted to be $158.0 million, a 9% increase from its previous forecast of $145.0 million.
The following table summarizes the changes to 2021 guidance since the Company’s original forecast was prepared in November 2020:
2021 Guidance (Nov/20) |
2021 Guidance (Mar/21) |
2021 Guidance (May/21) |
2021 Guidance (Aug/21) |
2021 Guidance (current) |
Change from previous Guidance | |
Commodity Prices | ||||||
WTI Crude Oil (USD/bbl) | 38.50 | 59.95 | 60.00 | 63.50 | 68.05 | 7% |
NYMEX Natural Gas (USD/MMBtu) |
3.10 | 2.82 | 2.90 | 3.25 | 3.54 | 9% |
Exchange Rate (CAD/USD) | 1.340 | 1.267 | 1.227 | 1.247 | 1.247 | – |
Production | ||||||
Oil & NGLs (bbls/d) | 6,500 | 7,145 | 7,850 | 8,000 | 8,000 | – |
Gas (MMcf/d) | 66.00 | 71.13 | 78.90 | 81.00 | 81.00 | – |
Combined (BOE/d) | 17,500 | 19,000 | 21,000 | 21,500 | 21,500 | – |
Financial | ||||||
P&NG Sales ($MM) | 175.0 | 238.0 | 256.4 | 289.7 | 313.7 | 8% |
Adjusted funds from operations (1) ($MM) |
66.5 | 107.0 | 118.0 | 145.0 | 158.0 | 9% |
AFFO per share, diluted (1) | 0.35 | 0.56 | 0.62 | 0.76 | 0.83 | 9% |
Capital expenditures ($MM) | 90.0 | 120.0 | 150.0 | 175.0 | 190.0 – 200.0 | 9% – 14% |
Net debt (surplus) (1) ($MM) | (4.0) | (7.0) | 11.0 | 9.0 | 7.6 – 17.6 | (16%) – 96% |
(1) Refer to advisories regarding non-GAAP financial measures and other key performance indicators.
2022 Budget
The Company’s Board of Directors has approved an initial capital expenditure budget between the range of $200.0 to $210.0 million for 2022. Kelt expects to drill 22 gross (20.8 net) wells in 2022 and expects to complete 26 gross (24.5 net) wells in 2022. The 2022 capital expenditures are expected to be allocated as follows: $125.0 to $130.0 million for drilling and completing wells, $60.0 to $65.0 million for facilities, pipeline, and equipment and $15.0 million for land and seismic.
At Wembley/Pipestone, the Company plans to commence development of its northwestern land block with a four-well pad and a three-well pad targeting the Middle Montney D3 horizon. In addition, Kelt expects to complete pipeline construction on its southeastern land block paving the way to bring on production eight new Montney wells.
At Pouce Coupe West, Kelt plans to complete two high deliverability gas wells that are expected to be drilled in the fourth quarter of 2021. In addition, the Company plans to expand its gas deliverability capability from its Pouce Coupe West land block by constructing a pipeline connecting to existing gas processing facilities. At Pouce Coupe, the Company expects to drill and complete a four-well pad in the oil-prone area of its land block.
At Progress, the Company has plans to drill and complete four (2.5 net) wells in the Charlie Lake formation. These wells are adjacent to prolific Charlie Lake wells drilled by other industry producers.
At Oak/Flatrock, Kelt expects to drill and complete six wells in the second half of 2022. These wells will further delineate the large Montney land block owned by the Company.
The Company is basing its 2022 financial forecasts on commodity prices that are lower than current futures strip prices. Preparation of the 2022 budget includes the following forecasted commodity price assumptions (with estimated forecasted 2021 commodity prices shown for comparative purposes):
Commodity Price Index | 2022 Budget | 2021 Forecast | Change |
WTI Crude Oil (USD/bbl) | 72.00 | 68.05 | 6% |
MSW Crude Oil (CAD/bbl) | 83.13 | 79.75 | 4% |
NYMEX Henry Hub L3D Natural Gas (USD/MMBtu) | 4.10 | 3.54 | 16% |
DAWN Gas Daily Index (USD/MMBtu) | 4.07 | 3.67 | 11% |
CHICAGO ACE Gas Daily Index (USD/MMBtu) | 4.07 | 4.48 | (9%) |
AECO NIT 5A Gas Daily Index (CAD/GJ) | 3.56 | 3.37 | 6% |
STATION 2 Gas Daily Index (CAD/GJ) | 3.50 | 3.26 | 7% |
Exchange Rate (USD/CAD) | 0.815 | 0.802 | 2% |
Exchange Rate (CAD/USD) | 1.227 | 1.247 | (2%) |
Financial and operating highlights for 2022 compared to the 2021 forecast are highlighted in the table below:
Financial and Operating Highlights ($ MM, unless otherwise specified) |
2022 Budget | 2021 Forecast | Change |
Production | |||
Oil & NGLs (bbls/d) | 11,450 | 8,000 | 43% |
Gas (MMcf/d) | 111,300 | 81,000 | 37% |
Combined (BOE/d) | 30,000 | 21,500 | 40% |
P&NG Sales | 444.7 | 313.7 | 42% |
Adjusted Funds from Operations (1) | 245.0 | 158.0 | 55% |
AFFO per share, diluted ($/share) (1) | 1.28 | 0.83 | 54% |
Capital Expenditures, net of dispositions | 200.0 – 210.0 | 190.0 – 200.0 | NA |
Net Debt (Surplus) (1), at year-end | (23.8) | 7.6 – 17.6 | NA |
(1) Refer to advisories regarding non-GAAP financial measures and other key performance indicators.
During a period of uncertain economic conditions driven by inflationary pressures and volatile fluctuations in commodity prices, Kelt has strategically put itself in a position of financial strength, with little to no debt and a large Montney land acreage position of 362,564 net acres or 566 net sections to continue to grow the Company’s production base and generating high rates of return on capital invested by taking advantage of current multi-year high oil and gas prices. In addition to its three Montney play areas at Wembley/Pipestone, Pouce Coupe/Progress and Oak/Flatrock, the Company is also able to allocate capital resources towards developing its Charlie Lake play consisting of 68,272 net acres or 107 net sections in Alberta.
Kelt will reassess its 2022 capital expenditure plans during the first quarter of 2022 as it retains the flexibility to either increase or decrease capital spending plans according to fluctuations in commodity prices.
Management looks forward to updating shareholders with 2021 year-end results on or about March 10, 2022.
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 2021 and 2022. Readers are cautioned that this financial outlook may not be appropriate for other purposes.