Calgary, Alberta – Kelt Exploration Ltd. (TSX: KEL) (“Kelt” or the “Company”) reports its financial and operating results to shareholders for the first quarter ended March 31, 2022. The Company’s financial results are summarized as follows:
FINANCIAL HIGHLIGHTS | Three months ended March 31 | |||
(CA$ thousands, except as otherwise indicated) | 2022 | 2021 | % | |
Petroleum and natural gas sales | 138,446 | 59,835 | 131 | |
Cash provided by operating activities | 65,553 | 26,582 | 147 | |
Adjusted funds from operations (1) | 74,169 | 27,451 | 170 | |
Basic ($/ common share) (1) | 0.39 | 0.15 | 160 | |
Diluted ($/ common share) (1) | 0.38 | 0.14 | 171 | |
Net income and comprehensive income | 10,720 | 2,854 | 276 | |
Basic ($/ common share) | 0.06 | 0.02 | 200 | |
Diluted ($/ common share) | 0.06 | 0.02 | 200 | |
Capital expenditures, net of A&D (1) | 83,693 | 29,446 | 184 | |
Total assets | 967,119 | 775,033 | 25 | |
Net debt (surplus) (1) | 34,685 | (24,303) | -243 | |
Shareholders’ equity | 739,673 | 607,285 | 22 | |
Weighted average shares outstanding (000s) | ||||
Basic | 189,383 | 188,585 | – | |
Diluted | 193,691 | 189,944 | 2 |
(1) Refer to advisories regarding Non-GAAP and Other Financial Measures.
Financial Statements
Kelt’s unaudited consolidated interim financial statements and related notes for the quarter ended March 31, 2022 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 May 5, 2022.
Kelt’s operating results for the first quarter ended March 31, 2022 are summarized as follows:
OPERATIONAL HIGHLIGHTS | Three months ended March 31 | |||||
(CA$ thousands, except as otherwise indicated) | 2022 | 2021 | % | |||
Average daily production | ||||||
Oil (bbls/d) (2) | 6,081 | 3,972 | 53 | |||
NGLs (bbls/d) | 4,012 | 3,429 | 17 | |||
Gas (mcf/d) | 103,919 | 68,752 | 51 | |||
Combined (BOE/d) | 27,413 | 18,860 | 45 | |||
Production per million common shares (BOE/d) (1) | 145 | 100 | 45 | |||
Net realized prices, before financial instruments(1) | ||||||
Oil ($/bbl) (2) | 113.60 | 67.47 | 68 | |||
NGLs ($/bbl) | 63.90 | 34.28 | 86 | |||
Gas ($/mcf) | 5.41 | 3.77 | 44 | |||
Operating netbacks ($/BOE) (1) | ||||||
Petroleum and natural gas sales | 56.12 | 35.25 | 59 | |||
Cost of purchases | (1.03 | ) | (1.08 | ) | -5 | |
Combined net realized price, before financial instruments (1) | 55.09 | 34.17 | 61 | |||
Realized loss on financial instruments | (5.13 | ) | (1.10 | ) | 366 | |
Combined net realized price, after financial instruments (1) | 49.96 | 33.07 | 51 | |||
Royalties | (6.02 | ) | (2.70 | ) | 123 | |
Production expense | (9.62 | ) | (9.45 | ) | 2 | |
Transportation expense | (3.06 | ) | (3.25 | ) | -6 | |
Operating netback (1) | 31.26 | 17.67 | 77 | |||
Landholdings | ||||||
Gross acres | 759,781 | 795,790 | -5 | |||
Net acres | 546,615 | 575,648 | -5 |
(1) Refer to advisories regarding Non-GAAP and Other Financial Measures.
(2) “Oil” includes crude oil and field condensate combined
Message to Shareholders
Energy related commodity prices continued to rise in the first quarter of 2022 as the global economy set the stage for a recovery in energy demand as the world began to ease away from lockdowns and business interruptions that were experienced in 2020 and 2021 as a result of the COVID-19 pandemic. In contrast, the pace of energy supply growth slowed with the massive reductions in capital investment on major energy projects around the world, creating a tight supply-to-demand balance.
Kelt opportunistically bucked the trend by increasing capital expenditures on its large inventory of high rate of return drilling opportunities and was able to take advantage of rising oil and gas prices by growing its production base significantly. During this period of strong commodity prices, Kelt is accelerating the development of high rate of return drilling opportunities in all three of its operating divisions. Kelt is targeting per share growth in production, reserves, and funds from operations and at the same time, maintaining a strong financial position. The Company continues to believe that this strategy will create the most value for Kelt shareholders based on the nature of its asset base and long-term objectives.
Kelt’s average production for the three months ended March 31, 2022 was 27,413 BOE per day, up 45% from average production of 18,860 BOE per day during the first quarter of 2021. Quarter over quarter, Kelt recorded production growth of 6% from average production of 25,815 BOE per day during the fourth quarter of 2021. Production for the three months ended March 31, 2022 was weighted 37% oil and NGLs and 63% gas.
Kelt’s realized average oil price during the first quarter of 2022 was $113.60 per barrel, up 68% from $67.47 per barrel in the first quarter of 2021. The realized average NGLs price during the first quarter of 2022 was $63.90 per barrel, up 86% from $34.28 per barrel in the same quarter of 2021. Kelt’s realized average gas price for the first quarter of 2022 was $5.41 per Mcf, up 44% from $3.77 per Mcf in the corresponding quarter of the previous year.
For the three months ended March 31, 2022, revenue from P&NG sales was $138.5 million and adjusted funds from operations was $74.2 million ($0.38 per share, diluted), compared to $59.8 million and $27.5 million ($0.14 per share, diluted) respectively, in the first quarter of 2021. Net income rose by 276% to $10.7 million during the first quarter of 2022 compared to $2.9 million for the three-month period ended March 31, 2021. At March 31, 2022, the Company had net debt of $34.7 million, compared to a net surplus of $24.3 million at March 31, 2021.
Capital expenditures, net of A&D, incurred during the three months ended March 31, 2022 were $83.7 million. During the first quarter of 2022, the Company spent $53.2 million on drill and complete operations and $30.3 million on equipment, facilities and pipelines.
In the Pouce Coupe/Progress/Spirit River Division, Kelt completed two high deliverability Montney gas wells during the first quarter of 2022. The Company has an inventory of 30 additional potential locations on its high deliverability gas land block at Pouce Coupe West. The Company commenced construction of a pipeline from its Pouce Coupe West block that has recently been commissioned providing Kelt with access to additional gas processing at third party facilities in the area.
The Company commenced drilling the first well of a four-well pad drilling program in the oilier part of its central Pouce Coupe land block. These Montney wells are expected to be completed and brought on production during the third quarter of 2022.
At Progress, Kelt drilled and completed two wells (75% working interest) from the same pad in the Charlie Lake formation, targeting the Lower Charlie Lake. These wells are expected to be put on production in the second quarter of 2022.
In the Wembley/Pipestone Division, Kelt completed two DUCs that were previously drilled in 2021. In addition, the Company drilled seven new Montney wells and completed three of these wells during the first quarter. Completion of the remaining four wells were pushed to the second quarter when the Company expects to have better access to water.
In the contiguous south-eastern part of Kelt’s large land block at Wembley/Pipestone, the Company has now completed its Phase Two pipeline construction and is in the process of bringing wells in the area on production, including the 00/09-04-073-06W6 well on the eastern boundary of Kelt’s lands.
Kelt’s board of directors has approved an increase to the Company’s capital expenditure program for 2022. Kelt expects to spend $265.0 million in 2022, up 6% from its previous forecast of $250.0 million. The increased spending reflects the drilling and completion of a new Montney well at Wembley/Pipestone, incremental gas compression facilities at Pouce Coupe required to accommodate expected growth in gas production and adjustments to the remaining capital program for the year to account for inflation of approximately 5%.
The Company has increased its commodity price forecast for 2022 to account for the higher prices realized to date and stronger prices expected for the balance of the year. As a result, Kelt’s forecasted adjusted funds from operations for 2022 has increased by 13% to an estimated $340.0 million compared to its previous estimate of $300.0 million. Kelt will continue to maintain its strong financial position. At December 31, 2022, the Company expects to have a net surplus position of $50.0 million compared to its previous estimate of $19.0 million. Kelt will re-evaluate its 2022 guidance after the second quarter is complete and has services in place to accelerate additional drilling opportunities from its large inventory of high rate of return wells.
The following table summarizes the percentage changes to 2022 guidance compared to the previous forecast and historical changes to 2022 guidance since the Company’s original forecast was prepared in November 2021:
2022 Guidance (Nov/21) |
2022 Guidance (Mar/22) |
2022 Guidance (current) |
Percent Change |
|
Commodity Prices | ||||
WTI Crude Oil (USD/bbl) | 72.00 | 85.00 | 90.00 | 6% |
NYMEX Natural Gas (USD/MMBtu) | 4.10 | 4.15 | 5.35 | 29% |
Exchange Rate (CAD/USD) | 1.227 | 1.250 | 1.255 | – |
Production | ||||
Oil & NGLs (bbls/d) | 11,450 | 11,580 | 11,580 | – |
Gas (MMcf/d) | 111.30 | 116.52 | 116.52 | – |
Combined (BOE/d) | 30,000 | 31,000 | 31,000 | – |
Financial | ||||
P&NG Sales ($MM) | 444.7 | 518.8 | 608.2 | 17% |
Adjusted funds from operations ($MM) | 245.0 | 300.0 | 340.0 | 13% |
AFFO per share, diluted ($) | 1.28 | 1.55 | 1.74 | 12% |
Capital expenditures, net of A&D ($MM) | 210.0 | 250.0 | 265.0 | 6% |
Net debt (surplus) ($MM) | (23.8) | (19.0) | (50.0) | 163% |
Kelt remains optimistic that commodity prices will continue to be strong during the balance of 2022 and leading into 2023, providing shareholders with high rates of return on capital deployed. The Company will continue to reinvest cash flow into development of its high quality Montney and Charlie Lake pools.
Management looks forward to updating shareholders with 2022 second quarter results on or about August 4, 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 2022. Readers are cautioned that this financial outlook may not be appropriate for other purposes.