The Company’s financial results are summarized as follows:
|FINANCIAL HIGHLIGHTS||Three months ended June 30||Six months ended June 30|
|(CA$ thousands, except as otherwise indicated)||2022||2021||%||2022||2021||%|
|Petroleum and natural gas sales||178,938||60,644||195||317,384||120,479||163|
|Cash provided by operating activities||91,623||34,529||165||157,176||61,111||157|
|Adjusted funds from operations (1)||94,783||29,452||222||168,952||56,903||197|
|Basic ($/ common share) (1)||0.50||0.16||213||0.89||0.30||197|
|Diluted ($/ common share) (1)||0.48||0.15||220||0.87||0.30||190|
|Net income and comprehensive income||70,711||54,654||29||81,431||57,508||42|
|Basic ($/ common share)||0.37||0.29||28||0.43||0.30||43|
|Diluted ($/ common share)||0.36||0.29||24||0.42||0.30||40|
|Capital expenditures, net of A&D (1)||89,072||45,786||95||172,765||75,232||130|
|Net debt (surplus) (1)||23,117||(6,696)||-445||23,117||(6,696)||-445|
|Weighted average shares outstanding (000s)|
(1) Refer to advisories regarding non-GAAP financial measures and other key performance indicators.
Kelt’s unaudited consolidated interim financial statements and related notes for the quarter ended June 30, 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 August 4, 2022.
Kelt’s operating results for the second quarter ended June 30, 2022 are summarized as follows:
|OPERATIONAL HIGHLIGHTS||Three months ended June 30||Six months ended June 30|
|(CA$ thousands, except as otherwise indicated)||2022||2021||%||2022||2021||%|
|Average daily production|
|Oil (bbls/d) (2)||4,871||3,660||33||5,473||3,815||43|
|Production per million common shares (BOE/d) (1)||145||104||39||145||102||42|
|Net realized prices, before financial instruments(1)|
|Oil ($/bbl) (2)||135.36||76.33||77||123.35||71.75||72|
|Operating netbacks ($/BOE) (1)|
|Petroleum and natural gas sales||70.96||34.02||109||63.61||34.61||84|
|Cost of purchases||(1.63)||(0.93)||75||(1.34)||(1.00)||34|
|Combined net realized price, before financial instruments (1)||69.33||33.09||110||62.27||33.61||85|
|Realized loss on financial instruments||(10.83)||(1.60)||577||(8.01)||(1.35)||493|
|Combined net realized price, after financial instruments (1)||58.50||31.49||86||54.26||32.26||68|
|Operating netback (1)||38.52||17.68||118||34.91||17.68||97|
(1) Refer to advisories regarding Non-GAAP and Other Financial Measures.
(2) “Oil” includes crude oil and field condensate
Message to Shareholders
During the second quarter of 2022, Kelt continued to maintain its strong financial position and with quarter over quarter growth in production and higher commodity prices, the Company demonstrated significant growth in funds from operations during the quarter. In addition, Kelt recorded net income of $70.7 million ($0.36 per share) for the three months ended June 30, 2022.
Kelt’s average production for the three months ended June 30, 2022 was 27,713 BOE per day, up 41% from average production of 19,592 BOE per day during the corresponding period in 2021 and up 1% from average production of 27,413 BOE per day during the first quarter of 2022. Quarter-over-quarter production grew marginally despite downtime experienced at the NRM Gordondale East Gas Plant where Kelt processes approximately 35.0 MMcf per day of raw gas and which was shut-in for just over two weeks for its periodic (every 3-5 years) plant turnaround maintenance. Production for the three months ended June 30, 2022 was weighted 35% oil and NGLs and 65% gas.
Kelt’s realized average oil price during the second quarter of 2022 was $135.36 per barrel, up 77% from $76.33 per barrel in the second quarter of 2021. The realized average NGLs price during the second quarter of 2022 was $79.24 per barrel, up 141% from $32.94 per barrel in the same quarter of 2021. Kelt’s realized average gas price for the second quarter of 2022 was $8.14 per Mcf, up 133% from $3.49 per Mcf in the corresponding quarter of the previous year.
For the three months ended June 30, 2022, petroleum and natural gas sales were $178.9 million and adjusted funds from operations was $94.8 million ($0.48 per share, diluted), compared to $60.6 million and $29.5 million ($0.15 per share, diluted) respectively, in the second quarter of 2021. At June 30, 2022, net debt was $23.1 million or 0.1 times annualized second quarter adjusted funds from operations.
Capital expenditures, net of A&D incurred during the three months ended June 30, 2022 were $89.1 million. During the second quarter of 2022, the Company spent $53.4 million on drill and complete operations and $34.5 million on facilities, pipelines and equipment.
Capital Program – Second Half of 2022
In its Oak/Flatrock Division, pending resumption of permit approvals by the B.C. Oil and Gas Commission, Kelt expects to drill four Upper Montney wells at Oak and also complete the previously drilled Middle Montney well at Flatrock located at 13-2-86-16W6 (on the eastern part of the Company’s 300-section contiguous land block). In addition, Kelt expects to complete facility enhancements at its Oak 6-35 Facility, increasing gas compression by approximately 33%.
At its Pouce Coupe/Progress/Spirit River Division, Kelt expects to tie-in and commence production from four Montney oil wells that have already been drilled and completed. In the Charlie Lake play, the Company has initiated a six well development program at Spirit River and expects to have these wells drilled, completed and tied-in by the end of the year.
In the Wembley/Pipestone Division, Kelt has spud its first Charlie Lake well (60% working interest) and with success could follow-up with additional drilling in the Charlie Lake formation in 2023. The Company plans to drill and complete two Montney D2 oil wells (50% working interest) and drill a Montney D3 well during the second half of 2022. During September 2022, Kelt will experience production downtime when the TWM Pipestone Gas Plant, where the Company processes approximately 33.0 MMcf per day of raw gas, is expected to be shut-in for approximately three weeks as it conducts plant turnaround maintenance.
After an active drilling program and pipeline construction at Wembley/Pipestone, Kelt is currently either restricting production from certain wells or has shut-in production from certain wells in the area due to third-party gas processing congestion. These limitations are expected to be alleviated with cooler weather and resulting improvements in plant efficiencies. In addition, Kelt’s access to incremental gas processing capacity is expected to increase as the Company has agreed to enter into definitive gas processing arrangements with certain midstream companies that are currently awaiting final approval to either build new gas processing plants and expand existing gas processing plants in the area. In addition to the Company’s plant ownership interests and firm service gas processing contracts currently in place at three different gas plants in the area, Kelt expects to add an incremental 75.0 MMcf per day of gas processing capacity in the next two years. A third is expected in the fourth quarter of 2023, another third in the first quarter of 2024 and the remaining third in the fourth quarter of 2024.
Kelt expects to spend $300.0 million in its capital expenditure program for 2022. Production is forecasted to average between 30,000 and 31,000 BOE per day, an increase of between 43% and 48% from average production of 20,987 BOE per day in 2021. Adjusted funds from operations for 2022 is forecasted to be $350.0 million or 17% greater than the Company’s planned capital expenditure program. Kelt will continue to maintain its strong financial position. At December 31, 2022, the Company expects to have a net surplus of $25.0 million.
The following table summarizes the changes to 2022 guidance since the Company’s original forecast was prepared in November 2021:
|($MM, unless otherwise specified)||2022
|WTI Crude Oil (USD/bbl)||72.00||85.00||90.00||95.00||6%|
|NYMEX Natural Gas (USD/MMBtu)||4.10||4.15||5.35||6.00||12%|
|Exchange Rate (CAD/USD)||1.227||1.250||1.255||1.280||2%|
|Oil & NGLs (bbls/d)||11,450||11,580||11,580||10,500 – 11,050||(9%) – (5%)|
|Gas (MMcf/d)||111.30||116.52||116.52||117.00 – 119.70||0% – 3%|
|Combined (BOE/d)||30,000||31,000||31,000||30,000 – 31,000||(3%) – 0%|
|Adjusted funds from operations||245.0||300.0||340.0||350.0||3%|
|AFFO per share, diluted||1.28||1.55||1.74||1.79||3%|
|Capital expenditures||200.0 – 210.0||250.0||265.0||300.0||13%|
|Net debt (surplus)||(23.8)||(19.0)||(50.0)||(25.0)||(50%)|
Management looks forward to updating shareholders with 2022 third quarter results on or about November 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 2022. Readers are cautioned that this financial outlook may not be appropriate for other purposes.