Calgary, Alberta – Kelt Exploration Ltd. (TSX: KEL) (“Kelt” or the “Company”) is providing an operations update with respect to the potential impact that current weak AECO and Station 2 spot gas prices may have to its 2022 operating and financial results.
Commencing during the third week of August 2022, daily AECO and Station 2 spot prices dropped significantly as a result of pipeline maintenance on the NGTL and T-South systems, an unplanned compressor failure in Alberta and restrictions to gas storage injections. Given the short-term nature of these low daily index prices, Kelt believed it would be prudent to temporarily shut-in certain drier gas wells in anticipation of a short turnaround price recovery. As a result, the Company shut-in significant gas volumes on certain days in both Alberta and British Columbia. Subsequently, current AECO prices have rebounded, however, AECO prices could remain volatile through September and October as further maintenance on the NGTL system is completed. Based on published maintenance upgrades on the T-South natural gas transmission system, it is expected that Station 2 prices should recover after maintenance is expected to be completed by September 16, 2022.
On September 2, 2022, the TWM Pipestone Plant where Kelt processes approximately 33.0 MMcf per day of raw gas was shut-in as it conducts plant turnaround maintenance operations. The plant is expected to be shut-in for approximately three weeks.
Kelt is reducing its production guidance to be in a range from 28,500 to 29,500 BOE per day (previously forecasted to be in the range from 30,000 to 31,000 BOE per day). At current future strip pricing for both oil and gas and after adjusting for shut-in production outlined above, Kelt expects its estimated 2022 adjusted funds from operations to be within 3% of its previous forecast of $350.0 million.
The following table summarizes average commodity prices during the first eight months of 2022 and future strip pricing used by Kelt for the remainder of the year:
|WTI Crude Oil (USD/bbl)||100.65||82.25||94.50||95.00||(1%)|
|MSW Oil (CAD/bbl)||126.17||104.88||119.05||117.88||1%|
|NYMEX Natural Gas (USD/MMBtu)||6.26||8.18||6.90||6.00||15%|
|DAWN Natural Gas (USD/MMBtu)||6.27||8.08||6.88||5.95||16%|
|AECO Natural Gas (CAD/MMBtu)||5.52||5.72||5.59||5.70||(2%)|
|Station 2 Natural Gas (CAD/MMBtu)||5.23||5.65||5.37||5.54||(3%)|
|Exchange Rate (CAD/USD)||1.277||1.310||1.288||1.280||1%|
Oak/Flatrock Program Update
After a hiatus in issuing new well permits that commenced over a year ago, the BC Oil and Gas Commission has granted Kelt several new permits for drilling operations at Oak/Flatrock. During the fourth quarter of 2022, Kelt expects to drill and complete two Upper Montney wells off an existing pad on the western part of its Oak land block and complete an existing Middle Montney DUC well on the eastern part of its lands at Flatrock.
Kelt expects to commence its electrification project of its Oak 6-35 battery and compression facility during the fourth quarter of 2022. Upon electrification, the Company expects to increase gas compression capacity at the facility by approximately 10% to accommodate new development in the area. Electrification of Kelt’s facility will result in significant reductions of CO2E emissions and will reduce carbon tax expenses.
In August 2022, the Government of British Columbia, under BC’s 2022 Clean Growth Infrastructure Royalty Program, approved Kelt’s application to recover approximately 50% of $9.8 million ($4.9 million) in future sustainability related infrastructure capital expenditures through reduced future royalties payable relating to future horizontal Montney wells expected to be drilled at Flatrock.
Kelt remains optimistic about the energy industry and the Company’s ability to provide shareholders with high rates of return on capital deployed. Kelt will continue to reinvest cash flow into developing its high-quality Montney and Charlie Lake pools.
Changes in forecasted commodity prices and variances in production estimates can have a significant impact on estimated funds from operations and profit. Kelt retains flexibility with its future capital expenditure plans should current market conditions change. Please refer to the advisories regarding forward-looking statements and to the cautionary statement below.
Management looks forward to updating shareholders with 2022 third quarter results on or about November 10, 2022.
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.