CALGARY, AB – Kiwetinohk Energy Corp. (TSX: KEC) today announced its 2023 budget and three-year outlook. The Company began preparing to launch a normal course issuer bid.
Kiwetinohk’s 2023 budget is focused on delivering multiple strategic initiatives:
- High rate of return oil and gas production with strong production per share growth.
- Increasing owned gas plant processing capacity to support higher production by the second half of 2023.
- Filling majority of 120 MMcf/d of Chicago market Alliance Pipeline capacity with Company natural gas production.
- Significant growth in adjusted funds flow (AFF1) and future free funds flow (FFF1).
- Financing its first power projects and reaching final investment decisions (FID) on 501 MW of generation capacity.
2023 budget highlights
- Oil and gas sales of 24.5-28.5 thousand boe/d, which is growth of ~50% year/year. Sales estimates include a provision for a 7-10-day shutdown in the third quarter of both Simonette plants for tie-in of expansion capacity.
- AFF1 is forecasted between $355–$450 million (~$8–$10/share), ~50% increase year/year, at US$70–US$80 WTI and US$4.50–US$5.00 HH flat prices2.
- Total planned capital expenditures for Upstream and Green Energy are between $378–$402 million. This plan can be funded at US$50 WTI and US$2.75 HH flat prices while maintaining a target net debt to AFF1 ratio of below 1.0x, due in part to downside protection from hedges put in place during 2022.
- Drill, complete, equip and tie-in (DCET) spending of $270–$285 million resulting in 15.5 net wells on production (10 Simonette Duvernay and 5.5 net Placid Montney). This program includes carry over activity from 2022 and pre-investment supporting the 2024 program. It will maximize economic productivity in the Duvernay, delineate and prove the Montney in both Simonette and West Placid and retain land in both Simonette and Placid.
- Facility expansion capital of ~$50 million will be directed towards expanding owned gas processing capacity in Simonette by ~37 MMcf/d and electrification of the 5-31 Simonette gas plant. The expansions, scheduled for completion by the end of the third quarter, will support the next leg of production growth into year-end 2023 and 2024.
- Additional investments of $40–$45 million will support maintenance of base production volumes, emissions reductions and buildout of field infrastructure to support low-cost future development.
- Green Energy investment of $18–$22 million to further advance pre-construction development activities across Kiwetinohk’s 2,150 MW power project portfolio including ~$2 million to pursue new Green Energy projects.
- Third party financing arrangements are targeted for execution for Kiwetinohk’s 400 MW Homestead Solar and 101 MW Opal Firm Renewable projects in the first half of 2023 with FID anticipated by year-end.
- Asset retirement and reclamation obligation (ARO) spending of $5.5–$7.5 million, in line with the Company’s ESG and stakeholder best practices.
- Cash taxes are not expected to be paid by the Company in 2023 at flat US$80 WTI and US$5.00 HH pricing.
- Return on average capital employed (ROACE)2,3 of 30%-34% at flat US$70–US$80 WTI and US$4.50–US$5.00 HH pricing.
2023 annual financial & operational guidance summary
Sales volumes1 |
Mboe/d |
24.5 – 28.5 |
22-25 Mboe/d in Q1/23; growth expected in H2/23 following plant expansions |
Oil & liquids |
Mbbl/d |
12.1 – 14.0 |
~50% liquids weighted |
Natural gas |
MMcf/d |
74.4 – 87.0 |
~90% natural gas exposure to Chicago market |
Financial |
|||
Royalty rate2 |
% |
10% – 12% |
C* coverage from new wells, offset by rapid payout |
Operating costs1 |
$/boe |
$8.25 – $9.25 |
~10% per boe improvement year/year |
Transportation |
$/boe |
$6.25 – $7.25 |
Slightly higher than in 2022 due to more gas production sold via Alliance |
Corporate G&A expense3 |
$MM |
$24 – $27 |
$2.30-$3.00/boe a ~10% per boe improvement year/year |
Cash taxes4 |
$MM |
$0 |
Existing tax pools expected to shield cash taxes for 2023 |
Capital |
$MM |
$378 – $402 |
|
Upstream |
$MM |
$360 – $380 |
Investing for growth |
DCET |
$MM |
$270 – $285 |
Further optimization of well designs; unlocking development locations |
Other |
$MM |
$90 – $95 |
Simonette plant expansions & electrification; other field infrastructure |
Green Energy |
$MM |
$18 – $22 |
Progressing power projects and targeted FID on Homestead and Opal |
2023 AFF5 |
Capital budget is FFF neutral +/- 10%5 |
||
US$70 WTI; US$4.50 HH; US$0.73/CAD |
$MM |
$355 – $410 |
|
US$80 WTI; US$5.00 HH; US$0.75/CAD |
$MM |
$390 – $450 |
|
2023 Net debt to AFF5 |
Remain below corporate debt ratio target of 1.0x @ US$50 WTI / US$2.75 HH flat deck |
||
US$70 WTI; US$4.50 HH; US$0.73/CAD |
X |
0.3x – 0.5x |
|
US$80 WTI; US$5.00 HH; US$0.75/CAD |
X |
0.1x – 0.4x |
1 – No plant turnarounds scheduled for 2023; includes 7-10-day shutdown of facilities to accommodate plant expansion work in the third quarter. |
2 – Royalty rate in the table above calculated relative to corporate revenue, which for natural gas revenues is largely determined by US dollar denominated Chicago-based natural gas pricing. |
3 – Includes G&A expenses for all divisions of the Company – Corporate, Upstream, Green Energy and Business Development. |
4 – At US$80 WTI; US$5.00 HH; US$0.75/CAD flat prices for full year. See “Non-GAAP Measures”. |
5 – Non-GAAP measure that does not have any standardized meaning under IFRS and therefore may not be comparable to similar measures presented by other entities. Please refer to the Corporation’s MD&A as at and for the three months ended September 30, 2022 under the section “Non-GAAP Measures” available on Kiwetinohk’s SEDAR profile at www.sedar.com |
Natural gas sales volumes will continue to benefit from access to favourable US Dollar denominated pricing in the Chicago market via Kiwetinohk’s 120 MMcf/d of contracted capacity on the Alliance Pipeline. At the conclusion of the 2023 capital program, Kiwetinohk estimates it will require approximately $160 million of drill, complete, equip, tie-in (DCET) capital to sustain targeted 2023 average annual production rates. Given the large scale of the capital program relative to the corporate enterprise value (~55% at the time of budget Board of Director approval), Kiwetinohk will continue to actively hedge production to protect cash flows and provide a pricing floor required to fund the program.
The three-year outlook is intended to provide investors with increased visibility regarding Kiwetinohk’s strategy, the value of the Company’s asset base and the Company’s projected operational and financial capabilities and prospects. Kiwetinohk intends to grow cash flow from its upstream operations while pursuing its energy transition power projects, reducing debt and increasing free funds flow generation.
Three-year outlook highlights
- Annual production sales growth expected between ~20%-50% in each of the next three years, reaching an expected average annual rate of 38-42 thousand boe/d during 2025, filling expanded processing facilities and Alliance Pipeline capacity with Company production. This represents a three-year compound annual growth rate (CAGR) of ~33% in aggregate production sales volumes and per share volumes.
- AFF and AFF/share growth of ~100% from full year 2022 to above $500 million in 2025, a CAGR of ~27%.
- Free Funds Flow of ~$180–$250 million per year by 2025 (at US$70–US$80 WTI flat oil prices).
- Total capital expenditures between $390–$408 million in 2023-2024, reducing to $318 million by 2025.
- Green Energy division spending of $18–$22 million in 2023, ~$13 million in 2024 and ~$3 million in 2025 is required to deliver the existing project portfolio to FID. In total, the Company expects to maintain spending of $15–$20 million per year in Green Energy beyond 2023 to continue advancing additional projects toward FID.
- Green Energy project financing and FID targeted for its 2,150 MW power project portfolio. The Company continues to expand its Green Energy project portfolio with the recognition that projects face development, regulatory and execution risks, and not all projects may reach FID or have guaranteed completion success.
- Green Energy EBITDA with commercial operations dates targeted by the end of 2025 for the 400 MW Homestead Solar, 101 MW Opal Firm Renewable and 170 MW Phoenix Solar projects.
- Debt repayment of all outstanding corporate recourse debt balances.
Three year financial and operational outlook
2023E2, 3 |
2024E2, 3 |
2025E2, 3 |
||
Sales volumes |
||||
Sales volumes low |
Mboe/d |
24.5 |
30 |
38 |
Sales volumes high |
Mboe/d |
28.5 |
34 |
42 |
Capital expenditures4 |
$MM |
$390 |
$408 |
$318 |
Total Upstream |
$MM |
$370 |
$390 |
$300 |
Green Energy |
$MM |
$20 |
$18 |
$18 |
AFF US$70 WTI flat5 |
$MM |
$380 |
$420 |
$500 |
Net Debt / AFF |
X |
0.4 |
0.4 |
(0.1) |
AFF US$80 WTI flat5 |
$MM |
$420 |
$460 |
$570 |
Net Debt / AFF |
X |
0.3 |
0.2 |
(0.3) |
1 – Growth rate shown from mid-point to mid-point. |
2 – 2023-2025 capital expenditures and AFF as per mid-point of guidance and outlook range. |
3 – Three-year outlook is indicative and has not been approved by the Board of Directors, is based on preliminary planning and current market conditions, is subject to change and does not include any funds flow from Green Energy power projects. |
4 – Mid-point of expected capital expenditure range. |
5 – Flat price decks; US$70 WTI; US$4.50 HH; US$0.73/CAD and US$80 WTI; US$5.00 HH; US$0.75/CAD. |
Kiwetinohk is aware of, and concerned with, the lack of trading liquidity of the Company’s stock and believes that this lack of trading liquidity negatively impacts Kiwetinohk’s trading value as measured against the 2021 year-end reserve report NPV calculations and peer trading valuation metrics. To help address this issue, Kiwetinohk has made an application to the Toronto Stock Exchange (TSX) to implement a Normal Course Issuer Bid (NCIB) and Management has provided a three-year outlook to investors with additional information on the future prospects of the Company.
Kiwetinohk believes that the common shares have been trading in a price range which does not adequately reflect their value in relation to the Company’s current operations, growth prospects, energy transition projects and financial position. Kiwetinohk’s capital spending priority remains on growing the upstream production and advancing its power project development portfolio, and the measured application of an NCIB may be used to both repurchase common shares at times when management believes that the market price of the common shares does not reflect their underlying value and provide additional liquidity for shareholders. The NCIB is subject to review and acceptance by the TSX and Kiwetinohk anticipates implementing it in late 2022 or early 2023, subject to such TSX approval.
We, at Kiwetinohk, are passionate about addressing climate change and the future of energy. Kiwetinohk’s mission is to build a profitable energy transition business providing clean, reliable, dispatchable, affordable energy. Kiwetinohk develops and produces natural gas and related products and is in the process of developing renewable power, natural gas-fired power, carbon capture and hydrogen clean energy projects. We view climate change with a sense of urgency, and we want to make a difference.
Kiwetinohk’s common shares trade on the Toronto Stock Exchange under the symbol KEC.
Additional details are available within the year-end documents available on Kiwetinohk’s website at www.kiwetinohk.com and SEDAR at www.sedar.com.
For the purpose of calculating unit costs, natural gas is converted to a barrel of oil equivalent using six thousand cubic feet of natural gas equal to one barrel of oil unless otherwise stated. The term barrel of oil equivalent (boe) may be misleading, particularly if used in isolation. A boe conversion ratio for gas of 6 Mcf:1 boe is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.