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, 2021. The Company’s financial results are summarized as follows:
FINANCIAL HIGHLIGHTS | Three months ended March 31 | ||||||||
(CA$ thousands, except as otherwise indicated) | 2021 | 2020 | % | ||||||
Petroleum and natural gas sales | 59,835 | 70,918 | -16 | ||||||
Cash provided by operating activities | 26,582 | 50,172 | -47 | ||||||
Adjusted funds from operations (1) | 27,451 | 27,360 | – | ||||||
Basic ($/ common share) (1) | 0.15 | 0.15 | – | ||||||
Diluted ($/ common share) (1) | 0.14 | 0.15 | -7 | ||||||
Profit (loss) and comprehensive income (loss) | 2,854 | (74,085 | ) | -104 | |||||
Basic ($/ common share) | 0.02 | (0.39 | ) | -105 | |||||
Diluted ($/ common share) | 0.02 | (0.39 | ) | -105 | |||||
Total capital expenditures, net of dispositions | 29,446 | 91,126 | -68 | ||||||
Total assets | 775,033 | 1,608,870 | -52 | ||||||
Net bank debt (surplus) (1) | (19,971 | ) | 344,664 | -106 | |||||
Convertible debentures | – | 83,957 | -100 | ||||||
Shareholders’ equity | 607,285 | 850,486 | -29 | ||||||
Weighted average shares outstanding (000s) | |||||||||
Basic | 188,585 | 187,794 | – | ||||||
Diluted | 189,944 | 187,794 | 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 March 31, 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 May 6, 2021.
Kelt’s operating results for the first quarter ended March 31, 2021 are summarized as follows:
OPERATIONAL HIGHLIGHTS | Three months ended March 31 | ||||||||
(CA$ thousands, except as otherwise indicated) | 2021 | 2020 | % | ||||||
Average daily production | |||||||||
Oil (bbls/d) | 3,972 | 9,684 | -59 | ||||||
NGLs (bbls/d) | 3,429 | 4,583 | -25 | ||||||
Gas (mcf/d) | 68,752 | 99,236 | -31 | ||||||
Combined (BOE/d) | 18,860 | 30,806 | -39 | ||||||
Production per million common shares (BOE/d) (1) | 100 | 164 | -39 | ||||||
Average realized prices, before financial instruments (1) | |||||||||
Oil ($/bbl) | 67.47 | 45.58 | 48 | ||||||
NGLs ($/bbl) | 34.28 | 14.37 | 139 | ||||||
Gas ($/mcf) | 3.77 | 2.35 | 60 | ||||||
Operating netbacks ($/BOE) (1) | |||||||||
Petroleum and natural gas sales | 35.25 | 25.30 | 39 | ||||||
Cost of purchases | (1.08 | ) | (1.25 | ) | -14 | ||||
Average realized price, before financial instruments (1) | 34.17 | 24.05 | 42 | ||||||
Realized gain (loss) on financial instruments | (1.10 | ) | 2.60 | -142 | |||||
Average realized price, after financial instruments (1) | 33.07 | 26.65 | 24 | ||||||
Royalties | (2.70 | ) | (1.02 | ) | 165 | ||||
Production expense | (9.45 | ) | (10.85 | ) | -13 | ||||
Transportation expense | (3.25 | ) | (3.50 | ) | -7 | ||||
Operating netback (1) | 17.67 | 11.28 | 57 | ||||||
Total landholdings | |||||||||
Gross acres | 795,790 | 1,051,212 | -24 | ||||||
Net acres | 575,648 | 819,285 | -30 |
(1) Refer to advisories regarding non-GAAP financial measures and other key performance indicators.
Message to Shareholders
The COVID-19 pandemic that began over a year ago 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 continues to enforce measures that were introduced to protect the well-being of these stakeholders and is proud of the dedication of its workforce to maintain safe operations and business continuity during a challenging environment.
During 2020, revenue generated by sales of oil and gas was adversely affected by the precipitous decline in oil and gas prices as a result of the unprecedented destruction in demand for the commodities due to global lockdowns and business interruptions. Several pharmaceutical companies have now developed vaccines as a measure to prevent or reduce infections. As the global economy recovers, the demand for oil and gas has also commenced a recovery, with both oil and gas current prices trading at or above pre-pandemic levels.
Kelt’s average production for the three months ended March 31, 2021 was 18,860 BOE per day, down 39% from average production of 30,806 BOE per day during the first quarter of 2020. Lower production in 2021 compared to the previous year reflects the sale of the Company’s Inga assets completed in August 2020. Average production from the assets disposed for the first quarter of 2020 was approximately 14,369 BOE per day. Quarter over quarter, Kelt recorded significant production growth of 14% from average production of 16,476 BOE per day during the fourth quarter of 2020. In addition, production for the first quarter of 2021 was higher than the Company’s internal estimates primarily due to better-than-expected performance from new wells that came on-stream in the Pouce Coupe area of Alberta. Production for the three months ended March 31, 2021 was weighted 39% oil and NGLs, and 61% gas.
Kelt’s realized average oil price during the first quarter of 2021 was $67.47 per barrel, up 48% from $45.58 per barrel in the first quarter of 2020. The realized average NGLs price during the first quarter of 2021 was $34.28 per barrel, up 139% from $14.37 per barrel in the same quarter of 2020. Kelt’s realized average gas price for the first quarter of 2021 was $3.77 per Mcf, up 60% from $2.35 per Mcf in the corresponding quarter of the previous year.
For the three months ended March 31, 2021, sales revenue was $59.8 million and adjusted funds from operations was $27.5 million ($0.14 per share, diluted); compared to $70.9 million and $27.4 million ($0.15 per share, diluted) respectively, in the first quarter of 2020. At March 31, 2021, the Company had no bank debt outstanding and a working capital surplus of $20.0 million; compared to aggregate bank debt, principal amount of convertible debentures outstanding and working capital deficit of $434.6 million, at March 31, 2020.
Net capital expenditures incurred during the three months ended March 31, 2021 were $29.5 million. During the first quarter of 2021, the Company spent $17.7 million on drill and complete operations and $11.4 million on facilities and pipelines. Part of the infrastructure spending during the quarter was opportunistic, as other companies reduced their capital spending budgets, allowing Kelt to acquire both casing and line pipe at below market prices. This inventory of casing and line pipe will be used by the Company during the remainder of 2021 when it commences tie-ins on numerous wells, as described below.
At Oak/Flatrock, Kelt currently has two Montney wells that have been drilled, completed and tested and eight additional wells that have been drilled and are awaiting completion (“DUCs”). Completion operations on the eight DUCs are expected to commence in the second quarter of 2021. The Company expects to construct a gas compression and oil battery facility at Oak during the third quarter of 2021. Production is expected to commence from the ten new Oak wells during October 2021.
At Pouce Coupe, Kelt commenced production from two high deliverability Montney gas wells during the first quarter of 2021. Both wells combined produced in excess of 22.0 MMcf per day during the month of March 2021. The Company has an inventory of 32 additional locations on its high deliverability gas land block at Pouce Coupe West. The Company has commenced a three-well drilling program in the oilier part of its central Pouce Coupe land block. These wells are expected to be completed and brought on production during the third quarter of 2021.
At Spirit River, Kelt drilled two wells from the same pad in the Charlie Lake formation; one targeting the Lower Charlie Lake and the other targeting the Upper Charlie Lake. These DUCs are expected to be completed and brought on production early in the third quarter of 2021.
At Wembley/Pipestone, Kelt currently has three Montney wells that have been drilled, completed and tested and two additional wells that are DUCs. The Company expects to complete the two DUCs and tie-in both the wells by mid-year 2021. The three drilled and completed Montney wells are expected to be tied-in during the first half of 2022, along with three additional wells that are expected to be drilled during the second half of 2021. Kelt plans to drill, complete and tie-in one more Wembley Montney well that is located in close proximity to existing infrastructure, during the second half of 2021.
Despite better-than-expected production results in the first quarter of 2021, Kelt’s 2021 financial and operating outlook and guidance remains unchanged from its previous report included in the Company’s press release dated March 11, 2021. Crude oil prices continue to perform better than forecasted and Kelt expects to review its capital spending plans over the next two months.
Despite the roll-out of vaccinations, COVID-19 infections continue to rise in certain countries around the world that may affect the recovery of global oil consumption. Kelt has a strong financial position and has the flexibility operationally to increase capital spending on its portfolio of high rate of return projects. The Company will continue to monitor commodity prices and with continued strength in oil and gas prices, will announce any changes to its 2021 guidance accordingly.
Management looks forward to updating shareholders with 2021 second quarter results on or about August 5, 2021.
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. Readers are cautioned that this financial outlook may not be appropriate for other purposes.