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Kelt Re-Evaluating 2020 Plan; Reports Fourth Quarter 2019 Results

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   |    Monday,March 09,2020

Kelt Exploration Inc. reported its Q4 2019 results.

Commodity Prices / Evaluating 2020 Plan

Kelt’s current commodity price forecast for 2020 assumes that WTI crude oil prices will average US$52.00 per barrel and NYMEX Henry Hub natural gas prices will average US$2.25 per MMBtu. With the recent volatility in both oil and gas prices, the Company expects to provide an updated 2020 commodity price forecast to shareholders early in May when Kelt reports its 2020 first quarter results.

The Company will re-evaluate its spending plans for the remainder of 2020 after the first quarter is complete. Kelt is currently planning to defer certain capital expenditures that were previously expected to be incurred in the second quarter of 2020 to the second half of 2020. The Company’s forecasted capital expenditures for 2020 is $225.0 million which is in line with forecasted adjusted funds from operations of $225.0 million. Kelt will continue to monitor oil and gas prices and if necessary, will adjust its capital expenditures downwards if commodity prices continue to drift lower during 2020.

Kelt expects to report to shareholders its 2020 first quarter results on or about May 7, 2020.

Operations Update

At Inga/Fireweed, Kelt continued operations on its first 24-well Montney cube pad. All 24 wells were drilled by the end of 2019 and the Company moved forward the completion of three of the wells from the third group of six wells to the fourth quarter of 2019, leaving six wells from the fourth group to be completed in the first quarter of 2020. During the fourth quarter of 2019, the Company commenced the installation of a 40-kilometre, 16-inch pipeline that will be capable of transporting 300 MMcf per day of natural gas from its Inga 2-10 facility to the newly constructed AltaGas Townsend Deep-Cut Gas Plant, expected to be on-stream in April 2020. Kelt will benefit from higher liquids recoveries, increased netbacks for its propane barrels based on current far-east Asia prices and lower processing fees for its Inga/Fireweed gas that will be diverted to the AltaGas Townsend Deep-Cut Gas Plant.

At Oak/Flatrock, Kelt began the drilling of a nine well development program in late December 2019 that is expected to be finished during the first half of 2020. Capital expenditures relating to completion operations for these wells, pipeline tie-ins and battery (“Oak facility”) construction are all planned for the second half of 2020. Ten wells (three previously drilled and completed and seven new wells from the 2020 program) are expected to be tied into the Oak facility in 2020 and an additional two wells are slated to be connected during 2021. The Company’s single well tested in the Middle Montney formation at Oak appears to have lower condensate to gas ratios than the Upper Montney which has ratios ranging from 100 to 150 barrels per MMcf of raw gas. All nine wells planned in the 2020 development program at Oak will be targeting the Upper Montney formation.

At Wembley/Pipestone, Kelt installed compression at its newly constructed battery and facility located at 01-14-072-08W6. Although this project was originally planned for 2020, it was brought forward to 2019 as it allows the Company to produce into a higher than anticipated linepack delivering gas and condensate to the Tidewater Pipestone Sour Deep-Cut Gas Processing Plant (the “Pipestone Plant”). Although run times at the Pipestone Plant have not met Kelt’s expectations, the operator of the plant continues to troubleshoot items which should lead to more consistent run times in the future. Kelt wells in the Wembley/Pipestone area have been performing well with oil/condensate to gas ratios during the fourth quarter of 2019 averaging approximately 170 barrels per MMcf of raw gas.

Financials, Production, Etc.

The energy sector is currently experiencing high volatility with fluctuating crude oil prices driven by fears of a retraction in global economic growth. In addition, natural gas prices in most major U.S. gas hubs are trading at low levels coming out of a warmer than average winter in North America. Kelt has taken measures to mitigate near term commodity price volatility by entering into fixed price swap contracts for the first half of 2020 on crude oil and for the summer of 2020 on natural gas.

Average production for the three months ended December 31, 2019 was 31,262 BOE per day, up 9% compared to average production of 28,711 BOE per day during the fourth quarter of 2018. Daily average production in the fourth quarter of 2019 was marginally higher than average production of 31,150 BOE per day in the third quarter of 2019. Kelt achieved a record high calendar year average production in 2019 of 29,961 BOE per day, up 11% from average production of 27,006 BOE per day in 2018. Production for 2019 was weighted 46% to oil and NGLs and 54% to gas.

Kelt’s realized average oil price during the fourth quarter of 2019 was $63.25 per barrel, up 63% from $38.77 per barrel in the fourth quarter of 2018 and down 3% from $65.41 per barrel in the third quarter of 2019. The Company’s realized average NGLs price during the fourth quarter of 2019 was $21.01 per barrel, down 24% from $27.75 per barrel in the fourth quarter of 2018 and up 26% from $16.64 per barrel in the third quarter of 2019. Kelt’s realized average gas price for the fourth quarter of 2019 was $2.95 per MCF, down 54% from $6.37 per MCF in the fourth quarter of 2018 and up 27% from the realized average gas price of $2.32 per MCF in the third quarter of 2019.

For the three months ended December 31, 2019, revenue was $97.8 million and adjusted funds from operations was $46.7 million ($0.25 per share, diluted), compared to $100.3 million and $47.1 million ($0.26 per share, diluted) respectively, in the fourth quarter of 2018. At December 31, 2019, bank debt, net of working capital (“net bank debt”) was $328.1 million, up 67% from $196.4 million at December 31, 2018. The ratio of net bank debt to annualized quarterly adjusted funds from operations for the year was 1.8 times at December 31, 2019.

Net capital expenditures incurred during the three months ended December 31, 2019 were $64.0 million and for the year ended December 31, 2019, net capital expenditures were $315.6 million. During 2019, the Company spent $184.7 million on drill and complete operations, $129.0 million on equipment, facilities and pipelines and $3.6 million on land and seismic. During the year, Kelt realized proceeds of $8.9 million from asset dispositions and incurred $7.2 million on asset acquisitions.

As at December 31, 2019, Kelt’s net working interest land holdings were 819,557 acres (1,280 sections). Kelt is focused on long-term value creation by accumulating significant land acreage on resource style plays, with a primary focus on Triassic Montney oil and liquids-rich gas plays. At December 31, 2019, Kelt’s net Montney land holdings were 517,208 acres (808 sections).