Kelt Exploration Ltd. reported its Q1 2019 results..

Results:

Kelt’s operating results for the first quarter ended March 31, 2019 are summarized as follows:

(1) Refer to advisories regarding non-GAAP financial measures and other key performance indicators.

Message to Shareholders

Kelt Exploration Ltd. (“Kelt” or the “Company”) reports its financial and operating results to shareholders for the first quarter ended March 31, 2019.

Average production for the three months ended March 31, 2019 was 27,057 BOE per day, relatively unchanged compared to average production of 26,978 BOE per day during the first quarter of 2018. Quarter- over-quarter,daily average production in the first quarter of 2019 was 6% lower than average production of 28,711 BOE per day in the fourth quarter of 2018. Production for the three months ended March 31, 2019 was weighted 43% oil and NGLs and 57% gas. However, operating income was weighted 66% oil and NGLs and 34% gas.

Kelt’s realized average oil price during the first quarter of 2019 was $67.17 per barrel, down 1% from $68.16 per barrel in the first quarter of 2018. The realized average NGLs price during the first quarter of 2019 was $25.20 per barrel, down 18% from $30.56 per barrel in the same quarter of 2018. Kelt’s realized average gas price for the first quarter of 2019 was $5.18 per Mcf, up 62% from $3.20 per Mcf in the corresponding quarter of the previous year. Kelt benefits with premium natural gas price realizations compared to AECO as a result of its gas market diversification portfolio.

For the three months ended March 31, 2019, revenue was $102.6 million and adjusted funds from operations was $51.4 million ($0.28 per share, diluted), compared to $90.0 million and $45.7 million ($0.25 per share, diluted) respectively, in the first quarter of 2018. Funds from operations for the first quarter of 2019 was a record high quarterly amount reported by the Company for any given quarter since Kelt commenced operations in February 2013. At March 31, 2019, bank debt, net of working capital was $258.4 million, up from $173.6 million at March 31, 2018. The Company and its lenders have amended Kelt’s credit facility increasing the amount of borrowings available by 26% to $315.0 million, up from the previous borrowing base amount of $250.0 million.

Net capital expenditures incurred during the three months ended March 31, 2019 were $108.0 million. During the first quarter of 2019, the Company spent $67.4 million on drill and complete operations, $37.1 million on equipment, facilities and pipelines and $0.5 million on land and seismic. Asset acquisitions, net of dispositions were $3.0 million. Kelt was ahead of schedule with its pipeline construction projects at Inga/Fireweed during the quarter.

During the first quarter of 2019, Kelt drilled four horizontal Upper Montney (D3/D4) wells at Wembley/Pipestone. These wells are expected to be completed prior to August 2019 in anticipation of the start-up of the Tidewater Pipestone Sour Deep-Cut Gas Plant in late August/early September. Kelt plans to drill and complete three additional wells at Wembley/Pipestone prior to the Gas Plant start-up.

At Fireweed, the Company completed five Montney wells that were previously drilled from the same pad in 2018. Three of these wells were in the Upper Montney and two of the wells were in the Middle Montney. Kelt expects to have these five wells on production by the start of the third quarter in 2019. Also at Fireweed, Kelt drilled a Doig well located at D-002-A/94-A-13. This well is expected to be completed during the month of May with production start-up expected during the month of June 2019. Two Inga Doig wells that commenced production in 2017 and two additional Doig wells that commenced production in late 2018 are all expected to payback the drill, complete and tie-in capital costs in less than a year.

At Inga, Kelt has drilled and completed the first six wells on its 24-well pad Montney cube development program. The next six wells have also now been drilled and are expected to be completed by July 2019. The average drill and complete cost per well for the first six wells was $5.0 million, 7% below budgeted costs of $5.4 million per well. All six wells are currently tied-in to Kelt’s Inga 2-10 facility. After flowing frac fluid back on clean-up, aggregate sales production volumes from these six wells for seven days (168 producing hours) was 7,453 BOE per day (83% oil and NGLs). The Company completed three wells using the open hole ball- drop completion method and three wells using the plug and perf completion method, as summarized in the table below:

At Stoddart, the Company drilled and completed a Middle Montney well located at 00/16-08-087-21W6. This is the first Montney test on the south-east portion of Kelt’s 220-section contiguous land block at Inga/Fireweed/Stoddart. Initial production results from the well are very encouraging. The well was drilled with a horizontal lateral of approximately 2,614 metres and was completed using the open hole ball-drop hydraulic fracturing method with 3,082 tonnes (1.18 tonnes per metre) of proppant. Frac fluid was pumped at an average rate of 10.4 cubic metres per minute. The well was flowed back to clean up for 13 days. The well was shut in for two weeks for tie-in, after which it was brought on production with the average sales volumes in the last six days (144 producing hours) of approximately 945 BOE per day (67% oil and NGLs). Kelt is pleased with the initial results from this well and will monitor the well for a longer term production profile, as this could unlock a significant amount of additional drilling inventory on the Company’s south-east portion of its Inga/Fireweed/Stoddart land block.