Kelt Reports Financial and Operating Results for the Three and Nine Months Ended September 30, 2020

Calgary, Alberta--(Newsfile Corp. - November 10, 2020) - Kelt Exploration Ltd. (TSX: KEL) ("Kelt" or the "Company") reports its financial and operating results to shareholders for the three and nine months ended September 30, 2020.

The Company's financial results are summarized as follows:

FINANCIAL HIGHLIGHTSThree months ended September 30Nine months ended September 30
(CA$ thousands, except as otherwise indicated)20202019%20202019%
Petroleum and natural gas sales48,82393,274-48165,195296,593-44
Cash provided by (used in) operating activities(8,610)14,640-15955,991127,092-56
Adjusted funds from operations (1)9,00239,173-7748,074135,866-65
Basic ($/ common share) (1)0.050.21-760.260.74-65
Diluted ($/ common share) (1)0.050.21-760.250.74-66
Profit (loss) and comprehensive income (loss)(24,080)(2,909)728(350,826)9,200-3913
Basic ($/ common share)(0.13)(0.02)550(1.87)0.05-3840
Diluted ($/ common share)(0.13)(0.02)550(1.87)0.05-3840
Total capital expenditures, net of dispositions(497,321)52,657-1044(378,427)251,641-250
Total assets824,7511,602,566-49824,7511,602,566-49
Net bank debt (surplus) (1)(127,584)320,507-140(127,584)320,507-140
Convertible debentures89,91081,6301089,91081,63010
Shareholders' equity576,862908,190-36576,862908,190-36
Weighted average shares outstanding (000s)





Basic188,126184,2662187,939184,1462
Diluted188,740184,4202188,677184,7172
 
(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 September 30, 2020 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 November 10, 2020.

Kelt's operating results for the third quarter ended September 30, 2020 are summarized as follows:

OPERATIONAL HIGHLIGHTSThree months ended September 30Nine months ended September 30
(CA$ thousands, except as otherwise indicated)20202019%20202019%
Average daily production





Oil (bbls/d)5,7129,981-438,0649,179-12
NGLs (bbls/d)4,2864,480-44,6444,3567
Gas (mcf/d)74,672100,136-2590,86195,921-5
Combined (BOE/d)22,44331,150-2827,85229,522-6
Production per million common shares (BOE/d) (1)119169-30148160-8
Average realized prices, before financial instruments(1)





Oil ($/bbl)48.1365.41-2639.2068.29-43
NGLs ($/bbl)16.3316.64-213.5920.47-34
Gas ($/mcf)2.242.32-32.203.38-35
Operating netbacks ($/BOE) (1)





Petroleum and natural gas sales23.6532.55-2721.6536.81-41
Cost of purchases(0.85)(1.72)-51(0.83)(1.59)-48
Average realized price, before financial instruments(1)22.8030.83-2620.8235.22-41
Realized gain (loss) on financial instruments(3.49)0.02-175501.68(0.08)-2200
Average realized price, after financial instruments(1)19.3130.85-3722.5035.14-36
Royalties(0.94)(1.60)-41(0.93)(1.95)-52
Production expense(7.74)(8.88)-13(9.56)(9.21)4
Transportation expense(3.61)(4.69)-23(3.58)(5.00)-28
Operating netback (1)7.0215.68-558.4318.98-56
Total landholdings





Gross acres802,1001,062,582-25802,1001,062,582-25
Net acres581,633828,358-30581,633828,358-30
 
(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 third quarter ended September 30, 2020.

Kelt continues to monitor current market conditions resulting from the on-going COVID-19 pandemic. The Company's highest priority remains the health and safety of its employees, partners and the communities where it operates. Kelt continues to maintain measures that have been put in place 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 the on-going pandemic.

On August 21, 2020, Kelt completed the sale of its Inga/Fireweed Division. Cash proceeds were $510.0 million, prior to closing adjustments. In addition, the purchaser assumed certain specific financial obligations related to the assets in the amount of approximately $41.0 million. Kelt's third quarter results reflect the sale and the associated closing adjustments to account for the July 1, 2020 effective date of the transaction.

Average production for the three months ended September 30, 2020 was 22,443 BOE per day, down 28%, compared to average production of 31,150 BOE per day during the third quarter of 2019. Production for the three months ended September 30, 2020 was weighted 45% oil and NGLs and 55% gas.

Kelt's realized average oil price during the third quarter of 2020 was $48.13 per barrel, down 26% from $65.41 per barrel in the third quarter of 2019. The decrease in realized oil prices was primarily related to the decline in global oil demand resulting from the COVID-19 pandemic, despite the efforts of global oil producers to reduce supply by curtailing portions of their oil production. The realized average NGLs price during the third quarter of 2020 was $16.33 per barrel, relatively unchanged from $16.64 per barrel in the same quarter of 2019.

Kelt's realized average gas price for the third quarter of 2020 was $2.24 per Mcf, down 3% from $2.32 per Mcf in the corresponding quarter of the previous year. As producers in Canada and the United States curtailed capital expenditures, resulting from the financial stresses caused by the COVID-19 pandemic, North American gas supply has been reduced considerably. Initially, the pandemic also resulted in global gas demand destruction which in turn negatively impacted North American LNG exports. As global gas demand begins to recover with the onset of colder winter weather, North American LNG exports are expected to increase creating a tighter supply-demand differential which is currently being reflected in the pricing of the gas futures market for 2021.

For the three months ended September 30, 2020, revenue was $48.8 million and adjusted funds from operations was $9.0 million ($0.05 per share, diluted), compared to $93.3 million and $39.2 million ($0.21 per share, diluted) respectively, in the third quarter of 2019.

During the third quarter of 2020, Kelt unwound 50% (1,500 bbls/d) of its crude oil fixed MSW price financial contracts for the remainder of the year. These contracts were put in place prior to the disposition of the Inga/Fireweed assets. The Company has taken advantage of the recent run up in future natural gas prices by entering into the following financial contracts:

  • Kelt has fixed the NYMEX Henry Hub price on gas sales of 5,000 MMBtu/d at a price of CAD $3.95/MMBtu for the period from December 1, 2020 to October 31, 2021;
  • Kelt has fixed the NYMEX Henry Hub price on gas sales of 5,000 MMBtu/d at a price of CAD $4.05/MMBtu for the period from January 1, 2021 to October 31, 2021; and,
  • Kelt has fixed the AECO Hub price on gas sales of 5,000 GJ/d (approximately 4,750 MMBtu/d) at a price of CAD $2.70/GJ (CAD $2.84/MMBtu) for the period from December 1, 2020 to October 31, 2021.

Capital expenditures incurred during the three months ended September 30, 2020 were $8.8 million, down 84% from $54.2 million of capital expenditures during the third quarter of 2019. Proceeds from the sale of assets during the third quarter of 2020 were $506.2 million, up from only $1.5 million in the same period of 2019. The majority of the asset sale proceeds during the third quarter of 2020 was from the sale of the Company's Inga/Fireweed Division.

At September 30, 2020, the Company had no bank debt outstanding. Cash and cash equivalents at September 30, 2020 were $135.5 million. On October 3, 2020, Kelt redeemed the $89.9 million of outstanding principal amount of its 5.00% convertible unsecured subordinated debentures.

Re-instating 2020 Guidance

Kelt expects its average 2020 production to be approximately 24,400 BOE per day, weighted approximately 44% oil and NGLs and 56% gas. Kelt is forecasting 2020 average commodity prices as follows: US$38.00 per barrel for WTI oil and US$2.10 per MMBtu for NYMEX Henry Hub natural gas.

Kelt expects adjusted funds from operations in 2020 to be approximately $57.0 million or $0.30 per diluted share. Kelt does not expect to have any bank debt outstanding at December 31, 2020 and the Company is forecasting a working capital surplus amount of $30.0 million at year-end.

Kelt continues to reduce production expenses by minimizing trucking of water and oil through infrastructure optimization and through the use of Company owned water injection facilities. Kelt has reduced its exposure to higher transportation cost gas hubs in the United States and is directing larger gas volumes to the western Canadian AECO gas market where the Company believes the market will remain under supplied over the next year.

At Wembley/Pipestone, Kelt has completed construction of its infrastructure giving the Company access to flow gas to three significant sized gas processing plants in the area. Kelt has significant behind pipe volumes at Wembley/Pipestone from five wells that have been drilled and completed. The Company expects to have two additional wells drilled (DUCs) at Wembley/Pipestone by year-end. Kelt expects to tie-in certain wells at Wembley/Pipestone in 2021 and will monitor future crude oil prices to determine the timing of pipeline construction required to tie-in the remaining wells that currently have production behind pipe.

Kelt expects the supply-demand differential in the gas market to tighten with the onset of winter, given the recent declines in Canadian and United States gas production. The Company plans to take advantage of these anticipated strong gas markets by drilling two high deliverability gas wells at its Pouce Coupe property in the fourth quarter of 2020.

2021 Budget

The Company's Board of Directors has approved a capital expenditure budget of $90.0 million for 2021. Kelt expects to drill 10 gross (10.0 net) wells in 2021 and expects to complete 12 gross (12.0 net) wells in 2021. The Company expects to have 5 gross (5.0 net) wells drilled but un-completed ("DUC") by the end of 2021. The 2021 capital expenditures are expected to be allocated as follows: $58.5 million for drilling and completing wells, $28.0 million for facilities, pipeline and equipment and $3.5 million for land and seismic.

At Wembley/Pipestone, the Company plans to drill four wells and also complete four wells. At Pouce Coupe, Kelt plans to complete the two high deliverability gas wells that are expected to be drilled in November/December 2020. At Oak/Flatrock, Kelt expects to drill five wells and complete six wells, leaving the year with three DUCs. The Company also expects to drill a vertical stratigraphic well at Oak, which after evaluation will be converted to a water disposal well. At Oak/Flatrock, Kelt expects to construct an oil battery, a gas compression facility and related pipeline infrastructure during the summer of 2021.

Preparation of the 2021 budget includes the following forecasted commodity price assumptions (with estimated forecasted 2020 commodity prices shown for comparative purposes):

Commodity Price Index2021 Budget2020 ForecastChange
WTI Crude Oil (USD/bbl)38.5038.00+ 1%
MSW Crude Oil (USD/bbl)34.5032.68+ 6%
NYMEX Natural Gas (USD/MMBtu)3.102.10+ 48%
DAWN Gas Daily Index (USD/MMBtu)3.001.95+ 54%
CHICAGO City Gate Gas Daily Index (USD/MMBtu)3.001.95+ 54%
AECO [5A] Gas Daily Index (USD/MMBtu)2.401.80+ 33%
Station 2 [7B] Gas Monthly Index (USD/MMBtu)2.351.70+ 38%
Exchange Rate (USD/CAD)0.7460.740+ 1%
Exchange Rate (CAD/USD)1.3401.351− 1%

 

Financial and operating highlights for 2021 compared to the 2020 forecast are highlighted in the table below:

Financial and Operating Highlights
($ MM, unless otherwise specified)
2021 Budget2020 ForecastChange
Production


Oil & NGLs (bbls/d)6,50010,800− 40%
Gas (MMcf/d)66,00081,600− 19%
Combined (BOE/d)17,50024,400− 28%




Revenue175.0200.0− 13%
Adjusted Funds from Operations66.557.0+ 17%
AFFO per share, diluted ($/share)0.350.30+ 17%
Capital Expenditures, net of dispositions90.0(359.0)− 125%
Bank Debt, at year-endnil nil nil
Working Capital Deficit (Surplus), at year-end(4.0)(30.0)− 87%

 

During this period of uncertain economic conditions and volatile fluctuations in commodity prices driven by political headlines and the effects of the on-going COVID-19 pandemic, Kelt has strategically put itself in a position of financial strength, with no bank debt, a positive working capital position and a large Montney land acreage position (370,475 net acres or 579 net sections) to grow the Company's remaining production base as crude oil prices improve. In addition to its three Montney play areas at Wembley/Pipestone, Pouce Coupe/Progress and Oak/Flatrock, the Company is also in a position to develop its Charlie Lake play (74,720 net acres or 117 net sections) in Alberta.

Kelt will reassess its 2021 capital expenditure plans after the first quarter of 2021 in the event that actual commodity prices differ materially from the Company's forecasted prices. The Company will retain the flexibility to either increase or decrease capital spending plans accordingly.

Effective November 9, 2020, Louise K. Lee has been appointed as Corporate Secretary of Kelt. Ms. Lee is a partner at the law firm of Borden Ladner Gervais LLP. Ms. Lee has extensive experience advising clients on public financings, mergers and acquisitions. She also assists clients to ensure compliance with corporate and securities regulatory requirements. William C. Guinan, Kelt's previous Corporate Secretary, will continue to serve as a Director and as Chairman of the Board of Directors. In addition, effective November 9, 2020, Douglas J. Errico has been appointed as Senior Vice President, Land and Corporate Development. Mr. Errico has been Vice President, Land of Kelt since October 22, 2012.

Management looks forward to updating shareholders with 2020 year-end results on or about March 10, 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 2020. Readers are cautioned that this financial outlook may not be appropriate for other purposes.

Advisory Regarding Forward-Looking Statements

This press release contains forward-looking statements and forward-looking information within the meaning of applicable securities laws. The use of any of the words "expect", "anticipate", "continue", "estimate", "execute", "ongoing", "may", "will", "project", "should", "believe", "plans", "intends", "forecasted" and similar expressions are intended to identify forward-looking information or statements. In particular, this press release contains forward-looking statements pertaining to the following: Kelt's expected price realizations and future commodity prices; expectations for operating costs, transportation expenses and royalties, the cost and timing of future capital expenditures and expected well results; anticipated production volumes; the expected timing of well completions, the expected timing of wells bring brought on-production, the expected timing of facility expenditures, the expected timing of facility start-up dates, the expected timing of production additions from capital expenditures; and the Company's expected future financial position and operating results.

Although Kelt believes that the expectations and assumptions on which the forward-looking statements are based are reasonable, undue reliance should not be placed on the forward-looking statements because Kelt cannot give any assurance that they will prove to be correct. Since forward-looking statements address future events and conditions, by their very nature they involve inherent risks and uncertainties. Actual results could differ materially from those currently anticipated due to a number of factors and risks. These include, but are not limited to, the risks associated with the oil and gas industry in general, operational risks in development, exploration and production; delays or changes in plans with respect to exploration or development projects or capital expenditures; the uncertainty of reserve estimates; the uncertainty of estimates and projections relating to production, costs and expenses; failure to obtain necessary regulatory approvals for planned operations; health, safety and environmental risks; uncertainties resulting from potential delays or changes in plans with respect to exploration or development projects or capital expenditures; volatility of commodity prices, currency exchange rate fluctuations; imprecision of reserve estimates; as well as general economic conditions, stock market volatility; and the ability to access sufficient capital. We caution that the foregoing list of risks and uncertainties is not exhaustive.

In addition, the reader is cautioned that historical results are not necessarily indicative of future performance. The forward-looking statements contained herein are made as of the date hereof and the Company does not intend, and does not assume any obligation, to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise unless expressly required by applicable securities laws.

Certain information set out herein may be considered as "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 periods indicated. Readers are cautioned that the financial outlook may not be appropriate for other purposes.

Any reference in this press release to IP rates is useful in confirming the presence of hydrocarbons. IP rates are not determinative of the rates at which wells will continue production and decline thereafter and are not necessarily indicative of long term performance. While encouraging, readers are cautioned not to place reliance on such rates in calculating aggregate production for the Company.

Non-GAAP Financial Measures and Other Key Performance Indicators

This press release contains certain financial measures, as described below, which do not have standardized meanings prescribed by GAAP. In addition, this press release contains other key performance indicators ("KPI"), financial and non-financial, that do not have standardized meanings under the applicable securities legislation. As these non-GAAP financial measures and KPI are commonly used in the oil and gas industry, the Company believes that their inclusion is useful to investors. The reader is cautioned that these amounts may not be directly comparable to measures for other companies where similar terminology is used.

Non-GAAP financial measures

"Operating income" is calculated by deducting royalties, production expenses and transportation expenses from petroleum and natural gas sales, net of the cost of purchases and after realized gains or losses on associated financial instruments. The Company refers to operating income expressed per unit of production as an "operating netback".

"Adjusted funds from operations" is calculated as cash provided by operating activities before changes in non-cash operating working capital, and adding back (if applicable): transaction costs associated with acquisitions and dispositions, provisions for potential credit losses, and settlement of decommissioning obligations. Adjusted funds from operations per common share is calculated on a consistent basis with profit (loss) per common share, using basic and diluted weighted average common shares as determined in accordance with GAAP.

Adjusted funds from operations, annualized quarterly adjusted funds from operations and operating income or netbacks are non-GAAP measures used by management to measure operating performance. Adjusted funds from operations, annualized quarterly adjusted funds from operations, and operating income or netbacks are non-GAAP measures used by management as a key measure to assess the ability of the Company to fund operating activities, capital expenditures and the repayment of debt however; it is not intended to be viewed as an alternative to cash provided by operating activities, profit or other measures of financial performance calculated in accordance with GAAP. The following table reconciles cash provided by operating activities reported in accordance with GAAP to Adjusted funds from operations:


Three months ended September 30Nine months ended September 30
(CA$ thousands, except as otherwise indicated)20202019%20202019%
Cash provided by (used in) operating activities(8,610)14,640-15955,991127,092-56
Change in non-cash working capital17,19124,137-29(9,012)6,654-235
Funds from operations8,58138,777-7846,979133,746-65
Settlement of decommissioning obligations42139661,0952,120-48
Adjusted funds from operations9,00239,173-7748,074135,866-65

 

Throughout this press release, reference is made to "total revenue", "Kelt Revenue" and "average realized prices". "Total revenue" refers to petroleum and natural gas sales (before royalties) as reported in the consolidated financial statements in accordance with GAAP, and is before realized gains or losses on financial instruments. "Kelt Revenue" is a non-GAAP measure and is calculated by deducting the cost of purchases from petroleum and natural gas sales (before royalties). "Average realized prices" are calculated based on "Kelt Revenue" divided by production and reflect the Company's realized selling prices plus the net benefit of oil blending/marketing activities. In addition to using its own production, the Company may purchase butane and crude oil from third parties for use in its blending operations, with the objective of selling the blended oil product at a premium. Marketing revenue from the sale of third-party volumes is included in total petroleum and natural gas sales as reported in the Consolidated Statement of Profit (Loss) and Comprehensive Income (Loss) in accordance with GAAP. Given the Company's per unit operating statistics disclosed throughout this MD&A are calculated based on Kelt's production volumes, management believes that disclosing its average realized prices based on Kelt Revenue is more appropriate and useful, because the cost of third party volumes purchased to generate the incremental marketing revenue has been deducted.

"Average realized prices" referenced throughout this press release are before financial instruments, except as otherwise indicated as being after financial instruments.

"Net bank debt (surplus)" is equal to "bank debt", net of "working capital deficit (surplus)". Working capital deficit (surplus) excludes current bank debt, current convertible debentures, and assets and liabilities held for sale. "Net bank debt (surplus)" is calculated by adding the working capital deficit (surplus) to bank debt. The Company uses a "net bank debt (surplus) and working capital deficit (surplus) to annualized quarterly adjusted funds from operations ratio" and a as a benchmark on which management monitors the Company's capital structure and short-term financing requirements. Management believes that this ratio, as well as the Company's "net bank debt (surplus)", provides investors with information to understand the Company's liquidity risk. The "net bank debt (surplus) and working capital deficit (surplus) to annualized quarterly adjusted funds from operations ratio" is also indicative of the "net debt (surplus) to cash flow" calculation used to determine the applicable margin for a quarter under the Company's Credit Facility agreement (though the calculation may not always be a precise match, it is representative).

Measurements

All dollar amounts are referenced in thousands of Canadian dollars, except when noted otherwise. This press release contains various references to the abbreviation BOE which means barrels of oil equivalent. Where amounts are expressed on a BOE basis, natural gas volumes have been converted to oil equivalence at six thousand cubic feet per barrel and sulphur volumes have been converted to oil equivalence at 0.6 long tons per barrel. The term BOE may be misleading, particularly if used in isolation. A BOE conversion ratio of six thousand cubic feet per barrel is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead and is significantly different than the value ratio based on the current price of crude oil and natural gas. This conversion factor is an industry accepted norm and is not based on either energy content or current prices. Such abbreviation may be misleading, particularly if used in isolation. References to "oil" in this press release include crude oil and field condensate. References to "natural gas liquids" or "NGLs" include pentane, butane, propane, and ethane. References to "liquids" include field condensate and NGLs. References to "gas" in this discussion include natural gas and sulphur.

Abbreviations

bbls
barrels
bbls/dbarrels per day
mcfthousand cubic feet
mcf/dthousand cubic feet per day
mmcfmillion cubic feet
mmcf/dmillion cubic feet per day
tcftrillion cubic feet
MMBTUmillion British Thermal Units
GJgigajoule
BOEbarrel of oil equivalent
BOE/dbarrel of oil equivalent per day
NGLsnatural gas liquids
LNGliquefied natural gas
AECOAlberta Energy Company “C” Meter Station of the NOVA Pipeline System
NITNOVA Inventory Transfer (“AB-NIT”), being the reference price at the AECO Hub
WTIWest Texas Intermediate
NYMEXNew York Mercantile Exchange
Station 2Spectra Energy receipt location
US$United States dollars
CA$Canadian dollars
TSXthe Toronto Stock Exchange
KELtrading symbol for Kelt Exploration Ltd. common shares on the TSX
KEL.DBtrading symbol for Kelt Exploration Ltd. 5% convertible debentures on the TSX
CDECanadian Development Expenses, as defined by the Income Tax Act (Canada)
CEECanadian Exploration Expenses, as defined by the Income Tax Act (Canada)
GAAPGenerally Accepted Accounting Principles

 

For further information, please contact:

Kelt Exploration Ltd., Suite 300, 311 - 6th Avenue SW, Calgary, Alberta, Canada T2P 3H2

David J. Wilson, President and Chief Executive Officer (403) 201-5340, or
Sadiq H. Lalani, Vice President and Chief Financial Officer (403) 215-5310.
Or visit our website at www.keltexploration.com.

To view the source version of this press release, please visit https://www.newsfilecorp.com/release/67869

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