Mr. David Wilson reports

KELT REPORTS SIGNIFICANT INCREASES IN OIL & GAS RESERVES AND PROVIDES AN OPERATIONS UPDATE

Kelt Exploration Ltd. has released its oil and gas reserves and production for the year ended Dec. 31, 2023. Kelt retained Sproule Associates Ltd., an independent qualified reserve evaluator, to prepare a report on its oil and gas reserves. The report is effective as of Dec. 31, 2023. The company has a reserves committee which oversees the selection, qualifications and reporting procedures of the independent qualified reserves evaluator. Reserves effective Dec. 31, 2023, and effective Dec. 31, 2022, were determined using the guidelines and definitions set out under National Instrument 51-101. Additional reserves disclosure as required under NI 51-101 will be included in Kelt's annual information form which is expected to be filed on SEDAR+ on March 8, 2024.

Unaudited information

All financial and operating information in this press release for the fourth quarter and year ended Dec. 31, 2023, such as FDA&D (finding, development, acquisition and disposition) costs, recycle ratio, net debt, capital expenditures, production, operating income, and operating netback, is based on unaudited estimated results and have not been reviewed by the corporation's auditors. These estimates are subject to change upon completion of audited consolidated financial statements for the year ended Dec. 31, 2023, and changes could be material. Kelt anticipates filing its audited consolidated financial statements and related management's discussion and analysis for the year ended Dec. 31, 2023, on SEDAR+ on March 8, 2024.

Reserves

Kelt continues to remain active operationally in its three main divisions, resulting in increases in all categories of reserves compared with the previous year. Capital expenditures and superior well performance led to significant increases in reserves, as summarized herein.

Proved developed producing (PDP) reserves at Dec. 31, 2023 were 71.1 million barrels of oil equivalent (boe), an increase of 16 per cent from 61.1 million boe at Dec. 31, 2022. Proved reserves at Dec. 31, 2023, were 256.6 million boe, up 34 per cent from 192.1 million boe at Dec. 31, 2022. Proved plus probable (P+P) reserves increased by 72.3 million boe or 21 per cent from 340.8 million boe at Dec. 31, 2022, to 413.1 million boe at Dec. 31, 2023.

Proved plus probable oil and NGL (natural gas liquid) reserves increased by 15 per cent year-over-year and the mix increased favourably to a higher netback stream. Light oil, condensate and pentane plus reserves made up 72 per cent of total oil and NGL reserves, or 107.6 million barrels, at Dec. 31, 2023, compared with 62 per cent or 80.1 million barrels at Dec. 31, 2022.

The reduction in propane and ethane weighting is primarily a result of the change in assumptions at Wembley/Pipestone where production from future drilling would be processed at various gas plants per the processing agreements entered into by Kelt versus the mix of gas processing that was available to Kelt assumed in the previous year's evaluation. The change in the mix of gas processing plants also resulted in higher gas reserves due to lower average shrink rates.

Complementing a significant increase in the amount of reserves, the value of the reserves also increased despite lower forecasted oil and gas prices for future years in the Dec. 31, 2023, evaluation.

The West Texas Intermediate (WTI) crude oil price during 2023 averaged $77.63 (U.S.) per barrel, 10 per cent lower than Sproule's 2022 forecast of $86 (U.S.) per barrel provided in the Dec. 31, 2022, evaluation. Sproule is forecasting an average WTI crude oil price of $76 (U.S.) per barrel for 2024, a 10-per-cent decrease from its previous forecast of $84 (U.S.) per barrel.

The NYMEX Henry Hub natural gas price during 2023 averaged $2.53 (U.S.) per MMBtu (million British thermal units), 49 per cent lower than Sproule's 2023 forecast of $5 (U.S.) per MMBtu provided in the Dec. 31, 2022, evaluation. Sproule is forecasting an average NYMEX Henry Hub natural gas price of $2.75 (U.S.) per MMBtu for 2024, a decrease of 39 per cent from its previous forecast of $4.50 (U.S.) per MMBtu.

The attached table outlines forecasted future prices that Sproule has used in its evaluation of the company's reserves.

The company's net present value of P+P reserves at Dec. 31, 2023, discounted at 10 per cent before tax, was $4.5-billion, an increase of 32 per cent from $3.4-billion at Dec. 31, 2022. On a barrel of oil equivalent basis, the net present value of P+P reserves at Dec. 31, 2023, was $10.93 per boe, up 9 per cent from $10.06 per boe at Dec. 31, 2022.

The attached table outlines a summary of the net present value of the company's reserves by category as at Dec. 31, 2023, and at Dec. 31, 2022.

At Dec. 31, 2023, Kelt had 194.5 million common shares issued and outstanding. The net present value of reserves, discounted at 10 per cent before tax, per share at Dec. 31, 2023, was as follows:

• $4.87 per share for proved developed producing reserves;
• $14.54 per share for proved reserves;
• $23.22 per share for proved plus probable reserves.

Results from Kelt's drilling program during the year replaced 2023 production multiple times in each of its reserve categories. The company replaced total 2023 production 1.9 times on a PDP basis, 6.8 times on a proved basis and 7.5 times on a P+P basis.

The attached table shows the 2023 production replacement by reserve category.

2023 capital expenditures

Capital expenditures, net of A&D, for 2023 were $282.6-million. The company drilled 27 net wells (20 wells in Alberta and seven wells in British Columbia) and completed 24 net wells (19 wells in Alberta and five wells in British Columbia). Kelt added additional gas compression, enlarged its oil handling facilities, and expanded its network of oil and gas gathering pipelines.

Future development capital expenditures

Future development capital (FDC) expenditures of $1.8-billion are included in the evaluation for proved reserves and are expected to be incurred over five years from 2024 to 2028. FDC expenditures of $2.5-billion are included in the evaluation of P+P reserves and are expected to be incurred over five years from 2024 to 2028.

The attached table outlines FDC expenditures and future wells to be drilled by province in the company's main horizons, included in the Dec. 31, 2023, reserve evaluation with comparatives from the Dec. 31, 2022, report.

Finding, development, acquisition and disposition costs

Capital expenditures, including property acquisitions and after dispositions, in 2023 were $282.6-million compared with $317.5-million in 2022. The change in FDC costs required to develop P+P reserves was $423-million ($623.3-million in 2022) and the change in FDC costs required to develop proved reserves was $558.2-million ($455.8-million in 2022).

During 2023, the company's total capital costs resulted in net P+P reserve additions of 83.4 million boe; net proved reserve additions of 75.6 million boe; and net PDP reserve additions of 21.1 million boe. As a result, the P+P FDA&D cost per boe was $8.46; the proved FDA&D cost per boe was $11.12; and the PDP FDA&D cost per boe was $13.37.

The recycle ratio is a measure for evaluating the effectiveness of a company's reinvestment program. The ratio measures the efficiency of capital investment (or divestment). It accomplishes this by comparing the operating netback per boe with the same period's reserve FDA&D cost per boe. With significant historic costs related to construction of facilities and infrastructure along with historic cumulative land acquisitions, Kelt is positioned to achieve further efficiencies in production additions and finding and development costs over the coming years, as the company continues to transition from exploration and resource delineation to development and multiwell pad drilling.

In 2023, the company achieved favourable recycle ratios for all three of its major reserve categories. The P+P recycle ratio was three times (compared with 3.5 times in 2022); the proved recycle ratio was 2.3 times (compared with three times in 2022); and the PDP recycle ratio was 1.9 times (compared with 2.9 times in 2022). The attached tables provide detailed calculations relating to FDA&D costs and recycle ratios for 2023 and 2022.

Reserves reconciliation

Kelt's 2023 capital investment program resulted in proved plus probable reserve additions of 83.4 million boe that replaced 2023 production by a factor of 7.5 times.

A reconciliation of Kelt's proved plus probable reserves is provided in the attached table.

The reduction in butane, propane and ethane barrels was primarily a result of the change in assumptions at Wembley/Pipestone where production from future drilling would be processed at various gas plants per the processing agreements entered into by Kelt versus just deep-cut processing assumed in the previous year's evaluation. This also resulted in higher gas reserves due to lower shrink rates. Sulphur production of 7,688 long tons (77 million cubic feet equivalent or 13 Mboe) has been excluded from 2023 production in the attached table.

Continued outperformance of existing producing wells compared with the previous year's forecasts resulted in significant positive technical revisions to both producing wells and offsetting future development locations. Kelt added 10.6 million boe of P+P reserves resulting from positive technical revisions.

Net asset value

Kelt's calculated net asset value per share at Dec. 31, 2023, was $22.75, 298 per cent above the $5.72 closing trading price of the company's common shares on the Toronto Stock Exchange on Dec. 29, 2023.

Details of the net asset value calculation are shown in herein.

Production

Kelt's average production for 2023 was 30,510 boe per day, up 12 per cent from average production of 27,236 boe per day in 2022. Production for 2023 was weighted 38 per cent oil and NGLs and 62 per cent gas. Average production for the fourth quarter of 2023 was 32,344 boe per day, weighted 38 per cent oil and NGLs and 62 per cent gas.

Production for 2023 compared with 2022 is summarized in the attached table.

Operations update

As the company transitions from exploration and resource delineation to development and multiwell pad drilling and in anticipation of significant future production growth, Kelt has entered into various agreements that provide the company with the ability to increase its raw gas processing capacity over the next three years. Kelt's development program is focused on oil- and liquids-rich gas plays and therefore, by adding incremental gas processing capability, the company is able to grow its oil and associated NGL production through its drilling program. Below is a summary of gas processing arrangements in each of the company's three core divisions:

1. Wembley/Pipestone division: Kelt expects to increase firm service raw gas processing capacity from 59 million cubic feet per day to 124 MMcf per day. Kelt will have access, through ownership interests and firm service arrangements, to five gas processing plants in the Wembley/Pipestone area.
2. Pouce Coupe/Progress/Spirit River division: Kelt expects to increase its overall raw gas processing capacity (through plant ownership interest and third party facility firm service arrangements) from approximately 82 MMcf per day to 117 MMcf per day. Kelt will have access to five gas processing plants for production from the Pouce Coupe/Progress/Spirit River area.
3. Oak/Flatrock division: Kelt has the ability to increase firm service raw gas processing capacity from 25 MMcf per day to 90 MMcf per day in three tranches from 2024 to 2026 through gas processing arrangements with a third party.

Current raw gas processing capacity of 166 MMcf per day equates to approximately 34,000 boe per day (38 per cent oil and NGLs and 62 per cent gas) of sales volume capability (100-per-cent run-time). Increasing raw gas processing capacity to 331 MMcf per day by the end of 2026 or early 2027 would equate to capability of approximately 68,000 boe per day of potential sales volumes at the same liquids to gas ratio.

At Wembley/Pipestone, with the start-up of an expansion to a third party gas plant in December, 2023, where Kelt has 25 MMcf per day of firm raw gas processing capacity, the company brought on production new wells that were drilled and completed during 2023. Initial production rates from the Montney wells that were recently brought on stream from the 14-2 pad that is located on the west side of Kelt's contiguous land block are summarized below:

The gross 100-per-cent working interest IP30 rates (estimated sales volumes) are summarized as follows:

1. Wembley 100/16-14-73-8W6 (sfc 14-2): 1,285 boe/d (57 per cent oil and NGLs);
2. Wembley 102/16-14-73-8W6 (sfc 14-2): 1,368 boe/d (61 per cent oil and NGLs).

Also, at Wembley/Pipestone, where Kelt has 34 MMcf per day of firm raw gas processing capacity at another third party gas plant, during January, 2024, the plant processed an average of 28 MMcf/d (83 per cent) of Kelt's share of capacity. The operator has scheduled certain maintenance operations during 2024, after which the company expects it will be able to process incremental volumes leading up to its 34 MMcf per day of available capacity. The company continues to have existing wells temporarily shut in as the company gears up for full gas processing capacity utilization.

In its Wembley/Pipestone division, during 2024, Kelt expects to drill 14 development wells targeting the Montney oil-/liquids-rich gas horizons. The company plans to commence drilling operations at the first of three pads at its existing 14-2 location (five wells) by mid-March, 2024. After which, Kelt will follow-up on two additional pads, five wells and four wells, respectively, as it prepares to add production upon start-up of 50 MMcf per day incremental raw gas processing capacity at a new third party 150 MMcf per day gas plant that is currently under construction. Construction and start-up of this gas plant are expected in the fourth quarter of 2024 or by early 2025.

At Pouce Coupe North, the company has assembled 32 net sections of Charlie Lake rights and has drilled three horizontal wells in the area. Prior to drilling the horizontal wells, Kelt recompleted nine vertical wells in the Charlie Lake formation at Pouce Coupe North. The company expects to remain active in the area in 2024.

At Oak, Kelt commenced an eight-well development drilling program in November, 2023. Two wells were drilled from an existing pad located at 5-33 and these wells have now been completed and are being put on production. Certain production at Oak was temporarily shut in as the company conducted fracing operations. Three wells from an existing pad located at 6-35 have also been drilled and are expected to be completed during the summer of 2024. Drilling operations for the remaining three wells from an existing pad located at 5-31 are currently under way.

2024 guidance

Crude oil prices continue to remain volatile amid geopolitical impact on supply and concerns of slowing global growth. The WTI crude oil price averaged $74.15 (U.S.) per barrel during January, 2024. Kelt has reduced its forecasted average 2024 WTI oil price by 6 per cent from $80 (U.S.) per barrel to $75 (U.S.) per barrel. North American natural gas prices have dropped after a warm winter, resulting from a strong El Nino weather pattern. This resulted in lower heating-related natural gas demand which led to above-average gas storage levels. Kelt has reduced its forecasted average 2024 NYMEX Henry Hub natural gas price by 26 per cent from $3.50 (U.S.)/MMBtu to $2.60 (U.S.)/MMBtu and the company has reduced its forecasted average 2024 AECO (Alberta Energy Company) natural gas price by 30 per cent from $3.16/gigajoule to $2.20/GJ.

In response to lower forecasted natural gas prices, Kelt has reduced its 2024 capital expenditure program to $325-million, down 7 per cent from its previous budget of $350-million. Kelt expects to drill 29 net wells in 2024, down 15 per cent from its previous budget of 34 net wells. Three of the five wells that have been deferred are at Oak and the other two wells are at Pouce Coupe. The company will focus its 2024 capital program on wells that have a higher oil weighting.

Despite a reduced capital expenditure program for 2024, the company has not changed its previous 2024 average production guidance of 36,000 to 39,000 boe per day. Production during the first quarter of 2024 is expected to average between 33,000 and 34,000 boe per day. During the second and third quarters of 2024, Kelt expects production to average between 35,000 and 37,000 boe per day. Kelt has entered into an agreement with a third party mid-stream company to process an additional 50 MMcf per day of raw gas at a new gas plant that is currently under construction in the Wembley/Pipestone area. The newly constructed plant is expected to be complete and commence operations by early Q4 2024. In this scenario, Kelt expects its 2024 average production to be at the higher end of its forecasted annual range. In the event, the new plant does not commence operations until late in Q4 2024, Kelt's 2024 average production is expected to be at the lower end of its forecasted annual range.

Kelt's forecasted 2024 financial and operating highlights, with comparisons with its previous forecast, are summarized in the attached table.

Kelt is pleased with the success of its drilling program in 2023 and the corresponding results that are reflected in significant growth in oil and gas reserves during the year. The company remains optimistic about the energy industry and its ability to provide shareholders with high rates of return on capital deployed. Kelt expects to continue to reinvest cash flow into developing its high-quality Montney and Charlie Lake plays.

Management looks forward to providing shareholders with its 2023 year-end financial results on March 8, 2024.

We seek Safe Harbor.