Mr. David Wilson reports
KELT REPORTS FINANCIAL AND OPERATING RESULTS FOR THE QUARTER AND YEAR ENDED DECEMBER 31, 2019
Kelt Exploration Ltd. has released its financial and operating results for the fourth quarter and year ended Dec. 31, 2019.
FINANCIAL HIGHLIGHTS
($ thousands, except as otherwise indicated)
Three months ended Dec. 31, Year ended Dec. 31,
2019 2018 2019 2018
Petroleum and natural gas sales 97,763 100,350 394,356 389,277
Cash provided by operating activities 35,396 63,656 162,488 186,383
Adjusted funds from operations 46,655 47,140 182,521 186,839
Basic ($ per common share) 0.25 0.26 0.99 1.02
Diluted ($ per common share) 0.25 0.26 0.99 1.01
Profit (loss) and comprehensive income (loss) (2,628) 2,843 6,572 8,154
Basic ($ per common share) (0.01) 0.02 0.04 0.04
Diluted ($ per common share) (0.01) 0.02 0.04 0.04
Total capital expenditures, net of dispositions 63,983 70,332 315,624 285,498
Total assets 1,605,465 1,423,521 1,605,465 1,423,521
Net bank debt 328,080 196,416 328,080 196,416
Convertible debentures 82,789 78,390 82,789 78,390
Shareholders equity 923,062 893,796 923,062 893,796
Financial statements
Kelt's audited annual consolidated annual financial statements and related notes for the year ended Dec. 31, 2019, will be available to the public on SEDAR and will also be posted on the company's website on March 9, 2020.
OPERATIONAL HIGHLIGHTS
($ thousands, except as otherwise indicated)
Three months ended Dec. 31, Year ended Dec. 31,
2019 2018 2019 2018
Average daily production
Oil (bbl/d) 9,900 9,301 9,361 8,403
NGLs (bbl/d) 4,888 3,783 4,490 3,186
Gas (mcf/d) 98,844 93,759 96,658 92,502
Combined (boe/d) 31,262 28,711 29,961 27,006
Production per million common shares (boe/d) 169 156 163 148
Average realized prices, before financial instruments
Oil ($/bbl) 63.25 38.77 66.94 65.82
NGLs ($/bbl) 21.01 27.75 20.62 33.81
Gas ($/mcf) 2.95 6.37 3.26 3.76
Operating netbacks ($/boe)
Petroleum and natural gas sales 33.99 37.99 36.06 39.49
Cost of purchases (1.35) (1.05) (1.53) (2.19)
Average realized price, before financial instruments 32.64 36.94 34.53 37.30
Realized gain (loss) on financial instruments (0.11) (2.23) (0.08) (0.60)
Average realized price, after financial instruments 32.53 34.71 34.45 36.70
Royalties (1.25) (2.10) (1.76) (3.11)
Production expense (9.09) (8.58) (9.18) (9.11)
Transportation expense (3.54) (4.64) (4.62) (3.92)
Operating netback 18.65 19.39 18.89 20.56
Total landholdings
Gross acres 1,053,445 1,075,090 1,053,445 1,075,090
Net acres 819,557 838,990 819,557 838,990
Message to shareholders
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 United States 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 Dec. 31, 2019, was 31,262 barrels of oil equivalent per day, up 9 per cent compared with 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 per cent from average production of 27,006 boe per day in 2018. Production for 2019 was weighted 46 per cent to oil and natural gas liquids and 54 per cent to gas.
Kelt's realized average oil price during the fourth quarter of 2019 was $63.25 per barrel, up 63 per cent from $38.77 per barrel in the fourth quarter of 2018 and down 3 per cent 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 per cent from $27.75 per barrel in the fourth quarter of 2018 and up 26 per cent 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 thousand cubic feed (MCF), down 54 per cent from $6.37 per MCF in the fourth quarter of 2018 and up 27 per cent from the realized average gas price of $2.32 per MCF in the third quarter of 2019.
For the three months ended Dec. 31, 2019, revenue was $97.8-million and adjusted funds from operations were $46.7-million (25 cents per share, diluted), compared with $100.3-million and $47.1-million (26 cents per share, diluted), respectively, in the fourth quarter of 2018. At Dec. 31, 2019, bank debt, net of working capital, was $328.1-million, up 67 per cent from $196.4-million at Dec. 31, 2018. The ratio of net bank debt to annualized quarterly adjusted funds from operations for the year was 1.8 times at Dec. 31, 2019.
Net capital expenditures incurred during the three months ended Dec. 31, 2019, were $64-million and for the year ended Dec. 31, 2019, net capital expenditures were $315.6-million. During 2019, the company spent $184.7-million on drill and complete operations, $129-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 Dec. 31, 2019, Kelt's net working interest landholdings 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 Dec. 31, 2019, Kelt's net Montney landholdings were 517,208 acres (808 sections).
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 million cubic feet 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 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 million cubic feet 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 line pack delivering gas and condensate to the Tidewater Pipestone sour deep-cut gas processing 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 million cubic feet of raw gas.
Kelt's current commodity price forecast for 2020 assumes that West Texas intermediate crude oil prices will average $52 (U.S.) per barrel and New York Mercantile Exchange Henry Hub natural gas prices will average $2.25 (U.S.) per million British thermal units. 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-million, which is in line with forecasted adjusted funds from operations of $225-million. Kelt will continue to monitor oil and gas prices and, if necessary, will adjust its capital expenditures downward 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.
Changes in forecasted commodity prices and variances in production estimates can have a significant impact on estimated funds from operations and profit.
The information set out herein is a 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.
We seek Safe Harbor.
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