Mr. David Wilson reports
KELT REPORTS FINANCIAL AND OPERATING RESULTS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020
Kelt Exploration Ltd. has released its financial and operating results to shareholders for the three and nine months ended Sept. 30, 2020.
The company's financial results are summarized in a table included in the release.
Three months ended Nine months ended
Sept. 30, Sept. 30,
(Thousands, except as otherwise indicated) 2020 2019 2020 2019
Petroleum and natural gas sales 48,823 93,274 165,195 296,593
Cash provided by (used in) operating activities (8,610) 14,640 55,991 127,092
Adjusted funds from operations (1) 9,002 39,173 48,074 135,866
Basic ($/common share) (1) 0.05 0.21 0.26 0.74
Diluted ($/common share) (1) 0.05 0.21 0.25 0.74
Profit (loss) and comprehensive income (loss) (24,080) (2,909) (350,826) 9,200
Basic ($/common share) (0.13) (0.02) (1.87) 0.05
Diluted ($/common share) (0.13) (0.02) (1.87) 0.05
Total capital expenditures, net of dispositions (497,321) 52,657 (378,427) 251,641
Total assets 824,751 1,602,566 824,751 1,602,566
Net bank debt (surplus) (1) (127,584) 320,507 (127,584) 320,507
Convertible debentures 89,910 81,630 89,910 81,630
Shareholders' equity 576,862 908,190 576,862 908,190
(1) Refer to advisories regarding non-GAAP financial measures and other key performance
Kelt's unaudited consolidated interim financial statements and related notes for the quarter ended Sept. 30, 2020, will be available to the public on SEDAR and will also be posted on the company's website on Nov. 10, 2020.
Kelt's operating results for the third quarter ended Sept. 30, 2020, are summarized in a table included.
Three months ended Nine months ended
(Canadian dollars in thousands, Sept. 30, Sept. 30,
except as otherwise indicated)
2020 2019 2020 2019
Average daily production
Oil (bbl/d) 5,712 9,981 8,064 9,179
NGLs (bbl/d) 4,286 4,480 4,644 4,356
Gas (mcf/d) 74,672 100,136 90,861 95,921
Combined (BOE/d) 22,443 31,150 27,852 29,522
Production per million common shares (BOE/d) (1) 119 169 148 160
Average realized prices, before financial instruments(1)
Oil ($/bbl) 48.13 65.41 39.20 68.29
NGLs ($/bbl) 16.33 16.64 13.59 20.47
Gas ($/mcf) 2.24 2.32 2.20 3.38
Operating netbacks ($/BOE) (1)
Petroleum and natural gas sales 23.65 32.55 21.65 36.81
Cost of purchases (0.85) (1.72) (0.83) (1.59)
Average realized price, before financial instruments(1) 22.80 30.83 20.82 35.22
Realized gain (loss) on financial instruments (3.49) 0.02 1.68 (0.08)
Average realized price, after financial instruments(1) 19.31 30.85 22.50 35.14
Royalties (0.94) (1.60) (0.93) (1.95)
Production expense (7.74) (8.88) (9.56) (9.21)
Transportation expense (3.61) (4.69) (3.58) (5.00)
Operating netback (1) 7.02 15.68 8.43 18.98
Gross acres 802,100 1,062,582 802,100 1,062,582
Net acres 581,633 828,358 581,633 828,358
(1) Refer to advisories regarding non-GAAP financial measures and other key performance indicators.
Message to shareholders
Kelt reports its financial and operating results to shareholders for the third quarter ended Sept. 30, 2020.
Kelt continues to monitor current market conditions resulting from the continuing 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 work force to maintain safe operations and business continuity during the continuing pandemic.
On Aug. 21, 2020, Kelt completed the sale of its Inga/Fireweed division. Cash proceeds were $510-million, prior to closing adjustments. In addition, the purchaser assumed certain specific financial obligations related to the assets in the amount of approximately $41-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 Sept. 30, 2020, was 22,443 barrel of oil equivalent per day, down 28 per cent, compared with average production of 31,150 BOE per day during the third quarter of 2019. Production for the three months ended Sept. 30, 2020, was weighted 45 per cent oil and NGLs and 55 per cent gas.
Kelt's realized average oil price during the third quarter of 2020 was $48.13 per barrel, down 26 oer cebt 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 per cent 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 Sept. 30, 2020, revenue was $48.8-million and adjusted finances from operations was $9-million (five cents per share, diluted), compared with $93.3-million and $39.2-million (21 cents per share, diluted) respectively, in the third quarter of 2019.
During the third quarter of 2020, Kelt unwound 50 per cent (1,500 bbl/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 $3.95/MMBtu for the period from Dec. 1, 2020, to Oct. 31, 2021; Kelt has fixed the NYMEX Henry Hub price on gas sales of 5,000 MMBtu/d at a price of $4.05/MMBtu for the period from Jan. 1, 2021, to Oct. 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 $2.70/GJ ($2.84/MMBtu) for the period from Dec. 1, 2020, to Oct. 31, 2021.
Capital expenditures incurred during the three months ended Sept. 30, 2020, were $8.8-million, down 84 per cent 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 Sept. 30, 2020, the company had no bank debt outstanding. Cash and cash equivalents at Sept. 30, 2020, were $135.5-million. On Oct. 3, 2020, Kelt redeemed the $89.9-million of outstanding principal amount of its 5 per cent convertible unsecured subordinated debentures.
Reinstating 2020 guidance
Kelt expects its average 2020 production to be approximately 24,400 BOE per day, weighted approximately 44 per cent oil and NGLs and 56 per cent gas. Kelt is forecasting 2020 average commodity prices as follows: $38 (U.S.) per barrel for WTI oil and $2.10 (U.S.) per MMBtu for NYMEX Henry Hub natural gas.
Kelt expects adjusted finances from operations in 2020 to be approximately $57-million or 30 cents per diluted share. Kelt does not expect to have any bank debt outstanding at Dec. 31, 2020, and the company is forecasting a working capital surplus amount of $30-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 U.S. 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 U.S. 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.
The company's board of directors has approved a capital expenditure budget of $90-million for 2021. Kelt expects to drill 10 gross (10 net) wells in 2021 and expects to complete 12 gross (12 net) wells in 2021. The company expects to have five gross (five net) wells drilled but uncompleted 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-million for facilities, pipeline and equipment, and $3.5-million for land and seismic.
At Wembley/Pipestone, the company plans to drill four wells and also complete four wells. At Pouce Coupe, Kelt plans to complete the two high-deliverability gas wells that are expected to be drilled in November/December, 2020. At Oak/Flatrock, Kelt expects to drill five wells and complete six wells, leaving the year with three DUCs. The company also expects to drill a vertical stratigraphic well at Oak, which after evaluation will be converted to a water disposal well. At Oak/Flatrock, Kelt expects to construct an oil battery, a gas compression facility and related pipeline infrastructure during the summer of 2021.
Preparation of the 2021 budget includes the following forecasted commodity price assumptions (with estimated forecasted 2020 commodity prices shown for comparative purposes).
FORECASTED COMMODITY PRICE ASSUMPTIONS
Commodity price index 2021 budget 2020 forecast
WTI crude oil ((U.S.)/bbl) 38.50 38.00
MSW crude oil ((U.S.)/bbl) 34.50 32.68
NYMEX natural gas ((U.S.)/MMBtu) 3.10 2.10
DAWN gas daily index ((U.S.)/MMBtu) 3 1.95
CHICAGO city gate gas daily index ((U.S.)/MMBtu) 3 1.95
AECO [five A] gas daily index ((U.S.)/MMBtu) 2.40 1.80
Station two [seven B] gas monthly index ((U.S.)/MMBtu) 2.35 1.70
Exchange rate ((U.S.)/(Canadian)) 0.746 0.740
Exchange rate ((Canadian)/(U.S.)) 1.340 1.351
Financial and operating highlights for 2021 compared with the 2020 forecast are highlighted in the table included.
FINANCIAL AND OPERATING HIGHLIGHTS
($MM, unless otherwise specified) 2021 budget 2020 forecast
Oil and NGLs (bbl/d) 6,500 10,800
Gas (MMcf/d) 66,000 81,600
Combined (BOE/d) 17,500 24,400
Revenue 175.0 200.0
Adjusted funds from operations 66.5 57.0
AFFO per share, diluted ($/share) 0.35 0.30
Capital expenditures, net of dispositions 90.0 (359.0)
Bank debt at year-end nil nil
Working capital deficit (surplus) at year-end (4.0) (30.0)
During this period of uncertain economic conditions and volatile fluctuations in commodity prices driven by political headlines and the effects of the continuing 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 Nov. 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 Nov. 9, 2020, Douglas J. Errico has been appointed as senior vice-president of land and corporate development. Mr. Errico has been VP of land of Kelt since Oct. 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 finances from operations and profit.
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.
We seek Safe Harbor.
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