Kelt Reports Financial and Operating Results for the Three Months Ended March 31, 2020
May 7, 20203:00 AM Newsfile
Calgary, Alberta – Kelt Exploration Ltd. (TSX: KEL) (“Kelt” or the “Company”) reports its financial and operating results to shareholders for the first quarter ended March 31, 2020. In addition, Kelt is providing a corporate update in response to the current market conditions resulting from the COVID-19 pandemic. The Company’s financial results are summarized as follows: FINANCIAL HIGHLIGHTSThree months ended March 31(CA$ thousands, except as otherwise indicated)20202019%Petroleum and natural gas sales70,918102,585-31Cash provided by operating activities50,17253,813-7Adjusted funds from operations (1)27,36051,459-47 Basic ($/ common share) (1)0.150.28-46 Diluted ($/ common share) (1)0.150.28-46Profit (loss) and comprehensive income (loss)(74,085)9,369-891 Basic ($/ common share)(0.39)0.05-880 Diluted ($/ common share)(0.39)0.05-880Total capital expenditures, net of dispositions91,126107,962-16Total assets1,608,8701,515,2276Net bank debt (1)344,664258,35133Convertible debentures83,95779,4266Shareholders’ equity850,486904,835-6Weighted average shares outstanding (000s) Basic187,794184,0172 Diluted187,940184,6172(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 March 31, 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 May 7, 2020. Kelt’s operating results for the first quarter ended March 31, 2020 are summarized as follows: OPERATIONAL HIGHLIGHTSThree months ended March 31(CA$ thousands, except as otherwise indicated)20202019%Average daily production Oil (bbls/d)9,6847,80624 NGLs (bbls/d)4,5833,90317 Gas (mcf/d)99,23692,0898 Combined (BOE/d)30,80627,05714Production per million common shares (BOE/d) (1)16414712Average realized prices, before financial instruments (1) Oil ($/bbl)45.5867.17-32 NGLs ($/bbl)14.3725.20-43 Gas ($/mcf)2.355.18-55Operating netbacks ($/BOE) (1) Petroleum and natural gas sales25.3042.12-40 Cost of purchases(1.25)(1.48)-16 Average realized price, before financial instruments (1)24.0540.64-41 Realized gain (loss) on financial instruments2.60(0.33)-888 Average realized price, after financial instruments (1)26.6540.31-34 Royalties(1.02)(2.01)-49 Production expense(10.85)(10.14)7 Transportation expense(3.50)(4.77)-27 Operating netback (1)11.2823.39-52Total landholdings Gross acres1,051,2121,060,937-1 Net acres819,285827,672-1(1) Refer to advisories regarding non-GAAP financial measures and other key performance indicators. Message to Shareholders Kelt’s highest priority remains the health and safety of its employees, partners and the communities where it operates. The Company has introduced measures to protect the well-being of these stakeholders and is proud of the dedication of its workforce to maintain safe operations and business continuity in a challenging environment. The unprecedented impact to global oil demand destruction resulting from the COVID-19 pandemic, as well as excess oil supplies, as many oil producing nations sought to gain global market share, has resulted in a collapse in crude oil prices around the world. Many regions around the world may be facing the prospect of shutting-in oil production in the near term as access to physical storage facilities becomes unavailable. Kelt has taken measures to preserve shareholder value by entering into commodity price, currency and interest rate hedge contracts; by reducing planned capital expenditures and by implementing various cost cutting measures that will result in lower operating and G&A expenses during the remainder of 2020. In addition, Kelt is taking measures to reduce production levels to protect against selling oil at negative margins and to preserve value. With cash flow protection from Kelt’s financial hedge book during the second quarter of 2020, the Company has shut-in approximately 8,000 BOE per day of production (approximately 62% is oil and NGLs and 38% is gas). Kelt expects to bring back shut-in production starting in the third quarter of 2020 as commodity prices improve. As a result of cost cutting measures and the shut-in of lower netback production, Kelt expects a reduction in operating expenses in 2020 to $8.74 per BOE compared with $9.18 per BOE in 2019. In order to protect cash flow in the near term as commodity prices continue to fluctuate at higher than historic margins, Kelt has the following hedge positions in place during the second quarter of 2020:
4,000 barrels per day of WTI crude oil fixed at a price of CAD $77.55 per barrel for the months from April to June 2020;
3,355 barrels per day of WTI crude oil fixed at a price of CAD $29.05 per barrel for the month of May 2020;
4,000 barrels per day of MSW crude oil fixed at a price of CAD $27.50 per barrel for the month of June 2020;
3,000 barrels per day for the differential between WTI and MSW crude oil fixed at an amount of CAD $6.40 per barrel;
1,000 barrels per day for the differential between WTI and MSW crude oil fixed at an amount of USD $4.60 per barrel;
45,000 MMBtu per day of NYMEX Henry Hub natural gas fixed at a price of CAD $2.83 per MMBtu for the months from April to November 2020; and
500 barrels per day of OPIS Conway propane fixed at a price of CAD $23.35 per barrel for the months from April to December 2020.
Average production for the three months ended March 31, 2020 was 30,806 BOE per day, up 14% from average production of 27,057 BOE per day during the first quarter of 2019. Production for the three months ended March 31, 2020 was weighted 46% oil and NGLs and 54% gas. Kelt’s realized average oil price during the first quarter of 2020 was $45.58 per barrel, down 32% from $67.17 per barrel in the first quarter of 2019. The realized average NGLs price during the first quarter of 2020 was $14.37 per barrel, down 43% from $25.20 per barrel in the same quarter of 2019. Kelt’s realized average gas price for the first quarter of 2020 was $2.35 per Mcf, down 55% from $5.18 per Mcf in the corresponding quarter of the previous year. For the three months ended March 31, 2020, revenue was $70.9 million and adjusted funds from operations was $27.4 million ($0.15 per share, diluted), compared to $102.6 million and $51.5 million ($0.28 per share, diluted) respectively, in the first quarter of 2019. At March 31, 2020, net bank debt, was $344.7 million, up from $258.4 million at March 31, 2019. The Company and its lenders have agreed to extend the revolving period under its credit facility agreement from April 30, 2020 to May 31, 2020. Kelt expects to pursue additional opportunities to access credit support during this uncertain economic environment created by the COVID-19 crisis that is being offered by the Government of Canada, through the Business Development Bank of Canada (BDC) and Export Development Canada (EDC) as announced by the Government on April 17, 2020. Net capital expenditures incurred during the three months ended March 31, 2020 were $91.1 million. During the first quarter of 2020, the Company spent $51.7 million on drill and complete operations and $39.6 million on equipment, facilities and pipelines. Major infrastructure projects that commenced construction in 2019 are now completed. At Inga, construction of the 40-kilometre, 16-inch pipeline that will have the capability to transport 300 MMCF per day of natural gas from the Company’s Inga 2-10 facility to the newly constructed AltaGas Townsend Deep-Cut Gas Plant (“Townsend Gas Plant”) has been completed. Kelt expects to commence gas deliveries to the Townsend Gas Plant in the next week. At Fireweed, the Company has completed installation of its extensive infrastructure including a pipeline gathering system which connects two 5-well pads. The first 5-well pad was drilled during the first quarter of 2020, and the second 5-well pad has been constructed waiting on drilling operations to commence after a recovery in commodity prices. Kelt has begun to receive recoveries on the $15.0 million credit under the British Columbia Infrastructure Royalty Credit Program that is associated with this infrastructure project at Fireweed. At Wembley, Kelt has completed the construction of a pipeline and related infrastructure that connects the Company’s La Glace 14-29 facility to the Tidewater Pipestone Sour Deep-Cut Gas Processing Plant (“Pipestone Plant”). Kelt’s production from La Glace that had previously been shut-in due to restricted access to the Ovintiv Sexsmith Gas Plant can now be diverted to the Pipestone Plant. As a result of the significant ongoing uncertainty in market conditions, Kelt has withdrawn its 2020 corporate guidance. In this regard, the Company currently has no immediate plans to start up drilling and completion operations on wells until there is better clarity on future commodity prices which have been negatively impacted by global oil demand destruction as a result of the COVID-19 pandemic. Capital expenditures in the second quarter are expected to be less than $20.0 million and will be limited to the completion of existing facility and pipeline projects. For the second half of 2020, capital expenditures are currently expected to be less than $5.0 million. Kelt will continue to reassess its ability to reasonably estimate and provide annual guidance and plans to continue to provide corporate updates during this period of heightened volatility and uncertainty. Management looks forward to updating shareholders with 2020 second quarter results on or about August 6, 2020. 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.