Kelt Exploration Ltd. (TSX:KEL) (“Kelt” or the “Company”) has
released its financial and operating results for the three and six
months ended June 30, 2019. The Company’s financial results are
summarized as follows:
FINANCIAL HIGHLIGHTS |
|
Three months ended June 30 |
|
Six months ended June 30 |
|
(CA$ thousands, except as otherwise indicated) |
|
2019 |
|
2018 |
|
% |
|
2019 |
|
2018 |
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Petroleum
and natural gas revenue, before royalties |
|
100,734 |
|
98,715 |
|
2 |
|
203,319 |
|
188,708 |
|
8 |
|
Cash
provided by operating activities |
|
58,639 |
|
39,183 |
|
50 |
|
112,452 |
|
92,846 |
|
21 |
|
Adjusted
funds from operations (1) |
|
45,455 |
|
47,099 |
|
-3 |
|
96,896 |
|
92,823 |
|
4 |
|
Basic ($/ common share) (1) |
|
0.25 |
|
0.26 |
|
-4 |
|
0.53 |
|
0.51 |
|
4 |
|
Diluted ($/ common share) (1) |
|
0.25 |
|
0.25 |
|
- |
|
0.53 |
|
0.51 |
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit
(loss) and comprehensive income (loss) |
|
2,740 |
|
1,702 |
|
61 |
|
12,109 |
|
1,679 |
|
621 |
|
Basic ($/ common share) |
|
0.01 |
|
0.01 |
|
- |
|
0.07 |
|
0.01 |
|
600 |
|
Diluted ($/ common share) |
|
0.01 |
|
0.01 |
|
- |
|
0.07 |
|
0.01 |
|
600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
capital expenditures, net of dispositions |
|
91,022 |
|
54,702 |
|
66 |
|
198,984 |
|
146,739 |
|
36 |
|
Total
assets |
|
1,577,824 |
|
1,346,701 |
|
17 |
|
1,577,824 |
|
1,346,701 |
|
17 |
|
Net bank
debt (1) |
|
308,636 |
|
157,058 |
|
97 |
|
308,636 |
|
157,058 |
|
97 |
|
Convertible debentures |
|
80,512 |
|
76,348 |
|
5 |
|
80,512 |
|
76,348 |
|
5 |
|
Shareholders' equity |
|
909,373 |
|
882,916 |
|
3 |
|
909,373 |
|
882,916 |
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding (000s) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
184,151 |
|
182,708 |
|
1 |
|
184,085 |
|
181,423 |
|
1 |
|
Diluted |
|
184,532 |
|
184,825 |
|
- |
|
184,513 |
|
183,210 |
|
1 |
|
|
(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 June 30, 2019
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 August 8, 2019.
Kelt’s operating results for the second quarter
ended June 30, 2019 are summarized as follows:
OPERATIONAL HIGHLIGHTS |
|
Three months ended June 30 |
|
Six months ended June 30 |
|
(CA$ thousands, except as otherwise indicated) |
|
2019 |
|
2018 |
|
% |
|
2019 |
|
2018 |
|
% |
|
|
|
|
|
|
|
|
|
|
Average
daily production |
|
|
|
|
|
|
|
|
Oil (bbls/d) |
|
9,727 |
|
8,300 |
|
17 |
|
8,772 |
|
8,396 |
|
4 |
|
NGLs (bbls/d) |
|
4,679 |
|
2,700 |
|
73 |
|
4,293 |
|
3,067 |
|
40 |
|
Gas (mcf/d) |
|
95,450 |
|
90,723 |
|
5 |
|
93,779 |
|
90,498 |
|
4 |
|
Combined (BOE/d) |
|
30,314 |
|
26,120 |
|
16 |
|
28,695 |
|
26,546 |
|
8 |
|
Production per million common shares (BOE/d) (1) |
|
165 |
|
143 |
|
15 |
|
156 |
|
146 |
|
7 |
|
|
|
|
|
|
|
|
|
|
Average
realized prices, before financial instruments(1) |
|
|
|
|
|
|
|
|
Oil ($/bbl) |
|
72.17 |
|
80.56 |
|
-10 |
|
69.95 |
|
74.33 |
|
-6 |
|
NGLs ($/bbl) |
|
20.28 |
|
38.67 |
|
-48 |
|
22.51 |
|
34.15 |
|
-34 |
|
Gas ($/mcf) |
|
2.75 |
|
2.56 |
|
7 |
|
3.95 |
|
2.87 |
|
38 |
|
|
|
|
|
|
|
|
|
|
Operating
netbacks ($/BOE) (1) |
|
|
|
|
|
|
|
|
Petroleum and natural gas revenue |
|
36.52 |
|
41.54 |
|
-12 |
|
39.14 |
|
39.28 |
|
- |
|
Cost of purchases |
|
(1.56 |
) |
(3.03 |
) |
-49 |
|
(1.52 |
) |
(2.00 |
) |
-24 |
|
Average realized price, before financial instruments(1) |
|
34.96 |
|
38.51 |
|
-9 |
|
37.62 |
|
37.28 |
|
1 |
|
Realized gain (loss) on financial instruments |
|
0.05 |
|
- |
|
- |
|
(0.13 |
) |
- |
|
- |
|
Average realized price, after financial instruments(1) |
|
35.01 |
|
38.51 |
|
-9 |
|
37.49 |
|
37.28 |
|
1 |
|
Royalties |
|
(2.25 |
) |
(3.97 |
) |
-43 |
|
(2.14 |
) |
(3.35 |
) |
-36 |
|
Production expense |
|
(8.73 |
) |
(9.14 |
) |
-4 |
|
(9.39 |
) |
(9.30 |
) |
1 |
|
Transportation expense |
|
(5.53 |
) |
(3.83 |
) |
44 |
|
(5.17 |
) |
(3.61 |
) |
43 |
|
Operating netback (1) |
|
18.50 |
|
21.57 |
|
-14 |
|
20.79 |
|
21.02 |
|
-1 |
|
|
|
|
|
|
|
|
|
|
Undeveloped land |
|
|
|
|
|
|
|
|
Gross acres |
|
679,904 |
|
761,429 |
|
-11 |
|
679,904 |
|
761,429 |
|
-11 |
|
Net acres |
|
585,075 |
|
644,986 |
|
-9 |
|
585,075 |
|
644,986 |
|
-9 |
|
|
(1) Refer to advisories regarding non-GAAP financial measures and
other key performance indicators. |
|
MESSAGE TO SHAREHOLDERS
Average production for the three months ended
June 30, 2019 was 30,314 BOE per day, up 16% compared to average
production of 26,120 BOE per day during the second quarter of 2018.
Quarter-over-quarter, daily average production in the second
quarter of 2019 was 12% higher than average production of 27,057
BOE per day in the first quarter of 2019. Higher
quarter-over-quarter production reflects on-going new production
additions from the Company’s successful development pad drilling
operations at Inga/Fireweed. Production for the three months ended
June 30, 2019 was weighted 48% oil and NGLs and 52% gas. However,
operating income was weighted 90% oil and NGLs and 10% gas.
Kelt’s realized average oil price during the
second quarter of 2019 was $72.17 per barrel, down 10% from $80.56
per barrel in the second quarter of 2018. The realized average NGLs
price during the second quarter of 2019 was $20.28 per barrel, down
48% from $38.67 per barrel in the same quarter of 2018. The
significant decrease in NGL prices were due to much weaker propane
and butane prices at Edmonton. In British Columbia, where the
Company has oil blending operations that result in premium liquids
pricing, Kelt’s direct oil sales were impacted during the Husky
Prince George Refinery turnaround operations that occurred from
April 8, 2019 to June 16, 2019, resulting in lower liquids pricing
and higher oil transportation expenses.
Kelt’s realized average gas price for the second
quarter of 2019 was $2.75 per Mcf, up 7% from $2.56 per Mcf in the
corresponding quarter of the previous year. Kelt benefits with
premium natural gas price realizations compared to AECO as a result
of its gas market diversification portfolio and high heat content
gas. During the second quarter of 2019, the Company’s realized
average gas price per Mcf was 167% higher than the average AECO 5A
price of $1.03 per MMBtu.
For the three months ended June 30, 2019,
revenue was $100.7 million and adjusted funds from operations was
$45.5 million ($0.25 per share, diluted), compared to $98.7 million
and $47.1 million ($0.25 per share, diluted) respectively, in the
second quarter of 2018.
Net capital expenditures incurred during the
three months ended June 30, 2019 were $91.0 million. During the
second quarter of 2019, the Company spent $57.1 million on drill
and complete operations, $36.2 million on equipment, facilities and
pipelines and $1.4 million on land and seismic. Property
dispositions, net of property acquisitions were $3.7 million during
the quarter.
During the second quarter of 2019, Kelt’s
production was negatively impacted by firm gas transportation
service restrictions on TC Energy’s NGTL system, temporary shut-ins
from producing Inga wells during completion operations on the Inga
24-well pad and intermittent downtime at the Encana Sexsmith Gas
Plant where the Company processes gas from its La Glace field. In
order to mitigate the impact of production disruptions resulting
from these events, Kelt elected to advance its 2019 capital
expenditure program. In doing so, the Company was also able to take
advantage of significant cost savings on its continuing drilling
and completion operations. Approximately $30.0 million in capital
expenditures relating to capital projects that were originally
budgeted for the third quarter of 2019 were completed during the
second quarter of 2019, including the following:
- completion operations for six wells
from the Inga 24-well pad (wells #7 to #12);
- drilling operations for six wells
from the Inga 24-well pad (wells #13 to #18); and
- drilling operations for one well at
Oak.
At June 30, 2019, bank debt, net of working
capital was $308.6 million. During the second half of 2019, Kelt is
forecasting higher funds from operations compared to estimated
capital expenditures, resulting in bank debt, net of working
capital of approximately $258.0 million at December 31, 2019.
OPERATIONS UPDATE
Inga/Fireweed Core Area
At Inga, Kelt completed six wells (wells #7 to
#12) on its 24-well pad Montney cube development program. Four of
the six wells have been put on production and the remaining two
wells are expected to be put on production this week. Initial
production rates from these wells have exceeded the Company’s
expectations. The average drill and complete cost per well was $4.8
million, a 4% reduction from the average drill and complete cost of
$5.0 million per well for the first six wells and 11% lower than
the original budgeted average drill and complete cost of $5.4
million per well. The Company is pleased with the higher capital
efficiencies on the second batch of six wells considering that the
total amount of proppant pumped into the wells averaged 3,528
tonnes per well, a 15% increase from an average 3,074 tonnes per
well of proppant pumped into the first six wells drilled from the
pad. Kelt has been able to improve costs through drilling
efficiencies resulting in lower drill times and completion
efficiencies resulting from the use of the Company’s newly
installed water handling facilities. Additional savings are being
realized by using bi-fuel (natural gas capable) frac pumpers and
on-site fuel gas further reducing costs and at the same time,
improving the Company’s carbon footprint. A summary of the drill
and complete operations for these wells is shown in the table
below:
Well |
MontneyZone |
CompletionTechnology |
Drill &Complete(MM) |
TotalProppant(tonnes) |
Proppantper Metre(tonnes) |
Total FracFluid(m3) |
Avg. FracIntensity(m3/min) |
00/16-17 (H4-9) |
Upper |
Open Hole Ball-Drop |
$ 4.6 |
3,398 |
1.25 |
23,657 |
11.0 |
02/15-17 (J4-9) |
Upper |
Open Hole Ball Drop |
$ 4.7 |
3,406 |
1.21 |
22,153 |
11.0 |
03/16-17 (F4-9) |
IBZ |
Plug and Perf |
$ 4.4 |
3,288 |
1.33 |
26,730 |
11.2 |
03/15-17 (I4-9) |
IBZ |
Plug and Perf |
$ 5.0 |
3,516 |
1.33 |
27,891 |
10.7 |
02/16-17 (G4-9) |
Middle |
Open Hole Ball-Drop |
$ 4.3 |
3,440 |
1.27 |
22,158 |
11.2 |
00/15-17 (K4-9) |
Middle |
Plug and Perf |
$ 5.9 |
4,120 |
1.56 |
27,268 |
11.2 |
|
|
|
|
|
|
|
|
The next six wells (wells #13 to #18) on the
24-well pad were also drilled in the second quarter and are
expected to be completed during the third quarter of 2019. Included
in these six wells is one well targeting the Lower Middle Montney
horizon. This will be the Company’s first Lower Middle Montney test
on its Inga/Fireweed land acreage. The first six wells (wells #1 to
#6) were put on production during the second quarter and were
temporarily shut-in for a short period while the Company was
completing the second batch of six wells. Production volumes from
each of these first six wells for the respective initial 30 days
(approximately 720 operating hours) in aggregate were 6,569 BOE per
day (77% oil and NGLs), exceeding the Company’s expected range of
5,800 to 6,200 BOE per day (60% to 65% oil and NGLs).
At Fireweed, the Company was ahead of schedule
putting five Upper and Middle Montney single pad wells on
production during the second quarter. These wells that were
previously drilled in 2018 and which were expected to be put on
production in the third quarter of 2019, were tied-in ahead of
schedule with production commencing in the second quarter of 2019.
Production volumes from each of these five wells for the respective
initial 30 days (approximately 720 operating hours) in aggregate
were 5,281 BOE per day (72% oil and NGLs), within the Company’s
expected range of 5,200 to 5,500 BOE per day (60% to 65% oil and
NGLs).
Kelt has entered into an agreement with AltaGas
Ltd. (“AltaGas”) whereby the Company will construct a 16-inch gas
pipeline from its Inga 2-10 facility to the AltaGas Townsend
Deep-Cut Gas Plant. The total cost to build the pipeline is
estimated to be approximately $39.0 million and ownership of the
pipeline will be two-thirds Kelt and one-third AltaGas. The
pipeline will have a capacity to transport up to approximately 300
MMcf per day of natural gas. AltaGas will reimburse Kelt the full
amount of $39.0 million ($13 million during construction and $26
million after construction) and in return Kelt has agreed to make
annual payments over 10 years as repayment for its share of the
cost of the pipeline (approximately $26.0 million). The annual
payments to AltaGas over ten years are representative of payments
that would have been required if Kelt did not take an ownership
interest in the pipeline but instead entered into a take-or-pay
arrangement to deliver gas through the pipeline as a third party.
Under such an arrangement, Kelt would not have an ownership
interest in the pipeline after 10 years and would have to
re-negotiate transportation terms thereafter. Under the current
agreement, Kelt retains its two-thirds ownership in the pipeline
after the ten year term is complete, with no further financial
obligation to AltaGas.
The Government of British Columbia offers an
Infrastructure Royalty Credit Program that encourages new capital
investment in oil and natural gas infrastructure. The program is
designed to create and sustain good paying jobs for British
Columbians and stimulate new royalty revenue for the Province.
Through the Infrastructure Royalty Credit Program, oil and gas
companies such as Kelt can apply for a reduction to the royalties
they would otherwise pay to the Province under a competitive
Request for Applications process. This reduction can be applied to
future royalties that would otherwise be payable and is determined
based on an approved percentage of the costs to build roads,
pipelines and gas facilities that are approved under the
program.
In 2017, Kelt made an application to the
Infrastructure Royalty Credit Program and was approved for its
planned infrastructure build in certain parts of its Inga/Fireweed
property relating to expenditures totaling approximately $38.6
million. This infrastructure build includes the following:
- construction of a pipeline route
comprised of a sour gas line, a sweet gas line, a sour emulsion
line, a disposal water line, a frac water line and a fuel gas
line;
- building and upgrading of roads and
installation of a bridge; and
- installation of centralized
dehydration and compression facilities.
The Government of British Columbia approved a
recovery of approximately 39% of Kelt’s infrastructure expenditures
or $15.0 million through the program. The amount is expected to be
recovered from reduced future royalties payable relating to 20
horizontal Montney wells associated with this project. To date,
Kelt has incurred over 80% of the infrastructure capital committed
to under the program and has drilled 10 of the 20 horizontal
Montney wells. The Company has commenced sales from these wells and
expects to apply for royalty credits imminently, however, the
future benefit of credits from the program are not currently
reflected in the Company’s 2019 financial guidance.
Wembley/Pipestone Core Area
At Wembley/Pipestone, the Company has now
drilled and completed three Upper Middle Montney (D3/D4) wells from
the 1-14 pad offsetting the original discovery well located at
00/04-01-072-08W6 which had an IP30 production rate of 1,337 BOE
per day (83% oil and NGLs). The average drill & complete cost
per well was $5.4 million per well, 8% lower than the budgeted
average cost of $5.9 million per well. Kelt has also drilled three
additional Upper Middle Montney (D3/D4) wells from the 12-3 pad
offsetting the 2018 well drilled from the same pad located at
00/12-05-073-08W6 which when tested, over the last three days of
the test, produced average sales volumes of approximately 1,497 BOE
per day (74% oil and NGLs). In August 2019, the Company expects to
commence completion operations on these three wells that were
drilled from the 12-3 pad. During the second quarter, the Company
also drilled a single well on its main Wembley/Pipestone land block
located at (03/16-08) 02/16-10-72-7W6.
At Wembley/Pipestone, Kelt is currently building
a battery that will be capable of processing all of the gas, oil
and water associated with the Company’s firm service commitment at
the Pipestone Sour Deep-Cut Gas Processing Plant which is also
currently under construction by Tidewater Midstream and
Infrastructure Ltd. (“Tidewater”). The Kelt battery, consisting of
dehydration, separation, treating, storage and water injection
facilities, is expected to be commissioned in September coinciding
with the expected start-up of the Tidewater facility. Kelt’s water
injection well, which was completed earlier this year, has already
been tested and used for water disposal.
OUTLOOK/GUIDANCE
As the Company prepares to ramp up production in
the second half of 2019 with significant production additions from
its Inga/Fireweed and Wembley/Pipestone core areas, Kelt has not
changed its 2019 average production estimate that was forecasted to
be in a range of 33,500 to 34,500 BOE per day. However, in light of
recent third party gas plant interruptions, the Company expects its
2019 average production to be at the low end of its forecasted
range. Subsequent to the end of the second quarter, the Enbridge
McMahon Gas Plant, which accounts for approximately one-third of
Kelt’s B.C. production, was shut down on July 30, 2019 and has
indicated that it will resume operations on August 13, 2019. At La
Glace, where the Company produces approximately 2,800 BOE per day
through the Encana Sexsmith Gas Plant, Kelt has been experiencing
interruptions in its production resulting from restrictions to the
plant due to heat caused by high ambient temperatures and increased
NGTL pipeline pressures.
With the recent volatility in oil and gas
prices, Kelt is reducing its forecasted commodity price assumptions
for 2019.
Kelt’s 2019 capital expenditure program,
excluding the Company’s share of costs relating to the proposed
16-inch gas pipeline from its Inga 2-10 facility to the Townsend
Deep-Cut Gas Plant, remains unchanged at $270.0 million. The cost
of the pipeline of approximately $26.0 million will be incurred by
Kelt during the year, however, Kelt will be reimbursed by AltaGas
and in return Kelt will re-pay AltaGas based on a pre-determined
fee basis over 10 years.
In addition, Kelt’s 2019 capital expenditures
includes approximately $18.0 million of drilling expenditures for
wells (DUCs) that are not expected to be completed until 2020:
- 6 wells at Inga/Fireweed – wells
#19 to #24 from the Inga 24-well pad; and
- 2 wells at Wembley/Pipestone –
02/16-10 (sfc 03/16-08) and 00/04-24 (sfc 16-26).
Production from these eight wells (DUCs) plus an
additional two wells at Oak (to be drilled and completed in 2019)
is not included in the Company’s 2019 production forecast and will
provide the Company with momentum for continued production growth
in early 2020.
The table below summarizes Kelt’s revised
financial guidance for 2019:
Commodity Prices: |
2019 Forecast |
Previous Forecast |
Change |
WTI Crude Oil (USD/bbl) |
58.00 |
60.00 |
− 3% |
MSW Edmonton Oil (CAD/bbl) |
69.32 |
73.17 |
− 5% |
NYMEX Natural Gas (USD/MMBtu) |
2.80 |
2.85 |
− 2% |
DAWN Gas Daily Index (USD/MMBtu) |
2.70 |
2.75 |
− 2% |
CHICAGO City Gate Gas Daily Index (USD/MMBtu) |
2.70 |
2.70 |
N/C |
MALIN Gas Monthly Index (USD/MMBtu) |
2.75 |
2.80 |
− 2% |
SUMAS Gas Monthly Index (USD/MMBtu) |
3.50 |
3.50 |
N/C |
AECO 5A Gas Daily Index (USD/MMBtu) |
1.25 |
1.30 |
− 4% |
Station 2 Gas NGX Daily Index (USD/MMBtu) |
0.85 |
0.90 |
− 6% |
Exchange Rate (USD/CAD) |
1.320 |
1.340 |
− 1% |
|
|
|
|
Capital expenditures, net of dispositions [1] ($ MM) |
296.0 |
270.0 |
+ 10% |
Adjusted funds from operations (“AFFO”) ($ MM) |
220.0 |
240.0 |
− 8% |
Per common share, diluted ($) |
1.19 |
1.24 |
− 4% |
Bank debt, net of working capital, at year-end [2] ($ MM) |
258.0 |
235.0 |
+ 10% |
Net bank debt to trailing AFFO ratio |
1.2 x |
0.9 x |
|
|
[1] Capital expenditures include $26.0 million for the 16-inch gas
pipeline from Kelt’s Inga 2-10 facility to AltaGas’s Townsend Gas
Plant. |
[2] In addition to forecasted net bank debt at December 31, 2019,
Kelt estimates 2019 year-end financial liabilities of approximately
$26.0 million primarily relating to the Inga 16-inch gas pipeline
(AltaGas). |
|
During this period of volatile commodity price
swings responding to headlines regarding political uncertainty and
global trade wars, Kelt continues to remain disciplined
financially. Management looks forward to updating shareholders with
2019 third quarter results on or about November 8, 2019.
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 2019. 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 in 2019 and 2020; the expected
timing of wells commencing production, the expected timing of
facility expenditures, the expected timing of facility start-up
dates, 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 revenue, 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 and operating income or netbacks are used by Kelt as key
measures of performance and are not intended to represent operating
profits nor should they 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 to adjusted funds from operations:
|
|
Three months ended June 30 |
|
Six months ended June 30 |
|
(CA$ thousands, except as otherwise indicated) |
|
2019 |
|
2018 |
|
% |
|
2019 |
|
2018 |
|
% |
|
Cash provided by
operating activities |
|
58,639 |
|
39,183 |
|
50 |
|
112,452 |
|
92,846 |
|
21 |
|
Change
in non-cash working capital |
|
(14,033 |
) |
7,740 |
|
-281 |
|
(17,483 |
) |
(786 |
) |
2,124 |
|
Funds from
operations |
|
44,606 |
|
46,923 |
|
-5 |
|
94,969 |
|
92,060 |
|
3 |
|
Provision for potential credit
losses |
|
221 |
|
- |
|
- |
|
203 |
|
- |
|
- |
|
Settlement of decommissioning obligations |
|
628 |
|
176 |
|
257 |
|
1,724 |
|
763 |
|
126 |
|
Adjusted funds from operations |
|
45,455 |
|
47,099 |
|
-3 |
|
96,896 |
|
92,823 |
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Throughout this press release, reference is made
to “total revenue”, “Kelt Revenue” and “average realized prices”.
“Total revenue” refers to petroleum and natural gas revenue (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 revenue (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, which commenced during the
fourth quarter of 2017. 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 revenue 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 press release 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.
“Average realized prices” referenced throughout
this MD&A are before financial instruments, except as otherwise
indicated as being after financial instruments.
The term “net bank debt” is used synonymously
with, and is equal to, “bank debt, net of working capital”. “Net
bank debt” is calculated by adding the working capital deficiency
to bank debt. The working capital deficiency is equal to total
current assets net of total current liabilities. The Company uses a
“net bank debt to annualized adjusted funds from operations ratio”
as a benchmark on which management monitors the Company’s capital
structure and short-term financing requirements. Management
believes that this ratio, which is a non-GAAP financial measure,
provides investors with information to understand the Company’s
liquidity risk. The “net bank debt to annualized quarterly adjusted
funds from operations ratio” is also indicative of the “debt to
EBITDA” 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/d |
barrels per day |
mcf |
thousand cubic feet |
mcf/d |
thousand cubic feet per day |
mmcf |
million cubic feet |
mmcf/d |
million cubic feet per day |
tcf |
trillion cubic feet |
MMBTU |
million British Thermal
Units |
GJ |
gigajoule |
BOE |
barrel of oil equivalent |
BOE/d |
barrel of oil equivalent per
day |
NGLs |
natural gas liquids |
LNG |
liquefied natural gas |
AECO |
Alberta Energy Company “C” Meter
Station of the NOVA Pipeline System |
NIT |
NOVA Inventory Transfer
(“AB-NIT”), being the reference price at the AECO Hub |
WTI |
West Texas Intermediate |
NYMEX |
New York Mercantile Exchange |
Station 2 |
Spectra Energy receipt
location |
US$ |
United States dollars |
CA$ |
Canadian dollars |
TSX |
the Toronto Stock Exchange |
KEL |
trading symbol for Kelt
Exploration Ltd. common shares on the TSX |
KEL.DB |
trading symbol for Kelt
Exploration Ltd. 5% convertible debentures on the TSX |
CDE |
Canadian Development Expenses, as
defined by the Income Tax Act (Canada) |
CEE |
Canadian Exploration Expenses, as
defined by the Income Tax Act (Canada) |
GAAP |
Generally 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.
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