Kelt Enters Into an Agreement to Acquire Strategic Montney Assets in Its Core Area Near Grande Prairie
June 16 2014 - 3:48PM
Marketwired Canada
Kelt Exploration Ltd. ("Kelt" or the "Company") (TSX:KEL) has entered into an
agreement to acquire a private Canadian oil and gas company with crude oil and
natural gas assets located at Valhalla/La Glace, adjacent to the Company's core
producing areas at Pouce Coupe and Spirit River in west central Alberta. The
acquisition is subject to standard industry closing conditions and closing is
expected to occur on or around July 2, 2014.
The consideration to be paid by Kelt is $165.0 million, before closing
adjustments, and will be financed by existing cash on hand and the issuance of
4.3 million common shares of Kelt to the shareholders of the private Canadian
oil and gas company. Based on the five day volume weighted average price of Kelt
shares that traded on the Toronto Stock Exchange from June 9th to 13th of
$13.58, the value of the common share consideration is $58.0 million. The
balance of $107.0 million will be paid in cash.
Key Attributes of Assets to be Acquired
-- Current net production is estimated to be approximately 2,300 BOE per
day (70% oil and 30% gas) from Triassic horizons, primarily from the
Montney formation and also including production from the Halfway and
Charlie Lake formations.
-- At index pricing for crude oil of WTI US$95.00 per barrel and for
natural gas at AECO $4.50 per GJ, operating netbacks are approximately
$40.00 per BOE, providing approximately $33.6 million of annual
operating income at current production levels.
-- Petroleum and natural gas reserves to be acquired have been evaluated
internally by Kelt effective December 31, 2013:
-- Proved developed producing reserves were 3.4 million BOE, with $1.5
million in associated future development capital;
-- Total proved reserves were 6.2 million BOE, with $38.4 million in
associated future development capital; and
-- Total proved plus probable reserves were 11.7 million BOE, with
$60.7 million in associated future development capital.
-- Long-life reserves with a proved plus probable reserve life index of
14.0 years based on current production.
-- Infrastructure component with interests in major oil and gas facilities
including the following:
-- 100% ownership interest in an oil battery, recently upgraded to
handle 3,500 barrels of oil per day and 20.0 mmcf of gas per day;
and
-- 100% ownership interests in gas compressors and oil and gas
gathering pipelines.
-- The Valhalla/La Glace assets include an extensive land position that is
a complementary fit geographically to Kelt's existing core areas at
Pouce Coupe and Spirit River and are located approximately 18 miles
south of Pouce Coupe/Spirit River and approximately 15 miles northwest
of Grande Prairie. The acquisition includes 38,400 gross acres (60 gross
sections) and 32,981 net acres (51.5 net sections) of land.
-- The Valhalla/La Glace assets will be operated from Kelt's established
field office located in Grande Prairie, Alberta.
Acquisition Metrics
-- Based on current production and not adjusting for land and
infrastructure value, production is being acquired for $71,700 per
flowing BOE per day (70% oil and 30% gas).
-- Based on proved plus probable reserves and after taking into account
future development capital costs, reserves are being acquired for $19.23
per BOE, giving the Company an acquisition recycle ratio of 2.1 times
using commodity prices of US95.00 per barrel for WTI oil and $4.50 per
GJ for AECO gas.
Future Upside Potential
The Company has identified 58 gross (56.0 net) horizontal drilling locations
primarily targeting the Montney formation. This would entail in excess of $290.0
million gross ($280.0 million net) in future capital spending, adding to the
Company's significant drilling inventory and opportunity for future growth in
the years ahead.
The Montney drilling inventory located at Valhalla/La Glace is primarily on 100%
working interest lands targeting crude oil with associated gas.
Revised 2014 Guidance
Upon closing and after giving effect to the Valhalla/La Glace acquisition,
including the issuance of Kelt common shares, the Company has revised its 2014
guidance as follows:
----------------------------------------------------------------------------
Previous Revised Percent
Guidance Guidance Change
----------------------------------------------------------------------------
Average 2014 Production
----------------------------------------------------------------------------
Oil (bbls/d) 2,575 3,285 28%
----------------------------------------------------------------------------
NGLs (bbls/d) 755 850 13%
----------------------------------------------------------------------------
Gas (mcf/d) 46,020 48,090 4%
----------------------------------------------------------------------------
Combined (BOE/d) 11,000 12,150 10%
----------------------------------------------------------------------------
WTI oil price (US$/bbl) 92.00 92.00 -
----------------------------------------------------------------------------
NYMEX natural gas price
(US$/MMBTU) 4.60 4.60 -
----------------------------------------------------------------------------
AECO natural gas price ($/GJ) 4.55 4.55 -
----------------------------------------------------------------------------
Exchange rate (US$/CA$) 0.9174 0.9174 -
----------------------------------------------------------------------------
Funds from operations ($MM) 103.0 116.0 13%
----------------------------------------------------------------------------
Per share, diluted 0.85 0.94 11%
----------------------------------------------------------------------------
Capital expenditures, including
acquisitions ($MM) 250.0 428.0 71%
----------------------------------------------------------------------------
Debt, net of working capital at
year-end ($MM) 3.0 110.0
----------------------------------------------------------------------------
The impact on average 2014 production relating to the acquisition is reflected
from the anticipated closing date of July 2, 2014. Full year benefits of the
acquired production will be recognized in 2015 and is reflected in the exit 2014
production rate shown in the table below.
Revised 2014 Exit Forecast
Upon closing and after giving effect to the Valhalla/La Glace acquisition,
including the issuance of Kelt common shares, the Company has revised its 2014
exit production forecast as follows (annualized funds from operations is
calculated using a forecasted WTI oil price of US$95.00 per barrel and an AECO
gas price of $4.50 per GJ):
----------------------------------------------------------------------------
Previous Revised Percent
Forecast Forecast Change
----------------------------------------------------------------------------
EXIT 2014 Production
----------------------------------------------------------------------------
Oil (bbls/d) 2,970 4,395 48%
----------------------------------------------------------------------------
NGLs (bbls/d) 1,025 1,210 18%
----------------------------------------------------------------------------
Gas (mcf/d) 54,030 58,170 8%
----------------------------------------------------------------------------
Combined (BOE/d) 13,000 15,300 18%
----------------------------------------------------------------------------
Annualized funds from
operations ($MM) 132.0 161.5 22%
----------------------------------------------------------------------------
Per share, diluted 1.06 1.26 19%
----------------------------------------------------------------------------
Debt, net of working capital at
year-end ($MM) 3.0 110.0
----------------------------------------------------------------------------
Debt/funds from operations
ratio 0.0 x 0.7 x
----------------------------------------------------------------------------
Financial Position
After giving effect to the acquisition, including the issuance of Kelt common
shares, Kelt estimates that it will have bank debt, net of working capital, of
approximately $110.0 million at the end of 2014. Based on forecasted exit
annualized funds from operations of $161.5 million, the Company would have a
debt to funds from operations ratio of 0.7 times, giving the Company sufficient
financial flexibility to carry out a growth oriented capital expenditure budget
in 2015.
Prior to the Valhalla/La Glace acquisition, Kelt has an agreement with a
syndicate of financial institutions for a committed term credit facility whereby
the lenders approved a borrowing base of $170.0 million and a committed amount
of $100.0 million. Upon closing and after giving effect to the acquisition, Kelt
expects to increase the amount of its term credit facility.
About Kelt
Kelt is a Calgary, Alberta, Canada-based oil and gas company focused on
exploration, development and production of crude oil and natural gas resources,
primarily in west central Alberta and northeastern British Columbia.
Cautionary Statement and Advisory Regarding Forward-Looking Statements and
Information
Certain information with respect to the Company contained herein, including
expectations, beliefs, plans, goals, objectives, assumptions, information and
statements about future events, conditions, results of operations, performance,
Kelt's planned capital expenditure program, or management's assessment of future
potential, contain forward-looking statements. In particular, forward-looking
statements contained in this press release include, but are not limited to: the
timing and completion of the acquisition of the Canadian private oil and gas
company, the issuance of common shares, the impact on production, the
quantification of potential future drilling locations and resulting impact on
capital expenditures. These forward-looking statements are based on assumptions
and are subject to numerous risks and uncertainties, certain of which are beyond
the Company's control, including the impact of general economic conditions,
industry conditions, volatility of commodity prices, currency exchange rate
fluctuations, imprecision of reserve estimates, environmental risks, competition
from other explorers, stock market volatility, and ability to access sufficient
capital. We caution that the foregoing list of risks and uncertainties is not
exhaustive.
Statements relating to "reserves" are deemed to be forward looking statements as
they involve the implied assessment, based on current estimates and assumptions
that the reserves can be profitably produced in the future.
Kelt's actual results, performance or achievement could differ materially from
those expressed or implied by these forward-looking statements and, accordingly,
no assurance can be given that any events anticipated by the forward-looking
statements will transpire or occur. As a result, undue reliance should not be
placed on forward-looking statements.
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.
Non-GAAP Measures
This press release contains certain financial measures, as described below,
which do not have standardized meanings prescribed by GAAP. As these measures
are commonly used in the oil and gas industry, the Company believes that their
inclusion is useful to readers. The reader is cautioned that these amounts may
not be directly comparable to measures for other companies where similar
terminology is used. "Operating netback" is calculated by deducting royalties,
production expenses and transportation expenses from oil and gas revenue. "Funds
from operations" is calculated by adding back settlement of decommissioning
obligations and change in non-cash operating working capital to cash provided by
operating activities. 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. Funds from
operations and operating 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.
Measurements and Abbreviations
All dollar amounts are referenced in thousands of Canadian dollars, except when
noted otherwise. Where amounts are expressed on a barrel of oil equivalent
("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. References to oil in this press release include crude oil and field
condensate. References to natural gas liquids ("NGLs") include pentane, butane,
propane, and ethane. References to gas in this press release include natural gas
and sulphur.
bbls Barrels
mcf thousand cubic feet
MMBTU million British Thermal Units
AECO-C Alberta Energy Company "C" Meter Station of the Nova Pipeline
System
WTI West Texas Intermediate
NYMEX New York Mercantile Exchange
FOR FURTHER INFORMATION PLEASE CONTACT:
Kelt Exploration Ltd.
David J. Wilson
President and Chief Executive Officer
(403) 201-5340
Kelt Exploration Ltd.
Sadiq H. Lalani
Vice President, Finance and Chief Financial Officer
(403) 215-5310
www.keltexploration.com
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