KEL-T new 52 week high, $15.50 on news
Kelt Exploration June 16, '16 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 9 to 13 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 barrels of oil equivalent per day (70 per cent oil and 30 per cent 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 $95 (U.S.) per barrel and for natural gas at AECO $4.50 per gigajoule, operating netbacks are approximately $40 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 Dec. 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.
- 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:
- A 100-per-cent ownership interest in an oil battery, recently upgraded to handle 3,500 barrels of oil per day and 20.0 million cubic feet of gas per day;
- A 100-per-cent 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, Alta.
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 per cent oil and 30 per cent 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 95 (U.S.) per barrel for WTI oil and $4.50 per gigajoule 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 ($280.0-million net) in future capital spending, adding to the company's significant drilling inventory and opportunity for future growth in the years ahead.
The Montney drilling inventory located at Valhalla/La Glace is primarily on 100-per-cent-working-interest lands targeting crude oil with associated gas.
Revised 2014 guidance
Upon closing and after giving effect to the Valhalla/La Glace acquisition, including the issuance of Kelt common shares, the company has revised its 2014 guidance.
Previous
Guidance
| Revised Guidance
| Percent
Change
| Average 2014 Production
| Oil (bbls/d)
| 2,575
| 3,285
| 28%
| NGLs (bbls/d)
| 755
| 850
| 13%
| Gas (mcf/d)
| 46,020
| 48,090
| 4%
| Combined (BOE/d)
| 11,000
| 12,150
| 10%
| WTI oil price (US$/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 attached revised 2014 exit forecast table.
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 (annualized funds from operations are calculated using a forecasted WTI oil price of $95 (U.S.) per barrel and an AECO gas price of $4.50 per gigajoule).
Previous
Forecast
| Revised Forecast
| Percent
Change
| EXIT 2014 Production
| Oil (bbls/d)
| 2,970
| 4,395
| 48%
| NGLs (bbls/d)
| 1,025
| 1,210
| 18%
| Gas (mcf/d)
| 54,030
| 58,170
| 8%
| Combined (BOE/d)
| 13,000
| 15,300
| 18%
| Annualized funds from operations ($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. |
