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Oil and Gas Discussion BB
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Kelt updateKelt Exploration reports significant increases in reserves, undeveloped land and production in 2015 and provides update 2016 guidanceKelt Exploration Ltd. (TSX: KEL) has released its reserves and operating results for the year ended December 31, 2015. OILVOICE TRAINING COURSE - LONDON Introduction to Oil & Gas Exploration and ProductionCourse summary This module is designed for people interested in the exploration and production of oil and gas who do not have a subsurface technical background. It provides a brief introduction to geology and geophysics for non-ge... More information and pricesProved developed producing reserves at December 31, 2015 were 33.8 million BOE, an increase of 26% from 26.8 million BOE at December 31, 2014. Total proved reserves at December 31, 2015 were 83.8 million BOE, up 37% from 61.1 million BOE at December 31, 2014. Proved plus probable reserves at December 31, 2015 were 150.5 million BOE, an increase of 52% from 99.1 million BOE at December 31, 2014. Future development capital ('FDC') expenditures of $531 million are included in the reserve evaluation for total proved reserves and are expected to be spent as follows: $40 million in 2016, $125 million in 2017, $106 million in 2018, $113 million in 2019, and $147 million thereafter. FDC expenditures of $868 million are included for proved plus probable reserves and are expected to be spent as follows: $63 million in 2016, $183 million in 2017, $169 million in 2018, $168 million in 2019 and $285 million thereafter. The WTI oil price during the years 2013 to 2015 averaged US$79.93 per barrel. After a precipitous decline since December 2014, Sproule is forecasting an average WTI oil price of US$45.00 per barrel in 2016. Natural gas prices during the 2013 to 2015 period at AECO-C averaged $3.27 per GJ. Sproule is forecasting an average AECO-C gas price of $2.13 per GJ in 2016. The Company's net present value of proved plus probable reserves at December 31, 2015, discounted at 10% before tax, was $1.2 billion and the undiscounted future net cash flow, before tax, was $2.7 billion. The Company's net present value of proved plus probable reserves, discounted at 10% after tax was $1.0 billion and the undiscounted future net cash flow, after tax, was $2.2 billion. During 2015, the Company's capital expenditures, net of dispositions, resulted in proved plus probable reserve additions of 58.2 million BOE, resulting in 2P FD&A costs of $14.78 per BOE, including FDC costs. Proved reserve additions in 2015 were 29.5 million BOE, resulting in 1P FD&A costs of $21.87 per BOE, including FDC costs. The Company considers this to be a good result considering the significant amount of undeveloped land that was acquired on the Company's Montney plays, in addition to the large infrastructure build conducted in 2015. The recycle ratio is a measure for evaluating the effectiveness of a company's re-investment program. The ratio measures the efficiency of capital investment. It accomplishes this by comparing the operating netback per BOE to the same period's reserve FD&A cost per BOE. Since inception, Kelt has successfully added high quality reserves at an all-in 2P FD&A cost of $13.83 per BOE. Since inception, corporate operating netbacks have averaged $16.52 per BOE, giving the Company an inception to date recycle ratio of 1.2 times. With the purchase and construction of facilities and infrastructure in 2015, along with land and asset acquisitions during the year, Kelt has positioned itself to achieve high efficiencies in production additions and finding and development costs over the upcoming years. Kelt's 2015 capital investment program resulted in net reserve additions that replaced 2015 production by a factor of 4.4 times on a proved basis and 8.6 times on a proved plus probable basis. In calculating finding and development ('F&D') costs, NI 51-101 requires that exploration and development costs incurred in the year and the change in FDC be aggregated and divided by reserve additions in the year. Under NI 51-101, the F&D calculation expressly excludes acquisitions. The Company believes that by excluding the effect of acquisitions, the provisions of NI 51-101 do not fully reflect Kelt's ongoing reserve replacement costs. Since acquisitions can have a significant impact on annual reserve replacement costs, the Company believes that excluding acquisitions could result in an inaccurate representation of Kelt's cost structure. Accordingly, the Company presents its finding and development costs, inclusive of acquisitions, as shown in the table above. Reserves Reconciliation During 2015, 5.9 million BOE of proved plus probable reserves were added through positive technical revisions. As a result of lower commodity prices (economic factors), Kelt's proved plus probable reserve base was reduced by 2.1 million BOE. Outlook and Guidance The oil and gas industry in North America continues to operate in a challenging commodity price environment. Due to market instability and volatile commodity prices that have trended lower over the past twelve months, many oil and gas companies have reduced their capital spending plans. Ultimately, lower capital investment in oil and gas drilling can be expected to balance the supply and demand ratio. Kelt continues to remain optimistic about the long-term outlook for oil and gas commodity prices. Kelt believes that the current business environment creates opportunities to add value at a reasonable cost. The cost to acquire land at Crown sales in the Company's core operating areas has dropped significantly and service related costs to drill and complete wells have also declined substantially. In order to capitalize on opportunities in the current energy business environment, Kelt expects to remain active at Crown land sales. The Company is opportunity driven and is confident that it can continue to grow its production base by building on its current inventory of development projects and by adding new exploration prospects. Kelt's has elected to reduce its capital expenditure budget for 2016 to $65.0 million, down 41% from its previous budget of $110.0 million. The Company now plans to drill five gross (4.5 net) wells in 2016. The Company believes that in this environment of low commodity prices, financial prudence is paramount. The impact to average production for 2016 will be less material as the Company has recently added production at levels that have exceeded previous estimates. Kelt is reducing its 2016 production forecast by 1,000 BOE per day or 5% of its previous estimate. Forecast average production of 21,000 BOE per day in 2016 represents a 13% increase from average production of 18,577 BOE per day in 2015 and is estimated to be weighted 35% to oil and NGLs and 65% to gas. However, based on the Company's forecasted commodity prices for 2016, 80% of forecasted operating income in 2016 is expected to be generated from oil and NGLs versus 20% from gas. During 2016, the Company is forecasting oil and gas prices to average WTI US$39.00 per barrel and AECO $2.50 per GJ, respectively. Sensitivities to changes in these prices are as follows: a change of 10% in the average WTI oil price forecast would affect funds from operations by $6.9 million or 13% and a change of 10% in the average AECO gas price forecast would affect funds from operations by $7.6 million or 14%. The Company reviews its commodity price forecasts periodically and retains the flexibility to adjust its capital expenditure plans accordingly. Royalties are expected to average 9.4% of sales in 2016. On a combined basis production and transportation expense in 2016 is estimated to be $13.06 per BOE, G&A expense is estimated to be $0.89 per BOE and interest expense is forecasted at $1.07 per BOE. After giving effect to the aforementioned production estimates, commodity price assumptions and estimated expenses: funds from operations for 2016 is forecasted to be approximately $55.0 million or $0.32 per common share, diluted. Kelt estimates that the Company's bank indebtedness, net of working capital, will be approximately $220.0 million as at December 31, 2016. |
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