Kelt Reports Significant Increases in Oil & Gas Reserves and Net Asset Value as at December 31, 2017

CALGARY, Alberta, Feb. 08, 2018 (GLOBE NEWSWIRE) — Kelt Exploration Ltd. (“Kelt” or the “Company”) is pleased to report on its oil & gas reserves and production for the year ended December 31, 2017.

Kelt’s audit of its 2017 annual consolidated financial statements has not been completed and accordingly all financial amounts relating to 2017 referred to in this news release are unaudited and represent management’s estimates. Readers are advised that these financial estimates are subject to audit and may be subject to change as a result.

Summary of Results

Inga/Fireweed Montney Operations Update

Kelt recently completed an Upper Montney well located at Fireweed 00/B-90-A/94-A-13 (surface location C-10-H/94-A-13). This well which is located the furthest north on the Company’s contiguous land block at Inga/Fireweed produced 1,895 BOE per day on IP30 and consisted of 63% oil and NGLs. The Company is pleased to see the high liquids rate this far north on its lands.

In addition, the Company has recently completed its first Middle IBZ Montney well located at Inga 03/14-24-087-23W6 (surface location C12-36-087-23W6). The well was completed with a 46-stage ball drop system. Due to its proximity to an existing Middle Montney well that had been on production for over a year, several fracs had to be reduced or skipped resulting in fewer stages and less sand being placed during the completion. This well produced 611 BOE per day on IP30 and consisted of 75% oil and NGLs. The Company is currently drilling its second Middle IBZ Montney well from a three-well pad at Inga and plans to place the horizontal lateral in a position offsetting both the Upper and Middle Montney wells in a “W” pattern which should maximize drainage and prevent interference from the other zones. Kelt is pleased with the high liquids rate from its first Middle IBZ Montney well at Inga.

Production

Kelt achieved a record high calendar year average production in 2017. Average production for 2017 was 22,130 BOE per day, up 6% from average production of 20,947 BOE per day in 2016. Production for 2017 was weighted 42% oil and NGLs and 58% gas.

Reserves

Kelt retained Sproule Associates Limited (“Sproule”), an independent qualified reserve evaluator to prepare a report on its oil and gas reserves. The report is dated February 1, 2018 and is effective as of December 31, 2017. The Company has a Reserves Committee which oversees the selection, qualifications and reporting procedures of the independent qualified reserves evaluator. Reserves as at December 31, 2017 and at December 31, 2016 were determined using the guidelines and definitions set out under National Instrument 51-101 (“NI 51-101”). Additional reserves disclosure as required under NI 51-101 will be included in Kelt’s Annual Information Form which will be filed on SEDAR on or before March 31, 2018.

The Company’s net present value of proved plus probable reserves at December 31, 2017, discounted at 10% before tax, was $2.1 billion, an increase of 22% from $1.7 billion at December 31, 2016, despite lower forecasted oil and gas prices for the future years in the December 31, 2017 evaluation (see “Commodity Prices” table included below). Sproule’s forecasted commodity prices for 2018 used to determine the present value of the Company’s reserves at December 31, 2017, are USD 55.00 per barrel for WTI oil and $2.70 per GJ for AECO gas. As a result of the Company’s gas market diversification strategy, Kelt is forecasting that only 26% of its 2018 gas production will be sold into the AECO market. The remaining forecasted gas production for 2018 is expected to be sold into the Dawn, Malin, Sumas and Chicago markets under existing contracts.

The following table outlines a summary of the Company’s reserves at December 31, 2017:

Proved developed producing reserves at December 31, 2017 were 37.9 million BOE, an increase of 10% from 34.5 million BOE at December 31, 2016. Total proved reserves at December 31, 2017 were 133.0 million BOE, up 23% from 108.2 million BOE at December 31, 2016. Proved plus probable reserves at December 31, 2017 were 235.6 million BOE, an increase of 21% from 194.1 million BOE at December 31, 2016.

The following table shows the change in reserves year-over-year by reserve category:

Future development capital (“FDC”) expenditures of $776 million are included in the evaluation for total proved reserves and are expected to be spent as follows: $118 million in 2018, $153 million in 2019, $135 million in 2020, $92 million in 2021, and $278 million thereafter. FDC expenditures of $1,164 million are included in the evaluation of proved plus probable reserves and are expected to be spent as follows: $139 million in 2018, $210 million in 2019, $199 million in 2020, $185 million in 2021 and $431 million thereafter.

The following table outlines FDC expenditures and future wells to be drilled by province, included in the December 31, 2017 proved plus probable reserve evaluation:

The WTI oil price during the three years from 2015 to 2017 averaged USD 47.69 per barrel, after a precipitous decline from USD 93.00 in 2014. Sproule is forecasting an average WTI oil price of USD 55.00 per barrel in 2018. Natural gas prices during the 2015 to 2017 period at AECO-C averaged $2.24 per GJ. Sproule is forecasting an average AECO-C gas price of $2.70 per GJ in 2018.

The following table outlines forecasted future prices that Sproule has used in their evaluation of the Company’s reserves:

 

During 2017, the Company’s capital expenditures, net of dispositions, resulted in proved plus probable reserve additions of 49.6 million BOE, resulting in 2P finding, development and acquisition (“FD&A”) costs of $6.94 per BOE, including FDC expenditures. Proved reserve additions in 2017 were 32.8 million BOE, resulting in 1P FD&A costs of $9.61 per BOE, including FDC expenditures.

Despite a significant disposition in 2017, Kelt was able to show significant reserve additions from new wells and from certain existing wells that have produced at rates that have exceeded previous estimates. Estimated capital expenditures, after dispositions, in 2017 were $128 million (unaudited). The Company considers the calculated FD&A costs in 2017 to be a good result considering it also increased its undeveloped land acreage in its core areas including the newer Montney plays located at Oak/Flatrock in British Columbia and Pipestone/Wembley in Alberta and made a significant infrastructure purchase in 2017.

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. With the purchase and construction of facilities and infrastructure in 2016 and 2017, along with land and asset acquisitions during both years, Kelt has positioned itself to achieve further efficiencies in production additions and finding and development costs over the upcoming years, as it continues to transition to development/pad drilling.

Kelt’s 2017 capital investment program resulted in net reserve additions that replaced 2017 production by a factor of 4.1 times on a proved basis and 6.2 times on a proved plus probable basis.

The following table provides detailed calculations relating to FD&A costs for 2017 and 2016:

Reserves Reconciliation

During 2017, 8.6 million BOE of proved plus probable reserves (8.0 million BOE of proved reserves) were added through positive technical revisions, primarily as a result of better well performance in both of Kelt’s core Montney prospects in British Columbia and Alberta.

A reconciliation of Kelt’s proved plus probable reserves is provided in the table below:

A reconciliation of Kelt’s proved reserves is provided in the table below:

Net Asset Value

Kelt’s net asset value at December 31, 2017 was $11.08 per share, up 20% from the previous year. Details of the calculation are shown in the table below:

Changes in forecasted commodity prices and variances in production estimates can have a significant impact on estimated reserves values, funds from operations and profit. Please refer to the cautionary statement on forward-looking statements and information set out below.

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