Kelt reports financial and operating results for the three and six months ended June 30, 2021

The Company’s financial results are summarized as follows:

(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, 2021 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 5, 2021.

Kelt’s operating results for the second quarter ended June 30, 2021 are summarized as follows:

(1) Refer to advisories regarding non-GAAP financial measures and other key performance indicators.

Message to Shareholders

The COVID-19 pandemic has had a substantial impact on people’s lives and continues to impact the way companies conduct their business. Kelt’s highest priority remains the health and safety of its employees, partners and the communities where it operates. With the emergence of new COVID-19 variants, the Company continues to gather information in order to understand the potential future impacts these new variants may have on the economy and the impact to oil and gas prices, credit availability and capital markets. The Company is proud of the dedication of its workforce to maintain safe operations and business continuity during the pandemic.

During the second quarter of 2021, Kelt continued to maintain its strong financial position and with quarter over quarter growth in production and higher commodity prices, the Company demonstrated significant growth in funds from operations during the quarter. In addition, Kelt recorded earnings of $57.5 million ($0.30 per share) for the six months ended June 30, 2021.

Kelt’s average production for the three months ended June 30, 2021 was 19,592 BOE per day, up 4% from average production of 18,860 BOE per day during the first quarter of 2021 and up 19% from average production of 16,476 BOE per day during the fourth quarter of 2020. Production growth reflects the strong performance from new wells that came on-stream during the first quarter of 2021 in the Pouce Coupe area of Alberta. Production for the three months ended June 30, 2021 was weighted 34% oil and NGLs and 66% gas.

Kelt’s realized average oil price during the second quarter of 2021 was $76.33 per barrel, up 189% from $26.37 per barrel in the second quarter of 2020. The realized average NGLs price during the second quarter of 2021 was $32.94 per barrel, up 213% from $10.53 per barrel in the same quarter of 2020. Kelt’s realized average gas price for the second quarter of 2021 was $3.49 per Mcf, up 71% from $2.04 per Mcf in the corresponding quarter of the previous year.

For the three months ended June 30, 2021, petroleum and natural gas sales was $60.6 million and adjusted funds from operations was $29.5 million ($0.15 per share, diluted), compared to $45.5 million and $11.7 million ($0.06 per share, diluted) respectively, in the second quarter of 2020. At June 30, 2021, the Company had no bank debt outstanding and a working capital deficit of $0.8 million, compared to aggregate bank debt, principal amount of convertible debentures outstanding and working capital deficit of $410.2 million, at June 30, 2020.

Net capital expenditures incurred during the three months ended June 30, 2021 were $45.8 million. During the second quarter of 2021, the Company spent $33.5 million on drill and complete operations and $11.5 million on facilities, pipelines and equipment. The benefits of these capital expenditures will be realized when the Company brings new wells on-stream over the next few months. The tentative schedule to bring production on-line over the next few months is as follows:

(a) Pouce Coupe – three Montney oil wells were brought on production in July 2021;
(b) Wembley/Pipestone – two Montney wells are expected to be brought on production in August 2021;
(c) Spirit River – two Charlie Lake wells are expected to be brought on production in September 2021;
(d) Oak – ten Montney wells are expected to be brought on production in October 2021; and
(e) Wembley/Pipestone – one Montney well is expected to be brought on production in November 2021.

At Oak/Flatrock, Kelt currently has ten Montney wells that have been drilled and completed. The Company has commenced construction of a gas compression and oil battery facility and expects to commence production from the ten new Oak wells during October 2021.

At Pouce Coupe, Kelt commenced production from three Montney oil wells in July 2021. The Company plans to follow up with the drilling of two additional wells in this oil play at Pouce Coupe in the second half of 2021. In addition, Kelt expects to drill two additional high deliverability Montney gas wells at Pouce Coupe West during the fourth quarter of 2021.

At Spirit River, Kelt has drilled and completed two wells from the same pad in the Charlie Lake formation, one targeting the Lower Charlie Lake and the other targeting the Upper Charlie Lake. These wells are expected to be brought on production in September 2021. During the fourth quarter of 2021, the Company expects to follow up with two additional wells that will be drilled in the Lower Charlie Lake formation.

At Wembley/Pipestone, Kelt currently has six Montney wells that have been drilled and completed and two additional wells that are drilled and awaiting completion (“DUCs”). The Company expects to bring three of these wells on production in the second half of 2021 and the remainder of the wells are expected to come on-stream in early 2022. In addition, Kelt expects to drill two more wells at Wembley/Pipestone in the second half of 2021, to be completed and brought on production in 2022. The Company will commence construction of Phase 1 of its Wembley East pipeline infrastructure during the second half of 2021 and anticipates construction of Phase 2 of the Wembley East pipeline infrastructure during the first half of 2022.

On July 29, 2021, Kelt completed the disposition of approximately 400 BOE per day of non-core assets for gross proceeds of $9.0 million. Production was approximately 75% gas and 25% oil and NGLs.

Kelt’s board of directors has approved an increase to the Company’s capital expenditure program for 2021. Kelt expects to spend $175.0 million in 2021, up 17% from its previous forecast of $150.0 million. The Company has elected to bring forward certain expenditures previously planned for 2022 in order to take advantage of current commodity prices. In doing so, the Company will put itself in a position to deliver additional production growth in 2022 by accelerating production start-up from certain wells.

Kelt will continue to maintain its strong financial position. At December 31, 2021, the Company expects to have net bank debt of $9.0 million or only 0.1 times adjusted funds from operations.

Production in 2021 is now forecasted to average 21,500 BOE per day, up 2% from its previous forecast of 21,000 BOE per day. Adjusted funds from operations for 2021 is forecasted to be $145.0 million, a 23% increase from its previous forecast of $118.0 million.

The following table summarizes the changes to 2021 guidance since the Company’s original forecast was prepared in November 2020:

(1) Refer to advisories regarding non-GAAP financial measures and other key performance indicators.

Management looks forward to updating shareholders with 2021 third quarter results on or about November 10, 2021.

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.29dk2902l

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 2021. Readers are cautioned that this financial outlook may not be appropriate for other purposes.