Kelt Exploration (TSE:KEL) outlined plans to expand production, concentrate capital spending on drilling and completions, and potentially pursue asset divestitures as it develops its Montney and Charlie Lake acreage.
Speaking at the EnerCom Conference, President and CEO Dave Wilson said the company holds 359,000 acres of Montney land in the oily portion of the fairway, along with 93,000 acres of Charlie Lake rights. Its three operating areas are Oak/Flatrock in British Columbia, Pouce Coupe/Progress in Alberta and Wembley/Pipestone in Alberta.
Capital Program Focuses on Production Growth
Wilson said Kelt has budgeted capital expenditures of C$375 million for the year, with nearly 75% allocated to drilling and completions. The company plans to drill 32.5 net wells in Alberta and four net wells in British Columbia, while also completing four additional drilled but uncompleted wells, for a total of 40.5 wells.
The company expects much of its new production to come online during the second half of the year. Wilson said Kelt does not pay a dividend or repurchase shares, instead directing capital toward expanding production and developing its inventory.
Kelt reported production growth of 9% in 2024 and 22% in 2025, and Wilson said it projects 26% growth this year. The company has arranged processing capacity through 2030 that could support production of roughly 80,000 to 85,000 BOE per day by that year, according to Wilson. Kelt is also considering additional processing capacity at Wembley/Pipestone in 2027 and 2028.
At year-end, Kelt expects production of about 20,000 BOE per day at Pouce Coupe, nearly 30,000 BOE per day at Wembley/Pipestone, and approximately 9,000 BOE per day at Oak/Flatrock, Wilson said.
Wembley/Pipestone Positioned as Growth Engine
Wilson called Wembley/Pipestone Kelt’s flagship asset. The company plans to drill 21 wells there this year and complete 22 wells, including one carried over from the prior year. He said the asset has three producing intervals and that Kelt conducted an early delineation program to understand well productivity and size infrastructure accordingly.
The company has built four batteries and compression facilities, five water injectors and a 1.2-million-barrel water pit in the area, Wilson said. He added that Kelt installed large-diameter pipelines, often placing three pipelines in the same rights-of-way, to support long-term development.
Wilson said Wembley wells were budgeted at C$7.4 million each, although wells drilled and completed so far have cost less than C$7 million. The first two Wembley pads brought online this year produced more than 1,000 BOE per day each, with oil and liquids representing 60% to 70% of output, he said.
At Oak/Flatrock, Kelt drilled four wells and completed six, including two drilled but uncompleted wells. Wilson said capital was shifted from the gasier Oak area toward Wembley and Pouce Coupe because of oil pricing, though Kelt expects to drill 12 to 15 Oak wells next year. The company is using three-mile horizontal wells in the British Columbia asset.
Financial Outlook and Strategic Options
Wilson said Kelt’s budget assumes oil prices of C$79.50 per barrel for the year, with an average of C$82.50 in the first half and C$76.50 for the remaining period. He said the company has diversified natural-gas exposure across AECO, Station 2, Dawn, Chicago, Sumas and Marcellus pricing points, and has also used hedges tied to TTF and JKM benchmarks.
The company expects about C$804 million in sales and C$410 million in cash flow, or just under C$2 per share, under its current plan. After C$375 million in capital spending, Kelt anticipates reducing debt by roughly C$35 million and ending the year at approximately 0.4 times debt to cash flow, Wilson said.
Wilson also highlighted higher sulfur prices, saying Kelt has been receiving netbacks of roughly C$1,200 to C$1,300 per tonne while producing about 100 to 120 tonnes per day. He said Kelt’s royalty rate is expected to remain in the 10% to 12% range, while production expenses could decline as new volumes are brought online.
Looking longer term, Wilson said Kelt has 30 to 40 years of drilling inventory across its Montney and Charlie Lake properties. He said the company has been built with a potential sale in mind and expects to divest at least one division, potentially two or the entire company, at some point in order to bring forward value associated with its long-duration inventory.
About Kelt Exploration (TSE:KEL)
Kelt Exploration Ltd is an oil and gas company that focuses on the exploration, development, and production of crude oil and natural gas in Canada. Assets for production are acquired through the purchase of other corporate entities or through a full-cycle exploration program. Kelt traditionally focuses its exploration activities on areas with multizone hydrocarbon potential in Canada. The company owns pipeline infrastructure in some of its core regions to help move its products to domestic markets.
