August 12, 2022
Kiwetinohk Energy Corp. Q2/22 – Gaining Upstream Momentum
Our view: KEC delivered Q2 results that featured both volume and cash flow beats (vs. Street estimates). In our view, KEC remains well positioned with respect to its 2022 guidance and is making progress on its power generation developments, albeit with adjusted timelines, and we look forward to the outcomes of the ongoing financing discussions on Homestead and other projects.
Key points:
Q2/22 results ahead of Street. KEC announced Q2/22 financial and operating results that featured production volumes of 16,810 boe/d, above our 16,000 boe/d estimate (Street: 13,458 boe/d), driving AFFO (f.d.) of $1.71 per share vs. our estimate of $1.28/sh (Street: $1.34). Capital expenditures came in at $52 million (RBCe $71 million). Variances vs. our model include higher-than-expected production and lower royalties.
2022 guidance narrowed toward the high end. KEC adjusted its 2022 production and capital guidance to reflect the H1/22 results. Upstream capital guidance is now at $275–290 million ($265–290 million previously), with power development capex guidance unchanged at $15–20 million. Average annual production is now expected to be 15,500–17,000 boe/ d (15,000–17,000 boe/d previously). KEC also decreased the royalty rate guidance (positive) to 10–12% (from 11–14%) as a result of a larger-than- expected Gas Cost Allowance (GCA) credit.
Operations in good shape. Field operations remain in good shape, with second quarter highlights that include: (1) the drilling of four additional wells, with completion operations under way; (2) the commencement of drilling at a two-well pad in the northern part of Simonette; and (3) the successful completion of KEC’s first full facility turnaround, which is required on a four- to five-year basis.
Power generation – timing estimates for FID and COD broadly revised to be further out. The revised estimates reflect the experiences that KEC gained during recent processes, including the additional time required for public consultations and regulatory considerations. KEC is also seeking additional clarity regarding the federal government’s evolving view on gas- fired power projects (as it relates to Opal and the NGCC projects). With the timing changes, the earliest FIDs are now in H1/23 for Homestead (Solar 1) and Opal (Firm Renewable 1), versus H2/22 previously. Separately, KEC estimates the completion of negotiations and selection of a financial partner for Homestead (and possibly other projects) by year-end.
Adjusting estimates. Our 2022 production estimate remains roughly unchanged, with a slightly higher liquids mix. Reflective of strong YTD results and lower royalty rate going forward, our CFPS estimate increases by 12% in 2022. Our 2023 production and CFPS numbers remain roughly unchanged.