Banque NationaleKelt Exploration Ltd. Progressing Growth KEL (TSX) STOCK RATING TARGET EST. TOTAL RETURN C$5.85 Outperform (Unchanged) C$8.00 (Was C$9.00) 36.8% Q3/22 Operating & Financial Results Q3/22
Results In Line
The company reported third quarter operating and financial results generally in line with expectations, including average production of 25.8 mboe/d (35% liquids) and associated CFPS of $0.33 (vs. consensus $0.35). During the quarter, production contracted by -7% Q/Q as expected resulting from third-party facility downtime and shut-ins associated with low pricing, while maintaining an active capital program (~120% payout ratio) that was supported by a $27.50/boe cash netback (-27%) in association with 17% lower realizations and relatively resilient cash costs (+3%) through the period.
Strong Results
Continue Activity in the field continues to progress, with three wells now having been drilled at Oak in BC, as a positive reflection of the resumption of momentum with continued alleviation of the Blueberry First Nations moratorium, while in Alberta, its program has recently been significantly weighted to the Charlie Lake and the first wells noted to be producing at a rate of 1,200 boe/d (70% liquids). Lastly, the company continues to add incremental gas processing commitments to support its Wembley assets, with the first added capacity to contribute 25 mmcf/d by YE23.
Updated Outlook
Its capital program and growth plans remain intact, with its 2022 program remaining at $300 mln to support +30% growth (to 28 mboe/d down from prior 29 mboe/d, relating to shut-ins) within a ~90% payout ratio, and resonating through its 2023 program that is slated for $310 mln to provide for the drilling and completion of ~35 wells (comparable to its 2022 program, as a reflection of muted inflationary pressures) and deliver production growth of 20% (to 34 mboe/d) within a 90% payout ratio, and all while maintaining option value towards acceleration through significant excess capitalization ($28 mln positive working capital).
Reducing Target to $8/sh (from $9); Outperform Activity and operations generally on track with expectations, while its program continues to target momentum through growth in support of longterm shareholder value creation; KEL is poised for a 23% return profile (vs. peers 26%) on leverage of -0.1x (vs. peers -0.1x) while trading at 3.4x (vs. peers 3.3x).