RE:RE:I bought some Kelt shares todayEven though its one of the worst performers amongst all the O&G share price wise, it will be one of the best if not the best performer reserves wise.
The only 2 criticisms I have is a) too much share based compensation - a quick glance at a few others and my guess is it seems they issued more new shares than most - we'll know for sure after year end audited F/S are out. and b) very poor hedging even though they were debt free.
I tried to figure out how they could hedge while minimizing worst case losses but admittedly its not that easy. If you produce 35,000 boepd and you hedge 3,000 oil rolling every month (which is less than 50%) and oil goes from $75 to $115, you basically lose almost $60,000,000 or $4.50 per boepd.
Considering they are not your typical E&P - as their goal IMO is to maximize land development, delineation and reserves growth subject to showing some growth
and not spending more capex than incoming cashflow - and 4 years vs 5 makes little difference in the grand scheme of things, it would seem more sensical to maintain a positive cash balance (as opposed to being debt free) and be a little less aggressive on the capex thus requiring less hedging. They seem to have 2,000 barrels of oil hedged atm which is around 1/3 and I would say that's as much as I'd like to see them do.
Natural gas hedging is a lot trickier but bottom line to me, they need more physical diversification - they moved away from that (based on a review of the past releases and presentations) and that worked for a while until AECO issues reared their ugly head again but in the bigger picture when you review what it took (ie conditions) and how long to approve a minuscule increase in capacity on NGTL, it makes no sense to just rely on AECO. They have to sell to the US and AESO just like all the big guys are doing (TOU, Ovintiv, ARX, CNRL) which interestingly enough, they are doing for Oak very specifically (see presentation). Because to me, physical diversification is like having more customers - depending on few (or 1!) customers is risky for any business.
All IMO.