RE:RE:RE:Kelts is projected to growth Commodity Sales SignificantlyMHP, in this day and age of commodity price fluctuations and general economic uncertainty, it is foolhardy not to hedge.
Kelt started the year with a budget of $11.3M of net debt and now its going to be over $100M. ...they planned on cashflow of $350MM, they're going to come in at $220M...
The error Kelt makes over and over again is they assume only 1 bad thing will happen. But what if its 2 or 3 (low natural gas price, 20% drop in oil price, delay in plant start up)? When they saw that natural gas prices were extremely low and that they could no longer hedge that commodity at a reasonable price, they should have hedged the oil.
At least they've not published a 2025 capex budget. Which is the prudent thing to do.
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The D&C cost at Wembley is extremely low. @current oil price and guesstimated IP365 (750, 40% oil), the well is easily paid off with oil revenue alone in the first year (according to Kelt published oil netback though I'm not sure that's entirely accurate from an activity based costing point of view).
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Even at $70 oil, I'd probably hedge at least 25% oil for 6 months, probably more. Again, who knows what happens next? If the stock market goes down or there's a recession, price of oil will definitely go down. Besides at $70 oil, the Wembley and Charlie Lake wells pay off easily leaving Kelt with upside from associated natural gas.
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I plan on opportunistically reducing my position by half over the next year. The assets are great but I don't have confidence in management's ability to manage through turbulent times. My focus over next few months will be on finding alternative O&G investments. Kelt is not a very good comparable for many others, so I thought at the invitation of trapped and quintessential that I would use ARX as my baseline. thanks guys.
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I will also be voting NO at the AGM. The assumption is that high insider ownership is good but what if the insiders make bad decisions and can't be ousted?