Kelt Exploration Ltd T.KEL

Kelt downside - be aware

[PabloLafortune]

The main downside of Kelt is that they are not hedged at least not materially.

If oil for example were to go down to $40 WTI , all capex would probably cease and they might be forced to sell assets (again) to pay back the lenders and be within covenant(s).

Since beginning of the year they already increase debt by $50M and I believe if they maintain capex as it is and WTI stays in the $65 range and AECO <$1, the debt will reach $100M by year end.

No big deal right? Except if they start January 2025 with $100M in debt and no hedges, its deja vu isn't it?

Its all because of the Cdn industry foolishness of not hedging sufficiently - we all know hope is not a strategy but that's wht they do - hope that oil prices will be reasonable. A lot of these companies have sub 100 employees, they don't have risk mgmt dept like BP to ponder every possible negative scenario under the sun.

When in reality oil prices tend to collapse once every 4-5 years (see EIA WTI oil price historical by month).

IMO, this is a risky investment now that they've started borrowing and the market has become more voatile. I always thought they would cut back capex immediately to maintain debt free status but that's not what they are doing. (of course Murphy's law, they'll issue a press release tomorrow reducing capex by $50M).

[MorganEarp]

As with you, I am no fan of increasing debt, it cocnerns me as well......That's why I would like to see them sell some or all of this thing.

[longrun86]

I'm in the camp of sell as well but it sure would make life easier to sell at higher commodity prices! If you are one of the big players and have good cash flow, good infrastructure, and an intelligent hedging department, then you can responsibly take on debt to do projects. For these small and mid-cap players, debt is pretty risky as the cash flow can evaporate pretty quickly. The Crew sale

[PabloLafortune]

Same here. Baseline is $10-11 (Crew's 70% premium).

[MyHoneyPot]

I don't feel the risk that exist is the same as for other companies, their overhead is reasonable, the CEO takes no salary, and they have been struggling with gas plant issues in Wembley/Pipestone all year, and still made steady progress.  If you look at other companies carry significantly more debt lie TVE and AAV all in the same plays with significantly more debt, buying back shares