Kiwetinohk provides first quarter 2023 financial and operational results
Press Release
Kiwetinohk provides first quarter 2023 financial and operational results
- Production averaged 23,996 boe/d, in line with guidance
- Adjusted funds flow from operations of $76.0 million
- Strong operating netback of $36.40/boe
- Reduced capital budget and lower forecasted production growth given weaker commodity price outlook
- Revised guidance reflects updated budget and outlook
Calgary, Alberta – May 2, 2023 – Kiwetinohk Energy Corp. (TSX:KEC) today reported its 2023 first quarter financial and operational results. As companion documents to this news release, please review the Company’s management discussion and analysis (MD&A) and condensed consolidated interim financial statements (available on www.kiwetinohk.com or www.sedar.com) for additional financial and operational details.
Message to shareholders
“Kiwetinohk executed the capital program as planned during the first quarter of 2023 and delivered strong financial and operational results during a weaker than anticipated first quarter commodity price environment. Kiwetinohk’s focus continues to be the building of a highly profitable upstream business and the ability to advance as leaders along the path of energy transition. The Homestead Solar and Opal Firm Renewable projects continue to progress, from both a regulatory and financial partner standpoint, with an earliest FID date remaining in the fourth quarter of 2023,” CEO Pat Carlson said.
“We were pleased to see new incentives for clean electricity, including abated natural gas-fired generation, in the Government of Canada’s Budget 2023 and encourages both levels of government to act quickly to create a policy with carbon price certainty required to attract capital and generate immediate and substantial clean tech, CCUS and clean electricity investments needed to meet Canada’s climate goals.”
“Notwithstanding the strong quarter, given the ongoing weaker commodity price environment we have opted to use the flexibility through our asset ownership to scale back a portion of our capital investment program and reposition a portion of our drilling program to higher oil weighted drilling targets at Fox Creek. These nimble modifications allow Kiwetinohk to optimize our capital and maximize the value of our resource while maintaining the financial capacity needed to execute our strategy and keep key initiatives on schedule.”
Financial and operating statistics for the quarter
| Q1 2023 | Q1 2022 | ||
| Production | 7,558 | ||
| Oil & condensate (bbl/d) | 4,364 | ||
| NGLs (bbl/d) | 2,517 | 1,561 | |
| Natural gas (Mcf/d) | 83,526 | 43,970 | |
| Total (boe/d) | 23,996 | 13,253 | |
| Oil and condensate % of production | 31 % | 33 % | |
| NGL % of production | 10 % | 12 % | |
| Natural gas % of production | 59 % | 55 % | |
| Realized prices | 100.25 | ||
| Oil & condensate ($/bbl) | 115.70 | ||
| NGLs ($/bbl) | 65.55 | 66.03 | |
| Natural gas ($/Mcf) | 4.84 | 6.35 | |
| Total ($/boe) | 55.30 | 66.96 | |
| Royalty expense ($/boe) | (5.89) | (6.74) | |
| Operating expenses ($/boe) | (7.66) | (9.56) | |
| Transportation expenses ($/boe) | (5.35) | (4.55) | |
| Operating netback 1 ($/boe) | 36.40 | 46.11 | |
| Realized gain (loss) on risk management ($/boe) 2 | 0.41 | (15.05) | |
| Realized gain (loss) on risk management – purchases ($/boe) 2 | 1.98 | 3.96 | |
| Net commodity sales from purchases (loss) ($/boe) 1 | (0.05) | 0.50 | |
| Adjusted operating netback 1 | 38.74 | 35.52 | |
| Financial results ($000s, except per share amounts) | |||
| Commodity sales from production | 119,421 | 79,866 | |
| Net commodity sales from purchases (loss) 1 | (110) | 596 | |
| Cash flow from operating activities | 80,160 | 25,332 | |
| Adjusted funds flow from operations 1 | 75,981 | 37,002 | |
| Per share basic | 1.72 | 0.84 | |
| Per share diluted | 1.70 | 0.84 | |
| Net debt to annualized adjusted funds flow from operations 1 | 0.52 | 0.66 | |
| Free funds flow deficiency from operations (excluding acquisitions/dispositions) 1 | (32,648) | (17,210) | |
| Net income (loss) | 53,949 | (24,552) | |
| Per share basic | 1.22 | (0.56) | |
| Per share diluted | 1.21 | (0.56) | |
| Capital expenditures prior to dispositions 1 | 108,629 | 54,212 | |
| Net dispositions | (781) | (238) | |
| Capital expenditures and net dispositions 1 | 107,848 | 53,974 | |
| Balance sheet ($000s, except share amounts) | |||
| Total assets | 984,214 | 662,245 | |
| Long-term liabilities | 234,853 | 145,549 | |
| Net debt 1 | 157,540 | 73,521 | |
| Adjusted working capital (deficit) surplus 1 | (17,808) | 21,466 | |
| Weighted average shares outstanding | |||
| Basic | 44,218,711 | 43,815,340 | |
| Diluted | 44,748,871 | 43,815,340 | |
| Shares outstanding end of period | 44,184,985 | 44,042,515 |
1 – Non-GAAP and other financial measure that does not have any standardized meaning under IFRS and therefore may not be comparable to similar measures presented by other entities. See “Non-GAAP and Other Financial Measures” section of the Company’s MD&A.
2 – Realized gain (loss) on risk management contracts includes settlement of financial hedges on production and foreign exchange, with gains on contracts associated with purchases presented separately.
Guidance update
Management remains committed to capital discipline as the Company executes its upstream and Green Energy development plans. As a result of anticipated ongoing weakness and volatility in natural gas prices, Kiwetinohk is moderating its pace of production growth for the remainder of 2023 and is making the following adjustments to the previously communicated 2023 guidance.
- Drill, complete, equip and tie-in (“DCET”) spending is expected to decrease by approximately $30 million to a revised range of $240 million to $255 million. The Company now expects to drill or commence drilling 14 gross/net wells in 2023, five gross (3.5 net) fewer than originally budgeted. The updated plan reflects management’s desire to selectively defer drilling activity during a period of relative natural gas price weakness and accounts for suspension of drilling activity in the second quarter in certain regions to accommodate spring breakup and caribou calving. The updated drill plan includes spudding two new wells in the north part of the Simonette lands in the Tony Creek area in the second quarter. These two oil window Duvernay wells are expected to enhance the Company’s liquids weighting at a time when liquids pricing is expected to remain strong.
- Gas plant processing facility expansion capital deferral of approximately $8 million. The gas plant expansion projects are progressing well. With the pull back in activity for 2023, the entire expansion capacity will not be required within the next 12 months, therefore Kiwetinohk will defer construction and commissioning activities, including electrification, at the 5-31 plant, the smaller of two wholly-owned Simonette gas plants. Construction of the 10-29 plant expansion will continue in 2023 as planned. Engineering and procurement for both plants will be completed in the event that the Company chooses to accelerate the 5-31 expansion.
Kiwetinohk continues to monitor commodity prices and will make further adjustments to its 2023 capital program as needed. As an operator with a controlling ownership in most of its assets and processing infrastructure, Kiwetinohk can be nimble and respond quickly to changes in economic conditions.
The following table summarizes Kiwetinohk’s updated guidance for 2023:
| 2023 Financial & Operational Guidance | Revised | Original | |||||||||
| May 2, 2023 | December 14, 2022 | ||||||||||
| Production (2023 average) 1 | Mboe/d | 22.0 | – 25.0 | 24.5 | – 28.5 | ||||||
| Oil & liquids | Mbbl/d | 10.1 – 11.5 | 12.1 | – 14.0 | |||||||
| Natural gas 2 | MMcf/d | 71.4 | – 81.0 | 74.4 | – 87.0 | ||||||
| Financial | |||||||||||
| Royalty rate | % | 10% | – 12% | 10% | – 12% | ||||||
| Operating costs | $/boe | $8.25 | – $9.25 | $8.25 – $9.25 | |||||||
| Transportation | $/boe | $6.00 | – $6.50 | $6.25 – $7.25 | |||||||
| Corporate G&A expense 3 | $MM | $24 | – $27 | $24 | – $27 | ||||||
| Cash taxes 4 | $MM | $0 | $0 | ||||||||
| 2023 Financial & Operational Guidance | Revised | Original | ||||||||
| May 2, 2023 | December 14, 2022 | |||||||||
| Capital guidance | $MM | $318 | – $342 | $378 – $402 | ||||||
| Upstream | $MM | $300 | – $320 | $360 | – $380 | |||||
| DCET | $MM | $240 | – $255 | $270 | – $285 | |||||
| Plant expansion, production maintenance and other | $MM | $60 | – $65 | $90 | – $95 | |||||
| Green Energy | $MM | $18 | – $22 | $18 | – $22 | |||||
2023 Financial & Operational Guidance
| 2023 Adjusted Funds Flow from Operations commodity pricing sensitivities as at May 2, 2023 5 | |||
| US$70/bbl WTI & US$2.75/MMBtu HH | CAD$MM | $250 | – $285 |
| US$80/bbl WTI & US$3.25/MMBtu HH | CAD$MM | $280 | – $315 |
| 2023 Net debt to Adjusted Funds Flow from Operations sensitivities as at May 2, 2023 5 | |||
| US$70/bbl WTI & US$2.75/MMBtu HH | X | 0.5x | – 0.8x |
| US$80/bbl WTI & US$3.25/MMBtu HH | X | 0.3x | – 0.6x |
2023 Adjusted Funds Flow from Operations commodity pricing sensitivities at at December 14, 2022 5
| US$70/bbl WTI & US$4.50/MMBtu HH | CAD$MM | $355 | – $410 |
| US$80/bbl WTI & US$5.00/MMBtu HH | CAD$MM | $390 | – $450 |
| 2023 Net debt to Adjusted Funds Flow from Operations sensitivities as at December 14, 2022 5 | |||
| US$70/bbl WTI & US$4.50/MMBtu HH | X | 0.3x | – 0.5x |
| US$80/bbl WTI & US$5.00/MMBtu HH | X | 0.1x | – 0.4x |
1 – Production and cash operating costs include scheduled downtime to accommodate plant expansion work in the third quarter.
2 – Chicago sales of ~90% expected for rest of year.
3 – Includes G&A expenses for all divisions of the Company – Corporate, Upstream, Green Energy (power & hydrogen) and Business development.
4 – The Company expects to pay cash taxes of approximately $0.3 million on its US subsidiary during 2023. No Canadian taxes are anticipated in 2023.
5 – Non -GAAP measure that does not have any standardized meaning under IFRS and therefore may not be comparable to similar measures presented by other entities. Please refer to the section “Non-GAAP Measures” within the Company’s MD&A for further information.
“We demonstrated the ability to grow quickly during 2022 through the acceleration of capital, and we are now taking the opportunity to moderate the growth profile in response to the current economic conditions,” said CFO Jakub Brogowski.
“Kiwetinohk continues to allocate available capital in the best interest of shareholders as we build out our upstream and Green Energy development plans. During the first quarter, we saw a significant reduction in anticipated funds from operations with approximately 60% of the reduction in funds flow attributed to the decline in commodity prices since the start of the year.”
First quarter financial highlights
- Adjusted funds from operations during the first quarter of 2023 was $76.0 million, or $1.72/share. This was down from the fourth quarter of 2022, primarily due to lower commodity prices, with the impact of price declines partially mitigated through the Company’s hedging program which generated realized gains of $2.39/boe during the quarter.
- Free adjusted funds flow from operations1 was a deficit of $32.6 million (before acquisitions) due to significant investments in the continued development of upstream assets during the quarter.
- Net debt1 increased to $157.5 million at quarter end, as Kiwetinohk continued to utilize borrowing base capacity to execute on a significant capital expenditure program during the quarter while managing lower commodity prices.
- Net debt to annualized adjusted funds flow from operations1 of 0.52x at quarter end continues to be below the corporate target ceiling of 1.0x.
- Available credit facility capacity1 was 56% of the borrowing base or $212.0 million at March 31, 2023. The next redetermination of the bank credit facility is expected in May 2023.
- The normal course issuer bid (“NCIB”) resulted in a repurchase of 67,939 shares at an average price of $11.75/share for a total cost of approximately $0.8 million during the quarter. Repurchases were executed at levels below average market prices with volume weighted first quarter market pricing averaging $13.27 per share. Subsequent to March 31, 2023, the Company has repurchased approximately 88,000 additional shares at a total cost of $1.0 million ($11.53 per share).
Upstream operational results
- Production for the first quarter of 2023 averaged 23,996 boe/d, consistent with our guidance range of 22,000 – 25,000 boe/d. When compared to the fourth quarter of 2022, production remained relatively flat due to strong base production. At the beginning of March, three new wells were brought on-stream through choked flow and are averaging between 5 – 8 MMcf/d of natural gas production with an additional 400 – 900 bbl/d of condensate. These new wells have shorter completed lateral lengths relative to the first four wells drilled on the pad due to some challenges experienced with running the production liners; these issues appear to have been remedied with the modification of the running procedures. Consistent with expectations, H2S production has been encountered and production is being managed until permanent sweetening facilities are installed. These facilities are expected to be in service May 2023.
- Operating costs of $7.66/boe during the first quarter were below Kiwetinohk’s annual guidance range of $8.25 to $9.25 per boe demonstrating the benefit of filling the Company’s owned infrastructure.
Kiwetinohk safely executed the largest quarterly capital program in the Company’s history which utilized two rigs and completions crews across multiple pads simultaneously. This program resulted in $106.4 million spent on upstream capital during the quarter and included:
- DCET expenditures of $67 million were on track with the Company drilling four Montney wells in Placid (two wells each at pad 2-20 and pad 15-05) which began initial flowback in late April. Results from these Montney wells will be updated in the second quarter. At Simonette, Kiwetinohk commenced drilling a four-well Duvernay pad at 14-29. Drilling was suspended at this pad during the second quarter to prevent disturbance during the caribou calving season, manage during spring breakup and to align with the revised budget guidance.
- Simonette gas plant expansions continued the advancement of engineering and procurement in the quarter. The project’s estimated total costs remain forecasted as $45 – $55 million. This will increase the area’s processing capacity by approximately 40%.
Green Energy update
Key updates during the quarter on our power project portfolio include:
- Green Energy capital spending during the first quarter of 2023 was $2.2 million across all power projects including engineering, consultations, regulatory reviews, environmental studies, AESO processes, legal and various pre-FEED and FEED activities.
- Power purchase agreement (PPA) process for the Homestead Solar project was launched with the engagement of Urica Energy Management Corporation in support.
- Potential financing partner discussions are well advanced and activities are focused on negotiations of a potential financing arrangement for the Homestead and Opal projects.
- AUC transmission line approvals for the 400MW Homestead Solar and 101MW Opal Firm Renewable projects are expected to be received for both projects during the fourth quarter of 2023.
- EPC bid evaluation selection process continued for the Homestead Solar and Opal Firm Renewable projects ahead of a potential final investment decision as early as the fourth quarter of 2023. As part of this process, Kiwetinohk is putting comprehensive plans and processes in place to address construction schedule and cost risks.
- Capital optimization on Green Energy project development is being carefully managed to allocate development expenditures to highest priority projects, where possible in 2023, while ensuring that overall project schedules are maintained for all projects within the AESO process. Green Energy expenditures are expected to be between $18 – $22 million in 2023.
Sustainability update
Kiwetinohk will release its 2023 ESG report in the third quarter with a focus on 2022 results across safety, greenhouse gas emissions, asset retirement, Indigenous and community, and diversity, equity, inclusion and belonging.
Kiwetinohk remains focused on its business strategy to deliver greenhouse gas emissions reductions across Scope 1 and Scope 2. As Kiwetinohk integrates its natural gas production into its power business, upstream Scope 3 emissions will become Green Energy Scope 1 emissions. In the longer term, Kiwetinohk plans to reduce these emissions associated with natural gas combustion through use of CCUS at its power facilities. Industrial-scale CCUS in Alberta’s power industry can decarbonize natural gas use in a manner not possible at the individual consumer level.
The Company continues to focus on Canada’s growing need for clean, reliable and affordable electricity. As power demand grows, significant new, low-cost abated natural gas and renewable electricity generation will be required to keep power affordable for Albertans. Alberta’s ability to add new power to the grid is essential, both to increase total generation and to replace older, less efficient and higher cost facilities. Kiwetinohk continues to monitor and respond to climate and clean electricity policy developments at the provincial and federal levels.
Conference call and second quarter 2023 report date
Management of Kiwetinohk will host a conference call on May 3, 2023, at 8 AM MT (10 AM ET) to discuss results and answer questions. Participants will be able to listen to the conference call by dialing 1-888-664 -6383 (North America toll free) or 416-764-8650 (Toronto and area). A replay of the call will be available until May 10, 2023, at 1 -888-390-0541 (North America toll free) or 416-764-8677 (Toronto and area) by using the code 016679.
Kiwetinohk plans to release its second quarter 2023 results prior to TSX opening on August 2, 2023.
About Kiwetinohk
We, at Kiwetinohk, are passionate about addressing climate change and the future of energy. Kiwetinohk’s mission is to build a profitable energy transition business providing clean, reliable, dispatchable, affordable energy. Kiwetinohk develops and produces natural gas and related products and is in the process of developing renewable power, natural gas-fired power, carbon capture and hydrogen clean energy projects. We view climate change with a sense of urgency, and we want to make a difference. Kiwetinohk’s common shares trade on the Toronto Stock Exchange under the symbol KEC. Additional details are available within the year-end documents available on Kiwetinohk’s website at www.kiwetinohk.com and SEDAR at www.sedar.com.
Oil and gas advisories
For the purpose of calculating unit costs, natural gas is converted to a barrel of oil equivalent using six thousand cubic feet of natural gas equal to one barrel of oil unless otherwise stated. The term barrel of oil equivalent (boe) may be misleading, particularly if used in isolation. A boe conversion ratio for gas of 6 Mcf:1 boe is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.
For more information on Kiwetinohk, please contact:
Jakub Brogowski, CFO
IR email: [email protected]
IR phone: (587) 392-4395
Pat Carlson, CEO
Jakub Brogowski, CFO
IBF4
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