Kiwetinohk Energy announces 2024 budget – Canadian Energy News, Top Headlines, Commentaries, Features & Events – EnergyNow

Message to shareholders

“In consideration of the evolving business environment, our 2024 budget is aimed to serve the goal of maximizing shareholder value, providing optionality and delivering safe and reliable operations,” said Pat Carlson, Chief Executive Officer.

“Since acquiring the Simonette asset in the second quarter of 2021, Kiwetinohk has achieved strong returns on invested capital and grown production by approximately 108%. Our 2024 program will build on this success as we execute a continuous drilling program in our upstream division to deliver strong annual production growth which will accelerate filling our recently expanded gas processing infrastructure and contracted capacity on the Alliance Pipeline to Chicago. Together these components of our plan will support continued profitable development of our upstream asset base through a further reduction in operating costs coupled with access to a recently stronger natural gas pricing market in the US. Very encouraging early performance results from our recently completed four well Duvernay pad at 14-29 has only increased confidence in our asset base and we expect to see these four wells added to the list of top producing Duvernay wells in 2024.

“In the power division, we continue to advance our renewable and gas-fired power projects through the AESO regulatory queue, while closely managing development costs. During the fourth quarter, three projects advanced to the next AESO stage, including Opal, our 101 MW gas-fired peaker project. Opal, along with our 400 MW Homestead solar project, remain our most advanced development projects, each at Stage 4 awaiting approval for their transmission line connections before being in a position to commence construction. Kiwetinohk is seeking external capital to finance these projects and has engaged a financial advisor to help us survey capital markets for potential financing partners and/or acquirers of these projects. Transactions for these projects may include a partial or outright sale with proceeds helping to fund ongoing development of the remaining portfolio. We are excited to bring these high quality, differentiated projects to market, however, we also recognize timing for each process may be impacted by uncertainty from ongoing policy discussions between provincial and federal governments. We continue to dialogue with industry, and provincial and federal governments on future policy decisions. We are generally supportive of changes that enable power generators to profitably provide the Alberta electricity grid with clean, reliable, dispatchable and affordable energy which is in alignment with our power strategy.”

Key three-year strategic objectives:
Kiwetinohk has revised its short-to-medium term objectives in line with its 10-year strategy to build a high quality energy transition business and include the following:

1. A focus on further development of the lower risk Simonette Duvernay to better demonstrate and fully realize the large economic potential of this resource. Our base 2024 budget includes 12 wells in the Duvernay;
2. Delineate and optimize the well design for the Montney in each of Simonette and West Placid to achieve economic recognition of the value of the Company’s Montney lands while preserving prospective Montney acreage. Our base budget includes three wells in the Montney (two Simonette, one Placid);
3. Annual average production growth to 24.0 – 27.0 Mboe/d in 2024 as part of a medium-term plan to grow average annual production from our existing resource to approximately 40,000 boe/d by 2026 and fully utilize our recently expanded plant capacity;
4. In the short term, confine capital spending to maintain balance sheet flexibility and stay within a Net Debt to Adjusted Funds Flow¹ ratio of less than 1.0x. This positions the Company to reduce debt in subsequent years while continuing to invest sufficiently in upstream production;
5. Substantially reduce capital deployment on power development and carbon capture and storage (CCS) projects to the minimum required to maintain viability and competitive positioning until further clarity is provided on the regulatory and policy revisions at both the federal and provincial levels; and
6. Advance Homestead and Opal power projects (501 MW) toward a final investment decision (FID) and successful transaction conclusions.

2024 corporate budget
Planned capital expenditures¹

• Drill, complete, equip and tie-in (DCET) of 15 wells, including 12 Duvernay and three Montney wells for a total estimated DCET expenditure of $250 – $265 million. Additional upstream capital of $20 – $22 million includes other capital required to manage base production, infrastructure and water requirements.
• Power division capital of $5 – $8 million, reflecting a capital-disciplined approach as the industry awaits policy clarity from both provincial and federal governments. Kiwetinohk is pleased that governments have undertaken to clarify policy and provide regulations suited for the Company’s business, the energy transition. Primary objectives are to preserve and to advance the development portfolio within the AESO regulatory process and to achieve FID for Homestead and Opal, including engineering and environmental studies to define projects sufficiently for the pursuit of financing.

The operating plan underlying the budget is resilient and flexible – it predominantly takes advantage of existing upstream infrastructure while executing multiple three-well drilling and completion pads that can be easily scaled and deferring major power project construction expenses. This flexibility enables the Company to expand or contract capital spending in response to a changing business environment. The base budget reflects a focus on financial discipline given the recent volatility in commodity prices. Kiwetinohk can also accelerate capital in response to an improved economic environment (such as improved commodity prices) and has retained the option to increase 2H 2024 capital expenditures by approximately $45 million to advance three additional Duvernay wells. If pursued, this optional pad would provide a forecasted additional ~3 Mboe/d of production in 2025 and be announced in the first half of 2024.

Annual average production is expected to be 24.0 – 27.0 Mboe/d during 2024 through the upstream capital investment outlined above. The budgeted wells position Kiwetinohk to achieve the objective of continuously filling its processing capacity by 2026.

Adjusted funds flow from operations² are expected to be between $250 – $360 million (see detailed 2024 guidance herein for key assumptions), with commodity price sensitivities outlined below. Kiwetinohk has designed an upstream capital program that can achieve attractive growth and at the same time be funded primarily within adjusted funds from operations². This will allow Kiwetinohk to exit 2024 with a forecasted ratio of net debt to adjusted funds from operations² between 0.3x to 0.8x.

Commodity price hedging will remain an integral part of our go forward capital program as we aim to preserve strong returns for capital deployed and maintain prudent debt levels while we add new profitable production to our asset base. For 2024, approximately 54% of oil and condensate production from current wells is hedged at an average floor price of US$68/boe with structures that allow for upside price participation up to US$79/boe. In addition, approximately 63% of our natural gas production from current wells is hedged with an average floor price of US$3.20/MMbtu with structures that allow for upside price participation to US$4.07/MMbtu. Kiwetinohk will be seeking to add further hedges on the 2024 budget volumes to bring total hedged volume in line with current hedging levels.

Detailed 2024 guidance
Kiwetinohk’s 2024 guidance provides information relevant to expectations for financial and operational results. This corporate guidance is based on various commodity price scenarios, regulatory assumptions and economic conditions and readers are cautioned that certain guidance estimates may fluctuate. Kiwetinohk will update guidance if and as required throughout the year.

Fourth quarter operations and corporate update
In the upstream division in mid-November, Kiwetinohk began production from its new 14-29 four-well Duvernay pad. This pad consists of two in-fill and two unbound Simonette Duvernay wells. Initial wellhead production rates, which are nearing their first 30 days on production, are very encouraging. The two unbound wells are producing at a slightly higher choke setting and each well has been averaging between ~10.0 – 12.0 MMcf/d of natural gas and natural gas liquids and ~1,500 – 1,700 bbls/d of condensate. Production rates on the two infill wells, which have shorter lateral lengths and are being restricted, have been averaging between ~5.5 – 6.5 MMcf/d of natural gas and natural gas liquids and ~1,200-1,400 bbls/d of condensate per well. Driven by the recent well results, total Company production is currently averaging ~28 – 30 Mboe/d. As a result, the Company is confident in its expectation of achieving near the mid-point of its 2023 production guidance range.

Through continued execution, the team has gained a better understanding of optimal well design and construction practices that Kiwetinohk expects will reduce risk and cost, increase successfully completed lateral length and increase productivity and recovery per unit of completed lateral length.

“Based on public production data, Kiwetinohk now owns 34 of the top 100 wells and seven of the top ten in the entire Duvernay play. The tally includes wells drilled by Kiwetinohk and the previous operator with four of the top ten wells drilled by the Kiwetinohk team,” said Mike Backus, Chief Operating Officer, Upstream. “I am pleased with what the team has accomplished with well design and operational execution. The recent four-well pad illustrates the evolving capability.”

In addition to the recent completions activity at the 14-29 pad, drilling operations are ongoing on the 8-23 Simonette pad where the last of three Duvernay wells is underway. Kiwetinohk plans to complete and bring these wells on-stream in the first quarter of 2024 as part of its continued development program.

In the power division, Kiwetinohk continues to add value through the development of its portfolio of solar and gas-fired generation projects. During the fourth quarter the 101 MW Opal firm renewable (gas-fired peaker) project advanced into Stage 4 of the AESO regulatory queue, with Granum 300 MW solar and Little Flipi 124 MW firm renewable both advanced into Stage 3.

The power team has established a leading position among Alberta power developers with seven projects (two gas-fired peakers, two gas-fired natural gas combined cycle with provisions for carbon capture, and three solar) in the AESO project development queue. All of the projects are outside of the new, “Cluster” review and approval process adopted by the regulator. The projects continue to advance in the regulatory process with Opal and Homestead targeting readiness for FID in the second half 2024. In aggregate, the portfolio, along with the Company’s two carbon capture projects, represent significant capital investment opportunities. Consistent with Kiwetinohk’s stated strategy, the Company will seek external project equity and debt capital to fully fund the construction of the projects and may consider the partial or outright sale of one or more of these projects. Under new leadership of Power Division President Fareen Sunderji, the team is poised to approach capital markets in search of financing.

“Our strategy is intended to deliver a balanced portfolio and realize the value through a variety of opportunities for these high quality projects that addresses Alberta’s need for clean, reliable, dispatchable and affordable electricity. The team is managing seven projects with a total nameplate capacity of approximately 2,150 MW through the approval process and we are confident we have the capability to make this energy transition vision a reality,” stated Fareen Sunderji.

Three-year outlook
Kiwetinohk anticipates that its 2024 development program and contingent extension of another three-well pad will position the Company to achieve annual targeted upstream production of 40,000 boe/d by 2026. If achieved, this would represent 78% growth over the midpoint of 2023 guidance of 22,500 boe/d. Under this development plan, the upstream division will require an estimated additional ~$800 million of capital expenditures expected over 2025 and 2026 to achieve this production target. Kiwetinohk would seek to fund future development through the reinvestment of cash flows and targets reducing debt levels over the same periods.

If targeted production of 40,000 boe/d is reached in 2026, Kiwetinohk expects its initial annual sustaining capital expenditures, under current economic conditions and assumptions consistent with 2024 guidance, to be approximately $250 million with sufficient inventory to sustain this production level for an extended period. Kiwetinohk’s land is well tenured to 2032 and beyond, with the next two years of activity expected to address the majority of near term expiring lands.

Kiwetinohk’s 2025 and 2026 plans are subject to board approval and may change. Capital investment decisions will be re-evaluated annually or as market conditions dictate.

Sustainability
Kiwetinohk continues to position itself as a profitable clean energy business with focused delivery of GHG emissions reductions from its upstream business to achieve a 50% reduction in vented methane by 2025. In 2024, asset retirement activities will continue with the Company remaining on track to eliminate all current inactive upstream asset retirement obligations within five to seven years.

Kiwetinohk continually engages with governments on issues affecting its business, and is working with Indigenous nations and stakeholders to identify challenges and opportunities for shared value creation. As Kiwetinohk’s portfolio of natural gas-fired and solar renewable power projects advances in 2024, the Company plans to continue engagement on a range of topics including local contracting, employment and agrivoltaics (the use of land for both solar power production and agriculture).

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 kiwetinohk.com and SEDAR+ at www.sedarplus.ca.