Kiwetinohk provides fourth quarter 2023 financial and operational results and year-end reserves report – Canadian Energy News, Top Headlines, Commentaries, Features & Events – EnergyNow

• Adjusted funds flow (AFF)¹ of $5.49/share
• Record annual production of 22,587 boe / day (27% increase over 2022)
• Return on average capital employed (ROACE)¹ of 21%
• Increased total proved plus probable Net Present Value by 9% year-over-year to $2.8 billion (NPV10)
• 2024 guidance reaffirmed

CALGARY, AB, March 6, 2024 /CNW/ – Kiwetinohk Energy Corp. (TSX: KEC) today reported its 2023 financial and operational results and year-end reserves evaluation. As companion documents to this news release, please review the Company’s year end 2023 management discussion and analysis (MD&A), consolidated financial statements and annual information form (available on kiwetinohk.com or www.sedarplus.ca) for additional financial and operational details.

Message to shareholders 

“I am extremely pleased with the team’s performance throughout 2023. Kiwetinohk delivered robust financial and operational results, meeting or exceeding corporate expectations,” said Pat Carlson, Chief Executive Officer.

“This success is underscored by 27% annual production growth culminating in a record annual production level of 22,587 boe/d and year-end monthly exit production of approximately 30,150 boe/d. Equally important, our commitment to safety remained unwavering with the team executing a significant capital program with zero lost time incidents or reportable spills. The strength of the Company’s reserves continues to demonstrate the inherent value of our asset base. Our updated reserves report confirms a notable share price value gap. As of December 31, 2023, our proved developed producing (PDP) reserves alone are estimated to have a before tax net present value discounted at 10% (NPV10) of $15.70/share exceeding the year end trading price of $11.35/share by approximately 38%. Total proved (1P) and total proved plus probable (2P) NPV 10 values are estimated at $35.79/share and $63.10/share, respectively, reinforcing the underlying value of our upstream development program which is further bolstered by our current portfolio of gas fired and renewable power development projects which continue to progress.

“Kiwetinohk is executing on its 2024 budget priorities with a focus on financial discipline given anticipated ongoing volatility in commodity prices. Since year end, three Duvernay wells at the 8-23 pad have been brought on production and we have finished drilling our first two wells of our 2024 program at the 1-27 pad; one in the Duvernay and one in the Montney. Looking forward, the upstream development program is on track, production is substantially hedged at favourable prices over the balance of the year and our operating and financial outlook remains in-line with our guidance provided last December.

“We continue to make progress against project milestones across our power portfolio and are encouraged by the Alberta government’s February 28, 2024 announced new policy direction for renewable energy development which we believe brings clarity to solar developments going forward and which our projects are well positioned to address. We continue to pro-actively engage with federal and provincial governments to get better clarity on the broader evolving electricity policy and regulation and its potential impact on power development. In January 2024, extreme cold weather led to peak energy demand in Alberta, demonstrating electricity supply challenges that we believe will persist into the future. Kiwetinohk’s power development portfolio would provide a combination of power sources that would help Alberta address these supply challenges through clean, reliable, dispatchable and affordable power.”

Financial and operating results for the quarter

Fourth quarter highlights

• Record annual production of 22,587 boe/d, a 27% increase year-over-year. Fourth quarter production of 24,707 boe/d, grew 16.4% over the third quarter of 2023; year-end exit production for the month of December 2023 was approximately 30,150 boe/d.
• Strong quarterly operating netback² of $31.29/boe drove adjusted funds from operations during the fourth quarter of $63.7 million, or $1.46/share. This represents a 14% increase over the third quarter of 2023 and results in annual adjusted funds from operations² of $241.3 million or $5.49/share.
• Fourth quarter capital expenditures (before acquisitions/dispositions)² of $76.4 million brought full year capital expenditures to $307.0 million. The capital program was executed while maintaining a strong balance sheet; the ratio of net debt to annualized adjusted funds flow from operations[2] was 0.77x at December 31, 2023.
• Disposed of non-core assets for proceeds of $18.0 million in the fourth quarter bringing annual disposition total proceeds to $21.3 million in 2023 and related gains on sale of $7.6 million. The disposition of non-core assets reflects the Company’s current focus on the development of its core Simonette and Placid development assets.
• Return on average capital employed² of 21% in 2023 demonstrating a strong return while significantly expanding gas processing infrastructure. Including 2022 return on average capital employed of 30%, Kiwetinohk’s ROACE has averaged approximately 26% over the last two years through the development of its high quality Duvernay and Montney assets.
• Exited 2023 with $165.6 million or 37% of capacity remaining under existing credit facilities which is available to support continued growth in 2024.

Kiwetinohk continues to execute on its upstream and power development plans and is maintaining guidance provided on December 13, 2023 with no changes to expectations. The Company has provided updated sensitivities on adjusted funds flow from operations² (see below) to reflect a lower outlook for natural gas pricing. Despite this reduction, we have increased the low end of the projected range of adjusted funds flow as a result of strong early first quarter results, the Company’s hedging program, and a decision in late 2023 to extract more natural gas liquids from the Company’s processing plants. This adjustment demonstrates the robustness of the Duvernay and Montney assets in Fox Creek and the Company’s ability to manage its owned infrastructure to protect returns for shareholders.

The Company continues to protect the cash flows required to execute our program and manage commodity price risk and volatility through a prudent  management program. For 2024, approximately ~50% of condensate production is hedged against WTI with an average floor price of approximately US$70.00 /bbl and structures that allow for upside participation to approximately $80.00/bbl. In addition, approximately 45% of natural gas production is hedged at an average floor price of approximately $3.20/MMbtu with structures that allow for upside price participation to approximately $4.00/MMbtu. Our strategy provides protection to the downside while maximizing upside exposure. Additional details of the current hedges in place can be found in the Company’s MD&A for the year ended December 31, 2023.

For a detailed breakdown of guidance for 2024 please refer to the Company’s MD&A for the year ended December 31, 2023.

2023 year-end reserves highlights

• Conversions to PDP replaced approximately 119% of 2023 production with total proved plus probable (2P) reserve replacement of 550%.
• Grew 2P reserves by 5% or ~10.0 MMboe after dispositions (~27.1 MMboe) and annual production. Within the Company’s core development areas of Simonette and Placid, 2P reserves grew by 20% or ~37.1 MMboe after annual production.
• 2P net present value (NPV10) grew by 9% year over year to $2.8 billion (net of $0.2 billion in dispositions) with lower average year over year commodity prices.
• Improved plant liquids recovery and increased total liquids share of production from 43% to 48% in Simonette in response to redeployment of capital to liquids rich inventory.
• Underlying reserve base highlights significant value relative to today’s share price: PDP NPV10 (BT) $15.70/share; Total Proved (1P) NPV10 (BT) $35.79/share; and 2P NPV10 (BT) $63.10/share compared to a December 31, 2023 share price of $11.35.
• PDP reserve life index (RLI) of 4.60, 1P of 13.70 and 2P of 24.90 years.
• 2P finding and development costs (F&D) of $19.84. Over the life of the reserves, the reserve report estimates undeveloped 1P F&D costs of $18.74/boe (future development capital divided by proved undeveloped reserves) and undeveloped 2P F&D cost of $13.97/boe.
• 3-year finding, development and acquisition (FD&A) recycle ratios were 2.4x for PDP, 2.1x for 1P and 2.6x for 2P based on the three year average operating netback of $39.81/boe.

Upstream operational update

In mid-November, Kiwetinohk began production from its new 14-29 four-well Duvernay pad. These wells combined to produce approximately 11,900 boe/d on average in December 2023 and contributed to a record year-end exit production of approximately 30,150 boe/d. The 14-29 pad continues to provide strong production in the new year. In addition, three wells at the Company’s 8-23 Duvernay pad in Simonette have recently been completed and were brought on stream at the end of February, slightly ahead of schedule. Since the first number of days where the wells were cleaning up, they have been averaging wellhead rates of between 8-10 mmcf/d of natural gas and associated liquids in addition to between 1,000-1,200 bbls/day of condensate per well. The wells continue to be choked back and while it is very early days, the early production rates appear to be in-line with the Company’s expectations in this core Simonette development area.

Kiwetinohk has finished drilling the first two wells of its 2024 capital program, including one Duvernay well and the first of two Montney wells scheduled to be drilled in Simonette. This Montney well is the first that Kiwetinohk is drilling in the Simonette area since acquiring the assets. It is in a different part of the Montney than the Placid wells that were drilled last year and has a significant amount of inventory to exploit. The second Montney well is scheduled to be drilled in the third quarter. Kiwetinohk has also recently commenced drilling a three well Duvernay pad in the liquids rich area at Tony Creek, and is in the process of moving a second rig into Tony Creek for another three well pad. These wells are all scheduled to come on-stream in the third quarter of this year. This is part of an overall capital program that includes plans to drill twelve Duvernay wells and three Montney wells. Flexibility has been retained to accelerate three additional Duvernay wells with an investment decision anticipated in the second quarter of 2024.

There are no changes to previously disclosed upstream operating guidance, which can be referenced in the fourth quarter MD&A and the news release originally dated December 13, 2023. Kiwetinohk is targeting average production to grow to an average of 24.0 – 27.0 thousand boe/d for calendar 2024, while continuing to reduce unit operating costs by increasing volumes flowing through owned and operated infrastructure.

Power update

In August 2023 the Alberta government enacted the Generation Approvals Pause Regulation, which immediately paused AUC approval of new renewable energy projects greater than one megawatt until February 29, 2024. The Alberta government also directed the AUC to conduct an inquiry regarding the policy and procedures for the development of renewable electricity generation. On February 28, 2024, the Alberta government announced new policy direction for  renewable development going forward.

“We support the Alberta government’s renewable power policy updates as it provides consistent high standards for developers. Kiwetinohk has assessed the impact of this announcement on our solar portfolio and we currently believe our projects are well positioned and will not be impacted. Our planned solar projects are on Class 3 lands and incorporate best practices outlined by the government such as agrivoltaics. We will continue to evaluate our overall power strategy in light of recent announcements,”  said Fareen Sunderji, President Power Division.

During the fourth quarter, Kiwetinohk advanced four power development projects through the AESO regulatory queue, with the Black Bear (NGCC) project advancing to Stage 3. The Company believes that its development portfolio remains competitively well positioned within the Alberta market and is currently seeking external non-dilutive capital to finance power projects. Kiwetinohk has engaged a financial advisor to help in sourcing potential financing partners and/or acquirers of the Company’s two most advanced projects, Homestead Solar and Opal Firm Renewable which together provide 500MW of generation capacity. Transactions may include a partial or outright sale of a project with proceeds helping to fund ongoing development of the remaining portfolio.

Capital cost estimates for the Homestead Solar project continue to be refined as Kiwetinohk advances through detailed engineering work. The Company has continued to optimize the design and development plan for its 400 MW Homestead solar project and is reducing capital cost estimates by $50.0 million to a revised Class 2 cost estimate of approximately $675.0 million. We already have the AUC power plant approval and continue to advance power purchase agreement discussions and work on obtaining a transmission line approval with an anticipated FID in the second half of 2024.

Capital cost estimates and timelines for Opal and the remaining portfolio continue to be evaluated and updated through the normal course and are expected to reflect increases related to general inflationary conditions and supply chain challenges. Pricing for Opal will be determined and disclosed as we finalize estimates in conjunction with a FID decision.

Reserves update

McDaniel & Associates conducted an independent reserves evaluation and prepared the Company’s reserve report according to National Instrument 51-101 standards as outlined by the Society of Petroleum Evaluation Engineers (SPEE) and the Canadian Oil and Gas Evaluation Handbook (COGEH).

The reserves evaluation was based on the average forecast pricing of McDaniel’s, GLJ Petroleum Consultants and Sproule Associates Limited and foreign exchange rates at January 1, 2024 which is available on McDaniel’s website at www.mcdan.com. Reserves included below are presented on a company gross basis and reflect the Company’s total working interest reserves before the deduction of any royalties and do not include any royalty interests payable to the Company.

Future development costs (FDC) reflect McDaniel’s best estimate of the future cost to bring Kiwetinohk’s proved and probable developed and undeveloped reserves on production. Actual costs may be greater than or less than the estimates contained in the McDaniel Report and referenced in this news release and FDC will be re-forecast on an annual basis to account for changes in development activities, new well design or performance, inflation expectations and various other estimates.

Additional details of Kiwetinohk’s 2023 year end reserves can be found in the Company’s AIF available on the Company website and on the Company’s profile on SEDAR+ at www.sedarplus.ca.

The following reserve summary table details the Company’s 2023 gross volumetric and valuation reserve results:

Net present value before tax summary:

Future development costs (“FDC”)

The following is McDaniel’s estimate of FDC required to bring total proved and total proved plus probable reserves onto production:

1P/2P Future Undeveloped F&D Costs:

Sustainability update

Kiwetinohk joined the Oil & Gas Methane Partnership 2.0 (OGMP 2.0), the flagship oil and gas reporting and mitigation program of the United Nations Environment Programme (UNEP). Kiwetinohk is the first Canadian member to join OGMP 2.0, the only comprehensive, measurement-based reporting framework for the oil and gas industry. In 2023 Kiwetinohk took steps towards improving the accuracy and transparency associated with its methane emissions reporting through installation of continuous emissions monitoring at most of its sites and set a 50% vented methane reduction target (from 2022 levels).

Kiwetinohk supports the Government of Alberta’s announced policy direction to support the sustainability of solar projects in the province including integration of agrivoltaics and reclamation security best practices that Kiwetinohk has already adopted.

Conference call, annual general meeting and first quarter 2024 reporting date

Kiwetinohk management will host a conference call on March 7, 2024, 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 March 14, 2024, at 1-888-390-0541 (North America toll free) or 416-764-8677 (Toronto and area) by using the code 519452.

Kiwetinohk plans to release its first quarter 2024 results prior to TSX opening on May 9, 2024 and hold its annual general meeting later that same day.

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 liquids-rich natural gas and related products and is in the process of developing renewable and natural gas-fired power generation projects with a vision of also incorporating carbon capture technology and hydrogen production, all as part of a broader, integrated portfolio of clean energy assets that will support energy transition in the markets that it serves. 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.