Will Kelt Exploration Turn Around This Year?


Kelt Exploration [stock_market_widget type="inline" template="generic" color="default" assets="KEL.TO" markup="(TSE: {symbol} {currency_symbol}{price} ({change_pct}))" api="yf"] had a forgetful 2018 thanks to the decline in oil prices, but the Alberta government’s intervention to boost Canadian crude oil prices seems to be rubbing off positively on the company.

Kelt stock has shot up 27% in the past three months. This seems deserved given that the company has managed to increase its production over the past year. So it won’t be surprising to see Kelt riding the growth in oil prices as it is on track to deliver higher output in 2019 as well.

Let’s take a closer look at the company’s operational profile and see what’s in store for Kelt this year.

Kelt is Enjoying Solid Production Growth

Kelt delivered combined production of 27,006 barrels of oil equivalent per day last year, up 22% from the 2017 production of 22,130 BOE/day. The realized price of oil, natural gas, and natural gas liquids also improved substantially, bumping up Kelt’s revenue big time. On a consolidated basis, Kelt’s average realized price came in at C$37.30 per barrel, up 18% from the prior year.

Kelt delivered combined production of 27,006 barrels of oil equivalent per day last year, up 22% from the 2017 production of 22,130 BOE/day.

Thanks to the higher pricing, the company’s operating netback was up 35% year over year to C$20.56 per barrel of oil equivalent. The combination of higher prices and production helped Kelt deliver a 73% increase in adjusted funds from operations to C$186.8 million.

The good news is that Canada’s oil glut is reportedly coming down, leading to higher prices. The easing of oil inventories has encouraged the Alberta government to ease the mandated production cuts. This is an encouraging sign for Kelt as weak oil prices were its Achilles Heel in the latter half of 2018. So if the commodity keeps rising, investors can expect the stock to deliver more upside as it is on track to deliver efficient production growth in 2019.

A Bright Production Outlook for 2019

Kelt expects to deliver 33,500-34,500 barrels of oil equivalent per day of production this year on a capital budget of C$340 million. The mid-point of the guidance represents a production jump of nearly 26% as compared to last year. The impressive thing to note here is that Kelt had earlier planned a capital spending of C$270 million for the year, but it had to reduce the same by 11% to account for lower oil prices.

So the lower capital spending forecast for the year won’t impact the company’s production as the outlook for the same is intact. However, the company is now forecasting a WTI price index of $55 per barrel for the year as compared to the earlier estimate of $67.50 per barrel. But the market expects an increase in its output to more than offset for the lower pricing.

Consensus estimates expect Kelt’s revenue to increase nearly 25% this year, followed by yet another impressive increase of almost 22% in 2021. Additionally, the company’s earnings are expected to rise as well thanks to its disciplined cost control. When combined with the recent rally in oil prices and the improving economics of the oil market thanks to global production cuts, it won’t be surprising to see Kelt Exploration sustain its momentum and deliver more upside.

Harsh Singh Chauhan has a wealth of experience evaluating publicly-traded companies across several verticals, including technology, oil and gas, retail, and consumer goods. His financial writing has been published across platforms such as The Motley Fool, TheStreet, and Seeking Alpha. Harsh's philosophy is to find great businesses for the long run based on company fundamentals and industry prospects. Address: 682 Indian Road, Toronto, Ontario, M6P 2C9. Phone: 416-721-8257.


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