CALGARY,
AB, Dec. 14, 2022 /CNW/ - Kiwetinohk Energy
Corp. (TSX: KEC) today announced its 2023 budget and three-year
outlook. The Company began preparing to launch a normal course
issuer bid.
Kiwetinohk's 2023 budget is focused on delivering multiple
strategic initiatives:
- High rate of return oil and gas production with strong
production per share growth.
- Increasing owned gas plant processing capacity to support
higher production by the second half of 2023.
- Filling majority of 120 MMcf/d of Chicago market Alliance Pipeline capacity with
Company natural gas production.
- Significant growth in adjusted funds flow (AFF1) and future
free funds flow (FFF1).
- Financing its first power projects and reaching final
investment decisions (FID) on 501 MW of generation capacity.
2023 budget highlights
- Oil and gas sales of 24.5-28.5 thousand boe/d, which is
growth of ~50% year/year. Sales estimates include a provision for a
7-10-day shutdown in the third quarter of both Simonette plants for
tie-in of expansion capacity.
- AFF1 is forecasted between $355-$450 million
(~$8-$10/share), ~50% increase year/year, at
US$70-US$80 WTI and US$4.50-US$5.00 HH
flat prices2.
- Total planned capital expenditures for Upstream and
Green Energy are between $378-$402 million.
This plan can be funded at US$50 WTI
and US$2.75 HH flat prices while
maintaining a target net debt to AFF1 ratio of below
1.0x, due in part to downside protection from hedges put in place
during 2022.
- Drill, complete, equip and tie-in (DCET) spending of
$270-$285
million resulting in 15.5 net wells on production (10
Simonette Duvernay and 5.5 net
Placid Montney). This program includes carry over activity from
2022 and pre-investment supporting the 2024 program. It will
maximize economic productivity in the Duvernay, delineate and prove
the Montney in both Simonette and
West Placid and retain land in both Simonette and Placid.
- Facility expansion capital of ~$50 million will be directed towards expanding
owned gas processing capacity in Simonette by ~37 MMcf/d and
electrification of the 5-31 Simonette gas plant. The expansions,
scheduled for completion by the end of the third quarter, will
support the next leg of production growth into year-end 2023 and
2024.
- Additional investments of $40-$45 million
will support maintenance of base production volumes, emissions
reductions and buildout of field infrastructure to support low-cost
future development.
- Green Energy investment of $18-$22 million to
further advance pre-construction development activities across
Kiwetinohk's 2,150 MW power project portfolio including
~$2 million to pursue new Green
Energy projects.
- Third party financing arrangements are targeted for
execution for Kiwetinohk's 400 MW Homestead Solar and 101 MW Opal
Firm Renewable projects in the first half of 2023 with FID
anticipated by year-end.
- Asset retirement and reclamation obligation (ARO)
spending of $5.5-$7.5 million, in line with the Company's ESG and
stakeholder best practices.
- Cash taxes are not expected to be paid by the Company in
2023 at flat US$80 WTI and
US$5.00 HH pricing.
- Return on average capital employed (ROACE)2,3
of 30%-34% at flat US$70-US$80 WTI and US$4.50-US$5.00 HH
pricing.
2023 annual financial & operational guidance
summary
|
|
|
|
Sales
volumes1
|
Mboe/d
|
24.5 - 28.5
|
22-25 Mboe/d in Q1/23;
growth expected in H2/23 following plant expansions
|
Oil &
liquids
|
Mbbl/d
|
12.1 - 14.0
|
~50% liquids
weighted
|
Natural
gas
|
MMcf/d
|
74.4 - 87.0
|
~90% natural gas
exposure to Chicago market
|
Financial
|
|
|
|
Royalty
rate2
|
%
|
10% - 12%
|
C* coverage from new
wells, offset by rapid payout
|
Operating
costs1
|
$/boe
|
$8.25 -
$9.25
|
~10% per boe
improvement year/year
|
Transportation
|
$/boe
|
$6.25 -
$7.25
|
Slightly higher than in
2022 due to more gas production sold via Alliance
|
Corporate
G&A expense3
|
$MM
|
$24 - $27
|
$2.30-$3.00/boe a ~10%
per boe improvement year/year
|
Cash
taxes4
|
$MM
|
$0
|
Existing tax pools
expected to shield cash taxes for 2023
|
Capital
|
$MM
|
$378 - $402
|
|
Upstream
|
$MM
|
$360 - $380
|
Investing for
growth
|
DCET
|
$MM
|
$270 - $285
|
Further optimization of
well designs; unlocking development locations
|
Other
|
$MM
|
$90 - $95
|
Simonette plant
expansions & electrification; other field
infrastructure
|
Green
Energy
|
$MM
|
$18 - $22
|
Progressing power
projects and targeted FID on Homestead and Opal
|
2023
AFF5
|
|
|
Capital budget is FFF
neutral +/- 10%5
|
US$70 WTI; US$4.50 HH;
US$0.73/CAD
|
$MM
|
$355 - $410
|
|
US$80 WTI; US$5.00 HH;
US$0.75/CAD
|
$MM
|
$390 - $450
|
|
2023 Net debt to
AFF5
|
|
Remain below
corporate debt ratio target of 1.0x @ US$50 WTI / US$2.75 HH flat
deck
|
US$70 WTI; US$4.50 HH;
US$0.73/CAD
|
X
|
0.3x - 0.5x
|
|
US$80 WTI; US$5.00 HH;
US$0.75/CAD
|
X
|
0.1x - 0.4x
|
|
1 – No plant
turnarounds scheduled for 2023; includes 7-10-day shutdown of
facilities to accommodate plant expansion work in the third
quarter.
|
2 – Royalty rate in the
table above calculated relative to corporate revenue, which for
natural gas revenues is largely determined by US dollar denominated
Chicago-based natural gas pricing.
|
3 – Includes G&A
expenses for all divisions of the Company – Corporate, Upstream,
Green Energy and Business Development.
|
4 – At US$80 WTI;
US$5.00 HH; US$0.75/CAD flat prices for full year. See
"Non-GAAP Measures".
|
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 Corporation's MD&A as
at and for the three months ended September 30, 2022 under the
section "Non-GAAP Measures" available on Kiwetinohk's SEDAR profile
at www.sedar.com
|
Natural gas sales volumes will continue to benefit from access to
favourable US Dollar denominated pricing in the Chicago market via Kiwetinohk's 120 MMcf/d of
contracted capacity on the Alliance Pipeline. At the conclusion of
the 2023 capital program, Kiwetinohk estimates it will require
approximately $160 million of drill,
complete, equip, tie-in (DCET) capital to sustain targeted 2023
average annual production rates. Given the large scale of the
capital program relative to the corporate enterprise value (~55% at
the time of budget Board of Director approval), Kiwetinohk will
continue to actively hedge production to protect cash flows and
provide a pricing floor required to fund the program.
Three-year outlook
The three-year outlook is intended to provide investors with
increased visibility regarding Kiwetinohk's strategy, the value of
the Company's asset base and the Company's projected operational
and financial capabilities and prospects. Kiwetinohk intends
to grow cash flow from its upstream operations while pursuing its
energy transition power projects, reducing debt and increasing free
funds flow generation.
Three-year outlook highlights
- Annual production sales growth expected between ~20%-50%
in each of the next three years, reaching an expected average
annual rate of 38-42 thousand boe/d during 2025, filling expanded
processing facilities and Alliance Pipeline capacity with Company
production. This represents a three-year compound annual growth
rate (CAGR) of ~33% in aggregate production sales volumes and per
share volumes.
- AFF and AFF/share growth of ~100% from full year 2022 to
above $500 million in 2025, a CAGR of
~27%.
- Free Funds Flow of ~$180-$250 million
per year by 2025 (at US$70-US$80 WTI
flat oil prices).
- Total capital expenditures between $390-$408 million
in 2023-2024, reducing to $318
million by 2025.
- Green Energy division spending of $18-$22 million in
2023, ~$13 million in 2024 and
~$3 million in 2025 is required to
deliver the existing project portfolio to FID. In total, the
Company expects to maintain spending of $15-$20 million per
year in Green Energy beyond 2023 to continue advancing additional
projects toward FID.
- Green Energy project financing and FID targeted for its
2,150 MW power project portfolio. The Company continues to expand
its Green Energy project portfolio with the recognition that
projects face development, regulatory and execution risks, and not
all projects may reach FID or have guaranteed completion
success.
- Green Energy EBITDA with commercial operations dates
targeted by the end of 2025 for the 400 MW Homestead Solar, 101 MW
Opal Firm Renewable and 170 MW Phoenix Solar projects.
- Debt repayment of all outstanding corporate recourse
debt balances.
Three year financial and operational outlook
|
|
2023E2,
3
|
2024E2,
3
|
2025E2,
3
|
Sales
volumes
|
|
|
|
|
Sales
volumes low
|
Mboe/d
|
24.5
|
30
|
38
|
Sales
volumes high
|
Mboe/d
|
28.5
|
34
|
42
|
Capital
expenditures4
|
$MM
|
$390
|
$408
|
$318
|
Total
Upstream
|
$MM
|
$370
|
$390
|
$300
|
Green
Energy
|
$MM
|
$20
|
$18
|
$18
|
AFF US$70 WTI
flat5
|
$MM
|
$380
|
$420
|
$500
|
Net Debt /
AFF
|
X
|
0.4
|
0.4
|
(0.1)
|
AFF US$80 WTI
flat5
|
$MM
|
$420
|
$460
|
$570
|
Net Debt /
AFF
|
X
|
0.3
|
0.2
|
(0.3)
|
1 - Growth rate shown
from mid-point to mid-point.
|
2 - 2023-2025 capital
expenditures and AFF as per mid-point of guidance and outlook
range.
|
3 - Three-year outlook
is indicative and has not been approved by the Board of Directors,
is based on preliminary planning and current market conditions, is
subject to change and does not include any funds flow from Green
Energy power projects.
|
4 - Mid-point of
expected capital expenditure range.
|
5 - Flat price decks;
US$70 WTI; US$4.50 HH; US$0.73/CAD and US$80 WTI; US$5.00 HH;
US$0.75/CAD.
|
Share liquidity and Normal Course
Issuer Bid
Kiwetinohk is aware of, and concerned with, the lack of trading
liquidity of the Company's stock and believes that this lack of
trading liquidity negatively impacts Kiwetinohk's trading value as
measured against the 2021 year-end reserve report NPV calculations
and peer trading valuation metrics. To help address this
issue, Kiwetinohk has made an application to the Toronto Stock
Exchange (TSX) to implement a Normal Course Issuer Bid (NCIB) and
Management has provided a three-year outlook to investors with
additional information on the future prospects of the Company.
Kiwetinohk believes that the common shares have been trading in
a price range which does not adequately reflect their value in
relation to the Company's current operations, growth prospects,
energy transition projects and financial position.
Kiwetinohk's capital spending priority remains on growing the
upstream production and advancing its power project development
portfolio, and the measured application of an NCIB may be used to
both repurchase common shares at times when management believes
that the market price of the common shares does not reflect their
underlying value and provide additional liquidity for shareholders.
The NCIB is subject to review and acceptance by the TSX and
Kiwetinohk anticipates implementing it in late 2022 or early 2023,
subject to such TSX approval.
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.
Forward looking
information
Certain information set forth in this news release contains
forward-looking information and statements including, without
limitation, management's business strategy, management's assessment
of future plans and operations. Such forward-looking statements or
information are provided for the purpose of providing information
about management's current expectations and plans relating to the
future. Forward-looking statements or information typically contain
statements with words such as "anticipate", "believe", "expect",
"plan", "intend", "estimate", "project", "potential", "may" or
similar words suggesting future outcomes or statements regarding
future performance and outlook. Readers are cautioned that
assumptions used in the preparation of such information may prove
to be incorrect. Events or circumstances may cause actual results
to differ materially from those predicted as a result of numerous
known and unknown risks, uncertainties and other factors, many of
which are beyond the control of the Company.
In particular, this news release contains forward-looking
statements pertaining to the following:
- anticipated North American commodity prices;
- the Company's 2023 capital expenditures budget and allocations
thereof;
- the Company's 2023 and Q1 2023 financial and operational
guidance, including ROACE;
- the Company's expectations regarding cash taxes and when they
are expected to be paid by the Company;
- the anticipated Simonette plant capacity additions and the
timing and costs thereof and the effects of such additions on the
Company's production;
- drilling and completion activities on certain wells and pads,
including cost efficiencies going forward;
- the anticipated production of certain wells and the timing
thereof;
- the anticipated use of additional hedges to protect
cashflows;
- the Company's three-year financial and operational
outlook;
- the anticipated CAGR, repayment of corporate debt, and timing
of free funds flow during the three 3-year outlook;
- the anticipated financing, FID, and on production timing of
Power projects;
- the anticipated implementation of the NCIB and the timing
thereof; and
- the Company's operational and financial strategies and
plans.
In addition to other factors and assumptions that may be
identified in this news release, assumptions have been made
regarding, among other things:
- the timing and costs of the Company's capital projects,
including drilling and completion of certain wells;
- the impact of increasing competition;
- the general stability of the economic and political environment
in which the Company operates;
- general business, economic and market conditions;
- the ability of the Company to obtain qualified staff, equipment
and services in a timely and cost efficient manner;
- future commodity prices and hedging results;
- costs associated with the Company's operations;
- currency, exchange and interest rates;
- the regulatory framework regarding royalties, taxes, and
environmental matters in the jurisdictions in which the Company
operates;
- the ability of the Company to obtain the required capital to
finance its exploration, development and other operations and meet
its commitments and financial obligations;
- the ability of the Company to secure adequate product
processing, transportation, fractionation and storage capacity on
acceptable terms and the capacity and reliability of owned and
third party facilities;
- the timely receipt of required governmental and regulatory
approvals;
- the impact of war, hostilities, civil insurrection, pandemics
(including Covid-19), instability and political and economic
conditions (including the ongoing Russian-Ukrainian conflict) on
the Company;
- power project debt will be at the project level;
- power projects will be funded by third parties, as currently
anticipated;
- the ability of the Company to successfully market its products;
and
- the Company's operational success and results being consistent
with current expectations.
Readers are cautioned that the foregoing list is not exhaustive
of all factors and assumptions that have been used. Although the
Company believes that the expectations reflected in such
forward-looking statements or information are reasonable, undue
reliance should not be placed on forward-looking statements as the
Company can give no assurance that such expectations will prove to
be correct.
Forward-looking statements or information involve a number of
risks and uncertainties that could cause actual results to differ
materially from those anticipated by the Company and described in
the forward-looking statements or information. These risks and
uncertainties include, among other things:
- those risks set out in the Annual Information Form (AIF) under
"Risk Factors";
- the ability of management to execute its business plan;
- general economic and business conditions;
- risks of war, hostilities, civil insurrection, pandemics
(including Covid-19), instability and political and economic
conditions in or affecting jurisdictions in which the Company
operates;
- operational and construction risks associated with certain
projects;
- the possibility that government policies or laws may change or
governmental approvals may be delayed or withheld;
- risks relating to regulatory approvals and financing;
- the Company's ability to enter into or renew leases;
- risks associated with rising capital, operating, labour, inputs
and other costs;
- the timing of capital project completions;
- fluctuations in commodity prices, foreign currency exchange
rates and interest rates;
- risks inherent in the Company's marketing operations, including
credit risk;
- health, safety, environmental and construction risks;
- changes in royalties, taxes, and environmental legislation and
regulations in the jurisdictions in which the Company
operates;
- the Covid-19 pandemic and the duration and impact thereof;
- risks associated with existing and potential future lawsuits
and regulatory actions against the Company;
- uncertainties as to the availability and cost of
financing;
- the ability to secure adequate processing, transportation,
fractionation and storage capacity on acceptable terms;
- processing, pipeline and fractionation infrastructure outages,
disruptions and constraints;
- operational issues encountered in the energy business; and
- other risks and uncertainties described elsewhere in this
document and in Kiwetinohk's other filings with Canadian securities
authorities.
Readers are cautioned that the foregoing list is not exhaustive
of all possible risks and uncertainties.
The forward-looking statements and information contained in this
news release speak only as of the date of this news release and the
Company undertakes no obligation to publicly update or revise any
forward-looking statements or information, except as expressly
required by applicable securities laws.
Non-GAAP Measures
This news release contains measures that do not have a
standardized meaning under generally accepted accounting principles
(GAAP) and therefore may not be comparable to similar measures
presented by other entities. These performance measures
presented in this document should not be considered in isolation or
as a substitute for performance measures prepared in accordance
with GAAP and should be read in conjunction with the consolidated
financial statements of the Company. Readers are cautioned that
these non-GAAP measures do not have any standardized meanings and
should not be used to make comparisons between Kiwetinohk and other
companies without also taking into account any differences in the
method by which the calculations are prepared.
Please refer to the Corporation's MD&A as at and for the
nine months ended September 30, 2022,
under the section "Non-GAAP Measures" for a description of these
measures, the reason for their use and a reconciliation to their
closest GAAP measure where applicable. The Corporation's MD&A
is available on Kiwetinohk's SEDAR profile at www.sedar.com
Future-Oriented Financial
Information
Financial outlook and future-oriented financial information
contained in this press release about prospective financial
performance, financial position or cash flows is based on
assumptions about future events, including economic conditions and
proposed courses of action, based on management's assessment of the
relevant information currently available. In particular, this press
release contains expected adjusted funds flow from operations, net
debt to adjusted funds flow from operations and free funds flow.
These projections contain forward-looking statements and are
based on a number of material assumptions and factors set out above
and are provided to give the reader a better understanding of the
potential future performance of the Company in certain areas.
Actual results may differ significantly from the projections
presented herein. These projections may also be considered to
contain future oriented financial information or a financial
outlook. The actual results of the Company's operations for any
period will likely vary from the amounts set forth in these
projections, and such variations may be material. See "Risk
Factors" in the Company's AIF published on the Company's profile on
SEDAR at www.sedar.com for a further discussion of the risks that
could cause actual results to vary. The future oriented financial
information and financial outlooks contained in this press release
have been approved by management as of the date of this press
release. Readers are cautioned that any such financial outlook and
future-oriented financial information contained herein should not
be used for purposes other than those for which it is disclosed
herein.
Abbreviations
|
$/boe
|
dollars per barrel
equivalent
|
$MM
|
millions of
dollars
|
AFF
|
adjusted funds
flow
|
AIF
|
Annual Information
Form
|
bbl/d
|
barrels per
day
|
boe
|
barrel of oil
equivalent, including crude oil, condensate, natural gas liquids,
and natural gas (converted on the basis of one boe per sixmcf of
natural gas)
|
CAGR
|
compound annual growth
rate
|
C*
|
drilling and completion
cost allowance under the Alberta Modernized Royalty
Framework
|
DCET
|
drill, complete, equip
and tie-in
|
FFF
|
free funds
flow
|
HH
|
Henry Hub
|
Mbbl/d
|
millions of barrels per
day
|
Mboe/d
|
millions of barrels of
oil equivalent per day
|
Mcf/d
|
thousand cubic standard
feet per day
|
MMcf/d
|
million cubic feet per
day
|
WTI
|
West Texas
Intermediate
|
FOR MORE INFORMATION ON KIWETINOHK, PLEASE
CONTACT:
Mark Friesen,
Director, Investor Relations
IR phone: (587) 392-4395
IR email: IR@kiwetinohk.com
Address: Suite 1500, 250 - 2 Street S.W. Calgary, Alberta T2P 0C1
Pat Carlson, CEO
Jakub Brogowski, CFO
___________________________________________________
|
1 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 Corporation's MD&A as
at and for the three months ended September 30, 2022 under the
section "Non-GAAP Measures" available on Kiwetinohk's SEDAR profile
at www.sedar.com
|
2 Low end of
range calculated using $70/bbl WTI; US$4.50/MMbtu HH; US$0.73/CAD
and high end of range calculated using US$80/bbl WTI; US$5.00/MMbtu
HH; US$0.75/CAD.
|
3 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. ROACE is defined as EBIT (earnings before
interest and tax) divided by average capital employed (net debt
plus shareholders' equity).
|
SOURCE Kiwetinohk Energy