ANNUAL REPORT
AS AT AND FOR THE YEAR ENDED
DECEMBER 31, 2023
[THIS PAGE IS INTENTIONALLY BLANK]
FINANCIAL AND OPERATIONAL HIGHLIGHTS
Three months ended
December 31
Year ended
December 31
(CA$ thousands, except as otherwise indicated)
2023
2022
%
2023
2022
%
FINANCIAL
Petroleum and natural gas sales
Cash provided by operating activities
Adjusted funds from operations (1)
Basic ($/common share) (1)
Diluted ($/common share) (1)
Net income and comprehensive income
Basic ($/common share)
Diluted ($/common share)
Capital expenditures, net of A&D (1)
Total assets
Bank debt
Net debt (1)
Shareholders' equity
Return on average capital employed (%) (1)(3)
Weighted average shares outstanding (000s)
Basic
Diluted
OPERATIONS
Average daily production
Oil (bbls/d) (2)
NGLs (bbls/d)
Gas (mcf/d)
Combined (BOE/d)
Production per million common shares (BOE/d) (1)
Net realized prices, before financial instruments (1)
Oil ($/bbl) (2)
NGLs ($/bbl)
Gas ($/mcf)
Operating netbacks ($/BOE) (1)
Petroleum and natural gas sales
Cost of purchases
Combined net realized price, before financial instruments(1)
Realized gain (loss) on financial instruments
Combined net realized price, after financial instruments(1)
Royalties
Production expense
Transportation expense
Operating netback (1)
Land holdings
Gross acres
Net acres
Reserves – proved plus probable
Crude oil and liquids (Mbbls) (2)
Gas (MMcf)
Combined (MBOE)
129,000
152,720
62,477
66,618
0.34
0.33
63,742
92,851
0.48
0.47
23,729
54,238
0.12
0.12
0.28
0.28
62,695
68,594
-16
-2
-28
-29
-30
-56
-57
-57
-9
495,580
283,224
613,358
306,022
276,200
326,992
1.43
1.40
1.71
1.67
85,974
158,758
0.45
0.44
0.83
0.81
282,646
317,540
1,260,292
1,128,104
-19
-7
-16
-16
-16
-46
-46
-46
-11
12
-
11,300
-100
12,997
9,789
1,003,663
901,424
12
25
194,359
199,223
191,812
195,828
1
2
193,116
197,063
191,101
195,456
8,832
3,422
6,416
3,478
120,541
108,849
32,344
28,036
166
146
95.68
49.79
2.75
43.35
(1.66)
41.69
0.09
41.78
(6.03)
(8.62)
(3.64)
23.49
107.88
60.54
6.52
59.21
(3.30)
55.91
1.66
57.57
(6.15)
(10.90)
(3.03)
37.49
38
-2
11
15
14
-11
-18
-58
-27
-50
-25
-95
-27
-2
-21
20
-37
33
11
-52
1
1
41
-7
7
12
10
-16
-27
-54
-28
-31
-28
-18
-20
-4
14
-24
-
-
15
25
21
7,979
3,759
5,640
4,049
112,634
105,280
30,510
27,236
158
143
97.90
49.27
3.08
44.51
(1.50)
43.01
1.35
44.36
(5.31)
(9.83)
(3.48)
25.74
117.18
67.64
6.63
61.70
(2.16)
59.54
53.86
(6.60)
(10.22)
(3.06)
33.98
796,519
581,553
795,559
579,857
149,163
129,479
1,583,515
1,267,931
413,082
340,801
(5.68)
124
(1) Refer to advisories regarding non-GAAP and other financial measures.
(2) “Liquids” include field condensate and NGLs; “Oil” includes crude oil and field condensate combined.
(3) The three-year average ROACE at Dec 31, 2023 was 19%. Refer to additional information under “Non-GAAP and Other Financial Measures”.
KELT EXPLORATION LTD.
1
2023 ANNUAL REPORT
MESSAGE TO SHAREHOLDERS
Kelt Exploration Ltd. (“Kelt” or the “Company”) reports its financial and operating results to shareholders for the fourth
quarter and year ended December 31, 2023.
Average production for the three months ended December 31, 2023 was 32,344 BOE per day, up 15% compared to
average production of 28,036 BOE per day during the fourth quarter of 2022. Average production for 2023 was 30,510
BOE per day, an increase of 12% from an average production of 27,236 BOE per day in 2022. Production for the three
months ended December 31, 2023 was weighted 38% to oil and NGLs and 62% to gas.
Petroleum and natural gas sales during the fourth quarter of 2023 decreased 16% to $129.0 million, down from $152.7
million in the same period of the previous year. Petroleum and natural gas sales for the year were $495.6 million, down
19% from $613.4 million in 2022. Kelt’s net realized average oil price during the fourth quarter of 2023 was $95.68 per
barrel, down 11% from $107.88 per barrel in the fourth quarter of 2022. The Company’s net realized average NGLs
price during the fourth quarter of 2023 was $49.79 per barrel, down 18% from $60.54 per barrel in the fourth quarter of
2022. Kelt’s net realized average gas price for the fourth quarter of 2023 was $2.75 per Mcf, down 58% from $6.52 per
Mcf in the fourth quarter of 2022.
For the three months ended December 31, 2023, adjusted funds from operations was $66.6 million ($0.33 per share,
diluted), compared to $92.9 million ($0.47 per share, diluted) in the fourth quarter of 2022. Year over year, adjusted
funds from operations decreased 16% to $276.2 million ($1.40 per share, diluted) from $327.0 million ($1.67 per share,
diluted) in 2022. During 2023, Kelt recorded net income of $86.0 million ($0.44 per share, diluted) compared to $158.8
million ($0.81 per share, diluted) in the previous year.
Kelt’s return on average capital employed (“ROACE”) was 12% in 2023 and 25% in 2022. The three year average
ROACE was 19%, showing a significant return on capital employed as the Company transitions from exploration and
resource delineation to development and multi-well pad drilling.
At December 31, 2023, Kelt had net debt of $13.0 million compared to $9.8 million at December 31, 2022. At a net debt
to adjusted funds from operations ratio of 0.05 times, Kelt continues to maintain its strong financial position.
Capital expenditures, net of A&D incurred during the three months ended December 31, 2023 were $62.7 million, down
9% compared to net capital expenditures of $68.6 million during the fourth quarter of 2022. During the fourth quarter of
2023, the Company spent $26.6 million on drill and complete operations and $35.9 million on well equipment, facilities
and pipelines.
Kelt expects to report to shareholders its 2024 first quarter results on or about May 9, 2024.
On behalf of the Board of Directors,
[signed]
David J. Wilson
President and Chief Executive Officer
March 7, 2024
KELT EXPLORATION LTD.
2
2023 ANNUAL REPORT
MANAGEMENT’S DISCUSSION & ANALYSIS
Kelt Exploration Ltd. (“Kelt” or the “Company”) is an oil and gas company based in Calgary, Alberta, focused on the
exploration, development and production of crude oil and natural gas resources in Western Canada. Kelt’s business
plan is for long-term profitable growth by implementing a full cycle exploration and development program, with emphasis
on low-cost land accumulation with the potential for high rates of return on capital invested. Kelt has an active
exploration and development drilling program that it may complement with acquisitions and dispositions that optimize
its asset base.
three core operating divisions, namely:
The Company was incorporated under the Business Corporations Act (Alberta) on October 11, 2012. Kelt’s assets are
comprised of
(2) Pouce
Coupe/Progress/Spirit River in Alberta; and (3) Oak/Flatrock in British Columbia. The Company’s British Columbia
assets are operated by Kelt Exploration (LNG) Ltd. (“Kelt LNG”), a wholly owned subsidiary of Kelt. The head office of
the Company is located at Suite 300, 311 - 6th Avenue S.W., Calgary, Alberta T2P 3H2. The Company’s common
shares are listed on the Toronto Stock Exchange (“TSX”) under the symbol “KEL”. Additional information relating to
Kelt can be found on SEDAR+ at www.sedarplus.ca.
(1) Wembley/Pipestone
in Alberta;
This Management’s Discussion and Analysis (“MD&A”) is dated March 7, 2024 and should be read in conjunction with
the Company’s consolidated financial statements and related notes as at and for the year ended December 31, 2023.
The accompanying financial statements have been prepared in accordance with International Financial Reporting
Standards, as issued by the International Accounting Standards Board (“IFRS Accounting Standards”). The Company’s
Board of Directors approved and authorized the consolidated financial statements on March 7, 2024.
GENERAL ADVISORY
This MD&A contains certain specified financial measures consisting of non-GAAP measures, capital management
measures, and supplementary financial measures. These non-GAAP and other financial measures include “adjusted
funds from operations”, “adjusted funds from operations per common share”, “petroleum and natural gas sales after
cost of purchases”, “operating income”, “operating netback”, “capital expenditures, before A&D”, “capital expenditures,
after A&D”, “net debt (surplus)”, “net realized prices”, “adjusted funds from operations”, “net debt (surplus) to adjusted
funds from operations ratio”, “net asset value”, “adjusted earnings before interest and taxes”, “average capital
employed”, and “return on average capital employed” which do not have standardized meanings prescribed by
generally accepted accounting principles (“GAAP”) and therefore may not be comparable to similar measures
presented by other companies where similar terminology is used. For further information and reconciliation to Canadian
generally accepted accounting principles “GAAP” measures, see “Non-GAAP and Other Financial Measures” in this
MD&A.
This MD&A contains forward-looking information within the meaning of applicable Canadian securities laws. The use
of and of the words “will”, “expects”, “believe”, “plans”, potential”, “forecasts” and similar expressions are intended to
identify forward-looking statements. Such forward-looking information is based upon certain expectations and
assumptions and actual results may differ materially from those expressed or implied by such forward-looking
information. For further information regarding the forward-looking information contained herein, including the
assumptions underlying such forward-looking information, see “Advisories Regarding Forward-Looking Statements” in
this MD&A.
BASIS OF PRESENTATION
All dollar amounts are referenced in thousands of Canadian dollars, except when noted otherwise. This MD&A contains
various references to the abbreviation BOE which means barrels of oil equivalent. Where amounts are expressed on a
BOE basis, natural gas volumes have been converted to oil equivalence at six thousand cubic feet per barrel and
sulphur volumes have been converted to oil equivalence at 0.6 long tons per barrel. The term BOE may be misleading,
particularly if used in isolation. A BOE conversion ratio of six thousand cubic feet per barrel is based on an energy
equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the
wellhead and is significantly different than the value ratio based on the current price of crude oil and natural gas. This
conversion factor is an industry accepted norm and is not based on either energy content or current prices. Such
abbreviation may be misleading, particularly if used in isolation.
KELT EXPLORATION LTD.
3
2023 ANNUAL REPORT
References to “oil” in this MD&A include crude oil and field condensate. References to “natural gas liquids” or “NGLs”
include pentane, butane, propane, and ethane. References to “gas” include natural gas and sulphur.
FINANCIAL AND OPERATING SUMMARY
(CA$ thousands, except as otherwise indicated)
2023
2022
%
2023
2022
%
Three months ended
December 31
Year ended
December 31
FINANCIAL PERFORMANCE
Petroleum and natural gas sales
Cash provided by operating activities
Adjusted funds from operations (1)
Diluted ($/common share) (1)
Net income and comprehensive income
Diluted ($/common share)
Capital expenditures, net of A&D (1)
Bank debt
Net debt (1)
Return on average capital employed (%) (1)
OPERATIONAL PERFORMANCE
Average daily production (BOE/d)
Combined net realized price, before financial instruments (1)
Combined net realized price, after financial instruments (1)
Operating netback (1)
129,000
152,720
62,477
66,618
0.33
63,742
92,851
0.47
23,729
54,238
0.12
0.28
62,695
68,594
-16
-2
-28
-30
-56
-57
-9
495,580
613,358
283,224
306,022
276,200
326,992
1.40
1.67
85,974
158,758
0.44
0.81
282,646
317,540
-19
-7
-16
-16
-46
-46
-11
-
11,300
-100
-
11,300
-100
12,997
9,789
33
12,997
12
9,789
25
33
-52
32,344
28,036
41.69
41.78
23.49
55.91
57.57
37.49
15
-25
-27
-37
21
30,510
27,236
43.01
44.36
25.74
59.54
53.86
33.98
413,082
340,801
12
-28
-18
-24
21
Reserves – proved plus probable (MBOE)
413,082
340,801
(1) Refer to advisories regarding non-GAAP and other financial measures.
Kelt’s key financial and operating results in the fourth quarter of 2023 are highlighted by the following:
Production – Fourth quarter 2023 production averaged 32,344 BOE per day (38% oil/NGLs), an increase of 15%
from the fourth quarter of 2022 and an increase of 15% from the third quarter of 2023. The increase was driven by
a successful drilling program and additional natural gas processing capacity that became available at the end of
2023.
Petroleum and natural gas sales – For the three months ended December 31, 2023, petroleum and natural gas
sales was $129.0 million, a decrease of 16% from $152.7 million in the fourth quarter of 2022. Kelt’s combined net
realized price, before financial instruments of $41.69 per BOE decreased 25% from the fourth quarter of 2022.
Operating netback – Kelt’s operating netback of $23.49 for the quarter ended December 31, 2023 decreased by
37% from the fourth quarter of 2022. The decrease in the operating netback was driven by a decrease in net
realized crude oil and natural gas prices in 2023.
Cash provided by operating activities and adjusted funds from operations – Cash provided by operating
activities decreased to $62.5 million in the fourth quarter of 2023 compared to $63.7 million in the fourth quarter of
2022. Adjusted funds from operations of $66.6 million during the three months ended December 31, 2023 ($0.33
per share, diluted) decreased 28% from the fourth quarter of 2022 primarily due to a decrease in petroleum and
natural gas sales.
Net income – Kelt reported net income of $23.7 million ($0.12 per common share, diluted) for the three months
ended December 31, 2023, compared to net income of $54.2 million ($0.28 per common share, diluted) in the
comparative period in 2022. The decrease in net income was primarily due to a decrease in the gain on derivative
financial instruments and a decrease in petroleum and natural gas sales, driven by lower realized prices in the
fourth quarter of 2023. This was partially offset by a decrease in exploration and evaluation expenses in 2023.
KELT EXPLORATION LTD.
4
2023 ANNUAL REPORT
Capital investments – During the fourth quarter of 2023, capital expenditures, net of A&D, was $62.7 million and
included the drilling of 4.0 net wells and completion of 6.0 net wells. Facilities, pipeline and well equipment spend
was $35.9 million.
Liquidity – The Company ended the quarter with a working capital deficit of $13.0 million, and no borrowings on
its credit facility of $100.0 million, other than letters of credit of $2.6 million.
Reserves - The Company increases oil and gas reserves as at December 31, 2023:
o Proved developed producing reserves of 71.1 million BOE (35% oil and NGLs), an increase of 16%
from December 31, 2022;
o Total proved reserves of 256.6 million BOE (38% oil and NGLs), an increase of 34% from December
31, 2022; and
o Total proved plus probable reserves of 413.1 million BOE (36% oil and NGLs), an increase of 21%
from December 31, 2022.
PRODUCTION
Kelt Quarterly Production (BOE/D)
27,413
27,713
25,791
28,036
63%
65%
15%
22%
17%
18%
65%
15%
20%
65%
12%
23%
31,833
61%
15%
24%
29,705
28,179
60%
12%
27%
62%
12%
25%
32,344
62%
11%
27%
Q1 2022
Q2 2022
Q3 2022
Q4 2022
Q1 2023
Q2 2023
Q3 2023
Q4 2023
Oil Production (BBLS/D)
NGLs Production (BBLS/D)
Natural Gas Production (BOE/D)
(CA$ thousands, except as otherwise indicated)
2023
2022
%
2023
2022
%
Three months ended December 31
Year ended December 31
Average daily production:
Oil (bbls/d) (1)
NGLs (bbls/d)
Gas (mcf/d)
Combined (BOE/d)
Oil and NGLs weighting
8,832
3,422
6,416
3,478
120,541
108,849
32,344
38%
28,036
35%
38
-2
11
15
9
7,979
3,759
5,640
4,049
112,634
105,280
30,510
27,236
38%
36%
41
-7
7
12
6
(1) “Oil” includes crude oil and field condensate combined
Average production for the three months ended December 31, 2023, increased 15% from the three months ended
December 31, 2022. In December 2023, the Company’s natural gas processing capacity at Wembley/Pipestone
increased by 22 MMcf/d following the completion of a third-party plant expansion.
Average production for the year ended December 31, 2023 increased 12% from the year ended December 31, 2022.
In 2023, Kelt brought 27 gross wells (25.6 net wells) on production.
Oil and NGLs weighting of total production increased in 2023 to 38% in the fourth quarter and year ended December
31, 2023, versus the 35% and 36%, respectively, in the comparable periods in 2022. The increase in the oil and NGLs
weighting was due to Kelt’s emphasis on drilling oilier wells in the Montney and Charlie Lake plays in 2023.
KELT EXPLORATION LTD.
5
2023 ANNUAL REPORT
PETROLEUM AND NATURAL GAS SALES (“P&NG SALES”)
Kelt Quarterly Petroleum and Natural Gas Sales ($000)
178,938
45%
19%
138,446
37%
17%
143,254
152,720
139,571
41%
16%
40%
13%
30%
17%
110,061
116,948
23%
12%
24%
13%
129,000
24%
12%
45%
33%
39%
42%
50%
63%
59%
60%
Q1 2022
Q2 2022
Q3 2022
Q4 2022
Q1 2023
Q2 2023
Q3 2023
Q4 2023
Oil Sales
NGLs Sales
Natural Gas Sales
Marketing Revenue
(CA$ thousands, except as otherwise indicated)
2023
2022
%
2023
2022
%
Three months ended December 31
Year ended December 31
P&NG Sales:
Oil (5)
NGLs
Gas
Marketing revenue (1)
P&NG Sales
Cost of purchases (2)
P&NG Sales after cost of purchases (3)(4)(6)
Combined net realized price ($/BOE) (4)(6)
77,652
15,677
30,637
5,034
63,570
19,375
61,166
8,609
129,000
152,720
(4,952)
(8,509)
124,048
144,211
41.69
55.91
22
-19
-50
-42
-16
-42
-14
-25
284,867
240,913
67,598
99,973
126,299
250,731
16,816
21,741
495,580
613,358
(16,565)
(21,438)
479,015
591,920
43.01
59.54
18
-32
-50
-23
-19
-23
-19
-28
(1) Marketing revenue includes the sale of third-party volumes related to the Company's oil blending operations and natural gas activities.
(2) Cost of purchases includes costs for the purchase of third-party volumes related to the Company's oil blending operations and natural gas activities.
(3) P&NG sales after cost of purchases includes petroleum and natural gas sales, net of the cost of the third-party volumes purchased.
(4) Combined net realized price ($/BOE) equals P&NG sales after cost of purchases divided by total production.
(5) “Oil” includes crude oil and field condensate.
(6) Refer to advisories regarding Non-GAAP and Other Financial Measures.
Petroleum and natural gas sales for the fourth quarter of 2023 was $129.0 million, down 16% from $152.7 million in the
fourth quarter of 2022. Petroleum and natural gas sales for the year ending December 31, 2023 was $495.6 million,
down 19% from the comparable period in 2022. The decrease in P&NG sales from 2022 was primarily due to a decrease
in benchmark crude oil, NGLs and natural gas prices. The decrease in benchmark prices was offset by higher
production in 2023 and a higher oil weighting resulting in an overall increase in oil sales in 2023.
KELT EXPLORATION LTD.
6
2023 ANNUAL REPORT
L
B
B
$
/
$140
$120
$100
$80
$60
$40
$20
$0
Kelt Quarterly Realized Prices (1)
8.00
6.00
4.00
2.00
-
F
C
M
$
/
Q1 2022
Q2 2022
Q3 2022
Q4 2022
Q1 2023
Q2 2023
Q3 2023
Q4 2023
Oil
NGLs
Natural gas
(1) Net realized prices are calculated based on Petroleum and Natural Gas Sales, less the cost of purchases of third-party volumes and reflect Kelt’s
realized commodity prices plus the net benefit of oil blending and natural gas marketing activities. Net realized prices exclude both realized and unrealized
gains and losses on risk management contracts. Refer to additional information under the heading of “Non-GAAP and Other Financial Measures”.
Three months ended December 31
Year ended December 31
2023
2022
%
2023
2022
%
Net realized prices (10)
Oil ($/bbl) (9)
NGLs ($/bbl)
Gas ($/Mcf)
Combined ($/BOE)
Average benchmark prices
Oil and NGLs
WTI Cushing Oklahoma (US$/bbl) (1)
Mixed Sweet Blend Edmonton (“MSW”) ($/bbl) (2)
Edmonton Pentane ($/bbl) (3)
Edmonton Butane ($/bbl) (3)
Edmonton Propane ($/bbl) (3)
Edmonton Ethane ($/bbl) (3)
Natural Gas
NYMEX Henry Hub (US$/MMBtu) (6)
AECO 5A (CA$/MMBtu) (4)
Chicago Alliance, into Interstates (CA$/MMBtu) (5)
Dawn (CA$/MMBtu) (5)
Malin (CA$/MMBtu) (5)
Sumas (CA$/MMBtu) (5)
Station 2 (CA$/MMBtu) (7)
Marcellus (TZ4 L300) (CA$/MMBtu) (5)
Average exchange rate (CA$/US$) (8)
95.68
49.79
2.75
41.69
78.42
99.77
104.11
47.95
28.17
6.37
2.74
2.30
3.08
3.11
4.95
4.38
2.05
2.20
107.88
60.54
6.52
55.91
82.77
110.05
115.46
54.90
39.07
14.48
5.55
5.10
7.20
7.05
19.58
19.48
3.18
6.88
1.3615
1.3582
-11
-18
-58
-25
-5
-9
-10
-13
-28
-56
-51
-55
-57
-56
-75
-78
-36
-68
-
97.90
49.27
3.08
43.01
117.18
67.64
6.63
59.54
77.63
94.80
100.40
120.79
102.75
121.28
45.55
29.58
7.33
2.53
2.64
3.10
3.15
6.33
5.68
2.25
2.12
61.67
50.05
15.04
6.38
5.31
7.88
7.88
11.09
10.70
4.44
7.33
1.3495
1.3019
-16
-27
-54
-28
-18
-17
-15
-26
-41
-51
-60
-50
-61
-60
-43
-47
-49
-71
4
(1) Source: U.S Energy Information Administration, Canadian dollar equivalent price WTI price (“CA$WTI”) is calculated based on the monthly average
US dollar WTI price and the monthly average CA$/US$ exchange rate (8).
(2) Source: Tidal Energy Marketing.
(3) Source: Sproule Associates Limited.
(4) Source: Canadian Gas Price Reporter converted to CA$/MMBtu using monthly average CA$/US$ exchange rate (8).
(5) Source: S&P Global Platts (US$/MMBtu) Daily Midpoint Average converted to CA$/MMBtu using monthly average CA$/US$ exchange rate (8).
(6) Source: S&P Global Platts (US$/MMBtu) Daily Midpoint Average
(7) Source: S&P Global Platts (CA$/GJ) Daily Midpoint Average converted to CA$/MMBtu
(8) Source: Bank of Canada.
(9) “Oil” includes crude oil and field condensate
KELT EXPLORATION LTD.
7
2023 ANNUAL REPORT
(10) Net realized prices are calculated based on Petroleum and Natural Gas Sales, less the cost of purchases of third-party volumes and reflect Kelt’s
realized commodity prices plus the net benefit of oil blending and natural gas marketing activities. Net realized prices exclude both realized and unrealized
gains and losses on derivative financial instruments. Refer to additional information under the heading of “Non-GAAP and Other Financial Measures”.
Combined Net Realized Price
Kelt’s combined net realized price decreased 25% to $41.69 per BOE and 28% to $43.01 per BOE in the three months
and twelve months ended December 31, 2023, respectively, versus the comparable periods in 2022. The decrease in
the average realized price was due to a decrease in benchmark commodity prices in 2023.
Oil prices
Benchmark WTI crude oil prices decreased 5% for the quarter ended December 31, 2023 and decreased 18% for the
year ended December 31, 2023 versus the comparable periods in 2022. Benchmark crude oil prices decreased in 2023
due to global crude oil being well supplied, demand growth in China was lower than expectations. Higher crude oil
supply in 2023 was partially offset by a series of OPEC+ production curtailments.
NGL prices
NGLs prices are impacted both by benchmark WTI prices and localized market supply and demand issues.
For the three months and year ended December 31, 2023, realized NGL prices decreased by 18% and 27%,
respectively, as compared to the same period in 2022. The decrease in both the benchmark WTI price and the Canadian
benchmark condensate price resulted in an overall decrease in pentane and butane prices in 2023. The decrease in
propane prices was primarily a result of an increase in North American propane production, combined with lower
propane export volumes, resulting in an increase in North American propane inventories in 2023. Ethane prices are
closely tied to the natural gas benchmark price, with the decrease in ethane prices in 2023 in-line with the decrease in
the benchmark natural gas price.
Natural gas prices
Realized natural gas prices decreased by 58% to $2.75 per Mcf in the fourth quarter of 2023 and by 54% to $3.08 per
Mcf for the year ended December 31, 2023 versus comparable periods in 2022.
Benchmark natural gas prices decreased in 2023 primarily due to higher North American natural gas production, and
higher than average natural gas storage levels throughout 2023.
For the year ending December 31, 2023, Kelt sold 64% of its natural gas production at the AECO 5A and Station 2
indices compared to approximately 71% for the year ending December 31, 2022.
RISK MANAGEMENT AND HEDGING ACTIVITIES
The Company may enter into fixed price contracts and derivative financial instruments for commodity prices, currency
exchange and interest rates in order to secure future cash flows or to protect a desired level of capital spending. Fair
value accounting for derivative financial instruments may cause significant fluctuations in the reported amounts of
derivative financial instrument assets and liabilities and the resultant magnitude of unrealized gains and losses.
The table below summarizes realized and unrealized gains (losses) on derivative financial instrument contracts:
(CA$ thousands, except as otherwise indicated)
Realized gain (loss)
Unrealized gain (loss)
Gain (loss) on derivative financial instruments
$ per BOE
Three months ended December 31
Year ended December 31
2023
259
838
1,097
0.37
2022
4,279
23,177
27,456
10.65
%
-94
-96
-96
-97
2023
2022
%
15,057
(56,509)
127
(23,805)
23,535
-201
(8,748)
(32,974)
(0.79)
(3.31)
-73
-76
The realized gain of $15.1 million recognized for the year ended December 31, 2023 was primarily due to the unwinding
of the natural gas costless collars and swaps at the beginning of the year that resulted in total cash proceeds of $12.7
million. The unrealized loss of $23.8 million for the year ended December 31, 2023 reflects the changes of the fair value
of outstanding contracts between December 31, 2023 and December 31, 2022.
KELT EXPLORATION LTD.
8
2023 ANNUAL REPORT
Commodity price risk
Inherent to the business of producing oil and gas, the Company’s cash provided by operating activities is subject to
commodity price risk. Commodity price risk is the risk that future cash flows will fluctuate as a result of changes in
commodity prices. Commodity prices are impacted by economic events that dictate the levels of supply and demand
as well as the currency exchange rate relationship between the Canadian and U.S. dollar.
As of March 7, 2024, the following commodity price derivative financial instrument contracts are outstanding:
Natural gas derivative financial instrument contracts
Contract Type (1)
Notional Volume
Contract Price $/MMBtu
Remaining Term
NYMEX-AECO 7A basis swap
10,000 MMBtu/d
Monthly AECO basis calculated at 30%
of the floating monthly NYMEX price
NYMEX-AECO 7A basis swap
10,000 MMBtu/d
NYMEX less USD$1.06
NYMEX-AECO 5A basis swap
30,000 MMBtu/d
NYMEX less USD$1.10
NYMEX-AECO 7A basis swap
10,000 MMBtu/d
NYMEX less USD$1.06
Jan 24 – Oct 24
Jan 24 – Oct 24
Nov 24 – Oct 25
Nov 24 – Mar 25
(1) NYMEX Henry Hub (“NYMEX”)
Crude oil derivative financial instrument contracts
Contract Type (1)
Notional Volume
Contract Price
Remaining Term
WTI fixed price swap
WTI fixed price swap
WTI fixed price swap
WTI fixed price swap
500 bbl/d
500 bbl/d
500 bbl/d
500 bbl/d
CAD$115.00/bbl
Jan 24 – Mar 24
CAD$102.70/bbl
Apr 24 – Jun 24
CAD$103.50/bbl
Apr 24 – Jun 24
CAD$105.50/bbl
Jul 24 – Sep 24
Sold call option (2)
500 bbl/d
CAD$102.70/bbl
Sold call option (2)
500 bbl/d
CAD$103.50/bbl
Sold call option (2)
500 bbl/d
CAD$105.50/bbl
(1) West Texas Intermediate (“WTI”)
(2) The sold call options were entered into at the same time as the WTI fixed price swaps.
Option exercise/expiration date – Jun 28, 2024
Term if exercised: Jul 24 – Sept 24
Option exercise/expiration date – Jun 28, 2024
Term if exercised: Jul 24 – Sept 24
Option exercise/expiration date – Sep 30, 2024
Term if exercised: Oct 24 – Dec 24
In addition to the derivative contracts above, the Company has the following sales contracts for physical delivery:
Natural gas physical delivery contracts
Contract Type
Notional Volume
Contract Price
AECO-Station 2 basis differential
5,000 GJ/d
AECO 7A less CAD$0.15/GJ
Remaining Term
Nov 24 – Mar 25
Interest rate risk
The Company is exposed to interest rate risk as changes in market interest rates will impact the Company’s Credit
Facility which is subject to a floating interest rate. As at March 7, 2024, there are no interest rate derivative financial
instrument contracts outstanding.
Foreign exchange risk
Kelt is exposed to fluctuations of the Canadian to U.S. dollar exchange rate given realized pricing is directly influenced
by U.S. dollar denominated benchmark pricing and from exposure from certain U.S. dollar denominated natural gas
marketing arrangements.
KELT EXPLORATION LTD.
9
2023 ANNUAL REPORT
As of March 7, 2024, the following foreign exchange derivative financial instrument contracts are outstanding:
Contract Type
Notional Volume
Contract/Exercise Price
Remaining Term
CAD/USD swap
USD$500,000/month
$1.3700 CAD/USD
CAD/USD swap
USD$2.0 million/month
$1.3790 CAD/USD
Jan 24 – Dec 24
Jul 24 – Dec 24
CAD/USD swap
USD$1.0 million/month
$1.3620 CAD/USD
Jan 25 – Dec 25
Sold call option
USD$1.0 million/month
$1.3800 CAD/USD
Sold call option
USD$1.0 million/month
$1.3750 CAD/USD
Option exercise date – Dec 24
Term if exercised: Jan 25 – Jun 25
Option exercise date – Dec 24
Term if exercised: Jan 25 – Dec 25
ROYALTIES
(CA$ thousands, except as otherwise indicated)
Royalties
Average royalty rate (1)
$ per BOE
Three months ended December 31
Year ended December 31
2023
17,938
14.5%
6.03
2022
15,864
11.0%
6.15
%
13
32
-2
2023
2022
59,170
12.4%
5.31
65,567
11.1%
6.60
%
-10
12
-20
(1) The average royalty rate is calculated based on total royalties as a percentage of “P&NG Sales, before marketing” which excludes sales related to
the sale of third-party production volumes used in oil blending operations (see table under the heading of “Petroleum and Natural Gas Sales”).
Kelt’s average royalty rate was 14.5% during the fourth quarter of 2023, compared to 11.0% during the fourth quarter
of 2022. Kelt’s average royalty rate for the year ended December 31, 2023 was 12.4% compared to 11.1% for the year
ended December 31, 2022. The royalty rate in 2023 is overall higher than in 2022 due to wells moving off an initial low
royalty rate of 5-6% and moving to a higher royalty rate that is sensitive to commodity prices. In both 2023 and 2022
the Company’s royalties in British Columbia were reduced through royalty infrastructure credits (2023 - $3.3 million,
2022 - $6.8 million).
PRODUCTION EXPENSES
Quarterly Production Expenses
)
0
0
0
$
(
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
12.00
10.00
8.00
6.00
4.00
2.00
0.00
E
O
B
$
/
Q1 2022
Q2 2022
Q3 2022
Q4 2022
Q1 2023
Q2 2023
Q3 2023
Q4 2023
Operating Expenses
Per BOE
(CA$ thousands, except as otherwise indicated)
Production expense
$ per BOE
Three months ended December 31
Year ended December 31
2023
25,662
8.62
2022
28,116
%
-9
2023
2022
109,422
101,566
10.90
-21
9.83
10.22
%
8
-4
Production expenses were $25.7 million during the fourth quarter of 2023, down 9% compared to the fourth quarter in
2022. Production expenses on a per BOE basis decreased from $10.90 per BOE during the fourth quarter of 2022 to
$8.62 per BOE in the fourth quarter of 2023, with the decrease primarily due to lower electricity costs and lower field
KELT EXPLORATION LTD.
10
2023 ANNUAL REPORT
maintenance costs.
Production expenses for the year ended December 31, 2023 increased 8% from the year ended December 31, 2022.
Production expenses averaged $9.83 per BOE during the year ended December 31, 2023, down from $10.22 per BOE
for the year ended December 31, 2022. The decrease in production expense per BOE costs in 2023 was primarily due
to operating expense credits from third-party facilities and lower electricity expenses, which was partially offset by
higher trucking costs, and higher carbon taxes.
TRANSPORTATION EXPENSES
Quarterly Transportation Expenses
)
0
0
0
$
(
12,000
10,000
8,000
6,000
4,000
2,000
0
4.00
3.50
3.00
2.50
2.00
1.50
1.00
0.50
0.00
E
O
B
$
/
Q1 2022
Q2 2022
Q3 2022
Q4 2022
Q1 2023
Q2 2023
Q3 2023
Q4 2023
Transportation Expense
Per BOE
(CA$ thousands, except as otherwise indicated)
Transportation expense (1)
$ per BOE
Three months ended December 31
Year ended December 31
2023
10,830
3.64
2022
7,803
3.03
%
39
20
2023
2022
38,808
30,467
3.48
3.06
%
27
14
(1) Pipeline tariffs are classified as transportation expenses when the Company has firm commitments or contractual arrangements on the pipeline.
Pipeline tariffs may also be incurred indirectly by way of deduction from the base price paid by the purchasers of the Company’s oil, NGLs and gas sales.
In the latter case, and in the absence of a firm contractual obligation on the pipeline, the pipeline tariffs are presented as a reduction of revenue rather
than as transportation expense.
Transportation expenses averaged $3.64 per BOE during the fourth quarter of 2023, an increase of 20% from $3.03
per BOE in the fourth quarter of 2022. Transportation expenses averaged $3.48 per BOE during the year ending
December 31, 2023, an increase of 14% from $3.06 per BOE in the year ending December 31, 2022. The increase in
transportation expenses was primarily related to additional oil transportation costs due to higher volumes.
FINANCING EXPENSES
(CA$ thousands, except as otherwise indicated)
Total interest expense
Accretion of decommissioning obligations
Financing expense
Interest expense per BOE (1)
Three months ended December 31
Year ended December 31
2023
344
741
1,085
0.12
2022
581
721
1,302
0.23
%
-41
3
-17
-48
2023
1,310
2,880
4,190
0.12
2022
1,460
2,451
3,911
%
-10
18
7
0.15
-20
(1) Interest expense used in the calculation of “Interest expense per BOE” includes interest and fees on bank debt.
Throughout 2023, the Company periodically drew on its credit facility and incurred standby fees, resulting in interest
expense of $1.3 million.
Additional information regarding the credit facility is provided under the heading of “Capital Resources and Liquidity”.
KELT EXPLORATION LTD.
11
2023 ANNUAL REPORT
GENERAL AND ADMINISTRATIVE (“G&A”) EXPENSES
The following table summarizes significant components of the Company’s G&A expenses:
(CA$ thousands, except as otherwise indicated)
Salaries and benefits
Other G&A expenses
Gross G&A expenses
Overhead recoveries
Net G&A expenses
Gross G&A ($ per BOE)
Net G&A ($ per BOE)
Three months ended December 31
Year ended December 31
2023
3,743
1,061
4,804
(1,756)
3,048
1.61
1.02
2022
4,010
1,357
5,367
(1,808)
3,559
2.08
1.38
%
-7
-22
-10
-3
-14
-23
-26
2023
2022
13,349
12,287
5,292
5,521
18,641
17,808
(8,257)
(7,506)
10,384
10,302
1.67
0.93
1.79
1.04
%
9
-4
5
10
1
-7
-11
G&A expenses are reported net of overhead recoveries. Net G&A expenses averaged $1.02 per BOE during the fourth
quarter of 2023, a decrease of 26% compared to $1.38 per BOE during the fourth quarter of 2022. For the year ended
December 31, 2023, net G&A expenses averaged $0.93 per BOE which decreased by 11% compared to $1.04 per
BOE during the comparative period in 2022. The decrease in net G&A expenses per BOE was primarily due to higher
overhead recoveries and production increasing at a higher rate than G&A expense.
SHARE BASED COMPENSATION (“SBC”)
(CA$ thousands, except as otherwise indicated)
Stock options
Restricted share units (“RSUs”)
Total SBC expense
$ per BOE
Three months ended December 31
Year ended December 31
2023
1,389
763
2,152
0.72
2022
1,679
308
1,987
0.77
%
-17
148
8
-6
2023
5,359
2,503
7,862
0.71
2022
5,902
1,112
7,014
0.71
%
-9
125
12
-
The increase in SBC expense for the three and year ended December 31, 2023 compared to the same periods in 2022
is primarily due to more RSUs being granted compared to stock options in 2023.
As at December 31, 2023, stock options and RSUs outstanding represent 5.9% of total shares outstanding (December
31, 2022 – 5.9%).
EXPLORATION AND EVALUATION (“E&E”) EXPENSES
(CA$ thousands, except as otherwise indicated)
Exploration and evaluation expense
$ per BOE
2023
100
0.03
2022
14,438
5.60
%
-99
-99
2023
1,413
0.13
2022
14,484
1.46
%
-90
-91
Three months ended December 31
Year ended December 31
E&E expenses were $1.4 million in the year ended December 31, 2023 as compared to $14.5 million for the year ended
December 31, 2023. During the fourth quarter of 2022, the Company expensed $14.2 million of exploratory drilling
costs for two exploration wells.
KELT EXPLORATION LTD.
12
2023 ANNUAL REPORT
DEPLETION AND DEPRECIATION
(CA$ thousands, except as otherwise indicated)
Depletion and depreciation
$ per BOE
Three months ended December 31
Year ended December 31
2023
32,839
11.04
2022
28,182
10.93
%
17
1
2023
2022
125,813
116,183
11.30
11.69
%
8
-3
Depletion and depreciation expense of $32.8 million for the quarter ended December 31, 2023 increased by 17% from
$28.2 million in the comparable period in 2022. Depletion and depreciation expense for the year ended December 31,
2023 increased by 8% as compared to the prior year. On a per BOE basis, the depletion and depreciation expense per
BOE decreased slightly in 2023, due to increased reserves compared to 2022.
Based on its assessment as of December 31, 2023, the Company determined that there were no indicators of
impairment for the Alberta CGU and BC CGU and there are no previous impairments available for reversals.
INCOME TAXES
(CA$ thousands, except as otherwise indicated)
Deferred income tax expense
Net income before taxes
Effective tax rate
Three months ended December 31
Year ended December 31
2023
7,895
31,624
25.0%
2022
16,412
70,650
23.2%
%
-52
-55
7
2023
2022
28,503
51,441
114,477
210,199
24.9%
24.5%
%
-45
-46
2
Kelt’s consolidated combined federal and provincial statutory tax rate averaged 23.3% and 23.9% during the three
months ended December 31, 2023 and 2022, respectively.
Kelt was not required to pay income taxes in the current or prior year. Tax pools and losses available to reduce taxable
income as of December 31, 2023 are estimated to be approximately $780.4 million as summarized in the table below.
(CA$ thousands, except as otherwise indicated)
Canadian oil and gas property expenses (COGPE)
Canadian development expenses (CDE)
Canadian exploration expenses (CEE)
Undepreciated capital cost (1) (UCC)
Share and debt issue costs
Non-capital losses (2) (NCL)
Estimated tax deductions available, end of period
Rate
10-15%
30-45%
100%
25-37.5%
5 years
100%
December 31
December 31
%
2023
60,905
241,162
407
230,290
-
247,657
780,421
2022
66,848
192,737
-
228,487
-9
25
-
1
8
-100
280,308
-12
768,388
2
(1) The majority of the Company’s undepreciated capital cost deductions relate to Class 41 assets, which are deductible at a rate of 25-37.5% per year.
(2) The Company’s non-capital losses expire in years 2033 to 2042.
KELT EXPLORATION LTD.
13
2023 ANNUAL REPORT
ADJUSTED FUNDS FROM OPERATIONS
The following table provides a continuity of income and expenses included in the Company’s calculation of operating
income, operating netback and adjusted funds from operations generated during the three months and year ended
December 31, 2023 and 2022 respectively.
Three months ended December 31
Year ended December 31
(CA$ thousands, except as otherwise indicated)
2023
2022
Petroleum and natural gas sales
Cost of purchases
129,000
152,720
(4,952)
(8,509)
Realized gain (loss) on financial instruments (1)
259
4,279
Royalties
Production expense
Transportation expense
Operating Income (2)
Financing expense (3)
G&A expense
Gain (loss) on foreign exchange
Other income
Adjusted funds from operations (2)
Basic ($ per common share) (4)
Diluted ($ per common share) (4)
(17,938)
(15,864)
(25,662)
(28,116)
(10,830)
(7,803)
69,877
96,707
(344)
(581)
(3,048)
(3,559)
(102)
235
219
65
66,618
92,851
0.34
0.33
0.48
0.47
%
-16
-42
-94
13
-9
39
-28
-41
-14
-147
262
-28
-29
-30
2023
2022
%
495,580
613,358
(16,565)
(21,438)
15,057
(56,509)
(59,170)
(65,567)
(109,422)
(101,566)
(38,808)
(30,467)
286,672
337,811
(1,310)
(1,460)
(10,384)
(10,302)
(104)
1,326
788
155
276,200
326,992
1.43
1.40
1.71
1.67
-19
-23
127
-10
8
27
-15
-10
1
-113
755
-16
-16
-16
($ per BOE)
Petroleum and natural gas sales
Cost of purchases
Realized gain (loss) on financial instruments (1)
Royalties
Production expense
Transportation expense
Operating Netback (2)
Financing expense (3)
G&A expense
Gain (loss) on foreign exchange
Other income
Adjusted funds from operations (2)
Three months ended December 31
Year ended December 31
2023
43.35
(1.66)
0.09
(6.03)
(8.62)
(3.64)
23.49
(0.12)
(1.02)
(0.03)
0.08
22.40
2022
59.21
(3.30)
1.66
(6.15)
(10.90)
(3.03)
37.49
(0.23)
(1.38)
0.09
0.03
36.00
%
-27
-50
-95
-2
-21
20
-37
-48
-26
-133
167
-38
2023
44.51
(1.50)
1.35
(5.31)
(9.83)
(3.48)
25.74
(0.12)
(0.93)
(0.01)
0.12
24.80
2022
61.70
(2.16)
(5.68)
(6.60)
(10.22)
(3.06)
33.98
(0.15)
(1.04)
0.08
0.02
32.89
%
-28
-31
124
-20
-4
14
-24
-20
-11
-113
500
-25
(1) Includes realized gains (losses) on commodity price and foreign exchange derivatives.
(2) Refer to advisories regarding “Non-GAAP and Other Financial Measures”.
(3) Excludes non-cash accretion of decommissioning obligations.
(4) Adjusted funds from operations (2) per common share is calculated on a consistent basis with net income per common share, using basic and diluted
weighted average common shares as determined in accordance with GAAP.
During the three months ended December 31, 2023, adjusted funds from operations of $66.6 million ($0.33 per share,
diluted) decreased by 28% from $92.9 million ($0.47 per share, diluted) in the fourth quarter of 2022. During the year
ended December 31, 2023, adjusted funds from operations of $276.2 million ($1.40 per share, diluted) decreased by
16% from $327.0 million ($1.67 per share, diluted) during the year ended December 31, 2022. The decrease in adjusted
funds from operations for both the three and year ended December 31, 2023 compared to the same periods in 2022
was primarily due to a decrease in petroleum and natural gas sales.
KELT EXPLORATION LTD.
14
2023 ANNUAL REPORT
NET INCOME AND COMPREHENSIVE INCOME
Change in Net Income
Year ended December 31, 2023
$13.1
$6.4
$4.1
$22.9
$24.2
$(9.6)
$(16.2)
$(117.8)
$86.0
200
150
100
50
0
$158.8
s
n
o
i
l
l
i
M
$
2022
Derivative
financial
instruments
Deferred
income taxes
E&E Expense
Royalties
Other (1)
DD&A
Operating &
transportation
P&NG sales
2023
(1) Other includes changes in net income related primarily to cost of purchases, and foreign exchange gain (loss).
(CA$ thousands, except as otherwise indicated)
Net income and comprehensive income
$ per common share, basic
$ per common share, diluted (1)
$ per BOE
Wtd avg. shares outstanding, basic (000s)
Wtd avg. shares outstanding, diluted (000s) (1)
Three months ended December 31
Year ended December 31
2023
23,729
0.12
0.12
8.01
194,359
199,223
2022
54,238
0.28
0.28
21.05
191,812
195,828
%
-56
-57
-57
-62
1
2
2023
2022
85,974
158,758
0.45
0.44
7.71
0.83
0.81
15.96
193,116
191,101
197,063
195,456
%
-46
-46
-46
-52
1
1
(1) The Company uses the treasury stock method to determine the dilutive effect of stock options and RSUs. Under this method, only “in-the-money”
dilutive instruments impact the calculation of diluted net income per common share.
Net income was $23.7 million ($0.12 per common share, diluted) for the three months ended December 31, 2023,
compared to a net income of $54.2 million ($0.28 per common share, diluted) in the same three-month period of 2022.
Net income was $86.0 million ($0.44 per common share, diluted) for the year ended December 31, 2023, compared to
a net income of $158.8 million ($0.81 per common share, diluted) in the same period of 2022. The decrease in net
income was primarily driven by a reduction in benchmark commodity prices in 2023, which was more than offset by
higher production levels.
KELT EXPLORATION LTD.
15
2023 ANNUAL REPORT
INVESTING ACTIVITIES
Capital Expenditures before A&D ($000)
$83,732
$89,072
0%
36%
39%
$75,262
1%
29%
64%
60%
70%
$76,681
1%
24%
74%
$68,582
2%
52%
46%
$44,891
1%
24%
73%
$98,287
1%
21%
78%
$62,735
57%
42%
Q1 2022
Q2 2022
Q3 2022
Q4 2022
Q1 2023
Q2 2023
Q3 2023
Q4 2023
Drilling and completion of wells ($000)
Facilities, pipeline and well equipment ($000)
Other ($000)
CAPITAL EXPENDITURES
The Company’s capital expenditures, before and net of acquisitions and dispositions (“A&D”), are summarized in the
following table:
(CA$ thousands, except as otherwise indicated)
2023
2022
%
2023
2022
%
Three months ended December 31
Year ended December 31
Capital expenditures:
Lease acquisition and retention
Geological and geophysical
Drilling and completion of wells
Facilities, pipeline and well equipment
Corporate assets
Capital expenditures, before A&D (1)
Property acquisitions
Property dispositions
Capital expenditures, net of A&D (1)
141
77
26,545
35,918
54
62,735
6,510
(6,550)
62,695
465
531
31,558
35,928
100
68,582
62
(50)
68,594
-70
-85
-16
-
-46
-9
-
-
-9
1,668
1,162
1,509
623
193,175
191,026
85,834
122,662
755
828
282,594
316,648
7,022
3,462
(6,970)
(2,570)
282,646
317,540
11
87
1
-30
-9
-11
103
171
-11
(1) Refer to advisories regarding “Non-GAAP and Other Financial Measures”.
Capital expenditures, before A&D, decreased 9% in the fourth quarter of 2023 and decreased 11% from the year ended
December 31, 2023 versus the comparable period in 2022.
In the fourth quarter of 2023, drilling and completion costs of $26.6 million included the drilling of 4.0 net wells and
completion of 6.0 net wells. Kelt’s facility, pipeline and well equipment spending in the fourth quarter of 2023 of $35.9
million included a new compressor station at Wembley/Pipestone, well equipment and pipeline construction.
For the year ended December 31, 2023, drilling and completion costs of $193.2 million included the drilling of 27.0 net
wells and completion of 24.0 net wells. The wells drilled included 21 gross (21 net) Montney wells and 7 gross (5.0 net)
Charlie Lake wells.
KELT EXPLORATION LTD.
16
2023 ANNUAL REPORT
Gross Wells
Drilling
Completion
Service
Net Wells
Drilling
Completion
Service
LAND HOLDINGS
Three months ended December 31
Year ended December 31
2023
2022
4
6
-
3
7
-
%
33
-14
-
2023
2022
28
25
2
31
35
-
%
-10
-29
-
Three months ended December 31
Year ended December 31
2023
2022
4.0
6.0
-
3.0
6.0
-
%
33
-
-
2023
27.0
24.0
2.0
2022
28.4
32.1
-
%
-5
-25
-
The table below sets-out Kelt’s significant Montney and Charlie Lake land holdings across British Columbia and Alberta
as at December 31, 2023.
MONTNEY RIGHTS
British Columbia
Alberta
Total
CHARLIE LAKE RIGHTS
Alberta
Net Acres
Net Sections
193,607
146,187
339,794
87,667
303
228
531
137
CAPITAL RESOURCES AND LIQUIDITY
Kelt’s objective is to maintain a flexible capital structure that provides sufficient liquidity for the Company to meet its
obligations when due and to execute on its capital investment program. The Company manages its capital structure in
response to changes in economic conditions and the risk characteristics of its underlying oil and natural gas assets.
At December 31, 2023 the Company has a $100.0 million credit facility available from a syndicate of financial
institutions. As at December 31, 2023, there were no borrowings outstanding under the Credit Facility, with outstanding
letters of credit of $2.6 million. The Credit Facility may be extended annually at Kelt’s option and subject to lender
approval, with a 364 day term-out period on amounts drawn if not renewed.
Repayments of principal are not required provided that the borrowings under the facility do not exceed the authorized
borrowing amount. The credit facility is subject to semi-annual redeterminations on or before June 30 and November
30 of each year. There are no financial covenants under the Credit Facility and Kelt is in compliance with all other
covenants. Covenants include industry standard positive and negative covenants including reporting requirements,
permitted indebtedness, permitted risk management activities, permitted encumbrances and other standard business
operating covenants. Security is provided for by a demand debenture with a floating charge over all assets in the
amount of $800.0 million.
KELT EXPLORATION LTD.
17
2023 ANNUAL REPORT
Bank debt
Accounts payable and accrued liabilities
Cash and cash equivalents
Accounts receivable and accrued sales
Prepaid expenses and deposits
Net debt (1)
Adjusted funds from operations (1)
Net debt to adjusted funds from operations ratio (1)
(1) Refer to advisories regarding Capital Management Measures.
December 31,
December 31,
2023
-
85,171
(14,340)
(52,646)
(5,188)
12,997
276,200
0.0
2022
11,300
83,288
(125)
(81,075)
(3,599)
9,789
326,992
0.0
The Company monitors its capital structure and short-term financing requirements using a net debt to adjusted funds
from operations ratio, which is a non-GAAP financial measure. Kelt targets a net debt to adjusted funds from operations
ratio of less than 2.0 times.
The Company may adjust its future capital structure and capital expenditures according to market conditions to maintain
flexibility to achieve its objectives. In doing so, the Company may increase or decrease capital expenditures including
acquisitions and dispositions, issue new shares, issue new debt or repay existing debt.
The table below outlines a contractual maturity analysis for Kelt’s financial liabilities as at December 31, 2023:
Accounts payable and accrued liabilities
Derivative financial instruments
Lease liability
Total
COMMITMENTS
Within 1 Year
1 to 5 Years
More than 5 Years
85,171
585
1,125
86,881
-
-
332
332
-
-
-
-
Total
85,171
585
1,457
87,213
As of December 31, 2023, the Company is committed to future payments under the following agreements:
Firm processing commitments
Firm transportation commitments
2024
33,726
35,187
2025
50,021
36,244
2026
60,301
35,415
2027
60,341
32,482
2028
Thereafter
63,230
461,559
31,059
139,839
Total commitments
68,913
86,265
95,716
92,823
94,289
601,398
In 2023, the Company entered into two gas processing agreements with third-party midstream companies. The gas
processing facilities are expected to become operational in mid-2025 and early 2026 resulting in an increase of
approximately $220.0 million to commitments as of December 31, 2023.
SHARE INFORMATION
The Company is authorized to issue an unlimited number of common shares and an unlimited number of preferred
shares. As at December 31, 2023 there were 194.5 million common shares issued and outstanding. There are no
preferred shares issued or outstanding.
At December 31, 2023, officers, directors, and employees have been granted options to purchase 10.0 million common
shares of the Company at an average exercise price of $3.74 per common share. In addition, there are 1.7 million
RSUs outstanding.
KELT EXPLORATION LTD.
18
2023 ANNUAL REPORT
The following table outlines Kelt’s common share trading activity during 2023 and 2022:
SHARE TRADING ACTIVITY (KEL)
High ($)
Low ($)
Close ($)
Volume traded (thousands)
Value traded ($ thousands)
Weighted average trading price ($)
RELATED PARTY TRANSACTIONS
2023
8.16
4.29
5.72
111,257
638,458
5.74
2022
8.32
4.67
5.01
125,751
759,986
6.04
The Company has engaged a law firm where the corporate secretary of Kelt is a partner, and Kelt has engaged the
services of a registrar and transfer agent where an officer of Kelt is a director of the company. During the year ended
December 31, 2023, the Company incurred $0.4 million (December 31, 2022 – $0.4 million) in disbursements to related
parties in the normal course of business.
OFF-BALANCE SHEET TRANSACTIONS
The Company did not engage in any off-balance sheet transactions during the periods ended December 31, 2023 and
2022.
RESERVES
Kelt retained Sproule Associates Limited (“Sproule”), an independent qualified reserve evaluator to prepare a report on
its oil and gas reserves (the “Sproule Report”). The Company has a Reserves Committee which oversees the selection,
qualifications and reporting procedures of the independent engineering consultants. Reserves as at December 31,
2023 and at December 31, 2022 were determined using the guidelines and definitions set out under National Instrument
51-101 (“NI 51-101”). The Sproule Report is effective as of December 31, 2023. More information on the Company’s
reserves are included in the Annual Information Form as at December 31, 2023, dated March 7, 2024, which can be
found at www.sedarplus.ca.
At December 31, 2023, Kelt’s proved plus probable reserves were 413.1 million BOE, up 21% from 340.8 million BOE
at December 31, 2022. The Company’s net present value of proved plus probable reserves at December 31, 2023,
discounted at 10% before-tax, was $4.5 billion, an increase of 32% from $3.4 billion at December 31, 2022. Sproule’s
forecast commodity prices for 2024 which were used to determine the present value of the Company’s reserves at
December 31, 2023, are US$76.00 per barrel for WTI oil and US$2.75 per MMBtu for NYMEX Henry Hub.
At December 31, 2023, the weighting of proved plus probable reserves was 36% oil/NGLs and 64% natural gas. At
December 31, 2022, the weighting of proved plus probable reserves was 38% oil/NGLs and 62% natural gas.
The following table outlines a summary of the Company’s reserves volumes at December 31, 2023:
SUMMARY OF RESERVE VOLUMES
Proved developed producing
Proved
Proved plus Probable
(1) “Liquids” include field condensate and NGLs.
Crude Oil
(Mbbls)
Liquids(1)
(Mbbls)
Natural Gas
Combined
FDC Costs
(MMcf)
(MBOE)
($ thousands)
12,852
50,859
74,745
11,848
46,296
74,418
278,283
71,081
956,575
256,584
1,583,515
413,082
-
1,768,370
2,467,126
KELT EXPLORATION LTD.
19
2023 ANNUAL REPORT
CHANGE IN RESERVES – YEAR OVER YEAR (MBOE)
Proved developed producing
Proved
Proved plus Probable
December 31
2023
December 31
2022 % Change
71,081
256,584
413,082
61,062
192,073
340,801
16
34
21
The following table outlines forecasted future prices that Sproule has used in their evaluation of the Company’s reserves
at December 31, 2023:
FUTURE COMMODITY PRICE FORECAST
US$/bbl
CA$/bbl
US$/MMBtu
CA$/GJ
US$/CA$
WTI Cushing
Canadian
NYMEX
AECO-C
USD/CAD
Oklahoma
Light Sweet
Henry Hub
Spot
Exchange
2024
2025
2026
2027
2028
Five year average
76.00
76.00
76.00
77.52
79.07
76.92
97.33
97.25
97.17
99.12
101.10
98.39
2.75
3.75
4.00
4.08
4.16
3.75
2.21
3.45
3.75
3.82
3.90
3.43
1.333
1.333
1.333
1.333
1.333
1.333
The following table summarizes the net present value of the Company’s reserves (before-tax) as at December 31,
2023:
NET PRESENT VALUE (BEFORE-TAX)
(CA$ millions)
Proved developed producing
Proved
Proved plus Probable
NET ASSET VALUE
Undiscounted
NPV 5% BT
NPV 10% BT
1,258,157
1,104,595
5,302,740
3,765,421
9,185,863
6,206,924
948,144
2,827,673
4,515,374
The Company estimates its net asset value to be $4.7 billion or $22.75 per common share as at December 31, 2023
based on the present value of its 2P reserves before-tax, discounted at 10%. The components of Kelt’s net asset value
calculation are set-forth in the table below. The reader is cautioned that these amounts may not be directly comparable
to other companies, as the term “Net asset value” does not have a standardized meaning under GAAP or NI 51-101.
The net present value of petroleum and natural gas (“P&NG”) reserves was determined by Sproule in their year-end
evaluation reports, based on a discount rate of 10% before-tax. Undeveloped land at December 31, 2023 was internally
valued at an average price of $381 per acre (2022 – $344 per acre). Management believes that the “Net asset value”
provides a useful measure to analyze the comparative change in the Company’s estimated value on a normalized
basis.
(CA$ thousands, except per share amounts)
December 31, 2023
December 31, 2022
Present value of 2P P&NG reserves, discounted at 10% before-tax (1)
4,515,374
3,430,114
Undeveloped land (2)
Net (debt) surplus (3)
Proceeds from exercise of stock options (3)(4)
Net asset value
Common shares, RSU’s and “in the money” stock options (000s) (4)
Net asset value ($ per common share) (3)
140,191
(12,997)
33,767
129,396
(9,789)
18,353
4,676,335
3,568,074
205,590
22.75
199,706
17.87
(1) As estimated by Sproule at December 31, 2023. The present value of 2P reserves includes undiscounted future development capital of $2.5 billion.
(2) The undeveloped land value is based on internal estimates of Kelt’s undeveloped lands which do not have reserves assigned.
(3) Refer to advisories regarding “Non-GAAP and Other Financial Measures”.
KELT EXPLORATION LTD.
20
2023 ANNUAL REPORT
(4) The calculation of proceeds from exercise of stock options and the diluted number of common shares outstanding only include stock options that are
“in-the-money” based on the closing price of KEL of $5.72 on December 31, 2023. All outstanding RSUs are included in diluted common shares
outstanding.
SUMMARY OF QUARTERLY RESULTS
The following tables summarize the Company’s financial and operating results over the past eight quarters:
(CA$ thousands, except as otherwise indicated)
Q4 2023
Q3 2023
Q2 2023
Q1 2023
Q4 2022
Q3 2022
Q2 2022
Q1 2022
Petroleum and natural gas sales
129,000
116,948
110,061
139,571
152,720
143,254
178,938
138,446
Royalties
Revenue
(17,938)
(15,468)
(7,472)
(18,292)
(15,864)
(16,697)
(18,152)
(14,854)
111,062
101,480
102,589
121,279
136,856
126,557
160,786
123,592
Cash provided by operating activities
62,477
52,424
68,163
100,160
63,742
85,104
91,623
65,553
Adjusted funds from operations (1)
66,618
58,772
58,810
92,000
92,851
65,189
94,783
74,169
Per share – basic ($/common share) (1)
Per share – diluted ($/common share) (1)
0.34
0.33
0.30
0.30
0.31
0.30
0.48
0.47
0.48
0.47
0.34
0.33
0.50
0.48
0.39
0.38
Net income and comprehensive income
23,729
20,060
25,799
16,336
54,238
23,089
70,711
10,720
Per share – basic ($/common share)
Per share – diluted ($/common share)
0.12
0.12
0.10
0.10
0.13
0.13
0.09
0.08
0.28
0.28
0.12
0.12
0.37
0.36
0.06
0.06
Capital expenditures, net of A&D (1)
62,695
98,287
45,035
76,629
68,594
76,181
89,072
83,693
Total assets
Bank debt
Net debt (surplus) (1)
Shareholders’ equity
1,260,292
1,222,412
1,174,609
1,174,489
1,128,104
1,078,619
1,035,372
967,119
-
-
-
-
11,300
-
-
-
12,997
15,917
(18,580)
(4,899)
9,789
33,537
23,117
34,685
1,003,663
976,146
948,215
919,809
901,424
845,103
818,734
739,673
Average daily production (BOE/d)
32,344
28,179
29,705
31,833
28,036
25,791
27,713
27,413
Combined net realized price ($/BOE) (1)(2)
Operating income ($/BOE) (1)
41.78
23.49
42.68
23.36
38.64
22.55
54.00
33.27
57.57
37.49
48.97
28.19
58.50
49.96
38.52
31.26
Operating netback % of combined net realized
price (2)
56%
55%
58%
62%
65%
58%
66%
63%
(1) Refer to advisories regarding “Non-GAAP and Other Financial Measures”.
(2) In this table, combined net realized prices are after derivative financial instruments.
In 2022, crude oil prices were impacted by a number of factors including the Russian and Ukrainian conflict, the US
releasing crude oil from its strategic reserves, continued COVID-19 lockdowns in China, and rising lending rates
impacting global demand of crude oil. Crude oil prices in the first and second quarter of 2023 decreased from the
average price in 2022 as demand growth in the OECD countries slowed and crude oil demand from China came in
below expectations, while crude oil remained relatively well supplied globally. In the third quarter of 2023, crude oil
increased compared to the first and second quarters of 2023 as OPEC+ announced additional production curtailments.
North American benchmark natural gas prices in the first half of 2022 were well supported due to record LNG exports,
below average inventory levels and increased North American demand. However, increasing US and Canadian
production in 2022, and the shut-in of a US LNG export facility in June 2022 resulted in rising North American inventory
levels, and a decrease in North American benchmark natural gas prices in the fourth quarter of 2022 and into 2023.
Natural gas prices in 2023 continued to be impacted by North American production growth and lower demand from a
warmer than average winter resulting in higher than average natural gas inventory levels.
Kelt’s business objective is for long-term profitable growth by implementing a full cycle exploration and development
program. Over the past eight quarters, Kelt has focused its cash provided from operating activities on its development
capital program which has resulted in higher average daily production and adjusted funds from operations.
Refer to the “Financial and Operating Summary” section of this MD&A for further discussion. Additional information
relating to Kelt, including the Company’s MD&A for previous quarters, is filed on SEDAR+ and can be viewed at
www.sedarplus.ca.
KELT EXPLORATION LTD.
21
2023 ANNUAL REPORT
SELECTED ANNUAL INFORMATION
The following table summarizes key annual financial and operating information over the three most recently completed
financial years.
(CA$ thousands, except as otherwise indicated)
Petroleum and natural gas sales
Royalties
Revenues
Cash provided by operating activities
Adjusted funds from operations (1)
Per share – basic ($/common share) (1)
Per share – diluted ($/common share) (1)
Net income and comprehensive income
Per share – basic ($/common share)
Per share – diluted ($/common share)
Capital expenditures, net of A&D (1)
Total assets
Bank debt
Net debt (1)
Shareholders’ equity
Return on average capital employed (%) (1)
Average daily production (BOE/d)
Combined net realized price ($/BOE) (1)(2)
Operating netback ($/BOE) (1)
Operating netback as a % of combined net realized price (2)
(1) Refer to advisories regarding “Non-GAAP and Other Financial Measures”.
(2) In this table, average realized prices are after derivative financial instruments.
OUTLOOK AND GUIDANCE
2023
495,580
(59,170)
436,410
283,224
276,200
1.43
1.40
2022
613,358
(65,567)
547,791
306,022
326,992
1.71
1.67
2021
316,763
(27,414)
289,349
159,714
161,394
0.85
0.85
85,974
158,758
114,256
0.45
0.44
0.83
0.81
282,646
317,540
1,260,292
1,128,104
-
12,997
1,003,663
12
30,510
44.36
25.74
58%
11,300
9,789
901,424
25
27,236
53.86
33.98
63%
0.61
0.60
213,511
913,497
1,150
28,220
722,724
20
20,987
38.38
22.29
58%
The table below compares the Company’s previously forecasted assumptions and expected financial and operating
results for 2023 to actual 2023 results:
(CA$ millions, except as otherwise indicated)
2023 Actuals
2023 Budget % Change (2)
Average Production
Oil and NGLs (bbls/d)
Gas (MMcf/d)
Combined (BOE/d)
Forecasted Average Commodity Prices
WTI oil price (US$/bbl)
Canadian Light Sweet ($/bbl)
NYMEX natural gas price (US$/MMBtu)
AECO natural gas price ($/GJ)
Average Exchange Rate (US$/CA$)
11,738
112.6
30,510
77.63
100.40
2.53
2.50
0.7410
11,910 –12,660
111.5 – 114.5
30,500 – 31,750
78.50
101.58
2.60
2.62
0.7427
-4
-
-2
-1
-1
-3
-4
-
KELT EXPLORATION LTD.
22
2023 ANNUAL REPORT
(CA$ millions, except as otherwise indicated)
2023 Actuals
2023 Budget % Change (2)
Capital Expenditures
Drilling & Completions
Equipment, Facilities & Pipeline Infrastructure
Land, Seismic and A&D
Capital Expenditures, net of A&D (1)
Petroleum and natural gas sales
Adjusted funds from operations (1)
Per common share, diluted (1)
Net debt (surplus), at year end (1)
Weighted average common shares outstanding (millions) (1)
(1) Refer to advisories regarding “Non-GAAP and Other Financial Measures”.
(2) Percent change for production is calculated using the mid-point of each production range.
193.2
85.8
3.6
282.6
495.6
276.2
1.40
13.0
193.1
188.0
88.0
9.0
285.0
509.0
280.0
1.42
11.3
192.7
3
-2
-60
-1
-3
-1
-1
15
-
Kelt’s financial results for the year ended December 31, 2023 was largely within its previous guidance.
2024 BUDGET
Crude oil prices remain volatile amid geopolitical impact on supply and concerns of slowing global economic growth.
The WTI crude oil price averaged US$74.15 per barrel during January 2024. Kelt has reduced its forecasted average
2024 WTI oil price by 6% from US$80.00 per barrel to US$75.00 per barrel. North American natural gas prices have
dropped after a warm winter, resulting from a strong El Niño weather pattern. This reduced heating related natural gas
demand significantly which led to above average gas storage levels. Kelt has reduced its forecasted average 2024
NYMEX Henry Hub natural gas price by 26% from US$3.50/MMBtu to US$2.60 MMBtu and the Company has reduced
its forecasted average 2024 AECO natural gas price by 30% from CA$3.16/GJ to CA$2.20/GJ.
In response to lower forecasted natural gas prices, Kelt has reduced its 2024 capital expenditure program to $325.0
million, down 7% from its previous budget of $350.0 million. Kelt expects to drill 29 net wells in 2024, down 15% from
its previous budget of 34 net wells. Three of the five wells that have been deferred are at Oak and the other two wells
are at Pouce Coupe. The Company will focus its 2024 capital program on wells that have a higher oil weighting.
Despite a reduced capital expenditure program for 2024, the Company has not changed its previous 2024 average
production guidance of 36,000 to 39,000 BOE per day.
Using the revised commodity price forecasts for 2024, Kelt is forecasting 2024 adjusted funds from operations of $290.0
million ($1.46 per common share, diluted), down 17% from its previous forecast. Kelt estimates net debt of $48 million
at the end of December 31, 2023, an increase of $36.7 million from its previous forecast.
A 10% increase/decrease in the Company’s forecasted oil/NGLs price for 2024 would increase/decrease forecasted
adjusted funds from operations by approximately $29.6 million. A 10% increase/decrease in the Company’s average
gas price forecasted for 2023 would increase/decrease adjusted funds from operations by approximately $12.7 million.
KELT EXPLORATION LTD.
23
2023 ANNUAL REPORT
The table below outlines the Company’s updated forecast for 2024 with a comparison to the previously announced
guidance included in Kelt’s press release dated November 9, 2023 and a comparison to 2023 actuals:
%
Change
Previous 2024
to Current
Current
Guidance
2024
(CA$ millions, except as otherwise indicated)
2024 Budget
(Nov 9, 2023)
Budget
2023 Actuals
Average Production
Oil and NGLs (bbls/d)
Gas (MMcf/d)
Combined (BOE/d)
Forecasted Average Commodity Prices
WTI oil price (US$/bbl)
Canadian Light Sweet ($/bbl)
NYMEX natural gas price (US$/MMBtu)
AECO natural gas price ($/GJ)
14,250 –15,750
14,250 –15,750
130.5 – 139.5
130.5 – 139.5
36,000 – 39,000
36,000 – 39,000
75.00
96.66
2.60
2.20
80.00
102.68
3.50
3.16
Average Exchange Rate (US$/CA$)
0.7348
0.7353
Capital Expenditures
Drilling & Completions
Equipment, Facilities & Pipeline Infrastructure
Land, Seismic and A&D
Capital Expenditures, net of A&D (1)
Petroleum and natural gas sales
Adjusted funds from operations (1)
Per common share, diluted (1)
Net debt (surplus), at year end (1)
Weighted average common shares outstanding
225.0
80.0
20.0
325.0
583.0
290.0
1.46
48.0
247.0
83.0
20.0
350.0
670.0
350.0
1.76
11.3
-
-
-
-6
-6
-26
-30
-
-9
-4
-
-7
-13
-17
-17
325
11,738
112.6
30,510
77.63
100.40
2.53
2.50
0.7410
193.2
85.8
3.6
282.6
495.6
276.2
1.40
13.0
Current
2024
Budget
% Change
to 2023
Actuals
28
20
23
-3
-4
3
-12
1
16
-7
456
15
18
5
4
269
(millions) (1)
194.7
194.7
-
193.1
1
(1) Refer to advisories regarding “Non-GAAP and Other Financial Measures”.
Kelt expects to maintain a strong balance sheet, giving the Company the ability to take advantage of opportunities as
they arise. The Company’s capital expenditure program is also flexible, with the ability to increase or decrease
expenditures into the future if the economic environment changes.
Changes in forecasted commodity prices and variances in production estimates can have a significant impact on
estimated adjusted funds from operations and net income. Please refer to the advisories regarding forward-looking
statements and to the cautionary statement below.
The information set out herein is “financial outlook” within the meaning of applicable securities laws. See the “Advisory
regarding forward-looking statements” section below for additional information.
SIGNIFICANT JUDGMENTS AND ESTIMATES
The material accounting policies applied by the Company are disclosed in note 3 of the consolidated financial
statements as at and for the year ended December 31, 2023. The timely preparation of the financial statements requires
management to make judgments, estimates and assumptions that affect the application of accounting policies and the
reported amount of assets, liabilities, income and expenses. Actual results may differ materially from these estimates.
KELT EXPLORATION LTD.
24
2023 ANNUAL REPORT
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are
recognized in the period in which the estimates are reviewed and for any future years affected. Significant judgments,
estimates and assumptions made by management in the consolidated annual financial statements are discussed
below.
Estimates are used in the evaluation of proved and proved plus probable reserves. Reserve estimates are
based on production forecasts, future production costs, forecasted commodity prices and future development
capital. Proved reserves and future development capital are used to deplete the net carrying value of property,
plant, and equipment (“PP&E”). Proved plus probable reserves are used to measure the fair value less cost
of disposal (“FVLCD”) in calculating impairment of PP&E. Reserves also impact the assessment of the
commercial viability and technical feasibility of an exploration project which impacts the decision to transfer
exploration and evaluation assets (“E&E”) to PP&E or whether an impairment exists;
The determination of CGUs requires judgment in defining a group of assets that generate cash inflows that
are largely independent of the cash inflows from other assets or groups of assets. The FVLCD is calculated
on a CGU basis to determine whether there is an impairment of PP&E;
The determination of the value of decommissioning liabilities depends upon estimates of future costs, timing
of expenditures, the risk-free rate and inflation rate;
Tax interpretations, regulations and legislation in the jurisdictions in which the Company operates are subject
to change. As such, deferred income taxes are subject to measurement uncertainty; and
Estimates and assumptions are used in the Black-Scholes option pricing model to calculate the stock option
expense.
For more details regarding the Company’s use of estimates and judgements, refer to note 2c) of the consolidated
financial statements as at and for the year ended December 31, 2023.
DISCLOSURE CONTROLS AND PROCEDURES
The Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”) have designed, or caused to be designed
under their supervision, disclosure controls and procedures as defined in National Instrument 52-109 of the Canadian
Securities Administrators, to provide reasonable assurance that: (i) material information relating to the Company is
made known to the CEO and the CFO by others, particularly during the period in which the annual and interim filings
are being prepared; and (ii) information required to be disclosed by the Company in its annual filings, interim filings or
other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within
the time periods specified in securities legislation.
The CEO and the CFO have evaluated the effectiveness of Kelt’s disclosure controls and procedures as at December
31, 2023 and have concluded that such disclosure controls and procedures are effective. The assessment was based
on the framework in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission.
INTERNAL CONTROLS OVER FINANCIAL REPORTING
The CEO and the CFO have designed, or caused to be designed under their supervision, internal controls over financial
reporting as defined in National Instrument 52-109 of the Canadian Securities Administrators, in order to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with IFRS.
There were no significant changes to the Company’s internal controls over financial reporting during the interim period
from October 1, 2023 to December 31, 2023 and year ended December 31, 2023. The CEO and the CFO have
evaluated the effectiveness of Kelt’s internal controls over financial reporting as at December 31, 2023 and have
concluded that such internal controls over financial reporting are effective. The assessment was based on the
framework in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of
the Treadway Commission.
KELT EXPLORATION LTD.
25
2023 ANNUAL REPORT
Due to its inherent limitations, internal controls over financial reporting may not prevent or detect misstatements. In
addition, projections of any evaluation relating to the effectiveness in future periods are subject to the risk that controls
may become inadequate as a result of changes in conditions, or that the degree of compliance with policies and
procedures may deteriorate.
BUSINESS RISKS
The Company is exposed to various operational and financial risks inherent in the exploration, development, production
and marketing of crude oil, NGLs and natural gas liquids. These inherent risks include, but are not limited to, the
following:
Reservoir quality and the uncertainty of reserves estimates;
Volatility in the prevailing prices of crude oil, NGLs and natural gas;
Inflation and its impact on the cost of services and capital projects;
The actions of OPEC+ on global oil supply and its impact on price;
Regulatory risk related to the approval for exploration and development activities, which can add to costs or
cause delays in projects;
Environmental impact risk associated with exploration and development activities, including GHG emissions;
Shifts in demand as global energy markets transition to a lower carbon-based economy.
Future legislative and regulatory developments related to environmental regulation;
Geopolitical risks associated with changing governments or governmental policies, social instability and other
political, economic or diplomatic developments in the regions where the Company has its operations;
The ability to find, produce and replace reserves at a reasonable cost, including the risk of reserve revisions
due to economic and technical factors. Reserve revisions can have a positive or negative impact on asset
valuations, asset retirement obligations, lending capacity and depletion rates;
Access to labor, equipment and services to complete projects in a timely and cost efficient manner;
Operating hazards inherent in the exploration, development, production and sale of crude oil and natural gas;
Credit risk related to non-payment for sales contracts or other counterparties;
Interest rate risk associated with the Company’s cost to borrow and ability to secure financing on commercially
acceptable terms;
Foreign exchange risk as commodity sales are predominantly based on US dollar denominated benchmarks;
Business interruptions because of unexpected events such as fires or explosions whether caused by human
error or nature, severe storms and other calamitous acts of nature, blowouts, freeze-ups, mechanical or
equipment failures of facilities and infrastructure and other similar events affecting the Company or other
parties whose operations or assets directly or indirectly impact the Company and that may or may not be
financially recoverable;
Potential actions of governments, regulatory authorities and other stakeholders that may result in costs or
restrictions in the jurisdictions where the Company has operations;
Increasing carbon tax and changing royalty regimes;
The ability to secure adequate transportation for products which could be affected by pipeline and storage
constraints, the construction by third parties of new or expansion of existing pipeline capacity and other factors;
Potential limitations on the volumes of water required for completion activities due to drought, conditions of
low river flow, government restrictions or other factors;
KELT EXPLORATION LTD.
26
2023 ANNUAL REPORT
The access to markets for the Company’s products; and
The risk of significant interruption or failure of the Company's information technology systems and related
data and control systems or a significant breach that could adversely affect the Company's operations.
Indigenous Claims
On January 18, 2023, the Government of British Columbia and the Blueberry River First Nation (the “BRFN”) signed
the Blueberry River First Nations Implementation Agreement (the “BRFN Agreement”). The BRFN Agreement aims to
address the cumulative effects of development on BRFN’s claim area through restoration work, establishment of areas
protected from industrial development, and a constraint on development activities. Such measures will remain in place
while a long-term cumulative effects management regime is implemented. Specifically, the BRFN Agreement includes,
among other measures, the establishment of a $200-million restoration fund by June 2025, an ecosystem-based
management approach for future land- use planning in culturally important areas, limits on new petroleum and natural
gas development, and a new planning regime for future oil and gas activities. The BRFN will receive $87.5 million over
three years, with an opportunity for increased benefits based on petroleum and natural gas revenue sharing and
provincial royalty revenue sharing in the next two fiscal years.
In late January 2023, the Government of British Columbia and four Treaty 8 First Nations, Fort Nelson, Salteau, Halfway
River and Doig River First Nations reached consensus on a collaborative approach to land and resource planning (the
“Consensus Agreement”). The Consensus Agreement implements various initiatives including a “cumulative effects”
management system linked to natural resource landscape planning and restoration initiatives, new land-use plans and
protection measures, and a new revenue-sharing approach to support the priorities of Treaty 8 First Nations
communities.
In July 2022, Duncan’s First Nation filed a lawsuit against the Government of Alberta claiming in its lawsuit that Alberta
has failed to uphold its treaty obligations by authorizing development without considering the cumulative impacts on
the First Nation’s treaty rights.
The Company does not currently expect that there will be a significant impact to Kelt’s 2024 guidance as a result of the
BRFN Agreement, the Consensus Agreement, or the Duncan’s First Nation lawsuit. However the long-term impacts on
the Canadian oil and gas industry remain uncertain therefore the Company awaits additional information on these
agreements to assess what the future impact will be on the overall development of oil and gas resources in British
Columbia and Alberta.
Environmental Risks
All phases of the oil and natural gas business present environmental risks and hazards and are subject to federal,
provincial and municipal laws and regulations. Environmental legislation provides for restrictions and prohibitions on
spills, releases or emissions of various substances produced in association with oil and gas operations. The legislation
also requires that wells and facility sites be operated, maintained, abandoned and reclaimed to the satisfaction of
applicable regulatory authorities. Compliance with such legislation can require significant expenditures and a breach
may result in the imposition of fines and penalties, some of which may be material. Environmental legislation is evolving
in a manner expected to result in stricter standards and enforcement, larger fines and liability and potentially increased
capital expenditures and operating costs. The discharge of oil, natural gas or other pollutants into the air, soil or water
may give rise to liabilities to governments and third parties and may require Kelt to incur costs to remedy such discharge.
Kelt employs an environmental management system to manage these risks through a set of processes and practices
to collect, monitor and report on the environmental impact of its operations.
No assurance can be given that the application of environmental laws to the business and operations of Kelt will not
result in a curtailment of production or a material increase in the costs of production, development or exploration
activities or otherwise adversely affect Kelt’s financial condition, results of operations or prospects.
Climate Change Risks
Climate change policy is evolving at regional, national and international levels, and political and economic events may
significantly affect the scope and timing of climate change measures that are ultimately put in place. The federal and
provincial governments have implemented legislation aimed at incentivizing the use of alternatives fuels and reducing
KELT EXPLORATION LTD.
27
2023 ANNUAL REPORT
carbon emissions. This legislation along with taxes placed on carbon emissions may have the effect of decreasing the
demand for oil and natural gas products and at the same time, increasing the Corporation’s operating expenses, each
of which may have a material adverse effect on the Corporation’s profitability and financial condition. Further, the
imposition of carbon taxes puts the Corporation at a disadvantage with the Corporation’s counterparts who operate in
jurisdictions where there are less costly carbon regulations. Currently enacted carbon pricing costs are included in the
Company’s report on its oil and gas reserves.
Adverse impacts to the Corporation’s business as a result of comprehensive carbon emission legislation or regulation
applied to the Corporation’s business in Alberta or any jurisdiction in which the Corporation operates, may include, but
are not limited to: (i) increased compliance costs; (ii) permitting delays; (iii) substantial costs to reduce emissions or
generate or purchase emission credits or allowances; and (iv) reduced demand for crude oil and certain refined
products. Emission allowances or offset credits may not be available for acquisition or may not be available on an
economic basis. Required emission reductions may not be technically or economically feasible to implement, in whole
or in part, and failure to meet such emission reduction requirements or other compliance mechanisms may have a
material adverse effect on the Corporation’s business resulting in, among other things, fines, permitting delays,
penalties and the suspensions of operations.
In addition to climate policy risk, the industry faces physical risks attributable to a changing climate. Climate change is
expected to increase the frequency of severe weather conditions, including high winds, heavy rainfall, extreme
temperatures, flooding and wildfires, which may result in damage to the Corporation’s assets, disruptions in operations
or transportation interruptions which may lead to increased capital expenditures or reduced revenues. Further
information is available on the Company’s ESG report which can be found on the Company’s website.
Cybersecurity
The Company has implemented cyber security protocols and procedures to reduce the risk of failure or a significant
breach of the Company’s information technology systems and related data and control systems. To manage this risk,
the Company maintains a system of internal controls and purchases insurance coverage against general risks
associated with cybersecurity. During the year ended December 31, 2023, the Company has not experienced a
cybersecurity breach that had a material impact on the business.
Risk Mitigation
The Company uses a variety of means to help mitigate or minimize these risks. The Company maintains a
comprehensive insurance program to reduce risk. Operational control is enhanced by focusing on large core areas with
high working interests and operatorship of drilling and completion operations. Product mix is diversified between natural
gas, NGLs and oil which reduces price risk in certain market conditions. Accounts receivable from the sale of crude oil
and natural gas are mainly with customers in the crude oil and natural gas industry and are subject to normal industry
credit risks. The Company manages these risks by monitoring exposure to individual customers, contractors, suppliers
and joint venture partners on a regular basis and when appropriate, ensuring parental guarantees or letters of credit
are in place, and as applicable, taking other mitigating actions to minimize the impact in the event of a default. The
Company is exposed to possible losses in the event of non-performance by counterparties to derivative financial
instruments; however, the Company manages this credit risk by primarily entering into agreements with counterparties
that are investment grade financial institutions, and reviews its counterparties on an on-going basis.
A more detailed description of the Company’s risks is included in the Annual Information Form as at December 31,
2023, dated March 7, 2024 which can be found at www.sedarplus.ca.
NON-GAAP AND OTHER FINANCIAL MEASURES
This MD&A contains certain non-GAAP financial measures and other specified financial measures, as described below,
which do not have standardized meanings prescribed by GAAP and do not have standardized meanings under the
applicable securities legislation. As these non-GAAP, and other specified financial measures are commonly used in
the oil and gas industry, the Company believes that their inclusion is useful to investors. The reader is cautioned that
these amounts may not be directly comparable to measures for other companies where similar terminology is used.
KELT EXPLORATION LTD.
28
2023 ANNUAL REPORT
NON-GAAP FINANCIAL MEASURES
P&NG sales after cost of purchases
Throughout this MD&A, reference is made to “P&NG sales” and “P&NG sales after cost of purchases”. P&NG sales is
as reported in the consolidated financial statements in accordance with GAAP and is before realized gains or losses
on derivative financial instruments. P&NG sales after cost of purchases includes P&NG sales (in accordance with
GAAP), net of the cost of third-party volumes purchases. P&NG sales after cost of purchases are used by management
to assess the Company’s sales from its core operations, which the Company believes may be a better indicator of
historical and future performance.
See the “Petroleum and Natural Gas Sales” section of this MD&A which provides a reconciliation of “P&NG sales after
cost of purchases to P&NG sales.
Net realized price
Net realized price is a non-GAAP measure and is calculated by dividing the Company’s P&NG sales after cost of
purchases by the Company’s production and reflects Kelt’s realized selling prices plus the net benefit of oil blending
and third-party natural gas sales. In addition to using its own production, the Company may purchase butane and crude
oil from third parties for use in its blending operations, with the objective of selling the blended oil product at a premium.
Marketing revenue from the sale of third-party volumes is included in P&NG sales as reported in the Consolidated
Statement of Net Income and Comprehensive Income in accordance with GAAP. Given the Company’s per unit
operating statistics disclosed throughout this MD&A are calculated based on Kelt’s production volumes, and excludes
the sale of third-party marketing volumes, management believes that disclosing its net realized prices based on P&NG
sales after cost of purchases is more appropriate and useful, because the cost of third-party volumes purchased to
generate the incremental marketing revenue has been deducted.
Combined net realized prices referenced throughout this MD&A are before derivative financial instruments (“combined
net realized price, before financial instruments”), except as otherwise indicated as being after derivative financial
instruments (“combined net realized price, after financial instruments”).
See the “Petroleum and Natural Gas Sales” section of this MD&A which provides a reconciliation of the net realized
price to P&NG sales, which is a GAAP measure.
Operating income and operating netback
Operating income is a non-GAAP measure calculated by deducting royalties, production expenses and transportation
expenses from petroleum and natural gas sales, net of the cost of purchases and after realized gains or losses on
derivative financial instruments. The Company also presents operating income on a per BOE basis, referred to as
“operating netback” or “operating income per BOE”, which allows management to better analyze performance against
prior periods, on a comparable basis, and is a key industry performance measure of operational efficiency.
See the “Adjusted Funds from Operations” section of this MD&A which provides a reconciliation of the operating income
from P&NG sales, which is a GAAP measure.
Capital expenditures
“Capital expenditures, before A&D” and “Capital expenditures, net of A&D” are measures the Company uses to monitor
its investment in exploration and evaluation, investment in property plant and equipment, and net investment in
acquisition and disposition activities. The most directly comparable GAAP measure is “Cash used in investing
activities”, and is calculated as follows:
KELT EXPLORATION LTD.
29
2023 ANNUAL REPORT
(CA$ thousands, except as otherwise indicated)
Cash used in investing activities
Three months ended
December 31
Year ended
December 31
2023
82,324
2022
2023
2022
95,916
265,485
328,945
Change in non-cash investing working capital
(19,629)
(27,322)
17,161
(11,405)
Capital expenditures, net of A&D
62,695
68,594
282,646
317,540
Property acquisitions (1)
Property dispositions (1)
(10)
50
(12)
-
(102)
50
(933)
41
Capital expenditures, before A&D
62,735
68,582
282,594
316,648
(1) Property acquisitions and property dispositions for the year ended December 31, 2023 includes $6.9 million of non-cash consideration. Property
acquisitions and property dispositions for the year ended December 31, 2022 includes $2.5 million of non-cash consideration.
Adjusted earnings before interest and taxes
Kelt calculates adjusted earnings before interest and taxes (“EBIT”) as net income and comprehensive income plus
financing, less accretion of decommissioning obligations, plus deferred income tax expense. Kelt uses adjusted EBIT
as a measure of long-term operating performance and as a component in the calculation for return on average capital
employed (“ROACE”). The following table contains a reconciliation of adjusted EBIT to the most directly comparable
GAAP measure, net income and comprehensive income.
(CA$ thousands, except as otherwise indicated)
Net income and comprehensive income
Financing expenses
Accretion of decommissioning obligations
Deferred income tax expense
Adjusted EBIT
Average capital employed
December 31,
2023
85,974
4,190
(2,880)
28,503
115,787
December 31,
2022
December 31,
2021
158,758
3,911
(2,451)
51,441
211,659
114,256
2,443
(2,003)
21,436
136,132
Kelt calculates average capital employed as the total of net debt plus the short and long term lease obligations and
shareholders equity. Kelt uses average capital employed as a measure of long-term capital management and operating
performance, and as a component in the calculation for ROACE. The table below provides a reconciliation of average
capital employed to the most directly comparable GAAP measures of shareholders equity.
(CA$ thousands, except as otherwise indicated)
Net debt – beginning of period
Current portion of lease obligations
Long-term portion of lease obligations
Shareholders' equity - beginning of period
Opening capital employed (A)
Net debt – end of period
Current portion of lease obligations
Long-term portion of lease obligations
Shareholders' equity - end of period
Closing capital employed (B)
Average capital employed (A+B)/2
December 31,
2023
December 31,
2022
December 31,
2021
9,789
28,220
(27,655)
505
543
609
399
901,424
722,724
912,261
751,952
12,997
1,125
332
1,003,663
9,789
505
543
901,424
684
780
603,684
577,493
28,220
609
399
722,724
1,018,117
912,261
751,952
965,189
832,107
664,723
KELT EXPLORATION LTD.
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2023 ANNUAL REPORT
Return on average capital employed
Kelt calculates ROACE, expressed as a percentage, as adjusted EBIT divided by the average capital employed. The
components adjusted EBIT and average capital employed are non-GAAP financial measures. Kelt uses ROACE as a
measure of long-term financial performance.
(CA$ thousands, except as otherwise indicated)
Adjusted EBIT
Average capital employed
ROACE (%)
Three-year
Average
December 31,
2023
December 31,
2022
December 31,
2021
115,787
211,659
136,132
965,189
832,107
664,723
19%
12%
25%
20%
CAPITAL MANAGEMENT MEASURES
Funds from operations and adjusted funds from operations
Management considers funds from operations and adjusted funds from operations as a key capital management
measure as it demonstrates the Company’s ability to meet its financial obligations and cash flow available to fund its
capital program. Funds from operations and adjusted funds from operations are not standardized measures and
therefore may not be comparable with the calculation of similar measures by other entities. The most comparable GAAP
measure is “Cash provided by operating activities”. Funds from operations and adjusted funds from operations are
calculated as follows:
(CA$ thousands, except as otherwise indicated)
Cash provided by operating activities
Change in non-cash working capital
Funds from operations
Settlement of decommissioning obligations
Adjusted funds from operations
Three months ended
December 31
Year ended
December 31
2023
62,477
1,697
64,174
2,444
66,618
2022
63,742
28,742
92,484
367
2023
2022
283,224
(11,562)
306,022
17,770
271,662
323,792
4,538
3,200
92,851
276,200
326,992
Net debt (surplus) and net debt (surplus) to adjusted funds from operations ratio
Management considers net debt (surplus) and a net debt (surplus) to adjusted funds from operations ratio as key capital
management measures to assess the Company’s liquidity at a point in time and to monitor its capital structure and
short-term financing requirements. The “net debt (surplus) to adjusted funds from operations ratio” is also indicative of
the “net debt to cash flow ratio” calculation used to determine the applicable margin for a quarter under the Company’s
Credit Facility agreement (though the calculation may not always be a precise match, it is representative).
“Net debt (surplus)” is equal to bank debt, accounts payable and accrued liabilities, net of cash and cash equivalents,
accounts receivables and accrued sales and prepaid expenses and deposits. The Company believes that using a “Net
debt (surplus)” non-GAAP measure, which excludes non-cash derivative financial instruments, non-cash lease
liabilities, and non-cash decommissioning obligations, provides investors with more useful information to understand
the Company’s cash liquidity risk.
See the “Capital Resources and Liquidity” section of this MD&A for calculation of the Net debt and net debt to adjusted
funds from operations ratio.
SUPPLEMENTARY FINANCIAL MEASURES
“Production per common share” is calculated by dividing total production by the basic weighted average number of
common shares outstanding, as determined in accordance with GAAP.
P&NG sales, cost of purchases, gain (loss) on derivative financial instruments, royalties, production expenses,
transportation expenses, financing expenses, gross and net G&A expenses, realized gain (loss) on foreign exchange,
KELT EXPLORATION LTD.
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2023 ANNUAL REPORT
other income (expense), share based compensation expense and depletion and depreciation on a $/BOE basis is
calculated by dividing the amounts by the Company’s total production over the period.
Adjusted funds from operations per share (basic and diluted), and net income and comprehensive income per share
(basic and diluted) is calculated by dividing the amounts by the basic weighted average common shares outstanding.
Net asset value
“Net asset value” is calculated by adding the present value of proved plus probable petroleum and natural gas reserves
discounted at 10% before-tax (as estimated by Sproule effective December 31, 2023), undeveloped land value,
proceeds from exercise of stock options, and net bank debt (surplus). “Net asset value per common share” is calculated
by dividing the “Net asset value” by the diluted number of common shares outstanding. The calculation of proceeds
from exercise of stock options and the diluted number of common shares outstanding only include stock options that
are “in-the-money” based on the closing price of Kelt common shares as at the calculation date. Management believes
that the “Net asset value” provides a useful measure to analyze the comparative change in the Company’s estimated
value on a normalized basis.
See the “Net asset value” section of this MD&A which provides a reconciliation of the net asset value to Kelt’s Present
value of 2P P&NG reserves, discounted at 10% before-tax.
SUSTAINABILITY STANDARDS
On June 26, 2023 the International Sustainability Standards Board (“ISSB”) issued its first two sustainability standards,
IFRS S1 and IFRS S2, which deal with general requirements for sustainability disclosure and climate-related disclosure.
There are several hurdles before the ISSB standards move from being voluntary to having the force of law in Canada.
The Canadian Securities Administrators (“CSA”) have indicated that they intend to engage and collaborate with the
Canadian Sustainability Standard Board (“CSSB”) on a review of the ISSB standards and proposed National Instrument
51-107. Although it is likely the CSSB will start with the ISSB standards, the extent that the final CSSB standards will
differ from those issued by the ISSB is unknown.
Kelt publishes an annual Environmental, Social, and Governance (“ESG”) Report, which includes the Company’s ESG
practices and performance. The latest report, dated May 3, 2023 can be found on the Company’s website at
www.keltexploration.com. Kelt’s ESG report is aligned with the standards set out in the Sustainability Accounting
Standards Board, Oil and Gas – Exploration and Production Sustainability Accounting Standard.
ADVISORY REGARDING FORWARD-LOOKING STATEMENTS
The information set out herein is “financial outlook” within the meaning of applicable securities laws. The purpose of
this financial outlook is to provide readers with disclosure regarding Kelt’s reasonable expectations as to the anticipated
results of its proposed business activities for the calendar year 2024. Readers are cautioned that this financial outlook
may not be appropriate for other purposes.
Certain information with respect to Kelt contained herein, including management’s assessment of future plans and
operations, contains forward-looking statements. These forward-looking statements are based on assumptions and are
subject to numerous risks and uncertainties, many of which are beyond Kelt’s control, including the impact of general
economic conditions, industry conditions, volatility of commodity prices, currency exchange rate fluctuations,
imprecision of reserve estimates, environmental risks, competition from other explorers, stock market volatility and
ability to access sufficient capital. As a result, Kelt’s actual results, performance or achievement could differ materially
from those expressed in, or implied by, these forward-looking statements and, accordingly, no assurance can be given
that any events anticipated by the forward-looking statements will transpire or occur.
In addition, the reader is cautioned that historical results are not necessarily indicative of future performance. The
forward-looking statements contained herein are made as of the date hereof and the Company does not intend, and
does not assume any obligation, to update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise unless expressly required by applicable securities laws.
There are numerous uncertainties inherent in estimating quantities of oil, natural gas and NGL reserves, and the future
net revenue attributed to such reserves, including many factors beyond the control of Kelt. The reserves and associated
KELT EXPLORATION LTD.
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2023 ANNUAL REPORT
future net revenue information set forth in this MD&A are estimates only. In general, estimates of economically
recoverable oil, natural gas and NGLs reserves and the future net revenue therefrom are based upon a number of
variable factors and assumptions, such as historical production from the properties, production rates, ultimate reserves
recovery, the timing and amount of capital expenditures, marketability of oil, natural gas and NGLs, royalty rates, the
assumed effects of regulation by governmental agencies and future operating costs, all of which may vary materially
from actual results. For these reasons, estimates of the economically recoverable oil, natural gas and NGLs reserves
attributable to any particular group of properties, the classification of such reserves based on risk of recovery and
estimates of future net revenue associated with reserves prepared by different engineers, or by the same engineer at
different times, may vary.
Kelt’s actual production, revenue, taxes and development and operating expenditures with respect to its reserves will
vary from estimates thereof and such variations could be material. It should not be assumed that the undiscounted or
discounted net present value of future net revenue attributable to the Corporation’s reserves estimated by the
Corporation’s independent qualified reserves evaluators represent the fair market value of those reserves. There is no
assurance that the forecast prices and costs assumptions will be attained, and variances could be material. Actual oil,
natural gas and NGLs reserves may be greater than or less than the estimates provided herein, and variances could
be material.
With respect to the disclosure of reserves contained herein relating to portions of Kelt’s properties, the estimates of
reserves and future net revenue for individual properties may not reflect the same confidence level as estimates of
reserves and future net revenue for all properties, due to the effects of aggregation. Unless otherwise stated all
references to “reserves” are to Kelt’s gross company reserves before deduction of royalties and without including and
royalty interests of Kelt. It should not be assumed that the undiscounted or discounted net present value of the
Company’s reserves, as determined by Sproule, represents the fair value of those reserve estimates.
This MD&A contains forward-looking statements and forward-looking information within the meaning of applicable
securities laws. The use of any of the words “expect”, “anticipate”, “continue”, “estimate”, “objective”, “ongoing”, “may”,
“will”, “project”, “should”, “believe”, “plans”, “intends”, “potentially” and similar expressions are intended to identify
forward-looking information or statements. In particular, this MD&A contains forward-looking statements pertaining to
the following: Kelt’s expected price realizations and future commodity prices; the cost and timing of future capital
expenditures and expected results; the Company’s ability to continue accumulating land at a low-cost in its core
operating areas and potentially monetize non-core assets; the expected timing of well completions, the expected timing
of wells bring brought on-production, the expected timing of facility expenditures, the expected timing of facility start-up
dates, the expected timing of production additions from capital expenditures; and the Company's expected future
financial position and operating results. Statements relating to "reserves" or “resources” are deemed to be forward
looking statements, as they involve the implied assessment, based on certain estimates and assumptions, that the
reserves described exist in the quantities predicted or estimated and that the reserves can be profitably produced in
the future. Actual reserves may be greater than or less than the estimates provided herein.
Although Kelt believes that the expectations and assumptions on which the forward-looking statements are based are
reasonable, undue reliance should not be placed on the forward-looking statements because Kelt cannot give any
assurance that they will prove to be correct. Since forward-looking statements address future events and conditions,
by their very nature they involve inherent risks and uncertainties. Actual results could differ materially from those
currently anticipated due to a number of factors and risks. These include, but are not limited to, the risks associated
with the oil and gas industry in general, operational risks in development, exploration and production; delays or changes
in plans with respect to exploration or development projects or capital expenditures; the uncertainty of reserve
estimates; the uncertainty of estimates and projections relating to production, costs and expenses; failure to obtain
necessary regulatory approvals for planned operations; health, safety and environmental risks; uncertainties resulting
from potential delays or changes in plans with respect to exploration or development projects or capital expenditures;
volatility of commodity prices, currency exchange rate fluctuations; imprecision of reserve estimates; as well as general
economic conditions, stock market volatility; the ability to access sufficient water or other fluids needed for completion
operations; and the ability to access sufficient capital. We caution that the foregoing list of risks and uncertainties is not
exhaustive.
KELT EXPLORATION LTD.
33
2023 ANNUAL REPORT
ADDITIONAL INFORMATION
Additional information relating to Kelt, including the Company’s Annual Information Form (“AIF”) dated March 7, 2024
is filed on SEDAR+ and can be viewed on their website at www.sedarplus.ca. Copies of the AIF can also be obtained
by contacting Sadiq H. Lalani, Vice President and Chief Financial Officer at Kelt Exploration Ltd., Suite 300, 311 Sixth
Avenue SW, Calgary, Alberta, Canada, T2P 3H2. Further information relating to Kelt is also available on its website at
www.keltexploration.com.
KELT EXPLORATION LTD.
34
2023 ANNUAL REPORT
MANAGEMENT’S REPORT
The accompanying consolidated financial statements of Kelt Exploration Ltd. (the “Company”) are the responsibility of
management. The consolidated financial statements have been prepared by management in Canadian dollars in
accordance with International Financial Reporting Standards, as issued by the International Accounting Standards
Board (“IFRS Accounting Standards”) and include certain estimates that reflect management’s best judgments. When
alternative accounting methods exist, management has chosen those it deems most appropriate in the circumstances.
Management has the overall responsibility for internal controls and maintains a system of internal controls over financial
reporting that provides reasonable assurance that the financial information is relevant, reliable and accurate and that
the Company’s assets are properly accounted for and adequately safeguarded.
The Board of Directors is responsible for ensuring that management fulfills its responsibilities for financial reporting and
internal control. The Board exercises this responsibility with the assistance of the Audit Committee. This Committee,
consisting of non-management directors, meets with management and independent auditors to ensure that each group
is properly discharging its responsibilities and to discuss adequacy of internal controls, accounting policies and financial
reporting matters. The Audit Committee has reviewed the financial statements and has reported thereon to the Board
of Directors. The Board of Directors has approved the consolidated financial statements and authorized them for
issuance to shareholders.
PricewaterhouseCoopers LLP, an independent firm of Chartered Professional Accountants, has been engaged, as
approved by the shareholders of the Company, to provide an independent audit opinion on the Company’s consolidated
financial statements. Their report, contained herein, outlines the nature of their audit and expresses an unqualified
opinion on the consolidated financial statements.
[signed]
David J. Wilson
President and Chief Executive Officer
March 7, 2024
[signed]
Sadiq H. Lalani
Vice President and Chief Financial Officer
March 7, 2024
KELT EXPLORATION LTD.
35
2023 ANNUAL REPORT
Independent auditor’s report
To the Shareholders of Kelt Exploration Ltd.
Our opinion
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects,
the financial position of Kelt Exploration Ltd. and its subsidiaries (together, the Company) as at
December 31, 2023 and 2022, and its financial performance and its cash flows for the years then ended in
accordance with International Financial Reporting Standards, as issued by the International Accounting
Standards Board (IFRS Accounting Standards).
What we have audited
The Company’s consolidated financial statements comprise:
the consolidated statements of financial position as at December 31, 2023 and 2022;
the consolidated statements of net income and comprehensive net income for the years then ended;
the consolidated statements of changes in shareholders’ equity for the years then ended;
the consolidated statements of cash flows for the years then ended; and
the notes to the consolidated financial statements, comprising material accounting policy information
and other explanatory information.
Basis for opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our
responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of
the consolidated financial statements section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
Independence
We are independent of the Company in accordance with the ethical requirements that are relevant to our
audit of the consolidated financial statements in Canada. We have fulfilled our other ethical responsibilities
in accordance with these requirements.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our
audit of the consolidated financial statements for the year ended December 31, 2023. These matters were
addressed in the context of our audit of the consolidated financial statements as a whole, and in forming
our opinion thereon, and we do not provide a separate opinion on these matters.
PricewaterhouseCoopers LLP
Suncor Energy Centre, 111 5th Avenue South West, Suite 3100, Calgary, Alberta, Canada T2P 5L3
T.: +1 403 509 7500, F.: +1 403 781 1825, Fax to mail: ca_calgary_main_fax@pwc.com
“PwC” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership.
Key audit matter
The impact of crude oil and natural gas proved
reserves on net development and production
(D&P) assets
Refer to note 2(c) – Significant judgments and
estimates, note 3 – Material accounting policies
and note 6 – Property, plant and equipment to the
consolidated financial statements.
The Company has $1,166.4 million of D&P assets
as at December 31, 2023 and depletion and
depreciation (D&D) expense was $125.8 million for
the year then ended. D&P assets are depleted
using the unit-of-production method based on the
ratio of production in the year to the related proved
reserves, taking into account future development
costs necessary to bring those reserves into
production.
Significant assumptions used by management to
determine the proved reserves of the Company’s
D&P assets include production forecasts, future
production costs, forecasted commodity prices and
future development costs. Proved reserves are
determined by independent qualified reserve
evaluators (management’s experts).
We considered this a key audit matter due to i) the
judgments made by management, including the
use of management’s experts, when estimating the
proved reserves; and ii) a high degree of auditor
judgment, subjectivity, and effort in performing
procedures relating to the significant assumptions.
How our audit addressed the key audit matter
Our approach to addressing the matter included the
following procedures, among others:
Tested how management determined the
proved reserves, which included the following:
The work of management’s experts was
used in performing the procedures to
evaluate the reasonableness of the proved
reserves. As a basis for using this work, the
competence, capabilities, and objectivity of
management’s experts was evaluated, the
work performed was understood and the
appropriateness of the work as audit
evidence was evaluated. The procedures
performed also included evaluation of the
methods and assumptions used by
management’s experts, tests of the data
used by management’s experts and an
evaluation of their findings.
Evaluated the reasonableness of significant
assumptions used, including production
forecasts, future production costs and
future development costs by considering
the current and past performance and
whether these assumptions were
consistent with evidence obtained in other
areas of the audit, as applicable.
Evaluated the reasonableness of
forecasted commodity prices by comparing
them to third party industry forecasts.
Recalculated the unit-of-production rates
used to calculate D&D expense.
Other information
Management is responsible for the other information. The other information comprises the Management’s
Discussion and Analysis, which we obtained prior to the date of this auditor’s report, and the information,
other than the consolidated financial statements and our auditor’s report thereon, included in the annual
report, which is expected to be made available to us after that date.
Our opinion on the consolidated financial statements does not cover the other information and we do not
express any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the other
information identified above and, in doing so, consider whether the other information is materially
inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or
otherwise appears to be materially misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of this other
information, we are required to report that fact. We have nothing to report in this regard.
Responsibilities of management and those charged with governance for the
consolidated financial statements
Management is responsible for the preparation and fair presentation of the consolidated financial
statements in accordance with IFRS Accounting Standards, and for such internal control as management
determines is necessary to enable the preparation of consolidated financial statements that are free from
material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing the
Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless management either intends to liquidate
the Company or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Company’s financial reporting
process.
Auditor’s responsibilities for the audit of the consolidated financial statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as
a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s
report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a
guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards
will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in the aggregate, they could reasonably be expected to influence
the economic decisions of users taken on the basis of these consolidated financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise
professional judgment and maintain professional skepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error, design and perform audit procedures responsive to those risks, and
obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of
not detecting a material misstatement resulting from fraud is higher than for one resulting from error,
as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of
internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Company’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by management.
Conclude on the appropriateness of management’s use of the going concern basis of accounting and,
based on the audit evidence obtained, whether a material uncertainty exists related to events or
conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If
we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report
to the related disclosures in the consolidated financial statements or, if such disclosures are
inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to
the date of our auditor’s report. However, future events or conditions may cause the Company to
cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the consolidated financial statements,
including the disclosures, and whether the consolidated financial statements represent the underlying
transactions and events in a manner that achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or
business activities within the Company to express an opinion on the consolidated financial
statements. We are responsible for the direction, supervision and performance of the group audit. We
remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope
and timing of the audit and significant audit findings, including any significant deficiencies in internal
control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant
ethical requirements regarding independence, and to communicate with them all relationships and other
matters that may reasonably be thought to bear on our independence, and where applicable, related
safeguards.
From the matters communicated with those charged with governance, we determine those matters that
were of most significance in the audit of the consolidated financial statements of the current period and
are therefore the key audit matters. We describe these matters in our auditor’s report unless law or
regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we
determine that a matter should not be communicated in our report because the adverse consequences of
doing so would reasonably be expected to outweigh the public interest benefits of such communication.
The engagement partner on the audit resulting in this independent auditor’s report is Scott Althen.
/s/PricewaterhouseCoopers LLP
Chartered Professional Accountants
Calgary, Alberta
March 7, 2024
KELT EXPLORATION LTD.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
AS AT DECEMBER 31, 2023 AND DECEMBER 31, 2022
(CA$ thousands)
ASSETS
Current assets
Cash and cash equivalents
Accounts receivable and accrued sales
Prepaid expenses and deposits
Derivative financial instruments
Total current assets
Derivative financial instruments
Exploration and evaluation assets
Property, plant and equipment
Total assets
LIABILITIES
Current liabilities
Accounts payable and accrued liabilities
Derivative financial instruments
Decommissioning obligations
Lease liability
Total current liabilities
Bank debt
Decommissioning obligations
Lease liability
Deferred income tax liability
Total liabilities
SHAREHOLDERS' EQUITY
Shareholders' capital
Contributed surplus and reserve
Deficit
Total shareholders' equity
Total liabilities and shareholders' equity
Commitments
[Notes]
December 31, 2023 December 31, 2022
14,340
52,646
5,188
3,974
76,148
570
17,162
1,166,412
1,260,292
85,171
585
4,360
1,125
91,241
-
95,555
332
69,501
125
81,075
3,599
26,751
111,550
2,427
16,843
997,284
1,128,104
83,288
1,414
2,187
505
87,394
11,300
86,445
543
40,998
256,629
226,680
1,175,465
(12,010)
(159,792)
1,003,663
1,260,292
1,162,650
(15,460)
(245,766)
901,424
1,128,104
[11]
[11]
[11]
[5]
[6]
[11]
[11]
[8]
[9]
[7]
[8]
[9]
[12]
[10]
[15]
The accompanying notes form an integral part of these consolidated financial statements.
On behalf of the Board of Directors:
[signed]
[signed]
David J. Wilson, Director
Neil G. Sinclair, Director
KELT EXPLORATION LTD.
40
2023 ANNUAL REPORT
KELT EXPLORATION LTD.
CONSOLIDATED STATEMENTS OF NET INCOME AND COMPREHENSIVE NET INCOME
FOR THE YEARS ENDED DECEMBER 31, 2023 AND DECEMBER 31, 2022
(CA$ thousands, except per share amounts)
[Notes]
Revenue
Petroleum and natural gas sales
[13]
Royalties
Expenses
Production
Transportation
Cost of purchases
Financing
General and administrative
Share based compensation
Exploration and evaluation
Depletion and depreciation
Loss on derivative financial instruments
Gain (loss) on foreign exchange
Gain (loss) on sale of assets
Other income
Net income before taxes
Deferred income tax expense
Net income and comprehensive income
Net income per common share
Basic
Diluted
[14]
[16]
[10]
[5]
[6]
[11]
[4]
[12]
[10]
[10]
Year ended December 31
2023
2022
495,580
(59,170)
436,410
613,358
(65,567)
547,791
109,422
101,566
38,808
16,565
4,190
10,384
7,862
1,413
125,813
314,457
(8,748)
(104)
50
1,326
114,477
(28,503)
85,974
0.45
0.44
30,467
21,438
3,911
10,302
7,014
14,484
116,183
305,365
(32,974)
788
(196)
155
210,199
(51,441)
158,758
0.83
0.81
The accompanying notes form an integral part of these consolidated financial statements.
KELT EXPLORATION LTD.
41
2023 ANNUAL REPORT
KELT EXPLORATION LTD.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
AS AT AND FOR THE YEARS ENDED DECEMBER 31, 2023 AND DECEMBER 31, 2022
(CA$ thousands)
Balance at December 31, 2021
Net income and comprehensive income
Exercise of stock options
Vesting of restricted share units
Share based compensation
Balance at December 31, 2022
Net income and comprehensive income
Exercise of stock options
Vesting of restricted share units
Share based compensation
Shareholders’ capital
[Notes]
Number of
Shares (000s)
Amount
($ thousands)
Contributed
surplus and
reserve
189,164
1,144,596
(17,348)
-
2,802
48
-
-
17,896
158
-
-
(4,968)
(158)
7,014
Retained
earnings (deficit)
(404,524)
158,758
-
-
-
Total
shareholders’
equity
722,724
158,758
12,928
-
7,014
192,014
1,162,650
(15,460)
(245,766)
901,424
-
2,145
347
-
-
11,832
983
-
-
85,974
(3,429)
(983)
7,862
-
-
-
85,974
8,403
-
7,862
[10]
[10]
[10]
[10]
[10]
[10]
Balance at December 31, 2023
194,506
1,175,465
(12,010)
(159,792)
1,003,663
The accompanying notes form an integral part of these consolidated financial statements.
KELT EXPLORATION LTD.
42
2023 ANNUAL REPORT
KELT EXPLORATION LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2023 AND DECEMBER 31, 2022
(CA$ thousands)
Operating activities
Net income and comprehensive income
Items not affecting cash:
Accretion of decommissioning obligations
Share based compensation
Exploration and evaluation
Depletion and depreciation
Unrealized (gain) loss on derivative financial instruments
(Gain) loss on sale of assets
Deferred income tax expense
Settlement of decommissioning obligations
Change in non-cash operating working capital
Cash provided by operating activities
Financing activities
(Decrease) increase in bank debt
Proceeds on exercise of stock options
Repayment of lease liability principal
Cash provided by (used in) financing activities
Investing activities
Exploration and evaluation assets
Property, plant and equipment
Property acquisitions
Property dispositions
Change in non-cash investing working capital
Cash used in investing activities
Net change in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
[Notes]
Year ended December 31
2023
2022
85,974
158,758
[14]
[10]
[5]
[6]
[11]
[4]
[12]
[8]
[17]
[7]
[10]
[9]
[5]
[6]
[4]
[4]
[17]
2,880
7,862
1,413
125,813
23,805
(50)
28,503
(4,538)
11,562
283,224
(11,300)
8,403
(627)
(3,524)
(6,115)
(276,479)
(102)
50
17,161
(265,485)
14,215
125
14,340
2,451
7,014
14,484
116,183
(23,535)
196
51,441
(3,200)
(17,770)
306,022
10,150
12,928
(749)
22,329
(7,061)
(309,587)
(933)
41
(11,405)
(328,945)
(594)
719
125
The accompanying notes form an integral part of these consolidated financial statements.
KELT EXPLORATION LTD.
43
2023 ANNUAL REPORT
KELT EXPLORATION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AS AT AND FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022
(All tabular amounts in thousands of Canadian dollars, except as otherwise indicated)
1. DESCRIPTION OF THE BUSINESS
Kelt Exploration Ltd. (“Kelt” or the “Company”) is an oil and gas company based in Calgary, Alberta, focused on the
exploration, development and production of crude oil and natural gas resources, primarily in northwestern Alberta and
northeastern British Columbia. The Company’s British Columbia assets are operated by Kelt Exploration (LNG) Ltd.
(“Kelt LNG”), a wholly owned subsidiary of Kelt. The Company’s common shares are listed on the Toronto Stock
Exchange (“TSX”) under the symbol “KEL”.
The head office of Kelt is located at Suite 300, 311 - 6th Avenue S.W., Calgary, Alberta T2P 3H2.
2. BASIS OF PRESENTATION
The Company’s Board of Directors approved and authorized these consolidated financial statements on March 7, 2024.
a) Statement of compliance
The Company prepares its consolidated financial statements (the “financial statements”) in accordance with
International Financial Reporting Standards, as issued by the International Accounting Standards Board (“IFRS
Accounting Standards”).
b) Basis of measurement
All references to dollar amounts in these financial statements and related notes are thousands of Canadian dollars,
unless otherwise indicated.
The financial statements have been prepared on a historical cost basis, except for certain financial instruments which
are recorded at fair value. The methods used to measure fair values are described in note 11 of these financial
statements.
c) Significant judgments and estimates
The timely preparation of the financial statements requires management to make judgments, estimates and
assumptions that affect the application of accounting policies and the reported amount of assets, liabilities, income and
expenses. Actual results may differ materially from these estimates. Estimates and underlying assumptions are
reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates
are reviewed and for any future years affected. Significant judgments, estimates and assumptions made by
management in these financial statements are discussed below.
Depletion, depreciation and reserves
The net carrying value of property, plant, and equipment (“PP&E”) is depleted using total proved reserves and future
development costs, as determined by the Company’s independent qualified reserve evaluators. This evaluation of
proved and proved plus probable reserves is prepared in accordance with the reserves definitions as set up by the
Canadian Securities Administrators in National Instrument 51-101 - Standards of Disclosure for Oil and Gas Activities
and the Canadian Oil and Gas Evaluation Handbook (“COGEH”). Future profit (loss) can be affected as a result of the
methodology of depleting the net carrying value of property, plant and equipment.
Reserves (proved and probable) are also used in measuring the fair value less costs of disposal (“FVLCD”) of property,
plant and equipment for impairment calculations and for determining the fair value of PP&E acquired in a business
combination. The reserve estimates are based on production forecasts, future production costs, forecasted commodity
prices and future development costs. Reserves also impact the assessment of the commercial viability and technical
feasibility of an exploration project which impacts the decision to transfer exploration and evaluation assets (“E&E”) to
PP&E.
KELT EXPLORATION LTD.
44
2023 ANNUAL REPORT
Although reasonable effort is made to ensure that reserve estimates are accurate, reserve estimation can be impacted
by subjective decisions, new geological or production information and a changing environment. In addition, revisions
to reserve estimates can arise from changes in forecast oil and gas prices and reservoir performance. Such revisions
can be either positive or negative.
Exploration and evaluation assets
Judgment is required to determine the level at which E&E is assessed for impairment. The carrying value of E&E assets
is assessed for overall impairment at the operating segment level and on a specific identification basis prior to
transferring E&E assets to PP&E. The decision to transfer assets from E&E to PP&E requires judgment as it is based
on estimated proved reserves, which are used, in part, to determine a project’s technical feasibility and commercial
viability and could be impacted by a shift in demand as global energy markets transition to a lower carbon-based
economy.
Determination of Cash Generating Units (“CGUs”)
The determination of CGUs requires judgment in defining a group of assets that generate cash inflows that are largely
independent of the cash inflows from other assets or groups of assets. CGUs are determined by similar geological
structure, shared infrastructure, geographical proximity, commodity type, similar exposure to market risks and
materiality. As at December 31, 2023, the Company has one CGU for its assets located in the province of British
Columbia and one CGU for its assets located in the province of Alberta.
Impairment of non-financial assets
Significant judgment is required to assess non-financial assets, namely E&E and PP&E, for indicators of impairments.
Management must first determine whether indicators of impairment exist that suggest the carrying value may not be
recoverable through the asset’s continued use or sale.
Significant assumptions used to estimate the recoverable amount of PP&E in the impairment test include proved and
probable reserve volumes, commodity price forecasts, future production volumes, future production costs, future
development capital expenditures and the discount rate.
Management calculates the recoverable amount of each CGU based on its FVLCD, using an after-tax discounted cash
flow analysis derived from proved plus probable reserves. Reserve estimates and expected future cash flows from
production of reserves are subject to measurement uncertainty as discussed above and are subject to variability due
to changes in forecasted commodity prices. In addition, the present value of forecast future cash flows is highly sensitive
to the discount rate. Judgment is required to determine an appropriate discount rate that reflects current market
assessments of the time value of money and the risks specific to the asset.
Decommissioning obligations
The Company estimates the decommissioning obligations for oil and gas wells and their associated production facilities
and infrastructure. In most instances, dismantling of assets and remediation occurs many years into the future. The
future value of the decommissioning obligation can fluctuate in response to many factors including changes to legal
requirements, the emergence of new restoration techniques, experience at other production sites, changes to the risk-
free discount rate and changes to inflation. The expected timing and amount of expenditure may be adjusted in
response to revisions in reserves or changes in laws and regulations and could be impacted by the rate the markets
transition to a lower carbon-based economy. Judgments include the most appropriate discount rate to use, which
management has determined to be a risk-free rate. Key assumptions are disclosed in note 8 of these financial
statements.
Kelt estimates abandonment and reclamation costs based on a combination of publicly available industry benchmarks
and internal site specific information. For producing wells and facilities, the expected timing of settlement is estimated
based on the proved plus probable period to abandonment for each depletable area, as per the independent reserve
report. For non-producing wells, the expected timing of settlement is estimated to be between six and ten years, unless
the timing to abandon and reclaim a specific well site or facility is known based on budgeted expenditures.
KELT EXPLORATION LTD.
45
2023 ANNUAL REPORT
Deferred income taxes
The liability method is used for calculating deferred income taxes. Tax interpretations, regulations and legislation in the
jurisdictions in which the Company operates are subject to change. As such, deferred income taxes are subject to
measurement uncertainty.
Share based compensation
The fair value method of accounting is used for its long-term incentive plans, which include an Incentive Stock Option
Plan and a Restricted Share Unit Plan. Judgments include which valuation model is most appropriate for the grant of
the award to estimate its fair value. Estimates and assumptions are then used in the valuation model to determine fair
value.
For stock options, the Black-Scholes option pricing model is used, which requires that management make assumptions
for the expected life of the option, the anticipated volatility of the share price over the life of the option, the risk-free
interest rate for the life of the option, and the number of options that will ultimately vest. These assumptions are
disclosed in note 10 of these financial statements.
The fair value of restricted share units is estimated based on the volume weighted average trading price (“VWAP”) on
the TSX over three trading days immediately prior to the date of grant. Judgment is also required to estimate the rate
of forfeiture, or number of restricted share units that will ultimately vest.
3. MATERIAL ACCOUNTING POLICIES
Joint interests
A portion of the Company’s exploration, development and production activities is conducted jointly with others through
unincorporated joint ventures. These financial statements reflect only the Company’s proportionate interest of these
jointly controlled assets and the proportionate share of the relevant revenue and related costs.
Foreign currency translation
The financial statements are presented in Canadian dollars, which is the Company’s functional and presentation
currency. Transactions in U.S. dollars are initially recorded at the exchange rate in effect at the time of the transactions.
Monetary assets and liabilities denominated in U.S. dollars are translated to Canadian dollars using the closing
exchange rate at the Consolidated Statement of Financial Position date. The resulting exchange rate differences are
included in the Consolidated Statement of Net Income and Comprehensive Net Income.
Principles of consolidation
As at December 31, 2023, the Company has one wholly-owned subsidiary, Kelt LNG. Subsidiaries are entities
controlled by the Company. Control exists when there is power to govern the financial and operating policies of an
entity to obtain benefits from its activities. The consolidated financial statements include the accounts of Kelt and Kelt
LNG. The financial statements of Kelt LNG are prepared for the same reporting period as Kelt using uniform accounting
policies. Subsidiaries are consolidated from the date of acquisition of control and continue to be consolidated until the
date there is a loss of control. All intercompany balances, transactions, revenue and expenses are eliminated on
consolidation.
Financial instruments
Financial assets and liabilities are recognized when the Company becomes a party to the contractual provisions of the
instrument. Financial assets are derecognized when the rights to receive cash flows from the assets have expired or
have been transferred and all risks and rewards of ownership have substantially transferred.
Financial assets and liabilities are offset and the net amount is reported in the Consolidated Statement of Financial
Position when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on
a net basis, or realize the asset and settle the liability simultaneously.
At initial recognition, financial instruments are measured at fair value plus any directly attributable transaction costs.
Subsequent to initial recognition, financial instruments are measured at amortized cost or at fair value through profit or
KELT EXPLORATION LTD.
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2023 ANNUAL REPORT
loss (“FVTPL”) depending on the purpose for which the instruments were acquired.
ii) Derivative financial instruments
The Company may use derivative financial instruments for risk management purposes. All derivatives have been
classified at FVTPL. Financial instruments are included on the Consolidated Statement of Financial Position within
derivative financial instruments and are classified as current or non-current based on the contractual terms specific to
the instrument. Gains and losses on re-measurement of derivatives are included in profit or loss in the period in which
they arise.
Embedded derivatives are separated from the host contract and accounted for separately if the economic
characteristics and risks of the host contract and the embedded derivative are not closely related. Gains and losses on
re-measurement of embedded derivatives are included in profit or loss in the period in which they arise.
Physical commodity contracts are entered into and held for the purpose of receipt or delivery of non-financial items.
These contracts are not considered to be derivative financial instruments and have not been recorded at fair value on
the statement of financial position, unless it is determined that an embedded derivative exists within the contract.
Realized gains or losses from physically settled commodities sales contracts are recognized in petroleum and natural
gas sales as the contracts are settled.
Exploration and evaluation assets and property, plant and equipment
i) Recognition and measurement
Pre-license costs
Costs incurred prior to acquiring the legal rights to explore an area are charged directly to profit or loss as exploration
expense in the period incurred. The Company did not incur pre-license costs in the current or prior period.
Exploration and evaluation assets
All costs directly associated with the exploration and evaluation of petroleum and natural gas reserves are initially
capitalized. Exploration and evaluation costs include unproved property acquisition costs such as undeveloped land
and mineral leases, geological and geophysical costs, and costs associated with exploratory drilling and appraisals.
Such costs are not subject to depletion or depreciation until they are reclassified from E&E to PP&E.
The costs are accumulated by exploration area pending determination of technical feasibility and commercial viability.
The technical feasibility and commercial viability is considered to be achieved when a sufficient amount of economically
recoverable reserves relative to the estimated potential resources is estimated to exist, combined with available
infrastructure to support commercial development. Prior to being transferred to PP&E, E&E costs are first tested for
impairment. If proved/probable reserves have not been established through exploration and evaluation activities, and
there are no future plans for activity in that exploration area, then the costs are determined to be impaired and the
amounts are expensed to the Consolidated Statement of Net Income and Comprehensive Net Income.
Property, plant and equipment
Property, plant, and equipment primarily consists of petroleum and natural gas development and production assets,
and is measured at cost less accumulated depletion and depreciation and accumulated impairment losses. These costs
include property acquisitions, development drilling, completion, gathering and
infrastructure, estimated
decommissioning costs and transfers from E&E.
ii) Subsequent costs
Costs incurred subsequent to the determination of technical feasibility and commercial viability and the costs of
replacing components of equipment are recognized as property, plant and equipment only when they increase the
future economic benefits embodied in the specific asset to which they relate. All other expenditures are expensed as
incurred. Such capitalized amounts generally represent costs incurred in developing proved and/or probable reserves
and bringing in or enhancing production from such reserves. The carrying amount of any replaced or sold component
is derecognized.
KELT EXPLORATION LTD.
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2023 ANNUAL REPORT
The gain or loss from the sale of property, plant and equipment is recognized in the Consolidated Statement of Net
Income and Comprehensive Net Income. In addition, agreements in which the Company cedes a portion of its working
interest to a third-party are generally considered to be disposals of property, plant and equipment, potentially resulting
in a gain or loss on disposition.
Exchanges of property, plant and equipment are measured at fair value unless the exchange transaction lacks
commercial substance or the fair value of neither the asset received nor the asset given up is reliably measurable.
Unless the fair value of the asset received is more clearly evident, the cost of the acquired asset is measured at the
fair value of the asset given up. Where fair value is not used, the cost of the acquired asset is measured at the carrying
amount of the asset given up. The gain or loss on derecognition of the asset given up is recognized in profit or loss.
Property, plant and equipment is derecognized upon disposal or when no future economic benefits are expected to
arise from the continued use of the asset. Any gain or loss arising on derecognition of the asset (calculated as the
difference between the net disposal proceeds and the carrying value of the asset) is included in profit or loss in the
period in which the item is derecognized.
iii) Depletion and depreciation
Development and production costs are accumulated on an area basis (“depletion units”). The net carrying value of each
depletion unit is depleted using the unit of production method by reference to the ratio of production in the year to the
related proved reserves, taking into account estimated future development costs necessary to bring those reserves into
production. Proved reserves and future development cost estimates are reviewed by independent reserve engineers
at least annually. Where significant components of development and production (“D&P”) assets have different useful
lives, they are accounted for and depreciated as separate items of property, plant and equipment.
iv) Major maintenance expenditures
The costs of major maintenance associated with turnaround activities that benefit future years of operations are
capitalized and depreciated over the period to the next major maintenance turnaround. All other maintenance costs are
expensed as incurred.
Impairment of assets
Non-financial assets
The carrying value of non-financial assets, including PP&E and E&E, is reviewed on a quarterly basis to determine
whether there is any indication of impairment. For the purpose of impairment testing, assets are grouped together into
the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash
inflows of other assets or CGUs. The recoverable amount of an asset or a CGU is the greater of its value in use and
its FVLCD. E&E assets are assessed for overall impairment at the operating segment level and individual E&E assets
are assessed for impairment prior to transferring to PP&E.
FVLCD is defined as the amount obtainable from the sale of an asset or cash generating unit in an arm’s length
transaction between knowledgeable, willing parties, less the costs of disposal. FVLCD is calculated by reference to the
after-tax future cash flows expected to be derived from production of proved plus probable reserves, less estimated
selling costs. The estimated after-tax future cash flows are discounted to their present value using a discount rate that
reflects current market assessments of the time value of money and the risks specific to the asset. Value in use is
generally computed by reference to the present value of the future cash flows expected to be derived from production
of proved and probable reserves. The timing of when the global energy markets transition to a lower carbon-based
economy is highly uncertain and may impact the FVLCD.
An impairment loss is recognized if the carrying amount of an asset or its CGU exceeds its estimated recoverable
amount. Impairment losses are recognized in the Consolidated Statement of Net Income and Comprehensive Net
Income. Impairment losses recognized in respect of CGUs are allocated to reduce the carrying amounts of the assets
in the CGU on a pro rata basis.
Financial assets
A financial asset measured at amortized cost is assessed at each reporting date using an expected credit loss (“ECL”)
KELT EXPLORATION LTD.
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2023 ANNUAL REPORT
model to determine whether it is impaired. The simplified approach is applied to calculating the ECLs, as prescribed by
IFRS 9, which permits the use of the lifetime expected loss provision for all trade receivables. A combination of historical
and forward looking information is used to determine the appropriate loss allowance provision. ECLs are a probability-
weighted estimate of all possible default events over the expected life of the financial asset which is based on credit
quality since initial recognition.
All impairment losses are recognized in profit or loss. An impairment loss is reversed if the reversal can be related
objectively to an event occurring after the impairment loss was recognized. For financial assets measured at amortized
cost, the reversal is recognized in profit or loss.
Provisions and contingencies
Provisions are recognized when there is a present obligation as a result of a past event, if it is probable that an outflow
of resources will be required and if a reliable estimate can be made of the amount of the obligation. Provisions are
measured based on the best estimate of discounted future cash outflows.
Decommissioning obligations
The Company’s activities give rise to dismantling, decommissioning and site remediation activities. An obligation is
accrued for the estimated cost of site restoration and the corresponding amount is included in the cost of the assets to
which the obligations relate. Decommissioning obligations are measured at the present value of the estimated
expenditures required to settle the present obligation at the Consolidated Statement of Financial Position date.
Subsequent to the initial measurement, the obligation is adjusted at the end of each period to reflect the passage of
time and changes in the estimated future cash flows underlying the obligation, changes to the expected timing of site
restoration, as well as any changes in the risk-free discount rate and inflation rate. Increases in the provision due to the
passage of time are recognized as a financing expense in the Consolidated Statement of Net Income and
Comprehensive Net Income whereas increases/decreases due to changes in the estimated future cash flows are
capitalized. Actual costs incurred upon settlement of the decommissioning obligations are charged against the provision
to the extent the provision is established.
Contingencies
Contingent liabilities are possible obligations whose existence will only be confirmed by future events not wholly within
the control of the Company. When a contingency is substantiated by confirming events, can be reliably measured and
will likely result in an economic outflow, a liability is recognized in the financial statements as the best estimate required
to settle the obligation. A contingent liability is disclosed where the existence of an obligation will only be confirmed by
future events, or where the amount of a present obligation cannot be measured reliably or will likely not result in an
economic outflow.
Contingent assets are only disclosed when the inflow of economic benefits is probable. When the economic benefit
becomes virtually certain, the asset is no longer contingent and is recognized in the financial statements.
Income taxes
Total income tax expense is composed of both current and deferred income taxes.
Current tax is the expected tax payable on taxable income for the year, using tax rates enacted or substantively enacted
at the reporting date, and any adjustment to tax payable in respect of previous years.
The liability method is used for accounting for income taxes. Under this method, deferred income tax is recognized on
the temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for taxation purposes. Deferred taxes are allocated between income and equity depending on the
nature of the account balance or transaction that gives rise to the temporary difference.
Deferred tax liabilities are recognized for taxable temporary differences. Deferred tax assets are recognized for
deductible temporary differences, unused tax losses and unused tax credits only if it is probable that sufficient future
taxable income will be available to utilize those temporary differences and losses and at the time of the transaction,
does not give rise to equal taxable and deductible temporary differences. Such deferred tax liabilities and assets are
not recognized if the temporary difference arises from goodwill or from the initial recognition of an asset or liability in a
KELT EXPLORATION LTD.
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2023 ANNUAL REPORT
transaction which is not a business combination and, at the time of the transaction, affects neither accounting profit nor
taxable income. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences
when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. The
effect of a change in income tax rates on deferred tax assets and liabilities is recognized in the Consolidated Statement
of Net Income and Comprehensive Net Income in the period that the change occurs. Deferred tax assets and liabilities
are recorded on a non-discounted basis.
Revenue recognition
Revenue is recognized at a point in time when control of the product has been transferred to the customer and
performance obligations have been satisfied. This is generally met when the customer obtains legal title to the product
and physical delivery at a delivery point has taken place. Revenue is measured based on the consideration specified
in the contracts with the customers.
The Company applies a practical expedient and does not disclose quantitative or qualitative information on remaining
performance obligations that have an original duration of one year or less. A practical expedient is applied that allows
any incremental costs of obtaining contracts with customers to be recognized as an expense when incurred rather than
being capitalized.
Arrangements are evaluated with third parties and partners to determine if a principal or agent relationship exists. In
making this evaluation, management considers if it maintains control of the product, which is indicated by the primary
responsibility for the delivery of the product, having the ability to establish prices or having inventory risk. If management
determines that it does not maintain control of the product, then revenue is recognized net of fees, if any, realized by
the party from the transaction.
Royalty income is recognized as it accrues in accordance with the terms of the overriding royalty agreements.
Share based compensation
The Company has an Incentive Stock Option Plan and Restricted Share Unit Plan (collectively, the “Plans”). Pursuant
to the Plans, stock options and restricted share units (“RSUs”) may be granted to officers, directors, employees and
certain consultants, which call for settlement through the issuance of new common shares.
The fair value method is applied to the accounting for stock options, whereby each tranche in an award is valued
separately on the grant date using the Black-Scholes option pricing model. The fair value of RSUs is calculated based
on the volume weighted average trading price over three trading days immediately prior to the date of grant. The total
fair value associated with stock options and RSUs is recognized over the service period using graded vesting, as share
based compensation expense with a corresponding increase to contributed surplus. An estimated forfeiture rate is
applied against the total fair value on the grant date and is adjusted to reflect the actual number of options that ultimately
vest each period. The consideration received on the exercise of stock options is recorded as an increase in
shareholders’ capital, together with the corresponding amounts previously recognized in contributed surplus.
Earnings per share amounts
Basic net income per common share is calculated by dividing net income for the period attributable to common
shareholders by the weighted average number of common shares outstanding during the period. Common shares
issued as part of the consideration transferred in a business combination or common control transaction are included
in the weighted average number of common shares starting from the acquisition date.
Diluted net income per common share is calculated giving effect to the potential dilution that would occur if all
outstanding “in-the-money” stock options were exercised or converted to common shares. The weighted average
number of common shares outstanding during the period is adjusted by the incremental number of shares calculated
in accordance with the treasury stock method. The treasury stock method assumes that the proceeds received from
the exercise of all potentially dilutive instruments are used to repurchase common shares at the volume weighted
average market price during the period.
KELT EXPLORATION LTD.
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2023 ANNUAL REPORT
4. PROPERTY ACQUISITIONS AND DISPOSITIONS
The following table summarizes the fair value of net assets acquired pursuant to property acquisitions during the year
ended December 31, 2023 and the prior year ended December 31, 2022:
Acquisitions
Exploration and evaluation assets
Property, plant and equipment
Decommissioning obligations
Total assets (liabilities) acquired
Consideration
Cash consideration
Non-cash consideration
Total consideration
Dispositions
Exploration and evaluation assets
Property, plant and equipment
Decommissioning obligations
Carrying value of net (assets) liabilities disposed
Consideration
Cash consideration, after closing adjustments
Non-cash consideration
Total consideration
Gain (loss) on sale of assets
December 31, 2023 December 31, 2022
150
7,137
(265)
7,022
(102)
(6,920)
(7,022)
2,479
2,273
(1,290)
3,462
(933)
(2,529)
(3,462)
December 31, 2023 December 31, 2022
-
(6,920)
-
(6,920)
50
6,920
6,970
50
(2,513)
(331)
78
(2,766)
41
2,529
2,570
(196)
In the fourth quarter of 2023, the Company closed a non-cash property plant and equipment swap transaction for $6.5
million.
5. EXPLORATION AND EVALUATION ASSETS
The following table reconciles movements of exploration and evaluation assets:
Balance, beginning of year
Additions
Property acquisitions [note 4]
Property dispositions [note 4]
Transfers to property, plant and equipment
Exploration and evaluation expense
Balance, end of year
December 31, 2023 December 31, 2022
16,843
6,115
150
-
(4,533)
(1,413)
17,162
29,529
7,061
2,479
(2,513)
(5,229)
(14,484)
16,843
During the year ended December 31, 2023, exploration and evaluation expense was approximately $1.4 million
(December 31, 2022 – $14.5 million).
The Company concluded that there are no indicators of potential impairment of its E&E assets at December 31, 2023.
KELT EXPLORATION LTD.
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2023 ANNUAL REPORT
6. PROPERTY, PLANT AND EQUIPMENT
Net carrying value
Development and production assets
Right-of-use assets
Corporate assets
Total net carrying value of property, plant and equipment
December 31, 2023 December 31, 2022
1,164,248
1,589
575
1,166,412
995,464
1,189
631
997,284
The following table reconciles movements of property, plant and equipment during the year:
Property, plant and equipment, at cost
D&P Assets
Balance at December 31, 2021
Additions
Property acquisitions
Property dispositions
Change in decommissioning obligations
Transfers from E&E
Balance at December 31, 2022
Additions
Property acquisitions
Property dispositions
Change in decommissioning obligations
Transfers from E&E
1,475,797
308,759
2,273
(331)
(26,884)
5,229
1,764,843
275,724
7,137
(6,920)
12,676
4,533
Corporate
Assets
ROU Assets
Total PP&E
6,325
828
2,792
789
1,484,914
310,376
-
-
-
-
-
-
-
-
7,153
755
3,581
1,036
-
-
-
-
-
-
-
-
2,273
(331)
(26,884)
5,229
1,775,577
277,515
7,137
(6,920)
12,676
4,533
Balance at December 31, 2023
2,057,993
7,908
4,617
2,070,518
Accumulated depletion, depreciation and
impairment
D&P Assets
Corporate
Assets
ROU Assets
Total PP&E
Balance at December 31, 2021
Depletion and depreciation expense
Balance at December 31, 2022
Depletion and depreciation expense
Balance at December 31, 2023
654,780
114,599
769,379
124,366
893,745
5,547
975
6,522
811
7,333
1,783
609
2,392
636
3,028
662,110
116,183
778,293
125,813
904,106
Future capital costs required to develop proved reserves in the amount of $1,768.4 million (December 31, 2022 –
$1,210.1 million) are included in the depletion calculation for development and production assets.
Based on its assessment as of December 31, 2023, the Company determined that there were no indicators of
impairment for the Alberta CGU and BC CGU and there are no previous impairments available for reversals.
7. BANK DEBT
At December 31, 2023 the Company has a $100.0 million credit facility available from a syndicate of financial
institutions. As at December 31, 2023, there were no borrowings outstanding under the Credit Facility, with outstanding
letters of credit of $2.6 million. The Credit Facility may be extended annually at Kelt’s option and subject to lender
approval, with a 364 day term-out period if not renewed.
Repayments of principal are not required provided that the borrowings under the facility do not exceed the authorized
borrowing amount. The credit facility is subject to semi-annual redeterminations on or before June 30 and November
30 of each year. There are no financial covenants under the Credit Facility and Kelt is in compliance with all other
covenants. Covenants include industry standard positive and negative covenants including reporting requirements,
permitted indebtedness, permitted risk management activities, permitted encumbrances and other standard business
KELT EXPLORATION LTD.
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2023 ANNUAL REPORT
operating covenants. Security is provided for by a demand debenture with a floating charge over all assets in the
amount of $800.0 million.
Interest is payable monthly for borrowings through direct advances. Interest rates fluctuate based on the prime rate
plus the applicable margin. The applicable margin ranges from 175 basis points to 575 basis points depending upon
the Net Debt to Cash Flow ratio of between less than 0.5 times to greater than five times. Under the Credit Facility,
borrowings by bankers’ acceptances are also available. Stamping fees fluctuate based on a pricing grid and range from
2.75% to 6.75%, depending upon the Net Debt to Cash Flow ratio of between less than 0.5 times to greater than five
times.
8. DECOMMISSIONING OBLIGATIONS
Decommissioning obligations arise as a result of the Company’s net ownership interests in petroleum and natural gas
assets including well sites, processing facilities and infrastructure. The following table provides a reconciliation of the
carrying amount of the obligation associated with the retirement of oil and gas properties:
December 31, 2023 December 31, 2022
Balance, beginning of year
Obligations incurred
Obligations acquired
Obligations disposed
Obligations settled
Changes in discount rate
Changes in inflation rate
Revisions to estimates (1)
Accretion expense
Balance, end of year
Decommissioning obligations – current
Decommissioning obligations – non-current
Key assumptions
Risk free rate
Inflation rate
88,632
1,927
265
-
(4,538)
6,308
-
4,441
2,880
99,915
4,360
95,555
3.0%
2.0%
115,053
2,708
1,290
(78)
(3,200)
(42,428)
8,724
4,112
2,451
88,632
2,187
86,445
3.3%
2.0%
(1) Relates to changes in cost estimates of future obligations, changes in anticipated settlement dates, and an increase of 10% in 2022 to the underlying
cost estimates.
The underlying cost estimates are derived from a combination of published industry benchmarks and site specific
information. As at December 31, 2023 the undiscounted amount of the estimated cash flows required to settle the
obligation is $131.2 million (December 31, 2022 – $126.4 million) and is expected to be incurred over the next 50 years.
The undiscounted amount of the estimated future cash flows required to settle the obligation is $242.3 million at
December 31, 2023 (December 31, 2022 – $247.0 million). The inflated future cost estimates are discounted based on
a risk-free rate to determine the carrying amounts presented in the table above.
Accretion of the decommissioning obligation due to the passage of time is presented within financing expenses in the
Consolidated Statement of Net Income and Comprehensive Net Income (note 14).
KELT EXPLORATION LTD.
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2023 ANNUAL REPORT
9. LEASE LIABILITY
Balance, beginning of year
Additions
Interest expense
Lease payments
Balance, end of year
Lease liability – current
Lease liability – non-current
December 31, 2023 December 31, 2022
1,048
1,036
96
(723)
1,457
1,125
332
1,008
789
46
(795)
1,048
505
543
Lease liabilities include commercial office space, field equipment and vehicle leases. The weighted average discount
rate for new leases entered in the period ended December 31, 2023 was 10.0% (December 31, 2022 – 9.0%). Payments
under short-term leases were $12.9 million for the year ended December 31, 2023 (December 31, 2022 – $9.4 million),
which primarily related to short term drilling rig and field equipment rentals.
10. SHARE CAPITAL
Authorized
The Company is authorized to issue an unlimited number of common shares and an unlimited number of preferred
shares, each without par value.
Issued and outstanding
The following table summarizes the change in common shares issued and outstanding. There are no preferred shares
issued or outstanding as of December 31, 2023 (December 31, 2022 – nil).
Balance at December 31, 2021
Issued on exercise of stock options
Transfer from contributed surplus on exercise of stock options
Released upon vesting of restricted share units
Balance at December 31, 2022
Issued on exercise of stock options
Transfer from contributed surplus on exercise of stock options
Released upon vesting of restricted share units
Balance at December 31, 2023
Stock options
Number of
Shares (000s)
189,164
2,802
-
48
192,014
2,145
-
347
Amount
($ thousands)
1,144,596
12,928
4,968
158
1,162,650
8,403
3,429
983
194,506
1,175,465
The Incentive Stock Option Plan (the “Option Plan”) includes stock options which may be granted to directors, officers,
employees and certain consultants. The stock options granted pursuant to the Option Plan are to be settled through
the issuance of new common shares of the Company which vest in equal tranches over a three year period and have
a maximum term of five years to expiry.
KELT EXPLORATION LTD.
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2023 ANNUAL REPORT
The following table summarizes the change in stock options outstanding:
Balance at December 31, 2021
Granted
Exercised (1)
Forfeited
Expired
Balance at December 31, 2022
Granted
Exercised (1)
Forfeited
Expired
Balance at December 31, 2023
Number of
Options (000s)
Average Exercise
Price ($/share)
10,523
3,528
(2,802)
(333)
(384)
10,532
2,005
(2,145)
(428)
(267)
9,697
3.52
5.40
4.61
4.55
6.77
3.71
4.94
3.92
5.53
7.35
3.74
(1) The average share price on the date stock options were exercised during the year ended December 31, 2023 was $6.54 per common share ($6.94
per common share on average during the year ended December 31, 2022).
The total fair value of each option granted is estimated on the date of grant using the Black-Scholes option pricing
model with weighted average assumptions as follows:
Risk free interest rate
Expected life (years)
Expected volatility (1)
Expected dividend yield
Expected forfeiture rate
Fair value of options granted during the year ($/share)
Year ended December 31
2023
3.32%
3.4
65.8%
0.0%
5.1%
2.36
2022
2.00%
3.5
76.1%
0.0%
4.8%
2.87
(1) The expected volatility for options granted is estimated based on Kelt’s historical volatility over the expected life.
The following table summarizes information regarding stock options outstanding at December 31, 2023:
Number of
options
outstanding
(000s)
Weighted
average
remaining
term (years)
Weighted average
exercise price for
options outstanding
($/share)
Number of
options
exercisable
(000s)
Weighted average
exercise price for
options
exercisable
($/share)
1,579
3,087
4,676
355
9,697
1.3
1.7
3.5
4.5
2.6
1.00
2.77
5.06
7.00
3.74
1,579
2,339
988
28
4,934
1.00
2.77
5.26
6.33
2.72
Range of
exercise prices
per common share
$0.00 to $2.00
$2.01 to $4.00
$4.01 to $6.00
$6.01 to $8.00
Total
Restricted share units
The restricted share unit plan includes restricted share units (“RSUs”) that may be granted to officers, employees and
certain consultants. The RSUs granted under the RSU Plan are to be settled through the issuance of new common
shares upon vesting. RSUs vest in two equal tranches with the first half vesting after two years and the second half
after three years.
KELT EXPLORATION LTD.
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2023 ANNUAL REPORT
The following table summarizes the change in RSUs outstanding:
Balance at December 31, 2021
Granted
Released upon vesting
Forfeited
Balance at December 31, 2022
Granted
Released upon vesting
Forfeited
Balance at December 31, 2023
Number of
RSUs (000s)
759
200
(48)
(38)
873
1,284
(347)
(68)
1,742
The total fair value associated with stock options and RSUs is recognized over the service period using graded vesting,
resulting in share based compensation expense as follows:
Stock options
Restricted share units
Total share based compensation expense
Per share amounts
Year ended December 31
2023
5,359
2,503
7,862
2022
5,902
1,112
7,014
The table below summarizes the weighted average number of common shares outstanding used in the calculation of
basic and diluted net income per common share:
(000s of common shares)
Weighted average common shares outstanding, basic
Effect of dilution from stock options and RSUs
Weighted average common shares outstanding, diluted
Year ended December 31
2023
193,116
3,947
197,063
2022
191,101
4,355
195,456
The treasury stock method is used to determine the dilutive effect of stock options and RSUs. Under this method, only
“in-the-money” dilutive instruments impact the calculation of diluted net income per common share.
11. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
Financial instruments of the Company include cash and cash equivalents, accounts receivable and accrued sales,
deposits, accounts payable and accrued liabilities, derivative financial instruments, lease liabilities and bank debt. The
Company is exposed to financial risks arising from its financial assets and liabilities that include credit and liquidity risk
in addition to the market risks associated with commodity prices, and interest and foreign exchange rates. Net income,
cash flows and the fair value of financial assets and liabilities may fluctuate due to movement in market prices or as a
result of the Company’s exposure to credit and liquidity risks.
KELT EXPLORATION LTD.
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2023 ANNUAL REPORT
The objective of the Company’s risk management is to manage and control market risk exposures within acceptable
limits, while maximizing long-term returns. All such transactions are conducted in accordance with the Company’s risk
management policy that permits management to enter into commodity price agreements, provided that:
the contracts are not entered into for speculative purposes;
i)
ii) the total notional quantity hedged, at the time of entering into the contract, does not exceed 65% of average
daily production; and
iii) the contracted term does not exceed 36 months.
Commodity price risk
Inherent to the business of producing oil and gas, cash provided by operating activities is subject to commodity price
risk. Commodity price risk is the risk that future cash flows will fluctuate as a result of changes in commodity prices.
Commodity prices are impacted by economic events that dictate the levels of supply and demand as well as the
currency exchange rate relationship between the Canadian and U.S. dollar.
As of December 31, 2023, the following commodity price derivative financial instrument contracts are outstanding:
Natural gas derivative financial instrument contracts
Contract Type (1)
Notional Volume
Contract Price $/MMBtu
Remaining Term
NYMEX-AECO 7A basis swap 10,000 MMBtu/d
Monthly AECO basis calculated at
30% of the floating monthly
NYMEX price
NYMEX-AECO 7A basis swap 10,000 MMBtu/d
NYMEX less USD$1.06
NYMEX-AECO 5A basis swap 30,000 MMBtu/d
NYMEX less USD$1.10
NYMEX-AECO 7A basis swap 10,000 MMBtu/d
NYMEX less USD$1.06
(1) NYMEX Henry Hub (“NYMEX”)
Jan 24 – Oct 24
Jan 24 – Oct 24
Nov 24 – Oct 25
Nov 24 – Oct 25
Subsequent to December 31, 2023, the Company paid $0.2 million to unwind 10,000 MMBtu/d of its NYMEX less
USD$1.06 to AECO 7A basis swap contract for April to October 2025.
Crude oil derivative financial instrument contracts
Contract Type (1)
Notional Volume
Contract Price
Remaining Term
WTI fixed price swap
500 bbl/d
CAD$115.00/bbl
Jan 24 – Mar 24
(1) West Texas Intermediate (“WTI”)
Subsequent to December 31, 2023, Kelt entered into the following commodity price derivative financial instrument
contracts:
Crude oil derivative financial instrument contracts
Contract Type (1)
Notional Volume Contract Price
Term
WTI fixed price swap 500 bbl/d
CAD$102.70/bbl Apr 24 – Jun 24
WTI fixed price swap 500 bbl/d
CAD$103.50/bbl Apr 24 – Jun 24
WTI fixed price swap 500 bbl/d
CAD$105.50/bbl Jul 24 – Sep 24
Sold call option
500 bbl/d
CAD$102.70/bbl
Sold call option
500 bbl/d
CAD$103.50/bbl
Sold call option
500 bbl/d
CAD$105.50/bbl
Option exercise and expiration date – Jun 28, 2024
Term if exercised: Jul 24 – Sept 24
Option exercise and expiration date – Jun 28, 2024
Term if exercised: Jul 24 – Sept 24
Option exercise and expiration date – Sep 30, 2024
Term if exercised: Oct 24 – Dec 24
(1) West Texas Intermediate (“WTI”)
KELT EXPLORATION LTD.
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2023 ANNUAL REPORT
Interest rate risk
The Company is exposed to interest rate risk as changes in market interest rates will impact the Credit Facility which
is subject to a floating interest rate. As at December 31, 2023, there were no amounts drawn on the credit facility and
there are no interest rate derivative financial instrument contracts outstanding.
Foreign exchange risk
Kelt is exposed to fluctuations of the Canadian to U.S. dollar exchange rate given realized pricing is directly influenced
by U.S. dollar denominated benchmark pricing and from exposure from certain U.S. dollar denominated marketing
arrangements.
As at December 31, 2023, the following foreign exchange derivative financial instrument contracts are outstanding:
Contract Type
Notional Volume
Contract/Exercise Price
Remaining Term
CAD/USD swap
USD$0.5 million/month
$1.3700 CAD/USD
Jan 24 – Dec 24
CAD/USD swap
USD$2.0 million/month
$1.3790 CAD/USD
Jul 24 – Dec 24
Sold call option
USD$1.0 million/month
$1.3800 CAD/USD
Sold call option
USD$1.0 million/month
$1.3750 CAD/USD
Option exercise date – Dec 24
Term if exercised: Jan 25 – Jun 25
Option exercise date – Dec 24
Term if exercised: Jan 25 – Dec 25
CAD/USD swap
USD$1.0 million/month
$1.3620 CAD/USD
Jan 25 – Dec 25
Gains and losses on derivative financial instrument contracts
The table below summarizes realized and unrealized gains (losses) on derivative financial instrument contracts:
Realized gain (loss)
Derivative financial instrument contracts
Natural gas embedded derivative
Total realized gain (loss)
Unrealized gain (loss)
Derivative financial instrument contracts
Natural gas embedded derivative
Total unrealized gain (loss)
Loss on derivative financial instruments
Fair value measurements
Year ended December 31
2022
2023
11,490
3,567
15,057
(15,416)
(8,389)
(23,805)
(8,748)
(60,633)
4,124
(56,509)
15,146
8,389
23,535
(32,974)
The Company classifies fair value measurements using a hierarchy that reflects the significance of the inputs used in
making the measurements. The Company maximizes the use of observable inputs when preparing calculations of fair
value, where possible. Assessment of the significance of a particular input to the fair value measurement requires
judgment and may affect the placement within the fair value hierarchy. The fair value hierarchy has the following levels:
Level 1 - Values are based on unadjusted quoted prices available in active markets for identical assets or liabilities
as of the reporting date.
Level 2 - Values are based on inputs, including quoted forward prices for commodities, time value and volatility
factors, which can be substantially observed or corroborated in the marketplace. Prices in Level 2 are either directly
or indirectly observable as of the reporting date.
Level 3 - Values are based on prices or valuation techniques that are not based on observable market data.
The fair value of cash and cash equivalents, accounts receivable and accrued sales, deposits, accounts payable and
KELT EXPLORATION LTD.
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2023 ANNUAL REPORT
accrued liabilities approximate their carrying value due to the short term to maturity of these instruments. Bank debt
bears interest at a floating market rate and accordingly the fair market value of bank debt approximates the carrying
amount. Derivative financial instruments are classified as Level 2.
The fair value of financial assets and liabilities, excluding working capital, is attributable to the following fair value
hierarchies:
Balance as at December 31, 2023
Gross
Netting(1)
Net CV
Level 1
Level 2
Level 3
Carrying Value (“CV”)
Fair Value
Financial assets
Derivative financial instrument
4,544
Financial liabilities
Derivative financial instrument
585
-
-
4,544
585
-
-
4,544
585
-
-
Balance as at December 31, 2022
Gross
Netting(1)
Net CV
Level 1
Level 2
Level 3
Carrying Value (“CV”)
Fair Value
Financial assets
Derivative financial instrument
Natural gas embedded derivative
20,789
8,389
Financial liabilities
Derivative financial instrument
1,414
-
-
-
20,789
8,389
1,414
-
-
-
20,789
8,389
1,414
-
-
-
(1) Financial assets and liabilities are only offset if there is a legal right to offset and intends to settle on a net basis or settle the asset and liability
simultaneously. Kelt offsets derivative contracts assets and liabilities when the counterparty, commodity, currency and timing of settlement are the same.
Credit risk
As at December 31, 2023, the carrying amount of cash and cash equivalents, accounts receivable and accrued sales,
deposits, and derivative financial instruments represent the Company’s maximum credit exposure. Potential losses are
mitigated from this credit exposure by holding cash and cash equivalents with a Canadian chartered bank, and
restricting derivative financial instrument transactions to counterparties that are all investment grade. The remaining
credit risk exposure arises primarily from receivables from oil and gas marketers and joint venture partners.
The composition of accounts receivable is set out in the following table:
Joint venture partners
Oil and gas marketers
GST input tax credits
Derivative financial instrument contracts
Other
Expected credit loss provision
Accounts receivable and accrued sales
December 31, 2023 December 31, 2022
3,803
42,950
2,399
59
3,951
(516)
52,646
11,080
59,271
2,879
1,669
7,160
(984)
81,075
During the year ended December 31, 2023, sales to three oil and gas marketers accounted for approximately 10%,
24%, and 42% of total sales. During the year ended December 31, 2022, sales to four oil and gas marketers accounted
for approximately 31%, 20%, 16% and 14% of total sales. Credit risk from oil and gas marketers is mitigated through
transacting with investment grade rating counterparties in the majority of its oil and gas marketing transactions.
The oil and gas industry has a pre-arranged monthly clearing day for payment of sales from all buyers of oil and natural
gas; this occurs on the 25th day following the month of sale. As a result, production sales are current. All other accounts
receivable are generally contractually due within 30-90 days.
KELT EXPLORATION LTD.
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2023 ANNUAL REPORT
The balance of accounts receivable outstanding for more than 90 days relates primarily to receivables from joint venture
partners. Credit risk related to joint venture receivables is mitigated by obtaining partner approval of significant capital
expenditures prior to expenditure and in certain circumstances may require cash deposits in advance of incurring
financial obligations on behalf of joint venture partners. The Company has the ability to withhold production from joint
venture partners in the event of non-payment or may be able to register security on the assets of joint venture partners.
As of December 31, 2023, the collection risk on outstanding accounts receivable balances is considered low as less
than 1.0% of the accounts receivable balance is outstanding for more than 90 days (December 31, 2022 – less than
1.0%).
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they are due. Financial
obligations include accounts payable, derivative financial instruments, lease liabilities and bank debt. Liquidity risk is
managed through the budgeting process, which sets out expected debt levels, capital expenditures and funds from
operations. In addition, derivative financial instrument contracts may be used to protect future sales. The Board of
Directors approves an annual capital expenditure budget, which is regularly monitored and updated as necessary in
response to changing capital requirements and expected sales.
The capital intensive nature of Kelt’s operations may create a working capital deficiency position during periods with
high levels of capital investment. However, the Company targets to maintain sufficient unused bank credit lines or other
liquidity to satisfy such working capital deficiencies.
The table below outlines a contractual maturity analysis for Kelt’s financial liabilities as at December 31, 2023:
Accounts payable and accrued liabilities
Derivative financial instruments
Lease liability
Total
Capital Management
Within 1 Year
1 to 5 Years More than 5 Years
85,171
585
1,125
86,881
-
-
332
332
-
-
-
-
Total
85,171
585
1,457
87,213
The Company’s capital structure is comprised of shareholders’ capital, bank debt and working capital. The Company’s
objective when managing its capital structure is to maintain financial flexibility in order to meet financial obligations, as
well as finance future capital expenditures relating to exploration, development and acquisition activities.
The Company may increase or decrease capital expenditures including acquisitions and dispositions, issue new
shares, issue new debt or repay existing debt, if any, according to market conditions in order to maintain its financial
flexibility.
Adjusted funds from operations
Management considers adjusted funds from operations as a key capital management measure that demonstrates the
Company’s ability to meet its financial obligations and cash flow available to fund its capital program. Adjusted funds
from operations are not a standardized measure and therefore may not be comparable with the calculation of similar
measures by other entities.
Adjusted funds from operations are calculated as follows:
Cash provided by operating activities
Change in non-cash working capital
Settlement of decommissioning obligations
Adjusted funds from operations
Year ended December 31
2023
283,224
(11,562)
4,538
276,200
2022
306,022
17,770
3,200
326,992
KELT EXPLORATION LTD.
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2023 ANNUAL REPORT
Net debt and net debt to adjusted funds from operations ratio
Management considers net debt and a net debt to adjusted funds from operations ratio as key capital management
measures to assess the Company’s liquidity at a point in time and to monitor its capital structure and short-term
financing requirements. The Company targets a net debt to adjusted funds from operations ratio of less than 2.0 times.
Net debt and a net debt to adjusted funds from operations ratio are not standardized measures and therefore may not
be comparable with the calculation of similar measures by other entities.
Net debt and net debt to adjusted funds from operations ratio are calculated as follows:
Bank debt
Accounts payable and accrued liabilities
Cash and cash equivalents
Accounts receivable and accrued sales
Prepaid expenses and deposits
Net debt
Adjusted funds from operations
Net debt to adjusted funds from operations ratio
December 31, 2023 December 31, 2022
-
85,171
(14,340)
(52,646)
(5,188)
12,997
276,200
0.0
11,300
83,288
(125)
(81,075)
(3,599)
9,789
326,992
0.0
As described in note 7, there are no financial covenants under the Credit Facility agreement and Kelt is in compliance
with all other covenants.
12. INCOME TAXES
Kelt was not required to pay income taxes in the current or prior year. Tax pools and losses available to reduce taxable
income as of December 31, 2023 are estimated to be approximately $780.4 million (December 31, 2022 – $768.4
million).
The following table reconciles income taxes calculated at the weighted average Canadian statutory rate with the actual
provision for deferred income taxes per the Consolidated Statement of Net Income and Comprehensive Net Income:
Net income before income taxes
Canadian statutory tax rate
Expected income tax expense
Increase resulting from:
Non-deductible expenses (1)
Deferred income tax expense
Year ended December 31
2023
114,477
23.3%
26,673
1,830
28,503
2022
210,199
23.7%
49,819
1,622
51,441
(1) Non-deductible expenses primarily include share based compensation.
The Canadian statutory tax rate per the rate reconciliation above represents the weighted average combined federal
and provincial corporate tax rate. The federal corporate tax rate is 15.0% and the annual average provincial tax rate in
Alberta and British Columbia is 8.0% and 12.0% respectively.
KELT EXPLORATION LTD.
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2023 ANNUAL REPORT
The movement in deferred income tax assets and liabilities, without taking into consideration the offsetting balances
within the same tax jurisdiction are as follows:
Deferred income tax asset (liability)
Derivative financial instruments
PP&E and E&E
Decommissioning obligations
Lease liability
Non-capital losses (2)
Net deferred tax liability
Balance at
December 31, 2022
Recognized in
profit and CI(1)
Recognized in
balance sheet
Balance at
December 31, 2023
(6,386)
(122,738)
20,586
194
67,346
(40,998)
5,475
(29,998)
2,618
92
(6,690)
(28,503)
-
-
-
-
-
-
(911)
(152,736)
23,204
286
60,656
(69,501)
Deferred income tax asset (liability)
Derivative financial instruments
PP&E and E&E
Decommissioning obligations
Lease liability
Share and debt issue costs
Reserve from common control transaction
Non-capital losses (2)
Net deferred tax asset (liability)
Balance at
December 31, 2021
Recognized in
profit and CI(1)
Recognized in
balance sheet
Balance at
December 31, 2022
(973)
(101,641)
26,714
186
54
(1)
86,104
10,443
(5,413)
(21,097)
(6,128)
8
(54)
1
(18,758)
(51,441)
-
-
-
-
-
-
-
-
(6,386)
(122,738)
20,586
194
-
-
67,346
(40,998)
(1) Comprehensive income has been abbreviated as “CI”.
(2) The Company’s non-capital losses expire in years 2033 to 2042.
The amount and timing of reversals of temporary differences will be dependent upon a number of factors, including
future capital expenditures and future operating results.
13. PETROLEUM AND NATURAL GAS SALES
Kelt sells its oil, natural gas, and NGLs production under variable price contracts. The transaction price is based on a
benchmark commodity price, adjusted for quality, location or other factors, whereby each component of the pricing
formula (apart from the benchmark commodity price) can be either fixed or variable, depending on the contract terms.
Sales are typically collected on the 25th day of the month following the prior month’s production, with sales being
recorded once the product is delivered to a contractually agreed upon delivery point.
Kelt generates oil treating, gas processing, and other services income from fees charged to third parties provided at
facilities where Kelt has an ownership interest. Marketing revenue is generated from the sales of third-party volumes
related to its oil blending and natural gas operations, with the production being sold under the same terms as the
variable price contracts discussed above.
Where third party marketers are contracted to deliver natural gas using Kelt’s transportation pipeline contracts, title
transfer occurs at a different location than the benchmark commodity price location. For the year end December 31,
2023, gas production sales in relation to these contracts was $13.3 million (December 31, 2022 – $12.4 million).
KELT EXPLORATION LTD.
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2023 ANNUAL REPORT
The following table presents Kelt’s production disaggregated by sales source:
Oil production
Oil treating and other
NGLs production
Gas production
Gas processing and other
Marketing revenue
Total petroleum and natural gas sales
December 31, 2023 December 31, 2022
283,892
975
67,598
122,978
3,321
16,816
495,580
240,195
718
99,973
249,125
1,606
21,741
613,358
Included in accounts receivable at December 31, 2023 is $43.0 million (December 31, 2022 - $59.3 million) of accrued
oil and gas sales related to December 2023 production.
14. FINANCING EXPENSES
Total interest expense
Accretion of decommissioning obligations [note 8]
Total financing expense
15. COMMITMENTS
Year ended December 31
2023
1,310
2,880
4,190
2022
1,460
2,451
3,911
As of December 31, 2023, the Company is committed to future payments under the following agreements:
Firm processing commitments
Firm transportation commitments
2024
33,726
35,187
2025
50,021
36,244
2026
2027
2028 Thereafter
60,301
35,415
60,341
32,482
63,230
461,559
31,059
139,839
Total annual commitments
68,913
86,265
95,716
92,823
94,289
601,398
In 2023, the Company entered into two gas processing agreements with third-party midstream companies. The gas
processing facilities are expected to become operational in mid-2025 and early 2026 resulting in an increase of
approximately $220.0 million to commitments as of December 31, 2023.
16. GENERAL AND ADMINISTRATIVE (“G&A”) EXPENSES
The following table summarizes significant components of G&A expenses:
Salaries and benefits (1)
Other G&A expenses
G&A expenses before recoveries
Overhead recoveries
G&A expense
Year ended December 31
2023
13,349
5,292
18,641
(8,257)
10,384
2022
12,287
5,521
17,808
(7,506)
10,302
(1) Refer to additional information regarding salaries and benefits paid to key management personnel in note 18 of these financial statements.
KELT EXPLORATION LTD.
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2023 ANNUAL REPORT
17. SUPPLEMENTAL CASH FLOW INFORMATION
Changes in non-cash working capital
Accounts receivable and accrued sales
Prepaid expenses and deposits
Accounts payable and accrued liabilities
Change in non-cash working capital
Relating to:
Operating activities
Investing activities
Change in non-cash working capital
Year ended December 31
2023
28,429
(1,589)
1,883
28,723
11,562
17,161
28,723
2022
(38,491)
(1,519)
10,835
(29,175)
(17,770)
(11,405)
(29,175)
During the reporting period, the following cash outlays were made in respect of interest and taxes:
Cash outlays in respect of interest and taxes
Interest and standby fees on bank debt
Taxes (1)
Year ended December 31
2023
1,069
-
2022
1,068
-
(1) Kelt was not required to pay cash income taxes as there were sufficient income tax deductions available to shelter taxable income (note 12).
18. RELATED PARTY TRANSACTIONS
The Company has engaged a law firm where the corporate secretary of Kelt is a partner, and has engaged the services
of a registrar and transfer agent where an officer of Kelt is a director of the company. During the year ended December
31, 2023, the Company incurred $0.4 million (December 31, 2022 – $0.4 million) in disbursements to related parties.
Key management personnel are those persons having authority and responsibility for planning, directing and controlling
the activities of the Company. The following table summarizes compensation paid or payable to officers and directors
of the Company:
Salaries, bonuses and other benefits
Share based compensation
Total compensation
Year ended December 31
2023
3,250
4,056
7,306
2022
2,685
5,728
8,413
During the year ended December 31, 2023, key management personnel were granted 621,000 stock options with an
exercise price of $4.56 per share and 529,000 RSUs. During the year ended December 31, 2022, key management
personnel were granted 1,636,500 stock options with an exercise price of $5.34 per share and 155,00 RSUs.
KELT EXPLORATION LTD.
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2023 ANNUAL REPORT
ABBREVIATIONS
A&D
Acquisitions and dispositions
NGLs
Natural Gas Liquids
AECO
Alberta Energy Company “C” Meter Station of
NGX
Natural Gas Exchange Inc. (Canada)
the NOVA Pipeline System
NGTL
Nova Gas Transmission Line
AT
bbls
After income taxes
barrels
bbls/d
barrels per day
bcf
billion cubic feet
NIT
NOVA Inventory Transfer (“AB-NIT”), being the reference price
at the AECO Hub
NYMEX
New York Mercantile Exchange
OPEC+
The Organization of Petroleum Exporting Countries along with
BOE
barrels of oil equivalent
10 additional oil-producing countries
BOE/d
barrels of oil equivalent per day
P&NG
Petroleum and Natural Gas
BT
Before income taxes
CA$/CAD
Canadian Dollar
Dawn
Gas traded at Union Gas' Dawn Hub in Dawn
Township, Ontario
Q1
Q2
Q3
Q4
First quarter ended March 31st
Second quarter ended June 30th
Third quarter ended September 30th
Fourth quarter ended December 31st
E&E
FDC
G&A
GJ
Exploration and Evaluation
ROACE
Return on average capital employed
Future Development Capital
SBC
Share Based Compensation
General and Administration
SEDAR+
System for Electronic Document Analysis and Retrieval
gigajoules
Station 2
Spectra Energy receipt location
Mbbls
thousand barrels
TSX
Toronto Stock Exchange
MBOE
thousand barrels of oil equivalent
US$/USD United States dollar
Mcf
thousand cubic feet
MD&A
Management’s Discussion and Analysis
MMBtu
million British Thermal Units
MMcf
million cubic feet
MMcf/d
million cubic feet per day
MSW
Mountain sweet blend crude oil
WTI
YTD
1P
2P
West Texas Intermediate
Year to date
Proved reserves
Proved plus probable reserves
CONVERSION OF UNITS
Imperial = Metric
1 acre = 0.4 hectares
2.5 acres = 1 hectare
1 bbl = 0.159 cubic metres
6.29 bbls = 1 cubic metre
1 foot = 0.3048 metres
3.281 feet = 1 metre
1 Mcf = 28.2 cubic metres
0.035 Mcf = 1 cubic metre
1 mile = 1.61 kilometres
0.62 miles = 1 kilometre
1 MMBtu = 1.054 GJ
0.949 MMBtu = 1 GJ
Natural gas is equated to oil on the basis of
6 Mcf = 1 BOE
Sulphur is equated to gas on the basis of
1LT = 10 Mcf (1 BOE = 0.6 LT)
KELT EXPLORATION LTD.
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2023 ANNUAL REPORT
CORPORATE INFORMATION
BOARD OF DIRECTORS
William C. Guinan 8, 9
Board Chair, Independent
Jennifer Haskey 2, 6, 7
Director, Independent
Michael R. Shea 5, 7, 8
Director, Independent
Neil G. Sinclair 1, 9, 10
Director, Independent
Janet E. Vellutini 3, 6, 7
Director, Independent
David J. Wilson 4, 10
President & Chief Executive Officer,
Kelt Exploration Ltd.
1 chair, audit committee
2 chair, reserves committee
3 chair, compensation and corporate governance committee
4 chair, health, safety, environment and sustainability committee
5 chair, nominating committee
6 member, audit committee
7 member, reserves committee
8 member, compensation and corporate governance committee
9 member, health, safety and environment and sustainability committee
10 member, nominating committee
HEAD OFFICE
Suite 300, East Tower, 311 Sixth Avenue S.W.
Calgary, Alberta T2P 3H2
Phone: 403.294.0154
Fax: 403.291.0155
www.keltexploration.com
REGISTRAR AND TRANSFER AGENT
Odyssey Trust Company
350-300 5th Avenue S.W.
Calgary, Alberta T2P 3C4
LEGAL COUNSEL
Borden Ladner Gervais LLP
Centennial Place, East Tower,
Suite 1900, 520 Fourth Avenue S.W.
Calgary, Alberta T2P 0R3
OFFICERS
David J. Wilson
President & Chief Executive Officer
Sadiq H. Lalani
Vice President & Chief Financial Officer
Douglas J. Errico
Senior Vice President, Land and Corporate
Development
Alan G. Franks
Vice President, Production
Bruce D. Gigg
Vice President, Engineering
David A. Gillis
Vice President, Finance
Douglas O. MacArthur
Vice President, Operations
Patrick W.G. Miles
Vice President, Exploration
Louise K. Lee
Corporate Secretary
AUDITORS
PricewaterhouseCoopers LLP
Suite 3100, 111 Fifth Avenue S.W.
Calgary, Alberta T2P 5L3
EVALUATION ENGINEERS
Sproule Associates Limited
Suite 900, 140 Fourth Avenue S.W.
Calgary, Alberta T2P 3N3
STOCK EXCHANGE LISTING
Toronto Stock Exchange
Common shares “KEL”
KELT EXPLORATION LTD.
66
2023 ANNUAL REPORT
SUITE 300, EAST TOWER
311 SIXTH AVENUE SOUTH WEST
CALGARY, ALBERTA T2P 3H2