Kelt Agrees to Acquire Strategic Montney Assets

Source: 6/16/2014, Location: North America

Kelt Exploration Ltd. has entered into an agreement to acquire a private Canadian oil and gas company with crude oil and natural gas assets located at Valhalla/La Glace, adjacent to the Companyís core producing areas at Pouce Coupe and Spirit River in west central Alberta. The acquisition is subject to standard industry closing conditions and closing is expected to occur on or around July 2, 2014.

The consideration to be paid by Kelt is $165.0 million, before closing adjustments, and will be financed by existing cash on hand and the issuance of 4.3 million common shares of Kelt to the shareholders of the private Canadian oil and gas company. Based on the five day volume weighted average price of Kelt shares that traded on the Toronto Stock Exchange from June 9th to 13th of $13.58, the value of the common share consideration is $58.0 million. The balance of $107.0 million will be paid in cash.

Key Attributes of Assets to be Acquired
? Current net production is estimated to be approximately 2,300 BOE per day (70% oil and 30% gas) from Triassic horizons, primarily from the Montney formation and also including production from the Halfway and Charlie Lake formations.
? At index pricing for crude oil of WTI US$95.00 per barrel and for natural gas at AECO $4.50 per GJ, operating netbacks are approximately $40.00 per BOE, providing approximately $33.6 million of annual operating income at current production levels.
? Petroleum and natural gas reserves to be acquired have been evaluated internally by Kelt effective December 31, 2013:
? Proved developed producing reserves were 3.4 million BOE, with $1.5 million in associated future development capital;
? Total proved reserves were 6.2 million BOE, with $38.4 million in associated future development capital; and
? Total proved plus probable reserves were 11.7 million BOE, with $60.7 million in associated future development capital.
? Long-life reserves with a proved plus probable reserve life index of 14.0 years based on current production.
? Infrastructure component with interests in major oil and gas facilities including the following:
? 100% ownership interest in an oil battery, recently upgraded to handle 3,500 barrels of oil per day and 20.0 mmcf of gas per day; and
? 100% ownership interests in gas compressors and oil and gas gathering pipelines.
? The Valhalla/La Glace assets include an extensive land position that is a complementary fit geographically to Keltís existing core areas at Pouce Coupe and Spirit River and are located approximately 18 miles south of Pouce Coupe/Spirit River and approximately 15 miles northwest of Grande Prairie. The acquisition includes 38,400 gross acres (60 gross sections) and 32,981 net acres (51.5 net sections) of land.
? The Valhalla/La Glace assets will be operated from Keltís established field office located in Grande Prairie, Alberta.
Acquisition Metrics
? Based on current production and not adjusting for land and infrastructure value, production is being acquired for $71,700 per flowing BOE per day (70% oil and 30% gas).

? Based on proved plus probable reserves and after taking into account future development capital costs, reserves are being acquired for $19.23 per BOE, giving the Company an acquisition recycle ratio of 2.1 times using commodity prices of US95.00 per barrel for WTI oil and $4.50 per GJ for AECO gas.

Future Upside Potential
The Company has identified 58 gross (56.0 net) horizontal drilling locations primarily targeting the Montney formation. This would entail in excess of $290.0 million gross ($280.0 million net) in future capital spending, adding to the Companyís significant drilling inventory and opportunity for future growth in the years ahead. The Montney drilling inventory located at Valhalla/La Glace is primarily on 100% working interest lands targeting crude oil with associated gas.

Financial Position
After giving effect to the acquisition, including the issuance of Kelt common shares, Kelt estimates that it will have bank debt, net of working capital, of approximately $110.0 million at the end of 2014. Based on forecasted exit annualized funds from operations of $161.5 million, the Company would have a debt to funds from operations ratio of 0.7 times, giving the Company sufficient financial flexibility to carry out a growth oriented capital expenditure budget in 2015.

Prior to the Valhalla/La Glace acquisition, Kelt has an agreement with a syndicate of financial institutions for a committed term credit facility whereby the lenders approved a borrowing base of $170.0 million and a committed amount of $100.0 million. Upon closing and after giving effect to the acquisition, Kelt expects to increase the amount of its term credit facility.

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