Kiwetinohk announces 2023 budget, provides three-year outlook, and plans normal course issuer bid
Canada NewsWire
CALGARY, AB, Dec. 14, 2022
CALGARY, AB, Dec. 14, 2022 /CNW/ - Kiwetinohk Energy Corp. (TSX: KEC) today announced its 2023 budget and three-year outlook. The Company began preparing to launch a normal course issuer bid.
Kiwetinohk's 2023 budget is focused on delivering multiple strategic initiatives:
-- High rate of return oil and gas production with strong production per share growth. -- Increasing owned gas plant processing capacity to support higher production by the second half of 2023. -- Filling majority of 120 MMcf/d of Chicago market Alliance Pipeline capacity with Company natural gas production. -- Significant growth in adjusted funds flow (AFF1) and future free funds flow (FFF1). -- Financing its first power projects and reaching final investment decisions $(FID)$ on 501 MW of generation capacity.
2023 budget highlights
-- Oil and gas sales of 24.5-28.5 thousand boe/d, which is growth of 50%
year/year. Sales estimates include a provision for a 7-10-day shutdown in
the third quarter of both Simonette plants for tie-in of expansion
capacity.
-- AFF1 is forecasted between $355-$450 million ($8-$10/share), 50%
increase year/year, at US$70-US$80 WTI and US$4.50-US$5.00 HH flat
prices2.
-- Total planned capital expenditures for Upstream and Green Energy are
between $378-$402 million. This plan can be funded at US$50 WTI and
US$2.75 HH flat prices while maintaining a target net debt to AFF1 ratio
of below 1.0x, due in part to downside protection from hedges put in
place during 2022.
-- Drill, complete, equip and tie-in (DCET) spending of $270-$285 million
resulting in 15.5 net wells on production (10 Simonette Duvernay and 5.5
net Placid Montney). This program includes carry over activity from 2022
and pre-investment supporting the 2024 program. It will maximize economic
productivity in the Duvernay, delineate and prove the Montney in both
Simonette and West Placid and retain land in both Simonette and Placid.
-- Facility expansion capital of $50 million will be directed towards
expanding owned gas processing capacity in Simonette by 37 MMcf/d and
electrification of the 5-31 Simonette gas plant. The expansions,
scheduled for completion by the end of the third quarter, will support
the next leg of production growth into year-end 2023 and 2024.
-- Additional investments of $40-$45 million will support maintenance of
base production volumes, emissions reductions and buildout of field
infrastructure to support low-cost future development.
-- Green Energy investment of $18-$22 million to further advance
pre-construction development activities across Kiwetinohk's 2,150 MW
power project portfolio including $2 million to pursue new Green Energy
projects.
-- Third party financing arrangements are targeted for execution for
Kiwetinohk's 400 MW Homestead Solar and 101 MW Opal Firm Renewable
projects in the first half of 2023 with FID anticipated by year-end.
-- Asset retirement and reclamation obligation $(ARO)$ spending of $5.5-$7.5
million, in line with the Company's ESG and stakeholder best practices.
-- Cash taxes are not expected to be paid by the Company in 2023 at flat
US$80 WTI and US$5.00 HH pricing.
-- Return on average capital employed (ROACE)2,3 of 30%-34% at flat
US$70-US$80 WTI and US$4.50-US$5.00 HH pricing.
2023 annual financial & operational guidance summary
Sales volumes(1) Mboe/d 24.5 - 28.5 22-25 Mboe/d in Q1/23;
growth expected in H2/23
following
plant expansions
Oil & liquids Mbbl/d 12.1 - 14.0 50% liquids weighted
Natural gas MMcf/d 74.4 - 87.0 90% natural gas exposure
to Chicago market
Financial
Royalty rate(2) % 10% - 12% C* coverage from new
wells, offset by rapid
payout
Operating costs(1) $/boe $8.25 - $9.25 10% per boe improvement
year/year
Transportation $/boe $6.25 - $7.25 Slightly higher than in
2022 due to more gas
production
sold via Alliance
Corporate G&A expense(3) $MM $24 - $27 $2.30-$3.00/boe a 10%
per boe improvement
year/year
Cash taxes(4) $MM $0 Existing tax pools
expected to shield cash
taxes for
2023
Capital $MM $378 - $402
Upstream $MM $360 - $380 Investing for growth
DCET $MM $270 - $285 Further optimization of
well designs; unlocking
development
locations
Other $MM $90 - $95 Simonette plant
expansions &
electrification; other
field infrastructure
Green Energy $MM $18 - $22 Progressing power
projects and targeted FID
on Homestead
and Opal
2023 AFF(5) Capital budget is FFF
neutral +/- 10%(5)
US$70 WTI; US$4.50 HH;
US$0.73/CAD $MM $355 - $410
US$80 WTI; US$5.00 HH;
US$0.75/CAD $MM $390 - $450
2023 Net debt to AFF(5) Remain below corporate debt ratio target
of 1.0x @
US$50 WTI / US$2.75 HH flat deck
US$70 WTI; US$4.50 HH; X 0.3x - 0.5x
US$0.73/CAD
US$80 WTI; US$5.00 HH; X 0.1x - 0.4x
US$0.75/CAD
1 -- No plant turnarounds scheduled for 2023; includes
7-10-day shutdown of facilities to accommodate plant
expansion work in the third quarter.
2 -- Royalty rate in the table above calculated relative
to corporate revenue, which for natural gas revenues
is largely determined by US dollar denominated Chicago-based
natural gas pricing.
3 -- Includes G&A expenses for all divisions of the
Company -- Corporate, Upstream, Green Energy and Business
Development.
4 -- At US$80 WTI; US$5.00 HH; US$0.75/CAD flat prices
for full year. See "Non-GAAP Measures".
5 -- Non-GAAP measure that does not have any standardized
meaning under IFRS and therefore may not be comparable
to similar measures presented by other entities. Please
refer to the Corporation's MD&A as at and for the
three months ended September 30, 2022 under the section
"Non-GAAP Measures" available on Kiwetinohk's SEDAR
profile at www.sedar.com
Natural gas sales volumes will continue to benefit from access to favourable US Dollar denominated pricing in the Chicago market via Kiwetinohk's 120 MMcf/d of contracted capacity on the Alliance Pipeline. At the conclusion of the 2023 capital program, Kiwetinohk estimates it will require approximately $160 million of drill, complete, equip, tie-in (DCET) capital to sustain targeted 2023 average annual production rates. Given the large scale of the capital program relative to the corporate enterprise value (55% at the time of budget Board of Director approval), Kiwetinohk will continue to actively hedge production to protect cash flows and provide a pricing floor required to fund the program.
Three-year outlook
The three-year outlook is intended to provide investors with increased visibility regarding Kiwetinohk's strategy, the value of the Company's asset base and the Company's projected operational and financial capabilities and prospects. Kiwetinohk intends to grow cash flow from its upstream operations while pursuing its energy transition power projects, reducing debt and increasing free funds flow generation.
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