Kelt Exploration Ltd. ($KEL)

[Audio Gap] Director of Kelt Exploration, and I will assume the position of Chair for this meeting. Before we begin the formal business of the meeting, I would like to take a moment to introduce directors and officers of the corporation who are present today; Ray Kwan, Jennifer Haskey, Sadiq Lalani and David Gillis. In order to ensure that the meeting covers the required business in an efficient manner, we have prearranged with designated shareholders or proxy holders to move and second the motions of business. The meeting will now come to order. And if there are no objections, I should ask Louise Lee to act as Secretary of the meeting and Nazim Nathoo of Odyssey Trust Company to act as scrutineer of the meeting. The meeting will -- sorry, the Secretary has provided me with proof of mailing of the notice of meeting, instrument of proxy, management information circular and accompanying documents of the registered shareholders and the directors of the corporation. I direct a copy of the proof of mailing, together with copies of the document mailed to shareholders to be kept by the Secretary with the records of this meeting. With the consent of the meeting, the reading of the notice of meeting will be dispensed with. The bylaws of the corporation states the quorum for the purpose of a meeting of shareholders is established based on 2 persons present and holding or representing by proxy at least 25% of the shares entitled to vote at the meeting. The scrutineer has provided me with their preliminary report regarding shareholders' attendance at the meeting. Accordingly, I now declare that the meeting is regularly called and properly constituted for the transaction of business. During the formal portion of the meeting, only registered shareholders and duly appointed proxy holders will be able to ask questions during the question-and-answer portion of the meeting. These options will be made available to all attendees of the meeting. For those of us who are joining us virtually, such registered shareholders and duly appointed proxy holders are required to have logged into the meeting using their control numbers provided by Odyssey Trust in order to ask questions. There are 2 ways for attendees joining us virtually to ask any questions that they may have, using the chat function for written questions or verbally using the device that you have used to join this meeting. As it relates to written questions, to ask a question, select the messaging tab, type your message within the box at the top of the screen and click the send arrow. As it relates to live audio questions, [Operator Instructions] Please refer to the virtual meeting guide posted on the document page of the meeting platform. At this meeting -- as this meeting is being held both in person and virtually via the webcast, we think it is necessary to set out a few rules for orderly conduct. Number one, questions will be addressed at the appropriate time during the meeting. Two, once discussion on all items of business has concluded, I will give you an additional minute to enter your votes. For the purpose of the meeting today, voting on all matters will be conducted by ballot. Registered shareholders and duly appointed proxy holders attending virtually who have properly logged in with their control numbers and wish to vote will be able to see the screen -- to see on the screen all motions being brought forth at this meeting. Registered shareholders and proxy holders attending the meeting in person will have received a paper ballot upon registering with the scrutineer at the registration table. If you have already voted in advance, do not vote again online during the meeting unless you want to change your vote. If you vote again using the online ballot, your online vote during the meeting will revoke the previously submitted proxy. The first item of business is the presentation of the auditor's report and the financial statements of the corporation for the year ended December 31, 2025. Copies of the foregoing were mailed to each registered shareholder and are available on the corporation's website and on SEDAR. It is not proposed to read the financial statements to the meeting. Receipt and presentation of the financial statements for the year ended December 31, 2025, are hereby acknowledged. I direct that the financial statements and that our auditors report be annexed to the minutes of the meeting. The next item of business is to fix the number of directors to be elected at the meeting at 6.

I move that the Board of Directors of the corporation shall be fixed at 6 members.

I second the motion.

You've heard the resolution. Are there any questions? I will now proceed with the next item of business. The next item of business is the election of the Board of Directors.

I nominate Jennifer Haskey, William Guinan, Ray Kwan, Neil Sinclair, Janet Vellutini, David Wilson for election as directors of the corporation to hold office for the ensuing year.

I now declare the nominations closed. Could we have a motion regarding the election of directors.

I move that each of the following nominees: Jennifer Haskey, William Guinan, Ray Kwan, Neil Sinclair, Janet Vellutini, David Wilson be hereby elected as a Director of the corporation to hold office until the next Annual Meeting of Shareholders or until their successor is duly elected or appointed.

I second the motion.

You've heard the resolution. I will now proceed with the next item of business. The next item of business is the appointment of auditors.

I move that PricewaterhouseCoopers LLP be and are hereby appointed as auditors of the corporation until the next Annual Meeting or until a successor is appointed and that their remuneration be fixed by the Board of Directors.

I second the motion.

You've heard the resolutions. Are there any questions? As there are no further questions, we will proceed to provide registered shareholders and newly appointed proxy holders attending the meeting virtually approximately 1 more minute to complete the ballots. Registered shareholders and proxy holders attending the meeting in person who have not yet returned their completed ballots are asked to please raise their hands so the scrutineer may collect them. As a reminder, if you've already voted in advance, do not vote again unless you want to change your vote. If you vote again using the online ballot, your online vote will revoke your previously submitted proxy. We will just wait for a minute here. [Voting]

I now declare the polls closed. I have been advised by the scrutineer that a sufficient number of votes were received to pass all the resolutions before us today. That concludes the formal business brought before the meeting. As there is no further business, I declare the formal part of the meeting be concluded. We will now proceed with -- to the management presentation followed by a Q&A session. Any virtual attendees may submit questions any time during the presentation and will be answered at the appropriate time. So Sadiq will kickoff the presentation. Sadiq Lalani?

Perfect. Yes. Thanks very much. Welcome, ladies and gentlemen, those attending live and all those attending virtually as well to the 13th Annual Meeting of Kelt Shareholders. So for those of you that are not familiar, we started the company back in February of 2013. And the company was kicked off as a spinout of a previous company that the same management team ran for about 11 years called Celtic Exploration. We sold that company for $3.2 billion. And as part of that transaction, we spun out about $140 million worth of assets, which were put into a SpinCo and shareholders of Celtic received a half share in this new company, which became Kelt. So the original assets were a 40% nonoperated interest in a property called Inga in B.C., a Montney property. We had 16 sections of Montney rights at Karr and a dry gas property at Grande Cache. So subsequent to the start of Kelt, those initial assets that we spun out of Celtic have now been disposed except for the Grande Cache property. The Inga property, we consolidated that to 100% in 2015 and ended up selling it to Conoco in August of 2020 for just over $0.5 billion. The Karr assets, we ended up selling to Hammerhead in 2017 for $100 million. And the assets that we now own today are very similar to the Kelt -- Celtic fairway, except it's in the oilier part of the Montney fairway. So today, we have over 359,000 acres of Montney rights. And in addition to that, we have 93,000 acres of Charlie Lake rights. So inception to date, we've been able to manage a 1.7x recycle ratio on a 2P basis. The capital structure of the company is pretty simple, common shares outstanding. We have long-term incentives, which represent about 3.8% of the basic shares outstanding. Directors and officers do own 18% of the company, and we do have a major shareholder who also owns 22% of the company. Directors and officers of the company have participated in every single equity issue we've done since we started the company back in 2013, as you can see from this slide, and have been also quite active buying shares in the open market with investments of about $150 million made over this time period. So moving on to Kelt's operations. The company is set up with 3 main divisions. Oak/Flat Rock is the B.C. division, and it is just east of the property we sold at Inga, just lies north of Fort St. John, and it actually does sit in a separate wholly owned subsidiary company of Kelt. The Alberta assets, which are part of the parent company are primarily 2 main divisions, Pouce Coupe and Wembley/Pipestone. All of these assets are part of the main Montney fairway, and we do have some Charlie Lake rights in the Alberta divisions as well. So we came out with a CapEx budget at the beginning of the year for $355 million. And the interesting part of this budget is that it's highly weighted to drill and complete. So unlike previous years where we've spent quite a bit of money on infrastructure, the company is now set up with its own facilities in all of its divisions, including oil batteries, gas compression and gathering lines, everything except the gas plants. Except for Pouce Coupe, where we own a 20% interest in the gas plant, we use midstreamers or third parties for all of our gas plant processing. And we'll talk about that later on in the presentation in terms of how we've set ourselves up for future processing. So when this budget was set initially in January, at that time, we were forecasting WTI oil to be $59 a barrel, and we were forecasting AECO gas to be $2.81 a GJ. Come March, we saw a bit of weakness in gas prices. Oil prices were looking a little bit better. So we revised our commodity price forecast to $69.40 for WTI, and we dropped our AECO gas price to $2.34 a GJ. Well, that momentum has continued on. In both cases, oil continues to go up and gas continues to go down. So today, WTI is trading at about USD 92 in the spot market and AECO is trading below $2. So we're going to go through the capital program here, but one of the things that the company management is doing right now is we are sort of reviewing some of the gassier prospects in our capital budget. And we'll probably make some decisions by early May with the intention of maybe deferring some of our gassier prospects and drilling more of our oilier prospects just given the economics as they are today. So the original program is to drill 33.2 wells and complete 37.2 wells. In the 3 main areas where we're spending money, we've got this slide that shows the cost per well, the type of completion design we're using, and the production and transportation expenses as well. So in Wembley/Pipestone, we've switched our completion design. We were completing wells with frac intensity of about 2.25 meters per ton -- tonnes per meter, sorry. And we switched that over on one of our pads last year to 2.75 tonnes per meter. All of the Wembley pads that we're drilling this year will have this completion design. So when we did our year-end reserves at the end of '25, we had some history on these -- on the first pad where we changed the design, but not enough history to have the independent engineers reflect this in the EURs. I think what will happen is we'll probably see a bit of an uptick in our EURs at the end of '26 after we have more history on the original pad and some more history on these new pads we're using the same design on. So we're looking forward to that. At Oak, we have lower intensity completions. Here, we're using about 1.75 tonnes per meter of sand and water intensity at 3.5 versus 4 at Wembley. So moving on to production. We set our guidance at 50,000 to 52,000 BOEs a day. And you can see from this product mix, we are forecasting 62% gas and 38% oil and liquids. So like I said earlier, we'll see how things go in May, but you could see this product mix change slightly if we make some adjustments to the type of wells we drill in the budget this year. So as far as the gas plants I mentioned earlier, in order to produce any of your wells, regardless of whether they're gas wells or oil wells, you got to find a home for the gas. And with these midstreamers that we use, we now have access to multiple gas plants in Alberta, and we do actually use just the one gas plant in B.C. But with all of these midstream operators, we've arranged contracts where from last year, we had gas processing capacity of 282 million a day to this year, 322 million and by 2030, 382 million cubic feet a day of raw gas processing. So if you get to the 2030 numbers, that processing with the type of mix of plays that we have at Kelt, it would give you capacity to produce over 70,000 BOEs a day. And as you saw in the earlier slide, we're forecasting to be kind of 50,000 to 52,000 this year. So there is room here to grow over the next few years with these contracts in place. With the reserves, despite showing a 3% increase in our 2P reserves, 448.3 million BOEs, we did show a decline in NPV. And part of the reason for that was just like we were conservative on where we thought oil prices were going to go, so were the independent engineers in -- at the beginning of the year. So their forecast for WTI oil was pretty close to ours around $59 a barrel in the first year. And so these NPVs were based on a much lower price deck than what you're seeing in the current market. As far as recycle ratios go, we've averaged over the last 3 years, a 1.4x recycle ratio on our PDP reserves and a 1.5x on our 2P reserves. Without getting into a lengthy discussion about recycle ratios and capital costs, the issue I mentioned earlier about not having the EURs reflected at Wembley on the new completion design, the other thing that also goes into this calculation is the gas processing contracts that we have in place, limits the independent engineers in terms of how many probable reserves they can assign to the assets. So Kelt actually has quite a bit more inventory than what has been assigned as probable reserves, and Dave will talk about this when we go through each of the properties separately. So using that year-end evaluation and using the average commodity price of the 3 evaluators -- the 3 main evaluators, we had an net asset value per share of $15.62 a share. The stock currently trades sort of in that $8 to $8.50 range, so well below the NAV. And keep in mind, the NAV was also determined using much lower oil prices. As you can see from this table, starting off at $59.92 and then gradually moving up to $70 after 3 years. Right now, in the spot market, WTI price of oil is over $92 a barrel. So that would imply a much higher NAV per share at current pricing. So to summarize on commodities, here's a little bit more detail on each of the products. And probably the more meaningful numbers are at the bottom of the slide. The net realized oil price that Kelt is assuming this year is $86 a barrel. For NGLs, $37 a barrel. And for gas, $3.29. And the $3.29 gas price reflects our mix of gas marketing. So we sell our gas to a bunch of different hubs. We have gas going to Dawn, Chicago. We have gas in the local markets at AECO and Station 2. And we've also done some financial transactions to convert some of our gas from AECO pricing to LNG pricing, JKM, TTF pricing and also electricity pricing, where right now, we're fetching a significant premium to spot AECO prices. So with that commodity price deck, we're looking to have a field netback of about $21.89 a BOE this year and adjusted funds from operations of just over $20 a BOE. So that's a 14% increase from last year, not giving account to even the further increase in pricing we're seeing in the spot market now. So just a summary on finances. We're looking at a forecast of $722 million of revenue for the year, up 41% from last year. Adjusted funds from operations of $375 million, which would be up 43% from last year, which equates to $1.83 per share. And a CapEx budget that's just slightly over last year, 8% over last year at $355 million, leaving the company in a fairly strong position financially with debt at the end of the year and half a year's cash flow. So if I could just call Dave Wilson back and maybe walk through the rest of the presentation here.

Thanks, Sadiq. Yes. So like Sadiq said, we're working in 3 different divisions here, fairly active in all 3. The gassier stuff, like Sadiq said, we'll look at, and that might mean we change some of our drilling plans in B.C. But we're predominantly a Montney company with some Charlie Lake on the side there. So we'll kick right into here. So the reason we're enamored with Montney and the whole industry is just due to the fact that you're able to drill in up to 4 or 5 different units in the Montney. And that makes your land quite valuable and makes your whole development program very efficient because you're able to drill so many wells from a single pad. In Oak, we're only drilling 2 of these units. But in Pouce Coupe and Wembley, we're drilling up to 4 different units in the Montney. The one thing that across most of these lands, we're typically just a little bit overpressured, which is normal for the Montney. Like Sadiq said, the difference this time around from Celtic is we've kind of moved northeast into the more oilier section. So starting in B.C. at Oak. This is our biggest land holding, around 300 sections. We had planned -- or we have planned to drill 10 wells here. We had 2 DUCs that we didn't get completed last year. So we're planning to complete 12 wells here this year. But as we mentioned, this is one area that we might push off with gas prices where they are and drill some oilier wells. We've kind of been doing that for the last couple of years, just waiting for LNG to come on. And it looks like we might have to wait until next winter to see some decent gas prices here. So this is an area that you might see us push gas wells into next year. We've got a 6-well pad left to drill here. And we're actually just going to move on to the previous pad and complete those 6 wells early in May. Jumping over to Alberta. This is a slide of both our Pouce Coupe and Wembley/Montney. And it -- probably everything in this area with the exception of the Pouce Coupe West block is all fairly oily Montney. The Pouce Coupe West block is in more of a dry gas type scenario. So Pouce Coupe, the Montney here is -- like it looks like it's kind of spread out a bit. But when I show you in the next slide on the Charlie Lake, you'll see how it kind of lays over and makes things much more contiguous. But just speaking to the type of Montney wells that we're drilling out here, like I say, everything as you go north and east, it gets oilier. The Pouce Coupe West property that I just previously mentioned, what I'd like to point out here is it's 6 sections. So you think, well, that's not much land. But just to my point about being able to drill it in different units, we'll end up drilling about 35 to 40 wells in that 6 section block there. So it's kind of speaks to the amount of wells you can actually get into these Montney place. Right now, we've got 3 Montney wells. Actually, we've got -- we've drilled 2 Montney wells, and they're on production. They're in that dry gas block. And we're drilling another 3 Montney wells right now and a halfway well here. So those wells should be completed. Those 3 wells will be completed here in about 2 months. So here's the Charlie Lake. Like I said, when you layer this over top of your Montney land, you get a pretty contiguous chunk of land. And what makes that important is it makes it quite efficient because you can use all the same infrastructure, pipelines and plants, and you can drill from the same pads for Montney and Charlie Lake here. So quite an efficient way to develop this. Now the Charlie Lake out here is very oily for the most part. And we only have 2 wells planned here this year. But this is an area that with -- if we do postpone some of these gas wells, this is an area that you'll see us pick up more Charlie Lake wells and drill as opposed to drilling the gas wells. Jumping down to Wembley. So Wembley is our biggest contiguous Montney block in Alberta. We've done a pretty good job of going in and delineating it. You can't really -- it's hard to see the wells, the old wells, the delineation wells because it's pretty lightly colored there. But we've pretty much drilled wells throughout the whole block. That's allowed us to go in and figure out what we needed for infrastructure to do a full development. So we've put in a big diameter pipe here and put in the necessary oil batteries and compression facilities to do a full development on this over the next 10 years. So it's -- the kind of the hard lifting has been done and the expensive part of the facilities are already in place here. What we've got planned this year in Wembley, it's quite an oily development, we're drilling 16 wells, and we drilled the 1 DUC that we brought in into this year. And they're all kind of in the real oily portion of the play. So should have some pretty good oil volumes coming on here. We've completed a couple of pads. They'll come on over the next month or so. And just going to complete the third pad here in May. So I was talking a bit about infrastructure. So what's nice about Wembley is we've got 5 different gas plants that we go to. So what -- the significance of that is if one of your plants goes down, you've got the ability to direct gas to the other plants and keep your production on stream. And actually, while we're on the facility side, the CSV plant that we had issues with last year that took a little longer than we were hoping to come on stream, it's actually a sulfur recovery plant. So the significance of that is sulfur has went from $100 netbacks to upwards of $600, even $700 netback per tonne here in April and going into May. So in this area, once we get these pads, these next 3 pads on, we should be doing about 100 tonnes of sulfur out here. So at that price, it's a pretty significant byproduct that you used to have to pay to get rid of. So it should definitely help the cash flow. And that pretty much sums things up. We are -- we've always said that we wanted to sell something at some point. And we still have that in our plans. Oil has kind of come on side there pricing-wise. We'd like to see gas do the same before we look at doing some sort of a divestiture. But at some point, we'd like to bring some of that PV forward and be able to give that back to the shareholders. So I think we'll just open it up to questions. I'm not exactly sure how that's going to work.

Nothing written so far. And we will let you know if there's anybody.

No questions from the audience here? Okay. Well, I guess that sums it up. And thanks for coming out there, folks. And we'll see you next year.