Kiwetinohk Energy Corp

TSX:KEC

Good morning, ladies and gentlemen. My name is John, and I'll be your conference operator today. I would like to welcome everyone to the Kiwetinohk's 2025 First Quarter Results Conference Call. [Operator Instructions] Thank you. Mr. Carlson, you may begin your conference.

Thank you, John, and good morning, everyone. Welcome to the Kiwetinohk Energy Investor Call for the first quarter of 2025, and thank you for joining us for this update on our quarterly results. I'm Pat Carlson, Kiwetinohk's CEO. To start, I will ask Janet Annesley, our Chief Sustainability Officer, to do an indigenous land recognition and comment on our 2025 ESG report. Please go ahead, Janet.

Thank you, Pat. Kiwetinohk's conference call today is coming from Calgary, part of the traditional territories of the people of Treaty 7, which includes the Blackfoot Confederacy comprised of the Siksika, the Piikani and the Kainai First Nations, the Tsuut'ina First Nation and the Stoney-Nakoda, which includes the Chinike, Bearspaw and Goodstoney First Nation. Calgary is also home to the Otipemisiwak or the Métis Nation of Alberta Districts 5 and 6. Kiwetinohk has operations across Alberta, Treaties 6, 7 and 8, and we recognize the First Nations and Métis people in all these places that we call home. I do also want to note that Kiwetinohk has now released our 2025 ESG report for the 2024 reporting year, and that can be found on our website at Kiwetinohk.com/esg. Back to you, Pat.

Thank you, Janet. Joining me in addition to Janet are Jakub Brogowski, our Chief Financial Officer; Mike Backus, Chief Operating Officer, Upstream; Fareen Sunderji, President of our Power Division; Mike Hantzsch, Senior Vice President, Midstream and Market Development; Lisa Wong, Senior Vice President, Business Systems; and Steve Lewis, Asset Manager, Upstream division. We would like to use the first part of the call to provide you with information regarding our first quarter release from yesterday evening.

The telephone line will then be opened up to allow participants to ask questions. Before going through the results, I'll remind everyone the conference call includes forward-looking information and non-GAAP financial measures with the associated risks and disclaimers detailed in our news release and MD&A. The news release, financial statements and management discussion and analysis and all the company's official disclosures are all available on our website and SEDAR+. I'm extremely pleased with the team's performance in the first quarter.

In our Upstream division, we continued our operational momentum, achieving record quarterly production levels and driving controllable costs down. We have reached an exciting inflection point for Kiwetinohk achieving free cash flows in the first quarter, which is being deployed to debt repayment. It strengthens our balance sheet while we still grew production by 18% from fourth quarter 2024 levels. Results continue to highlight the quality of our asset and the knowledge and experience gained by our operating team.

With our strong netbacks, the company is well positioned to respond to ever-changing macro environment. Most recently, capital markets have been impacted by uncertainty created by the geopolitical landscape, possible introduction of further U.S. import tariffs and volatility in the commodity price environment. Jakub will elaborate on how these uncertainties impact the financial position of the company and our 2025 guidance letter in the call. As we continue to evaluate how to best maximize shareholder value, we have engaged National Bank Financial Incorporated and RBC Capital Markets to contribute to a business strategy review and evaluation of a range of potential value-enhancing and value capture opportunities.

The initiative has been given a broad mandate, including a sale of Kiwetinohk or a portion of its assets, a merger with a complementary entity, sourcing further financing to accelerate development of our large inventory of investment opportunities and other opportunities that may be identified. All potential outcomes will be reviewed in pursuit of maximizing shareholder value. Any alternatives, if pursued, may be executed within the year or be longer term in nature.

In the interim, we intend to continue to profitably grow our upstream business and opportunistically sell or otherwise monetize our power development projects. As we continue to move forward, I'll provide you with further updates. I'd like to thank our shareholders on behalf of the Board and our team for their continued support. I'll now ask Jakub Brogowski to provide more information from the CFO's perspective.

Thanks, Pat, and good morning, everybody. We had a very strong first quarter, delivering peer-leading cash flow per BOE, completing the sale of our first power project and using free cash flow to pay down debt. As we look ahead, our business is well positioned to navigate ongoing macroeconomic uncertainty while staying on track for industry-leading production growth and total returns. With Q1 behind us and a strong hedge book in place, we're now on solid footing. At commodity prices averaging just $50 WTI and $2.50 NYMEX for the remainder of the year, we expect fully -- we expect to fully fund maintenance and growth capital while still generating over $20 million of free cash flow.

Let me walk through a few highlights from the quarter. Production averaged 32,611 BOE per day in Q1, up 18% over the fourth quarter of 2024, with liquids making up 47% of the total. Operating costs continued to improve as we filled more capacity at our owned and operated Simonette plants, which helped spread fixed costs over a larger base. We brought Q1 operating costs down to $5.20 per BOE, a 28% reduction compared to 2022, while tripling production over that same period. The low cost helped to support our strong operating netback of $43.52 per BOE, up 39% from Q4 2024.

A key contributor was our realized natural gas price of $5.93 an Mcf, about 175% higher than the average Alberta AECO daily pricing of $2.20 per Mcf. This highlights the value of our access to the Chicago market via the Alliance Pipeline. Based on Q1 and/or strip pricing, that access is forecast to deliver about $85 million of value in 2025, net of transportation costs.

With strong production and leading cash flow per BOE, we generated $115.9 million in funds flow from operations and $29.5 million in free funds flow. This is a pivotal moment for us. Our scale and infrastructure efficiency are now enabling consistent free cash flow generation even as we grow production more than 20% year-over-year. Capital spending was $86.4 million, fully covered by funds from operations. After factoring in proceeds from the $21 million sale of our Opal gas-fired power project, net capital costs were $65.3 million and we used that cash to reduce debt.

As a result, we brought our net debt to annualized adjusted funds flow ratio down to 0.75, a 25% improvement quarter-over-quarter. Turning to the rest of the year and our 2025 annual guidance, we made positive revisions to our operating and transportation cost guidance. Operating expenses are expected to come in $0.50 per BOE lower and transportation costs are now down $0.25 per BOE compared to our initial 2025 budget.

We remain committed to our hedging program, which gives us confidence to continue to execute our development plan even amidst volatility in capital and commodity markets. We're also monitoring the evolving landscape around potential U.S. tariffs. As things stand today, we expect limited direct impact to Kiwetinohk, but we'll continue to monitor the market for potential impacts and adjust where necessary. Despite the uncertainty in the broader environment, Kiwetinohk is in a position of strength. Our high netbacks, infrastructure advantages and market access allows us to generate free cash flows across a wide range of commodity prices as shown in our updated guidance sensitivities. And we forecast $375 million of adjusted funds flow at the current forward strip.

As outlined in our news release, even at $50 WTI and $2.50 Henry Hub, we expect to generate about $22.5 million in free cash flow. The ability to generate cash paired with compelling growth profile creates a strong investment proposition. If the macro environment shifts further, we have the flexibility to adjust our capital program while staying within cash flow. And a quick note on market activity. So far in 2025, we've averaged 19,200 shares traded daily on the TSX with a total volume of 1.69 million shares year-to-date. That's more than 2.5x the 2024 average of 6,900 shares per day.

I see this as a positive sign of growing investor interest and confidence in Kiwetinohk. To close, I want to say how excited I am of the results we've achieved so far this year and about the opportunities that lie ahead for the remainder of 2025. Thanks for your time this morning, and I'll now turn it over to Mike to walk through our upstream accomplishments.

Thanks, Jakub, and good morning, everybody. I'm pleased to provide you with an update on the Upstream business, how it started this year. We continued our strong exit from 2024 with record production in the first quarter. Contribution from the new wells and safe, reliable field operations has also maintained these levels into the second quarter. Thus, we remain very confident in our annual guidance. I'll just add a bit of color on some of our recent well performance. The newest pad is in Simonette 14 and 29 pad, where we brought on 2 Duvernay and 1 Montney well in late February.

The Duvernay wells averaged peak 30-day rates of approximately 7 million cubic feet per day of gas and associated liquids in addition to 1,100 barrels a day of condensate. The Montney well, which is the second in the area that tested the lower bench following up on the successful well brought online last September has been equally encouraging, seeing peak 30-day rates of just over 7 million cubic feet per day of gas and associated liquids in addition to 700 barrels a day of condensate.

Now this well helped us to further delineate the potential of our Simonette Montney and does extend this prolific fairway to the southwest of the first well. A third well was drilled in the quarter to the Northeast, and this well will be completed and brought online in Q3. These wells are now competing favorably with our prolific Duvernay and enjoy the benefit of utilizing the existing infrastructure in the core of our asset base.

It's been mentioned already, and you have noted a very strong quarter for operating cost levels at $5.20 per BOE. And yes, those are Canadian dollars, too. I wanted to make a few additional comments on this performance. So some of this was driven by a few accounting adjustments from prior periods that are not expected to impact go-forward levels. However, much of this was due to not having to complete some planned activities and strong asset performance at both the plant and field level.

This is driven by reliability, strong production and efficient decisions that our team has been making when it comes to continuous improvement initiatives, something here we refer to as marginal gains. We do have some downtime in the field in Q2 with the turnaround planned in Placid at the third-party K3 plant, which handles our acid gas. In addition, we are finishing the plant expansion work at our smaller of the 2 Simonette facilities, the 5-31 plant.

In all, we felt confident this early in the year to lower our full year guidance for operating costs as outlined in the press release and mentioned a bit earlier by Jakub. The performance in this area has been a constant win for us since we acquired the assets. I'm very proud of the team for how they've safely delivered this result with an almost 30% reduction in unit costs.

As a quick update on our current and remainder of year activity, here's what's going on. So we're currently completing 3 Duvernay wells in our Tony Creek area toward the north of our asset base. These wells are expected to come online later this month. The drilling rig is now in our Placid Montney area, drilling 3 new wells toward the south part of our core development area. This is the first time we've been back to Placid for a while, and we're really excited to continue to add to that steady low decline production base.

We will complete these wells towards the middle of the year. The second half of the year is expected to remain very active, primarily focused on drilling and completion activities in Simonette as has been previously outlined. I thought I'd end off with a bit of a success story that we're very proud of. In March, Kiwetinohk drilled the longest well in Canadian history. This Duvernay well, which is in the core of our Simonette land, was 9,023 meters in total depth.

In this area, we're approximately 4,000 meters deep, so the lateral length is roughly 5,000 meters in length. This was done safely and continues to give us the confidence that we can look across our asset base and continue to push this variable, which will lead to more efficient capital outcomes with less overall surface disturbance. This well, along with 2 others, will be completed early in the third quarter. If you're really interested, we actually put a fun little video on our Kiwetinohk YouTube channel. So feel free to go and check that out. Thanks a lot for your time today. Have a great day, and I'll turn it back to Pat.

Thank you, Mike. This concludes our first quarter conference call. I'll now pass the call back to John for any questions. Thank you for joining us for this update.

Yes, sir. Thank you. [Operator Instructions].

It seems like we don't have any questions, John. With that, I'll thank everyone for participating on the call and look forward to chatting with you between now and the next quarter results.

Thank you. This concludes our conference call for today. Thank you all for participating. You may now disconnect.