viewKelt Exploration Ltd

Stifel Nicolaus sees positive surprises ahead at Kelt Exploration



Stifel Nicolaus analysts started coverage Wednesday on Kelt Exploration (TSE:KEL) with a buy rating and $8.00 target price, saying the company will soon "come out of the darkness". 

"The track record and reputation of the people behind Kelt Exploration Ltd. hold little mystery or misunderstanding. Our reference to the historic “out of darkness” is in reference to the most likely drivers of long-term value creation at Kelt," wrote analysts Kurt B. Molnar and Patrick J. O'Rourke.

"We are well aware of the current drivers but this is a management team with a well deserved reputation for coming out of “nowhere” to be right in the middle of some of the Canadian basin’s (and North America’s) best oil and gas plays." 

Kelt came into being as a dividend from the Exxon takeover of Celtic Exploration (TSE:CLT), where each Celtic shareholder received $24.50 per share in cash and one half share in Kelt. 

"That value received was a derivative of the 25% CAGR in production growth generated by Celtic over its 11-plus years of history and also meant that virtually every shareholder to have bought a Celtic share at any time in its 11-plus year history ended up “in the money” regardless of the price they might have paid for Celtic," the analysts took note. 

Kelt, which is focused on crude oil and natural gas resources in west central Alberta and northeastern British Columbia, was formed with the senior management team responsible for the Celtic track record, Stifel Nicolaus highlighted, plus a "meaningful portfolio" of old Celtic Exploration and production assets that were deemed non-core to the Exxon acquisition effort. 

The company's land holdings are located in three core areas: a natural gas property at Grand Cache, Alberta, a liquids-rich natural gas property at Inga, British Columbia, and an oil prospect at Karr, Alberta.

While the analysts acknowledge they used more aggressive spending assumptions than current guidance, and valued forecast reserve growth based on the asset profile expected at the end of 2014 rather than the profile currently focused at Grande Cache, they said "this is no different than the practical approach that [they] took in the earliest days of Tourmaline". 

But, they cautioned, the investor "needs to be aware" that Stifel Nicolaus expects "many suprises/changes" in the future, though they believe the bulk of these modifications will prove to be positive. 

The company's shares were trading up by 2 per cent in Toronto this afternoon, at $6.66, stretching year-to-date gains to more than 22 per cent.


Quick facts: Kelt Exploration Ltd

Price: 1.45 CAD

Market: TSX
Market Cap: $272.31 m

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