Artek Exploration Ltd.
TSX VENTURE : RTK

April 07, 2010 00:23 ET

Artek Exploration Ltd. Reports 2009 Reserves and Provides Operational Update

CALGARY, ALBERTA--(Marketwire - April 7, 2010) - Artek Exploration Ltd. (TSX VENTURE:RTK) of Calgary, Alberta ("Artek" or the "Company") is pleased to provide an operational update and announce the results of its independent reserve evaluation for the year ended December 31, 2009 as prepared by Sproule Associates Limited ("Sproule").

2009 HIGHLIGHTS

- Artek's Common Shares commenced trading on the TSX Venture Exchange (Tier 1 status) on January 21, 2010.

- Proved plus probable reserves at December 31, 2009 increased over 2008 by 35% to 15.1 million boe from 11.3 million boe at December 31, 2008.

- Replaced 2009 production of 659 mboe by 6.8 times with proved plus probable reserve additions and 4.2 times with proved reserve additions.

- Achieved all in finding, development and acquisition (FD&A) costs of $16.84 per boe on proved plus probable reserves and $24.92 per boe on proved reserves (including future development costs and revisions) in a year dedicated to development operations and production maintenance. FD&A costs excluding future development costs were $10.15 per boe on a proved plus probable basis and $16.22 per boe on a proved basis. The FD&A costs for the last three years is $14.81 per boe on a proved and probable basis and $20.85 on proved reserves (including future development costs and revisions).

- Estimated capital expenditures including acquisitions, net of dispositions for the year ended December 31, 2009 were approximately $45.2 million.

- Increased proved plus probable reserve value by 25 % to $176.3 million from $141.4 million at December 31, 2008 using a 10% discount factor, despite a 26% decline in the December 31, 2008 proved plus probable reserve value based on the decrease in the December 31, 2009 price forecast as compared to the December 31, 2008 price forecast.

- Artek's net asset value per share at December 31, 2009 is estimated at $6.05 per diluted share.

- Exploration and development and acquisition activities have identified and delineated a diverse range of opportunities within Artek's existing inventory of prospects.

OPERATIONS UPDATE

In the first quarter of 2010, Artek drilled 3 (2.5 net) wells and conducted completions or workovers on an additional six wells.

At Elmworth Alberta, Artek drilled a vertical test (.48 net) late in 2009 targeting the Cretaceous and the Nikanassin formations. The well tested at approximately 500 mcf/d and was brought on production in January, 2010. The well extends a thick Nikanassin channel trend discovered and tested in a 2007 well drilled by Artek that encountered a 50 metre channel sand with up to 15 metres of log pay. In late 2009, Artek also completed the Nikanassin in an additional well in the Elmworth area which tested at approximately 1.0 mmcf/d and was brought on production in early 2010. Artek has 18 gross sections (13 net) in the area and plans to develop the Nikanassin with slick oil completions and potentially with horizontal wells where the sands are the thickest.

At Leduc Woodbend in Alberta, Artek completed four workovers on existing producing or suspended wells adding 40 boe/d of net oil production since acquiring the asset in November, 2009 and has increased production on the property by approximately 9%. The Company is encouraged by the response of the wells and plans to conduct additional workovers. Drilling is expected to begin on the asset after a reserve simulation study is completed and a holding application is approved which is anticipated to be in early summer of 2010. During the first quarter of 2010, the property was producing between 440-460 boe/d (93% oil) net to Artek representing approximately 23% of the Companies production on a 6:1 basis.

Late in the first quarter of 2010, the Company drilled and cased an exploration well in the Farmington, Alberta area targeting oil and natural gas in the Triassic. Initial completion results indicate the well has swabbed oil and water at high water cuts. Further evaluation will be done after breakup. Pending these evaluations, Artek has aggregated three sections of land on this play and has identified offsetting drill locations.

In the first quarter of 2010, Artek also drilled a 1550 meter horizontal Montney well (.5 net) in the Sinclair area of Alberta. The well was operated by a major oil and gas producer and due to early breakup the completion is now planned for early summer. Artek also anticipates getting the well on production during the summer. Offsets have tested from 4 mmcf/d to over 10 mmcf/d using multi-stage fracture stimulation technology and lands in the area are being developed at 3 to 4 horizontal wells per section in the Upper Montney. The packer assembly is presently landed and the well-bore is engineered for an 11 stage PolyCo2 frac that is currently being planned for this June. Artek looks forward to reporting the results of the completion in due course. Artek currently has 7.5 gross (6.3 net) sections of land at Sinclair and 13 gross (7.9 net) sections of land at Pouce Coupe which it believes are prospective for Montney.

Early in 2010, Artek spud a 100% deep exploration well in the Noel, British Columbia area, targeting natural gas in the Nikanassin, Cadomin, and two additional up-hole Cretaceous zones. The well offsets an Artek 2009 natural gas discovery that tested gas from multiple zones at a combined rate in excess of 4.8 mmcf/d. The Company estimates that the new discovery well encountered in excess of 85 metres of log pay from four zones and was completed in three zones using a slick water fracture stimulation technique. Due to complications with the completion, the well was not flowed back for approximately eight days and incurred some water related damage. At that point the well was flowing back at 1.1 mmcf/d to as high as 2.0 mmcf/d and from 200 to 500 barrels of frac water per day. Artek expects the well to continue to clean up through break up. It has been tied-in and should be flowing in line by mid April. After breakup, the Company plans to complete one more interval in the well that tested in excess of 1.4 mmcf/d in the offsetting Artek discovery well. Artek has accumulated 33 sections in the area (25 net) which it believes to be prospective for Nikanassin and uphole Cretaceous natural gas.

Field estimates for first quarter 2010 production are approximately 2,050 boe/d of which approximately 29% is oil and liquids. The Company has pending volumes from both the Noel, British Columbia and the Sinclair, Alberta Montney horizontal wells. The Company plans to provide a further operational update on or about April 22, 2010 when it reports its financial results for the year ended December 31, 2009.

To protect the summer natural gas pricing period, the Company has hedged a total of 3,500 gj per day from April 2010 to October 2010 at a weighted average floor price of $5.02 per gj.

RESERVES

The reserves data set forth below is based upon an independent reserves assessment and evaluation prepared by Sproule with an effective date of December 31, 2009 (the "Sproule Report"). The following presentation summarizes the Company's crude oil, natural gas liquids and natural gas reserves and the net present values before income tax, of future net revenue for the Company's reserves using forecast prices and costs based on the Sproule Report. The Sproule Report has been prepared in accordance with the standards contained in the COGE Handbook and the reserve definitions contained in NI 51-101.

All evaluations and reviews of future net cash flows are stated prior to any provisions for interest costs or general and administrative costs and after the deduction of estimated future capital expenditures for wells to which reserves have been assigned. It should not be assumed that the estimates of future net revenues presented in the tables below represent the fair market value of the reserves. There is no assurance that the forecast prices and cost assumptions will be attained and variances could be material. The recovery and reserve estimates of our crude oil, natural gas liquids and natural gas reserves provided herein are estimates only and there is no guarantee that the estimated reserves will be recovered. Actual crude oil, natural gas and natural gas liquids reserves may be greater than or less than the estimates provided herein.

See "Information Regarding Disclosure on Oil and Gas Reserves and Operational Information" for additional cautionary language, explanations and discussions and "Forward Looking Information and Statements" for a statement of principal assumptions and risks that may apply.

Reserves Summary

The Company's total proved reserves increased by 35% in 2009 to 8,248 MMboe and proved plus probable reserves increased by 34% to 15,112 MMboe.

The following table provides summary reserve information based upon the Sproule Report and using the published Sproule (2010-01) price forecast.



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Natural gas Barrels of oil
Oil (1) liquids Natural gas equivalent
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Gross Net Gross Net Gross Net Gross Net
(2) (3) (2) (3) (2) (3) (2) (3)
(Mbbl) (Mbbl) (Mbbl) (Mbbl) (Mmcf) (Mmcf) (Mboe) (Mboe)
Proved
Producing 967 700 78 57 11,599 8,836 2,978 2,229
Non-producing 25 19 7 4 3,044 2,237 539 396
Undeveloped 179 152 163 130 26,335 21,234 4,731 3,821
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Total
proved 1,171 871 247 190 40,978 32,308 8,248 6,446
Probable 732 554 176 134 35,739 26,258 6,864 5,064
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Total
proved plus
probable 1,903 1,425 423 324 76,717 58,566 15,112 11,510
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Notes:
(1) Includes 158 mbbl of proved and 362 mbbl of proved plus probable gross
heavy oil reserves.
(2) "Gross" reserves means Artek's working interest (operating and non-
operating) share before deduction of royalties and without including
any royalty interest of the Company.
(3) "Net" reserves means Artek's working interest (operated and non-
operated) share after deduction of royalty obligations, plus Artek's
royalty interest in reserves.
(4) Oil equivalent amounts have been calculated using a conversion rate of
six thousand cubic feet of natural gas to one barrel of oil.
(5) May not add due to rounding.


Reserves Values

The estimated before tax future net revenues associated with Artek's reserves effective December 31, 2009 and based on the published Sproule (2010 - 01) future price forecast are summarized in the following table:



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Discounted At:
($ Thousands) Undiscounted 5% 10% 15% 20%
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Proved
Producing 89,231 73,801 62,785 54,751 48,701
Non-producing 9,224 7,672 6,507 5,612 4,910
Undeveloped 87,044 58,217 40,312 28,434 20,169
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Total proved 185,499 139,689 109,604 88,798 73,781
Probable 198,082 106,716 66,733 45,633 33,064
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Total proved plus
probable 383,582 246,406 176,337 134,431 106,845
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Notes:
(1) The estimated future net revenues are stated before deducting future
estimated site restoration costs and are reduced for estimated future
abandonment costs and estimated capital for future development
associated with the reserves.
(2) May not add due to rounding.
(3) Prior to provision of income taxes, interest, debt service charges and
general and administrative expenses. It should not be assumed that the
undiscounted and discounted future net revenues estimated by Sproule
represent the fair market value of the reserves.
(4) Net present value after income taxes for total proved reserves is $99.1
million and for total proved plus probable reserves is $147.8 million
based on a discount factor of 10%.


Reserves Reconciliation

The following summary reconciliation of Artek's gross reserves compares changes in the Company's reserves as at December 31, 2009 to the reserves as at December 31, 2008 based on the Sproule (2010-01) future price forecast.



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Total Total Proved
Proved Probable plus Probable
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(Mboe) (Mboe) (Mboe)

Balance December 31, 2008 6,122 5,198 11,320
Extensions and improved recoveries 954 643 1,596
Technical revisions 290 (3) 287
Discoveries 37 8 45
Acquisitions 1,801 1,257 3,059
Dispositions (279) (238) (517)
Economic factors (18) - (18)
Production (659) - (659)
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Balance December 31, 2009 8,248 6,864 15,112
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Notes:
(1) "Gross" reserves means Artek's working interest (operating and non-
operating) share before deduction of royalties and without including any
royalty interest of the Company.
(2) May not add due to rounding


Capital Efficiency Highlights - 2009

The efficiency of the Company's capital program for the year ended December 31, 2009 is summarized below. NI 51-101 specifies how finding and development ("F&D") costs should be calculated if they are reported. Essentially NI 51-101 requires that the exploration and development costs incurred in the year along with the change in estimated future development costs be aggregated and then divided by the applicable reserve additions. The calculations specifically excludes the effects of acquisitions and dispositions on both reserves and costs. By excluding the effects of acquisitions and dispositions, Artek believes that the provisions of NI 51-101 do not fully reflect Artek's ongoing reserve replacement costs. Since acquisitions can have a significant impact on Artek's annual reserve replacement costs, to not include these amounts could result in an inaccurate portrayal of Artek's cost structure. Accordingly, Artek will also report finding, development and acquisition ("FD&A") costs that will incorporate all acquisitions net of any dispositions during the year.



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Proved plus
Proved Probable
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Exploration and Development expenditures ($000's)
(note 4) 18,190 18,190
Acquisitions, net of dispositions ($000's) (notes 2
and 4) 26,988 26,988
Change in future development capital ($000's)
- Exploration and Development 12,385 15,318
- Acquisitions, net of dispositions 11,835 14,455
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69,398 74,951
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Reserve additions after revisions (Mboe)
- Exploration and Development (note 5) 1,263 1,909
- Acquisitions, net of dispositions 1,522 2,542
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2,785 4,451
---------------------

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Finding & Development Costs ($/boe) (notes 1) 24.21 17.55
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Finding, Development & Acquisition Costs ($/boe)
(notes 3)
Exploration and development 24.21 17.55
Acquisitions, net of dispositions 25.51 16.30
---------------------
Total FD&A 24.92 16.84
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Reserves Replacement Ratio 4.2 6.8
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Notes:

(1) The aggregate of the exploration and development costs incurred in the
most recent financial year and the change during that year in estimated
future development costs generally will not reflect total finding and
development costs related to reserve additions for that year.
(2) The acquisition costs related to corporate acquisitions reflect the
consideration paid for the shares acquired plus the net debt assumed,
both valued at closing and does not reflect the fair market value
allocated to the acquired oil and gas assets under Generally Accepted
Accounting Principles.
(3) Calculation includes reserve revisions and changes in future development
costs. Artek also calculates finding, development and acquisition
("FD&A") costs which incorporate both the costs and associated reserve
additions related to acquisitions net of any dispositions during the
year. Since acquisitions can have a significant impact on Artek's annual
reserve replacement costs, the Company believes that FD&A costs provide
a more meaningful portrayal of Artek's cost structure.
(4) 2009 figures include information based on estimated unaudited financial
results that may change on the completion of the audited financial
statements.
(5) Change in future development capital includes Alberta Drilling Credits
to be earned on future drilling totalling $1.9 million for proved
reserves and $2.9 million for proved plus probable reserves.


NET ASSET VALUE

The following table provides management's calculation of Artek's estimated net asset value at December 31, 2009 based on the estimated future net revenues associated with Artek's proved plus probable reserves before income tax and discounted at 10% as presented in the Sproule Report and an independent third party evaluation of Artek's undeveloped land along with an internal estimate of seismic market value.



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($ thousands)
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Proved plus probable reserves - discounted at 10% 176,337
Undeveloped Land (note 1) 18,850
Seismic (note 2) 6,454
Bank debt as at December 31, 2009 (note 3) (38,921)
Estimated working capital deficiency as at December 31, 2009
(notes 3 & 4) (3,855)
Proceeds from dilutive stock options 10,876
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Net asset value 169,741

Diluted Common shares outstanding (note 5) (thousands) 28,058
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Net asset value per share 6.05
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Notes:
(1) Based on an independent land evaluation. See "Land Holdings".
(2) Based on internal estimate of market value.
(3) Figures include information based on unaudited financial results that
may change.
(4) Working capital deficiency includes an estimate of the Company's
accounts receivable less accounts payable and accrued liabilities as at
December 31, 2009.
(5) Reflects the 5:1 share split that occurred on January 14, 2010 as part
of the Plan of Arrangement with COSTA Energy Inc.


LAND HOLDINGS

The Company retained an independent third party to assess the fair market value of the Company's undeveloped land holdings as at December 31, 2009. The evaluation was completed by Independent Land Evaluation using industry activity levels, third party transactions and land acquisitions that occurred in proximity to Artek's undeveloped lands during the past year. The Independent Land Evaluation report indicates a value of $18.9 million.



A summary of the Company's land holdings at December 31, 2009 is outlined
below:

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(acres) Developed Undeveloped Total
Gross Net Gross Net Gross Net
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Alberta 24,103 16,825 64,013 46,917 88,116 63,742
British Columbia 17,318 10,436 49,230 31,812 66,548 42,248
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Total 41,421 27,261 113,243 78,729 154,664 105,990
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OUTLOOK

One year ago we were mired in one of the worst recessions in decades. The situation has improved with the world's economy and banking systems generally stabilizing and moving into the early stages of a recovery. Commodity prices have rebounded with oil leading the group, however natural gas prices remain depressed due to an oversupplied market. Artek intends to focus its capital investments on projects that have the ability to provide the best returns on capital in the current commodity price environment. The Company's priorities in 2010 are:

- Maintain a strong, flexible balance sheet enabling the Company to increase exploration and development expenditures or increase its resource focus through acquisitions.

- Continue to improve operating efficiencies through an improved cost structure.

- Continue to actively hedge to protect our balance sheet and capital program.

- Continue to grow the Company's production and reserves on a debt adjusted per share basis.

- Continue to build and validate the potential on the Company's resource focused assets.

On behalf of the Board of Directors, Management and staff, I would like to thank our shareholders for their support. We strongly believe Artek is in a unique position to capture significant value in its portfolio of oil and natural gas resource plays in 2010 and beyond.

CAUTIONARY STATEMENTS

Unaudited financial information

Certain financial and operating information included in this press release for the quarter and year ended December 31, 2009, such as finding and development costs, production information and net asset value, are based on estimated unaudited financial results for the quarter and year then ended, and are subject to the same limitations as discussed under Forward Looking Information set out below. These estimated amounts may change upon the completion of audited financial statements for the year ended December 31, 2009 and changes could be material.

Information Regarding Disclosure on Oil and Gas Reserves and Operational Information

Our oil and gas reserves statement for the year ended December 31, 2009, which will include complete disclosure of our oil and gas reserves and other oil and gas information in accordance with NI 51-101, will be contained within our Annual Information Form which will be available on our SEDAR profile by April 30, 2010 at www.sedar.com. In relation to the disclosure of estimates in the operations update discussion, such estimates for individual properties may not reflect the same confidence level as estimates of reserves for all properties, due to the effects of aggregation.

In relation to the disclosure of net asset value ("NAV"), the NAV table shows what is normally referred to as a "produce-out" NAV calculation under which the current value of the Company's reserves would be produced at forecast future prices and costs and do not necessarily represent a "going concern" value of the Company. The value is a snapshot in time and is based on various assumptions including commodity prices and foreign exchange rates that vary over time. It should not be assumed that the future net revenues estimated by Sproule represent the fair market value of the reserves, nor should it be assumed that Artek's internally estimated value of its undeveloped land holdings represent the fair market value of the lands.

Certain noted drilling and completion data provided in this document may constitute "analogous information", such as flow-rates from offset wells drilled by Artek or other industry participants and in geographical proximity to lands held by Artek. Artek believes the information is relevant as it helps to define the reservoir characteristics in which Artek may have an interest. The Corporation is unable to confirm that the analogous information was prepared by a qualified reserves evaluator or auditor or in accordance with the COGE Handbook and therefore, the reader is cautioned that the data relied upon by Artek may be in error, may not be analogous to Artek's land holdings and/or may not be representative of actual results of wells anticipated to be drilled or completed by Artek in the future.

Forward-looking information and statements

This news release contains certain forward-looking information and statements within the meaning of applicable securities laws. The use of any of the words "expect", "anticipate", "continue", "estimate", "may", "will", "project", "should", "believe", "plans", "intends" and similar expressions are intended to identify forward-looking information or statements. In particular, but without limiting the forgoing, this news release contains forward-looking information and statements pertaining to the following: the volumes and estimated value of Artek's oil and gas reserves; the life of Artek's reserves; the volume and product mix of Artek's oil and gas production; future oil and natural gas prices and Artek's commodity risk management programs; future liquidity and financial capacity; management's assessment of future plans and results from operations and operating metrics; future costs, expenses and royalty rates; future interest costs; the exchange rate between the $US and $Cdn; future hedging activities; future development, exploration, acquisition and development activities and related capital expenditures; the number of wells to be drilled and completed and related production expectations; the amount and timing of drills, completions and capital projects; operating costs; the total future capital associated with development of reserves and resources; and forecast reductions in operating expenses.

The recovery and reserve estimates of Artek's reserves and resources provided herein are estimates only and there is no guarantee that the estimated reserves or resources with be recovered. In addition, forward-looking statements or information are based on a number of material factors, expectations or assumptions of Artek which have been used to develop such statements and information but which may prove to be incorrect. Although Artek believes that the expectations reflected in such forward-looking statements or information are reasonable, undue reliance should not be placed on forward-looking statements because Artek can give no assurance that such expectations will prove to be correct. In addition to other factors and assumptions which may be identified herein, assumptions have been made regarding, among other things: results from drilling and development activities consistent with past operations and offsetting wells; the continued and timely development of infrastructure in areas of new production; continued availability of debt and equity financing and cash flow to fund Artek's current and future plans and expenditures; the impact of increasing competition; the general stability of the economic and political environment in which Artek operates; the timely receipt of any required regulatory approvals; the ability of Artek to obtain qualified staff, equipment and services in a timely and cost efficient manner; drilling results; the ability of the operator of the projects in which Artek has an interest in to operate the field in a safe, efficient and effective manner; the ability of Artek to obtain financing on acceptable terms; field production rates and decline rates; the ability to replace and expand oil and natural gas reserves through acquisition, development and exploration; the timing and cost of pipeline, storage and facility construction and expansion and the ability of Artek to secure adequate product transportation; future commodity prices; currency, exchange and interest rates; regulatory framework regarding royalties, taxes and environmental matters in the jurisdictions in which Artek operates; and the ability of Artek to successfully market its oil and natural gas products.

The forward-looking information and statements included in this news release are not guarantees of future performance and should not be unduly relied upon. Such information and statement, including the assumptions made in respect thereof, involve known and unknown risks, uncertainties and other factors that may cause actual results or events to defer materially from those anticipated in such forward-looking information or statements including, without limitation: changes in commodity prices; changes in the demand for or supply of Artek's products; unanticipated operating results or production declines; changes in tax or environmental laws, royalty rates or other regulatory matters; changes in development plans of Artek or by third party operators of Artek's properties, increased debt levels or debt service requirements; inaccurate estimation of Artek's oil and gas reserve and resource volumes; limited, unfavourable or a lack of access to capital markets; increased costs; a lack of adequate insurance coverage; the impact of competitors; and certain other risks detailed from time-to-time in Artek's public disclosure documents, (including, without limitation, those risks identified in this news release and Artek's Annual Information Form).

The forward-looking information and statements contained in this news release speak only as of the date of this news release, and Artek does not assume any obligation to publicly update or revise any of the included forward-looking statements or information, whether as a result of new information, future events or otherwise, except as may be required by applicable securities laws.

BOE equivalent

Barrel of oil equivalents or BOEs may be misleading, particularly if used in isolation. A BOE conversion ratio of 6 mcf: 1 bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

Artek is a Calgary, Alberta based oil and gas exploration, development and production company whose shares are traded on The TSX Venture Exchange under the trading symbol "RTK".

Contact Information

  • Artek Exploration Ltd.
    Darryl Metcalfe
    President and Chief Executive Officer
    (403) 296-4799
    or
    Artek Exploration Ltd.
    Darcy Anderson
    Vice President Finance and Chief Financial Officer
    (403) 296-4775