Artek Exploration Ltd.
TSX : RTK

March 23, 2011 19:07 ET

Artek Announces 2010 Financial Results and Provides Operations Update

CALGARY, ALBERTA--(Marketwire - March 23, 2011) - Artek Exploration Ltd. (TSX:RTK) ("Artek" or the "Company") is pleased to provide this summary of its financial and operating results for the year ended December 31, 2010. A complete copy of the Company's comparative financial statements for the year ended December 31, 2010, along with management's discussion and analysis in respect thereof will be filed on SEDAR and on the Company's website at www.artekexploration.com.



Three Months Ended Years Ended December
December 31, 31,
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2010 2009 2010 2009
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(000s, except per share
amounts) ($) ($) ($) ($)
Financial
Oil and gas revenues 6,767 5,740 27,486 19,257
Funds flow from operations (1) 2,524 2,290 9,484 5,858
Per share - basic 0.08 0.11 0.33 0.31
- diluted 0.08 0.10 0.33 0.29
Net income (loss) (2,002) (777) (5,301) (4,755)
Per share - basic (0.06) (0.04) (0.18) (0.25)
- diluted (0.06) (0.04) (0.18) (0.25)
Exploration and development
expenditures 8,460 4,613 28,396 18,190
Property dispositions - (6,086) (897) (6,086)
Working capital deficiency (50,714) (42,488) (50,714) (42,488)
Shareholders' equity 84,186 77,959 84,186 77,959
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(000s) (#) (#) (#) (#)
Share Data
At period-end
Basic 33,083 23,942 33,083 23,942
Options and warrants 940 4,117 940 4,117
Weighted average
Basic 33,083 21,346 28,656 18,680
Diluted 33,083 22,574 28,656 19,950
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Operating
Production
Natural gas (mcf/d) 7,034 8,074 7,342 9,724
Crude oil (bbls/d) 573 298 531 150
NGLs (bbls/d) 48 36 53 34
Total (boe/d) 1,793 1,680 1,808 1,805
Average wellhead prices
Natural gas ($/mcf)(2) 4.38 4.81 4.72 4.19
Crude oil ($/bbl) 76.33 71.03 74.32 65.95
NGLs ($/bbl) 62.03 60.87 62.09 57.89
Total ($/boe)(3) 43.38 37.14 42.91 29.23
Royalties ($/boe) (7.87) (4.61) (7.02) (3.39)
Operating cost ($/boe) (12.14) (10.86) (12.62) (11.05)
Transportation cost ($/boe) (1.88) (1.63) (1.77) (1.55)
Operating netback ($/boe)(4) 21.50 20.04 21.50 13.24

Wells drilled - gross (net)
Development 2 (1.5) 1 (0.5) 5 (3.6) 2 (1.0)
Exploration - 1 (0.5) 3 (2.6) 3 (2.3)
Abandoned - - - -
Total 2 (1.5) 2 (1.0) 8 (6.2) 5 (3.3)

Undeveloped land
Gross (acres) 100,507 113,243
Net (acres) 71,620 78,729
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1. Funds flow from operations is calculated using cash flow from operations
as presented in the statement of cash flows before non-cash working
capital and asset retirement expenditures. Funds flow from operations is
used to analyze the Company's operating performance and does not have a
standardized measure prescribed by Canadian Generally Accepted
Accounting Principles and therefore may not be comparable with the
calculations of similar measures for other companies.
2. Product prices include realized gains or losses from physical fixed
price contracts.
3. Oil equivalent price includes minor sulphur sales revenue.
4. Operating netback equals oil and gas revenues including realized hedging
gains and losses on commodity related contracts less royalties,
operating costs and transportation costs calculated on a boe basis.
Operating netback does not have a standardized measure prescribed by
Canadian Generally Accepted Accounting Principles and therefore may not
be comparable with the calculations of similar measures for other
companies.

2010 FINANCIAL AND OPERATING HIGHLIGHTS

-- Increased 2010 oil and gas revenues 43% to $27.5 million.
-- Recorded a 62% improvement in cash flow to $9.5 million.
-- Increased our crude oil and liquids volumes to 32% of total production
from 10% a year ago.
-- Achieved average production of 1,808 boe/d (32% crude oil and NGLs) and
exited the year at over 2,200 boe/d (40% increase over the 2010 third
quarter average).
-- Increased capital expenditures, net of dispositions, to $28.4 million.
-- Drilled 8 gross (6.2 net) wells (100% success rate), including our first
horizontal Doig well at Inga that tested at an average restricted rate
of 1,895 boe/d with approximately 1,100 bbls/d of condensate and our
first horizontal Montney well at Sinclair that tested at a restricted
rate in excess of 8 mmcf/d, as well as our first shallow cretaceous
horizontal well that tested at 5.3 mmcf/d.
-- Increased proved plus probable reserves 23% to 18.6 mmboe and proved
reserves 13% to 9.4 mmboe highlighted by the increase in proved plus
probable crude oil and liquids reserves by 45% to 3.4 mmbbls((i)).
-- Replaced 2010 production of 660 mboe by 6.3 times and 2.7 times with
proved plus probable and proved reserves additions, respectively.
-- Achieved all-in FD&A costs (including future development costs and
revisions) of $13.21/boe on proved plus probable reserves and $23.78/boe
on proved reserves. The average FD&A costs for the last five years are
$14.17/boe and $21.75/boe on proved plus probable and proved reserves,
respectively (including future development capital and revisions).
-- Increased proved plus probable reserves value 3% to $181.8 million (10%
discount) despite a 24% decrease in the independent engineers' forecast
gas pricing in the near three-year period highlighted by an increase in
crude oil and liquids reserves value by 39% to approximately $82 million
or 39% of proved plus probable reserves value ((i)).
-- Improved operating netbacks 62% to $21.50/boe as a result of increased
crude oil and liquids production.
-- Recorded net asset value of $4.68 per diluted share, details of which
calculation were set out in the Company's February 24, 2011 press
release.
-- Exited the year in excess of $134 million of income tax pools.
-- Increased operating bank line to $56.0 million and added a $10.0 million
acquisition/development line of credit.
-- Exited the year with debt of $51.8 million, up 22% from 2009 due to
lower natural gas prices. Subsequent to year-end, the Company closed a
$16.6 million equity financing to reduce debt and fund a portion of the
2011 capital program.
-- Closed a reverse take-over of COSTA Energy Inc. in January 2010,
resulting in Artek's common shares being listed on the TSX Venture
Exchange (Tier 1 status) on January 21, 2010 under the symbol RTK. On
September 9, 2010, the Company graduated to the Toronto Stock Exchange.


(i) More detailed information in respect of the results of Artek's independent reserves evaluation for the year ended December 31, 2010 as evaluated by Sproule Associates Limited ("Sproule") and related information was contained in Artek's press release dated February 24, 2011 and will be contained in Artek's Annual Information Form to be filed on or before March 31, 2011. It should not be assumed that the discounted future net revenues estimated by Sproule represent the fair market value of the reserves.

OPERATIONS UPDATE AND 2011 OUTLOOK

On March 17, Artek closed a bought deal financing resulting in the issuance of 6.5 million shares for gross proceeds of approximately $16.6 million made up of 4,170,000 common shares at a price of $2.40 per common Share and 1,500,000 common shares on a flow-through basis at a price of $3.00 per flow-through common share. In February, our Company's credit facility was increased to $56 million and in addition we obtained a development line of $10 million providing a total borrowing capability of $66 million. With current net debt estimated at approximately $42 million, the Company has added flexibility to expand its previously announced investment program. As a result, for 2011, Artek plans a capital budget of approximately $29 million to $30 million that would include the drilling of 9 to 10 gross (6 to 7 net) wells. In light of the volatility of oil and natural gas commodity prices, the budget will be subject to quarterly review by the Board of Directors. Approximately 70% of the investment is planned to be directed towards new oil and liquids rich gas drilling operations. With the capital expansion occurring in the second half of the year, the Company anticipates production will average approximately 2,400 to 2,550 boe/d in 2011 and exiting the year at approximately 2,900-3,100 boe/d.

Up to four horizontal wells (60% working interest) or approximately 45% to 50% of the program is planned for the Inga area targeting liquids-rich gas in the Doig formation. Artek has 25 sections of land (15 net) that management believes are prospective in the area around the Company operated 10 mmcf/d natural gas and liquids extraction facility. Company mapping supports up to 39 horizontal locations (22 net) on this high netback property. In addition, Artek has committed to drill a horizontal well this year in order to earn an additional three sections of land in close proximity to our discovery and facilities. Based on the results of its first well at Inga, the Company is targeting gross initial rates of 700 to 1,500 boe/d (20% to 40% condensate) across a spectrum of locations. Late in 2010, Artek drilled its first horizontal well on the Inga property. Following up on its initial 2010 Doig horizontal well that tested at a restricted rate of 1,895 boe/d of which approximately 1,100 bbls/d was condensate, Artek has finished drilling its second horizontal well into the play in the first quarter of 2011. The well was drilled to a total measured depth of 3,100 metres including a 1,200 metre horizontal lateral component and is set for a 12 stage frac stimulation. The frac is scheduled to occur in late March to early April and weather permitting, the well should be on production into spring breakup.

In the Sinclair area, the capital budget includes the drilling of 2 gross (1.2 net) horizontal wells. The first well was drilled in the first quarter targeting natural gas in the upper Montney formation offsetting our 8 mmcf/d 2010 discovery. The well was drilled to a total measured depth of 4,400 metres and is currently awaiting a 14 stage fracture stimulation which is scheduled for the first week of April, but may be delayed if ground conditions make it cost prohibitive. It is early stages in the validation of this play but Artek's 2010 year-end independent reserves evaluation recognized proved plus probable reserves net present value (10% discount factor) of $13.3 million attributed to the Montney in the Sinclair area based on up to $4.5 million of gross value per horizontal well. The Company has 7.5 sections (6.3 net) of Montney rights in the area that it believes will ultimately be developed at three horizontal wells per section, each in both the upper and lower Montney formation. Also in the Sinclair area, Artek intends to drill its second horizontal well (0.7 net) into a shallow Cretaceous formation targeting sweet, liquids-rich gas offsetting its 2010 discovery that tested in excess of 5.3 mmcf/d.

Late in the first quarter, Artek spud a shallow horizontal well in the Peace River Arch area that is targeting light oil in the Triassic. The well should reach total depth by the end of March and is expected to be completed into spring breakup if successful. The Company has accumulated several offsetting prospects targeting Triassic oil at depths of 1,100 to 1,500 metres in the area. In all, Artek has approximately 71 net sections of land in the greater area that has seen in excess of $90 million invested by industry at Crown land sales since the beginning of the year.

The Company plans to drill 2 gross (1.2 to 1.6 net) wells in the Leduc Woodbend area targeting light Glauconite formation oil offsetting its 100 boe/d test drilled in 2010. Artek has steadily increased net production from the property from approximately 420 boe/d when it purchased the asset 18 months ago to just over 600 boe/d of current production. At only $0.9 million gross cost to drill and with current operating netbacks of approximately $50/boe, these wells represent some of the Company's best economics.

Recent events in the Middle East and Japan have created bullish markets for oil and may perhaps shorten the horizon for a return to more reasonable pricing for safe and clean natural gas. Artek will conservatively manage the growth of its extensive inventory of natural gas assets in anticipation of that eventuality. In the short term the Company has hedged approximately 3,000 GJ/d of its natural gas production (approximately 30% to 35% of current production) at $5.09/GJ.

Artek is excited about the balance of relatively low-risk development of liquids-rich Doig gas at Inga and shallow oil at Leduc Woodbend with the exploration upside for gas and oil and liquids in the Sinclair, Deep Basin and Peace River Arch areas and the potential upside value they represent for the Company. We look forward to reporting the results as they unfold in 2011.

ADVISORIES

Forward Looking Statements: This document contains forward-looking statements. Management's assessment of future plans and operations, future results from operations, production estimates including forecast 2011 average and exit rates, initial production rates, drilling plans, timing of drilling and tie-in of wells, productive capacity of new wells, potential prospectivity of the Company's lands at Inga and Sinclair, capital expenditures and the nature and timing of these expenditures ,and financial capacity to carry out its planned 2011 capital program may constitute forward-looking statements under applicable securities laws and necessarily involve risks including, without limitation, risks associated with oil and gas exploration, development, exploitation, production, marketing and transportation, loss of markets, volatility of commodity prices, currency fluctuations, imprecision of reserve estimates, environmental risks, competition from other producers, inability to retain drilling rigs and other services, incorrect assessment of the value of acquisitions, failure to realize the anticipated benefits of acquisitions, the inability to fully realize the benefits of the acquisitions, delays resulting from or inability to obtain required regulatory approvals and ability to access sufficient capital from internal and external sources. As a consequence, the Company's actual results may differ materially from those expressed in, or implied by, the forward looking statements. Forward looking statements or information are based on a number of factors and assumptions 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 the Company can give no assurance that such expectations will prove to be correct.

The recovery and reserve estimates of Artek's reserves provided herein are estimates only and there is no guarantee that the estimated reserves will be recovered. In addition to other factors and assumptions which may be identified in this document and other documents filed by the Company, assumptions have been made regarding, among other things: the impact of increasing competition; the general stability of the economic and political environment in which Artek operates; the ability of the Company to obtain qualified staff, equipment and services in a timely and cost efficient manner; drilling results; the ability of the operator of the projects which the Company has an interest in to operate the field in a safe, efficient and effective manner; Artek's ability 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 or exploration; the timing and costs of pipeline, storage and facility construction and expansion; the ability of the Company to secure adequate product transportation; future oil and natural gas prices; currency, exchange and interest rates; the regulatory framework regarding royalties, taxes and environmental matters in the jurisdictions in which the Company operates; and Artek's ability to successfully market its oil and natural gas products. Readers are cautioned that the foregoing list of factors is not exhaustive. Additional information on these and other factors that could affect the Company's operations and financial results are included in reports on file with Canadian securities regulatory authorities and may be accessed through the SEDAR website (www.sedar.com) or at the Company's website (www.artekexploration.com). Furthermore, the forward looking statements contained in this document are made as at the date of this document and the Company does not undertake any obligation to update publicly or to revise any of the included forward looking statements, whether as a result of new information, future events or otherwise, except as may be required by applicable securities laws.

BOE Conversions: Barrel of oil equivalent ("BOE") amounts may be misleading, particularly if used in isolation. A BOE conversion ratio has been calculated using a conversion rate of one tonne of sulphur to one barrel and six thousand cubic feet of natural gas to one barrel. This conversion ratio of six thousand cubic feet of natural gas to one barrel is based on an energy equivalent conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

Artek is a crude oil and natural gas exploration, development and production company headquartered in Calgary, Alberta, Canada. Artek's shares trade on the TSX under the 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
    www.artekexploration.com