Artek Exploration Ltd.
TSX : RTK

Artek Exploration Ltd.

May 26, 2011 19:03 ET

Artek Announces First Quarter 2011 Financial Results and Updates Operations

CALGARY, ALBERTA--(Marketwire - May 26, 2011) - Artek Exploration Ltd. ("Artek" or the "Company") (TSX:RTK) is pleased to provide this summary of its financial and operating results for the quarter ended March 31, 2011. A complete copy of the Company's comparative financial statements for the quarter ended March 31, 2011, 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.

HIGHLIGHTS


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Three Months Ended March 31,             2011           2010         Change 
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(000s, except per share                                                     
 amounts)                                  ($)            ($)            (%)
Financial                                                                   
Petroleum and natural gas                                                   
 revenues                               9,103          8,229             11 
Funds flow from operations (1)          3,873          3,046             27 
 Per share - basic                       0.11           0.12             (8)
           - diluted                     0.11           0.12             (8)
Net loss                               (4,836)          (428)         1,030 
 Per share - basic                      (0.14)         (0.02)           600 
           - diluted                    (0.14)         (0.02)           600 
Capital expenditures                   11,339         11,730             (3)
Working capital deficiency            (43,352)       (50,318)           (14)
Shareholders' equity                   96,357         78,420             24 
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(000s)                                     (#)            (#)            (%)
Share Data                                                                  
At period-end                                                               
 Basic                                 39,583         25,488             55 
 Options and warrants                   2,795          2,504             12 
Weighted average                                                            
 Basic                                 34,167         25,423             34 
 Diluted                               34,167         25,590             34 
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                                                                         (%)
Operating                                                                   
Production                                                                  
 Natural gas (mcf/d)                    8,056          8,807             (9)
 Crude oil (bbls/d)                       760            539             41 
 NGLs (bbls/d)                             74             64             16 
 Total (boe/d)(2)                       2,177          2,071              5 
Average wellhead prices                                                     
 Natural gas ($/mcf)(3)                  4.52           5.29            (15)
 Crude oil ($/bbl)                      81.29          76.81              6 
 NGLs ($/bbl)                           70.67          64.24             10 
 Total ($/boe)(4)                       47.97          44.45              8 
Royalties ($/boe)                       (8.01)         (7.55)             6 
Operating cost ($/boe)                 (11.76)        (12.29)            (4)
Transportation cost ($/boe)             (1.76)         (1.74)             1 
Operating netback ($/boe)(5)            26.44          22.87             16 
Drilling activity - gross (net)                                             
 Development (#)                       3 (1.9)        1 (0.5)               
 Exploration (#)                       -- (--)        2 (2.0)               
 Abandoned (#)                         -- (--)        -- (--)               
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 Total (#)                             3 (1.9)        3 (2.5)               
Average working interest (%)               64             83                
Success rate (%)                          100            100                
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(1) Funds flow from operations is calculated using cash flow from operating 
    activities, as presented in the statement of cash flows, before changes 
    in non-cash working capital and settlement of asset retirement costs.   
    Funds flow from operations is used to analyze the Company's operating   
    performance and leverage. Funds flow from operations does not have a    
    standardized measure prescribed by International Financial Reporting    
    Standards ("IFRS"), and therefore, may not be comparable with the       
    calculations of similar measures for other companies.                   
(2) For a description of the boe conversion ratio, refer to the advisories  
    contained herein.                                                       
(3) Product prices include realized gains/losses from financial derivative  
    contracts.                                                              
(4) Oil equivalent price includes minor sulphur sales revenue.              
(5) Operating netback equals revenue less royalties, transportation and     
    operating costs calculated on a per boe basis. Operating netback does   
    not have a standardized measure prescribed by IFRS, and therefore, may  
    not be comparable with the calculations of similar measures for other   
    companies.                                                              

First Quarter Financial and Operating Highlights                            

--  Production averaged 2,177 boe/d, up 5% and 21% from the first and fourth
    quarters of 2010, respectively. Exit production for the period was
    approximately 2,700 boe/d of which over 40% was crude oil and NGLs
    production. 
--  Crude oil and NGLs production increased to 38% of production to 834
    boe/d  which is up from 34% for the fourth quarter of 2010 and 29%
    for the same period last year.
--  Operating netbacks totaled $26.44/boe, a 16% and 23% increase from the
    first and fourth quarters of 2010, respectively. 
--  Funds flow from operations grew to $3.9 million, representing a 27%
    increase from the first three months last year and a 53% improvement
    from the fourth quarter of 2010. 
--  Exited the period with a working capital deficiency of $43.4 million,
    down 14% from year-end. 
--  Capital expenditures totaled $11.3 million, the majority of which were
    allocated to drilling and completion activities. 
--  Drilled 3 gross (1.9 net) wells (100% success rate), including our
    second horizontal Doig well at Inga, British Columbia that tested at an
    average restricted rate of 2,040 boe/d with approximately 1,400 bbls/d
    of condensate. 
--  Closed a $16.6 million equity financing resulting in the issuance of 4.8
    million common shares at $2.40 per share and 1.7 million flow-through
    common shares at $3.00 per share. The funds were used to reduce debt and
    fund a portion of our 2011 capital program. 
--  Increased our operating bank line to $56.0 million and added a $10.0
    million acquisition/development line of credit. 

Operations Review - Liquids Focus

During the first three months of 2011, production averaged 2,177 boe/d, of which 38% was oil and NGLs. First quarter production was impacted by an unscheduled outage at Sem Cams K3 plant which resulted in approximately 100 boe/d of production being shut-in for three weeks, and facility delays during the startup of new production at our Inga property resulting in a combined negative impact to first quarter production of approximately 100 boe/d. Artek exited the period producing approximately 2,700 boe/d of which approximately 40% was oil and NGLs. During the quarter, Artek successfully drilled 3 gross (1.9 net) horizontal wells and completed an additional well. At Inga, the Company successfully drilled and completed its second horizontal Doig well (60% W.I.) at 5-11-88-23 W6M. After a 12-stage fracture stimulation program using GasFrac's propane frac technology, the well flowed after a 70-hour test period at approximately 2,040 boe/d, of which approximately 1,400 bbls/d was condensate, at a flowing pressure of 1,070 PSI. After a month of production, the well is producing at a restricted rate of approximately 1,500 boe/d, of which approximately 50% is condensate. Artek's first Inga well, which had only seven fracs completed, produced 1,100 boe/d during its first month of production. It was producing ahead of the Company's decline curve expectations at approximately 450 boe/d after four months of production, of which approximately 25% to 30% was condensate. The well has been restricted in order to allow the second well to be placed on-stream for assessment and because our operated facility is currently at full natural gas processing capacity (between 6.5 to 7.0 mmcf/d). Facility expansion plans are underway that are expected to provide up to 16.0 mmcf/d gas processing capacity by the fourth quarter of 2011. Artek will recommence its Inga drilling program in June and plans to drill three additional horizontal wells targeting the liquids-rich Doig formation. All three wells are expected to be completed by the end of the third quarter using similar multi-stage fracturing techniques. The Company has 25 gross (15 net) sections of land on the Inga play and an additional three sections under option through a farm-in agreement. We estimate the play will be developed at approximately three wells per section and have identified approximately 39 gross (22 net) locations on Company lands.

At Sinclair/Glacier, Artek drilled its second horizontal Montney well. Due to spring breakup and poor road conditions, the completion had to be delayed until road conditions permit, and as a result, the well is now scheduled for a 14-stage fracturing stimulation program that is expected to commence in early June. The Company's first horizontal in the Montney tested at 8.0 mmcf/d, was brought on-stream in the fourth quarter of 2010, and after six months, was producing at approximately 3.0 mmcf/d, ranking it as one of the superior wells on the play. Artek has 7.5 gross (6.3 net) sections of land at Sinclair/Glacier that are being developed at three wells per section in both the Upper and Lower Montney.

In the Dunvegan area of the Peace River Arch, the Company drilled 1 gross (1.0 net) horizontal well targeting oil and gas in the Triassic at just over 1,300 metres in depth. The well swabbed at an unstimulated rate of approximately 20 bbls/d of 30 degrees API sweet crude oil and was subsequently stimulated using a 9-stage hydrocarbon frac. After a five day test, the well flowed at a final rate of 208 bbls/d of oil, 1,875 bbls/d of water, 1,460 kPa flowing wellhead pressure (212 PSI) and 1.3 mmscf/d of natural gas or approximately 421 boe/d. In anticipation of the water, which the Company believes is flowing from a regional aquifer at the Triassic subcrop above the target reservoir, we have converted a suspended Artek well on the adjacent lease to water disposal. Final approval for the water disposal facility is expected by July. We anticipate operating netbacks, after water disposal is in effect, of approximately $45 to $47/boe, assuming a CDN$95/bbl wellhead oil price and a $3.85/GJ AECO natural gas price. Artek has 12 sections of prospective land on the immediate play trend and a total of 71 sections of land in the oil and liquids prone shallow Peace River Arch area of Alberta that saw approximately $90 million of investment at crown land sales during the first quarter of 2011.

Scheduled and unscheduled plant turnarounds and outages at three main facilities are anticipated to impact the Company's second quarter production by approximately 400 to 450 boe/d. Specifically, a regularly scheduled three-year turnaround at the McMahon gas plant in British Columbia will affect approximately 500 boe/d of production from our Inga property for approximately 20 days until June 10, and 100% (approximately 1,000 boe/d) will be affected for approximately another 20 days until June 29 when the plant is scheduled to resume production processing capabilities. Turnarounds of major sour facilities occur approximately every three years. In the Deep Basin area, the Noel gas processing facility was down for six days in early May for a turnaround, affecting approximately 280 boe/d, and the Sexsmith plant will be down for approximately 17 days in early June for a turnaround that will curtail approximately 140 boe/d of production from our Company's Sinclair/Glacier properties. In addition, the K3 SemCams facility experienced an outage due to a sulphur blockage in the plant that required a full 15-day shut-in of approximately 100 boe/d of Company production. Consequently, the Company forecasts average production for the second quarter to be approximately 2,250 to 2,300 boe/d. The Company still anticipates meeting its previously released 2011 annual production guidance of 2,400 to 2,550 boe/d.

Outlook

For the remainder of the year, the Company plans to drill another 6 gross (4.6 net) wells. In addition to the 3.0 gross (2.4 net) horizontal Doig wells at Inga, we anticipate drilling at least 2 gross (1.2 net) vertical wells on our Leduc Woodbend Glauconite oil property (offsetting our 2010 well that is currently producing water-free at approximately 120 bbls/d after six months), and an additional 1 gross (1.0 net) horizontal well targeting shallow Triassic oil at Dunvegan. The Company currently forecasts to meet or exceed its previous exit guidance of 2,900 to 3,100 boe/d, of which approximately 40% is expected to be oil and NGLs. Artek has expanded its capital program to $32 million to $34 million in order to incorporate the facility expansion capital required at Inga and to accommodate the water disposal facilities at Dunvegan.

We are pleased with the progress we have made to date on our strategy to focus on oil and liquids-rich targets in our inventory. Consequently, we have seen oil and NGLs production increase from 10% of total production in 2009 to 29% in the first quarter of 2010 and to over 38% in the first quarter 2011, which has resulted in a corresponding 16% year-over-year increase in our operating netback. We will continue to manage our deep inventory of natural gas reserves and locations in anticipation of the gradual increase in natural gas prices over the next several years.

ADVISORIES

Forward Looking Statements: This document contains forward-looking statements. Management's assessment of future plans and operations, production estimates and forecasts for second quarter and 2011 average and exit production, initial production rates, drilling plans, timing of drilling and tie-in of wells, periods in which certain wells may be shut-in, the effect of plant turnarounds and outages, productive capacity of new wells, capital expenditures and the nature and timing of these expenditures, 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.

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

    Artek Exploration Ltd.
    Darcy Anderson
    Vice President Finance and Chief Financial Officer
    (403) 296-4775