Artek Exploration Ltd.

Artek Exploration Ltd.

August 08, 2012 20:27 ET

Artek Exploration Ltd. Announces Second Quarter 2012 Financial Results and Updates Operations

CALGARY, ALBERTA--(Marketwire - Aug. 8, 2012) -

Artek Exploration Ltd. (TSX:RTK) of Calgary, Alberta ("Artek" or the "Company") is pleased to provide this summary of its financial and operating results for the three and six months ended June 30, 2012. A complete copy of the Company's comparative financial statements for the three and six months ended June 30, 2012, along with management's discussion and analysis in respect thereof will be filed on SEDAR and on the Company's website at


Three Months Ended June 30 Six Months Ended June 30
2012 2011 Change 2012 2011 Change
(000s, except per share amounts) ($) ($) (%) ($) ($) (%)
Petroleum and natural gas
Revenues 9,323 11,956 (22 ) 19,110 21,059 (9 )
Funds flow from operations (1) 3,472 5,490 (37 ) 6,871 9,363 (27 )
Per share - basic 0.08 0.14 (43 ) 0.16 0.25 (36 )
- diluted 0.08 0.14 (43 ) 0.16 0.25 (36 )
Net earnings (loss) 803 2,175 (63 ) 8,909 (2,662 ) 435
Per share - basic 0.02 0.05 (60 ) 0.21 (0.07 ) 400
- diluted 0.02 0.05 (60 ) 0.20 (0.07 ) 400
Capital expenditures 13,417 7,748 73 27,277 19,087 43
Dispositions - - - 19,444 - -
Working capital deficiency
(excluding fair value of
derivative instruments) (49,689 ) (45,572 ) 9 (49,689 ) (45,572 ) 9
Shareholders' equity 103,494 98,911 5 103,494 98,911 5
(000s) (#) (#) (%) (#) (#) (%)
Share Data
At period-end
Basic 43,444 39,583 10 43,444 39,583 10
Options 4,151 2,795 49 4,151 2,795 49
Weighted average
Basic 43,435 39,583 10 43,434 36,890 18
Diluted 43,907 39,914 10 43,832 37,200 18
(%) (%)
Natural gas (mcf/d) 9,667 7,740 25 9,498 7,897 20
Crude oil (bbls/d) 885 956 (7 ) 860 858 --
NGLs (bbls/d) 158 73 116 144 74 95
Total (boe/d)(2) 2,654 2,319 14 2,587 2,248 15
Average wellhead prices (3)
Natural gas ($/mcf) 2.04 4.66 (56 ) 2.16 4.59 (53 )
Crude oil ($/bbl) 78.89 93.85 (16 ) 81.35 88.32 (8 )
NGLs ($/bbl) 64.79 77.67 (17 ) 67.77 74.16 (9 )
Total ($/boe)(4) 38.06 56.90 (33 ) 39.20 52.60 (25 )
Royalties ($/boe) (7.11 ) (12.36 ) (42 ) (7.64 ) (10.26 ) (26 )
Operating cost ($/boe) (10.20 ) (11.21 ) (9 ) (10.71 ) (11.48 ) (7 )
Transportation cost ($/boe) (1.64 ) (1.80 ) (9 ) (1.54 ) (1.78 ) (13 )
Operating netback ($/boe)(5) 19.11 31.54 (39 ) 19.32 29.08 (34 )
Drilling activity - gross (net)
Development (#) - (-) - (-) 3 (2.6) 2 (0.9)
Exploration (#) 2 (1.2) - (-) 2 (1.2) 1 (1.0)
Abandoned (#) - (-) - (-) - (-) - (-)
Total (#) 2 (1.2) - (-) 5 (3.8) 3 (1.9)
Average working interest (%) 60 - 76 63
Success rate (%) 100 - 100 100

(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 decommissioning 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.

Second Quarter Financial and Operating Highlights

  • Increased average production to 2,654 boe/d, up 14% from the second quarter of 2011 despite shutting in an average of approximately 200 boe/d of dry natural gas volumes due to low natural gas prices during the quarter.
  • Crude oil and liquids volumes rose to 1,043 bbls/d or 39% of total corporate production.
  • Drilled 2 (1.2 net) horizontal wells and conducted 2 (1.2 net) completions (100% success rate) at Inga, British Columbia resulting in impressive test rates of 2,520 boe/d including approximately 1,700 boe/d of condensate, and 1,834 boe/d, including approximately 830 bbls/d of condensate each respectively from the Doig formation.
  • Funds flow from operations for the quarter was $3.5 million or $0.08 per diluted share.
  • Operating netbacks declined 39% to $19.11/boe due to natural gas prices falling 56% and crude oil prices dropping 16% since the second quarter of 2011.
  • Operating costs decreased 9% to $10.20/boe compared to both the second quarter of 2011 and the first three months of 2012.
  • Invested $13.4 million in capital expenditures, including $9.7 million on drilling and completion activities.
  • Exited the period with a working capital deficiency of $49.7 million.
  • Maintained operating bank line at $60.0 million and acquisition/development line of credit at $10.0 million.


For the second quarter of 2012, Artek's cash flow declined 37% to $3.5 million compared to the same period last year due to a 56% year-over-year drop in natural gas prices and a 16% decrease in crude oil prices. Extended spring breakup conditions and complications in an uphole zone in one of its horizontal wells resulted in delayed on-stream times during the quarter. In addition the Company continued to have approximately 200 boe/d of dry natural gas production shut-in throughout the period due to low natural gas prices. Despite these occurrences, Artek posted a 14% increase in production to 2,654 boe/d. Artek's 39% oil and liquids weighting (down from the 2011 fourth quarter weighting of 42% after giving effect to an oil asset sale earlier in the year) allowed our Company to achieve a quarterly operating netback of $19.11/boe and a cash netback of $14.38/boe despite lower commodity prices. Operating costs improved 9% to $10.20/boe for the quarter compared to both the same period last year and the first quarter of 2012.

Artek generated second quarter earnings of $0.8 million. The Company's working capital deficiency (excluding fair value of derivative instruments) was $49.7 million at June 30, 2012.

Operations Review - Liquids Focus

Artek invested $13.4 million during the second quarter, including the successful completion of a horizontal well at Inga in May, which flowed after a 124-hour clean up and production test period at an impressive 2,520 boe/d (1,700 bbls/d condensate) at 1,046 PSI, and the drilling of two additional horizontal wells. During drilling operations of the second Inga well of the year, the Company experienced operational difficulties and delays due to the inflow of oil and gas from the uphole Charlie Lake formation which it believes has good permeability. As a result, Artek shortened its planned horizontal length to approximately 618 metres. The well tested at an average rate of 1,834 boe/d (830 bbls/d of condensate) at 1,205 PSI following a 70-hour production test period. The Charlie Lake formation, which has "kicked" during other Company operations and produces in the area, was perforated independently, but not fracture stimulated, and tested after a 20-hour clean up test period at approximately 380 bbls/d of light oil at 70 PSI. As Artek is unable to dually produce the zone with the deeper Doig production, the Company plans to evaluate this exploration zone further as a potential secondary development zone in an independent well operation that is planned for 2013. The Company has approximately 19 sections (11 net) of Charlie Lake rights that it looks forward to evaluating in the new year.

By the end of the second quarter, Artek had drilled its third horizontal well of the year at Inga with a lateral of approximately 1,200 metres. The completion of the well has been delayed due to mechanical difficulties experienced during the early stages of the fracture stimulation program, and consequently, Artek is waiting on tools to finish the operation. Preliminary results from the well to date in terms of rate and presence of liquids are encouraging and management is looking forward to the completion of the operation within the next 30 to 60 days. The Doig formation at Inga continues to be the focus of Artek's short-term capital investment plans. To date, the average test rate from the Company's six horizontal Doig wells has exceeded management expectations at over 2,100 boe/d (approximately 1,280 bbls/d condensate) with an average first-month production rate, despite initial short-term facility capacity constraints, of approximately 1,200 boe/d. The Company continues to add to its Doig interests in the area adding another 3,700 ha (2,400 net) of Doig rights year to date or approximately 23 sections (14 net) bringing Artek's total holdings to 47 sections (29 net).


Based on field estimates, Artek's production during July averaged approximately 2,800 boe/d with approximately 200 boe/d of dry natural gas production shut-in due to lower summer natural gas prices.

The Company is currently drilling the horizontal lateral in our fourth horizontal Doig well of the year at Inga, which is the furthest southwest test of the project to date. We are encouraged by the presence of multiple natural fractures and enhanced permability that have caused us to increase mudweights significantly to offset natural gas and condensate inflow while drilling. The well is scheduled to be completed at the end of August. Up to three additional horizontal wells are scheduled to be drilled in the Inga area throughout the remainder of the year. Also in the third quarter the Company is investing approximately $1.1 million in a sales line to a deep cut facility that will increase its liquids recovery for the Doig play from the current 15 bbls/mmcf to approximately 30 bbls/mmcf of natural gas, which is in addition to the free condensate recovered at its own facilities, further improving the already excellent netbacks and economics of the play. The additional sales line which should see partial volumes as early as late third quarter of this year provides the Company with the flexibility of two plant options for its production volumes at Inga to ensure sales capacity for the long term. In addition, Artek's third quarter drilling plans include 4 (1.6 net) vertical wells targeting Glauconite oil at Leduc Woodbend located in central Alberta.

Countercyclically, Artek has also been acquiring exploration lands, investing approximately $4.7 million year to date primarily on acquiring interests in what the Company believes has the potential to be another liquids rich resources play for its inventory.

The Company has accumulated over 15,600 hectares (9,500 net) or approximately 58 sections (35 net) on the play and has an operation planned in the second half of this year to help with the initial evaluation of the play.

As a result of lower crude oil and natural gas prices, Artek plans to delay some of its third quarter capital spending until early fourth quarter, and coupled with the delay in bringing on-stream our third Inga horizontal discussed earlier will result in a lower production number for the early part of the second half of the year. Consequently the second half average production is forecast to be between 3,200 and 3,400 boe/d, while still maintaining our year-end exit rate forecast of over 4,000 boe/d. In recent weeks, we have seen a gradual but marked increase in the forward strip for natural gas pricing. Artek's re-scheduling of capital and subsequent decision to delay bringing production on-stream until the fourth quarter should be consistent with a better realized natural gas price. In the meantime, Artek has added some natural gas hedges. For the remainder of the year, the Company has 3,000 mmbtu/d hedged at Henry Hub pricing less US$0.40/mmbtu, which has consistently been higher than realized AECO pricing, and has also locked in 2,000 GJ/d at $2.32/GJ and $2.40/GJ for the months of August and September, respectively. The Company believes that natural gas prices will continue to improve into 2013 and beyond and that its balance in liquids and natural gas production as well as expanding inventory should position it well in the new year.


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 2012 average and exit rates, commodity mix, initial production rates, drilling plans, the volumes and estimated value of reserves, timing of drilling and tie-in of wells, number of potential drilling locations, productive capacity of new wells, estimates of shut-in production and the timing thereof, future oil and natural gas prices, capital expenditures and the nature and timing of these expenditures, cash flow estimates and financial capacity to carry out its planned 2012 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.

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 ( or at the Company's website ( 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 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. Given that the value ratio based on the current price of crude oil as compared to natural gas is significantly different from the energy equivalency of 6:1, utilizing a conversion ratio on a 6:1 basis may be misleading as an indication of value.

Test results and initial production rates: the pressure transient analysis or well test interpretation has not been carried out and thus certain of the test results provided herein should be considered to be preliminary until such analysis or interpretation has been completed. Test results and initial production rates disclosed herein may not necessarily be indicative of long-term performance or of ultimate recovery.

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