Artek Exploration Ltd.
TSX : RTK

Artek Exploration Ltd.

August 07, 2013 19:55 ET

Artek Exploration Ltd. Announces Second Quarter 2013 Financial Results and Updates Operations and Increases Guidance for 2013

CALGARY, ALBERTA--(Marketwired - Aug. 7, 2013) - 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, 2013. A complete copy of the Company's comparative financial statements for the three and six months ended June 30, 2013, 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

Three Months Ended
June 30
Six Months Ended
June 30
2013 2012 Change 2013 2012 Change
(000s, except per share amounts) ($) ($) (%) ($) ($) (%)
Financial
Petroleum and natural gas
revenues 13,748 9,323 47 28,197 19,110 48
Funds flow from operations (1) 6,622 3,472 91 13,541 6,871 97
Per share - basic 0.11 0.08 38 0.24 0.16 50
- diluted 0.10 0.08 25 0.23 0.16 44
Cash from operating activities 5,508 1,918 -- 12,996 6,432 --
Net earnings 1,667 803 108 3,128 8,909 (65 )
Per share - basic 0.03 0.02 50 0.05 0.21 (76 )
- diluted 0.03 0.02 50 0.05 0.20 (76 )
Capital expenditures 17,717 13,417 32 38,403 27,277 41
Dispositions -- -- -- -- 19,444 --
Net debt (2) 36,947 49,689 (26 ) 36,947 (49,689 ) (26 )
Shareholders' equity 154,445 103,494 49 154,445 103,494 49
(000s) (# ) (# ) (% ) (# ) (# ) (% )
Share Data
At period-end
Basic 62,473 43,444 44 62,473 43,444 44
Options 4,000 4,151 (4 ) 4,000 4,151 (4 )
Weighted average
Basic 62,473 43,435 44 57,077 43,434 31
Diluted 64,103 43,907 46 58,751 43,832 34
(% ) (% )
Operating
Production
Natural gas (mcf/d) 11,813 9,667 22 12,242 9,498 29
Crude oil (bbls/d) 1,020 885 15 1,076 860 25
NGLs (bbls/d) 281 158 78 319 144 122
Total (boe/d)(3) 3,270 2,654 23 3,436 2,587 33
Average wellhead prices (4)
Natural gas ($/mcf) 3.90 2.04 91 3.74 2.16 73
Crude oil ($/bbl) 88.60 78.89 12 86.32 81.35 6
NGLs ($/bbl) 48.14 64.79 (26 ) 50.82 67.77 (25 )
Total ($/boe)(5) 46.12 38.06 21 45.30 39.20 16
Royalties ($/boe) (8.20 ) (7.11 ) 15 (8.16 ) (7.64 ) 7
Operating cost ($/boe) (10.67 ) (10.20 ) 5 (10.08 ) (10.71 ) (6 )
Transportation cost ($/boe) (1.97 ) (1.64 ) 20 (1.93 ) (1.54 ) 25
Operating netback ($/boe)(6) 25.28 19.11 32 25.13 19.32 30
Drilling activity - gross (net)
Development (#) 1 (0.6 ) -- (-- ) 6 (3.0 ) 3 (2.6 )
Exploration (#) 1 (1.0 ) 2 (1.2 ) 3 (2.2 ) 2 (1.2 )
Abandoned (#) -- (-- ) -- (-- ) -- (-- ) -- (-- )
Total (#) 2 (1.6 ) 2 (1.2 ) 9 (5.2 ) 5 (3.8 )
Average working interest (%) 80 60 58 76
Success rate (%) 100 100 100 100
(1) Funds flow from operations is calculated using cash 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) Current assets less current liabilities, excluding fair value of derivative instruments.
(3) For a description of the boe conversion ratio, refer to the advisories contained herein.
(4) Product prices include realized gains/losses from financial derivative contracts.
(5) Oil equivalent price includes minor sulphur sales revenue.
(6) Operating netback equals petroleum and natural gas revenues plus realized gains/losses on financial derivatives 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 3,270 boe/d, up 23% from the second quarter of 2012. Shut-ins related to the facility expansion at Inga, British Columbia along with increased restrictions while pad drilling, and third party facility turnarounds amounted to a reduction of over 500 boe/d for the current quarter than would normally have been realized.

  • Improved crude oil and liquids volumes 25% to 1,301 bbls/d, of which 78% was oil and condensate, representing 40% of total production.

  • Increased funds flow from operations 91% to $6.6 million and 25% on a diluted per share basis to $0.10 per share.

  • Improved operating netbacks 32% to $25.28/boe.

  • Drilled 2 (1.6 net) wells (100% success rate), including 1 (0.6 net) well at Inga and 1 (1.0 net) well at Mulligan, Alberta and brought three wells on-stream during the quarter.

  • Invested $17.7 million in capital expenditures, including $0.9 million on undeveloped land acquisitions in our core operating areas and $1.5 million on expansion of the Company's Inga natural gas facility.

  • Closed a bought deal equity financing where Artek issued 8.7 million common shares at a price of $3.45 per share and 2.15 million flow-through shares at a price of $4.20 per share for aggregate gross proceeds of $39.0 million.

  • Exited the period with a working capital deficiency of $36.9 million, down 24% from year-end.

  • Increased operating bank line from $65.0 million to $75.0 million.

Financial Summary

Artek's average production for the three-month period ending June 30, 2013 was 3,270 boe/d (40% liquids), up 23% from the previous year. Shut-ins related to our facility expansion at Inga, which experienced some delays due to weather over spring break-up, as well as increased shut-in requirements during the pad drilling and completion of four wells at Inga, and longer than expected third party facility turnarounds accounted for a reduction of over 500 boe/d of production volumes that may otherwise have been realized for the quarter. During the period, funds flow increased 91% to $6.6 million and 25% on a diluted per share basis to $0.10 per share from last year. The Company's operating netback was $25.28/boe in the second quarter, up 32% from the 2012 second quarter, while funds flow netback of $22.26/boe was up 55% from the previous period.

On March 28, 2013, Artek closed a bought deal equity financing where Artek issued 8.7 million common shares at a price of $3.45 per share and 2.15 million flow-through shares at a price of $4.20 per share for aggregate gross proceeds of $39.0 million. Consequently, the Company's working capital deficiency of $36.9 million at June 30, 2013 was down 24% from year-end.

Artek has entered into several commodity hedges to protect its cash flow and capital budget for the remainder of the year. The Company has put a floor price of $3.00/GJ on 6,000 mmbtu/d of natural gas production for the period April to October 2013. As part of the same transaction for the same period, Artek gave up a call on 600 bbls/d of crude oil production at an average price of CDN$101.37/bbl WTI. The Company has also entered into natural gas production swaps on 2,000 mmbtu/d from April to December 2013 at a fixed price of $3.27/GJ and 1,000 mmbtu/d at a fixed price of $3.41/GJ from April to October 2013. Lastly, 200 bbls/d of crude oil production has been fixed at CDN$96.00/bbl WTI for the period June to December 2013 and 100 bbls/d has been fixed at CDN$103.00/bbl from August to December 2013.

Operations Review

At Inga, Artek has drilled 5 (3.0 net) horizontal wells to date in 2013 utilizing multi-fracture completions: three development wells targeting the Doig formation and two exploratory wells targeting the Montney. The average 30-day initial sales volumes from the three Doig wells was approximately 1,000 boe/d per well (38% NGLs), while the average liquids yield was approximately 100 bbls/mmcf of natural gas. These three wells extend the Doig pool on the north end of Artek's Inga play. During the second half of 2013, the Company's horizontal drilling plans will be focused primarily in the southern part of the Inga play trend, including potential pool extensions.

Artek also drilled 2 (1.2 net) exploratory Montney horizontal wells during the first six months of the year. These wells are part of a three-well program currently planned for 2013 that will utilize different completion techniques in order to provide information that helps the Company assess what works best for potential future Montney development. The first well was completed using nitrogen foam energized water, and during the first 30 days, production averaged 820 mcf/d of raw gas and 102 bbls/d of NGLs (85% condensate). This equates to average total gross sales volumes of approximately 220 boe/d (46% liquids) with an average liquids yield of 124 bbls/mmcf of natural gas. During the completion, the Company sanded off certain fracture stages and encountered an obstruction near the heel on drill out. After remedial work, Artek was only able to drill out to approximately half of the horizontal length initially planned. An analysis conducted by the Company suggests that considerable formation damage occurred during the completion. The second Montney well was drilled approximately 1.5 miles to the south and was logged and cored with a pilot well, and subsequently drilled out horizontally. This well was completed using propane, and during the first 30 days, production averaged 2.5 mmcf/d of raw gas and 286 bbls/d of NGLs (77% condensate). This equates to total average gross sales volumes of approximately 637 boe/d (45% liquids) with an average liquids yield of 114 bbls/mmcf of natural gas. The Company is encouraged by the initial results from its Montney exploration program and the high liquids yields enhance the well economics in the current commodity price environment. The third Montney test at Inga is scheduled for early fall.

During the first half of the year, Artek invested approximately $3 million net to expand its operated Inga facility from 16 mmcf/d to current capacity of approximately 28 mmcf/d. Due to delays caused primarily by unusually wet weather in June, the Company was required to shut-in production for longer than anticipated. As well a medium-cut third party facility was down longer than expected for a turnaround leading the Company to direct more production volumes to a shallow-cut third party facility that resulted in lower liquids yields from its natural gas than experienced in prior quarters. The Company's facility is now anticipated to be able to accommodate expected volumes well into 2014.

Artek also drilled a 100% horizontal well in the Mulligan area of the Peace River Arch of Alberta targeting Triassic oil and gas at a relatively shallow depth of 1,200 metres. During the last week of July, the well was completed using a hydrocarbon based multi-stage fracturing technique and after 109 hours of production testing, was flowing at a restricted rate of 3.6 mmcf/d, 60 bbls/d of oil and 98 bbls/d of water at a strong flowing pressure of 1,060 PSI or a total rate of approximately 650 boe/d net of load. The well is anticipated to get another 40 bbls/d of liquids from the rich natural gas stream at plant. The Company is encouraged by the test and expects to have the well on production by the third week of August. Artek has accumulated approximately 32 gross (30 net) sections of land that are prospective for multi-zone oil and liquids-rich natural gas on this Triassic stratigraphic play that is sandwiched between recent industry activity at Spirit River and the Cecil Triassic oil developments. Management believes there are five prospective target zones to be evaluated that will get progressively oilier as the horizontals move up section in the Triassic. The Company has a total of over 65 gross (60 net) sections of land in what it maps as the oil-prone fairway for various Triassic reservoirs in the greater Peace River Arch area. The well cost is estimated to be $4.5 million which management believes can be reduced to between $3.5 million and $3.8 million for future wells by utilizing water-based completion methods that should provide for compelling economics for the play. Industry is developing the trend at four to six horizontal wells per section which could add significantly to the Company's inventory of oil and liquids-rich natural gas locations. An additional well may be drilled on the play by the end of 2013.

Core Property Acquisition

On August 1, 2013, Artek entered into an agreement to acquire certain natural gas assets located at Fireweed in northeastern British Columbia, adjacent to our core operating and producing area at Inga, for cash consideration of $15.5 million (before closing adjustments). The acquisition has an effective date of April 1, 2013 and is subject to standard industry closing conditions. Closing is expected to occur on or around August 9, 2013. The Company, along with its partner at Inga (Kelt Exploration Ltd.), will each be acquiring a 50% working interest in the assets, which includes gross production of approximately 1,200 boe/d. Artek will be the operator of the property.

Key attributes of Artek's 50% working interest in the Fireweed assets to be acquired include the following:

  • Current net production estimated to be approximately 600 boe/d (79% natural gas and 21% NGLs).

  • Net operating income for the first six months of 2013 was approximately $1.9 million.

  • Petroleum and natural gas reserves to be acquired were evaluated by an independent qualified reserves evaluator effective December 31, 2012. Proved developed producing reserves were 1.23 mmboe with no associated future development costs.

  • An operated compression and dehydration facility with approximately 16 mmcf/d of capacity and 25 kilometres of pipeline significantly expands Artek's infrastructure in the area.

  • A complementary fit with a contiguous land position adjacent to our Inga exploration and development core area, and adjacent to our undeveloped Fireweed area, including 11,227 net acres (15.8 net sections) of land (6,299 net acres with Doig mineral rights and 7,097 net acres with Montney mineral rights).

The Fireweed acquisition adds to Artek's inventory of horizontal drilling locations targeting the Doig formation where it sees an additional five to seven development locations and provides the Company with significant expansion of its land base for potential exploration in the Montney formation. After giving effect to the acquisition, Artek owns 73,019 gross (41,655 net) acres or 107 gross (61 net) sections of land with Doig rights and 81,548 gross (48,258 net) acres or 120 gross (71 net) sections of land with Montney rights in the greater Inga/Fireweed area. The acquisition significantly expands both our Company's land and infrastructure footprint in the region. We believe there are many operational synergies for both our existing core Inga producing area assets and our existing undeveloped land position at Fireweed to be realized through the acquisition.

Outlook

The Company is expanding its capital program with plans to increase the number of horizontal wells drilled in the second half of the year from 5 to approximately 6 - 7 (3.6 - 4.2 net) thereby bringing its total number of wells for the year from 14 to an estimated 15 - 16 (8.8 - 9.4 net). The additional horizontal wells are all planned for the Inga/Fireweed area. One well targeting the liquids-rich Montney is scheduled for early fall and the remaining five to six wells will be targeting the liquids-rich Doig. Primary focus will be in the high liquids yield area of southern Inga where the Company has acquired proprietary 3-D seismic data and sees potential pool extensions. Artek also plans to address some gathering line debottlenecking in the area. Abnormally wet summer conditions in the area have our operations three weeks behind schedule following spring breakup, but the first Doig horizontal well of the second half of 2013 has been drilled and is waiting for weather to start completion operations which are expected to commence in mid-August. Two rigs are now running and scheduled to spud two additional Doig wells at south Inga in early August.

Upon successful closing of its complementary Fireweed acquisition, current pro-forma production volumes are estimated to be approximately 4,200 boe/d (40% liquids) with an additional 400 boe/d awaiting tie-in or gathering line debottlenecking by the end of August. Total capital investment for 2013, assuming closing of the Fireweed acquisition and including the capital expansion plans, is anticipated to be approximately $84 million to $88 million, resulting in an increased forecast exit production rate of approximately 4,800 to 5,000 boe/d (40% liquids) depending on operational timing with an average production rate of 3,900 to 4,000 boe/d for 2013. In addition, after giving effect to the Fireweed acquisition and second quarter land acquisitions, Artek's undeveloped land position has grown to approximately 192,000 net acres, representing a significant increase of over 50% from year-end. We are excited about the potential operational synergies to be realized from our expanding opportunity base in our core operating area located in northeastern British Columbia, and look forward to reporting on our Montney and Doig exploration efforts at Inga and our new Triassic play at Mulligan in the second half of 2013.

ADVISORIES

Forward Looking Statements: This document contains forward-looking statements. Management's assessment of future plans and operations, future results from operations, completion of the Fireweed acquisition and anticipated timing thereof, production estimates including forecast 2013 average and exit rates, commodity mix, initial production rates, drilling plans including the number and locations of wells to be drilled, 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 2013 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 (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 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
    www.artekexploration.com