Artek Exploration Ltd.
TSX : RTK

February 24, 2011 09:00 ET

Artek Exploration Ltd. - Reports Significant 2010 Reserves Growth and Provides Operational Update

CALGARY, ALBERTA--(Marketwire - Feb. 24, 2011) -

Artek Exploration Ltd. (TSX: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, 2010 as prepared by Sproule Associates Limited ("Sproule").

2010 HIGHLIGHTS



-- Proved plus probable reserves at December 31, 2010 increased over 2009
by 23% to 18.6 million boe from 15.1 million boe at December 31, 2009.
-- Replaced 2010 production of 660 mboe by 6.3 times with proved plus
probable reserve additions and 2.7 times with proved reserve additions.
-- Achieved all in finding, development and acquisition (FD&A) costs of
$13.21 per boe on proved plus probable reserves and $23.78 per boe on
proved reserves (including future development costs and revisions). FD&A
costs excluding future development costs were $6.61 per boe on a proved
plus probable basis and $15.61 per boe on a proved basis.
-- FD&A costs for the last five years have averaged $14.17 per boe on
a proved and probable basis and $21.75 on proved reserves
(including future development costs and revisions).
-- Estimated capital expenditures including acquisitions, net of
dispositions for the year ended December 31, 2010 were approximately
$27.5 million.
-- Increased proved plus probable reserve value by 3% to $181.8 million
from $176.3 million at December 31, 2009 using a 10% discount factor,
despite a decrease of 24% in the independent engineers' forecast gas
pricing in the near three year period.
-- Artek's net asset value per share at December 31, 2010 is estimated at
$4.65 per diluted share.
-- Operating bank line increased to $56 million plus the addition of a $10
million development line.


OPERATIONAL UPDATE

In the first quarter of 2011, Artek anticipates drilling up to 3 horizontal wells and conducting a completion in a horizontal well drilled in late 2010.

In February, Artek successfully completed a late 2010 horizontal re-entry (85% W.I.) into a Paleozoic carbonate formation in the Peace River Arch area using a 5 stage water fracture stimulation. While the well is still cleaning up, it flowed during an inline test at an average gross rate of approximately 1.4 mmcf/d of natural gas and 31 bbl/d of condensate or approximately 250 boe/d at an average flowing pressure of 1,550 kPa. With recoveries from the natural gas phase, the well is expected to produce at a liquids rate of approximately 40 bbls/mmcf of natural gas. The new volumes were added at an efficient all-in cost of approximately $3.9 million.

The Company has also completed the drilling of its second horizontal Montney well (50% W.I.) in the Sinclair area to a total measured depth of approximately 4,400 metres (1,600 metre lateral). The well is scheduled for a 14 stage fracture stimulation to commence shortly. Artek's first horizontal well drilled last year in the Sinclair area tested in excess of 8 mmcf/d.

To follow-up on Artek's success on the liquids rich Doig gas play in the Inga area of British Columbia, Artek has accelerated the drilling of its second horizontal well (60% W.I.) to the first quarter. The well is currently drilling and is estimated to reach total measured depth of approximately 3,100 metres by the third week of March. A 12 to 14 stage fracture stimulation completion is planned for the well. Artek's first horizontal well (60% W.I.) tested in excess of 1,800 boe/d with 1,100 bbls of condensate per day in the last week of December into early January of this year. The well is currently producing at a restricted rate of approximately 820 boe/d of which 35% to 40% is condensate.

OUTLOOK

For 2011, Artek is planning capital expenditures of $19 to $21 million which includes the drilling of 8 to 10 gross (5 to 6 net) wells. The capital program will be weighted approximately 75% to crude oil and liquids rich gas projects. The program includes 2 to 3 gross (1.2 to 1.8 net) horizontal liquids rich Doig natural gas wells at Inga, 2 to 3 gross (1.2 to 1.8 net) vertical wells on the Glauconite crude oil property at Leduc Woodbend, 1 to 2 gross (0.6 to 1.2 net) horizontal Dunvegan/Beaton Montney crude oil wells and approximately 3 gross (1.6 net) deep basin natural gas wells at Sinclair and Noel.

Assuming the full capital program is executed as presently contemplated, Artek targets to exit the year producing approximately 2,800 to 2,900 boe/d with a 2011 average of approximately 2,400 to 2,500 boe/d, of which 35% is forecast to be crude oil and natural gas liquids. Currently the Company is producing approximately 2,300 to 2,400 boe/d. For 2011, the Company has currently hedged 33% of its natural gas production at $5.09/GJ.

The Company's operating line of credit has been increased to $56 million and a $10 million development line has also been added to provide flexibility in carrying out its 2011 capital program.

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, 2010 (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 13% in 2010 to 9,350 Mboe and proved plus probable reserves increased by 23% to 18,615 Mboe.

The following table provides summary reserve information based upon the Sproule Report and using the published Sproule (2011-01) price forecast.




----------------------------------------------------------------------------
----------------------------------------------------------------------------
Natural gas
Oil (1) liquids
----------------------------------------------------------------------------
Gross Net Gross Net
(2) (3) (2) (3)
(Mbbl) (Mbbl) (Mbbl) (Mbbl)

Proved
Producing 1,196 927 109 72
Non-producing 16 15 6 4
Undeveloped 496 397 90 68
----------------------------------------------------------------------------
Total proved 1,707 1,338 206 144
Probable 1,236 997 223 155
----------------------------------------------------------------------------
Total proved plus
probable 2,943 2,335 429 300
----------------------------------------------------------------------------
----------------------------------------------------------------------------

----------------------------------------------------------------------------
----------------------------------------------------------------------------
Barrels of oil
Natural gas equivalent
----------------------------------------------------------------------------
Gross Net Gross Net
(2) (3) (2) (3)
(Mmcf) (Mmcf) (Mboe) (Mboe)
Proved
Producing 12,985 10,604 3,470 2,766
Non-producing 2,034 1,730 361 307
Undeveloped 29,605 24,099 5,520 4,482
----------------------------------------------------------------------------
Total proved 44,625 36,433 9,350 7,555
Probable 46,837 36,130 9,265 7,174
----------------------------------------------------------------------------
Total proved plus
probable 91,460 72,563 18,615 14,729
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Notes:

(1) Reflects light and medium crude oil, other than 175 mbbl of proved and
397 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, 2010 and based on the published Sproule (2011 - 01) future price forecast are summarized in the following table:



----------------------------------------------------------------------------
----------------------------------------------------------------------------
Discounted At:
--------------------------------
($ Thousands) Undiscounted 5% 10% 15% 20%
----------------------------------------------------------------------------

Proved
Producing 102,679 83,613 70,793 61,692 54,931
Non-producing 6,046 4,608 3,563 2,787 2,198
Undeveloped 81,325 51,230 33,415 22,252 14,943
-------------- ------- ------- ------- -------
Total proved 190,050 139,451 107,771 86,730 72,072
Probable 236,291 123,213 73,982 48,279 33,213
-------------- ------- ------- ------- -------
Total proved plus probable 426,341 262,664 181,753 135,009 105,285
----------------------------------------------------------------------------
----------------------------------------------------------------------------

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 $100.6
million and for total proved plus probable reserves is $154.5 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, 2010 to the reserves as at December 31, 2009 based on the Sproule (2011-01) future price forecast.



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

Balance December 31, 2009 8,248 6,864 15,112
Extensions 1,243 2,004 3,246
Improved recovery 97 29 127
Technical revisions 333 291 623
Discoveries 124 62 186
Acquisitions - - -
Dispositions (37) (20) (57)
Economic factors 2 35 37
Production (660) - (660)
----------------------------------------------------------------------------
Balance December 31, 2010 9,350 9,265 18,615
----------------------------------------------------------------------------
----------------------------------------------------------------------------

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 - 2010

The efficiency of the Company's capital program for the year ended December 31, 2010 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 exclude 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, Artek has also included calculations of finding, development and acquisition ("FD&A") costs that incorporate all acquisitions net of any dispositions during the year.



----------------------------------------------------------------------------
Proved plus
Proved Probable
----------------------------------------------------------------------------
Exploration and Development expenditures ($000's) 28,396 28,396
(note 3)
Acquisitions, net of disposition ($000's) (note 3) (897) (897)
Change in future development capital ($000's)
-Exploration and Development 14,390 27,494
-Acquisitions, net of dispositions - -
------------------------
41,889 54,993
------------------------
Reserve additions after revisions (Mboe)
-Exploration and Development 1,799 4,219
-Acquisitions, net of dispositions (37) (57)
------------------------
1,762 4,162
------------------------

------------------------
Finding & Development Costs ($/boe) (notes 1) 23.78 13.25
------------------------

Finding, Development & Acquisition Costs ($/boe)
(notes 3)
Exploration and development 23.78 13.25
Acquisitions, net of dispositions (24.24) (15.74)
------------------------
Total FD&A 23.78 13.21
------------------------


Reserves Replacement Ratio (note 4) 2.7 6.3
----------------------------------------------------------------------------

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. 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 and dispositions 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.
3. 2010 figures include information based on estimated unaudited financial
results that may change on the completion of the audited financial
statements.
4. Calculated by dividing the 2010 reserve additions after revisions by
the 2010 total production.


NET ASSET VALUE

The following table provides management's calculation of Artek's estimated net asset value at December 31, 2010 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.



----------------------------------------------------------------------------
----------------------------------------------------------------------------
($ thousands)
----------------------------------------------------------------------------

Proved plus probable reserves - discounted at 10% 181,753
Undeveloped Land (note 1) 20,633
Seismic (note 2) 6,609
Bank debt as at December 31, 2010 (note 3) (41,188)
Estimated working capital deficiency as at December 31, 2010 (10,655)
(notes 3 & 4)
Proceeds from dilutive stock options 1,044
----------------------------------------------------------------------------
Net asset value 158,196

Diluted Common shares outstanding (thousands) 34,023
----------------------------------------------------------------------------
Net asset value per share 4.65
----------------------------------------------------------------------------
----------------------------------------------------------------------------

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, 2010.


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, 2010. 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 $20.6 million.

A summary of the Company's land holdings at December 31, 2010 is outlined below:



----------------------------------------------------------------------------
----------------------------------------------------------------------------
(acres) Developed Undeveloped Total
Gross Net Gross Net Gross Net
----------------------------------------------------------------------------

Alberta 29,214 20,685 53,388 40,992 82,603 61,677
British Columbia 18,057 10,911 47,118 30,628 65,175 41,539
----------------------------------------------------------------------------
Total 47,271 31,596 100,507 71,620 147,778 103,216
----------------------------------------------------------------------------
----------------------------------------------------------------------------


CAUTIONARY STATEMENTS

Unaudited financial information

Certain financial and operating information included in this press release for the quarter and year ended December 31, 2010, 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, 2010 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, 2010, 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 March 31, 2011 at www.sedar.com. In relation to the disclosure of estimates of reserves relating to less than all of the Company's reserves, 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 estimated value of its undeveloped land holdings represent the fair market value of the lands.

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 recognition of significant additional reserves under the heading "Reserves"; 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; the Company's 2011capital expenditure plans and 2011 exit and average production forecasts; 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; and the ability to adequately finance the same; 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 Toronto Stock 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