Artek Exploration Ltd.
TSX : RTK

Artek Exploration Ltd.

February 18, 2015 20:09 ET

Artek Exploration Ltd. Reports Significant 2014 Reserves Growth

CALGARY, ALBERTA--(Marketwired - Feb. 18, 2015) - Artek Exploration Ltd. (TSX:RTK) of Calgary, Alberta ("Artek" or the "Company") is pleased to announce the results of its independent reserve evaluation for the year ended December 31, 2014 (the "Sproule Report") as prepared by Sproule Associates Limited ("Sproule").

2014 HIGHLIGHTS

  • Increased Proved plus Probable reserves by 9% to 46.4 million boe and Proved reserves by 12% to 24.0 million boe and Proved Developed Producing reserves by 31% to 6.6 million boe as compared to the previous year.
  • Increased Proved plus Probable Oil and NGLs reserves year over year by 55% to 16.8 million boe from 10.8 million boe and also increased Proved Oil and NGLs reserves by 57% to 8.8 million boe from 5.6 million boe.
  • Achieved all in finding, development and acquisition (″FD&A″) costs of $11.36 per boe on Proved plus Probable reserves. Finding and development (″F&D″) costs including FDC but excluding acquisitions and dispositions were $13.04 per boe on a Proved plus Probable basis.
  • Increased Proved plus Probable reserve value year over year by 33% to $520.8 million from $392.3 million using a 10% discount factor before tax.
  • Replaced 2014 production of 1,534 mboe by 3.5 times with Proved plus Probable reserve additions and 2.7 times with Proved reserve additions.
  • Achieved a recycle ratio of 2.0 times based on Proved and Probable FD&A of $11.36 and Artek's estimated 2014 operating netback of $23.28 per boe.
  • Increased Land Holdings by 25% to 262,254 net acres.
  • Net asset value at December 31, 2014 increased 10% year over year to $6.05 per diluted share.

The following are reserves highlights, details of which are provided later in the press release.

Gross Reserves at December 31 2014 2013 % change
Proved Developed Producing (mboe) 6,646 5,084 31
Proved Reserves (mboe) 24,039 21,394 12
Proved Plus Probable Reserves (mboe) 46,388 42,528 9
Proved FD&A including change in FDC ($/boe) (1) (2) 17.04 27.39
Proved Plus Probable FD&A including change in FDC ($/boe) (1) (2) 11.36 14.84
Operating Netback ($/boe) (1) 23.28 22.38
Proved Plus Probable Recycle Ratio (1) 2.0 1.5
Land Holdings (net acres)
Developed 59,286 45,616 30
Undeveloped 202,967 164,698 23
Total 262,254 210,314 25
Annual Average Production
Oil (bbls/d) 1,157 1,004 15
NGLs (bbls/d) 499 370 35
Gas (mcf/d) 15,279 13,940 10
Total (boe/d) 4,203 3,697 14
Fourth Quarter Average Production
Oil (bbls/d) 1,640 884 86
NGLs (bbls/d) 540 480 13
Gas (mcf/d) 16,569 15,972 4
Total (boe/d) 4,942 4,025 23
Net asset value ($M) 506,014 389,835 29
Diluted common shares outstanding (000's) 83,631 71,810 16
Net asset value per share ($) 6.05 5.43 11
(1) Certain financial and operating information included in this press release for the quarter and year ended December 31, 2014, such as finding and development costs, production information, operating netbacks, recycle ratios and net asset value calculations are based on unaudited financial results for the year ended December 31, 2014 and are subject to the same limitations as discussed under forward-looking statements outlined at the end of this release. These estimate amounts may change upon completion of the audited financial statements for the year ended December 31, 2014 and those changes may be material.
(2) Artek calculates finding, development and acquisition costs which incorporate the costs and associated reserve additions and changes in future development costs related to acquisitions and dispositions. Since acquisitions and divestitures have had a significant impact on Artek's annual reserve replacement costs, Artek believes that FD&A costs provide a meaningful portrayal of Artek's cost structure.

PRODUCTION

Artek achieved record production levels in 2014. Average production for 2014 was 4,203 boe/d (39% liquids) an increase of 14% over 2013 average production of 3,697 boe/d (37% liquids). Average production for the fourth quarter of 2014 was 4,942 boe/d (44% liquids), up 23% from average production of 4,025 boe/d (34% liquids) in the fourth quarter of 2013. December 2014 exit production was 5,655 boe/d of which in excess of 2,600 bbl/d or 46% was crude oil and natural gas liquids.

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, 2014 (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 developed producing reserves increased by 31% to 6.6 million boe, proved reserves increased by 12% to 24.0 million boe and proved plus probable reserves increased by 9% to 46.4 million boe. The Company's net present value of proved plus probable reserves discounted at 10% before tax, was $520.8 million up 33% from $392.3 million at December 31, 2013. Sproule's forecasted commodity prices for 2015 used to determine the present value of the Company's reserves at December 31, 2014 were US$65/bbl for WTI oil and CA$3.15/GJ for AECO gas. Forecasted commodity prices for future years are shown in the table below.

The following table provides summary reserve information based upon the Sproule Report and using the published Sproule (2014-12-31) price forecast.


Oil (1)
Natural gas liquids
Natural gas
Barrels of
oil equivalent
Gross (2)
(Mbbl)
Net (3)
(Mbbl)
Gross (2)
(Mbbl)
Net (3)
(Mbbl)
Gross (2)
(Mmcf)
Net(3)
(Mmcf)
Gross (2)
(Mboe)
Net(3)
(Mboe)
Proved
Producing 1,168 924 1,264 994 25,283 19,456 6,646 5,160
Non-producing 144 120 30 23 1,830 1,546 479 400
Undeveloped 3,220 2,562 2,942 2,341 64,512 47,773 16,914 12,866
Total proved 4,532 3,605 4,236 3,359 91,625 68,775 24,039 18,426
Probable 4,154 3,295 3,877 3,068 85,910 64,849 22,349 17,171
Total proved plus probable 8,686 6,900 8,113 6,426 177,535 133,624 46,388 35,597

Notes:

  1. Reflects light and medium crude oil, other than 36 mbbl of proved and 113 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, 2014 and based on the published Sproule (2014-12-31) future price forecast are summarized in the following table:

Discounted at:
($ Thousands) Undiscounted 10% 15% 20%
Proved
Producing 134,317 99,776 88,973 80,598
Non-producing 9,512 6,625 5,667 4,915
Undeveloped 351,831 153,490 109,207 80,081
Total proved 495,659 259,890 203,847 165,594
Probable 587,833 260,889 193,030 148,706
Total proved plus probable 1,083,492 520,779 396,876 314,300

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. 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.
  3. Net present value after income taxes for total proved reserves is $228.6 million and for total proved plus probable reserves is $419.4 million based on a discount factor of 10%.
  4. May not add due to rounding.

The following table outlines FDC expenditures by major core area included in the December 31, 2014 reserve evaluation:

FDC Expenditures
1P
FDC ($M)
1P Gross/
Net Wells
2P
FDC ($M)
2P Gross/
Net Wells
Inga/Fireweed/Stoddart 163.6 42 (22.7) 257.5 68 (37.4)
Deep Basin 17.1 3 (3.0) 29.1 6 (5.0)
Remaining 3.0 3 (1.8) 4.1 4 (2.4)
Total FDC Expenditures 183.7 48 (27.5) 290.7 78 (44.8)

In the Company's December 31, 2014 reserve evaluation, Sproule is forecasting WTI oil prices to average US$83.81 per barrel over the next five years from 2015 to 2019, 10% lower than the average price of US$92.70 per barrel used in the December 31, 2013 evaluation, over the same five year period. For natural gas, AECO-C natural gas prices are forecasted to average $3.88 per GJ over the 2015 to 2019 period, a decrease of 11% from the average price of $4.36 per GJ used in the December 31, 2013 evaluation, over the same five year period.

The following table outlines forecasted prices that Sproule has used in their evaluation of the Company's reserves:

Commodity prices December 31, 2014
Evaluation
December 31, 2013
Evaluation
WTI
Cushing
Crude Oil
(US$/bbl)
USD/CAD
Exchange
(US$)
AECO-C
Natural
Gas
($/GJ)
WTI
Cushing
Crude Oil
(US$/bbl)
USD/CAD
Exchange
(US$)
AECO-C
Natural
Gas
($/GJ)
2012 (historical) 94.19 1.001 2.30 94.19 1.001 2.30
2013 (historical) 97.98 0.971 2.97 97.98 0.971 2.97
2014 (historical) 93.00 0.905 4.27 94.65 0.940 3.79
2015 (future) 65.00 0.850 3.15 88.37 0.940 3.78
2016 (future) 80.00 0.870 3.52 84.25 0.940 3.79
2017 (future) 90.00 0.870 3.70 95.52 0.940 4.67
2018 (future) 91.35 0.870 4.24 96.96 0.940 4.75
2019 (future) 92.72 0.870 4.79 98.41 0.940 4.83
Five year Future Average 83.81 0.866 3.88 92.70 0.940 4.36

Reserves Reconciliation

  • The following summary reconciliation of Artek's gross reserves compares changes in the Company's reserves as at December 31, 2014 to the reserves as at December 31, 2013 based on the Sproule (2014-12-31) future price forecast. Proved plus Probable reserves increased year over year by 9% to 46.4 million boe from 42.5 million boe. Proved reserves increased by 12% to 24.0 million boe from 21.4 million boe.
Total
Proved
Probable Total Proved
plus Probable
(Mboe) (Mboe) (Mboe)
Balance December 31, 2013 21,393 21,134 42,528
Extensions and improved recoveries 2,070 3,999 6,069
Infill 2,208 1,234 3,442
Technical revisions 888 (3,458 ) (2,570 )
Discoveries 3 2 5
Acquisitions 944 1,265 2,209
Dispositions (1,835 ) (1,913 ) (3,748 )
Economic factors (98 ) 86 (13 )
Production (1,534 ) - (1,534 )
Balance December 31, 2014 24,039 22,349 46,388

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 - 2014

The efficiency of the Company's capital program for the year ended December 31, 2014 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 F&D costs do not fully reflect Artek's ongoing reserve replacement costs. Since acquisitions and dispositions can have a significant impact on Artek's annual reserve replacement costs, Artek believes that finding, development and acquisition ("FD&A") costs provide a meaningful portrayal of Artek's cost structure.

Artek achieved all in FD&A costs of $11.36 (2013 - $14.84) per boe on Proved plus Probable reserves and $17.04 (2013 - $27.39) per boe on Proved reserves including future development costs (″FDC″). FD&A costs for the last three years averaged $13.06 per boe on a Proved and Probable basis and $19.68 per boe on Proved reserves including FDC. F&D costs including FDC but excluding acquisitions and dispositions were $13.04 (2013 - $15.68) per boe on a Proved plus Probable basis and $19.74 (2013 - $30.71) per boe on a Proved basis. F&D costs including FDC but excluding acquisitions and dispositions for the last three years averaged $13.42 per boe on a Proved and Probable basis and $20.52 on Proved reserves including FDC.

Proved Proved plus
Probable
Exploration and Development expenditures ($000's) (note 2) 97,008 97,008
Dispositions, net of acquisition ($000's) (note 2) (12,045 ) (12,045 )
Change in future development capital ($000's)
- Exploration and Development 3,112 (6,613 )
- Dispositions, net of acquisition (16,945 ) (17,111 )
71,130 61,239
Reserve additions after revisions (Mboe)
- Exploration and Development 5,071 6,933
- Dispositions, net of acquisition (891 ) (1,539 )
4,180 5,394
Finding & Development Costs ($/boe) (note 1) 19.74 13.04
Finding, Development & Acquisition Costs ($/boe) (note 2)
Exploration and development 19.74 13.04
Dispositions net of acquisitions (32.54 ) (18.94 )
Total FD&A ($/boe) 17.04 11.36
Reserves Replacement Ratio (note 3) 2.7 3.5

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. 2014 figures include information based on estimated unaudited financial results that may change on the completion of the audited financial statements.
  3. Calculated by dividing the 2014 reserve additions by the 2014 total production.

NET ASSET VALUE

The following table provides management's calculation of Artek's estimated net asset value at December 31, 2014 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.

($ thousands)
Proved plus probable reserves - discounted at 10% 520,779
Undeveloped Land (note 1) 50,391
Estimated working capital deficiency as at December 31, 2014 (notes 2 & 3) (80,967 )
Proceeds from dilutive stock options 15,811
Net asset value 506,014
Diluted Common shares outstanding (thousands) 83,631
Net asset value per share 6.05

Notes:

  1. Based on an independent land evaluation. See ″Land Holdings″.
  2. Figures include information based on unaudited financial results that may change.
  3. Working capital deficiency includes an estimate of the Company's accounts receivable and prepaid expenditures less accounts payable and accrued liabilities and bank debt as at December 31, 2014.

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, 2014. The evaluation was completed by Seaton-Jordan & Associates Ltd. 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 $50.4 million. Artek increased its net undeveloped land holdings by approximately 23% in 2014.

A summary of the Company's land holdings at December 31, 2014 is outlined below:

(acres) Developed Undeveloped Total
Gross Net Gross Net Gross Net
Alberta 33,568 21,460 98,390 89,785 131,958 111,245
British Columbia 77,989 37,927 204,938 113,182 282,927 151,009
Total 111,558 59,286 303,328 202,967 414,886 262,254

CAUTIONARY STATEMENTS

Unaudited financial information

Certain financial and operating information included in this press release for the quarter and year ended December 31, 2014, 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, 2014 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, 2014, 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, 2015 at www.sedar.com. In relation to the disclosure of estimates of reserves and reserve values relating to individual properties that represent less than all of the Company's reserves, such estimates may not reflect the same confidence level as estimates of reserves and future net revenue 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; 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; management's belief in the prospectivity of exploratory lands at Inga and in the PRA; and the total future capital associated with development of reserves and resources and timing of spending.

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 will 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 Conversions: Barrel of oil equivalents or BOEs 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.

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

    Artek Exploration Ltd.
    Darcy Anderson
    Vice President, Finance and Chief Financial Officer
    403.296.4775