Celtic Exploration Ltd.

Celtic Exploration Ltd.

July 09, 2012 08:30 ET

Celtic Exploration Announces Enhanced Natural Gas Liquids Recovery Arrangement and Plans to Construct a Gas Plant at Kaybob

CALGARY, ALBERTA--(Marketwire - July 9, 2012) -

Construction of Gas Plant at Kaybob

Celtic Exploration Ltd. (TSX:CLT) ("Celtic" or the "Company") has committed to construct a shallow-cut gas plant (the "Kaybob Plant") near its existing Kaybob compression facility located at 15-07-060-18W5. The Kaybob Plant is expected to have the capacity to process approximately 150 MMCF/d of raw gas. The Company expects the cost to construct the Kaybob Plant will be approximately $40.0 million, of which about 40% will be incurred in 2012 and the balance will be incurred in 2013. Celtic's previously announced 2012 capital expenditure budget included the anticipated cost in 2012 of constructing the Kaybob Plant.

Celtic's production from the Devonian Duvernay, Triassic Montney and Cretaceous formations at Kaybob that is currently processed at the third-party operated KA Gas Plant, will be diverted to the Company's Kaybob Plant which is expected to be on-stream in the second quarter of 2013. Celtic is actively drilling wells at Kaybob targeting the Duvernay formation. To date, the Company has completed vertical operations on six gross wells. In addition, Celtic has drilled eight gross horizontal wells, three of which are on production. The fourth horizontal well has been completed and tested, and is currently being tied-in. The fifth horizontal well is being completed at this time and the remaining three horizontal wells are expected to be completed by the end of August 2012. A ninth horizontal well is expected to spud this week. Celtic's working interest in wells drilled to date range from 33.3% to 100%. Celtic currently owns 110,034 net acres (172 net sections) of lands with Duvernay rights in the Kaybob area of Alberta.

Rich Gas Premium Agreement with Aux Sable Canada

Celtic has entered into a ten-year Rich Gas Premium Agreement with Aux Sable Canada LP ("Aux Sable") pursuant to which Celtic will receive additional economic value for the natural gas liquids in its liquids-rich natural gas stream originating from its Kaybob Devonian Duvernay, Triassic Montney and Cretaceous development area. Rich gas from Kaybob will be delivered onto the Alliance Pipeline, obviating the need to build capital intensive deep-cut liquids extraction facilities in the field. The rich gas will be processed at Aux Sable's large-scale natural gas liquids extraction and fractionation plant near Chicago, in Channahon, Illinois where NGL products will be removed. Under the agreement, Celtic commits to transport rich gas on the Alliance Pipeline and Aux Sable will provide enhanced value for the rich gas that exceeds Celtic's other gas and NGL market alternatives. Celtic expects to commence delivery under the agreement in the second quarter of 2013 when the construction of the Kaybob Plant is completed.

Benefits of the Aux Sable Agreement and construction of the Kaybob Plant

The expected benefits of constructing the Kaybob Plant and entering into the Aux Sable agreement include the following:

  • Based on the value sharing arrangement under the Aux Sable agreement and operating and transportation cost savings from the newly constructed Kaybob Plant, using forward strip pricing, and assuming the plant operates at approximately 50% of capacity during the first year, Celtic expects that funds from operations for the first twelve months after commencing delivery will increase by approximately $15.0 million. As Celtic continues to develop its Kaybob Duvernay asset base and brings on additional production, incremental annual funds from operations are expected over the ten year term of the agreement.
  • Pricing under the agreement for ethane, propane, isobutane and normal butane is calculated with reference to the United States market which provides Celtic with access to a larger and more liquid market for these natural gas liquids.
  • The Aux Sable agreement eliminates the requirement to incur additional capital expenditures of approximately $75.0 million to construct deep-cut facilities at the Kaybob Plant.

Advisory Regarding Forward-Looking Statements

This document contains expectations, beliefs, plans, goals, objectives, assumptions, information and statements about future events, conditions, results of operations or performance, including with respect to the expected timing of certain drilling and completion operations, the expected timing and cost of the construction of the Kaybob Plant and the estimated increases to funds flow from operations, that constitute "forward-looking information" or "forward-looking statements" (collectively, "forward-looking statements") under applicable securities laws. Undue reliance should not be placed on forward-looking statements. Forward-looking statements are based on current expectations, estimates and projections that involve a number of risks and uncertainties, which could cause actual results to differ materially from those anticipated by the Company and described in the forward-looking statements. We caution that the foregoing list of risks and uncertainties is not exhaustive. Events or circumstances could cause actual dates to differ materially from those estimated or projected and expressed in, or implied by, these forward-looking statements. The forward-looking statements contained in this document are made as of the date hereof and the Company does not intend, and does not assume any obligation, to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise unless expressly required by applicable securities laws.

The information set out herein under the heading "Benefits of the Aux Sable Agreement and construction of the Kaybob Plant" may be considered "financial outlook" within the meaning of applicable securities laws. The purpose of this financial outlook is to provide readers with disclosure regarding Celtic's reasonable expectations as to the anticipated results of its proposed future business activities. Readers are cautioned that this financial outlook may not be appropriate for other purposes.

Measurements and Abbreviations

All dollar amounts are referenced in Canadian dollars, except when noted otherwise. Where amounts are expressed on a barrel of oil equivalent ("BOE") basis, natural gas volumes have been converted to oil equivalence at six thousand cubic feet per barrel and sulphur volumes have been converted to oil equivalence at 0.6 long tons per barrel. The term BOE may be misleading, particularly if used in isolation. A BOE conversion ratio of six thousand cubic feet per barrel is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. References to oil in this discussion include crude oil and natural gas liquids ("NGLs"). NGLs include condensate, pentane, propane, butane and ethane. References to gas in this discussion include natural gas and sulphur.

Million cubic feet is abbreviated as "MMCF". Thousand cubic feet is abbreviated as "MCF". Barrels are abbreviated as "bbls". Giga joules are abbreviated as "GJ".

Contact Information

  • Celtic Exploration Ltd.
    David J. Wilson
    President and Chief Executive Officer
    (403) 201-5340

    Celtic Exploration Ltd.
    Sadiq H. Lalani
    Vice President, Finance and Chief Financial Officer
    (403) 215-5310

    Celtic Exploration Ltd.
    Suite 600, 321 - 6th Avenue SW
    Calgary, Alberta, Canada T2P 3H3

    Aux Sable Canada
    Dorothy Golosinski
    Director, Regulatory & Public Affairs
    (403) 508-5865