Celtic Exploration Ltd.
TSX : CLT

Celtic Exploration Ltd.

August 12, 2011 08:00 ET

Celtic Reports Financial and Operating Results for the Three and Six Months Ended June 30, 2011 and Provides an Operations Update

CALGARY, ALBERTA--(Marketwire - Aug. 12, 2011) - Celtic Exploration Ltd. ("Celtic" or the "Company") (TSX:CLT) is pleased to report a profit of $4.0 million in the second quarter of 2011. The Company has released its financial and operating results for the three months ended June 30, 2011. Summary of results are as follows:

Three months ended June 30,
[$000's, unless otherwise specified] 2011 2010 Change
Revenue, before royalties and financial instruments 54,773 57,202 -4 %
Funds from operations 34,841 34,122 2 %
Basic ($/share) 0.36 0.38 -5 %
Diluted ($/share) 0.35 0.37 -5 %
Profit 4,020 3,236 24 %
Basic ($/share) 0.04 0.04 0 %
Diluted ($/share) 0.04 0.04 0 %
Capital expenditures, net of dispositions and drilling credits 69,255 43,956 58 %
Weighted average common shares outstanding
Basic (thousands) 97,042 89,644 8 %
Diluted (thousands) 100,199 91,208 10 %
Production
Oil (bbls/d) 3,378 4,144 -18 %
Gas (mcf/d) 70,949 83,311 -15 %
Combined (BOE/d) 15,203 18,029 -16 %
Production per million shares [BOE/d] 157 201 -22 %
Realized sales prices, after financial instruments
Oil ($/bbl) 82.50 69.12 19 %
Gas ($/mcf) 4.32 4.17 4 %
Drilling activity
Total wells 12 8 50 %
Working interest wells 8.9 5.8 53 %
Success rate on working interest wells 89 % 100 % -11 %

Summary of financial and operating results for the six months ended June 30, 2011 are as follows:

Six months ended June 30,
[$000's, unless otherwise specified] 2011 2010 Change
Revenue, before royalties and financial instruments 108,425 121,011 -10 %
Funds from operations 67,500 69,205 -2 %
Basic ($/share) 0.72 0.77 -6 %
Diluted ($/share) 0.69 0.76 -9 %
Profit 4,692 29,346 -84 %
Basic ($/share) 0.05 0.33 -85 %
Diluted ($/share) 0.05 0.32 -84 %
Capital expenditures, net of dispositions and drilling credits 140,716 37,962 271 %
Total assets 868,214 678,587 28 %
Bank debt, net of working capital 161,636 124,901 29 %
Shareholder's equity 543,786 410,306 33 %
Common shares outstanding (thousands) 97,460 89,869 8 %
Stock options outstanding (thousands) 7,709 7,601 1 %
Weighted average common shares outstanding
Basic (thousands) 94,259 89,503 5 %
Diluted (thousands) 97,458 91,088 7 %
Production
Oil (bbls/) 3,583 4,220 -15 %
Gas (mcf/d) 70,916 80,686 -12 %
Combined (BOE/d) 15,402 17,668 -13 %
Production per million shares (BOE/d) 163 197 -17 %
Realized sales prices, after financial instruments
Oil ($/bbl) 79.58 69.90 14 %
Gas ($/mcf) 4.27 4.66 -8 %
Drilling activity
Total wells 34 29 17 %
Working interest wells 23.5 21.0 12 %
Success rate on working interest wells 97 % 91 % 7 %
Undeveloped land
Gross acres 705,602 339,204 108 %
Net acres 644,613 274,681 135 %

MESSAGE TO SHAREHOLDERS

Celtic is pleased to report to shareholders the Company's activities in the second quarter of 2011. During the quarter, Celtic drilled 12 (8.9 net) wells with an overall net success rate of 89%. Production during the quarter averaged 15,203 BOE per day, a decrease of 16% from 18,029 BOE per day in the second quarter of 2010.

During the quarter, the Company experienced significant downtime as a result of gas plant outages. The most significant downtime that negatively affected production during the second quarter was the outage at the KA Gas Plant where Celtic's production of approximately 11,500 BOE per day is processed and at the K3 Gas Plant which affected production of approximately 4,500 BOE per day. In addition, production of approximately 150 BOE per day was shut-in at Utikuma Lake due to forest fires and approximately 650 BOE per day was shut-in at Inga as a result of plant turnaround operations at the McMahon Gas Plant. In aggregate, production for the second quarter was negatively affected by over 2,000 BOE per day. Furthermore, well completions and pipeline construction operations were delayed due to extreme wet weather conditions at Kaybob, Fir and Resthaven.

In the second quarter of 2011, Celtic recorded funds from operations of $34.8 million ($0.35 per share, diluted), up 2% from $34.1 million ($0.37 per share, diluted) reported in the same quarter of the previous year. Despite lower production levels during the second quarter, year over year, funds from operations increased primarily due to lower production expense per BOE, lower royalty rates and higher realized sales prices.

Net capital expenditures during the quarter were $69.3 million and bank debt, net of working capital, at June 30, 2011 was $161.6 million, up 29% from $124.9 million at June 30, 2010.

Drilling Activity

The second quarter of 2011 proved to be most unpredictable as the Company's production and operations were affected by forest fires and flooding. Despite adverse weather conditions, Celtic drilled 12 (8.9 net) wells during the quarter.

At Kaybob, Alberta, the Company drilled two (0.8 net) Bluesky horizontal wells and two (2.0 net) Montney horizontal wells. With the wet weather conditions during the quarter, these wells will be completed during the third quarter of 2011. Also at Kaybob, Celtic participated in the drilling of a Beaverhill Lake well (0.1 net) in the Kaybob South BHL Unit # 1. One (1.0 net) stratigraphic test well targeting the Duvernay formation was drilled to earn additional lands and has been included as unsuccessful in the Company's drilling statistics.

At Fir, Alberta, the Company drilled two (2.0 net) horizontal wells, each of which had a measured depth of approximately 5,500 metres and will drain over the length of two sections of land. Due to floods from heavy rain in the area, completion of these wells will be delayed until late August.

At Resthaven, Alberta, Celtic carried out four operations which further delineate this exciting Montney play. The Company drilled two (1.5 net) horizontal wells, drilled a re-entry horizontal well (0.5 net), and drilled a re-entry vertical well (1.0 net). Completion results from these wells are discussed under the heading 'Operations Update' below. Celtic has commenced construction of a gas gathering and pipeline system that will connect the majority of wells drilled to date to an existing 12 inch pipeline that delivers gas to the Keyera operated Simonette Gas Plant. Due to wet weather conditions, construction was halted in May and commenced again in August. Celtic expects to bring Resthaven production on-stream by September 2011.

Operations Update

Kaybob Duvernay

At Kaybob, Celtic completed a vertical well located at 05-20-060-17W5 (100% WI) in the Duvernay formation. This well was drilled on the eastern flank of the Company's Duvernay lands and proved to be in the liquids-rich natural gas leg rather than in the oil leg. Results from this vertical well were encouraging and the Company expects to follow-up with an offsetting horizontal well in 2012.

Celtic's first horizontal well into the Duvernay formation located at 15-33-060-20W5 (33.3% WI) has been on production since April 2011. Natural gas from this well is processed at the KA Gas Plant which is configured at -40° Celsius. To date, the well has averaged associated liquids production of approximately 100 barrels per MMCF of raw gas made up of condensate and pentane (63%), butane (15%) and propane (22%). In the event that the natural gas from this well is processed at a deep-cut gas plant, the associated liquids production would increase significantly. The higher liquids content than originally anticipated improves the economics of this play in the current commodity price environment. Celtic plans to drill another horizontal well targeting the Duvernay (33.3% WI) with its partners in the second half of 2011.

Resthaven Montney

In the Greater Resthaven area, the Company completed a vertical well located at 06-01-057-27W5 (100% WI). This well is located in the far south-east portion of Celtic's 600 section land block and has established a turbidite play in the lower middle Montney formation. The Company is pleased with the completion whereby the vertical well tested at an average rate of 759 MCF per day. The Company expects to drill a follow-up horizontal well located at 06-12-057-27W5 (100% WI) during the second half of 2011.

In the north-west portion of Celtic's Resthaven land block, the Company completed a horizontal well located at 13-33-062-04W6 (50% WI). The well was drilled to a measured depth of 4,546 metres and was completed with a 14-stage foam fracture technique. At the end of the test, the well was producing natural gas at a rate of 15.8 MMCF per day and condensate at 1,008 barrels per day, at a flowing wellhead pressure of 16,497 kPa (2,390 psi).

In the central part of Celtic's Resthaven land block, the Company completed a horizontal well located at 14-01- 060-02W6 (100% WI) in the Upper Montney formation. The well was drilled to a measured depth of 4,908 metres and was completed with a 16-stage foam fracture technique. At the end of the test, the well was flowing natural gas at a rate of 14.4 MMCF per day and condensate of 114 barrels per day, at a flowing wellhead pressure of 9,855 kPa (1,428 psi).

The wells at Resthaven are expected to produce associated liquids at a rate of 40 to 50 barrels per MMCF, including condensate production. However, these rates would be higher if the natural gas is processed at a deep-cut gas plant. The majority of wells drilled to date at Resthaven are expected to be tied-in to the Keyera operated Simonette Gas Plant in September 2011. The operator has indicated its intention to add a turbo expander to the plant giving it deep-cut capability.

The Company expects to provide results from two additional horizontal well completions located at 15-31-060- 02W6 (100% WI) and at 01-29-064-04W6 (50% WI) in September 2011. Celtic currently has three rigs operating at Resthaven, all drilling horizontal wells.

Fir Montney

At Fir, Alberta, Celtic has now drilled four horizontal wells into this new Montney pool which the Company discovered in late 2010. Completion of the two horizontal wells drilled in the second quarter were delayed due to extreme wet weather conditions in the area. The wells located at 08-02-060-22W5 (100% WI) and at 01-34-059- 22W5 (100% WI) were drilled with horizontal laterals measuring approximately 2,640 metres and are expected to be completed with a 24-stage oil fracture technique. A fifth horizontal well located at 08-26-059-22W5 (100% WI) is currently drilling.

The Company is finalizing the implementation of compressor equipment and expects to bring additional production from Fir on-stream by early September. Natural gas from the Fir wells will be processed at the K3 Gas Plant where Celtic has an ownership interest.

Financing Update

On March 31, 2011, Celtic closed its $101.5 million bought deal equity financing and subsequently, on April 26, 2011, the Company closed a $15.2 million over-allotment option. In aggregate, Celtic issued 5.75 million common shares at a price of $20.30 per share for gross proceeds of $116.7 million.

Effective June 8, 2011, Celtic entered into an agreement with its syndicate of banks amending its credit facility by increasing the authorized borrowing amount by $35.0 million to $250.0 million. At June 30, 2011, Celtic had drawn $130.0 million on its credit facility, leaving sufficient unused credit available to fund on-going capital expenditures.

Outlook

In spite of low natural gas prices, Celtic is able to generate profitable returns on its investments due to the nature of its asset base that is primarily made up of predictable and repeatable resource type development in liquids-rich natural gas formations.

Given the success from recent well completions, Celtic maintains its exit 2011 production guidance of approximately 24,500 BOE per day. However, due to weather related delays, certain production at Fir and Resthaven are expected to be brought on-stream later than originally forecasted. As a result, average production for 2011 has been reduced to 18,400 BOE per day (previously 19,600 BOE per day).

The Company is excited about its active exploration program and looks forward to updating shareholders with further results in the near future. In addition, Celtic continues to evaluate property acquisition opportunities and maintains a flexible financial position so that it can pursue opportunities as they arise.

2011 GUIDANCE

Celtic continues to remain optimistic about its future prospects. Celtic is opportunity driven and is confident that it can continue to grow the Company's production base by building on its current inventory of development prospects and by adding new exploration prospects. Celtic will endeavour to maintain a high quality product stream that on a historical basis receives a superior price with reasonably low production costs. In addition, the Company takes advantage of royalty incentive programs in order to further increase netbacks. Celtic will continue to focus its exploration efforts in areas of multi-zone hydrocarbon potential.

Celtic's Board of Directors has approved the Company's 2011 capital expenditure budget of $260.0 million. The Company expects to spend $207.0 million on drilling and completing wells, $40.0 million on facilities, equipment and pipelines, and $13.0 million on land and seismic.

The Company has outlined various production interruptions and delays resulting from gas plant outages, repair and maintenance downtime, forest fires, and extremely wet weather conditions. After taking into consideration these production interruptions and delays, Celtic has changed its production and financial expectations as outlined below.

Celtic expects production in 2011 to average between 18,400 and 18,700 BOE per day (previously between 19,300 and 19,700 BOE per day). Production in the second quarter was negatively affected by over 2,000 BOE per day as a result of plant outages at the Kaybob KA and K3 facilities, downtime at Utikuma Lake and plant turnarounds affecting Inga and Pedley production. In addition, completion operations and pipeline construction was delayed due to extreme weather in and around Kaybob, Fir, and Resthaven. The Company expects to show significant production growth commencing in September with new production from the Montney play at Resthaven and production adds from its on-going drilling at Fir/Bigstone and Inga. The Company expects to exit 2011 with production of approximately 24,500 BOE per day, an increase of 41% from fourth quarter 2010 production of 17,385 BOE per day. Average production in 2011 is expected to be weighted 23% oil and 77% gas. However, operating income in 2011 is expected to be weighted 51% oil and 49% gas.

Celtic expects to achieve continued improvement in its cost structure in 2011. Production expense is estimated to be $7.34 per BOE, an improvement of 10% from $8.13 per BOE in 2010. Royalties are expected to average 10.7% compared to 11.5% in 2010. General and administrative expense is estimated to be at industry leading low levels of $0.86 per BOE.

The Company's average commodity price assumptions for 2011 are US$93.50 (previously US$90.00) per barrel for WTI oil, US$4.30 (previously US$4.30) per MMBTU for NYMEX natural gas, $3.55 (previously $3.55) per GJ for AECO natural gas and a US/Canadian dollar exchange rate of US$1.020 (previously US$1.000). These prices compare to average 2010 prices of US$79.43 per barrel for WTI oil, US$4.42 per MMBTU for NYMEX natural gas, $3.95 per GJ for AECO natural gas and a US/Canadian dollar exchange rate of US$0.970. In order to achieve the forecasted commodity prices for 2011, the Company has assumed that prices in the fourth quarter will average US$84.83 per barrel for WTI oil and $3.58 per GJ for AECO natural gas. The US/Canadian dollar exchange rate is expected to average US $1.005 in the fourth quarter.

After giving effect to the aforementioned production and commodity price assumptions, funds from operations for 2011 are forecasted to be approximately $158.0 million or $1.59 per share, diluted (previous forecast was $156.0 million or $1.58 per share, diluted) and net loss is forecasted to be approximately $3.2 million or $0.03 per share, diluted (previous forecast was a loss of $7.5 million or $0.08 per share, diluted).

Changes in forecasted commodity prices and variances in production estimates can have a significant impact on estimated funds from operations and net earnings. Please refer to the advisory regarding forward-looking statements below. Sensitivities to changes in commodity prices would affect forecasted 2011 funds from operations and net earnings as follows:

  1. Change in the AECO natural gas price of $1.00 per GJ would affect funds from operations by $32.1 million ($0.32 per share) and profit by $24.1 million ($0.24 per share);
  2. Change in the WTI oil price of US$10.00 per barrel would affect funds from operations by $3.5 million ($0.03 per share) and profit by $2.6 million ($0.02 per share); and
  3. Change in US/Canadian dollar exchange rate of US$0.05 per CAD would affect funds from operations by $7.5 million ($0.07 per share) and profit by $5.6 million ($0.06 per share).

Bank debt, net of working capital, is estimated to be $171.8 million by the end of 2011 or approximately 1.1 times forecasted 2011 funds from operations.

Celtic is excited about the growth prospects being generated in the Company and remains optimistic about the Company's ability to deliver continued per share growth in production, reserves, net asset value and funds from operations. Given the Company's strong inventory of drilling locations, we look forward to continued growth in 2011 and beyond.

The information set out herein under the heading "2011 Guidance" is "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 business activities for 2011.

Readers are cautioned that this financial outlook may not be appropriate for other purposes.

FINANCIAL STATEMENTS

Celtic's unaudited financial statements and related notes for the interim period ended June 30, 2011 will be available to the public on SEDAR at www.sedar.com and will also be posted on the Company's website at www.celticex.com on August 12, 2011.

DISCLAIMERS AND ADVISORIES

Forward-looking Statements

This press release contains expectations, beliefs, plans, goals, objectives, assumptions, information and statements about future events, conditions, results of operations or performance 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 press release 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 with respect to forecasted 2011 results is "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 business activities for 2011. Readers are cautioned that this financial outlook may not be appropriate for other purposes.

Non-IFRS Financial Measurements

This press release contains the terms "funds from operations", "operating netback" and "production per share" which do not have a standardized meaning prescribed by IFRS and therefore may not be comparable with the calculation of similar measures by other companies. Funds from operations and operating netbacks are used by Celtic as key measures of performance. Funds from operations and operating netbacks are not intended to represent operating profits nor should they be viewed as an alternative to cash provided by operating activities, net earnings or other measures of financial performance calculated in accordance with IFRS. Operating netbacks are determined by deducting royalties, production expenses and transportation expenses from oil and gas revenue. Funds from operations are determined by adding back change in non-cash operating working capital to cash provided by operating activities. The Company calculates funds from operations per share using the same method and shares outstanding which are used in the determination of earnings per share.

Other Measurements

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, propane, butane and ethane. References to gas in this discussion include natural gas and sulphur.

Critical Accounting Estimates

Management is required to make judgments, assumptions and estimates in the application of IFRS that have a significant impact on the financial results of the Company. These estimates and assumptions are developed based on the best available information and are believed by management to be reasonable under the existing circumstances. New events or additional information may result in the revision of these estimates over time.

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
    www.celticex.com