Celtic Exploration Ltd.

Celtic Exploration Ltd.

August 10, 2012 13:00 ET

Celtic Reports Financial and Operating Results for the Three and Six Months Ended June 30, 2012 and Provides an Operations Update

CALGARY, ALBERTA--(Marketwire - Aug. 10, 2012) - Celtic Exploration Ltd. (TSX:CLT) ("Celtic" or the "Company") has released its financial and operating results for the three and six months ended June 30, 2012. Summary of results are as follows:

Three months ended June 30, Six months ended June 30,
(CA$ thousands, unless otherwise indicated) 2012 2011 Change 2012 2011 Change
Revenue, before royalties and financial instruments 47,014 54,773 -14 % 99,260 108,425 -8 %
Funds from operations 23,881 34,841 -31 % 49,778 67,500 -26 %
Basic ($/common share) 0.23 0.36 -36 % 0.47 0.72 -35 %
Diluted ($/common share) 0.22 0.35 -37 % 0.47 0.69 -32 %
Profit (loss) 9,247 4,020 130 % (4,940 ) 4,692 -
Basic ($/common share) 0.09 0.04 120 % (0.05 ) 0.05 -
Diluted ($/common share) 0.09 0.04 116 % (0.05 ) 0.05 -
Capital expenditures, net of dispositions 60,802 69,255 -12 % 212,521 140,716 51 %
Total assets 1,238,147 868,214 43 % 1,238,147 868,214 43 %
Bank debt 145,400 130,000 12 % 145,400 130,000 12 %
Working capital deficiency 46,224 31,636 46 % 46,224 31,636 46 %
Convertible debentures 147,216 - - 147,216 - -
Shareholders' equity 707,396 543,786 30 % 707,396 543,786 30 %
Weighted average common shares outstanding (thousands)
Basic 105,296 97,042 9 % 105,081 94,259 11 %
Diluted 106,881 100,199 7 % 106,998 97,458 10 %

Financial Statements

Celtic's unaudited condensed interim financial statements and related notes for the quarter ended June 30, 2012 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 10, 2012.

Celtic's operating results for the three and six months ended June 30, 2012 are summarized in the table below:

Three months ended June 30, Six months ended June 30,
2012 2011 Change 2012 2011 Change
Oil (bbls/d) 4,136 3,378 22 % 4,216 3,583 18 %
Gas (mcf/d) 91,621 70,949 29 % 89,130 70,916 26 %
Combined (BOE/d) 19,406 15,203 28 % 19,071 15,402 24 %
Production per million common shares (BOE/d) 184 157 17 % 181 163 11 %
Average realized prices, after financial instruments
Oil ($/bbl) 87.17 82.50 6 % 83.05 79.58 4 %
Gas ($/mcf) 2.06 4.32 -52 % 2.23 4.27 -48 %
Operating netbacks ($/BOE)
Oil and gas revenue 26.62 39.59 -33 % 28.60 38.89 -26 %
Realized gain/(loss) on financial instruments 1.66 (1.09 ) - 0.18 (0.70 ) -
Realized sales price, after financial instruments 28.28 38.50 -27 % 28.78 38.19 -25 %
Royalties (1.65 ) (3.52 ) -53 % (2.25 ) (4.15 ) -46 %
Production & transportation expense (10.44 ) (7.74 ) 35 % (10.12 ) (7.70 ) 31 %
Operating netback 16.19 27.24 -41 % 16.41 26.34 -38 %
Drilling activity
Total wells 8 12 -33 % 20 34 -41 %
Working interest wells 5.8 8.9 -35 % 15.8 23.5 -33 %
Success rate on working interest wells 100 % 89 % 12 % 100 % 97 % 3 %
Undeveloped land
Gross acres 819,052 705,602 16 % 819,052 705,602 16 %
Net acres 698,781 644,613 8 % 698,781 644,613 8 %

Message to Shareholders

Celtic Exploration Ltd. ("Celtic" or the "Company") is pleased to report to shareholders the Company's activities in the second quarter of 2012.

During the quarter, Celtic drilled 8 (5.8 net) wells with an overall net success rate of 100%. Production during the quarter averaged 19,406 BOE per day, an increase of 28% from 15,203 BOE per day in the second quarter of 2011. The K3 Gas Plant, through which Celtic produces approximately 4,000 BOE per day of production, was off-line for approximately six weeks commencing in the latter part of May for planned turn-around maintenance operations, which negatively affected second quarter 2012 average production.

The Company estimates that it currently has approximately 8,000 BOE per day of production behind pipe from wells that have been drilled and are awaiting tie-in. Celtic expects the majority of these behind pipe volumes to be brought on-stream late in the third quarter of 2012.

During the second quarter of 2012, Celtic recorded funds from operations of $23.9 million ($0.22 per share, diluted), down 31% from $34.8 million ($0.35 per share, diluted) reported in the same quarter of the previous year. Despite higher production levels during the second quarter of 2012, funds from operations decreased primarily due to significantly lower natural gas prices which averaged $2.06 per MCF in the second quarter of 2012, down 52% from $4.32 per MCF for the same period in 2011.

Net capital expenditures during the quarter were $60.8 million, down 12% from $69.3 million in the second quarter of 2011.

Drilling and Operations

At Kaybob, Alberta, the Company continued its delineation of the Devonian Duvernay play by drilling 3 gross (2.5 net) wells. All three wells were cased and rig released prior to June 30, 2012. However, completion activity on the wells has been held up due to the extremely wet conditions in the Kaybob area, with the first of the three wells expected to commence completion operations by mid-August.

A Duvernay well located at 4-11-60-20W5 (33.3% WI) that was drilled during the first quarter of 2012 was completed in July; however, operations had to be shut down due to wet weather conditions. A production test is expected to commence after the fracture string is pulled and production tubing has been installed, as soon as weather permits.

At Inga, British Columbia, the Company participated in the drilling of 2 gross (0.8 net) wells. One well has been completed and is on production and the second well is currently being completed. The Company continues to remain encouraged by the results at Inga.

At Resthaven, Alberta, Celtic drilled 3 gross (2.5 net) wells all in the northern area which has higher liquid yields. These wells have not been completed to date, once again due to wet weather conditions. However, the Company has commenced completion operations on two of the three wells.

The remaining six kilometre portion of the main pipeline in the southern portion of the Resthaven land block is currently under construction. A river crossing is required to complete the pipeline and will be finalized as soon as precipitation stops and the river recedes to normal levels. This will allow the two Montney horizontal wells and one dual Montney-Cretaceous horizontal well in the southern block to be brought on production. Celtic anticipates bringing this production on-stream by the end of August.

In the southern part of the greater Resthaven area, Celtic drilled and cored a vertical well located near Smoky at 13-28-58-1W6, in the first quarter of 2012. Upon evaluation of the core samples, the well has encountered a Coquina rock interval, with porosity of up to 19% and permeability of 205 millidarcies. Celtic believes that wells with these characteristics will likely be highly productive. As a result, the Company plans to re-enter the wellbore and drill it horizontally as soon as freeze-up, in December 2012. Depending on the results of the horizontal well, the Company may focus a greater capital allocation on this Coquina trend in its plans for future development at Resthaven.

In the Kaybob-Fir area, Celtic has commenced its Dunvegan light oil drilling program and has cased one well that is currently awaiting completion. A second well is currently drilling in the horizontal lateral section. A third well was suspended after running surface casing due to wet weather and poor road conditions; however, drilling operations have now re-commenced.

At Karr, Alberta, north of Celtic's Resthaven land block, the Company had previously tested a vertical well located at 10-21-65-3W6 (100% WI). The well was swabbed and flowed for 122 hours and during the last 48 hours of the test, the well was producing 36.5° API oil at a rate of 257 barrels per day and associated gas at a rate of 679 mcf per day, at a flowing wellhead pressure of 690 kPa (100 psi). Based on public information, this is the highest Montney oil rate tested from a vertical well, in the near vicinity, and Celtic believes that it has discovered a new Montney oil pool. As a result, Celtic has recently acquired an additional nine sections of land on the play and is currently drilling a horizontal leg out of the original wellbore. The well is located in close proximity to pipeline infrastructure and is expected to be completed horizontally using a multi-stage fracture technique in the third quarter of 2012.

Celtic has entered into two separate purchase and sale/asset swap agreements with third parties whereby the Company will dispose approximately 28 BOE per day of production (84% gas), 1.6 net sections of Cretaceous rights, and 11.25 net sections of non-core Montney rights. In return, Celtic will acquire 3.0 net sections of Montney rights within its main Resthaven land block and receive cash proceeds, before adjustments, of $16.0 million. These transactions are expected to close during the third quarter. After taking into account these transactions, the lands acquired at Karr and on-going land acquisition activity, Celtic's Montney acreage in the greater Resthaven area will be 711 net sections.


In spite of AECO natural gas prices averaging $1.92 per GJ during the first half of 2012, Celtic was able to generate high netbacks from its liquids production, the majority of which is condensate that attracts a premium to WTI pricing. In addition, the Company continues to take advantage of the Alberta Government royalty incentive programs.

Celtic re-confirms its exit 2012 production guidance of 29,900 BOE per day. In addition, the Company's 2012 net capital expenditure program remains at $322.0 million.

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

2012 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 have approved a 2012 capital expenditure budget of $322.0 million, net of dispositions. The Company expects to spend $245.0 million on drilling and completing wells, $80.0 million on facilities, equipment and pipelines, and $14.0 million on land and seismic in 2012. Proceeds from dispositions, net of acquisitions, are expected to be $17.0 million.

Celtic expects production in 2012 to average between 23,000 and 24,000 BOE per day. Average production in 2012 is expected to be weighted 25% oil and 75% gas; however, operating income in 2012 is expected to be weighted 77% oil and 23% gas. At the low end of the range of 2012's average production forecast, this represents a 42% increase from average production of 16,212 BOE per day in 2011. On a production per common share basis, the increase would be 32%.

The Company's average commodity price assumptions for 2012 are US$85.00 per barrel for WTI oil, US$2.85 per MMBTU for NYMEX natural gas, $2.30 per GJ for AECO natural gas and a US/Canadian dollar exchange rate of US$0.9804. These prices compare to average 2011 prices of US$95.12 per barrel for WTI oil, US$4.07 per MMBTU for NYMEX natural gas, $3.43 per GJ for AECO natural gas and a US/Canadian dollar exchange rate of US$0.9893.

After giving effect to the aforementioned production and commodity price assumptions, funds from operations for 2012 is forecasted to be approximately $150.0 million or $1.38 per common share, diluted.

Changes in forecasted commodity prices and variances in production estimates can have a significant impact on estimated funds from operations and profit. Please refer to the advisory regarding forward-looking statements.

Celtic estimates 2012 year-end bank debt, net of working capital, to be approximately $213.0 million, which provides the Company with approximately $122.0 million of unused and available bank credit at year-end.

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 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. Readers are cautioned that the foregoing well test results are not necessarily indicative of long-term performance.

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.

Working interest is abbreviated as "WI". 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". Kilopascals is abbreviated as "kPa" and pounds per square inch is abbreviated as"psi".

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