Celtic Exploration Ltd.

Celtic Exploration Ltd.

March 08, 2012 08:00 ET

Celtic Reports Financial Results for the Year Ended December 31, 2011

CALGARY, ALBERTA--(Marketwire - March 8, 2012) - Celtic Exploration Ltd. ("Celtic" or the "Company") (TSX:CLT) has released its financial results for the three months and twelve months ended December 31, 2011. Summary of results are as follows:

Three months ended December 31, Twelve months ended
December 31,
(CA$ thousands, unless otherwise indicated) 2011 2010 Change 2011 2010 Change
Revenue, before royalties and financial instruments 60,980 53,042 15 % 224,703 222,041 1 %
Funds from operations 33,553 30,625 10 % 135,679 130,793 4 %
Basic ($/common share) 0.32 0.34 -6 % 1.39 1.46 -5 %
Diluted ($/common share) 0.31 0.33 -6 % 1.35 1.43 -6 %
Profit (loss) (31,026 ) (1,284 ) 2316 % (27,926 ) 26,165 -
Basic ($/common share) (0.30 ) (0.01 ) 2879 % (0.29 ) 0.29 -
Diluted ($/common share) (0.30 ) (0.01 ) 2879 % (0.29 ) 0.29 -
Capital expenditures, net of dispositions (182,282 ) (68,186 ) 167 % (419,680 ) (172,785 ) 143 %
Total assets 1,079,923 750,346 44 %
Bank debt, net of working capital 211,800 203,381 4 %
Shareholders' equity 687,252 416,407 65 %
Weighted average common shares outstanding (thousands)
Basic 104,166 90,398 15 % 97,611 89,876 9 %
Diluted 107,456 93,118 15 % 100,709 91,537 10 %

Financial Statements

Celtic's audited financial statements and related notes for the year ended December 31, 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 March 8, 2012.

Celtic's operating results for the three months and twelve months ended December 31, 2011 are summarized in the table below:

Three months ended December 31, Twelve months ended December 31,
2011 2010 Change 2011 2010 Change
Oil (bbls/d) 4,124 4,096 1 % 3,789 4,070 -7 %
Gas (mcf/d) 84,515 79,731 6 % 74,539 79,404 -6 %
Combined (BOE/d) 18,210 17,385 5 % 16,212 17,304 -6 %
Production per million common shares (BOE/d) 175 192 -9 % 166 193 -14 %
Realized sales prices, after financial instruments
Oil ($/bbl) 87.19 68.56 27 % 81.72 67.80 21 %
Gas ($/mcf) 3.47 3.93 -12 % 4.02 4.37 -8 %
Operating netbacks ($/BOE)
Oil and gas revenue 36.40 33.17 10 % 37.97 35.15 8 %
Realized gain/(loss) on financial instruments (0.57 ) 1.04 (0.40 ) 0.85
Realized sales price, after financial instruments 35.83 34.21 5 % 37.57 36.00 4 %
Royalties (4.41 ) (3.42 ) 29 % (4.30 ) (4.05 ) 6 %
Production expense (9.89 ) (6.47 ) 53 % (8.16 ) (8.13 ) 0 %
Transportation expense (0.38 ) (0.36 ) 6 % (0.40 ) (0.44 ) -9 %
Operating netback 21.15 23.96 -12 % 24.71 23.38 6 %
Drilling activity
Total wells 13 15 -13 % 58 62 -6 %
Working interest wells 10.0 8.2 22 % 40.1 41.9 -4 %
Success rate on working interest wells 100 % 88 % 14 % 96 % 90 % 7 %
Undeveloped land
Gross acres 794,137 685,993 16 %
Net acres 689,893 621,199 11 %
Reserves - Proved plus probable
Oil (mbbls) 32,803 16,806 95 %
Gas (mmcf) 636,992 304,197 109 %
Combined (mBOE) 138,968 67,506 106 %

President's Message

Celtic is pleased to report to shareholders on the Company's activities in 2011. During the year, the Company incurred substantial capital expenditures drilling wells and building facility and pipeline infrastructure in its Triassic Montney plays at Resthaven and Fir. Significant production growth is expected in 2012, as the majority of new production added from these two resource plays came on-stream towards the end of 2011. As a result of the successful drilling results in these two resource plays and including success in its Kaybob Devonian Duvernay and Inga Triassic Doig plays, Celtic more than doubled its proved plus probable reserves at December 31, 2011.

Highlights for 2011 include funds from operations of $135.7 million ($1.35 per share, diluted), net capital expenditures of $419.7 million, average production of 16,212 BOE per day (166 BOE/d per million shares outstanding), proved plus probable reserves of 139.0 million BOE, undeveloped land holdings of 689,893 net acres and a prudent financial position with debt, net of working capital of $211.8 million or 1.6 times 2011 funds from operations.

The year 2011 proved to be another important year for Celtic as the Company set out to establish infrastructure in an asset base that will allow it to grow over the next decade. The Company has established land positions in excess of 550,000 net acres in two areas which provide significant opportunities for growth; the Duvernay play at Kaybob and the Montney play at Resthaven. These two resource plays will be the driver for the Company's future growth.

Kaybob Devonian Duvernay Resource Play

The Duvernay play in the Kaybob area has garnered significant interest in the past two years whereby industry has invested over $1.0 billion at Alberta Crown land sales in close proximity to Celtic owned lands. At February 9, 2012, Celtic owned 108,224 net acres or 169 net sections with Duvernay rights in this area. After drilling and testing the first four Duvernay horizontal wells in the area, the Company is very encouraged with the natural gas rates and the high associated liquids content.

Celtic continues to actively de-risk the play and during 2012, the Company expects to drill 9 gross (6 net) additional horizontal wells. After evaluating the results from these wells, Celtic will be in a position to establish a go forward capital expenditure program that is focused on development using multi-well pads on this exciting liquids-rich shale play.

Resthaven Triassic Montney Resource Play

The second play, in which Celtic was much more active drilling wells during 2011, is the Resthaven Montney play. The Company first tested a well in this area in 2007, but did not aggressively start pursuing it until 2008, after experiencing positive results from horizontally drilling the same horizon (Montney) as its Kaybob property. With the Company's knowledge in the Kaybob area, Celtic commenced acquiring acreage in the Resthaven area prior to drilling a horizontal test in the Montney zone in early 2010. After a favorable flow test, the Company continued to aggressively acquire acreage on the play. At December 31, 2011, Celtic owned 442,396 net acres (691 sections) of land on this play. An extensive area wide drilling program was carried out in 2011, allowing the Company to evaluate this large liquids-rich resource play.

Celtic has made significant progress de-risking its Resthaven lands. To date, the Company has drilled 20 horizontal wells over a fairway that extends more than 70 kilometres. The Company has tested four different intervals within the Montney section and is very pleased with the results to date.

Construction of pipeline and facility infrastructure commenced in 2011 and is currently being extended towards the north-west and the south-east. Celtic has built approximately 55 MMCF per day of compression capacity and the gathering system consists mainly of 12 inch and 10 inch pipe. At present, Celtic plans to produce into existing gas plants in the area until the scope of the development program is fully understood. The majority of the Company's gas is produced into the Keyera Simonette gas plant, which is expected to be converted to a deep cut plant in 2013. In the future, the Company could construct its own gas processing facility, although at this time, the Company has no plans to do so.

With on-going success, the Resthaven area could provide the Company with drilling inventory that would provide production growth over the next decade at favourable rates of return using current commodity prices.

Other Prospects

At Inga, British Columbia, Celtic has a non-operated interest in 11,834 net acres (18 sections) of land, as at January 18, 2012. The Doig pool at Inga has proven to be especially well suited to horizontal drilling. Five wells have been drilled to date with seven wells planned for 2012. Wells come on production at rates up to 200 barrels of liquids per MMCF per day of natural gas and then decline to between 50 and 100 barrels per MMCF per day after being produced for several months. Celtic has a 40% working interest in this play.

At Fir, Alberta, the Company owns 17,440 net acres (27 sections) of land with Triassic Montney rights. Seven wells were drilled in 2011. With the exception of one well, the wells have been drilled over the length of two sections enhancing the well economics. With the longer horizontals, 20 to 24 fracs are completed, which are expected to result in double the well productivity and reserves for an approximate 50% increase in capital expenditures. The Company has continued to develop the pool during the first quarter of 2012.

At Kaybob, Alberta, Celtic continues to be active on its Montney and Bluesky development programs. In 2011, eight horizontal Montney wells and seven horizontal Bluesky wells were drilled and completed. Development will continue on these two plays in 2012; however, at a lesser pace as the Company directs more of its capital to its higher liquids resource plays.


With the continued downward pressure on natural gas prices, due in part to the abnormally warm 2011 - 2012 winter, Celtic has reallocated capital expenditures for the last three quarters of 2012. The Company will be directing capital from the main gas liquids lands in Resthaven to two oil pools in the area. As well, the Fir development will be postponed with capital instead being directed to additional Dunvernay wells, a new Dunvegan oil play in Kaybob and a Bluesky oil pool in Kaybob. Total capital expenditures for 2012 will be reduced from $355.0 million to $300.0 million.

The result of the redirecting of capital will have the effect of bringing the Company's oil and liquids ratio from the current 22% of production up to 27% by year end. Production guidance under the new budget is a yearly average production of 26,000 to 26,500 BOE per day, representing a 50% increase year over year in production per share. Exit production is expected to be 29,900 BOE per day.

At year end, natural gas prices are expected to rebound as a result of increased demand and lower supply driven by a reduced gas rig count. At that point, Celtic will be in a position to carry out an oil weighted budget in 2013 or go back to a gassier budget if gas prices permit.

Looking ahead to 2012, Celtic will use its knowledge and experience with horizontal multi-stage fracture drilling and completion technologies to move its new prospects forward.

We would like to thank our shareholders for their support, our Board of Directors for their guidance and our employees for their continued effort and loyalty.

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 an 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 reduced 2012 capital expenditure budget of $300.0 million. The Company expects to spend $234.0 million on drilling and completing wells, $50.0 million on facilities, equipment and pipelines, and $16.0 million on land and seismic.

Celtic expects production in 2012 to average between 26,000 and 26,500 BOE per day (previously between 29,000 and 29,500 BOE per day). The Company recently added significant production at Resthaven after installing gas gathering pipelines and compression and dehydration facilities and looks forward to continued growth from this area in 2012. Average production in 2012 is expected to be weighted 24% oil and 76% gas; however, operating income in 2012 is expected to be weighted 73% oil and 27% gas. At the low end of the range of 2012's average production forecast, this represents a 60% increase from average production of 16,212 BOE per day in 2011. On a production per common share basis, the increase would be 50%.

Celtic expects to achieve continued efficiencies in its cost structure in 2012. Production expense is estimated to be $7.89 per BOE and royalties are expected to average 12.7%. General and administrative expense is estimated to be at industry leading low levels of $0.66 per BOE.

The Company's average commodity price assumptions for 2012 are US$95.00 (previously US$82.50) per barrel for WTI oil, US$2.75 (previously US$3.75) per MMBTU for NYMEX natural gas, $2.35 (previously $3.35) per GJ for AECO natural gas and a US/Canadian dollar exchange rate of US$0.9804 (previously US$0.9755). 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 $181.5 million or $1.67 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 below.

Sensitivities to changes in commodity prices would affect forecasted 2012 funds from operations as follows:

(i) A change of 15% in the AECO natural gas price of $0.35 per GJ would affect funds from operations by $16.2 million ($0.15 per common share); and

(ii) A change of 15% in WTI oil price of US$14.25 per barrel would affect funds from operations by $0.6 million ($0.01 per common share) - impact is minimal due to Celtic's fixed WTI derivative financial instrument contracts currently in place.

Bank debt, net of working capital, is estimated to be $325.6 million by the end of 2012 or approximately 1.8 times forecasted 2012 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 2012 and beyond. The information set out herein under the heading "2012 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 2012. Readers are cautioned that this financial outlook may not be appropriate for other purposes.

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.

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".

Contact Information

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

    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