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Press release from Marketwire

Celtic Reports Financial and Operating Results for the Three and Nine Months Ended September 30, 2011

Thursday, November 10, 2011

Celtic Reports Financial and Operating Results for the Three and Nine Months Ended September 30, 201118:34 EST Thursday, November 10, 2011CALGARY, ALBERTA--(Marketwire - Nov. 10, 2011) - Celtic Exploration Ltd. (TSX:CLT) ("Celtic" or the "Company") is pleased to report its financial and operating results for the three months and nine months ended September 30, 2011. Summary of results for the third quarter are as follows:Three months ended September 30,($000's, unless otherwise specified)20112010ChangeRevenue, before royalties and financial instruments55,29847,98915%Funds from operations34,62630,96312%Basic, $/share0.350.343%Diluted, $/share0.340.340%Profit (loss)(1,592)(1,897)-16%Basic, $/share(0.02)(0.02)0%Diluted, $/share(0.02)(0.02)0%Capital expenditures, net of dispositions96,68272,76233%Weighted average common shares outstandingBasic, thousands97,65090,0898%Diluted, thousands100,90092,11010%ProductionOil (bbls/d)3,8593,7473%Gas (mcf/d)71,69176,555-6%Combined (BOE/d)15,80816,506-4%Production per million shares (BOE/d)162183-11%Realized sales prices, after financial instrumentsOil ($/bbl)79.7762.2928%Gas ($/mcf)4.184.22-1%Drilling activityTotal wells1218-33%Working interest wells7.512.7-41%Success rate on working interest wells91%100%-9%Summary of financial and operating results for the nine months ended September 30, 2011 are as follows:Nine months ended September 30,($000's, unless otherwise specified)20112010ChangeRevenue, before royalties and financial instruments163,723169,000-3%Funds from operations102,126100,1682%Basic, $/share1.071.12-4%Diluted, $/share1.041.10-5%Profit3,10027,449-89%Basic, $/share0.030.31-90%Diluted, $/share0.030.30-90%Capital expenditures, net of dispositions238,007110,724115%Total assets932,905710,76431%Bank debt, net of working capital219,738168,01731%Shareholder's equity547,586411,70433%Common shares outstanding, thousands97,82090,1848%Stock options outstanding, thousands7,3377,3250%Weighted average common shares outstandingBasic, thousands95,40289,7016%Diluted, thousands98,50291,1398%ProductionOil (bbls/)3,6764,061-9%Gas (mcf/d)71,17779,294-10%Combined (BOE/d)15,53917,277-10%Production per million shares (BOE/d)163193-16%Realized sales prices, after financial instrumentsOil ($/bbl)79.6467.5318%Gas ($/mcf)4.244.52-6%Drilling activityTotal wells4647-2%Working interest wells31.033.7-8%Success rate on working interest wells98%94%4%Undeveloped landGross acres710,513494,58744%Net acres643,557432,77749%Message to ShareholdersCeltic Exploration Ltd. ("Celtic" or the "Company") is pleased to report to shareholders the Company's activities in the third quarter of 2011. During the quarter, Celtic drilled 12 (7.5 net) wells with an overall net success rate of 91%. Production during the quarter averaged 15,808 BOE per day, a decrease of 4% from 16,506 BOE per day in the third quarter of 2010. Production during the third quarter did not reflect the start-up of Resthaven production that Celtic had previously expected to commence in September 2011. Initial production from the Company's Resthaven facility, which is tied into the Simonette Gas Plant, was brought on-stream on October 28, 2011. In addition, partial production from Fir was brought on-stream in late September, with little impact to third quarter average production volumes. With the start-up of Resthaven and Fir production, Celtic expects to show significant production growth in the fourth quarter of 2011.In the third quarter of 2011, Celtic recorded funds from operations of $34.6 million ($0.34 per share, diluted), up 12% from $31.0 million ($0.34 per share, diluted) reported in the same quarter of the previous year. Despite lower production levels during the third quarter, funds from operations increased primarily due to a higher realized average sales price and lower production and transportation expense per BOE.Net capital expenditures during the quarter were $96.7 million and bank debt, net of working capital, at September 30, 2011 was $219.7 million, up 31% from $168.0 million at September 30, 2010. Subsequent to the end of the third quarter, Celtic issued 6.9 million common shares by way of short-form prospectus for gross proceeds of $172.5 million. Also, subsequent to the end of the third quarter, the Company announced that it had entered into an agreement to acquire natural gas assets, including production of approximately 2,500 BOE per day, at Grande Cache, Alberta, adjacent to Celtic's core area at Resthaven, for cash consideration of $50.0 million.Drilling and OperationsAt Kaybob, Alberta, the Company drilled two (1.9 net) Triassic Montney horizontal wells and one (0.3 net) Cretaceous Bluesky horizontal well. Also at Kaybob, Celtic participated in the drilling of two (0.2 net) Devonian Beaverhill Lake wells in the Kaybob South BHL Unit # 1, one (0.1 net) of which was unsuccessful.At Inga, British Columbia, Celtic participated in the drilling of two (0.8 net) Triassic Doig horizontal wells. The first well located at 04-36-087-23W6 (40% WI) was completed and after a five day test, the well was producing oil at a rate of 1,070 barrels per day and natural gas at a rate of 3.5 MMCF per day (1,650 BOE per day combined), at a flowing wellhead pressure of 12,627 kPa (1,830 psi). The second well located at 01-33-087-23W6 (40% WI) will be completed in the fourth quarter.At Fir, Alberta, the Company drilled one (0.7 net) horizontal well with a measured depth of approximately 4,000 metres. This well, located at 08-27-059-22W5 will be completed in the fourth quarter.In the Greater Resthaven area of Alberta, Celtic carried out three operations which further delineate this exciting Triassic Montney play. The Company drilled two (2.0 net) horizontal wells and drilled one (1.0 net) re-entry horizontal well during the third quarter of 2011.The first horizontal well that was drilled during the third quarter is located north of the Simonette River near Jayar at 04-34-061-03W6 (100% WI). The well was drilled to a measured depth of 5,130 metres and was completed with a 16-stage foam fracture technique. After 82 hours of clean-up and flow, at the end of the test, the well was producing natural gas at a rate of 20.4 MMCF per day and condensate at 568 barrels per day, at a flowing wellhead pressure of 12,863 kPa (1,837 psi).The second horizontal well that was drilled during the third quarter is in the central part of Celtic's Greater Resthaven land block near Wanyandie located at 01-03-060-01W6 (100% WI). The well was drilled to a measured depth of 4,597 metres and was completed with a 13-stage foam fracture technique. During the last 24 hours of the 6 day test, the well was flowing natural gas at a rate of 4.1 MMCF per day and condensate of 48 barrels per day, at a flowing wellhead pressure of 1,052 kPa (150 psi).The third operation during the third quarter was a re-entry horizontal well located near Simonette at 04-11-062-27W5 (100% WI). This well was intended to test an eight section block near Simonette, away from Celtic's contiguous block of lands in the Greater Resthaven area. The well has been completed and is currently being tested.Celtic has been active at recent Alberta crown land sales in the Resthaven area. The company has increased it's land holdings with Triassic Montney rights to 461,357 gross acres (720 sections) and 443,254 net acres (692 sections).At Resthaven, Celtic has completed the Phase I construction of gas gathering pipelines and a central compression and dehydration facility located at 02-10-060-01W6 (the "Resthaven facility"). The Company has started operating the Resthaven facility, with the first compressor running, since October 28, 2011. Natural gas from the Resthaven facility is pipeline (12 inch) connected to the Simonette gas plant operated by Keyera Corp. Two 100% working interest horizontal wells have been tied-in to the Resthaven facility which is currently producing at the first compressor's maximum capacity of 12.7 million cubic feet per day.A second compressor with a capacity of 15.3 million cubic feet per day is expected to start up next week, at which time, four additional 100% working interest horizontal wells are expected to be tied-in to the Resthaven facility. As a result, Celtic has aggregate capacity of 28.0 million cubic feet per day from Phase I construction. Phase II construction is currently underway as Celtic extends the gas gathering pipeline system north of the Simonette River. As part of this construction phase, the Company expects to install a third compressor and additional dehydration facilities by late December 2011, expanding the aggregate capacity of the Resthaven facility to 50.0 million cubic feet per day.Phase III construction will commence in 2012, at which time the Company intends to extend its gas gathering pipelines to the wells located in the southern block of its contiguous land holdings. Celtic currently has four rigs operating in the Resthaven area, drilling horizontal wells and expects to keep these rigs operating throughout 2012 further delineating and de-risking the Company's 692 section Triassic Montney land base.2011 GuidanceCeltic maintains its exit 2011 production guidance of approximately 24,500 BOE per day. However, due to the K3 Gas Plant outage and pipeline and facility construction delays, certain production at Fir and Resthaven were brought on-stream later than originally forecasted. As a result, average production for 2011 has been reduced to between 16,800 and 17,000 BOE per day (previously between 18,400 and 18,700 BOE per day).The Company's average commodity price assumptions for 2011 are US$92.50 (previously US$93.50) per barrel for WTI oil, US$4.15 (previously US$4.30) per MMBTU for NYMEX natural gas, $3.50 (previously $3.55) per GJ for AECO natural gas and a US/Canadian dollar exchange rate of US$1.018 (previously US$1.020). 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.After giving effect to the aforementioned production and commodity price assumptions, funds from operations for 2011 is forecasted to be approximately $146.5 million or $1.45 per common share, diluted (previous forecast was $158.0 million or $1.59 per common share, diluted) and net loss is forecasted to be approximately $1.8 million or $0.02 per common share, diluted (previous forecast was $3.2 million or $0.03 per common share, diluted).Bank debt, net of working capital, is estimated to be $82.9 million by the end of 2011 or approximately 0.6 times forecasted 2011 funds from operations.The Company's announcement whereby it has entered into an agreement to acquire assets at Grande Cache, Alberta is not reflected in the guidance provided herein as that transaction is not expected to close until December 2011.2012 GuidanceCeltic 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 2012 capital expenditure budget of $375.0 million. The Company expects to spend $295.0 million on drilling and completing wells, $60.0 million on facilities, equipment and pipelines, and $20.0 million on land and seismic.Celtic expects production in 2012 to average between 27,500 and 28,000 BOE per day. The Company recently added significant production at Resthaven and Fir after installing gas gathering pipelines and compression and dehydration facilities and looks forward to continued growth from both these areas 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 52% oil and 48% gas. At the low end of the range of 2012's average production forecast, this represents a 64% increase from the forecasted average production of 16,800 BOE per day for 2011. On a production per share basis, the increase would be 53%.Celtic expects to achieve continued efficiencies in its cost structure in 2012. Production expense is estimated to be $7.57 per BOE and royalties are expected to average 10.9%. General and administrative expense is estimated to be at industry leading low levels of $0.67 per BOE.The Company's average commodity price assumptions for 2012 are US$82.50 per barrel for WTI oil, US$4.15 per MMBTU for NYMEX natural gas, $3.65 per GJ for AECO natural gas and a US/Canadian dollar exchange rate of US$0.9755. These prices compare to forecasted average 2011 prices of US$92.50 per barrel for WTI oil, US$4.15 per MMBTU for NYMEX natural gas, $3.50 per GJ for AECO natural gas and a US/Canadian dollar exchange rate of US$1.018.After giving effect to the aforementioned production and commodity price assumptions, funds from operations for 2012 is forecasted to be approximately $243.0 million or $2.22 per common share, diluted and net loss is forecasted to be approximately $10.0 million or $0.10 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 and profit as follows:(i) A change of 10% in the AECO natural gas price of $0.365 per GJ, would affect funds from operations by $17.2 million ($0.15 per common share) and profit by $12.9 million ($0.12 per common share); (ii) A change of 10% in the WTI oil price of US$8.25 per barrel, would affect funds from operations by $6.9 million ($0.06 per common share) and profit by $5.2 million ($0.05 per common share); and (iii) A change of 10% in the US/Canadian dollar exchange rate of US$0.0976 per CAD, would affect funds from operations by $34.5 million ($0.31 per common share) and profit by $25.8 million ($0.23 per common share). Bank debt, net of working capital, is estimated to be $215.0 million by the end of 2012 or approximately 0.9 times forecasted 2012 funds from operations.Upon closing of the previously announced agreement to acquire assets at Grande Cache, Alberta, the Company will provide revised 2012 guidance to reflect the impact of the acquisition. OutlookIn spite of continued AECO natural gas prices below $4.00 per GJ, 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 the K3 Gas Plant outage and pipeline and facility construction delays, certain production at Fir and Resthaven were brought on-stream later than originally forecasted. As a result, average production for 2011 has been reduced to 16,800 BOE per day (previously 18,400 BOE per day).Celtic's Board of Directors has approved the company's 2012 capital expenditure budget of $375.0 million. Oil and gas production for 2012 is forecasted to average between 27,500 and 28,000 BOE per day. Celtic's previous announcement whereby it has entered into an agreement to acquire assets at Grande Cache, Alberta is not reflected in the guidance provided herein as that transaction is not expected to close until December 2011.The Company is excited about its active exploration 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.Disclaimers and AdvisoriesFinancial OutlookThe information set out herein under the heading "2011 Guidance" and "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 2011 and 2012. Readers are cautioned that this financial outlook may not be appropriate for other purposes.Forward-looking StatementsThis 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.Non-IFRS Financial MeasurementsThis 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 MeasurementsAll 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 EstimatesManagement 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.Financial StatementsCeltic's unaudited financial statements and related notes for the interim period ended September 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 November 10, 2011.FOR FURTHER INFORMATION PLEASE CONTACT: David J. WilsonCeltic Exploration Ltd.President and Chief Executive Officer(403) 201-5340ORSadiq H. LalaniCeltic Exploration Ltd.Vice President, Finance and Chief Financial Officer(403) 215-5310ORSuite 600, 321 - 6th Avenue SWCeltic Exploration Ltd.Calgary, Alberta, Canada T2P 3H3www.celticex.com