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Press release from Marketwire

Artek Exploration Ltd. Reports Significant 2011 Reserves Growth and Provides Operational Update

Tuesday, March 06, 2012

Artek Exploration Ltd. Reports Significant 2011 Reserves Growth and Provides Operational Update19:50 EST Tuesday, March 06, 2012CALGARY, ALBERTA--(Marketwire - March 6, 2012) - Artek Exploration Ltd. (TSX:RTK) of Calgary, Alberta ("Artek" or the "Company") is pleased to provide an operational update and announce the results of its independent reserve evaluation for the year ended December 31, 2011 (the "Sproule Report") as prepared by Sproule Associates Limited ("Sproule"). 2011 HIGHLIGHTS Increased Proved plus Probable reserves at December 31, 2011 by 23% to 22.9 million boe from 18.6 million boe at December 31, 2010 and Proved reserves at December 31, 2011 increased by 37% to 12.9 million boe from 9.4 million boe at December 31, 2010. Increased Proved plus Probable Oil and NGLs reserves by 47% to 5.0 million boe at December 31, 2011 from 3.4 million at December 31, 2010. Replaced 2011 production of 862.5 mboe by 4.9 times with Proved plus Probable reserve additions and 4.1 times with Proved reserve additions. In a year focused on increasing liquids production to over 40% of total corporate production and probable reserves conversion, Artek achieved all in finding and development (F&D) costs of $16.83 per boe on Proved plus Probable reserves and $18.14 per boe on Proved reserves including future development costs ("FDC"). F&D costs excluding FDC were $8.55 per boe on a Proved plus Probable basis and $10.04 per boe on a Proved basis. Finding, development and acquisition (FD&A) costs for the last three years averaged $15.71 per boe on a Proved and Probable basis and $21.34 on Proved reserves including FDC. Achieved a recycle ratio of 1.8 based on Proved and Probable F&D of $16.83 per boe and Artek's estimated fourth quarter 2011 operating netback of $30.24 per boe. F&D costs on Proved plus Probable reserves excluding negative revisions which were based mainly on reduced forward pricing for natural gas was $13.41 per boe including FDC. Recycle ratio on a Proved plus Probable basis net of these negative revisions would be 2.3. Pro-forma FD&A costs on Proved plus Probable reserves after giving effect to the January 4, 2012 partial sale (1/3 interest) of 691 Mboe at its Leduc Woodbend property is $14.95 per boe including FDC and results in a pro-forma recycle ratio of 2.0. Increased Proved plus Probable reserve value by 21% to $219.8 million from $181.8 million at December 31, 2010 using a 10% discount factor, despite a decrease of 19% in Sproule's forecast gas pricing in the near three year period. Artek was able to offset the effect of lower natural gas prices by increasing its liquids-rich natural gas reserves significantly at its Inga Doig resource play. Estimated capital expenditures for the year ended December 31, 2011 was approximately $43.8 million. Included in this amount was approximately $3.6 million on undeveloped land acquisitions and $1.9 million on seismic for new exploration plays in the Inga and Peace River Arch areas. Artek also invested $4.7 million on facility and sales capacity expansion in the Inga and Dunvegan areas that should accommodate production growth through the 2012 capital year. This significant investment in undeveloped land, seismic and facility costs amounting to $10.2 million added approximately $2 per boe in F&D costs on a Proved and Probable basis. Net asset value at December 31, 2011 is estimated at $206.6 million or $4.40 per diluted share. The following are reserves and operational highlights, details of which are provided later in the press release.Gross Reserves at December 3120112010% changeProved Developed Producing (mboe)3,8163,47010Proved Reserves (mboe)12,8539,35037Proved Plus Probable Reserves (mboe)22,88118,61523Proved F&D including change in FDC ($/boe) (1)18.1423.78(2)(24)Proved Plus Probable F&D including change in FDC ($/boe) (1)16.8313.21(2)27Proved Plus Probable F&D excluding change in FDC ($/boe)(1)8.556.61(2)31Proved Plus Probable F&D excluding negative economic factors and technical revisions ($/boe) (1)13.4113.21(2)2Fourth quarter Operating Netback ($/boe) (1)30.2421.5041Proved Plus Probable Recycle Ratio (1)1.81.6132011 Wells DrilledGrossNet% TotalCrude Oil21.643Natural gas (>40 bbl/mmcf NGL content)31.849Natural gas (<40 bbl/mmcf NGL content)10.38Total63.7100Success rate (%)100(1) Certain financial and operating information included in this press release for the quarter and year ended December 31, 2011, such as finding and development costs, production information, operating netbacks, recycle ratios and net asset value calculations are based on unaudited financial results for the year ended December 31, 2011 and are subject to the same limitations as discussed under forward-looking statements outlined at the end of this release. These estimate amounts may change upon completion of the audited financial statements for the year ended December 31, 2011 and those changes may be material.(2) The comparative numbers for 2010 are finding, development and acquisition costs which incorporate the costs and associated reserve additions and changes in future development costs related to acquisitions and dispositions. AREA UPDATE At Inga/Fireweed, the Company increased proved plus probable reserves by 182% to 6.2 million boe as compared to the previous year and value on a NPV10 BT basis also increased 188% to $91.8 million. The Sproule Report assigned 11 undeveloped horizontal locations in Inga and one at Fireweed. Company mapping supports an additional 31 unbooked potential horizontal locations at Inga and Fireweed assuming a drilling density of approximately three wells per mapped section. It is possible given the significant percentage of liquids (condensate) in the production stream and the relatively tight nature of the reservoir that the Inga and Fireweed properties will require a higher drilling density to increase the recoverable reserves net to the Company. In 2011, Artek invested approximately $2.7 million on expanding its facilities and takeaway capacity in the area. The Company also invested approximately $1.2 million in acquiring an additional 10,501 gross (6,302 net) acres of exploratory lands in the area. In late February, the Company began its 2012 Inga horizontal well program that will see it drill up to 7 gross (4.2 net) wells targeting condensate in the Doig Formation. Depending on weather, Artek anticipates that it will have 4 horizontal wells spud in the first half of 2012 of which two are likely to be completed into spring breakup, with the remaining 3 wells expected to be drilled in the second half of the year. At the Company's producing oil property at Leduc Woodbend, the Sproule Report assigned proved plus probable reserves of 2.1 million boe and a NPV10 BT value of approximately $56.7 million. After giving effect to the January, 2012 disposition of 1/3 of the property or approximately 0.7 million boe of reserves and 218 boe/d of production, the Company has approximately 1.4 million proved plus probable boe of remaining reserves with a NPV10 BT value of approximately $37.8 million based on the Sproule Report. Artek's pro-forma 2011 FD&A costs after including the property disposition would be $15.00 per boe on a proven basis and $14.95 per boe on a proven and probable basis. Artek has approved a 4 well program for 2012 along with its partners that is anticipated to commence after breakup and be completed by the fourth quarter of 2012. In the Peace River Arch area, the Sproule Report assigned proved plus probable reserves of 2.0 million boe with a NPV10 BT value of approximately $16 million. Artek has completed the drilling of the first well and is currently drilling the second of up to 4 horizontal wells planned for 2012 targeting light to medium Triassic oil on this immature exploration play. The Company has invested approximately $2.0 million on facilities, primarily water disposal, in the area and $1.8 million on exploration lands increasing its position by over 27,000 gross acres.In the Deep Basin area, the Sproule Report assigned proved plus probable reserves of approximately 12.6 million boe up from 11.4 million boe from the previous year. The Sproule Report assigned a NPV10 BT value of $53.7 million, which has been revised down 24% compared to the previous year largely due to the decrease in forward pricing for natural gas by approximately 19% based on the near 3 year average term as compared to the previous year. For 2012, Artek is planning capital expenditures of $45 to $49 million based upon the drilling of approximately 14 to 15 gross (9 to 10 net) wells. The capital program will be weighted 100% to projects targeting oil and condensate with associated natural gas. RESERVES The reserves data set forth below is based upon an independent reserves assessment and evaluation prepared by Sproule with an effective date of December 31, 2011 (the "Sproule Report"). The following presentation summarizes the Company's crude oil, natural gas liquids and natural gas reserves and the net present values before income tax, of future net revenue for the Company's reserves using forecast prices and costs based on the Sproule Report. The Sproule Report has been prepared in accordance with the standards contained in the COGE Handbook and the reserve definitions contained in NI 51-101.All evaluations and reviews of future net cash flows are stated prior to any provisions for interest costs or general and administrative costs and after the deduction of estimated future capital expenditures for wells to which reserves have been assigned. It should not be assumed that the estimates of future net revenues presented in the tables below represent the fair market value of the reserves. There is no assurance that the forecast prices and cost assumptions will be attained and variances could be material. The recovery and reserve estimates of our crude oil, natural gas liquids and natural gas reserves provided herein are estimates only and there is no guarantee that the estimated reserves will be recovered. Actual crude oil, natural gas and natural gas liquids reserves may be greater than or less than the estimates provided herein. See "Information Regarding Disclosure on Oil and Gas Reserves and Operational Information" for additional cautionary language, explanations and discussions and "Forward Looking Information and Statements" for a statement of principal assumptions and risks that may apply. Reserves SummaryThe Company's total gross proved reserves increased by 37% in 2011 to 12.9 million boe and proved plus probable reserves increased by 23% to 22.9 million boe. The following table provides summary reserve information based upon the Sproule Report and using the published Sproule (2012-01) price forecast. Oil (1)Natural gas liquids Natural gasBarrels of oil equivalentGross (2) (Mbbl)Net (3) (Mbbl)Gross (2) (Mbbl)Net (3) (Mbbl)Gross (2) (Mmcf)Net(3) (Mmcf)Gross(2)(6) (Mboe)Net(3) (6) (Mboe)ProvedProducing1,5411,18513210212,86110,5133,8163,039Non-producing3318133,2962,859570492Undeveloped1,20996823918842,10634,5148,4666,908Total proved2,7542,15538930358,26247,88612,85310,439Probable1,5771,24325318549,18838,87910,0297,907Total proved plus probable4,3313,398642488107,45086,76622,88118,346Notes:(1) Reflects light and medium crude oil, other than 144 mbbl of proved and 337 mbbl of proved plus probable gross heavy oil reserves. (2) "Gross" reserves means Artek's working interest (operating and non-operating) share before deduction of royalties and without including any royalty interest of the Company. (3) "Net" reserves means Artek's working interest (operated and non-operated) share after deduction of royalty obligations, plus Artek's royalty interest in reserves. (4) Oil equivalent amounts have been calculated using a conversion rate of six thousand cubic feet of natural gas to one barrel of oil. (5) May not add due to rounding. (6) Includes 418 Mboe of proved and 691 Mboe of proved plus probable reserves attributed to the Leduc Woodbend partial interest which was disposed of by Artek in January 2012. Reserves ValuesThe estimated before tax future net revenues associated with Artek's reserves effective December 31, 2011 and based on the published Sproule (2012 - 01) future price forecast are summarized in the following table:($ Thousands)UndiscountedDiscounted At:5%10%15%20%ProvedProducing104,91090,81879,54470,81463,986Non-producing10,9548,0166,1684,9244,042Undeveloped124,70183,22357,31440,34028,779Total proved240,566182,058143,025116,07896,807Probable242,072128,69876,80149,06632,734Total proved plus probable482,638310,756219,826165,144129,541Notes:(1) The estimated future net revenues are stated before deducting future estimated site restoration costs and are reduced for estimated future abandonment costs and estimated capital for future development associated with the reserves. (2) May not add due to rounding. (3) Prior to provision of income taxes, interest, debt service charges and general and administrative expenses. It should not be assumed that the undiscounted and discounted future net revenues estimated by Sproule represent the fair market value of the reserves. (4) Net present value after income taxes for total proved reserves is $131.9 million and for total proved plus probable reserves is $188.3 million based on a discount factor of 10%. (5) Includes net present value discounted at 10% before income taxes of $18.9 million for proved plus probable reserves attributed to the Leduc Woodbend partial interest which was disposed of by Artek in January 2012.Reserves ReconciliationThe following summary reconciliation of Artek's gross reserves compares changes in the Company's reserves as at December 31, 2011 to the reserves as at December 31, 2010 based on the Sproule (2012-01) future price forecast. Total ProvedProbableTotal Proved plus Probable(Mboe)(Mboe)(Mboe)Balance December 31, 20109,3509,26518,615Extensions and improved recoveries4,2602,1556,414Improved recovery---Technical revisions758(1,371)(613)Discoveries16824Acquisitions---Dispositions---Economic factors(669)(28)(697)Production(862)-(862)Balance December 31, 201112,85310,02922,881Notes:(1) "Gross" reserves means Artek's working interest (operating and non-operating) share before deduction of royalties and without including any royalty interest of the Company. (2) May not add due to rounding.Capital Efficiency Highlights - 2011The efficiency of the Company's capital program for the year ended December 31, 2011 is summarized below. NI 51-101 specifies how finding and development ("F&D") costs should be calculated if they are reported. Essentially NI 51-101 requires that the exploration and development costs incurred in the year along with the change in estimated future development costs be aggregated and then divided by the applicable reserve additions. The calculations specifically exclude the effects of acquisitions and dispositions on both reserves and costs. ProvedProved plus ProbableExploration and Development expenditures ($000's) (note 2)43,83543,835Change in future development capital ($000's)35,33942,48479,17586,319Reserve additions after revisions (Mboe)4,3655,129Finding & Development Costs ($/boe) (note 1)18.1416.83Reserves Replacement Ratio4.14.9Notes: (1) The aggregate of the exploration and development costs incurred in the most recent financial year and the change during that year in estimated future development costs generally will not reflect total finding and development costs related to reserve additions for that year. (2) 2011 figures include information based on estimated unaudited financial results that may change on the completion of the audited financial statements.NET ASSET VALUEThe following table provides management's calculation of Artek's estimated net asset value at December 31, 2011 based on the estimated future net revenues associated with Artek's proved plus probable reserves before income tax and discounted at 10% as presented in the Sproule Report and an independent third party evaluation of Artek's undeveloped land.($ thousands)Proved plus probable reserves - discounted at 10% (note 4)219,826Undeveloped Land (note 1)31,529Estimated working capital deficiency as at December 31, 2011 (notes 2 & 3)(50,849)Proceeds from dilutive stock options6,089Net asset value206,595Diluted Common shares outstanding (thousands)46,913Net asset value per share4.40Notes:(1) Based on an independent land evaluation. See "Land Holdings". (2) Figures include information based on unaudited financial results that may change. (3) Working capital deficiency includes an estimate of the Company's accounts receivable less accounts payable and accrued liabilities and bank debt and derivative instruments as at December 31, 2011. (4) Includes net present value discounted at 10% before income taxes of $18.9 million for proved plus probable reserves attributed to the Leduc Woodbend partial interest which was disposed of by Artek in January 2012 for $19.5 million. LAND HOLDINGS The Company retained an independent third party to assess the fair market value of the Company's undeveloped land holdings as at December 31, 2011. The evaluation was completed by Independent Land Evaluation using industry activity levels, third party transactions and land acquisitions that occurred in proximity to Artek's undeveloped lands during the past year. The Independent Land Evaluation report indicates a value of $31.5 million. A summary of the Company's land holdings at December 31, 2011 is outlined below:(acres)DevelopedUndevelopedTotalGrossNetGrossNetGrossNetAlberta23,97312,07967,23739,77291,21051,851British Columbia30,80721,23279,06168,168109,86889,400Total54,78033,311146,298107,940201,078141,251Artek anticipates releasing its 2011 year end audited financial statements on March 21, 2012. CAUTIONARY STATEMENTS Unaudited financial informationCertain financial and operating information included in this press release for the quarter and year ended December 31, 2011, such as finding and development costs, production information and net asset value, are based on estimated unaudited financial results for the quarter and year then ended, and are subject to the same limitations as discussed under Forward Looking Information set out below. These estimated amounts may change upon the completion of audited financial statements for the year ended December 31, 2011 and changes could be material.Information Regarding Disclosure on Oil and Gas Reserves and Operational InformationOur oil and gas reserves statement for the year ended December 31, 2011, which will include complete disclosure of our oil and gas reserves and other oil and gas information in accordance with NI 51-101, will be contained within our Annual Information Form which will be available on our SEDAR profile by March 31, 2012 at www.sedar.com. In relation to the disclosure of estimates of reserves relating to less than all of the Company's reserves, such estimates for individual properties may not reflect the same confidence level as estimates of reserves for all properties, due to the effects of aggregation.In relation to the disclosure of net asset value ("NAV"), the NAV table shows what is normally referred to as a "produce-out" NAV calculation under which the current value of the Company's reserves would be produced at forecast future prices and costs and do not necessarily represent a "going concern" value of the Company. The value is a snapshot in time and is based on various assumptions including commodity prices and foreign exchange rates that vary over time. It should not be assumed that the future net revenues estimated by Sproule represent the fair market value of the reserves, nor should it be assumed that Artek's estimated value of its undeveloped land holdings represent the fair market value of the lands.Forward-looking information and statementsThis news release contains certain forward-looking information and statements within the meaning of applicable securities laws. The use of any of the words "expect", "anticipate", "continue", "estimate", "may", "will", "project", "should", "believe", "plans", "intends" and similar expressions are intended to identify forward-looking information or statements. In particular, but without limiting the forgoing, this news release contains forward-looking information and statements pertaining to the following: the recognition of significant additional reserves under the heading "Reserves"; the volumes and estimated value of Artek's oil and gas reserves; the life of Artek's reserves; the volume and product mix of Artek's oil and gas production; future oil and natural gas prices and Artek's commodity risk management programs; future liquidity and financial capacity; the Company's 2012 capital expenditure plans and 2012 exit and average production forecasts; management's assessment of future plans and results from operations and operating metrics; future costs, expenses and royalty rates; future interest costs; the exchange rate between the $US and $Cdn; future hedging activities; future development, exploration, acquisition and development activities and related capital expenditures; the number of wells to be drilled and completed and related production expectations; the amount and timing of drills, completions and capital projects; and the ability to adequately finance the same; operating costs; the total future capital associated with development of reserves and resources; and forecast reductions in operating expenses. The recovery and reserve estimates of Artek's reserves and resources provided herein are estimates only and there is no guarantee that the estimated reserves or resources with be recovered. In addition, forward-looking statements or information are based on a number of material factors, expectations or assumptions of Artek which have been used to develop such statements and information but which may prove to be incorrect. Although Artek believes that the expectations reflected in such forward-looking statements or information are reasonable, undue reliance should not be placed on forward-looking statements because Artek can give no assurance that such expectations will prove to be correct. In addition to other factors and assumptions which may be identified herein, assumptions have been made regarding, among other things: results from drilling and development activities consistent with past operations and offsetting wells; the continued and timely development of infrastructure in areas of new production; continued availability of debt and equity financing and cash flow to fund Artek's current and future plans and expenditures; the impact of increasing competition; the general stability of the economic and political environment in which Artek operates; the timely receipt of any required regulatory approvals; the ability of Artek to obtain qualified staff, equipment and services in a timely and cost efficient manner; drilling results; the ability of the operator of the projects in which Artek has an interest in to operate the field in a safe, efficient and effective manner; the ability of Artek to obtain financing on acceptable terms; field production rates and decline rates; the ability to replace and expand oil and natural gas reserves through acquisition, development and exploration; the timing and cost of pipeline, storage and facility construction and expansion and the ability of Artek to secure adequate product transportation; future commodity prices; currency, exchange and interest rates; regulatory framework regarding royalties, taxes and environmental matters in the jurisdictions in which Artek operates; and the ability of Artek to successfully market its oil and natural gas products.The forward-looking information and statements included in this news release are not guarantees of future performance and should not be unduly relied upon. Such information and statement, including the assumptions made in respect thereof, involve known and unknown risks, uncertainties and other factors that may cause actual results or events to defer materially from those anticipated in such forward-looking information or statements including, without limitation: changes in commodity prices; changes in the demand for or supply of Artek's products; unanticipated operating results or production declines; changes in tax or environmental laws, royalty rates or other regulatory matters; changes in development plans of Artek or by third party operators of Artek's properties, increased debt levels or debt service requirements; inaccurate estimation of Artek's oil and gas reserve and resource volumes; limited, unfavourable or a lack of access to capital markets; increased costs; a lack of adequate insurance coverage; the impact of competitors; and certain other risks detailed from time-to-time in Artek's public disclosure documents, (including, without limitation, those risks identified in this news release and Artek's Annual Information Form).The forward-looking information and statements contained in this news release speak only as of the date of this news release, and Artek does not assume any obligation to publicly update or revise any of the included forward-looking statements or information, whether as a result of new information, future events or otherwise, except as may be required by applicable securities laws.BOE Conversions: Barrel of oil equivalents or BOEs may be misleading, particularly if used in isolation. A BOE conversion ratio has been calculated using a conversion rate of six thousand cubic feet of natural gas to one barrel. This conversion ratio of six thousand cubic feet of natural gas to one barrel is based on an energy equivalent conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Given that the value ratio based on the current price of crude oil as compared to natural gas is significantly different from the energy equivalency of 6:1, utilizing a conversion ratio on a 6:1 basis may be misleading as an indication of value.Reserves: The estimates of reserves and future net revenue for individual properties may not reflect the same confidence level as estimates of reserves and future net revenue for all of Artek's properties due to effects of aggregation. The net present value of future net revenue does not represent the fair market value thereof.Artek is a Calgary, Alberta based oil and gas exploration, development and production company whose shares are traded on The Toronto Stock Exchange under the trading symbol "RTK".FOR FURTHER INFORMATION PLEASE CONTACT: Darryl MetcalfeArtek Exploration Ltd.President and Chief Executive Officer403.296.4799ORDarcy AndersonArtek Exploration Ltd.Vice President, Finance and Chief Financial Officer403.296.4775