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Press release from Marketwire

Artek Exploration Ltd. Announces First Quarter 2012 Financial Results and Updates Operations

Wednesday, May 09, 2012

Artek Exploration Ltd. Announces First Quarter 2012 Financial Results and Updates Operations18:41 EDT Wednesday, May 09, 2012CALGARY, ALBERTA--(Marketwire - May 9, 2012) - Artek Exploration Ltd. (TSX:RTK) of Calgary, Alberta ("Artek" or the "Company") is pleased to provide this summary of its financial and operating results for the quarter ended March 31, 2012. A complete copy of the Company's comparative financial statements for the quarter ended March 31, 2012, along with management's discussion and analysis in respect thereof will be filed on SEDAR and on the Company's website at www.artekexploration.com.HIGHLIGHTSThree Months Ended March 31,20122011Change(000s, except per share amounts)($)($)(%)FinancialPetroleum and natural gas revenues9,7879,1038Funds flow from operations (1)3,3993,873(12)Per share - basic0.080.11(27)- diluted0.080.11(27)Net earnings (loss)8,106(4,836)Per share - basic0.19(0.14)- diluted0.18(0.14)Capital expenditures13,86011,33922Dispositions19,444-Working capital deficiency (excluding fair value of derivative instruments)(39,753)(42,910)(7)Shareholders' equity102,49196,3576(000s)(#)(#)(%)Share DataAt period-endBasic43,43339,58310Options3,4802,79525Weighted averageBasic43,43334,16727Diluted44,10434,16729(%)OperatingProductionNatural gas (mcf/d)9,3288,05616Crude oil (bbls/d)83676010NGLs (bbls/d)1307476Total (boe/d)(2)2,5202,17716Average wellhead prices(3)Natural gas ($/mcf)2.284.52(50)Crude oil ($/bbl)83.9681.293NGLs ($/bbl)71.4170.671Total ($/boe)(4)40.4047.97(16)Royalties ($/boe)(8.20)(8.01)2Operating cost ($/boe)(11.24)(11.76)(4)Transportation cost ($/boe)(1.43)(1.76)(19)Operating netback ($/boe)(5)19.5326.44(26)Drilling activity - gross (net)Development (#)3 (2.6)3 (1.9)Exploration (#)-- (--)-- (--)Abandoned (#)-- (--)-- (--)Total (#)3 (2.6)3 (1.9)Average working interest (%)8564Success rate (%)100100(1)Funds flow from operations is calculated using cash flow from operating activities, as presented in the statement of cash flows, before changes in non-cash working capital and settlement of decommissioning costs.Funds flow from operations is used to analyze the Company's operating performance and leverage.Funds flow from operations does not have a standardized measure prescribed by International Financial Reporting Standards ("IFRS"), and therefore, may not be comparable with the calculations of similar measures for other companies.(2)For a description of the boe conversion ratio, refer to the advisories contained herein.(3)Product prices include realized gains/losses from financial derivative contracts.(4)Oil equivalent price includes minor sulphur sales revenue.(5)Operating netback equals revenue less royalties, transportation and operating costs calculated on a per boe basis.Operating netback does not have a standardized measure prescribed by IFRS, and therefore, may not be comparable with the calculations of similar measures for other companies. First Quarter Financial and Operating Highlights Increased average production to 2,520 boe/d, up 16% from the first quarter of 2011 despite an asset sale of 218 boe/d, shutting in approximately 250 boe/d of dry natural gas volumes due to low natural gas prices and no contribution from the Company's 2012 first quarter drilling operations. Divested approximately 218 boe/d (96% oil and liquids) or one-third of the Company's non-operated oil and gas assets in the Leduc Woodbend area of central Alberta for $19.4 million to reduce debt and enable capital program expansion. Crude oil and liquids volumes rose to 966 bbls/d or 38% of total corporate production (after the sale of the 218 boe/d). Drilled 3 gross (2.6 net) wells (100% success rate) including our first 2012 horizontal Doig well at Inga, British Columbia that tested at an average rate of 2,366 boe/d with approximately 1,283 bbls/d of condensate. Funds flow from operations was $3.4 million, representing a 12% decrease from the first three months last year because of lower natural gas prices and the divestiture of 218 boe/d of production at Leduc Woodbend. Operating netbacks declined 26% to $19.53/boe due to natural gas prices falling 50% since the first quarter of 2011. Invested $13.9 million in capital expenditures, including $2.6 million on undeveloped land acquisitions and the remainder primarily for drilling and completion activities. Exited the period with a working capital deficiency of $39.8 million, down 18% from year-end. Maintained operating bank line at $60.0 million and acquisition/development line of credit at $10.0 million for total credit lines of $70.0 million. FINANCIAL SUMMARY For the first three months of 2012, Artek's cash flow decreased by 12% to $3.4 million compared to the same period last year despite a 50% year-over-year drop in natural gas prices. The Company also realized $0.5 million less in revenue due to crude oil hedges outstanding in the quarter. Artek posted a 16% increase in production to 2,520 boe/d (38% oil and liquids) despite the Company prudently shutting in approximately 250 boe/d of dry natural gas production due to poor natural gas pricing and divesting 218 boe/d (96% oil and liquids) at Leduc Woodbend for $19.4 million (net of closing adjustments). The divestiture was executed at attractive metrics of $89,000 per flowing boe/d and $28.00/boe of proved plus probable reserves to reduce debt and fund capital expansion into our Company's long-term growth core area at Inga, where Artek anticipates it will more than replace the liquids production and reserves by year-end. We retained approximately two-thirds or 400 boe/d of production at Leduc Woodbend with a remaining reserves value for the area of approximately $38.0 million based on the Company's independent reserves evaluation effective as at December 31, 2011 adjusted for the sale of one-third of the assets. Artek's 38% liquids weighting (down from the 2011 fourth quarter weighting of 42% after giving effect to the asset sale) allowed Artek to achieve an operating netback of $19.53/boe for the quarter despite low natural gas pricing. Artek generated first quarter earnings of $8.1 million primarily as a result of an $8.5 million after tax gain on the disposition of assets for $19.4 million. Consequently, the Company's working capital deficiency (excluding fair value of derivative instruments) of $39.8 million at March 31, 2012 was down 7% from year-end. Artek is pleased to announce that following the Company's semi-annual credit review, Artek's lender has maintained its $60.0 million operating line plus the $10.0 million acquisition/development line for total credit facilities of $70.0 million. Available bank credit, together with internal cash flow, provides Artek with the financial flexibility to execute its 2012 growth oriented capital program. The next scheduled review of the credit facilities is October 2012. Operations Review - Liquids Focus The Company invested approximately $13.9 million (78% operational capital) during the first three months of 2012 that included the drilling of 3 (2.6 net) wells. As announced in our spring operational update released May 1, 2012, Artek successfully drilled and completed the first of seven (60% working interest) horizontal wells planned for 2012 at our Doig natural gas and condensate pool in the Inga area. The well has shown some of the strongest results to date and was flowing, after the previously announced clean up test, through the Company's facilities at a restricted rate of 5.0 mmcf/d with over 1,700 bbls/d of condensate or approximately 2,520 boe/d net of load propane at an average flowing pressure of 1,046 PSI. Artek's previous horizontal Doig wells in the pool have tested at an average historical rate of over 2,000 boe/d with over 1,200 bbls/d of condensate. The Company is currently drilling our second 2012 Doig horizontal at Inga, which we expect to be completed in early June. Subsequent to spring break-up, the five remaining horizontal wells in our Inga gas/condensate 2012 drilling program are planned to be drilled from June through November with all wells anticipated to be completed and on production by year-end. Included in the $13.9 million first quarter capital spending was approximately $2.5 million to acquire exploratory lands located primarily in the greater Inga/Fireweed area to ensure the long-term growth potential of the Company's most important core area. Artek also drilled and completed 2 (2.0 net) additional horizontal wells in the Peace River Arch ("PRA") area of northwestern Alberta targeting intermediate depth Triassic light oil. Three horizontal wells on this oil play have now been drilled with the average test rate meeting management's expectations at 250 boe/d (130 bbls/d of oil and 725 mcf/d of rich natural gas) with approximately 1,300 bbls/d of water. The Company disposes of the water at its 100% operated water disposal facility and sends its rich natural gas to a third party deep cut facility where it realizes a further 40 to 50 bbls/mmcf of liquids yield. Results to date, and Company mapping support an additional 22 to 30 horizontal locations targeting light Triassic oil in the Dunvegan to Cecil corridor of Alberta where Artek has accumulated over 60 sections (57 net) of land. We continue to optimize our operational efficiencies on the play and plan to drill an additional horizontal well during the second half of the year.In addition, the Company anticipates starting its 4 (1.6 net) well development program targeting Glauconite oil at Leduc Woodbend this summer, which is anticipated to be completed in September. Production from the property is forecast to increase from current production of approximately 400 boe/d to between 500 and 550 boe/d net to Artek by year end. Outlook The timing of key services and operational planning that was somewhat sensitive to commodity price risks meant that Artek initiated its 2012 drilling program in late February primarily due to operational logistics, and as a result, the incremental volumes from the first quarter drills were brought on production in the second quarter. With the three new wells now flowing, our Company's production has been in excess of 3,000 boe/d with over 40% being oil and condensate. Also subsequent to quarter-end, we have rerouted some of our dry natural gas volumes in order to reduce operating costs, and as a result, some volumes have been brought back on-stream. Artek continues to have approximately 200 boe/d of natural gas production shut-in and will continue to monitor the economics of its dry natural gas volumes throughout the balance of 2012. The Company anticipates completing the drilling of its second and third 2012 horizontal wells at Inga during the second quarter, one of which will be a re-entry and short leg horizontal to take advantage of existing well-site facilities and pipeline during spring break-up conditions. Both wells are anticipated to be on-stream by June 30; consequently, Artek still expects to achieve its 2012 first half average production target of 2,600 to 2,800 boe/d.For the second half of the year, the Company plans to drill 4 (2.2 to 2.4 net) additional wells in the Inga/Fireweed area, 1 (1.0 net) well on its PRA light oil horizontal play and 4 (1.6 net) vertical development wells at Leduc Woodbend. All of Artek's 2012 drilling capital will be directed towards projects targeting oil or condensate with associated gas. Second half production is forecast to average 3,600 to 3,800 boe/d with approximately 40% oil and liquids. Capital investment plans will continue to be reviewed with respect to commodity prices on a quarter-by-quarter basis, but current plans are for capital expenditures of $45.0 million to $47.0 million and an average production forecast for the year to be in the 3,200 to 3,300 boe/d range. Most importantly, the Company remains focused on its target exit production in excess of 4,000 boe/d at approximately 40% oil and liquids. The Company plans to maintain as much operational flexibility as possible through the remainder of 2012, so that it can respond quickly to changing commodity price and market conditions and optimally balance target based decisions with long-term value based decisions. We are seeing encouraging signs in the natural gas market with significant growth in industrial demand (up almost 10 bcf/d over last year), particularly in the power sector, and strong signs of a decrease in supply. For example, for the first time in 12 years in Canada, we have not seen a supply upswing in natural gas production after the winter drilling season and natural gas well completions for this past winter were at their lowest levels since 1993. We continue to see shut-in well disclosure from the large natural gas producers that indicates this trend should increase through the second half of 2012. The Company will monitor these potential developments closely over the coming months, and adjust its capital program accordingly. ADVISORIESForward Looking Statements: This document contains forward-looking statements. Management's assessment of future plans and operations, future results from operations, production estimates including forecast 2012 average and exit rates, commodity mix, initial production rates, drilling plans, the volumes and estimated value of reserves, timing of drilling and tie-in of wells, number of potential drilling locations, productive capacity of new wells, estimates of shut-in production and the timing thereof, future oil and natural gas prices, capital expenditures and the nature and timing of these expenditures, cash flow estimates and financial capacity to carry out its planned 2012 capital program may constitute forward-looking statements under applicable securities laws and necessarily involve risks including, without limitation, risks associated with oil and gas exploration, development, exploitation, production, marketing and transportation, loss of markets, volatility of commodity prices, currency fluctuations, imprecision of reserve estimates, environmental risks, competition from other producers, inability to retain drilling rigs and other services, incorrect assessment of the value of acquisitions, failure to realize the anticipated benefits of acquisitions, the inability to fully realize the benefits of the acquisitions, delays resulting from or inability to obtain required regulatory approvals and ability to access sufficient capital from internal and external sources. As a consequence, the Company's actual results may differ materially from those expressed in, or implied by, the forward looking statements. Forward looking statements or information are based on a number of factors and assumptions 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 the Company can give no assurance that such expectations will prove to be correct.In addition to other factors and assumptions which may be identified in this document and other documents filed by the Company, assumptions have been made regarding, among other things: the impact of increasing competition; the general stability of the economic and political environment in which Artek operates; the ability of the Company to obtain qualified staff, equipment and services in a timely and cost efficient manner; drilling results; the ability of the operator of the projects which the Company has an interest in to operate the field in a safe, efficient and effective manner; Artek's ability 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 or exploration; the timing and costs of pipeline, storage and facility construction and expansion; the ability of the Company to secure adequate product transportation; future oil and natural gas prices; currency, exchange and interest rates; the regulatory framework regarding royalties, taxes and environmental matters in the jurisdictions in which the Company operates; and Artek's ability to successfully market its oil and natural gas products. Readers are cautioned that the foregoing list of factors is not exhaustive. Additional information on these and other factors that could affect the Company's operations and financial results are included in reports on file with Canadian securities regulatory authorities and may be accessed through the SEDAR website (www.sedar.com) or at the Company's website (www.artekexploration.com). Furthermore, the forward looking statements contained in this document are made as at the date of this document and the Company does not undertake any obligation to update publicly or to revise any of the included forward looking statements, 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 equivalent ("BOE") amounts 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.Test results and initial production rates: the pressure transient analysis or well test interpretation has not been carried out and thus certain of the test results provided herein should be considered to be preliminary until such analysis or interpretation has been completed. Test results and initial production rates disclosed herein may not necessarily be indicative of long-term performance or of ultimate recovery.Artek is a crude oil and natural gas exploration, development and production company headquartered in Calgary, Alberta, Canada. Artek's shares trade on the TSX under the symbol "RTK".FOR FURTHER INFORMATION PLEASE CONTACT: Darryl MetcalfeArtek Exploration Ltd.President and Chief Executive Officer(403) 296-4799ORDarcy AndersonArtek Exploration Ltd.Vice President Finance and Chief Financial Officer(403) 296-4775www.artekexploration.com