July 9, 2012
Celtic Exploration Announces Enhanced Natural Gas Liquids Recovery Arrangement and Plans to Construct a Gas Plant at Kaybob
CALGARY, ALBERTA--(Marketwire - July 9, 2012) -
Construction of Gas Plant at Kaybob
Celtic Exploration Ltd. (TSX:CLT) ("Celtic" or the "Company") has committed to construct a shallow-cut gas plant (the "Kaybob Plant") near its existing Kaybob compression facility located at 15-07-060-18W5. The Kaybob Plant is expected to have the capacity to process approximately 150 MMCF/d of raw gas. The Company expects the cost to construct the Kaybob Plant will be approximately $40.0 million, of which about 40% will be incurred in 2012 and the balance will be incurred in 2013. Celtic's previously announced 2012 capital expenditure budget included the anticipated cost in 2012 of constructing the Kaybob Plant.
Celtic's production from the Devonian Duvernay, Triassic Montney and Cretaceous formations at Kaybob that is currently processed at the third-party operated KA Gas Plant, will be diverted to the Company's Kaybob Plant which is expected to be on-stream in the second quarter of 2013. Celtic is actively drilling wells at Kaybob targeting the Duvernay formation. To date, the Company has completed vertical operations on six gross wells. In addition, Celtic has drilled eight gross horizontal wells, three of which are on production. The fourth horizontal well has been completed and tested, and is currently being tied-in. The fifth horizontal well is being completed at this time and the remaining three horizontal wells are expected to be completed by the end of August 2012. A ninth horizontal well is expected to spud this week. Celtic's working interest in wells drilled to date range from 33.3% to 100%. Celtic currently owns 110,034 net acres (172 net sections) of lands with Duvernay rights in the Kaybob area of Alberta.
Rich Gas Premium Agreement with Aux Sable Canada
Celtic has entered into a ten-year Rich Gas Premium Agreement with Aux Sable Canada LP ("Aux Sable") pursuant to which Celtic will receive additional economic value for the natural gas liquids in its liquids-rich natural gas stream originating from its Kaybob Devonian Duvernay, Triassic Montney and Cretaceous development area. Rich gas from Kaybob will be delivered onto the Alliance Pipeline, obviating the need to build capital intensive deep-cut liquids extraction facilities in the field. The rich gas will be processed at Aux Sable's large-scale natural gas liquids extraction and fractionation plant near Chicago, in Channahon, Illinois where NGL products will be removed. Under the agreement, Celtic commits to transport rich gas on the Alliance Pipeline and Aux Sable will provide enhanced value for the rich gas that exceeds Celtic's other gas and NGL market alternatives. Celtic expects to commence delivery under the agreement in the second quarter of 2013 when the construction of the Kaybob Plant is completed.
Benefits of the Aux Sable Agreement and construction of the Kaybob Plant
The expected benefits of constructing the Kaybob Plant and entering into the Aux Sable agreement include the following:
-- Based on the value sharing arrangement under the Aux Sable agreement and
operating and transportation cost savings from the newly constructed
Kaybob Plant, using forward strip pricing, and assuming the plant
operates at approximately 50% of capacity during the first year, Celtic
expects that funds from operations for the first twelve months after
commencing delivery will increase by approximately $15.0 million. As
Celtic continues to develop its Kaybob Duvernay asset base and brings on
additional production, incremental annual funds from operations are
expected over the ten year term of the agreement.
-- Pricing under the agreement for ethane, propane, isobutane and normal
butane is calculated with reference to the United States market which
provides Celtic with access to a larger and more liquid market for these
natural gas liquids.
-- The Aux Sable agreement eliminates the requirement to incur additional
capital expenditures of approximately $75.0 million to construct deep-
cut facilities at the Kaybob Plant.