Canadian Oil

[kraftdinner]

Celtic Exploration signs definitive Kaybob South deal


2007-06-04 10:02 MT - News Release

Mr. David Wilson reports

CELTIC ENTERS INTO AGREEMENT TO ACQUIRE ASSETS AT KAYBOB SOUTH AND ANNOUNCES EQUITY FINANCING

Celtic Exploration Ltd. has entered into an agreement with a major petroleum company to acquire certain liquids-rich natural gas assets in the company's core operating area at Kaybob South in Alberta. The assets that Celtic intends to acquire consist of an operated 49.88-per-cent working interest in the Kaybob South Beaverhill Lake gas unit No. 2, as well as other assets in the Kaybob South area. The acquisition has an effective date of May 1, 2007, and closing is expected to occur on or about July 3, 2007. The consideration to be paid by Celtic under the agreement is $52.5-million, subject to normal closing adjustments, and will be financed by the equity offering described herein, as well as available credit facilities.

The key attributes of this property acquisition are as follows:


Current production capability is approximately 1,100 barrels of oil equivalent per day, 63 per cent natural gas and 37 per cent natural gas liquids (resulting in an acquisition price of $47,700 per boe per day);
Proved reserves consist of approximately 2.9 million boe (resulting in an acquisition price of $18.10 per boe, on a proved-only basis);
Proved plus probable reserves consist of approximately 4.5 million boe (resulting in an acquisition price of $11.67 per boe, on a proved plus probable basis);
Long-life reserves with a reserve life index of approximately 11.2 years (on a proved plus probable basis);
Complementary fit with a large contiguous land position adjacent to Celtic's Kaybob South exploration and development area;
Ownership and operatorship in compressor facilities and a major pipeline system that Celtic currently uses to transport its existing Kaybob South Montney production from the Kaybob South field to the Kaybob South KA gas processing plant.

Petroleum and natural gas reserves to be acquired were evaluated by Sproule Associates Ltd., Celtic's independent engineering consultant, effective Dec. 31, 2006. The company has reduced the amount of reserves in the Sproule report to reflect production from Jan. 1, 2007, to April 30, 2007, given that the effective date of the acquisition is May 1, 2007.

A portion of the assets to be acquired has rights of first refusal (ROFR) attached. It is expected that the vendor of these assets will serve these 30-day ROFR notices immediately.

Kaybob South pipeline

In the event that Celtic does not complete the proposed acquisition described above, the company will endeavour to construct its own natural gas facilities and pipeline for natural gas transportation from its Kaybob South Montney field to the Kaybob South KA gas processing plant. Celtic has already initiated surveying activity with respect to this project.

Equity financing

In conjunction with the acquisition, Celtic has entered into an agreement with a syndicate of underwriters co-led by First Energy Capital Corp. and GMP Securities LP, and including BMO Nesbitt Burns Inc., RBC Capital Markets, TD Securities Inc., Orion Securities Inc. and Tristone Capital Inc., pursuant to which the underwriters have agreed to purchase for resale to the public, on a bought-deal basis, 1.6 million units at a price of $28.70 per unit for gross proceeds of $45.92-million. Each unit will comprise one common share (at a price of $14.35 per common share) and one subscription receipt for a common share (at a price of $14.35 per subscription receipt).

Each subscription receipt will represent the right to receive one common share of Celtic, without the payment of any additional consideration, on the closing of the acquisition. The proceeds from the offering of subscription receipts will be deposited in escrow pending the closing of the acquisition. If the acquisition closes on or before Aug. 31, 2007, the net proceeds from the offering of the subscription receipts will be released to Celtic and will be used by Celtic to pay a portion of the acquisition price. However, if the acquisition fails to close by Aug. 31, 2007, the escrow agent will return to the holders of subscription receipts the issue price of each subscription receipt and such holder's pro rata entitlement to interest earned thereon.

The offering is subject to certain conditions including normal regulatory approvals. The units will be offered by way of a private placement. The closing of the offering is expected to occur on or about June 26, 2007. Net proceeds from the offering will be used by Celtic to finance the acquisition and for continuing capital expenditures.

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