Celtic Reports Another Quarter of Record Production and Funds From Operations in the Three Months Ended June 30, 2008



    (Stock Symbol "CLT" - TSX)

    CALGARY, Aug. 8 /CNW/ -

    Second Quarter 2008 Highlights

    The three months ended June 30, 2008 was another successful quarter in
the execution of the Company's growth strategy. Highlights for the second
quarter of 2008 are as follows:

    
    -   Drilled 10 (8.6 net working interest) wells during the quarter
        resulting in 10 (8.6 net) natural gas wells, for an overall success
        rate, based on net wells, of 100%;

    -   Increased average daily production by 55% to a Company quarterly
        record 10,842 BOE per day, up from 7,013 BOE per day in the second
        quarter of 2007 and achieved daily average production per million
        shares outstanding of 270 BOE per day, up 27% in 2008 compared to
        213 BOE per day in the corresponding period of the previous year;

    -   Generated a record high $36.8 million in funds from operations for
        the three month period ended June 30, 2008, up 91% from $19.2 million
        in the same period of the previous year. Reported funds from
        operations per share, diluted, of $0.90, an increase of 64% from
        $0.55 per share in the second quarter of the previous year;

    -   Received an average operating netback of $39.94 per BOE, up 18% from
        $33.72 per BOE in the same period of 2007;

    -   Completed an equity financing by way of a short form prospectus, on a
        bought deal basis, by issuing 2.9 million common shares at a price of
        $15.00 per share, for gross proceeds of $43.1 million;

    -   Entered into a term credit agreement on a syndicated basis with
        four financial institutions whereby the amount available under this
        new credit facility is $200.0 million, up from $165.0 million
        available under the previous facility. In addition, Celtic entered
        into a two-year interest rate swap transaction whereby $80.0 million
        of borrowings under its credit facility has been fixed at an all-in
        cost of approximately 4.4% until maturity on April 22, 2010; and

    -   Completed the acquisition of certain natural gas assets located in
        the Company's core operating and producing area at Kaybob South,
        Alberta, for a price of $45.2 million. The acquired assets included
        interests in certain facilities and proved plus probable reserves of
        4.4 million BOE, as evaluated by Celtic's independent engineers,
        Sproule Associates Limited. As a result, these long-life reserves
        (10.5 year RLI) were acquired at a very competitive price of
        $10.35 per BOE.


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                            Three months ended           Six months ended
                                  June 30,                   June 30,
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    ($ thousands, unless
     otherwise indicated)  2008     2007   Change     2008     2007   Change
    -------------------------------------------------------------------------
    FINANCIAL
    -------------------------------------------------------------------------
    Revenue, before
     royalties and
     financial
     derivatives         80,220   34,556      132% 137,591   65,354      111%
    -------------------------------------------------------------------------
    Funds from
     operations          36,787   19,244       91%  65,085   41,290       58%
    -------------------------------------------------------------------------
      Per share,
       basic ($)           0.92     0.56       64%    1.67     1.23       36%
    -------------------------------------------------------------------------
      Per share,
       diluted ($)         0.90     0.55       64%    1.65     1.21       36%
    -------------------------------------------------------------------------
    Net earnings (loss)  (9,116)   2,957        -  (16,491)     107        -
    -------------------------------------------------------------------------
      Per share,
       basic ($)          (0.23)    0.09        -    (0.42)    0.00        -
    -------------------------------------------------------------------------
      Per share,
       diluted ($)        (0.23)    0.09        -    (0.42)    0.00        -
    -------------------------------------------------------------------------
    Capital expenditures,
     net of
     dispositions        67,736   66,431        2% 100,345  122,997      -18%
    -------------------------------------------------------------------------
    Total assets                                   572,691  465,151       23%
    -------------------------------------------------------------------------
    Bank debt, net of
     working capital,
     excluding non-cash
     financial
     instruments                                   124,179  119,362        4%
    -------------------------------------------------------------------------
    Shareholders' equity                           304,523  271,912       12%
    -------------------------------------------------------------------------
    Common shares issued
     and outstanding
     (thousands)
    -------------------------------------------------------------------------
      Basic                                         41,059   37,402       10%
    -------------------------------------------------------------------------
      Diluted                                       43,535   40,155        8%
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    OPERATIONS
    -------------------------------------------------------------------------
    Production
    -------------------------------------------------------------------------
      Oil (bbls/d)        3,367    2,947       14%   3,338    3,046       10%
    -------------------------------------------------------------------------
      Natural gas
       (mcf/d)           44,852   24,398       84%  41,785   21,702       93%
    -------------------------------------------------------------------------
      Combined
      (BOE/d)            10,842    7,013       55%  10,302    6,663       55%
    -------------------------------------------------------------------------
    Production per
     million shares
     (BOE/d)                270      213       27%     265      199       33%
    -------------------------------------------------------------------------
    Realized sales
     prices, after
     financial
     derivatives
    -------------------------------------------------------------------------
      Oil ($/bbl)         90.48    66.54       36%   85.87    66.14       30%
    -------------------------------------------------------------------------
      Natural gas
      ($/mcf)              9.52     7.96       20%    9.05     9.42       -4%
    -------------------------------------------------------------------------
    Operating
     netbacks ($/BOE)
    -------------------------------------------------------------------------
      Oil and gas
       revenue,
       before hedging     81.31    53.43       52%   73.39    53.82       36%
    -------------------------------------------------------------------------
      Increased price
       from physical
       fixed price
       contracts           0.00     0.70              0.00     0.37
    -------------------------------------------------------------------------
      Realized gain (loss)
       on financial
       instruments       (13.82)    1.51             (8.85)    6.72
    -------------------------------------------------------------------------
        Realized sales
         price, after
         hedging          67.49    55.64       21%   64.54    60.91        6%
    -------------------------------------------------------------------------
      Royalties          (17.39)  (10.36)      68%  (16.30)  (10.96)      49%
    -------------------------------------------------------------------------
      Production
       expense            (9.59)  (10.73)     -11%   (9.98)  (11.20)     -11%
    -------------------------------------------------------------------------
      Transportation
       and selling
       expense            (0.57)   (0.83)     -31%   (0.65)   (0.85)     -24%
    -------------------------------------------------------------------------
        Operating netback 39.94    33.72       18%   37.61    37.90      -1%
    -------------------------------------------------------------------------
    Drilling activity
    -------------------------------------------------------------------------
      Total wells            10       10        0%      25       39      -36%
    -------------------------------------------------------------------------
      Working interest
       wells                8.6      8.3        4%    20.9     35.4      -41%
    -------------------------------------------------------------------------
      Success rate on
       working interest
       wells                100%      70%      43%      86%      79%       9%
    -------------------------------------------------------------------------
    Undeveloped land (acres)
    -------------------------------------------------------------------------
      Gross                                        319,882  304,715        5%
    -------------------------------------------------------------------------
      Net                                          250,113  234,095        7%
    -------------------------------------------------------------------------
    

    Message to Shareholders

    Celtic Exploration Ltd. ("Celtic" or the "Company") is pleased to report
to shareholders the Company's activities in the second quarter of 2008. During
the quarter, Celtic drilled 10 (8.6 net) wells with an overall success rate of
100%. Production during the quarter averaged a record high 10,842 BOE per day,
an increase of 55% from the second quarter of 2007. In the second quarter of
2008, Celtic also reported record funds from operations of $36.8 million
($0.90 per share, diluted), an increase of 91% from $19.2 million ($0.55 per
share, diluted) reported in the same period of the previous year.
    In Southern Alberta, the Company participated in the drilling of two
successful Viking natural gas wells in the Drumheller area. Celtic's working
interest in these wells is 37.5% and 25.0%.
    The remainder of Celtic's drilling activity in the second quarter of 2008
took place in the Greater Kaybob area of West Central Alberta, where eight
100% owned wells were drilled with an overall success rate of 100%. Seven of
these wells were horizontals with multi-frac completions.
    At Kaybob South, Celtic drilled four horizontal wells, continuing its
successful development program in the Montney Triassic natural gas pool. Three
horizontal wells were drilled from a single pad right through spring break-up
with successful completion results. Further delineation of the Kaybob South
pool will continue throughout 2008 and 2009, where the Company will make an
application to down-space to five wells per section. Currently, Celtic has
approval to drill three wells per section in this liquids-rich natural gas
pool.
    At KayFox, Celtic continued to have success delineating and extending the
size of this Montney Triassic natural gas pool. During the second quarter, the
Company drilled three horizontal wells and one directional vertical well.
Celtic is very encouraged with the completion results to date. During the
quarter, the Company received approval to down-space this Montney pool to
three wells per section. In addition, Celtic has discovered a Jurassic Nordegg
natural gas pool that overlays a significant portion of the Montney pool. The
Company is confident it will be able to dually produce both zones from certain
wells and is currently in the process of preparing a co-mingling application.
Development of the KayFox Montney and Nordegg gas pools will continue in 2008
and beyond.
    Celtic expects to resume drilling operations at Chickadee and Lower
Kaybob South during the remainder of 2008, where it has discovered additional
Montney natural gas pools. In addition, as initially reported on 
July 25, 2008, the Company has expanded its Montney land holdings in the
Greater Kaybob area as follows:

    
    (1) Celtic has entered into a farm-in agreement with a major petroleum
        company on 7,040 (11 sections) gross and 5,133 net (8 sections) acres
        of land with Montney rights in the Kaybob South/Pine Creek area of
        Alberta. The Company has committed to drill two horizontal wells
        targeting the Montney formation, earning a 50% farm-in interest
        (36.5% working interest) in three sections per well. The Company will
        continue to have an option to drill additional horizontal wells
        (earning in three sections per well) or vertical wells (earning
        two sections per well). This transaction is subject to third party
        preferential rights of first refusal, expiring in 30 days;

    (2) In addition, through various tuck-in acquisitions, Celtic has
        recently purchased approximately 55 BOE per day of Montney
        production, facility interests, and 12,032 (18.8 sections) gross and
        11,859 (18.5 sections) net acres of land with Montney/Nordegg rights
        in the Greater Kaybob area. Celtic expects to spud its first
        horizontal well on these lands within the next 30 to 40 days.

    At June 30, 2008, the Company had 319,882 (250,113 net) acres of
undeveloped land. With this inventory of land and with plans to apply for
additional well down-spacing in the Kaybob development prospect, Celtic
continues to generate numerous drilling locations that will provide continued
growth over the next few years.

    During the second quarter, Celtic completed the following transactions:

    (1) On April 22, 2008, the Company completed an equity financing by way
        of a short form prospectus, on a bought deal basis, by issuing
        2.9 million common shares at a price of $15.00 per share, for gross
        proceeds of $43.1 million;

    (2) On April 29, 2008, the Company entered into a term credit agreement
        on a syndicated basis with four financial institutions whereby the
        amount available under this new credit facility is $200.0 million, up
        from $165.0 million available under the previous facility. This
        agreement has a maturity date of June 30, 2009. In addition, Celtic
        entered into a two-year interest rate swap transaction whereby
        $80.0 million of borrowings under its credit facility has been fixed
        at an all-in cost of approximately 4.4% until maturity on
        April 22, 2010; and

    (3) On April 29, 2008, Celtic completed the acquisition of certain
        natural gas assets located in the Company's core operating and
        producing area at Kaybob South, Alberta, for a price of
        $45.2 million. The acquired assets included interests in certain
        facilities and proved plus probable reserves of 4.4 million BOE, as
        evaluated by Celtic's independent engineers, Sproule Associates
        Limited. As a result, these long-life reserves (10.5 year RLI) were
        acquired at a very competitive price of $10.35 per BOE.
    

    Oil and gas producers, like Celtic, are continually exposed to
fluctuations in commodity prices that are beyond the control of the companies
that produce hydrocarbons. In order to mitigate this risk and provide
certainty to a portion of its cash flow supporting its capital investment
program, Celtic employs an active risk management program.
    The Company's outstanding financial derivative contracts relating to its
hedged oil and gas production is disclosed in detail in the accompanying notes
to the financial statements. At June 30, 2008, the Company recorded an
unrealized loss of $46.2 million on its balance sheet based on mark-to-market
fair value calculations. After the dramatic decrease in both oil and gas
prices during the month of July, the Company's mark-to-market fair value
calculations as at July 31, 2008 results in a significantly lower unrealized
loss amount of $15.8 million.

    On August 5, 2008, Celtic settled the following financial derivative
contracts:

    
    (a) 6,500 mmbtu/d NYMEX based natural gas contract for the period from
        September 1 to December 31, 2008 in respect of a collar with a floor
        price of US$8.00/mmbtu and a ceiling price of US$9.05/mmbtu; and
    (b) 25,000 GJ/d AECO based natural gas contract for the period from
        October 1 to October 31, 2008 with an average fixed price of
        $7.10/GJ.
    

    The effect of settling both transactions requires the Company to make a
net payment of $632,000 and will be reflected in Celtic's third quarter
results. The Company currently has no natural gas hedges in place after
September 30, 2008.

    Production

    Oil and gas production in the second quarter of 2008 increased 55% to
average 10,842 BOE per day compared to 7,013 BOE per day in the same period of
2007. Production per million shares outstanding for the three months ended
June 30, 2008 averaged 270 BOE per day, up 27% from 213 BOE per day in the
corresponding period of the previous year.
    Oil and gas production for the six months ended June 30, 2008 increased
55% to average 10,302 BOE per day compared to 6,663 BOE per day in the same
period of 2007. Production per million shares outstanding for the six months
ended June 30, 2008 averaged 265 BOE per day, up 33% from 199 BOE per day in
the corresponding period of the previous year.
    Celtic's production is entirely based in Alberta and is divided into four
core areas. In Southern Alberta, the Company's primary natural gas producing
properties are located at Drumheller, Michichi and Richdale and its primary
oil producing properties are located at Princess and Bantry. In East Central
Alberta, the principal producing asset is a shallow natural gas property at
Ashmont and Figure Lake. In Northern Alberta, the Company produces mainly
light oil from Ogston, Otter and Utikuma Lake. In West Central Alberta, Celtic
has both natural gas and light oil production at Kaybob South, Fox Creek and
Swan Hills. West Central Alberta will be the Company's most active drilling
area in 2008.

    Revenue

    Revenue, before royalties, and before realized and unrealized gains or
losses on financial derivatives, for the three months ended June 30, 2008 was
$80.2 million, an increase of 132% compared to $34.6 million in the same
period of the previous year. Revenue, before royalties, and before realized
and unrealized gains or losses on financial derivatives, for the six months
ended June 30, 2008 was $137.6 million, an increase of 111% compared to 
$65.4 million in the same period of the previous year.
    The combined average product price received for oil and gas sales,
adjusted for realized gains or losses on financial derivatives for the three
months ended June 30, 2008 was $67.49 per BOE, an increase of 21% compared to
the corresponding three month period of the previous year. The combined
average product price received for oil and gas sales, adjusted for realized
gains or losses on financial derivatives for the six months ended 
June 30, 2008 was $64.54 per BOE, an increase of 6% compared to the
corresponding six month period of the previous year.

    Oil Operations

    Oil production for the quarter ended June 30, 2008 averaged 3,367 barrels
per day, an increase of 14% compared to the same three month period of the
previous year. Oil production for the six months ended June 30, 2008 averaged
3,338 barrels per day, an increase of 10% compared to the same six month
period of the previous year.
    The average price received for oil sales, after realized financial
derivatives, for the quarter ended June 30, 2008 was $90.48 ($112.43 before
financial derivatives) per barrel, up 36% from the average price of $66.54
($63.72 before financial derivatives) per barrel received in the second
quarter of 2007. The average price received for oil sales, after realized
financial derivatives, for the six months ended June 30, 2008 was $85.87
($100.63 before financial derivatives) per barrel, up 30% from the average
price of $66.14 ($62.12 before financial derivatives) per barrel received in
the first six months of 2007.
    For the quarter ended June 30, 2008, average oil royalties were 31.4% of
revenue, after financial derivatives (25.3% of sales, before financial
derivatives). In the second quarter of the previous year, average oil
royalties were 19.5% of revenue, after financial derivatives (20.4% of sales,
before financial derivatives). For the six months ended June 30, 2008, average
oil royalties were 29.4% of revenue, after financial derivatives (25.1% of
sales, before financial derivatives). In the corresponding six month period of
the previous year, average oil royalties were 20.1% of revenue, after
financial derivatives (21.4% of sales, before financial derivatives). Higher
royalty rates, before financial derivatives, in 2008 were primarily a result
of higher oil prices received, compared to the previous year.
    Transportation expenses for oil production in the second quarter of 2008
averaged $0.55 per barrel compared to $0.54 per barrel in the second quarter
of 2007. Transportation expenses for oil production in the first six months of
2008 averaged $0.61 per barrel compared to $0.66 per barrel in the same period
of 2007.
    For the quarter ended June 30, 2008, production expenses were $12.54 per
barrel. In the same period of the previous year, production expenses were
$12.47 per barrel. For the six months ended June 30, 2008, production expenses
were $13.53 per barrel. In the same period of the previous year, production
expenses were $13.14 per barrel.

    Natural Gas Operations

    Natural gas production for the quarter ended June 30, 2008 averaged
44,852 mcf per day, an increase of 84% compared to the corresponding period of
the previous year. Natural gas production for the six months ended 
June 30, 2008 averaged 41,785 mcf per day, an increase of 93% compared to the
corresponding period of the previous year. Increases in natural gas production
in 2008 were primarily a result of Celtic's successful drilling results in its
resource development prospect located at Kaybob, Alberta.
    The average price received for natural gas sales, after realized
financial derivatives, for the quarter ended June 30, 2008 was $9.52 ($11.21
before financial derivatives) per mcf, up 20% from the average price of $7.96
($7.67 before financial derivatives and physical fixed price contracts) per
mcf received in the second quarter of 2007. The average price received for
natural gas sales, after realized financial derivatives, for the six months
ended June 30, 2008 was $9.05 ($10.05 before financial derivatives) per mcf,
down 4% from the average price of $9.42 ($7.80 before financial derivatives
and physical fixed price contracts) per mcf received in the same period of
2007.
    For the quarter ended June 30, 2008, average natural gas royalties were
21.7% of revenue, after financial derivatives (18.6% of sales, before
financial derivatives). In the first quarter of the previous year, average
natural gas royalties were 17.7% of revenue, after financial derivatives
(18.0% of sales, before financial derivatives). For the six month period ended
June 30, 2008, average natural gas royalties were 22.1% of revenue, after
financial derivatives (20.2% of sales, before financial derivatives). In the
first six months of the previous year, average natural gas royalties were
15.9% of revenue, after financial derivatives (19.0% of sales, before
financial derivatives). Lower royalty rates, after financial derivatives, in
2007 were primarily a result of significant increases in revenue resulting
from physical fixed price contracts and realized gains on financial
derivatives. Actual Crown natural gas royalties payable are based on an
Alberta reference price and not on actual corporate realized prices.
    Transportation expenses for the quarter ended June 30, 2008 were $0.10
per mcf, a decrease of 41% compared to $0.17 per mcf for the same period in
the previous year. Transportation expenses for the six months ended 
June 30, 2008 were $0.11 per mcf, a decrease of 35% compared to $0.17 per mcf
for the same period in the previous year.
    For the quarter ended June 30, 2008, production expenses of $1.38 per mcf
were 13% lower than $1.58 per mcf in the corresponding period of the previous
year. For the six months ended June 30, 2008, production expenses of $1.38 per
mcf were 13% lower than $1.59 per mcf in the corresponding period of the
previous year. Lower production expenses in 2008 reflect the increasing
portion of Kaybob production as a percentage of the Company's total production
base, where costs are lower than the corporate average.

    Other Expenses

    For the quarter ended June 30, 2008, general and administrative expenses
were $1.0 million ($1.02 per BOE), interest expense was $1.6 million, and
depletion, depreciation and accretion expenses were $20.4 million ($20.70 per
BOE). In the previous year, for the quarter ended June 30, 2007, general and
administrative expenses were $0.7 million ($1.12 per BOE), interest expense
was $1.6 million, and depletion, depreciation and accretion expenses were
$13.8 million ($21.56 per BOE).
    For the six month period ended June 30, 2008, general and administrative
expenses were $2.1 million ($1.10 per BOE), interest expense was $3.4 million,
and depletion, depreciation and accretion expenses were $40.6 million ($21.65
per BOE). In the previous year, for the six month period ended June 30, 2007,
general and administrative expenses were $1.6 million ($1.33 per BOE),
interest expense was $2.8 million, and depletion, depreciation and accretion
expenses were $26.8 million ($22.23 per BOE).

    Taxes

    For the quarter ended June 30, 2008, Celtic provided for a recovery of
future income taxes in the amount of $3.6 million, compared to a provision of
$1.3 million in the second quarter of 2007. For the six months ended 
June 30, 2008, Celtic provided for a recovery of future income taxes in the
amount of $6.5 million, compared to a provision of $46,000 in the first six
months of 2007. For the six months ended June 30, 2008, Celtic is not required
to pay current income taxes as it has sufficient income tax deductions
available to shelter taxable income for the period. The Company does not
anticipate paying current income taxes in 2008.

    Earnings and Funds from Operations

    Net loss for the quarter ended June 30, 2008 was $9.1 million ($0.23 per
share, basic and diluted). During the same period, funds from operations were
$36.8 million ($0.92 per share, basic and $0.90 per share, diluted). On a
barrel of oil equivalent basis, funds from operations in the second quarter of
2008 were $37.29 per BOE, up 24% from $30.15 per BOE in the same period of
2007. The main reasons for the increase in 2008 were higher commodity prices
and lower production expenses during the period.
    Net loss for the six months ended June 30, 2008 was $16.5 million ($0.42
per share, basic and diluted). During the same period, funds from operations
were $65.1 million ($1.67 per share, basic and $1.65 per share, diluted). On a
barrel of oil equivalent basis, funds from operations in the first six months
of 2008 were $34.71 per BOE, relatively unchanged from $34.24 per BOE in the
same period of 2007.

    Capital Expenditures

    During the quarter ended June 30, 2008, Celtic spent $25.7 million on
capital projects. Drilling and completion operations accounted for
$17.5 million, equipment and facility expenditures were $6.4 million and
$1.8 million was spent on land and seismic. In addition, the Company spent
$45.8 million on acquisitions and received proceeds of $3.7 million from
dispositions. In the second quarter of the previous year, capital expenditures
were $20.6 million and acquisitions were $45.8 million.
    During the six months ended June 30, 2008, Celtic spent $58.3 million on
capital projects. Drilling and completion operations accounted for
$41.8 million, equipment and facility expenditures were $14.4 million and
$2.1 million was spent on land and seismic. In addition, the Company spent
$45.8 million on acquisitions and received proceeds of $3.7 million from
dispositions. In the first six months of the previous year, capital
expenditures were $77.2 million and acquisitions were $45.8 million. The
Company continues to build on its inventory of prospects for future drilling.

    Drilling Activity

    During the second quarter of 2008, the Company drilled 10 (8.6 net) wells
resulting in 10 (8.6 net) natural gas wells, for an overall success rate,
based on net wells, of 100%. During the quarter ended June 30, 2007, Celtic
drilled 10 (8.3 net) wells, with an overall success rate of 70%. The average
measured depth of net wells drilled in the second quarter of 2008 was 3,061
metres, an increase of 65% compared to the average drilling depth of 1,850
metres in the second quarter of 2007.
    During the six month period ended June 30, 2008, the Company drilled 25
(20.9 net) wells resulting in 17 (15.4 net) natural gas wells, 4 (2.6 net) oil
wells and 1 (0.1 net) coal bed methane wells, for an overall success rate,
based on net wells, of 86%. During the first six months of 2007, Celtic
drilled 39 (35.4 net) wells, with an overall success rate of 79%. The average
measured depth of net wells drilled in the six month period ended 
June 30, 2008 was 2,820 metres, an increase of 38%, compared to the average
drilling depth of 2,047 metres in the first six months of 2007.

    Source of Funds

    Investment funding for capital expenditures incurred in the first six
months of 2008 was provided by proceeds from issuance of common shares and
cash provided by operating activities.
    On April 29, 2008, the Company entered into a term credit agreement on a
syndicated basis with four financial institutions whereby the amount available
under this new credit facility is $200.0 million, up from $165.0 million
available under the previous facility. This agreement has a maturity date of
June 30, 2009.
    At June 30, 2008, Celtic had drawn $116.1 million on its bank credit
facility, leaving sufficient unused credit lines available to fund on-going
capital expenditures and working capital deficiencies. Repayments of principal
are not required provided that the borrowings under the facility do not exceed
the authorized borrowing amount and the Company is in compliance with all
covenants, representations and warranties.
    On April 22, 2008, the Company completed an equity financing by way of a
short-form prospectus, on a bought deal basis, by issuing 2.9 million common
shares at a price of $15.00 per share, for gross proceeds of $43.1 million. In
addition, during the six month period ended June 30, 2008, Celtic received
proceeds of $4.1 million from the exercise of stock options.
    Celtic expects to fund future capital expenditures through the use of a
combination of cash provided by operating activities and bank debt,
supplemented by new equity share offerings, as required.

    Working Capital

    The capital intensive nature of Celtic's activities may create a working
capital deficiency position during periods with high levels of capital
investment. However, during such periods, the Company maintains sufficient
unused bank credit lines to satisfy such working capital deficiencies. At 
June 30, 2008, the working capital (excluding non-cash financial instruments)
amount plus outstanding bank debt represented 62% of the Company's maximum
authorized bank borrowing credit limit.
    On July 25, 2008, Celtic reported that it has a potential financial
exposure of approximately $30.0 million relating to natural gas and associated
by-product sales, net of processing costs. The amount receivable at 
June 30, 2008 was approximately $18.0 million. The exposure relates to the
announcement by SemCAMS ULC ("SemCAMS"), a Canadian subsidiary of U.S. based
SemGroup LP ("SemGroup"), whereby SemGroup filed a voluntary petition for
reorganization under Chapter 11 of the U.S. Bankruptcy Code and SemCAMS filed
an application to obtain an order under the Companies' Creditors Arrangement
Act (Canada) in the Court of Queen's Bench of Alberta Judicial District of
Calgary. The full amount of the potential financial exposure relates to the
marketing of a portion of the Company's natural gas and associated by-products
production. Effective July 22, 2008, the Company is marketing its natural gas
through an alternative purchaser, with the agreement of SemCAMS. At this time,
Celtic cannot determine the period within which or the amount of the financial
exposure that will ultimately be collected. Celtic has sufficient available
bank credit lines to finance the potential financial exposure, without
affecting the planned 2008 capital expenditure budget of $180.0 million.

    Share Information

    The Company is authorized to issue an unlimited number of common shares
and an unlimited number of preferred shares. As at June 30, 2008, there were
41.1 million common shares outstanding (as at August 5, 2008, there were
41.1 million common shares outstanding). There are no preferred shares
outstanding.
    As at June 30, 2008, directors, employees and consultants have been
granted options to purchase 2.5 million common shares of the Company at an
average exercise price of $11.52 per share.
    The Company's common shares trade on the Toronto Stock Exchange ("TSX")
under the symbol "CLT".

    Advisory Regarding Forward-Looking Statements

    Certain information with respect to Celtic contained herein, including
management's assessment of future plans and operations, contains
forward-looking statements. These forward-looking statements are based on
assumptions and are subject to numerous risks and uncertainties, certain of
which are beyond Celtic's control, including the impact of general economic
conditions, industry conditions, volatility of commodity prices, currency
exchange rate fluctuations, imprecision of reserve estimates, environmental
risks, competition from other explorers, stock market volatility and ability
to access sufficient capital. As a result, Celtic's actual results,
performance or achievement could differ materially from those expressed in, or
implied by, these forward-looking statements and, accordingly, no assurance
can be given that any events anticipated by the forward-looking statements
will transpire or occur. In addition, the reader is cautioned that historical
results are not necessarily indicative of future performance. Celtic does not
intend, and does not assume any obligation, to update or revise these
forward-looking statements except as required pursuant to applicable
securities laws.

    Outlook

    Celtic plans to spend $180.0 million (net) in 2008 on capital investment
activities. The Company expects production in 2008 to average in a range from
11,300 to 11,500 BOE per day. Celtic expects to exit 2008 with production of
approximately 13,000 BOE per day.
    Celtic's forecasted commodity price assumptions for 2008 include oil
prices that are estimated to average US$96.00 per barrel for WTI and natural
gas prices are forecasted to average US$9.75 per MMBTU for NYMEX and $8.76 per
MCF for AECO. The Company's forecasted 2008 average US/Canadian exchange rate
is US$1.000.
    After giving effect to the production and commodity price assumptions,
funds from operations for 2008 is estimated to be approximately $138.0 million
or $3.48 per share ($3.40 per share, diluted). Net earnings for 2008 are
estimated to be approximately $29.0 million or $0.73 per share. Changes in
forecasted commodity prices and variances in production estimates can have a
significant impact to estimated funds from operations and net earnings. Please
refer to the advisory regarding forward-looking statements shown above.
    Celtic's capital expenditure budget for 2008 will see the Company
participate at high working interests in the drilling of approximately 64 to
67 wells during the year, of which approximately 40 wells will be horizontals.
Celtic continues to pursue property acquisitions that would complement its
existing asset base and completion of any future acquisitions would be over
and above the Company's planned capital expenditure budget.
    Celtic is excited about the growth prospects being generated in the
Company and remains optimistic about the Company's ability to deliver
continued per share growth in production, reserves, net asset value, earnings
and funds from operations. Given the Company's strong inventory of drilling
locations, we look forward to continued growth in 2008 and beyond.

    Non-GAAP Financial Measurements

    This document contains the terms "funds from operations", "operating
netbacks" and "production per share" which do not have a standardized meaning
prescribed by Canadian GAAP 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 flow provided by
operating activities, net earnings or other measures of financial performance
calculated in accordance with GAAP. The reconciliation between net earnings
and funds from operations can be found in the statement of cash flows included
in the audited financial statements. Operating netbacks are determined by
deducting royalties, production expenses and transportation and selling
expenses from oil and gas sales revenue. 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 Measurements

    All 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.





For further information:

For further information: CELTIC EXPLORATION LTD., Suite 500, 505 - 3rd
Street SW, Calgary, Alberta, Canada, T2P 3E6; David J. Wilson, President and
Chief Executive Officer, (403) 201-5340; or Sadiq H. Lalani, Vice President,
Finance and Chief Financial Officer, (403) 215-5310; or visit our website at
www.celticex.com

Organization Profile

Celtic Exploration Ltd.

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