Celtic Reports Record Production in the Third Quarter of 2007



    (Stock Symbol "CLT" - TSX)

    CALGARY, Nov. 8 /CNW/ - Celtic Exploration Ltd. ("Celtic" or the
"Company") has released its financial and operating results for the three
months and nine months ended September 30, 2007. Highlights are as follows:

    
    Highlights are as follows:

    -------------------------------------------------------------------------
                             Three months ended        Nine months ended
                                September 30,             September 30,
    -------------------------------------------------------------------------
    ($ thousands, unless
     otherwise indicated)  2007     2006   Change     2007     2006   Change
    -------------------------------------------------------------------------
    FINANCIAL
    -------------------------------------------------------------------------
    Revenue, before
     royalties and
     derivatives       $ 40,356 $ 33,919      19% $105,710 $ 97,102       9%
    -------------------------------------------------------------------------
    Funds from
     operations        $ 18,805 $ 20,812     -10% $ 60,095 $ 59,358       1%
    -------------------------------------------------------------------------
    Funds from
     operations per
     share
    -------------------------------------------------------------------------
      Basic ($/share)  $   0.50 $   0.70     -29% $   1.73 $   1.98     -13%
    -------------------------------------------------------------------------
      Diluted
       ($/share)       $   0.50 $   0.68     -26% $   1.70 $   1.92     -11%
    -------------------------------------------------------------------------
    Net earnings       $  4,584 $ 15,850     -71% $  4,691 $ 28,632     -84%
    -------------------------------------------------------------------------
    Earnings per
     share
    -------------------------------------------------------------------------
      Basic ($/share)  $   0.12 $   0.53     -77% $   0.13 $   0.95     -86%
    -------------------------------------------------------------------------
      Diluted
       ($/share)       $   0.12 $   0.52     -77% $   0.13 $   0.92     -86%
    -------------------------------------------------------------------------
    Capital
     expenditures,
     net of
     dispositions      $ 31,637 $ 47,940     -34% $154,633 $131,998      17%
    -------------------------------------------------------------------------
    Total assets                                  $479,026 $354,768      35%
    -------------------------------------------------------------------------
    Bank debt, net of
     working capital                              $128,027 $ 85,251      50%
    -------------------------------------------------------------------------
    Shareholders' equity                          $277,294 $198,236      40%
    -------------------------------------------------------------------------
    Common shares
     issued and
     outstanding
     (thousands)
    -------------------------------------------------------------------------
       Basic                                        37,529   32,129      17%
    -------------------------------------------------------------------------
       Diluted                                      40,472   34,486      17%
    -------------------------------------------------------------------------

    OPERATIONS
    -------------------------------------------------------------------------
    Production
      Oil (bbls/d)        3,102    3,048       2%    3,065    3,282      -7%
    -------------------------------------------------------------------------
      Natural gas
      (mcf/d)            34,871   18,759      86%   26,140   15,421      70%
    -------------------------------------------------------------------------
      Combined (BOE/d)    8,914    6,175      44%    7,422    5,852      27%
    -------------------------------------------------------------------------
    Production per
     million shares
     (BOE/d)                238      197      21%      213      195       9%
    -------------------------------------------------------------------------
    Realized sales
     prices, after
     financial
     derivatives
    -------------------------------------------------------------------------
      Oil ($/bbl)      $  69.84 $  70.99      -2% $  67.40 $  65.49       3%
    -------------------------------------------------------------------------
      Natural gas
       ($/mcf)         $   6.20 $   8.31     -25% $   7.97 $   9.54     -16%
    -------------------------------------------------------------------------
    Operating
     netbacks
     ($/BOE)
    -------------------------------------------------------------------------
      Oil and gas
       revenue, before
       hedging         $  47.00 $  55.46     -15% $  51.06 $  55.77      -8%
    -------------------------------------------------------------------------
      Increased price
       from physical
       fixed price
       contracts           2.21     4.25              1.12     5.00
    -------------------------------------------------------------------------
      Realized gain
       (loss) on
       financial
       derivatives        (0.66)    0.60              3.73     1.10
    -------------------------------------------------------------------------
        Realized
         sales price,
         after hedging $  48.55 $  60.31     -19% $  55.91 $  61.87     -10%
    -------------------------------------------------------------------------
      Royalties          (10.25)  (10.05)      2%   (10.67)  (11.34)     -6%
    -------------------------------------------------------------------------
      Production
       expense           (11.55)  (10.38)     11%   (11.34)   (9.99)     14%
    -------------------------------------------------------------------------
      Transportation
       and selling
       expense            (0.97)   (0.58)     67%    (0.90)   (0.63)     43%
    -------------------------------------------------------------------------
        Operating
         netback       $  25.78 $  39.30     -34% $  33.00 $  39.91     -17%
    -------------------------------------------------------------------------
    Drilling activity
      Total wells            18       19      -5%       57       73     -22%
    -------------------------------------------------------------------------
      Working interest
       wells               12.6     14.4     -13%     48.0     54.4     -12%
    -------------------------------------------------------------------------
      Success rate on
       working interest
       wells                 76%      65%     17%       78%      75%      4%
    -------------------------------------------------------------------------
    Undeveloped land
     (acres)
    -------------------------------------------------------------------------
      Gross                                        324,002  312,153       4%
    -------------------------------------------------------------------------
      Net                                          245,406  223,107      10%
    -------------------------------------------------------------------------

    2007 Third Quarter Highlights

    -   Drilled 18 (12.6 net working interest) wells during the quarter
        resulting in 1 (1.0 net) oil well, 6 (6.0 net) natural gas wells, 8
        (2.6 net) coal bed methane wells and 3 (3.0 net) unsuccessful wells,
        for an overall success rate, based on net wells drilled, of 76%;

    -   Increased average daily production by 44% to 8,914 BOE per day, up
        from 6,175 BOE per day in the three months ended September 30, 2006;

    -   Reported funds from operations of $18.8 million ($0.50 per share,
        diluted), a decrease of 10% from $20.8 million ($0.68 per share,
        diluted) in the same period of the previous year; and

    -   Generated an average operating netback of $25.78 per BOE, down 34%
        from $39.30 per BOE in the third quarter of 2006.
    

    President's Message

    Celtic Exploration Ltd. is pleased to report to shareholders the
Company's activities in the third quarter of 2007. During the third quarter,
Celtic drilled 18 (12.6 net) wells with an overall success rate of 76%.
Production during the quarter averaged a record 8,914 BOE per day, an increase
of 44% from the third quarter of 2006. In the third quarter of 2006, Celtic
reported funds from operations of $18.8 million or $0.50 per share, diluted.
Net earnings for the quarter were $4.6 million or $0.12 per share, diluted.
    Lower natural gas prices have plagued the industry in recent months and
natural gas storage levels continue to reach record high levels. In order to
mitigate the risk of price volatility during the next twelve months, Celtic
has entered into financial derivative contracts whereby the Company has fixed
the price, at AECO, on future sales of 25,000 GJ (23,706 mcf) per day from
November 1, 2007 to October 31, 2008 at a price of $7.10 per GJ ($7.49 per
mcf). In addition, the Company has a put option at NYMEX for the November 1,
2007 to December 31, 2007 period on 10,000 mmbtu per day at a price of US$7.50
per mmbtu. Based on third quarter average natural gas production, these
contracts represent 97% of production for the November 1, 2007 to December 31,
2007 period and 68% of production for the January 1, 2008 to October 31, 2008
period.
    Celtic's syndicate of lenders has completed an interim review in October
2007. As a result of the review, the lenders have agreed to increase the
Company's credit facility by $10.0 million to $165.0 million. With substantial
natural gas forward price contracts in place and an increased borrowing base,
Celtic can continue drilling development wells and is well positioned
financially to take advantage of strategic acquisitions during this period of
commodity price volatility and uncertainty.
    In Southern Alberta, Celtic drilled eight coal bed methane ("CBM") wells
with 100% success. The Company's average working interest in these wells is
32.5%. These wells tested at gross rates between 155 and 215 mcf per day and
are expected to come on-stream in the fourth quarter of 2007.
    In West Central Alberta, drilling activity was focused on liquids-rich
natural gas prospects at Kaybob South and light oil at Swan Hills.
    At Swan Hills, the Company drilled a successful light oil well in the
Beaverhill Lake formation. This well is now on production. Celtic expects to
drill additional wells targeting light oil in this area during the fourth
quarter of 2007.
    At Kaybob South, Celtic drilled seven wells during the quarter, two of
which were horizontal wells on the main block. Four wells are now on
production and the remaining three wells are in the process of being completed
and tied-in.
    At the end of the third quarter, Celtic temporarily shut-in the recently
acquired Kaybob South Beaverhill Lake Gas Unit No. 2, allowing the Company to
complete upgrades to the pipeline and related facilities. These upgrades will
ensure a more stable production and transportation profile in the future.
Facility work has now been completed and production was restored during the
third week of October 2007.
    At September 30, 2007, Celtic's net undeveloped land holdings increased
by 10% compared to the corresponding period of the previous year, to over
245,000 acres. In addition to the increase in its undeveloped land position,
the Company continues to add significantly to its drilling inventory as a
result of successful exploration and development activity.
    On October 25, 2007, the Government of Alberta released a report entitled
The New Royalty Framework ("NRF") whereby Crown royalty rates will change
effective January 1, 2009. Included in the NRF is a royalty incentive for deep
natural gas wells which Celtic is assuming will apply to qualifying wells,
regardless of when they were drilled. The Company has re-run its December 31,
2006 reserves evaluation using the new royalty rates proposed in the NRF and
using constant commodity prices based on Celtic's forecasted commodity prices
provided in its 2008 guidance. As a result, royalties in 2009 are expected to
be marginally higher; however, royalties over the life of total reserves is
expected to be marginally lower.
    The royalty incentive for deep natural gas wells would appear to be
positive for Celtic's horizontal drilling plans at Kaybob South. Using the
Company's 2008 budgeted commodity prices as a constant, the net present value
of each horizontal well, discounted at 10% before tax, would increase by 3.4%
under NRF.

    Production

    Oil and gas production in the third quarter of 2007 increased 44% to
average 8,914 BOE per day compared to 6,175 BOE per day in the third quarter
of 2007. Production per million shares outstanding in the third quarter of
2007 averaged 238 BOE per day, up 21% from 197 BOE per day in the same period
of 2006.
    Celtic's strong growth in production during the third quarter of 2007
came from successful drilling results, primarily at Kaybob South coupled with
the acquisition of additional assets in the same area completed at the end of
the second quarter of 2007. The Company expects to generate continued
production growth as a result of its substantial development drilling program
inventory at Kaybob South.
    For the nine months ended September 30, 2007, production averaged 7,422
BOE per day (41% oil and 59% gas), resulting in a 27% increase from 5,852 BOE
per day average production for the same period in 2006. Production per million
shares outstanding in the first nine months of 2007 averaged 213 BOE per day,
up 9% from 195 BOE per day in the same period of 2006.

    Revenue and Royalties

    Revenue, before royalties and financial derivatives, for the three months
ended September 30, 2007 was $40.4 million, an increase of 19% compared to
$33.9 million in the same period of the previous year. Royalties in the third
quarter of 2007 averaged 20.9% of sales (excluding financial derivatives)
compared to 16.8% in the corresponding period of 2006. Revenue for the nine
months ended September 30, 2007 was $105.7 million, an increase of 9% compared
to $97.1 million in the same period of the previous year. Royalties in the
first nine months of 2007 averaged 20.5% of sales compared to 18.7% in the
corresponding period of 2006.
    The combined average product price received for oil and gas sales, before
financial derivative contracts, for the quarter ended September 30, 2007 was
$49.21 ($48.55 after realized financial derivatives) per BOE, a decrease of
18% compared to the third quarter of the previous year. The combined average
product price received for oil and gas sales, before financial derivative
contracts, for the nine months ended September 30, 2007 was $52.18 ($55.91
after realized financial derivatives) per BOE, a decrease of 14% compared to
the first nine months of the previous year.

    Expenses

    For the three month period ended September 30, 2007, production expenses
were $9.5 million ($11.55 per BOE), transportation and selling expense was
$0.8 million ($0.97 per BOE), general and administrative expenses were
$0.6 million ($0.76 per BOE), interest expense was $1.7 million, and
depletion, depreciation and amortization expenses were $17.8 million ($21.66
per BOE). In the previous year, for the three month period ended September 30,
2006, production expenses were $5.9 million ($10.38 per BOE), transportation
and selling expense was $0.3 million ($0.58 per BOE), general and
administrative expenses were $0.5 million ($0.80 per BOE), interest expense
was $1.0 million, and depletion, depreciation and amortization expenses were
$11.4 million ($20.08 per BOE).
    For the nine months ended September 30, 2007, production expenses were
$23.0 million ($11.34 per BOE), transportation and selling expense was
$1.8 million ($0.90 per BOE), general and administrative expenses were
$2.2 million ($1.10 per BOE), interest expense was $4.5 million, and
depletion, depreciation and amortization expenses were $44.4 million ($21.91
per BOE). In the previous year, for the nine months ended September 30, 2006,
production expenses were $16.0 million ($9.99 per BOE), transportation and
selling expense was $1.0 million ($0.63 per BOE), general and administrative
expenses were $1.5 million ($0.94 per BOE), interest expense was $2.7 million,
and depletion, depreciation and amortization expenses were $30.4 million
($19.00 per BOE).

    Taxes

    For the three months ended September 30, 2007, Celtic provided for a
provision of future income taxes in the amount of $1.2 million, compared to a
provision of $2.4 million in the same period of 2006. For the nine month
period ended September 30, 2007, the Company recorded a provision for future
income taxes in the amount of $1.3 million, compared to a provision of
$8.5 million in the nine month period ended September 30, 2006.
    As at September 30, 2007, Celtic had sufficient tax deductions available,
allowing the Company to not record any current income tax expense. Estimated
unused income tax deductions available as at September 30, 2007 were
approximately $313.0 million.
    On October 30, 2007, the Government of Canada announced a proposal to
reduce future corporate income taxes. Upon enactment into law, these changes
would reduce the Company's future income tax obligations.

    Net Earnings and Funds from Operations

    Net earnings for the three months ended September 30, 2007 was
$4.6 million ($0.12 per share, basic and diluted), a decrease of 71% from
$15.8 million ($0.53 per share, basic and $0.52 per share, diluted) in the
same period of the previous year. For the nine months ended September 30,
2007, the Company recorded net earnings of $4.7 million ($0.13 per share,
basic and diluted), compared to $28.6 million ($0.95 per share, basic and
$0.92 per share, diluted) recorded for the nine months ended September 30,
2006.
    Funds from operations were $18.8 million ($0.50 per share, basic and
diluted) in the third quarter of 2007, a decrease of 10% compared to
$20.8 million ($0.70 per share, basic and $0.68 per share, diluted) in the
third quarter of 2006. For the nine months ended September 30, 2007, funds
from operations were $60.1 million ($1.73 per share, basic and $1.70 per
share, diluted), up 1% from $59.4 million ($1.98 per share, basic and $1.92
per share, diluted) in the same period of 2006.

    Capital Expenditures

    Capital expenditures in the third quarter of 2007 were $31.6 million,
down 34% from $47.9 million spent in the third quarter of 2006. During the
nine month period ended September 30, 2007, capital expenditures, including
acquisitions, were $154.6 million, an increase of 17% compared to the same
period of the previous year. Drilling and completion operations accounted for
$74.1 million, equipment and facility expenditures were $29.0 million,
$5.6 million was spent on land and seismic and $45.6 million was incurred on
property acquisitions. The Company continues to invest in land and seismic in
order to build on its inventory of prospects for future drilling.

    Drilling Activity

    During the three months ended September 30, 2007, Celtic drilled 18
(12.6 net) wells compared to 19 (14.4 net) wells in the third quarter of the
previous year, with an overall success rate of 76% on net wells drilled. The
average vertical depth of net wells drilled was 2,076 metres, 30% shallower
than the average drilling depth of 2,958 metres in the third quarter of 2006.
For the nine months ended September 30, 2007, the Company drilled 57
(48.0 net) wells resulting in 5 (3.8 net) oil wells, 25 (24.3 net) natural gas
wells and 9 (7.3 net) unsuccessful wells, resulting in an overall success rate
of 79% based on net wells drilled.

    Source of Funds

    Investment funding for capital expenditures incurred in the first nine
months of 2007 was provided by funds from operations, proceeds from equity
offerings, working capital and bank debt.
    In February 2007, the Company issued 1.5 million common shares on a
flow-through basis by way of private placement, at a price of $16.65 per
share. The equity offering resulted in gross proceeds of $25.0 million. In
June 2007, Celtic issued 3.2 million common shares by way of private
placement, at a price of $14.35 per share, resulting in gross proceeds of
$45.9 million.
    The Company has in place a committed term credit facility with Canadian
financial institutions. The maximum amount available to be drawn under this
facility is currently $165.0 million, up from $155.0 million available at June
30, 2007. At September 30, 2007, Celtic had drawn $116.1 million, leaving
sufficient unused credit lines available to fund on-going capital
expenditures. 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.

    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
September 30, 2007, the working capital deficiency plus outstanding bank debt
represented 83% of the Company's maximum authorized bank borrowing credit
limit.

    Common Share Information

    As at September 30, 2007, there were 37.5 million common shares
outstanding. In addition, directors, employees and certain consultants have
been granted options to purchase 2.9 million common shares of the Company at
an average exercise price of $10.33 per share. Detailed information regarding
the Company's stock options outstanding is contained in the notes to the
financial statements. 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.

    2007 Forecast

    Celtic's Board of Directors has approved a capital expenditure budget in
the amount of $186.0 million for 2007. During the nine month period ended
September 30, 2007, the Company had incurred $154.6 million in capital
expenditures. The remaining expenditures in the amount of $31.4 million to be
incurred in the fourth quarter of 2007 will be financed by funds from
operations and unused bank credit lines. Celtic's capital expenditure budget
for 2007 will see the Company participate at high working interests in the
drilling of approximately 70 to 75 wells during the year.
    After forecasting risked production discoveries, timing of production
on-stream dates resulting from the Company's planned capital expenditures for
2007 and estimated decline rates on existing volumes, Celtic expects
production in 2007 to average between 7,800 and 8,000 BOE/d (40% oil and 60%
gas). This represents a 31% to 34% increase from average production of 5,963
BOE/d in 2006.
    The Company's commodity price assumptions for 2007 are US$68.75 per
barrel for WTI oil, US$7.00 per mmbtu for NYMEX natural gas and a US/Canadian
exchange rate of US$0.9258. These prices compare to 2006 average prices of
US$66.22 per barrel for WTI oil, US$7.26 per mmbtu for NYMEX natural gas and a
US/Canadian exchange rate of US$0.8815.
    After giving effect to the aforementioned production and commodity price
assumptions and taking into effect commodity risk price management contracts
in place (as outlined in detail in the notes to the financial statements),
funds from operations for 2007 is forecasted to be approximately $85.5 million
or $2.39 per share ($2.34 per share, diluted) and net earnings is forecasted
to be approximately $3.5 million or $0.10 per share ($0.10 per share,
diluted). 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.
    Bank debt, net of working capital, is estimated to reach $141.0 million
by the end of 2007 or 85% of current available credit lines.

    2008 Guidance

    Celtic continues to be optimistic about its future prospects. The Company
has successfully established a substantial production base that provides a
cash flow stream that can be re-invested in Celtic's ongoing exploration and
development activity. Celtic is opportunity driven and is confident that it
can continue to grow the Company's production base by building on its current
inventory of development prospects and by adding new exploration prospects.
Celtic will endeavour to maintain a high quality product stream that on a
historical basis receives a superior price with reasonably low production
costs. In addition, the Company takes advantage of royalty incentive programs
in order to further increase netbacks. Celtic will continue to focus its
exploration efforts in areas of multi-zone potential for light gravity crude
oil and liquids-rich natural gas.

    Celtic's Board of Directors has approved an initial capital expenditure
budget in the amount of $120 million for 2008. This capital spending will be
financed by funds from operations and available bank credit lines.
    After forecasting risked production discoveries, timing of production
on-stream dates resulting from the Company's planned capital expenditures for
2008 and estimated decline rates on existing volumes, Celtic expects
production in 2008 to average between 10,500 and 10,700 BOE/d (34% oil and 66%
gas).
    The Company's commodity price assumptions for 2008 are US$70.00 per
barrel for WTI oil, US$7.50 per mmbtu for NYMEX natural gas and a US/Canadian
exchange rate of US$1.0000. These prices compare to estimated 2007 average
prices of US$68.75 per barrel for WTI oil, US$7.00 per mmbtu for NYMEX natural
gas and a US/Canadian exchange rate of US$0.9258.
    After giving effect to the aforementioned production and commodity price
assumptions and taking into effect commodity risk price management contracts
in place (as outlined in detail in the notes to the financial statements),
funds from operations for 2008 is forecasted to be approximately
$102.5 million or $2.74 per share ($2.67 per share, diluted) and net earnings
is forecasted to be approximately $9.5 million or $0.25 per share ($0.25 per
share, diluted). 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.
    Bank debt, net of working capital, is estimated to reach $155.0 million
by the end of 2008 or approximately 1.5 times forecasted 2008 funds from
operations.
    Celtic's capital expenditure budget for 2008 will see the Company
participate at high working interests in the drilling of approximately 58 to
62 wells during the year. Celtic continues to pursue property acquisitions
that would complement its existing asset base. Depending on actual commodity
prices, completion of such acquisitions would be in lieu of drilling
operations or 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, funds from operations and earnings.
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" and "operating
netbacks" 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 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. 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.

    Critical Accounting Estimates

    Management is required to make judgments, assumptions and estimates in
the application of generally accepted accounting principles that have a
significant impact on the financial results of the Company.
    Capitalized costs relating to the exploration and development of oil and
gas reserves, along with estimated future capital expenditures required in
order to develop proved reserves, are depleted and depreciated on a
unit-of-production basis using estimated proved reserves.
    The carrying value of property, plant and equipment is reviewed at least
annually for impairment. Impairment occurs when the carrying value of the
assets is not recoverable by the future undiscounted cash flows. The cost
recovery ceiling test is based on estimates of proved reserves, production
rates, oil and gas prices, future costs and other relevant assumptions. By
their nature, these estimates are subject to measurement uncertainty and the
impact on the financial statements could be material.
    Liability recognition for asset retirement obligations associated with
oil and gas well sites and facilities are determined using estimated costs
discounted based on the estimated life of the asset. These capitalized costs
are amortized on a unit-of-production basis, consistent with depletion and
depreciation. Over time, the liability is accreted up to the actual expected
cash outlay to perform the abandonment and reclamation.
    In order to recognize stock based compensation expense, the Company
estimates the fair value of stock options granted using assumptions related to
interest rates, expected life of the option, volatility of the underlying
security and expected dividend yields. These assumptions may vary over time.
    The determination of the Company's income and other tax liabilities
requires interpretation of complex laws and regulations often involving
multiple jurisdictions. All tax filings are subject to audit and potential
reassessment after the lapse of considerable time. Accordingly, the actual
income tax liability may differ significantly from that estimated and recorded
on Celtic's financial statements.





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 site
at www.celticex.com

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Celtic Exploration Ltd.

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