Celtic Reports on Second Quarter Finances

Celtic Exploration issued a financial report 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.

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