Celtic Reports Record Production

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

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.

 

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