Rock Energy Inc.
TSX : RE

Rock Energy Inc.

March 23, 2010 21:18 ET

Rock Energy Announces 2009 Year End Results

CALGARY, ALBERTA--(Marketwire - March 23, 2010) - Rock Energy Inc. (TSX:RE) "Rock" is pleased to report its financial and operating results for the year and three months ended December 31, 2009. Today the Company filed its Annual Information Form which includes Rock's reserves data and other oil and gas information for the year ended December 31, 2009 as mandated by National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities of the Canadian Securities Administrators. Copies of Rock's Annual Information Form may be obtained on www.sedar.com or by contacting Rock.

Rock is a Calgary based crude oil and natural gas exploration, development and production company.



CORPORATE SUMMARY
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Year Year Three Months Three Months
Ended Ended Ended Ended
December 31, December 31, December 31, December 31,
FINANCIAL 2009 2008 2009 2008
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Oil and gas revenue
('000) $50,025 $80,276 $14,597 $15,746

Funds from operations
('000)(1) $19,644 $40,841 $6,150 $5,520
Per share - basic $0.73 $1.58 $0.21 $0.21
- diluted $0.72 $1.58 $0.20 $0.21

Net income (loss)
('000) ($6,274) $1,891 ($556) ($2,083)
Per share - basic ($0.23) $0.07 ($0.02) ($0.08)
- diluted ($0.23) $0.07 ($0.02) ($0.08)

Capital expenditures,
net ('000) $20,492 $50,171 $10,424 $9,254

As at As at
December 31, December 31,
2009 2008
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Working capital
deficiency including
bank debt ('000) $25,332 $38,622

Common shares
outstanding 30,557,243 25,899,843

Year Year Three Months Three Months
Ended Ended Ended Ended
December 31, December 31, December 31, December 31,
OPERATIONAL 2009 2008 2009 2008
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Average daily
production
Heavy oil (bbls/d) 1,493 1,329 1,638 1,537
Light oil (bbls/d) 133 193 135 169
Natural gas (mcf/d) 9,553 10,048 8,211 11,731
Natural gas liquids
(bbl/d) 217 239 234 298

Total (boe/d) 3,435 3,436 3,376 3,959

Average product
prices
Heavy oil ($/bbl) $53.31 $71.58 $61.82 $40.17
Light oil ($/bbl) $60.59 $95.86 $72.18 $57.20
Natural gas ($/mcf) $4.20 $8.72 $4.38 $7.27
Natural gas liquids
($/bbl) $42.42 $74.15 $49.96 $45.78

Total ($/boe) $39.89 $63.73 $47.00 $43.02

Field netback ($/boe) $19.20 $36.33 $24.14 $19.00
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Note: (1) Funds from operations and funds from operations per share are non
GAAP terms that represent cash generated from operating activities
before changes in non-cash working capital and asset retirement
expenditures. We consider it a key measure as it demonstrates our
ability to generate the cash necessary to fund future growth through
capital investment. Funds from operations may not be comparable with
the calculation of similar measures for other companies. Funds from
operations per share is calculated using the same share basis which is
used in the determination of net income (loss) per share.
(2) Field netback is a non GAAP term that represents a benchmark used
in the oil and gas industry to measure the financial contribution of
crude oil and natural gas operations after the deduction of royalties,
transportation costs and operating expenses. Field netbacks may not be
comparable with the calculation of similar measures for other
companies.


At the beginning of 2009 Rock made a strategic decision to increase our drilling inventory and move our cost structure down to better position Rock to grow as the economy and commodity prices recovered.

We are pleased to report that we achieved our 2009 goals. We doubled our drilling inventory while maintaining our production and growing our reserve base. In addition, we have made good progress in developing new completion techniques for our heavy oil wells to improve recovery factors and established a significant resource play at Elmworth that could have a material impact on the Company. We reduced our cost structure and completed an equity financing to solidify our balance sheet and reduce our debt to exit the year at 1.0 times annualized cash flow.

As we approach the second quarter of 2010 we are poised for growth. We have a solid drilling plan to increase our crude oil production, and to prove up the resource play at Elmworth. In 2010 we plan to drill 40-45 wells, grow our production to average 3,800-4,000 boe per day and exit at 4,400-4,600 boe per day, while generating cash flow of $33 million ($1.08/share) and maintaining our debt at reasonable levels.

Rock's 2009 Accomplishments

Drilling Results

In 2009, Rock participated in 24 (22.1 net) wells resulting in 20 (20.0 net) heavy oil wells and four (2.1 net) natural gas wells at 100 percent casing success rate. Rock operated 21 of the 24 gross wells. Our focus was to increase our crude oil weighting and maintain our production and reserves.

To date in 2010 we have drilled 11 (11.0 net) heavy oil wells in the Plains core area and five (2.3 net) natural gas wells in the West Central Alberta core area.

At Elmworth, Rock's 100 percent working interest Montney vertical test well (1-19-70-9W6M) was cased in January 2010 and encountered natural gas on the up-hole Bluesky and Nikanassin zones as well as the deeper Montney zone. The Montney was completed, fracture-stimulated and tested for three days with an initial rate of 2.0 mmcf per day and a final rate of 0.9 mmcf per day at a flowing tubing pressure of 180 psi. This successful vertical test has greatly exceeded our expectations and confirmed the existence of commercial Montney natural gas on Rock's land in the Elmworth area, providing key information for future horizontal drilling locations. The Nikanassin formation in this well was completed and will be tied-in and on production by the end of the first quarter of 2010 and the Bluesky zone will be completed after spring break up. It's very exciting to achieve a three-zone success in our first Montney test.

An additional 100 percent working interest Saxon well (2-28-61-23W5M) was drilled in January 2010, has been completed and tied-in is currently producing natural gas from the Gething formation.

Reserves and Net Asset Value

Rock increased total Company reserves by 5 percent on a proved plus probable basis, to 10.7 million boe at year-end 2009 from 10.2 million boe at year-end 2008, replacing 141 percent of 2009 production. All-in finding, development and acquisition costs averaged $15.66 per boe on a proved plus probable basis. Rock obtained only limited recognition for the emerging Montney play at Elmworth and we expect more reserves to be confirmed as we prove up the play in 2010.

The Company's 2009 capital program was limited to cash flow for the year, which also limited near-term reserve adds. Importantly for the longer term, however, we increased our drilling inventory to more than 220 locations (from 100 a year ago). Rock's 2010 capital program is focused on converting this inventory into production and reserves growth.

The year-end 2009 reserve report by GLJ Petroleum Consultants Ltd., using its forecast commodity prices, indicates a value of $190.8 million for Rock's proved plus probable reserves (net present value discounted at 10 percent, before tax). Rock's net asset value is calculated at $5.97 per share (basic), assuming year-end net debt of $25.3 million, land of 84,680 net acres at an estimated market value of $16.9 million, no value for seismic, and 30.6 million basic shares outstanding.

Production Results

Rock's daily production averaged 3,435 boe per day in 2009 compared to 3,436 boe per day in 2008. The company was able to maintain its production levels through 2009 and increase its crude oil weighting to average 54 percent and exited the year at 60 percent compared to 2008 average crude oil component of only 51 percent. Our capital program for 2010 should see our crude oil production component increase further to exit at 70 percent.

Financial Results

In 2009 Rock generated funds from operations of $19.6 million ($0.73 per share) with a net loss of $6.3 million ($0.23 per share). The Company had capital expenditures of $20.5 million net of $3.8 million of Alberta royalty drilling credits. Total net debt was $25.3 million at year-end, against bank lines of $47 million. Our borrowing base will be reviewed in April 2010.

2010 Capital Program

Rock is planning a capital budget of $41.6 million for 2010. This will provide significant growth in our daily production while testing our Elmworth resource play, by focusing on the following:

Drill 30 heavy oil wells

These wells pay out in less than a year at current prices, and contribute significantly to the Company's cash flow.

Drill 3-4 horizontal wells at Elmworth

With a successful Montney vertical test, Rock is now proceeding with a plan for follow-up horizontal wells to be completed with multi-stage fracturing techniques later in the year.

Drill 10 conventional natural gas wells

These wells add to our liquids rich natural gas production at the Saxon/Kaybob area and continue to develop our vertical play concepts in our West Central Alberta core area.

Rock is forecasting production growth of over 25 percent for 2010. Assuming W.T.I. crude oil prices average US$75.00 per bbl and natural gas prices average Cdn$5.75 per mcf at AECO, with an average Canadian-US dollar exchange rate of $0.95, the Company will generate cash flow of $33 million ($1.08/share) and have year-end 2010 net debt of $34 million.

Outlook

Rock is poised for growth in 2010. In the first half of the year the Company will be building its heavy oil production base and cash flow while proving up the emerging resource play at Elmworth.

During the second half Rock intends to direct its capital to bring the natural gas projects on-stream or to further increase crude oil production, depending upon our short-term outlook for crude oil and natural gas prices. We have a strong balance sheet and cash flow base so we are also aggressively pursuing opportunities for corporate and asset acquisitions, particularly in our Plains core area.

Rock intends to grow to a production range of 10,000-15,000 boe per day within three to five years. A company of this size attracts greater market support and is better able to capture opportunities that increase shareholder value.

Advisory

This press release contains forward-looking statements that involve known and unknown risks, uncertainties, assumptions and other factors, some of which are beyond Rock's control that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. Rock believes that the expectations reflected in those forward-looking statements are reasonable at the time made but no assurance can be given that these expectations will prove to be correct and such forward-looking statements included in, or incorporated by reference into, this press release should not be unduly relied upon. These statements speak only as of the date of such information, as the case may be, and may be superseded by subsequent events. Rock does not intend, and does not assume any obligation, to update these forward-looking statements, except as required by applicable law.

This press release contains references to barrels of oil equivalent (boe), boes maybe misleading, particularly if used in isolation. A boe conversion of 6 mcf to 1 barrel of oil is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

Contact Information

  • Rock Energy Inc.
    Allen J. Bey
    President and Chief Executive Officer
    (403) 218-4380
    or
    Rock Energy Inc.
    John H. Van de Pol
    Vice President, Finance and Chief Financial Officer
    (403) 218-4380
    www.rockenergy.ca