RedStar Oil & Gas Inc.
TSX VENTURE : RED

RedStar Oil & Gas Inc.

January 08, 2007 10:20 ET

RedStar Oil & Gas Inc. Announces a $20 Million Joint Venture

CALGARY, ALBERTA--(CCNMatthews - Jan. 8, 2007) -

NOT FOR DISTRIBUTION TO U.S. NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES OF AMERICA.

RedStar Oil and Gas Inc. ("RedStar" or the "Company") (TSX:RED) is pleased to announce it has entered into a $20 million joint venture on its farm-in lands in the Greater Sierra area with a private oil and gas company based in the United States (the "Partner"). Pursuant to the current farm-in agreement with a major independent producer, the Partner will fund $20 million of drilling, completion and tie-in activities which will earn the Partner a 50% working interest in RedStar's interest on all future drilling activities in the Greater Sierra area commencing January 4, 2007. The joint venture will allow RedStar to complete its 2007 winter and summer capital program in the Greater Sierra area at no capital cost to the Company. As a result of the joint venture, the Company and its Partner plan on drilling 15 exploration or development wells in Northeastern British Columbia in the first nine months of 2007 depending on weather conditions and third party field operations. This joint venture arrangement will allow RedStar to redeploy its capital and aggressively move forward on several of its all-season drilling opportunities while maintaining a strong flexible balance sheet.

In addition to the Greater Sierra area of Northeastern British Columbia, RedStar plans to focus a portion of the Company's current capital resources in Southwestern Saskatchewan where the Company has amassed over 150,000 net undeveloped acres of land. The Company will provide an operational update in January 2007 once it finalizes its revised capital budget.

With RedStar's strengthened balance sheet as a result of the previously reported $5.6 million in net seismic sales, the Company is targeting its year-end debt to be approximately $6.9 million including any working capital deficiency, while maintaining its credit facility at $12 million. RedStar's current net debt to estimated fourth quarter annualized cash flow is approximately 1.6 times, which is a significant improvement over the Company's third quarter position. This improvement is a result of previously anticipated seismic sales closing in the quarter, an increase in the natural gas price and the Company's increase in production volumes in the fourth quarter which are currently up by approximately 33% when compared to the third quarter production levels. Cold weather in Northeastern British Columbia is allowing RedStar to continue its completion and work over activities and as such RedStar is maintaining its production guidance of 1,600 to 1,800 boe/d in the early part of the first quarter in 2007. Proceeds from additional seismic sales will be used to reduce the Company's debt level and will further strengthen the Company's balance sheet.

The Company remains bullish on the long-term outlook for petroleum and natural gas and the ability to generate increased shareholder value from its British Columbia and Saskatchewan assets. Management remains committed to our goal of increasing shareholder value by developing and executing a focused capital program on lower risk exploration opportunities. Our operational plans for 2007 are consistent with that goal.

Cautionary Statements

Certain information set forth in this document, including management's assessment of future plans and operations, contains forward-looking statements. By their nature, forward-looking statements are subject to numerous risks and uncertainties, some of which are beyond this party's control, including the impact of general economic conditions, industry conditions, volatility of commodity prices, currency fluctuations, imprecision of reserve estimates, environmental risks, competition from other industry participants, the lack of availability of qualified personnel or management, stock market volatility and ability to access sufficient capital from internal and external sources. Readers are cautioned that the assumptions used in the preparation of such information, although considered reasonable at the time of preparation, may prove to be imprecise and, as such, undue reliance should not be placed on forward-looking statements. Actual results, performance or achievement could differ from those expressed in, or implied by, these forward-looking statements, and accordingly, no assurance can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do so, what benefits will be derived there from. RedStar disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise except as required in accordance with applicable securities laws.

Per barrel of oil equivalent amounts have been calculated using a conversion of six thousand cubic feet of natural gas to one barrel of oil equivalent (6:1). (Barrel of oil equivalents (boe) may be misleading, particularly if used in isolation. A boe conversion ratio of 6mcf:1bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.)

The Toronto Stock Exchange has not reviewed and does not accept responsibility for the adequacy or accuracy of this release.

Contact Information

  • RedStar Oil and Gas Inc.
    Chester J.R. Krala
    President and Chief Executive Officer
    (403) 262-3130
    or
    RedStar Oil and Gas Inc.
    Lawrence F. Walter
    Chief Financial Officer
    (403) 262-3130