RedStar Oil & Gas Inc.

RedStar Oil & Gas Inc.

March 19, 2008 19:33 ET

RedStar Oil & Gas Inc. Announces Financial and Operating Results for the Year Ended December 31, 2007

CALGARY, ALBERTA--(Marketwire - March 19, 2008) -


RedStar Oil & Gas Inc. (TSX:RED) ("RedStar" or "the Company") is releasing its financial and operating results for the year ended December 31, 2007. Highlights from the fourth quarter and year ended December 31, 2007, include:

- RedStar has maintained a strong balance sheet with a working capital surplus of $4.5 million and is un-drawn on its $10 million credit facility.

- RedStar's average natural gas production volumes in 2007 were 6.5 mmcf/d (1,078 boe/d) an 8% increase as compared to fiscal 2006. Production volumes were 12% higher in the fourth quarter as compared to the comparative quarter in 2006.

- RedStar's funds flow from operations in 2007 increased by 93% as compared to 2006. An 8% increase in production volumes combined with a 23% decrease in operating, transportation and general administrative costs accounted for the increase in funds flow from operations.

- In May 2007, RedStar improved its balance sheet by completing the sale of the proprietary rights of its Cutbank Ridge 3-D seismic data for proceeds of $9.6 million. RedStar continues to maintain a licensed copy of the Cutbank Ridge 3-D seismic data.

- In 2007 RedStar replaced 99% of its produced reserves at a finding and development cost of $6.97 per Boe.

- The highly publicized shale gas play emerging in north-eastern British Columbia should have a positive impact on the value of RedStar's extensive, proprietary 3-D seismic database.

- In October 2007, RedStar further strengthened its balance sheet when RedStar and its JV partner began to discuss amending the original terms of the December 22, 2006 agreement. When an amending agreement was mutually agreed to and consummated RedStar and partner divided the remaining funding commitment less a $600,000 holdback for future costs in the Greater Sierra area resulting in proceeds of approximately $3.18 million to RedStar, subject to customary final closing adjustments. Pursuant to the agreement RedStar must offer to the Partner 100% of the participation to drill any deep prospects in the Greater Sierra area as determined by the area of mutual interest ("AMI") estimated to be over five million (5,000,000) acres and will receive a five percent gross overriding royalty on any deep projects within the AMI that the Partner enters into or commences within a two year window. In addition, RedStar's shallow rights are uninhibited by the agreement within the AMI, and thus has the right to drill its own shallow gas wells within the AMI. RedStar also has a completion point election to back in for 25% of any shallow well that the Partner drills during the AMI period.

- On March 6, 2008 RedStar entered into a Pre-Acquisition Agreement with Great Plains Exploration Inc. ("Great Plains"), pursuant to which Great Plains and RedStar will proceed with a business combination whereby Great Plains will acquire all of the RedStar shares in consideration for the issuance of 0.9 Great Plains shares for each RedStar share held. Total consideration offered by Great Plains is expected to be approximately 32.2 million Great Plains shares, effectively representing $0.83 per RedStar share based on a 5-day weighted average price per share of $0.92 for Great Plains, being a 21% premium on the 5-day weighted average price of RedStar on the TSX. The proposed transaction is subject to the approval of the TSX and the RedStar shareholders.

Operating and Financial Summary

For the year For the year For the three For the three
ended ended months ended months ended
($ thousands, except December 31, December 31, December 31, December 31,
per share amounts) 2007 2006 2007 2006
--------------------- ------------ ------------ ------------- --------------
Petroleum and natural
gas sales, net of
royalties 9,709 9,409 2,141 2,021
Net income (loss) (2,450) (29,534) (281) (26,593)
Per share - basic (0.07) (0.83) (0.01) (0.74)
- diluted (0.07) (0.83) (0.01) (0.74)
Funds flow from
operations (non GAAP) 5,088 2,633 981 416
Per share - basic 0.14 0.07 0.03 0.01
- diluted 0.14 0.07 0.03 0.01
Net capital
(recovery) (2,459) 41,849 (16) (4,245)
Average daily
production (boe/d) 1,078 996 1,025 914
Average natural
gas pricing ($/mcf) 5.99 6.08 5.45 6.11
Average pricing
($/boe) 36.10 36.64 32.73 36.65
Weighted average
shares outstanding
(000s) 35,771 35,771 35,771 35,771

RedStar began 2007 with another successful first quarter drilling program in the Greater Sierra area of Northeast British Columbia. During this period, our capital was primarily expended on the completion of projects commenced in the first quarter of 2006 but had operations suspended due to spring breakup. The projects consisted of the tie-in a well which is currently producing 175 boe/d, flow testing of the fourth Kotcho well as previously noted and two minor workovers.

Under our Joint Venture Agreement, RedStar drilled 9 gross (4.5 net) wells in the Greater Sierra area in 2007 with a 67% success rate with no capital cost to the Company. With the assistance of our Joint Venture Partner and our extensive seismic database, management has identified over 40 additional drilling prospects in this area.

In June 2007, RedStar entered into a multi-well farm-out agreement in the Consul area of Southwestern Saskatchewan with a Calgary based private oil and gas company ("PO&GC"). Under the terms of the farm-out agreement, PO&GC will commit to drill and complete 2 wells and tie-in a third well which RedStar had previously drilled and tested at a sustained flow rate of approximately 350 mcf/d. PO&GC will also have a rolling option to drill 2 additional wells per section on 6 additional sections in which RedStar has a 90% working interest. Each 2 wells drilled on a given section will earn PO&GC a 55% working interest in that section. The capital expenditures by PO&GC are not subject to a payout condition and thus RedStar will retain an immediate 45% working interest in all production and cash flow from the farm-out lands. If the rolling option is exercised, this farm-out agreement could potentially add an estimated 300 to 500 boe/d of long life gas production net to RedStar at no capital cost to the Company.

RedStar's current production is approximately 1,150 boe/d with approximately 200 boe/d restricted due to mechanical and facility constraints and approximately 250 boe/d behind pipe bringing RedStar's current productive capability to 1,500 to 1,600 boe/d. RedStar expects two of its wells will payout in the first half of 2008 at which time the farmor will have the option to convert its gross overriding royalty into a working interest position which could potentially decrease our current production by approximately 250 boe/d. If the farmor elects to convert to a working interest position, our royalty rate will decrease due to the elimination of the gross overriding royalty resulting in an increase on our netbacks and thus a reduced effect on our funds flow.

Throughout the year RedStar remained diligent in focusing on lowering its operating costs and was successful in decreasing transportation and processing costs, which make up approximately half of our operating costs by 13% and other operating costs by 29%. As a Company we will continually work on negotiating reductions in the Company's processing fees, transportation costs and administration costs in order to further strengthen netbacks as we go forward into 2008.

Recent reductions in the continental storage levels of natural gas have led to an improved forward pricing environment which will also have a positive impact on our 2008 netback prices.

RedStar has filed its statement of reserves as required by National Instrument 51-101 included in its Annual Information Form (AIF). The AIF contains oil and gas reserves information, the report of the independent qualified reserves evaluator and the report of the reserve committee. The annual financial statements, corresponding MD&A and AIF documents are available at SEDAR at


The corporate combination with Great Plains is designed to enhance shareholder value by combining two strong exploration platforms and providing the financial flexibility to accelerate the development of each.

RedStar management believes that the combination of the two companies will provide the following strategic benefits:

- Provide access to a balanced, year round drilling portfolio

- Provide access to high impact oil focused exploration

- Provide a management team and board of directors that has extensive exploration, development and M&A experience

- Increased critical mass will allow the funding of a larger drilling portfolio which should provide for greater growth certainty

- Larger market capitalization should provide greater shareholder liquidity

Based on these and other factors, the management and Directors of RedStar feel that this corporate transaction is in the best interest of all RedStar shareholders and have agreed to vote in favour of the transaction.

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 that are 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 TSX Venture Exchange Inc. has not reviewed and does not accept responsibility for the adequacy or accuracy of this release.

Contact Information

  • RedStar Oil & Gas Inc.
    Chester J.R. Krala
    President and Chief Executive Officer
    (403) 699-3069
    RedStar Oil & Gas Inc.
    Lawrence F. Walter
    Chief Financial Officer
    (403) 699-3061