RedStar Oil & Gas Inc.
TSX : RED

RedStar Oil & Gas Inc.

August 09, 2007 18:48 ET

RedStar Oil & Gas Inc. Announces First Quarter Results

CALGARY, ALBERTA--(Marketwire - Aug. 9, 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 its financial and operating results for the second quarter ended June 30, 2007. The Company has filed the complete Management Discussion and Analysis and Unaudited Interim Consolidated Financial Statements for the three and six months ended June 30, 2007. An electronic copy of these documents may be obtained on RedStar's SEDAR profile at www.sedar.com or the Company's website www.rstar.ca.

Highlights

In the quarter, RedStar has completed 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. As a result of the sale RedStar has a strong balance sheet with a non-cash working capital surplus of $1.42 million and has drawn $3.32 million on its $12 million credit facility as at June 30, 2007.

RedStar has approximately $8.0 million remaining in joint venture capital. Pursuant to the joint venture agreement executed at the end of 2006, the Company will be carried for 100% of its share of any drilling, completion and tie-in activities in the Greater Sierra Area. The aforementioned funds are being held in escrow with our legal counsel and are released upon the execution of mutually agreeable AFE's by our partner.

During the quarter, RedStar entered into a muli-well rolling farm-out agreement in a year round access area with a Calgary based private oil and gas company (the "Partner") where RedStar has a 90% working interest in. The capital expenditures by the Partner 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 will potentially add an estimated 300 to 500 boe/d of long life gas production net to RedStar at no capital cost to the Company.

Capital investment for the fall of 2007 and for the 2007/08 winter season will be focused on cashflow generating projects including the equipping and tie-in of previously tested proven reserves, complemented by additional exploitation and exploration drilling in our established production areas. RedStar currently has a drilling inventory of over 40 locations and owns or has access to the majority of the offsetting lands for future development.

Financial and operating summary

The following table presents highlights for the three and six months ended June 30, 2007 and should be read in conjunction with the unaudited interim consolidated financial statements for the three and six months ended June 30, 2007 and the corresponding management discussion and analysis.



For the three months For the six months
ended June 30, ended June 30,
----------------------------------------------------------------------------
($ thousands, except per
share amounts) 2007 2006 2007 2006
----------------------------------------------------------------------------
Petroleum and natural gas sales,
net of royalties 2,815 3,729 5,327 5,365
Unrealized gain (loss) on
risk management activities 519 - (74) -
Gain on the sale of property and 8,968
equipment - 8,968 -
Net income (loss) 5,978 (738) 5,110 (1,405)
Per share - basic and diluted 0.17 (0.02) 0.14 (0.04)
Funds flow from operations (non-
GAAP) 1,330 1,389 2,747 2,084
Per share - basic and diluted 0.04 0.04 0.08 0.06
Net capital expenditures (recovery) (5,944) 8,864 (2,509) 45,698
Average daily production (boe/d) 1,170 1,510 1,075 1,079


Operating netback summary

For the three months For the six months
(on a boe basis) ended June 30, ended June 30,
2007 2006 2007 2006
----------------------------------------------------------------------------
Oil and natural gas revenue $ 38.76 $ 35.93 $ 40.67 $ 37.24
Royalties (12.30) (8.84) (13.29) (9.77)
Production costs (6.08) (7.13) (6.54) (7.23)
Transportation costs (4.35) (5.43) (3.81) (5.28)
----------------------------------------------------------------------------
Operating netback (non-GAAP) $ 16.02 $ 14.53 $ 17.02 $ 14.97


RedStar's average natural gas production volumes in the first half of 2007 were 6.5 mmcf/d (1,075 boe/d) a 18% increase as compared to the last quarter of 2006 period and 19% higher than the first quarter of 2007. The increased production along with a increase in the natural gas spot price, the negotiated reduction of our transportation costs which came into effect in the fourth quarter of 2006 and general administrative recoveries resulted in a 32% increase in our funds flow from operations for the six month period to $2.7 million or $0.08 per share versus $2.1 million or $0.06 per share for the comparative period.

RedStar's production additions in 2007 were all achieved through drilling activity in the Greater Sierra area in Northeastern British Columbia and due to the successful workover of three Kotcho wells in January with the wells not getting back on stabilized production until the middle of the February. Due to high line pressure and constrained third-party compression capacity, there currently remains approximately 125 boe/d of restricted production from these three wells in this area. The operator of the facility is investigating installing either field booster compression and/or additional plant compression to reduce the Kotcho line pressure and increase throughput capacity. RedStar also has approximately 225 boe/d behind pipe in a forth Kotcho well, that was completed and flow tested in the quarter however, until compression modifications are carried out by the third-party processor, and follow-up locations are drilled next winter this production will remain behind. RedStar is pursuing a government infrastructure grant/royalty credit that may allow us to potentially tie this well in economically. RedStar's current production is approximately 1,200 to 1,250 boe/d with approximately 300 boe/d restricted due to facility constraints and approximately 250 boe/d behind pipe bringing RedStar's productive capability to 1,750 to 1,800 boe/d.

The Company continues to have a gas hedge in place, which will protect approximately 42% of current production up to the end of October 2007. The financial contract is settled through a direct exchange of funds with the applicable financial institution holding the position. The hedge was put in place due to the significant fluctuations of natural gas prices in 2006.

For the remainder of 2007, the capital spending profile will be dependent upon both commodity prices and service costs as the Company continues to focus on projects that provide sound economic returns.

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.

The Company has also used certain measures of financial reporting that are commonly used as benchmarks within the oil and natural gas production industry. The measures discussed are widely accepted measures of performance and value within the industry, and are used by investors and analysts to compare and evaluate oil and natural gas exploration and producing entities. Most notably, these measures include operating netback and funds flow from operations. Operating netback is a benchmark used in the crude oil and natural gas industry to measure the contribution of oil and natural gas sales subsequent to the deduction of royalties, operating and transportation costs. Funds flow from operations is before changes in non-cash working capital but adjusted for site restoration expenditures, and is used to analyze operations, performance and liquidity. These measures are not defined under GAAP and should not be considered in isolation or as an alternative to conventional GAAP measures. These measures and their underlying calculations are not necessarily comparable to a similarly titled measure of another entity.

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 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