RedStar Oil & Gas Inc.
TSX VENTURE : RED

RedStar Oil & Gas Inc.

May 31, 2006 09:25 ET

RedStar Oil & Gas Inc. Announces Q1 2006 Results and Reserve Update

CALGARY, ALBERTA--(CCNMatthews - May 31, 2006) - RedStar Oil and Gas Inc. ("RedStar" or "Company) (TSX VENTURE:RED) achieved strong per share reserve and value growth in the first quarter of 2006 and is pleased to announce its financial and operating results for the quarter ended March 31, 2006. The Company has filed the complete Management Discussion and Analysis and Unaudited Interim Consolidated Financial Statements for the three months ended March 31, 2006 on SEDAR. An electronic copy of these documents may be obtained on RedStar's SEDAR profile at www.sedar.com.

Highlights

RedStar's achievements in the first quarter of 2006 include:

- Increased production levels by 157% during the first quarter of 2006 with exit production levels at approximately 1,800 Boe/d and 450 Boe/d behind pipe.

- Drilled 25 (20.8 net) wells in the first winter season of our multi-year farm-in.

- Increased proven reserves by 336% in the quarter to 1,917 Mboe (based on March 31, 2006 pricing).

- Increased proven plus probable reserves by 208% in the quarter to 3,429 Mboe (based on March 31, 2006 pricing).

- Completing seismic data sales of $3.8 million with additional sales currently under review.

- Expanding the undeveloped land base by approximately 150,000 net acres in all-season accessible areas.

Financial and Operating Summary

The following table presents highlights for the first quarter of 2006 and should be read in conjunction with the audited consolidated financial statements and notes for the seven month period ended December 31, 2005, the unaudited consolidated financial statements for the three months ended February, 28, 2005 and March 31, 2006, and the management discussion and analysis for each of the periods respectively.



Three Three
months ended months ended
March 31, February 28,
2006 2005
------------------------------------------------------------------------

Production
Average boe/d (6mcf:1bbl) 640 10
Average natural gas mcf/d 3,830 57
Average price per boe $40.51 $44.23
Average price per mcf $ 6.37 $ 7.37
Operating netback per boe $16.16 N/A
Financial ($ thousands, except per share
amounts)
Petroleum and natural gas sales,
net of royalties 1,636 41
Net income (loss) (1) (668) 4,342
Per share - basic (1) (0.019) 0.75
- diluted (1) (0.019) 0.74
Funds flow from operations (non-GAAP) 721 (157)
Per share - basic 0.02 (0.03)
- diluted 0.02 (0.03)
Net capital expenditures 38,099 8,000
Weighted average shares outstanding (000s) 35,771 5,795

(1) The net income generated during the three month period ended
February 28, 2005 was primarily due to the recognition of a recovery
of future income taxes of $4.5 million as the ability of RedStar
to utilize its tax pools was determined to be more likely than not.


Reserve Summary

RedStar achieved strong reserve and net asset value growth in its first full winter season of drilling operations. Advanced planning, fiscal discipline and selective capital investment opportunities lead to record results despite the challenges of an increasing cost environment throughout the oil and gas sector. As part of its Greater Sierra farm-in deal, RedStar committed to shoot three 3-D seismic programs totaling approximately $36 million. These expenditures are one time in nature and as such the following tables show results with and without the inclusion of these costs.

RedStar is pleased to present the following reserve update as at March 31, 2006 resulting from its winter 2005/2006 capital program. This reserve update ("Sproule Report") was prepared by Sproule Associates effective March 31, 2006 utilizing the March 31, 2006 Sproule price index and evaluated 100% of the Company's properties.



F&D Proved plus Probable (excluding seismic costs) $10.57/BOE

F&D Proved plus Probable (including seismic costs) $26.11/BOE

Proved plus Probable Production Replacement 3,123%


RedStar's investment activities have resulted in an estimated Net Asset Value (NAV) per fully diluted share, including reserves, undeveloped land, seismic and net working capital of:



PV 5% BT (March 31, 2006 pricing) $2.93

PV 8% BT (March 31, 2006 pricing) $2.79

PV 10% BT (March 31, 2006 pricing) $2.70


The results presented above are based on unaudited, estimated total capital expenditures for the 2005/2006 winter program of $60.5 million including $36.0 million for seismic expenditures and using an estimated production rate of 1,800 Boe/d.

RedStar March 31, 2006 Reserve Update

The following tables summarize the oil, natural gas and natural gas liquids of RedStar and the Net Present Value (NPV) of future net revenue attributable to such reserves as evaluated in the RedStar Sproule Report effective March 31, 2006 based on forecast price and costs assumptions.



Summary of Oil and Gas Reserves, Forecast Prices and Costs as at
March 31, 2006

Light and Natural Gas
Medium Oil Liquids
--------------------------------------
Reserves Category Gross Net Gross Net
MBbls MBbls MBbls MBbls
--------------------------------------
Proved
Developed Producing 0 5 1 1
Developed Non-producing 0 0 0 0
Undeveloped 0 0 0 0
Total Proved 0 5 1 1
Probable 0 3 0 0
--------------------------------------
Total Proved plus Probable 0 7 1 1
--------------------------------------


Natural Gas Heavy Oil
--------------------------------------
Reserves Category Gross Net Gross Net
MMcf MMcf MBbls MBbls
--------------------------------------
Proved
Developed Producing 10,604 7,318 0 0
Developed Non-producing 66 54 0 0
Undeveloped 828 562 0 0
Total Proved 11,498 7,927 0 0
Probable 9,065 6,435 0 0
--------------------------------------
Total Proved plus Probable 20,563 14,369 0 0
--------------------------------------

Note: Columns may not add due to rounding


Net Present Values of Future Net Revenue, Forecast Prices and Costs as
at March 31, 2006

Before Income Taxes
Reserves Category Discounted at (% per year)
--------------------------------------- -------------------------------
($M) 0 5 10 15
--------------------------------------- ------ ------ ------ -------
Proved
Developed Producing 42,812 38,137 34,518 31,628
Developed Non-producing 339 267 214 175
Undeveloped 2,210 2,004 1,826 1,673
------ ------ ------ -------
Total Proved 45,361 40,408 36,559 33,476
Probable 37,177 28,556 22,889 18,947
------ ------ ------ -------
Total Proved plus probable 82,539 68,964 59,447 52,422
------ ------ ------ -------

Note: Columns may not add due to rounding


Forecast Prices and Costs as at March 31, 2006

Crude Oil
WTI Edmonton Cromer Natural Gas
Cushing Par Price Medium AECO Gas
Oklahoma 40 degrees API 29.3 degrees Price
($US/bbl) ($Cdn/bbl) ($Cdn/bbl) ($Cdn/Mcf)
--------- --------------- ------------- -----------
Forecast
2006 64.96 74.96 57.00 7.68
2007 67.18 77.57 57.00 9.75
2008 56.51 65.00 55.75 9.52
2009 50.19 57.55 49.20 7.87
2010 47.76 54.67 46.77 7.57
2011 48.48 55.49 47.56 7.70
2012 49.20 56.33 48.37 7.83
2013 49.94 57.18 49.19 7.96
2014 50.69 58.04 50.02 8.09
2015 51.45 58.91 50.87 8.23
2016 52.22 59.80 51.73 8.37
Thereafter Various Escalation Rates


Pentanes Butantes
Plus FOB FOB Inflation Exchange
Field Gate Field Gate Rate Rate
($Cdn/bbl) ($Cdn/bbl) (%/Yr) ($US/$Cdn)
--------- --------------- ------------- -----------
Forecast
2006 73.44 56.93 2.3 0.850
2007 76.77 51.40 2.5 0.850
2008 78.27 51.27 2.5 0.850
2009 64.62 42.32 2.5 0.850
2010 56.36 36.92 1.5 0.850
2011 52.75 34.55 1.5 0.850
2012 52.75 34.55 1.5 0.850
2013 52.76 34.56 1.5 0.850
2014 52.76 34.56 1.5 0.850
2015 52.76 34.56 1.5 0.850
2016 52.77 34.56 1.5 0.850
Thereafter Various Escalation Rates


A Boe is a barrel of oil equivalent on the basis of 1 Boe to 6 Mcf of natural gas. Boe's may be misleading, particularly if used in isolation. A Boe conversion ratio of 1 Boe for 6 Mcf is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

Gross Reserves are Company gross reserves, which are the Company's working interest share before deduction of royalties and without including any royalty interests of the Company. Net Reserves are the company's working interest share after deduction of royalty obligations plus the Company's royalty interests in reserves.

The net present value of future net revenue attributable to RedStar's reserves is stated without provision for interest costs and general and administrative costs, but after providing for estimated royalties, production costs, development costs, other income, future capital expenditures and well abandonment costs for only those wells assigned reserves by Sproule. The recovery and reserve estimates of RedStar's oil, natural gas and natural gas liquids reserves provided herein are estimates only and there is no guarantee that the estimated reserves will be recovered. Actual reserves may be greater than or less than the estimates provided herein.

Outlook

RedStar completed the first winter of its multi-year farm-in and option agreement resulting in increased production and increased reserves. The primary target of exploration is the Upper Mississippian. Several new pools were discovered, leaving a number of exploration leads to be followed up this summer and winter. We are expecting to spud our first summer location in the coming weeks. RedStar finished shooting its 3D seismic programs and will be interpreting and developing locations for our go forward summer and winter drilling seasons.

RedStar is a junior oil and gas company engaged in the exploration, development and production of oil and natural gas in the Western Canadian Sedimentary Basin.

RedStar Oil & Gas Inc. trades on the TSX Venture Exchange under the symbol RED.

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.

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
    (403) 262-3130
    or
    RedStar Oil & Gas Inc.
    Lawrence F. Walter
    CFO
    (403) 262-3130