RedStar Oil & Gas Inc.

RedStar Oil & Gas Inc.

November 13, 2007 19:40 ET

RedStar Oil & Gas Inc. Announces Third Quarter Results

CALGARY, ALBERTA--(Marketwire - Nov. 13, 2007) -


RedStar Oil and Gas Inc. ("RedStar" or the "Company") (TSX:RED) is pleased to announce its financial and operating results for the third quarter ended September 30, 2007. The Company has filed the complete Management Discussion and Analysis and Unaudited Interim Consolidated Financial Statements for the three and nine months ended September 30, 2007 on SEDAR. An electronic copy of these documents may be obtained on RedStar's SEDAR profile at or the Company's website


RedStar has maintained a strong balance sheet despite weaker natural gas prices in 2007. RedStar is undrawn on its $10 million credit facility and has a working capital deficiency of only $422,618, which is approximately one months cashflow.

In June 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.

Pursuant to a joint venture agreement executed at the end of 2006, the Company is being carried for 100% of its share of any drilling, completion and tie-in activities in the Greater Sierra Area in British Columbia. RedStar has approximately $6.5 million remaining in joint venture capital.

In June 2007, RedStar entered into a muli-well farm-out agreement in the Consul area of south-western Saskatchewan with a Calgary based private oil and gas company (the "Partner"). Under the terms of the farm-out agreement, the Partner 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. The Partner will also have a rolling option to drill 2 additional wells per section on 6 sections in which RedStar has a 90% working interest in. Each 2 wells drilled on a given section will earn the Partner 55% of RedStar's working interest in that section. The capital expenditures by the Partner are not subject to a payout condition and thus RedStar will retain an immediate 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. Subsequent to the quarter, the Partner drilled 6 gross wells (2.43) net. Given the current favourable service pricing being received we anticipate the Partner drilling an additional 7 gross (2.83 net) wells in either the fourth quarter or first quarter of 2008.

In light of the current gas price environment, RedStar and its partners are reviewing the economic viability of all capital projects to ensure that our capital will be spent on the projects that will provide the best possible returns for the Company and its shareholders. Once this review is complete, RedStar will be better able to risk and rank our opportunities and move forward with our capital program. RedStar's current production and Cashflow will not be impacted by the recent Alberta royalty review as essentially all of the Company's production is located in either British Columbia or Saskatchewan.

Financial and operating summary

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

For the three For the nine
months ended months ended
September 30, September 30,
($ thousands, except per
share amounts) 2007 2006 2007 2006

Petroleum and natural gas
sales, net of royalties 3,209 2,978 11,122 10,251
Unrealized loss on risk
management activities 116 - 190 -
Realized loss on risk
management activities 325 - - -
Impairment provision 9,000 - 9,600 -
Gain on the sale of property
and equipment - - 8,968 -
Net loss for the period 6,730 1,535 1,620 2,940
Loss per share - basic and
diluted 0.19 0.04 0.06 0.08
Funds flow from operations
(non-GAAP) 1,359 131 4,106 2,216
Funds flow per share - basic
and diluted 0.04 0.01 0.11 0.06
Net capital expenditures
(recovery) 20 (396) (2,489) 46,094
Average daily production
(boe/d) 1,138 908 1,075 1,079

Operating netback summary

For the three months For the nine months
(on a 6:1 boe basis) ended September 30, ended September 30,
2007 2006 2007 2006
Oil and natural gas revenue $ 30.65 $ 35.67 $ 37.17 $ 36.67
Royalties (9.27) (11.33) (11.89) (10.21)
Production costs (4.31) (10.77) (5.76) (8.27)
Transportation costs (4.21) (4.02) (3.95) (4.89)
Operating netback (non-GAAP) $ 12.86 $ 9.55 $ 15.57 $ 13.30

RedStar's average natural gas production volumes in the nine months of 2007 were 6.5 mmcf/d (1,096 boe/d) a 7% increase as compared to the same period in 2006. Production volumes were 25% higher in the third quarter as compared to the same quarter in 2006.

RedStar's production additions year to date 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 2007 with the wells getting back on stabilized production in the middle of the February 2007. 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 pipeline pigging facilities 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 fourth Kotcho well, that was completed and flow tested in the first quarter, however; until compression modifications are carried out by the third-party processor, and follow-up locations are drilled this production will remain behind pipe. RedStar's current production is approximately 1,000 to 1,100 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 1,550 to 1,650 boe/d. Further development drilling in the Kotcho area is required to economically tie-in these proven gas reserves.

In the current quarter, we recognized an impairment provision of $9.0 million resulting from a negative reserve revision due primarily to a lower gas price forecast at September 30, 2007. The impact of the lower gas price forecast was partially offset by an increase in proved reserves due to positive technical revisions.

For the remainder of 2007 and 2008, 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
    RedStar Oil and Gas Inc.
    Lawrence F. Walter
    Chief Financial Officer
    (403) 262-3130
    (403) 239-0621 (FAX)