RedStar Oil & Gas Inc.
TSX VENTURE : RED

RedStar Oil & Gas Inc.

November 29, 2006 19:54 ET

RedStar Oil & Gas Inc. Announces Third Quarter Results

CALGARY, ALBERTA--(CCNMatthews - Nov. 29, 2006) -

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 VENTURE:RED) is pleased to announce its financial and operating results for the third quarter ended September 30, 2006. 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, 2006. 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.

Outlook

Subsequent to the quarter RedStar completed two separate sales of licensed copies of portions of its Cutbank Ridge 3-D seismic data to large independent oil and gas producers operating in the Cutbank Ridge area. The data was sold for gross proceeds of $6.8 million, netting RedStar $5.6 million after transaction fees. This capital will be deployed in the Company's exploration program and for general working capital purposes. RedStar expects to complete similar sales to other companies operating in the Cutbank Ridge area over the next three months and is in continuing discussions to sell its proprietary rights to the Cutbank Ridge 3-D database, while maintaining a copy of the data for internal use in developing future exploration opportunities

Capital investment for the 2006/07 winter season will be focused on cash flow 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. During the 2006/07 winter drilling season RedStar plans on drilling three exploration wells and seven development wells based on the interpretation of our recently completed 3-D seismic programs in the Great Sierra area.

RedStar expects to achieve a production level of approximately 1,600 to 1,800 boe/d early in the first quarter of 2007 depending on weather conditions and third party field operations. Current production volumes are approximately 1,000 boe/d with approximately 280 boe/d either shut-in or curtailed due to non-operated facility issues this past summer. In addition, the Company has approximately 450 boe/d behind pipe of which management anticipates 350 boe/d will be on production late in the fourth quarter or early in 2007 depending on weather conditions. The Company is also forecasting to add 100 to 200 boe/d prior to year end from its early winter capital program.

While natural gas prices remain lower than those realized at the beginning of the year, largely due to excess natural gas in storage and no major weather events to increase demand, at the time of writing natural gas prices have recovered significantly from the prices received in the third quarter due to the onset of the winter heating season and expectations building for increased weather related demand.

Given the significant fluctuations in gas prices over the past year, subsequent to the quarter, RedStar has taken several steps to help stabilize and improve its cash flows:

1. the Company entered into a fixed price AECO collar for the period November 1, 2006 to October 31, 2007 on 3,000 GJ's per day with a floor price of $6.50 CAD/GJ and a ceiling price of $7.64 CAD/GJ;

2. the Company negotiated a 32% decrease in its British Columbia transportation and processing costs for the November 2006 to October 2007 gas year; and

3. the Company now markets over 80% of its production into AECO based contracts.

Financial and operating summary

The following table presents highlights for the three and nine months ended September 30, 2006 and should be read in conjunction with the unaudited interim consolidated financial statements for the three and nine months ended September 30, 2006 and the corresponding management discussion and analysis.



Three months Nine months
ended ended
September 30, September 30,
($ thousands, except per share amounts) 2006 2006
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Petroleum and natural gas sales $ 2,032 $ 7,397
Net income (loss) (1,535) (2,940)
Per share - basic and diluted (.04) (0.08)
Funds flow from operations (non-GAAP) 132 2,216
Per share - basic 0.00 0.06
- diluted 0.00 0.06
Net capital expenditures 396 46,094
Average daily production (boe/d) 908 1,024
Average realized price per mcf 5.92 6.08
Weighted average shares outstanding (000s) 35,771 35,771


Three months Nine months
ended ended
September 30, September 30,
Netback per boe on a 6:1 basis 2006 2006
---------------------------------------------------------------------------
Oil and natural gas revenue $ 35.67 $ 36.67
Royalties (11.33) (10.21)
Production costs (10.77) (8.27)
Transportation costs (4.02) (4.89)
---------------------------------------------------------------------------
Operating netback (non-GAAP) $ 9.95 $ 13.30


The production volumes in the current quarter were 592 boe/d lower than the approximate 1,500 boe/d exit production for the second quarter for the primary two reasons. Approximately 1,373 boe/d was shut-in at various times in the quarter due to various scheduled and unscheduled plant turnarounds. In addition, during the third quarter a non-operated facility in the Kotcho area incurred mechanical problems which resulted in approximately 255 boe/d shut-in period and a further 25 boe/d curtailed. The operator of the facility is working to repair the facility and alleviate our capacity restrictions which we anticipate will occur by the end of the fourth quarter or early in the first quarter of 2007.

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 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
    Website: www.rstar.ca