SOURCE: ReoStar Energy Corporation

July 17, 2008 12:34 ET

ReoStar Energy Corp. Announces Results for Fiscal Year 2008

235% Increase in Reserves, 36% Increase in Production and 71% Increase in Revenue

FORT WORTH, TX--(Marketwire - July 17, 2008) - ReoStar Energy Corp. (OTCBB: REOS) today announced results of operations for the Fiscal Year (FY) ended March 31, 2008.

The Company's previous fiscal year-end for 2007 reflects activity only for the three months ending March 31, 2007 due to the accounting treatment of the partnership interests merged into the Company. In certain instances, the company will be comparing results of the two successive 12-month periods and annualizing the results of the 2007 data. ReoStar's three key trailing metrics -- reserves, production and revenue, increased year-on-year as follows:

Reserves: At fiscal year-end March 31, 2008, a certified engineering firm valued the Company's proven reserves at $425 million net present value (discounted 10%), which reflects an increase of approximately 235% from the previous year. Proven reserves increased 377% in the Company's core producing properties of the Barnett Shale.

Production: At fiscal year-end March 31, 2008 production increased to 92,192 BOE which represents approximately a 36% increase from the previous fully recorded year.

Revenues: At fiscal year-end March 31, 2008, revenues from the sale of Oil and Gas increased approximately 71% to $4.9 million for the FY ended March 31, 2008 compared to the previous fully recorded year.

"The past year has proven to be a milestone year for our company; we continued to see tremendous improvements in our key trailing metrics, driven by hard work and perseverance from our team. Our Barnett Shale properties are emerging as the focal point for generating cash flow for expanding our operations, while our Corsicana pilot project continues to show modest improvements. These combined improvements should help achieve a marked increase in production volumes as we expand and give us the ability to prove up larger future reserves," stated Mark Zouvas, CEO of ReoStar Energy.

Fiscal Year 2008 Operations Update and Review

Key Production Statistics:

ReoStar reported fiscal year 2008 production of 92,192 barrels of oil equivalent (BOE) up 36% from the full calendar year 2006 of 67,821 BOE.

ReoStar reported production for the 3-month period ending March 31, 2008 of 23,992 BOE which represents a 44% increase over the same period ending March 31, 2007 of 16,603 BOE.

Proven Reserves

All estimates of oil and gas reserves are subject to uncertainty. The following table sets forth the estimated proven reserves in barrel of oil equivalents (not taking into account the probable and possible reserves) estimated future net revenues, from proved reserves, the present value of those net revenues and the expected benchmark prices used in projecting them (in thousands except prices):

                                     Barnett  Corsicana E. Texas
Reserves                              Shale     Field     Field     Total
                                    --------- --------- --------- ---------
Proved Developed (MBOE)                 1,437       430         9     1,876
Proved Undeveloped (MBOE)               2,642    10,393         9    13,044
Total Proven Reserves at March 31,
 2008                                   4,079    10,823        18    14,920
                                    ========= ========= ========= =========

Estimated Future Net Revenues (M$)    175,177   754,202       669   930,048

Present Value of Future Net
 Revenues (M$)                         89,447   335,509       489   425,445

Benchmark Pricing

    Natural Gas per mcf         $    9.86
    Crude Oil per barrel        $  101.54

Active Properties Description

Barnett Shale

ReoStar has drilled and owns interests in 59 completed wells. The average working interest is 40%, and the average net revenue interest is 30 percent to the company. ReoStar has approximately 6,500 gross (5,800 net) acres under lease, the majority of which is not classified as proven.

As of March 31, 2008, total proved developed reserves were 1,437 MBOE and proved undeveloped reserves totaled 2,642 MBOE.

Corsicana Field

ReoStar owns 4,000 net acres in the Corsicana Field in Navarro County, which includes 67 producing wells. The average working interest is 95%, and the average net revenue interest is 76% to the company. The company commenced flooding on its polymer pilot in June of 2007. Production in the polymer pilot wells during the fourth quarter increased by 50% when compared to production on those well before the polymer flood began.

The oil reserves in the field are fairly shallow with depths of less than 1,000 feet. While this field has been producing for more than one hundred years, several engineering studies have estimated that more than 80% of the original reserves still remain in place or approximately 100 MMBO. ReoStar believes the Polymer flood will allow the company to achieve a marked increase in production volumes and give it the ability to prove larger reserves estimates.

As of March 31, 2008, total proved developed reserves were 430 MBOE and proved undeveloped reserves totaled 10,393 MBOE.

East Texas Properties

ReoStar owns interest in 4 leases in eastern Texas and western Louisiana. The average working interest is 50% and our average net revenue interest is 40%.

As of March 31, 2008, total proved developed reserves were 9 MBOE and proved undeveloped reserves totaled 9 MBOE.

Fayetteville Shale

ReoStar owns 6,450 net acres in the Fayetteville Shale located in Arkansas. The leasehold interests are not contiguous and the company expects to sell the acreage during fiscal year 2009. No wells have been drilled on this acreage and no reserve values have been assigned to the leasehold interests.

2009 Company Outlook and Proposed Operations

ReoStar's drilling budget for the Barnett acreage is $20.5 million for fiscal year 2009. The drilling budget will allow the company to complete the seven wells that were in process at year-end and drill and complete 30 more wells in the main area of interest in Cooke County. ReoStar will retain up to 60% working interest in the new wells. The Company expects to fund the drilling with the proceeds of a planned debt facility, proceeds from the sale of up to 40% working interest in each well on a turnkey basis, and cash flow.

ReoStar expects to re-complete at least 20 wells in up-hole zones in fiscal year 2009 at an average cost for their working interest of approximately $50,000 per well. The Company expects to fund the entire re-completions project out of cash flow.

ReoStar began drilling the second stage of the surfactant-polymer project in the first quarter in its Corsicana field. A total of 13 new wells are in the process of being drilled, of which four wells will be injectors and nine will be producers. The expansion will continue the drilling pattern established whereby each injector has approximately four producers surrounding it (inverted five-spot drilling pattern). To date, 12 of the second stage wells have been drilled and the Company is in the process of adding pumps to facilitate the increase in volume of surfactant-polymer being injected. The Company also intends to add an alkali to its injection solution, which will help stabilize clays existent in the formation and improve the sweep efficiency of the flood.

ReoStar expects to begin drilling Phase III of the surfactant-polymer project in October of this year and continue with additional development during the third quarter of the fiscal year. The Company expects to drill as many as 36 additional wells by the end of the fiscal year 2009.

The Company has acquired deeper rights on several leases and plans to drill up to 4 exploratory wells in the area. The company plans to drill three wells in the Pecan Gap formation and one well in the Glen Rose formation. The company has mitigated the exploration risk associated with drilling these deeper wells by selling 50% working interests in each of these wells to an industry partner.

All of the planned tertiary project wells are shallow (800 ft.), and cost approximately $60,000 each to drill and complete. Total capital expenditure budget for fiscal 2009 for the Corsicana project is estimated at $3.5 million. The budget will be funded primarily with proceeds from the planned debt facility.

Mr. Zouvas continued, "We remain focused on driving and delivering greater value by acquiring and developing leasehold in key regional resource development plays where we can engage in long-term drilling programs such as our Barnett field operations. We are continuing to acquire leasehold in areas with proven reserves to utilize verified methods of enhanced oil recovery such as Corsicana, to deliver positive results with improving long-term metrics for valuation."

"Our outlook for 2009 is very positive, we have built significant infrastructure and acquired valuable bolt-on acreage in our perspective target areas. We have a solid number of high quality prospects in Barnett to drill along with our pursuit of expanding our Corsicana project into a cash flow positive endeavor this year. We are confident our risk-balanced approaches to drilling which mitigates shot-term risks, will greatly enhance the Company's growth and shareholder value," further commented Mr. Zouvas.

About ReoStar Energy Corporation

ReoStar Energy Corporation (OTCBB: REOS), headquartered in Fort Worth, Texas, is an oil and gas company engaged in the acquisition, development and production of natural gas and oil properties with operations primarily focused on developmental resource plays and enhanced oil recovery projects. The Company has vertically integrated its assets to remove potential obstacles to growth, which will enable it to develop and produce assets without the risk, cost and time involved in traditional exploration.

The Company's strategy is to acquire an attractive portfolio of oil reserves for a low cost, which have a high ratio of possible, probable or proven undeveloped reserves. By converting these undeveloped reserves into proved producing reserves, the Company will continue to realize an increase in the overall value at low risk and cost.

The Company's assets include approximately 20,000 gross (16,250 net) acres of mineral leasehold located in Texas (Barnett & Corsicana) and Arkansas (Fayetteville). ReoStar's assemblage of E&P assets allows for appreciable, unimpeded growth into the foreseeable future.

Additional information is located on the company's website www.reostarenergy.com.

Certain statements in this news release may contain forward-looking information within the meaning of Rule 175 under the Securities Act of 1933 and Rule 3b-6 under the Securities Exchange Act of 1934, and are subject to the safe harbor created by those rules. All statements, other than statements of fact, included in this release, including, without limitation, statements regarding potential future plans and objectives of the company, are forward-looking statements that involve risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements. Technical complications which may arise could prevent the prompt implementation of any strategically significant plan(s) outlined above.

Reserve estimates and estimates of reserve potential or upside with respect to the acquisitions were made by our internal engineers without review by an independent petroleum engineering firm. Data used to make these estimates were furnished by the sellers and may not be as complete as that which is available for our owned properties. We believe our estimates of proved reserves comply with criteria provided under rules of the Securities and Exchange Commission.

Contact Information

  • Contact:
    Company Contacts:
    ReoStar Energy Corporation
    Scott Allen
    CFO
    817.989.7367

    For Investors
    Mark McPartland
    817.350.4760