SOURCE: ReoStar Energy Corporation

July 18, 2007 03:00 ET

ReoStar Energy Corp. Announces Results of Operations for Fiscal Year 2007

FORT WORTH, TX--(Marketwire - July 18, 2007) - ReoStar Energy Corp. (OTCBB: REOS) today announced results of operations for fiscal year 2007 and the previous two calendar years. ReoStar reported calendar year 2006 production of 64,555 barrels of oil equivalent (BOE) up 313% from the same period in 2005 of 20,650 BOE.

The Company's 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, we will be comparing results of the two successive 12-month periods and annualizing the results of the 2007 data. ReoStar reported production for the 3-month period ending March 31, 2007 of 7,023 barrels of oil and 55,562 Mcf of gas which equates to 16,603 (BOE).

The Company has steadily increased its production for the last three years of operations. Since its inception in the form of partnerships, production has increased from 4,803 BOE to 64,555 BOE for the latest 12-month statistics, a substantial increase which is reflective of management's ability to generate positive results. ReoStar has defined over 20 new site plans which it expects to drill in its Barnett Shale acreage for the remainder of fiscal year 2008. The Company believes there will be a substantial increase in production for the year 2008, as a result of increased Barnett Shale activities coupled with the expanding polymer injection project in its Corsicana field.

The Company recently announced the sale of its 30% ownership of the Tri-County Gas pipeline located in the Barnett Shale for approximately $15 million. In addition the Company recently closed a private placement of approximately $11.5 million with a group of institutional and accredited investors. Management intends to use the proceeds from the sale and the private placement for the acquisition of additional leasehold in the fairway of their current operations and for working capital requirements.

Mark Zouvas, CEO of ReoStar, stated, "We are very pleased with the milestones and results we achieved over this past year. The transition of our operations to a fully reporting public company should allow us to further exploit our current portfolio of projects utilizing the skill set of our experienced team and increase our ability to raise capital. Our objective is to build shareholder value by establishing and consistently growing our reserves and production with a strong emphasis on controlling costs and mitigating risks. Our strategy is to acquire for a low cost an attractive portfolio of oil reserves with a high ratio of possible, probable or proven undeveloped reserves. By converting these undeveloped reserves into proved producing reserves, we will continue to realize a tremendous increase in the overall value at low risk and cost."

Active Properties Description

Barnett Shale

The Company has drilled and owns interests in 46 completed wells, all of which have an average working interest of 25%, and our average net revenue interest is 18.75%. We have approximately 9,000 gross (6,750 net) acres under lease, the majority of which is not classified as proven.

At March 31, 2007, ReoStar had a Barnett Shale development inventory of more than 300 drilling locations and 27 proven re-completions. Development projects include re-completions and infill drilling (current field rules provide for 20 acre spacing). These activities also include increasing reserves through acquisition of regional development properties and increasing production through the use of advanced drilling and completion technologies.

Corsicana Field

ReoStar owns interests in 75 active and several hundred inactive well bores of which the average working interest is 95%, and average net revenue interest is 81% to the Company. ReoStar has completed the injection plant for the pilot project and began flooding the reservoir with polymer last month, June of 2007.

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 concluded that more than 80% of the original reserves still remain in place. ReoStar believes the Polymer flooding technique will allow it to achieve a marked increase in production volumes and give the ability to prove larger reserve estimates.

Alternative reservoirs between 1000 and 7000 feet will be evaluated for optimal exploitation. The company feels that there are tremendous opportunities in the 10 known zones within this range.

Proven Reserves

At year-end 2007, the independent petroleum consulting firm of Forrest Garb and Associates reviewed our proven reserves. These engineers were selected for their geographic expertise and their history in engineering enhanced oil recovery prospects similar to our Corsicana properties. At March 31, 2007, FG&A consultants reviewed 100% of our proved 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):

Reserves('000)                      Barnett          Corsicana      Total
                                    Shale            Field
                                    ------------     ------------  --------
Proved Developed (MBOE)             437              106           543
Proved Undeveloped (MBOE)           417              11,302        11,719
                                    ============     ============  ========
Total Proven Reserves at March 31,
 2007                               854              11,408        12,262

Estimated Future Net Revenues
 (000s)                             18,373           453,307       471,680
                                    ------------     ------------  --------

Present Value of Future Net
 Revenues (000s)                    10,105           170,863       180,968
                                    ------------     ------------  --------
(discounted at 10%)
Benchmark Pricing
        Natural Gas per mcf         $7.1
        Crude Oil per barrel        $63.74           $60.61

Future net revenues represent projected revenues from the sale of proved reserves net of production and development costs (including operating expenses and production taxes). Such calculations, prepared in accordance with Statement of Financial Accounting Standards No. 69, "Disclosures about Oil and Gas Producing Activities," are based on costs and prices in effect at March 31, 2007. There can be no assurance that the proved reserves will be produced within the periods indicated and prices and costs will not remain constant. There are numerous uncertainties inherent in estimating reserves and related information and different reservoir engineers often arrive at different estimates for the same properties. No estimates of our reserves have been filed with or included in reports to another federal authority or agency since year-end.

2008 Company Outlook

With the majority of the necessary funds coming from third-parties, we expect to drill a minimum of 20 wells in our Barnett Shale acreage before the end of our fiscal year while retaining an average of 25% in each of the wells. In addition, we plan to initiate a re-completion program on some of our older wells utilizing an adjusted "mighty acid" fracture stimulation. The initial data and production results indicate that the change in methodology has been effective. Management will continue to analyze the results and adjust our methods with an eye to improving the long-term decline curves.

Over the past year ReoStar's Corsicana properties were studied and a pilot injection area was chosen. Thirteen new wells were drilled, 6 of which are injectors and 7 of which are producers. The wells were drilled in a pattern where each injector has approximately four producers surrounding it.

The Company has begun injection in its Polymer pilot project and expects to see some results over the next 60 days. The polymer mixing plant has been designed and built and has begun the injection process into the pilot injection wells. Numerous source water lines, injection and production lines have been installed. The plans have been supported by various engineering production labs which conducted previous testing in the area. We anticipate increased production over the remainder of this year and the formation of many additional injection projects in the ensuing years.

ReoStar has begun acquiring deeper rights in the area and plan to initiate a seismic program later this calendar year in order to drill deep tests. The Corsicana area is in an oil and gas province with many potential deeper reservoirs. Management feels there is a tremendous resource potential in the deeper zones below its current leasehold.

The Company expects to spend $30 million to $35 million in total capital expenditures in 2008, net of minor non-core dispositions and excluding any property acquisitions for its ongoing drilling program. Approximately 80% of the budget has been committed by the Company investors as part of ReoStar's ongoing drilling partnerships and have been received into escrow.

"We are confident our strategies of (1) continuing to acquire and develop leasehold in key regional resource development plays to utilize our infrastructure and engage in a long-term drilling program such as our Barnett field operations, and (2) continuing to acquire leasehold in areas of proven reserves to utilize enhanced oil recovery methods will continue to deliver positive results, such as our Corsicana operations," continued Mr. Zouvas.

"In order to meet our objectives, we mitigate production risk and control costs by selling portions of our working interests in the wells we drill. Although we reduce our upside potential when compared to retaining higher levels of ownerships in the wells we drill, we reduce our exposure and increase our opportunities through more diversified programs. Our strategy to focus on costs requires us to acquire vertically integrated resources by assimilating mineral interests with drilling rigs and other high cost oilfield service equipment into a seamless, efficient, and low-cost operation," further commented Mr. Zouvas.

About ReoStar Energy Corporation

ReoStar Energy Corporation, headquartered in Fort Worth, Texas, is a publicly traded (OTCBB: REOS) 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 assets include over 20,000 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.

Contact Information

  • Contacts:
    ReoStar Energy Corporation
    Mark Zouvas
    CEO
    817.989.7367

    For investor
    Mark McPartland
    910.221.1827