SOURCE: ReoStar Energy Corporation

August 16, 2007 07:00 ET

ReoStar Energy Corp. First Quarter 2008 Financial Results and Operations Update

FORT WORTH, TX--(Marketwire - August 16, 2007) - ReoStar Energy Corp. (OTCBB: REOS) today announced financial results for the first quarter fiscal year 2008, which ended June 30, 2007.

Operational and Financial Highlights for 1Q 2007

--  Completed the sale of REOS interest in Tri-County Gas Gathering System
    to Cimmarron Gathering LLP, an in direct wholly-owned subsidiary of Copano
    Energy, LLC for approximately $14.1 million net of closing costs.
--  Increased production for the quarter to 18,286 barrels of equivalent
    (BOE) compared to 16,603 for the previous quarter.
--  Acquired a work-over rig and a swab rig to further production
    increases, which will significantly lower completion and operating costs by
    not having to procure equipment on an hourly basis from third-party vendors
--  Shareholders equity improved to $8.9 million from $791 thousand for
    the previous quarter.

First Quarter Results Summary

The Company's fiscal year 2007 ended March 31, 2007 and reflects activity only for the three months ending March 31, 2007, due to the accounting treatment of the partnership interests merged into the newly formed public Company.

Revenues from oil and gas production for the first quarter 2008, which ended June 30, 2007, were $813,924 compared to $688,497 in the prior quarter ending March 31, 2007. Production for the first quarter 2008 was 18,286 barrels of oil equivalent ("BOE") a 10% increase when compared with 16,603 BOE for the previous quarter. The average price for natural gas sold during the quarter was $5.95 per MCF. The average price per barrel of oil was $62.00.

Total Operating Expenses for the first quarter 2008 were approximately $1.2 million compared to $780,832 for the quarter ended March 31, 2007. The increase in total operating expenses was the result of an increase in additional lease expenditures and general and administrative expenses primarily due to the costs related to the reverse merger and hiring of additional personnel.

Net income for the first quarter 2008 was $1.27 million compared to a loss of $1.1 million for the quarter ended March 31, 2007. During the first quarter the Company had income from discontinued operations of $2.3 million in part as a result the gain on the sale of its interest in the pipeline. During the first quarter, the Company sold its entire interest in the Tri-County Gas Gathering System for $14.1 million net of closing adjustments. The sale resulted in an after tax gain (net of minority interest) of approximately $1.5 million.

During quarter ended June 30, 2007, the Company spent $5.7 million on capital expenditures. REOS also raised approximately $7.1 million from the sale of its pipeline (net of minority interest). Financing activities included raising $6.8 million through the sale of common stock via a private placement offering and paying down notes of $1.95 million. The private placement offering closed on April 30, 2007. In total, the Company raised approximately $11.5 million in gross proceeds from the private placement.

On June 30, 2007, REOS had $6.8 million in cash and total assets of $19.8 million. Debt consisted of payables to non-related parties of $2.8 million of which $1.6 million is long-term. REOS also had accounts and notes payables to related parties of $6 million. Shareholders equity for the period ending June 30, 2007 was approximately $8.9 million compared to $791,855 for the period ending March 31, 2007.

Operations Near-Term Plans

Barnett Shale:

The Company will bring three of the wells that were in process on June 30 online during the second quarter. REOS intends to begin a close proximity "cluster" re-completion and infill drilling program in its Barnett Shale properties. During the second quarter, the Company expects to drill 4 new wells and re-complete 4 older wells. All eight wells will be fractured using high pressure stimulation within a ten-day period and be brought online simultaneously. This method is expected to produce a modest improvement of near term production of the wells brought online, while mitigating the production decline curve.


The Company commenced injecting a polymer-surfactant solution into the pilot area in mid-June. During the second quarter the company will closely monitor the injection process and expects to see results during the fourth quarter of this fiscal year. REOS will also begin to finalize plans for the expansion of pilot project to other areas of the field owned by the company.

Operations Long-Term Plans

Barnett Shale:

The Company expects to continue the cluster drilling and re-completion program through the end of fiscal year 2008. REOS will drill approximately 10 new wells and will re-complete 5-10 older wells during the third and fourth quarter of the fiscal year. Funding for the program will be provided by cash flow from operations and working interest partners.

REOS management will continue to monitor the results of the new drilling and completion techniques. If the results warrant further expansion, the company may acquire additional acreage near its existing production.


The Company expects to initiate phase two of the pilot project during the third and fourth quarters of this fiscal year. This phase may require another polymer mixing plant and REOS will be required to drill several new production and injection wells. Funding for this phase will be achieved partially through the Company's resources and may require additional outside capital partners. Management is considering all of its options with regards to funding project expansion, although it expects most of the capital requirements will be derived from the project's cash flow.

Mark Zouvas, CEO of ReoStar, stated, "We continued to make progress and achieve new milestones during the first quarter. We have expanded our operations both with additional personnel and new equipment to fully exploit our portfolio of projects as we implement our strategy. We intend to further leverage our strategy of acquiring for a low cost, an attractive portfolio of oil properties 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 an increase in the overall value of our Company at low risk and cost."

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

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.

                        ReoStar Energy Corporation
                        Consolidated Balance Sheet

                                                    June 30,    March 31,
                                                      2007         2007
ASSETS                                            (unaudited)   (audited)
Current Assets:
  Cash                                            $  6,830,277 $    212,254
  Other Current Assets                                 855,679      935,583
                                                  ------------ ------------
  Total Current Assets                               7,685,956    1,147,837
                                                  ------------ ------------

Note Receivable                                      1,532,767    1,614,218

Property & Equipment (net of depletion and
 depreciation)                                      10,565,859   18,180,178
                                                  ------------ ------------
Total Assets                                      $ 19,784,582 $ 20,942,233
                                                  ============ ============

Current Liabilities:                                 5,480,488   11,929,847

Long-Term Debt                                       1,835,667    1,800,667

Deferred Tax Liability                               2,418,463    1,734,563
                                                  ------------ ------------
  Total Liabilities                                  9,734,618   15,465,077
                                                  ------------ ------------

Minority Interest in Pipeline                          958,584    4,685,301
Commitments and Contingencies:                         144,070            -

Stockholders' Equity                                 8,947,310      791,855
                                                  ------------ ------------
Total Liabilities and Stockholders' Equity        $ 19,784,582 $ 20,942,233
                                                  ============ ============

                      ReoStar Energy Corporation
                (Formerly Goldrange Resources, Inc.)
               Consolidated Statement of Operations

                                        Three Months Ended        Ended
                                     ------------------------  -----------
                                       June 30,    March 31,   December 31,
                                         2007        2007         2006
                                     (unaudited)   (audited)    (audited)
                                     -----------  ------------ -----------
  Oil and Gas Sales                  $   813,924  $    814,400 $ 2,874,291
  Sale of Leases                               -        19,431     400,378
  Other Income                                65        95,388      45,771
                                     -----------  ------------ -----------
    Total Revenue                        813,989       929,219   3,320,440
                                     -----------  ------------ -----------

Costs and Expenses
  Oil & Gas Lease Operating Expenses     333,521       168,346   1,131,502
  Severance and Ad Valorem Taxes          48,936        40,962     163,523
  Delay Rentals                           43,615             -           -
  Depletion & Depreciation               286,131       372,256   1,856,365
  General & Administrative:              450,743       135,947     281,727
  Interest, net of capitalized
   interest of $141,012 and $113,706
   for the periods ended 6/30/2007
   and 3/31/2007, respectively                 -        63,321      13,660
                                     -----------  ------------ -----------
    Total Costs and Expenses           1,162,946       780,832   3,446,777
                                     -----------  ------------ -----------

Income from continuing operations
 before income taxes                    (348,957)      148,387    (126,337)

Income from discontinued
  Pipeline Income                         35,277        69,156     319,093
  Gain on Sale of Pipeline             2,244,349             -           -
                                     -----------  ------------ -----------
  Income from discontinued
   operations                          2,279,626        69,156     319,093
                                     -----------  ------------ -----------

Interest Income                           23,332        55,811           -
Income Tax Provision                    (683,900)   (1,421,148)          -
                                     -----------  ------------ -----------
Net (Loss) Income                    $ 1,270,101  $ (1,147,794)$   192,756
                                     ===========  ============ ===========

Basic and Diluted Loss per Common
 Share                               $      0.02  $      (0.02)
                                     -----------  ------------
Weighted Average Common Shares
 Outstanding                          76,524,026    69,616,786
                                     ===========  ============

Pro-Forma Earnings Per Share
  Net Income                                                   $   192,756
  Proforma Income Tax Expense at
   Statutory Rate (35%)                                            (67,465)
  Proforma Net Income                                          $   125,291

Pro-forma Weighted Average Shares
 Outstanding                                                    68,129,310

Pro-forma Basic and Diluted Earnings
 Per Share                                                     $      0.00

Contact Information

  • Company Contacts:
    ReoStar Energy Corporation
    Mark Zouvas, CEO

    For investors
    Mark McPartland