Rock Energy Inc.
TSX : RE

Rock Energy Inc.

November 10, 2010 08:30 ET

Rock Energy Announces Its Financial and Operational Results for the Period Ended September 30, 2010

CALGARY, ALBERTA--(Marketwire - Nov. 10, 2010) - Rock Energy Inc. ("Rock") (TSX:RE) announces its financial and operational results for the period ended September 30, 2010 and related Management's Discussion and Analysis ("MD&A"). Copies of Rock's materials may be obtained on www.sedar.com and on its website at www.rockenergy.ca.

Certain selected financial and operations information for the three and nine months ended September 30, 2010 and the 2009 comparatives are set out below and should be read in conjunction with Rock's unaudited interim Consolidated Financial Statements and MD&A.



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FINANCIAL Three months Three months Nine months Nine months
ended ended ended ended
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2010 2009 2010 2009
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Oil and gas
revenue ('000) $ 15,497 $ 12,124 $ 47,622 $ 35,428

Funds from operations
('000) (1) $ 6,506 $ 4,403 $ 19,752 $ 13,494
Per share - basic $ 0.21 $ 0.17 $ 0.64 $ 0.52
- diluted $ 0.21 $ 0.16 $ 0.62 $ 0.52

Cash provided by operating
activities ('000) $ 11,403 $ 2,505 $ 23,173 $ 8,459

Net loss ('000) $ (779) $ (1,712) $ (1,327) $ (5,718)
Per share - basic $ (0.03) $ (0.07) $ (0.04) $ (0.22)
- diluted $ (0.03) $ (0.07) $ (0.04) $ (0.22)

Capital expenditures,
net ('000) $ 9,320 $ 4,599 $ 30,173 $ 10,068


As at As at
Sept. 30, Sept. 30,
2010 2009
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Bank debt, net of
working capital ('000) $ 35,935 $ 35,035
Common shares
outstanding 30,837,079 26,207,243
Options outstanding 2,089,828 1,626,682


OPERATIONS Three months Three months Nine months Nine months
ended ended ended ended
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2010 2009 2010 2009
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Average daily production
Crude oil and natural
gas liquids (bbls/d) 2,453 1,763 2,385 1,788
Natural gas (mcf/d) 7,715 8,775 7,663 10,005
Barrels of oil
equivalent (boe/d) 3,739 3,225 3,662 3,455

Average product prices
Crude oil and natural
gas liquids ($/bbl) $ 56.74 $ 59.20 $ 59.21 $ 49.38
Natural gas ($/mcf) $ 3.79 $ 3.12 $ 4.33 $ 4.15
Barrels of oil
equivalent ($/boe) $ 45.05 $ 40.84 $ 47.63 $ 37.55

Field netback ($/boe) $ 22.55 $ 18.38 $ 24.07 $ 17.59
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Note (1) Funds from operations, funds from operations per share and field
netback are not terms under generally accepted accounting principles (GAAP).
Funds from operations represents cash generated from operating activities
before changes in non-cash working capital and asset retirement
expenditures. Rock considers funds from operations a key measure as it
demonstrates the Company's ability to generate the cash necessary to fund
future growth through capital investment. Funds from operations per share
is calculated using the same share basis which is used in the determination
of net income (loss) per share. Field netback is calculated as crude oil
and natural gas revenues after deducting royalties, operating costs and
transportation costs, resulting in an approximation of initial cash margin
in the field on crude oil and natural gas production. Rock's use of these
non GAAP measurements may not be comparable with the calculation of similar
measures for other companies.


During the third quarter of 2010 Rock continued to generate growth in its operating and financial results. The quarter was highlighted by the following achievements:

- Daily production increased for the fourth quarter in a row and averaged 3,739 boe per day;

- Increased funds from operations for the third quarter of 2010 to $6.5 million ($0.21/share) compared to $4.4 ($0.17/share) in the third quarter of 2009;

- Drilled and cased 8 (8.0 net) successful heavy oil wells.


Rock's daily production for the third quarter of 2010 averaged 3,739 boe per day (66% crude oil and natural gas liquids) despite adverse weather conditions which impacted the Company's operations. With improved weather conditions and a return to normal operations, current production is estimated to be approximately 4,000 boe per day. Rock has maintained its production guidance throughout 2010 and anticipates daily production to reach 4,400 - 4,600 boe per day by year end with a product mix that is expected to be approximately 71% crude oil and natural gas liquids.

Operations Update

Year to date, Rock has drilled 27 (27.0 net) heavy oil wells, 5 (2.3 net) natural gas wells and one (1.0 net) dry hole. The Company is completing its planned capital program for 2010 including the drilling of three natural gas wells in West Central Alberta and an additional four heavy oil wells in the Plains region.

Elmworth, West Central Alberta

The Company is proceeding with the drilling of its first operated 50% working interest Montney horizontal natural gas well at Elmworth in the fourth quarter of 2010. The well is planned to be completed in the first quarter of 2011 using multistage fracturing techniques and is expected to be brought on stream later in 2011.

During the fourth quarter of 2010 Rock has initiated the deepening of a well on our northern Elmworth land block to confirm the existence of the Montney formation on this portion of our lands. Rock is currently completing and testing this well and expects results by year end. In addition, Rock is planning to drill another vertical test well in the fourth quarter of 2010 to begin the evaluation of our southern Elmworth land block. This well is the first of five vertical test wells planned in 2010 and 2011 that will prove up the resource potential of Rock's significant land position in this area.

Rock expects the combination of horizontal producing wells and vertical test wells to further confirm the productive capability of deeper Montney natural gas reserves on our Elmworth natural gas resource play following on the success of our 100% working interest vertical Montney test well drilled earlier this year and the positive results of offsetting operators near our lands.

Heavy Oil, Plains Region

During 2010 Rock plans to drill a total of 31 (31.0 net) heavy oil wells and to exit the year producing 2,800 - 3,000 barrels per day of heavy oil. The company has been successful in adding more lands to our inventory and now has 150 heavy oil drilling locations. Rock has been proceeding with its heavy oil recompletion/re-activation program and preliminary results with radial drilling are encouraging. Rock will continue utilizing this technique and expects to have more measureable results on this initiative in 2011.

Financial Update

Rock generated funds from operations of $6.5 million ($0.21 per basic share) in the third quarter of 2010. Rock's realized price in the third quarter of 2010 was $45.05 per boe compared to $40.84 per boe in the third quarter of 2009. The increase in price realizations can be attributed to the increase in crude oil prices despite a widening in heavy oil differentials due to several pipeline outages during the quarter. These positive crude oil price movements more than offset the decline in natural gas prices. Rock generated funds from operations per boe of $18.91 compared to $14.84 per boe in the third quarter of 2009. An increase in the Company's operating costs occurred during the third quarter of 2010 as heavy oil production increased. Although operating costs have increased, the Company realized a field netback of $22.55 per boe, an increase of 23% compared to $18.38 per boe realized in the same period of 2009. Net capital expenditures for the third quarter of 2010 were $9.3 million and total net debt at the end of the third quarter of 2010 was $35.9 million against total available bank credit lines of $50 million.

On October 28, 2010, the Company announced a bought deal financing of 1,855,000 common shares to be issued on a flow-through basis at a price of $5.40 per flow-through common share for gross proceeds of $10.0 million (net proceeds $9.3 million). The financing is expected to close on November 16, 2010. The proceeds from the equity issue will be used to fund eligible Canadian Exploration Expenses incurred pursuant to the Company's ongoing exploration activities.

Outlook

Rock's Board of Directors have approved a capital program of $42 million for 2010 which is planned to be funded from expected cash flow of $27 million with the remainder financed from debt. The 2010 capital program, which includes drilling 31 heavy oil wells, will provide significant growth in our daily production and will further exploit our vertical crude oil and natural gas drilling opportunities.

Rock has developed a large inventory of over 250 vertical drilling opportunities including approximately 150 heavy oil drilling locations. In addition, with respect to our natural gas resource play at Elmworth, Rock has built an extensive inventory of natural gas opportunities and plans to drill, complete, test and tie-in one horizontal well and drill up to 6 vertical wells by the end of 2011 to confirm the extent of the play on our lands. This program is expected to add significant natural gas resources to Rock's portfolio that can be brought on production in 2011 and beyond.

With the proceeds from our recently announced equity financing, a planned disposition of minor non-core properties and projected cash flows, Rock's Board of Directors have approved a capital budget of $54 million for 2011. This capital program is expected to provide significant growth in our daily average production and will include the drilling of up to 50 wells including 40 heavy oil wells.

Rock is forecasting average production to increase in 2011 by approximately 20% to average 4,400 - 4,600 boe per day and to exit the year at over 5,000 boe per day. Assuming that crude oil prices average US $82.00 WTI per barrel and natural gas at AECO averages $4.00 CDN/mcf with an exchange rate of $0.97 CDN$/US$ the Company would generate funds flow of $38 million (or $1.16/share) and have year-end 2011 net debt of approximately $48 million.

To date in 2010, Rock has successfully focused on increasing our crude oil production and proving up our natural gas reserves. The Company is in a strong financial position with a foundation of cash flow and excess debt capacity to execute on our 2011 capital program. For 2011, Rock is very well positioned to proceed with an exciting year of activity and to build on an already strong portfolio of opportunities.

Contact Information

  • Rock Energy Inc.
    Allen J. Bey
    Chief Executive Officer
    (403) 218-4380
    or
    Rock Energy Inc.
    John H. Van de Pol
    President & CFO
    (403) 218-4380
    www.rockenergy.ca