Rock Energy Inc.

Rock Energy Inc.

February 09, 2012 21:24 ET

Rock Energy Announces Sale of Natural Gas Assets, Operating Results for 2011 and an Approved Capital Budget for 2012

CALGARY, ALBERTA--(Marketwire - Feb. 9, 2012) - Rock Energy Inc. (TSX:RE) ("Rock") is pleased to announce that today it has entered into a purchase and sale agreement and closed the sale of some of its Montney natural gas assets at Elmworth to a Canadian oil and gas producer for gross proceeds of $36 million. FirstEnergy Capital Corp. acted as exclusive financial advisor to Rock for this transaction.

The assets are located in the deep basin region of west central Alberta. Production from these natural gas assets averaged 190 boe per day during the fourth quarter of 2011 with proved reserves of 4.2 million boe and proved and probable reserves of 9.7 million boe (based on the GLJ reserves report dated August 31, 2011).

Adjusted for the sale of the Elmworth assets, current production is estimated to be 2,500 boe per day (75% crude oil and natural gas liquids). Rock has used the proceeds to eliminate the bank indebtedness, and the company has an additional $45 million of undrawn bank lines.

Rock is also pleased to announce operating results for 2011:

  • Daily production for the year averaged 3,132 boe per day (73% crude oil and natural gas liquids); fourth quarter 2011 production averaged 3,036 boe per day, an increase of 6% above the third quarter 2011 average production of 2,862 boe per day;
  • Rock's net undeveloped heavy oil lands increased to 62,270 acres as at December 31, 2011 and to more than 68,000 acres as at February 9, 2012 including over 10,000 acres on its newly discovered oil exploration project in southwest Saskatchewan; and
  • Drilled a total of 27 (26.5 net) wells in 2011 with a success rate of 85%.

Current Activity Update

Up to 9 (9.0 net) heavy oil wells are expected to be drilled in the first quarter of 2012 as part of a planned 21 heavy oil well program for 2012. In addition to the drilling activity, Rock has successfully added more than 5,800 acres of undeveloped land in the first quarter of 2012 in a newly discovered oil property in southwest Saskatchewan and expects to complete and evaluate a 3D seismic program on those lands during the second quarter of 2012.

During the first quarter Rock has established the following Western Canada Select ("WCS") crude oil hedges:

  • 650 barrels per day from January 1, 2012 to June 30, 2012 at a WCS price of CDN $84.25 per barrel.
  • 600 barrels per day from July 1, 2012 to September 30, 2012 at a WCS price of CDN $86.10 per barrel.
  • 550 barrels per day from October 1, 2012 to December 31, 2012 at a WCS price of CDN $85.18 per barrel.

Approved Capital Program for 2012

In light of the current forecast for natural gas prices, the management and board of directors of Rock have decided to pursue oil initiatives in the Plains region of western Canada. More specifically, Rock will focus on oil plays that provide repeatable, scalable projects that are within Rock's control and financial capability. Rock also plans to pursue projects that it can apply new technology to increase recovery factors from known reservoirs. The sale of the Elmworth assets is the first step toward this direction as it removes the ongoing capital requirement to maintain our assets in that area, and provides Rock with cash to pursue oil projects in the Plains core area.

Rock's board of directors has approved a capital budget of $30 million for 2012 that is focused entirely on oil assets in the Plains core area. Capital spending will be focused on projects including a 15 well drilling program at Rock's new oil discovery in southwest Saskatchewan, the waterflood project at Onward and operating cost reduction initiatives in the Lloydminster area to improve water handling costs. The capital program is expected to provide significant growth in Rock's oil production and, reserve base while improving the operating cost structure.

Rock is forecasting 2012 production to average between 2,500 and 2,600 boe per day (assuming further non-core asset sales of 120 boe per day during the year) generating estimated cash flow of approximately $23 million ($0.60 per share) based on a Western Canada Select ("WCS") price estimate of CDN $81.00 per barrel.

With cash on its balance sheet, available bank debt and its inventory of crude oil drilling locations, Rock is well positioned to execute its business plan, grow oil production through the drill bit and pursue strategic acquisitions/mergers to complement its existing asset base.

Advisory Regarding Forward-Looking Information and Statements

This press release contains forward-looking statements and forward-looking information within the meaning of applicable securities laws. The use of any of the words "will", "expects", "believe", "plans", "potential" and similar expressions are intended to identify forward-looking statements or information. More particularly and without limitation, this press release contains forward looking statements and information concerning: further non-core asset sales of 120 boe per day during 2012; 2012 average production and 2012 cash flow; Rock's drilling plans; Rock's plans to initiate a waterflood project at Onward; Rock's plans to complete a 3D seismic program on its newly discovered heavy oil property; and the approved capital budget for 2012.

The forward-looking statements and information in this press release are based on certain key expectations and assumptions made by Rock, including prevailing commodity prices and exchange rates; applicable royalty rates and tax laws; future well production rates; reserve and resource volumes; the performance of existing wells; the success obtained in drilling new wells; the sufficiency of budgeted capital expenditures in carrying out planned activities; the availability and cost of labour and services; and the receipt, in a timely manner, of regulatory and other required approvals. Although Rock believes that the expectations and assumptions on which such forward-looking statements and information are based are reasonable, undue reliance should not be placed on the forward-looking statements and information because Rock can give no assurance that they will prove to be correct. There is no certainty that Rock will achieve commercially viable production from its undeveloped lands and prospects.

Since forward-looking statements and information address future events and conditions, by their very nature they involve inherent risks and uncertainties. Actual results could differ materially from those currently anticipated due to a number of factors and risks. These include, but are not limited to the risks associated with the oil and gas industry in general such as: operational risks in development, exploration and production; delays or changes in plans with respect to exploration or development projects or capital expenditures; the uncertainty of reserve estimates; the uncertainty of estimates and projections relating to reserves, production, costs and expenses; health, safety and environmental risks; commodity price and exchange rate fluctuations; marketing and transportation of petroleum and natural gas and loss of markets; environmental risks; competition; incorrect assessment of the value of acquisitions; failure to realize the anticipated benefits of acquisitions; ability to access sufficient capital from internal and external sources; stock market volatility; and changes in legislation, including but not limited to tax laws, royalty rates and environmental regulations.

Readers are cautioned that the foregoing list of factors is not exhaustive. Additional information on these and other factors that could affect the operations or financial results of Rock are included in reports on file with applicable securities regulatory authorities and may be accessed through the SEDAR website (

The forward-looking statements and information contained in this press release are made as of the date hereof and Rock undertakes no obligation to update publicly or revise any forward-looking statements or information, whether as a result of new information, future events or otherwise, unless so required by applicable securities laws.

We have adopted the standard of 6 mcf:1 barrel of oil equivalent ("boe") when converting natural gas to boes. Boes may be misleading, particularly if used in isolation. A boe conversion ratio of 6 mcf per barrel is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Given that the value ratio based on the current price of crude oil as compared to natural gas is significantly different than the energy equivalency of the 6:1 conversion ratio, utilizing the 6:1 conversion ratio may be misleading as an indication of value.

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Contact Information

  • Rock Energy Inc.
    Allen J. Bey
    (403) 218-4380

    Rock Energy Inc.
    John H. Van de Pol
    President & CFO
    (403) 218-4380