Rock Energy Inc.
TSX : RE

Rock Energy Inc.

April 29, 2011 08:05 ET

Rock Energy Inc. Announces $30 Million Bought Deal Financing, Increased Bank Facility, Expanded Capital Program and Operational Activity Update

CALGARY, ALBERTA--(Marketwire - April 29, 2011) -

NOT FOR DISTRIBUTION TO UNITED STATES NEWSWIRE SERVICES OR DISSEMINATION IN THE UNITED STATES

Rock Energy Inc. ("Rock" or the "Company") (TSX:RE) is pleased to announce a $30 million bought deal financing and an increased bank facility to support an expanded capital program and is pleased to provide an operational activity update.

BOUGHT DEAL FINANCING

Rock has entered into an agreement with a syndicate of underwriters co-led by Cormark Securities Inc. and Wellington West Capital Markets and including FirstEnergy Capital Corp., Mackie Research Capital Corporation, AltaCorp Capital Inc., Dundee Securities Ltd., National Bank Financial Inc. and Scotia Capital Inc. (collectively, the "Underwriters") pursuant to which the Underwriters have agreed to purchase, on a "bought deal" basis, 4,000,000 common shares at an issue price of $5.00 per Common Share and to offer to sell as agents and if not sold to purchase as principals, on a "bought deal" basis, 1,640,000 common shares to be issued on a "flow-through" basis ("Flow-Through Common Shares") at an issue price of $6.10 per Flow-Through Common Share for aggregate gross proceeds to Rock of $30,004,000 (the "Offering").

The Company has also granted the Underwriters an option, exercisable in whole or in part, for a period commencing on the closing of the Offering and ending 30 days after the closing date, to purchase up to an additional 600,000 Common Shares at an issue price of $5.00 per Common Share for additional gross proceeds of up to $3,000,000.

The net proceeds of the Offering will be used to fund an expanded capital expenditure program, including an increase in the Company's 2011 capital budget, and for general corporate purposes. The expanded capital program includes capital being allocated towards accelerating the Company's Montney resource project at Elmworth in West Central Alberta. The Company plans to drill a 100% working interest horizontal well in North Elmworth, a 100% working interest horizontal well in South Elmworth, three 100% vertical stratigraphic test wells in South Elmworth and incur initial expenditures for related pipeline and processing facilities.

The Common Shares and Flow-Through Common Shares will be offered in all provinces of Canada, excluding Quebec, by way of a short form prospectus, and the Common Shares may be sold in the United States on a private placement basis pursuant to exemptions from registration requirements. Closing of the Offering is expected to occur on or about May 19, 2011 and is subject to certain conditions including, but not limited to, the receipt of all necessary approvals including the approval of the Toronto Stock Exchange.

Proceeds from the issuance of Flow-Through Common Shares will be used to incur eligible Canadian Exploration Expenditures ("CEE") for purposes of the Income Tax Act (Canada) and such CEE will be renounced to subscribers of the Flow-Through Common Shares on or before December 31, 2011.

INCREASED BANK FACILITY AND EXPANDED 2011 CAPITAL BUDGET

Rock is pleased to announce that its bank facility has been expanded to $65 million from $50 million.

In conjunction with the Offering and the increased bank facility, Rock's Board of Directors has approved an expanded capital budget for 2011 to $77 million from $52 million. The additional capital will focus on further delineation and horizontal development of our Elmworth resource play and to bring these resources on production in 2012. Rock is maintaining its previously announced forecast production guidance to average between 4,000 and 4,400 boe per day in 2011 as expected production additions from the expanded capital program are forecast to come onstream in the first quarter of 2012.

OPERATIONAL ACTIVITY UPDATE

Rock is pleased to provide an update on operational activity from the first quarter of 2011 highlighted by the following:

  • Drilled 2 (1.5 net) previously announced, successful natural gas wells including a Montney horizontal natural gas well at Elmworth and a 100% working-interest well at Saxon both of which will be on production by the middle of 2011;
  • A previously announced successful test result from a 100% working interest Montney vertical natural gas well on our South Elmworth lands;
  • Eleven (11.0 net) heavy oil wells drilled in the first quarter with a 91% success rate;
  • An increase in the Company's net undeveloped land position by 6% to 97,217 acres during the first quarter;
  • An increased inventory of heavy oil drilling locations in the Plains area to 190 locations;
  • Closing the previously announced acquisition of 250 barrels per day of 99% working interest heavy oil assets in the Plains core area, including 1.0 million barrels of reserves on a proved and probable basis and several drilling locations;
  • Closing the previously announced disposition of approximately 250 boed of low working interest non-operated natural gas production in the Cutbank area;
  • Production for the first quarter of 2011 averaged 3,487 boe per day (75% crude oil and natural gas liquids and 25% natural gas) which was impacted by a shutdown of the SemCAMS K3 plant which shut-in approximately 600 boe per day of the Company's production in March 2011;
  • With the resumption of normal operations at the K3 plant, production is currently estimated to be approximately 3,700 boe per day with an additional 300 boe per day of heavy oil production to come back onstream as weather permits field access;
  • The Company spent approximately $20 million (including acquisitions and net of dispositions) on first quarter initiatives and estimates that net debt at March 31, 2011 was approximately $47 million; and
  • Management estimates that its net asset value increased to more than $7.25 per share at March 31, 2011 from its estimated December 31, 2010 net asset value of $6.12 per share.

For further information please visit our website at www.rockenergy.ca.

The securities offered have not been and will not be registered under the U.S. Securities Act of 1933, as amended, and may not be offered or sold in the United States absent registration or applicable exemption from the registration requirements. This press release shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the securities in any jurisdiction in which such offer, solicitation or sale would be unlawful.

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: 2011 average production; the Company's drilling plans; production rates; anticipated tie-in and production date of Rock's Elmworth horizontal Montney wells and Rock's Elmworth vertical test wells; Rock's inventory of drilling locations and management's estimate of net asset value per share.

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 (www.sedar.com).

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.