Rock Energy Inc.
TSX : RE

Rock Energy Inc.

August 12, 2009 18:08 ET

Rock Energy Inc. Announces Its Financial and Operational Results for the Period Ended June 30, 2009

CALGARY, ALBERTA--(Marketwire - Aug. 12, 2009) - Rock Energy Inc. ("Rock") (TSX:RE) announces its financial and operational results for the period ended June 30, 2009. Rock has filed its unaudited interim Consolidated Financial Statements for the period ended June 30, 2009 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 six months ended June 30, 2009, the three months ended June 30, 2009 and the 2008 comparatives are set out below and should be read in conjunction with Rock's unaudited interim Consolidated Financial Statements and MD&A.



CORPORATE SUMMARY

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FINANCIAL Three Three Six Six
months months months months
ended ended ended ended
June 30, June 30, June 30, June 30,
2009 2008 2009 2008
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Oil and gas revenue ('000) $ 11,621 $ 24,774 $ 23,304 $ 40,098

Funds from operations ('000)(1) $ 5,195 $ 13,785 $ 9,091 $ 21,325
Per share - basic $ 0.20 $ 0.53 $ 0.35 $ 0.82
- diluted $ 0.20 $ 0.53 $ 0.35 $ 0.82

Net income (loss) ('000) $ (1,745) $ 4,020 $ (4,006) $ 5,240
Per share - basic $ (0.07) $ 0.16 $ (0.15) $ 0.20
- diluted $ (0.07) $ 0.15 $ (0.15) $ 0.20

Capital expenditures ('000) $ 2,095 $ 7,439 $ 5,469 $ 23,837


As at As at
June 30, June 30,
2009 2008
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Working capital deficiency
including bank debt ('000) $ 34,777 $ 30,528

Common shares outstanding 26,207,243 25,877,642
Options outstanding 1,419,149 2,303,227



OPERATIONS Three Three Six Six
months months months months
ended ended ended ended
June 30, June 30, June 30, June 30,
2009 2008 2009 2008
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Average daily production
Crude oil and natural gas liquids
(bbls/d) 1,698 1,671 1,800 1,600
Natural gas (mcf/d) 9,785 10,689 10,631 9,151
Barrels of oil equivalent (boe/d) 3,329 3,454 3,573 3,126

Average product prices
Crude oil and natural gas liquids
($/bbl) $ 54.53 $ 94.05 $ 44.51 $ 81.99
Natural gas ($/mcf) $ 3.59 $ 10.74 $ 4.57 $ 9.70
Barrels of oil equivalent ($/boe) $ 38.37 $ 78.80 $ 36.04 $ 70.47

Field netback ($/boe) $ 20.81 $ 48.03 $ 17.22 $ 42.01
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Note (1) Funds from operations and funds from operations per share are non
GAAP terms that represent cash generated from operating activities
before changes in non-cash working capital. We consider it a key
measure as it demonstrates our ability to generate the cash
necessary to fund future growth through capital investment. Funds
from operations may not be comparable with the calculation of
similar measures for other companies. Funds from operations per
share is calculated using the same share basis which is used in
the determination of net income (loss) per share.


During the second quarter of 2009 Rock generated solid operating and financial results primarily from its heavy oil operations. The quarter was highlighted by the following results:

- Daily production averaged 3,329 boe per day (40% heavy oil, 11% light oil and natural gas liquids, and 49% gas);

- Generated a heavy oil field netback price of $33.99/bbl;

- Increased funds from operations for the quarter to $5.2 million ($0.20/share) representing on a per share basis an increase of 33% from the first quarter of 2009; and

- Drilled 4 (4.0 net) heavy oil wells with 100% success.



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2009 Drilling 1st Quarter 2nd Quarter 2nd Half 2009 Total
(Actual) (Actual) (Forecast)
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Heavy oil - 4 (4.0 net) 16 (16.0 net) 20 (20.0 net)
Natural gas 2 (1.3 net) - 1 (1.0 net) 3 (2.3 net)
Dry and abandoned - - - -
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Total wells 2 (1.3 net) 4 (4.0 net) 17 (17.0 net) 23 (22.3 net)
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Rock's daily production for the second quarter of 2009 averaged 3,329 boe per day (51% oil), and is currently estimated to be 3,300-3,400 boe per day. The company has concluded the drilling of an additional four heavy oil wells in the Plains region in July with 100% success and production from these new wells plus the four drilled in the second quarter is expected to add 300-350 boe per day in the third quarter.

Financially, Rock generated funds from operations of $5.2 million ($0.20 per basic and diluted share) in the second quarter of 2009, which is up 33% from the previous quarter. Rock's realized price in the second quarter of 2009 was $38.37 per boe compared to $33.97 per boe in the first quarter of this year generating a funds flow per boe of $17.15 (compared to $11.34 per boe in the previous quarter). The main reason for the increase in price realizations can be attributed to the increase in oil prices combined with the significant decrease in heavy oil differentials. These positive price movements more than offset the decline in gas prices. Currently Rock has not hedged commodity prices on any production. Net capital expenditures for the second quarter were $2.1 million and total debt at the end of the period was $34.8 million (against total bank credit lines of $47 million). Total expenditures were down from the previous quarter as activities were impacted by spring break-up and a conscious decision to maintain strict control on capital spending.

Rock's heavy oil operations continue to generate outstanding operational and financial results. During the second quarter of 2009 our heavy oil received an average field price of $56.56/bbl. Netting off actual operating costs of $13.62/bbl, and royalties of $8.95/bbl generates a field netback price of $33.99/bbl. Rock's historical three year finding cost for heavy oil has been $12.26/bbl generating a recycle ratio of 2.8. On a go forward basis we have been able to reduce our total drilling costs to $500 thousand per well and in Alberta these wells qualify for a royalty drilling incentive of $140 thousand making the net cost to Rock $360 thousand per well. With these cost reductions the go forward finding and development costs have been reduced to approximately $5.00-7.00/bbl generating a recycle ratio of over 6.0. With this type of opportunity, management has recommended, and the Board of Directors has approved an increase in the capital program to $19 million. The extra capital will be used to drill an additional 12 (12.0 net) heavy oil wells in the Plains core area. The drilling projects associated with the increased capital budget will be completed in the second half of 2009, and consequently will only generate a small increase to the average production for 2009. With the success we have had so far this year and the additional spending approved by the Board of Directors, we have updated our guidance and revised our forecast of prices for the remaining half of the year with WTI oil at US$67.50 per bbl, AECO gas at $3.75 per mcf, and US/Canadian dollar exchange rate equal to 0.92. We are forecasting production to average 3,300-3,500 boe per day for the year and exit the year at 3,400-3,600 boe per day, generating funds from operations of approximately $19 million ($0.75 per basic share) and year-end debt of approximately $38 million or 1.7 times fourth quarter 2009 annualized funds from operations.

Rock is a company with a diversified production base balanced between oil and gas that is able to prosper through the cycles in commodity prices. The Company is in a strong financial position with a foundation of funds flow and excess debt capacity. The success of our drilling programs continues to build momentum as we experience success adding production and follow-up drilling locations. Our team of professionals has developed a drilling inventory of over 110 locations on our existing lands (60 oil and 50 gas) which will carry our growth program through 2009, 2010 and into 2011. Today we are taking advantage of the price and cost structures to harvest some of our heavy oil drilling locations, but we are also working hard to test some exciting gas resource exploitation play concepts in our Elmworth and Saxon natural gas areas. Rock continues to pursue complimentary acquisitions and mergers to take advantage of the current market conditions and to potentially add another significant core area of operations to our strong portfolio of opportunities.

Advisory

This press release contains forward-looking statements that involve known and unknown risks, uncertainties, assumptions and other factors, some of which are beyond Rock's control that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. Rock believes that the expectations reflected in those forward-looking statements are reasonable at the time made but no assurance can be given that these expectations will prove to be correct and such forward-looking statements included in, or incorporated by reference into, this press release should not be unduly relied upon. These statements speak only as of the date of such information, as the case may be, and may be superseded by subsequent events. Rock does not intend, and does not assume any obligation, to update these forward-looking statements, except as required by applicable law. This press release contains references to barrels of oil equivalent (boe), boes maybe misleading, particularly if used in isolation. A boe conversion of 6 mcf to 1 barrel of oil is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

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

Contact Information

  • Rock Energy Inc.
    Allen J. Bey
    President & CEO
    (403) 218-4380
    or
    Rock Energy Inc.
    John H. Van de Pol
    Vice President, Finance & CFO
    (403) 218-4380
    Website: www.rockenergy.ca