Rock Energy Inc.
TSX : RE

Rock Energy Inc.

May 08, 2013 19:14 ET

Rock Energy Inc. Announces Q1 2013 Results, and Revises Production Guidance Upward

CALGARY, ALBERTA--(Marketwired - May 8, 2013) - Rock Energy Inc. (TSX:RE) ("Rock" or the "Company") is pleased to report its financial and operating results for the three months ended March 31, 2013. Rock is a Calgary-based crude oil exploration, development and production company.

Rock has filed its unaudited condensed interim Consolidated Financial Statements for the period ended March 31, 2013 and related Management's Discussion and Analysis ("MD&A"). Copies of Rock's materials may be obtained on www.sedar.com and on our website at www.rockenergy.ca.

CORPORATE SUMMARY
Three months ended Three months ended
FINANCIAL March 31, 2013 March 31, 2012
Crude oil and natural gas revenue ('000) $13,228 $12,300
Funds from operations ('000) (1) $3,048 $3,198
Per share - basic $0.08 $0.08
- diluted $0.08 $0.08
Net income ('000) ($3,608 ) ($3,822 )
Per share - basic ($0.09 ) ($0.10 )
- diluted ($0.09 ) ($0.10 )
Capital expenditures ('000) $12,679 $10,208
As at As at
March 31, 2013 March 31, 2012
Working capital (deficiency) including bank debt and excluding commodity price contracts ('000)
($12,695 ) $7,987
Common shares outstanding 39,169,914 39,079,083
Options outstanding 3,113,117 2,261,335
Three months ended Three months ended
OPERATIONS March 31, 2013 March 31, 2012
Average daily production
Crude oil and natural gas liquids (bbls/d) 2,770 1,768
Natural gas (mcf/d) 2,661 3,955
Barrels of oil equivalent (boe/d) 3,214 2,427
Average product prices
Crude oil and natural gas liquids ($/bbl) 49.72 $71.34
Natural gas ($/mcf) 3.47 $2.29
Total ($/boe) 45.73 $55.69
Field netback ($/boe) (1) 13.93 $18.96
(1) Funds from operations, funds from operations per share and field netback are not terms prescribed by International Financial Reporting Standards (IFRS), and so are considered non-GAAP measures. Funds from operations represents cash generated from operating activities before changes in non-cash working capital and decommissioning 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-IFRS measurements may not be comparable with the calculation of similar measures for other companies.

LETTER TO THE SHAREHOLDERS

During the first quarter of 2013 Rock was able to make significant progress in delineating the Mantario oil pool, building production, and embarking on an active exploration program.

The quarter was highlighted by the following specific accomplishments:

  • Drilled 17 (16.0 net) wells, with 94% success rate. The wells included 14 (14.0 net) wells at Mantario, 2 (1.0 net) wells at Onward and 1 (1.0 net) dry and abandoned well at Gardenhead;
  • Worked up a number of exploration plays and acquired approximately 10,000 net acres of undeveloped land (year to date) in conjunction with our exploration program;
  • Averaged 3,214 boe per day (86% crude oil and liquids) of production representing a 20% increase from Q4 2012, and a 33% increase from a year ago;
  • Spent a total of $12.7 million on a capital expenditure program; and
  • Generated funds from operations for the quarter of $3.0 million ($0.08/share).

Rock generated a field netback of $13.93 per boe in the first quarter of 2013 compared to $17.08 per boe in the fourth quarter of 2012. Though both royalty and operating costs were lower on a per boe produced basis in the quarter, field netbacks were impacted by a widening price differential for heavy oil resulting in a lower wellhead price.

Rock's realized price in the first quarter of 2013 was $45.73 per boe compared to $55.69 per boe in the first quarter of 2012. The decrease in price realizations is primarily attributed to a temporary widening in the heavy oil price differential. A significant amount of pipeline disruptions and refinery maintenance programs caused the WTI to WCS price differential to increase to more than $30 per barrel for the first quarter, compared to $21 per barrel in the same period last year. This wide differential has since returned to a more normal range of $15 - $20 per barrel.

Operating costs continued to decrease during the quarter to $22.49 per boe in the first quarter of 2013 compared to $23.80 per boe in the fourth quarter of 2012. Rock expects to continue to reduce our operating costs going forward through the addition of more (low cost) production from Mantario and continued optimization initiatives at our operations in the Lloydminster area.

Gross capital expenditures for the first quarter of 2013 were $12.7 million, including $11.2 million for the drilling program at Mantario and Onward.

Rock's daily production for the first quarter of 2013 averaged 3,214 boe/d (86% oil and liquids). Currently the Company is producing approximately 2,500 boe/d as our field operations have been impacted by spring break-up conditions, as was anticipated by Management. Rock has over 800 bbls/d shut in at our Mantario field and this production is expected to be restored as access conditions improve. The Company will be constructing all weather roads during the summer months to ensure the production from these wells can be maintained in the future.

Area Activity Update

During the first quarter Rock drilled 14 (14.0) net oil wells in the Mantario area to delineate the pool and test another step out potential pool. The one step out well did not encounter the primary target, but did encounter the Success formation. The well was swab tested and it was determined that vertical wells will not be economic in this pool but it may be exploited through horizontal drill techniques. The well is currently suspended.

The 13 wells drilled into the main portion of the Mantario pool encountered the main formation with pay thicknesses ranging from 4 - 8 meters. The new wells have come on production, exceeded our expectations, with initial rates ranging from 50-150 bbls/d and prior to the curtailment due to break up the entire pool was producing in excess of 1,800 bbls/d. Currently, the pool has been impacted by spring break up and the Company has been forced to shut in over 800 bbls/d until surface access conditions improve.

For the remainder of 2013 Rock plans to drill 2 - 3 40 acre development drilling locations and 2 - 3 exploration locations on the Mantario land base. In addition the company is completing the detailed exploitation study for the pool which may include the drilling of infill producers and the implementation of a water/chemical flood to maintain reservoir pressure and improve overall recovery factors.

In addition to the activity at Mantario, Rock drilled two (1.0 net) successful oil wells at Onward and continues to optimize production and manage the water flood. The company plans to drill 2 additional development wells and 2 exploration wells at Onward during the remainder of the year. Current production from this pool is approximately 350 bbls/d.

Outlook

Rock is maintaining its previously announced capital budget of $30 million which includes drilling an estimated total of 29 (28.0 net) wells in 2013. The capital program includes an anticipated $14 million focused on the crude oil program at Mantario, $3.0 million in the greater Lloydminster area, an anticipated $4.0 million for water flood initiatives associated with the development of its Onward asset and 9.0 million on exploration initiatives including drilling land and seismic.

In addition to the exploration and development activities Rock has begun the process to rationalize some of our non-core assets in Western Alberta. Currently the Company has identified four property packages producing a total of 500 boe/d and is pursing the sale of these assets. Proceeds from the sale would be used to pay down debt and accelerate the development of the oil projects.

Given the production achieved in the first quarter, including the forecasted disruptions due to spring break-up and the performance of our recently drilled wells, the Company is now forecasting to produce an average of 3,000 - 3,200 boe/d during 2013. Assuming that for the remainder of 2013 crude oil prices average US $90.00 WTI per barrel, the WTI to WCS differential averages $20.00/bbl and natural gas at AECO averages $3.00 CDN/mcf with an exchange rate of $1.00 CDN$/US$, the Company would generate funds from operations of $23 million (or $0.59/share) and have a year-end 2013 net debt position of approximately $10 million (0.4 times fourth quarter funds from operations annualized).

The Company has emerged from 2012 with a strong platform for growth that is demonstrating results. That platform is made up of a significant inventory of development drilling locations that can take us well through 2014, an active exploration program that will provide the next dimension of growth and a strong balance sheet. Rock's foundation of funds from operations and significant debt capacity allow the company to pursue complementary acquisitions as well as consider additional expansions to the planned 2013 capital program as new exploration and development opportunities are identified.

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 Rock's expectation of operating costs, the impact of weather and seasonal constraints, future drilling and development under its capital program, use of funds from the sale of non- core assets, as well as forecasts for average production, commodity prices, heavy oil differentials, cash flow and net debt.

Statements relating to "reserves" are deemed to be forward-looking statements, as they involve the implied assessment, based on certain estimates and assumptions, that the reserves described can be profitably produced in the future.

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 natural 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.

Contact Information

  • Rock Energy Inc.
    Allen J. Bey
    President and Chief Executive Officer
    403.218.4380

    Rock Energy Inc.
    Todd Hirtle
    Vice President, Finance and Chief Financial Officer
    403.218.4380
    www.rockenergy.ca