Rock Energy Inc.

Rock Energy Inc.

September 06, 2011 23:33 ET

Rock Energy Inc. Announces Strategic Alternatives Process Update and Contingent Resource Evaluation

CALGARY, ALBERTA--(Marketwire - Sept. 6, 2011) - Rock Energy Inc. (TSX:RE) ("Rock" or the "Corporation") is pleased to provide an update to the previously announced strategic alternatives process and the results of an evaluation of the Corporation's contingent resources on its natural gas resource play in the Montney zone at Elmworth.

Advisor Retained for Strategic Alternatives Process

The Special Committee of the Board of Directors has engaged FirstEnergy Capital Corp. as financial advisor to assist in the previously announced process to identify strategic alternatives for Rock in order to maximize shareholder value.

As previously announced, Rock has made significant progress at Elmworth to establish a strong land base, delineate the resource potential, prove up the commerciality of the liquids rich natural gas play and identify a number of viable natural gas handling alternatives to produce the resource. In addition to Rock's successful Elmworth initiatives, several larger scale industry peers are experiencing success on their activities at Elmworth and are accelerating their capital spending plans in the area. As a significant amount of development and infrastructure capital is required by Rock at Elmworth to maximize its value in the area, Rock's Board of Directors has established a special committee to pursue strategic alternatives in order to maximize value for our shareholders.

As a key component to the strategic alternative process, Rock has engaged GLJ Petroleum Consultants Ltd. ("GLJ") to prepare an independent evaluation of the Corporation's reserves with an effective date of August 31, 2011 that is expected to be completed by the end of September, 2011.

Contingent Resource Evaluation

The Montney resource play in Western Canada has been identified as one of the significant unconventional natural gas resource plays in North America. Rock believes that there are considerable volumes of natural gas resources and associated liquids resources on the Corporation's Elmworth acreage that can be reclassified as reserves with continued successful future development.

In an effort to quantify the future reserve potential, Rock commissioned GLJ to conduct an Economic Contingent Resource Evaluation ("Contingent Resource Evaluation") for the Montney natural gas at Elmworth. A Contingent Resource Evaluation was conducted by GLJ effective August 31, 2011 and contingent resources have been assigned on 22 gross (20.0 net) sections of the Corporation's total land position of 70.5 gross (68.5 net) sections of Montney rights at Elmworth.

Contingent resources are those quantities of petroleum estimated, as of a given date, to be potentially recoverable from known accumulations using established technology or technology under development, but may not currently be considered commercially recoverable due to one or more contingencies. Contingent resources are in addition to reserves booked as Proved, Probable and Possible.

The most significant positive or negative factors with respect to estimates of contingent resources are related to the fact that the field is currently at an evaluation/delineation stage. The Montney formation is extensive in the Elmworth region, however well control is limited. Both resource-in-place and productivity may be higher or lower than current estimates. Additional drilling and testing are required to confirm volumetric estimates and reservoir productivity for the contingent resources to be reclassified as reserves.

Lands under which contingent resources have been assigned in the evaluation are proximal to lands developed by Rock's four vertical well tests and one horizontal well test. No contingent resources are assigned on lands proximal to Rock's latest vertical stratigraphic test well (13-12-68-10W6M) as this well had not been tested as of August 31, 2011.

GLJ's best estimate of Company Gross (before royalties) contingent resources in the Montney zone at Elmworth is 264 billion cubic feet equivalent (bcfe) of natural gas on 22 gross (20.0 net) sections of land.

Summary of Elmworth Montney Contingent Resource Evaluation (1)

Rock's Working Interest Lands
Company Gross
Contingent Resources
Low Estimate
Company Gross
Contingent Resources
Best Estimate
Company Gross
Contingent Resources
High Estimate
(sections) (bcfe) (mmboe) (bcfe) (mmboe) (bcfe) (mmboe)
Montney B 20.0
Gas 108.7 18.1 122.1 20.3 139.2 23.2
Liquids 24.6 4.1 26.4 4.4 30.3 5.0
Montney C 10.0
Gas 73.8 12.3 98.2 16.4 117.0 19.5
Liquids 12.6 2.1 17.4 2.9 20.4 3.4
Total 219.7 36.6 264.1 44.0 306.9 51.1
(1) Per independent GLJ "Economic Contingent Resource Evaluation" as of August 31, 2011 and based on GLJ forecast pricing as of July 1, 2011
(2) Working Interest Lands are not additive as the evaluated Montney C lands are included within the evaluated Montney B lands
(3) Volumes are Company Gross (before royalties) sales volumes

To date, Rock has successfully drilled and completed four vertical Montney tests and one horizontal well. The horizontal well (13-07-071-09W6M) is tied-in and is waiting on third party start-up. It should be on production in September 2011. The vertical stratigraphic test at 6-6-69-9W6M which tested both the Montney B and Montney C zones was recompleted in the Halfway and is currently being tied-in. This well is also expected to be on production in September, 2011.

Rock controls rights on an additional 48.5 net Montney B sections and 58.5 net Montney C sections that were not included in the Contingent Resource Evaluation as they were located more than three miles from Rock's existing well tests. Depending on future drilling results in the area, Rock believes that additional contingent resources and reserves will be recognized on its Montney lands.

Information Regarding Disclosure on Contingent Resources and Operational Information

Natural gas has been converted to barrels of oil equivalent ("boe") based on 6 mcf: 1 boe. The boe ratio is based on an energy equivalent conversion method primarily applicable at the burner tip and does not represent a value equivalent at the wellhead. Use of boe in isolation may be misleading.

Natural gas liquids have been converted to thousand cubic feet equivalent ("mcfe") base on 1 barrel: 6 mcfe. The mcfe ratio is based on an energy equivalent conversion method primarily applicable at the burner tip and does not represent a value equivalent at the wellhead. Use of mcfe in isolation may be misleading.

Unless otherwise specified, all resource volumes in this news release (and all information derived there from) are based on "company gross volumes" (or Working Interest), before deductions of Crown and other royalties, using forecast prices and costs.

The Economic Contingent Resource Evaluation was prepared in accordance with the resource and reserves definitions, standards and procedures contained in the Canadian Oil and Gas Evaluation Handbook (COGEH) and was conducted by a qualified reserves evaluator (GLJ Petroleum Consultants Ltd.).

Projects have not been defined to develop the resources in the Evaluated Area as at the evaluation date. Such projects, in the case of the Montney resource development, have historically been developed sequentially over a number of drilling seasons and are subject to annual budget constraints, Rock's policy of orderly development on a staged basis, the timing of the growth of third party infrastructure, the short and long-term view of Rock on gas prices, the results of exploration and development activities of Rock and others in the area and possible infrastructure capacity constraints.

Rock's belief that it will establish significant additional reserves over time in its discussion of the Contingent Resource Evaluation is a forward looking statement and is based on certain assumptions and is subject to certain risks, as discussed below under the heading "Forward Looking Statements".

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: the recognition of additional resources and reserves under the heading "Contingent Resource Evaluation".

The forward-looking statements and information in this press release are based on certain key expectations and assumptions made by Rock, including the quality of the Montney reservoir, continued performance from existing wells, future drilling programs and performance from new wells, the growth of infrastructure, well density per section, recovery factors and development necessarily involves known and unknown risks and uncertainties. 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.

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.

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