Rock Energy Inc.
TSX : RE

Rock Energy Inc.

August 08, 2012 17:38 ET

Rock Energy Reports Financial and Operating Results for Second Quarter of 2012

CALGARY, ALBERTA--(Marketwire - Aug. 8, 2012) - Rock Energy Inc. (TSX:RE) ("Rock") announces its financial and operational results for the three and six months ended June 30, 2012. Rock has filed its unaudited condensed interim Consolidated Financial Statements for the period ended June 30, 2012 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 three and six months ended June 30, 2012 and the 2011 comparatives are set out below and should be read in conjunction with Rock's unaudited condensed interim Consolidated Financial Statements and MD&A.

CORPORATE SUMMARY
Three Months Ended Three Months Ended Six Months Ended Six Months Ended
June 30, 2012 June 30, 2011 June 30, 2012 June 30, 2011
Crude oil and natural gas revenue ('000) $ 10,477 $ 17,199 $ 22,777 $ 33,261
Funds from operations ('000) 1 $ 3,523 $ 4,016 $ 6,721 $ 8,468
Per share - basic $ 0.09 $ 0.11 $ 0.17 $ 0.25
- diluted $ 0.09 $ 0.11 $ 0.17 $ 0.24
Net income (loss) ('000) $ 146 $ (3,106 ) $ (3,676 ) (2,386 )
Per share - basic $ 0.00 $ (0.09 ) $ (0.09 ) $ (0.07 )
- diluted $ 0.00 $ (0.09 ) $ (0.09 ) $ (0.07 )
Capital expenditures, net ('000) $ 5,124 $ 9,465 $ (30,342 ) $ 29,300
As at As at
June 30, 2012 June 30, 2011
Working capital (deficiency) including bank debt and excluding commodity price contracts ('000) $ 6,374 $ (23,188 )
Common shares outstanding 39,101,582 38,727,981
Options outstanding 2,959,418 2,804,528
Three Months Ended Three Months Ended Six Months Ended Six Months Ended
OPERATIONS June 30, 2012 June 30, 2011 June 30, 2012 June 30, 2011
Average daily production
Crude oil and natural gas liquids (bbls/d) 1,659 2,296 1,713 2,452
Natural gas (mcf/d) 2,998 5,126 3,476 5,196
Total (boe/d) 2,159 3,150 2,292 3,318
Average product prices
Crude oil and natural gas liquids (Cdn$/bbl) $ 65.66 $ 73.12 $ 68.61 $ 66.40
Natural gas (Cdn $/mcf) $ 2.07 $ 4.12 $ 2.20 $ 4.03
Combined (Cdn$/boe) $ 53.34 $ 59.99 $ 54.60 $ 55.38
Field netback (Cdn$/boe) (1) $ 19.11 $ 21.37 $ 19.03 $ 20.66
(1) Funds from operations, funds from operations per share and field netback are not terms prescribed by IFRS 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-GAAP measurements may not be comparable with the calculation of similar measures for other companies.
During the second quarter of 2012 Rock completed the following:
  • Drilled 3 (3.0 net) successful oil wells and 1 (1.0 net) dry and abandoned well at Mantario;
  • Acquired an additional 3,200 net acres of undeveloped land at Mantario;
  • Negotiated a farm-in agreement providing access to another 2,560 acres of land at Mantario;
  • Averaged 2,159 boe per day (77% crude oil and liquids and 23% natural gas) of production;
  • Spent a total of $5.1 million on capital expenditures; and
  • Generated funds from operations for the quarter of $3.5 million ($0.09/share).

Rock generated a field netback of $19.11 per boe in the second quarter of 2012 compared to $18.96 per boe in the first quarter of 2012. Rock's realized price in the second quarter of 2012 was $53.34 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 unplanned refinery maintenance programs caused the WTI-WCS price differential to increase to more than $31 per barrel in March and this wide differential extended into April, however, the repairs have been completed and the differential has returned to a more normal range of $15 - $20 per barrel.

Operating costs decreased to $22.34 per boe in the second quarter of 2012 compared to $24.93 per boe in the previous quarter. Rock expects to continue to reduce our operating costs going forward as more low cost production is brought on at Mantario and the installation of water handling and disposal facilities are completed in the Lloydminster and Neilburg areas.

Capital expenditures for the second quarter of 2012 were $5.1 million including the drilling of the four wells at Mantario, land acquisitions and the equipping of the wells drilled in the first quarter.

During the quarter Rock's daily production averaged 2,159 boepd, and currently the company is producing over
2,300 boepd.

Area Activity Update

During the second quarter Rock acquired 3,200 net acres of undeveloped land at Mantario and negotiated a farm-in on an additional 2,560 acres of land. This activity brings Rock's total land position at Mantario to 19 sections (12,160 net acres). Rock completed the drilling of three more oil wells at Mantario and one dry and abandoned well. Following spring break up the Company was able to bring all the wells on production and there are currently 6 oil wells drilled into the pool producing over 350 bopd.

In addition to the activity at Mantario, Rock initiated the water injection into the North pool at Onward and is currently optimizing the flood pattern at the South pool. As the water flood project advances the Company anticipates production levels to continue to increase.

To date in 2012, Rock has drilled a total of 7 (7.0 net) oil wells, 1 (1.0 net) dry and abandoned well and 3 (3.0 net) water injection wells.

Outlook

Rock is maintaining its previously announced capital budget of $30 million that includes drilling an estimated total of 23 (22.5 net) wells in 2012. Following the second quarter activity, the Company plans to drill an additional 12 (11.5 net) oil wells including 8 (8.0 net) oil wells at Mantario, 1 (1.0 net) well at Edam and 3 (2.5 net) exploration wells.

The 2012 capital program is focused on discovering and delineating the oil pool at Mantario and initiating the water - flood at Onward. These exciting projects are establishing a significant reserve base of low decline oil production. Once the resource potential of the pools is clearly understood and a clear exploitation plan is formulated the Company will deploy the appropriate amount of capital to build a significant production base in these areas. The remainder of the 2012 capital program not directed to South West Saskatchewan core area will be targeting the Company's heritage heavy oil assets in the Plains region with a focus on production optimization and ongoing operating cost reductions. Rock is reducing its forecast average production for 2012 to 2,200-2,400 boepd due to the production disruptions and drilling delays in Q2 from extremely wet weather, and the extended turn -around at the SemCams processing facility.

Assuming that during the remainder of 2012 crude oil prices average US $90.00 WTI per barrel, the WTI-WCS differential averages $20.00/bbl and natural gas at AECO averages $2.50 CDN/mcf with an exchange rate of $1.00 CDN$/US$ the Company would generate cash flow of $16 million (or $0.41/share) during 2012 and have no debt at year-end.

Rock has established a strong platform for growth. That platform is made up of a significant inventory of development drilling locations, an active exploration program and a strong balance sheet. Rock's foundation of funds flow, cash and significant debt capacity allow the Company to pursue complementary acquisitions or mergers as well as considering additional expansions to the planned 2012 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 2012 average production, expected costs, capital spending plans and timing thereof, forecasted cash flow, growth prospects and the Company's drilling plans.

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.

Contact Information

  • Rock Energy Inc.
    Allen J. Bey
    Chief Executive Officer
    403-218-4380

    Rock Energy Inc.
    John H. Van de Pol
    President and Chief Financial Officer
    403-218-4380
    www.rockenergy.ca