Rock Energy Inc.
TSX : RE

Rock Energy Inc.

February 03, 2011 20:48 ET

Rock Energy Reports Operating Results for 2010 and Activity Update

CALGARY, ALBERTA--(Marketwire - Feb. 3, 2011) - Rock Energy Inc. (TSX:RE) ("Rock") announces its operating results for 2010 and provides an activity update for its Plains and Elmworth core areas.

Rock is pleased to report operating results for 2010 and recent activity to date highlighted by the following achievements:



-- Daily production for the year averaged 3,615 boe per day (66% crude oil
and natural gas liquids and 34% natural gas), fourth quarter of 2010
production averaged 3,472 boe per day and production is currently
estimated to be 3,800 boe per day;
-- Rock's net undeveloped lands increased to 91,517 acres as at December
31, 2010 and to more than 100,000 acres by January 31, 2011;
-- Three vertical 100% working interest Montney natural gas wells were
successfully tested at Elmworth and a 50% working interest Montney
horizontal was drilled, cased and completed;
-- Rock's inventory of heavy oil drilling locations in the Plains area
increased to 170 and the number of horizontal Montney natural gas
drilling locations at Elmworth were expanded;
-- Drilled 39 (36.3 net) wells in 2010 with a success rate of 97%.

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2010
Drilling 1stQuarter 2ndQuarter 3rdQuarter 4thQuarter 2010 Total
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Heavy oil 11 (11.0 net) 8 (8.0 net) 8 (8.0 net) 4 (4.0 net) 31 (31.0 net)
Natural gas 5 (2.3 net) - - 2 (2.0 net) 7 (4.3 net)
Dry and
abandoned - - 1 (1.0 net) - 1 (1.0 net)
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Total
wells 16 (13.3 net) 8 (8.0 net) 9 (9.0 net) 6 (6.0 net) 39 (36.3 net)
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To date in 2011 Rock has drilled 3 (3.0 net) heavy oil wells of which two were successful. The Company also drilled 2 (1.5 net) successful natural gas wells including a Montney horizontal natural gas well at Elmworth and a 100% working-interest well at Saxon both of which are expected to be on production during the second quarter of 2011.

Area Activity Update

Plains

Rock drilled 31 (31.0 net) successful heavy oil wells and one (1.0 net) dry and abandoned well in the Plains area in 2010. Three (3.0 net) heavy oil wells were drilled in January 2011 as part of a planned 40 heavy oil well program for 2011. In addition to the drilling activity, Rock has successfully added more than 2,000 acres of undeveloped land in the Neilburg Saskatchewan core area and is actively pursuing re-completion and stimulation projects to improve production and recovery factors.

Rock is also pleased to announce that it has executed a purchase and sale agreement to acquire 250 barrels per day of 99% working interest heavy oil assets in the Plains core area for cash. Management estimates this $13.4 million acquisition to include 1.0 million barrels of reserves on a proved and probable basis including 0.7 million barrels of proved reserves. Rock has identified up to 10 drilling locations on these newly acquired lands and plans to initiate a waterflood project to increase the recovery factor on the acquired assets. The acquisition is expected to close by the end of February 2011.

Elmworth

Rock continues to proceed with its plan to quantify the natural gas resource potential on its Elmworth Montney lands. In that regard, Rock's first two 100% working interest Montney vertical test wells (14-12-70-10W6M and 1-19-70-9W6M) drilled in 2010 each encountered approximately 35 metres of Montney B and 30 metres of up-hole Montney C pay. Both wells were tested at final production rates of approximately 1.0 million cubic feet per day at a flowing tubing pressure of between 180 and 360 psi, which exceeded expectations.

Rock's third 100% working interest Montney vertical test well (6-6-69-9W6M) on its South Elmworth lands was cased in December 2010 and encountered natural gas in the up-hole Gething zone as well as the deeper Halfway, Montney C and Montney B zones. This test has confirmed the existence of commercial Montney natural gas on Rock's South Elmworth lands, providing key information for future horizontal drilling activity. The well encountered 29 metres of Montney B and 28 metres of Montney C pay. The Montney B zone was completed, fracture stimulated and tested for 3 days with an initial production rate of 2.5 million cubic feet per day and met expectations at a final rate of 0.6 million cubic feet per day at a flowing tubing pressure of 230 psi. The well also produced approximately 25 barrels per million cubic feet of natural gas liquids. The up-hole Montney C formation in this well will be completed and tested by the end of the first quarter of 2011 and the Halfway zone in this well is expected to be completed, tied-in and on production by the third quarter of 2011.

Given the success of Rock's Elmworth natural gas drilling activity in South Elmworth, the Company is pleased to announce that it has acquired from an industry competitor an additional 16 sections (10,240 acres) of 100% working interest Montney lands in the Elmworth area for $1.5 million or an average cost of $147 per acre. The acquired lands, which immediately offset Rock's existing land base including the Montney natural gas discovery well at 6-6-69-9W6M, will be validated through Rock's planned drilling activity. This additional land increases Rock's Montney land position by 35% to a total of 62 sections at an average working interest of 98%.

Rock's first Elmworth 50% working interest Montney horizontal well (13-7-71-9W6M) was drilled and cased in January 2011. A vertical stratigraphic test was initially drilled, cored and logged encountering 34 metres of Montney B and 27 metres of Montney C pay. Thereafter, the Montney B zone on this well was drilled horizontally for 1,500 metres and was completed through a 10 stage fracture stimulation using 100 tonnes of sand per stage. The horizontal well demonstrated strong flow back until it was required to be shut-in due to the H2S concentration approaching 5%. Once all necessary regulatory approvals are received, clean up and testing will be concluded, a pipeline will be constructed and production is expected to commence in the second quarter of 2011.

To further confirm the existence of Montney natural gas reserves on its lands, Rock is proceeding with its planned Elmworth drilling program for 2011 that includes at least 2 additional vertical test wells on the South Elmworth lands. Thereafter, a development plan will be established that will include further vertical test wells and a horizontal drilling program to further assess the productive capability of the Montney formation.

Other

As part of its previously announced plan to divest of non-core properties, Rock is pleased to announce that it has executed a letter of intent to sell for cash approximately 250 boe per day of low working interest non-operated natural gas production in the Cutbank area. The $11.0 million disposition is subject to the completion of a definitive purchase and sale agreement and is expected to close by the end of February 2011.

Outlook

Rock continues to develop an inventory of drilling opportunities and now has over 170 heavy oil drilling locations and an expanding number of horizontal natural gas drilling locations on its resource play at Elmworth. Rock's Board of Directors have approved a capital budget of $52 million for 2011 that will provide significant growth in our daily production and reserve base while testing our Elmworth resource play.

Rock is maintaining its previously announced forecast production guidance to average between 4,200 and 4,400 boe per day in 2011, an increase of approximately 20% above 2010 average production levels. Exit production rates for 2011 are anticipated to be between 4,700 and 4,900 boe per day.

Rock is off to a very strong start in 2011 as we continue to discover the resource potential of our Elmworth land position and focus on building inventory and opportunities for growth within our core operating areas.

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 and exit production; the Company's drilling plans; ; the expected closing date of an acquisition in the Plains area and of a disposition in the Cutbank area; the reserve volumes associated with the assets to be acquired in the Plains area; Rock's plans to initiate a waterflood project on the assets to be acquired in the Plains area to increase the recovery factor for this asset; anticipated tie-in and production date of Rock's Elmworth horizontal Montney well and Rock's Elmworth vertical test well; Rock's drilling plans in the Plains area; and Rock's inventory of drilling locations.

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.

This press release contains test results for various Rock wells. Actual production from these wells could differ materially from these test results.

Contact Information

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