Rockyview Energy Inc.
TSX : RVE

Rockyview Energy Inc.

March 08, 2007 18:15 ET

Rockyview Energy Releases a Summary of Its Independent Engineering Report, Files Its 2006 Operating and Financial Results and Provides an Operational Update

CALGARY, ALBERTA--(CCNMatthews - March 8, 2007) - Rockyview Energy Inc. (TSX:RVE) ("Rockyview" or the "Company") is pleased to release a summary of its independent engineering report, prepared by Sproule Associates Limited. ("Sproule") and effective December 31, 2006 (the "Sproule Report"). The Company has also filed its 2006 operating and financial results, which are available on SEDAR at www.sedar.com.

2006 Highlights

- Generated cash flow of $15.5 million ($0.79 per share), resulting in an operating netback of $23.82 per boe and an overall netback of $19.61 per boe.

- Averaged 2,162 boe per day of production, of which 94% comprised natural gas. Fourth quarter production averaged 2,516 boe per day.

- Acquired Espoir Exploration Corp. in January, 2006, which added approximately 900 boe per day of production, and provided the Company with two new core areas.

- Increased net undeveloped land from 39,005 acres to 94,815 acres. The total value of Rockyview's undeveloped land was estimated at $21.0 million.

- Drilled 28 (19.2 net) wells and spent $35.3 million on drilling, completions, land, seismic and facilities, including the construction of three compressors. Going into 2007, Rockyview's drilling inventory numbered 187 (131 net) wells.

- Increased total proved reserves 34% from 3,844.1 mboe to 5,161.2 mboe and total proved plus probable reserves 39% from 5,532.5 mboe to 7,702.9 mboe.

- Raised $14.6 million of equity in December, and exited 2006 with net debt of $24.3 million.

- Replaced 267% of production through drilling and acquisitions on a total proved basis and 375% on a total proved plus probable basis.

- One-year finding and development ("F&D") costs on a proved plus probable basis were $32.40 per boe including changes in future development costs. Average two-year F&D costs on a proved plus probable basis were $17.47 per boe including changes in future development costs.

- Year-end net asset value per share of $5.34.

General

While 2005 represented Rockyview's inaugural year of operations and one characterized by establishing its game plan, 2006 was the year during which the focus was on the execution of objectives. It saw the Company take the promise of an extensive shallow gas drilling inventory and begin to convert it into production and cash flow. The result was a 2006 capital expenditure program that included the building and commissioning of three significant new compression facilities in the Central Alberta core area that enabled Rockyview to bring on stream the 55 wells that were drilled in 2005.

Rockyview also completed its first significant acquisition in 2006: the purchase of Espoir Exploration Corp. ("Espoir"). In addition to adding approximately 900 boe per day of production, the Espoir transaction created two new core areas for the Company in Western Alberta and the Peace River Arch, adding a number of high-impact locations to Rockyview's already extensive shallow gas drilling inventory. In total, 2006 expenditures amounted to $100.5 million which - in addition to the acquisition of Espoir - included the drilling of 28 (19.2 net) wells.

The year was not without its challenges. As one of the most gas-levered energy companies operating in Western Canada, Rockyview had to deal with a commodity that went from a high of more than $14.00 per mcf in the fourth quarter of 2005, to less than $4.00 per mcf by the third quarter of 2006. While this resulted in a more conservative capital expenditure program during the last half of the year, the Company was nonetheless able to steer its way through a difficult period.

Entering 2007, Rockyview had 187 gross drilling locations identified on its lands. With the completion of a $14.6 million equity issue in December 2006, the 2007 budget contemplates the drilling of 57 (37 net) wells on capital expenditures of $20 million. As Rockyview's budget was predicated on an average 2007 gas price of $6.50 per mcf, the Company has the ability to expand the capital program should gas prices remain higher than budget. Year-to-date, gas prices have averaged $6.98 per mcf.

In addition, the Company has entered into several commodity price transactions which have locked-in gas prices above the $6.50 budget. Rockyview has sold forward an average of 4,200 gj per day (3,990 mcf) during 2007 at a weighted average price of $7.34 per gj ($7.71 per mcf).

To date in 2007, activity in the field has included the drilling of 22 (17.4 net) Horseshoe Canyon/Belly River gas wells in Central Alberta; 2 (2.0 net) Mannville/Nordegg/Banff gas wells in Western Alberta; and 2 (1.0 net) abandoned wells in the Peace River Arch. In addition, the Company is in the process of drilling one (0.5 net) well in the Peace River Arch, which is prospective for gas in several Triassic horizons. The Company has also re-completed five (3.2 net) other shallow gas wells in the Central Alberta core area.

Given the current and forward markets for gas, as well as Rockyview's hedges, the Company will continue to monitor the situation and consider whether it is appropriate to expand its 2007 capital program.

Summary of Reserve Information

The tables below summarize certain information contained in the Sproule Report. It should not be assumed that the estimates of the present value of cash flow set out in the table below represent the fair market value of Rockyview's reserves. There is no assurance that the forecast prices and other assumptions will be attained and variances could be material. Nor is there any guarantee that the estimated reserves will be recovered. Actual recoveries may be greater or less than the estimates set out in the Sproule Report.

The Sproule Report estimates the future capital required to develop the Company's proved plus probable reserves at $30.7 million.



Summary of Oil and Gas Reserves - Forecast of Prices and Costs

December 31, Light & Medium Oil Natural Gas NGL Total
2006 ----------------------------------------------------------
Gross Net Gross Net Gross Net Gross Net
Reserve Category mbbl mbbl mmcf mmcf mbbl mbbl mboe mboe

Proved developed
producing 100.6 100.8 17,313.8 14,608.4 83.9 53.8 3,070.1 2,589.3
Proved developed
non-producing - - 3,964.7 3,307.4 15.1 9.4 675.9 560.6
Proved
undeveloped 9.6 8.7 8,389.3 7,279.3 7.4 5.5 1,415.2 1,227.4
----------------------------------------------------------
Total proved 110.2 109.5 29,667.8 25,195.1 106.4 68.7 5,161.2 4,377.4
Probable
additional 162.3 156.6 13,957.5 11,845.9 53.1 36.7 2,541.7 2,167.6
----------------------------------------------------------
Total proved
plus probable 272.5 266.1 43,625.3 37,041.0 159.5 105.4 7,702.9 6,545.0

Notes:

1. "Gross" means the Company's interest (operated and non-operated) before
deduction of royalties and without including any royalty interests owned
by the Company.
2. "Net" means the Company's interest (operated and non-operated) after
deduction of royalties and including any royalty interests owned by the
Company.
3. Rockyview does not have any heavy oil reserves.
4. Columns may not add due to rounding.


Summary of Net Present Values of Future Net Revenues - Forecast Prices and
Costs


December 31, 2006 Present Value of Cash Flow
--------------------------------------------
0% 5% 10% 15% 20%
Reserve Category m$ m$ m$ m$ m$

Proved developed producing 93,669 79,810 70,741 63,970 58,629
Proved developed non-producing 13,625 11,571 9,942 8,627 7,548
Proved undeveloped 21,125 15,759 11,695 8,540 6,035
--------------------------------------------
Total proved 128,418 107,139 92,379 81,137 72,212
Probable additional 71,644 52,412 40,548 32,543 26,834
--------------------------------------------
Total proved plus probable 200,062 159,551 132,926 113,680 99,046

Notes:

1. Present value of cash flow is before income tax.
2. Columns may not add due to rounding.

The following sets forth Sproule's reference prices reflected in the
Sproule Report, as at December 31, 2006:

WTI Edm Henry Hub AECO
Year US$/bbl C$/bbl US$/mmbtu C$/mmbtu
---------------------------------------------------------------------------

2007 65.73 74.10 7.85 7.72
2008 68.82 77.62 8.39 8.59
2009 62.42 70.25 7.65 7.74
2010 58.37 65.56 7.48 7.55
2011 55.20 61.90 7.63 7.72


Sproule and Rockyview prepared a reconciliation of gross reserves effective
December 31, 2006. The purchase of Espoir (completed in January 2006) is
accounted for as an acquisition.

Espoir's reserves had previously been evaluated at December 31, 2005 by
independent engineering consultants other then Sproule.


Natural Light and
gas medium oil NGL's Total
RECONCILIATION OF PROVED RESERVES (mmcf) (mbbl) (mbbl) (mboe)
---------------------------------------------------------------------------
Reserves at December 31, 2005 22,155.6 121.9 29.5 3,844.1
Discoveries/Revisions/Extensions 5,174.2 (31.9) 18.6 849.0
Acquisitions net of dispositions 6,806.0 41.4 81.7 1,257.4
Production (4,468.0) (21.2) (23.4) (789.3)
---------------------------------------------------------------------------
Reserves at December 31, 2006 29,667.8 110.2 106.4 5,161.2
---------------------------------------------------------------------------

Natural Light and
RECONCILIATION OF PROVED gas medium oil NGL's Total
PLUS PROBABLE RESERVES (mmcf) (mbbl) (mbbl) (mboe)
---------------------------------------------------------------------------
Reserves at December 31, 2005 31,660.4 211.2 44.5 5,532.5
Discoveries/Revisions/Extensions 6,596.2 (89.9) 21.2 1,030.6
Acquisitions net of dispositions 9,836.7 172.4 117.2 1,929.1
Production (4,468.0) (21.2) (23.4) (789.3)
---------------------------------------------------------------------------
Reserves at December 31, 2006 43,625.3 272.5 159.5 7,702.9
---------------------------------------------------------------------------


Finding and Development Costs

Finding and development ("F&D") costs represent the expenses associated with the creation of new reserves. This includes not only the costs to drill a well, but the ancillary expenses, where applicable, of acquiring the land in advance, shooting seismic and building the infrastructure required to get the commodity to the market. Because this cycle often spans more than one year, the industry also reports F&D costs over a rolling three-year average, or in Rockyview's case, two years because the Company only commenced operations in 2005.

During 2005, most ($8.4 million) of Rockyview's $12.9 million in capital expenditures were allocated to the drilling of wells that created new reserves. Accordingly, the Company generated one-year F&D costs (including changes in future capital) on a proved plus probable basis of $11.94 per boe, placing it among the industry leaders.

As a result of those drilling activities, a significant number of proved undeveloped follow-up locations were identified in last year's engineering report, all of which required capital to develop. Because these reserve additions had already been recognized by Sproule, the costs associated with drilling them in 2006 did not go towards the creation of new reserves.

Last year was also characterized by a significant investment in infrastructure, as the Company completed the construction of three new compression facilities in its Central Alberta core area. Of the total $35.3 million spent on capital projects during 2006, 49% was directed to these initiatives.

The net effect of the foregoing was that one-year F&D costs for 2006 were $32.40 per boe on a proved plus probable basis. The rolling two-year average, however, was $17.47 per boe.

The final component to this analysis is the inclusion of acquisition costs into the matrix to create finding, development and acquisition ("FD&A") costs. Because Rockyview did not make any acquisitions during 2005, its F&D costs and its FD&A costs were the same.

In early 2006, the Company completed the acquisition of Espoir. At December 31, 2005, an independent engineering report (the "2005 Report") had assigned proved plus probable reserves of 2.65 million boe. At December 31, 2006, Sproule assigned proved plus probable reserves of 1.93 million boe to the acquisition, after taking into account volumes produced and disposed of during 2006, resulting in an implied revision of approximately 500,000 boe from the 2005 Report. This was largely the result of production declining at a faster rate than was estimated on certain recently developed properties in the 2005 Report.



Proved +
CAPITAL (M$) Proved Probable
---------------------------------------------------------------------------
Land and seismic 3,579.7 3,579.7
Drilling and completion 13,294.7 13,294.7
Facilities 17,222.4 17,222.4
Other 1,174.4 1,174.4
---------------------------------------------------------------------------
35,271.2 35,271.2
Change in future development costs (3,491.0) (1,876.0)
---------------------------------------------------------------------------
Total F&D costs 31,780.2 33,395.2
Acquisitions 67,279.8 67,279.8
Dispositions (2,100.7) (2,100.7)
---------------------------------------------------------------------------
Total FD&A costs 96,959.3 98,574.3
---------------------------------------------------------------------------

RESERVE ADDITIONS (MBOE)
---------------------------------------------------------------------------
Reserves - discoveries, extensions and revisions 849.0 1,030.6
Reserves - net acquisitions & dispositions 1,257.4 1,929.1
---------------------------------------------------------------------------
Reserves - total additions 2,106.4 2,959.7
---------------------------------------------------------------------------
F&D costs/boe, excluding changes in future development
costs 41.54 34.22
F&D costs/boe, including changes in future development
costs 37.43 32.40
FD&A costs/boe, including changes in future development
costs 46.03 33.31
Operating netback/boe 23.82 23.82
---------------------------------------------------------------------------
1-year recycle ratio 0.52 0.72
2-year recycle ratio 1.17 1.47
---------------------------------------------------------------------------


The aggregate of the exploration and development costs incurred in the most recent financial year and the change during that year in estimated future development costs generally will not reflect total finding and development costs related to reserve additions for that year.

A reduction in the Espoir reserves was offset by upward revisions and exploration discoveries on Rockyview's assets in Central Alberta, where the Company experienced better-than-anticipated results in its Horseshoe Canyon drilling program at Wood River and Bittern Lake, while making a new pool discovery at Watelet. Isolating the total capital invested only on these assets (being $25.5 million, and after changes in future capital on a proved plus probable basis), Rockyview increased reserves by 1,031 mboe, resulting in F&D costs of $24.73 per boe. The two-year rolling average is $15.40 per boe.

The net effect of lower F&D costs on the original Rockyview assets, together with a higher acquisition cost for Espoir and the reduction in Espoir reserves resulted in 2006 FD&A costs of $33.31 per boe, on a proved plus probable basis. The two-year rolling average was $22.96 per boe.

Land Valuation

In addition to its reserves, Rockyview's 94,815 net undeveloped acres of land was assigned a value of $21.0 million by Seaton-Jordan & Associates Ltd., effective December 31, 2006.

Net Asset Value



Based on the above-noted data, Rockyview's net asset value at December 31,
2006 was $5.34 per share, calculated as follows:


December 31, 2006 Note
(000, except per share amounts)

Reserve value (total proved plus probable @ 10%) $ 132,926 1
Undeveloped land $ 20,978 2
Seismic $ 3,900 3
Net debt $ (24,311)
Asset reclamation obligation $ (3,316)
----------------
Net asset value $ 130,177
Shares outstanding 24,364 4
Net asset value per share $ 5.34

Notes:

1. Reserve value is per Sproule Report at December 31, 2006
2. Undeveloped land value as per Seaton Jordan report at December 31, 2006
3. Seismic value is management's internal estimate of the cost incurred to
acquire the data
4. Basic shares outstanding


The Company's 2006 consolidated financial statements and management's discussion and analysis ("MD&A") can be found on SEDAR at www.sedar.com.

Reader Advisory - Statements in this news release contain forward-looking information including expectations of future production, expectations of future capital costs, plans for exploration, development and drilling activities and other operational developments. Readers are cautioned that assumptions used in the preparation of such information may prove to be incorrect. Events or circumstances may cause actual results to differ materially from those predicted, a result of numerous known and unknown risks, uncertainties, and other factors, many of which are beyond the control of the Company. These risks include, but are not limited to: the risks associated with the oil and gas industry, commodity prices and exchange rate changes. Industry related risks include, but are not limited to; operational risks in exploration, development and production, delays or changes in plans, risks associated with the uncertainty of reserve estimates, health and safety risks and the uncertainty of estimates and projections of production, costs and expenses. The risks outlined above should not be construed as exhaustive. The reader is cautioned not to place undue reliance on this forward-looking information. The Company undertakes no obligation to update or revise any forward-looking statements except as required by applicable securities laws.

Boes may be misleading, particularly if used in isolation. A boe conversion ratio of six mcf to one bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. This conversion factor is an industry accepted norm and is not based on either energy content or current prices.

The Toronto Stock Exchange has neither approved nor disapproved of the contents of this news release.

Contact Information

  • Rockyview Energy Inc.
    Steve Cloutier
    President & C.E.O.
    (403) 538-5000
    or
    Rockyview Energy Inc.
    Alan MacDonald
    Vice President, Finance, C.F.O. & Corporate Secretary
    (403) 538-5000
    (403) 538-5050 (FAX)
    Website: www.rockyviewenergy.com.