|By Marketwired .||
|November 8, 2012 06:38 PM EST||
CALGARY, ALBERTA -- (Marketwire) -- 11/08/12 -- Rock Energy Inc. (TSX:RE) ("Rock" or the "Company") announces its financial and operational results for the three and nine months ended September 30, 2012. Rock has filed its unaudited condensed interim Consolidated Financial Statements for the period ended September 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 nine months ended September 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.
---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Three Months Three Months Nine Months Nine Months Ended Ended Ended Ended September September September September 30, 2012 30, 2011 30, 2012 30, 2011 ---------------------------------------------------------------------------- Crude oil and natural gas revenue ($000) $ 10,988 $ 13,928 $ 33,765 $ 47,189 Funds from operations ($000) (1) $ 3,711 $ 3,993 $ 10,432 $ 12,461 Per share - basic $ 0.09 $ 0.10 $ 0.27 $ 0.35 - diluted $ 0.09 $ 0.10 $ 0.27 $ 0.34 Net income (loss) ($000) $ (2,186) $ 459 $ (5,862) $ (1,927) Per share - basic $ (0.06) $ 0.01 $ (0.15) $ (0.05) - diluted $ (0.06) $ 0.01 $ (0.15) $ (0.05) Capital expenditures ($000) $ 7,395 $ 15,057 $ 22,701 $ 56,144 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- As at As at September September 30, 2012 30, 2011 ---------------------------------------------------------------------------- Working capital (deficiency) including bank debt and excluding commodity price contracts ($000) $ 2,614 $ (31,939) Common shares outstanding 39,101,582 38,786,315 Options outstanding 2,905,435 2,551,094 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Three Three Nine Months Nine Months Months Ended Months Ended Ended Ended September September September September OPERATIONS 30, 2012 30, 2011 30, 2012 30, 2011 ---------------------------------------------------------------------------- Average daily production Crude oil and natural gas liquids (bbls/d) 1,720 2,094 1,716 2,331 Natural gas (mcf/d) 3,131 4,608 3,360 4,998 Total (boe/d) 2,242 2,862 2,276 3,164 Average product prices Crude oil and natural gas liquids (Cdn$/bbl) $ 64.94 $ 63.68 $ 67.37 $ 65.59 Natural gas (Cdn $/mcf) $ 2.47 $ 3.92 $ 2.28 $ 4.00 Combined (Cdn$/boe) $ 53.27 $ 52.90 $ 54.15 $ 54.63 Field netback (Cdn$/boe) (1) $ 18.43 $ 20.71 $ 18.83 $ 20.68 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- (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, op erating 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 third quarter of 2012 Rock completed the following:
-- Drilled 10 (10.0 net) wells, nine (9.0 net) successful oil wells and one (1.0 net) dry and abandoned well at Mantario; -- Averaged 2,242 boe per day (77% crude oil and liquids and 23% natural gas) of production; -- Spent a total of $7.4 million on capital expenditures; and -- Generated funds from operations for the quarter of $3.7 million ($0.09 per share).
Rock generated a field netback of $18.43 per boe in the third quarter of 2012 compared to $19.11 per boe in the second quarter of 2012. Rock's realized price in the third quarter of 2012 was $53.27 per boe compared to $53.34 per boe in the second quarter of 2012. The WTI-WCS price differential during the third quarter was US $21.72 per barrel. Though the differential narrowed to less than US $10.00 per barrel in October, it has recently widened to US $25.00 - US $30.00 per barrel as the BP Whiting refinery shuts down for a planned upgrade. This modification to the refinery will take 3 to 4 months and we expect the differential to be adversely impacted during that time. However, once the project is complete, the refinery will have expanded its capacity to refine heavy oil and we are projecting a sustained narrowing of the differential beyond the first quarter of next year in to the range of US $15.00 - US $20.00 per barrel. To manage the volatility in this price, Rock is actively engaged in a hedging program and is shipping up to 1,000 barrels per day by rail.
Operating costs increased to $25.69 per boe in the third quarter of 2012 compared to $22.34 per boe in the previous quarter. This increase in costs can be attributed to unscheduled battery maintenance that affected both our Onward and Medicine River facilities. In addition to the extra cost, the company experienced a reduction in production during the maintenance operations, so the impact was felt on both absolute and per boe measures. Going forward Rock expects to reduce our operating costs 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 third quarter of 2012 were $7.4 million including the drilling and equipping of the nine wells at Mantario, one well at Edam, and the installation of water disposal facilities in Lloydminster and Neilburg.
During the third quarter of 2012 Rock's daily production averaged 2,242 boe per day, and currently the Company is producing over 2,600 boe per day.
Area Activity Update
During the third quarter of 2012 Rock drilled nine (9.0 net) wells at Mantario. One exploration well was dry and abandoned, one well failed to encounter the primary target but was successful in a secondary zone, and seven wells were cased as oil producers in the primary zone. The seven wells have been completed and put on production during October. These wells are currently producing over 450 barrels per day and when combined with the original wells, Mantario is contributing over 800 barrels per day to Rock's total production. The eighth well which will be producing from a different formation will be on production by late November. The information provided by the drilling of the most recent wells has allowed the Company to refine the pool mapping and management has estimated that there is an additional 40-60 drilling locations on this new discovery.
In addition to the drilling activity, Rock evaluated and subsequently released the lands previously held under a farm-out agreement. The Company acquired another 7.75 sections of land at crown land sales which brings Rock's total land position at Mantario to 15,200 net acres (23.75 sections).
During the fourth quarter of 2012, the Company plans to shoot an additional 30 square kilometers of 3D seismic and drill another exploration well.
The water-flood project at Onward was focused on optimizing injection patterns, and upgrading the fluid handling capacity at the battery during the third quarter. The Company is currently installing new inlet and treating equipment and we expect the work to be completed by the middle of November. Once completed, the fluid capacity of the battery will have been expanded by 50%, allowing us to increase the pumping rates on our producing wells and further optimize our production.
Greater Lloydminster Area
Rock drilled one successful step out exploration well at Edam during the third quarter of 2012. The well is currently producing 50 to 70 barrels per day and with this success we have now identified 6 to 8 follow up locations. Rock has completed the installation of water injection facilities at Lloydminster and Neilburg and in addition to reduced operating costs we expect to begin the implementation of high volume lift ("HVL") programs at these two sites. HVL is a production technique to increase production rates and recovery factors in conventional heavy oil wells that has been successfully deployed by a number of heavy oil operators in the Lloydminster area.
For the remainder of 2012 Rock is maintaining its previously announced guidance for production. However, the capital budget will increase slightly to $32 million as we initiate activities for 2013. For the remainder of the year, the Company will be focused on completing the 3D seismic survey at Mantario and drilling four exploration wells in our core areas. Assuming that for the remainder of 2012 crude oil prices average US $90.00 WTI per barrel and natural gas at AECO averages of CDN $3.25 per mcf with an exchange rate of 1.00 CDN$:US$ the Company would generate cash flow of $15 million (or $0.39 per share) and have $2 million of net debt by year-end 2012.
The Board of directors have approved a preliminary capital budget for 2013 of $30 million to drill 22 wells. The capital budget will be focused on the continued delineation of the pool at Mantario by drilling 11 more 40 acre step out locations and two horizontal wells. In addition, the Company plans to drill five wells in the greater Lloydminster region and complete the two HVL projects. At Onward, the capital will be limited to further water injection conversions and additional facility upgrades as most of the pool development capital was spent in 2012.
This capital budget is expected to increase the Company's average production for the year by over 25 percent to 2,900 boe per day, and our oil weighting to 85 percent.
Assuming that for 2013 crude oil prices average US $90.00 WTI per barrel, the WTI-WCS differential averages US $20.00 per barrel and natural gas at AECO averages CDN $3.00 per mcf with an exchange rate of 1.00 CDN$:US$ the Company would generate cash flow of $22 million (or $0.56 per share) and have $11 million of net debt by the end of 2013 (0.4 times fourth quarter annualized cash flow).
Rock has established a strong platform for growth. That platform is made up of a significant inventory of over 130 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 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 2012 and 2013 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.
Rock Energy Inc.
Allen J. Bey
Chief Executive Officer
Rock Energy Inc.
John H. Van de Pol
President and Chief Financial Officer
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