CALGARY, ALBERTA–(Marketwired – Aug. 6, 2013) – Rock Energy Inc. (TSX:RE) (“Rock” or the “Company”) is pleased to report its financial and operating results for the three months and six months ended June 30, 2013. Rock is a Calgary-based crude oil exploration, development and production company.
Rock has filed its unaudited condensed interim Consolidated Financial Statements for the period ended June 30, 2013 and related Management’s Discussion and Analysis (“MD&A”). Copies of Rock’s materials may be obtained on www.sedar.com and on our website at www.rockenergy.ca.
CORPORATE SUMMARY
| FINANCIAL | Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
| 2013 | 2012 | 2013 | 2012 | |||||||||||||
| Crude oil and natural gas revenue (‘000) | $ | 18,215 | $ | 10,477 | $ | 31,443 | $ | 22,777 | ||||||||
| Funds from operations (‘000) (1) | $ | 6,665 | $ | 3,523 | $ | 9,705 | $ | 6,721 | ||||||||
| Per share – basic | $ | 0.17 | $ | 0.09 | $ | 0.25 | $ | 0.17 | ||||||||
| – diluted | $ | 0.17 | $ | 0.09 | $ | 0.25 | $ | 0.17 | ||||||||
| Net income (‘000) | $ | 100 | $ | 146 | $ | (3,508 | ) | $ | (3,676 | ) | ||||||
| Per share – basic | – | – | $ | (0.09 | ) | $ | (0.09 | ) | ||||||||
| – diluted | – | – | $ | (0.09 | ) | $ | (0.09 | ) | ||||||||
| Capital expenditures (‘000) (excluding dispositions) | $ | 4,212 | $ | 5,098 | $ | 17,018 | $ | 15,306 | ||||||||
| As at June 30, 2013 |
As at June 30, 2012 |
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| Working capital including bank debt and excluding commodity price contracts (‘000) | $ | 8,165 | $ | 6,374 | ||
| Common shares outstanding | 39,343,244 | 39,101,582 | ||||
| Options outstanding | 3,223,641 | 2,959,418 | ||||
| OPERATIONS | Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||
| 2013 | 2012 | 2013 | 2012 | ||||||||||
| Average daily production | |||||||||||||
| Crude oil and natural gas liquids (bbls/d) | 2,704 | 1,659 | 2,737 | 1,713 | |||||||||
| Natural gas (mcf/d) | 2,379 | 2,998 | 2,519 | 3,476 | |||||||||
| Barrels of oil equivalent (boe/d) | 3,100 | 2,159 | 3,157 | 2,292 | |||||||||
| Average product prices | |||||||||||||
| Crude oil and natural gas liquids ($/bbl) | $ | 71.27 | $ | 65.66 | $ | 60.23 | $ | 68.61 | |||||
| Natural gas ($/mcf) | $ | 3.86 | $ | 2.07 | $ | 3.65 | $ | 2.20 | |||||
| Total ($/boe) | $ | 64.56 | $ | 53.34 | $ | 55.03 | $ | 54.60 | |||||
| Field netback ($/boe) (1) | $ | 28.61 | $ | 19.11 | $ | 21.18 | $ | 19.04 | |||||
(1) Funds from operations, funds from operations per share and field netback are not terms prescribed by International Financial Reporting Standards (IFRS), and 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.
LETTER TO THE SHAREHOLDERS
During the second quarter of 2013 Rock continued to make significant progress in developing the Mantario oil pool, while generating over 100% growth in cash flow per share.
The quarter was highlighted by the following specific accomplishments:
Rock generated a field netback of $28.61 per boe in the second quarter of 2013 compared to $13.93 per boe in the first quarter of 2013. The significant improvement in netbacks can be attributed to both operating cost reductions and commodity price improvements.
Rock’s realized price in the second quarter of 2013 was $64.56 per boe compared to $45.74 per boe in the first quarter of 2013. The main contributors to the increase in realized prices have been the increase in the reference crude oil WCS price and the corresponding reduction in blending costs. The price for WCS in Q2/2013 was $76.92/bbl while in Q1/2013 it was $62.40/bbl. Currently WCS is trading at approximately $85.00/bbl.
Operating costs continued to decrease during the second quarter to $20.16 per boe compared to $22.49 per boe in the first quarter of 2013. Rock expects to continue to reduce our operating costs going forward through the addition of more (low cost) production from Mantario and continued optimization initiatives at our operations in the greater Lloydminster area.
Gross capital expenditures for the second quarter of 2013 were $3.4 million as operations were impaired by spring break-up conditions.
Rock’s daily production for the second quarter of 2013 averaged 3,100 boe/d (87% oil and liquids). Currently the Company is producing over 3,500 boe/d as our field operations have been restored from spring break-up and our third quarter program is well underway.
Area Activity Update
During the second quarter Rock did not drill any wells, however, to date in Q3 we have completed the drilling of seven (7.0 net) wells at Mantario. This activity resulted in five (5.0 net) oil wells and two (2.0 net) unsuccessful wells. Four of the wells drilled were 40 acre locations to delineate the main pool, and three were drilled to test flank extensions of the main pool. One of the extension wells was successful, and the other two did not encounter the primary target. These unsuccessful wells were cased as potential water source wells. The company now has 30 oil wells drilled into the main pool producing over 2,300 bopd.
During the quarter Rock, in conjunction with third party engineering firms, was able to complete the engineering evaluation and exploitation plan for the development of the main Mantario pool. This work has demonstrated the need for down spaced drilling involving a combination of vertical and horizontal wells, the implementation of a water flood for pressure maintenance, and ultimately, the implementation of a polymer flood. Rock management has estimated that this project will require $40-$45 million of additional capital over the next 18 months but will develop an asset that has daily production of 2,000-2,500 bopd flat for 2-3 years and then declining at a rate of less than 20%. Assuming a WCS price of $65.00/bbl management estimates that the property will generate cash flow of $30-$40 million/year, pay out the incremental investment in 12-16 months and generate an incremental net present value (discounted at 10%) of $55-$65 million (BTAX).
To accelerate the development of this asset, Rock’s Board of Directors have approved a $12 million expansion to the 2013 capital program. For the remainder of 2013 Rock plans to drill 2 or 3 40 acre development drilling locations and 2 horizontal locations on the main Mantario pool. In addition the company is completing the detailed facility design and will be ordering the equipment necessary for the construction of a central processing facility and water injection plant.
In addition to the development activity at Mantario, Rock plans to test 4-5 exploration targets by the end of the year. Two of the targets are in the Mantario area testing for the lower Mannville Formation, and three other targets are in the Onward area.
Outlook
Rock has increased its capital budget by $12 million to $42 million which includes drilling an estimated total of 39 (38.0 net) wells in 2013. The capital program includes an anticipated $22 million focused on the development program at Mantario, $6 million in the greater Lloydminster area, $5 million for water flood initiatives associated with the development of its Onward asset and $9 million on exploration initiatives including drilling, land and seismic.
Given the results achieved in the first half, the Company is now forecasting to produce an average of 3,300 – 3,500 boe/d during 2013. Assuming that for the remainder of 2013 crude oil prices average US $95.00 WTI per barrel, the WTI to WCS differential averages $20.00/bbl and natural gas at AECO averages $3.00 CDN/mcf with an exchange rate of $1.00 CDN$/US$, the Company would generate funds from operations of $26-$28 million (or $0.66-$0.71/share) and have a year-end 2013 net debt position of approximately $18 million (0.5 times fourth quarter funds from operations annualized).
The Company has been making significant progress in delivering production growth and cost reductions. The asset at Mantario continues to perform very well and Management believes it will be developed into a premier asset with a long reserve life, low decline, and high recovery factor. This asset will be capable of generating significant predictable cash flow for the company. In addition to the Mantario asset, the team has identified a number of exploration prospects that will be tested in the near future that could provide the next leg of growth. With a strong balance sheet and foundation of cash flow we have the capability to fund the growth of the Company.
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 expectation of operating costs, future drilling and development under its capital program, as well as forecasts for average production, commodity prices, heavy oil differentials, funds from operations and net debt.
Statements relating to “reserves” are deemed to be forward-looking statements, as they involve the implied assessment, based on certain estimates and assumptions, that the reserves described can be profitably produced in the future.
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 natural 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.
Todd Hirtle
Vice President, Finance and Chief Financial Officer
403.218.4380
www.rockenergy.ca