Rock Energy Announces 2010 Year End Results and Activity Update
16 März 2011 - 2:56AM
Marketwired Canada
Rock Energy Inc. (TSX:RE) ("Rock") is pleased to report its financial and
operating results for the year and three months ended December 31, 2010. In
addition, Rock reports that it has filed its Annual Information Form ("AIF"),
which includes Rock's reserves data and other oil and gas information for the
year ended December 31, 2010. The AIF includes annual disclosures regarding
reserves data and other oil and gas information as mandated by National
Instrument 51-101 Standards of Disclosure for Oil and Gas Activities of the
Canadian Securities Administrators. Copies of Rock's audited financial
statements and related management's discussion and analysis and AIF for the year
ended December 31, 2010 have been filed on the SEDAR website at www.sedar.com
and may be obtained on Rock's website at www.rockenergy.ca.
Rock is a Calgary based crude oil and natural gas exploration, development and
production company.
CORPORATE SUMMARY
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FINANCIAL Three Months Three Months
Year ended Year ended Ended Ended
December 31, December 31, December 31, December 31,
2010 2009 2010 2009
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Crude oil and natural
gas revenue ($000) $ 63,354 $ 50,025 $ 15,732 $ 14,597
Funds from operations
($000) (1) $ 25,941 $ 19,644 $ 6,189 $ 6,150
Per share - basic $ 0.84 $ 0.73 $ 0.19 $ 0.21
- diluted $ 0.81 $ 0.72 $ 0.19 $ 0.20
Net loss ($000) $ (3,627) $ (6,274) $ (2,300) $ (556)
Per share - basic $ (0.12) $ (0.23) $ (0.07) $ (0.02)
- diluted $ (0.12) $ (0.23) $ (0.07) $ (0.02)
Capital expenditures,
net ($000) $ 42,292 $ 20,492 $ 12,119 $ 10,424
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As at As at
December 31, December 31,
2010 2009
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Working capital
deficiency including
bank debt and excluding
derivative contracts
($000) $ 32,364 $ 25,332
Common shares
outstanding (000) 32,754 30,557
Options outstanding (000) 2,042 1,592
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OPERATIONS Three Months Three Months
Year ended Year ended Ended Ended
December 31, December 31, December 31, December 31,
2010 2009 2010 2009
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Average daily production
Crude oil and natural
gas liquids (bbls/d) 2,376 1,843 2,298 2,007
Natural gas (mcf/d) 7,431 9,553 6,742 8,211
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Total (boe/d) 3,615 3,435 3,472 3,376
Average product prices
Crude oil and natural
gas liquids (Cdn$/bbl) $ 59.95 $ 52.56 $ 63.55 $ 64.14
Natural gas (Cdn$/mcf) $ 4.19 $ 4.20 $ 3.70 $ 4.38
Barrels of oil
equivalent (Cdn$/boe) $ 48.02 $ 39.89 $ 49.26 $ 47.00
Field netback (Cdn$/boe)(1) $ 23.94 $ 19.20 $ 23.55 $ 24.14
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(1) Funds from operations, funds from operations per share and field netback
are not terms under generally accepted accounting principles (GAAP). Funds
from operations represents cash generated from operating activities before
changes in non-cash working capital and asset retirement 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 loss
per share. Field netback is calculated as crude oil and natural gas revenues
less 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.
Rock's 2010 Accomplishments
Rock's main focus in 2010 was to increase its crude oil production and its
natural gas reserves. We are pleased to report that we achieved our goals and
are poised for an exciting 2011 and 2012.
In 2010, Rock built up its production base with average daily production of
3,615 boe per day, a 5 percent increase from an average of 3,435 boe per day in
2009. More important, in a strong crude oil price environment, we increased
crude oil and liquids production in 2010 by 29 percent as our production
weighting increased to 66 percent crude oil and liquids from 54 percent in 2009.
Current production is estimated to be 3,700 boe per day with a crude oil and
liquids weighting of more than 70 percent.
The Company significantly expanded its reserve position as total proved plus
probable reserves increased by 49 percent to 15.9 million boe at December 31,
2010 from 10.7 million boe at the end of 2009. With a focus on confirming the
existence of commercial Montney liquids rich natural gas on Rock's land at
Elmworth in our West Central Alberta core area, our 2010 activity increased
Rock's proved plus probable natural gas reserves by 74 percent to 52.1 bcf at
year-end from 30.0 bcf at the end of 2009.
We continue to carefully monitor and strengthen our financial position as we
implement our long-term growth strategy. With the advantage of solid crude oil
production and cash flow, we were capable of committing approximately 30 percent
of our 2010 capital program to Elmworth natural gas-focused activity that is
expected to provide long-term production and reserves growth. To support natural
gas initiatives planned for Elmworth in 2011, we completed a $10 million
flow-through equity financing in November 2010. With year-end debt of $32.4
million, our debt to cash flow ratio was 1.3 times our annualized fourth-quarter
2010 cash flow, and we had nearly $18 million in unutilized debt capacity.
Rock's 2010 activities strengthened the Company's ability to continue growing.
We have increased the heavy oil drilling inventory in our Plains core area from
120 locations at the end of 2009 to 170 current locations after drilling 32
wells in 2010. Equally important, we have established a significant resource
play at Elmworth in our West Central Alberta core area that could have a
material impact on the Company as the number of horizontal Montney natural gas
drilling locations across our 62-section Montney play has been dramatically
increased as a result of successful drilling in 2010.
As we approach the second quarter of 2011, we are excited about our planned
initiatives at Elmworth. Rock now has the cash flow engine provided by our heavy
oil production to support the development of our Elmworth natural gas resource
play.
Drilling Results
Rock drilled and cased 31 (31.0 net) heavy oil wells and drilled one (1.0 net)
dry and abandoned well in the Plains area at a casing success rate of 97
percent. This program increased heavy oil volumes by 39 percent year-over-year,
from an average of 1,493 bbls per day in 2009 to 2,071 bbls per day in 2010,
sharply increasing the Company's crude oil production weighting. The Company
also drilled seven (4.3 net) successful natural gas wells in 2010, including
three 100 percent working interest Montney vertical natural gas wells at
Elmworth. This program confirmed the existence of Montney natural gas reserves
in the Elmworth area and positions Rock to initiate a significant horizontal
development program in 2012.
An important goal in 2010 was to quantify or delineate the natural gas resource
potential on our North Elmworth Montney lands. Accordingly, Rock drilled two 100
percent working interest Montney vertical test wells (14-12-70-10W6M and
1-19-70-9W6M) in 2010, each of which confirmed the existence of commercial
Montney natural gas reserves. Both wells were tested at final production rates
of approximately 1.0 million cubic feet per day each.
Reserves and Net Asset Value
Rock's year-over-year increase of 49 percent in total Company proved plus
probable reserves to 15.9 million boe at year-end 2010 replaced 497 percent of
the Company's 2010 production. All-in finding, development and acquisition costs
averaged $16.15 per proved plus probable boe. Rock obtained reserve recognition
for nine horizontal wells on three sections of the Company's 62 net sections of
Montney lands at Elmworth. We expect to see additional reserves recognized as we
prove up the Elmworth Montney play.
The year-end 2010 reserve report by GLJ Petroleum Consultants Ltd., using its
January 1, 2011 price forecast, indicates a value of $203.6 million for Rock's
proved plus probable reserves (net present value discounted at 10 percent,
before tax). Rock's net asset value is calculated as $6.12 per basic share,
assuming year-end net debt of $32.4 million, 91,517 net acres of land valued at
$29.1 million and 32.8 million basic shares outstanding.
Further information respecting Rock's year end reserves will be contained in
its' Annual Information Form.
Financial Results
Rock increased its funds from operations by 32 percent to $25.9 million ($0.84
per share) in 2010 from $19.6 million ($0.73 per share) in 2009. The Company
reduced its net loss to $3.6 million ($0.12 per share) in 2010 from $6.3 million
($0.23 per share) in 2009.
The Company incurred capital expenditures of $42.3 million of which $26.7
million was focused on heavy oil operations and $13.2 million on Elmworth
natural gas initiatives. Total year-end debt was $32.4 million against available
bank lines of $50 million, which will be subject to review in April 2011.
Area Activity Update
To date in 2011 we have drilled 5 (5.0 net) heavy oil wells as part of a planned
40-well program for this year. The Company has also drilled 2 (1.5 net)
successful natural gas wells, including a 50 percent working interest Montney
horizontal well at Elmworth and a 100 percent working interest well at Saxon.
In January 2011, Rock drilled and cased its first North Elmworth 50 percent
working interest Montney horizontal well (13-7-71-9W6M). The Montney B zone was
drilled horizontally for 1,500 metres and was completed through a 10-stage
fracture stimulation using 100 tonnes of sand per stage. In February 2011, the
well tested for three days at a final production rate of 7.7 mmcf per day plus
more than 50 bbls of natural gas liquids per mmcf of natural gas at a wellhead
flowing pressure of 1,250 psi. This exciting result has exceeded our
expectations, and we are working to tie this well in and have it on-stream by
the third quarter of 2011.
Rock's 100 percent working interest Montney vertical test well (6-6-69-9W6M) at
South Elmworth 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. 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 three
days with an initial production rate of 2.5 mmcf per day and a final rate of 0.6
mmcf per day at a flowing tubing pressure of 230 psi. This formation also
produced approximately 25 bbls of natural gas liquids per mmcf. In March 2011,
the Montney C zone was completed, fracture-stimulated and tested for three days
with an initial production rate of 2.5 mmcf per day and a final rate of 0.7 mmcf
per day at a flowing tubing pressure of 100 psi. This zone also produced
approximately 25 bbls of natural gas liquids per mmcf. The up-hole Halfway zone
in this well will be completed and tested after spring break-up, and the well is
expected to be tied-in and on production by the third quarter of 2011. This
well's results have further confirmed the extension of commercial Montney
natural gas reserves (both B and C zones) on Rock's South Elmworth lands.
Given this success to date, Rock is proceeding with its second 100 percent
working interest vertical stratigraphic test well at South Elmworth in the
second quarter of 2011, as part of its planned four-well vertical test program
at Elmworth in 2011 and 2012. Thereafter, we intend to implement a comprehensive
exploitation plan to begin building our Montney production at Elmworth.
Outlook
Rock has a capital budget of $52 million for 2011 that will provide growth in
daily production while continuing to develop the Elmworth resource play. This
program includes an anticipated $30 million focused on heavy oil operations plus
necessary capital associated with the development of our recent property
acquisition at Onward. Approximately $12 million is expected to be spent on
Elmworth natural gas initiatives including tie-ins of new natural gas
production. Our drilling plan includes approximately 45 wells and is expected to
increase our 2011 production to an average of 4,000-4,400 boe per day and
generate cash flow of approximately $34 million ($1.05/share).
To date this year we have focussed on proving up the emerging resource play at
Elmworth. During the rest of this year we will be building our heavy oil
production base and cash flow. During the latter part of 2011, Rock intends to
bring its liquids-rich natural gas projects at Elmworth on-stream under the
first phase of its long-term development plan. Rock is well-positioned for
production and reserves growth in 2011 and beyond.
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;
; production rates and anticipated liquid yields from the Elmworth 6-6 Montney
vertical test well and information derived therefrom; 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 Elmworth and Plains areas; and
Rock's inventory of drilling locations.
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 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.
We have adopted the standard of 6 mcf:1boe when converting gas to boes. Boes can
be misleading, particularly if used in isolation. A boe conversion ratio of 6
mcf per barrel is based on an energy equivalency conversion method primarily
applicable at the burner tip and does not represent a value equivalency at the
wellhead.
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