Rock Energy Inc. Announces 2012 Results, and Updates First Quarter Operations

Rock Energy Inc. Announces 2012 Results, and Updates First Quarter Operations 
CALGARY, ALBERTA -- (Marketwire) -- 03/20/13 -- Rock Energy Inc.
(TSX:RE) ("Rock" or the "Company") is pleased to report its financial
and operating results for the year and three months ended December
31, 2012. 
Rock has filed its Annual Information Form (AIF), which includes
Rock's reserves data and other oil and natural gas information for
the year ended December 31, 2012. The AIF includes annual disclosure
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, 2012
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 exploration, development and
production company. 
CORPORATE SUMMARY 


 
                                                                            
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                                                          Three       Three 
                                                         Months      Months 
                            Year ended  Year ended        ended       ended 
                               December    December    December    December 
FINANCIAL                      31, 2012    31, 2011    31, 2012    31, 2011 
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Crude oil and natural gas                                                   
 revenue ($000)              $   46,567  $   64,289  $   12,802  $   17,100 
                                                                            
Funds from operations ($000)                                                
 (1)                         $   13,592  $   20,524  $    3,160  $    8,063 
 Per share - basic           $     0.35  $     0.56  $     0.08  $     0.21 
    - diluted                $     0.35  $     0.55  $     0.08  $     0.21 
                                                                            
Net income (loss) ($000)     $  (12,210) $   (6,919) $   (6,348) $   (4,992)
 Per share - basic           $    (0.31) $    (0.19) $    (0.16) $    (0.05)
    - diluted                $    (0.31) $    (0.19) $    (0.16) $    (0.05)
                                                                            
Capital expenditures ($000)  $   31,377  $   61,864  $    8,676  $    5,720 
                                                                            
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                                 As at       As at                          
                               December    December                         
                               31, 2012    31, 2011                         
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Working capital deficiency                                                  
 including bank debt and                                                    
 excluding derivative                                                       
 contracts ($000)            $    3,072  $   31,028                         
                                                                            
Common shares outstanding                                                   
 (000)                           39,102      38,786                         
Options outstanding (000)         2,738       2,531                         
                                                                            
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OPERATIONS                                                Three       Three 
                                   Year        Year      Months      Months 
                                 ended       ended        ended       ended 
                               December    December    December    December 
                               31, 2012    31, 2011    31, 2012    31, 2011 
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Average daily production                                                    
 Crude oil and natural gas                                                  
  liquids (bbls/d)                1,836       2,294       2,194       2,184 
 Natural gas (mcf/d)              3,246       5,026       2,904       5,108 
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 Total (boe/d)                    2,377       3,132       2,678       3,035 
                                                                            
Average product prices                                                      
 Crude oil and natural gas                                                  
  liquids (Cdn$/bbl)         $    64.81  $    68.52  $    58.86  $    77.86 
 Natural gas (Cdn$/mcf)      $     2.54  $     3.77  $     3.43  $     3.12 
 Combined average (Cdn$/boe) $    53.53  $    56.24  $    51.96  $    61.23 
                                                                            
Field netback (Cdn$/boe) (1) $    18.33  $    22.81  $    29.38  $    29.38 
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(1) Funds from operations, funds from operations per share and field
netback are not terms prescribed by International Financial Reporting
Standards (IFRS) or the previous Canadian generally accepted
accounting principles (Canadian GAAP), 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-IFRS measurements may not be comparable with the
calculation of similar measures for other companies. 
Introduction 
I am pleased to report that in a year Rock has made real progress on
many fronts - a remarkable turnaround from a year ago. Our total
corporate production currently exceeds 3,000 boepd led by strong
drilling results at our new discovery at Mantario. We have also
developed a significant inventory of drill locations on our heavy oil
properties.  
Twelve months ago Rock completed the sale of its natural gas assets
at Elmworth, was producing approximately 2,000 boe per day, and had
no debt with $14 million of cash in the bank. The Company had RE-set
the stage for its growth and future. We had a solid foundation of
assets, cash flow and a strong balance sheet, but we needed to
RE-focus and RE-start the Company. Our discovery well at Mantario was
producing 80 barrels of oil per day but we had not yet completed the
acquisition of the land or seismic needed to completely understand
the extent of the pool. We were encouraged by the initial drilling
results in the area, but many questions remained regarding the future
of the pool. At Onward we were making good progress on a water flood
scheme in our north pool and while we could identify the reserve
additions, we realized it would take time for production rates to
respond to the water injection. At Lloydminster we were focused on
reducing operating costs and implementing the early stages of two
high volume lift projects. 
With our assets and balance sheet in place, we turned our attention
to RE-energize the team. We made a number of staff changes and other
key additions, brought on a new CFO, VP Exploration and a Manager of
Engineering.  
Operationally, we have an ambitious year ahead of us. At Mantario we
have developed a producing property that is currently producing in
excess of 1,800 boepd and has become our flagship property for
reserve growth and production additions. At Onward, the water flood
is in operation, we are optimizing production, capturing the reserves
we identified, and continuing to explore in an area where we have
infrastructure. At Lloydminster, we will be completing the
installation of high volume lift facilities, and have expanded our
drilling inventory to over 60 locations. All of this demonstrates our
commitment to building a suite of assets that will provide our
shareholders with a strong, predictable base of cash flow. 
Rock's 2012 Operating Accomplishments 
After adjusting for the disposition of the Elmworth assets, the
Company expanded its total proved reserves by 16% to 5.8 million boe
from 5.0 million boe at year-end 2011. Our total proved plus probable
reserves at year-end 2012 increased 10% to 8.9 million boe from 8.1
million boe at the end of 2011. In 2012, Rock delivered average daily
production of 2,377 boepd; during the fourth quarter production
averaged 2,678 boepd. Currently the Company is producing over 3,000
boe per day with an 85% oil weighting 
At Mantario, we assembled a land position on our main pool that
exceeds 27 sections, and shot over 70 square kilometres of 3D
seismic. During the year we drilled 15 wells in Mantario, resulting
in 13 oil wells and two D&A wells. Rock spent a total of $17.5
million at Mantario in 2012 ($12 million drilling, $2.5 million land,
$3 million seismic). The activity in this area generated one-year F&D
costs of $17.24/bbl (including future development capital) compared
to last year's field netback price of $31.40/bbl. We anticipate that
the finding costs will come down going forward with limited spending
on land and seismic, and recognition of additional reserves by the
Company's independent engineering evaluator. 
At Onward, we completed the drilling of 2 heavy oil wells, 1 oil
well, and 3 water injection wells. In addition we pipeline-connected
the water flood area producers and expanded our central facility to
accommodate increased fluid volumes. In total Rock invested over $8
million at Onward during 2012. 
2012 Drilling Results 
Rock drilled and cased 17 (17.0 net) oil wells, three (3.0 net) water
injection wells and three (3.0 net) dry and abandoned wells. 
Reserves and Net Asset Value 
Due to the sale of the Elmworth property Rock's total Company proved
plus probable reserves decreased by 59% year-over-year to 8.9 million
boe at year-end 2012. However, on a proforma basis (adjusting for the
effect of the sale) total proved plus probable reserves increased by
7% to 8.9 million boe from 8.1 million boe, generating an RLI of 8.8
years (using December average production rates). All-in finding,
development and acquisition costs (including changes in future
development capital) averaged $13.05 per proved plus probable boe,
and $20.25 per total proved boe. On a proforma basis (adjusting for
the effect of the sale) and excluding reserve revisions, Rock
generated a one year finding and development cost of $21.09 per
proved plus probable boe, and $25.72 per total proved boe. It is
important to note that this reserve report recognizes 2.2 million boe
of proved plus probable reserves at Mantario. Since year-end 2012 the
Company has drilled an additional 14 wells to further confirm the
potential of this property. 
The year-end 2012 reserve report by GLJ Petroleum Consultants Ltd.,
using its January 1, 2013 price forecast, indicates a value of $133.3
million for Rock's proved plus probable reserves (net present value
discounted at 10%, before tax).  
The company's net asset value is calculated as $3.83 per basic share,
assuming debt at year-end of $3.1 million, 90,039 net acres of land
valued at $19.7 million and 39.1 million basic shares outstanding. 
Further information respecting Rock's year-end reserves is contained
in its AIF, as described above. 
Financial Results 
Rock generated funds from operations of $13.6 million ($0.35 per
basic share) in 2012, compared to $20.5 million ($0.56 per basic
share) in 2011. For the fourth quarter of 2012, the Company generated
funds from operations of $3.2 million ($0.08 per basic share)
compared to $3.7 million ($0.09 per basic share) in the third quarter
of 2012. Funds from operations for the fourth quarter were impacted
by increased price differentials (W.T.I vs. Western Canada Select)
during December and November. Realized prices averaged $51.96/boe
during the quarter compared to $53.53/boe during the year. Operating
costs decreased during the quarter as lower cost production from
Mantario began to grow (averaging $23.80 per boe compared to $25.69
from the prior quarter and $24.21 per boe for the full year of 2012). 
The Company had a net loss of $12.2 million ($0.31 per basic share)
in 2012 compared to a net loss of $6.9 million ($0.19 per basic
share) in 2011. Effective January 1, 2011, the Company has
transitioned to International Financial Reporting Standards (IFRS).
This has resulted in the regular assessment of potential asset
impairment losses by operating area, as well as recording gains or
losses on asset sales. The significant reduction in natural gas
prices throughout 2012 contributed to an impairment loss on Rock's
natural gas assets at Elmworth and Saxon of $9.9 million.  
The Company incurred net capital expenditures of $31.4 million in
2012 of which $17.5 million was focused on Mantario. Total year-end
net debt was $3.1 million against available bank lines of $45
million.  
2013 Area Activity Update 
To date in 2013 Rock has drilled 17 (16.0 net) wells as part of its
planned 28 (27.0 net) well program for this year.  
Rock drilled 14 (14.0 net) oil wells at Mantario. One well was
drilled to test an exploration lead in the northwest portion of the
land block and failed to encounter the primary basal Mannville zone.
It did however encounter 6 m of pay in the Success zone and was
production tested at 15 bbls of oil per day. This zone is currently
being studied to determine if a horizontal development strategy can
be used to exploit the resource. The other 13 wells were drilled in
the main pool. The focus of this early activity was to confirm the
seismic interpretation and delineate the extent of the pool. With
this information the company is now focused on developing a complete
exploitation strategy that would likely include approximately 30
follow-up 20 acre locations and the implementation of a water/polymer
flood in 2014. Production from this pool currently exceeds 1,800
bopd. Due to spring break up, we are forecasting a disruption to
production (reduced by up to 800 bopd). We will be constructing all
weather roads once conditions permit.  
In addition to the drilling activity at Mantario, Rock acquired 320
net acres of undeveloped land directly offsetting its water flood
project at Onward and drilled two (1.0 net) wells on the newly
acquired land. These two successful oil wells are currently being
tied-in to our processing facilities and should be producing by the
end of March. 
Rock drilled an exploration well at Gardenhead in SW Saskatchewan
commencing in December 2012, with operations completed early in the
first quarter. The well was unsuccessful, and has been abandoned. 
Commodity Prices 
During the recent few quarters we have seen a significant widening of
the price differential between light and heavy oil measured by the
West Texas Intermediate and Western Canada Select differential. The
primary cause of this widening has been attributed to the
supply/demand imbalance driven by the increase in supply and
temporary reduction in demand created by refinery maintenance (i.e.
BP Whiting) and pipeline maintenance. It is our view that these
structural changes in demand will be rectified in the coming quarters
and the differential will narrow significantly as demand for heavy
oil begins to outstrip supply. Some of the projects Rock is watching
that will trigger this narrowing include the start-up of the BP
Whiting refinery, the resumption of the Enbridge pipeline following
the maintenance program, the start-up of the Keystone Gulf Coast
pipeline, the second Seaway pipeline expansion, the start-up of the
Enbridge Flanagan pipeline and eventually the start-up of the
Keystone XL pipeline. All of these projects will act to allow
Canadian heavy crude oil to access more markets, including the U.S.
Gulf coast. 
These changes in the marketplace will take some time. Consequently,
in order to minimize risk due to price fluctuations, Rock is actively
hedging a portion of our production. We currently have 500 bbls/d
hedged at WCS CDN$73.08/bbl until the September 30, 2013. We also
transport up to 1,000 bbls per day by rail. Rock has been shipping
its heavy oil by rail for over two years in order to bypass pipeline
bottlenecks and achieve premium pricing. 
Outlook and 2013 Guidance 
During 2012, Rock took the steps needed to transition itself from a
company with a foundation of heavy oil production and a natural gas
resource play requiring significant capital, to one entirely focused
on oil plays in the Plains and Southwest Saskatchewan regions. These
are oil-prone areas where the Company has expertise, plays are
generally accessible year-round, well costs are within Rock's
financial capability, third-party processing infrastructure is not
required and Rock can apply proven production practices to improve
recovery factors. To prosper in Central Alberta and Saskatchewan, a
company like Rock needs to focus on projects within its means and
that generate early significant cash flow - in this price
environment, these are oil targets - that it can then re-invest to
continue to grow the production and cash flow, re-investing it into
exploration and development of resource plays that are scalable and
repeatable.  
Rock's 2013 preliminary capital budget of $30 million is expected to
provide 22% growth in average daily oil production. The capital
program includes an anticipated $13 million focused on the our oil
program at Mantario in Southwest Saskatchewan and an anticipated $2
million for water flood initiatives associated with the completion of
our Onward asset. In addition, $6 million will target optimizing the
Company's heritage heavy oil assets, including the installation of up
to two high volume lift projects and the drilling of 4-6 oil wells.
Rock has allocated $9 million (30%) to exploration initiatives
including land, seismic, and drilling, and has a number of exciting
exploration prospects which will be tested in the coming months. The
Company has chosen not to revise its guidance at this time as we want
to ensure the performance of the wells drilled in the first quarter
before providing a forecast for the remainder of the year. 
As Rock approaches the second quarter of 2013, the Company is excited
about the team we have assembled, the assets we have discovered and
developed, and the prospects that will allow us to develop a
significant growth profile. We are focused on building a suite of
assets that will continue to provide our shareholders with a solid,
long-life, predictable base of cash flow. 
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: 2012 average
production; anticipated production rates from the Onward waterflood
program; and Rock's drilling plans on its crude oil properties. 
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.
Contacts:
Rock Energy Inc.
Allen J. Bey
President and CEO
403-218-4380 
Rock Energy Inc.
Todd Hirtle
Vice President Finance and CFO
403-218-4380
www.rockenergy.ca
 
 
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