Rock Energy Inc. Announces 2013 Results, Increases Capital Spending and
Guidance for 2014, and Updates First Quarter Operations
NEWS RELEASE TRANSMITTED BY Marketwired
FOR: Rock Energy Inc.
TSX SYMBOL: RE
MARCH 21, 2014
Rock Energy Inc. Announces 2013 Results, Increases Capital Spending and
Guidance for 2014, and Updates First Quarter Operations
CALGARY, ALBERTA--(Marketwired - March 21, 2014) - 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
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, 2013. 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, 2013 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
Year Ended December 31, 2013 2012
Crude oil and natural gas revenue ($000) $ 81,717 $ 46,567
Funds from operations ($000) (1) $ 30,571 $ 13,592
- basic $ 0.78 $ 0.35
- diluted $ 0.76 $ 0.35
Net loss ($000) $ (1,806) $ (12,210)
- basic $ (0.05) $ (0.31)
- diluted $ (0.05) $ (0.31)
Capital expenditures (divestitures), net ($000) $ 46,726 $ (14,337)
As at December 31, 2013 2012
Net debt (2) ($000) $ 18,135 $ 3,072
Common shares outstanding (000) 39,423,913 39,101,582
Options outstanding (000) 3,123,106 2,738,437
Year ended December 31, 2013 2012
Average daily production
Crude oil and natural gas liquids (bbls/d) 3,195 1,836
Natural gas (mcf/d) 2,183 3,246
Total (boe/d) 3,559 2,377
Average product prices
Crude oil and natural gas liquids (Cdn$/bbl) $ 68.03 $ 64.81
Natural gas (Cdn$/mcf) $ 3.45 $ 2.54
Combined average (Cdn$/boe) $ 62.91 $ 53.53
Field netback (Cdn$/boe) (1) $ 27.37 $ 18.33
(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
(2) Net debt excludes commodity price contracts.
LETTER TO THE SHAREHOLDERS
The last year has been a remarkable year of transformation for Rock. Our total
corporate production grew from approximately 3,200 boepd in the first quarter
of last year to currently exceeding 4,800 boepd, an increase of 50%.
During 2013, our operational focus started with the development of a strong
production base at Mantario through the drilling of 27 (27.0 net) wells and the
delineation of the pool. We then moved to design the water/chemical flood to
maximize the recovery factor and arrest declines. In the meantime, the company
was successful in discovering a new extension to the Viking light oil play at
Onward. The activity in these core areas dominated our spending for the year
and produced not only a significant increase in production, but an increase in
operating cash flow as we grew production of higher netback, low cost oil.
While we were focusing our growth in Mantario and Onward, we were also able to
divest of our heritage heavy oil assets in the Lloydminster area. We have spent
a limited amount of capital here in the past few years, and have decided to
sell these high operating cost properties so that we can re-deploy the proceeds
into our development plans at Mantario and Onward. In 2013, our average cash
flow netback was approximately $24/boe; in 2014 with the new production mix
yielding higher prices and lower operating costs, we are forecasting an average
cash flow net back of over $35/boe.
Rock has made a strategic shift in focus during the last year to assets that
have higher product prices and lower operating costs yielding higher netbacks.
However, we also remained focused on developing a suite of assets with the
highest possible recovery factors so that we can achieve the lowest possible
decline rates to provide a sustainable foundation of production and cash flow.
Rock's 2013 Operating Accomplishments
During 2013, the Company expanded its total proved reserves by 17% to 6.8
million boe from 5.8 million boe at year-end 2012. Our total proved plus
probable reserves at year-end 2013 increased 22% to 10.9 million boe from 8.9
million boe at the end of 2012. The proved plus probable reserve additions
replaced 254% of production during the year. In 2013, Rock delivered average
daily production of 3,559 boepd, and during the fourth quarter production
averaged 4,023 boepd. Currently, the Company is producing over 4,800 boe per
day with a 95% oil weighting.
Rock spent a total of $23.0 million at Mantario in 2013 ($21.9 million
drilling, $1.1 million land and seismic). The Company drilled a total of 22
(22.0 net) vertical step-out oil wells, and 2 (2.0 net) horizontal infill
producers into the main pool. This development drilling was able to expand the
size of the pool; however, the Company believes it may extend further to the
south east. In addition to the oil wells, Rock also drilled 2 dry and abandoned
exploration wells in Mantario, and 1 water source/service well (for the planned
water/chemical flood). The exploration wells were testing new leads, but with
refinement to our seismic/geological model we have identified another 4 - 8
exploration leads in the area. These new exploration leads and the pool
extension will be tested in the next 12 months. Mantario at year end had 36
producing oil wells yielding over 3,000 bopd and is currently producing over
3,300 bopd from 40 wells.
At Onward, we continued to advance the development of our water flood in the
Mannville (Lloydminster) Formation by acquiring interests in offset lands from
competitors and crown land sales, and drilling two net oil wells. Production
from the water flood project is currently 325 bopd. In the fourth quarter we
drilled 2 (2.0 net) additional Mannville exploration wells in the area, of
which one was dry and abandoned, and one which discovered a new Lloydminster
pool near our existing facilities. The new discovery well is currently
producing over 100 bopd and the company plans to follow up this discovery with
4 - 6 drilling locations in the second half of 2014. During the year Rock
invested $7.6 million at Onward developing the Mannville Formation.
In addition to the Mannville development at Onward, during 2013 Rock discovered
and began to develop a Viking light oil resource play by investing $14.0
million ($1.7 million land, $12.3 million drilling and completions). The
original play concept was tested by recompleting three vertical wells on our
existing land base to determine if the Viking Formation was oil charged on our
lands. With these successful tests, Rock assembled over 38 net sections of land
over the area that we believed to be prospective. By September we were in a
position to drill our first 2 (2.0 net) horizontal wells. These wells were
successful, producing at average (IP 30) rates of 40 bopd. Rock then proceeded
to drill another 8 (8.0 net) wells before the end of the year. The next set of
wells came on at average rates (IP 30) of approximately 50 bopd. Of the 10
(10.0 net) wells drilled into the Viking play only 7 were completed by
year-end. Production from the Viking at year end was less than 200 bopd,
however, the Viking is currently producing approximately 450 bopd (from 14 of
18 wells drilled to date).
2013 Drilling Results
For the year ended December 31, 2013, the Company drilled a total of 46 (45.0
net) wells made up of 10 (10.0 net) Viking light oil wells, 31 (30.0 net) heavy
oil wells, 1 (1.0 net) service well and 4 (4.0 net) dry and abandoned wells,
for an overall net casing success rate of 91%.
Rock's total Company proved plus probable reserves increased by 22%
year-over-year to 10.9 million boe at year-end 2013 (from 8.9 million boe at
year end 2012) generating an RLI of 7.4 years (using 2013 fourth quarter
average production rates). All-in finding, development and acquisition costs
(including changes in future development capital and revisions) averaged $31.42
per proved plus probable boe, and $32.75 per total proved boe.
At Mantario, the Company anticipates that the eventual finding costs will trend
lower as the additional resource potential for the main Rex pool related to
successful secondary (water flood) and tertiary (chemical flood) oil recovery
should be recognized as reserves over time, with limited (if any) additional
future development capital.
At Onward, the year-end reserves report assigns reserves and value to less than
10% of the potential that the Company has identified.
Further information respecting Rock's year-end reserves is contained in
its AIF, which has been filed on the SEDAR website at www.sedar.com and may
also be obtained on Rock's website at www.rockenergy.ca.
Rock generated funds from operations of $30.6 million ($0.78 per basic share,
0.76 per fully diluted share) in 2013, compared to $13.6 million ($0.35 per
basic share) in 2012. For the fourth quarter of 2013, the Company generated
funds from operations of $9.4 million ($0.24 per basic share) compared to $11.5
million ($0.29 per basic share) in the third quarter of 2013. Funds from
operations for the fourth quarter were adversely impacted by increased price
differentials (WTI vs. Western Canada Select). Realized prices averaged
$59.87/boe during the quarter compared to $62.91/boe during the year. Operating
costs continue to trend downward as lower cost production from Mantario
continued to grow (averaging $19.33 per boe in 2013 compared to $24.21 per boe
The Company had a net loss of $1.8 million ($0.05 per basic and fully diluted
share) in 2013 compared to a net loss of $12.2 million ($0.31 per basic share)
in 2012. Rock incurred net capital expenditures of $46.7 million in 2013 of
which $23.0 million was focused on Mantario, and $14.0 million was spent on the
emerging Viking play at Onward. Total year-end net debt was $18.1 million
against available bank lines of $45.0 million resulting in a debt to fourth
quarter annualized cash flow ratio of 0.5. The Company recently received an
increase to its combined credit facility to $70.0 million from its lending
2014 Area Activity Update
To date in 2014, Rock has drilled 14 (14.0 net) oil wells with 100% casing
success including 4 (4.0 net) Mantario vertical step out locations in the main
pool, 8 (8.0 net) horizontal Viking oil wells at Onward and 2 (2.0 net)
successful Mannville oil wells (Onward, Neilburg).
The 4 vertical step out locations drilled in the first quarter have confirmed
that the main pool continues to the south east with pay thicknesses ranging
from 4 - 6 meters. Rock is now planning to drill an additional 6 vertical wells
(on 40 acre spacing) to continue to extend the eastern limit of the main pool
plus 9 horizontal infill locations. Production from the pool is currently
averaging approximately 3,300 bopd from 40 producing wells including the
contribution from the two horizontal wells (175 - 200 bopd each). Subsequent to
year end, Rock was able to acquire the working interest in the lands from one
of the offset owners on the West side of our main pool at Mantario for $3.9
Rock is proceeding with the implementation of a water/chemical flood at
Mantario to arrest the decline and maximize the recovery factor of this pool.
The Company has completed the application with Saskatchewan Government and
expects to receive the preferred royalty treatment applicable to Enhanced Oil
Recovery ("EOR") projects. This royalty program allows the Company to
recover the capital costs incurred to implement the EOR project
(chemical/polymer flood) through a reduction in royalties. Rock expects to
receive further clarification from the Government in the coming weeks, but it
is anticipated that we will receive a royalty credit of approximately $20 - $30
million over the next 2 - 3 years (starting in 2015). The engineering and
design work for this project is completed and we expect to commence water
injection into the reservoir for pressure maintenance by the end of the third
quarter of this year.
During the first quarter of 2014, the Company drilled an additional 8 (8.0 net)
horizontal oil wells in to the Viking Formation at Onward. Production rates
(IP30) for these wells continue to average approximately 50 bopd and total
production from the Viking net to Rock is approximately 450 bopd from 14 of the
18 wells drilled to date. With a total of 18 (18.0 net) wells drilled in to the
play, Rock believes the Company has successfully demonstrated an economically
viable light oil Viking resource play on 15.5 sections. Under full development
at 16 wells per section this would generate 230 remaining development drilling
locations. In light of this success, the Board of Directors have approved an
expansion to Rock's capital program for 2014 to allow for the continued
development of this Viking play. Rock expects to drill an additional 17 wells
by the end of the year to more fully evaluate the lands in this area.
During the fourth quarter of 2013, Rock drilled a discovery well at
11-16-34-24W3 into a new Lloydminster pool (West Onward). This discovery well
has been producing at rates exceeding 100 bopd for the last two months. With
this success we have mapped a potential new pool that indicates potentially 10
- 15 development locations, and we plan to drill the first 4 follow up wells in
third quarter of this year.
During the first quarter of 2014, Rock completed the acquisition of 130 bopd
from one of the offset owners on the West side of our main pool at Mantario for
$3.9 million. This transaction was closed on February 20, 2014 with an
effective date of February 1, 2014.
In addition to the Mantario acquisition, Rock has agreed to the sale of
substantially all of its heritage heavy oil assets in the Lloydminster region
(Alberta and Saskatchewan). With the successful completion of the transaction,
the Company will have divested of 450 bopd of heavy oil, including the
associated infrastructure and related abandonment liabilities, for $7.0 million
effective February 1, 2014 to a private oil and gas Company. The transaction is
anticipated to close by March 31, 2014.
These transactions are significant steps in the transformation of Rock into a
higher net back, lower operating cost producer.
During November and December of 2013, the Company experienced a widening of
heavy oil differentials as refinery start-up delays and pipeline bottlenecks
persisted. Today the differential has narrowed considerably and is expected to
narrow further as the BP Whiting refinery ramps up the consumption of heavy
crude oil (160,000 bopd growing to 350,000 bopd in the next few months). It is
our view that these increases in refinery demand coupled with additional
pipeline projects (such as the recently announced Enbridge Line 9 reversal)
will continue to act to reduce the discount Canadian crude receives from world
prices. In addition to the crude oil pricing we are also benefiting from a
lower Canadian dollar exchange rate. For every $0.01 change in exchange rate,
the Company's cash flow changes by approximately $1 million for the year.
For the remainder of 2014, Rock is assuming that WTI averages $90.00 US/bbl,
WTI - WCS differential averages $20.00 US/bbl, AECO gas price averages
$3.50CDN/mcf and the exchange rate averages $0.92 CDN/US.
In order to minimize risk due to price fluctuations, Rock is actively hedging a
portion of our production. We currently have between 1,250 and 1,500 bbls/d
hedged quarterly at average WCS $81.42CDN/bbl until September 30, 2014. We also
transport up to 1,500 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 2014 Guidance
The strong performance from the first quarter's activities has prompted
the Company to expand its capital program to $85 million (from $62 million) and
revise its guidance for the year. The additional capital is largely focused on
continued drilling and de-risking of the Viking play at Onward, coupled with an
acceleration of the Mantario polymer flood, and the development of the Onward
West Lloydminster pool.
Rock's 2014 capital budget of $85 million is expected to provide 29%
growth in average daily oil production from 2013 (including the effect of the
asset rationalization activity). During the year the Company plans to drill up
to 61 wells with 25 horizontal wells to be drilled into the Onward Viking play,
10 vertical wells at Mantario to extend the pool boundaries, 9 horizontal
infill wells in Mantario to develop the pool and replace vertical wells being
converted to injectors, 8 Mannville development wells and 9 exploration wells.
The Company is forecasting this activity to generate average production of
4,500 - 4,700 boped (95% oil). Given the price assumptions mentioned above and
an average operating cost of $16.50/boe the Company is forecasting cash flow of
$59 - $61 million ($1.50 - $1.55/share). With this cash flow and capital
spending plan, the debt at the end of the year is forecasted to be $43 - $45
million (0.7 times forecasted fourth quarter cash flow annualized) against its
combined credit facility of $70 million.
As Rock approaches the second quarter of 2014, 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 continue 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
sustainable 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
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
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
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.
For further information please visit Rock's website at www.rockenergy.ca.
FOR FURTHER INFORMATION PLEASE CONTACT:
Rock Energy Inc.
Allen J. Bey
President and Chief Executive Officer
Rock Energy Inc.
Vice President Finance and Chief Financial Officer
INDUSTRY: Energy and Utilities - Oil and Gas
-0- Mar/22/2014 02:02 GMT
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