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REPEAT: Rock Energy Inc. Announces 2013 Results, Increases Capital Spending and Guidance for 2014, and Updates First Quarter

REPEAT: Rock Energy Inc. Announces 2013 Results, Increases Capital Spending and 
Guidance for 2014, and Updates First Quarter Operations 
CALGARY, ALBERTA -- (Marketwired) -- 03/24/14 --   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, 2013. 
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 company. 
CORPORATE SUMMARY 


 
 
FINANCIAL                                                                   
----------------------------------------------------------------------------
Year Ended December 31,                                   2013         2012 
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Crude oil and natural gas revenue ($000)           $    81,717  $    46,567 
 
Funds from operations ($000) (1)                   $    30,571  $    13,592 
  Per share                                                                 
    - basic                                        $      0.78  $      0.35 
    - diluted                                      $      0.76  $      0.35 
 
Net loss ($000)                                    $    (1,806) $   (12,210)
  Per share                                                                 
    - 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 
 
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OPERATIONS                                                                  
----------------------------------------------------------------------------
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   
     companies.                                                             
(2)  Net debt excludes commodity price contracts.                           

LETTER TO THE SHAREHOLDERS 
Introduction 
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%. 
Reserves 
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. 
Financial Results 
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 in 2012). 
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 institution. 
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). 
Mantario 
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 million. 
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. 
Onward Viking 
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. 
Onward Mannville 
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. 
Asset Rationalization 
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. 
Commodity Prices 
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 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. 
For further information please visit Rock's website at
www.rockenergy.ca. 
Contacts:
Rock Energy Inc.
Allen J. Bey
President and Chief Executive Officer
403.218.4380 
Rock Energy Inc.
Todd Hirtle
Vice President Finance and Chief Financial Officer
403.218.4380
www.rockenergy.ca
 
 
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