Rock Energy Inc. Achieves Record Production, Increases Capital Spending and Guidance for 2014, and Reports First Quarter

Rock Energy Inc. Achieves Record Production, Increases Capital Spending and 
Guidance for 2014, and Reports First Quarter Results 
CALGARY, ALBERTA -- (Marketwired) -- 05/12/14 --   Rock Energy Inc.
(TSX: RE) ("Rock" or the "Company") is pleased to report its
financial and operating results for the three months ended March 31,
2014. 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 March 31, 2014 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                                                           
 
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FINANCIAL                                                                   
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Three months ended March 31,                            2014           2013 
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Crude oil and natural gas revenue ('000)             $32,442        $13,228 
 
Funds from operations ('000) (1)                     $15,314         $3,048 
Per share - basic                                      $0.39          $0.08 
  - diluted                                            $0.37          $0.08 
 
Net loss ('000)                                     ($17,301)       ($3,608)
Per share - basic                                     ($0.44)        ($0.09)
  - diluted                                           ($0.44)        ($0.09)
 
Capital expenditures, net ('000)                     $22,888        $12,589 
 
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As at March 31,                                         2014           2013 
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Net debt ('000) (2)                                  $25,607        $12,695 
 
Common shares outstanding                         39,535,330     39,169,914 
Options outstanding                                3,043,689      3,113,117 
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OPERATIONS                                                                  
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Three months ended March 31,                             2014           2013
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Average daily production                                                    
  Crude oil and natural gas liquids (bbls/d)            4,620          2,770
  Natural gas (mcf/d)                                   1,673          2,661
  Barrels of oil equivalent (boe/d)                     4,899          3,214
 
Average product prices                                                      
  Crude oil and natural gas liquids ($/bbl)            $75.75         $49.72
  Natural gas ($/mcf)                                   $6.28          $3.47
  Total ($/boe)                                        $73.58         $45.73
 
Field netback ($/boe) (1)                              $39.64         $13.93
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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), 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 
During the first quarter of 2014 Rock achieved record daily
production and was able to make significant progress in delineating
the Viking light oil play at Onward and the development of an
enhanced oil recovery ("EOR") project at Mantario. 
The quarter was highlighted by the following specific
accomplishments: 


 
 
--  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); 
--  Averaged 4,899 boe per day (94% crude oil and liquids) of production
    representing a 22% increase from Q4 2013, and a 52% increase from a year
    ago; 
--  Divested the majority of our heritage heavy oil assets in the
    Lloydminster area for gross proceeds of $7.3 million, and acquired the
    working interests from the two offsetting owners at the Mantario pool,
    giving the Company 100% ownership and control of the main pool, for a
    combined total of $9.9 million (after adjustments); 
--  Spent a total of $22.9 million on the capital expenditure program; 
--  Generated funds from operations for the quarter of $15.3 million ($0.39/
    basic share); 
--  Effective April 1st, promoted Mr. Scott Kober to Vice President,
    Engineering; and 
--  On April 15th, received formal approval from the Saskatchewan Government
    for the EOR project at Mantario.

Rock's realized price in the first quarter of 2014 was $73.58 per boe
compared to $59.87 per boe in the fourth quarter of 2013. The
increase in price realization is primarily attributed to a narrowing
in the heavy oil price differential as additional refining
infrastructure came on stream and pipeline restrictions were eased.
The current WTI-WCS differential is trading around $17.00 - $20.00
US/bbl which is consistent with Rock's long term view of a
sustainable range. 
Operating costs increased during the quarter to $18.04 per boe
compared to $16.25 per boe in the fourth quarter of 2013. This
increase is attributable to additional heating and fuel costs during
an extended cold winter and the inclusion of the heritage heavy oil
assets until the asset sale transaction closed in late March. In
addition to the effect of the sale of the heritage heavy oil assets,
Rock expects to continue to reduce our operating costs going forward
through the addition of low cost production from Mantario and Onward
(Viking). 
Rock generated a field netback of $39.64 per boe in the first quarter
of 2014 compared to $28.47 per boe in the fourth quarter of 2013.
Though both royalty and operating costs were higher on a per boe
produced basis in the quarter, field netbacks were positively
impacted by improved product pricing. 
Gross capital expenditures for the first quarter of 2013 were $22.9
million, including $14.3 million for the drilling program, $4.4
million for facilities, $1.6 million for land and seismic and $9.9
million for acquisitions offset by $7.3 million of divestitures. 
Rock's daily production for the first quarter of 2014 averaged 4,899
boe/d (94% oil and liquids). Currently the Company is producing
approximately 5,000 boe/d. Though the Company is experiencing some
impact from spring break up on our operations, we do not expect it to
have a significant effect on our average production for the second
quarter. 
Asset Rationalization 
During the first quarter of 2014, Rock completed the acquisition of
approximately 290 bopd from the two offset owners on the west side of
our main pool at Mantario for a combined total cost of $9.9 million.
With these acquisitions, Rock now controls 100% of the Mantario main
pool and is able to consolidate our operations and expand the scope
of the EOR project. 
Rock sold substantially all of its heritage heavy oil assets in the
Lloydminster region (Alberta and Saskatchewan). With the successful
completion of the transaction, the Company has divested of
approximately 450 bopd of heavy oil, including the associated
infrastructure and related abandonment liabilities, for approximately
$7.3 million. 
These transactions are significant steps in the transformation of
Rock into a focused producer with higher net backs and lower
operating costs. 
Mantario 
Rock is proceeding with the implementation of a water/chemical flood
at Mantario to maximize recovery from this pool. The Company plans to
have the pressure maintenance scheme (water flood) operational by the
fourth quarter of this year, and the EOR scheme (polymer flood)
operational by Q2, 2015. On April 15, 2014 Rock received formal
approval from the Government of Saskatchewan for the EOR project at
Mantario. Incremental capital spent on the EOR project starting on
April 15, 2014 will qualify to reduce the royalty rate paid by the
project to 1% until the qualified capital is recovered. Rock has
estimated that the Company will experience a reduction in royalty
costs of approximately $15 - $20 million during 2015, and then a
further reduction for 2016 as additional qualified incremental
capital is spent. 
In conjunction with the acquisition of the offsetting working
interest owners, Rock is now applying to the Saskatchewan Government
to expand the EOR project to include the entire main pool. We expect
to receive approval by mid-summer. The expansion of this project will
provide a more efficient and complete recovery of the reserves
contained in the pool and additional royalty relief associated with
the incremental capital costs. 
At the present time Rock is moving forward with the construction of
the battery and infrastructure for this project, and once break up is
over we will also begin the drilling of the new infill producing
wells and conversion of the water/polymer injectors. Rock will also
drill 6 new vertical step-out wells to further delineate the extent
of the main pool. Production from the Mantario pool is currently
averaging approximately 3,500 bopd from 41 wells. 
Exploration efforts in Mantario during the remainder of the year will
be focused on testing 2 - 3 new pools along the main Mantario shore
face. In addition, Rock will test another 2 - 3 new exploration
targets in the greater Mantario area. 
Onward Viking 
During the first quarter of 2014, the Company drilled an additional 8
(8.0 net) horizontal oil wells into the Viking Formation at Onward.
Production rates (IP30) for these wells continue to average
approximately 50 bopd. 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 approximately 230 remaining development drilling locations.
Rock plans to drill an additional 17 step-out wells by the end of the
year to extend this play and more fully evaluate the Company's
remaining 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 three months. With this success the Company has mapped a
potential new pool that indicates potentially 10 - 15 development
locations, and plans to drill the first 3 - 4 follow up wells in the
third quarter of this year. In addition to this development project
Rock has identified another 3 - 4 exploration targets that the
Company plan to test in the next 12 months. 
Leadership Changes 
Rock is pleased to announce that as of April 1, 2014 Mr. Scott Kober
was promoted to Vice President, Engineering, responsible for our
reserves evaluation, reservoir management and business development.
Scott has over 18 years of experience in the industry and has been
working with Rock for the last 18 months as Manager, Engineering.
Scott's efforts have been instrumental in the development of the
Mantario field and the rationalization of our asset base. 
Mr. Bill Slavin has decided not to stand for re-election to our Board
of Directors. We wish to thank Bill for his many years of service
with Rock, and his invaluable contribution to our progress. 
Outlook and 2014 Guidance 
The strong performance from first quarter activities, and the
acquisition of the working interest partners in the Mantario pool
have prompted the Company to expand its capital program to $91
million (from $85 million) and revise its guidance for the year. The
additional capital was used to close the second acquisition at
Mantario. 
The Company is now forecasting to generate average 2014 production of
4,800 - 5,000 boe/d (95% oil). For the remainder of 2014, Rock is
assuming that WTI averages $95.00 US/bbl, WTI - WCS differential
averages $20.00 US/bbl, AECO gas price averages $4.00 CDN/mcf and the
exchange rate averages $0.92 CDN/US. Given these assumptions, the
Company is forecasting funds from operations of $64 - $66 million
($1.60 - $1.65/share). With the forecasted funds from operations and
capital spending plan, the net debt at the end of the year is
targeted to be $42 - $44 million (0.6 times forecasted annualized
fourth quarter funds from operations) against its combined credit
facility of $70 million. 
During the second quarter of 2014, the Company is working hard to
prepare for a very active summer. The third quarter of 2014 will see
the Company invest approximately $40 million towards constructing the
facilities at Mantario, drilling the infill locations for the
development of the Mantario pool, drilling the step out wells to
delineate the Viking light oil play at Onward, and testing 4 - 6 new
exploration ideas in core areas. The Company is actively engaged in a
process of divesting our remaining non-core assets while we build
production and value in our core areas through both acquisition and
drilling projects. We remain 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: forecast
average production; forecast funds from operations; forecast net
debt; forecast capital spending; anticipated in-service date for, and
royalty rates and royalty credits from the Mantario water/chemical
flood program; and Rock's drilling plans for 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
 
 
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