Rock Energy Inc. Achieves Record Production and Cash Flow, Increases Capital Spending and Guidance for 2014, and Reports Second

Rock Energy Inc. Achieves Record Production and Cash Flow, Increases Capital 
Spending and Guidance for 2014, and Reports Second Quarter
Results 
CALGARY, ALBERTA -- (Marketwired) -- 08/12/14 --   Rock Energy Inc.
(TSX: RE) ("Rock" or the "Company") is pleased to report its
financial and operating results for the three and six months ended
June 30, 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 June 30, 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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                                    Three Months Ended     Six Months Ended 
FINANCIAL                                     June 30,             June 30, 
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                                       2014       2013      2014       2013 
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Crude oil and natural gas                                                   
 revenue ('000)                     $37,422    $18,215   $69,864    $31,443 
 
Funds from operations ('000) (1)    $19,276     $6,665   $34,590     $9,705 
  Per share - basic                   $0.48      $0.17     $0.87      $0.25 
    - diluted                         $0.46      $0.17     $0.83      $0.25 
 
Net income (loss) ('000)             $8,292       $100   ($9,009)   ($3,508)
  Per share - basic                   $0.21          -    ($0.23)    ($0.09)
    - diluted                         $0.20          -    ($0.23)    ($0.09)
 
Capital expenditures, net ('000)    $12,004     $2,175   $34,892    $14,891 
 
                                                          As at      As at  
                                                        June 30,   June 30, 
                                                            2014       2013 
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Net debt ('000) (2)                                                         
                                                         $16,775     $8,165 
Common shares outstanding                             40,179,008 39,343,244 
Options outstanding                                    3,271,971  3,223,641 
 
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OPERATIONS                          Three Months Ended     Six Months Ended 
                                              June 30,             June 30, 
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                                       2014       2013      2014       2013 
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Average daily production                                                    
  Crude oil and natural gas                                                 
   liquids (bbls/d)                   4,730      2,704     4,675      2,737 
  Natural gas (mcf/d)                 1,549      2,379     1,611      2,519 
  Barrels of oil equivalent                                                 
   (boe/d)                            4,988      3,100     4,944      3,157 
 
Average product prices                                                      
  Crude oil and natural gas                                                 
   liquids ($/bbl)                   $85.32     $71.27    $80.62     $60.23 
  Natural gas ($/mcf)                 $4.99      $3.86     $5.65      $3.65 
  Total ($/boe)                      $82.45     $64.56    $78.08     $55.03 
 
Field netback ($/boe) (1)            $47.82     $28.61    $43.79     $21.18 
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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 second quarter of 2014, Rock achieved record daily
production and cash flow. Although the quarter experienced a
relatively low level of activity (as is typical during spring
break-up) the Company completed preparations for the upcoming summer
drilling season. 
The quarter was highlighted by the following specific
accomplishments: 


 
 
--  Drilled 4 (4.0 net) oil wells with 100% casing success including 1 (1.0
    net) horizontal Viking oil well at Onward and 3 (3.0 net) successful
    Mannville oil wells at Onward;  
--  Averaged 4,988 boe per day (95% crude oil and liquids) of production
    representing a 61% increase from a year ago; 
--  Spent a total of $12.0 million net on the capital expenditure program; 
--  Generated funds from operations for the quarter of $19.3 million ($0.48/
    basic share) which is an increase of 23% from Q1 2014 and 182% increase
    from a year ago; 
--  Net debt at the end of Q2 was $16.8 million and effective August 12,
    2014 the Company's bank has increased the lending facility to $80.0
    million; 
--  To date in Q3, the company has drilled another 6 (6.0 net) horizontal
    Viking oil wells at Onward, 2 (2.0 net) horizontal oil wells at
    Mantario, 1 (1.0 net) standing step out well at Mantario, and 2 (2.0
    net) unsuccessful exploration wells (West Mantario, Atlee Buffalo); and 
--  In conjunction with the acquisition of the two offsetting Mantario
    assets in Q1, Rock applied for, and on August 6, 2014 received, approval
    for the expansion of the EOR project at Mantario.

Rock's average realized price in the second quarter of 2014 was $82.45
per boe compared to $73.58 per boe in the first quarter of 2014. The
increase in price realization is primarily attributed to an increase
in WTI pricing, and a higher percentage of Viking light oil
production. 
Operating costs decreased during the quarter by 18% to $14.82 per boe
compared to $18.04 per boe in the first quarter of 2014. This
decrease is attributable to a change in production mix resulting from
the sale of the heritage heavy oil assets, combined with the increase
in lower cost production from both Mantario and Onward. Incremental
operating costs associated with spring break-up were minimal; however
wet weather was a challenging factor in July and to date in early
August. 
Rock generated a field netback of $47.82 per boe in the second
quarter of 2014 compared to $39.64 per boe in the first quarter of
2014. Though royalties were higher on a per boe produced basis in the
quarter, field netbacks were positively impacted by improved product
pricing and reduced operating costs.  
Gross capital expenditures for the second quarter of 2014 were $12.0
million, including $3.7 million for the drilling program, $8.6
million for facilities, $0.6 million for land and seismic offset by
$0.9 million of non-core property divestitures. 
Rock's daily production for the second quarter of 2014 averaged 4,988
boe/d (95% oil and liquids).  
Mantario 
Rock continues to move forward with the construction of the battery
and infrastructure for the implementation of the water/chemical flood
at Mantario. This summer the Company has drilled 2 (2.0 net)
horizontal wells and 1 (1.0 net) step out vertical location to the
south-east of the main pool. We have also drilled one unsuccessful
exploration well to the south west of the main pool. For the
remainder of the year the Company will drill another 6 (6.0 net)
vertical step out locations, 7 (7.0 net) horizontal producers into
the main pool, and convert 9 (9.0 net) wells into injectors. The
Company plans to have the pressure maintenance scheme (water flood)
operational by the beginning of Q4 this year, and in conjunction with
the recent approval for the project expansion, is working to
accelerate the EOR scheme (polymer flood) and have it operational
during Q1, 2015, once the EOR project is operational the Company will
be eligible to receive its royalty credit and thus a significant
increase in cash flow. 
Exploration efforts in Mantario during the remainder of the year will
be focused on testing 2 - 3 new pools along the existing main
Mantario shore face. In addition, Rock will test another 2 - 3 new
exploration targets in the greater Mantario area.  
Onward Viking 
During the second quarter of 2014, the Company did not complete any
horizontal oil wells in the Viking Formation at Onward. As a result
of this lack of drilling (due to spring break-up), Viking production
from this area (which peaked at approximately 500 bopd) has declined
to 250-275 bopd. Drilling of Viking wells has resumed after break up
and to date we have drilled 7 (7.0 net) horizontal step out wells.
These wells are currently being completed and brought on stream. Rock
plans to drill an additional 5 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. Another 6 step out wells will be drilled in Q1
2015 which have been delayed due to surface access limitations
requiring winter conditions. With the delay of this capital spending,
the Company has decided to reallocate funds to begin drilling
development locations in the areas already de-risked by our previous
activity. In addition, Rock has elected to expand our capital program
to drill an extra 10 (10.0 net) wells for a total of 15 (15.0 net)
Viking development locations by year end. With this additional
activity, Rock is now forecasting Viking light oil production to
reach approximately 1,000 bopd by year end. 
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. During the second quarter, Rock drilled 3 (3.0
net) follow-up locations. These wells were successful in encountering
the main Lloydminster formation and are being completed and brought
on stream. One of the wells encountered an additional pay zone in the
Bakken and initial completion results from this zone have been very
encouraging, yielding initial rates of over 50 bopd. We are mapping
this new zone to determine the size of the pool, and identify the
follow-up locations. In addition to this development work, Rock has
identified another 3 - 4 exploration targets that the Company plans
to test in the next 12 months. 
Outlook and 2014 Guidance 
The strong financial performance during the second quarter, and the
opportunity to accelerate production and cash flow growth, has
prompted the Company to expand its capital program to $110 million
(from $91 million) and revise its guidance upward for the year. The
incremental capital will be used for the additional Viking
development locations at Onward and to accelerate the implementation
of polymer injection at Mantario. While this additional capital
spending will not have a significant impact on 2014 results, it will
provide substantial benefits in 2015. 
The Company is now forecasting to generate average 2014 production of
4,900 - 5,100 boe/d (95% oil). For the remainder of 2014, Rock is
assuming that WTI averages $98.50 US/bbl, WTI - WCS differential
averages $20.00 US/bbl, AECO gas price averages $4.00 CDN/mcf and the
exchange rate averages $1.08 CDN/US. Given these assumptions, the
Company is forecasting funds from operations of $70 - $72 million
($1.75 - $1.80/share). With the forecasted funds from operations and
capital spending plan, the net debt at the end of the year is
targeted to be $55 - $57 million (0.6 times forecasted annualized
fourth quarter funds from operations) against its newly amended
credit facility of $80 million. 
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 also 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:
On behalf of the Board of Directors,
Allen J. Bey
President and Chief Executive Officer
403.218.4380 
Todd Hirtle
Vice President Finance and Chief Financial Officer
403.218.4380
 
 
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