Rock Energy Inc. Achieves Record Production, Increases Capital Spending and Guidance for 2014, and Reports First Quarter Resu...
12 Mayo 2014 - 9:26PM
Marketwired Canada
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.
FOR FURTHER INFORMATION PLEASE CONTACT:
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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