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Press release from Marketwire

Rock Energy Reports Financial and Operating Results for First Quarter of 2012

Monday, May 14, 2012

Rock Energy Reports Financial and Operating Results for First Quarter of 201220:19 EDT Monday, May 14, 2012CALGARY, ALBERTA--(Marketwire - May 14, 2012) - Rock Energy Inc. (TSX:RE) ("Rock") announces its financial and operational results for the three months ended March 31, 2012. Rock has filed its unaudited condensed interim Consolidated Financial Statements for the period ended March 31, 2012 and related Management's Discussion and Analysis ("MD&A"). Copies of Rock's materials may be obtained on www.sedar.com and on its website at www.rockenergy.caCertain selected financial and operations information for the three months ended March 31, 2012 and the 2011 comparatives are set out below and should be read in conjunction with Rock's unaudited condensed interim Consolidated Financial Statements and MD&A.CORPORATE SUMMARYThree Months EndedThree Months EndedMarch 31, 2012March 31, 2011Crude oil and natural gas revenue ('000)$12,300$16,062Funds from operations ('000) 1$3,198$4,452Per share - basic$0.08$0.14- diluted$0.08$0.13Net income (loss) ('000)$(3,822)$720Per share - basic$(0.10)$0.02- diluted$(0.10)$0.02Capital expenditures, net ('000)$10,208$19,835As atAs atMarch 31, 2012March 31, 2011Working capital (deficiency) including bank debt and excluding commodity price contracts ('000) $7,987(47,549) Common shares outstanding39,079,08332,774,180Options outstanding2,261,3352,899,995Three Months EndedThree Months EndedOPERATIONSMarch 31, 2012March 31, 2011Average daily productionCrude oil and natural gas liquids (bbls/d)1,7682,609Natural gas (mcf/d)3,9555,268Total (boe/d)2,4273,487Average product pricesCrude oil and natural gas liquids (Cdn$/bbl)$71.34$60.45Natural gas (Cdn $/mcf)$2.29$3.94Combined (Cdn$/boe)$55.69$51.18Field netback (Cdn$/boe) (1)$18.96$20.03(1) Funds from operations, funds from operations per share and field netback are not terms prescribed by IFRS or the previous Canadian generally accepted accounting principles (Canadian GAAP), 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.During the first quarter of 2012 Rock completed the disposition of the Montney natural gas assets at Elmworth for $46 million which was used to eliminate bank debt and provide a cash surplus of $14.5 million, and then focused its operating activity on crude oil initiatives at Onward and Mantario in the newly established Southwest Saskatchewan core area. The quarter was highlighted by the following:Drilled 2 (2.0 net) successful oil wells at Mantario following a successful exploration discovery in the fourth quarter of 2011; Acquired an additional 5,700 net acres of undeveloped land at Mantario; Completed a 42 square-kilometre 3D seismic program at Mantario; Drilled 5 (5.0 net) wells at Onward including 2 (2.0 net) successful producing oil wells and 3 (3.0 net) water injection wells; Constructed the pipeline tie-ins of the Onward north pool to reduce operating costs and initiate water injection; Averaged 2,427 boe per day (73% crude oil and liquids and 27% natural gas) of production; Spent a total of $10.2 million on a capital expenditure program focussed on crude oil initiatives at Onward and Mantario; and Generated funds from operations for the quarter of $3.2 million ($0.08/share).Rock generated a field netback of $18.96 per boe in the first quarter of 2012 compared to $29.38 per boe in the fourth quarter of 2011. Field netbacks for the quarter were primarily impacted by a widening price differential for heavy oil.Rock's realized price in the first quarter of 2012 was $55.69 per boe compared to $61.23 per boe in the fourth quarter of 2011. The decrease in price realizations is primarily attributed to a temporary widening in the heavy oil price differential and lower gas prices. A significant amount of pipeline disruptions and unplanned refinery maintenance programs caused the WTI-WCS price differential to increase to more than $31 per barrel in March, and during the first quarter this differential averaged $21.48 per barrel compared to $10.44 per barrel in the fourth quarter of 2011). This wide differential has extended into April, however, the repairs have been completed and the differential has returned to a more normal range of $15 - $20 per barrel.Operating costs increased to $24.93 per boe in the first quarter of 2012 compared to $21.70 per boe in the fourth quarter of 2011. This increase in costs was due to additional workover activities, and prior period costs for gas processing on the disposed Elmworth natural gas assets, and fuel gas charges at the Onward property for 2011. Rock expects to reduce our operating costs going forward through the completion of the pipeline tie-ins at Onward (reducing trucking costs), fuel gas initiatives at our oil wells and the installation of water handling and disposal facilities in the Lloydminster area.Capital expenditures for the first quarter of 2012 were $10.2 million including $6.3 million for the drilling program and pipeline infrastructure costs at Onward and $3.9 million for the drilling program, land acquisitions and the 3D seismic program at Mantario.After the disposition of the Montney Elmworth natural gas assets in February 2012, Rock's daily production for the first quarter of 2012 averaged 2,427 boe per day.Area Activity UpdateDuring the first quarter Rock acquired 5,700 net acres of undeveloped land in its new Mantario crude oil exploration area in Southwest Saskatchewan, following up on a successful 100 percent working interest exploration well that was drilled, completed and put on production in the fourth quarter of 2011. The success of the exploration well in this area was followed up with two additional adjacent 100 percent working interest wells drilled in the first quarter of 2012. At the present time Rock has two wells in the pool producing an average of 60 boepd each. The third well will be completed and brought onstream after spring break-up. The drilling program in this area has been supplemented with a 42-square-kilometre 3D seismic program that was completed in the first quarter of 2012 and is currently being evaluated. The 3D seismic program will be used to support an ongoing drilling program in the area through 2012 into 2013.In addition to the activity at Mantario, Rock drilled five (5.0 net) wells at Onward, a heavy oil property acquired in 2011. The drilling activity included two producing oil wells and three water injection wells as the Company initiated a comprehensive waterflood program on the north pool and optimized the flood pattern on the south pool. During the quarter Rock also completed the construction of the pipeline tie-ins for the Onward north pool to reduce operating costs (through reduced trucking of produced fluid, and replacing propane fuel with natural gas) and initiate water injection. These initiatives have also increased heavy oil production on this long-life asset from an acquired production rate of 265 barrels per day in early 2011 to the current production level of 320 barrels per day. As the water flood project advances the company anticipates further production increases.To date in 2012, Rock has drilled a total of 4 (4.0 net) crude oil wells and 3 (3.0 net) water injection wells.OutlookRock is maintaining its previously announced capital budget of $30 million that includes drilling an estimated total of 21 wells in 2012. Following the first quarter activity the company plans to drill an additional 14 (14.0 net) oil wells in the Southwest Saskatchewan core area including 12 (12.0 net) oil wells at Mantario and 2 (2.0 net) oil wells at Onward. The capital program includes an anticipated $14 million focused on the crude oil program on Rock's new Mantario exploration area in Southwest Saskatchewan and an anticipated $10 million for heavy oil waterflood initiatives associated with the development of its Onward asset. The remainder of the capital program will target optimizing the Company's heritage heavy oil assets in the Plains region with a focus on production optimization and ongoing operating cost reductions.Assuming that for the remainder of 2012 crude oil prices average US $100.00 WTI per barrel, the WTI-WCS differential averages $20.00/bbl and natural gas at AECO averages $2.00 CDN/mcf with an exchange rate of $1.00 CDN$/US$ the Company would generate cash flow of $19 million (or $0.50/share) and have a year-end 2012 net working capital position of approximately $4 million.As a result of the disposition of the Montney natural gas assets in February 2012 for gross proceeds of $46 million, Rock has eliminated its outstanding debt and has a positive net working capital position of $8.0 million as at March 31, 2012. In addition, after consideration of the disposition of natural gas assets, the Company's bank facility was established at $45 million. The Company has emerged from 2011 with a strong platform for growth. That platform is made up of a significant inventory of development drilling locations, an active exploration program and a strong balance sheet. Rocks foundation of funds flow, cash and significant debt capacity allow the company to pursue complementary acquisitions or mergers as well as considering additional expansions to the planned 2012 capital program as new exploration and development opportunities are identified.Advisory Regarding Forward-Looking Information and StatementsThis 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 Rock's 2012 average production, expected costs, capital spending plans and timing thereof, forecasted cash flow, growth prospects and the Company's drilling plans.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 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 CONTACT: Allen J. BeyRock Energy Inc.Chief Executive Officer(403) 218-4380ORJohn H. Van de PolRock Energy Inc.President & CFO(403) 218-4380www.rockenergy.ca