Brian Zinchuk is editor and owner of Pipeline Online
ROK Resources was drilling near Oxbow on Sept. 29, 2023. Photo by Brian Zinchuk
REGINA – On Feb. 27 ROK Resources Inc. (TSXV:ROK)(OTCQB:ROKRF) announced its 2025 capital budget and guidance, emphasizing disciplined development of its conventional light oil prospects in core operating areas in Southeast Saskatchewan.
“Should commodity prices remain within the current range, the company will prioritize maintaining stable production and funds from operations will be directed to expeditiously reduce debt outstanding. Alternatively, if commodity prices improve, the company will pursue a more robust development plan, aimed at maximizing funds from operations derived from the continued delineation of core plays, while maintaining a resilient balance sheet,” the company said.
“In both instances, the company will be well positioned to consider alternate forms of returns to its shareholders. During a period of pricing volatility, ROK believes a flexible approach best positions the company to maximize shareholder value through disciplined capital allocation.”
Pipeline Online spoke to ROK CEO Cam Taylor on Feb. 27.
“We said if oil is $70, this is what it’ll look like. If it’s US$80, it could look like this. But we’re not trying to answer all questions. We’re trying to give people a couple of scenarios to take a look at and understand.”
At a US$70 WTI price and CAD$2.00/GJ AECO price points, the company is looking at a net 9.2 wells to be drilled, with a capital expenditure of $19.1 million. The daily average production would be expected to be 3,900 boepd, with a Q4 2025 production of 4,000 boepd. Funds from operations would be projected at $31 million.
At US$80 WTI and CAD$2.25/GJ AECO price points, ROK would be looking to drill 16.7 net wells. Capital expenditures would be budgeted at $29.5 million. Daily average production would be expected to climb to 4,250 boepd and Q4 2025 production would be budgeted at 4,700. Funds from operations would be budgeted at $39 million.
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These numbers are based on an exchange rate of CAD$0.70 per US$1.00, and production at 66 to 67 per cent liquids.
He said he couldn’t speak to any impact US President Donald Trump has had on oil prices. Trump has repeatedly said he wants to see lower oil prices.
The company would focus on Southeast Saskatchewan light oil prospects with development commencing late Q2 2025, with approximately 75% of capex allocated to drilling, completion, equipping, tie-in and production optimization
Its conventional Frobisher drilling expected to continue to deliver strong capital efficiencies and quick payouts. The company would continue to exploit its “vast inventory of multi-lateral Midale prospects.” ROK will also drill an emerging State A (Frobisher) open hole multi-lateral well.
There is also an intention for ROK to initiate a southeast Saskatchewan Midale waterflood project.
Tariffs
Trump has also promised tariffs on all Canadian goods – 25 per cent on everything except energy products – which would see a 10 per cent tariff. Asked what the impact would be on ROK, and the industry more broadly, Taylor replied, “If there’s going to be a tariff on oil or natural gas, there’s going to be some blended drop in price.”
“Let’s say you make up some fictional number that the tariff is going to be. Let’s say it’s 10 per cent. There’s going to be some smaller number, that is how much of the percentage of the oil from southeast that goes down Enbridge out of Cromer, for example, some percentage is going to be subject to that tariff. So that’ll turn into some dollars. So let’s say it’s 7 per cent on $70. That would be a $5 drop, potential drop in the price. But the question is, will the refiner pick that up, or will the producer pick that up? And that sort of depends on if the refiner has options. And then if it does happen, if there’s a whole bunch of other tariffs hit the Canadian economy, then the US dollar to Canadian dollar exchange rates is going to change. And that may absorb all of the loss. We might end up neutral on our oil price in Canadian.”
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He questions where else PADD 2 would get light oil from, and what would the exchange rate be?
“And then put on top of it, all the companies have hedges, usually financial and with WTI. So there’s also an impact on what happens there, because we forward sold our WTI price for a year at some number. So if the WTI oil price goes up or down, then we’ll make or lose money on that one, independent of our takeaway prices from oil sales in the field.”
Asked if tariffs brought in long term would impact Canadian oil production volume-wise, he responded, “Lower realized Canadian prices will impact drilling. Nobody’s going to stop producing. Maybe, if you got a 25 per cent tariff, some people would start shutting in skinny stripper wells. Southeast Saskatchewan has a lot of those, with a high water cut.”
He’s reluctant to get into hypotheticals. He notes they are effectively reactionary. “I have to wait until there is a tariff, and then once there is, and I know exactly what the percentage is and how it’s going to work, once we know what we are actually getting paid. My job is, once I actually know that there is a tariff and how much it is and how it works, then I get to make decision.”
Taylor said if there’s a tariff on oil that’s 10 per cent or less and there’s not other complications, the exchange rate could make the end result “minimal to a wash.”
Those comments closely mirror similar comments from Saturn Oil & Gas CEO John Jeffrey in a Feb. 13 interview with Pipeline Online.
Taylor said, “The reality is, as oil companies, we’re going to wait until we see the details, and it’s going to take probably a month or two or three to sort that into what the price is. So we’re a long way from knowing you know how it’s going to impact company budgets and things like that.”
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