ARET Arete Industries Inc (CE)

Arete Industries, Inc. (OTCQB:ARET), announced revenue for the second quarter ended June 30, 2012 of $481,360 as the result of selling 5,525 barrels of oil and 20,457 Mcf of natural gas.

Highlights from Second Quarter 2012

• Arete had cash and cash equivalents of approximately $168,241 as of June 30, 2012.
• Arete sold 5,525 barrels of oil during the second quarter ended June 30th, 2012 and 20,457 Mcf of natural gas during the second quarter ended June 30th, 2012, representing 8,935 net barrels of oil equivalent (BOE).
• Oil production was 6,089 barrels for the quarter adding 564 barrels to increase its oil held in tanks awaiting sale to 5,917 barrels.
• Invested approximately $181,000 reworking existing wells which are expected to increase production in the second half of 2012.

The average oil price for the second quarter of 2012 of $74.33 per barrel decreased by 16.8% compared to $89.34 per barrel for the first quarter of 2012. During April and June 2012, the Company received "force majeure" notices about service interruptions and curtailments. As a result, natural gas production from the Company's Colorado properties was approximately 15% lower in the second quarter of 2012 compared to the first quarter of 2012. Furthermore, the average natural gas price, including proceeds from sales of natural gas liquids, amounted to $3.45 per Mcf for the second quarter of 2012, representing a decrease of 23.8% compared to $4.53 per Mcf for the first quarter of 2012.

The "force majeure" was related to the owner of the natural gas gathering system that the Company uses to transport production from its Colorado natural gas properties notifying us that it is undertaking a program to significantly expand its gathering and processing capacity. While the long-term impact of this program may be somewhat favorable, the near term impact will likely be service interruptions and curtailments that could have an adverse impact on the Company's future natural gas sales.

General and administrative expenses decreased by $396,156 in 2012 compared to 2011, primarily due to decreases in acquisition investigation and due diligence costs of $472,978 and unrelated party consulting fees of $28,551. Income from operations for the first six-months of 2012 was $12,441 compared to a loss of $1,259,910 for the first six-months of 2011.

Donald W. Prosser, CEO of Arete Industries stated: "The second quarter of 2012 was challenging due to a decrease in commodity pricing and some factors in our Colorado properties that were out of our control. Despite these economic and operational challenges, we were able to stay focused and post solid financial and production results, while significantly trimming our G&A expenses. Going forward, we expect to report strong revenue growth and gains from strategic sales as opportunities present themselves."

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About Arete Industries

The Company holds oil and gas properties in the Rocky Mountain Region of the United States and operates a small natural gas gathering system.  For additional information on Arete Industries visit the Company's new website at:  http://www.AreteIndustries.com/

SAFE HARBOR

This press release contains forward-looking statements regarding future events and our future results that are subject to the safe harbors created under the Securities Act of 1933 and the Securities Exchange Act of 1934. All statements other than statements of historical facts included in this report, such as statements regarding our future expectations to increase our production are forward-looking statements (often, but not always, using words such as "expects", "anticipates", "plans", "estimates", "potential", "possible", "probable", or "intends", or stating that certain actions, events or results "may", "will", "should", or "could" be taken, occur or be achieved). Forward-looking statements are based on our current expectations and assumptions about future events and involve inherent risks and uncertainties. These risks include, but are not limited to, the volatility in commodity prices for crude oil and natural gas, the presence or recoverability of estimated reserves, the ability to replace reserves, environmental risks, drilling and operating risks, exploration and development risks, competition and government regulation or other actions. Additional information on these and other factors which could affect Arete's operations or financial results are included in Arete's reports on file with the Securities and Exchange Commission. Such factors (many of which are beyond our control) could cause actual results to differ materially from those set forth in the forward-looking statements.. Readers should not place undue reliance on any such forward-looking statements, which are made only as of the date hereof. Arete undertakes no duty or obligation to update any forward-looking statements contained in this release as a result of new information, future events or changes in Arete's expectations.

ARETE INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
December 31, 2011 and June 30, 2012
ASSETS	2011	2012
Current Assets:
Cash and equivalents	$ 219,566	$ 168,241
Receivable from DNR Oil & Gas, Inc.:
Oil and gas sales, net of production costs	165,283	106,957
Other	15,597	38,444
Prepaid expenses and other	207,338	147,874
Total Current Assets	607,784	461,516
Property and Equipment:
Oil and gas properties, at cost, successful efforts method:
Proved properties	9,056,032	8,969,558
Unevaluated properties	287,728	310,288
Natural gas gathering system	442,195	442,195
Furniture and equipment	22,522	22,522
Total property and equipment	9,808,477	9,744,563
Less accumulated depreciation, depletion and amortization	(525,154)	(876,551)
Net Property and Equipment	9,283,323	8,868,012
TOTAL ASSETS	$ 9,891,107	$ 9,329,528
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable:
Payable to DNR Oil & Gas, Inc.:
Oil and gas property acquisition costs	$ 826,791	$ 291,616
Gas gathering operating costs	416,835	436,403
Operator fees and other	151,748	151,748
Unrelated parties	92,019	96,912
Notes and advances payable:
Directors and affiliates	109,319	245,950
Unrelated parties	250,000	250,000
Accrued interest expense	88,303	39,375
Director fees payable in common stock	90,000	30,000
Finders fee payable for private placement of preferred stock	105,000	105,000
Accrued consulting services payable in common stock	18,750	48,750
Current portion of asset retirement obligations	15,398	67,527
Other accrued costs and expenses	111,061	153,040
Total Current Liabilities	2,275,224	1,916,321
Asset Retirement Obligations, net of current portion	637,842	599,840
Total Liabilities	2,913,066	2,516,161
Commitments and Contingencies (Note 3, 5 and 9)
Stockholders' Equity:
Convertible Class A preferred stock; $10,000 face value per share, authorized 1,000,000 shares:
Series 1; authorized 30,000 shares, issued and outstanding 522.5 shares in 2011 and 2012, liquidation preference of $5,421,000 in 2011 and 2012	5,023,371	5,023,371
Series 2; authorized 2,500 shares, issued and outstanding no shares in 2011 and 2012	--	--
Common stock, no par value; authorized 499,000,000 shares, issued and outstanding 7,764,476 in 2011 and 7,979,803 in 2012	16,904,154	17,151,096
Accumulated deficit	(14,949,484)	(15,361,100)
Total Stockholders' Equity	6,978,041	6,813,367
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$ 9,891,107	$ 9,329,528

ARETE INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Quarter and the Six-Months Ended June 30, 2011 and 2012
	Quarter Ended June 30:		Six-Months Ended June 30:
	2011	2012	2011	2012
Revenues:
Oil and natural gas sales	$ --	$ 481,360	$ --	$ 1,035,395
Sale of oil and natural gas properties	--	--	--	533,048
Gas gathering income	15,983	--	45,639	--
Total revenues	15,983	481,360	45,639	1,568,443
Operating Expenses:
Oil and gas producing activities:
Lease operating expenses	--	117,944	--	401,653
Production taxes	--	40,130	--	84,326
Depreciation, depletion, amortization and accretion	--	205,730	--	336,837
Gas gathering:
Cost of operations:
Related Party	10,204	--	30,815	--
Unrelated parties	33,415	3,660	80,558	7,320
Depreciation	11,055	11,055	22,110	22,110
General and administrative expenses:
Director fees	30,000	30,000	60,000	60,000
Investor relations	84,782	84,227	225,322	130,031
Acquisition investigation and due diligence	472,978	--	500,478	--
Legal, auditing and professional services	42,430	28,562	85,969	77,642
Consulting and executive services:
Related parties	56,375	155,750	112,750	316,500
Unrelated parties	83,610	55,059	161,852	76,504
Other administrative expenses	8,970	29,249	25,695	42,795
Depreciation	--	142	--	285
Total operating expenses	833,819	761,508	1,305,549	1,556,003
Operating income (loss)	(817,836)	(280,148)	(1,259,910)	12,441
Other income (expense):
Interest income	139	65	279	220
Interest expense	(22,697)	(14,556)	(34,442)	(32,401)
Loss before income taxes	(840,394)	(294,639)	(1,294,073)	(19,741)
Income tax benefit (expense)	--	--	--	--
Net loss	$ (840,394)	$ (294,639)	$ (1,294,073)	$ (19,741)
Net Loss Applicable to Common Stockholders:
Net loss	$ (840,394)	$ (294,639)	$ (1,294,073)	$ (19,741)
Accrued preferred stock dividends	--	(195,938)	--	(391,875)
Net loss applicable to common stockholders	$ (840,394)	$ (490,577)	$ (1,294,073)	$ (411,616)
Earnings (Loss) Per Share Applicable to Common
Stockholders:
Basic	$ (0.12)	$ (0.06)	$ (0.22)	$ (0.05)
Diluted	$ (0.12)	$ (0.06)	$ (0.22)	$ (0.05)
Weighted Average Number of Common Shares
Outstanding:
Basic	6,985,000	7,788,000	5,995,000	7,776,000
Diluted	6,985,000	7,788,000	5,995,000	7,776,000

ARETE INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six-Months Ended June 30, 2011 and 2012
	2011	2012
Cash Flows from Operating Activities:
Net loss	$ (1,294,073)	$ (19,741)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation, depletion and amortization	22,110	355,132
Accretion of discount on asset retirement obligations	--	4,100
Gain on sale of oil and gas properties	--	(533,048)
Common stock issued in exchange for services	734,084	246,942
Common stock issued in exchange for accrued interest	--	10,462
Changes in operating assets and liabilities:
Accounts receivable	11,832	(76,179)
Prepaid expenses and other	--	60,712
Accounts payable	(5,721)	24,461
Accrued costs and expenses	72,991	2,590
Net cash provided by (used in) operating activities	(458,777)	75,431
Cash Flows from Investing Activities:
Capital expenditures for oil and gas properties	(500,000)	(646,269)
Proceeds from sale of oil and gas properties	--	1,108,709
Contingent consideration paid to DNR under sharing arrangement	--	(282,704)
Net cash provided by (used in) investing activities	(500,000)	179,736
Cash Flows from Financing Activities:
Proceeds from notes and advance payable	870,000	400,000
Principal payments on notes payable	(9,256)	(264,619)
Payment of dividends on preferred stock	--	(391,875)
Proceeds from sale of common stock	103,500	--
Payment of preferred stock offering costs	--	(50,000)
Net cash provided by (used in) financing activities	964,244	(306,494)
Net increase in cash and equivalents	5,467	(51,327)
Cash and equivalents, beginning of period	15,990	219,566
Cash and equivalents, end of period	$ 21,457	$ 168,239
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest	$ 17,755	$ 83,827
Cash paid for income taxes	$ --	$ --
Supplemental Disclosure of Non-cash Investing and Financing Activities:
Conversion of notes payable to 897,500 shares of common stock	$ 1,335,000	$ --
Note payable to DNR for acquisition of oil and gas properties	$ 9,500,000	$ --
Payable to DNR for acquisition of oil and gas properties	$ --	$ 41,616
Asset retirement obligations assumed upon sale of oil and gas properties	$ --	$ 16,411
Increase in oil and gas properties due to revision of asset retirement obligations	$ --	$ 26,437

Contact:

Arete Industries, Inc. Investor Relations:

Gerald Kieft

WSR Communications

772-219-7525

IR@WSRcommunications.com

http://wsrcommunications.ir.stockpr.com/areteindustries/overview