Reliable Energy Ltd.
TSX VENTURE : REL

Reliable Energy Ltd.

April 11, 2011 19:01 ET

Reliable Energy Ltd. Announces 2010 Financial And Operational Results and Provides Update on 2011 First Quarter Activities

CALGARY, ALBERTA--(Marketwire - April 11, 2011) -

NOT FOR DISTRIBUTION TO U.S. NEWSWIRE SERVICES OR DISSEMINATION IN THE UNITED STATES

Reliable Energy Ltd. ("Reliable" or the "Company") (TSX VENTURE:REL) is pleased to report its operational and financial results for the year ended December 31, 2010 along with an operational update on its 2011 first quarter activities. In addition, the Company announced today that it has filed, under National Instrument 51-101 – Standards of Disclosure for Oil and Gas Activities for the year ended December 31, 2010, its Form 51-101F1 – Statement of Reserves Data and Other Oil and Gas Information, Form 51-101F2 – Report on Reserves Data by Independent Qualified Reserves Evaluator or Auditor and Form 51-101F3 – Report of Management and Directors on Oil and Gas Disclosure.

The Company's consolidated financial statements and management's discussion and analysis, along with the NI 51-101 reserves filings, for the year ended December 31, 2010 are available at www.sedar.com or the Company's website at www.reliableenergy.ca.

HIGHLIGHTS

Financial and Operational Achievements

For the year ended December 31, 2010, Reliable posted record revenue, cash flow and operational results that included:

  • Increasing gross revenue 284% from $2.5 million to $9.4 million.

  • Improving cash flow 634% from $0.8 million used in operations to $4.0 million or $0.019 per share.

  • Growing production 214%from106 boe/d to 333 boe/d through development drilling and completions. Reliable operates almost 100% of its production.

  • Achieving operating costs of $12.75/boe and netbacks of $51.57/boe on an average sale price of $77.66/boe.

  • Increasing proved plus probable reserves 143% from 556 mboeto 1,352 mboe, while proved reserves grew 165% from 268 mboe to 711 mboe.

  • Achieving a recycle ratio of 3.2 and 1.7 times for proved plus probable and proved reserves, respectively.

  • Expanding the capital investment program to $22.5 million with funds primarily used for drilling operations, facility upgrades and land purchases.

  • Investing $3.0 million in facility upgrades in the Kirkella region, thereby improving operational costs and efficiencies.

  • Divesting its natural gas assets at Harmattan, Alberta, thereby allowing the Company to be 100% focused on light sweet oil.

  • Adding a new core area by acquiring 215,597 gross (95,799 net) acres of undeveloped land in Blaine County, Montana for total consideration of approximately $1.0 million.

  • Almost tripling total undeveloped land holdings from 69,792 net acres to 197,426 net acres.

  • Drilling 29 gross (20.6 net) wells, including five horizontal wells in the Kirkella region and one exploratory well in BlaineCounty. The success of the Company's program in the Kirkella region has significantly increased its land's prospectivity, and as a result, Reliable has identified 250 gross (190 net) horizontal drilling locations using four wells per section.

  • Maintaining finding and development costs at $23.30/boe on proved plus probable reserves and at $37.79/boe on proved reserves.This is a significant achievement in view of the early stage in the development cycle of Reliable and the costs associated withthe Company's exploration focus and the emphasis on accumulating a large land base for which reserves have yet to be recognized.

  • Reducing net debt to cash flow ratio to 0.57:1, exiting 2010 with a working capital deficiency of $2.6 million on $12.1 million in credit facilities.

Corporate Achievements

During the year Reliable was active from a corporate standpoint including:

  • Closing a $15 million bought deal private placement equity financing through the issue of 30,000,000 special warrants (subsequently converted to 30,000,000 common shares) at $0.30 per share and 16,500,000 common shares issued on a flow-through basis at $0.365 per share.

  • Increasing available bank lines to $12.1 million to provide Reliable the flexibility for financing future activity.

  • Establishing operations in Montana through the formation of Reliable Energy USA, LLP.

Murray Swanson, President and CEO of Reliable, commented "2010 was our most successful year since operations began in 2005. We are proud of the progress made during a very challenging year of adverse weather conditions and increasing demand for services that impacted our ability to fully execute our business plan. I am pleased with the significant improvement in all our operating metrics, particularly the 143% growth in reserves, operating netbacks of $51.57/boe on an average sale price of $77.66/boe and our recycle ratio of 3.2 times on proved plus probable reserves. We remain cautiously optimistic for 2011, although the high demand for drilling and fracing services and the expectation of severe wet ground conditions in the early summer could affect the timing of our operations."

FINANCIAL AND OPERATING HIGHLIGHTS

Years Ended December 31,20102009Change
(000s, except per share amounts)($)($)(%)
Financial
Gross revenue9,4362,459284
Net income (loss)(303)26(1,265)
Per share – basic(0.001)0.000--
Per share - diluted(0.001)0.000--
Cash flow generated by (used in)operations(1)4,041(756)634
Per share – basic0.019(0.005)480
Per share - diluted0.018(0.005)460
Capital expenditures22,53614,34057
Total assets43,99226,81365
Working capital (deficiency)(2,608)1,994(231)
Shareholders' equity31,96717,45983
(000s)(#)(#)(%)
Share Data
At year-end236,138182,02130
Weighted average – basic213,786137,65955
Years Ended December 31,20102009Change
(%)
Operational
Production
Light crude oil (bbls/d)32789267
Natural gas (mcf/d)3299(68)
Total (boe/d)333106214
Total (boe)121,51138,591215
Average wellhead prices
Light crude oil ($/bbl)78.5572.159
Natural gas ($/mcf)4.003.0332
Total ($/boe)77.6663.7322
Operating cost ($/boe)12.7510.7618
Operating netback ($/boe)51.5741.8923
Reserves
Proved (mboe) (3)711268165
Proved plus probable (mboe) (3)1,352556140
Total net present value – proved plus probable
(10% discount) ($000s)(4)44,58623,67886
Undeveloped land (net acres)197,42669,792183
Gross (net) wells drilled
Oil (#)12 (8.2)12 (10.2)
Gas (#)-- (--)-- (--)
Awaiting completion (#)4 (3.5)-- (--)
Shut-in or suspended (#)(5)10 (6.6)5 (4.2)
Dry and abandoned(#)3 (2.3)4 (3.0)
Total (#)(6)29 (20.6)21 (17.4)
Average working interest (%)7183

(1) Cash flow generated by (used in) operations and cash flow generated by (used in) operations per share are not recognized measures under Canadian generally accepted accounting principles. Refer to the Management's Discussion and Analysis for further discussion.
(2) Barrels of oil equivalent ("boe") may be misleading, particularly if used in isolation. A boe conversion ratio of 6 mcf : 1 bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.
(3) Reserves are gross working interest reserves before royalty deduction.
(4) Before income taxes.
(5) Shut-in or suspended wells are cased wells not placed on production or producing wells that have been shut-in. Includes 1 gross (0.8 net) well converted to a water disposal well.
(6) Included in the total number of wells drilled were 3 gross (0.8 net) non-operated wells.

2011 FIRST QUARTER OPERATIONS UPDATE

During the first three months of 2011, Reliable was active with its winter operations in the Kirkella region of southeastern Saskatchewan/southwestern Manitoba and Blaine County, Montana, drilling 5 gross (4.5 net) horizontal wells and 1 gross (0.4 net) vertical well. In addition, 8 gross (7.3 net) wells were completed during the quarter, including 4 gross (3.5 net) horizontal wells that were previously drilled but not completed as of December 31, 2010.First quarter activity by area is summarized below.

Kirkella Region

South Kirkella

3 horizontal wells drilled, completed and placed on production.

4 horizontal wells drilled in 2010 were completed and placed on production.

East Manson

2 horizontal wells drilled; 1 completed and placed on production.1 well awaiting completion.This well is expected to be frac'd within the coming week as we are able to access the wellsite through the use of recently purchased matting.

Elkhorn

1 horizontal well drilled in 2010 was completed and placed on production.

Blaine County

1 vertical exploration well drilled and cased.

As of March 31, 2011, the Company's net production was 715 boe/d, representing a 104% increase over the first three months of 2010. As noted above, Reliable has 1 gross (0.75 net) horizontal well at East Manson that was not completed by quarter-end. Lack of availability of frac crews and theextremely wet conditions affected our ability to complete this well before quarter end. We do however expect to complete the well within the next week utilizing matting to access the wellsite. Reliable achieved a 100% success rate on its horizontal wells drilled in the first quarter.

At Blaine County, the Company cased its second exploration well and is currently undertaking detailed evaluation and analysis of the core and well log data with testing of the well expected after spring break-up. Reliable and partners are planning 2 additional exploration wells on the property in 2011.

With the completion of its winter drilling program, Reliable has now successfully proved the economic viability of horizontal production from its South Kirkella, East Manson and Elkhorn areas. Plans for the balance of the year include the drilling of a further 10 gross (7.5 net) horizontal wells with the goal of proving economic production rates in five to six townships of the greater Kirkella region. Reliable currently estimates its drilling inventory to be approximately 250 (190 net) horizontal drilling locationsin the Kirkella area based on 4 wells per section.

During the quarter, Reliable received a draft of the waterflood study it commissioned in 2010 over its South Kirkella pool. Conclusions from the study, combined with the experience of other operators in the area, suggest that waterflooding of the Bakken will significantly increase the recovery of the in-place oil resource. Current expected ultimate recoveries on primary production range from 6% to 9%. Through waterflood, the Company should experience secondary recoveries that are two to three times the ultimate recovery volumes expected through primary production alone and, as a result, Reliable is making plans to initiate a pilot waterflood project in the Kirkella region.Internally derived estimates for resource in place in the Kirkella regionrange from 3.6 to 5.1 mbblsper section with approximately 60 potential sections identified to date.

OUTLOOK

For the balance of the year, Reliable anticipatesdrilling a further 10 gross (7.5 net) horizontal wells and up to 5 gross(2.9 net) vertical exploration wells. Operations are expected to commence in the third quarter after spring breakup. However, due to the tightening of supply of drilling and fracing services, combined with the anticipated wellsite access issues associated with extremely wet ground conditions, Reliable's operating plans for the balance of 2011 maybe impacted.To help mitigate the effect of the shortages of services, Reliable has standardized its fracing technique such that any available frac crew can perform the services. In previous horizontal frac operations,the Company had utilized a variety of techniques, some of which required specific equipment that was often in short supply. In addition, Reliable has purchased an inventory of matting to assist operations on wet ground conditions.Reliable will continue to monitor results throughout the year and will adjust budgets and drilling plans accordingly.

ABOUT RELIABLE

Reliable Energy Ltd. is an Alberta based junior oil company that commenced operations in 2005. Reliable's activities are primarily focused in the Kirkella region of southeastern Saskatchewan/southwestern Manitoba, an oil-rich Bakken prospect area that possesses high operating margins and multiple formations, and exploration has yielded low risk exploitation, development and acquisitions opportunities. Reliable also has properties on the Fort Belknap Reservation in the Blaine County, Montana area where it has a large contiguous land base on an emerging Bakken light oil play.

Reliable's goal is to become a low cost, value added growth company. The Company's strategy is to concentrate on exploration and development drilling activities in oil-rich core areas. Reliable will continue to build on its highly prospective light oil land position in Manitoba and Saskatchewan and, through prudent development, add to its reserves and production base with the objective of providing sustained future growth and superior returns to shareholders.

Common shares of Reliable Energy Ltd. are listed for trading on the TSX Venture Exchange under the symbol REL.

ADVISORY:This press release contains certain forward-looking information and statements within the meaning of applicable securities laws. The use of any of the words "expect", "anticipate", "continue", "estimate", "may", "will", "project", "should", "believe", "plans", "intends" and similar expressions are intended to identify forward-looking information or statements. In particular, but without limiting the foregoing, all statements in the section titled "Outlook", the last three paragraphs under "2011 First Quarter Operations Update"and the first two paragraphs of "About Reliable" are forward-looking statements. Although Reliable believes that the expectations reflected in these forward-looking statements are reasonable, undue reliance should not be placed on them because Reliable can give no assurance that they will prove to be correct. Since forward-looking statements address future events and conditions, by their very nature they involve inherent risks and uncertainties. The forward-looking statements contained in this press release are made as of the date hereof and Reliable undertakes no obligations 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.

This news release does not constitute an offer to sell or a solicitation of any offer to buy the securities in the United States. The securities offered have not been and will not be registered under the U.S. Securities Act of 1933 and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements of such Act.

Neither TSX Venture Exchange nor its regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

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