Reliable Energy Ltd.
TSX VENTURE : REL

Reliable Energy Ltd.

August 30, 2010 09:15 ET

Reliable Energy Ltd. Announces 2010 Second Quarter Results

CALGARY, ALBERTA--(Marketwire - Aug. 30, 2010) -

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 financial and operational results for the three and six months ended June 30, 2010.

HIGHLIGHTS

  Three Months Ended June 30,   Six Months Ended June 30,  
  2010   2009   Change   2010   2009   Change  
  ($ ) ($ ) (% ) ($ ) ($ ) (% )
Financial                        
Gross revenue 2,143,169   411,581   421   4,276,611   613,143   597  
Net income (loss) 272,335   (745,528 ) 137   780,541   1,326,375   (41 )
  Per share – basic 0.001   (0.006 ) 117   0.004   0.010   (60 )
Cash flow generated by                        
(used in) operations (1) 741,937   (626,856 ) 218   1,673,235   (1,029,415 ) 263  
  Per share – basic 0.004   (0.005 ) 180   0.009   (0.008 ) 213  
Capital expenditures 2,404,167   3,245,674   (26 ) 7,438,401   5,812,588   28  
Total assets 37,488,482   12,245,979   206   37,488,482   12,245,979   206  
Working capital 10,966,547   337,205   3,152   10,966,547   337,205   3,152  
Shareholders' equity 31,855,350   7,399,910   330   31,855,350   7,399,910   330  
  (# ) (# ) (% ) (# ) (# ) (% )
Share Data                        
At period-end 235,188,280   126,855,872   85   235,188,280   126,855,872   85  
Weighted average                        
– basic 200,278,247   126,855,872   58   191,540,068   126,855,872   51  
          (% )         (% )
Operational                        
Production                        
  Light crude oil (bbls/d) 307   66   365   298   46   548  
  Natural gas (mcf/d) 25   120   (79 ) 65   127   (49 )
  Total (boe/d) 311   85   266   309   67   361  
  Total (boe) 28,306   7,779   264   55,927   12,189   359  
Average wellhead prices                        
  Light crude oil ($/bbl) 76.49   67.03   14   78.39   65.40   20  
  Natural gas ($/mcf) 2.95   2.83   4   4.00   3.76   6  
  Total ($/boe) 75.71   52.91   43   76.47   50.30   52  
Operating cost ($/boe) 13.51   8.95   51   12.79   11.59   10  
Operating netback ($/boe) 48.54   37.12   31   50.52   31.70   59  
Gross (net) wells drilled                        
  Oil (#) 1 (0.8 ) -- (-- )     6 (4.5 ) -- (-- )    
  Gas (#) -- (-- ) -- (-- )     -- (-- ) -- (-- )    
  Awaiting completion (#) 1 (0.8 ) 2 (1.9 )     3 (2.3 ) 2 (1.9 )    
  Dry and abandoned or                        
  suspended (#) 1 (0.8 ) 2 (2.0 )     3 (2.3 ) 3 (3.0 )    
  Total (#) 3 (2.3 ) 4 (3.9 )     12 (9.3 ) 5 (4.9 )    
Average working interest                        
  (%) 75   99   (24 ) 77   99   (22 )

(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.

SECOND QUARTER ACCOMPLISHMENTS

Reliable continued to execute its business plan during the second quarter of 2010, despite the impact of unseasonably wet weather, focusing on developing its Bakken oil play in its core area of Kirkella located in southeastern Saskatchewan/southwestern Manitoba.

During the three months ended June 30, 2010, the Company continued to reach new milestones, producing solid year-over-year results that included:

  • Improving average daily production to 311 boe/d, up 266% from the 2009 three-month period and up slightly from the 307 boe/d averaged in the first quarter of 2010. Exit production at June 30, 2010 was 306 boe/d net (100% oil), while current production is approximately 360 boe/d (net).
  • Drilling 3 gross (2.3 net) wells, including 2 gross (1.5 net) exploration wells and 1 gross (0.8 net) development well, despite the operational impact of wet weather and spring breakup.
  • Investing $1.7 million on drilling, completion and equipping activities, including the construction of a central battery at the Kirkella South No. 1 field, which was completed and commenced operating on August 5, 2010.
  • Increasing undeveloped land holdings 31% to 89,700 net acres from 68,600 net acres a year ago, while reprocessing and interpreting over 1,000 kilometres of 2-D trade seismic data in the Company's core area. Reliable spent a total of $698,000 on land and geophysical activities during the 2010 three-month period.
  • Growing cash flow from operations to $741,937 compared with cash used in operations of $626,856 in the second quarter of 2009.
  • Increasing net income to $272,335 from a net loss of $745,528 a year ago.
  • Closing a previously announced bought deal financing of 46.5 million shares for gross proceeds of $15.0 million.
  • Renewing the Company's credit facilities totalling $8.0 million, including increasing its revolving demand loan facility to $6.0 million. At June 30, 2010, the facility remained unutilized.
  • Maintaining a strong balance sheet with $11.0 million in working capital at June 30, 2010.

OPERATIONAL UPDATE

The normal spring breakup plus an exceptionally wet start to the summer in the Kirkella region significantly curtailed the Company's operations with field activities being shut down for much of June. Consequently, Reliable only drilled 3 gross (2.3 net) wells during the quarter of which 2 gross (1.5 net) were exploration wells and 1 gross (0.8 net) was a development well. Of the exploration wells, one was placed on production, and as a result, provides a new area of focus for Reliable in the Kirkella area, and the second well was abandoned. One development well was drilled into the Company's East Manson pool and was placed on-stream in early July with initial testing rates in excess of 40 bbls/d gross from the Bakken. As previously reported, four wells were unable to be completed in the first quarter due to the commencement of road bans in Manitoba. Two of these wells are still awaiting completion due to delays resulting from the persistent wet weather, while the remaining two wells have been deemed non-commercial and will be abandoned. Following quarter-end, Reliable has resumed field operations and is currently drilling in its core area. Drilling plans for the second half of the year have been re-evaluated in light of recent drilling results and analysis, and as a result, the Company will include horizontal drilling in its activities. Reliable expects to drill 6 gross (4.0 net) vertical exploration wells, 4 gross (3.0 net) vertical development wells and 9 gross (7.3 net) horizontal wells during the final six months of the year.

During the second quarter of 2010, Reliable entered into an agreement with its joint venture partner in the Trochu Basin area of Alberta to acquire the partner's interest in those lands. Consequently, 9,200 acres of undeveloped lands have been added to the Company's asset base and Reliable continues to evaluate these lands in light of recent area activity. Also during the quarter, the Company added 3,260 net acres at Kirkella and purchased, reprocessed and interpreted over 1,000 kilometres of trade seismic data that was acquired in late March 2010. This data is being used to identify further opportunities in the Company's core area.

At quarter-end, Reliable had 20 gross (16.8 net) wells on-stream, producing 306 boe/d net.

On August 6, 2010, Reliable divested its Harmattan natural gas properties and facilities, thereby enabling the Company to focus on its core area at Kirkella, while continuing to evaluate opportunities for its undeveloped acreage in the Trochu Basin.

OUTLOOK

Reliable is entering a very exciting growth period in its development with the Company commencing the drilling of horizontal wells on its Bakken-Three Forks play in southeastern Saskatchewan/southwestern Manitoba. With success, this will open up significantly more drilling opportunities for the Company on prospects that would be difficult to justify with vertical drilling. Consequently, Reliable has increased its capital expenditure program by $6.4 million to $22.8 million. Approximately $5.1 million has been directed towards additional drilling and completion activities associated with the implementation of a horizontal well program and approximately $1.3 million has been allocated to additional land and seismic acquisitions and facility construction. Funding for the capital increase is provided by the recent bought deal financing. With the implementation of this new capital program, the Company expects to achieve annual average production of 450 boe/d, down from previous guidance of 560 boe/d due primarily to wet weather delays in drilling and bringing wells on production during the second quarter. Reliable expects that its 2010 exit production rate will be maintained at 900 boe/d.

Cash flow from operations for the year has been revised downward to $6.5 million from $9.1 million due to both lower average production and lower forecasted crude oil pricing of CDN$72.00/bbl for the second half of 2010 (average of CDN$76.00/bbl for the year).

Reliable's balance sheet remains strong with projected working capital at December 31, 2010 of $0.5 million and a projected unutilized credit capacity of $8.0 million.

The Company's revised guidance for 2010 is as follows:

  Previous   Revised
  Guidance   Guidance
Production      
  Average annual production 560 boe/d   450 boe/d
  Exit production 900 boe/d   900 boe/d
Funds from operations $9.1 million   $6.5 million
Capital expenditures $16.5 million   $22.8 million
Wells drilled – net 29.5   23.25 (1)
Pricing      
  Average annual crude oil WTI ($CDN/bbl) $76.50   $76.00
(1) Includes 9 gross (7.3 net) horizontal wells.

ABOUT RELIABLE

Reliable Energy Ltd. is an Alberta based junior oil and gas company with a strong exploration component that commenced operations in 2005. Reliable's activities are primarily focused in the Kirkella area situated on the Saskatchewan/Manitoba border. Kirkella is a Bakken oil rich prospect area that possesses high operating margins and multiple formation potential, while cost effective high impact exploration yields significant low risk exploitation and development opportunities.

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 third paragraph of "Operational Update", all statements in the section titled "Outlook" 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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