Reliable Energy Ltd.
TSX VENTURE : REL

Reliable Energy Ltd.

November 29, 2010 08:30 ET

Reliable Energy Ltd. Announces 2010 Third Quarter Results

CALGARY, ALBERTA--(Marketwire - Nov. 29, 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 nine months ended September 30, 2010.



HIGHLIGHTS
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Three Months Ended September 30,
2010 2009 Change
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($) ($) (%)
Financial
Gross revenue 2,117,868 458,678 362
Net income (loss) (963,432) (1,233,169) 22
Per share - basic (0.004) (0.010) 60
Cash flow generated by
(used in) operations (1) 926,632 (234,351) 495
Per share - basic 0.004 (0.002) 300
Capital expenditures 7,881,027 1,937,658 307
Total assets 41,312,785 11,665,158 254
Working capital 2,916,363 (1,834,804) 259
Shareholders' equity 32,058,611 7,019,841 357
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(#) (#) (%)
Share Data
At period-end 236,138,280 126,855,872 86
Weighted average
- basic 235,923,764 126,855,872 86
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(%)
Operational
Production
Light crude oil (bbls/d) 300 66 355
Natural gas (mcf/d) -- 97 (100)
Total (boe/d) 300 82 266
Total (boe) 27,630 7,547 266
Average wellhead prices
Light crude oil ($/bbl) 76.65 74.10 3
Natural gas ($/mcf) -- 2.40 (100)
Total ($/boe) 76.65 60.78 26
Operating cost ($/boe) 11.99 10.25 17
Operating netback ($/boe) 52.15 40.43 29
Gross (net) wells drilled
Oil (#) 4 (3.0) -- (--)
Gas (#) -- (--) -- (--)
Awaiting completion (#) 3 (2.8) -- (--)
Dry and abandoned or
suspended (#) 4 (3.5) -- (--)
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Total (#) 11 (9.3) -- (--)
Average working interest (%) 84 -- --
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Nine Months Ended September 30,
2010 2009 Change
($) ($) (%)
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Financial
Gross revenue 6,394,479 1,071,821 497
Net income (loss) (182,891) 93,206 (296)
Per share - basic (0.001) 0.001 (200)
Cash flow generated by
(used in) operations (1) 2,599,867 (1,263,766) 306
Per share - basic 0.013 (0.010) 230
Capital expenditures 15,319,428 7,750,246 98
Total assets 41,312,785 11,665,158 254
Working capital 2,916,363 (1,834,804) 259
Shareholders' equity 32,058,611 7,019,841 357
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(#) (#) (%)
Share Data
At period-end 236,138,280 126,855,872 86
Weighted average
- basic 206,334,634 126,855,872 63
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(%)
Operational
Production
Light crude oil (bbls/d) 299 53 464
Natural gas (mcf/d) 43 117 (63)
Total (boe/d) 306 72 325
Total (boe) 83,557 19,736 323
Average wellhead prices
Light crude oil ($/bbl) 77.80 68.08 14
Natural gas ($/mcf) 4.00 3.38 18
Total ($/boe) 76.53 54.31 41
Operating cost ($/boe) 12.53 11.07 13
Operating netback ($/boe) 51.06 35.04 46
Gross (net) wells drilled
Oil (#) 12 (9.0) 3 (2.9)
Gas (#) -- (--) -- (--)
Awaiting completion (#) 4 (3.5) -- (--)
Dry and abandoned or
suspended (#) 7 (5.8) 2 (2.0)
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Total (#) 23 (18.3) 5 (4.9)
Average working interest (%) 79 99 (20)
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(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.



THIRD QUARTER ACCOMPLISHMENTS

The third quarter provided Reliable with a significant and positive shift in its drilling program that saw the Company drill its first two horizontal wells into the Bakken light oil play at Kirkella. Reliable believes this change will significantly increase the Company's oil reserves and production, while at the same time, prove up a significant amount of undeveloped acreage that will become prospective for oil production using horizontal technology. Compared to its previous program, which involved drilling strictly vertical wells, the Company believes this shift in drilling strategy will greatly enhance shareholder value as the Company moves forward with a solid horizontal drilling program in the fourth quarter of 2010 and into 2011.

During the three months ended September 30, 2010, the Company's achievements included:



-- Divesting its natural gas assets at Harmattan, Alberta, thereby allowing
the Company to be 100% focused on light sweet oil.
-- Continuing to add to its undeveloped land holdings with the acquisition
of a further 8,000 net acres in Saskatchewan/Manitoba, bringing total
corporate undeveloped land to over 97,000 net acres at September 30,
2010.
-- Drilling a total of 11 gross (9.3 net) wells, including 2 gross (2.0
net) horizontal wells at Kirkella.
-- Completing construction and commencing operation of its central battery
on its Kirkella South pool, which will lower operating costs,
particularly when combined with a water disposal well that has recently
been put into operation.
-- Maintaining average oil production at 300 bbls/d, a 355% increase from
the same period last year, despite delays in drilling and completion
operations.
-- Growing cash flow from operations to $926,632, up 25% from the second
quarter of 2010 and a 495% increase from funds used in operations
recorded during the 2009 third quarter.
-- Achieving an operating netback of $52.15/boe compared to $40.43/boe a
year ago.


OPERATIONAL UPDATE

Overall, the Company's third quarter and ongoing operations have been hampered by continuing wet weather conditions in the Kirkella area of southeastern Saskatchewan/southwestern Manitoba as well as shortages of oilfield services (particularly fracing crews required for the Company's horizontal wells) as demand for services has outstripped supply. These factors combined to delay the completion of the Company's horizontal wells and had a significant impact on production and cash flow during the three months ended September 30, 2010. The Company remains confident, however, that year-end exit production numbers can still be attained.

During the quarter, the Company drilled 11 gross (9.3 net) wells, including 2 gross (2.0 net) horizontal wells into the South Kirkella pool. The drilling results from the first two horizontal wells at South Kirkella were very encouraging with excellent reservoir quality encountered throughout the Bakken zone. Both wells were drilled with 1,000 metre horizontal laterals. Delays and equipment failures during the fracing operations have resulted in only partial completion of these two wells. Subsequent to quarter-end, the 6-15 horizontal well was placed on production test with only 40% of the planned fractures being completed. Despite these challenges, production rates obtained during the testing and clean up phase of the 6-15 well are extremely encouraging. The balance of the fracing operations for this well will be completed when equipment becomes available. The offsetting well at 5-15, along with the third and fourth wells at Kirkella North and Elkhorn, are still awaiting the resumption of the frac program, which commenced November 26, 2010. Further detailed production volumes will be released when the wells have reached a stabilized oil cut and rate.

In addition to the horizontal wells, the Company drilled 5 gross (4.3 net) exploration wells with four wells being abandoned and one well awaiting completion services, which was subsequently placed on-stream in October. This well, located in East Manson, Manitoba, came on production at over 40 bbls/d (gross) and has extended the pool size by over a mile to the southwest. Two of the abandoned exploration wells were drilled into a new play emerging in Wawota, Saskatchewan, an area that saw over $14 million in Crown land sale purchases during the third quarter. The Company has over 2,800 net acres of undeveloped land in the Wawota area.

Finally, Reliable drilled 4 gross (3.0 net) vertical development wells into the Kirkella and East Manson pools that were successfully placed on-stream.

At quarter end, the Company had 23 gross (17.6 net) wells on production and producing 311 boe/d (net).

OUTLOOK

During the fourth quarter, the Company expects to drill an additional four horizontal wells, bringing the total for the year to six horizontal wells. The challenge the Company faces will be in securing the services of fracing crews to successfully complete these wells. Recently, Reliable has seen indications of an improvement in availability of frac crews, and as a result, expects at least four of the six wells to be completed and placed on production by year-end with the balance to be completed during January 2011. Consequently, the Company's estimates of annual average daily production have been revised downward to 350 boe/d to reflect the impact of weather and the availability of oilfield services has had on its operations.

On October 26, 2010, Reliable completed the acquisition of approximately 100,000 net undeveloped acres in Blaine County, Montana for US$1 million. The Company believes that this area is an extension of the Williston Basin Bakken play with similarities to the Elm Coulee field located in eastern Montana. The Company has recently drilled and cored an exploratory well into the play and is currently undertaking extensive evaluation of the core and well data. The Company anticipates further drilling and seismic data acquisition in early 2011 aimed at proving up the play. The acquisition of this land position is consistent with Reliable's strategy of focusing on light oil prospects and acquiring significant land holdings early in the exploration process.

As a result of the horizontal drilling program and the Montana land acquisition, the Company expects capital spending to total $24.6 million in 2010, which is consistent with previous guidance. However, due to the delays arising from weather and equipment shortages, the Company is revising cash flow and average daily production figures downward to $4.0 million and 350 boe/d, respectively. Year-end exit numbers remain unchanged at 800 to 900 boe/d. The Company believes that with current working capital, available bank lines of credit and expected cash flow, it will have sufficient resources to fund the balance of its capital expenditure program for this year.

Reliable's primary and immediate focus will continue to be developing the southeastern Saskatchewan/ southwestern Manitoba core area and an extensive capital program is being planned for 2011.

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



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Previous Revised
Guidance Guidance
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Production
Average annual production 450 boe/d 350 boe/d
Exit production 900 boe/d 900 boe/d
Funds from operations $ 6.5 million $ 4.0 million
Capital expenditures $ 24.6 million $ 24.6 million
Wells drilled - net 29.5 21.9
Pricing
Average annual crude oil WTI ($CDN/bbl) $ 76.00 $ 76.80
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ABOUT RELIABLE

Reliable Energy Ltd. is an Alberta based junior oil 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. The Company has identified an inventory of 142 prospective horizontal drilling locations in the Kirkella area.

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" 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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