August 30th, 2011 
Category: 
Reliable Energy (TSXV:REL) released its Q2 results earning $1.22 million for the quarter. REL achieved an operating netback of $73.17 per barrel on the back of $102.80 in realized average wellhead prices. For the rest of the year, their average annual realized price will be around $90 per barrel thanks to their hedges ensuring an exit with 1:1 in debt to cashflow.
While the numbers above are great and are only a snapshot of the improved metrics vs Q2-2010, lowering the exit guidance from 1,500 bopd to 1,000 bopd at most is very disappointing to say the least. It seems that the production profile for HZ wells is not what they expected in the first place. I have to wonder why didn’t they go with a more conservative guidance in the first place as this is the second year in a row they miss their guidance. When will management learn to underpromise and overdeliver for a change?
It looks like the market priced in lowered expectations as REL is trading at a 52 wk low. 2012 will be a different story; the company should be able to fund a similar development program from cash flow alone reducing the debt to cash flow ratio to less than 1. Finally, in 2012 REL should be able to achieve average yearly production at or above 1,000 bopd. But until then, can you spell “penalty box”?
My DIY stock portfolio is overweight in Canadian oil producers for a reason. I believe Oil consumption is on the path of growth for the next decade and I intend to take every advantage possible of it:
“When will management learn to underpromise and overdeliver for a change?”
And scare away investors? Not anytime soon!
But I’m bullish on the oil industry in general. Let’s see how this pans out…
I disagree with you MC. REL blew their guidance for 2010 and they just did it again for 2011.
If they were not sure of their HZ wells type curve, why the hell did they give out such an optimistic guidance? Why not go conservative and surprise to the upside instead of to the downside? They need to learn from HYX how to handle expectations…
Investors are now stuck in the penalty box for a while…
@mich Hurricane season is started (I’ve read that this year will be more major hurricanes than usual) , late fall is good seasonally for oil/gas, so if we are not heading down to recession, oil can be more expensive.
I was thinking in my YFSA account to open position in one of the high yield middle cup oil player, was considering AVF or FRU (yield close to 10%). What do you think about those 2 companies?
Gibor, I wouldn’t bet on Hurricanes because offshore production % is slipping from the total of onshore + offshore. It’s not like natural gas will be in tight supply if a hurricane shuts down the GOM production, there’s loads of NG being produced from shale.
It’s a tough call between AVF and FRU, they each have a distinction (marketing division vs royalties) but one thing stands out, AVF has hedges running out on NG while FRU is not hedged from what I remember. I will leave the decision up to you (I am holding AVF).
Mich, their payout ratio is very high, in your opinion dividends are secure?
Gibor, AVF’s payout ratio is ~60% at an annualized basis. What’s the POR for FRU? IF you want a low POR, try DAY at 40%.
Keep in mind that no dividends are secure if a recession hits. Try WRK or AX for REIT 8-9% yield if you want something safer.
[...] had disappointed shareholders back in August when it lowered its guidance for the year and reported a miss on its exploratory well in Montana. Things however are looking up [...]
[...] been a rough year for Reliable Energy investors, between disappointing results in Montana and lowering their guidance for 2011 REL has been stuck in the lower levels of its trading range. However, the ship is turning and this [...]