August 23rd, 2011 
Category: 
Reliable Energy (TSXV:REL) released a disappointing update regarding its latest vertical test well in Montana (Fort Belknap).
“The well was completed and tested in the Duperow formation. High fluid rates were established, but no economic hydrocarbon volumes were produced.”
To put it bluntly, the test well failed. With expectations running high, this crappy market swiftly punished the stock. However, this well is not the last word for 100,000 net acres as further wells will be required to evaluate this land base without forgetting that Montana is an exploratory play.
When I bought the stock, in my opinion Montana was not priced in at this price level (0.34). I said to myself: “Buy Kirkella, get Montana for free” but it looks like the market sees things differently. Don’t write off Montana as a total loss so fast, REL paid $10 per acre and they can probably get their money back in my opinion if they choose to sell it for its natural gas content (Bowdoin and Eagle formations).
The attractiveness of REL lies in its proven Bakken land base in Kirkella where they have assembled at least 450 HZ drilling locations. This company makes close to $60 in netbacks at a WTI price of $82 per barrel.
What counts now is for the company to complete its drilling program for the balance of the year, 10 HZ and 2 Verticals. They’re currently doing a good job at that with the 4th Horizontal well currently drilling and 6 to go. The production figures have been very encouraging in East Manson and I am glad the company will be focusing on this field. The next catalyst lies in the update to the end of year guidance: are they going to hit 1500 or not? Further production figures from East Manson would also be nice. Q2 is on August 29 so we might be getting our answers soon.
Until then, there’s no use in speculating on the stock price in this kind of market. I was planning on featuring the company as a stock pick but dropped the idea for now as we are in a ruthless market where REL will most probably go sub-30 cents before it sees 40 cents again. For retail investors like us, it will hurt but for the big boys like CPG which holds ~19% of REL and is its JV partner for 25%, it’s the future that counts.
What’s your take on REL?
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:
I have a friend who is a huge fan of this stock (REL.V) and bought substantial quantities. When the stock recently reached $0.52, I encouraged him to sell half or more of his position. I also encouraged a stop loss at $0.47 based on the technical indicators I saw. Fortunately, he listened and profited.
He asked me to watch the weekly technicals for a re-entry point for him… and I haven’t seen one since he sold in April. With this news, I don’t suspect I’ll see one for a little longer than perhaps either of us anticipated.
I sold all of my holdings as well at $0.50+. I agree with you, it will be tough to come back in this market. They will need to affirm their exit rate of 1500 in order to get a positive market reaction.
I have 10K shares, but that’s ok, it’s in my wife’s RRSP portfolio. She might just fire me as her portfolio manager.
try to stop her from looking at her portfolio for a couple of months
Bummer…… scratch REL off the watch list.
Don’t scratch it just yet, even with the tasteless NR they put out. It’s really their guidance on Q2 that will have the last word, they need to use the same wording like HYX “we remain confident” when discussing their operational guidance.
[...] 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 again and I am happy that they [...]
[...] 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. [...]