Reliable Energy Lowers 2011 Exit Guidance

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 didnt 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?