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?