Questerre Energy Corporation
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Positive Q2 report. Up 10.8% in Oslo so far :-)
12/08-2011 02:06:24: (QEC) Questerre Energy 2Q 2011 Report
President's Message With the shale gas environmental assessment underway in Québec, we shifted our short term strategy to unconventional oil. Accelerating development of our Antler asset will be our first priority, both through organic growth and accretive acquisitions. Although it will take longer than we expected, commercializing our Utica shale gas discovery remains our main long term priority. While the government assesses the potential environmental impacts and develops new regulations, we will focus on communications with stakeholders to secure our social license to operate. Highlights · Interim regulations for shale gas development announced by the Government of Québec · Oil and gas exploration licenses extended during strategic environmental assessment · Completed divestiture of interest in Beaver River Field to Transeuro Energy · Cash flow from operations of $2.27 million and production of 586 boe/d with improved oil weighting leveraging higher prices during the quarter · Balance sheet strength preserved with over $131 million in positive working capital and no debt St. Lawrence Lowlands, Québec Consistent with the BAPE recommendations, the government of Québec commissioned a strategic environmental assessment ("SEA") for shale gas development in the second quarter. A multi-stakeholder committee was appointed to conduct the SEA and new regulations were enacted to govern operations during this period. The announcement of the SEA materially impacted our timeline for commercial development of the Utica. During this time, the government mandated limited activities while it increases its understanding of the industry and develops the appropriate regulations. We were pleased to learn that the Ministry of Natural Resources acknowledged this impact and extended the term of our exploration licenses up to three years. Environmental assessments are common for large scale resource projects, including shale gas development in other jurisdictions. While we appreciate the importance of assessing the local impacts, we are hopeful that, rather than re-creating the proverbial wheel, the committee will leverage the growing body of research that corroborates the established industry practices to safely develop shale gas. This includes the 1,000 page preliminary Draft Supplemental Generic Environmental Impact Study recently published by the Department of Environmental Conversation in New York on the development of shale resources in the state. It confirms the safety and benefits of shale gas development, including that it is highly unlikely that groundwater contamination would occur by fluids pumped into a wellbore for hydraulic fracturing. Dispelling the persistent myths about shale gas development such as groundwater contamination remains an important part of our public relations efforts in Québec. The reports emerging from a wide variety of sources continue to validate our position. We are optimistic that these will allow us to refocus the debate on the real issues like water handling and cementing practices that are common to all drilling operations and unrelated to hydraulic fracturing. Antler, Saskatchewan Accelerating activity at Antler is key to our strategy of diversifying into unconventional light oil during the environmental assessment in Québec. Our planned development of this light oil resource will benefit from our learning curve over the last two years. Refinements to our drilling and completion programs, improved production practices and operating efficiencies have contributed to increased recoveries and lower operating costs. Notwithstanding the excellent fiscal terms in Saskatchewan that enhance these economics, returns are challenged by weather and equipment availability. Heavy rainfall this spring coupled with high snow pack resulted in record flooding in southern Saskatchewan that submerged well sites, access roads and highways. The province, Canada's second largest oil producer, reported that approximately 20,000 to 30,000 barrels of oil production was shut-in as a result of this flooding. We expect this will further constrain available completion equipment during a very short summer operating season. Through a combination of geography and design, our existing production was largely unaffected by the inclement weather. The majority of our horizontal wells are pipeline connected to our main battery eliminating the trucking from well sites that were flooded. Our main battery is located on drier ground and proximate to open highways allowing trucking of the produced oil to the sales terminal. As weather conditions improve, we are resuming field operations. Our plans for the remainder of this year are to drill up to 10 (5.0 net) wells. As equipment availability permits, we will look to a second rig to achieve this plan. With an inventory of wells to be drilled and awaiting completion, we anticipate contracting frac equipment for a definitive period. This will allow us to reduce the lag between drilling and completion from six months to four months or less. Subject to these constraints, we are targeting a corporate exit production rate of 750 boe/d for 2011. Early in the third quarter, we expanded our presence in the area through an acquisition of producing assets and undeveloped land for $13.25 million. The acquisition of approximately 100 bbl/d of operated production added a number of infill and step out locations. We continue to look for assets that will complement our existing production at Antler. Operational and Financial The weather related delays and equipment shortages at Antler lowered our production volumes as we were unable to complete wells as planned. With the disposition of the Beaver River Field, we also lost 70 boe/d for the last month of the quarter. Although volumes were lower, the higher oil weighting realized higher prices and improved our results. Cash flow from operations for the quarter was $2.27 million with average daily production of 586 boe/d and an operating netback of $58.75/boe. Our operating margins should improve over the remainder of the year with the elimination of the fixed operating costs and relatively minimal production volumes associated with the Beaver River Field. Outlook Over the remainder of this year and next, unconventional oil will be our main focus. We will continue to actively develop Antler. This will include organic growth as well as accretive acquisitions. Our goal is to create a core area with a value in excess of our current market capitalization. Another goal is to create shareholder value through scalable early stage unconventional projects targeting light oil. We have the in-house expertise and balance sheet strength to capitalize on the right opportunities when they arise. Although the timeline has been extended, we remain committed to the goal of commercializing our Utica shale discovery. We have been very encouraged by the growing body of evidence that endorses that shale gas can be developed safely. We believe communicating this and the benefits to local stakeholders will be essential to securing our social license to operate. Michael Binnion President and Chief Executive Officer
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City
Rank
Mail Room
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21
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Date Joined
12/05/2008
Questerre Energy Corporation
Symbol
QEC
Exchange
TSX
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291,324,457 Oct17/2016
Industry
Energy & Environment
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