CUSIP No. 678046 10 3

NYSE Amex: BQI

CALGARY, Sept. 10 /CNW/ - Oilsands Quest Inc. (AMEX:BQI) announces that

its Form 10-Q Quarterly Report for the period ended July 31, 2009, was filed

September 9, 2009, and is available online at www.sec.gov and www.sedar.com.

The company also provides an update on its reservoir test program.

The following discussion addresses material changes in our results of

operations and capital resources and uses for the three months ended July 31,

2009, compared to the three months ended July 31, 2008, and our financial

condition and liquidity since April 30, 2009. It is presumed that readers have

read or have access to our Annual Report on Form 10-K for our financial year

ended April 30, 2009, which includes disclosure regarding critical accounting

policies and estimates as part of Management's Discussion and Analysis of

Financial Condition and Results of Operation. Unless otherwise stated, all

dollar amounts are expressed in U.S. dollars. All future payments in Canadian

dollars have been converted to U.S. dollars using an exchange rate of $1.00

U.S. = $1.079 CDN, which was the July 31, 2009 exchange rate.

Overview

Three Months Ended July 31, 2009

- We completed a public offering of 35,075,000 units at a price of

$0.85 per unit for gross proceeds to $29.8 million. The units

consisted of one common share and a warrant to purchase one-half

common share.

- We were granted a one year extension, to May 31, 2010, of our permits

in northwest Saskatchewan. We may seek and be granted two additional

one year extensions of each permit if the Company continues to meet

its obligations under the terms of the permits. We may elect to

convert all or a portion of the permits to leases.

- We signed a Memorandum of Understanding establishing an economic

relationship with the Birch Narrows Dene Nation in Saskatchewan

through which the economic benefits of our exploration and development

activities will be managed.

- We announced independent third party resource estimates for our Eagles

Nest property in Northern Alberta.

- We announced the resignation of Jamey Fitzgibbon as President and

Chief Operating Officer and the transition of these responsibilities

to Christopher Hopkins, the Company's Chief Executive Officer.

- We resumed construction activities at Test Site 1 in preparation for

the startup of Phase One of the testing.

- We began applying heat to the reservoir at Test Site 3 in late 2008

utilizing a downhole electric heater and we continue to measure

pressures and temperatures at ten different locations in the reservoir

subsequent to the removal of the heater element in June 2009.

- We have commenced pressure and temperature measurements at Test Site 1

in order to capture the baseline reservoir pressure and temperature

before commencing the vertical well test program.

- We provided an update of our progress at Test Sites 1 and 3 and

laboratory and field test studies at the TD Newcrest Unconventional

Oil Forum held in Calgary on July 8, 2009 and at the Canadian

International Petroleum Conference held in Calgary on June 16 to 18,

2009.

- We disclosed our intention to re-organize our non-core assets at

Pasquia Hills.

- We restated our financial statements and filed an amended Form 10-K/A

for the year ended April 30, 2008 and amended Form 10-Qs for the

quarterly periods ended July 31, 2008, October 31, 2008 and

January 31, 2009.

Operations Summary:

Exploration Programs

During the three months ended July 31, 2009, we focused on developing our

2009-2010 oil sands exploration plans for the Axe Lake, Raven Ridge, Wallace

Creek and Eagles Nest areas and our oil shale exploration plans for the

Pasquia Hills area. These planning activities included scouting seismic and

exploration drilling targets, preparing regulatory applications and initiating

consultation processes for approval of the winter drilling program.

Specific activities we have been planning on our Axe Lake permits include

an overburden core drilling program on permits 208 and 210 and 2-D seismic on

the permits to the north and south of Axe Lake in Saskatchewan. Both of these

programs will further our geological knowledge of the deposits while meeting

work commitments required to extend the exploration permits until May 31,

2010.

We are also continuing with the additional processing and interpretation

of the 1,847 kilometres (1,149 miles) of 2-D and 3-D seismic data collected

and initially processed in the 2007-2008 winter program. This interpretation

is proving valuable in planning for the specific reservoir tests this year and

in assessing the geological structures across our permits.

We expanded our baseline environmental programs in the Axe Lake and the

Raven Ridge areas in anticipation of a comprehensive Environmental Impact

Assessment report required as part of the application for regulatory approval

for development of Axe Lake. Other environmental work included initiating

baseline environmental studies in the Wallace Creek and Eagles Nest areas. We

commissioned an active (continuous) air quality monitoring station at Axe Lake

during the period, the first of its kind in northwest Saskatchewan, in

addition to our passive (periodic) air monitoring activities which have been

ongoing since 2005.

In early 2009, we drilled an additional 23 exploration and delineation

test wells in Raven Ridge. The Raven Ridge drilling program has demonstrated

continuity of bitumen characteristics extending from Axe Lake in Northwest

Saskatchewan westward into Alberta and we are in the process of updating our

resource estimates based on the results of this drilling program. We expect to

release these results in October of 2009.

Axe Lake Area - Reservoir Development Activities

At Test Site 3, the electric downhole heating program was continued. The

objectives of the field test are to reliably measure pressure and temperature

changes within the reservoir and adjacent formations as a result of heating

and use those measurements to calibrate numerical simulation calculations to

the field measurements in order to reduce uncertainty in future reservoir

planning. The electric downhole heater in well 1OBS 5-29-94-25 provided heat

to the reservoir and pressure and temperatures were measured and recorded

continuously at ten locations in the hot heater well, 1OBS 5-29-94-25, and the

cold observation well, INJ 5-29-94-25. The heater was removed from the well on

June 26, 2009, pressures and temperatures were and are being measured and

recorded during the post-heating period, and an application for perforating

and continued testing of 1OBS 5-29-94-25 and INJ 5-29-94-25 is being prepared.

Our detailed engineering and numerical simulation analysis has confirmed the

formation characteristics anticipated and our ability to establish and control

the relevant fluid heat properties to be used in continued reservoir planning

at Axe Lake. We presented a more detailed description of the conceptual

reservoir simulation model, analytical heat transfer calculations, Test Site 3

geo-models, supporting laboratory work and numerical simulations at the

Canadian International Petroleum Conference held June 16-18, 2009.

In preparation for the commencement of the field testing of the reservoir

test program we are in the final stages of construction and commissioning of

the facilities at Test Site 1. Phase Three testing in the reservoir test

program are planned:

Phase One of the test program at Test Site 1 will include the injection

of cold water and will be followed by the injection of hot water and steam

into the reservoir. The purpose of the test is to measure heat and fluid

movement under specific operating conditions on a field scale to complement

our ongoing simulation and laboratory analysis studies. These Phase One tests

are designed to confirm and demonstrate our "bottom-up" thermal recovery

process and they will further enhance our knowledge and modeling of the

thermal and geo-mechanical characteristics of our reservoir.

Phase Two of the test program at Test Site 1 will evaluate and analyze

information gathered from Phase One regarding mobilization with steam and/or

hot water by measuring field-scale response using horizontal wells.

As part of the overall Axe Lake development plan, we continue to conduct

advanced economic feasibility, financial planning and risk assessment studies

for full commercial development and the commissioning of an independent study

of infrastructure and bitumen markets to complement our development planning

process. Development of a commercial project remains subject to regulatory and

other contingencies such as successful reservoir tests, board of directors

approvals, financing and other risks inherent in the oil sands industry ("Risk

Factors" Section of our Form 10-K).

Pasquia Hills Oil Shale Area

During the period ended July 31, 2009, the Company initiated the planning

and regulatory approval process for an exploratory drilling program on its oil

shale permits in eastern Saskatchewan. These activities included filing

applications and receiving regulatory approvals for drilling up to fifteen

locations, surveying drill locations, negotiating and obtaining access rights

and contracting for the required services. We expect to commence exploration

drilling on these permits in the last quarter of calendar 2009.

Outlook

Over the next twelve months we plan to continue the activities necessary

to increase our resource base and to demonstrate the recoverability of our oil

sands resources. Subject to our financial resources, we will continue to

pursue exploration programs on our permit and license lands.

We are continuing our testing program based on the current geological

interpretation that there is no capping shale in direct contact with our oil

sands reservoir. The results of our advanced laboratory studies and numerical

reservoir simulations indicate that bitumen production can best be achieved

using a reconfiguration of horizontal wells at the bottom of the reservoir.

Our analysis points to the three essential elements for a successful

application of the bottom-up approach to bitumen extraction: (1) establish and

maintain mobility at the bottom of the oil sands reservoir, (2) utilize the

full length of the horizontal wells while the bitumen is being produced, and

(3) implement a comprehensive reservoir monitoring system to observe and

manage the growth of the swept zone. A sequential approach to the reservoir

test program is required, both in the scale of the field operations at Test

Site 1 and by moving from vertical wells to short horizontal wells and then to

commercial length horizontal wells. In addition, as part of future pilot

activities the detailed operations protocol will move from cold water to hot

water to steam at each step for the different well configurations.

In the Axe Lake reservoir test program, we are now extending the testing

at Test Site 3 and we will be commencing operations at Test Site 1 to

demonstrate that we can establish and maintain communication between vertical

wells at the bottom of the reservoir using water and steam. The following is

an overview of key activities planned in the next twelve months.

- We expect to submit an application to perforate the two closely spaced

vertical wells at Test Site 3 and circulate water at different

temperatures in order to (1) confirm the establishment of early fluid

movement, (2) confirm the ability for early stage convective heat

transfer at the bottom of the reservoir, (3) produce and collect

samples of bitumen through both hot water and solvent injection, and

(4) gather preliminary data on the horizontal displacement process.

- We expect to submit an application to proceed with the Phase One test

program at Test Site 1 to inject water and steam in order to

(1) demonstrate the feasibility of establishing and maintaining staged

communication at the base of the Axe Lake reservoir (2) evaluate

reservoir behavior in relation to water and steam injection including

geo-mechanical effects, and (3) calibrate the Axe Lake relative

permeability curves for use in our reservoir simulators. Four vertical

wells for micro-seismic monitoring will be drilled and completed and

a baseline will be established prior to commencement of vertical well

operations. The interpretation of micro-seismic signals is expected

to enable more effective history matching of the horizontal fluid

flow and convective heat transfer. This phase is scheduled to begin

in October, subject to regulatory and other approvals.

- In preparation for Phase Two of the testing program at Test Site 1,

we expect to drill and complete observation wells and design,

construct and commission the necessary surface facilities at the site.

Water and steam injection into horizontal wells drilled is planned to

begin following the completion of the surface facilities associated

with the horizontal test holes. This work will commence after the

testing and analysis from Phase One is complete.

- We may begin field activities related to Test Site 2, where we are

evaluating the testing of other energy efficient and environmentally

neutral recovery processes.

- We are planning a program to evaluate the characteristics of the

overburden at Axe Lake in late 2009. The program, in combination with

our extensive 3-D seismic data, is expected to enhance our

understanding of the formation overlaying our bitumen deposit.

- We expect to continue our reservoir characterization studies and

continue to evaluate well data, perform petrophysical analyses,

design and execute pertinent geophysical logging and perform advanced

laboratory studies.

- We expect to submit an application for a pilot project at Axe Lake in

the fall of 2009. The pilot project application will be partly based

on a low pressure steam based bitumen recovery process currently being

tested as part of the reservoir test program and the application will

trigger an Environmental Impact Assessment.

- We are continuing the planning of additional exploration programs to

further define the location, extent and quality of the potential

bitumen resource in Axe Lake, Raven Ridge, Wallace Creek, Eagles Nest,

and adjacent areas as appropriate.

- Infrastructure remains a critical element for continued operations

and we will continue to investigate various pipe line solutions for

gas and liquids transport, different routing alternatives for

permanent road access and possible solutions for the provision of

power.

- Efforts are also continuing on converting a portion of our

Saskatchewan permits to lease pursuant to the Oil Shale Regulations,

1964, as amended. The permits will not be converted to leases until a

development plan which will require an Environmental Impact Assessment

has been developed.

- We intend to maintain our asset base and core technical team in order

to advance to commercial development of our resource.

Liquidity and Capital Resources

On May 12, 2009, the Company issued 35,075,000 units at $0.85 per unit

for gross proceeds of $29.8 million. The units were issued as part of a public

offering and were comprised of a share of the common stock and one-half of a

warrant to purchase a share of common stock. The Company paid an aggregate of

$1.5 million in fees to a syndicate of agents under the terms of the agency

agreement and $1.2 million of legal fees and other expenses in relation to the

offering.

During the three months ended July 31, 2009, the Company expended $4.4

million on operations and $0.4 million on property and equipment.

At July 31, 2009, the Company held cash, cash equivalents and short term

investments totaling $56.1 million. At September 1, 2009, the Company held

cash, cash equivalents and short-term investments totaling $53.6 million.

We believe that we have sufficient funds to carry out our planned

activities over the next twelve months. If we accelerate commercial

development at Axe Lake or any of our other prospects, our cash requirements

will increase significantly. Additional funding may also be required if our

current planned activities are changed in scope or if actual costs differ from

estimates of current plans. We believe the Company will have access to

sufficient funding and sources of capital for its planned activities through

to July 31, 2010. Because we constantly and actively monitor our expenditure

budgets, if sufficient funding is not available we can adjust our expenditure

plans based on available cash. We plan to fund future operations by way of

financing, including a public offering or private placement of equity or debt

securities. Our development strategy also includes considering partners on a

joint venture basis on our specific projects to fund the development of such

projects in a timely and responsible manner. However, there is no assurance

that debt or equity financing or joint venture partner arrangements will be

available to us on acceptable terms, if at all, to meet these requirements.

The Company has no revenues, and its operating results, profitability and the

future rate of growth depend solely on management's ability to successfully

implement the business plans and on the ability to raise further funding.

Results of Operations

Net loss

Three Months ended July 31, 2009 as compared to three months ended July

31, 2008. The Company experienced a net loss of $1,908,301 or $0.01 per share

for the three months ended July 31, 2009 as compared to a net loss of

$14,123,683 or $0.06 per share for the three months ended July 31, 2008. The

decline in the net loss is mainly due to a reduction in exploration activity

and costs in the current quarter as compared to the same quarter last year.

The Company expects to continue to incur operating losses and will continue to

be dependent on additional sales of equity or debt of securities and/or

property joint ventures to fund its activities in the future.

Exploration costs

Three months July 31, 2009 as compared to three months ended July 31,

2008. Exploration costs for the three months ended July 31, 2009 were

$3,614,359 (2008 - $10,472,742). The Operations Summary above provides a

summary of the exploration activities conducted in the three months ended July

31, 2009. Exploration expenditures in the three months ended July 31, 2009

related mainly to engineering and construction costs on Test Sites 1 & 3 and

to environmental monitoring activities.

General and administrative

Corporate

Three months ended July 31, 2009 as compared to three months ended July

31, 2008. General and administrative expenses settled with cash for the three

months ended July 31, 2009 were $3,798,450 (2008 - $2,855,016). Expenditures

in the three month period ended July 31, 2009 consist of salaries ($1.0

million), legal and other professional fees ($0.7 million) and general office

costs ($2.1 million). General and administrative expenses in the three months

ended July 31, 2008 consist of salaries ($0.9 million), legal and other

professional fees ($0.9 million) and general office costs ($1.0 million). At

July 31, 2009 there were 48 employees including 8 seasonal field employees, at

July 31, 2008 there were 72 employees including 30 seasonal field employees.

The increase in salaries and wages during the quarter occurred as result of

severance payments.

Stock-based compensation

Three months ended July 31, 2009 as compared to three months ended July

31, 2008. Stock-based compensation reversal for the three months ended July

31, 2009 was $1,152,931 (2008 - $3,569,157 expense). Stock-based compensation

expense for the three months ended July 31, 2009 and 2008 consists of

stock-based compensation related to the issuance of options to directors,

officers, employees and consultants. The grant date fair value of the stock

options was estimated using the Black-Scholes valuation model which requires

the input of highly subjective assumptions, including the option's expected

life and the expected stock price volatility determined using the historical

volatility of the price of shares of the Company's common stock. The decrease

this quarter as compared to the same quarter in the prior year is the result

of 2.8 million options being forfeited due to a reduction in the number of

employees and resulting in a reversal of previously recorded stock-based

compensation. Stock-based compensation is a non-cash expense.

Foreign exchange gain (loss)

Three months ended July 31, 2009 as compared to three months ended July

31, 2008. A foreign exchange gain of $3,243,691 (2008 - loss of $782,690)

resulted from holding Canadian dollar cash in the parent company with a US

dollar functional currency when the value of the Canadian dollar increased as

compared to the U.S. dollar.

Depreciation and accretion

Three months ended July 31, 2009 as compared to three months ended July

31, 2008. Depreciation and accretion expense for the three months ended July

31, 2009 was $448,416 (2008 - $317,726). Depreciation expense relates to camp

facilities, equipment and corporate assets which are being depreciated over

their useful lives of three to five years. Accretion expense relates to the

asset retirement obligation recognized on the airstrip, camp site, access

roads and reservoir test sites which are being brought into income over a

period 10 of 30 years. The change from the quarter ended July 31, 2008 to the

quarter ended July 31, 2009 is not significant and relates to the increase in

assets held during the year.

Interest and other income

Three months ended July 31, 2009 as compared to three months ended July

31, 2008. Interest income for the three months ended July 31, 2009 was $58,764

(2008 - $429,278). Interest income is earned because the Company pre-funds its

activities and the resulting cash on hand which is invested in short-term

deposits. The decrease in interest income this quarter as compared to the same

quarter in the prior year reflects the decrease in short term investments and

the decrease in market interest rates over the intervening year.

Deferred income tax benefit

Three months ended July 31, 2009 as compared to three months ended July

31, 2008. The deferred income tax benefit for the three months ended July 31,

2009 was $1,497,538 (2008 - $3,444,370) and relates to the tax benefit that is

generated by expensing all exploration costs. This results in a higher tax

basis for the Company's property and equipment when compared to their carrying

value. The deferred tax liability reported on the balance sheet is mainly

related to the book value of property which will not be deductible for tax

purposes and is related to the Company's 2006 acquisition of the minority

interest in OQI Sask.

Disclosure Controls and Procedures

As of July 31, 2009, we carried out an evaluation under the supervision

of, and with the participation of our Chief Executive Officer and our Chief

Financial Officer, of the effectiveness of the design and operation of our

disclosure controls and procedures pursuant to Rule 13a-15(e) under the

Securities and Exchange Act of 1934, as amended. Based on the evaluation as of

July 31, 2009 our Chief Executive Officer and Chief Financial Officer

concluded that our disclosure controls and procedures (as defined in Rule

13a-15e) under the Securities Exchange Act of 1934) were not effective because

of the material weakness in internal control over financial reporting

described below.

Disclosure controls and procedures are controls and other procedures that

are designed to ensure that information required to be disclosed in our

reports filed or submitted under the Securities Exchange Act is recorded,

processed, summarized and reported within the time periods specified in the

Securities and Exchange Commission's rules and forms. Disclosure controls and

procedures include, without limitation, controls and procedures designed to

ensure that information required to be disclosed in our reports filed under

the Exchange Act is accumulated and communicated to our management, including

our Chief Executive Officer and our Chief Financial Officer, as appropriate,

to allow timely decisions regarding required disclosure.

A material weakness is a deficiency, or a combination of deficiencies, in

internal control over financial reporting, such that there is a reasonable

possibility that a material misstatement of the Company's annual or interim

financial statements will not be prevented or detected on a timely basis. The

material weakness in our internal control over financial reporting as of July

31, 2009 existed as we did not maintain effective processes and controls over

the accounting for and reporting of complex and non-routine transactions.

Specifically, we did not have sufficient appropriate level of technical

knowledge, experience and training in the accounting for asset acquisitions,

stock-based compensation, and deferred income taxes. This control deficiency

resulted in the restatement of the consolidated financial statements for the

years ended April 30, 2008 and 2007 and each of the quarters in fiscal 2009

and 2008. The restatement of the prior periods also resulted in a material

adjustment to the April 30, 2009 financial statement prior to their issuance.

We plan to remediate the material weakness described above by consulting

with an independent big four accounting firm on complex accounting issues and

obtain written analysis of the accounting options available to us. The

analysis would be reviewed with the independent auditors on the

appropriateness of the accounting treatment for any new transactions. We will

also amend our period close procedures to include access to independent

consultation on technical accounting treatment with respect to highly complex

transactions.

Changes in Internal Control Over Financial Reporting

We regularly review our system of internal control over financial

reporting. There were no changes in our internal control over financial

reporting during the period covered by this report on Form 10-Q that have

materially affected or is reasonably likely to materially affect, our internal

control over financial reporting.

Other information

Effective August 28th, 2009, Dr. Claes Palmgren, Vice President Reservoir

Engineering, resigned from the Company for personal reasons. Dr. Palmgren

intends to stay on with the Company on a consulting basis for a period of

approximately six months.