Cut and Paste of submission from QEC board

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Hi, what a ride !!!

This Pareto-update was posted in Norway today. I can't confirm that it is real, but if it is , this is huge !!!

Here it is :

More on Questerre's Utica shale discovery in Quebec:

Valuation potential indicates unrisked potential of NOK 70 per share

Questerre benefits from the Utica shales discovery in 2 ways. 1) Direct ownership, 2) Topline royalty on the partner Talisman's future revenue

1) Based on Forest Oil's evaluations, QEC has 3 TCF of recoverable gas. On our NPV calculations, this is worth some $0.5/mcf --> $1.5bn or NOK 40 per share

2) 4.25% royalty on Talisman's 8.6TCF of recoverable gas. Applying a gas price of $10/mcf and discounting at 10% over 30 years from 2010 we get a value of this of $1.1bn or NOK 30 per share

From a valuation perspective we then get an unrisked potential of NOK 70 per share (40+30)
Forest Oil share price indicates fair QEC share price of NOK 16.7

Forest Oil has gone up 16.2% from $48.96 to $56.90 since the discovery was announced
In the same period, the S&P 500 Oil Integrated index is up 5.8%
We there assume Forest is up 5.8% from market and 10.4% from the news. This means Forest oil was up $433m on these news
This is equivalent to +NOK 11.4 per QEC share
However, Questerre has a larger acreage position than Forest and should go up more. QEC has 342,000 acres and Forest 269,000 acres. Assuming the same prospectivity on all the land, QEC should have gone up NOK 14.5 per share (on top of the NOK 2.2 share price ahead of the news)
In total the QEC share price should be NOK 16.7 based on Forest share price

The market gives Forest 20% of the unrisked value, but QEC only 9% (NOK 6 up since news out of NOK 70 potential).

We think the QEC share price will increase to reflect a similar risked value as for Forest

--> We set a new Target Price of NOK 17 (up from NOK 10 per share on increased confidence in discovery) - STRONG BUY recommendation reiterated

On top of this there is a huge further potential (valuation indicates an upside to NOK 70 per share) that can be realised as the market gradually prices in a higher probability factor on the discovery. We also think QEC is a likely takeover candidate as it offers cheap exposure to a huge disocvery.

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Once again - I haven't been able to confirm it...

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Forest Oil estimated 5.2 tcf on 329,000 acres (4.1 tcf net to Forest):

120,000 acres (Gastem & Questerre)

55,000 acres (Junex) - 40 % WI

155,000 acres (Junex) -  15% gross royalty

Junex has 13% of 329,000 acres = 676 bcf

Swedish firm values 1 mcf = $0.50 (Net present value of net cash flows)

Value of 13% interest in 329,000 acres = $338 Million  

Net Asset Value / share = $338 Mil / 50 Mil shares = $6.76

Gas layer = 500 meters

Horizontal section (new 2008 horizontal well) = 2000 meters

If they intend to frac the entire horizontal section thereby increasing the volume by a factor of four, then it makes perfect sense that gas production will go from 1 mmcf to (4 to 5) mcf.

The prospectivity of Junex's contribution 220,000 of 329,000 acres will have to be proven by drilling and 3-D seismic.   The discovery well is on Junex's land - Becancour #8.  I do not believe that other well in Gastem's land has been fracced!

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Junex has another ~700,000 acres which they claim to be prospective which could add to their gas reserves.  Their latest deal with Forest gives them 40% WI on 55,000 acres.   The interest in Quebec Gas is intense right now.  It should be easy to sign a favorable deal!