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Questerre Energy Corporation Profile

Corporate Overview

Questerre Energy Corporation is an innovative exploration and production company focusing on high-impact projects in frontier Canada.

The Company participated in a recent discovery of a potential giant shale gas field in the Lowlands, Quebec with its partners Forest Oil & Talisman Energy. Questerre is also developing a portfolio of assets including resource style plays such as the Bakken/Torquay light oil play in Antler, Saskatchewan and the Jean Marie gas play in Greater Sierra, British Columbia. The Company’s other conventional E&P assets in Southern and Central Alberta were largely responsible for production of 1,200 boe/d and cash flow of $15 million for the nine months ended September 30, 2008.

Questerre is well positioned financially with a strong balance sheet, no debt and existing cash flow. This will adequately finance projected capital spending for the next 12-18 months and allow it to capitalize on current market opportunities.

St. Lawrence Lowlands, Quebec

The Lowlands are situated in Quebec south of the St. Lawrence River between Montreal and Quebec City. The exploration potential of the Lowlands is complemented by proximity to one of the largest natural gas markets in North America, a well-established distribution network and favorable fiscal terms.The area is prospective for natural gas in several horizons with primary targets in the Ordovician Trenton Black-River ("TBR") at approximately 2000m and the Lorraine and Utica at a depth of 500 m to 2000 m.

The majority of Questerre’s landholdings of over one million gross acres lie in the heart of the fairway between two major geological features – a subsurface thrust fault known as Logan’s Line to the west and the Yamaska growth fault to the east. This acreage is comprised of three separate blocks.

The largest block of 719,788 acres is subject to a farm-in and participation agreement with Talisman Energy. Upon Talisman earning in the entire block, Questerre will hold approximately 25% working interest and a 4 1/4% royalty on production.

The 113,453-acre Yamaska acreage is governed by a royalty and joint venture agreement with Gastem Inc. and Forest Oil and lies adjacent to the Talisman farm-in lands. Questerre currently holds a 7.5% gross overriding royalty convertible into a 20% working interest on this block. Questerre has received notice from Gastem that it intends to convert this royalty into a working interest.

Questerre’s third exploration block, St. Jean, covers 181,255 acres close to the US border. Questerre holds an approximate 56% working interest in this block with Gastem.

Utica/Lorraine Formations

The potential of the Utica shale in the Lowlands was first quantified by an EnCana presentation for an industry conference in 2007. The report highlighted the Utica as viable resource play target covering over 1 million acres with 163 Tcf of discovered resource or approximately 88 Bcf per square mile. Subsequent technical work by both Forest and Talisman provides further support with similar resource estimates of approximately 93 Bcf per square mile. Based on data published by Talisman, the shallower Lorraine is expected to host similar gas in place with a discovered resource estimated at 50-190 Bcf per square mile.

In the summer of 2007, Gastem spud two wells, St. Francois du Lac and St. Louis de Richelieu, on the Yamaska block to evaluate the Utica shale potential. The two wells were successfully drilled to a vertical depth of approximately 1800m. The operator, Forest Oil, fracture stimulated both wells and reported initial test rates of up to 1 mmcf/d.

Based on these results, the operator announced a pilot program to drill and fracture stimulate three horizontal wells, two on the Yamaska permits, to assess the commerciality of the Utica. The wells were drilled in the third quarter and completed with a four-stage hydraulic fracture stimulation per well. The wells are on clean-up and initial flow back with preliminary results expected early in the first quarter of 2009.

Talisman’s appraisal program also began in mid-2008 with the re-completion of the Gentilly #1 well to test the Utica and the Lorraine. Following a 250 ton slick water frac of a single interval in the Utica the well flowed at a stabilized rate of over 800 mcf/d on an 18-day test. Stimulation and testing of two other intervals in the Lorraine is ongoing with results expected in early 2009.

These early results by Forest and Talisman substantiate the favorable rock properties of the Utica, particularly its ability to be fracture stimulated. We anticipate this stimulation will be optimized over time to maximize recovery prior to full scale development.

The next two earning wells drilled by Talisman, La Visitation and St. David, were spud in September and December 2008 with testing of the Utica and Lorraine intervals planned for early 2009. In conjunction with the completion and testing, Talisman plans to drill its final earning well, St. Edouard that will also evaluate these intervals in addition to the Trenton Black-River.

To test a possible extension of the Utica play south of the main fairway, Questerre spud the St. Jean sur Richelieu well close to the US border. The Utica is considerably shallower in this area with total well depth at 422m. Stimulation to establish gas flow is scheduled for January 2009, subject to equipment availability.

Trenton Black-River Formation

The success of the Trenton Black-River play in the analogous Appalachian Basin to the south led Questerre to initially secure its land position in the Lowlands in 2001.

Questerre completed an extensive regional geological and geophysical study of the Lowlands to support this exploration model. This included reprocessing and reinterpretation of a database of over 3,000 km of 2-D seismic and a detailed review of the wells that have been drilled in the area. The work is supported by the documented occurrence of dolomitized TBR in outcrop and well bores in Quebec. With mapping of the wrench fault systems key to this play and seismic modelling, Questerre identified numerous leads for the TBR.

Talisman spud its first well, Gentilly #1, on Questerre’s acreage in late 2006 with the TBR as the primary target. While the final rates of approximately 340-630 mcf/d did not warrant a tie-in, Questerre believes the results validated its exploration model for the TBR. These results and additional technical work led Talisman to acquire over 100 km of 2-D seismic over additional Questerre prospects and elect to drill the remaining three wells under its farm-in agreement.

Antler, Saskatchewan

The Antler area is approximately 200 km from Regina in southeast Saskatchewan. The primary target is light oil from the Bakken/Torquay formation, a dolomitic siltstone/shale sequence at a depth of between 1050 m and 1150 m. Favorable fiscal terms include premium commodity prices for the oil and Crown royalties of 2.5% on the first 100,000 barrels for horizontal wells.

Questerre established a new core area in Antler through the acquisition of Magnus Energy Inc. in late 2007.

The Company currently holds over 34,000 (21,115 net) acres of land of which more than 90% is undeveloped. Utilizing a 3-D seismic survey acquired in late 2007, Questerre has identified up to 45 infill development locations with over 100 additional locations remaining unevaluated.

Following a successful pilot program to evaluate long reach horizontals combined with selective fracture stimulation, Questerre began full field development during the summer of 2008. A total of 20 (13 net) horizontal wells have been drilled and 14 (9.0 net) wells stimulated as of year-end 2008.

Based on results to date, proven reserves per horizontal well are estimated to be 90,000 barrels and represent a recovery factor of 8-10% of the oil in place. Questerre has also commenced simulation studies for a waterflood that is further expected to improve recovery.

In light of the recent changes in commodity prices, Questerre is re-evaluating its proposed drilling program in Antler for 2009.

Northeast British Columbia

Beaver River Field

The Beaver River Field (the "Field") is located approximately 160 km northwest of Fort Nelson, on the border of British Columbia and the Yukon. Production from the field benefits from extensive infrastructure including processing facilities, a local gathering system and a tie-in to the Spectra Energy pipeline. Questerre currently holds a 50% interest in over 23,000 acres in this area.

There are multiple zones of interest including three interbedded shale, siltstone and sandstone intervals known as the Mattson, Besa River and Golata at a depth of 1300 – 3300m and the Nahanni, a hydrothermally dolomitized carbonate sequence at a depth of approximately 3300m.

Mattson/Besa River/Golata Formations

Questerre, in conjunction with its partner conducted a work program to evaluate the shallow Mattson/Besa River horizon over the last two and a half years. This included re-entering three existing wells and stimulating two in addition to drilling two new wells, A-7 and B-3 since the fall of 2005. Different stimulation techniques including energized carbon dioxide and nitrogen foam were evaluated and results to date have been mixed.

The A-2 well has produced over 2 Bcf and continues to produce at rates in excess of 2 mmcf/d from the middle shale interval. By comparison, there were no commercial rates from any interval in the B-3 well. The A-7 well is producing from the uppermost interval at rates of approximately 0.5 mmcf/d. These results indicate that natural fracturing and predominantly sand/carbonate intervals result in better deliverability than any specific stimulation technique.

In the summer of 2008, Questerre re-entered the A-5 well to identify prospective shale intervals. After a minor stimulation of a dolomitic brittle sequence above the deepest interval, the well flowed at rates in excess of 10 mmcf/d. It was placed on a long term production test in the fourth quarter of 2008 at a facility constrained rate of 5 mmcf/d to determine the contribution from the deeper shale interval. With success, Questerre is planning a 1-3 well re-entry program to further assess these shale intervals in 2009.

Based on an independent study on the shale intervals commissioned by the joint venture estimates of the discovered resource of the Mattson/Besa River interval alone ranges between 495 Bcf – 750 Bcf per square mile and for the entire shale intervals at over 1 Tcf per square mile. Notwithstanding the magnitude of this resource, Questerre anticipates future work on these shale intervals will be highly selective and contingent upon results from A-5 and improved natural gas prices.

Nahanni Formation

The Nahanni accounts for the majority of historical production from Beaver River since it was discovered in 1961 and placed on production in 1971. With a discovered resource estimated at 1.4 Tcf, production in the 1970s of 178 Bcf recovered only 12% and fell short of the estimated recovery of 60% due to premature water influx.

Questerre acquired a majority interest in Beaver River in 2001 to complete a secondary recovery scheme for the Nahanni. This included the acquisition of a 3-D seismic survey and extensive technical work including hydrodynamic pressure studies and material balance studies.

The technical work corroborated Questerre’s interpretation of the Nahanni formation that is based on compartmentalization and preferential flow of water in the fracture system (“coning”) - the majority of the recoverable reserves could be contained in undrilled fault blocks or compartments and the remainder behind water cones in existing compartments.

Questerre drilled two wells – A-5 in 2003/2004 and A-8 in 2007/2008 to test this hypothesis. A-5 was unsuccessful largely due to improperly processed seismic data that resulted in the well missing its target up-dip structure. A-8 was drilled for a potentially undrilled compartment that had a different sealing mechanism than originally expected. While several Nahanni infill and step-out locations have been identified, Questerre expects to pursue these in the future contingent upon partner participation, capital allocation and equipment availability.

Greater Sierra

The Greater Sierra region lies approximately 100 km east of Fort Nelson, British Columbia. The primary zone of interest is the Devonian Jean Marie at a depth of 1400m. The region is also prospective for shallower zones including the Mississippian Debolt and deeper Devonian Keg River and Slave Point formations.

In late 2007, Questerre concluded a seismic and farm-in agreement with a major E&P company covering 54 square miles in the Greater Sierra region. Questerre’s partner is one of the largest operators in the region with over 2.4 million net acres and estimated production of over 200 mmcf/d from the Jean Marie formation in 2007.

Questerre acquired its interest in the area through the acquisition of a 46-square mile 3-D seismic survey and the drilling and completion of two test wells. The wells were completed and tied in to its partner’s extensive gathering system in early 2008.

Current plans are to acquire additional acreage for the deeper prospects in 2009 with a 6-8 well Jean Marie program scheduled for 2010.

Last changed at 17-Oct-2016 12:46PM by BCQEC