Questerre Energy Corporation Class A · TSX:QEC
Questerre Energy Corporation Class A — Investor Presentation (August 2010)
40 slides from Questerre Energy Corporation Class A's investor presentation, August 2010
Slide 1: Corporate Presentation
Corporate Presentation August 2010
Slide 2: Presentation outline
Presentation outline • Company overview • Natural gas market • Shale gas • St. Lawrence Lowlands, Quebec • Near term outlook • Investment summary • Appendix
Slide 3: Commercializing the Quebec shale gas discovery
Commercializing the Quebec shale gas discovery • First mover in Quebec with one million acre land position taken in 1998 • 17.99 Tcf (3 billion boe) recoverable resource discovery in the Quebec Utica shale on Questerre lands • Excellent fiscal environment enhances economics • Strong balance sheet, e
Slide 4: Asset overview
Asset overview St. Lawrence Lowlands, Quebec • Giant Utica shale gas discovery being commercialized with partners • Lorraine shale upside Northeast British Columbia • Evaluating Besa River shale gas potential in Liard basin • Acquired acreage prospective for Horn River shale gas including Jean Marie
Slide 5: Operating and financial results
Operating and financial results Six Months Ended June 30 2010 2009 Cash Flow $0.7 million $1.8 million Production Crude Oil and Natural Gas Liquids (bbls/d) 299 (47%) 410 (42%) Natural Gas (mcf/d) 1,866 (53%) 3,102 (58%) Total (boe/d) 610 927 Revenue ($/boe) 52.43 39.93 Royalties ($/boe) 10.21 3.41
Slide 6: Capitalization & liquidity
Capitalization & liquidity Insiders 21,579,517 9% Free Float 212,255,961 91% Total 233,835,478 Options (Average exercise price $2.44) 20,143,753 Average 3 month daily trading volume 3,503,820 (OSE plus TSX) Research Coverage
Slide 7: Natural Gas Market
Natural Gas Market
Slide 8: Natural gas market
Natural gas market • Utica shale gas development a match to the long term price of gas • Shale gas to replace rapidly declining conventional gas Source: EnCana Corp March 2010 Investor Days • Over‐investment and recession have created $7.00 $6.50 excess gas in storage $6.00 $5.32 $5.60 $5.78 $5.50 $
Slide 9: Natural gas market
Natural gas market • Gas at over 60% discount to oil on energy equivalent basis – Competitive with coal • Clean, abundant, reliable, cost‐ effective and efficient supply of Source: Encana Corp. presentation January 26, 2010 energy by Kevin Smith – Natural gas produces 30% less emissions than gasolin
Slide 10: Shale Gas
Shale Gas
Slide 11: Environmental considerations
Environmental considerations • Efficient use of water and highly diluted frac additives – Less than one liter of water and one teaspoon of additives required daily to heat an average home in Quebec – Frac additives account for less than 0.5% of total fluid used and are found in common household prod
Slide 12: Safe and proven process
Safe and proven process • Thousands of wells are safely and successfully fracture stimulated annually in US and Canada – Used in nearly all natural gas wells drilled today – Frac fluids are comprised of more than 99.5% water and Frac Fluid Additives sand Multiple casing strings • Groundwater protect
Slide 13: Water usage
Water usage • Strict regulatory standards under • Water usage will have no meaningful development in Quebec for withdrawal, impact on fresh water supply from St. usage and disposal of water for shale gas Lawrence water shed development
Slide 14: Natural gas emissions
Natural gas emissions • Cleanest‐burning fuel – Burns twice as clean as coal and is 60% more efficient – Lower CO2 emissions and fewer pollutants than coal or oil when burned • Using natural gas for transportation would result in a 78% reduction in nitrogen oxides and a 99% reduction in sulphur diox
Slide 15: St. Lawrence Lowlands, Quebec
St. Lawrence Lowlands, Quebec
Slide 16: Outline
Outline • Shale gas in Quebec – High margin gas – Well defined geological fairway – Core land position in fairway – ‘Incredible Gas in Place’ • Path to commercialization • Progress on path • Future plans
Slide 17: High margin gas
High margin gas • Robust economics – Crown royalties of 10‐12½% – Realized prices of NYMEX + $0.50 premium • Minimal investment to connect to local market of 0.5 Bcf/d and larger regional markets Pipeline infrastructure in Lowlands • Reduced capital investment and operating expenses due to minimal p
Slide 18: Well defined geological fairway
Well defined geological fairway Utica structure map Potential for different play styles in structured and unstructured areas of play fairway
Slide 19: Core land position in fairway
Core land position in fairway Acreage Interest Gross Net Questerre ‐Talisman 25%+4.25% GORR 719,788 206,746 Yamaska – Forest Oil/Gastem 20% 113,453 22,691 St. Jean – Gastem 59% 181,255 107,003 Total Acres 1,014,496 336,440
Slide 20: Incredible gas in place
Incredible gas in place • Resource assessment of Utica completed by Netherland, Sewell & Associates • Does not include 4¼ % percent overriding royalty nor Lorraine formation One trillion cubic feet (Tcf) of natural gas equals 167 million barrels of oil equivalent Original Gas in Place is not a defin
Slide 21: Phases of shale gas development
Phases of shale gas development • Resource identification – 1950 to 2007 – Geological studies including core analysis to validate natural gas potential of Utica shale • Rock properties investigation – 2008 to 2010 – Single frac pilot vertical and horizontal wells to prove geo‐ mechanical rock proper
Slide 22: Path to commercialization
Path to commercialization 600 500 Com m itted Capital ($ m illions) 400 300+ 300 200 75 to 200 100 50 to 100 0 Rock Properties Investigation Commercial Parameters Economic Feasibility Full Field Development
Slide 23: Progress on path
Progress on path • Validated multi‐Tcf Utica shale resource with independent evaluation • Successfully proved geo‐mechanical rock properties consistently across assessed acreage with vertical well program targeting middle Utica interval Gentilly No. 1 frac operations • First horizontal well in middl
Slide 24: St. Edouard No. 1A
St. Edouard No. 1A • St. Edouard horizontal well “simply excellent” initial result of 6mmcf/d • QEC interpretation is long term production test matches Haynesville shale type curve – Independent research indicates 10% rate of return for these type wells with capital costs of $6 million • Potential f
Slide 25: Measuring up to a proven shale play
Measuring up to a proven shale play Quebec shale compared to SWN Fayetville shale 7 6 Daily Gas Rate (mmcf/d) 5 4 3 2 1 0 Year 1 Year 2 Year 3 Year 4 an an an an an an an an -J -J -J -J -J -J -J -J 01 01 01 01 01 01 01 01 Questerre Southwestern Trend Line Trend Line Fayetteville production data cour
Slide 26: Establishing commercial parameters
Establishing commercial parameters • Negotiating with partners for commercial demonstration project • Final location for demonstration project will be based on test results from pilot horizontal well program including Fortierville and St. Gertrude wells Drilling operations on Gentilly horizontal wel
Slide 27: Expected timeline
Expected timeline 2008 2009 2010 2011 2012 ala esl~alalal Bl_alal al Bsl_al[al Velelalalal_ ala Commercial Development | Economic Feasibility | tti‘SCSCSO Establishing Commercial Parameters | Rock Properties Investigation-Horizontal Rock Properties ee Investigation-Vertical Resource Identification
Slide 28: Near term outlook
Near term outlook • Currently testing Gentilly No. 2 – Five fracs in 700m horizontal targeting middle and lower Utica • Completion and testing of Fortierville No. 1 and St. Gertrude No. 1 scheduled for this fall subject to equipment availability – Eight fracs in 1000m horizontals planned to target m
Slide 29: Investment summary
Investment summary • Mega discovery in Utica shale Strong • Extensive land position in Quebec with multiple opportunities portfolio • New shale gas plays in Horn River and Liard basin • Light oil development at Antler in Saskatchewan • Large retained interest and running room in Utica discovery Larg
Slide 30: Management and Board
Management and Board Management Board Michael Binnion, President & Chief Executive Les Beddoes, Jr. Officer International explorationist Former VP Exploration, Bow Valley Energy Inc.; Victoria, John Brodylo, VP Exploration (Nexen) BC Peter Coldham, VP Engineering & Operations Michael Binnion, Presid
Slide 31: Forward looking information
Forward looking information This presentation contains certain forward–looking information and statements within the meaning of applicable securities laws. The use of any of the words "expect", "anticipate", "continue", "estimate", "may", "will", "project", "should", "believe", "plans", "intends" an
Slide 32: Appendix
Appendix
Slide 33: What is shale
What is shale • Organic shale is typically a source rock that changes conventional reservoirs over geologic time – Shale must be source, seal and reservoir – Gas/oil is in pore spaces (free) and on surface of particles (adsorbed) – Gas can be generated by biogenic or thermogenic means Lorraine Shale
Slide 34: How is shale different
How is shale different • Gas is extracted from the rock, not drained from it • Shale gas molecules move five meters in five years so the rock must be fractured underground by hydraulic fracturing • The objective is to maximize recovery per frac and minimize the cost per frac Source: EnCana Corp Jan
Slide 35: Harnessing the learning curve
Harnessing the learning curve Barnett Shale (Texas) • Every shale play has its own 7,000 learning curve and requires F ir s t Y e a r A v g G a s R a te ( M C F P D ) 6,000 unique, innovative 5,000 solutions 4,000 3,000 2,000 1,000 • Acquire a statistically - 5/7/1990 1/31/1993 10/28/1995 7/24/1998
Slide 36: Hydraulic Fracture Fluid Additives Commonly Used by Questerre
Hydraulic Fracture Fluid Additives Commonly Used by Questerre Typical Concentration Additive Type Main Compound Purpose Common Use of Compound 96.26% Water Water Used to expand fracture and Irrigation, manufacturing, human deliver proppant (sand) ‘consumption (drinking, bathing, cooking) 3.62% Propp
Slide 37: Extensive technical database
Extensive technical database Utica and Lorraine unstimulated DSTs • Over 5,000 km of seismic data • Over 275 wells drilled in basin with core, logs or production tests in Utica and Lorraine • Bow Valley/Terrenex study Source: Molopo Australia Limited 2008 Corporate Presentation in early 1990s valida
Slide 38: Utica Depth Structure
Utica Depth Structure HS Shallow: 0-800m 9) Medium: 800-1700m !> Deep tested: 1700-3000m ©) Deep overthrust: > 3000m Deep tested unknown: 1700-3000m ! Deep unknown thermal maturity Montréal gy Québec City - ~ N 0 6 12 1 24 30 MI c a a 5] —— 0 0 20 30 40 50 KM
Slide 39: Utica wells drilled in the Lowlands
1. Farnham No 1 (2009) 6. St‐Francois du Lac No 1 (2008) 12. Gentilly No 1 (2008) 18. St‐Augustin de Desmaures No 1 (2008) Operator: Canbriam Operator: Forest Oil Operator: Talisman Operator: Junex Spud Date: July 9, 2009 Spud Date: August 6, 2008 Spud Date: July 18, 2008 Spud Date: June 16, 2008 De
Slide 40: Questerre contact details
1650 AMEC Place 801 Sixth Avenue SW Calgary, Alberta T2P 3W2 Canada Tel: (403) 777 1185 Fax: (403) 777 1578 www.questerre.com info@questerre.com
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