Corporate Presentation Pareto Oil & Offshore Conference September 10 -11, 2008 Questerre Energy Corporation
Forward Looking Statement This presentation contains forward-looking information. Implicit in this information are assumptions regarding oil and natural gas prices, production, royalties and expenses that, although considered reasonable by Questerre at the time of preparation, may prove to be incorrect. These forward-looking statements are based on certain assumptions that involve a number of risks and uncertainties and are not guarantees of future performance. Actual results could differ materially as a result of changes in Questerre’s plans, changes in commodity prices, general economic, market, regulatory and business conditions as well as production, development and operating performance and other risks associated with oil and gas operations. There is no guarantee by Questerre that actual results achieved will be the same as those forecast herein. Estimated values in this presentation do not represent fair market value.
Presentation Outline • Company Overview – – • Business plan & asset overview Management & Board Capitalization Second quarter results Area Overview – St. Lawrence Lowlands, Quebec – Northeast British Columbia – Antler • Outlook – Near term goals – Investment summary
Business Strategy Superior risk/reward in the Canadian frontier “Big gas and big markets” Buy early • Acquire significant land positions in overlooked or underdeveloped areas Add value • Leverage technical expertise to “understand the rocks” and high grade land positions Reduce risk • Farm-out to partners and create a diversified portfolio of upsides Create shareholder value • Prove up reserves and production
Successes to Date • Major new shale gas discovery in Quebec • Additional exploration targets in Quebec being evaluated in 2008/2009 • Partnerships with several seniors including Talisman, En. Cana and Forest Oil • Company value enhanced by current production of over 1, 300 boe per day
Asset Overview Diversified portfolio of assets St. Lawrence Lowlands, Quebec Northeast British Columbia Southeast Saskatchewan • Potentially giant Utica & Lorraine shale gas discoveries being evaluated by Forest Oil & Talisman • Follow-up exploration by Talisman on new basin Trenton Black-River discovery Northeast British Columbia • Significant land base for established Jean Marie resource play with En. Cana • Evaluating Liard shale gas potential at Beaver River Field BRITISH COLUMBIA ALBERTA SASKATCHEWAN QUEBEC Southeast Saskatchewan • Proven Bakken/Torquay light oil resource style play with immediate cash flow and high netbacks Southern and Central Alberta • Production base with over $10 million in operating cash flow in 2007 Southern & Central Alberta St. Lawrence Lowlands Quebec
Management Senior multi-disciplinary team experienced in large-scale projects in the WCSB have invested together with directors $12 million Michael Binnion, President & CEO John Brodylo, VP Exploration (Nexen) Peter Coldham, VP Engineering & Operations (Chevron) Jason D’Silva, VP Finance (Can. Argo, Flowing) Richard Mindus, Operations Manager (Nexen) Ian Nicholson, Manager, Alberta (Beau Canada, Kerr Mc. Gee) Maria Rees, Corporate Secretary (Can. Argo, Flowing) Rick Tityk, VP Land (Hunt Oil)
Board of Directors Les Beddoes, Jr. – – International exploration experience Former VP Exploration for Bow Valley Energy Inc. ; Victoria, BC – – Experienced Quebec-based business leader President, Montreal Canadiens; Montreal, QC – – Corporate finance experience Former Managing Director, Greenwell Montague; London, UK Michael Binnion, President & CEO Pierre Boivin Russ Hammond David Mallory, Chairman of Audit, Corporate Governance & Reserves – – Committees Financial Management & Governance experience CEO BLZ Energy Ltd. ; Calgary, AB Peder Paus, Chairman – – Merchant banking experience Former Managing Director, Manufacturers Hanover Trust; UK, U. S. A. , Norway – – Oil & Gas E&P experience former analyst Executive Vice President, Svenska Group; Oslo, Norway Bjorn Inge Tonnessen
Capitalization Insiders 27, 719, 743 15% Free Float 168, 930, 470 85% Total 196, 650, 213 (1) Options (Average exercise price $1. 21) Average daily trading volume (OSE plus TSX) Reuters Includes pending cancellation of 10, 698, 785 shares held by Terrenex, recently acquired by Questerre 17, 086, 671 8, 592, 007 (1)
Q 2 2008 Financial Overview 2008 2007 1, 241 1, 443 $5. 14 million $3. 18 million Average sales price ($/boe) $80. 01 $49. 91 Operating netback ($/boe) $51. 07 $28. 11 Working capital $68. 45 million $29. 91 million Existing credit facility $11. 25 million Average daily production (boe/d) Cash flow from operations
St. Lawrence Lowlands, Quebec
St. Lawrence Lowlands • New basin discovery with potential for giant unconventional gas reserves • Three discovery wells in three zones: – Utica siltstone/shale - St. Francois du Lac – Lorraine siltstone/shale - St. Francois Romaine – Trenton Black-River hydrothermal dolomite – Gentilly St. Francois du Lac shale gas well • First Mover – Questerre through Terrenex first drilled in Quebec with Bow Valley in 1989 and has held the core acreage position since 1998
Economics and Geology are Known • Fiscal terms are excellent • Play fairway definable • Three prospective zones • Rock can be hydraulically fractured • Discovered resource is big Utica shale Trenton Black River Lorainne shale
What its based on • Over 50 well penetrations & 30 drill stem tests • Over 5, 000 km of 2 -D seismic • Bow Valley/Terrenex and En. Cana technical studies • Forest and Talisman recent work including: – Five modern wells with modern core analysis (Three on Questerre acreage) – Four tested vertical discovery wells (200 mcf/day to 1, 200 mcf/day) – Stabilized 18 day test on Gentilly at over 800 mcf/d Source: Molopo Australia Limited Presentation Historical Drill Stem Tests of Quebec Shales
What is being defined • Recovery per well • Production profile from stimulated horizontal wells • Ultimate costs on a development program basis • Optimization techniques/strategy Testing of Gentilly #1 Discovery well
1 bcf in Quebec worth 2 bcf in Alberta Pipeline infrastructure in Lowlands • Canada’s second largest natural gas market • Estimated 200 -400 mmcf/d capacity on TCPL (seasonal) • Realized natural gas prices at border are a $1 premium to NYMEX due to proximity to markets • Royalties of 10% to 12. 5% • Net backs over $40/boe based on $9/mcf NYMEX Comparative illustration of fiscal terms
8 of 13 wells on Questerre Land Acreage Questerre - TLM (~25% + 4. 25% GORR) Yamaska – FST/GMR (20% working interest) St. Jean – GMR (56% working interest) Total Gross 719, 788 113, 453 181, 255 1, 014, 496 Net 206, 746 22, 691 107, 003 336, 440
Play Fairway Unstructured Structured Legend 350 m to 700 m to 350 m Fairway Utica Zero Edge line Transitional Logan’s Line Overthrusted Fairway 700 m to 2, 600 m Overmature line Shallow Yamaska Growth Fault line Overthrusted and Overmature Break in Slope line
Questerre dominates fairway
Rock Properties Forest Talisman Forest Utica Lorraine Barnett 2, 300– 6, 000 1, 500– 10, 000 1, 500– 11, 000 4, 500 -9, 000 500 300– 1, 000 1, 500– 6, 500 150 -700 15 – 26 15 – 51 30 – 38 15 -30 TOC (%) 1. 0 - 3. 1 0. 3 - 2. 5 0. 1 – 1. 5 3. 5 – 5. 0 Gas-filled porosity (%) 3. 2 – 3. 7 2. 2 – 3. 5 1. 2 – 3. 2 3. 0 – 4. 8 Maturity (Ro) 1. 3 – 2. 0 1. 1 – 4. 0 1. 0 – 2. 2 Depth (ft) Thickness(ft) Clay content (%) Discovered Resource Average (Bcf/section) 93 92. 5 120
Multi Tcf Potential Questerre assumptions 1. 2. 3. 4. Estimated discovered resource of 93 Bcf/section for Utica and 120 Bcf/section for Lorraine Recovery factors based on 100 acre spacing for Utica and 80 acre spacing for Lorraine Potential contingent resource based on 70% prospectivity factor plus 50% land utilization/risk factor resulting in 35% of net acreage being developed Shrinkage factor of 5% includes fuel gas Questerre 305, 849 net working interest acres (107, 047 utilized) Recovery Gross Bcf/well Utica Lorraine Gross Bcf/well Net Recoverable Utica (Tcf) Lorraine (Tcf) Tcf 10% 15% 20% 25% 1. 48 2. 22 2. 95 3. 69 1. 38 2. 07 2. 76 3. 45 1. 43 2. 14 2. 85 3. 56 1. 91 2. 86 3. 81 4. 77 3. 38 5. 07 6. 77 8. 46 Questerre 30, 591 royalty interest (10, 707 acres utilized) 10% 15% 20% 25% 1. 38 2. 07 2. 76 3. 45 1. 43 2. 14 2. 85 3. 56 0. 148 0. 222 0. 296 0. 370 0. 191 0. 286 0. 381 0. 477 0. 339 0. 508 0. 677 0. 846 Note: 1 trillion cubic feet of gas is 167 million barrels of oil equivalent (BOE) Net Recoverable Total
Economic Sensitivity • Horizontal wells into Lorraine and Utica have NPV-10% of $5. 2 million based on: – – – Initial 30 day rate - 2 mmcf/d First year Decline – 63% Recoverable Reserves 2. 4 Bcf/well Capital costs $3 million Operating Costs $1. 00/mcf $9/mcf NYMEX • Sensitivity in NPV 10 to change in parameters – $1 change in NYMEX = $0. 950 million – 100 mcf/d (17 BOE/d) change in initial rates = $0. 440 million – $100 K change in capital costs = $0. 110 million • Breakeven cases (all other parameters held even) – $3. 50 NYMEX – 700 mcf/d (106 BOE/d) initial rate – CAPEX of $8. 75 million per well
Pilot Programs Over next 18 months QEC will participate in pilot programs to establish commerciality of unconventional gas in St. Lawrence Lowlands at an estimated cost of $40 million to $50 million net to Questerre with first gas estimated by second half of 2009 and full development in 2010 based on results achieved
Current Activity • Talisman program well underway with stimulation of Gentilly #1 and spud of La Visitation well – Interim results from successful frac of one Utica interval in Gentilly #1 at 800 mcf/d – La Visitation to be follow up with two more wells expected to be drilled before year-end • Forest Oil to complete horizontal drilling in Q 3 and complete testing in Q 4 • Questerre mobilized rig to spud St. Luc exploration well and test shallow Utica shale Talisman Gentilly #1 FRAC
Northeast British Columbia
Liard Shale Play • Over 1 Tcf discovered resource potential per square mile for Mississippian age shale/siltstone at Beaver River • Questerre holds a 50% interest in 35 square miles with take away capacity in place • Shale is potentially analogous to emerging Horn River shale play to south • Currently evaluating this potential with recompletion of A-5 well based on expertise acquired in Quebec Mississippian shale/siltstone
Jean Marie play • Farm-in with En. Cana adds a proven Jean Marie play covering over 140 sq. km – long life reserves leveraged to gas prices • Questerre drilled two successful wells this winter on production at combined initial rate of 4. 0 mmcf/d • 6 -8 locations to be drilled next year based on results from 46 square mile 3 -D survey acquired this winter • 100 gross possible drilling locations with P 50 Estimated Ultimate Recovery of 1. 2 Bcf per well Nabors 21 rig drilling first Questerre well
Antler, Saskatchewan
Antler – Bakken/Torquay Play • Twelve successful horizontal wells drilled to date with 1 P reserves of up to 90, 000 barrels per well • Six multi-stage fracs carried out with stabilized production over 70 bbls/d • 50% interest in significant land position – drilling inventory of 112 locations with 3 -D and 2 -D seismic • Excellent fiscal terms - Light sweet oil (40º API) receives premium pricing and Crown royalty incentives of 2. 5% on first 103, 000 barrels of production from horizontal wells • Netback of $80 per barrel based on $100 WTI Questerre land holdings in SE Saskatchewan
Company Outlook
Company Outlook • St. Lawrence Lowlands, Eastern Canada – Talisman exploration program for the Trenton Black River underway - three wells scheduled for 2008 results in early 2009 – Talisman $100 million plus Utica and Lorraine shale gas evaluation and pilot program underway results in fourth quarter – Forest Oil to fracture stimulate two pilot production horizontal wells - results in fourth quarter – Shallow Utica/Trenton Black River well to be operated by Questerre in fall 2008 on St Jean • Northeast British Columbia – Evaluate results from A-5 recompletion for Liard shale potential – Six well program anticipated in Greater Sierra based on interpretation of 3 -D seismic acquisition program • Antler, Saskatchewan – Drill, complete and fracture stimulate nine additional wells and stimulate two existing wells over second half of 2008
Investment Case Strong portfolio • • Multiple opportunities in Lowlands including recent discoveries New shale play being tested in Liard basin Long-life Jean Marie gas in northeast British Columbia Significant light oil development at Antler in Saskatchewan • Large retained interest in potential giant shale resource plays in Lowlands Large growth • Opportunities for other large gas discoveries in Quebec & NE BC potential with mitigated risk • High leverage through partner risk capital and expertise • Incremental growth in lower risk asset base Evolving Markets • Natural gas re-emerging as reliable energy source in North America • Growing investor interest in shale gas • International demand for natural gas reducing LNG imports in North America • Past experience founding, financing, and managing successful international and domestic exploration and production companies Experienced • Proven determination and commitment to overcome obstacles to success management • Specific expertise with non conventional reservoirs • Concepts have been validated by partners’ due diligence and results
1650 AMEC Place 801 Sixth Avenue SW Calgary, Alberta T 2 P 3 W 2 Canada Tel : (403) 777 -1185 Fax : (403) 777 -1578 Web: www. questerre. com Email : info@questerre. com
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