Questerre Energy Corporation

TSX : QEC
OSLO : QEC


Questerre Energy Corporation

February 28, 2014 00:15 ET

Questerre Grows Reserves by 40% in 2013

CALGARY, ALBERTA--(Marketwired - Feb. 28, 2014) -

THIS NEWS RELEASE IS NOT FOR DISSEMINATION OR DISTRIBUTION IN THE UNITED STATES OF AMERICA TO UNITED STATES NEWSWIRE SERVICES OR UNITED STATES PERSONS

Questerre Energy Corporation ("Questerre" or the "Company") (TSX:QEC)(OSLO:QEC) reported today on its fourth quarter 2013 activities and preliminary financial and operating results for the year ended December 31, 2013.

Michael Binnion, President and Chief Executive Officer, commented, "We used the fourth quarter to finalize our development plan for the Montney where we saw our reserve growth in 2013. With a strengthened operating team and our capital base topped up, we secured a rig and began to develop our own 100% acreage in the Kakwa-Resthaven area."

2013 Highlights

  • Development drilling delineates Montney resource assessed at over 130 million barrels of oil equivalent with over 40% as condensate
  • Concluded market access agreements for approximately 6,000 boe/d of Montney natural gas and liquids production
  • Proved and probable reserve grew by 40% to 9.04 MMboe with oil, condensate and liquids accounting for 65% of volumes
  • Cash flow from operations of $13.2 million with average daily production of 885 boe/d for the year

He added, "Corporate proved and probable reserve additions were 2.66 MMboe or 40% in 2013 based on our independent reserve assessment. The majority of this increase, or 2.35 MMboe, was in the Montney where we increased our reserves by over 50%. Corporate reserves at year end were 9.04 MMboe with an NPV-10 of $180 million as compared to 6.72 MMboe and $127 million in 2012. With a large undrilled resource, we expect our development plans to contribute strong growth in reserves in 2014 and 2015."

He further added, "Our drilling program with our joint venture partners was very successful in adding reserves. In addition, we have moved significantly up the learning curve sharing the costs and benefits with our partners. We have already seen drilling and completion costs come down. We hope to see further improvements in completion design and recovery rates in 2014."

For the year ended December 31, 2013, the Company reported cash flow from operations of $13.2 million (2012: $10.3 million) and $2.9 million for the fourth quarter (2012: $2.9 million). Production averaged 885 boe/d for the year (2012: 678 boe/d) with a 77% oil and liquids weighting (2012: 86%) and 841 boe/d for the fourth quarter (2012: 766 boe/d). Current production is over 1,350 boe/d. As at December 31, 2013, the Company reported a working capital surplus of $31.9 million (2012: $33.2 million).

Questerre also reported that its Board has approved a capital budget of $85 million for 2014 with the vast majority directed to the development of its Montney assets in the Kakwa-Resthaven area. This includes seven (1.75 net) wells with the joint venture and five wells on the Company's 100% owned acreage. Two of these 100% wells are contingent. The 2014 budget is the first of a two year-development plan to achieve production of 6,000 boe/d by mid-late 2015 to satisfy the Company's market access agreements.

The Company updated recent activity in the Kakwa-Resthaven area. Questerre's operated well at 16-07-62-5W6M well ("16-07 Well") is currently drilling the build section at a measured depth of 3500m. On its joint venture acreage, the operator is completing the horizontal section on the 02/14- 30 -63-5W6M well ("02/14-30 Well"). The bottom hole location of this well was changed to target an interval in the Upper Montney from an original bottom hole location targeting a lower interval at 15- 30 -63-5W6M. The operator expects that completion operations on the 02/14-30 Well will be finalized by the end of the first quarter. The next two wells will be spud from a central pad located at 7-19-63-5W6M. Drilling is scheduled to commence in mid-late March and continue through spring break-up.

Questerre also announced initial production rates from its recent wells in the area. Production over the first thirty days from the 05-23 Well averaged 2.0 MMcf/d of natural gas and an estimated 175 bbls/MMcf of condensate. Production over the first twenty six days from the 16-25 Well averaged 2.3 MMcf/d of natural gas and an estimated 187 bbls/MMcf of condensate. The 16-17 Well was brought on production in mid-February and has seen similar production performance. Questerre has a 25% interest in these wells.

Commenting on the status of the joint venture operations, Mr. Binnion noted, "The new gas plant is not yet operating at 100% efficiency. Nonetheless, we are pleased with the initial rates from these wells. They were all completed with slick water fracs. We are hopeful this completion design will further improve recoveries. We will monitor the long term deliverability of these wells and apply the lessons to future wells."

The Company also reported on the evaluation of its proved and probable reserves as at December 31, 2013. The report was prepared in accordance with the COGE Handbook by McDaniel & Associates with an effective date of December 31, 2013.

In accordance with the requirements of National Instrument 51-101, Standards of Disclosure for Oil and Gas Activities of the Canadian Securities Administrators, the Company anticipates filing its Annual Information Form that includes more detailed disclosure and reports relating to petroleum and natural gas activities for the 2013 fiscal year at the end of March 2014.

SUMMARY OF OIL AND GAS RESERVES
as of December 31, 2013
FORECAST PRICES AND COSTS
LIGHT AND
MEDIUM OIL
NATURAL
GAS
NATURAL GAS
LIQUIDS
RESERVES CATEGORY Gross
(Mbbl)
Net
(Mbbl)
Gross
(MMcf)
Net
(MMcf)
Gross
(Mbbl)
Net
(Mbbl)
Proved
Developed Producing 1,149.7 1,076.2 2,326.7 2,148.0 336.0 241.7
Developed Non-Producing - - 434.1 403.7 86.5 63.6
Undeveloped 371.0 347.2 8,887.4 8,265.3 1,877.2 1,427.9
Total Proved 1,520.7 1,423.3 11,648.1 10,817.0 2,299.6 1,733.3
Probable 765.4 724.6 7,393.7 6,856.2 1,282.9 780.2
Total Proved Plus Probable 2,286.1 2,147.9 19,041.8 17,673.2 3,582.5 2,513.5
SUMMARY NET PRESENT VALUES OF FUTURE NET REVENUE
as of December 31, 2013
FORECAST PRICES AND COSTS
BEFORE INCOME TAXES
DISCOUNTED AT (%/YEAR)
AFTER INCOME TAXES
DISCOUNTED AT (%/YEAR)
RESERVES CATEGORY 0%
(M$)
5%
(M$)
10%
(M$)
15%
(M$)
20%
(M$)
0%
(M$)
5%
(M$)
10%
(M$)
15%
(M$)
20%
(M$)
Proved
Developed Producing 96.8 79.8 68.4 60.3 54.2 96.8 79.8 68.4 60.3 54.2
Developed Non-Producing 5.3 4.4 3.8 3.4 3.0 5.3 4.4 3.8 3.4 3.0
Undeveloped 100.8 68.8 48.7 35.3 26.0 100.8 68.8 48.7 35.3 26.0
Total Proved 202.9 153.0 120.9 99.0 83.3 202.9 153.0 120.9 99.0 83.3
Probable 133.5 84.3 59.5 45.1 35.8 103.7 68.1 50.0 39.2 31.9
Total Proved Plus Probable 336.4 237.3 180.4 144.1 119.0 306.6 221.1 170.9 138.2 115.2
SUMMARY OF PRICE FORECASTS
Year 2014 2015 2016 2017 2018 2019 2020 2021 2022
AECO Spot Price ($C/MMBtu) 3.85 4.35 4.70 5.10 5.45 5.55 5.70 5.80 5.90
Edmonton Light Crude Oil ($C/bbl) 90.50 92.60 94.50 96.40 98.30 100.30 102.30 104.30 106.50

The term "cash flow from operations" is a non-GAAP measure. Please see the reconciliation elsewhere in this press release.

Questerre Energy Corporation is leveraging its expertise gained through early exposure to shale and other non-conventional reservoirs. The Company has base production and reserves in the tight oil Bakken/Torquay of southeast Saskatchewan. It is bringing on production from its lands in the heart of the high-liquids Montney shale fairway. It is a leader on social license to operate issues for its Utica shale gas discovery in the St. Lawrence Lowlands, Quebec. In conjunction with a supermajor, it is at the leading edge of commercializing a proven process to unlock the massive resource potential of oil shale.

Questerre is a believer that the future success of the oil and gas industry depends on a balance of economics, environment and society. We are committed to being transparent and are respectful that the public must be part of making the important choices for our energy future.

This media release contains certain statements which constitute forward-looking statements or information ("forward-looking statements") including the expectation of strong growth in reserves in 2014 and 2015, realizing further improvements in completion design and recovery rates in 2014, the achievement of production of 6,000 boe/d by mid-late 2015, the timing of completions for the 02/14-30 Well and the hope that the slick water completion design will further improve recoveries. Although Questerre believes that the expectations reflected in our forward-looking statements are reasonable, our forward-looking statements have been based on factors and assumptions concerning future events which may prove to be inaccurate, including the timing of pricing and terms of the placement, the placement results and closing, the use of net proceeds, the timing of receipt of required regulatory approvals and assumptions concerning the success of future drilling activities. Those factors and assumptions are based upon currently available information available to Questerre. Such statements are subject to known and unknown risks, uncertainties and other factors that could influence actual results or events and cause actual results or events to differ materially from those stated, anticipated or implied in the forward-looking statements. As such, readers are cautioned not to place undue reliance on the forward looking information, as no assurance can be provided as to future results, levels of activity or achievements. The risks, uncertainties, material assumptions and other factors that could affect actual results are discussed in our Annual Information Form and other documents available at www.sedar.com. Furthermore, the forward-looking statements contained in this document are made as of the date of this document and, except as required by applicable law, Questerre does not undertake any obligation to publicly update or to revise any of the included forward-looking statements, whether as a result of new information, future events or otherwise. The forward-looking statements contained in this document are expressly qualified by this cautionary statement.

This news release is not an offer of securities for sale in the United States. Securities may not be offered or sold in the United States or to or for the account or benefit of US persons (as such terms are defined in Regulation S under the United States Securities Act of 1933, as amended (the "U.S. Securities Act")), absent registration or an exemption from registration. The securities offered have not been and will not be registered under the U.S. Securities Act or any state securities laws and, therefore, may not be offered for sale in the United States, except in transactions exempt from registration under the U.S. Securities Act and applicable state securities laws. This news release shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the securities in any State in which such offer, solicitation or sale would be unlawful.

Barrel of oil equivalent ("boe") amounts may be misleading, particularly if used in isolation. A boe conversion ratio has been calculated using a conversion rate of six thousand cubic feet of natural gas to one barrel of oil and the conversion ratio of one barrel to six thousand cubic feet is based on an energy equivalent conversion method application at the burner tip and does not necessarily represent an economic value equivalent at the wellhead. Given that the value ratio based on the current price of crude oil as compared to natural gas is significantly different from the energy equivalent of 6:1, utilizing a conversion on a 6:1 basis may be misleading as an indication of value.

This press release contains the terms "cash flow from operations", "working capital surplus", and "netbacks" which are non-GAAP terms. Questerre uses these measures to help evaluate its performance.

As an indicator of Questerre's performance, cash flow from operations should not be considered as an alternative to, or more meaningful than, cash flows from operating activities as determined in accordance with GAAP. Questerre's determination of cash flow from operations may not be comparable to that reported by other companies. Questerre considers cash flow from operations to be a key measure as it demonstrates the Company's ability to generate the cash necessary to fund operations and support activities related to its major assets.

For the year ended December 31, 2013 2012
($ thousands)
Cash flows from operating activities $14,406 $10,117
Net change in non-cash operating working capital (1,214) 128
Cash flows from operations $13,192 $10,245

The Company considers netbacks a key measure as it demonstrates its profitability relative to current commodity prices. Operating netbacks per boe equal total petroleum and natural gas revenue per boe adjusted for royalties per boe and operating expenses per boe.

The Company also uses the term "working capital surplus". Working capital surplus, as presented, does not have any standardized meaning prescribed by GAAP and may not be comparable with the calculation of similar measures for other entities. Working capital surplus, as used by the Company, is calculated as current assets less current liabilities excluding the current portions of the share based compensation liability and risk management contracts.

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