Questerre Energy (QEC, TSX)
25 cents | Market Cap $107 million
One quick look at the chart tells you this is a good buy right now. QEC recently pulled back to its rising 500-day EMA at 20 cents which served as resistance from 2018 through late December 2021.
Binnion’s Rebuttal
And am I sensing a narrative shift?
Michael Binnion, CEO, responded to the proposed energy ban in Quebec last week.
“Energy ban”, on the face of it, sounds like an oxymoron. Nothing moves without energy. Growing it and mining it are the makings of everything in our material world. If you think about it, cheering for zero or near-zero emissions is like cheering for stagnation and depression. Throughout history the advancement of everyone and all economies has had a direct correlation to energy usage. Higher and purer forms of energy are always preferable.
China will eat our breakfast, lunch, and dinner as they continue burning and using the purest forms of energy (while promising to go green). They’ll be laughing all the way to the bank as western economies (their competition) steadily decline while China’s power inclines, which is seemingly a guarantee because how can you grow and expand as a country while using less energy?
Real quagmire there.
Banning and penalizing new sources of energy finds doesn’t makes much sense to me. Nobody likes paying more at the pump and for all their energy-derived goods, which are all around us. It only starts to make some sense under a scenario whereby economic collapse and weakening countries like America and Canada is a desired outcome.
In good faith, starting 10+ years ago, Binnion and Questerre set out to find Oil and Natural Gas in the St. Lawrence Lowlands region. Every year since there’s been exploration and maintenance expense obligations from Quebec’s government – Questerre met and exceeded all those obligations. With an estimated 23+ Trillion cubic feet (Tcf) of Gas, Utica is now 1 of the 10 largest reserves in North America.
I can see Quebec stealing Utica from Questerre, or paying them as little money possible to surrender. But I still can’t see them stealing Utica and all its economic benefits (to come) from First Nation groups (whom are now firmly onboard with Questerre and developing Utica).
Binnion’s rebuttal to Quebec included but was not limited to:
For some historical context, in the 1970’s Oil and Gas policy changed dramatically in Quebec. The new policy was to make Quebec independent in energy. It was a strategic imperative that the province would be better off using its own resources. To this end, a provincially owned Oil and Gas company, Société Quebecoise d’Initiatives Petrolieres (“SOQUIP”), was launched in 1970 to use government money to explore for Oil and Gas. SOQUIP was reorganized after spending millions and not making a significant discovery. To facilitate more rapid exploration, in 1982, the government expropriated resource rights from thousands of Quebecers and gave them fair and just compensation of a royalty in return.
The policy attracted private companies like ours who did eventually find success. The royalties granted to private citizens are now very valuable due to our work. The proposed law will expropriate these royalties from thousands of Quebecers with zero proposed compensation. There is no representative of these Quebec citizens being consulted by the Government on Bill 21.
After our discovery we were told by successive governments that our project required social acceptability in addition to legal compliance for us to produce the Natural Gas we discovered. We committed our company to excellence in social acceptability to comply with this new requirement.
We contributed to the Strategic Environmental Assessment on Oil and Gas activity conducted in Quebec. It is the most comprehensive environmental study on Oil and Gas in Canada. The conclusion of this study was the risks were low and manageable. We have seen through decades of experience elsewhere, that this is true.
In good faith we committed to processes for near zero impact development, with a goal of zero emissions, zero toxic fluids, zero drinking water impact and zero fracturing. We agreed to give towns a share of profits and secured their support. We received support from many farmers groups and unions. We also agreed to give First Nations an interest in the net profits and an equity option covering their traditional territories. The new law proposes to confiscate these interests from First Nations with no compensation and the First Nations have not been invited to the consultations on the law.
From an environmental perspective this ‘ban and block’ approach has been proven ineffective time and time again for emissions and society. Ironically, this outdated mindset will lock Quebec into substantially higher emissions for much longer, likely decades. The modern approach is to transform our energy sources to low emissions energy with new carbon technology. This has led to our circular economy model to move forward on both the environment and energy in Quebec. As a result, there is no public utility in revoking our license agreements; it will instead make the global environment worse, and the province will continue to support and to be dependent upon others for its natural gas supply. This is contrary to all sustainable development rules. One of which being, that the site of production should always be as close as possible to the site of its consumption.
Through following the law, and spending hundreds of millions over a long period of time, we succeeded in finding something of great value. The Quebec Government may decide to block us from developing it and revoke our licenses and its word. But the discovery once made cannot be undiscovered and it has tremendous value to the owner.
Questerre has strong studies and partners (perhaps proof), and therefore a strong legal case, for producing “clean energy”. They also have a large opportunity in carbon storage.
As per the following release Questerre and Schlumberger are working on a new well completion technique to replace conventional fracking.
“This new technique could be incredibly effective in a naturally fractured formation like the Quebec Utica. Subject to new legislation, we hope to apply to complete two wells in Quebec to prove the efficacy of this new approach,” said Binnion.
Results of this are expected in Q1.
Carbon storage projects and engineering studies for clean hydrogen are also underway.
Compared to banning and blocking (then gifting via theft) developing Utica to where it becomes a world standard (the model) for “clean energy” seems more favorable for Legault and Quebec. With full support from a majority of Quebecers and First Nations groups I continue to like Questerre’s odds of advancing Utica, and a re-rate for QEC. Worst case scenario, given strong support and their strong legal case, I like Questerre’s odds of getting paid at least $100 million as a worst case scenario (despite Quebec’s initial posturing).
Trading 25 cents, Questerre’s market cap sits at just $107 million.
While everyone is focused on Utica, or distracted by the headache of it (ugh, lawsuits), I’ll direct your attention to Questerre’s OIL ASSETS outside of Utica.
From their Kakwa asset (Alberta) they generated $10.3 million net cash from operating activities for the 9 months ending September 30.
Kakwa is located within the prolific Montney play. With Oil prices now cruising beyond $100 there’s an opportunity for Questerre to resume development here and push production. M&A activity has been increasing in the area recently and discussions for future drilling are underway.
Questerre also offers levered exposure to Oil via its strategic Red Leaf equity position (private), it’s proprietary EcoShale technology, plus billions of barrels in Utah and Jordan.
Utah’s Uintah basin alone offers recoverable Oil potential of up to 700 million barrels. This is a heavier “waxy” Oil that is not undesirable to various refiners in need of blending heavy Crude.
A controversial 75-km railway was recently approved for construction, along with $1.4 billion in state funding toward it. This would have a direct positive impact for Red Leaf, and thereby Questerre, as the rail line would run directly through their heavy Oil assets in the Uintah basin.
I think that’s an important bit of information sleuthed for you there.
This pullback in QEC isn’t scary in the slightest – great entry point.
Up your Oil and Gas exposure with QEC before it bounces off support in the low-to-mid-20’s.
I dunno, maybe something close to net-zero emissions is possible with today’s technology and going greener won’t be so devastating to the economy…win-win?
Questerre sure seems to be making a great go of it while defensing itself against the thieving of a long-term source of energy.
End of day – property rights are critical to functioning society. Even a “dirty” Oil and Gas project must receive its fair compensation, or something close to fair value. Foreign and Canadian investors should be watching how Questerre is treated closely. If treated unfairly, arguably, it will negatively effect future fund flows into Quebec (even for less dirty industries).
p.s.
Maybe I’m off my rocker but you’d think maybe, just maybe, the Ukraine situation might help Quebec see that having a massive reserve of Oil and Gas nearby ain’t so bad after all.
Narrative shift?
Trudeau has now banned Oil and Gas imports from Russia.
Candice Bergen said we need more Canadian Oil and Gas, for the safety and security of the entire world.
Rex Murphy: ‘Greenism’ has helped Putin fuel his war machine.