Quebec sales pitch pays off for Calgary's Questerre

Natural gas find makes for hot resource play

Shaun Polczer, Calgary Herald

Published: Friday, June 27, 2008

Questerre Energy Corp. is an overnight success story more than a decade in the making.

But after Colorado-based Forest Oil announced a major gas discovery in the Utica shales of the St. Lawrence lowlands of Quebec, the company's shares have quadrupled, making it the newest member of the billion-dollar club in terms of market capitalization.

Forest's announcement was quickly followed by Talisman Energy, which said it will spend more than $400 million developing unconventional resource plays, including an extensive farm-out with Questerre on the Quebec lands.

Suddenly shale is hot rock, with major discoveries popping up in British Columbia, Saskatchewan and even Alberta.

For Michael Binnion, a fifth-generation Calgarian who has spent his entire career in the oilpatch, it's been 15 long years of pounding the pavement trying to convince a notoriously cautious industry to drill in an unlikely location -- Montreal.

After gaining some hard won recognition, Binnion made his first presentation to the Canadian Association of Petroleum Producers' annual investment symposium, rubbing shoulders alongside the likes of EnCana and Canadian Natural Resources.

The Herald had a chance to talk with him on the sidelines of the exclusive event.

Q: For years Questerre was a penny stock. Have you had more institutional interest in the company?

A: Yes lots more. Since April 1, I'd bet that 25 per cent of our shares have been taken up by institutions since then, and that includes hedge funds, which tend to be more active traders.

Q: You've been trying to sell the idea of gas in Quebec for at least a decade. What's changed?

A: It's the gas price going up. It makes us all look smart. All of a sudden we're all geniuses.

Q: Is there a worry that shale is the flavour of the day, like coal bed methane was two years ago?

A: A lot of it is price sensitive.

You know, oilsands is very capital intensive, all of these resource plays are capital intensive.

If we see gas prices go back to six dollar (per gigajoule) we're going to see all these capital-intensive plays get scaled back and shale gas is no exception -- no better, no worse.

Q: Why Quebec?

A: The key thing is if you can find gas where people want it. There's probably no better place in the world to find gas than Quebec being right outside Montreal given that it's right across the border from New York state. Unless you could find it right outside Tokyo. Quebec is one of the last places anyone would think to look.

Q: Was it hard to convince the big oil companies to drill there?

A: Well, nearly impossible but not quite impossible. We negotiated with Talisman for probably three years before we finally got a deal with them. And they said: "it looks interesting, we're interested but we're not sure management will approve it, stay in touch" -- that sort of thing. This was a signoff by (former CEO Jim) Buckee, it was a signoff at the highest levels.

Q: What was the hangup?

A: I think the hangup is basically that you're looking for what is basically a new basin discovery. Not a new field discovery or a new play, but a new basin. I can't remember what the last new basin discovery in Canada was -- I suspect it was Hibernia by Petro-Canada. For a junior to make a new basin discovery, I don't know if that happens in too many careers. That's why one of my board members says it's like winning the lottery.