“QUEBEC EXPLORATION 2008” – UTICA

COMMENTS FROM CONFERENCE

PRESENTATIONS

An energy and mining conference was held in Québec City at the Chateau Frontenac during

November 24 to 27, 2008 (http://www.quebecexploration.qc.ca). A portion of the

conference was dedicated to featuring oil and gas exploration in the province, with a focus

on the natural gas potential from the St. Lawrence Lowlands. We attended presentations

given by representatives from Talisman Energy, Junex, Gastem, Questerre and the Québec

Ministry of Natural Resources and Wildlife.

The following is a collection of observations gathered from the conference. They are brief

and somewhat general, but all point to the fact that there is interest in the opportunity and

anticipation is building as we head into the winter months. The timing for more detailed

analysis will be when the well results from Forest Oil and Talisman Energy are disclosed

later this year, and in the first quarter of 2009.

“Incredible-Gas-In-Place (IGIP)” potential draws a large audience

“IGIP” was new terminology provided in the Talisman presentation. This was in the

context of characterizing the opportunity present in the Lorraine Shales, but this could be

used for the Utica Shales as well. The prospect of a multi-Tcf find in Quebec, especially

following Forest Oil’s announcements in April, contributed to the higher attendance in the

oil and gas events this year, compared with prior years, based on conversations with

seasoned attendees.

Conference participants included a small number of sell-side research analysts,

sales/traders, and some representation from the buy side. Mainly though, many were from

the various companies’ exploration and land teams given the predominantly geo-technical

nature of the conference presentations. Both the oil and gas luncheon (approximately 80+

people), and annual dinner of the Petroleum Society of CIM (approximately 150+ people)

were sold-out events.

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2 December 2008

Catalysts are forthcoming (Dec–Feb) – 2009 will also be a year of significant activity

As noted in our “Shale Gas Quarterly – Spotlight on the Utica”, published on November 3,

2008, there has been a dearth of news regarding drilling activity on the Utica Shale – but

no longer. We reiterate that a number of important test wells are currently being drilled,

frac’d and tested, and the timing for disclosure is anticipated to occur over the next several

months (e.g., Forest Oil’s three horizontal wells, Talisman’s four vertical wells). The release

of these results should spark market interest.

During 2007 and 2008, a total of 11 wells were drilled. For 2009, there’s potential for 15

to 20 wells to be drilled by various operators to delineate the play in Quebec. These

additional data points will help to assess the resource potential, and favourable results are

expected to lead to commercial development in 2010.

Figure 1: Activity outlook (Utica Shale in Québec) – end 2008, and 2009

« Des horizontaux et des fracs, fin 2008 et 2009 (Utica): Possible »

Selected translation : French – English

Puits – Wells; Raccorder – Completions; Autres – Others

Others includes Molopo, Petrolympic/ Squatex, and other companies.

Source: Gastem’s presentation: “Les développements prévus en 2009

Excluded from the Figure 1 above is Gastem’s Utica project in New York. There were

delays in getting the wells licensed, so the program is now expected to begin in mid-

January 2009. As part of a farm-in agreement with Utica Energy LLC, Gastem has

committed to undertake a program comprising five vertical wells and one horizontal well

(originally prior to January 16, 2009) to earn a 65% working interests in 29,000 acres plus

other leases obtained in 2008.

Positive data points on the shallow shale potential

In our analysis, we defined the shallow region along the St. Lawrence River as “Tier Two”.

There were two events that had positive implications for companies with acreage interests

in this area.

1) Indications of gas of thermogenic origin

Late in the summer, Junex finished drilling the St. Augustin-de-Desmaures #1 well, located

on the north shore of the St. Lawrence River. Gas shows were observed in the drilling of

the Lorraine and Utica Shales as well as other formations. Thirty-six metres of shale cores

(4 x 9 m) were cut into the prospective shale sections. Peter Dorrins (Chief Operating

Officer) briefly mentioned the results of the lab analysis of these cores, and noted there

were indications the gas was thermogenic with some liquids content. This is a positive

development as the shale north of the river is more typically understood to be in the

biogenic (low thermal maturity) fairway. With successful completion of the well, it may be

tied-in for production mid-Q1/09 given the close proximity to pipeline infrastructure.

An operational update is expected to be provided by Junex in the next several weeks.

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2 December 2008

2) Recent Canbriam transaction with Petrolympic/Squatex sets acreage value of $360/acre

Canbriam Energy recently entered into a joint venture agreement with Petrolympic and its

joint venture partner Squatex (private company) pursuant to which Canbriam will have the

right to earn a 60% interest in up to 32,000 hectares (79,074 acres). From our preliminary

analysis, about two-thirds of the Petrolympic/Squatex lands, which are located in the

southern part of the St. Lawrence Lowlands, are within our Tier Two classification.

• Assuming the election to drill the maximum number of wells (seven wells in total – one

vertical, six vertical/horizontal) to earn all the lands in the agreement and the aggregate

cash payments of $13.5 million, this transaction set a value of about $360 per acre.

• Using just the initial cash payment of $3.5 million (one vertical well commitment, and

initial earning tranche of about net 11,860 acres), the valuation is close to $300 per acre.

This transaction has positive implications for companies with interests in acreage with

shallow shale potential. In addition to Petrolympic, Junex holds a large portion of its

acreage in this part of the play (we estimate > 440,000 net acres). The stocks of these

companies trade at a fraction of the values implied by the transaction values. We recognize

that variability in the drilling outcomes will occur within these regions (tiers), but the

transaction provides a directional indicator of the potential value.

Best leverage to the upside on the play remains with these small-cap players (GMR-V,

JNX-V and QEC-T)

The following table (Figure 2) summarizes our analysis using an US$8.00/mmbtu natural

gas price. Our valuation efforts are currently limited to the more unstructured Tier One and

Tier Two areas. We expect to revise our analysis as more information becomes available.

Note that Canaccord Adams does not have research coverage of the junior players in the

Utica.

Investment risks

Investors need to be aware of the risks inherent in the oil and gas industry that could affect

our valuations. Without limitation, these risks include:

1) trading liquidity risks; 2) geological, engineering, regulatory and environmental risks

related to the exploration for and development of crude oil and natural gas resources; and

3) volatility in crude oil and natural gas prices that can materially affect financial

performance and the accuracy of our estimates. Risks also include government tax, and

potential changes to the royalty regime and regulatory policy pertaining to either income

trusts or the oil and gas industry.

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2 December 2008

Figure 2: Estimated company exposure to upside from the Utica play (using an US$8.00/mmbtu natural gas price)

Quebec Shale Ticker Current FD Net Acreage Net Acreage Net Acreage Unrisked Unrisked Risked Potential Utica Potential Utica Potential Utica

Gas Players Share shares Core Area Core Area Area Locations Resource Resource Valuation Valuation Leverage as % of

Price million TIER ONE TIER TWO Combined @100-acre bcf bcf $million $/share current share price

Altai Resources ATI-V $0.42 56.1 NA NA NA NA NA NA NA NA NA

Epsilon Energy EPS-T $0.69 54.1 5,600 NA 5,600 56 123 43 $48.5 $0.90 130%

Forest Oil Corp. FST-N $15.95 88.4 269,000 NA 269,000 2,690 5,918 2,071 $1,905.6 $21.55 135%

Gastem Inc. GMR-V $0.68 68.7 16,800 NA 16,800 168 370 129 $145.5 $2.12 311%

Junex Inc. JNX-V $1.52 63.2 77,705 443,765 521,470 5,215 3,928 654 $719.1 $11.38 749%

Molopo Australia MPO-A $0.68 185.4 NA NA NA NA NA NA NA NA NA

Petrolympic Ltd PCQ-V $0.23 94.9 NA 230,817 230,817 2,308 1,154 29 $24.0 $0.30 130%

Questerre Energy QEC-T $1.89 213.7 155,758 35,249 191,007 1,910 3,603 1,204 $1,352.7 $6.33 335%

Talisman Energy TLM-T $10.27 1018.6 522,470 70,179 592,649 5,926 11,845 4,032 $4,532.5 $4.45 43%

1) Tier One assumptions:

• 2.2 Bcf/well – unrisked resource (horizontal well)

• Risking – 50% prospective acreage, 70% success factor

• $0.92/mcf value of in-ground resource (NPV/mcf)