Quebec shale gas wells get pulses racing at juniors

A pair of Calgary juniors are eagerly awaiting the results of the latest shale gas wells in Quebec.

Questerre Energy and Canadian Quantum Energy Corp. both announced that drilling on the Gentilly No. 2 horizontal well has finished and testing will begin later this year.

The well, which is being operated by Talisman Energy, is only the second horizontal well to be drilled into the emerging shale basin, but observers are already comparing region's Utica shale to the Marcellus shale in Pennsylvania, which is shaping up to be one of the largest natural gas fields in North America.

Questerre is also involved in the St. Edouard No. 2, another Talisman horizontal well that is being tested.

According to Questerre spokeswoman Anela Dido, results of the latest wells should start coming in by the end of the month or early March.

"It's quite important to us to determine commerciality," she said. "We've been working toward this for the last year and a half."

Questerre owns 21.5 per cent and 25 per cent of each well, respectively, along with a four per cent gross overriding royalty on any production. In September 2008, the Gentilly No. 1 vertical well flowed 800,000 cubic feet per day from a single fracture, whereas the latest well will have a total of eight separate fracs or stages.

Likewise, the St. Edouard No. 1 vertical well flowed 700,000 cubic feet per day following an initial burst of 2.6 million cubic feet per day from a single frac stage.

Investor interest in both companies is high. With barely any production, Questerre shares are near a 52-week high of $3.98 after trading as low as 78 cents at this time last year.

Canadian Quantum on Wednesday gained a nickel, to close at $1.25. The stock has more than doubled since the start of the year.

Steve Buytels, an associate analyst with Dundee Securities in Calgary, agreed the "buzz" surrounding the Utica is high. He said Questerre needs to see rates of at least 1.5 million to three million cubic feet per day from each well to declare commercial success.

"That's what we're hoping to get," he said. "This is essentially going to give a sense of what rates can be expected out of the play."

Assuming commercial success, it will take time to ramp up activity in the St. Lawrence Lowlands. Most equipment and services have to be brought in from outside the province, and the area lacks basic gas processing infrastructure.

However, Quebec is in proximity to major consuming markets and the Trans Canada main line extends to Montreal. Gas produced in Quebec would enjoy as much as a 50 cent premium to benchmark prices in New York, Buytels added.

Talisman plans to spend about $1 billion this year in neighbouring Pennsylvania, and a good result in Quebec could spark activity throughout the area.

"It'll have a positive impact for sure; it's the next step in the play," Buytels said.

spolczer@theherald.canwest.com