http://www2.canada.com/calgaryherald/news/calgarybusiness/story.html?id=0a3c4395-613a-47fc-aa17-a30aa256fef3&p=1

P romising test results from a shale gas well in Quebec on Tuesday sent the shares of Calgary-based juniors sharply higher as investors sought to cash in on what could be Canada's newest natural gas producing region.

Tiny Questerre Energy reported that the St. Edouard No. 1A horizontal well in the St. Lawrence Lowlands flowed initial production rates of 12 million cubic feet (mmcf) per day before settling back to five mmcf per day. The news sent the company's shares sharply higher, where they gained $1.35 -- more than 36 per cent -- to close at $5.05.

"We're extremely pleased, as you might imagine," Questerre CEO Michael Binnion said in an interview. "It's much better than we had hoped . . . every bit of additional piece of data will add to proof this is commercial."

Binnion said the company expected a sustained initial monthly rate of two mmcf per day. However, he cautioned: "With one well we still have no idea what's average."

The St. Edouard well, which is being drilled in partnership with Talisman Energy, was completed with eight fracture stages in what marks Quebec's first horizontal well in the Utica shale.

The announcement pushed the share prices of other small companies with property in the area higher. Canadian Quantum Energy, which is partnered with Questerre and Talisman in three remaining wells to be drilled this summer, gained 54 cents, or 35 per cent, to finish the day at $2.08.

Montreal-based Junex Inc. added 56 cents, or 29 per cent, to $2.47, while Gastem Inc. rose 19 cents, or 33 per cent, to close at 77 cents on extraordinarily heavy volume of 5.8 million shares. Altai Resources, a Toronto-based nickel miner with shale rights in Quebec, popped for 29 cents, or 63 per cent, to close at 75 cents.

"It's lit up the whole play. This goes a long way down the path of taking this play commercial," said Canadian Quantum CEO Doug Brett. "It really is a confirmation of the whole trend."

Initial vertical wells tested 700,000 cubic feet per day and Brett said he had his fingers crossed for two mmcf per day, which compares with similar wells being drilled across the border in the Marcellus shales of Pennsylvania. "Anything more than that was gravy, as far as I'm concerned."

Ken Lin, an analyst with Mackie Research Capital in Calgary, said the results raised eyebrows in the financial world, suggesting that initial rates of about three mmcf per day would have been considered a positive result. "It really surprised a lot of people, they beat street expectations and they beat my expectations. That's why you saw the dramatic price moves today."

However, he cautioned against putting too much faith in the results of a single well. He agreed the euphoria could wear off if some of the subsequent results don't meet the same high hurdle.

"We will see variability," he said. "Even though this is positive, we're not going to see every single well test at the same rate."

Victor Rodberg with Clarus Securities in Calgary said the results mark "the start of an oil and gas industry in Quebec."

In a research note, he described the numbers as "spectacular" and increased his price target for Questerre shares by 30 per cent to $8.25.

"There is little doubt that the play will be commercial. The only question that remains is the ultimate value of the play, which will be determined with additional well results."

For its part, Talisman didn't make an effort to disclose the test numbers through a news release or on its website. Talisman, which will spend more than $1 billion this year in Pennsylvania to establish itself as a major shale gas player, has previously said Quebec could be a promising addition to its budding unconventional gas portfolio.

But spokesman David Mann cautioned against drawing too many conclusions until the balance of the drilling program is complete.

"It's still early days," he said. "These are encouraging results but it's wildly hypothetical to start speculating about commercial production. It's a nice idea, but still too soon."

Talisman shares rose modestly on Tuesday, gaining 31 cents, or two per cent, to close at $18.89.

spolczer@theherald.canwest.com