I’m not sure that I know any more than the rest of you do, but perhaps I can connect the links better.

There are a lot of moving parts to this play which don’t exist or have been dealt with long ago in other regions. Quebec itself is just different than the rest of Canada and not just because of the language but nowhere else in North America is there the same level of distrust amongst the population and unpredictability in governmental policies. There is a very long track record of these issues. However, once the government sets their mind on a policy, that’s it, it doesn’t change, with or without the people behind them, the policy moves forward. This is exactly what we’re seeing right now. The population distrusts non French Canadians and companies from out of province and the tool that’s being used is the environmental lobby, though if they can find something else to fight with, they will. I expect there will be a lot of pressure on the farmers to not allow the pipeline on their property as another tool to fight with. Having said that, money talks and given an appropriate amount of dancing around not wanting the pipeline, they will accept it and tell their neighbours and lobbyists they did what they could but couldn’t fight the government. The same will happen with the drilling pads, but after saving face by initially refusing, they’ll put a smile on their face and skip down to the bank to deposit their cheque, saving face and making a profit. The government wants the NG industry, and all the parties want it, nothing is going to stop them from moving forward. Now it's about what the regulatory framework will look like (mostly political moves to placate the population) and how much money they'll get from this industry, nothing else.

Note that in the US, people would be fighting each other to get a piece of the O&G pie, completely the opposite of Quebec. One of the major differences in the US vs Quebec is that the Quebecers don’t own the mineral rights on their land, meaning they don’t have as much to gain as land owners in the US.

On the royalty side of things, the government has put into place a few incentives, but the real trophy is the long term royalty rate. I’m not an O&G royalty expert but if you consider that Quebec has a 12% royalty right now, an increase of only 2% to 14% can add up to being a lot of money. Other plays have between 15-25% royalties. On a 2 mmcf/d sustained well, a 1% increase in royalties represents about $100/d in revenue if you assume a $5/mcf gas price. It doesn’t sound like a lot but its $36500/y, and we’re expecting these wells to produce for 20 years or more, though granted there will be a decline rate. Over the life of the well, it probably works out to about $500k for just 1%. Increase that to 15% or 18% and you can see that it’s a material impact, let alone those silly 50% numbers that were being thrown around, they’re ludicrous, but that’s Quebec.

On the flow numbers, again, it’s not that I have some sort of magic ball but rather that my logic dictates that the flow rates be in that range. As I recall it St. Edouard had only 2 fracs they associated with the majority of the gas flows, though 3 seems to be number everyone quotes, let’s call it 2.5. If we assume that the other 7.5 fracs brought in 50% of the flow, then Leclercville should come in at an IP of 24 mmcf/d if they used the same process on all 8 fracs. I’ll assume they used that frac process on 4 of the 8 fracs (they need reproducibility of the results) giving 12 mmcf/d and that they tweaked it on the other 4. I’m pessimistic that the next 2 fracs improved on it to any great extent and even assume that it will be significantly lower than the original 1-4. I also expect they will try something slightly different on the last 2 which improves on frac 5-6 but is not as good as fracs 1-4. Again, it’s a learning curve and they need to try different things. Overall that brings me to a max of about 20 mmcf/d. Adding in things like an increase of sustained pressure and the choke having an effect of greater restriction based on increased flow numbers, add in a bit of a fudge factor and I knock off up to 25% off my max, giving me 15 mmcf/d on the low end.

The decline rate was pretty nasty on Edouard, and I would guess that’s because of the frac characteristics and linear propagation through the rock. This I think is one of the things they’re going to work on at Leclercville. So I’m assuming a 50% decline rate, which is still quite high, but slightly improved from Edouard, that brings me to 7.5-10 mmcf/d sustained after 30 days.

Yes, lots of assumptions, but I think it falls into the category of “guesstimate” rather than “WAG” (wild ass guess). You need numbers to evaluate where you are in the learning curve and get an idea for how much more work needs to be done. There is every possibility they may exceed these numbers, but I think it’s remote. If they come in much below my minimums, I’m going to be disappointed and have a serious rethink of the timelines, not a good thing...

Brym