Some are positive ...

Questerre Energy Corporation

Arctic Buy
Market Cap: NOK 1965m
Price/Target: NOK 8.4/NOK 35.0
P/E 10: n.m.
P/E 11: n.m.
EV/EBITDA 10: n.m.
EV/EBITDA 11: n.m.

The prerequisites for an Utica investment decision in 2011
· Questerre CEO Mike Binnion held a presentation today at Arctic Securities providing an update on the companies activities with main focus on the status and prerequisite for commercializing the Utica shale
· Questerre’s aim is to get to a an investment decision in 2011 for a 30-50 well program with an investment cost of USD 300-400m with Questerre share USD 75-100m. For this to happen you need additional technical data from the horizontal test program, passage of a new hydrocarbon legislation, and the development of a local service sector to achieve cost advantages of scale, and an improved North American gas market sentiment.
· There are currently ongoing hearings in the Quebec parliament to develop an efficient regulatory framework for commercial shale gas development. The current government is aiming to introduce new legislation in the spring 2011, although there are opposition parties trying to delay this until after the 2012 parliamentary legislation
· Completion of the Talisman-operated Fortierville and St. Gertrude has been postponed until Q2 2011 after the Gentilly test. This has delayed the commercial development by 6-12 months. The new timeline presented today with start of full-scale commercial operations in 2013 is in line with our revised assumptions after the Gentilly announcement September 30th.
· Although there are risks of further delays, at current share price the market is discounting a very low probability of commercial development of Utica or prolonged North American gas prices below commercial threshold of USD 4.5-5/mmbtu. The 6-12 months delays to the commercial development of Utica announced September 30 along with weak gas prices has hurt the Questerre share price siginficantly. With the value of Questerre’s cash position and other assets at around NOK 4 per share and unrisked upside above NOK 60 we see the risk/reward as favourable. We reiterate Arctic Buy and our 12-month price target NOK 35 based on Henry Hub gas price of USD 6/mmbtu from 2013.

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