Not so easy

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Recently I have been reading a lot in the Quebec media about how easy people think our business is. Land prices should be the same as British Columbia, they say.  Royalties should be higher. The government should not have let Hydro Quebec leave the oil and gas business. SOQUIP should not have been disbanded thirty years ago. The Utica should be nationalized. The government should invest.

Our industry is easy, when seen with the benefit of hindsight — maybe. Some quick history:

In 1998, there was no interest in natural gas exploration in Quebec. The government worked hard to market the possibilities to private companies with little success.  Questerre’s parent company, Terrenex (5 employees) was the biggest company involved in oil and gas at the time.

In 1999 and 2000, I personally visited almost every major oil and gas company in Canada asking them to invest in Quebec. There was a geologist (ironically named René Levesque) working in Calgary who said everyone knows there is no gas in Quebec, and hung up the phone on me. Others reminded me that Jim Buckee, the former President of Talisman, reportedly said that when he took over Bow Valley, it was so poorly managed they were even looking for natural gas in Quebec!

After that I came to Montreal asking for investment.  In Montreal they said: “You guys come around every ten years telling us there is gas in Quebec, but there never is.”

In 2004, I convinced Hydro Quebec and another small company to invest in our project.  When the small company could not pay for their share, Hydro Quebec did not have enough budget to pay 100% of such a high risk well, forcing me to look again for investors.

In 2005, I convinced Talisman that perhaps natural gas in Quebec was not completely crazy.  No more than one company might have bid for land in Quebec until after we announced that Talisman had become interested.

We made our first discovery well in the Utica at Gentilly in 2008. Earlier announcements of a discovery in the Utica proved premature as it turned out that the original zone did not pan out as originally hoped and the interval we found with Talisman was better.

These failures show the importance of just a few meters when picking the right rock.  It was not until 2008 – after our discovery was made public – that there was any meaningful demand to be in the natural gas business in Quebec.

When we started out we had no more than a one in 20 and maybe as little as a one in 50 chance of success. There are three kilometers of rock to look in over several million acres. Technology advances were key. But finding the exact right rock, in the right place, and taking the risk the new technology will work turned out to be the real key.  A little luck didn’t hurt, but mostly it was new ideas and high risks. It makes you wonder why everyone doesn’t do it.

In the end it was mostly Norwegians that I convinced to take the financial risk to back Questerre’s ideas and it took Talisman and others like Forest, Junex and Gastem to give it the push and credibility it needed to succeed. And the poker game is not over. There is another $500-million bet to make to prove the Utica can be a commercial success.

The oil and gas industry is all about risk and rewards – and it isn’t easy.