Quebec land values

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Our shareholders can take heart that some observers think the Utica natural gas discovery is so good it was worth $500 per hectare years ago. Or as I heard at the Réseau Liberté Québec conference in Montreal last weekend, as high as $28,000 per acre. Remember, this was before there was even a gas discovery! Some of these observers even believe the government should recover this “lost money” from license holders now that gas has been found, or at least increase the costs, royalties and fees.

Can you imagine what the Utica discovery must be worth now that we have discovered gas?  Or better yet, what it will be worth when we prove its commercial viability (that’s right, I said “when”)?

Questerre took out its land in Quebec in 1998. “Shale gas” wasn’t even a term then. It was just natural gas. Back then I said if you want to find big natural gas fields in Canada, you have to look in a new kind of rock, and that we could find that rock in Quebec. Until our discovery was announced in 2008, the idea of natural gas in Quebec was a petite farce.

No one believed us. Jim Buckee is reputed to have said when taking over Bow Valley Industries, that it was so poorly managed they were even looking for gas in Quebec (he later had a change of heart).  Montreal stockbrokers told me “You guys come around every ten years saying there is gas in Quebec but there never is.”

It was Norwegians who took the chance on Questerre and Quebec and many people have told me – some politely and others less politely – that they are wondering why.

Quebec has a free mining system.  “Free mining” means everyone is free to mine – not that mining is free.  It is based on the same principles as the patent system and the copyright system. Whoever finds a mine – by luck or hard work or both – has acquired rights and should be protected from powerful interests so they are free to exploit their discovery.

Modern exploration requires more than just prospecting on the surface. Many places have moved to an auction system to give out exploration rights.  Many still recognize the copyright of a prospector’s discovery if he wants to apply directly for an exclusive right to exploit.  Questerre is supportive of changing the system if the Quebec government chooses to do so in upcoming legislation.

When we staked our claims in the St. Lawrence Lowlands many years ago, we made promises to bring technical expertise and to leverage our extensive and proprietary geological knowledge of the St. Lawrence Lowlands through our past experience there.  We committed to spend a minimum amount exploring on the land each year. We told the Quebec government that we had a proven track record in selling big companies on new projects and we believed we could convince a big company to come to Quebec again.  It is true under ‘free mining’ the bonus was zero per acre.  It’s also true that were not any other companies prepared or able to make the promises and commitments we did.

We delivered on every promise and commitment.  Even better, contrary to what everyone believed possible in 1998, we made a large resource discovery with the support of Norwegian investors.  We are working to turn it in to a commercial discovery.

I really don’t know what land values are for natural gas in the St. Lawrence Lowlands today.  One measure is our current stock price after adjusting for our cash and other assets.  Based on the assumption we were smart enough in 1998 to pick the best land, then this approach means the best land is currently valued at $100 to $200 per acre.

We have spent 12 years, taken very high risks and invested over $100 million with our partners to discover an important natural gas resource that the market now says is barely worth the amount we already invested. It is hard to say how much we overpaid, but it’s clear based on today’s circumstances we overpaid.  We aren’t the only ones and we aren’t the only ones who think circumstances need to improve.