SEA explained to investors

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I recently spoke to our investors in Norway about the SEA and the current situation for our industry in Quebec.

At the time, Questerre’s concept of finding commercial natural gas in Quebec challenged all conventional wisdom in the Canadian oil and gas industry.   As a result, we were not initially successful finding capital in Calgary, Toronto or Montreal for our business plan.  It was Norwegian investors who were willing to invest the original risk capital close to 10 years ago.

Quebec has decided to carry out a two year strategic environmental assessment before a decision is made whether to exploit natural gas in the St. Lawrence Lowlands.  I informed our investors that this is more of the approach that might be taken in Europe or in the mining industry as opposed to the approach of the North America onshore oil and gas industry.   Explaining to Norwegian investors that Quebec has a distinct culture in North America and has little experience with the oil and gas industry helps them to understand why this direction was chosen.

Industry currently is potentially interested in contributing six test wells to the SEA process.  The cost to industry of these wells will be close to $60 million.  Questerre’s share is expected to be between 5 and 10 million dollars.

We are obligated to justify to our investors this significant investment in the SEA.  When a shareholder asked me if we could be sure that we could move forward after the SEA was complete,  I was forced to honestly say ‘no we cannot be sure’.   So this is not the justification to make the investment.  In addition, there is little prospect that industry, after drilling 40,000 wells elsewhere in North America, will learn something new about shale gas technology from a small number of test wells for the SEA.  So this is not a justification either.

The main justification is the SEA is required to show Quebecers that shale gas can be developed safely in Quebec as it is in other jurisdictions in Canada and North America.  It is an opportunity to demonstrate the processes and technologies .

Another justification is, involvement of Government observers in our test wells can be a positive not just for the public but industry too.   An experienced bureaucracy to safely regulate the industry in Quebec’s official language is a prerequisite to social acceptability.  The best way to give regulators experience in Quebec’s official language is by allowing them to observe operations in Quebec.

Of course our investors are very disappointed with the loss of so much of the value of their investment due to the delays.  Many have questioned the wisdom of investing further in Quebec without predictability.  I believe after my presentation which can be seen on our web page that our investors understand better the merits of us supporting and investing in the SEA process.