Calgary – Questerre Energy Corporation said on Nov. 27 that it has closed an acquisition of producing Bakken/Torquay oil assets in the Antler area of southeast Saskatchewan. Questerre acquired approximately 180 bpd of light oil production in the Antler area for gross consideration of $7.25 million, subject to customary industry adjustments. Acquired assets include 3D seismic data over the producing acreage with a value of approximately $770,000.
That made it a good time to call up Michael Binnion, president and CEO of the company that has had the tenacity to try to start an oilpatch in Quebec, probably the most anti-fossil fuels province in the country.
Questerre is looking to develop shale gas in la belle province, much in the same way shale gas in the northeast United States has totally changed the North American energy market. The geology’s not all that different north of the border, and Questerre has spent many years trying develop it.
Binnion spoke to Pipeline News on Dec. 8.
Pipeline News: Can you explain what you’ve been doing in Saskatchewan?
Michael Binnion: For five to 10 years, we’ve been in the Torquay play, similar to the Bakken, in the Antler/Fairlight area. It’s a real bread-and-butter play for us. The opportunity came up, due to the markets and timing, that our 50 per cent partner was interested in selling, so we were able to consolidate our position. We went from 50 per cent to now we’re 100 per cent. We bought out Crescent Point.
P.N.: They were always the acquirer, with no interest in selling.
Binnion: They were our partner for some number of years, with not interest in selling, but probably brought on by the markets, there’s been a corporate change, there.
P.N.: What are your future plans for Saskatchewan?
Binnion: We like that asset, for sure. Our plans are to optimize it. Our real corporate focus is developing and drilling our Montney play. The asset in Saskatchewan is basically drilled up. It’s really in the field and reservoir optimization stage of its life. And then we’re actively drilling in the Alberta Montney. It’s a big prize for Questerre if we’re able to move forward in Quebec.
P.N.: The Montney’s not a cheap play to be working in.
Binnion: No. We’re a 25 per cent non-operating partner, so that certainly makes it easier. We drilled four wells last year, so for us that’s one net well. We expect to drill four to eight wells this year, which, for us, will be one to two net wells, in 2018.
P.N.: Questerre has been one of the few, and maybe only, oil company to dare to try to develop oil production in Quebec. How did that come about?
Binnion: I actually drilled a well there, with a Questerre predecessor called Teranex, in 1993 – a dry hole, a big exploration well for conventional gas. Through that process, we had a lot of seismic, good knowledge of the geology. We went off for almost 10 years after that, doing the former Soviet Union and other oil and gas in different places.
About 2000, we took out about a million-plus acres of land there to look for unconventional gas. I won’t say we were the first, but probably among the first in Canada looking for unconventional gas. It turns out that Michell was doing it in Texas earlier than that.
It took us until 2005 to get Talisman to farm in. Then we got Forest Oil in the United States to farm in after that. So we ended up drilling, with partners, around 15 wells there for shale gas. Other people around us drilled about another 15 wells for shale gas. That took us until 2009, at which point in time we felt we had a discovery. As technology moved along, the confidence that was a commercial discovery tended to move up, because we see all the efficiency gains in shale gas.
When industry said we wanted a modern and strict regulatory environment, because the regulatory environment was very nascent, part of the Mining Act, ironically, that got the environmentalists out, saying the regulations aren’t strict enough, so we want an moratorium.
There’s where we’ve been since 2010-2011. We’ve been in a de factor moratorium. We’re hoping/expecting it will end in 2018.
P.N.: Did you find anything with those wells?
Binnion: We had 31 shale gas wells drilled. Probably a good 20 to 25 tests. Of that number, almost 10 were horizontal, the rest were verticals. The best were six to seven million standard cubic feet per day wells. One was put on a long-term, five month test. It was a substantial test of the production.
But nothing’s ever been tied in. We just got the test results.
What’s interesting about that, is that well was over a 30 day average, on an 800 well with eight fracs. You start looking down, from the Quebec Utica, across the border into the Ohio Utica, and people there are drilling 2,500 to 3,000 metre wells with ten times the fracs. So we’re pretty excited with those initial test results, with technology today, will be a lot better.
P.N.: What geology are you targeting, and at what depth?
Binnion: It’s the Utica formation. It’s Ordovician in age. Where we are, it’s between 1,000 and 2,000 metres in dept. The Crown owns the mineral rights.
P.N.: Where in Quebec are you?
Binnion: We’re on the south shore of the St. Lawrence River, between Quebec City and a bit west of Trois Rivieres, which is on the north shore.
P.N.: What hurdles have you faced?
Binnion: I say to people when I do my social licence speech, you know, one of my career goals – I’m a trained accountant, but I love geology. I published a peer-reviewed paper in Marine and Petroleum Geology. I love geology and am self-taught on it. My whole career, I always thought finding a giant field was the hard part. Almost nobody has ever (done that.) You have to go back to times of searching for thing like Leduc to find a giant field. That was a lifetime goal for me. I always thought finding the giant field would be the hard part. Now we found one in Quebec, and what I’m learning is producing it is harder than finding it.
The first main hurdle was to be able to get the play, to capture the land, to work up the geology, to find a company with the money and expertise to help us drill it, and then to find and target the right place and the right zone. There’s the classic challenges of finding a field. It was one of the very early shale gas finds in Canada. We weren’t really big, in Canada, in shale gas in 2008, but that’s when we made our discovery.
P.N.: How do you build an oil industry from scratch in a province that doesn’t seem to want it?
Binnion: I think that building an oil industry in a country or jurisdiction that doesn’t want it is extremely difficult. The challenge is to have people in Quebec change their mind and decide they do want it.
I think, just like Alberta surprisingly has left-wing provincial and city governments, even though we’re monolithic, redneck conservatives according to the rest of the country, Alberta’s not a monolithic place at all. It’s a modern, pluralistic culture.
Quebec has a bit of a view of being monolithic as well, but it’s not. There’s very strong constituencies in Quebec that are very pro-business, very pro-development, very pro-oil and gas. What we’ve been doing, since the moratorium, is building and expanding that coalition of people in Quebec are very pro-business and pro-oil and gas.
When the protests happened in Quebec, we got a lot of very bad press. The support for shale gas and fracking in Quebec was maybe 10 per cent, at the bottom. The last poll, maybe a year old now, was around 35 per cent. We’re slowly building support in Quebec.
It’s hard enough to get a new oil and gas industry off the ground in an industry if people do want you. It’s extremely hard if they don’t. What we’re working on is social licence, for lack of a better term. What that really means is working on building the constituency of people who do want it.
P.N.: I was thinking about the nuts and bolts. Where do you get a drilling rig, a service rig?
Binnion: I’ve been on the service side. When we were in the former Soviet Union, we owned all our own rigs. I’m chairman of a service company, and I’ll tell you the service companies in Alberta, and in America, are unbelievable. If you whistle, they’ll come. It takes three days to get equipment from here to Quebec. There’s nothing that stops us on the physical side from moving rigs and frac crews to Quebec. We were able to drill and frac all those wells.
You’ve got to pay, but if you whistle, they’ll come. The question is, how do you get enough economy of scale, that once the rig and frac crews and frac trucks come there, that they don’t keep going back and forth, which is too expensive, but there’s enough work there that they stay there. Once they stay there, you’ve got an industry.
P.N.: What are your future plans? What do you see for the future for Quebec?
Binnion: The market for Quebec is about a half a billion cubic feet per day. That’s the local market. We think we’ve got a project that will easily produce over a billion cubic feet per day, which would be 150,000; 250,000 barrels of oil equivalent, plus. We’ve very bullish.
It’s another reason we think the project will get traction. It would be so beneficial to the province of Quebec that it will be self-sufficient in natural gas.
P.N.: You would be displacing Western Canadian gas?
Binnion: Yeah, but more and more, we’d be displacing Pennsylvania gas. Basically Quebec buys as much gas as it can from the United States, and when facilities cap out, they buy from Western Canada. That Marcellus gas is closer to market and cheaper.
P.N. Being a local market, wouldn’t you have next to no transportation costs?
Binnion: That’s exactly right. We can be the local market, and we’ll be the cheapest gas, cheaper than Pennsylvania. We’ll have no transportation costs, and they still have to get it from Pennsylvania. We’ll be the most competitive gas in that market and it will be virtually impossible for someone to be a lower cost producer than us. Half the cost of natural gas is transportation, and we’ll be eliminating that.
P.N.: Wouldn’t your licences have expired?
Binnion: What happened during this moratorium is we’ve been given a holiday. When Talisman came in, we got our expiries refreshed. The original expiry was, I think, 2009. It refreshed when Talisman came in to 2017. When the moratorium came in, we got a holiday, so we expect it to last to 2024-2025.
