Investors unite over energy opportunity in Quebec.
This is part one in a multi-part series of interviews with Stockhouse members who are focused on a shale gas area play that has recently gained media attention.
How it all began
Over the past week I’ve had the pleasure of corresponding with a handful of Stockhouse members from the group known as St. Lawrence Dream Team. The group is administered by member Risktaker77, and it has as its description the following words: “A place for all who want to reunite and discuss information about the gas shale plays in the St. Lawrence Lowlands area in Quebec, Canada.”
The appearance of the group a couple of months ago piqued my interest, and it’s also been a big hit with the greater SH membership – Dream Team boasts 234 members and counting.
I approached Risktaker77 about speaking with the gang about what they’re invested in and why, and he was kind enough to allow me access to the discussion for the past week.
Introducing the Utica Shale
Activity in the St. Lawrence Lowlands area of Quebec has been focused on an energy commodity known as “shale gas” – natural gas, essentially, but produced from shale. Here’s what Wikipedia has to say on the subject:
Shale has low matrix permeability, so gas production in commercial quantities requires fractures to provide permeability. Shale gas has been produced for years from shales with natural fractures; the shale gas boom in recent years has been due to modern technology in creating extensive artificial fractures around well bores. Horizontal drilling is often used with shale gas wells.
The shale gas formation in Quebec (it also extends into upstate New York) is known as the Utica Shale. Other shale gas regions include the Barnett Shale in Texas, which is the most productive region to date, the Fayetteville Shale, the Antrim Shale, and a recent investment darling in the U.S., the Haynesville Shale in Louisiana.
The Utica Shale region, where exploration has been concentrated south of the St. Lawrence River between Montreal and Quebec City, has been compared to the Barnett Shale in terms of a resource base; this represents a major find for companies operating there – especially since geography indicates that gas in the Utica Shale is at a shallower depth and in closer proximity to gas markets than gas trapped in the Barnett Shale.
Stockhouse investor PaulNo111 provided me with a link to a PDF map of the area, issued by the government of Quebec, that shows which companies own what land claim(s) in the area.
The leaders in exploring the Utica Shale are Forest Oil (NYSE: FST, Stock Forum) and Talisman Energy (TSX: TLM, Stock Forum). Forest broke discovery news back in April when the Colorado-based company reported the successful testing of two vertical wells. Since then, junior explorers in the area – many of which are partnered up with Forest or Talisman – have seen their stock price surge in price. Here is a rundown, as provided by MrWarrenBuffet, of a few of the players (see link above to map for location details):
The Majors:
Talisman Energy Inc.
Forest Oil
“Both of the above companies have invested hundreds of million of dollars into the area.”
The Juniors:
Questerre Energy (TSX: T.QEC, Stock Forum)
Junex (TSX: V.JNX, Stock Forum)
Gastem (TSX: V.GMR, Stock Forum)
Altai Resources (TSX: V.ATI, Stock Forum)
Epsilon Energy (TSX: V.EPS, Stock Forum)
Petrolympic (TSX: V.PCQ, Stock Forum)
Petrolia (TSX: V.PEA, Stock Forum)
Molopo Australia (OTC:BB: MLOOF, Stock Forum)
RJK Explorations (V.RJX.A, Stock Forum)
Dream Team member MrWarrenBuffet went on to list the investor’s top five picks in order of priority: Questerre, Junex, Gastem, Altai, Petrolympic and lastly, Molopo. MrWarrenBuffet offered some reasoning behind his Questerre pick when he said, “Questerre is the top pick as they [sic] are teamed with Talisman, and hold a considerable amount of land in what is expected to be the "SWEET SPOT" for shale gas. Talisman is investing approx 130 million dollars.”
In conducting some basic research on shale gas in the U.S., I came across a company called Mainland Resources (OTC:BB: MNLU, Stock Forum) that recently partnered up with Petrohawk Energy (NYSE: HK, Stock Forum). Mainland and Petrohawk are poking around in the Haynesville Shale, near where heavy hitter Chesapeake Energy (NYSE: CHK, Stock Forum) has claims on land. Mainland has a stock chart that simply cannot be beat, and if this is any indication of what might happen to one or more of the Canadian juniors now drilling in Quebec, the returns would be astronomical.
So far I have yet to find a Stockhouse member who got in on the Mainland play ahead of the stratospheric rise – there are only two posts on the MNLU Bullboard and neither indicates that the authors got rich on the company.
In the quote above, MrWarrenBuffet referenced a “sweet spot” for gas in the Utica Shale region. More info about that sweet spot came from Brymstone, who also picked Questerre as a number one choice. In fact, the investor’s due diligence on the company indicated that Questerre’s prospects were good enough that there is no need to play around with any of the others.
In part two of the Dream Team interview, coming soon, Brymstone spends a few moments with Stockhouse discussing what makes Questerre the one to beat in the Utica Shale saga. Stay tuned.
