Borrowed Dreams? Promises of regulations led Gaspé to drop lawsuit with Petrolia. Junex dares to dream of oil in Québec; penny stock soared 209% recently, lifted shares of peers Petrolia and Petrolympcs while $200 Billion debt looms over USA oil and gas

Quebec has conventional oil, now what? by Erik Richer La Flèche, Stikeman Elliott LLP, February 26, 2015, Lexology

Junex Inc. and Petrolia Inc., two Quebec-based juniors listed on the Toronto Venture Exchange (TSV), recently issued separate press releases indicating that their test wells located on the Gaspé peninsula had daily oil flows of 316 and 340 barrels, respectively.

Other juniors, including privately-held MundiRegina Ressources, have acreage with identical geology and expect similar results.

The oil companies report that, unlike Anticosti, the oil in Gaspésie is conventional and does not require fracking, merely horizontal drilling.

Oil flows at these volumes mean that commercial development is feasible. Petrolia Inc. would like to commence commercial production in 2016 with Junex Inc. to follow later that year

Behind closed doors the Québec government is supportive of conventional oil in large part because Quebec’s finances are poor and something must be done about Quebec’s trade deficit. The two main opposition parties are likewise supportive.

The Québec government is mindful, however, to avoid the mistakes made a few years ago in connection with shale gas. In 2010 industry assumed that Quebec was ready for shale gas and attempted, without thinking to secure the public’s support, to develop Quebec’s condiderable shale gas reserves. The result is that after five years there is no shale gas industry, poll after poll show strong opposition to fracking and even today’s modest request by the shale gas industry for the right to drill ONE demonstration well is falling, at least for now, on deaf ears .

The current government has stated that hydrocarbon development can proceed in Quebec if (i) it can done in an environmentally sound manner, and (ii) there is “social acceptability”.

In order to maximize the likelihood of hydrocarbon projects reaching social acceptability, the government is methodically and deliberately rolling out the following framework:

  1. Water: on August 14, 2014 Québec adopted regulations confirming its jurisdiction over drilling within municipalities and providing for clear rules regarding drilling close to houses and wells.  These regulations satisfied the town of Gaspé which subsequently ended its lawsuit against Petrolia.  
  2. Strategic Environmental Study: In 2014 Government tasked an interministerial committee with carrying out a study on the whole of Québec oil and gas sector.  The study will examine, among other things, how Quebec’s hydrocarbon resources can be exploited economically and safely. The process will include public consultations.  The final report is due at the end of 2015.  
  3. New Hydrocarbon Law: Hydrocarbons are currently covered as an afterthought in the Mining Act.  This was fine when hydrocarbons in Québec were viewed as a pipe dream. Now that they are a reality the Minister of Natural Ressources, Pierre Arcand, has promised a special purpose statute for early 2016. The Strategic Environmental Study will help with the drafting and adoption of the new hydrocarbon law.
  4. Social Acceptability: In November 2014, the Minister of Natural Ressources announced that its Ministry would study what conditions foster the social acceptability of projects. The idea is for the Ministry to come up during the Fall of 2015 with a set  of guidelines and best [voluntary, unenforceable] practices [that companies ignore in the field and collect dust on regulator shelves] that can be followed by all stakeholders. Two things at this time are already clear: social acceptability does not imply unanimity, and local communities and First Nations must directly benefit from projects. Quebec intends to provide for a framework for direct payments by projects to local communities and First Nations.  [Bribery to divide and conquer the community with greed as Encana did at Rosebud?]

All this means that the outlook for conventional oil in Québec looks positive, industry is going to have to continue being patient for a little while longer. [Emphasis added]

Tiny Junex Inc dares to dream of oil production in Quebec by Yadullah Hussain, February 25, 2015, Financial Post

By his own admission, Peter Dorrins is not a man who smiles a lot, but he has been beaming all week. His tiny company Junex Inc. has struck crude oil in the Gaspé region of Quebec, raising the prospects of commercial oil production from the province as early as 2016. “This is a milestone event not just for us, but also for the province,” Mr. Dorrins said in a telephone interview from his office in Quebec City. “The 316-barrels per day of oil production rate is the highest oil production rate seen so far in Quebec.”

It’s a modest start by any measure, but the penny stock has soared 209% since the start of the year on the TSX Venture Exchange, and also lifted the shares of peers Petrolia Inc. and Petrolympcs Ltd.

“It’s very positive symbolically that they made a discovery,” said Michael Binnion, head of Quebec’s oil and gas lobby, noting that the industry has made several natural gas discoveries as well. “We are saying you can create an industry here. If there is one discovery, there is likely to be more. And here’s another one that may not be huge, but it’s economic.”

It took Junex more than 17 years to prove up the reserves and was the company’s first attempt at horizontal drilling on the site that made the difference. “We were very surprised, particularly with the pressure — it rose very quickly and we said ‘wow.’ That was the word, ‘wow’. We have got something here,” Mr. Dorrins said.

The latest effort initially produced modest amounts of oil, but as the company was shutting in the well, engineers noted the gauges showing rapid build-up of pressure.

“Something was pushing,” said Mr. Dorrins, which ultimately led to 2,723 barrels of light, sweet crude oil over a five-day period, without the aid of hydraulic fracturing. [With the aid of “stimulation” instead, the way Encana lied in their Statement of Defence? Is Junex acid washing their wells?]

A geologist by profession, Mr. Dorrins has been in the business for 35 years, and is not worried about falling oil prices, as he has seen them dip to US$10 per barrel at least three times in his career.

Production costs are at about $20 per barrel, even at this early stage, and the company has trucked the barrels to the Jean-Gaulin refinery in Lévis, Que.

The company is planning to drill three more horizontal wells during the summer and conduct a seismic study to further prove the projects’ economic feasibility.

“By about mid-2016 we would be in a position to make a request for a commercial production lease with the Quebec government,” Mr. Dorrins said.

The news comes as some respite for oil and gas companies in Quebec that have been burnt by strong opposition to hydrocarbon development in the province in recent years.

Quebec is estimated to have 31 trillion cubic feet of natural gas reserves in its Utica shale, but the basin is effectively closed for business due to a moratorium on fracking put in place by the previous Quebec government of Pauline Marois, leaving many oil and gas companies, including Junex, with acres of shale-rich but unproductive acreage.

While Quebecers are suspicious of shale gas, they don’t have the same degree of opposition to crude oil, Mr. Dorrins said.

Junex’s project, located on a mountain top away from population, does not require hydraulic fracturing….

The Quebec-City based company is now seeking $25 million to fund [How often do those seeking money tell the truth?] the next phase and is in talks with oil majors and private equity firms.

Further south in the Gaspé region, near the lower St. Lawrence, joint venture partners Petrolympics and Squatex Energy and Resources Inc. are hoping for similar success.

Last November the joint venture announced discovery of heavy oil in the Appalachian basin of the province.

“The Junex [success] has made us very optimistic,” Mendel Ekstein, president of Petrolympic, said in an interview. “It has given us a big boost. Junex has been looking for years to find something really good — and they cracked the bell. It’s a very good start and that’s going to lift the area.”

The Petrolympics joint venture is planning a second well in the summer to further prove out their find.

“We are very close” to commercial production, said Mr. Ekstein, especially as there is a growing local market and demand for oil and locally-produced natural gas in the area.

Despite the glimmer of hope, companies remain wary of Quebec’s view on hydrocarbons. The recently elected Liberal government led by Premier Philippe Couillard initially made some positive moves towards the sector, but has raised concerns about TransCanada Corp.’s Energy East oil pipeline project. New hydrocarbons’ legislation is also in the works.

The government is working with Junex, Pétrolia Inc., and Corridor Resources on the Anticosti Island further east that holds as much as 50 billions of barrels of oil in place.

“Now that we have the oil, the question for us is what the reaction will be politically. And so far it has been pretty good,” Mr. Dorrins said.

Mr. Ekstein said while the government has a long way to go in terms of providing clarity [Agreeing to mass deregulation and “no duty of care” while promising “best in the world” regulations?], it has been largely supportive.

“It’s still not clear cut, such as in places like Alberta [Fracing free-for-all deregulation for a decade topped with Ex-Encana VP, Ex CAPP Chair Gerard Protti Chair of the AER, now 100% controlled by the oil and gas industry?  New West Partnership using tax-payer money to con the public into believing unconventional oil and gas is safe?] where there is normal production — but they are going in the right direction.”

Junex, and the wider Quebec oil and gas industry, has a long way to go before Quebec can execute on its latent potential as an oil and gas jurisdiction. “It has been really challenging,” Mr. Dorrin said. “We have found the key now, and so I view this not as the end result, it’s the start of the next phase.” [Emphasis added]

Junex has extracted 300 barrels of oil per day during production trials in the Gaspésie Translation by Amie du Richelieu of Du pétrole en Gaspésie in Le Devoir

Thanks to horizontal drilling, a first in Quebec, it was possible to extract more than 2,700 barrels in a few weeks. Every day, Junex was able to extract more than 300 barrels of oil during new production tests done in the Gaspésie. A very encouraging sign for the company that plans to do about 30 drilling sites in a sector just West of Gaspé.

“The well reacted well beyond our expectations and achieved a constant flow of 316 barrels of oil per day, which is significantly more than the 161 barrels of oil per day published in our January 27 press release”, said Junex president and CEO Peter Dorrins.

“Even if it is too early to confirm what could be this optimal flow, be it ultimately over or below actual flow, all results observed since the drilling of this well demonstrate the importance of our oil discovery”, he added. He maintains that “it is a commercial oil production output, even at today’s oil prices”.

This well called Galt #4 is about 20 km West of Gaspé. Indeed, Junex has drilled once more in a well drilled back in 2012, more than 2,000 meters deep. But this time, the drilling was turned horizontally, towards another well drilled in 2003. Done at the time in partnership with Hydro-Quebec Pétrole et gaz, this well had detected some oil and natural gas. [Emphasis added]

$200 bn in debt looms over American oil and gas by David McNew, January 07, 2015, RT

Plummeting Brent oil prices are putting pressure on North American shale, which has sunk hundreds of billions of dollars into investment, and could soon come crashing down.

Tempted by big returns, shale companies have borrowed more than $200 billion in bonds and loans, from Wall Street and London, to cover development and projects that may not even come to fruition. Oil producers’ debt since 2010 has increased more than 55 percent, and revenues have slowed, rising only 36 percent from September 2014, compared to 2010, according to the Wall Street Journal.

Fracking, the process of hydraulic fracturing and horizontal drilling on land is much more expensive than the average water-based oilrig. … Energy companies, eager to get in on the riches of the American oil boom, have been borrowing money faster than they have been earning it.

On Sunday, the first shale company filed for bankruptcy. WBH Energy LP, a private Texas-based drilling group, filed for bankruptcy after saying that their lender was no longer willing to advance money. The company estimates their debt between $10-50 million. There are hundreds more in the US alone.

… The Texas-based driller believes that lower prices and major mergers will hinder progress in the industry. “We will see a loss of tech. innovation and a loss of competition in the oil service business,” Hirs said.

Energy companies that can afford it will cut production, but this will prove more difficult for smaller companies with larger debt hanging over their balance sheets.

Bubble burst?
This ‘bubble’ of debt could come crashing down on oil companies, as the housing bubble did on the sub-prime mortgage industry in 2008, which sparked a crisis in global financial markets.

“It begins in one place like fracking in North Dakota or Texas, but it very quickly engulfs the rest of the world. In that way, its very similar to what happened in 2008… when billions of dollars were lent to people to buy homes they couldn’t pay off,” economist Richard Wolff told RT. [Emphasis added]

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