update part one2014 was an eventful year for Questerre.Our strategy was to lay the groundwork to monetize our Montney discovery through production and cash flow. In the current price environment, we are focusing on high-grading our assets. We have maintained a strong balance sheet to do this, preserving our options to monetize through partnerships/sales or, should prices improve, production/cash flow.Success at Kakwa included the results from the 16-07 Well at Kakwa South. It validated our geological ideas for the acreage. Disappointing were the cost overruns on this well and our Kakwa North well where the completion has been delayed by mechanical issues. We were also successful on our joint venture acreage where we moved up the learning curve, drilling longer laterals and improving completion designs.During the year, we saw Red Leaf and Total S.A. move towards commercializing the EcoShale process to produce oil from shale. The front end engineering and design was completed. Final permits were also issued and construction commenced last summer. Due to low oil prices, this will slow down in 2015. We continued work on appraising our own oil shale acreage at Pasquia Hills. We completed the first phase of the resource assessment which indicates an oil in place resource in excess of two billion barrels.(1)Highlights•Corporate proved plus probable reserves increased from 9.04 MMBoe to 13.88 MMBoe with an NPV-10% of $231.6 million•Best estimate of economic contingent resources for the Company’s Montney joint venture acreage is an additional 14.3 MMBoe with an NPV-10% of $149.6 million•Delineation of operated Montney acreage underway with success at Kakwa South although Kakwa North completion delayed with mechanical failure•Red Leaf and Total joint venture secured final permit and began construction of commercial scale capsule•Cash flow from operations of $15.4 million with average daily production of 1,076 boe/dKakwa-Resthaven, AlbertaThe strong condensate rates from our 2014 joint venture drilling program continue to exceed our expectations. Averaging between 150 to over 200 bbls/MMcf, they are in-line with rates reported by industry drilling immediately offsetting our wells. With Montney development in the immediate area moving to 8 to 10 wells per pad, we are increasingly confident that our acreage lies in one of the better sweet spots of this over-pressured fairway.Though the condensate rates have been higher than originally expected and stable over the life of the wells to date, they are challenging from an operating perspective. These high liquids volumes are loading up in the wellbore, resulting in uptime for some of the older wells of less than 45%. Anecdotally we have learnt that one of the larger operators in the area has implemented gas lift to address this issue with reported uptimes of over 65%. Once optimized in a stable operating environment, we estimate average uptime should be approximately 85%. The operator continues to evaluate gas lift and other production facilities to materially enhance this uptime and our economics.We continue to see improvements on the drilling learning curve. We drilled our first multi-well pad this year with each of the three wells having a lateral of about 2000m. Coupled with efficiencies in the drilling programs, drill times have reduced from 64 days for our first well with a lateral of about 1300m to 34 days for our most recent well with a lateral of 2400m. This works out to a 65% reduction in drilling costs per metre of horizontal leg.The operator recently began focusing on completions. The most recent approach has been to individually place frac treatments with tighter spacing to increase the stimulated rock volume (“SRV”) in the reservoir. We recently completed our first well using this approach with 84 individually placed treatments in the 2479m horizontal section and are seeing a step change in the initial rates.On our operated acreage at Kakwa South, we previously evaluated a similar completion design of individually placing fracs. Furthermore, the design was to maximize SRV while minimize growth into the upper Doig formation that produces sour gas. We completed the 16-07 Well with 25 individually placed stages in the 970m lateral and were pleased with the results of 3.5 MMcf/d and 50 bbls/MMcf of condensate with less than 0.003% sour gas.While the results from 16-07 were very positive given the short lateral length, the all-in costs were $19 million or about 60% higher than originally budgeted. The majority of this overrun relates to a drilling rig that was later found to be underpowered for the operation and substantially increased drill times. We utilized this same rig for our operated well at Kakwa North. This operation also went over budget by $6 million or 100% due to challenges running the casing to total depth and mechanical issues with the completion. Subsequently, we delayed the drilling of up to three additional wells on this operated acreage.Notwithstanding the cost overruns and delays, our seven sections at Kakwa North are just as prospective as our four net sections on the joint venture. It is also proximate to two wells drilled by an industry operator with strong condensate and gas rates. Proving up this block will be a priority as we high-grade this acreage.