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.
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.
If there is one discovery, there is likely to be more
Junex’s project, located on a mountain top away from population, does not require hydraulic fracturing — which pushes chemicals, sand and water into the ground and has been linked to environmental issues and even earthquakes.
The Quebec-City based company is now seeking $25 million to fund 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, it has been largely supportive.
“It’s still not clear cut, such as in places like Alberta 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.”
Financial Post
yhussain@nationalpost.com
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