Questerre Energy (TSE:QEC) said its newly acquired Brazilian operation generated a record quarterly profit for PX Energy and continued to produce positive cash flow, while the company advanced testing of its oil-shale refining technology and outlined developments related to its Quebec natural-gas assets.
Chief Executive Officer Michael Binnion said the company’s fourth-quarter acquisition of PX Energy was intended to provide a cash-flowing platform for commercializing its Homogeneous Charge Continuous Oxidation, or HCCO, technology. The process is designed to refine oil shale, and Questerre is pursuing resource opportunities in Utah, Jordan and Brazil.
Brazil operation posts positive cash flow
The company reported funds from operations of CAD 18.3 million for the quarter, which Binnion said was close to the first-quarter level despite somewhat higher operating costs. Average production was 5,700 barrels per day.
Binnion said PX Energy delivered its highest quarterly profit in its known history. While higher oil prices supported results, he said much of the profitability improvement came from operating efficiencies and cost controls rather than pricing.
The Brazilian operation produces fuel oil and sells through distributors to end customers. Production and sales diverged during the past two quarters as customer demand was disrupted by the war in Iran, resulting in fuel-oil inventory that has not yet been recognized as sales revenue, according to Binnion. He added that Questerre has minimum commitments from its two main distributors and has collected cash for minimum sales whether product has been delivered or not.
During the question-and-answer session, Binnion said Questerre believes the PX turnaround is progressing faster than initially expected. He said the operation generated approximately CAD 13 million of the company’s roughly CAD 20 million consolidated EBITDA in the first quarter, and that cost reductions had supported another quarter of positive cash flow despite deteriorating refinery production.
The company is targeting more than CAD 30 million annually in EBITDA cash flow from PX. Binnion said achieving that goal will depend largely on sustaining volumes and expanding markets, including potential sales into marine gas oil markets through blending and sales opportunities in Latin America.
- Questerre is targeting operating costs of about $45 per barrel at approximately $70 Brent pricing and monthly fuel-oil volumes of 12,500 to 13,000 tons.
- Binnion said costs are largely fixed, making higher volumes particularly important to profitability.
- The company is no longer seeking a 50/50 partner for the overall PX operation, but is considering strategic partnerships for individual projects and product lines, including fertilizer, limestone and marine gas oil.
Emergency refinery turnaround expected to affect production
Questerre identified a furnace failure at the Brazilian retort refinery after production began to deteriorate early in the year. Output was down by about 30% in July and August, Binnion said, prompting an emergency shutdown and turnaround.
The company expects about three weeks of lost production and direct repair costs of less than CAD 1 million. Binnion estimated the lost production could represent roughly CAD 7 million, bringing the anticipated combined cost of the shutdown and lost revenue to approximately CAD 8 million.
Questerre expects the repairs to restore the lost production and potentially increase output further. Binnion said the company estimates the turnaround could pay for itself through additional production within three to six months, though he cautioned that inspections were still underway and could reveal further issues.
A separate planned turnaround remains scheduled for May of next year because certain gas-plant components have regulatory and engineering service-life limitations.
HCCO test seen as technical advance
Binnion said Questerre completed an HCCO test in a full-scale commercial-sized refining vessel at the PX platform. The company said the test demonstrated that it could deliver working gas homogeneously and maintain continuous oxidation without uneven heating or thermal runaway.
Previous testing had been conducted in much smaller laboratory vessels. Binnion said Questerre had estimated that a field pilot in Utah at one-tenth commercial scale could cost CAD 20 million to CAD 30 million, compared with less than CAD 100,000 for the Brazilian test.
Questerre is having engineering firm Hatch update its technology-readiness assessment. The company plans to acquire equipment to run the HCCO process continuously at the Petrosix retort in Brazil, subject to regulatory approvals, with a goal of completing that work within 12 months.
Binnion said continuous commercial operation of HCCO at PX would be a significant financial and technical milestone, potentially improving thermal efficiency at the existing facility.
Montney sale and Quebec developments
Questerre sold certain developed Montney assets for CAD 23.5 million in cash, with the buyer also assuming CAD 6.5 million in abandonment liabilities. Binnion characterized the transaction as a roughly CAD 30 million balance-sheet transaction and said the assets had limited remaining drilling locations.
The company also highlighted improved cash and working-capital metrics. Binnion said first-quarter cash flow had been used partly to resolve issues related to the PX acquisition, while second-quarter cash flow contributed more directly to cash on hand and working capital.
In Quebec, Questerre continues to pursue both a legal case and a potential political and business resolution regarding its natural-gas discovery. Binnion said a Quebec government energy-supply report characterized natural gas as a strategic part of the province’s energy supply for the long term, which he believes improves the outlook for local gas development.
The company’s legal case, alongside Utica Resources, is proceeding as a demonstration case. Binnion said Questerre expects an expert report from Utica Resources before year-end, while a November case-management hearing is expected to address deadlines for the Quebec government’s expert report and disputes over witness testimony.
Questerre’s own expert analysis has estimated a low value of CAD 700 million and a higher value of CAD 4.8 billion for the Quebec assets, according to Binnion. He said the company believes development of the resource would create more value than a damages award and remains its preferred outcome.
About Questerre Energy (TSE:QEC)
Questerre Energy Corp serves the oil and gas sector. The Canada-based company is engaged in the acquisition, exploration, and development of oil and gas projects. It operates non-conventional projects such as tight oil, oil shale, shale oil and shale gas. The segments of the group are Western Canada; Quebec ; and Corporate and others. Western Canada segment involves exploration and development activities in Western Canada including Alberta, Saskatchewan and Manitoba with the existing production of natural gas, crude oil and natural gas liquids.
