Questfire Energy Corp

Questfire Energy Corp. is a junior oil and natural gas exploration and production company based in Calgary, Alberta. The Corporation has a diversified asset base of producing properties across much of Alberta, from deep Foothills geology in the far south, to shallow gas on the eastern Prairies, to liquids-rich gas and light oil in the Deep Basin-type plays of west central Alberta. The Corporation’s asset base contains multiple opportunities for capital-efficient addition of light oil production.

Questfire is led by a highly experienced management team with the full range of technical and financial skill sets required for successful exploration and development operations and creation of shareholder value.

Questfire was formed in early 2010 as a private corporation and spent the following year focused on assembling lands prospective for exploration drilling of conventional light and medium-gravity oil targets. In the fourth quarter of 2010 Questfire raised $1.9 million in seed capital by way of a private placement of flow-through shares.

In mid-2011 Questfire prepared to enter the public markets, issuing its prospectus on September 30, 2011. On October 18 of that year the Corporation closed its initial public offering, raising $6.2 million gross in an issuance of class A and class B shares. Questfire’s class A and class B shares commenced trading on the TSX Venture Exchange on October 26, 2011, with the stock symbols Q.A and Q.B, respectively. The Corporation has a total of 12.963 million class A shares and 2.056 million class B shares issued and outstanding.

By early 2012 Questfire had assembled lands at five properties in two core areas and drilled three exploration wells plus a re-entry of a standing well, all operated and 100 percent working interest, establishing its initial production and sales revenue.

In Nov. 2012 Questfire signed a letter of intent with a larger producing company to acquire assets with over 5,900 boe per day of natural gas-weighted production. The acquisition closed in late April 2013 with production of approximately 5,600 boepd and represented a transformative event for Questfire.

The acquired assets have given Questfire a significant base of production, with a long reserve life and low annual decline rate of only 10-12 percent, significant cash flow estimated at approximately $14 million for the remainder of 2013 (8 months), and a greatly expanded land and prospect inventory. The assets were significantly “under-worked” over the past number of years, with virtually no drilling in the last 5 years. This creates a rich base of low-risk, capital-efficient drilling, re-entry and optimization opportunities for Questfire.

Questfire’s management team has a strong track record of value creation at previous companies, most recently at Stonefire Energy Corp. Stonefire was a full-cycle energy company that the management team grew from inception with zero production to a peak of 1,400 boe per day over three years, while adding 7 million boe in proved plus probable reserves through the drillbit. Stonefire had low finding and development costs, a large land base, operated facilities, low operating costs, and a large vertical and horizontal inventory. In late 2009 Stonefire was sold for $75 million. The transaction generated an overall return on investment for original shareholders of 127 percent, after-tax, and a 23.9 percent compound annual rate of return, after-tax. All four of Stonefire’s share issuances realized positive after-tax returns.

Questfire’s vision is to achieve and sustain profitable growth to 10,000+ boe per day over the next three to five years (2016 to 2018) through a combination of field activities – primarily oil-focused well recompletions and new drilling, plus optimization and some exploration – and further acquisitions. The Corporation’s central goal is to create value for shareholders. This goal supersedes all others, including production targets or the number of wells drilled in any given period.

Throughout Questfire’s corporate lifecycle, the management team will focus on generating the greatest achievable return on investment for shareholders. The strategic acquisition of diversified producing assets that closed in April 30, 2013 is a key step towards realizing Questfire’s vision. 

Questfire has a complete in-house management team comprising all of the technical, financial and management disciplines needed to operate and profitably grow an energy producer. The team has a strong track record of success in the formation, launch, growth and monetization of publicly-traded oil and natural gas companies.

Management team members have collectively drilled hundreds of wells, added tens of millions of boe in reserves, and achieved demonstrable creation of shareholder value. All of Questfire’s senior management team members have spent their entire careers in the oil and natural gas producing sector in western Canada. The six senior team members have more than 150 years’ combined industry experience.

Prior to forming Questfire, the management team founded, operated and sold Stonefire Energy Corp. Stonefire was launched as a driller of liquids-rich gas targets in the Alberta Deep Basin. From its initial public financing with zero production in early 2006, Stonefire grew to a peak rate of 1,400 boe per day within three years. In December 2009 Stonefire was sold to an intermediate producer for $75 million. This generated a return on investment to original investors of 127 percent, after tax, as well as positive after-tax returns to investors in each of Stonefire’s successive equity financings.

Questfire’s operating strategy is to achieve growth in reserves and production by pursuing conventional oil prospects across its diversified asset base that offer high rewards with relatively low technical risks and capital requirements. Questfire’s operating strategy works in support of the Corporation’s business growth strategy and achievement of its vision.

Questfire’s operating strategy is comprised of the following elements and principles:

• Acquire conventional producing oil and natural gas assets with long reserve-life-index and low operating costs;
• Focus drilling and well recompletions across the current asset base on oil-weighted targets during a period of high crude oil and NGL prices and asset valuations;
• Focus further acquisitions on gas-weighted assets during a period of low natural gas prices and asset valuations;
• Acquire land through Crown sales and farm-ins on internally-generated exploration and development prospects;
• Achieve high working interests;
• Operate drilling and production;
• Employ 3D seismic where applicable, target operating areas with year-round access, and control all phases of full-cycle exploration, from prospect generation through development;
• Focus on shallow to medium-depth targets to manage technical risks and limit capital costs;
• Drill targets that are prospective for multiple zones from a single well wherever possible;
• Lever the Corporation’s highly experienced management team with its track record of technical and operating success, by focusing on play types and areas the team is familiar with; and
• When exploring, focus initially on vertical drilling to limit capital costs per well, followed by horizontal development drilling where warranted.

Questfire’s focus on conventional targets rests on the premise that the industry’s collective shift to unconventional “resource plays” has left overlooked conventional opportunities, and has also lowered pricing of mineral leases on conventional prospects. This reduced competition for conventional prospects and assets for sale has opened opportunity to create value at relatively low risk and capital intensity.

The low annual production decline of Questfire’s current asset base, estimated at approximately 12 percent per year, and the underworked nature of the recent acquired assets, both lend themselves to adding oil volumes and growing overall production through the drillbit.