Investors are slowly jumping back on the Questerre Energy Inc. (OTCPK:QTEYF) bandwagon as anticipation grows that drilling and testing results expected later this year from the Utica shale natural gas play in Quebec will prove positive.
A victim of the market meltdown these past few months, the stock has climbed as much as 35% this month, from C$1.43 to C$2.20 in intraday trading on Monday, to reach its highest level since late September. Questerre was down 3% to C$1.99 in mid-afternoon trading.
The market is eagerly awaiting the latest round of test results from the Utica shale. In particular, all eyes are on the two biggest players in the area, Denver-based Forest Oil Corp. (NYSE:FST) and Talisman Energy Inc. (NYSE:TLM) (a Questerre partner in the Utica play), who are both expected to weigh in shortly on their latest findings.
According to the Stateside Report, a blog that caters to resource investors:
[The announcement from normally tight-lipped Forest Oil last Friday at a Bank of America conference, that early testing results are encouraging, and] likely accounts for the increased volume and price gains the juniors saw on Friday afternoon and bodes well for the weeks ahead leading up to the Forest announcement sometime over the next 45 days.
In April, it was a Forest Oil test result that tipped off the excitement surrounding the Utica play and sent share values through the roof, including Questerre, which jumped from C$0.42 on March 31 to a 52-week high of C$6.43 on June 2.
Questerre's November rebound has also been aided by the company's stellar third quarter results announced last week, including earnings of C$290,000 on higher energy prices, which compares with a loss of C$680,000 this time last year.
More importantly, now that commodity prices have taken a tumble, throwing future earnings in doubt, is the fact that Questerre Energy Corp. reported working capital of almost C$68-million compared with C$10-million a year ago. That should give the company enough to get through 2009.
"The company has a strong balance sheet with no debt and a working capital surplus of C$67.6-million, said Fraser Mackenzie analyst Vic Vallance in a note to clients.
Cash flow is estimated at C$0.11 per diluted share this year and C$0.08 per share next (about C$17-million in aggregate). We estimate considering only the working capital (C$0.34 per share) and estimated cash flow per share next year from the base level of production lends support for a share price of at least C$0.66 per share. [There is] significant upside potential based on Questerre exploration land base, including its Utica shale exposure, estimated at 339,092 acres, most of it in the heart of the play.