quebec utica shale to move forward

Questerre Energy Corporation: Quebec Finance Ministry Announces New Fiscal Regime Mar. 17, 2011

Questerre Energy Corporation ("Questerre" or the "Company") (TSX:QEC) (OSE:QEC) reported today that the Ministry of Finance in Quebec has published its 2011-2012 Budget. The Budget includes a report entitled "A Fair and Competitive Royalty System for Responsible Shale Gas Production." The 52-page report is available in English at http://www.budget.finances.gouv.qc.ca/Budget/2011-2012/en/documents/Schisteen.pdf.
The Minister of Finance, Raymond Bachand, in his budget speech commented, "Our action is focused on shale gas. It is now reasonable to believe that Quebec's subsoil holds substantial shale gas potential."

Following the report of the Bureau d'audiences publiques sur l'environment (BAPE) that recommended a strategic environmental assessment of shale gas development, the Minister of Finance announced a budget of $7 million to conduct this assessment. An additional investment of $6 million over three years will also be made to enhance the inspection of wells and facilities.

The report notes that significant economic benefits will arise from the full-scale development of the Utica shale. These include estimated royalties of $275 million to nearly $400 million annually, the creation and support of over 11,000 jobs annually and a $2 billion increase in the provincial GDP based on reductions in natural gas imports. The Minister also announced that local municipalities will receive a payment of $100,000 over ten years for every shale gas well operated in the municipality.

The report states that the new royalty regime will come into effect once the strategic environmental assessment recommended by the BAPE has been completed and the legal and regulatory framework has been adapted to its conclusions. This regime includes a commodity price and productivity component and varies between 5% and 35%. The intention of the new system is for total Government take, including corporate taxes, to be 50% in mature development as compared to their estimate of 33% under the current system. It has been modeled on the royalty regimes in Alberta and British Columbia for conventional production.

In recognition that the Utica shale is not yet mature, the Minister also announced the introduction of a "Gas Development Program" modeled on the Net Profit Royalty Program that is used in northeast British Columbia. The progressive royalty rate starts at 2% and varies through a four-tiered scale based on the recovery of capital invested and returns achieved.

Michael Binnion, President and Chief Executive Officer of Questerre, commented, "We appreciate the Minister specifically acknowledged the past risks and investment made to discover the Utica shale gas field. We plan to review and analyze the budget in conjunction with the Quebec Oil & Gas Association."