Last weeks announcement by the Quebec local government of a...

Last weeks announcement by the Quebec local government of a proposed moratorium on shale gas drilling is disappointing particularly given the strong desire of the new board & management to fast track the development of this asset. The delay is to assess and consider the environmental impacts of such exploration & development work to appease a section of the local community.



A number of significant Canadian energy companies involved in the exploration and development of the Utica Shale, which include Talisman, Questerre and Forest Oil amongst others, have engaged the Quebec Government to work toward a timely resolution. With a continued global push to promote cleaner sources of energy and fuel, the economic benefits for the Quebec Government to develop this region given the vast inherent gas resources are significant and should not be underestimated.



Following this announcement and on the back of poor equity markets, the stock has fallen to its cash & equity backing of approximately $214million ($0.86 per share). At these prices, the market ascribes no value to any of the assets within their portfolio, which include:



Bakken & Wolf Camp oil assets in Canada and Texas
QLD CSM
Canadian Shale Gas (Utica shale)
South Africa (biogenic gas)


Not including Molopo?s cash and equity interests, Macquarie conservatively values their development and exploration assets at $1.08 per share or approximately $270million. This clearly highlights the upside potential from the current share price.



At current price levels, the company is clearly undervalued and we still remain optimistic on the near to long term prospects for the company. The conclusion of their strategic review over the coming months should deliver both market stability and a clear direction for the business going forward.



Macquarie research analysts maintain an outperform recommendation on the company with a 12month price target of $1.50.