Questerre Energy TSE: QEC reported positive adjusted funds flow of CAD 2.3 million in the third quarter despite an emergency turnaround at its Brazilian oil shale plant, while executives said they had begun discussions to restructure secured debt ahead of higher maintenance spending next year.
Chief Executive Officer Michael Binnion said the August shutdown cost the company roughly one-sixth of the quarter’s production and about CAD 5 million in lost production. The work was completed on schedule and on budget, with no recordable safety incidents, and restored retort efficiency to more than 90%, he said.
Binnion said the experience gave the company more confidence in executing its next planned turnaround, scheduled for May. Chief Financial Officer Jason D’Silva said completing that work on time and on budget would be important for demonstrating that Questerre can sustain cash flow over longer intervals between shutdowns.
Maintenance and debt talks
Questerre expects the upcoming turnaround to cost approximately CAD 15 million, up from an earlier estimate of CAD 8 million. Binnion attributed the increase partly to maintenance that had been deferred before Questerre acquired the Brazilian operation and partly to more extensive work intended to extend the interval between turnarounds to 30 months from 24.
Other anticipated obligations include an $8 million Petrobras earnout payment next year and approximately $4 million of additional deferred maintenance over the next 20 months, Binnion said. He said the company had begun discussions with bondholders about a proposed restructuring to accommodate those cash needs.
Asked whether Questerre might need new equity to support the Brazilian business, Binnion said the company believed it had enough cash on hand for the required work. The purpose of the bond discussions, he said, was to prioritize cash for maintenance needed for operational, environmental and safety reasons.
Questerre’s secured debt had a face value of CAD 113 million, with CAD 14 million in outstanding interest, Binnion said. Its third-quarter balance sheet value was CAD 134 million, reflecting accounting adjustments including an embedded hedge and amortization.
Working capital improves
Binnion said working capital improved by more than CAD 13 million during the third quarter. The consolidated working capital deficit stood at CAD 13 million, compared with CAD 50 million at the start of the year, he said, adding that higher-than-expected prices had helped.
The CEO said the Brazilian business had a CAD 43 million working capital deficit, while the parent company had positive working capital of CAD 30 million. He said the Brazilian liabilities are ring-fenced from the parent to protect the Quebec assets.
Some deliveries in the quarter were recorded as revenue without generating current cash flow because they fulfilled deferred revenue obligations. Binnion said approximately 6,000 tonnes remained to be delivered over the following months, representing about $4 million in revenue without corresponding cash flow.
Current production was approximately 5,300 barrels per day, including about 1,100 barrels per day from Canada, Binnion said. He said production at the Brazilian operation had increased about 5% from the prior year, which also included a turnaround, and that the company’s minimum goal was a further 5% to 10% improvement.
Technology plans and Quebec mediation
Questerre plans to put its patented HCCO technology into permanent production at the Brazilian plant in 2027, alongside the turnaround and maintenance work, Binnion said. The company aims to enhance recoveries from the existing Petrosix process and demonstrate that the technology can operate continuously on a commercial basis.
Binnion said a full-size vessel test had gone well. Longer term, the company hopes to twin the refinery, double production and demonstrate oil shale commercialization at less than $50 a barrel. He estimated the current operating cash-flow break-even level at about $55 a barrel and said Questerre hopes to bring mining, refinery and administrative costs to around $50 a barrel next year.
In Quebec, Questerre received approval for a carbon storage pilot that Binnion described as an environmental mitigation project related to potential local gas production. The company is also participating in confidential, non-binding mediation with the Quebec attorney general. Binnion said the process is scheduled to conclude by Dec. 31 unless both sides agree to extend it.
Questerre is also negotiating an exploration licence in Nova Scotia’s Cumberland Basin and hopes to finalize the project, Binnion said.
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.
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