(450) 766-0861
jccaron@squatex.com

Press release / Blog

Squatex’s claim to the Government

Brossard (Quebec), October 30, 2019 (CNSX: SQX) – The management of Resources & Energy Squatex Inc. (Squatex), in conjunction with its partner Petrolympic Inc. (Petrolympic) announces that, through its attorneys, a lawsuit against the Quebec Government was filed in Superior Court, Quebec Judicial District. Through this procedure, Squatex and its partner are asking the Minister of Energy and Natural Resources to return the annual fees it has collected without having the right to do so since 2011, in connection with the oil and gas exploration licences which they owned since September 1, 2009. The licence period has been suspended since the Oil and Gas Limiting Act came into force on June 13, 2011, so that annual fees were not and still are not payable. As these continued to be collected by the Minister in order to maintain the licences in force, Squatex and its partner are now demanding the return of the sums paid, plus interest. Squatex would also like to clarify to its shareholders, through this press release, that further legal proceedings could be considered against the Government in order to enforce its rights. Indeed, government and ministerial action in recent years has greatly harmed oil and gas exploration and development in Quebec by reducing the ability to finance itself in the markets. The title of Squatex is currently abnormally low as a result. Squatex’s management would like to reassure its shareholders that it is taking all necessary measures to maintain the company’s operating capabilities.

About Resources & Energy Squatex Inc.

Resources & Energy Squatex Inc. (Squatex; CNSX: SQX) is a Quebec junior oil and gas exploration company founded by Jean-Claude Caron in 2001 with headquarters at 7055 Boul. Taschereau, Office 500, Brossard, Quebec J4Z 1A7. The main activity of the company is, as an operator, to carry out work and studies to assess the oil and gas potential of a territory of 656,093 hectares (ha) under exploration permit (70% Net). Squatex holds 224,933 hectares of exploration permits in the St. Lawrence Lowlands and 431,160 hectares of permits in the Lower St. Lawrence. Squatex also holds a net stake of 28% over 8000 ha under another farm agreement in the St. Lawrence Lowlands.

Forward-Looking Statements

Certain statements made herein may constitute forward-looking statements. These statements relate to future events or Squatex’s future financial performance and involve known and unknown risks, uncertainties and other factors that could significantly alter their results, returns or what is expressed or suggested by Squatex’s statements. Actual events or results may differ. Therefore, the decision to invest in securities and Squatex should not at any time be based on these statements. Squatex disclaims any intention and obligation to update its statements.

SOURCE Resources and Energy Squatex Inc

Contact: Mr. Jean-Claude Caron, President, 450-766-0861.

www.squatex.com

What is Squatex’s particular vision of hydrocarbon development in Quebec?

The management of Squatex firmly believes that it is imperative that the development of hydrocarbons in Quebec be done in accordance with the culture and traditions of Quebec, particularly in terms of consultation and social dialogue.

Indeed, this tradition of concertation, rooted in the history of Quebec, has demonstrated that it allows the establishment of sustainable national goals and substantial plans of government action.

The management of Squatex believes that it is always possible to agree on a plan of exploration and exploitation in Quebec that is reasonable, responsible in the face of the challenge posed by climate change while allowing an enrichment of businesses and the community.

When Jean-Claude Caron founded Squatex in 2001, he had the ambition to build a company that would mobilize the expertise developed in Quebec to enrich his fellow citizens. “I’ve been in the business community for over 30 years. I have always worked to enrich Quebecers, and I believe that the responsible exploitation of our natural resources could allow us to continue to move forward as a separate society, he said. It is to future generations that I think when I pursue the adventure with Squatex. We are able to grow in Quebec and we do not have to be afraid of money! »

In the end, Squatex’s attitude is one of collaboration with the Government and stakeholders, not a confrontation.It is more than time to move towards the exploration and exploitation of our natural hydrocarbon resources and thus be able to control and diminish our environmental impact on the planet. Hopefully we’ll be able to get there before it’s too late.

What are the environmental benefits of exploiting our own hydrocarbons in Quebec?

There would be significant environmental benefits to exploiting our own hydrocarbons in Quebec.

In a blog postpublished in December 2018, Jean-François Thibault, a Director at Squatex, says it is essential to have a lucid and pragmatic approach in order to make a successful energy transition. According to him, “… We will still need hydrocarbons for at least the next 40 or 50 years. Fossil and renewable energies will be met as long as the seconds have not completely replaced the first ones, which will have to be consumed less and less over the years.

We must therefore think of the transition in terms of energy mix, and not in terms of opposition between the different forms of energy.

Once we say that, the question is no longer whether we want to consume less hydrocarbons and invest more in renewable energies. On that, everyone agrees!

The question is more about where the hydrocarbons will come from for the next 40-50 years, because we are going to consume it! Whatever we think. »

If we exploit our own hydrocarbons, “… This would allow us to directly manage — by ourselves — the environmental impacts associated with the production of oil and natural gas that we consume.

The hydrocarbons act adopted by the Government of Quebec is among the most severe in the world.

If we were going to produce our hydrocarbons, it is obvious that it would be done in a much more responsible manner than in other jurisdictions. This means that the global environment would benefit from it.

It should also be noted that the environmental impacts associated with the transportation of oil and natural gas resources would be reduced, since we would produce locally what we consume.

Finally, to continue importing from elsewhere the hydrocarbons that we consume is only to shovel the environmental problem in the neighbour’s yard.

Is this really the way we want to act, as citizens of the world? ” he concludes.

What are the economic benefits of exploiting our own hydrocarbons in Quebec?

There would be many economic benefits to exploiting our own hydrocarbons in Quebec. “Quebec currently imports 100% of the hydrocarbons it consumes. “It therefore sends abroad (in the United States and Algeria, in particular) all the profits related to the production of oil and natural gas”. says Jean-François Thibault, Director of Squatex, in a  blog post published in December 2018.

“It is amazing how we are able to tear our shirt to consume our own milk, but how we are slow to act in terms of consuming our own energy sources.

In one case, we want to “encourage the local workers”, in the other, it is as if this argument was not considered valid.

While consuming oil and natural gas for another 40-50 years, why not take advantage of the benefits of exploiting our own resources?” he concludes.

Importing our hydrocarbons is equivalent to exporting good paying jobs that could allow Quebecers to enrich themselves and support their families, especially in the country. In fact, Squatex is concentrating its efforts to develop its resources in the Lower St. Lawrence and Gaspésie as a priority.Quebecers are aware of these economic benefits. A Léger poll commissioned by the Montreal Economic Institute (MEI) has recently shown that 53% of Quebecers think it is better to use our own oil resources than to continue importing them.

What is Slim Hole drilling?

In the oil and gas industry, a Slim hole well is a type of oil or gas well whose borehole size is significantly smaller than the usual borehole size. It is generally less than 6 inches in diameter or less.

The concept of small-diameter drilling finds its roots in the observed correlation between the cost of wells and the volume of extracted rock. If you can extract less rock and use less bulky equipment, the costs of the well should decrease.

A first type of small diameter drilling consists of using a conventional oil drill with smaller rods (< 6po instead of 8 or 13in, i.e.). Which is simply to reduce the size of the hole.

A second type can be used to lower costs for exploration drilling to locate the presence of hydrocarbon resources.  It relies in part the technologies used for exploration drilling in the hard rock mining industry.  The mining drilling rig is in that case equipped with all systems for drilling mud recirculation, real-time monitoring and conventional petroleum safety control. The overall equipment having a lesser size, its impact on the ground is less while being able to perform all the tasks required safelyand in the rules of art. The only notable difference is that the rotation of the rod train is faster than for conventional drilling operations for oil wells.

Resources and energy Squatex Inc. has always sought to innovate and use Quebec know-how to carry out its projects. The first tests for the local development of this method were carried out in the field by Squatex in 2012 for the drilling of Sayabec No. 1, near the village of the same name, then in 2014 for the drilling of Massé No. 2 in the municipality of Ste-Jeanne d’Arc.

It should be noted that this type of small-diameter drilling is only suitable for the exploration of conventional reservoirs, and in no way allows the hydraulic fracturing needed for the exploration of shale gas.

Why do we find that small diameter drilling is part of the solution for a responsible exploration of oil and natural gas in Québec?

Firstly, this allows for savings in the exploration phase: For the same price as a conventional oil drilling, 2 to 3 boreholes of small diameter can be carried and therefore we have the possibility to better delimit the reservoir.

Then, a small-diameter hole that can be drilled with an overall equipment that is reduced in size necessarily has a reduced environmental footprint. Know that a conventional oil drilling with all its other installations occupies in the field an area of 120m by 120m (i.e. 14 400m2). A small diameter drilling rig can be positioned inside a 40m by 40m square (1600m2), which represents 9 times less floor space than for the conventional drilling. This reduced footprint also results in a marked decrease in all aspects related to nuisance for the local community (noise, trucking, etc.) and also, even the amount of water used is less.

Ultimately, the use of small-diameter drilling for hydrocarbon exploration is a safe option that is economically beneficial and more environmentally friendly than traditional methods usually used for oil and gas drilling. 

Finally, small-diameter drilling mobilizes part of the legacy of a local know-how, which is what makes us proud.

How is a conventional hydrocarbon deposit exploited?

We saw in the previous blog post (#5) what a conventional hydrocarbon deposit is, and above all that this kind of deposits could be present in importance in Quebec.  Let us remember that they do not require fracturing for their production.

Here is a simple description of the production processes used:

This operation requires the drilling of a hydrocarbon production well down to the depth of the resource to be extracted. In order for this well to be completely independent and insulated (i.e. without any communication between the hole and the host rocks), sealed steel pipes (“casing “) are inserted and cemented in place:

            -A first one, from the surface up to about 10% of the total depth of the well (Conductor pipe),

            -A second, in the conductive pipe from the surface up to about 100 meters above the zone to be            produced (Intermediate casing),

            -A third, from the surface to the bottom of the production zone (Production casing).  

These pipes are cemented in a perfectly watertight way in the hosting rock and one in the other.  They are put in place to first isolate and protect the groundwater but also to prevent any contamination of other porous zones that may be present between the surface and the area to be produced. In order to be able to exploit the resource, the production pipe is perforated within the porous levels of the reservoir enabling the hydrocarbons to flow freely because of the simple action of the pressure differential (pressure caused by the weight of the rock column in the reservoir and atmospheric pressure in the hole). A series of valves installed at the well head (“Christmas tree”) control pressure and flow to prevent and compensate for any contingencies.

As the reservoir is already naturally porous and permeable by definition, the well responds to natural mechanisms: the inside of the well being more or less at the surface atmospheric pressure, a phenomenon of suction occurs in the well causing the oil to flow to the surface.  As the oil is floating over the formation water and is also covered by a lighter gas cap which is tending to expand, the oil can be produced until the time when the gas and/or the water will take over. Generally, one can hope to produce the oil present in this type of reservoirs with a recovery rate varying between 5 and 30%. Recovery rates are a direct function of the average porosities and permeabilities encountered in the reservoir.

Throughout the production period, the pressure in the reservoir is dropping and natural recovery becomes less effective. To maintain a better production, fluids are injected into the reservoir: Such as water below the oil production zone or natural gas above the oil zone in the gas cap.

When the possible recovery rate of the resource becomes unprofitable and no other hydrocarbon zones in the well can be produced, the well is abandonedby installing cement plugs at different intervals up to the surface so that it becomes closed in a watertight and permanent way.

What is a conventional hydrocarbon deposit?

When we talk about oil and gas in Quebec or elsewhere and especially the possibility of reservoirs, it is not everyone who can easily tell the difference between the types of natural reservoirs rocks. Moreover, in the media, confusion remains and therefore leaves people with a certain apprehension in the face of this unknown. In this blog, we will talk about the so-called conventional hydrocarbons reservoirs rocks.

“For a hydrocarbon deposit to qualify as a conventional oil and gas system, the presence of a source rock, a reservoir rock and a cover rock is necessary. In this system, hydrocarbons migrate from the source rock where they formed to the reservoir rock where they will be stored. The degree of porosity and high permeability of a rock characterizes its ability to be a reservoir rock. Hydrocarbons remain trapped in the reservoir rock through a cover rock (seal) that is characterized by a lower degree of porosity and permeability. (Source: MERN)

The first thing to remember about these conventional reservoirs is that for these, the methods of extraction of their hydrocarbons have been well known for more than 160 years (1859: Titusville, Pennsylvania) and above all they do not require the use of hydraulic fracturing. And as the above definition of MERN says, to be conventional, the reservoir must be porous, permeable and naturally insulated by a impermeable layer preventing a migration of hydrocarbons to the surface (blog # 2: seeps). This implies that, for the production of a conventional reservoir, a simple well will be necessary to extract hydrocarbons at the surface. This method is ultimately very similar to that used to produce drinking water, but at greater depths.

So why talk about conventional reservoirs? 

It is that a reframing of the terms used in the public space is necessary. Indeed, for several years, there has been talk in the public discourse on hydrocarbons thatshale gas.

 However, these are non-conventional resources. In this case, hydrocarbons are trapped in the source rock (Blog # 1) and that to recover them, hydraulic fracturing is the only cost-effective way to create the porosity and permeability that are necessary to enable production.

You have to know that in Quebec there are possibilities of conventional reservoirs (which can be exploited without fracturing). The latter are located mainly in the Gaspé / Lower St. Lawrence in the Devonian and Silurian rocks, but also in the St. Lawrence Lowlands in the limestone formations of Trenton and Black River. (Ordovician).

Do you have any questions about this scientific note? You can contact the Squatex team at any time to answer your questions!

For questions of a scientific nature:

Alexandre Aubiès-T., PhD., Geo.

aaubies@squatex.com

For media Inquiries:

Jean-François Thibault, ing. jr

jfthibault@squatex.com

What work is done during the exploratory phase?

In order to find natural gas and oil resources, it is necessary to have a good scientific strategy to choose and carry out the good work. The exploratory phase in the field of hydrocarbons corresponds to a maximum risk taking for investors, and one could say minimum for the environment because the presence of the resource is then only assumed. So we will see here how the oil companies spend their money, hoping in the end that their investments are not going to be in vain and that they will find a deposit large enough to be produced economically.

As a first step, the company must obtain from the government, which is the owner of the natural resources, exploration permits over a territory.  The territory is usually selected according to geological assumptions that are based on existing studies or by similarity with producing regions. An exploration permit gives the company the right to search for hydrocarbons only.  It does not allow to produce them. The MERN calls them “Research Permits”.

On the MERN web site, we find a very good summary of what needs to be done by the companies in order to hope to find the resource and, if they find it, how to apply for a production license: “Based on the geological knowledge and the Hydrocarbons potential of a given territory, geological or geophysical studies can be conducted and drilling work carried out. Geological work includes the field examination of rock outcrops, litho-geochemical analyses and geological compilations. With regard to geophysical work, these are methods of researching hydrocarbons by indirect measures of the physical properties of the basement. This work is done by air or directly on the ground. The most frequently used survey types in oil and gas exploration are seismic, gravimetric, magnetic and magnetotelluric surveys. Finally, drilling works include the preparation of the drilling site, drilling, completion, modification, testing and temporary or permanent closures. »Of course, it is very rare, especially in Quebec, that companies can quickly find oil or gas reservoirs.  Therefore, this work can be spread over several years or even decades.

What are the regions favorable to the discovery of hydrocarbons in Quebec?

As we have seen in the posted note #1on the formation of hydrocarbons, two important points must be considered:

– The Source Rock: where hydrocarbons are formed

– The Reservoir Rock: where hydrocarbons are accumulating

In order to have a Source Rock, it is necessary to have a low-agitated sediment deposit medium, deprived of oxygen and with good transport of organic matter such as in a river delta or a sedimentary basin edge.  For the Reservoir Rocks, it is a bit more complex because they must be in the migration path of the hydrocarbons escaping from the Source Rock to be able to trap them, they must have a good porosity and also must be in a trapping situation:

  • Stratigraphic Trap:Superposition/alternation of impermeable and porous rocks
  • Structural Trap:A fold in the succession of rocks or a fault system that shifts the porous and impermeable rocks creating a natural plug 
  • Mixed Trap:associated with the formation or intrusion of a salt diapir (rising of the salt to the surface as observed in the Îles-de-la-Madeleine).

What do we have in Quebec ?

Have the above conditions met here in the past? Based on different scientific articles, on the MERN reports and even on sites more accessible for the uninitiated (like Planet Earth), the answer is unanimous: Yes, Quebec presents several regions with a potential for the discovery of hydrocarbons.

Quebec is divided into four geological regions: the Grenville-Churchill-Superior, the St. Lawrence Lowlands, the Appalachians and, in the Gulf of St. Lawrence, the Îles-de-la-Madeleine basin.

The first geological region located mainly in the northern part of Quebec is that of the Grenville, Churchill and Superior, which contains mostly very old rocks (several billion years). They may be conducive to mineralization but not to the presence of hydrocarbons because the rocks in this province are mainly crystalline and non-sedimentary.

The second geological region is now better known for having experienced a recent conflict situation. Indeed, the St. Lawrence Lowlandsregion contains a natural gas-rich Source Rockformation, the Utica shale Formation. Because it is a Source Rock it is complicated to produce the gas because it  requires hydraulic fracturing to create porosity.  However, there is also in the Lowlandsthe Trenton Formationthat is also potentially interesting. This formation is best known by our Ontario and American neighbours with proven reserves and produced discoveries. It is a Reservoir Rockwith good porosity which is in contact with the Source Rock (Utica) and it does not require fracking to get the resource.

The third region corresponds to the Appalachians. This old mountain range is conducive to more conventional discoveries such as in Gaspésie-Bas-Saint-Laurent, that of Galt, Bourque, Haldiman and the Massé structure, which present structural reservoirs that are often complex. These reservoirs are found in several formations such as Forillon, Westpoint and Sayabecand do not require hydraulic fracturing.

The fourth region is located in the marine environment of the Îles-de-la-Madeleineregion, where a very deep basin exists containing Source Rocksand numerous Reservoir Rocks.  The exploration of the years 1970 to 1980, however, did not produce any discovery of hydrocarbons.

Squatex Resources and Energy is advantageously positioned in two of these regions with high potential: The Lowlandsand Lower St. Lawrence(Appalachians).

What is natural oil seeps?

If you walk in a forest or a trail near you, you may notice a greasy substance flowing from a rock or even into a stream. Is it pollution? Probably not! Indeed, during our last blog post on hydrocarbon formation formation des hydrocarbureswe talked about the Source Rock essentially, but what happens next?

The oil and gas formed in the Source Rock suffers enormous pressures due to the weight of the rock that has accumulated above it.  As oil and gas are lighter than water and rock, these migrate upward with the formation water (from the old sea).

So there are two possibilities 1) Oil and natural gas are trapped by a Reservoir-Rock which is covered by a waterproof layer or 2) There is no Reservoir-Rock or impermeable layer. This second possibility, which is most common, then produces a natural phenomenon that since millions of years and which is called natural surface seeps.

The figure below comes from a very good article from the Ministry of Energy and Natural Resources (MERN) and highlights the natural nature of the seeps, i.e. without human intervention.

Natural seeps are the first indices for geologists seeking hydrocarbons from the potential presence of subsurface reservoirs.

In the Province of Quebec, many areas have long been known to be teeming with natural hydrocarbon seeps. For example the Gaspésie (Northern Peninsula and Gaspé Bay), La Mauricie (The Devil’s Fountain), the St. Lawrence lowlands between Montreal and Quebec where methane was measured by the government in 1966 in drinking water in thousands of wells, and in the St. Lawrence River where several methane seeps have recently been identified by the Geological Survey of Canada. All these indications show that the potential for hydrocarbons in Quebec is far from negligible and deserves to be studied carefully.

The seeps are 100% natural phenomena! So when you walk in the woods, keep an eye open, you never know, you may find the future big oil field Quebecers!

Do you have any questions about this scientific note? You can contact the Squatex team at any time to answer your questions!

For questions of a scientific nature:

Alexandre Aubiès-T., PhD., Geo.

aaubies@squatex.com

For media Inquiries:

Jean-François Thibault, ing. jr

jfthibault@squatex.com