I have spent thirty years operating in places where the geology is difficult, the politics are complex, and the path forward is rarely straight - Turkey, Ukraine, Georgia, Quebec, and Papua New Guinea. Each of those experiences taught me something that the next one required. Looking back, I can see the thread clearly now, even when I couldn’t at the time.
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That thread has brought our experienced international board and team here.
Since the oil crisis of the 1970s, the industry has pursued a way to unlock oil shale - one of the largest hydrocarbon systems ever identified, with resource potential measured in trillions of barrels(1). Driven by energy security concerns that have once again come to the forefront, this effort has spanned decades. Yet oil shale has consistently resisted commercial development. The reasons are geological, technological, economic, and political - all at once. That is exactly the kind of problem we have been preparing to solve.
This year, Questerre marked a meaningful step toward solving this problem. Through the acquisition of PX Energy and the consolidation of our ownership in Red Leaf Resources, with full control of the patented HCCO® technology, we now have the assets, the platform, and the technical capabilities we believe we need to advance this resource toward commercial development.
This is more than a turnaround opportunity. It transforms Questerre into an oil shale operator with production and cash flow, extensive infrastructure, and a highly capable team experienced in oil shale development. While we optimize the existing operations and technology, the acquisition provides a unique platform to advance the next generation of technology in an operating environment rather than through stand-alone pilot projects.
Since closing the PX Energy acquisition, our focus has been on stabilizing operations, improving performance, implementing safety reporting, and reducing costs. We have identified $10 million in annual savings and are targeting a further $10 million through operational efficiencies.
Concurrently, we plan to test a key element of the new process inside the existing Petrosix retort vessel in the second quarter of this year. With success, this could improve heat and mass balance, increase product yields and reduce internal fuel consumption for the existing technology. Based on our budget, this can be funded through internally generated cash flow as we anticipate this could cost less than 10% of a field pilot. It can also be implemented much sooner than a new field pilot. This demonstration at scale would be a significant step toward transitioning to the new technology, and ultimately commercialization.
The energy shortage in Quebec is growing and public debate on local gas production has reopened(2). While development has been blocked by policy restrictions, the current energy crisis and growing focus on security of supply are reinforcing the importance of local resources. Independent studies, including a peer-reviewed assessment by CIRAIG(3) (the International Reference Center for Life Cycle Assessment and Sustainable Transition) and the Government of Quebec’s Strategic Environmental Assessment, support the view that impacts can be responsibly managed. Based on this work, we believe this project could be one of the most significant opportunities to deliver a net reduction in greenhouse gas emissions in Canada.
What gives me confidence is not just the assets; it is the people. In Brazil, we inherited a team of close to one thousand people who have successfully operated one of the world’s most complex oil shale processing facilities for forty years. They did not lack capability. They lacked strategic direction. We have addressed that by providing senior leadership with deep refining expertise. They will work alongside an organization that already knows this technology better than almost anyone on earth. In Quebec, we bring over thirty years of accumulated knowledge - the geology, the legal background, the political landscape - and the relationships that only come with that kind of history.
Questerre has entered a new phase. With a strengthened operational platform, growing production, and full control of our technology, we are focused on disciplined execution - delivering value from our Brazilian operations while advancing our pathway toward commercial oil shale development.
Highlights
Transformation to an Operating Platform
Completed the acquisition of PX Energy, establishing Questerre as an oil shale operator with production, infrastructure, and a technical team experienced in oil shale development.
Control of Proprietary Technology
Consolidated ownership of Red Leaf Resources and secured full control of the proprietary HCCO® technology — a low-temperature oxy-fuel process that converts organic material into liquid hydrocarbons with integrated carbon capture and minimal water use.
Quebec: Resource Position and Value Restructuring
Public debate re-opened on the Quebec Utica, one of the most significant undeveloped natural gas resources in Eastern Canada. Through a corporate reorganization, approximately 95% of the value associated with this project is now reflected in a preferred tracking share, for which we are evaluating a separate public listing.
Operational Improvements and Cost Reductions
Restructured management and cost initiatives PX Energy delivered close to $3 million in adjusted funds from operating and approximately $5 million in cash flow used in operating activities in the fourth quarter.
Production and Financial Growth
Fourth quarter production increased to 7,000 boe per day. Revenue grew to $77.1 million for the year - $45.4 million from Canadian operations and $31.7 million from Brazil following the PX Energy acquisition with net cash from operating activities of $12.6 million and adjusted funds flow from operations of $15.7 million.
Oil Shale
Our goal is to restructure PX Energy into a cash-flowing business supported by long-life reserves and a sustainable balance sheet.
Prior to our acquisition, PX Energy was generating average monthly adjusted operating cash flows of approximately $0.3 million, a level that contributed to its financial distress. In our first quarter after closing, operational improvements drove that figure to just over $1.0 million per month. We assumed full management control on January 3, 2026, and anticipate the quarter ending March 31, 2026, will continue to show further material improvement. Strengthening oil prices, if sustained, will add to that. Fuel oil, which represents approximately 75% of our revenue, had an official posted price of US$140 per barrel as of March 24, 2026.
The PX Energy Petrosix facility in São Mateus do Sul, originally developed by Petrobras, represents hundreds of millions of dollars of invested capital. The access to an existing mine, utilities, and processing facilities creates the opportunity to demonstrate the next generation HCCO technology at a substantially lower cost than we originally planned. Utilizing the existing processing facility for this test further reduces costs. It should provide an important proof point at near-commercial scale while optimizing and improving profitability of the existing operations.
We are also pursuing opportunities to grow revenue through debottlenecking initiatives and optimizing fuel inputs. Approximately one-third of volumes are derived from processing waste oil, which takes advantage of excess heat from the retort. This is a competitive business with attractive margins and meaningful expansion potential.
Processing this waste oil reduces our overall emissions footprint. In addition, we are creating a permanent forest reserve as part of our mine reclamation plan, contributing to biodiversity in the area and creating a carbon sink. The HCCO technology embeds carbon capture and allows us to reduce our environmental footprint further. We will look at potential carbon sequestration reservoirs to support future development with this technology to operate at low net emissions.
The acquisition included legacy commercial and financial issues with vendors, creditors, and potential joint venture partners. Some matters may require litigation to resolve. We are managing these actively as part of the broader restructuring.
Quebec
Our Utica shale gas discovery remains one of the most significant undeveloped gas resources in Eastern Canada. The province has become a net importer of power for the last three months(4), reflecting increasing demand and constraints on supply.
Globally, many jurisdictions facing similar challenges have turned to natural gas as part of their policy response. Germany is increasing LNG imports. Argentina is accelerating domestic shale development to become an LNG supplier(5). Quebec has the same opportunity, and we have the resource to meet it.
We continue to advance both a legal and political pathway to development. During the year, we completed the questioning of key government witnesses, including current and former members of the government. In January, the Court approved Questerre to proceed as a test case to expedite the process. Subject to any appeals and remaining pre-trial matters, we expect a hearing date to be set this year.
During the year, we also received notice from the Government of Quebec of its intention to enforce Bill 21, including requirements related to well abandonment and demonstrating liquidity of approximately $11 million. 75% of these costs are to be covered by the Government under Bill 21. We have this liquidity and are working to meet these requirements.
Operating and Financial
Our volumes increased significantly this year. The tie-in of three (1.5 net) wells at Kakwa North and the addition of PX Energy production following the close of the acquisition at the end of the third quarter drove average production to 3,711 boe per day, compared to 1,756 boe per day last year. In the fourth quarter, production averaged over 7,000 boe per day, including over 4,400 boe per day from Brazil.
Revenue increased to $77.1 million for the year — $45.4 million from Canadian operations and $31.7 million from Brazil. Higher volumes helped offset lower Canadian commodity prices. We reported adjusted funds flow from operations of $15.7 million, excluding $3.3 million of acquisition-related costs.
Our consolidated working capital position reflects the $52 million working capital deficit and non-recourse debt assumed as part of the PX Energy acquisition. With cost reduction initiatives underway and commodity prices above US$65 per barrel, we expect this deficit to be materially reduced by year-end.
Outlook
Our near-term priorities are clear: stabilize and grow cash flow from Brazilian operations, prove up the new technology at near-commercial scale, and pursue both legal and political pathways to development in Quebec.
The HCCO® pilot, using the existing Petrosix facility, will provide a critical proof point at a substantially lower costs than a greenfield pilot. Success would represent a significant step toward converting oil shale resources into reserves and establishing the commercial case for the technology. It also improves the efficiency of our existing operations and improves our margins.
In Quebec, recent public commentary and policy discussions reflect a growing recognition that local natural gas has a role to play in addressing the province’s energy needs(6). We are encouraged by that shift and continue to work toward a hearing date being set this year.
The opportunity in front of us is real. We are more committed than ever to delivering it.
Michael Binnion
President and Chief Executive Officer
Forward Looking Advisory
Please refer to the section Forward Looking Statements in the Management Discussion and Analysis regarding the forward-looking information provided in this President’s Message.
Footnotes:
(1) https://www.usgs.gov/centers/central-energy-resources-science-center/science/oil-shale
(2) https://www.journaldemontreal.com/2026/03/21/geopolitique-de-lenergie
(3) https://questerre.wpenginepowered.com/wp-content/uploads/2024/12/CIRAIG-Clean-gas-initiative-LCA-wo-appendices.pdf
(4) Hydro-Québec becomes net importer of power in reversal from past years - The Globe and Mail
(5) Germany’s SEFE nails down 8-year LNG offtake with South American firm - Offshore Energy
(6) https://www.lesaffaires.com/bourse/actualites-boursieres/il-ne-faut-pas-fermer-la-porte-a-lexploitation-du-gaz-naturel-dit-le-pdg-de-la-banque-nationale/
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