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oil and gas

Investors in Questerre Energy Corp. are hoping the recent surge in the company's share price, amid Quebec's decision to allow for more oil and gas exploration in the province, is the start of a new growth phase for the company.

Shares of Calgary-based Questerre hit a high of $1.18 on Dec. 12, the first trading day after Quebec passed a bill that makes it easier for companies to pursue energy exploration in the province, including potentially fracking.

The stock has since settled back to around 70 cents, up from 17 cents a year ago, and some investors and analysts believe the shares have more room to run alongside a potential recovery in energy prices.

Questerre has oil and gas assets in Quebec's St. Lawrence Lowlands, covering the resource formation known as the Utica, as well as in Alberta, Saskatchewan, Utah and Jordan.

"We believe the current share price does not reflect the upside potential in Quebec," as well as Questerre's "liquid-rich Montney shale acreage" in Alberta, Tom Erik Kristiansen, an analyst at Oslo, Norway-based Pareto Securities, said in an e-mail. (Questerre is listed in Toronto and Norway.)

Mr. Kristiansen has a "buy" rating on the stock and $1.42 price target.

Investor Angelos Damaskos has held Questerre shares in his MFM Junior Oils Trust Fund for about six years and intends to keep holding. "We haven't sold a single share in the last rally … because we think the development of this deposit in Quebec is absolutely vast," said Mr. Damaskos, chief executive officer at British-based Sector Investment Managers Ltd.

Mr. Damaskos said the change in Quebec coincides with what he views as a "change in sentiment" towards small-cap oil and gas companies in recent months, as investors gain more confidence in the overall sector.

Risks for Questerre include delays in the pending regulatory framework that will govern the development of petroleum resources in Quebec, as well as potential delays in drilling and development. Investors will be watching to see how Questerre's partner and operator of the project, Repsol Oil & Gas Canada, a division of Spanish energy giant Repsol S.A., plans to proceed with the development.

However, a drop in energy prices would also hurt the stock, alongside other energy players.

"We think the downside is fairly modest and linked to market conditions, where the upside could be considerable from here," Mr. Damaskos said.

Questerre CEO Michael Binnion says he spent five years working to get the Quebec government to change its stance on oil and gas development in the province.

Mr. Binnion said the company is now waiting to see detailed regulations around development, including revenue-sharing agreements, before advancing the project.

He said the company "survived" the recent downturn in the oil and gas sector and that while "it's not boom times," the company is back to "business as usual."

Canaccord Genuity analyst Sam Roach has a "sell" rating on the stock and 60-cent target, which he increased from 40 cents in January.

While the Quebec government has given a nod to oil and gas development in Quebec, "hurdles remain," Mr. Roach said in a note on Nov. 14.

He pointed to the regulatory framework for development practices, which have yet to be released, and the fact that Repsol would make the final call on investment.