Oilsands Quest files 10-Q Quarterly Report and updates reservoir test and
exploration programs

    
    CUSIP No. 678046 10 3
    NYSE Amex:   BQI
    

CALGARY, Dec. 7 /CNW/ - Oilsands Quest Inc. (NYSE Amex: BQI) announces that its Form 10-Q Quarterly Report for the period ended October 31, 2009, was filed December 7, 2009, and is available online at www.sec.gov and www.sedar.com. The company also provides an update on its reservoir test program.

The following discussion addresses material changes in our results of operations and capital resources and uses for the three and six months ended October 31, 2009, compared to the three and six months ended October 31, 2008, and our financial condition and liquidity since April 30, 2009. It is presumed that readers have read or have access to our 2009 Annual Report on Form 10-K, which includes disclosure regarding critical accounting policies and estimates as part of Management's Discussion and Analysis of Financial Condition and Results of Operation. Unless otherwise stated, all dollar amounts are expressed in U.S. dollars. All future payments in Canadian dollars have been converted to U.S. dollars using an exchange rate of $1.00 U.S. = $1.089 CDN, which was the October 31, 2009 exchange rate.

Overview

Three Months Ended October 31, 2009

    
    -   We announced updated independent third party resource estimates for
        our Axe Lake and Raven Ridge properties based on the drilling
        completed in late 2008 and early 2009 at our Annual General Meeting
        held October 14, 2009.
    -   We commissioned the facilities at Test Site 1 in preparation for the
        start-up of Phase One of the testing.
    -   In mid-October we perforated the two vertical wells at Test Site 3,
        which are approximately 3.5 meters apart, and installed temporary
        water heating and injection facilities.
        -  We commenced injecting cold water at low pressure and volume into
           the base of the McMurray formation on October 25, 2009 and
           established communication between the two wells. Cold water
           injection and production was maintained for 24 hours, following
           which hot water was injected and produced, resulting in the
           mobilization of bitumen in the reservoir.
        -  On Thursday, October 29, 2009, a small amount of naphtha was
           injected and bitumen recovery commenced on Friday, October 30,
           2009.
        -  We continued to circulate hot water without naphtha until
           November 5, 2009, at which time the injection and production
           facilities were removed. We continued to monitor the temperature
           and pressure in preparation for the next stage in our testing
           program.
    -   We have commenced pressure and temperature measurements at Test
        Site 1 in order to capture the baseline reservoir pressure and
        temperature before commencing the vertical well test program.
    -   We completed a 12-hole oil shale coring program on our exploration
        permits in the Pasquia Hills region of central east Saskatchewan.
    -   We mobilized 2 drilling rigs and stared the overburden
        characterization study on October 19, 2009, which includes a 15-hole
        coring and advanced logging program focusing on assessing the nature
        and character of the rock structures overlying the bitumen bearing
        McMurray (Dina) Foundation.
    -   We provided an update of our progress at Test Sites 1 and 3, our
        overburden characterization study and our laboratory and field test
        studies at the Canadian Heavy Oil Association on November 10, 2009.
    -   We announced the resignation of Dr. Claes Palmgren as
        Vice President Reservoir Engineering.
    -   We announced and filed an amended Form 10-Q for the period ended
        July 31, 2009 on November 27, 2009.
    

Six Months Ended October 31, 2009

    
    -   We completed a public offering of 35,075,000 units at a price of
        $0.85 per unit for gross proceeds of $29.8 million. The units
        consisted of one common share and a warrant to purchase one-half
        common share.
    -   We were granted a one year extension, to May 31, 2010, of our permits
        in northwest Saskatchewan. We may seek and be granted two additional
        one year extensions of each permit if the Company continues to meet
        its obligations under the terms of the permits.
    -   We signed a Memorandum of Understanding establishing an economic
        relationship with the Birch Narrows Dene Nation in Saskatchewan
        through which the economic benefits of our exploration and
        development activities will be managed.
    -   We announced the resignation of Jamey Fitzgibbon as President and
        Chief Operating Officer and the transition of these responsibilities
        to Christopher Hopkins, the Company's Chief Executive Officer.
    -   We began applying heat to the reservoir at Test Site 3 in
        December 2008 utilizing a downhole electric heater and we continue to
        measure pressures and temperatures at ten different locations in the
        reservoir subsequent to the removal of the heater element in
        June 2009.
    -   We provided an update of our progress at Test Site 1 and 3 and
        laboratory and field test studies at the TD Newcrest Unconventional
        Oil Forum held in Calgary on July 8, 2009 and at the Canadian
        International Petroleum Conference held in Calgary on
        June 16 to 18, 2009.
    -   We disclosed our intention to examine a potential re-organization of
        our Pasquia Hills oil shale assets.
    -   We restated our financial statements and filed an amended Form 10-K
        for the year ended April 30, 2008 and amended Form 10-Qs for the
        quarterly periods ended July 31, 2008, October 31, 2008 and
        January 31, 2009.
    

Operations Summary:

Exploration Programs

During the three months ended October 31, 2009, we focused on developing our 2009-2010 oil sands exploration plans for the Axe Lake, Raven Ridge, Wallace Creek and Eagles Nest areas and our oil shale exploration plans for the Pasquia Hills area. These planning activities included scouting seismic and exploration drilling targets, preparing regulatory applications and initiating consultation processes for approval of future drilling programs.

Specific activities we have been planning on our Axe Lake permits include an overburden core hole drilling and advanced logging program on permits 208 and 210 and running a 2-D seismic program on the permits to the north and south of Axe Lake in Saskatchewan. Both of these programs will further our geological knowledge of the deposits while meeting work commitments required to extend the exploration permits until May 31, 2010. We commenced the overburden characterization study on October 19, 2009 and presented some preliminary findings at the Canadian Heavy Oil Conference on November 10, 2009. The overburden characterization study will yield core material and advanced logging data (NMR, Dipole, sonic and standard suite geophysical) of the rocks overlying the bitumen-bearing McMurray (Dina) Foundation. Preparatory field work for the 2-D seismic program commenced in late November.

We are also continuing with the additional processing and interpretation of the 1,847 kilometres (1,149 miles) of 2-D and 3-D seismic data collected and initially processed in the 2007-2008 winter program. This interpretation is proving valuable in planning for the specific reservoir tests this year and in assessing the geological structures across our permits.

In early 2009, we drilled an additional 23 exploration and delineation test wells in Raven Ridge. The Raven Ridge drilling program has demonstrated continuity of bitumen characteristics extending from Axe Lake in Northwest Saskatchewan westward into Alberta. We released the updated resource estimates by McDaniel and Associates in mid-October.

Axe Lake Area - Reservoir Development Activities

Test Site 3

The objectives of the field test are to: (1) reliably measure pressure and temperature changes within the reservoir and adjacent formations as a result of heating and, (2) use those measurements to calibrate numerical simulation calculations to the field measurements in order to optimize a recovery program for future testing, piloting, commercial applications and reservoir planning. The electric downhole heater in well 1OBS 5-29-94-25 provided heat to the reservoir and pressures and temperatures were measured and recorded continuously at ten locations in the hot heater well, 1OBS 5-29-94-25, and the cold observation well, INJ 5-29-94-25. The heater was removed from the well on June 26, 2009. Our detailed engineering and numerical simulation analysis has confirmed the formation characteristics and related fluid and thermal properties to be used in continued reservoir planning at Axe Lake. We presented a more detailed description of the conceptual reservoir simulation model, analytical heat transfer calculations, Test Site 3 geo-models, supporting laboratory work and numerical simulations at the Canadian International Petroleum Conference held June 16-18, 2009.

In mid-October we perforated the two vertical wells at Test Site 3, which are approximately 3.5 meters apart, and installed temporary water, heating and injection facilities. The objective of this test was to inject and produce water at different temperatures in order to:

    
    1.  confirm the establishment of early fluid movement;
    2.  confirm the ability to establish convective heat transfer at the
        bottom of the reservoir;
    3.  recover bitumen by using both hot water and solvent injection; and
    4.  gather preliminary data on the horizontal displacement of fluids.
    

We commenced injecting cold water at low pressure and volume into the base of the McMurray formation on October 25, 2009 and established communication between the two wells. Cold water circulation was maintained for 24 hours, following which heated water was circulated, resulting in the mobilization of bitumen in the reservoir. On Thursday, October 29, 2009, a small amount of naphtha was injected and bitumen recovery commenced on Friday, October 30, 2009.

We continued to circulate hot water until November 5, 2009, at which time the facilities were removed. We are continuing to monitor the changes in temperature and pressure as we prepare for the next stage of our testing program.

Test Site 1

On October 18, 2009 the electrical, mechanical and boiler facilities at Test Site 1 were successfully commissioned. Construction is complete, experienced operating personnel are in place and the facility is ready to commence operations.

Phase One of the test program at Test Site 1 will include the injection of cold water and will be followed by the injection of hot water and steam into the reservoir. The purpose of the test is to measure heat and fluid movement under specific operating conditions on a field scale to complement our ongoing simulation and laboratory analysis studies. These Phase One tests are designed to confirm and demonstrate our "bottom-up" thermal recovery process and they will further enhance our knowledge and modeling of the thermal and geo-mechanical characteristics of our reservoir. We expect to commence Phase One testing at Test Site 1 by mid December.

In preparation for Phase Two of the testing program at Test Site 1, we have drilled and completed observation wells and commissioned the necessary surface facilities at the site. Water and steam injection into the 3 horizontal wells already drilled is planned to begin following the completion of the surface facilities associated with the horizontal test holes. This work will commence after the testing and analysis from Phase One is complete.

As part of the overall Axe Lake development plan, we continue to conduct advanced economic feasibility, financial planning and risk assessment studies for full commercial development and the commissioning of an independent study of infrastructure and bitumen markets to complement our development planning process. Development of a commercial project remains subject to regulatory and other contingencies such as successful reservoir tests, board of directors approvals, financing and other risks inherent in the oil sands industry ("Risk Factors" Section of our Form 10-K).

Pasquia Hills Oil Shale Permit Area

In September and October 2009, we drilled and logged 12 exploration test holes on our oil shale prospect in eastern Saskatchewan with ten out of twelve holes drilled experiencing meaningful intercepts of oil shale of up to 37.0 meters in thickness. Detailed evaluation and interpretation of the drilling results is underway. We are currently processing core samples in the laboratory by using Modified Fisher Assay method and some of these samples will be tested using a commercially proven recovery process to measure recovery factors. We are continuing to research potential methods for kerogen recovery from the Pasquia Hills oil shales.

Environmental and Regulatory

We expanded our baseline environmental programs in the Axe Lake and the Raven Ridge areas in anticipation of a comprehensive Environmental Impact Assessment report required as part of the application for regulatory approval for development of Axe Lake. Other environmental work included initiating baseline environmental studies in the Wallace Creek and Eagles Nest areas. We commissioned an active (continuous) air quality monitoring station at Axe Lake during the period, the first of its kind in northwest Saskatchewan, in addition to our passive (periodic) air monitoring activities which have been ongoing since 2005.

Outlook

Over the next twelve months we plan to continue the activities necessary to increase our resource base and to demonstrate the recoverability of our oil sands resources. Subject to our financial resources, we will continue to pursue exploration programs on our permit and license lands.

We are continuing our testing program based on the current assumption/geological interpretation that there is no overlying Clearwater Shale Formation associated with our oil sands reservoir. While additional analysis is required, the early results of the overburden characterization study have confirmed multiple dense, low permeability units within the overburden. The results of our advanced laboratory studies and numerical reservoir simulations indicate that bitumen production can best be achieved using a reconfiguration of traditional SAGD methods, where we utilize horizontal wells configured in parallel at the bottom of the reservoir. Our analysis points to the three essential elements for a successful application of the bottom-up approach to bitumen extraction:

    
    1.  establish and maintain mobility at the bottom of the oil sands
        reservoir;
    2.  utilize the full length of the horizontal wells while the bitumen is
        being produced; and
    3.  implement a comprehensive reservoir monitoring system to observe and
        manage the growth of the swept zone.
    

A sequential approach to the reservoir test program is required, both in the scale of the field operations at Test Site 1 and by moving from vertical wells to short horizontal wells and then to commercial length horizontal wells.

In the Axe Lake reservoir test program, we are now concluding the testing at Test Site 3 and we will be commencing Phase One at Test Site 1 to demonstrate that we can establish and maintain communication between vertical wells at the bottom of the reservoir using water and steam. The following is an overview of key activities planned in the next twelve months.

    
    -   We expect to proceed with the Phase One test program at Test Site 1
        to inject water and steam in order to (1) demonstrate the feasibility
        of establishing and maintaining communication at the base of the Axe
        Lake reservoir, (2) evaluate reservoir behavior in relation to water
        and steam injection including geo-mechanical effects, and (3)
        calibrate the Axe Lake relative permeability curves for use in our
        reservoir simulators. Four vertical wells for micro-seismic
        monitoring will be drilled and completed and a baseline will be
        established prior to commencement of vertical well operations. The
        interpretation of micro-seismic signals is expected to enable more
        effective history matching of the horizontal fluid flow and
        convective heat transfer. This phase is scheduled to begin in early
        December, subject to regulatory and other approvals.
    -   We may begin field activities related to Test Site 2, where we are
        evaluating the testing of other energy efficient and environmentally
        neutral recovery processes.
    -   We expect to continue our reservoir characterization studies and
        continue to evaluate well data, perform petrophysical analyses,
        design and execute pertinent geophysical logging and perform advanced
        laboratory studies.
    -   We expect to incorporate the results of the overburden study into our
        reservoir simulation models.
    -   We expect to submit an application for a pilot project at Axe Lake in
        late 2009 or early 2010. The pilot project application will be partly
        based on a low pressure steam based bitumen recovery process
        currently being tested as part of the reservoir test program and the
        application will trigger an Environmental Impact Assessment.
    -   We are continuing the planning of additional exploration programs to
        further define the location, extent and quality of the potential
        bitumen resource in Axe Lake, Raven Ridge, Wallace Creek, Eagles
        Nest, and adjacent areas as appropriate. We are considering an
        exploration program at Raven Ridge during the 2009/2010 winter
        drilling season.
    -   Infrastructure remains a critical element for continued operations
        and we will continue to investigate various pipe line solutions for
        gas and liquids transport, different routing alternatives for
        permanent road access and possible solutions for the provision of
        power.
    -   Efforts are also continuing on converting a portion of our
        Saskatchewan permits to lease pursuant to the Oil Shale Regulations,
        1964, as amended. The permits will not be converted to leases until a
        development plan which will require an Environmental Impact
        Assessment has been developed.
    

Liquidity and Capital Resources

At October 31, 2009, the Company held cash and short term investments totalling $46.3 million (April 30, 2009 - $32.2 million).

On May 12, 2009, the Company issued 35,075,000 units at $0.85 per unit for gross proceeds of $29.8 million. The units were issued as part of a public offering and were comprised of a share of the common stock and one-half of a warrant to purchase a share of common stock. The Company paid an aggregate of $1.5 million in fees to a syndicate of agents under the terms of the agency agreement and $1.2 million of legal fees and other expenses in relation to the offering.

During the six months ended October 31, 2009, the Company expended $13.3 million on operations and $1.7 million on property and equipment.

We believe that we have sufficient funds to carry out our planned activities over the next twelve months. If we accelerate commercial development at Axe Lake or any of our other prospects, our cash requirements will increase significantly. Additional funding may also be required if our current planned activities are changed in scope or if actual costs differ from estimates of current plans. We believe the Company will have access to sufficient funding and sources of capital for its planned activities through to October 31, 2010. Because we constantly and actively monitor our expenditure budgets, if sufficient funding is not available we can adjust our expenditure plans based on available cash. We plan to fund future operations by way of financing, including a public offering or private placement of equity or debt securities. Our development strategy also includes considering partners on a joint venture basis on our specific projects to fund the development of such projects in a timely and responsible manner. However, there is no assurance that debt or equity financing or joint venture partner arrangements will be available to us on acceptable terms, if at all, to meet these requirements. The Company has no revenues, and its operating results, profitability and the future rate of growth depend solely on management's ability to successfully implement the business plans and on the ability to raise further funding.

Results of Operations

Net loss

Three Months ended October 31, 2009 as compared to three months ended October 31, 2008. The Company experienced a net loss of $13.2 million or $0.04 per share for the three months ended October 31, 2009 as compared to a net loss of $42.9 million or $0.17 per share for the three months ended October 31, 2008. The decline in the net loss is due to a reduction in exploration activity and stock-based compensation expense as compared to the same quarter last year.

Six Months ended October 31, 2009 as compared to six months ended October 31, 2008. The Company experienced a net loss of $18.0 million or $0.06 per share for the six months ended October 31, 2009 as compared to a net loss of $57.2 million or $0.22 per share for the six months ended October 31, 2008. The decline in the net loss is mainly due to the reduction in exploration activity and stock-based compensation expense as compared to the same period last year.

The Company expects to continue to incur operating losses and will continue to be dependent on additional sales of equity or debt securities and/or property joint ventures to fund its activities in the future.

Exploration costs

Three and six months October 31, 2009 as compared to three and six months ended October 31, 2008. Exploration costs for the three months ended October 31, 2009 were $8.8 million (2008 - $37.3 million). Exploration costs for the six months ended October 31, 2009 were $12.4 million (2008 - $47.7 million). The Operations Summary above provides a summary of the exploration activities conducted in the three and six months ended October 31, 2009. Exploration expenditures in the three and six months ended October 31, 2008 related mainly to drilling, seismic, engineering, environmental and construction costs associated with Test Sites 1 & 3.

General and administrative

Corporate

Three and six months ended October 31, 2009 as compared to three and six months ended October 31, 2008. General and administrative expenses settled with cash for the three months ended October 31, 2009 were $3.4 million (2008 - $3.4 million). General and administrative expenses settled with cash for the six months ended October 31, 2009 were $7.2 million (2008 - $6.2 million). Expenditures in the three month period ended October 31, 2009 consist of salaries ($1.4 million), legal and other professional fees ($0.7 million) and general office costs ($1.3 million). General and administrative expenses in the six months ended October 31, 2009 consist of salaries ($3.6 million), legal and other professional fees ($1.4 million) and general office costs ($2.2 million). General and administrative expenses settled with cash in the three months ended October 31, 2008 consisted of salaries ($1.5 million), legal and other professional fees ($0.7 million) and general office costs ($1.2 million). General and administrative expenses in the six months ended October 31, 2008 consisted of salaries ($2.4 million), legal and other professional fees ($1.6 million) and general office costs ($2.2 million).

At October 31, 2009 there were 53 employees including 13 seasonal field employees, at October 31, 2008 there were 117 employees including 69 seasonal field employees. The increase in salaries and wages during the six months ended October 31, 2009 occurred as result of severances paid during the quarter ended July 31, 2009.

Stock-based compensation

Three and six months ended October 31, 2009 as compared to three and six months ended October 31, 2008. Stock-based compensation for the three months ended October 31, 2009 was $1.1 million (2008 - $8.2 million) and $2.8 million for the six months ended October 31, 2009 (2008 - $12.0 million). Stock-based compensation expense for the three and six months ended October 31, 2009 and 2008 consists of stock-based compensation related to the issuance of options to directors, officers, employees and consultants. The grant date fair value of the stock options were estimated using either the Black-Scholes valuation model or the trinomial option-pricing model, both of which require the input of highly subjective assumptions, including the expected life of the options and the expected stock price volatility determined using the historical volatility of the price of shares of the Company's common stock. The decrease during the three and six months ended October 31, 2009 compared to the same periods in the prior year is the result of 4.4 million options forfeited due to a reduction in the number of employees that was greater than the anticipated forfeiture rate.

Foreign exchange gain (loss)

Three and six months ended October 31, 2009 as compared to three and six months ended October 31, 2008. A foreign exchange loss of $0.1 million (2008 - $4.6 million) during the three months ended October 31, 2009 resulted from holding Canadian funds in the parent company when the value of the Canadian dollar slightly declined compared to the U.S. dollar. For the six months ended October 31, 2009, a foreign exchange gain of $3.1 million (2008 - loss of $5.4 million) resulted from holding Canadian funds in the parent company when the value of the Canadian dollar increased compared to the U.S. dollar.

Depreciation and accretion

Three and six months ended October 31, 2009 as compared to three and six months ended October 31, 2008. Depreciation and accretion expense for the three months ended October 31, 2009 was $0.6 million (2008 - $0.5 million) and $1.0 million for the six months ended October 31, 2009 (2008 - $0.8 million). Depreciation expense relates to camp facilities, equipment and corporate assets which are being depreciated over their useful lives of three to five years. Accretion expense relates to the asset retirement obligation recognized on the airstrip, camp site, access roads and reservoir test sites which are being brought into income over a period 10 of 30 years. The change from the three and six-month periods ended October 31, 2008 to the three and six-month periods ended October 31, 2009 relates to the increase in assets held during the period. Additions to the property and equipment for the six months ended October 31, 2009 totalled $1.7 million.

Interest and other income

Three and six months ended October 31, 2009 as compared to three and six months ended October 31, 2008. Interest income for the three months ended October 31, 2009 was $0.01 million (2008 - $0.4 million). Interest income for the six months ended October 31, 2009 was $0.1 million (2008 - $0.8 million). Interest income is earned because the Company pre-funds its activities and the resulting cash on hand which is invested in short-term deposits. The decrease in interest income this period as compared to the same period in the prior year reflects the decrease in short term investments and the decrease in market interest rates over the intervening year.

Deferred income tax benefit

Three and six months ended October 31, 2009 as compared to three and six months ended October 31, 2008. The deferred income tax benefit for the three months ended October 31, 2009 was $0.7 million (2008 - $10.8 million). The deferred income tax benefit for the six months ended October 31, 2009 was $2.2 million (2008 - $14.2 million). The decrease in the deferred tax benefit during the three and six month periods ended October 31, 2009 compared to the same periods last year is mainly due to a reduction in exploration costs incurred.

The Company has generated deferred tax benefits by expensing all exploration costs for accounting purposes while capitalizing these costs for income tax purposes. This results in a higher tax basis for the Company's property and equipment when compared to their carrying value. The deferred tax liability reported on the balance sheet is mainly related to the book value of property which will not be deductible for tax purposes and is related to the Company's 2006 acquisition of the minority interest in OQI Sask.

Disclosure Controls and Procedures and Internal Control over Financial Reporting

As of October 31, 2009, we carried out an evaluation under the supervision of, and with the participation of our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15(e) under the Securities and Exchange Act of 1934, as amended. Based on the evaluation as of October 31, 2009 our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures (as defined in Rule 13a-15e under the Securities Exchange Act of 1934) were not effective because of the material weakness in internal control over financial reporting described below.

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company's annual or interim financial statements will not be prevented or detected on a timely basis. The material weakness in our internal control over financial reporting as of October 31, 2009 existed as we did not maintain effective processes and controls over the accounting for and reporting of complex and non-routine transactions. Specifically, we did not have sufficient appropriate level of technical knowledge, experience and training in the accounting for asset acquisitions, stock-based compensation, and deferred income taxes. This control deficiency resulted in the restatement of the consolidated financial statements for the years ended April 30, 2008 and 2007 and each of the quarters in fiscal 2009 and 2008 and for the first quarter in fiscal 2010.

We plan to remediate the material weakness described above by consulting with an independent big four accounting firm on complex accounting issues and obtain written analysis of the accounting options available to us. The analysis would be reviewed with the independent auditors on the appropriateness of the accounting treatment for any new transactions. We will also amend our period close procedures to include access to independent consultation on technical accounting treatment with respect to highly complex transactions.

Changes in Internal Control Over Financial Reporting

We regularly review our system of internal control over financial reporting. There were no changes in our internal control over financial reporting during the period covered by this report on Form 10-Q that have materially affected or is reasonably likely to materially affect, our internal control over financial reporting.

About Oilsands Quest

Oilsands Quest Inc. (www.oilsandsquest.com) is exploring one of Canada's largest holdings of contiguous oil sands permits and licences, located in Saskatchewan and Alberta, and developing Saskatchewan's first global-scale oil sands discovery. It is leading the establishment of the province of Saskatchewan's emerging oil sands industry.

Cautionary Statement about Forward-Looking Statements

This news release includes certain statements that may be deemed to be forward-looking statements within the meaning of the U.S. federal securities laws. All statements, other than statements of historical facts, included in this news release that address activities, events or developments that our management expects, believes or anticipates will or may occur in the future are forward-looking statements. Such forward-looking statements include discussion of such matters as:

    
    -   the amount and nature of future capital, development and exploration
        expenditures;
    -   the timing of exploration activities;
    -   business strategies and development of our business plan and drilling
        programs;
    -   potential reservoir recovery optimization processes.
    

Forward-looking statements are statements other than relating to historical fact and are frequently characterized by words such as "plan", "expect", "project", "intend", "believe", "anticipate", "estimate", "potential", "prospective" and other similar words or statements that certain events or conditions "may", "will" or "could" occur. Forward-looking statements such as references to Oilsands Quest's drilling program, geophysical programs, reservoir field testing and analysis program, preliminary engineering and economic assessment program for a first commercial project, and the timing of such programs are based on the opinions and estimates of management and the company's independent evaluators at the date the statements are made, and are subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ materially from those anticipated in the forward-looking statements, which include but are not limited to risks inherent in the oil sands industry, regulatory and economic risks, lack of infrastructure in the region in which the company's resources are located and risks associated with the company's ability to implement its business plan. The Company's views about the restatement, its remediation of a material weakness in its controls, its financial condition, performance and other matters also constitute forward-looking statements. These forward-looking statements are subject to risks and uncertainties including, but not limited to, the results and effect of the Company's review of its accounting practices; potential claims and proceedings relating to the adjustments to the Company's financial statements or its accounting practices, including shareholder litigation and action by the SEC or other governmental agencies which could result in civil or criminal sanctions against the Company and/or certain of its current or former officers, directors and/or employees; and negative tax or other implications for the Company resulting from the accounting adjustments and other factors detailed from time to time in the Company's filings under the Securities Exchange Act of 1934. Many of these risks and uncertainties are beyond the control of the Company. The Company undertakes no obligation to update forward-looking statements if circumstances or management's estimates or opinions should change, except as required by law. The reader is cautioned not to place undue reliance on forward-looking statements.

SOURCE Oilsands Quest Inc.

For further information: For further information: Riyaz Mulji, Manager, Investor Relations, Email: ir@oilsandsquest.com, Investor Line: 1-877-718-8941

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