Okay. Greetings, Everybody, and thank you for being here for the presentation of our third quarter results for Questerre Energy. We committed this year to having shareholder updates to give an opportunity to give some color and also questions. I've got our CFO, Jason D'Silva, on here with me, Michael Binnion, the CEO of Questerre, and he will be monitoring the questions and moderating them for us, for either him or myself to answer. But before that, first we'll go through the highlights of the third quarter, starting with just a refresher or an overview of Questerre's business.
Just a reminder, our large project that we've taken on recently is in Brazil, which is one of the world's only integrated oil shale mining and refining operations, which we think is an excellent opportunity for us to leverage our other oil shale projects and technology, particularly in Utah, U.S., where we have a patented technology that we've developed, as well as some resources that we have under, significant resources that we have under license. In Western Canada, we have two producing assets, one non-operated condensate-rich Montney resource in Alberta, and the other one is an operating project in Saskatchewan, in a tight oil project that we've had for several years.
The other project, of course, we have is a giant natural gas discovery in Quebec, Canada, and recently we've started negotiating an exploration license for the Cumberland Basin in Nova Scotia, and we're hoping to see some positive progress on that shortly. Basically, we do have a cash flow base, but the significant option on multi-billion barrel oil shale resources as well as shale gas resources. We're producing approximately just a bit over 5,000 bpd right now, which is a little bit over 4,000 bpd from oil shale, and then 1,000 bpd coming from our conventional assets in, a little bit over that, in Canada. We have been continuously working for some years now and seeing some interesting progress on realizing the value from our giant gas discovery in Quebec.
Recently, we split the shares into a preferred share, which has a preferred ownership in our Quebec discovery, and then the common shares own all the other assets, including some residual interest in Quebec. Okay, so just to the highlights of the third quarter results. Significant for us on the downside and upside was a plant turnaround, an emergency plant turnaround completed in August. It was on schedule and on budget, no recordable safety incidents, and the retort efficiency is restored and back up to over 90%.
This is significant, both because it meant that we've lost one-sixth of the production from the third quarter, which you'll see in the adjusted funds flow, but also in terms of our purchase of PX and the turnaround of the business. One of the key issues for us was to be able to complete plant turnarounds on time and on budget. This one we think has significantly de-risked the issues for the plant turnaround coming up in May of next year. The results in terms of the effect on the cash flow was CAD +2.3 million . This was one of our goals, was to be able to have a year that we could have positive operating cash flow even in a plant turnaround year.
It turns out we've been able to have positive cash flow even in a quarter with a plant turnaround. The impacts there were, we lost just about CAD 5 million due to lost production during the plant turnaround. The other thing that happened during the quarter is that we were able to deliver a lot of our deferred contract liabilities, is the IFRS term, it's really our deferred revenue. We were able to deliver a lot of inventory against that, which is in revenue, but not cash flow. If you look down to the working capital improvement for the quarter, over CAD 13 million, that's the actual cash generated, and that compares to about CAD 18 million in Q2.
We think it's significant that we got an approval for the carbon storage pilot in Quebec, which is an important environmental mitigation project related to the potential production of local gas. Of course, we're working to advance our Quebec and now Nova Scotia exploration projects. Significant to us is that we've signed a mediation protocol with the Attorney General of Quebec. This is a confidential, non-binding mediation, so we're not in a position to talk about anything out of that mediation other than that it continues, and it's scheduled to be complete by end of December 31st, unless extended by mutual agreement.
Production and sales volumes for the quarter, showing for Q1, Q2, Q3. We've highlighted here the production numbers and the sales numbers for each quarter. You'll see that in Q3, our production numbers were down, but this reflects that one-sixth of the quarter was lost due to the shutdown. Our current production right now is at about 5,300 bbl, which includes about 1,100 bbl from Canada. On the right side, just to help explain the contract liabilities or deferred revenue numbers, you'll see now that at the end of Q3, we've cleared all of the under-lifted minimums.
That was reflected in the slide before, where we indicated that in our cash flow, that we had delivered a significant amount of the under-lifted minimums now, which has reduced our contract liability. But we still do have about 6,000 tons to deliver on those under-lifted minimums over the next few months. That will be reflected in revenue, but not cash flow, and it amounts to about $4 million . On the financial results, as I said, in spite of a plant turnaround in the quarter, we have been able to deliver positive adjusted cash and a significant improvement in working capital over the quarter.
On the right-hand side, we have a reconciliation or a bridge of our opening cash, and you'll see that funds flow has contributed CAD 40 million since the beginning of the year. We still have a working capital that we paid down of CAD 27 million since the beginning of the year, and the net result is that our consolidated cash position is higher. On the working capital deficit, we just want to really emphasize that the Brazil assets are, in terms of the working capital, current liabilities, and bond liabilities, ring-fenced from the parent company.
We've been careful about that because we want to make sure that we protect our Quebec asset in the QGAS preferred shares and common shares from any claims from Brazil. You will see that the negative working capital deficit in Brazil is CAD 43 million, but in the parent company, it is a CAD +30 million. Consolidated amount is CAD 13 million. That compares to a consolidated CAD -50 million on January 1st. There has been a very significant improvement in working capital since the beginning of the year, which has come from cash flow.
Important to understand, in those current liabilities, there is a number of liabilities that we anticipate will be either settled for less than the IFRS amounts or will be settled in shares. That amounts to about CAD 38 million. If you take that out, then it shows that we actually end up with positive working capital today if we only consider the amounts that will be paid in cash. Significant improvement in the nine months. In spite of having an unexpected plant turnaround, we have been able to improve the balance sheet quite a lot in nine months.
This, of course, has been assisted by higher-than-expected prices this year. Just on the secured debt, just a reconciliation here, because the balance sheet item shows adjustments for the embedded hedge that is in the variable rate interest based on the price of Brent, as well as the amortization. The amount that is shown on the balance sheet now at the end of Q3 is CAD 134 million, but the face value of the debt is actually CAD 113 million, with outstanding interest of CAD 14 million. This schedule explains the difference between what is owed legally and what is the IFRS estimated value of that debt.
We do the same thing over here in terms of the yearly finance expense, which includes actual interest, but includes things like the embedded derivative and non-cash accretion. This gives you the total finance expense, but you can pull out from there that the actual interest was CAD 4.7 million. I think issues that are important for the year coming up is that we have this significant amount of secured debt outstanding.
We also have, based on the unexpected plant shutdown, we think that has revealed a systemic problem from deferred maintenance, which, as we go back, has started even in the year or two before Petrobras sold it to Forbes, and that the deferral of maintenance continued under the Forbes management. We expect or plan to make a robust investment in the upcoming turnaround and expect that to cost almost double what we expected. Instead of CAD 8 million, about CAD 15 million. That will be in part to catch up deferred maintenance.
It's also in part because we plan to do that in a more robust way to make plant turnarounds be 30 months apart instead of 24 months apart, which will make a significant difference to our annualized cash flow. We still have deferred revenue of, I think in the balance sheet it's CAD 10 million, but in terms of the amount of oil we deliver, which will be at least $4 million in cash. The Petrobras earnout, which is part of the purchase price from Petrobras that we inherited, it will have an $8 million payment next year, and then there's some additional deferred maintenance that we plan to do over the next, to catch up over the next 20 months of another $4 million.
All of those items add up to about $30 million of expenditures next year that don't hit EBITDA or operating cash flow together with the debt. For that reason, you'll see in our president's report and in our disclosures that we have commenced discussions with the bonds on a proposed renegotiation restructuring of the bonds to reflect the cash needs for next year. Okay, so outlook for PX Energy. We do think that we've made significant progress through cost reduction, through improved safety results, through improved cash flow. I think it's clear to us that those improvements are partway to where we need to get to.
We have significant maintenance expenses that need to be caught up and the bond renegotiation before we can move into what we think will be an opportunity to introduce the HCCO technology and make another significant improvement in operations, and also prove the resources that we've got in Brazil, Utah, and Jordan. That's the real prize. I mean, the reason, our main motivation, if not our only motivation to buying PX Energy was a very rare opportunity to have an operating, get the operating experience, and to have a platform that is open and operated and paid for in terms of an integrated oil shale mine.
The prize we think is the next energy revolution in terms of something bigger even than shale gas is oil shales, 4 trillion barrels in place just in the Green River Shale in Western United States. Over double the size of the Canadian oil sands. We had an early test, way ahead of what we had originally hoped to do of the HCCO technology in a full-size commercial vessel here where I am right now at PX Energy in Brazil. That test went very well, and it was at a very small fraction of the cost of what that field pilot test would have cost otherwise.
Our plans are for 2027 in conjunction with our plant turnaround, the deferred maintenance catch-up and restructuring is to put that onto a, we say extended test, but what we really mean is on permanent production, put HCCO on a permanent production to enhance recoveries from the Petrosix process, and also to show that the patented technology works on a continuous commercial basis as well. Ultimately, the goal will be to twin the refinery down here, double the production, and prove that we can commercialize oil shale at under $50 a barrel.
For the Quebec Utica, we will just end on that. We think there has been significant news that leans very positive for this project. Hydro-Québec has announced that its plans to expand electricity production is now deferred to at least 2041, so there is at least a 15-year gap in terms of electricity production in Quebec. We have had the outgoing finance minister advocating for more gas in the energy mix. We have had updated polling showing that local popular support for developing the province's own gas has increased now to 68% with only 20% against.
It has gone from two to one to over three to one. Quebecers are now in favor of developing their own gas. And of course, we have had the indications from the government around approval of our pilot project and the entering into non-binding mediation. We think all of these are leaning towards the production of gas in Quebec, the likelihood of it has improved. Just to conclude on the near-term outlook, at PX Energy, renegotiation, restructuring of the secured debt discussions have commenced. That is to right-size it against the long-term cash flow generation and the short-term cash needs for deferred maintenance.
We think it still continues from a strategic point of view that we prove that we can execute at plant turnarounds and still generate positive operating cash flow in a turnaround year. As I said, we think being able to do that on an emergency basis in August and have positive cash flow even in one quarter helps to de-risk that greatly. The goal here will be not only to catch up the deferred maintenance, but also to extend the time between turnarounds to 30 months. We would like to implement the long-term HCCO in the Petrosix vessel on a permanent basis with a target to as much as 15% increase in heat efficiency.
And then in Quebec, we continue to advocate for local gas with, we think, improvements on a number of different fronts in terms of the acceptability for that. We will continue to participate on the confidential mediation process. And finally, we hope to finalize a new exploration project in Nova Scotia. With that, I am happy to see if there is any questions. I do not know if you have any of those, Jason. I think you are on mute, Jason.
Okay. Couple of questions relating to the impacts of the PX Energy restructuring on the Questerre balance sheet, including any possible need for new equity to support those needs of PX Energy.
Yeah. We have, I guess, the two main sources, as we've shown on the one schedule, there's been a very material improvement in the Questerre Energy balance sheet, and we do believe that we have the cash on hand to fund the needed costs for next year, which we do think, as we said, the unexpected shutdown and a couple of other incidents that we've had here, we do believe have shown that there is a systemic problem here relative to deferred maintenance that needs to be addressed for operational, environmental, and safety reasons.
We do think that we have the cash on hand to do that. The purpose of the discussion with the bonds is to make sure that the cash goes for those reasons as a priority.
Next question is about once the plant is restored to full efficiency, what do you consider a reasonable, sustainable monthly production target and sales volume for PX Energy? Then a follow-up question to that is just the impacts of the recent changes in the market in Brazil to those production volumes.
Right. What I can say is in spite of the plant turnaround this year, we have been able to produce about 5% more than was achieved last year, which was also a turnaround year, to be fair. I think that without the incidents we've had this year, that we would have seen at least another 5%-10% improvement in production. I think that would be our goal would be to say that we should be able to achieve, at a minimum, 5%-10% improvement in production. Then as a upside target, we hope that we could achieve at least another 10% on top of that.
Just one more question relating to production and our ability to reach sort of an operating break-even price. What do we expect our goal is for next year, given it's a plant turnaround year, to achieve an operating break-even level of under $50 a barrel? Or is that something that is more likely in 2028?
Yeah. First of all, I think it's important to realize we have achieved significant positive cash from operations this year, which has been reflected in the cash and balance sheet working capital improvements. That's been significant. In terms of reaching an operating cash flow break-even of $50, I think on just an operating basis that we're already at something like $55. Relative to that question, I think we've made significant improvements on operating costs. The goal of CAD 11 million, $8 million in operating savings, we are achieving that this year, and it's reflected in those numbers.
We have a target to make additional improvements in operating costs again next year. Relative to the specific question, if we talk just to the operating cash flow, I think that we're not far off $50 already, as I said, relative to that, just cash flow from operations. We hope to get those operating, the mining, refinery, and SG&A costs to something like $50 by next year.
That's about all we have for the questions on the chat.
Okay. We'll just give maybe just a minute if there's any further questions. I don't know, Jason D'Silva, is there anything that you want to add to what we've discussed or to answers to those questions?
No, I think the important issues around the plant turnaround that we completed this year relative to next year, I think just give us a bit more confidence around implementing that scheduled turnaround on time and on budget. I think, as you mentioned, the team in Brazil is quite focused on that. I think that's going to be an important thing for us to demonstrate to the market as well as to ourselves that it can be done. Then post that, I think, it hopefully sets us up for a longer time between the turnarounds and able to sustain some of this cash flow.
Okay. Well, I appreciate everybody being here, and we'll continue to keep up this new habit of presenting our results on an investor call every quarter and year-end.