The Globe and Mail

Go to the Globe and Mail homepage

Jump to main navigationJump to main content

Press release from CNW Group

Connacher provides operational update

Wednesday, September 14, 2011

Connacher provides operational update08:43 EDT Wednesday, September 14, 2011CALGARY, Sept. 14, 2011 /CNW/ - Connacher Oil and Gas Limited (CLL-TSX) is pleased to provide an operational update.We continue to be encouraged by the stability and improving reliability of our production at Great Divide.  Daily bitumen production in July 2011 and August 2011 was in the 13,000 bbl/d-14,000 bbl/d range, as anticipated.   Current levels remain within this range.Heavy oil differentials, which were wider earlier in the summer months, have since shown signs of contracting to lower and more acceptable levels in September 2011, which is positive for the bitumen pricing outlook.Our SAGD+(TM) pilot project on two wells at Algar has been proceeding favourably with recorded evidence of attendant reductions in steam/oil ratios and also of a positive response in terms of well productivity.   Additionally, we have recently been successful in recovering, in liquid form, a high percentage of the solvent being injected with the steam into these two wells, critical for the longer term economic viability of the process.  Based on results to date, we are now evaluating the merits of expanding this pilot to four wells of the seven wells situated on Algar Pad 203. A more detailed technical assessment will be forthcoming to shareholders prior to year end 2011.Our project to establish a joint venture for the Great Divide Expansion Project is proceeding on schedule.  The initial "teaser" document and related confidentiality agreement ("CA") has been provided to a large number of interested parties by our exclusive advisor.  Our data room has been established and activated and following completion of the relevant CA, is available to interested parties prior to their proposal submission. These proposals will be assessed and our objective is to finalize a transaction late this year.  This would align the establishment of the joint venture  with the approximate timetable we envisage for the receipt of regulatory approval of our Environmental Impact Assessment and the expansion application to increase Algar's capacity by 24,000 bbl/d.  A significant capital commitment will be required from the successful joint venturer to finance the plant, facilities and wells required to realize this new capacity, thereby earning an interest in Connacher's established undeveloped probable reserves in the region.  Connacher intends to  retain operatorship of the project.  This opportunity to participate in near-term production by as early as 2014 from already-established reserves has thus far attracted a positive reaction from potential joint venturers.  It also introduces the prospect of participation by parties with different objectives from those which solely focused on resource volumes.  There can be no assurance, however, that a joint venture will be completed on terms acceptable to Connacher or in the time frame contemplated herein, or at all.Our conventional drilling and completion program in Central Alberta at Twining and Penhold was affected by wet weather conditions throughout July and into early August of this year, but conditions have improved markedly since that time. We now have drilled two new Pekisko wells and are drilling a third Pekisko well at Twining, which will bring our total well count to six wells.  After our 2011 drilling at Twining, we will complete the wells, tie them in to our facilities and then plan to assess the results.   We have also drilled and completed our first well at Penhold and are drilling a second well at this writing.  Further detailed information will be provided after Penhold production is underway.Our refinery is having a near-record year thus far, with excellent crack spreads, a high level of throughput and sales, low asphalt inventories headed into the winter months and a healthy outlook which appears to be evolving for 2012.  The widening of heavy oil differentials assists us in the achievement of better downstream results which is evident in developing third quarter results.Our asset rationalization program has resulted in over $80 million of sales thus far in 2011 and we are nearing completion of a process related to our Halfway Creek interests in the oil sands.  These interests are comprised of land and resources and proceeds, if and when received, will further strengthen Connacher's cash balances and liquidity.On September 12, 2011 we initiated a formal process to dispose of our extensive 100 percent-owned lands and assets at Latornell in Alberta's Deep Basin.  The first round of bidding closes on October 13, 2011.We anticipate further monetization of other non-cash generating assets during the balance of 2011, leaving the company with excellent expectations for strong cash balances and liquidity at year-end 2011, without the incurrence of any additional indebtedness or sourcing any additional external funds, other than as might be related to the Algar joint venture discussions.  Earlier this year, we successfully refinanced our long term debt at improved rates, extending term to maturity until 2018 and 2019 for the Canadian pay and U.S. pay issues, respectively.  These long-term debt instruments have no principal repayments until the scheduled maturity of the bond issues and we pay interest on a semi-annual basis in August and February of each year.  The new bonds were primarily sold to long-term institutional holders.  This refinancing further strengthened Connacher's financial condition and prospective cash flow would accordingly be available to finance our future growth.We are in the early stages of compiling our 2012 capital budget and operating plans.  Subject to review and approval by our Board of Directors in November 2011, we anticipate implementing a sustaining and growth capital budget for 2012 that would be entirely financed by available cash and anticipated cash flow in the year.  Our commodity hedging program, details of which can be found on our website at www.connacheroil.com, provides a solid base in terms of commodity price support for our business activities and plans.  We also anticipate repaying our $100 million unsecured subordinated convertible debenture (now recorded as a current maturity in our accounts) when due in June 2012, utilizing some combination of cash, available bank lines or through access to incremental high yield secured indebtedness, as permitted under our existing long term debt indenture.  We do not anticipate any increase in our net debt position should we proceed in this manner.Connacher has a strong and well-defined asset base, primarily comprised of approximately half a billion barrels of proved and probable ("2P") heavy oil reserves, including 180 million barrels of proved ("1P) reserves.  The 10 percent present value of the future net revenue from these 2P reserves, as estimated by GLJ Petroleum Consultants Ltd.  in their year-end 2010 reserve report, was approximately $3 billion, based on forecast prices and costs as at January 1, 2011.  Connacher also had positive working capital and significant cash balances at June 30, 2011 and the company retains an essentially unutilized and available $100 million term credit facility.  Additional asset sales contemplated for completion before year-end 2011, involving properties or investments which do not generate current cash and which do not appear to be recognized in the underlying share value in the marketplace, are anticipated to provide considerable additional cash to  enhance corporate liquidity and financial flexibility.Connacher Oil and Gas Limited is a Calgary-based developer of unconventional heavy crude oil and light gravity crude oil resources in the oil sands of Alberta and in central Alberta at Twining, Penhold and Gilby.   We own and operate two SAGD bitumen production projects at Great Divide Pod One and Algar and anticipate further expansion of capacity at Algar in 2012 and beyond.   We also own and operate a profitable heavy oil refinery in Great Falls, Montana.Forward Looking InformationThis press release contains forward looking information including, but not limited to, possible expansion of the application of SAGD+TM on additional well pairs, future anticipated joint venture arrangements, timing of receipt of regulatory approvals for future expansion of Connacher's oil sands properties, planned conventional drilling and completion activities, further asset rationalization activity and the resultant impact on year-end 2011 cash balances, positive operating results from the refinery, future debt refinancing and capital spending plans and reserves and future net revenues associated therewith. Forward looking information is based on management's expectations regarding future growth, results of operations, production, future commodity prices and foreign exchange rates, future capital and other expenditures (including the amount, nature and sources of funding thereof), plans for and results of drilling activity, environmental matters, business prospects and opportunities and future economic conditions. Forward looking information involves significant known and unknown risks and uncertainties, which could cause actual results to differ materially from those anticipated. These risks include, but are not limited, to operational risks in development, exploration, production and start‐up activities; delays or changes in plans with respect to exploration or development projects or capital expenditures; the uncertainty of reserve and resource estimates; the uncertainty of estimates and projections relating to production, costs and expenses, and health, safety and environmental risks; the risk of commodity price and foreign exchange rate fluctuations; risks associated with the impact of general economic conditions; sales volumes and risks and uncertainties associated with securing and maintaining the necessary regulatory approvals and financing to proceed with the continued expansion of the Great Divide oil sands project. Additional risks and uncertainties are described in further detail in Connacher's Annual Information Form ("AIF") for the year ended December 31, 2010 which is available at www.sedar.com. Although Connacher believes that the expectations in such forward looking information are reasonable, there can be no assurance that such expectations shall prove to be correct. The forward looking information included in this press release is expressly qualified in its entirety by this cautionary statement. The forward looking information included in this press release is made as of September 14, 2011 and Connacher assumes no obligation to update or revise any forward looking information to reflect new events or circumstances, except as required by law.Statements relating to "reserves" are deemed to be forward looking statements, as they involve the implied assessment, based on certain estimates and assumptions, that the reserves described exist in the quantities predicted or estimated, and can be profitably produced in the future. Certain information and assumptions relating to the reserves reported herein are set forth in Connacher's AIF which is available at www.sedar.com. The reserves estimates of Connacher's properties described herein are estimates only. The actual reserves on Connacher's properties may be greater or less than those calculated.For further information: Richard A. Gusella Chairman and Chief Executive Officer OR Peter D. Sametz President and Chief Operating Officer OR Grant D. Ukrainetz Vice President, Corporate Development Phone: (403) 538-6201 Fax: (403) 538-6225 inquiries@connacheroil.com Website: connacheroil.com