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Press release from CNW Group

Connacher's Twining Reserves Assigned 10% NPV of $36.2 Million and Resources Separately Assigned a 10% NPV of $114 Million; Macquarie Engaged to Accelerate Realization of Value for Twining and Penhold Properties

Monday, November 07, 2011

Connacher's Twining Reserves Assigned 10% NPV of $36.2 Million and Resources Separately Assigned a 10% NPV of $114 Million; Macquarie Engaged to Accelerate Realization of Value for Twining and Penhold Properties09:19 EST Monday, November 07, 2011CALGARY, Nov. 7, 2011 /CNW/ - Connacher Oil and Gas Limited (CLL-TSX) announced today that it has received a report from GLJ Petroleum Consultants, independent reserves and resource evaluators of Calgary, Alberta, assigning Connacher's Twining proved and probable ("2P") reserves a 10% net present value ("10% NPV") of $36.2 million and, separately, assigning Connacher's Twining "Best Estimate" contingent resources an additional 10% NPV of $114 million.Connacher also disclosed that it has engaged Macquarie Capital Markets Canada Ltd. as its exclusive advisor to assist in a value realization process for the Twining property and for Connacher's adjacent Penhold property. The process will likely involve a cash and carry farmout or a sell down.  Landholdings in each of the aforementioned areas exceed well over one township (36 square miles), so there is considerable room for additional development activity to fully realize the resource potential of these light gravity crude oil and associated natural gas plays."The Twining and Penhold value realization process is part of our broader effort to increase liquidity, reduce debt and constrain direct capital spending," said Peter Sametz, President and Chief Operating Officer. "We think GLJ's new Twining valuation, which represents a significant multiple of our sunk costs in this project, will help us to conclude the process successfully and quickly, with considerable liquidity benefits for Connacher."Twining reserves and resources estimatesFor Twining, GLJ estimated 2P reserves of 2.15 million barrels of oil equivalent ("boe"), of which approximately 76 percent was light gravity crude oil. GLJ also separately assigned "Best Estimate" contingent resources of 12 million boe (76 percent light gravity crude oil) to the balance of Connacher's Twining property, pending the outcome of additional drilling.The 10% NPV of $36.2 million for the estimated future net revenue from the Twining 2P reserves and, separately, the additional 10% NPV of $114 million for the Twining "Best Estimate" contingent resources, were prepared by GLJ using their current forecast prices, after deducting royalties, operating costs and future capital requirements but before income tax and after applying a discount factor of 10 percent. The GLJ Twining report was dated November 2, 2011, with an effective date of September 30, 2011. As the Penhold area is awaiting the outcome of two recently completed wells and is at an earlier stage of assessment, a similar report was not prepared for Connacher's Penhold assets at this time.Twining and Penhold are both situated in central Alberta and are substantially wholly-owned  producing and non-producing resource properties, prospective for development of light gravity crude oil and associated natural gas using new technology, incorporating horizontal drilling and multi-frac completions.At Twining, which is prospective for Pekisko light gravity crude oil, Connacher has now drilled a total of seven horizontal multi-frac wells and is in the process of tying in the last of six 2011 wells scheduled to be onstream by year end 2011. A seventh well is scheduled for completion in 2012.  Production results for 2011 will be issued when all wells have been onstream for a sufficiently long period to provide meaningful results, including production from recently-completed wells.At Penhold, which is prospective for Viking light gravity crude oil and associated natural gas, Connacher owns an extensive land base, together with established infrastructure and has recently drilled and frac'd two horizontal wells, which are currently being brought onstream. The timing of drilling, completions and tie-ins in both regions was  delayed earlier this year by unusually wet weather and more recently activity was affected by the availability and scheduling of completion services.Readers are reminded that references to boe are calculated on the basis of 6 Mcf: 1 bbl.  This conversion is based on an energy equivalent conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.  Boes may be misleading, particularly if used in isolation.About ConnacherConnacher is a Calgary-based energy company.  Its primary asset is its 100 percent ownership of bitumen reserves and production from two steam-assisted gravity drainage ("SAGD") projects, Pod One and Algar, at its Great Divide oil sands lease block in northeastern Alberta.  Connacher also owns conventional reserves, undeveloped land and production in central Alberta and owns and operates a profitable 9,500 bbl/d heavy crude oil refinery in Great Falls, Montana.Forward‐Looking Information and Reserve and Resource AdvisoryThis press release contains forward‐looking information including but not limited to the anticipated future valuation process to be undertaken in respect of the Corporation's Twining and Penhold properties and the potential for future development activity on these properties, future development and exploration activities, timing for issuing 2011 production results for Twining and the reserve and resource potential associated with the Corporation's Twining and Penhold properties.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 and sales volumes.  There is no certainty that the Corporation will be able to complete a value realization process in respect of its Twining and Penhold properties on the terms described herein or at all.  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 November 7, 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" and "resources" are deemed to be forward looking statements, as they involve the implied assessment, based on certain estimates and assumptions, that the reserves and resources described exist in the quantities predicted or estimated, and can be profitably produced in the future. The reserves and resources estimates of Connacher's properties described herein are estimates only. The actual reserves and resources on Connacher's properties may be greater or less than those calculated.  There are numerous uncertainties inherent in estimating quantities of proved and probable reserves and quantities of contingent resources and future net revenues to be derived therefrom, including many factors beyond the Corporation's control. The reserves, resources and estimated future net cash flow from the Corporation's properties have been independently evaluated by GLJ with an effective date of September 30, 2011.  These evaluations include a number of assumptions relating to factors such as initial production rates, production decline rates, ultimate recovery of reserves and resources, timing and amount of capital expenditures, marketability of production, future prices of crude oil and natural gas, operating costs, well abandonment and salvage values, royalties and other government levies that may be imposed over the producing life of the reserves and resources. These assumptions were based on prices in use at the date the evaluation were prepared, and many of these assumptions are subject to change and are beyond the Corporation's control. Actual production and cash flow derived therefrom will vary from these evaluations, and such variations could be material.  Estimates with respect to reserves and resources that may be developed and produced in the future are often based upon volumetric calculations, probabilistic methods and upon analogy to similar types of reserves and resources, rather than upon actual production history. Estimates based on these methods generally are less reliable than those based on actual production history. Subsequent evaluation of the same reserves based upon production history will result in variations, which may be material, in the estimated reserves or resources.The present value of estimated future net revenue referred to herein should not be construed as the fair market value of estimated crude oil reserves and resources attributable to the Corporation's properties. The estimated discounted future revenue from reserves and resources are based upon price and cost estimates which may vary from actual prices and costs and such variance could be material. Actual future net revenue will also be affected by factors such as the amount and timing of actual production, supply and demand for crude oil, curtailments or increases in consumption by purchasers and changes in governmental regulations or taxation.References to "contingent resources" in this press release do not constitute, and should be distinguished from, references to "reserves". Reserves are estimated remaining quantities of crude oil and natural gas and related substances anticipated to be recoverable from known accumulations, as of a given date, based on the analysis of drilling, geological, geophysical, and engineering data; the use of established technology; and specified economic conditions, which are generally accepted as being reasonable. Contingent Resources are those quantities of petroleum estimated, as of a given date, to be potentially recoverable from known accumulations using established technology or technology under development, but which are not currently considered to be commercially recoverable due to one or more contingencies. The contingent resources disclosed herein have not been classified as reserves due primarily to the need for additional drilling.Not all technically feasible development plans will be commercial. The commercial viability of a development project is dependent on the forecast of fiscal conditions over the life of the project. There is no certainty that it will be commercially viable to produce any portion of the resources. "Best Estimate" is considered to be the best estimate of the quantity that will actually be recovered. It is equally likely that the actual remaining quantities recovered will be greater or less than the best estimate. If probabilistic methods are used, there should be at least a 50 percent probability that the quantity actually recovered will equal or exceed the best estimate.  The estimates of reserves and future net revenue for individual properties may not reflect the same confidence level as estimates of reserves and future net revenue for all properties due to the effects of aggregation.  The total 2P reserves assigned to all of the Corporation's properties which have been evaluated for reserves is approximately 500 million boe of crude oil, natural gas and bitumen.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   inquiries@connacheroil.com     Fax:  (403) 538-6225 Website:  connacheroil.com