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Press release from CNW Group

Connacher Announces Closing of Sale of Montana Refining and Plans for 2013 Capital Growth Projects

Monday, October 01, 2012

Connacher Announces Closing of Sale of Montana Refining and Plans for 2013 Capital Growth Projects13:04 EDT Monday, October 01, 2012CALGARY, Oct. 1, 2012 /CNW/ - Connacher Oil and Gas Limited (CLL-TSX) ("Connacher or the Company") today closed the previously announced transaction to sell its 100% owned subsidiaries, Montana Refining Company, Inc. ("MRC") and Great Divide Pipeline Company, to a wholly-owned subsidiary of Calumet Specialty Products Partners, L.P. Total after tax cash proceeds received by the Company, including the value of inventory and normal working capital adjustments was $201million. Proceeds from the sale will be used to repay the amount outstanding under the Company's credit facility of $97 million, with the remainder added to cash balances and working capital. The Company also closed the sale of its conventional oil and gas properties in September for cash proceeds (after closing adjustments) of $17 million. The above noted transactions are subject to normal post closing adjustments, which are anticipated to be determined within the next 90 days. Connacher believes that these transactions have realized significant value for shareholders, and that with its growing dilbit by rail strategy and a prudent hedging program, the Company can now manage its exposure to heavy oil differentials without a capital-intensive integrated business model.The closing of the above mentioned property transactions position Connacher to execute a meaningful capital expenditure program, including projects designed to increase production and improve wellhead netbacks. In this regard, the Board of Directors of Connacher has approved a preliminary 2013 capital budget of approximately $70 million relating to growth development projects, the details and timing of which are expected to receive final approval at the Company's regular November board meeting. These capital expenditures are designed to significantly increase production at both Pod One and Algar, and to improve per barrel operating costs, thereby enhancing the value of bitumen production. The Company anticipates that the combination of these projects may increase bitumen production at Great Divide by as much as 5,000 bopd over the next 15 to 24 months.The results of the Company's second SAGD+™ pilot project (the injection of solvent with steam) designed to increase production and reduce the steam:oil ratio ("SOR"), has confirmed the viability and repeatability of the process. Production rates for both good and average wells over a five-month period have demonstrated increases of approximately 25%, with a corresponding reduction of 25% to 30% in the SOR. Connacher plans to extend this initiative as a full-scale commercial project over the entire Algar producing area. In addition, Connacher intends to re-drill two well pairs at Algar, one of which is an "edge well" and the other which has downhole mechanical problems.At Pod One, the Company intends to drill several infill production wells in areas that are currently being heated but not drained. Connacher also plans to move forward with the drilling and completion of four new well pairs at Pad 104, a project which has been approved by regulatory authorities but had been delayed due to capital constraints. Steam will be diverted from the poorer wells at the northern portion of the producing area to the new well pairs.  When fully developed, Pad 104 will ultimately contain 10 new well pairs, with additional wells being drilled as needed. Also at Pod One, Connacher will re-institute work on the completion of the diluent recovery unit ("DRU"), a project designed to reduce the amount of diluent contained in marketed bitumen, thereby enhancing the marketability of the product and increasing the Company's net realized price for diluted bitumen ("dilbit") by as much as five dollars per barrel.Pod One scheduled turnaround was completed September 16 with all work completed as planned. Inspections and maintenance were done with a view to extending the turnaround cycle to two years. In addition, several reliability projects and tie-ins for future drilling at Pad 104 were completed. In anticipation of the above-described 2013 capital expenditure program, Algar steam generator retrofits, which will improve reliability and allow for proper combustion of field gas and light ends from solvent injection, will begin in October.Connacher continues to develop its "dilbit by rail" strategy, and expects to market in excess of50% of its bitumen production by rail in 2013. This strategy allows the Company to maximize pricing (after transportation costs) for diluted bitumen railed to refineries not accessible by pipeline, due in part to wide pricing differentials and volatility in various North American crude oil markets. In combination with the previously announced transportation and transloading partnership with Canexus Corporation, Connacher expects to control a railcar fleet of approximately 400 cars in 2013, as well as utilizing a significant number of rail cars controlled by the Company's customers.As previously announced, Connacher has been advised that the Energy Conservation Board has granted approval for the development of its 24,000 bbl/d Great Divide Expansion Project; a steam assisted gravity drainage ("SAGD") development project that will expand the bitumen capacity at the existing Algar SAGD site from 10,000 bbl/d to 34,000 bbl/d. Total potential approved capacity for the Great Divide area is now 44,000 bbl/d. This approval represents a significant milestone in the future development of the Company's substantial reserve base, and allows Connacher to advance its evaluation of the costs, timing and financing alternatives available to pursue this expansion project.About ConnacherConnacher Oil and Gas Limited is now a single purpose company active in the development, production and sale of bitumen. The Company's principal assets are holdings in the Great Divide oil sands project in northern Alberta, south of Fort McMurray.Forward Looking Information: This press release contains forward looking information including, but not limited to, the potential impact of the "SAGD+TM" project on production and SORs, the possible expansion of the Algar SAGD+TM project to the full Algar field, the timing of Algar steam generator retrofits and the anticipated impact thereof, the possible commencement of development projects including the drilling of new and existing wells at Algar and Pod One and the completion of a DRU at Pod One and the anticipated impact that such DRU is expected to have on the amount of diluent contained in marketed bitumen, the marketability of the company's bitumen and the net realized price for diluted bitumen, expectations regarding the amount of the company's bitumen to be marketed by rail in 2013 and the anticipated impact thereof on pricing along with the number of railcars to be controlled by the company in 2013, the use of the proceeds from the sale of MRC and Great Divide Pipeline Company ("GDPC"), the timing of determining post closing adjustments related to the sale of MRC and GDPC and the company's conventional oil and gas properties (the "Dispositions") and the impact the Dispositions are expected to have on shareholders, the company's ability to manage its exposure to heavy oil differentials, the preliminary 2013 capital budget and the receipt of final Board approval thereof and the expected impact that the growth development projects to be undertaken pursuant to the 2013 capital budget will have on production, per barrel operating costs and the value of bitumen production. Forward looking information is based on management's expectations regarding the growth of the company's dilbit by rail strategy, the success of the company's hedging programs, Board approval of the final 2013 capital budget,  the company's future financial position, the company's future growth, results of operations and 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: the risks associated with the oil and gas industry (e.g., operational risks in development, exploration and production; 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 geological interpretations, the uncertainty of estimates and projections relating to production, costs and expenses, and health, safety and environmental risks), risk of commodity price and foreign exchange rate fluctuations, risks associated with the impact of general economic conditions, risks and uncertainties associated with securing and maintaining the necessary regulatory approvals and securing and maintaining the necessary financing to proceed with the operation and continued expansion of the Great Divide oil sands project.  In addition, design capacity is not necessarily indicative of the stabilized production levels that may ultimately be achieved at Connacher's Algar SAGD project site and future production rates may differ materially from the production rates reflected in this press release due to, among other factors, difficulties or interruptions encountered during the production of bitumen.Additional risks and uncertainties affecting Connacher and its business and affairs are described in further detail in Connacher's Annual Information Form for the year ended December 31, 2011, 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 herein is made as of the date of this press release and Connacher assumes no obligation to update or revise any forward looking information to reflect new events or circumstances, except as required by law.  SOURCE: Connacher Oil and Gas LimitedFor further information: Peter D. Sametz or Kelly J. Ogle Phone: 403 538-6201 inquiries@connacheroil.com connacheroil.com