Connacher provides operational and financial direction to capital markets and its shareholders; shelves refinery expansion plans; schedules conference call for 9:00 am MT October 6, 2008 to discuss contents of release



    CALGARY, Oct. 6 /CNW/ - In light of the current uncertainty in capital
markets, Connacher Oil and Gas Limited (CLL - TSX) wishes to provide
operational and financial direction to capital markets and to its
shareholders.
    Connacher remains a well-financed company with a solid asset base and
with a net asset value well in excess of that currently recognized in the
stock market. We believe the company is well-positioned to withstand the
current economic downturn and credit and financial market instability. We take
this position because we made arrangements to appropriately prefund our second
10,000 barrels per day steam-assisted gravity drainage ("SAGD") oil sands
project at Algar before the events of the recent months effectively closed the
financing window for almost any new projects. Thanks to sound forward
planning, we have the funds and liquidity to carry out our chosen and priority
projects. That being said, the company intends to monitor industry, economic
and financial market conditions carefully and is reacting to prevailing
circumstances beyond its control by adopting a disciplined, conservative,
self-financed approach to its capital programs.
    Connacher has visible and identified growth programs. We anticipate that,
in the absence of a serious decline in oil prices triggered by a deep economic
downturn, our programs and projects will result in systematic growth of both
operational and financial results in 2008, 2009 and 2010. We anticipate
proceeding in an orderly and disciplined manner in our activities while we
await the stabilization and then improvement in industry and capital market
conditions. During the time this may take to occur, we believe Connacher is
still favorably positioned to enhance its underlying asset base and cash
generating capacity.
    Connacher's management therefore announces that it will be advancing a
very conservative, self-reliant financial and operating plan and capital
budget to its Board of Directors ("Board"), when the Board convenes in
mid-November to review third quarter 2008 and year-to-date 2008 results and
its 2009 plan. This will mean the application of a greater focus and emphasis
on the execution of low-risk facility maintenance and production optimization
programs within the company's ongoing 2008 and 2009 capital programs.

    MONTANA REFINERY
    Against this backdrop, Connacher is also announcing today that it has set
aside plans to expand the capacity of its heavy oil refinery at Great Falls,
Montana from current levels of approximately 9,500 barrels per day to 35,000
barrels per day. The project will be shelved and not brought forward to
Connacher's Board of Directors in the foreseeable future. As Connacher owns
100 percent of the refinery, it is in a position to make this election
immediately and at minimal cost.
    The recent addition of heavy oil pipeline capacity to new markets in the
United States ("US" or "USA"), together with recently-added US and Canadian
upgrading capacity, has greatly increased North American demand for Canadian
heavy oil and bitumen, thereby reducing heavy oil discounts and contributing
to the ongoing improvement of Connacher's upstream bitumen netbacks. Connacher
is currently participating in these higher bitumen netbacks by selling all of
its Great Divide diluted bitumen ("dilbit") production into North American oil
markets and anticipates continuing this practice in the future. In Connacher's
opinion, this narrowing of heavy oil differentials may be expected to continue
for some time, as many new or expected oil sands and heavy oil projects are
behind schedule, have been shelved or are operating below capacity. These
circumstances accordingly alleviate the immediate need for the company to
invest capital for expansion of its heavy refining capacity. Connacher's
decision to suspend the refinery expansion was also influenced by the
emergence of weak overall economic conditions and the volatile and uncertain
state of both capital and credit markets.
    We would remind shareholders that the Great Falls, Montana refinery,
which was acquired in March 2006, has been an outstanding asset. It has fully
paid out, continues to be upgraded to meet modern environmental and operating
standards and is expected to continue to contribute attractive cash flow from
operations before working capital changes ("cash flow") and net income in the
future. Owning the refinery created strong synergy with our oil sands and
marketing operations and was a critical element of Connacher's integrated
strategy which enabled your company to access US capital markets in 2006 and
2007 to pre-fund both the Pod One and Algar projects at Great Divide.
    The refinery expansion project will only be reconsidered when capital
markets improve and if a protracted period of wider heavy crude oil
differentials emerges on what appears to be a sustained basis, resulting in
the prospect of longer term improved downstream returns.
    Connacher is nearing completion of the refinery's Ultra Low Sulfur Diesel
("ULSD") project and expects to begin producing ULSD in January 2009. We will
also conduct our regularly scheduled refinery turnaround in April 2009 and
anticipate a provision for certain key capital investments to further enhance
the refinery's performance and to continue our ongoing investment in
environmental enhancement programs. Again, while we envisage an improvement in
overall refinery returns for 2009 as compared to 2008, which arises in part
from our assumption of a lower crude oil price with less volatility for next
year, we do not anticipate investments in excess of divisional cash flow.

    ALGAR AND AVAILABLE FUNDING
    The focus of the fourth quarter 2008 and full year 2009 plan and capital
budget will be the construction, completion and commencement of production at
the Algar SAGD project. This can proceed once final approval is received from
the Cabinet of the Alberta Government, which is expected imminently. Connacher
has been one of the strongest performers in the execution of capital projects
in the oil sands. Our first 10,000 barrel per day SAGD oil sands project at
Great Divide, Pod One, was delivered in record time and closer to budget than
that achieved by many of our peers and recently produced in excess of 9,750
barrels per day, almost at design capacity. We also achieved commerciality in
the third month of full operation.
    As with Pod One, our Algar project is well-advanced and has been
well-planned and well-prepared. Most key required materials have been ordered
or acquired, equipment is being prebuilt and the company has greatly reduced
its potential exposure to increases in the cost of critical materials or
labor. We will endeavour to deliver Algar on time, on budget and at
significantly lower cost per barrel of capacity than other recently announced
projects in our sector.
    In late 2007, Connacher borrowed funds for its Algar project, refinanced
Pod One's structured debt and secured funding of the first year's interest on
this newly incurred debt. This funding was achieved by the placement of
US$600 million of long-term senior notes and the arrangement of a C$150
million and US$50 million, five-year revolving first lien credit facility with
a syndicate of large Canadian and international banks. Our first interest
payment on the notes was made at mid-year 2008 and we retain $33 million of
cash in an escrow account to discharge our upcoming December 2008 interest
payment to the note holders. Furthermore, we currently hold unrestricted cash
balances of $208 million and have unused available banking lines of credit of
approximately $187 million, or a total of $395 million available to complete
Algar, which has been budgeted at $375 million, including a provision for a
$30 million contingency.
    We have already paid for $47 million of items within the Algar budget and
had accrued a further $22 million in our accounts as at August 31, 2008. We
have also ordered approximately another $32 million of additional equipment
which has yet to be booked; this was done to reduce the risk of inflationary
pressure on the cost of long lead and high cost items required for the Algar
plant.
    On a cash basis, our cash and credit balances of $395 million accordingly
exceed our estimated $328 million remaining cash requirements for Algar,
including the contingency, by the considerable amount of $67 million, which in
turn would be available to discharge the company's total interest requirements
on its debt in 2009, without supplemental funding from earnings before
interest, taxes, depreciation and amortization ("EBITDA"), capital markets or
other sources.
    Connacher is currently generating a healthy monthly EBITDA and cash flow,
which will be reflected in our financial results for the third quarter 2008,
to be released to the public on November 14, 2008. Under reasonable
assumptions for the balance of 2008 and for 2009 with respect to anticipated
production from Pod One and our conventional properties, for crude oil,
natural gas and refined product pricing, the Canadian/US dollar exchange rate,
heavy oil differentials and operating and administrative expenditures,
Connacher envisages having record available EBITDA and resultant cash flow in
2009 to finance its proposed low risk, maintenance-oriented capital budget
while meeting all normal financial obligations in the ensuing year and
thereafter, without the need to raise additional debt or equity. Once Algar is
completed and starts to contribute production revenue, EBITDA and cash flow in
2010, surplus cash is anticipated to be available to restore aggressive growth
programs in all aspects of the company's operations while meeting all
financial obligations.
    It should be noted that any drawings on Connacher's 5-year term revolving
credit facility and the 8-year term senior note indebtedness require no
principal repayments until 2012 in the case of the revolving facility (unless
renewed and extended prior thereto) and until 2015 in the case of the
company's senior notes, leaving internally generated funds from operations
available for either capital programs or cash buildup/debt reduction programs,
as deemed prudent and appropriate by the company's management and Board. It is
Connacher's intention to be self-sufficient during the period of capital and
credit market turmoil.

    POD ONE, CORE HOLES AND INFRASTRUCTURE AT GREAT DIVIDE
    Our anticipated 2009 capital programs at Pod One and on our Great Divide
landholdings will focus on maintenance requirements at Pod One and a limited
core hole exploration drilling program at Great Divide, emphasizing data
accumulation in preparations for the drilling of Algar's fifteen planned
horizontal well pairs, which as previously described will be financed from
within the Algar budget. As a consequence of core hole programs conducted
since 2004, Connacher has an ample inventory of proved, probable and possible
reserves and contingent and prospective resources such that a reduction and
scaling back of an exploratory and development core hole program in 2009 will
not compromise the company's longer-term development objective of reaching an
anticipated 50,000 bbl/d of bitumen production by 2015. In cooperation with
another industry participant, the company will also fulfill its obligations
under its joint venture at Halfway Creek.
    With respect to infrastructure for Connacher's oil sands projects,
Connacher will defer making a final decision on its longer-term pipeline
alternative at this time and will continue to focus on efficient trucking of
its dilbit sales from both Pod One and prospectively from Algar to a variety
of available markets and buyers. Longer-run, once capital markets stabilize,
the company will examine and select the best pipeline alternative and the best
and most suitable financing alternatives.

    CONVENTIONAL
    Our conventional capital budget in 2009 will be focused on low risk
production maintenance and optimization through limited infill drilling and
workovers on an as-needed basis. Limited, if any, capital spending on
exploratory seismic, drilling or land acquisitions is envisaged for 2009. We
will obviously protect the integrity of our assets and previous investments in
our play inventory. However, we will await greater clarity in the operating
and financial environment, including final details of the new Alberta royalty
program, before making any significant capital investments in this space. We
would note that until we approach the startup of Algar in late 2009, we are
"long natural gas" as we produce in excess of our current requirements for
natural gas to make steam at Pod One, so our physical hedge remains firmly in
place within our long term integrated approach to production of bitumen. We
feel there will be ample time and opportunity to restore our balance between
production and consumption by 2010 when Algar is in the ramp up mode.

    CONCLUSION
    Management wishes to assure its shareholders that should capital market
conditions deteriorate further, or should crude oil prices continue to weaken
and decline significantly from current levels in response to the anticipated
economic downturn, additional steps within management's purview and at its
discretion would be taken to ensure the company maintains a very high degree
of liquidity. On the other hand, we will also monitor improvements in market
conditions and be prepared to capitalize on opportunities as they present
themselves. We will do this in order to enhance shareholder value while
adhering to cost-conscious conservative spending principles and the retention
of a sound balance sheet, appropriately structured to remain in harmony with
our underlying long-lived assets.

    CONFERENCE CALL
    Connacher has scheduled a conference call for 9:00 a.m. MT today,
October 6, 2008, to discuss the contents of this press release. To listen to
or participate in the live conference call, please dial either (416) 644-3419
or (800) 731-5319. A replay of the event will be available from October 6,
2008 at 12:00 p.m. MT until October 13, 2008 at 11:59 p.m. MT. To listen to
the replay please dial either (416) 640-1917 or (877) 289-8525 and enter the
passcode 21285604 followed by the pound sign.

    Connacher Oil and Gas Limited is a Calgary-based crude oil, natural gas
and bitumen producer. The company's principal asset is its Great Divide oil
sands project, which includes the producing 10,000 bbl/d project at Pod One,
the company's second anticipated 10,000 bbl/d steam assisted gravity drainage
("SAGD") project at Algar, which is awaiting final approval by the Cabinet of
the Alberta Government and other lands and reserves and resources in the
region. Connacher also owns conventional properties producing approximately
3,400 boe/d-3,600 boe/d of crude oil and natural gas in Alberta and
Saskatchewan. Other assets include a 9,500 bbl/d heavy oil refinery at Great
Falls, Montana and a 24 percent equity stake in Petrolifera Petroleum Limited,
a public TSX-listed oil and gas company active in South America. Connacher's
shares trade on the Toronto Stock Exchange under the symbol CLL.

    Forward-Looking Information:
    This press release contains "forward-looking information" including:
anticipated financial and operating results for the balance of 2008 and fiscal
2009 and 2010; details of the anticipated financial plan and capital budget
for 2009 (which remains subject to Board approval); anticipated financial
results relating to the company's refinery at Great Falls, Montana; planned
expenditures in respect of the company's refinery; future conditions for
reconsidering the company's suspension of the refinery expansion; the planned
2009 refinery turnaround; management's expectations with respect to heavy oil
differentials which impact on bitumen netbacks; anticipated capital costs in
respect of Algar; timeline for production at Algar; sources of funding future
capital programs; future exploration and development plans; the timing and
selection and financing of a pipeline alternative to transport the company's
production from Great Divide Pod One and other similar projects to market as
an alternative to the company's current practice of trucking diluted bitumen
to available markets; and development of additional oil sands projects
(including receipt of final approval from the Alberta Cabinet in respect of
Algar). Forward-looking information is frequently characterized by words such
as "plan", expect", "project", "intend", "believe", "anticipate", estimate",
"may", "will", "could", "potential", "proposed" and other similar words, or
statements that certain events or conditions "may" or "will" occur. These
statements are only predictions. Forward-looking information is based on the
opinions and estimates of management 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 projected
in the forward-looking statements. These factors include the inherent risks
involved in the exploration and development of oil sands properties,
difficulties or delays during construction and in start-up operations, the
uncertainties involved in interpreting drilling results and other geological
data, fluctuating oil and prices, fluctuating differentials, the possibility
of unanticipated costs and expenses, uncertainties relating to the
availability and costs of financing needed in the future, general economic
conditions and other factors including unforeseen delays. As an oil sands
enterprise in the development stage, Connacher faces risks including those
associated with exploration, development, construction, start-up, approvals
and the continuing ability to access sufficient capital from external sources
if required. In addition, as a public company in the current deteriorating
economic environment, Connacher faces further risks and uncertainties relating
to current capital market conditions. Actual production levels at Great Divide
Pod One and from conventional oil and gas properties may vary from those
anticipated in this press release and such variations may be material.
Additionally, financial and operating results for the balance of 2008 and for
fiscal 2009 and 2010 are dependent on, among other things, actual commodity
prices realized by the company, maintenance or reduction of operating costs in
an inflationary environment and foreign exchange rates. Readers are reminded
that cash flow and cash flow from operations, total netbacks and per unit
netbacks and EBITDA do not have standardized meanings prescribed by Canadian
generally accepted accounting principles ("GAAP") and therefore may not be
comparable to similar measures used by other companies. Cash flow is
calculated before changes in non-cash working capital, pension funding and
asset retirement expenditures. The most comparable measure calculated in
accordance with GAAP would be net earnings. Cash flow is commonly used in the
oil and gas industry and when actual amounts are presented, reconciliation
with net earnings is provided by the company. Total netbacks by product are
calculated by deducting the related diluent, transportation, field operating
costs and royalties form revenues. Unit netbacks are calculated by dividing
total netbacks by production volumes. Total netbacks are usually reconciled to
net earnings when actual amounts are presented. EBITDA is calculated as
earnings before interest, taxes, depreciation and amortization. The most
comparable measure calculated in accordance with GAAP would be net earnings
and when actual amounts are presented, reconciliation with net earnings is
provided by the company. All references to barrels of oil equivalent (boe) are
calculated on the basis of 6mcf:1bbl. Boes may be misleading, particularly if
used in isolation. This conversion is based on an energy equivalency
conversion method primarily applicable at the burner tip and does not
represent a value equivalency at the wellhead. For a description of the risks
and uncertainties facing Connacher and its business and affairs, readers
should refer to Connacher's Annual Information Form for the year ended
December 31, 2007, which is available at www.sedar.com. Connacher undertakes
no obligation to update forward-looking statements if circumstances or
management's estimates or opinions should change, unless required by law. Due
to the risks and uncertainties inherent in forward-looking information, the
reader is cautioned not to place undue reliance on this forward-looking
information.





For further information:

For further information: Richard A. Gusella, President and Chief
Executive Officer, Or Grant D. Ukrainetz, Vice President, Corporate
Development, Phone (403) 538-6201, Fax (403) 538-6225,
Inquiries@connacheroil.com, www.connacheroil.com


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