Connacher's total proved bitumen reserves more than triple during 2008, up 59 percent since mid-year; Provides operational update



    CALGARY, Feb. 5 /CNW/ - Connacher Oil and Gas Limited (CLL - TSX)
announces today that the estimates of its Total Proved ("1P") bitumen ("heavy
oil") reserves, as prepared by GLJ Petroleum Consultants Ltd., independent
qualified reserves evaluators, ("GLJ"), more than tripled during 2008 to 175.5
million boe, reflecting the impact of its active first quarter core hole
program and regulatory approval of its second 10,000 bbl/d steam-assisted
gravity drainage ("SAGD") project at Algar. The estimates are after production
of 2.1 million barrels of bitumen (heavy oil) at Great Divide Pod One. The
estimates of the company's 1P bitumen (heavy oil) reserves increased 59
percent since mid-year 2008, primarily reflecting the upgrading of Algar
reserves from the probable category to proved reserves.
    After production of approximately 1.1 million boe during 2008, the
company's conventional 1P Reserves also increased eight percent to 7.4 million
boe. Total corporate 1P Reserves, combining bitumen and conventional Reserves,
increased 205 percent to 183 million barrels during 2008 and increased 56
percent from mid-year 2008. Total corporate 2P Reserves increased 103 percent
during 2008 to 379 million boe. Despite the adoption by GLJ of a more
conservative price deck in their year-end 2008 evaluation and after the impact
of the application of the new Alberta royalty program, the estimate of
Connacher's 10 percent pre-tax present value of future net revenue from its 2P
Reserves increased by 29 percent from $1.2 billion at year-end 2007 to $1.5
billion as at December 31, 2008.
    On a combined basis, the company's Reserve Replacement ratio, calculated
by dividing 1P and 2P Reserve additions by 2008 production, was approximately
38 times (38X) for 1P Reserves and 60 times (60X) for 2P Reserves. Finding and
development costs will be reported when the company releases its year end 2008
audited financial and operating results, scheduled for March 19, 2009.
    Henceforth, in this press release, bitumen and heavy oil are terms used
interchangeably. Also, in this press release, unless otherwise stated,
reserves refer to reserves of either bitumen or conventional crude oil,
natural gas or natural gas liquids or barrels of oil equivalent ("boe") and
resources refers to bitumen resources. Future net revenue is calculated after
the deduction, from forecast revenue, of forecast royalties, operating
expenses, capital expenditures and well abandonment costs, but before
corporate overhead or other indirect costs, including interest and income
taxes. The 10 percent pre-tax present value of future net revenue is also
referred to as "present value" or "present worth" or "PV". Certain amounts
cited herein have been rounded for presentation purposes.
    The reserve estimates provided herein were prepared by GLJ in a report
("GLJ 2008 Year-End Report") with an effective date of December 31, 2008. The
GLJ 2008 Year-End Report was prepared using assumptions and methodology
guidelines outlined in the Canadian Oil and Gas Evaluation Handbook ("COGE
Handbook") and in accordance with National Instrument 51-101 ("NI 51-101").
Comparisons provided herein with respect to Connacher's conventional and
bitumen reserves and resources are to estimates contained in a report prepared
by GLJ with an effective date of June 30, 2008 ("GLJ Mid-Year 2008 Report")
and to estimates in a report prepared by GLJ with an effective date of
December 31, 2007 ("GLJ 2007 Year-End Report").
    All new reserve estimates are as at December 31, 2008 and include the
results of Connacher's drilling program subsequent to the effective date of
the GLJ 2008 Mid-Year Report but do not include drilling results in 2009.
Possible reserves were only evaluated with respect to Connacher's bitumen
reserves. Connacher's conventional crude oil and natural gas reserves were not
evaluated in the possible reserves category.
    Comparative reserve volumes and values are presented, both in relation to
the GLJ 2008 Mid-Year Report and to the GLJ 2007 Year End Report. There was no
material change in total estimated reserve plus resource volumes compared to
those estimated at mid-year 2008, although the 10 percent PV of future pre-tax
net revenue declined in all categories due to a combination of a lower price
deck being employed by GLJ at year end 2008 compared to that employed at
mid-year 2008, the impact of the new royalty regime adopted in Alberta in
early 2009, which was incorporated on a prospective basis and slightly higher
estimates of future costs. In certain reserve or resource categories with
higher risk, the 10 percent PV of future net revenue declined more appreciably
as a consequence of the changes to the price deck or the impact of the new
royalty regime. There was, however, a considerable appreciation in reserve and
resource volumes and all but one of the 10 percent PV of future net revenue
estimates, when the results of the GLJ Year-End 2008 Report are compared with
the results of the GLJ 2007 Year-End Report. This reflects the combination of
activity on the company's lands and the regulatory approval of the Algar
project.
    The GLJ 2008 Year-End Report was prepared utilizing the GLJ January 1,
2009 price forecast, effective December 31, 2008. Readers are referred to the
notes to the Summary Tables included in this press release for details
regarding the price forecast used in the GLJ 2008 Year End Report. Earlier
reports were prepared using the price forecasts then being applied by GLJ.
    The GLJ 2007 Year-End Report and the GLJ Mid-Year 2008 Report do not
consider the impact of the adoption of Alberta's new royalty regime in 2009.
However, the GLJ 2008 Year-End Report does incorporate Alberta's new royalty
regime on a prospective basis. As such, the reports are not strictly
comparable due to the new higher royalty regime adopted at year end 2008.
    All references to barrel of oil equivalent ("boe") are calculated on the
basis of 6 Mcf:1 bbl. Readers are cautioned that the conversion used in
calculating barrels of oil equivalent is based on an energy equivalency
conversion method primarily applicable at the burner tip and does not
represent a value equivalency at the wellhead. Furthermore, boe may be
misleading if used in isolation. Future net revenues disclosed herein do not
represent fair market value. Also, estimations of reserves, resources and
future net revenue to be discussed in this press release constitute
forward-looking information. See "Forward Looking Information" below.

    
    Highlights are as follows:

    Bitumen (Heavy Oil)

    After production of 2.1 million barrels of bitumen in 2008:

    -   Total Proved Reserves ("1P") were up 231 percent over year-end 2007
        levels of 53 million barrels to 175 million barrels and were up 59
        percent to 175 million barrels from 110 million barrels at June 30,
        2008; 10 percent PV of future pre-tax net revenue was estimated at
        $888 million ($4.21 per basic Connacher common share ("common share"
        or "share") outstanding - 211 million shares outstanding at
        December 31, 2008). The average bitumen price forecast to be received
        for 1P reserves over the estimated reserve life ending in 2047 was
        $68.14 per barrel.

    -   Total Proved and Probable Reserves ("2P") were estimated at 370
        million barrels, a year over year increase of 108 percent and
        essentially flat on the mid-year estimate of 372 million barrels,
        after production during the year; 10 percent PV of future pre-tax net
        revenue was estimated at $1.4 billion ($6.50 per common share).
        Average forecast bitumen price over a longer estimated reserve life
        ending in 2058 was $83.74 per barrel.

    -   Total Proved, Probable and Possible Reserves ("3P") were 443 million
        barrels, compared to only 242 million barrels a year ago and again
        essentially flat on the GLJ Mid-Year 2008 Report; 10 percent PV of
        future pre-tax net revenue was estimated at $2.1 billion ($9.97 per
        common share), compared to $3 billion ($15.00 per share on fewer
        outstanding shares) at December 31, 2007, primarily reflecting the
        adverse impact of a lower price deck and the impact of higher
        royalties used in the analysis.

    -   1P plus Low Estimate Contingent Resources were estimated at
        308 million barrels, more than double 2007 estimates, with a 10
        percent PV of estimated future pre-tax net revenue of $1 billion
        ($4.77 per common share).

    -   2P plus Best Estimate Contingent Resources were estimated at 502
        million barrels; estimated 10 percent PV of future pre-tax net
        revenue was $1.5 billion ($7.29 per share).

    -   2P plus Best Estimate Contingent and Best Estimate Prospective
        Resources were estimated at 585 million barrels, with an estimated
        10 percent PV of future pre-tax net revenue of $1.6 billion ($7.80
        per share).

    -   3P plus High Estimate Contingent Resources of 628 million barrels;
        estimated pre-tax 10 percent PV of future net revenue was $2.4
        billion ($11.44 per share).

    -   3P plus High Estimate Contingent and High Estimate Prospective
        Resources estimated at 842 million barrels; 10 percent PV of future
        pre-tax net revenue of $2.8 billion ($13.12 per share).
    

    Please refer to the tables attached hereto for the volumes and the
estimated 10 percent pre-tax present values assigned to Low Estimate, Best
Estimate and High Estimate Contingent or Prospective Resources, which are
categorized separately. It should be noted that reserves, Contingent Resources
and Prospective Resources involve different risks associated with achieving
commerciality. Reference should be made to "Bitumen Reserves and Resources"
and the notes following the tables set forth below for a description of these
risks.
    The increase in bitumen reserves during the second half of 2008 primarily
reflects the receipt of regulatory approval of our Algar project, the
company's second 10,000 bbl/d bitumen project at Great Divide. Our GLJ
Mid-Year 2008 Report reflected the impact of Connacher's Q1 2008 core hole
drilling program on its main lease block in the region. The year over year
increase reflects the combination of these two factors, offset by a provision
for an increase in prospective Alberta royalties and production during the
year.

    
    Conventional

    After production of approximately 1.1 million boe during 2008:

    -   1P Reserves were up eight percent to 7.4 million boe compared to
        December 31, 2007; 10 percent PV of future pre-tax net revenue was
        estimated at $137 million ($0.65 per share).

    -   After production, year over year 2P Reserves were up four percent to
        9.8 million boe; 10 percent PV of future pre-tax net revenue was
        estimated at $171 million ($0.81 per share).
    

    The increase in conventional reserves reflects successful drilling at
Marten Creek, Randall and Three Hills, all in Alberta and at Battrum,
Saskatchewan. All present values are affected by the lower price deck adopted
by GLJ effective December 31, 2008 compared to that utilized at July 1, 2008
and higher Alberta royalties.

    Total Corporate Reserves

    Total corporate 2P Reserves at December 31, 2008 were 379 million
barrels, a 103 percent increase from 187 million barrels at December 31, 2007.
The 10 percent pre-tax present value for these 2P reserves increased 29
percent over December 31, 2007 estimates, from $1.2 billion to $1.5 billion
($7.31 per common share).

    Bitumen Reserves and Resources

    Connacher owns a 100 percent working interest in approximately 98,000 net
acres of oil sands leases at its Great Divide project in northeastern Alberta,
approximately 80 kilometers southwest of Fort McMurray and at Halfway Creek,
Alberta. Numerous oil accumulations in the McMurray formation have been
identified for development. GLJ estimates original petroleum initially in
place under Connacher's leases at Great Divide and Halfway Creek to be 1.6
billion barrels of bitumen with up to 842 million barrels of 3P Reserves and
High Estimate Contingent and High Estimate Prospective Resources remaining to
be exploited, net of Pod One production prior to December 31, 2008.
    Pod One, which contains over 20 metres of net SAGD pay, has been
producing bitumen since late 2007, with commercial production commencing March
1, 2008. Production since start up through December 31, 2008 has totaled 2.2
million barrels of bitumen, of which 2.1 million barrels was produced in 2008,
which amount has been deducted prior to the calculation of remaining reserves
and resources. Additional details regarding Connacher's development at Great
Divide can be accessed at www.connacheroil.com or www.sedar.com. Furthermore,
additional information regarding Connacher's resources, including the
company's interest in the resources and the risks and the level of uncertainty
allocated with the recovery of the resources can be found in the company's
annual information form ("AIF") dated March 26, 2008 which can be accessed at
www.sedar.com. In June 2007 the company applied to develop a similar 10,000
bbl/d facility at Pod Two or Algar and received regulatory approval in
November 2008.
    Reserves were assigned to Pod One, Pod Two or Algar, Pod Four and Five at
Algar (Phase II), while Low, Best, and High Estimate Contingent Resources were
assigned to all but Pod One of the aforementioned Pods and to Pods Three, Six
and Seven at Great Divide; Best Estimate and High Estimate Prospective
Resources were selectively assigned to Pods One and Three through Seven
inclusive at Great Divide and minor Best Estimate and High Estimate
Prospective Resources were assigned to Halfway Creek, reflecting the early
stage of exploration in this region.
    During 2008, Connacher's 1P bitumen Reserves increased 231 percent to 175
million barrels, after deduction of 2.1 million barrels of bitumen produced at
Pod One since January 2008. Connacher's 2P bitumen Reserves also increased 108
percent to reach 370 million barrels, compared to 178 million barrels at year
end 2007. 3P bitumen Reserves were estimated at 443 million barrels at
December 31, 2008 compared to 242 million barrels at December 31, 2007, an
increase of 83 percent.
    During 2008, GLJ was also able to continue its recognition of Contingent
and Prospective Resources (as defined in the notes following the table below)
on the oil sands leases owned by Connacher. It should be noted that reserves,
Contingent Resources and Prospective Resources involve different risks
associated with achieving commerciality.
    Contingent Resources were assigned in regions with lower core-hole
drilling density than the reserve regions and are outside current areas of
application for development. These resource estimates are not classified as
reserves at this time, pending further reservoir delineation, project
application, facility and reservoir design work. Contingent Resources entail
additional commercial risk than reserves which have not been included in the
net present valuation. There is no certainty that it will be commercially
viable to produce any portion of the Contingent Resources.
    Prospective Resources were also assigned in unexplored regions of
Connacher's acreage. Prospective Resources entail additional commercial risk
than reserves and Contingent Resources which have not been included in the net
present valuation. There is no certainty that any portion of the Prospective
Resources will be discovered. If discovered, there is no certainty that it
will be commercially viable to produce any portion of the Prospective
Resources.
    1P bitumen Reserves and Low Estimate Contingent Resources were estimated
at 308 million barrels; 2P bitumen Reserves and Best Estimate Contingent
Resources were estimated at 502 million barrels; 3P bitumen Reserves and High
Estimate Contingent Resources were estimated at 628 million barrels.
    1P bitumen Reserves and Low Estimate Contingent and Low Estimate
Prospective Resources were estimated at 308 million barrels, the same as
above, as no low estimate (or high certainty) prospective resources were
assigned. 2P bitumen Reserves and Best Estimate Contingent and Best Estimate
Prospective Resources were estimated at 585 million barrels and 3P bitumen
Reserves and High Estimate Contingent and High Estimate Prospective Resources
were estimated at 842 million barrels.
    The GLJ 2008 Year-End Report estimated Connacher's 1P bitumen Reserves
would generate $3.5 billion of future net revenue with a 10 percent pre-tax
present value of $888 million, after deduction of future capital requirements
of $2.2 billion and well abandonment costs of $32 million.
    2P bitumen Reserves were forecast to generate $9.5 billion of future net
revenue, with a 10 percent pre-tax present value of $1.4 billion, after
provisions for future capital of $4.9 billion and well abandonment costs of
$90 million.
    3P bitumen Reserves were forecast to generate $10.4 billion of future net
revenue with a 10 percent pre-tax present value of $2.1 billion, after
provisions for future capital of $4.9 billion and well abandonment costs of
$70 million.
    1P bitumen Reserves plus Low Estimate Contingent Resources were forecast
to generate $6.7 billion, of future net revenue with a 10 percent pre-tax
present value of $1 billion, after provisions for future capital of $4.9
billion and well abandonment costs of $84 million.
    2P bitumen Reserves and Best Estimate Contingent Resources were forecast
to generate $11.6 billion of future net revenue, with a 10 percent pre-tax
present value of $1.5 billion, after future provisions for future capital of
$7.5 billion and $123 million of well abandonment costs.
    3P bitumen Reserves plus High Estimate Contingent Resources were forecast
to generate $13.9 billion of future net revenue, with a 10 percent pre-tax
present value of $2.4 billion, after provisions for future capital of $8.1
billion and well abandonment costs of $112 million.
    Economic runs for 1P bitumen Reserves and Low Estimate Contingent and Low
Estimate Prospective Resources are identical to 1P bitumen Reserves plus Low
Estimate Contingent Resources, as no Low Estimate Prospective Resources were
assigned.
    2P bitumen Reserves and Best Estimate Contingent and Best Estimate
Prospective Resources were forecast to generate $13.1 billion of future net
revenue, with a 10 percent pre-tax present value of $1.6 billion, after
provisions for future capital of $9.2 billion and well abandonment costs of
$146 million. Under this scenario, future annual production is forecast by GLJ
to peak at approximately 44,000 barrels per day in 2017.
    3P bitumen Reserves and High Estimate Contingent and High Estimate
Prospective Resources were forecast to generate $18.7 billion of future net
revenue, with a 10 percent pre-tax present value of $2.8 billion after
provisions for future capital of $12.1 billion and well abandonment costs of
$170 million. Under this scenario, future annual production is forecast by GLJ
to reach approximately 72,500 barrels per day by 2015 and is forecast to
remain at approximately 70,000 barrels of bitumen per day for over 20 years.
    The resource volumes have not been classified as reserves at this time,
pending further delineation drilling, development planning, project design and
regulatory application. The resource values should be considered indicative in
nature, only, pending further design work to confirm timing and capital
estimates. Readers are cautioned that there is also a difference between
Contingent and Prospective Resources with differing risks and that there is no
certainty that it will be commercially viable to produce any portion of the
resources.

    Conventional Reserves

    Connacher's conventional reserve base also expanded since year end 2007.
    On an oil equivalent basis, year over year 1P Reserves increased eight
percent to 7.4 million boe after producing 1.1 million boe in 2008. The
company's 2P equivalent reserves increased four percent to 9.8 million boe.
    The increases primarily reflect the successful drilling at Marten Creek,
Randall, Three Hills and Gilby, Alberta and at Battrum, Saskatchewan.
    The GLJ 2008 Year-End Report estimated that Connacher's conventional 1P
Reserves would generate $217 million of future net revenue with a 10 percent
pre-tax present value of $137 million, after provision for future capital
requirements for Connacher's 1P Reserves estimated at $9.6 million and well
abandonment costs of $4.7 million.
    The company's 2P conventional Reserves were forecast to generate $301
million of future net revenue, with a 10 percent pre-tax present value of $171
million, after provision for future capital requirements of $15 million and
forecast well abandonment costs of $5.1 million.
    Connacher's conventional production provides current cash flow, loan
value and a hedge against natural gas requirements at Great Divide.

    Total Company Combined Reserves (Conventional and Bitumen)

    On a combined basis, Connacher's reserves accordingly grew at very
significant rates. Total 1P equivalent Reserves at December 31, 2008 were
estimated by GLJ to be 183 million boe, an increase of 205 percent over year
end 2007.
    Connacher's 2P equivalent Reserves increased 103 percent to 379 million
boe at December 31, 2008 compared to 187 million boe at year end 2007.
    The company's 2P conventional and bitumen Reserves at December 31, 2008
are forecast to generate $9.8 billion of future net revenue, with a 10 percent
pre-tax present value of $1.5 billion, after provision for future capital of
$5 billion and well abandonment costs of $95 million. This represents a 29
percent increase in the 10 percent pre-tax present value compared to year end
2007.
    On a per share basis, this estimated pre-tax present value of
approximately $1.5 billion for 2P Reserves alone equates to approximately
$7.31 per Connacher common share outstanding, before provision for the value
of Contingent and Prospective Resources as estimated in the GLJ Year End 2008
Report, the value of the company's refinery and its investment in Petrolifera
Petroleum Limited and balance sheet adjustments. There are presently
approximately 211 million Connacher common shares outstanding.
    No reserve volumes or future net revenue or present value thereof where
assigned herein to Connacher's 24 percent equity interest in Petrolifera
Petroleum Limited's crude oil and natural gas reserves.

    Operational Update

    During the fourth quarter of 2008, Connacher's preliminary estimated
bitumen, crude oil and natural gas production was as follows:

    
    Bitumen - 7,084 bbl/d
    Conventional crude oil - 1,161 bbl/d
    Natural gas - 12.6 MMcf/d
    

    On an equivalent basis, production was 10,345 boe/d. This represents a
four percent increase on a successive quarterly basis in 2008 and an increase
of 363 percent compared to the same quarter in 2007. It should be noted
Connacher did not commence booking bitumen production until March, 2008 when
the Great Divide Pod One project was declared to be commercial and all
revenues and associated costs were recorded in the company's income statement.
    For the full year 2008, Connacher's preliminary estimated production was
as follows:

    
    Bitumen - 5,449 bbl/d
    Conventional crude oil - 1,024 bbl/d
    Natural gas - 12,658 MMcf/d
    

    These levels represent an infinite increase for bitumen on a year over
year basis, as no bitumen production was recorded in 2007. For crude oil the
year over year increase for 2008 compared to last year was 29 percent, while
for natural gas the increase was 38 percent.
    On an equivalent basis, Connacher is able to report a dramatic 270
percent increase in total production for 2008 at 8,583 boe/d compared to 2,320
boe/d last year.
    Note that all production levels presented herein are unaudited and
subject to adjustments arising from completion of the compilation of our year
end 2008 operating and financial results. We anticipate issuing our audited
results to our shareholders on or about March 19, 2009, following review of
our financial statements and results by our Audit Committee and subsequent
review and approval of our operating and financial results by our Board of
Directors.
    These increases reflect the successful construction, well steaming and
then production rampup at Great Divide Pod One during the year, when peak
production was recorded at 9,870 bbl/d, within 130 bbl/d of the rated plant
capacity. Our ramp up proceeded favorably, although not without the occasional
challenge. During this process we recorded declining steam/oil ratios
("SOR's"), achieving levels at year end 2008 of under three times ("3x"),
under four times ("4x") on a cumulative basis and with instantaneous SOR's at
our better individual wells approaching two times ("2x"). A total of 2.2
million barrels of bitumen have been produced at Pod One since startup of the
project.
    By year end 2008 we had all 15 well pairs contributing to our production
base prior to the decision to curtail production temporarily in mid-December,
due to a combination of short-run factors which adversely affected bitumen
pricing. These factors included widened differentials for heavy oil as
compared to WTI, a stronger Canadian dollar compared to the relative decline
in crude oil prices from peak levels in mid-year 2008, regional marketing
issues and some transportation and diluent cost issues. By mid-January 2008,
many of these factors had been ameliorated and the emergence of contango in
the crude oil markets also enabled us to secure some new marketing
arrangements, fortified by hedging activity for both crude oil prices and the
Canadian dollar. As a consequence, we were able to make the decision to
reinstate our rampup of production towards our interim goal of 10,000 bbl/d at
Pod One.
    We are in the midst of this rampup from levels of between 4,000 bbl/d and
5,000 bbl/d which resulted during our curtailment at Pod One. Currently, we
are producing at levels approaching 7,000 bbl/d of bitumen and we expect to
approach pre-curtailment levels during February 2009, when our
newly-negotiated marketing and pricing arrangements become operative. We
anticipate being able to achieve the realization of positive wellhead netbacks
for bitumen.
    We are in the midst of drilling and completing two new infill wells at
Pod One which should, after an approximate 90 day pre-heat and steaming
period, come onstream and start to impact favorably on production levels.
These wells are located in proximity to what is to date our best well within
Pod One. This anticipated production growth will be aided by the planned
installation of at least four new electrical submersible pumps at chosen well
locations in Pod One, which not only enhances productivity but also allows us
to reduce steam requirements on these wells and for the project on an overall
basis. We have a total of nine pumps in inventory so additional installations
are anticipated.
    With respect to Algar, we already advised that regulatory approval was
received during the fourth quarter of 2008 for our second 10,000 bbl/d SAGD
project, situated approximately five miles east of Pod One. We had already
undertaken the design and were in various stages of construction of certain
long-lead items for our plant by the time approval was received from the
regulators and the Cabinet of the Government of Alberta. We initiated civil
work immediately after these approvals were issued and field formalities were
concluded and have now prepared the access road and site. We are finalizing
the preparation of the three well pads on which the initial 15 SAGD well pairs
for Algar will eventually be situated. We did this work on time and under
budget.
    Once the last portion of the civil work is completed, we will suspend
Algar construction pending the emergence of better pricing visibility for
crude oil and bitumen. Also, at a time when liquidity is paramount and capital
markets and credit markets offer limited access, we intend to preserve our
cash balances arising from our operations and the residual cash from our long
term debt financing that we completed in late 2007 to finance the construction
of Algar, among other things. While we have already invested in excess of $100
million at Algar, we do not anticipate this will be long-term stranded
capital, as we believe that market conditions will improve gradually over the
balance of 2009. However, we believe it would be imprudent to utilize our cash
balances, cash flow and established credit in proceeding with Algar, only to
encounter a very low level of crude oil prices in early 2010 when the project
was originally scheduled to commence operations. Accordingly, we have
suspended Algar for now and will continuously monitor industry and capital
market conditions to ensure a decision to reinstate construction and project
completion will be done on a prudent basis. We anticipate the delay, of
indeterminate term, will likely contribute to some lowering of the cost
structure for the completion of Algar.
    We continue to believe that longer term, the oil sands/bitumen business
will be a rewarding one offering our shareholders an attractive return on
capital and eventual share price appreciation in capital markets. With our
long life reserves and recognized production potential, as evidenced by the
estimates in the GLJ Year End 2008 Report, Connacher has a positive outlook
under the right economic circumstances. We have numerous opportunities to be
realized as the economic and commodity price recovery emerges in upcoming
years.
    Our conventional drilling program and production performance was very
respectable in 2008. While sometimes overlooked due to the magnitude of the
impact of our oil sands operation on our total business activity, we note
considerable growth was achieved during 2008 and while commodity prices are
weak, our conventional production and sales meaningfully contributes to our
operating income and stability during these difficult times.
    Connacher's "Montana Refining" operation ("MRCI") has progressed during a
challenging economic period. Globally, refining margins have been narrow,
primarily due to reduced demand for gasoline. All refiners faced challenges
throughout 2008 due to the rapid rise in crude oil prices during the earlier
portion of the year. In response to these conditions, MRCI capitalized on its
integrated relationships by shipping lighter products from Montana to Alberta
for use as diluent for bitumen blending, rather than further processing and
then selling them as gasoline. MRCI has also been successful in completing
facilities to allow ethanol blending and sales and securing an important new
government contract. Our asphalt unit has penetrated a number of new markets,
including Alberta, with new sales supply contracts at record indicated
netbacks.
    Recently, we substantially advanced a major project to produce ultralow
sulphur diesel ("ULSD") in compliance with prevailing standards. Although
construction of this ULSD project has recently resulted in some reduction in
overall throughput at our 9,500 bbl/d refinery, commissioning of a new
hydrogen plant, which is the project's final phase, is targeted for February
2009, on time and on budget. We anticipate the refinery throughput will return
to full capacity, including ULSD production, in March 2009.
    MRCI is well positioned to capture a significant amount of the asphalt
business associated with new government infrastructure plans proposed for the
ensuing two year period for Montana and surrounding states. This, combined
with our new ethanol and diluent businesses, leaves the refinery poised for
much improved performance as we move into the second and third quarters of
2009.
    Connacher retains a 24 percent equity interest in Petrolifera Petroleum
Limited, a public oil and natural gas company with reserves and production in
Argentina and extensive exploratory acreage in Argentina, Colombia and most
importantly in Peru. Petrolifera recently initiated drilling activity on its
La Pinta prospect on the Sierra Nevada License in the Lower Magdalena Basin in
Colombia and anticipates drilling activity may commence in Peru during the
latter part of 2009.
    As with other oil and natural gas companies, Connacher is constantly
evaluating its opportunities, the structure of its balance sheet and the
merits of different alternatives to deleverage over time. This is occurring in
the context of lower commodity prices. We will continuously attempt to assess
the duration and extent of the current economic downturn, accompanied as it is
by difficult conditions in capital and credit markets. Maintaining a high
level of liquidity and emphasizing the curtailment of capital outlays in a
much reduced price regime for crude oil and natural gas is of paramount
importance. Even though we have the financial wherewithal to complete Algar,
for example, it is not considered prudent to do so at this time, until there
is better visibility for adequate economic returns on investment and some
improved certainty of credit and capital market accessibility. This
reactivation of Algar will likely also have to be supported by improved
commodity prices, lower costs, more incentives and would obviously benefit
from better fiscal and royalty policies being advanced by governments in those
jurisdictions in which we operate.
    We have also continued to try to work with our banking syndicate, which
had provided us with what we anticipated would be a long term revolving first
lien $200 million, five year credit facility. This was arranged at the same
time we sold our long-term second lien notes in late 2007. Our goal in our
discussions with our banking syndicate has been to introduce appropriate
amendments to our credit facility in the context of the new world of depressed
commodity prices which could impact on continued credit availability and loan
serviceability.
    To date, this has been a complicated and often frustrating process,
despite the fact that we paid a significant original arrangement fee and
incurred standby costs throughout 2008 to keep the facility available. With
the suspension of Algar we have no current need for the facility in 2009.
Furthermore, despite the fact that we held significant cash balances exceeding
$200 million at year end 2008 and continue to hold substantial cash balances,
we may be required to examine other financing alternatives to replace this
credit facility, which remains in full force and effect as at this writing.
    We are fortunate in having a strong asset position with ample coverage
arising from our long-term production profile and reserve base. We remain
committed to the principle that we can manage an orderly and sequential
reorganization of our balance sheet to ensure our long term viability and
growth, without undue complication or delay as we adjust to the new world
order in financial and commodity markets.

    Connacher Oil and Gas Limited is a Calgary-based crude oil, natural gas
and bitumen or heavy oil producer. Our principal asset is located at Great
Divide in the oil sands region of Alberta. We also own conventional properties
in Alberta and Saskatchewan, a refinery in Montana, USA and hold a significant
24 percent equity stake in Petrolifera Petroleum Limited, a crude oil and
natural gas producer active in Argentina, Colombia and Peru in South America.

    Forward Looking Information

    This press release contains forward looking information, including but
not limited to estimated reserves and resources and future net revenues
associated therewith, future capital expenditures, the anticipated impact of
Alberta's proposed new royalty regime on estimated future net revenues,
development of additional oil sands resources (including Algar), future
production levels at Great Divide Pod One and the timing associated therewith,
planned installation of electrical submersible pumps, anticipated refinery
throughput and performance of MRCI, intended cash management practices, the
examination of other financing alternatives to replace Connacher's senior
credit facility and proposed restructuring of Connacher's balance sheet. The
forward looking information is based on current expectations that involve a
number of risks and uncertainties, which could cause actual results to differ
materially from those anticipated. These risks include, but are not limited to
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 estimates; the uncertainty of estimates and projections
in relation to production, costs and expenses and health, safety and
environmental risks), the risk of commodity price and foreign exchange rate
fluctuations, risks associated with obtaining, maintaining and the timing of
receipt of regulatory approvals, permits, and licenses, uncertainties relating
to access to capital markets and the risk of continuing deterioration of
global economic conditions. Additional risks and uncertainties are described
in the company's Annual Information Form which is filed on SEDAR at
www.sedar.com.
    The reserves, resources and future pre-tax net revenue in this press
release represent estimates only. The reserves, resources and future pre-tax
net revenue from the company's properties have been independently evaluated by
GLJ with effective dates of December 31, 2008, June 30, 2008 and December 31,
2007. These evaluations includes a number of assumptions relating to factors
such as initial production rates, production decline rates, ultimate recovery
of reserves, timing and amount of capital expenditures, marketability of
production, future prices of bitumen, crude oil and natural gas, operating
costs, well abandonment and salvage values, royalties and other government
levies that may be imposed during the producing life of the reserves. These
assumptions were based on price forecasts prepared by GLJ as at the dates of
the reports and many of these assumptions are subject to change and are beyond
the control of the company. Actual production, sales and cash flows derived
therefrom will vary from the evaluations and such variations could be
material. The present value of estimated future net revenues referred to
herein should not be construed as the current market value of estimated
bitumen crude oil and natural gas reserves attributable to the company's
properties.
    The ability of the company to restructure its balance sheet and
deleverage over time will be dependent on access to capital markets and credit
on terms and conditions satisfactory to the company. The current financial
crisis has resulted in severe economic uncertainty and resulting illiquidity
in capital markets which increases the risk associated with the company's
financing plans. There can be no assurance that the company will be successful
in securing alternative financing arrangements to achieve its objectives.
Additionally, there can be no assurance that the company will be able to
negotiate an amendment to its existing credit facilities on terms and
conditions acceptable to the company.
    Due to the risks, uncertainties and assumptions inherent in forward
looking information, prospective investors in the company's securities should
not place undue reliance on forward looking information. Forward looking
information contained in this press release is made as of the date hereof and
are subject to change. The company assumes no obligation to revise or update
forward looking information to reflect new circumstances, except as required
by law.


    
    Summary Tables

    Tables may not add due to rounding. Estimates of Reserves, Resources and
Future Net Revenue constitute forward looking information. See "Forward
Looking Information" in the press release to which these summary tables are
attached.

    A. Volumes

    -------------------------------------------------------------------------
                        Connacher Oil and Gas Limited
                      Bitumen Reserves and Resources(9)
    -------------------------------------------------------------------------
                                         31/12/07  30/06/08 31/12/08
                                                   (mbbl)           % Change
                                                                       31/12
                                                                       08/07
    Proved Reserves (1P)(1)                53,016  110,202  175,462      231
    Proved and Probable Reserves
     (2P)(1)(2)                           177,792  371,505  369,684      108
    Proved, Probable and Possible
     Reserves (3P)(1)(2)(3)               242,009  443,802  442,504       83
    Low Estimate Contingent
     Resources(4)(6)                       61,325  198,965  132,175      116
    Best Estimate Contingent
     Resources(4)(7)                      125,531  130,206  132,772        6
    High Estimate Contingent
     Resources(4)(8)                      209,885  185,681  185,681      (12)
    1P + Low Estimate Contingent
     Resources(1)(4)(6)                   114,340  309,167  307,638      169
    2P + Best Estimate Contingent
     Resources(1)(2)(4)(7)                303,323  501,711  502,456       66
    3P + High Estimate Contingent
     Resources(1)(2)(3)(4)(8)             451,895  629,483  628,185       39
    Low Estimate Prospective
     Resources(5)(6)                            0        0        0        0
    Best Estimate Prospective
     Resources(5)(7)                      113,398   81,278   82,645      (27)
    High Estimate Prospective
     Resources(5)(8)                      347,133  213,588  213,584      (38)
    1P+  Low Estimate Contingent and
     Low Estimate Prospective
     Resources(1)(4)(5)(6)(9)             114,340  309,167  307,638      169
    2P + Best Estimate Contingent and
     Best Estimate Prospective
     Resources(1)(2)(4)(5)(7)(9)          416,720  582,989  585,101       40
    3P + High Estimate Contingent
     and High Estimate Prospective
     Resources(1)(2)(3)(4)(5)(8)(9)       799,028  843,072  841,768        5
    -------------------------------------------------------------------------



    -------------------------------------------------------------------------
                        Connacher Oil and Gas Limited
                       Conventional Canadian Reserves
    -------------------------------------------------------------------------
                     LIGHT/MEDIUM                     NATURAL GAS
                    OIL/NGL (mbbl)                      (mmcf)
    -------------------------------------------------------------------------
                                       %                                 %
         31/12/07 30/06/08 31/12/08 Change  31/12/07 30/06/08 31/12/08 Change
                                     31/12                              31/12
                                     08/07                              08/07
    Proved
     Reserves
     (1P)
     (1)    2,355    2,430    2,620      11   26,916   29,431   28,547     6
    Probably
     Reserves
     (2)      694      770      818      18   11,535   11,283    9,575   (17)
            ------------------------          -------------------------
    Proved +
     Probable
     Reserves
     (2P)
     (1)(2) 3,049    3,200    3,438      13   38,451   40,714   38,122     -
    -------------------------------------------------------------------------


    ------------------------------------------
           Connacher Oil and Gas Limited
          Conventional Canadian Reserves
    ------------------------------------------
                      EQUIVALENT
                       (mboe)
    ------------------------------------------
                                        %
         31/12/07 30/06/08 31/12/08   Change
                                      31/12
                                      08/07
    Proved
     Reserves
     (1P)
     (1)    6,841    7,335    7,378        8
    Probably
     Reserves
     (2)    2,617    2,651    2,414       (8)
           -----------------------------------
    Proved +
     Probable
     Reserves
     (2P)
     (1)(2) 9,458    9,986    9,792        4
    ------------------------------------------



    -------------------------------------------------------------------------
                        Connacher Oil and Gas Limited
               Combined Conventional and Bitumen Reserves(10)
    -------------------------------------------------------------------------
                                         31/12/07 30/06/08 31/12/08 % Change
                                                                      31/12
                                                   (mboe)             08/07

    Proved Conventional Reserves(1)         6,841    7,335    7,378        8
    Proved Bitumen Reserves(1)             53,016  110,202  175,462      231
                                          --------------------------
    Total Proved Reserves (1P)(1)          59,857  117,537  182,840      205

    Probable Conventional Reserves(2)       2,617    2,651    2,414       (8)
    Probable Bitumen Reserves(2)          124,776  261,303  194,222       56
                                          --------------------------
    Total Probable Reserves(2)            127,393  263,954  196,636       54

    Proved + Probable Conventional
     Reserves (2P)(1)(2)                    9,458    9,986    9,792        4
    Proved + Probable Bitumen
     Reserves(1)(2)                       177,792  371,505  369,684      108
                                          --------------------------
    Total 2P  Reserves(1)(2)              187,250  381,491  379,476      103
    -------------------------------------------------------------------------

    B. Present Value

    -------------------------------------------------------------------------
                        Connacher Oil and Gas Limited
              10 percent Present Value of Future Net Revenue(9)
                 Bitumen Reserves and Resources - Before Tax
    -------------------------------------------------------------------------
                                         31/12/07 30/06/08 31/12/08 % Change
                                                    ($MM)             31/12
                                                                      08/07

    Proved Reserves (1P)(1)                   492      899      888       81
    Proved and Probable Reserves
     (2P)(1)(2)                             1,051    2,039    1,372       31
    Proved, Probable and Possible
     Reserves (3P)(1)(2)(3)                 1,165    2,996    2,103       81
    Low Estimate Contingent
     Resources(4)(6)                          142      573      119      (16)
    Best Estimate Contingent
     Resources(4)(7)                          348      260      167      (52)
    High Estimate Contingent Resources(4)(8)  742      557      311      (58)
    1P + Low Estimate Contingent
     Resources(1)(4)(6)                       634    1,472    1,007       59
    2P + Best Estimate Contingent
     Resources(1)(2)(4)(7)                  1,399    2,300    1,539       10
    3P + High Estimate Contingent
     Resources(1)(2)(3)(4)(8)               1,906    3,553    2,414       27
    Low Estimate Prospective
     Resources(5)(6)                            0        0        0        0
    Best Estimate Prospective
     Resources(5)(7)                          379      222      106      (72)
    High Estimate Prospective
     Resources(5)(8)                          724      540      355      (51)
    1P+  Low Estimate Contingent and
     Low Estimate Prospective
     Resources(1)(4)(5)(6)(9)                 634    1,472    1,007       59
    2P + Best Estimate Contingent and
     Best Estimate Prospective
     Resources(1)(2)(4)(5)(7)(9)            1,778    2,522    1,645       (8)
    3P + High Estimate Contingent and
     High Estimate Prospective
     Resources(1)(2)(3)(4)(5)(8)(9)         2,631    4,093    2,769        5
    -------------------------------------------------------------------------



    -------------------------------------------------------------------------
                        Connacher Oil and Gas Limited
                10 percent Present Value of Future Net Revenue
          Total Company (Conventional and Bitumen) - Before Tax(10)
    -------------------------------------------------------------------------

                                                        ($MM)
                                         31/12/07 30/06/08 31/12/08 % Change
                                                                       31/12
                                                                       08/07
    Proved Conventional Reserves(1)           112      182      137       22
    Proved Bitumen Reserves(1)                492      899      888       81
                                         ---------------------------
    Total Proved Reserves (1P)(1)             604    1,081    1,025       70

    Probable Conventional Reserves(2)          32       48       33        3
    Probable Bitumen Reserves(2)              559    1,140      484      (13)
                                         ---------------------------
    Total Probable Reserves(2)                591    1,188      517      (13)

    Proved + Probable Conventional
     Reserves (2P)(1)(2)                      143      230      171       20
    Proved + Probable Bitumen
     Reserves(1)(2)                         1,051    2,039    1,372       31
                                         ---------------------------
    Total 2P Reserves (1)(2)                1,194    2,269    1,543       29
    -------------------------------------------------------------------------

    Notes:

    1)  Proved reserves are those reserves that can be estimated with a high
        degree of certainty to be recoverable. It is 90 percent likely that
        the actual remaining quantities recovered will exceed the estimated
        proved reserves.

    2)  Probable reserves are those additional reserves that are less certain
        to be recovered than proved reserves. It is equally likely that the
        actual remaining quantities recovered will be greater or less than
        the sum of the estimated proved plus probable reserves.

    3)  Possible reserves are those additional reserves that are less certain
        to be recovered than probable reserves. There is only a 10 percent
        probability that the quantities actually recovered will equal or
        exceed the sum of proved plus probable plus possible reserves.

    4)  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.

    5)  Prospective Resources are those quantities of petroleum estimated, as
        of a given date, to be potentially recoverable from undiscovered
        accumulations by application of future development projects.

    6)  Low Estimate is considered to be a conservative estimate of the
        quantity that will actually be recovered from the accumulation. If
        probabilistic methods are used, this term reflects P90 confidence
        level.

    7)  Best Estimate is considered to be the best estimate of the quantity
        that will actually be recovered from the accumulation. If
        probabilistic methods are used, this term is a measure of central
        tendency of the uncertainty distribution (P50).

    8)  High Estimate is considered to be an optimistic estimate of the
        quantity that will actually be recovered from the accumulation. If
        probabilistic methods are used, the term reflects a P10 confidence
        level.

    9)  Contingent resources and prospective resources are additive only for
        purposes of economic calculations, but are distinct categories with
        different risks.

    10) Does not include bitumen resources or undeveloped land value.

    11) Pricing assumptions in the GLJ Year End 2007 Report, GLJ Mid-Year
        2008 Report and GLJ Year End 2008 Report were as follows:



    -------------------------------------------------------------------------
                     Bitumen                WTI               Natural Gas
                   (wellhead)                                    (AECO)
    -------------------------------------------------------------------------
              Year   Mid    Year    Year    Mid     Year   Year   Mid   Year
               End   Year   End     End     Year    End    End    Year  End
              2007   2008   2008    2007    2008    2008   2007   2008  2008
    -------------------------------------------------------------------------
                      $C                    $US                   $C
    2009      41.85  57.63  23.10   88.00  125.00  57.50   7.55  10.05   7.58
    2010      40.47  52.07  31.33   84.00  110.00  68.00   7.60   9.50   7.94
    2011      40.28  50.80  42.25   82.00  100.00  74.00   7.60   9.25   8.34
    2012      40.28  50.80  50.06   82.00  100.00  85.00   7.60   9.25   8.70
    2013      41.37  52.12  54.66   82.00  100.00  92.01   7.60   9.25   8.95
    2014      42.45  54.27  55.92   82.00  101.35  93.85   7.80   9.39   9.14
    2015      43.53  56.90  57.21   82.00  103.38  95.73   7.97   9.59   9.34
    2016      44.62  59.61  58.54   82.02  105.45  97.64   8.14   9.79   9.54
    2017      45.68  60.98  59.88   83.66  107.56  99.59   8.31  10.01   9.75
    There-
    after    +2%/yr +2%/yr +2%/yr  +2%/yr  +2%/yr +2%/yr +2%/yr +2%/yr +2%/yr
    -------------------------------------------------------------------------
    





For further information:

For further information: Richard A. Gusella, President and Chief
Executive Officer OR Peter D. Sametz, Executive Vice 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: www.connacheroil.com


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