CALGARY, June 21, 2012 /CNW/ - Connacher Oil and Gas Limited (CLL - TSX; "Connacher" or the "Company") wishes to provide a personnel and operational update.
Appointment of Officer
Connacher is pleased to announce that effective July 1, 2012 Greg Pollard will assume the role of Chief Financial Officer of the Company. Mr. Pollard, a Chartered Accountant, has in excess of 30 years experience in the energy and accounting sectors, including over 20 years with major international accounting firms, most recently Ernst & Young LLP in both Houston, Texas and Calgary. His expertise lies in complicated transactional advisory services requiring cross-border and regulatory expertise as well as being well-versed in all aspects of public company regulatory disclosure, governance issues and newly implemented IFRS. Mr. Pollard will replace Brenda Hughes, the current Chief Financial Officer of the Company, who has resigned effective June 30, 2012 to accept a position with another company. Connacher would like to thank Brenda for her past service and wish her well with her future endeavors.
With budgetary constraints imposed by a curtailed capital program for 2012, the Company has focused its efforts on a number of operational initiatives:
- improving netbacks by reducing operating costs and increasing prices received for bitumen at the wellhead;
- maintaining production within previously announced guidance;
- de-risking and preparing various short term capital projects for bitumen production increases and refinery expansions;
- improving production with technological innovations such as SAGD+™ at Algar and gas re-injection at Pod One.
Improved reliability and surface equipment performance has helped reduce per barrel operating costs despite most plant costs being fixed (not variable) in a bitumen operation. Meanwhile, to improve netbacks the Company has aggressively pursued its "dilbit by rail" strategy.
Dilbit by Rail
In the winter of 2011 Connacher pioneered "dilbit by rail" by utilizing leased railcars for the transport of produced bitumen. This strategy allows the Company to maximize pricing (after transportation costs) for diluted bitumen railed to refineries not currently accessible by pipeline. Connacher recently entered into a five year agreement with Canexus Corporation for "Transloading Services" at their North American Terminal Operations facility in Bruderheim, Alberta as well as "Transportation Management Services" which includes the use of 300 newly constructed railcars to be delivered over a nine-month period. This arrangement is strategic as it secures a competitive and growing rail fleet, locks in scarce transloading capacity, and improves economics by reaching higher margin markets. The Company looks forward to continuing to work with Canexus to expand mutual dilbit by rail initiatives. During the third quarter of 2012, Connacher expects to be railing with Canexus and others, as much as 40 percent of its bitumen production, including deliveries to several new customers.
The SAGD+™ trial (where solvent is mixed with steam and injected into the reservoir) started in July 2011, and completed by year end, demonstrated very encouraging results as a way to improve well productivity and reduce steam:oil ratios ("SORs"). In May of this year the second SAGD+™ pilot commenced at Algar and initial results are also very encouraging. The purpose of this second pilot is to demonstrate repeatability on different wells and to confirm optimal operational configurations and solvent mixes. Based on these trial results, a field-wide plan may be recommended for Algar later this year.
At Pod One the partially depleted gas cap in direct contact with the thick oil sands pay continues to be re-pressured by inexpensive natural gas. Simulation data was used to model the potential benefit prior to the implementation of the project and current production is benefiting from the additional pressure. Originally, this project was to coincide with the drilling of Pad 104; however, given current natural gas prices and immediate production benefits, it is more than economic at this time. Pad 104 SAGD wells are part of the ongoing requirements to maximize the use of steam and to replace older and/or poorer performing wells thus creating the highest possible production. Re-pressurization will continue during low natural gas prices until the target reservoir pressure is reached.
Engineering work continues on the Great Divide expansion project and Connacher expects to obtain ERCB regulatory approval of the Environmental Impact Assessment (EIA) in the near future. Connacher anticipates that approval is near the end of the provincial regulatory process, however, timing is not under the Company's control.
As a means of managing risk, Connacher enters into commodity sales contracts from time to time to ensure adequate downside commodity price protection, in conjunction with its established hedging policy, and having regard to the Company's financial leverage and capital commitments. Currently, Connacher has 7,000 bbl/day under WTI crude oil price hedges for the second half of 2012. This comprises swaps on 3,000 bbl/day at an average price of US$90.57, collars on 3,000 bbl/day at a minimum price of US$80.00 and collars on 1,000 bbl/day at a minimum price of US$100.00.
On a different note, lower crude oil prices and wide differentials provide robust refinery margins. As a result, the Company's refinery in Montana is enjoying a record year with earnings before interest, taxes, depreciation and amortization (EBITDA), exceeding results from previous years.
Strategic Review Process
Connacher's strategic review process is on-going. Stakeholders will be advised of material developments as they occur.
Connacher Oil and Gas Limited is a fully integrated Calgary‐based exploration, development and production company active in the production and sale of bitumen, crude oil, natural gas and natural gas liquids. The Company's principal assets are holdings in the Great Divide oil sands project in northern Alberta, as well as conventional light gravity crude oil and natural gas properties in central Alberta and a wholly‐owned subsidiary which operates a 9,500 bbl/d heavy crude oil refinery in Great Falls, Montana.
This press release contains terms commonly used in the oil and gas industry, such as earnings before interest, taxes, depreciation and amortization ("EBITDA"). This term is not defined by the financial measures used by Connacher to prepare its financial statements and is referred to herein as a non‐GAAP measure. This non‐GAAP measure should not be considered an alternative to, or more meaningful than, cash provided by operating activities or net earnings (loss) as determined in accordance with Canadian GAAP as an indicator of Connacher's performance. Management believes that in addition to net earnings (loss), EBITDA is a useful financial measurement which assists in demonstrating the Company's ability to make interest payments, fund capital expenditures necessary for future growth or to repay debt. Connacher's determination of EBITDA may not be comparable to that reported by other companies. EBITDA is calculated as net earnings (loss) before finance charges, current and deferred income tax provisions and recoveries, depletion, depreciation and amortization, exploration and evaluation expense, share‐based compensation, foreign exchange gains/losses, unrealized gains/losses on risk management contracts, interest and other income, gain (loss) on disposition of assets, defined benefit plan expense, share of interest in and loss on associate and costs of refinancing long‐term debt. EBITDA is reconciled to net loss in the Company's MD&A for the three months ended March 31, 2012 and 2011.
Forward Looking Information:
This press release contains forward looking information including but not limited to the anticipated timing of receipt of the required regulatory approvals associated with the expansion of bitumen productive capacity at Great Divide, commodity price protection afforded by the use of risk management contracts, favorable operating results arising from a number of initiatives being undertaken, the future expansion of Connacher's dilbit by rail initiative, the possible expansion of the use of SAGD+ technology at Algar and the potential of drilling new wells at Pad 104.
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: 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), the risk of commodity price and foreign exchange rate fluctuations, risks associated with the impact of general economic conditions and risks and uncertainties associated with securing and maintaining the necessary regulatory approvals and financing to proceed with the operation and continued expansion of the Great Divide oil sands project.
Additional risks and uncertainties affecting Connacher and its business and affairs are described in further detail in Connacher's AIF, 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.
In addition, there can be no assurance that a transaction will result from the strategic review currently being undertaken by the Company's Board of Directors or, if a transaction does materialize, no assurance can be made with respect to the terms or timing associated therewith.
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