Connacher Announces Appointments of Interim Chief Executive Officer and a New Director and Reports Year-End 2011 Reserves
CALGARY, Feb. 21, 2012 /CNW/ - Connacher Oil and Gas Limited (CLL - TSX) announced certain additions to its executive team and Board of Directors. Peter D. Sametz, formerly President and Chief Operating Officer of Connacher, has been appointed Interim Chief Executive Officer of Connacher effective immediately and Gregory A. Boland has been appointed to the Board of Directors of Connacher, filling one of the vacancies created early this year. Mr. Boland will also serve on the Audit Committee with D. Hugh Bessell, Chair, and W.C. (Mike) Seth. Mr. Boland is the President, CEO and Co-Chief Investment Officer of West Face Capital Inc., an 11.7% shareholder of Connacher.
Connacher also announced today that as of December 31, 2011 its estimated proved and probable ("2P") bitumen and conventional crude oil and natural gas reserves, as evaluated by GLJ Petroleum Consultants Ltd. ("GLJ"), independent qualified reserves evaluators, totaled approximately 504 million barrels of oil equivalent ("boe"). Despite a very modest capital program during 2011, bitumen reserve volumes held virtually constant in all reserve categories, with the exception of proved producing bitumen, of which approximately 4.9 million barrels were produced during the year. The ten percent present value ("10% PV") of 2P reserves decreased to $2.5 billion, due primarily to increased estimated future capital costs, adjusted near-term production forecasts and the re-configuration of the Great Divide Expansion Project to two 12,000 barrels of oil per day ("bopd") plants coming into service in 2014 and 2016 compared to one 24,000 bopd plant previously estimated to be in service in 2013. Contingent and prospective bitumen resources also declined, mainly as a result of the sale of the Company's Halfway Creek property. The Company expects formal Alberta Government approval for the Great Divide Expansion Project in the near future.
Detailed information included in the GLJ December 31, 2011 report ("Year-End 2011 Report") regarding Connacher's reserves and resources and associated present values is set forth in the tables below, including a comparison of year-end 2011 results to year-end 2010 results.
The Year-End 2011 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, bitumen resources and for 10% PV for December 31, 2011 are to estimates contained in the report, prepared by GLJ, with an effective date of December 31, 2010 ("Year-End 2010 Report").
Connacher owns a 100 percent working interest in approximately 87,000 net acres of oil sands leases, primarily located at its Great Divide project in northeastern Alberta, situated 80 kilometers southwest of Fort McMurray. Numerous oil accumulations in the McMurray formation have been identified for continuing and future development on Connacher's properties.
Connacher's first steam-assisted gravity drainage ("SAGD") project at Great Divide, Pod One, has been producing bitumen since late 2007, with commercial production commencing March 1, 2008. Algar commenced producing bitumen in August 2010 and commerciality was achieved October 1, 2010. Production from both projects since start up through December 31, 2011 has totaled approximately 12.6 million barrels of bitumen, of which 4.9 million barrels were produced in 2011. Such amounts have been deducted from earlier estimates of proved reserves prior to the calculation of reserves as at December 31, 2011. Connacher's conventional reserve base declined, due primarily to the sale of several mature conventional properties, totaling approximately 8.2 million boe. Subsequent to the Year-End 2010 Report, Connacher sold its Battrum oil properties, its Marten Creek and Latornell conventional gas properties and its 50% interest in the Halfway Creek oil sands property.
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. Resources refers to bitumen resources. Future net revenue is calculated after the deduction of forecast royalties, operating expenses, estimated future capital expenditures and well abandonment costs, but before corporate overhead or other indirect costs, including interest and income taxes, from forecast revenue. The 10 percent pre-tax present value of future net revenue is also referred to as "present value" or "PV". Certain amounts cited herein have been rounded for presentation purposes. Outstanding financial hedges were not included in the evaluation.
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. Additionally, given the value ratio based on the current price of crude oil as compared to natural gas is significantly different from the energy equivalency of 6:1, utilizing a conversion ratio of 6:1 may be misleading as an indication of value. Boe may be misleading, particularly if used in isolation. Future net revenues disclosed herein do not represent fair market value. Also, estimations of reserves, resources and future net revenue discussed in this press release constitute forward looking information. See "Forward Looking Information and Reserves Advisory" below.
The GLJ Year-End 2011 Report was prepared utilizing the GLJ January 1, 2012 price forecast, effective December 31, 2011. Readers are referred to the notes to the Summary Tables included in this press release for details regarding the price forecast used by GLJ. Earlier reports were prepared using the price forecasts then being applied by GLJ.
Additional details regarding Connacher's projects and development opportunities at Great Divide can be accessed at www.connacheroil.com or www.sedar.com. Furthermore, additional information regarding Connacher's reserves and resources, including the Company's interest in the resources and the risks and the level of uncertainty associated with the recovery of the resources, can be found in the Company's annual information form ("AIF") dated March 17, 2011. This AIF can be accessed at www.sedar.com. The Company will be filing an updated AIF later this year and prior to March 31, 2012, once it has completed the audit of its financial and operating results for the year-ended December 31, 2011 and has released them to the public. This is anticipated to occur on March 16, 2012.
Forward Looking Information and Reserves Advisory
This press release contains forward looking information, including but not limited to estimated reserves and resources and future net revenues associated therewith, the expected timing of receipt of formal Alberta Government approval for the Great Divide Expansion Project, and the proposed timing of the release of the Company's Annual Information Form for the year ended December 31, 2011. 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 associated with geological interpretations; 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 the implementation of new technology, 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 volatile 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.
This press release includes information pertaining to the reserves, resources and the value of future net revenue of the Corporation as at December 31, 2011 and December 31, 2010 as evaluated by GLJ in its reports dated February 16, 2012 and February 18, 2011, respectively (together the "GLJ Reports"). Statements relating to reserves and resources are deemed to be forward looking information, as they involve the implied assessment, based on certain estimates and assumptions, that the reserves and resources described exist in the quantities predicted or estimated, and can be profitably produced in the future. The GLJ Reports are based on 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, natural gas liquids and natural gas, operating costs, anticipated reductions in SORs and operating costs as a result of installation of ESPs in certain wells to improve productivity, well abandonment and salvage values, royalties and other government levies that may be imposed during the producing life of the reserves. Moreover, there is no assurance that the forecast price and cost assumptions contained in the GLJ Reports will be attained and variances could be material. The reserves and resources estimates of Connacher's properties described herein are estimates only. The actual reserves and resources on Connacher's properties may be greater or less than those calculated. 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, natural gas and natural gas liquids reserves attributable to Connacher's properties.
Contingent resources disclosed herein were assigned in regions with lower core-hole drilling density than the reserve regions and are primarily outside Connacher's current areas of approval for development. These resource estimates are not classified as reserves at this time, pending further reservoir delineation, project application, facility and reservoir design work, preparation of firm development plans and company approvals. Contingent resources entail additional commercial risk than reserves. Adjustments for commercial risks were not incorporated in the estimates of contingent resources set forth herein. A range of Contingent Resource estimates (Low, Best and High) were prepared to reflect a range of technical uncertainty. Low Estimate Contingent Resources were assigned to mapped regions of oil - in- place of identified pods primarily outside areas of approval for development with at least 12 m of continuous bitumen pay along with a conservative estimate of recovery factor. Best Estimate Contingent Resources were assigned to mapped regions of oil-in-place of identified pods primarily outside areas of approval for development with at least 10 m of continuous bitumen pay along with a best estimate of recovery factor. High Estimate Contingent Resources were assigned to mapped regions of oil-in-place of identified pods primarily outside areas of approval for development with at least 9 m of continuous bitumen pay along with a more optimistic estimate of recovery factor. There is no certainty that it will be commercially viable to produce any portion of the Contingent Resources.
Prospective resources disclosed herein were attributable to undiscovered pods in unexplored regions, utilizing average parameters from the pods discovered to date and applying those parameters to the undiscovered acreage factored by a chance of discovery that is estimated with consideration given to depositional environment, accommodation space, and past results. Prospective Resources entail additional commercial exploration risks than reserves and Contingent Resources. A range of Prospective Resources estimates were prepared to reflect a range of technical uncertainty. Best and High estimates of Prospective Resources were assigned using net pay thresholds of 10 m and 9 m, respectively. Low Estimate Prospective Resources were assessed to be zero, given the risk of not encountering an undiscovered pod of sufficient size to be considered commercial. The Prospective Resources estimates reflected herein have been risked for the chance of discovery but have not been risked for the chance of development and hence are considered partially risked estimates. Adjustments for commercial risks were not incorporated in the estimates of Prospective Resources set forth herein. There is no certainty that the Prospective Resources will discovered. If a discovery is made, there is no certainty that it will be commercially viable to produce any portion of the Prospective Resources or that the discovery will be developed. If it is developed, there is no certainty as to the timing of such development.
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
Estimates of reserves, resources and future net revenue constitute forward looking information. See "Forward Looking Information and Reserves Advisory" in the press release to which these summary tables are attached. Amounts are presented for working interest volumes which are the Company's working interest (operating or non-operating) share before deducting royalties and without including any royalty interests of the Company.
A. Working Interest Volumes
| Connacher Oil and Gas Limited Bitumen Reserves and Resources |
|||||
| 31-Dec-10 | 31-Dec-11 | 12 mo | |||
| (mbbl) | (mbbl) | %∆ | |||
| Proved Reserves (1P) (1) | 180,166 | 175,185 | -3% | ||
| Proved and Probable Reserves (2P) (1)(2) | 499,657 | 500,825 | 0% | ||
| Proved, Probable and Possible Reserves (3P) (1)(2)(3) | 603,709 | 605,687 | 0% | ||
| Low Estimate Contingent Resources (4)(6) | 223,443 | 173,487 | -22% | ||
| Best Estimate Contingent Resources (4)(7) | 220,572 | 174,692 | -21% | ||
| High Estimate Contingent Resources (4)(8) | 408,908 | 243,239 | -41% | ||
| Best Estimate Prospective Resources (5)(7) | 80,240 | 53,589 | -33% | ||
| High Estimate Prospective Resources (5)(8) | 287,337 | 148,349 | -48% | ||
| Connacher Oil and Gas Limited Conventional Canadian Reserves |
||||||
| LIGHT/MEDIUM OIL/NGL (mbbl) | NATURAL GAS (mmcf) |
|||||
| 31/12/10 | 31/12/11 | 12 mo | 31/12/10 | 31/12/11 | 12 mo | |
| %∆ | %∆ | |||||
| Proved Reserves (1P)(1) | 2,524 | 778 | -69% | 23,864 | 6,186 | -76% |
| Probable Reserves(2) | 972 | 556 | -43% | 13,818 | 3,371 | -77% |
| Proved + Probable Reserves (2P) (1) (2) | 3,496 | 1,336 | -62% | 37,682 | 9,557 | -77% |
A. Working Interest Volumes
| Connacher Oil and Gas Limited Combined Conventional and Bitumen Reserves(9) |
|||||
| 31-Dec-10 | 31-Dec-11 | 12 mo | |||
| (mboe) | (mboe) | %∆ | |||
| Proved Conventional(1) | 6,502 | 1,810 | -72% | ||
| Proved Bitumen(1) | 180,166 | 175,185 | -3% | ||
| Total Proved (1P)(1) | 186,668 | 176,995 | -5% | ||
| Probable Conventional(2) | 3,275 | 1,118 | -66% | ||
| Probable Bitumen(2) | 319,491 | 325,640 | 2% | ||
| Total Probable(2) | 322,766 | 326,758 | 1% | ||
| Proved + Probable Conventional(1)(2) | 9,777 | 2,928 | -70% | ||
| Proved + Probable Bitumen(1)(2) | 499,657 | 500,825 | 0% | ||
| Total Proved + Probable (2P)(1)(2) | 509,434 | 503,753 | -1% | ||
| Total 3P Reserves(1)(2)(3) | 613,485 | 609,601 | -1% | ||
B. Present Value
| Connacher Oil and Gas Limited 10% Present Value of Future Net Revenue Based on Forecast Prices and Costs Bitumen Reserves and Resources - Before Tax |
||||||
| 31-Dec-10 | 31-Dec-11 | 12 mo | ||||
| ($MM) | ($MM) | % Δ | ||||
| Proved Reserves (1P) (1) | 1,397 | 1,110 | -21% | |||
| Proved and Probable Reserves (2P) (1)(2) | 2,966 | 2,412 | -19% | |||
| Proved, Probable and Possible Reserves (3P) (1)(2)(3) | 3,714 | 3,127 | -16% | |||
| Low Estimate Contingent Resources (4)(6) | 780 | 618 | -21% | |||
| Best Estimate Contingent Resources (4)(7) | 571 | 127 | -78% | |||
| High Estimate Contingent Resources (4)(8) | 1,212 | 313 | -74% | |||
| Best Estimate Prospective Resources (5)(7) | 217 | 47 | -78% | |||
| High Estimate Prospective Resources (5)(8) | 696 | 191 | -73% | |||
| Connacher Oil and Gas Limited 10% Present Value of Future Net Revenue Based on Forecast Prices and Costs Combined Conventional and Bitumen Reserves - Before Tax(9) |
|||
| 31-Dec-10 | 31-Dec-11 | 12 mo | |
| ($MM) | ($MM) | %∆ | |
| Proved Conventional(1) | 100 | 35 | -65% |
| Proved Bitumen(1) | 1,397 | 1,110 | -21% |
| Total Proved (1P)(1) | 1,497 | 1,145 | -23% |
| Probable Conventional(2) | 36 | 15 | -59% |
| Probable Bitumen(2) | 1,569 | 1,302 | -17% |
| Total Probable(2) | 1,605 | 1,317 | -18% |
| Proved + Probable Conventional(1)(2) | 135 | 50 | -63% |
| Proved + Probable Bitumen(1)(2) | 2,966 | 2,412 | -19% |
| Total Proved + Probable (2P)(1)(2) | 3,101 | 2,462 | -21% |
| Total 3P Reserves(1)(2)(3) | 3,849 | 3,183 | -17% |
Notes:
| 1) | Proved Reserves are those reserves that can be estimated with a high degree of certainty to be recoverable. It is 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. It is unlikely that the actual remaining quantities recovered will exceed the sum of the estimated proved plus probable plus possible reserves. There is a 10% 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. These resource estimates are not currently classified as reserves, pending further reservoir delineation, project application, facility and reservoir design work, preparation of firm development plans and Company approvals. Contingent resources entail additional commercial risk than reserves and adjustments for commercial risks have not been incorporated in the summaries set forth herein. There is no certainty that it will be commercially viable to produce any portion of the contingent resources. |
| 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. Prospective Resources have both an associated chance of discovery and a chance of development. The Prospective Resources estimates reflected herein have been risked for the chance of discovery but have not been risked for the chance of development and hence are considered partially risked estimates. Prospective Resources entail additional commercial risk than reserves and adjustments for commercial risks have not been incorporated in the summaries set forth herein. If a discovery is made, there is no certainty that it will be developed. If it is developed, there is no certainty as to the timing of such development. |
| 6) | Low Estimate: this is considered to be a conservative estimate of the quantity that will actually be recovered. It is likely that the actual remaining quantities recovered will exceed the low estimate. If probabilistic methods are used, there should be at least a 90 percent probability that the quantities actually recovered will equal or exceed the low estimate. |
| 7) | Best Estimate: this is considered to be the best estimate of the quantity that will actually be recovered. It is equally likely that the actual remaining quantities recovered will exceed the best estimate. If probabilistic methods are used, there should be at least a 50 percent probability that the quantities actually recovered will equal or exceed the best estimate. |
| 8) | High Estimate: this is considered to be an optimistic estimate of the quantity that will actually be recovered. It is unlikely that the actual remaining quantities recovered will exceed the high estimate. If probabilistic methods are used, there should be at least a 10 percent probability that the quantities actually recovered will equal or exceed the high estimate. |
| 9) | Does not include bitumen resources or undeveloped land value. |
| 10) | Pricing assumptions in the Year-End 2010 Report and Year-End 2011 Report were as follows: |
| Bitumen | WTI | Natural Gas | ||||
| (wellhead) ($/bbl) | (US$/bbl) | (AECO) ($/mmbtu) | ||||
| Year-End 2010 | Year-End 2011 | Year-End 2010 | Year-End 2011 | Year-End 2010 | Year-End 2011 | |
| 2012 | 54.41 | 57.69 | 89.00 | 97.00 | 4.74 | 3.49 |
| 2013 | 55.39 | 60.24 | 90.00 | 100.00 | 5.31 | 4.13 |
| 2014 | 58.50 | 64.39 | 92.00 | 100.00 | 5.77 | 4.59 |
| 2015 | 60.88 | 66.00 | 95.17 | 100.00 | 6.22 | 5.05 |
| 2016 | 62.57 | 66.00 | 97.55 | 100.00 | 6.53 | 5.51 |
| 2017 | 64.51 | 65.90 | 100.26 | 100.00 | 6.76 | 5.97 |
| 2018 | 66.27 | 66.82 | 102.74 | 101.35 | 6.90 | 6.21 |
| 2019 | 68.21 | 68.27 | 105.45 | 103.38 | 7.06 | 6.33 |
| 2020 | 69.69 | 69.74 | 107.56 | 105.45 | 7.21 | 6.46 |
| Thereafter | +2%/yr | +2%/yr | +2%/yr | +2%/yr | +2%/yr | +2%/yr |
US$/CDN$ exchange rates were .98 in the Year End 2010 Report and .98 in the Year End 2011 Report.
11) Tables may not add due to rounding.
Colin M. Evans or Kelly J. Ogle
Phone: (403) 538-6201 Fax: (403) 538-6225
[email protected] Website: www.connacheroil.com
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