Connacher completes Pod One turnaround

2009-09-28 17:27 ET - News Release

Mr. Richard Gusella reports

CONNACHER OIL AND GAS LIMITED PROVIDES OPERATIONAL UPDATE

Connacher Oil and Gas Ltd. has successfully completed its annual turnaround at its 10,000-barrel-per-day Great Divide Pod One steam-assisted gravity drainage (SAGD) oil sands plant in northeastern Alberta. The company is in the process of restoring normal operations and again ramping up its bitumen production, which had exceeded 8,000 bbl/d prior to the turnaround. The Pod One plant, steam generation and injection, wells, and production were down for a period of four days during the turnaround. All vessels and treater systems were inspected and cleaned out and routine maintenance was conducted. The company also took the opportunity during the turnaround to conduct a number of SAGD well workovers. This work included the installation of one additional electric submersible pump (ESP) and workovers on five wells in the north pad, all part of the company's optimization program aimed at reducing steam-to-oil ratios (SORs), maximizing steam injection to specific wells and the location of steam in the wellbore, while increasing production in the affected wells. The company now has ESPs in six SAGD wells.

Production is now under way at 15 of the 17 SAGD well pairs at Pod One, including production from the company's two most recent SAGD wells, which were converted from steam injection in July of this year and which are still in the early stages of their ramp-up. It takes several days after reactivation to achieve targeted production levels from all wells and once steady state production operations have been achieved, we will report an update on bitumen production at Pod One.

The company anticipates installing two to three new-generation, high-temperature ESPs later this year which should result in longer pump run lives while allowing higher production volumes and reduced SORs. The high-temperature ESPs represent an evolution of ESP technology that has better applicability to Connacher's reservoir. Connacher is pleased to announce that it will be among the first oil sands producing companies to use these new ESPs in commercial operations. It is anticipated bitumen production levels will ramp up to near-design capacity in the fourth quarter of 2009 and 2010 daily average bitumen production is anticipated to be approximately 9,500 bbl/d.

Construction activities at Connacher's second 10,000-barrel-per-day SAGD facility (Algar) in the Great Divide region of northeastern Alberta are progressing with excellent results. Field construction at the Algar plant site resumed on July 7, 2009. At the time construction reactivation occurred, Connacher had estimated a remaining cost of $200-million to complete the project, excluding contingencies of $15-million. With the recent cancellation and deferral of a number of oil sands projects in the Fort McMurray region, the actual costs for labour, services and equipment may end up being lower than the cost estimates used in the Algar reactivation budget, providing a built-in contingency.

The company anticipated that completion of construction activities at Algar and the drilling of the associated 17 SAGD well pairs would take approximately 275 days from the reinstatement of construction. It appears that today the company is modestly ahead of this schedule, without taking into account approximately five days lost due to inclement weather. Construction activities have benefited from generally positive weather conditions since the recommencement of the Algar project in July, 2009. Drilling activity has proceeded in a very efficient manner, with improved engineering processes and technology, supported by the availability of superior hardware and crews compared with the company's experience at Pod One. Once plant construction and drilling and tie-in of the SAGD wells are complete at Algar, anticipated for April, 2010, a 30-day commissioning of the SAGD facility is anticipated. This will be followed by a 90-day steam circulation phase for the SAGD well pairs, prior to commencement of SAGD production and ramp-up toward rated plant capacity of 10,000 bbl/d, by the end of 2010 or early 2011. Connacher posts weekly pictorial progress reports about the Algar project on its website, including pictures of construction activities and a construction countdown clock.

The company's scheduled turnaround at the Great Falls, Mont., refinery is also proceeding favourably regarding timetable and budget, with the restoration of full throughput anticipated for mid-October, 2009. In the meantime, asphalt sales are proceeding favourably at attractive prices. Efforts are under way to capitalize on this strong asphalt market before the normal seasonal slowdown, when the company will further reduce inventories consistent with the restoration of normal refinery throughput.

Assuming no unusual collapse in crude oil prices such as occurred in 2008, Connacher anticipates that the combination of cash ($401-million cash on hand as at June 30, 2009) and future cash flow from operations, before non-cash working capital adjustments, during the second half of 2009 and during fiscal 2010 will be sufficient to fully finance completion of the Algar project, finance its conventional and refining capital activities in 2009 and 2010, finance the construction of an estimated $27-million cogeneration facility at Algar, finance an estimated $10-million dilbit sales transfer line between Algar and Pod One, and service the company's indebtedness through 2010. The company's remaining cash balances and future cash flow, including production from both Pod One and Algar, and funds from its conventional and refining operations, would then be available to service debt and to partially finance the company's growth expenditures during the 2011 to 2015 period, as the company moves toward achievement of its goal of surpassing 50,000 bbl/d of bitumen production in 2015. The company is presently evaluating a new round of core hole drilling on its existing acreage, aimed at further expanding its bitumen reserve and resource base. It also plans to evaluate some modest additional conventional exploration activity on its existing lands in Northern Alberta.

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