CALGARY, July 23 /CNW/ - Connacher Oil and Gas Limited (CLL - TSX) announces a significant expansion of the company's reserves, resources and related 10% pre-tax present value of future net revenue (\"present value\" or \"present worth\" or \"PV\") since year end 2007. 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. Certain amounts cited herein have been rounded for presentation purposes.
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Highlights are as follows:
Bitumen
- Total proved reserves (\"1P\") were up 108% to 110 million barrels;
pre-tax 10% PV of future net revenue estimated at $899 million
($4.26 per basic Connacher common share (\"common share\" or \"share\")
outstanding - 211 million shares outstanding at June 30, 2008).
- Total proved and probable reserves (\"2P\") were up 109% to 372 million
barrels; pre-tax 10% PV of future net revenue estimated at $2 billion
($9.66 per common share).
- Total proved, probable and possible reserves (\"3P\") were up 83% to
444 million barrels; pre-tax 10% PV of future net revenue estimated
at $3 billion ($14.20 per common share), compared to $1.2 billion
($5.55 per share) at 31/12/07.
- 2P plus best estimate contingent resources up 65% to 502 million
barrels; pre-tax 10% PV of future net revenue of $2.3 billion
($10.90 per share).
- 2P plus best estimate contingent and prospective resources up 40% to
583 million barrels; pre-tax 10% PV of future net revenue of
$2.5 billion ($11.95 per share).
- 3P plus high estimate contingent and prospective resources up
six percent to 843 million barrels; pre-tax 10% PV of future net
revenue of $4.1 billion ($19.40 per share).
Conventional
- 1P reserves up seven percent to 7.3 million boe; pre-tax 10% PV of
future net revenue $182 million ($0.86 per share).
- 2P reserves up six percent to 9.99 million boe; pre-tax 10% PV of
future net revenue of $229 million ($1.09 per share).
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The increase in bitumen reserves and resources and associated present values is primarily at Great Divide and reflects the commencement of production at Great Divide Pod One (\"Pod One\"), the anticipated near-term approval of Algar or Pod Two, the company's second 10,000 bbl/d bitumen project at Great Divide and the impact of Connacher's Q1 2008 core hole drilling program on its main lease block in the region. Minor prospective resources were assigned to Connacher's properties at Halfway Creek, Alberta, reflecting early stage exploration in this region. The increase in conventional reserves reflects successful drilling, also conducted during Q1 2008, at Marten Creek, Randall, Three Hills and Gilby, all in Alberta. All present values are affected by the higher price deck adopted by GLJ Petroleum Consultants (\"GLJ\") effective July 1, 2008 compared to that utilized at December 31, 2007.
Total corporate 2P reserves (\"1P\"-proved; \"2P\"-proved and probable; \"3P\"-proved, probable, and possible) at June 30, 2008 increased 104 percent to 382�million barrels from 187 million barrels at December 31, 2007. The 10% pre-tax present value for these 2P reserves increased 90 percent over December 31, 2007 estimates, from $1.2 billion to $2.3 billion ($10.75 per common share). The 10 percent pre-tax present value of 2P reserves plus best estimate contingent and prospective resources increased to $2.8 billion ($13.27 per common share) compared to $1.9 billion ($9.05 per common share) at December�31, 2007, when there were 210 million common shares outstanding.
All reserve estimates are as at June 30, 2008 and do not include any of the results of Connacher's drilling program subsequent to the effective date of the GLJ 2008 Mid-Year Report. The full impact of this activity will be captured in a year-end 2008 report, which will be prepared and reported upon after relevant data are fully assessed by the company and GLJ, its independent evaluators, after year-end 2008.
Comparative reserve volumes and values are presented. There was a material change in total estimated reserve and resource volumes compared to those estimated at year-end 2007. For example, there was, respectively, a 108 percent, 109 percent and 83 percent increase in 1P, 2P and 3P bitumen reserves and a 90 percent increase in the 10% present values assigned to Connacher's 2P bitumen and conventional reserves at June 30, 2008, compared to the year-end 2007 estimates for this category.
The reserve estimates provided herein were prepared by GLJ in a report (\"GLJ 2008 Mid-Year Report\") with an effective date of June 30, 2008. The GLJ 2008 Mid-Year 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 December 31, 2007 (\"GLJ 2007 Report\"). Future net revenue is calculated after deduction of forecast royalties, operating expenses, capital expenditures and abandonment costs but before corporate overhead or other indirect costs, including interest and income taxes. The GLJ 2008 Mid-Year Report was prepared utilizing the GLJ July 1, 2008 price forecast, effective June 30, 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 Mid-Year Report.
The GLJ 2007 Report and the GLJ 2008 Mid-Year Report do not consider the impact of the adoption of Alberta's new royalty regime in 2009. However, the company did have GLJ prepare economic runs, assuming the royalty changes become law. Under such circumstances, other things being equal, there would be an approximate 14 percent to 18 percent reduction in the estimated 10 percent pre-tax PV of the future net revenue from the company's bitumen reserves, if the new regime was adopted as proposed. The new royalty regime does not appear to have a material impact on the future net revenue and 10% pre-tax PV thereof as it relates to the company's conventional reserves. It would be the company's intention to commission an updated reserve report in the event the proposed royalty regime is enacted into law and the results of this will be communicated to shareholders and the investment community by way of press release in such circumstances. See \"Forward Looking Information\" below.
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, boes may be misleading if used in isolation. Future net revenues disclosed herein do not represent fair market value. Also, estimations of reserves and future net revenue to be discussed in this press release constitute forward-looking information. See \"Forward Looking Information\" below.
Bitumen Reserves and Resources
Connacher owns a 100% working interest in approximately 98,000 net acres of oil sands leases at its Great Divide project in northeastern Alberta, approximately 80 kilometres southwest of Fort McMurray and at Halfway Creek, Alberta. Numerous oil accumulations in the McMurray formation have been identified for development. GLJ estimates total bitumen initially in place under Connacher's leases at Great Divide and Halfway Creek to be 1.56 billion barrels of bitumen with up to 843 million barrels of 3P reserves and high estimates contingent and prospective resources remaining to be exploited, net of Pod One production prior to June 30, 2008.
Pod One, which contains over 20 metres of net steam assisted gravity drainage (\"SAGD\") pay, has been producing bitumen since late 2007. Production since start up through June 30, 2008 has totaled 865,000 barrels of bitumen, 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 https://www.connacheroil.com\">www.connacheroil.com or https://www.sedar.com\">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 corporation's annual information form dated March 26, 2008 which can be accessed at https://www.sedar.com\">www.sedar.com. In June 2007 the company applied to develop a similar 10,000�bbl/d facility at Pod Two or Algar and it is awaiting regulatory approval. Reserves were assigned to Pod One, Pod Two or Algar, Pod 4 and 5 at Algar (Phase II), while contingent and prospective resources were assigned to all the aforementioned Pods and to Pods 3, 6 and 7 at Great Divide, with minor best estimate and high estimate prospective resources assigned to Halfway Creek, reflecting the early stage of exploration in this region.
Since December 31, 2007, Connacher's 1P bitumen reserves increased 108�percent to 110 million barrels, after deduction of 856,000 barrels of bitumen produced at Pod One since December 2007. Connacher's 2P bitumen reserves also increased 109 percent to reach 372 million barrels, compared to 178 million barrels at year end 2007. 3P bitumen reserves were estimated at 444 million barrels at June 30, 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.
Proved bitumen reserves (1P) and low estimate contingent resources were estimated at 309 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 629 million barrels.
1P bitumen reserves and low estimate contingent and prospective resources were estimated at 309 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 prospective resources were estimated at 583�million barrels and 3P bitumen reserves and high estimate contingent and prospective resources were estimated at 843 million barrels.
The GLJ 2008 Mid-Year Report estimated Connacher's 1P bitumen reserves would generate $4.4 billion of future net revenue with a 10 percent pre-tax present value of $899 million, after deduction of future capital requirements of $985�million and abandonment costs of $23 million.
2P bitumen reserves were forecast to generate $16.3 billion of future net revenue, with a 10 percent pre-tax present value of $2.0 billion, after provisions for future capital of $3.7 billion and abandonment costs of $84�million.
3P bitumen reserves were forecast to generate $17.9 billion of future net revenue with a 10 percent pre-tax present value of $3 billion, after provisions for future capital of $3.8 billion and abandonment costs of $75�million.
1P bitumen reserves plus low estimate contingent resources were forecast to generate $13.4 billion, of future net revenue with a 10 percent pre-tax present value of $1.5 billion, after provisions for future capital of $3.9�billion and abandonment costs of $89 million.
2P bitumen reserves and best estimate contingent resources were forecast to generate $22.6 billion of future net revenue, with a 10 percent pre-tax present value of $2.3 billion, after future provisions for future capital of $6 billion and $145 million of abandonment costs.
3P bitumen reserves plus high estimate contingent resources were forecast to generate $25.9 billion of future net revenue, with a 10 percent pre-tax present value of $3.6 billion, after provisions for future capital of $6.4�billion and abandonment costs of $124 million.
Economic runs for 1P bitumen reserves and low estimate contingent and 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 prospective resources were forecast to generate $26.2 billion of future net revenue, with a 10 percent pre-tax present value of $2.5 billion, after provisions for future capital of $7.4 billion and abandonment costs of $172 million. Under this scenario, future annual production is forecast by GLJ to peak at approximately 42,000 barrels per day in 2017.
3P bitumen reserves and high estimate contingent and prospective resources were forecast to generate $36 billion of future net revenue, with a 10 percent pre-tax present value of $4.1 billion after provisions for future capital of $9.6 billion and abandonment costs of $190 million. Under this scenario, future annual production is forecast by GLJ to surpass 50,000 barrels per day by 2015 and 72,000 barrels per day in 2017.
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, 1P reserves increased seven percent to 7.3�million boes after producing 550,000 boe in the first half of 2008. The company's 2P equivalent reserves increased six percent to 20 million boe.
The increases primarily reflect the successful drilling at Marten Creek, Randall, Three Hills and Gilby, Alberta.
The GLJ 2008 Mid-Year Report estimated that Connacher's conventional 1P reserves would generate $284 million of future net revenue with a 10 percent pre-tax present value of $182 million, after provision for future capital requirements for Connacher's 1P reserves estimated at $14.2 million and abandonment costs net of salvage value at $4.6 million.
The company's 2P conventional reserves were forecast to generate $393�million of future net revenue, with a 10 percent pre-tax present value of $229 million, after provisions for future capital requirements of $14.8�million and forecast abandonment costs of $5 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 June 30, 2008 were estimated by GLJ to be 118 million boe, an increase of 96 percent over year end 2007.
Connacher's 2P equivalent reserves increased 104 percent to 381 million boe at June 30, 2008 compared to 187 million boes at year end 2007.
The company's 2P conventional and bitumen reserves at June 30, 2008 are forecast to generate $16.7 billion of future net revenue, with a 10 percent pre-tax present value of $2.3 billion, after provisions for future capital of $3.7 billion and abandonment costs of $89 million. This represents a 90�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 $2.3 billion for 2P reserves alone equates to approximately $10.75 per Connacher common share outstanding, before provision for the value of contingent and prospective resources as estimated in the GLJ Mid-Year 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 in Argentina.
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Summary Tables
(Tables may not add due to rounding.)
A. Volumes
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Connacher Oil and Gas Limited
Bitumen Reserves and Resources(9)
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31/12/07 30/06/08
(mbbl) % change
Proved Reserves (1P)(1) 53,016 110,202 108
Proved and Probable Reserves (2P)(1)(2) 177,792 371,505 109
Proved, Probable and Possible Reserves
(3P)(1)(2)(3) 242,009 443,802 83
Low Estimate Contingent Resources(4)(6) 61,325 198,965 224
Best Estimate Contingent Resources(4)(7) 125,531 130,206 4
High Estimate Contingent Resources(4)(8) 209,855 185,681 -13
1P + Low Estimate Contingent Resources
(1)(4)(6) 114,340 309,167 170
2P + Best Estimate Contingent Resources
(1)(2)(4)(7) 303,323 501,711 65
3P + High Estimate Contingent Resources
(1)(2)(3)(4)(8) 451,895 629,483 39
Low Estimate Prospective Resources(5)(6) 0 0 0
Best Estimate Prospective Resources(5)(7) 113,398 81,278 -28
High Estimate Prospective Resources(5)(8) 347,133 213,588 -38
1P + Low Estimate Contingent and
Prospective Resources(1)(4)(5)(6)(9) 114,340 309,167 170
2P + Best Estimate Contingent and
Prospective Resources(1)(2)(4)(5)(7)(9) 416,720 582,989 40
3P + High Estimate Contingent and
Prospective Resources(1)(2)(3)(4)(5)(8)(9) 799,028 843,072 6
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Connacher Oil and Gas Limited
Conventional Canadian Reserves(10)
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LIGHT/MEDIUM OIL/NGL
(mbbl) NATURAL GAS (mmcf) EQUIVALENT (mboe)
31/12 30/06 % 31/12 30/06 % 31/12 30/06 %
/07 /08 change /07 /08 change /07 /08 change
Proved
Reserves
(1P)(1) 2,356 2,430 3 26,916 29,431 9 6,842 7,335 7
Probable
Reserves
(2) 694 770 11 11,535 11,283 -2 2,617 2,651 1
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Proved +
Probable
Reserves
(2P)
(1)(2) 3,050 3,200 5 38,451 40,714 6 9,459 9,986 6
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Connacher Oil and Gas Limited
Combined Conventional and Bitumen Reserves(10)
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31/12/07 30/06/08
(mboe) % change
Proved Conventional Reserves(1) 6,842 7,335
Proved Bitumen Reserves(1) 53,016 110,202
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Total Proved Reserves (1P)(1) 59,857 117,537 96
Probable Conventional Reserves(2) 2,617 2,651
Probable Bitumen Reserves(2) 124,776 261,303
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Total Probable Reserves(2) 127,393 263,954 107
Proved + Probable Conventional Reserves
(2P)(1)(2) 9,459 9,986
Proved + Probable Bitumen Reserves(1)(2) 177,792 371,505
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Total 2P Reserves(1)(2) 187,250 381,491 104
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B. Present Value
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Connacher Oil and Gas Limited
10% Present Value of Future Net Revenue(9)
Bitumen Reserves and Resources - Before Tax
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31/12/07 30/06/08
($MM) % change
Proved Reserves (1P)(1) 492 899 83
Proved and Probable Reserves (2P)(1)(2) 1,051 2,039 94
Proved, Probable and Possible Reserves
(3P)(1)(2)(3) 1,165 2,996 157
Low Estimate Contingent Resources(4)(6) 142 573 304
Best Estimate Contingent Resources(4)(7) 348 260 -25
High Estimate Contingent Resources(4)(8) 742 557 -25
1P + Low Estimate Contingent Resources
(1)(4)(6) 634 1,472 132
2P + Best Estimate Contingent Resources
(1)(2)(4)(7) 1,399 2,300 64
3P + High Estimate Contingent Resources
(1)(2)(3)(4)(8) 1,906 3,553 86
Low Estimate Prospective Resources(5)(6) 0 0 0
Best Estimate Prospective Resources(5)(7) 379 222 -41
High Estimate Prospective Resources(5)(8) 724 540 -25
1P + Low Estimate Contingent and
Prospective Resources(1)(4)(5)(6)(9) 634 1,472 132
2P + Best Estimate Contingent and
Prospective Resources(1)(2)(4)(5)(7)(9) 1,778 2,522 42
3P + High Estimate Contingent and
Prospective Resources(1)(2)(3)(4)(5)(8)(9) 2,631 4,093 56
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Connacher Oil and Gas Limited
10% Present Value of Future Net Revenue
Total Company (Conventional and Bitumen) - Before Tax(10)
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($MM)
31/12/07 30/06/08 % change
Proved Conventional Reserves(1) 112 182
Proved Bitumen Reserves(1) 492 899
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Total Proved Reserves (1P)(1) 603 1,081 79
Probable Conventional Reserves(2) 32 48
Probable Bitumen Reserves(2) 559 1,140
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Total Probable Reserves(2) 591 1,188 101
Proved + Probable Conventional Reserves
(2P)(1)(2) 143 230
Proved + Probable Bitumen Reserves(1)(2) 1,051 2,039
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Total 2P Reserves(1)(2) 1,194 2,269 90
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Notes:
1) Proved reserves are those reserves that can be estimated with a high
degree of certainty to be recoverable. It is 90% 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%
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 Mid-Year 2008 Report were as follows:
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Bitumen Natural Gas
(wellhead) WTI (AECO)
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$C $US $C
2008 Q3/Q4 60.69 135.00 11.50
2009 57.63 125.00 10.05
2010 52.07 110.00 9.50
2011 50.80 100.00 9.25
2012 50.80 100.00 9.25
2013 52.12 100.00 9.25
2014 54.27 101.35 9.39
2015 56.90 103.38 9.59
2016 59.61 105.45 9.79
2017 60.98 107.56 10.01
Thereafter +2%/yr +2%/yr +2%/yr
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Forward Looking Information