Connacher Oil & Gas Ltd (CLL)

[tedwitt]

Connacher Oil & Gas Limited Nears Completion on its $261 Million Pod I Great Divide Oil Sands Project and Files Permits for Pod II

Connacher Oil & Gas Limited (Connacher) (Calgary, Alberta) (TSX: CLL) is nearing the construction completion date its first phase of the Great Divide oil sands project. Connacher anticipates that the Pod I bitumen production facilities will be completed on August 10, 2007and that plant testing and start up procedures resulting in first steam injection will be initiated on August 15, 2007. Approximately 90 days after the August 15, 2007 date, Connacher will realize its first bitumen production. By the second quarter of 2008 the Pod I facility should be producing approximately 10,000 barrels per day (BBL/d) and will have daily production average of 7,300 – 7,500 BBL/d for the year and exiting the year at a steady 10,000 BBL/d.

The Pod I project is a bitumen production plant utilizing Steam Assisted Gravity Drainage (SADG) technology to produce bitumen locked in the oil sands. Pod I is the first of 5 or 6 separate phases (Pods) to be constructed on the Great Divide oil sands property located approximately 80 kilometers southwest of Fort McMurray, Alberta. Connacher awarded the preliminary engineering contract for Pod I of the Great Divide project to the Calgary office of WorleyParsons MEG and the E+P+C contract to Bower Damberger Rolseth Engineering also located in Calgary, Alberta.

Construction on the $261 million Pod I project had begun in late 2006. Unlike many other companies experiencing huge cost overruns in the oil sands patch in Alberta, Connacher managed to limit the cost overrun to 13%. This limited overrun stands out in an industry that is now experiencing cost overruns in the neighborhood of 50% or more. Costs for oil sands projects have sky rocketed in the last year or so. Recently Petro-Canada put the finishing touches on its plans for the Fort Hills oil sands and upgrader project, the cost of the project today exceeds $15 billion CND. Petro-Canada and partners have confirmed that they will proceed with the 170,000 BBL/d project.

In addition to the Pod I project, Connacher has filed permitting for its Pod II project at the Great Divide call Algar. The Algar project will almost mirror the Pod I project and will have a production target of 10,000 BBL/d. Connacher hopes to begin construction on the Algar project in the first quarter of 2008 with a facility completion and first steaming date targeted for the second quarter of 2009.

In addition to the Algar project, Connacher also intends to construct a 20 mile dual pipeline to transport diluted bitumen to a pipeline interconnect with the recently completed Access Pipeline system in Township 77. The pipeline will have a capacity to transport 50,000 BBL/d of diluted bitumen through the 24” diameter pipeline and it will have a separate 12” diameter pipeline to function as a 20,000 BBL/d diluent return system back to the Great Divide property. The Access Pipeline system is a joint venture of MEG Energy, Incorporated (Calgary, Alberta) and Devon Canada Corporation (Calgary, Alberta), the Canadian business unit of (NYSE:DVN) (Oklahoma City, Oklahoma). By constructing the pipeline interconnection, Connacher will be able to improve operating costs as its bitumen production rises and economies of scale come into play. Until the pipeline is put into operation, Connacher intends to truck its bitumen to existing terminals which is not uncommon in the region. Japan Canada Oil Sands Limited (JACOS) (Calgary, Alberta) has been trucking its product for several years.

After the Algar project, Connacher intends to construct at least 3 more Pods on the Great Divide Property to increase its production of bitumen from that source to a total of 53,000 BBL/d in the next five to seven years. In the same time range Connacher expects to increase its conventional production to 5,300 BBL/d. Connacher could spend in the area of $300 million on expanding its existing refining operations or seek to acquire additional refining operations to increase its total refining capacity to 40,000 BBL/d from its present 10,000 BBL/d. Connacher is currently studying several expansion proposals at its Great Falls refinery located in Montana operated by Montana Refining Company Incorporated a wholly owned subsidiary of Connacher. Connacher had acquired the Great Falls refinery from Holly Corporation (Dallas, Texas) (NYSE: HOC) in late March of 2006 and has since increased its capacity from 8,300 BBL/s to the present 10,000 BBL/d or better.

Connacher recently completed a new 150,000 BBL asphalt tank at the refinery and is studying the possibility of constructing a further 5 new storage tanks to increase the storage capacity of gas-oil, diesel, and asphalt. The new tanks will range in size from 20,000 – 25,000 BBL each and should be put into service during 2008. In addition the new tanks, Connacher is also looking at the possibility of adding a new 10 million cubic foot per day (mmcfd) hydrogen plant in conjunction with a hydrotreater proposal that could take the total refining capacity of the plant to 15,000 BBL/d – 17,000 BBL/d.