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Connacher Oil has 538 million bbl at Great Divide

2005-08-02 14:24 ET - News Release

Mr. Richard Gusella reports

CONNACHER ANNOUNCES RESULTS OF GLJ RESERVE AND RESOURCES STUDY - GREAT DIVIDE OIL SANDS PROPERTY

Connacher Oil and Gas Ltd. has released the results of a reserve and resources study of its 100-per-cent-owned Great Divide oil sands property, which is composed of 101 sections of oil sands leases situated approximately 80 kilometres southwest of Fort McMurray, Alta. Over 538 million barrels of original oil-in-place probable and possible reserves and resources were assigned to Connacher's acreage, with initial and remaining recoverable reserves and resources of 311.2 million barrels. Pod 1 was assigned 69.6 million barrels of probable reserves with the 8-per-cent pretax present value of future cash flow, calculated after royalties, operating costs and capital, estimated at $290.5-million ($3.12 per basic common share outstanding).

The study was conducted at Connacher's request by Gilbert Laustsen Jung Associates Ltd., independent petroleum engineers of Calgary. The results are contained in a report dated July 29, 2005, with an effective date of Sept. 1, 2005, and contemplate Connacher proceeding with the filing of an application to develop Pod 1 at Great Divide with the relevant Alberta regulators, as expected, within the next several days.

The study was conducted in accordance with the Canadian Oil and Gas Evaluation Handbook and with National Instrument 51-101. The report was accepted by Connacher's board of directors earlier today on the recommendation of its reserves subcommittee and its audit committee.

The report uses GLJ's July, 2005, full-year escalated pricing for the quality of crude oil to be produced at Great Divide, as follows.

 
  
 Year     Price 
         ($/bbl) 
  
 2007     30.37 
 2008     30.37 
 2009     30.62 
 2010     28.37 
 2011     26.62 
 2012     26.62 
 2013     27.25 
 

Plus 2 per cent thereafter

Reserves were only assigned to Pod 1 in the proved and probable and proved, probable and possible categories, although no proved reserves were assigned pending start-up of production, forecast by GLJ to occur in 2007. Economic forecasts were generated for proved and probable and proved, probable and possible reserves. The study assumed 45 SAGD well pairs for the proved and probable case and 63 wells for the proved, probable and possible case, with cumulative steam-oil ratios (OR) of 2.6 in both cases, but declining to 2.3 during peak production periods.

A summary of the proved and probable and proved, probable and possible reserves assigned for Pod 1 is as follows.

 
  
 Reserves      Proved plus  Proved plus 
                probable    probable plus 
               undeveloped    possible 
                (mmstb)     undeveloped 
                                (mmstb) 
 Original 
 oil in place    128.9          178.6 
  
 Remaining 
 recoverable      69.6          108.3 
 

Connacher's proved and probable reserves at Pod 1 were forecast to generate $2.1-billion of future working interest revenue ($1.9-billion after royalties). The future undiscounted cash flow, after deducting $735-million of forecast operating expenses, $4.-million of abandonment and restoration charges, and $310-million of net capital over the 25.3-year life of the project (11.9-year half-life), was estimated to be $821.4-million with an 8-per-cent pretax present value of $290.5-million ($3.12 per basic common share) and a 10-per-cent pretax present value of $226.3-million ($2.43 per basic common share). Connacher presently has 93 million common shares outstanding (100.3 million fully diluted).

Connacher's proved, probable and possible reserves at Pod 1 were forecast by GLJ to generate $3.7-billion of future working interest revenue ($3.2-billion after royalties). After deducting future estimated operating costs of $1.3-billion, abandonment and restoration costs of 7.1-million, and the estimated net capital investment over the 36.3-year forecast life of the project (17.2-year half-life) of $468-million, the project is forecast to generate future undiscounted cash flow of $1.49-billion with an 8-per-cent pretax present value of $384.4-million ($4.13 per common share) and a 10-per-cent pretax present value of $287.4-million ($3.09 per common share).

The cut-offs used by GLJ for probable reserves were 15 metres of net pay for proved and probable reserves and 10 metres of net pay for proved, probable and possible reserves.

The report also provided calculations of best estimate resources (greater than 15 metres pay), which included probable reserves at Pod 1, and low-certainty resources (greater than 10 metres pay), which included probable and possible reserves at Pod 1, as well as recognizing the presence of four other pods on Connacher's lands. These additional four pods have insufficient drilling density, seismic mapping or project definition to be categorized as reserves at this time. Additional drilling and seismic activity could result in upgrading these to reserve status over time. In the interim, contingent resources were assigned based on best-estimate mapping of these additional pods and the application of best-estimate and low-certainty recovery factors, as follows.

 
  
         BEST ESTIMATE RESOURCES 
       (Greater than 15 metres pay) 
  
                     Original    Initial 
                   oil-in-place reserves 
                     reserves     (mmstb) 
                      (mmstb) 
  
 Pod 1 (proved and 
 probable reserves)    128.9       69.6 
  
 Pod 2, Pod 2 South     53.8       21.8 
  
 Pod 3, Pod 4           79.5       36.1 
                       -----      ----- 
 Total                 262.4      127.5 
                       =====      ===== 
  
           LOW-CERTAINTY RESERVES 
        (Greater than 10 metres pay) 
  
                     Original    Initial 
                   oil-in-place reserves 
                     reserves     (mmstb) 
                      (mmstb) 
  
 Pod 1 (proved, 
 probable and 
 possible reserves)    178.6      108.3 
  
 Pod 2, Pod 2 South     82.3       45.0 
  
 Pod 3, Pod 4          116.8       66.0 
                       -----      ----- 
 Total                 377.7      219.3 
                       =====      ===== 
 

The GLJ report also concluded that along the channel trend, there was "a likelihood that additional pods will be discovered with additional drilling." Two additional undiscovered pods were assigned 160.6 million barrels of oil in place in the prospective resource category, with initial recoverable prospective resources of 91.6 million barrels.

In total, then, GLJ assigned 538 million barrels of probable and possible oil-in-place reserves and resources to Connacher's existing land base, at its present stage of development. Initial and remaining recoverable reserves and resources totalled 311.2 million barrels of bitumen. All reserve and resource estimates were done on a volumetric basis.