Connacher reports significant reserve increases during 2006; proved conventional and bitumen reserves up 3,254 percent; proved and probable conventional and bitumen reserves up 29 percent; conventional proved reserves up 335 percent; conventional proved a
CALGARY, Feb. 28 /CNW/ - Connacher Oil and Gas Limited (CLL - TSX)
announces that the company's conventional and bitumen reserve base expanded
considerably during 2006. The increase in conventional reserves reflects
successful drilling at Three Hills, Alberta and at Battrum, Saskatchewan and
the March 2006 acquisition of Luke Energy Ltd. The recognition of proved
bitumen reserves and the expansion of the company's reserve and resource base
at Great Divide and surrounding areas reflects the regulatory approval and
progress in the construction of the company's facilities at Pod One. It also
reflects the impact of Connacher's ongoing core hole drilling program on its
main lease block in the region.
The estimates are as at December 31, 2006 and do not include any of the
results of Connacher's aggressive drilling program thus far during 2007. The
full impact of this activity will be captured in a mid-year 2007 update report
which will be prepared and reported upon after drilling results, core analysis
and other information are fully assessed by the company and its independent
evaluators, GLJ Petroleum Consultants ("GLJ") of Calgary, Alberta.
The reserve estimates provided herein were prepared by GLJ in a report
("GLJ 2006 Report") with an effective date of December 31, 2006. The GLJ 2006
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"). Prior reports for
Connacher's conventional crude oil and natural gas reserves had been prepared
for the company by DeGolyer and MacNaughton Canada Limited ("D&M"), also an
independent engineering consultant of Calgary, Alberta. These reports had also
been prepared in accordance with the COGE Handbook and NI 51-101. Comparisons
provided herein with respect to conventional reserves are to estimates
contained in a report (the "D&M 2005 Report") with an effective date of
December 31, 2005. The estimates of Connacher's bitumen reserves and resources
as at December 31, 2005 were previously prepared by GLJ ("GLJ 2005 Great
Divide Report").
Readers are cautioned that the conversion used in calculating barrels of
oil equivalent (6 mcf:1 bbl) 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. Also, estimations of reserves and future net revenue to be
discussed in this press release constitute forward-looking statements. See
"Forward Looking Statements" below. All references to future net revenue in
this press release are stated before taxes.
Conventional Reserves
Connacher's conventional reserve base expanded considerably during 2006.
Proved ("1P") crude oil reserves increased 67 percent to 2.4 million
barrels. Proved and probable ("2P") crude oil reserves increased 34 percent to
3.2 million barrels. Proved natural gas reserves increased 8,599 percent to
24.7 Bcf. Proved and probable natural gas reserves increased 5,197 percent to
33.5 Bcf.
On an oil equivalent basis, 1P reserves increased 335 percent to
6.5 million boes. The company's 2P equivalent reserves increased 252 percent
to 8.8 million boes.
The increases reflect the impact of the acquisition during the year of
Luke Energy Ltd. and successful drilling at Battrum, Saskatchewan and at Three
Hills, Alberta during 2006.
Connacher's 2006 production was 2,725 boe/d compared to 867 boe/d in
2005, an increase of 214 percent. On a 1P basis, Connacher replaced 606
percent of its 2006 production and 732 percent on a 2P basis.
The GLJ 2006 Report was prepared utilizing the GLJ December 31, 2006
price deck. The GLJ 2006 Report estimated that Connacher's conventional 1P
reserves would generate $183 million of future net revenue with a 10 percent
present value of $122 million. Future net revenue is calculated after
deduction of forecast royalties, operating expenses, capital expenditures and
well abandonment costs but before corporate overhead or other indirect costs,
including interest and income taxes. Future capital requirements for
Connacher's 1P reserves were estimated at $3.2 million and reserve well
abandonment costs at $4.2 million.
The company's 2P conventional reserves were forecast to generate
$256 million of future net revenue with a 10 percent present value of
$152 million, after deduction of future capital requirements of $4.6 million
and reserve well abandonment costs of $4.7 million.
Bitumen Reserves
Connacher owns a 100% working interest in approximately 90,000 acres of
oil sands leases at its Great Divide project in the Divide area of
north-eastern Alberta, approximately 80 kilometres southwest of Fort McMurray.
Several oil accumulations in the McMurray formation have been identified on
the leases for development, including Pod 1 which contains over 20 metres of
net steam assisted gravity drainage ("SAGD") pay and is currently being
developed. Construction of a 10,000 barrel per day facility at Great Divide is
progressing, with start-up of SAGD operations anticipated in mid-2007. Great
Divide is located close to existing commercial operations at Hangingstone and
access to the Great Divide is via Highway 63. Additional details regarding
Connacher's development at Great Divide can be accessed at
www.connacheroil.com or at www.sedar.com.
The major development for Connacher was the recognition by GLJ of
43.8 million barrels of proved bitumen reserves as at December 31, 2006. No
proved reserves had previously been recognized for Connacher's Great Divide
project. The recognition reflects regulatory approval of and the significant
progress achieved during 2006 at the company's Pod One project, where
construction of a 10,000 barrel per day facility is progressing most
favorably.
Connacher's 2P bitumen reserves also increased 21 percent to reach
84.1 million barrels, compared to 69.6 million barrels at year end 2005.
Proved, probable and possible ("3P") bitumen reserves were estimated at 110
million barrels at year end 2006. These estimates do not include any of the
results from 2007 drilling of core holes at Great Divide, Alberta.
During 2006, GLJ was also able to recognize considerable additional
contingent and prospective resources (as defined in the notes following the
table below) on the Great Divide lands owned by Connacher. Proved reserves
(1P) and low estimate (as defined in the notes following the table below)
contingent resources were estimated at 70.5 million barrels; 2P reserves and
best estimate (as defined in the notes following the table below) contingent
resources were estimated at 188 million barrels; 3P reserves and high estimate
(as defined in the notes following the table below) contingent resources were
estimated at 266 million barrels.
1P reserves and low estimate total resources (contingent and prospective)
were estimated at 110 million barrels; 2P reserves and best estimate total
resources were estimated at 261 million barrels and 3P reserves and high
estimate total resources were estimated at 479 million barrels.
The GLJ 2006 Report estimated Connacher's 1P bitumen reserves would
generate $520 million of future net revenue with a 10 percent present value of
$191 million, after deduction of future capital requirements of $269 million
and abandonment costs of $5.6 million.
2P bitumen reserves were forecast to generate $1.3 billion of future net
revenue with a 10 percent present value of $376 million, after future capital
of $412 million and abandonment costs of $9.1 million.
3P bitumen reserves were forecast to generate $1.9 billion of future net
revenue with a 10 percent present value of $464 million, after future capital
of $494 million and abandonment costs of $11.9 million.
2P Reserves and best estimate contingent resources were forecast to
generate $2.9 billion of future net revenue with a 10 percent present value of
$584 million, after future additional capital to develop the contingent
resources of $812 million and $16.4 million of abandonment.
2P reserves and best estimate total (contingent and prospective)
resources were forecast to generate $3.9 billion of future net revenue with a
10 percent present value of $778 million, after future capital of $1.8 billion
and abandonment costs of $36 million. Under this scenario, future annual
production is forecast by GLJ to peak at 28,977 bbl/d in 2012.
3P reserves and high estimate total resources were forecast to generate
$8.1 billion of future net revenue with a 10 percent present value of
$1.2 billion after future capital of $3.4 billion and abandonment costs of
$75 million. Under this scenario, future annual production is forecast by GLJ
to peak at 40,284 barrels per day in 2012.
The resource volumes have not been classified as reserves at this time,
pending further delineation drilling, development planning, project design and
further regulatory applications. The resource values should be considered
indicative in nature only, pending further design work to confirm timing and
capital estimates.
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 December 31, 2006 were
estimated by GLJ to be 50.4 million boes, an increase of 3,254 percent over
year end 2005.
Connacher's 2P equivalent reserves increased 29 percent to 93 million
boes at December 31, 2006 compared to 72.1 million boes at year end 2005.
The company's 2P reserves are forecast to generate $1.6 billion of future
net revenue with a 10 percent present value of $529 million, after future
capital of $417 million and abandonment costs of $13.7 million. This
represents a 160 percent year over year increase in the 10 percent present
values.
On a per share basis the calculated present value equates to
approximately $2.67 per Connacher common share outstanding, before provision
for the value of contingent and prospective resources as estimated in the GLJ
2006 Report. There are presently approximately 198 million Connacher common
shares outstanding.
No reserve volumes or future net revenue or present value thereof was
assigned herein to Connacher's equity interest in Petrolifera Petroleum
Limited's crude oil and natural gas reserves in Argentina.
A detailed breakdown of reserves by category and other disclosure items
related to the reserve reports referenced herein will be included in the
company's Annual Report and in its Annual Information Form ("AIF") which will
be filed on SEDAR at www.sedar.com.
Unproved Property Valuation
Connacher retained Sayer Energy Advisors ("Sayer"), independent energy
advisors of Calgary, Alberta, to conduct an evaluation of its unproved
properties in Western Canada. Sayer completed a report (the "Sayer Report")
with an effective date of December 31, 2006. It was prepared according to
Standard of Disclosure for Oil and gas activities described in NI 51-101.
Sayer assigned a low value of $14.9 million, a median value of
$16.2 million and a high value of $17.6 million to Connacher's 64,102.1 net
hectares of petroleum and natural gas rights held in the Provinces of Alberta,
British Columbia and Saskatchewan as at December 31, 2006. The valuation does
not include any of Connacher's bitumen rights which are evaluated within the
GLJ 2006 Report.Summary Tables
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Connacher Oil and Gas Limited
Conventional Canadian Reserves
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OIL & NGLs (mbbl) NATURAL GAS (mmcf) Equivalent (mboes)
31/12/ 31/12/ % 31/12/ 31/12/ % 31/12/ 31/12/ %
05 06 change 05 06 change 05 06 change
Proved
(1P)(1) 1,454 2,422 67% 284 24,706 8,599% 1,502 6,540 335%
Probable(2) 936 786 -16% 348 8,773 2,421% 994 2,248 126%
-------------- ------------- --------------
Proved +
Probable
(2P)(1)(2) 2,390 3,208 34% 632 33,479 5,197% 2,496 8,788 252%
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Connacher Oil and Gas Limited
Great Divide Bitumen Reserves and Resources (mbbl)
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31/12/05 31/12/06 %
change
Proved (1P)(1) 0 43,841
Proved and Probable (2P)(1)(2) 69,604 84,147 21%
Proved, Probable and Possible(1)(2)(3) 108,327 109,861 1%
1P + Low Estimate Contingent Resources(1)(4)(6) 0 70,533
2P + Best Estimate Contingent
Resources(1)(2)(4)(7) 0 187,818
3P + High Estimate Contingent
Resources(1)(2)(3)(4)(8) 0 265,723
1P+ Low Estimate Total Resources (1)(6)(9) 0 110,477
2P + Best Estimate Total Resources(1)(2)(7)(9) 0 260,625
3P + High Estimate Total Resources(1)(2)(3)(8)(9) 0 478,953
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Connacher Oil and Gas Limited
Combined Conventional and Bitumen Reserves (mboes)
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31/12 31/12 %
2005 2006 change
Proved Conventional(1) 1,502 6,540
Proved Bitumen(1) 0 43,841
-------------------
Total Proved (1P)(1) 1,502 50,381 3,254%
Probable Conventional(2) 994 2,248
Probable Bitumen(2) 69,604 40,306
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Total Probable(2) 70,598 42,554 -40%
Proved + Probable Conventional (2P)(1)(2) 2,496 8,788
Proved + Probable Bitumen(1)(2) 69,604 84,147
-------------------
Total 2P(1)(2) 72,100 92,935 29%
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Connacher Oil and Gas Limited
10% Present Value of Future Net Revenue
Bitumen Reserves and Resources
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($000)
31/12/05 31/12/06 YOY
%
change
Proved (1P)(1) 0 190,721
2P(1)(2) 167,802 376,398 124%
3P(1)(2)(3) 227,566 464,059 104%
1P + Low Estimate Contingent Resources(1)(4)(6) 0 243,198
2P + Best Estimate Contingent
Resources(1)(2)(4)(7) 0 584,014
3P + High Estimate Contingent
Resources(1)(2)(3)(4)(8) 0 813,795
1P + Low Estimate Total Resources(1)(6)(9) 0 486,727
2P + Best Estimate Total Resources(1)(2)(7)(9) 0 778,093
3P+ High Estimate Total Resources(1)(2)(3)(8)(9) 0 1,245,053
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Connacher Oil and Gas Limited
10% Present Value of Future Net Revenue
Total Company (Conventional and Bitumen)(10)
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($000)
2005 2006 %
change
Proved Conventional(1) 22,826 121,672
Proved Bitumen(1) 0 190,721
-------------------
Total Proved (1P)(1) 22,826 312,394 1,269%
Probable Conventional(2) 12,424 30,743
Probable Bitumen(2) 167,802 185,677
-------------------
Total Probable(2) 180,226 216,420 20%
P+P Conventional (2P)(1)(2) 35,250 152,415
P+P Bitumen (2P)(1)(2) 167,802 376,398
-------------------
P+P Total (2P)(1)(2) 203,052 528,813 160%
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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.
Possible reserves were 25.7 million barrels in the GLJ 2006 Report,
38.7 million barrels in the GLJ 2005 Great Divide Report and
1.1 million boe's in the D&M 2005 Report, respectively.
(4) Contingent resources are those quantities of oil and gas estimated on
a given date to be potentially recoverable from known accumulations
but are not currently economic. GLJ has categorized these resources
as contingent as additional delineation drilling, development
planning, project design and further regulatory applications are
required.
(5) Prospective resources are those quantities of oil and gas estimated
on a given date to be potentially recoverable from undiscovered
accumulations. If discovered, they would be technically and
economically viable to recover.
(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 (P(50)).
(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 P(10) confidence
level.
(9) Total resources includes contingent resources and prospective
resources.
(10)Does not include bitumen resources or undeveloped land value.Forward Looking Statements
This press release contains forward-looking statements, including but not
limited to estimated reserves and future net revenues, future capital
expenditures, estimated well abandonment costs and anticipated production.
These statements are 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 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 and the risk associated with changes in legislation related to
royalties, taxation and environmental matters. Additional risks and
uncertainties are described in the company's Annual Information Form which is
filed on SEDAR at www.sedar.com.
The reserves and future net revenue in this press release represent
estimates only. The reserves and future net revenue from the company's
properties have been independently evaluated by GLJ and D&M with effective
dates of December 31, 2006 and December 31, 2005, respectively. These
evaluations include 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 crude oil and natural gas, operating costs,
abandonment and salvage values, royalties and other government levies that may
be imposed during the producing life of the reserves. These assumptions were
based on price forecasts in use at December 31, 2005 in the case of D&M and
GLJ and at December 31, 2006 in the case of GLJ and many of these assumptions
are subject to change and are beyond the control of the company. Actual
production, sales and cash flows derived therefrom will vary from the
evaluation and such variations could be material. The present value of
estimated future net cash flows referred to herein should not be construed as
the current market value of estimated crude oil and natural gas reserves
attributable to the company's properties. There can be no assurance that
prospective resources will be discovered or that contingencies relating to the
contingent resources will be satisfied such that these resources may be
classified as reserves. Estimates of future net revenue do not represent fair
market value.
Due to the risks, uncertainties and assumptions inherent in
forward-looking statements, prospective investors in the company's securities
should not place undue reliance on these forward-looking statements. Forward
looking statements contained in this press release are made as of the date
hereof and are subject to change. The company assumes no obligation to revise
or update forward looking statements to reflect new circumstances, except as
required by law.
For further information:
For further information: Richard A Gusella, President and Chief executive Officer, Connacher Oil and Gas Limited, Phone: (403) 538-6201, Fax: (403) 538-6225, inquiries@connacheroil.com, www.connacheroil.com