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Connacher Releases Third Quarter Results and Operational Update and 2013 Capital Budget

Wednesday, November 14, 2012 6:48 PM


CALGARY, Nov. 14, 2012 /CNW/ - Connacher Oil and Gas Limited (CLL-TSX) ("Connacher" or "the Company") today released operating and financial results for the three and nine-month period ended September 30, 2012, a summary of which is set out below. Subsequent to the previously announced sale of its Montana refinery (the "Refinery") and conventional oil and gas business units, Connacher is now a single purpose Company active solely in the development, production and sale of bitumen. Consequently, the disposed business units are now classified as "Assets Held for Sale" and "Discontinued Operations" in the third quarter 2012 financial statements ("Q3 2012") and results will not necessarily be comparable to prior reporting periods. Copies of Connacher's Q3 2012 financial statements and management's discussion and analysis ("MD&A") are available on SEDAR at www.sedar.com.

Results

                                       
FINANCIAL ($000 except per share amounts)     Q3 2012     Q3 2011     %     YTD 2012     YTD 2011     %
Revenue, continuing operations (1)     $100,829     $100,231     1     $289,987     $310,650     (7)
EBITDA, continuing operations     10,114     18,278     (45)     29,489     51,137     (42)
EBITDA, discontinued operations     23,526     16,824     40     54,269     31,225     74
EBITDA (2)     33,640     35,102     (4)     83,758     82,362     2
Net earnings (loss), continuing operations     (25,379)     (4,591)           (68,645)     (93,734)      
Net earnings (loss), discontinued operations     13,697     8,233           (8,657)     39,106      
Net earnings (loss)     (11,682)     3,642           $(77,302)     $(54,628)      
Basic and Diluted per share     (0.03)     0.01           (0.17)     (0.12)      
Capital expenditures     4,408     46,940     (91)     32,091     126,758     (75)
Cash on hand     39,643     81,744     (52)     39,643     81,744     (52)
Working capital surplus (deficit)     110,935     50,801     118     110,935     50,801     118
Long-term debt      842,972     865,540     (3)     842,972     865,540     (3)
Shareholders' equity     $340,869     $477,358     (29)     $340,869     $477,358     (29)
                                     
OPERATIONAL - CONTINUING OPERATIONS     Q3 2012     Q3 2011     %     YTD 2012     YTD 2011     %
Daily production volumes (3)                                    
  Bitumen - bbl/d     11,478     13,454     (15)     11,860     13,459     (12)
Selected highlights                                    
  Realized Bitumen sales price - $/bbl(4)     38.12     40.98     (7)     38.79     45.76     (15)
  Royalties     2.15     2.13     1     2.49     2.75     (9)
Operating costs     20.35     18.83     8     18.40     20.17     (10)
  Netback (2)     15.62     20.03     (22)     20.39     22.84     (11)

(1) Net of royalties, and eliminating intercompany sales
(2) A non-GAAP measure which is defined in the Advisory section of the MD&A
(3) Represents bitumen produced in the period. Actual sales volumes may be different due to the inventory at the period end
(4) Before royalties and risk management contract gains or losses and after applicable diluent and transportation costs divided by actual sales volumes

Operating and financial results from continuing operations for Q3 2012 were lower than the comparable period of 2011 ("Q3 2011") primarily due to lower production as a result of the scheduled turnaround at Pod One and natural production declines.

As previously advised, the Board of Directors of Connacher, with the assistance of Goldman Sachs and RBC Capital Markets, has conducted a detailed strategic review of the Company's operations and future growth potential. After review of available options the Board of Directors has determined that the sale of the Refinery and conventional properties, combined with the ability to conduct a meaningful capital program relating to growth projects at Great Divide is the best available option for the Company at this time. The strategic review included discussions with a number of parties relating to an array of possible transactions. To date, Connacher has not received any compelling offers for a significant joint venture, sale or business combination involving the Company. Recent geopolitical decisions regarding foreign investment in Canada have resulted in uncertainty and, until clarified, impact the future outlook for strategic initiatives involving foreign entities.  However, when and if appropriate, Connacher will continue to consider any opportunities which may arise, including discussions with third parties regarding participation in the Company's future growth and expansion plans.

The recent transactions as described above have significantly strengthened Connacher's liquidity position. As at October 5, 2012, following repayment of amounts borrowed under the Company's lending facility, Connacher's working capital position included cash of $118 million. The Company is now positioned to execute a meaningful capital expenditure program including maintenance and capital projects designed to increase production and improve wellhead netbacks. In this regard, the Board of Directors has approved a 2013 capital budget of $95 million; consisting of $27 million in sustaining capital and $68 million for new development projects to "fill the plants".

The "fill the plants" initiative consists of three development drilling projects:

  • Drilling Pad 104 at Pod One - four new well pairs will be drilled in 2013

In July 2011 Connacher received ERCB approval for a 10 well pair development on Pad 104 at Pod One. The oil zone underlying Pad 104 possesses some of the thickest pay in Pod One.  Additionally, the gas cap overlying the pad is being re-pressured. Once drilled and completed, the wells will be placed on gas lift and electrical submersible pumps (ESP) will be installed as required. Estimated cost for the initial four well pairs is approximately $33 million with approximately half of the cost relating to drilling and the other half relating to surface facilities. It is anticipated that a further three well pairs may be drilled in 2014 as steam becomes available with the remaining three well pairs drilled in subsequent years.

  • Infill drilling at Pod One - up to four infill wells will be drilled in 2013

The purpose of infill wells is to produce heated bitumen that cannot be drained by existing production wells. Connacher plans to drill a minimum of two and as many as four infill wells based on results.  Eleven infill well locations exist at Pod One.

  • Algar redrills - one well pair will be redrilled in 2013

At Algar a new well pair will be drilled offsetting an original edge well pair that has performed below expectations.

In addition, capital will be allocated for additional SAGD+TM (the injection of solvent with steam) well testing in 2013 with a commercial decision expected in the second quarter of 2013. The partially constructed diluent recovery unit ("DRU"), which is designed to improve netbacks by reducing the amount of diluent used, will also be completed in 2013.

Connacher continues to develop its "dilbit by rail" strategy, expanding the Company's reach into a variety of North American markets, and expects to market in excess of 60% of bitumen production by rail in 2013. This strategy allows the Company to maximize pricing of diluted bitumen railed to refineries not currently accessible by pipeline, due in part to volatility in pricing differentials across various North American crude oil markets.

As previously announced, Connacher has been advised that the Energy Resources Conservation Board ("ERCB") has granted approval for the development of its 24,000 bbl/d Great Divide Expansion Project. This approval represents a significant milestone in the future development of the Company's substantial reserve base and allows the Company to advance its evaluation of the costs, timing and financing alternatives available to pursue this expansion project.

As a result of the sale of the Company's conventional oil and gas assets, Stephen Marston, Vice President, Exploration, Land and A&D has left the Company to pursue other interests. The Company wishes to thank Mr. Marston for his many years of dedicated service to the growth of Connacher's oil sands assets and wishes him well in his future endeavours.

About Connacher

Connacher Oil and Gas Limited is a single purpose Company active in the development, production and sale of bitumen. The Company's principal assets are holdings in the Great Divide oil sands project in northern Alberta, south of Fort McMurray.

NonGAAP Measurements:

This press release contains terms commonly used in the oil and gas industry, such as netback and earnings before interest, taxes, depreciation and amortization ("EBITDA"). These terms are not defined by the financial measures used by Connacher to prepare its financial statements and are referred to herein as non‐GAAP measures. These non‐GAAP measures should not be considered an alternative to, or more meaningful than, cash provided by operating activities or net earnings (loss) as determined in accordance with Canadian GAAP as an indicator of Connacher's performance. Management believes that in addition to net earnings (loss), netbacks and EBITDA are useful financial measurements which assist in demonstrating the Company's ability to make interest payments, fund capital expenditures necessary for future growth or to repay debt. Connacher's determination of netbacks and EBITDA may not be comparable to that reported by other companies. Netbacks are calculated by deducting the related diluent, transportation, field operating costs and royalties from oil sands revenues. EBITDA is calculated as net earnings (loss) from continuing operations before finance charges, current and deferred income tax provisions and recoveries, depletion, depreciation and amortization, exploration and evaluation expense, share‐based compensation, foreign exchange gains/losses, unrealized gains/losses on risk management contracts, interest and other income, gain (loss) on disposition of assets, defined benefit plan expense, share of interest in and loss on associate and refinancing of long‐term debt. Netbacks and EBITDA are reconciled to net earning (loss) in the Company's MD&A for the three and nine months ended September 30, 2012 and 2011.

Forward Looking Information:

This press release contains forward looking information including expectations for future capital expenditures, growth potential associated with certain maintenance and capital projects to be undertaken at Pod One and Algar including the expected costs, timing and impact thereof on production and wellhead netbacks, the anticipated timing of a commercial decision with respect to SAGD+TM and completion of the DRU at Pod One, expectations regarding the amount of the Company's bitumen to be marketed by rail in 2013, and general operational and financial performance in future periods.

Forward looking information is based on management's expectations regarding the Company's future financial position, the Company's future growth, results of operations and production, future commodity prices and foreign exchange rates, future capital and other expenditures (including the amount, nature and sources of funding thereof), plans for and results of drilling activity, environmental matters, business prospects and opportunities and future economic conditions.  Estimates regarding future production levels are based on anticipated SORs, reservoir performance and past production performance based on historical results.  Forward looking information involves significant known and unknown risks and uncertainties, which could cause actual results to differ materially from those anticipated. These risks include, but are not limited to: the 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 and resource estimates, the uncertainty of geological interpretations, the uncertainty of estimates and projections relating to production, costs and expenses, and health, safety and environmental risks), risk of commodity price and foreign exchange rate fluctuations, risks associated with the impact of general economic conditions, risks and uncertainties associated with maintaining the necessary regulatory approvals and securing the financing to proceed with the operation and continued expansion of the Great Divide oil sands project.

Additional risks and uncertainties affecting Connacher and its business and affairs are described in further detail in Connacher's Annual Information Form for the year ended December 31, 2011, which is available at www.sedar.com. Although Connacher believes that the expectations in such forward looking information are reasonable, there can be no assurance that such expectations shall prove to be correct. The forward looking information included in this press release is expressly qualified in its entirety by this cautionary statement. The forward looking information included herein is made as of the date of this press release and Connacher assumes no obligation to update or revise any forward looking information to reflect new events or circumstances, except as required by law.

In addition, design capacity is not necessarily indicative of the stabilized production levels or steam capacity that may ultimately be achieved at Connacher's SAGD facilities and future production rates may differ materially from the production rates reflected in this presentation due to, among other factors, difficulties or interruptions encountered during the production of bitumen or other hydrocarbons.


 

 

 

 

 

SOURCE: Connacher Oil and Gas Limited

Peter D. Sametz or Kelly J. Ogle
Phone: 403 538-6201
inquiries@connacheroil.com

(Source: CNW )
(Source: Quotemedia)

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