Connacher Oil's 2P reserves increase 104% in six months
2008-07-23 11:45 ET - News Release
Mr. Richard Gusella reports
CONNACHER REPORTS SIGNIFICANT INCREASES IN RESERVE VOLUMES AND PRE-TAX PRESENT VALUES SINCE YEAR END 2007
Connacher Oil and Gas Ltd. has significantly expanded the company's reserves, resources and related 10-per-cent pretax 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, and resources refers to bitumen resources. Certain amounts cited herein have been rounded for presentation purposes.
Highlights
Bitumen:
- Total proved reserves (1P) were up 108 per cent to 110 million barrels (pretax 10-per-cent PV of future net revenue estimated at $899-million ($4.26 per basic Connacher common share outstanding -- 211 million shares outstanding at June 30, 2008)).
- Total proved and probable reserves (2P) were up 109 per cent to 372 million barrels (pretax 10-per-cent PV of future net revenue estimated at $2-billion ($9.66 per common share)).
- Total proved, probable and possible reserves (3P) were up 83 per cent to 444 million barrels (pretax 10-per-cent PV of future net revenue estimated at $3-billion ($14.20 per common share), compared with $1.2-billion ($5.55 per share) at Dec. 31, 2007).
- 2P plus best-estimate contingent resources were up 65 per cent to 502 million barrels (pretax 10-per-cent PV of future net revenue of $2.3-billion ($10.90 per share)).
- 2P plus best-estimate contingent and prospective resources were up 40 per cent to 583 million barrels (pretax 10-per-cent PV of future net revenue of $2.5-billion ($11.95 per share)).
- 3P plus high-estimate contingent and prospective resources were up 6 per cent to 843 million barrels (pretax 10-per-cent PV of future net revenue of $4.1-billion ($19.40 per share)).
Conventional:
- 1P reserves up 7 per cent to 7.3 million barrels of oil equivalent (pretax 10-per-cent PV of future net revenue of $182-million (86 cents per share)).
- 2P reserves up 6 per cent to 9.99 million barrels of oil equivalent (pretax 10-per-cent PV of future net revenue of $229-million ($1.09 per share)).
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, the anticipated near-term approval of Algar or Pod Two, the company's second 10,000-barrel-per-day bitumen project at Great Divide, and the impact of Connacher's first quarter 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 in Alberta, reflecting early stage exploration in this region. The increase in conventional reserves reflects successful drilling, also conducted during the first quarter of 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 with that used at Dec. 31, 2007.
Total corporate 2P reserves at June 30, 2008, increased 104 per cent to 382 million barrels, from 187 million barrels at Dec. 31, 2007. The 10-per-cent pretax present value for these 2P reserves increased 90 per cent over Dec. 31, 2007, estimates, from $1.2-billion to $2.3-billion ($10.75 per common share). The 10-per-cent pretax present value of 2P reserves plus best-estimate contingent and prospective resources increased to $2.8-billion ($13.27 per common share), compared with $1.9-billion ($9.05 per common share) at Dec. 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 midyear 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 with those estimated at year-end 2007. For example, there was, respectively, a 108-per-cent, 109-per-cent and 83-per-cent increase in 1P, 2P and 3P bitumen reserves, and a 90-per-cent increase in the 10-per-cent present values assigned to Connacher's 2P bitumen and conventional reserves at June 30, 2008, compared with the year-end 2007 estimates for this category.
The reserve estimates provided herein were prepared by GLJ in a report with an effective date of June 30, 2008. The GLJ 2008 midyear report was prepared using assumptions and methodology guidelines outlined in the Canadian Oil and Gas Evaluation Handbook (COGE) and in accordance with National Instrument 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 Dec. 31, 2007. 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 midyear report was prepared using the GLJ July 1, 2008, price forecast, effective June 30, 2008. Readers are referred to the notes to the summary tables included in this news release for details regarding the price forecast used in the GLJ 2008 midyear report.
The GLJ 2007 report and the GLJ 2008 midyear 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-per-cent to 18-per-cent reduction in the estimated 10-per-cent pretax 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-per-cent pretax 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 news release in such circumstances.
All references to barrel of oil equivalent are calculated on the basis of six thousand cubic feet to one barrel. 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, barrel of oil equivalent may be misleading if used in isolation. Future net revenues disclosed herein do not represent fair market value.
Bitumen reserves and resources
Connacher owns a 100-per-cent 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 in 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-estimate 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 totalled 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 the company's website and on SEDAR. 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 on SEDAR. In June, 2007, the company applied to develop a similar 10,000-barrel-per-day facility at Pod Two or Algar and it is awaiting regulatory approval. Reserves were assigned to Pod One, Pod Two or Algar, pods four and five at Algar (phase II), while contingent and prospective resources were assigned to all the aforementioned pods and to pods three, six and seven 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 Dec. 31, 2007, Connacher's 1P bitumen reserves increased 108 per cent 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 per cent to reach 372 million barrels, compared with 178 million barrels at year-end 2007. 3P bitumen reserves were estimated at 444 million barrels at June 30, 2008, compared with 242 million barrels at Dec. 31, 2007, an increase of 83 per cent.
During 2008, GLJ was also able to continue its recognition of contingent and prospective resources 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 midyear report estimated Connacher's 1P bitumen reserves would generate $4.4-billion of future net revenue, with a 10-per-cent pretax 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-per-cent pretax 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-per-cent pretax 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-per-cent pretax 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-per-cent pretax 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-per-cent pretax 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-per-cent pretax 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-per-cent pretax 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 7 per cent to 7.3 million barrels of oil equivalent after producing 550,000 barrels of oil equivalent in the first half of 2008. The company's 2P equivalent reserves increased 6 per cent to 20 million barrels of oil equivalent.
The increases primarily reflect the successful drilling at Marten Creek, Randall, Three Hills and Gilby in Alberta.
The GLJ 2008 midyear report estimated that Connacher's conventional 1P reserves would generate $284-million of future net revenue, with a 10-per-cent pretax 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-per-cent pretax 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 barrels of oil equivalent, an increase of 96 per cent over year-end 2007.
Connacher's 2P equivalent reserves increased 104 per cent to 381 million barrels of oil equivalent at June 30, 2008, compared with 187 million barrels of oil equivalent 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-per-cent pretax 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-per-cent increase in the 10-per-cent pretax present value, compared with year-end 2007.
On a per-share basis, this estimated pretax 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 midyear 2008 report, the value of the company's refinery and its investment in Petrolifera Petroleum Ltd., 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 were assigned herein to Connacher's 24-per-cent equity interest in Petrolifera Petroleum's crude oil and natural gas reserves in Argentina.
BITUMEN RESERVES AND RESOURCES (9) (thousands of barrels) Dec. 31, June 30, 2007 2008 Proved reserves (1P)(1) 53,016 110,202 Proved and probable reserves (2P)(1)(2) 177,792 371,505 Proved, probable and possible reserves (3P)(1)(2)(3) 242,009 443,802 Low-estimate contingent resources (4)(6) 61,325 198,965 Best-estimate contingent resources (4)(7) 125,531 130,206 High-estimate contingent resources (4)(8) 209,855 185,681 1P plus low-estimate contingent resources (1)(4)(6) 114,340 309,167 2P plus best-estimate contingent resources (1)(2)(4)(7) 303,323 501,711 3P plus high-estimate contingent resources (1)(2)(3)(4)(8) 451,895 629,483 Low-estimate prospective resources (5)(6) 0 0 Best-estimate prospective resources (5)(7) 113,398 81,278 High-estimate prospective resources (5)(8) 347,133 213,588 1P plus low-estimate contingent and prospective resources (1)(4)(5)(6)(9) 114,340 309,167 2P plus best-estimate contingent and prospective resources (1)(2)(4)(5)(7)(9) 416,720 582,989 3P plus high-estimate contingent and prospective resources (1)(2)(3)(4)(5)(8)(9) 799,028 843,072
CONVENTIONAL CANADIAN RESERVES (10) Equivalent Light/medium oil/NGL Natural gas (million barrels (thousands of barrels) (million cubic feet) of oil equivalent) Dec. 31, June 30, Dec. 31, June 30, Dec. 31, June 30, 2007 2008 2007 2008 2007 2008 Proved reserves (1P)(1) 2,356 2,430 26,916 29,431 6,842 7,335 Probable reserves (2) 694 770 11,535 11,283 2,617 2,651 ------- ------- ------- ------- ------- ------- Proved plus probable reserves (2P)(1)(2) 3,050 3,200 38,451 40,714 9,459 9,986 ======= ======= ======= ======= ======= =======
COMBINED CONVENTIONAL AND BITUMEN RESERVES (10) (million barrels of oil equivalent) Dec. 31, June 30, 2007 2008 Proved conventional reserves (1) 6,842 7,335 Proved bitumen reserves (1) 53,016 110,202 -------- -------- Total proved reserves (1P)(1) 59,857 117,537 Probable conventional reserves (2) 2,617 2,651 Probable bitumen reserves (2) 124,776 261,303 -------- -------- Total probable reserves (2) 127,393 263,954 Proved plus probable conventional reserves (2P)(1)(2) 9,459 9,986 Proved plus probable bitumen reserves (1)(2) 177,792 371,505 -------- -------- Total 2P reserves (1)(2) 187,250 381,491 ======== ========
10-PER-CENT PRESENT VALUE OF FUTURE NET REVENUE (9) (bitumen reserves and resources -- before tax) (in millions of dollars) Dec. 31, June 30, 2007 2008 Proved reserves (1P)(1) 492 899 Proved and probable reserves (2P)(1)(2) 1,051 2,039 Proved, probable and possible reserves (3P)(1)(2)(3) 1,165 2,996 Low-estimate contingent resources (4)(6) 142 573 Best-estimate contingent resources (4)(7) 348 260 High-estimate contingent resources (4)(8) 742 557 1P plus low-estimate contingent resources (1)(4)(6) 634 1,472 2P plus best-estimate contingent resources (1)(2)(4)(7) 1,399 2,300 3P plus high-estimate contingent resources (1)(2)(3)(4)(8) 1,906 3,553 Low-estimate prospective resources (5)(6) 0 0 Best-estimate prospective resources (5)(7) 379 222 High-estimate prospective resources (5)(8) 724 540 1P plus low-estimate contingent and prospective resources (1)(4)(5)(6)(9) 634 1,472 2P plus best-estimate contingent and prospective resources (1)(2)(4)(5)(7)(9) 1,778 2,522 3P plus high-estimate contingent and prospective resources (1)(2)(3)(4)(5)(8)(9) 2,631 4,093
10-PER-CENT PRESENT VALUE OF FUTURE NET REVENUE (10) (total company (conventional and bitumen) -- before tax) (in millions of dollars) Dec. 31, June 30, 2007 2008 Proved conventional reserves (1) 112 182 Proved bitumen reserves (1) 492 899 -------- -------- Total proved reserves (1P)(1) 603 1,081 Probable conventional reserves (2) 32 48 Probable bitumen reserves (2) 559 1,140 -------- -------- Total probable reserves (2) 591 1,188 Proved plus probable conventional reserves (2P)(1)(2) 143 230 Proved plus probable bitumen reserves (1)(2) 1,051 2,039 -------- -------- Total 2P reserves (1)(2) 1,194 2,269 ======== ======== Notes: (1) Proved reserves are those reserves that can be estimated with a high degree of certainty to be recoverable. It is 90 per 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-per-cent 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) This does not include bitumen resources or undeveloped land value.
PRICING ASSUMPTIONS IN THE GLJ MIDYEAR 2008 REPORT Bitumen Natural gas (wellhead) WTI (AECO) (in Canadian (in U.S. (in Canadian dollars) dollars) dollars) 2008 third quarter/fourth quarter $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 plus 2 plus 2 plus 2 per cent per cent per cent per year per year per year
$4.0748 (07/28/08)
