Connacher secures oil sands project financing

NORVAL SCOTT

November 20, 2007

CALGARY -- Connacher Oil and Gas Ltd. says it has secured new financing that will provide the company with enough cash to fully fund its second project in Alberta's oil sands.

In a press release, Connacher said yesterday that it has sold $600-million (U.S.) in senior secured notes to institutional investors, while it has also negotiated a new revolving credit facility with tranches of $150-million (Canadian) and $50-million (U.S.) with a syndicate of banks and financial institutions.

Not only will the proceeds be used to pay off certain debts, but funding will also be provided for the 10,000-barrel-a-day Algar project, allowing Connacher to further its plans of building a network of bite-sized oil sands projects.

"We're in the strongest financial shape we've ever been in," Connacher chief executive Richard Gusella said in a phone interview yesterday.

While major energy firms have sought to exploit the oil sands by building huge projects in the hope of securing economies of scale, Connacher - a Calgary-based junior - has instead sought to avoid the vast costs associated with construction by developing a series of smaller projects.

Earlier this year, the company commissioned the $290-million (Canadian) Great Divide Pod One, its first oil sands project, which is expected to produce 10,000 barrels a day of heavy crude from the Athabasca oil sands for 25 years.

The company hopes to add as many as four more similar developments with the expectation of producing 50,000 barrels a day from the oil sands over the next five to seven years. It has already submitted a regulatory application for Pod Two - also known as Algar - which will cost around $326-million to construct and could be in service by 2009.

The financing secured by Connacher comes on top of the $52-million sale of common shares in the company that was completed Friday, and will fund this winter's drilling program.

Connacher also owns 26 per cent of Calgary-based Petrolifera Petroleum Ltd., which produces oil and gas in Argentina.

Petrolifera's shares sank 18.2 per cent yesterday after the company said its cash flow would be cut by about 8 per cent following the imposition of a new export tax on oil production in Argentina.

The company said it is reconsidering its spending plan in Argentina as a result of the new tax.

Connacher Oil and Gas

Yesterday's close $3.52, down 8¢