LETTER TO SHAREHOLDERS/ Copied from comtex

Connacher experienced a productive and rewarding second quarterand first half of 2008. Developments of consequence primarily revolvedaround our activity in the oil sands at Great Divide. We declaredcommerciality at Pod One effective March 1, 2008. All revenues, costsand related cash and non-cash expenses are now included in ourfinancial and operating results. To our knowledge, this was thequickest commerciality declaration of any oil sands plant andoperation. It continued our legacy of doing things on time and at afast pace, consistent with our approach of emphasizing the efficiencyof small scale operations using an oil-field approach in the oil sands.

Our production ramp up at Pod One has proceeded favorably,although like other operators in the oil sands space, was not withoutnormal operational challenges. As we have ramped up production, we haveencountered what we would categorize as minor challenges during ourfirst six months of production and plant operation. These have includedthe need for a minor turnaround to clean material from our variousvessels and the need to manage associated vapors by debottleneckingrelated facilities. That being said, overall we have exceeded theexpectations of GLJ, our independent reservoir evaluator and we aremoving ahead towards our goal of 10,000 bbl/d of bitumen on asustainable basis with solid anticipation for later in 2008. Reservoirperformance to date has been very encouraging, with steam-to-oil ratiosnow in the sub-three to one range in most of our Steam Assisted GravityDrainage ("SAGD") well pairs. Achieving design capacity will allow usto reduce operating costs and enjoy a more predictable and sustainablerevenue flow, impacted as we are by crude oil prices in North Americanmarkets. A three or four day scheduled turnaround for September 2008will impact on calculated daily bitumen production rates for the thirdquarter and full year 2008.

The high current oil price regime with narrowing differentialsfor heavy oil, as generally experienced in the first half of 2008,provided us with attractive bitumen wellhead prices and strongnetbacks. Our refining business enables us to recoup a portion ofwidened differentials, should they re- emerge, so we have a lessvolatile and more predictable revenue and cash flow stream as a resultof our integrated strategy. This, of course, is what enabled us tosuccessfully access the long-term debt market in the USA last year;without this model, only short-term, higher risk funding would havebeen available to us to finance our Algar project. This would not havebeen a very satisfactory solution and it also precluded Connacher fromexposure to weak equity markets and dilution through either selling newequity or disposing of working interests in our oil sands properties,with neither of these alternatives viewed by management as satisfactoryto our shareholders.

In July, subsequent to the reporting period, we were able toreport a significant and consequential increase in the company'sreserve base as at June 30, 2008. This was as a result of the 128 corehole drilling program and our expanded 3D coverage on our oil sandsproperties at Great Divide and at Halfway Creek, Alberta ("Halfway"),which we conducted in the first quarter of 2008. Proved ("1P"), provedand probable ("2P") and proved, probable and possible ("3P") reserves,contingent resources and prospective resources were assigned toConnacher's properties at Great Divide and Halfway. Only minorprospective resources were assigned to Halfway, which is in theearliest stages of evaluation. The reserves and resource evaluation wasprepared by GLJ and was contained in a report ("GLJ Report") with aneffective date of June 30, 2008 prepared using the GLJ price deckeffective July 1, 2008. The company's total reserve volumes increasedby over 100 percent in the case of 1P and 2P reserves and by about 80percent for 3P reserves. When high estimate contingent and prospectiveresources were included with 3P reserves, the 10 pre-tax percentpresent value of future net revenue (after deducting future capital,operating costs and royalties but before indirect charges such asinterest or general and administrative expenditures) was forecast toexceed $4 billion, which augers well for our future if these estimatesare realized.

A full description of the results of the GLJ Report wascontained in a press release dated July 23, 2008, which is posted onour website at www.connacheroil.com.Our reserve report estimates and the positive results quantified anddescribed therein were also the subject of a Material Change Reportposted on SEDAR at www.sedar.com.Connacher's consistent application of its evaluation strategy, using 3Dseismic and subsequent core hole drilling has served to expand thein-place bitumen estimates and reserves and resources estimated to bederived therefrom. These provide the basis for the company's longerterm plans to expand its productive capacity to over 50,000 bbl/d bythe middle of the next decade as the evaluation process is appliedconsistently.

At this writing, we continue to await final and formalregulatory approval of our application to construct a second 10,000bbl/d SAGD bitumen recovery project at Algar or Pod Two. Ourapplication has been with the regulators for over one year now and weare hopeful that a decision will be rendered shortly. We are fullyfinanced to proceed and are ready to commence construction. Most of thelong lead items for the Algar facility have been ordered and this willhelp us in controlling costs in an inflationary environment. Totalcosts for Algar, including site preparation, facility construction anddrilling of the SAGD well pairs continue to be finalized. Availablecash, anticipated cash flow and funds available under its revolvingcredit facilities are judged to be sufficient to fully fund thecompany's capital program in 2008 and to complete Algar in 2009.

We remain hopeful we can secure approvals in time to be able toachieve ramped up production by the middle to latter part of 2010. Inrelation thereto, we continue to evaluate longer term pipelinealternatives for both Algar and Pod One, although we are beingwell-served by our trucking operation at Pod One. As volume is thedetermining factor in pipeline economics, once there is distinctvisibility for the completion of Algar, we will likely move to cause apipeline solution to be introduced for Great Divide production andplanned longer-term expansion of productivity from the area. We alsointend to proceed with the construction of a cogeneration plant toprovide reliable energy sources for our operations in anenvironmentally-friendly manner.

Our conventional properties have performed well for Connacherduring the first half of 2008, with healthy volume increases andattractive selling prices for our expanded production base. We arepleased with results at Randall, Three Hills and Gilby in Alberta andcontinue to thoroughly evaluate our properties for economic expansionof their reserve and production base. Mindful of effective capitaldeployment, our goal is to be self-sufficient in our conventionalprogram while upgrading our asset quality over time. These propertiesnot only provide a physical hedge for natural gas consumed at GreatDivide, but they have financed our overhead for some time as wedeveloped our oil sands assets. Also, we secured access to creditcapacity while we were reducing the risks associated with bitumenproduction in a volatile pricing environment.

Our Great Falls refinery has operated at high levels ofutilization throughout the first half of 2008 although in anenvironment of rapidly rising crude oil prices (costs to the refinery)with narrowing heavy oil differentials and a weak economic framework,it has been difficult to make money in this portion of our businessthis year. Gasoline prices have not reflected the crude oil costincreases and have been weaker than expected for general economicreasons and due to regional and structural pressures in our nichemarket. We have been successful in broadening our market for asphalt atrecord prices, but with asphalt continuing to sell for less than theinput cost of crude oil, coupled with the weakness shown in the lighterends, downstream profitability has disappeared. When thesecircumstances occur, however, we generally can expect to receive higherprices and netbacks in the upstream part of our business, thussmoothing out some of the volatility that would occur, however, if theintegrated business model was not being applied. We are completing ourinvestment in refining facilities to be in a position to manufactureand market ultra low sulfur diesel in our markets. We are in the earlystages in our front-end engineering and design ("FEED") analysis todetermine the merits of an expansion to increase our throughputcapacity by 25,000 bbl/d, from 10,000 bbl/d to 35,000 bbl/d, at oursite in Great Falls, Montana. Based on both market studies by refiningand marketing experts and preliminary design work by our engineeringadvisors, this appears to be the optimum scale for an expansion.Furthermore, the timing and scale could correspond with our anticipatedexpansion schedule at Great Divide, subject to timely receipt ofrelevant regulatory approvals. This would keep our integrated strategyintact and it appears, based on our internal analysis and planning,that this expansion may be financeable from cash flow and availablefunds without undue need for external financing. Our Board will visitthis issue for a decision to proceed or not later in 2008 after thesemore detailed studies are completed.

Our affiliated company, Petrolifera Petroleum Limited("Petrolifera"), had a successful capital raise in the second quarterof 2008 through the sale of common equity from treasury. This combinedwith expansion of that company's credit capacity and structure of itsindebtedness has strengthened its balance sheet and liquidity. As aresult of the financing Connacher's equity interest in Petrolifera hasbeen reduced to approximately 24 percent. We remain the largestshareholder of Petrolifera and look forward with anticipation to theirdrilling programs in Colombia and Peru, which upon success couldmaterially influence the value of the company. Connacher owns 13.1million Petrolifera common shares, has an option to acquire a further200 thousand shares at a very low price and participates underagreement in the administration of Petrolifera.

Our Annual Meeting was held in Calgary on May 13, 2008 and waswell attended. We reviewed the company's business and affairs andanswered questions from the floor, while providing internet access viaa webcast to those shareholders unable to attend the meeting. Asmentioned, we will also hold a telephone conference call to discuss oursecond quarter and first half 2008 results on August 13, 2008 at 2:30PM Calgary time (MT).

We remain confident of our future despite the bearish stockmarket conditions and weak credit markets which have emerged in recenttimes. Fortunately, through solid preplanning, we have the fundsavailable to finance our growth without consequential dilution and withour growing cash flow we anticipate achieving our mid-term target of50,000 bbl/d of bitumen production by 2015. Our goal is to increase ourupstream conventional production and downstream refining capacity tosupport our primary objective and principal business activity, which isthe development and production of our oil sands properties.

We thank our shareholders for their continued support andextend a welcome to our new shareholders, both institutional andretail, who have shown a concurrence with our approach and alsorecognition of our results.