CALGARY, Sept. 5 /CNW/ - Connacher Oil and Gas Limited (CLL - TSX) wishes
to provide market participants with an update on recent activities involving
the company's Pod One and Algar steam-assisted gravity drainage ("SAGD")
projects at Great Divide in the Athabasca area of Alberta's oil sands.
    Bitumen production from the company's first 10,000 bbl/d SAGD oil sands
project at Pod One has been building since the June 2008 minor turnaround at
the Pod One plant. The minor turnaround was required to clean out material
accumulated in various vessels during the process of converting SAGD wells
from circulation to full-SAGD and because of variable quality of third-party
diluent supplied and used earlier in 2008. Our recent focus has been on stable
and reliable production operations at surface, conducting chemical tests to
optimize treating and to reduce costs, while continuing to slowly build the
steam chambers in 14 of the 15 SAGD well pairs. Even with this focus on
surface operations, bitumen production still averaged approximately
7,000 bbl/d in July and 7,400 bbl/d in August while steam oil ratios ("SOR's")
have averaged around three to one (3:1).
    As required under Alberta regulations, starting September 8, 2008 the
company will commence a planned mandatory turnaround at Pod One. During the 
3-4 day plant shutdown, all pressure safety valves will be inspected.
Connacher also anticipates debottlenecking systems in the Pod One facility
during the turnaround to introduce more flexibility into the system. Some well
workovers to enhance production will also be considered. The circulation phase
on the 15th well pair will be initiated and we anticipate converting one of
the well pairs to a downhole electric submersible pumping system ("ESP"). This
practice has been increasingly adopted by SAGD operators and should further
improve well productivity and SOR's. After a suitable period of operating
experience with the ESP, the company anticipates converting additional wells
to ESP's. Connacher anticipates this will further enhance reliability and well
productivity. Average bitumen production in September will be affected by the
turnaround, due to the time required to cool down the plant, conduct the
turnaround and then to restore production to pre-turnaround levels. After the
turnaround is completed, the company anticipates reaching 10,000 bbl/d of
bitumen production prior to the end of 2008.
    At Algar, the company's second 10,000 bbl/d SAGD oil sands project,
discussions with the provincial regulators concerning approval of the project
have concluded. Connacher is confident all of the various queries raised by
the regulatory bodies have been fully addressed and has received verbal
assurance of the same. The company anticipates final regulatory and provincial
cabinet approval will be received around the beginning of October 2008, which
should enable Connacher to complete the construction of the Algar plant, drill
the requisite horizontal well pairs, commission the plant, steam the wells and
achieve first production by late 2009, consistent with the company's original
timeline.
    As noted in our Q2 2008 interim report to shareholders, costs for the
Algar project, originally budgeted at $326 million, were under review. The
company has now updated and completed its final detailed review of costs,
design (HAZOP) and timelines for Algar. Due primarily to minor scope and
design revisions (based on operational learnings from Pod One), rising steel
prices which have doubled in the past year and rising labour costs, the
company now estimates total costs of Algar, excluding capitalized items, to be
$345 million. This is $19 million or six percent higher than the original
total budget. Including a provision for a contingency reserve in the amount of
$30 million, total costs for the project could reach $375 million, $49 million
or 15 percent higher than the original total budget. As at August 31, 2008,
all long-lead items for Algar have been ordered and 70% of major equipment
shop construction has been completed. This should limit further exposure to
steel price increases and could mitigate use of the contingency reserve. The
increased costs, if fully incurred, would not likely require a cash outlay
until 2009 and it is anticipated these incremental amounts would be included
in the company's 2009 capital program. Connacher recently announced a revised
2008 capital budget of $405 million, with an emphasis on Great Divide
activity, much of which has already been conducted and paid for. The company
wishes to reassure capital markets that based on its plan, Connacher has the
financial capacity in the form of available cash, cash flow and established
long term bank credit facilities to carry out completion of Algar, once
approved by the provincial regulators, without further recourse to capital
markets for that purpose.

    Connacher Oil and Gas Limited is a Calgary-based Canadian oil and natural
gas exploration, development and production company. The company's principal
assets are its significant bitumen reserves and resources and its 100 percent
interest in approximately 98,000 acres of oil sands leases in the Great Divide
region near Fort McMurray, Alberta. It also owns conventional production and
reserves at Marten Creek and Three Hills, Alberta and at Battrum,
Saskatchewan. Connacher owns and operates a 9,500 barrel per day refinery in
Great Falls, Montana and maintains a valuable 24 percent equity stake in
Petrolifera Petroleum Limited (PDP - TSX), a public company active in
Argentina, Colombia and Peru in South America.

    Forward-Looking Information:

    This press release contains "forward-looking information" including:
anticipated bitumen production and the timeline for the achievement of
anticipated production levels at Great Divide Pod One; development of
additional oil sands projects (including receipt of regulatory approvals in
respect of Algar, anticipated capital expenditures for construction of Algar,
the timeline for construction of and production from Algar and sources of
funding for construction of Algar) and proposed bottlenecking and productivity
enhancement in respect of Great Divide Pod One. Forward-looking information is
frequently characterized by words such as "plan", expect", "project",
"intend", "believe", "anticipate", estimate", "may", "will", "could",
"potential", "proposed" and other similar words, or statements that certain
events or conditions "may" or "will" occur. These statements are only
predictions. Forward-looking information is based on the opinions and
estimates of management at the date the statements are made, and are subject
to a variety of risks and uncertainties and other factors that could cause
actual events or results to differ materially from those projected in the
forward-looking statements. These factors include the inherent risks involved
in the exploration and development of oil sands properties, difficulties or
delays during construction and in start-up operations, the uncertainties
involved in interpreting drilling results and other geological data,
fluctuating oil prices, the possibility of unanticipated costs and expenses,
uncertainties relating to the availability and costs of financing needed in
the future and other factors including unforeseen delays. As an oil sands
enterprise in the development stage, Connacher faces risks including those
associated with exploration, development, construction, start-up, approvals
and the continuing ability to access sufficient capital from external sources
if required. Actual production levels at Great Divide Pod One and the
timelines associated therewith actual capital expenditures in respect of Algar
and the timeline for receipt of regulatory approval and construction of Algar
may vary from those anticipated in this press release and such variations may
be material. For a description of the risks and uncertainties facing Connacher
and its business and affairs, readers should refer to Connacher's Annual
Information Form for the year ended December 31, 2007, which is available at
www.sedar.com. Connacher undertakes no obligation to update forward-looking
statements if circumstances or management's estimates or opinions should
change, unless required by law. Due to the risks and uncertainties inherent in
forward-looking information, the reader is cautioned not to place undue
reliance on this forward-looking information.

For further information: Richard A. Gusella, President and Chief
Executive Officer OR Grant D. Ukrainetz, Vice President, Corporate
Development, Phone: (403) 538-6201, Fax: (403) 538-6225,
inquiries@connacheroil.com, Website: www.connacheroil.co