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LETTER TO SHAREHOLDERS

Your company continued to make great progress in the third quarter of 2008 and was able to report record production, revenue and cash flow and solid earnings, overall and in comparison to last year's results. This primarily reflected the startup of bitumen production at our Pod One SAGD plant at Great Divide in the oil sands of Alberta, which we declared to be commercial in March 2008. Additionally, we successfully expanded our conventional production base and started to see an improvement in our refining/marketing division in September 2008. Fuelled by strong energy prices, our financial results were significantly improved over our achievements of 2007, both for the quarter and on a year-to-date basis.

Algar

Of consequence to our future growth, on October 1, 2008, just after the end of the reporting period, we were advised by the ERCB that their review of our application to develop our second 10,000 bbl/d SAGD project at Algar, situated about six miles east of our Pod One plant, had been completed and advanced for approval by the Cabinet of the Government of Alberta. On November 5, we received the Order-in-Council issued by the Cabinet, which has now allowed us to proceed with construction of the plant.We had previously arranged financing for this project, well before the current capital and credit market collapse presently underway in North America and elsewhere. We had done this because of our concerns over the status of these markets and to mitigate the financing risk of being a smaller company active in the long-term oil sands business. Accordingly, we are in a most favored position to proceed with and complete this project, which is expected to result in another quantum leap in our production growth in 2010. We have already invested approximately $120 million for long-lead items at Algar, which, once we drive the first pile on the Algar plant site, would enable us to achieve an approximate 300 day construction schedule, weather permitting. Drilling of the SAGD production wells on the well pads would occur during this period.A review of the pace of construction and timetable for completion of our Algar project, necessitated by the current malaise in capital markets, credit markets and crude oil markets has been undertaken. Our conclusion was we will proceed apace to maintain our momentum and to be in the best position to participate in the recovery of the oil price and capital markets during the next 12-18 months. We will make certain the interests of our shareholders are served by husbanding our overall financial resources in a careful manner until more stability is evident in the marketplace. As we previously announced, we have already taken steps to curtail capital outflows and have deferred higher risk exploration and costly capital projects, such as our proposed refinery expansion, which would have likely required new funding in excess of our current cash, credit and cash flow, until we consider some sense of equilibrium has been restored to financial and commodity markets.

Great Divide Pod One

We have made good progress with our operations at Pod One during 2008. As noted, we commenced full steaming and ramp up of our production in late December 2007 and declared the project commercial in March 2008. Since that time, we have faced what we consider to be minor operational challenges characteristic of any new bitumen project. These have been well-managed, a credit to our head office operating staff and their counterparts in the field. Our successive quarterly production has improved at an attractive rate and in late September, after our mandated plant turnaround, which included boiler inspections and testing of all pressure valves, we achieved a peak daily rate of 9,870 bbl/d, within 130 bbl/d of the original plant design capacity. Our Q3 2008 average bitumen production of 6,810 bbl/d included August sales of 7,873 bbl/d and we remain optimistic we will achieve our peak levels during the fourth quarter.Our operation at Pod One is complex and often times challenging. Producing bitumen successfully presents numerous challenges, including production of steam, integration of well performance with plant performance, utilizing proper chemicals and diluent, water clean up and reutilization and streamlined marketing to secure required diluent and sell diluted bitumen ("dilbit") into the market place each day. Simultaneously, as we ramp up our production, we are also mindful of overall and unit operating costs and are exerting efforts to effectively control these costs. Certain of these costs are fixed and we anticipate that as we achieve higher volumes, unit costs will decline, especially important in a declining price environment. We are encouraged by average steam:oil ratios of approximately 3:1 times, and anticipate further improvements with the benefit of optimal production.

Current Market Conditions

By now everyone engaged in capital markets is aware of the devastation which has occurred in both equity and debt markets during the past several months. The world wide banking and liquidity crisis has resulted in unrelenting selling pressure in equity markets. Corporate bond market yields have risen dramatically and credit markets have essentially dried up. The threat of recession and speculative trading has also placed enormous pressure on crude oil prices.Despite our considerable progress as a company, as evidenced by our Q3 2008 and YTD 2008 results and despite having secured financing for planned growth expenditures, our share price and the value of our debt instruments have also come under pressure in capital markets, as concerns mount over the viability of oil sands projects at lower prices.These concerns have been further exacerbated by indications that the Alberta Government intends to proceed with its proposed royalty increases, despite the sharp drop in energy prices. Also, large capital cost increases have been announced for integrated mining projects, originally incorporating an upgrader. Not surprisingly, this has received extensive commentary by financial analysts, resulting in considerable coverage in the popular and financial press. Unfortunately, this commentary often fails to distinguish between these megaprojects and our type of efficient smaller-scale modular SAGD projects, which exhibit lower per unit capital costs and greater efficiency. As a result, "breakeven" price requirements have been tossed about indiscriminately by the press and analysts, without an apparent recognition of the difference between project types and without regard to how companies or projects are financed. This has increased investor anxiety, even though when properly calculated this metric is always much lower for our type of operation. Based on recent exchange rates, heavy oil price differentials, diluent prices and blending ratios, break-even prices for combined Algar and Pod One operations would be less than US$50.00/bbl for WTI, assuming full production of 20,000 bbl/d, sufficient to cover interest on all our debt, bitumen operating costs, royalties, maintenance capital and G&A. Canadian and US election rhetoric about environment issues has also heightened investor concerns over the potential impact of possible new discriminatory taxation on oil sands operations. All of this, then, has not augured particularly well for our share price, even though we have done relatively well compared to our peers.What lies ahead is anyone's guess. To suggest otherwise would be folly, although we have an abiding confidence in the quality of our assets, our people and our financial condition under more normal circumstances. As indicated, we will continue to closely monitor market conditions and make what we anticipate will be appropriate decisions on our business activity during this period of high turmoil. We anticipate timely development of Algar, careful management of our financial resources and we will take every identifiable step to ensure Connacher is favorably positioned to emerge from this difficult period as a stronger company with good growth potential. A slowing down of our higher risk, higher reward programs to explore for new oil sands reserves and resources and conventional reserves should not unduly impair our future as we have a significant base already identified. Relative to our present requirements, we are long natural gas and we believe we can secure the necessary volumes when Algar is ready to be placed onstream. We are comfortable with our integrated strategy and in the short run are benefiting from narrow heavy oil price differentials which provide solid upstream netbacks in our bitumen operations. Should these widen, we are poised to recapture them through our refinery operation in Great Falls, Montana. When capital markets are stabilized, we can reconsider our refinery expansion plans, but in the meantime we anticipate being rewarded by being "long" bitumen, when Algar commences production. We were also pleased to see some profitability reemerge in our refining operation during September 2008.

Capital Budgets

At our November Board Meeting, our Directors approved our 2009 operating and financial plan and capital budget. We anticipate 2009 outlays for capital projects of $373 million, including funds required to complete Algar, capitalized interest and startup operating costs and for conventional maintenance programs and selected capital projects at our refinery in Great Falls. We will also invest funds to complete a cogeneration facility at Algar so we have a reliable source of power for our oil sands operations. These plans are more fully-described in our accompanying Management's Discussion and Analysis ("MD&A").

We anticipate these projects will be funded from cash flow, available cash and credit facilities without any new external funding, except for completion of the cogeneration facility, which we anticipate will be partially funded on a project basis in a wholly-owned subsidiary.We are fortunate that our forward planning put us in a position to finance the construction of Algar and that our 100 percent ownership allows us to control the pace of development, especially important for a smaller integrated oil sands company in these difficult times.We note that a large Toronto-based Canadian institution, Resolute Funds Limited, has acquired a significant equity stake in Connacher for its clients in recent months. We appreciate this vote of confidence in our strategy, assets and management. This accumulation has occurred in recent months, despite terrible stock market conditions and we have been assured in public filings and at meetings that this position was secured for long-term investment purposes. We welcome all new shareholders and hope market conditions will permit appropriate share price appreciation, in keeping with our discernible and reported operational and financial progress as a company.

We also appreciate the continued dedication, loyalty and effort of our staff during these volatile times.