Connacher Oil and Gas Limited announces resumption of field construction at Algar

    CALGARY, July 7 /CNW/ - Connacher Oil and Gas Limited (CLL - TSX)
announced today that construction activities were restarted at its second
10,000 bbl/d steam assisted gravity drainage ("SAGD") facility ("Algar") in
the Great Divide region of northeastern Alberta.
    On July 7, 2009, field construction at the Algar plant site resumed with
the driving of the SAGD facility piles. We anticipate that construction
activities at Algar and the drilling of 15 SAGD well pairs will take
approximately 275 days to complete. This will be followed by a 30 day
requisite commissioning of the SAGD facility and a then 90 day steam
circulation phase for the SAGD well pairs, prior to commencement of SAGD
production and ramp-up towards full plant capacity of 10,000 bbl/d.
    To date approximately $150 million has been invested in Algar, primarily
for the off-site fabrication of long-lead SAGD plant components and equipment,
the construction of the access road from Highway 63 to the Algar plant site
and civil work at the plant and well pad sites. We estimate a further $10
million will be required to satisfy outstanding capital commitments, including
remaining costs associated with the suspension of Algar. We estimate that it
will cost approximately $200 million to complete Algar. However, due to the
recent cancellation and deferral of a number of oil sands projects in the Fort
McMurray region, the actual costs for labour, services and equipment may be
lower than the cost estimates used in the Algar budget, providing a built-in
contingency. We believe the combination of cash ($96.2 million as at March 31,
2009), cash from our June 2009 $172.6 million equity issue and June 2009
US$200 million first lien senior secured note issue and from future cash flow
will in the aggregate be more than sufficient to fully fund completion of the
Algar project, fund the construction of an estimated $27 million cogeneration
facility at Algar, fund an estimated $10 million dilbit sales transfer line
between Algar and our first 10,000 bbl/d SAGD project at Great Divide (Pod
One) and service our indebtedness through 2010.

    Connacher Oil and Gas Limited is a Calgary-based integrated oil company.
Its primary upstream production is from oil sands operations at its 10,000
bbl/d Great Divide Pod One SAGD plant in northeastern Alberta. The Corporation
has reactivated its plan to construct and has fully funded a second
similar-sized SAGD oil sands project in Great Divide at Algar. It has
conventional crude oil and natural gas production of approximately 3,100 boe/d
in Alberta and Saskatchewan, a downstream operation with a 9,500 bbl/d heavy
oil refinery in Great Falls, Montana and maintains a 24 percent equity stake
in Petrolifera Petroleum Limited (PDP-TSX), a production and exploration
company active in Argentina, Colombia and Peru in South America.

    Forward-Looking Information

    This news release contains certain "forward-looking information" within
the meaning of applicable securities laws including information regarding
Connacher's reinstatement of construction of Algar and the drilling of 15 SAGD
well pairs, the timing for completion of construction, commissioning and steam
circulation prior to commencement of SAGD production, cost estimates relating
to the construction of Algar, a cogeneration facility and a dilbit sales
transfer line and the sources of funding in respect of such capital
expenditures and debt servicing obligations through 2010. Actual capital costs
will differ from estimates of capital costs contained in this news release and
such differences may be material. Estimated capital costs are based on
historical experience in constructing the Corporation's first SAGD project at
Great Divide and have been adjusted for inflation, actual expenditures
incurred to date and existing contractual commitments. However, costs for
labour, services and equipment have been declining due to the current economic
conditions and cost savings could be realized if the Corporation is able to
capitalize on these opportunities without adversely affecting the timing for
completion of Algar. Additionally, future cash flow is dependent on actual
results of operations which are subject to a number of risks and uncertainties
and may differ from current expectations. Forward-looking information is based
on the opinions and estimates of management at the date the information is
provided and is 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 information. These risks include, but
are not limited to risk associated with the oil and gas industry (e.g.
operational risks in development, exploration and production delays or changes
in plans with respect to exploration or development projects or capital
expenditures; the uncertainty of reserve estimates; the uncertainty of
estimates and projections in relation to production, costs and expenses and
health, safety and environmental risks), the risk of commodity price and
foreign exchange rate fluctuations, risks associated with obtaining,
maintaining and the timing of receipt of regulatory approvals, permits and
licenses, uncertainties relating to access to capital markets and the risk of
continuing deterioration of global economic conditions. In certain
circumstances the Corporation may curtail production, defer expenditures
and/or modify its plans with respect to capital expenditures, which may impact
year-end cash balances and net operating income. Additional risks and
uncertainties are described in the Corporation's Annual Information Form which
is filed on SEDAR at www.sedar.com.

    Barrels of oil equivalent (boe) may be misleading, particularly if used
in isolation. A boe conversion ratio of 6 Mcf:1 bbl is based on an energy
equivalency conversion method primarily applicable at the burner tip and does
not represent a value equivalency at the wellhead. Cash flow does not have a
standardized meaning prescribed by Canadian generally accepted accounting
principles ("GAAP") and therefore may not be comparable to similar measures
used by other companies. Cash flow is calculated before changes in non- cash
working capital, pension funding and site restoration expenditures. The most
comparable measure calculated in accordance with GAAP would be net earnings.
When disclosed, cash flow is reconciled with net earnings.

http://www.newswire.ca/en/releases/archive/July2009/07/c4331.html