I am writing this blog in order to better understand the SAGD process and to clarify how " real production " is determined. It would be helpful if 2Crude or any other members on this board with an engineering background in the oilsands can add clarity to this issue.

It seems that honourable members of this board are continually talking about Connacher's failed production numbers at the Great Divide not reaching the advertised design capacity of 10,000 bbl/d of bitumen and that management has been throwing a lot of money at this by adding ESP's (electric submersible pumps) as a way to increase production to the 10,000 bbl/d production target. I think that several things are being confused here.

If we go back to the December 15, 2008 press release, which first announced the temporary production curtailment, management stated in this press release that: "All 15 of the company's steam-assisted gravity drainage ("SAGD") well pairs are now on steam and recent production has exceeded 9,000 barrels per day or over 90% of design capacity with increasing consistency. We had targeted to achieve 10,000 bbl/d of bitumen production by year end 2008 and in the absence of current market conditions anticipate this would have occurred." http://www.connacheroil.com/documents/news2008/CLL-2008-12-15.pdf

So management stated here that by December 15, 2008 the production of bitumen was clearly over 9,000 bbl/d and in their opinion certainly would have reached 10,000 bbl/d by year end 2008. However, 10,000 bbl/d is maximum capacity and Connacher has during several conference calls since then stated that Great Divide will be run at a 9,500 bbl/d production rate. So forget about the design capacity of 10,000 bbl/d as the operating capacity will be 9,500 bbl/d continuously. Now the Great Divide running above 9,000 bbl/d by the end of December 2008 was producing bitumen at an SOR (steam oil ratio) of around 3. The SOR from the commissioning of the Great Divide project had been about 4 from March to December 2008 and by the time of the December 15, 2008 press release had been reduced to less than 3. This is proven in the following quote: "Also with the improved productivity and even with an increase in actual steam injection into the reservoir to effectively form and sustain the steam chamber , in a relatively short period of time the company has achieved a cumulative steam/oil ratio ("SOR") of less than four (4), a current project SOR of less than three (3) with SOR's at better wells in the project consistently closer to the two (2) level, which reflects..."

So an SOR around 3 had been achieved at Great Divide by December 15, 2009 without the ESP's being installed. The Projected design SOR for Great Divide is 2.75 according to Drifter Projects who constructed the Great Divide project. Proven by: http://www.drifterprojects.ca/projects/cll_great_divide/gdoc_great_divide.html

Connacher management in its pursuit to cut costs installed 4 ESP's in April, 2009. These ESP's (old design) have a maximum temperature that they can be run at, so the temperature in the steam chamber at Great Divide needed to be lowered in order for the ESP's to 1) be able to operate properly, and 2) to increase the in well life span of the ESP's before they stop working. The ESP's are essential to be installed in certain wells, in order to lower the SOR in the well that an ESP is installed in so that less steam is required which relates directly to burning less natural gas to create the steam thereby lowering costs. So the ESP's have nothing to do with producing more bitumen. They were installed to lower operating costs per well and therefore to lower the overall cost to produce each barrel of bitumen. The ESP's were not installed to increase bitumen production. In fact since the ESP's have been installed production from time to time has been reduced incidentally as one well had to be shut down and an ESP replaced which was defective, and production again had to be curtailed last April for 4 days when the 4 ESP's were originally stalled. To me it appears that there is a major balancing act going on here between trying to lower the SOR of each well in order to save operating costs while at the same time trying to produce more bitumen from each well. I see Great Divides problem of not yet reaching the 9,500 bbl/d production target as being directly related to the installation of the ESP's in a major way with the flare stack replacement, the evaporator repairs and the turnaround at Great Divide as the other contributing factors. It seems that the inherent limitations of the ESP's that were installed (lower operating temperature needed in the chamber) has led to the very slow incrimental increase in production. Perhaps the new generation of ESP's (high temperature) ESP's that are going to be installed in the future will speed up the bitumen production process. 2Crude your input is welcome here.

On another matter, during every conference call over the last number of years Dick Gusella has always responded to analysts questions of production forecasts by stating that Connacher management does not give forward guidance. Yet in every presentation it is continually stated that Connacher will reach 10,000 bbl.d production by the end of the 4th quarter 2008, then the end of the Q-1 2009, and then the end of Q-2 2009 and now we it is forcast to be reached by the end of Q-4 2009. If this isn't giving guidance I don't know what is. From now on I only want to know what the production level is at the Great Divide at the end of each quarter in the end of quarter report. By pandering to a few people on this board (and other boards I am sure, however Dick Gusella does read this board) who want to be updated frequently on production levels, Dick Gusella has put himself and management in a no win situation. But by reporting production levels which don't go up or get reversed, in every presentation and press release, he has stirred up a lot of 2nd guessing and the anger of many common share holds. By constantly reporting production numbers he is creating expectations which have consistently not been delivered on in the past. He should stick to reporting production levels in the quarterly reports and at the annual meeting and leave it at that. That is my advice. That is what other companies do in the oilsands and Connacher should do the same. A corporation is not a democracy and the rules of the TSE permit sufficient periodic reporting. This is my opinion which some of you will obviously not agree with.

Best Wishes; Scott