CALGARY, Feb. 18 /CNW/ - Connacher Oil and Gas Limited (TSX: CLL) announced today that as at December 31, 2010, the ten percent present value ("10% PV") of its estimated pre-tax future net revenue of its proved and probable ("2P") bitumen, conventional crude oil and natural gas reserves, as evaluated by GLJ Petroleum Consultants Ltd. ("GLJ"), independent qualified reserves evaluators, surpassed $3.1 billion. This is an increase of nine percent over mid-year 2010 10% PV amounts and is 44 percent higher than the comparable 10% PV amounts at year-end 2009.

The increase since mid-year 2010 primarily reflects the impact of a higher price deck for crude oil and bitumen used by GLJ in its December 31, 2010 Report ("Year-End 2010 Report"), modestly offset by higher operating cost assumptions, compared to GLJ's June 30, 2010 report ("Mid-Year 2010 Report"). The increase year over year reflects the impact of the success of the company's 2010 core hole program at Great Divide; the completion, commissioning and start-up of Algar, Connacher's second steam assisted gravity drainage ("SAGD") project during 2010; the submission of an EIA application for the Great Divide Expansion Project; and a higher price deck for crude oil and bitumen used by GLJ in its Year-End 2010 Report. GLJ's 10% PV estimate at December 31, 2010 was based on 2P bitumen reserves of 499.6 million barrels and 9.8 million boe of 2P conventional crude oil and natural gas reserves. Total 2P reserves of 509.4 million boe at year-end 2010 was 31 percent higher than the company's comparable 2P reserves at year-end 2009. Except for deduction of production volumes which occurred in the second half of 2010, there were no material differences between Connacher's year-end 2010 2P reserves and those estimated in the company's Mid-Year 2010 Report. These results were as expected and met our targets for 2010. Year-end 2010 reserves do not include results from Connacher's 2011 oil sands core hole program or the results of conventional drilling undertaken after December 31, 2010. The information on Connacher's reserves, resources and associated present values is set forth in tables below, including comparisons of year-end 2010 results to mid-year 2010 results and to year-end 2009 results.

The Year-End 2010 Report was prepared using assumptions and methodology guidelines outlined in the Canadian Oil and Gas Evaluation Handbook ("COGE Handbook") and in accordance with National Instrument 51-101 ("NI 51-101"). Comparisons provided herein with respect to Connacher's conventional and bitumen reserves, bitumen resources and for 10% PVs for December 31, 2010 are to estimates contained in reports, prepared by GLJ, with effective dates of December 31, 2009 ("Year-End 2009 Report") and June 30, 2010.

Connacher owns a 100 percent working interest in approximately 98,000 net acres of oil sands leases, primarily located at its Great Divide project in northeastern Alberta, situated 80 kilometers southwest of Fort McMurray and a 50 percent working interest at Halfway Creek, Alberta. Numerous oil accumulations in the McMurray formation have been identified for continuing and future development on Connacher's properties.

Connacher's first SAGD project at Great Divide, Pod One, has been producing bitumen since late 2007, with commercial production commencing March 1, 2008. Algar commenced producing bitumen in August 2010 and commerciality was achieved October 1, 2010. Production from both projects since start up through December 31, 2010 has totaled approximately 7.7 million barrels of bitumen, of which 3.2 million barrels were produced in 2010 including 2.1 million barrels of bitumen in the second half of 2010. These amounts have been deducted from earlier estimates of proved reserves prior to the calculation of reserves and resources as at December 31, 2010. Connacher's conventional reserve base remained fairly stable in 2010. Subsequent to year end, Connacher disposed of its Battrum properties located in southwestern Saskatchewan. Estimates of conventional reserves in the Year-End 2010 Report include reserves from these properties.

On a per share basis at December 31, 2010, the 10% PV of $3.1 billion for combined 2P reserves equates to approximately $6.94 per Connacher common share outstanding, before provision for the value of contingent resources and prospective resources, as estimated in the Year-End 2010 Report and before taking into account the value of the company's Great Falls, Montana refinery, its undeveloped acreage, the value of its investment in Petrolifera Petroleum Limited, and balance sheet adjustments. Recognizing the value of Connacher's Best Estimate contingent bitumen resources would add a further $1.28 per share. There are presently approximately 447 million Connacher common shares outstanding.

In this press release, unless otherwise stated, reserves refer to reserves of either bitumen or conventional crude oil, natural gas or natural gas liquids or barrels of oil equivalent ("boe") and resources refers to bitumen resources. Future net revenue is calculated after the deduction of forecast royalties, operating expenses, estimated future capital expenditures and well abandonment costs, but before corporate overhead or other indirect costs, including interest and income taxes, from forecast revenue. The 10 percent pre-tax present value of future net revenue is also referred to as "present value" or "PV". Certain amounts cited herein have been rounded for presentation purposes. Outstanding financial hedges were not included in the evaluation.

All references to barrel of oil equivalent ("boe") are calculated on the basis of 6 Mcf:1 bbl. Readers are cautioned that the conversion used in calculating barrels of oil equivalent is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Furthermore, boe may be misleading, particularly if used in isolation. Future net revenues disclosed herein do not represent fair market value. Also, estimations of reserves, resources and future net revenue discussed in this press release constitute forward looking information. See "Forward Looking Information" below.

The GLJ Year-End 2010 Report was prepared utilizing the GLJ January 1, 2011 price forecast, effective December 31, 2010. Readers are referred to the notes to the Summary Tables included in this press release for details regarding the price forecast used by GLJ. Earlier reports were prepared using the price forecasts then being applied by GLJ.

Additional details regarding Connacher's projects and development opportunities at Great Divide can be accessed at www.connacheroil.com or www.sedar.com. Furthermore, additional information regarding Connacher's reserves and resources, including the company's interest in the resources and the risks and the level of uncertainty associated with the recovery of the resources, can be found in the company's annual information form ("AIF") dated March 19, 2010. This AIF can be accessed at www.sedar.com. The company will be filing an updated AIF later this year and prior to March 31, 2011, once it has completed the audit of its financial and operating results for the year-ended December 31, 2010 and has released them to the public. This is anticipated to occur on March 17, 2011.

Operational Update:

During the month of January 2011, pipeline restrictions on a number of crude oil delivery systems persisted, resulting in a continued widening of differentials between Western Canadian heavy crude oil prices and the West Texas Intermediate benchmark price ("WTI"). The impact of the pipeline restrictions, the ensuing back-up of crude oil, winter weather and problems at regional upgraders has reduced the industry's and Connacher's access to storage facilities, sales terminals, crude oil delivery trucks and sales pipelines. As a consequence of these events, Connacher restricted its bitumen production at Pod One during the month of January 2011 by approximately 15% of December year-end production levels. This was accomplished by scaling back steam injection into certain wells. Bitumen production at Algar was also temporarily scaled back during January 2011 to facilitate the planned installation of downhole pumps in three wells.

Although many of the industry-wide external issues have continued in February 2011, Connacher has favorably positioned itself to mitigate the possible adverse production impact through arrangements to commence railing a portion of the company's diluted bitumen ("dilbit") to alternate and prospective new markets in the U.S.A. It is anticipated the use of rail transportation will accomplish two marketing objectives for Connacher, namely that it will have the effect of eliminating downstream-related barriers to the overall production rampup at Great Divide and secondly, it will facilitate access to new sales markets that are less affected by the current differentials between Western Canadian heavy and light crude oil prices and the differential between WTI and Brent crude oil prices. In February 2011, Connacher resumed full steam injection at Pod One and bitumen production recently reached December 2010 levels. Bitumen production at Algar continues to ramp up following the installation of the three downhole pumps. The company has also recently commenced steam injection in Algar's last (17th) well pair. Total Great Divide production currently exceeds 15,000 bbl/d.

It should be noted that the company's refinery in Great Falls, Montana typically realizes higher margins in periods where there are wide differentials between Western Canadian heavy crude oil prices and WTI.

The company is also pleased to report that its applications, first for the injection of "solvent with steam" into well pairs associated with one well pad at Algar and secondly, for the co-injection of methane with steam in the north pad of Pod One, were recently approved by relevant regulatory bodies. The methane co-injection project at Pod One requires minimal capital and has already commenced, with an objective of achieving a reduction in steam:oil ratios (SORs) in the five existing wells on the north pad.

The Algar "solvent with steam" injection pilot is a more significant project. In addition to an anticipated reduction in SORs in the related wells, there is an expectation of a meaningful increase in the per well bitumen production rate and, over time, an increase in recoverable reserves. This project is scheduled to commence in the third quarter of 2011. The requisite capital for this project, which follows extensive laboratory analysis and detailed simulation, was included in the company's previously-released capital budget for 2011. If successful, this project has the potential to deliver significant upside and the related technology could be applied not only in other wells at Algar but also on those to be drilled in conjunction with the proposed Great Divide Expansion Project, the EIA application for which is presently before regulators.

As announced previously, on February 15, 2011 Connacher received $57.5 million, prior to normal closing adjustments, from the sale of its Battrum properties in Southwest Saskatchewan. The company continues to advance the disposition of other non-core properties, including its mature natural gas producing assets in northeastern Alberta. The funds from the sale of Battrum and from the prospective sale of other assets, if completed, will initially be added to Connacher's cash balances, thereby reducing net debt.

Connacher Oil and Gas Limited is a Calgary-based crude oil, natural gas and bitumen exploration, development and production company. Our principal assets are located in the oil sands at Great Divide, Alberta, where we operate two steam assisted gravity drainage ("SAGD") plants for the production of bitumen and sale of dilbit. We also own conventional crude oil and natural gas production at Marten Creek, Latornell, Randall, Gilby and Three Hills, all in Alberta. We own and operate a profitable 9,500 bbl/d heavy oil refinery at Great Falls, Montana and own approximately 19 percent of Petrolifera Petroleum Limited, a public crude oil and natural gas company active in South America.

Cheers; Scott