CALGARY, July 18, 2011 /CNW/ - Connacher Oil and Gas Limited (CLL-TSX) announced today that it has initiated the injection of solvent with steam on wells 203-2 and 203-3 on Algar Pad 203, two of seven horizontal steam-assisted gravity drainage ("SAGD") well pairs on one of three wellpads at the company's bbl/d Algar bitumen production operation at Great Divide in Alberta's oil sands. Initial target solvent injection rates were achieved within approximately three hours of startup on July 16, 2011.

This pilot project is designed to measure the increase in bitumen production due to the downhole reduction of bitumen viscosity, through the interaction of the solvent and bitumen at the steam oil interface and the amount of solvent recovered after it is injected. Connacher anticipates there will be a measurable improvement in individual well and overall steam:oil ratios ("SORs") as a consequence of the solvent injection. In turn, this is anticipated to be further improved as a result of anticipated increases in individual well productivity and overall Algar production levels. If the field trial project proves to be as successful as Connacher's initial laboratory and simulation results, solvent injection may be expanded to all seven wells on Pad 203 by year end 2011. Further applications to the two other Algar well pads and possibly also to Pod One would then be under consideration for 2012.

Connacher is excited about the potential of SAGD+™. It represents another technical innovation being applied to bitumen recovery initiatives at our Great Divide oil sands operations in northeastern Alberta. Our oil sands projects are the company's most significant assets, including 180 million barrels of proved ("1P") reserves and over 500 million barrels of proved and probable ("2P") reserves, as estimated by GLJ Petroleum Consultants Ltd. ("GLJ"), independent petroleum consultants, in their report dated February 18, 2011 and effective December 31, 2010. Connacher has already built and operates two SAGD projects at Great Divide, namely Pod One and Algar. We have already produced approximately 10 million barrels of bitumen. Backed by our proved, probable and possible ("3P") reserves totalling 604 million barrels, including 104 million barrels of possible reserves, GLJ estimated we have the prospect of sequentially developing over 70,000 bbl/d of productive capacity from these Great Divide reserves. Access to this excellent pipeline of development opportunities has a high level of immediacy, as we have already submitted an application to regulators to secure authorization to expand our productive capacity at Algar by 24,000 bbl/d. We expect this application will secure approval before year end 2011. In addition, the company also owned 221 million barrels of best estimate contingent resources and 80 million barrels of best estimate prospective resources as at year end 2010 (as again estimated by GLJ) and anticipates its winter 2011 core hole drilling and 3D seismic programs at Great Divide and at Thornbury, situated southwest of Great Divide, could contribute to new contingent resource recognition when the company completes its year end 2011 reserve report. This, in turn, could further enhance future growth possibilities if these resources are upgraded over time to reserve status. Development of this productive potential may also be accelerated upon completion of a joint venture later in 2011, as there are few similar near-term production opportunities from defined 2P reserves available to third parties in the oil sands, as most joint ventures have emphasized early stage resource opportunities.

Development of growing, reliable bitumen production at Great Divide is the foundation of Connacher's five point strategy leading to value recognition. We believe our SAGD+™ project will accelerate the realization of this goal. We have already completed the streamlining of our balance sheet with our successful refinancing of our long-term debt. This transaction lowered our cost of capital and with no financial maintenance covenants and no principal repayments until maturities in 2018 and 2019, our funds from operations, supplemented by third party funds through farm outs and joint ventures, will be available to fund growth activities in the oil sands and in our prospective conventional resource plays at Twining and Penhold, both in central Alberta. Our asset rationalization program is also well-advanced and we continue to high-grade our asset base and monetize non-cash generating assets to maintain a high level of liquidity. We are committed to the strategy we have enunciated, with a view to completing component parts in a systematic and effective manner. In this regard, we are well advanced and remain optimistic about our outlook, despite challenging market conditions for heavy oil, exacerbated by the large Brent/WTI differential, the prevailing heavy oil differential, the strong Canadian dollar, general cost pressures in the oil business arising from strong demand for services, especially in the unconventional resource space and the usual challenges of producing bitumen.

Weather permitting and upon the arrival of our contracted drilling rigs, we will be spudding our first new wells at Twining and Penhold, likely during the week of July 18, 2011. Field operations in central Alberta have been curtailed and affected by extremely wet weather conditions since breakup, as has been reported by all operators. Our production from Twining has also been temporarily constrained by the capacity of available facilities. Nevertheless, we are producing over 1,000 boe/d of conventional production, well above levels following the successful sale of our properties at Battrum, Saskatchewan and Marten/Randall, Alberta.

http://www.theglobeandmail.com/globe-investor/news-sources/?date=+20110718&archive=cnw&slug=C5903

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Cheers; Scott