ANNUAL REPORT 2011 - Connacher Oil and Gas

AR 2011
PG 11
proposals helped to politicize and delay
approvals for needed takeaway capacity.
As a result, crude oil from Canada and many
new rapidly expanding American oilfields
faced a discount in market price relative to
the benchmark West Texas Intermediate
(“WTI”) oil price. WTI was, in turn, discounted
relative to world oil prices, more specifically
by the benchmark Brent oil price. As a risk
mitigant to these issues, starting in early
2011, Connacher began moving dilbit by
rail to markets that wanted to purchase and
process bitumen but weren’t able to access
Canadian heavy crude by pipeline. These
markets are located both on the West coast
and the Gulf coast. Prices received were
as good as or better than local Canadian
markets-net of transportation changes.
As a result of these successful efforts
to pioneer “dilbit by rail” Connacher has
committed to expanding its leased rail car
fleet and continues to explore new market
opportunities. Using rail cars to transport
crude oil is a strategy that many companies,
particularly producers in North Dakota, are
also pursuing.
Asset sales continued throughout the year
and added to cash balances. Battrum,
Marten Creek, Halfway Creek, Latornell
and minor undeveloped land were sold.
Connacher’s strategy was to dispose
of properties with limited upside but
significant new capital or maintenance
Connacher pioneered
“dilbit by rail” to the Gulf
Coast and West Coast
capital expenditures, allowing the company
to focus on projects with better potential.
In addition, after significant review during
2010, a decision to sell natural gas
properties was also advanced. Given the
short to medium term direction for natural
gas pricing (subsequently born out), it was
decided that producing natural gas as a
physical hedge for natural gas consumption
in the production of steam in the oil
sands was not necessary at present. As
a result several gas properties were sold
including the Marten Creek property. Overall
conventional production declined over 50
percent, primarily as a result of the asset
rationalization program. Two new light oil
resource plays in central Alberta were
tested in 2011. Although initial results were
disappointing and production did not meet
economic hurdles, there is significant oil in
place at Twining and Penhold. Technical and
geological review would suggest that the
completion and frac techniques employed
for these wells can be improved upon and
optimized. However, the company is not
prepared to invest more capital in these
plays at this time.
Joint venture processes to obtain a partner
commenced in the oil sands and the light
oil resources plays but neither process was
satisfactorily resolved by year end.
T 83
T 82
T 81
RG13 RG12 RG11W4
“Connacher has
identified multiple
SAGD horizontal
well pair locations
as part of the
Great Divide
expansion project.”
EIA Well Pairs Existing Well Pairs Net SAGD Pay