ANNUAL REPORT 2011 - Connacher Oil and Gas

AR 2011
PG 40
agreements, to manage the fixed interest rate debt and related cost of borrowing. Derivative instruments that do not qualify as hedges, or are not
designated as hedges, are recorded using the mark-to-market method of accounting whereby instruments are recorded in the Consolidated Balance
Sheet as either an asset or liability, with changes in fair value recognized in net earnings (loss). Realized gains or losses from financial derivatives related
to crude oil and natural gas prices are recognized in revenues as the related sales occur. Unrealized gains and losses are recognized in revenues at the
end of each reporting period. The estimate of fair value of all derivative instruments is based on quoted market prices or, in their absence, third-party
market indications and forecasts. The estimated fair value of financial assets and liabilities, by their very nature, is subject to measurement uncertainty.
DISCLOSURE CONTROLS AND PROCEDURES
The company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) have designed, or caused to be designed under their supervision,
disclosure controls and procedures to provide reasonable assurance that: (i) material information relating to the company is made known to the
company’s CEO and CFO by others, particularly during the period in which the annual filings are being prepared; and (ii) information required to be
disclosed by the company in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed,
summarized and reported within the time period specified in securities legislation. Such officers have evaluated, or caused to be evaluated under their
supervision, the effectiveness of the company’s disclosure controls and procedures at the financial year end of the company and have concluded that
the company’s disclosure controls and procedures are effective at the financial year end of the company for the foregoing purposes.
INTERNAL CONTROLS OVER FINANCIAL REPORTING
The CEO and CFO have designed, or caused to be designed under their supervision, internal controls over financial reporting to provide reasonable
assurance regarding the reliability of the company’s financial reporting and the preparation of financial statements for external purposes in accordance
with Canadian GAAP. Such officers have evaluated, or caused to be evaluated under their supervision, the effectiveness of the company’s internal
controls over financial reporting at the financial year end of the company and concluded that the company’s internal controls over financial reporting is
effective at the financial year end of the company for the foregoing purpose.
The company’s CEO and CFO are required to cause the company to disclose any change in the company’s internal controls over financial reporting
that occurred during the company’s most recent interim period that has materially affected, or is reasonably likely to materially affect, the company’s
internal controls over financial reporting. No material changes in the company’s internal controls over financial reporting were identified during such
period that has materially affected, or are reasonably likely to materially affect, the company’s internal controls over financial reporting.
It should be noted that a control system, including the company’s disclosure and internal controls and procedures, no matter how well conceived,
can provide only reasonable, but not absolute, assurance that the objectives of the control system will be met and it should not be expected that the
disclosure and internal controls and procedures will prevent all errors or fraud. In reaching a reasonable level of assurance, management necessarily is
required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
ADVISORY SECTION
FORWARD-LOOKING INFORMATION
This report, including the outlook contained in the MD&A, contains forward-looking information including but not limited to, anticipated future operating and
financial results, expectations of future production, anticipated capital expenditures for 2012, the expected impact of new technologies such as SAGD+
on production and SORs, the use of risk management sales contracts to mitigate market risk relating to commodity prices, foreign currency exchange
rates and interest rates, the possible future redemption of Connacher’s Convertible Debentures, the ability of the Refinery to access new markets upon
completion of the benzene removal project, the scheduled turnaround at the Refinery and oil sands plants, seasonal fluctuations in production and the sale
of gasoline, impact of failing to obtain, a delay in obtaining, or failure to retain necessary approvals and authorizations and future capital projects.
Forward-looking information is based on management’s expectations regarding future growth, results of operations, production, future commodity
prices and foreign exchange rates, future capital and other expenditures (including the amount, nature and sources of funding thereof), plans for and
results of drilling activity, environmental matters, business prospects and opportunities and future economic conditions.
Forward-looking information involves significant known and unknown risks and uncertainties, which could cause actual results to differ materially from
those anticipated. These risks include, but are not limited to operational risks in development, exploration, production and start up activities; delays
or changes in plans with respect to exploration or development projects or capital expenditures; the uncertainty of reserve and resource estimates;
the uncertainty of estimates and projections relating to production, costs and expenses, and health, safety and environmental risks; the risk of
commodity price and foreign exchange rate fluctuations; risks associated with the impact of general economic conditions; sales volumes and risks and
uncertainties associated with securing and maintaining the necessary regulatory approvals and financing to proceed with the continued expansion of
the Great Divide oil sands project.