ANNUAL REPORT 2011 - Connacher Oil and Gas

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AR 2011 PG 56 earnings (loss) at the end of each respective reporting period based on the changes in fair value of the contracts. The estimated fair value of all risk management contracts is derived from third–party market indications and forecasts. Attributable transaction costs are recorded in net earnings (loss). The company accounts for its forward physical delivery sales and purchase contracts that are entered into and continued to be held for the purpose of receipt or delivery of non–financial items in accordance with its expected purchase, sale or usage requirements, as executory contracts. As such, these contracts are not considered derivative financial instruments and thus have not been recorded on the consolidated balance sheet. Settlements of these physical sales and purchase contracts are recognized in related revenues and expenses. Derivatives embedded within contracts that are not already required to be recognized at fair value, and that are not closely related to the host contract in terms of economic characteristics and risks, are separated from their host contract and recognized at fair value; associated gains and losses are recognized in net earnings (loss). The company has no material embedded derivatives. 3.14 Revenue recognition Revenue from sales of bitumen, crude oil, natural gas and refined products is recognized at the fair value of consideration received or receivable, after deducting royalties, when title passes to the customer. For sales by upstream operations, this generally occurs when product is physically transferred into a pipe, delivery trucks are accepted by the customer, or railcars have been transloaded. For sales by downstream operations, it is either at the loading or delivery point, depending on contractual conditions. 3.15 Finance charges Finance charges comprise interest expense on long–term debt, amortization of transaction costs and stand–by fees of the Facility, unwinding of the discount on decommissioning liabilities, unrealized gain/loss on revaluation of convertible debentures and share purchase warrants, bank charges and any impairment losses recognized on financial assets. Finance charges directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use. All other finance costs are recognized in net earnings (loss) in the period in which they are incurred using the effective interest method. Interest has been capitalized at the rate of interest applicable to the specific borrowings financing the asset, or where financed through general borrowings, at a capitalization rate representing the average interest rate on such borrowings. 3.16 Earnings (loss) per share The company presents basic and diluted earnings (loss) per share data for its common shares. Basic earnings (loss) per share is calculated by dividing net earnings (loss) attributable to ordinary equity holders of the company by the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per share is determined by adjusting the earnings or loss attributable to common shareholders and the weighted average number of common shares outstanding for the effects of dilutive instruments, which may include convertible debentures, stock options, share incentive awards and share units. 3.17 Non–current assets classified as held for sale Non–current assets, or disposal groups comprising assets and liabilities, that are expected to be recovered primarily through sale rather than through continuing use, are classified as held for sale. Immediately before classification as held for sale, the assets, or components of a disposal group, are remeasured in accordance with the company’s accounting policies. Thereafter, the assets, or disposal group, are measured at the lower of their carrying amount and fair value less cost to sell. Impairment losses on initial classification as held for sale and subsequent gains or losses on remeasurement are recognized in net earnings (loss). Property, plant and equipment classified as held for sale are not depleted or depreciated and investment in associate classified as held for sale is not equity accounted. 3.18 Fair value measurements Fair value measurements are estimates of the amounts for which assets or liabilities could be exchanged at the measurement date, based on the assumption that such exchanges take place between knowledgeable, unrelated parties in unforced transactions. Where available, fair value measurements are derived from prices quoted in active markets for identical assets or liabilities. In the absence of such information, other observable inputs are used to estimate fair value. Where publicly available information is not available, fair value is determined using estimation techniques that take into account market perspectives relevant to the asset or liability so as far as they can reasonably be ascertained, based on predominantly unobservable inputs. For risk management contracts and for share–based compensation plans, fair value estimations are generally determined using models and other valuation methods, the key inputs for which include future prices, volatility, price correlation, counterparty credit risk and market liquidity, as appropriate; for other assets and liabilities, fair value estimations are generally based on the net present value of expected future cash flows. 3.19 Recent accounting pronouncements issued but not yet adopted The company has reviewed new and revised accounting pronouncements that have been issued but are not yet effective for the financial year beginning January 1, 2011 and determined that the following may have an impact on the company:
AR 2011 PG 57 IAS 1 Presentation of Financial Statements (“IAS 1”) IAS 1 was amended in June 2011 to provide guidance on the presentation of items contained in other comprehensive income (“OCI”) and their classification within OCI. The amendments are to be applied for annual periods beginning on or after July 1, 2012 with earlier adoption permitted. The amendments are not expected to have a significant impact on the company’s consolidated financial statements. IAS 12 Income Taxes (“IAS 12”) IAS 12 was amended in December 2010 to remove subjectivity in determining on which basis an entity measures the deferred tax relating to an asset. The amendment introduces a presumption that an entity will assess whether the carrying amount of an asset will be recovered through the sale of the asset. The amendment to IAS 12 is effective for reporting periods beginning on or after January 1, 2012. The company is currently evaluating the impact of this amendment to IAS 12 on its consolidated financial statements. IAS 19 Employee Benefits (“IAS 19”) IAS 19 was amended in June 2011 to change the accounting for defined benefit plans and termination benefits. The amendments require the immediate recognition of actuarial gains or losses. The amendments also mandate additional presentation and disclosure requirements. The amendments are be applied for annual periods beginning on or after January 1, 2013 with earlier adoption permitted. The company is currently evaluating the impact of this standard on its consolidated financial statements. IFRS 7 Financial Instruments: Disclosures (“IFRS 7”) IFRS 7 was amended in October 2010 to provide additional disclosure on the transfer of financial assets including the possible effects of any residual risks that the transferring entity retains. These amendments are for annual periods beginning on or after July 1, 2011. The company is currently evaluating the impact of these amendments to IFRS 7 on its consolidated financial statements. IFRS 9 Financial Instruments (“IFRS 9”) IFRS 9 was issued in November 2009 and is the first step to replace current IAS 39, “Financial Instruments: Recognition and Measurement”. IFRS 9 uses a single approach to determine whether a financial asset is measured at amortized cost or fair value, replacing the multiple rules in IAS 39. The approach in IFRS 9 is based on how an entity manages its financial instruments in the context of its business model and the contractual cash flow characteristics of the financial assets. The new standard also requires a single impairment method to be used, replacing the multiple impairment methods in IAS 39. IFRS 9 is effective for annual periods beginning on or after January 1, 2015. The company is currently evaluating the impact of IFRS 9 on its consolidated financial statements. IFRS 10 Consolidated Financial Statements (“IFRS 10”) IFRS 10 establishes principles for the presentation and preparation of consolidated financial statements when an entity controls one or more other entities. IFRS 10 supersedes IAS 27 “Consolidated and Separate Financial Statements” and SIC–12 “Consolidation—Special Purpose Entities” and is effective for annual periods beginning on or after January 1, 2013. Earlier application is permitted. The company is currently evaluating the impact of this standard on its consolidated financial statements. IFRS 11 Joint Arrangements (“IFRS 11”) IFRS 11 establishes principles for financial reporting by parties to a joint arrangement. IFRS 11 supersedes current IAS 31 “Interests in Joint Ventures and SIC–13 Jointly Controlled Entities—Non–Monetary Contributions by Venturers” and is effective for annual periods beginning on or after January 1, 2013. Earlier application is permitted. The company is currently evaluating the impact of this standard on its consolidated financial statements. IFRS 12 Disclosure of Interests in Other Entities (“IFRS 12”) IFRS 12 applies to entities that have an interest in a subsidiary, a joint arrangement, an associate or an unconsolidated structured entity. IFRS 12 is effective for annual periods beginning on or after January 1, 2013. Earlier application is permitted. The company is currently evaluating the impact of this standard on its consolidated financial statements. IAS 28 Investments in Associates and Joint Ventures (“IAS 28”) IAS 28 was amended in 2011 and prescribes the accounting for investments in associates and sets out the requirements for the application of the equity method when accounting for investments in associates and joint ventures. IAS 28 is effective for annual periods beginning on or after January 1, 2013. Earlier application is permitted. The company is currently evaluating the impact of this amendment to IAS 28 on its consolidated financial statements. IFRS 13 Fair Value Measurements (“IFRS 13”) IFRS 13 defines fair value, sets out in a single IFRS framework for measuring fair value and requires disclosures about fair value measurements. IFRS 13 is to be applied for annual periods beginning on or after January 1, 2013. Earlier application is permitted. The company is currently evaluating the impact of this standard on its consolidated financial statements.
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ANNUAL REPORT 2011 WELL POSITIONED
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AR 2011 PG 1 02 HIGHLIGHTS 05 LETTE
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AR 2011 PG 3 Years ended December 3
Page 7 and 8: AR 2011 PG 5 Volatility in the oil
Page 9 and 10: AR 2011 PG 7 “Thanks to our liqui
Page 11 and 12: AR 2011 PG 9 Review of Operations I
Page 13 and 14: AR 2011 PG 11 proposals helped to p
Page 15 and 16: AR 2011 PG 13 reservoir description
Page 17 and 18: AR 2011 PG 15 Connacher Oil and Gas
Page 19 and 20: AR 2011 PG 17 the movement of wildl
Page 21 and 22: AR 2011 PG 19 MANAGEMENT’S DISCUS
Page 23 and 24: AR 2011 PG 21 reduced interest rate
Page 25 and 26: AR 2011 PG 23 Connacher’s bitumen
Page 27 and 28: AR 2011 PG 25 OPERATING COSTS (1) T
Page 29 and 30: AR 2011 PG 27 SALES PRODUCT MIX (%)
Page 31 and 32: AR 2011 PG 29 Depletion expense is
Page 33 and 34: AR 2011 PG 31 NEW NOTES We issued U
Page 35 and 36: AR 2011 PG 33 Compensation of key m
Page 37 and 38: AR 2011 PG 35 ACCOUNTING POLICIES A
Page 39 and 40: AR 2011 PG 37 The company classifie
Page 41 and 42: AR 2011 PG 39 Management is respons
Page 43 and 44: AR 2011 PG 41 The production outloo
Page 45 and 46: AR 2011 PG 43 QUARTERLY HIGHLIGHTS
Page 47 and 48: AR 2011 PG 45 Independent Auditor
Page 49 and 50: AR 2011 PG 47 Consolidated Statemen
Page 51 and 52: AR 2011 PG 49 Consolidated Statemen
Page 53 and 54: AR 2011 PG 51 Impairment of assets
Page 55 and 56: AR 2011 PG 53 Goodwill is allocated
Page 57: AR 2011 PG 55 3.11 Leases Agreement
Page 61 and 62: AR 2011 PG 59 Reconciliation of seg
Page 63 and 64: AR 2011 PG 61 8.1 Petroleum and nat
Page 65 and 66: AR 2011 PG 63 10. PROPERTY, Plant a
Page 67 and 68: AR 2011 PG 65 Accounts receivable a
Page 69 and 70: AR 2011 PG 67 December 31, 2010 - C
Page 71 and 72: AR 2011 PG 69 13.3 Refinancing of l
Page 73 and 74: AR 2011 PG 71 Changes in present va
Page 75 and 76: AR 2011 PG 73 The provision for inc
Page 77 and 78: AR 2011 PG 75 The following table s
Page 79 and 80: AR 2011 PG 77 19. FINANCE Charges F
Page 81 and 82: AR 2011 PG 79 Compensation of key m
Page 83 and 84: AR 2011 PG 81 Estimates Hindsight w
Page 85 and 86: AR 2011 PG 83 Reconciliation of Con
Page 87 and 88: AR 2011 PG 85 27.3 Asset and Liabil
Page 89 and 90: AR 2011 PG 87 The following table s
Page 91 and 92: CORPORATE INFORMATION Board of Dire
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ANNUAL REPORT 2011 - Connacher Oil and Gas

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