ANNUAL REPORT 2011 - Connacher Oil and Gas

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AR 2011 PG 74 The following provide the details of unrecognized deductible temporary differences, unused losses and unused tax credits for which no deferred tax asset has been recognized: As at December 31 2011 2010 (Canadian dollar in thousands) Non-capital losses $ 1,138 $ 1,138 Capital losses 155,700 82,202 Successor Canadian resource tax pools 4,151 4,151 Unused tax credits $ 3,388 $ 3,388 The unrecognized non-capital losses expire in 2026, capital losses and successor Canadian resource tax pool do not have a set expiration and the unused tax credits expire in 2029 and 2030. The company has specific tax matters under discussion with tax authorities, the outcome of which is uncertain. Where the outcome of these matters is different from the amounts currently recorded, such differences will be recorded in net earnings (loss) in the period in which such determination is made. 17. SHARE CAPITAL Authorized: unlimited number of common voting shares with no par value Authorized: unlimited number of first preferred shares with no par value of which none are outstanding Authorized: unlimited number of second preferred shares with no par value of which none are outstanding 17.1 Issued and outstanding common share capital For the year ended December 31 2011 2010 Number Canadian dollar in thousands Number Canadian dollar in thousands Balance, beginning of year 447,167,694 $ 618,628 427,031,362 $ 593,119 Issued for cash on flow–through basis net of premium of $2,272 – – 17,480,000 23,074 Shares issued upon exercise of stock options 810,088 752 2,017,836 1,936 Transfer from contributed surplus – share awards 282,209 534 638,496 480 Transfer from contributed surplus – stock options 423 1,082 Share issue cost, net of tax – (71) – (1,063) Balance, end of year 448,259,991 $ 620,266 447,167,694 $ 618,628 Weighted average common shares outstanding basic and diluted 448,024,574 432,257,947 In October 2010, the company issued 17,480,000 common shares on a flow–through basis at a price of $1.45 per common share for gross proceeds of $25.3 million and renounced the qualifying expenditures to investors effective December 31, 2010. A premium of $2.3 million representing the difference between the gross proceeds and the share price of the company on the date of issue was initially recognized in trade and accrued payables and was subsequently recorded as a deferred tax provision on the renouncement of the qualifying expenditures on December 31, 2010. 18. Stock Option Plan, SHARE AWARD INCENTIVE Plan and SHARE UNIT Plan 18.1 Stock Option Plan The company has a Stock Option Plan for all officers, employees and consultants permitting the issue from time to time of options entitling the holders to acquire common shares. Options are granted at the discretion of the Board of Directors. The options have a term of five years to maturity and vest annually over a two to three year period. The maximum number of common shares reserved for issuance pursuant to the Stock Option Plan is ten percent of the issued common shares of the company from time to time, less four million common shares reserved for issuance under Share Award Incentive Plan and less the number of common shares reserved for issuance for outstanding grants pursuant to the Share Unit Plan.
AR 2011 PG 75 The following table shows the changes in stock options and the related weighted average exercise prices: For the year ended December 31 2011 2010 Number of Options Weighted Average Exercise Price Number of Options Weighted Average Exercise Price Outstanding, beginning of year 24,413,668 $ 1.50 22,579,045 $ 1.72 Granted 5,075,064 1.18 10,263,154 1.36 Exercised (810,088) 0.93 (2,017,836) 0.96 Forfeited (3,129,409) 1.39 (3,153,695) 2.15 Expired (475,500) 4.36 (3,257,000) 2.31 Outstanding, end of year 25,073,735 $ 1.41 24,413,668 $ 1.50 Exercisable, end of year 17,668,872 $ 1.49 13,166,750 $ 1.73 The weighted average share price on the date of exercise for the options exercised in 2011 was $1.38 per common share (2010 : $1.47). The following table summarizes stock options outstanding and exercisable under the plan. As at December 31 2011 2010 Range of Exercise Prices Number Outstanding Number Outstanding Weighted Average Exercise Price Weighted Average Remaining Contractual Life Weighted Average Exercise Price Weighted Average Remaining Contractual Life $ 0.28 – $ 0.99 3,926,926 $ 0.72 2.9 3,598,599 $ 0.75 3.3 $ 1.00 – $ 1.99 18,699,151 1.27 3.2 17,691,857 1.26 3.9 $ 2.00 – $ 2.99 15,000 2.10 1.8 15,000 2.10 2.8 $ 3.00 – $ 3.99 2,253,649 3.62 0.6 2,573,703 3.62 1.5 $ 4.00 – $ 4.99 179,009 4.16 0.6 366,509 4.14 1.0 $ 5.00 – $ 5.99 – – – 168,000 5.04 0.2 25,073,735 $ 1.41 2.9 24,413,668 $ 1.50 3.5 At the date of grant, the weighted average fair value of stock options granted in 2011 was $0.45 per option (2010 : $0.66 per option). The fair value of stock options granted was estimated on the date of grant using the Black–Scholes option pricing model using the following weighted average assumptions. For the year ended ended December 31 2011 2010 Weighted average share and exercise price ($ per share) $ 1.18 $ 1.36 Risk free interest rate (percent) 1.8 1.9 Expected option life (year) 3.0 3.0 Expected volatility (percent) 54 72 Dividend yield (percent) – – Forfeiture rate (percent) 6.5 6.0 The expected volatility measured at the standard deviation of continuously compounded share returns was based on statistical analysis of the daily share prices over the last two years (2010 : three years). 18.2 Share Award Incentive Plan Under the Share Award Incentive Plan, share units may be granted to non–employee directors of the company in amounts determined by the Board of Directors on the recommendation of the Governance Committee. Share units have a one year vesting period and are settled by issuing common shares from treasury, subject to certain limitations. The Board of Directors may alternatively elect to pay cash equal to the fair market value of the common shares to be delivered to non–employee directors, upon vesting of such share units, in lieu of delivering common shares. The awards granted in 2011 and 2010 were expected to be settled by delivery of common shares and accordingly, were considered an equity–settled awards for accounting purposes. The maximum number of common shares reserved for issuance under the Share Award Incentive Plan is four million common shares. The following table summarizes the changes in Share Award Incentive Plan: For the year ended December 31 2011 2010 Outstanding, beginning of year 380,598 648,916 Granted 375,000 380,598 Vested and settled by issuing common shares (282,209) (638,496) Vested and settled in cash (1) (124,431) – Cancelled (36,458) (10,420) Outstanding, end of year 312,500 380,598 (1) In satisfaction of withholding tax requirements.
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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
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AR 2011 PG 5 Volatility in the oil
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AR 2011 PG 7 “Thanks to our liqui
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AR 2011 PG 9 Review of Operations I
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AR 2011 PG 11 proposals helped to p
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AR 2011 PG 13 reservoir description
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AR 2011 PG 15 Connacher Oil and Gas
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AR 2011 PG 17 the movement of wildl
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AR 2011 PG 19 MANAGEMENT’S DISCUS
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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 and 58: AR 2011 PG 55 3.11 Leases Agreement
Page 59 and 60: AR 2011 PG 57 IAS 1 Presentation of
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: AR 2011 PG 73 The provision for inc
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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