ANNUAL REPORT 2011 - Connacher Oil and Gas

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AR 2011 PG 78 structure that allows multiple financing options when a financing need or opportunity arises and to optimize its use of long–term debt and equity at an appropriate level of risk. The company manages its capital structure and follows a financial strategy that considers economic and industry conditions, the risk characteristics and the long–term nature of its underlying assets and its growth opportunities. It strives to continuously improve its credit rating with the objective of reducing its cost of capital. Connacher’s current capital structure is summarized below: As at December 31 2011 2010 (Canadian dollar in thousands) Long–term debt (1) $ 856,068 $ 847,387 Shareholders’ equity 421,076 523,187 Total long–term debt plus equity (“capitalization”) $ 1,277,144 $ 1,370,574 Long–term debt to capitalization (2) 67% 62% (1) Long–term debt is stated at its carrying amount, which is net of transaction costs. (2) Calculated as long–term debt divided by the book value of shareholders’ equity plus long–term debt. The long–term debt agreements contain certain provisions, which restrict the company’s ability to incur additional indebtedness, pay dividends, make certain payments and dispose of collateralized assets. 23. CASH flow information Changes in non–cash working capital As at December 31 2011 2010 (Canadian dollar in thousands) Trade and accrued receivables $ (4,752) $ (15,618) Inventories (2,277) (21,802) Other assets 6,061 (173) Trade and accrued payables 20,535 (21,166) Total $ 19,567 $ (58,759) Relating to: Operations $ 14,048 $ (23,962) Investing 5,519 (34,797) Total $ 19,567 $ (58,759) Non–cash transaction In 2011, the company received 3.3 million common shares and 841,000 common share purchase warrants of Gran Tierra Energy in exchange for the interest in associate. See note 8.2 and 21. There were no significant non–cash transactions in 2010. 24. RELATED PARTY Transactions Subsidiaries Details of the company’s subsidiaries at the end of December 31, 2011, December 31, 2010 and January 1, 2010 are as follows: Name of subsidiary Principal activity Place of incorporation and operation Proportion of ownership interest Great Divide Holding Corporation Holding company Canada 100 Great Divide Pipeline Corporation Petroleum and natural gas USA 100 Great Divide Pipeline Limited Petroleum and natural gas Canada 100 Montana Refining Company, Inc Refining USA 100 Balances and transactions between Connacher and its subsidiaries have been eliminated on consolidation and are not disclosed in this note. Details of transactions between the company and other related parties are disclosed below. Associate Under the terms of an Administrative Services Agreement, dated January 1, 2008 with Petrolifera, Connacher provided certain general and administrative services to Petrolifera. The fee for this service was $15,000 per month. Petrolifera paid Connacher $45,000 in 2011 (2010: $180,000) under the Administrative Services Agreement. Petrolifera also reimbursed Connacher for certain other out–of–pocket expenses incurred by Connacher on Petrolifera’s behalf. The agreement was terminated upon closing of the transaction under the Plan of Arrangement. See note 8.2. The company also rented a portion of its office building to Petrolifera on sublease. The company recovered rental expenses of $30,000 in 2011 (2010: $137,000). The sublease was terminated upon completion of the transaction under the Plan of Arrangement. See note 8.2.
AR 2011 PG 79 Compensation of key management personnel Key management personnel include directors and executive officers of Connacher. The compensation paid or payable to key management for services is shown below: For the year ended December 31 2011 2010 (Canadian dollar in thousands) Short–term employee benefits $ 4,309 $ 4,353 Post–employment benefits 197 229 Termination benefits – 312 Other long–term benefits 96 103 Share–based payments 1,217 2,031 $ 5,819 $ 7,028 The company has management contracts with executive officers that require the company to pay a lump sum payment in case of loss of employment under certain circumstances as prescribed in these contracts. Subsequent to December 31, 2011, the company paid approximately $5.5 million under these contracts as compensation for loss of employment. The stock options, awards and units held by key management personnel under the Stock Option Plan, Share Award Incentive Plan and Share Unit Plan were as follows: As at December 31 2011 2010 Stock options Number of options (number in 000) 7,583 7,776 Weighted average exercise price ($ per share) $ 1.75 $ 1.86 Weighted average remaining life (years) 2.4 3.0 Share awards Number of awards (number in 000) 313 381 Weighted average remaining life (years) 4 4 Share units Number of units (number in 000) 141 – Weighted average remaining life (years) 4.6 – 25. Operating LEASE Arrangements Lease arrangements Operating leases relate to the lease of office space, rail cars and other equipment with terms ranging from 1 to 7 years. Certain of the leases entitle the company to renew the lease at the end of its lease term at then current market rates. The company does not have any material purchase options within its operating lease arrangements. Payments recognized as expense or capitalized For the year ended December 31 2011 2010 (Canadian dollar in thousands) Minimum lease payments expensed – production, operating and transportation $ 1,574 $ 725 Minimum lease payments expensed – general and administrative 5,390 2,714 Minimum lease rentals received under sublease (151) (575) Total expense charged 6,813 2,864 Minimum lease payments capitalized as a part of property, plant and equipment 606 1,409 Total minimum lease payments recognized under operating lease $ 7,419 $ 4,273 Non–cancellable operating lease commitments As at December 31 2011 2010 (Canadian dollar in thousands) No later than 1 year $ 5,284 $ 3,243 Later than 1 year but no later than 5 years 20,212 11,738 Later than 5 years 1,545 4,923 Total minimum lease payments under operating lease $ 27,041 $ 19,904
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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
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AR 2011 PG 23 Connacher’s bitumen
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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 and 76: AR 2011 PG 73 The provision for inc
Page 77 and 78: AR 2011 PG 75 The following table s
Page 79: AR 2011 PG 77 19. FINANCE Charges F
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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