The report was prepared for the company at the direction of Connacher's Reserves Committee, using assumptions and methodology guidelines outlined in the Canadian Oil and Gas Evaluation Handbook ("COGE Handbook") and in accordance with National Instrument 51-101 ("NI 51-101"). It took into account the results of approximately 20 core holes and 3D seismic covering Pods 2 and 4, activity which was conducted largely during the first quarter of 2006. It did not incorporate the results of 3D seismic conducted this summer over Pod 1 and the extension to Pod 5 as this data was still being interpreted at the time of preparation of the current report.
It should be noted Connacher has also initiated regulatory procedures to secure approvals to conduct the drilling of up to ten stratigraphic tests on and around Pods 2 and 4 prior to freeze-up in the latter part of 2006. The results of this anticipated drilling, along with the aforementioned summer seismic program, is anticipated to impact on the outcome of the next scheduled GLJ update to be conducted at year end 2006. The results of the next GLJ Report will be incorporated into Connacher's year end reporting to shareholders, likely to occur near the end of March 2007.
As previously announced, Connacher also plans to drill up to an additional 60 core holes or stratigraphic tests on its main lease block during the first quarter of 2007 and the results of this proposed drilling and further anticipated 3D seismic over the unevaluated portions of Connacher's main lease block is expected to have a measurable, commensurate and continuing impact on Connacher's reserve and resource base at Great Divide, as the expanded data base is secured, processed, interpreted and incorporated into the evaluation process.
Highlights of the GLJ report, with comparatives to year end 2005 results, where appropriate, are as follows:
The GLJ Report forecasts that 3P reserves at Pod 1 will generate $1.7 billion of undiscounted future net revenue, giving rise to the aforementioned eight percent pre-tax present value of $437 million, and should pay out in early 2008 after recovering remaining capital costs and the payment of forecast related operating costs and Provincial royalties.
In the case of 3P recoverable reserves, high estimate (lower certainty) contingent resources and prospective resources, future undiscounted net revenue was forecast to reach $7 billion, resulting in the eight percent pre-tax present value of $1.5 billion previously reported herein.
The GLJ Report utilized GLJ's current price deck, adjusted for the type of crude oil (bitumen) to be produced at Great Divide. The prices utilized commenced in 2007 at $34.75 per barrel and declined to $29.00 per barrel in year 2010 before commencing to increase at a rate of approximately two percent per annum thereafter for the life of the project. The price deck in the 2006 GLJ Report is approximately 10 - 15 percent above that utilized in the 2005 year-end report for the bitumen to be produced. Operating costs were also appropriately inflated in the analysis and adjusted for forecast volumes. The reserves at Pod 1 were forecast by GLJ to have a reserve life of 27.3 years with a 13.5 year half life.
The GLJ Report reinforces the increasing significance and magnitude of the reserves, prospective resources, value and growth potential of Connacher's Great Divide Project and surrounding acreage. Only about 10 percent of Connacher's land holdings at Great Divide were assigned reserves or resources in the GLJ analysis. The company's attention is now focused on the timely, cost effective execution of the construction of the plant for Pod 1, while continuing to grow the reserves, resources and value of the remaining extensive oil sands leases held in the region.
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