Connacher Receives Great Divide Order

Connacher Oil and Gas Limited said that it has been advised that the Lieutenant Governor in Council, by Order in Council Number 313/2006 dated July 12, 2006, has authorized the granting of Order No. 10587 approving the company’s Great Divide oil sands project in northeastern Alberta.

The authorization was the last formal approval requirement for the project to proceed. During the construction and pre-startup phases, Connacher said that it will remain in close contact with and work with relevant regulatory authorities to secure all necessary permits and to meet the requirements as set out in the order.

The approval marks the culmination of approximately 11 months of review of the project by the Alberta Energy and Utilities Board (EUB), stakeholders, and other governmental departments--including Alberta Environment (AE) and Alberta Sustainable Resource Development (ASRD). Connacher can now move to construct its plant, drill its first 15 well pairs during the third and fourth quarters of 2006, and target startup of the 10,000-bbl/d plant during the second quarter of 2007.

Thanks to a pre-approved planning and procurement process, Connacher said that more than 80 percent of its engineering and design work for the Great Divide project is now complete. Shop construction of major equipment is approximately 65 percent complete, and more than 60 percent of mechanical and civil design work has been accomplished. Electrical design and related drafting work is approximately 44 percent complete, based on reporting from Connacher's engineering and procurement contractor. Connacher also noted that processing and instrument design for its well pads is well underway and that instrumentation and equipment ordering is proceeding.

Two SAGD drilling rigs have been contracted, with the first scheduled to be available during the third quarter 2006 and the second rig contracted to arrive during the early portion of the fourth quarter 2006. These rigs are designed for pad drilling and completion of horizontal SAGD well pairs (of which Connacher plans 15 for its first phase of operations; it is expected these wells will produce for 6 to 8 years before the next pads and well pairs will be required to maintain targeted production levels). Production from these well pairs is expected to reach 10,000 bbl/d after an initial build-up period.

Connacher said that its oil-bearing reservoir is sufficiently deep to avoid having to use specially built slant rigs, which other operations have required. The depth of the high-quality reservoir at Great Divide should also contribute to efficient and effective utilization of steam to liberate the bitumen to be produced from the project. Attractive below-average steam:oil ratios are envisaged and expected to exceed the forecast 25-year project life.

The company also noted that plans are well advanced with respect to campsite locations and their eventual installation to accommodate the field and construction personnel who will be required at the time of peak construction. In this regard, Connacher said that, by virtue of contractual arrangements with various contractors, it has secured the full labor complement that will be required for the duration of the construction phase of the project, into the spring of 2007. Additionally, the company will be hiring and installing the operating personnel who will participate in the final design, construction, and completion of the plant in order to ease the transition to full operational status. Discussions about pipeline alternatives are also being advanced in conjunction with other operators in the area.

Connacher's overall cost estimates for Great Divide have risen approximately 15 percent from earlier published estimates. These increases are primarily due to rising labor and material costs, including steel and higher anticipated drilling and completion costs. The company has also budgeted an additional 14 percent of the base cost estimate for the inclusion of certain new items, including capitalized costs, and the anticipated equity investment in a pipeline to available markets including the ability to eventually move a significant portion of Connacher's blended production to its Great Falls, Mont., refinery, which was acquired earlier this year.