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Nevertheless, in response to these circumstances, we have curtailed our anticipated capital spending for 2009 to approximately $123 million, down from previous levels approximating $373 million.

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With our significant cash balances and our operating cash flow, we anticipate being able to fund all of our capital spending activities and meet all financial obligations throughout 2009, even if crude oil prices stay at WTI US$45.00/bbl for the balance of this year, without having to raise any additional capital.

-We can do this only because we drastically reduced our 2009 capital expenditures. We don't want to try to raise additional capital at this time due to our precarious finances.

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To stabilize our outlook in a volatile period and protect against the possibility of renewed crude oil price weakness, we have arranged WTI hedges at prices of US$46.00/bbl and US$49.50/bbl, on approximately one half of our anticipated bitumen production for much of 2009.

-We are protecting ourself, but there is a cost for this. If WTI prices go higher than US$46/bbl and US$49.50/bbl, (perhaps into the 50's or 60's/bbl), we will only receive part of this increase as one half of our production is already sold at a fixed price.

Oil sands field operating costs were impacted by a minor turnaround to clean out vessels at Pod One, by a debottlenecking to manage vapours produced by the treating process, downtime to activate a new trucking terminal and downtime for our mandated turnaround to inspect boilers and pressure safety valves.

- During the year the company highlighted how quickly each of these problems were resolved. Now we find that these quick fixes increased expenses by about $30 million.

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In response to these economic and market conditions, the company has reduced its capital expenditure budget for the 2009 winter exploration and oil sands delineation program and curtailed some capital projects (notably, the expansion of our downstream refining capacity and the construction of an oil sands sales and diluent pipeline) and we suspended the construction of Algar until there is more visibility of improved industry conditions. We anticipate this will be evidenced by improved commodity pricing, improved credit and capital markets and improved general economic conditions.

- The company has had to cancel/postpone all of the expansion plans until the price of oil recovers.

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To date approximately $150 million has been invested in Algar. The majority of the long-lead equipment items have been built. The road to the plant site and well pads have also been constructed. The site is considered ready for resumption of civil construction at a later date. We estimate that it will require approximately 275 days and approximately $209 million of capital to complete the project once a decision to resume construction is made.

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Connacher had a high calculated ratio of debt to capitalization at December 31, 2008. This is due to pre-funding the full cost of Algar in 2007 through the issuance of US $600 million of Second Lien Senior Notes, a portion of the proceeds of which was used to repay indebtedness incurred previously for Pod One. As at December 31, 2008, the company's net debt (long-term debt, net of cash on hand) was $555 million, its net debt to book capitalization was 44 percent and its net debt to market capitalization was 57 percent.

- These are the numbers that caused us to lose our $150 million credit facility. We are too far in debt.

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Outlook

We expect 2009 will continue to be challenging. We have already experienced challenges during the first few months of the year. However, we anticipate a much improved full year contribution from our refining operations primarily due to anticipated healthy asphalt markets, with wider margins, as newly-announced U.S. government infrastructure projects are anticipated to result in an unprecedented demand for asphalt. This product is currently in short supply in the United States. This improvement should start to be apparent in the second quarter of 2009. We also anticipate positive net operating income from our upstream operations during 2009 as a result of hedging and marketing activities and anticipated reductions in transportation and operating costs.

We have significant cash balances and together with anticipated positive operating income in 2009, we anticipate being able to meet all our financial obligations throughout 2009, even if crude oil prices stay at WTI US$45.00/bbl for the balance of this year. We continue to believe preserving our liquidity and protecting our assets are the priority responsibilities for 2009. We have ample identified reserves and resources to remain confident of our future growth prospects and we believe energy prices will improve as the year unfolds. To stabilize our outlook in a volatile period and protect against the possibility of renewed crude oil weakness, we have arranged WTI hedges at prices of US$46/bbl and US$49.50/bbl on approximately one half of our bitumen production for most of 2009.