Connacher reports improving bitumen operations and first quarter 2009 results and schedules conference call for May 13, 2009 at 9:00 am MDT

CALGARY, May 12 /CNW/ - Connacher Oil and Gas Limited (TSX:CLL) today reported first quarter 2009 ("Q1 2009") results. Operating conditions were difficult for bitumen producers in early 2009. However, Connacher's operations substantially overcame the challenges. The challenges of extremely cold winter conditions were exacerbated by very weak commodity markets and equally poor capital market conditions. Nevertheless, we did what we could to overcome these circumstances by capitalizing on contango in the crude oil futures market to secure price stability for a portion of our production. We reduced operating costs and are now among the lowest cost producers, with our goal to be the lowest cost bitumen producer in Alberta. We secured fixed heavy oil price differentials for much of our bitumen sales, at a time of improved heavy oil pricing and reduced transportation costs and blending ratios by selling more of our Great Divide Pod One ("Pod One") production to regional upgraders. As a result, we were able to restore the ramp up process at Pod One, after having had to scale back operations during the month of December 2008, when crude oil prices collapsed and other factors adversely impacted on the economics of bitumen production.

We also saw a glimmer of hope, in that before provision for non-cash mark to market accounting losses on our crude oil hedges, in the first quarter of 2009, we recorded positive net operating income in our conventional and unconventional or bitumen operations ("upstream division") as well as in our downstream ("refining division") operations during the period. We believe this augurs well for the balance of the year, provided there is no significant further deterioration in prices for crude oil and natural gas and that anticipated strong asphalt prices are realized as expected. As we noted in our 2008 Annual Report, recovery is in the air.

Despite a 110 percent increase in production volumes, a second consecutive quarter (Q4 2008 and now Q1 2009) of modest negative cash flow was recorded, as prices for all upstream products - bitumen, crude oil and natural gas - were lower by as much as 58 percent year over year and were down 54 percent per boe produced. (Boe may be misleading if used in isolation. See footnote 3 under the Summary Results Table). However, we can advise that March 2009 bitumen selling prices, at $32.29/bbl, were three times January 2009 levels and up almost 40 percent above the quarterly average. This strong selling price was achieved even though WTI for the month of March 2009 averaged around US$48/bbl. Also, March 2009 bitumen netbacks were almost five times the quarterly average. This was further manifestation of a turnaround, which appears to have momentum.

Arising from a weakening of the Canadian dollar relative to the US dollar since year end 2008, a significant non-cash charge largely arising from the fact a significant part of our long-term debt is denominated in US dollars, was the major contributor to our reported loss. By its nature, this non-cash charge will be volatile and currently with a much stronger Canadian dollar, would have more than been reversed had our accounts been completed at this writing. However, the provision is only calculated on the last day of each reporting period, compared to the level on the last day of the prior period. Accordingly, Connacher's reported earnings are likely to continue to exhibit similar volatility.

Our production rampup at Pod One progressed at a measured pace during the first quarter of 2009. Subsequent to the end of the reporting period, four new electrical submersible pumps were installed in four wells and we commenced steam circulation on the two new well pairs we drilled on Pod One. We surpassed 10,000 bbl/d on a "test" basis, after which we adopted a more measured production rampup to introduce steady state conditions, which will allow for better reservoir conformance, on a sustained basis, as better economic conditions become available.

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