Montana Refining Company

 January 9, 2008:
Calgary Herald article regarding Connacher's Montana Refining Company

As a prospective producer of significant volumes of bitumen using SAGD technology, Connacher has been mindful of market pressures on natural gas prices and of the increasing volatility and widening of price differentials for heavier oil as crude oil prices rose inexorably during the past two years.

As a small company, Connacher could not afford the risk of getting the Great Divide project on stream and then facing rising fuel costs, higher diluent charges or shortages of this product to blend with our bitumen in order to meet pipeline specifications. Furthermore, as a SAGD operation requires continuous steam input, Connacher also must be able to sustain itself during periods of high, wide or volatile differentials for heavier crude, if they resulted in low, even negative cash flow or net operating income for extended periods of time.

To mitigate these risks, acknowledging the difficulty of successful financial hedging opportunities, Connacher purchased a small but profitable and accessible refinery in Great Falls, Montana.

Connacher is fortunate in that most of the highly-qualified and committed personnel associated with this 9,500 bbl/d refinery stayed with the operation. This assisted a smooth transition of ownership and enabled Connacher to familiarize itself with the operation before the Great Divide bitumen became available, when it could serve as feedstock in future years. The refinery is a very sophisticated plant which is capable of producing everything from gasoline and jet fuel to asphalt. Connacher sees significant synergies and effective risk mitigation from being able to operate the oil sands and refining operation on an integrated basis in future years. Management also believe this involvement will serve Connacher well as it expands its production base at Great Divide, as critical strategic alliances may have been established through this downstream engagement.

Connacher retains the Montana Refining Company brand name and its recognition as part of the transaction.

As a consequence of a spring 2008 debottlenecking which resulted during the turnaround, throughput has increased significantly to 9,500 bbl/d and on occasion has surpassed 10,000 bbl/d with associated improvement in revenue and profitability.

 

Pipeline access from Alberta through Montana

---

Construction Photographs