Operations

Connacher's principal asset is its interest in approximately 80,000 acres of oil sands leases at its Great Divide oil sands project near Fort McMurray, Alberta. In June 2006, Connacher received approval from the Alberta Energy and Utilities Board to implement a steam-assisted gravity drainage scheme for the production of bitumen at the project pending an Order in Council and subject to certain conditions. Connacher also maintains conventional production in Alberta and Saskatchewan. Connacher presently owns a significant and the largest equity stake in and participates in the management of Petrolifera Petroleum Limited, a very succesful company which has interests in Argentina, Colombia and Peru.

In early 2006, Connacher acquired Luke Energy Ltd., which was largely a natural gas producer with good growth potential and properties physically proximate to Great Divide at Marten Creek, Alberta. Luke also held properties at Three Hills, Alberta. The Luke transaction provided Connacher with significant immediate additional cash flow, credit capacity and a broader asset base to mitigate operational and financial risk. Natural gas production provides a physical hedge against natural gas prices for volumes consumed at Great Divide Pod One with minimal basis differential.

Connacher also owns and operates what is now a 9,500 bbl/d refinery located in Great Falls, Montana. 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 heavy oil. The purchase of the Montana Refining Company will provide protection against differential risks and will also allow us to operate our oil sands and refining operation on an integrated basis.