Reserves
The following is a summary of the conventional crude oil and natural gas reserves and unconventional oil sands or bitumen reserves and resources and the value of future net revenue to the company for these properties as at June 30, 2007 as evaluated by GLJ Petroleum Consultants ("GLJ") in March 2007 reports dated March 9, 2007 (the "GLJ Report"). The GLJ Report was prepared using assumptions and methodology guidelines outlined in the Canadian Oil and Gas Evaluation Handbook ("COGE Handbook") and in accordance with National Instrument 51-101 ("NI 51-101"). The pricing used in the forecast price evaluations is set forth in the notes to the tables.
Unconventional Reserves and Resources
Great Divide SAGD Project (Bitumen)
The GLJ June 2007 Report estimated Connacher’s 1P bitumen reserves would generate $727 million of future net
revenue with a 10 percent present value of $310 million, after deduction of future capital requirements of $316 million
and abandonment costs of $8 million.
Connacher’s 2P bitumen reserves were forecast to generate $2.7 billion of future net revenue with a 10 percent present
value of $683 million, after future capital of $1.1 billion and abandonment costs of $9 million.
The Company’s 3P bitumen reserves were forecast to generate $4.2 billion of future net revenue with a 10 percent
present value of $777 million, after future capital of $1.6 billion and abandonment costs of $31 million.
Our 2P reserves and best estimate contingent resources were forecast to generate $4.6 billion of future net revenue with a
10 percent present value of $873 million, after future additional capital to develop the contingent resources of $2.3
billion and $44 million of abandonment costs.
Connacher’s 2P reserves and best estimate total (contingent and prospective) resources were forecast to generate $6.5
billion of future net revenue with a 10 percent present value of $1.1 billion, after future capital of $3.1 billion and
abandonment costs of $59 million. Under this scenario, future annual production is forecast by GLJ to peak at 40,264
bbl/d in 2029.
The Company’s 3P reserves and high estimate total resources were forecast to generate $13.4 billion of future net
revenue with a 10 percent present value of $1.6 billion after future capital of $6.7 billion and abandonment costs of $127
million. Under this scenario, future annual production is forecast by GLJ to peak at 60,215 bbl/d in 2022.
The resource volumes have not been classified as reserves at this time, pending further delineation drilling, development
planning, project design and further regulatory applications. The resource values should be considered indicative in
nature only, pending further design work to confirm timing and capital estimates.
Bitumen Reserves and Net Present Value of Future Net Revenue
Based on Forecast Prices and Costs (6,7)
| Bitumen | Before Deducting Income Taxes Discounted At | ||||
| Gross (1) (mbbl) |
Net (1) (mbbl) |
0% ($MM) |
5% ($MM) |
10% ($MM) |
|
| Total Proved (2) | 43,841 | 39,808 | 521 | 313 | 191 |
| Total Proved Plus Probable (2,3) | 84,147 | 74,148 | 1,298 | 658 | 376 |
| Total Proved Plus Probable Plus Possible (2,3,4) | 109,861 | 95,774 | 1,911 | 858 | 464 |
(1) "Gross Reserves" are the company's working interest (operating or non-operating) share before deducting royalties and without including any royalty interests of the company. "Net Reserves" are the company's working interest (operating or non-operating) share after deduction of royalty obligations, plus the company's royalty interests in reserves.
(2) "Proved" reserves are those reserves that can be estimated with a high degree of certainty to be recoverable. It is 90% likely that the actual remaining quantities recovered will exceed the estimated proved reserves.
(3) "Probable" reserves are those additional reserves that are less certain to be recovered than proved reserves. It is equally likely that the actual remaining quantities recovered will be greater or less than the sum of the estimated proved plus probable reserves.
(4) "Possible" reserves are those additional reserves that are less certain to be recovered than probable reserves. It is unlikely that the actual remaining quantities recovered will exceed the sum of the estimated proved plus probable plus possible reserves.
(5) The pricing assumptions at the wellhead for bitumen used in the GLJ Report with respect to values of future net revenue (forecast) are set forth on page 29. GLJ is an independent qualified reserves evaluator appointed pursuant to NI 51-101.
(6) Includes estimated capital costs, in the 1P case, of $269 million over the 17 year forecast life of the project (7.8 year half-life); of $412 million in the 2P case over the 28 year forecast life of the project (13.2 years half-life); and of $494 million in the 3P case over the 34 year forecast life of the project (16.0 years half-life).
The GLJ Report also provided calculations of Contingent Resources comprised of "Low Estimate Resources (>15 metre Pay) - higher certainty", together with "Best Estimate Resources (13 metre Pay) - likely certainty" and "High Estimate Resources (>10 metre Pay) - lower certainty". Low Estimate recoverable resources are comprised of mapped original oil-in-place assigned to Pod One (>15 metre Pay) with a lower recovery factor than are applied to the estimate of 2P reserves. Best Estimate Resources are comprised of 2P remaining recoverable reserves together with an estimate of recoverable resources attributable to five other pods on Connacher's lands. High Estimate Resources (lower certainty) include 3P recoverable reserves at Pod One together with recoverable resources at the other five pods on Connacher's acreage, but with a larger aerial extent and a higher recovery factor than attributable under the Best Estimate Category.
Only Pod One had sufficient well and seismic control to warrant the assignment of reserves. The other five pods had insufficient drilling density, seismic mapping or project definition at December 31, 2006 to be categorized as reserves at this time. Additional drilling and seismic activity could result in upgrading these to reserve status over time. In the interim, a range of Contingent Resources was assigned to reflect uncertainties. The GLJ Report also recognized Best Estimate and High Estimate Prospective Resources attributable to undiscovered pods, utilizing average parameters from six identifiable pods, including Pod One. This year, calculations of the present value of the future cash flow from remaining recoverable reserves and remaining recoverable resources (Contingent and Prospective) were included for the total Great Divide lands and not as previously just for Pod One.
Summary of Unconventional Reserves and Resources and Values
| Marketable Reserves, Resources | Total Company Interest (mmbbl) |
Net After Royalty (mmbbl) |
Before Tax Present Value at 0% ($MM) |
Before Tax Present Value at 5% ($MM) |
Before Tax Present Value at 10% ($MM) |
| 1P Reserves and Low Estimate Contingent Resources (1,4,6) | 70.5 |
65.1 |
766.4 |
437.7 |
243.2 |
| 2P Reserves and Best Estimate Contingent Resources (1,2,4,7) | 187.8 |
167.3 |
2,884.9 |
1,216.7 |
584.0 |
| 3P Reserves and High Estimate Contingent Resources (1,2,3,4,6,8) | 265.7 |
235.1 |
4,319.1 |
1,742.8 |
813.8 |
| 1P Reserves and Low Estimate Total Resources (1,6,9) | 110.5 |
99.5 |
1,393.0 |
803.2 |
486.7 |
| 2P Reserves and Low Estimate Total Resources (1,2,6,9) | 260.6 |
232.4 |
3,872.1 |
1,661.4 |
778.1 |
| 3P Reserves and Low Estimate Total Resources (1,2,3,6,9) | 479.0 |
423.7 |
8,058.0 |
2,898.7 |
1,245.1 |
(1) Proved reserves are those reserves that can be estimated with a high degree of certainty to be recoverable. It is 90% likely that the actual remaining quantities recovered will exceed the estimated proved reserves.
(2) Probable reserves are those additional reserves that are less certain to be recovered than proved reserves. It is equally likely that the actual remaining quantities recovered will be greater or less than the sum of the estimated proved plus probable reserves.
(3) Possible reserves are those additional reserves that are less certain to be recovered than probable reserves. There is only a 10% probability that the quantities actually recovered will equal or exceed the sum of proved plus probable plus possible reserves. Possible reserves were 26 million bbls and 39 million bbls in the GLJ 2006 report and the GLJ 2005 report, respectively.
(4) Contingent resources are those quantities of oil and gas estimated on a given date to be potentially recoverable from known accumulations but are not currently economic. GLJ has categorized these resources as contingent as additional delineation drilling, development planning, project design and further regulatory applications are required.
(5) Prospective resources are those quantities of oil and gas estimated on a given date to be potentially recoverable from undiscovered accumulations. If discovered, they would be technically and economically viable to recover. There is no certainty, however, that the prospective resources will be discovered.
(6) Low Estimate is considered to be a conservative estimate of the quantity that will actually be recovered from the accumulation. If probabilistic methods are used, this term reflects P90 confidence level.
(7) Best Estimate is considered to be the best estimate of the quantity that will actually be recovered from the accumulation. If probabilistic methods are used, this term is a measure of central tendency of the uncertainty distribution (P50).
(8) High Estimate is considered to be an optimistic estimate of the quantity that will actually be recovered from the accumulation. If probabilistic methods are used, the term reflects a P10 confidence level.
(9) Total resources includes contingent resources and prospective resources.
(10) Does not include undeveloped land value.
GLJ Report on Conventional Canadian Reserves
The following is a summary of the crude oil and natural gas reserves and the value of future net revenue of the company's conventional Canadian reserves as at December 31, 2006 as evaluated in the March 2007 reports by GLJ dated March 9, 2007 (the "GLJ Report"). The GLJ Report was prepared using assumptions and methodology guidelines outlined in the COGE Handbook and in accordance with NI 51-101. The pricing used in the forecast price evaluation is set forth in the notes to the tables below.
All evaluations of future revenue are after the deduction of royalties, development costs, production costs and well abandonment costs but before consideration of income tax and indirect costs such as administrative, overhead and other miscellaneous expenses. The estimated future net revenues contained in the following tables do not necessarily represent the fair market value of the company's reserves. There is no assurance that the forecast price and cost assumptions contained in the GLJ Report will be attained and variances could be material. Other assumptions and qualifications relating to costs and other matters are included in the GLJ Report. The recovery and reserves estimates of the company's properties described herein are estimates only. The actual reserves on the company's properties may be greater or less than those calculated.
Connacher also owns a 26 percent equity stake in Petrolifera Petroleum Limited. See the company's Annual Information Form ("AIF") as posted on SEDAR (www.sedar.com) for more information related to that company's crude oil and natural gas reserves located in Argentina.
Conventional Reserves Data - Forecast Prices And Costs
Crude Oil and Natural Gas Reserves Based on Forecast Prices and Costs (9)
| Light and Medium Oil |
Natural Gas | Natural Gas Liquids | ||||
| Gross (1) | Net (1) |
Gross (1) |
Net (1) |
Gross (1) | Net (1) |
|
| Proved Developed Producing (2,5) | 2,106 | 1,742 | 21,539 | 17,607 | 1.0 | 0.7 |
| Proved Developed Non-Producing (2,6) | - | - | 3,167 | 2,615 | 0.2 | 0.1 |
| Proved Undeveloped (2,7) | 315 | 240 | - | - | - | - |
| Total Proved | 2,421 | 1,983 | 24,706 | 20,221 | 1.2 | 0.8 |
| Total Probable (3) | 786 | 632 | 8,773 | 7,158 | 0.4 | 0.3 |
| Total Proved Plus Probable (2,3) | 3,207 | 2,615 | 33,479 | 27,379 | 1.6 | 1.1 |
Net Present Value of Future Net Revenue Based on Forecast Prices and Costs (8)
| Before Deducting Income Taxes Discounted At | |||
| 0% | 5% | 10% | |
| Proved Developed Producing (2,5) | 160 | 127 | 106 |
| Proved Developed Non-Producing (2,6) | 16 | 13 | 10 |
| Proved Undeveloped (2,7) | 8 | 7 | 5 |
| Total Proved (2) | 183 | 146 | 122 |
| Total Probable (3) | 73 | 45 | 31 |
| Total Proved Plus Probable (2,3) | 256 | 191 | 152 |
(1) "Gross Reserves" are the company's working interest (operating or non-operating) share before deducting royalties and without including any royalty interests of the company. "Net Reserves" are the company's working interest (operating or non-operating) share after deduction of royalty obligations, plus the company's royalty interests in reserves.
(2) "Proved" reserves are those reserves that can be estimated with a high degree of certainty to be recoverable. It is 90% likely that the actual remaining quantities recovered will exceed the estimated proved reserves.
(3) "Probable" reserves are those additional reserves that are less certain to be recovered than proved reserves. It is equally likely that the actual remaining quantities recovered will be greater or less than the sum of the estimated proved plus probable reserves.
(4) "Possible" reserves are those additional reserves that are less certain to be recovered than probable reserves. It is unlikely that the actual remaining quantities recovered will exceed the sum of the estimated proved plus probable plus possible reserves.
(5) "Developed Producing" reserves are those reserves that are expected to be recovered from completion intervals open at the time of the estimate. These reserves may be currently producing or, if shut-in, they must have previously been on production, and the date of resumption of production must be known with reasonable certainty.
(6) "Developed Non-Producing" reserves are those reserves that either have not been on production, or have previously been on production, but are shut-in, and the date of resumption of production is unknown.
(7) "Undeveloped" reserves are those reserves expected to be recovered from known accumulations where a significant expenditure (for example, when compared to the cost of drilling a well) is required to render them capable of production. They must fully meet the requirements of the reserves classification (proved, probable, possible) to which they are assigned.
(8) The pricing assumptions used in the GLJ Report with respect to values of future net revenue (forecast) as well as the inflation rates used for operating and capital costs are set forth below. GLJ is an independent qualified reserves evaluator appointed pursuant to NI 51-101.
(9) Values include processing and other income.
| Light and Medium Crude Oil | Exchange Rate |
Bitumen Wellhead Current |
Natural Gas |
Inflation Rate |
|
| WTI Cushing Oklahoma ($US/bbl) |
$US/$Cdn | ($Cdn/bbl) | Alberta Spot ($Cdn/mcf) |
%/year | |
| Forecast | |||||
| 2007 | 62.00 | 0.87 | 31.50 | 7.00 | 2.0 |
| 2008 | 60.00 | 0.87 | 32.75 | 7.25 | 2.0 |
| 2009 | 58.00 | 0.87 | 33.50 | 7.55 | 2.0 |
| 2010 | 57.00 | 0.87 | 33.38 | 7.60 | 2.0 |
| 2011 | 57.00 | 0.87 | 34.50 | 7.65 | 2.0 |
| 2012 | 57.50 | 0.87 | 35.00 | 7.95 | 2.0 |
| 2013 | 58.50 | 0.87 | 35.50 | 8.10 | 2.0 |
| 2014 | 59.75 | 0.87 | 36.63 | 8.30 | 2.0 |
| 2015 | 61.00 | 0.87 | 37.38 | 8.50 | 2.0 |
| 2016 | 62.25 | 0.87 | 38.13 | 8.65 | 2.0 |
| Thereafter | 2% | 0.87 | 2% | 2% | 2.0 |
Operating expenses, capital costs and abandonment costs utilized in the GLJ Report were as follows:
| Forecast Prices and Costs - Canada (Undiscounted) | ||
| Total Proved ($MM) |
Proved Plus Probable ($MM) |
|
| Operating costs | 79 | 97 |
| Capital costs | 3 | 1 |
| Abandonment | 4 | 4 |
Total Company Combined Reserves (Conventional and Unconventional)
On a combined basis, Connacher's reserves grew at very significant rates. Total combined 1P equivalent reserves at December 31, 2006 were estimated by GLJ to be 50.4 million barrels, an increase of 3,254 percent over year end 2005.
Connacher's combined 2P equivalent reserves increased 29 percent to 93 million boe at December 31, 2006 compared to 72.1 million boe at year end 2005.
The company's combined 2P reserves are forecast to generate $1.6 billion of future net revenue with a 10 percent present value of $529 million, after future capital of $417 million and abandonment costs of $13.7 million. This represents a 160 percent year over year increase in the 10 percent present values.
Combined Conventional and Unconventional Reserves
| December 31, 2006 | December 31, 2005 | % | |
| Proved Conventional (1) | 6,540 | 1,501 | |
| Proved Bitumen (1) | 43,841 | 0 | |
| Total Proved (1P) (1) | 50,381 | 1,501 | 3,254% |
| Probable Conventional (2) | 2,248 | 994 | |
| Probable Bitumen (2) | 40,307 | 69,604 | |
| Total Probable (2) | 42,555 | 70,598 | -40% |
| Proved + Probable Conventional (1,2) | 8,788 | 2,495 | |
| Proved + Probable Bitumen (1,2) | 84,148 | 69,604 | |
| Total 2P (1,2) | 92,936 | 72,099 | 29% |
| 10% Present Value of Future Net Revenue Total Company (Conventional and Unconventional) (4) |
|||
| 2006 | 2005 | % | |
| ($MM) | ($MM) | ||
| Proved Conventional (1) | 122 | 23 | |
| Proved Bitumen (1) | 191 | 0 | |
| Total Proved (1P) (1) | 313 | 23 | 1,269% |
| Probable Conventional (2) | 31 | 12 | |
| Probable Bitumen (2) | 186 | 168 | |
| Total Probable (2) | 217 | 180 | 20% |
| Proved + Probable Conventional (1,2) | 152 | 35 | |
| Proved + Probable Bitumen (1,2) | 376 | 168 | |
| Total 2P (1,2) | 528 | 203 | 160% |
(1) Proved reserves are those reserves that can be estimated with a high degree of certainty to be recoverable. It is 90% likely that the actual remaining quantities recovered will exceed the estimated proved reserves.
(2) Probable reserves are those additional reserves that are less certain to be recovered than proved reserves. It is equally likely that the actual remaining quantities recovered will be greater or less than the sum of the estimated proved plus probable reserves.
(3) Possible reserves are those additional reserves that are less certain to be recovered than probable reserves. There is only a 10% probability that the quantities actually recovered will equal or exceed the sum of proved plus probable plus possible reserves. Possible reserves were 26 million bbls and 39.8 million boe in the GLJ 2006 report and the GLJ 2005 and D&M 2005 reports, respectively.
(4) Does not include bitumen resources or undeveloped land value.
Conventional & Unconventional Combined
| Before Deducting Income Taxes Discounted At | |||||
| Total Company Interest (MBOE) |
Net After Royalty (MBOE) |
0% ($MM) |
5% ($MM) |
10% ($MM) |
|
| Total Proved (1P) | 50,381 | 45,162 | 704 | 460 | 312 |
| Total Proved + Probable (2P) | 92,936 | 81,327 | 1,554 | 849 | 529 |
| Total Proved + Probable + Possible (3P) | 118,649 | 102,953 | 2,167 | 1,050 | 616 |
| Total 1P + Low Total Resources | 117,018 | 104,876 | 1,576 | 949 | 608 |
| Total 2P + Best Total Resources | 269,414 | 239,596 | 4,128 | 1,853 | 931 |
| Total 3P + High Total Resources | 487,741 | 430,887 | 8,314 | 3,090 | 1,397 |
2006 Year End 2P Reserve Reconciliation (1,2,3)
| By Principal Product Type Forecast Prices and Costs |
Proved + Probable (Mboe) |
| December 31, 2005 | 64,660 |
| Discoveries | 0 |
| Extensions | 11,991 |
| Infill Drilling | 0 |
| Improved Recovery | 230 |
| Technical Revisions | 63 |
| Acquisitions | 5,410 |
| Dispositions | (201) |
| Economic Factors | 0 |
| Production | (826) |
| December 31, 2006 | 81,327 |
(1) May not add due to rounding.
(2) Calculated based on net reseves and forecast price case as at December 31, 2006.
(3) All references to barrels of oil equivalent (boe) are calculated on the basis of 6 mcf : 1bbl. Boe may be misleading, particularly if used in isolation. A boe conversion ratio of 6 mcf : 1 bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.
Unproved Property Valuation
Connacher retained Sayer Energy Advisors ("Sayer"), independent energy advisors of Calgary, Alberta, to conduct an evaluation of its unproved properties in Western Canada. Sayer completed a report (the "Sayer Report") with an effective date of December 31, 2006. It was prepared according to Standard of Disclosure for Oil and gas activities described in NI 51-101 and within the Code of Ethics of the Association of Profession Engineers, Geologists and Geophysicists of Alberta.
Sayer assigned a low value of $14.9 million, a median value of $16.2 million and a high value of $17.6 million to Connacher's 64,102.1 net hectares of petroleum and natural gas rights held in the Provinces of Alberta, British Columbia and Saskatchewan as at December 31, 2006. The valuation does not include any of Connacher's bitumen rights which are evaluated within the GLJ 2006 Report.