Connacher Announces Closing of Sale of Montana Refining and Plans for 2013 Capital Growth Projects
CALGARY , Oct. 1, 2012 /CNW/ - Connacher Oil and Gas Limited (CLL-TSX) ("Connacher or the Company") today closed the previously announced transaction to sell its 100% owned subsidiaries, Montana Refining Company, Inc. ("MRC") and Great Divide Pipeline Company, to a wholly-owned subsidiary of Calumet Specialty Products Partners, L.P. Total after tax cash proceeds received by the Company, including the value of inventory and normal working capital adjustments was $201 million. Proceeds from the sale will be used to repay the amount outstanding under the Company's credit facility of $97 million , with the remainder added to cash balances and working capital. The Company also closed the sale of its conventional oil and gas properties in September for cash proceeds (after closing adjustments) of $17 million . The above noted transactions are subject to normal post closing adjustments, which are anticipated to be determined within the next 90 days. Connacher believes that these transactions have realized significant value for shareholders, and that with its growing dilbit by rail strategy and a prudent hedging program, the Company can now manage its exposure to heavy oil differentials without a capital-intensive integrated business model.
The closing of the above mentioned property transactions position Connacher to execute a meaningful capital expenditure program, including projects designed to increase production and improve wellhead netbacks. In this regard, the Board of Directors of Connacher has approved a preliminary 2013 capital budget of approximately $70 million relating to growth development projects, the details and timing of which are expected to receive final approval at the Company's regular November board meeting. These capital expenditures are designed to significantly increase production at both Pod One and Algar, and to improve per barrel operating costs, thereby enhancing the value of bitumen production. The Company anticipates that the combination of these projects may increase bitumen production at Great Divide by as much as 5,000 bopd over the next 15 to 24 months.
The results of the Company's second SAGD+™ pilot project (the injection of solvent with steam) designed to increase production and reduce the steam:oil ratio ("SOR"), has confirmed the viability and repeatability of the process. Production rates for both good and average wells over a five-month period have demonstrated increases of approximately 25%, with a corresponding reduction of 25% to 30% in the SOR. Connacher plans to extend this initiative as a full-scale commercial project over the entire Algar producing area. In addition, Connacher intends to re-drill two well pairs at Algar, one of which is an "edge well" and the other which has downhole mechanical problems.
At Pod One, the Company intends to drill several infill production wells in areas that are currently being heated but not drained. Connacher also plans to move forward with the drilling and completion of four new well pairs at Pad 104, a project which has been approved by regulatory authorities but had been delayed due to capital constraints. Steam will be diverted from the poorer wells at the northern portion of the producing area to the new well pairs. When fully developed, Pad 104 will ultimately contain 10 new well pairs, with additional wells being drilled as needed. Also at Pod One, Connacher will re-institute work on the completion of the diluent recovery unit ("DRU"), a project designed to reduce the amount of diluent contained in marketed bitumen, thereby enhancing the marketability of the product and increasing the Company's net realized price for diluted bitumen ("dilbit") by as much as five dollars per barrel.
Pod One scheduled turnaround was completed September 16 with all work completed as planned. Inspections and maintenance were done with a view to extending the turnaround cycle to two years. In addition, several reliability projects and tie-ins for future drilling at Pad 104 were completed. In anticipation of the above-described 2013 capital expenditure program, Algar steam generator retrofits, which will improve reliability and allow for proper combustion of field gas and light ends from solvent injection, will begin in October.
Connacher continues to develop its "dilbit by rail" strategy, and expects to market in excess of 50% of its bitumen production by rail in 2013. This strategy allows the Company to maximize pricing (after transportation costs) for diluted bitumen railed to refineries not accessible by pipeline, due in part to wide pricing differentials and volatility in various North American crude oil markets. In combination with the previously announced transportation and transloading partnership with Canexus Corporation, Connacher expects to control a railcar fleet of approximately 400 cars in 2013, as well as utilizing a significant number of rail cars controlled by the Company's customers.
As previously announced, Connacher has been advised that the Energy Conservation Board has granted approval for the development of its 24,000 bbl/d Great Divide Expansion Project; a steam assisted gravity drainage ("SAGD") development project that will expand the bitumen capacity at the existing Algar SAGD site from 10,000 bbl/d to 34,000 bbl/d. Total potential approved capacity for the Great Divide area is now 44,000 bbl/d. This approval represents a significant milestone in the future development of the Company's substantial reserve base, and allows Connacher to advance its evaluation of the costs, timing and financing alternatives available to pursue this expansion project.
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