₪ David Pescod's Late Edition June 29, 2006
AN INTERVIEW WITH RICHARD GUSELLA,
PRESIDENT OF CONNACHER OIL AND GAS
We are with Richard Gusella, President of Connacher Oil
& Gas and a very happy guy today! We will get right to
the questions here.
David Pescod: The Energy Utility Board decision has
caused a little bit of stutter-step for Connacher. What is
your take on it all?
Richard Gusella: We announced today that we have received
the EUB approval letter. We are still awaiting the
final issuance of an order in council which will come
from the Alberta Cabinet; I presume it will be shortly after
they return from Washington, where they are down
promoting Alberta interests in the United States. You
need the cabinet ministers in place and need this to be
on the agenda in order for it to receive an order in council.
At that time, we are then in a position after due consultation
with Alberta Environment and Sustainable Resource
Development (SRD) to move ahead with our project.
We are raring to go Dave! We are pleased with the
decision and the conditions that are attached there are
normal for a project of this nature, so we look forward
now to the execution phase of moving ahead to get
10,000 barrels a day of production on stream in 2007.
D.P.: Looking at the time frame to get to production, how
many days do you see. We hear all sorts of talk about
cost over-runs and delays on virtually every project at
Fort McMurray. Any concerns like that for yourself?
R.G.: There are cost pressures in the business Dave;
there is no question about that. We have lined up an
excellent team of individuals to execute the construction
of the plant site and then move to the drilling of the first
15 SAGD horizontal well pairs and that will take place
over the next 11 months, plus or minus.
I’m not going to get caught up in the mugs game of a date
that this is going to be on stream. It will be on stream when it
comes on stream. We will work as much as we can within
that general time frame to get everything done in a timely and
cost efficient basis. The people that have joined us are
spearheaded by Rob McNeil who was formerly with Renaissance
and more recently spearheaded the group that constructed
the Deer Creek plant. So from our perspective, we
move up the learning curve, we are tapped into the trades
that are required to complete the transaction, we get the
benefit of the actual experience of building a very similar plan
to ours and most recently, the group of people that Rob has
around him are all professionals and experts at what they do.
They are in touch with the people they have to be in touch
with to get this done in as cost efficient manner as is achievable.
What that ultimate number is going to be, we are still
fine tuning every day because costs move around every day.
Drilling costs, construction costs – but we are well down the
road in terms of fabrication, pre-ordering, etc. So we try to
address that by taking on some implied risk, by pre-ordering
certain key critical items and equipment that we would need
to keep this on as fast a track as we can feasibly be on. I’m
too old to get criticized everyday about missing a target by a
day, Dave!
D.P.: With the purchases you’ve made of some natural gas
assets and some refinery interests I get the impression that
you think you’ve got more than the one Pod. Can you make a
comment on that?
R.G.: We definitely believe we have more than one Pod. What
we have to do is we have to just complete our work. Last
winter we only got 20 core holes drilled, but we did get 3-D
seismic over what is affectionately called Pod 2 and Pod 4
and with appropriate approval this summer, we hope to go in
and complete the seismic on Pod 1 extension/Pod 5, which is
east and southwest of the established Pod 1. We are not
without sustainability and repeatability in our judgment, but it
is just about a month to two months too early to put hard
numbers to what we believe we have. We are having our
work evaluated by GLJ and their deliberations will come to a
conclusion and be reported to shareholders on a timely basis,
when their work is done. I should also mention we may,
with appropriate approvals, go in and drill some additional
wells on Pod 2 this coming summer with helicopter support.
While we do not plan to core, we will have wells and log data
that will supplement the 3-D data that we presently have.
This would be of considerable assistance in arriving at a conclusion
about the reserve volumes and categorization associated
therewith.
At the end of the day, there is a process that moves resource
to reserves, but the more important thing for me is
the identification of the resource base and then the passage
of time, the application for another Pod or Pods and then the
GLJ evaluation leads to enough grading from resource to
reserves. So give us a couple of months and we are continuing
to work on that aggressively and as soon as all the
data is pooled together and reliable, in the context of our
disclosure policy, we will get it into the public domain for
the benefit of our shareholders as quickly as we can.
D.P.: We can’t forget that we are in the oil and gas business
and natural gas prices have taken it on the chin lately, the
resource stocks have taken it on the chin and there is concern
even about oil prices. What’s your take over the next
couple of years for oil and gas prices?
R.G.: I don’t have a negative feeling about gas prices. I
think the rattle of the Katrina impact has been shaken
through the gas market. Myself, I don’t see a whole lot of
downside in natural gas markets from where they are now. I
feel we just have a little resource/commodity correction here
in terms of share prices. Not dissimilar from what we’ve
seen in other periods from May to July. I wouldn’t count out
the oil and gas sector here, and it is of course becoming
increasingly important as other sectors see large companies
disappear off the TSX as well. I think that $60 to $70 is the
range for oil for the moment and I don’t see that changing
materially in the foreseeable future -absent a major geopolitical
event. Look what’s going on in Palestine and with
the situation there right now for example, these ripple effects
keep coming through and don’t seem to want to go
away. I think you can argue the fundamentals. There is lots
of oil floating around. The other side of the coin is if you
look at a longer term picture, I go back to the Boone Pickens
calculation of 30 billion barrels a year of oil is being consumed
around the world and it doesn’t look like demand for
oil is going down. I know with interest in the Anadarko
transactions and proposed transactions and the kind of premiums
they pay for Kerr McGee for example – so somebody
must know something about the importance of reserve replacement,
controlling resources and what the fair market
value is. It is sure higher than where things are today.
D.P.: If you had to bet and we hate to put you on the spot,
Christmas of 2007, what would be your guess for gas spot
price and oil spot price?
R.G.: You do this to me all the time! I would say $10.00 Canadian
for gas spot and $75.00 for crude oil.
D.P.: Now you’ve put in an awful lot of 12-hour days, almost 6
days a week over the years, if someone came along and wanted to
buy you out…..there is all this talk about international oil plays
that don’t have a foot in the oil sands yet. Your comments on
that?
R.G.: I don’t think we are of a quantum at this stage that it would
result in us being anything but a blip on the radar screen because
I think most of the big guys focus on what’s going to have a significant,
impact on their operation and make a big splash for
them. For example, the Total/Deer Creek deal emphasized the
potential of their money assets more than their SAGD project. We
don’t have that kind of alternative because we are not miners, we
are SAGD players. Although, we do think we have a very attractive
block of land with again, repeatability or better on our Block.
In other words, being able to add additional production at least
the size of our current project, if not considerably greater and that
will be confirmed in time. If somebody else wanted to look at us
like any other public company, one – we don’t believe in poison
pills because they by and large get thrown out, or are unacceptable
by the majority of shareholders and/or they’ve been so watered
down over time that it costs you more money to put in than
the benefit of having one. Secondly, there are other alternatives
available to this company in terms of reorganizing itself to maximize
shareholder value. We would never rule that out as a possibility
as well, including the method of dealing with somebody who
might want to take a run at us. We are an integrated oil company
now, we have upstream gas production, upstream oil production,
more coming down the pipe from the oil sands and our refinery in
Montana is doing very, very well. It’s cash flow in May was excellent
and June looks substantially better. With the turn around, we
were able to add over 1000 barrels a day, productive capacity.
The extra barrels come with no additional significant increase in
costs. We think that was a prudent move to mitigate the risk and
that’s what has driven our truck all the way through in getting into
the oil sands.
Also Dave, at this time we wish to thank your readers for all the
interest they have shown in Connacher as well as with Petrolifera.
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