Connacher Oil and Gas

Connacher Oil and Gas Limited was a Calgary-based Canadian exploration, development and production company whose principal business was the recovery and sale of bitumen from the Athabasca oil sands in northern Alberta. The company was built around the Great Divide oil-sands property, located approximately 50 miles south of Fort McMurray, and pursued a modular development model based on steam-assisted gravity drainage (SAGD). Its strategy was to construct thermal-recovery facilities in increments, with each major development intended to represent roughly 10,000 barrels per day of bitumen production. Richard Gusella, an oil-sands veteran, began assembling the business in 2004 through purchases of underground oil-sands leases. Connacher’s principal Great Divide holding ultimately represented a reported 100 percent interest in approximately 500 million barrels of proved and probable bitumen reserves. The company’s first major thermal project, Great Divide Pod One, began operation in 2007 and reached commercial production in March 2008. A second project, Algar, was completed in April 2010 and achieved commerciality effective October 1, 2010. Together, the projects formed the core of Connacher’s oil-sands production platform. Connacher also pursued diversification and vertical integration. It acquired Montana Refining Company in Great Falls, Montana, operating a refinery with a stated capacity of approximately 9,500 barrels per day. The refinery was intended in part to provide a hedge against the price differential between bitumen and synthetic crude oil. Connacher additionally held conventional oil and natural-gas interests in western Canada and a 26 percent equity position in Petrolifera Petroleum, which operated in Argentina, Colombia and Peru. In 2012, Connacher sold Montana Refining and the Great Divide Pipeline Company to Calumet Specialty Products Partners for a combined consideration of approximately C$120 million, according to the cited reference material. The company’s growth model required substantial capital and depended heavily on oil prices, bitumen differentials, access to financing and the performance of its thermal projects. In late 2014, falling global oil prices, high North American production and tightening capital markets put pressure on smaller bitumen-focused producers. Connacher disclosed debt of approximately C$1.05 billion and engaged BMO Capital Markets to review its liquidity and capital structure. Although some operating scenarios indicated potential 2015 EBITDA of about C$70 million at a WTI price of US$75 per barrel, the company also faced approximately C$90 million in debt payments, leaving it vulnerable to prolonged weak prices. Connacher received regulatory approval in September 2012 for a 24,000-barrel-per-day Great Divide Expansion Project, but the company ultimately could not sustain its financial structure. It filed for insolvency on May 17, 2016, and its shares were delisted from the Toronto Stock Exchange later that year. The company is therefore best understood as a defunct Canadian oil-sands producer whose corporate history illustrates both the scalability of SAGD development and the financing and commodity-price risks faced by heavily leveraged intermediate energy companies.

Connacher Oil and Gas was established in 2004 under the leadership of Richard Gusella, an oil-sands industry veteran. Gusella developed the company incrementally by acquiring oil-sands leases south of Fort McMurray, Alberta, and by pursuing a development model based on successive SAGD facilities. Rather than attempting to build a single large project immediately, the company described its approach as constructing approximately 10,000-barrel-per-day thermal plants one at a time. The company’s central asset was the Great Divide oil-sands property in the Athabasca region. Connacher reported a 100 percent interest in approximately 500 million barrels of proved and probable bitumen reserves. Great Divide’s first thermal facility, Pod One, began operation in September 2007 and commenced commercial production in March 2008. The project was designed around steam generation and underground thermal recovery, with a long-term production expectation of approximately 10,000 barrels per day of bitumen. Its operating concept relied on injecting steam into the reservoir to reduce bitumen viscosity and allow the resource to flow to production wells. Connacher’s second principal SAGD development was Algar, located approximately eight kilometres east of Pod One. Algar was completed in April 2010, ahead of schedule and under budget according to the reference material, and achieved commerciality effective October 1, 2010. It was also designed to support approximately 10,000 barrels per day of bitumen production over a project life exceeding 25 years, subject to turnarounds and interruptions. The two projects gave Connacher a recognizable production platform and formed the basis of its identity as a focused thermal oil-sands producer. During its expansion period, Connacher also maintained interests outside the Great Divide project. Its assets included conventional oil and natural-gas resources in western Canadian regions such as Marten Creek, Three Hills and Battrum. The company acquired Montana Refining Company in Great Falls, Montana, operating a refinery with a stated capacity of approximately 9,500 barrels per day. This acquisition was intended to provide a degree of protection against the price spread between raw bitumen and synthetic crude. Connacher also held a 26 percent equity stake in Petrolifera Petroleum, a public company with activities in Argentina, Colombia and Peru. The diversification strategy changed in 2012. Connacher sold Montana Refining and the Great Divide Pipeline Company to Calumet Specialty Products Partners for a combined price reported at approximately C$120 million. In the same year, the Energy Resources Conservation Board approved the Great Divide Expansion Project, designed for 24,000 barrels per day. The approval represented an important regulatory milestone, although the project’s eventual development was constrained by the company’s financial position and market conditions. By late 2014, the collapse in global oil prices created severe challenges for Connacher. OPEC’s decision to maintain production, continued United States output and weaker demand contributed to falling benchmark prices. Heavy Canadian crude and bitumen were particularly exposed to price differentials and transportation constraints. Connacher was reported to have approximately C$1.05 billion in debt and hired BMO Capital Markets to examine its liquidity and capital structure. Illustrative financial scenarios showed that even a WTI price of US$75 per barrel might have produced approximately C$70 million of 2015 EBITDA while debt payments were around C$90 million, highlighting the mismatch between operating cash generation and financial obligations. Connacher filed for insolvency on May 17, 2016. Its Toronto Stock Exchange listing was subsequently terminated, and the company became defunct. Its history reflects the opportunities offered by SAGD technology and the risks of financing capital-intensive oil-sands production during periods of weak prices, high debt and restricted access to capital.

• 2016

  Insolvency filing and exchange delisting

  [1]Connacher Oil and Gasen.wikipedia.org

  Connacher filed for insolvency on May 17 and was delisted from the Toronto Stock Exchange later in the year.

• 2012

  Great Divide expansion approved

  [1]Connacher Oil and Gasen.wikipedia.org

  The Energy Resources Conservation Board approved the 24,000-barrel-per-day Great Divide Expansion Project.

• 2012

  Refining and pipeline assets sold

  [1]Connacher Oil and Gasen.wikipedia.org

  Connacher sold Montana Refining and the Great Divide Pipeline Company to Calumet Specialty Products Partners.

• 2010

  Algar reaches commerciality

  [1]Connacher Oil and Gasen.wikipedia.org

  The Algar SAGD project was completed in April and achieved commerciality effective October 1.

• 2008

  Pod One reaches commercial production

  [1]Connacher Oil and Gasen.wikipedia.org

  Great Divide Pod One commenced commercial production in March, with a stated long-term target of approximately 10,000 barrels per day of bitumen.

• 2007

  Great Divide Pod One begins operation

  [1]Connacher Oil and Gasen.wikipedia.org

  Connacher’s first major SAGD facility at Great Divide began operation, forming the foundation of its thermal bitumen business.

• 2004

  Initial oil-sands land acquisitions

  [1]Connacher Oil and Gasen.wikipedia.org

  Richard Gusella began building Connacher through incremental purchases of oil-sands leases south of Fort McMurray, Alberta.

A Canadian oil-sands producer centered on modular SAGD thermal-recovery projects, with supplementary conventional-resource, refining and pipeline interests.

• SAGD bitumen project · 2007

  Great Divide Pod One

  Great Divide Pod One was Connacher’s initial steam-assisted gravity drainage project. It began operation in September 2007 and entered commercial production in March 2008. The facility had a stated steam-generation design capacity of 27,000 barrels per day and was intended to support approximately 10,000 barrels per day of bitumen production at a long-term target steam-oil ratio of 2.7. The project was designed for a life of at least 25 years, excluding planned turnarounds and minor interruptions.

• SAGD bitumen project · 2010

  Algar

  Algar was Connacher’s second principal thermal-recovery project at Great Divide, approximately eight kilometres east of Pod One. Completed in April 2010, it achieved commerciality on October 1 of that year. Algar had a stated steam-generation design capacity of 30,000 barrels per day and was designed to facilitate approximately 10,000 barrels per day of bitumen production at a target steam-oil ratio of 3.0 over a project life of more than 25 years.

• Oil-sands expansion · 2012

  Great Divide Expansion Project

  The Great Divide Expansion Project was a proposed 24,000-barrel-per-day development connected to Connacher’s core oil-sands property. Regulatory approval was granted in September 2012 by the Energy Resources Conservation Board. The expansion represented the company’s effort to scale its modular SAGD platform, but the supplied reference material does not establish that the full project reached commercial operation before Connacher’s insolvency.

• Petroleum refinery

  Montana Refining Company

  Montana Refining Company was Connacher’s refinery operation in Great Falls, Montana. The facility was reported to have approximately 9,500 barrels per day of capacity and was acquired as part of a strategy to manage the price differential between bitumen and synthetic crude. Connacher sold the refinery to Calumet Specialty Products Partners in 2012.

• 2016

  Insolvency filingOther

  Background

  Connacher faced heavy debt obligations after a period of weak oil prices and constrained financing conditions.

  Action taken

  The company filed for insolvency on May 17, 2016.

  Aftermath

  Connacher became defunct and its Toronto Stock Exchange listing was removed later in 2016.

  Source

• 2014

  Liquidity and capital-structure reviewStrategy

  Background

  The oil-market downturn, weaker heavy-crude prices and tightening capital markets placed pressure on smaller, highly leveraged oil-sands producers.

  Action taken

  Connacher hired BMO Capital Markets advisors to review its liquidity and capital structure.

  Aftermath

  The review did not prevent the company from filing for insolvency in 2016.

  Reported debt and illustrative 2015 debt-service comparison. Approximately C$1.05 billion of debt; approximately C$90 million in debt payments → Illustrative 2015 EBITDA of approximately C$70 million at US$75-per-barrel WTI (Late 2014 and 2015 outlook)

  Source

• 2012

  Sale of Montana Refining and Great Divide Pipeline CompanyM&A

  Background

  Connacher had used refining and pipeline interests to diversify its oil-sands business and hedge exposure to bitumen pricing differentials.

  Action taken

  The company sold Montana Refining Company and the Great Divide Pipeline Company to Calumet Specialty Products Partners for a combined reported price of approximately C$120 million.

  Aftermath

  The transactions reduced Connacher’s non-core holdings, although the company continued to face significant capital requirements associated with its oil-sands operations.

  Combined reported transaction value. Approximately C$120 million (2012)

  Source

• 2012

  Great Divide Expansion Project approvalGeneration change

  Background

  After establishing Pod One and Algar, Connacher sought to increase the scale of its Great Divide thermal-recovery operations.

  Action taken

  The Energy Resources Conservation Board approved development of a 24,000-barrel-per-day Great Divide expansion.

  Aftermath

  The approval created a regulatory path for additional production, but the supplied sources do not confirm that the full expansion entered commercial operation before the company’s insolvency.

  Source

1. 1Connacher Oil and Gasen.wikipedia.org