The drastic price drops in bitumen, crude oil and natural gas left Connacher Oil and Gas (CLL-T, CLLZF-O) with a $46.8-million loss in the first quarter of 2008 despite an increase in production.
That compares with a loss of $1.8 million in the same quarter a year earlier. Revenues in the most recent quarter fell 39% to about $61.8 million.
The company received an average of $22.45 per barrel of bitumen, down 58% from the year previous. Connacher got 50% less for crude oil during the quarter at $39.63 per barrel and 37% less for natural gas at $4.89 per 1,000 cubic ft.
These prices reflected the West Texas Intermediate crude oil prices, which averaged US$43.08 per barrel in the first quarter compared with US$67.08 per barrel in the fourth quarter of 2008 and US$104.88 per barrel for the full year.
Another major contributor to Connacher’s loss was a non-cash charge of $27.9 million due to the fact that much of its long-term debt is denominated in U. S. dollars. The foreign-exchange loss was a result of the weakness of the Canadian dollar on March 31, 2009, compared with Dec. 31, 2008.
Connacher was forced to cancel $150-million and US$50-million credit facilities because it couldn’t negotiate changes to an interest coverage covenant that would have kicked in at the end of the first quarter. It’s still looking for an alternative source of credit.
Connacher also suspended construction at its Algar project, 80 km south of Fort McMurray, where it has spent $150 million to build a 10,000-barrel-per-day steam-assisted gravity drainage (SAGD) plant. The company says it will make sure there is clear evidence of a sustainable commodity price recovery, a lower capital cost structure in the oilsands, better project economics and a healthier capital and credit market conditions before reactivating Algar. A further expansion to 50,000 barrels per day of bitumen will begin post-2011 with production by 2015.
A collapse in oil prices drove the company to curtail production in December at its Pod One project, which had been churning out 9,000 barrels per day just west of Algar. By reducing the amount of steam into the bitumen reservoir, production declined to about 4,200 barrels per day. The company resumed full production ramp-up at Pod One beginning Jan. 21.
Connacher estimates it has enough cash and prospective cash flow at an oil price of US$45 per barrel of West Texas Intermediate to meet all of its cash requirements for its reduced capital budget of $124 million and to satisfy its financial obligations for the rest of 2009.
The company says that with a modest incremental credit facility, it would be similarly positioned in 2010, but would only be able to cover maintenance costs.