Big loss for Connacher in Q1

The drastic price drops in bitumen, crude oil and natural gas left Connacher Oil and Gas (CLL-T) with a $46.8 million loss in the first quarter of 2008 despite an increase in production.

That compares to a loss of $1.8 million in the previous quarter after revenues fell 39% to about $61.8 million.

The company received an average of $22.45 per barrel of bitumen, down 58% from the previous quarter, while crude oil dropped 50% to $39.63 and natural gas fell 37% to $4.89 per 1000 cubic feet (Mcf).

These prices reflected the West Texas Intermediate crude oil prices, which averaged US$43.08 per barrel in the first quarter compared to US$67.08 per barrel in the fourth quarter of 2008 and US$104.88 per barrel for the full year of 2008.

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 US dollars. The foreign exchange loss was a result of the weakness of the Canadian dollar on March 31, 2009 compared to the level it was on Dec. 31, 2008. The company pointed out that with the recent appreciation of the Canadian dollar in April, this entire loss would have been reversed by a provision for about $39 million gain.

The company was forced to cancel a $150 million and US$50 million credit facility because it couldn’t secure accommodation or relief from an interested coverage covenant that would have become operative at the end of the first quarter. It’s still looking for an alternative source.

Connacher also suspended construction at its Algar project, where it has spent $150 million to build a 10,000 barrel per day steam assisted gravity drainage plant. The company says it will make sure there is clear evidence of 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 the Algar project. A further expansion to 50,000 barrels per day of bitumen will begin post 2011 with production by 2015.

The collapse in oil prices in December drove the company to curtail production at its Pod One project where production had reached 9,000 barrels per day by reducing the amount of steam into the bitumen reservoir 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 Us$45 WTI 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 expenditures and would preclude and any growth expenditures.