Connacher Oil and Gas

A lot of different numbers (from $3 to $20) are being posted recently about CLL Net Asset Value per share (NAV).

Most posters are quoting CLL own numbers presented by the management on CLL Website (slide #23) related to 1P, 2P and 3P reserves and calculated at 10% Present Value of Future Net Revenue (NPV). Just from the definition of the NPV anyone should see how this number could be easily inflated or deflated.

The confusion comes when you automatically assume that NAV=NPV.

CLL Management is warning everyone that:

Future Net Revenue (NPV) does not necessarily represent the fair market value.

There is whole science of calculating the NAV of the resource play. The one you can try is: “Resource Plays:What's the Upside? And How Much Should We Pay for Today?” by Jeremy Kaliel.It explains how the Core NAV, Risked NAV, and” Unrisked “Bluesky NAV is calculated and the price targets are presented.

As an example: On Dec 13, 2010 (based on the 10% NPV) the RBC Capital Market in their 200 page OILSAND report calculated CLL NAV at $1.16 and Unrisked “Bluesky" at $2.

In addition to CLL NAV potential purchaser will make adjustment to the final offer based on the CLL Market Value in relation to the recent deals in this sector (In-Situ).

The table below is suggesting that it will be hard to find anybody (especially Chinese or Nexen) who will pay more then $1/bbl of Company Resource. Actual average is 77 cents.

With CLL reserves at 1284 mmbbl suggested offer maybe put forward at $1.3 billion or about $1 per share including $900 million long-term debt. $100 million refinery could be added as the bargaining chip.

Interestingly CLL shares stopped bellow $1 on recent take-over rumours and most of the target prices based on the NAV were adjusted to $1 per share.

Hopefully the Management will impress someone with deep wallet who will pay 25% to 50% premium to CLL market value. They try this for last 7 or 8 months with no success if you discount last "fishing expedition proposal".

IMO it would be hard to see how anybody make a reasonable returns on the $1.3 to $1.6 billion investment with 13,500-bbl/d bitumen production and Post-payout Royalties at 33%. It looks to me that the JV, sometimes in Q2/2012, is more likely scenario.

JV and it`s possible effect on CLL SP , is interesting subject as suggested by Believe.

Note: Use the slider below the picture to see the prices.

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