Suncors long-term debt (LTD) is approx 6%. Admittedly their financial ratios are in far better shape than CLL's. However with an SOR of 3.0 (IE 19,000 bpd) CLL's financial ratios would move much closer to Suncor's providing them with the wherewithal to negotiate better terms.

The 8 wells CLL currently have on ESPs are already averageing an SOR of 3.0 (slide 23 of their May presentation). And I believe only some of these ESPs are the more efficient high temperature ones. They have plans to convert the remaining 9 wells to hi-temp ESPs this year, so I don't ssee why they can't acheive an SOR of 3.0 or better by the end of the year. I'm sure the ALgar budget includes hi-temp ESPs for all wells as well.

To me its very simple what CLL has to do. Drive their SOR down to 3.0 and below. The production volumes, operating costs and EBITDA will automatically take care of themselves.

In 2010 Q1 they netted $30 / barrell of bitumen after op costs of $19 and Royalties of $2. This was when oil averaged $79 USD over the quarter. Their avg production was 6,936 bpd. If they can reliably produce 18,000 bpd with op costs of $13, they would net $36 / b. 36 * 18,000 bpd * 90 days = 58 MM. Add approx 10 MM for conv oil , NG & MRC brings us close to $70 MM. Quarterly int costs of 20 MM leaves them with approx $50 MM. I know its a stretch but its within the realms of possibilities.

Back in 2009Q2 they had their op costs down to $14.79 / b when their avg production was 6,284 bpd, so $13 is not a stretch. In addition, an SOR of 3.0 would produce 19,000 of bitumen further lowering their op costs.

That was the bright side.

Connacher's management needs to focus on three things to successfully navigate the treacherous waters they are in.

First and foremost, they have to successfully manage production at their 2 SAGD facilities and make money at it with $75 oil. They have to get their SOR (steam oil ratio) down to 3.0 or below. It seems the industry's best SAGD operations boast a SOR of 2.5. Some of the slides (21 through 24) of their most recent Investor Presentation focuses on this issue. Between the 2 projects they have steam capacity of 57,000 BPD (27K for GD and 30K for Algar). A SOR of 3.0 would produce 19,000 BPD of bitumen. At $75 oil & a 95 cent CAD they should genarate approx 50 million cash flow / qtr, even after allowing for all interest costs on their debt. If they can put together 2 or 3 quarters of that type of performance then the market will reward them with a higher share price. Given the precarious state of the world economy I think oil prices will remain in the $60 to $90 range for a number of years. OPEC seems to have the will keep the oil price in that range.

Secondly, they have to continue to increase their reserves. This gives them the ability to obtain financing at better rates.

Thirdly, they have to find an attractive way to finance the 600 MM needed to expand production to 44,000 BPD. They have about 1.5 to 2 years to get their act together before figuring this out. I think the best way to do this is to focus on items 1 & 2 above to reduce their risk profile to the point where they can refinance their current debt load at a much more reasonalbe rate - say 6 %. Also I would do the expansion in two phases (12,000 pdd each) to reduce the financial and operational risks. At some point in the next few years they need to establish a long-term term (say 25 years) low interest rate loan to match the revenue generationg stream of their asset base.

If CLL isn't involved they should issue a press release stating the same. Anyways I'll take the bump in SP anyday. Although the reverse move will probably be as dramatic when we find out CLL is not involved.

I think CGY_B21 is correct in attributing CLL's SP activity these last two days to the newspaper article about an Indian co, ONGC, looking to acquire a heavy oil asset in Alberta capable of producing 10,000 bpd. They quote the asset is worth at least $1 billion. Investors are either speculating this has something to do with Connacher (I doubt it) or they are somehow equating this $1 billion value to a 10,000 bpd SAGD POD (maybe in time).