Jurek

With regards to:

The only problem with this assumption is the projected Return On Capital ($1.6 billion) invested by the suitor in this low productivity and low priced bitumen assets own by CLL. It would take 15 to 20 years to get your money back when you can get a 18 months payout in the conventional oil play in Alberta”

Based on the example I have previously given the cash stream from just the bitumen production, without taking into account conventional production or the refinery, would give the potential suitor a return of about 13% per year on his investment of 1.6 billion (1.8 per share +900 million debt – 100 million cash on hand) If invested at the same 13% this would give the suitor a payback time for his initial investment of about 6 years, not the 15 to 20 years you indicate.

BBWANAA posted previously that Connacher's own numbers indicate an after tax value of 4.98 per share. (http://agoracom.com/ir/Connacher/forums/discussion/topics/510536-re-opti/messages/1621926#message)

$2.50 per share would be a 50% discount on Connacher's published after tax NAV .

Martin

Jurek

With regards to:

“If you would check my previous posts or CLL official Reports you could find that CLL TOTAL Cost of producing the 1 barrel of bitumen is well above $50/bbl”

The example I gave was based on $60.00 per barrel bitumen and the reported operating costs for POD one and Algar at 14000 barrels a day to determine what the value of the revenue stream would be if all debt were paid off by a suitor. Your $50 per barrel costs include all the other costs the company has, which may or not be associated directly with their bitumen production, including the interest on their debt. I don’t doubt that you may be technically correct when evaluating the stock price as currently applied to the company as a going concern, but I believe that your analysis is very misleading when establishing the potential value of the company.

Martin

I really don't understand why the net present value of Connacher's oil reserves should not be taken into account in the valuation of the company. It is true that they have a large amount of debt at a relatively high interest rate but that debt bought hard assets. Production plants are expensive! If you look just at the current production level for bitumen and do a net present value calculation on the income stream from that production you can get an relatively good estimate of what it is worth. Jurek posted recently that bitumen was currently bringing about $60 per barrel. In Connacher's latest presentation they indicate that the cost to produce a barrel of bitumen was about $22.00 a barrel including operating costs, natural gas costs and royalties. So if we use $38.00 a barrel we can get an estimate of what the current Great Divide production is worth. $38 x 14000 x 365 = $194,180,000 or about $16,181,666 per month.

The estimated life of this operation is estimated at 25 years.

Current 30yr US Treasury notes pay 3.1% interest. At 3.1 % interest the NPV of this income stream is worth about 3.4 billion dollars. If we subtract the 900 million debt this equates to about $5.50 per share. Pension funds typically would like to have at least an 8% return on their investments. At 8% interest this income stream is worth about 2.1 billion dollars. Subtracting the 900 million debt we get about $2.66 per share. This is just current production! Great divide has the potential for greater than 44,000 barrrels per day! Also, only about 16% of Connacher's bitumen land holdings have been drilled!

Connacher also has a profitable refinery and profitable conventional production. So if you were a rich foreign oil company representing a government with lots of cash reserves, what would you pay? I would think that $2.50 a share would not be unreasonable!

Martin

Going Solo

With regards to:

"Takeover is not likely to happen as the assets aren't great (tiny money-losing refinery that nobody wants, sub-par production reserviors and mediocre reserves), and capital will be held back in an environment like this"

Please substantiate your statement with facts backing your allegations.

Based on Connacher's reports and presentations the refinery is profitable, their proved and probable reserves have a present value of 2.9 billion dollars and they are currently producing 14000 barrels a day from what you call their sub-par production reservoir. Their net present value of their revenue stream from their bitumen production has a current net present value at 6% of $1.50 per share, even after discounting it for the 880 million of debt. Only 15% of their bitumen holdings have been drilled so their total reserves are probably much higher. Even at $70 per barrel oil, they should still be making enough money from just their bitumen operations to pay the interest on their debt and cover most of their overhead.

In my opinion, the only scenario that could perhaps justify the current selling price for Connacher is that the world investment community is pricing in a total worldwide collapse of our financial system with the end result, a worldwide depression. If this occurs, most of the major banks and a substantial percentage of the companies in both the Dow and the S&P 500 will also go bankrupt, not to mention the govenments themselfs. Our prime focus at that point will probably need to be on survival rather than making money shorting stocks!

Martin

The information below comes from Connacher's last presentation.

Proved and Probable Reserves (2P) (2) $3,101

Best Estimate Contingent Resources (2) $571

Land Value (3) $15

Book Value of Refinery (5) $83

Investment in Gran Tierra (legacy PDP) (4) $22

Working Capital (5) $19

Total Value $3,811

Less: Face Value of Long-Term Debt (6) ($880)

Estimated NAV $2,931

NAV per 448 million Shares Outstanding (5)

Pre-Tax NAV per Share $6.54

After-Tax NAV per Share $4.98

After-Tax 2P NAV per Share $3.71

Based on this recent presentation they estimate their pre Tax NAV at $6.54 per share. This is their best estimate of their fair market value! This means that if Connacher would go belly up, in the best case scenario, shareholders should realize $6.54 per share from the sale of the assets. This estimate does not appear to be out of line for Connacher's assets, as I calculated the net present value at 6% of their cash flow from Great Divide at about $1.50 per share, even after you discount the 880 million in debt.

Going Solo stated that Connacher “have an risked EV of less than $0.20”. I don't know his definition of “risked EV”. If he's referencing risk based net asset value, he implies that there is a 97% chance that Connacher will have 100% of its assets rendered to 0 value. In my opinion, this is highly unlikely.

Martin

According to Connacher’s reporting, Pod 1 and Algar are producing about 14000 barrels a day of bitumen with a netback for 2010 of $23.68 a barrel. This gives a cash value of $9,945,600 per month. If I calculate the net present value of this cash per month at 6% over 25 years, the estimated life of the wells, I get a value of $1,543,625,386.67. If I then subtract the approx. $880,000,000 in debt and divide by the 448 million shares outstanding, I get a present value of $1.48 per share!

This is just the value of the current Pod1 and Algar operation. The value doesn’t take into account a profitable refinery, their light oil and gas operations, or substantial additional reserves.

Connacher calculates on slide 21 of their August presentation that their net asset value is $6.67 per share.

Connacher is currently selling for only .56 per share. In my opinion, it ought to be a prime target for a takeover.

Martin