Connacher production rises despite gas leak

Hi Sharky & King 2,

Thanks for keeping this web bulletin board alive. I do remember in the "old days" that it was an area of real first class informed discussion. Heck I even posted a couple of times. I guess I am mentioning even though there is not much activity on the board, there are readers out there trolling for comments.

Now to Connacher, I am cautiously optimistic that they now appear to be focusing upon the mechanics of oil sand SAGD and SAGD+ in ramping up the optimization of production. To me, even though we know that old well pairs will gradually diminish production as their chambers age, if this can be overcome through appropriately timed new wells coming on line with the cost covered by the increased production together with a better recovery of diluent, we will be going a long way toward gaining financial institutional acceptance. Of course it will not hurt having a high oil price although I believe the current 1.09 - 1.10 highs will subside somewhat after whatever action/or no action in Syria occurs.

Strangely enough, I am not all that worried about the debt burden as long as they show continued improvements. There is a whole lot of institutional investors with money looking for solid low to medium to good risk companies to loan too. As a matter of fact today I signed for a 2.89% 2 year loan for what is to me a substantial amount, a long way from what Connacher is currently paying.

Having said that, at the moment we do not know what the wear and tear is on the current Pod 1 and Algar plants. When I work in the Middle East, some of the producers look at a 7 year cycle of replacement of plant infrastructure due to the corrosive effect of product going through their lines and reducing the size of pipe through product through steel tube abrahsion. There are others however that are at the 20+ year replacement range. This is an area where we just have no knowledge of at the Connacher facilities and for that matter many other of the Oil Sands producers.

Just some meanderings, enjoy your bikes!

As most of you know I do not post often but do have a fair bit of experience working within the Middle East with the last trip ending in December with Saudi Arabia and Qatar. I am not going to go into what I do except it is with oil & gas companies and goverment entities within the Kingdom and elsewhere.

A few observations:

• there are more Saudi Arabian goverment and oil & gas people coming to Canada in the last couple of weeks than ever before, if you remember my last post when the problems started, there was a sudden stop on their traveling, this traveling has markedly increased in the last two weeks. If it keeps going on the basis on whom I am hosting, it will be way over past years and even more is in the hopper;


• all Kingdom goverment employees today are VERY happy, even those that are in Canada, as they all got a two month wage bonus TODAY;


• the demonstrations in Saudi Arabia did not amount to much due to the extreme security presence, the whole country is heavily policed in ordinary times with checkpoints even on major 4 and 6 lane highways and if you are young you get stopped, then taken out of the car for questioning;


• this policing has increased in the oil region due to its Shiite majority in that area and what is happening across the causeway in Bahrain;


• there always has been a large troop presence in the area and this has increased and as you probably know with some of the Kingdom's troops now having crossed the causeway into Bahrain.

My take, the situation is under fairly good control in Saudi Arabia, the monarchy is worried but my read is that things will not change in the short term and spin out of control.

For everybodies information my usual method of entering Saudi Arabia is Bahrain, get my Visa there and then over the causeway into the Kingdom which is their main but not only oil region. I always felt super safe in Bahrain but for some reason last year flew from Frankfurt direct into the Kingdom and thankfully on reflection missed Bahrain.

What has all of the above got to do with CLL? Well I believe the major factor is going to be the continuing situation in Libya and the realization that oil pricing is constrained by the new forces being unleashed in the region that will keep prices in the $100 range. If you remember I reported in December that it was reported in a Saudi Arabia newspaper that their Minister of Oil and Gas wanted pricing in the $90 range. By giving all goverment members, including security and armed forces a two month bonus today, I believe that there is a growing need to keep the price now not in the $90 range but now at the $100 range to pay for these huge budget increases which is buying a comfort level of the Kingdoms citizens and residents.

A few thoughts now that I am on a little bit of a roll, I reviewed the CLL Year End report of yesterday and todays conference call. I am very SATISFIED with their progress to date, they have embarked upon a classical engineering quality improvement cycle with the SAGD and are hiring great drilling contractors for their light oil play that will quickly increase their revenue stream. A little luck in minimal maintenance downtime on the SAGD will give us a stellar 2011. I am holding what I have and will be buying more on dips.

Just a few thoughts.

I think most of us have been following what is going on in Egypt and what effect that will have on oil prices and CLL. I mentioned in my last not too frequent post that what I had read and saw in December while in the Dhahran and Jubail area of Saudi Arabia that my interpretation was that a minimum of $90 oil was here. It has mostly been in that area although there were further reports since the rioting that Saudis oil minister is calling for $80 oil. My business is with oil, petrochemical and government Interior ministries, I won’t get into more detail but this morning received an e-mail from a government ministry stating that they had just been told that they cannot come to Canada next week to sign a contract. These are very senior people and if it is happening to them it tells me that there is concern in the area as to the potential roll out of this citizen protest movement. Business wise this has a fairly significant financial adverse implication but on a personal investment side, has potential positive side as an effect on several O&G stocks I am in.

Now to the other thought: I was surprised that the January 24^th Globe & Mail story headlined CN,CP eye shipping oil to West Coast did not get onto this bulletin board. Particularly because Cameron Todd Senior VP Operations, Refining and Marketing with Connacher Oil stated that “its a way of getting around current problems.” In my words it is probably an easier first step to get Alberta oil to Asia and would follow a similar pattern of Russian oil to China by rail and once that was established it was followed by a pipeline.

Just a couple of thoughts.

Just another "lurker" who seldom posts, but this time has done so twice in the past one month. I review most if not all posts due to the analytical thinking that we we are able to read and ponder about on this board. I am now back from a short stint at a petrochemical plant in Saudi Arabia, my third time in the area over the past 5 years. I mentioned earlier that the English language newspaper Arab Times was speculating that their Minister of Petroleum was promoting a higher $90 price per barrel band. I, after reflection, do believe that the Saudis are wanting to go to a higher price band for their products but want to do so without causing another recession. The reason that I am thinking this way is twofold. First their higher cost, although still low by SAGD standards, for pumping out a barrell of oil due to the newer technology being used. However the second and for me the major point is what I viewed. From Jubail with its many, many petrochemical plants all the way up to Dammam, there are major expansion projects that are actively being constructed together with more that are being planned. These are high cost endeavors that make the area a sea of construction cranes expanding their major plants and building new ones. They are smart and want to have a decent return on thier investment through having a higher price of oil. They will not allow the price of oil to again collapse.

So what does this mean to Connacher? Well it seems to me that there will be a higher average price of oil over the near 2 to 3 year term, which if translated to a higher price of bitumen would increase revenue without any effort on the companies part. Translated, I am a long term shareholder who is increasingly comfortable with this particular investment. The other reasons for this confidence has been posted by others on this board. I offer these comments as a different perspective for other "lurkers" and regulars on this board to also ponder.

Hi Guys,

Interesting listing, even though I only post about once every year, this time from Saudi Arabia. Before I get to that a question to the group, does Connacher have the option to not go ahead with future upgrade, even if they get the upgrade license? In other words, instead of going for more shares to build another 24,000 barrel capacity, do they have the option to simply not take on any more debt and start paying down, thus increasing their value? Are the economics strong enough to do that? I guess the reason I am asking is because in the Sunday November 21st edition of Saudi Arabia's English language paper, under the headline bar "Weak dollar may be behind talk of higher price bar" there is a little news. Apparently Saudi Arabias Minister of Petroleum and Mineral Resources Ali Al-Naimi used to talk of having the price of oil being below $80 and now mentioned below $90 thus leading to speculation that there may be a new price bar in the works. If that did come to pass, would it be prudent for Connacher to simply wait, keep paying down debt and have share price increase through a higher value of oil and less debt, thus being more valuable.

I leave it to the board, possibly just another interesting option.