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Connacher Oil and Gas Update (CLL.TO)
posted Jun 11, 2006 at 12:05AM

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Well I was reading an analysis piece from David Petch over at Treasure Chests and he mentioned something about how getting regulatory approval can be a most time consuming and emotionally draining experience. This is surely no news for long term Connacher shareholders, who have been watching the share-price erode while waiting for a piece of paper to get signed off.

It does seem that there is finally a light at the end of the tunnel as far as getting EUB provincial approval to start setting up their 10,000 barrel/day production facility. Formal notice has been given from native groups and Paramount Energy that their objections or "concerns" have been removed and all parties appear to be onside in supporting the development. It is of course not over until the fat lady sings, but it does appear we are in the final dotting of i's and crossing of t's stage. I for one cannot wait until this thing is done with, because the threat of a "show-stopping" event will be finally removed and the market can finally start looking at the company itself once again.

However this delay has been a boon for those who have been wanting to add to positions or to start an initial position in what I consider to be a best of breed junior oil sands company.

Fundamentally I think value is being handed to you on a plate. The Great Divide oil sands project is of course the centre piece of the company but there are considerable other elements to be considered as well. They do now own Luke Energy giving them 3500 boed mostly natural gas. I don't have the exact numbers but they were a $3-4 dollar stock before being acquired so there is value there. There is there 30% plus ownership of PDP.TO which is already producing 6000 b/d and all signs that this is going to increase dramatically, to say nothing yet of future plans to drill for prospective elephant class natural gas fields. They do also own a 8000 barrel/day refinery.

So you can see the actual oil sands are going for a discount to the actual share price. And you are not taking a flyer on their properties. They already have an independant third party reserve report which lists 67 million proven barrels and in excess of 300 million barrels in place. And that is just from one of four or five possible PODS.

Once approval is obtained Connacher will be years ahead of many of its peers, who have yet to put together a formal report on potential reserves, much less be in a position to actually even submit an application to start getting it out of the ground.

From an investment stand point I also very much like the way this company is being put together. It is being structured and organized for the long haul. The ownership of its own natural gas assets gives it protection from the vagaries of natural gas prices which they will need at the beginning of their production cycle. (From what I understand after a certain point they will be able to produce their own needed energy on site)

I know some people have grumbled that they are not optimizing their ownership of PDP because none of the revenues go on their balance sheet. That is true...but being only minority shareholders of what is a locally owned oil company pretty well buffers them from political risk, which in South America is a factor.

The ownership of a refinery not just gives them value add, but protects them from getting squeezed on margins at the other end of the production cycle. It is not like there is a surplus of refining capacity in North America..

Their ownership of PDP and their financing at $5.25 gives them a muscular financial position.

This is not a junior resource company that is running on fumes.

Technically the charts tell the tale. It is approaching a technical condition that has rarely been seen over the past few years. That is the risk of the stock market. If the news is bad and you don't invest, you keep your money. But if you wait for all the good news to come out and be confirmed, you pay a higher price for that piece of mind, and risk having to go through a period of time while the stock price consolidates.

Event wise. Well obviously I am waiting for the EUB approval. Sometime this summer one should also expect an updated reserve report that not only fleshes out the numbers for POD 1 but starts delineating POD 2.

Everything the CEO has said has implied that the results to date have been good, so much so that they plan to submit an application for a second 10,000 barrel/day production facility later in the year. (Hopefully this second application will be of the "rubber stamp" variety) one 20,000 barrels/day with a 20 year minimum reserve life . . . as I have mentioned before the math becomes compelling. Obviously if all works out as hoped, this will be a candidate for dividends, or becoming an income trust.

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