CONNACHER OIL AND GAS LIMITED (CLC.TO) Buy,…

CONNACHER OIL AND GAS LIMITED (CLC.TO)

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Technically have done a very good job on their 1st project of Pod 1. Have been trying to raise money for their next job, Algar. As a result have stretched their balance sheet. One of the most leveraged plays to oil. Could potentially be 20,000 barrels a day producer.

COMMENT

(Market Call Minute.) Was able to raise money at a 15% discount a few weeks ago but there are others more interesting to him than this.

COMMENT

One of the smaller companies that has an oil sands project and it is producing. With oil sands you get a levered play on the price of oil. In other words, if oil is going to $120 it will do really well but if it is going back to $50 this company would struggle. Expects oil to go back to $60 and that would give you a better entry point.

BUY

Raised around $174 million and that helps bridge the gap. Bringing on a 2nd phase of production of their oil sands project at 10,000 barrels a day. Think they will survive but is still a difficult slog for them because cash is going to be tight. Need significantly higher sustained oil prices to make a go of it. Speculative buy.

COMMENT

Big issue here is the amount of financing they have had to do over the last month. Did both in equity and debt issue. From a longer-term perspective, this is quite positive, as it appears they are fully financed now.

BUY

High-cost operator and will have a lot of leverage when gas prices start lifting off.

SELL

(Market Call Minute.) Seasonality says Sell. We have just completed the period of seasonal strength. You can Buy when it gets back to the March low.

TOP PICK

4.75% bond maturing June/30/12. Great balance sheet. They have a refinery, and he loves refineries. Looking for 110% appreciation on the capital.

BUY ON WEAKNESS

(Market Call Minute.) Heavy oil producer. Just raised a significant amount of money that it will use to develop.

COMMENT

Chart shows a rounded bottom. Expect to see some noise come in at around $1.70 to $1.80. Look for some resistance at $1.70. Momentum indicator shows it as being overbought so there could be a small pullback.

COMMENT

First module of their production in oil sands belt area is now in operation. Until there are much higher commodity prices, $40/$50 oil prices does not justify expansion of the modules. Have to get back to the $70/$80 range. If you are willing to make the bet on the higher prices, it has a lot of upside potential to it.

COMMENT

Oil sands developer using steam assisted gravity. Has been hit hard. Have a refinery in the US. But natural gas as a hedge for gas prices. Surprised that it hasn't responded more to the recovery in oil prices.

TOP PICK

Convertible Bond 4.75% due in 2012. You are getting $.40 on the dollar while adding to your oil content. Have $180 million in cash, which is enough to pay their debt.

COMMENT

Trading at $.72 and cash value is about $.93. He prefers their convertible bond, which gives him a good way to sit on cash. It is trading at $.40 on the $1. (See Top Picks.) US refinery produces jet fuel and the margins on this are good because of a lack of producers.

DON'T BUY

Seasonally, oil should perform fairly well for the near-term. Heavy oil faces challenges. His model ranks it in the bottom 5% of his database. Expect they will cut back on their CapX.

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CONNACHER OIL AND GAS LIMITED (CLC.TO)