Connacher issues update regarding strategic review process
Spoiler!
Update Regarding Strategic Process
Canada Newswire
CALGARY, April 27, 2012 /CNW/ - Connacher Oil and Gas Limited (TSX: CLL) ("Connacher" or the "Company") previously advised that its Board of Directors has initiated a process to review the Company's business plans and review strategic options. Goldman Sachs and RBC Capital Markets have been engaged to assist the Board of Directors in connection with this strategic review.
Connacher will be issuing its 2012 first quarter results, as is normal, on May 15, 2012, following its regularly scheduled Board meeting. Preliminary data indicates that financial results will show improvement over the comparable period for 2011 and that production is within previously issued guidance. Connacher continues to expand its "dilbit by rail" strategy and leased railcar fleet in order to take advantage of excellent pricing (after transportation costs) for diluted bitumen railed to refineries on the Gulf Coast which are currently not accessible by pipeline. Pricing for diluted bitumen is quite volatile dependent on where in North America it is being purchased. This dilbit by rail strategy allows Connacher to mitigate this volatility to a considerable degree and provide additional options to its normal Alberta-based sales.
The Company's outstanding convertible debentures, with a face value of $100 million mature on June 30, 2012. It is Connacher's intention to settle the convertible debentures in cash at that time, utilizing its current cash balances and a portion of its $100 million bank credit facility.
With regard to the strategic review process, Connacher and its advisors continue to be engaged with a number of highly qualified parties regarding the future plans of Connacher. Interested parties' due diligence examinations are on-going and the Company will be advising shareholders of any significant developments in due course.
Coles Notes:
May 15 2012, Q1 2012 Financials.
I would like to say that even though I would not purchase CLL "right now, it is on my radar, I have no doubt about it being a target for takeover, and with a current share price of .82 (roughly 380M market cap), there is still a huge potential upside based on a valuation of probably 2-3B.
381M + Outstanding Debt/Warrants of say roughly 800M you are essentially paying 1.2M for a 2.5B company... the reason why it is so attractive is that they have a large oilsands lease, two producing facilities, and a profitable refinery south of the border, long term expectations of a low NG price, and a climbing oil/biutmen price. You can also tack on the potential for positive cash flow depending on what exactly happened Q4 of 2011 which didn't offer much insight into the companys "actual" margins with the price of NG so low.
Consider that for any other company to start a new oilsands project from scratch you are looking at the folowing:
-Find a parcel of land that may or may not have confirmed and reliable geotechnical survey complete. (And hope this land is near a major hwy like CLL is)
-Begin the permitting and environmental assesments. (Takes years)
-Once initial permitting for development is complete, begin construction planning/engineering, permitting, social and economic assesments for the actual construction and commisioning. (Takes years)
-Once all approvals are in (or when approval is immiment), begin tender process and procurring materials. (Can take up to a year quite easily)
-Construct the facility (Tack on another year)
-Commision the facility (Tack on 3-6 months to get the bugs worked out)
And hope and pray that you actually get some production lol (A sustantial number of SAGD projects have been complete failures)... and remember you need to do most of these steps for EACH facility that CLL has.. so you can basically double the timeline. Total cost would be over 3B (easily) and would take a minimum of 6 years, so compare this to being able to walk in, buy all this for 1.2B and be making oil the next day... and get a bonus refinery! Also consider that companies like Nexen are getting paid better buck for their bitumen, and if they were to purchase CLL they would be instantly improving margins by selling the CLL bitumen to their existing clients.. and they have a pipeline! Cheap shipping!
Anyway... I still see strong upside for CLL, but the political side of the institutional ownership scares me a little bit... especially now that you have a fly by night board and CEO...
One thing CLL did that was impressive was to get through the entire process mentioned above rather quickly.
EDIT: On the subject of YNG, it was pointed out on the bullboards that major institutional ownership of CLL as of Feb 2012 was as follows:
Orifer 27.5%
Sprott Asset Management 13.0%
Deutsche Bank 11.2%
So over 50% of this company is held by 3 investment firms... and it would be reasonable to assume that there is a handful of other institutions holding large quantities under the 10% mark... could it be that retailer investors holding YNG make up less than say 20% of the outstanding shares? I would think so... and to me that would explain the volume to price ratio being so out of wack.. it's simply scared retail investors running for the hills while "smart" folks and greasy investment firms load up near all time low pricing. (At least thats how I see it..)
If someone can chime in, I remember reading a while back that retail or idividual investors make up around 30% of the equity markets.
Something worth reading on the subject of individual investors, their behavior, and the impact of their actions.
http://www.princeton.edu/~dsraer/SRD.pdf