Connacher Oil & Gas Ltd CLLZF

CLL SP performance

[strzelin]

There may be two reason effecting the CLL SP price in last few weeks.

1. The Connacher December and January production  updates showed very slow ramping up progress at Algar and POD1. Reported  average monthly bitumen production dropped from 14614bbl/d to 14300bbl/d.

In response to the CLL update some analysts lowered CLL  target price to $1.5.
So, now we have RBC, SCotia Capital, Credit Suisse, and RJ in line with the same target of $1.5

2.(IMO) CLL SP performance may also be related to dramatic drop in the  Bitumen prices in Alberta. Everyone is focusing on the WTI paper  contracts which most of the time are expiring worthless without seeing  one drop of OIL.

When you look  at the Alberta Light OIL or Dil-Bit  physical prices you can actually see how  much is the producer getting paid for their product. Here are the  Average Monthly Dit-Bit prices (converted in to Bitumen price) at  Hardisty Alberta.
25% drop since last December.


December 2010: ~ $52/bbl
January 2011:      ~ $48/bbl
February 4 2011  ~ $39/bbl

At $39/bbl Connacher will have very hard time to generate  free cash  flow (cash flow - $102 million interest obligation  - $30 million OPX )to support  planned Algar expansion.  JV partnership or additional  equity in the excess of $300 million dollars ($200 million new shares)maybe the only option. Unfortunately for CLL the $100 million  convertible are expiring next year. This may add additional pressure on   the CLL SP.

On the positive, we can see some good results on  the Light OIL drilling (3 horizontal wells) reviled in last update and  the $1 jump in the price of GTE shares (CLL will receive about 3.3million GTE shares after PDP disposal).

GLTA, Jurek.