Connacher Oil & Gas Ltd CLLZF

RE: RE: Smoke Signals from F Mac

[rehsifylf]

$1.75 an insult?  If you think so, how is it you are not mortgaging everything you own to buy at 90 cents?  $1.75 would be almost 100% increase.

Seriously - not to sound like an ING commercial, but if CLL were worth $1.75 it would be trading at $1.75.  Whoever buys CLL still has risk - not the least of which is a prolonged economic downturn.  The heavy oil is in the ground not in a bank vault. 

Do I think it will be worth more than $1.75, I do.  Do I hold a boatload?  I do.  Would I be willing to risk everything on this?  I would not. 

The value of a stock weighs potential upside against potential downside.  I've said before - CLL is not worth 90 cents (or 60 cents) - there is no scenario where it is worth that (that I know of).  It will either be worth nothing or it will be worth considerably more.  There are scenarios where it is worth zero and there are scenarios where it is worth $4 (or more).  The current price of 94 cents reflects the markets perception of probabilities related to what the future will look like.  A simple example would be taking three price points, optimistic pessimistic, and likely. 

Lets say optimistically involves oil rising to $130 in the near future, the Europe crisis subsiding, CLL production increasing, and a JV deal that allows Great Divide to proceed with CLL getting half the output for no further capital outlay.  Two are company related and two economy related.  If all that happened, CLL might be worth $4 per share (based on project cash flow and earning) and lets say there was a 15% chance of that happening.

Lets say the likely outcome is that oil stays where it is at $100, Europe hovers where it is for the foreseeable future, the US economy grows slowly, and a JV gets done but the deal is not as sweet for CLL.  Or they get a solid buyout offer.  Perhaps CLL would be worth $2 per share and lets say there is a 65% chance of that happening.

Lets say pessimistic is that Europe crisis escalates and spreads to the world economy, or China implodes, or China attacks someone, or Iran attacks Israel - and the GFC looks like a picnic after that.  Well - chances are theta CLL couldn't last long if oil went down to $60 (and those that believe that Oil would go up so CLL would be fine - need to think through it a little better) - demand destruction doesn't need to be huge to drive oil prices down.  So CLL goes to zero and perhaps there is a perceived 20% chance of that.

Add them up (.15*4)+(.65*2)+(.2*0) = $1.9.  In reality the calculation would be much more complex than that, but that is how someone might calculate how much CLL was worth.  Even my calculation is much more complex than that.  My number is $2.25 - but then, I don't have access to the data room so I've had to base my numbers on historical and best guesses.

OR - you could be like the super intelligent people on here that use geometric shapes on price charts combined with weather conditions in South America to throw out predictions.  Or you could say that because the calculation yielded a price of $5 four years ago - that should be the result today.  But I really don't think that is what someone looking to invest $2B in a company would do to determine the offer price. 

I don't think $1.75 should be the right current value for CLL stock, but I also don't think it is an insult.  It is well above the current perceived value of CLL stock.