Connacher Oil & Gas Ltd CLLZF

CLL vs. UTS

[Lucy1]

not sure if this was already posted ... cheers, -Lucy. Looking for Value in Emerging Oil Sands Producers By Michael J. DesLauriers 26 Aug 2005 at 06:17 PM EDT TORONTO (ResourceInvestor.com) -- Considering the major moves witnessed in the share prices of companies involved in the Alberta Oil Sands this year, one must consider which of these players is poised to deliver the best returns going forward. As a result of the forces of leverage and size, the best performers to date would appear to be UTS Energy [TSX:UTS] and Connacher Oil and Gas [TSX:CLL]. For those who got in early UTS has easily been a four-bagger, while more recently Connacher shares have roughly tripled. Working on the assumption that these are the top two legitimate plays for leveraging the Oil Sands story, it would appear that at current levels CLL offers more upside. The market is currently valuing UTS at about C$1.75 billion, a staggering number for those of us who remember when the stock traded at 20 cents not all that long ago. UTS’ 40% share of the Fort Hills project gives them control of 1.12 billion barrels of recoverable oil reserves. Investors own about 2.65 barrels per share. With the recent C$75 million financing included, Connacher is valued at about C$280 million by the market. As it stands now the company controls recoverable reserves of 311 million barrels of oil, equating to about 2.33 barrels per share. The potential for reserve growth at CLL’s Great Divide property remains significant and reserves could prove to be a multiple of the present figure. What the above metric does not account for is the massive dilution that still lies ahead for UTS. Indeed, that barrel per share figure could take a drastic cut. On that basis UTS is getting a premium from the market because it has more reserves and has a big partner on board. In reality however, smart money should pay a premium for the prospect of reserve growth and cheaper production now. In terms of extraction costs, Connacher will not have to take on a partner to help with the bills in the same way UTS did with Petro Canada [TSX:PCA] and should be producing at a rate of 10,000 BOE/PD by the fourth quarter of next year. If oil prices remain in orbit, the company could well cash flow over C$1 per share. On that basis alone it could easily be valued at twice the current share price. Today’s ‘show me’ stock market likes to see production now and will have to wait until mid-2009 to see any from UTS. The key difference here is that while UTS is essentially in the earth moving business, CLL will be using SAGD (steam-assisted gravity drainage) technology. SAGD is a proven technology that involves drilling horizontal wells and constructing a processing facility that separates oil and water, generates steam and recycles water. It’s cheaper and quicker. As a result of Great Divide’s amenability to SAGD, CLL doesn’t need to take on a partner and give away 60% of its project, nor does it need a 5-year construction period in a rising cost environment. At the end of the day both companies will probably continue to perform but logic would appear to dictate that Connacher might provide a better return for its shareholders. Further, as UTS has already partnered, the same takeover premium that should apply to Connacher no longer applies to UTS. Friday closes: CLL C$2.12, UTS C$4.15.