Favorites from the Spam File -- Connacher Oil and Gas
I've been spending some time lately building up a new site that I call Stock Gumshoe, and I use it as a place to sleuth out the investment teasers we all get in our email boxes every day -- you know what I mean, the ones that end with "just click here to subscribe, and I'll send you the name of this investment that will change your life."
Well, like most people I don't want to "click to subscribe" to many of these newsletters, though I'm sure some of them are produced by good advisors. But I'm always interested in finding a new investment to investigate, so I try to figure them out from the clues provided, share them, and track the success or failure of these stocks on stockgumshoe.blogspot.com ...
And the results have been interesting, to say the least -- lots of very questionable and risky tiny companies, including a lot of mining and resource plays, and a few that are so well known that I had already considered them and passed. But I have found the occasional company through this exercise that I'm actually interested in and hadn't previously heard of, so I thought I'd share some basics on one of these companies here. I'll probably do more of this in the future as I come across compelling ideas.
The first: Connacher Oil & Gas (CLLZF.PK -- CLL in Toronto)
The Stock Gumshoe article on this one is here, with the hyperbolic title "The One Oil Stock You Must Own Now." This is essentially an oil sands play, in a burgeoning area of Alberta that's seeing the beginning of a buildout of new oil sands projects. It's pretty tiny, but it has a couple advantages that make it stand out from the other small oil sands producers, in my opinion:
Vertical integration: This company recently acquired two other firms in order to vertically integrate their oil sands operations and reduce some of their risks.
They bought Luke Energy for its natural gas production, because one of the key inputs in their Steam-Assisted Gravity Drainage oil sands project is the cost of natural gas to create the steam (unlike, many oil sands projects, this is something that looks a lot more like oil drilling than mining, and it relies on injecting steam into the earth). So that helps with the risk of natural gas prices soaring and wrecking the economics of their projects.
And they bought a small refinery across the border in Montana that they've since done some work on to bring production levels and efficiency up. This will help with what they consider the bitumen/crude oil pricing risk, whereby bitumen sometimes trades at a significant discount to crude. Now they can refine some of their (soon to come online) production themselves, including gas and other fuels as well as asphalt, and control their price along the supply line to at least some degree -- or at least, make them less captive to the local refinery market for their products. And until they're producing in volume, they've got a refinery churning out some nice profits to help their cash flow situation.
And the second advantage is related -- good cash flow and solid financial management, which means they're not as indebted or dilutive as some small oil sands companies I've seen. In addition to the refinery Connacher has some conventional operations, including part ownership of a South American oil company that they spun off a number of years ago called Petrolifera Petroleum as well as some Canadian conventional production, and they essentially use these to create cash flow that they're pouring into their oil sands projects.
I don't know that I'll invest in this one, but with production just about to start at their Great Divide Pod 1 project in Alberta, it seems an intriguing time, and I like the idea of the small, vertically integrated oil sands company.
There are plenty of risks, among them the gold rush mentality in Alberta right now that makes doing business up there awfully expensive, the possibility of a significant dip in oil prices, and the fact that they don't have the economy of scale of huge operators like Suncor -- along with the additional risk that there isn't yet a great infrastructure in this particular part of Alberta for moving the oil/bitumen around, though preliminary plans for some pipelines are apparently in the works.
I have to look into it more to see what other risks exist that I'm not seeing, but I like the tone that management has taken in their presentations, and the generally conservative way they're building the business.
disclosure: I don't own any of the companies mentioned here.
Well, like most people I don't want to "click to subscribe" to many of these newsletters, though I'm sure some of them are produced by good advisors. But I'm always interested in finding a new investment to investigate, so I try to figure them out from the clues provided, share them, and track the success or failure of these stocks on stockgumshoe.blogspot.com ...
And the results have been interesting, to say the least -- lots of very questionable and risky tiny companies, including a lot of mining and resource plays, and a few that are so well known that I had already considered them and passed. But I have found the occasional company through this exercise that I'm actually interested in and hadn't previously heard of, so I thought I'd share some basics on one of these companies here. I'll probably do more of this in the future as I come across compelling ideas.
The first: Connacher Oil & Gas (CLLZF.PK -- CLL in Toronto)
The Stock Gumshoe article on this one is here, with the hyperbolic title "The One Oil Stock You Must Own Now." This is essentially an oil sands play, in a burgeoning area of Alberta that's seeing the beginning of a buildout of new oil sands projects. It's pretty tiny, but it has a couple advantages that make it stand out from the other small oil sands producers, in my opinion:
Vertical integration: This company recently acquired two other firms in order to vertically integrate their oil sands operations and reduce some of their risks.
They bought Luke Energy for its natural gas production, because one of the key inputs in their Steam-Assisted Gravity Drainage oil sands project is the cost of natural gas to create the steam (unlike, many oil sands projects, this is something that looks a lot more like oil drilling than mining, and it relies on injecting steam into the earth). So that helps with the risk of natural gas prices soaring and wrecking the economics of their projects.
And they bought a small refinery across the border in Montana that they've since done some work on to bring production levels and efficiency up. This will help with what they consider the bitumen/crude oil pricing risk, whereby bitumen sometimes trades at a significant discount to crude. Now they can refine some of their (soon to come online) production themselves, including gas and other fuels as well as asphalt, and control their price along the supply line to at least some degree -- or at least, make them less captive to the local refinery market for their products. And until they're producing in volume, they've got a refinery churning out some nice profits to help their cash flow situation.
And the second advantage is related -- good cash flow and solid financial management, which means they're not as indebted or dilutive as some small oil sands companies I've seen. In addition to the refinery Connacher has some conventional operations, including part ownership of a South American oil company that they spun off a number of years ago called Petrolifera Petroleum as well as some Canadian conventional production, and they essentially use these to create cash flow that they're pouring into their oil sands projects.
I don't know that I'll invest in this one, but with production just about to start at their Great Divide Pod 1 project in Alberta, it seems an intriguing time, and I like the idea of the small, vertically integrated oil sands company.
There are plenty of risks, among them the gold rush mentality in Alberta right now that makes doing business up there awfully expensive, the possibility of a significant dip in oil prices, and the fact that they don't have the economy of scale of huge operators like Suncor -- along with the additional risk that there isn't yet a great infrastructure in this particular part of Alberta for moving the oil/bitumen around, though preliminary plans for some pipelines are apparently in the works.
I have to look into it more to see what other risks exist that I'm not seeing, but I like the tone that management has taken in their presentations, and the generally conservative way they're building the business.
disclosure: I don't own any of the companies mentioned here.
This article posted by One Guy @ 4/05/2007 12:18:00 PM 0 comments
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