CLL is cheap. Not based on the production numbers, just on the overall investment argument of oilsands in general, plus a few as of yet underappreciated intangibles. Sure, some are arguing that the shine of oilsand investments is less bright than mere weeks ago, but CLL's own futre seems all that much brighter for more than a few reasons.
2Q 2007 is what they are giving as guidance for partial production. I remember reading somewhere that it'll take a couple more quarters to get the operation up to the 10,000 bpd range. They might make great divide produce 10K by the end of next year.
Before I look at the numbers a littler closer, here are a few intangibles that help lower the discount rate that the analysts will be using in the years to come:
1. CLL now has a proven ability to claw its way through an ever increasingly difficult EUB approval process. On future applications, it can be expected that they will have more familiarity with the regulators, with what type of information to collect and present, and higher credibility as an applicant than many would be wanna-be bitumen producers. This advanced learning curve and increased legitamcy in the eyes of the EUB is worth many millions of dollars EVA (enterprise value added). Some call it 'knowledge capital'. The value they can leverage out of it extends beyond great divide.
2. Proven leadership. Proven not only by executing on this approval process. CLL was six months early to spend money on oil sand leases - and they picked a good one. They were six months early getting into latin america, peru in particular. The majors have followed suit. Oh, argentina was a good use of time as well. Buying a refinery was six months ahead of industry concern about future refining capacity. Hedging their NG risk with a purchase of a NG company looks like it was six months ahead of the purchase of canadian southern petroleum - allegedly for the same reasons (and now everyone likes the idea.) The financing they did at $5 plus also seems to have been six months ahead of the market - that is, they took the money when it was offered - six months later they would only be offered 75%. This leadership track record (demonstrated ability to understand issues and act on shareholder behalf to mitigate risk and create $$$ value) also helps lower the discount rate institutional investors will be willing to use when looking at future cash flows.
3. People power. This is always a less well understood intangible, but CLL has it. In an oil patch without enough people, CLL went from a couple dozen, to many times that with the purchase of Luke and the refinery. They also found appropriate talent available after the Deer Creek purchase, and knew to snap them up in order to improve great divide's operational plans. It seems that they value their people and have an exciting place to work - a combination that will pay great dividends down the road.
Execution risk is clearly lower given the above three points. And, in some way this leads to the idea that the whole is greater than a sum of the parts. But here are some of the parts:
Oil refinery: From Condor (post 11093) = $15000/bpd x 8300 bpd = $125M US = $135M Can. Luke purchase price = $227M. (seems reasonable considering recent premiums offered for Canadian Southern). PDP value = 35% of todays market cap = $165M. (I do believe this will be worth twice that by the time full dilution occurs in May 2007). Conventional (non Luke) producing assets and reserves (2P of 73M barrels @ only $1 per plus 1000bpd @ $50,000/bbl (Taikun post 9763) - seems quite conservative) = $123M. Total = $650M. Market cap = $745M so great divide is priced at roughly $95M.
They could easily add $1 to the share price from here, and it would not be based on hype, nor the possibility of added reserves at great divide, batrum, luke, or pdp; nor the probability of increased production at other Pods, batrum, luke, pdp or future acquisitions.
10,000 bpd, at a $13.70 Canadian net back, that produces $50M cash flow per year. Double the netback, double the cash flow. Discount the cashflow by 9% instead of 10% due to the points above - analysts will. Of course everyone here does their own due diligence, but $477M for great divide ($2 more per share from here) would be a low ball offer considering the $4 per reserve barrel that deer creek got when oil was looking like $60/barrel was too much.
Roses are red.
$60 bucks looks like a floor.
CLL got their approval.
Now they are worth a whole lot more.
And CLL's whole is greater than the sum of its parts.
Once the next great divide reserve report comes out indicating that reserves are double and that another EUB application will be submitted before the end of this year, great divide might be looking at being a billion dollar asset all by itself. $8 bucks is certainly in the cards here. Production on time by 2Q 2007 will do $8 even without any other good developments.
Possibility? : PDP helps CLL by spinning argentina into a trust and continuing as peru explorco. CLL market cap triples in eighteen months, share price more than doubles.
Sayonara, sayonara, sayonara.
|
