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To: Dale Baker who wrote (47226)	7/13/2006 3:03:34 AM
From: Dale Baker	Respond to of 118717

Pescod interview with Kerry Sully (ex Pres. Ranchmen’s Resources) re CLL & PDP A BRIEF INTERVIEW WITH KERRY SULLY (From July 11, 2006) Yesterday, Petrolifera Petroleum did an update and it’s rather significant to see this company now producing 6500 to 7000 barrels a day in Argentina, as they’ve gone from virtually zero production to this level in less than a year. Much of the production is coming from four wells. Yesterday they announce that they have 54 identified locations on the Sierras Blancas/Punta Rosada concession for drilling shortly and needless to say, if these locations are anywhere near as productive as the previous handful, Petrolifera could be in for exciting times. We go to veteran oil man Kerry Sully, former President of Ranchmen’s Resources and the guy who suggested back at $0.60 to be buying some Connacher for his thoughts on all this….. David Pescod: Kerry, you are intrigued by the value of Great Divide that Connacher isn’t receiving. Your thoughts on this? Kerry Sully: It seems to me that relative to Connacher’s current share price that the majority of the value is made up in assets other than Great Divide, and very, very low credit has been given for the SAGD. At a market capitalization of $750 million, $150 million is their share of Petrolifera (which now has even more upside), about $200 million for the former Luke assets, $50 million for the Montana refinery and $50 million cash, giving only $300 million for the about 100 million barrels of proven, probable and possible oil reserves, or just $3 per barrel! D.P: Speaking of the heavy oil plays, many of them have been battered in the last couple of days and weeks and Connacher has been taken down with it. Do they deserve it? K.S: I don’t think at all. It’s a totally different situation than it is being perceived further to the North. Connacher has designed a modular SAGD and they announced very early that the majority of the fabrication is going to be done out of Edmonton. They would then ship the units north and as a result, some of the cost overruns that others are currently occurring Connacher shouldn’t experience. D.P: One thing we have to get back to is the price for oil and gas. The big surprise is this weak price for natural gas. Your comments? K.S: I think natural gas is going to continue to be weak obviously through the summer. It’s going to be a function of what happens with respect to hurricanes in the Gulf of Mexico later this summer, but I would suspect by the time we get into this winter, that we will see some balance reoccur. One of the things I think will cause that is the slow down in drilling activity for the Gulf of Mexico and there have been a number of jack-ups recently have left the Gulf to move oversees. D.P: Back to Connacher’s heavy oil play. It’s still almost a year before they expect production, correct? K.S: Yes, but they are going to go from zero to 10,000 barrels a day overnight, so that’s worth waiting 10 months to a year. D.P: There had been a point a few months ago where you were suggesting a person might take some money off the table. Is it time to get back in again for those who did so? K.S: It certainly is. It’s a great opportunity. D.P: What kind of target are you looking for down the road? K.S: I think the $8.00 range within 12 months. I see absolutely no reason to change that whatsoever. D.P: Now you get to ask questions and answer them yourself…. K.S: Basically they (Connacher) have some major impediments behind them. They’ve got their approvals and they will now be going full speed ahead with respect to their construction. They didn’t complete all of the exploration they hoped to do during the last winter period and I think we have that to look forward to as we move into the fall. D.P: One comment you had said earlier was that several of these projects aren’t going to be going ahead and people know about that. K.S: There’s a paranoia in the media that almost suggests existing construction is going to shut down, which is certainly not the case. It’s going to continue at as rapid a pace as can be sustained by the personnel and infrastructure that’s in place. However, some of the recently announced projects will be delayed, something that’s already built into most of the projections for the region. So really it’s not a surprise and I don’t think it will affect Connacher at all. D.P: You were saying earlier natural gas price are disappointing now (you expected them to be higher) but if you are betting on heavy oil, you have to have a price in mind for oil down the road. What kind of numbers are you using? K.S: I think you can proceed with confidence that WTI will exceed $60 a barrel and I think that the majority of the oil sands and SAGD projects can probably proceed with $40 oil. Basically, they can create new construction at those kinds of levels and they can sustain operations at the $20 level. D.P: That sounds like pretty good economics. K.S: That is good economics and Connacher has the advantage right now that they have positioned themselves with a refinery and although these spreads on heavy oil are quite severe, they are vertically integrated, so I think they’ve done a good job there. D.P: It’s been almost two years since you were at the COPIC Conference and you came out and told us we had to have Connacher back at $0.65. We understand that you have a new story that is just as equally appealing that you will be talking with us shortly. K.S: We’re working on it!