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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Paul Senior who wrote (25810)	1/24/2007 8:04:59 AM
From: Madharry	Respond to of 78748

re cnq from Fairholme Q3 investor report: Since July, oil prices have dived and, since last winter’s peak, natural gas prices have imploded. Greed has turned to fear. While impossible to predict the depth and breadth of the crowd’s despair, we do know how to take advantage. Periods of volatility and stress sometimes allow what we buy cheap to become cheaper, creating unusual opportunity. Fairholme’s history includes many instances of short-term “embarrassment” leading to long-term victory. This past quarter witnessed Canadian Natural Resources’ stock down from a peak of $65 to below $45, where we began backing-up the truck. With great owner-managers committed to shareholder value and a deeply undervalued asset base, Canadian Natural Resources has become Fairholme’s second $500+ million investment (after Berkshire Hathaway). The era of cheap oil seems over, and whether the price is $80 or $40 in the short-term makes little difference to our thesis. World oil exports continue to be dominated by a handful of undemocratic countries, some with questionable stability and politics. Supply and demand are in much closer balance than was the case during the last downturn. And the final straw breaking the back of the cheap oil argument is the continued modernization and growth of both India and China, which will occur whether the West grows or not. In the meantime, Canadian Natural’s strong balance sheet and cash flows have funded the Horizon oil sands project and supported the recent acquisition of Anadarko Canada at an opportunistically cheap price. Next year, much of Canadian Natural’s output is hedged at over $50 per barrel and in 2008, the first phase of Horizon (110,000 barrel of light sweet oil per day) comes online. The upside: the company is capable of tripling cash flows within the next seven years. The downside: ncreased production will counter-balance further price declines leaving us with today’s significant free cash flow yields. We like those odds. Also 1/22/07 CNQ announced they were buying back up to 5% of the stock over the next 12 months beginning 1/24/07.

To: Paul Senior who wrote (25810)	1/25/2007 4:49:44 PM
From: a128	Respond to of 78748

Yes, they are having serious liquidity issues. Thus the "going concern" statement by the auditors. They are cash poor but land rich. It bothers me that they keep having to pay fees to the bank to extend their due dates because the loan is as secure as can be. The LAND is worth $15-30 million which is $4.11-8.22 per share. And they have other book value of about $1.25 per share. And, I think its possible that they return to profitibilty within the next year to 18 months when the state of Virgina gets their act together regarding infrastructure spending. The biggest concern to me is the possibility that their NOLs will not be usable for their real estate gains. If they sell all their land close to DC, they would likely buy more in a lower cost area but it wouldnt be as much as the proceeds which means they might have to pay a big chunk of change to the government or buy real estate for income. This is both an asset play and a turnaround play. The questions are WHEN they return to profitibility and WHEN they sell the land and for how much...net. Time will tell. I suspect that they may deregister to save some on the $140k per year in auditing fees they now pay. But they have over 400 shareholders of record and not many odd lot holders so a simple odd lot tender offer isnt going to get them under 300. That may mean a reverse split. Something Im not terribly fond of.