Cannacord newsletter re: CLL

Connacher Oil and Gas (CLL : TSX : C$0.92) - Hold - Target:C$1.00
Is someone out there recognizing CLL's value? Lowering rating
We are lowering our rating to a HOLD from the previous SPEC BUY while raising our price target to $1.00 from $0.70 after CLL announced yesterday that it has received an unsolicited, confidential offer for all of its outstanding shares. The average historical price paid in transactions for producing in-situ assets has been ~$2.00/Bbl (based on a range of $0.90/Bbl to $3.90/Bbl). That metric would translate into a share price of just under $1.00 for CLL, or ~7% above the last closing price. We view this as fair value in a takeout scenario. We wouldn't be looking for CLL to fetch a premium to that considering: 1) There have been only four times since 2005 that any oil sands transaction was done at over $2/Bbl and only one of those was for in-situ-only assets; 2) Given the company is highly levered and relatively small in size, we believe Connacher attracts a limited type of potential buyer and that makes it difficult to demand a big premium, in our view; 3) There is also the risk that
the announced negotiations falls through; 4) CLL shares have already significantly outperformed peers by over 260% since 10/3/2011. Where is the offer coming from? A name that comes to mind is CNOOC, the NOC that acquired OPTI Canada earlier this year. So to us, CNOOC has demonstrated that it has the appetite for a highly levered company with an asset that has had operational challenges. If not CNOOC, we believe the offer could have come from a foreign entity that is looking for an entry point into the oil sands and looking to get up the learning curve. Connacher's already producing assets, along with the operational experience and expertise that management possesses, would make the company an ideal target in that regard, in our view.