XIII 

On October 19 you posted that based on the potential earning from pod 1 that Connacher’s share price, even under a worst case recession scenario would be at a minimum of $9.20 within a year.  You  used a 15/1 price to earnings ratio in that post but you stated that Oil Sand Companies typically sell for ratios of 25-28/1.You kept this target though numerous posts until now.  Why now do you use have a target of $5.50 - $6.00 for the end of 2008, using a ratio of 10-12? 

 If you look at Connacher’s presentation  at Orion Securities Emerging Oil Sands Conference ,September 24 , 2007 you’ll find a graphic depicting the value chain of bitumen production.  From this graphic you can derive that Connacher’s cost of production, including field operating costs, natural gas costs, pipeline cost and diluent cost of about $21-$22/barrel.  If you take the cost of pod 1 at $290000000 and the cost of their new financing of 10.25 percent, the cost of servicing this portion of the note is $29.725 million.  The total production from pod 1 at 10000 barrels per day will come to 3.65 million.  The cost of financing then is about 8.14 cents per barrel for a total production cost including financing of about $30.00./barrel.  If you look at the relative price of bitumen to light sweet crude from  Alberta Energy Resources Industries Monthly Statistics you’ll find the YTD ratio averaging about .6.   At $90.00 per barrel this translates to $54.00 for bitumen or about $24.00 per barrel for earnings of about $.44 per share.  If you add this to the $.29 per share that Connacher reported for the 3rd Quarter you get .73 cents per share at pod 1 full production of 10,000 barrels per day.  At a 12 to 1 earnings ratio this translates to $8.76 dollars per share by the end of 2008.  At 20 to 1, the share price could be as high as $14.60. 

Martin