Connacher hires Goldman Sachs for strategic review, signals possible sale

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CALGARY — Canada’s Connacher Oil and Gas Ltd said on Friday it has initiated a strategic review of its operations just days after replacing a chief executive who opposed a sale of the oil sands development company.

The company, which has a small oilsands operation in northern Alberta and a Montana refinery, is burdened with a debt of close to C$960 million ($947 million), more than twice its stock market value. It has hired investment bank Goldman Sachs, to review of its operations and help the board determine the company’s future course.

A strategic review is often a first step in putting a company up for sale. Former Chief Executive Richard Gusella had resisted shareholder pressure to find a buyer, but some investors still consider it to be the best option for Connacher.

“They have a very valuable asset but the potential is capped by the encumbered balance sheet, said Mathieu Philippe, investment director at Audley Capital Advisors LLP, which is pushing for a sale of the company. “They need someone with deep pockets to help crystallize this value and allow shareholders to benefit from that.”

Connacher produces about 14,300 barrels of oil equivalent per day, the bulk of it from its Great Divide and Algar oilsands projects.

The company last year started to hunt for a joint venture partner able to provide cash for an expansion of its Great Divide project. That’s a route other companies including Penn West Petroleum Ltd, Athabasca Oil Sands Corp and Statoil ASA have taken to find deep-pocketed Asian companies looking for an entry into the oilsands.

Connacher’s search was interrupted in December when an unidentified suitor made an unsolicited offer to the board.

Gusella turned down the bid and rejected the pleas of Audley Capital and other shareholders to launch a formal sale of the company.

Earlier this month he suspended the joint-venture process and removed several senior executives, including the chief operating officer and the chief financial officer. Gusella himself was replaced a week later, with two directors stepping in to manage the operations on an interim basis.

If the company eventually puts itself up for sale, analysts see Asian companies looking for a route into the oilsands as logical buyers. Chad Friess, an analyst at UBS Securities Canada, said Connacher may prove attractive to national oil companies that may wish to own a refinery.

“It’s a great way for a new entrant into the oilsands to learn the business without taking the risk of starting up a new project,” Friess said. “An Asian buyer is probably most likely. Not necessarily just someone from China, it could be India, it could be Thailand.”

Connacher said in a release it has enough cash to pay off a C$100 million convertible debenture issue that comes due in June, as well as service its other debt and fund its capital spending program.

It did not say when it expected to complete its review.

Connacher shares were up 4 Canadian cents to C$1.10 by late afternoon on the Toronto Stock Exchange.

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