Pod One Ramping Up but Algar Still on Hold
Connacher is reinstating normal operations at Pod One. Production is expected to reach pre-curtailment levels of
9 Mbbl/d by the end of February from current levels in the 5 Mbbl/d range. Design capacity of 10 Mbbl/d is
expected to be achieved in Q2/09. As a result, we have increased our 2009 production estimate to 8.76 Mbbl/d
from 5 Mbbl/d. Improved netbacks. The weaker Canadian dollar, narrower heavy oil differentials, as well as
reduced operating, blending and transportation costs are expected to result in positive netbacks once production
reaches 9 Mbbl/d. The company has entered into a term contract on a portion of bitumen production at locked in
heavy differentials and a WTI hedge on 2.5 Mbbl/d from Feb-Aug 2009 at US$46/bbl. We are assuming
essentially neutral EBITDA contribution from Pod One for 2009. We view this step as a positive development as
Pod One operations are no longer expected to be burning cash in 2009, resulting in an improved balance sheet
position once Algar construction resumes. Connacher is trading well below our NAV estimate of $2.85 per share,
however, we don't expect the share price will approach that level until oil prices recover, which we expect
sometime in 2010. –– Mark Polak
Disclosures*: Scotia Capital Inc. and its affiliates collectively beneficially own in excess of 1% of one or more
classes of the issued and outstanding equity securities of this issuer.
