On April 21st/08 RBC Capital Markets analyst Nathan Piper provided an update on Coastal Energy (CEN: TSX-V)
Company Profile
Coastal Energy is an international exploration and production company focused on Southeast Asia. The Company's current operations are based in Thailand where it has production from the onshore Phu Horm gas field and development opportunities in the Gulf of Thailand. The Company currently produces in the range of 12 million cubic feet of gas per day (approximately 2000 barrels oil equivalent per day) from the Phu Horm gas field located in north east Thailand and has a number of offshore oil fields currently under development.
Click here to view previous coverage of Coastal Energy (CEN: TSX-V) from March 17, 2008
Event
In a note entitled “Reserves upgrade, increased NAV and Price Target” Piper explains the reasons behind his Outperform rating and target price of $7.25/sh.
Takeaways From The Event
Responding to Coastal’s summary report of its 2007 year-end reserves, Piper writes “Coastal Energy announced an upgrade to its reserves based on an independent reserves evaluation of its Thai assets conducted by Huddlestone. The upgrade includes a 30% increase in 1P reserves to 19mmboe and a 25% increase in total 2P reserves to 45mmboe (60% oil). The upgrade follows a successful 375sq km 3D seismic survey over Block G5/43 offshore Thailand early 2007. Better understanding of the fields on this block formed the basis of the reserves upgrade. The 2P reserves of Songkhla has moved from 4.5mmbbls to 6mmbbls and Bua Ban has increased from 13mmbbls to 20mmbbls. Coastal plans to bring the two fields onstream through late 2008 and into 2009.”
Regarding Coastal Energy’s production pipeline and drill results, Piper reports “The Songkhla field is planned to be brought onstream in Q3/Q4 2008. Bua Ban is planned for Q1/Q2 2009, but appraisal drilling will be completed on the field through Q2 2008 to help understand the extent and producibility of the structure. The drilling results will determine the size of the processing facilities and capacity of the FPSO required to exploit the reserves, with the field being brought onto production in two stages. Coastal's net production could reach around 13kboe/d by mid 2009.” He also anticipates “a result from the Phu Horm South appraisal well onshore Thailand this week (Coastal 36%). It has the potential to extend the producing Phu Horm gas field (12.6% Coastal) into acreage where Coastal has a greater interest. The Phu Horm gas field has current 2P reserves of ~1Tcf and resources of up to 6.8Tcf. The company should also announce its full year results 29th April.”
Lastly, pertaining to future prospectivity, Coastal reported that it had “identified eight further prospects on the western portion of the block, highlighting the block's longer term potential. Some of the prospects can be accessed by drilling from the new Songkhla field facilities. Coastal states that the prospects have an oil-in-place of around 200mmbbls.”
Valuation and Target Price
Piper writes “On a sum-of-the-parts basis, we value Coastal at a NAV of $6.50/share. This comprises a core value of $5.25/share, which includes producing assets, development upside and net financial position, and a risked upside for exploration and appraisal drilling of $1.25/share. In our view at the current share price, the investor is paying for some of the producing/near production assets and enjoying appraisal upside for free. We use a 10% discount rate in-line with other small cap E&P companies; Thailand is a safe operating environment with stable fiscal terms. Our $7.25/share 12-month price target reflects our year-end 2008 asset values and a considered view of the company's 2008 drilling campaign.”
Investment Risks
Without limitations, some of the risks include reserves and resource risk, development risks, permitting risks, off-take agreements, commodity price risks, geo-political risks, exchange rates, weather related impacts etc.
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