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Coastal Energy - what am I missing?

Thursday, Mar 10 2011 by
13
Coastal Energy  what am I missing

Coastal Energy (LON:CEO) 's  current 2P reserves are 55 mmbo, production is 12.5kbopd, market cap is about £500 million. Drilling results have been announced this morning from Bua Ban North. (see rns). In response the share price has fallen 5%. I’m just revisiting the situation in an attempt to get my thoughts straight. The recent corporate presentation stated in January that the BBN target comprised 3 separate geological structures and gave the pre-drill estimated sizes as follows:- Lower Oligocene 15 mmbbl, Miocene 15 mmbbl & Eocene 45 mmbbl). It appears that these structures are split into quite small separated elements. The current drilling campaign includes 6 wells in different locations with most wells targeting multiple structures/elements.

Today’s RNS says:

“The Bua Ban North A-01 exploration well encountered 32 feet of net pay in the Miocene interval and 27 feet of net pay in the Upper Oligocene interval, both with 25% average porosity. 


CEO’s CEO said:

"We are very pleased with the results of the first well at Bua Ban North. We have confirmed the extension of the petroleum system to the northern part of the basin. The discovery in the Miocene gives further evidence of a larger Miocene trend in the Songkhla basin. The discovery of productive Upper Oligocene sands also opens up a new potential zone in the basin for exploration and development”

So good news wrt the Oligocene and the Miocene. However, the Eocene interval was disappointing:

“It was encountered 700 feet deeper than originally prognosed and whilst it contains 70 feet of oil bearing sands they show low porosity and permeability so the oil is not expected to flow naturally.”

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CEO’s CEO (should that be CEO2?) said":

“Although the sands in the Eocene interval are tight in the A-01 well, they were encountered deeper than we anticipated and have porosity and permeability characteristics consistent with what we would expect at that depth. We will be drilling an exploration well in an area where the Eocene is believed to be significantly shallower and exhibit higher porosity and permeability.”

So, it seems disappointing but not terminal for the Eocene in other locations.

According to slide 15 of the January presentation, the Oligocene and Eocene targets at the location of this first well represented just 7 mmbo in aggregate. Today’s result is giving an inital thumbs up to 3 mmbo of that and a thumbs down to the other 4 mmbo. But it is also reporting the unexpected discovery in the Miocene. There are no pre-drill estimates for this, for obvious reasons. But the oil bearing interval is actually thicker in the Miocene than it is in the Oligocene – so the potential is possibly of the same order of magnitude. What we can say is that the discovery announced today represents more than 3 mmbbls and possibly 5 or 6.

The potential for the whole drilling campaign does not seem to me to have been significantly diminished by today’s news.

  1. The Eocene elsewhere is shallower so porosity/permeability ought to be better
  2. The Miocene may prove more prospective than expected - it obviously extends into areas where it was thought absent.

As drilling results go, that seems OK to me. With 1 down and 5 to go, I feel reasonably optimistic. However on balance the market seems to disagree with me. So what am I missing here?

Disclosure of interest: The Author holds shares in Coastal Energy (LON:CEO) .


Disclaimer:  

The author may hold shares in this company. All opinions are his own. You should check any statements that appear factual and seek independent professional advice before making any investment decision.


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Coastal Energy Company (Coastal) is an international oil and gas exploration and development company with operations in offshore Thailand and Malaysia, and an interest in a joint venture which operates in northeastern Thailand. The Company holds a 100% working interest in Blocks G5/43 and G5/50 in the Gulf of Thailand. The combined area of the blocks is approximately 2,777 square kilometers and average water depths are approximately 70 feet. Block G5/50 is an exploration concession north of the Songkhla basin and contains approximately 283 square kilometers of acreage within the boundaries of Block G5/43. Its Thailand onshore interests are held through its investment in Apico LLC (Apico). In January 2014, Coastal Energy Co completed its merger with Condor Acquisition (Cayman) Limited, a newly-incorporated entity controlled by Compania Espanola de Petroleos, S.A.U. (CEPSA). more »

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36 Comments on this Article show/hide all

marben100 16th Jun '11 17 of 36
1

In the light of that result FirstEnergy have raised their gross resource estimate on the Bua Ban North B Miocene to 24.3mmboe gross with a per share unrisked value of 255p/share. That takes core, risked, NAV to a total of 663p for producing and undeveloped assets plus 314p/share of risked explo upside (1,686p unrisked).

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tournesol 21st Jun '11 18 of 36

Anyone know when/where the AGM takes place?

T

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jseth123 21st Jun '11 19 of 36
1

Hi Tournesol,

Last year it was the 22nd July in London:
http://www.londonstockexchange.com/exchange/news/market-news/market-news-detail.html?announcementId=10546312

I know you might have already seen that but if not then perhaps it will be useful as a guide. With the main market Canadian listing coming, they may move it over there this year I suppose!

Regards,
JS123

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tournesol 21st Jun '11 20 of 36

Thanks JS - I've e-mailed the company for clarificaion and will share any info that returns.

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alano20 21st Jun '11 21 of 36
1

In reply to tournesol, post #20

Re listing, Coastal RNS: Coastal Energy Company (the "Company" or "Coastal") (TSX-V: CEN, AIM: CEO) announces that the Toronto Stock Exchange (TSX) has conditionally approved the listing of the Company's common shares. The Company's shares will begin trading on the TSX on or about July 5, 2011 under the ticker symbol "CEN". The Company's shares will be delisted from the TSX Venture Exchange simultaneously with the TSX listing. The Company's shares will continue trading on the London AIM market under the ticker symbol "CEO".

http://www.investegate.co.uk/article.aspx?id=201106210730017813I&fe=1

Also 1st quarter results look good:

First Quarter 2011 Highlights

-       Total Company production averaged 10,125 boepd in the first quarter, up from 7,578 boepd in the fourth quarter of 2010, a 34% increase.  Offshore production was impacted by downtime for workover operations on several wells. 

-       EBITDAX for Q111 was $40.1 million, 13% above the same period in 2010.

-       The Company began its exploration program with a discovery at Bua Ban North A.  The Bua Ban North A-01 well encountered pay zones in the Miocene and Upper Oligocene intervals. 

-       Subsequent to quarter-end, two further successful exploration wells were drilled at Bua Ban North A and six successful exploration wells were drilled at Bua Ban North B.  The Company plans to begin testing these discoveries in July.

Randy Bartley, President and CEO of Coastal Energy, commented:

"I'm pleased to report that the first quarter of 2011 brought further success for the Company.  Production and cash flow both increased from the previous quarter.  We expect to see material production gains offshore as Bua Ban North B & A are tied in beginning in July. 

 http://www.investegate.co.uk/article.aspx?id=201106210730017823I&fe=1

 

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tournesol 22nd Jun '11 22 of 36
1

In reply to alano20, post #21

Alan020

my question is simply about the AGM - those RNS extracts don't say anything about the AGM as far as I can see.....

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djpreston 22nd Jun '11 23 of 36
1

Slightly soggy reaction to the figs. The market was expecting higher bopd so that was a miss. Then again, with so much activity and thinking on their feet (changing drill/test programms to reflect news) its understandable.

Just need the MOPU (shame its not bigger) and those flow rates to prove commerciality.

Fund Management: European Wealth
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tournesol 22nd Jun '11 24 of 36
5

FWIW I see this situation as providing a terrific opportunity.

IMHO Coastal's SP is solidly underpinned by its existing production and booked reserves.

In for free is low risk growth in reserves and production in the short, medium and long term arising from recent discoveries which have yet to mature into booked/developed reserves. Also in for free is the potential for additional discoveries - which on recent performance appear almost a certainty.

Its fiscal environment is benign. Political risk is relatively low. Management seems competent and very much aware of the investor perspective. I think the communication of information is world class.

Assets are very concentrated so that the company makes an attractive package for acquisition.

What's not to like?

My expectation is for a return of at least 100% over the next 2 years and possibly much more over a shorter timescale. This is my kind of investment and I'm thinking about increasing my holding.

--------------------------------------------------

absolutely no advice implicit in the above - I've been wrong many times before and my crystal ball is in for a service.

T

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djpreston 22nd Jun '11 25 of 36
2

In reply to tournesol, post #24

T

Agree with you there.

One of several such companies IMO - CZE, PXT and GTE spring to mind. Okay, Columbia may be seen by some as higher political risk but Id rate it on a par with, or slightly below, Thailand with its history of coups.

D

Fund Management: European Wealth
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marben100 28th Jun '11 26 of 36
5

Let the good times roll. :0)

...Randy Bartley, Chief Executive Officer of Coastal Energy, commented:

"The results of the B-07 and B-08 wells serve as further confirmation of the Miocene trend in the Songkhla basin.  Updated mapping based on drilling results indicates that the structural closure at Bua Ban North B is approximately 2,800 acres in size.  The positive appraisal of the eastern fault block has major implications for the extension of this field as it has significantly increased the prospectivity along the major eastern Miocene fault which extends over three kilometers between Bua Ban North A & B.

 

"The drilling rig is going to mobilize to the Songkhla H prospect next, which is a commitment well outside of the two established production areas on G5/43.  We will proceed with the installation of the mobile offshore production unit to begin production at Bua Ban North B once the rig is off location."

 

Busy times for Coastal.

Mark

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Mattybuoy 29th Jun '11 27 of 36
1

DTX, GSY, TAO also have similar types of prospects IMO.

I think someone should start a Canadian junior oil thread ... :-)

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djpreston 29th Jun '11 28 of 36
4

In reply to Mattybuoy, post #27

DTX, GSY, TAO also have similar types of prospects IMO.

I think someone should start a Canadian junior oil thread ... :-)

Sounds like a capital idea. Why hasnt anyone done one already? ;-)

Anyway Matty, it seems like its just you, me and Mark that are interested. Why, i dont understand.

To keep "On Topic", i see that First Energy have raised their target for CEO to £10.90 from £9.10, a 60% discount to target vs 35% for their coverage overall.

Fund Management: European Wealth
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Murakami 29th Jun '11 29 of 36
2

A "new ideas" thread for Canadian juniors has now been added here -

http://www.stockopedia.com/content/canadian-junior-oil-thread-new-ideas-and-general-comment-57768/

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doverbeach 29th Jun '11 30 of 36

Add me to the interested list - my Coastal position is now medium sized, having started the year as small.

The AGM is on July 21st - I will be going - anyone else?

db

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tournesol 29th Jun '11 31 of 36

In reply to doverbeach, post #30

I'll be making every effort to attend the AGM

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marben100 1st Jul '11 32 of 36

In reply to doverbeach, post #30

my Coastal position is now medium sized, having started the year as small.

Likewise! I am planning to attend too. Will have to have a close look at the proposed stock options. :~/

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djpreston 6th Jul '11 33 of 36
2

RNS out re some director dealing. Two buys and 1 exercise of options.

Fund Management: European Wealth
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marben100 11th Jul '11 34 of 36

In reply to marben100, post #32

One small thing I wasn't aware of, regarding AGM attendance & voting: if you've bought shares in uncertificated form on AIM, they're actually DIs (Depositary Interests) and Capita hold the shares that the DIs represent. That's because Coastal's shares can't be held in CREST directly (this is set out in Coastal's admission document). So, formally you'd need an LoR (letter of representation) from Capita (even if you hold your DIs in a personal CREST account). Similiarly, if you hold  "shares" purchased on AIM in a broker nominee account, your broker would have to get an LoR from Capita.

I've asked FirstEnergy about this (as Coastal don't have a direct UK contact) and they believe that Coastal will probably deliver a presentation at the AGM. They're also checking for me whether shareholders holding DIs will be admitted. One thing's for sure: you won't be able to vote without an LoR or properly completed proxy form. For some AIM-purchased "shares" I hold in a personal CREST, I did receive a proxy form for instructing Capita how to vote the shares that my DIs represent (which I how I was alerted to this complication!).

Regards,

Mark

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thegreatgeraldo 11th Jul '11 35 of 36

I'll just sign in as a guest as I did last time...

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StrollingMolby 6th Sep '11 36 of 36
3

More good news at Bua Ban North released by Coastal Energy (LON:CEO) a moment ago:

HOUSTON, TX -- (Marketwire) -- September 6, 2011 -- Coastal Energy Company (the "Company" or "Coastal") (TSX: CEN) (AIM: CEO) announces the successful results of the Bua Ban North A-05 well and provides an operations update.

The Bua Ban North A-05 well was drilled to a total depth of 5,650 feet TVD. The well encountered 81 feet of gross sand and 35 feet of net pay in the Miocene reservoir with 27 percent average porosity. The well tested the Miocene reservoir on the eastern flank of the Bua Ban North A field. The oil water contact in the well was seen at 3,770 feet. The results of the A-05 well add an additional 1,200 acres to the structural closure area. The Company is planning to drill five to six additional evaluation wells at Bua Ban North before moving the rig to G5/50.

The Bua Ban North B-02, B-03 and B-04 wells have all been completed and tied into the production facilities. The aggregate production rate from Bua Ban North B is approximately 8,200 bopd. Average production at Songkhla A is approximately 4,000 bopd, with production currently being constrained due to a temperature issue. The Company is installing additional cooling units to remedy this issue and restore production to 6,500 bopd. The installation is expected to be complete in approximately two weeks.

Aggregate offshore oil production is averaging 13,700 bopd, and total Company production is averaging 15,800 boepd.

Randy Bartley, Chief Executive Officer of Coastal Energy, commented:

"We are very pleased with the results of the Bua Ban North A-05 well. This well was drilled as far north as possible to test the presence of hydrocarbons between Bua Ban North A & B. We have several locations identified which are further south and up to 200 feet structurally higher which we plan to test with the upcoming wells.

"Total production from Bua Ban North B has come in above our expectations and the wells continue to perform better than expected. We are working to resolve mechanical production issues at Songkhla and expect to restore production to previous levels in the coming weeks.

"We expect production facilities to be on location at Bua Ban North A in late October."

 

No wonder Randy Bartley said at the AGM that "shareholders would like this year."  :o)

SM

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About tournesol

I'm an active private investor specialising in the oil and gas sector. I decided to focus on this area after having a disastrous experience 10 years ago when I naively delegated investment to a "professional" who subsequently lost most of my life savings and my pension. That experience taught me that it was foolhardy to invest in industries/companies you don't understand properly and that many "professionals" are doing just that, often based on the most superficial analysis and the most inadequate understanding of the underlying business. I decided that I'd take my financial destiny into my own hands.   I chose oil as a specialist focus partly because it was the industry I'd spent most of my career in over many years in >25 countries all over the world. That prior experience gave me a good  understanding of E&P from an operational perspective and I've subsequently leveraged that into an appreciation of the sector from an investment perspective - quite a different thing. But the one really helps the other.   I find that my background and my specialist focus help me get access to management and help me talk to them when I get in.  I've been seriously astonished at the open-ness and responsiveness of many top managers in this industry. Sensible questions, asked in a sensible manner almost always receive a very full response. (I have to single out Tom Cross of Dana for his readiness to go the extra mile to help small PI's understand his business).   Of course the other reason I chose to specialise in oil was that ten years ago it was very easy to figure out that the price was going to rise in a sustained manner over a long period. I still find it hard to believe that everybody else didn't see that coming at that time. I certainly can't claim any credit for doing so. It was just too obvious to miss - provided that is you looked at things from the right perspective. (there's an article to be written on this topic when I can find time........) more »



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