Coastal
Energy
1Q12 results in
line
Event
�� Coastal reported 1Q12
results yesterday after market. Production volumes of
22,773boe/d
were in line with company disclosure, and with Thailand Department
of Mineral
Fuels data, which is published monthly. Our estimate was 22,959boe/d.
FFPS of US$0.70
came in below our US$1.00 estimate, primarily due to an
overlift, which
we believe should be corrected in 2Q12. Coastal’s operating
netback of
US$66.66/boe was within 6% of our US$70.82/bbl estimate.
�� Current offshore
production is approximately 21,400bbl/d, which is in line with
recent company
disclosure. Coastal’s drilling rig is now back at Bua Ban North,
where it is
drilling horizontal development wells and water injection wells.
Impact
�� 1Q12 Results:
Neutral. Although
sales volumes were lower than anticipated, this
is typically a
non-recurring event with Coastal, which we believe should correct
itself in the
second quarter. Operating costs have fallen QoQ and YoY as Coastal
is now able to
spread bigger production volumes over its fixed costs. The
company
generated cashflow of US$84.0m this quarter, compared to spending of
US$60m;
Coastal’s cash position as of 30 April 2012 is reportedly US$90m,
evidence of the
strong cashflow generation capability of these assets.
�� 1Q12 results look
fairly routine for Coastal. We believe the market is focused on
the results of
renewed development drilling at Bua Ban North. Coastal brought
significant
flush production onstream in 1Q12; new horizontal development wells
will go a long
way towards arresting the inevitable production declines, and
provide
reassurance on Coastal’s growth profile into 2013.
Earnings and target price revision
�� Minor changes to
estimates; no change to target price.
Price catalyst
�� 12-month price
target: C$24.00 based on a 0.8x RENAV & 4.0x 2013 EV/DACF
(50/50 weight)
methodology.
�� Catalyst: results of
development drilling at Bua Ban North.
Action and recommendation
�� Coastal has sold off
in sympathy with the market over the past week, despite what
we see as a
relatively low-risk growth profile (in comparison to its peer group). We
estimate
Coastal’s core NAV at ~C$15.25/sh (PV10AT, strip pricing), which we
see as a
reasonable floor valuation, particularly as the company moves on to
further
exploration drilling at the Bua Ban North Terrace in 3Q12. The addition of a
second drilling
rig, potentially in 2H12, would accelerate the pace of drilling news.
