In Q1 2012, the TSX- and AIM-quoted company saw production jump by 125 per cent on the prior year period to 22,773 barrels of oil equivalent per day (about 90 per cent of which comes from its offshore acreage – there’s also around 2,000 boepd from an onshore gas field where output faltered after the flooding of late 2011). EBITDAX for Q1 2012 came in at US$128.4 million, more than 200 per cent higher than Q1 2011. Average production for 2012 is expected to be 25,000 boepd.
And there’s more to come as the company continues to drill up its acreage, which hosts a prospect inventory that CEO Randy Bartley once described as a “string of pearls”. Certainly Coastal has enjoyed incredible success in unearthing these pearls, with Songkhla A (4,500 bpd), Bua Ban (1,000 bpd) and Bua Ban North (16,200 bpd) already in production. What’s more, despite the recent share price performance, the 2012 drilling campaign has indeed found the Miocene at Bua Ban South, de-risking over 23 million barrels with more drilling in prospect (there’s an additional 31 million barrels of prospective resources remaining at Bua Ban South).
The attractive thing about Coastal is its ability to move its discoveries quickly and cost-effectively into production. This is shallow water drilling (the Miocene wells come in at US$2.5 million) and the company uses simple mobile production units to bring its finds online; it has already purchased production facilities for Bua Ban South which should arrive in Q3.
Investors should also be heartened by the news that the rig is moving back to Bua Ban North to drill horizontal development and water inject wells to boost production numbers. This could include exploration of some 57 million barrels of prospective resources in the Bua Ban North area. Analysts at FirstEnergy Capital said this “should provide the story with a continuous flow of high impact catalysts”.
There will also be appraisal drilling on Bua Ban South and the company has also received permits to drill up to ten additional wells at Songkhla A later this year, which again should add to the forward production tally.
In light of recent drilling results, the FirstEnergy Capital analysts have upped the target price to £16 and ranks the stock as one of its Top Picks. “Benefitting from high impact drilling activities throughout 2012, Coastal is trading at a 15 per cent discount to core NAV and is still offering 50 per cent upside,” said the analysts in a recent note. With the shares trading at £9.50 on Friday, this certainly leaves the stock with plenty of run room as the 2012 campaign continues to unfold – and plans to bring in an extra rig would only accelerate the pace of newsflow this year.