CEN.V
MACQUARIE RESEARCH
Monday, 11 April, 2011
CANADA
Coastal Energy - Best well to date at Bua Ban North A; rig moving on to drill ‘B’ prospect
Event
§ Coastal announced that the Bua Ban North A-03 exploration well encountered 125 feet of net pay in the Miocene, with average porosity of 28%. Coastal estimates this fault block could contain OOIP of 20 mmbbl, and brings estimated discovered OOIP to 55 mmbbl from the three discoveries made to date at Bua Ban North A.
§ Coastal apparently encountered the Miocene in four different intervals, and while a full development plan has yet to be determined, expects to use horizontal wells to develop the prospect. Costs per well are estimated at US$3.5–4.0m.
§ Coastal's drilling rig will now move to Bua Ban North B, to test up to 22.2 mmbbl of recoverable resource potential in the Miocene, Lower Oligocene and Eocene.
Impact
§ Positive. Coastal has now made oil discoveries in three of the four exploration wells drilled to date at Bua Ban North A. These discoveries confirm the potential of the Miocene fairway to the north of Bua Ban, and provide good growth visibility over current corporate reserves of 54.0 mmbl.
§ Coastal will move the MOPU to begin production testing the Bua Ban North A discoveries by mid-May, at which point we should have a better idea of the productive capacity of the area. There are several undrilled prospects remaining at Bua Ban North A, but Coastal will wait until it has a development plan in hand before exploring further up here.
Earnings and target price revision
§ Increasing target price and RENAV (PV10AT, flat pricing) by C$0.75 to C$10.75.
Price catalyst
§ 12-month price target: C$10.75 based on a 1.0x RENAV methodology.
§ Catalyst: Bua Ban North B exploration drilling; year-end results and reserves expected on 18 April 2011.
Action and recommendation
§ Bua Ban North A now appears to represent Coastal's biggest exploration success to date outside of Songkhla and Bua Ban Main. Three successful discoveries out of four wells leaves us optimistic that there is more to come at Bua Ban North, beginning with the ‘B' prospect, which we value at C$0.46/sh risked (C$1.96/sh unrisked).
