Value Microcaps Junior Energy

[stock_peeker]

CEN.to: Coastal: This was copied from MrHelium at IV, supposedly appeared as Motley Fool piece today.

http://www.investorvillage.com/groups.asp?mb=17397&mn=1240&pt=msg&mid=10948988

Hidden oil gem

Coastal Energy (Other OTC: CENJF.PK - news) (LSE: CEO) is an AIM- and Toronto-listed oil and gas exploration/production company with operations in Thailand. With a market cap of around £720m, it started the first quarter this year producing just over 10,000 barrels of oil per day. Currently, production capacity now stands at around 15,800 barrels of oil per day following some newly drilled wells. With a legacy well brought up to speed, too, production should add up to 18,000 by late September.

By the end of 2011, Coastal is conservatively expected to be producing well over 20,000 barrels a day, although some analysts are pencilling up to 30,000 barrels a day subject to confirming recent discoveries. That's a lot of oil!

Fantastic drilling success

As at the end of June, the company had drilled twelve exploration wells and eleven of these had come up trumps with commercial quantities of oil.

Last week, the company -- boringly!-- found yet more oil; the 'Bua Ban North A-05' well could add up to 10 million barrels of recoverable oil to the group's 'probable' reserves. Indeed, this find could give Coastal an estimated 82 million 'company-risked reserve amount' by the end of the year. That's a 60%-plus increase on the probable reserves seen at the end of 2010.

Immediate drilling plans

The company is now targeting five or six exploration wells at Bua Ban North in order to understand something called the 'Miocene layer' (don't ask!). Analysts expect this drilling to be extremely positive, which will then be followed by a hunt for what apparently could be 54 million barrels of oil at Bua Ban South.

So, there is lots of (hopefully) positive news flow to come, which is always good for an oil stock.

Lower costs

But it's not just the discovery of oil that's exciting. Unlike other less hospitable areas of the world, such as the Gulf of Mexico and the North Sea, production costs in the Gulf of Thailand are much lower due to the shallower nature of its waters.

Valuation

Very conservative analysts are predicting an end-of-year net asset value of around £12.50 per share, which is roughly double today's share price. So it seems there's still plenty to go for in the current price.

Also, Coastal is now generating lots of cash from its increased production and, looking ahead, the group's $49m of debt should be paid down by early 2012.

Lots of positives

Coastal is the pick of the bunch from Canadian brokers in this sector. The company has recently promoted itself to the main board of the Toronto Stock Exchange following a successful quote on Toronto's Venture Exchange. It is now far more attractive to institutional investors.

There has been a consistent plethora of broker upgrades throughout the year and I have no doubt there are more to come before the year is out.

Randy Bartley, chief executive, and Coastal's other senior managers, own a sizeable chunk of the company -- 29% -- so their interests are strongly aligned with shareholders.

Predictions

By the end of the year, I expect Coastal's share price to be way northwards of £10 compared to its current 645p level, subject to the oil price staying around the $100 to $120 mark.

Brokers are conservatively predicting twelve-month price targets of £13 to £15, but other market commentators are highlighting that if that Miocene exploration goes to plan, the numbers might justify a price nearer £20.

The best bit until last

Oh, and perhaps the best bit of all for UK-based investors is that Coastal qualifies for inclusion into an equity ISA. Despite the share being quoted on AIM, its dual listing makes it eligible for the tax shelter. Now there's another good reason why you can't ignore what is the most exciting oil opportunity I know!

> Simon owns shares in Coastal Energy.