COASTAL ENERGY COMPANY Previous Target: C$21.50
TARGET PRICE C$22.50 PER SHARE
(TSX-CEN C$17.91, AIM-CEO 1190 p) Risk Rating: ABOVE AVERAGE
APPRAISAL WELL AT SONGKHLA FINDS ADDITIONAL SAND PACKAGE
Songkhla A-10 finds 213 ft of net pay in the Oligocene. This is over twice as thick as the pay in the A-12st well, as it encountered an additional shallower sand package. Porosity was very good at 20%. The well will be tied in imminently, and we anticipate rates between 2,000 – 3,000 Bbl/d. That disclosure should come mid to late next week. It is still early of course, but we expect A-10 could recover 3 MMBbl. Additional wells will be required to determine how much farther this upper sand package extends. (page 2)
The A-10 success raises hopes for oil in the Northeast fault block. This block, immediately north of the A-10/A-12st accumulation, is quite large and seems somewhat open ended to the north. It will be tested first by the A-13 well (about to spud), and if successful, will be followed up by the A-14 appraisal location. Coastal estimates that there is 89 MMBbl of prospective resources in the Songkhla area (although not all in the Northeast fault block). (page 3)
Potential for further increases. We are still risking the potential for the prospective resource in the Songkhla area at chances of success ranging from 30% - 35%, which in turn gives risked NAV additions of $364 million ($3.00 per share). The Northeast fault block could add that much value on its own if successful, although it will likely require more than the two wells currently planned to validate the entire volumes. (page 3)
We are maintaining our BUY recommendation and increasing our 12-month target price to C$22.50 per share.
