Coastal opens the taps

Thailand-focused Coastal Energy is principally involved in offshore oil exploration and production, although it also has an interest in a cash-generating onshore gas project. Recent drilling and well enhancements have increased production to over 10,000 barrels of oil equivalent per day. In addition, a busy exploration and appraisal programme provides opportunities for further substantial growth in production next year.

Coastal's production is currently centred on its Songkhla A oil field, at which production earlier this year was hit by water flooding in one of the producing wells and insufficient pumping capacity. However, drilling over the past few months has brought the number of wells up to four producing units and two other wells where water is injected into the reservoir to stimulate oil flow. This has lifted daily production to over 10,000 barrels.

A mobile oil production unit has allowed the company to speed up the commercialisation of Songkhla A - pumped crude is stored in an adjacent moored tanker before being taken away by other tankers. Coastal's management plans to drill another injection well and install larger capacity pumps to double the fluid handling capacity, so as to maintain Songkhla production at 10,000 barrels.

Once drilling on Songkhla A has been completed, the drilling rig will be moved four kilometres south to Songkhla B, probably later this month, where the company plans to drill two exploration wells to test a prospect it believes may hold as much oil as Songkhla A. If successful, Songkhla's output could be doubled. To accelerate Songkhla B's possible profitability, Coastal has already contracted a mobile offshore production unit and ordered a flowline to connect these wells back to Songkhla A. Proven and probable reserves for Songkhla A stand at 15m barrels and the company expects to release an updated reserves statement following completion of the current drilling campaign.

The attractions of Coastal's offshore prospects include their close proximity and similar drilling requirements. Thus, should the wells on Songkhla B fail, the drilling rig and mobile offshore production unit could readily be redeployed elsewhere in the portfolio. The wells are also relatively cheap to drill, with each costing around $4m (£2.4m). And Coastal has the funds in place to finance this phase of exploration and more - in October, it raised almost £20m via a share sale.

Once drilling on Songkhla B has been completed, Coastal is likely to turn its attention to Benjarong, a proven discovery with 16m barrels of proven and probable reserves where the company will drill a series of wells next spring, and which could be in production by mid-2010.

Another development offering near-term production growth is the Bua Ban field, which management believes is a considerably larger field than Songkhla. Similar to Songkhla, the Bua Ban area also offers significant potential to find more oil beyond current proven and probable reserves of 29m barrels. The company expects to begin drilling production and injection wells around the middle of 2010, with production beginning shortly thereafter. Bua Ban could produce over 6,000 barrels per day, which would help lift Coastal's total average daily production in 2010 to over 15,000 barrels.