Successes flow at Coastal Energy

Thailand-focused Coastal Energy is making excellent progress with increasing offshore oil production, at the same time as it continues to drill new discoveries.The Bua Ban North B-06 and B-08 production wells were completed in July (less than three months after the initial discovery) using electric submersible pumps (ESPs) and are producing approximately 2,000 barrels of oil per day (bopd) each. Flow rates will be restricted to these levels to optimise overall oil recovery from the formation. The crude is of a quality consistent with current production and Coastal is now completing the B-01 well.

Meanwhile, the Songkhla H-01 exploration well made a discovery that flowed 1,000 bopd and management believes it could produce more than 3,000 bopd using an ESP. Chief executive Randy Bartley commented that the well was drilled in the centre of the basin where the risk of poor sand quality is highest. "Encountering sand of this quality in the basin centre is very encouraging and opens up significant additional exploration potential," he added.

Macquarie says...

Outperform. Initial production rates from Bua Ban North are very encouraging. Coastal has five additional wells awaiting tie-in at Bua Ban North B, and nine at Bua Ban North A. We also expect the company to drill additional production wells at Bua Ban North in the autumn, putting it in a position to end the year with offshore production in the range of 20,000 bopd. The Songkhla H exploration result is also encouraging, but is likely to require further appraisal drilling to determine its ultimate impact. Our 12-month price target is 880p, based on a 'risked exploration' net asset value methodology.

Canaccord Genuity says...

Buy. Coastal has started to put the Bua Ban North B discoveries on production at rates higher than expected. These wells are capable of much higher rates with the downhole pumps; however they are being restrained to enhance ultimate recoveries. We had upper-end expectations for approximately 1,500 bopd per well, so we view this update as a very positive result. Additionally, Coastal continues with its exploration success with a discovery at Songkhla H-01, which means that a number of additional exploration targets have now been de-risked. Coastal remains our top pick and we have increased our 12-month target price from 580p to 920p. Expect 2011 EPS of 27¢ (16.7p).