Another Hit for Coastal Energy
Oh, but if it wasn’t for the credit crisis…
I like to take big positions in stocks where I see an outsized opportunity in comparison to the risks. Jump all in. I believe that the advantage that active investing has lies in the opportunity you have to scale into a name where you see such an outsized reward. It is in doing so that I have had my greatest success. It has worked for me before with such stocks as Aur Resources, Avion Gold, Mercer International, etc.
That sort of opportunity exists with Coastal Energy…
If only it wasn’t for the credit crisis.
Coastal put out a news release today that showed some excellent results.
The Bua Ban North A-05 well was drilled to a total depth of 5,650 feet TVD. The well encountered 81 feet of gross sand and 35 feet of net pay in the Miocene reservoir with 27 percent average porosity. The well tested the Miocene reservoir on the eastern flank of the Bua Ban North A field. The oil water contact in the well was seen at 3,770 feet. The results of the A-05 well add an additional 1,200 acres to the structural closure area.
The A-05 tested the far northern extents of the “North-A” structure. The following screen capture from the Jennings report put out today shows the location of the A-05 relative to other North A wells. The light blue outline delineates the expected extent of the reservoir that Coastal has discovered. You will quickly note just how much bigger the A-05 pool is compared to the other North A pools.
Coastal estimates that there is 108MMbbl of OOIP in the new pool.
Applying a 30% recovery factor to the OOIP gives us 32MMbbl of recoverable resource. The company just keeps adding resource at an incredible rate. Overall, Coastal has discovered 90+MMbbl of recoverable resource this year. This for a company that had 27MMbbl of proven and probable reserves at the end of 2010.
First Energy raised their estimate of proved and probable reserves for Coastal to an expected 82MMbbl by the end of the year. They arrived at this number with the addition of 10MMbbl from the new A-05 reservoir, which is conservative given the overall size of the resource. First Energy raised their risked NAV for the company to $25 per share. Jennings has a NAV of $21 for the company.
Based on company specifics alone, each well makes the investment more and more of a no-brainer. If we take First Energy’s estimate Coastal is trading at about $12/bbl of reserves. This is cheap for any oil company, but it is very cheap for a company that is growing at the rate that Coastal is.
So I continue to own a large position in the stock. Its just so unfortunate that Europe makes owning anything a hair raising experience. If it wasn’t for Europe my position would be much larger.