COASTAL ENERGY, GOLAR LNG
IONA ENERGY, LYNDEN ENERGY,
PAINTED PONY, TECHNICAL ANALYSIS
Coastal’s stock chart is looking great after The Bua Ban North B-05 well was drilled to 7,600
feet TVD and encountered 178 feet of net pay in the Miocene objective with average porosity
of 27 per cent.
That is exceptional thickness and porosity. The analyst at brokerage firm
Canaccord Capital who covers the story estimated the well will do at least 1000 bopd.
The company’s offshore production is currently averaging 8,500 barrels per day. Onshore
production is averaging 2,000 barrels of oil equivalent per day, bringing total company
production to 10,500 boe/d.
The company continues to have increasing water cut at Songkhla, its original main field (Bua
Ban North could take over that title!) so new production is still just replacing existing declines
from other wells, but Coastal is now 6 for 7 at Bua Ban North and those assets should add
production over the coming months.
Jennings Capital has the highest target price, now at $11, and Canaccord has a $9.25 target.
RBC Capital Markets discontinued coverage, saying “In our view, Coastal needs to broaden
its portfolio to add significant catalysts and reinvigorate the investment case.”
That could mean the short 6-7 year life span of the Gulf of Thailand wells is just too much to
bother with, i.e. the company needs a large, long life asset to make it worth their while (think
TAG, Petrofrontier, Toreador) or it could be analyst speak for “We are never going to get any
corporate finance fees from these guys so let’s spend our time where we can make some
So this well is great, news and as Bua Ban gets brought onstream I should see higher
production numbers out of the company.
My only concern right now is that although the stock
chart is moving in the right direction, it lacks volume, so this is a low conviction move in the
On May 17, Morgan Stanley initiated coverage on Golar with a $34 target.
They had a
separate bullish target of $65 which could happen if:
-LNG day rates go to $120,000 a day, up from the current $85K-$90K (which is up from $30K
nine months ago).
This is the price that the Liquid Natural Gas shippers charge their clients
-Golar converts its current 3 idle LNG carriers into FSRUs (Floating Storage and
Regasification Units – basically offshore natural gas terminals) and obviously get contracts for
-China adopts natural gas as one of their main sources of fuel – it’s now only about 4%
compared to 27% in US (it’s a resource story so we must have the China angle covered).
Nothing they said about the macro LNG shipping or production situation has changed from
when I did my initial report in January, though one statistic surprised me – global LNG
shipping grew 21% in 2010. That is BIG growth.
Other than that, it’s a tight shipping market, demand for gas will outpace the shipping
industry’s ability to keep up (4% vs 2.5% growth), and almost all the production coming
onstream in the next decade – most of it from Western Australia – is already spoken for.
Remember, Golar is a yield play on LOW global gas prices. If gas prices are low, then LNG
will supplant oil as the fuel of choice and the shippers will keep busy transporting it around the
For new subscribers, the Japanese earthquake transformed the global investment
community’s opinion of LNG – they voted with their wallets, saying uranium and nuclear were
out and LNG was in.
LNG would become a much greater part of the world’s total fuel much
more quickly than before.
And being as Golar is the only US listed company with available
capacity that could take advantage of fast rising spot prices for shipping rates, the market has
bought it up.
Golar is highly levered to global LNG shipping rates – Morgan Stanley said that every
$10,000 a day change in day rates meant a $7/share change in the value of the stock.
Morgan Stanley said the $34 target price represents a 3.5% yield.
When I bought the stock it
was a 6%+ yield, and I dreamed that one day the market would take it to a 4% yield.
Part of me wants to buy this stock back, for several reasons
1.Stock chart looks good—making me have some seller’s remorse…
2.It is now the “Go-to” institutional stock for this sector.
But the market is building in a lot of future growth at this price already.
The other thing to
keep in mind is that Morgan Stanley said FIVE new contracts for FSRUs are expected to be
awarded in 2011.
FSRUs are more profitable than LNG carriers – they are already at $120,000 a day.
initial report I wrote – “Each ship will create about 30 cents a share in dividends, which at the
current 6% yield is good for $5 per share on the stock (0.3 / 0.06). A 4% yield – which is
where I think this dividend is going – would imply a stock price increase of $7.50/share. So the
market knows, or strongly believes assuming that the ship is operational on time, that an extra
30 cents a year is coming in 2012 dividends.”
At $1.20 annual dividend, the stock is now trading at 3.8% yield, so if the market is willing to
keep the yield under 4% – and I would suggest in the post-Japan-earthquake world it will – any
new FSRU contract win could theoretically cause the market to add $7.50 per share to the
I would also say that Golar, now in a “honeymoon” phase with investors, would likely
get a lot of credit for that very quickly in its stock.
COASTAL ENERGY, GOLAR LNG