Price Target: $0.69/shReason For Update: Mar Qt’lyWhat We Know:·...

Price Target: $0.69/sh

Reason For Update: Mar Qt’ly


What We Know:

· COE produced a record 145 kbbls of oil for the Mar Q (v’s 115 kbbls for the Dec Q’08).

· Total production for the 9 months of FY’09 to date is 358 kbbls (v’s 380 kbbls for FY’08)

· Revenues were up 23% to $11.3m (v’s $9.2m).

· The Perlubie-1 oil discovery (COE 25%) added 1-2 mmbbls (gross) reserves and tested at 2,600 bopd.

· A six well Cooper Basin exploration program has been announced, commencing in late May.

· COE’s cash position is currently $91m or $0.31/sh.



What We Think:

COE produced another strong operational result in the Mar Q and it looks likely to continue for the next 6-12 moths at least based on the performance and capacity of its seven oil fields in PEL 92.

Our production and revenue forecasts for the Q were beaten by 20-30% due to improved efficiency of the Cooper Basin assets, the fields producing above the 5,000 bopd capacity expectations (currently producing at >6,000 bopd) and higher Tapis oil prices being achieved (A$78/bbl).

We have upgraded our FY’09 and FY’10 production forecasts significantly based on the Mar Q production performance. The forecast FY’09 production output is now 485 kbbls (from 416 kbbls) and the FY’10 forecast production output is now 474 kbbls (from 378 kbbls). COE’s production guidance at the start of this FY was 300 kbbls – this shows what a good year it has been for COE.

As a result of the production upgrades, our valuation has increased by $0.06/sh to $0.69/sh and forecast NPAT has increased to -$6m for FY’09 (from $-10m) and $12m in FY’10 (from $6m).

Investment Case:

COE is in great shape at the moment - production and cash are at record levels and a busy six month drilling schedule (7-8 wells) is due to commence late next month.


The stock is undervalued v’s our valuation of $0.69/sh. Our valuation of cash and proven developed reserves is $0.47/sh.


The key share price catalysts this year look likely to be Cooper Basin and Tunisian exploration drilling.

The upcoming six well Cooper Basin program should add value for COE given the >80% historical success rate on 3D seismic in PEL 92. The program will target 12 mmbbls 2P reserves (3 mmbbls net to COE) based on 3D seismic, which if successful would equate to >$0.20/sh.



COE should announce its Tunisian exploration program in the near term

A Dec Q Hammamet well is likely (COE 35%), targeting the 16 mmbbls (2P recoverable) Fuchsia prospect – success could be worth $0.20 /sh to COE.
An onshore well in the Bargou Block (COE 100%), Menzel Horr could be drilled in late CY‘09/early CY‘10. Seismic (2D) has recently been completed and if it confirms a valid structure (currently 7 mmbbls) success could be worth >$0.35/sh.