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31 July 2018

Raising Target Price
Looking towards a busy second half
COI has made material progress at both Mahalo in the Bowen Basin and Albany in the Galilee Basin. We retain the view that the 172PJ 2P reserve booking (net) at Mahalo is only the start of the reserve conversion process for this material gas asset and that the flow results at Albany 1 provide proof of concept in the Galilee.

COI remains one of our most preferred names for East Coast gas leverage. We upgrade our price target to $0.52ps after rolling our DCF forward six months and we maintain our BUY rating.

Mahalo work program approved...
The JV (COI 40%, STO 30%, APLNG 30%) has approved a seven well program for 2H CY18. This will include three vertical wells and two dual lateral intercept wells which will test both the Castor and Pollux seams.
We estimate the net cost to be less than $5m to COI (COIended the JunQ with $11.5m in cash).
...which should see more reserve bookings...
While the exact positioning of the wells is yet to be confirmed and, thus, no expected reserve conversion target provided, they will be located further south and west of the prior pilots. Consequently, we believe these wells should, in a success case, enable further reserve bookings in early 2019....and further proof of commerciality

The use of dual ~1,500m laterals in the upcoming pilots suggests, in our view, that the JV is already starting to test development strategies for the 911km 2 block. With environmental approvals being worked in parallel we remain of the view that this should be an expedited development.
Additional drilling likely at Albany in CY18
The flow testing of a relatively meager 13m of sandstone reservoir at Albany-1 has provided a gas rate of 0.23mnscf/d. While we were frustrated that flow testing of the remaining ~100m of reservoir could not be completed with the contracted rig, we view this result as a valid proof of concept. With this in mind, it is understandable that COI is seeking to secure a larger rig to re-enter Albany-1 and drill Albany-2 given its potential (153PJ of 2C) along with the follow-up prospectivity of the block.

Debt markets opening up to CSG?

Senex Energy (SXY-ASX; A$0.41 | Buy) is currently in a trading halt pending an update on its debt funding arrangements. If this transaction yields a positive outcome it could also have positive ramifications for COI as it seeks to progress Mahalo development.