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Why Coastal Energy Shares Sank

Although we don’t believe in timing the market or panicking over market movements, we do like to keep an eye on big changes — just in case they’re material to our investing thesis.

What: Shares of oil exploration and production company Coastal Energy (TSX: CEN) plunged 10% today after its quarterly results disappointed Bay Street.

So what: The stock has rebounded in recent months on optimism over strong production growth, but today’s Q3 results — total production of 21,832 boe/d was pretty much flat over the year-ago period — are forcing Mr. Market to quickly sober up. In fact, onshore gas production fell to 1,444 boe/d from 2,172 boe/d due to extended seasonal maintenance at the Nam Phong power plant, raising plenty of operational uncertainty over the company.

Now what: Management plans on moving its rig to the Meranti field in Malaysia fairly soon, which should serve to increase production in the country in late 2013 to early 2014. “The first wells at the Kapal field were drilled and we expect first production in Malaysia very shortly,” said President and CEO Randy Bartley. “Offshore Thailand production increased slightly from year ago levels and we expect gains to offshore production once the development drilling program at Bua Ban North resumes.” So while Coastal might still be too speculative for average investors, that potential improvement, coupled with today’s big pullback, makes the stock an interesting pick for energy-savvy Fools.

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Fool contributor Brian Pacampara does not own shares of any companies mentioned.  The Motley Fool has no positions in the stocks mentioned above at this time.

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