Coastal Energy Enters RSC Deal with Petronas Offshore Malaysia

Coastal Energy Company has entered into a Small Field Risk Service Contract ("RSC") with Petroliam Nasional Berhad for the development and production of petroleum from the Kapal, Banang and Meranti cluster of small fields (the "KBM Cluster") offshore Peninsular Malaysia.

Coastal (with 100% equity interest under the Small Field RSC) will be the operator of the KBM Cluster fields. In accordance with the Small Field RSC, Coastal is currently finalising an arrangement for a Malaysian company to participate in the Small Field RSC for 30-40% equity interest.

Coastal will provide the upfront development capital, undertaking the development drilling and production of the KBM Cluster. PETRONAS will remain the owner of the project. Subject to its performance, Coastal will recover its capital and operating expenditures and will be paid a remuneration fee, which will be adjusted by key performance indicators ("KPIs") based on the timely implementation of the agreed field development plan and budget.

Planned Development

First oil from the Kapal field is scheduled within one year followed by production from the Banang field a year later. Coastal will develop the fields using Mobile Offshore Production Units (MOPUs) and Floating Storage and Offloading Tankers (FSOs) similar to the method used to develop its assets offshore Thailand. A total of seventeen wells will be drilled with ten planned at Kapal, four at Banang and three at Meranti.

The KBM Cluster

The KBM Cluster fields are located within 20 kilometers of each other in a water depth of 60 meters. The main oil reservoirs are Miocene aged sandstones ranging in depths from 3800 feet to 7800 feet.

Randy Bartley, President & Chief Executive Officer, commented:

"We are proud to announce this new contract with PETRONAS. The KBM Cluster has similar characteristics to our existing fields offshore Thailand and we are confident that our experience and expertise in developing smaller fields quickly and efficiently will prove valuable. There is also appraisal and step-out drilling potential at the KBM Cluster which we plan to exploit during the development program. We expect that this project will generate a rate of return approaching that of our existing assets."

"This is a significant step for Coastal as we begin to utilize the cash flow from our existing production to diversify our portfolio. We are happy to have PETRONAS as a partner and are looking forward to working with them on this and potential future projects."

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