Coastal Energy Announces 2008 Year End Financial Results



    
    /THIS NEWS RELEASE IS NOT FOR DISSEMINATION IN THE UNITED STATES
    OR THROUGH UNITED STATES NEWSWIRE SERVICES/

    AIM: CEO
    TSX-V: CEN
    

    HOUSTON, April 27 /CNW/ - Coastal Energy Company ("the Company" or
"Coastal Energy") (TSX-V: CEN, AIM: CEO), an independent exploration and
production company with assets in Southeast Asia, announces the audited
financial results for the year ended December 31, 2008. The functional and
reporting currency of the Company is the United States dollar.

    
    Financial Highlights

    -   Revenue of $4,098,000. Offshore production commenced in Q4 2008.

    -   $12,904,000 of earnings from Coastal's 36.1% investment in APICO LLC,
        whose primary asset is the Phu Horm gas field (FY 2007: $7,679,000).
        Coastal received cash distributions totaling $16,619,000 from APICO
        in 2008.

    -   Net loss from continuing operations of $2,561,000 or $0.03 per share
        (FY 2007 loss from continuing operations: $7,083,000 or $0.10 per
        share)

    -   Total assets increased to $258.4 million at December 31, 2008 from
        $157.7 million at December 31, 2007

    Operational Highlights

    -   Offshore production from the Company's Songkhla field commenced in
        November 2008. Production averaged approximately 3,000 bopd in
        Q4 2008. Current offshore production from Songkhla is approximately
        10,000 bopd.

    -   The Phu Horm gas field, in which the Company has a net 12.6% indirect
        interest, was producing approximately 83 mmcf/d of gas for the year
        ended December 31, 2008. Phu Horm is currently producing in excess of
        100 mmcf/d.

    -   118% increase in Offshore 1P (proven) Reserves to 18.1 mmbbl from
        8.3 mmbbl

    -   55% increase in Offshore 2P (proven + probable) Reserves to
        41.5 mmbbl from 26.7 mmbbl

    -   39% increase in Total 1P (proven) Reserves to 26.6 mmboe from
        19.1 mmboe

    -   37% increase in Total 2P (proven + probable) Reserves to 62.2 mmboe
        from 45.5 mmboe
    

    Randy Bartley, Chief Executive Officer of Coastal Energy commented:

    "The Company made substantial progress in its development in 2008. We
achieved our stated goal of first production from the Songkhla field. Coastal
is now producing approximately 10,000 bopd from Songkhla, bringing combined
onshore and offshore production to 12,000 boepd. The commencement of offshore
production has allowed the Company to begin generating positive free cash
flow. This has helped strengthen our working capital position. We also saw a
significant increase in our proven and probable reserves as a result of our Q4
2008 drilling program.
    "As we move further into 2009 we remain focused on our stated goal of
continuing to develop our Gulf of Thailand concessions. In spite of an
increasingly difficult macroeconomic environment, the Company has been able to
make remarkable progress in 2008 and in the start of 2009. Its goals have been
met despite the challenges with which it has been presented. The Board has
been strongly supportive of the way the management and the operations team
have been able to reach targets, while keeping the needed flexibility to face
a changing environment. With our continued focus and drive, we are confident
2009 will bring more successes and pave the way for further growth.
    "I would also like to thank Mr. John J. Murphy for his service to the
Company over the past two and one-half years. His advice and experience have
been valuable to the Company as it has progressed in its development."

    Directorate Change

    The Company announces that Mr. John J. Murphy has decided to retire from
the Board of Directors. Mr. Murphy has been a Director since 2006. Mr. Murphy
has decided to reduce his business obligations to spend more time with his
family and to travel.

    Randy Bartley, President and Chief Executive Officer of the Company and a
member of the Society of Petroleum Engineering and Jerry Moon, Vice President,
Technical & Business Development, a member of the American Association of
Petroleum Geologists, a Licensed Professional Geoscientist and a Certified
Petroleum Geologist in the state of Texas, have reviewed the contents of this
announcement.

    
    Notes to Editors

    -   Coastal Energy is an oil and gas exploration and production company
        with core assets onshore and offshore Thailand

    -   The Company specialises in identifying and developing under-exploited
        or "orphaned" assets. Management has proven experience at identifying
        and unlocking value from overlooked, abandoned, low risk assets with
        proven hydrocarbon potential

    -   The Company has current production of approximately 10,000 barrels of
        oil per day and 12.6 mmcf/d of gas.

    -   Production growth over the next 12 - 18 months is expected to be
        substantial. Proven and probable reserves are 62.2 million barrels
        oil equivalent in the Company's reserve report prepared by Huddleston
        & Co. dated 14 April, 2009 (effective date of 31 December, 2008)(*)

    -   The Company's current assets include:

        -  Offshore Thailand

           -  100% of block G5/43 - two oil fields currently under
              development with several other similar appraisal and
              exploration opportunities. Current production from the Songkhla
              field is approximately 10,000 bbl/d.

           -  100% of block G5/50 - within the boundaries of block G5/43 in
              the Ko Kra basin

        -  Onshore Thailand

           -  12.6% net interest in the Phu Horm gas field, which has average
              daily production of 100 mmcf/d as of March 31, 2009.
    

    Additional information may be found on the Company's website,
www.CoastalEnergy.com or may be found in documents filed on SEDAR,
www.sedar.com.

    This statement contains 'forward-looking statements' as defined by the
applicable securities legislation. Statements relating to current and future
drilling results, existence and recoverability of potential hydrocarbon
reserves, production amounts or revenues, forward capital expenditures,
operation costs, oil and gas price forecasts and similar matters are based on
current data and information and should be viewed as forward-looking
statements. Such statements are not guarantees of future results and are
subject to risks and uncertainties beyond Coastal Energy's control. Actual
results may differ substantially from the forward-looking statements.

    
    (*) Per barrel of oil equivalent ("boe") amounts have been calculated
        using a conversion rate of six thousand cubic feet of natural gas to
        one barrel of oil equivalent (6:1). The term boe may be misleading,
        particularly if used in isolation. A boe conversion ratio of 6mcf to
        1bbl of oil is based upon an energy equivalency conversion method
        primarily applicable at the burner tip and does not represent a value
        equivalency at the wellhead.

    These securities have not been registered under United States Securities
Act of 1933 (the "US Securities Act") or the securities laws of any state and
may not be offered or sold in the United States or to US persons (as defined
in Regulation S under the US Securities Act) unless an exemption from
registration is available.

           "The TSX Venture Exchange does not accept responsibility
                for the adequacy or accuracy of this release"


                                ANNUAL REPORT
                               COASTAL ENERGY
                              December 31, 2008
    

    President's Report to the Shareholders

    Coastal Energy made great progress as a company during the fourth quarter
of 2008 and early months of 2009. First oil production from the Songkhla field
was a defining moment for the Company. We are now producing approximately
10,000 barrels of oil per day in the Gulf of Thailand, which is above the
level we expected following early production testing. This brings Coastal's
total daily production, including its share of onshore gas from Phu Horm, to
approximately 12,000 barrels of oil equivalent per day.
    As we move further into 2009, we remain focused on our stated goal of
continuing to develop our concessions in the Gulf of Thailand. Our technical
team is highly encouraged by the results of the Q4 '08 Songkhla drilling
program and believes that numerous exploration and development opportunities
exist beyond Songkhla and Bua Ban. Given the uncertainty in the capital
markets and volatility in commodity prices, we plan to approach any further
development in a disciplined manner. As of today, Coastal has no commitments
for further development capital expenditures. However, we do expect to begin
committing capital to further Songkhla and Bua Ban development later this
year.
    The Phu Horm gas field onshore Thailand is currently producing
approximately 83 mmcf/d (10.4 mmcf/d net to Coastal). Two wells are planned
this year on the exploration blocks which are adjacent to Phu Horm. Both wells
offer the potential to add resources with minimal geological risk.
    In the first quarter of 2009, we raised a total of $18 million to bolster
our working capital. In challenging capital markets, this has been achieved
with minimal dilution to our current shareholder base.
    In spite of an increasingly difficult macroeconomic environment, the
Company has been able to make remarkable progress in 2008 and in the start of
2009. Its goals have been met despite the challenges with which it has been
presented. The Board has been strongly supportive of the way the management
and the operations team have been able to reach targets, while keeping the
needed flexibility to face a changing environment. With our continued focus
and drive, we are confident 2009 will bring more successes and pave the way
for further growth.

    
    On behalf of the Board of Directors

    Randy L. Bartley

    President and Chief Executive Officer
    April 23, 2009

    COASTAL ENERGY COMPANY

    Years ended December 31, 2008 and 2007
    (All tabular amounts are expressed in US$000's unless otherwise stated
    except share and per share amounts)
    -------------------------------------------------------------------------
    

    The following is Management's Discussion and Analysis ("MD&A") of the
results and financial condition of Coastal Energy Company ("Coastal" or the
"Company"). This MD&A, dated April 23, 2009, should be read in conjunction
with the accompanying audited consolidated financial statements for the years
ended December 31, 2008 and 2007 and related notes thereto. Additional
information related to the Company is available on SEDAR at www.sedar.com.

    Overview

    The Company was incorporated in the Cayman Islands under the Companies
Law of the Cayman Islands on May 26, 2004. The Company is engaged in the
acquisition and exploration of petroleum and natural gas properties. The
functional and reporting currency of the Company and its subsidiaries is the
US dollar. The Company's trading symbols are "CEN" on the TSX-V and "CEO" on
the AIM exchange.
    The Company's oil and gas properties and assets consists of the following
ownerships interests in petroleum concessions awarded by the Kingdom of
Thailand:

    
    Petroleum Concession                                             Coastal
    -------------------------------------------------------------------------
    Gulf of Thailand
      Block G5/43                                                      100.0%
      Block G5/50 (within the boundaries of Block G5/43)               100.0%

    Onshore Thailand (via the Company's 36.1% ownership of Apico LLC
     ("Apico"))
      Blocks EU-1 and E-5N containing the Phu Horm gas field            12.6%
      Block L15/43 (surrounding the Phu Horm gas field)                 36.1%
      Block L27/43 (southeast of the Phu Horm gas field)                36.1%
      Block L13/48 (immediately east of the Phu Horm gas field)         21.7%

    Fourth Quarter 2008 Highlights

    -   On November 3, 2008, the Company announced the successful flow test
        results of the Songkhla A-01 well. The Songkhla A-01 well was drilled
        to a total measured depth of 9,025 feet (2,750 meters) and logged
        approximately 125 feet (41 meters) of net pay with 20% porosity in
        the Lower Oligocene primary reservoir. The well produced in excess of
        4,500 barrels of oil per day with no water production using an
        Electric Submersible Pump ("ESP").

    -   On November 12, 2008, the Company announced that it had successfully
        completed drilling the Songkhla A-03 well. The Songkhla A-03 well was
        drilled to a total measured depth of 9,500 feet (2,895 meters) and
        logged approximately 110 feet (34 meters) of net pay with 18%
        porosity in the Lower Oligocene primary reservoir. The well came in
        approximately 47 feet high compared to the A-01 well. After further
        evaluation, the Company announced on December 15, 2008 that the A-03
        interval contains 152 feet (46 meters) of net pay with 20% porosity.

    -   On November 13, 2008, the Company announced that it received
        government approval of its Environmental Impact Assessment ("EIA")
        for the 75 square kilometre Songkhla production area in the Gulf of
        Thailand.

    -   On December 15, 2008, the Company announced that it completed the
        Songkhla A-03 well and it was producing 5,000 barrels of oil per day
        with no water using an Electric Submersible Pump ("ESP").

    -   On December 15, 2008, the Company also announced that it completed
        the Songkhla A-07 well. The A-07 well was drilled to a total measured
        depth of approximately 11,385 feet (3,470 meters) and logged
        approximately 136 feet (41 meters) of net pay with 16.5% porosity in
        the deeper Eocene reservoir. The entire interval has been tested and
        produced approximately 1,100 barrels of oil per day with
        approximately 1,100 barrels of water per day. Prior to the rig
        demobilization, remedial completion work was performed on the A-07
        well to isolate the water production and to fully evaluate the well.

    Other 2008 Highlights

    -   On January 8, 2008, the Company completed a public offering of
        16,445,000 common shares (including the over-allotment of 2,145,000
        common shares) of the Company, at a price of $3.50 (Cdn $3.50) per
        common share, raising gross proceeds of $57.6 million
        (Cdn $57.6 million). Proceeds of this offering, net of issuance costs
        of $3.1 million were $54.5 million.

    -   On February 26, 2008, the Company acquired a 24,000 ton vessel for
        $8 million to be refurbished and put into service as a floating
        storage and off-loading unit in connection with the development of
        the Company's Gulf of Thailand properties.

    -   On June 6, 2008, the Company announced it had received Thai
        Government approval on the Production Area Application for the
        development of its Songkhla field in the Gulf of Thailand. The
        Approval covers an extended area of 75 square km which includes not
        only the Songkhla field, but numerous surrounding satellite
        structures. The extended production area is significant because it
        enables the Company to fully exploit the prospects without the need
        to apply for additional Government approvals.

    -   The Company has reported $12.9 million as its share of earnings of
        significantly influenced investee, net of taxes. This represents
        $13.96 million (its 36.1% of Apico's audited net income of
        $38.65 million) less $1.06 million for amortization of the Company's
        excess basis in Apico (see Note 7 to the Consolidated Financial
        Statements.)

    -   The Phu Horm gas field, in which the Company has a net 12.6% indirect
        interest, had an average daily production of 83 mmcf/d for the year
        ended December 31, 2008.
    

    Forward Looking Statements

    Certain information included in this discussion may constitute
forward-looking statements. Forward looking statements are based on current
expectations, estimates, and projections that involve various risks and
uncertainties. These risks and uncertainties could cause or contribute to
actual results that are materially different from those expressed or implied.

    Non-GAAP Measures

    This report contains financial terms that are not considered measures
under Canadian generally accepted accounting principles ("GAAP"), such as
funds flow from operations, funds flow per share, EBITDA, net debt and
operating netback. These measures are commonly utilized in the oil and gas
industry and are considered informative for management and shareholders.
Specifically, funds flow from operations and funds flow per share reflect cash
generated from operating activities before changes in non-cash working
capital. Management considers funds flow from operations and funds flow per
share important as they help evaluate performance and demonstrate the
Company's ability to generate sufficient cash to fund future growth
opportunities and repay debt. EBITDA is defined as earnings before interest,
taxes, depreciation, amortization and earnings from significantly influenced
investee adjusted for non-cash items such as unrealized gains and losses on
risk management contracts, unrealized foreign exchange gains or losses and
stock-based compensation. Net debt includes short term and revolving credit
facilities less cash and cash equivalents and restricted cash, and is used to
evaluate the Company's financial leverage. Profitability relative to commodity
prices per unit of production is demonstrated by an operating netback.
    Funds flow from operations, funds flow per share, EBITDA, net debt and
operating netbacks are not defined by GAAP, and consequently are referred to
as non-GAAP measures. Accordingly, these amounts may not be compatible to
those reported by other companies where similar terminology is used, nor
should they be viewed as an alternative to cash flow from operations, net
income or other measures of financial performance calculated in accordance
with GAAP.

    Oil & Gas Reserves

    The Company's reserves were evaluated by Huddleston & Co., Inc. effective
December 31, 2008 and are all in Thailand. Selected data from their report
follows. Their report, dated April 14, 2009, is incorporated in our 2008
Annual Information Form ("AIF") which is available on SEDAR at www.sedar.com.
Natural gas is converted to equivalent barrels ("BOE") at the energy
equivalent conversion rate of six thousand cubic feet (6mcf) to one barrel
("1bbl") of crude oil, reflecting the approximate relative energy content.
    The following consolidated reserve figures, before royalties for 2008 and
2007 reflect Coastal Energy's 100% interest in its Gulf of Thailand
concessions (Block G5/43 and G5/50) and 36.1% interest in APICO as if the
Company directly owned the onshore properties.

    
                            December 31, 2008          December 31, 2007
    Oil and Gas             Oil      Gas      BOE      Oil      Gas      BOE
     Reserves (Gross)    (Mbbls)   (MMcf)  (Mbbls)  (Mbbls)   (MMcf)  (Mbbls)
    -------------------------------------------------------------------------
    Proved Reserves
      Gulf of Thailand
       developed
       producing          6,574             6,574        -        -        -
      Gulf of Thailand
       developed
       non-producing        357        -      357        -        -        -
      Gulf of Thailand
       undeveloped       11,154        -   11,154    8,332        -    8,332
                       ------------------------------------------------------
      Subtotal Proved
       Gulf of Thailand  18,085        -   18,085    8.332        -    8,332
                       ------------------------------------------------------

      Onshore developed
       producing            264   49,468    8,509      311   56,893    9,793
      Onshore
       undeveloped            -        -        -       30    5,595      963
                       ------------------------------------------------------
      Subtotal Proved
       Onshore              264   49,468    8,509      341   62,488   10,756
    -------------------------------------------------------------------------
    Total Proved         18,349   49,468   26,594    8,673   62,488   19,088
    -------------------------------------------------------------------------

    Probable Reserves
      Gulf of Thailand   23,371        -   23,371   18,368        -   18,368
      Onshore               380   71,088   12,228      258   47,104    8,109
    -------------------------------------------------------------------------
    Total Probable       23,751   71,088   35,599   18,626   47,104   26,477
    -------------------------------------------------------------------------

    Proved Plus
     Probable Reserves
      Gulf of Thailand   41,456        -   41,456   26,700        -   26,700
      Onshore               644  120,556   20,737      599  109,592   18,865
    -------------------------------------------------------------------------
    Total Proved
     Plus Probable       42,100  120,556   62,193   27,299  109,592   45,565
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The following table summarizes the net present value of future revenues
discounted at 10% before income taxes:

    US $ millions based on forecasted prices at
     December 31,                                           2008        2007
    -------------------------------------------------------------------------
    Proved Reserves
      Gulf of Thailand developed producing                $195.8          $-
      Gulf of Thailand developed non-producing               9.2           -
      Gulf of Thailand undeveloped                         287.9       210.3
                                                     ------------------------
      Subtotal Proved Gulf of Thailand                     492.9       210.3
                                                     ------------------------

      Onshore developed producing                          153.9       154.4
      Onshore undeveloped                                      -         4.3
                                                     ------------------------
      Subtotal Proved Onshore                              153.9       158.7
    -------------------------------------------------------------------------
    Total Proved                                          $646.8      $369.0
    -------------------------------------------------------------------------

    Probable Reserves
      Gulf of Thailand                                     680.6       792.5
      Onshore                                              110.9        41.4
    -------------------------------------------------------------------------
    Total Probable                                         791.5       833.9
    -------------------------------------------------------------------------

    Proved Plus Probable
      Gulf of Thailand                                   1,173.5     1,002.8
      Onshore                                              264.8       200.1
    -------------------------------------------------------------------------
    Total Proved Plus Probable                          $1,438.3    $1,202.9
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The forecasted prices used by Huddleston & Co., Inc. in their evaluation
for December 31, 2008 and 2007 were taken from the Gilbert Lausten Jung
("GLJ") Petroleum Consultants website (www.glja.com.) GLJ projected prices
through 2018, and Huddleston & Co. Inc. then applied a 2% per year escalation
for the life of the properties. Forecasted prices as at December 31, 2008 and
2007 are as follows:


                As at December 31, 2008           As at December 31, 2007
                Oil  Condensate        Gas        Oil  Condensate        Gas
    Year     ($/bbl)     ($/bbl)    ($/Mcf)    ($/bbl)     ($/bbl)    ($/Mcf)
    -------------------------------------------------------------------------
    2008        n/a         n/a        n/a      95.85       85.21      6.930
    2009      44.93       45.64      5.040      91.85       81.40      6.600
    2010      55.43       55.65      5.930      87.85       77.59      6.270
    2011      61.43       61.36      6.440      85.85       75.68      6.100
    2012      72.43       71.85      6.570      85.85       75.68      6.100
    2013      79.44       78.53      7.100      85.85       75.68      6.100
    2014      81.28       80.28      7.230      85.85       75.68      5.440
    2015      83.16       82.07      7.380      85.85       75.68      5.440
    2016      85.07       83.89      7.380      85.87       75.70      5.440
    2017      87.02       85.75      7.520      87.51       77.27      5.560
    2018      89.02       87.66      7.670          -       78.04      5.620
    thereafter  2.0%        2.0%       2.0%         -         2.0%       2.0%
    -------------------------------------------------------------------------



    Oil & Gas Properties

                                            Thailand     Gulf of
    Summary of Oil & Gas Properties          Onshore    Thailand      Totals
    -------------------------------------------------------------------------
    Balance, December 31, 2006                44,046      66,367     110,413
    Additions during the period:
      Exploration & development                1,463       9,320      10,783
      Equity earnings in Apico                 9,212           -       9,212
      Amortization of excess basis in Apico   (1,533)          -      (1,533)

    -------------------------------------------------------------------------
    Balance, December 31, 2007                53,188      75,687     128,875
    -------------------------------------------------------------------------
    Additions during the period:
      Exploration & development                  903       76,411     77,314
      Equity earnings in Apico, net
       of distributions                       (2,656)           -     (2,656)
      Amortization                            (1,059)      (1,655)    (2,714)

    -------------------------------------------------------------------------
    Balance, December 31, 2008                50,376      150,443    200,819
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    (a) Gulf of Thailand Properties

    The Company maintains a 100% working interest in Blocks G5/43 and G5/50
(the "Blocks") in the Gulf of Thailand. The current combined area of the
Blocks is approximately 9,049 square kilometres and average water depths are
approximately 70 feet. Block G5/50 contains approximately 554 square
kilometres of acreage within the boundaries of Block G5/43.
    The Company drilled three wells (two development and one exploration) on
the Songkhla field of Block G5/43 in the fourth quarter of 2008. The Songkhla
A-01 and A-03 development wells both encountered oil in the Lower Oligocene
primary reservoir with net pay zones of 126 feet and 152 feet, respectively,
each with 20% porosity. The wells were completed in Q4 2008 and production
began in late February 2009. The Songkhla A-07 exploration well was also
drilled in Q4 2008. The well encountered oil in the Eocene reservoir with a
net pay zone of 136 feet off of the Songkhla Main structure. The A-07 well
commenced production in mid April 2009 and is producing approximately 600
bbl/d providing a combined daily production of approximately 10,000 bbl/d as
of the date of this report.
    The Company has received approval of its Production Area Application
("PAA") and Environmental Impact Assessment ("EIA") for the Songkhla field,
which will allow it to proceed developing numerous satellite structures which
have been identified within the 75 square kilometre area on Songkhla without
further government approval. The PAA and EIA cover the Songkhla Main field as
well as numerous satellite structures. The Songkhla field was discovered in
1989 and originally tested 1,500 barrels of production per day from the
Songkhla No.1 well. As of December 31, 2008, Songkhla Main has proved and
probable ("2P") reserves of approximately 19.7 million barrels ("mmbbls").
    In August 2005 three successful wells were drilled by the Company on the
Bua Ban oil field ("Bua Ban"). The three well program encountered the Lower
Oligocene reservoir with estimated net pay ranging from 66-77 feet and a
confirmed oil column of 577-724 feet. The Company has received approval of its
Production Area Application for the Bua Ban field. The Bua Ban PAA covers an
area of 282 square kilometres, which includes the Bua Ban field and numerous
satellite structures. As of December 31, 2008, Bua Ban has 2P oil reserves of
21.8 mmbbls.
    Under the terms of the Concession, the Company relinquished approximately
8,615 square kilometers of Block G5/43 back to the Kingdom of Thailand in July
2007. Following this relinquishment the Company had approximately 8,495 square
kilometers of remaining acreage on Block G5/43. Company management used
available seismic and technical data to determine the less prospective acreage
which was relinquished. As a result, under full cost accounting, the Company
incurred no financial impact related to this relinquishment. At December 31,
2008, total Gulf of Thailand (including the Songkhla and Bua Ban fields) 2P
reserves are 41.5 mmbbls.

    (b) Thailand Onshore

    The Thailand onshore interests are held indirectly through the Company's
equity investment in Apico. Apico is considered a significantly influenced
investee. Apico's petroleum concessions are located in the Khorat Plateau in
north eastern Thailand. Apico's results of operations for the years ended
December 31 and its financial position are as follows:

    
    Apico Results for the year ended December 31,           2008        2007
    -------------------------------------------------------------------------
    Total revenue                                        $80,313     $60,195
    Total expenses                                        14,231      17,940
    Income tax expense                                    27,443      16,757
    -------------------------------------------------------------------------
      Net Income                                         $38,639     $25,498
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Apico Balance Sheet as of December 31,                  2008        2007
    -------------------------------------------------------------------------
    Current assets                                       $19,823     $36,414
    Property, plant and equipment                        105,882      89,884
    Other assets                                           2,743       1,981
    -------------------------------------------------------------------------
    Total assets                                        $128,448    $128,279
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Current liabilities                                  $29,240     $26,691
    Non-current liabilities                                5,052       2,571
    Members equity                                        94,156      99,017
    -------------------------------------------------------------------------
    Total liabilities and equity                        $128,448    $128,279
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Coastal holds a net working interest of 12.6% in Blocks EU-1 and E-5N
onshore Thailand through its 36.1% equity investment in Apico, LLC, which
holds a 35% working interest in the Blocks. The other partners in the Blocks
include Hess Corporation (Operator - 35%), PTT Exploration & Production (20%)
and Exxon Mobil Corp. (10%). Blocks EU-1 and E-5N contain the Phu Horm gas
field. Production at Phu Horm commenced on November 30, 2006 to supply the Nam
Phong power plant with over 500 billion cubic feet of gas, plus condensate,
under a 15 year Gas Sales Agreement with PTT Public Company Limited. During
the year, the four wells at Phu Horm had average aggregate production rates of
approximately 83 mmcf/day, delivered to Nam Phong. The field was also
producing in excess of 430 bbls of condensate per day. As of December 31,
2008, Phu Horm has 2P gas reserves of 120.6 billion cubic feet ("bcf") and 644
mbls of oil net to Coastal (before royalties).
    Three development wells were drilled on the Phu Horm field during 2007,
PH-6, PH-7, and PH-10. The PH-10 well was completed in September 2007 and
commenced production at 10 mmcf/day.
    Coastal also holds a net 36.1% working interest in Block L27/43 (operated
by Apico), which is located southeast of the L15/43 concession. The Dong Mun 3
("DM3") appraisal well was spudded on November 8, 2007. The well encountered
numerous gas shows in the Jurassic, Triassic and Permian sections, however, no
tests were conducted due to the lack of suitable testing equipment. The Phu
Kheng well has been approved for drilling in mid 2009 to test shallower Dong
Mun shows in an optimum structural position. The appraisal well offers the
opportunity to add reserves in close proximity to Phu Horm and Nam Phong
infrastructure.
    Coastal holds a net 21.7% working interest in Block L13/48 (operated by
Apico), which is located 40km east of the Phu Horm gas field. The L13
concession contains holds the Si That discovery which tested gas in both the
Si That 1 & 2 wells. Si That offers an opportunity to add significant
resources within a known gas basin. The Si That well is planned to be drilled
in late 2009.
    The Company has a net 36.1% working interest in Block L15/43 (operated by
Apico), which surrounds the Phu Horm gas field.

    
    Summary of Annual Results

    Years ended December 31,                    2008        2007        2006
    -------------------------------------------------------------------------
                                                      Restated(a)
    Revenue, net                              $3,884          $-          $-

    Expenses and other                        18,683      12,900       4,425
    Share of (earnings) loss of Apico, LLC   (12,904)     (7,679)       (371)
    Income taxes                                 666       1,862           -
    -------------------------------------------------------------------------
      Net loss from continuing operations     (2,561)     (7,083)     (4,054)
      Net loss from discontinued operations        -      (2,012)          -
    -------------------------------------------------------------------------
        Net loss                             $(2,561)    $(9,095)    $(4,054)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Basic and diluted loss per share
     from continuing operations               $(0.03)     $(0.10)     $(0.08)
    Basic and diluted loss per share from
     discontinued operations                       -       (0.02)          -
    -------------------------------------------------------------------------
        Basic and diluted loss per share      $(0.03)     $(0.12)     $(0.08)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Working capital (deficit)                (43,232)        914      14,020

    Capital expenditures                     103,982      21,945           9

    Total assets                             258,463     157,654     132,064

    Common shares outstanding,
     end of year                          93,630,720  76,983,220  76,858,220
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (a) All 2007 financial information in this MD&A has been restated as
        described below ("Restatement of Financial Statements") and as
        described in Note 4 of the 2008 Consolidated Financial Statements.


    The following tables are analysis of the line items in the Company's
Consolidated Statements of Operations and Comprehensive Loss

    Revenue and
     Production        3 months ended December 31,   Years ended December 31,
                           2008     2007   Change     2008     2007   Change
    -------------------------------------------------------------------------
    Revenue              $4,098        -            $4,098        -

    Average Daily
     Crude Oil
     Production Medium
     sweet oil (bbls)     3,012        -             3,012        -

    Realized price
     per bbl ($/bbl)     $28.63        -            $28.63        -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    During Q4 2008, the Company achieved first production from its Gulf of
Thailand assets and began producing from Songkhla A-01, A-03 and A-07. The
average daily crude oil production is based on 57 days of production in Q4
2008. The Company entered into short term spot price contracts where the
Company was providing its crude oil at a discounted price to Dubai crude. This
discount took into account the short-term nature of the contracts, payment
terms and the relative low volume delivered via the use of smaller tankers
used during this production period.

    
    Royalties          3 months ended December 31,   Years ended December 31,
                           2008     2007   Change     2008     2007   Change
    -------------------------------------------------------------------------
    Royalties               214        -               214        -

    $ per bbl              1.49        -              1.49        -

    Royalties as a
     percent of revenue     5.2%       -               5.2%       -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Royalties on the Gulf of Thailand assets are paid to the Kingdom of
Thailand as a percentage of production based on a sliding scale tied to
monthly production.

    Production
     Expenses          3 months ended December 31,   Years ended December 31,
                           2008     2007   Change     2008     2007   Change
    -------------------------------------------------------------------------
    Production expenses   1,597        -        -    1,597        -        -

    $ per bbl             11.10        -        -    11.10        -        -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    During Q4 2008, the Company achieved first production in the Gulf of
Thailand. The initial production during this period took place utilizing the
drilling rig as the production platform; and all costs incurred related to
drilling were capitalized. Therefore the production expenses do not reflect
the cost of a mobile offshore production unit ("MOPU") which results in lower
aggregate costs. In 2009, the Company expects significantly increased
production to more than offset increased production expenses resulting in a
lower cost per bbl in 2009.

    
    Gain (loss)
     on Derivative     3 months ended December 31,   Years ended December 31,
                           2008     2007   Change     2008     2007   Change
    -------------------------------------------------------------------------
    Unrealized gain
     (loss) on
     mark-to-market       1,983     (183)  1183.6%   2,015   (1,166)   272.8%
    Realized gains          432        -        -      432        -        -
    -------------------------------------------------------------------------

    Gain (loss) on
     Derivative           2,415     (183)  1419.7%   2,447   (1,166)   309.9%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    As a requirement of the Company's revolving debt facilities, the Company
entered into a derivative hedging agreement with an affiliate of SMBC under
which the Company has the right to sell 4,000 metric tons per month (up to a
total of 96,000 metric tons) of Singapore fuel oil at a price of $290.00 per
metric ton starting July 1, 2007 and expiring June 30, 2009. The Company paid
$1.2 million for this option. The Company adjusts the fair value of this
agreement (mark to market) every quarter with the changes in fair value
recognized in net earnings. As a result of declining commodity prices, the
Company realized cash-settled gains on this instrument in Q4 2008.

    
    General and
     Administrative
     Expenses          3 months ended December 31,   Years ended December 31,
                           2008     2007   Change     2008     2007   Change
    -------------------------------------------------------------------------
    Salaries and
     benefits             2,685    1,626     65.1%   7,722    3,689    109.3%
    Professional fees       503      337     49.3%   1,783    1,080     65.1%
    Office and general      716      224    219.6%   1,787    1,192     49.9%
    Travel and
     entertainment           96      336    -71.4%     996      598     66.6%
    Regulatory and
     transfer fees          114       14    714.3%     536      378     41.8%
    -------------------------------------------------------------------------

    Total general and
     administrative
     expenses             4,114    2,537     62.2%  12,824    6,937     84.9%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    In general, the 2008 increase over 2007 is attributable to the growth and
increased activities of the Company. The largest driver of general and
administrative expenses is personnel costs. Included in the salaries and
benefits for 2008 and 2007 is non-cash, stock based compensation of $1.747
million and $0.811 million, respectively. In addition, the Company increased
its headcount during 2008 in anticipation of drilling and first production. At
December 31, 2008 and 2007, the Company had 32 and 24 full-time employees,
respectively; and 24 and 4 full time contractors, respectively.

    
    Foreign Exchange
     Loss              3 months ended December 31,   Years ended December 31,
                           2008     2007   Change     2008     2007   Change
    -------------------------------------------------------------------------
    Net effect of cash
     held in foreign
     currencies             114        9   1166.6%      97       42      1.3%
    Unrealized (gain)
     loss on Thai tax
     liability             (718)     387   -285.5%    (751)   1,744   -143.1%
    Realized (gain) loss  1,424      (95)  1598.9%   4,523       13    346.9%
    -------------------------------------------------------------------------

    Total foreign
     exchange loss          820      301    172.4%   3,869    1,799    115.1%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    The foreign exchange gain (loss) is a result of the Company carrying out
transactions and maintaining certain assets and liabilities in currencies
other than the US Dollar, including the Canadian Dollar, the British Pound,
the Euro and the Thai Baht. On September 25, 2006, the Company acquired all of
the issued and outstanding shares of NuCoastal (Thailand) Limited in a
transaction accounted for as a reverse takeover ("RTO"). As part of this RTO,
the purchase price allocation included the establishment of a future income
tax liability on assets located in Thailand. This liability relates to
Thailand and is denominated in Thai Baht. Every quarter it is re-valued and
the corresponding gain/loss is recognized in net earnings.

    
    Interest Expense   3 months ended December 31,   Years ended December 31,
                           2008     2007   Change     2008     2007   Change
    -------------------------------------------------------------------------
    Interest Expense        844      649     30.0%   2,146    1,138     88.6%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Interest expense includes interest on the Company's revolving debt
facilities and amounts due to shareholder. Interest expense was higher in 2008
as the Company had higher balances on the revolving debt facilities ($44.0
million vs. $25.0 million at year-end 2008 vs. 2007, respectively) and amounts
due to shareholder ($6.8 million vs. $4.9 million at year-end 2008 vs. 2007,
respectively.) The Company's average interest rate was 5.12% and 6.83% for the
years ended December 31, 2008 and 2007, respectively.

    
    Interest Income    3 months ended December 31,   Years ended December 31,
                           2008     2007   Change     2008     2007   Change
    -------------------------------------------------------------------------
    Interest income         151      142      6.3%     982      430    128.4%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Interest income is the result of the Company investing excess cash in
highly liquid investments and restricted cash held in interest bearing
accounts.

    Depletion,
     Depreciation and
     Accretion Expense 3 months ended December 31,   Years ended December 31,
                           2008     2007   Change     2008     2007   Change
    -------------------------------------------------------------------------
    Oil and gas
     depreciation &
     depletion            1,655        -        -    1,655        -        -
    Oil and gas accretion    14        -        -       14        -        -
    Corporate
     depreciation            93       44    111.4%     224      118     89.8%
    -------------------------------------------------------------------------
    Depletion,
     depreciation and
     accretion expense    1,762       44   3904.5%   1,893      118   1504.2%

    $ per bbl             12.30        -        -    14.02        -        -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Depletion and accretion expenses were realized in 2008 due to the Company
achieving first production in Q4 2008. Prior to this, the Company primarily
incurred depreciation on corporate assets. Depreciation of corporate assets
also increased due to the increase in corporate assets necessary to support
increased headcount.

    Taxes 3 months ended December 31, Years ended December 31,
                           2008     2007   Change     2008     2007   Change
    -------------------------------------------------------------------------
    Current taxes             -        -        -    2,484        -        -
    Future income taxes       -      613   -100.0%  (1,818)   1,862   -197.6%
    -------------------------------------------------------------------------

    Taxes                     -      613   -100.0%     666    1,862    -64.2%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    The Company's Thai subsidiary accrues income tax expense on its equity
pick up of Apico's book earnings at an investment tax rate of 30%. Effective
April 1, 2008, it transferred its 25.5% interest in Apico, LLC (Note 8) at its
net book value to one the Company's Cayman Island subsidiaries. This transfer
triggered the filing of an investment tax return, which turned the cumulative
non-current tax liability of $2.484 million into a current tax liability. In
3Q 2008, the Company made a $1.232 million estimated tax payment toward this
tax liability. The Cayman Island subsidiary is not currently subject to income
taxes.

    
    Earnings from
     Significantly
     Influenced
     Investee, net of
     taxes             3 months ended December 31,   Years ended December 31,
                           2008     2007   Change     2008     2007   Change
    -------------------------------------------------------------------------
    Coastal's 36.1% of
     Apico's net income   2,398    2,889    -17.0%  13,963    9,212     51.6%
    Amortization of
     Coastal's excess
     basis                 (219)    (465)   -52.9%  (1,059)  (1,533)   -30.9%
    -------------------------------------------------------------------------

    Earnings from
     Significantly
     Influenced
     Investee, net of
     taxes                2,179    2,424    -10.1%  12,904    7,679    68.0%

    100% Field
     Production volumes
     (mmcf/d)              69.0     88.0    -21.6%    83.3     85.9    -3.0%
    12.6% net to
     Coastal (mmcf/d)       8.7     11.1    -21.6%    10.5     10.8    -3.0%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Under the equity method of accounting, the Company records its share of
net income of Apico based on the reported quarterly net income of Apico. Apico
experienced higher revenue in the 3 months and the year ended December 31,
2008 over the prior comparable periods due to higher realized commodity
pricing partially offset by lower production volumes on the gas sales under
contract.
    On September 25, 2006, the Company acquired an additional interest in
Apico for an amount greater than its proportionate share of net assets of
Apico ("excess basis"). The excess basis was allocated to Apico's oil & gas
properties and is being amortized using the units of production method
beginning in Q1 2007.

    
    Net Income (Loss)  3 months ended December 31,   Years ended December 31,
                           2008     2007   Change     2008     2007   Change
    -------------------------------------------------------------------------
    Net income (loss)      (413)  (1,841)    77.6%  (2,561)  (9,095)    71.8%

    $ per share, basic
     and diluted          (0.01)   (0.02)    50.0%   (0.03)   (0.12)    75.0%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Coastal's 2008 net income (loss) represents increased operational
expenditures incurred ramping up for first production during the year which is
partially offset by first production in Q4 2008.

    Restatement of Financial Statements

    The annual information for 2007 and the quarterly information for Q1
2007, Q2 2007, Q3 2007, Q4 2007, Q1 2008 and Q2 2008 have been restated to
correct an error on under-recording the future income tax liability and
expense and associated foreign exchange loss associated with the outside basis
difference between the carrying amount of the investment in Apico LLC and the
Company's tax basis. The restatement is summarized as follows:

    
                                      Q1 2007                 Q2 2007
                               As reported  Restated   As reported  Restated
    -------------------------------------------------------------------------
    Balance Sheet
    Future income tax
     liability                      25,916    26,213        26,273    27,111
    Statement of Operations
    Income tax expense                   -       297             -       541

    Loss from continuing
     operations                       (739)   (1,298)          324      (217)
    Net loss                          (739)   (1,298)       (1,688)   (2,229)
    Basic and diluted loss per
     share from
      Continuing operations          (0.01)    (0.02)         0.01     (0.01)
      Discontinued operations            -         -         (0.02)    (0.02)
                               ----------------------------------------------
                                     (0.01)    (0.02)        (0.01)    (0.03)
                               ----------------------------------------------


                                      Q3 2007                 Q4 2007
                               As reported  Restated   As reported  Restated
    -------------------------------------------------------------------------
    Balance Sheet
    Future income tax
     liability                      26,489    27,738        26,876    28,738
    Statement of Operations
    Income tax expense                   -       411             -       613

    Loss from continuing
     operations                     (3,578)   (3,989)       (1,228)   (1,841)
    Net loss                        (3,578)   (3,989)       (1,228)   (1,841)
    Basic and diluted loss per
     share from
      Continuing operations          (0.05)    (0.05)        (0.02)    (0.02)
      Discontinued operations            -         -             -         -
                               ----------------------------------------------
                                     (0.05)    (0.05)        (0.02)    (0.02)
                               ----------------------------------------------



                                      Q1 2008                 Q2 2008
                               As reported  Restated   As reported  Restated
    -------------------------------------------------------------------------
    Balance Sheet
    Future income tax
     liability                      28,808    31,336        27,071    27,071
    Statement of Operations
    Income tax expense                   -       666         2,484         -

    Loss from continuing
     operations                     (3,961)   (4,627)          471     2,955
    Net loss                        (3,961)   (4,627)          471     2,955
    Basic and diluted loss per
     share from
      Continuing operations          (0.04)    (0.05)            -      0.03
      Discontinued operations            -         -             -         -
                               ----------------------------------------------
                                     (0.04)    (0.05)            -      0.03
                               ----------------------------------------------


    The annual effect on 2007 is summarized as follows:


                                                                 2007
                                                                 ----
                                                     As reported As restated
    -------------------------------------------------------------------------
    Balance sheet
    Future income tax
     liability                                           $26,876     $28,738
    Statement of operations
    Income tax expense                                         -       1,862

    Loss from continuing operations                       (5,221)     (7,083)
    Net loss                                              (7,233)     (9,095)
    Basic and diluted loss per
     share from
      Continuing operations                                (0.07)      (0.10)
      Discontinued operations                              (0.02)      (0.02)
    -------------------------------------------------------------------------
                                                           (0.09)      (0.12)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    Summary of Quarterly Results

                                                        2008
                                        Q4        Q3            Q2        Q1
    -------------------------------------------------------------------------
    Oil and gas revenues, net
     of royalties                   $3,884       $ -           $ -       $ -
                               ----------------------------------------------

    Production expenses              1,597         -             -         -
    General and administrative
     expenses                        4,114     3,053         2,210     3,447
    (Gain) loss on derivative       (2,415)      (13)            8       (27)
    Foreign exchange (gain)
     loss                              820     1,440        (1,773)    3,382
    Interest expense                   843       642           432       229
    Interest income                   (151)     (316)         (270)     (245)
    Debt financing fees                  -         -             -         -
    (Gain) loss on sale of
     assets                            (95)     (122)                      -
    Depletion, depreciation and
     accretion                       1,763        42            45        43
                               ----------------------------------------------
      Total operating expenses
       and other                     6,476     4,726           652     6,829
                               ----------------------------------------------

    Income taxes                         -         -             -       666

    Share of earnings (loss) of
     Apico LLC                       2,179     4,250         3,607     2,868
                               ----------------------------------------------

    Net income (loss) from
     continuing Operations            (413)     (476)        2,955    (4,627)

    Net income (loss)                 (413)     (476)        2,955    (4,627)

    Basic and diluted earnings
     (loss) per share from
     continuing operations          $(0.01)   $(0.00)        $0.03    $(0.05)
    Basic and diluted earnings
     (loss) per share               $(0.01)   $(0.00)        $0.03    $(0.05)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                                        2007
                                        Q4        Q3         Q2 (a)       Q1
    -------------------------------------------------------------------------
    Oil and gas revenues, net
     of royalties                      $ -       $ -           $ -       $ -
                               ----------------------------------------------

    Production expenses                  -         -             -         -
    General and administrative
     expenses                        2,557     1,494         1,557     1,329
    (Gain) loss on derivative          183       983             -         -
    Foreign exchange (gain)
     loss                              301       209           282     1,007
    Interest expense                   649       383            55        51
    Interest income                   (142)      (61)         (126)     (101)
    Debt financing fees                 60     2,072             -         -
    (Gain) loss on sale of
     assets                              -         -            40         -
    Depletion, depreciation and
     accretion                          44        42            16        16
                               ----------------------------------------------
      Total operating expenses
       and other                     3,652     5,211         1,824     2,302
                               ----------------------------------------------

    Income taxes                       613       411           541       297

    Share of earnings (loss) of
     Apico LLC                       2,424     1,544         2,148     1,563
                               ----------------------------------------------

    Net income (loss) from
     continuing Operations          (1,841)   (3,989)         (217)   (1,036)

    Net income (loss)               (1,841)   (3,989)       (2,229)   (1,036)

    Basic and diluted earnings
     (loss) per share from
     continuing operations          $(0.02)   $(0.05)       $(0.01)   $(0.02)
    Basic and diluted earnings
     (loss) per share               $(0.02)   $(0.05)       $(0.03)   $(0.02)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Note (a)  During Q2 2007, the Company took a write-down against its oil
              and gas investment in Nevada, USA. The total carrying value of
              this property was $2.0 million. This event was determined to
              constitute a discontinuance of the operations of Coastal's
              United States cost centre. Accordingly, this write-down was
              classified as a loss from discontinued operations.

    Significant factors influencing Quarterly Results include

    -   The Company achieved first production with A-01, A-03 and A-07 wells
        in the Songkhla field of Block G5/43 in the Gulf of Thailand.
        Production was intermittent through the latter half of the fourth
        quarter as the Company was producing oil off the drilling rig while
        continuing drilling operations. In addition to revenue in Q4 2008,
        the Company recorded related production expenses and depletion
        expense for the first time.

    -   The volatility of global crude oil prices has a direct effect on the
        Company's unrealized (gain) loss on its derivative instrument. The
        Company holds a put option on Singapore fuel oil which experienced a
        gain in the second half of 2008.

    -   The Company has incurred higher general and administrative costs as
        it has been adding headcount in an effort to commence first crude oil
        production.

    -   The Company transacts business in multiple currencies; therefore the
        volatility of global currency exchange rates has a direct effect on
        the Company's foreign exchange (gains) losses.
    

    Cash Flow Analysis

    The Company's cash and cash equivalents at December 31, 2008 were $6.4
million, a decrease of $6.7 million from $13.1 million at December 31, 2007.
The Company's primary source of funds came from proceeds of $54.9 million from
stock issuance, net borrowings of $19.0 million under its revolving debt
facilities, borrowings of $2.0 million from its amounts due to shareholder,
$15.7 million net distributions from Apico; $1.0 million proceeds from sale of
assets, increase in accounts payables and accrued liabilities of $3.3 million.
Cash and cash equivalents were primarily used to fund restricted cash of $2.1
million; increase accounts receivable and other $2.2 million, increase crude
oil inventory of $0.3 million; invest $82.6 million in property, plant and
equipment; invest $0.2 million in other long-term assets; pay income taxes of
$1.3 million and pay operating expenses of $13.9 million.

    Capital Expenditures

    Capital expenditures (including cash payments and amounts included in
accounts payable) amounted to $104.0 million in 2008 compared to $21.9 million
in 2007. The increase in expenditures was mainly the result of drilling
activity in the Songkhla field in Block G5/43 and related field development
work in the Gulf of Thailand. The following table sets forth a summary of the
Company's capital expenditures incurred:

    
    Capital Expenditures                                    2008        2007
    -------------------------------------------------------------------------

    Land                                                     $ -         $ -
    Seismic, geological and geophysical studies            2,295         572
    Other                                                    725       9,799
    Drilling and completions                              46,990       2,570
    Lease and well equipment                               4,876         328
    Construction in progress (platforms, FSO,
     processing equipment)                                48,543       8,295
    Administrative assets                                    553         381
    -------------------------------------------------------------------------

    Total Capital Expenditures                          $103,982     $21,945
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Liquidity and Capital Resources

    The current global financial crisis has caused severe illiquidity in
capital markets, economic uncertainty and significant volatility in commodity
prices. The Company's share price has been adversely affected by the
uncertainty of future crude oil and natural gas prices as well as the general
negative impact on equity valuations caused by the aforementioned factors. The
Company's ability to raise additional capital could be restricted given the
current market environment. Notwithstanding these challenges, management
strongly believes that the Company is in position to continue producing from
its Gulf of Thailand properties and use the related crude oil sales proceeds
to improve its liquidity position and continue the development of its Gulf of
Thailand properties in 2009.
    Lower global oil prices may result in lower per unit revenues and cash
flow. It is management's intention to be prudent about the Company's future
development commitments to ensure the Company maintains its liquidity position
and financial health. Management believes the Company has sufficient liquidity
to continue production from the Songkhla field. Management will resume further
development of Block G5/43 once the Company has built sufficient cash reserves
from the Songkhla production to fund the resumption of the Gulf of Thailand
drilling program.
    The current financial crisis has also increased the volatility in the
exchange rates of various global currencies. This volatility has caused the
Company to report an increase in its foreign exchange losses as its
expenditures in various currencies other than its reporting currency (United
States dollars) have increased with its development activities in Thailand.
The Company anticipates using production revenue as a natural hedge for its
Thailand related expenditures.
    As at December 31, 2008, the Company had cash and cash equivalents of
$6.4 million, which, in management's opinion, is sufficient combined with
additional financing and cash flow from its Songkhla production, to cover
ongoing obligations as they become due (see subsequent events in this MD&A for
a description of financing obtained in early 2009.) The Company will require
substantial capital to further develop its Gulf of Thailand properties. The
sources of capital presently available to the Company for development are from
existing production or the issuance of equity or debt. In June 2007, the
Company secured $50 million in borrowing base credit facilities, which mature
on December 31, 2013. The facilities are secured by the Company's investment
in Apico, LLC. At December 31, 2008, the Company had drawn $44.0 million under
this facility. As of the date of this report the borrowing base available
under the Facility was $36.2 million, under which the Company has drawn $36.2
million. The $7.8 million principal reduction made in 2009 is approximately
50% of the $15.3 million shown in the Consolidated Financial Statements as
current portion of long term debt.
    As a requirement of the revolving credit facilities, the Company entered
into a derivative hedging agreement with an affiliate of the lender under
which the Company has the right to sell up to 96,000 metric tons of Singapore
fuel oil at a price of $290.00 per metric ton. The Company paid $1.2 million
for this put option and the put option expires on June 30, 2009. Derivative
positions are recorded on the balance sheet at fair value with changes in fair
value recorded in the statement of operations and deficit. For the years ended
December 31, 2008 and 2007, the Company recorded an unrealized gain on this
instrument of $2.0 million and an unrealized loss of $1.2 million,
respectively. During 2008 the Company also recorded realized gains of $0.4
million.

    
    a)  Share Capital

    Authorized 250,000,000 common shares with par value of $0.04 each;
    As of the date of this report, the Company had 93,630,720 common shares
    outstanding.

    b)  Stock Options

    During the year ended December 31, 2008, the Company granted 2.76 million
    stock options with a weighted average exercise price of $3.19. In
    addition, options exercised and forfeited were 202,500 and 676,500,
    respectively. Subsequent to December 31, 2008, the Company granted 3.5
    million stock options with an exercise price of $1.35 and awarded 2.1
    million stock appreciation rights under its plan. The following table
    summarizes the outstanding and exercisable options as of the date of this
    report:


                            Remaining
    Grant         Number  Contractual         Exercise   Expiry       Number
    Date     Outstanding         Life            Price     Date  Exercisable
    -------------------------------------------------------------------------
    Jan. 25,                                     $0.58  Dec. 31,
    2005         187,500   1.00 years  (pnds stlg 0.40)    2009      187,500
    Jul. 06,                                     $2.05  Jul. 06,
    2005         112,500   1.50 years  (pnds stlg 1.40)    2010      112,500
    Dec. 27,                                            Dec. 27,
    2006       2,575,000   3.00 years    $1.80 (C$2.20)    2011    2,025,000
    Jun. 15,                                            Jun. 16,
    2007         206,250   3.50 years    $2.42 (C$2.96)    2012      193,750
    Jan. 25,                                            Jan. 26,
    2008       1,114,750   4.00 years    $3.22 (C$3.94)    2013      614,500
    May 05,                                              May 06,
    2008         200,000   4.00 years    $3.63 (C$4.44)    2013       50,000
    Jul. 14,                                            Jul. 15,
    2008          85,000   4.50 years    $2.95 (C$3.61)    2013       21,250
    Sep. 16,                                            Sep. 16,
    2008         100,000   4.75 years    $1.85 (C$2.27)    2013       25,000
    Sep. 23,                                            Feb. 05,
    2008       1,000,000   4.75 years    $3.22 (C$3.94)    2013      250,000
    Jan. 02,                                            Jan. 02,
    2009       3,509,000   5.00 years    $1.11 (C$1.35)    2014      187,500
    -------------------------------------------------------------------------
               9,090,000                                           3,667,000
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    c)  Warrants

    Effective January 20, 2007, warrants for 281,250 shares with an exercise
    price of pnds stlg 1.40 expired unexercised. Effective July 20, 2007,
    warrants for 53,588 shares with an exercise price of pnds stlg 1.40
    expired unexercised. As of December 31, 2008, the Company had 2,343,745
    warrants outstanding exercisable at $5.71 (pnds stlg 2.80) per share and
    expiring on July 20, 2010.

    In connection with a public debt offering in January 2009, the Company
    issued warrants for 2,000,000 shares with an exercise price of Cdn
    $1.136. The warrants will expire on January 23, 2014.
    

    Off-Balance Sheet Arrangements

    The Company has no off-balance sheet arrangements.

    Related Party Transaction

    In June 2008, the Company renegotiated its note payable to its
shareholder to extend the maturity to December 31, 2008. As part of this
renegotiation, in July 2008 the Company paid the shareholder $410,964 which
represented the accrued interest on the note payable through June 30, 2008. As
of September 30, 2008, the accrued interest on this note payable was $54,724
and the principal due was $4.64 million. Effective November 20, 2008 the note
payable balance was renegotiated to mature on March 31, 2009 at an interest
rate of 7% per annum.
    In December 2008 and January 2009, the Company entered into unsecured
loan agreements totaling $3 million bearing interest at 15% per annum and
maturing on June 30, 2009. This debt was funded by related parties of the
Company's primary shareholder, O. S. Wyatt, Jr. The debt was issued separately
from the Senior Unsecured Note Offering announced on December 22, 2008 due to
securities exchange regulations which prohibit insiders from participating in
debt offerings which include a warrant issue as consideration.

    Discontinued Operations

    In August 2007, the Company formally relinquished all its working
interest in the Gabbs Valley, Nevada leases to the temporary operator in
exchange for the Company's current obligation to pay the operator $21,000
related to well clean up costs along with all future obligations surrounding
this working interest. A former non-executive director of the Company is an
officer and director of the temporary operator. The Company wrote off its
interest in this property of approximately $2 million. These transactions are
measured at the exchange amount, which is the amount of consideration
established and agreed to by the related parties.

    Commitments and Contingencies

    All the Company's commitments and contingencies are described in Note 19
to the Consolidated Financial Statements for the year ended December 31, 2008.

    Subsequent Events

    On January 7, 2009, the Company announced that it had entered into an
unsecured loan agreement in the amount of US $3 million bearing interest at
15% per annum and maturing on June 30, 2009. Of this amount, $2 million was
received late in December 2008 and the remaining $1 million was received early
in January 2009. This debt was funded by related parties of the Company's
primary shareholder, O. S. Wyatt, Jr. The debt was issued separately from the
Senior Unsecured Note Offering announced on December 22, 2008 due to
securities exchange regulations which prohibit insiders from participating in
debt offerings which include a warrant issue as consideration.
    On January 14, 2009, the Company announced that the Mobile Offshore
Production Unit ("MOPU") which was scheduled to arrive at the Songkhla field
in mid-January incurred damage during a tropical storm and will need to be
repaired prior to installation.
    On January 21, 2009, the Company announced that it closed a US $5 million
senior secured loan with a private partnership bearing interest at 16% per
annum and maturing six months from the date of issue. The loan is secured by
the Company's Ocean 66 jackup platform which is currently located in
Galveston, Texas. This debt was issued separately from the Company's senior
unsecured note offering announced December 22, 2008.
    On January 23, 2009, the Company announced that it completed its offering
of 100 senior unsecured notes raising gross proceeds of $10 million. The notes
bear interest at 15% per annum and mature on January 23, 2010. Each $100,000
note was issued with a warrant entitling the holder thereof to acquire 20,000
shares of the Company's common shares at a strike price of Cdn $1.136. The
warrants expire on January 23, 2014.
    On March 3, 2009, the Company announced that it resumed production at its
Songkhla field in the Gulf of Thailand from a Mobile Offshore Production unit
("MOPU") on February 23, 2009. As of March 2, 2009, combined production from
the Songkhla A-01 and A-03 wells was approximately 11,000 bbl/d utilizing
electric submersible pumps ("ESPs").
    On March 5, 2009, the Company entered into a Crude Oil Sales Agreement.
Under the terms of the Agreement, the Company will deliver 1,050,000 barrels
of crude oil to the buyer from its Songkhla field between April 1, 2009 and
July 31, 2009. The Company's counterparty prepaid the Company the entire value
of the 1,050,000 bbl load on April 3, 2009 using the Dubai crude price as of
the date of the Agreement as the reference price. The parties will adjust the
entire load's value to the average Dubai crude price during the delivery
period and a settlement payment will be made by the appropriate party. The
Company used a portion of the proceeds to reduce its accounts payable balance.

    Financial Instruments

    The Company's financial instruments include cash and cash equivalents,
restricted cash, accounts receivable, accounts payable and accrued
liabilities. The fair values of financial instruments approximate their
carrying values due to their short term nature. The Company's derivative
contract is considered held-for trading and it is adjusted to fair value every
quarter as discussed below. Amounts due to shareholder and long-term debt are
considered other financial liabilities and are recorded at amortized cost.
    The carrying value of amounts due to shareholder approximates the fair
value. This is due to the short term nature of the liability. The fair value
of the Company's long term debt as at December 31, 2008 and 2007 was $42.71
million and $24.27 million, respectively.
    As a condition of the Company's reserve based revolving debt facilities,
the Company is required to hedge 50% of its commodity price exposure related
to production on the Phu Horm Gas Field. The Company obtains 3rd party quotes
in order to mark to market the gains and losses related to the commodity
hedge. As of December 31, 2008, the market value of this option was $2.016
million.

    Critical Accounting Policies and Estimates

    The Company's financial statements are prepared in accordance with
Canadian GAAP, which require management to make judgments, estimates and
assumptions which may have a significant impact on the financial statements. A
detailed summary of the Company's significant accounting policies is included
in Note 2 to the Consolidated Financial Statements. The following is a
discussion of those accounting policies and estimates that are considered
critical in the determination of the Company's financial results.

    a)  Capital Assets - Full Cost Accounting

    The Company follows the full cost method of accounting as described in
Note 2 to the Consolidated Financial Statements. Alternatively, the Company
could follow the successful efforts method of Accounting whereby all costs
related to non-productive wells are expensed in the period in which they are
incurred.
    Under the full cost method of accounting, capitalized costs are subject
to a country-by-country cost centre impairment test. Under the successful
efforts method of accounting, the costs are aggregated on a
property-by-property basis and the carrying value for each property is subject
to an impairment test. These policies may result in a different carrying value
for capital assets and a different net income. The Company has elected to
follow the full cost method.
    Coastal assesses the carrying value of its property, plant and equipment
for impairment annually or as circumstances dictate. Impairment is indicated
when the carrying value of developed properties of a cost centre exceeds the
estimated undiscounted future net cash flows associated with the cost centre's
proved reserves. Cash flows are calculated using expected future product
prices and costs and are discounted using a risk-free interest rate. Any
impairment is measured as the excess of the carrying amount over the estimated
discounted future net cash flows associated with the Company's proved and
probable reserves. Reserves are determined pursuant to Canadian Securities
Administrators' National Instrument 51-101, "Standards of Disclosure of Oil
and Gas Activities". Costs relating to undeveloped properties are subject to
individual impairment assessments until it can be determined whether or not
proved reserves exist. If impairment is determined to exist, the costs carried
on the balance sheet in excess of the discounted future net cash flows
associated with the cost centre's proved plus probable reserves are charged to
earnings in the period the impairment occurs.
    As of December 31, 2008, the Company has one cost centre, Thailand.

    b)  Depletion and Depreciation

    Oil and gas properties and equipment together with the estimated future
costs to be incurred (other than future major development items such as
production platforms) in developing proved reserves, are depleted or
depreciated using the units of production method based on the proved reserves
before royalties as estimated by independent engineers. Oil and gas reserves
and production are converted into equivalent units based upon estimated
relative energy content of six thousand cubic feet of gas to one barrel of oil
(6 mcf equals 1 bbl). The costs of undeveloped properties are excluded from
the costs subject to depletion and depreciation until it is determined whether
proved reserves are attributable to the properties or impairment occurs. In
addition, certain major components of production equipment (such as a floating
storage and off-loading vessel "FSO") have a life that is longer than the
specific field to which it is currently assigned. These major production
components are depreciated on a straight line basis over the estimated useful
life of the asset which approximates the estimated production life of the
Company's Gulf of Thailand concessions.
    Depreciation of office equipment, furniture and fixtures and leasehold
improvements is calculated using the straight-line method over the estimated
life of the asset or the life of the lease, if shorter.

    c)  Reserve Estimates

    All of the Company's oil and gas reserves are evaluated and reported on
by independent qualified reserve evaluators. Reserve estimates can have a
significant impact on net income and the carrying value of capital assets. The
process of estimating reserves requires significant judgment based on
available geological, geophysical, engineering, and economic data, projected
rates of production, estimated commodity price forecasts and the timing of
future expenditures, all of which are subject to interpretation and
uncertainty. Reserve estimates impact net earnings through depletion expense
and the application of impairment tests. Revisions or changes in reserve
estimates can have either a positive or negative impact on net income and can
impact the carrying amounts of capital assets.

    d)  Asset Retirement Obligations

    The Company recognizes the estimated fair value of future retirement
obligations associated with capital assets as a liability. The Company
estimates the liability based on the estimated costs to abandon and reclaim
its net ownership in tangible long-lived assets such as wells and facilities
and the estimated timing of the costs to be incurred in future periods. Actual
payments to settle the obligations may differ from estimated amounts.

    e)  Revenue recognition

    Revenues from the sale of crude oil, natural gas and natural gas liquids
are recognized when the commodities are delivered and title passes to the
customer. Revenues associated with the sale of crude oil, natural gas and
natural gas liquids are recorded gross of royalties, transportation and
marketing charges.

    f)  Stock-based Compensation

    The Company has a share option plan and uses the fair value method of
accounting for all stock-based awards to non-employees and employees,
including those that are direct awards of stock. Under the fair value method,
employee compensation expense attributed to direct awards of stock is measured
at the fair value of the award at the grant date using the Black-Scholes
option-pricing model and is recognized over the vesting period of the award.
If and when the stock options are ultimately exercised, the applicable amounts
of contributed surplus are credited to share capital. Option pricing models
require the input of highly subjective assumptions regarding the expected
volatility. Changes in assumptions can materially affect the fair value
estimate, and therefore, the existing models do not necessarily provide a
realistic measure of the fair value of the Company's stock options at the date
of the grant or thereafter.
    During 2008, the Company introduces a cash-settled stock appreciation
rights plan; no stock appreciation rights ("SARs") were awarded under this
plan during the year ended December 31, 2008. The compensation cost for SARs
granted to employees under this plan is accounted for using the intrinsic
value method. Under this method, the Company accrues a liability for the SARs
on the excess of the market price of the Company's common stock over the price
of the SARs granted. The accrued liability is adjusted at each balance sheet
date for the effect of SARs grants, vesting of SARs, SARs exercised, as well
as the effect of changes in the underlying price of the Company's common
shares. The net effect of these items is charged or credited to compensation
expense.

    g)  Income Taxes

    Future income taxes are recorded using the asset and liability method.
Under the asset and liability method, future tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities
and their respective tax bases. Future tax assets and liabilities are measured
using the substantively enacted tax rates expected to apply when the asset is
realized or the liability settled. The effect on future tax assets and
liabilities of a change in tax rates is recognized in income in the period
that substantive enactment occurs. To the extent that the Company does not
consider it more likely than not that a future tax asset will be recovered, it
provides a valuation allowance against the excess.

    New Accounting Pronouncements

    The Company has adopted new accounting standards that were issued by the
Canadian Institute of Chartered Accountants ("CICA"). The new standards and
accounting policy changes and their effect on the Company's financial
statements are discussed in Note 3 to the Consolidated Financial Statements.
Also discussed in Note 3 are new accounting standards which will be adopted in
future periods in accordance with the respective standard.

    International Financial Reporting Standards Update

    On February 13, 2008, the Canadian Accounting Standards Board ("AcSB")
confirmed the mandatory changeover date to International Financial Reporting
Standards ("IFRS") for Canadian profit-oriented publicly accountable entities
("PAE's") such as the Company.
    The AcSB requires IFRS compliant financial statements be prepared for
annual and interim financial statements commencing on or after January 1,
2011. For PAE's with December 31 year-end, the first unaudited interim
financial statements under IFRS will be the quarter ending March 31, 2011,
with comparative financial information for the quarter ended March 31, 2010.
The first audited annual financial statements will be for the year ending
December 31, 2011, with comparative financial information for the year ending
December 31, 2010. This also means that all opening balance sheet adjustments
relating to the adoption of IFRS must be reflected in the January 2010 opening
balance sheet which will be issued as part of the comparative financial
information in the March 31, 2011 unaudited interim financial statements.
    The Company intends to adopt these requirements as set out by the AcSB
and other regulatory bodies. At this time, the impact of adopting IFRS cannot
be reasonably quantified. During the remainder of 2009, the Company will
continue to evaluate the impact of IFRS on the Company and develop and put in
place a plan for the conversion to IFRS. If the Company decides not to early
adopt the standards, the actual conversion work will occur during 2009 and
2010, in anticipation of the preparation of the January 1, 2010 balance sheet
which will be required for comparative purposes for all periods ending in
2011.

    Risks and Uncertainties

    Coastal has published its assessment of its business risks in the Risk
Factor section of its Annual Information Form ("AIF") dated April 23, 2009
(available on SEDAR at www.sedar.com.) It is recommended that this document be
reviewed for a thorough discussion of risks faced by the Company.
    The Company is subject to a number of risk factors due to the nature of
the petroleum and gas business in which it is engaged, not the least of which
are adverse movements in commodity prices, which are impossible to forecast.
The Company is also subject to the oil and gas services sector which, at the
present, has limited available capacity and therefore may demand premium
rates. The Company seeks to counter these risks as far as possible by
selecting exploration areas on the basis of their recognized geological
potential to host economic returns.

    a) Going Concern

    The accompanying audited consolidated financial statements have been
prepared by management in accordance with Canadian GAAP on a going concern
basis, which assumes that the Company will continue in operation for the
foreseeable future and accordingly will be able to realize its assets and
discharge its liabilities in the normal course of operations. The Company has
limited operating and production history in the Gulf of Thailand. The
Company's ability to continue as a going concern is dependent upon continued
production or its ability to obtain additional financing. Although to date the
Company has been successful in obtaining financing, there can be no assurance
that the Company will be successful in raising additional debt or share
capital or generating sufficient cash flows from continuing operations to
continue as a going concern.

    b) Industry

    The Company is engaged in the acquisition of petroleum and natural gas
properties, an inherently risky business, and there is no assurance that an
additional economic petroleum and natural gas deposit will ever be discovered
and subsequently put into production. Most exploration projects do not result
in the discovery of commercially viable petroleum and natural gas deposits.
The geological focus of the Company is on areas in which the geological
setting is well understood by management.

    c) Petroleum and Gas Prices

    In recent years, the petroleum and natural gas exploration industry has
seen significant growth, primarily as a result of increased global demand, led
by India and China. During this period, prices for petroleum have steadily
increased, resulting in multi-year price highs. Prior to this recent surge,
large companies found it more feasible to grow their reserves and resources by
purchasing companies or existing oilfields. However, with improving prices and
increasing demand, a discernible need for the development of exploration
projects has arisen. Junior companies have become key participants in
identifying properties of merit to explore and develop.
    The price of petroleum and natural gas is affected by numerous factors
beyond the control of the Company including global consumption and demand for
petroleum and natural gas, international economic and political trends,
fluctuations in the U.S. dollar and other currencies, interest rates, and
inflation. Continued volatility in commodity prices may adversely effect the
Company's operating cash flow.

    d) Cash Flows and Additional Funding Requirements

    The Company presently has revenue from its Gulf of Thailand production
and earnings from its interest in Apico, which is accounted for under the
equity method on the consolidated statement of operations. In order to further
develop the Gulf of Thailand assets, substantial capital will be required. The
sources of capital presently available to the Company for development are cash
flow from production or the issuance of debt or equity. The Company has
sufficient financial resources to undertake its firm obligations for the next
12 months.
    The Company is exposed to fluctuations in short-term interest rates on
amounts drawn under its revolving credit facilities. The Company has not
hedged these rates given the need to remain flexible in borrowing and repaying
the outstanding balances.

    e) Environmental

    The Company's exploration activities are subject to extensive laws and
regulations governing environmental protection. Although the Company closely
follows and believes it is operating in compliance with all applicable
environmental regulations, there can be no assurance that all future
requirements will be achievable on reasonable terms. Failure to comply may
result in enforcement actions causing operations to cease or be curtailed and
may include corrective measures requiring capital expenditures.

    f) Laws and Regulations

    The Company's exploration activities are subject to local laws and
regulations governing prospecting, drilling, development, exports, taxes,
labour standards, occupational health and safety, and other matters. Such laws
and regulations are subject to change, can become more stringent and
compliance can therefore become more costly.
    There are also many risks associated with operations in international
markets, including changes in foreign governmental policies relating to crude
oil and natural gas taxation, other political, economic or diplomatic
developments, changing political conditions and international monetary
fluctuations. These risks include: political and economic instability or war;
the possibility that a foreign government may seize our property with or
without compensation; confiscatory taxation; legal proceedings and claims
arising from our foreign investments or operations; a foreign government
attempting to renegotiate or revoke existing contractual arrangements, or
failing to extend or renew such arrangements; fluctuating currency values and
currency controls; and constrained natural gas markets dependent on demand in
a single or limited geographical area. The Company applies the expertise of
its management, its advisors, its employees and contractors to ensure
compliance with current local laws.

    g) Title to Oil and Gas Properties

    While the Company has undertaken customary due diligence in the
verification of title to its oil and gas properties, this should not be
construed as a guarantee of title. The properties may be subject to prior
unregistered Petroleum Agreements or transfers and title may be affected by
undetected defects.

    h) Dependence on Management

    The Company strongly depends on the business and technical expertise of
its senior management team and there is little possibility that this
dependence will decrease in the near term. The loss of one or more of these
individuals could have a materially adverse effect on the Company.

    i) Apico Financial Reporting

    The Company accounts for its 36.1% investment in Apico under the equity
method whereby it records its share of Apico's earnings as earnings from a
significantly influenced investee. Apico is required to provide the partners
its financial statements under the Joint Venture Agreement on a timely basis.
While the Company has a seat on the Board of Directors of Apico, it does not
control the Board or the management of Apico. Therefore, the Company relies
heavily on Apico management to provide timely and accurate financial
information to the partners.

    Risk Management and Financial Instruments

    Coastal provides a risk management and financial instruments discussion
as required by CICA handbook section 3862 "Financial Instruments -
Disclosures" on its exposure to and management of credit risk, liquidity risk
and market risk in Note 16 to the audited financial statements as at and for
the period ended December 31, 2008 and 2007.

    Management's Report on Internal Control over Financial Reporting

    In connection with Exemption Orders issued in November 2007 and revised
in December 2008 by each of the securities commissions across Canada, the
Chief Executive Officer and Chief Financial Officer of the Company will file a
Venture Issuer Basic Certificate with respect to the financial information
contained in the unaudited interim financial statements and the audited annual
financial statements and respective accompanying Management's Discussion and
Analysis.
    In contrast to the certificate under National Instrument ("NI") 52-109
(Certification of Disclosure in Issuer's Annual and Interim Filings), the
Venture Issuer Basic Certification does not include representations relating
to the establishment and maintenance of disclosure controls and procedures and
internal control over financial reporting, as defined in NI 52-109.

    Outlook

    The Company plans to continue operating its current Gulf of Thailand
properties as well as pursuing additional development of its current
concessions.
    Coastal anticipates using the proceeds from its current production at
Songkhla to enhance its liquidity position and fund further development of
Blocks G5/43 and G5/50.
    Coastal anticipates Apico will drill the Phu Kheng and Si That wells in
the second half of 2009.


    
    Auditors' report


    To the Shareholders of
    Coastal Energy Company
    

    We have audited the consolidated balance sheets of Coastal Energy Company
as at December 31, 2008 and 2007 and the consolidated statements of
operations, comprehensive loss and deficit and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
    We conducted our audits in accordance with Canadian generally accepted
auditing standards. Those standards require that we plan and perform an audit
to obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.
    In our opinion, these consolidated financial statements present fairly,
in all material respects, the financial position of the Company as at December
31, 2008 and 2007 and the results of its operations and its cash flows for the
years then ended in accordance with Canadian generally accepted accounting
principles.
    As described in Note 4 to the consolidated financial statements, the
accompanying consolidated financial statements of Coastal Energy Company as at
December 31, 2007 and for the year then ended have been restated. We therefore
withdraw our previous report dated April 21, 2008 on those financial
statements, as originally filed.

    
    (signed) "Deloitte & Touche LLP"

    Chartered Accountants
    April 23, 2009



    COASTAL ENERGY COMPANY

    Years ended December 31, 2008 and 2007
    (All amounts are expressed in US$000's unless otherwise stated except
    share and per share amounts)
    -------------------------------------------------------------------------

    CONSOLIDATED STATEMENTS OF OPERATIONS, COMPREHENSIVE LOSS AND DEFICIT

                                                          2008          2007
    -------------------------------------------------------------------------
                                                             $             $
                                                                (As restated
                                                                      Note 4)
    Revenues
      Oil and natural gas                                4,098             -
      Royalties                                           (214)            -
    -------------------------------------------------------------------------
                                                         3,884             -
    -------------------------------------------------------------------------

    Expenses and other
      Production                                         1,597             -
      General and administrative (Note 14)              12,824         6,937
      (Gain) loss on derivative (Note 11)               (2,447)        1,166
      Foreign exchange loss                              3,869         1,799
      Interest expense                                   2,146         1,138
      Interest income                                     (982)         (430)
      Debt financing fees (Note 11)                          -         2,132
      (Gain) loss on sale of assets                       (217)           40
      Depletion, depreciation and accretion              1,893           118
    -------------------------------------------------------------------------
                                                        18,683        12,900
    -------------------------------------------------------------------------

    Loss from continuing operations before taxes
     and earnings from significantly influenced
     investee                                          (14,799)      (12,900)

    Income taxes (Note 17)                                 666         1,862
    -------------------------------------------------------------------------

    Loss from continuing operations before earnings
     from significantly influenced investee            (15,465)      (14,762)

    Earnings from significantly influenced
     investee (Note 7)                                  12,904         7,679
    -------------------------------------------------------------------------

    Loss from continuing operations                     (2,561)       (7,083)

    Net loss from discontinued operations (Note 18)          -        (2,012)
    -------------------------------------------------------------------------

    Net loss and comprehensive loss                     (2,561)       (9,095)
    Deficit, beginning of year                         (14,026)       (4,931)
    -------------------------------------------------------------------------
    Deficit, end of year                               (16,587)      (14,026)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Basic and diluted loss per share from
      Continuing operations                              (0.03)        (0.10)
      Discontinued operations                                -         (0.02)
    -------------------------------------------------------------------------
                                                         (0.03)        (0.12)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Weighted average number of common shares
     outstanding                                    93,262,551    76,919,352
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    See Accompanying Notes to the Consolidated Financial Statements



    COASTAL ENERGY COMPANY

    As at December 31, 2008 and 2007
    (All amounts are expressed in US$000's unless otherwise stated)
    -------------------------------------------------------------------------

    CONSOLIDATED BALANCE SHEETS

                                                          2008          2007
    -------------------------------------------------------------------------
                                                             $             $
                                                                (As restated
                                                                      Note 4)
    Assets
    Current assets
      Cash and cash equivalents                          6,434        13,149
      Restricted cash (Note 5)                           4,146         2,048
      Accounts receivable and other (Note 6)             2,662           450
      Derivative asset (Note 11)                         2,016             -
      Crude oil inventory                                  308             -
    -------------------------------------------------------------------------
                                                        15,566        15,647

    Investment in and advances to Apico LLC (Note 7)    50,376        53,188
    Property, plant and equipment, net (Note 8)        192,224        88,762
    Other long-term assets                                 297            57
    -------------------------------------------------------------------------
                                                       258,463       157,654
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Liabilities
    Current liabilities
      Accounts payable and accrued liabilities
       (Note 9)                                         35,536         9,793
      Income taxes payable (Note 17)                     1,252             -
      Amounts due to shareholder (Note 10)               6,761         4,940
      Current portion of long-term debt (Note 11)       15,249             -
    -------------------------------------------------------------------------
                                                        58,798        14,733

    Long-term debt (Note 11)                            28,751        25,000
    Asset retirement obligations (Note 12)               1,354             -
    Future income tax liability (Note 17)               25,984        28,738
    -------------------------------------------------------------------------
                                                       114,887        68,471
    -------------------------------------------------------------------------

    Shareholders' equity
    Share capital (Note 13)                            146,938        91,761
    Contributed surplus (Note 13)                       13,225        11,448
    Deficit                                            (16,587)      (14,026)
    -------------------------------------------------------------------------
                                                       143,576        89,183
    -------------------------------------------------------------------------
                                                       258,463       157,654
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Nature and continuance of operations (Note 1)
    Commitments and contingencies (Note 19)


    Approved by the Board


    /s/ Randy Bartley                    /s/ Benard de Combret
    ------------------------------       -------------------------------
    Randy L. Bartley, Director           Benard de Combret, Chairman

    See Accompanying Notes to the Consolidated Financial Statements



    COASTAL ENERGY COMPANY

    Years ended December 31, 2008 and 2007
    (All amounts are expressed in US$000's unless otherwise stated)
    -------------------------------------------------------------------------

    CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                          2008          2007
    -------------------------------------------------------------------------
                                                             $             $
                                                                (As restated
                                                                      Note 4)
    Operating activities
      Net loss for the year                             (2,561)       (9,095)
      Net loss from discontinued operations                  -         2,012
      Earnings distributions from significantly
       influenced investee                              16,619             -
      Items not involving cash
        Depletion, depreciation and accretion            1,893           118
        Future income taxes                             (1,818)        1,862
        Foreign exchange (loss) gain                      (751)        1,744
        Interest expense                                     -           510
        Stock based compensation                         2,080           811
        Share of earnings of significantly
         influenced investee, net of taxes             (12,904)       (7,679)
        Unrealized (gain) loss on derivative
         instrument                                     (2,015)        1,166
        (Gain) loss on sale of assets                     (217)           40
        Change in non-cash working capital (Note 20)     2,016        (3,035)
    -------------------------------------------------------------------------
      Cash provided by (used in) operating
       activities of continuing operations               2,342       (11,546)
      Cash provided by (used in) used in operating
       activities of discontinued operations                 -             -
    -------------------------------------------------------------------------
    Cash provided by (used in) operating activities      2,342       (11,546)
    -------------------------------------------------------------------------
    Investing activities
      Investment in and advances to Apico LLC             (903)       (1,463)
      Increase in restricted cash                       (2,098)       (2,048)
      Purchase of property, plant and equipment        (82,645)      (14,680)
      Proceeds from sale of property and equipment       1,053           849
      Acquisition of financial instrument and other       (241)       (1,190)
    -------------------------------------------------------------------------
      Cash used in investing activities of
       continuing operations                           (84,834)      (18,532)
      Cash used in investing activities of
       discontinued operations                               -          (203)
    -------------------------------------------------------------------------
    Cash used in investing activities                  (84,834)      (18,735)
    -------------------------------------------------------------------------
    Financing activities
      Issuance of shares for cash                       54,874           101
      Borrowings under long-term debt                   45,000        25,000
      Repayments under long-term debt                  (26,000)         (200)
      Borrowings under amounts due to shareholder        2,000             -
      Proceeds from issuance of short-term debt              -           200
    -------------------------------------------------------------------------
      Cash provided by financing activities of
       continuing operations                            75,874        25,101
      Cash provided by financing activities of
       discontinued operations                               -             -
    -------------------------------------------------------------------------
    Cash provided by financing activities               75,874        25,101
    -------------------------------------------------------------------------

    Net effect of foreign exchange on cash held
     in foreign currencies                                 (97)          (21)
    -------------------------------------------------------------------------

    Change in cash and cash equivalents                 (6,715)       (5,201)
    Cash and cash equivalents, beginning of year        13,149        18,350
    -------------------------------------------------------------------------
    Cash and cash equivalents, end of year               6,434        13,149
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Cash and cash equivalents consists of:
      Cash                                               5,606         4,793
      Short-term money market instruments                  828         8,356
    -------------------------------------------------------------------------
                                                         6,434        13,149
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Supplemental cash flow information (Note 20)


    See Accompanying Notes to the Consolidated Financial Statements



    COASTAL ENERGY COMPANY

    Years ended December 31, 2008 and 2007
    (All tabular amounts are expressed in US$000's unless otherwise stated
    except share and per share amounts)
    -------------------------------------------------------------------------

    Note 1. Nature and continuance of operations

    Coastal Energy Company ("Coastal" or the "Company") was incorporated on
    May 26, 2004 in the Cayman Islands.

    These consolidated financial statements have been prepared by management
    on a going concern basis which assumes that the Company will be able to
    realize its assets and discharge its liabilities in the normal course of
    business. The Company has incurred losses since inception, has a working
    capital deficiency of $43.2 million and has an accumulated deficit of
    $16.6 million. In addition, as at December 31, 2008, the Company held
    cash and cash equivalents of $6.4 million, had current debt obligations
    of $22.0 million consisting of (1) amounts due to shareholder and (2) the
    current portion of long-term debt. Additionally, as at December 31, 2008,
    the Company has committed to make expenditures (consisting of capital
    expenditures and rental and lease payments) of $17.9 million of which
    $12.5 million relates to 2009 committed expenditures. Based on the
    current cash balance, expected cash flows from the Gulf of Thailand
    operations, cash distributions from the Company's investment in Apico LLC
    and proceeds from debt and/or equity financings, the Company expects to
    have sufficient funds to meet its 2009 commitments and continue as a
    going concern.

    Although management is of the opinion that additional financing will be
    available to continue its planned activities in the normal course there
    is no certainty that the levels of additional financing required will be
    obtained (Note 22).

    These financial statements do not give effect to adjustments that may be
    necessary should the Company be unable to continue as a going concern.

    Note 2. Significant accounting policies

    These consolidated financial statements have been prepared in accordance
    with Canadian generally accepted accounting principles ("Canadian GAAP").
    The principal accounting policies are outlined below:

    Basis of consolidation

    These consolidated financial statements include the accounts of the
    Company and all its subsidiaries. All significant inter-company
    transactions and balances have been eliminated.

    Variable interest entities ("VIE's"), which include, but are not limited
    to, special purpose entities, trusts, partnerships, and other legal
    structures, as defined by Canadian Institute of Chartered Accountants
    ("CICA") Accounting Guideline 15, Consolidation of Variable Interest
    Entities, are subject to consolidation by the primary beneficiary who
    will absorb the majority of the entities' expected losses and/or expected
    residual returns. The Company does not have any entities that qualify for
    treatment under this guidance as at December 31, 2008 and 2007.

    Measurement uncertainty

    The preparation of financial statements in accordance with Canadian GAAP
    necessitates the use of estimates when transactions affecting the current
    accounting period cannot be finalized until future periods. These
    estimates will affect assets, liabilities and the disclosures of
    contingent assets and liabilities at the date of the financial
    statements, as well as revenues and expenses during the reporting period.
    Such estimates are based on informed judgements made by management.
    Actual results could differ materially from those estimates. Amounts
    recorded for depletion, depreciation, asset retirement obligations and
    amounts used for ceiling test calculations are based on estimates of oil
    and natural gas reserves which include estimates of future commodity
    prices, future costs and other relevant assumptions. The Company's
    reserves are estimated and evaluated, at a minimum, annually by an
    independent engineering firm. By their very nature, these estimates of
    reserves and the related cash flows are subject to measurement
    uncertainty. Changes in these estimates could materially impact the
    financial statements of future periods. Derivative instruments classified
    as held-for-trading are recorded at fair value at each reporting date.
    These fair value amounts are subject to measurement uncertainty. Income
    tax balances are based on estimates formulated by informed management
    judgement; actual settlement of taxes may differ from those estimates.
    Stock-based compensation is based upon volatility and expected life
    estimates that are also subject to measurement uncertainty.

    Cash and cash equivalents

    Cash and cash equivalents consists of cash and highly liquid investments
    with original maturities of three months or less.

    Investments

    Investments in companies where the Company has the ability to exercise
    significant influence, which are generally where the Company has voting
    interests of 20% to 50%, are accounted for using the equity method. Under
    this method, the Company's share of the investees' earnings and losses is
    included in operations and its investments therein are adjusted by a like
    amount. Dividends received are credited to the investment accounts.

    Inventory

    Crude oil inventory is measured at the lower of weighted average cost of
    production and net realizable value.

    Property, plant and equipment

    (a) Capitalized costs

    The Company follows the full cost method of accounting whereby all costs
    relating to the exploration, acquisition and development of oil and gas
    reserves are capitalized. Such costs include land and lease acquisition
    costs, annual charges on non-producing properties, geological and
    geophysical costs, and costs of drilling and equipping productive and
    non-productive wells. The Company does not capitalize indirect general
    and administrative overhead nor does it capitalize interest costs.

    Proceeds from the sale of oil and gas properties are applied against
    capitalized costs, with no gain or loss recognized, unless such a sale
    would alter the rate of depletion and depreciation by 20% or more.

    (b) Depletion and depreciation

    Capitalized costs are accumulated in cost centres on a country-by-country
    basis. As of December 31, 2008, the Company has one cost centre,
    Thailand.

    Depletion and depreciation of oil and gas properties and equipment
    together with the estimated future costs to be incurred (other than
    future major development items such as production platforms) in
    developing proved reserves, are depleted or depreciated using the units
    of production method based on the proved reserves before royalties as
    estimated by independent engineers. Oil and gas reserves and production
    are converted into equivalent units based upon estimated relative energy
    content of six thousand cubic feet of gas to one barrel of oil (6 mcf
    = 1 bbl). The costs of undeveloped properties are excluded
    from the costs subject to depletion and depreciation until it is
    determined whether proved reserves are attributable to the properties or
    impairment occurs.

    In addition, certain major components of production equipment (such as a
    floating storage and off-loading vessel "FSO") have a life that is longer
    than the specific field to which it is currently assigned. These major
    production components are depreciated on a straight line basis over the
    estimated useful life of the asset, which approximates the estimated
    production life of the Company's Gulf of Thailand concessions.

    Depreciation of office equipment, furniture and fixtures and leasehold
    improvements is calculated using the straight-line method over the
    estimated life of the asset or the life of the lease, if shorter.

    (c) Capitalization of costs and construction in progress

    Expenditures related to renewals or betterments that improve the
    productive capacity or extend the life of an asset are capitalized.
    Assets under construction are not subject to depreciation until they are
    put into use. Maintenance and repair costs are expensed as incurred.

    (d) Impairment

    The Company assesses the carrying value of its property, plant and
    equipment for impairment annually or as circumstances dictate. Impairment
    is indicated when the carrying value of developed properties of a cost
    centre exceeds the estimated undiscounted future net cash flows
    associated with the cost centre's proved reserves. Cash flows are
    calculated using expected future product prices and costs and are
    discounted using a risk-free interest rate. Any impairment is measured as
    the excess of the carrying amount over the estimated discounted future
    net cash flows associated with the Company's proved and probable
    reserves. Reserves are determined pursuant to Canadian Securities
    Administrators' National Instrument 51-101, "Standards of Disclosure of
    Oil and Gas Activities". Costs relating to undeveloped properties are
    subject to individual impairment assessments until it can be determined
    whether or not proved reserves exist. If impairment is determined to
    exist, the costs carried on the balance sheet in excess of the discounted
    future net cash flows associated with the cost centre's proved plus
    probable reserves are charged to earnings in the period the impairment
    occurs.

    Asset retirement obligation

    The Company recognizes the estimated fair value of future retirement
    obligations associated with property, plant and equipment as a liability
    in the period in which they are incurred, normally when the asset is
    purchased or developed. The fair value is capitalized and amortized over
    the same period as the underlying asset. The Company estimates the
    liability based on the estimated costs to abandon and reclaim the wells
    and well sites. Only wells and well sites that the Company has
    constructed, drilled, completed workovers on, or performed enhancements
    to, are included in the estimate. This estimate is evaluated on a
    periodic basis and any adjustment to the estimate is applied
    prospectively. The change in net present value of the future retirement
    obligation due to the passage of time is expensed as accretion. Actual
    retirement obligations settled during the period reduce the asset
    retirement liability.

    Revenue recognition

    Revenues from the sale of crude oil, natural gas and natural gas liquids
    are recognized when the commodities are delivered and title passes to the
    customer. Revenues associated with the sale of crude oil, natural gas and
    natural gas liquids are recorded gross of royalties, transportation and
    marketing charges.

    Loss per share

    The basic loss per share is computed by dividing the net loss for the
    year by the weighted average number of common shares outstanding during
    the year. The diluted loss per share reflects the potential dilution of
    common share equivalents, such as outstanding stock options and warrants,
    in the weighted average number of common shares outstanding during the
    year, if dilutive. For this purpose, the "treasury stock method" is used
    for the assumed proceeds upon the exercise of stock options and warrants
    that are used to purchase common shares at the average market price
    during the year. Options and warrants, as disclosed in Note 13, are anti-
    dilutive and, therefore, have not been taken into account in the per
    share calculations.

    Income taxes

    Future income taxes are recorded using the asset and liability method.
    Under the asset and liability method, future tax assets and liabilities
    are recognized for the future tax consequences attributable to
    differences between the financial statement carrying amounts of existing
    assets and liabilities and their respective tax bases. Future tax assets
    and liabilities are measured using the substantively enacted tax rates
    expected to apply when the asset is realized or the liability settled.
    The effect on future tax assets and liabilities of a change in tax rates
    is recognized in income in the period that substantive enactment occurs.
    To the extent that the Company does not consider it more likely than not
    that a future tax asset will be recovered, it provides a valuation
    allowance against the excess.

    Stock-based compensation

    The Company has a share option plan as described in Note 13. The Company
    uses the fair value method of accounting for all stock-based awards to
    non-employees and employees, including those that are direct awards of
    stock. Under the fair value method, employee compensation expense
    attributed to direct awards of stock is measured at the fair value of the
    award at the grant date using the Black-Scholes option-pricing model and
    is recognized over the vesting period of the award. If and when the stock
    options are ultimately exercised, the applicable amounts of contributed
    surplus are credited to share capital.

    During 2008, the Company introduced a cash-settled stock appreciation
    right plan; no stock appreciation rights ("SARs") were awarded under this
    plan during the year ended December 31, 2008. Subsequent to December 31,
    2008, the Company granted SARs under this plan as described in Note 22.
    The compensation cost for SARs granted to employees under this plan is
    accounted for using the intrinsic value method. Under this method, the
    Company accrues a liability for the SARs on the excess of the market
    price of the Company's common shares over the price of the SARs granted.
    The accrued liability is adjusted at each balance sheet date for the
    effect of SAR grants, vesting of SARs, SARs exercised, as well as the
    effect of changes in the underlying price of the Company's common shares.
    The net effect of these items is charged or credited to compensation
    expense.

    Foreign currency translation

    The Company translates foreign currency denominated monetary assets and
    liabilities of its integrated foreign subsidiaries at the exchange rate
    in effect at the balance sheet date and non-monetary assets and
    liabilities are translated at historical exchange rates. Revenues and
    expenses are translated at estimated transaction date exchange rates
    except depletion and depreciation expense, which is translated at the
    same historical rates as the related assets. Exchange gains or losses are
    included in the determination of net income as other items.

    Financial instruments

    Financial instruments are measured at fair value on initial recognition
    of the instrument, except for certain related party transactions.
    Measurement in subsequent periods depends on whether the financial
    instrument has been classified as held-for-trading, available-for-sale,
    held-to-maturity, loans or receivables, or other financial liabilities.

    Financial assets and financial liabilities held-for-trading are measured
    at fair value with changes in those fair values recognized in net
    earnings. Financial assets available-for-sale are measured at fair value,
    with changes in those fair values recognized in Other Comprehensive
    Income ("OCI"). Financial assets held-to-maturity, loans and receivables,
    and other financial liabilities are measured at amortized cost using the
    effective interest method of amortization.

    Cash and cash equivalents and restricted cash are designated as held-for-
    trading. Accounts receivable and other are designated as loans and
    receivables. Accounts payable and accrued liabilities, amounts due to
    shareholder, and long-term debt are designated as other financial
    liabilities.

    The Company has a derivative hedging agreement (Note 11) which has been
    classified as held-for-trading and as such is measured at fair value at
    the balance sheet date with the resulting change in value recognized in
    net earnings for the related period.

    The Company has adopted a policy to expense debt financing costs when
    they are incurred.

    Joint interests

    The Company's exploration activities is conducted jointly with others.
    These consolidated financial statements reflect only the Company's
    proportionate interest in such activities. Amounts due from (to) joint
    interest partners arise from the timing of the receipt of funds from cash
    calls made by the Company or the joint interest partners together with
    the timing of exploration activities.

    Comparative figures

    Certain of the prior year's figures have been reclassified to conform to
    the current year presentation. The Company's common shares have a par
    value of $0.04 each. Previously, the Company presented the amount of
    proceeds received in excess of par value within contributed surplus. In
    the current year the Company has presented these amounts as additional
    paid-in capital as disclosed in Note 13. There is no impact to
    shareholder's equity.

    Note 3. Changes in accounting policies

    Effective January 1, 2008, the Company has adopted five new accounting
    standards that were issued by the Canadian Institute of Chartered
    Accountants ("CICA"). The new standards and accounting policy changes are
    as follows:

    Going Concern (CICA Handbook Section 1400)

    In accordance with these new requirements management assesses and
    discloses the Company's ability to continue as a going concern.

    Capital Disclosures (CICA Handbook Section 1535)

    In accordance with this new standard, the Company now discloses its
    objectives, policies and processes for managing capital. This includes
    qualitative information regarding the Company's objectives, policies and
    processes for managing its capital and quantitative data about what the
    Company manages as capital. These disclosures are based in information
    used internally by the Company's management. See Note 15.

    Inventories (CICA Handbook Section 3031)

    In accordance with this new standard, inventory should be valued on a
    first-in first out or weighted average basis, which is consistent with
    the Company's treatment. This new standard also requires, when
    applicable, for the reversal of previous impairments. The adoption of
    this standard does not impact the Company's consolidated financial
    statements.

    Financial Instruments - Disclosures (CICA Handbook Section 3862) and
    Financial Instruments - Presentation (CICA Handbook Section 3863)

    CICA Handbook Sections 3862 and 3863 replace Section 3861 "Financial
    Instruments - Disclosure and Presentation." The effect of this change was
    to revise financial instrument disclosure requirements and leave the
    presentation requirements unchanged. These new sections place increased
    emphasis on disclosure about the nature and extent of risks arising from
    financial instruments and how Coastal manages these risks. See Note 16.

    Future accounting changes

    In February 2008, the CICA issued a new accounting standard Section 3064
    "Goodwill and Intangible Assets" which replaces Section 3062 "Goodwill
    and other intangible assets" and Section 3450 "Research and development
    costs." This section establishes standards for the recognition,
    measurement and disclosure of goodwill and intangible assets. The
    provisions relating to the definition and initial recognition of
    intangible assets are equivalent to the corresponding provisions of
    International Financial Reporting Standard IAS 38, "Intangible Assets."
    Emerging Issues Committee (EIC) abstract 27 "Revenues and expenditures
    during the pre-operating period" is no longer applicable for Coastal once
    Section 3064 is adopted. Accounting Guideline (AcG) 11 "Enterprises in
    the development stage" is amended to delete references to deferred costs
    and to provide guidance on development costs as intangible assets under
    Section 3064. This section is applicable to financial statements relating
    to fiscal years on or after October 1, 2008 and is not expected to have a
    material impact on the Company's financial condition or operating
    results.

    In January 2009, the CICA issued Section 1582, "Business Combinations",
    Section 1601, "Consolidations", and Section 1602, "Non-controlling
    Interests". These new standards are harmonized with International
    Financial Reporting Standards ("IFRS"). Section 1582 specifies a number
    of changes, including: an expanded definition of a business, a
    requirement to measure all business acquisitions at fair value, a
    requirement to measure non-controlling interests at fair value, and a
    requirement to recognize acquisition-related costs as expenses. Section
    1601 establishes the standards for preparing consolidated financial
    statements. Section 1602 specifies that non-controlling interests be
    treated as a separate component of equity, not as a liability or other
    item outside of equity. The new standards will become effective in 2011
    but early adoption is permitted. If the Company chooses to adopt any of
    these changes in CICA Section 1582, the other two sections must also be
    adopted at the same time.

    Coastal is currently evaluating the effects that these changes may have
    on the Company's financial statements in accordance with Canadian GAAP.

    In February 2008, the CICA announced that Canadian GAAP for publicly
    accountable enterprises will be replaced by IFRS for fiscal years
    beginning on or after January 1, 2011. The conversion from Canadian GAAP
    to IFRS will be applicable to the Company's reporting for the first
    quarter of 2011 for which the current and comparative information will be
    prepared under IFRS. The Company expects the transition to IFRS to impact
    accounting policies, financial reporting, IT systems and processes as
    well as certain business activities. The Company is currently in the
    process of finalizing an IFRS changeover plan. This process involves
    assessing the impact of the transition to IFRS and planning to ensure
    that the appropriate resources are available for a timely conversion.

    Note 4. Restatement of previously issued financial statements

    The December 31, 2007 figures have been restated to correct an error on
    under-recording the future income tax liability and expense associated
    with the outside basis difference between the carrying amount of the
    investment in Apico LLC and the Company's tax basis. The restatement is
    summarized as follows:

                                                              2007
                                                              ----
                                                    As reported  As restated
    -------------------------------------------------------------------------
    Balance sheet
    Future income tax liability                         $26,876      $28,738
    Statement of operations
    Income tax expense                                        -        1,862
    Loss from continuing operations                       5,221        7,083
    Net loss                                              7,233        9,095
    Basic and diluted loss per share from
      Continuing operations                                0.07         0.10
      Discontinued operations                              0.02         0.02
    -------------------------------------------------------------------------
                                                           0.09         0.12
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Note 5. Restricted cash

    The Company has cash balances which are restricted by the Company's
    banking institutions. The following table summarizes the restricted cash
    as of December 31, 2008 and 2007.

    December 31,                                           2008         2007
    -------------------------------------------------------------------------
    Collateral in support of Corporate Letter of
     Credit (Note 19)                                      $726         $667
    Restricted in support of Corporate Long-term
     Debt (Note 11)                                       3,420        1,381
    -------------------------------------------------------------------------
                                                         $4,146       $2,048
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Note 6. Accounts receivable and other

    December 31,                                           2008         2007
    -------------------------------------------------------------------------
    Refundable taxes                                     $1,389         $132
    Trade receivables                                       576            -
    Other receivables                                       426            6
    Prepaids, deposits and other assets                     271          312
    -------------------------------------------------------------------------
                                                         $2,662         $450
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Note 7. Investment in and advances to Apico LLC

    The Company holds approximately 36.1% of Apico, a limited liability
    company incorporated in the State of Delaware, USA. Apico's primary
    purpose is the acquisition, exploration and development of onshore
    petroleum interests in the Kingdom of Thailand. Apico has the following
    working interests in petroleum concessions located in the Khorat Plateau
    area in northeastern Thailand:

                                                        Apico's       net to
    Petroleum Concession                               interest      Coastal
    -------------------------------------------------------------------------
    Block EU-1 and E-5N in the Phu Horn gas field           35%      12.635%
    Block L15/43 - surrounding the Phu Horm gas
     field                                                 100%      36.100%
    Block L27/43 - southeast of the Phu Horm gas
     field                                                 100%      36.100%
    Block 13/48 - immediately east of the Phu Horm
     gas field                                              60%      21.660%


    The Company's investment in Apico exceeds its proportionate share of net
    assets of Apico ("excess basis"). This difference has been allocated to
    Apico's oil and gas properties and is being amortized using the units of
    production method. At December 31, 2008 and 2007, the remaining
    unamortized excess basis was $16.1 million and $17.2 million,
    respectively.

    The following table summarizes the Company's investments in and advances
    to Apico:

    Year ended December 31,                                2008         2007
    -------------------------------------------------------------------------
    Balance, beginning of year                          $53,188      $44,046
    Advances during the year                                903        1,463
    Share of earnings of significantly influenced
     investee, net of taxes                              13,963        9,212
    Amortization of excess basis in Apico                (1,059)      (1,533)
    Earnings distributions                              (16,619)           -
    -------------------------------------------------------------------------
    Balance, end of year                                $50,376      $53,188
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Note 8. Property plant and equipment, net

                       December 31, 2008             December 31, 2007
                       -----------------             -----------------
                      Cost    AD&D(*)      Net      Cost    AD&D(*)      Net
    -------------------------------------------------------------------------
    Oil and gas
     properties
      Gulf of
       Thailand   $152,098   $(1,655) $150,443   $75,687       $ -   $75,687
    Oil and gas
     production
     equipment      30,558         -    30,558     2,510         -     2,510
    Construction
     in progress    10,462         -    10,462    10,125         -    10,125
    Office
     furniture &
     computer
     equipment         971      (279)      692       450      (109)      341
    Leasehold
     improvements      129       (60)       69       125       (26)       99
    -------------------------------------------------------------------------
                  $194,218   $(1,994) $192,224   $88,897     $(135)  $88,762
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (*) Accumulated depletion and depreciation

    Thailand

    The Company has a 100% working interest in Block G5/43 in the Gulf of
    Thailand which includes the Bua Ban and Songkhla oil fields and 100%
    interest Block G5/50 in the Gulf of Thailand.

    During the year ended December 31, 2008, following the commencement of
    production, the Company began depleting its oil and gas properties. At
    December 31, 2008, oil and gas properties included $42 million of
    unproved properties that have been excluded from the depletion
    calculation.

    An impairment (ceiling) test review was performed for the Thailand cost
    centre at December 31, 2008 in which the estimated undiscounted future
    net cash flows associated with the proved reserves exceeded the carrying
    amounts. In determining the undiscounted future net cash flows for this
    cost centre, the Company utilized benchmark pricing forecasts from its
    professional reserves evaluator. The benchmark prices used in their
    forecast at December 31, 2008 are outlined in the following table:

                         Dubai Crude Oil(1)      Condensate      Natural Gas
    Year                            ($/bbl)          ($/bbl)          ($/Mcf)
    -------------------------------------------------------------------------
    2009                             44.93            45.64            5.040
    2010                             55.43            55.65            5.930
    2011                             61.43            61.36            6.440
    2012                             72.43            71.85            6.570
    2013                             79.44            78.53            7.100
    Thereafter inflation
     % change                           2%               2%               2%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Actual prices used in the impairment tests were adjusted for crude
        oil quality differentials, natural gas heat content, transportation
        and marketing costs specific to the Company's operations.

    Based on these assumptions, management's assessment is that there is no
    impairment of oil and gas properties and equipment as at December 31,
    2008.

    Oil and gas production equipment

    The Company is acquiring equipment to be used in the production of the
    Company's interests in the Gulf of Thailand. Once these assets are put
    into service, the Company will commence depreciation using the straight
    line method over their respective useful lives.

    Construction in progress

    Construction in progress relates to the acquisition and refurbishment of
    a mat-based jack-up rig which the Company intends to use in its
    development of its interests in the Gulf of Thailand. Once this asset is
    placed in service, the Company will commence depreciation using the
    straight line method over its useful life.

    Note 9. Accounts payable and accrued liabilities

    December 31,                                           2008         2007
    -------------------------------------------------------------------------
    Accounts payable
      Trade payables for capital acquisitions           $23,199       $7,681
      Other trade payables                                8,103          367
    -------------------------------------------------------------------------
                                                         31,302        8,048
    -------------------------------------------------------------------------
    Accrued liabilities
      Payroll and other employee related liabilities      2,634          268
      Other                                               1,600        1,477
    -------------------------------------------------------------------------
                                                          4,234        1,745
    -------------------------------------------------------------------------
                                                        $35,536       $9,793
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Note 10. Amounts due to shareholder

    Effective September 25, 2006, the Company assumed a note payable to the
    shareholder of NuCoastal Thailand Limited ("NuCoastal") for $4.6 million.
    The original note was unsecured, accrued interest at 4% and was set to
    mature on July 20, 2007. In January 2007, the note and its accrued
    interest were renegotiated to accrue interest at 4.5% per annum and
    mature on July 20, 2008. In July 2008, the note was renegotiated to
    mature on December 31, 2008 and the accrued interest through September
    30, 2007 of $411,000 was paid to the shareholder in July 2008. Effective
    November 20, 2008 the note payable balance was renegotiated to mature on
    March 31, 2009 at an interest rate of 7% per annum. At December 31, 2008
    the accrued interest on this note was $120,000.

    On December 30, 2008 the shareholder loaned the Company $2.0 million
    which is set to mature on June 30, 2009 and accrues interest at 15% per
    annum. Subsequent to December 31, 2008, a related party of this
    shareholder funded additional amounts (see Note 22.)

    Note 11.  Long-term debt

    December 31,                                           2008         2007
    -------------------------------------------------------------------------
    Revolving debt facility                             $44,000      $25,000
    Less: current portion                               (15,249)           -
    -------------------------------------------------------------------------
    Long-term debt                                      $28,751      $25,000
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    During the year ended December 31, 2007, the Company entered into a
    $50 million revolving debt facility (the "Facility"), secured by the
    Company's investment in Apico, with a final maturity date of December 31,
    2013. The Facility, arranged by Sumitomo Mitsui Banking Corporation
    Europe Limited ("SMBC"), consists of a $42.5 million senior loan and a
    $7.5 million junior loan. The Facility is in the form of a borrowing base
    loan and its availability is subject to recalculation every quarter. As
    of December 31, 2008, the amount available under the borrowing base was
    $45.0 million (2007 - $39.5 million), under which the Company had drawn a
    total of $44.0 million (2007 - $25 million) comprised of $38.5 million
    loans (2007 - $25 million) under the senior loan and $5.5 million (2007 -
    $nil) loan, drawn under the junior loan.

    Loans under this Facility bear interest at SMBCs' LIBOR plus an
    applicable margin between 1.75% and 3.5%. The applicable LIBOR rate is
    determined by the length of the interest renewal period; and the margin
    is dependent upon whether the loan is drawn under the senior or junior
    loan terms and the aggregate amount of loans outstanding. The effective
    interest rate on the Facility for the years ended December 31, 2008 and
    2007 was 5.18% and 8.05%, respectively. As part of the Facility, the
    Company is required to deposit funds into a bank account, which is
    considered restricted as to its availability (see Note 5). During the
    year ended December 31, 2007 the Company recorded $2.1 million of debt
    financing costs related to this Facility.

    As a requirement of the Facility, the Company entered into a derivative
    hedging agreement with an affiliate of SMBC under which the Company has
    the right to sell 4,000 metric tons per month (up to a total of 96,000
    metric tons) of Singapore fuel oil at a price of $290.00 per metric ton
    commencing July 1, 2007 and expiring June 30, 2009. The Company paid
    $1.2 million for this option. Derivative positions are recorded on the
    balance sheet at fair value with changes in fair value recorded in the
    statement of operations and deficit. As at December 31, 2008 and 2007 the
    fair value of the option was $2.0 million and $nil, respectively. During
    2008 and 2007 the Company recorded $2.0 million of unrealized gains and
    $1.2 million of unrealized losses, respectively on this instrument. Also
    during 2008 and 2007, the Company realized cash proceeds of $432,000 and
    $nil, respectively on the derivative instrument.

    Long-term debt repayment

    Principal repayments on long-term debt in each of the next five years are
    as follows:

    2009                                                             $15,249
    2010                                                               7,855
    2011                                                               8,289
    2012                                                               6,307
    2013                                                               6,300
    -------------------------------------------------------------------------
                                                                     $44,000
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Note 12. Asset retirement obligations

    The Company's asset retirement obligations result from net ownership
    interest in oil and gas properties, including well sites, production and
    processing facilities. The Company estimates the total undiscounted
    amount of cash flows required to settle its asset retirement obligations
    at December 31, 2008 and 2007 to be approximately $2.2 million and $nil,
    respectively which will be incurred approximately 12 years in the future,
    and are expected to be funded out of the Company's general resources
    available at the time of settlement. A credit adjusted risk free interest
    rate of 6.45% and an inflation rate of 2% were used to calculate the fair
    value of the asset retirement obligation. The following table provides a
    reconciliation of the asset retirement obligations:

                                                           2008         2007
    -------------------------------------------------------------------------
    Balance, beginning of year                              $ -          $ -
    Additions to future costs                             1,340            -
    Accretion expense                                        14            -
    -------------------------------------------------------------------------
    Balance end of year                                  $1,354          $ -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Note 13. Share capital

    Common Stock

    Authorized 250,000,000 common shares with par value of $0.04 each;

    Issued and fully paid common shares

                                   Share Capital
                  -----------------------------------------------
                      Number              Additional
                          of                 Paid In             Contributed
                      Shares   Par Value     Capital       Total     Surplus
    -------------------------------------------------------------------------
    Balance,
     December 31,
     2006         76,858,220      $3,074     $88,467     $91,541     $10,757
      Shares
       issued
       pursuant to
       exercise of
       stock
       options       125,000           5         215         220        (120)
      Stock-based
       compensation        -           -           -           -         811
    -------------------------------------------------------------------------
    Balance,
     December 31,
     2007         76,983,220      $3,079     $88,682     $91,761     $11,448
      Shares
       issued
       pursuant to
       offering,
       net of
       issue
       costs      16,445,000         658      53,791      54,449           -
      Shares
       issued
       pursuant to
       exercise
       of stock
       options       202,500           8         720         728        (303)
      Stock-based
       compensation        -           -           -           -       2,080
    -------------------------------------------------------------------------
    Balance,
     December 31,
     2008         93,630,720      $3,745    $143,193    $146,938     $13,225
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    On January 8, 2008, the Company completed a public offering of 16,445,000
    common shares (including the over-allotment option of 2,145,000 common
    shares) of the Company at a price of $3.50 (Cdn $3.50) per common share,
    raising gross proceeds of $57.6 million (Cdn $57.6 million). Proceeds of
    the offering, net of issuance costs of approximately $3.1 million, were
    $54.5 million.

    Warrants

    During the year ended December 31, 2007, warrants for 334,838 common
    shares expired unexercised. As of December 31, 2008, the Company had
    2,343,745 warrants outstanding, exercisable at $4.09 ((pnds stlg)2.80)
    per share and expiring July 20, 2010. The changes in warrants were as
    follows:

                                             Number         Weighted average
                                        of warrants           exercise price
    -------------------------------------------------------------------------
    Balance outstanding, December 31,
     2006                                 2,678,583   $3.83 ((pnds stlg)2.62)
      Warrants expired                     (334,838)  $2.05 ((pnds stlg)1.40)
    -------------------------------------------------------------------------
    Balance outstanding, December 31,
     2007 and 2008                        2,343,745   $4.09 ((pnds stlg)2.80)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    In January 2009, the Company issued additional warrants in connection
    with a debt offering (see Note 22.)

    Stock options

    The Company has a stock option plan (the "Plan") in compliance with the
    TSX-V's policy for granting stock options. Under the Plan, the number of
    shares reserved for issuance may not exceed 15,000,000 shares. At
    December 31, 2008 there remained for issuance 9,419,000 stock options.
    The exercise price of each option shall not be less than the market price
    of the Company's stock at the date of grant. The vesting term of options
    under the Plan is determined by the Company's Board of Directors but
    options granted typically vest over a period of three years with one-
    quarter vesting on the date of the grant and one-quarter vesting on each
    subsequent anniversary of the date of the grant. The maximum exercise
    period of options granted under the Plan is five years following the
    grant date. The changes in stock options were as follows:

                                                                    Weighted
                                                                     average
                                                         Number     exercise
                                                     of options        price
    -------------------------------------------------------------------------
    Balance outstanding, December 31, 2006            3,725,000        $1.88
      Options granted                                   375,000        $3.00
      Options exercised                                (125,000)       $0.79
      Options forfeited                                (275,000)       $2.53
    -------------------------------------------------------------------------
    Balance outstanding, December 31, 2007            3,700,000        $2.25
      Options granted                                 2,760,000        $3.19
      Options exercised                                (202,500)       $1.69
      Options forfeited                                (676,500)       $2.52
    -------------------------------------------------------------------------
    Balance outstanding, December 31, 2008            5,581,000        $2.41
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The following table summarizes the outstanding and exercisable options at
    December 31, 2008:

    -------------------------------------------------------------------------
                              Remain-
                                  ing
                              Contrac-                                 Number
                       Number    tual           Exercise    Expiry      Exer-
     Grant Date   Outstanding    Life              Price      Date    cisable
    -------------------------------------------------------------------------
    Jan. 25, 2005     187,500    1.00              $0.58   Dec. 31,   187,500
                                years    (pnds stlg 0.40)     2009
    Jul. 06, 2005     112,500    1.50              $2.05   Jul. 06,   112,500
                                years    (pnds stlg 1.40)     2010
    Dec. 27, 2006   2,575,000    3.00    $1.80 (Cdn$2.20)  Dec. 27, 2,025,000
                                years                         2011
    Jun. 15, 2007     206,250    3.50    $2.42 (Cdn$2.96)  Jun. 16,   193,750
                                years                         2012
    Jan. 25, 2008   1,114,750    4.00    $3.22 (Cdn$3.94)  Jan. 26,   614,500
                                years                         2013
    May 05, 2008      200,000    4.00    $3.63 (Cdn$4.44)   May 06,    50,000
                                years                         2013
    Jul. 14, 2008      85,000    4.50    $2.95 (Cdn$3.61)  Jul. 15,    21,250
                                years                         2013
    Sep. 16, 2008     100,000    4.75    $1.85 (Cdn$2.27)  Sep. 16,    25,000
                                years                         2013
    Sep. 23, 2008   1,000,000    4.75    $3.22 (Cdn$3.94)  Feb. 05,   250,000
                                years                         2013
    -------------------------------------------------------------------------
                    5,581,000                                       3,479,500
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    On January 2, 2009, 3,509,000 stock options were granted to directors,
    officers, employees and consultants with an exercise price of Cdn $1.35.
    Of these options, 750,000 were granted as incentives for new hires, 25%
    of which vest immediately upon the grant date and 25% vesting on each of
    the three subsequent anniversaries of the grant date. The remaining
    2,759,000 options were granted as part of the annual award which vests
    33.3% on each of the three subsequent anniversaries of the grant date.

    Stock-based compensation

    The fair value of each option granted is estimated at the time of the
    grant using the Black-Scholes option pricing model. The weighted average
    assumptions for grants and the weighted average fair value of option
    awards granted are as follows:

                                                           2008         2007
    -------------------------------------------------------------------------
    Risk-free interest rate                               3.00%        4.25%
    Expected life                                       3 years      3 years
    Annualized volatility                                   57%          40%
    Dividend rate                                            0%           0%
    Weighted average grant date fair value per option     $1.18        $0.92


    For the years ended December 31, 2008 and 2007, the Company recorded
    stock-based compensation of $2,080,000 and $811,000, respectively.

    Note 14. General and administrative

    Year ended December 31,                                2008         2007
    -------------------------------------------------------------------------
    Salaries and benefits                                $7,722       $3,689
    Professional fees                                     1,783        1,080
    Office and general                                    1,787        1,192
    Travel and entertainment                                996          598
    Regulatory and transfer agent                           536          378
    -------------------------------------------------------------------------
                                                        $12,824       $6,937
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Note 15. Capital management

    The Company's capital consists of working capital, amounts due to
    shareholder, long-term debt, and common stock. As the Company achieved
    first production in the fourth quarter of 2008, the majority of its
    capital to date has resulted from the issuance of debt and equity. A
    description of the amounts due to shareholder is identified in Note 10.
    The Company's long-term debt and related changes during the period are
    detailed in Note 11. Equity accounts for Coastal are identified
    in Note 13.

    Coastal is a public company and has established access in past
    transactions to both public and private debt and equity markets. The
    Company anticipates continuing to access both the debt and equity markets
    to fund future growth of the business (see Note 22).

    Note 16. Financial instruments and risk management

    Fair values

    The Company's financial instruments include cash and cash equivalents,
    restricted cash, accounts receivable and other, and accounts payable and
    accrued liabilities of which their carrying value approximates their fair
    value due to their short-term nature. The Company's derivative contract
    is considered held-for-trading and its fair value is marked to market
    every quarter based on quoted market prices in the futures market on the
    balance sheet date. Amounts due to shareholder and long-term debt are
    considered other financial liabilities and are recorded at amortized
    cost.

    The carrying value of the amounts due to shareholder approximates the
    fair value. This is due to the short-term nature of the liability. The
    fair value of the Company's long-term debt as at December 31, 2008 and
    2007 was $42.71 million and $24.27 million, respectively.

    The Company considers its risks in relation to financial instruments in
    the following categories:

    Credit risk

    Credit risk is the risk that a counterparty to a financial instrument
    will not discharge its obligations, resulting in a financial loss to the
    Company. The Company has procedures in place to minimize the credit risk
    it will assume. Coastal personnel evaluate credit risk on an ongoing
    basis including an evaluation of counterparty credit rating and
    counterparty concentrations measured by amount and percentage.

    The primary sources of credit risk for the Company arise from the
    following financial assets: (1) cash and cash equivalents and restricted
    cash; (2) accounts receivable and other; (3) derivative contract. The
    Company has not had any credit losses in the past nor does it anticipate
    future credit losses. At December 31, 2008, the Company has no financial
    assets that are past due or impaired due to credit risk related defaults.

    The Company's accounts receivable and other consists primarily of Value
    Added Tax ("VAT") refunds from the governments of Great Britain and
    Thailand and prepaid insurance. With respect to prepaid insurance, the
    Company's primary credit risk is on the underwriter(s) of the insurance
    policies on which the Company has paid annual premiums. In an effort to
    minimize this credit risk, the Company has chosen global insurance
    underwriters with an A+ or better credit rating by Moody's and Standard &
    Poor's. The Company's maximum exposure to credit risk at the balance
    sheet date is as follows:

    December 31,                                           2008         2007
    -------------------------------------------------------------------------
    Cash                                                 $6,434      $13,149
    Restricted cash                                       4,146        2,048
    Accounts receivable from government
     entities (UK, Thailand)                              1,389          132
    Trade receivable                                        576            -
    Other accounts receivable                               426            6
    -------------------------------------------------------------------------
                                                        $12,971      $15,335
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The Company's trade receivable at December 31, 2008 is from one customer
    and is less than 30 days aged. All revenues for the year ended December
    31, 2008 was from sales to two customers with each customer accounting
    for 71% and 29% of revenues. Typically, the Company's maximum credit
    exposure to customers is revenue from one month's commodity sales. The
    Company's standard credit terms have been (receipt of) payment within 30
    days of delivery. The Company's policy to mitigate credit risk associated
    with commodity sales is to establish relationships with credit worthy
    customers. The Company not experienced any collection issues on its trade
    receivables.

    Liquidity risk

    Liquidity risk is the risk that the Company will not be able to meet its
    obligations with respect to its financial liabilities. The Company's
    financial liabilities are comprised of accounts payable and accrued
    liabilities, long-term debt, obligations under operating leases and
    future contractual commitments. The Company frequently assesses its
    liquidity position and obligations under its financial liabilities by
    preparing financial forecasts. Coastal mitigates liquidity risks by
    maintaining a sufficient cash balance as well as maintaining a sufficient
    current and projected liquidity cushion to meet expected future payments.

    The Company's liquidity position has deteriorated during the year due to
    the ongoing development expenditure incurred at the Company's Gulf of
    Thailand properties. The current global financial crisis has caused
    severe illiquidity in capital markets, economic uncertainty and
    significant volatility in commodity prices. The Company's ability to
    raise additional capital could be restricted given the current market
    environment (Note 1).

    The Company's financial liabilities arose primarily from the development
    of its Thailand properties. Payment terms on the Company's accounts
    payable and accrued liabilities are typically 30 to 60 days from receipt
    of invoice and generally do not bear interest. At December 31, 2008 the
    Company had recorded all of the obligations associated with its financial
    liabilities. In the normal course of business, the Company enters into
    contracts that give rise to commitments for future minimum payments. The
    following table summarizes the remaining contractual maturities of the
    Company's financial liabilities and capital expenditures:


    December 31,                          2008                          2007
    -------------------------------------------------------------------------
                      2009      2010      2012  Thereafter   Total     Total
    -------------------------------------------------------------------------
    Accounts
     payable and
     accrued
     liabilities   $35,536       $ -       $ -       $ -   $35,536    $9,793
    Amounts due
     to
     shareholder     6,761         -         -         -     6,761     4,940
    Long-term
     debt payment   15,249     7,855     8,289    12,607    44,000    25,000
    Future
     commitments
     (Note 19)
      Capital
       expenditures  8,733     2,850     2,450         -    14,033    41,053
      Rental and
       lease
       payments      3,784        71         -         -     3,855       535
    -------------------------------------------------------------------------
                   $70,063   $10,776   $10,739   $12,607  $104,185   $81,321
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Market risk

    Market risk is the risk that the fair value (for assets or liabilities
    considered to be held-for-trading and available-for-sale) or future cash
    flows (for assets or liabilities considered to be held-to-maturity, other
    financial liabilities, and loans or receivables) of a financial
    instrument will fluctuate because of changes in market prices. The
    Company evaluates market risk on an ongoing basis. Coastal assesses the
    impact of variability in identified market risk on its various assets and
    liabilities and has established policies and procedures to mitigate
    market risk on its foreign exchange, interest rates and derivative
    contract.

    (a) Currency risk

    Coastal operates internationally and therefore is exposed to the effects
    of changes in currency exchange rates. Although the functional currency
    of the Company is United States dollars, it also transacts business in
    Thai baht, British pounds, Canadian dollars and Euros. The Company is
    subject to inflation in the countries in which it operates and
    fluctuations in the rate of currency exchange between the United States
    and these other countries. The Company does not currently use financial
    instruments or derivatives to hedge these currency risks.

    Exchange rate fluctuations may affect the costs that the Company incurs
    in its operations. The Company's costs are incurred principally in US
    dollar, Thai baht, UK pounds and Canadian dollars. The appreciation of
    non-US dollar currencies against the US dollar can increase the costs of
    operations and capital expenditures in US dollar terms. As part of the
    Company's 2006 acquisition of NuCoastal, which in accordance with
    Canadian GAAP was accounted for as a reverse takeover ("RTO"), the
    Company recorded for book purposes a $24.3 million future tax liability
    on an oil and gas concession which was valued in the underlying Thai baht
    currency. This future income tax liability is considered a monetary item;
    and as such is revalued each period end at the current exchange rate,
    with the gain or loss recorded in net earnings (loss) for the period.

    The Company is exposed to currency risk through the following US dollar
    equivalent of financial assets and liabilities denominated in currencies
    other than US dollars:


                                             Accounts
                    Cash and                  payable    Income       Future
                        cash    Accounts  and accrued     taxes   income tax
                 equivalents  receivable  liabilities   payable  liabilities
    -------------------------------------------------------------------------
    December 31, 2008
    -----------------
    Thai Baht           $158      $1,362    $(13,805)    $(1,252)   $(25,984)
    UK Pounds            139          27        (282)          -           -
    Canadian Dollars       4           -        (123)          -           -
    Singapore Dollars      -           -      (2,520)          -           -
    Euros                  7           -         (70)          -           -
    -------------------------------------------------------------------------
                        $308      $1,389    $(16,800)    $(1,252)   $(25,984)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                                                                (As restated
                                                                      Note 4)
    December 31, 2007
    -----------------
    Thai Baht           $317         $95     $(4,407)        $ -    $(28,738)
    UK Pounds            242          36        (136)          -           -
    Canadian Dollars      24           -        (192)          -           -
    Euros                  -           -           -           -           -
    -------------------------------------------------------------------------
                        $583        $131     $(4,735)        $ -    $(28,738)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Based on the above net exposures at December 31, 2008, a 10% depreciation
    or appreciation of the above currencies against the US dollar would
    result in a $4.236 million increase or decrease in the Company's after-
    tax earnings.

    (b) Interest rate risk

    The Company is exposed to interest rate risk on its outstanding
    borrowings and short-term investments. Presently the majority of the
    Company's credit facilities are at floating interest rates. The Company
    monitors its exposure to interest rates and is comfortable with its
    exposures given the relatively short-term of the interest rates on long-
    term debt. The terms of the Company's long-term debt obligation is
    described in Note 11. The Company has met its obligations with respect to
    this liability. The Company accounts for its borrowings under the long-
    term debt on an amortized cost basis. The Company had borrowings totaling
    $50.8 million at December 31, 2008 (see Notes 10 and 11). A 100 basis
    point change in interest rates would result in a $508,000 change in the
    Company's earnings.

    (c) Commodity price risk

    Profitability of the Company depends on market prices for petroleum and
    natural gas. Petroleum and natural gas prices are affected by numerous
    factors such as global consumption and demand for petroleum and natural
    gas, international economic and political trends, fluctuation in the US
    dollar and other currencies, interest rates, and inflation.

    The Company has onshore Thailand production via its equity ownership of
    Apico (Note 7.) The pricing of Apico's production under its Gas Sales
    Agreement ("GSA") is tied to a 6 months moving average of the Singapore
    Medium Fuel Oil price ("reference price"). A 10% change in the reference
    price would result in a $1.2 million change in the Company's annual after
    tax earnings.

    The Company's long-term debt (Note 11) incorporates the reference price
    in its model to determine the effective borrowing base under which the
    Company may borrow. This model does not reflect 100% of the reference
    price. Thus a 10% decline in the reference price projection would reduce
    the availability under the borrowing base by approximately 4% or $1.8
    million.

    As a requirement of the debt facilities, the Company entered into a
    derivative hedging agreement described in Note 11. Coastal's derivative
    contract was in place and the Company realized cash settled proceeds of
    $0.422 million and $nil under it during the year ended December 31, 2008
    and 2007 respectively.

    Note 17. Income taxes

    The Company has taxable operations in Thailand, the United Kingdom and
    United States.

    The Company's provision for income taxes consists of the following:


    Year ended December 31,                                2008         2007
                                                                (As restated
                                                                      Note 4)
    -------------------------------------------------------------------------
    Current income taxes                                 $2,484          $ -
    Future income taxes (recovery) expense               (1,818)       1,862
    -------------------------------------------------------------------------
                                                           $666       $1,862
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The provision for income taxes from continuing operations reported
    differs from the statutory tax rates in the jurisdictions of operations
    due to the following:

                                                           2008         2007
                                                                (As restated
                                                                      Note 4)
    -------------------------------------------------------------------------
    Statutory tax rate                                      - %          - %

    Recovery of income taxes computed
     at standard rates                                      $ -          $ -
    Effect of higher tax rates on losses of
     operations in foreign jurisdictions                 (1,692)        (747)
    Benefit of income tax losses not recognized           1,692          747
    Outside basis difference on investment in Apico LLC     666        1,862
    -------------------------------------------------------------------------
                                                           $666       $1,862
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    There is presently no taxation imposed by the Government of the Cayman
    Islands on income or capital gains. If any form of taxation were to be
    enacted, the Company has been granted an exemption until May 26, 2024.
    The Company is subject to foreign withholding taxes on dividend and
    interest income.

    In April 2008, the Company's Thai subsidiary transferred its 25.5%
    interest in Apico, LLC at its net book value to the Company's Cayman
    Island subsidiary. The Company has recorded a current tax liability and
    related current tax expense of $2.484 million related to this transfer
    during the quarter ended June 30, 2008, based on a corporate rate of 30%.
    In August, 2008, the Company made a $1.232 million estimated tax payment
    toward this tax liability.

    The approximate tax effect of each type of temporary difference that
    gives rise to the Company's future income tax assets are as follows:


                                                           2008         2007
    -------------------------------------------------------------------------
                                                              $            $
    Future income tax assets
      Non-capital loss carryforwards                     17,500        1,167
    Valuation allowance                                 (17,500)      (1,167)
    -------------------------------------------------------------------------
    Net future income tax asset                             $ -          $ -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                                                (As restated
                                                                      Note 4)
    Future income tax liability
      Accumulated cost basis differences on assets       25,984       28,738
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Under Thailand's Petroleum Income Tax Act ("PITA"), the Company is not
    required to file an income tax return until after its first production.
    All costs incurred in Thailand prior to first production are capitalized
    for income tax purposes and amortized over ten years beginning with first
    production. The Company has approximately $32.5 million of Thailand PITA
    tax losses to offset future taxable income that expire in 2018;
    approximately $3.4 million of United States tax losses to offset future
    taxable income that expire in 2025 through 2027; and approximately $0.7
    million of Mauritius tax losses to offset future taxable income that
    expire in 2012 through 2013.

    The future income tax liability is valued in the underlying currency of
    the related assets. The change in this account is directly attributable
    to the currency valuation on this liability and the effect of this change
    is included in the statement of operations, comprehensive loss and
    deficit under the foreign exchange loss.

    Note 18. Discontinued operations

    In August 2007, the Company formally relinquished all its working
    interest in the Nevada leases to the temporary operator in exchange for
    the Company's current obligation to pay the operator $21,000 related to
    well clean up costs along with all future obligations surrounding this
    working interest. The Company wrote off its interest in this property of
    approximately $2 million. These transactions are measured at the exchange
    amount, which is the amount of consideration established and agreed to by
    the related parties.

    The Nevada leases were the only property within the United States cost
    centre. Accordingly, the information related to the Nevada leases is
    presented as discontinued operations in the Company's consolidated
    financial statements. There were no assets and liabilities related to
    discontinued operations as at December 31, 2007.

    Note 19. Commitments and contingencies

    The Company has provided a Letter of Credit to the Thailand Customs
    Department for $0.6 million. This Letter of Credit is cash collateralized
    (see Note 5), has not been drawn on and remains outstanding as of
    December 31, 2008.

    The Company has entered into various commitments primarily related to the
    ongoing development of its Thailand G5/43 property (see Note 8). Coastal
    has secured equipment and work commitments in the Gulf of Thailand. In
    December 2007, the Company was awarded the G5/50 Concession in the Gulf
    of Thailand, within the boundaries of the Company's G5/43 Concession. In
    order to keep this Concession, the Company has various development
    obligations. The Company also has operating lease agreements for office
    space in the United Kingdom, Thailand and the United States. The
    following table summarizes the Company's outstanding contractual
    obligations:

    Year                           G5/43       G5/50       Other       Total
    -------------------------------------------------------------------------
    2009                         $11,483        $850        $184     $12,517
    2010                               -       2,840          71       2,911
    2011                               -       2,450           -       2,450

    The Company is from time to time involved in various claims, legal
    proceedings, complaints and disputes with governmental authorities
    arising in the ordinary course of business. The Company does not believe
    that adverse decisions in any pending or threatened proceedings related
    to any matter, or any amount which it may be required to pay by reason
    thereof, will have a material effect on the financial condition or future
    results of operations of the Company.

    Note 20. Supplemental cash flow information

    The following table summarizes the changes in non-cash working capital
    for the years ended December 31, 2008 and 2007:

    Year ended December 31,                                2008         2007
    -------------------------------------------------------------------------
    Accounts receivable and other                       $(2,520)        $(32)
    Accounts payable and accrued liabilities              3,284       (3,003)
    Current income taxes payable                          1,252            -
    -------------------------------------------------------------------------
                                                         $2,016      $(3,035)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    During the years ended December 31, 2008 and 2007, the Company made cash
    payments for income taxes and interest on long-term debt as follows:

    Year ended December 31,                                2008         2007
    -------------------------------------------------------------------------
    Interest on long-term debt                           $2,295         $600
    Income taxes                                          1,232            -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Note 21. Segmented information

    Operating segment

    The Company's primary current operations are the acquisition, exploration
    and development of oil and gas properties in the Gulf of Thailand. The
    Company also has an indirect operating segment involved in the
    acquisition, exploration and development of onshore petroleum properties
    in Thailand. This segment is owned through the Company's 36.1% interest
    in Apico which is accounted for using the equity method (Note 7). The
    Company's corporate office is located in the United States of America.

    Geographic segments

    The Company's revenues and expenses from continuing operations for the
    years ended December 31, 2008 and 2007 and oil and gas assets supporting
    continuing operations as at December 31, 2008 and 2007 were as follows:


    2008                         Onshore     Gulf of
                                Thailand    Thailand   Corporate       Total
    -------------------------------------------------------------------------
    Oil and gas revenues, net        $ -      $3,884         $ -      $3,884
    -------------------------------------------------------------------------

    Expenses and other
    Production expenses                -       1,597           -       1,597
    General and administrative         -       1,961      10,863      12,824
    (Gain) loss on derivative          -           -      (2,447)     (2,447)
    Foreign exchange (gain) loss       -         393       3,476       3,869
    Interest expense                   -         431       1,715       2,146
    Interest income                    -          (6)       (976)       (982)
    (Gain) loss on sale of assets      -           -        (217)       (217)
    Depletion, depreciation
     & accretion                       -       1,798          95       1,893
    Income taxes                     666           -           -         666
    Share of Apico earnings      (12,904)          -           -     (12,904)
    -------------------------------------------------------------------------
    Net income (loss) from
     continuing operations        12,238      (2,290)    (12,509)     (2,561)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Investment in Apico           50,376           -           -      50,376
    Property, plant and
     equipment, net                    -     191,836         388     192,224
    Total assets                  50,376     202,954       5,133     258,463
    Capital expenditures               -     103,429         553     103,982
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    2007 (As restated Note 4)    Onshore     Gulf of
                                Thailand    Thailand   Corporate       Total
    -------------------------------------------------------------------------
    Oil and gas revenues, net        $ -         $ -         $ -         $ -
    -------------------------------------------------------------------------

    Expenses and other
    General and administrative         -       1,393       5,568       6,961
    (Gain) loss on derivative          -           -       1,166       1,166
    Foreign exchange (gain) loss       -        (172)      1,971       1,799
    Interest expense                   -         216         922       1,138
    Interest income                    -          (1)       (429)       (430)
    Debt financing fees                                    2,132       2,132
    (Gain) loss on sale of assets      -           -          40          40
    Depletion, depreciation
     & accretion                       -          51          43          94
    Income taxes                   1,862           -           -       1,862
    Share of Apico earnings       (7,679)          -           -      (7,679)
    -------------------------------------------------------------------------
    Net income (loss) from
     continuing operations         5,817      (1,487)    (11,413)     (7,083)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Investment in Apico           53,188           -           -      53,188
    Property, plant and
     equipment, net                    -      88,536         226      88,762
    Total assets                  53,188      92,282      12,184     157,654
    Capital expenditures               -      21,564         381      21,945
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Note 22. Subsequent events

    From January 1, 2009 to April 23, 2009, the Company announced that it:

    (a) had entered into an unsecured loan agreement with an individual
        related to the Company's primary shareholder, O. S. Wyatt, Jr. in the
        amount of $1 million bearing interest at 15% per annum and maturing
        on June 30, 2009.

    (b) had closed a $5 million senior secured loan with an unrelated private
        partnership bearing interest at 16% per annum and maturing on July
        19, 2009. This loan is secured by the Company's Ocean 66 vessel which
        is currently located in Galveston, Texas.

    (c) had completed its offering of 100 senior unsecured notes raising $10
        million. These notes bear interest at 15% per annum and will mature
        on January 23, 2010. Each $100,000 note was issued with a warrant
        entitling the holder thereof to acquire 20,000 shares of the
        Company's common shares at an exercise price of Cdn$1.136. The
        warrants will expire on January 23, 2014.

    (d) had awarded stock appreciation rights under its respective plan for
        the equivalent of approximately 2,075,000 shares, of which
        approximately 280,000 shares are contingent upon the achievement of
        certain performance goals established by the Company. These awards
        vest 33.3% on each of the subsequent anniversaries of the date the
        award was granted.

    (e) had received the Thai Baht equivalent of $36.2 million as a
        prepayment for 1,000,000 barrels of crude oil to be delivered though
        June 2009. The prepayment is based on a discounted price per barrel
        which takes into account the time value of the prepayment versus the
        expected delivery schedule for the crude oil production. The price
        per barrel is tied to a crude oil index and actual deliveries will be
        adjusted to reflect the current index price per the contract in
        effect at the date of delivery. This adjustment will be settled
        within 30 days of the actual delivery.


    NON-INDEPENDENT DIRECTOR       ABBREVIATIONS

    Randy L. Bartley,              bbl    barrel
    President and CEO(4)           boe    barrel of oil equivalent
                                          of natural gas and crude
    INDEPENDENT DIRECTORS                 oil on the basis of
                                          1 boe for 6 mcf of
    C. Robert Black(1)(2)(4)(5)           natural gas
    Former Senior Vice President,  bbl/d  barrels of oil per day
    Office of the Chairman         mbbls  thousand barrels
    Texaco, Inc.                   mcf    thousand cubic feet
                                   mmcf   million cubic feet
    Bernard de Combret(3)(4)(5)    mcf/d  thousand cubic feet per day
    Chairman                       mmcf/d million cubic feet per day
    Former Deputy Chairman         bcf    billion cubic feet
    Executive Committee
    Total Fina Elf, S.A.           TSX-V  TSX Venture Exchange
                                          (Canada)
    Olivier de Montal              AIM    London AIM Exchange
    Administrator,                        (UK)
    Olympia Capital Holding
                                   THIRD PARTY ADVISORS
    Lloyd Barnaby Smith(2)(5)
    Former British Ambassador      Petroleum and Geological Engineers:
    to Thailand                    Huddleston & Co., Inc.

    Forrest E. Wylie(1)(3)(4)(5)   Corporate Bankers:
    Chairman, CEO & President      Sumitomo Mitsui Banking Corporation
    Buckeye Partners, L.P.
                                   Auditors:
    John B. Zaozirny(1)            Deloitte & Touche LLP
    Vice Chairman,                 (Canada)
    Canaccord Capital
                                   Legal Counselors:
    Committees of the Board:       Stikeman Elliott LLP (Canada & UK)
    (1) Audit,                     Walkers SPV Limited (Cayman Islands)
    (2) Compensation,              Mayer Brown JSM (Thailand)
    (3) Corporate Governance
        and Nominating,            Stock Registrars:
    (4) Executive; and             Computershare (TSX-V)
    (5) Reserves                   Capita Registrars (LSE-AIM)

    SENIOR MANAGEMENT              Nominated Advisor (NOMAD):
                                   Strand Partners Limited
    Bernard de Combret,
    Chairman                       London Joint Brokers:
                                   Thomas Weisel Partners
    Randy L. Bartley,              Tristone Capital Ltd.
    President, CEO, Director

    William C. Phelps,             COASTAL ENERGY COMPANY
    Chief Financial Officer        Walkers House, 87 Mary Street
                                   George Town, Grand Cayman
    John M. Griffith,              Cayman Islands, BWI
    Vice President, Operations
    Thailand General Manager       10 route de l'Aeroport, WTC I
                                   1215 Geneva, Switzerland

    TRADING SYMBOLS                3355 West Alabama, Suite 500
                                   Houston, Texas 77098 USA
    CEN on TSX-V                   T: +01 713 877 7125
    CEO on AIM                     F: +01 713 877 7128

                                   24th Floor, Unit 2401, 2405
    WEBSITE                        Two Pacific Place Building
                                   142 Sukhumvit Road, Klongtoey
    www.CoastalEnergy.com          Bangkok  10110 Thailand
                                   T: +66 2(0) 610 0555
                                   F: +66 2(0) 610 0541
    INVESTOR RELATIONS

    Matthew E. Laterza
    T: +01 (713) 877-6793
    F: +01 (713) 877-7125
    Email:
    investor@CoastalEnergy.com
    





For further information:

For further information: Coastal Energy Company, Randy L. Bartley, Chief
Executive Officer, (713) 877-6705; William C. Phelps, Chief Financial Officer,
(713) 877-6727, Email: investor@CoastalEnergy.com; Strand Partners Limited
(Nominated Adviser), Rory Murphy, +44 (0) 20 7409 3494; Thomas Weisel Partners
(Broker), Paul Colucci, +44 (0) 20 7877 4300; Tristone Capital (Broker), Majid
Shafiq, +44 (0) 20 7355 5800; Bell Pottinger Corporate & Financial, Nick
Lambert, Rosanne Perry, +44 (0) 20 7861 3232

Organization Profile

COASTAL ENERGY COMPANY

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