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Cobalt International Energy Has Lethargic Debut
The week before Christmas might be an odd time for a company to go public, but Cobalt International Energy (NYSE: CIE) is eager for capital to get its ambitious exploration program started.
CIE is an oil and gas exploration and production company with properties in the Gulf of Mexico and offshore West Africa. The company was founded in 2005 with funds from private equity and is targeting oil prospects.
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The company issued 63 million shares at $13.50. This was a little disappointing and was below the $15-$17 expected range. The company raised $851 million before expenses and possible underwriter over allotment.
Gulf Of Mexico
CIE has 47 prospects in the Gulf of Mexico deepwater area, split equally between the Lower Tertiary and the Miocene Sands formations.
The company had two successes earlier in the year on its Gulf of Mexico blocks. The Heidelberg #1 well and the Shenandoah #1 each hit several hundred feet of net pay. Anadarko Petroleum (NYSE: APC) is the operator on both blocks where the discoveries were made, and CIE held a 9.375% and 20% working interest in these two wells, respectively.
CIE shares some good company on its properties in the Gulf of Mexico. It signed an alliance with Total SA (NYSE: TOT) and combined part of each company's respective exploration blocks into one portfolio.
Plans are to drill 13 wells over the next four years in the Gulf of Mexico. Since these prospects are at staggering depths, CIE is using a fifth generation semi-submersible owned by Ensco International (NYSE: ESV) and another advanced rig owned by Transocean (NYSE: RIG).
West Africa
Active in the offshore area in Gabon and Angola, CIE is exploring the pre-salt area offshore and plans two exploratory wells in both areas in 2011. The company has identified 85 total prospects in West Africa.
Risks
The CIE story has some risks. The company has no revenues and won't have any for quite some time. The Heidelberg #1 and Shenandoah #1 wells, although successful, will take years to flow to sales. This means the company might come back to the market to sell more equity or issue debt to fund its operations or capital programs.
Exploration risk is another consideration. Investors accustomed to onshore shale operators with 100% drilling success in various shale plays should understand that deepwater exploration is much different and can result in expensive dry holes.
A Long-Term Bet
Although CIE fell a little short in its IPO, the company has a large number of prospects in two areas where other exploration and production companies have found oil and gas. This company just might pay off in the long term for patient investors who like its future well inventory. (To learn more, see our Oil And Gas Industry Primer.)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
IN PICTURES: Learn To Invest In 10 Steps
The company issued 63 million shares at $13.50. This was a little disappointing and was below the $15-$17 expected range. The company raised $851 million before expenses and possible underwriter over allotment.
Gulf Of Mexico
CIE has 47 prospects in the Gulf of Mexico deepwater area, split equally between the Lower Tertiary and the Miocene Sands formations.
The company had two successes earlier in the year on its Gulf of Mexico blocks. The Heidelberg #1 well and the Shenandoah #1 each hit several hundred feet of net pay. Anadarko Petroleum (NYSE: APC) is the operator on both blocks where the discoveries were made, and CIE held a 9.375% and 20% working interest in these two wells, respectively.
CIE shares some good company on its properties in the Gulf of Mexico. It signed an alliance with Total SA (NYSE: TOT) and combined part of each company's respective exploration blocks into one portfolio.
West Africa
Active in the offshore area in Gabon and Angola, CIE is exploring the pre-salt area offshore and plans two exploratory wells in both areas in 2011. The company has identified 85 total prospects in West Africa.
Risks
The CIE story has some risks. The company has no revenues and won't have any for quite some time. The Heidelberg #1 and Shenandoah #1 wells, although successful, will take years to flow to sales. This means the company might come back to the market to sell more equity or issue debt to fund its operations or capital programs.
Exploration risk is another consideration. Investors accustomed to onshore shale operators with 100% drilling success in various shale plays should understand that deepwater exploration is much different and can result in expensive dry holes.
A Long-Term Bet
Although CIE fell a little short in its IPO, the company has a large number of prospects in two areas where other exploration and production companies have found oil and gas. This company just might pay off in the long term for patient investors who like its future well inventory. (To learn more, see our Oil And Gas Industry Primer.)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
by
Eric Fox
Eric J. Fox, CFA, is a freelance financial writer and has previous experience working in the asset management industry as an equity analyst and portfolio manager on the buy side. His favorite area to write on is the energy sector and he keeps current on the industry by reading Haynesville Shale, Permian Oil and Gas and various other blogs.
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