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Cobalt Touts GoM, West Africa Discoveries; Adds to Gulf Arsenal
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Cobalt International Energy, Inc. announced a net loss of $82 million, or $0.20 per basic and diluted share for the first quarter of 2015, compared to a net loss of $57 million, or $0.14 per basic and diluted share, for the first quarter of 2014. The current quarter included $17 million of impairment charges for the previously announced abandonment of the North Platte #2 appraisal well.
Capital and operating expenditures (excluding changes in working capital) for the quarter ending March 31, 2015 were approximately $191 million, in line with our planned capital and operating expenditures of approximately $800-900 million in 2015. Cash, cash equivalents, and investments at the end of the first quarter were approximately $2.1 billion. This includes about $105 million held for future operations in collateralizing letters of credit.
Operational Update
Cobalt continues to appraise and develop several of its discoveries in Angola and the Gulf of Mexico, with a focus on progressing each to potential sanction while simultaneously evaluating financing, partnership or other potential means of enhancing shareholder value.
West Africa
In Angola Block 20, the Orca #2 appraisal well and drill stem test results confirmed the presence of a large oil accumulation in the Sag section of the Pre-salt. In addition, log and sampling evaluation results have confirmed the discovery of oil in the deeper Synrift reservoir of the Pre-salt. Orca #2 was drilled seven kilometers (four and one-third miles) from the Orca #1 discovery well and is Cobalt’s first appraisal well drilled on its significant 2014 Orca deepwater Pre-salt discovery in the Kwanza Basin. Orca is the largest oil discovery found to date in the Kwanza Basin. Cobalt and its partners anticipate more appraisal activities in the future to determine Orca’s development and production potential. Cobalt, as operator, holds a 40% working interest in Orca.
At Cameia in Angola Block 21, Cobalt is currently drilling the Cameia #4 development well. Cobalt plans a continuous development drilling program at Cameia for the remainder of 2015 and early 2016. In conjunction with these ongoing development drilling activities, Cobalt continues to focus efforts on the optimization of Cameia facility and subsea infrastructure design and costs to take advantage of favorable market forces attributed to the current downturn in industry activity. Cobalt’s current FPSO design is a nominal 75,000 barrel per day facility, with a likely production capacity in excess of 80,000 barrels per day early in the field’s life. As previously stated, Cobalt believes that Cameia’s project economics remain robust in the current commodity price environment. Cobalt expects to achieve formal project sanction of Cameia by year-end 2015, aligned with its efforts to deliver first production in 2018. Cobalt, as operator, holds a 40% working interest in Cameia.
Gulf of Mexico
In the U.S. Gulf of Mexico, Cobalt anticipates appraisal operations will commence on the Anchor Inboard Lower Tertiary discovery in the coming months. As announced earlier this year, Anchor represents Cobalt’s fourth significant deepwater Gulf of Mexico discovery. Cobalt, as non-operator, holds a 20% working interest in Anchor.
On April 23, 2015, Cobalt commenced drilling the North Platte #3 appraisal well as a replacement well for the North Platte #2 well, which as previously announced was plugged and abandoned due to a seal failure in the riser connection system. The North Platte #3 appraisal well is being drilled to further evaluate the Inboard Lower Tertiary reservoirs encountered in Cobalt’s 2012 North Platte #1 discovery well. North Platte #1 found over 550 net feet of oil pay in multiple high-quality Inboard Lower Tertiary reservoirs. Cobalt, as operator, holds a 60% working interest in North Platte.
Appraisal operations are also expected to resume at Shenandoah, where planning is well underway for the drilling of the Shenandoah #4 well, the third appraisal well which is anticipated to spud before the end of the second quarter. The well is expected to confirm the lateral sand quality, continuity and stratigraphy of reservoirs found in the Shenandoah #2 appraisal well, which encountered over 1,000 net feet of oil pay in excellent quality Inboard Lower Tertiary-aged reservoirs. Shenandoah #4 is located approximately 800 feet updip and 0.7 miles northwest of Shenandoah #2. Cobalt, as non-operator, holds a 20% working interest in Shenandoah.
At Heidelberg, development drilling and production facility construction continue and remain on schedule to support initial production in the first half of 2016. The Heidelberg production facility is designed to produce up to 80,000 barrels of oil and 80 million cubic feet of gas per day. Cobalt, as non-operator, holds a 9.375% working interest in Heidelberg.
Cobalt also participated in the Central OCS Lease Sale 235, and was high bidder on all five bids submitted. To date, Cobalt has been awarded four of the five bid blocks and is awaiting notification of decision by the Bureau of Ocean Energy Management on the fifth high bid.
Balance Sheet and Financing Priorities
With the aforementioned $2.1 billion in balance sheet cash, cash equivalents and investments, Cobalt continues to be well positioned to execute on its stated financing priorities for 2015 and beyond. These priorities remain the access of pre-production Reserve Based Lending (RBL) facilities and the pursuit of regional asset-based partnerships, with a focus on maximizing the shareholder value of Cobalt’s extensive portfolio of attractive deepwater assets.
For the $150 million Heidelberg RBL facility, the first of its kind in the Gulf of Mexico, Cobalt has now received commitments from multiple banks and expects to close and draw from the facility during the second quarter. The commitments are subject to the negotiation and execution of definitive loan documentation and other customary conditions.
On the regional partnership front, Cobalt has been encouraged by the broad industry and financial investor response regarding an investment opportunity in Cobalt’s Angola portfolio. Cobalt plans to evaluate any proposals obtained through this process against other financing alternatives. We expect to finalize this process later this year.