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Cobalt International Energy Inc (NYSE: CIE) Is Today's Oil Play

Cobalt International Energy Inc (NYSE: CIE) Is Today's Oil Play
Written by
Jarrod Wesson
Published on
April 13, 2017
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Last Friday, the shareholders of Cobalt International Energy, Inc (NYSE: CIE) saw their shares run up the chart without any relevant news. Something was going on, so we decided to take a look at CIE. In this article, we will provide you some unique insight. Take a look at the recent moves of the share price:SourceCobalt International EnergyCobalt is engaged in the independent exploration and production of oil and gas in the deepwater U.S. Gulf of Mexico and offshore Angola and Gabon in West Africa. The company owns four discoveries in North Platte, Shenandoah, Anchor and Heidelberg. Three of them are in various stages of appraisal, whereas Heidelberg began production in January 2016.You can check the annual report, wherein you will find detailed explanation of the projects that the company owns. Otherwise, we made a summary that you can read here:Production and development projects

  1. Heidelberg (9.375% working interest): producing approximately 27,000 barrels of oil equivalent per day gross from five wells. It has estimated net proved reserves of 3.0 million barrels of oil, 1.2 billion cubic feet equivalent of natural gas, and 0.1 million barrels of natural gas liquids, or 3.3 million barrels of oil equivalent.

Appraisal and Development

  1. North Platte (60% working interest)
  2. Shenandoah (20% working interest)
  3. Anchor (20% working interest)
  4. Block 20 in West Africa (40% working interest) in the deepwater of Kwanza Basin.
  5. Block 21 in West Africa (40% working interest) in the Kwanza Basin.
  6. Diaba Block (21.25% working interest) in the South Gabon Coastal basin

The company reported in its last 10-k that it owns 2.1 millions barrels of oil equivalents of proved and developed reserves and 1.2 million barrels of oil equivalents of proved and undeveloped reserves. For those who do not understand these figures it means that the company owns reserves that are ready to be produced and sold. Even if the company does not discover new oil fields, it will be able to obtain revenues in the following years due to these known reserves.Financial perspectiveLike other oil and gas operators, Cobalt shows a balance sheet wherein the amount of assets is not able to cover the long term debt. As of December 31, 2016, the company owns $2,230 million in total assets including $613 million in cash and $1,078 million in oil and gas properties. The amount of long term debt reported is $2,479 millions.Like this other author in Seeking Alpha, I believe that the company's shares may go up in the future, as we are right now seeing the worst case scenario. The company has not yet filed for bankruptcy, but it may do it. However, we believe that the company owns valuable assets and will be able to sell them in the future, which may save the company.Cobalt owns valuable assets in West Africa; the blocks 20 and 21. In our opinion, if the company is able to wait for some time, the oil price may continue its uptrend and these assets will be worth much more. This investment play is risky, but it will surely benefit very much at the end.Recent news to explain the Friday run upIn our opinion, the share price became extremely volatile because some traders maybe got to know before others the fact that the President of Cobalt, James H. Painter, would resign in a few days. On April 11, 2017, the company issued a press release, reporting the departure of directors.In these kind of situations, when the share price is a disaster, the departure of the President is something that shareholders appreciate. The general idea is that new management can solve the situation. These kind of events make the share price rise. And this is what actually happened on Friday. However, in our opinion, the new President does not have the profile that shareholders expected and that is the reason that the share price went back down on Monday morning. We believe that the company needs someone with investment banking expertise or corporate finance knowledge in order to negotiate with debt holders.ConclusionCobalt seems like a bit risky, but also a rewarding investment play if oil prices keep rising. The company owns large amount of assets including reserves and production fields that other companies may appreciate. However, the long term debt is large as well and the company may have to negotiate with its debt holders. We believe that if the company is able to bide more time, given that the oil price is in an uptrend, its assets will be worth more.Additionally, we assessed what happened on Friday, discovering that the President resigned on Monday. So, we suspect that some traders got to know the information before. On Monday, the market go to know the person who will be the next president of the company and we believe that traders did not like it. Right now, all we can do is wait and see the steps new management makes.We will be updating our subscribers as soon as we know more. For the latest updates on CIE, sign up below!Disclosure: We have no position in CIE and have not been compensated for this article.

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