Cobalt International Energy, Inc.
Notes to Consolidated Financial Statements (Continued)
F-24
10. Long-term Debt (Continued)
As of December 31, 2015 and December 31, 2014, the debt discounts associated with the Company’s convertible senior notes
resulted in the recognition of $233.6 million and $264.3 million of deferred tax liability, respectively. The Company is in an overall
net deferred tax assets position with a full valuation allowance. Therefore, the Company has determined that it is more likely than not
that all of the deferred tax assets will not be realized.
11. Angola Transaction
On August 22, 2015, Cobalt International Energy Angola Ltd. (“Cobalt Angola”), a wholly-owned subsidiary of the Company,
executed a purchase and sale agreement (the “Purchase and Sale Agreement”) with Sonangol for the sale by Cobalt Angola to
Sonangol of the entire issued and outstanding share capital of CIE Angola Block 20 Ltd. and CIE Angola Block 21 Ltd., which
respectively hold the Company’s 40% working interest in each of Block 20 and Block 21 offshore Angola for aggregate gross
consideration of $1.75 billion before Angolan withholding taxes of approximately $19.7 million (to be netted out of the gross
consideration to be paid to Cobalt Angola) and certain other U.S. and Angolan taxes, expenses, and contingent liabilities. Sonangol
Pesquisa e Produção, S.A., an affiliate of Sonangol, currently holds a 30% working interest in Block 20 and a 60% working interest in
Block 21. The Angola Transaction is subject to Angolan government approvals.
The Purchase and Sale Agreement provides for the payment of the net consideration by Sonangol to Cobalt Angola of
(i) $250 million within 7 days following the execution of the Purchase and Sale Agreement (the “First Payment”), (ii) approximately
$1.28 billion within 15 days following the receipt of the Angolan government approvals (the “Second Payment”), and
(iii) $200 million within the earlier of 30 days following the execution of a transfer of operations agreement, which will contain terms
and conditions governing the transition of operations on each of Block 20 and Block 21 from the Company to a new operator, or one
year from the execution of the Purchase and Sale Agreement (the “Third Payment”). The Purchase and Sale Agreement further
provides that within 15 days following the receipt of the Angolan government approvals, Sonangol shall reimburse Cobalt Angola for
its share of costs attributable to Block 20 and Block 21 for the period from January 1, 2015 through the date upon which Cobalt
Angola receives the Angolan government approvals (the “Reimbursement Amount”). The obligation of Cobalt Angola to transfer the
share capital of CIE Angola Block 20 Ltd. and CIE Angola Block 21 Ltd. to Sonangol and consummate the Angola Transaction is
subject to the receipt by Cobalt Angola of the First Payment, the Second Payment and the Reimbursement Amount. Following
completion of the transfer of the shares of CIE Angola Block 20 Ltd. and CIE Angola Block 21 Ltd., the Company shall relinquish its
interest in Block 9 offshore Angola to Sonangol. If the Angolan government approvals are not received within one year from the
execution date of the Purchase and Sale Agreement, the Purchase and Sale Agreement will automatically terminate and any
obligations executed by the parties thereto shall be restituted in order to put such parties in their original positions as if no agreement
had been executed. As a result, the First Payment has been reported as restricted cash and a liability on the balance sheet.
Pursuant to the Purchase and Sale Agreement, the Company is required to provide certain transition services to Sonangol, which
may include continuing to support operations on Block 20 and 21 on a no-profit no-loss basis until Sonangol nominates a new
operator or operators of such blocks, despite the fact that the Company may have already transferred the share capital of its
subsidiaries holding its working interests in Blocks 20 and 21 to Sonangol.
The Company received the First Payment during the quarterly period ended September 30, 2015. The Angola Transaction is
currently pending Angola government approval, and the Company therefore has not received the Second Payment, Third Payment or
Reimbursement Amount.
Royalty Agreement
On February 13, 2009, the Company entered into a restated overriding royalty agreement (the “Royalty Agreement”) with
Whitton Petroleum Services Limited (“Whitton”). Pursuant to the terms of the Royalty Agreement, in consideration for Whitton’s
consulting services in connection with Blocks 9, 20 and 21 offshore Angola and the Company’s business and operations in Angola,
Whitton is to receive quarterly payments (measured in U.S. Dollars) equal to 2.5% of the market price of the Company’s share of the
crude oil produced in such quarter and not used in petroleum operations, less the cost recovery crude oil, assuming the applicable
government contract is a production sharing agreement. If the applicable government contract is a risk services agreement and not a
production sharing agreement (which is the case with respect to Blocks 9 and 21), pursuant to the Royalty Agreement, the Company
has undertaken to agree with Whitton an economic model (the “RSA Economic Model”) containing terms equivalent to those in such
risk services agreement and using actual production and costs. The RSA Economic Model has not yet been agreed with Whitton.
Should the Company assign all of its interest in such Blocks, Whitton may, depending on the option the Company elects, have the
