Cobalt International Energy, Inc.
Notes to Consolidated Financial Statements (Continued)
23. Supplemental Information on Oil and Gas Exploration and Production Activities (Unaudited)
(Continued)
(2) The estimated future cash flows are compiled by applying the twelve month average of the
first of the month prices of crude oil and natural gas relating to the Company’s proved
reserves to the year-end quantities of those reserves for reserves.
(3) The future cash flows are reduced by estimated production costs, costs to develop and
produce the proved reserves and abandonment costs, all based on year-end economic
conditions, plus Company overhead incurred.
(4) Future income tax expenses are based on year-end statutory tax rates giving effect to the
remaining tax basis in the oil and natural gas properties, other deductions, credits and
allowances relating to the Company’s proved oil and natural gas reserves.
(5) Future net cash flows are discounted to present value by applying a discount rate of 10%.
The assumptions used to compute the standardized measure are those prescribed by the U.S.
Generally Accepted Accounting Principles. These assumptions do not necessarily reflect the Company’s
expectations of actual revenues to be derived from those reserves, nor their present value. The
limitations inherent in the reserve quantity estimation process, as discussed previously, are equally
applicable to the standardized measure computations, since these reserve quantity estimates are the
basis for the valuation process. The Company emphasizes that reserve estimates are inherently
imprecise and that estimates of new discoveries and undeveloped locations are more imprecise than
estimates of established proved producing oil and gas properties. The standardized measure of
discounted future net cash flows does not purport, nor should it be interpreted, to present the fair
value of the Company’s oil and natural gas reserves. An estimate of fair value would also take into
account, among other things, the recovery of reserves not presently classified as proved, anticipated
future changes in prices and costs and a discount factor more representative of the time value of
money and the risks inherent in reserve estimates.
Prices used in the report prepared by NSAI are based on the 12-month unweighted arithmetic
average of the first-day-of-the-month price for each month in the period January through December
2014. For oil volumes, the average Light Louisiana Sweet spot price of $98.48 per barrel is adjusted for
quality, transportation fees, and a regional price differential. For gas volumes, the average Henry Hub
spot price of $4.350 per MMbtu is adjusted for energy content, transportation fees, and a regional price
differential. All prices are held constant throughout the lives of the properties. For the proved reserves,
the average adjusted product prices weighted by production over the remaining lives of the properties
are $95.24 per barrel of oil and $4.770 per Mcf of gas.
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