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Cobalt International Energy, Inc.
Cobalt’s field appraisal operations in 2014 included drilling
a highly successful appraisal well in our giant Gulf of Mexico
Shenandoah field. The well data obtained from the Shenan-
doah #3 appraisal well has reduced the uncertainty of the
resource range and reservoir properties in the field. Planning
is underway for the next Shenandoah appraisal well, which
is expected to commence sometime later in 2015. Appraisal
operations continued in Angola as well, where Cobalt drilled
the significant Cameia #3 appraisal well. This well confirmed
reservoir and fluid properties continuity between the three
wells drilled to date in the Cameia field and it provided us
incremental confidence in Cameia’s overall development
plan. In addition to these appraisal operations, we saw
continued progress on the development of our Heidelberg
field, which is on schedule and on budget for production
start-up in the first half of 2016. First production at Heidelberg
will be a pivotal milestone for Cobalt, as it will represent our
first production and cash flow.
With regard to our partnership interests in Angola Blocks
9 and 21, in 2014, our interests were modified with the
departure of the two local Angolan companies. The departure
of the non-paying Local Partner, Alper, has had the net eect
of reducing our cost obligations in Blocks 9 and 21 by 10%
on an 8/8’s basis. Also, in January 2015, we announced that
we received a termination letter from the U.S. Securities and
Exchange Commission formally concluding its investigation
related to our operations in Angola.
As we pivot from our historical exploration focus to appraisal
and development of our existing discoveries, 2015 is shaping
up as another transformative year for Cobalt. We are currently
drilling appraisal wells at Orca in Angola and at North Platte
in the Gulf of Mexico and will begin drilling development
wells in our Cameia field, again demonstrating our confidence
in the project’s robust economics. Furthermore, we expect
further appraisal drilling to commence at Shenandoah later
this year, as well as at Anchor.
Our eorts to renew our worldwide exploration portfolio
will continue in 2015. Our New Ventures team continues to
evaluate opportunities that play to our strengths. We continue
to believe that the deepwater, oil prone subsalt and Pre-salt
basins hold great potential for large volumes of oil at highly
attractive financial returns. However, we are cognizant that
we will not put our liquidity at risk with any new exploration
opportunity.
Looking forward, we believe that the anticipated deflationary
cost environment comes at an advantageous time, given
that Cobalt is now pivoting from a sole focus on exploration
to the majority of our capital program directed toward
appraisal and development of many of our exciting
discoveries. We are carefully reviewing all of our commitments
to ensure that we time our access to the market to maximize
any benefit from cost savings in services and supplies.
Over the next few years, Cobalt will require significant capital
to develop our discoveries. Our strategy is straightforward:
We will seek the lowest cost and least dilutive sources of
capital on a timely basis to fund our needs. This strategy
starts with and assumes that high quality, world class assets
will attract capital. We began 2015 with over $2 billion on
our balance sheet, and will supplement our balance sheet
as necessary over the coming years to fund our operations.
An example of this strategy is the recently announced
Reserve Based Lending (RBL) facility for Proved Undeveloped
Reserves for our Heidelberg field. This was the first of its
kind in the Gulf of Mexico and is hopefully representative
of future asset based financings that we will use to develop
our other discoveries.
It is important to remember that today’s challenges come
with opportunities, especially at this point in Cobalt’s
operational cycle when we are pivoting from exploration
to appraisal and development. Cobalt has faced many
challenges since we formed this company almost ten years
ago and we have always confronted our challenges head
on. Who would have predicted the financial crisis or Macondo,
either one of which could have stopped Cobalt in its tracks?
Just like we did with each of those enormous hurdles, we
are facing the challenges presented by today’s environment
head on. I am so proud of the extraordinary men and women
who make up the Cobalt team. I want you to know that we
will aggressively protect Cobalt’s assets and balance sheet
as we advance our company to production and cash flow in
order to deliver to you, our shareholders, the full value of
our great portfolio.
On behalf of the Board of Directors and the entire Cobalt
team, thank you for your continued support of and confidence
in Cobalt.
Joseph H. Bryant
Chairman and Chief Executive Ocer
As we pivot from our historical exploration focus to appraisal and development of our existing
discoveries, 2015 is shaping up as another transformative year for Cobalt.
