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Its Worth Funding 6 Billion Barrels of Potential Through 2015; Raising Estimates

Bottom Line: No one likes near-term dilution - but in this case we would highlight that more funding for Cobalt (announced as a convertible) is actually good news. With a greater funding run way through 2015 (excluding development spend), Cobalt can drill more exploration wells and this could deliver more value to shareholders. Assuming full dilution but adding in the risked value of additional wells from the 2015 program, our valuation would rise 18% - we show details inside in the full report. Cobalt is drilling up to 6bn boe unrisked over the next few years - with a risked value of $32/sh and unrisked value of $70/sh.

North Platte a Key Success: Not only does the recent discovery derisk up to 2.4bn boe (at 100% WI) in the region, the marketability of these assets when appraised is high, opening up new potential sources of funding.

Next Catalysts: CIE is drilling Aegean right after North Platte with the same rig (Ensco 8503). We will probably get DST results from Cameia in March. Aegean will take 5 months for results and Mango (pre salt Gabon, spudding in February) will follow in July or August.

Funding: This convertible more than funds the exploration program that we use in our NAV through 2015, leaving some potential for additional exploration/appraisal wells or long lead items for early development at Cameia/North Platte. In a success case, further funding could be secured from a combination of reserve-based lending (North Platte / Cameia), farmdowns of working interests or through additional capital market activities. Our diluted share count increases due to convertible issuance leading to a 2-3% change to EPS. We are raising our 2012/2013 EPS estimates to a loss of $0.65/$1.22 from a loss of $0.67/$1.25 respectively.

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