Cobalt International Energy, Inc. (CIE)

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Cobalt International Energy Inc. (CIE)

F2Q11 Earnings Call

July 27, 2011 11:00 a.m. ET


Joseph Bryant – Chairman, CEO

John Wilkirson – Chief Financial Officer

Van P. Whitfield – EVP, Operations and Development


Evan Calio – Morgan Stanley

Joseph Allman – JP Morgan

David Heikkinen - Tudor Pickering

Brian Singer – Goldman Sachs

Ed Westlake – Credit Suisse

Richard Tullis – Capital One



Good day everyone. And welcome to Cobalt International Energy’s Second Quarter 2011 Conference Call. Just a reminder, today’s call is being recorded. Before we get started, one housekeeping matter. This conference call includes forward-looking statements, the risks associated with forward-looking statements have been outlined in the earnings release and in Cobalt’s SEC filings and will incorporate these by reference for this call.

At this time for opening remarks and introduction, I would like to turn the call over to the Chairman and CEO of Cobalt, Mr. Joe Bryant. Please go ahead, sir.

Joseph Bryant

Good morning, and thank you for joining us on Cobalt’s second quarter 2011 earnings and operational update call. Joining me on the call this morning is John Wilkirson, our Chief Financial Officer. I have a few brief comments before I turn the call over to John for a quick review of our financial results.

We focused all of our attention in the second quarter and five principle areas that we believe will deliver value to our shareholders. These include one, completing our success for follow-on stock offering, which provided Cobalt an even stronger balance sheet. Two, completing our operational readiness in Angola to start our initial Pre-salt exploration wells Bicaur and Cameia. Three, completing the goal change and responding to offer our eventual 40% working interest in Block 20. Four, submitting all required material for our North Platte and Ligurian Applications for permit to drill in the Gulf of Mexico. And five, continuing our efforts to minimize cash outlays while ensuring that we’re fully prepared to resume operations in the Gulf of Mexico in 2011. I’m happy to say that we were successful in each of these endeavors.

As you know, we launched our follow-on offering April 1st and closed the transaction on April 15th, having raised an additional $499 million before expenses.

I want to thank all of the shareholders who participated in this offering, including those of you who are new shareholders of our company. With our successful offering, we feel that we are well funded to execute our planned explorations and appraisal programs through the end of 2013.

In Angola, we were ready to begin our drilling program by the end of the second quarter but we’re not able to commence operations until July 14th, 2011 due to the late arrival of the Diamond Offshore Ocean Confidence drilling rig. On July 19th, we commenced our initial two well Pre-salt exploration drilling programs on Block 21, Offshore Angola by spreading the services levels, Bicuar Number 1 exploratory well.

On July 20th, after setting the 36 inch conductor casing and drilling approximately 200 meters of surface hole, we encountered an over-pressured water sand, resulting in a water flow with very limited quantities of natural gas. Those safety will involve other issues resulted from the sense of it. We are focused now on our abandonment procedures for the Bicuar Number 1 Exploratory well surface location.

Given the (lucrative) of encountering pressure at Water Sands and Angolan water, we have agreed with Sonangol’s that we would take our learning from this incident and re-examine our shallow hazard analysis of proposed Cameia and Bicuar drilling locations before we move the drilling rig to Cameia or a different surface location here in Bicuar.

Also in Angola, we completed all production sharing agreement negotiations of Sonangol, covering 40% working interest in Block 20. The negotiations went as expected with no surprises or deviations from the agreement terms that we had anticipated prior to the award of our interest. We have not yet closed this production sharing agreement and we are waiting on notification from Sonangol as to when closing will occur.

I want to emphasize that we’re in constant contact with Sonangol on this issue. And we’re absolutely confident that this agreement will close in the near future. However, I’m not in a position to forecast of any accuracy when that closing will occur. Let me point out that no money has been deposited or paid out and will not be until closing.

We’re especially proud of the progress that we made in the Gulf of Mexico in the second quarter and support of our plans to return to work in the very near future. On June 3rd, the BOEMRE approving the exploration plan for Cobalt’s Ligurian prospect, but as like (Baleia), the BOEMRE approved the exploration plan for additional locations in the North Platte prospect area.

Additionally, during the second quarter, we submitted our final applications for permits to drill our APDs for both the North Platte and Ligurian. We were requested by the BOEMRE to provide a few additional points of clarification for our Ligurian APD, which we have now provided.

The various conversations we had with the BOE, we now believe that the only remaining outstanding item were finally ED approval for both North Platte and Ligurian, it is a costar certificate of compliance for the Ensco 8503 drilling rig. This certificate cannot be issued until the rig arrives back in the Gulf of Mexico.

As you are aware, we sublet the 8503 to Tullow for a well in Christiana. We are expecting the rig to be returned to us sometime late this quarter. The soothing success in security APDs for both Ligurian and North Platte, our drilling preference continues to be to drill Ligurian first followed by North Platte. We currently estimate that we will be able to start either well sometime in late September or early October.

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