Houston’s Cobalt International Energy Inc. (CIE) isn’t quite so international anymore after selling its offshore Angola interests on Aug. 24.

The Angolan National Concessionaire Sociedade Nacional de Combustíveis de Angola - Empresa Pública (Sonangol) agreed to purchase Cobalt’s 40% participating interest in offshore Blocks 21/09 and 20/11 for $2.1 billion. The price includes $1.75 billion for the interests and $400 million for expenses.

Cobalt said it expects a gain of $600 million or $1.50 per share on the sale.

Bob Brackett, senior analyst, Bernstein Research, summed up the sale as a case of “desperate times call for prudent measures.”

“With the expected relinquishment of Block 9 around the end of 2015, CIE will no longer have any active licenses in Angola,” Brackett said. “CIE is shifting its focus to North America, dominantly deepwater GoM.”

The transaction price values the development and pre-development reserves at $6.80 per barrels of oil equivalent (boe). Cobalt’s blocks fetched a price 23% higher than recent comparable West Africa values of $5.50/boe.

Cobalt, offshore, Angola, Sonangol, deal

However, Brackett said the deal put the value at a 13% discount to its risked net asset value (NAV) of $2.5 billion.

“We had previously valued these same assets at $3.5 billion, 70% higher, with a higher oil price,” he said.

The deal marks a significant change for the company after seven years of work in Angola, including opening the Kwanza Basin’s pre-salt play and making five significant discoveries, said Joseph H. Bryant, Cobalt’s chairman and CEO.

By June 2014, the company had made discoveries of 3.4 Bboe (1 Bboe net).

Cobalt’s activities in Angola also brought unwanted scrutiny for more than three years. The Securities and Exchange Commission (SEC) investigated the company for possible violations of the Foreign Corrupt Practices Act, at one point causing the company to lose $700 million in market value. The SEC’s investigation was terminated in January.

A new relationship between Cobalt and Sonangol will now move forward, Bryant said.

“We remain committed to continuing our joint efforts with Sonangol to move the Cameia development project to sanction by year-end,” he said.

Cobalt plans to concentrate on its asset portfolio in deepwater GoM.

The Heidelberg discovery is on track to produce first oil by mid-2016. The company is actively appraising GoM operations in North Platte, Shenandoah and Anchor.

Cobalt’s exit gives the “fat tail” to Sonangol, although Brackett questioned how Sonangol will develop the assets. But since a large integrated company did not win bids for the blocks, the market may be cautious of investment in deepwater assets.

After the deal is finalized:

  • Cobalt will receive $250 million within seven days of signing;
  • After Angolan government approval, Cobalt will be paid $1.3 billion and remit $20 million in Angolan tax withholdings;
  • Cobalt will receive $400 million for all reimbursable expenditures from Jan. 1, 2015; and
  • The remaining $200 million will be paid to Cobalt within 30 days of agreement transferring operations and no longer than one year after signing.

“We hate to sell assets at the bottom of the price cycle, but we believe the price to be fair,” Brackett said.

The transaction has a Jan. 1, 2015, effective date.

Contact the author, Darren Barbee, at dbarbee@hartenergy.com.

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