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Cobalt International Energy (NYSE:CIE)

Q4 2012 Earnings Call

February 26, 2013 11:00 am ET

Executives

Joseph H. Bryant - Chairman and Chief Executive Officer

John P. Wilkirson - Chief Financial Officer, Principal Accounting Officer and Executive Vice President

Analysts

Evan Calio - Morgan Stanley, Research Division

Brian Singer - Goldman Sachs Group Inc., Research Division

Ryan Todd - Deutsche Bank AG, Research Division

Edward Westlake - Crédit Suisse AG, Research Division

John Malone - Global Hunter Securities, LLC, Research Division

Michael S. Scialla - Stifel, Nicolaus & Co., Inc., Research Division

Al Stanton - RBC Capital Markets, LLC, Research Division

Joseph D. Allman - JP Morgan Chase & Co, Research Division

Operator

Good day, everyone, and welcome to Cobalt International Energy's Fourth Quarter and Year-End 2012 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 filing, and we incorporate these by reference for this call.

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

Joseph H. Bryant

Good morning, and thank you for joining Cobalt's fourth quarter and full year 2012 financial and operational update call. Joining me on the call this morning is John Wilkirson, Cobalt's Chief Financial Officer.

We're pleased to be in a position this morning to talk about several significant milestones that have been achieved in the past few months. First and foremost, as of December announcement of our North Platte Inboard Lower Tertiary discovery in the Gulf of Mexico, followed by the recent news that our preliminary results for our Shenandoah appraisal well are very encouraging. The Diamond Offshore Ocean Confidence Rig is back on location at Cameia 2, and we expect that we should be able to announce the results of our lower zone drill stem test later in the first quarter.

In addition, we successfully completed our $1.4 billion convertible debt offering in December, which allowed us to end 2012 with approximately $2.7 billion on our balance sheet. Finally, I do want to note the January successful $1 billion secondary offering, resulting in Cobalt's financial sponsors now owning about 42% of our outstanding shares. We are no longer a controlled company and this offering increased our flow by approximately 21%.

Before I talk specifically about North Platte, I would like to say a few words about our overall Inboard Lower Tertiary strategy. Simply stated from day one, we positioned Cobalt to be a dominant player in the Inboard Lower Tertiary trend because we believe 7 years ago, it could emerge as the new crowned jewel production trend in the Gulf of Mexico. In early 2006, we developed a regional model that suggested all the conditions could be present in the Inboard Lower Tertiary for successful exploration program consisting of very large structures, high-quality fluids and excellent reservoir rock. When these factors are combined, we believed that they would yield attractive full cycle economics. At that time, in 2006, this geologic theory was untested. Our early intent was to build an asset portfolio in the Gulf of Mexico that would provide the means to build on this strategy.

We've always believed the true exploration value is a result of being a first or early mover in basins or trends. By being a first mover, you can tie up the acreage at very low cost and control your destiny in many operational ways. This is what we have done in the Inboard Lower Tertiary trend, and as a matter of fact, in our West Africa pre-salt play as well.

To put this strategy into action requires acquisition of state-of-the-art 3D Seismic data, which we acquired immediately after we formed Cobalt in November 2005. We spent the first half of 2006 mapping most of the deep Inboard Lower Tertiary structures in the trend. Keep in mind that at that time, there was limited well data of any kind in this trend, so the work of our exploration team did to uncover these apparent sub-salt structures was truly leading edge.

In any event, once we identified structures, we proceeded to begin bidding on them in upcoming lease sales. As a matter fact, the first lease sale that Cobalt participated in was the August 2006 Western Gulf sale, at which time we bought all of the available North Platte acreage. It's interesting to note that our total acquisition cost was approximately $22 million or 5 blocks or an average of $4.5 million per block. This compares to the most recent Central Gulf sale, when the high bid on 1 block in the inboard Lower Tertiary trend was $61 million.

Over the following 6 years, we added additional prospects to our inventory when they became available in subsequent lease sales. This then is the history of how Cobalt came to own what we believe is the one of the industry's preeminent positions in the inboard Lower Tertiary.

Today, we own 10 prospects in addition to North Platte and Shenandoah discoveries, with an average working interest of 47%. These prospects are estimated and contain some 3 billion barrels of potential resource per DeGolyer and MacNaughton.

Our recent success at North Platte and the very encouraging results from our Shenandoah appraisal well are particularly gratifying given Cobalt's long history in the trend. Thus far, we have drilled 3 highly successful wells, going 3 for 3, resulting in 2 significant discoveries in what is clearly an exciting new exploration trend moving to production in the Gulf of Mexico. We are both very proud of these results.

I do want to say a few words about our drilling operations on our North Platte well. First of all, I would say that this is clearly one of the most challenging wells ever drilled in the deepwater Gulf of Mexico. As a matter of fact, we believe that there have only been 3 wells ever drilled deeper than North Platte in deepwater. Even with these challenges, our operations team delivered a world-class well in record time for any well drilled in the post-Macondo era. We did this without any safety or environmental incidents. We are as proud of our North Platte operating results as we are of our geologic success.

We find ourselves today, clearly focused on Cobalt's future in the inboard Lower Tertiary, which will include additional appraisal, evaluation and engineering for the North Platte and Shenandoah discoveries. We anticipate this work will ultimately lead to production from these 2 very large deals. In addition, we will continue our aggressive Inboard Lower Tertiary exploration program, which includes the currently drilling Ardennes prospect, followed by Aegean later this year.

As I mentioned, we have about 10 follow-on prospects in the trend, all of which are similar in many ways to North Platte and Shenandoah. We believe that our early identification of this trend's potential and our ability to assemble at an extraordinary project inventory will yield exceptional short and long-term value for our shareholders.

Our pre-salt strategy on West Africa was similar to that, which I described in the Gulf of Mexico inboard Lower Tertiary. We focused on being the first mover in emerging exploration play, which involved building a preeminent acreage position and then drilling play opening wells. This is exactly what we did when we identified the West Africa pre-salt play and then acquired rights to 4 premier blocks in Gabon and Angola with material interest in each. Our Cameia success gives us great confidence in our West Africa strategy and our portfolio.

2013 will be jam-packed for us in West Africa. We are starting off the year with our Cameia 2 lower zone Drill Stem Test, which as I said, we expect to complete in the first quarter. After we complete the Cameia test, we will move the Ocean Confidence Rig to Mabinga, which is an offset prospect, immediately to the north of Cameia and to the south of Lontra.

Speaking of Lontra, the new build Petroserv Catarina drilling rig is making its way to Angola now, and we expect it to be on location by the end of March. Once it arrives, we have a few weeks of deepwater acceptance testing to complete before we spud Lontra sometime in April or early May. We expect results from both the Mabinga and the Lontra wells sometime in the middle of the year. We will then move the Ocean Confidence to our Bicuar aspect, which is just south of Cameia. And later this spring, we will choose the next location for Catarina rig from several options which we are now considering.

In addition, we expect TOTAL to spud our much anticipated Diamond prospect in Gabon sometime in the second quarter, which results of this well expected mid-year as well.

Let me wrap up my introductory comments by saying that we also expect to sanction the Heidelberg project in the Gulf of Mexico sometime in the second quarter of this year, but first production commencing in 2016. And we are continuing to move our Cameia project towards sanction some time later this year or early 2014, with first production in 2016 as well.

With those comments, I'll turn the call over to John for his review of our financials.

John P. Wilkirson

Thanks. Joe mentioned our balance sheet remained strong, and cash at year-end 2012 of over $2.7 billion, this includes the proceeds from our very successful $1.4 billion December convertible notes offering. On December 31, we had over $2.2 billion of unrestricted cash and investments, plus just under $500 million of cash and investments designated for future operations held in escrow and collateralized letters of credit. Since the first of the year, $90 million of restricted cash has moved to unrestricted cash, as we received a release of 1/2 of the escrow funds associated with the Ensco 8503 drilling rig contract.

In addition, and not reported on our balance sheet, are the joint promote funds of about $155 million for our Gulf of Mexico program with TOTAL. This amount now includes an additional $60 million with regard as a result of the success of the North Platte #1 well.

As reported in this morning's release, our fourth quarter 2012 net loss was $67 million or $0.16 per basic annuity share. For the full year 2012, our net loss was $0.70 for basic and diluted share. Our full year 2012 cash expenditures, excluding working capital changes, were approximately $620 million, consistent with our previous estimated range of $550 million to $650 million.

Shifting to 2013, we previously released our cash expenditure forecast, excluding working capital changes and interest, of $750 million to $900 million. The higher expenditures in 2013, relative to 2012, are consistent with our increased drilling activity anticipated this year in the Gulf of Mexico, Angola and Gabon. We expect about 3/4 of our 2013 net cash spending to be exploration drilling-related. And because of the effect of various carries, about 2/3 of the net cash spending will be in West Africa. Our estimate for first quarter cash expenditures is $130 million to $150 million, excluding working capital items.

We expect our full year 2013 earnings to line with our cash expenditures. As in prior quarters, the primary earnings uncertainty will be either the capitalization or expensing of the cost, often the results of the individual exploration wells. We expect 2013 noncash earnings-related items from operations of about $5 million per quarter, which has been similar to prior quarters. In addition, going forward, we'll have about $11 million per quarter of noncash interest amortization associated with the convertible note.

Given our current expectations, our balance sheet cash will carry us well towards the end of 2014, if not beyond. Joining the prospects that offset our piloting discovery such as North Platte and Cameia, and the appraisal in long-lead development spending would determine 2014 and 2015 expenditures. We continue to expect first production and first cash flow from Heidelberg and Cameia in 2016.

I will now turn the call back to Joe.

Joseph H. Bryant

Thanks, John. Let's now open the line up for any questions that you may have.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from the line of Evan Calio with Morgan Stanley.

Evan Calio - Morgan Stanley, Research Division

First question on the Shenandoah appraisal. At least from your recent slide deck, you're testing 2 zones there, and I didn't know if you could provide any details on net pay of either zone or at least on a preliminary basis, whether both zones were encouraging or any color there?

Joseph H. Bryant

Yes. Thanks, and good morning, Evan. We're currently in the middle of evaluating the results from our logging work on Shenandoah. And I think that the operator will have a lot more to say about the conclusions we draw from that later in March. But as of today, I really can't say much more than what we've already communicated to you.

Evan Calio - Morgan Stanley, Research Division

Okay, that's fair. On -- if I shift to just review of the timing and rig movement for 2013, I don't know if I missed it, but are you currently drilling Cameia? And then -- and what would be -- if we assume kind of a reasonable move? What's a good date to think about the Mabinga spot? Is that an April spot? Things going back?

Joseph H. Bryant

Yes. You said drilling Cameia, well, the rig is back at Cameia 2, getting ready for the Drill Stem Test. We're working through some preliminary things with the rig right now. We haven't commenced the test itself yet. We do expect -- but as of even a few hours ago, we expect that we'll get that done in March. And assuming we do, then we would be moving over to Mabinga some time end of March or early April.

Evan Calio - Morgan Stanley, Research Division

Okay, great. And could you update us or outline any kind of gating items or the path where the Cameia Super-Pay development -- the path to becoming a sanctioned project in 2013? And I'll leave with that.

Joseph H. Bryant

Okay, we've done an awful lot of work. We've got a project team that's -- it has spent the better part of the last year going through it. We've actually already ordered some of the long-lead items that we know that will be critical path. We're working through the remaining critical path items now. We're in constant conversation with our partners and the concessionaire, Sonangol. And the plan today would be sanctioned some time later this year or early next year to get that project underway. And again, we think that our planning now would suggest some time online early 2016 or so.

Operator

Our next question comes from the line of Brian Singer with Goldman Sachs.

Brian Singer - Goldman Sachs Group Inc., Research Division

Following up on the last question there. Has there been more geophysical work or studying that you've done from the results you've seen so far at Cameia that -- and can you just kind of talk about where the discovery of resource now stands? And then kind of related to the last question, just an update on the sizing of production facility and any thoughts on your CapEx.

Joseph H. Bryant

Yes. Let me take it in reversed order. The CapEx, we're still working on. The size of the production facility is nominally 100,000 barrels a day, plus or minus, I would say 10,000 to 20,000 barrels a day, depending upon what pits or kit we end up with. As far as the additional reservoir engineering and G&G work we've done, we continue to do a lot of the heavy lifting on that. And we just have, in the past week or so, completed the acquisition of what I'll call a development 3D Seismic survey, over not only depth fields , but over many of the other prospects in Block 21. So we've got a lot of work to do to process that data and come up with a better view of what we think the resource potential will be. We're still not any smarter than we were last time we talked in terms of barrels. We've always said that we -- everything we see certainly suggest that we're above a threshold economic development there. But we don't really know what the high end of that could be yet. We're as anxious as you to get that figured out and let you know.

Brian Singer - Goldman Sachs Group Inc., Research Division

Great. And then to come up more positively here with regards to Shenandoah and the inboard Lower Tertiary concepts. When you look at Shenandoah specifically, it's -- is there an opportunity of the one where you have a relatively small working interest? It is this -- would you consider increasing your working interest by funding some of the development by others there as a way of getting some revenues on sooner? Or do you kind of just use this as an opportunity to either drill more quickly or have more confidence in future exploration in the inboard Lower Tertiary?

Joseph H. Bryant

Brian, What I've say is that the biggest risk that we saw, going back 5, 6, 7 years, on the inboard Lower Tertiary was the reservoir quality of these depths, and could we get the reservoir quality and the fluid qualities we needed. And as I said in my preliminary comments, we're 3 for 3 now. We've seen a lot of rock in the Lower Tertiary from both North Platte, Shenandoah #1 and Shenandoah #2. And frankly, we're in a pretty confident place about the potential of this trend. As far as picking up more interest in Shenandoah, I seriously doubt it. We'd like more interest, but there wouldn't be any reason for us to acquire anyone else's interest that would likely be here. I would assume would be a promoted cost when we have 10 prospects lined up down the street that we think look just like Shenandoah, if not better.

Operator

Our next question comes from the line of Ryan Todd with Deutsche Bank.

Ryan Todd - Deutsche Bank AG, Research Division

If I could ask one on timing and rig issue, then one strategic follow-up. From a rig inventory point of view, do you -- if we look forward to the appraisal drilling programs around Cameia and North Platte and some of these other developments, do you feel good about where you are from a rig point of view? And at what point will you need to add additional rigs for the appraisal development programs?

Joseph H. Bryant

I think it's different stories for different basins. I think in the Gulf of Mexico, we're actively considering what I'll call an upgrade to the 8503. I had to say the 8503 has performed incredibly well. I think it's probably one of the best performing rigs in the Gulf of Mexico. What it doesn't have is the hook load capacity that we probably like to have as we get into an appraisal program in the Gulf of Mexico in these deep inboard Lower Tertiary structure. So we will be looking to add a beefier rig in the Gulf of Mexico for our appraisal and development programs there. With respect to Angola, we've got 2 rigs over there now. We've got the Catarina, which will be there shortly. And that's -- we've got a 3-year contract to that, with 2 1-year extensions. So we're in good shape there. The Ocean Confidence, we've got for the Drill Stem Test and 2 additional slots. We will clearly be in the market here some time shortly for a rig to augment our Angolan operations. And then depending upon the success we have, add more rigs after that.

Ryan Todd - Deutsche Bank AG, Research Division

Great, that's very helpful. And then if I could ask 1 strategic follow-up. It's a -- I don't want to put the cart before the horse, and it's your drilling program -- and it's obviously a great problem to have. But if we take a step back and if we look at your portfolio, you've got quite a handful of prospects under development. Right now, you've got another 4 fairly sizable wells coming mid-year. Is there -- when you look forward, is there an internal limit to the number of projects in which you feel like you can internally develop in parallel? And if there is, what is that? And what's the right way to think about how you might farm down or capitalize or manage the development -- to develop all of these projects?

Joseph H. Bryant

Well, our strategy from day one was about choice. And that's why we had -- we built the company with portfolio of choices in a very broad sort of way, looking at pre-salt not only in Angola but in Angola and Gabon. We looked in the Gulf of Mexico, not only in the inboard Lower Tertiary, but also in the Miocene purposely to give us the choice that we wanted when success delivered for us. And we could decide, which assets we wanted, which ones we wanted to farm down, and which ones, frankly, somebody else could develop or operate. So that's precisely where we are. I don't know which ones we would put up for sale today. But I, clearly, do think that there will be constraints. I think any company would be constrained with a lot of success that we're looking at here, both in West Africa and the Gulf of Mexico. And we're prepared to make choices with respect to our portfolio, not only because of the human resource constraints but because of the financial financing tools that we will avail ourselves of as we high grade our assets.

Ryan Todd - Deutsche Bank AG, Research Division

Our next question comes from the line of Edward Westlake with Credit Suisse.

Edward Westlake - Crédit Suisse AG, Research Division

So just coming maybe back to Cameia DST, maybe just remind us explicitly what you're looking for. I guess, you found some shows on the logs, but you're trying to test the flow rates, so what would be a good flow rate from those lower rocks? And when you were talking about Cameia, you are doing the DST, but also sounds like you're doing more seismic evaluation. Do you need to do both before you can define the upside range of Cameia resources above the $150 million threshold that you have for commerciality?

Joseph H. Bryant

Yes. Well, let me take the first part of the question. This lower test -- this is the first time in the basin that anybody has seen these deeper rocks in the basin -- and I'll remind everyone that these rocks, this reservoir, is also a completely separate from the Super-Pay zone in the field. So it's 1 well with 2 completely different scenarios in it. So we're looking forward to getting some test data on this lower zone. And as I've said several times, that we've always recognized that this location was not optimal to test the lower zone in this field in Cameia. However, we did see very encouraging or interesting data on the open hole logs, that's why we were anxious to get some production data or flow data from this zone. Frankly, it's not -- we're not -- nobody around here is talking about there's a need to be this many barrels a day or that many barrels a day. We're really more interested in what can we understand when we see rocks like this in other parts of the basin. What was very encouraging here was that there's no question these sediments or this reservoir was full of oil. And that had a very, very encouraging application or read-through for us when we look at our other prospects all across the basin out there. So we, like you, we're anxious to see what these rocks will actually produce. But at the same time, we're already satisfied that these reservoirs are full of oil if we can find the reservoir rock in a position where it will produce. So we'll let you know when we have some results. With the question on seismic, yes, that question is a good one. We will be able to define the shape of the Super-Pay reservoirs much better with the new sophisticated 3D Seismic that we've just acquired, not only for Cameia but will also give us a lot more insight into the several other structures that we see in Block 21. So we'll have more to say about that later in the year, but we're encouraged that the data so far looks pretty good.

Edward Westlake - Crédit Suisse AG, Research Division

Switching back to the Gulf. On North Platte, obviously, a great first well. We've got a range of resources there. But how many more appraisal wells do you think you need to do before you can start looking at feed and development options for that field?

Joseph H. Bryant

Well, probably we need at least one more appraisal well. I would say we're already acquiring development 3D Seismic there. We started that before the end of last year. We're well into that acquisition program now. And by the way, that seismic that we're acquiring will also help us define many of those other prospects that I mentioned in my comments. So between another well and the seismic, we'll have a lot more information on North Platte than we have today. But I would also say that we're already doing a lot of preliminary engineering. We and TOTAL, are looking at ways to think about the development there. So that we can do a lot of that work in parallel. It doesn't have to be in series. So we're well on the way to understanding what that could be.

Operator

Our next question comes from the line of John Malone with Global Hunter.

John Malone - Global Hunter Securities, LLC, Research Division

Just a couple of questions on Ardennes. As I recall correctly, there's actually 2 zones you test in Miocene and inboard Lower Tertiary. Can you give us some sense of the productivity one versus the other? I know that North Platte is a ways away from this prospect, but is there any -- excuse me, Shenandoah, is a ways away. Is there any reason from what you've seen in the Lower Tertiary in Shenandoah to Ardennes? And then, last question is there -- in Ardennes, what's the timing for TD?

Joseph H. Bryant

Yes, the -- it's a good question. If we were -- if we had to bet on one versus the other, I think we would have more confidence in the Lower Tertiary section of the well than we would the Miocene. Although we have no reason to think that the Miocene wouldn't work as well. The issue is the Miocene in this location is a little bit west of where we would call the main heart of the Miocene production trend in the Gulf of Mexico. But we'll see how that goes. So we have expectations for both, but probably, the probability of success is a little bit higher for the Lower Tertiary than it would be for the Miocene. With respect to results, the well spud, we expect results sometime in the middle of the year, depending on how it goes.

John Malone - Global Hunter Securities, LLC, Research Division

Okay, great. And just one quick housekeeping question. Have you had a bunk in G&A cost and in exploration cost? Are there one-time items that I need to be aware of? Or is that something that you can use as a run rate?

John P. Wilkirson

This is John. The exploration expense is principally the seismic acquisition that occurred during the fourth quarter. G&A is principally year-end items. If we look forward -- probably the G&A will trend up slightly in 2013, compared to '12. The -- what you saw in the fourth quarter is not indicative of the run rate for the full year.

Operator

Our next question comes from the line of Mike Scialla with Stifel, Nicolaus.

Michael S. Scialla - Stifel, Nicolaus & Co., Inc., Research Division

You've mentioned that the, I guess, development seismic that you acquired in Block 20. I think you also acquired some more recent seismic -- or excuse me in Block 21. I think you also acquired some more recent seismic in Block 20. Can you speak to how that they have impacted your view on the prospects in that block?

Joseph H. Bryant

Yes. There's 2 separate surveys there. The Block 20 seismic program began in late 2011 and we finished that acquisition up in 2012. The team is still working through that diligently. What I can say about the Block 20 3D is that we continue to like what we see. We're not finished with it yet. I will point out that we had an "all hands on deck" strategy there to get the earliest data from that acquisition on the Lontra prospect. And we had everybody focused on finishing up the Lontra interpretation, so that we would be in a position to spud Lontra here immediately. That's what we've done. When have done a cursory look at the rest of the seismic in Block 20. Again, we like what we see. Was that your question? I don't know if you have any other question on Block 21 seismic or not?

Michael S. Scialla - Stifel, Nicolaus & Co., Inc., Research Division

No, that was it. Also, could you remind me -- I don't know if you know the number off the top of your head, but you mentioned in the release that all of the prospects you're testing this year have the potential to be larger than Cameia. Could you remind me the potential for Mabinga if you remember that?

Joseph H. Bryant

I think what we said is they're all similar size to Cameia not larger than Cameia, except for Lontra, which in Lontra could be several times the size of a Cameia.

Michael S. Scialla - Stifel, Nicolaus & Co., Inc., Research Division

Okay. And then I guess just one housekeeping one. John, do you happen to have the changes in working capital for the fourth quarter?

Joseph H. Bryant

I don't have them handy, but I'll get them to you.

Operator

Our next question comes from the line of Al Stanton with RBC Capital Markets.

Al Stanton - RBC Capital Markets, LLC, Research Division

Joe, I was under the impression the Ocean Confidence arrived at Cameia 2 back in mid-January. Is there any issues with the well or the rig that is delaying the well test?

Joseph H. Bryant

Well, there's no issue at all with the well. We're still continuing to work through several mechanical issues on the rig. Or I should say Diamond is working through several mechanical issues on the rig. But they'll get those wrapped up. I think they have them wrapped up, we said that before. But let's hope I'm right this time. So as soon as they're ready to go, we're ready to test the well.

Al Stanton - RBC Capital Markets, LLC, Research Division

And then just in terms of -- I mean the day rate and things, are you having to pay a sizable cost at the moment?

John P. Wilkirson

We're paying for the rig, but we haven't paid any day rate on the rigs since it went off our payroll, I'm going to guess, it was early September or so. We didn't get to that date. But we paid no day rate on the rig. We do continue to pay some spud costs for boats, helicopters and things that we have on call, but nothing for the rig.

Operator

Our next question comes from the line of Joe Allman with JPMorgan.

Joseph D. Allman - JP Morgan Chase & Co, Research Division

Joe, just in terms of timing of results, I think, so for Cameia #2, Drill Stem Test, you're looking at end of March, and Shenandoah, it sounds as if we're going to hear it from the operator at the end of March. Could you just -- and I know in your slide deck, you gave a general timing of results, but could you just be a little more specific? So for example Bicuar, when would you expect to hear results on Bicuar and could you just do the same for the next handful of wells?

Joseph H. Bryant

Yes, let's just walk through one -- kind of one by one. So in West Africa, when the boat of Catarina is going to be there, we expect that it should be there some time but late March, early April. We expect that to be kind of a 4-month well, which means we should have results some time, I'm going to say, second quarter-ish. That's what we mean by middle of the year. Mabinga, we'll move there as soon as we're done with Cameia 2 Drill Stem Test. Again, I would say the results there mid-year similar timeframe that we would expect Lontra. At the same time, TOTAL will be drilling the Diamond well in Gabon depending upon when the rig gets they. I would expect those results to be in a similar timeframe. In the Gulf of Mexico, I would expect Ardennes to be maybe slightly earlier than that. But I'll know more as the spring goes on, but again, middle of the year there. But I think you hit the nail on the head with respect to Shenandoah and the drill stem test at Cameia.

Joseph D. Allman - JP Morgan Chase & Co, Research Division

Okay. So just to clarify, so Lontra, have you spud that in April, so as in May, June, July, like August, is 4 months well. Is that reasonable?

Joseph H. Bryant

Yes, I think what the problem Joe and the reason I don't want to get pinned down on this, is like I can't tell you for sure when we're going to spud it. And I don't want to get pinned down more than what I've done already and just say we'll get your results as soon as we got them. But kind of the middle of the year is what we're anticipating.

Joseph D. Allman - JP Morgan Chase & Co, Research Division

Okay. Are each of these wells roughly 4-month wells?

Joseph H. Bryant

Yes, roughly 4 months. Lontra is a bit shallower than Mabinga and Bicuar. You did mention Bicuar. By the way. Bicuar, is going to be very late in the year to early next year, depending upon when we get finished with Mabinga. But they're all similar-length wells.

Joseph D. Allman - JP Morgan Chase & Co, Research Division

Okay, got you. Got you. Okay. And then in terms of Cameia #2, is there a facility constraint that would preclude you from going above a certain production level? Say for example, 5,000 barrels a day?

Joseph H. Bryant

Well, I hope so, but I don't know. But nominally, the test kits you put all these drilling rigs, they're capped by either the fluid or the liquids or the gas rates they can handle. And I would expect the maximum rates to be around 5,000 barrels a day, given our expectations on the fluids, but we just don't know yet.

Joseph D. Allman - JP Morgan Chase & Co, Research Division

Okay. So -- okay. And so what rate would be disappointing to you?

Joseph H. Bryant

I've been asked that question a lot, and what we really want to do is to see if it will flow at all. We talked a lot about what would be encouraging as opposed to disappointing. And if we can have it flow at all, it's going to be very encouraging because as we've talked, this is not an optimal location on the structure to test this reservoir. But we're as anxious to find that answer out as you are.

Joseph D. Allman - JP Morgan Chase & Co, Research Division

Okay. So Joe, could you help us with -- let's just say if it's flows 1,000 barrels a day, okay. So on the one hand it's positive. Could you describe why that's positive and how that contributes to the size of the resource? And on the other hand, why might that be negative?

Joseph H. Bryant

Well, with just over 1,000 barrels a day, what I would say is that these reservoirs that are really off the crest of the structure and down depth have the potential to produce deep into the basin. And so that's very encouraging news that as we look across this basin -- because keep in mind, Joe, that we still have not seen an oil ore contact in this basin. And so we drilled thousands of feet of rocks here, and we haven't seen an oil ore contact, which is very unusual. And so the real key now is can this reservoir rock produce at commercial volumes. And then we -- if it did, then we would even go deeper into the basin to find out where the oil ore contacts are. Yet if it produce less than 1,000 barrels a day, what it would say is that we've got go find this reservoir at a more geologically optimal location, which we think would be closer to the crest. And we would find it -- look in the same place as on several of the other structures that we have in the neighborhood.

Operator

There are no further questions at this time. I would like to turn the floor back over to management for closing comments.

Joseph H. Bryant

Thank you very much. But let me wrap up today's call by saying a few things. We're, of course, very proud that our delivered focus on exploration drive shareholder value has already produced working interest in 4 important discoveries. In 2013, we'll drill an extraordinary array of world-class exploration wells. Very shortly, we will be simultaneously drilling 4 of the world's most anticipated wells: the Ardennes, Lontra, Mabinga and Diamond, each with material Cobalt working interest. After those wells are complete, we'll commence the drilling of an additional prospect site in both our prolific West Africa and Gulf of Mexico inventories. This activity in portfolio is an outcome of our focus on being the first mover and leader in what we believe will be new oil-producing trends of global significance. It's especially gratifying to know that we have a balance sheet to carry out all of those operations, and I look forward to sharing the results of this prolific drilling program as soon as they're available. So thank you, all, very much, and have a good day.

Operator

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

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