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Executives

Joseph H. Bryant - Chairman and Chief Executive Officer

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

Van P. Whitfield - Chief Operating Officer

Analysts

Evan Calio - Morgan Stanley, Research Division

Brian Singer - Goldman Sachs Group Inc., Research Division

Edward Westlake - Crédit Suisse AG, Research Division

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

Ryan Todd - Deutsche Bank AG, Research Division

Michael A. Glick - Johnson Rice & Company, L.L.C., Research Division

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

Richard M. Tullis - Capital One Southcoast, Inc., Research Division

Al Stanton - RBC Capital Markets, LLC, Research Division

Curtis Ryan Trimble - Global Hunter Securities, LLC, Research Division

Cobalt International Energy (CIE) Q2 2013 Earnings Call July 30, 2013 11:00 AM ET

Operator

Good day, everyone, and welcome to Cobalt International Energy's Second Quarter 2013 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 we incorporate these by reference for this call.

At this time, for opening remarks and introduction, I'd like to turn the call over to the Chairman and Chief Executive Officer of Cobalt, Mr. Joe Bryant. Please go ahead, sir.

Joseph H. Bryant

Good morning, and thank you for joining Cobalt's second quarter 2013 financial and operational update call. Joining me on the call this morning is John Wilkirson, Cobalt's Chief Financial Officer. John And I will start with a few brief comments, and then we'll be happy to take any questions that you may have.

As you're aware, we have drilling operations underway on 4 material exploration prospects in the Gulf of Mexico, Angola and Gabon. To put you all at ease, I want to say up front that I will not be releasing any interim or final results for any of these wells on today's call. We are on track to announce final well results for each of these prospects over the coming weeks, and it is certainly our goal to have something that we can talk to you about on each prospect either later in the summer or early fall. In Angola Block 20, Cobalt is drilling our highly anticipated Lontra #1 pre-salt exploratory well with the Petroserv SSV Catarina rig. As I've stated before, Lontra appears to be the large 4-way pre-salt structure in the greater Kwanza basin. Once we are finished with well operations on Lontra, we will move the Catarina rig to drill exploratory wells on our Golfinho prospect, formerly known as Idared. Golfinho is a pre-salt prospect located in Block 20 and lies between Lontra and our currently drilling Mavinga prospect. However, if Lontra is successful, we may consider drilling a second Lontra well with the Catarina rig in lieu of moving the rig to drill Golfinho.

Also in Angola on Block 21, Cobalt is drilling the Mavinga #1 pre-salt exploratory well with the Diamond Ocean Confidence rig. We consider Mavinga to be a similar prospect to our Cameia discovery. Following Mavinga, we will move the Ocean Confidence drilling rig to drill our Bicuar exploratory prospect, which is located just south of Cameia.

I might say a few words about our continuing exploration portfolio work in Angola. Over the past several months, we have continued to work our new 3D Seismic databases over all of our blocks, and we are pleased with the preliminary results. We continue to see and validate numerous additional prospects on our acreage, several of which appear to be material in scale. The most exciting of these is our Baleia prospect, which lies immediately northeast of Lontra. As you may recall, Baleia was originally drilled in 1996 and found what we believed to be oil in the pre-salt. The most recent work based on our 3D seismic evaluation indicates the Baleia structure may be much larger than we originally believed and may be second only to Lontra in size in our Angola pre-salt portfolio.

Cobalt operates [ph] rigs and has a 4% working interest in all of our Angola wells and prospects. In Gabon, Cobalt is participating in the TOTAL Gabon-operated Diaman #1 pre-salt exploratory well in the Diaba block. As has been reported, the original Diaman #1 well encountered mechanical difficulties in a shallow section of the hole, resulting in the operator needing to abandon the original wellbore and having to re-spud the well. We expect to announce the result of this well sometime in the third quarter of 2013. We have a 21.2525% working interest in the Diaman well. In the Deepwater Gulf of Mexico, Cobalt continues drilling operations on Ardennes #1 exploratory well on Green Canyon 896, which targets both Miocene and inboard Lower Tertiary horizons. We are the operator and have a 42% working interest in Ardennes. We are drilling this well with the Ensco 8503 rig and anticipate announcing well results in the third quarter of 2013. Following Ardennes, we will move the Ensco 8503 rig to drill our Aegean prospect in Keathley Canyon. While we were optimistic that our nonoperated Rum Ramsey and Racer prospects in the Gulf of Mexico [indiscernible] spud this year, it is now likely that both of these exploratory wells will slip into 2014 due to commercial issues among the partnership groups involved. Cobalt remains bullish on both of these prospects, and it is our intention to participate in both of these wells when they are proposed.

In addition to the drilling operations I've just described, we have also been busy advancing our discoveries through appraisal and development. I'm pleased to report that in May, we, along with our partners, formally sanctioned the Heidelberg development project in the Gulf of Mexico. Work has already begun on the hull fabrication and procurement of the long lead equipment [indiscernible] the topside, subsea and export system. Anadarko as operator has indicated that it expects first production from Heidelberg in mid-2016. First production at Heidelberg will be a critical milestone for Cobalt because it will represent the first oil and gas revenue stream in our history. We expect above proven reserves in Heidelberg this year, which again will be a first for Cobalt.

In our Cameia field in Angola Block 21, we are continuing our predevelopment activities. We have acquired a new 3D Seismic survey over the field, which we are using to select and optimize the locations of our Phase 1 development wells. We are working towards formal sanction of Cameia sometime in 2014 and first production from this field sometime in 2017. The key to maintaining this scale is ensuring alignment with Sonangol and our Block 21 partners. As we announced earlier this year, our Shenandoah #2 ore well in the Gulf of Mexico delivered exceptional results, encountering over 1,000 feet of net oil [indiscernible]. We and our partners are considering a further appraisal well, which we may spud by year end. Anadarko, as operator, has indicated that first production from the Shenandoah field may occur as early as 2017. Cobalt has a 20% working interest in the Shenandoah field.

Work is also progressing on our North Platte discovery in the Gulf of Mexico, where Cobalt has a 60% working interest and is the operator of the discovery. We are in the process of acquiring a 5,200 square mile 3D Seismic survey over the greater North Platte area and have begun initial processing of the data. This data should further improve the sub-salt imaging over the North Platte and surrounding prospects in the area.

We will use this new data set to select potential appraisal and development well locations on North Platte. We are also involved in a number of technical studies that will enhance our ability to better understand reservoir properties, productivity and recovery characteristics of the North Platte field as well as help us define and evaluate our development options. Our current schedule calls for our first North Platte appraisal well to be spud in early 2015.

We continue to be in the market for a drilling rig for Angola to replace the Diamond Ocean Confidence rig when our contract ends after the drilling of our Bicuar #1 well. We are confident that we will source a rig that will be available when our needs call for it. In the Gulf of Mexico, our current plan is to release the Ensco 8503 when its term expires following the drilling of our Aegean well and replace it with a larger sixth-generation, 2.5-million-pound hook load rig to drill our inboard Lower Tertiary wells. We will keep you informed as we progress this effort.

Finally, I want to acknowledge the significant success of our secondary public offering of stock that we closed and announced in May. This secondary offering, in addition to the January offering, has resulted in our sponsors' ownership position in Cobalt decreasing from 52% at the beginning of 2013 to about 30% today. It's important to note that the company did not sell any stock, nor did management participate in either of these offerings. Because of their decreased ownership position in Cobalt, the representation of First Reserve Corporation, Goldman Sachs and Riverstone on Cobalt's Board of Directors was reduced. And as a result, the size of Cobalt's board has been reduced from 13 to 10 directors.

I do want to recognize the contributions that our departing directors John Lancaster, Scott Lebovitz and Mike France have made over the years to Cobalt. So in summary, our catalytic exploration well program continues to progress as planned. Never in the history of Cobalt have we been in a position to deliver more results in such a short period of time. I look forward to sharing these results of these 4 wells with you later this year. In addition, we continue to make excellent progress vis-à-vis-ing [ph] our exploration prospect portfolio and advancing our discoveries to production. I'll now turn the call over to John for a result -- a review of our financials. John?

John P. Wilkirson

Thanks, Joe. Our balance sheet remains strong, with liquidity at the end of the second quarter of almost $2.3 billion. As of June 30, we had just under $1.9 billion of unrestricted cash and investments plus just about $400 million of cash and investments designated for future operations held in escrow and collateralized in letters of credit. In addition, not reported on our balance are the drilling promote funds of $117 million for our Gulf of Mexico program with TOTAL. As reported in this morning's release, for the second quarter, Cobalt's net loss was $79 million or $0.19 per basic and diluted share. Of this, $33 million or $0.08 per share are impairment charges related to -- including the Cameia #2 DST and for the new Diaman wellbore in Gabon that was abandoned for mechanical reasons before reaching any geologic objectives. In the second quarter, our capital and expense expenditures were just over $200 million. Of this, about 80% or over $160 million was spent on drilling activities. For the first half, our expenditures total approximately $380 million, which remains in line with our full year expenditure forecast of $750 million to $900 million. Given current expectations for our planned exploration and development activities, our balance sheet liquidity will carry us through 2014 and into 2015. We continue to expect first production and first cash flow from Heidelberg in 2016, possibly followed by Cameia and Shenandoah in 2017. I'll now turn the call back to Joe.

Joseph H. Bryant

Thanks, John. And operator, let's now open the lines up for any questions that anyone may have.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question is from Evan Calio of Morgan Stanley.

Evan Calio - Morgan Stanley, Research Division

A few questions. Number one, this morning, Yucatán was announced a successful well. Curious, as I know you looked at that prospect, how you think about the potential for a connection between Shenandoah and Yucatán, as there's clearly a pretty big resource potential.

Joseph H. Bryant

Certainly, we're aware of the Yucatán results and its proximity to what we've been up to at Shenandoah. We view it as a positive result that, that basin does appear to be filled in many of those closures that are there. We know that at Shenandoah, we have a significant discovery, and we have some appraisal work to do. It's hard for us to be definitive in terms of where the syncline occurs between Shenandoah and Yucatán, but that's something that we'll find out over the coming months and years.

Evan Calio - Morgan Stanley, Research Division

Great. Just a second question on -- as you know, Anadarko received a pretty good price in its interest sale in Heidelberg. And I was curious whether you see sell-down potential there or whether there's a current process that you're running.

Joseph H. Bryant

We do always look at those kinds of opportunities, and we would look at something like that at Heidelberg, of course. Heidelberg is important to us as well in that it will be our first cash flow generating asset. As I've said, I think, before that we'd be interested in a similar sort of transaction. But at the same time, we're proud to have Heidelberg remain as part of the Cobalt portfolio. So we'll just see how that process ends up.

Evan Calio - Morgan Stanley, Research Division

Great. And just lastly, before I let go, I noticed a statement in connection with the Cameia sanction that includes the clause "assuming continued alignment with the partners." And Sonangol -- is that just a standard type of statement, or is there any meaning to the inclusion of that clause?

Joseph H. Bryant

No, that's a boilerplate clause. As you're aware, in these production-sharing contracts, or in this case it's a risk-sharing contract, that the concessionaire -- in this case, Sonangol -- always has kind of the last vote or the ultimate vote as the contracting group decides as to what it wants to do. So we always go out of our way to remain aligned with all of our partners and the concessionaire, which is Sonangol. So it wasn't intended to signal anything one way or the other.

Operator

The next question is from Brian Singer of Goldman Sachs.

Brian Singer - Goldman Sachs Group Inc., Research Division

A couple of questions relating to some of the seismic work you're doing. First, you talked about the potential size from Baleia on your opening comments, and it seemed like that was as a result -- or an increase in the potential prospect size there has come as a result of seismic. Can you just add a little bit more color on what's changing there that's giving you more confidence in the size there as the #2 relative to Lontra?

Joseph H. Bryant

Yes. If we go back to the history of Block 20, Brian, recall that originally, all we had over the block was 2D Seismic and that 2D is what shed the light on the massive Lontra structure. And then late in 2011, we began shooting our 3D Seismic survey. We got that acquired in first half of 2012, and we had an all hands on deck approach to get that fast-tracked and to work on Lontra so that we could convert Lontra from a prospect in 2D to a drillable prospect based on our state-of-the-art 3D. After we got that done and allowed us to spud Lontra, then we started to cherrypick the prospects that remain on the block, to get them drill-ready as well. And of course, one of those is what we now call Golfinho. And the second is the work that we've done on Baleia. And so what we're really saying on that is as we have converted the Baleia prospect from fairly rudimentary 2D to state-of-the-art 3D, we can see the structure much clearer and can kind of map its extensions in a much more precise way than we could on the 2D.

Brian Singer - Goldman Sachs Group Inc., Research Division

Great. And then with regards to the seismic that you've either purchased or are shooting both at Cameia and North Platte. In Cameia, can you just summarize what you've learned so far from the work in terms of the number of Cameia development wells or perhaps acreage on the block that may make less sense to develop? And then in North Platte, would you call what you're doing normal-course seismic, or is there some greater reservoir complexity that raises the risk profile that warrants addition -- that warrants the 3D?

Joseph H. Bryant

Again, I think there's 2 different stories there. Let me cover the Cameia story first. And again, we have to go back in history here. The reason we drilled Cameia first was that in the '90s, there was, again, an old -- not 2D, but 3D database that was available on that block. And we took that old 3D database and worked it pretty hard, which allowed us to actually map both the Cameia and the Baleia structures, again, based on very old 3D that had, based on today's state-of-the-art seismic, ancient acquisition parameters. And so once we discovered Cameia, what we did on Block 21 is we went back and shot a new, again, state-of-the-art 3D Seismic survey not only over Cameia, but some of the other prospects that we see on the block. And so what we've seen on that so far is, again, the beginnings of an ability to refine and resolve much clearer where we think the mound will be in the Cameia reservoir. But I have to say, it's a little early to come to you with any definitive decisions on that. I guess I would say there's no surprises. It's all giving us much higher confidence in what we saw originally. I think one of the things that we'll be able to talk to you about in the future on that is, as we look inside these reservoirs, look inside these mounds, we hope that the new 3D we shoot in Angola will be able to resolve some of the things that go in -- go on in terms of the complexity inside the mounds or not that we just can't see on the old 3D. Let me stop there. Does that help you on what's going on in Angola? And then I'll jump to the Gulf of Mexico.

Brian Singer - Goldman Sachs Group Inc., Research Division

Yes, I think it does. I mean, it sounds like kind of more to come and there's not any specific -- more within a restrictiveness or shrinkage in the size of the reservoir or the acreage at present.

Joseph H. Bryant

Not at all. No, it's normal course of business, which is giving us higher confidence in what we've talked to you about before. In the Gulf of Mexico, again, after we made the North Platte discovery, as you're well aware, we have several more prospects in the general area, all of which were identified with the 3D seismic that we acquired now about 5 or 6 years ago in the area that allowed us to illuminate those deep structures in the inboard Lower Tertiary. Once we made the North Platte discovery, what we did was went out and acquired -- are acquiring and have acquired this new 5,200 square kilometer state-of-the-art seismic -- square mile, excuse me, it was in Angola still -- square mile seismic in the Gulf of Mexico that will help us, again, resolve the flanks of not only North Platte better but South Platte, Baffin Bay and all of the other prospects in that area.

Operator

The next question is from Ed Westlake of Crédit Suisse.

Edward Westlake - Crédit Suisse AG, Research Division

I just wanted to touch on, I guess, the challenges in the developments of some of this Lower Tertiary inbound. I guess 2 areas of concern, which people are raising. One is, I guess, just the depths and pressures at the wellhead and whether the equipment is going to be of the right caliber to deal with that. And then the second question, coming off things like Core Labs conference calls, is things like gas miscibility and ability for gas drive in these deep rocks and whether the recovery factors will be good enough for development. If you could deal with either of those 2 points, it would be helpful.

Joseph H. Bryant

Sure. I can handle the first one. Depth and pressures are going to be, I think, a key ingredient of the development scenarios that we come up with in the inboard Lower Tertiary across the board. As you're aware, the state-of-the-art right now is 15,000-pound wellheads and trees in these subsea development. And I think what we're seeing right now is the potential for that to be right at the limit of what would be available for us to use in some of these inboard Lower Tertiary developments. I would also say, though, that we are well into conversations with equipment suppliers to push the next tranche of capacity or push that 15,000-pound limit higher. Whether it's 17,500 or 20,000 pounds, I think, is a conversation we're having, but I do want to make sure you recognize that we do see that having the right pressure-rated equipment out there is going to be a key factor. It's not one that scares us in the sense it can't be solved, but it is going to be a factor in how we develop these and development scenarios that we consider. I have no idea what Core Labs is talking about. You'd have to talk to them. I mean, we do a lot of work, obviously, with our fluids. And of course, they analyze a lot of those. That's all confidential information, so I don't really know what core labs would be talking about. I'm sorry I can't help you there.

Edward Westlake - Crédit Suisse AG, Research Division

Yes, I mean, I guess they were just, on the conference call, flagging in the context of the overall Lower Tertiary maybe outboard or inboard, no description there that -- I guess, with lower gas concentration in the reservoir, you'd end up with less drive and, therefore, less recovery and have to look at other forms of alternate recovery to maximize the amount of oil relative to the CapEx for the top sides. But I mean, if there's any comments you can make...

Joseph H. Bryant

Well, what I would say with respect to that question is that we have always believed that the GORs are distinctly different between the outboard Lower Tertiary and the inboard Lower Tertiary. And to the extent that's the conversation, we are aligned with what Core Lab may be saying in that of course you need high GORs in these depths for the depletion drive mechanisms in the field to get the high recoveries. And that was one of the reasons why we were less bullish on the outboard Lower Tertiary because we saw the crude qualities there much lower than the crude qualities on the inboard, which translates, really, into lighter crudes with higher GORs. And so to that I can say, and I think we've been pretty transparent that our discoveries in the inboard Lower Tertiary have been Miocene-like fluids, which tell us that there are high GORs with lighter crudes, which translates into higher recoveries.

Operator

The next question is from Mike Scialla of Stifel.

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

Joe, you mentioned about the seismic at Cameia and being able to better refine what you're seeing within the reservoir. I assume some of those are faults, maybe, within the reservoir. If you could confirm that? And then, is there any indication of an oil-water contact that you could see with the seismic?

Joseph H. Bryant

Yes, those are good questions. We don't -- as of today, we really don't see faults that would be of a concern in the main mound bodies at Cameia. And one of the reasons why faults wouldn't be a concern is that the throw on the fault would have to be greater than the pay thickness for it to be an effective boundary. And what we've seen so far is that the -- in the wells we've drilled is that the pay thickness appears very continuous from top to bottom. And if there were a fault, it would be relatively small compared to the overall pay thickness. I hope that makes some sense. What I was referring to is that these carbonate structures, particularly these reef-type structures, they do -- they're heterogenous in the sense that they can change laterally. And understanding those changes as you go across the field can be important when you place wells. So what we really hope to do with our 3D Seismic is not so much the fault -- which I have no doubt there probably are some smaller faults in that structure, but not faults that would govern the production characteristics of the field -- but making sure that we place development wells in the higher-productivity areas of the mound rather than something that may be of lower productivity. So that's the work we're doing right now. And as we've said before regarding the oil-water contact, we've not seen an oil-water contact in the mound in the 2 wells we've drilled.

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

So it's really a matter of looking for better reservoir quality. And can you say at this point what you've seen there relative to what your expectations were?

Joseph H. Bryant

Well, what we've seen is that the -- again, between Cameia #1 and Cameia #2, that our best indicator right now in terms of lateral connectivity is the pressures that we saw in the logging program at Cameia #1 versus Cameia #2. And as we've said, the pressures were lay-downs between one or the other, which means that at least between those 2 wells, we believe that there is no baffling or any sort of reservoir discontinuity between those. And that's what we're looking to confirm that with our seismic and then translate that learning across the greater mound, which is still work that's underway.

Operator

[Operator Instructions] The next question is from Ryan Todd of Deutsche Bank.

Ryan Todd - Deutsche Bank AG, Research Division

A couple of quick questions. You've talked in the past in Angola about similarities about Mavinga being kind of a lookalike to Cameia. When you look at the Golfinho and Baleia prospects, I mean, what similarity or differences do you see between those 2 and the Cameia-Mavinga-Lontra prospects that you've drilled up to this point?

Joseph H. Bryant

Golfinho looks very much like a Cameia-Mavinga prospect, big bay salt closure. We think it probably has the same kind of mound features. So based on what we know so far, kind of serial #3 of 3.

Ryan Todd - Deutsche Bank AG, Research Division

Okay. And Baleia, I guess you've talked size-wise about some comparability moving towards Lontra, but is it a similar type of structure as well?

Joseph H. Bryant

Yes, very similar in terms of the type of structure and how it sits at the basin. The difference is that we can define the edges of the structure much better than we could on the 2D and give us more confidence that it's a kind of a lookalike to Lontra. It's not as big as Lontra, but it looks very similar to it.

Ryan Todd - Deutsche Bank AG, Research Division

And then I guess just one more kind of broad question on the Gulf of Mexico. I mean, you've been pretty clear about near-term targets in the Gulf of Mexico, but given the level of success that we've seen from the industry recently across the basin, have you learned anything that impacts your view of long-term prospectivity or opportunity in the basin? I mean, how do you think about long-term prospectivity there?

Joseph H. Bryant

Again, I'll confine my comments to the inboard Lower Tertiary because I think the Gulf of Mexico is a big place. But what I would say in the inboard Lower Tertiary, where my mind is right now, that appears to be one of the main throttling factors between success and failure is going to be whether you have a competent seal. In other words, the petroleum system is working. It's loading up these structures, and if you've got a seal that can hold the oil, it's probably going to work. If you have a seal failure, its probably not going to work. But you saw what it -- said a different way, what it means is when you do have seal competency, you have great fluids and great reservoir rock.

Operator

The next question is from Michael Glick of Johnson Rice.

Michael A. Glick - Johnson Rice & Company, L.L.C., Research Division

A quick one for me, just on the Catarina rig. I know you guys conducted pretty extensive acceptance testing before taking the rig. Just curious how the performance has been thus far relative to your expectations.

Van P. Whitfield

Michael, this is Van Whitfield, and I'll try to answer that one. What I'll tell you is we're experiencing some of the normal break-in for a new rig. But as it relates to the initial work running and getting the BOP tested and all, it's been really exceptional. And I'd attribute that to the effort we had with the contractor to do the pre-inspection and testing before we showed up on location. And as of today, it's performing as well as we could expect for a rig of this tenure and seasoning. So bottom line, we're pleased with it, and we're definitely pleased with the performance of all of the safety control systems on the rig.

Michael A. Glick - Johnson Rice & Company, L.L.C., Research Division

Okay. And then just quickly on the Gulf of Mexico, any update on the progress of the core analysis at North Platte?

Joseph H. Bryant

Van, do you have any -- I don't have any recent...

Van P. Whitfield

I have no recent updates, but I do know that they are in the lab and we're running a continuous series of testing, and it will be some bit of time. I think the reality is that most of the core labs and most of the facilities that can help analyze this work, they're pretty backed up, and so the queues are long. And while we're in line and we're having tests run, it's taken longer than maybe it would have in the past to get this data processed and available for us.

Operator

The next question is from Joe Allman of JPMorgan.

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

John, just a question on -- you ran through some numbers earlier that indicated that you're covered at least through 2014 and into 2015 in terms of cash. So what's the cash number you're using as of June 30? What cash number are you using to calculate that, and then what kind of spending -- I think you indicated at the midpoint, maybe $400-something million left of spending for the second half of this year. And then what kind of spending are you thinking about next year when you do that calculation?

John P. Wilkirson

As far as this year's numbers, they're all laid out in the earnings release this morning. As far as the starting points, we still have $2.3 billion on the books today. There's $400 million that's restricted for future operations. That's associated with 2 items: the letter of credits that we have for a work program in Angola, and then there's $90 million associated with the Ensco rig that will be released once we conclude that contract early next year. As far as remaining spend for this year, it's pretty much on trend for what we just discussed. We're very comfortable that we'll in the $750 million to $900 million range for the year. As far as next year, we have some very preliminary numbers based off of the program that we anticipate. But next year's program, in many ways, is driven by, in some ways, the results from the 4 wells that we're currently drilling. But regardless, the cash that we have on the balance sheet will cover the activities for next year and carry us into '15.

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

So John, so you have roughly -- I mean, you've got some restricted, but you have somewhere around $2.3 billion of cash or cash equivalents and...

John P. Wilkirson

That's is correct.

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

So then to get to the -- so $825 million is the midpoint of spending for this year, and I think you said you spent $380 million so far?

John P. Wilkirson

That's correct.

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

So for the second half of this year, you're going to spend roughly 400 -- let's call it $450 million.

John P. Wilkirson

Okay.

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

Okay. So then next -- so let's just say you have the similar -- I know it depends on the results, but I'm not sure if similar kind of spending to this year or -- let's call it $850 million. So that means between now and the end of next year, you spend $1.3 billion, something like that. So with that $2.3 billion, so you're well covered. If my assumption about $850 million spending next year is correct, you're clearly well covered through next year and, it seems, well into 2015. Is that how you're thinking about it?

John P. Wilkirson

Absolutely.

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

Okay, so -- and then a separate question. So Joe, on Lontra, I know Lontra is the biggest prospect you've got in the basin, it appears right now. Is it the biggest in terms of its financial impact on Cobalt? Or just because of the financial arrangements, are other prospects elsewhere actually more impactful to Cobalt financially?

Joseph H. Bryant

Well, I think it's a fair question. We just don't know how big some of these other things are. But as you know, the NPV per barrel is much greater in the Gulf of Mexico than it would be in Angola. So there comes a point where a Lontra of scale would have a financial impact greater than a large discovery in the Gulf of Mexico. But as I've said all along, we love our Gulf of Mexico assets because of their financial horsepower at moderate size.

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

So on a risk basis, I mean, as you're risking the prospects now, is Lontra the most impactful financially or no? Like of the next 7 wells that we're going to be hearing about between now and early next year, are some of the other prospects , on a risk basis, actually more impactful?

Joseph H. Bryant

Well, the problem I have answering the question is if Ardennes were to work with 42% working interest, that would be a very material outcome for us. If Shenandoah works at scale, like we and our partners believe, 20% of that is very, very material prospect -- or yield for us or anybody. So it's hard to be definitive, Joe, unless I just make a lot of guesses that I just don't have answers to right now.

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

I got you, okay. That's helpful. And then now -- so right now, you're drilling Ardennes and you're drilling Lontra and Mavinga and Diaman. And just, could you give us the update on the rest? I know a couple got pushed out, so give us the rest and what -- so what's the sequence of drilling now?

Joseph H. Bryant

So in the Gulf of Mexico, we'll move the 8503 to Aegean. In Angola, we'll move the Ocean Confidence to Bicuar. We'll move the Catarina to either Golfinho or let's call it an appraisal well on Lontra. And then I don't know what will happen in Gabon. And then we'll probably bring in another rig -- again, after the Gulf of Mexico, we'll bring in probably a 2.5-million-pound rig, but that probably won't be available until towards the end of next year. And then in Angola, we'll bring in a new rig to replace the Ocean Confidence in 2014.

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

Okay. Got it. And then you mentioned some thing -- were there some partner issues? Could you elaborate on that a little bit?

Joseph H. Bryant

The only thing I'll say is that these are -- Rum Ramsey and Racer are prospects that we do have partnerships on. And as you're well aware, in these Gulf of Mexico blocks, we have a lot of discussion and commercial negotiations between the partners pre-drill, and those activities are underway right now. I think if anything, it highlights one of the principles of our business model, why we like to operate and why we like to be in a position of control. Because if you don't operate and you don't have controlling working interest, you're at the mercy of others to decide when they want to drill your wells.

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

Got you. And then just back to the lineup of prospects to drill, so what's the uncertainty -- or why is there uncertainty what to do next with -- at Gabon?

Joseph H. Bryant

If it's a discovery, we may have an appraisal well. If it's not a discovery, I'm sure we'll talk about it.

Operator

Your next question is from Richard Tullis of Capital One Southcoast.

Richard M. Tullis - Capital One Southcoast, Inc., Research Division

Question on Diaman. Joe, what depth had the Diaman well been drilled prior to the original wellbore being abandoned?

Joseph H. Bryant

I can't answer that, simply because I don't remember. But what I'll say it was in a very, very shallow section of the well that had no geologic significance at all.

Richard M. Tullis - Capital One Southcoast, Inc., Research Division

Okay. And how are you currently viewing the potential size of the structure? Still pretty much the same as what was provided in that D&M report a little while back, I guess 2011?

Joseph H. Bryant

We don't have any -- there's no updates at all on size now versus the pre-drill size. But we'll find out shortly and be able to talk about it then.

Richard M. Tullis - Capital One Southcoast, Inc., Research Division

Okay. And any development cost projections yet for Heidelberg and Cameia at this point?

Joseph H. Bryant

On Cameia, we're still working through that. And frankly, I don't know what we've released on Heidelberg. I think if you give Rich a call on that later, we'll kind of tell you what we can tell you.

Operator

The next question is from Al Stanton of RBC.

Al Stanton - RBC Capital Markets, LLC, Research Division

It's another quick question on the finances. Clearly, you do have enough cash to address your exploration and appraisal campaigns. But I was wondering what your approach to development spending was, whether you'd already started looking at any debt financing for Angola or what the route to funding the projects is out there. And I suppose on a related point, in the Gulf of Mexico, you've got some pretty chunky equity stakes in your new discoveries. So I was wondering whether you would anticipate developing those fields with 40% to 60% stakes or whether you'd envisage those numbers coming down after a final investment decisions.

John P. Wilkirson

Al, this is John. We continue to look at what our financing options are both at the project level and at the corporate level. As I mentioned earlier, we're in a good position going forward into the next few years. However, as we get closer to first production, the debt capacity and cost of debt become much more attractive to the company. Having said that, though, it's not just looking at debt. We'll also -- depending on how the wells play out over the next few months, we'll be the point where we may look at how we high-grade the portfolio, which would just be natural. And I hope we have the opportunity to do that if we're in that kind of position. But all of these things come into play as we look at the overall approach to financing what our capital needs are going to be, recognizing, again, that we have production, we believe, starting in '16 with additional fields coming on in '17.

Joseph H. Bryant

Al, it's Joe. The only thing I'd add to everything John said, which I completely agree with, is again, one of the founding principles of our business model was we wanted to make sure we had material working interest to start with so that if we wanted to use a piece of our asset for financing, that, that piece we layoff would be material to just about anybody. So that's why we've ended up with these big working interests in these material assets in the first place.

Operator

The next question is from Curtis Trimble of Global Hunter.

Curtis Ryan Trimble - Global Hunter Securities, LLC, Research Division

Just get back to Shenandoah in the context of the 120 feet of net pay at Yucatán. I wondered if you had any perspective insight into possible connectivity or continuity out there.

Joseph H. Bryant

It was very hard to hear you. The question, I think, was whether or not we have any views into continuity between Shenandoah and Yucatán. Was that the question?

Curtis Ryan Trimble - Global Hunter Securities, LLC, Research Division

Correct.

Joseph H. Bryant

Yes, we certainly do have views, pre-drill and post-drill. We made the decision that we thought that Shenandoah was the better of the 2 assets. We don't know that, that's going to end up that way, but that's our view. Again, we like where we can map the syncline between Yucatán and Shenandoah. But the great thing about this business is people drill wells and they prove themselves right or wrong. So at the end of the day, what we've got to do at Shenandoah is drill another appraisal well. I think that will either -- it'd probably be very, very late this year or most likely next year -- and find out how deep that oil column goes on that Shenandoah structure. And what it means to Yucatán, I'm going to have to let the Yucatán folks sort that one out.

Curtis Ryan Trimble - Global Hunter Securities, LLC, Research Division

I appreciate the color. And in terms of rigs eligible for the sixth-gen, 2.5-million-pound hook load you're looking for to replace the 8503, is that something that you'll have to move in, or are there rigs that you've got some insight and availability now for 2014?

Van P. Whitfield

This is Van Whitfield again. We had previously gone out for a tender on rigs, and so we've got tenders in, and they've been evaluating them. We're in discussion. So to answer your question, they are rigs available. I think it's a question of timing of when they'll be actually in the Gulf and ready to start drilling. But we are in the middle of discussions, and that's really all I can say about it right now. But we're confident that we will be able to secure a rig and be able to execute our program.

Operator

Thank you. We have no further questions in queue at this time. I'd like to turn the floor back over to management for any closing remarks.

Joseph H. Bryant

Well, thank you, operator. And let me wrap up today's call by saying that we look forward to announcing the results of our Ardennes, Lontra, Mavinga and Diaman exploratory wells very soon. Each of these wells has a potential to deliver enormous value to our shareholders. This is truly a momentous time for Cobalt and for you, our shareholders. I want to thank you again for your continued confidence in Cobalt's ability to deliver on this extraordinary opportunity set, and we'll hope to talk to you soon with the results of these wells. Thank you very much, and you all stay safe.

Operator

Thank you. Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time, and thank you for your participation.

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