Cobalt International Energy Management Discusses Q4 2013 Results - Earnings Call Transcript

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 |  About: Cobalt International Energy, Inc. (CIE)
by: SA Transcripts

Cobalt International Energy (NYSE:CIE)

Q4 2013 Earnings Call

February 27, 2014 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

James W. Farnsworth - Chief Exploration Officer and Executive Vice President of Exploration & New Ventures

Van P. Whitfield - Chief Operating Officer and Executive Vice President

Analysts

Edward Westlake - Crédit Suisse AG, Research Division

Evan Calio - Morgan Stanley, Research Division

John T. Malone - Mizuho Securities USA Inc., Research Division

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

Al Stanton - RBC Capital Markets, LLC, Research Division

Ryan Todd - Deutsche Bank AG, Research Division

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

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

Operator

Good day, everyone, and welcome to Cobalt International Energy's Fourth Quarter and Year End 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 would 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 us for Cobalt International Energy's fourth quarter 2013 earnings and operational update call. Joining me on today's call is John Wilkirson, our Chief Financial Officer; Van Whitfield, our Chief Operations Officer; and Jim Farnsworth, our Chief Exploration Officer. I'll make a few introductory comments on our 2013 results, and will then turn the call over to hear from both John and Jim.

The fourth quarter 2013 closed off what was indisputably the most successful year in our history. Even measured against the lofty expectations that we had for 2013, our results have exceeded our realistic goals. I'm very proud to report that Cobalt achieved exceptional results in a number of areas, including further solidifying Cobalt's position as one of the world's preeminent exploration companies. More importantly, we achieved these results with outstanding safety and environmental performance.

Cobalt planned to drill and announced results for 6 wells during 2013, including 5 high potential exploratory wells and one significant appraisal well. This 6-well program resulted in 3 significant new discoveries, including Mabinga, Lontra and Diaman and one outstanding appraisal outcome at Shenandoah, yielding an overall drill bit success rate of 67%. Thus far, in 2014, we have announced 2 additional significant oil discoveries in West Africa, including our Bicuar discovery and this morning's news on the successful results of our Orca #1 exploratory well in Angola Block 20.

When we consider these last 2 discoveries, our success rate over the past 12 months climbs to 75%. This is an astounding track record of success given that we have drilled some of the most challenging exploratory wells in the world. And of course, we're very proud of the fact that our Lontra discovery in Angola were cited by the American Association of Petroleum Geologists as the industry's largest global discovery in 2013. We achieved these extraordinary exploration results while, at the same time, delivering best-in-class operational performance.

In the Gulf of Mexico, we drilled 2 deepwater sub-salt wells. One of which was the deepest well ever drilled in the deepwater Gulf of Mexico. In West Africa, throughout the year, we applied important learnings from previously operated wells and significantly improved our drilling performance by cutting our drilling time nearly in half.

This operational performance improvement results in tremendous cost savings, which we believe can be repeated in future wells and development projects in both basins. Needless to say, these results were delivered while never compromising our safety or environmental standards.

In addition to this remarkable drilling success, we also reached a milestone in 2013 by joining our partners in sanctioning our Heidelberg development and booking Cobalt's first proved reserves, which we'll be producing in 2016. When this oil and gas starts flowing, we will achieve what many thought impossible, moving from an aspirational business plan to producing oil and gas in deepwater organically in 10 years. This is a feat that, if equaled, has a few peers.

As I we mentioned, we followed up our 2013 accomplishments by making 2 additional significant discoveries in the first 2 months of 2014. In January, we announced our Bicuar #1A oil discovery in Block 21 offshore Angola. This discovery was particularly important because it was the first syn-rift discovery in [indiscernible] great potential for further pre-salt exploration. Bicuar represented our fourth consecutive discovery in Angola's Kwanza Basin. In addition, this morning, we followed up Bicuar's January success by announcing that our Orca #1 exploratory well in Block 20, also offshore Angola, resulted in our fifth consecutive significant Angola discovery.

Beyond these 5 discoveries in Blocks 20 and 21, we have numerous exploration prospects in our Angolan inventory as well as a number of appraisal wells that we will drill to better understand the commerciality of our discoveries.

Also in Angola, we and our Block 21 partners are actively pursuing the sanction of our Cameia project in 2014 and, once sanctioned, we will embark on the development of Cameia in order to achieve first production from this field as early as 2017.

In the Gulf of Mexico, our focus in 2014 will be on our offsite operated exploration prospects as well as Shenandoah appraisal drilling, and we will commence development drilling at our Heidelberg development project. Jim will have more to say on the Gulf of Mexico in a few minutes.

At Cobalt, we've always believed that maximum shareholder value is created with the exploration drill bit. Simply stated, we want to be the first to recognize new exploration plays, acquire significant acreage positions and then proceed with detailed exploration work, which culminates in drilling exploration wells. There are no shortcuts in this process. It takes vision, confidence and discipline to set a course for wells that will not be on the drilling schedule for several years.

While our track record speaks for itself, during 2013, we began laying the foundation for our next wave of exploration prospects that will mature towards the end of this decade. We are actively evaluating exploration opportunities around the world, which are aligned with our core strengths, centered on high potential, high-value, oil-focused deepwater exploration. We look forward to sharing more about these activities as they progress.

The year 2013 was also significant for our former financial sponsors. We began the year with our original sponsors owning slightly over 50% of Cobalt outstanding common stock and as a controlled company. During the year, the sponsors sold down their ownership positions, where they collectively now own less than 30% of our common stock and Cobalt is no longer a controlled company.

Also in connection with this sell-down, the sponsor representation on Cobalt's Board has decreased from 7 directors at the beginning of 2013 to 2 directors today. I realize that the magnitude of our exploration success is a lot for our shareholders to take in and to quantify how our drilling results translates to shareholder value. We know that we have to do a better job helping you understand Cobalt's underlying value.

As part of this effort, we will hold our first ever Analyst Day in June in New York, and we will be providing details of this important event shortly.

I will now turn the call over to John to update you on our financials.

John P. Wilkirson

Thank you, Jim. Our balance sheet remained strong with cash at year-end of over $1.8 billion. The balance is higher than our expected range of $1.6 billion to $1.7 billion, primarily due to an increase of payables and accrued liabilities at year end.

As of December 31, we had approximately $1.5 billion in unrestricted cash and investments and just over $300 million designated for future obligations held in collateralizing letters of credit. We expect to see $150 million of our restricted cash move to unrestricted cash by midyear given the completion of several exploration obligation wells in Angola.

In addition, and not reported on our balance sheet, are the drilling promote funds of about $88 million for our Gulf of Mexico program with TOTAL. As announced this morning, Cobalt's fourth quarter net loss was $222 million or $0.55 per basic diluted share. Of this, $139 million or $0.33 per basic diluted share is associated with impairment charges, $107 million relates to the Aegean #1 exploratory well in the Gulf of Mexico prospect leases, the remainder are Angolan exploration costs associated with drilling and evaluating depths below the successful reservoirs.

For the fourth quarter, our accrued capital and operating expenditures were approximately $250 million, excluding working capital charges.

Check into 2014, we previously released our full year capital and operating expenditures forecast, which excludes working capital charges and interest, of $750 million to $850 million. The slight decrease in year-over-year expenditures is consistent with our planned exploration and appraisal activity. As expected, as we progressed to first oil, we will spend relatively more on appraisal and development, with 1/3 of our 2014 expenditures allocated to these categories. Our estimate for the first quarter capital and operating expenditures is $190 million to $220 million.

We expect our full year 2014 earnings to align with our cash expenditures. As in prior quarters, the primary earnings uncertainty will be the decapitalization, or expensing of the costs following the results of individual exploration wells.

We remain focused on ensuring Cobalt has a strong balance sheet to support our operational activities and projected growth. Given our planned exploration and development spending, our balance sheet will carry us well into 2015. However, with our preference for adequate liquidity, we will continue to evaluate highgrading our portfolio as well as monitoring the capital markets.

Spending through 2016 will be largely driven by continued exploration, alongside appraisal and selective development of our discoveries. We still expect first production and first cash flow from Heidelberg in 2016 followed sooner after by Cameia.

I will now turn the call over to Jim.

James W. Farnsworth

Thanks, John. As Joe mentioned, we are pleased to announce results of the Orca #1 well today. Based upon the extensive logging and coring that we've completed, we believe that Orca is to have between 400 million to 700 million barrels of oil, exceeding our predrill estimates. We are basing our resource estimate upon the scale of the oil column, the thickness and quality of the reservoir and the larger size -- large size of the Orca structure.

At Orca, we encountered 250 feet of net oil pay, predominantly in the upper sag reservoir and, to a lesser extent, within the deeper syn-rift. Additionally, we identified a thin condensate and gas zone at the crest of the upper reservoir of approximately 75 feet. It appears we may have identified oil-water contacts in both the sag and syn-rift intervals, but further evaluation and appraisal drilling may be required to be more certain of their ultimate depths.

Regarding the well itself, operations are continuing. We have run production casing and are preparing to flow test an interval in the upper sag section of the well. The flow test will provide us further information on reservoir characteristics, potential completion designs and will aid us in determining the field's commerciality.

Following completion of the flow test, the well will be temporarily abandoned and we will continue our work to integrate all the data and review any additional activities required to assess Orca's commerciality. Given the scale of the discovery, it is likely that additional appraisal wells will be planned to further delineate the field and understand its production potential.

We will routinely provide you updates on our appraisal activities in the future, including at this summer's Analyst Day as Joe mentioned.

Similar to Bicuar, we experienced significant operational outperformance, with the Orca well taking 2 months to drill its whole depth, which is about 40 days fewer than expected.

We continue to see meaningful improvements in our joint performance as we apply what we've learned from our previous 5 wells in the basin. These improved operational performances translated to better project economics for our shareholders.

The Orca discovery is Cobalt's fifth consecutive discovery in the Angolan pre-salt and a second on Block 20. We continue to be excited about our exploration opportunities in the basin, with more than 20 undrilled pre-salt structures on our blocks.

Following our work at Orca, we will move the Catarina rig to Cameia to spud the #3 well, the final appraisal and the first field development well in the field. This well is being drilled to meet our schedule for first oil. After Cameia #3, we will move the rig to one of the 3 exploration prospects we have already matured, either Mupa on Block 21, Golfinho on Block 20, or Loengo prospect on Block 9. Given our operational performance, we still expect to spud 2 exploration wells after Cameia #3 in 2014, with the results for the second of these wells expected in early 2015.

Shifting now to Gulf of Mexico. Our appraisal planning is continuing at full speed on both our Shenandoah and North Platte discoveries. We expect to spud the Shenandoah #3 appraisal well later in the spring, and we'll incorporate the well results into our sanction planning. We are currently working to advance North Platte to the appraisal phase by acquiring the industry's most advanced 3D seismic survey as we plan for our first North Platte appraisal well in early 2015. Our preliminary assessment of this new generation seismic is overwhelmingly positive and gives us additional confidence in North Platte's ultimate potential.

We will have a lot more to talk about to you about regarding this seismic technology and its implications on our portfolio later in the year. However, we remain very excited about the potential of our inboard Lower Tertiary portfolio.

Additionally, we plan to participate in at least 2 non-operated wells this year, including the Chevron-operated Anchor prospect, which is expected to spud in early March and at Shenandoah #3 appraisal well that I mentioned earlier. While we don't have any operated drilling in the Gulf of Mexico in 2014, we continue to be actively involved in exploration development across the inboard Lower Tertiary.

I'll now turn the call back to Joe.

Joseph H. Bryant

Thanks, John and Jim. Operator, we'd now like to open the line up for any questions that our participants may have.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from the line of Ed Westlake from Crédit Suisse.

Edward Westlake - Crédit Suisse AG, Research Division

I guess, a more general question still you've got this 2.5 billion barrels of gross potential, or greater than 2.5, in your latest presentation. And obviously, some of that is coming from the sag and some of that may come from the syn-rift. But can you talk a little bit about your ideas? I think you said in the remarks this morning, some imaging or reimaging of the acreage with, I guess, syn-rift targets in mind. Can you talk a little bit about your hopes for the potential of the syn-rift?

James W. Farnsworth

Yes. Sure, Ed. This is Jim. I think our hopes for the syn-rift is based both upon our recent success at Bicuar and, frankly, the success that we know the industry has had in the Campos basin in Brazil. And so, we're -- although we're in early days of assessing the syn-rift potential with the Bicuar being the first well we specifically targeted to the syn-rift. I think just about every other prospect we have that's undrilled has an element of syn-rift potential and Orca was one of those. So I was encouraged to see that we did have what looks like good oil pay and a good reservoir in the syn-rift at Orca. And I'm sure, as we go forward with Orca, we're going to be looking at evaluating through the appraisal activity of what it's full potential could be.

Edward Westlake - Crédit Suisse AG, Research Division

Good, good. And then on the drilling efficiency gains, about shaving off 40 days, roughly 1/3. At what point are you going to be able to give us the sort of the CapEx for Cameia which, presumably, will incorporate some of these savings that you have on development drilling?

Joseph H. Bryant

Ed, this is Joe. We'll be pretty forthcoming on our views on Cameia as we approach the Analyst Day here in early summer, so we'll let you know then.

Edward Westlake - Crédit Suisse AG, Research Division

Right. I mean, it's obviously going to be critical for helping us to understand the sort of per BoE economics that are right for some of the developments that we see in the pre-salt.

Joseph H. Bryant

Yes, clearly.

Operator

Our next question comes from the line of Evan Calio from Morgan Stanley.

Evan Calio - Morgan Stanley, Research Division

My first question is on the Orca discovery and the resource estimate. I mean, is there any color here on how much of the area under closure you're derisking in your 400 million to 700 million estimate? I'm just trying to understand how much the second penetration, the second Baleia, were downdip on a penetration is driving that resource estimate relative to Lontra to understand the different structures?

Joseph H. Bryant

No, I understand that. The difference between Orca and Lontra is, in Orca, we now have 2 penetrations. So it does help us tie down either side of the structure on the east and to the west to some degree. In terms of what drives an upside number is, ultimately, the area on the closure and the area of lowest known oil. So future appraisal activity will be focused on really assessing kind of the area of closure, where is the ultimate oil-water contacts -- where are the ultimate oil-water contacts, and then the continuity of reservoir quality. The only thing we're seeing is at the Orca #1 well.

Evan Calio - Morgan Stanley, Research Division

Okay. But no estimate on -- given these 2 penetrations, it's derisked, a fraction or a quarter of the entire area under closure that you see on seismic really -- or mentioning on, I guess, potential upside is what I'm trying to understand.

Joseph H. Bryant

Yes. Evan, we have really high-quality seismic data over this structure, so I've got a lot of confidence. The ability of our guys to map it is quite high. So as I said, the upside -- I'd say, we have more confidence in Orca than we do in most other structures because we do have 2 well penetrations in it right now and we have high-quality seismic data. So future drilling will be focused on reservoir continuity across this quite large structure.

Evan Calio - Morgan Stanley, Research Division

Okay. And then with -- I guess, I'm just thinking kind of next steps to development if -- given there's a second appraisal for Cameia, should we think that that's protocol that we'll need to see at least 2 appraisal wells prior to sanction or is -- might that be path-dependent and potentially a fewer number of wells in the future that will be able to bring you to early production?

James W. Farnsworth

I just don't know at this point, Evan. We continue to learn about these reservoirs as do our partners, including Senegal. And we'll just have to make the decisions as we move along.

Evan Calio - Morgan Stanley, Research Division

And just one last, if I could. I mean, it sounds like the oilier discovery year, I mean, can you talk about any percentages there or how that compares versus Lontra? And what that might be telling you about the block and other prospects? And I'll leave it there.

Joseph H. Bryant

Well, I think, from my perspective, having a largely oil field reservoir indicates that the Kwanza Basin is certainly an oily basin. So thus far, the Lontra experience has been an isolated one in terms of having a sizable gas column, and that certainly we're finding, both to the east and to the south of Lontra, big oil volumes. So I'm encouraged by that.

Operator

Our next question comes from the line of John Malone from Mizuho Securities.

John T. Malone - Mizuho Securities USA Inc., Research Division

Just one quick question on the flow test. What do you think the timing of that is going to be? I assume it's relatively rapid, you're going have some data from that.

Joseph H. Bryant

Yes. We expect to have that -- the flow test, I think some time in the next 30 to 45 days. It'll take us a while before we understand what that data is telling us is like. I would be looking for a press release in 30 or 45 days. We're going to get to the data when we are confident of what it says in terms of the overall reservoir.

John T. Malone - Mizuho Securities USA Inc., Research Division

Okay. And then you talked about the 3 wells and then the 3 potential next targets. With Mabinga, that being on Block 9, that being away from the discoveries you've made thus far, how should we think about that block differing from 20 and 21? Is it the same risks that you see there? Is the reservoir quality still an open question there? How do you think differently about 9 versus 20 and 21?

James W. Farnsworth

Yes. let me try to take that. This is Jim. Block 9 is a block that actually has wells in it already, from back in the '80s, and have oil in those wells. And in addition, there was an industry well that was drilled by Maersk, just a couple of years ago that's sits just really to the west of Block 9. So it's clearly an oily trend. And what we did was acquired a new 3D survey over the block and, kind of much to my delight, we found quite a large structure, which we think has kind of 250 million to 500 million barrel potential, and we -- that's what's call Loengo. Now the only difference between Loengo and the other structures we've drilled thus far is it does have a stratigraphic element of traffic. Those typically have higher risks. So this will be the -- when we drill Loengo, it's likely going to be the first or second well we would drill to test kind of a new concept, but within the known stratigraphy that we've been so successful in so far and, certainly, in a block that we know there is oil in it.

John T. Malone - Mizuho Securities USA Inc., Research Division

Okay. And then I know you guys are not going to yet talk about how you're going to schedule those wells out, but what are the parameters in which you look at them to decide which will come up first or which will be drilled first?

James W. Farnsworth

Well, we have work commitments in all 3 blocks, and we're in a really great position that we have 3 high-quality prospects in each of our blocks. So I think it's going to be mostly aligned, a lot aligned, so what work commitments do we need to fulfill first? And certainly, Block 9 and 21 are -- the exploration dates are coming up earlier than Block 20, so we're more than likely do there first.

Operator

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

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

I just have a question about just the wording that you used in your -- in this press release and then also in some prior press releases. So in relation to Orca, so you're saying that you want to assess the commerciality. And so, what were you -- actually, your exact wording is "to assess commerciality". So do you mean, by that, to assess whether or not it's commercial or do you mean to assess the magnitude of the discovery?

Joseph H. Bryant

Joe, I wouldn't read too much into that. What we're saying is that 1 well does not make a sanctioned project, and we're always pretty cautious about understanding what we see from our early wells and before we would declare it commercial in a sense that we're going to develop it. Obviously, we're optimistic. Clearly, we're on the right path. But at the end of the day, we have a lot -- a lot goes in to commerciality, as you well know, in deepwater, including the project cost, so that's what we'll work through. And when we make all those decisions, we'll let you know.

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

Okay. But just to clarify, I think, what Jim said earlier. So of your 5 discoveries, you feel -- you actually feel best about Orca at this point because of the 2 penetrations or could you just clarify that?

James W. Farnsworth

I would just say that, obviously, if you have 2 wells in the reservoir versus 1 well, you know more about it. So not necessarily that I feel better about it, it's just we got more data. But to be clear, I feel really good about Orca. It is a good-sized discovery, big discovery.

Joseph H. Bryant

Yes, Joe. And this is Joe again, let me just add. Keep in mind, we have 2 wells on Cameia, too. And what we're always testing is, are the well penetrations consistent with the seismic and the predrill geology that Jim and his team are seeing? And it's always good to have 2 data points in the reservoir rather than just one, so that's all he's really getting at there.

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

Got you. Okay. And so, on Cameia -- and that's one reason why I was asking -- so how do you feel about Cameia now based on the announcements you've done to date?

Van P. Whitfield

Joe, this is Van Whitfield. I think our assessment and comfort level in Cameia is as good as it's ever been. We are truly moving forward to sanction that project this year. We're very confident. And we know that, while Joe just mentioned the importance of having multiple take-points, what's really going to be important is having some performance and production. And that's what we're focused on and very confident that we've got a commercial development, and that's what we're pursuing.

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

Got it, that's helpful. And then in terms of this resource side you identified for Orca, 400 million to 700 million barrels of oil, that sag reservoir, how much of that resource is in that thicker sag reservoir?

James W. Farnsworth

The bulk of the resource is in the sag. Kind of the exact numbers, probably I don't have it off the tip of my tongue, but the bulk is in opposite [ph] section.

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

Okay. So but I guess, Jim, is there a significant amount in the syn-rift such that you really have to kind of think about how to develop this thing and then -- and how would you develop it and produce the oil from the different reservoirs ?

James W. Farnsworth

Yes. I don't think that -- we don't quite know yet how much is in the deeper reservoir, but I don't see an issue with it being any more difficult or any different to develop the syn-rift as it is the sag. It's the same type of rock.

Joseph H. Bryant

Same type of oil.

James W. Farnsworth

Same type of oil. And the industry we're very familiar with developing the reservoirs at different levels.

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

And so, would you develop them simultaneously or would you develop the deeper one first? And then when that depletes, go back up, or how would you think about doing that?

James W. Farnsworth

I think it's way too early for us to get into that yet.

Operator

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

Al Stanton - RBC Capital Markets, LLC, Research Division

Joe, I was struck by the fact you lead -- or early on you talked about new ventures. I'm just wondering how close they should be to the front of our mind at the moment because I'm struck by the fact that many of your peers haven't been enjoying considerable success in the deepwater and they've been grumbling about costs, so I kind of see an opportunity for you guys to look outside of Angola, particularly as you've been stressing high value, I would contest that you've enjoyed great success, but I wouldn't say barrels in the Angola are high value. So are you pointing us to other salt basins outside of the Gulf of Mexico and Angola or am I just being too presumptuous on that?

Joseph H. Bryant

No, I think that's insightful, Al. I would say -- you've heard me say many times that there is some math involved with exploration. You want to find high value barrels, and where they don't have high value margins, you want to find high volumes of those barrels. And so, our strategy all along in Angola and West Africa and even in the Gulf of Mexico was where we knew we could find very, very large volumes, we can live with lower margins. And in the Gulf of Mexico, where we may not have these super large volumes, we will live with these super high margins. So Jim and his team are looking at our core competencies around the world in salt basins, and doing that math every day at the office, where can we find the highest value between the combination of the margins we can see on the barrels and the volumes of the barrels involved. So we'll have a lot more to talk about that at the Investor Day this spring. And I would say this, that our exploration machine is working. It's working as well as anybody's works, if not better. Frankly, we know what we're doing. And we're going to use that and press that advantage with the team we have. We think they're as good as anybody's, if not better, and we're going to build a portfolio that is world-class, that you'll be talking to us about later in the decade.

Al Stanton - RBC Capital Markets, LLC, Research Division

And then should I assume that you're leading with the drill bit rather than -- I mean, with your stock, where it is at the moment, I'm assuming you wouldn't be using that as a currency for new ventures?

Joseph H. Bryant

I think that's -- we're too early to be definitive on that, but we're not -- I'm not sure I understand your question precisely, but we've always maintained a pretty strict adherence to strong balance sheet and we always will.

Operator

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

Ryan Todd - Deutsche Bank AG, Research Division

Great. A couple -- if I could do one -- maybe one micro, one macro question. On Orca itself, you mentioned how it exceeded your predrill expectations. Can you talk a little bit about what is it that you saw in the well that was better? Was it reservoir quality, thickness, size of the structure, any of the above? And then I have one macro follow-up.

James W. Farnsworth

Yes. This is Jim, Ryan. Yes, I think kind of all of those that you've described, a deeper oil-water contact or deeper, lowest known oil than we might have anticipated, which then leads to a thicker oil column and high quality reservoir. And then we -- if you [indiscernible], we have a deeper oil-water contact that increases the size of the footprint to the field. In other words, you push down the oil-water contacts and the field expands off laterally. So those were the elements that -- met that we came in on the higher side of our estimate.

Ryan Todd - Deutsche Bank AG, Research Division

And in terms of the reservoir quality, is it safe to say -- what you've seen up in the sag interval, is it the similar type reservoir quality as what you've seen in Lontra and Cameia, et cetera?

James W. Farnsworth

We think it's similar. And we also think it's similar to what we've seen in the -- what the industry has seen in the Campos Basin. So this, to me, is kind of a dead ringer for what we believe is across much of the Brazilian pre-salt.

Ryan Todd - Deutsche Bank AG, Research Division

Great. And I guess, if I step back a little bit, I mean, you have -- maybe this is the kind of stuff that we'll discuss more at the analyst meeting or maybe it's too early then, but you have -- on your 5 discoveries at this point in Angola and, clearly, some of those are possible tiebacks to each other, I think it's a little more clear from our point of view what the strategy might be in terms of development and monetization of resource in the Gulf of Mexico and Angola is clearly a bit trickier. But can you think about, if we look forward over the next 2 to 5 years, you've got a lot of resource there to develop. Can you talk a little bit about internal technical capacity, team-wise, to develop that resource or how or when you might start thinking about monetizations or the development of all this resource, I guess, from a broad view?

Joseph H. Bryant

Yes, I'll jump in there. You probably did notice that we've brought on additional capacity with the Greg Sills, who was truly one of the industry's preeminent development project people, to augment our project capacity. What I don't want you to hear from us is that we have intentions to develop every single thing we find. What we've always said is we want to have a deep portfolio of exploration opportunities that gives us a lot of exploration success that, hopefully, will give us a lot of development opportunities that we'll pick and choose and figure out which ones are the best that will deliver the highest value and which ones will we let somebody else take a look at. We're at that stage now. We could have had this conversation the year ago. We're there now in terms of internally how we think about our portfolio, and I think we'll have more to say about that as the year progresses.

Operator

Our next question comes from the line of Michael Glick from Johnson Rice.

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

Just a question on the quality of the oil. How does that varied as you move throughout the Kwanza Basin, in different prospects and in the different reservoirs?

James W. Farnsworth

Yes. Let me say, we don't have all the data yet on the Orca oil, but what we do know is that it does seem to be kind of in the mid-30s API gravity. So in terms of how the oil condensate have varied across from field to field to field, it's actually pretty similar. That's all -- all are kind of on the light side at the oil range or condensate, or rich condensate. So far, not that much variability.

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

Okay. And then just given kind of the inventory of discoveries you have and work commitments, can you kind of give us some color on the thought process with respect to potentially adding a rig in Angola?

Joseph H. Bryant

Yes, this is Joe again. As we said, we originally thought we'd have a 2-rig program out there for years to come. As you know, we drop the Ocean Confidence. We're pleasantly surprised by the efficiency that we're not only getting out of the Catarina but, in addition to that, the drilling efficiencies we're seeing with what we've learned and talked to you about. Obviously, there will be a time here in the next several months where we'll make that decision to bring in another rig, but it takes a long time to do that and it's not going to happen tomorrow. Lastly, on that, I would say that with the industry ramping up to begin its pre-salt exploration drilling in the Kwanza Basin, we expect there will be several one-offs or flyby rigs available to us that we can use to drill prospects on an adhoc basis.

Operator

Our next question comes from the line of Richard Tullis from Capital One.

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

Joe, just kind of a macro question here. What's the climate or outlook for partial monetization of some of your recent discoveries given, I guess, some of the bigger, global explorers have recently been discussing cutting back some on some exploration activities. So how do you think that could play into maybe you guys looking at partially monetizing some of what you have?

Joseph H. Bryant

Well, I can't speak for everybody else, and I won't. But our strategy, again, has always been that we want big interest in big things. And to the extent there's anybody out there that's interested in our assets, we're in the book. So that's about all I could say about that.

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

Okay. And then just lastly, I don't think you mentioned this, but what was the drill cost for the Orca well?

Joseph H. Bryant

Frankly, firstly, I haven't seen the number yet. We're still drilling it. But the way I would think about it is our spread right there is a little over $1 million a day. And it took us a couple of months to drill, so that would be about $60 million to get to TD. Then the costs are a little bit harder to predict because of the vast evaluation programs that we do on our wells. That's not a linear function on so many dollars per day at that point. So I don't know what we'll end up with there, but $1 million, $1.5 million a day is probably a good average for what the spread rate is on an all-in basis.

Operator

Our next question comes from the line of John Malone from Mizuho Securities.

John T. Malone - Mizuho Securities USA Inc., Research Division

Just a couple of quick follow-ups. You might have mentioned this, but on Shenandoah, when do you think you could see sanction here? I know you're not the operator, but is there any guidance you can give us on that?

Joseph H. Bryant

I think that -- again, we're not the operator there, what I will say is we're drilling an appraisal well this year. At the same time, the Yucatán partnership is drilling an important well on the southwest flank of Shenandoah, they're drilling that now. That data will come in later this year. And I know that -- what I understand on Anadarko's doing is talking about first oil towards the end of the decade. I can't back-calculate when the sanction would be but I think, towards the end of the decade, they're thinking about oil from Shenandoah.

John T. Malone - Mizuho Securities USA Inc., Research Division

Okay. And then one other one. John, you mentioned that it appears, coming into the Kwanza Basin, you've got a lot of activity picking up. I know there's 1 well that's actually underway right now on Block 35, just north of you. Any readthrough from that well? Anything we could -- we can read from that well, success or failure, any of the data come out, I mean as to prospects on 20 and 21?

John P. Wilkirson

I'm not that familiar, to be honest with you, of that prospect site, it's hard for me to make that judgment call. But certainly, as the explorer, I would think they'd be happy to see and hear about our news.

Operator

Our next question comes from the line of Ed Westlake from Crédit Suisse.

Edward Westlake - Crédit Suisse AG, Research Division

Yes. So obviously, a lot of questions have been asked. But just around Gabon, where are we on actually getting the new blocks actually signed up and in the bag?

James W. Farnsworth

Really, not much has changed on that yet, Ed. So the activity this year, as we've talked in the past, is largely going to be around seismic activity on the block. We've got a large part of the block, it doesn't have 3D on it yet. And in terms of the completion of the licensing rounds, my expectation is that's going to take some time.

Edward Westlake - Crédit Suisse AG, Research Division

Right, okay. And then, obviously, I think there's a big lease round in the Gulf of Mexico. Presumably, you guys, part of your diversification would be shopping at home?

James W. Farnsworth

I can assure you we will always be looking at good opportunities in the Gulf of Mexico, and these lease field might be one of those.

Operator

I'd like to hand the call back over to management for closing comments.

Joseph H. Bryant

Okay. Thank you, operator. I'll just summarize with a few words. As I said, we began 2013 with 4 significant discoveries. Today, 14 months later, we have a deep portfolio of 9 discoveries. We believe that these 9 discoveries provide every reason to believe that our founding vision was spot on and could provide great shareholder value. Of course, this wouldn't be possible without all of your continued interest and support, so I want to thank you not only for participating in today's call, but for the support you've given us over the past several years. Thank you very much.

Operator

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

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