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Friday, December 16, 2011 was an exciting day for shareholders of Cobalt International Energy (NYSE:CIE). The stock soared 22%, jumping from $9 to $11 per share on news that Cobalt would continue its drilling program off the coast of Angola, Africa. On Tuesday, the stock was up another 37% on news that it struck oil. By Wednesday afternoon, the stock was sitting at $15.43 per share.

Cobalt is drilling on a complicated pre-salt formation on Angola Block 21 that could prove to hold one of the largest discoveries since the recent pre-salt finds off the coast of Brazil. Cobalt has a 40% working interest in each prospect in the block.

Cobalt is drilling with Diamond Offshore Corporation’s (NYSE:DO) semisubmersible rig, Ocean Confidence at a cost of $360,000 per day. Today (Wednesday), Cobalt extended its contract with Diamond through mid-March of 2012 in order to drill two more wells. Competition for rigs is on the rise. Ocean Confidence is destined for the Gulf of Mexico for use by Murphy Oil (NYSE:MUR) later in 2012.

Cobalt also owns a 40% interest in Angola Block 20 that it intends to explore later in 2012 and 2013.

The wildcatters have partnered up with Angola-based Nazaki Oil & Gas, which holds a 30% stake, and state-owned Sonangol Pewquisa & Producao, also with a 30% interest, and Alper Oil which holds the remaining 10%.

Cobalt appears to be well-connected—pardon the pun—with a shareholders roster that reads like a who’s who of international finance and intrigue. Top shareholders include the Carlyle Group/Riverstone Holdings, Goldman Sachs (NYSE:GS), and First Reserve, each holding 21% of Cobalt’s outstanding shares, the Leland Stanford Foundation with 9%, and George Soros, who holds 1.7%.

The talent pool running Cobalt is top notch. Chairman of the Board and CEO Joseph H. Bryant has been drilling for oil for the past 30 years. He was the former President and COO of Unocal, and served BP (NYSE:BP) as Chief of Exploration (Angola) Ltd., and president of BP Canada Energy. Mr. Bryant is also a board member of the American Petroleum Institute. James Farnsworth, Cobalt's Chief of Exploration was also a BP man. He ran BP's global exploration operations in America, Africa, South America, Russia, and the Far East. Michael D. Drennon, Excutive VP and General Manager of Cobalt Angola is a former Vice President for Parker Drilling (NYSE:PKD).

This is a highly-speculative investment no matter how you slice it and dice it. With no proven oil or gas reserves, and quarterly losses stacking up, Cobalt’s third quarter 10Q reads like a “let me discourage you from investing in me” report.

More conservative investors will want to excercise caution with this stock. But for those inclined to high risk and wishing to participate in the Wild West of Angolan wild-catting, Cobalt might prove worthy of the speculation. However, the would-be speculator needs to fully understand the meaning of “dry-hole” and what such an event could do to the price of this stock. It is one thing to find oil, and it is another to successfully bring it to the surface.

I suspect the excitement building up over the potential pay-off will further propel the price of this stock upwards. With Goldman Sachs raising its target price from $14 to $21 and more news coming over the next few months, momentum players may wish to take a look on a pullback, given its four day run-up. Should Cobalt strike oil on its next prospect, this stock could be a real eye-popper. Should it fail, the price of this stock could drop faster than Newton's apple... OK, maybe just as fast.

For Seeking Alpha readers that read my recent article entitled Profiting from the Goldman Sachs A-List, I would like to note that I ran across Cobalt for the first time while perusing Goldman Sachs’ 13F filing and running a few screens against the list looking for high beta stocks that are currently outperforming the market on risk-on days.

Source: There Could Be More Upside For Cobalt International