Cobalt International Energy's (CIE) CEO Tim Cutt on Q2 2016 Results - Earnings Call Transcript

| About: Cobalt International (CIE)

Cobalt International Energy, Inc. (NYSE:CIE)

Q2 2016 Earnings Conference Call

August 02, 2016 11:00 AM ET

Executives

Rob Cordray - Director of IR

Tim Cutt - CEO

David Powell - CFO

James Farnsworth - President, Exploration

Analysts

Evan Calio - Morgan Stanley

Ryan Todd - Deutsche Bank

Bob Brackett - Bernstein Research

Bachmann - Scotia Howard Weil Inc

Richard Tullis - Capital One Securities

Ed Westlake - Credit Suisse

Mike Scialla - Stifel

Anish Kapadia - TPH

Operator

Greetings, and welcome to the Cobalt International Energy Second Quarter 2016 Financial Results Conference Call. At this time, all participants are in a listen-only mode. An interactive question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Mr. Rob Cordray, Director of Investor Relations. Thank you. You may begin.

Rob Cordray

Good morning, everyone. Welcome to Cobalt International Energy's second quarter 2016 conference call. My name is Rob Cordray, and I'm the Director of Investor Relations for Cobalt. As 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 this morning's earnings release and in Cobalt's SEC filings, and we incorporate these by reference for this call. Joining me on today's call are Tim Cutt, Cobalt's Chief Executive Officer; David Powell, our Chief Financial Officer; and other members of our executive team.

I will now turn the call over to Tim for his opening comments. Tim?

Tim Cutt

Thank you, Rob, and good morning to everybody. This is the first Cobalt earnings call for David Powell and myself, and we are both honored to be part of Cobalt’s leadership team. You’ve read my bios; I won’t spend much time on that. We will be participating in the upcoming Barclays Conference in September, and look forward to talking to many of you there.

In the short-term, the short time I’ve been here, it is clear today that Cobalt is indeed a unique company with exceptional assets and a highly talented team of experienced leaders and staff who are dedicated to the success of the company. I recognize that we face significant near-term challenges, but I look forward to working with our executive team and Board to make proper decisions to deliver a bright future for you, our shareholders and for Cobalt.

In the near-term, I have three priorities, which I believe are key to creating Cobalt’s path to success. First, we must exercise the options available to us regarding the sale of our Angola assets; second, we will address Cobalt’s liquidity position; and my third priority is to describe a clear path forward to move Cobalt’s significant discovered resource through development and into production, delivering significant volumes and cash flow no later than in year 2021. Let me discuss each of these in more detail.

As I said, my highest priority is working through the options associated with the disposition of our Angola assets. In fact, I’ve just returned from a trip to Angola last week, where I met with Sonangol’s Chairwoman, Isabel dos Santos. As you are aware, the purchase and sales agreement we entered into with Sonangol in August of 2015 contemplate that the sales transaction will close by August 22nd, 2016; and failing that, the purchase and sale agreement would automatically terminate on that date, resulting in the assets coming back to Cobalt.

During the last week’s meeting, we agreed with Sonangol that we would market our 40% working interest in Angola Blocks 20 and 21 to sell these assets to a third-party. Although we prefer the transaction with Sonangol to close, I’m pleased that we can now re-market these very attractive liquid rich assets to third-parties. The development cost environment has improved substantially, with fundamentals for medium and long-term liquid pricing remained strong, and we have delivered two new discoveries on Block 20, Zalophus and Golfinho.

I’ll now discuss Cobalt’s liquidity position. Given the delay in the sale of our Angola assets, we know that we must identify every opportunity to preserve cash, while holding on to our poor assets that we believe have exceptional long-term value. During the past month, we have completed a detailed evaluation of the capital that will be required to complete the near-term appraisal of our three giant deepwater Gulf of Mexico oilfields.

More importantly, given the continued positive appraisal results at North Platte, Anchor and Shenandoah, we modeled the capital required to deliver significant production from these fields beginning in 2021.

As a result, it is clear that we must focus our limited resources on the highest value opportunities and continue to cut costs. With this focus in mind and in order to further conserve our liquidity, we have decided not to pursue the deepwater Mexico opportunities at this time and have closed our Mexico office. Keep in mind that these are very early days in the offshore Mexico play and we believe that there will be other opportunities in the future if we decide to return to the play.

We have cut our workforce by more than 60% over the past several months and we are also looking closely at our long-term drilling contract in the Gulf of Mexico and our planned near-term wells. Following the current drilling operations at the Goodfellow exploration well, we will move the rig to our next North Platte appraisal well, which will help to substantiate the commerciality of North Platte.

At that point, given that we have satisfied all of our near-term drilling requirements in North Platte, the decision maybe to terminate a rig contract, understanding that we would be subject to an early termination penalty. This decision will only be taken if it’s in the best interest of our shareholders.

We are keenly focused on preserving our core assets because of the exceptional value we believe that we'll deliver. Having said that, we must look at our portfolio and able to continuously plan to farm down certain interest to generate cash and reduce our capital requirements depending on the outcome of our Angola marketing effort. This will be a thoughtful process to ensure that we make the proper decisions to maximize value.

As I mentioned in my opening comments, my third priority is to begin to move Cobalt’s significant discovered resources through development to production. Work continues at our operated North Platte field, where we will commence drilling in North Platte #4 appraisal well in the third quarter. North Platte #4 is designed to further delineate the North Platte Inboard Lower Tertiary reservoir. We continue to have confidence in North Platte, where the rock and the reservoir properties compare favorably to properties seen in the Miocene reservoirs in the Gulf.

Cobalt, as operator, owns a 60% working interest in North Platte. As operator, it is critically important that we rapidly build the plants to move these projects into the development phase as soon as the appraisal program is complete. Our business plan contemplates first production from North Platte in 2021.

At Shenandoah, the #5 appraisal well is drilled to a depth of 31,100 feet and encountered approximately a 1,000 feet of net pay in multiple high-quality Inboard Lower Tertiary sand. After drilling this well, approximately 80 feet of conventional core was acquired in the Upper Wilcox pay interval.

We share the operators’ positive view of the results of this critical appraisal well. Later this year, plans are to drill the Shenandoah #6 well, which is expected to establish the oil water contact on the eastern flank of the field and to quantify the full resource potential of Shenandoah. Cobalt owns a 20% working interest in Shenandoah.

We are currently drilling and evaluating the target interview at Goodfellow. And as we announced this morning, we do not expect to encounter hydrocarbons. In addition, appraisal drilling continues at Anchor and the development drilling continues at Heidelberg, as outlined in this morning's earnings release.

Recognizing a vast amount of work associated with moving our discoverable resources through the development and ultimately production, I have restructured the executive team at Cobalt. I have eliminated the Chief Operating Officer position, de-layered the executive team and have created positions of President of Exploration and President of Operation. Jim Farnsworth will become President of Exploration and will maintain his accountability for the exploration and appraisal activity for the company. I am very pleased to announce that we have hired Rob Scuffle to fill the new position of President of Operations, who will be focused on moving our exceptional assets through development and through production.

This de-layering of the management team will be a significant step in focusing our efforts as we move to new phase in the life of Cobalt. Jim is respected globally, as you know, for his proven track record in unlocking new exploration basins around the world. I have worked with Rob since the early 1990s in numerous offshore-producing regions, including the Gulf of Mexico, North Sea, Trinidad and Tobago and Offshore Western Australia. Rob is a seasoned executive with strong development and operations experience, and is a respected reservoir engineer. I have complete confidence in his ability to lead this effort and deliver great results.

Well deployment rounds out Cobalt’s executive team. I am very excited about working with this world-class team, who through combined experiences have the track record of finding, building and operating some of the largest offshore fields in the world. Our focus will be to develop these great deepwater Gulf of Mexico assets so they can deliver outstanding value for you, our shareholders.

I’ll now turn the call over to David Powell, who will make a few comments, and then we’ll open up for questions. Thank you.

David Powell

Thanks, Tim. As outlined in today's earnings release, for the second quarter of 2016, Cobalt had a net loss from continuing operations of just over $200 million or $0.49 a share. This loss compares to a second quarter 2015 loss of approximately $53 million or $0.13 a share. The increased loss relative to a year-ago result is largely attributable to the $150 million or $0.37 a share write-off associated with the Goodfellow well.

We have also updated our guidance for total 2016 use of cash from continuing operations with a new range of $650 million to $700 million, an approximate $50 million increase from the previous guidance. This difference was largely driven by the acceleration of OBO activities in our Gulf of Mexico continuing operations. This guidance does not include $138 million as expected 2016 spending in Angola for operations on Block 20 and 21, of which approximately $119 million has been spent at the end of second quarter 2016.

In terms of liquidity, our cash balance at the end of the second quarter 2016 was approximately $834 million, which includes the $250 million that we received from Sonangol pursuant to the Angola transaction. Incorporating the updated guidance for use of cash from continuing operation, as well as our update on the Angola transaction, we now estimate a year-end 2016 cash balance between $350 million and $400 million. The cash balance estimate assumes that we repay the $250 million initial payment from Sonangol and $26 million of cash calls in the Block 9 Letter of Credit, net of approximately $159.5 million receivables owed by Sonangol to Cobalt.

Given this liquidity outlook, we are focusing simultaneously on several initiatives to address our capital requirements in 2016 and beyond. Tim mentioned earlier our option to lay down the Rowan Reliance rig after our upcoming appraisal well at North Platte, which we would consider prudent in the case where the penalty was economically attractive relative to continued drilling under the current contract or some sort of blend and extend option.

Along with the previously mentioned Angola asset sales process, we will consider farming down our assets in our portfolio as a way of focusing our limited capital on what we believe are the highest value assets. Our goal here will be to measure value as a combination of sales proceeds and potential and incremental returns from a more focused deployment of development capital in our best assets.

Lastly, in any scenario, the four- to five-year development run rate for our core Gulf of Mexico asset will require us to take a closer look at our debt profile and alternative financing options. This will likely be a multi-step process, the one that we believe is essential as we worked our way towards production for our Inboard Lower Tertiary discoveries.

With that, I will turn it back to you, Tim.

Tim Cutt

All right. Thanks a lot, David. I want to also mention that joining us today are Jim Farnsworth. He will be here to help us answer the exploration appraisal questions and anything else you need to ask to Jim; and then James Painter, and James will answer all the operational-related questions to founders of the company.

So I think we're well equipped to turn it over and move to questions.

Question-and-Answer Session

Operator

Thank you. We’ll now be conducting a question-and-answer session. [Operator Instructions] Our first question is from Evan Calio from Morgan Stanley. Please go ahead.

Evan Calio

Good morning and welcome, guys. My first question, it relates to your second priority in preserving liquidity. I know you provided the 2H16 guidance. You are keen to mention any minimum cash burn or range for 2017, and what activities are really necessary really in the GOM that you excepted to keep those license in 2017?

Tim Cutt

Evan, good question. I think when we look at kind of the outlook of where we're going, the good news is, we've met a lot of our appraisal requirements. We have the North Platte #4 well that we’ll move on to, that will carry into next year. My view is that's a really critical well for us to understand kind of the commerciality and how big North Platte gets, we’re excited to drill that well. So that will carry in.

In both Anchor and in Shenandoah, we have some appraisal left to do, but we are also coming towards the end of that. As we look at our cash needs and our capital availability, I think it's the honest view to world to say that we are going to be looking at all of our Gulf of Mexico assets. And I think, it probably -- not probable that we would be able to develop all three. Heidelberg is already online and doing the drilling now. And so, we are going to have to prioritize. The great news we have is that they are all looking really good. I mean, the legislation of Shenandoah was extraordinarily helpful, 1,000 foot in the biggest block. And so, we're going to -- if you ask me to do a tiebreaker on those three, right now, I couldn't -- we need to get the fourth well down, we need to drill the sixth well at Shenandoah.

And so, I think to get more specific to your question on what our cash needs are, I think a big draw on our cash is associated with our owner/operator drilling in North Platte. Once we drill the #4 well, we can stop there. And so that's, on a gross basis, about $1 million to $2 million a day, including all the associated assets. So that ends up probably in the first quarter of next year. So we can make a step-change there. And then we’ll have to kind of prioritize between the other fields and make sure that we have the cash available.

Last thing I’d say, I think this on people's mind, we're going to have to see how it goes with Angola. I feel good about it, we have incredible assets there. Technically, they are some of the best and some of the best liquids that are coming on in the market. And so, depending on how it works out over the next three to six months, we'll inform them on how much we're able to do moving forward in Angola. So I didn't answer your specific question, because there is quite a large range of outcomes on what our cash requirements will be in '17.

Evan Calio

Yeah. Let me follow-up my second question like, Tim, where you left off on Angola and the blocks. I mean, can you share how many parties were in the data room on the last marketing effort and whether there were any indications and interest outside of Sonangol? And also it sounded like you mentioned, you said, three to four months. I mean, is there a specific time line, if you're targeting for wrapping that process up, kind of given the extended marketing and due diligence that has been done on the last effort?

Tim Cutt

Yeah. So we had 18 parties into the data room, all with fairly keen interest. I mean, some have better abilities to operate in Angola. I mean, my personal view and specially talking with Sonangol last week, is having an operator come in there that has the capacity to do this is probably the preference for a clean handover and also somebody that can start moving on as quicker.

Clearly, when you look at our cash burn, we're going to move on this fairly quickly. There is not a lot of new data to put back in the data room, just a very positive results over the last two wells, a little bit of update on the fiscal terms and then some dialogue around what might ultimately happen with the gas resource.

But, when you look at some of the things that happened in the market recently in the pre-salt, you saw recently there. This is also pre-salt. We helped to unlock the pre-salt here. The individual reservoirs are not quite as large as you see in Brazil, but the quality is just as good. And so, with that, lots of liquids, the ability to move fairly quickly, bit lower reservoir pressures than you see in Brazil, and so I would anticipate still some interest. What the ultimate bid would be and who they will come from, that process have to play out. So I would open the data room, a month or two in that, and then start working to narrow down. But when you look at our cash position, clearly, we’re going to have to understand that before the year-end.

Evan Calio

That's helpful. And then maybe last from me. I mean, was there -- can you share any color on Sonangol's process? I mean, it had been reported that they were looking to offload or farm down the interest that they were requiring and were in negotiations with other parties. I mean, is there anything there, any color you can share, any opportunity there to follow-up with what they may have been emotion with?

Tim Cutt

Well, I think what happened since the deal was struck, the world has continued to change, right. So the price stayed a bit lower than expected for longer. I think, Isabel, in support of the country in Sonangol, are looking at things in a real practical way. And so, I think, our meeting indicated to me that she is going to make good decisions, she is going to be very supportive of our process. And it's in Sonangol's best interest to kind of move this fairly quickly with somebody that has well and able to move quite quickly.

And so, clearly I understand that there was some attempt to do that. I can't speculate at all on that and how those discussions go. I think, as we put it back into the market, we’ll find out what the interest is. I mean, clearly, we have support from Sonangol to do this, and we’ll work collaboratively. There are some things on the blocks that people will be interested in. We've discovered an 8 tcf to 10 tcf of gas. And, although, we don't have access to that gas financially, Sonangol certainly does.

So as they talk to our potential buyers or things they can do, and they probably were including some of that in their discussions. So I think there are two blocks with wonderful assets and a lot of leg room from an exploration standpoint. So I would think their interest would be good. We’ll find out fairly soon because we'll send the initial invitations out of the data room over the next week, and, hopefully, start that. Everything is all geared up on the -- for the data room, and we can do that electronically, and in a fiscal data room.

So I think people can update the two new discoveries into their data set and find out fairly quickly from the market how we're feeling about this. But apart from me to see that there are lot of companies that need liquids. This is lot of liquids in an established region near some infrastructure. As we said in our comments, we remain confident in mid-term, long-term oil prices fundamentally stand strong. So I feel real good about that. So I felt like in the meetings, it was the right place for our Cobalt shareholders to land on something definitive, not to move this out longer and then start working collaboratively with Sonangol to correct this issue.

Evan Calio

Thanks. Look forward to catching up later this month.

Tim Cutt

All right. Thanks, Evan.

Operator

Our next question comes from Ryan Todd from Deutsche Bank. Please go ahead.

Ryan Todd

Great, thanks. Good morning. Another might not be too much you can say on this, but you mentioned that focus on lining your debt instruments maturities with development timelines in the Gulf of Mexico. Can you provide any color as to what that means, options that you may have available this debt for equity restructuring? And a from a timing point of view, is there something that we should expect in the relatively near future or after the result of some of that asset sales become clear?

Tim Cutt

Well, over the last three weeks, we spent a huge amount of time and the folks in those room have kind of worked 24/7 to kind of start building a really detailed financial model where decisions point. So you are correct. I mean, we're going to have to see some of the results of things, but we know for sure that the 2019 converts, we have to look at those before we'll have significant revenue stream coming in. So that's something that we're going to have to take very seriously.

And so, that obviously gets influenced by Angola, depending on Angola, then you look at some of the other assets, and we'll be informed by that. But I think it's kind of an obvious, already the timing of those converts is optimal, being in 2019 when the significant cash flow comes in at ‘21, but I don't know, if David, you might have something to add here?

David Powell

Yeah. Tim, what I would add to that is, we're looking at all the options around our existing debt and then opportunities from new financing. No final decisions have been made, but we think we have several good options. Given that we only have two outstanding debt instruments, and both with relatively minimal debt covenants, consideration has been given to either exchanges for existing debt and/or issuance of new debt instruments. We'll be focused on aligning this debt schedule and debt instruments with the development plans that we have coming forward. And as Tim mentioned, obviously, that throws the 2019's as a focal point, because that's probably a couple of years before we go into initial production on the next development.

Ryan Todd

Okay. Thanks. And then maybe on Angola, can you run through any relevant timelines in Angola in terms of exploration or exploratory rights timelines that you may have regarding declarations or commerciality prospects, their relevant development timelines? Are there any that are relevant to consider into the sell process or do you have enough running room on everything?

Tim Cutt

No. I think, we generally have enough running room. And, in fact, over the next six months, not a lot of requirements. Obviously, if this carried into next year, then we would have some requirements to continue to move forward and kind of appraising and potentially moving back into exploration. It's something that we could do. I mean, we absolutely have the capacity. Most of the folks that support us there are still available on the market locally. And a lot of people who are doing drilling operations were rotators. So we could actually move to that quite quickly. And so, there's nothing in the very short-term that causes us pause.

Again, we’re going to be looking at -- we got to sell what we have on the fiscal terms that we have. Sonangol will absolutely look at what they have, including the gas rights and the terms. And they can kind of work other aspects of the deal that we truly can. So I'm not sure if Jim or anybody else has anything to add to that.

James Farnsworth

No, I think you’ve nailed it.

Tim Cutt

Okay. All right. Thanks.

Ryan Todd

And are there -- do you have any ongoing capital commitments in Angola from here, or what about social payments, or is all that on pause given the pending sale?

Tim Cutt

I won't really say pause. I think we've met the majority of that. And so, obviously, as we said in the release today, we're going to take a look at everything that certainly is owed to us in the form of payments and anything that would be -- needs to be returned to Sonangol after the 22nd if this closes.

David Powell

And I would just add to that. We anticipated $138 million, as I said in my speaker notes, and we've spent $119 million of that already. Second half is very minimal.

Tim Cutt

So we ended up with minimal spend and not lots of activity. So I think it will enable our team to be pull aboard on the data room. The other thing I wanted to say, I'd like to say is that, obviously we see this as our Number 1 priority. I'm going to take this accountability personally. You saw, I went to Angola last week. I will do what we need to do to meet where we need to meet, to make sure we progress this in a very timely manner and take the executive ownership of the process.

Ryan Todd

Great. Thank you.

Operator

Our next question comes from Bob Brackett from Bernstein Research. Please go ahead.

Bob Brackett

Had a question on the Angola assets. Zalophus have been talked about publicly, Golfinho has a discovery. Can you talk about any volumes there?

James Farnsworth

This is Jim Farnsworth. I guess, Zalophus and Golfinho. Zalophus is a condensate gas discovery up in the northern part of Block 20, kind of just offsetting Block here. And Golfinho is in the southern part of the Block, kind of long trend with Cameia, and it is a coal discovery. And it's in the similar scale of Cameia discovery, perhaps a little bit smaller, but I guess, not as well-defined, [indiscernible]. The big difference is oil and proximate in Cameia.

Bob Brackett

Great. And then another one, I imagine, is there a parallel process to think about selling deepwater Gulf of Mexico fields in case the Angola asset sale hits any snags?

Tim Cutt

Yes. I'd say, certainly. I think we need to have everything in place; and like I said right after my talk, when you look at the resources we have there that are extraordinarily and the appraisal results continue to prove kind of the magnitude of these things.

And so, if you were to ask me, how do you rank order like, I actually can't until we finish up the appraisal. So they are all very good. So we're going to need to kind of decide the best strategy to put some of that into the market.

I mean, we've talked to you guys in the past and currently about at a minimum farming down 20% at North Platte. I’d like to continue to control operatorship. I think we can build the capacities to move that forward with my background, Rob's background and some others’, I think, we can move on that fairly quickly if we decided to. We’ll keep all options over there. But we don't really need more than the 40%. But certainly having the last -- the #4 appraisal well, I think we really substantiate value there.

And on the other field, they’re both looking really good, with Anchor and Shenandoah. And so, I think, we're going to have to look at that, and I don't want you to be surprised between now and the next quarter if you see us pull the trigger on looking at some of that.

When I look at kind of the long-term view of 2021, I think, to be a very interesting company that has enough cash flow and enough running room to where we can rejuvenate be in the exploration business as well, I think we have to have probably the 40% of the North Platte field and one of the others, I think is an honest way to look at that.

If you get much smaller than that, it becomes less interesting. And so, we're looking -- we're going to stay open to that, we're going to make sure we're ready to move quickly if we need to move quickly. And there is a chance that some of those we could do in parallel depending on how we see the next several weeks to a month start to play out.

So I don't think you should be surprised by anything we're doing. We've got everything in front of us. We’ve built a complex decision tree that triggers different decisions depending on different outcomes. And I think the parallel nature of almost everything right now is something you should take away from this call.

Bob Brackett

Great. Thank you, Tim.

Operator

Our next question comes from Joe Bachmann from Scotia Howard Weil. Please go ahead.

Joe Bachmann

Good morning everyone. Just a couple of quick ones. First, I guess, on Shenandoah. Is the -- the answer as to why you guys didn't participate or exercise your pref rights like Anadarko and simply because you didn't need to see the increase in interest at this point with the balance sheet situation, and not impacting on the reservoir?

Tim Cutt

Yeah. Not impacting at all. In fact, this last well was really important, one of the discovery wells for those who have studied it, was basically had a water contact. And it looked it was in a position that could have been wet. And so, this last well could have had a pretty significant water contact, it didn't. But that didn't influence our decision on picking up more interest. Quite frankly, it was the liquidity position and not really being honestly able to pick up that additional capital demand as we go forward.

And so, with something that these guys would have really wanted to do, absolutely, I think a lot of us in industry are watching it for quite some time now. When I looked at the math and some of the results, I was quite happy because I knew some of the resource lines going into that last well. It’s in the largest 12 Block, it's a lot of oil. I think it's really substantiating where we are. So it's not about -- I think, few companies may have had the reservoir risk associated with water contacts that was real, but certainly not what we're worried about. And I think, now we just have another fantastic extremely large deepwater asset that we just have to determine, how do we fund and how do we deal with that. So, that's all good news there.

Joe Bachmann

Okay. And then last one from me. On the termination of the RBL facility, was that due to underperformance at Heidelberg or is that just out of just not necessary at this point for those -- for that facility?

James Farnsworth

Yeah. It's more of a latter -- just wasn't necessary and wasn't the size or that was worth the effort to continue with.

Joe Bachmann

Would you guys look at those for these other discoveries going forward?

James Farnsworth

Anything from the table, we consider a different option, as I alluded to earlier. We certainly haven’t made any decisions at this point that we would consider that going forward.

Joe Bachmann

Great. I appreciate it.

Operator

Our next question comes from Richard Tullis from Capital One Securities. Please go ahead.

Richard Tullis

Yeah, thanks. Good morning everyone. Welcome, Tim and David. Couple of questions. Going back to North Platte, of course, there's still more to learn with additional drilling. But at this time, what sort of development plan and cost expectations do you have to bring the project online by 2021? Would you be looking at an FPSO or a platform?

Tim Cutt

Yes. So let me kind of back up and kind of talk through that a little bit. So we've got a lot of options, as operator, we're 60%. We're looking at -- we've looked at early production schemes to minimize the upfront capital. My view, though, is, if they are really good schemes, if they truly are accelerating your ability to get all line on the way to fulfill development, stopping after early production is never a -- never necessarily a good economic thing.

Again, as we look at the type of facility, we haven't talked about that a whole lot publicly. I don't think -- I don't believe it will be an FPSO, it will be some sort of probably TLP or floater of some sort. And I would say, generally, I'm a bigger fan of subsea kit versus the dry tie-back, so that kind of thing.

One of the things we talked extensively to a number of parties about is, there are a lot of companies out there that would love to build these facilities. And now there are companies that are actually looking at building and owning the subsea kit. And so, there are ways that you can actually offset that capital demand upfront and then charter it into a tariff. The key is to get a tariff that you can afford based on the reservoir and the reservoir performance. And so, there are ways we can move North Platte forward, but we have to get busy and we have to work with our partner to make sure we're aligned around how we should do this.

But to get production up by 2021, I think that’s absolutely doable. To do that, we need to get the results of the #4 well and then be positioned fairly quickly after that and move through a very rigorous state of process to get us ready to go to where we can actually move forward to build this thing.

So I don't know, if that answers it enough. I'm not ready, I haven't had enough time yet to look at the detailed numbers. But we have a range that from a pretty small capital demand with a tariff or something that is a little more traditional, I think some of that operators in the Gulf have proven recently that even before the prices dropped, we’ve gotten the surface facilities schemes down to much more reasonable cost. The drilling costs are clearly down now. Especially, once we get into development drilling and then beyond that, the surface facility cost and what's happening in Korea and other things, we've got good confidence. We get out of the big, big kind of sticker shop numbers in the things that are more reasonable.

So we're going to put a real solid business plan and gather around this, but we're not going to tire us down to any one concept right now. Six months from now, we need to be in the thought process where we're getting closer to thinking about what's like selection definition and other things like that.

Richard Tullis

Sure. That’s helpful and I appreciate that. And looking at Heidelberg, when the next two wells are brought online, what do you think the production range should be?

Tim Cutt

I think we need to leave that to the operator to answer those specific questions, but I’ve looked at the reservoir closely. These wells are drilled fairly close to the salt. I'm fairly familiar with the [indiscernible], looked at it over the last decade. We're drilling some wells, and one of the next wells is down a little bit away from the salt. And I think we share the optimism that these wells will be better. So I think we're understanding the technical issues on some of the wells near the salt and we continue to have optimism around the wells that are drilled a little bit more down a bit. But specific answers to those questions is probably best asked to the operator that has a much larger interest in that.

Richard Tullis

Okay. And then just lastly, I believe the press release mentions some additional Goodfellow charges in the third quarter. Do you have a range what that would be at this point?

Tim Cutt

Yes. I think, quite very honestly, we don't. We are drilling that right now. We started getting the data that we released yesterday morning. We released it this morning. And so we're really in the middle of that. And so what we’ve written off, I believe, Dave, is through the operational ending in June.

David Powell

Yes, the amounts that I quoted, the 150 million was through June 30.

Tim Cutt

Right. So we got the run rate for another month on that. And we’ll see, over the next few days, where we go, but we wanted to get that news around as soon as we had it available to us. But it's literally happening, while we haven't fully reached the plant TD, but the lack of hydrocarbons in the shallower sands is usually a pretty good indicator in the well comps, so we would not have commercial quantities.

Richard Tullis

Okay. That’s helpful. I appreciate it. Thank you.

Operator

Our next question comes from Ed Westlake from Credit Suisse.

Ed Westlake

Yes. Good morning. And just wanted to touch base on Angola. Again, just thinking about some potential sales values. I mean, obviously, a lot of wells in Cameia could be tiebacks. May be touch on Golfinho, it's straddling the two blocks and maybe some unitization, but do you think it would be large enough to be a standalone development?

David Powell

I think it's probably too early to say. I’ve just kind of pointed out it does straddle a lot, but it’s mostly in block 20. And there is a history in Angola of cross-block development. So I don't see that as necessarily an impediment. I think we’ll do, whoever is going to be operating at the time, we’ll do the most efficient thing, it’s whether it’s kind of tied back to Cameia or a separate standalone structure. But as I said, in Angola, there's a long history of very efficient tiebacks together a series of pretty good size accumulations.

Tim Cutt

Yes. The last thing I’d say on that, I think James has something to say is, when you bring the gas into the equation, there's a huge amount of gas there that will probably require two hubs, one to the north, one to the south anyway. And so if that starts to be brought in to discussion, then I think that will impact a little bit as well as to whether you kind of split out the oil between the blocks. James?

James Farnsworth

I was just going to say that Cameia and Golfinho were close enough to be joint development. So it's -- whether it's a one tieback to the other or where it's more like a jack’s side mallow where it's one large or both together. So you've got all sorts of options there on how to move those forward.

Ed Westlake

Right. And then a good segue into natural gas plant and maybe if I broaden it out, you mentioned fiscal terms and obviously local content rules and I appreciate there are many audiences listening, but maybe talk a little bit about the general schematic of Oak launches, given the gas, but the condensate, whether you think that's got enough maturity to be developed and type of breakevens and what sort of things the government need to do in order to enable that?

Tim Cutt

Well, obviously I’ll leave to Sonangol to determine what they'll need to do with the gas. I mean, the great thing is the gas is there and there is a need domestically and there is large quantities, so you have lots of options on where that gas goes and what you do with it. I'm new to this, but I’ve spent a lot of time over the last two weeks looking at it, and the great thing about the liquid, there is nothing in Cameia in a zone to do a kind of a single development. The difference between what I've looked at in the pre-salt and central Kwanza basin and this, is although we have a good amount of gas, we have much lower injectivity and much lower pressures. So we can actually recycle the gas.

And a lot of this is condensate. And so you actually need the gas recycling to have the highest recoveries. And so when I look at the quantities in Cameia, you've got a great little - you’ve got a great development right there that you can recycle the gas and you also have reservoirs at decent pressures close by that are only gas. And so in the worst-case scenario, you can re-inject that. So if we were to move forward as the operator, we would feel absolutely comfortable with the standalone crude and condensate development in the area.

I do think there is a lot of upside if the new party and Sonangol works together to think about the larger development scheme that includes the gas. But it doesn't preclude what's going to happen there. I mean, not a lot to say on the terms other than, we've got a PSA in one block and RSA in the other block. That's not problematic. And there has been some relief in a recent decree, where I believe there is some relief to the terms if you have accumulations less than 300 million barrels in a single accumulation. And so I think that also helps when you get into some of these new discoveries that may or may not see that threshold. So I think it's all out there, kind of for the taking for somebody to look at and really to be able to see that you could build with no new technology. You could go out there and build something and move it to production, from my experience, fairly quickly.

Ed Westlake

And so the last question, long question, apologies, is updates on breakevens for the say Cameia and then in the North Oak Gold.

Tim Cutt

Yes. I certainly don't have that.

James Farnsworth

We really haven't been looking that over the last year.

David Powell

I'll say that, generally in the offshore, especially where the rig rates are going and you really have to factor that in. We started drilling, I think, a number of operators had a rig spread rate of 1.8 million a day. The last wells we drilled out there had been a million a day rig rate. And we absolutely see with current market, you could get that down about 600 a day with all the ancillary kit that takes to drill a well. We started drilling these wells north of 100 days and the last wells, we drilled in 45 days. So typically in an offshore development, about half the cost is in the wells, in the subsea kit and the rest is in the surface.

And so, if you're taking a huge percentage out of the subsurface, and so you get 30% off the surface, you’ve got to be thinking that we absolutely are getting back into the $40, $50 range. And then you got to overlay the fiscal terms and all that. But you're getting in a reasonable range here to be able to move forward with these things. The cost escalated, we've all talked about that, kind of [indiscernible] but they aren’t really coming back down.

And most of us started doing deep water things in $20, $30, $40 a barrel range when the rig rates were more reasonable and the construction costs were more reasonable. So we're rapidly getting back into that. And I think if an operator can get in there, purchase it and lock into some of the current rig rates and also some of the facility rates, constructability rates, and I think you're getting down more, you're thinking in that range versus where we’ve gotten to, up in the 80s, 90s and the 100.

Ed Westlake

Thank you very much, Tim. Thank you, David.

Operator

Our next question comes from Mike Scialla from Stifel. Please go ahead.

Mike Scialla

Yes. Good morning. You talked about your meeting with Sonangol, and Tim in your prepared remarks, you had mentioned that, I believe if I heard you right, there may be some adjustment to the fiscal terms, is there anything that’s significant in Angola, given where oil prices are that may change the way a potential buyer would look at that asset or were those just minor tweaks?

Tim Cutt

This is a decree that come out. These guys want to correct me, but kind of June of '16, where they are looking at, I don't have the terms memorized for sure, but certainly some dispensation if you have accumulations that are smaller than a certain number. And so that also adds to it. So as we put the data room out, all levels are considered, it actually has a pretty good bump on the NPV of the assets. And I'm not sure and we didn't have that data what we did in the last data room. That’s just another bump. And it's also an indication that Sonangol and the government understand the need to incentivize and move forward and I think they’re trying to do the right things to do that.

Mike Scialla

Got you. Great. And then I just want to see if you could add a little bit more color on the number four appraisal for North Platte? Is this a significant down-dip step-out, what do you look in the sea there?

Tim Cutt

Yes. Let me turn to Jim, because he’s been looking at those things for years, and I’ve looked at it for three weeks.

James Farnsworth

So just kind of, to summarize the wells drilled to date, original well, number one was kind of drilled up in the Northwest. And then we drilled the next well and sidetrack, which found even better reservoir. In fact, phenomenal reservoir. The best Wilcox reservoir we've seen anywhere, in the Gulf of Mexico to date. But much of that actually all three of those penetrations we think tested the Western half of the field so this next well will test a good portion of the Eastern half of the field and so think of it similar to what we recently did with Shenandoah where we just drilled number five and we tested every large pulp block that's for the number four is all about. So it will [indiscernible].

Operator

Our last question comes from Anish Kapadia with TPH, please go ahead.

Anish Kapadia

My first question was on your receivables balance. I was just wondering if you could go to the timing of, when you expect to get those in?

Tim Cutt

Most of that is just the Angola piece. So we would anticipate that there would be a final settlement as I alluded to earlier. The 250 million we obviously have to return to Sonangol, but they have a significant balance due to us, 158.5 million. So we would bring those two together and we thank and just have one net payment.

David Powell

did have an opportunity while we there last week to chat about that. They were gathering data around the receivable owed to us. So, again, I think we'd do this in a very collaborative open way. We will get all the things balanced out with exact timing of it. Obviously, if we receive that receivable fairly quickly, and then the contract expires. We are going to meet our contractual obligations and return the money owed at that point. So I think, just stay tuned on that, and we will provide updates as we hit certain milestones.

Anish Kapadia

And also, can you confirm that you still have full title over Lontra and the ability to market Lontra, I believe you missed the deadline to declare commercialized with the whole prices going on as Sonangol confirmed that you will still be able to sell that discovery?

Tim Cutt

We can confirm we still have Lontra

Anish Kapadia

[Technical Difficulty] From a market perspective, it's been, you've seen some fairly low prices for assets Shenandoah in the Gulf of Mexico have been sold by Marathon is one example, in West Africa, Sonangol is selling out of their Senegal asset for a couple of dollars per barrel. Just wondering if that worries you at all when you're looking for to return to your asset sale process?

Tim Cutt

Yes. I'll take that, it doesn't at all. I mean, I think both Marathon and Sonangol don't speak to them, but they have been pretty clear on the market that they decided to shift their focus from their offshore into the onshore. And that's a strategy, and that's what they are doing. When I look at the market, I look over the next 10 years, and I have spent a lot of times in the shale as you know for the last 3 to 5 years. I believe the liquids rich window in the US is fairly short-lived. I think the Bakken and the Eagle Ford will, you know, they rollover now, it's going to be hard to get legs to get those back into kind of a big growth profile going forward, because they are limited in size. The Permian will do it's thing, and it will be around for a long time. But the growth out of the US will - I believe, the actual growth kind of is going to be very interesting over the next five years or so. And I think it is going be hard to stay on the growth profile, and there enormous resource, but it will deliver fairly quickly. And so, when you look past that, you quickly come back to meeting the offshore resources. And so I think as people -- and there is no mystery in that, if you look at the analyst reports around that WoodMac and others around the US shales, the quantities are fairly well understood, and the size of liquid windows are fairly understood. So when you do the math around that, you got to either get back into the deepwater around the world. Nobody has discovered a lot of liquids. We have been quite successful ourselves. And so, you can't fast-forward into the -- up into the North Slope, because then you get into a very, very -- into the Arctic because you get very, very high in the cost curve.

And so, what I -- I believe that the companies those are committed and have the capacity to stay in the deepwater will look at these assets in a very bright light because there aren't that many. And the quality of the reservoir here in the pre-salt has proven in the pre-salt and the [indiscernible] and it is something that doesn't require new technologies to do. It's fairly simple technology to get this done. So if you look at it, they have to make their own decisions. They have their own requirements for capital. And you can see how companies can make those choices, especially if the strategy has changed. The companies that are committed to the deepwater, I don't think will be making those decisions. And I think need to do have these kind of resources going forward that's what attracted me to the company. I have been looking for a long time the opportunity to have these kind of resources, kind of sitting ahead versus chasing them and trying to find them. Now we have the other side of the equation where we got a fund them and do all these kind of things. But I just fundamentally believe that -- in that 5 to 10-year window, these things are going to be awfully valuable going forward, and we just have to work our way through the near-term oil price and the funding issues.

David Powell

And then, this is David. I add one thing on that, Shenandoah sale, you made reference to that was going to be four very, very positive results on the last appraisal well. So it's not very comparable as far as from an information perspective now.

Anish Kapadia

And one final question on the Anchor 3 well. Can you [Technical Difficulty] much detail in the release, should we expect kind of further detail to come out, and just talk a bit more about what the forward plan is on Anchor?

Tim Cutt

Yes. I can talk to that. I mean, obviously, we have a partner there. I think, the best information comes from the operator. Everything is coming in at real-time data right now. So we need to make sure that wells are analyzed, the operate and has a chance to speak on that first. So I wouldn't say lot of that. Like I said generally though, we're very encouraged with Shenandoah, Anchor and North Platte. We got a little more delineation to do over the next six months to a year. But everything continues to look like it's bettering in a positive direction. So I would just defer to the operator on Anchor at this point.

Operator

Thank you. I'd now like to turn the floor back over to Mr. Cutt for any closing remarks.

Tim Cutt

Sure. So, obviously, we've -- like I said in my speech, we've got some challenges, but man, we've got the team ready to take this thing on. I'm excited about that. I think we can kind of do anything you can do in the oil field with the team we have. Obviously, if we just decide to actually kind of build or run things, we got to hire more people who we got the proven the best explorers in the industry, best appraisers, now we've really have to look at who do we turn that into -- in the cash overtime while we rejuvenate our exploration program. So I'm actually quite excited about the challenges and the challenge is strange when you look at our cash position.

But I think when you have the assets available and have things like Angola and the deepwater assets to work with and I think we can all work together reasonably about dealing with where we are in our cash situation. My confidence is high, we'd move this thing forward. So clearly the ultimate challenge in my career that I'm excited about and the confidence is high. We not only have a great executive team, but we've got a superior Board of Directors that's supportive of us. And we're just going to work this and be transplant about the challenge we have and keep you informed as we take steps to make this better. And that's all we have. Thank you very much.

Operator

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

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