Cobalt International Energy, Inc. (NYSE:CIE)
Q4 2015 Earnings Conference Call
February 22, 2016 10:00 ET
Rob Cordray - IR
Joseph Bryant - Chairman & CEO
Shane Young - CFO
Van Whitfield - EVP & COO
Shashank Karve - EVP, Cameia Development
James Farnsworth - EVP & Chief Exploration Officer
James Painter - EVP
Evan Calio - Morgan Stanley
Robert Brachial - Bernstein Research
Ryan Todd - Deutsche Bank
Richard Tullis - Capital One Securities
Edward Westlake - Credit Suisse
Good day, everyone, and welcome to the Cobalt International Energy Fourth Quarter and Year End 2015 Conference Call. Now for opening remarks and introductions, I will turn the conference over to Director of Investor Relations for Cobalt, Mr. Rob Cordray. Please go ahead.
Good morning, everyone. Welcome to Cobalt International Energy's fourth quarter and year-end 2015 conference call. My name is Rob Cordray. 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 Joe Bryant, Cobalt's Chairman and Chief Executive Officer; Shane Young, our Chief Financial Officer; and other members of our executive team.
I will now turn the call over to Joe for his opening comments. Joe?
Thank you, Rob, and good morning, everyone. Why don't we dive right in and address the topics that I know you will want to hear about in these turbulent times, namely, first and foremost are liquidity and cash position; secondly, the Angola sale, what's going on there, will it close and when; three, the cost control measures and what are we doing to reduce our capital burn rates; four, how robust are our discovered assets and at what price do we think they are commercial.
In terms of our cash position, preservation of our cash has always been our highest priority. This continues to be the case as we implement actions to create the financial runway necessary to continually move our business forward, creating further value with the quality of our portfolio.
We entered 2015 with approximately $1.2 billion of cash and cash equivalent. Our total uses of cash for 2016 is now forecasted to be approximately $600 million to $650 million and as the year progresses, I believe that our ongoing discussions with partners and contractors will further reduce the spend below these target levels. And of course, this cash position is without the additional proceeds from the Angola sale which we continue to believe will close, which will take our cash position to roughly $3 billion as of year-end 2015. This would put us in what I think a very enviable liquidity position in today's environment. Shane will speak more on our cash position, balance sheets and financials later in the call.
The discussion of our cash position highlights the importance of the Angolan transaction. As we have stated, closing the transaction is dependent upon receiving government approval. And while we don't control government approval, we do believe the transaction will close. As a background, in August 2015, we finalized and announced the sale transactions with Sonangol, to sell the Cobalt interest in Gold Blocks 20 and 21. For the terms of the sale and purchase agreement, Sonangol made the first payment of $250 million to Cobalt last fall. Sonangol and Cobalt anticipated receiving government approval for the sale transaction by year-end 2015. I think it will be helpful to share with you the work that has been ongoing since the sale transaction was been announced, all with which Sonangol is in full agreement.
Immediately after we executed the sale and purchase agreement with Sonangol, Cobalt formed an Angolan transition team. This team has been fully engaged in preparing for an efficient and complete handover of our Block 20 and Block 21 assets to a new operator, core operators, one selected by Sonangol. Rich Smith is the Cobalt executive leading the team and he is here with us today. In connection with the work of this transition team, Sonangol and Cobalt agreed that as operator of Block 21, Cobalt would formally advise the vendors related to the conveyor development project that we were discontinuing business discussions with them given the sale transactions and that operations would be turned over to a new operator designated by Sonangol in the foreseeable future. In conjunction with this sale, we are also in the process of ramping down our business operations and infrastructure cost and will not renew or enter into any new contracts in Angola.
In addition, in lieu of the sale transactions, we have provided severance notices to the majority of our staff in Angola. In this regard, we have taken a phased approach as we finalize our drilling operations maintaining our focus and commitment on safety and protecting the environment as we prepare transitioning to the new operator or operators. I would like to take this opportunity to say that thank you to all of our Angolan nationals and the broader Angolan team, all of who have a hand in delivering unprecedented exploration success.
Finally, I would like to add that Angola and Sonangol have a history of honoring the contracts they execute. I think this approach has served them well in attracting capital over the years. And so, I believe that this is another factor that boasts well for our closing.
Again, well I can't give you an exact closing date today. I can say we believe government approval will be obtained and that Sonangol intends to close this deal. However, promising all of these indicators are, I want to be clear that I cannot guarantee that the deal will close or what other potential issues could arise. But I will say again, that we believe all of Sonangol's actions to our knowledge since August of last year have been consistent with the deal closing.
I will turn now to a discussion on our view of cost and specifically cost-reductions being realized through our proactive efforts to reduce our burn rates and manage our cost structure. If we look back to the early 2000s we saw breakeven prices in the mid-teens because F&D cost at that time were aligned with oil prices of that level. However, by 2014 oil prices hovered in the $100 per barrel range and F&D cost rose such that we believed our deepwater projects required an oil price in the low $60 per barrel range to breakeven.
Today with oil prices around $30 per barrel, we are seeing average cost for deepwater services and equipment about 30% lower than 2014 levels, delivering cost reduction which are already supporting the breakeven price in the low $40 per barrel for Cobalt's discovered resources. As such over the past several months, we have worked diligently with our equipment and service providers to drive down cost. I am pleased to report that through these initial efforts we have reduced our 2016 non-rig drilling costs in the Gulf of Mexico by about 25%.
In addition, like all operators in the industry we are in discussions with our rig contractor to potentially restructure the terms of our rig contracts. I do want to express my appreciation to our contractors, equipment vendors and service providers that have worked with us to achieve these cost reductions today. We all recognize that our work is not finished here and we will continue to do all that we can to drive down costs in order to protect our balance sheet and conserve capital where we can.
Even with the Angola sale transaction, Cobalt is not immune to the current economic environment. As a result, we are implementing a staff reduction of approximately 50% as compared to our pre-Angola sale staff size. We will retain our proven and core exploration and operational competencies that have delivered our results today, but given our reduced footprint we will simply need fewer team members. For a company like Cobalt which has always had great pride in each and every member of our team and with our family like culture, this is particularly painful for us.
Finally, I would like to turn to our remaining portfolio post-Angola which is concentrated in the deepwater Gulf of Mexico and the viability of these assets in the current oil price environment. It's important to emphasize that the deepwater Gulf of Mexico is one of the most geologically prolific and financially attractive basins in the world with proven potential for very large discoveries with significant profit margins. Deepwater Gulf of Mexico is the world's technology proving ground giving exploration companies who are successful here a significant competitive advantage globally. I believe that our Gulf of Mexico portfolio is highly advantaged and attractive even in today's environment.
To recap, we have one producing asset Heidelberg and more importantly, we have three exceptional discoveries namely; North Platte, Anchor and Shenandoah which are in various stages of appraisal and development. We believe we own 500 million barrels to 650 million barrels equivalent net Cobalt of discovered resources in these three fields. That is significant to an oil company of any size; in fact, we believe that these three fields are among the top tier fields discovered in the Gulf of Mexico, and possibly globally over the past several years. In terms of value today, our view is that large fields will produce competitive margins so long as the cost to develop those fields is aligned with the oil price environment. Based on our view today, the costs are rapidly deflating and we believe our assets will deliver acceptable returns at the current strip.
In fact, the best of all worlds is to appraise and develop these assets in this cycle of significant cost deflation.
Not to be overlooked, we and our operating partners are also seeing significant efficiencies in our drilling operations. For example, at our North Platte field we anticipate that the total cost associated with our current sidetrack oil will come in at just over 60% of our pre-drill AFP cost estimate. In terms of Heidelberg, as you know we reached a significant milestone in January when Anadarko announced the startup of production at the Heidelberg field. This represents Cobalt's first production and revenue. I do want to congratulate Anadarko as you know the operator of Heidelberg for their outstanding efforts in delivering the field's first production, well ahead of schedule and within budget.
In addition to advancing Heidelberg's first production throughout 2015, Cobalt and our partners progressed the appraisal of our deepwater Gulf of Mexico inboard lower tertiary discoveries which consists of North Platte, Anchor and Shenandoah. At North Platte, we drilled our first appraisal well and in November we announced that the well encountered over 550 feet of net oil pay. These results were similar to those found in the North Platte discovery well however, the appraisal well showed evidence of even better developed reservoirs than seen in the discovery well. Today, I am very pleased to announce that the appraisal operations continued at North Platte where earlier this month Cobalt reached objective depth in the North Platte number three, sidetrack appraisal well.
Cobalt is currently completing, logging and evaluation operations and the results today indicate the well encountered approximately 500 feet of net oil pay and what appears to be excellent quality rock. Our preliminary correlations indicated oil column height in excess of 2,000 feet at North Platte. While evaluation of the well results is ongoing, pressure and fluid samples taken in the well indicate that the rock and reservoir properties are amongst the best that Cobalt has seen in the inboard lower tertiary trend. Along with the complete analysis of these recent well results, additional appraisal and technical studies will be required to confirm the commerciality of North Platte. However, given the recent appraisals success, we consider our North Platte asset to have moved into the pole position in our inboard lower tertiary portfolio and could contain one of the largest oil accumulations in the deepwater Gulf of Mexico inboard lower tertiary trend. And as a reminder, Cobalt as operator holds a 60% working interest in North Platte which gives us great optionality and flexibility in going forward.
As for Anchor, in January 2015, Cobalt announced that the initial exploration well on our Anchor prospect resulted in a very large oil discovery. In the second half of 2015, operations continued where they bypassed core in a down dip sidetrack well at Anchor. Both well bores encountered nearly 700 feet of net oil pay and a hydrocarbon column of at least 1,800 feet in the inboard lower tertiary trend. We are currently participating in the Anchor number 3 appraisal well and expect to have results sometime in the second half of this year. Complete appraisal of Anchor will require further delineation and technical studies but the data from the appraisal sidetrack well suggests that we have well developed reservoirs and that Anchor also could be one of the largest oil accumulations in the deepwater Gulf of Mexico inboard lower tertiary trend. Cobalt currently owns a 20% working interest in the Anchor unit.
In addition, based on our mapping and well results, we believe that two Cobalt owned leases on the south line of Anchor but outside of the Anchor unit hold accumulations of hydrocarbons. Cobalt is evaluating these leases to determine if a future well should be drilled to test the commercial feasibility of the hydrocarbons we see on our leases and will likely make a decision regarding drilling on these leases later this year.
At Shenandoah, appraisal operations also continued throughout 2015. Early in the year, we announced that our second appraisal well at Shenandoah found an expanded geologic reservoir section and confirmed excellent reservoir qualities. Then in November we announced that our third appraisal well tested the up-dip extent of the basin and was followed by a sidetrack of that well which encountered over 600 feet of net oil pay, extending the lowest known oil column down-dip. The next appraisal well on Shenandoah is expected to sum its find sometime this quarter and is designed to confirm and extend the reservoir boundaries. Cobalt owns a 20% working interest in Shenandoah.
As I mentioned earlier, I am very excited about the exceptional quality of Cobalt assets going forward. The vast majority of our assets are what I consider to be the sweet spot of the deepwater Gulf of Mexico. When you consider the high quality reservoirs, oil quality, rock properties, feet of pay, and a large in place volumes we've seen at our North Platter, Anchor and Shenandoah inboard lower tertiary wells, it's clear that we own some of the best barrels in the deepwater Gulf. We are actively appraising all of these projects and look forward to moving them to sanction and development.
In addition, we have untested assets like Goodfellow that we look forward to drilling soon as well as an exciting new deepwater place to the east that continues to show promise as we mature that basin. I recognize that today's commodity price headwinds present challenges that we must continue to overcome. However, I am confident that we can, we'll face those challenges head-on while preserving Cobalt's intrinsic values to enable the company to capture the opportunities that today's environment brings in order to emerge a stronger, sustainable and more resilient company.
I'll now turn the call over to Shane, who will discuss our financials in more details. Go ahead, Shane.
Thank you, Joe. I'd like to quickly review Cobalt's 2015 financial performance, our year-end cash and liquidity positions and provide some initial guidance for 2016 spending.
As of year-end 2015 we are approximately $1.2 billion in cash and cash equivalent on the balance sheet from continuing operations. This figure includes the $250 million from proceeds we have received from Sonangol pursuant to our sale to our Angolan assets that excludes approximately $114 million of cash held in discontinued operations or assets up for sale. Approximately $83 million of the cash in the discontinued operations relates to LOC's which cover a substantial portion of our remaining drilling obligations for Block 20. We expect these LOC's to be released to us following the drilling of our last two wells in Angola this spring.
As noted in our today's earnings release, Cobalt had a fourth quarter loss from continuing operations of $325 million or $0.80 per share. This compares to a year ago fourth quarter loss of $140 million or $0.34 per share, again, on a continuing operations basis. For the full year Cobalt reported a net loss of continuing operations of $499 million or $1.22 per share, compared to a net loss of $317 million or $0.78 per share for the same period in 2014. Note that the fourth quarter and full-year results were impacted by $257 million or $0.63 per share impairment charge for Heidelberg field.
Excluding changes in working capital, cash uses in 2015 were approximately $553 million for capital and operating expenditure from continuing operations. This is essentially in line with our adjusted 2015 capital and operating expenditure guidance for continuing operations of approximately $500 million to $550 million. This amount excludes approximately $89 million of additional cash that was used for interest and other expenses during the year as well as cashes for discontinued operations.
For 2016 we expect to spend between $450 million to $500 million for capital expenditures at our Gulf of Mexico operations for activities related to the Rowan Reliance rig, as well as OBL projects. These amounts exclude spending for our interest payments at our 2016 G&A spend between anticipated benefit from reduced headcount after our restructuring is completed.
For 2016 anticipated spending level from continued operations reflects our relentless focus on reducing cost and protecting the value of our world class Gulf of Mexico assets. Similar to what you are hearing from on-shore operators who have seen significant cost reductions across most service lines off-shore. Moreover, we and our operating partners continue to look for ways to reduce, defer or eliminate spending in all areas of our business. Given where we are seeing market cost levels trending we believe our inboard lower tertiary projects can be very competitive delivering below $40 per barrel breakeven prices. We continue to believe that the quality of scale of our Gulf of Mexico assets should be able to attract capital like few other upstream projects under the current market conditions.
Turning to Angola, we believe total spending as we conclude our presence there will be approximately $110 million pending the play of the Angola transaction. Recalled these expenses are substantially covered by LOCs and discontinued ops and as well are reimbursable at the close of the sale transaction. As Joe indicated we believe that our transaction of Sonangol will close and position us with a cash balance of roughly $3 billion on average adjusted basis as on year end 2015. However I would like to make the following points. First, the only significant commitments Cobalt has are the Rowan Reliance rig for two more years and the interest payments on our convertible securities. If we need to adjust spending further, we will. Our Gulf of Mexico assets comprise some 500 million 650 million barrels of oil equivalents and discovered resources that will deliver competitive returns and we believe could attract capital like few others.
Second, on the last well on block 20 expected to be completed in May and largely covered by LOCs and discontinued ops, we will have fulfilled our exploration commitments on block 20 and 21. If for whatever reason the sale were not to close, we would need to make a strategic decision on how best to move forward with the development of these assets. But I do believe, we will be able to attract financing given that we believe Cameia, for example, would deliver mid teen returns at the current strip with anticipated further reductions in development cost.
Turning the uses of the transaction proceeds as we exit Angola, we continue to actively consider capital redeployment scenarios and alternatives. There are several opportunities that have come to us for consideration. We remain patient, thoughtful and disciplined given market conditions and we will continue to keep our eyes open for transactions that make sense to Cobalt shareholders from a quality, value creation and strategic prospective.
Additionally, as other operators are pulled away from deepwater Gulf of Mexico the attractiveness and terms of farming opportunities we are seeing today are as strong as they have ever been. Off late, we will continue to be mindful of our converts and we will continue to monitor various opportunities with respect to them.
With that, I will turn it back to you Joe.
Thank you, Shane. Operator, we would now like to open the lineup for questions.
Thank you. At this time we will be conducting a question and answer session. [Operator Instructions] Thank you. Our first question is from the line of Evan Calio of Morgan Stanley. Please go ahead with your question.
Good morning, guys. In Angola, if I could start there, is the delay in government approval related to Sonangol's need to find a new operator and is your confidence closing that it will be successful in that process and report -- reported to be total really this year and secondly, have you and Sonangol discussed extending the sale agreement as it terminates on the one year anniversary date in August of this year?
Evan, this is Joe. I'll take the second question. First, we have had no discussions with Sonangol on any amendments whatsoever to the original purchase and sale agreement whether changing the terms of this financially or timeline is involved. Regarding your first question, I would answer it this way, that it's clearly that that will be developed. They do need an operator to develop them. I did know that during the process we held last year, we had significant interest by lots of global super majors in the assets and some confidence that they are of interest to parties, I cannot comment on who the finals are in the process with Sonangol but I have no reason to believe that with all said and done they will find someone to be the operator that they believe is a long term partner of theirs and the alliance is in good hands.
Appreciate that and may I take up my second question with Shane? You guys clearly have sufficient liquidity in 2016 with or without Angola, yet how low do you think, I mean you have eluded this but how low do you think in 2017 the CapEx could go and maintain your discoveries if commodities remain a challenge and/or Angola doesn't close?
Yes, with regards to how low it can go, the two commitments that we have are the day raid on the Rowan Reliance rig as it is the day and interest payments we have on the converts, so theoretically it could go as low as those two numbers. That being said, it obviously doesn't incorporate the outstanding opportunities we have got in our outside operator appraisal projects and we will continue to work hard to defend our interests in those as well.
Next question is from the line of Robert Brachial with Bernstein Research. Please go ahead with your question.
Hey, Good morning a follow up on the approval of Angola, do you know what particular part of the government is holding the process up? Is it within Sonangol or within the Ministry of Energy?
Our information is that it's within several ministries for right now. There really isn't a Ministry of Energy. There is a Ministry of Petroleum, there's Ministry of Finance. Of course Sonangol is involved, I would suggest all of those ministries are involved. It may relate to finalizing a deal with the successor operator as we just discussed earlier but we have seen nothing to suggest that any of those ministries are holding the deal up.
Quick follow-up on the Anchor offset blocks that have accumulations. Would that be a joint development or you would unitize across those blocks? Does that give you a sort of a bargaining chip in the process?
Well, I think obviously the fact that we have the barrels it was a benefit we are still looking at what the optimal way for us to get value from those. More than like the best way would be likely to pay co-development but again we are keeping our options open at this point.
Our next question is from the line of Ryan Todd of Deutsche Bank. Please go ahead with your question.
Good thanks, Good morning everybody. Maybe if I could follow up with one on – the previous question little bit on - I appreciate your comment or at least some commentary on the state of the market and Gulf of Mexico. Can you provide the stats on not just the buyers but on the seller's market as well? In the Gulf of Mexico are you still interested in potentially monetizing assets and if you were what steps would need to happen first for example additional appraisal wells in North Platte or any other steps in the process?
Well, I think again, this is James Farnsworth. I think there is no secret or surprise that we have talked in the past essentially reducing our equity at North Platte for such reasons, result in the number 3 and number 3 sidetrack, kind of boasts well for that. I think we are still looking at whether it makes sense to reduce our equity now or wait for the next well, something we are working on. But like I said we are really pleased with the well results and certainly should make things easier for us.
And any initial thoughts on appetite in the basin in terms of state of the market from an M&A point of view?
Again, I don't have a full view of it but what we have seen are some indications of companies to - you know we have obviously seen companies chosen to leave Gulf of Mexico. We have also seen cases of some companies refusing to enter, not necessarily as an operator company but a financial partner so. We have seen some encouraging signs of them.
Great and maybe for a second question, is there, since economics as you said in your comments, economics work at the current strip for project development and goals in terms of breakeven in the low 40s, how should we think about timing potential projects FIBs you going forward? Do you need to see further cost of inflation or the current function of just balancing the capital markets?
This is Joe, I will jump in I think. If in one respect you could say that the current cost environment is playing to our favor right now and that it's pushing out as many investments on not only our part but our operator partners and we see them pushing as hard as we are in terms of capital deferral. And the further you push these capital investment cap the lower the costs are going to be. So I think that we have, you know on the price side, I will leave that for others to suggest whether we are anywhere near the bottom of oil prices but I would say on the cost side we are nowhere near the bottom yet. You know, it's going to get I think a lot more attractive to drill deep assets over the coming years. I don't know if that answers your question or not, but it looks like now is the time to appraise and develop these assets.
So if you think the timing in North Platte is that in terms of potential FID, is that likely a late 2017 event, I mean it's hard to say at this point but any rough thoughts?
Sorry to say, I did want to mention one more thing for completing this and that is the 180 day clock which is on a lot of these assets require to maintain continuous operations with only 180 days in between the last operation and the next operations. So we will be bound by that but at the same time when we can get to certain levels of project to lap 180 days. It goes away to the drilling perspective for the most part. When we sanction a project and particularly North Platte, it depends I think on really two things. One is the kind of development we select and the kind of financial partners and financing that we elect to go with. All of that looks possible right now so that would be our choices if something sooner than later with smaller developments utilizing financing if we can.
Our next question is from the line of Sherla with TPH [ph]. Please go ahead with your question.
Sorry, gentlemen. I just had one more question on the use of proceeds from Angola sale whenever that completes, the current liquid exposition you have. I would choose to know if you would consider buying back some of your bonds here, just giving away their trading?
Yes, I will take that. This is Shane. Plus I think I absolutely haven't taken anything off the table. We, as a matter of fact, we have evaluated a number of different options and alternatives with regards to the converts. No decisions have been made at this time and will continue to work to look at them in the context of the Angola proceeds.
Right and to follow up on that, are there any kind of, hard metrics that you would look at that would lead you to conclude that you should buy back some of that debt and indeed a follow up to the Angola sale down as well. At what point do you look to revise or revisit that agreement with regards to potentially talking to another partner or looking to do a separate sort of turn out yourselves if this deal's closure isn't forthcoming.
Yes, I will take the first part. Obviously with where the conversion trading today -- like there is a compelling case that can be made that buying them back in the open market is great for the company, great for the shareholders. I think what we need to do and we'll continue to do is compare that on a risk-adjusted basis because obviously we don't know what we get when we buy the converts at the level they are trading today, again, other opportunities for capital deployment. I think the main thing that I'd like to stress is the notion of sort of protecting the core, and that's what we're going to look to do first and foremost before we would do anything else with the Angola proceeds. But once I think we feel sufficiently comfortable around that, then we'll look at redeploying some of these other alternatives.
And this is Joe, I'll take the second part of your question that is what if the Angola deal doesn't close. I think from my perspective something that's overlooked possibly today is that in the event Angola doesn't close, I don't know how many times we can say we expect it to close but in the event that it doesn't close we still own great assets that are amongst what we think are some of the world's best assets. We had tremendous interest in those assets before we got this deal done with Sonangol. There is no reason for us to believe that we won't have interest in those assets if this deal were to close.
Over the past several years, you've heard me say time and time and time again that the nature of these RSAs and CSAs provide a lot of financial leverage in low price environment because you get your base back. So while we have every intent and expectation that Angola will close, at the same time if it doesn't close we're quite happy to own great assets that we think deliver cost and capital plus in today's environment. And we think we could finance them. So, the extent other people are interested in financially attractive assets, then yes, I think we got chance for somebody else.
All right. Thank you.
Our next question in line comes from Edward Westlake from Credit Suisse. Please go ahead with your question.
Good morning. I want to come back to this $40 oil breakeven for the Gulf of Mexico. I mean that's a low number, I mean I think commentary walked away with a view that it was going to be $60 to $75 to -- dollar appreciate. A lot of things have moved since Cameia made that decision but maybe just talk through maybe the North Platte example of how the biggest drivers of getting the breakeven down to the $40 could be the reservoir, it could be cost, it could be even below. Just want to get some details on that.
Yes, absolutely, this is Shane, I'll take it at first and if others want to jump in, that will be great. Look, I think back -- and we get back to 2015, and the oil environment we're in, the cost environment we're in, I think this is consistent with the data we showed, historically we probably saw things in a similar light that it was really kind of a $60 or maybe mid-$60 breakeven. I think today as we look at the cost reductions that we're seeing, really across service lines, the market for where rigs are today, the guidance that we've gotten, internally some of those facilities guys as to where those costs are trending. That's where we get to our sort of low $40 breakeven. I would tell you these fields in particular, benefit greatly from scale, frankly, I mean these are some of the biggest accumulations that have been discovered in the deepwater for the last several years and that makes a big difference when it comes to driving down per unit development cost and per unit breakeven.
So, an F&B cost typically is -- as a rule of three, but in the low teens to deliver that sort of a breakeven?
For the F&B cost, we will probably see something a little higher than low teens but -- yes, but I
would just say we would see something higher than low teens to deliver that breakeven.
Okay. And then on the -- any design changes that you've implemented in terms of standardization of equipment as oppose to just the inflation in the industry?
Yes, this is Van Whitfield. You know I'm not going to say that they are design changes. I think they are efficiency changes and standardization as we've continued to drill these wells which represent a huge part of the capital commitment. We have optimized or standardized well design and we've driven considerable cost out of that for both the drilling and what we expect to completion and that's probably well reporting for some of the base. And as we've seen the market drive impact on structures and efficiency and that's from the subsea design to the facilities themselves, we've seen material reductions and that's documented by the positive movement we saw on our Cameia project, that were going down by an excess of 30% and that was still backed when we were dealing at a much higher oil price than we are today.
And then a final question, just to be clear in the development, this is North Platte as a hub standalone facility or you're still looking at things like tied backs to other infrastructure around?
All of the above, for my perspective I think with Joe said and Shane, it doesn't necessarily had to be big but the results were more flat or a very encouraging. We feel very confident that it has every potential to be standalone but looking at the neighborhood it's in, it would be something that we would pursue neither tied back to smaller facilities, production early or any other option. So we feel really good about that resource and it gives us a lot of variety and how we can look at, how we can put it to the market.
And this is Joe, one more thing that maybe we haven't emphasized enough is that just having large volumes of oil is important but it's not the whole story. What you also need is great oil, that has a lot of inherent energy in the oil itself and great reservoir rocks which allows for high flow rates and given the combination of big volumes, great oil, and good rock that of course does two things; one it limits the number of wells that you have drilled, and it increases the early rate that you can get with pure oil. And so that's where we get relatively confident that our reservoirs, our projects are among -- going to be among the best in the Gulf of Mexico.
Thanks, I appreciate it.
Our next question is from the line of Richard Tullis of Capital One Securities. Please go ahead with your question.
Thanks, good morning everyone. Towards Shane, just trying to get an understanding if there is any foreign exchange risk associated with the announced here with the asset in Angola, how would those proceeds be paid?
See I mean, I think the simple answer to that is no and we'd be paid in U.S. dollars.
Okay, that's the announced step, right?
Correct, no adjusted number. Yes, that's right.
Okay, thank you. I know you mentioned a couple of times about the returns in the Gulf of Mexico at current commodity prices, is that at current cost? Would you be expecting some additional cost reductions to achieve those biz rates return?
Look, I think it's our expectation of development cost in the Gulf. I think clearly we haven't -- that might be anything over the last several months or year-to-date, didn't verify that but that's our expectation of what our cost would be in the current market.
Richard, this is Shashank. We are keeping close track on where development costs are leading to, and we've been tracking them against, for example, the upstream capital cost index that I just published. And I think over the next twelve months we're going to see a further reduction in development cost.
Okay. Thank you, that's helpful. And you had the impairment at Heidelberg, I guess it was about $250 million. What was your net investment in Heidelberg prior to that adjustment?
Prior to that it was $323 million, up $325 million roughly.
Okay. And then just lastly, I know you had some opening remarks about potential offshore Mexico and the play in the eastern Gulf of Mexico, which should we look for regarding those timeline-wise, any sort of news events going forward?
This is Jim Farnsworth. I think with regards to the Eastern Gulf of Mexico, guess what we've been looking forward is when is our first well. Currently our plan for our first well is in 2017. But again that's somewhat on the success we have with frankly, Goodfellow. And as Joe mentioned, R&D stay after drilling our projects on the day cost. So that's the first -- early indicator will be when we drill our first well.
That's all for me. Thank you.
Thank you, Richard.
Thank you. And the next question is from the line of Evan Calio with Morgan Stanley. Please go ahead.
Hey guys, just a couple of follow-ups. I appreciate the full cycle breakeven commentary. Can you share a cash breakeven on Heidelberg, your first producing asset and what's the realization there relative to marks [ph]?
I don't think we can give much guidance in a way of the cost structure right now on an operating level. I would tell you our anticipation is, we'll price relative to or less pretty close to parity.
Okay, so nothing on the cost side. But second I want to add is on your RBL, is that still at 150 and the gam [ph] is unaffected by your -- the impairment?
Well, the RBL -- so it is, I mean we like everybody else go through our spring redetermination process but that were just sort of kicking off and we'll get in to an earnest in March. Again, I think we're better for worse, we're not immune to any of the factors that anybody else is not immune to around price. So we'll have that discussion, and once we kind of have that settled, we'll come back. I mean I would highlight for you and nobody else, we're completely on drawn right now but we are coming up on a redetermination cycle.
Great. And lastly for me, the blocks that you mentioned their perspective joining the anchor discovery, how -- what are the -- under those lease terms, when do you need to be active to preserve those dispositions?
This is James Painter. We have plenty of time on those as those don't expire till sometime in 2018. And where we are now, we have started the permitting process for a potential well and sometime later this year, early in '17 we would have a discussion internally to decide whether we need to drill that well or not.
Great, thanks guys.
Thank you. And that concludes our question-and-answer session. Now I'll turn the floor right to management for closing remarks.
Well, listen, thanks, everybody. I know these are difficult times, and we're not comfortable for any of it. As I've said around here, the only good thing about getting old is you've seen it all before and people around the table have seen this movie before, it doesn't make it any more comfortable. But I think we remain confident that we can get through this, we just stick to our net. Certainly, I appreciate all of your support, confidence and I know what you're going through as well. So thanks so much and we'll talk to you all soon.
Thank you. This conclude today's conference. Thank you for your participation. You may now disconnect your lines at this time.
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