A Dynamic Deepwater Duo

Cobalt International Energy danced its way onto my radar screen back in 2007, when the private E&P made a big splash at a Gulf of Mexico lease sale. The company again surfaced as a big bidder last March, placing second to Hess (NYSE: HES  ) in total high bids.

With backers reading like a who's-who of private equity (First Reserve, for example, is the most eminent energy player), Cobalt's deep pockets have given it instant credibility in the deepwater exploration business. The management team is equally formidable, and stacked with veterans of BP (NYSE: BP  ) , ExxonMobil (NYSE: XOM  ) predecessor Mobil, and Unocal (now part of Chevron (NYSE: CVX  ) .

Cobalt sports an outsourcing model that I've argued is an attractive path to upstream profits. So far, the company has participated in two exploratory successes operated by Anadarko Petroleum (NYSE: APC  ) via a minority interest. That's a fine start, but I've been wondering how Cobalt would more systematically exploit its vast leasehold.

We got the answer Monday, with a major partnership announcement between Cobalt and France's Total SA (NYSE: TOT  ) . The firms are merging a combined exploration portfolio of 214 offshore blocks in the Gulf of Mexico. With Cobalt contributing about 60% of the blocks and retaining a comparable interest in the joint portfolio, the firm doesn't appear to be giving up more than it gets.

Of course, Cobalt is losing the upside inherent in retaining 100% ownership, but that's the classic compromise in a joint venture. The benefits are pretty clear. Not only does Total foot part of the bill, but it also brings deepwater rigs to the table. Cobalt's use of the Ensco (NYSE: ESV  ) 8503 doesn't look set to begin until late 2010 or early 2011, so the Total tie-up should significantly expedite the firm's exploration schedule.