Back in September, when Cobalt International Energy
Alas, no fireworks came to pass. Cobalt priced at $13.50 per share this week, representing a discount to the planned range of $15 to $17. The market is apparently saving its barn burners for batteries.
Like I said last time, "with no proved reserves and no production expected before 2012, this is going to be a tough company to price with any precision." Let's see what sort of value Mr. Market has come up with.
Share Structure and Capitalization |
Numbers |
---|---|
Shares outstanding |
336.2 million |
Market capitalization |
$4.47 billion |
Cash and equivalents |
$1.08 billion |
Debt |
$0 |
Enterprise value |
$3.39 billion |
Book value |
$1.75 billion |
Data from company filings.
That might sound like a steep price tag for a company that's heavy on promise and light on tangible asset value, but my own quick valuation (some might say wild guesswork) actually puts Cobalt's prospect inventory quite a bit higher. I'm happy to pull back the curtain and show you my thinking here.
|
Gulf of Mexico |
West Africa |
---|---|---|
Prospects |
47 gross / 23 net |
85 gross / 26.7 net |
Average target size |
100 million BOE |
50 million BOE |
Success rate |
30% |
40% |
Price per discovered barrel |
$5 |
$5 |
Prospect inventory value |
$3.45 billion |
$2.67 billion |
Prospect inventories from company filings. The rest are author's estimates.
Any valuation attempt hinges on two key variables that are impossible to pinpoint today: the size of Cobalt's average drilling target, and the success rate in drilling commercial discoveries. In West Africa, where Cobalt's prospects are split between above salt and pre-salt targets, I gave the company better odds of hitting pay dirt, but fewer elephant-sized deposits. At $5 per discovered barrel, this gave me a total prospect inventory value pushing $6 billion.
Reverse-engineering Mr. Market's valuation implies (among other scenarios) a 25% success rate and 55 million barrels per target across the board. I think that is too low.
It's possible that I'm giving Cobalt too much credit in the Gulf of Mexico, where it has ridden Anadarko Petroleum's
The bottom line is that it's far too soon to tell who's right here.