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Why Cobalt International Energy Plunged

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Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of oil exploration company Cobalt International Energy (NYSE: CIE  ) are sinking quickly, currently down 11%, following allegations of wrongdoing over the weekend from the Financial Times.

So what: The Financial Times report claims that a former top executive at Cobalt, along with an Angolan state official, held shares in Nazaki Oil & Gas, Cobalt's local partner in deepwater drilling, without disclosing the position. In February, Cobalt acknowledged that the Securities and Exchange Commission was investigating possible ties between its Angolan drilling partner and senior government officials. Cobalt has thus far denied any wrongdoing on that matter.

Now what: This is just another gray cloud in the sky for Cobalt, which has a lot of questions to answer over the coming months. Earlier in the year I questioned whether Cobalt was worth as much as the market was valuing it, especially since it hasn't produced a single dollar in revenue yet. The allegations over the weekend serve as another dent in the armor and continue to keep me far, far away from this stock. Until I see some tangible results, I'm sticking with my opinion that Cobalt is grossly overvalued.

Craving more input? Start by adding Cobalt International Energy to your free and personalized watchlist so you can keep up on the latest news with the company.

Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (2) | Recommend This Article (1)

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  • Report this Comment On April 16, 2012, at 2:31 PM, PRODOD wrote:

    I'm compelled to point out that CIE responded specifically to the FT article with a strong denial of the allegations & a request for the FT to disclose any proof behind the allegations. Moreover, the FT was remarkably unclear as to whether the allegations even constituted a violation of the FCPA.

    The speculative nature of CIE is very real but the allegations printed by the FT regarding CIE and its proximity to possible Angolan corruption may not be.

  • Report this Comment On April 17, 2012, at 9:56 PM, Saratogahawk wrote:

    I agree with prodod. Until more facts are known this would just be speculation on FT. I just sold my CIE for a decent gain but not because of any of the above. CIE clearly has a major oil pay strike in Angola. However, until infrastructure is there to take the oil out and move it for refining it is still just oil in the ground. So for me CIE reached a "reasonable" value level and I felt taking a profit was best. Do I believe that CIE has potentially hit a billion barrel strike? yes, if one looks at the Brazil offshore geology and recognizes that geology and the offshore west Africa geology are of the same original formation. I expect Brazil results to be duplicated in W. Africa offshore areas. The real problem won't be finding the oil but rather getting the infrastructure in place to tap that oil.

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