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.
Source: Cobalt International Energy.
What: Shares of Cobalt International Energy, (NYSE: CIE) were down double-digits to start trading on Monday. The sell-off was fueled by the company's fourth-quarter results, which was worse than analysts were expecting. It also didn't help matters that the price of oil is selling off today, which is providing a bit more fuel for sellers to exit the stock.
So what: Cobalt reported a loss of $217 million, or $0.53 per share, which was a lot worse than the $0.25 per share loss that analysts were expecting. However, some of that had to do with the fact that the company took a $126 million impairment charge relating to two exploration wells offshore Angola and another $50 million charge for leasehold properties in the Gulf of Mexico. These types of charges are not uncommon in the energy industry as exploration wells do at times fail to live up to expectations resulting in the investment being written off.
In addition to the loss, the company also provided its 2015 capital budget, which is expected to be flat at $800 million to $900 million. However, what is changing is the fact that 80% of that money will be spent on development and appraisal projects, which is much higher than the 40% the company spent on development last year. What this means is that the company is shifting from energy exploration to energy development as it has been a part of a number of recent discoveries that it's looking to turn into production.
Now what: Cobalt is an energy exploration company as it doesn't currently have any oil and gas revenue. Instead, its future is tied to its ability to turn discoveries into economical developments and it currently has a number of projects that it believes can capture attractive returns at projected future oil prices. Said another way, Cobalt is a bet on the future of the oil industry, not on the current price of oil or even its quarterly results as neither matters at the moment.
