What: Shares of Cobalt International Energy, Inc. (NYSE:CIE) plunged on Tuesday, down 26% at 11:00 a.m. ET.
So what: An update Cobalt provided in its second-quarter report on the status of the sale of its Angolan offshore exploration blocks fueled the sell-off. The company said that it met with the management team of Angolan oil and gas producer Sonangol to discuss the sale of Cobalt's interest in two offshore blocks to the company. As a result, the companies jointly agreed that Cobalt should put these blocks back on the market to sell them to a third party.
This is a big blow to Cobalt, which had agreed to sell its interest in two offshore blocks to Sonangol last year for $1.75 billion. However, the significant weakening in both the oil market and the energy credit market made it difficult for Sonangol to obtain funding for the transaction. As a result, the deal is set to expire in three weeks. Given that a solution is unlikely to be found before that deadline, Cobalt was given permission to start searching for a new buyer before the deal automatically terminates. With this transaction falling through it really puts the company in a bind now because it has to remarket its Angolan exploration blocks at a time when offshore asset values are very depressed.
Now what: This is not the outcome that Cobalt International Energy had hoped when it agreed to sell its Angolan exploration blocks last year. Given the weaker market conditions, it is highly unlikely that the company will fetch anything near the previous sales price for these assets, which is why investors are bailing on the stock today.
Matt DiLallo has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.