Please ensure Javascript is enabled for purposes of website accessibility

Cobalt International Energy, Inc. Continued to Plunge In January

By Matthew DiLallo - Feb 10, 2017 at 2:50PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The offshore oilfield developer’s stock continued sinking despite some pretty good news.

What happened

Cobalt International Energy (NYSE: CIE) has been on a seemingly never-ending slide. After plunging 77.3% in 2016, the offshore oil developer picked up right where it left off in 2017, falling another 22.8% last month. While the company released some good news last month, investors continue to focus on its precarious financial position.

So what

Cobalt International Energy actually started the year off on a positive note. The company and its partner French oil giant Total (TTE 1.96%) said that they completed drilling the North Platte No. 4 appraisal well, and that it encountered 650 feet of net oil pay, which is the amount of hydrocarbon-bearing rock. That was a very encouraging result, because it was greater than the 550 feet of net pay found at the North Platte No. 3 appraisal well. These wells confirm that the North Platte field has tremendous resource potential.

A drill bit about to plunge into the ocean

Image source: Cobalt International Energy.

That said, developing that resource potential will take more time and money, which is something Cobalt International Energy does not have enough of at the moment. Last year the company expected to spend upwards of $775 million in the Gulf of Mexico, and another $140 million in Angola, to continue exploring and appraising its acreage position. As a result, the company burned through cash last year, going from $1.2 billion at the start of the year to $683 million by the end of the third quarter. Meanwhile, not all those investments in the Gulf panned out. The company noted during the second quarter that its Goodfellow No. 1 well, which it also drilled in partnership with Total, came up dry. That forced Cobalt to write off its entire $149.9 million investment.

Cobalt simply doesn't have the financial resources to sustain its operations, let alone drill too many more dry holes. At the current cash burn rate, its liquidity could run dry within a year. But the company is working to find another buyer for its Angola assets, and it filed a registration statement to raise as much as $1 billion in debt and equity capital, which should give it some more breathing room. That said, the further the company's stock falls, the more future equity issuances will dilute existing investors, which will not help matters.

Now what

Cobalt International Energy is in a tight spot right now. It is burning through cash as it continues to appraise its acreage position, which means it will need to access outside funding sooner rather than later to continue operating. Investors fear that this could lead to significant dilution, which is an enormous weight on the stock right now.

Matt DiLallo has no position in any stocks mentioned. The Motley Fool recommends Total. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

TotalEnergies Stock Quote
$53.65 (1.96%) $1.03

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/19/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.