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Shares of Cobalt International Energy Slide 11% Even After Beating Earnings Estimates

By Tyler Crowe - May 3, 2016 at 12:50PM

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Not getting an asset sale dine could find Cobalt in a financial pinch, and it's making Wall Street nervous.

Image Source: Cobalt International Energy

What: Shares of Cobalt International Energy (NYSE: CIE) are down 11.2% as of 11:00 a.m. EST Tuesday. While the company reported a net loss of ($0.11) per share that beat Wall Street expectations, shares are taking it on the chin as the company announced that its still in negotiations to sell two of its exploration blocks in Angola.

So What: It might be a bit weird to look at Cobalt's income statement since it has not generated any revenue since the company went public in December 2009. The reason for this is the company is focused on developing offshore oil and gas fields that take a long time to develop. One of its first investments, a near 10% stake in the Heidelberg field in the Gulf of Mexico, was in 2008 and just recently started production. That means that now the company is finally on the clock to start generating some form of profit for its investors as it now actually has a revenue stream.

The two offshore blocks that Cobalt is looking to sell to Sonangol -- the Angolan national oil company -- are two promising fields where Cobalt has a high working interest. The problem for Cobalt today, though, is that access to the capital markets through either debt or equity are drying up fast, and the company needs to raise some capital to invest in its other investments off the coast of Angola and in the Gulf of Mexico. I would appear that investors are nervous that the sale either won't go through, or Cobalt won't get a decent return on the sale. Without these asset sales, Cobalt will struggle to meet its funding obligations.

Now What: The company's press release tried to ease investors concerns that the deal would indeed happen. When a company needs to go out of its way to say that it typically means things are going as planned. If Cobalt struggles to get this deal done, it could find itself in a tough spot. That's not even mentioning the fact that oil prices are still rather low and investment across the sector is drying up. With these things in mind, it may be best to shy away from this stock until at least this deal with Sonangol is completed and the company has some more financial flexibility.

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