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TABLE OF CONTENTS
PART I—FINANCIAL INFORMATION
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
ý |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|
For the quarterly period ended June 30, 2013 |
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or |
||
o |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|
For the transition period from to |
Commission file number: 001-34579
Cobalt International Energy, Inc.
(Exact name of registrant as specified in its charter)
Delaware (State or other jurisdiction of incorporation or organization) |
27-0821169 (I.R.S. Employer Identification No.) |
|
Cobalt Center 920 Memorial City Way, Suite 100 Houston, Texas (Address of principal executive offices) |
77024 (Zip code) |
(713) 579-9100
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ý | Accelerated filer o | Non-accelerated filer o (Do not check if a smaller reporting company) |
Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý
Number of shares of the registrant's common stock outstanding at June 30, 2013: 411,236,517 shares.
2
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains estimates and forward-looking statements, principally in "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." Our estimates and forward-looking statements are mainly based on our current expectations and estimates of future events and trends, which affect or may affect our businesses and operations. Although we believe that these estimates and forward-looking statements are based upon reasonable assumptions, they are subject to several risks and uncertainties and are made in light of information currently available to us. Many important factors, in addition to the factors described in our 2012 Annual Report on Form 10-K filed on February 26, 2013, may adversely affect our results as indicated in forward-looking statements. You should read this Quarterly Report on Form 10-Q and the documents that we have filed as exhibits hereto completely and with the understanding that our actual future results may be materially different from what we expect.
Our estimates and forward-looking statements may be influenced by the following factors, among others:
3
The words "believe," "may," "will," "aim," "estimate," "continue," "anticipate," "intend," "expect," "plan" and similar words are intended to identify estimates and forward-looking statements. Estimates and forward-looking statements speak only as of the date they were made, and, except to the extent required by law, we undertake no obligation to update or to review any estimate and/or forward-looking statement because of new information, future events or other factors. Estimates and forward-looking statements involve risks and uncertainties and are not guarantees of future performance. As a result of the risks and uncertainties described above, the estimates and forward-looking statements discussed in this Quarterly Report on Form 10-Q might not occur and our future results and our performance may differ materially from those expressed in these forward-looking statements due to, including, but not limited to, the factors mentioned above. Because of these uncertainties, you should not place undue reliance on these forward-looking statements.
4
COBALT INTERNATIONAL ENERGY, INC.
5
Cobalt International Energy, Inc.
(a Development Stage Enterprise)
Condensed Consolidated Balance Sheets
(Unaudited)
|
June 30, 2013 |
December 31, 2012 |
|||||
---|---|---|---|---|---|---|---|
|
($ in thousands, except per share data) |
||||||
Assets |
|||||||
Current assets: |
|||||||
Cash and cash equivalents |
$ | 291,348 | $ | 1,425,815 | |||
Joint interest and other receivables |
109,023 | 61,592 | |||||
Prepaid expenses and other current assets |
43,601 | 23,941 | |||||
Inventory |
64,398 | 65,286 | |||||
Short-term restricted funds |
181,971 | 90,440 | |||||
Short-term investments |
1,289,193 | 789,668 | |||||
Total current assets |
1,979,534 | 2,456,742 | |||||
Property, plant, and equipment: |
|||||||
Oil and gas properties, successful efforts method of accounting, net of accumulated depletion of $-0- |
1,268,894 | 1,094,464 | |||||
Other property and equipment, net of accumulated depreciation and amortization of $3,425 and $2,533, as of June 30, 2013 and December 31, 2012, respectively |
5,141 | 5,292 | |||||
Total property, plant, and equipment, net |
1,274,035 | 1,099,756 | |||||
Long-term restricted funds |
213,293 | 395,652 | |||||
Long-term investments |
295,222 | 36,267 | |||||
Other assets |
37,458 | 23,042 | |||||
Total assets |
$ | 3,799,542 | $ | 4,011,459 | |||
Liabilities and Stockholders' Equity |
|||||||
Current liabilities: |
|||||||
Trade and other accounts payable |
$ | 1,153 | $ | 67,876 | |||
Accrued liabilities |
113,966 | 44,061 | |||||
Short-term contractual obligations |
49,019 | 49,019 | |||||
Total current liabilities |
164,138 | 160,956 | |||||
Long-term debt |
1,013,139 | 991,191 | |||||
Long-term contractual obligations |
124,901 | 168,238 | |||||
Other long-term liabilities |
2,711 | 1,856 | |||||
Total long-term liabilities |
1,140,751 | 1,161,285 | |||||
Stockholders' Equity: |
|||||||
Common stock, $0.01 par value per share; 2,000,000,000 shares authorized, 406,920,372 and 406,596,884 issued and outstanding as of June 30, 2013 and December 31, 2012, respectively |
4,069 | 4,066 | |||||
Additional paid-in capital |
3,625,324 | 3,612,987 | |||||
Accumulated deficit during the development stage |
(1,134,740 | ) | (927,835 | ) | |||
Total stockholders' equity |
2,494,653 | 2,689,218 | |||||
Total liabilities and stockholders' equity |
$ | 3,799,542 | $ | 4,011,459 | |||
See accompanying notes.
6
Cobalt International Energy, Inc.
(a Development Stage Enterprise)
Condensed Consolidated Statements of Operations
(Unaudited)
|
Three Months Ended June 30, |
Six Months Ended June 30, |
For the Period November 10, 2005 (Inception) Through June 30, 2013 |
|||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2013 | 2012 | 2013 | 2012 | ||||||||||||
|
($ in thousands except per share data) |
|||||||||||||||
Oil and gas revenue |
$ | — | $ | — | $ | — | $ | — | $ | — | ||||||
Operating costs and expenses: |
||||||||||||||||
Seismic and exploration |
4,557 | 12,006 | 26,875 | 29,355 | 417,048 | |||||||||||
Dry hole expense and impairment |
35,709 | 111,355 | 103,877 | 116,679 | 342,609 | |||||||||||
General and administrative |
24,652 | 18,482 | 46,159 | 33,322 | 352,102 | |||||||||||
Depreciation and amortization |
447 | 312 | 906 | 513 | 5,657 | |||||||||||
Total operating costs and expenses |
65,365 | 142,155 | 177,817 | 179,869 | 1,117,416 | |||||||||||
Operating income (loss) |
(65,365 | ) | (142,155 | ) | (177,817 | ) | (179,869 | ) | (1,117,416 | ) | ||||||
Other income (expense): |
||||||||||||||||
Gain on sale of assets |
1,496 | — | 2,993 | — | 2,993 | |||||||||||
Interest income |
1,619 | 1,432 | 3,144 | 2,615 | 18,188 | |||||||||||
Interest expense |
(16,568 | ) | — | (35,225 | ) | — | (38,505 | ) | ||||||||
Total other income (expense) |
(13,453 | ) | 1,432 | (29,088 | ) | 2,615 | (17,324 | ) | ||||||||
Net income (loss) before income tax |
(78,818 | ) | (140,723 | ) | (206,905 | ) | (177,254 | ) | (1,134,740 | ) | ||||||
Income tax expense |
— | — | — | — | — | |||||||||||
Net income (loss) |
$ | (78,818 | ) | $ | (140,723 | ) | $ | (206,905 | ) | $ | (177,254 | ) | $ | (1,134,740 | ) | |
Basic and diluted income (loss) per share |
$ | (0.19 | ) | $ | (0.35 | ) | $ | (0.51 | ) | $ | (0.44 | ) | ||||
Basic and diluted weighted average common shares outstanding |
406,916,569 | 406,122,827 | 406,733,954 | 400,113,132 | ||||||||||||
See accompanying notes.
7
Cobalt International Energy, Inc.
(a Development Stage Enterprise)
Condensed Consolidated Statements of Changes in Partners' Capital and Stockholders' Equity
(Unaudited)
|
General Partner |
Class A Limited Partners |
Class B Limited Partners |
Class C Limited Partners |
Common Stock |
Additional Paid-in Capital |
Accumulated Deficit During Development Stage |
Total | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
($ in thousands) |
||||||||||||||||||||||||
Balance, November 10, 2005 (Inception) |
$ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||
Class A limited partners' contributions |
— | 1,256,738 | — | — | — | — | — | 1,256,738 | |||||||||||||||||
Class B & C limited partners' equity compensation |
— | — | 6,984 | 734 | — | — | — | 7,718 | |||||||||||||||||
Common stock issued upon corporate reorganization |
— | (1,256,738 | ) | (6,984 | ) | (734 | ) | 2,743 | 1,261,713 | — | — | ||||||||||||||
Common stock issued at initial public offering, net of offering costs |
— | — | — | — | 630 | 806,629 | — | 807,259 | |||||||||||||||||
Common stock issued at private placement |
— | — | — | — | 32 | 42,156 | — | 42,188 | |||||||||||||||||
Common stock issued at the closing of the over-allotment portion of initial public offering, net of offering costs |
— | — | — | — | 80 | 101,176 | — | 101,256 | |||||||||||||||||
Common stock issued at public offering, net of costs |
— | — | — | — | 538 | 966,974 | — | 967,512 | |||||||||||||||||
Common stock issued for restricted stock and stock options |
— | — | — | — | 44 | (44 | ) | — | — | ||||||||||||||||
Equity based compensation |
— | — | — | — | — | 52,989 | — | 52,989 | |||||||||||||||||
Common stock withheld for taxes on equity based compensation |
— | — | — | — | (1 | ) | (360 | ) | — | (361 | ) | ||||||||||||||
Exercise of stock options |
— | — | — | — | — | 338 | — | 338 | |||||||||||||||||
Conversion option relating to 2.625% convertible senior notes, net of allocated costs |
— | — | — | — | — | 381,416 | — | 381,416 | |||||||||||||||||
Net income (loss) |
— | — | — | — | — | — | (927,835 | ) | (927,835 | ) | |||||||||||||||
Balance, December 31, 2012 |
— | — | — | — | 4,066 | 3,612,987 | (927,835 | ) | 2,689,218 | ||||||||||||||||
Common stock issued for restricted stock and stock options |
— | — | — | — | 3 | (3 | ) | — | — | ||||||||||||||||
Equity based compensation |
— | — | — | — | — | 12,245 | — | 12,245 | |||||||||||||||||
Exercise of stock options |
— | — | — | — | — | 95 | — | 95 | |||||||||||||||||
Net income (loss) |
— | — | — | — | — | — | (206,905 | ) | (206,905 | ) | |||||||||||||||
Balance, June 30, 2013 |
$ | — | $ | — | $ | — | $ | — | $ | 4,069 | $ | 3,625,324 | $ | (1,134,740 | ) | $ | 2,494,653 | ||||||||
See accompanying notes.
8
Cobalt International Energy, Inc.
(a Development Stage Enterprise)
Condensed Consolidated Statements of Cash Flows
(Unaudited)
|
Six Months Ended June 30, |
For the Period November 10, 2005 (Inception) Through June 30, 2013 |
||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
2013 | 2012 | ||||||||
|
($ in thousands) |
|||||||||
Cash flows provided from operating activities |
||||||||||
Net income (loss) |
$ | (206,905 | ) | $ | (177,254 | ) | $ | (1,134,740 | ) | |
Adjustments to reconcile net income (loss) to net cash used in operating activities: |
||||||||||
Depreciation and amortization |
906 | 513 | 5,657 | |||||||
Dry hole expense and impairment of unproved properties |
103,877 | 116,679 | 342,609 | |||||||
Gain on sale of assets |
(2,993 | ) | — | (2,993 | ) | |||||
Equity based compensation |
12,245 | 11,988 | 72,951 | |||||||
Amortization of premium (accretion of discount) on investments |
11,232 | 8,956 | 45,772 | |||||||
Amortization of debt discount |
22,905 | — | 24,654 | |||||||
Other |
— | — | 558 | |||||||
Changes in operating assets and liabilities: |
||||||||||
Joint interest and other receivables |
(47,432 | ) | 15,633 | (111,306 | ) | |||||
Inventory |
888 | (2,774 | ) | (64,398 | ) | |||||
Prepaid expense and other current assets |
(19,660 | ) | 3,695 | (43,601 | ) | |||||
Deferred charges |
(15,375 | ) | — | (15,375 | ) | |||||
Trade and other accounts payable |
(66,724 | ) | (46,673 | ) | 1,153 | |||||
Accrued liabilities and other |
(26,088 | ) | (5,927 | ) | 21,702 | |||||
Net cash provided by (used in) operating activities |
(233,124 | ) | (75,164 | ) | (857,357 | ) | ||||
Cash flows from investing activities |
||||||||||
Capital expenditures for oil and gas properties |
(51,477 | ) | (122,851 | ) | (898,424 | ) | ||||
Capital expenditures for other property and equipment |
(763 | ) | (2,284 | ) | (10,829 | ) | ||||
Exploratory wells drilling in process |
(172,132 | ) | (128,012 | ) | (783,107 | ) | ||||
Proceeds from sale of oil and gas properties |
3,006 | — | 342,007 | |||||||
Change in restricted funds |
90,612 | 3,228 | (221,470 | ) | ||||||
Proceeds from maturity of investment securities |
706,575 | 536,595 | 3,304,281 | |||||||
Purchase of investment securities |
(1,476,069 | ) | (751,474 | ) | (5,105,979 | ) | ||||
Net cash provided by (used in) investing activities |
(900,248 | ) | (464,798 | ) | (3,373,521 | ) | ||||
Cash flows from financing activities |
||||||||||
Capital contributions prior to IPO—Class A limited partners |
— | — | 1,256,180 | |||||||
Proceeds from initial public offering, net of costs |
— | — | 950,702 | |||||||
Proceeds from public offerings, net of costs |
— | 489,488 | 967,513 | |||||||
Proceeds from debt offering, net of costs |
(1,190 | ) | — | 1,347,760 | ||||||
Proceeds from stock option exercises |
95 | 168 | 433 | |||||||
Payments for common stock withheld for taxes on equity based compensation |
— | (170 | ) | (362 | ) | |||||
Net cash provided by (used in) financing activities |
(1,095 | ) | 489,486 | 4,522,226 | ||||||
Net increase (decrease) in cash and cash equivalents |
(1,134,467 | ) | (50,476 | ) | 291,348 | |||||
Cash and cash equivalents, beginning of period |
1,425,815 | 292,546 | — | |||||||
Cash and cash equivalents, end of period |
$ | 291,348 | $ | 242,070 | $ | 291,348 | ||||
Cash paid for interest |
$ | 16,502 | $ | — | $ | 16,502 | ||||
Non-Cash Disclosures |
||||||||||
Changes in accrued capital expenditures |
$ | (54,702 | ) | $ | 269,172 | $ | 97,557 | |||
Transfer of investment securities to and from restricted funds |
$ | 26 | $ | 179,310 | $ | 178,804 |
See accompanying notes.
9
Cobalt International Energy, Inc.
(a Development Stage Enterprise)
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Summary of Significant Accounting Policies
General
Cobalt International Energy, Inc. (the "Company") is incorporated in the state of Delaware. The Company is an independent, oil-focused exploration and production company with an extensive below salt prospect inventory in the deepwater of the U.S. Gulf of Mexico and offshore Angola and Gabon in West Africa. All of the Company's prospects are oil-focused. To date, the Company's drilling efforts have resulted in discoveries in both the U.S. Gulf of Mexico at North Platte, Heidelberg and Shenandoah and offshore Angola at Cameia. The Company's plan is to continue to mature and drill what it believes are its most promising exploration prospects in the deepwater U.S. Gulf of Mexico and the deepwater offshore Angola and Gabon as it further appraises, evaluates and progresses its existing discoveries toward potential project sanction and development. The Company operates its business in two geographic segments: the U.S. Gulf of Mexico and West Africa.
The terms "Company," "Cobalt," "we," "us," "our," "ours," and similar terms refer to Cobalt International Energy, Inc. unless the context indicates otherwise.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements include the financial statements of Cobalt International Energy, Inc. and all of its wholly-owned subsidiaries. All significant intercompany transactions and amounts have been eliminated for all years presented. Because the Company is a development stage enterprise, it has presented its financial statements in accordance with accounting guidance related to "Development Stage Entities."
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles ("GAAP") for interim financial information and the appropriate rules and regulations of the Securities and Exchange Commission ("SEC"). Accordingly, the condensed consolidated financial statements do not include all of the information and footnote disclosures required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for interim periods are not necessarily indicative of the results that may be presented for the entire year. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2012.
Reclassifications
Certain reclassifications have been made to prior periods' financial statements to conform to the current presentation in the unaudited condensed consolidated statements of cash flows.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of
10
Cobalt International Energy, Inc.
(a Development Stage Enterprise)
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
1. Summary of Significant Accounting Policies (Continued)
revenues and expenses during the reporting period. Significant estimates made by the Company include (i) accruals related to expenses, (ii) assumptions used in estimating fair value of equity based awards and the fair value of the liability component of the convertible senior notes and (iii) assumptions used in impairment testing. Although the Company believes these estimates are reasonable, actual results could differ from these estimates.
Investments
The Company's policy on accounting for its investments, which consist entirely of debt securities, is based on the accounting guidance relating to "Accounting for Certain Investments in Debt and Equity Securities." The Company considers all highly liquid interest-earning investments with a maturity of three months or less at the date of purchase to be cash equivalents. Investments with original maturities of greater than three months and remaining maturities of less than one year are classified as short-term investments. Investments with maturities beyond one year are classified as long-term investments. The debt securities are carried at amortized costs and classified as held-to-maturity securities as the Company has the positive intent and ability to hold them until they mature. The net carrying value of held-to-maturity securities is adjusted for amortization of premiums and accretion of discounts to maturity over the life of the securities. Held-to-maturity securities are stated at amortized cost, which approximates fair market value as of June 30, 2013 and December 31, 2012. Income related to these securities is reported as a component of interest income in the Company's condensed consolidated statement of operations. See Note 5—Investments.
Investments are considered to be impaired when a decline in fair value is determined to be other-than-temporary. The Company conducts a regular assessment of its debt securities with unrealized losses to determine whether securities have other-than-temporary impairment ("OTTI"). This assessment considers, among other factors, the nature of the securities, credit rating or financial condition of the issuer, the extent and duration of the unrealized loss, market conditions and whether the Company intends to sell or whether it is more likely than not that the Company will be required to sell the debt securities. As of June 30, 2013 and December 31, 2012, the Company has no OTTI in its debt securities.
Capitalized Interest
For exploration and development projects that have not commenced production, interest is capitalized as part of the historical cost of developing and constructing assets. Capitalized interest is determined by multiplying the Company's weighted-average borrowing cost on debt by the average amount of qualifying costs incurred. Once an asset subject to interest capitalization is completed and placed in service, the associated capitalized interest is expensed through depreciation or impairment. See Note 7—Property, Plant, and Equipment and Note 8—Long-term Debt.
Earnings (Loss) Per Share
Basic income (loss) per share was calculated by dividing net income or loss applicable to common shares by the weighted average number of common shares outstanding during the periods presented. The calculation of diluted income (loss) per share should include the potential dilutive impact of
11
Cobalt International Energy, Inc.
(a Development Stage Enterprise)
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
1. Summary of Significant Accounting Policies (Continued)
non-vested restricted shares, non-vested restricted stock units, outstanding stock options and 2.625% convertible senior notes due 2019, during the period, unless their effect is anti-dilutive. For the three months and six months ended June 30, 2013, 4,316,143 shares of non-vested restricted stock, non-vested restricted stock units, outstanding stock options and 2.625% convertible senior notes due 2019, were excluded from the diluted income (loss) per share because they are anti-dilutive. For the three months and six months ended June 30, 2012, 5,693,908 shares of non-vested restricted stock, non-vested restricted stock units and outstanding stock options were excluded from the diluted income (loss) per share because they are anti-dilutive.
2. Cash and Cash Equivalents
Cash and cash equivalents consisted of the following:
|
June 30, 2013 |
December 31, 2012 |
|||||
---|---|---|---|---|---|---|---|
|
($ in thousands) |
||||||
Cash at banks |
$ | 24,585 | $ | 65,935 | |||
Money market funds |
98,289 | 1,105,148 | |||||
Held-to-maturity securities(1) |
168,474 | 254,732 | |||||
|
$ | 291,348 | $ | 1,425,815 | |||
3. Restricted Funds
Restricted funds consisted of the following:
|
June 30, 2013 |
December 31, 2012 |
|||||
---|---|---|---|---|---|---|---|
|
($ in thousands) |
||||||
Short-term: |
|||||||
Ensco 8503 escrow account |
$ | 90,424 | $ | 90,440 | |||
Collateral on letters of credit for Angola |
91,547 | — | |||||
|
$ | 181,971 | $ | 90,440 | |||
Long-term: |
|||||||
Ensco 8503 escrow account |
— | 90,440 | |||||
Collateral on letters of credit for Angola |
213,121 | 304,492 | |||||
Other vendor restricted deposits |
172 | 720 | |||||
|
$ | 213,293 | $ | 395,652 | |||
12
Cobalt International Energy, Inc.
(a Development Stage Enterprise)
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
4. Joint Interest and Other Receivables
Joint interest and other receivables result primarily from billing shared costs under the respective operating agreements to the Company's partners. These are usually settled within 30 days of the invoice date.
|
June 30, 2013 |
December 31, 2012 |
|||||
---|---|---|---|---|---|---|---|
|
($ in thousands) |
||||||
Partners in the U.S. Gulf of Mexico |
$ | 54,795 | $ | 52,439 | |||
Partners in West Africa |
45,882 | 2,185 | |||||
Accrued interest on investment securities |
7,203 | 3,647 | |||||
Vendors' receivables |
1,076 | 1,526 | |||||
Other |
67 | 1,795 | |||||
Total(1) |
$ | 109,023 | $ | 61,592 | |||
5. Investments
The Company's investments in held-to-maturity securities which are recorded at amortized cost and approximate fair market value as of June 30, 2013 and December 31, 2012 were as follows:
|
June 30, 2013 |
December 31, 2012 |
|||||
---|---|---|---|---|---|---|---|
|
($ in thousands) |
||||||
U.S. Treasury securities |
$ | 393,047 | $ | 483,775 | |||
Corporate securities |
1,034,615 | 510,691 | |||||
Commercial paper |
693,274 | 562,975 | |||||
Certificates of deposit |
25,000 | 7,000 | |||||
Total |
$ | 2,145,936 | $ | 1,564,441 | |||
13
Cobalt International Energy, Inc.
(a Development Stage Enterprise)
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
5. Investments (Continued)
The Company's condensed consolidated balance sheet included the following held-to-maturity securities:
|
June 30, 2013 |
December 31, 2012 |
|||||
---|---|---|---|---|---|---|---|
|
($ in thousands) |
||||||
Cash and cash equivalents |
$ | 168,474 | $ | 254,732 | |||
Short-term restricted funds |
181,971 | 90,440 | |||||
Short-term investments |
1,289,193 | 789,668 | |||||
Long-term restricted funds |
211,076 | 393,334 | |||||
Long-term investments |
295,222 | 36,267 | |||||
|
$ | 2,145,936 | $ | 1,564,441 | |||
The contractual maturities of these held-to-maturity securities as of June 30, 2013 and December 31, 2012 were as follows:
|
June 30, 2013 | December 31, 2012 | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Carrying Value |
Estimated Fair Value |
Carrying Value |
Estimated Fair Value |
|||||||||
|
($ in thousands) |
||||||||||||
Within 1 year |
$ | 1,850,714 | $ | 1,850,714 | $ | 1,528,174 | $ | 1,528,174 | |||||
After 1 year |
295,222 | 295,222 | 36,267 | 36,267 | |||||||||
|
$ | 2,145,936 | $ | 2,145,936 | $ | 1,564,441 | $ | 1,564,441 | |||||
6. Fair Value Measurements
The fair values of the Company's cash and cash equivalents, joint interest and other receivables, restricted funds and investments approximate their carrying amounts due to their short-term duration. The hierarchy below lists three levels of fair value based on the extent to which inputs used in measuring fair value are observable in the market. The Company categorizes each of its fair value measurements as applicable to one of these three levels based on the lowest level input that is significant to the fair value measurement in its entirety. The levels are:
Level 1—Quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities. This category includes the Company's cash and money market funds.
Level 2—Quoted prices in non-active markets or in active markets for similar assets or liabilities, and inputs other than quoted prices that are observable, for the asset or liability, either directly or indirectly, for substantially the full contractual term of the asset or liability being measured. This category includes the Company's U.S. Treasury bills, U.S. Treasury notes, U.S. Government agency securities, commercial paper, corporate bonds, municipal bonds and certificates of deposits.
Level 3—Inputs that are generally unobservable and typically reflect management's estimate of assumptions that market participants would use in pricing the asset or liability. The Company does not currently have any financial instruments categorized as Level 3.
14
Cobalt International Energy, Inc.
(a Development Stage Enterprise)
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
6. Fair Value Measurements (Continued)
The following tables summarize the Company's significant financial instruments as categorized by the fair value measurement hierarchy:
|
Level 1 | Level 2 | |
|||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Balance as of June 30, 2013 |
|||||||||||||||
|
Carrying Value |
Fair Value(1) |
Carrying Value |
Fair Value(1) |
||||||||||||
|
($ in thousands) |
|||||||||||||||
Cash and cash equivalents: |
||||||||||||||||
Cash |
$ | 24,585 | $ | 24,585 | $ | — | $ | — | $ | 24,585 | ||||||
Money market funds |
98,289 | 98,289 | — | — | 98,289 | |||||||||||
Commercial paper |
— | — | 168,474 | 168,474 | 168,474 | |||||||||||
Subtotal |
122,874 | 122,874 | 168,474 | 168,474 | 291,348 | |||||||||||
Short-term restricted funds: |
||||||||||||||||
U.S. Treasury bills |
— | — | 90,424 | 90,424 | 90,424 | |||||||||||
U.S. Treasury notes |
— | — | 91,547 | 91,547 | 91,547 | |||||||||||
Subtotal |
— | — | 181,971 | 181,971 | 181,971 | |||||||||||
Short-term investments: |
||||||||||||||||
Corporate bonds |
— | — | 739,394 | 739,394 | 739,394 | |||||||||||
Commercial paper |
— | — | 524,799 | 524,799 | 524,799 | |||||||||||
Certificates of deposits |
— | — | 25,000 | 25,000 | 25,000 | |||||||||||
Subtotal |
— | — | 1,289,193 | 1,289,193 | 1,289,193 | |||||||||||
Long-term restricted funds: |
||||||||||||||||
Money market funds |
2,217 | 2,217 | — | — | 2,217 | |||||||||||
U.S. Treasury notes |
— | — | 211,076 | 211,076 | 211,076 | |||||||||||
Subtotal |
2,217 | 2,217 | 211,076 | 211,076 | 213,293 | |||||||||||
Long-term investments: |
||||||||||||||||
Corporate bonds |
— | — | 295,222 | 295,222 | 295,222 | |||||||||||
Subtotal |
— | — | 295,222 | 295,222 | 295,222 | |||||||||||
Total |
$ | 125,091 | $ | 125,091 | $ | 2,145,936 | $ | 2,145,936 | $ | 2,271,027 | ||||||
15
Cobalt International Energy, Inc.
(a Development Stage Enterprise)
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
6. Fair Value Measurements (Continued)
|
Level 1 | Level 2 | |
|||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Balance as of December 31, 2012 |
|||||||||||||||
|
Carrying Value |
Fair Value(1) |
Carrying Value |
Fair Value(1) |
||||||||||||
|
($ in thousands) |
|||||||||||||||
Cash and cash equivalents: |
||||||||||||||||
Cash |
$ | 65,935 | $ | 65,935 | $ | — | $ | — | $ | 65,935 | ||||||
Money market funds |
1,105,148 | 1,105,148 | — | — | 1,105,148 | |||||||||||
Commercial paper |
— | — | 247,206 | 247,206 | 247,206 | |||||||||||
Corporate bonds |
— | — | 7,526 | 7,526 | 7,526 | |||||||||||
Subtotal |
1,171,083 | 1,171,083 | 254,732 | 254,732 | 1,425,815 | |||||||||||
Short-term restricted funds: |
||||||||||||||||
U.S. Treasury bills |
— | — | 90,440 | 90,440 | 90,440 | |||||||||||
Subtotal |
— | — | 90,440 | 90,440 | 90,440 | |||||||||||
Short-term investments: |
||||||||||||||||
Corporate bonds |
— | — | 466,898 | 466,898 | 466,898 | |||||||||||
Commercial paper |
— | — | 315,769 | 315,769 | 315,769 | |||||||||||
Certificates of deposits |
— | — | 7,001 | 7,001 | 7,001 | |||||||||||
Subtotal |
— | — | 789,668 | 789,668 | 789,668 | |||||||||||
Long-term restricted funds: |
||||||||||||||||
Money market funds |
2,318 | 2,318 | — | — | 2,318 | |||||||||||
U.S. Treasury bills |
— | — | 178,216 | 178,216 | 178,216 | |||||||||||
U.S. Treasury notes |
— | — | 215,118 | 215,118 | 215,118 | |||||||||||
Subtotal |
2,318 | 2,318 | 393,334 | 393,334 | 395,652 | |||||||||||
Long-term investments: |
||||||||||||||||
Corporate bonds |
— | — | 36,267 | 36,267 | 36,267 | |||||||||||
Subtotal |
— | — | 36,267 | 36,267 | 36,267 | |||||||||||
Total |
$ | 1,173,401 | $ | 1,173,401 | $ | 1,564,441 | $ | 1,564,441 | $ | 2,737,842 | ||||||
16
Cobalt International Energy, Inc.
(a Development Stage Enterprise)
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
7. Property, Plant, and Equipment
Property, plant, and equipment is stated at cost less accumulated depreciation/amortization and consisted of the following:
|
Estimated Useful Life (Years) |
June 30, 2013 |
December 31, 2012 |
||||||
---|---|---|---|---|---|---|---|---|---|
|
|
($ in thousands) |
|||||||
Oil and Gas Properties: |
|||||||||
Unproved oil and gas properties |
$ | 730,077 | $ | 721,853 | |||||
Less: accumulated valuation allowance |
(82,847 | ) | (78,413 | ) | |||||
|
647,230 | 643,440 | |||||||
Exploratory wells in process |
621,664 | 451,024 | |||||||
Total oil and gas properties, net |
1,268,894 | 1,094,464 | |||||||
Other Property and Equipment: |
|||||||||
Computer equipment and software |
3 | 3,765 | 3,166 | ||||||
Office equipment and furniture |
3 - 5 | 2,132 | 2,093 | ||||||
Vehicles |
3 | 265 | 268 | ||||||
Leasehold improvements |
3 - 10 | 2,404 | 2,298 | ||||||
|
8,566 | 7,825 | |||||||
Less: accumulated depreciation and amortization(1) |
(3,425 | ) | (2,533 | ) | |||||
Total other property and equipment, net |
5,141 | 5,292 | |||||||
Property, plant, and equipment, net |
$ | 1,274,035 | $ | 1,099,756 | |||||
The Company recorded $0.4 million and $0.3 million for the three months ended June 30, 2013 and 2012, respectively, $0.9 million and $0.5 million for the six months ended June 30, 2013 and 2012, respectively, and $5.7 million of depreciation and amortization for the period November 10, 2005 (inception) through June 30, 2013, respectively.
Unproved Oil and Gas Properties
On December 20, 2011, the Company acquired a 40% working interest in Block 20 offshore Angola for a total consideration of $347.1 million, of which $337.1 million is contractually scheduled to be paid over five years commencing in January 2012. As of June 30, 2013, out of the $337.1 million, $165.7 million has been paid and the remaining $171.4 million was accrued in short-term and long-term contractual obligations. See Note 9—Contractual Obligations. In addition to the Block 20 interests, the Company has $10.8 million of unproved property acquisition costs relating to its 40% interests in
17
Cobalt International Energy, Inc.
(a Development Stage Enterprise)
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
7. Property, Plant, and Equipment (Continued)
Blocks 9 and 21 offshore Angola and its 21.25% working interest in the Diaba block offshore Gabon. As of June 30, 2013, the Company also has $289.3 million of unproved property acquisition costs, net of valuation allowance for impairment, relating to its U.S. Gulf of Mexico properties. This $289.3 million includes $8.6 million incurred on various working interests in unproved properties located in the U.S. Gulf of Mexico acquired by the Company in 2013. As of June 30, 2013 and December 31, 2012, the Company has a net total of $647.2 million and $643.4 million, respectively, of unproved property acquisition costs on the condensed consolidated balance sheets.
On February 26, 2013, the Company executed a Purchase and Sale agreement (the "PSA") to sell its ownership interests on an unproved oil and gas property on Mississippi Canyon Block 209 for a total consideration of $5.6 million. The Company received $1.5 million at closing and an additional $1.5 million in June 2013 when the buyer commenced operations on the property. Pursuant to the terms and conditions of the PSA, the Company will receive the remaining $2.6 million contingent upon the purchaser's commencement of production on this property in the future. For the six months ended June 30, 2013, the Company recognized a gain of $3.0 million on the sale of assets as a result of this transaction.
Acquisition costs of unproved properties are assessed for impairment during the holding period and transferred to proved oil and gas properties to the extent associated with successful exploration activities. There are no impairment indicators to date that would require the Company to impair the unproved properties in Blocks 9, 20, and 21 offshore Angola and in the Diaba block offshore Gabon. Oil and gas leases for unproved properties in the U.S. Gulf of Mexico with carrying value greater than $1.0 million are assessed individually for impairment, based on the Company's current exploration plans, and an allowance for impairment is provided, if impairment is indicated. Leases that are individually less than $1.0 million in carrying value or are near expiration are amortized on a group basis over the average terms of the leases, at rates that provide for full amortization of leases upon lease expiration. These leases have expiration dates ranging from 2013 through 2022. As of June 30, 2013 and December 31, 2012, the balance for unproved properties that were subject to amortization before impairment provision was $69.4 million and $69.1 million, respectively. The Company recorded a lease impairment allowance of $2.4 million and $52.5 million for the three months ended June 30, 2013 and 2012, respectively, $4.8 million and $55.5 million for the six months ended June 30, 2013 and 2012, respectively, and $83.4 million for the period November 10, 2005 (inception) through June 30, 2013.
Capitalized Exploratory Well Costs
If an exploratory well provides evidence as to the existence of sufficient quantities of hydrocarbons to justify potential completion as a producing well, drilling costs associated with the well are initially capitalized, or suspended, pending a determination as to whether a commercially sufficient quantity of proved reserves can be attributed to the area as a result of drilling. This determination may take longer than one year in certain areas (generally, deepwater and international locations) depending upon, among other things, (i) the amount of hydrocarbons discovered, (ii) the outcome of planned geological and engineering studies, (iii) the need for additional appraisal drilling activities to determine whether the discovery is sufficient to support an economic development plan and (iv) the requirement for government sanctioning in international locations before proceeding with development activities.
18
Cobalt International Energy, Inc.
(a Development Stage Enterprise)
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
7. Property, Plant, and Equipment (Continued)
The following tables reflect the Company's net changes in and the cumulative costs of capitalized exploratory well costs (excluding any related leasehold costs):
|
June 30, 2013 |
December 31, 2012 |
|||||
---|---|---|---|---|---|---|---|
|
($ in thousands) |
||||||
Beginning of period |
$ | 451,024 | $ | 178,338 | |||
Addition to capitalized exploratory and development costs: |
|||||||
U.S. Gulf of Mexico: |
|||||||
Exploratory well costs |
63,376 | 178,295 | |||||
Development and pre-development well costs |
21,094 | — | |||||
Capitalized interest |
4,053 | — | |||||
West Africa: |
|||||||
Exploratory well costs |
175,052 | 168,309 | |||||
Pre-development well costs |
4,378 | — | |||||
Capitalized interest |
1,735 | — | |||||
Reclassifications to wells, facilities, and equipment based on determination of proved reserves |
— | — | |||||
Amounts charged to expense(1) |
(99,048 | ) | (73,918 | ) | |||
End of period |
$ | 621,664 | $ | 451,024 | |||
19
Cobalt International Energy, Inc.
(a Development Stage Enterprise)
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
7. Property, Plant, and Equipment (Continued)
|
June 30, 2013 |
December 31, 2012 |
|||||
---|---|---|---|---|---|---|---|
|
($ in thousands) |
||||||
Cumulative costs: |
|||||||
U.S. Gulf of Mexico |
|||||||
Exploratory well costs |
$ | 263,666 | $ | 208,275 | |||
Development and pre-development well costs |
29,078 | — | |||||
Capitalized interest |
4,053 | — | |||||
West Africa: |
|||||||
Exploratory well costs |
314,770 | 242,749 | |||||
Pre-development well costs |
8,362 | — | |||||
Capitalized interest |
1,735 | — | |||||
|
$ | 621,664 | $ | 451,024 | |||
Exploratory Well costs capitalized for a period greater than one year after completion of drilling (included in table above) |
$ | 321,223 | $ | 194,853 | |||
As of June 30, 2013, capitalized exploratory well costs that have been suspended longer than one year are associated with the Shenandoah #1, Heidelberg #1, North Platte #1 and Cameia #1 discoveries. These exploratory well costs are suspended pending ongoing evaluation including, but not limited to, results of additional appraisal drilling, well-test analysis, additional geological and geophysical data and approval of a development plan. Management believes these discoveries exhibit sufficient indications of hydrocarbons to justify potential development and is actively pursuing efforts to fully assess them. If additional information becomes available that raises substantial doubt as to the economic or operational viability of these discoveries, the associated costs will be expensed at that time.
8. Long-term Debt
On December 17, 2012, the Company issued $1.38 billion aggregate principal amount of its 2.625% convertible senior notes due 2019 (the "Notes"). The Notes are the Company's senior unsecured obligations and interest is payable semi-annually in arrears on June 1 and December 1 of each year. For the three and six months ended June 30, 2013, the Company paid $16.5 million in interest on the notes. The Notes will mature on December 1, 2019, unless earlier repurchased or converted in accordance with the terms of the Notes. The Notes may be converted at the option of the holder at any time prior to 5:00 p.m., New York City time, on the second scheduled trading day immediately preceding the maturity date, in multiples of $1,000 principal amount. The Notes are convertible at an initial conversion rate of 28.023 shares of common stock per $1,000 principal amount, representing an initial conversion price of approximately $35.68 per share for a total of approximately 38.7 million underlying shares. The conversion rate is subject to adjustment upon the occurrence of certain events, as defined in the indenture governing the Notes, but will not be adjusted for any accrued and unpaid interest except in limited circumstances. Upon conversion, the Company's conversion obligation may be satisfied, at the Company's option, in cash, shares of common stock or a combination of cash and shares of common stock.
20
Cobalt International Energy, Inc.
(a Development Stage Enterprise)
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
8. Long-term Debt (Continued)
Holders of the Notes who convert their Notes in connection with a "make-whole fundamental change", as defined in the indenture governing the Notes, may be entitled to a make-whole premium in the form of an increase in the conversion rate. Additionally, in the event of a fundamental change, as defined in the indenture governing the Notes, holders of the Notes may require the Company to repurchase for cash all or a portion of their Notes equal to $1,000 or a multiple of $1,000 at a fundamental change repurchase price equal to 100% of the principal amount of Notes, plus accrued and unpaid interest, if any, to, but not including, the fundamental change repurchase date.
Upon the occurrence of an Event of Default, as defined within the Indenture governing the Notes, the Trustee or the Holders of at least 25% in aggregate principal amount of the Notes then outstanding may declare 100% of the principal of, and accrued and unpaid interest on, all the Notes to be due and payable immediately.
In accordance with accounting guidance relating to, "Debt with Conversion and Other Options", the Company separately accounts for the liability and equity conversion components of the Notes due to the Company's option to settle the conversion obligation in cash. The fair value of the debt excluding the conversion feature at the date of issuance was estimated to be approximately $989.5 million and was calculated based on the fair value of similar non-convertible debt instruments. The resulting value of the conversion option of $390.5 million was recognized as a debt discount and recorded as additional paid-in capital on the Company's consolidated balance sheets. Total debt issue cost on the Notes was $32.2 million of which $23.1 million was allocated to the liability component of the Notes and $9.1 million to the equity component of the Notes. The debt discount and the liability component of the debt issue costs are amortized over the term of the Notes. The effective interest rate used to amortize the debt discount and the liability component of the debt issue costs was approximately 8.40% based on the Company's estimated non-convertible borrowing rate as of the date the Notes were issued. Since the Company incurred losses for all periods, the impact of the conversion option would be anti-dilutive to the earnings per share and therefore was not included in the calculation.
The carrying amounts of the liability components of the Notes were as follows:
|
June 30, 2013 | December 31, 2012 | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Principal Amount |
Unamortized discount(1) |
Carrying Amount |
Principal Amount |
Unamortized discount |
Carrying Amount |
|||||||||||||
|
($ in thousands) |
||||||||||||||||||
Carrying amount of liability component |
|||||||||||||||||||
2.625% convertible senior notes |
$ | 1,380,000 | $ | (366,861 | ) | $ | 1,013,139 | $ | 1,380,000 | $ | (388,809 | ) | $ | 991,191 | |||||
21
Cobalt International Energy, Inc.
(a Development Stage Enterprise)
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
8. Long-term Debt (Continued)
The carrying amounts of the equity components of the Notes were as follows:
|
June 30, 2013 |
December 31, 2012 |
|||||
---|---|---|---|---|---|---|---|
|
($ in thousands) |
||||||
Debt discount relating to value of conversion option |
$ | 390,540 | $ | 390,540 | |||
Debt issue costs |
(9,124 | ) | (9,124 | ) | |||
Total |
$ | 381,416 | $ | 381,416 | |||
Fair Value The fair value of the Notes excluding the conversion feature was $983.5 million and $989.5 million as of June 30, 2013 and December 31, 2012, respectively, and was calculated based on the fair value of similar non-convertible debt instruments (level 2) since an observable quoted price of the Notes or a similar asset or liability is not readily available.
Interest expense was as follows:
|
|
|
|
|
For the Period November 10, 2005 (Inception) through June 30, 2013 |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Three Months Ended June 30, |
Six Months Ended June 30, |
||||||||||||||
|
2013 | 2012 | 2013 | 2012 | ||||||||||||
|
($ in thousands) |
|||||||||||||||
Interest expense associated with accrued interest(1) |
$ | 4,968 | $ | — | $ | 12,319 | $ | — | $ | 13,728 | ||||||
Interest expense associated with accretion of debt discount |
11,083 | — | 21,948 | — | 23,743 | |||||||||||
Interest expense associated with amortization of debt issue costs |
517 | — | 958 | — | 1,034 | |||||||||||
Total |
$ | 16,568 | $ | — | $ | 35,225 | $ | — | $ | 38,505 | ||||||
22
Cobalt International Energy, Inc.
(a Development Stage Enterprise)
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
9. Contractual Obligations
The short-term and long-term contractual obligations consist of the following:
|
June 30, 2013 |
December 31, 2012 |
|||||
---|---|---|---|---|---|---|---|
|
($ in thousands) |
||||||
Short-term Contractual Obligations: |
|||||||
Social obligation payments for Block 9, offshore Angola |
$ | 150 | $ | 150 | |||
Social obligation payments for Block 21, offshore Angola |
300 | 300 | |||||
Social obligation and bonus payments for Block 20, offshore Angola(1) |
48,569 | 48,569 | |||||
|
$ | 49,019 | $ | 49,019 | |||
Long-term Contractual Obligations: |
|||||||
Social obligation payments for Block 9, offshore Angola |
$ | 668 | $ | 848 | |||
Social obligation payments for Block 21, offshore Angola |
1,382 | 1,684 | |||||
Social obligation and bonus payments for Block 20, offshore Angola(1) |
122,851 | 165,706 | |||||
|
$ | 124,901 | $ | 168,238 | |||
10. Seismic and Exploration Expenses
Seismic and exploration expenses consisted of the following:
|
Three Months Ended June 30, |
Six Months Ended June 30, |
|
|||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
For the Period November 10, 2005 (Inception) through June 30, 2013 |
|||||||||||||||
|
2013 | 2012 | 2013 | 2012 | ||||||||||||
|
($ in Thousands) |
|||||||||||||||
Seismic costs |
$ | 2,978 | $ | 10,128 | $ | 21,087 | $ | 25,341 | $ | 363,135 | ||||||
Seismic cost recovery(1) |
— | — | — | — | (25,126 | ) | ||||||||||
Leasehold delay rentals |
1,719 | 1,469 | 3,106 | 2,878 | 36,008 | |||||||||||
Force Majeure expense(2) |
— | — | — | — | 13,549 | |||||||||||
Drilling rig expense |
(140 | ) | 409 | 2,682 | 1,136 | 29,482 | ||||||||||
|
$ | 4,557 | $ | 12,006 | $ | 26,875 | $ | 29,355 | $ | 417,048 | ||||||
23
Cobalt International Energy, Inc.
(a Development Stage Enterprise)
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
11. Equity Based Compensation
The Company accounts for stock-based compensation at fair value. The Company grants various types of stock-based awards including stock options, restricted stock and performance-based awards. The fair value of stock option awards is determined using the Black-Scholes-Merton option-pricing model. For restricted stock awards with market conditions, the fair value of the awards is measured using the asset-or-nothing option pricing model. Restricted stock awards without market conditions and the performance-based awards are valued using the market price of the Company's common stock on the grant date. The Company records compensation cost, net of estimated forfeitures, for stock-based compensation awards over the requisite service period except for performance-based awards. For performance-based awards, compensation cost is recognized over the requisite service period as and when the Company determines that the achievement of the performance condition is probable, using the per-share fair value measured at grant date.
During the six months ended June 30, 2013, the Company granted a total of 516,290 shares of restricted stock and 959,023 stock options to employees. During the six months ended June 30, 2013, the Company also granted 7,223 shares of common stock as retainer awards to non-employee directors who elected to be compensated by stock in lieu of cash payments. In addition, the Company granted a total of 33,329 restricted stock units to non-employee directors during the six months ended June 30, 2013.
The Company recorded equity based compensation expense, net of forfeitures, of $6.0 million and $5.4 million for the three months ended June 30, 2013 and 2012, respectively, $12.2 million and $12.0 million for the six months ended June 30, 2013 and 2012, respectively, and $73.0 million for the period November 10, 2005 (inception) through June 30, 2013.
12. Segment Information
The Company currently has two geographic operating segments for its exploratory operations. The operating segments are focused in the deepwater U.S. Gulf of Mexico and offshore West Africa. The
24
Cobalt International Energy, Inc.
(a Development Stage Enterprise)
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
12. Segment Information (Continued)
following tables provide the geographic operating segment information for the three and six months ended June 30, 2013 and 2012:
|
United States | West Africa | Total | |||||||
---|---|---|---|---|---|---|---|---|---|---|
|
($ in thousands) |
|||||||||
Three months ended June 30, 2013 |
||||||||||
Operating costs and expense |
$ | 21,715 | $ | 43,650 | $ | 65,365 | ||||
Operating income (loss) |
(21,715 | ) | (43,650 | ) | (65,365 | ) | ||||
Other (income) expense |
13,453 | |||||||||
Net income (loss) |
$ | (78,818 | ) | |||||||
Additions to Property and Equipment, net(1) |
$ | 37,469 | $ | 106,852 | $ | 144,321 | ||||
Three months ended June 30, 2012 |
||||||||||
Operating costs and expense |
$ | 135,531 | $ | 6,624 | $ | 142,155 | ||||
Operating income (loss) |
(135,531 | ) | (6,624 | ) | (142,155 | ) | ||||
Other (income) expense |
(1,432 | ) | ||||||||
Net income (loss) |
$ | (140,723 | ) | |||||||
Additions to Property and Equipment, net(1) |
$ | (72,635 | ) | $ | 61,403 | $ | (11,232 | ) | ||
|
United States | West Africa | Total | |||||||
---|---|---|---|---|---|---|---|---|---|---|
|
($ in thousands) |
|||||||||
Six months ended June 30, 2013 |
||||||||||
Operating costs and expense |
$ | 44,821 | $ | 132,996 | $ | 177,817 | ||||
Operating income (loss) |
(44,821 | ) | (132,996 | ) | (177,817 | ) | ||||
Other (income) expense |
29,088 | |||||||||
Net income (loss) |
$ | (206,905 | ) | |||||||
Additions to Property and Equipment, net(1) |
$ | 92,328 | $ | 81,950 | $ | 174,278 | ||||
Six months ended June 30, 2012 |
||||||||||
Operating costs and expense |
$ | 156,578 | $ | 23,291 | $ | 179,869 | ||||
Operating income (loss) |
(156,578 | ) | (23,291 | ) | (179,869 | ) | ||||
Other (income) expense |
(2,615 | ) | ||||||||
Net income (loss) |
$ | (177,254 | ) | |||||||
Additions to Property and Equipment, net(1) |
$ | (49,979 | ) | $ | 118,290 | $ | 68,311 | |||
25
Cobalt International Energy, Inc.
(a Development Stage Enterprise)
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
13. Contingencies
The Company is not currently party to any legal proceedings. However, from time to time the Company may be subject to various lawsuits, claims and proceedings that arise in the normal course of business, including employment, commercial, environmental, safety and health matters. It is not presently possible to determine whether any such matters will have a material adverse effect on the Company's consolidated financial position, results of operations, or liquidity.
26
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those discussed in the forward-looking statements as a result of various factors, including, without limitation, those set forth in "Risk Factors" and "Cautionary Note Regarding Forward-Looking Statements" and the other matters set forth in this Quarterly Report on Form 10-Q. The following discussion of our financial condition and results of operations should be read in conjunction with our financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2012.
Overview
We are an independent, oil-focused exploration and production company with an extensive below salt prospect inventory in the deepwater U.S. Gulf of Mexico and offshore Angola and Gabon in West Africa. All of our prospects are oil-focused. To date, our drilling efforts have resulted in discoveries in both the U.S. Gulf of Mexico at North Platte, Heidelberg and Shenandoah and offshore Angola at Cameia. Our plan is to continue to mature and drill what we believe are our most promising exploration prospects in the deepwater U.S. Gulf of Mexico and the deepwater offshore Angola and Gabon as we further appraise, evaluate and progress our existing discoveries toward potential project sanction and development. We operate our business in two geographic segments: the U.S. Gulf of Mexico and West Africa.
Second Quarter 2013 Operational Highlights
We continued drilling operations on four exploratory wells as set forth below:
We also continued development efforts with respect to our Heidelberg, Cameia and North Platte discoveries as set forth below:
27
Second Quarter 2013 Financial Highlights
Results of Operations
We operate our business in two geographic segments: the United States and West Africa. The discussion of the results of operations and the period-to-period comparisons presented below for each operating segment and our consolidated operations analyzes our historical results. The following discussion may not be indicative of future results.
28
Three Months Ended June 30, 2013 Compared to the Three Months Ended June 30, 2012
|
Three Months Ended June 30, | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2013 | 2012 | Increase (Decrease) |
% | |||||||||
|
($ in thousands) |
||||||||||||
United States Segment: |
|||||||||||||
Oil and gas revenue |
$ | — | $ | — | $ | — | — | % | |||||
Operating costs and expenses: |
|||||||||||||
Seismic and exploration |
3,495 | 10,570 | (7,075 | ) | (67 | )% | |||||||
Dry hole expense and impairment |
2,412 | 111,355 | (108,943 | ) | (98 | )% | |||||||
General and administrative |
15,499 | 13,336 | 2,163 | 16 | % | ||||||||
Depreciation and amortization |
309 | 270 | 39 | 14 | % | ||||||||
Total operating costs and expenses |
21,715 | 135,531 | (113,816 | ) | (84 | )% | |||||||
Operating income (loss) |
(21,715 | ) | (135,531 | ) | (113,816 | ) | (84 | )% | |||||
West Africa Segment: |
|||||||||||||
Oil and gas revenue |
$ | — | $ | — | $ | — | — | % | |||||
Operating costs and expenses: |
|||||||||||||
Seismic and exploration |
1,062 | 1,436 | (374 | ) | (26 | )% | |||||||
Dry hole expense and impairment |
33,297 | — | 33,297 | — | |||||||||
General and administrative |
9,153 | 5,146 | 4,007 | 78 | % | ||||||||
Depreciation and amortization |
138 | 42 | 96 | 229 | % | ||||||||
Total operating costs and expenses |
43,650 | 6,624 | 37,026 | 559 | % | ||||||||
Operating income (loss) |
(43,650 | ) | (6,624 | ) | 37,026 | 559 | % | ||||||
Consolidated Operations: |
|||||||||||||
Oil and gas revenue |
$ | — | $ | — | $ | — | — | % | |||||
Operating costs and expenses: |
|||||||||||||
Seismic and exploration |
4,557 | 12,006 | (7,449 | ) | (62 | )% | |||||||
Dry hole expense and impairment |
35,709 | 111,355 | (75,646 | ) | (68 | )% | |||||||
General and administrative |
24,652 | 18,482 | 6,170 | 33 | % | ||||||||
Depreciation and amortization |
447 | 312 | 135 | 43 | % | ||||||||
Total operating costs and expenses |
65,365 | 142,155 | (76,790 | ) | (54 | )% | |||||||
Operating income (loss) |
(65,365 | ) | (142,155 | ) | (76,790 | ) | (54 | )% | |||||
Other income (expense): |
|||||||||||||
Gain on sale of assets |
1,496 | — | (1,496 | ) | — | ||||||||
Interest income |
1,619 | 1,432 | (187 | ) | 13 | % | |||||||
Interest expense |
(16,568 | ) | — | 16,568 | — | ||||||||
Total other income (expense) |
(13,453 | ) | 1,432 | 14,885 | 1039 | % | |||||||
Net income (loss) before income tax |
(78,818 | ) | (140,723 | ) | (61,905 | ) | (44 | )% | |||||
Income tax expense (benefit) |
— | — | — | — | |||||||||
Net income (loss) |
$ | (78,818 | ) | $ | (140,723 | ) | $ | (61,905 | ) | (44 | )% | ||
United States Segment:
Oil and gas revenue. We have not yet commenced oil production. Therefore, we did not realize any oil and gas revenue during the three months ended June 30, 2013 and 2012, respectively.
29
Operating costs and expenses. Our operating costs and expenses consisted of the following during the three months ended June 30, 2013 and 2012:
Seismic and exploration. Seismic and exploration costs decreased by $7.1 million during the three months ended June 30, 2013, as compared to the three months ended June 30, 2012. The decrease was due to reduced seismic data acquisition costs over certain of our prospects in the U.S. Gulf of Mexico.
Dry hole expense and impairment. Dry hole expense and impairment decreased by $108.9 million during the three months ended June 30, 2013, as compared to the three months ended June 30, 2012. The decrease is due to no exploratory well costs in the U.S. Gulf of Mexico being charged to dry hole expense during the three months ended June 30, 2013, as reflected in the following table:
|
Three Months Ended June 30, | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
2013 | 2012 | Increase (Decrease) |
|||||||
|
($ in thousands) |
|||||||||
Impairment of Unproved Leasehold: |
||||||||||
Ligurian prospect |
$ | — | $ | 41,861 | $ | (41,861 | ) | |||
Other leasehold |
— | 8,298 | (8,298 | ) | ||||||
Amortization of leasehold with carrying value under $1 million |
2,412 | 2,303 | 109 | |||||||
Dry hole Expense: |
||||||||||
Ligurian #1 exploratory well |
— | 8,100 | (8,100 | ) | ||||||
Ligurian #2 exploratory well |
— | 48,994 | (48,994 | ) | ||||||
Heidelberg #3 Appraisal Well Side Track |
— | 1,799 | (1,799 | ) | ||||||
|
$ | 2,412 | $ | 111,355 | $ | (108,943 | ) | |||
General and administrative. General and administrative costs increased by $2.2 million during the three months ended June 30, 2013, as compared to the three months ended June 30, 2012. The increase in general and administrative costs during this period was attributed to increase of $2.1 million in staff related expenses which includes equity compensation, a $3.9 million increase in contractors and consulting fees, and a $1.5 million increase in legal fees and increase of $1.2 million in office support costs, offset by an increase of $6.5 million in recoveries from partners due to increased operating activities.
Depreciation and amortization. Depreciation and amortization did not materially change from the three months ended June 30, 2013, as compared to the three months ended June 30, 2012.
West Africa Segment:
Oil and gas revenue. We have not yet commenced oil production. Therefore, we did not realize any oil and gas revenue during the three months ended June 30, 2013 and 2012, respectively.
Operating costs and expenses. Our operating costs and expenses consisted of the following during the three months ended June 30, 2013 and 2012:
Seismic and exploration. Seismic and exploration costs did not materially change during the three months ended June 30, 2013, as compared to the three months ended June 30, 2012.
Dry hole expense and impairment. Dry hole expense and impairment increased by $33.3 million during the three months ended June 30, 2013, as compared to the three months ended June 30, 2012.
30
The increase is due to dry hole expense during the three months ended June 30, 2013 as reflected in the following table:
|
Three Months Ended June 30, | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
2013 | 2012 | Increase (Decrease) |
|||||||
|
($ in thousands) |
|||||||||
Dry hole Expense: |
||||||||||
Cameia #2 Drill Stem Test |
$ | 16,231 | — | $ | 16,231 | |||||
Diaman #1 exploratory well |
17,066 | — | 17,066 | |||||||
|
$ | 33,297 | $ | — | $ | 33,297 | ||||
General and administrative. General and administrative costs increased by $4.0 million for the three months ended June 30, 2013, as compared to the three months ended June 30, 2012. The increase is attributed primarily to increase of $2.7 million in office support costs and a $1.3 million increase in staff related costs, contractors, consulting fees and insurance, all due to increased operating activities offshore Angola and Gabon during the three months ended June 30, 2013.
Depreciation and amortization. Depreciation and amortization did not materially change from the three months ended June 30, 2013, as compared to the three months ended June 30, 2012.
Consolidated:
Other income (expense). Other income (expense) increased by $14.9 million during the three months ended June 30, 2013, as compared to the three months ended June 30, 2012. The increase was due primarily to $16.6 million in interest expense associated with our 2.625% convertible senior notes due 2019 that were issued in December 2012, offset by an increase of $0.2 million in interest income and a $1.5 million gain on sale of assets during the three months ended June 30, 2013.
Income tax expense/benefit. No income tax benefit has been reflected since a full valuation allowance has been established against the deferred tax asset that would have been generated as a result of the operating results.
31
Six Months Ended June 30, 2013 Compared to the Six Months Ended June 30, 2012
|
Six Months Ended June 30, | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2013 | 2012 | Increase (Decrease) |
% | |||||||||
|
($ in thousands) |
||||||||||||
United States Segment: |
|||||||||||||
Oil and gas revenue |
$ | — | $ | — | $ | — | — | % | |||||
Operating costs and expenses: |
|||||||||||||
Seismic and exploration |
10,163 | 16,733 | (6,570 | ) | (39 | )% | |||||||
Dry hole expense and impairment |
4,829 | 116,679 | (111,850 | ) | (96 | )% | |||||||
General and administrative |
29,195 | 22,730 | 6,465 | 28 | % | ||||||||
Depreciation and amortization |
634 | 436 | 198 | 45 | % | ||||||||
Total operating costs and expenses |
44,821 | 156,578 | (111,757 | ) | (71 | )% | |||||||
Operating income (loss) |
(44,821 | ) | (156,578 | ) | (111,757 | ) | (71 | )% | |||||
West Africa Segment: |
|||||||||||||
Oil and gas revenue |
$ | — | $ | — | $ | — | — | % | |||||
Operating costs and expenses: |
|||||||||||||
Seismic and exploration |
16,712 | 12,622 | 4,090 | 32 | % | ||||||||
Dry hole expense and impairment |
99,048 | — | 99,048 | — | |||||||||
General and administrative |
16,964 | 10,592 | 6,372 | 60 | % | ||||||||
Depreciation and amortization |
272 | 77 | 195 | 253 | % | ||||||||
Total operating costs and expenses |
132,996 | 23,291 | 109,705 | 471 | % | ||||||||
Operating income (loss) |
(132,996 | ) | (23,291 | ) | 109,705 | 471 | % | ||||||
Consolidated Operations: |
|||||||||||||
Oil and gas revenue |
$ | — | $ | — | $ | — | — | % | |||||
Operating costs and expenses: |
|||||||||||||
Seismic and exploration |
26,875 | 29,355 | (2,480 | ) | (8 | )% | |||||||
Dry hole expense and impairment |
103,877 | 116,679 | (12,802 | ) | (11 | )% | |||||||
General and administrative |
46,159 | 33,322 | 12,837 | 39 | % | ||||||||
Depreciation and amortization |
906 | 513 | 393 | 77 | % | ||||||||
Total operating costs and expenses |
177,817 | 179,869 | (2,052 | ) | (1 | )% | |||||||
Operating income (loss) |
(177,817 | ) | (179,869 | ) | (2,052 | ) | (1 | )% | |||||
Other income (expense): |
|||||||||||||
Gain on sale of assets |
2,993 | — | 2,993 | — | |||||||||
Interest income |
3,144 | 2,615 | 529 | 20 | % | ||||||||
Interest expense |
(35,225 | ) | — | 35,225 | — | ||||||||
Total other income (expense) |
(29,088 | ) | 2,615 | 31,703 | 1212 | % | |||||||
Net income (loss) before income tax |
(206,905 | ) | (177,254 | ) | 29,651 | 17 | % | ||||||
Income tax expense (benefit) |
— | — | — | — | |||||||||
Net income (loss) |
$ | (206,905 | ) | $ | (177,254 | ) | $ | 29,651 | 17 | % | |||
United States Segment:
Oil and gas revenue. We have not yet commenced oil production. Therefore, we did not realize any oil and gas revenue during the six months ended June 30, 2013 and 2012, respectively.
32
Operating costs and expenses. Our operating costs and expenses consisted of the following during the six months ended June 30, 2013 and 2012:
Seismic and exploration. Seismic and exploration costs decreased by $6.6 million during the six months ended June 30, 2013, as compared to the six months ended June 30, 2012. The decrease is due to a $6.3 million decrease in seismic data costs and a $0.5 million decrease in other exploration expenses, offset by an increase of $0.2 million in delay rentals during the six months ended June 30, 2013. During the six months ended June 30, 2013, we incurred $7.0 million in seismic data acquisition costs as compared to $13.3 million incurred during the six months ended June 30, 2012.
Dry hole expense and impairment. Dry hole expense and impairment decreased by $111.9 million during the six months ended June 30, 2013, as compared to the six months ended June 30, 2012. The decrease is due primarily to no exploratory well costs in the U.S. Gulf of Mexico being charged to dry hole expense during the six months ended June 30, 2013, as reflected in the following table:
|
Six Months Ended June 30, | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
2013 | 2012 | Increase (Decrease) |
|||||||
|
($ in thousands) |
|||||||||
Impairment of Unproved Leasehold: |
||||||||||
Ligurian prospect |
$ | — | $ | 41,861 | $ | (41,861 | ) | |||
Other leasehold |
— | 8,298 | (8,298 | ) | ||||||
Amortization of leasehold with carrying value under $1 million |
4,829 | 5,317 | (488 | ) | ||||||
Dry hole Expense: |
||||||||||
Ligurian #1 exploratory well |
— | 8,100 | (8,100 | ) | ||||||
Ligurian #2 exploratory well |
— | 48,994 | (48,994 | ) | ||||||
Heidelberg #3 Appraisal Well Side Track |
— | 4,109 | (4,109 | ) | ||||||
|
$ | 4,829 | $ | 116,679 | $ | (111,850 | ) | |||
General and administrative. General and administrative costs increased by $6.5 million during the six months ended June 30, 2013, as compared to the six months ended June 30, 2012. The increase in general and administrative costs is attributed to an increase of $3.6 million in staff related costs including equity compensation, a $5.2 million increase in contractors and consulting fees, a $3.0 million increase in legal fees, and a $3.2 million increase in office support costs, offset by an increase of $8.5 million in recoveries from partners and technical services charge-out due to the increase in operating activities.
Depreciation and amortization. Depreciation and amortization did not materially change from the six months ended June 30, 2013, as compared to the six months ended June 30, 2012.
West Africa Segment:
Oil and gas revenue. We have not yet commenced oil production. Therefore, we did not realize any oil and gas revenue during the six months ended June 30, 2013 and 2012, respectively.
Operating costs and expenses. Our operating costs and expenses consisted of the following during the six months ended June 30, 2013 and 2012:
Seismic and exploration. Seismic and exploration costs increased by $4.1 million during the six months ended June 30, 2013, as compared to the six months ended June 30, 2012. The increase was due primarily to a $2.0 million increase in trend seismic data costs for Block 21 offshore Angola and
33
$2.1 million for standby costs of certain contractors and Shorebase equipment and personnel associated with Block 20 offshore Angola charged to other exploration expenses.
Dry hole expense and impairment. Dry hole expense and impairment increased by $99.0 million during the six months ended June 30, 2013, as compared to the six months ended June 30, 2012. The increase is due to dry hole expense during the six months ended June 30, 2013 as reflected in the following table:
|
Six Months Ended June 30, | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
2013 | 2012 | Increase (Decrease) |
|||||||
|
($ in thousands) |
|||||||||
Dry hole Expense: |
||||||||||
Cameia #2 Drill Stem Test |
$ | 81,982 | — | $ | 81,982 | |||||
Diaman #1 exploratory well |
17,066 | — | 17,066 | |||||||
|
$ | 99,048 | $ | — | $ | 99,048 | ||||
General and administrative. General and administrative costs increased by $6.4 million for the six months ended June 30, 2013, as compared to the six months ended June 30, 2012. The increase is attributed to a $1.6 million increase in staff related costs, a $1.6 million increase in contractors and consulting fees, a $2.1 million increase in technical support from corporate office and a $5.2 million increase in other office support costs, offset by an increase of $4.1 million in recoveries from partners.
Depreciation and amortization. Depreciation and amortization did not materially change from the six months ended June 30, 2013, as compared to the six months ended June 30, 2012.
Consolidated:
Other income (expense). Other income (expense) increased by $31.7 million during the six months ended June 30, 2013, as compared to the six months ended June 30, 2012. The increase was due primarily to $35.2 million in interest expense associated with our 2.625% convertible senior notes due 2019 that were issued in December 2012, offset by an increase of $0.5 million in interest income and a $3.0 million gain on sale of assets during the six months ended June 30, 2013.
Income tax expense/benefit. No income tax benefit has been reflected since a full valuation allowance has been established against the deferred tax asset that would have been generated as a result of the operating results.
Liquidity and Capital Resources
We are a development stage enterprise and will continue to be so until commencement of substantial production from our oil properties or we have proved reserves. With respect to our non-operated U.S. Gulf of Mexico discoveries, the Heidelberg development has been formally sanctioned, and Anadarko, as operator, has publicly indicated that it expects first production from the Heidelberg field in 2016. With respect to our Cameia pre-salt discovery, we are currently conducting pre-development activities and planning for a phased development approach. We currently estimate first production and cash flow from Cameia in 2017, assuming continued alignment with our partners and the concessionaire, among other things. Our confidence in conducting pre-development activities and progressing our Cameia discovery toward development is based on the fact that the drilling results from our Cameia #1 exploratory well far exceeded our pre-drill estimates on feet of pay, reservoir rock properties, flow characteristics and fluid properties. Furthermore, our Cameia #2 appraisal well demonstrated lateral continuity within the reservoir originally encountered by our Cameia #1
34
exploratory well and provided additional assurance of sufficient areal extent to support our plans to proceed with the evaluation of development options.
Until substantial production is achieved, our primary sources of liquidity are expected to be cash on hand, amounts paid pursuant to the terms of our Total alliance and funds from future equity and debt financings, asset sales and farm-out arrangements.
We expect to incur substantial expenses and generate significant operating losses as we continue to:
Our future financial condition and liquidity will be impacted by, among other factors, (i) the success of our exploration and appraisal drilling program, (ii) the number of commercially viable hydrocarbon discoveries made and the quantities of hydrocarbons discovered, (iii) the speed with which we can bring such discoveries to production, which for our Cameia discovery will depend upon continued alignment with our partners and the concessionaire, among other things, (iv) whether and to what extent we invest in additional oil leases and concessional licenses, and (v) the actual cost of exploration, appraisal and development of our prospects.
As of June 30, 2013, we had approximately $2.3 billion in liquidity, which includes cash and cash equivalents, short-term restricted cash, short-term investments, long-term restricted cash and long-term investments. This amount does not include the Total carry or any additional success payments Total is obligated to pay us pursuant to the terms of our U.S. Gulf of Mexico alliance. We expect to expend approximately $750 to $900 million for our ongoing operations and general corporate purposes in 2013. Our total expenditures, excluding changes in working capital but including the payment of accrued contractual obligations for Block 20, offshore Angola, were approximately $204 million and $383 million for the three and six months ended June 30, 2013, respectively. We expect that our existing cash on hand will be sufficient to fund our planned exploration and appraisal drilling program and development activities at least through the end of 2014. However, we may require additional funds earlier than we currently expect in order to execute our strategy as planned. We may seek additional funding through asset sales, farm-out arrangements and future equity and debt financings. Additional funding may not be available to us on acceptable terms or at all. In addition, the terms of any financing may adversely affect the holdings or the rights of our existing stockholders. For example, if we raise additional funds by issuing additional equity securities, further dilution to our existing stockholders will result. If we are unable to obtain funding on a timely basis or on acceptable terms, we may be required to significantly curtail one or more of our exploration and appraisal drilling programs. We also could be required to seek funds through arrangements with collaborators or others that may require us to relinquish rights to some of our prospects which we would otherwise develop on our own, or with a majority working interest.
35
Cash Flows
|
Six Months Ended June 30, |
||||||
---|---|---|---|---|---|---|---|
|
2013 | 2012 | |||||
|
($ in thousands) |
||||||
Net cash provided by (used in): |
|||||||
Operating Activities |
$ | (233,124 | ) | $ | (75,164 | ) | |
Investing Activities |
(900,248 | ) | (464,798 | ) | |||
Financing Activities |
(1,095 | ) | 489,486 |
Operating activities. Net cash used in operating activities for the six months ended June 30, 2013 was $233.1 million, compared with net cash used in operating activities of $75.2 million for six months ended June 30, 2012. The increase was attributed primarily to increased drilling activities in the U.S. Gulf of Mexico and offshore Angola and Gabon during the three months ended June 30, 2013.
Investing activities. Net cash used in investing activities for the six months ended June 30, 2013 was $900.2 million, compared with net cash used in investing activities of $464.8 million for the six months ended June 30, 2012. The increase in net cash used in investing activities for the six months ended June 30, 2013 was primarily attributed to the investment of the net proceeds of $1.35 billion from the issuance of 2.625% convertible senior notes due 2019 that were issued in December 2012.
Financing activities. Net cash used in financing activities for the six months ended June 30, 2013 was $1.1 million, compared with $489.5 million provided by financing activities for the six months ended June 30, 2012. The $1.1 million used in financing activities for the six months ended June 30, 2013 relates to payments of debt issue costs associated with the 2.625% convertible senior notes due 2019. The $489.5 million provided by financing activities for the six months ended June 30, 2012 represents the net proceeds from our public offering of our common stock that closed on February 29, 2012.
Critical Accounting Policies
Our significant accounting policies are summarized in Note 1 of Notes to Consolidated Financial Statements included in our 2012 Annual Report on Form 10-K for the year ended December 31, 2012. Also refer to the Notes to the Condensed Consolidated Financial Statements included in Part 1, Item 1 of this Report.
36
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes in market risk from the information provided under Part II, Item 7A. "Quantitative and Qualitative Disclosures about Market Risk" in our 2012 Annual Report on Form 10-K for the year ended December 31, 2012.
Item 4. Controls and Procedures
We performed an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Securities Exchange Act of 1934, as amended (the "Exchange Act"), Rules 13a-15 and 15d-15 as of the end of the period covered by this Report. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective to provide reasonable assurance that the information required to be disclosed by us in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and such information is accumulated and communicated to management, as appropriate to allow timely decisions regarding required disclosure.
There were no changes in our internal control over financial reporting during the quarter ended June 30, 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
We are not currently party to any legal proceedings. However, from time to time we may be subject to various lawsuits, claims and proceedings that arise in the normal course of business, including employment, commercial, environmental, safety and health matters. It is not presently possible to determine whether any such matters will have a material adverse effect on our consolidated financial position, results of operations, or liquidity.
There have been no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2012.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
None.
37
Exhibit Number |
Description of Document | ||
---|---|---|---|
31.1 | * | Certification of the Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934 | |
31.2 | * | Certification of the Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934 | |
32.1 | * | Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
32.2 | * | Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
101.INS | ** | XBRL Instance Document | |
101.SCH | ** | XBRL Schema Document | |
101.CAL | ** | XBRL Calculation Linkbase Document | |
101.DEF | ** | XBRL Definition Linkbase Document | |
101.LAB | ** | XBRL Labels Linkbase Document | |
101.PRE | ** | XBRL Presentation Linkbase Document |
38
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.
Cobalt International Energy, Inc. | ||||||
By: |
/s/ JOSEPH H. BRYANT |
|||||
Name: | Joseph H. Bryant | |||||
Title: | Chairman of the Board of Directors and Chief Executive Officer |
|||||
By: |
/s/ JOHN P. WILKIRSON |
|||||
Name: | John P. Wilkirson | |||||
Title: | Executive Vice President and Chief Financial Officer |
Dated: July 30, 2013
39
Exhibit Number |
Description of Document | ||
---|---|---|---|
31.1 | * | Certification of the Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934 | |
31.2 | * | Certification of the Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934 | |
32.1 | * | Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
32.2 | * | Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
101.INS | ** | XBRL Instance Document | |
101.SCH | ** | XBRL Schema Document | |
101.CAL | ** | XBRL Calculation Linkbase Document | |
101.DEF | ** | XBRL Definition Linkbase Document | |
101.LAB | ** | XBRL Labels Linkbase Document | |
101.PRE | ** | XBRL Presentation Linkbase Document |
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