[NGW Magazine] Cobalt - the Acid Test of Angolan Goodwill

Cobalt is offering itself for sale en bloc in a bid to avert the risk of bankruptcy, following Sonangol's cancellation of a crucial deal.

US independent Cobalt Energy International, which initiated arbitration earlier this year against Angola’s Sonangol for $2bn damages after the latter cancelled a $1.75bn acquisition of Cobalt's Angolan interests, now says it is considering a sale of the entire company – not just its Gulf of Mexico assets, for which a buyer is still sought.

“If nothing changes, Cobalt could breach its liquidity covenants in 1Q 2018," CEO Timothy Cutt told analysts in a 3Q results call November 2. 

If a buyer cannot be found, Cutt said Cobalt has already engaged "senior advisers to assist us in analysing all of our alternatives, including a restructuring or reorganisation under Chapter 11 of the [US] bankruptcy code."

Cobalt reported a net loss of $150mn in 3Q 2017, compared with a net loss of $218mn in 3Q 2016.

In full year 2016 results this March, Cobalt recorded a $1.63bn impairment relating to the cancelled Angola deal. Shortly afterwards it initiated arbitration at the International Chamber of Commerce (ICC) against Sonangol.

At end-September 2017, cash and equivalents held by Cobalt were some $547mn, including $250mn of Angolan sale proceeds received pursuant to the original 2015 deal agreed, but never finalised, with Sonangol. Cobalt added it is still owed $179mn of receivables (operating costs) by Sonangol.

Regarding a sale of the whole company, Cutt said that “potential buyers have evaluated our Angola assets.”  It’s widely accepted that Cobalt would have to reach a negotiated settlement to be able to transfer its 40% interests in oil and gas rich blocks 20 and 21 offshore Angola to a third party. Cutt acknowledged that Angola now has a new president and new secretary of state for petroleum, but that constructive negotiations could take time.

In its 3Q 2017 results, Cobalt said that the two arbitration cases between Cobalt and Sonangol continued and Cobalt "continues to seek a constructive dialogue with Angola to attempt to resolve these disputes amicably. However, until this matter is resolved in a satisfactory manner, Cobalt will continue to vigorously prosecute these claims in arbitration and seek all available remedies." Thus its demand for $2bn of damages from Sonangol still stands.

Mark Smedley