EFTA01450733.pdf

Deutsche Bank Markets Research Rating Company Date 19 December 2013 Buy Cobalt International Energy Alert Forecast Change North America United States Price at 18 Dec 2013 (USD1 15.66 Industrials 0E N OE UN NYS Price Target 25.00 Oil & Gas Exploration & 52-week range 30.20- 15.33 Production One Last Lump of Coal fiV.PI Research Analyst (+II 212 250-8342 [email protected] No, Virginia, there is no Santa Claus....or at feast it feels that way sometimes In a fitting finish to what has been a difficult past 6 months, CIE unexpectedly reported a dry hole at US GoM prospect, Aegean. At this point, valuation has Research Analyst taken a back seat, as lack of confidence in the story, fund flows, year-end (+II 212 2508356 derisking, tax-loss selling, lack of catalysts and general frustration have the [email protected] stock trading well below our $22/sh estimate of discovered resource ($15/sh of US GoM discovered resource). While valuation remains extremely attractive, 'St: StiVt.t..ilitiA we expect the stock to struggle in the near-term as the market wrestles with the value of discovered resource and potential paths to monetization, but see Research Associate value for those able to withstand near-term volatility. Maintain Buy. (+II 212 250-7697 ICasheilwIrsteinedb.com Enter the debate. What is discovered resource? And what rs it worth? In our view, for the time being the stock has flipped from a "resource-plus" Key changes model (ie. discovered resource plus some risked value for future exploration) to a "discount to resource" model. With significant disagreement on discovered Hat Target 32.00 to 25.00 I -21.9% resource, however, we see a couple of potential paths towards greater clarity: eager esesauseit 1) Improved transparency on discovered barrels - CIE has given little clarity on discovered resource, and would benefit greatly from some !Stock & option liquidity clot i disclosure on resource ranges and accompanying geologic scenarios. Market Cap (USD) 6.371.3 (see "Cameia", where many attribute 200-250 mmboe, the company's Shares outstanding (ml 406.9 "minimum threshold", despite what is clearly a much larger deposit. Free float I%) 100 2) Monetization - CIE is clearly on the path towards monetization in the form of "farm-downs" as a funding vehicle, but these are likely Volume (18 Dec 2013) 779,642 contingent on additional appraisal activity at Shenandoah and North Option volume fund. shrs . 1M 257.879 Platte, making monetization likely a 2015 event. We would expect to avg.1 see some rising pressure on the company to act earlier to arbitrage the sown Oatach• Set gap between GoM asset deals and current CIE valuation. We expect a more proactive approach from the company on the first point in rely data 2014, but remain skeptical of the company's willingness to leave money on the EYE 12/31 2012A 2013E 2014E table through an accelerated sale. However, with the stock trading at a 34% 10 EPS -0.09 -0.16A -0.20 discount to DBe's $22ish of discovered resource, and a $0.50/sh discount to 20 EPS -0.35 -0.12A -0.19 the US GoM alone, expect continued market pressure on both avenues. 30 EPS -0.10 -0.19 -0.20 Whar happened? And What's nevt? PT from 832 to $25 40 EPS .016 -0.20 -0.20 CIE reported a dry hole at the Aegean prospect in the US GoM (CIE 60%. Total FY EPS (USD) -0.70 -0.66 -0.78 40%), a three-way trap targeting the inboard Lower Tertiary. CIE will now PIE (x) release the Ensco 8503 rig. Upcoming targets include Bicuar (late 10/2O) and Sam Deaschr Sat • irciuclos the wrpact of rasurfa new.; tro oponewq al twit Orca (2O14) in Angola, as well as three non-operated US GoM wells in 2014: 0P.n. CVX's Anchor (11114, CIE 24%), BHP's Rum Ramsey (21114, CIE 24%) and ENI's Goodfellow (21114, CIE 30%). We have reduced our PT from $32 to $25 to account for -$2.50 of risked Aegean value and higher risk to future exploration. Deutsche Bank Securities Inc. The views expressed above accurately reflect the personal views of the authors about the subject companies and its(their) securities. The authors have not and will not receive any compensation for providing a specific recommendation or view. Deutsche Bank does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. FOR OTHER IMP• T DISCLOSURES PLEASE VISIT MICA( P) 054/04/2013. CONFIDENTIAL - PURSUANT TO FED. R. CRIM. P. 6(e) DB-SDNY-0106559 CONFIDENTIAL SDNY_GM_00252743 EFTA01450733