Getting Into Deeper Waters -- With Purpose
It’s not a “little fish” kind of exploration start-up.
Cobalt International Energy LP of Houston plans to go after some of the biggest fish in the world, in some of the deepest waters explored.
Jim Farnsworth, Cobalt’s president and chief operating officer, puts it bluntly:
“The greatest value in the E&P chain comes from finding the big discoveries,” he said.
Cobalt was founded in December 2005, on nothing more than a wish, a dream and $500 million in funding from Carlyle/Riverstone and Goldman Sachs Capital Partners.
It was designed as a global, big-target, deepwater explorer from the git-go -- the company takes its name from the dense cobalt blue of offshore deep waters.
“Clearly, this is a very different kind of company,” Farnsworth said.
“We do believe that the highest multiples come from the exploration phase,” he added.
Farnsworth, an AAPG member, earned a degree in geology at Indiana University and a master’s in geophysics from Western Michigan University.
After joining BP in 1983, his assignments at that company included deepwater Gulf of Mexico production manager, vice president of Gulf of Mexico exploration and vice president of North America exploration.
He took early retirement as BP’s vice president of worldwide exploration and technology, and became Cobalt’s president in February last year.
Other key employees are:
- Joseph Bryant, chairman and chief executive officer. A 29-year veteran of the oil and gas industry, Bryant was president and chief operating officer of Unocal Corp.
- Samuel Gillespie, vice chairman. Gillespie served as senior vice president and general counsel for both Mobil Corp. and Unocal.
James Painter, executive vice president, exploration. Another AAPG member, Painter ran the deepwater Gulf of Mexico program at Ocean Energy Inc. He was senior vice president of exploration and technology at Unocal.
Bryant put the idea of Cobalt together and attracted its management team.
He has praised the idea of a virtual oil company, noting that Cobalt outsources almost every one of its non-core, non-exploration functions.
On its Web site, Cobalt lists 10 key concepts of the company’s exploration philosophy. Those include:
- Our deep regional and sub-regional understanding is essential to developing and retaining a competitive advantage.
- Our strategy is to maintain a deep portfolio in a manageable number of key, quality basins.
- Geology is understood as a first principle, and only then are the geophysics applied.
Cobalt relies on an in-depth knowledge of its potential exploration areas, with geology the fundamental starting point, according to Farnsworth.
“The reason that’s on our Web site is that we hold to it quite deeply,” he said.
And he means it. Farnsworth expresses the views of an unconditional and committed explorationist.
In part, that’s simple economics.
It costs $1 to $4 to get to a barrel of oil through exploration, compared to $10 to $15 per barrel to produce that oil through development work, he noted.
This basic belief in exploration even guided the company’s search for investing partners.
“It was important to me when we started Cobalt that we had not only sufficient funding, but also the right kind of funding,” Farnsworth explained.
He said he wanted “intelligent investors” who would understand the company’s commitment and approach to exploration.
So far, Cobalt has limited its focus to prospects in the deepwater Gulf of Mexico and offshore Africa. In last August’s western Gulf of Mexico lease sale it put down more than $33 million on two dozen blocks.
“We are not a large company in terms of number of people, so we have to stay focused,” Farnsworth said. “We feel like we can compete with anybody in those areas.”
Since the company started, exploration in deepwater has become even more mind-crushingly expensive. Day rates for ultra-deepwater drillships have climbed to the $500,000 level.
“We recognized that rig rates were high and were likely to stay that way. It definitely focuses your mind on having great prospects to drill,” Farnsworth said.
“We’re in a very high-cost environment right now,” he added. “You have to have a deep understanding of the basins where you’re exploring.”
One of Cobalt’s objectives is to do exploration well. That would put it in select company, Farnsworth said.
“There aren’t many companies who do exploration well. You have to have the right people, right data and the know-how ... It’s tremendously competitive,” he observed.
That’s especially true in the Gulf of Mexico, which Farnsworth called “a robust basin” with plenty of opportunities left -- and lots of companies looking for them.
Cobalt has a staff of about 25 geologists and geophysicists. Farnsworth said he was adamant about hiring quality people.
“Once you attract really good people, other good people want to come work with you,” he noted.
With BP, Farnsworth found he had good weeks and bad weeks.
“When you’re starting up a new company, you almost have good minutes and bad minutes,” he said.
After a year and a half, Cobalt now is ready for the next step, Farnsworth said, when the serious hunt begins.
“Next year we’ll be drilling, so we’re not really in the start-up phase any longer,” he said. “I’m not moving the furniture around the office now.”
And about leaving one of the world’s supermajors?
For Farnsworth, no regrets.
“My biggest surprise,” he said, “is how much fun it’s been working in a smaller company.”