Cobalt International Energy, Inc. (CIE), BP plc (ADR) (BP): A Value Play in Oil E&P

Meanwhile, Petroleo Brasileiro Petrobras SA (ADR) (NYSE:PBR) recently announced that it is looking for partners, to share the project development costs in Angola. As of now, Petroleo Brasileiro Petrobras SA (ADR) (NYSE:PBR) is operating with a massive net debt of $74.8 billion, and recently raised $11 billion by issuing bonds. Needless to say that its debt is towering, making it one of the most debt-ridden oil companies.

Since both BP plc (ADR) (NYSE:BP) and Petroleo Brasileiro Petrobras SA (ADR) (NYSE:PBR) are well diversified companies, a handful of their Angolan projects don’t seem enough to set their financials soaring. However, Cobalt International Energy, Inc. (NYSE:CIE) is less than one-tenth the size of BP plc (ADR) (NYSE:BP) (by market cap) and is leveraged heavily towards its high-margin projects in Angola. Hence it makes sense to buy Cobalt over its larger peers.

Final Words

Apart from that, Cobalt International sports a clean and healthy balance sheet. The company operates with a modest debt/equity ratio of 39% while its current ratio stands at a hefty 12.5x. It also retains 100% of its earnings, which is great for a rapidly growing company. With these numbers, I don’t think that Cobalt will run into any debt-related concerns anytime soon.

But it’s worth noting that Cobalt International posted a loss of $376 million last year, and its Angolan oil production won’t commence before 2016. It remains a speculative bet and a lot depends on its upcoming drilling results. With that said, Angolan reserves are hydrocarbon-rich and it is highly unlikely that its results would be lackluster. It is for this reason that analysts at Deutsche Bank are bullish on Cobalt International with a price target of $41 per share (around 65% premium).

The article A Value Play in Oil E&P originally appeared on Fool.com and is written by Piyush Arora.

Piyush Arora has no position in any stocks mentioned. The Motley Fool recommends Petroleo Brasileiro (NYSE:PBR) S.A. (ADR). Piyush is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.