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

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More often than not, companies that are secluded and ignored by the market are the ones that outperform the benchmark indices. It's an added bonus if the company is operating in a rapidly growing industry with ample internal growth prospects. I believe that Cobalt International Energy, Inc. (NYSE:CIE) fits the description perfectly and offers significant value at its current valuations.

Cobalt International Energy, Inc. (NYSE:CIE)

A Crude Hotspot

Cobalt International Energy, Inc. (NYSE:CIE) is an oil E&P company that operates with hydrocarbon-rich assets in Angola, West Africa and the Gulf of Mexico. It owns 246 blocks in the latter region with around 1.4 million gross undeveloped acres, but its real growth lies in Angola. As of now, Cobalt International Energy, Inc. (NYSE:CIE) owns three blocks in Angola with over 5.6 million gross undeveloped acres.

The company began drilling back in 2009, but its crucial drilling results started coming only in 2011. Its management recently announced that these discoveries were better than expected, and will most likely exceed the cash flow estimates once oil production from the country begins. For the current year, Cobalt International Energy, Inc. (NYSE:CIE) is awaiting the drilling results of eight different wells.

In 2010, Angola was the second largest oil producing country in Africa and the eighth largest crude exporter in the world. As of now, the country produces 1.75 mbpd of crude, and the Angolan government is planning to increase its production to 2 mbpd by 2015.

According to latest estimates, Angola has the proven reserves of over 12.66 billion barrels of crude oil, which suggests that the production ramp-up is bottlenecked by production capacity. Naturally oil E&P companies can thrive by producing more crude oil. But that’s not all.

Why Cobalt International Energy, Inc. (NYSE:CIE)

These hydrocarbon rich reserves allow the production of high-margin oil. It is for this reason that major oil and gas companies like Petroleo Brasileiro Petrobras SA (ADR) (NYSE:PBR) and BP plc (ADR) (NYSE:BP) are aggressively expanding in Angola to improve their overall profitability.

As a matter of fact, BP plc (ADR) (NYSE:BP) has sold around $50 billion worth of its assets over the last two years in order to focus on its core competencies and move towards high-margin projects. The oil behemoth has 15 upcoming oil projects, out of which 11 are high-margin projects. And according to its latest press release, its Clair Ridge field is expected to commence operations this year, which will effectively double its cash flows from Angola.

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