Cobalt International Energy Inc. hoped investors would contribute more than $1 billion to its search for oil miles beneath the ocean even though it has no proven reserves and it expects no revenue for at least another two years.
But the Houston-based company fell short of its goal Tuesday evening, raising $850.5 million in its initial public offering as it priced 63 million shares at $13.50 each _ below the $15 to $17 range it had expected. Proceeds could reach $978.1 million if the offering's underwriters exercise an option to buy 9.45 million more shares.
Cobalt is a risky bet, say analysts who research IPOs.
Founded in 2005 by a group of private equity investors and longtime oil industry executives, including Chairman and CEO Joseph H. Bryant, whose resume includes stints at Unocal Corp., BP and Amoco, Cobalt has posted losses throughout its history and no one really knows where volatile oil prices will be in three years.
When the company strikes oil, it will take Cobalt additional time to get a well in production, analysts said.
"IPO buyers are looking for financials that are tangible, a revenue stream that's visible and profits. They're not looking for concepts right now," said Scott Sweet, senior managing partner of IPOBoutique in Tampa, Fla., comparing Cobalt to an early-stage biotech firm that still needs to go through four phases of testing to get federal approval.
In 2008, the company had a loss of $71.6 million, compared with a loss of $108.9 million the previous year. The company has lost $322.1 million since its inception.
It is unusual for an oil and gas company to go to the public markets without reserves in place or production under way, said research analyst Nick Einhorn of Renaissance Capital based in Greenwich, Conn.
"There's a lot of risks but I think for an investor who kind of believes in this deepwater opportunity, it is a good way to get 100 percent exposure to that," he said.
Cobalt has developed a proprietary method for exploration that involves analyzing geophysical information, including seismic data. It has purchased leases in the Gulf of Mexico, and off the coast of Angola and Gabon, regions where many major oil companies operate.
It has invested about $1 billion and expects to spend $1.4 billion over the next two years on exploration, Einhorn said.
Cobalt is reaching out to the public markets as the oil industry is recovering from the recession. Oil prices have hovered in the $70 range since early October, up from a low of $32.70 per barrel in January. But supplies have remained high and demand has diminished.
The company aims to raise money to finance drilling and exploration through 2011, capital spending and for general corporate purposes.
Cobalt shares will begin trading under the symbol "CIE" on the New York Stock Exchange on Wednesday.