Shares of oil exploration company Cobalt International Energy Inc. slipped following their New York Stock Exchange debut on Wednesday.
In an initial public offering, the Houston company offered 63 million shares at $13.50 apiece, which was below the expected range of $15 to $17.
By midday, Cobalt shares had fallen 10 cents to $13.40. They earlier traded as low as $12.50. They trade on the NYSE under the ticker symbol "CIE."
Proceeds of the offering were $850.5 million. They could reach $978.1 million if the offering's underwriters exercise an option to buy 9.45 million more shares.
Cobalt plans to use the proceeds for drilling and exploration through 2011, capital spending and for general corporate purposes.
Analysts who research IPOs characterized Cobalt as a risky investment because it had no proven reserves and does not expect to generate revenue for at least two years.
Cobalt has posted losses throughout its history and no one knows where volatile oil prices will be in three years.
Francis Gaskins, president of IPOdesktop, said Wednesday he was not surprised with the stock's performance on its first day of trading. "It's a public drilling fund with no tax advantages," he said. "They'd better find oil soon and fast."
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 set in January. But supplies have remained high and demand has diminished.
The company was 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.
The company uses a proprietary method for exploration that involves analyzing geophysical information. It has purchased leases in the Gulf of Mexico, and off the coast of Angola and Gabon, regions where many major oil companies operate.
Cobalt already has invested about $1 billion and expects to spend $1.4 billion over the next two years on exploration, according to research analyst Nick Einhorn of Renaissance Capital based in Greenwich, Conn.