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Organization and Nature of Business
12 Months Ended
Dec. 31, 2016
Accounting Policies [Abstract]  
Organization and Nature of Business

NOTE 1.  ORGANIZATION AND NATURE OF BUSINESS

 

Cobalt International Energy, Inc., together with its wholly–owned subsidiaries (the “Company”) is an independent exploration and production company with operations in the deepwater U.S. Gulf of Mexico and offshore Angola and Gabon in West Africa.  The Company operates in one reportable segment as its chief operating decision maker, the Chief Executive Officer, assesses performance and allocates resources based on the consolidated results of its business.

 

The Company no longer accounts for its Angolan operations as discontinued operations and has reclassified its consolidated financial statements for all periods presented to no longer reflect these operations as discontinued.  

 

Liquidity and Going Concern

 

The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.  The consolidated financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern.  In 2016, the Company impaired its Angolan assets (see Note 3), which led to the Company reporting a net loss of $2,343.3 million, causing the Company to have a stockholders’ deficit of $841.3 million.  

 

Although the Company commenced initial production from its Heidelberg project in January 2016, the Company’s ongoing capital and operating expenditures will vastly exceed the revenue it expects to receive from its oil and natural gas operations for the foreseeable future.  In order to grow production, the Company needs to develop its discoveries into producing oil and natural gas properties, which will require that the Company raise substantial additional funding.  If the Company is unable to raise substantial additional funding on a timely basis or on acceptable terms, the Company may be required to significantly curtail its exploration, appraisal and development activities.  

 

The Company adopted Accounting Standards Update (“ASU”) No. 2014–15, Presentation of Financial Statements – Going Concern, on December 31, 2016.  This ASU required the Company to evaluate and disclose whether there is substantial doubt about its ability to continue as a going concern.  The Company’s assessment included the preparation of a detailed cash forecast that included all projected cash inflows and outflows as well as consideration of any cash related covenants associated with its financing structure.  

 

In December 2016, the Company consummated a debt exchange and financing transaction (the “Transaction”) as a part of obtaining new capital.  The indentures governing the new debt obligations contain certain covenants including the maintenance of a minimum consolidated cash balance of at least $200.0 million.  As the Company’s detailed cash forecast shows that its projected cash balances would be out of compliance with the minimum consolidated cash balance covenant within one year after the date the consolidated financial statements are issued, the Company has concluded that there is substantial doubt about its ability to continue as a going concern.  

 

The Company’s ability to continue as a going concern is subject to, among other factors, its ability to monetize assets, its ability to obtain financing or refinance existing indebtedness, its ability to continue its cost cutting efforts for long–term rig and support services, the production rates achieved from the Heidelberg project, oil and natural gas prices, the number of commercially viable hydrocarbon discoveries made and the quantities of hydrocarbons discovered, the speed and cost with which the Company can bring such discoveries to production, whether and to what extent the Company invests in additional oil leases and concessional licenses, and the actual cost of exploration, appraisal and development of its prospects.

 

There can be no assurance that the Company will be able to obtain additional funding on satisfactory terms or at all.  In addition, no assurance can be given that any such financing, if obtained, will be adequate to meet the Company’s capital needs and support its growth.  If additional funding cannot be obtained on a timely basis and on satisfactory terms, then the Company’s operations would be materially negatively impacted.  

 

If the Company becomes unable to continue as a going concern, the Company may find it necessary to file a voluntary petition for reorganization under the Bankruptcy Code in order to provide it additional time to identify an appropriate solution to its financial situation and implement a plan of reorganization aimed at improving our capital structure.