How does an E&P company successfully operate in the deepwater in a $50-$60 world? Indeed, how does any E&P continue to create value in tough times?

“You have to do five things correctly,” said Cobalt Energy International LP executive vice president James Painter, speaking at a recent Houston Producers Forum. One, make sure you have sufficient capital Two, have great people and partners. Three, acquire the best data available. Four, deploy the right technology. Five, always make sure you have the better barrels.

“By that, I mean it’s all about the margin. You have to make large discoveries of reserves, have low operating costs and low lease expense, keep a significant working interest and operate as much of your production as you can.”

Cobalt started up in November 2005 with private equity from The Carlyle Group and is led by a handful of former Unocal and Ocean Energy veterans with offshore experience.

“In May of that year, EnCana sold its Gulf of Mexico assets to Statoil for $2 billion, and it struck us that you can make a 20-to-1 return in the Gulf after three years of work. We thought, ‘Man, life can be good as an independent in the Gulf of Mexico with $33 oil,’” Painter said.

Today, Cobalt has accumulated 225 lease blocks in the deepwater Gulf of Mexico and operates 75% of those to control focus and timing. Third-party estimates put the resource potential at 4 billion barrels of oil equivalent, with at least 50 identified prospects to drill.

The company stays lean by outsourcing office, human resource and information technology matters and focuses on geology and engineering.

“Focus is critical. We cannot spend enough money to compete with the majors and larger companies. So whatever deal of the day is out there, we keep the small staff tightly focused.”

Cobalt has two deepwater discoveries for two tries (it’s a partner in Anadarko Petroleum’s Heidelberg and Shenandoah discoveries), and will begin drilling its first operated well in July. It also recently announced an alliance with French giant Total’s Houston subsidiary, Total E&P (USA) Inc.

The latter’s 80 deepwater Gulf blocks will be combined with Cobalt’s. Cobalt will operate the exploration phase and Total will provide the rig. Their focus will be on deepwater, subsalt Miocene and Paleocene potential.

—Leslie Haines