NEW YORK (Reuters) – Cobalt International Energy Inc (CIE.N) shares finished their first day of trading exactly where they priced in the company’s initial public offering.
Cobalt shares opened at $13.25 and traded down as much as 7.4 percent early on the New York Stock Exchange before recovering to close at $13.50.
On Tuesday, the company sold 63 million shares, and raised roughly $850.5 million.
But the deal raised less money than expected after pricing below the estimated $15 to $17 range as investors showed concern about how the independent oil company would fare in the high-cost, high-risk business of deep water drilling and remained skittish about private equity-backed IPOs.
Cobalt’s largest investors included Goldman Sachs Group Inc (GS.N) and investment funds affiliated with private equity firms Riverstone Holdings LLC and The Carlyle Group [CYL.UL]. Carlyle and Riverstone still own a combined 22 percent stake as does Goldman after the IPO, according to a regulatory filing.
Another private equity backed IPO, by Blackstone Group LP’s (BX.N) Team Health Holdings LLC (TMH.N) also struggled to attract investors, pricing below expectations on Tuesday after being downsized.
Houston-based Cobalt had no revenue as of Sept. 30 and no proved reserves, but plans to tap into what are some of the hottest geographies in the energy industry.
Connecticut-based Renaissance Capital research analyst Nick Einhorn said recent weakness in the IPO market has allowed investors to drive lower prices for IPOs.
He said Cobalt’s uncertain returns and the fact they need to raise capital to move forward with their business likely also contributed to the company’s below-range pricing.
But Cobalt International’s IPO proves investors are willing to bet on an exploration-based company, said Brian Lidsky, a managing director at Houston-based research and transaction advisory firm PLS Inc.
“We view the IPO of Cobalt as very good news for the industry,” he said.
Cobalt International has ownership stakes in deepwater prospects in the Gulf of Mexico and the African countries of Angola and Gabon, but investors will have to wait until at least 2012 for revenues.
The company expects to start commercial production from its Gulf of Mexico properties between 2012 and 2014 and from its African properties between 2014 and 2016.
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The Gulf of Mexico is one of the most lucrative areas for oil and gas exploration, with investments from all of the major oil companies, including Exxon Mobil Corp (XOM.N) and Angola has become one of the leading U.S. energy suppliers.
Cobalt International has development agreements with French oil concern Total SA (TOTF.PA) and Angola’s national oil company, Sonangol, and plans to use the IPO’s net proceeds to fund its drilling and exploration program through 2011.
Cobalt International was founded in 2005 by a group of oil industry executives and private equity investors. Its chief executive, Joseph Bryant, had previously been chief operating officer of oil and gas exploration company Unocal Corp and was a former President of BP’s Angola operations.
“He’s a sort of rock star name,” said Morningnotes.com founder Ben Holmes.
Holmes said Cobalt International’s lack of an operating history is hurting it in a year-end market where investors are trying to lock in profits and are shying away from risky deals.
The company’s underwriters are led by Credit Suisse and Goldman Sachs & Co.
U.S. oil futures were up about 3 percent at $73 in mid-afternoon trading after a larger-than-expected drop in inventory. Another oil and gas prospector, Crimson Exploration Inc, is due to price later on Wednesday.
(Reporting by Clare Baldwin; additional reporting by Matt Daily and Phil Wahba in New York and Anna Driver in Houston; editing by Dave Zimmerman, Gunna Dickson and Andre Grenon)