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Judge OKs Cobalt's $500M Pact With Sonangol For Oil Blocks

26 January 2018

A Texas bankruptcy judge greenlit a deal under which Angolan state-owned oil company Sonangol EP will pay $500 million to take over Cobalt International Energy Inc.’s interests in a pair of offshore drilling blocks, resolving arbitration in which Cobalt was seeking more than $2 billion.

Concluding on Thursday that the deal is "in the best interests of [Cobalt's] estates, their creditors and other parties in interest," U.S. Bankruptcy Judge Marvin Isgur allowed Cobalt to tell its subsidiaries to consummate the deal with Sonangol, setting a course toward resolving the disputes that erupted after the Angolan company terminated an earlier deal to buy out the Houston-based energy company’s share in the blocks.

The deal was announced last month, just days after Cobalt filed for Chapter 11 bankruptcy in Texas, citing in its petition, among a host of other problems, the energy company’s failed efforts to raise capital in 2015 by selling its Angolan assets for $1.75 billion. The pact approved Thursday will end International Chamber of Commerce arbitration initiated by Cobalt that had been ongoing in the United Kingdom and in Switzerland.

Cobalt had acquired rights to its Angolan assets in 2007, but eight years later the company decided to try to sell them. In August 2015, a Cobalt subsidiary that held the Angolan assets entered into a deal to sell the assets to Sonangol for $1.75 billion. Under the accord, Sonangol was supposed to acquire Cobalt’s 40-percent interest in the two blocks located off the coast of the southern African nation.

Sonangol made an initial $250 million payment, but the deal fell through in August 2016, after the state-owned company failed to obtain the required approvals from its government. Cobalt thereafter kicked off arbitration seeking more than $2 billion from Sonangol, claiming it breached their contract, along with a parallel proceeding alleging that Sonangol still owed more than $160 million in certain payments.

Cobalt said the parties had been attempting to hash out a deal in the meantime, and those settlement talks kicked into high gear once a new Angolan president, Joao Lourenço, was voted into office and there was a resulting leadership change at Sonangol. The companies reached their deal on Dec. 19.

Cobalt will now transition its interest in the oil blocks, known as Block 21/09 and Block 20/11, to Sonangol. In exchange, Sonangol will provide a nonrefundable $150 million payment by late February and another $350 million no later than July, according to the announcement.

Attorneys and representatives for the parties did not immediately respond to requests for comment on Friday.

The settlement is a bright spot for Cobalt after it sought bankruptcy protection in Texas federal court Dec. 14, expressing hopes of facilitating a restructuring capped off with a sale of the entire business, which includes oil fields in the Gulf of Mexico and off the coast of West Africa.

The 12-year-old exploration and production company said its woes were caused by a prolonged downturn in the exploration and production industry.

Cobalt also cited a number of issues stemming from its dealings in Angola, which led to U.S. government probes into potential Foreign Corrupt Practices Act violations based on allegations of personal enrichment by Angolan government officials.

The U.S. Department of Justice closed its probe earlier this year into contentions that a Cobalt contractor assigned to the oil blocks bribed Angolan officials, while the U.S. Securities and Exchange Commission dropped its investigation into the matter in early 2015.

However, in the meantime, the company had sought to offload the Angolan assets, announcing the deal in 2015 to sell its interest to Sonangol, which held the remaining 60 percent interest in the two oil blocks.

Cobalt is represented by James H.M. Sprayregen, Marc Kieselstein, Chad J. Husnick, Brad Weiland, W. Benjamin Winger and Stacy Pepper of Kirkland & Ellis LLP and by Zack A. Clement.

The case is In re: Cobalt International Energy Inc., case number 4:17-bk-36709, in the U.S. Bankruptcy Court for the Southern District of Texas.