Cobalt International Energy 10-Q 2015 Q2 Quarterly report

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TABLE OF CONTENTS
PART I—FINANCIAL INFORMATION

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2015
or
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                   to

Commission file number: 001-34579

Cobalt International Energy, Inc.
(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)	27-0821169 (I.R.S. Employer Identification No.)
Cobalt Center 920 Memorial City Way, Suite 100 Houston, Texas (Address of principal executive offices)	77024 (Zip code)

(713) 579-9100
(Registrant's telephone number, including area code)

        Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o

        Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý    No o

        Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer ý Accelerated filer o Non-accelerated filer o
(Do not check if a
smaller reporting company) Smaller reporting company o

        Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o    No ý

        Number of shares of the registrant's common stock outstanding at June 30, 2015: 414,278,417 shares.

TABLE OF CONTENTS

PART I—FINANCIAL INFORMATION
	Item 1.	Financial Statements	4
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	29
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	38
	Item 4.	Controls and Procedures	38
PART II—OTHER INFORMATION
	Item 1.	Legal Proceedings	39
	Item 1A.	Risk Factors	39
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	39
	Item 3.	Defaults Upon Senior Securities	39
	Item 4.	Mine Safety Disclosures	39
	Item 5.	Other Information	39
	Item 6.	Exhibits	39

1

Cautionary Note Regarding Forward-Looking Statements

        This Quarterly Report on Form 10-Q contains estimates and forward-looking statements, principally in "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." Our estimates and forward-looking statements are mainly based on our current expectations and estimates of future events and trends, which affect or may affect our businesses and operations. Although we believe that these estimates and forward-looking statements are based upon reasonable assumptions, they are subject to several risks and uncertainties and are made in light of information currently available to us. Many important factors, in addition to the factors described in our 2014 Annual Report on Form 10-K filed on February 23, 2015, may adversely affect our results as indicated in forward-looking statements. You should read this Quarterly Report on Form 10-Q and the documents that we have filed as exhibits hereto completely and with the understanding that our actual future results may be materially different from what we expect.

        Our estimates and forward-looking statements may be influenced by the following factors, among others:

•

our ability to successfully and efficiently execute our project appraisal, development and exploration activities;

•

our liquidity and ability to finance our exploration, appraisal, development, and acquisition activities;

•

oil and gas prices;

•

lack or delay of partner, government and regulatory approvals related to our operations;

•

projected and targeted capital expenditures and other costs and commitments;

•

uncertainties inherent in making estimates of our oil and natural gas data;

•

our dependence on our key management personnel and our ability to attract and retain qualified personnel;

•

current and future government regulation of the oil and gas industry and our operations;

•

changes in environmental, safety and health laws and regulations or the implementation or interpretation of those laws and regulations;

•

our and our partners' ability to obtain permits and licenses and drill and develop our prospects and discoveries in the U.S. Gulf of Mexico and offshore West Africa;

•

termination of or intervention in concessions, licenses, permits, rights or authorizations granted by the United States, Angolan and Gabonese governments to us;

•

competition;

•

our ability to find, acquire or gain access to new prospects and renew our exploration portfolio;

•

the availability, cost and reliability of drilling rigs, containment resources, production equipment and facilities, supplies, personnel and oilfield services;

•

the ability of the containment resources we have under contract to perform as designed or contain or cap any oil spill, blow-out or uncontrolled flow of hydrocarbons;

•

the availability and cost of developing appropriate infrastructure around and transportation to our prospects, discoveries and appraisal and development projects;

•

military operations, civil unrest, disease, piracy, terrorist acts, wars or embargoes;

2

•

our vulnerability to severe weather events, especially tropical storms and hurricanes in the U.S. Gulf of Mexico;

•

the cost and availability of adequate insurance coverage;

•

the results or outcome of any legal proceedings or investigations we may be subject to;

•

our ability to meet our obligations under the agreements governing our indebtedness; and

•

other risk factors discussed in the "Risk Factors" section of our 2014 Annual Report on Form 10-K filed on February 23, 2015.

        The words "believe," "may," "will," "aim," "estimate," "continue," "anticipate," "intend," "expect," "plan" and similar words are intended to identify estimates and forward-looking statements. Estimates and forward-looking statements speak only as of the date they were made, and, except to the extent required by law, we undertake no obligation to update or to review any estimate and/or forward-looking statement because of new information, future events or other factors. Estimates and forward-looking statements involve risks and uncertainties and are not guarantees of future performance. As a result of the risks and uncertainties described above, the estimates and forward-looking statements discussed in this Quarterly Report on Form 10-Q might not occur and our future results and our performance may differ materially from those expressed in these forward-looking statements due to, including, but not limited to, the factors mentioned above. Because of these uncertainties, you should not place undue reliance on these forward-looking statements.

3

PART I—FINANCIAL INFORMATION

Item 1.    Financial Statements.

COBALT INTERNATIONAL ENERGY, INC.

Condensed Consolidated Balance Sheets as of June 30, 2015 and December 31, 2014	5
Condensed Consolidated Statements of Operations for the Three Months and Six Months Ended June 30, 2015 and 2014	6
Condensed Consolidated Statements of Changes in Stockholders' Equity for the Six Months Ended June 30, 2015	7
Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2015 and 2014	8
Notes to Condensed Consolidated Financial Statements	9

4

Cobalt International Energy, Inc.

Condensed Consolidated Balance Sheets

	June 30, 2015 (Unaudited)			December 31, 2014
	($ in thousands, except per share data)
Assets
Current assets:
Cash and cash equivalents	$	156,234		$	258,721
Joint interest and other receivables		113,692			59,974
Prepaid expenses and other current assets		39,081			14,497
Inventory		80,724			94,674
Short-term restricted funds		24,738			45,062
Short-term investments		1,502,871			1,530,206
Total current assets		1,917,340			2,003,134
Property, plant, and equipment:
Oil and gas properties, successful efforts method of accounting, net of accumulated depletion of $-0-		2,258,573			1,920,979
Other property and equipment, net of accumulated depreciation and amortization of $11,612 and $8,977, as of June 30, 2015 and December 31, 2014, respectively		8,983			11,382
Total property, plant, and equipment, net		2,267,556			1,932,361
Long-term restricted funds		82,405			105,051
Long-term investments		—			326,047
Deferred income taxes		31,641			30,334
Other assets		62,548			53,936
Total assets	$	4,361,490		$	4,450,863
Liabilities and Stockholders' Equity
Current liabilities:
Trade and other accounts payable	$	59,803		$	8,010
Accrued liabilities		209,086			214,972
Short-term contractual obligations		107,994			50,285
Deferred income taxes		31,641			30,334
Total current liabilities		408,524			303,601
Long-term debt		1,970,673			1,928,528
Long-term contractual obligations		1,381			101,945
Other long-term liabilities		2,093			2,523
Total long-term liabilities		1,974,147			2,032,996
Stockholders' Equity:
Common stock, $0.01 par value per share; 2,000,000,000 shares authorized, 408,538,854 and 408,505,079 issued and outstanding as of June 30, 2015 and December 31, 2014, respectively		4,085			4,085
Additional paid-in capital		4,150,784			4,137,803
Accumulated deficit		(2,176,050	)		(2,027,622	)
Total stockholders' equity		1,978,819			2,114,266
Total liabilities and stockholders' equity	$	4,361,490		$	4,450,863

See accompanying notes.

5

Cobalt International Energy, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2015			2014			2015			2014
	($ in thousands, except per share data)
Oil and gas revenue	$	—		$	—		$	—		$	—
Operating costs and expenses:
Seismic and exploration		16,913			11,983			34,682			20,958
Dry hole expense and impairment		8,144			42,440			28,041			55,481
General and administrative		26,695			22,093			50,946			46,262
Depreciation and amortization		1,293			1,075			2,635			2,182
Total operating costs and expenses		53,045			77,591			116,304			124,883
Operating income (loss)		(53,045	)		(77,591	)		(116,304	)		(124,883	)
Other income (expense):
Gain on sale of assets		2,625			—			2,625			—
Interest income		1,451			1,435			3,113			2,379
Interest expense		(17,841	)		(18,600	)		(37,862	)		(29,167	)
Total other income (expense)		(13,765	)		(17,165	)		(32,124	)		(26,788	)
Net income (loss) before income tax		(66,810	)		(94,756	)		(148,428	)		(151,671	)
Income tax expense		—			—			—			—
Net income (loss)	$	(66,810	)	$	(94,756	)	$	(148,428	)	$	(151,671	)
Basic and diluted income (loss) per share	$	(0.16	)	$	(0.23	)	$	(0.36	)	$	(0.37	)
Basic and diluted weighted average common shares outstanding		408,521,844			407,088,848			408,515,037			407,039,193

See accompanying notes.

6

Cobalt International Energy, Inc.

Condensed Consolidated Statements of Changes in Stockholders' Equity

(Unaudited)

	Common Stock		Additional Paid-in Capital		Accumulated Deficit During Development Stage			Total
	($ in thousands)
Balance, December 31, 2014	$	4,085	$	4,137,803	$	(2,027,622	)	$	2,114,266
Equity based compensation		—		12,981		—			12,981
Net income (loss)		—		—		(148,428	)		(148,428	)
Balance, June 30, 2015	$	4,085	$	4,150,784	$	(2,176,050	)	$	1,978,819

See accompanying notes.

7

Cobalt International Energy, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

	Six Months Ended June 30,
	2015			2014
	($ in thousands)
Cash flows provided from operating activities
Net income (loss)	$	(148,428	)	$	(151,671	)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization		2,635			2,182
Gain on the sale of assets		(2,625	)		—
Dry hole expense and impairment of unproved properties		28,041			55,481
Equity based compensation		12,981			15,314
Amortization of premium (accretion of discount) on investments		8,878			7,663
Amortization of debt discount and debt issuance costs		44,040			29,360
Changes in operating assets and liabilities:
Joint interest and other receivables		(52,903	)		50,968
Inventory		13,665			(4,204	)
Prepaid expense and other current assets		(24,583	)		34,176
Deferred charges and other		(7,788	)		(3,223	)
Trade and other accounts payable		24,472			(62,409	)
Accrued liabilities and other		(39,916	)		(16,314	)
Net cash provided by (used in) operating activities		(141,531	)		(42,677	)
Cash flows from investing activities
Capital expenditures for oil and gas properties		(42,855	)		(68,701	)
Capital expenditures for other property and equipment		(236	)		(335	)
Exploratory wells drilling in process		(300,502	)		(334,747	)
Change in restricted funds		(3,040	)		43,310
Proceeds from maturity of investment securities		909,569			961,053
Purchase of investment securities		(519,867	)		(1,781,858	)
Net cash provided by (used in) investing activities		43,069			(1,181,278	)
Cash flows from financing activities
Proceeds from debt offering, net of costs		—			1,269,778
Payment of debt issuance costs		(4,025	)		—
Proceeds from stock option exercises		—			33
Payments for common stock withheld for taxes on equity based compensation		—			(631	)
Net cash provided by (used in) financing activities		(4,025	)		1,269,180
Net increase (decrease) in cash and cash equivalents		(102,487	)		45,225
Cash and cash equivalents, beginning of period		258,721			192,460
Cash and cash equivalents, end of period	$	156,234		$	237,685
Cash paid for interest	$	38,426		$	18,112
Non-cash disclosures
Changes in accrued capital expenditures	$	(54,135	)	$	(65,050	)
Transfer of investment securities to and from restricted funds	$	46,049		$	(155,105	)

See accompanying notes.

8

Cobalt International Energy, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. Summary of Significant Accounting Policies

General

        Cobalt International Energy, Inc. (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 terms "Company," "Cobalt," "we," "us," "our," "ours," and similar terms refer to Cobalt International Energy, Inc. unless the context indicates otherwise.

Basis of Presentation

        The accompanying unaudited condensed consolidated financial statements include the financial statements of Cobalt International Energy, Inc. and all of its wholly-owned subsidiaries. All significant intercompany transactions and amounts have been eliminated for all periods presented.

        The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles ("GAAP") for interim financial information and the appropriate rules and regulations of the Securities and Exchange Commission ("SEC"). Accordingly, the condensed consolidated financial statements do not include all of the information and footnote disclosures required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for interim periods are not necessarily indicative of the results that may be presented for the entire year. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2014.

Recently Issued Accounting Standards

        In April 2015, the FASB amended Accounting Standard Codification Subtopic No. 835-30,Interest—Imputation of Interest (the "ASC Subtopic 835-30"). The amendments require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments. The amendments under ASC Subtopic 835-30 are effective for financial statements issued for fiscal years beginning after December 15, 2015 and interim periods within those fiscal years. However, early adoption is permitted for financial statements that have not been previously issued. The Company expects to comply with the amendments to ASC Subtopic 835-30 for the financial statements at its effective date beginning after December 15, 2015. We do not expect the adoption of ASC 835-30 to have a material impact on the Company's financial statements.

Use of Estimates

        The preparation of financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates made by the Company include (i) accruals related to expenses, (ii) assumptions used in estimating fair value of equity based awards

9

Cobalt International Energy, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

1. Summary of Significant Accounting Policies (Continued)

and the fair value of the liability component of the convertible senior notes and (iii) assumptions used in impairment testing. Although the Company believes these estimates are reasonable, actual results could differ from these estimates.

Investments

        The Company's policy on accounting for its investments, which consist entirely of debt securities, is based on the accounting guidance relating to "Accounting for Certain Investments in Debt and Equity Securities." The Company considers all highly liquid interest-earning investments with a maturity of three months or less at the date of purchase to be cash equivalents. Investments with original maturities of greater than three months and remaining maturities of less than one year are classified as short-term investments. Investments with maturities beyond one year are classified as long-term investments. The debt securities are carried at amortized costs, which approximates fair market value as of June 30, 2015 and December 31, 2014 and classified as held-to-maturity as the Company has the positive intent and ability to hold them until they mature. The net carrying value of held-to-maturity securities is adjusted for amortization of premiums and accretion of discounts to maturity over the life of the securities. Income related to these securities is reported as a component of interest income in the Company's condensed consolidated statement of operations.See Note 5—Investments.

        Investments are considered to be impaired when a decline in fair value is determined to be other-than-temporary. The Company conducts a regular assessment of its debt securities with unrealized losses to determine whether securities have other-than-temporary impairment ("OTTI"). This assessment considers, among other factors, the nature of the securities, credit rating or financial condition of the issuer, the extent and duration of the unrealized loss, market conditions and whether the Company intends to sell or whether it is more likely than not that the Company will be required to sell the debt securities. As of June 30, 2015 and December 31, 2014, the Company has no OTTI in its debt securities.

Capitalized Interest

        For exploration and development projects that have not commenced production, interest is capitalized as part of the historical cost of developing and constructing assets. Capitalized interest is determined by multiplying the Company's weighted-average borrowing cost on debt by the average amount of qualifying costs incurred. Once an asset subject to interest capitalization is completed and placed in service, the associated capitalized interest is expensed through depreciation or impairment.See Note 7—Property, Plant, and Equipment and Note 9—Long-term Debt.

Earnings (Loss) Per Share

        Basic income (loss) per share was calculated by dividing net income or loss applicable to common shares by the weighted average number of common shares outstanding during the periods presented. The calculation of diluted income (loss) per share includes the potential dilutive impact of non-vested restricted stock, non-vested restricted stock units, outstanding stock options, the 2.625% convertible senior notes due 2019 and the 3.125% convertible senior notes due 2024 during the period, unless their effect is anti-dilutive. For the three months and six months ended June 30, 2015, 9,967,516 shares of non-vested restricted stock, non-vested restricted stock units, outstanding stock options, the 2.625% convertible senior notes due 2019 and the 3.125% convertible senior notes due 2024, were excluded

10

Cobalt International Energy, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

1. Summary of Significant Accounting Policies (Continued)

from the diluted income (loss) per share calculation because they were anti-dilutive. For the three months and six months ended June 30, 2014, 8,686,353 shares of non-vested restricted stock, non-vested restricted stock units, outstanding stock options and the 2.625% convertible senior notes due 2019 were excluded from the diluted income (loss) per share because they are anti-dilutive.

2. Cash and Cash Equivalents

        Cash and cash equivalents consisted of the following:

	June 30, 2015		December 31, 2014
	($ in thousands)
Cash at banks	$	47,908	$	57,750
Money market funds		64,844		122,218
Held-to-maturity securities(1)		43,482		78,753
	$	156,234	$	258,721

(1)

These securities mature three months or less from the date of purchase.

3. Restricted Funds

        Restricted funds consisted of the following:

	June 30, 2015		December 31, 2014
	($ in thousands)
Short-term:
Collateral on letters of credit for Angola	$	22,538	$	45,062
Citibank pledge agreement		2,200
	$	24,738	$	45,062
Long-term:
Collateral on letters of credit for Angola	$	82,405	$	105,051
	$	82,405	$	105,051
Total restricted funds(1)	$	107,143	$	150,113

(1)

As of June 30, 2015, $107.1 million was held in collateral accounts established to secure letters of credit issued in support of the Company's contractually agreed work program obligations on Blocks 9 and 20 offshore Angola and to pledge funds for security of obligations under the Citibank Commercial Card Agreement. As of December 31, 2014, $150.1 million was held in a collateral account established to secure letters of credit issued in support of the Company's contractually agreed work program obligations on Blocks 9, 20 and 21 offshore Angola. As of June 30, 2015 and December 31, 2014, the collateral in these accounts were invested in cash and U.S. Treasury notes purchased at premiums, resulting in a net carrying value of $107.1 million and $150.1 million, respectively. The contractual maturities of these securities are within one year.

11

Cobalt International Energy, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

4. Joint Interest and Other Receivables

        Joint interest and other receivables result primarily from billing shared costs under the respective operating agreements to the Company's partners. These are usually settled within 30 days of the invoice date. As of June 30, 2015 and December 31, 2014, the balance in joint interest and other receivables consisted of the following:

	June 30, 2015		December 31, 2014
	($ in thousands)
Partners in the U.S. Gulf of Mexico	$	44,944	$	3,274
Partners in West Africa		62,456		46,312
Accrued interest on investment securities		6,121		7,663
Other		171		2,725
	$	113,692	$	59,974

5. Investments

        The Company's investments in held-to-maturity securities, which are recorded at amortized cost which approximates fair market value, were as follows as of June 30, 2015 and December 31, 2014:

	June 30, 2015		December 31, 2014
	($ in thousands)
U.S. Treasury bills	$	—	$	46,064
U.S. Treasury notes		104,943		104,049
Corporate securities		1,025,273		1,321,261
Commercial paper		405,876		483,534
U.S. Agency securities		24,998		24,996
Certificates of deposit		90,206		105,215
Total	$	1,651,296	$	2,085,119

        The Company's condensed consolidated balance sheet included the following held-to-maturity securities:

	June 30, 2015		December 31, 2014
	($ in thousands)
Cash and cash equivalents	$	43,482	$	78,753
Short-term investments		1,502,871		1,530,206
Short-term restricted funds		22,538		45,062
Long-term restricted funds		82,405		105,051
Long-term investments		—		326,047
	$	1,651,296	$	2,085,119

12

Cobalt International Energy, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

5. Investments (Continued)

        The contractual maturities of these held-to-maturity securities as of June 30, 2015 and December 31, 2014 were as follows:

	June 30, 2015				December 31, 2014
	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
	($ in thousands)
Within 1 year	$	1,651,296	$	1,651,296	$	1,759,072	$	1,759,072
After 1 year		—		—		326,047		326,047
	$	1,651,296	$	1,651,296	$	2,085,119	$	2,085,119

6. Fair Value Measurements

        The fair values of the Company's cash and cash equivalents, joint interest and other receivables, short-term restricted funds and investments approximate their carrying amounts due to their short-term duration. The hierarchy below lists three levels of fair value based on the extent to which inputs used in measuring fair value are observable in the market. The Company categorizes each of its fair value measurements as applicable to one of these three levels based on the lowest level input that is significant to the fair value measurement in its entirety. The levels are:

        Level 1—Quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities. This category includes the Company's cash and money market funds.

        Level 2—Quoted prices in non-active markets or in active markets for similar assets or liabilities, and inputs other than quoted prices that are observable, for the asset or liability, either directly or indirectly, for substantially the full contractual term of the asset or liability being measured. This category includes the Company's U.S. Treasury bills, U.S. Treasury notes, commercial paper, U.S. agency securities, corporate bonds, and certificates of deposits.

        Level 3—Inputs that are generally unobservable and typically reflect management's estimate of assumptions that market participants would use in pricing the asset or liability. The Company does not currently have any financial instruments categorized as Level 3.

13

Cobalt International Energy, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

6. Fair Value Measurements (Continued)

        The following tables summarize the Company's significant financial instruments as categorized by the fair value measurement hierarchy:

	Level 1				Level 2
	Carrying Value		Fair Value(1)		Carrying Value		Fair Value(1)		Balance as of June 30, 2015
	($ in thousands)
Cash and cash equivalents:
Cash	$	47,908	$	47,908	$	—	$	—	$	47,908
Money market funds		64,844		64,844		—		—		64,844
Commercial paper		—		—		43,482		43,482		43,482
Subtotal		112,752		112,752		43,482		43,482		156,234
Short-term restricted funds:
Cash		2,200		2,200		—		—		2,200
U.S. Treasury notes		—		—		22,538		22,538		22,538
Subtotal		2,200		2,200		22,538		22,538		24,738
Short-term investments:
U.S. Agency securities		—		—		24,998		24,998		24,998
Corporate bonds		—		—		1,025,273		1,025,273		1,025,273
Commercial paper		—		—		362,394		362,394		362,394
Certificates of deposit		—		—		90,206		90,206		90,206
Subtotal		—		—		1,502,871		1,502,871		1,502,871
Long-term restricted funds:
U.S. Treasury notes		—		—		82,405		82,405		82,405
Subtotal		—		—		82,405		82,405		82,405
Long-term investments:
Corporate bonds		—		—		—		—		—
Subtotal		—		—		—		—		—
Total	$	114,952	$	114,952	$	1,651,296	$	1,651,296	$	1,766,248

14

Cobalt International Energy, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

6. Fair Value Measurements (Continued)

	Level 1				Level 2
	Carrying Value		Fair Value(1)		Carrying Value		Fair Value(1)		Balance as of December 31, 2014
	($ in thousands)
Cash and cash equivalents:
Cash	$	57,750	$	57,750	$	—	$	—	$	57,750
Money market funds		122,218		122,218		—		—		122,218
Commercial paper		—		—		70,524		70,524		70,524
Corporate bonds						8,229		8,229		8,229
Subtotal		179,968		179,968		78,753		78,753		258,721
Short-term restricted funds:
U.S. Treasury bills		—		—		45,062		45,062		45,062
Subtotal		—		—		45,062		45,062		45,062
Short-term investments:
U.S. Agency securities		—		—		24,996		24,996		24,996
Corporate bonds		—		—		986,985		986,985		986,985
Commercial paper		—		—		413,010		413,010		413,010
Certificates of deposit		—		—		105,215		105,215		105,215
Subtotal		—		—		1,530,206		1,530,206		1,530,206
Long-term restricted funds:
U.S. Treasury bills		—		—		1,002		1,002		1,002
U.S. Treasury notes		—		—		104,049		104,049		104,049
Subtotal		—		—		105,051		105,051		105,051
Long-term investments:
Corporate bonds		—		—		326,047		326,047		326,047
Subtotal		—		—		326,047		326,047		326,047
Total	$	179,968	$	179,968	$	2,085,119	$	2,085,119	$	2,265,087

(1)

As of June 30, 2015 and December 31, 2014, the Company did not record any OTTI on these assets.

15

Cobalt International Energy, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

7. Property, Plant, and Equipment

        Property, plant, and equipment is stated at cost less accumulated depreciation/amortization and consisted of the following:

	Estimated Useful Life (Years)	June 30, 2015			December 31, 2014
		($ in thousands)
Oil and Gas Properties:
Proved properties:
Well and development costs		$	265,967		$	183,221
Total proved properties			265,967			183,221
Unproved properties:
Oil and gas leasehold			734,311			762,518
Less: accumulated valuation allowance			(186,077	)		(211,224	)
			548,234			551,294
Exploration wells in process			1,444,372			1,186,464
Total unproved properties			1,992,606			1,737,758
Total oil and gas properties, net			2,258,573			1,920,979
Other Property and Equipment:
Computer equipment and software	3		5,855			5,672
Office equipment and furniture	3 - 5		2,160			2,139
Vehicles	3		265			265
Leasehold improvements	3 - 10		2,520			2,488
Running tools and equipment	3		9,795			9,795
			20,595			20,359
Less: accumulated depreciation and amortization			(11,612	)		(8,977	)
Total other property and equipment, net			8,983			11,382
Property, plant, and equipment, net		$	2,267,556		$	1,932,361

        The Company recorded $1.3 million and $1.1 million of depreciation and amortization expense for the three months ended June 30, 2015 and 2014, respectively, and $2.6 million and $2.2 million for the six months ended June 30, 2015 and 2014, respectively.

Proved Oil and Gas Properties

        The Heidelberg project was formally sanctioned for development in mid-2013. As a result of the project sanction, the Company reclassified its Heidelberg exploration well costs to proved property well and development costs and these costs will be amortized when the related proved developed reserves are produced. During the quarter ended March 31, 2015, the Company assigned its 9.375% ownership interest in the Heidelberg prospect to its wholly owned subsidiary, Cobalt GOM #1, LLC ("GOM #1"). As a result, the carrying value of the costs capitalized for all the Heidelberg projects as

16

Cobalt International Energy, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

7. Property, Plant, and Equipment (Continued)

of March 31, 2015 were transferred to GOM #1. GOM #1 was established to secure the Heidelberg assets creating a first priority lien in the Company's interest in preparation for debt instruments to fund the Heidelberg development projects. As of June 30, 2015, the well and development costs consist of $111.1 million relating to exploration, appraisal and development well costs and $154.9 million for costs associated with field development. As of December 31, 2014, the well and development costs consist of $51.1 million relating to exploration, appraisal and development well costs and $132.1 million for costs associated with field development.

Unproved Oil and Gas Properties

        As of June 30, 2015 and December 31, 2014, the Company has the following unproved property acquisition costs, net of valuation allowance on the consolidated balance sheets:

	June 30, 2015			December 31, 2014
	($ in thousands)
U.S. Gulf of Mexico:
Individual oil and gas leaseholds with carrying value greater than $1 million	$	295,378		$	320,731
Individual oil and gas leaseholds with carrying value less than $1 million		81,062			83,916
		376,440			404,647
Accumulated valuation allowance & impairment		(183,577	)		(208,724	)
		192,863			195,923
West Africa:
Blocks 9, 20 and 21 offshore Angola(1)		355,876			355,876
Diaba Block offshore Gabon		1,995			1,995
		357,871			357,871
Accumulated impairment		(2,500	)		(2,500	)
		355,371			355,371
Total oil and gas leasehold	$	548,234		$	551,294

(1)

In 2010, the Company acquired a license to explore for, develop and produce oil from Block 21 offshore Angola by executing a Risk Service Agreement ("Block 21 RSA") with Sonangol. The Block 21 RSA governs our 40% working interest in and operatorship of Block 21 offshore Angola and forms the basis of the Company's exploration, development and production operations on this block. The Block 21 RSA provided for an initial exploration period of five years, which expired on March 1, 2015. In May 2015, the Company received a two year extension of the initial exploration period for Block 21 to enable the Company to continue its exploration efforts. The initial exploration period for Block 21 is now scheduled to expire on March 1, 2017.

17

Cobalt International Energy, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

7. Property, Plant, and Equipment (Continued)

Capitalized Exploration Well Costs

        If an exploration well provides evidence as to the existence of sufficient quantities of hydrocarbons to justify evaluation for potential development, drilling costs associated with the well are initially capitalized, or suspended, pending a determination as to whether a commercially sufficient quantity of proved reserves can be attributed to the area as a result of drilling. This determination may take longer than one year in certain areas (generally, deepwater and international locations) depending upon, among other things, (i) the amount of hydrocarbons discovered, (ii) the outcome of planned geological and engineering studies, (iii) the need for additional appraisal drilling activities to determine whether the discovery is sufficient to support an economic development plan and (iv) the requirement for government sanctioning in international locations before proceeding with development activities.

        The following tables reflect the Company's net changes in and the cumulative costs of capitalized exploration well costs (excluding any related leasehold costs):

	June 30, 2015			December 31, 2014
	($ in thousands)
Beginning of period	$	1,186,464		$	777,823
Additions to capitalized exploration
U.S. Gulf of Mexico:
Exploration well costs		74,270			143,431
Capitalized interest		7,707			6,965
West Africa:
Exploration well costs		169,056			379,461
Capitalized interest		29,454			44,243
Reclassifications to wells, facilities, and equipment based on determination of proved reserves		—			—
Amounts charged to expense(1)		(22,579	)		(165,459	)
End of period	$	1,444,372		$	1,186,464

(1)

The amount of $22.6 million for the six months ended June 30, 2015 primarily represents impairment charges related to the North Platte #2 appraisal well and additional charges on exploratory wells which were impaired in 2014. The North Platte #2 appraisal well was plugged and abandoned due to a seal failure in the riser connection system. The well was at a depth of 20,701 feet when the problem with the riser was detected. The Company is continuing to assess what additional impairment charges or other liabilities, including any environmental liabilities, might be incurred in future periods related to the North Platte #2 appraisal well and what costs may be recouped from the drilling contractor.

18

Cobalt International Energy, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

7. Property, Plant, and Equipment (Continued)

	June 30, 2015		December 31, 2014
	($ in thousands)
Cumulative costs:
U.S. Gulf of Mexico
Exploration well costs	$	335,576	$	283,885
Capitalized interest		18,601		10,894
West Africa
Exploration well costs		1,002,889		835,171
Capitalized interest		87,306		56,514
	$	1,444,372	$	1,186,464
Well costs capitalized for a period greater than one year after completion of drilling (included in table above)	$	907,068	$	775,379

        As of June 30, 2015, capitalized exploration well costs that have been suspended longer than one year are associated with the Company's Shenandoah, North Platte, Cameia, Bicuar, Lontra, Orca, Mavinga and Diaman discoveries. These well costs are suspended pending ongoing evaluation including, but not limited to, results of additional appraisal drilling, well-test analysis, additional geological and geophysical data and approval of a development plan. Management believes these discoveries exhibit sufficient indications of hydrocarbons to justify potential development and is actively pursuing efforts to fully assess them. If additional information becomes available that raises substantial doubt as to the economic or operational viability of these discoveries, the associated costs will be expensed at that time. The Heidelberg discovery has been sanctioned for development and the Heidelberg capitalized exploration and appraisal well costs were reclassified to development costs in 2013.

8. Other Assets

        As of June 30, 2015 and December 31, 2014, the balance in other assets consisted of the following:

	June 30, 2015		December 31, 2014
	(in thousands)
Debt issue cost(1)	$	38,838	$	36,708
Long-term portion of prepaid shorebase leases		1,593		2,244
Rig costs(2)		22,117		14,984
	$	62,548	$	53,936

(1)

As of June 30, 2015, the $38.8 million in debt issue costs was related to the issuance of the Company's 2.625% convertible senior notes due 2019 and the Company's 3.125% convertible senior notes due 2024 and the Borrowing Base Facility Agreement, as described in Note 9. As of December 31, 2014, the $36.7 million in debt issue costs included $18.5 million and $18.2 million in costs related to the issuance of the Company's 2.625% convertible senior notes due 2019 and the Company's 3.125% convertible senior

19

Cobalt International Energy, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

8. Other Assets (Continued)

notes due 2024, respectively, as described in Note 9. These debt issue costs are amortized over the life of the notes.

(2)

As of June 30, 2015 and December 31, 2014, the $22.1 million and $15.0 million, respectively, relate to costs associated with the long-term mobilization and the regulatory acceptance testing of the SSV Catarina drilling rig which is currently drilling in West Africa, and costs relating to the Rowan Reliance drilling rig which is currently drilling in U.S. Gulf of Mexico. These costs are amortized over the term of the respective drilling rig contracts.

9. Long-term Debt

        As of June 30, 2015, the Company's long-term debt consists of the 2.625% convertible senior notes due 2019 issued on December 17, 2012 (the "2.625% Notes") the 3.125% convertible senior notes due 2024 issued on May 13, 2014 (the "3.125% Notes", and, collectively with the 2.625% Notes, the "Notes") and the Borrowing Base Facility Agreement (the "Facility Agreement") entered into on May 29, 2015, as follows:

Borrowing Base Facility Agreement

        On May 29, 2015, Cobalt GOM #1 LLC ("GOM#1"), an indirect, wholly-owned subsidiary of the Company entered into a Borrowing Base Facility Agreement (the "Facility Agreement") with Société Générale, as administrative agent, and certain other lenders. GOM#1 is the direct owner of the oil and gas leases, wells, production facilities and other assets and agreements associated with the Company's Heidelberg development. GOM#1 does not own any of the Company's other oil and gas assets. The Facility Agreement provides for a limited recourse $150 million senior secured reserve-based term loan facility. The proceeds of the loans under the Facility Agreement will be available to fund the majority of GOM#1's share of the remaining Heidelberg field development costs, subject to the maintenance of a debt to equity ratio of the total investment in the Heidelberg development of no more than 70:30. GOM#1 may request that the commitments under the Facility Agreement be increased by up to an additional $100 million upon the satisfaction of certain conditions set forth in the Facility Agreement, and such increase is subject to lender participation. In addition, GOM#1 may request a further commitment increase by up to $400 million if GOM#1's interest in the Heidelberg field is increased, with such commitment increase subject to lender participation.

        The Company is a party to the Facility Agreement and has limited funding obligations thereunder. Until completion of the Heidelberg development in accordance with the current field development plan and certain other requirements set forth in the Facility Agreement ("Completion"), the Company has guaranteed to fund cost overruns that may be incurred up to an aggregate of $38.7 million. The Company agreed to cash collateralize 50% of its funding obligation in respect of cost overruns by depositing $19.4 million in a collateral account to be established pursuant to the terms of the Facility Agreement. As of June 30, 2015 this amount has not been funded.

        The amount available for borrowing at any one time under the Facility Agreement is limited to a borrowing base amount determined twice a year using agreed projections by applying the lower of (i) a project life coverage ratio of 1.5:1.0 to the sum of discounted projected net revenues from the

20

Cobalt International Energy, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

9. Long-term Debt (Continued)

Heidelberg field and certain capital expenditures and (ii) a loan life coverage ratio of 1.3:1.0 to the sum of discounted projected net revenues from the Heidelberg field and certain capital expenditures. Interim borrowing base redeterminations can take place between scheduled redetermination dates in limited circumstances specified in the Facility Agreement. Loans made under the Facility Agreement are scheduled to amortize in the manner set forth in the Facility Agreement commencing in July 2018 and will mature on the earlier of (a) May 29, 2020 and (b) the last day of the quarter immediately preceding the first quarter in which the aggregate remaining reserves for the Heidelberg field are projected to be less than 20% of the initial approved reserves. In addition, on or before each redetermination, GOM#1 is required to repay such amount of the loans as is required to reduce the aggregate amount of the loans to the borrowing base amount applicable on the day after such redetermination. After Completion, loans are also subject to mandatory prepayment with 33% of GOM#1's excess cash flow.

        The Facility Agreement and certain related hedging obligations, if any, are secured by a first priority security interest in substantially all of the assets of GOM#1 (which are comprised only of the oil and gas leases, wells, production facilities and other assets associated with the Heidelberg development), including a mortgage on GOM#1's ownership interest in the Heidelberg field, a pledge of the equity interests of GOM#1 and a pledge of certain intercompany receivables held by the Company. All of GOM#1's revenues from the Heidelberg development will be deposited in collateral accounts established pursuant to the Facility Agreement and applied in accordance with a cash waterfall in the manner specified in the Facility Agreement. GOM#1 is required to maintain a debt service reserve account for the benefit of the lenders under the Facility Agreement, which must remain funded at all times to the level specified in the Facility Agreement.

        At GOM#1's election, interest for borrowings under the Facility Agreement are determined by reference to (a) the London interbank offered rate, or LIBOR, plus an applicable margin of (i) 6.00% per annum prior to Completion and (ii) 4.00% following Completion or (b) a base rate plus an applicable margin of (i) 5.00% prior to Completion and (ii) 3.00% following Completion. Prior to Completion, GOM#1 is also required to pay a commitment fee equal to 40% of the applicable margin payable on the unused commitments under the Facility Agreement. Interest on base rate loans and the commitment fee are generally payable quarterly. Interest on LIBOR loans are generally payable at the end of the applicable interest period but no less frequently than quarterly.

        The Facility Agreement contains various covenants that limit, among other things, GOM#1's ability to incur indebtedness, grant liens on its assets, merge or consolidate with other entities, sell its assets, make loans, acquisitions, capital expenditures and other investments, abandon or decommission the Heidelberg field, modify material agreements relating thereto, enter into commodity hedges and pay dividends and distributions to its parent entities.

        The Facility Agreement includes customary events of default for transactions of this type, including events of default relating to non-payment of principal, interest or fees, inaccuracy of representations and warranties, violation of covenants, cross-defaults, bankruptcy and insolvency events, certain unsatisfied judgments, loan documents not being valid, defaults under project documents that are not replaced, change in control, expropriation, abandonment or decommissioning of the Heidelberg field, material title defects, the failure to pay cost overruns when due and the failure to reach Completion on or before May 29, 2018.

21

Cobalt International Energy, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

9. Long-term Debt (Continued)

        In addition, the Facility Agreement provides that an event of default will occur if (a) the debt to equity ratio exceeds 70:30 or (b) the then current projections show that (i) the project loan life coverage ratio in any calculation period will be 1.5:1.0 or less, (ii) the loan life coverage ratio in any calculation period will be 1.3:1.0 or less or (iii) the debt service coverage ratio in any calculation period will be 1.2:1.0 or less.

        If an event of default occurs, the lenders will be able to accelerate the maturity of the Facility Agreement and exercise other rights and remedies.

        As of June 30, 2015, the Company has not borrowed any amounts under the Facility Agreement.

2.625% Convertible Senior Notes due 2019

        On December 17, 2012, the Company issued $1.38 billion aggregate principal amount of the 2.625% Notes. The 2.625% Notes are the Company's senior unsecured obligations and interest is payable semi-annually in arrears on June 1 and December 1 of each year. The 2.625% Notes will mature on December 1, 2019, unless earlier repurchased or converted in accordance with the terms of the 2.625% Notes. The 2.625% Notes may be converted at the option of the holder at any time prior to 5:00 p.m., New York City time, on the second scheduled trading day immediately preceding the maturity date, in multiples of $1,000 principal amount. The 2.625% Notes are convertible at an initial conversion rate of 28.023 shares of common stock per $1,000 principal amount, representing an initial conversion price of approximately $35.68 per share for a total of approximately 38.7 million underlying shares. The conversion rate is subject to adjustment upon the occurrence of certain events, as defined in the indenture governing the 2.625% Notes, but will not be adjusted for any accrued and unpaid interest except in limited circumstances. Upon conversion, the Company's conversion obligation may be satisfied, at the Company's option, in cash, shares of common stock or a combination of cash and shares of common stock.

3.125% Convertible Senior Notes due 2024

        On May 13, 2014, the Company issued $1.3 billion aggregate principal amount of the 3.125% Notes. The 3.125% Notes are the Company's senior unsecured obligations and rank equal in right of payment to the 2.625% Notes. Interest on the 3.125% Notes is payable semi-annually in arrears on May 15 and November 15 of each year. The 3.125% Notes will mature on May 15, 2024, unless earlier repurchased, converted or redeemed in accordance with the terms of the Notes. Prior to November 15, 2023, the 3.125% Notes are convertible only under the following circumstances: (1) during any fiscal quarter commencing after March 31, 2015 (and only during such fiscal quarter), if the last reported sale price of the Company's common stock for at least 20 trading days (whether or not consecutive) during a 30 consecutive trading-day period ending on, and including, the last trading day of the immediately preceding fiscal quarter exceeds $30.00 on each applicable trading day; (2) during the five business-day period after any five consecutive trading-day period (the "3.125% Notes Measurement Period") in which the trading price per $1,000 principal amount of notes for each trading day of the 3.125% Notes Measurement Period was less than 98% of the product of the last reported sale price of the Company's common stock and the conversion rate on each such trading day; (3) if the Company calls all or any portion of the 3.125% Notes for redemption, at any time prior to 5:00 p.m., New York City time, on the second scheduled trading day immediately preceding the related redemption date; or (4) upon the

22

Cobalt International Energy, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

9. Long-term Debt (Continued)

occurrence of specified distributions or the occurrence of specified corporate events. On or after November 15, 2023, the 3.125% Notes may be converted at the option of the holder at any time prior to 5:00 p.m., New York City time, on the second scheduled trading day immediately preceding the stated maturity date, in multiples of $1,000 principal amount. As of June 30, 2015, none of the conditions allowing holders of the 3.125% Notes to convert had been met.

        The 3.125% Notes are convertible at an initial conversion rate of 43.3604 shares of common stock per $1,000 principal amount, representing an initial conversion price of approximately $23.06 per share for a total of approximately 56.4 million underlying shares. The conversion rate is subject to adjustment upon the occurrence of certain events, as defined in the indenture governing the 3.125% Notes, but will not be adjusted for any accrued and unpaid interest except in limited circumstances. Upon conversion, the Company's conversion obligation may be satisfied, at the Company's option, in cash, shares of common stock or a combination of cash and shares of common stock.

        Holders of the Notes who convert their Notes in connection with a "make- whole fundamental change", as defined in the indenture governing these Notes, may be entitled to a make-whole premium in the form of an increase in the conversion rate. Additionally, in the event of a fundamental change, as defined in the indenture governing the Notes, holders of the Notes may require the Company to repurchase for cash all or a portion of their Notes equal to $1,000 or a multiple of $1,000 at a fundamental change repurchase price equal to 100% of the principal amount of Notes, plus accrued and unpaid interest, if any, to, but not including, the fundamental change repurchase date.

        Upon the occurrence of an Event of Default, as defined within the indenture governing the Notes, the trustee or the holders of at least 25% in aggregate principal amount of the Notes then outstanding may declare 100% of the principal of, and accrued and unpaid interest on, all the Notes to be due and payable immediately

        In accordance with accounting guidance relating to, "Debt with Conversion and Other Options", the Company separately accounts for the liability and equity conversion components of the Notes due to the Company's option to settle the conversion obligation in cash. The fair value of the Notes excluding the conversion feature at the date of issuance was calculated based on the fair value of similar non-convertible debt instruments. The resulting value of the conversion option of the Notes was recognized as a debt discount and recorded as additional paid-in capital on the Company's consolidated balance sheets. Total debt issue cost on the Notes was allocated to the liability component and to the equity component of the Notes accordingly. The debt discount and the liability component of the debt issue costs are amortized over the term of the Notes. The effective interest rate used to amortize the debt discount and the liability component of the debt issue costs were approximately 8.40% and 8.97% on the 2.625% Notes and the 3.125% Notes, respectively, based on the Company's estimated non-convertible borrowing rate as of the date the Notes were issued. Since the Company incurred losses for all periods, the impact of the conversion option would be anti-dilutive to the earnings per share and therefore was not included in the calculation.

23

Cobalt International Energy, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

9. Long-term Debt (Continued)

        The carrying amounts of the liability components of the Notes were as follows:

	June 30, 2015							December 31, 2014
	Principal Amount		Unamortized discount(1)			Carrying Amount		Principal Amount		Unamortized discount			Carrying Amount
	($ in thousands)
Carrying amount of liability component
2.625% Notes	$	1,380,000	$	(269,762	)	$	1,110,238	$	1,380,000	$	(295,509	)	$	1,084,491
3.125% Notes		1,300,000		(439,565	)		860,435		1,300,000		(455,963	)		844,037
Total	$	2,680,000	$	(709,327	)	$	1,970,673	$	2,680,000	$	(751,472	)	$	1,928,528

(1)

Unamortized discount will be amortized over the remaining life of the Notes which is 4.5 years for the 2.625% Notes and 9 years for the 3.125% Notes.

        The carrying amounts of the equity components of the Notes were as follows:

	June 30, 2015			December 31, 2014
	($ in thousands)
Debt discount relating to value of conversion option	$	866,340		$	866,340
Debt issue costs		(20,185	)		(20,185	)
Total	$	846,155		$	846,155

        Fair Value    The fair value of the Notes excluding the conversion feature was calculated based on the fair value of similar non-convertible debt instruments since an observable quoted price of the Notes or a similar asset or liability is not readily available. As of June 30, 2015 and December 31, 2014, the fair values of the Notes were as follows:

	June 30, 2015		December 31, 2014
	($ in thousands)
2.625% Notes	$	1,360,000	$	1,361,000
3.125% Notes		1,023,000		1,047,000
Total	$	2,383,000	$	2,408,000

        As of June 30, 2015, the Company had $8.1 million accrued for interest on the Notes and commitment fees associated with the Facility Agreement.

        For the three months ended June 30, 2015 and 2014, the interest expense, net of capitalized amount, relating to the Notes and certain costs and commitment fees associated with the Facility Agreement was $17.8 million and $18.6 million, respectively. For the six months ended June 30, 2015 and 2014, the interest expense, net of capitalized amount, relating to the Notes was $37.9 million and $29.2 million, respectively.

24

Cobalt International Energy, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

9. Long-term Debt (Continued)

        As of June 30, 2015 and December 31, 2014, the debt discounts associated with the 2.625% Notes and the 3.125% Notes resulted in the recognition of $250.0 million and $264.3 million of deferred tax liability, respectively. The Company is in an overall net deferred tax assets position with a full valuation allowance. Therefore, the Company has determined that it is more likely than not that all of the deferred tax assets will not be realized.

10. Contractual Obligations

        The short-term and long-term contractual obligations consist of the following:

	June 30, 2015		December 31, 2014
	($ in thousands)
Short-term Contractual Obligations:
Social and work program obligation payments for Block 9, offshore Angola	$	21,875	$	560
Social obligation payments for Block 21, offshore Angola		409		1,156
Social obligation and bonus payments for Block 20, offshore Angola(1)		85,710		48,569
	$	107,994	$	50,285
Long-term Contractual Obligations:
Social and work program obligation payments for Block 9, offshore Angola	$	—	$	21,875
Social obligation payments for Block 21, offshore Angola		1,381		74
Social obligation and bonus payments for Block 20, offshore Angola(1)		—		79,996
	$	1,381	$	101,945

(1)

The total amount of social obligation payments for Block 20 has been capitalized.

11. Seismic and Exploration Expenses

        Seismic and exploration expenses consisted of the following:

	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014		2015		2014
Seismic costs	$	9,946	$	1,540	$	22,151	$	4,889
Leasehold delay rentals		2,936		3,131		4,326		4,422
Other exploration expense		4,031		7,312		8,205		11,647
	$	16,913	$	11,983	$	34,682	$	20,958

25

Cobalt International Energy, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

12. Equity Based Compensation

        The Company accounts for stock-based compensation at fair value. The Company grants various types of stock-based awards including stock options, restricted stock and performance-based awards. The fair value of stock option awards is determined using the Black-Scholes-Merton option-pricing model. For restricted stock awards with market conditions, the fair value of the awards is measured using the Monte Carlo pricing model. Restricted stock awards without market conditions are valued using the market price of the Company's common stock on the grant date. The Company records compensation cost, net of estimated forfeitures, for stock-based compensation awards over the requisite service period except for performance-based awards, which are amortized on a straight-line basis over a weighted average period.

        During the six months ended June 30, 2015, the Company granted a total of 3,193,648 shares of restricted stock and 746,268 stock options to employees which include 379,746 shares of restricted stock and 746,268 stock options with both service and market conditions granted to three senior officers under the terms of their employment agreements. During the six months ended June 30, 2015, the Company granted 23,854 shares of common stock as retainer awards and 105,846 restricted stock units to its non-employee directors.

        The Company recorded equity based compensation expense, net of forfeitures, of $7.1 million and $7.1 million for the three months ended June 30, 2015 and 2014, respectively, and $13.0 million and $15.3 million for the six months ended June 30, 2015 and 2014, respectively.

        On February 20, 2015, the Company issued a total of 1,526,835 share appreciation rights ("SARs") under the Company's Long Term Incentive Plan (the "Plan") to the Company's officers, based on the common stock market price at the time of issuance of $8.87 per share. The SARs will vest with respect to one-third (1/3) of the underlying shares on each anniversary of the grant date over the next three years and may be settled, at the Company's discretion, by issuance of the Company's shares or by cash or by a combination of the Company's shares and cash based on the fair market value of the shares on date of exercise. The fair value of a SAR is determined using the Black-Scholes-Merton option-pricing model which at the date of grant was $4.53 per SAR share. The Company accounts for the SAR awards as compensation cost and records a corresponding liability based on the fair value of the SARs at the end of each reporting period. As of June 30, 2015, the fair value of each SAR increased to $4.84, resulting in an increase in the aggregate fair value of the SARs of $0.5 million using the Black-Scholes-Merton option-pricing model. For the three months and six months ended June 30, 2015, the Company recognized $0.6 and $0.9 million, respectively, in compensation expense relating to the SAR awards.

        On April 30, 2015, the Company's stockholders approved the Company's 2015 Long Term Incentive Plan (the "2015 Plan"). The total number of shares of our common stock available for issuance under the 2015 Plan is 12,000,000. The 2015 Plan provides for grants of stock options, stock appreciation rights, restricted stock, restricted stock units, performance awards and other stock-based awards. As of June 30, 2015, the Company has not made any awards under the 2015 Plan.

13. Segment Information

        The Company currently has two geographic operating segments. The operating segments are focused in the deepwater U.S. Gulf of Mexico and offshore West Africa. The following tables provide

26

Cobalt International Energy, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

13. Segment Information (Continued)

the geographic operating segment information for the three months and six months ended June 30, 2015 and 2014:

	United States			West Africa			Total
	($ in thousands)
Three months ended June 30, 2015
Operating costs and expense	$	38,168		$	14,877		$	53,045
Operating income (loss)		(38,168	)		(14,877	)		(53,045	)
Other income (expense)								(13,765	)
Net income (loss)							$	(66,810	)
Additions to Property and Equipment, net(1)	$	53,068		$	108,627		$	161,695
Three months ended June 30, 2014
Operating costs and expense	$	50,506		$	27,085		$	77,591
Operating income (loss)		(50,506	)		(27,085	)		(77,591	)
Other income (expense)								(17,165	)
Net income (loss)							$	(94,756	)
Additions to Property and Equipment, net(1)	$	28,988		$	108,119		$	137,107

	United States			West Africa			Total
	($ in thousands)
Six months ended June 30, 2015
Operating costs and expense	$	89,910		$	26,394		$	116,304
Operating income (loss)		(89,910	)		(26,394	)		(116,304	)
Other income (expense)								(32,124	)
Net income (loss)							$	(148,428	)
Additions to Property and Equipment, net(1)	$	138,939		$	196,256		$	335,195
Six months ended June 30, 2014
Operating costs and expense	$	81,532		$	43,351		$	124,883
Operating income (loss)		(81,532	)		(43,351	)		(124,883	)
Other income (expense)								(26,788	)
Net income (loss)							$	(151,671	)
Additions to Property and Equipment, net(1)	$	50,364		$	231,007		$	281,371

(1)

These amounts are net of accumulated allowance for impairment on oil and gas properties and accumulated depreciation and amortization on other property and equipment.

27

Cobalt International Energy, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

14. Contingencies

        The Company is currently, and from time to time may be, subject to various lawsuits, claims and proceedings that arise in the normal course of business, including employment, commercial, environmental, safety and health matters. It is not presently possible to determine whether any such matters will have a material adverse effect on the Company's consolidated financial position, results of operations, or liquidity.

15. Other Matters

        As previously disclosed, in November 2011 a formal order of investigation was issued by the SEC related to the Company's operations in Angola. In August 2014, the Company received a Wells Notice from the SEC related to this investigation. In January 2015, the Company received a termination letter from the SEC advising that the SEC's FCPA investigation has concluded and the Staff does not intend to recommend any enforcement action by the SEC. This letter formally concluded the SEC's investigation. The Company continues to cooperate with the Department of Justice ("DOJ") with regard to its ongoing parallel investigation. The Company is unable to predict the outcome of the DOJ's ongoing investigation or any action that the DOJ may decide to pursue.

28

Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those discussed in the forward-looking statements as a result of various factors, including, without limitation, those set forth in "Risk Factors" and "Cautionary Note Regarding Forward-Looking Statements" and the other matters set forth in this Quarterly Report on Form 10-Q. The following discussion of our financial condition and results of operations should be read in conjunction with our financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2014.

Overview

        We are an independent exploration and production company with operations in the deepwater U.S. Gulf of Mexico and offshore Angola and Gabon in West Africa. Since our founding in 2005, our oil-focused, below-salt exploration efforts have been successful in each of our three operating areas, resulting in ten discoveries out of the seventeen exploration prospects drilled. These ten discoveries consist of North Platte, Heidelberg, Shenandoah and Anchor in the U.S. Gulf of Mexico; Cameia, Lontra, Mavinga, Bicuar and Orca offshore Angola; and Diaman offshore Gabon. In addition, we have an interest in the Yucatan discovery in the U.S. Gulf of Mexico. As of December 31, 2014, we had 8.4 million barrels ("MMBbls") of oil and 3.7 billion cubic feet ("Bcf") of gas of net proved undeveloped reserves, all of which is attributed to the Heidelberg field.

Second Quarter 2015 Operational Highlights

U.S. Gulf of Mexico

•

With respect to our Heidelberg project, development drilling and production facility construction continue in order to support initial production by mid-2016. The hull has been moored in place in the U.S. Gulf of Mexico and work continues offshore as planned. The topsides are mechanically complete and undergoing pre-commissioning. The Heidelberg production facility is designed to produce up to 80,000 barrels of oil per day ("BOPD") and 80 million cubic feet per day ("MMCFD") of gas. We own a 9.375% non-operated working interest in the Heidelberg project.

•

We spud the Shenandoah #4 appraisal well, which is expected to confirm the lateral sand quality, continuity and stratigraphy of reservoirs found in the Shenandoah #2 well. The Shenandoah #4 well is located approximately 800' updip and 0.7 miles northwest of the Shenandoah #2 well, which encountered more than 1,000 feet of net oil pay in excellent quality, Inboard Lower Tertiary-aged reservoirs. We expect results from the Shenandoah #4 well in the second half of 2015. We own a 20% non-operated working interest in the Shenandoah project.

•

We commenced drilling operations on a bypass core and sidetrack well on our Anchor discovery by utilizing the wellbore of the initital Anchor exploration well, which encountered significant high quality oil pay in multiple Inboard Lower Tertiary horizons. We expect results from the bypass core and sidetrack well in the third quarter of 2015. The Anchor discovery is located approximately 140 miles from the Louisiana coast in 5,183 feet of water. We own a 20% non-operated working interest in the Anchor discovery unit.

•

We spud the North Platte #2 appraisal well with the Rowan Reliance drillship in early February 2015. On April 9, 2015 we announced that the North Plate #2 appraisal well had been plugged and abandoned due to a seal failure in the riser connection system. The well was at a depth of 20,701 feet when the problem with the riser was detected. The well was permanently abandoned prior to reaching any geological targets. On April 23, 2015, we spud the North Platte #3 appraisal well and continue to expect well results in the second half of 2015. Our North

29

Platte #1 discovery well was drilled in 2012 and encountered over 550 net feet of oil pay in multiple high-quality Inboard Lower Tertiary reservoirs. We own a 60% working interest in our North Platte discovery.

West Africa

•

We completed drilling operations on the Cameia #4 well, which was successful and consistent with pre-drill expectations. We intend to utilize Cameia #4 as a production well. We recently spud the Cameia #5 well and expect to maintain an ongoing drilling program at Cameia for the remainder of 2015. We anticipate formal project sanction of Cameia by year-end 2015, and first production from Cameia will likely occur in 2018. The occurrence and timing of project sanction and first production from Cameia are subject to obtaining adequate financing and the approval of a revised integrated field development plan by Sonangol and the Angola Ministry of Petroleum. We are the operator of and hold a 40% working interest in the Cameia project. Our partner in the Cameia project is Sonangol Pesquisa e Produção, S.A. ("Sonangol P&P"), with a 60% working interest.

Second Quarter 2015 Financial Highlights

•

We recorded a net loss of approximately $66.8 million, a 29% decrease from the second quarter of 2014. Total operating expenses were approximately $53.0 million, a 32% decrease from the second quarter of 2014. The decrease in operating expenses for the three months ended June 30, 2015 as compared to the three months ended June 30, 2014, was primarily attributed to $8.1 million in dry hole and impairment charges during the three months ended June 30, 2015 compared to $42.4 million during the three months ended June 30, 2014.

•

Capital and operating expenditures were approximately $205.3 million for the three months ended June 30, 2015.

•

On May 29, 2015, Cobalt GOM #1 LLC ("GOM#1"), our indirect, wholly-owned subsidiary, entered into a Borrowing Base Facility Agreement (the "Facility Agreement") with Société Générale, as administrative agent, and certain other lenders. The Facility Agreement provides for a limited recourse $150 million senior secured reserve-based term loan facility. Currently, we have not borrowed any amounts under the Facility Agreement.

•

Including our existing cash, investments on hand, restricted cash, and undrawn amounts under the Facility Agreement, as of June 30, 2015, we have approximately $1.9 billion of liquidity.

Results of Operations

        We operate our business in two geographic segments: the United States and West Africa. The discussion of the results of operations and the period-to-period comparisons presented below for each operating segment and our consolidated operations analyzes our historical results. The following discussion may not be indicative of future results.

30

Three Months Ended June 30, 2015 Compared to the Three Months Ended June 30, 2014

	Three Months Ended June 30,
	2015			2014			Increase (Decrease)			%
	($ in thousands)
United States Segment:
Oil and gas revenue	$	—		$	—		$	—			—	%
Operating costs and expenses:
Seismic and exploration		9,895			4,626			5,269			114	%
Dry hole expense and impairment		7,533			40,743			(33,210	)		(82	)%
General and administrative		20,373			4,717			15,656			332	%
Depreciation and amortization		367			420			(53	)		(13	)%
Total operating costs and expenses		38,168			50,506			(12,338	)		(24	)%
Operating income (loss)		(38,168	)		(50,506	)		(12,338	)		(24	)%
West Africa Segment:
Oil and gas revenue	$	—		$	—		$	—			—	%
Operating costs and expenses:
Seismic and exploration		7,018			7,357			(339	)		(5	)%
Dry hole expense and impairment		611			1,697			(1,086	)		(64	)%
General and administrative		6,322			17,376			(11,054	)		(64	)%
Depreciation and amortization		926			655			271			41	%
Total operating costs and expenses		14,877			27,085			(12,208	)		(45	)%
Operating income (loss)		(14,877	)		(27,085	)		(12,208	)		(45	)%
Consolidated Operations:
Oil and gas revenue	$	—		$	—		$	—			—	%
Operating costs and expenses:
Seismic and exploration		16,913			11,983			4,930			41	%
Dry hole expense and impairment		8,144			42,440			(34,296	)		(81	)%
General and administrative		26,695			22,093			4,602			21	%
Depreciation and amortization		1,293			1,075			218			20	%
Total operating costs and expenses		53,045			77,591			(24,546	)		(32	)%
Operating income (loss)		(53,045	)		(77,591	)		24,546			(32	)%
Other income (expense):
Gain on the sale of assets		2,625			—			2,625			100	%
Interest income		1,451			1,435			16			1	%
Interest expense		(17,841	)		(18,600	)		759			4	%
Total other income (expense)		(13,765	)		(17,165	)		(3,400	)		20	%
Net income (loss) before income tax		(66,810	)		(94,756	)		27,946			29	%
Income tax expense (benefit)		—			—			—			—
Net income (loss)	$	(66,810	)	$	(94,756	)	$	27,946			29	%

United States Segment:

        Oil and gas revenue.    We have not yet commenced production. Therefore, we did not realize any oil and gas revenue during the three months ended June 30, 2015 and 2014, respectively.

31

        Operating costs and expenses.    Our operating costs and expenses consisted of the following during the three months ended June 30, 2015 and 2014:

        Seismic and exploration.    Seismic and exploration costs increased by $5.3 million during the three months ended June 30, 2015, as compared to the three months ended June 30, 2014. The increase was primarily attributed to the acquisition of $5.8 million in seismic data, a decrease of $0.3 million of reprocessing costs on seismic data on various U.S. Gulf of Mexico prospects in which we have a working interest and a $0.2 million decrease in delay rental and other exploration costs during the three months ended June 30, 2015.

        Dry hole expense and impairment.    Dry hole expense and impairment decreased by $33.2 million during the three months ended June 30, 2015, as compared to the three months ended June 30, 2014. The increase is reflected in the following table:

	Three Months Ended June 30,
	2015			2014		Increase (Decrease)
	($ in thousands)
Impairment of Unproved Leasehold:
Amortization of leasehold with carrying value under $1 million	$	2,579		$	2,782	$	(203	)
Dry Hole Expense:
Anchor #1 exploration well		(406	)		25,767		(26,173	)
North Platte #2 appraisal well		4,401			—		4,401
Yucatan #2 exploration well		(56	)		11,894		(11,950	)
Shenandoah By Pass Core #3		520			—		520
Aegean #1		7			—		7
Ligurian #2		38			—		38
Ardennes		450			—		450
Other Impairments:
Obsolete inventory		—			300		(300	)
	$	7,533		$	40,743	$	(33,210	)

        General and administrative.    General and administrative costs increased by $15.7 million during the three months ended June 30, 2015, as compared to the three months ended June 30, 2014. The increase of $15.7 million was attributable to an increase of $2.3 million in salary and stock compensation, driven in part by our personnel growth, an increase of $0.6 million in legal fees, an increase of $1.8 million in insurance and other office supporting costs, and a decrease of $11.9 million in recoveries from partners for overhead and technical service charges pursuant to applicable joint operating agreements, all of which were offset by a $0.9 million decrease in consulting fees and office support expenses.

        Depreciation and amortization.    Depreciation and amortization did not materially change from the three months ended June 30, 2015, as compared to the three months ended June 30, 2014.

West Africa Segment:

        Oil and gas revenue.    We have not yet commenced production. Therefore, we did not realize any oil and gas revenue during the three months ended June 30, 2015 and 2014, respectively.

32

        Operating costs and expenses.    Our operating costs and expenses consisted of the following during the three months ended June 30, 2015 and 2014:

        Seismic and exploration.    Seismic and exploration costs decreased by $0.3 million during the three months ended June 30, 2015, as compared to the three months ended June 30, 2014. The decrease consisted of an increase in seismic data acquisition and processing of $2.7 million, which was offset by a decrease of $3.0 million in other exploration expenses associated with support vessel standby costs and shorebase personnel and equipment costs during the three months ended June 30, 2015.

        Dry hole expense and impairment.    Dry hole expense and impairment decreased by $1.1 million as there were no material impairments taken in Angola for the three months ended June 30, 2015.

        General and administrative.    General and administrative costs decreased by $11.1 million during the three months ended June 30, 2015, as compared to the three months ended June 30, 2014. The decrease of $11.1 million is primarily attributable to a $0.8 million decrease in staff costs in Angola, a $1.3 million decrease in other office related expenses and a decrease in technical and overhead charges of $9.0 million.

        Depreciation and amortization.    Depreciation and amortization did not materially change from the three months ended June 30, 2015, as compared to the three months ended June 30, 2014.

Consolidated:

        Other income (expense).    Other income (expense) decreased by $3.4 million during the three months ended June 30, 2015, as compared to the three months ended June 30, 2014. The decrease was primarily due to a gain recognized on the sale of assets of $2.6 million in the second quarter of 2015.

        Income tax expense/benefit.    No income tax benefit has been reflected since a full valuation allowance has been established against the deferred tax asset that would have been generated as a result of the operating results.

33

Six Months Ended June 30, 2015 Compared to the Six Months Ended June 30, 2014

	Six Months Ended June 30,
	2015			2014			Increase (Decrease)			%
	($ in thousands)
United States Segment:
Oil and gas revenue	$	—		$	—		$	—			—	%
Operating costs and expenses:
Seismic and exploration		23,675			7,063			16,612			235	%
Dry hole expense and impairment		27,430			53,623			(26,193	)		(49	)%
General and administrative		38,025			19,978			18,047			90	%
Depreciation and amortization		780			868			(89	)		(10	)%
Total operating costs and expenses		89,910			81,532			8,378			10	%
Operating income (loss)		(89,910	)		(81,532	)		8,378			10	%
West Africa Segment:
Oil and gas revenue	$	—		$	—		$	—			—	%
Operating costs and expenses:
Seismic and exploration		11,007			13,895			(2,888	)		(21	)%
Dry hole expense and impairment		611			1,858			(1,247	)		(67	)%
General and administrative		12,921			26,284			(13,363	)		(51	)%
Depreciation and amortization		1,855			1,314			542			41	%
Total operating costs and expenses		26,394			43,351			16,957			(39	)%
Operating income (loss)		(26,394	)		(43,351	)		16,957			(39	)%
Consolidated Operations:
Oil and gas revenue	$	—		$	—		$	—			—	%
Operating costs and expenses:
Seismic and exploration		34,682			20,958			13,724			65	%
Dry hole expense and impairment		28,041			55,481			(27,440	)		(49	)%
General and administrative		50,946			46,262			4,684			10	%
Depreciation and amortization		2,635			2,182			453			21	%
Total operating costs and expenses		116,304			124,883			8,579			(7	)%
Operating income (loss)		(116,304	)		(124,883	)		8,579			(7	)%
Other income (expense):
Gain on the sale of assets		2,625			—			2,625			100	%
Interest income		3,113			2,379			734			31	%
Interest expense		(37,862	)		(29,167	)		(8,695	)		30	%
Total other income (expense)		(32,124	)		(26,788	)		5,336			20	%
Net income (loss) before income tax		(148,428	)		(151,671	)		3,243			2	%
Income tax expense (benefit)		—			—			—			—
Net income (loss)	$	(148,428	)	$	(151,671	)	$	3,243			2	%

United States Segment:

        Oil and gas revenue.    We have not yet commenced production. Therefore, we did not realize any oil and gas revenue during the six months ended June 30, 2015 and 2014, respectively.

34

        Operating costs and expenses.    Our operating costs and expenses consisted of the following during the six months ended June 30, 2015 and 2014:

        Seismic and exploration.    Seismic and exploration costs increased by $16.6 million during the six months ended June 30, 2015, as compared to the six months ended June 30, 2014. The increase was primarily attributed to the acquisition of $9.5 million in seismic data, and $7.1 million of reprocessing costs on seismic data on various U.S. Gulf of Mexico prospects in which we have a working interest during the six months ended June 30, 2015.

        Dry hole expense and impairment.    Dry hole expense and impairment decreased by $26.2 million during the six months ended June 30, 2015, as compared to the six months ended June 30, 2014. The decrease is reflected in the following table:

	Six Months Ended June 30,
	2015			2014		Increase (Decrease)
	($ in thousands)
Impairment of Unproved Leasehold:
Amortization of leasehold with carrying value under $1 million	$	5,176		$	5,179	$	(3	)
U.S. Gulf of Mexico leasehold		—			7,264		(7,264	)
Dry Hole Expense:
Aegean #1 exploration well		(12	)		3,220		(3,232	)
Anchor #1 exploration well		155			25,767		(25,612	)
North Platte #2 appraisal well		21,306			—		21,306
Shenandoah VSP		247			—		247
Shenandoah By Pass Core #3		148			—		148
Yucatan #2 exploration well		(197	)		11,893		(12,090	)
Ligurian #2		37			—		37
Ardennes		450			—		450
Other Impairments:
Obsolete inventory		120			300		(180	)
	$	27,430		$	53,623	$	(26,193	)

        General and administrative.    General and administrative costs increased by $18.0 million during the six months ended June 30, 2015, as compared to the six months ended June 30, 2014. The increase of $18.0 million was attributable to an increase of $5.6 million in salary and stock compensation, driven in part by our personnel growth, an increase of $1.5 million in legal fees, an increase of $0.4 million in consulting fees and office support expenses and a decrease of $10.5 million in recoveries from partners for overhead and technical service charges pursuant to applicable joint operating agreements.

        Depreciation and amortization.    Depreciation and amortization did not materially change from the six months ended June 30, 2015, as compared to the six months ended June 30, 2014.

West Africa Segment:

        Oil and gas revenue.    We have not yet commenced production. Therefore, we did not realize any oil and gas revenue during the six months ended June 30, 2015 and 2014, respectively.

        Operating costs and expenses.    Our operating costs and expenses consisted of the following during the six months ended June 30, 2015 and 2014:

        Seismic and exploration.    Seismic and exploration costs decreased by $2.9 million during the six months ended June 30, 2015, as compared to the six months ended June 30, 2014. The decrease of

35

$2.9 million was primarily attributable to a decrease of $3.5 million in other exploration costs, offset by an increase of $0.6 million in seismic costs in Angola.

        Dry hole expense and impairment.    Dry hole expense and impairment decreased by $1.2 million as there were no material impairments taken in Angola in the six months ended June 30, 2015.

        General and administrative.    General and administrative costs decreased by $13.4 million during the six months ended June 30, 2015, as compared to the six months ended June 30, 2014. The decrease of $13.4 million was attributable to a decrease of $0.4 million in salary compensation, an increase of $9.0 million in recoveries from partners for overhead and technical service charges pursuant to applicable joint operating agreements, and a $4.0 million decrease in consulting fees and office support expenses.

        Depreciation and amortization.    Depreciation and amortization did not materially change from the six months ended June 30, 2015, as compared to the six months ended June 30, 2014.

Consolidated:

        Other income (expense).    Other income (expense) increased by $5.3 million during the six months ended June 30, 2015, as compared to the six months ended June 30, 2014. The increase was due primarily to additional interest expense during the six months ended June 30, 2015 resulting from the 3.125% convertible senior notes due 2024 issued in May 2014. During the six months ended June 30, 2014, the interest expense included only the 2.625% convertible senior notes due 2019 issued in December 2012 and one month of interest expense on the 3.125% convertible senior notes. This was partially offset by a gain recognized on the sale of assets of $2.6 million in the second quarter of 2015.

        Income tax expense/benefit.    No income tax benefit has been reflected since a full valuation allowance has been established against the deferred tax asset that would have been generated as a result of the operating results.

Liquidity and Capital Resources

        Our Heidelberg project was sanctioned in mid-2013, and the operator currently estimates first production from Heidelberg by mid-2016. With respect to our Cameia project, given the current commodity price environment, we are reviewing the project design concept and projected capital expenditures in order to optimize the cost and scale of the Cameia development and production facilities prior to formal project sanction. Throughout 2015, we intend to continue pursuing project cost reductions in light of the current weakness in the market for goods and services utilized in major offshore development projects. We remain committed to progressing the Cameia development towards project sanction and production, and, to that end, we have concluded drilling operations on the first of several planned Cameia development wells and are currently drilling another Cameia development well. We expect to achieve formal project sanction of Cameia by year-end 2015, and first production from Cameia will likely occur in 2018. The occurrence and timing of project sanction and first production from Cameia is subject to obtaining adequate financing and the approval of a revised integrated field development plan by Sonangol and the Angola Ministry of Petroleum.

        Until substantial production is achieved, our primary sources of liquidity are expected to be cash on hand, amounts paid pursuant to the terms of our Total alliance and funds from any future equity and debt financings, asset-based ventures and asset monetizations.

        We expect to incur substantial expenditures and generate significant operating losses as we continue to:

•

evaluate each of our discoveries through project appraisal and potential development towards first production and cash flow;

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•

continue our exploration activity on our existing acreage;

•

seek the renewal of our worldwide exploration portfolio in locations applicable to our deepwater and below-salt exploration strength; and

•

incur expenses related to operating as a public company and compliance with regulatory requirements.

        Our future financial condition and liquidity will be impacted by, among other factors, our ability to obtain financing, oil and gas prices, the success of our project development and exploration efforts, the number of commercially viable hydrocarbon discoveries made and the quantities of hydrocarbons discovered, the speed with which we can bring such discoveries to production, whether and to what extent we invest in additional oil leases and concessional licenses, and the actual cost of exploration, appraisal and development of our prospects.

        As of June 30, 2015, we had approximately $1.9 billion in liquidity, which includes cash and cash equivalents, short-term restricted cash, short-term investments, long-term restricted cash, long-term investments and undrawn amounts under the Facility Agreement. This amount does not include amounts Total is obligated to pay us pursuant to the terms of our U.S. Gulf of Mexico alliance. We expect to expend approximately $800 to $900 million for our capital and operating expenditures in 2015. Given our exploration success, our focus has now shifted towards selectively developing our discoveries with the aim to turn them into production. Thus, we currently expect to allocate approximately 80% of our planned 2015 capital and operating expenditure budget toward project appraisal and development activities. Our capital and operating expenditures were approximately $205.3 million and $396.0 million for the three and six months ended June 30, 2015, respectively. Our capital and operating expenditures exclude interest payments, Angolan social contributions and items amortized in future years' operations. We expect to use approximately $200 million for these items in 2015. We expect that our existing cash on hand will be sufficient to fund our planned exploration and appraisal drilling program and development activities at current working interests through at least 2016.

        On May 29, 2015, Cobalt GOM #1 LLC ("GOM#1"), our indirect, wholly-owned subsidiary, entered into a Borrowing Base Facility Agreement (the "Facility Agreement") with Société Générale, as administrative agent, and certain other lenders. The Facility Agreement provides for a limited recourse $150 million senior secured reserve-based term loan facility. Currently, we have not borrowed any amounts under the Facility Agreement.

        We are currently pursuing certain asset-based ventures and monetizations to fund our long-term project appraisal, development and exploration activities. We may also seek additional funding through equity and debt financings. Additional funding, including funding through any asset-based venture or monetization, may not be available to us on acceptable terms or at all. In addition, the terms of any financing may adversely affect the holdings or the rights of our existing stockholders. For example, if we raise additional funds by issuing additional equity securities, further dilution to our existing stockholders will result. If we are unable to obtain funding on a timely basis or on acceptable terms, we may be required to significantly curtail our exploration, appraisal and development activities. Any asset-based venture or monetization may also require us to relinquish rights to some of our development projects or exploration prospects which we would otherwise develop on our own, or with a majority working interest.

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Cash Flows:

	Six Months Ended June 30,
	2015			2014
	($ in thousands)
Net cash provided by (used in):
Operating Activities	$	(141,531	)	$	(42,677	)
Investing Activities		43,069			(1,181,278	)
Financing Activities		(4,025	)		1,269,180

        Operating activities.    Net cash of $141.5 million and $42.7 million used in operating activities during six months ended June 30, 2015 and 2014, respectively, were primarily related to cash payments for seismic and exploration expenses incurred in the U.S. Gulf of Mexico and West Africa.

        Investing activities.    Net cash provided by investing activities for the six months ended June 30, 2015 was $43.1 million compared to net cash used in investing activities of $1.2 billion for the six months ended June 30, 2014. The net cash used in investing activities for the six months ended June 30, 2014 was primarily related to the investment of the $1.3 billion net proceeds from the 3.125% convertible senior notes due 2024 that were issued in May 2014. Net cash provided by investing activities for the six months ended June 30, 2015 primarily consisted of proceeds from maturity of investment securities of $909.6 million offset by an increase in restricted cash of $3.0 million, purchases of investment securities of $519.9 million and capital expenditures of $0.4 billion.

        Financing activities.    Net cash used in financing activities for the six months ended June 30, 2015 was $4.0 million compared to net cash provided by financing activities of $1.3 billion for the six months ended June 30, 2014. The $4.0 million used in financing activities for the six months ended June 30, 2015 relates to debt issuance costs associated with the Facility Agreement entered into on May 29, 2015. The $1.3 billion provided by financing activities for the six months ended June 30, 2014 relates to net proceeds from the 3.125% convertible senior notes due 2024 that were issued in May 2014.

Critical Accounting Policies

        Our significant accounting policies are summarized in Note 1 of Notes to Consolidated Financial Statements included in our 2014 Annual Report on Form 10-K for the year ended December 31, 2014. Also refer to the Notes to the Condensed Consolidated Financial Statements included in Part 1, Item 1 of this Report.

Item 3.    Quantitative and Qualitative Disclosures About Market Risk

        There have been no material changes in market risk from the information provided under Part II, Item 7A. "Quantitative and Qualitative Disclosures about Market Risk" in our 2014 Annual Report on Form 10-K for the year ended December 31, 2014.

Item 4.    Controls and Procedures

        We performed an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Securities Exchange Act of 1934, as amended (the "Exchange Act"), Rules 13a-15 and 15d-15 as of the end of the period covered by this Report. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective to provide reasonable assurance that the information required to be disclosed by us in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and such information is accumulated and communicated to management, as appropriate to allow timely decisions regarding required disclosure.

        There were no changes in our internal control over financial reporting during the quarter ended June 30, 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II—OTHER INFORMATION

Item 1.    Legal Proceedings

        There have been no material changes in the information provided under Part I, Item 3. "Legal Proceedings" in our 2014 Annual Report on Form 10-K for the year ended December 31, 2014.

Item 1A.    Risk Factors

        There have been no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2014.

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds

        None.

Item 3.    Defaults Upon Senior Securities

        None.

Item 4.    Mine Safety Disclosures

        Not applicable.

Item 5.    Other Information

        None.

Item 6.    Exhibits

Exhibit Number			Description of Document
	31.1	*	Certification of the Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934
	31.2	*	Certification of the Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934
	32.1	*	Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
	32.2	*	Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
	101.INS	*	XBRL Instance Document
	101.SCH	*	XBRL Schema Document
	101.CAL	*	XBRL Calculation Linkbase Document
	101.DEF	*	XBRL Definition Linkbase Document
	101.LAB	*	XBRL Labels Linkbase Document
	101.PRE	*	XBRL Presentation Linkbase Document

*

Filed herewith.

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SIGNATURES

        Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.

Cobalt International Energy, Inc.
By:	/s/ JOSEPH H. BRYANT
	Name:	Joseph H. Bryant
	Title:	Chairman of the Board of Directors and Chief Executive Officer

By:	/s/ JOHN P. WILKIRSON
	Name:	John P. Wilkirson
	Title:	Executive Vice President and Chief Financial Officer

Dated: August 4, 2015

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EXHIBIT INDEX

Exhibit Number			Description of Document
	31.1	*	Certification of the Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934
	31.2	*	Certification of the Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934
	32.1	*	Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
	32.2	*	Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
	101.INS	*	XBRL Instance Document
	101.SCH	*	XBRL Schema Document
	101.CAL	*	XBRL Calculation Linkbase Document
	101.DEF	*	XBRL Definition Linkbase Document
	101.LAB	*	XBRL Labels Linkbase Document
	101.PRE	*	XBRL Presentation Linkbase Document

*

Filed herewith.

41