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TABLE OF CONTENTS
PART I—FINANCIAL INFORMATION

Table of Contents

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 September 30, 2011
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.)
Two Post Oak Central 1980 Post Oak Boulevard, Suite 1200 Houston, Texas (Address of principal executive offices)		77056 (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 o		Accelerated filer ý		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 September 30, 2011: 392,127,787 shares.

Table of Contents

TABLE OF CONTENTS


PART I—FINANCIAL INFORMATION
	*Item 1.*	Financial Statements	5
	*Item 2.*	Management's Discussion and Analysis of Financial Condition and Results of Operations	23
	*Item 3.*	Quantitative and Qualitative Disclosures About Market Risk	29
	*Item 4.*	Controls and Procedures	29
PART II—OTHER INFORMATION
	*Item 1.*	Legal Proceedings	29
	*Item 1A.*	Risk Factors	29
	*Item 2.*	Unregistered Sales of Equity Securities and Use of Proceeds	29
	*Item 3.*	Defaults Upon Senior Securities	30
	*Item 4.*	(Removed and Reserved)	30
	*Item 5.*	Other Information	30
	*Item 6.*	Exhibits	30

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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 2010 Annual Report on Form 10-K filed on March 1, 2011, 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 and our partners' ability to obtain permits and licenses and drill in the U.S. Gulf of Mexico and West Africa;
•: current and future government regulation of the oil and gas industry;
•: changes in environmental laws or the implementation or interpretation of those laws;
•: the costs and delays associated with complying with additional legislation and regulation of the oil and gas industry;
•: the successful implementation of our and our partners' prospect development and drilling plans;
•: our ability to obtain financing;
•: the timing and execution of our production sharing agreement for Block 20 offshore Angola;
•: uncertainties inherent in making estimates of our oil and natural gas data;
•: the discovery and development of oil reserves;
•: projected and targeted capital expenditures and other costs, commitments and revenues;
•: termination of or intervention in concessions, licenses, permits, rights or authorizations granted by the United States, Angolan and Gabonese governments to us;
•: competition;
•: the volatility of oil prices;
•: our ability to successfully develop our current prospects and to find, acquire or gain access to other prospects;
•: the availability and cost of drilling rigs, containment resources, production equipment, supplies, personnel and oilfield services;
•: the availability and cost of developing appropriate infrastructure around and transportation to our prospects;
•: military operations, terrorist acts, wars or embargoes;
•: our dependence on our key management personnel and our ability to attract and retain qualified personnel;

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•: 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; and
•: other risk factors discussed in the "Risk Factors" section of our 2010 Annual Report on Form 10-K filed on March 1, 2011.

The words "believe," "may," "will," "aim," "estimate," "continue," "anticipate," "intend," "expect," "forecast," "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.

Table of Contents

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

COBALT INTERNATIONAL ENERGY, INC.


Condensed Consolidated Balance Sheets as of September 30, 2011 and December 31, 2010			6
Condensed Consolidated Statements of Operations for the Three Months and Nine Months Ended September 30, 2011 and 2010, and for the period November 10, 2005 (Inception) through September 30, 2011			7
Condensed Consolidated Statements of Changes in Partners' Capital and Stockholders' Equity for the Nine Months Ended September 30, 2011 and for the period November 10, 2005 (Inception) through September 30, 2011			8
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2011 and 2010, and for the period November 10, 2005 (Inception) through September 30, 2011			9
Notes to Condensed Consolidated Financial Statements			10

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Cobalt International Energy, Inc.
(a Development Stage Enterprise)

Condensed Consolidated Balance Sheets

(Unaudited)

		September 30, 2011			December 31, 2010

		($ in thousands)
Assets
Current assets:
	Cash and cash equivalents	$	192,640		$	302,720
	Joint interest and other receivables		28,636			8,237
	Prepaid expenses and other current assets		4,761			9,004
	Inventory		37,842			34,738
	Short-term restricted cash		64,125			—
	Short-term investments		767,140			534,933

Total current assets			1,095,144			889,632
Property, plant, and equipment:
	Oil and gas properties, successful efforts method of accounting, net of accumulated depletion of $-0-		477,581			462,500
	Other property and equipment, net of accumulated depreciation and amortization of $3,369 and $2,820, respectively		1,373			1,269

Total property, plant, and equipment, net			478,954			463,769

	Long-term restricted cash		275,186			338,515
	Long-term investments		316,736			40,003
	Other assets		17,333			14,524

Total assets			2,183,353		$	1,746,443

Liabilities and Stockholders' Equity
Current liabilities:
	Trade and other accounts payable		33,991		$	11,989
	Accrued liabilities		20,432			12,570

Total current liabilities			54,423			24,559

Other long-term obligations			2,850			2,850
Stockholders' Equity:
Common stock, $0.01 par value per share; 2,000,000,000 shares authorized, 386,905,833 and 350,733,998 issued and outstanding as of September 30, 2011 and December 31, 2010, respectively			3,869			3,507
Additional paid-in capital			2,715,933			2,226,726
Deficit accumulated during the development stage			(593,722	)		(511,199	)

Total stockholders' equity			2,126,080			1,719,034

Total liabilities and stockholders' equity			2,183,353		$	1,746,443

See accompanying notes.

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Cobalt International Energy, Inc.
(a Development Stage Enterprise)

Condensed Consolidated Statements of Operations

(Unaudited)

														For the Period November 10, 2005 (Inception) Through September 30, 2011

		Three Months Ended September 30,						Nine Months Ended September 30,
		2011			2010			2011			2010
		($ in thousands except per share data)
Oil and gas revenue		$	—		$	—		$	—		$	—		$	—
Operating costs and expenses:
	Seismic and exploration		4,757			20,178			12,010			30,180			308,360
	Dry hole expense and impairment		31,840			2,852			36,859			42,593			95,774
	General and administrative		11,459			12,343			36,115			34,047			194,965
	Depreciation and amortization		186			216			549			593			3,369

Total operating costs and expenses			48,242			35,589			85,533			107,413			602,468

	Operating income (loss)		(48,242	)		(35,589	)		(85,533	)		(107,413	)		(602,468	)
Other income (expense):
	Interest income (expense), net		1,255			407			3,010			733			8,746

Total other income (expense)			1,255			407			3,010			733			8,746

Net income (loss) before income tax			(46,987	)		(35,182	)		(82,523	)		(106,680	)		(593,722	)
Income tax expense			—			—			—			—			—

Net income (loss)		$	(46,987	)	$	(35,182	)	$	(82,523	)	$	(106,680	)	$	(593,722	)

Basic and diluted income (loss) per share		$	(0.12	)	$	(0.10	)	$	(0.22	)	$	(0.31	)

Basic and diluted weighted average common shares outstanding			386,826,845			349,781,588			373,073,307			349,048,660

See accompanying notes.

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Cobalt International Energy, Inc.
(a Development Stage Enterprise)

Condensed Consolidated Statements of Changes in Partners' Capital and Stockholders' Equity

(Unaudited)

	General Partner		Class A Limited Partners			Class B Limited Partners			Class C Limited Partners			Common Stock		Additional Paid-in Capital			Accumulated Deficit During Development Stage			Total

	($ in thousands)
Balance, November 10, 2005 (Inception)	$	—	$	—		$	—		$	—		$	—	$	—		$	—		$	—
Class A limited partners' contributions		—		1,256,738			—			—			—		—			—			1,256,738
Class B & C limited partners' equity compensation		—		—			6,984			734			—		—			—			7,718
Common stock issued upon corporate reorganization		—		(1,256,738	)		(6,984	)		(734	)		2,743		1,261,713			—			—
Equity based compensation		—		—			—			—			—		15,074			—			15,074
Common stock issued at initial public offering, net of offering costs		—		—			—			—			630		806,629			—			807,259
Common stock issued at private placement		—		—			—			—			32		42,156			—			42,188
Common stock issued at the closing of the over-allotment portion of initial public offering, net of offering costs		—		—			—			—			80		101,176			—			101,256
Common stock issued for vested restricted stock		—		—			—			—			22		(22	)		—			—
Net income (loss)		—		—			—			—			—		—			(511,199	)		(511,199	)

Balance, December 31, 2010		—		—			—			—			3,507		2,226,726			(511,199	)		1,719,034
Common stock issued at public offering, net of costs		—		—			—			—			357		477,846			—			478,203
Common stock issued for vested restricted stock		—		—			—			—			5		(5	)		—			—
Equity based compensation		—		—			—			—			—		11,366			—			11,366
Net income (loss)		—		—			—			—			—		—			(82,523	)		(82,523	)

Balance, September 30, 2011	$	—	$	—		$	—		$	—		$	3,869	$	2,715,933		$	(593,722	)		2,126,080

See accompanying notes.

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Cobalt International Energy, Inc.
(a Development Stage Enterprise)

Condensed Consolidated Statements of Cash Flows

(Unaudited)

									For the Period November 10, 2005 (Inception) Through September 30, 2011

			Nine Months Ended September 30,
			2011			2010
			($ in thousands)
Cash flows provided from operating activities
Net income (loss)			$	(82,523	)	$	(106,680	)	$	(593,722	)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
	Depreciation and amortization			549			593			3,369
	Dry hole expense and impairment of unproved properties			36,859			42,593			95,774
	Equity based compensation			11,366			10,323			34,159
	Amortization of premium (accretion of discount) on investment securities			8,581			186			10,189
	Other			—			—			558
	Changes in operating assets and liabilities:
		Joint interest and other receivables		(29,632	)		18,724			(28,471	)
		Inventory		(3,105	)		(23,839	)		(46,911	)
		Prepaid expense and other assets		1,435			(10,851	)		(19,245	)
		Trade and other accounts payable		21,994			(6,688	)		33,997
		Accrued liabilities and other		(1,068	)		(20,196	)		11,506

Net cash provided by (used in) operating activities				(35,544	)		(95,835	)		(498,797	)

Cash flows from investing activities
Capital expenditures for oil and gas properties				—			(1,591	)		(704,107	)
Capital expenditures for other property and equipment				(646	)		(953	)		(4,749	)
Exploratory wells drilling in process				(43,012	)		(32,345	)		(199,322	)
Proceeds from sale of oil and gas properties				—			5,250			339,001
Change in restricted cash				(281	)		(151,490	)		(338,686	)
Proceeds from maturity of investment securities				1,084,662			—			1,309,647
Purchase of investment securities				(1,593,463	)		(538,757	)		(2,395,433	)

Net cash provided by (used in) investing activities				(552,740	)		(719,886	)		(1,993,649	)

Cash flows from financing activities
Capital contributions prior to IPO—Class A limited partners				—			—			1,256,180
Proceeds from initial public offering, net of costs				—			101,256			950,702
Proceeds from public offering, net of costs				478,204			—			478,204

Net cash provided by (used in) financing activities				478,204			101,256			2,685,086

Net increase (decrease) in cash and cash equivalents				(110,080	)		(714,465	)		192,640
Cash and cash equivalents, beginning of period				302,720			1,093,100			—

Cash and cash equivalents, end of period			$	192,640		$	378,635		$	192,640

See accompanying notes.

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Cobalt International Energy, Inc.
(a Development Stage Enterprise)

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. Organization and Operations

Organization

Cobalt International Energy, Inc. (the "Company") was incorporated pursuant to the laws of the State of Delaware in August 2009 to become a holding company for Cobalt International Energy, L.P. (the "Partnership"). The Partnership is a Delaware limited partnership formed on November 10, 2005, by funds affiliated with Goldman, Sachs & Co., Riverstone Holdings LLC and The Carlyle Group as well as members of the Partnership's management team, collectively constituting Class A limited partners. In 2006, funds affiliated with KERN Partners Ltd. and certain limited partners in such funds affiliated with KERN Partners Ltd, were admitted as Class A limited partners. In 2007, First Reserve Corporation and Four Winds Consulting were admitted as Class A limited partners.

A corporate reorganization occurred concurrently with the completion of the initial public offering ("IPO") on December 21, 2009. All the outstanding interests of the Partnership were exchanged for 283,200,000 shares of the Company's common stock and as a result the Partnership became wholly-owned by the Company. The shares of CIP GP Corp., the general partner of the Partnership were contributed by certain of the Class A limited partners holding such shares to the Company for no consideration. Prior to reorganization, the Company was not subject to federal or state income taxes. Upon completion of the corporate reorganization, the Company became subject to federal and state income taxes.

On December 21, 2009 the Company closed its IPO with the issuance of 63,000,000 shares of common stock from the public offering and 3,125,000 of shares issued in a private placement at a price of $13.50 per share. On January 7, 2010, the Company closed the sale of an additional 7,978,000 shares of its common stock at the public offering price of $13.50 per share pursuant to the exercise of the over-allotment option by the underwriters of the IPO. On April 15, 2011, the Company completed a registered underwritten public offering of 35,650,000 shares of its common stock at a public offering price of $14.00 per share, resulting in net proceeds to the Company of $478.2 million. The proceeds from these offerings of common stock have been and will be used to fund the Company's drilling and exploration program.

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

Operations

The Company is an independent, oil-focused exploration and production company in the deepwater U.S. Gulf of Mexico and offshore Angola and Gabon in West Africa. The Company is currently drilling its Cameia #1 exploratory well on Block 21 offshore Angola. After drilling and evaluating the Cameia #1 exploratory well, the Company plans to drill and evaluate the Bicuar #1 exploratory well offshore Angola at a different surface hole location from the location in which the Company originally spud the Bicuar #1 exploratory well and experienced a shallow water flow. The Company expects the Ensco 8503 drilling rig to return to the U.S. Gulf of Mexico in the late fourth quarter of 2011 and to resume its operated drilling program shortly thereafter.

As of September 30, 2011, the Company had no proved oil and gas reserves.

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Cobalt International Energy, Inc.
(a Development Stage Enterprise)

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

2. Summary of Significant Accounting Policies

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. Because the Company is a development stage enterprise, it has presented its financial statements in accordance with FASB Accounting Standards Codification (ASC) No. 915 "Development Stage Entities."

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 unaudited 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, 2010.

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 and (iii) assumptions used in impairment testing. Although the Company believes these estimates are reasonable, actual results could differ from these estimates.

Income (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 should include the potential dilutive impact of nonvested restricted shares outstanding during the year, unless their effect is anti-dilutive. For the three and nine months ended September 30, 2011, 6,561,373 shares of non-vested restricted stock, stock options and performance-based awards were excluded from the diluted income (loss) per share because they are anti-dilutive. For the three and nine months ended September 30, 2010, 6,213,635 shares of non-vested restricted stock were excluded from the diluted income (loss) per share because they are anti-dilutive.

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Cobalt International Energy, Inc.
(a Development Stage Enterprise)

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

2. Summary of Significant Accounting Policies (Continued)

Fair Value of Financial Instruments

The Company's financial instruments include cash and cash equivalents, joint interest and other receivables, investments and restricted cash. The fair value of these instruments approximates carrying values due to their short-term duration. None of the Company's investments have maturities beyond two years. See Note 4—Restricted Cash and Note 5—Investments, for a discussion of the carrying value and fair value of the Company's investments in held-to-maturity securities.

Investments

In 2010, the Company adopted a policy on accounting for its investments, which consist entirely of debt securities, based on the guidance of Accounting Standards Codification No. 320, 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 and classified as held-to-maturity securities 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. Held-to-maturity securities are stated at amortized cost, which approximates fair market value as of September 30, 2011. Income related to these securities is reported as a component of interest income in the Company's consolidated statement of operations.

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. For the three and nine months ended September 30, 2011, the Company has no OTTI in its debt securities.

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Cobalt International Energy, Inc.
(a Development Stage Enterprise)

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

3. Cash and Cash Equivalents

Cash and cash equivalents consisted of the following:

	September 30, 2011		December 31, 2010

	(in thousands)
Cash at banks	$	57	$	10,327
Money market funds		52,597		59,792
Held-to-maturity securities(1)		139,986		232,601

	$	192,640	$	302,720

(1): These securities mature within 90 days from the date of purchase.

4. Restricted Cash

Restricted cash consisted of the following:

	September 30, 2011		December 31, 2010

	(in thousands)
Short-term:
Ocean Confidence escrow account(1)	$	10,803	$	—
Collateral on letters of credit for Angola(2)		53,322		—

	$	64,125	$	—

Long-term:
Ensco 8503 escrow account(3)	$	186,338	$	186,184
Collateral on letters of credit for Angola(2)		88,130		151,615
Other vendor restricted cash		718		716

	$	275,186	$	338,515

(1): The $10.8 million was held in an escrow account established in January 2011 as a guarantee of performance to Z North Sea Ltd, a subsidiary of Diamond Offshore Drilling, Inc. for the Ocean Confidence drilling rig contract. During the three and nine months ended September 30, 2011, this escrow fund was invested in a money market deposit account.
(2): $151.3 million was held in a collateral account established in March 2010 as collateral for letters of credit issued in support of the Company's contractually agreed work program obligations on Blocks 21 and 9 offshore Angola. In April 2011, the collateral was reduced by approximately $10.0 million following the completion of the seismic phase of the work program obligations for Block 9 offshore Angola. During the three months ended September 30, 2011, the Company reclassified $53.3 million from long-term restricted cash to short term restricted cash as this amount represents the work program obligations

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Cobalt International Energy, Inc.
(a Development Stage Enterprise)

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

4. Restricted Cash (Continued)

for two wells on Block 21 offshore Angola that are expected to be drilled within the next twelve months. As of September 30, 2011, the short-term and long-term collateral in this account was invested in U.S. Treasury bills and U.S. government guaranteed corporate bonds, purchased at discounts and at premiums, respectively, resulting in a net carrying value of $141.5 million. The contractual maturities of these securities are within one year.

(3): $186.0 million was held in an escrow account established in December 2009 as a guarantee of performance to Ensco Offshore Company for the Ensco 8503 drilling rig contract. This escrow fund was invested in U.S. Treasury bills, purchased at a discount, resulting in net carrying value of $179.8 million and in a money market fund with a carrying value of $6.5 million as of September 30, 2011. The contractual maturities of the U.S. Treasury bills are within six months.

5. Investments

The Company's investments in held-to-maturity securities, which are stated at amortized cost, were as follows at September 30, 2011 and December 31, 2010:

	September 30, 2011		December 31, 2010

	(in thousands)
U.S. Treasury securities	$	400,941	$	604,035
Corporate securities		555,100		180,191
Commercial paper		449,887		282,039
U.S. government agency securities		71,869		60,003
Municipal bonds		42,330		19,068
Certificates of deposit		25,000		—

Total	$	1,545,127	$	1,145,336

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

	September 30, 2011		December 31, 2010

	(in thousands)
Cash and cash equivalents	$	139,986	$	232,601
Short-term investments		767,140		534,933
Short-term restricted cash		53,322		—
Long-term restricted cash		267,943		337,799
Long-term investments		316,736		40,003

	$	1,545,127	$	1,145,336

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Cobalt International Energy, Inc.
(a Development Stage Enterprise)

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

5. Investments (Continued)

The contractual maturities of these held-to-maturity securities as of September 30, 2011 were as follows:

	Amortized Cost		Estimated Fair Value

	(in thousands)
Within 1 year	$	1,228,391	$	1,228,391
1 year through 5 years		316,736		316,736

	$	1,545,127	$	1,545,127

6. 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 and accrued interest on investment securities. As of September 30, 2011 and December 31, 2010, the balance in joint interest and other receivables consisted of the following:

	September 30, 2011		December 31, 2010

	(in thousands)
Partners in the U.S. Gulf of Mexico	$	2,431	$	4,368
Partners in West Africa		17,673		—
Accrued interest on investment securities		7,101		3,865
Vendor and other receivables		1,431		4

	$	28,636	$	8,237

7. Inventory

Inventories consist of various tubular and wellhead products that are used in the Company's drilling programs. The products are stated at the lower of cost or market. Cost is determined on weighted average method and consists of purchase price and other directly attributable costs.

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Cobalt International Energy, Inc.
(a Development Stage Enterprise)

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

8. Property, Plant, and Equipment

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

		September 30, 2011			December 31, 2010

		($ in Thousands)
Unproved oil and gas properties, net		$	348,094		$	355,619
Exploratory wells in process			129,487			106,881

Oil and gas properties, net			477,581			462,500

Computer equipment and software	3		2,738			2,300
Office equipment and furniture	3		1,089			1,047
Vehicles	3		129			76
Leasehold improvements	3		786			666

			4,742			4,089
Less: accumulated depreciation and amortization			(3,369	)		(2,820	)

Other property and equipment, net			1,373			1,269

Total property, plant, and equipment, net		$	478,954		$	463,769

The Company recorded $0.2 million, $0.2 million, $0.5 million, $0.6 million and $3.4 million of depreciation and amortization expense for the three and nine months ended September 30, 2011 and 2010 and for the period November 10, 2005 (inception) through September 30, 2011, respectively.

Acquisition costs of unproved leasehold properties are assessed for impairment during the holding period and transferred to proved oil and gas properties to the extent associated with successful exploration activities or expensed when impairment is indicated. Significant unproved leases are assessed individually for impairment based on the Company's current exploration plans and an allowance is provided if impairment is indicated. Unproved leasehold costs for properties that are individually less than $1.0 million in carrying value are amortized on a group basis over the average term of the leases, at rates that provide for full amortization of leases upon lease expiration. These leases have expiration dates ranging from 2012 through 2020. As of September 30, 2011, the balance for unproved leaseholds that were individually less than $1.0 million before impairment provision was $65.1 million. For the three and nine months ended September 30, 2011 and 2010, and for the period November 10, 2005 (inception) through September 30, 2011, the Company recorded $2.5 million, $2.3 million, $7.5 million, $6.9 million and $16.8 million, respectively, as amortized expense on its unproved leasehold properties.

Capitalized Exploratory Well Costs

If an exploratory well provides evidence as to the existence of sufficient quantities of hydrocarbons to justify potential completion as a producing well, drilling costs associated with the well are initially capitalized, or suspended, pending a determination as to whether a commercially sufficient quantity of

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Cobalt International Energy, Inc.
(a Development Stage Enterprise)

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

8. Property, Plant, and Equipment (Continued)

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 volume 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 approvals before proceeding with development activities.

The following table reflects the Company's net changes in and the cumulative costs of capitalized exploratory well costs (excluding any related leasehold costs):

		September 30, 2011			December 31, 2010

		($ in thousands)
Beginning of period		$	106,881		$	107,226
Addition to capitalized exploratory well cost pending determination of proved reserves:
U.S. Gulf of Mexico:
	Shenandoah #1 Exploratory Well		(8	)		176
	Heidelberg #1 Exploratory Well		—			8
	Heidelberg #2 Appraisal Well		—			10,854
	Ligurian #1 Exploratory Well		—			86
	Criollo #1 Exploratory Well(2)		(822	)		8,171
	Firefox #1 Exploratory Well		—			12,463
	Heidelberg #2 Replacement Appraisal Well		316			—
	Other pre-spud costs		—			2,839
	Helix subsea containment pre-spud costs		1,219			—
West Africa:
	Bicuar #1 Exploratory Well costs(1)		24,249			—
	Cameia #1 Exploratory Well costs		26,986			—
Reclassifications to wells, facilities, and equipment based on determination of proved reserves			—			—
Amounts charged to expense			(29,334	)		(34,942	)

End of period		$	129,487		$	106,881

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Cobalt International Energy, Inc.
(a Development Stage Enterprise)

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

8. Property, Plant, and Equipment (Continued)

		Spud Year	As of September 30, 2011		As of December 31, 2010

			($ in thousands)
Cumulative costs:
	Shenandoah #1 Exploratory Well	2008	$	69,513	$	69,521
	Heidelberg #1 Exploratory Well	2008		20,240		20,240
	Heidelberg #2 Appraisal Well	2010		—		—
	Ligurian #1 Exploratory Well	2009		8,100		8,100
	Criollo #1 Exploratory Well(2)	2009		—		9,020
	Firefox #1 Exploratory Well	2010		—		—
	Heidelberg #2 Replacement Appraisal Well			316
	Helix subsea containment pre-spud costs			1,219		—
	Bicuar #1 Exploratory Well(1)	2011		3,113		—
	Cameia #1 Exploratory Well	2011		26,986		—

			$	129,487	$	106,881

Exploratory Well costs capitalized for a period greater than one year after completion of drilling (included in table above)(3)			$	97,853	$	106,881

(1): During the three months ended September 30, 2011, the Bicuar #1 exploratory well offshore Angola encountered a shallow water flow that resulted in the Company abandoning drilling activities from the original surface location of the Bicuar #1 exploratory well. As a result, the Company recorded the capitalized cost of $21.1 million on this well against dry hole expense. The Company expects to drill the Bicuar #1 exploratory well from a new surface location following the Cameia #1 exploratory well and cumulative costs for the Bicuar #1 exploratory well of $3.1 million represent pre-spud well costs.
(2): During the three months ended September 30, 2011, the Company determined to indefinitely defer all activities to support potentially commercializing the Criollo #1 exploratory well. As a result, the Company recorded the remaining balance of $8.2 million against dry hole expense.
(3): Capitalized exploratory well costs that have been suspended longer than one year are associated with the Shenandoah #1, Heidelberg #1 and Ligurian #1 projects. These exploratory 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 projects 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 projects, the associated costs will be expensed at that time.

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Cobalt International Energy, Inc.
(a Development Stage Enterprise)

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

8. Property, Plant, and Equipment (Continued)

As of September 30, 2011, no exploratory wells have been drilled by the Company's partner offshore Gabon.

9. Other Assets

As of September 30, 2011, costs associated with the mobilization and equipment upgrades of the Ensco 8503 drilling rig were deferred in other assets. The Company will amortize these costs to respective exploratory wells as and when the rig is used for drilling activities over the two year term of the drilling contract. These costs will be expensed or capitalized to oil and gas properties as exploratory drilling costs, depending on the drilling results. As of September 30, 2011 and December 31, 2010, the accumulated costs associated with the Ensco 8503 drilling rig in other assets were $17.3 million and $14.5 million, respectively.

10. Other Long-Term Obligations

The Company is required to make $4.2 million of social obligation payments to Sonangol based on the terms of its Risk Services Agreements for Blocks 9 and 21 offshore Angola. As of September 30, 2011, $2.9 million relates to the long-term portion of these social obligation payments to be paid over a five year period.

11. Stockholders' Equity

On January 7, 2010, the Company closed the sale of an additional 7,978,000 shares of its common stock at the public offering price of $13.50 per share pursuant to the exercise over-allotment option by the underwriters of the IPO.

On April 15, 2011, the Company issued 35,650,000 shares of its common stock at a public offering price of $14.00 per share.

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Cobalt International Energy, Inc.
(a Development Stage Enterprise)

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

12. Seismic and Exploration Expenses

Seismic and exploration expenses consisted of the following:

	Three Months Ended September 30,				Nine Months Ended September 30,					For the Period November 10, 2005 (Inception) through September 30,

	2011		2010		2011		2010			2011
	($ in Thousands)
Seismic data costs	$	1,325	$	16,434	$	5,016	$	28,679		$	291,629
Seismic cost recovery(1)		—		—		—		(15,126	)		(25,126	)
Leasehold delay rentals		1,029		856		3,879		3,719			24,324
Force Majeure(2)		—		2,888		—		12,908			13,549
Other exploration expenses		2,403		—		3,115		—			3,984

	$	4,757	$	20,178	$	12,010	$	30,180		$	308,360

(1): These amounts represent reimbursement from joint interest partners of past seismic costs incurred by the Company.
(2): These amounts represent expenditures resulting from suspension of drilling activities in the U.S. Gulf of Mexico as a result of the explosion and sinking of the Deepwater Horizon drilling rig in the U.S. Gulf of Mexico, the resulting oil spill and the regulatory response thereto and other exploratory expenses.

13. 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 asset-or-nothing option pricing model. Restricted stock awards without market conditions and the performance-based awards 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. For performance-based awards, compensation cost is recognized over the requisite service period as and when the Company determines that the achievement of the performance condition is probable, using the per-share fair value measured at grant date.

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Cobalt International Energy, Inc.
(a Development Stage Enterprise)

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

13. Equity Based Compensation (Continued)

The following table summarizes grant, vesting and forfeiture information about the Company's restricted stock, stock options and restricted stock units for the Company's employees from December 31, 2010 to September 30, 2011:

	Number of shares relating to Restricted Stock			Weighted Average Grant Date Fair Value Per Share		Number of shares relating to Stock Options		Weighted Average Grant Date Fair Value Per Option		Number of shares relating Restricted Stock Units		Weighted Average Grant Date Fair Value Per Unit

Non-vested at December 31, 2010		5,570,895		$	9.77		1,133,960	$	6.78		198,838	$	12.45
Granted		155,942		$	9.28		—		—		—		—
Vested		(549,882	)	$	0.77		—		—		—		—
Forfeited or expired		—			—		—		—		—		—

Non-vested at September 30, 2011		5,176,955		$	10.71		1,133,960	$	6.78		198,838	$	12.45

Weighted-average period remaining		2.6 years					3.25 years				3.25 years

Unrecognized compensation, net of estimated forfeitures ($ in thousands)	$	31,264				$	5,830			$	**

**: Each restricted stock unit ("RSU") will vest within a range of 0% to 200%, or between zero and two shares of common stock, on the applicable vesting dates and contingent upon the recipient's continued service at such vesting dates and based upon the achievement of successful drilling results as defined in the RSU award agreement. The fair value of each RSU is determined by the closing price of the Company's common stock at the date of grant, which was $12.45 per share. Compensation cost will be recognized as and when the performance conditions are satisfied. Until such time the Company resumes its drilling activities in the U.S. Gulf of Mexico and/or further progresses its drilling activities offshore Angola, the Company will be unable to determine whether the minimum drilling success rate as set forth in the RSU award agreement will be achieved. As a result, no compensation expense was recognized since the initial date of grant on December 3, 2010 through September 30, 2011. Assuming the minimum drilling success rate as set forth in the RSU award agreement is achieved, compensation relating to RSUs could total up to $5.0 million.

A total of 53,121 RSUs were granted to non-employee directors on June 1, 2010. These RSUs fully vested on June 1, 2011. On June 1, 2011, the Company granted an additional 51,620 RSUs to non-employee directors which will fully vest on June 1, 2012. During the three and nine months ended September 30, 2011, the Company also granted 4,817 and 14,035 shares of common stock, respectively, as retainer awards to non-employee directors who elected to be compensated by stock in lieu of cash payments.

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Cobalt International Energy, Inc.
(a Development Stage Enterprise)

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

13. Equity Based Compensation (Continued)

The table below summarizes the equity-based compensation costs, net of forfeitures, recognized for the three and nine months ended September 30, 2011 and 2010, and for the period November 10, 2005 (inception) through September 30, 2011:

										For the Period November 10, 2005 (Inception) through September 30, 2011

		Three Months Ended September 30,				Nine Months Ended September 30,
		2011		2010		2011		2010
		($ in thousands)
Restricted stock:
	Employees	$	3,156	$	3,387	$	9,424	$	10,002	$	29,780
	Non-employee directors		242		115		561		321		1,069
Stock options:
	Employees		460		—		1,381		—		1,482
Restricted stock units (performance-based)			—		—		—		—		—
Deferred stock compensation(1)			—		—		—		—		1,828

		$	3,858	$	3,502	$	11,366	$	10,323	$	34,159

(1): In December 2008, the Company adopted a deferred compensation plan and provided certain executive officers the opportunity to defer under this plan all or a portion of their salary and/or annual bonus for 2009. Amounts deferred under this plan generally are deemed to be invested in a money market account prior to the IPO and shares of the Company's common stock following the IPO. Subject to accelerated payment under specified circumstances, the deferred amounts will be distributed to these executive officers in January 2012 in the form of shares of the Company's common stock. As of September 30, 2011, there were 121,637 shares under the deferred compensation plan to be distributed to these executive officers.

14. Contingencies

The Company is not currently party to any legal proceedings. However, from time to time the Company 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.

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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, 2010.

Overview

We are an independent, oil-focused exploration and production company with a world-class below salt prospect inventory in the deepwater of the U.S. Gulf of Mexico and offshore Angola and Gabon in West Africa.

Third Quarter 2011 Operational Highlights

West Africa Drilling Program

•: On August 29, 2011, we spud the Cameia #1 exploratory well on Block 21 offshore Angola. After drilling and evaluating the Cameia #1 exploratory well, we plan to move the Ocean Confidence drilling rig back to our Bicuar prospect to drill and evaluate the Bicuar #1 exploratory well at a different surface hole location from the location in which we originally spud the Bicuar #1 exploratory well and experienced a shallow water flow. We expect that each well will take approximately 80 to 100 days to drill and an additional 10 to 20 days to evaluate, if successful. We are the operator of Cameia #1 and Bicuar #1 and hold a 40% working interest in each prospect.
•: We are awaiting notification from Sociedade Nacional de Combustíveis de Angola—Empresa Pública ("Sonangol") as to the date of the formal signing ceremony and execution of the production sharing contract for our 40% working interest and operatorship of Block 20 offshore Angola.
•: On October 28, 2011, we executed an agreement with WesternGeco Seismic Holdings Limited to begin work on the acquisition of approximately 4,200 square kilometers of 3D seismic data on Block 20 offshore Angola. This seismic data acquisition has commenced.

U.S. Gulf of Mexico Drilling Program

•: On October 27, 2011, Anadarko Petroleum Corporation spud the Heidelberg #2R appraisal well, thereby resuming the appraisal drilling program of the previously announced discovery of more than 200 feet of net pay in Miocene horizons encountered by the original Heidelberg exploratory well. The Heidelberg #2R appraisal well represents the resumption of our partner-operated U.S. Gulf of Mexico drilling program following the Deepwater Horizon incident. We have a 9.375% working interest in the Heidelberg prospect.
•: We believe we have satisfied all of the remaining regulatory requirements related to our North Platte #1 and Ligurian #2 applications for permit to drill ("APDs"), except for the submission of the U.S. Coast Guard Certificate of Compliance for the Ensco 8503 drilling rig, which cannot be obtained until the rig returns to the U.S. Gulf of Mexico. We do not anticipate any issues related to obtaining this routine U.S. Coast Guard certification and we expect that after its submission we will promptly receive the APDs for both our North Platte #1 and Ligurian #2 exploratory wells.

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•: We expect that the Ensco 8503 drilling rig will be returned to us in the U.S. Gulf of Mexico late in the fourth quarter of 2011. Upon its return, the submission of the U.S. Coast Guard Certificate of Compliance, and the issuance of our APDs for our North Platte #1 and Ligurian #2 exploratory wells, we plan to drill the Ligurian #2 exploratory well. After drilling the Ligurian #2 exploratory well, we plan to move the rig to the North Platte #1 well location to drill that prospect. We anticipate that each of the Ligurian #2 and North Platte #1 exploratory wells will take approximately six months to drill. We are the operator of Ligurian #2 and North Platte #1 and own a 45% working interest and 60% working interest, respectively, in these prospects.

Third Quarter 2011 Financial Highlights

•: We recorded a net loss of approximately $47.0 million, a 33.6% increase from the third quarter of 2010.
•: Total operating expenses were approximately $48.2 million, a 35.6% increase from the third quarter of 2010.
•: Cash expenditures, excluding changes in working capital, were approximately $60 million.
•: Including our existing cash and investments on hand and restricted cash, as of September 30, 2011 we have approximately $1.6 billion of liquidity.

Results of Operations

Three Months Ended September 30, 2011 Compared to the Three Months Ended September 30, 2010

The following tables set forth selected financial data for the periods indicated:

		Three Months Ended September 30,

		2011			2010			Increase (Decrease)			%
		($ in thousands)
Oil and gas revenue		$	—		$	—		$	—			—
Operating costs and expenses:
	Seismic and exploration		4,757			20,178			(15,421	)		(76.42	)%
	Dry hole expense and impairment		31,840			2,852			28,988			1,016.41	%
	General and administrative		11,459			12,343			(884	)		(7.16	)%
	Depreciation and amortization		186			216			(30	)		(13.90	)%

Total operating costs and expenses			48,242			35,589			12,653			35.55	%

	Operating income (loss)		(48,242	)		(35,589	)		12,653			35.55	%
Other income (expense):
	Interest income (expense), net		1,255			407			848			208.35	%

Total other income (expense)			1,255			407			848			208.35	%

Net income (loss) before income tax			(46,987	)		(35,182	)		11,805			33.55	%
Income tax expense (benefit)			—			—			—			—

Net income (loss)		$	(46,987	)	$	(35,182	)		11,805			33.55	%

Oil and gas revenue. We have not yet commenced oil production. Therefore, we did not realize any oil and gas revenue during the three months ended September 30, 2011 and 2010, respectively.

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Operating costs and expenses. Our operating costs and expenses consisted of the following during the three months ended September 30, 2011 and 2010:

Seismic and exploration. Seismic and exploration costs decreased by $15.4 million during the three months ended September 30, 2011, as compared to the three months ended September 30, 2010. The decrease was primarily due to the net effect of (i) $2.9 million incurred during the three months ended September 30, 2010 for force majeure costs related to suspended drilling activities in the U.S. Gulf of Mexico, and (ii) a decrease of $15.0 million in seismic expenditures which were offset by an increase of $2.5 million in leasehold delay rental and drilling preparation related expenditures. The seismic and exploration costs incurred for the three months ended September 30, 2011 consisted of (i) $1.2 million for seismic data acquisition and processing, (ii) $1.0 million for leasehold delay rentals and (iii) $2.6 million relating to other drilling related costs in the U.S. Gulf of Mexico.

Dry hole expense and impairment. Dry hole expense and impairment increased by $29.0 million during the three months ended September 30, 2011, as compared to the three months ended September 30, 2010. The increase was due to the net effect of (i) a $21.1 million charge against the Bicuar #1 exploratory well, (ii) an $8.2 million charge against the Criollo #1 exploratory well, and (iii) a $2.5 million valuation allowance against future impairment on the carrying value of our unproved leasehold properties that are individually less than $1 million during the three months ended September 30, 2011; all of which were offset by (iv) a $0.5 million charge against pre-spud costs and (v) a $2.3 million allowance against future impairment on the carrying value of our unproved leasehold properties that are individually less than $1 million during the three months ended September 30, 2010.

General and administrative. General and administrative costs decreased by $0.9 million during the three months ended September 30, 2011 as compared to the three months ended September 30, 2010. The decrease in general and administrative costs during this period was primarily attributed to the net effect of a $0.7 million decrease in staff costs, a decrease of $0.5 million in insurance costs and a $0.3 million increase in other office-related expenses.

Depreciation and amortization. Depreciation and amortization did not change significantly from the three months ended September 30, 2011 as compared to the three months ended September 30, 2010.

Other income. Other income increased by $0.8 million for the three months ended September 30, 2011 as compared to the three months ended September 30, 2010. The increase of $0.8 million was primarily due to the additional interest recognized as a result of the investment of the net proceeds from our public offering of common stock, which closed on April 15, 2011, in certain investment securities and interest earned on the investment securities held during the three months ended September 30, 2011.

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.

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Nine Months Ended September 30, 2011 Compared to the Nine Months Ended September 30, 2010

The following tables set forth selected financial data for the periods indicated:

		Nine Months Ended September 30,

		2011			2010			Increase (Decrease)			%
		($ in thousands)
Oil and gas revenue		$	—		$	—		$	—			—
Operating costs and expenses:
	Seismic and exploration		12,010			30,180			(18,170	)		(60.21	)%
	Dry hole expense and impairment		36,859			42,593			(5,734	)		(13.46	)%
	General and administrative		36,115			34,047			2,068			6.07	%
	Depreciation and amortization		549			593			(44	)		(7.42	)%

Total operating costs and expenses			85,533			107,413			(21,880	)		(20.37	)%

	Operating income (loss)		(85,533	)		(107,413	)		(21,880	)		(20.37	)%
Other income (expense):
	Interest income (expense), net		3,010			733			2,277			310.64	%

Total other income (expense)			3,010			733			2,277			310.64	%

Net income (loss) before income tax			(82,523	)		(106,680	)		(24,157	)		(22.64	)%
Income tax expense (benefit)			—			—			—			—

Net income (loss)		$	(82,523	)	$	(106,680	)	$	(24,157	)		(22.64	)%

Oil and gas revenue. We have not yet commenced oil production. Therefore, we did not realize any oil and gas revenue during the nine months ended September 30, 2011 and 2010, respectively.

Operating costs and expenses. Our operating costs and expenses consisted of the following during the nine months ended September 30, 2011 and 2010:

Seismic and exploration. Seismic and exploration costs decreased by $18.2 million during the nine months ended September 30, 2011, as compared to the nine months ended September 30, 2010. The decrease was due to the net effect of $4.3 million incurred for seismic costs and $7.7 million incurred for leasehold delay rentals and drilling preparation expenditures during the nine months ended September 30, 2011 which were offset by (i) $12.9 million for force majeure costs related to suspended drilling activities in the U.S. Gulf of Mexico, (ii) $13.3 million incurred for seismic costs, and (iii) $4.0 million incurred for leasehold delay rentals and drilling preparation costs in the U.S. Gulf of Mexico during the nine months ended September 30, 2010.

Dry hole expense and impairment. Dry hole expense and impairment decreased by $5.7 million during the nine months ended September 30, 2011, as compared to the nine months ended September 30, 2010. The decrease was due to the net effect of (i) a $21.1 million charge against the Bicuar #1 exploratory well, (ii) an $8.2 million against the Criollo #1 exploratory well and (iii) an allowance of $7.5 million against future impairment on the carrying value of our unproved leasehold properties that are individually less than $1 million during the nine months ended September 30, 2011, which were offset by charges of (iv) $0.6 million for the Ligurian #1 exploratory well, (v) $8.7 million for the Criollo #1 exploratory well, (vi) $11.1 million for the Heidelberg #2 appraisal well, (vii) $12.4 million for the Firefox #1 exploratory well, (v) $2.8 million for pre-spud costs, and (viii) $6.9 million valuation allowance against future impairment on the carrying value of our unproved leasehold properties that are individually less than $1 million during the nine months ended September 30, 2010.

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General and administrative. General and administrative costs increased by $2.1 million during the nine months ended September 30, 2011 as compared to the nine months ended September 30, 2010. The increase in general and administrative costs during this period was primarily attributed to a $1.3 million increase in staff and office expenses related to the establishment of operations in Angola and a $0.8 million increase in other office related expenses.

Depreciation and amortization. Depreciation and amortization did not change significantly from the nine months ended September 30, 2011 as compared to the nine months ended September 30, 2010.

Other income. Other income increased by $2.3 million for the nine months ended September 30, 2011 as compared to the nine months ended September 30, 2010. The increase was primarily due to the additional interest recognized as a result of the investment of the net proceeds from our public offering of common stock, which closed on April 15, 2011, in certain investment securities and interest earned on investment securities held during the nine months ended September 2011.

Liquidity and Capital Resources

We are a development stage enterprise and will continue to be so until commencement of substantial production from our oil properties. We do not know when we will be able to commence production in the U.S. Gulf of Mexico. Prior to the Deepwater Horizon incident, our expected time from discovery to first production was four to five years in the U.S. Gulf of Mexico. We do not know how this timeline will change as a result of the regulatory environment following the Deepwater Horizon incident. Offshore Angola, we expect production within five years of a commercial discovery, which will depend upon successful exploration and appraisal drilling results, additional capital funding, access to suitable infrastructure and rig and personnel availability. 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 future equity and debt financings, asset sales and farm-out arrangements.

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

•: conduct our current exploration and appraisal drilling program in the U.S. Gulf of Mexico and our current exploration drilling program offshore Angola and Gabon;
•: license and analyze seismic data in order to assess current prospects and identify future prospects;
•: develop our discoveries which we determine to be commercially viable; 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, the success of our exploration and appraisal drilling program, 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.

We expect our full year 2011 cash expenditures, excluding changes in working capital, to be between $170 million and $190 million, approximately $93 million of which was spent in the first nine

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months of 2011. The range of 2011 expenditures is primarily dependent on when we recommence U.S. Gulf of Mexico drilling operations and assumes we do not incur expenditures associated with the execution of the Production Sharing Contract for Block 20 offshore Angola until 2012.

We expect that our existing cash on hand will be sufficient to fund our planned exploration and appraisal drilling program, including any expenditures relating to Block 20 offshore Angola, through the end of 2013. However, we may require additional funds earlier than we currently expect in order to execute our strategy as planned. We may seek additional funding through asset sales, farm-out arrangements and equity and debt financings. Additional funding 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 one or more of our exploration and appraisal drilling programs. We also could be required to seek funds through arrangements with collaborators or others that may require us to relinquish rights to some of our prospects which we would otherwise develop on our own, or with a majority working interest.

Cash Flows

		Nine Months Ended September 30,

		2011			2010
		($ in thousands)
Net cash provided by (used in):
	Operating Activities	$	(35,544	)	$	(95,835	)
	Investing Activities		(552,740	)		(719,886	)
	Financing Activities		478,204			101,256

Operating activities. Net cash used in operating activities for the nine months ended September 30, 2011 was $35.5 million compared with net cash used in operating activities of $95.8 million for the nine months ended September 30, 2010. The decrease was attributed primarily to reduced exploratory drilling activities during the first nine months of 2011.

Investing activities. Net cash used in investing activities for the nine months ended September 30, 2011 was $552.7 million compared with net cash used in investing activities of $719.9 million for the nine months ended September 30, 2010. The decrease in net cash used in investing activities for the nine months ended September 30, 2011 was primarily attributed to the difference between the investment during the nine months ended September 30, 2010 of the net proceeds from our initial public offering and the investment during the nine months ended September 30, 2011 of the proceeds from our follow-on offering of common stock, which closed on April 15, 2011. During the nine months ended September 30, 2011, we received total proceeds of $1,084 million from the maturity of certain investment securities and interests earned, and purchased new investment securities totaling approximately $1,593.4 million.

Financing activities. Net cash provided in financing activities during the nine months ended September 30, 2011 was $478.2 million as compared to $101.3 million for the nine months ended September 30, 2010. The increase in net cash provided by financing activities was due to the net proceeds of $478.2 million from our follow-on public offering of common stock, which closed on April 15, 2011.

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Critical Accounting Policies

Our significant accounting policies are summarized in Note 1 of Notes to Consolidated Financial Statements included in our 2010 Annual Report on Form 10-K for the year ended December 31, 2010. Also refer to the Notes to the Condensed Consolidated Financial Statements included in Part 1, Item 1 of this Quarterly 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 2010 Annual Report on Form 10-K for the year ended December 31, 2010.

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 September 30, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II—OTHER INFORMATION

Item 1. Legal Proceedings

We are not currently party to any legal proceedings. However, from time to time we 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 our consolidated financial position, results of operations, or liquidity.

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, 2010.

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

None.

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Item 3. Defaults Upon Senior Securities

None.

Item 4. (Removed and Reserved)

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.
**: Furnished 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.

Dated: November 1, 2011

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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.
**: Furnished herewith.

Cobalt International Energy, Inc.

/s/ JOSEPH H. BRYANT

Joseph H. Bryant

Chairman of the Board of Directors and
Chief Executive Officer