Kosmos Energy Ltd. (KOS): Delivering on Growth Targets and Enhancing Financial Resilience

Published on September 24, 2024 | Ticker: KOS

Kosmos Energy Ltd. (KOS) is a full-cycle, deepwater, independent oil and gas exploration and production company focused along the offshore Atlantic Margins. The company's key assets include production offshore Ghana, Equatorial Guinea and the U.S. Gulf of Mexico, as well as world-class gas projects offshore Mauritania and Senegal. Kosmos also pursues a proven basin exploration program in Equatorial Guinea and the U.S. Gulf of Mexico.

Financials

In the first quarter of 2024, Kosmos delivered strong operational and financial results, demonstrating its ability to execute on its growth strategy. The company reported net income of $91.7 million, revenue of $419.1 million, operating cash flow of $272.6 million, and free cash flow of -$44.8 million. These results highlight Kosmos' momentum as it continues to ramp up production and progress its major development projects.

Ghana: Jubilee and TEN Fields Performing Well

Kosmos' operations in Ghana, which include the Jubilee and TEN fields, were a key driver of the company's performance in the first quarter. Jubilee production averaged approximately 93,000 barrels of oil per day (bopd) gross, nearly 30% higher than the same period last year. This increase was driven by the start-up of the Jubilee Southeast project and the ongoing infill drilling program. The Jubilee FPSO maintained high reliability, with approximately 99% uptime during the quarter.

On the TEN fields, gross production averaged 18,600 bopd, in line with expectations, with the FPSO also achieving around 99% uptime. Kosmos and its partners recently agreed an 18-month extension to the Jubilee gas sales agreement at approximately $3 per MMBtu, further enhancing the project's economics.

U.S. Gulf of Mexico: Winterfell Development Progressing

In the U.S. Gulf of Mexico, Kosmos' production averaged approximately 14,500 barrels of oil equivalent per day (boepd) net in the first quarter. The company's Winterfell development project, in which it holds a 25% working interest, is progressing well. The initial two production wells are expected to come online shortly, with a third well expected to be brought online in the second half of 2024. Once all three wells are online, gross production from Winterfell is expected to reach approximately 20,000 boepd.

Kosmos also continues to invest selectively in high-return projects in the U.S. Gulf, such as the Odd Job subsea pump installation and the Cody workover, which are expected to contribute around 5,000 boepd net to Kosmos' year-end exit rate.

Equatorial Guinea: Infill Drilling Campaign Resumes

In Equatorial Guinea, production averaged approximately 24,400 bopd gross (8,400 bopd net) in the first quarter. The operator had previously paused the Sabre and Okume infill drilling campaign due to safety issues with the drilling rig. However, the partnership has now secured a new rig, and the drilling campaign is expected to resume in mid-2024. The two planned infill wells are expected to add around 3,000 bopd net to Kosmos' year-end exit rate.

Mauritania and Senegal: Greater Tortue Ahmeyim Project Progressing

Kosmos' world-class gas project offshore Mauritania and Senegal, the Greater Tortue Ahmeyim (GTA) project, continues to make significant progress. The FLNG vessel has arrived at the hub terminal, and the partnership is working to accelerate the commissioning process. The subsea work is progressing as planned, with the flowline installation complete and final connection work ongoing. The FPSO has completed inspection and repair work and is now en route to the project site, with mooring work to commence thereafter. Kosmos expects first gas from GTA in the third quarter of 2024, with first LNG expected in the fourth quarter.

Liquidity

Kosmos took several important steps in the first quarter to enhance the company's financial resilience. In March 2024, the company issued $400 million of 3.125% Convertible Senior Notes, which replaced the liquidity from the expiring $250 million undrawn revolving credit facility. The convertible notes also lowered Kosmos' overall interest expense as a portion of the revolving credit facility, the company's highest-cost debt, was paid down with the proceeds.

Additionally, Kosmos refinanced its reserve-based lending (RBL) facility, increasing the size to $1.35 billion from $1.25 billion, with current commitments of around $1.2 billion. The refinancing extended the final maturity by approximately three years, providing Kosmos with improved liquidity and a staggered debt maturity schedule.

These transactions have strengthened Kosmos' balance sheet and positioned the company to continue executing on its growth strategy while maintaining financial discipline. As the company reaches its expected free cash flow inflection point of $100 million to $150 million per quarter, it plans to prioritize debt reduction, targeting a leverage ratio below 1.5x at mid-cycle oil prices.

Outlook

Kosmos has a rich portfolio of catalysts across its business units that are expected to contribute to the company's goal of achieving a year-end 2024 exit rate of 90,000 boepd and reaching a free cash flow inflection point.

In Ghana, the company expects to complete the final infill well and water injection well at the Jubilee field in the second quarter, which should further enhance production. In the U.S. Gulf of Mexico, the Winterfell development is on track to bring the third well online in the second half of 2024, increasing gross production to 20,000 boepd.

In Equatorial Guinea, the resumed infill drilling campaign is expected to add around 3,000 bopd net to Kosmos' year-end exit rate, and the results of the King Deep exploration well, targeting gross resources of 118 million barrels, are anticipated by the end of the year.

Kosmos' world-class gas project in Mauritania and Senegal, the Greater Tortue Ahmeyim, is expected to achieve first gas in the third quarter of 2024 and first LNG in the fourth quarter, marking a significant milestone for the company.

Conclusion

Kosmos Energy has delivered a strong start to 2024, demonstrating its ability to execute on its growth strategy and enhance the company's financial resilience. The company's key assets in Ghana, the U.S. Gulf of Mexico, Equatorial Guinea, and Mauritania/Senegal continue to perform well, with several major development projects progressing as planned.

The company's focus on maintaining financial discipline, reducing debt, and generating sustainable free cash flow positions Kosmos well to create long-term value for its shareholders. With a rich portfolio of catalysts across its business units, Kosmos is poised to continue its momentum and achieve its production and free cash flow targets in the coming years.

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