(Kosmos, 5.Aug.2024) — Kosmos Energy Ltd. announced its financial and operating results for the second quarter of 2024. For the quarter, the company generated a net income of $60mn, or $0.12 per diluted share. When adjusted for certain items that impact the comparability of results, the company generated an adjusted net income(1) of $80mn, or $0.17 per diluted share for the second quarter of 2024.
SECOND QUARTER 2024 HIGHLIGHTS
— Net Production(2): ~62,100 barrels of oil equivalent per day (boepd), representing ~7% growth year over year, with sales of ~65,400 boepd
— Revenues: $451mn, or $75.73 per boe (excluding the impact of derivative cash settlements)
— Production expense: $151mn or $25.32 per boe ($22.27 per boe excluding $18mn of production expenses associated with the Greater Tortue Ahmeyim (GTA) project)
— Capital expenditures: $215mn
— Arrival on location and successful mooring of the floating production, storage and offtake (FPSO) vessel for the GTA project
— Post quarter end, in the US Gulf of Mexico achieved first oil at Winterfell (with the first two wells online in early July), successfully completed the operated Kodiak-3 well workover and the startup of the Odd Job subsea pump project
— Post quarter end, in Equatorial Guinea the drilling rig for the infill and infrastructure-led exploration (ILX) campaign arrived on location and successfully drilled the first infill well
Commenting on the company’s second quarter 2024 performance, Chairman and Chief Executive Officer Andrew G. Inglis said: “It has been a busy period for Kosmos with significant progress in the delivery of our development projects. Production is rising in the US Gulf of Mexico with the startup of Winterfell and the successful completion of our production optimization activities. The drilling campaign in Equatorial Guinea has now commenced and we continue to see good progress across all major workstreams on the GTA project in Mauritania and Senegal. With these projects online, we expect to exit the year at our production goal of around 90,000 boepd. In addition, we have completed the concept development work on Yakaar-Teranga in Senegal and are progressing Tiberius in the US Gulf of Mexico towards final investment decision, providing high-quality investment opportunities beyond 2024.
As production ramps up and capital expenditures are expected to fall, we remain committed to delivering free cash flow within a disciplined capital framework, to further enhance the financial resilience of the company, after which we will consider shareholder returns.”
FINANCIAL UPDATE
Net capital expenditure for the second quarter of 2024 was $215mn, below our guidance range primarily due to the timing of capital expenditures accruals related to GTA in Mauritania and Senegal, which we now expect will be recognized in the third quarter. With the completion of the Ghana infill drilling program and the startup of Winterfell, capital expenditures in the second half of the year are expected to be materially lower than the first half. As previously guided, with the resumption of the drilling campaign in Equatorial Guinea, full year capital expenditure is expected to be around $750mn.
Kosmos exited the second quarter of 2024 with approximately $2.7bn of total long-term debt and approximately $2.5bn of net debt(1) and available liquidity of approximately $793mn.
The company generated net cash provided by operating activities of approximately $224mn and free cash flow(1) of approximately $(15)mn in the second quarter.
OPERATIONAL UPDATE
Production
Total net production(2) in the second quarter of 2024 averaged approximately 62,100 boepd, within guidance range, representing a ~7% increase compared to the second quarter of 2023. This growth largely reflects higher production in Ghana following completion of the infill drilling campaign offset by lower production in the US Gulf of Mexico due to planned downtime and a delay to startup of the Winterfell project. The Company exited the quarter in a net overlift position of approximately 0.1 million barrels.
Ghana
Production in Ghana averaged approximately 41,900 boepd net in the second quarter of 2024. Kosmos lifted four cargos from Ghana during the quarter, in line with guidance.
At Jubilee (38.6% working interest), oil production in the second quarter averaged approximately 87,300 bopd gross with one producer well brought online in April and one water injector well brought online in June. As the operator in Ghana recently communicated, the ramp up in production at Jubilee has been slower than expected, primarily as a result of one producer well (J-69) under performing expectations and a temporary reduction in water injection. Voidage replacement during the second quarter was approximately 80% (compared to the 100% target). The Jubilee FPSO reliability remains high with uptime approximately 99% for the second quarter.
Following the completion of the water injector well in June, the three-year drilling campaign has concluded. The partnership now plans to conduct a new 4D seismic survey in early 2025. This survey, using enhanced seismic technology, will support the partnership in high grading the optimal drilling locations for the planned 2025/2026 drilling campaign.
In the second quarter, Jubilee gas production net to Kosmos was approximately 6,200 boepd. The onshore gas plant that receives Jubilee gas was originally expected to be offline for approximately two weeks for planned routine maintenance during the second quarter. This is now expected in the third quarter, with the impact included in third quarter guidance. Following the J-69 well underperformance, we now expect Jubilee production for the full year to be around 90,000 bopd gross. Longer-term, with enhanced 4D seismic imaging and a material 2P reserve base remaining, we remain confident of the field’s production potential through the end of the decade.
At TEN (20.4% working interest), production averaged approximately 19,300 bopd gross for the second quarter, slightly above expectations. Uptime on the TEN FPSO was approximately 99% for the second quarter.
U.S. Gulf of Mexico
Production in the U.S. Gulf of Mexico averaged approximately 11,700 boepd net (~83% oil) during the second quarter.
The first two wells at Winterfell (25% working interest) were drilled and completed by April with startup occurring in early July, later than planned impacting production in the quarter. The third development well was successfully drilled in the second quarter, encountering approximately 50 feet of net oil pay, in line with expectations. First production from this well is expected by the end of this quarter. Gross production from the first phase of Winterfell is expected to be around 20,000 boepd when the initial three wells are online.
Enhanced imaging from recent ocean bottom node (OBN) seismic, calibrated with data from the first three Winterfell wells, gives Kosmos increased confidence in the recovery of approximately 100 million boe gross in the first phase of the project (5 wells in total) and greater visibility to additional upside potential in adjacent prospectivity.
The company’s production enhancement activities for 2024 concluded in July, with the completion of the Kodiak-3 well workover and startup of the Odd Job subsea pump project, both operated by Kosmos. Current production in the US Gulf of Mexico has increased to approximately 20,000 boepd, a 40% increase over the first quarter of the year.
The Tiberius project, (50% working interest and operator) continues to progress as a phased development, with final investment decision expected later this year. Long lead items and a drilling rig have been secured to manage the development timeline and project costs. Kosmos plans to farm down to optimize its working interest to fit within the targeted 2025+ capital program. Estimated gross resource at Tiberius is approximately 100 million boe.
Equatorial Guinea
Production in Equatorial Guinea averaged approximately 24,200 bopd gross and 8,500 bopd net in the second quarter. Kosmos lifted 0.5 cargos from Equatorial Guinea during the quarter, in line with guidance.
As previously announced, the Noble Venturer rig was contracted to resume the infill and ILX drilling campaign and arrived on location in July. The rig has successfully completed drilling the first infill well in Block G with positive initial results. Post completion, we plan to drill the second infill well. Both wells are expected online in the fourth quarter, after which the rig is contracted to drill the Akeng Deep ILX prospect in Block S, with results expected around the end of the year.
Mauritania and Senegal
The Greater Tortue Ahmeyim liquefied natural gas (LNG) project continues to make good progress. The following milestones have been achieved:
— Drilling: The first batch of four wells has been completed with expected production capacity significantly higher than what is required for first gas.
— Hub Terminal: The Hub Terminal has been handed over to operations.
— Subsea: The subsea workscope is progressing in line with expectations with final connection work ongoing. Mechanical completion for first gas is expected this month.
— FPSO: The vessel arrived on location offshore Mauritania and Senegal during the second quarter of 2024 with mooring now complete. All risers were installed in June and commissioning of the FPSO is ongoing with handover to operations targeted in September with first gas expected shortly thereafter.
— FLNG: The vessel arrived on location offshore Mauritania and Senegal during the first quarter of 2024 and is now moored to the Hub Terminal. The partnership is working with the vessel operator to advance commissioning work and plans to bring in a pre-commissioning cargo to accelerate the cool down of the vessel later this month. First LNG is expected in the fourth quarter of 2024.
On Yakaar-Teranga in Senegal, Kosmos has completed the concept development work, which supports a cost competitive LNG/domestic gas project. Work will now transition towards finalizing the partnership to support advancement of the project.
(1) A Non-GAAP measure, see attached reconciliation of non-GAAP measure.
(2) Production means net entitlement volumes. In Ghana and Equatorial Guinea, this means those volumes net to Kosmos’ working interest or participating interest and net of royalty or production sharing contract effect. In the U.S. Gulf of Mexico, this means those volumes net to Kosmos’ working interest and net of royalty.
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