Kosmos Energy announces second quarter 2017 results
Tuesday, Aug 08, 2017
Kosmos Energy Ltd. (“Kosmos”) (NYSE:KOS) announced today financial and operating results for the second quarter of 2017. For the second quarter of 2017, the Company generated a net loss of $8.5 million, or $0.02 per diluted share as compared to net loss of $108.3 million or $0.28 per diluted share in the same period last year. When adjusted for certain items that impact the comparability of results, the Company generated an adjusted net loss(1) of $8.4 million or $0.02 per diluted share for the second quarter of 2017.

“Kosmos is truly differentiating itself in 2017. In this lower-for-longer price environment, we are generating significant free cash flow and continuing to strengthen our balance sheet. This solid financial position enables us to execute our planned work program with the potential to drive significant growth,” said Andrew G. Inglis, Kosmos Energy’s chairman and chief executive officer. “Over the next 18 months, we plan to drill five prospects that are amongst the industry’s most significant exploration wells in the world’s two most promising offshore basins. We are also advancing the development of our large gas discoveries beginning with the low-cost Tortue project, which remains on schedule to reach FID in 2018 and first gas by 2021.”

Second quarter 2017 oil revenues were $136 million versus $46 million in the same quarter of 2016, on sales of 2.9 million barrels of oil in 2017 as compared to 0.9 million barrels in 2016. Second quarter 2017 oil revenues exclude $13 million of derivative settlements. Realized oil revenues, including the impact of the Company’s hedging program, were $51.21 per barrel of oil sold in the second quarter of 2017 compared to $95.61 per barrel of oil sold in the year-ago quarter. At the end of the quarter, the Company was in a net underlift position of approximately 0.4 million barrels of oil.

Other income, net during the quarter was $10 million for loss of production income (LOPI) insurance proceeds, net associated with the Jubilee turret bearing issue, which covered the production period through May 2017 when the LOPI claim period expired.

Production expense for the second quarter was $22 million, or $7.41 per barrel, versus $33 million, or $34.47 per barrel, in the second quarter of 2016. The decrease in total production expense was attributable to insurance proceeds received related to increased costs due to the Jubilee FPSO turret bearing issue and a one-time accrual adjustment from the Jubilee and TEN fields operator.

Exploration expenses totaled $20 million for the second quarter, compared to $36 million in the same period of 2016 primarily the result of lower geologic and geophysical costs.

Depletion and depreciation expense for the quarter was $72 million, or $24.85 per barrel. This was an increase from $17.86 per barrel in the second quarter of 2016, primarily a result of production from the TEN fields coming online, which has a higher depletion rate.

General and administrative expenses were $15 million during the second quarter, a 26 percent decrease compared to the same period in 2016. The decrease is primarily a result of carried costs associated with the BP (LSE:BP) transactions and a one-time accrual adjustment from the Jubilee and TEN fields operator.

Second quarter results included a mark-to-market gain of $25 million related to the Company’s oil derivative contracts. At June 30, 2017, the Company’s hedging position had a total commodity net asset value of $41 million. Kosmos currently has approximately 13 million barrels of oil hedged from 2017 to 2019.

Total capital expenditures in the second quarter were $36 million, and reflect a one-time accrual adjustment from the Jubilee and TEN fields operator in Ghana. In the first half of 2017 Kosmos spent approximately $156 million which was offset by the initial proceeds from the BP transaction of $222 million resulting in a credit to the capital budget of $66 million.

Kosmos exited the second quarter of 2017 with $1.2 billion of liquidity and $943 million of net debt, reflecting a voluntary repayment of $200 million on our reserves-based lending facility in 2017.

Operational Update

Ghana


During the second quarter of 2017, gross sales volumes from Ghana averaged approximately 131,000 barrels of oil per day (bopd), including volumes from the Jubilee and TEN fields which averaged approximately 86,000 bopd and 45,000 bopd, respectively.

The Jubilee FPSO turret remediation project has continued to make good progress during the year. Following the spread mooring of the FPSO at its current heading in late February, optimization of the offtake procedures has allowed the Jubilee field to regularly produce in excess of 100,000 bopd. The Jubilee partners and the Government of Ghana are now planning the next phase of remediation which will involve stabilizing the turret bearing. The operator estimates this will require a shut down of approximately five to eight weeks in late 2017. However, the partnership continues to evaluate options to minimize downtime. Planning for the rotation of the vessel to its optimal heading and the installation of a deep water catenary anchor leg mooring (CALM) buoy is currently ongoing and these work programs are expected to occur in 2018 and 2019, respectively, subject to final partnership and government approval. The partnership is focused on minimizing field downtime, and the operator anticipates that the total shutdown duration for stabilization, rotation and CALM buoy installation is not expected to exceed 12 weeks as previously forecast by the operator.

The financial impact of lower Jubilee production as well as the additional expenditures associated with the damage to the turret bearing is being mitigated through a combination of the comprehensive Hull and Machinery (H&M) insurance procured by the operator on behalf of the partnership, and the corporate Loss of Production Income (LOPI) insurance procured by Kosmos. LOPI coverage for this incident concluded in May and all submitted claims have been approved with final cash proceeds expected in early August. Since inception, Kosmos has claims approved of $186 million from our LOPI and H&M insurers with $180 million of cash received as of July 31, 2017.

Work is progressing with the Government of Ghana and Jubilee partners to update the Greater Jubilee Full Field Development Plan (GJFFDP). This plan, which is expected to increase proved reserves and extend the field production profile, has been optimized to reduce overall capital expenditures to reflect the current oil market. The partners remain on track to re-submit the GJFFDP to the Government with approval expected later in the year and drilling planned to commence in 2018.

Production from TEN in the second quarter averaged approximately 45,000 bopd and is on track to achieve or exceed the operator’s 2017 guidance of 50,000 bopd. During periods throughout the quarter, higher production levels in excess of 50,000 bopd have been achieved and the partnership is continuing to optimize field production levels. During performance trials conducted in June the FPSO operated in excess of its design capacity of 80,000 bopd with short term tests of up to 100,000 bopd being achieved. Currently no new wells can be drilled until after the International Tribunal for the Law of the Sea (ITLOS) ruling, which is expected in September 2017 and relates to the maritime boundary dispute between Ghana and Côte d'Ivoire. Pending the outcome of the ITLOS decision, drilling is expected to resume around year end, after which the TEN fields are expected to increase production towards FPSO capacity of 80,000 bopd.

Mauritania and Senegal

In May, Kosmos announced a major gas discovery offshore Senegal at Yakaar-1, the first well in a series of four independent tests of the basin floor fan fairways, outboard of the proven slope channel trend opened with the Tortue-1 discovery. Located in the Cayar Offshore Profond block approximately 95 kilometers northwest of Dakar in approximately 2,600 meters of water, the well has been drilled to a total depth of approximately 4,900 meters. Yakaar-1 intersected a gross hydrocarbon column of 120 meters (394 feet) in three pools within the primary Lower Cenomanian objective and encountered 45 meters (148 feet) of net pay. Well results confirmed the presence of thick, stacked, reservoir sands over a very large area with very good porosity and permeability. Together with the Teranga-1 discovery made last year, we believe this resource will support a second cost-competitive LNG hub.

After completion of operations on the Yakaar-1 well, the Atwood Achiever mobilized to the Tortue-1 well to conduct a drill stem test (DST) on the Tortue discovery, which is expected to provide key information to support the Front End Engineering Design (FEED) in the second half of 2017, with Final Investment Decision (FID) in 2018 and first gas in 2021.

In June, Kosmos entered into a farm-in agreement to acquire a 15% non-operated participating interest in Block C18 offshore Mauritania. The farm-in is expected to close in the third quarter following customary government approvals.

Corporate

In August 2017, Kosmos announced its intention to pursue a secondary listing on the standard segment of the Main Market on the London Stock Exchange (“LSE”). The listing is expected to broaden Kosmos’ international investor base. The listing process is expected to be completed later in the third quarter of 2017.

During the quarter Kosmos and BP formed the Kosmos-BP Strategic Exploration Alliance that expands the exclusive exploration partnership previously announced in December 2016. This Alliance broadens the relationship that previously covered new venture opportunities in Mauritania, Senegal and The Gambia to create an Atlantic Margin explorer-developer partnership. The Alliance will leverage Kosmos’ regional exploration knowledge and capability together with BP’s deepwater development expertise to execute a selective, joint frontier and emerging basin exploration strategy in the Atlantic Margin.

2017 Capital Program

Kosmos has reduced its net capex budget for 2017 to $100 million, from the previously announced $150 million, after reflecting lower capex requirements in Ghana associated with reduced Jubilee costs and a one-time accrual adjustment in Ghana. Approximately $25 million of the budget is allocated to Ghana and approximately $75 million remains allocated to exploration, including seismic and new ventures costs. The 2017 net capex budget of $100 million represents almost an 85 percent decrease from our 2016 net capex.

(1) A Non-GAAP measure, see attached reconciliation of adjusted net income.

Conference Call and Webcast Information

Kosmos will host a conference call and webcast to discuss second quarter 2017 financial and operating results today at 10:00 a.m. Central time (11:00 a.m. Eastern time). A live webcast of the event can be accessed on the Investors page of Kosmos’ website at investors.kosmosenergy.com. The dial-in telephone number for the call is +1.877.407.3982. Callers outside the United States should dial +1.201.493.6780. A replay of the webcast will be available on the Investors page of Kosmos’ website for approximately 90 days following the event.

About Kosmos Energy

Kosmos is a leading independent oil and gas exploration and production company focused on frontier and emerging areas along the Atlantic Margins. Our assets include existing production and development projects offshore Ghana, large discoveries and significant further hydrocarbon exploration potential offshore Mauritania and Senegal, as well as exploration licenses with significant hydrocarbon potential offshore Suriname, Sao Tome and Principe, Morocco and Western Sahara. As an ethical and transparent company, Kosmos is committed to doing things the right way. The Company’s Business Principles articulate our commitment to transparency, ethics, human rights, safety and the environment. Read more about this commitment in the Kosmos 2016 Corporate Responsibility Report.

For more information, please visit: http://www.kosmosenergy.com
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