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2020-06-30 utreg:MBbls kos:tranche kos:letter_of_credit iso4217:USD
utreg:bbl xbrli:pure utreg:MMBbls iso4217:USD xbrli:shares
kos:segment iso4217:USD utreg:bbl kos:project xbrli:shares
kos:Agreement utreg:km utreg:sqkm kos:exploration_well
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM 10-Q
|
|
|
(Mark
One)
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|
☒
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
|
For the
quarterly period ended
June 30, 2020
|
|
|
☐
|
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: 001-35167
Kosmos Energy
Ltd.
(Exact name of
registrant as specified in its charter)
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|
|
|
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Delaware
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98-0686001
|
(State or other jurisdiction
of
|
|
(I.R.S. Employer
|
incorporation or
organization)
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|
Identification
No.)
|
|
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8176
Park Lane
|
|
|
Dallas,
|
Texas
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|
75231
|
(Address of principal
executive offices)
|
|
(Zip Code)
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|
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|
Title of each
class
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|
Trading
Symbol
|
|
Name of each
exchange on which registered:
|
Common Stock $0.01 par
value
|
|
KOS
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|
New York Stock
Exchange
|
|
|
|
|
London Stock
Exchange
|
Registrant’s
telephone number, including area code: +1
214
445
9600
Not
applicable
(Former name,
former address and former fiscal year, if changed since last
report)
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 ☒ No ☐
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 ☒ No ☐
Indicate by check
mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of
“large accelerated filer,” “accelerated filer,” “smaller reporting
company,” and “emerging growth company” in Rule 12b-2 of the
Exchange Act.
|
|
|
|
|
|
Large accelerated
filer
|
☒
|
|
Accelerated filer
|
☐
|
|
|
|
|
|
Non-accelerated
filer
|
☐
|
|
Smaller reporting
company
|
☐
|
(Do not check if a smaller
reporting company)
|
|
|
|
|
|
|
Emerging growth
company
|
☐
|
If an emerging
growth company, indicate by check mark if the registrant has
elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange
Act. ☐
Indicate by check
mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange
Act). Yes ☐ No ☒
Indicate the
number of shares outstanding of each of the issuer’s classes of
common stock, as of the latest practicable date.
|
|
|
|
Class
|
|
Outstanding
at July 30, 2020
|
Common Shares, $0.01 par
value
|
|
405,410,075
|
TABLE OF
CONTENTS
Unless otherwise
stated in this report, references to “Kosmos,” “we,” “us” or “the
company” refer to Kosmos Energy Ltd. and its wholly owned
subsidiaries. We have provided definitions for some of the industry
terms used in this report in the “Glossary and Selected
Abbreviations” beginning on page 3.
|
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Page
|
PART I.
FINANCIAL INFORMATION
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PART II.
OTHER INFORMATION
|
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KOSMOS
ENERGY LTD.
GLOSSARY AND
SELECTED ABBREVIATIONS
The following are
abbreviations and definitions of certain terms that may be used in
this report. Unless listed below, all defined terms under
Rule 4-10(a) of Regulation S-X shall have their
statutorily prescribed meanings.
|
|
|
|
“2D seismic
data”
|
|
Two‑dimensional seismic data,
serving as interpretive data that allows a view of a vertical
cross‑section beneath a prospective area.
|
“3D seismic
data”
|
|
Three‑dimensional seismic
data, serving as geophysical data that depicts the subsurface
strata in three dimensions. 3D seismic data typically provides a
more detailed and accurate interpretation of the subsurface strata
than 2D seismic data.
|
"ANP-STP"
|
|
Agencia Nacional Do Petroleo
De Sao Tome E Principe.
|
“API”
|
|
A specific gravity scale,
expressed in degrees, that denotes the relative density of various
petroleum liquids. The scale increases inversely with density. Thus
lighter petroleum liquids will have a higher API than heavier
ones.
|
“ASC”
|
|
Financial Accounting
Standards Board Accounting Standards Codification.
|
“ASU”
|
|
Financial Accounting
Standards Board Accounting Standards Update.
|
|
|
|
|
“Barrel” or
“Bbl”
|
|
A standard measure of volume
for petroleum corresponding to approximately 42 gallons at 60
degrees Fahrenheit.
|
“BBbl”
|
|
Billion barrels of
oil.
|
“BBoe”
|
|
Billion barrels of oil
equivalent.
|
“Bcf”
|
|
Billion cubic
feet.
|
“Boe”
|
|
Barrels of oil equivalent.
Volumes of natural gas converted to barrels of oil using a
conversion factor of 6,000 cubic feet of natural gas to one barrel
of oil.
|
"BOEM"
|
|
Bureau of Ocean Energy
Management.
|
“Boepd”
|
|
Barrels of oil equivalent per
day.
|
“Bopd”
|
|
Barrels of oil per
day.
|
"BP"
|
|
BP p.l.c. and related
subsidiaries
|
“Bwpd”
|
|
Barrels of water per
day.
|
"Corporate
Revolver"
|
|
Revolving Credit Facility
Agreement dated November 23, 2012 (as amended or as amended and
restated from time to time)
|
"COVID-19"
|
|
Coronavirus disease
2019.
|
“Developed
acreage”
|
|
The number of acres that are
allocated or assignable to productive wells or wells capable of
production.
|
“Development”
|
|
The phase in which an oil or
natural gas field is brought into production by drilling
development wells and installing appropriate production
systems.
|
"DGE"
|
|
Deep Gulf Energy (together
with its subsidiaries).
|
"DST"
|
|
Drill stem test.
|
“Dry hole”
or "Unsuccessful well"
|
|
A well that has not
encountered a hydrocarbon bearing reservoir expected to produce in
commercial quantities.
|
"DT"
|
|
Deepwater Tano.
|
“EBITDAX”
|
|
Net income (loss) plus
(i) exploration expense, (ii) depletion, depreciation and
amortization expense, (iii) equity‑based compensation expense,
(iv) unrealized (gain) loss on commodity derivatives (realized
losses are deducted and realized gains are added back),
(v) (gain) loss on sale of oil and gas properties,
(vi) interest (income) expense, (vii) income taxes,
(viii) loss on extinguishment of debt, (ix) doubtful
accounts expense and (x) similar other material items which
management believes affect the comparability of operating results.
The Facility EBITDAX definition includes 50% of the EBITDAX
adjustments of Kosmos-Trident International Petroleum Inc for the
period it was an equity method investment and includes Last Twelve
Months ("LTM") EBITDAX for any acquisitions and excludes LTM
EBITDAX for any divestitures.
|
"ESG"
|
|
Environmental, social, and
governance.
|
"ESP"
|
|
Electric submersible
pump.
|
“E&P”
|
|
Exploration and
production.
|
"Facility"
|
|
Facility agreement dated
March 28, 2011 (as amended or as amended and restated from time to
time)
|
“FASB”
|
|
Financial Accounting
Standards Board.
|
“Farm‑in”
|
|
An agreement whereby a party
acquires a portion of the participating interest in a block from
the owner of such interest, usually in return for cash and/or for
taking on a portion of future costs or other performance by the
assignee as a condition of the assignment.
|
“Farm‑out”
|
|
An agreement whereby the
owner of the participating interest agrees to assign a portion of
its participating interest in a block to another party for cash
and/or for the assignee taking on a portion of future costs and/or
other work as a condition of the assignment.
|
"FEED"
|
|
Front End Engineering
Design.
|
"FLNG"
|
|
Floating liquefied natural
gas.
|
“FPS”
|
|
Floating production
system.
|
“FPSO”
|
|
Floating production, storage
and offloading vessel.
|
"Galp"
|
|
Galp Energia Sao Tome E
Principe, Unipessoal, LDA.
|
"GEPetrol"
|
|
Guinea Equatorial De
Petroleos.
|
"GHG"
|
|
Greenhouse gas.
|
|
|
|
|
"GJFFDP"
|
|
Greater Jubilee Full Field
Development Plan.
|
"GNPC"
|
|
Ghana National Petroleum
Corporation.
|
GoM
Liquidity Ratio
|
|
The "GoM Liquidity Ratio" is
broadly defined, for each applicable forecast period, as the ratio
of (1) net cash flow of our U.S. Gulf of Mexico business unit over
the immediately succeeding six (6) months from the sale of the
volumes of crude oil using certain agreed pricing metrics and
models set forth in the Production Prepayment Agreement, to (2) the
portion of the Prepaid Value to be delivered to Trafigura as
determined by the Volume Model for the same six (6) month
period.
|
“Greater
Tortue Ahmeyim”
|
|
Ahmeyim and Guembeul
discoveries.
|
"GTA
UUOA"
|
|
Unitization and Unit
Operating Agreement covering the Greater Tortue Ahmeyim
Unit.
|
"Guarantor
Liquidity Ratio"
|
|
The "Guarantor Liquidity
Ratio" is broadly defined, for each applicable forecast period, as
the ratio of (1) the sum of (A) projected revenues of the Company
from the sale of hydrocarbons over the four quarters beginning on
or after the calculation date, (B) the expected income from hedges
then in effect (but not less than zero), (C) its cash balance as of
the calculation date, and (D) the amount of the Prepayments
available under the Production Prepayment Agreement and any other
committed sources of capital of the Company, to (2) the sum of all
forecast cash costs of the Company over the four quarters beginning
on or after the calculation date.
|
"Hess"
|
|
Hess
Corporation.
|
"HLS"
|
|
Heavy Louisiana
Sweet.
|
"H&M"
|
|
Hull and Machinery
insurance.
|
"Jubilee
UUOA"
|
|
Unitization and Unit
Operating Agreement covering the Jubilee Unit.
|
"KTEGI"
|
|
Kosmos-Trident Equatorial
Guinea Inc.
|
"KTIPI"
|
|
Kosmos-Trident International
Petroleum Inc.
|
"LNG"
|
|
Liquefied natural
gas.
|
"LOPI"
|
|
Loss of Production
Income.
|
"LSE"
|
|
London Stock
Exchange.
|
"LTIP"
|
|
Long Term Incentive
Plan.
|
“MBbl”
|
|
Thousand barrels of
oil.
|
“MBoe”
|
|
Thousand barrels of oil
equivalent.
|
“Mcf”
|
|
Thousand cubic feet of
natural gas.
|
“Mcfpd”
|
|
Thousand cubic feet per day
of natural gas.
|
“MMBbl”
|
|
Million barrels of
oil.
|
“MMBoe”
|
|
Million barrels of oil
equivalent.
|
"MMBtu"
|
|
Million British thermal
units.
|
“MMcf”
|
|
Million cubic feet of natural
gas.
|
“MMcfd”
|
|
Million cubic feet per day of
natural gas.
|
"MMTPA"
|
|
Million metric tonnes per
annum.
|
"NAMCOR"
|
|
National Petroleum
Corporation of Namibia.
|
“Natural
gas liquid” or “NGL”
|
|
Components of natural gas
that are separated from the gas state in the form of liquids. These
include propane, butane, and ethane, among others.
|
"NYSE"
|
|
New York Stock
Exchange.
|
"Ophir"
|
|
Ophir Energy
plc.
|
"PETROCI"
|
|
PETROCI Holding.
|
“Petroleum
contract”
|
|
A contract in which the owner
of hydrocarbons gives an E&P company temporary and limited
rights, including an exclusive option to explore for, develop, and
produce hydrocarbons from the lease area.
|
“Petroleum
system”
|
|
A petroleum system consists
of organic material that has been buried at a sufficient depth to
allow adequate temperature and pressure to expel hydrocarbons and
cause the movement of oil and natural gas from the area in which it
was formed to a reservoir rock where it can
accumulate.
|
“Plan of
development” or “PoD”
|
|
A written document outlining
the steps to be undertaken to develop a field.
|
|
|
|
|
"Prepaid
Value"
|
|
As defined in the Production
Prepayment Agreement attached as exhibit 10.3 hereto.
|
“Productive
well”
|
|
An exploratory or development
well found to be capable of producing either oil or natural gas in
sufficient quantities to justify completion as an oil or natural
gas well.
|
“Prospect(s)”
|
|
A potential trap that may
contain hydrocarbons and is supported by the necessary amount and
quality of geologic and geophysical data to indicate a probability
of oil and/or natural gas accumulation ready to be drilled. The
five required elements (generation, migration, reservoir, seal and
trap) must be present for a prospect to work and if any of these
fail neither oil nor natural gas may be present, at least not in
commercial volumes.
|
“Proved
reserves”
|
|
Estimated quantities of crude
oil, natural gas and natural gas liquids that geological and
engineering data demonstrate with reasonable certainty to be
economically recoverable in future years from known reservoirs
under existing economic and operating conditions, as well as
additional reserves expected to be obtained through confirmed
improved recovery techniques, as defined in SEC Regulation S‑X
4‑10(a)(2).
|
“Proved
developed reserves”
|
|
Those proved reserves that
can be expected to be recovered through existing wells and
facilities and by existing operating methods.
|
“Proved
undeveloped reserves”
|
|
Those proved reserves that
are expected to be recovered from future wells and facilities,
including future improved recovery projects which are anticipated
with a high degree of certainty in reservoirs which have previously
shown favorable response to improved recovery
projects.
|
"RSC"
|
|
Ryder Scott Company,
L.P.
|
"SEC"
|
|
Securities and Exchange
Commission.
|
"Senior
Notes"
|
|
7.125% Senior Notes due
2026.
|
"Senior
Secured Notes"
|
|
7.875% Senior Secured Notes
due 2021.
|
“Shelf
margin”
|
|
The path created by the
change in direction of the shoreline in reaction to the filling of
a sedimentary basin.
|
"Shell"
|
|
Royal Dutch Shell and related
subsidiaries.
|
"SNPC"
|
|
Société Nationale des
Pétroles du Congo.
|
“Stratigraphy”
|
|
The study of the composition,
relative ages and distribution of layers of sedimentary
rock.
|
“Stratigraphic
trap”
|
|
A stratigraphic trap is
formed from a change in the character of the rock rather than
faulting or folding of the rock and oil is held in place by changes
in the porosity and permeability of overlying rocks.
|
“Structural
trap”
|
|
A topographic feature in the
earth’s subsurface that forms a high point in the rock strata.
This facilitates the accumulation of oil and gas in the
strata.
|
“Structural‑stratigraphic
trap”
|
|
A structural‑stratigraphic
trap is a combination trap with structural and stratigraphic
features.
|
“Submarine
fan”
|
|
A fan‑shaped deposit of
sediments occurring in a deep water setting where sediments have
been transported via mass flow, gravity induced, processes from the
shallow to deep water. These systems commonly develop at the bottom
of sedimentary basins or at the end of large rivers.
|
"TAG
GSA"
|
|
TEN Associated Gas - Gas
Sales Agreement.
|
"TEN"
|
|
Tweneboa, Enyenra and
Ntomme.
|
“Three‑way
fault trap”
|
|
A structural trap where at
least one of the components of closure is formed by offset of rock
layers across a fault.
|
"Tortue
Phase 1 SPA"
|
|
Greater Tortue Ahmeyim
Agreement for a Long Term Sale and Purchase of LNG.
|
"Trafigura
|
|
Trafigura Group PTD, Ltd. and
related subsidiaries including Trafigura Trading LLC.
|
“Trap”
|
|
A configuration of rocks
suitable for containing hydrocarbons and sealed by a relatively
impermeable formation through which hydrocarbons will not
migrate.
|
"Trident"
|
|
Trident Energy.
|
“Undeveloped
acreage”
|
|
Lease acreage on which wells
have not been drilled or completed to a point that would permit the
production of commercial quantities of natural gas and oil
regardless of whether such acreage contains discovered
resources.
|
"Volume
Model"
|
|
As defined in the Production
Prepayment Agreement attached as exhibit 10.3 hereto.
|
"WCTP"
|
|
West Cape Three
Points.
|
KOSMOS
ENERGY LTD.
CONSOLIDATED
BALANCE SHEETS
(In
thousands, except share data)
|
|
|
|
|
|
|
|
|
|
June 30,
2020
|
|
December 31,
2019
|
|
(Unaudited)
|
|
|
Assets
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
Cash and cash
equivalents
|
$
|
164,091
|
|
|
$
|
224,502
|
|
Restricted cash
|
186
|
|
|
4,302
|
|
Receivables:
|
|
|
|
Joint interest billings,
net
|
56,267
|
|
|
81,424
|
|
Oil sales
|
33,497
|
|
|
64,142
|
|
Other
|
26,797
|
|
|
28,727
|
|
Inventories
|
130,299
|
|
|
114,412
|
|
Prepaid expenses and
other
|
39,573
|
|
|
36,192
|
|
Derivatives
|
30,289
|
|
|
12,856
|
|
Total current
assets
|
480,999
|
|
|
566,557
|
|
Property and
equipment:
|
|
|
|
|
|
Oil and gas properties,
net
|
3,365,746
|
|
|
3,624,751
|
|
Other property,
net
|
12,919
|
|
|
17,581
|
|
Property and equipment,
net
|
3,378,665
|
|
|
3,642,332
|
|
Other assets:
|
|
|
|
|
|
Restricted cash
|
542
|
|
|
542
|
|
Long-term
receivables
|
88,137
|
|
|
43,430
|
|
Deferred financing
costs, net of accumulated amortization of $15,989 and $14,681 at
June 30, 2020 and December 31, 2019, respectively
|
5,013
|
|
|
6,321
|
|
Deferred tax
assets
|
—
|
|
|
32,779
|
|
Derivatives
|
11,271
|
|
|
2,302
|
|
Other
|
21,864
|
|
|
22,969
|
|
Total assets
|
$
|
3,986,491
|
|
|
$
|
4,317,232
|
|
Liabilities
and stockholders’ equity
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
Accounts payable
|
$
|
145,670
|
|
|
$
|
149,483
|
|
Accrued
liabilities
|
203,275
|
|
|
380,704
|
|
Current maturities of
long-term debt
|
56,000
|
|
|
—
|
|
Derivatives
|
43,974
|
|
|
8,914
|
|
Total current
liabilities
|
448,919
|
|
|
539,101
|
|
Long-term
liabilities:
|
|
|
|
|
|
Long-term debt,
net
|
2,107,653
|
|
|
2,008,063
|
|
Production prepayment
agreement, net
|
49,333
|
|
|
—
|
|
Derivatives
|
9,306
|
|
|
11,478
|
|
Asset retirement
obligations
|
239,845
|
|
|
230,526
|
|
Deferred tax
liabilities
|
644,091
|
|
|
653,221
|
|
Other long-term
liabilities
|
33,157
|
|
|
33,141
|
|
Total long-term
liabilities
|
3,083,385
|
|
|
2,936,429
|
|
Stockholders’
equity:
|
|
|
|
|
|
Preference shares,
$0.01 par value; 200,000,000 authorized shares; zero issued at June
30, 2020 and December 31, 2019
|
—
|
|
|
—
|
|
Common stock,
$0.01 par value; 2,000,000,000 authorized shares; 449,574,638 and
445,779,367 issued at June 30, 2020 and December 31, 2019,
respectively
|
4,496
|
|
|
4,458
|
|
Additional paid-in
capital
|
2,291,826
|
|
|
2,297,221
|
|
Accumulated
deficit
|
(1,605,128
|
)
|
|
(1,222,970
|
)
|
Treasury stock, at
cost, 44,263,269 shares at June 30, 2020 and December 31, 2019,
respectively
|
(237,007
|
)
|
|
(237,007
|
)
|
Total stockholders’
equity
|
454,187
|
|
|
841,702
|
|
Total liabilities and
stockholders’ equity
|
$
|
3,986,491
|
|
|
$
|
4,317,232
|
|
See accompanying
notes.
KOSMOS
ENERGY LTD.
CONSOLIDATED
STATEMENTS OF OPERATIONS
(In
thousands, except per share data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
|
Six Months
Ended
|
|
June
30,
|
|
June
30,
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Revenues and other
income:
|
|
|
|
|
|
|
|
|
|
|
|
Oil and gas
revenue
|
$
|
127,314
|
|
|
$
|
395,933
|
|
|
$
|
305,094
|
|
|
$
|
692,723
|
|
Other income,
net
|
—
|
|
|
1
|
|
|
1
|
|
|
1
|
|
Total revenues and other
income
|
127,314
|
|
|
395,934
|
|
|
305,095
|
|
|
692,724
|
|
Costs and
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Oil and gas
production
|
88,747
|
|
|
90,977
|
|
|
150,350
|
|
|
170,776
|
|
Facilities insurance
modifications, net
|
52
|
|
|
2,278
|
|
|
8,090
|
|
|
(17,743
|
)
|
Exploration
expenses
|
15,711
|
|
|
29,905
|
|
|
60,316
|
|
|
60,249
|
|
General and
administrative
|
18,186
|
|
|
28,072
|
|
|
39,097
|
|
|
63,980
|
|
Depletion, depreciation and
amortization
|
121,857
|
|
|
151,438
|
|
|
215,159
|
|
|
269,533
|
|
Impairment of long-lived
assets
|
—
|
|
|
—
|
|
|
150,820
|
|
|
—
|
|
Interest and other financing
costs, net
|
28,274
|
|
|
59,803
|
|
|
56,109
|
|
|
94,844
|
|
Derivatives, net
|
100,075
|
|
|
(14,185
|
)
|
|
(35,963
|
)
|
|
62,900
|
|
Other expenses,
net
|
1,228
|
|
|
(1,793
|
)
|
|
25,157
|
|
|
326
|
|
Total costs and
expenses
|
374,130
|
|
|
346,495
|
|
|
669,135
|
|
|
704,865
|
|
Income (loss) before income
taxes
|
(246,816
|
)
|
|
49,439
|
|
|
(364,040
|
)
|
|
(12,141
|
)
|
Income tax expense
(benefit)
|
(47,425
|
)
|
|
32,602
|
|
|
18,118
|
|
|
23,928
|
|
Net income
(loss)
|
$
|
(199,391
|
)
|
|
$
|
16,837
|
|
|
$
|
(382,158
|
)
|
|
$
|
(36,069
|
)
|
|
|
|
|
|
|
|
|
Net income (loss) per
share:
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
(0.49
|
)
|
|
$
|
0.04
|
|
|
$
|
(0.94
|
)
|
|
$
|
(0.09
|
)
|
Diluted
|
$
|
(0.49
|
)
|
|
$
|
0.04
|
|
|
$
|
(0.94
|
)
|
|
$
|
(0.09
|
)
|
|
|
|
|
|
|
|
|
Weighted average
number of shares used to compute net income (loss) per
share:
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
405,195
|
|
|
401,323
|
|
|
404,990
|
|
|
401,244
|
|
Diluted
|
405,195
|
|
|
408,230
|
|
|
404,990
|
|
|
401,244
|
|
|
|
|
|
|
|
|
|
Dividends
declared per common share
|
$
|
—
|
|
|
$
|
0.0452
|
|
|
$
|
0.0452
|
|
|
$
|
0.0904
|
|
See accompanying
notes.
KOSMOS
ENERGY LTD.
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY
(In
thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
Common Shares
|
|
Paid-in
|
|
Accumulated
|
|
Treasury
|
|
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Deficit
|
|
Stock
|
|
Total
|
2020:
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of
December 31, 2019
|
445,779
|
|
|
$
|
4,458
|
|
|
$
|
2,297,221
|
|
|
$
|
(1,222,970
|
)
|
|
$
|
(237,007
|
)
|
|
$
|
841,702
|
|
Dividends ($0.0452 per
share)
|
—
|
|
|
—
|
|
|
(18,918
|
)
|
|
—
|
|
|
—
|
|
|
(18,918
|
)
|
Equity-based
compensation
|
—
|
|
|
—
|
|
|
10,078
|
|
|
—
|
|
|
—
|
|
|
10,078
|
|
Restricted stock awards and
units
|
3,590
|
|
|
36
|
|
|
(36
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Purchase of treasury stock /
tax withholdings
|
—
|
|
|
—
|
|
|
(4,947
|
)
|
|
—
|
|
|
—
|
|
|
(4,947
|
)
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
(182,767
|
)
|
|
—
|
|
|
(182,767
|
)
|
Balance as of March 31,
2020
|
449,369
|
|
|
4,494
|
|
|
2,283,398
|
|
|
(1,405,737
|
)
|
|
(237,007
|
)
|
|
645,148
|
|
Dividends
|
—
|
|
|
—
|
|
|
24
|
|
|
—
|
|
|
—
|
|
|
24
|
|
Equity-based
compensation
|
—
|
|
|
—
|
|
|
8,406
|
|
|
—
|
|
|
—
|
|
|
8,406
|
|
Restricted stock awards and
units
|
206
|
|
|
2
|
|
|
(2
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
(199,391
|
)
|
|
—
|
|
|
(199,391
|
)
|
Balance as of June 30,
2020
|
449,575
|
|
|
$
|
4,496
|
|
|
$
|
2,291,826
|
|
|
$
|
(1,605,128
|
)
|
|
$
|
(237,007
|
)
|
|
$
|
454,187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31,
2018
|
442,915
|
|
|
$
|
4,429
|
|
|
$
|
2,341,249
|
|
|
$
|
(1,167,193
|
)
|
|
$
|
(237,007
|
)
|
|
$
|
941,478
|
|
Dividends ($0.0452 per
share)
|
—
|
|
|
—
|
|
|
(18,744
|
)
|
|
—
|
|
|
—
|
|
|
(18,744
|
)
|
Equity-based
compensation
|
—
|
|
|
—
|
|
|
8,744
|
|
|
—
|
|
|
—
|
|
|
8,744
|
|
Restricted stock awards and
units
|
2,610
|
|
|
26
|
|
|
(26
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Purchase of treasury stock /
tax withholdings
|
—
|
|
|
—
|
|
|
(1,979
|
)
|
|
—
|
|
|
—
|
|
|
(1,979
|
)
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
(52,906
|
)
|
|
—
|
|
|
(52,906
|
)
|
Balance as of March 31,
2019
|
445,525
|
|
|
$
|
4,455
|
|
|
$
|
2,329,244
|
|
|
$
|
(1,220,099
|
)
|
|
$
|
(237,007
|
)
|
|
$
|
876,593
|
|
Dividends ($0.0452 per
share)
|
—
|
|
|
—
|
|
|
(18,740
|
)
|
|
—
|
|
|
—
|
|
|
(18,740
|
)
|
Equity-based
compensation
|
—
|
|
|
—
|
|
|
9,525
|
|
|
—
|
|
|
—
|
|
|
9,525
|
|
Restricted stock awards and
units
|
113
|
|
|
1
|
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Purchase of treasury stock /
tax withholdings
|
—
|
|
|
—
|
|
|
(4
|
)
|
|
—
|
|
|
—
|
|
|
(4
|
)
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
16,837
|
|
|
—
|
|
|
16,837
|
|
Balance as of June 30,
2019
|
445,638
|
|
|
$
|
4,456
|
|
|
$
|
2,320,024
|
|
|
$
|
(1,203,262
|
)
|
|
$
|
(237,007
|
)
|
|
$
|
884,211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying
notes.
KOSMOS
ENERGY LTD.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(In
thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
Six Months
Ended June 30,
|
|
2020
|
|
2019
|
Operating
activities
|
|
|
|
|
|
Net loss
|
$
|
(382,158
|
)
|
|
$
|
(36,069
|
)
|
Adjustments to reconcile net
loss to net cash provided by (used in) operating
activities:
|
|
|
|
Depletion, depreciation and
amortization (including deferred financing costs)
|
219,634
|
|
|
274,222
|
|
Deferred income
taxes
|
23,650
|
|
|
(56,730
|
)
|
Unsuccessful well costs and
leasehold impairments
|
20,855
|
|
|
7,099
|
|
Impairment of long-lived
assets
|
150,820
|
|
|
—
|
|
Change in fair value of
derivatives
|
(31,615
|
)
|
|
65,686
|
|
Cash settlements
on derivatives, net (including $42.4 million and $(18.7) million on
commodity hedges during 2020 and 2019)
|
34,814
|
|
|
(21,044
|
)
|
Equity-based
compensation
|
17,693
|
|
|
17,932
|
|
Loss on extinguishment of
debt
|
2,215
|
|
|
24,794
|
|
Other
|
6,529
|
|
|
7,417
|
|
Changes in assets and
liabilities:
|
|
|
|
(Increase) decrease in
receivables
|
57,593
|
|
|
(23,996
|
)
|
Increase in
inventories
|
(17,715
|
)
|
|
(19,021
|
)
|
(Increase) decrease in prepaid
expenses and other
|
(3,464
|
)
|
|
29,380
|
|
Decrease in accounts
payable
|
(3,813
|
)
|
|
(76,031
|
)
|
Increase (decrease) in accrued
liabilities
|
(157,874
|
)
|
|
28,751
|
|
Net cash provided by (used in)
operating activities
|
(62,836
|
)
|
|
222,390
|
|
Investing
activities
|
|
|
|
|
|
Oil and gas
assets
|
(135,242
|
)
|
|
(153,268
|
)
|
Other property
|
(1,536
|
)
|
|
(5,230
|
)
|
Proceeds on sale of
assets
|
1,713
|
|
|
—
|
|
Notes receivable from
partners
|
(42,362
|
)
|
|
(5,983
|
)
|
Net cash used in investing
activities
|
(177,427
|
)
|
|
(164,481
|
)
|
Financing
activities
|
|
|
|
|
|
Borrowings under long-term
debt
|
150,000
|
|
|
175,000
|
|
Payments on long-term
debt
|
—
|
|
|
(300,000
|
)
|
Advances under production
prepayment agreement
|
50,000
|
|
|
—
|
|
Net proceeds from issuance of
senior notes
|
—
|
|
|
641,875
|
|
Redemption of senior secured
notes
|
—
|
|
|
(535,338
|
)
|
Purchase of treasury stock /
tax withholdings
|
(4,947
|
)
|
|
(1,983
|
)
|
Dividends
|
(19,181
|
)
|
|
(36,289
|
)
|
Deferred financing
costs
|
(136
|
)
|
|
(1,981
|
)
|
Net cash provided by (used in)
financing activities
|
175,736
|
|
|
(58,716
|
)
|
Net decrease in cash, cash
equivalents and restricted cash
|
(64,527
|
)
|
|
(807
|
)
|
Cash, cash equivalents and
restricted cash at beginning of period
|
229,346
|
|
|
185,616
|
|
Cash, cash equivalents and
restricted cash at end of period
|
$
|
164,819
|
|
|
$
|
184,809
|
|
|
|
|
|
Supplemental
cash flow information
|
|
|
|
|
|
Cash paid for:
|
|
|
|
|
|
Interest, net of capitalized
interest
|
$
|
58,096
|
|
|
$
|
65,307
|
|
Income taxes
|
$
|
54,199
|
|
|
$
|
14,619
|
|
See
accompanying notes.
KOSMOS
ENERGY LTD.
Notes to
Consolidated Financial Statements
(Unaudited)
1.
Organization
Kosmos Energy
Ltd. changed its jurisdiction of incorporation from Bermuda to the
State of Delaware, in the United States of America, (the
"Redomestication") in December 2018. As a holding company, Kosmos
Energy Ltd.’s management operations are conducted through a
wholly-owned subsidiary, Kosmos Energy, LLC. The terms “Kosmos,”
the “Company,” “we,” “us,” “our,” “ours,” and similar terms refer
to Kosmos Energy Ltd. and its wholly-owned subsidiaries, unless the
context indicates otherwise.
Kosmos is
a full-cycle
deepwater independent oil and gas exploration and production
company focused along the Atlantic Margins. Our key assets include
production offshore Ghana, Equatorial Guinea and U.S. Gulf of
Mexico, as well as a world-class gas development offshore
Mauritania and Senegal. We also maintain a sustainable exploration
program balanced between proven basin infrastructure-led
exploration (Equatorial Guinea and U.S. Gulf of Mexico), emerging
basins (Mauritania, Senegal and Suriname) and frontier basins
(Namibia, Sao Tome and Principe, and South Africa).
Kosmos is listed
on the New York Stock Exchange and London Stock Exchange and is
traded under the ticker symbol KOS.
Kosmos is engaged
in a single line of business, which is the exploration,
development, and production of oil and natural gas. Substantially
all of our long-lived assets and all of our product sales are
related to operations in four
geographic areas:
Ghana, Equatorial Guinea, Mauritania/Senegal and U.S. Gulf of
Mexico. In addition, we have exploration activities in other
countries in the Atlantic Margins.
2.
Accounting Policies
General
The interim
consolidated financial statements included in this report are
unaudited and, in the opinion of management, include all
adjustments of a normal recurring nature necessary for a fair
presentation of the results for the interim periods. The results of
the interim periods shown in this report are not necessarily
indicative of the final results to be expected for the full year.
The consolidated financial statements were prepared in accordance
with the requirements of the Securities and Exchange Commission
(“SEC”) for interim reporting. As permitted under those rules,
certain notes or other financial information that are normally
required by Generally Accepted Accounting Principles in the United
States of America (“GAAP”) have been condensed or omitted from
these interim consolidated financial statements. These consolidated
financial statements and the accompanying notes should be read in
conjunction with our audited consolidated financial statements for
the year ended December 31,
2019,
included in our annual report on Form 10-K and our quarterly
report on Form 10-Q for the quarter ended March 31,
2020.
Reclassifications
Certain prior
period amounts have been reclassified to conform with the current
presentation. Such reclassifications had no significant impact on
our reported net income
(loss),
current assets, total assets, current liabilities, total
liabilities, stockholders’ equity or cash flows.
Cash, Cash
Equivalents and Restricted Cash
|
|
|
|
|
|
|
|
|
|
June 30,
2020
|
|
December 31,
2019
|
|
(In thousands)
|
Cash and cash
equivalents
|
$
|
164,091
|
|
|
$
|
224,502
|
|
Restricted cash -
current
|
186
|
|
|
4,302
|
|
Restricted cash -
long-term
|
542
|
|
|
542
|
|
Total cash, cash
equivalents and restricted cash shown in the consolidated
statements of cash flows
|
$
|
164,819
|
|
|
$
|
229,346
|
|
Cash and cash
equivalents include demand deposits and funds invested in highly
liquid instruments with original maturities of three months or less
at the date of purchase.
In accordance
with certain of our petroleum contracts, we have posted letters of
credit related to performance guarantees for our minimum work
obligations. Certain of these letters of credit are cash
collateralized in accounts held by us and as such are classified as
restricted cash. Upon completion of the minimum work obligations
and/or entering into the next phase of the respective petroleum
contract, the requirement to post the existing letters of credit
will be satisfied and the cash collateral will be released.
However, additional letters of credit may be required should we
choose to move into the next phase of certain of our petroleum
contracts.
Inventories
Inventories
consisted of $115.2
million and $112.3
million of materials and supplies
and $15.1
million and $2.1
million of hydrocarbons as of
June 30,
2020 and December 31,
2019,
respectively. The Company’s materials and supplies inventory
primarily consists of casing and wellheads and is stated at the
lower of cost, using the weighted average cost method, or net
realizable value.
Hydrocarbon
inventory is carried at the lower of cost, using the weighted
average cost method, or net realizable value. Hydrocarbon inventory
costs include expenditures and other charges incurred in bringing
the inventory to its existing condition. Selling expenses and
general and administrative expenses are reported as period costs
and excluded from inventory costs.
Revenue
Recognition
Our oil and gas
revenues are recognized when hydrocarbons have been sold to a
purchaser at a fixed or determinable price, title has transferred
and collection is probable. Certain revenues are based on
provisional price contracts which contain an embedded derivative
that is required to be separated from the host contract for
accounting purposes. The host contract is the receivable from oil
sales at the spot price on the date of sale. The embedded
derivative, which is not designated as a hedge, is marked to market
through oil and gas revenue each period until the final settlement
occurs, which generally is limited to the month after the
sale.
Oil and gas
revenue is composed of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended June 30,
|
|
Six Months
Ended June 30,
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
(In thousands)
|
Revenues from contract with
customer - Equatorial Guinea
|
$
|
28,147
|
|
|
$
|
63,165
|
|
|
$
|
52,518
|
|
|
$
|
152,279
|
|
Revenues from contract with
customer - Ghana
|
64,577
|
|
|
209,469
|
|
|
114,250
|
|
|
328,800
|
|
Revenues from contract with
customers - U.S. Gulf of Mexico
|
39,222
|
|
|
129,364
|
|
|
142,674
|
|
|
214,431
|
|
Provisional oil sales
contracts
|
(4,632
|
)
|
|
(6,065
|
)
|
|
(4,348
|
)
|
|
(2,787
|
)
|
Oil and gas
revenue
|
$
|
127,314
|
|
|
$
|
395,933
|
|
|
$
|
305,094
|
|
|
$
|
692,723
|
|
Restructuring
Charges
The Company
accounts for restructuring charges and related termination benefits
in accordance with ASC 712—Compensation-Nonretirement
Postemployment Benefits. Under this standard, the costs associated
with termination benefits are recorded during the period in which
the liability is incurred. During the three and six months ended
June 30,
2020, we
recognized $(0.6)
million
and $13.3
million,
respectively, in restructuring charges for employee severance and
related benefit costs incurred as part of a corporate
reorganization in Other expenses, net in the consolidated statement
of operations.
Concentration
of Credit Risk
Our revenue can
be materially affected by current economic conditions and the price
of oil. However, based on the current demand for crude oil and the
fact that alternative purchasers are available, we believe that the
loss of our marketing agent and/or any of the purchasers identified
by our marketing agent would not have a long‑term material adverse
effect on our financial position or results of operations. The
continued economic disruption resulting from the COVID-19 pandemic
could materially impact the Company’s business in future periods.
Any potential disruption will depend on the duration and intensity
of these events, which are highly uncertain and cannot be predicted
at this time. For our U.S. Gulf of Mexico operations, crude oil and
natural gas are transported to customers using third-party
pipelines. For the three months ended
June 30,
2020 and 2019, revenue from Phillips 66
Company made up approximately 24% and
22%,
respectively, and revenue from Shell Trading (US) Company made up
approximately 8%
and
9%,
respectively, of our total consolidated revenue and was included in
our U.S. Gulf of Mexico segment. For the six months ended
June 30,
2020 and 2019, revenue from Phillips 66
Company made up approximately 37% and
22%,
respectively, and revenue from Shell Trading (US) Company made up
approximately 15%
and
7%,
respectively, of our total consolidated revenue and was included in
our U.S. Gulf of Mexico segment.
Recent
Accounting Standards
In June 2016, ASU
2016-13, "Measurement of Credit Losses on Financial Instruments,"
was issued requiring measurement of all expected credit losses for
certain types of financial instruments, including trade
receivables, held at the reporting date based on historical
experience, current conditions and reasonable and supportable
forecasts. This standard was effective January 1, 2020. We assessed
all receivable positions for expected credit losses through the
implementation of ASU 2016-13, current expected credit loss
standard (CECL). Our receivables are collectible in the
original term of the underlying agreements and current expected
credit losses under the CECL standard are not
significant.
In December 2019,
the FASB issued ASU 2019-12, “Simplifying the Accounting for Income
Taxes”. The amendments in the ASU are effective for fiscal years,
and interim periods within those fiscal years, beginning after
December 15, 2020. Early adoption is permitted, however, we do not
plan to early adopt ASU 2019-12 at this time. ASU 2019-12 is not
expected to have a material impact on our income tax
expense.
3.
Acquisitions and Divestitures
2020
Transactions
During the second
quarter of 2020, Kosmos made a decision to withdraw from our blocks
offshore Cote d'Ivoire following our evaluation of seismic
data.
In July 2020, we
provided notice to Staatsolie that we declined to enter the final
exploration phase of the Suriname Block 45 petroleum
agreement.
2019
Transactions
During the first
quarter of 2019, we agreed a petroleum contract covering offshore
Marine XXI block with the national oil company of the Republic of
the Congo, Societe Nationale des Petroles du Congo. The petroleum
contract was subject to a required governmental approval process
before the petroleum contract could be made effective. The
petroleum contract had not been approved by the government of the
Republic of Congo nor entered into force when, in February 2020, we
terminated our interests in the Marine XXI block petroleum
contract.
In March 2019, we
completed an agreement to acquire Ophir's remaining interest in
Block EG-24, offshore Equatorial Guinea, which increased our
participating interest to 80%
and named Kosmos
as operator.
4. Joint
Interest Billings, Related Party Receivables and Notes
Receivables
Joint
Interest Billings
The Company’s
joint interest billings generally consist of receivables from
partners with interests in common oil and gas properties operated
by the Company for shared costs. Joint interest billings are
classified on the consolidated balance sheets as current and
long-term receivables based on when collection is expected to
occur.
In Ghana, the
contractor group funded GNPC’s 5%
share of the TEN
development costs. The block partners are being reimbursed for such
costs plus interest out of a portion of GNPC’s TEN production
revenues. As of June 30, 2020
and
December 31,
2019, the
current portions of the joint interest billing receivables due from
GNPC for the TEN fields development costs were $9.1
million and $14.0
million, respectively, and the
long-term portions were $17.0 million
and
$16.0
million, respectively.
Notes
Receivables
In February 2019,
Kosmos and BP signed Carry Advance Agreements with the national oil
companies of Mauritania and Senegal which obligate us separately to
finance the respective national oil company’s share of certain
development costs incurred through first gas production for Greater
Tortue Ahmeyim Phase 1, currently projected in 2023. Kosmos’
share for the two
agreements
combined is up to $239.7
million, which is to be repaid with
interest through the national oil companies’ share of future
revenues. As of June 30, 2020
and
December 31,
2019, the
balance due from the national oil companies was $71.1
million and $27.4
million, respectively, which is
classified as Long-term receivables on our consolidated balance
sheets.
5. Property
and Equipment
Property and
equipment is stated at cost and consisted of the
following:
|
|
|
|
|
|
|
|
|
|
June 30,
2020
|
|
December 31,
2019
|
|
(In thousands)
|
Oil and gas
properties:
|
|
|
|
|
|
Proved
properties
|
$
|
5,129,222
|
|
|
$
|
4,904,648
|
|
Unproved
properties
|
533,393
|
|
|
814,065
|
|
Total oil and gas
properties
|
5,662,615
|
|
|
5,718,713
|
|
Accumulated
depletion
|
(2,296,869
|
)
|
|
(2,093,962
|
)
|
Oil and gas properties,
net
|
3,365,746
|
|
|
3,624,751
|
|
|
|
|
|
Other property
|
59,686
|
|
|
61,598
|
|
Accumulated
depreciation
|
(46,767
|
)
|
|
(44,017
|
)
|
Other property,
net
|
12,919
|
|
|
17,581
|
|
|
|
|
|
Property and equipment,
net
|
$
|
3,378,665
|
|
|
$
|
3,642,332
|
|
We recorded
depletion expense of $115.7
million and $144.0
million for the three months
ended, June 30, 2020
and
2019, respectively, and
$202.9
million and $255.0
million for the six months ended
June 30,
2020 and 2019, respectively. As a
result of the impact of COVID-19 on the demand for oil and the
related significant decrease in oil prices, we reviewed our
long-lived assets for impairment at March 31, 2020. Oil prices
improved during the three months ended June 30, 2020. During the
three months ended June 30, 2020
and
2019, no oil and gas asset
impairments were recorded. During the six months ended
June 30,
2020 and 2019, we recorded asset
impairments totaling $150.8
million and zero,
respectively, in our consolidated statement of operations in
connection with fair value assessments for oil and gas proved
properties in the U.S. Gulf of Mexico.
6. Suspended
Well Costs
The following
table reflects the Company’s capitalized exploratory well costs on
drilled wells as of and during the six months ended
June 30,
2020. The
table excludes $9.6
million in costs
that were capitalized and expensed during the same period. During
the first quarter of 2020, the exploratory well costs associated
with the Greater Tortue Ahmeyim Unit were reclassified to proved
property as the execution of the Tortue Phase 1 SPA in February
2020 resulted in recognition of proved undeveloped reserves at that
time.
|
|
|
|
|
|
June 30,
2020
|
|
(In thousands)
|
Beginning balance
|
$
|
445,790
|
|
Additions to capitalized
exploratory well costs pending the determination of proved
reserves
|
1,140
|
|
Reclassification due to
determination of proved reserves
|
(263,849
|
)
|
Capitalized exploratory well
costs charged to expense
|
—
|
|
Ending
balance
|
$
|
183,081
|
|
The following
table provides an aging of capitalized exploratory well costs based
on the date drilling was completed and the number of projects for
which exploratory well costs have been capitalized for more than
one year since the completion of drilling:
|
|
|
|
|
|
|
|
|
|
June 30,
2020
|
|
December 31,
2019
|
|
(In thousands, except well counts)
|
Exploratory well costs
capitalized for a period of one year or less
|
$
|
29,616
|
|
|
$
|
29,121
|
|
Exploratory well costs
capitalized for a period of one to two years
|
—
|
|
|
78,245
|
|
Exploratory well costs
capitalized for a period of three years or greater
|
153,465
|
|
|
338,424
|
|
Ending balance
|
$
|
183,081
|
|
|
$
|
445,790
|
|
Number of
projects that have exploratory well costs that have been
capitalized for a period greater than one year
|
2
|
|
|
3
|
|
As of
June 30,
2020, the
projects with exploratory well costs capitalized for more than one
year since the completion of drilling are related to the BirAllah
discovery (formerly known as the Marsouin discovery) in Block C8
offshore Mauritania and the Yakaar and Teranga discoveries in the
Cayar Offshore Profond block offshore Senegal.
BirAllah
Discovery — In November 2015, we completed the Marsouin-1
exploration well in the northern part of Block C8 offshore
Mauritania, which encountered hydrocarbon pay. Following additional
evaluation, a decision regarding commerciality is expected to be
made. During the fourth quarter of 2019, we completed the nearby
Orca-1 exploration well which encountered hydrocarbon pay.
Following additional evaluation, a decision regarding commerciality
is expected to be made. The BirAllah and Orca discoveries are being
analyzed as a joint development.
Yakaar and
Teranga Discoveries — In May 2016, we completed the Teranga-1
exploration well in the Cayar Offshore Profond block offshore
Senegal, which encountered hydrocarbon pay. In June 2017, we
completed the Yakaar-1 exploration well in the Cayar Offshore
Profond block offshore Senegal, which encountered hydrocarbon pay.
In November 2017, an integrated Yakaar-Teranga appraisal plan was
submitted to the government of Senegal. In September 2019, we
completed the Yakaar-2 appraisal well which encountered hydrocarbon
pay. The Yakaar-2 well was drilled approximately nine kilometers
from the Yakaar-1 exploration well. Following additional
evaluation, a decision regarding commerciality is expected to be
made. The Yakaar and Teranga discoveries are being analyzed as a
joint development.
7.
Leases
We have
commitments under operating leases primarily related to office
leases. Our leases have initial lease terms ranging from
one
year to ten
years. Certain lease agreements
contain provisions for future rent increases.
The components of
lease cost for the three and six
months
ended June 30, 2020
and
2019
are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended June 30,
|
|
Six months
ended June 30,
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
(In thousands)
|
|
Operating lease
cost
|
$
|
1,899
|
|
|
$
|
1,602
|
|
|
$
|
3,157
|
|
|
$
|
3,009
|
|
|
Short-term lease
cost(1)
|
2,434
|
|
|
582
|
|
|
12,802
|
|
|
587
|
|
|
Total lease cost
|
$
|
4,333
|
|
|
$
|
2,184
|
|
|
$
|
15,959
|
|
|
$
|
3,596
|
|
|
__________________________________
|
|
(1)
|
Includes
$2.3
million and zero
during the three
months ended June 30, 2020 and 2019, respectively, and
$12.2
million and zero
during the six
months ended June 30, 2020 and 2019, respectively, of costs
associated with short-term drilling contracts.
|
Other information
related to operating leases at June 30, 2020
and
2019, is as follows:
|
|
|
|
|
|
|
|
|
|
June 30,
2020
|
|
December 31,
2019
|
(In thousands,
except lease term and discount rate)
|
|
|
|
Balance
sheet classifications
|
|
|
|
Other assets (right-of-use
assets)
|
$
|
18,775
|
|
|
$
|
20,008
|
|
Accrued liabilities (current
maturities of leases)
|
2,005
|
|
|
1,139
|
|
Other long-term liabilities
(non-current maturities of leases)
|
21,078
|
|
|
22,240
|
|
|
|
|
|
Weighted
average remaining lease term
|
8.4
years
|
|
|
8.8
years
|
|
|
|
|
|
Weighted
average discount rate
|
9.9
|
%
|
|
9.8
|
%
|
The table below
presents supplemental cash flow information related to leases
during the six months ended
June 30,
2020 and 2019:
|
|
|
|
|
|
|
|
|
|
Six Months
Ended June 30,
|
|
2020
|
|
2019
|
|
(In thousands)
|
Operating cash flows for
operating leases
|
$
|
1,909
|
|
|
$
|
1,750
|
|
Investing cash flows for
operating leases(1)
|
12,225
|
|
|
—
|
|
__________________________________
|
|
(1)
|
Represents costs
associated with short-term drilling contracts.
|
Future minimum
rental commitments under our leases at June 30,
2020, are
as follows:
|
|
|
|
|
|
|
Operating
Leases(1)
|
|
|
(In thousands)
|
|
2020(2)
|
$
|
2,061
|
|
|
2021
|
4,174
|
|
|
2022
|
4,237
|
|
|
2023
|
4,301
|
|
|
2024
|
3,464
|
|
|
Thereafter
|
16,041
|
|
|
Total undiscounted lease
payments
|
$
|
34,278
|
|
|
Less: Imputed
interest
|
(11,195
|
)
|
|
Total lease
liabilities
|
$
|
23,083
|
|
|
__________________________________
|
|
(1)
|
Does not include
purchase commitments for jointly owned fields and facilities where
we are not the operator and excludes commitments for exploration
activities, including well commitments, in our petroleum
contracts.
|
|
|
(2)
|
Represents
payments for the period from July 1, 2020
through
December 31,
2020.
|
8.
Debt
|
|
|
|
|
|
|
|
|
|
June 30,
2020
|
|
December 31,
2019
|
|
(In thousands)
|
Outstanding debt principal
balances:
|
|
|
|
|
|
Facility
|
$
|
1,450,000
|
|
|
$
|
1,400,000
|
|
Corporate
Revolver
|
100,000
|
|
|
—
|
|
Senior Notes
|
650,000
|
|
|
650,000
|
|
Total
|
2,200,000
|
|
|
2,050,000
|
|
Unamortized deferred
financing costs and discounts(1)
|
(36,347
|
)
|
|
(41,937
|
)
|
Total debt, net
|
2,163,653
|
|
|
2,008,063
|
|
Less: Current maturities of
long-term debt
|
(56,000
|
)
|
|
—
|
|
Long-term debt,
net
|
$
|
2,107,653
|
|
|
$
|
2,008,063
|
|
__________________________________
|
|
(1)
|
Includes
$27.8
million and $32.8
million of unamortized deferred
financing costs related to the Facility as of June 30, 2020
and
December 31,
2019,
respectively; $8.5
million and $9.1
million of unamortized deferred
financing costs and discounts related to the Senior Notes as
of June 30, 2020
and
December 31,
2019,
respectively.
|
Facility
In April 2020,
following the lenders' annual redetermination, the available
borrowing base and Facility size were both reduced from
$1.6
billion to $1.5
billion. In addition, as part of the
redetermination process, the Company agreed to conduct an
additional redetermination in September 2020. The Facility supports
our oil and gas exploration, appraisal and development programs and
corporate activities. As of June 30,
2020, borrowings under the Facility
totaled $1.45
billion and the undrawn availability
under the facility was $0.05
billion.
The Facility
provides a revolving credit and letter of credit facility. The
availability period for the revolving credit facility
expires one month
prior to the
final maturity date. The letter of credit facility expires on the
final maturity date. The available facility amount is subject to
borrowing base constraints and, beginning on March 31, 2022,
outstanding borrowings will be constrained by an amortization
schedule. The Facility has a final maturity date of March 31, 2025.
As of June 30,
2020, we
had no
letters of credit
issued under the Facility.
As result of the
impact of COVID-19 on the demand for oil and the related
significant decrease in oil prices, our ability to comply with one
of our financial covenants, the debt cover ratio, may be impacted
in future periods. Therefore, in July 2020, we proactively worked
with our lender group, prior to any inability to comply with the
financial covenants thereunder, to amend the debt cover ratio
calculation through December 31, 2021. The amendment makes this
covenant less restrictive during the stated period up to a maximum
of 4.75x
and thereafter gradually returns to the originally agreed upon
ratio of 3.5x.
In addition, as part of the amendment to relax the debt cover
ratio, we agreed to include the advanced amounts under the
Production Prepayment Agreement as part of the debt cover ratio
calculation. We were in compliance with the financial
covenants as of the most recent assessment date. The Facility
contains customary cross default provisions.
Corporate
Revolver
In August 2018,
we amended and restated the Corporate Revolver from a number of
financial institutions, maintaining the borrowing capacity
at $400.0
million, extending the maturity date
from November 2018 to May 2022 and lowering the margin
100 basis
points to 5%.
This results in lower commitment fees on the undrawn portion of the
total commitments, which is 30%
per annum of the
respective margin. The Corporate Revolver is available for general
corporate purposes and for oil and gas exploration, appraisal and
development programs.
As of
June 30,
2020,
there were $100.0
million in outstanding borrowings
under the Corporate Revolver and the undrawn availability
was $300.0
million. As of June 30,
2020, we
have $5.0
million of net deferred financing
costs related to the Corporate Revolver, which will be amortized
over its remaining term.
As result of the
impact of COVID-19 on the demand for oil and the related
significant decrease in oil prices, our ability to comply with one
of our financial covenants, the debt cover ratio, may be impacted
in future periods. Therefore, in July 2020, we proactively worked
with our lender group, prior to any inability to comply with the
financial covenants thereunder, to amend the debt cover ratio
calculation through December 31, 2021. The amendment makes this
covenant less restrictive during the stated period up to a maximum
of 4.75x
and thereafter gradually returns to the originally agreed upon
ratio of 3.5x.
In addition, as part of the amendment to relax the debt cover
ratio, we agreed to include the advanced amounts under the
Production Prepayment Agreement as part of the debt cover ratio
calculation. We were in compliance with the financial covenants as
of the most recent assessment date. The Corporate Revolver contains
customary cross default provisions.
Revolving
Letter of Credit Facility
Our revolving
letter of credit facility agreement (“LC Facility”) expired
in July
2019.In
May 2020, the remaining five
outstanding
letters of credit under the LC Facility totaling
$3.1
million were released and the LC
Facility was subsequently terminated in June 2020.
In 2019, we
issued two
letters of credit
totaling $20.4
million under a new letter of credit
arrangement, which does not currently require cash
collateral.
7.125%
Senior
Notes due 2026
In
April 2019, the Company issued $650.0
million of 7.125%
Senior Notes and
received net proceeds of approximately $640.0
million after deducting commissions
and other expenses. We used the net proceeds to redeem all of the
Senior Secured Notes, repay a portion of the outstanding
indebtedness under the Corporate Revolver and pay fees and expenses
related to the redemption, repayment and the issuance of the Senior
Notes.
The Senior Notes
mature on April 4, 2026. Interest is payable in arrears each April
4 and October 4, commencing on October 4, 2019. The Senior Notes
are senior, unsecured obligations of Kosmos Energy Ltd. and rank
equal in right of payment with all of its existing and future
senior indebtedness (including all borrowings under the Corporate
Revolver) and rank effectively junior in right of payment to all of
its existing and future secured indebtedness (including all
borrowings under the Facility). The Senior Notes are guaranteed on
a senior, unsecured basis by certain subsidiaries owning the
Company's Gulf of Mexico assets, and on a subordinated, unsecured
basis by certain subsidiaries that guarantee the Facility. We were
in compliance with the financial covenants contained in the Senior
Notes as of March 31,
2020. The
Senior Notes contain customary cross default
provisions.
At
June 30,
2020, the
estimated repayments of debt during the five fiscal year periods
and thereafter are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Year
|
|
Total
|
|
2020(2)
|
|
2021
|
|
2022
|
|
2023
|
|
2024
|
|
Thereafter
|
|
(In thousands)
|
Principal debt
repayments(1)
|
$
|
2,200,000
|
|
|
$
|
—
|
|
|
$
|
56,000
|
|
|
$
|
422,571
|
|
|
$
|
428,571
|
|
|
$
|
428,572
|
|
|
$
|
864,286
|
|
__________________________________
|
|
(1)
|
Includes the
scheduled principal maturities for the $650.0
million aggregate principal amount of
Senior Notes and borrowings under the Facility and Corporate
Revolver. The scheduled maturities of debt related to the Facility
as of June 30, 2020
are based on our
level of borrowings and our estimated future available borrowing
base commitment levels in future periods. Any increases or
decreases in the level of borrowings or increases or decreases in
the available borrowing base would impact the scheduled maturities
of debt during the next five years and thereafter.
|
|
|
(2)
|
Represents
payments for the period July 1, 2020
through
December 31,
2020.
|
Interest
and other financing costs, net
Interest and
other financing costs, net incurred during the periods is comprised
of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended June 30,
|
|
Six Months
Ended June 30,
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
(In
thousands)
|
Interest expense
|
$
|
28,504
|
|
|
$
|
38,450
|
|
|
$
|
60,270
|
|
|
$
|
76,622
|
|
Amortization—deferred
financing costs
|
2,192
|
|
|
2,302
|
|
|
4,475
|
|
|
4,689
|
|
Loss on extinguishment of
debt
|
2,215
|
|
|
24,794
|
|
|
2,215
|
|
|
24,794
|
|
Capitalized
interest
|
(5,729
|
)
|
|
(7,002
|
)
|
|
(12,256
|
)
|
|
(14,253
|
)
|
Deferred
interest
|
1,182
|
|
|
433
|
|
|
1,496
|
|
|
1,270
|
|
Interest income
|
(1,023
|
)
|
|
(591
|
)
|
|
(2,102
|
)
|
|
(1,243
|
)
|
Other, net
|
933
|
|
|
1,417
|
|
|
2,011
|
|
|
2,965
|
|
Interest and other financing
costs, net
|
$
|
28,274
|
|
|
$
|
59,803
|
|
|
$
|
56,109
|
|
|
$
|
94,844
|
|
9.
Production Prepayment Agreement, net
|
|
|
|
|
|
|
|
|
|
June 30,
2020
|
|
December 31,
2019
|
|
(In thousands)
|
Production
prepayment
|
$
|
50,000
|
|
|
$
|
—
|
|
Unamortized deferred
financing costs
|
(667
|
)
|
|
—
|
|
Production prepayment
agreement, net
|
$
|
49,333
|
|
|
$
|
—
|
|
In June 2020, the
Company received $50
million from Trafigura under a
Production Prepayment Agreement of crude oil sales related to a
portion of our U.S. Gulf of Mexico production primarily in 2022 and
2023, The Production Prepayment Agreement is for up to
$200
million of crude oil sales, with an
additional $100
million committed by Trafigura in
addition to the $50
million received in June 2020. The
Company will sell to Trafigura a specified volume of crude oil each
month as defined in the Volume Model, which is expected to be
finalized in the third quarter of 2020 in accordance with the terms
of the Production Prepayment Agreement (estimated at
approximately 2 million
barrels total),
for no more than 60 months
following the
funding in June 2020, such final delivery date being the "Final
Delivery Date," provided, however, if the market value of the crude
oil volumes delivered prior to the Final Delivery Date is equal
to $57.5
million, then the Company's
obligation would be considered fully satisfied. Under the
Production Prepayment Agreement, upon the satisfaction of certain
conditions provided in the Production Prepayment Agreement, the
Company may elect for Trafigura to prepay for two
additional
tranches of crude oil in the amount of $100
million
on September 30,
2020 and $50
million on or before March 31, 2021.
If the Company makes such election, the total volume of crude oil
to be sold will be adjusted accordingly.
Financing costs
includes the applicable margin of 5%;
LIBOR; and mandatory costs. We recognize interest expense in
accordance with ASC 835 — Interest, which requires interest expense
to be recognized using the effective interest method. The total
financing costs associated with the Production Prepayment Agreement
are based on the estimated market value of the crude oil to be
delivered to Trafigura compared to the cash proceeds received,
which is expected to be $7.5
million as of June 30,
2020.
As a condition to
Trafigura’s obligations, the Company will grant a mortgage
interest in certain specified production fields located in the U.S.
Gulf of Mexico.
During the term
of the Production Prepayment Agreement, the Company will be
required to maintain certain ongoing ratios as defined in the
Production Prepayment Agreement. We were in compliance with the
financial covenants contained in the Production Prepayment
Agreement as of June 30,
2020,
which requires the maintenance of:
|
|
•
|
the Guarantor Liquidity Ratio
(as defined in the glossary), not less than 1.20x
and
|
|
|
•
|
the GoM Liquidity Ratio (as
defined in the glossary), not less than 1.50x
|
At
June 30,
2020,
based on quoted future market prices, the value of the estimated
volumes to be delivered under the Production Prepayment Agreement
during the five fiscal year periods and thereafter are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Year
|
|
Total
|
|
2020(2)
|
|
2021
|
|
2022
|
|
2023
|
|
2024
|
|
Thereafter
|
|
(In thousands)
|
Production Prepayment
Agreement(1)
|
$
|
50,000
|
|
|
$
|
—
|
|
|
$
|
15,729
|
|
|
$
|
30,799
|
|
|
$
|
3,472
|
|
|
$
|
—
|
|
|
$
|
—
|
|
__________________________________
|
|
(1)
|
Any increases or
decreases in future market prices would impact the scheduled
maturities during the next five years and thereafter.
|
|
|
(2)
|
Represents
payments for the period July 1, 2020
through
December 31,
2020.
|
10.
Derivative Financial Instruments
We use financial
derivative contracts to manage exposures to commodity price and
interest rate fluctuations. We do not hold or issue derivative
financial instruments for trading purposes.
We manage market
and counterparty credit risk in accordance with our policies and
guidelines. In accordance with these policies and guidelines, our
management determines the appropriate timing and extent of
derivative transactions. We have included an estimate of
non-performance risk in the fair value measurement of our
derivative contracts as required by ASC 820 — Fair Value
Measurement.
Oil
Derivative Contracts
The following
table sets forth the volumes in barrels underlying the Company’s
outstanding oil derivative contracts and the weighted average
prices per Bbl for those contracts as of June 30,
2020.
Volumes and weighted average prices are net of any offsetting
derivative contracts entered into.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Price per Bbl
|
|
|
|
|
|
|
|
|
Net
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premium
|
|
|
|
|
|
|
|
|
|
|
Term
|
|
Type of Contract
|
|
Index
|
|
MBbl
|
|
Payable/(Receivable)
|
|
Swap
|
|
Sold
Put
|
|
Floor
|
|
Ceiling
|
|
Purchased
Call
|
2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jul — Dec
|
|
Swaps
|
|
Dated Brent
|
|
5,275
|
|
|
$
|
—
|
|
|
$
|
42.67
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Jul — Dec
|
|
Swaps
|
|
Argus LLS
|
|
3,000
|
|
|
—
|
|
|
29.98
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Jul — Dec
|
|
Call spreads
|
|
NYMEX WTI
|
|
(1)
|
|
1.20
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
45.00
|
|
|
35.00
|
|
Jul — Dec
|
|
Swaps with sold
puts
|
|
Dated Brent
|
|
333
|
|
|
—
|
|
|
35.00
|
|
|
25.00
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Jul — Dec
|
|
Three-way collars
|
|
Dated Brent
|
|
1,000
|
|
|
—
|
|
|
—
|
|
|
25.00
|
|
|
32.50
|
|
|
40.00
|
|
|
—
|
|
Jul — Dec
|
|
Sold calls(2)
|
|
Dated Brent
|
|
4,750
|
|
|
(0.19
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
80.83
|
|
|
—
|
|
2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jan — Dec
|
|
Swaps with sold
puts
|
|
Dated Brent
|
|
5,000
|
|
|
$
|
—
|
|
|
$
|
54.70
|
|
|
$
|
43.50
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
—
|
|
Jan — Dec
|
|
Three-way collars
|
|
Dated Brent
|
|
1,000
|
|
|
1.00
|
|
|
—
|
|
|
30.00
|
|
|
40.00
|
|
|
55.40
|
|
|
—
|
|
Jan — Dec
|
|
Sold calls(2)
|
|
Dated Brent
|
|
7,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
70.09
|
|
|
—
|
|
2022:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jan — Dec
|
|
Sold calls(2)
|
|
Dated Brent
|
|
1,581
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
60.00
|
|
|
—
|
|
__________________________________
|
|
(1)
|
Added call spreads on
1.0
million barrels to open
upside for U.S. Gulf of Mexico production.
|
|
|
(2)
|
Represents call option contracts sold
to counterparties to enhance other derivative
positions.
|
In April 2020, we
restructured the majority of our May 2020 through December 2020
derivative contracts, whereby we converted the existing hedges
into 7.0
MMBbls of Dated
Brent swap contracts with an average fixed price of
$42.67
per barrel. In
July 2020, we entered into Dated Brent costless three-way collar
contracts for 1.0
MMBbl from
January 2021 through December 2021 with a sold put price of
$30.00
per barrel, a
floor price of $40.00
per barrel and a
ceiling price of $55.00
per barrel. The
following tables disclose the Company’s derivative instruments as
of June 30, 2020
and
December 31,
2019, and
gain/(loss) from derivatives during the three and six
months
ended June 30, 2020
and
2019, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Fair Value
|
|
|
|
|
Asset (Liability)
|
Type of Contract
|
|
Balance Sheet Location
|
|
June 30,
2020
|
|
December 31,
2019
|
|
|
|
|
(In thousands)
|
Derivatives not designated as
hedging instruments:
|
|
|
|
|
|
|
Derivative
assets:
|
|
|
|
|
|
|
Commodity
|
|
Derivatives
assets—current
|
|
$
|
30,289
|
|
|
$
|
12,856
|
|
Provisional oil
sales
|
|
Receivables: Oil
Sales
|
|
—
|
|
|
(3,287
|
)
|
Commodity
|
|
Derivatives
assets—long-term
|
|
11,271
|
|
|
2,302
|
|
Derivative
liabilities:
|
|
|
|
|
|
|
Commodity
|
|
Derivatives
liabilities—current
|
|
(43,974
|
)
|
|
(8,914
|
)
|
Commodity
|
|
Derivatives
liabilities—long-term
|
|
(9,306
|
)
|
|
(11,478
|
)
|
Total derivatives
not designated as hedging instruments
|
|
|
|
$
|
(11,720
|
)
|
|
$
|
(8,521
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain/(Loss)
|
|
Amount of Gain/(Loss)
|
|
|
|
|
Three Months
Ended
|
|
Six Months
Ended
|
|
|
|
|
June
30,
|
|
June
30,
|
Type of Contract
|
|
Location of Gain/(Loss)
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
|
|
(In thousands)
|
Derivatives not
designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity(1)
|
|
Oil and gas
revenue
|
|
$
|
(4,632
|
)
|
|
$
|
(6,064
|
)
|
|
$
|
(4,348
|
)
|
|
$
|
(2,786
|
)
|
Commodity
|
|
Derivatives, net
|
|
(100,075
|
)
|
|
14,185
|
|
|
35,963
|
|
|
(62,900
|
)
|
Total derivatives
not designated as hedging instruments
|
|
|
|
$
|
(104,707
|
)
|
|
$
|
8,121
|
|
|
$
|
31,615
|
|
|
$
|
(65,686
|
)
|
__________________________________
|
|
(1)
|
Amounts represent
the change in fair value of our provisional oil sales
contracts.
|
Offsetting
of Derivative Assets and Derivative Liabilities
Our derivative
instruments which are subject to master netting arrangements with
our counterparties only have the right of offset when there is an
event of default. As of June 30, 2020
and
December 31,
2019,
there was not an event of default and, therefore, the associated
gross asset or gross liability amounts related to these
arrangements are presented on the consolidated balance
sheets.
11. Fair
Value Measurements
In accordance
with ASC 820 — Fair Value Measurement, fair value measurements are
based upon inputs that market participants use in pricing an asset
or liability, which are classified into two categories: observable
inputs and unobservable inputs. Observable inputs represent market
data obtained from independent sources, whereas unobservable inputs
reflect a company’s own market assumptions, which are used if
observable inputs are not reasonably available without undue cost
and effort. We prioritize the inputs used in measuring fair value
into the following fair value hierarchy:
|
|
•
|
Level 1 —
quoted prices for identical assets or liabilities in active
markets.
|
|
|
•
|
Level 2 —
quoted prices for similar assets or liabilities in active markets,
quoted prices for identical or similar assets or liabilities in
markets that are not active, inputs other than quoted prices that
are observable for the asset or liability and inputs derived
principally from or corroborated by observable market data by
correlation or other means.
|
|
|
•
|
Level 3 —
unobservable inputs for the asset or liability. The fair value
input hierarchy level to which an asset or liability measurement in
its entirety falls is determined based on the lowest level input
that is significant to the measurement in its
entirety.
|
The following
tables present the Company’s assets and liabilities that are
measured at fair value on a recurring basis as of
June 30,
2020 and December 31,
2019, for
each fair value hierarchy level:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using:
|
|
Quoted Prices in
|
|
|
|
|
|
|
|
Active Markets for
|
|
Significant Other
|
|
Significant
|
|
|
|
Identical Assets
|
|
Observable Inputs
|
|
Unobservable Inputs
|
|
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
Total
|
|
(In thousands)
|
June 30,
2020
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
Commodity
derivatives
|
$
|
—
|
|
|
$
|
41,560
|
|
|
$
|
—
|
|
|
$
|
41,560
|
|
Provisional oil
sales
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Liabilities:
|
|
|
|
|
|
|
|
Commodity
derivatives
|
—
|
|
|
(53,280
|
)
|
|
—
|
|
|
(53,280
|
)
|
Total
|
$
|
—
|
|
|
$
|
(11,720
|
)
|
|
$
|
—
|
|
|
$
|
(11,720
|
)
|
December 31,
2019
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
Commodity
derivatives
|
$
|
—
|
|
|
$
|
15,158
|
|
|
$
|
—
|
|
|
$
|
15,158
|
|
Provisional oil
sales
|
—
|
|
|
(3,287
|
)
|
|
—
|
|
|
(3,287
|
)
|
Liabilities:
|
|
|
|
|
|
|
|
Commodity
derivatives
|
—
|
|
|
(20,392
|
)
|
|
—
|
|
|
(20,392
|
)
|
Total
|
$
|
—
|
|
|
$
|
(8,521
|
)
|
|
$
|
—
|
|
|
$
|
(8,521
|
)
|
The book values
of cash and cash equivalents and restricted cash approximate fair
value based on Level 1 inputs. Joint interest billings, oil
sales and other receivables, and accounts payable and accrued
liabilities approximate fair value due to the short-term nature of
these instruments. Our long-term receivables, after any allowances
for doubtful accounts, and other long-term assets approximate fair
value. The estimates of fair value of these items are based on
Level 2 inputs.
Commodity
Derivatives
Our commodity
derivatives represent crude oil collars, put options, call options
and swaps for notional barrels of oil at fixed Dated Brent, NYMEX
WTI, or Argus LLS oil prices. The values attributable to our oil
derivatives are based on (i) the contracted notional volumes, (ii)
independent active futures price quotes for the respective index,
(iii) a credit-adjusted yield curve applicable to each counterparty
by reference to the credit default swap (“CDS”) market and (iv) an
independently sourced estimate of volatility for the respective
index. The volatility estimate was provided by certain independent
brokers who are active in buying and selling oil options and was
corroborated by market-quoted volatility factors. The deferred
premium is included in the fair market value of the commodity
derivatives. See Note 10 — Derivative Financial Instruments
for additional information regarding the Company’s derivative
instruments.
Provisional
Oil Sales
The value
attributable to provisional oil sales derivatives is based on (i)
the sales volumes and (ii) the difference in the independent active
futures price quotes for the respective index over the term of the
pricing period designated in the sales contract and the spot price
on the lifting date.
Debt and
Production Prepayment Agreement
The following
table presents the carrying values and fair values at
June 30,
2020 and December 31,
2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2020
|
|
December 31,
2019
|
|
Carrying
Value
|
|
Fair
Value
|
|
Carrying
Value
|
|
Fair
Value
|
|
(In thousands)
|
Senior Notes
|
$
|
643,028
|
|
|
$
|
580,554
|
|
|
$
|
642,550
|
|
|
$
|
664,957
|
|
Production Prepayment
Agreement
|
50,000
|
|
|
57,500
|
|
|
—
|
|
|
—
|
|
Corporate
Revolver
|
100,000
|
|
|
100,000
|
|
|
—
|
|
|
—
|
|
Facility
|
1,450,000
|
|
|
1,450,000
|
|
|
1,400,000
|
|
|
1,400,000
|
|
Total
|
$
|
2,243,028
|
|
|