KOS Kosmos Energy Ltd

Kosmos Energy Ltd. (“Kosmos”) (NYSE: KOS) announced today financial and operating results for the first quarter of 2019. For the first quarter of 2019, the Company generated a net loss of $53 million, or $0.13 per diluted share. When adjusted for certain items that impact the comparability of results, the Company generated an adjusted net loss(1) of $23.0 million or $0.06 per diluted share for the first quarter of 2019.

"Kosmos has made a strong start to 2019 with progress across all business units and first quarter results in line with guidance,” said Andrew G. Inglis, chairman and chief executive officer. “We remain on track to hit our production growth guidance for the year, while at current prices exceeding the 2019 free cash flow that we set out at our capital markets day in February. Our intention to sell down our position in Mauritania and Senegal to around 10% has generated significant industry interest and we have commenced a formal process, with bids expected by the end of summer. On the finance side, we successfully completed a $650 million bond offering during the quarter meaning Kosmos now has no debt maturities until 2022. We also paid our inaugural quarterly dividend in the first quarter.”

It must be noted that the first quarter 2019 results include the impact of proportionately consolidating the Equatorial Guinea results. Prior quarters exclude this impact and only include the minority interest gain or loss in the bottom line. In addition, the prior year quarter does not include the Gulf of Mexico acquisition which did not close until the end of the third quarter of 2018.

First quarter 2019 revenues were $297 million on sales of 5.1 million barrels of oil equivalent (boe). Realized oil and gas revenues, including the impact of the Company’s hedging program, was $56.73 per barrel in the first quarter of 2019. At quarter end, the Company was in a net underlift position of approximately 0.8 million barrels of oil. First quarter results included the following:

• Production expense was $80 million, or $15.64 per boe
• General and administrative expenses were $36 million, $28 million in cash expense and $8 million in non-cash equity based compensation expense
• Depletion and depreciation expense was $118 million, or $23.14 per boe
• Exploration expenses totaled $30 million
• Capital expenditures in the first quarter were $110 million

First quarter results included a mark-to-market loss of $77 million related to the Company’s oil derivative contracts. At March 31, 2019, the Company’s hedging position had a total commodity net asset value of approximately $39.5 million. As of the quarter end and including recently executed hedges, Kosmos has approximately 16 million barrels of oil hedged covering 2019 through 2020 including Brent, WTI, and LLS based hedges.

Kosmos exited the first quarter of 2019 with approximately $0.5 billion of liquidity and $2.1 billion of net debt.

OPERATIONAL UPDATE

Total net production volumes during the first quarter of 2019 averaged approximately 59,500 barrels of oil equivalent (boepd) per day(2).

Ghana

During the first quarter of 2019, net production volumes from Ghana averaged approximately 28,620 barrels of oil per day (bopd), including net volumes from the Jubilee and TEN fields which averaged approximately 18,315 bopd and 10,305 bopd, respectively. Kosmos lifted two cargoes, as forecasted, from Ghana during the first quarter.

At Jubilee, gas handling reliability was enhanced during the quarter with a spare high-pressure gas compressor now available. Kosmos continues to work with the operator to increase the gas handling capacity, which would thereby allow oil production rates to increase.

At TEN, in March the EN-10 well was completed and brought online, increasing production from the field. An additional production well is expected to be brought on stream around the middle of the year, enabling the field to increase production rates to the FPSO nameplate oil capacity of 80,000 bopd gross.

Equatorial Guinea

Production in Equatorial Guinea averaged approximately 12,605 bopd net in the first quarter of 2019. Kosmos lifted the forecasted one and a half cargoes from Equatorial Guinea during the quarter. The electric submersible pump (ESP) program is on track, adding around 2,500 bopd gross to offset decline. Kosmos expects to complete two more ESP conversions around the middle of the year.

U.S. Gulf of Mexico

U.S. Gulf of Mexico production averaged approximately 18,240 boepd net (81% oil) during the first quarter, exceeding the high end of the guidance range.

The routine dry-dock work on the Helix Producer-1 was successfully completed on time, increasing production from the Gulf of Mexico once the vessel was brought back online. Production levels were further increased when the Tornado-3 well was brought online adding around 9,000 boepd gross.

Kosmos was one of the most active participants in U.S. Gulf of Mexico Lease Sale 252 in March and were the apparent high bidder on nine deepwater blocks.

During the first quarter of 2019, Kosmos farmed in to eighteen BP-owned blocks in the Garden Banks area of the deepwater U.S. Gulf of Mexico. In addition, Kosmos can earn an interest in three BP blocks in other areas of the deepwater Gulf of Mexico. This should allow Kosmos to execute projects that can be tied back to existing infrastructure. Kosmos is the designated operator and plans to commence drilling operations on the first well in Garden Banks Block 492, the Resolution prospect, in 2019.

Also, during the first quarter of 2019, Kosmos executed a farm-in agreement with Chevron covering the right to earn an interest in a strategic block in the deepwater U.S. Gulf of Mexico. This agreement allows Kosmos further opportunity to execute its deepwater U.S. Gulf of Mexico strategy of lower risk prospects with the potential for subsea development near existing infrastructure. Kosmos will be designated operator and plans to commence drilling operations on the first well in 2019.

Greater Tortue Ahmeyim Project

As of early May, all major contracts have been awarded for Tortue Phase 1, and construction activity for the project has commenced with work on the FPSO.

In April 2019, KBR was awarded the Pre-FEED services contract for Phases 2 and 3 of the Greater Tortue Ahmeyim project. These next phases are expected to expand capacity of this hub to almost 10 MMTPA of LNG for export.

In the wider Mauritania/Senegal basin, Kosmos has commenced a formal process to sell down its interest to around 10% with bids expected by the end of summer.

Portfolio Additions

Kosmos entered into a petroleum contract in March covering the Marine XXI block with the Republic of the Congo, subject to customary governmental approvals. Upon approval, Kosmos will hold an 85% participating interest and will be the operator.

In March, Kosmos acquired Ophir's remaining interest in Block EG-24 offshore Equatorial Guinea, which resulted in Kosmos owning an 80% participating interest in the block.

  (1) A Non-GAAP measure, see attached reconciliation of adjusted net income. (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 Gulf of Mexico, this means those volumes net to Kosmos's working interest and net of royalty.  

Conference Call and Webcast Information

Kosmos will host a conference call and webcast to discuss first quarter 2019 financial and operating results today at 10:00 a.m. Central time (11:00 a.m. Eastern time). A live webcast of the event and slides can be accessed on the Investors page of Kosmos’ website at http://investors.kosmosenergy.com/investor-events. 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 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 (Cote d'Ivoire, Namibia and Sao Tome and Principe). Kosmos is listed on the New York Stock Exchange and London Stock Exchange and is traded under the ticker symbol KOS. 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 2017 Corporate Responsibility Report. For additional information, visit www.kosmosenergy.com.

Non-GAAP Financial Measures

EBITDAX, Adjusted net income (loss) and Adjusted net income (loss) per share are supplemental non-GAAP financial measures used by management and external users of the Company's consolidated financial statements, such as industry analysts, investors, lenders and rating agencies. The Company defines EBITDAX as 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.

We believe that EBITDAX, Adjusted net income (loss), and Adjusted net income (loss) per share and other similar measures are useful to investors because they are frequently used by securities analysts, investors and other interested parties in the evaluation of companies in the oil and gas sector and will provide investors with a useful tool for assessing the comparability between periods, among securities analysts, as well as company by company. Because EBITDAX, Adjusted net income (loss), and Adjusted net income (loss) per share excludes some, but not all, items that affect net income, these measures as presented by us may not be comparable to similarly titled measures of other companies.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements, other than statements of historical facts, included in this press release that address activities, events or developments that Kosmos expects, believes or anticipates will or may occur in the future are forward-looking statements. Kosmos’ estimates and forward-looking statements are mainly based on its current expectations and estimates of future events and trends, which affect or may affect its businesses and operations. Although Kosmos believes that these estimates and forward-looking statements are based upon reasonable assumptions, they are subject to several risks and uncertainties and are made in light of information currently available to Kosmos. When used in this press release, the words “anticipate,” “believe,” “intend,” “expect,” “plan,” “will” or other similar words are intended to identify forward-looking statements. Such statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond the control of Kosmos, which may cause actual results to differ materially from those implied or expressed by the forward-looking statements. Further information on such assumptions, risks and uncertainties is available in Kosmos’ Securities and Exchange Commission (“SEC”) filings. Kosmos undertakes no obligation and does not intend to update or correct these forward-looking statements to reflect events or circumstances occurring after the date of this press release, except as required by applicable law. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release. All forward-looking statements are qualified in their entirety by this cautionary statement.

 

Kosmos Energy Ltd.

Consolidated Statements of Operations

(In thousands, except per share amounts, unaudited)

  Three Months Ended March 31, 2019   2018 Revenues and other income: Oil and gas revenue $ 296,790 $ 127,196 Other income, net —   (19 ) Total revenues and other income 296,790 127,177   Costs and expenses: Oil and gas production 79,799 46,768 Facilities insurance modifications, net (20,021 ) 8,449 Exploration expenses 30,344 21,193 General and administrative 35,908 21,883 Depletion, depreciation and amortization 118,095 54,277 Interest and other financing costs, net 35,041 25,694 Derivatives, net 77,085 38,478 Gain on equity method investments, net — (18,696 ) Other expenses, net 2,119   3,705   Total costs and expenses 358,370   201,751     Loss before income taxes (61,580 ) (74,574 ) Income tax benefit (8,674 ) (24,348 ) Net loss $ (52,906 ) $ (50,226 )   Net loss per share: Basic $ (0.13 ) $ (0.13 ) Diluted $ (0.13 ) $ (0.13 )     Weighted average number of shares used to compute net loss per share: Basic 401,164   395,600   Diluted 401,164   395,600        

Kosmos Energy Ltd.

Condensed Consolidated Balance Sheets

(In thousands, unaudited)

  March 31, December 31, 2019 2018 Assets Current assets: Cash and cash equivalents $ 134,423 $ 173,515 Receivables, net 186,179 140,006 Other current assets 163,525   196,179 Total current assets 484,127 509,700   Property and equipment, net 3,914,803 3,459,701 Other non-current assets 102,926   118,788 Total assets $ 4,501,856   $ 4,088,189   Liabilities and stockholders’ equity Current liabilities: Accounts payable $ 174,073 $ 176,540 Accrued liabilities 187,941 195,596 Other current liabilities 51,713   12,172 Total current liabilities 413,727 384,308   Long-term liabilities: Long-term debt, net 2,195,826 2,120,547 Deferred tax liabilities 704,122 477,179 Other non-current liabilities 311,588   164,677 Total long-term liabilities 3,211,536 2,762,403   Total stockholders’ equity 876,593   941,478 Total liabilities and stockholders’ equity $ 4,501,856   $ 4,088,189    

Kosmos Energy Ltd.

Condensed Consolidated Statements of Cash Flow

(In thousands, unaudited)

  Three Months Ended March 31, 2019   2018 Operating activities:   Net loss $ (52,906 ) $ (50,226 ) Adjustments to reconcile net loss to net cash used in operating activities: Depletion, depreciation and amortization 120,482 56,717 Deferred income taxes (39,833 ) (24,697 ) Unsuccessful well costs (160 ) 43 Change in fair value of derivatives 73,807 38,966 Cash settlements on derivatives, net(1) (3,576 ) (20,397 ) Equity-based compensation 8,441 8,017 Loss on extinguishment of debt — 4,056 Distributions in excess of equity in earnings — 5,234 Other 10,647 (478 ) Changes in assets and liabilities: Net changes in working capital (134,249 ) (34,251 ) Net cash used in operating activities (17,347 ) (17,016 )   Investing activities Oil and gas assets (78,377 ) (34,712 ) Other property (1,071 ) (1,757 ) Return of investment from KTIPI —   41,070   Net cash provided by (used in) investing activities (79,448 ) 4,601   Financing activities: Borrowings on long-term debt 175,000 — Payments on long-term debt (100,000 ) — Purchase of treasury stock (1,980 ) (11,874 ) Dividends (18,147 ) — Deferred financing costs (1,160 ) (24,969 ) Net cash provided by (used in) financing activities 53,713   (36,843 )   Net decrease in cash, cash equivalents and restricted cash (43,082 ) (49,258 ) Cash, cash equivalents and restricted cash at beginning of period 185,616   304,986   Cash, cash equivalents and restricted cash at end of period $ 142,534   $ 255,728  

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(1)

Cash settlements on commodity hedges were $7.3 million and $19.7 million for the three months ended March 31, 2019 and 2018, respectively.

   

Kosmos Energy Ltd.

Equity Method Investment

(In thousands, unaudited)

  Three months ended March 31, 2018 Revenues and other income: Oil and gas revenue $ 246,354 Other income 287   Total revenues and other income 246,641   Costs and expenses: Oil and gas production 51,700 Depletion and depreciation 54,070 Other expenses, net (79 ) Total costs and expenses 105,691     Income before income taxes 140,950 Income tax expense 49,632   Net income $ 91,318     Kosmos' share of net income $ 45,659 Basis difference amortization(1) 26,963   Equity in earnings - KTIPI $ 18,696  

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(1)

The basis difference, which is associated with oil and gas properties and subject to amortization, has been allocated to the Ceiba Field and Okume Complex. We amortize the basis difference using the unit-of-production method.

     

Kosmos Energy Ltd.

EBITDAX

(In thousands, unaudited)

  Three Months Ended Three Months Ended March 31, 2019 March 31, 2018 Kosmos Kosmos  

EquatorialGuinea (EquityMethod)(1)

  Total Net income (loss) $ (52,906 ) $ (50,226 ) $ 18,696 $ (31,530 ) Exploration expenses 30,344 21,193 — 21,193 Facilities insurance modifications, net (20,021 ) 8,449 — 8,449 Depletion, depreciation and amortization 118,095 54,277 53,997 108,274 Equity-based compensation 8,441 8,017 — 8,017 Derivatives, net 77,085 38,478 — 38,478 Cash settlements on commodity derivatives (7,289 ) (19,744 ) — (19,744 ) Inventory impairment and other 187 19 — 19 Disputed charges and related costs (14 ) 2,335 — 2,335 Gain on equity method investment - KTIPI — (18,696 ) — (18,696 ) Interest and other financing costs, net 35,041 25,694 — 25,694 Income tax expense (benefit) (8,674 ) (24,348 ) 24,816   468   EBITDAX $ 180,289   $ 45,448   $ 97,509   $ 142,957     Twelve Months Ended March 31, 2019 Kosmos

EquatorialGuinea (EquityMethod)(2)

Total Net income (loss) $ (96,671 ) $ 54,185 $ (42,486 ) Exploration expenses 310,643 352 310,995 Facilities insurance modifications, net (21,515 ) — (21,515 ) Depletion and depreciation 393,653 80,985 474,638 Equity-based compensation 35,654 — 35,654 Derivatives, net 7,177 — 7,177 Cash settlements on commodity derivatives (124,598 ) — (124,598 ) Inventory impairment and other 456 — 456 Disputed charges and related costs (12,102 ) — (12,102 ) Gain on sale of assets (7,666 ) — (7,666 ) Gain on equity method investment - KTIPI (54,185 ) — (54,185 ) Interest and other financing costs, net 110,523 — 110,523 Income tax expense 58,805   53,675   112,480   EBITDAX $ 600,174   $ 189,197   $ 789,371  

_______________

(1)

For the three months ended March 31, 2018 we have presented separately our 50% share of the results from operations and amortization of our basis difference for the Equatorial Guinea investment as we accounted for such investment under the equity method during this period.

(2)

For the twelve months ended March 31, 2019, we have presented separately our 50% share of the results from operations and amortization of our basis difference for the Equatorial Guinea investment through December 31, 2018, as we accounted for such investment under the equity method through this date.

   

Adjusted Net Income

(In thousands, except per share amounts, unaudited)

  Three Months Ended March 31, 2019   2018 Net loss $ (52,906 ) $ (50,226 )   Derivatives, net 77,085 38,478 Cash settlements on commodity derivatives (7,289 ) (19,744 ) Facilities insurance modifications, net (20,021 ) 8,449 Inventory impairment and other 187 19 Disputed charges and related costs (14 ) 2,335 Loss on extinguishment of debt —   4,056   Total selected items before tax 49,948   33,593     Income tax expense on adjustments(1) (20,041 ) (6,564 ) Impact of U.S. tax law change —   —   Adjusted net loss $ (22,999 ) $ (23,197 )   Net loss per diluted share $ (0.13 ) $ (0.13 )   Derivatives, net 0.19 0.10 Cash settlements on commodity derivatives (0.02 ) (0.05 ) Facilities insurance modifications, net (0.05 ) 0.02 Inventory impairment and other — — Disputed charges and related costs — — Loss on extinguishment of debt —   0.01   Total selected items before tax 0.12   0.08     Income tax expense on adjustments(1) (0.05 ) (0.01 ) Adjusted net loss per diluted share $ (0.06 ) $ (0.06 )   Weighted average number of diluted shares 401,164 395,600

_______________

(1)

Income tax expense is calculated at the statutory rate in which such item(s) reside. Statutory rates for the U.S. and Ghana are 21% and 35%, respectively.

   

Operational Summary(1)

(In thousands, except barrel and per barrel data, unaudited)

  Three Months Ended March 31, 2019   2018 Net Volume Sold Oil (MMBbl) Kosmos 4.690 1.934 Equity method investment - Equatorial Guinea —   1.880   Total Oil (MMBbl) 4.690 3.814 Gas (MMcf) 1.801 — NGL (MMBbl) 0.113   —   Total (MMBoe) 5.103   3.814     Revenue Oil sales: Kosmos $ 290,864 $ 127,196 Equity method investment - Equatorial Guinea —   123,177   Total Oil sales 290,864 250,373 Gas sales 3,662 — NGL sales 2,264   —   Total sales 296,790 250,373 Cash settlements on commodity derivatives (7,289 ) (19,744 ) Realized revenue $ 289,501   $ 230,629     Oil and Gas Production Costs Kosmos $ 79,799 $ 46,768 Equity method investment - Equatorial Guinea —   25,850   Total oil and gas production costs $ 79,799   $ 72,618     Oil sales per Bbl: Kosmos $ 62.02 $ 65.77 Equity method investment - Equatorial Guinea — 65.52 Total Oil sales per Bbl 62.02 65.65 Gas sales per Mcf 2.03 — NGL sales per Bbl 20.13 — Total sales per Boe 58.16 65.65 Cash settlements on commodity derivatives per oil Bbl(2) (1.55 ) (10.21 ) Realized revenue per Boe(3) 56.73 60.47   Oil and gas production costs per Boe: Kosmos $ 15.64 $ 24.18 Equity method investment - Equatorial Guinea — $ 13.75 Total oil and gas production costs 15.64 19.04

_______________

(1)

For the three months March 31, 2018, we have presented separately our 50% share of the results from operations for the Equatorial Guinea investment, as we accounted for such investment under the equity method during this period.

(2)

Cash settlements on commodity derivatives are only related to Kosmos and are calculated on a per barrel basis using Kosmos' Net Oil Volumes Sold.

(3)

Realized revenue includes revenue from Kosmos, Equatorial Guinea (equity method investment), and Cash settlements on commodity derivatives; on a per Boe basis realized revenue is calculated using the total Net Volume Sold from both Kosmos and Equatorial Guinea (equity method investment).

 

Kosmos was underlifted by approximately 795 thousand barrels as of March 31, 2019.

     

Hedging Summary

As of March 31, 2019(1)

(Unaudited)

  Weighted Average Price per Bbl Index MBbl Floor(2)   Sold Put   Ceiling 2019: Three-way collars Dated Brent 7,880 $ 53.33 $ 43.81 $ 73.57 Swaps NYMEX WTI 1,224 52.22 — — Collars NYMEX WTI 169 57.77 — 63.70 Collars Argus LLS 750 60.00 — 88.75 2020: Three-way collars Dated Brent 6,000 $ 57.50 $ 45.00 $ 80.18

_______________

(1)

Please see the Company’s filed 10-Q for full disclosure on hedging material. Includes hedging position as of March 31, 2019 and hedges added since quarter-end.

(2)

“Floor” represents floor price for collars or swaps and strike price for purchased puts.

  Note: Excludes 0.7 MMBbls of sold (short) calls with a strike price of $80.00 per Bbl in 2019 and 8.0 MMBbls of sold (short) calls with a strike price of $85.00 per Bbl in 2020.    

2019 Guidance

  FY 2019   Production(1,2) 69,000 - 73,000 boe per day   Opex $12.00 - $15.00 per boe   DD&A $22.00 - $25.00 per boe   G&A(3) $115 - $125 million   Exploration Expense ~$30 million average per quarter   Net Interest $35 - $37 million per quarter   Tax $3.00 - $5.00 per boe   Capex $425 - $475 million in FY 2019

_______________

Note: Ghana/EG revenue calculated by number of cargos.

(1)

2Q 2019 - Ghana: 3 cargos / Equatorial Guinea 1 cargo. FY 2019 Ghana: 13 cargos / Equatorial Guinea 5.5 cargos. Average cargo sizes 950,000 barrels of oil.

(2)

GoM Production - 2Q 2019: 23,000-25,000 boe per day. FY 2019 22,000-24,000 boe per day. Oil/Gas/NGL split for 2019: U.S. Gulf of Mexico: 80%/12%/8%.

(3)

G&A - Approximately 70% cash.

 

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Investor RelationsJamie Buckland+44 (0) 203 954 2831jbuckland@kosmosenergy.com

Rhys Williams+1-214-445-9693rwilliams@kosmosenergy.com

Media RelationsThomas Golembeski+1-214-445-9674tgolembeski@kosmosenergy.com