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. Accounting policies of particular importance to the presentation of our financial position and results of operations and required the application of significant judgment or estimates by management during the first quarter of 2020 included:
Impairment of Long‑Lived Assets
We review our long‑lived assets for impairment when changes in circumstances indicate that the carrying amount of an asset may not be recoverable. ASC 360 — Property, Plant and Equipment requires an impairment loss to be recognized if the carrying amount of a long‑lived asset is not recoverable and exceeds its fair value. The carrying amount of a long‑lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. That assessment shall be based on the carrying amount of the asset at the date it is tested for recoverability, whether in use or under development. Assets to be disposed of and assets not expected to provide any future service potential to us are recorded at the lower of carrying amount or fair value. Oil and gas properties are grouped in accordance with ASC 932 — Extractive Activities-Oil and Gas. The basis for grouping is a reasonable aggregation of properties typically by field or by logical grouping of assets with significant shared infrastructure.
For long-lived assets whereby the carrying value exceeds the estimated future undiscounted cash flows, the carrying amount is reduced to fair value. Fair value is generally estimated using the income approach described in the ASC 820 — Fair Value Measurement. If applicable, we utilize prices and other relevant information generated by market transactions involving assets and liabilities that are identical or comparable to the item being measured as the basis for determining fair value. The expected future cash flows used for impairment reviews and related fair value measurements are typically based on judgmental assessments of future production, pricing estimates, capital and operating costs, market-based weighted average cost of capital, and risk adjustment factors applied to reserves. These assumptions are applied to develop future cash flow projections that are then discounted to estimated fair value, using a market-based weighted-average cost of capital. Although we base the fair value estimate of each asset group on assumptions we believe to be reasonable, those assumptions are inherently unpredictable and uncertain, and actual results could differ from the estimate. Negative revisions of estimated reserve quantities, increases in future cost estimates, divestiture of a significant component of the asset group, or sustained decreases in crude oil prices could lead to a reduction in expected future cash flows and possibly an additional impairment of long-lived assets in future periods.
We believe the assumptions used in our analysis to test for impairment are appropriate and result in a reasonable estimate of future cash flows and fair value. Kosmos has consistently used an average of third-party industry forecasts to determine our pricing assumptions. Where unproved reserves exist, an appropriately risk-adjusted amount of these reserves may be included in the evaluation.
Reclassifications
Certain prior period amounts have been reclassified to conform with the current presentation. Such reclassifications had no significant impact on our reported net loss, current assets, total assets, current liabilities, total liabilities, stockholders’ equity or cash flows.
Cash, Cash Equivalents and Restricted Cash
|
|
|
|
|
|
|
|
|
|
March 31,
2020
|
|
December 31,
2019
|
|
(In thousands)
|
Cash and cash equivalents
|
$
|
126,507
|
|
|
$
|
224,502
|
|
Restricted cash - current
|
3,708
|
|
|
4,302
|
|
Restricted cash - long-term
|
542
|
|
|
542
|
|
Total cash, cash equivalents and restricted cash shown in the consolidated statements of cash flows
|
$
|
130,757
|
|
|
$
|
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 $113.5 million and $112.3 million of materials and supplies and $26.6 million and $2.1 million of hydrocarbons as of March 31, 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:
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|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
2020
|
|
2019
|
|
|
(In thousands)
|
|
Revenues from contract with customer - Equatorial Guinea
|
$
|
24,370
|
|
|
$
|
89,115
|
|
|
Revenues from contract with customer - Ghana
|
49,672
|
|
|
119,330
|
|
|
Revenues from contract with customers - U.S. Gulf of Mexico
|
103,453
|
|
|
85,067
|
|
|
Provisional oil sales contracts
|
285
|
|
|
3,278
|
|
|
Oil and gas revenue
|
$
|
177,780
|
|
|
$
|
296,790
|
|
|
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 months ended March 31, 2020, we recognized $13.9 million 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 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 March 31, 2020 and 2019, revenue from Phillips 66 Company made up approximately 47% and 22%, respectively, and revenue from Shell Trading (US) Company made up approximately 20% and 5%, 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 is 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.
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 face of 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 March 31, 2020 and December 31, 2019, the current portions of the joint interest billing receivables due from GNPC for the TEN fields development costs were $11.6 million and $14.0 million, respectively, and the long-term portions were $16.6 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 March 31, 2020 and December 31, 2019, the balance due from the national oil companies was $51.9 million and $27.4 million, respectively, which is classified as Long-term receivables in our consolidated balance sheets.
5. Property and Equipment
Property and equipment is stated at cost and consisted of the following:
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|
|
|
|
|
|
|
March 31,
2020
|
|
December 31,
2019
|
|
(In thousands)
|
Oil and gas properties:
|
|
|
|
|
|
Proved properties
|
$
|
5,082,805
|
|
|
$
|
4,904,648
|
|
Unproved properties
|
526,907
|
|
|
814,065
|
|
Total oil and gas properties
|
5,609,712
|
|
|
5,718,713
|
|
Accumulated depletion
|
(2,181,157
|
)
|
|
(2,093,962
|
)
|
Oil and gas properties, net
|
3,428,555
|
|
|
3,624,751
|
|
|
|
|
|
Other property
|
59,749
|
|
|
61,598
|
|
Accumulated depreciation
|
(45,367
|
)
|
|
(44,017
|
)
|
Other property, net
|
14,382
|
|
|
17,581
|
|
|
|
|
|
Property and equipment, net
|
$
|
3,442,937
|
|
|
$
|
3,642,332
|
|
We recorded depletion expense of $87.2 million and $111.0 million for the three months ended March 31, 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. During the three months ended March 31, 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 three months ended March 31, 2020. The table excludes $9.7 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.
|
|
|
|
|
|
March 31,
2020
|
|
(In thousands)
|
Beginning balance
|
$
|
445,790
|
|
Additions to capitalized exploratory well costs pending the determination of proved reserves
|
663
|
|
Reclassification due to determination of proved reserves
|
(265,740
|
)
|
Capitalized exploratory well costs charged to expense
|
—
|
|
Ending balance
|
$
|
180,713
|
|
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:
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
December 31, 2019
|
|
(In thousands, except well counts)
|
Exploratory well costs capitalized for a period of one year or less
|
$
|
29,061
|
|
|
$
|
29,121
|
|
Exploratory well costs capitalized for a period of one to two years
|
36,526
|
|
|
78,245
|
|
Exploratory well costs capitalized for a period of three years or greater
|
115,126
|
|
|
338,424
|
|
Ending balance
|
$
|
180,713
|
|
|
$
|
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 March 31, 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 months ended March 31, 2020 and 2019 are as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
2020
|
|
2019
|
|
|
(In thousands)
|
|
Operating lease cost
|
$
|
1,258
|
|
|
$
|
1,407
|
|
|
Short-term lease cost(1)
|
10,368
|
|
|
5
|
|
|
Total lease cost
|
$
|
11,626
|
|
|
$
|
1,412
|
|
|
__________________________________
|
|
(1)
|
Includes $9.9 million of costs associated with short-term drilling contracts.
|
Other information related to operating leases at March 31, 2020 and 2019, is as follows:
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
December 31,
2019
|
(In thousands, except lease term and discount rate)
|
|
|
|
Balance sheet classifications
|
|
|
|
Other assets (right-of-use assets)
|
$
|
19,563
|
|
|
$
|
20,008
|
|
Accrued liabilities (current maturities of leases)
|
1,942
|
|
|
1,139
|
|
Other long-term liabilities (non-current maturities of leases)
|
21,485
|
|
|
22,240
|
|
|
|
|
|
Weighted average remaining lease term
|
8.6 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 three months ended March 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2020
|
|
2019
|
|
(In thousands)
|
Operating cash flows for operating leases
|
$
|
337
|
|
|
$
|
1,223
|
|
Investing cash flows for operating leases(1)
|
$
|
9,867
|
|
|
$
|
—
|
|
|
|
(1)
|
Represents costs associated with short-term drilling contracts.
|
Future minimum rental commitments under our leases at March 31, 2020, are as follows:
|
|
|
|
|
|
|
Operating Leases(1)
|
|
|
(In thousands)
|
|
2020(2)
|
$
|
2,979
|
|
|
2021
|
4,172
|
|
|
2022
|
4,235
|
|
|
2023
|
4,299
|
|
|
2024
|
3,462
|
|
|
Thereafter
|
16,036
|
|
|
Total undiscounted lease payments
|
$
|
35,183
|
|
|
Less: Imputed interest
|
(11,756
|
)
|
|
Total lease liabilities
|
$
|
23,427
|
|
|
__________________________________
|
|
(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 April 1, 2020 through December 31, 2020.
|
8. Debt
|
|
|
|
|
|
|
|
|
|
March 31,
2020
|
|
December 31,
2019
|
|
(In thousands)
|
Outstanding debt principal balances:
|
|
|
|
|
|
Facility
|
$
|
1,400,000
|
|
|
$
|
1,400,000
|
|
Corporate Revolver
|
50,000
|
|
|
—
|
|
Senior Notes
|
650,000
|
|
|
650,000
|
|
Total
|
2,100,000
|
|
|
2,050,000
|
|
Unamortized deferred financing costs and discounts(1)
|
(40,071
|
)
|
|
(41,937
|
)
|
Long-term debt, net
|
$
|
2,059,929
|
|
|
$
|
2,008,063
|
|
__________________________________
|
|
(1)
|
Includes $31.2 million and $32.8 million of unamortized deferred financing costs related to the Facility as of March 31, 2020 and December 31, 2019, respectively; $7.3 million and $9.1 million of unamortized deferred financing costs and discounts related to the Senior Notes as of March 31, 2020 and December 31, 2019, respectively.
|
Facility
In February 2018, the Company amended and restated the Facility with a total commitment of $1.5 billion from a number of financial institutions, with additional commitments up to $0.5 billion being available if the existing financial institutions increase their commitments or if commitments from new financial institutions are added. As part of the Facility amendment and restatement process in 2018, the lenders approved a redetermination, setting the total commitments under our Facility at $1.5 billion (effective February 22, 2018) which was increased to $1.7 billion (effective January 31, 2019) after the election to exercise $0.2 billion of additional commitments in the fourth quarter of 2018. The commitments were reduced by $0.1 billion to $1.6 billion following the Senior Notes issuance in April 2019. As of March 31, 2020, borrowings under the Facility totaled $1.4 billion and the undrawn availability under the facility was $0.2 billion. The borrowing base calculation includes value related to the Jubilee, TEN, Ceiba and Okume fields. In April 2020, following the lender's annual redetermination, the available borrowing base and Facility size were both reduced from $1.6 billion to $1.5 billion. As a result, the undrawn availability under the Facility is $0.1 billion in April 2020. 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 March 31, 2020, we have $31.2 million of unamortized issuance costs related to the Facility, which will be amortized over the remaining term of the Facility.
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 March 31, 2020, we had no letters of credit issued under the Facility.
We were in compliance with the financial covenants contained in the Facility as of March 31, 2020 (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 March 31, 2020, the undrawn availability under the Corporate Revolver was $350.0 million. As of March 31, 2020, we have $5.7 million of net deferred financing costs related to the Corporate Revolver, which will be amortized over its remaining term. We were in compliance with the financial covenants contained in the Corporate Revolver as of March 31, 2020 (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, however, as of March 31, 2020, there were five outstanding letters of credit totaling $3.1 million under the LC Facility, which will remain outstanding until the respective letters of credit expire.
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 March 31, 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(3)
|
|
2022
|
|
2023
|
|
2024
|
|
Thereafter
|
|
(In thousands)
|
Principal debt repayments(1)
|
$
|
2,100,000
|
|
|
$
|
—
|
|
|
$
|
174,800
|
|
|
$
|
334,200
|
|
|
$
|
271,600
|
|
|
$
|
440,829
|
|
|
$
|
878,571
|
|
__________________________________
|
|
(1)
|
Includes the scheduled principal maturities for the $650.0 million aggregate principal amount of Senior Notes issued in April 2019, borrowings under the Facility and Corporate Revolver. The scheduled maturities of debt related to the Facility as of March 31, 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 April 1, 2020 through December 31, 2020.
|
|
|
(3)
|
Approximately $169.0 million of the 2021 principal repayments will now be due in 2022 as a result of the Facility's lender redetermination in April 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 March 31,
|
|
|
2020
|
|
2019
|
|
|
(In thousands)
|
Interest expense
|
$
|
31,766
|
|
|
$
|
38,172
|
|
|
Amortization—deferred financing costs
|
2,283
|
|
|
2,387
|
|
|
Capitalized interest
|
(6,527
|
)
|
|
(7,251
|
)
|
|
Deferred interest
|
314
|
|
|
836
|
|
|
Interest income
|
(1,079
|
)
|
|
(652
|
)
|
|
Other, net
|
1,078
|
|
|
1,549
|
|
|
Interest and other financing costs, net
|
$
|
27,835
|
|
|
$
|
35,041
|
|
|
9. 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 March 31, 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
|
|
2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Apr — Dec
|
|
Three-way collars
|
|
Dated Brent
|
|
4,500
|
|
|
$
|
0.25
|
|
|
$
|
—
|
|
|
$
|
50.00
|
|
|
$
|
57.50
|
|
|
$
|
80.18
|
|
|
Apr — Dec
|
|
Swaps with sold puts
|
|
Dated Brent
|
|
3,500
|
|
|
—
|
|
|
45.94
|
|
|
35.18
|
|
|
—
|
|
|
—
|
|
|
Apr — Dec
|
|
Put spread
|
|
Dated Brent
|
|
4,500
|
|
|
0.75
|
|
|
—
|
|
|
50.00
|
|
|
59.17
|
|
|
—
|
|
|
Apr — Dec
|
|
Sold calls(1)
|
|
Dated Brent
|
|
6,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
85.00
|
|
|
2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jan — Dec
|
|
Swaps with sold puts
|
|
Dated Brent
|
|
6,000
|
|
|
$
|
—
|
|
|
$
|
53.52
|
|
|
$
|
41.77
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Jan — Dec
|
|
Sold calls(1)
|
|
Dated Brent
|
|
6,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
71.67
|
|
|
__________________________________
|
|
(1)
|
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. We retained 2.0 MMBbls of our April 2020 through December 2020 Dated Brent swap contracts with a fixed price of $35.00 per barrel and a sold put at $25.00 per barrel. In addition, we entered into Argus LLS swap contracts for 4.0 MMBbls from May 2020 through December 2020 with an average fixed price of $29.98 per barrel.
The following tables disclose the Company’s derivative instruments as of March 31, 2020 and December 31, 2019, and gain/(loss) from derivatives during the three months ended March 31, 2020 and 2019, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Fair Value
|
|
|
|
|
Asset (Liability)
|
Type of Contract
|
|
Balance Sheet Location
|
|
March 31,
2020
|
|
December 31,
2019
|
|
|
|
|
(In thousands)
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
Derivative assets:
|
|
|
|
|
|
|
Commodity
|
|
Derivatives assets—current
|
|
$
|
112,028
|
|
|
$
|
12,856
|
|
Provisional oil sales
|
|
Receivables: Oil Sales
|
|
—
|
|
|
(3,287
|
)
|
Commodity
|
|
Derivatives assets—long-term
|
|
29,383
|
|
|
2,302
|
|
Derivative liabilities:
|
|
|
|
|
|
|
Commodity
|
|
Derivatives liabilities—current
|
|
(19,587
|
)
|
|
(8,914
|
)
|
Commodity
|
|
Derivatives liabilities—long-term
|
|
(3,039
|
)
|
|
(11,478
|
)
|
Total derivatives not designated as hedging instruments
|
|
|
|
$
|
118,785
|
|
|
$
|
(8,521
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain/(Loss)
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
March 31,
|
|
Type of Contract
|
|
Location of Gain/(Loss)
|
|
2020
|
|
2019
|
|
|
|
|
|
(In thousands)
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
Commodity(1)
|
|
Oil and gas revenue
|
|
$
|
284
|
|
|
$
|
3,278
|
|
|
Commodity
|
|
Derivatives, net
|
|
136,038
|
|
|
(77,085
|
)
|
|
Total derivatives not designated as hedging instruments
|
|
|
|
$
|
136,322
|
|
|
$
|
(73,807
|
)
|
|
__________________________________
|
|
(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 March 31, 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.
10. 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 March 31, 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)
|
March 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
Commodity derivatives
|
$
|
—
|
|
|
$
|
141,411
|
|
|
$
|
—
|
|
|
$
|
141,411
|
|
Provisional oil sales
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Liabilities:
|
|
|
|
|
|
|
|
Commodity derivatives
|
—
|
|
|
(22,626
|
)
|
|
—
|
|
|
(22,626
|
)
|
Total
|
$
|
—
|
|
|
$
|
118,785
|
|
|
$
|
—
|
|
|
$
|
118,785
|
|
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 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 9 — 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
The following table presents the carrying values and fair values at March 31, 2020 and December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
December 31, 2019
|
|
Carrying Value
|
|
Fair Value
|
|
Carrying Value
|
|
Fair Value
|
|
(In thousands)
|
|
|
|
|
Senior Notes
|
$
|
642,787
|
|
|
$
|
365,619
|
|
|
$
|
642,550
|
|
|
$
|
664,957
|
|
Corporate Revolver
|
50,000
|
|
|
50,000
|
|
|
—
|
|
|
—
|
|
Facility
|
1,400,000
|
|
|
1,400,000
|
|
|
1,400,000
|
|
|
1,400,000
|
|
Total
|
$
|
2,092,787
|
|
|
$
|
1,815,619
|
|
|
$
|
2,042,550
|
|
|
$
|
2,064,957
|
|
The carrying value of our Senior Notes represents the principal amounts outstanding less unamortized discounts. The fair value of our Senior Notes is based on quoted market prices, which results in a Level 1 fair value measurement. The carrying value of the Facility approximates fair value since it is subject to short-term floating interest rates that approximate the rates available to us for those periods.
Nonrecurring Fair Value Measurements - Long-lived assets
Certain long-lived assets are reported at fair value on a non-recurring basis on the Company's consolidated balance sheet at March 31, 2020. These long-lived assets are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances. Our long-lived assets are reviewed for impairment when changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
The Company calculates the estimated fair values of its long-lived assets using the income approach described in the ASC 820, Fair Value Measurements. Significant inputs associated with the calculation of estimated discounted future net cash flows include anticipated future production, pricing estimates, capital and operating costs, market-based weighted average cost of capital, and risk adjustment factors applied to reserves. These are classified as Level 3 fair value assumptions. The Company utilized an average of third-party industry forecasts of Dated Brent, adjusted for location and quality differentials, to determine our pricing assumptions. In order to evaluate the sensitivity of the assumptions, we analyzed sensitivities to prices, production, and risk adjustment factors.
At March 31, 2020, the average per barrel Dated Brent price of third-party industry forecasts used for purposes of determining discounted future cash flows ranged from the mid-$30s in 2020 increasing to the mid-$50s over several years. The expected future cash flows were discounted using a rate of approximately 10 percent, which the Company believes is a market-based weighted average cost of capital for industry peers determined appropriate at the time of the valuation.
During the three months ended March 31, 2020, oil prices declined significantly as compared to December 31, 2019, resulting in a significant decrease in value of the Company's proved oil and gas reserves. As such, the carrying amount of certain of the Company's proved oil and gas properties in the U.S. Gulf of Mexico exceeded the expected undiscounted future net cash flows resulting in impairment charges against earnings of $150.8 million, reducing the carrying value of the properties to their estimated fair values of $243.7 million. These impairment charges are included in Impairments of long-lived assets on the consolidated statement of operations for the three months ended March 31, 2020. The Company did not recognize an impairment of proved oil and gas properties during the three months ended March 31, 2019. If we experience further declines in oil pricing expectations, increases in our estimated future expenditures or a decrease in our estimated production profile, our long-lived assets could be at risk of additional impairment.
11. Equity-based Compensation
Restricted Stock Units
We record equity-based compensation expense equal to the fair value of share-based payments over the vesting periods of the LTIP awards. We recorded compensation expense from awards granted under our LTIP of $9.3 million and $8.4 million during the three months ended March 31, 2020 and 2019, respectively. The total tax benefit was $2.1 million and $1.3 million during the three months ended March 31, 2020 and 2019, respectively. Additionally, we recorded a net tax shortfall (windfall)
related to equity-based compensation of $0.9 million and $1.2 million during the three months ended March 31, 2020 and 2019, respectively. The fair value of awards vested was $25.5 million and $13.2 million during the three months ended March 31, 2020 and 2019, respectively. The Company granted restricted stock units with service vesting criteria and a combination of market and service vesting criteria under the LTIP. Substantially all these grants vest over three years. Upon vesting, restricted stock units become issued and outstanding stock.
The following table reflects the outstanding restricted stock units as of March 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
Market / Service
|
|
Weighted-
|
|
Service Vesting
|
|
Average
|
|
Vesting
|
|
Average
|
|
Restricted Stock
|
|
Grant-Date
|
|
Restricted Stock
|
|
Grant-Date
|
|
Units
|
|
Fair Value
|
|
Units
|
|
Fair Value
|
|
(In thousands)
|
|
|
|
(In thousands)
|
|
|
Outstanding at December 31, 2019
|
4,731
|
|
|
$
|
5.71
|
|
|
7,798
|
|
|
$
|
8.42
|
|
Granted(1)
|
2,780
|
|
|
6.46
|
|
|
3,209
|
|
|
8.88
|
|
Forfeited(1)
|
(765
|
)
|
|
6.32
|
|
|
(389
|
)
|
|
8.01
|
|
Vested
|
(1,871
|
)
|
|
5.84
|
|
|
(2,572
|
)
|
|
9.47
|
|
Outstanding at March 31, 2020
|
4,875
|
|
|
5.99
|
|
|
8,046
|
|
|
8.27
|
|
__________________________________
|
|
(1)
|
The restricted stock units with a combination of market and service vesting criteria may vest between 0% and 200% of the originally granted units depending upon market performance conditions. Awards vesting over or under target shares of 100% results in additional shares granted or forfeited, respectively, in the period the market vesting criteria is determined.
|
As of March 31, 2020, total equity-based compensation to be recognized on unvested restricted stock units is $50.8 million over a weighted average period of 2.19 years. In March 2018, the board of directors approved an amendment to the LTIP to add 11.0 million shares to the plan, which was approved by our stockholders at the Annual General Meeting in June 2018. The LTIP provides for the issuance of 50.5 million shares pursuant to awards under the plan. At March 31, 2020, the Company had approximately 6.6 million shares that remain available for issuance under the LTIP.
For restricted stock units with a combination of market and service vesting criteria, the number of common shares to be issued is determined by comparing the Company’s total shareholder return with the total shareholder return of a predetermined group of peer companies over the performance period and can vest in up to 200% of the awards granted. The grant date fair value ranged from $4.83 to $12.96 per award. The Monte Carlo simulation model utilized multiple input variables that determined the probability of satisfying the market condition stipulated in the award grant and calculated the fair value of the award. The expected volatility utilized in the model was estimated using our historical volatility and the historical volatilities of our peer companies and ranged from 44.0% to 52.0%. The risk-free interest rate was based on the U.S. treasury rate for a term commensurate with the expected life of the grant and ranged from 0.8% to 2.5%. For the restricted stock units awarded in 2019 and 2020, the Monte Carlo simulation model included estimated quarterly dividend inputs ranging from $0.045 to $0.050.
12. Income Taxes
We provide for income taxes based on the laws and rates in effect in the countries in which our operations are conducted. The relationship between our pre‑tax income or loss from continuing operations and our income tax expense or benefit varies from period to period as a result of various factors, which include changes in total pre‑tax income or loss, the jurisdictions in which our income (loss) is earned, and the tax laws in those jurisdictions. We evaluate our estimated annual effective income tax rate each quarter, based on current and forecasted business results and enacted tax laws, and apply this tax rate to our ordinary income or loss to calculate our estimated tax expense or benefit. The Company excludes zero tax rate and tax-exempt jurisdictions from our evaluation of the estimated annual effective income tax rate. The tax effect of discrete items are recognized in the period in which they occur at the applicable statutory tax rate.
The income tax provision consists of United States, Ghanaian, and Equatorial Guinean income taxes, and Texas margin taxes. Our operations in other foreign jurisdictions have a 0% effective tax rate because they reside in countries with a 0% statutory rate or we have incurred losses in those jurisdictions and have full valuation allowances against the corresponding net deferred tax assets.
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. For the three-months ended March 31, 2020, we increased our valuation allowance associated with our U.S. deferred tax assets to $76.4 million resulting in $30.9 million of net U.S. deferred tax expense. The valuation allowance was necessary due to the recent decline in oil prices and the impact on our expected ability to utilize U.S. tax losses in the future.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security ACT ("CARES Act") became law. Among other things, the CARES Act permits taxpayers to carry back U.S. taxable losses generated during tax years 2018 through 2020 to the five tax years preceding the loss year to obtain tax refunds. Certain of our U.S. legal entities qualify for such relief and we recorded a current tax benefit of $4.9 million during the first quarter of 2020, with a total $12.2 million income tax refund claim. Other provisions of the CARES Act are not expected to have a material impact to our tax expense.
Income (loss) before income taxes is composed of the following:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
2020
|
|
2019
|
|
|
(In thousands)
|
|
United States
|
$
|
(190,137
|
)
|
|
$
|
(55,741
|
)
|
|
Foreign—other
|
72,913
|
|
|
(5,839
|
)
|
|
Income (loss) before income taxes
|
$
|
(117,224
|
)
|
|
$
|
(61,580
|
)
|
|
For the three months ended, March 31, 2020, and 2019, our effective tax rate was 56% and 14%, respectively.
For the three months ended March 31, 2020, our overall effective tax rate was impacted by deferred tax expense related to valuation allowances on certain U.S. deferred tax assets and by a current tax benefit related to certain U.S. tax losses incurred in 2018 and carried back to years with a higher income tax rate. Additionally, for the three months ended March 31, 2020, and 2019, our overall effective tax rates were impacted by the difference in our 21% U.S. income tax reporting rate and the 35% statutory tax rates applicable to our Ghanaian and Equatorial Guinean operations, non-deductible and non-taxable items associated with our U.S., Ghanaian, and Equatorial Guinean operations, and other losses and expenses, primarily related to exploration operations in tax-exempt jurisdictions or in taxable jurisdictions where we have valuation allowances against our deferred tax assets, and therefore, we do not realize any tax benefit on such losses or expenses.
The Company files income tax returns in all jurisdictions where such requirements exist, however, our primary tax jurisdictions are the United States, Ghana and Equatorial Guinea. The Company is open to tax examinations in the United States, for federal income tax return years 2016 through 2018, in Ghana to federal income tax return years 2014 through 2018.
As of March 31, 2020, the Company had no material uncertain tax positions. The Company’s policy is to recognize potential interest and penalties related to income tax matters in income tax expense.
13. Net Loss Per Share
The following table is a reconciliation between net loss and the amounts used to compute basic and diluted net loss per share and the weighted average shares outstanding used to compute basic and diluted net loss per share:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31,
|
|
|
2020
|
|
2019
|
|
|
(In thousands, except per share data)
|
|
Numerator:
|
|
|
|
|
|
|
Net loss allocable to common stockholders
|
$
|
(182,767
|
)
|
|
$
|
(52,906
|
)
|
|
Denominator:
|
|
|
|
|
Weighted average number of shares outstanding:
|
|
|
|
|
Basic
|
404,759
|
|
|
401,164
|
|
|
Restricted stock awards and units(1)(2)
|
—
|
|
|
—
|
|
|
Diluted
|
404,759
|
|
|
401,164
|
|
|
Net loss per share:
|
|
|
|
|
Basic
|
$
|
(0.45
|
)
|
|
$
|
(0.13
|
)
|
|
Diluted
|
$
|
(0.45
|
)
|
|
$
|
(0.13
|
)
|
|
__________________________________
|
|
(1)
|
We excluded outstanding restricted stock awards and units of 11.0 million and 8.9 million for the three months ended March 31, 2020 and 2019, respectively, from the computations of diluted net loss per share because the effect would have been anti-dilutive.
|
14. Commitments and Contingencies
From time to time, we are involved in litigation, regulatory examinations and administrative proceedings primarily arising in the ordinary course of our business in jurisdictions in which we do business. Although the outcome of these matters cannot be predicted with certainty, management believes none of these matters, either individually or in the aggregate, would have a material effect upon the Company’s financial position; however, an unfavorable outcome could have a material adverse effect on our results from operations for a specific interim period or year.
We currently have a commitment to drill one exploration well in each of Sao Tome and Principe and Namibia and two exploration wells in Mauritania. In Sao Tome and Principe, we also have 3D seismic acquisition requirements of approximately 8,800 square kilometers, and in Mauritania we have 100 line km requirement for controlled source electromagnetic data acquisition. In South Africa we have 2D seismic acquisition requirements of approximately 500 line kilometers.
Performance Obligations
As of March 31, 2020 and December 31, 2019, the Company had performance bonds totaling $222.0 million for our supplemental bonding requirements stipulated by the BOEM and $3.7 million to another operator related to costs anticipated for the plugging and abandonment of certain wells and the removal of certain facilities in our U.S. Gulf of Mexico fields. As of March 31, 2020 and December 31, 2019, we had zero cash collateral against these secured performance bonds.
Dividends
On February 24, 2020, we announced our quarterly cash dividend of $0.0452 per common share. The dividend was paid on March 26, 2020 to stockholders of record as of March 5, 2020. In March 2020, in response to economic conditions, including oil price volatility and the impact of COVID-19 pandemic, the Board of Directors decided to suspend the dividend.
15. Additional Financial Information
Accrued Liabilities
Accrued liabilities consisted of the following:
|
|
|
|
|
|
|
|
|
|
March 31,
2020
|
|
December 31,
2019
|
|
(In thousands)
|
Accrued liabilities:
|
|
|
|
|
|
Exploration, development and production
|
$
|
125,583
|
|
|
$
|
152,490
|
|
Revenue payable
|
25,259
|
|
|
32,482
|
|
Current asset retirement obligations
|
3,029
|
|
|
4,527
|
|
General and administrative expenses
|
4,265
|
|
|
44,575
|
|
Interest
|
4,376
|
|
|
33,584
|
|
Income taxes
|
82,883
|
|
|
103,566
|
|
Taxes other than income
|
3,130
|
|
|
3,375
|
|
Derivatives
|
—
|
|
|
4,837
|
|
Other
|
19,233
|
|
|
1,268
|
|
|
$
|
267,758
|
|
|
$
|
380,704
|
|
Asset Retirement Obligations
The following table summarizes the changes in the Company's asset retirement obligations:
|
|
|
|
|
|
March 31,
2020
|
|
(In thousands)
|
Asset retirement obligations:
|
|
|
Beginning asset retirement obligations
|
$
|
235,053
|
|
Liabilities incurred during period
|
—
|
|
Liabilities settled during period
|
(3,688
|
)
|
Revisions in estimated retirement obligations
|
2,150
|
|
Accretion expense
|
4,652
|
|
Ending asset retirement obligations
|
$
|
238,167
|
|
Facilities Insurance Modifications, Net
Facilities insurance modifications, net consists of costs associated with the long-term solution to convert the Jubilee FPSO to a permanently spread moored facility, net of related insurance reimbursements. During the three months ended March 31, 2020 and 2019, we incurred approximately $8.0 million and $11.0 million, respectively in expenditures offset by approximately zero and $31.0 million, respectively in insurance recoveries.
Other Expenses, Net
Other expenses, net incurred during the period is comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
2020
|
|
2019
|
|
|
(In thousands)
|
Loss on disposal of inventory
|
$
|
1,467
|
|
|
$
|
187
|
|
|
Loss on ARO liability settlements
|
2,150
|
|
|
1,918
|
|
|
Restructuring charges
|
13,915
|
|
|
—
|
|
|
Other, net
|
6,397
|
|
|
14
|
|
|
Other expenses, net
|
$
|
23,929
|
|
|
$
|
2,119
|
|
|
The restructuring charges are for employee severance and related benefit costs incurred as part of a corporate reorganization.
16. Business Segment Information
Kosmos is engaged in a single line of business, which is the exploration and development of oil and gas. At March 31, 2020, the Company had operations in four geographic reporting segments: Ghana, Equatorial Guinea, Mauritania/Senegal and the U.S. Gulf of Mexico. To assess performance of the reporting segments, the Chief Operating Decision Maker ("CODM") reviews capital expenditures. Capital expenditures, as defined by the Company, may not be comparable to similarly titled measures used by other companies and should be considered in conjunction with our consolidated financial statements and notes thereto. Financial information for each area is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ghana
|
|
Equatorial Guinea
|
|
Mauritania/Senegal
|
|
U.S. Gulf of Mexico
|
|
Corporate & Other
|
|
Eliminations
|
|
Total
|
|
(In thousands)
|
Three months ended March 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues and other income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil and gas revenue
|
$
|
49,708
|
|
|
$
|
24,619
|
|
|
$
|
—
|
|
|
$
|
103,453
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
177,780
|
|
Other income, net
|
1
|
|
|
—
|
|
|
—
|
|
|
447
|
|
|
(112,009
|
)
|
|
111,562
|
|
|
1
|
|
Total revenues and other income
|
49,709
|
|
|
24,619
|
|
|
—
|
|
|
103,900
|
|
|
(112,009
|
)
|
|
111,562
|
|
|
177,781
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil and gas production
|
18,042
|
|
|
11,475
|
|
|
—
|
|
|
32,086
|
|
|
—
|
|
|
—
|
|
|
61,603
|
|
Facilities insurance modifications, net
|
8,038
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
8,038
|
|
Exploration expenses
|
85
|
|
|
2,719
|
|
|
3,474
|
|
|
13,967
|
|
|
24,360
|
|
|
—
|
|
|
44,605
|
|
General and administrative
|
3,890
|
|
|
1,738
|
|
|
2,109
|
|
|
4,004
|
|
|
31,862
|
|
|
(22,692
|
)
|
|
20,911
|
|
Depletion, depreciation and amortization
|
19,731
|
|
|
8,894
|
|
|
15
|
|
|
63,834
|
|
|
828
|
|
|
—
|
|
|
93,302
|
|
Impairment of long-lived assets
|
—
|
|
|
—
|
|
|
—
|
|
|
150,820
|
|
|
—
|
|
|
—
|
|
|
150,820
|
|
Interest and other financing costs, net(1)
|
14,831
|
|
|
(369
|
)
|
|
(6,626
|
)
|
|
4,689
|
|
|
17,094
|
|
|
(1,784
|
)
|
|
27,835
|
|
Derivatives, net
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(136,038
|
)
|
|
—
|
|
|
(136,038
|
)
|
Other expenses, net
|
(116,372
|
)
|
|
(15,756
|
)
|
|
2,793
|
|
|
3,652
|
|
|
13,574
|
|
|
136,038
|
|
|
23,929
|
|
Total costs and expenses
|
(51,755
|
)
|
|
8,701
|
|
|
1,765
|
|
|
273,052
|
|
|
(48,320
|
)
|
|
111,562
|
|
|
295,005
|
|
Income (loss) before income taxes
|
101,464
|
|
|
15,918
|
|
|
(1,765
|
)
|
|
(169,152
|
)
|
|
(63,689
|
)
|
|
—
|
|
|
(117,224
|
)
|
Income tax expense (benefit)
|
38,221
|
|
|
4,588
|
|
|
—
|
|
|
30,903
|
|
|
(8,169
|
)
|
|
—
|
|
|
65,543
|
|
Net income (loss)
|
$
|
63,243
|
|
|
$
|
11,330
|
|
|
$
|
(1,765
|
)
|
|
$
|
(200,055
|
)
|
|
$
|
(55,520
|
)
|
|
$
|
—
|
|
|
$
|
(182,767
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated capital expenditures
|
$
|
16,486
|
|
|
$
|
6,770
|
|
|
$
|
3,121
|
|
|
$
|
38,654
|
|
|
$
|
19,434
|
|
|
$
|
—
|
|
|
$
|
84,465
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
$
|
1,484,630
|
|
|
$
|
462,472
|
|
|
$
|
444,561
|
|
|
$
|
1,024,179
|
|
|
$
|
27,095
|
|
|
$
|
—
|
|
|
$
|
3,442,937
|
|
Total assets
|
$
|
1,724,154
|
|
|
$
|
626,511
|
|
|
$
|
611,081
|
|
|
$
|
3,078,851
|
|
|
$
|
12,235,030
|
|
|
$
|
(14,091,665
|
)
|
|
$
|
4,183,962
|
|
______________________________________
|
|
(1)
|
Interest expense is recorded based on actual third-party and intercompany debt agreements. Capitalized interest is recorded on the business unit where the assets reside.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ghana
|
|
Equatorial Guinea
|
|
Mauritania/Senegal
|
|
U.S. Gulf of Mexico
|
|
Corporate & Other
|
|
Eliminations
|
|
Total
|
|
(In thousands)
|
Three months ended March 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues and other income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil and gas revenue
|
$
|
122,919
|
|
|
$
|
88,805
|
|
|
$
|
—
|
|
|
$
|
85,066
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
296,790
|
|
Other income, net
|
—
|
|
|
—
|
|
|
—
|
|
|
135
|
|
|
72,809
|
|
|
(72,944
|
)
|
|
—
|
|
Total revenues and other income
|
122,919
|
|
|
88,805
|
|
|
—
|
|
|
85,201
|
|
|
72,809
|
|
|
(72,944
|
)
|
|
296,790
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil and gas production
|
30,057
|
|
|
22,605
|
|
|
—
|
|
|
27,137
|
|
|
—
|
|
|
—
|
|
|
79,799
|
|
Facilities insurance modifications, net
|
(20,021
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(20,021
|
)
|
Exploration expenses
|
52
|
|
|
3,171
|
|
|
6,442
|
|
|
11,194
|
|
|
9,485
|
|
|
—
|
|
|
30,344
|
|
General and administrative
|
5,956
|
|
|
2,045
|
|
|
2,287
|
|
|
7,393
|
|
|
44,205
|
|
|
(25,978
|
)
|
|
35,908
|
|
Depletion, depreciation and amortization
|
54,863
|
|
|
23,017
|
|
|
15
|
|
|
39,090
|
|
|
1,110
|
|
|
—
|
|
|
118,095
|
|
Interest and other financing costs, net(1)
|
20,653
|
|
|
—
|
|
|
(6,793
|
)
|
|
5,929
|
|
|
17,036
|
|
|
(1,784
|
)
|
|
35,041
|
|
Derivatives, net
|
—
|
|
|
—
|
|
|
—
|
|
|
31,903
|
|
|
45,182
|
|
|
—
|
|
|
77,085
|
|
Other expenses, net
|
45,100
|
|
|
340
|
|
|
229
|
|
|
1,592
|
|
|
40
|
|
|
(45,182
|
)
|
|
2,119
|
|
Total costs and expenses
|
136,660
|
|
|
51,178
|
|
|
2,180
|
|
|
124,238
|
|
|
117,058
|
|
|
(72,944
|
)
|
|
358,370
|
|
Income (loss) before income taxes
|
(13,741
|
)
|
|
37,627
|
|
|
(2,180
|
)
|
|
(39,037
|
)
|
|
(44,249
|
)
|
|
—
|
|
|
(61,580
|
)
|
Income tax expense (benefit)
|
(4,983
|
)
|
|
15,531
|
|
|
—
|
|
|
(8,206
|
)
|
|
(11,016
|
)
|
|
—
|
|
|
(8,674
|
)
|
Net income (loss)
|
$
|
(8,758
|
)
|
|
$
|
22,096
|
|
|
$
|
(2,180
|
)
|
|
$
|
(30,831
|
)
|
|
$
|
(33,233
|
)
|
|
$
|
—
|
|
|
$
|
(52,906
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated capital expenditures
|
$
|
34,967
|
|
|
$
|
14,936
|
|
|
$
|
2,252
|
|
|
$
|
45,882
|
|
|
$
|
12,191
|
|
|
$
|
—
|
|
|
$
|
110,228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
$
|
1,681,317
|
|
|
$
|
470,974
|
|
|
$
|
414,035
|
|
|
$
|
1,309,412
|
|
|
$
|
39,065
|
|
|
$
|
—
|
|
|
$
|
3,914,803
|
|
Total assets
|
$
|
1,938,645
|
|
|
$
|
533,244
|
|
|
$
|
528,068
|
|
|
$
|
3,369,271
|
|
|
$
|
10,092,342
|
|
|
$
|
(11,959,714
|
)
|
|
$
|
4,501,856
|
|
______________________________________
|
|
(1)
|
Interest expense is recorded based on actual third-party and intercompany debt agreements. Capitalized interest is recorded on the business unit where the assets reside.
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
2020
|
|
2019
|
|
|
(In thousands)
|
|
Consolidated capital expenditures:
|
|
|
|
|
Consolidated Statements of Cash Flows - Investing activities:
|
|
|
|
|
Oil and gas assets
|
$
|
83,716
|
|
|
$
|
78,377
|
|
|
Other property
|
1,537
|
|
|
1,071
|
|
|
Adjustments:
|
|
|
|
|
Changes in capital accruals
|
(23,310
|
)
|
|
14,925
|
|
|
Exploration expense, excluding unsuccessful well costs and leasehold impairments(1)
|
25,377
|
|
|
24,838
|
|
|
Capitalized interest
|
(6,527
|
)
|
|
(7,251
|
)
|
|
Other
|
3,672
|
|
|
(1,732
|
)
|
|
Total consolidated capital expenditures
|
$
|
84,465
|
|
|
$
|
110,228
|
|
|
______________________________________
|
|
(1)
|
Unsuccessful well costs are included in oil and gas assets when incurred.
|