Kosmos Energy Ltd. — 2023 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2023. The filing was signed February 26, 2024. Kosmos is a deepwater oil and gas exploration and production company with producing assets in Ghana, Equatorial Guinea and the U.S. Gulf of Mexico, and development and appraisal projects in Mauritania and Senegal.
Financial and operating performance
| Metric | 2023 | 2022 |
|---|---|---|
| Oil and gas revenue | $1.702 billion | $2.245 billion |
| Net income | $213.5 million | $226.6 million |
| Net income margin | 12.5% | 10.1% |
| Net cash provided by operating activities | $765.2 million | $1.130 billion |
| Sales volumes | 23.057 million Boe | 23.117 million Boe |
| Average realized sales price | $73.80/Boe | $97.13/Boe |
| Production costs | $390.1 million; $16.92/Boe | $403.1 million; $17.44/Boe |
| Depletion, depreciation and amortization | $444.9 million; $19.30/Boe | $498.3 million; $21.55/Boe |
| Capital expenditures | $850.0 million | $611.6 million |
Revenue declined about 24%, primarily from lower oil prices and lower oil production across the portfolio, partly offset by increased Ghana gas sales. Sales volumes were nearly flat. Net income decreased about 6%; lower derivative losses, exploration expense and depletion partly offset reduced revenue, higher taxes and a $222.3 million impairment charge. The impairment fully reduced the carrying value of the TEN Fields to zero; Kosmos had recorded a $450.0 million TEN impairment in 2022.
Gross debt was $2.425 billion and net debt was $2.326 billion at year-end. Cash and cash equivalents were $95.3 million, restricted cash was $3.4 million, and available borrowing capacity was $575 million: $325 million under the Facility and $250 million under the Corporate Revolver. The company reported total liquidity of approximately $670 million. It repaid the remaining $137.5 million GoM Term Loan in September 2023. The Facility’s scheduled repayments begin October 2024 and it matures March 2027; the Corporate Revolver expires December 2024. Senior notes of $1.5 billion mature in 2026, 2027 and 2028.
Year-end proved reserves were 278 million Boe, versus 276 million Boe in 2022: 145 million barrels of oil and 797 Bcf of gas. Reserve revisions were mixed, including positive Jubilee revisions and negative TEN and U.S. Gulf of Mexico revisions. The standardized measure of discounted future net cash flows was $4.620 billion, down from $6.161 billion; the filing cautions that this SEC measure is not current market value.
Material changes versus 2022
- Average realized price fell to $73.80/Boe from $97.13/Boe; total sales volumes were essentially unchanged.
- Operating cash flow fell to $765.2 million from $1.130 billion. Capital expenditures increased to $850.0 million from $611.6 million.
- Derivative losses declined to $11.1 million from $260.9 million. The 2022 period included a $50.5 million gain on asset sales; there was no corresponding gain in 2023.
- Exploration expense fell to $42.3 million from $134.2 million, in part because 2022 included write-offs related to BirAllah and Orca and abandoned Ghana wells.
- Gross debt increased to $2.425 billion from $2.270 billion, including $300 million of additional Facility borrowings; the GoM Term Loan was repaid.
- Ghana contributed $1.062 billion, about 62% of 2023 oil and gas revenue, leaving results materially exposed to Ghana operations and approvals.
Outlook, management commentary and key risks
- 2024 capital plan: Estimated at $700–$750 million, excluding acquisitions and divestitures. Management expects spending on producing-asset maintenance, Greater Tortue Ahmeyim Phase 1 and Winterfell, and exploration and appraisal.
- Project milestones: Greater Tortue Ahmeyim Phase 1 first gas was targeted for Q3 2024 and first LNG for Q4 2024. Winterfell Phase 1A first production was targeted for early Q2 2024. These are forward-looking targets, not reported outcomes.
- Greater Tortue Ahmeyim: The FPSO was undergoing fairlead inspection and repair, with transit anticipated in early Q2 2024; subsea work was expected to finish by the end of Q2. Kosmos and BP Gas Marketing agreed to international arbitration over interpretation of LNG sales agreement terms. The partners also began binding arbitration against the subsea contractor to seek damages; Kosmos estimated its potential net share of recoverable damages at up to $160 million, which is not assured.
- Senegal interests: BP waived its rights to participate in Yakaar and Teranga development. Kosmos became operator and held 90% of the Cayar Offshore Profond Block effective January 18, 2024; PETROSEN may increase its interest to as much as 35% after specified approvals.
- Commodity exposure: Oil prices, production and project execution drive revenue, cash flow, borrowing capacity and capital plans. The company hedges a portion of anticipated oil sales; derivatives are not designated for hedge accounting and can make reported earnings volatile. At December 31, 2023, outstanding commodity derivatives had a net asset fair value of $6.8 million.
- Execution and financial risks: Deepwater project delays, cost overruns, equipment or infrastructure constraints, field performance, partner decisions, reserve uncertainty and access to financing could affect production, liquidity and returns. Variable-rate Facility debt was $925 million; management estimated a 10% increase in floating market rates would add about $5 million of annual interest expense.
- Other risks and contingencies: Kosmos disclosed disagreements and tax disputes with host governments, including Ghana tax assertions it considers without merit. It also faces political, regulatory, environmental, climate, weather, operational, partner-credit and insurance risks. Management did not believe pending legal matters would materially affect financial position, though an unfavorable result could affect a particular period’s results.
- Controls and audit: The auditor issued an unqualified opinion on the financial statements and internal controls; management also concluded internal control over financial reporting was effective. Key audit matters included depletion estimates and asset retirement obligations.
Most important facts for investors to verify
- Whether Greater Tortue Ahmeyim and Winterfell achieved the stated 2024 start-up targets, and the resulting production, costs and cash flows.
- Updates on the LNG sales-contract arbitration and the subsea contractor damages claim, including any recoveries, costs or schedule impacts.
- Resolution of Ghana gas sales arrangements beyond May 2024 and approval status of the amended TEN development plan and gas sales terms.
- Changes in TEN reserves, development plans and any subsequent impairment or production impact, given its carrying value was reduced to zero.
- Liquidity and debt maturities, including 2024 Corporate Revolver expiry, Facility amortization beginning October 2024, covenant compliance and borrowing-base redeterminations.
- Progress and funding requirements for Yakaar-Teranga under Kosmos’s increased interest, and any PETROSEN election or other approvals.
- Actual operating cash flow versus capital spending, and whether commodity prices, hedges and production performance support the 2024 capital plan.