Kosmos Energy Ltd. — FY 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. This is an annual report, not a standalone fourth-quarter filing; it also reports unaudited Q4 results. 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 exploration interests in Mauritania and Senegal and other Atlantic-margin regions.
Financial and operating performance
| Metric | FY 2019 | FY 2018 |
|---|---|---|
| Oil and gas revenue | $1,499.4 million | $886.7 million |
| Total revenue and other income | $1,509.9 million | $902.4 million |
| Net loss | $(55.8) million | $(94.0) million |
| Net loss per share | $(0.14) | $(0.23) |
| Cash from operating activities | $628.2 million | $260.5 million |
| Cash and cash equivalents at year end | $224.5 million | $173.5 million |
- Q4 2019 unaudited revenue and other income was $460.2 million; costs and expenses were $462.5 million; net loss was $35.8 million.
- Sales volumes were 24.9 million Boe in 2019. Average realized oil price was $63.25 per barrel, down from $69.00 in 2018; average total realized price was $60.14 per Boe.
- Production expense was $16.15 per Boe and depletion, depreciation and amortization was $22.62 per Boe, or $38.77 combined.
- Investing cash outflow was $363.9 million and financing cash outflow was $220.5 million. Reported capital expenditures, as defined by the company, were $440.7 million, compared with $385.4 million in 2018.
- Year-end gross debt principal was $2.05 billion: $1.40 billion under the Facility and $650 million of 7.125% Senior Notes due 2026. Net debt was reported at $1.82 billion; net leverage was approximately 1.8x.
- Available borrowings plus cash and cash equivalents totaled approximately $824.5 million: $200 million available under the Facility, $400 million under the Corporate Revolver, and $224.5 million in cash. The Facility matures in 2025; the Corporate Revolver in 2022.
- Proved reserves were 169 million Boe at year end, versus 141 million Boe in 2018. The filing says execution of the Tortue Phase 1 LNG sales agreement in February 2020 resulted in approximately 100 million Boe of proved undeveloped reserves being recognized afterward—not in the December 2019 reserve total.
Changes versus the prior comparable period
- Revenue increased by $612.8 million, but the comparison is not like-for-like: 2019 included a full year of U.S. Gulf of Mexico activity following the 2018 DGE acquisition, versus 108 days in 2018, and Equatorial Guinea was consolidated from 2019 rather than accounted for as an equity-method investment. Lower realized oil prices partially offset higher sales volumes.
- Operating cash flow more than doubled, primarily reflecting those expanded reporting and production contributions.
- Net loss narrowed by $38.2 million. Lower exploration expense and a net insurance recovery related to the Jubilee FPSO helped; higher depletion, production costs, interest expense and derivative losses partly offset those benefits. Income tax expense was $80.9 million despite pretax income of $25.1 million, producing a reported effective tax rate of 322%.
- Gross debt principal declined from $2.175 billion to $2.05 billion. In April 2019, Kosmos issued $650 million of 7.125% notes due 2026 and used proceeds in part to redeem $525 million of 7.875% secured notes due 2021 and repay revolver borrowings. The refinancing generated a $22.9 million loss on extinguishment in the debt note; total interest and financing costs also included other items.
- Reserve changes included positive revisions in Ghana, Equatorial Guinea and the Gulf of Mexico, partly offset by production. The shift in Equatorial Guinea accounting also affects year-on-year presentation.
Outlook, commentary and risks
- Management estimated 2020 capital spending of $325–$375 million, excluding Mauritania and Senegal, plus approximately $250 million for Mauritania and Senegal based on Kosmos’s current ownership interest and net of remaining BP carry amounts. The latter was expected to be funded with farm-down proceeds and/or carries; actual spending may vary.
- Planned 2020 activity included Ghana development drilling; U.S. Gulf of Mexico development and infrastructure-led exploration; two Equatorial Guinea infill wells; and one frontier exploration well in São Tomé and Príncipe. Greater Tortue Ahmeyim Phase 1 was targeting first gas in the first half of 2022; the filing also described later phases as a potential expansion.
- At year end, hedges covered 16.0 million barrels of expected 2020–2021 production. Derivatives were not designated for hedge accounting, so fair-value changes affected reported earnings. The company disclosed a net liability position in open commodity derivatives and exposure to price, production-volume and counterparty risk.
- Operational risks include Jubilee oil production constraints related to gas handling, the continuing FPSO turret remediation (CALM buoy commissioning expected around mid-2020), and reliance on third-party infrastructure and operators. The company noted that interruptions to associated-gas export could constrain Ghana oil production.
- Exploration and development remain uncertain: unsuccessful wells were reported in the Gulf of Mexico, and prior Suriname wells did not find commercial hydrocarbons. License work commitments, partner approvals, deepwater costs, commodity-price volatility, political and regulatory conditions, environmental obligations and access to capital are material risks.
- Kosmos disclosed that the SEC requested voluntary documents concerning Senegal blocks after media allegations that the company, BP and Senegal’s government disputed. Kosmos said it was cooperating. Management also cited the early-2020 coronavirus outbreak as a potential source of operational and financial uncertainty.
- The company began quarterly dividends in 2019 and declared $0.1808 per share for the year; future dividends are discretionary and subject to financial and debt-agreement restrictions.
Important facts for investors to verify
- Compare production, revenue and cash flow on a consistent basis, accounting for the DGE acquisition and the 2019 consolidation of Equatorial Guinea.
- Review the Facility borrowing base, covenant headroom, scheduled amortization and refinancing needs, including floating-rate exposure and the stated LIBOR transition risk.
- Track delivery and cost of Greater Tortue Ahmeyim Phase 1, the national oil company carry advances of up to $239.7 million, and the conditions underlying the post-year-end reserve recognition.
- Monitor Ghana gas handling and Jubilee FPSO remediation, as well as production performance and the reliability of third-party facilities.
- Assess exploration results, license deadlines, partner funding and farm-down proceeds against the 2020 capital plans and commitments.
- Check subsequent disclosures on the SEC’s voluntary Senegal document request, tax matters, environmental and abandonment obligations, and any material change in commodity prices or hedging positions.