Kosmos Energy Ltd. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Kosmos is a deepwater oil and gas exploration, development and production company, with producing assets in Ghana, Equatorial Guinea and the U.S. Gulf of Mexico, and the Greater Tortue Ahmeyim gas development offshore Mauritania and Senegal.
Financial performance and position
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Oil and gas revenue | $620.4 million | $384.0 million | $1,279.4 million | $560.5 million |
| Net income (loss) | $117.2 million | $(57.2) million | $118.6 million | $(148.0) million |
| Net income (loss) per diluted share | $0.25 | $(0.14) | $0.25 | $(0.36) |
| Average realized price per Boe | $109.28 | $63.80 | $104.94 | $60.22 |
| Production costs per Boe | $15.88 | $19.24 | $17.63 | $17.36 |
Q2 revenue increased mainly on higher realized oil prices and additional Ghana interests acquired in 2021. For the first half, higher prices and sales volumes also contributed to the revenue increase. Q2 production costs and depletion, depreciation and amortization were lower year over year; first-half production costs and depletion were higher, principally reflecting greater sales volumes.
- Cash flow: First-half operating cash flow was $608.2 million, versus $242.3 million in 2021. Investing cash outflow was $234.7 million; financing cash outflow was $324.7 million. Cash, cash equivalents and restricted cash increased $48.8 million.
- Debt and liquidity: June 30 debt principal was $2.36 billion; net debt was $2.136 billion. Cash and cash equivalents were $223.3 million, with $332,000 restricted. Undrawn availability was $550 million under the Facility and $250 million under the Corporate Revolver; cash plus available borrowings totaled $1.023 billion. The company reported covenant compliance at the most recent assessment date, March 31, 2022.
- Other key items: Q2 exploration expense was $89.6 million, including a $64.2 million write-off of BirAllah and Orca costs after the Block C8 exploration period expired. First-half derivative losses were $357.4 million, largely reflecting changes in forward oil prices; cash settlements on derivatives were $223.6 million. The filing does not provide a single operating-margin measure.
Material changes and developments
- Kosmos repaid $300 million under the Facility during the first half, including $100 million funded from the Tullow pre-emption proceeds. Total debt principal fell from $2.675 billion at year-end 2021 to $2.360 billion.
- The March Tullow pre-emption reduced Kosmos’s Ghana interests to 38.6% in Jubilee and 20.4% in TEN, and reduced its 2022 net production by approximately 4,000 barrels per day. A PetroSA pre-emption remains pending; completion would further reduce those interests to 38.3% and 19.8%.
- Kosmos increased its Kodiak field interest from 29.1% to 35.0% for a total purchase price of approximately $29 million, and acquired additional interests in the Winterfell area.
- Equatorial Guinea’s Block G licenses were extended to 2040. The agreement includes three development wells on Block G and one exploration well on Block S.
Outlook, commentary and risks
- Management estimated 2022 capital spending of approximately $700 million, excluding acquisitions and divestitures. The plan includes $300 million for Greater Tortue Ahmeyim Phase 1, net of the FPSO transaction benefit. Approximately $320.3 million had been spent through June 30 on management’s stated basis, excluding the offsetting impact of the Tullow and Kodiak pre-emption transactions.
- First gas from Greater Tortue Ahmeyim Phase 1 remained targeted for Q3 2023. FPSO sailaway was expected in Q4 2022 after delays associated with a yard lockdown and COVID-related restrictions in China. Two of four wells required for first gas had been drilled.
- Management said current prices, hedging and liquidity supported the remaining 2022 capital program, while noting that oil-price volatility could affect cash flow, funding needs and covenant compliance. Other identified risks include recession and geopolitical uncertainty, operational and project delays, cost inflation, financing access, and regulatory, environmental and political risks.
- Outstanding oil hedges had a net liability position of approximately $209.9 million. A hypothetical 10% increase in oil futures prices would reduce future pre-tax earnings by approximately $80.1 million; a 10% decrease would increase them by approximately $83.8 million. These are sensitivities, not forecasts.
- The filing reports no material changes to previously disclosed legal proceedings or risk factors. Management concluded disclosure controls were effective at June 30, 2022.
Important facts for investors to verify
- Progress against the Q3 2023 Greater Tortue Ahmeyim first-gas target, including FPSO sailaway, construction and drilling milestones.
- Whether PetroSA exercises its pre-emption rights and the resulting Ghana working interests, production and capital-spending effects.
- Actual 2022 capital spending versus the approximately $700 million plan, particularly amid inflation and project delays.
- Hedge volumes, settlements and fair-value exposure, and the effect of commodity prices on realized revenue and cash flow.
- Debt repayment, borrowing-base availability, covenant compliance and liquidity under changing oil prices and project funding needs.
- Whether Mauritania finalizes a new PSC for BirAllah and Orca, and the implications for development rights and recoverability of previously written-off costs.