Kosmos Energy Ltd. — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This is an annual report, not a standalone fourth-quarter earnings filing. Financial statements are audited and presented under U.S. GAAP; Ernst & Young issued unqualified opinions on the financial statements and internal control over financial reporting.
Business context
Kosmos is a deepwater oil and gas exploration and production company. Producing assets are offshore Ghana, Equatorial Guinea and in the U.S. Gulf of Mexico; major gas developments and discoveries are offshore Mauritania and Senegal. The company’s strategy emphasizes production and cash flow from existing assets, development of discovered resources, and infrastructure-led exploration.
Key financial and operating metrics
| Metric | FY2022 | FY2021 |
|---|---|---|
| Oil and gas revenue | $2,245.4 million | $1,332.0 million |
| Total revenue and other income | $2,299.8 million | $1,333.8 million |
| Net income (loss) | $226.6 million | $(77.8) million |
| Operating cash flow | $1,130.5 million | $374.3 million |
| Total sales volumes | 23.1 million Boe; 63,335 Boepd | 19.9 million Boe; 54,384 Boepd |
| Average realized oil price | $100.00/Bbl | $70.10/Bbl |
| Average realized price, total sales | $97.13/Boe | $67.10/Boe |
| Production cost | $17.44/Boe | $17.44/Boe |
| Depletion, depreciation and amortization | $498.3 million | $467.2 million |
| Capital expenditures, company-defined consolidated measure | $611.6 million | $924.2 million |
Revenue increased 69%, primarily from higher realized oil prices, higher Jubilee production and the full-year contribution from the additional Ghana interests acquired in October 2021. Net income improved despite a $450.0 million impairment charge, largely associated with negative TEN reserve revisions and recent well performance. Derivatives recorded a net loss of $260.9 million in 2022; derivative accounting and cash settlements can cause earnings volatility.
Cash and cash equivalents were $183.4 million at year-end. Total principal debt was $2.270 billion; net debt, as presented by the company, was $2.083 billion. Available borrowings plus cash and cash equivalents were approximately $1.051 billion, comprising $618.0 million of Facility availability and $250.0 million under the undrawn Corporate Revolver. The company reported compliance with debt covenants at the latest stated assessment date, September 30, 2022.
Proved reserves totaled 276 million Boe at year-end, down from 301 million Boe in 2021. The change reflected production, the Tullow pre-emption transaction, weaker TEN revisions, and offsets including Greater Tortue Ahmeyim additions and Winterfell. The filing’s standardized measure of discounted future net cash flows was $6.161 billion, versus $3.261 billion in 2021; it is a reserve-based, SEC-defined measure, not an estimate of current market value.
Material changes and notable items
- Completed the Tullow pre-emption transaction in March 2022: received $118.2 million and reduced Kosmos’s interests to 38.6% in Jubilee and 20.4% in TEN.
- Recorded the $450.0 million TEN impairment; the field’s carrying value was reduced to an estimated $235.7 million.
- Received $50.0 million from Shell under a prior farm-out agreement after an appraisal plan was submitted for a qualifying exploration well; recognized the amount as a gain on sale of assets.
- Reduced Facility borrowings by $375.0 million during 2022. The Corporate Revolver was refinanced at $250 million capacity, down from $400 million, with maturity extended to December 31, 2024.
- Extended Equatorial Guinea Block G licenses to 2040, alongside a signature bonus and commitments for three development wells and one exploration well.
- Acquired additional interests in Kodiak and Winterfell in the U.S. Gulf of Mexico. Kodiak production issues persisted, with remediation workover plans for the second half of 2023.
- Exploration costs included a $64.2 million write-off of previously capitalized BirAllah and Orca costs after the C8 exploration period expired, as well as costs for exited leases and abandoned TEN wells.
Outlook, risks and contingencies
- 2023 capital program: Management estimated $700–$750 million, excluding acquisitions and divestitures. The budget includes $250–$300 million for maintenance and producing-asset activities; $350–$400 million for Jubilee Southeast, Greater Tortue Ahmeyim Phase 1 and Winterfell; and $50–$100 million for exploration, appraisal and other gas-development work. Spending may vary with market conditions and results.
- Project timing: Greater Tortue Ahmeyim Phase 1 was approximately 90% complete at year-end, with first gas targeted for Q4 2023. Winterfell first production was targeted around the end of Q1 2024; Jubilee Southeast producer wells were expected online mid-2023. These are forward-looking targets, not guarantees.
- Gas-sale arbitration: Kosmos and partners are pursuing international arbitration with BP Gas Marketing to interpret LNG sale and cargo rights under the Tortue Phase 1 SPA. The outcome could affect commercialization and sales economics.
- Ghana gas arrangements: The company was negotiating a future gas sales agreement covering Jubilee and TEN. It warned that interruptions in gas export or failure to agree on commercial terms could require reinjection or flaring and could affect oil production. An interim Jubilee gas arrangement covered 19 Bcf at $0.50/MMBtu, expected to be exported by mid-2023.
- Commodity and financing exposure: Oil prices, production, hedge settlements and counterparty performance materially affect cash flow. At year-end, 10.0 million barrels of 2023 oil production were hedged. Variable-rate borrowings expose the company to rising interest rates; debt facilities include borrowing-base, financial-ratio and other restrictive covenants.
- Other principal risks: Deepwater operating hazards, project delays and cost overruns, dependence on non-operated assets and partners, reserve-estimate uncertainty, access to infrastructure and equipment, political and tax disputes in operating countries, climate and environmental regulation, and potential financing or liquidity constraints.
- Disputes and legal matters: Ghanaian tax and other contractual fiscal claims remain disputed. The SEC informed Kosmos in December 2022 that it had closed its investigation concerning Senegal blocks with no enforcement action recommended. The company said pending legal or regulatory matters were not expected to materially affect financial position, though unfavorable outcomes could affect a particular period’s results.
Important facts for investors to verify
- Whether Greater Tortue Ahmeyim achieved first gas on schedule and within the expected cost and remaining capital requirements.
- Progress and outcome of the Tortue SPA arbitration, and the final commercial terms and continuity of Ghana gas sales.
- Whether TEN production and reserves stabilize after the adverse well results and the $450.0 million impairment.
- Actual 2023 capital spending, production, realized prices, hedge settlements and operating cash generation versus management’s plans.
- Facility borrowing-base availability, debt maturities and covenant headroom, including the impact of interest rates and any updated reserve assessments.
- Whether the company’s proved reserves and standardized measure assumptions remain supportable; these estimates depend on prices, costs, production and development timing.