Kosmos Energy Ltd. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This is an annual filing; the supplied text does not provide a clear standalone fourth-quarter income statement or cash-flow value. Amounts below are in U.S. dollars unless noted.
Business context
Kosmos is a deepwater oil and gas exploration and production company with producing assets offshore Ghana, Equatorial Guinea and the U.S. Gulf of Mexico, and gas development projects offshore Mauritania and Senegal. In October 2021, it acquired additional Ghana interests, increasing its Jubilee Unit interest from 24.1% to 42.1% and its TEN interest from 17.0% to 28.1%, subject to partner pre-emption rights and government approvals.
Financial performance and liquidity
| Metric | FY2021 | FY2020 |
|---|---|---|
| Oil and gas revenue | $1.332 billion | $804.0 million |
| Total sales volumes | 19.850 million Boe | 22.111 million Boe |
| Average realized sales price | $67.10/Boe | $36.36/Boe |
| Oil and gas production costs | $346.0 million; $17.44/Boe | $338.5 million; $15.31/Boe |
| Depletion, depreciation and amortization | $467.2 million | $485.9 million |
| Net loss | $77.8 million | $411.6 million |
| Net cash provided by operating activities | $374.3 million | $196.1 million |
| Capital expenditures, as defined by the company | $924.2 million | $274.0 million |
Revenue rose primarily on higher oil prices, partly offset by lower volumes; FY2021 volumes include acquired Ghana production only from October 13. The company reported a $270.2 million net derivatives loss, largely reflecting changes in oil forward curves, and $224.4 million of net cash settlements on commodity hedges. No proved-property impairment was recorded in 2021; FY2020 included $154.0 million of long-lived asset impairment. The filing does not provide a clear consolidated operating-margin or EBITDA figure in the supplied text.
At year-end, cash and cash equivalents were $131.6 million and restricted cash was $43.0 million. The company reported net debt of $2.500 billion, based on $2.675 billion of principal debt, and available borrowings plus cash of approximately $766.8 million. Debt included $1.0 billion under the Facility, $1.5 billion of senior notes and $175 million under the GoM Term Loan. Stockholders’ equity was $529.2 million. The company paid no dividend in 2021; its dividend had been suspended in 2020.
Material changes versus the prior year
- Revenue increased by $528.0 million, while sales volumes decreased by about 10%; the average realized price per Boe increased substantially.
- Operating cash flow increased by $178.2 million. The company attributed the improvement principally to higher oil prices.
- The Ghana acquisition cost $455.9 million in cash, plus $9.5 million of capitalized transaction costs. It was funded in part through debt issuance and a $136.0 million net common-stock offering that issued 43.1 million shares.
- Proved reserves rose to 301 MMBoe from 139 MMBoe. Additions included the Ghana acquisition and recognition of Greater Tortue Ahmeyim reserves as project progress and improved prices affected economic status.
- Debt principal increased to $2.675 billion from $2.150 billion. The Facility was amended, reduced in size to $1.25 billion and extended to March 2027; the company also issued $450 million of 7.500% notes and $400 million of 7.750% notes.
Outlook, management commentary and risks
- 2022 capital program: Estimated at approximately $700 million: $250–$300 million for producing-asset maintenance and infill work, $100–$150 million for growth, about $250 million for Greater Tortue Ahmeyim Phase 1 net of the FPSO transaction benefit, and about $50 million for gas-resource appraisal and development planning. Spend could be reduced by up to $40 million if Ghana pre-emption is completed. No clear 2022 production guidance is provided in the supplied text.
- Greater Tortue Ahmeyim: Phase 1 was approximately 70% complete at year-end, with first gas expected in the third quarter of 2023. The schedule reflected a likely FPSO delivery delay associated with COVID-related labor shortages in China. The project targets about 2.5 million tonnes of LNG per year.
- Ghana acquisition pre-emption: Partners’ rights, if fully exercised and approved, could reduce Kosmos’s Jubilee interest to 38.3% and TEN interest to 19.8%. The contemplated pre-empted portion had an initial price of approximately $150 million; the company said potential proceeds would be used to accelerate debt repayment.
- Financing and liquidity: The $400 million Corporate Revolver was undrawn at year-end but due to expire May 31, 2022; management stated it intended to refinance it in the first quarter of 2022. Facility availability is borrowing-base dependent, and the Ghana interests acquired in 2021 were excluded from that borrowing base at year-end. Restricted cash requirements applied because the net leverage ratio exceeded 2.50x.
- Operational and market risks: Oil-price volatility, hedging exposure, production interruptions, hurricanes, deepwater project delays and cost overruns, infrastructure availability, partner and operator decisions, and COVID-related disruption could affect results and liquidity. The company also identifies political, regulatory, tax, environmental, climate-transition and financing risks in its operating jurisdictions.
- Contingencies and unusual items: The company had a $200.2 million FPSO contract liability matched by a long-term receivable, to be non-cash settled against obligations to BP Operator. Kosmos’s estimated share of Mauritania and Senegal carry advances was approximately $240 million, of which $145.2 million had been incurred by year-end and is repayable from national oil company future revenues. The company also had one Mauritania exploration-well commitment and $195.5 million of U.S. Gulf of Mexico supplemental performance bonds.
- Legal and tax matters: Management said pending legal or regulatory matters were not expected to materially affect financial position or cash flows, though an unfavorable outcome could affect a period’s results. Ghanaian tax authorities have disputed certain tax and contractual payments; Kosmos says it believes the claims lack merit. The company also disclosed government information requests concerning Senegal blocks and stated it was cooperating and believed allegations aired publicly were inaccurate.
Important facts for investors to verify
- Progress and final approval of Ghana partner pre-emption, including the resulting ownership interests, cash proceeds and any change to borrowing-base availability.
- Execution of the Corporate Revolver refinancing and compliance with debt covenants, borrowing-base terms and restricted-cash requirements.
- Greater Tortue Ahmeyim construction progress, remaining capital requirements and whether first gas remains on schedule for Q3 2023.
- Actual 2022 production, realized prices, hedge settlements and capital spending compared with the filing’s assumptions and budget.
- Reserve assumptions and revisions, particularly Greater Tortue Ahmeyim proved undeveloped reserves and the timing and cost of their development.
- Resolution of Ghana tax matters and any material developments in the disclosed government or regulatory inquiries.
Audit and controls: Ernst & Young issued an unqualified opinion on the financial statements and concluded internal control over financial reporting was effective as of December 31, 2021.