Kosmos Energy Ltd. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. The interim financial statements are unaudited. Kosmos is a deepwater oil and gas exploration, development and production company operating in Ghana, Equatorial Guinea, Mauritania/Senegal and the U.S. Gulf of Mexico.
Financial performance and position
| Metric | Q1 2024 | Q1 2023 / comparison |
|---|---|---|
| Oil and gas revenue | $419.1 million | $394.2 million; up 6.3% |
| Income before taxes | $142.0 million | $139.6 million |
| Income tax expense | $50.3 million | $56.3 million |
| Net income | $91.7 million | $83.3 million; up 10.1% |
| Basic / diluted earnings per share | $0.20 / $0.19 | $0.18 / $0.17 |
| Net cash from operating activities | $272.6 million | $203.9 million |
| Oil and gas asset spending | $314.8 million | $223.7 million |
| Cash, cash equivalents and restricted cash | $257.9 million | $98.8 million at year-end 2023 |
| Total debt principal / net debt | $2.700 billion / $2.442 billion | $2.425 billion / $2.326 billion at year-end 2023 |
- Net margin was approximately 21.9%, compared with 21.1% in Q1 2023. Current assets were $602.9 million and current liabilities $665.4 million, a working-capital deficit of about $62.5 million.
- Sales were 5.701 million Boe, or 62,645 Boepd, versus 5.501 million Boe and 61,124 Boepd. Average realized price increased to $73.52/Boe from $71.67/Boe. Oil sales averaged $82.23/Bbl and gas sales $3.49/Mcf.
- Production costs rose to $93.6 million from $83.9 million, including higher workover costs; production cost per Boe was $16.42 versus $15.26. DD&A fell to $100.9 million from $109.4 million, largely due to a lower Jubilee depletion rate.
- Operating cash flow less oil and gas asset spending was negative $42.3 million. The filing reports consolidated capital expenditures, net of $286.2 million, versus $206.4 million a year earlier.
- At quarter-end, Facility borrowings were $800 million, with $450 million undrawn availability; the Corporate Revolver had no borrowings and $250 million availability. The company reported compliance with financial covenants on both facilities.
Changes versus the prior comparable period
- Revenue increased on higher sales volumes and realized oil and gas prices. Gas sales revenue rose to $15.1 million from $3.9 million; oil sales revenue was $402.1 million versus $388.1 million.
- Net income rose despite a $23.8 million derivative loss, compared with a $6.8 million derivative gain in Q1 2023. The change reflects movements in forward oil prices.
- Net cash from operations increased by $68.7 million, primarily due to higher volumes and oil prices and working-capital changes. Investing outflow increased to $317.4 million from $239.4 million.
- In March, Kosmos issued $400 million of 3.125% convertible notes due 2030, receiving $390.4 million net proceeds, and spent $49.8 million on capped calls intended to limit conversion-related dilution or cash costs, subject to a cap.
- Debt principal increased by $275 million year over year-end, reflecting the convertible notes and borrowings, partly offset by $300 million of debt repayments during the quarter. The Facility balance declined by $125 million from December 31.
Outlook, developments and risks
- Capital plan: Management estimated 2024 capital spending of $700–$750 million, excluding acquisitions and divestitures. Planned spending includes $250–$300 million for maintenance, $350–$400 million for Greater Tortue Ahmeyim Phase 1 and Winterfell, and $50–$100 million for exploration and appraisal.
- Greater Tortue Ahmeyim: First gas was targeted for Q3 2024 and first LNG for Q4 2024. Wells were drilled and completed, the hub terminal was handed over, and the FLNG vessel arrived; FPSO hookup and commissioning remained on the critical path.
- Production and projects: Ghana gross production averaged about 128,100 Boepd (43,800 net); the Jubilee infill campaign brought two production wells and one water injection well online. U.S. Gulf of Mexico net production averaged about 14,500 Boepd; Winterfell Phase 1A first oil was targeted for Q2 2024. Equatorial Guinea net production averaged about 8,400 Bopd; a rig contract was terminated after safety issues, delaying planned drilling.
- Post-quarter financing: In April, the Facility was amended and extended to December 31, 2029, with a stated size of about $1.35 billion capped by total commitments of about $1.2 billion. Interest margins increased by 0.25% or 0.50%, depending on the time elapsed. Management estimated a roughly $22 million debt-extinguishment loss in Q2. The Corporate Revolver’s capacity was reduced to approximately $165 million, with commitments transferred to the Facility.
- Other commitments: An April agreement established estimated Kosmos funding of $143.8 million for a Jubilee decommissioning trust over about 13 years. The Senegal Cayar license was extended to July 2026 with a $55 million minimum work commitment. The BirAllah and Orca PSC expired in April; Kosmos said it continues discussions with Mauritania.
- Key exposures: Results and liquidity depend significantly on commodity prices, production and project execution. Management cited macroeconomic and geopolitical uncertainty, financing and covenant risks, drilling and infrastructure availability, operational and environmental hazards, government and regulatory risk, and partner alignment. A hypothetical 10% oil-price increase would reduce future pretax earnings by about $30.0 million; a 10% decrease would increase them by about $16.3 million. A 10% increase in floating market rates at the quarter-end Facility borrowing level was estimated to add $4.3 million of annual interest expense.
- The company identified no proved-property impairment indicators in the quarter. It reported no material changes to the risk factors in its 2023 Form 10-K and stated disclosure controls were effective as of March 31, 2024.
Most important facts for investors to verify
- Whether Greater Tortue Ahmeyim achieves first gas in Q3 and first LNG in Q4 2024, including FPSO commissioning progress.
- Actual 2024 capital spending against the $700–$750 million estimate, and resulting operating cash flow and liquidity.
- Facility availability and borrowing-base constraints after the April amendment, along with the higher margins and expected Q2 debt-extinguishment charge.
- Production and cost trends, especially the results of Ghana infill drilling, the Equatorial Guinea rig replacement, and Winterfell and Odd Job start-up timing.
- Commodity-price and hedge outcomes, including the net derivative liability and the asymmetric disclosed price sensitivities.
- Potential dilution or cash settlement under the convertible notes, noting the approximately $7.02 initial conversion price and capped-call limit of $10.80 per share.
- Collection of long-term partner receivables, including the Mauritania/Senegal carry advances, and funding requirements for decommissioning and committed exploration work.