Kosmos Energy Ltd. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; filed May 9, 2023. Financial statements are unaudited. Kosmos is a deepwater oil and gas exploration and production company operating in Ghana, Equatorial Guinea, Mauritania/Senegal, and the U.S. Gulf of Mexico.
Financial performance and position
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Oil and gas revenue | $394.2 million | $659.0 million |
| Income before taxes | $139.6 million | $12.9 million |
| Net income | $83.3 million | $1.4 million |
| Diluted earnings per share | $0.17 | $0.00 |
| Cash provided by operating activities | $203.9 million | $329.6 million |
| Capital spending on oil and gas assets | $223.7 million | $108.8 million |
- Sales volumes were 5.50 million Boe, or 61,124 Boepd, versus 6.52 million Boe, or 72,393 Boepd. Average realized price fell to $71.67/Boe from $101.15/Boe; average oil price was $78.48/Bbl versus $104.32/Bbl.
- Production costs were $83.9 million, or $15.26/Boe, compared with $124.7 million, or $19.14/Boe. DD&A was $109.4 million, or $19.88/Boe, versus $159.0 million, or $24.40/Boe.
- Cash and cash equivalents were $128.4 million; total current assets were $443.3 million and current liabilities $624.5 million at quarter-end.
- Total debt principal was $2.263 billion and net debt was $2.131 billion. The company reported $618.0 million available under the Facility and $250.0 million under its undrawn Corporate Revolver at March 31. The April borrowing-base redetermination reduced Facility availability by approximately $100 million; updated availability is not clearly stated.
- Net cash declined by $55.0 million during the quarter, to $131.8 million including restricted cash. The company also advanced $15.7 million in notes receivable to partners.
Material changes versus the prior-year quarter
- Revenue declined $264.8 million, primarily because of lower sales volumes—after the March 2022 conclusion of the Tullow pre-emption transaction and from natural field decline—and lower oil prices.
- Operating cash flow fell $125.8 million, principally reflecting lower volumes and prices. Capital spending on oil and gas assets more than doubled year over year.
- Net income increased to $83.3 million from $1.4 million. A major contributor to the comparison was derivatives: Q1 2023 recorded a $6.8 million gain, while Q1 2022 recorded a $282.2 million loss. The 2023 result also benefited from lower production and DD&A costs.
- Debt principal decreased $7.5 million, reflecting scheduled GoM Term Loan repayments. Net debt increased from $2.083 billion at year-end 2022.
Outlook, commentary, and risks
- Management’s 2023 capital-spending estimate is $700–$750 million, excluding acquisitions and divestitures: $250–$300 million for maintenance; $350–$400 million for Jubilee Southeast, Greater Tortue Ahmeyim (GTA) Phase 1, and Winterfell; and $50–$100 million for exploration, appraisal, and gas-project work.
- GTA Phase 1 first gas remained targeted for late Q4 2023. Subsea installation was identified as the critical path; the FPSO was expected offshore around the end of Q2, with hookup and commissioning to follow. Management said production capacity from the four completed wells should exceed what is needed for first gas.
- Ghana gross production averaged approximately 108,900 Boepd; the Jubilee partnership expected five new wells online in 2023. U.S. Gulf of Mexico net production averaged approximately 15,900 Boepd. Winterfell first production was targeted around the end of Q1 2024; a Kodiak-3ST workover was expected to begin in Q4 2023.
- Management said current commodity prices, hedging, and liquidity supported the remaining 2023 capital program, while noting that oil-price volatility can affect cash generation, debt capacity, covenant compliance, and investment plans. Other cited uncertainties include project execution, production and export reliability, costs, partner alignment, financing access, geopolitical conditions, and regulatory and operational risks.
- As of March 31, the company was in compliance with financial covenants under its Facility, Corporate Revolver, and GoM Term Loan. The Facility and Corporate Revolver moved to term SOFR-based pricing effective April 19, 2023. Variable-rate debt totaled $762.5 million; a hypothetical 10% increase in floating rates was estimated to add $3.9 million of annual interest expense.
- Carry advances due from Mauritania and Senegal national oil companies totaled $237.5 million including interest, repayable from their future project revenues. The filing reports a $200.2 million GTA FPSO contract liability and commitments to drill three development wells and one exploration well in Equatorial Guinea.
- No proved-property impairment was recorded in the quarter. Management cautioned that lower expected oil prices, higher future costs, or reduced production estimates could put long-lived assets at risk of impairment. No material changes to previously reported risk factors or legal proceedings were disclosed.
Important facts for investors to verify
- Whether GTA Phase 1 met its late-2023 first-gas target, given the subsea critical path, and the subsequent timing and cost of commissioning.
- Updated Facility availability following the April 2023 borrowing-base redetermination, alongside liquidity needs for the $700–$750 million capital program.
- Production and realized-price trends, hedge coverage and terms, and the effect of any mismatch between production and hedged volumes.
- Progress on planned Ghana and Gulf of Mexico wells and projects, including Winterfell, Jubilee Southeast, and the Kodiak-3ST workover.
- Collection and repayment outlook for the approximately $237.5 million of partner carry receivables, and exposure to debt maturities and variable interest rates.