Kosmos Energy Ltd. announced the financial and operating results for the first quarter of 2020. For the quarter, the Company generated a net loss of $183 million, or $0.45 per diluted share. When adjusted for certain items that impact the comparability of results, the Company generated an adjusted net loss(1) of $66 million or $0.16 per diluted share for the first quarter of 2020.
FIRST QUARTER 2020 HIGHLIGHTS
- Net Production(2) - 66,300 barrels of oil equivalent per day (boepd) with sales of 43,700 boepd, resulting in a material net underlift position of approximately 1.7 million barrels of oil equivalent (boe).
- Revenues - $178 million
- Realized oil and gas revenues, including the impact of hedging program - $47.77 per boe.
- Production expense - $62 million, or $15.50 per boe.
- General and administrative expenses - $21 million, $12 million cash expense and $9 million non-cash equity based compensation expense.
- Capital expenditure - $84 million.
In addition to the timing mismatch between production and the lifting of cargos, the first quarter was impacted by non-cash asset impairments and restructuring charges of $169 million. These charges were partly reduced by a mark-to-market gain of $136 million, offset by a $12 million cash settlement related to the Company’s oil derivative contracts. The company also incurred non-cash deferred tax expense related to a valuation allowance against deferred tax assets and the increased market value of the hedges, totaling $72 million.
As of the quarter end and including recently executed hedges, Kosmos has approximately 20.2 million barrels of oil hedged covering 2020 and 2021 including Brent and LLS based hedges. The company’s oil hedge position was restructured in early April to provide further downside protection to lower oil prices through 2020.
Kosmos exited the first quarter of 2020 with approximately $677 million of liquidity and $1.97 billion of net debt. In accordance with our normal banking requirements, in early April Kosmos successfully completed the re-determination of its reserve-based lending facility, voluntarily reducing its facility commitments from $1.6 billion to $1.5 billion. The reduction in facility size and borrowing base, reduced liquidity in early April by $100 million.
Commenting on the company’s 1Q 2020 performance and the current COVID-19 situation, Chairman and Chief Executive Officer Andrew G. Inglis said: “COVID-19 has created unprecedented disruption across the world, which has resulted in historically low and volatile prices. During this challenging period, the health and safety of our employees and contractors continues to be our primary concern, while ensuring the strength of our balance sheet is maintained.
Kosmos' operations performed well during the first quarter with production across our three hubs in line or at the top end of expectations. Our differentiated portfolio of low-cost, low decline conventional assets is well positioned to withstand the lower price environment we are in today.
In response to the volatile market conditions, we have taken decisive actions to protect the business in 2020 and position it for increased activity in 2021. These measures include materially reducing costs and restructuring our hedging portfolio. We completed our RBL re-determination in difficult market conditions in April and have no near-term debt maturities.
We look forward to building a self-funded gas business in Mauritania and Senegal and progressing our high-quality portfolio of ILX and basin-opening exploration prospects for 2021.”
COVID-19 and Oil Price Response
The COVID-19 pandemic, its economic impact, and the recent oil price collapse are creating a challenging environment for the oil and gas sector. In these unprecedented times, Kosmos remains focused on safe and reliable operations by protecting the health of our employees, reducing the risk of the virus spreading in our operations, and minimizing the impact on our business.
Total net production in the first quarter of 2020 averaged approximately 66,300 boepd(2), at the upper end of guidance.
U.S. Gulf of Mexico
Production in the U.S. Gulf of Mexico was unaffected by COVID-19 and averaged approximately 28,300 boepd net (80% oil) during the first quarter, at the top end of guidance. The strong performance was primarily due to better than expected performance at Odd Job and Kodiak. During the first quarter, Kosmos recorded approximately $10 million of exploration expense related to the unsuccessful Oldfield-1 well.
As a result of current market conditions, the operator of the Delta House host platform in the U.S. Gulf of Mexico has chosen to shut-in the facility during the month of May 2020 and accelerate planned maintenance. While the majority of our fields have a positive operating margin at $10 HLS, the shut-in of Delta House will impact second quarter production by approximately 5,500 boepd (net) from fields processed through this facility. In addition, we will temporarily shut-in approximately 1,500 boepd (net) at other facilities during 2Q, resulting in approximately 7,000 boepd of net Kosmos production shut-in during the second quarter. We currently expect the shut-ins to last through the end of May, however timing will depend on future market conditions. The shut-in of fields in the U.S. Gulf of Mexico occurs on a seasonal basis as a result of hurricanes and based on this experience we do not expect any damage to the reservoirs.
Full year net production guidance in the U.S. Gulf of Mexico is expected at the lower end of the of 24,000-28,000 boepd range assuming the shut-ins last through May.
Production in Ghana was unaffected by COVID-19 and averaged approximately 26,500 barrels of oil per day (bopd) net in the first quarter of 2020, slightly ahead of expectations. As forecasted, Kosmos lifted one cargo from Ghana during the first quarter. Full year guidance of ten cargos remains intact.
The Jubilee gas enhancement project was successfully completed in February with subsequent production rates of around 90,000 bopd being achieved. The operator is also increasing water injection capacity from two pumps, which is expected to provide the necessary pressure to support the reservoir while providing redundancy with a third pump available as needed. In addition, we have seen consistent gas offtake from the Ghana National Gas Company of around 90,000-100,000 mscf/d, which should help maintain higher oil production in the future.
On TEN, the field is currently producing over 50,000 bopd. The Ntomme-09 producer well has been drilled successfully and completion operations are now underway with the well scheduled to come online later this quarter.
Full year net production guidance in Ghana of 27,000-29,000 bopd is unchanged.
Production in Equatorial Guinea was unaffected by COVID-19 and averaged approximately 11,600 bopd net in the first quarter of 2020. Kosmos lifted 0.5 cargos from Equatorial Guinea during the quarter, which was lower than quarterly guidance of one cargo due to an operational lifting issue, which pushed half a cargo from late-March into early April. Full year net production guidance of 11,000-13,000 bopd and cargo guidance of 4.5 cargos is unchanged.
Mauritania & Senegal
Phase 1 of the Greater Tortue Ahmeyim project located offshore Mauritania and Senegal is now approximately 33% complete. However, the breakwater installation has been disrupted as a result of COVID-19 mitigation measures, meaning a delay to the project of approximately 12 months. This delay has resulted in a significant reduction in activity and budgeted spend in 2020, and the BP development carry is now expected to last through 2020 with remaining project capex spread over 2021, 2022 and 2023.
As previously announced, on February 11, 2020, Kosmos and its partners signed a Sale and Purchase Agreement (SPA) with BP Gas Marketing Limited for 2.45 million tonnes per annum of liquified natural gas from Phase 1 of the project for an initial term of up to 20 years. Signing the SPA allowed Kosmos to book approximately 100 mmboe of proven reserves associated with the project.
The planned sell down process of our interests in Mauritania and Senegal is ongoing with remote management presentations supported by virtual data rooms.
In response to current market volatility, Kosmos has identified capital reductions in the base business of around 40% from discretionary expenditure largely from exploration activities in the Gulf of Mexico, our basin-opening exploration portfolio, and other non-critical work that does not impact safety and asset integrity. The company is now targeting base business capital expenditure of $200-$225 million in 2020, while keeping 2020 production within the range of previous guidance and with minimal expected impact on 2021 production.
Kosmos has taken steps with the operators of our producing assets to target a reduction in operating expenses of approximately $2-3 per barrel in 2020. In addition, Kosmos is reducing cash general and administrative (G&A) costs in 2020 by approximately 40%, through a reduction in headcount, no planned employee cash bonuses and other identified reductions.
These capital, operating and G&A cost reductions lower the company’s costs for 2020 by approximately $250 million, or 30% in total.
In March, the Board of Directors of the company made the decision to suspend the dividend, which will result in cash savings in 2020 of approximately $57 million.
Kosmos has booked asset impairments in the first quarter totaling $151 million. These impairments are largely related to the Kodiak and Tornado fields in the Gulf of Mexico and are due to the change in the oil prices since Kosmos acquired the assets in late 2018. The impairments represent around 10% of the total consideration paid for Deep Gulf Energy at the time.