Kosmos Energy Ltd. announced its financial and operating results for the fourth quarter of 2020. For the quarter, the Company generated a net income of $8 million, or $0.02 per diluted share. When adjusted for certain items that impact the comparability of results, the Company generated an adjusted net loss(1) of $49 million or $0.12 per diluted share for the fourth quarter of 2020.
Fourth Quarter 2020 Highlights
- Net Production(2) - 60,200 barrels of oil equivalent per day (boepd) with sales of 71,200 boepd
- Revenues - $274 million, or $41.84 per boe
- Production expense - $104 million, or $15.85 per boe
- General and administrative expenses - $15 million, $9 million cash expense and $6 million non-cash
- $46 million Base Business capital expenditures
- $75 million Mauritania and Senegal, primarily accrued non-cash capital expenditures
- Net cash provided by operating activities - $175 million; free cash flow1 - $99 million
- At quarter end, the Company was in a net overlift position of approximately 0.2 million barrels of oil.
Commenting on the company’s fourth quarter and full year 2020 performance, Chairman and Chief Executive Officer Andrew G. Inglis said: “Kosmos delivered on its key strategic priorities in 2020, despite the challenges faced by the sector during the year. With focus on safe and reliable operations across the portfolio, we delivered robust production performance. In Mauritania and Senegal, Phase 1 of the Tortue project maintained momentum and finished the year around 50% complete with a financing path established. We monetized a portfolio of exploration assets in 2020 to focus activity on fast payback, high-return opportunities in proven basins we know well. We also took quick, decisive steps to protect the balance sheet and reduce costs.
Importantly, Kosmos reaffirmed its commitment to sustainability during the year by publishing its first Climate Risk & Resilience Report, setting a goal to be carbon neutral for Scope 1 and Scope 2 emissions by 2030 or sooner, and by publishing the latest edition of our annual Sustainability Report, which reports transparently on our strong environmental, social, and governance credentials.
Operational momentum is building in 2021, with a significant uptick in forecast activity across the portfolio. We expect the nine planned infill wells in the base business to provide near-term production growth and the ramp up in activity at Phase 1 of Tortue to reach 80% completion by year-end. In addition, we plan to selectively invest in the best ILX projects across our diverse portfolio, as evidenced by the early success we had with the Winterfell discovery well last month.
With the strategic actions we took in 2020, we enter 2021 with a lower cost base, a solid balance sheet, healthy liquidity and the operational momentum to deliver value to our shareholders from a portfolio of assets that are low cost and lower carbon.”
Kosmos returned to positive free cash flow with approximately $100 million in the fourth quarter, driven by increased oil sales, lower costs and completion of the Shell transaction.
Kosmos exited the fourth quarter of 2020 with approximately $2.0 billion of net debt and available liquidity of around $570 million.
The base business net capital expenditure for 2020 was approximately $147 million, in-line with company guidance.
Total net production in the fourth quarter of 2020 averaged approximately 60,200 boepd(2). Full year net production of approximately 60,800 boepd is consistent with the Company’s updated guidance.
Production in Ghana averaged approximately 24,300 barrels of oil per day (bopd) net in the fourth quarter of 2020. As forecasted, Kosmos lifted three cargos from Ghana during the fourth quarter for a total of 10 cargos in 2020.
Gross production rates at Jubilee averaged approximately 75,500 bopd during the quarter with FPSO uptime of around 95%. TEN production averaged approximately 43,200 bopd gross for the fourth quarter with FPSO uptime of 98%.
In early 2021, the Catenary Anchor Leg Mooring (CALM) buoy was commissioned with the first offloading taking place in February. The CALM buoy will replace the need for shuttle tankers and is expected to reduce operating expenses going forward. Infill drilling is also expected to resume in the second quarter with drilling planned for three wells on Jubilee and one on TEN in 2021. The partnership entered into a rig contract of up to four years for the Maersk Venturer, which is expected to arrive on location in the second quarter.
U.S. Gulf of Mexico
Production in the U.S. Gulf of Mexico averaged approximately 25,500 boepd net (84% oil) during the fourth quarter, including recognition of contractual royalty relief of approximately 3,600 boepd.
In the fourth quarter, the Company commenced the Kodiak-2 completion, which is expected to begin production in March. Also during the quarter, drilling operations began on the Winterfell infrastructure-led exploration (ILX) well (Kosmos working interest 17.5%). In January 2021, the Company announced an oil discovery at Winterfell, which encountered approximately 26 meters (85 feet) of net oil pay in two intervals. Kosmos is now working with partners on an appraisal plan and development options. The discovery is located within tie back distance to several existing and planned host facilities. The Company plans to drill a second ILX well at Zora in the second half of the year.
After the encouraging results from the Tornado-4 water injection well in 2020, another infill well at Tornado is planned by the Operator in the middle of this year.
Production in Equatorial Guinea averaged approximately 31,200 bopd gross and 10,500 bopd net in the fourth quarter of 2020. As forecasted, Kosmos lifted 1.5 cargos from Equatorial Guinea during the quarter for a total of 4.5 cargos net in 2020.
In 2021, partners have commenced the second phase of the planned electrical submersible pump program as well an infrastructure enhancement campaign to increase operational uptime across the assets. Our first infill drilling campaign is expected to start in the second quarter with three wells planned.
Mauritania & Senegal
Phase 1 of the Greater Tortue Ahmeyim project made good progress in the quarter and was around 50% complete by year end. The project remains on track for first gas in the first half of 2023.
To fund its current interest, Kosmos has established a financing path to first gas including the sale of the Company’s interest in the FPSO, the re-financing of the National Oil Company loans and a direct investment in Kosmos’ Mauritania and Senegal position. Good progress has been made with the FPSO sale with Kosmos and BP signing a Memorandum of Understanding this month outlining the key terms of the transaction. Closing is now targeted within the second quarter of 2021. The sale of the FPSO is expected to reduce Kosmos’ cash requirements to first gas by approximately $320 million as previously communicated.
The strong progress with Phase 1 is enabling the advancement of Phase 2 towards final investment decision, which is targeted for the end of 2022. Kosmos continues to collaborate with operator BP and the National Oil Companies of Mauritania and Senegal on a more capital efficient project, which leverages the infrastructure built in Phase 1 to reduce costs and enhance the returns of future phases. With lower capital requirements from an optimized scheme, Kosmos expects to fund its interest in Phase 2 largely from Phase 1 cash flows.
Closing of the sale of a portfolio of exploration assets to Shell
In December 2020, the Company successfully completed the previously announced transaction with B.V. Dordtsche Petroleum Maatschappij (“Shell”), a wholly-owned subsidiary of Royal Dutch Shell PLC, to farm down interests in Suriname, Sao Tome & Principe and Namibia for approximately $95 million, plus future contingent payments of up to $100 million. The transfer of interests in South Africa is expected to take place in 2021.
2021 Capital Expenditure Budget
Kosmos expects to spend approximately $225 to $275 million in 2021, excluding Mauritania and Senegal, around 80% of which will target maintaining and growing existing production and up to 20% targeting growth activities, mainly through infrastructure-led exploration.
In Mauritania and Senegal, total 2021 capital expenditure for Kosmos' working interest is expected to be around $350 million and is expected to be funded primarily from proceeds of the previously mentioned FPSO sale ($250 million in 2021) and National Oil Company loan financing ($100 million).
At year end 2020, Kosmos had 2P reserves of around 480 million barrels, a reserves-to-production life of over 20 years, and 1P SEC reserves of around 140 million barrels (which excludes Tortue Phase 1), a reserves-to-production life of around 7 years, as certified by an independent third party.
Environmental, Social and Governance (ESG) Performance
As part of our commitment to strong Environmental, Social and Governance (ESG) performance, Kosmos recently published a Climate Risk and Resilience Report that adheres to the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). The report reviews how Kosmos is identifying and managing climate-related risks and opportunities across four categories: Governance, Strategy, Risk Management, and Metrics and Targets. In addition, the report includes a commitment to achieve Scope 1 and Scope 2 carbon neutrality by 2030 or sooner, a full scenario analysis demonstrating the resilience of our portfolio including a scenario fully compliant with the goals of the Paris Agreement, and a description of innovative nature-based carbon capture projects used to mitigate emissions that cannot be eliminated.
During the fourth quarter Kosmos also published its annual Sustainability Report (previously known as the Corporate Responsibility Report) which reports on the company’s ESG performance and illustrates our commitment to supporting the United Nations Sustainable Development Goals, including our leading position on transparency and in-country social investment innovation, and operating in accordance with our Business Principles.
(1) A Non-GAAP measure, see attached reconciliation of non-GAAP measure
(2) Production means net entitlement volumes. In Ghana and Equatorial Guinea, this means those volumes net to Kosmos' working interest or participating interest and net of royalty or production sharing contract effect. In the Gulf of Mexico, this means those volumes net to Kosmos' working interest and net of royalty.