Kosmos Energy Announces First Quarter 2019 Results

Source Press Release
Company Kosmos Energy LtdOphir Energy plc 
Tags Asset Deals, Deals, Guidance, Financial & Operating Data, Upstream Activities
Date May 06, 2019

Kosmos Energy Ltd. (“Kosmos”) (NYSE: KOS) announced today financial and operating results for the first quarter of 2019. For the first quarter of 2019, the Company generated a net loss of $53 million, or $0.13 per diluted share. When adjusted for certain items that impact the comparability of results, the Company generated an adjusted net loss(1) of $23.0 million or $0.06 per diluted share for the first quarter of 2019.

"Kosmos has made a strong start to 2019 with progress across all business units and first quarter results in line with guidance,” said Andrew G. Inglis, chairman and chief executive officer. “We remain on track to hit our production growth guidance for the year, while at current prices exceeding the 2019 free cash flow that we set out at our capital markets day in February. Our intention to sell down our position in Mauritania and Senegal to around 10% has generated significant industry interest and we have commenced a formal process, with bids expected by the end of summer. On the finance side, we successfully completed a $650 million bond offeringduring the quarter meaning Kosmos now has no debt maturities until 2022. We also paid our inaugural quarterly dividend in the first quarter.”

It must be noted that the first quarter 2019 results include the impact of proportionately consolidating the Equatorial Guinea results. Prior quarters exclude this impact and only include the minority interest gain or loss in the bottom line. In addition, the prior year quarter does not include the Gulf of Mexico acquisition which did not close until the end of the third quarter of 2018.

First quarter 2019 revenues were $297 million on sales of 5.1 million barrels of oil equivalent (boe). Realized oil and gas revenues, including the impact of the Company’s hedging program, was $56.73 per barrel in the first quarter of 2019. At quarter end, the Company was in a net underlift position of approximately 0.8 million barrels of oil. First quarter results included the following:

  • Production expense was $80 million, or $15.64 per boe
  • General and administrative expenses were $36 million, $28 million in cash expense and $8 million in non-cash equity based compensation expense
  • Depletion and depreciation expense was $118 million, or $23.14 per boe
  • Exploration expenses totaled $30 million
  • Capital expenditures in the first quarter were $110 million

First quarter results included a mark-to-market loss of $77 million related to the Company’s oil derivative contracts. At March 31, 2019, the Company’s hedging position had a total commodity net asset value of approximately $39.5 million. As of the quarter end and including recently executed hedges, Kosmos has approximately 16 million barrels of oil hedged covering 2019 through 2020 including Brent, WTI, and LLS based hedges.

Kosmos exited the first quarter of 2019 with approximately $0.5 billion of liquidity and $2.1 billion of net debt.

OPERATIONAL UPDATE

Total net production volumes during the first quarter of 2019 averaged approximately 59,500 barrels of oil equivalent (boepd) per day(2).

Ghana

During the first quarter of 2019, net production volumes from Ghana averaged approximately 28,620 barrels of oil per day (bopd), including net volumes from the Jubilee and TEN fields which averaged approximately 18,315 bopd and 10,305 bopd, respectively. Kosmos lifted two cargoes, as forecasted, from Ghana during the first quarter.

At Jubilee, gas handling reliability was enhanced during the quarter with a spare high-pressure gas compressor now available. Kosmos continues to work with the operator to increase the gas handling capacity, which would thereby allow oil production rates to increase.

At TEN, in March the EN-10 well was completed and brought online, increasing production from the field. An additional production well is expected to be brought on stream around the middle of the year, enabling the field to increase production rates to the FPSO nameplate oil capacity of 80,000 bopd gross.

Equatorial Guinea

Production in Equatorial Guinea averaged approximately 12,605 bopd net in the first quarter of 2019. Kosmos lifted the forecasted one and a half cargoes from Equatorial Guinea during the quarter. The electric submersible pump (ESP) program is on track, adding around 2,500 bopd gross to offset decline. Kosmos expects to complete two more ESP conversions around the middle of the year.

U.S. Gulf of Mexico

U.S. Gulf of Mexico production averaged approximately 18,240 boepd net (81% oil) during the first quarter, exceeding the high end of the guidance range.

The routine dry-dock work on the Helix Producer-1 was successfully completed on time, increasing production from the Gulf of Mexico once the vessel was brought back online. Production levels were further increased when the Tornado-3 well was brought online adding around 9,000 boepd gross.

Kosmos was one of the most active participants in U.S. Gulf of Mexico Lease Sale 252 in March and were the apparent high bidder on nine deepwater blocks.

During the first quarter of 2019, Kosmos farmed in to eighteen BP-owned blocks in the Garden Banks area of the deepwater U.S. Gulf of Mexico. In addition, Kosmos can earn an interest in three BP blocks in other areas of the deepwater Gulf of Mexico. This should allow Kosmos to execute projects that can be tied back to existing infrastructure. Kosmos is the designated operator and plans to commence drilling operations on the first well in Garden Banks Block 492, the Resolution prospect, in 2019.

Also, during the first quarter of 2019, Kosmos executed a farm-in agreement with Chevron covering the right to earn an interest in a strategic block in the deepwater U.S. Gulf of Mexico. This agreement allows Kosmos further opportunity to execute its deepwater U.S. Gulf of Mexico strategy of lower risk prospects with the potential for subsea development near existing infrastructure. Kosmos will be designated operator and plans to commence drilling operations on the first well in 2019.

Greater Tortue Ahmeyim Project

As of early May, all major contracts have been awarded for Tortue Phase 1, and construction activity for the project has commenced with work on the FPSO.

In April 2019, KBR was awarded the Pre-FEED services contract for Phases 2 and 3 of the Greater Tortue Ahmeyim project. These next phases are expected to expand capacity of this hub to almost 10 MMTPA of LNG for export.

In the wider Mauritania/Senegal basin, Kosmos has commenced a formal process to sell down its interest to around 10% with bids expected by the end of summer.

Portfolio Additions

Kosmos entered into a petroleum contract in March covering the Marine XXI block with the Republic of the Congo, subject to customary governmental approvals. Upon approval, Kosmos will hold an 85% participating interest and will be the operator.

In March, Kosmos acquired Ophir's remaining interest in Block EG-24 offshore Equatorial Guinea, which resulted in Kosmos owning an 80% participating interest in the block.

   
(1)  A Non-GAAP measure, see attached reconciliation of adjusted net income. 
(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's working interest and net of royalty. 
   

Conference Call and Webcast Information

Kosmos will host a conference call and webcast to discuss first quarter 2019 financial and operating results today at 10:00 a.m. Central time (11:00 a.m. Eastern time). A live webcast of the event and slides can be accessed on the Investors page of Kosmos’ website at . The dial-in telephone number for the call is +1.877.407.3982. Callers outside the United States should dial +1.201.493.6780. A replay of the webcast will be available on the Investors page of Kosmos’ website for approximately 90 days following the event.

Kosmos Energy Ltd. Consolidated Statements of Operations (In thousands, except per share amounts, unaudited) 
     
    Three Months Ended 
    March 31, 
    2019    2018 
Revenues and other income:         
Oil and gas revenue    296,790      127,196   
Other income, net    —      (19 
Total revenues and other income    296,790      127,177   
         
Costs and expenses:         
Oil and gas production    79,799      46,768   
Facilities insurance modifications, net    (20,021    8,449   
Exploration expenses    30,344      21,193   
General and administrative    35,908      21,883   
Depletion, depreciation and amortization    118,095      54,277   
Interest and other financing costs, net    35,041      25,694   
Derivatives, net    77,085      38,478   
Gain on equity method investments, net    —      (18,696 
Other expenses, net    2,119      3,705   
Total costs and expenses    358,370      201,751   
         
Loss before income taxes    (61,580    (74,574 
Income tax benefit    (8,674    (24,348 
Net loss    (52,906    (50,226 
         
Net loss per share:         
Basic    (0.13    (0.13 
Diluted    (0.13    (0.13 
         
         
Weighted average number of shares used to compute net loss per share:         
Basic    401,164      395,600   
Diluted    401,164      395,600   
             

         
Kosmos Energy Ltd. Condensed Consolidated Balance Sheets (In thousands, unaudited) 
         
    March 31,    December 31, 
    2019    2018 
Assets         
Current assets:         
Cash and cash equivalents    134,423      173,515 
Receivables, net    186,179      140,006 
Other current assets    163,525      196,179 
Total current assets    484,127      509,700 
         
Property and equipment, net    3,914,803      3,459,701 
Other non-current assets    102,926      118,788 
Total assets    4,501,856      4,088,189 
         
Liabilities and stockholders’ equity         
Current liabilities:         
Accounts payable    174,073      176,540 
Accrued liabilities    187,941      195,596 
Other current liabilities    51,713      12,172 
Total current liabilities    413,727      384,308 
         
Long-term liabilities:         
Long-term debt, net    2,195,826      2,120,547 
Deferred tax liabilities    704,122      477,179 
Other non-current liabilities    311,588      164,677 
Total long-term liabilities    3,211,536      2,762,403 
         
Total stockholders’ equity    876,593      941,478 
Total liabilities and stockholders’ equity    4,501,856      4,088,189 
               

     
Kosmos Energy Ltd. Condensed Consolidated Statements of Cash Flow (In thousands, unaudited) 
     
    Three Months Ended 
    March 31, 
    2019    2018 
Operating activities:         
Net loss    (52,906    (50,226 
Adjustments to reconcile net loss to net cash used in operating activities:         
Depletion, depreciation and amortization    120,482      56,717   
Deferred income taxes    (39,833    (24,697 
Unsuccessful well costs    (160    43   
Change in fair value of derivatives    73,807      38,966   
Cash settlements on derivatives, net(1)    (3,576    (20,397 
Equity-based compensation    8,441      8,017   
Loss on extinguishment of debt    —      4,056   
Distributions in excess of equity in earnings    —      5,234   
Other    10,647      (478 
Changes in assets and liabilities:         
Net changes in working capital    (134,249    (34,251 
Net cash used in operating activities    (17,347    (17,016 
         
Investing activities         
Oil and gas assets    (78,377    (34,712 
Other property    (1,071    (1,757 
Return of investment from KTIPI    —      41,070   
Net cash provided by (used in) investing activities    (79,448    4,601   
         
Financing activities:         
Borrowings on long-term debt    175,000      —   
Payments on long-term debt    (100,000    —   
Purchase of treasury stock    (1,980    (11,874 
Dividends    (18,147    —   
Deferred financing costs    (1,160    (24,969 
Net cash provided by (used in) financing activities    53,713      (36,843 
         
Net decrease in cash, cash equivalents and restricted cash    (43,082    (49,258 
Cash, cash equivalents and restricted cash at beginning of period    185,616      304,986   
Cash, cash equivalents and restricted cash at end of period    142,534      255,728   

_______________ 
(1)  Cash settlements on commodity hedges were $7.3 million and $19.7 million for the three months ended March 31, 2019 and 2018, respectively. 
   

     
Kosmos Energy Ltd. Equity Method Investment (In thousands, unaudited) 
     
    Three months ended 
    March 31, 2018 
Revenues and other income:     
Oil and gas revenue    246,354   
Other income    287   
Total revenues and other income    246,641   
     
Costs and expenses:     
Oil and gas production    51,700   
Depletion and depreciation    54,070   
Other expenses, net    (79 
Total costs and expenses    105,691   
     
Income before income taxes    140,950   
Income tax expense    49,632   
Net income    91,318   
     
Kosmos' share of net income    45,659   
Basis difference amortization(1)    26,963   
Equity in earnings - KTIPI    18,696   

_______________ 
(1)  The basis difference, which is associated with oil and gas properties and subject to amortization, has been allocated to the Ceiba Field and Okume Complex. We amortize the basis difference using the unit-of-production method. 
   

         
Kosmos Energy Ltd. EBITDAX (In thousands, unaudited) 
         
    Three Months Ended    Three Months Ended 
    March 31, 2019    March 31, 2018 
    Kosmos    Kosmos    Equatorial
Guinea (Equity
Method)(1) 
  Total 
Net income (loss)    (52,906    (50,226    18,696      (31,530 
Exploration expenses    30,344      21,193      —      21,193   
Facilities insurance modifications, net    (20,021    8,449      —      8,449   
Depletion, depreciation and amortization    118,095      54,277      53,997      108,274   
Equity-based compensation    8,441      8,017      —      8,017   
Derivatives, net    77,085      38,478      —      38,478   
Cash settlements on commodity derivatives    (7,289    (19,744    —      (19,744 
Inventory impairment and other    187      19      —      19   
Disputed charges and related costs    (14    2,335      —      2,335   
Gain on equity method investment - KTIPI    —      (18,696    —      (18,696 
Interest and other financing costs, net    35,041      25,694      —      25,694   
Income tax expense (benefit)    (8,674    (24,348    24,816      468   
EBITDAX    180,289      45,448      97,509      142,957   
                                 
    Twelve Months Ended 
    March 31, 2019 
    Kosmos    Equatorial
Guinea (Equity
Method)(2) 
  Total 
Net income (loss)    (96,671    54,185      (42,486 
Exploration expenses    310,643      352      310,995   
Facilities insurance modifications, net    (21,515    —      (21,515 
Depletion and depreciation    393,653      80,985      474,638   
Equity-based compensation    35,654      —      35,654   
Derivatives, net    7,177      —      7,177   
Cash settlements on commodity derivatives    (124,598    —      (124,598 
Inventory impairment and other    456      —      456   
Disputed charges and related costs    (12,102    —      (12,102 
Gain on sale of assets    (7,666    —      (7,666 
Gain on equity method investment - KTIPI    (54,185    —      (54,185 
Interest and other financing costs, net    110,523      —      110,523   
Income tax expense    58,805      53,675      112,480   
EBITDAX    600,174      189,197      789,371   

_______________ 
(1)  For the three months ended March 31, 2018 we have presented separately our 50% share of the results from operations and amortization of our basis difference for the Equatorial Guinea investment as we accounted for such investment under the equity method during this period. 
(2)  For the twelve months ended March 31, 2019, we have presented separately our 50% share of the results from operations and amortization of our basis difference for the Equatorial Guinea investment through December 31, 2018, as we accounted for such investment under the equity method through this date. 
   

     
Adjusted Net Income (In thousands, except per share amounts, unaudited) 
     
    Three Months Ended 
    March 31, 
    2019    2018 
Net loss    (52,906    (50,226 
         
Derivatives, net    77,085      38,478   
Cash settlements on commodity derivatives    (7,289    (19,744 
Facilities insurance modifications, net    (20,021    8,449   
Inventory impairment and other    187      19   
Disputed charges and related costs    (14    2,335   
Loss on extinguishment of debt    —      4,056   
Total selected items before tax    49,948      33,593   
         
Income tax expense on adjustments(1)    (20,041    (6,564 
Impact of U.S. tax law change    —      —   
Adjusted net loss    (22,999    (23,197 
         
Net loss per diluted share    (0.13    (0.13 
         
Derivatives, net    0.19      0.10   
Cash settlements on commodity derivatives    (0.02    (0.05 
Facilities insurance modifications, net    (0.05    0.02   
Inventory impairment and other    —      —   
Disputed charges and related costs    —      —   
Loss on extinguishment of debt    —      0.01   
Total selected items before tax    0.12      0.08   
         
Income tax expense on adjustments(1)    (0.05    (0.01 
Adjusted net loss per diluted share    (0.06    (0.06 
         
Weighted average number of diluted shares    401,164      395,600   

_______________ 
(1)  Income tax expense is calculated at the statutory rate in which such item(s) reside. Statutory rates for the U.S. and Ghana are 21% and 35%, respectively. 
   

     
Operational Summary(1) (In thousands, except barrel and per barrel data, unaudited) 
     
    Three Months Ended 
    March 31, 
    2019    2018 
Net Volume Sold         
Oil (MMBbl)         
Kosmos    4.690      1.934   
Equity method investment - Equatorial Guinea    —      1.880   
Total Oil (MMBbl)    4.690      3.814   
Gas (MMcf)    1.801      —   
NGL (MMBbl)    0.113      —   
Total (MMBoe)    5.103      3.814   
         
Revenue         
Oil sales:         
Kosmos    290,864      127,196   
Equity method investment - Equatorial Guinea    —      123,177   
Total Oil sales    290,864      250,373   
Gas sales    3,662      —   
NGL sales    2,264      —   
Total sales    296,790      250,373   
Cash settlements on commodity derivatives    (7,289    (19,744 
Realized revenue    289,501      230,629   
         
Oil and Gas Production Costs         
Kosmos    79,799      46,768   
Equity method investment - Equatorial Guinea    —      25,850   
Total oil and gas production costs    79,799      72,618   
         
Oil sales per Bbl:         
Kosmos    62.02      65.77   
Equity method investment - Equatorial Guinea    —      65.52   
Total Oil sales per Bbl    62.02      65.65   
Gas sales per Mcf    2.03      —   
NGL sales per Bbl    20.13      —   
Total sales per Boe    58.16      65.65   
Cash settlements on commodity derivatives per oil Bbl(2)    (1.55    (10.21 
Realized revenue per Boe(3)    56.73      60.47   
         
Oil and gas production costs per Boe:         
Kosmos    15.64      24.18   
Equity method investment - Equatorial Guinea    —      13.75   
Total oil and gas production costs    15.64      19.04   

_______________ 
(1)  For the three months March 31, 2018, we have presented separately our 50% share of the results from operations for the Equatorial Guinea investment, as we accounted for such investment under the equity method during this period. 
(2)  Cash settlements on commodity derivatives are only related to Kosmos and are calculated on a per barrel basis using Kosmos' Net Oil Volumes Sold. 
(3)  Realized revenue includes revenue from Kosmos, Equatorial Guinea (equity method investment), and Cash settlements on commodity derivatives; on a per Boe basis realized revenue is calculated using the total Net Volume Sold from both Kosmos and Equatorial Guinea (equity method investment). 
   

Kosmos was underlifted by approximately 795 thousand barrels as of March 31, 2019.

             
Hedging Summary As of March 31, 2019(1) (Unaudited) 
             
            Weighted Average Price per Bbl 
    Index    MBbl    Floor(2)    Sold Put    Ceiling 
2019:                     
Three-way collars    Dated Brent    7,880      53.33      43.81      73.57 
Swaps    NYMEX WTI    1,224      52.22      —      — 
Collars    NYMEX WTI    169      57.77      —      63.70 
Collars    Argus LLS    750      60.00      —      88.75 
2020:                     
Three-way collars    Dated Brent    6,000      57.50      45.00      80.18 

_______________ 
(1)  Please see the Company’s filed 10-Q for full disclosure on hedging material. Includes hedging position as of March 31, 2019 and hedges added since quarter-end. 
(2)  “Floor” represents floor price for collars or swaps and strike price for purchased puts. 
   
Note: Excludes 0.7 MMBbls of sold (short) calls with a strike price of $80.00 per Bbl in 2019 and 8.0 MMBbls of sold (short) calls with a strike price of $85.00 per Bbl in 2020. 
 

     
2019 Guidance 
     
    FY 2019 
     
Production(1,2)    69,000 - 73,000 boe per day 
     
Opex    $12.00 - $15.00 per boe 
     
DD&A    $22.00 - $25.00 per boe 
     
G&A(3)    $115 - $125 million 
     
Exploration Expense    ~$30 million average per quarter 
     
Net Interest    $35 - $37 million per quarter 
     
Tax    $3.00 - $5.00 per boe 
     
Capex    $425 - $475 million in FY 2019 

_______________ 
Note: Ghana/EG revenue calculated by number of cargos. 
(1)  2Q 2019 - Ghana: 3 cargos / Equatorial Guinea 1 cargo. FY 2019 Ghana: 13 cargos / Equatorial Guinea 5.5 cargos. Average cargo sizes 950,000 barrels of oil. 
(2)  GoM Production - 2Q 2019: 23,000-25,000 boe per day. FY 2019 22,000-24,000 boe per day. Oil/Gas/NGL split for 2019: U.S. Gulf of Mexico: 80%/12%/8%. 
(3)  G&A - Approximately 70% cash. 

Source: EvaluateEnergy® ©2019 EvaluateEnergy Ltd