Kosmos Energy announced today its financial and operating results for the third quarter of 2022. For the quarter, the Company generated a net income of $222 million, or $0.47 per diluted share. When adjusted for certain items that impact the comparability of results, the Company generated an adjusted net income of $90 million, or $0.19 per diluted share for the third quarter of 2022.

Highlights

• Net Production: ~60,900 barrels of oil equivalent per day (boepd), up ~20% over 3Q 2021, with sales of ~50,900 boepd resulting in an underlift position at the end of the quarter
• Revenues: $456 million, or $97.34 per boe (excluding the impact of derivative cash settlements)
• Production expense: $62 million, or $13.31 per boe
• Capital expenditures: $203 million
• Generated free cash flow of approximately $32 million (~$320 million for the first nine months of the year)
• Continued debt repayment with net leverage falling to ~1.5x
• Phase One of the Greater Tortue Ahmeyim LNG project around 85% complete at quarter end

Commenting on the Company's third quarter 2022 performance, Chairman and Chief Executive Officer Andrew G. Inglis said: 
"Kosmos posted another quarter of solid strategic and operational delivery, with the company reaching its year-end leverage target ahead of schedule.

"Importantly, we continue to make good progress on our three core development projects -- Tortue Phase 1, Jubilee Southeast and Winterfell -- which we expect will collectively grow production approximately 50% by 2024. We are also advancing several other gas opportunities in West Africa, which we believe will drive growth beyond 2024 and continue to increase the gas weighting of the portfolio.

"Demand for energy is growing, particularly in Africa, and Kosmos has the right strategy at the right time to help meet this growing demand while creating value for all of our stakeholders. Given the quality of our asset base and the wealth of opportunities within our differentiated portfolio, we believe Kosmos has an important role to play in delivering affordable, secure and cleaner energy to the world."

Financial update

Net capital expenditure for the third quarter of 2022 was approximately $203 million. Full year capital expenditure guidance for 2022 remains around $700 million, excluding acquisitions and divestitures.

Kosmos exited the third quarter of 2022 with $2.1 billion of net debt and available liquidity of approximately $1.0 billion. The Company generated $32 million of free cash flow in the third quarter, and around $320 million through the first nine months of the year. With EBITDAX(1) for the quarter almost four times higher than the same quarter last year and continued net debt reduction through 2022, the Company achieved its target net leverage ratio of 1.5x ahead of schedule with further progress expected in the next quarter at current prices.

Operational update

Production
Total net production in the third quarter of 2022 averaged approximately 60,900 boepd, in line with guidance. The Company exited the quarter in a net underlift position, which we expect to reverse in the fourth quarter.

Ghana
Production in Ghana averaged approximately 36,900 barrels of oil per day (bopd) net in the third quarter of 2022. Kosmos lifted three cargos from Ghana during the quarter, in line with guidance.

At Jubilee, production averaged approximately 88,900 bopd gross during the quarter.  At TEN, production averaged approximately 22,200 bopd gross for the third quarter.

At the beginning of the third quarter, the handover of the Jubilee FPSO operations and maintenance from MODEC took place. Since the transition, operating performance has continued to be strong with no reportable safety incidents and facility uptime of over 98%. In addition, several potential future cost savings have been identified, primarily through direct contracting, optimizing work scope and competitive re-tendering.

The Jubilee Southeast development continues to progress and is now over 50% complete. Drilling of the first well has commenced ahead of schedule with all three wells expected to be drilled by early 2023. Completion of the wells is planned for the first half of 2023, with initial production expected around mid-2023. The partnership expects the new wells to increase gross production in the field to approximately 100,000 bopd.

At TEN, an Enyenra producer well (EN-21) was drilled and came online around the end of the quarter and has now been choked back, awaiting pressure support from the nearby water injection well.

Post quarter-end, the partnership drilled the second of the two riser base wells (NT-11) to define the extent of the Ntomme reservoir supporting further development of the TEN fields. The well encountered approximately 5 meters of net oil pay with poorer than expected reservoir quality. The partnership will continue to evaluate the full results of the two wells to high-grade and optimize the future drilling plans for TEN, with a focus on proven accumulations and areas with existing well control.

U.S. Gulf of Mexico
Production in the U.S. Gulf of Mexico averaged approximately 14,700 boepd net (~83% oil) during the third quarter.

The scheduled drydock of the Helix Producer-1 vessel resulted in around 45 days of downtime for the Tornado field in the third quarter as expected. Production from the Tornado field was also impacted late in the third quarter and early in the fourth quarter by loop currents in the Gulf of Mexico.

The planned Delta House turnaround took place at the beginning of the third quarter and was completed mid-October, partially extended due to the impact of Hurricane Ian. In late October, the facility saw approximately two weeks of unplanned downtime due to an issue with the gas compressors. The issue has now been resolved with the impact factored into fourth quarter and full year guidance.

The Kodiak sidetrack well was drilled during the second quarter and successfully brought online in early September. Well results and initial production were in line with expectations, however well productivity declined through the end of the third quarter and workover plans are being developed.

Following the planned and unplanned downtime, production in the Gulf of Mexico was restored to around 18,000 boepd in early November.

At the end of the second quarter, Kosmos, as the operator of the Odd Job field, executed a contract to fabricate and install a multi-phase subsea pump, which is planned to enhance recovery and boost production in the Odd Job field from mid-2024. Work began on the project early in the third quarter, which is an important step in sustaining the long-term performance of the field.

During the third quarter of 2022, Kosmos completed the acquisition of an additional 3.2% interest in the Winterfell area in Green Canyon Blocks 943, 944, 987 and 988 and an additional 1.4% interest in Green Canyon Blocks 899 and 900. The acquisition takes Kosmos' overall interest in Winterfell to 25% in total.

The Winterfell partners signed the field development plan in September and the operator has signed a rig commitment letter to drill and complete three wells starting mid-2023. The host facility production handling agreement and midstream export agreement are also expected to be completed within the next several months, supporting first oil targeted at the end of the first quarter in 2024.

Equatorial Guinea

Production in Equatorial Guinea averaged approximately 29,700 bopd gross and 9,300 bopd net in the third quarter of 2022.  As forecasted, Kosmos lifted 0.5 cargo from Equatorial Guinea during the quarter.

In late-August, the partnership entered into a rig contract for the next drilling campaign, which is expected to begin in the second half of 2023, targeting 2-3 infill wells in Block G and an infrastructure led exploration (ILX) well.

At the beginning of the fourth quarter, the second 2022 electrical submersible pump ("ESP") installation began, which is expected to support current production levels through year-end into 2023.

In October, Panoro Energy agreed to farm-in to the Kosmos-operated Block S offshore Equatorial Guinea for a 12% non-operated participating interest. Panoro's farm-in is conditional on the basis that it will acquire a 6% participating interest from each of Kosmos and Trident Energy, ahead of drilling an ILX well in early 2024.

Mauritania & Senegal
Phase 1 of the Greater Tortue Ahmeyim liquified natural gas (LNG) project continues to make good progress and was around 85% complete at quarter-end with the following updates across the key workstreams:

• Hub Terminal: Largely complete with the living quarters platform installed and commissioning activities commenced
• Drilling: Successfully drilled all four wells with expected production capacity estimated at ~700 million standard cubic feet of gas per day, significantly more than the ~400 million standard cubic feet per day needed for Phase 1 liquefaction volumes. One well was recently successfully completed and has flowed back to the rig for a short clean-up period.
• FLNG: On track for sailaway in first half of 2023 as construction and mechanical completion activities continue and commissioning work has begun
• Subsea: Shallow water gas export pipeline from the FPSO to the hub terminal has been installed. The deepwater pipelay vessel is in the region conducting final testing prior to mobilization which is expected in the coming weeks to lay the deepwater pipeline and in-field flowlines
• FPSO: In September 2022, Typhoon Muifa passed through the COSCO shipyard in Qidong in China causing the mooring lines of the vessel to become compromised. As a result, the vessel drifted approximately 200 meters off the quayside. The FPSO has been returned to the quayside and inspections conducted to date have not identified any significant damage. The forward plan is to complete all inspections and incorporate any findings into mechanical completion activities along with commissioning work prior to sailaway, which is expected around the end of the year

The operator is working hard and making good progress to overcome the challenges from Covid, supply chain constraints and more recently Typhoon Muifa. We expect first gas around nine months from the FPSO sailaway and continue to target first LNG around year-end 2023.

To optimize the commercial value of sales for the gas production from the first phase of Greater Tortue Ahmeyim, Kosmos has commenced a process with prospective buyers to utilize existing contractual rights under our Phase 1 LNG sales agreement to potentially sell cargos in order to benefit from the robust forward gas price outlook. We are seeing significant interest in the opportunity and will provide further updates as the discussions mature.

The plans to develop Phase 2 of the Greater Tortue Ahmeyim LNG project continue to progress. Kosmos is in advanced discussions with partners, BP, Petrosen, SMH and the two governments on the right concept. In light of the rapidly evolving global LNG markets, the governments are rightly considering the importance of their gas resource and the opportunity to build new government-to-government relationships. The partnership's aim in the coming months is to agree the right low cost solution, which leverages the infrastructure from Phase 1 and allows the partnership to access attractive gas marketing opportunities. 

In mid-October, Kosmos and BP (operator) signed a new Production Sharing Contract ("PSC") with the Government of Mauritania covering the BirAllah and/or Orca discoveries. The new PSC provides up to 30 months to submit a development plan covering these discoveries with the terms of the new PSC substantially similar to the former PSC for Block C8.

At Yakaar-Teranga, the partnership continues to advance the first phase development concept with the Government of Senegal focused on a domestic gas solution.

KeyFacts Energy: Kosmos Energy US country profile