Kosmos Energy Ltd. (NYSE:KOS) Q1 2024 Earnings Call Transcript May 7, 2024
Kosmos Energy Ltd. beats earnings expectations. Reported EPS is $0.1902, expectations were $0.15. Kosmos Energy Ltd. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Ladies and gentlemen, good morning, and welcome to the Kosmos Energy First Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jamie Buckland, VP Investor Relations. Please go ahead.
Jamie Buckland: Thank you, operator, and thanks to everyone for joining us today. This morning we issued our first quarter 2024 earnings release. This release and the slide presentation to accompany today’s call are available on the Investors page of our website. Joining me on the call today, to go through the material, are Andy Inglis, Chairman and CEO; and Neal Shah, CFO. During today’s presentation, we will make forward-looking statements that refer to our estimates, plans and expectations. Actual results and outcomes could differ materially, due to factors that we note in this presentation and in our UK and SEC filings. Please refer to our annual report, stock exchange announcement and SEC filings for more details. These documents are available on our website. And at this time, I’ll turn the call over to Andy.
Andy Inglis: Thanks, Jamie, and good morning and afternoon to everyone. Thank you for joining us today for our first quarter results call. It’s been an active start to the year for Kosmos, and I’ll start today’s presentation looking at the operational and financial momentum we’ve built in the first few months of the year. Neal will then walk you through this quarter’s financial results before I look ahead to the catalysts for the remainder of the year. We’ll then open up the call for Q&A. Starting on slide 3 with the delivery of our major projects. Kosmos had a strong first quarter with significant progress towards our goal of growing production by around 50% from the second half of 2022 to the end of 2024. In Ghana, all the planned 2024 Jubilee production wells are online with one water injection well expected online later this quarter.
Following completion of this well, the planned drilling campaign will conclude approximately six months ahead of schedule as a result of efficiencies in the drilling operations. In the Gulf of Mexico, oil production of Winterfell is expected to begin shortly from the initial two wells. Our third well is due to come online later this year increasing expected gross production to around 20,000 barrels of oil per day. In Mauritania and Senegal, the Tortue project continues to move towards first gas with several key milestones achieved already this year. I’ll talk more about our progress on these projects later in the presentation. Looking further ahead, we continue to advance our next phase of growth projects. Long lead items are being secured for time various to optimize the development time line and project costs.
We have also secured a two year license extension for Yakaar Teranga. While we see continued growth as an important part of the Company’s future, as I said last quarter, it will be selective and more measured in the coming years, consistent with sustained annual CapEx of around $550 million per year. That is targeted from 2025 onwards. On the financial side of the business, we enhanced the Company’s financial resilience with the convertible bond issuance and the RBL refinancing. Neal will talk about these in more detail shortly. The transactions improved liquidity and extended our near-term maturities. The free cash flow inflection point we’ve been anticipating of around $100 million to $150 million per quarter once our development projects come online is now only a few months away.
I’ll now talk through the operational progress across our different business units starting in Ghana on slide 4. Jubilee production in the first quarter was around 93,000 barrels of oil per day growth, almost 30% higher than the first quarter last year. This reflects the progress made from both the startup of the Jubilee Southeast project and the ongoing infill drilling program. Jubilee FPSO reliability, continues to remain high at approximately 99% uptime for the first quarter. Moody’s replacement was also strong in the quarter, around 110% as a result of high levels of water and gas injection. Gross Jubilee gas sales for the quarter was around 16,500 barrels of oil equivalent per day. Recently, the partnership agreed an 18 month extension to the Jubilee gas sales agreement for approximately $3 per MMBtu.
In the second quarter, there is some planned maintenance of the onshore plant, which receives the Jubilee gas. And this is reflected in the 2Q guidance. On TEN, gross production at 18,600 barrels of oil per day was in line with expectations, with high FPSO uptime of around 99% similar to Jubilee. Turning to Slide 5. Production in the Gulf of Mexico for the quarter, was approximately 14,500 barrels of oil equivalent per day net, in line with guidance. At Winterfell where Kosmos has a 25% working interest, first oil from the two initial wells is expected shortly with another well expected online, in the second half of the year. Gross production when all three wells were online is expected to be around 20,000 barrels of oil equivalent, per day.
We estimate total gross resource across greater Winterfell about 200 million barrels of oil equivalent, providing significant future follow-on potential. To enhance existing production, we continue to invest selectively in high return projects like the Odd Job subsea pump and Kodiak workover, both expected to finish around the middle of the year. The combined uplift from both of these projects is expected to contribute around 5,000 barrels of oil equivalent per day net Kosmos’s year end exit rate. The tornado field is expected to be offline for most of the second quarter, for scheduled routine maintenance of the HP-1 floating production unit, which has been factored into our guidance for the quarter. On Tiberius, where Kosmos is operator we acquired part of Equinor’s interest during the first quarter to maintain an aligned partnership.
We now hold a 50% interest in the project, which is already included in our 2024 capital guidance. This phased developments as subsea tieback to Oxy-operated Lucius platform is progressing. The project sanction expected later in the year. Certain long-lead items have been secured to optimize the development time line and project costs. Around the time of project sanction, Kosmos plans to farm down to optimize our working interest to fit within our targeted capital program for 2025 and beyond. Please turn to Slide 6. Production in Equatorial Guinea averaged approximately 24,400 barrels of oil per day gross and 8,400 net in the first quarter. Kosmos lifted one cargo from Equatorial Guinea during the quarter in line with guidance. In early February, as previously communicated, the operator pause the Ceiba and Okume drilling campaign as a result of safety issues, with the previous rig.
The partnership has now secured the Noble Venturer to resume the drilling campaign with a rig expected on-location midyear. The rig is scheduled to drill and complete two infill wells in Block G, before moving to drill the Akeng Deep ILX prospects in Block S. The new infill wells are expected to add around 3,000 barrels of oil per day net to Kosmos at year end exit rate. The result of the Akeng Deep well which is targeting gross resource of around 180 million barrels is expected around the end of the year. Turning to Slide 7. The Greater Tortue Ahmeyim Project continues to move towards first gas with significant progress across all work streams so far this year, with first gas expected in the third quarter and first LNG expected in the fourth quarter.
The floating LNG vessel arrived in the first quarter as being moored to hub terminal.. The partnership is now working with the vessel operator to accelerate commissioning. The subsea work is progressing in line with expectations with a flowline installation complete and final connection work ongoing. Inspection and repair of the FPSO fairly is now complete and the vessel has left Tenerife and his own route to the project site more in work to commence thereafter. Hookup and commissioning of the FPSO remains on the critical path, first gas which is expected in the first quarter. I’ll now turn it over to Neil to take you through the financials.
Neal Shah: Thanks, Andy. Turning to slide 8, which looks at the first quarter. Production in the quarter of approximately 66,700 barrels of oil equivalent per day, net was an increase of around 13% compared to the same quarter last year. Costs for the quarter were within or slightly better than guidance leading to the earnings beat against consensus. CapEx for the first quarter was $286 million which was in line with guidance and is largely made up of the Ghana drilling campaign and the progress made on both Winterfell and on Tortue. As previously communicated, we expect the majority of this year’s CapEx be in the first half of this year with the free cash flow inflection that Andy talked about in his opening slide expected as the development projects complete and production ramps up throughout the end of the year.
Turning to slide 9, which looks at our debt maturities. We took two important steps this year to further enhance the financial resilience of the company. First, was the convertible bond issuance in March which proactively replaces the liquidity from the $250 million undrawn RCF is due to expire at the end of this year. The convertible also lowered our overall interest expense as we paid down a portion of our RBL with the available proceeds which is our highest cost debt. We’ve also seen the yields on our high-yield bonds tightened which should help pricing when we come to think about potentially refinancing those in the future. To limit future equity dilution, we purchased a capped call which means there will be no dilution until the shares get to almost $11 per share.
We also took the option to cash settle the principal amount raised which also reduces any future dilution. The second important step was the refinancing of our reserve-based lending facility with in terms of broadly in line with the previous facility. The overall facility size increased to $1.35 billion from $1.25 billion with current commitments of around $1.2 billion. Through the refinancing we have extended the final maturity by approximately three years. At the same time, we have had some of our banks transfer their commitment to the RBL from the RCF, which as I mentioned expires at the end of this year. I’d like to thank our banks for their continued support as we continue to grow the company. The chart on the right shows the impact of both the convertible bond issuance and the RBL refinancing on the maturity schedule.
We now have no near-term debt and the staggered maturity schedule from 2026 onwards. As we reach the expected free cash flow inflection point plan to continue to prioritize paying down the RBL, reducing the amounts in the dark blue on the chart on the right. We continue to target leverage below 1.5 times at mid-cycle oil prices with deleveraging expected commence once revenues from 4Q to start up later in the year. With that I’ll hand it back to Andy to conclude today’s presentation.
Andy Inglis: Thank you. Turning now to slide 10. As I said in my opening remarks, it was a busy first quarter and we have achieved a lot in just three months. The operational financial momentum we built has rolled into the same quarter with several milestones already achieved and more to come in the near future. The graphic on this slide shows a rich portfolio of catalysts throughout the year across all our business units. They contribute towards our goal for year end exit rate of 90,000 barrels of oil equivalent per day and free cash flow inflection points combined we believe these will create significant value for our shareholders. Thank you and I’d now like to turn the call over to the operator to open the session questions.
See also 11 Best Delivery Stocks to Buy According to Hedge Funds and 16 Best US Stocks To Invest In Under $10.
To continue reading the Q&A session, please click here.