Release Date: August 05, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Kosmos Energy Ltd (KOS, Financial) is on track to achieve its year-end production goal of around 90,000 barrels of oil equivalent per day.
- The company has successfully started up the Jubilee Southeast and Winterfell projects, contributing to production growth.
- CapEx is expected to fall sharply as major projects are completed, leading to a significant free cash flow inflection.
- Kosmos Energy Ltd (KOS) plans to use the increased free cash flow to pay down debt and strengthen financial resilience.
- The company is leveraging modern seismic technology to enhance resource potential and capital efficiency in future drilling activities.
Negative Points
- The J-69 well at Jubilee underperformed expectations, impacting overall production levels.
- Water injection issues at Jubilee led to voidage replacement being around 80% compared to the 100% target.
- Full-year production guidance has been lowered to 67,000 to 71,000 barrels of oil equivalent due to the J-69 underperformance and Winterfell startup delay.
- Kosmos Energy Ltd (KOS) expects to lift two fewer Ghana cargoes this year, impacting revenue.
- The company faces challenges in maintaining high infrastructure reliability and water injection levels to achieve planned output.
Q & A Highlights
Q: Does the J-69 well result impact the long-term outlook for the Jubilee field, and how can you ensure this becomes an isolated issue?
A: Andrew Inglis, CEO: The J-69 well has impacted this year's production, but it is part of a three-year program that drilled 18 wells. The program was based on eight-year-old 4D seismic data. We plan to conduct a new 4D seismic survey in early 2025 to identify the best well locations for the next drilling campaign. This will help maintain the long-term potential of the field. We are also addressing water injection reliability to improve voidage replacement.
Q: What explains the difference between the operator's mid-May cargo forecast and the current outlook?
A: Andrew Inglis, CEO: Since May, we have new data from actual production and a full evaluation of J-69's impact. This has led to a revised production forecast, resulting in one cargo moving from December to January and another being lost. This is partially offset by an additional half cargo expected from Equatorial Guinea.
Q: Can you explain the significance of the cooldown cargo for the GTA project?
A: Andrew Inglis, CEO: The cooldown cargo allows for a smoother and safer commissioning of the FLNG vessel by using a known source of gas. This accelerates the pre-commissioning process, enabling us to start LNG production more efficiently. The subsea mechanical completion and FPSO handover are on track, with first gas expected shortly thereafter.
Q: How do you balance the value of Tiberius against the desire to manage capital exposure?
A: Andrew Inglis, CEO: We plan to test the market for farm-down opportunities, aiming to demonstrate value accretion. We want to maintain a material stake in Tiberius while ensuring we meet our free cash flow targets and keep the capital budget in check. The Gulf of Mexico market is currently favorable for quality projects like Tiberius.
Q: What are the gating items between now and first LNG for the GTA project?
A: Andrew Inglis, CEO: The critical path involves subsea mechanical completion, FPSO handover, and the cooldown of the FLNG vessel. Each step is being managed methodically, with a clear integrated plan to achieve first LNG production in the fourth quarter.
Q: What are the uses of cash in 2025, assuming Tortue is ramping and generating free cash flow?
A: Nealesh Shah, CFO: The focus will be on maintaining the base production and selectively investing in growth projects like Tiberius. The majority of free cash flow will be directed towards debt reduction, in line with our commitment to deleveraging.
Q: How has the market for farm-downs changed since the start of the year, particularly for Tiberius and Yakaar-Teranga?
A: Andrew Inglis, CEO: The market remains favorable for quality projects in the Gulf of Mexico, with strong interest from private equity and non-operated players. For Yakaar-Teranga, the interest from NOCs seeking long-term gas access remains strong, driven by strategic needs rather than short-term price volatility.
Q: What is the partner view on Phase 2 of the GTA project?
A: Andrew Inglis, CEO: The infrastructure for Phase 1 enables a low-cost expansion for Phase 2. Early production results from the initial development wells will inform the next steps. The focus is on capital efficiency, and discussions with NOCs and governments are ongoing to progress the project.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
