Kosmos Energy Ltd. Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Cash Generation: Focus on maximizing revenue and rigorous cost management. 2025 total CapEx expected to fall to $400 million from over $800 million in 2023-2024 (reduction >50%). Target $25 million reduction in annual overhead by end of 2025.
• Reserves: End of 2024 2P reserves 513 million barrels of oil equivalent, reserve replacement ratio 137%, reserves to production ratio 22 years (closer to 30 years including 2C resources).
• 2024 Highlights: Safety with zero lost time injuries, first oil at Wintervale, first gas production at GTA, raised $900 million in new bonds, refinanced and increased RBL facility capacity.
• GTA Project: First LNG production in early February, close to loading first cargo; ideally located for European markets with short sailing distances and low transport costs; gas contains minimal CO2 or H2S.

Segment Performance

• Oil Assets: Characterized by low operating costs and high cash margins.
• Gas Assets: Positioned to deliver revenue growth with increasing margins, particularly with the GTA project.
• GTA Project: 2025 full year guidance for Gulf of America is 17,000 barrels of oil equivalent per day net, ~20% increase year over year. First LNG production achieved in early February, close to loading first cargo.
• Jubilee: 2025 guidance for gross Jubilee production 70,000-76,000 barrels of oil per day, gross ten production 15,000-16,000 barrels of oil per day, ~6,000 barrels of oil equivalent of gas net.
• Winterfell: Remediation work on Winterfell three well ongoing, Winterfell four well expected online in the second half of 2025.
• Equatorial Guinea: Infill drilling campaign finished in late 2024, two wells online producing ~9,000 barrels of oil per day gross. 2025 guidance 9,000-11,000 barrels of oil per day net, ~15% increase year over year.

Guidance

• CapEx: 2025 CapEx expected to fall to $400 million or below, a reduction of over 50% from 2023-2024.
• Overhead: Target $25 million reduction in annual overhead by end of 2025.
• GTA Production: Expect to end 1Q 2025 near full capacity; partners to start receiving revenue from project, fully ramped up in second quarter (requiring ~400 million standard cubic feet of gas per day).
• Jubilee Production: Gross Jubilee production 70,000-76,000 barrels of oil per day, gross ten production 15,000-16,000 barrels of oil per day, ~6,000 barrels of oil equivalent of gas net.
• Gulf of America: Full year guidance 17,000 barrels of oil equivalent per day net, ~20% increase year over year.
• Equatorial Guinea: Full year guidance 9,000-11,000 barrels of oil per day net, ~15% increase year over year.

Risks

• Production Delays: Fourth quarter production lower than guidance due to lower Jubilee production, water injection and reliability issues, delay in EG infill wells and Winterfell 1-2 downtime.
• Debt and Maturity: Minimal near-term maturities but need to manage debt to avoid large single maturities, relying on future cash flow to repay.
• Price Volatility: Actively managing future price volatility through rolling hedging program; currently 60% of first half oil production hedged with downside protection of ~$70 per barrel.

Question and Answer

• Q: Talk about start-up and commissioning costs for GTA and how they are one-time and expected to trend lower. A: Andy Inglis and Neal Shah discuss that 2025 is a transition year with commissioning costs, volumes ramping up, costs expected to trend lower as volumes reach contracted levels, FPSO lease refinancing, and normalized OpEx expected in $4-5 per mcf range.
• Q: CapEx guidance of $400 million, scenario of lower CapEx, levers for capital efficiency. A: Andy Inglis states they are prioritizing free cash flow, targeting $400 million or lower CapEx in 2025, focusing on sustaining the base, balancing growth and cash flow returns, with a capital profile of $300-350 million base and $150-200 million growth, disciplined allocation of growth.
• Q: GTA phase one plus, timing and alignment with operators and NSCs. A: Andy Inglis explains phase one plus is brownfield expansion, low capital cost, potential to double throughput, alignment between operator, NSCs, and VP for technical studies, target for 2030 to accelerate production while meeting local gas needs.
• Q: Jubilee production guidance, assumptions on FPSO performance and water injection. A: Andy Inglis details Jubilee's reserve base, recovery factor, assumptions include 100% voyage replacement, two additional wells, 4D seismic campaign, and high-quality well selection for 2026 to sustain production profile.
• Q: Thoughts on terminated discussions with Tullow, M&A strategy. A: Andy Inglis states focus is on free cash flow generation, strong portfolio with long RFP and growth projects, no immediate plans for M&A focusing on balance between free cash flow and growth.
• Q: Timeline to reach 1.5 times leverage level, priority after achieving it. A: Neal Shah mentions target to reach below 1.5 times leverage at mid-cycle oil prices by mid-2026, prioritizing debt pay down initially on RBL and outstanding notes, revisiting shareholder returns in back half of 2026 after achieving leverage goal.
• Q: Tortue reservoir debottlenecking and well drilling timeline. A: Andy Inglis states initial production data is positive, well capacity exceeds current needs, timing of next wells dependent on reservoir decline rate, several years away from needing new wells, infrastructure in place for tiebacks, minimal additional CapEx needed for debottlenecking.
• Q: GTA early production data and reservoir size indications. A: Andy Inglis explains initial DSTs and flowbacks showed good productivity, early production data provides indications of reservoir size, more positive indications as production continues, understanding tank size associated with each well.