Q1 2021 Kosmos Energy Ltd Earnings Call
Good day, everyone welcome to Kosmos energy first quarter 2021 conference call.
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At this time, let me turn the call over to Jamie Buckland, Vice President of Investor Relations at Kosmos energy.
Thank you Darren and thanks to everyone and for joining us today.
Morning, we issued our first quarter earnings release.
This release and the Quad presentation to accompany today's call are available on the investors page of our website.
Joining me on the calls a day it goes through the material and then goes chatman and say yeah.
And Neal Shah.
Hi.
During today's presentation, we will make forward looking statements that refer to on estimates plans and expectations.
Actual results and outcomes could differ materially due to factors, we note and this presentation and in our U K and SEC filings.
Please refer to on your book.
Change announcement and SEC filings for more detail.
These documents are available on our website.
At this time I will turn the call I just want.
Thanks, Jamie and good morning, and afternoon to everyone.
Today almost to the day marks the 10 year anniversary and Cosmos. Its IPO on the New York Stock exchange the official birthday is tomorrow.
So I want to start the call with a look back and how far the company has come over those 10 years and also look forward to why we expect the company's ahead over the next decade, I'll then talk about the oil price of oil highlights for the quarter.
If you are coming and appraisal and infrastructure led exploration activity before handing over to Neal to discuss the <unk> financials on the balance sheet.
Starting on slide two.
And 20th that button at the time of the NYSE listing and Cosmos was a successful frontier explorer.
The company's operations with sends that are on Ghana with production from our single F. P. S side with Jubilee oil prices average $111 per barrel that yeah and consensus was there wasn't enough supply to meet growing future oil demand.
Full year production and 2011 was just 16000 barrels of oil per day, and Kosmos had not T. P reserves around 17 million barrels almost all of which was oil.
Over the last 10 years Cosmos has successfully transformed from a friend and sell all explorer to a full cycle E N P.
We brought online the 10 fields in Ghana discover multiple John and gas fields, and Mauritania and Senegal and have since taken out by day on phase one of the torture you LNG project.
We have diversified on production and out of dialects opportunities with value accretive acquisitions and that controller kidney and the U S Gulf of Mexico, and last year, we monetized our longer dated frontier exploration assets.
Over that time production and also nearly quadrupled and on reserve base increased around seven fold to where we are today.
Well, we've grown the business and adapt to the strategy to meet the rapidly evolving world around us one cash restrict that hasn't changed is our commitment to corporate responsibility and our dedication to supporting the economic and social development of our host countries.
Around the time of on listing Cosmos set out to improve transparency across the oil and gas industry by publishing all of on petroleum contracts online to this day. We believe we are still the only U S oil and gas company to do this.
To enhance the societies and which we work we set up the award winning and Cosmos Innovation Center, and Ghana, which laser expand it into several other countries and West Africa.
Cosmos innovation center, and invest and promising young entrepreneurs and small businesses to bring lasting benefits to the host countries and contribute to the creation of healthier and more diverse economies.
And the reason, yes, we have increased our commitment and the environment integrating the impacts of climate change and to our strategic business decisions shaping our portfolio to be fed and relevant for the future and setting a goal of carbon neutrality and our scope, one and scope two emissions by 2030 or so.
Net.
As we look at the company today Cosmos is and oil focused full cycle exploration and production company with production from three separate hubs a world scale LNG development and a deep hopper proven base and I'll ask opportunities, we have quite a strong platform, which we believe will allow us to successfully navigate the next 10 years.
As with defined high quality projects and our current portfolio to further grow and diversify and production.
Over the next several years, we believe we have line of sight to grow organic production to around 100000 barrels of oil equivalent with potential options to supplement that further with compelling value enhancing inorganic opportunities.
And 2023, we expect first gas from towards your phase one with a second phase planned to come on line the middle of this decade.
This significant ramp up and the company production is expected to make Mauritania and Senegal, a major production half the cosmos with the gas weighting of our portfolio increasing considerably.
All credible scenario is by leading analyst from economists to financial advisors to scientists and modeled a pathway to 2050 with a significant proportion of natural gas and the energy supply mix. It's all of you that the world cannot achieve the Paris goals unless millions of people out of poverty and it does.
Eloping World through I, just transition without natural gas playing a major role.
With all growth and natural gas and our firm commitment to emissions reduction Cosmos is playing its part towards the Paris goals, we're already making good progress towards those goals with all major reduce mitigate approach to emissions and all investment and high quality nature based carbon capture projects and go.
On a on the U S.
This consistent agenda to tackle climate as part of a broader commitment to advancing our ESG responsibilities has been a major part of cosmos its business over the last 10 years.
With a portfolio of advantage assets, we expect to remain well positioned to further drive that agenda over the next 10 years.
Turning to slide three.
I spoke at a faulty results in February about the operational momentum that we expect to see return in 2020. One we made a strong starts a year and this line shows the progress we've made across the portfolio and the first quarter.
On production we plan.
To drill nine infill wells in 2020, one three times as many as we drilled in 2020. This activity has started in line with our 2021 work plan within and full wells already drilled and Ghana, and the Gulf of Mexico, and our second well and garner currently drilling.
And that control Guinea, our production enhancement activities for this year started successfully and we expect to shortly begin our initial infill drilling campaign of three development wells, where the rigs scheduled to arrive at the end of this quarter.
On development. So he's one of the torture LNG project is continuing to advance was 58 per cent complete at the end of the first quarter.
On the S. P S O sale and leaseback and documentation is being finalized and the government approval process is well underway with the transaction and expect to close this quarter as previously guided.
On exploration, we started the year with success of winter finally in the Gulf of Mexico and.
And Paul and as a fast track and appraisal program with an appraisal all expected and the third quarter.
We're also planning to drill the Zora ILEC swell and three Q more on this shortly.
On financing and late February we successfully completed a high yield bond offering and this morning, we announced and completion of a or B Alex extension in conjunction with our spring Redetermination. These transactions have collectively strengths and the balance sheet increase liquidity and pushed out all near term.
Debt maturities.
Having signed on to the strongly and we remain on track for the full year to deliver between 100 and $200 billion of free cash flow from the base business at $55 per barrel Brent.
Slide four looks at the ramp up and activity across our three production hubs and more detail.
And Ghana, we continue to work closely with you on Friday to enhance facility performance and drive higher reliability, and we're making good progress.
F. P. S O uptime, and wonky was 98% of Jubilee and 99% attach and carrying on the momentum from the second half of 2020 water injection and do believe which is helping provide reservoir support is now at levels not seen since 2012.
Gas off tank of approximately 110 million standard cubic feet per day from Jubilee and 10 is around double the 2019 level and there is scope for this to increase further.
Gas offtake means less gas being injected into the reservoir combined with improved water injection. This is expected to have a positive impact on the G O on Jubilee, which should mitigate declines from existing wells.
The calm buoy or do you believe was commissioned and the first quarter, removing the need for shuttle tankers, which reduces opex and streamlines our operations.
As I mentioned in my opening remarks, we are back to drilling and Ghana, and I've, just finished drilling and produce that well at Jubilee and this is the first well drilled on Jubilee. Since 2019. He came in as planned and is the first of four wells planned and go on it this year.
The rig has now moved to drill a water injection well on Jubilee after which is expected to complete both wells increase and Jubilee production by an estimated 15 to 20000 barrels of oil per day, gross which should continue to drive on production higher.
And three to you after the initial two wells the partnership plans to drill and complete a 10 gas injected well before drilling and completing a third jubilee well and full Q, which is expected on line around year end.
And extra oil Guinea, we've been active one kid with excuse me upgrade project and nearing completion and adding the additional power water injection and gas lift capacity necessary for further facilities Debottlenecking and additional E. S. P.
And in April we completed the first of three I E. S. P for 2020, one and upgraded the G 19 flow line, which is significantly enhanced production from that well.
We've contracted a rig for our upcoming drilling campaign and is expected to arrive and country later this quarter.
The three planned wells this year will be the first infill wells drilled and extra world DNA since 2015.
And the U S Gulf of Mexico, Kodiak, two was brought back online late in <unk>. After the successful remediation of the subsea infrastructure issue identified in the fourth quarter of 2020.
The Kodiak, a three well came online last month, and we plan to drill that tornado five and in full while this quarter with production expected and three two.
Cosmos delivered approximately 53000 barrels of oil equivalents per day for the first quarter inline with guidance and our production activities remain on track to hit a year and exit rate of 60000 barrels of oil equivalents per day.
Turning to slide five.
The momentum, we've seen and <unk> across our production activities is matched and our development project towards.
Torchy phase one ended the first quarter around 58% complete with strong progress across all of the major work streams, which can be seen on the images on this slide.
The top of the images the F. P S O where the whole was launched last month.
The bottom and me shows the progress being made on the breakwater five cases, a complete with work ongoing on the next two and then in April the first case on Offloading took place.
The full case on construction process through to Offloading and sole gone to plan and they Offloaded case on these now and wet storage and had a transit to the final Brightwater location later this year.
This is an exciting time for the project as the infrastructure starts to move offshore overall, we're making good progress on phase one is expected to be around 80% complete at year end.
On the F. P. S O sale and leaseback documentation is being finalized and get them on approval process is well underway.
Late last month, the energy ministers from both countries, how the joint meeting on the project, where they endorse the F. P. S. O financing continued its strong and consistent support by both countries for the project.
As a result, we feel good about where we are and as previously communicated and rebate on trying for a two to completion.
Turning to slide six.
We talked in February about the ILEC success, we had with wintershall and the Gulf of Mexico at the beginning of the year.
When the valleys and Miocene sub salt discovery found the Trump time come on in the Gulf of Mexico.
The exploration well tested to rise of oil sanctions and a single fault block and the seismic and responses now being calibrated with a world out there.
And when to file discovery day raise more than 100 million barrels gross resource potential of cost Kosmos is acreage position across multiple fault blocks and reservoir sections.
Over the last towards the partnership has been working on a fast track to appraisal plan and expect to begin and treat you with an appraisal well.
And is designed to test the fault block to the north West of the discovery, which is the same seismic signature chose winterfell.
Oil is also expected to test a deeper horizon with and exploration tail, which can be seen on the seismic and cross section on the bottom image of this slide.
We believe that with a successful appraisal well, we are just giving more than a sufficient resource potential and the core development area to us.
Underpinning a development decision.
We anticipate the development will likely be phased with up to three potential drill centers.
This discovery location and an infrastructure rich part of the Gulf of Mexico provides the potential to develop a highly economic low carbon project.
Turning to slide seven which looks as zora on ex potential highlights hub.
Yeah.
Zara is planned to be the first exploration well and another mini basin.
The initial prospect Zara is a super Salt Miocene target and the same play is nearby and allergist producing fields, such as all job Horn mountain and and mom aboard.
Cosmos will operate the well with a plan and working interest of 37 and half per cent.
We have received all of our permits and the rig has been contracted with drilling planned and <unk>.
As you can see from the map on the slide the Zora prospect isn't their host facilities, which can facilitate the low cost and lower carbon development and the events of success.
The image also shows Ozora sits and there are several other prospects. We're at Kosmos has built and material interest we believe that a successful zoro well, we'll lower the risk of these nearby opportunities thus, providing the potential to create a new production hub with around 200 million balance of gross resource potential and total.
Yeah.
With that I'll hand over to Neal to take you through the financials on slide eight.
Thanks, Andy and good morning, and good afternoon and Tampa.
Slide eight shows the financial results for the quarter, which were in line with our previous guidance.
As previously anticipated production was down year on year, largely due to the lack of drilling activity in response to the pandemic.
Drilling activity is ramping up that quickly in 2020 one.
Back to C V declines reverse as new wells come online and Ghana, Equatorial Guinea, and the Gulf of Mexico.
The realized price and <unk>, which had been adjusted for derivatives and cash settlements and slightly lower and at this time last year, reflecting the hedges we've put in place that cap some of the oil price upside within the quarter and.
And partner importantly, and lower per barrel realization also reflects the lower sales volumes and one Q <unk>.
A result of our lifting schedule and Ghana and Equatorial Guinea.
We only lifted 1.5 out of $12 five cargoes expected in 2021 and the first quarter.
This combined with our spend and Mauritania, Senegal, and working capital movements resulted in negative free cash flow in the quarter.
As cargo timing evens out over the rest of the year and with more volume than entitled and we would expect the opposite effect improving realizations as well as free cash flow.
In addition, as we complete the F. P S O and NFC financing for Mauritania, and Senegal, we expect there'll be a net cash inflow and Mauritania and Senegal for the balance of the year.
We worked hard in 2020 to drive down costs to make Kosmos a leaner organization and this can be seen across the opex exploration expense interest and Capex lines on this slide.
We have provided second quarter guidance in the appendix to the slide pack and our full year guidance remains unchanged.
Turning now to slide nine.
We've taken big steps this year to further strengthen the balance sheet and our liquidity position.
And late February we successfully completed a $450 million senior notes offering to reduce outstanding balances on our credit facilities and for working capital.
This morning, we announced the extension of RBS facility, along with the spring Redetermination.
The facility maturity, that's pushed out two years with final maturity now and 2027.
And we agreed a borrowing base with banks of 124 billion with $1 billion currently drawn on the facility.
We have reduced the facility size from one to 5212 5 billion from $1 5 billion to reduce our liquidity reliance on the RBS facility as planned.
The two charts on the slide show the debt maturity profile at year end compared to the end of the first quarter adjusted for the RBS extension and the second quarter, our CF repayment.
As you can see we have taken important steps to address the maturity schedule early and clear all material near term debt maturities.
At the end of the first quarter the company had approximately <unk> <unk>.
$8 billion of liquidity.
With the maturity schedule largely addressed we remained focused on reducing the absolute amount of debt and leverage pay.
Pay down of debt from free cash flow.
We expect leverage to fall rapidly from <unk> and throughout one throughout the year as cargo timing normalizes.
And as cargo times normalized and hedges roll off.
We are forecasting $4 five cargoes and the second quarter from Donna and Equatorial Guinea.
Which is three times higher than the one five cargoes from the two production hubs in the first quarter.
With that I'll hand back to Andy to wrap up on slide 10.
Thanks Neil.
To summarize.
We've made a strong start to the year executing our planned activity in the quarter on schedule with momentum building across the portfolio.
Production is expected to increase through the year with nine and full wells across our three production hubs.
Torchy phase one remains on track to be around 80% complete by year and with the F. P. S O sale and leaseback I expect it to close this quarter.
We plan to drill the first windows, all appraisal well on the zoro ILEC swell and the third quarter to live and near term production growth that is low cost and low carbon.
And finally on finance, having completed the bond and the I'll be out financing, we will now kick off the work stream to refinance and Mauritania and Senegal, and now see loans and I expect that complete and the second half of the year.
With all of that we're firmly on track to hit on a year and exit production rate target of 60000 barrels of oil equivalents per day and remain on trying to generate hundreds of $200 million of free cash flow from the base business at $55 per barrel Brent.
Thank you and and I would like to hand, the call over to the operator to open the session for questions.
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Okay.
Our first questions come from the line of James Hosie with Barclays. Please proceed with your questions.
Hi, Thanks, and email and a couple of questions from me just first off you've you've retained your 2021 base business free cash flow guidance, hundreds and $800 million at 55 rent can you give us some indication of the sensitivity to price is currently about $10 higher but more and also there was a $95 million working cap.
And I fluid and the quarter should we expect that to reverse the remainder of the year and men and Ghana, and you've resumed really on Jubilee and.
Increased production rates for the year when do you expect the kind of partnership to make a decision on the contract and a second drilling rig.
Okay, Yeah, Hey, Thanks, James one and I'll give you those in reverse order I'll try to go on a question and then just pass over to Neil for the price sensitivity and the working capital shifts yes.
Yes, I think in Ghana, where we're actually sort of in the midst of that.
Planning process with Big partners at the moment, it's part of our normal sort of midrange midyear review that then goes flows through to the approval of the work programs and budgets for 2022.
So I think you know about.
That's actually going to be a a three two decision.
Well, what I would add is that as a backdrop to me though is that.
We clearly see a significant set of opportunities both in and.
And Jubilee and 10.
And I think it's good that we've got off to a good start actually on the AR on the drilling program and for this year and that we started on schedule and we've actually got the first well drilled absolutely on on time. So I think that you know that strong start there and actually sort of bill with the momentum and.
And supports the the conversation for a additional drilling capacity and and next year. So I think and I sort of two two points and for the debate with partners will be around you know the depth of the portfolio, which is strong and the quality of the performance and we got off to a.
Stop.
Okay, Yeah, and James just on your first two questions in terms of free cash flow around yeah, I think the best way to think about is around.
Every $5 change and the oil price is about $30 million to $35 million to free cash flow.
Stepping for 'twenty, one and that's really take into account.
And the current hedge position as well so yes.
Normally you would expect that to be larger except we have capped.
Some of the hedge or the price of oil price upside due to existing hedges.
On your second question as far as sort of working capital goes there's a couple of key components driving that.
One of those is clearly the under lift within the quarter, we're continuing to pay.
And on a on a monthly basis and.
And you only recognize.
Once once you've sold the oil volume and so as we as I mentioned is it.
Oil cargo time, and sort of evens out over the rest of the year, we will recognize that and the working capital position for that component.
And will reverse.
There are some typical sort of <unk> outflows that normalize over the course of the year and then there's a piece in there related to Mauritania, and Senegal, and Seth I would expect largely and most if not well most of that to reverse over the course of the year.
Okay. Thanks, so much just to follow up and on R&D and on the second drilling rig should we think of that as being a second rig dedicated to Ken with what the other rigs and do you believe or is it more kind of flexibility right now.
Yeah. It does.
There's more flexibility around it and then James obviously, we want and make sure that we're efficient in terms of the way in which we deploy the assets. So I think that's a conversation that still I'm.
Still ongoing and the partnership and then clearly what we need to day was ensure that were high grading the drilling opportunities to drill the best Wells first so I think you will see a larger activity set on 10, and so you know how we optimize that sort of rig timing and then they either rig deployment.
Part of that process of taking the the deep inventory of opportunities and making sure we're doing the basketball I suppose.
Very good thank you.
Alright, Thanks James.
Okay.
Our next question will come from the line of Charles Meade with Johnson Rice. Please proceed with your questions.
Good morning, Andrew.
Good morning.
I wanted to ask.
First about the the.
The elevation of of.
Tim Nicholson, and and and John and channel to be up to the.
The lead your exploration program can you can you give us a sense of what if anything we're going to see different from cosmos weather and and the kinds of things you're pursuing or.
The way and would you pursue them it and can you give us a sense of how much.
And as to fill those have worked and the the E G asset.
Okay.
Yeah, Hi, Charles.
I think that.
Both Tim and John and I've got an incredibly strong track record of exploration and proven basins, you know sort of average cobalt and.
And obviously, you know deep water Gulf of Mexico, and incredible track record.
So I think you know we have the right skills for the the strategy Yeah, we're clearly focusing on <unk> and on a per even basins and and actual G&A and and the Gulf of Mexico and also gone on it. So it's bringing those skill sets to bear across that and have a high grading those opportunities.
And and opportunities that deliver a.
Fast payback high return projects by leveraging the infrastructure. So you know I'm very pleased to have both of them and IV and the company and right place for them to be taking a leadership position now with that proven base and.
<unk> and yes, you know we've actually over the last more than two years actually they have both been working on the extra working day, they've been working on the Gulf of Mexico, and I've also been working on gone on it right. So so actually the the the work products that we're generating.
And extra oil again, a they've been very much part of and if you go back in time and that we'd be I think we acquired the assets and 17 shop. The seismic and 19 you know the protesting was done in 19 and idle.
2020 was all about the interpretation of it at the high grading of the opportunity set so they've been absolutely involved and all of that.
Thank you and me for all that added detail and then.
If I could ask you to this is on the tour to project just pure head to.
It's a year and and and it's 80% complete what what is the last 20% that would be remaining win or that you anticipate will be remaining when we get to year end and 21.
And so he gets here and 'twenty, one and you've then got the drilling campaign.
So the sub sea infrastructure will the target is to have the subsea infrastructure light and we will enable you to stocks are drilling the wells for the initial startup yeah.
And by the end of the or the target is to have the case on.
Fully deployed.
And allows you and 21 two to build out the JV structure behind the the caisson. We send allows you to bring and the the EF LNG vessel at year and.
And you know with the drilling of the wells complete you then have the ability to position the F. P. S O.
And in.
And in location, which is a sort of a year and 2021 our activity and then of course, you'd golf and the integration of the project and the with pre commissioning through the commissioning work on each of the individual components and then the integration of that leading to first gas.
Those are the big things that they would remain for execution and and in 2022.
Thank you Andrew.
Alright, Thanks Charles.
Thank you. Our next question is come from the line of Neil Mehta with Goldman Sachs. Please proceed with your question.
Good morning team and thanks for taking the question and I just wanted to build on on on the tour two comments.
You're at 60000 barrel a day at the company right now by 2026 I believe you said you wanted to get to 100000 barrels a day phase one we talked about the phase two is also really important.
What are the gating factors to get a good idea on that and phase two and how are you thinking about the incremental economics are phase two relative to phase one.
Yeah, Thanks, Neil Yeah, and I was so interesting.
You know part of it is about and you know and ensuring that we have.
Fully optimized phase two and I think as I've said in previous quarters. The work that we've been we've been doing with B P is the operator.
Taken the day.
And the time out on the project and sort of step back and say what is the most efficient next step and the most efficient next step is to fully utilize all of the infrastructure, we're putting in place.
And is one and you've heard me say that before which means that we're fully use and fully utilizing all of the gas price I think facility on the on the F. P. S. O. We're fully fully utilizing the pipeline capacity and.
And we've clearly got the the breakwater belts and we know how do we expand the.
The EF LNG capacity.
And <unk> that are that Brightwater and so those are the key the key things and we've been working on and I think we'd be P. Today, we're aligned around that concept, where the next step too.
Two I E essentially a 5 million ton per annum facility fully utilize all of that so it is the most economic.
Our staff that we can take it limits the amount of capital that we have to put into to generate that and actually makes it a far more financeable from a from a cosmos.
So I'm actually going up.
Genuinely willing and we're excited about I think the construct that we have a phase two and so the incremental economics are a lot stronger we believe and as you look at brownfield expansion.
Around the world in which they.
And as a brownfield and expansion from phase one and it is one of it and all the most.
Economic.
Project. So it has very strong economics because of that about leverage and then it's about ensuring that you've got on the engineering work done at the right pace with clarity focus and you know she usually on getting phase one to the right level of completion, but through the concept optimization and then which is this year than you have feed and.
And 2020 two.
And that five day around the year and 'twenty two is the target, which sort of de levers first gas sort of you know three.
And that bet, yes later.
Thanks, Andy and just following up and you talk about carbon neutrality on the project scope, one and two emissions by 2030 can you help us understand how you get there and give us some granularity on up.
Upon achieving that goal.
Yeah. So look you know Neal that there were two big things that we're working on you know one is they sort of <unk>.
Measure and and.
And and and reduce the AR and the carbon from our own operations and and that is something that we're focused on and we start from a very strong position and the Gulf of Mexico because of the the natural low carbon intensity of those assets you know because you're using existing infrastructure.
Hum.
And you don't have flaring that youre tied into the gas networks. You you have you know.
Our carbon intensity of around you know sort of under slightly under 10 kilograms book about geez, you're starting with a strong set of assets, but there are opportunities to continue to mitigate and.
And the juice and then in terms of those on those emissions that we call on the dress that why we're addressing through nature based offsets are we're looking at our reforestation projects in and Ghana.
And sort of wetlands, reforestation and and the U S and and also a potential weapons project and the Gulf of Mexico and again all of these it's about finding a way off and nature based solution, which is high quality. Both in terms of the comp and offset but also in terms of a creep.
<unk> jobs, a sustainable and theres, a large or economic impact to the to.
Due to the economy the wetlands projects have another benefit and in terms of there is the erosion of the coastline and how can we see projects that are helping to mitigate that so it'll be a combination of both of those.
Thanks, Andy.
Thank you. Our next question is coming from the line of Bob Brackett Bernstein Research. Please proceed with your questions.
Great. Thanks for taking my call and at the risk of over interpreting your slide two where you talk about the next 10 years that long term number of around 100000 BOE per day is consistent roughly with keeping production of your existing assets oil assets flat and getting to phase one and phase of torture.
Is that the strategy, which.
Which then defines what to do with cash or or barrels. If you are above or below that or is that sort of a conservative baseline of what you'll achieve with the potential to be bigger.
Or am I over interpreting and.
No. Good question, Bob and I think you've you've sort of I think you've captured the point very well I think what it says is we have a strong resource potential today, which allows us from both from the oil side to continue to high grade the portfolio invest and the best.
<unk> that have the characteristics, we're looking for and generate free cash flow. Yeah. So we have a strong oil business that we know that we can absolutely sustain and I think ultimately the level of investment will will depend on you know ensuring first.
We generate the free cash flow from that from that business. Yeah. So we're not sort of a resource short window of opportunity sure. But you know the objective ultimately is to ensure that we are we delever the company generate the free cash flow, Yeah, and then I think and in <unk>.
And told you you have a growth leg for the company, which is significant and then what differentiates. It is a growth lag is it's a sustainable source of cash flow for many years, yeah, and as you know with the LNG projects.
The challenge is the upfront investment.
And we're largely through that on on phase one phase two.
As we discussed.
As with Neils question. It is a very low.
On the low Capex solution to first gas and then you have a sustainable break of flat break of cash flow coming out of the business. So I think that the.
The underlying strategy that delivers that picture and sort of integrates the resources to other projects. So the cash flow.
Okay.
And so on that.
That plan achieves and increased gas percentage, but you'll still be predominantly oil are there thoughts strategically selling.
Selling down oil last steps to rotate into gas assets or is that too far out to think about.
Yeah, Bob I, you know Hey, again, great question, Alright, I I think that.
Ultimately the gas component and then in the.
The portfolio is significant because you know the we'll look at upstream companies in terms of what they sell and the carbon intensity of what they sell.
And not from just the production aspect, but in terms of usage, so having a growing gas element to our portfolio is important yeah equally we need to make sure that those are quality projects and compete for capital. So I think we've got a strong internet.
It'll.
Growth wedge and and then as you know on told you you know there was growth beyond 5 million tonnes per annum. So the pace at which that continues to.
To grow so I like the Optionality, we have I like the balance we have and.
And I think we have the ability to dial up or dial down.
As the world continues to evolve around us, but we but I think the inherent strength of the portfolio from both dimensions gas on the oil and is important.
Great. Thanks for that great. Thanks.
Thank you. Our next question is come from the lineup Mark Wilson with Jefferies. Please proceed with your questions.
Hello, Thank you and my first question I'd like to ask about the Ilex program coming up and.
The winterfell well I think you said that.
This appraisal of the North fault block and successful watch it de risked and commercial tie back development.
And there's quite a few prospects showed.
Think of as the 100 million so what.
What threshold of <unk>.
And to see would you be looking to prove up with the discovery and appraisal and I guess the same question for Dora.
The 200 million gross resource potential and I imagine.
Prospects that you show on the slide.
And how much does or sit within that 200 and am I right and.
You may have said it but trying to just pull them down slightly ahead of drilling I'm sorry. Thank you.
Yeah. So if you sort of look at it.
And when to file for Us I think.
It's important and I'd say, we're not just sort of.
Get ahead of our skis I think that we we see significant additional potential and and when and when to file.
We had a successful first well on the on the fault block that we drilled and we've got a follow up wells to come.
So on the fault block to the west.
West.
And we've de risked with the.
With the well results from the first well you know so you know the same seismic signature.
I think you know that.
We will we will go to a commercial threshold.
Mark where I sort of significant.
Proportion of that and 100 million barrel plus potential and that middle sector.
We'll have been proven out which gets you to that commercial threshold.
So yeah.
There is quite a lot of reserve intensity and a central part of the.
The opportunity set but I think that you know that remains additional upside from drilling both to the south and on to the north So I'm not going to give you a hard number but you know the 100 million barrel plus I think we'll we'll get you know get up to I a number that's close to that from that center.
Uh huh.
Portion.
And now we've circled on the view graph on those initial two two fault blocks.
Obviously, it'll depend on the price will result on the on the exploration tail, but you know that the opportunities that we're looking at so you know about it and itself is material.
On Zora and.
And again, we see door as I.
It's around 30 to 40 million barrel type type prospect and so you've got four or five prospects that you know that's what builds out the the opportunity set that you see that the 200 million barrel potential so again to sort of on independent and initial development and you probably need you know probably to have.
Those who have come in and that would underpin the initial development and again I think you'd probably say if I use type approach why you you drill bring on the initial and initial prospects use the nearby infrastructure and then build from there yeah. So a similar approach on both.
That's very clear thank you. Thank.
Thank you very much and and the point I guess.
Opex and the first quarter it was actually.
Below guidance 39 P O.
And the guidance for the rest of the year stage I was just wondering if any of the infill drilling costs.
And he is actually go into that Opex too.
To make it.
Richard.
And then Q1 was the rest of the year.
And that's one point and then you keep on.
May I, just ask about dawn of production and the.
The 15 to 20000 that could be added from that assessment.
Injected Pat.
Speaking to your exit rate of 60000 are you also assuming a dawn and exit rate.
15000, and higher than the two fields are producing at the pump and at a gross level.
Thank you.
Sure let.
Let me I'll, let me take the ilex, one and and Andy can handle.
The production forecast, but on the.
The <unk> opex.
Largely lower than guidance as a result of the production mix.
And so that you know we added a larger proportion of relative production given the under lift from the Gulf of Mexico, which has a lower net of opex per barrel on a and so if you look at sort of quarter over quarter guidance lift some of that and you and depending on where the cargoes are lifted from the it varies.
Different levels of Opex and therefore, the overall number isn't materially different and so it's good to see sort of the.
And the cost reductions coming through and.
Yeah, and the overall scope of the.
On our opex guidance hasn't been sort of and material.
Push one way or the other the ILEC.
And it came to that question it doesn't impact them.
The overall opex and time.
Yeah, Mark just on the sort of gone are forecasting yet.
Yeah.
One <unk> was was strong yeah, we were 70000 barrels a day.
And Jubilee and 39 and and tons, so and that's sort of strong strong performance.
As we look forward for the and from the existing wells and we've had good reliability. So if I were to continue that.
Certainly shows up the base from the existing wells and we have been getting water on the ground and.
And gas out, which again as I said in my remarks helps sort of slow down.
They are the right to decline. So I think you know as you forecast forward and you know there were two things that need to happen alright, and we need to.
And maintain that level of oil price of a liability.
Maintain the the base management water and gas and.
And if it's maintained will obviously strength in the year and exit right from the existing wells and then of course, we have to as you know.
The drilling and started strongly and to say and how we got is really a second producer or the second injector on on.
On Jubilee and a complete both wells and bring them on so you know they have the potential to and 15 to 20000 barrels a day gross and again you know that would add to I hopefully I found and base production. So I think it's a little early to give you.
New guidance I think for the exit rate of of Jubilee.
But you know all I can say is the trends that we're seeing if sustained our all positive.
Okay. Thank you ill turn it over.
Alright, Thanks Mark.
Thank you. Our next question is come from the line of next step and out with Renaissance capital. Please proceed with your questions.
Oh gosh, it's Nick from Brent. Thank you for taking my question on Center P 10, a year I anniversary on them and they're listening.
And so I had a couple of questions for me and this is one for Neal and and the last one with extremely interesting thought the op Yale Punks M Hot day, ESG Kpis for the margin.
And the base is basically what I'm trying to ask you to say two sub questions. The first one east and how did this come about was this initiative.
And he says by Cosmos and trying to you and I mean, what's the banks actually.
On the box office.
Changing the yeah, they're focusing them on in the oil lending business and trying to take on his jungle and so you took it beat up all of that and they'll be lumpy helpful. Please and then my second question is for the winter Polar just wanted to go back to two months question.
And the way I would say I'm looking up day, this light and permit and the wells on a stunning was that the you have for each appraisal and exploration well you would dream and each of the fault blocks and E Vita and discovery, you could basically and completed and.
And I touch it below line.
And make it a producer.
And and and that's the case it would just it would just be counting well locations, but you're trying to prove the sop to build something bigger so it doesn't really feel like it's the higher links per se.
M E P E B do meet and Morningstar, Suffolk County.
Talk a bit about you know what is that decent on infrastructure you might need to do versus just a pure and you know what the order flow line and then come to the web.
Thanks.
Yeah. Thanks next after that question, let me I'll take the first one and I'll hand over to Andy on on the second one, but I think on the first point.
Again I think.
Yeah, we had a good support discussion with the banks and the last several months around sort of the extension of that facility.
And we've had access to sort of the banking market and the whole at attractive levels, because I think really two points, which is one step.
And sort of cash generation capability of our existing assets and the defined growth and the portfolio.
And with <unk> and the <unk>.
Second piece being sort of a strong.
ESG story in terms of where the company is headed and we.
We've been very sort of opened.
And vocal around our agenda and getting to where we need to get to over the next <unk>.
Several years.
I'd say.
In terms of putting it within the facility we've seen it come and some other facilities not within sort of our region.
But.
And we thought it's important for us as a company and therefore, our bank should be aligned with that agenda and as we went through the discussion we proposed sort of putting it is within the banks and I think a number of the banks see saw it as a large positive. So it wasn't something pushed on to us. So much is something that we pushed on to the to the banks.
Sure.
Our vision in terms of where we're taking that is aligned with where they want to go and I think with with ESG and general I think along with sort of investor focus on it you are seeing more banks focus on it and.
The bar is clearly going up and they will support banks the banks will support companies, who ultimately have the strong assets that produce cash and and have the right sort of asset quality, but also the companies that support the.
Right ESG agenda as theyre, focusing on in terms of putting their capital behind us companies and Seth.
I think we got it to a.
Two a very good place and and an overall.
Sort of a differentiator in terms of Kosmos.
Providing are creating additional.
Sort of rationale around supporting the company.
It's a very interesting call and thank you.
Yeah, Nick on on.
On on when to file I think.
The task for the second appraisal well is ultimately the per.
<unk> a core area for the initial development phase what we wanted to do it and ensure that we're right sizing the flow lines back to potential hubs and there were several that we could tie back to and we want to ensure that we've designed the initial piece of infrastructure optimally yeah. So.
The question is you know you'll have a drill drill them on a phone that you've.
And you've drilled wells, you can come back and and complete those wells.
And so the optimum.
Eyes of a flow line is really the case and then with that infrastructure in place then it's about then creating some optionality around that infrastructure. This late in total and look at the second and third drill centers that will be tied back and and there's opportunities to tie back of certain volume if you.
A successful and then if you get to a tipping point, you would potentially add a sack and flow line. So this is all about ensuring that the capital that goes in and.
Is properly sized and the initial why you don't Overinvest and I've done.
And reverse but don't Overinvest, Congrats but book you know create the optionality for the future. So we see significant upside beyond the initial co development, we need to put in the right flow line size and then create the optionality for it to be a tie backs from a potential second and <unk>.
And then.
What incremental flow line capacity would you put in at that point.
Okay understood. Thank you okay. Thanks.
Thank you. Our next question will come from the line of Richard Tullis with capital One Securities. Please proceed with your questions.
Thanks, Good morning, everyone. Andy just one question for me one of the partners and Jubilee and 10, it's been looking to monetize its position there.
Most have preferential rights option and those properties and and good Kosmos looked up to exercise its rights.
And Ghana dependent on pricing.
[laughter].
Yeah, Good question and Richard.
And as with all agreements you know I think so to pressurize her in the eye of the Beholder. So I think.
I don't want to sort of get into a debate as it were on the line.
And.
And how and if.
And those could be exercised it obviously depends on the structures all sorts of things, yeah, So and <unk>.
And so to the question is that I.
And one of the licensed blocks.
I think that there is the opportunity for price rise, but it depends on the structure.
That come through I think what sort of more important is really back to sort of on our agenda, which is about we want to generate free cash flow from our existing assays and we wanted to ensure that we're deleveraging the company and you know and if we would look at on an opportunity like that it would have to fit into.
That that construct.
So I think.
The answer to the question is ultimately there.
We continue to screening screen opportunities.
There will be a cash flow generating that would be and delever the company and.
And if there are opportunities that's on us that look like that we would certainly consider them.
That's helpful and that's all for me. Thank you alright. Thanks.
Thank you our next questions come from the line of Charles Meade with Johnson Rice. Please proceed with your questions.
And maybe thanks for letting me and hop back to you here this will be quick.
On slide six net debt winterfell slide low right.
One thing that's curious you I don't I don't know if there's anything to this but I just wanted to pull on the thread and see if theres Super store and maybe.
It looks to me that you've got you've got the Pliocene here underline the vs Miocene targets and.
And I was wondering what's going on here or is this and so big inverted section or am I misunderstanding something or is there any kind of.
Bigger narrative there.
No I don't think so.
Charles I, you know I think when we look at.
Uh huh.
At Winterfell, we see a.
And opportunity that has.
Significant upside to it what we need to pursue through a proper appraisal program I think where we're.
And we're happy with.
The initial well it's proven up the.
And the seismic with calibrated it to the wells and <unk>.
And we're off the second appraisal well with.
And I deep dive on it so I wouldn't over read anything into it I think this is a.
A good start to a sub salt prospect, where the tougher part of it is is always getting the seismic calibration correct and.
We've made a strong start to that with the initial discovery well.
Alright, Thanks, Andrew.
Great. Thanks, Charles I appreciate it.
Thank you. Our next question is coming from the line of Mark Wilson with Jefferies. Please proceed with your questions.
Yeah, and I thought I'd jump back on because we all seem to be asking about winterfell now and so I'm reading that slide as big as $100 million and the central areas.
Crazily can prove up and the additional prospects, there's another $100 million.
And the other fault blocks as well.
And what we're saying is we've got over 100 million barrels.
Our initial mark Okay and.
And that's probably got ahead of ourselves Yeah, I think that's the most important thing and we believe that with the initial discovery well and the drilling of the <unk> of a second fault block we've got enough resource.
To get to and initial a development phase yeah, and so a significant proportion of 100 million barrels yeah, and what lies to the north where it lives for the south will depend on the on the drilling results, but clearly as we can you know if we have successfully appraisal well and we continue to calibrate the size.
And then obviously, we will gain confidence.
Got it okay, great. Thank you.
Thank you Spencer and no further questions at this time I would like to bring the call to a close.
Thanks to everyone for joining today you may disconnect your lines at this time and thank you for your participation.