Q1 2023 Kosmos Energy Ltd Earnings Call
Good day, everyone welcome to Cosmos Energy's first quarter 2023 Conference call. Just a reminder, today's call is being recorded.
Time, let me turn the call over to Jamie Buckland, Vice President of Investor Relations at Cosmos energy.
Thank you operator, and thanks to everyone for joining us today.
We issued our first quarter earnings release, its 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 materials are Andy angles, Chairman and C. I E.
Neil Shah Yeah, right right.
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.
As we know 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.
At this time.
Nicole.
<unk>.
Thanks, Jamie and good morning, and afternoon to everyone. Thank you for joining us today for our first quarter results call.
I'm going to run through the progress we've made during the quarter before handing over to Neal to take you through the financials.
We'll then open up the call for questions.
Starting on slide three.
It's been just over two months since our fourth quarter earnings call, which brings us closer to the anticipated mid year free cash flow inflection point, we talked about our year end results.
I will period, we made steady progress on advancing our strategic agenda and <unk> was another quarter of solid delivery.
On production, we averaged approximately 59000 barrels of oil equivalent per day net during the quarter in line with guidance, we expect production to rise in the third and fourth quarters as new wells come online primarily at Jubilee.
Our development projects, which we expect to collectively increase the company's production by around 50% from now to 2024 continue to make good progress.
On Jubilee Southeast we are targeting first oil next month.
Also what's your phase one we're targeting first gas at the end of the fourth quarter and Winterfell, we're targeting first oil at the end of the first quarter next year.
Well, we're focused on the delivery of these near term development projects. We're also progressing our future growth pipeline beyond that.
We plan to drill the Tiberius infrastructure led exploration, Ohio as well in the Gulf of Mexico next quarter.
We're making progress on the second phase of Torchy without partners in Mauritania and Senegal.
LNG concept has been selected and the project is moving into pre feed.
And then elsewhere in Mauritania, and Senegal were continuing to optimize the development concepts for the boiler and you have to try and get discoveries to advance our next gas development.
Tony's fine for.
This slide looks at operations across our three production hubs during the quarter and highlights the upcoming activity set.
As I said net production of around 59000 barrels of oil equivalent per day was consistent with <unk> guidance and full year guidance remains unchanged at 65000 to 69000 barrels of oil equivalent per day net.
In Ghana Jubilee gross oil production averaged around 72000 barrels per day down from the fourth quarter due to reduced water injection, primarily to manage reservoir pressure joined Jubilee southeast drilling.
Production is now stable since we reestablish normal water injection levels in February .
The only wells in total comprising four producers and one injector are expected the online from the end of the second quarter through the end of the third quarter. These.
These wells should drive a material increase in Jubilee production over the coming months.
I'll talk about that in more detail on the next slide.
At 10 gross oil production averaged just over 20000 barrels per day joined.
During the second quarter the operators submitted to the Ministry of Energy. The draft plan of development for our high graded activity set of additional wells or 10.
The plan includes a combined associated gas sales agreement, which covers all future gas sales from both Jubilee and 10 fields.
This activities that aims to maintain 10 oil production around current levels, while increasing gas exports.
Securing additional domestic gas is a priority for the government and we look forward to advancing this proposed oil and gas development at 10.
Moving to external again, a gross oil production averaged just over 27000 barrels per day during the quarter in line with expectations.
The three well infill drilling campaign is expected to begin in the fourth quarter with the first well online around the end of the.
You can be by lifestyle is planned for the end of the first quarter next year on the back of the infill drilling campaigns.
Lastly in the Gulf of Mexico, net production was approximately 16000 barrels of oil equivalent per day in line with guidance.
On Kodiak, we've contracted the vessel for the work over of the Kodiak three well with work expected starts in the fourth quarter.
I'll jump subsea pump project continues to make good progress and is expected online in mid 'twenty 'twenty four is planned.
As I mentioned on the previous slide wrong trying to spot the Tiberius ILEC, well next quarter, which is a high graded prospects within the outset Wilcox trend.
And winterfell additional long lead items have been ordered the export and host platform agreements are expected to be executed around midyear drilling.
Drilling is on track to commence and three Q with first of all targeted at the end of the first quarter next year.
Also in the latest Gulf of Mexico lease sale Cosmos, and a joint bid with the Winstar operator was the apparent high bidder on a neighboring blocks winterfell, which could grow the resource from this hub beyond the two phases currently planned.
Turning to slide five which provides more detail on Jubilee, which is expected to drive our near term production growth this year.
Now full year results in late February I talked about the significant upside potential of Jubilee over the coming years.
This is a big field that continues to get bigger with an estimated resource of about 2 billion barrels in place and over 1 billion barrels equivalent expected to be recoverable.
Less than 40% of these recoverable barrels are being produced since the field came online in late 2010, which creates the opportunity to extend the plateau of this high margin production.
Over the year, we expect to see production growth coming from both the main field and through the new Jubilee southeast infrastructure as additional wells are brought online.
And the main field the partnership he's planning to add two producing wells and one water injection well this year with the first produce are expected online shortly.
The other producer and injector should be online during the third quarter.
On Jubilee South East first production is expected to start up in June cheap.
So you produce the wells and one injects a while had been drilled with the producers anticipated online in late <unk> and early <unk>, respectively, with a water injector coming online in early 2024.
The chart on the right shows the expected impacts of the new wells coming on stream with gross production expenses rise over 50% from the first quarter to more than 110000 barrels of oil per day in the fourth quarter.
With over 30 identified development drilling opportunities. The partnership is aiming to maintain gross production above 100000 barrels of oil per day through the end of the decade.
Following the oxy transaction in late 2021 Cosmos increased its stake in Jubilee from 24 to around 39%.
The investment has already paid back in 14 months.
Looking ahead, the real benefit of this transaction is yet to come as we work to increase production and maintained the plateau.
On the chart on the right. We've also client the likely timing of cargo listings from Jubilee, which Neil will talk about shortly.
Due to the ramp up through the third quarter. The Jubilee cargo lifting schedule is heavily weighted towards the second half of the with only two Jubilee cargo is expected in the second quarter.
In summary, it's an exciting time for our core asset at Jubilee.
Initial production from the new Wells is the first major stack of the anticipated production and cash flow inflection point.
Turning to slide six which shows the first phase of the Torchy project with good progress across the four key work streams during the quarter.
Firstly the subsea.
The wells have been drilled completed and flowed back ready for production the.
The Amazon vessel is now laying the deepwater pipeline, which will then be followed by the infield flow lines and installation of the subsea structures.
Timely execution of the subsea work scope is now the critical path to first gas by the end of the year.
Pre commissioning work on the Fps So advanced during a scheduled stop in Singapore.
Vessel is expected to arrive on location around the end of the second quarter.
Construction of the hub someone is now complete with Honda and withdraw operations expected at the end of this quarter.
And finally construction and mechanical completion of the floating LNG vessel is finishing and commissioning work is now underway sail away from the shipyard is expected midyear.
At this point the operators focused on the integration of these key work streams and managing the critical path through subsea to enable first gas by year end.
Turning to slide seven which looks at the future gas and LNG growth potential we have across the portfolio.
While the team is fully focused on the delivery of <unk> phase. One. This year. We have also progressed the next phase of gas developments occur.
Across the Mauritania, Senegal basin, the partnership it discovered and de risked around 80 Tcf in place of advances gas resource across our acreage.
This equates to around 15 Tcf of recoverable gas net to Cosmos over 2 billion barrels oil equivalent over four times, our current T. P Reserve base.
Recent transactions seen across the sector have highlighted the value of strategic will scale gas assets.
Deep resource base across towards U gorilla and the assets are anchor is a real differentiator for the company.
A portfolio that we believe is truly unique across independent E&P companies.
As you may have seen in our press release in late April we recently strengthened the company's board of directors.
Our new directors bring valuable international operations in LNG experience to the company as we executed on our strategic goals and maximize the value of our gas resources.
Looking specifically at future growth opportunities on the slide.
Torchy phase two we recently announced the gravity based structure development concept, which was a key step to advancing the project into pre feed.
At Barilla following the new PSC agreed with the government of Mauritania late last year, we are working with partners on project optimization and concept selection.
And finally jackets Ranga, we're progressing a domestic gas scheme with our partners and the government of Senegal with LNG export potential thereafter.
In summary, we continue to advance our differentiated opportunity set across Mauritania and Senegal.
Progressing multiple options that we can high grade to live a future gas and LNG growth across the basin.
That concludes the portfolio review I'll now hand over to Neil to talk about the financial highlights of the quarter.
Thanks, Andy and good morning, and good afternoon to everyone.
Turning to slide eight the.
The first quarter of the year was in line with expectations with production flat against the fourth quarter last year and costs in line with guidance.
Realized pricing was lower quarter on quarter due to lower commodity prices during <unk>.
This was offset by lower opex quarter on quarter.
First quarter Opex was lower largely as a result of the changing sales mix in Ghana, where we did not have a 10 lifting this quarter as we did in the fourth quarter.
Capex was in line with guidance with about half related to Mauritania and Senegal.
As discussed at our fourth quarter results Capex is expected to be more weighted to the first half of the year as we progressed toward two phase one and complete the Jubilee southeast development.
And should therefore start to come down in the second half of the year.
Free cash flow, which is slightly negative in the first quarter should start to ramp up in the second half of the year as we reach that inflection point of higher production and lower Capex.
As Andy pointed out earlier on the Jubilee side, we expect only two cargoes in Ghana, and the second quarter, which leads to an under lift position and unexpected cash outflow into Q.
With that I'll hand, it back to Andy.
Thanks, Neal turning to slide nine to conclude today's presentation.
2023, the busy with multiple catalysts for Cosmos with key milestones already delivered in the first quarter.
The next major milestone is the increase in Jubilee production from the new producers coming online in the main field followed by the startup of Jubilee Southeast expected next month.
Next we expect to sail away of the S. LNG vessel from the shipyard in Singapore, and the arrival of the Fps. So on location both around the middle of the.
It's high bearers in waynesville drilling should commence in the third quarter.
At around the same time, we expect hookup activities to commence on towards you targeting first gas at the end of the and first LNG in early 2024.
Thank you I'd now like to turn the call over to the operator to open the session for questions.
Thank you and at this time, we will be conducting a question and answer session.
If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to remove your question from the queue.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
And one moment, please while we poll for questions.
Our first question comes from the line of Neil Mehta with Goldman Sachs. Please proceed with your question.
Hi, Good morning. Thank you for taking the time. This just nickel that sits around for Neil Mehta. The first question here is almost free cash flow outlook for the year and I know that it is a little bit more back end weighted but I understand you mentioned on the last quarter call. We expected range for the year would be around 100 or 200 million at current oil prices.
We be thinking about any update to the range and any idea of when we may fall at current strip.
Yeah, Hi, Nicholas.
Pass that over to Sydney here, Yeah, Hi, Nicholas.
I mean, one way.
Got it.
The fourth quarter and yet we were sort of in that sort of low to mid $80 range versus sort of mid seventies.
Yeah sort of one to 200 is closer to flat.
At current oil prices and that sort of thing.
Judge with sort of the normal.
Variation, we've seen in oil prices were $5 is roughly $100 million in free cash flow. So I think that still holds in terms of that.
Correlation.
Very helpful. Thank you and then the follow up here is just on tour to phase. One I was just wondering if there was any insight or update you can provide around the arbitration.
The context or contract structure there. Thank you.
Yeah, Hi, Nick I'll take that there's no real update you know as we talked about it.
<unk>, we've agreed to move to arbitrations or ensure the interpretation of the contract.
<unk> is aligned between ourselves and be paid.
The process has started.
Where do you anticipate it all being complete.
Prior to the opportunities to our.
Market, the cargoes, which happens after commissioning period after the startup of torture you phase one sorry, you know everything on track there and then just being handled as part of the normal course of business.
Yeah.
Great. Thanks.
Thanks.
Okay.
And our next question comes from the line of Alex Smith with investing. Please proceed with your question.
Yeah, Hi, guys. Thanks for the call today, just a quick question on Ghana and in particular in Chile are it looks like a slight change of guidance.
Ted a gross production from I guess you have in your operator kind of what's driving that have the wells drilled ahead of expectations or are you just more confident in the in the base Jubilee and then just.
The South East goes on top of that fab.
Good to hear your insights that please.
Yes, no. Thanks Alexandra I don't think there's a big difference really I think they are.
Reaching 110 by the fourth quarter I think is consistent with the the operator's guidance. So I think in overall.
We're on track to do what we said we would do we've clearly got better knowledge now of the <unk>.
Of the wells.
The individual performance of those wells and are having drilled and uncompleted those wells. So it's now through the process of start up I've got the first well in the main field starting up shortly.
The completion of the infrastructure on Jubilee South East, we've got one ball starting up.
End of the second quarter third.
The third quarter, followed by a producer and injector and the main failed. So I think the you know the build up to that 110000, I think as you know clearly laid out.
Yeah.
Activity is on plan and are again that would be the well rates because we're targeting are clearly consistent with our I'm slightly ahead of our pre drill estimates.
Yeah.
Great very clear thank you.
Yeah.
And our next question comes from the line of Matt Smith with Bank of America. Please proceed with your question.
Hi, Good morning, guys. Thanks for taking my questions I've got a couple.
I'll go one at a time and the first would be.
Jubilee just noted the reduce water pressure that you had there across January and February just wondering if you're able to provide a march one.
Recent production data collect just wanted to start and how we are entering into QQ all else equal before the new wells come on stream.
Yes.
Thanks, Matt Yeah, I think that you know we saw the drop between full Q and a.
On the one you're right.
It's really around under injection, while we were completing the drilling on june's half South East would have sort of play catch up sorry, where were sort of flat with that level that we changed in the quarter. So production essentially flat around 70000 barrels a day and then we stopped the build process with the new walls.
And I think as we look at that.
On the prior question from from Alex I think.
Where are we got a cat activity set to complete in terms of the infrastructure build out but things are on track yeah.
The wells we've had good results from those.
The main field and in the end.
Jubilee South East so that was driving a steady build up now and then.
We said it in my remarks, I think you know.
This is a big field continues to get bigger we got a.
Our real target now two to maintain.
Perhaps at a level above 100000 barrels a day, we see plenty of opportunity in the infill program with golf.
Now, it's really about getting up to that higher level, and then and then I'm trying to get through a quality driven program and you know clearly we'd been very efficient on the drilling and its values of the main field, Andrew Blake South East.
Alright. Thanks I appreciate the color and then the second question I'm familiar with B L until what you just.
Just noticing the comments for phase one around the subsea equipment being a critical path item.
I just wanted to understand really whether this is a risk that you sort of become a.
Incrementally concerned about since the last quarter or is this just a natural progression of what is the critical path given the fact that the spss properly well to that.
Critical liked him, perhaps it's not at all quite the front of the queue. So I'm just trying to get a sense of whether you think the risk of change you too. Thanks.
Yeah, Thanks, Matt Yeah, yeah good.
And I think that was a big project like this where you feel the integration.
A key work streams clearly you know the focus is on the ISR, which is moving onto the critical path I'd say, we've done a they don't provide has done a good job.
Ensuring that the abdominal was finished on time.
Clearly you know it is the big item in <unk>.
Country.
Work scope, so that's clear that whatever risks around that particularly as you indicated the parent, but we're pleased with the progress there and as I said in my remarks, we will be you know it'll be handed over to operations at the end of the quarter. So that's a big milestone and sort of derisk that Odyssey of the activities that yes BSO.
You said one was clearly a worry.
We're now sort of completed I think in.
The construction work the vessels out of the shipyard.
It's on its way.
And two to the field and I expect it to be that in middle of the year and you know there's a lot of work being done while it's paid in Singapore to ensure that there's a good understanding of the work scope calibrating the critical pre commissioning work to enable first gas to occur and I think in a week.
Got a much better understanding of that during the period that the strain in Singapore, and I think again back to that sort of lower down.
The the auctions on the critical path.
Clearly the Chinese cities now focused only on the subsea and again with that we've done with Adv the shallow water piece of things on that piece of it being executed. So it really its now about that deep water or a part of the subsea installation, which is the Amazon vessel weighing the deepwater pipeline and then the follow up.
With the installation of the subsea structures on the infield flow lines. So I think it's just a gradual shifting of the activity set to focus on the part of the project, which is now the determining factor too to first gas.
Yeah.
Okay very clear thanks, very much Heidi <unk>, great. Thanks, Matt.
Good morning, Andy deal and in the whole Cosmos steam there.
And I Wonder if I'm gonna. Thank you Andy for your excuse me your answer to the previous question that I thought there was you gave a lot of incremental detail there that was helpful.
I guess my first question would be on the.
The Jubilee Southeast development.
Just to pull on the thread that you guys just kind of.
Left us with last quarter. When you talked about there were some additional pay zones that you guys are.
Did you guys encountered with your drilling there.
And I'm curious.
What you know what what what work have you guys done or how do those additional zones.
Factor in to the AR to the development and the plateaued that you're referring to you either in the short term or the long term.
Yeah No. Good question, Charles I think that.
It's really apparent on US you know a couple of things I would say you know in Jubilee, we have an opportunity set that we've identified through before would be on the main field. We've had one cycle of it yeah initial second cycle and then we got another cycle coming up next year.
Yeah. So the main fields Youre building that help her of opportunity.
The piece around the table and South East, though is that it's it's it's Virgin reservoir.
Before comes in essentially at Aloha G. A law and therefore, the incremental production that you got from those wells getting more rarely gas constrained on the facilities in Poland. So I think the ability to differentially pull forward the Jubilee southeast Wells, maybe ahead of some of those main field.
<unk> is a part of maintaining that.
The plant's island, and then actually extending it. So I think it's that you know it's that opportunity. The Jubilee southeast has sort of grown in a relative scale. The size I would say the opportunity set and they are in the nine failed, but again back to the commentary you know.
Overall, therefore, there's a lot of opportunity.
And the main field from own sweat areas identified by 40 and in the undeveloped part of Jubilee South East with additional Paydowns coming in which gives us confidence around that ultimate length of the plants. So I think it's an interesting time in the development of G. Blake you know where we're going through.
He is now a ramp up and then and then I think you know then the real opportunity comes from being able to high grade that activity set and and therefore I extend the plateau so right.
It's it's it's really the.
Ultimately say is it is the longevity.
Of the plateau.
And it's because you are saying I'm swept to areas in the main field, but you're also seeing as you rightly point out additional horizons in Jubilee southeast and again, they come with probably a slightly higher initial production right because of the a lot of J L.
Right Yeah. It's a great example of a big fields get bigger a second on the the EG infill campaign could you just calibrate our expectations for for how for what kind of rates youre expecting from those wells, if theres any exploration risk and timing and what you know.
It all into what that means for you.
E G cargos, perhaps in 'twenty four.
Yeah, let's see yeah.
Again, a good question I think that.
You know again, you sort of sat back from the details of the reason why we were fascinated by the opportunity to see an extra well again I was your ability to existing infrastructure I'm, sorry from the K might not fully felt the ability to ask for it to sort of bring new sources of production, where it really there hasn't been really and then.
Drilling activity.
And in the last 10 years.
Therefore, there was opportunity for infill drilling which is why we're we're targeting we got updated seismic. So I think that you should recall visa is true development wells, Yeah, and and I think if you sort of think about that Charles you know over the long of the medium term lets say its sort of sustained production.
Marginal guy, but I think it's sort of sustained production.
I think the big kickoff comes in with the came in deep well drilling and a significant prospect, which has the ability to tie back to the infrastructure. That's why you would see a step up in and in production. So you know.
The well will be drilled around the end of the first quarter next year, and then sort of tie back opportunities probably in that 18 month timeline. Yeah. So I think we would we say future right and and axial G&A from the dialects paragraph, but it's probably 25 onwards.
Thanks for the detail.
Alright, Thanks Charles.
Our next question comes from the line of actually Kelly I'm, sorry actually guilty.
Andrew Gordon.
With your question.
Good morning Gents.
Just a quick question.
Talk to you you've said previously that you were looking into forward selling some of your LNG. Just wondering if you could give us an update on whether you manage to do that and if so what sort of pricing.
We're looking at.
No I don't think actually we.
We've maintained mid Miscommunicate there.
We've really had any intention to do forward sell from from phase one.
We have a sales contract as we will discuss with our would be pay we're going through.
Our process of clarifying whether you know how we would.
I used to always call goes outside of Oh.
Of that of that contract. So we have the opportunity from from those guys versions, but actually that's the key upside from it and we haven't Uh huh.
We're engaged with with various parties, but we haven't yet put in place any contractual terms for that.
Okay. That's great. Thank you.
Great. Thanks.
And our next question comes from the line of Mark Wilson with Jefferies. Please proceed with your question.
Okay. Thank you good morning, gentlemen, I, just like to ask M D and again on the subsea critical path and so because U S. P. S. I was going to arrive around midyear and the LNG vessel to leave Singapore around midyear.
The critical path because.
The vessels will be.
On location before the deep water pipelines just finished is that what you're saying here.
Hey, what I'm, saying Mark is that you are pulling all of the work scopes together clearly one can slip one kind of advance, but as we look at it today. The key determining works to complete is not around the <unk> side, it's not around the uptime at all we don't believe it's currently it's hurting me as LNG vessel.
So as you know.
The timely execution of the offshore work the subsea work and the deep brought US deep voice action is the is the critical path through to first gas.
Okay, but that's proceeding as per plan.
Sorry.
But that's proceeding as per plan the subsea installation.
Yeah, clearly you know.
If we look at the other startup of that it started a little later than we'd anticipated the Amazon vessel yeah. It came onto location a little later, but now you know that that work scope is now proceeding and ER and then as I said the objective is to ensure that it's all done and then enables the first gas.
Great. Okay. Thank you and then secondly on to onto Jubilee and the and the maintaining of that 100000, plus plateaus towards the end of the decade, you mentioned about the 10 gas volumes being included in the gas sales agreement could you talk about the interplay of gas.
Volumes versus the oil production plateau, that's expected to be maintained.
Yeah, specifically on Jubilee.
We were.
Where it is where we're at a stage today anyway, we're exporting around 100000 million standard cubic feet from Jubilee. That's a credible level of of a bank spoke wherever we're getting the right balance between the gas export voyage.
Placement with gas and with water.
I don't think that the.
Ultimately that sort of gas the oral right.
It's being influenced by the gas export right on on Jubilee.
Mark the only thing.
Yeah.
Got it okay and.
Yes, and one last for.
Please yourself to actually nail them.
You mentioned I expect a small cash outflow in Q2, I think you said could you just give us an update on where we stand with the the exploration of bonus payments from a shell. Please.
Yeah, So we're not planning for any other.
Payments from shell at the moment that we collected 50 million back in the fourth quarter of last year.
If they put forth another plant in development are either related to.
Yeah.
One of the discovery.
They've had.
Yeah, we would see another payment potentially coming through at the moment we're not.
Planning or any of that in our forecast.
Okay. Thank you very much I'll turn it over.
Alright, great. Thanks, Marc.
Since there are no further questions at this time I would like to bring the call till the close thanks to everyone. Joining today you may disconnect. Your lines at this time and thank you for your participation.
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