Q2 2023 Kosmos Energy Ltd Earnings Call
Good day, everyone welcome to Kosmos Energy's second quarter 2023 conference call. As a reminder, today's call is being recorded at this time, let me turn the call over to Jamie Buckland, Vice President of Investor Relations at Kosmos energy.
Thank you operator, and thanks to everyone for joining us today.
Morning, We issued our second quarter earnings release, this release and the slide presentation to accompany today's call are available on the investors page of our website.
Joining me on the call today to go through the materials on the angles, Chairman and say, Yeah Neal Shah CFO .
During today's presentation, we will make forward looking statements that refer to our estimates.
And expectation.
Actual results and outcomes.
It really just the facts as we know in this presentation.
Okay.
So you start first of all in Europe , or stock exchange announcement, and SEC filings for more details.
These documents are available on our website.
This time I'll turn the call over to London.
Thanks, Jamie and good morning, and afternoon, everyone and thank you for joining us today for our second 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 the call for questions.
Starting on slide three.
Last year, we set out our strategy to develop a world class asset base with a goal to grow production by around 50% from our 2020 to baseline.
I'm pleased to say in the last few weeks, we've taken the first step to achieve that growth target with the startup of the Jubilee Southeast project in Ghana.
This material step up in Ghana production is contributing around half of our stated growth target with additional growth expected to come from the Tokyo LNG projects in Mauritania, and Senegal, and the wind develop projects in the Gulf of Mexico.
I'll talk about all of these developments in more detail shortly.
As we continue to deliver these growth projects, we expect development Capex Stifel, resulting in a lower capital program over the coming years.
With production rising towards our growth target and Capex are expected to fall, we're nearing the free cash flow inflection point, where we expect to generate significant free cash flow, particularly at current commodity prices.
As cash flow grows we will remain disciplined in our allocation of capital towards three priority areas.
The financial resilience through debt Paydown funding compelling growth opportunities and potential shareholder returns.
So in summary, we're making good progress on delivery of our strategy with a lot more to come in the next six to nine months.
Turning to slide four which looks at operations across our three production hubs during the quarter and highlight the upcoming activity set.
Net production of around 58000 barrels of oil equivalent per day was consistent with our guidance for the quarter.
Our producing assets across the business performed well however, the quarter was impacted by a short delay in the startup of Jubilee southeast.
In Ghana Jubilee gross oil production averaged around 73000 barrels per day.
With the first quarter.
In May the first Jubilee well this year it was completed starting the growth in production.
First the Jubilee southeast produce the wells came online mid July lifting gross production for Jabil each around 100000 barrels of oil per day more on that on the following slide.
Attained gross oil production averaged around 20000 barrels per day in line with the first quarter George.
During the second quarter, the arthritis submitted to the Ministry of energy the amended draft plan of development for our high graded activity set of additional wells at 10.
This activity sad as I expect you to maintain an old production around current levels, but increased gas into the domestic market through our combined gas sales agreement or GSA.
The GSA kev as old future gas sales from both the Jubilee and 10 sales.
Discussions on the GSA and the amended 10 plan of development with the Ministry continue to make good progress and last month, we signed a temporary agreement for Jubilee gas delivery through September 2023 at $2.90 and then Btu, while we conclude the final.
Greetings.
Moving to actual again, a gross oil production averaged just over 24000 barrels per day during the quarter in mid July the 500th cargo lifting from the sale took place a major achievement for the partnership and the government of external Goodnight.
Three well infill drilling campaign is expected to begin in the fourth quarter with the first one on scheduled online around the end of the first quarter next year.
I had a man there are two planned workovers, which should help support production rates through the end of the year and into 2024.
You can't even deep infrastructure led exploration well is planned to spud following the completion of the infill drilling campaign.
Lastly in the Gulf of Mexico, net production was approximately 16000 barrels of oil equivalent per day in line with guidance.
On Kodiak performance has been better than expected this year.
As we have steadily increased drawdown production has increased from the S. T three well, allowing us to capture a good portion of what we expected from the planned work.
As a result, we've optimized the timing of the work that into mid 'twenty 'twenty four to allow us to add a third producing zone and capture more upside from the planned well intervention.
The odd job subsea pump project continues to make good progress and is expected online in mid 'twenty 'twenty four is planned.
I'll talk more about winterfell inside various on the following slides with activity ramping up in the Gulf of Mexico, as we move into the second half of this year.
Turning to slide five.
As I mentioned earlier last month, we announced the successful startup of the Jubilee Southeast project in Ghana. This is a major milestone for the partners the government and the people of Ghana and start the next chapter for the prolific Jubilee field.
Shortly after the initial announcement of second J S C well and stones it up taking gross Jubilee production around 100000 barrels of oil per day.
Starting later this quarter three more wells, one producer and two water injectors are expected online at Jubilee, which should further enhance production in the fourth quarter.
The second Walter and Jack.
He's a well it has been accelerated from 2024 to late 2023, given the efficiency of the drilling program in Ghana. This yeah.
This is James So we'll add pressure supports the Jubilee southeast as we move into 2024.
The challenge on the right shows our updated guidance of the ramp up or do you believe this year.
As mentioned you believe southeast did start up around a month later than anticipated and this has had a slight impact on <unk> production, resulting in a cargo deferral from three two to four Q I'm from full Puget early 2024.
<unk> production in the fourth quarter is still expected to be around 50% higher than the first half.
With the impacts of the new wells coming online.
It's an exciting time for the partnership with production at Jubilee now at levels not seen for several years.
Turning to slide six which focuses on our activity set in the Gulf of Mexico, which increases significantly this quarter.
Last month, we started drilling the Tiberius infrastructure led exploration well right Cosmos is the operator and is that 33% interest.
That variance is a four way structural trap in the outboard Wilcox trend targeting an estimated gross resource of around 135 million barrels of oil equivalents.
The well was spud in early July and is expected to take around two months to hit target that was resolved as I expected in September .
Later this month, we expect to commence drilling the development wells on Windsor style. The second of our three key growth projects.
The initial drilling campaign is for three of the five wells planned in the first phase targeting gross resource of around 100 million barrels of oil equivalents.
As an upside case around 200 million barrels of oil equivalent across the greater winterfell area.
The project remains on track to start production at the end of the first quarter of 2024.
Turning to slide seven.
This is slide he views over the last couple of quarters to provide a status update of the key work streams on the torture LNG project.
As we flagged last quarter on the critical path to first gas on phase one of the project is through the completion of the subsea work scope.
Due to a delay in the subsea work stream first gas is now targeted in the first quarter of 2020 for.
This was communicated last week by the operator in that CTO results and is the main driver of our lower capex in the second quarter.
We are working closely with you on Friday to address the subsea delay and optimize the other work streams to fit with this once you first gas timetable.
On the F. P. S. O arrival of the vessel is now scheduled for the fourth quarter as we continue pre commissioning work in batch of resource shipyards and line delivery with a revised timeline for the subsea work scope.
On the hub terminals construction is now complete with handed over to operations currently ongoing.
And finally on the U S LNG construction and mechanical completion of finishing and pre commissioning work is underway.
Hello, I have the vessel is expected around the end of the third quarter with arrived when hooker plan around year end.
I'll now hand over to Neal to take you through the financials.
Thanks, Andy turning to slide eight.
<unk> financials were in line with our prior guidance as expected we were materially under lifted in the quarter by around 1 million barrels of oil, which we expect will normalize in the second half of the year.
The only notable outlier in the quarter with Capex of $170 million. It came in below the guidance range of $200 million to $225 million.
Largely related to lower accruals on the subsea work scope on the tour to project.
Looking forward at our <unk> guidance, which is included as an appendix to this presentation. There are a few points I wanted to flag.
First we expect <unk> production to be around 20% higher than the second quarter on the back of the step change in production we've seen in Ghana in recent weeks.
Second the increase in opex per barrel quarter on quarter due to the scheduled 10 cargo and three Q as expected.
Opex per barrel should then fall again in the fourth quarter with no 10, cargos scheduled and higher production levels from Jubilee.
Third <unk> Capex is expected to be similar with the second quarter as a result of the ramp up in activity in the gum up offsetting the completion of Jubilee South East.
We also expect the reduced tour to subsea capex from <unk> to be deferred into the fourth quarter and early 2024.
As Andy mentioned in his opening remarks with growing production and Capex expected to fall as a growth projects complete we are nearing the important free cash flow inflection point for the business.
With that I'll hand, it back to Andy to close today's presentation.
Thanks, Neal turning to slide nine to conclude today's presentation.
At the beginning of the yeah, we presented a portfolio with multiple meaningful catalysts across our whole business units.
The recent startup of Jubilee Southeast was the first of three key development projects to come online with a material step up in production delivering around half of our 2020 for production growth target of 50%.
Additional wells on Jubilee later in the year it should support further production increase.
Next we will gain a the infill drilling campaign is on track to commence around the end of the year with the first of all I expected online around the end of the first quarter next year.
In the Gulf of Mexico drilling has commenced at the Tiberius ILEC prospect with the first development well at Winterfell also expected start drilling later this quarter.
And finally on torture you, we expect a very active six to nine months as we continue to progress the subsea installation, while optimizing their amazing work scopes.
Delivery of the various cashless shown on this slide should drive increased production alongside the completion of a multi year development spend which supports our material free cash flow generation going forward.
As cash flow grows we will remain disciplined allocation of capital towards three priority areas further financial resilience through debt paydown funding compelling growth opportunities and potential shareholder returns.
Thank you and I'd now like to turn the call I was the operator to open the session for questions.
Thank you we will now 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.
May press star two to remove your question from Mchugh.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys, one moment. Please while we poll for your questions.
Yeah.
Our first questions come from the line of Charles Meade with Johnson Rice. Please proceed with your questions.
Good morning, Andy and Neil and to the rest of the Kosmos team there.
One Charles Handy. My first question is about Winterfell end up and if you could.
Kind of calibrate R. R.
Expectations for what our production rate can be there and you know I'm thinking that.
You know I recognize no two reservoirs are no two developments or like but yeah theres a recent subsea tieback in the Gulf of Mexico, That's doing I think about 80000 barrels of oil a day from seven wells. So it is that.
You know what what direction are you know what how would you calibrate us off of that data point.
Yeah, Yeah, Hi, Charles I think if you sort of think about all the I'll do it and that actually is probably the simplest way to think about it but I missed the first.
Three wells were being at 5000 barrels to two hours, where 25% yeah.
So that's a gross level of around 20000 barrels a day and ultimately pipeline constraints.
Hello, Ryan constrained and so we see more opportunity to see beyond that.
Yeah.
The second phase would be additional let's say wells and I think with success, we would look at I actually adding another flow why so I think that sort of continuing upside when to file again as we said in our remarks is ultimately at arrow.
A 200 million barrel grocery source. So I think the first three wireless as Neil said fly line constrained.
<unk> thousand barrels a day when the opportunity then to continue to de bottleneck the the project.
Right right.
That makes sense.
Second question about Oh about a tour to end up.
Like did you close with slide nine. This is what this is one of my favorites, but I wanted to ask perhaps I'm over interpreting this but.
You have the Oh on the bottom right you have the first gas.
It looks like it's going to be at the end of <unk> 'twenty for US is that is that the right read.
Yeah, all right.
I appreciate the question.
Thank you Brian for taking it.
Cereal I think.
And that takes your results last week. So that's gas is now expected in Washington, 24, which is why we put it on that so Charles Charles So I think that's what you should rely on.
Got it thank you I appreciate it.
Alright, Thanks, Joe.
Thank you our next questions come from the line of James Hosie with Barclays. Please proceed with your questions.
Hi, there thanks for taking the questions and.
Firstly I'll talk to you in the delayed phase one and that's why I say it is any additional capex you expect due to the delays and also the change in the subsea installation schedule.
And then just in Jubilee I mean.
Are you actually looking for oil production to be up in the facility capacity, which I think is 100 trencher plays in barrels a day by year end.
And then on the gas price increase you've got Ghana should be thinking about as a floor price from what you were expecting to receive under the longer term sales agreements that youre currently finalizing.
Yeah.
Okay, right that was a machine gun.
Thanks James.
On.
And so what you phase one if we just sort of look at the Capex impact.
You know most of the remaining Capex on the project is related to the subsea work Scott just to remind us.
So in the U S LNG all these vessels.
Travel is completing the wells are being drilled say ultimately it's about the remaining capex to complete the subsea work to keep Capex as Neil said in his remarks was a lot of our juice in accruals on the subsea juices in July .
And this activity that's from <unk>.
Sorta side, where we're sort of in line with guidance I should say some refinancing of Capex from Q4 Q to reflect the subsea July and therefore, that's why out sort of full year 'twenty three guidance is unchanged and then really sort of depending on the timing of the price.
The process of completing the subsea work going back to Charles' question I think there will be some residual cap rates for the subsea that'll go into one Q 'twenty for James and we will provide you enough time for that when they give you the the 24 guidance.
On Jubilee.
Yeah, if I, just sort of step back and sort of try and give a bigger picture I think we're very pleased with the performance.
Performance of Jubilee.
We've gone up from 70000 vials a garage we enter the year, we're now about $100000.
Per day that is.
For three wells, we have one of the main field.
Got it out and then we've had in July two more wells in Jubilee southeast.
The next wells came on and will be another well in the main field.
And with that you know, we expect another bump and in production and then it'll be followed by two water inject is one of the main field wanting Jamie South East disorder provides support to those higher levels.
Our production so we're getting close to the facility's limit.
Revenue.
And I think.
The other message to sort of deliver and as we look forward to.
<unk> profile.
For the remainder of the decade, you know if.
We've got a very strong set of drilling opportunities.
The cycle of the of the 40.
Every time it hits.
Bringing forward more opportunities were clearly very pleased with the performance of the wells on the Jubilee southeast. So now it's ultimately going to be around that drilling program along dreamily.
The bump was off so much these limits and maintain a very high level of reliability. So you know that's the goal that's the opportunity and I think we're off to a strong style Isaac.
Finally, your question on the on the gas price.
Correct. So you haven't seen nine C is in place to take us through the periods at the end of September is there to allow us to finalize all of the conversations with the government of Ghana around that the 10 payout, which has as an integral part of the gas sales agreement.
And how 'bout Jubilee and 10 gas going going forward at the same price. So I think you know what.
The base price of up to 19.
It enables us to get started and then we believe that'll be an increment above that this fall.
Investment in China.
Did I cover everything James.
Yes. Thank you.
Hi.
Thank you. Our next question is coming from the line of Neil Mehta with Goldman Sachs. Please proceed with your questions.
Yeah. Thanks, so much and Andy the very helpful update I guess the first question is just around the under lift it seemed like the if there was any softness in the cash flow is just a lot of it was just about timing of.
Of cargos and can you just remind us how those trajectories will pick up to three Q4 Q, it's fair to assume you'll you'll make up for that loss of cargo.
Yeah, I'll ask Neil to figure out.
Yes.
No you're right. The first half you know a large part included in the second quarter is really just around the time of the cargoes. We haven't listed tangibly cognitive which will increase to three and then ultimately five Ah in through Q4 kids.
As we go forward and then you know we had you know we run it.
We didn't want the 10 cargo in the second quarter with the lift in the third quarter. Yeah. Most of them have a cargo and EG, which will lift sort of one Nick Hornby Island, <unk> 40 going forward.
Yeah. He is a very much an over lift component, which is being better considering that prices were higher in the back and didn't happen in the first half of the year.
Yeah that will square away.
At least not in our forecast and <unk>, partially in an Indian haughey.
Okay. That's that's very helpful and then as the non engineered maybe I can ask this question.
Which is about the subsea and certainly that's been an area where there have been some productivity issues and can you just explain in layman's terms, what's going on there and and how how the investment community should get confidence that there's.
Theres, a clear fix in mind and and it's easily addressable.
Yeah. Thanks Neil.
You know yeah.
One key results, we flagged the subsea work scope with the life changed in the later arrival of deep water pipeline vessels. So that's the sort of the first quarter.
Sort of strike forward issue you know as a result of Workstream moves so the critical path and therefore, he's driving in Europe , All project timeline I'll I'll come back to the other work streams in a minute.
He noted that same care results last week, Yeah first gas is now.
Now expected in one queued.
I simply as a result of further delays in the deepwater.
I play.
You know the operators clearly focused on that issue and looking to buy.
The address that July with contingencies and optimize your other work streams to fit with the overall wonky first cast time cycle. So that you know.
That's the basic sort of issue we're dealing with the Miami nail is focused on the brightest singular issue and it's being clearly getting the attention. It requires from the operator and I think they put together a very good plan, which both addresses the issue in terms of a bank's plan with with consensus seems to allow for first gas and water.
<unk> 24.
As with any large project, we're bringing together several work streams now and I think you know we shouldn't you know clearly the major focus on the on the pipeline part of it but across the other work streams a lot of progress has been made.
With several major items the rest.
Yes.
Lastly yard where obviously.
With a delay in the subsea installation it creates an opportunity for us to complete work in areas, where we've got greater support.
And impulse in shipyards, rather than take that work offshore Mauritania, and Senegal, which clearly gives us a easy ability to arrive at an even higher level of completion you know the wells have been drilled in Florida.
Construction is complete and at current rates being handed over to operations.
LNG is close to save a life.
Yeah.
Pointed with the ER subsea delay, it's getting the attention that it needs and the other work streams.
That proceeding accordingly.
That's really helpful. Thanks Ann.
Thank you. Our next question is come from the line of soup off Shandra with benchmark. Please proceed with your question.
Yeah. Good morning, just some clarity on the Capex issue.
How should we think of that overflow into first quarter of next year sort of be at that $30 million of.
That you came in under in the second quarter and then I think you mentioned, there's probably some additional capex that also shows up independent of.
<unk> of July .
Yes.
I'd say in their part to get.
Fortyish million that we've underspent in and teach you the hit to rethink it partially into for kids and some.
Smoke ethics that'll show up in the first quarter as well.
Can you get out 24 guidance, when we get to that timeframe, but I think yeah again, I think within the year two Q3, Q, we're going to be lower than the first quarter and fourth quarter and then yeah, there will be a residual.
In the first quarter that will.
Provide some clarity on that as we get through the budget cycle.
Okay, great. Thank you.
Second is on pace to sort of.
Any update on all the aspects that go into it.
And and secondly.
Senegal politics, right just keeps making the paper here over the past weekend and any color there.
Okay.
Yeah.
Yeah.
Phase two is sort of.
Again sort of going back to the fundamentals phase two is a brownfield expansion of phase one way, we're putting in place the infrastructure, whether it's additional gas processing capacity on the Sps or pipeline capacity to export more gas.
And he's now the hub terminal there.
Our call today.
Additional gas processing. So the most important thing at the moment as we can probably optimize the concept to take account of all of the brownfield capital with ligand.
So that's the work that's going on at the moment and and Nothing's changed from their lives. We guided previously which is with a common set for me fully optimized than the objective would be to and to see you know next year, which ourselves in base pay you would regard as a formal project sanction.
<unk> gave us.
The nature of his friend are increasing at that point so again.
I feel good about phase two because it's fundamentally one of the lowest cost lower carbon.
The expansion projects globally.
In terms of the politics in Senegal.
Obviously, leading up to an election next year.
Hum.
The history has been as the country has a long history of a democratic process changes of government and stability are aligned around that so I see this as just being part of a normal ebb and flow.
Our politics in the country and the most important thing.
Is that it has a very stable democracy.
And it's demonstrated that through several election cycles and this one will be no different.
Thanks, so much.
Great. Thanks.
Thank you as a reminder, if you would like to ask a question. Please press star one on your telephone keypad.
Our next questions come from the line of Mark Wilson with Jefferies. Please proceed with your question.
Yes. Thank you my first question for Neil So given all the variables.
<unk> spoke to.
Is it fair to assume that.
Q2, net debt would be the high watermark Cosmos, we will see that delever from quote unquote it from here.
Yeah, I think we're pretty.
Close to that.
Mark.
We're right at that inflection point, where production is rising and clearly it's sort of at today's oil prices.
We're now starting to get some of that Capex fall.
I think that'll continue to expand as the production continues to grow up rise into capital continues to fall, but yeah, I think we're right around that.
That pilot.
Okay cool, thanks, and and there's been questions, we got into the schedule and talk to.
I mean are you in terms of introducing gas into this whole system with the facilities in place it sounds like that's something that's going to happen.
In the middle of a warm Q or and it won't you.
What was the expected time for commissioning of all of these various affluent G vessels.
Did you think that has shortened given the time the extended time in shipyards or was it the same as the original plan in terms of once you get gas into the pipeline.
Yeah, Hi, Mark I'll take that no its show up not because we like where we're doing work.
As you know the peso I'm on the journey from from from China to Senegal were managed to liquidate some some time so actually it goes sort of in front of the first gas that's well hookup will be shortened as a result, and then obviously as you say you would then introduce gas into the U S. P. S.
And then there's the sort of cool down of the S. LNG vessel, where again, we have to sort of shorten that to that timeframe, but I think in that sort of plus or minus it's around sort of probably three months from first gas into.
Yeah. So you still got around about a three month sort of cool down period.
Would that lead to the first kind of longer. So I think you know yeah. It's been shortened I think the thing for me is it's been derisked because a lot of the work you're doing to inspect walk down on for Pat.
Breast colon stops out.
And I think that's ultimately.
One of the most important points to take away I think.
Okay. Thanks, Andy and good luck with that those those final steps and I'll turn it over.
Great. Thanks, Mark I appreciate it.
Thank you I'm showing no further questions at this time and with that I would like to bring the call to a close thanks to everyone. Joining today you may disconnect your lines at this time.
Thank you for your participation.