Kosmos Energy(KOS) - 2020 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Glossary and Selected Abbreviations This section provides a comprehensive list of abbreviations and definitions for industry-specific terms used throughout the report, ensuring clarity and consistent understanding of technical language related to oil and gas exploration and production - The glossary defines key industry terms such as '2D seismic data', '3D seismic data', 'Barrel' (Bbl), 'Boe' (Barrels of oil equivalent), 'EBITDAX', 'FPSO' (Floating production, storage and offloading vessel), 'LNG' (Liquefied natural gas), 'Proved reserves', and various financial ratios like 'GoM Liquidity Ratio' and 'Guarantor Liquidity Ratio'[13][14][15][16] Item 1. Financial Statements This section presents Kosmos Energy Ltd.'s unaudited consolidated financial statements for the quarter ended June 30, 2020, including balance sheets, statements of operations, stockholders' equity, cash flows, and detailed notes Consolidated Balance Sheets This section provides a snapshot of the company's financial position, detailing assets, liabilities, and stockholders' equity as of June 30, 2020, and December 31, 2019 Consolidated Balance Sheet Highlights (In thousands) | Metric | June 30, 2020 (Unaudited) | December 31, 2019 | | :-------------------------------- | :------------------------ | :------------------ | | Assets | | | | Cash and cash equivalents | $164,091 | $224,502 | | Total current assets | $480,999 | $566,557 | | Property and equipment, net | $3,378,665 | $3,642,332 | | Total assets | $3,986,491 | $4,317,232 | | Liabilities & Stockholders' Equity | | | | Total current liabilities | $448,919 | $539,101 | | Long-term debt, net | $2,107,653 | $2,008,063 | | Production prepayment agreement, net | $49,333 | — | | Total liabilities | $3,532,304 | $3,475,530 | | Total stockholders' equity | $454,187 | $841,702 | | Total liabilities and stockholders' equity | $3,986,491 | $4,317,232 | - Total assets decreased from $4,317,232 thousand at December 31, 2019, to $3,986,491 thousand at June 30, 2020, primarily driven by a reduction in cash and cash equivalents and net property and equipment[19] - Total stockholders' equity significantly decreased from $841,702 thousand at December 31, 2019, to $454,187 thousand at June 30, 2020, largely due to accumulated deficit[20] Consolidated Statements of Operations This section details the company's financial performance, including revenues, costs, and net income or loss for the three and six months ended June 30, 2020, compared to prior periods Consolidated Statements of Operations Highlights (In thousands, except per share data) | Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Oil and gas revenue | $127,314 | $395,933 | $305,094 | $692,723 | | Total revenues and other income | $127,314 | $395,934 | $305,095 | $692,724 | | Total costs and expenses | $374,130 | $346,495 | $669,135 | $704,865 | | Net income (loss) | $(199,391) | $16,837 | $(382,158) | $(36,069) | | Basic net income (loss) per share | $(0.49) | $0.04 | $(0.94) | $(0.09) | | Diluted net income (loss) per share | $(0.49) | $0.04 | $(0.94) | $(0.09) | | Dividends declared per common share | $— | $0.0452 | $0.0452 | $0.0904 | - Oil and gas revenue significantly decreased by 67.8% for the three months ended June 30, 2020, compared to the same period in 2019, and by 55.9% for the six months ended June 30, 2020, primarily due to lower oil prices and cargo timing[22] - The company reported a net loss of $(199,391) thousand for the three months ended June 30, 2020, a substantial decline from a net income of $16,837 thousand in the prior year period; for the six months, the net loss widened to $(382,158) thousand from $(36,069) thousand[22] Consolidated Statements of Stockholders' Equity This section outlines changes in the company's equity, including common shares, additional paid-in capital, and accumulated deficit, for the period ended June 30, 2020 Consolidated Statements of Stockholders' Equity Highlights (In thousands) | Metric | Balance as of Dec 31, 2019 | Dividends | Equity-based compensation | Net loss | Balance as of Jun 30, 2020 | | :------------------------- | :------------------------- | :---------- | :------------------------ | :--------- | :------------------------- | | Common Shares (Amount) | $4,458 | — | — | — | $4,496 | | Additional Paid-in Capital | $2,297,221 | $(18,918) | $18,484 | — | $2,291,826 | | Accumulated Deficit | $(1,222,970) | — | — | $(382,158) | $(1,605,128) | | Total Stockholders' Equity | $841,702 | $(18,918) | $18,484 | $(382,158) | $454,187 | - Total stockholders' equity decreased by $387,515 thousand from December 31, 2019, to June 30, 2020, primarily due to a net loss of $(382,158) thousand and dividends of $(18,918) thousand, partially offset by equity-based compensation[24] - The accumulated deficit increased from $(1,222,970) thousand at December 31, 2019, to $(1,605,128) thousand at June 30, 2020, reflecting the net losses incurred[24] Consolidated Statements of Cash Flows This section presents the company's cash inflows and outflows from operating, investing, and financing activities for the six months ended June 30, 2020, and the prior year Consolidated Statements of Cash Flows Highlights (In thousands) | Metric | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :------------------------------------------ | :----------------------------- | :----------------------------- | | Net cash provided by (used in) operating activities | $(62,836) | $222,390 | | Net cash used in investing activities | $(177,427) | $(164,481) | | Net cash provided by (used in) financing activities | $175,736 | $(58,716) | | Net decrease in cash, cash equivalents and restricted cash | $(64,527) | $(807) | | Cash, cash equivalents and restricted cash at end of period | $164,819 | $184,809 | - Net cash used in operating activities was $(62,836) thousand for the six months ended June 30, 2020, a significant decrease from $222,390 thousand provided in the prior year, primarily due to lower oil prices and sales volumes[26] - Net cash provided by financing activities was $175,736 thousand for the six months ended June 30, 2020, compared to $(58,716) thousand used in the prior year, driven by borrowings under long-term debt and advances from a production prepayment agreement[26] Notes to Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the consolidated financial statements, covering accounting policies, significant transactions, and financial instrument details 1. Organization This section describes Kosmos Energy Ltd.'s corporate structure, redomestication, and its operational focus as a deepwater independent oil and gas exploration and production company - Kosmos Energy Ltd. redomesticated from Bermuda to Delaware in December 2018 and operates as a full-cycle deepwater independent oil and gas exploration and production company[29][30] - Key assets include production offshore Ghana, Equatorial Guinea, and U.S. Gulf of Mexico, with a world-class gas development offshore Mauritania and Senegal, and exploration programs across Atlantic Margins[30][31] 2. Accounting Policies This section outlines the significant accounting principles and methods used in preparing the interim consolidated financial statements, including revenue recognition, cash equivalents, and restructuring charges - Interim consolidated financial statements are unaudited and prepared in accordance with SEC requirements, with certain GAAP notes condensed or omitted[32] Cash, Cash Equivalents and Restricted Cash (In thousands) | Category | June 30, 2020 | December 31, 2019 | | :---------------------------------------------------------------- | :------------ | :---------------- | | Cash and cash equivalents | $164,091 | $224,502 | | Restricted cash - current | $186 | $4,302 | | Restricted cash - long-term | $542 | $542 | | Total cash, cash equivalents and restricted cash (Consolidated Statements of Cash Flows) | $164,819 | $229,346 | - The company recognized $(0.6) million and $13.3 million in restructuring charges for employee severance and related benefit costs during the three and six months ended June 30, 2020, respectively, as part of a corporate reorganization[41] - Revenue from Phillips 66 Company accounted for approximately 24% and 37% of total consolidated revenue for the three and six months ended June 30, 2020, respectively, primarily from the U.S. Gulf of Mexico segment[42] 3. Acquisitions and Divestitures This section details the company's recent strategic decisions regarding its exploration blocks, including withdrawals and terminations of interests in various offshore regions - During Q2 2020, Kosmos decided to withdraw from blocks offshore Cote d'Ivoire and declined to enter the final exploration phase of Suriname Block 45 petroleum agreement in July 2020[45] - In February 2020, the company terminated its interests in the Marine XXI block petroleum contract in the Republic of Congo, which had not received governmental approval[46] - In March 2019, Kosmos acquired Ophir's remaining interest in Block EG-24, offshore Equatorial Guinea, increasing its participating interest to 80% and becoming the operator[47] 4. Joint Interest Billings, Related Party Receivables and Notes Receivables This section provides information on receivables from joint interest billings and notes from national oil companies related to development costs - Joint interest billing receivables from GNPC for TEN fields development costs were $9.1 million (current) and $17.0 million (long-term) as of June 30, 2020[49] - Notes receivable from national oil companies of Mauritania and Senegal for Greater Tortue Ahmeyim Phase 1 development costs totaled $71.1 million as of June 30, 2020, up from $27.4 million at December 31, 2019[50] 5. Property and Equipment This section details the company's oil and gas properties, including proved and unproved assets, accumulated depletion, and asset impairments Property and Equipment (In thousands) | Category | June 30, 2020 | December 31, 2019 | | :-------------------------- | :------------ | :---------------- | | Proved properties | $5,129,222 | $4,904,648 | | Unproved properties | $533,393 | $814,065 | | Total oil and gas properties | $5,662,615 | $5,718,713 | | Accumulated depletion | $(2,296,869) | $(2,093,962) | | Oil and gas properties, net | $3,365,746 | $3,624,751 | | Property and equipment, net | $3,378,665 | $3,642,332 | - Depletion expense was $115.7 million for Q2 2020 (down from $144.0 million in Q2 2019) and $202.9 million for H1 2020 (down from $255.0 million in H1 2019)[51] - Asset impairments totaling $150.8 million were recorded during the six months ended June 30, 2020, for oil and gas proved properties in the U.S. Gulf of Mexico, due to the impact of COVID-19 on oil prices[51] 6. Suspended Well Costs This section provides an overview of capitalized exploratory well costs, including reclassifications and projects with costs capitalized for extended periods Capitalized Exploratory Well Costs (In thousands, except well counts) | Category | June 30, 2020 | December 31, 2019 | | :-------------------------------------------------------------------------------- | :------------ | :---------------- | | Beginning balance | $445,790 | N/A | | Reclassification due to determination of proved reserves | $(263,849) | N/A | | Ending balance | $183,081 | $445,790 | | Exploratory well costs capitalized for a period of three years or greater | $153,465 | $338,424 | | Number of projects with capitalized exploratory well costs greater than one year | 2 | 3 | - Exploratory well costs associated with the Greater Tortue Ahmeyim Unit were reclassified to proved property in Q1 2020 following the execution of the Tortue Phase 1 SPA[52] - Projects with capitalized exploratory well costs for more than one year include the BirAllah discovery in Mauritania and the Yakaar and Teranga discoveries in Senegal, with commerciality decisions pending further evaluation[53][54][55] 7. Leases This section details the company's lease costs, including operating and short-term leases, and outlines future minimum rental commitments Lease Costs (In thousands) | Category | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Operating lease cost | $1,899 | $1,602 | $3,157 | $3,009 | | Short-term lease cost | $2,434 | $582 | $12,802 | $587 | | Total lease cost | $4,333 | $2,184 | $15,959 | $3,596 | - Short-term drilling contracts contributed $12.2 million to lease costs for the six months ended June 30, 2020, compared to zero in the prior year[57][58] Future Minimum Rental Commitments (In thousands) | Year | Operating Leases | | :--------- | :--------------- | | 2020 (Jul-Dec) | $2,061 | | 2021 | $4,174 | | 2022 | $4,237 | | 2023 | $4,301 | | 2024 | $3,464 | | Thereafter | $16,041 | | Total undiscounted lease payments | $34,278 | | Less: Imputed interest | $(11,195) | | Total lease liabilities | $23,083 | 8. Debt This section provides information on the company's outstanding debt, including facility borrowings, corporate revolver, senior notes, and related interest and financing costs Outstanding Debt Principal Balances (In thousands) | Debt Type | June 30, 2020 | December 31, 2019 | | :------------------ | :------------ | :---------------- | | Facility | $1,450,000 | $1,400,000 | | Corporate Revolver | $100,000 | — | | Senior Notes | $650,000 | $650,000 | | Total | $2,200,000 | $2,050,000 | | Long-term debt, net | $2,107,653 | $2,008,063 | - The Facility's available borrowing base was reduced from $1.6 billion to $1.5 billion in April 2020, with $1.45 billion borrowed and $0.05 billion undrawn as of June 30, 2020[63] - In July 2020, the debt cover ratio covenant for both the Facility and Corporate Revolver was amended to be less restrictive (up to 4.75x) through December 31, 2021, in response to COVID-19 impacts on oil demand and prices[65][68] Interest and Other Financing Costs, Net (In thousands) | Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Interest expense | $28,504 | $38,450 | $60,270 | $76,622 | | Loss on extinguishment of debt | $2,215 | $24,794 | $2,215 | $24,794 | | Interest and other financing costs, net | $28,274 | $59,803 | $56,109 | $94,844 | 9. Production Prepayment Agreement, net This section details the company's production prepayment agreement with Trafigura, including the amount received, committed funds, and associated liquidity ratio covenants - In June 2020, Kosmos received $50 million from Trafigura under a Production Prepayment Agreement for crude oil sales from U.S. Gulf of Mexico production, with an additional $100 million committed by Trafigura[74] - The agreement is for up to $200 million of crude oil sales, with an estimated total of 2 million barrels to be delivered over no more than 60 months[74] - The company must maintain a Guarantor Liquidity Ratio of not less than 1.20x and a GoM Liquidity Ratio of not less than 1.50x, and was in compliance as of June 30, 2020[82] 10. Derivative Financial Instruments This section describes the company's use of financial derivative contracts to manage exposure to commodity price and interest rate fluctuations, along with their estimated fair values - The company uses financial derivative contracts (collars, put options, call options, swaps) to manage exposure to commodity price and interest rate fluctuations, not for trading purposes[81][92] Oil Derivative Contracts - Volumes and Weighted Average Prices (as of June 30, 2020) | Term | Type of Contract | Index | MBbl | Weighted Average Price per Bbl (Swap) | | :--------- | :--------------- | :---------- | :--- | :------------------------------------ | | Jul — Dec 2020 | Swaps | Dated Brent | 5,275 | $42.67 | | Jul — Dec 2020 | Swaps | Argus LLS | 3,000 | $29.98 | | Jan — Dec 2021 | Swaps with sold puts | Dated Brent | 5,000 | $54.70 | | Jan — Dec 2021 | Three-way collars | Dated Brent | 1,000 | (Floor: $40.00, Ceiling: $55.40) | | Jan — Dec 2022 | Sold calls | Dated Brent | 1,581 | (Ceiling: $60.00) | Derivative Instruments - Estimated Fair Value (In thousands) | Type of Contract | Balance Sheet Location | June 30, 2020 | December 31, 2019 | | :------------------------------------------ | :----------------------- | :------------ | :---------------- | | Commodity (Derivative assets—current) | Asset | $30,289 | $12,856 | | Commodity (Derivative assets—long-term) | Asset | $11,271 | $2,302 | | Commodity (Derivative liabilities—current) | Liability | $(43,974) | $(8,914) | | Commodity (Derivative liabilities—long-term) | Liability | $(9,306) | $(11,478) | | Total derivatives not designated as hedging instruments | Net | $(11,720) | $(8,521) | 11. Fair Value Measurements This section categorizes fair value measurements into Level 1, Level 2, and Level 3 inputs, detailing the valuation of commodity derivatives, senior notes, and other financial instruments - Fair value measurements are categorized into Level 1 (quoted prices in active markets), Level 2 (significant observable inputs), and Level 3 (significant unobservable inputs)[90] Fair Value Measurements (In thousands) | Category | June 30, 2020 (Level 2) | December 31, 2019 (Level 2) | | :-------------------- | :---------------------- | :------------------------ | | Commodity derivatives | $(11,720) | $(8,521) | | Senior Notes | $580,554 (Level 1) | $664,957 (Level 1) | | Production Prepayment Agreement | $57,500 (Level 2) | — | | Corporate Revolver | $100,000 | — | | Facility | $1,450,000 | $1,400,000 | - Long-lived assets were impaired by $150.8 million in H1 2020 due to COVID-19's impact on oil demand and prices, reducing their carrying value to $243.7 million based on Level 3 fair value assumptions[97] 12. Equity-based Compensation This section reports the equity-based compensation expense from LTIP awards and provides a summary of outstanding restricted stock units and future compensation to be recognized - Equity-based compensation expense from LTIP awards was $8.3 million for Q2 2020 (vs. $9.5 million in Q2 2019) and $17.7 million for H1 2020 (vs. $17.9 million in H1 2019)[98] Outstanding Restricted Stock Units (In thousands) | Category | Outstanding at Dec 31, 2019 | Granted | Forfeited | Vested | Outstanding at Jun 30, 2020 | | :-------------------------------- | :-------------------------- | :------ | :-------- | :----- | :-------------------------- | | Service Vesting Restricted Stock Units | 4,731 | 3,474 | (901) | (2,067) | 5,237 | | Market / Service Vesting Restricted Stock Units | 7,798 | 3,392 | (476) | (2,582) | 8,132 | | Total | 12,529 | 6,866 | (1,377) | (4,649) | 13,369 | - As of June 30, 2020, total equity-based compensation to be recognized on unvested restricted stock units is $41.6 million over a weighted average period of 2.02 years[99] 13. Income Taxes This section details the company's income tax provision across various jurisdictions, including the impact of valuation allowances and the CARES Act - Income tax provision includes United States, Ghanaian, and Equatorial Guinean income taxes, and Texas margin taxes; other foreign jurisdictions have a 0% effective tax rate due to statutory rates or full valuation allowances against deferred tax assets[103] - Valuation allowance on U.S. deferred tax assets increased by $16.7 million for Q2 2020 and $86.1 million for H1 2020, resulting in $30.9 million net U.S. deferred tax expense, due to declining oil prices[104] - The CARES Act allowed a $4.9 million current tax benefit in Q1 2020 from carrying back U.S. taxable losses to prior years with higher income tax rates[105] Income (Loss) Before Income Taxes (In thousands) | Jurisdiction | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | United States | $(79,703) | $(18,499) | $(269,840) | $(74,240) | | Foreign—other | $(167,113) | $67,938 | $(94,200) | $62,099 | | Total | $(246,816) | $49,439 | $(364,040) | $(12,141) | 14. Net Income (Loss) Per Share This section presents the basic and diluted net income or loss per share, along with the weighted average number of shares outstanding for the reported periods Net Income (Loss) Per Share (In thousands, except per share data) | Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :---------------------------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income (loss) allocable to common stockholders | $(199,391) | $16,837 | $(382,158) | $(36,069) | | Basic weighted average number of shares outstanding | 405,195 | 401,323 | 404,990 | 401,244 | | Diluted weighted average number of shares outstanding | 405,195 | 408,230 | 404,990 | 401,244 | | Basic net income (loss) per share | $(0.49) | $0.04 | $(0.94) | $(0.09) | | Diluted net income (loss) per share | $(0.49) | $0.04 | $(0.94) | $(0.09) | - Outstanding restricted stock awards and units of 11.6 million (Q2 2020) and 11.3 million (H1 2020) were excluded from diluted EPS calculations as their effect would have been anti-dilutive[110] 15. Commitments and Contingencies This section outlines the company's drilling and seismic commitments, performance bonds, and the suspension of its quarterly cash dividend - The company has commitments to drill one exploration well in Sao Tome and Principe and Namibia, and two in Mauritania, along with seismic acquisition requirements in these regions and South Africa[112] - Performance bonds totaled $208.7 million for BOEM supplemental bonding and $7.2 million for other operators related to well abandonment and facility removal in the U.S. Gulf of Mexico, with no cash collateral as of June 30, 2020[113] - The Board of Directors suspended the quarterly cash dividend in March 2020 in response to economic conditions, including oil price volatility and the COVID-19 pandemic[114] 16. Additional Financial Information This section provides further details on accrued liabilities, asset retirement obligations, facilities insurance modifications, and other expenses Accrued Liabilities (In thousands) | Category | June 30, 2020 | December 31, 2019 | | :-------------------------------- | :------------ | :---------------- | | Exploration, development and production | $83,052 | $152,490 | | Income taxes | $56,649 | $103,566 | | General and administrative expenses | $3,518 | $44,575 | | Total accrued liabilities | $203,275 | $380,704 | Asset Retirement Obligations (In thousands) | Category | June 30, 2020 | | :-------------------------------- | :------------ | | Beginning asset retirement obligations | $235,053 | | Liabilities settled during period | $(3,905) | | Accretion expense | $9,369 | | Ending asset retirement obligations | $242,655 | - Facilities insurance modifications, net, decreased significantly, with $0.1 million incurred in Q2 2020 (vs. $11.2 million in Q2 2019) and $8.1 million in H1 2020 (vs. $22.2 million in H1 2019), with no insurance recoveries in 2020 compared to $8.9 million and $39.9 million in 2019[117] - Other expenses, net, increased to $25.1 million for H1 2020 (vs. $0.3 million in H1 2019), primarily due to $13.3 million in restructuring charges for employee severance[118] 17. Business Segment Information This section provides a breakdown of the company's oil and gas revenue and capital expenditures across its four geographic operating segments - Kosmos operates in four geographic segments: Ghana, Equatorial Guinea, Mauritania/Senegal, and U.S. Gulf of Mexico[119] Oil and Gas Revenue by Segment (In thousands) | Segment | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Ghana | $61,192 | $202,085 | $110,900 | $325,003 | | Equatorial Guinea | $26,901 | $64,484 | $51,520 | $153,289 | | U.S. Gulf of Mexico | $39,221 | $129,364 | $142,674 | $214,431 | | Total | $127,314 | $395,933 | $305,094 | $692,723 | Consolidated Capital Expenditures by Segment (In thousands) | Segment | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Ghana | $8,590 | $33,496 | $25,076 | $68,463 | | Equatorial Guinea | $9,335 | $6,115 | $16,106 | $21,051 | | Mauritania/Senegal | $2,202 | $4,039 | $5,323 | $6,290 | | U.S. Gulf of Mexico | $39,897 | $41,177 | $78,551 | $87,059 | | Corporate & Other | $6,360 | $15,858 | $25,795 | $28,050 | | Total | $66,384 | $100,685 | $150,851 | $210,913 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and operational results, highlighting the significant impact of the COVID-19 pandemic on oil prices, project delays, and financial performance Overview This section summarizes the significant impacts of the COVID-19 pandemic on the company's operations, including increased travel restrictions, supply chain disruptions, decreased oil demand, and substantial declines in oil prices - The COVID-19 pandemic has significantly impacted operations, leading to increased travel restrictions, supply chain disruptions, decreased oil demand, and substantial declines in oil prices[128] - Key impacts include delays in Ghana's Jubilee CALM buoy installation, deferral of Ghana and Equatorial Guinea drilling programs, suspension of U.S. Gulf of Mexico ILX program, and a 12-month delay for the Greater Tortue Ahmeyim Phase 1 project[129] - The company suspended its quarterly dividend and recorded $150.8 million in asset impairments in Q1 2020 due to lower oil prices[139] Recent Developments This section outlines recent operational updates, including production averages, well developments, and strategic decisions regarding exploration blocks - Jubilee production averaged 90,000 Bopd (gross) and TEN production averaged 50,000 Bopd (gross) in Q2 2020; the NT-09 well is expected online in Q3 2020[131][132] - U.S. Gulf of Mexico production averaged 20,200 Boepd (net) in Q2 2020, with shut-ins in May 2020 due to market conditions; Kodiak development well is expected online in H1 2021, and Tornado 4 development well in H2 2020[133][134][135][136] - The Tortue Phase 1 SPA was signed in February 2020, recognizing approximately 100 MMBoe of proved undeveloped reserves[138] - Kosmos withdrew from blocks offshore Cote d'Ivoire and the Marine XXI block in the Republic of Congo, and declined the final exploration phase for Suriname Block 45[139][141][142] Results of Operations This section analyzes the company's financial performance, including sales volumes, revenues, production costs, and net income or loss for the three and six months ended June 30, 2020 Key Operating Results and Statistics | Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Sales volumes (MBoe) | 6,110 | 6,267 | 10,084 | 11,369 | | Total revenues | $127,314 | $395,933 | $305,094 | $692,723 | | Average total sales price per Boe | $20.84 | $63.18 | $30.25 | $60.93 | | Total oil and gas production costs | $88,747 | $90,977 | $150,350 | $170,776 | | Depletion, depreciation and amortization | $121,857 | $151,438 | $215,159 | $269,533 | | Net income (loss) | $(199,391) | $16,837 | $(382,158) | $(36,069) | - Oil and gas revenue decreased by $268.6 million (QoQ) and $387.6 million (YoY) primarily due to lower oil prices stemming from the COVID-19 pandemic and reduced sales volumes[147][157] - Net loss for Q2 2020 was $(199.4) million, a $216.2 million decrease from Q2 2019 net income; for H1 2020, net loss was $(382.2) million, a $346.1 million decrease from H1 2019 net loss[146][157] - Impairment of long-lived assets of $150.8 million was recorded in H1 2020 for U.S. Gulf of Mexico properties due to lower oil prices[162] Liquidity and Capital Resources This section discusses the company's funding sources, cash flow activities, net debt, and capital program adjustments in response to market conditions - The company's funding requirements are met through operating cash flows, equity/debt issuances, and partner carries; current oil price volatility negatively impacts operating cash flows and compliance with financial covenants[167][168] Sources and Uses of Cash (Six Months Ended June 30, In thousands) | Category | 2020 | 2019 | | :------------------------------------------ | :----- | :------- | | Net cash provided by (used in) operating activities | $(62,836) | $222,390 | | Net cash used in investing activities | $(177,427) | $(164,481) | | Net cash provided by (used in) financing activities | $175,736 | $(58,716) | | Net decrease in cash, cash equivalents and restricted cash | $(64,527) | $(807) | Net Debt and Liquidity (as of June 30, 2020, In thousands) | Metric | Amount | | :---------------------------------------------------------- | :------- | | Cash and cash equivalents | $164,091 | | Restricted cash | $728 | | Senior Notes at par | $650,000 | | Borrowings under the Facility | $1,450,000 | | Borrowings under the Corporate Revolver | $100,000 | | Net debt | $2,035,181 | | Production prepayment agreement | $50,000 | | Net debt and production prepayment agreement | $2,085,181 | | Availability under the Facility | $50,000 | | Availability under the Corporate Revolver | $300,000 | | Available borrowings plus cash and cash equivalents | $514,091 | | Availability under the Production Prepayment Agreement | $100,000 | | Available borrowings plus cash and cash equivalents plus Production Prepayment Agreement | $614,091 | - The 2020 capital program was reduced by approximately 40% to an estimated $200-$225 million, with $151 million spent through June 30, 2020, due to economic conditions and COVID-19[174] Contractual Obligations (as of June 30, 2020, In thousands) | Obligation | Total | 2020 (Jul-Dec) | 2021 | 2022 | 2023 | 2024 | Thereafter | | :-------------------------------- | :------ | :------------- | :----- | :----- | :----- | :----- | :--------- | | Principal debt repayments | $2,200,000 | $0 | $56,000 | $422,571 | $428,571 | $428,572 | $864,286 | | Production prepayment agreement | $57,500 | $2,741 | $18,729 | $32,397 | $3,633 | $0 | $0 | | Interest payments on long-term debt | $475,459 | $55,254 | $104,801 | $96,546 | $80,561 | $66,159 | $72,138 | | Operating leases | $34,278 | $2,061 | $4,174 | $4,237 | $4,301 | $3,464 | $16,041 | Critical Accounting Policies This section identifies the key accounting policies that involve significant management estimates and judgments, which could materially impact financial reporting - Critical accounting policies include revenue recognition, exploration and development costs, receivables, income taxes, derivative instruments and hedging activities, estimates of proved oil and natural gas reserves, asset retirement obligations, leases, and impairment of long-lived assets[197] - These policies involve significant management estimates based on available information, which could materially change with different information or assumptions[197] Cautionary Note Regarding Forward-looking Statements This section advises that the report contains forward-looking statements subject to various uncertainties and risks, and the company does not undertake to update them - The report contains forward-looking statements based on current expectations and estimates, which are subject to significant business, political, economic, regulatory, health, environmental, and competitive uncertainties and risks[198] - Key factors that may adversely affect results include the impact of COVID-19, ability to find/develop discoveries, uncertainties in reserve estimates, capital expenditure costs, government interventions, financing availability, oil price volatility, and environmental risks[199] - The company undertakes no obligation to update or review forward-looking statements due to new information, future events, or other factors[201] Item 3. Quantitative and Qualitative Disclosures about Market Risk This section provides quantitative and qualitative information on the company's exposure to market risks, primarily commodity price and interest rate risk, detailing derivative financial instruments used for mitigation - The company's revenues, earnings, cash flows, and growth are highly dependent on volatile crude oil prices, with sales indexed against Dated Brent and Heavy Louisiana Sweet[205] - Oil derivative contracts (collars, put options, call options, swaps) are used to mitigate commodity price risk, with a net liability position of $11.7 million as of June 30, 2020[206][212] - A hypothetical 10% increase in commodity futures prices would decrease future pre-tax earnings by approximately $59.5 million, while a 10% decrease would increase earnings by $53.8 million[212] - Floating rate debt under the Facility ($1.45 billion) and Corporate Revolver ($100.0 million) exposes the company to interest rate risk; a 10% increase in LIBOR would result in an additional $0.3 million in annual interest expense[213] Item 4. Controls and Procedures This section confirms the effectiveness of the company's disclosure controls and procedures and reports no material changes in internal control over financial reporting during the quarter - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of June 30, 2020[214] - No material changes in internal control over financial reporting occurred during the most recent fiscal quarter[215] PART II. OTHER INFORMATION Item 1. Legal Proceedings This section states that there have been no material changes to the information concerning legal proceedings previously discussed in the company's annual report on Form 10-K - No material changes from the legal proceedings information discussed in the annual report on Form 10-K[216] Item 1A. Risk Factors This section indicates that there have been no material changes to the risk factors previously disclosed in the company's annual report on Form 10-K and quarterly report on Form 10-Q for the quarter ended March 31, 2020 - No material changes from the risk factors discussed in the annual report on Form 10-K for the year ended December 31, 2019, and the quarterly report on Form 10-Q for the quarter ended March 31, 2020[217] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section reports that there were no unregistered sales of equity securities or use of proceeds to disclose for the period - No unregistered sales of equity securities and use of proceeds to report[218] Item 3. Defaults Upon Senior Securities This section states that there were no defaults upon senior securities to report for the period - No defaults upon senior securities to report[219] Item 4. Mine Safety Disclosures This section indicates that mine safety disclosures are not applicable to the company's operations - Mine Safety Disclosures are not applicable[220] Item 5. Other Information This section confirms that no material changes required to be reported under this Item have not been previously disclosed in the annual report on Form 10-K - No material changes required to be reported under this Item that have not previously been disclosed in the annual report on Form 10-K[221] Item 6. Exhibits This section lists all exhibits accompanying the quarterly report on Form 10-Q, including offer letters, deed of release, prepayment agreement, certifications, and XBRL taxonomy documents - Exhibits include Offer Letter for Neal D. Shah, Deed of Release for Multi-Currency Revolving Letter of Credit Facility, and a Prepayment Agreement with Trafigura Trading LLC[228] - Certifications from the Chief Executive Officer and Chief Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 are included[228] - XBRL Instance Document and Taxonomy Extension Documents are provided for electronic filing[228]