Kosmos Energy(KOS) - 2020 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements The company experienced a significant net loss and reduced cash flow from operations for the nine months ended September 30, 2020 Consolidated Balance Sheets Consolidated Balance Sheet Highlights (in thousands) | Balance Sheet Item | September 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Total Current Assets | $592,466 | $566,557 | | Property and Equipment, net | $3,366,304 | $3,642,332 | | Total Assets | $4,093,501 | $4,317,232 | | Total Current Liabilities | $565,210 | $539,101 | | Long-term Debt, net | $2,191,433 | $2,008,063 | | Total Liabilities | $3,667,937 | $3,475,530 | | Total Stockholders' Equity | $425,564 | $841,702 | - Total stockholders' equity decreased significantly from $841.7 million at the end of 2019 to $425.6 million as of September 30, 2020, primarily due to an increase in the accumulated deficit[22] Consolidated Statements of Operations Consolidated Statements of Operations Highlights (in thousands, except per share data) | Metric | Three Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | Oil and gas revenue | $224,786 | $357,036 | $529,880 | $1,049,759 | | Total costs and expenses | $261,279 | $317,435 | $930,414 | $1,022,300 | | Impairment of long-lived assets | $0 | $0 | $150,820 | $0 | | Net income (loss) | ($37,384) | $16,065 | ($419,542) | ($20,004) | | Diluted EPS | ($0.09) | $0.04 | ($1.04) | ($0.05) | - The company recorded a $150.8 million impairment of long-lived assets during the first nine months of 2020, which was a significant contributor to the net loss for the period[24] Consolidated Statements of Stockholders' Equity - Stockholders' equity declined from $841.7 million at December 31, 2019, to $425.6 million at September 30, 2020. The primary driver of this decrease was the net loss of $419.5 million recorded over the nine-month period[26] - The company declared and paid dividends of $0.0452 per share in the first quarter of 2020, totaling $18.9 million, before suspending the dividend[26] Consolidated Statements of Cash Flows Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $20,657 | $400,276 | | Net cash used in investing activities | ($269,124) | ($268,498) | | Net cash provided by (used in) financing activities | $321,309 | ($102,336) | | Net increase in cash, cash equivalents and restricted cash | $72,842 | $29,442 | - Net cash from operating activities decreased dramatically to $20.7 million in the first nine months of 2020 from $400.3 million in the prior-year period, reflecting the impact of lower revenues[29] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the impact of the COVID-19 pandemic on operations, strategic responses, and the company's financial position Overview - The COVID-19 pandemic has significantly impacted operations by decreasing oil demand and prices, leading to project delays across Ghana, the U.S. Gulf of Mexico, and Equatorial Guinea[139] - As a result of the pandemic's impact, the company suspended its quarterly dividend, reduced headcount, and recorded a $150.8 million asset impairment in the first quarter of 2020[140] - The Greater Tortue Ahmeyim Phase 1 gas project has been delayed by approximately 12 months, with first gas now expected in the first half of 2023[140] Recent Developments - In Q3 2020, Kosmos agreed to farm down interests in a portfolio of frontier exploration assets to Shell for $96.0 million in cash and up to $100.0 million in future contingent payments[142] - In September 2020, the company entered into a new five-year, $200 million senior secured term loan (GoM Term Loan) secured against its U.S. Gulf of Mexico assets to pay down its revolving credit facility and fund working capital[143] - Production in Q3 2020 averaged approximately 137,300 Bopd (gross) in Ghana and 17,500 Boepd (net) in the U.S. Gulf of Mexico, with the latter impacted by hurricane-related downtime[144][145] Results of Operations Sales Volumes and Realized Prices | Metric | Q3 2020 | Q3 2019 | 9 Months 2020 | 9 Months 2019 | | :--- | :--- | :--- | :--- | :--- | | Total Sales (MBoe) | 5,477 | 6,038 | 15,560 | 17,408 | | Average Sales Price per Boe | $41.05 | $59.13 | $34.05 | $60.30 | - Oil and gas revenue for Q3 2020 decreased by $132.3 million compared to Q3 2019, primarily due to a 30% drop in the average realized price per barrel equivalent and lower sales volumes[157][158] - For the first nine months of 2020, oil and gas revenue fell by $519.9 million compared to the same period in 2019, driven by lower prices and production volumes[167] Liquidity and Capital Resources Liquidity Position as of September 30, 2020 (in thousands) | Item | Amount | | :--- | :--- | | Cash and cash equivalents | $300,819 | | Availability under the Facility | $50,000 | | Availability under the Corporate Revolver | $300,000 | | Total Liquidity | $650,819 | - The company reduced its 2020 base business capital expenditure program to an estimated $140 - $150 million in response to volatile oil prices and the COVID-19 pandemic[185] - In July 2020, the company amended its debt cover ratio covenant on its credit facilities to be less restrictive through December 31, 2021, providing additional financial flexibility[190][193] Item 3. Quantitative and Qualitative Disclosures about Market Risk The company's primary market risks are from commodity price volatility and interest rate changes, managed through derivative instruments - The company actively uses derivative contracts to mitigate exposure to volatile oil prices. As of September 30, 2020, open commodity derivative instruments were in a net asset position of $6.7 million[220][225] - A sensitivity analysis shows that a 10% increase in commodity futures prices would decrease future pre-tax earnings by approximately $46.6 million, while a 10% decrease would increase earnings by $38.2 million[225] - The company has $1.75 billion in variable-rate debt. A 10% increase in the floating market rate would increase annual interest expense by an estimated $0.2 million[226] Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of September 30, 2020 - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of September 30, 2020[227] - No changes in internal control over financial reporting occurred during the most recent fiscal quarter that materially affected, or are reasonably likely to materially affect, internal controls[228] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company reports no material changes from the legal proceedings information disclosed in its most recent annual report - There have been no material changes from the information concerning legal proceedings discussed in the annual report on Form 10-K[229] Item 1A. Risk Factors The company states there have been no material changes to the risk factors previously disclosed in prior reports - There have been no material changes from the risks discussed in the annual report on Form 10-K for the year ended December 31, 2019 and the quarterly report for the quarter ended March 31, 2020[230] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities or use of proceeds during the period - None reported[231] Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities during the period - None reported[232] Item 4. Mine Safety Disclosures This item is not applicable to the company's operations - Not applicable[233] Item 5. Other Information The company indicates no material changes required to be reported under this item that were not previously disclosed - No material changes required to be reported under this Item that have not previously been disclosed[234] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including key agreements and certifications - Key exhibits filed include: * Asset and Share Sale Agreements with Shell related to the farm-down of exploration assets * The Senior Secured Term Loan Credit Agreement dated September 30, 2020 * Certifications from the CEO and CFO pursuant to the Sarbanes-Oxley Act[241]