Kosmos Energy(US:KOS)2023-05-09 15:47markdown PART I. FINANCIAL INFORMATION [Item 1. Financial Statements](index=7&type=section&id=Item%201.%20Financial%20Statements) The unaudited consolidated financial statements for Q1 2023 show total assets of **$4.70 billion**, net income of **$83.3 million** (up from **$1.4 million** in Q1 2022 due to derivative gains), and operating cash flow of **$203.9 million** [Consolidated Balance Sheets](index=7&type=section&id=Consolidated%20Balance%20Sheets) As of March 31, 2023, Kosmos Energy reported total assets of **$4.70 billion** (up from **$4.58 billion**), with total liabilities at **$3.83 billion** and stockholders' equity increasing to **$869.4 million** due to net income | (In thousands) | March 31, 2023 (Unaudited) | December 31, 2022 | | :--- | :--- | :--- | | **Total current assets** | $443,318 | $468,721 | | **Property and equipment, net** | $3,966,178 | $3,842,647 | | **Total assets** | **$4,698,145** | **$4,579,988** | | **Total current liabilities** | $624,513 | $574,254 | | **Total long-term liabilities** | $3,204,192 | $3,217,886 | | **Total stockholders' equity** | $869,440 | $787,848 | | **Total liabilities and stockholders' equity** | **$4,698,145** | **$4,579,988** | [Consolidated Statements of Operations](index=8&type=section&id=Consolidated%20Statements%20of%20Operations) For Q1 2023, Kosmos reported net income of **$83.3 million** (or **$0.17** diluted EPS), a significant increase from **$1.4 million** in Q1 2022, primarily due to a **$6.8 million** gain on derivatives offsetting lower oil and gas revenue | (In thousands, except per share data) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | **Oil and gas revenue** | $394,240 | $659,015 | | **Total costs and expenses** | $254,235 | $646,214 | | *Derivatives, net* | *($6,840)* | *$282,172* | | **Income before income taxes** | $139,632 | $12,853 | | **Net income** | **$83,309** | **$1,400** | | **Diluted EPS** | **$0.17** | **$0.00** | [Consolidated Statements of Cash Flows](index=10&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) In Q1 2023, net cash from operations was **$203.9 million** (down from **$329.6 million** in Q1 2022), with **$239.4 million** used in investing and **$116.6 million** in financing, leading to a **$55.0 million** net decrease in cash | (In thousands) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | **Net cash provided by operating activities** | $203,853 | $329,628 | | **Net cash provided by (used in) investing activities** | ($239,356) | $9,388 | | **Net cash used in financing activities** | ($116,633) | ($19,475) | | **Net increase (decrease) in cash** | **($54,978)** | **$222,383** | [Notes to Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes detail accounting policies, debt instruments totaling **$2.26 billion**, derivative contracts, segment performance, and recent operational activities including new petroleum contracts and farm-out agreements - In February 2023, Kosmos entered a petroleum contract for Block EG-01 offshore Equatorial Guinea with a **24% participating interest**. In March 2023, the company farmed out a **6.0% interest** in Block S, reducing its stake to **34.0%**[41](index=41&type=chunk)[42](index=42&type=chunk) - The company has long-term receivables of **$237.5 million** as of March 31, 2023, related to financing the national oil companies of Mauritania and Senegal for their share of Greater Tortue Ahmeyim Phase 1 development costs[43](index=43&type=chunk) | Debt Instrument | Principal Balance (Mar 31, 2023) | | :--- | :--- | | Facility | $625,000,000 | | 7.125% Senior Notes | $650,000,000 | | 7.750% Senior Notes | $400,000,000 | | 7.500% Senior Notes | $450,000,000 | | GoM Term Loan | $137,500,000 | | **Total long-term debt** | **$2,262,500,000** | - As of March 31, 2023, the company had outstanding oil derivative contracts (collars) covering **9.25 million barrels** for the remainder of 2023 and 2024 to hedge against price volatility[74](index=74&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=29&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management attributes Q1 2023 revenue decrease to lower volumes and prices, while net income rose significantly due to derivative gains; key development projects are progressing, with a 2023 capital expenditure budget of **$700-$750 million** and strong liquidity of **$996.5 million** [Recent Developments](index=29&type=section&id=Recent%20Developments) Key Q1 2023 operational updates include advancing the Jubilee drilling campaign in Ghana, Winterfell development in the U.S. Gulf of Mexico, a new drilling campaign in Equatorial Guinea, and the Greater Tortue Ahmeyim Phase 1 project targeting first gas by end of Q4 2023 - Ghana: The Jubilee partnership expects to bring **five new wells** online in 2023. The commitment to provide **200 Bcf** of free gas to the government was fulfilled as of January 1, 2023[108](index=108&type=chunk)[109](index=109&type=chunk) - U.S. Gulf of Mexico: The Winterfell development project is progressing, with first production targeted for the end of **Q1 2024**. The Tiberius exploration prospect is planned for drilling in **Q3 2023**[113](index=113&type=chunk)[114](index=114&type=chunk) - Mauritania and Senegal: Phase 1 of the Greater Tortue Ahmeyim project is progressing toward first gas at the **end of Q4 2023**. The development concept for Phase 2, a gravity-based structure (GBS) with **2.5-3.0 MMTPA** capacity, has been confirmed[118](index=118&type=chunk)[119](index=119&type=chunk) [Results of Operations](index=31&type=section&id=Results%20of%20Operations) In Q1 2023, oil and gas revenue decreased by **$264.8 million** due to lower sales volumes and prices, yet net income significantly increased from **$1.4 million** to **$83.3 million**, primarily driven by a **$289.0 million** positive swing in derivative values | Metric | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Total Sales Volume (MBoe) | 5,501 | 6,515 | | Average Sales Price per Boe | $71.67 | $101.15 | | Oil and Gas Revenue (in thousands) | $394,240 | $659,015 | | Oil and Gas Production Costs (in thousands) | $83,936 | $124,703 | | Net Income (in thousands) | $83,309 | $1,400 | - The decrease in oil and gas revenue was a result of lower production due to the conclusion of a pre-emption transaction in March 2022, natural field decline, and lower average oil prices[123](index=123&type=chunk) - The significant increase in net income was primarily driven by a net gain on derivatives of **$6.8 million** in Q1 2023, compared to a net loss of **$282.2 million** in Q1 2022[127](index=127&type=chunk) [Liquidity and Capital Resources](index=34&type=section&id=Liquidity%20and%20Capital%20Resources) As of March 31, 2023, total liquidity was **$996.5 million** with net debt at **$2.13 billion**; the 2023 capital expenditure budget is **$700-$750 million**, funded by operating cash flow and various debt facilities | Liquidity Position (as of Mar 31, 2023) | Amount (in thousands) | | :--- | :--- | | Cash and cash equivalents | $128,427 | | Availability under the Facility | $618,034 | | Availability under the Corporate Revolver | $250,000 | | **Total Available Liquidity** | **$996,461** | - The 2023 capital expenditure budget is estimated at **$700-$750 million**, focused on maintenance (**$250-$300M**), development (**$350-$400M**), and exploration/appraisal (**$50-$100M**)[140](index=140&type=chunk)[147](index=147&type=chunk) - In April 2023, the borrowing base capacity under the main credit Facility was redetermined to approximately **$1.15 billion**, a reduction of about **$100 million** in availability[133](index=133&type=chunk)[144](index=144&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=41&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company faces market risks from commodity price and interest rate volatility, using derivatives to mitigate price risk; a **10%** oil price change could impact pre-tax earnings by approximately **$24.5-$30.1 million**, and a **10%** floating rate increase would add an estimated **$3.9 million** in annual interest expense - As of March 31, 2023, a hypothetical **10%** increase in commodity futures prices would decrease future pre-tax earnings by approximately **$24.5 million**, while a **10%** decrease would increase earnings by **$30.1 million** due to derivative positions[176](index=176&type=chunk) - The company has **$762.5 million** in floating-rate debt. A **10%** increase in the floating market rate would result in an estimated additional **$3.9 million** in annual interest expense[177](index=177&type=chunk) | Term | Type of Contract | Volume (MBbl) | Floor/Put Price | Ceiling Price | | :--- | :--- | :--- | :--- | :--- | | Apr - Dec 2023 | Three-way collars | 4,500 | $71.67 / $49.17 | $107.58 | | Apr - Dec 2023 | Two-way collars | 2,750 | $72.73 | $118.18 | | Jan - Dec 2024 | Three-way collars | 2,000 | $70.00 / $45.00 | $97.50 | [Controls and Procedures](index=42&type=section&id=Item%204.%20Controls%20and%20Procedures) As of March 31, 2023, the CEO and CFO concluded that disclosure controls and procedures were **effective**, with no material changes to internal control over financial reporting during the quarter - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were **effective** as of March 31, 2023[179](index=179&type=chunk) - No changes occurred during the most recent fiscal quarter that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[180](index=180&type=chunk) PART II. OTHER INFORMATION [Legal Proceedings](index=43&type=section&id=Item%201.%20Legal%20Proceedings) No material changes were reported regarding legal proceedings from the Annual Report on Form 10-K - There have been no material changes from the information concerning legal proceedings discussed in the annual report on Form 10-K[181](index=181&type=chunk) [Risk Factors](index=43&type=section&id=Item%201A.%20Risk%20Factors) No material changes were reported regarding risk factors from the Annual Report on Form 10-K for the year ended December 31, 2022 - There have been no material changes from the risks discussed in the "Item 1A. Risk Factors" sections of the annual report on Form 10-K for the year ended December 31, 2022[182](index=182&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=43&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) No unregistered sales of equity securities or use of proceeds were reported during the period - None[183](index=183&type=chunk)