Kosmos Energy(KOS) - 2020 Q4 - Annual Report

Glossary and Selected Abbreviations This section provides definitions and abbreviations for industry-specific terms used throughout the report, ensuring clarity and consistent understanding of technical and financial terminology - Defines key industry terms such as '2D seismic data,' '3D seismic data,' 'Barrel,' 'Boe,' 'EBITDAX,' 'Proved reserves,' and various financial ratios and operational terms[17][18][20] Cautionary Statement Regarding Forward‑Looking Statements This section warns readers that the report contains forward-looking statements based on current expectations and estimates, which are subject to significant risks and uncertainties, and actual results may differ materially - Forward-looking statements are based on current expectations and estimates, subject to risks and uncertainties[23] - Key risk factors include the impact of the COVID-19 pandemic, the ability to find and develop discoveries, uncertainties in oil and natural gas data estimates, successful implementation of drilling plans, and volatility of oil, natural gas, and NGL prices[24][27] PART I Item 1. Business Kosmos Energy Ltd. is a full-cycle deepwater independent oil and gas exploration and production company focused on Atlantic Margins, with key assets in Ghana, Equatorial Guinea, and the U.S. Gulf of Mexico, and gas development in Mauritania and Senegal - Kosmos is a full-cycle deepwater independent oil and gas exploration and production company focused along the Atlantic Margins[29] - The business strategy is designed to maximize the value of producing assets, progress discovered resources toward production, and add new resources through an efficient low-cost exploration program in proven basins[33] General Overview Kosmos Energy, founded in 2003, has successfully opened new hydrocarbon basins with major discoveries like the Jubilee field in Ghana (2007) and Greater Tortue Ahmeyim field (2015) - Kosmos successfully opened two new hydrocarbon basins through the discovery of the Jubilee field offshore Ghana in 2007 and the Greater Tortue Ahmeyim field in 2015[30] - The business strategy has evolved to focus on production-enhancing in-fill drilling and well work, as well as infrastructure-led exploration, bolstered by acquisitions in Equatorial Guinea (2017) and the U.S. Gulf of Mexico (2018)[31] Our Business Strategy Kosmos's strategy aims to deliver production and free cash flow by maximizing existing assets, developing discovered resources, and conducting efficient exploration - Business strategy focuses on three key objectives: (1) maximize the value of producing assets; (2) progress discovered resources to production; and (3) add new resources through efficient low-cost exploration in proven basins[33] - The development approach is designed to deliver first production on an accelerated timeline, leverage early learnings, and maximize returns, often employing a phased approach to optimize full-field development[35] - Exploration activity is focused on proven basins with high-graded infrastructure-led prospects and material play extension opportunities, targeting areas with sufficient size, long-term contract durations, play type diversity, prospect dependency, and attractive fiscal terms[36] - Committed to industry-leading ESG performance, including a goal to achieve Scope 1 and Scope 2 carbon neutrality by 2030 or sooner, and adherence to TCFD and SASB guidelines[40][43] - Maintains financial discipline with approximately $570 million liquidity as of December 31, 2020, and an active commodity hedging program covering approximately 12.0 million barrels of oil production in 2021[44][45] Operations by Geographic Area Kosmos operates in Africa (Ghana, Equatorial Guinea, Mauritania, Senegal, Sao Tome and Principe, South Africa) and the U.S. Gulf of Mexico, generating revenue primarily from Ghana, Equatorial Guinea, and the U.S. Gulf of Mexico - Kosmos currently has operations in Africa (Ghana, Equatorial Guinea, Mauritania, Senegal, Sao Tome and Principe, South Africa) and the U.S. Gulf of Mexico, with operating revenues generated from Ghana, Equatorial Guinea, and the U.S. Gulf of Mexico[46] 2020 Sales Volumes, Revenue, and Proved Reserves by Geographic Area | Geographic Area | Sales Volumes (MMboe) | Percentage of Total Sales Volumes | Revenue (in thousands) | Estimated Proved Reserves (MMboe) | Percentage of Total Estimated Proved Reserves | | :---------------- | :---------------------- | :-------------------------------- | :--------------------- | :-------------------------------- | :------------------------------------------ | | Ghana | 9.7 | 44 % | $366,515 | 73 | 53 % | | Equatorial Guinea | 4.0 | 18 % | $152,501 | 27 | 19 % | | U.S. Gulf of Mexico | 8.4 | 38 % | $285,017 | 39 | 28 % | | Total | 22.1 | 100 % | $804,033 | 139 | 100 % | Ghana In Ghana, Kosmos operates in the Jubilee and TEN fields within the Tano Basin, utilizing FPSOs and gas pipelines, with continuous gas export crucial to avoid impacting oil production - Jubilee Field oil production averaged approximately 83,100 Bopd gross (19,000 Bopd net) during 2020[63] - TEN fields oil production averaged approximately 48,700 Bopd gross (7,900 Bopd net) during 2020[66] - The Government of Ghana completed the construction and connection of a gas pipeline in 2017 from the Jubilee Field to transport natural gas to the mainland for processing and sale, and inability to continuously export associated natural gas from Jubilee and TEN fields could impact oil production[61][67] U.S. Gulf of Mexico Following the 2018 DGE acquisition, Kosmos's U.S. Gulf of Mexico assets averaged ~22,800 Boepd net (~81% oil) from 13 fields in 2020, with ongoing development and exploration activities - U.S. Gulf of Mexico assets averaged approximately 22,800 Boepd net (~81% oil) from 13 fields during 2020[68] 2020 Net Production from Key U.S. Gulf of Mexico Fields | Field | Net Production (Boepd) | | :--- | :--- | | Odd Job | ~8,100 | | Tornado | ~4,700 | | Marmalard | ~2,200 | | Kodiak | ~3,200 | | South Santa Cruz / Barataria | ~1,700 | Mauritania and Senegal Kosmos has significant gas discoveries in Mauritania and Senegal, with the Greater Tortue Ahmeyim development ~50% complete for Phase 1, targeting 2.5 MMTPA LNG for export by H1 2023 - The Greater Tortue Ahmeyim project Phase 1 was approximately 50% complete at year-end 2020, with first gas expected in the first half of 2023, designed to produce approximately 2.5 million tons per annum (MMTPA) of LNG[89] - Significant gas discoveries include BirAllah and Orca in Mauritania, and Yakaar and Teranga in Senegal, which are being analyzed as potential joint developments to support world-scale LNG projects[90][91][92][93][94][95] Equatorial Guinea Kosmos holds interests in EG-21, EG-24, S, and W blocks, and the Ceiba Field and Okume Complex, with oil production averaging ~33,600 Bopd gross in 2020 and appraisal ongoing for the Asam discovery - Oil production from the Ceiba Field and Okume Complex averaged approximately 33,600 Bopd gross (11,100 Bopd net) during 2020[98] - The Asam discovery in Block S (October 2019) encountered 39 meters of net oil pay and is currently undergoing an appraisal program to establish resource scale and evaluate development solutions, including potential subsea tieback to the Ceiba FPSO[99] Sao Tome and Principe Kosmos operates Block 5 offshore Sao Tome and Principe, an area with potential extension of a proven petroleum system, where a 3D seismic survey was completed in 2017 to refine prospectivity assessments - Kosmos operates Block 5 offshore Sao Tome and Principe, which represents a potential extension of a proven and prolific petroleum system offshore Equatorial Guinea and northern Gabon[100][101] - A 3D seismic survey of approximately 2,500 square kilometers was completed in August 2017, and the company is compiling an inventory of prospects on the license area[102] Republic of South Africa Kosmos acquired a 45% non-operated interest in the Northern Cape Ultra Deep block in 2019, completed a 2D seismic survey in January 2021, and is farming down its interest to Shell pending government approval - Kosmos acquired a 45% non-operated interest in the Northern Cape Ultra Deep block offshore South Africa in September 2019, and a 2D seismic survey was acquired in January 2021, fulfilling the current phase work commitment[103] - The company entered into an agreement with Shell to farm down its participating interest in the Northern Cape Ultra Deep block, with transfer subject to customary conditions precedent, including approval by The Republic of South Africa, expected during 2021[103] Our Reserves As of December 31, 2020, Kosmos's total proved reserves were 139 MMBoe, a decrease from 169 MMBoe in 2019, primarily due to 2020 production and lower commodity prices Summary of Oil and Gas Reserves (Net Proved) | Reserves Category | 2020 (MMBoe) | 2019 (MMBoe) | 2018 (MMBoe) | | :---------------- | :----------- | :----------- | :----------- | | Proved developed | 89 | 116 | 91 | | Proved undeveloped | 50 | 53 | 50 | | Total Kosmos proved reserves | 139 | 169 | 141 | - Total proved reserves decreased to 139 MMBoe in 2020 from 169 MMBoe in 2019, primarily due to 2020 production and lower commodity prices[106][108] - The Greater Tortue Ahmeyim field, which had approximately 100 MMBoe of proved undeveloped reserves recognized in February 2020, did not have proved reserves recognition as of December 31, 2020, due to the decrease in commodity prices[111] Estimated Future Net Revenues and Benchmark Prices (December 31, 2020) | Metric | Amount (in millions, except $/Bbl) | | :--- | :--- | | Estimated future net revenues | $1,575 | | PV-10 | $1,234 | | Standardized Measure | $964 | | Benchmark Dated Brent oil price ($/Bbl) | $41.77 | | Benchmark HLS oil price ($/Bbl) | $40.51 | | Benchmark Henry Hub gas price ($/MMBtu) | $1.99 | - Estimated proved reserves are prepared by Ryder Scott Company, L.P. (RSC), an independent reserve engineering firm, in accordance with SEC rules and regulations, using 12-month historical unweighted first-day-of-the-month average prices[119][122][123] Gross and Net Undeveloped and Developed Acreage As of December 31, 2020, Kosmos held a total of 10,932 thousand gross acres (4,191 thousand net acres), with 326 thousand gross developed acres and 10,606 thousand gross undeveloped acres Developed and Undeveloped Acreage (December 31, 2020) | Country | Developed Area (Gross Acres) | Developed Area (Net Acres) | Undeveloped Area (Gross Acres) | Undeveloped Area (Net Acres) | Total Area (Gross Acres) | Total Area (Net Acres) | | :-------------------- | :--------------------------- | :------------------------- | :----------------------------- | :--------------------------- | :----------------------- | :--------------------- | | Ghana | 163 | 32 | 34 | 7 | 197 | 39 | | Equatorial Guinea | 65 | 26 | 2,355 | 1,292 | 2,420 | 1,318 | | Mauritania | — | — | 3,882 | 1,085 | 3,882 | 1,085 | | South Africa | — | — | 1,452 | 653 | 1,452 | 653 | | Sao Tome and Principe | — | — | 527 | 310 | 527 | 310 | | Senegal | — | — | 2,116 | 631 | 2,116 | 631 | | U.S. Gulf of Mexico | 98 | 28 | 240 | 127 | 338 | 155 | | Total | 326 | 86 | 10,606 | 4,105 | 10,932 | 4,191 | Productive Wells As of December 31, 2020, Kosmos held interests in 151 gross productive wells (49.66 net), all classified as oil wells, across Ghana, Equatorial Guinea, and the U.S. Gulf of Mexico Productive Wells (December 31, 2020) | Geographic Area | Productive Oil Wells (Gross) | Productive Oil Wells (Net) | Total (Gross) | Total (Net) | | :---------------- | :--------------------------- | :------------------------- | :------------ | :---------- | | Ghana | 47 | 10.25 | 47 | 10.25 | | Equatorial Guinea | 82 | 33.13 | 82 | 33.13 | | U.S. Gulf of Mexico | 22 | 6.28 | 22 | 6.28 | | Total | 151 | 49.66 | 151 | 49.66 | Drilling activity In 2020, Kosmos had 5 total wells drilled (1 exploratory/appraisal dry, 4 development productive/dry), with 1 actively drilling/completing well and 24 suspended or waiting on completion as of year-end Drilling Activity (Years Ended December 31, 2020, 2019, 2018) | Year Ended December 31, | Exploratory and Appraisal Wells (Gross Productive) | Exploratory and Appraisal Wells (Gross Dry) | Development Wells (Gross Productive) | Development Wells (Gross Dry) | Total Wells (Gross) | | :---------------------- | :----------------------------------------------- | :---------------------------------------- | :----------------------------------- | :---------------------------- | :------------------ | | 2020 | — | 1 | 2 | 2 | 5 | | 2019 | 2 | 1 | 6 | — | 9 | | 2018 | — | 6 | 5 | — | 11 | Wells Actively Drilling/Completing or Suspended/Waiting on Completion (December 31, 2020) | Category | Exploration (Gross) | Development (Gross) | | :--- | :--- | | Actively Drilling or Completing | 1 | 1 | | Wells Suspended or Waiting on Completion | 9 | 15 | | Total | 10 | 16 | Domestic Supply Requirements Host countries in Kosmos's operating areas often have rights to purchase oil/gas for domestic consumption, with Ghana's Jubilee Field providing 131 Bcf of natural gas to GNPC at no cost as of December 31, 2020 - Many petroleum contracts or applicable laws grant host countries the right to purchase certain amounts of oil/gas for domestic consumption at international market prices[139] - As of December 31, 2020, 131 Bcf of the first 200 Bcf of natural gas produced from the Jubilee Field Phase 1 development has been provided to GNPC at no cost[139] Significant License Agreements This section details key petroleum contracts and agreements governing Kosmos's operations in Ghana, Mauritania, Senegal, and Equatorial Guinea, including royalty rates, tax rates, contract durations, and unitization agreements - Ghana's WCTP and DT petroleum contracts require a fixed royalty of 5%, potential sliding-scale additional oil entitlement, and a corporate tax rate of 35%[141][143] - The Jubilee Field and Greater Tortue Ahmeyim Field are governed by Unitization and Unit Operating Agreements (UUOAs), with participating interests subject to redetermination[146][147] - Mauritania agreements include a 10% carried interest for SMHPM during exploration, converting to a 10-14% participating interest upon commercial discovery, with a 27% corporate tax rate[148][149] - Equatorial Guinea exploration agreements include a 20% carried interest for GEPetrol during the exploration period, converting to a 20% participating interest for all development and production operations upon commercial discovery[151][152] Sales and Marketing Kosmos markets its share of oil production through agents and monthly contracts, and signed the Tortue Phase 1 SPA in Feb 2020 to sell LNG from Greater Tortue Ahmeyim for up to 20 years, with sales price linked to crude oil benchmarks - Kosmos markets its share of Jubilee and TEN production through oil marketing agents and sells U.S. Gulf of Mexico crude oil and natural gas through monthly contracts[153][156] - In February 2020, the Tortue Phase 1 SPA was signed to sell LNG from the Greater Tortue Ahmeyim Field for an initial term of up to twenty years, with the sales price set as a percentage of a crude oil price benchmark[159] - Revenue can be materially affected by current economic conditions and the price of oil, with the COVID-19 pandemic causing significant economic disruption[158] Competition The oil and gas industry is highly competitive, with Kosmos facing competition from larger independent and major oil companies for licenses, resources, and personnel, and is subject to volatility, with COVID-19 significantly decreasing oil demand and prices in 2020 - The oil and gas industry is intensely competitive, with Kosmos facing strong competition from other independent operators and major oil companies for licenses, leases, and personnel[160] - The industry experienced continued volatility, with the impact of COVID-19 decreasing demand for oil and resulting in significant declines in oil prices, with Dated Brent crude ranging from approximately $13 to $70 per barrel during 2020[162] Title to Property Kosmos believes it holds satisfactory title to its oil and natural gas assets, subject to customary industry burdens and encumbrances that do not materially interfere with asset use or carrying value - Kosmos believes it has satisfactory title to its oil and natural gas assets in accordance with generally accepted international oil and gas industry standards, subject to customary royalty and other interests, liens, and encumbrances[163] Environmental Matters Kosmos is subject to stringent environmental, health, and safety laws, requiring permits and potentially restricting operations, and maintains insurance and emergency response plans, including subsea capping and containment equipment - Kosmos is subject to various stringent international, foreign, federal, state, and local environmental, health, and safety laws and regulations, which may require permits, restrict operations, and increase compliance costs[164][165] - The company maintains insurance coverage typical of the industry and has agreements for subsea capping and containment equipment (excluding U.S. Gulf of Mexico) and is a charter member of the Global Dispersant Stockpile[167][168][169] - U.S. Gulf of Mexico operations comply with updated regulations post-2010 incident, including membership in the Helix Well Containment Group (HWCG) and Clean Gulf Associate (CGA) for oil spill response capabilities[174] Human Capital Resources Kosmos prioritizes employee health and safety through a comprehensive HSES management system and strong safety culture, fostering an inclusive, entrepreneurial work environment, investing in employee development, and promoting diversity - The health and safety of employees and contractors is a priority, supported by a comprehensive Health, Safety, Environment and Security (HSES) management system and a strong safety culture[175][176] - Kosmos fosters an inclusive culture that promotes entrepreneurial thinking and teamwork, invests in employee development, and achieved 100% local employees across all host country offices in 2020[178][179][180][181] - Offers a robust range of employee benefits, including health plans, equity opportunities, savings plans, and an Employee Assistance Program, contributing to a retention rate greater than 95% in 2020[182][183] Corporate Information Kosmos Energy Ltd. redomesticated from Bermuda to Delaware in December 2018, is listed on the NYSE and LSE under the symbol KOS, and provides SEC and LSE RNS filings on its website - Kosmos Energy Ltd. changed its jurisdiction of incorporation from Bermuda to the State of Delaware in December 2018[184] - The company is listed on the NYSE and LSE, trading under the ticker symbol KOS, and files reports with the SEC and LSE RNS, which are available on its website[185][186] Item 1A. Risk Factors This section outlines significant risks that could materially affect Kosmos's business, financial condition, results of operations, or cash flows, categorized into those relating to oil and natural gas operations, business and financial condition, regulation, and general risk factors - Risks are categorized into those relating to oil and natural gas operations, business and financial condition, regulation, and general risk factors[189][190][193][194] - Key risks include limited proved reserves, substantial uncertainties in estimating discoveries, speculative drilling, inability of third parties to meet obligations, redetermination of unit interests, and reduced control over non-operated assets[197][199][201][210][213][215] - Financial risks include substantial additional capital requirements, potential write-downs of asset carrying values due to price decreases, deterioration in credit or equity markets, and restrictive covenants in debt facilities[252][258][264][271] - Regulatory and political risks include adverse effects from political and economic circumstances, changes in laws and regulations (e.g., U.S. federal government orders on oil and gas leases, stricter environmental standards), and potential liabilities under anti-corruption laws[296][297][307][315] Item 1B. Unresolved Staff Comments No unresolved staff comments were reported - The registrant has no unresolved staff comments[332] Item 2. Properties This item refers to the 'Item 1. Business' section for details on properties and notes various operating leases for office space, equipment, and vehicles - Information regarding properties is incorporated by reference from 'Item 1. Business'[333] - The company has various operating leases for rental of office space, office and field equipment, and vehicles[333] Item 3. Legal Proceedings Kosmos is occasionally involved in legal and regulatory proceedings in the normal course of business, with management believing no pending matter would have a material effect on financial condition or cash flows, though an unfavorable outcome could impact results for a specific period - The company may be involved in various legal and regulatory proceedings arising in the normal course of business[334] - Management believes that an adverse result in any pending legal or regulatory proceeding, individually or in the aggregate, would not be material to the consolidated financial condition or cash flows, but an unfavorable outcome could have a material adverse effect on results of operations for a specific interim period or year[334] Item 4. Mine Safety Disclosures Not applicable - No mine safety disclosures are applicable[335] PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Kosmos's common stock trades on the NYSE and LSE under KOS, with 104 record holders as of Feb 19, 2021, and a closing price of $2.74 per share on NYSE, with dividends suspended in March 2020 and no shares repurchased in 2020 - Kosmos's common stock is traded on the NYSE and LSE under the symbol KOS[338] - As of February 19, 2021, the number of holders of record of Kosmos's common stock was 104, and the last reported sale price on the NYSE was $2.74 per share[339] - In March 2020, the Board of Directors decided to suspend the dividend in response to economic conditions, including oil price volatility and the impact of the COVID-19 pandemic[340] - During 2020, there were no shares purchased by the issuer[341] Cumulative Total Stockholder Return (5-year period ended Dec 31, 2020) | Index | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Kosmos Energy Ltd. (KOS) | $100.00 | $134.81 | $131.73 | $78.27 | $112.96 | $47.38 | | S&P 500 (SPX) | $100.00 | $111.95 | $136.38 | $130.39 | $171.44 | $202.96 | | Dow Jones U.S. Exploration & Production Index (DWCEXP) | $100.00 | $125.71 | $126.06 | $101.73 | $112.20 | $74.30 | Item 6. Selected Financial Data This section provides a five-year summary of selected consolidated financial information, including statements of operations, balance sheets, and cash flows, highlighting key trends in revenue, expenses, assets, liabilities, and cash generation Consolidated Statements of Operations Information (Years Ended December 31, 2020-2016) | Metric (in thousands, except per share data) | 2020 | 2019 | 2018 | 2017 | 2016 | | :---------------------------------------- | :--- | :--- | :--- | :--- | :--- | | Oil and gas revenue | $804,033 | $1,499,416 | $886,666 | $578,139 | $310,377 | | Total revenues and other income | $896,198 | $1,509,909 | $902,369 | $636,836 | $385,355 | | Total costs and expenses | $1,312,993 | $1,484,792 | $953,229 | $814,691 | $679,919 | | Net loss | $(411,586) | $(55,777) | $(93,991) | $(222,792) | $(283,780) | | Basic Net loss per share | $(1.02) | $(0.14) | $(0.23) | $(0.57) | $(0.74) | | Diluted Net loss per share | $(1.02) | $(0.14) | $(0.23) | $(0.57) | $(0.74) | | Dividends declared per common share | $0.0452 | $0.1808 | $— | $— | $— | Consolidated Balance Sheets Information (December 31, 2020-2016) | Metric (in thousands) | 2020 | 2019 | 2018 | 2017 | 2016 | | :-------------------- | :--- | :--- | :--- | :--- | :--- | | Cash and cash equivalents | $149,027 | $224,502 | $173,515 | $233,412 | $194,057 | | Total current assets | $400,291 | $566,557 | $509,700 | $533,602 | $475,187 | | Total property and equipment, net | $3,320,913 | $3,642,332 | $3,459,701 | $2,317,828 | $2,708,892 | | Total assets | $3,867,593 | $4,317,232 | $4,088,189 | $3,192,603 | $3,341,465 | | Total current liabilities | $460,199 | $539,101 | $384,308 | $428,730 | $370,025 | | Total long-term liabilities | $2,967,240 | $2,936,429 | $2,762,403 | $1,866,761 | $1,890,241 | | Total shareholders' equity | $440,154 | $841,702 | $941,478 | $897,112 | $1,081,199 | | Total liabilities and shareholders' equity | $3,867,593 | $4,317,232 | $4,088,189 | $3,192,603 | $3,341,465 | Consolidated Statements of Cash Flows Information (Years Ended December 31, 2020-2016) | Metric (in thousands) | 2020 | 2019 | 2018 | 2017 | 2016 | | :-------------------- | :--- | :--- | :--- | :--- | :--- | | Net cash provided by (used in) Operating activities | $196,145 | $628,150 | $260,491 | $236,617 | $52,077 | | Net cash provided by (used in) Investing activities | $(345,587) | $(363,931) | $(985,138) | $(152,565) | $(537,763) | | Net cash provided by (used in) Financing activities | $69,860 | $(220,489) | $605,277 | $(52,261) | $448,019 | Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides an overview of Kosmos's financial performance and condition, highlighting the significant impact of the COVID-19 pandemic on oil demand and prices in 2020, leading to operational delays, program deferrals, asset impairments, and a net loss - The COVID-19 pandemic significantly impacted Kosmos's business operations in 2020, leading to project delays, program suspensions, and asset impairments[352][353][356] - The company reported a net loss of $411.6 million in 2020, primarily due to lower oil and gas revenue and $154.0 million in asset impairments[347][380][387] - Liquidity was approximately $570 million as of December 31, 2020, with a 2021 capital budget of $225-$275 million (excluding Mauritania/Senegal) and an additional $350 million for Mauritania/Senegal development[44][399][401] Overview Kosmos is a deepwater E&P company with assets across Atlantic Margins, where the COVID-19 pandemic in 2020 caused significant volatility, uncertainty, and economic disruption, impacting operations, delaying projects, and leading to asset impairments and a dividend suspension - Kosmos is a full-cycle deepwater independent oil and gas exploration and production company focused along the Atlantic Margins, with key assets in Ghana, Equatorial Guinea, and the U.S. Gulf of Mexico, as well as a world-class gas development offshore Mauritania and Senegal[351] - The COVID-19 pandemic in 2020 resulted in travel restrictions, supply chain impacts, delays to operational projects (e.g., Ghana Jubilee CALM buoy, Ghana drilling program, Kodiak in-fill well completion, Greater Tortue Ahmeyim Phase 1 development), deferral of the Equatorial Guinea drilling program, suspension of the quarterly dividend, and $154.0 million in asset impairments[352][353][356] Recent Developments Recent developments include a $96.0 million farm-down agreement with Shell for frontier exploration assets, a $200.0 million GoM Term Loan, and operational updates across regions, with Ghana production averaging 131,800 Bopd gross in 2020 and Greater Tortue Ahmeyim Phase 1 project 50% complete - Kosmos entered into an agreement with Shell to farm down interests in a portfolio of frontier exploration assets for cash consideration of $96.0 million, resulting in a gain on sale of assets of $92.1 million in 2020[357] - The company secured a five-year $200.0 million senior secured term-loan credit agreement (GoM Term Loan) against its U.S. Gulf of Mexico assets, which included the conversion of a $50 million production prepayment from Trafigura[358] - Ghana production averaged 131,800 Bopd gross (26,900 Bopd net) during 2020, with Jubilee at approximately 83,100 Bopd gross and TEN at approximately 48,700 Bopd gross[359] - U.S. Gulf of Mexico production averaged approximately 22,800 Boepd net in 2020; the Winterfell exploration well was successfully drilled in Q4 2020, encountering approximately 26 meters of net oil pay[360][365] - Equatorial Guinea production averaged approximately 33,600 Bopd gross (11,100 Bopd net) for 2020, and extensions to the current exploration phase for Blocks S, W, 21, and 24 were approved[368] - Phase 1 of the Greater Tortue Ahmeyim project was approximately 50% complete at year-end 2020, with first gas expected in the first half of 2023[370] Results of Operations In 2020, oil and gas revenue decreased by $695.4 million (46.4%) to $804.0 million due to lower production and oil prices, leading to a net loss of $411.6 million, significantly higher than the $55.8 million loss in 2019, primarily driven by the revenue decline and a $154.0 million impairment of long-lived assets Sales Volumes and Revenues (Years Ended December 31, 2020 vs. 2019) | Metric | 2020 | 2019 | Change (YoY) | | :--- | :--- | :--- | :--- | | Oil (MBbl) | 20,531 | 23,331 | -12.0% | | Gas (MMcf) | 5,867 | 6,323 | -7.2% | | NGL (MBbl) | 602 | 548 | +9.9% | | Total (MBoe) | 22,111 | 24,933 | -11.3% | | Total (Boepd) | 60,412 | 68,309 | -11.5% | | Oil sales (in thousands) | $786,159 | $1,475,706 | -46.7% | | Gas sales (in thousands) | $11,706 | $15,599 | -25.0% | | NGL sales (in thousands) | $6,168 | $8,111 | -24.0% | | Total revenues (in thousands) | $804,033 | $1,499,416 | -46.4% | Average Sales Prices and Costs per Boe (Years Ended December 31, 2020 vs. 2019) | Metric | 2020 | 2019 | Change (YoY) | | :--- | :--- | :--- | :--- | | Average oil sales price per Bbl | $38.29 | $63.25 | -39.4% | | Average gas sales price per Mcf | $2.00 | $2.47 | -19.1% | | Average NGL sales price per Bbl | $10.25 | $14.80 | -30.8% | | Average total sales price per Boe | $36.36 | $60.14 | -39.5% | | Total oil and gas production costs per Boe | $15.31 | $16.15 | -5.2% | | Depletion, depreciation and amortization per Boe | $21.97 | $22.62 | -2.8% | | Total costs per Boe | $37.28 | $38.77 | -3.8% | - Net loss for 2020 was $411.6 million, compared to a net loss of $55.8 million in 2019, primarily due to a $695.4 million decrease in oil and gas revenue and a $154.0 million impairment of long-lived assets[380][387] - Exploration expenses decreased by $96.3 million and general and administrative costs decreased by $37.9 million in 2020, primarily due to lower unsuccessful well costs, geological, geophysical and seismic costs, and headcount reductions[384][385] Liquidity and Capital Resources Kosmos manages liquidity through cash flows, equity/debt issuances, and partner carries, with total liquidity of $569.0 million as of Dec 31, 2020, and a 2021 capital budget of $225-$275 million (excluding Mauritania/Senegal) plus $350 million for Mauritania/Senegal, funded by working capital and refinancing - As of December 31, 2020, total liquidity (available borrowings plus cash and cash equivalents) was approximately $569.0 million[399] - The 2021 capital budget is estimated at $225 - $275 million (excluding Mauritania and Senegal) and approximately $350 million for Mauritania and Senegal, expected to be funded from working capital and proceeds from refinancing[401] - The Facility's available borrowing base was reduced to approximately $1.32 billion in October 2020, with semi-annual redeterminations agreed to begin in March 2021[395][396] - The debt cover ratio covenant in the Facility and Corporate Revolver was amended in July 2020 to be less restrictive (up to a maximum of 4.75x) through December 31, 2021, due to the impact of COVID-19 on oil prices[411][416] Sources and Uses of Cash (Years Ended December 31, 2020, 2019, 2018) | Metric (in thousands) | 2020 | 2019 | 2018 | | :-------------------- | :--- | :--- | :--- | | Net cash provided by operating activities | $196,145 | $628,150 | $260,491 | | Net proceeds from issuance of senior notes | $— | $641,875 | $— | | Borrowings under long-term debt | $300,000 | $175,000 | $1,175,000 | | Payments on long-term debt | $(250,000) | $(425,000) | $(325,000) | | Oil and gas assets (investing) | $(377,491) | $(340,217) | $(213,806) | Contractual Obligations (December 31, 2020) | Obligation | Total (in thousands) | 2021 (in thousands) | 2022 (in thousands) | 2023 (in thousands) | 2024 (in thousands) | 2025 (in thousands) | Thereafter (in thousands) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Principal debt repayments | $2,150,000 | $7,500 | $258,571 | $458,571 | $458,572 | $316,786 | $650,000 | | Interest payments on long-term debt | $466,436 | $113,603 | $108,561 | $91,972 | $75,364 | $53,780 | $23,156 | | Operating leases | $36,067 | $3,307 | $4,216 | $4,287 | $4,358 | $4,429 | $15,470 | Item 7A. Quantitative and Qualitative Disclosures About Market Risk Kosmos is exposed to market risks primarily from changes in commodity prices (oil and natural gas) and interest rates, using derivative contracts (collars, puts, calls, swaps) to mitigate these risks, though none are designated as hedges for accounting purposes - The primary objective is to provide forward-looking quantitative and qualitative information about potential exposure to market risks, specifically changes in commodity prices and interest rates[460] - Kosmos enters into various oil derivative contracts (collars, put options, call options, and swaps) to mitigate exposure to commodity price risk associated with anticipated future oil production, with approximately 12.0 million barrels of 2021 production hedged as of December 31, 2020[45][464][629] - As of December 31, 2020, open commodity derivative instruments were in a net liability position of $19.7 million, and a hypothetical 10% price increase in commodity futures would decrease future pre-tax earnings by approximately $54.2 million, while a 10% price decrease would increase earnings by approximately $44.1 million[468] - Outstanding borrowings under the Facility, Corporate Revolver, and GoM Term Loan, totaling $1.5 billion as of December 31, 2020, are subject to variable interest rates, and a hypothetical 10% increase in the floating market rate would result in an estimated additional $0.4 million interest expense per year[470] Item 8. Financial Statements and Supplementary Data This section presents Kosmos Energy Ltd.'s audited consolidated financial statements, including balance sheets, statements of operations, shareholders' equity, and cash flows for the years ended December 31, 2020, 2019, and 2018, along with detailed notes and unaudited supplemental oil and gas data - Item 8 presents Kosmos Energy Ltd.'s audited consolidated financial statements for the years ended December 31, 2020, 2019, and 2018, along with detailed notes and unaudited supplemental oil and gas data[476] - The Reports of Independent Registered Public Accounting Firm (Ernst & Young LLP) expressed an unqualified opinion on the consolidated financial statements and the effectiveness of internal control over financial reporting[476][477][495] - Critical audit matters identified include depletion of proved oil and natural gas properties, asset retirement obligations, and impairment of long-lived assets, all involving significant management judgment and the work of independent reserve engineers[482][486][489] Consolidated Balance Sheets The consolidated balance sheets show total assets of $3,867.6 million and total liabilities of $3,427.4 million as of December 31, 2020, resulting in total shareholders' equity of $440.2 million Consolidated Balance Sheets (December 31, 2020 vs. 2019) | Metric (in thousands) | 2020 | 2019 | Change (YoY) | | :-------------------- | :--- | :--- | :--- | | Cash and cash equivalents | $149,027 | $224,502 | -33.6% | | Total current assets | $400,291 | $566,557 | -29.4% | | Oil and gas properties, net | $3,310,276 | $3,624,751 | -8.5% | | Total assets | $3,867,593 | $4,317,232 | -10.4% | | Total current liabilities | $460,199 | $539,101 | -14.7% | | Total long-term liabilities | $2,967,240 | $2,936,429 | +1.0% | | Total liabilities | $3,427,439 | $3,475,530 | -1.4% | | Total stockholders' equity | $440,154 | $841,702 | -47.7% | Consolidated Statements of Operations For the year ended December 31, 2020, Kosmos reported total revenues and other income of $896.2 million, a significant decrease from $1,509.9 million in 2019, leading to a net loss of $411.6 million, compared to a net loss of $55.8 million in 2019 Consolidated Statements of Operations (Years Ended December 31, 2020, 2019, 2018) | Metric (in thousands, except per share data) | 2020 | 2019 | 2018 | | :---------------------------------------- | :--- | :--- | :--- | | Oil and gas revenue | $804,033 | $1,499,416 | $886,666 | | Total revenues and other income | $896,198 | $1,509,909 | $902,369 | | Total costs and expenses | $1,312,993 | $1,484,792 | $953,229 | | Net loss | $(411,586) | $(55,777) | $(93,991) | | Basic Net loss per share | $(1.02) | $(0.14) | $(0.23) | | Diluted Net loss per share | $(1.02) | $(0.14) | $(0.23) | Consolidated Statements of Shareholders' Equity Total shareholders' equity decreased from $841.7 million at December 31, 2019, to $440.2 million at December 31, 2020, primarily due to the net loss of $411.6 million and dividends declared Consolidated Statements of Shareholders' Equity (December 31, 2020, 2019, 2018) | Metric (in thousands) | 2020 | 2019 | 2018 | | :-------------------- | :--- | :--- | :--- | | Common Stock | $4,497 | $4,458 | $4,429 | | Additional paid-in capital | $2,307,220 | $2,297,221 | $2,341,249 | | Accumulated deficit | $(1,634,556) | $(1,222,970) | $(1,167,193) | | Treasury stock | $(237,007) | $(237,007) | $(237,007) | | Total shareholders' equity | $440,154 | $841,702 | $941,478 | - The accumulated deficit increased from $(1,222,970) thousand in 2019 to $(1,634,556) thousand in 2020, primarily due to the net loss incurred[508] Consolidated Statements of Cash Flows Net cash provided by operating activities decreased to $196.1 million in 2020 from $628.2 million in 2019, primarily due to lower production and oil prices, with investing activities using $345.6 million and financing activities providing $69.9 million in 2020 Consolidated Statements of Cash Flows (Years Ended December 31, 2020, 2019, 2018) | Metric (in thousands) | 2020 | 2019 | 2018 | | :-------------------- | :--- | :--- | :--- | | Net cash provided by operating activities | $196,145 | $628,150 | $260,491 | | Net cash used in investing activities | $(345,587) | $(363,931) | $(985,138) | | Net cash provided by (used in) financing activities | $69,860 | $(220,489) | $605,277 | | Cash, cash equivalents and restricted cash at end of period | $149,764 | $229,346 | $185,616 | - The decrease in cash provided by operating activities in 2020 compared to 2019 is primarily a result of lower production across assets and lower oil prices stemming from the COVID-19 pandemic[397] Notes to Consolidated Financial Statements This section provides detailed disclosures on Kosmos's accounting policies, including principles of consolidation, use of estimates, cash and restricted cash, receivables, inventories, leases, exploration and development costs, depletion/depreciation/amortization, asset retirement obligations, impairment of long-lived assets, derivative instruments, revenue recognition, equity-based compensation, restructuring charges, income taxes, and foreign currency translation - The company follows the successful efforts method of accounting for its oil and gas properties, capitalizing acquisition costs for proved and unproved properties and expensing exploration costs as incurred[536] - Asset retirement obligations totaled $251.4 million as of December 31, 2020, reflecting the estimated present value of dismantlement, removal, site reclamation, and similar activities associated with oil and gas properties[486][646] - Kosmos recorded asset impairments totaling $154.0 million during 2020 for oil and gas proved properties in the U.S. Gulf of Mexico, primarily due to the impact of COVID-19 on oil demand and prices[387][645] - Total outstanding debt principal balances as of December 31, 2020, were $2.15 billion, comprising $1.2 billion under the Facility, $100.0 million under the Corporate Revolver, $650.0 million in Senior Notes, and $200.0 million under the GoM Term Loan[595] - The company has foreign net operating loss carryforwards of $105.9 million and United States net operating losses of $540.1 million as of December 31, 2020, with valuation allowances against certain deferred tax assets[662] Supplemental Oil and Gas Data (Unaudited) This unaudited section provides detailed information on Kosmos's net proved oil and gas reserves, capitalized costs, and costs incurred in oil and gas activities, along with the standardized measure of discounted future net cash flows, with reserve estimates prepared by independent petroleum engineers (RSC) using SEC guidelines Net Proved Developed and Undeveloped Reserves (December 31, 2020, 2019, 2018) | Reserves Category | 2020 (MMBoe) | 2019 (MMBoe) | 2018 (MMBoe) | | :---------------- | :----------- | :----------- | :----------- | | Net proved developed and undeveloped reserves | 139 | 169 | 166 | | Proved developed reserves | 89 | 116 | 116 | | Proved undeveloped reserves | 50 | 53 | 51 | - Net proved reserves were calculated utilizing the twelve-month unweighted arithmetic average of the first-day-of-the-month oil price for each month based on the respective benchmark price in the period January through December 2020, adjusted for crude handling, transportation fees, quality, and regional price differential[704] Capitalized Costs Related to Oil and Gas Activities (As of December 31, 2020, 2019) | Category (in millions) | 2020 | 2019 | | :--------------------- | :--- | :--- | | Unproved properties | $495 | $814 | | Proved properties | $5,370 | $4,905 | | Accumulated depletion | $(2,555) | $(2,094) | | Net capitalized costs | $3,310 | $3,625 | Standardized Measure of Discounted Future Net Cash Flows (December 31, 2020, 2019, 2018) | Metric (in millions) | 2020 | 2019 | 2018 | | :------------------- | :--- | :--- | :--- | | Future cash inflows | $5,021 | $9,401 | $10,568 | | Future production costs | $(2,023) | $(2,670) | $(2,534) | | Future development costs | $(1,423) | $(1,529) | $(1,773) | | Future tax expenses | $(389) | $(1,466) | $(1,847) | | Future net cash flows | $1,186 | $3,736 | $4,414 | | 10% annual discount | $(222) | $(917) | $(1,113) | | Standardized measure of discounted future net cash flows | $964 | $2,819 | $3,301 | Supplemental Quarterly Financial Information (Unaudited) This unaudited section provides quarterly financial data for 2020 and 2019, including revenues, costs, and net income (loss) per share, showing significant quarterly fluctuations Quarterly Financial Information (2020) | Quarter Ended | Revenues and other income (in thousands) | Costs and expenses (in thousands) | Net income (loss) (in thousands) | Basic Net income (loss) per share | Diluted Net income (loss) per share | | :------------ | :------------------------------------- | :-------------------------------- | :------------------------------- | :-------------------------------- | :---------------------------------- | | March 31 | $177,781 | $295,005 | $(182,767) | $(0.45) | $(0.45) | | June 30 | $127,314 | $374,130 | $(199,391) | $(0.49) | $(0.49) | | September 30 | $224,787 | $261,279 | $(37,384) | $(0.09) | $(0.09) | | December 31 | $366,316 | $382,579 | $7,956 | $0.02 | $0.02 | Quarterly Financial Information (2019) | Quarter Ended | Revenues and other income (in thousands) | Costs and expenses (in thousands) | Net income (loss) (in thousands) | Basic Net income (loss) per share | Diluted Net income (loss) per share | | :------------ | :------------------------------------- | :-------------------------------- | :------------------------------- | :-------------------------------- | :---------------------------------- | | March 31 | $296,790 | $358,370 | $(52,906) | $(0.13) | $(0.13) | | June 30 | $395,934 | $346,495 | $16,837 | $0.04 | $0.04 | | September 30 | $356,970 | $317,435 | $16,065 | $0.04 | $0.04 | | December 31 | $460,215 | $462,492 | $(35,773) | $(0.09) | $(0.09) | Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure No changes in or disagreements with accountants on accounting and financial disclosure were reported - No changes in and disagreements with accountants on accounting and financial disclosure were reported[721] Item 9A. Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of December 31, 2020, with no material changes in internal control over financial reporting during the most recent fiscal quarter, and Ernst & Young LLP attested to the effectiveness of internal control over financial reporting - Management, including the Chief Executive Officer and Chief Financial Officer, concluded that the company's disclosure controls and procedures were effective as of December 31, 2020[722] - There were no changes in internal control over financial reporting that materially affected, or are reasonably likely to materially affect, internal control over financial reporting during the most recent fiscal quarter[723] - Ernst & Young LLP, the independent registered public accounting firm, issued an attestation report on the effectiveness of internal control over financial reporting as of December 31, 2020, expressing an unqualified opinion[726][477] Item 9B. Other Information No other information required pursuant to Section 13(r) of the Securities Exchange Act of 1934 was applicable - No disclosures required pursuant to Section 13(r) of the Securities Exchange Act of 1934 were applicable[726] PART III Item 10. Directors, Executive Officers and Corporate Governance Information for this item is incorporated by reference from the 2021 Proxy Statement - The information required by this item is incorporated by reference from the Proxy Statement for the Annual Meeting of Shareholders which will be filed with the Securities and Exchange Commission not later than 120 days subsequent to December 31, 2020[728] Item 11. Executive Compensation Information for this item is incorporated by reference from the 2021 Proxy Statement - The information required by this item is incorporated by reference from the Proxy Statement for the Annual Meeting of Shareholders which will be filed with the Securities and Exchange Commission not later than 120 days subsequent to December 31, 2020[729] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information for this item is incorporated by reference from the 2021 Proxy Statement - The information required by this item is incorporated by reference from the Proxy Statement for the Annual Meeting of Shareholders which will be filed with the Securities and Exchange Commission not later than 120 days subsequent to December 31, 2020[730] Item 13. Certain Relationships and Related Transactions, and Director Independence Information for this item is incorporated by reference from the 2021 Proxy Statement - The information required by this item is incorporated by reference from the Proxy Statement for the Annual Meeting of Shareholders which will be filed with the Securities and Exchange Commission not later than 120 days subsequent to December 31, 2020[731] Item 14. Principal Accounting Fees and Services Information for this item is incorporated by reference from the 2021 Proxy Statement - The information required by this item is incorporated by reference from the Proxy Statement for the Annual Meeting of Shareholders which will be filed with the Securities and Exchange Commission not later than 120 days subsequent to December 31, 2020[732] PART IV Item 15. Exhibits, Financial Statement Schedules This section lists the financial statements, financial statement schedules (including condensed parent company financial statements and valuation and qualifying accounts), and exhibits filed as part of the report - The report includes consolidated financial statements, Schedule I (Condensed Parent Company Financial Statements), and Schedule II (Valuation and Qualifying Accounts)[734][735][747][748] - The Parent Company's condensed financial statements are prepared in accordance with Rule 12-04, Schedule I of Regulation S-X, with the investment in subsidiaries recorded using the equity basis of accounting[736] Item 16. Form 10-K Summary No Form 10-K Summary is provided - No Form 10-K Summary is provided in this report[750]