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Edited Transcript of KOS.N earnings conference call or presentation 5-Aug-19 3:00pm GMT

Q2 2019 Kosmos Energy Ltd Earnings Call

Aug 9, 2019 (Thomson StreetEvents) -- Edited Transcript of Kosmos Energy Ltd earnings conference call or presentation Monday, August 5, 2019 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Andrew G. Inglis

Kosmos Energy Ltd. - Chairman & CEO

* Jamie Buckland

Kosmos Energy Ltd. - VP of IR

* Thomas P. Chambers

Kosmos Energy Ltd. - Senior VP & CFO

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Conference Call Participants

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* Al Stanton

RBC Capital Markets, LLC, Research Division - Analyst

* David Matthew Round

BMO Capital Markets Equity Research - Oil and Gas Research Analyst

* James Carmichael

Macquarie Research - Senior Analyst

* James William Hosie

Barclays Bank PLC, Research Division - Research Analyst

* Neil Singhvi Mehta

Goldman Sachs Group Inc., Research Division - VP and Integrated Oil & Refining Analyst

* Pavel S. Molchanov

Raymond James & Associates, Inc., Research Division - Energy Analyst

* Richard Merlin Tullis

Capital One Securities, Inc., Research Division - Senior Analyst of Oil & Gas Exploration and Production

* Robert Alan Brackett

Sanford C. Bernstein & Co., LLC., Research Division - Senior Research Analyst

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Presentation

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Operator [1]

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Greetings. Welcome to Kosmos Energy Second Quarter 2019 Earnings Call. (Operator Instructions) Please note this conference is being recorded.

I will now turn the conference over to your host, Jamie Buckland. Thank you. You may begin.

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Jamie Buckland, Kosmos Energy Ltd. - VP of IR [2]

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Thank you, operator, and thanks to you all for joining us today. This morning, we issued our second quarter earnings release and a slide presentation to accompany today's call. Both materials are available on the Investors page of the kosmosenergy.com website.

We anticipate filing our 10-Q for the quarter with the SEC later today.

Joining me on the call today to go through the materials are Andy Inglis, Chairman and Chief Executive Officer; and Tom Chambers, Chief Financial Officer.

Before we get started, I'd like to mention that this conference call includes certain forward-looking statements based on our current expectations. The risks associated with forward-looking statements have been outlined in the earnings release and in our SEC filings. We may also refer to certain non-GAAP financial measures in our discussion. And management believes such measures are important in looking at the company's historical and future performance, and these are commonly referred to industry metrics. These measures are provided in addition to and should be read in conjunction with the information contained in our financial statements prepared in accordance with GAAP and included in our SEC filings.

At this time, I'll turn the call over to Andy.

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Andrew G. Inglis, Kosmos Energy Ltd. - Chairman & CEO [3]

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Thanks, Jamie, and good morning, everyone. I'd like to start the call by reinforcing the key characteristics that define Kosmos' unique investment proposition. They are consistent with the themes we outlined at our Capital Markets Day in February.

First, Kosmos' business model is highly cash generative. In the second quarter, we delivered approximately $136 million of free cash flow and we're on track to deliver over $200 million in 2019 at current prices, our third year in a row of positive free cash flow.

For context, in 2019, this represents a free cash flow yield of around 10%, which is very competitive compared to other E&P companies and indeed other sectors. Second, our infrastructure-led exploration or ILX program is working. The Gladden Deep well brought the first success in the second quarter. And through the rest of the year, we expect to drill 4 ILX wells in the GoM and EG, targeting a total net resource, around 125 million barrels oil equivalent.

Third, we continue to add value to our Mauritania/Senegal asset base, our recent appraisal drilling further expanded the resource at Tortue, and we continue to make good progress with the sell-down of our position to around 10%. The scale and quality of the assets has led to significant industry interest and the process remains on track.

Fourth, creating transformational value through basin opening exploration remains a key part of our business. We have a deep, diverse portfolio of oil and gas opportunities, which we will continue to mature high grade and test. Later this year, we'll drill the Orca well at Mauritania and expect to drill 2 basin-opening tests per year from 2020 onwards.

And finally, our conservative approach to managing the balance sheet has not changed. In April, we opportunistically refinanced our bonds, that were due in 2021, pushing out the maturity until 2026.

Balance sheet strength continues to be a strategic asset of Kosmos.

Turning to Slide 3. I'd now like to discuss the second quarter. Kosmos had record production during the quarter with our entitlement share, averaging approximately 71,000 barrels of oil equivalent per day.

In Ghana, second quarter gross production averaged 97,000 barrels of oil per day at Jubilee and 59,000 at TEN, resulting in the planned 2 cargoes from Jubilee and 1 from TEN. At Jubilee, the partnership is planning to accelerate the gas enhancement projects into the fourth quarter of this year. Implementation of these enhancements should increase gas handling capacity to above 180 million standard cubic feet per day, thereby, allowing oil production to increase in the fourth quarter and into 2020.

At TEN, as the operator previously reported, completion problems were experienced at the EN-14 well due to mechanical issues, resulting in the well not being completed. In addition, there is the potential for 2 other TEN wells to be deferred. These mechanical issues and the potential deferral of TEN drilling has reduced our full year expectations for the field, and we now expect to lift 4 cargoes from TEN, down from the previous expectation of 5. As a result, we now expect production for 2019 at the corporate level to be the low end of our guidance range.

In the Gulf of Mexico, our assets continue to exceed expectations, reaching the high end of our guidance range for the second quarter in a row. The 26,400 barrels of oil equivalent per day net average daily production in the second quarter was a record for the GoM business unit, demonstrating the growth in the business since acquiring DGE last year.

The quarter-on-quarter increase was primarily driven by increased production at Odd Job, where we're able to take advantage of spare capacity aboard Delta House and the Tornado field coming back online after its planned dry dock in 1Q. Performance in Equatorial Guinea during the quarter was in line with expectations. Our electrical submersible pump or ESP program is ongoing with 2 further ESP installations this quarter.

In addition, a stimulation program at Okume has recently begun, and the facility's upgrade program is currently underway to enhance the Okume facilities in support of the 2020 and 2021 ESP program. These are low-cost rapid payback projects, and the 2019 ESP program has delivered cash payback in excess of 120% of invested capital in just 7 months. This strong production performance translated into approximately $136 million of free cash flow during the quarter. We remain on track to exceed our $200 million free cash flow forecast at current prices for the full year.

And finally, we paid a $0.045 dividend during the quarter and announced our third quarter dividend today payable in late September at $0.18 for the year, this equates to a yield of around 3% at today's share price.

Turning to Slide 4. As I mentioned in my opening remarks, our ILX program is off to a great start and we expect first oil from Gladden Deep around 6 months from discovery. Our inventory of high-quality prospects in the GoM was broadened through our participation in the March lease sale.

During the second quarter, Kosmos was awarded all 9 leases where we were apparent high bidder. With these new awards, we're now at approximately 80 blocks in total with over 30 prospects, equivalent to more than 5 years of future drilling activity.

In the second half, we have an active ILX drilling program in the GoM and plan to drill 3 of these prospects, which I'll talk about in a minute.

In Equatorial Guinea, we're planning to drill our first well target in the G-13 prospect. We have now contracted the rig to drill this well, which is expected to spud late in the third quarter. In Mauritania/Senegal, Phase 1 of the Greater Tortue Ahmeyim project remains on track, following FID in December. Pre-FEED work on Phases 2 and 3 is ongoing and recent drilling results have further expanded our significant resource base at Greater Tortue Ahmeyim.

The sell-down process we announced in February is progressing well, its world-class resource base has garnered significant industry interest, and we expect to announce a transaction by year-end.

Turning to Slide 5. This slide shows our infrastructure-led exploration program in action. Gladden Deep may be the smallest of our 2019 prospects, but it's still meaningful and demonstrates the speed to first production and cash flow contribution of our growing ILX portfolio. We expect to deliver incremental net production to Kosmos of approximately 1,100 barrels oil equivalent per day, around 6 months from discovery. The economics of the well are very attractive. At $60 Brent and with a $10.50 per barrel F&D cost and $7.30 per barrel lifting cost, the well has a full cycle IRR of around 70% with payback expected in around 14 months from first oil.

Opportunities like Gladden Deep are precisely why we entered the Gulf of Mexico and we look forward to more success as we ramp up activity in the second half.

Slide 6 shows this activity in more detail. We plan to spud Moneypenny and Resolution in October followed by Oldfield in November. In total, these 3 wells will tax approximately 100 million barrels of net oil resource, greater than our current 80 million barrel oil equivalent 2P reserve base in the GoM. So success at any of these wells would be meaningful.

Interestingly, on Oldfield specifically, we're in the process of finalizing a cross assignment of our interest with Hess on the adjacent block, with Kosmos taking a 40% interest in the 2 blocks and Hess 60%. As a result of new seismic data, that Hess has processed in the area, we now believe that there could be significant upside to the 30 million barrel oil equivalent we initially talked about. Oldfield is another example of Kosmos' strong license to operate within the Gulf of Mexico, often with much larger payers, like Hess and BP.

With Oldfield, we plan to operate the prospect on behalf of Hess during exploration and the initial development phase. One important point to note. Each of these 3 prospects is located near existing infrastructure, which is available capacity. If successful the discoveries can be brought online quickly. The wells have an average F&D cost of around $12 per barrel and an average lifting cost of around $6 per barrel. And with oil prices of only $60 per barrel Brent, generate average full cycle IRRs around 50%. There's a lot of oil yet to be found in the deepwater GoM and an abundance at underutilized infrastructure.

As I've said in previous presentations, I don't believe there's ever been a better time to be active in the GoM. We plan to take advantage of this attractive backdrop and a growing opportunity set, by drilling 4 to 5 ILX wells a year, targeting 65 million to 100 million barrels oil equivalent around its net resource each year.

Turning to Slide 7. I'd like to discuss another ILX opportunity. This time, in the G-13 area, in Equatorial Guinea. This is a unique opportunity around a legacy discovery.

The G-13 field includes 4 previously drilled wells, 3 of which were successful. The wells drilled to date have proved up around 25 million barrels of oil equivalent with a 500-meter Oil Column. Today, we have a calibrated well database. And in 2018, we acquired a new seismic survey. The previous wells were drilled up in 1999 vintage seismic survey. The new survey has given us a much clearer image of the depositional system that deliver reservoir sand into the prospect area. This better resolution has enhanced our understanding of the trap model, the new information has been key in identifying that the previous wells were drilled on what we now believe to be the edge of the main reservoir channel, providing considerable upside to the discovery.

This, together with the stratigraphic element, increases the resource potential to around 200 million barrels gross for the field. The first well will test around 50 million barrels gross and expected to spud in the third quarter.

Slide 8 shows the significant progress we continue to make in Mauritania/Senegal. With our partners, we're building a major LNG business across the basin. With 50 to 100 TCF of gas initially in place, we believe we have enough gas to underpin 3 separate 10 million ton per annum LNG hubs. The innovative development scheme, we're using at Greater Tortue Ahmeyim can be replicated to the other 2 hubs, BirAllah and Yakaar Teranga, using a design-once build-many approach. Our exploration and appraisal activities this year have, therefore, focused on: first, expanding our resource base at Greater Tortue Ahmeyim, which we've done with a successful GTA-1, appraisal well; second, defining the development area and securing a second LNG hub at Yakaar and Senegal, where an appraisal well is planned to spud next month after the rig completes some BOP and riser maintenance; and third, underpinning the next LNG hub in Mauritania, BirAllah, which we hope to do with the Orca well, which we expect to spud in October.

And as I said in my opening remarks, the sell-down process we announced in February is progressing well, and we expect to announce the transaction by year-end.

Turning to Slide 9, I'd like to highlight the substantial change in our shareholder base over the last 2 years, a shift that mirrors the rapid evolution of our business over the same period. In June, Blackstone sold their remaining position in Kosmos. Blackstone was 1 of 2 founding shareholders. And post their exit, and that of Warburg Pincus, earlier this year, we now have almost 100% free float and any private equity shareholding overhang is all but gone. Today, we have a more diverse broader set of public equity investors. With that enhanced float, U.S. assets and the U.S. domicile, we believe Kosmos should soon be eligible for more meaningful index inclusion with a benefit that will bring to our shareholder base.

We've included the guidance for the third quarter and full year in an appendix to the presentation, and we encourage you to look at that when modeling the business for the rest of the year.

So turning to the final slide. In summary, 2Q was a record quarter for Kosmos with production and EBITDAX both over 50% higher compared to the same quarter last year. This significant growth over the last 12 months has been done with only a modest increase in leverage, perhaps most importantly for our shareholders with minimal dilution.

With the company's strong cash generation, we expect leverage to move towards our target range of 1x to 1.5x. And we look forward to a very second -- a very busy second half that is full of exciting catalysts, many of which could be transformational for the company.

Thank you, and I'd now like to turn the call over to the operator to open the session for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question is from David Round with BMO Capital Markets.

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David Matthew Round, BMO Capital Markets Equity Research - Oil and Gas Research Analyst [2]

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Just a couple for me. The first one on Ghana. Are you able to add any further detail on drilling plans there? I'm thinking particularly at TEN, following the 14 well. And how do you currently see the schedule for the rest of the year and into 2020? And second question. In the Gulf of Mexico, obviously, quite a strong quarter, and you've now added Gladden Deep, which looks like it's going to contribute this year. So how do we think about production in the second half? And what's your confidence around the full year guidance there?

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Andrew G. Inglis, Kosmos Energy Ltd. - Chairman & CEO [3]

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Okay. Yes. Thanks, David. I think on Ghana, it'd be good to give you a sort of a full view of what we think the second half could look like. We're obviously disappointed that we couldn't complete the EN-14 well, and we support the operator's decision to take a timeout that previously being problems on the prior well, EN-10, where that completion was delayed by a month. So I think taking a timeout on TEN is actually the right thing to do. And we need to come back with a plan for EN-14, what's the right remediation. And I think we also need to come back with a -- an appropriate design for drilling and completing that we are confident can be delivered on time, on budget. I think it's important to emphasize on TEN. This is an operational issue, nothing to do with the reservoir, the reserves are there, we just need to make sure we can get at them in a cost-effective way. What actually means, I think, from our perspective is that the rig will work on Jubilee for the rest of the year. We're about, I think, to start up a producer on Jubilee, J-23. I think there is some maintenance -- planned maintenance on the rig. And then I think there's a series of recompletions that would take you through to the end of the year. So the combination of that additional well capacity at Jubilee together with the increase in the gas throughput on Jubilee to above 180 million standard cubic feet, should give us a sort of strong production on Jubilee and a good exit rate for Jubilee for the year-end and into 2020. And clearly, from a Kosmos perspective, that's important. We have a larger share in Jubilee than we do in TEN. So it's important that we maintain a strong production base in Jubilee. So I think that's sort of the Ghana story. In GoM, yes, we're very pleased, the business has outperformed our expectations. Obviously, when we made the acquisition, it was a record quarter in production. And then through the year-end, we've got 2 more wells starting up, Gladden Deep, Nearly Headless Nick, which means that we should exit the Gulf with a strong exit rate in 4Q. So I think that the Gulf has been a strong performance and it's obviously contributed to mitigating some of the impact of TEN. And I'm genuinely feel pleased about the business we're building there from all dimensions. It's a great team. We've managed to seize on, I think, the opportunity to get in some great prospects through the licensing round and through deals that we've done with some of the larger companies, brought the Kosmos brand to build. And as I said in my remarks, we've got a 5-year drilling inventory built up, which is pretty neat given the acquisition is less than a year through. So it's been a strong start from all dimensions in the Gulf.

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Operator [4]

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Our next question is from James Carmichael with Macquarie Group.

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James Carmichael, Macquarie Research - Senior Analyst [5]

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Just one quickly on Gulf of Mexico. Just interested in what scale of resource you think you need to discover at Resolution to ensure that is a stand -- a new production hub rather than simply tying it back to the Gunnison spar. And then also, just in the event of it, that Resolution well doesn't work, would you still consider the Gatlinburg and Sioux Falls, et cetera, as drillable targets further in the future?

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Andrew G. Inglis, Kosmos Energy Ltd. - Chairman & CEO [6]

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Good questions, James. I think it's important to look at the stand-alone versus a new build -- sorry, a stand-alone new build versus Gunnison. I think is something that could be pursued almost irrespective of the scale. The Gunnison spar would be an opportunity for us to use existing infrastructure. I believe it would have the capacity, even with, sort of, full success at Resolution, and the surrounding prospects came in. So I don't think it's a scale thing. I think it's ultimately around what is the most economic decision, full life economic decision in terms of utilizing Gunnison, potentially debottlenecking it or is it about bringing in a new build, yes? So I think -- and the good news is we've got optionality there. We could go either route, and I think both are valid today. And Resolution, we have at around 150 million barrels. And then this surrounding prospectivity, we could have up to sort of 0.5 billion barrels gross. So this is a significant opportunity for us. And if Resolution were not a success, I think it's about individual prospects. It will not be about the area itself. Obviously, in the Gulf of Mexico, it'll be probably be around trap. And therefore, Sioux Falls, et cetera, the ongoing prospectivity is still valid. So we like the area. We like the scale. And we like the ability with success to be able to tie -- to move forward with development quickly. And that to me is the thing that distinguishes the economics in the Gulf of Mexico. It's the time to production ultimately, which is driving the high IRRs. And we would want to retain that optionality with success on Resolution.

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Operator [7]

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Our next question is from Richard Tullis with Capital One.

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Richard Merlin Tullis, Capital One Securities, Inc., Research Division - Senior Analyst of Oil & Gas Exploration and Production [8]

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Congrats on a nice quarter. Looking at the LNG Tortue sell-down process. Are bids still expected late summer at this point?

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Andrew G. Inglis, Kosmos Energy Ltd. - Chairman & CEO [9]

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Yes. Richard, it's been -- actually, it's been a busy couple of months, I'd say, on Mauritania/Senegal sell-down process. We announced it, obviously, in May, set up the data room. And the level of interest in the industry has been significant, which is a plus and a minus. It means lots of people going through the data room, lots of management presentations to work. And that's the process that we've been working on. So we've had interests from IOCs, NOCs, trading houses. It's been interesting to me to see the diversity of the strategic interest in the assets. And I think that to me is the real driver. The importance of gas -- actually gas is a transition fuel, people's portfolios not being balanced, how do they get access to it. And those have been the conversations that we've been in. So we're working our way through that process, we are on track to get it all done. And therefore, we sort of remain on track to have, we hope, a transaction that we can announce by the end of the year. Lot of work being done and a lot of work to be done, but the level of interest that we've had in the process has really been strong and, therefore, we're hopeful we'll get the -- by year-end, we will have a transaction that we can announce.

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Richard Merlin Tullis, Capital One Securities, Inc., Research Division - Senior Analyst of Oil & Gas Exploration and Production [10]

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That's helpful. And when you look at a potential transaction, what sort of structure could it take? Would you be looking for mostly cash in a deal? Or what would the parameters look like?

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Andrew G. Inglis, Kosmos Energy Ltd. - Chairman & CEO [11]

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Yes. I think it's early days to talk about that. And I think you sort of -- I think, hopefully, you'll respect my position, which is to say, look, this is a competitive process, different people will have different views and, therefore, will put different value on different aspects of it. So I think it's too early to say exactly how we're going to structure the deal. But I think that you're right to push the fact that they -- we believe with the discovered resource there is in place, a project that is moving forward, Phase 1, Phase 2 and 3 in Tortue, a strong cash element is an important part of the bid. And I think that's clear that that's an important part of the transaction for us. Equally, while, there are some pieces that are not fully described today. I think there is significant upside to the resource base in Mauritania for instance. So how do we capture that? And there are mechanisms in which we can do that. So I think you're right to look at it as being a combination. But I think that -- things moved when we FID-ed in December. We have a real project moving forward, real value, real cash flows, underpinned by resource with an appraisal well on Greater Tortue Ahmeyim that underpin that resource. So I think the cash element of that is an important part of the transaction.

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Richard Merlin Tullis, Capital One Securities, Inc., Research Division - Senior Analyst of Oil & Gas Exploration and Production [12]

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That's also helpful. I do appreciate the sensitivity there. And just lastly, how much downtime do have you factored into the Gulf of Mexico, third quarter guidance range?

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Andrew G. Inglis, Kosmos Energy Ltd. - Chairman & CEO [13]

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We have sufficient. We -- just to give you an indication, the -- let's say, I say Barry. The impact of Barry on a full year basis was 400 barrels of oil per day, yes? And so we have built in that plus an incident -- plus another event of a similar size. So I think we're well covered in terms of the impact from hurricanes.

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Operator [14]

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Our next question is from Neil Mehta with Goldman Sachs.

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Neil Singhvi Mehta, Goldman Sachs Group Inc., Research Division - VP and Integrated Oil & Refining Analyst [15]

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I guess the first question is you're getting to appear even at a lower oil price environment, where we see a substantial amount of free cash flow generation in the model. And maybe could you spend some time talking about allocation of that free cash flow? And how much you want to return to shareholders versus reinvest in the business?

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Andrew G. Inglis, Kosmos Energy Ltd. - Chairman & CEO [16]

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Yes. Thanks, Neil. And I think we've been clear on this I think at the Capital Markets Day. And I think we're clear on following through on that plan. I think, first off, it's good for you to recognize the strong free cash flow from the company, which I think is distinctive. And it's something that we're absolutely focused on, that's what Tom and I are primarily focused on is ensuring that we deliver on that. And it's good to see 2Q come through strongly. We're paying a dividend. We've announced the $0.18 per year. And we've sort of announced that it would grow in line with the growth in the business. So I think we have been clear about the return of the cash to shareholders through the dividend. And I think the next track then for the cash delivery will be to bring the leverage down into our target range. We're sitting, as we showed on the view graph, around -- on a sort of backward-looking basis around 2. Our objective at year-end is get to the 1 to 1.5 -- sorry, by year-end to get to 1.7 to 1.8 on a journey to get to 1 to 1.5. So I think -- and the balance sheet strength has been a distinctive part of Kosmos' strategy. It's allowed us to be opportunistic, when opportunities have made themselves available. And I think looking forward, Neil, I think there will be opportunities from the organic success that we have. We've talked about the drill out in the Gulf of Mexico. Success across all 3 of those prospects is significant in terms of the opportunities that will present the business. And clearly, we have been opportunistic around inorganic opportunities. But I think to us, the first thing is confidently underpin the dividend and confidently bring the debt down into the target range of 1 to 1.5. And on current prices, excluding the -- any process in Mauritania/Senegal, where we're going to be at 1.7 to 1.8 by year-end.

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Neil Singhvi Mehta, Goldman Sachs Group Inc., Research Division - VP and Integrated Oil & Refining Analyst [17]

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I appreciate that. And the follow-up question is, is this BBC panorama story on Senegal, I think you guys have been very public as well as BP in your response to it. But can you frame out that risk for investors who are on the call because it is something that does come up? And by virtue of you showing conviction around the Tortue asset sale, I would imagine that you feel like that's still on course and won't be disruptive from these headlines, but I want to give you a forum to respond.

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Andrew G. Inglis, Kosmos Energy Ltd. - Chairman & CEO [18]

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Look, Neil, I appreciate you asking the question. I think we were very clear in our response to the program. We feel it is an inaccurate and misleading portrayal of our business in Senegal. BP has been equally clear and so has the government of Senegal. As far as the government of Senegal is concerned, yes, they're very focused on the governance of the sector, which Kosmos fully supports. They've recently been very clear through their -- through COS PETROGAZ, the entity which governs the sector. There's absolutely no intention to question the licenses that have been issued to Kosmos or BP. And in fact, the government is very much focused on ensuring that the project moves forward. And that is the most important thing we talk to with potential buyers as they come into the data room. Is that the project is absolutely proceeding as planned, the progress made on Phase 1 in terms of the contracts being let, steel being cut, and now propagation occurring. And the Pre-FEED work, that's occurring on Phases 2 and 3. So nothing has changed.

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Operator [19]

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Our next question is from Bob Brackett with AllianceBernstein.

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Robert Alan Brackett, Sanford C. Bernstein & Co., LLC., Research Division - Senior Research Analyst [20]

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Question around Equatorial Guinea and specifically Slide 7. I guess I'll start fairly specifically, that fall block that you're targeting for S-5. Is the 50 million barrel target all within that fairway in that fall block?

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Andrew G. Inglis, Kosmos Energy Ltd. - Chairman & CEO [21]

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Yes.

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Robert Alan Brackett, Sanford C. Bernstein & Co., LLC., Research Division - Senior Research Analyst [22]

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And then going broader, I'll see what I'll get away with. I see a number of both penetrated and unpenetrated fall blocks and I see 2 fairways. One question would be, what color on that chart represents lowest known oil? And how prospective do you think those 2 fairways are? So if S-5 is successful, what's the sort of scale of the follow-on opportunity?

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Andrew G. Inglis, Kosmos Energy Ltd. - Chairman & CEO [23]

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Yes. I think -- good questions, Bob. I think that the -- I think if S-5 is successful where we would go next is sort of is updip. We haven't got a cross section for you. So if you went updip, which is going to the east on that map, the resource upside would come in from that updip's stratigraphic trap. And that's where the new seismic data has actually allowed us to see additional resource.

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Robert Alan Brackett, Sanford C. Bernstein & Co., LLC., Research Division - Senior Research Analyst [24]

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And that unpenetrated fall block east of the G-13-2 is that prospective?

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Andrew G. Inglis, Kosmos Energy Ltd. - Chairman & CEO [25]

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Yes. It is. So look -- I don't want to --all good questions, right? So I think we're targeting the first well and what we believe is the lowest risk compartment, which is why the S-5 well has been targeted. And then, I think, our success there allows us to have a tieback, which is economic. And then from there, with that in place, we can then test the updip resource, which would add significant additional volume. And I think the other thing is to sort of recognize, as I said in my remarks, that the original wells were drilled off seismic that was 20 years old -- actually 20 years old, yes. And so the step change in quality is huge. So we have the ability to image it a lot better. And clearly, one of the reasons why this wasn't pursued in the -- in those days by Hess. And actually our team actually were -- in the Trident days, were involved in that hungover with Hess was because the facilities were full at Ceiba and Okume. And there wasn't the space. So I think this is going to be interesting. And I think there were -- there are other opportunities of a similar ilk, that we're starting to define now in the back of the enhanced data set.

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Robert Alan Brackett, Sanford C. Bernstein & Co., LLC., Research Division - Senior Research Analyst [26]

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Sorry to pester with one final one. What do you think the economic cut-off is for a viable tieback, in terms of reserves?

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Andrew G. Inglis, Kosmos Energy Ltd. - Chairman & CEO [27]

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It's around that 50 million-barrel mark. It's around the 50 million-barrel mark. Yes. It's more than -- so -- it's a good question, Bob. We haven't been out to bid at (inaudible) but in terms of where we are of all the Pre-FEED work that we've done, we would say it's around that 50 million-barrel mark, yes.

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Operator [28]

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Our next question is from Al Stanton with RBC Capital Markets.

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Al Stanton, RBC Capital Markets, LLC, Research Division - Analyst [29]

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Yes. Just a very quick question on the Gulf of Mexico. You mentioned a number of times, I think, that you've got an inventory of drilling targets for the next 5 or 6 years. So does that mean your plate is full with respect to exploration? And any new additions we should anticipate in the Gulf of Mexico? Very much focused on adding reserves production and cash flow inorganically.

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Andrew G. Inglis, Kosmos Energy Ltd. - Chairman & CEO [30]

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Great question, Al. I think we're in an enviable position. I think we've built a really strong portfolio of opportunities we have accessed at really low cost. And I couldn't be more pleased at the way in which we took advantage, I think, of a real lull in the Gulf of Mexico to do that. It's interesting to see -- almost post the acquisition, sort of, more interest now in the deepwater. I think we can -- we timed it really well. And I actually think there will be inorganic opportunities that will come up. I think the majors, I think, are constantly reevaluating their portfolios. So I think the simple answer is to say anything that we add has to compete with the inorganic returns. And I think we've demonstrated, I think, that those inorganic returns are pretty good. So we have choices. And it's great to have choices. And I believe we're not driven to do anything from an inorganic perspective. We will obviously look at things. And if we believe any new addition can match the high quality that we have internally, then obviously we would look at it. And I think it's great to have built that foundation there. So I think it's going to be interesting times in the Gulf of Mexico. But I think discipline, discipline, discipline is hugely important. And we've -- and I think we've demonstrated that discipline through our initial ownership and growth in the Gulf.

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Operator [31]

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Our next question is from Pavel Molchanov with Raymond James.

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Pavel S. Molchanov, Raymond James & Associates, Inc., Research Division - Energy Analyst [32]

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It so happens that this year, your drilling schedule just for the company as a whole is very back-end weighted with, I think, 4 prospects between September and November or something like that. Are you going to be sustaining that pace of exploration activity into 2020? Or is it just kind of a coincidence that Q4 of 2019 has such a large number of exploration prospects?

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Andrew G. Inglis, Kosmos Energy Ltd. - Chairman & CEO [33]

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Yes. No. Good question, Pavel, yes. It's a little bit of a -- it's just the -- obviously, if you think of it, 3 of the -- yes, 3 of the 5 are Gulf of Mexico, yes? And actually, there are 3 operated wells in Gulf of Mexico. So it's really post the acquisition of DGE, building the portfolio, high grading it, making sure we're drilling the right things, getting access to the Resolution hub with BP, access actually in sort of equity -- progressing the equity conversations with Hess on Oldfield. Moneypenny was sort of always in the program where it was. But actually the 2 operated wells required us to sort of get those deals done then get the rigs. And the other point to mention is we use rigs of opportunity, so that we can get very good rig rates. And so we're not locked into a program actually of having to drive a rig. So I think this is a feature of the spool-up post the acquisition at DGE. Now once we're -- we would, clearly, as I described, got 4, 5 very strong prospects outlined for 2020 in the Gulf of Mexico. So what you'll see is a more ratable program. And then the -- what follow on in EG will depend on success in EG-13 or S-5. And then we will time the basin-opening wells as the data matures. So I think you'll see a more -- so the answer is, you're going to see a more ratable drilling program through 2020 and 2021, built off the back of a more ratable program in the Gulf of Mexico.

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Pavel S. Molchanov, Raymond James & Associates, Inc., Research Division - Energy Analyst [34]

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Okay. That's helpful. Back to the cash flow allocation question. If we just look at your Q2 numbers and annualize with Brent in the 60s, your stock's trading at around 3x cash flow from operations. Obviously, pretty low multiple by anybody's standards. I'm curious what your thoughts are on share buyback as an opportunity to perhaps balance that out with deleveraging?

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Andrew G. Inglis, Kosmos Energy Ltd. - Chairman & CEO [35]

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Yes. We've -- we have used share buybacks in the past. We, obviously, use stock to proportion of the acquisition of DGE, and we bought that back at, Tom, what a 40%...

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Thomas P. Chambers, Kosmos Energy Ltd. - Senior VP & CFO [36]

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Discount.

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Andrew G. Inglis, Kosmos Energy Ltd. - Chairman & CEO [37]

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Discount actually to address the dilution in that deal. And as we've talked about, we've grown the company by over 50% EBITDAX production quarter -- 2019 versus 2018, 2Q, 2Q with minimal dilution. So we've used it opportunistically in that way. Yes, it remains an option. And I'm not going to rule it out, Pavel, it remains an option. I think we've been clear at dividend, get the debt in the right place and then it remains an option, I think, after that. So we don't rule it out, we've clearly used it in the past. And I think depending on the share price performance, it remains an option. Tom, would you like to add anything?

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Thomas P. Chambers, Kosmos Energy Ltd. - Senior VP & CFO [38]

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No. I think that kind of summarizes it, Andy, from where we stand.

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Andrew G. Inglis, Kosmos Energy Ltd. - Chairman & CEO [39]

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Yes. And we're clear that the balance sheet strength for us is something that has been good for Kosmos since we went public, and it's helped us, I think, distinguish ourselves in the sector. And that's our dividend, balance sheet strength and then and I think -- and then share buybacks would be an option.

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Operator [40]

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Our next question is from James Hosie with Barclays.

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James William Hosie, Barclays Bank PLC, Research Division - Research Analyst [41]

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I guess firstly on the Senegal/Mauritania divestment. I was just wondering the extent to which you feel the drilling activity you're planning there for H2, could meaningfully impact the fields process?

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Andrew G. Inglis, Kosmos Energy Ltd. - Chairman & CEO [42]

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Yes. Good question, James. And I think we've been careful in our remarks that we anticipate having the Orca result before we would announce a transaction. So that's, sort of, what we believe would be the outcome. Clearly, if things were to accelerate, there are mechanisms in which you can -- commercial mechanisms in which you can cope with that. So it doesn't become a rate-determining step, it's simply one that we can accommodate.

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James William Hosie, Barclays Bank PLC, Research Division - Research Analyst [43]

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Okay. So is it possible that you could see the timing of the announcement slip into next year just on the timing of activity?

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Andrew G. Inglis, Kosmos Energy Ltd. - Chairman & CEO [44]

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No. Orca -- we'll know the Orca result this year.

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James William Hosie, Barclays Bank PLC, Research Division - Research Analyst [45]

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Okay. And then a second question I had on the Jubilee and the gas throughput enhancement plans. Can you give us some color on the scale, the uplift of production capacity at Jubilee you expect to achieve from that?

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Andrew G. Inglis, Kosmos Energy Ltd. - Chairman & CEO [46]

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Yes. So look, if you -- I don't want to get too much into the engineering, but if you -- today, the gas handling is -- on Jubilee is constrained to around 160 to 165, it's sort of -- it's in that zone. We would hope to -- through the debottlenecking get to 180 to 185. So -- and then actually the uplift you get on the oil side will depend on the sort of the margin or GOR of a well. But it's sort of 10,000 barrels of day of oil production, if you saw that increase from existing wells. It's not new wells being brought on from existing wells. So it's material. And the most important part is, it sort of helps you going forward. It's a constant brick that you get rather than it be one that sort of on decline.

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Operator [47]

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We have reached the end of our question-and-answer session. I would like to turn the conference back over to management for closing remarks.

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Jamie Buckland, Kosmos Energy Ltd. - VP of IR [48]

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Great. Thanks, operator. We appreciate you all joining us on the call today, and thanks for your interest in Kosmos. If you got any further questions, please don't get in contact -- hesitate to get in contact with me, and thanks very much.

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Operator [49]

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Thank you. This concludes today's conference. You may disconnect your lines at this time and thank you for your participation.