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Kosmos to Farm-out in Morocco

Zacks Equity Research

Kosmos Energy Ltd. (KOS) announced that it has entered into three farm-out agreements with BP plc (BP), covering three blocks in the Agadir Basin, offshore Morocco. Under the terms of the agreements, BP will acquire a non-operating interest in each of the Essaouira Offshore, Foum Assaka Offshore and Tarhazoute Offshore blocks. The U.K. oil giant will fund Kosmos’ share of the cost of one exploration well in each of the three blocks. BP will also pay its proportionate share of past costs. However, the approval of the deal by the Moroccan Government is pending.

Kosmos Energy operates as an oil and gas exploration and production company focusing on the under-explored regions in Africa. The company is based in Hamilton, Bermuda. The company's asset portfolio includes the existing production and other major project developments offshore Ghana, as well as exploration licenses with significant hydrocarbon potential offshore Ireland, Mauritania, Morocco, Suriname and onshore Cameroon.

The company is making great strides in the under-explored regions in Africa. Recently, it received regulatory approval for its Tweneboa-Enyenra-Ntomme (TEN) discoveries in Ghana.

Located in the Deepwater Tano Block, 60 kilometers (37 miles) offshore Ghana and approximately 30 kilometers (18 miles) west of the Jubilee Field, the TEN project would be a major expansion for Kosmos. The project is expected to start delivering oil from 2016, with a plateau production rate of 80,000 barrels of oil per day.

Kosmos stock trades in a 52-week range of $9.55 to $13.05. The stock has been trading near the lower end for the greater part of last month with intraday high touching the upper end on Oct 15, before settling at $10.73. Moreover, with volatile industry fundamentals and limited geographic diversification, we do not see any significant price upside for the Western Refining stock in the near-to-medium term.

Kosmos Energy holds a Zacks Rank #3, which is equivalent to a Hold rating for a period of one to three months. However, there are other stocks in the sector – Vermilion Energy Inc. (VET) and Baytex Energy Corp. (BTE) – which are expected to outperform over the next few months and carry a Zacks Rank #1 (Strong Buy).

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