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Kosmos (KOS) Concludes Offshore Asset Divestment to Shell

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Kosmos Energy Ltd. KOS completed the divestment of its exploration assets of around $200 million to B.V. Dordtsche Petroleum Maatschappij, a fully owned affiliate of Royal Dutch Shell Plc. RDS.A.

The deal was made to farm down Kosmos’ interests in certain offshore exploration assets in Africa and South America for approximately $95 million along with future contingent payments of up to $100 million.The transfer of interests in South Africa is expected to happen next year.

Under the terms of the agreement, Shell acquired Kosmos' existing 45% stake at the PEL0039 block in Nambia, 45% interest at Block NCUD in South Africa and owns a 33.33% stake at Block 42 in Suriname. The integrated company also obtained Kosmos’ share in the São Tomé & Príncipe blocks, with 25% shares in Block 6, 35% in Block 11, and 35% in Blocks 10 and 13.

The transaction involves contingent payments of $100 million, of which $50 million will be made upon each commercial discovery from the first four exploration wells drilled across the company’s asset portfolio. Three of the four well explorations are scheduled for 2021.

Kosmos will exhaust one-third of the initial sale proceeds to analyze two superior infrastructure-led exploration prospects in the Gulf of Mexico, each offering massive opportunity with the help of an affordable and carbon-free development scheme. The remaining proceeds will be utilized to lower the borrowings outstanding under its credit facilities.

Following the completion of the transaction, Kosmos holds an exploration portfolio of more than six billion barrels of gross resource potential in proven basins in West Africa and the Gulf of Mexico. Notably, the company plans to save nearly $125 million worth of capital expenditure over the next two years with this sale and aims to enhance its exploration potential to maintain a strong balance sheet.

Company Profile & Price Performance

Headquartered in Dallas, TX, Kosmos is a leading independent deepwater oil and gas exploration and production company, with a strong footprint in prolific offshore resources in Ghana, Equatorial Guinea and the U.S. Gulf of Mexico. Its shares have gained 8.1% in the past 6 months.

Zacks Rank & Stocks to Consider

Kosmos currently carries a Zack Rank #5 (Strong Sell). Some better-ranked players in the energy space are Summit Midstream Partners, LP SMLP and China Petroleum & Chemical Corporation SNP, both currently sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Over the past 60 days, the Zacks Consensus Estimate for 2020 earnings for Summit Midstream has been raised by 25.9%.

China Petroleum is expected to see earnings growth of 175% in 2021.

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