Good day, everyone, and welcome to Kosmos Energy’s first quarter 2022 conference call. [Operator instructions] At this time, let me turn the call over to Jamie Buckland, Vice President of Investor Relations at Kosmos Energy. Please go ahead.

Thank you, operator, and thanks to everyone for joining us today. This morning, we issued our first quarter earnings release. This release and the slide presentation to accompany today’s call are available on the Investors page of our website. Joining me on the call today to go through the materials are Andy Inglis, Chairman and CEO; and Neal Shah, CFO. During today’s presentation, we will make forward-looking statements that refer to our estimates, plans and expectations. Actual results and outcomes could differ materially due to factors we note in this presentation and in our UK and SEC filings. Please refer to our annual report, stock exchange announcement and SEC filings for more details. These documents are available on our website. And at this time, I’ll turn the call over to Andy.

Thanks, Jamie, and good morning and afternoon to everyone. Thank you for joining us today for our first quarter results call. I’d like to start today’s presentation looking at the company’s portfolio, focusing on the key characteristics, which differentiate Kosmos position as well in a rapidly changing oil and gas sector. We’ll then talk about the quarter, looking at both the operational and financial progress we’ve made year-to-date before opening up for Q&A. Starting on Slide 3. This is a slide we showed with our full year results in February, updated for Tullow preemption in Ghana. The war in Ukraine has fundamentally restructured the global oil and gas markets, and we believe we have the right portfolio at the right time to address the challenges this irreversible change has introduced. Our production is expected to grow by approximately 50% in the next two years, helping to provide the oil and gas the world needs today. We have a strategic LNG resource needed to support a just transition in Africa while enhancing energy security. We think these attributes differentiate Kosmos and offer investors a compelling opportunity to own a company with a purpose and a portfolio that is fit for the future. First, on the left, we have low-cost, high-quality assets. The company is underpinned by world-class fields with a combined 2P reserve life of over 20 years and the longevity to deliver sustainable, high-margin cash flow. This gives us the ability to invest in our existing assets to materially grow production and free cash flow while simultaneously reducing debt, and we’ve made excellent progress on that during the quarter. Second, as the chart on the right shows, we’re increasing our exposure to LNG at a time when both the strategic and financial value of gas is rising. We have Tortue…

Thanks, Andy, and good morning and good afternoon to everyone. On the back of the operational – robust operational performance Andy talked about for the quarter, we posted strong financial performance with the key highlights outlined on this slide. EBITDAX of $430 million was over 25% higher than the fourth quarter, thanks to the full impact of the Oxy Ghana transaction in the quarter and strong realized prices. Net debt fell over 10% from year-end, which, coupled with the strong EBITDAX performance, drove leverage to 1.9x at the end of 1Q, a significant reduction from last quarter. Free cash flow in the quarter was approximately $220 million, an increase of over 60% on our previous quarter, demonstrating the cash generative ability of our low-cost portfolio. With good performance across the portfolio, liquidity rose by around 20% over that period. Turning to Slide 13. We completed the RBL redetermination and RCF refinancing at the end of the quarter with liquidity rising to over $900 million, and we expect it to continue to increase further the year end. The right-hand chart shows we have no material maturities until 2025 after repaying around $100 million on the RBL in the first quarter. As we generate cash, we plan to pay down additional debt, pushing debt maturities out even further. Turning to Slide 14, which looks at the quarter in more detail. As Andy mentioned, net production of 72,600 barrels of oil equivalent per day was at the upper end of our guidance range, up almost 40% on the same quarter last year. Realized price per barrel after hedging impacts was $88 per barrel, almost double the same period last year. On cost, we performed in line with guidance with higher OpEx per barrel this quarter versus last year, largely a result of lifting…

Thanks, Neal. Turning to Slide 16 to wrap up today’s presentation. In summary, we’re delivering on our promises for today while building a company for the future. Our producing assets are performing and generating material free cash flow. Our defined development projects are progressing well despite the challenging environment. We’re growing our exposure to international LNG at a time when gas and LNG demand is rising sharply. On the back of strong cash, an EBITDAX performance leverage is falling and liquidity is rising. And finally, we’re committed to adjust energy transition and can play an important role in enhancing the energy security of those nations looking to diversify future energy supply. Thank you. And I’d now like to turn the call over to the operator to open the session for questions. Operator?

Thank you. [Operator Instructions] Our first question is from the line of Neil Mehta with Goldman Sachs. Please proceed with your question.

Team, thanks so much for taking the time this morning. The first question is around Tortue Phase 2, and would love your perspective. We got a little bit of color from the operator a few days ago. But your perspective on are we tracking towards new FID? And then to the extent you can talk about it, how do you think the economics of that incremental growth project have evolved as it is much lower capital intensity?

Yes. Thanks, Neil. Yes, I think we’re taking the time to make sure that we’ve got the right scale and fundamental concept, both in terms of the scale of the project and timing to fully optimize the resource. I think there’s been a lot of changes in the market, and we need to make sure that we’re bringing the right project forward with the right timing. We’re clearly at an inflationary period. And one of the things that I think both BP and Kosmos are aware of is we need to make sure that it’s fully optimized, and we’re putting in the right capital for a long-term project of tension inflationary period. So we have the ability to expand the project and build on the current infrastructure that we put in place, and that’s clearly our focus. And as we’ve said in the past, the hub terminal will serve as an offloading point for future expansion of the project. We have the ability to expand the offshore to relatively low cost. So we believe we’ve got a cost competitive project. We need to make sure, that we’re very disciplined about the capital that we put into that, given the more challenging supply chain and an inflation environment we’re seeing.

I want to stick with Tortue Phase 2, second question which is as the project is up to 75% construction now, what’s the biggest risk around execution? Is it COVID or it’s something else? And how are you – what steps are you in the operator taking to mitigate that risk?

Yes. Look, as I said in my remarks, as you go through the various work streams, the FPSO is on the critical path. Nothing has changed. The key next step is clearly the sale away from the yard in Costco, which is close to Shanghai in China. We have had a short interruption with the lockdown of the yard for a couple of weeks. And again, as the operator said on their call, I think the team has done an incredible job to keep the project moving forward in that environment. So that’s the thing that we’re really focused on now is the release of the FPSO to enable it to then sell to Mauritania and Senegal. And then we can start, as it were all of the hookup activities, which would commence at the beginning of next year. So that’s the critical issue that we’re focused on. As I said, we’ve commenced the drilling. That’s going well. I think the hub terminal, we were concerned in the past around COVID-related issues there. But obviously, we’re making good progress on that. Subsea installation will start this month. And the FLNG vessel is being built in Singapore, where I think there is less of a risk of COVID. So I think the FPSO remains the item that we’re focused on.

Thank you, team.

Thank you. Our next question is from the line of Charles Meade with Johnson Rice. Please proceed with your question.

Good morning Andy and Neal to the rest of the cosmos crew there.

Good morning.

Andy, I wonder if you could elaborate a little bit more on the inflation that you’re seeing. I think you’ve referenced it a couple of times in your prepared comments, but should – are the concerns you’re confronting are they just cost? Or are they also on availability? And is it – I think you’ve touched on the sum already with the FPSO, but is it more around – just give us a flavor is it more around drilling your facilities or something else?

Yes. Look, I think as I said in my prepared remarks, I think as we’re deepwater slightly different from onshore in a sense because you have longer-term contracts, I think we’ve done a really good job in mitigating the impacts in 2022. As we mentioned, I think we’re probably seeing a little bit in some of the sort of commodities in almost fuel costs, actually. But apart from that, nothing really of any great scale. And actually, we’ve mitigated that, and as we said, we’ve included a couple of new opportunities in the Gulf of Mexico and in Equatorial Guinea and still kept out of the CapEx guidance in the same place. So I think the first message, Charles, is that it is a period where we’ve got to be phenomenally disciplined around the allocation of capital and therefore, to ensure that we’re absolutely focused on execution and doing everything to the highest possible standard. So that’s 2022. As you look forward to 2023, I think you’re seeing inflation really across the board, whether it’s the deepwater rig market, whether it’s actually connected to the fundamental sort of commodity prices. We’re probably seeing deepwater rigs over the last two years from sort of $200,000 per day probably into the low to mid-300s, yes. So maybe around 75%, you could see casing sort of similar sort of others supply vessels the same. And I think the market is adequately supplied at the moment, but you are seeing a tightening of that market. Rigs would be an example of that, which is why we’re getting ahead with sort of the long leads, in particular, on our projects, both in Jubilee Southeast and on Winterfell. So I think it is a time for real discipline anticipating the market tightness and then actually trying to get ahead of it. And, again, I think I sort of put the COVID-related issues in China sort of in a separate area because I think those are very specific. So hopefully, that gives you a little more color, I think, around our approach. And to me, it is about discipline. You’ve got to make sure that in a higher-price world, you have to be able to execute to a high standard, and that’s what we’re doing.

Got it. That is helpful. Andy and then my second question is actually about the possibility of share buybacks. And I know this is looking – it may seem like it’s looking too far down the time line, but the truth is you’re 18 months away or 19 months away from that $700-plus million. And I know you’re focused on projects between here and there, and then you’ve got – probably got some work you want to do on your – on the debt side of the balance sheet, but can you give a sense for – for you and the Board, is this something that you guys have spoken about or would think about whether opportunistically on a day like today or whether it’s something that would be perhaps programmatic if your share price is still in the same ballpark?

Well, look, I think we’ve been clear, Charles, that the first agenda item is around debt reduction, and we need to get the balance sheet sustainably below a leverage level of around 1.5. And clearly, it’s about a sustainable price environment that delivers that. So I think that is the first focus. And I think through 2022, that’s absolutely what we intend to do. We leave at current oil prices. We can get below 1.5 by year-end. And I think then you start a slightly different conversation around where do we believe we are on debt reduction for the debt reduction, where are we in terms of a sustainable leverage level and what opportunities would that create for us. So I think in a sense of messaging, nothing’s changed. I think what your point you’re pushing on is that the future may well be accelerating towards you and how do you take account of that. But we just want to be very disciplined about what we’re doing. We’re disciplined about the capital in terms of our growth options. We’re disciplined around the cash flow, how it’s being used. And then I think when we got to a position where we feel, we have the balance sheet in the right place, then I think share buybacks would be one of the things that we would look at.

Got it. That’s helpful. Thanks Andy.

Thanks.

The next question is from the line of Bob Brackett with Bernstein Research. Please proceed with your question.

Good morning. You highlighted a couple of transactions with acquisition prices around $4 a barrel oil equivalent. Can you talk to how you did those deals, the appetite to do more of those and how it might inform your strategy?

Yes. Thanks, Bob. Yes. Look, it’s – they’re both, I would say, in the bracket of being opportunistic. They’re relatively small, but they are important. What I like about them, they’re in fields that we understand today. We’re deepening in our existing asset base, and I think that is actually a very efficient way as it were to continue to grow the company. So Winterfell rose, one of the partners had a larger share than they would typically carry through the development phase, and we were able to negotiate that I think at a time when there was a favorable environment. The Kodiak preemption actually was I think it in back in 2021. It took some time for all of the deal to close that for the preemption to come forward. But again, it was priced in a very favorable environment and, therefore, we were able to take advantage of it. As you look beyond, I would say we’ve been really disciplined with our M&A. We’re clear about pursuing deals where we believe they are consistent with the strategy of the company, shorter-term, high-margin oil growth now supported by longer-dated quality gas, we’re looking to deepen in areas that we understand and, therefore, where there is true economic value that we can add. And fundamentally, they need to be cash accretive and continue to strengthen the balance sheet. And I think our track record on deals has actually aligned with those criteria. And if we see opportunities that enable us to continue that, we will do it. I think clearly, in today’s price environment, I think it’s slightly tougher, but that’s the path we’re on.

Appreciate that. The follow-up would be the journey time from Shanghai to Greater Tortue is perhaps 60 days. If hookup is in 1Q, sort of implies that even an early 4Q sale away would still be okay on that critical path. Is that the right way to think about it? Or there – it’s more complex than that?

Bob, as always you’ve got the numbers. What I would say is depending on sailing time and the sort of the transit speed is, it’s probably 60 to 90 days put in a bracket like 60 to 90. Yes. The 90 would be the outer edge, 60 would be the shorter edge. Yes. So look, you’re right, there is a degree of flexibility. But clearly, this is the item that we’re focused on in intently because then obviously, the hookup of the FPSO then allows you to start the subsea completion work, the tiebacks, the FPSO, et cetera. Yes. So it is absolutely on the critical path. And as you well know, with projects of this scale, there’s always sort of opportunities to mitigate an over one area with other activity, yes, but you basically got the time line.

That’s clear. A final very small one, Winterfell is a tieback, have you decided on the host to which it ties back?

No. We’re in negotiation with several opportunities at the moment.

Very good. Thank you.

Thanks.

Our next question is from the line of James Hosie with Barclays. Please proceed with your question.

Hi, there. A couple of questions on the Tortue projects. I guess, first, on the FPSO sail-away schedule. I mean is the plan to hit that end Q3 target by carrying over some of the work when the vessel arrives on location? And then on the Stage two, just how should we think about the inflationary pressures and part the previous cost estimate of less than $1 billion gross? I guess, is that figure still valid?

Yes. Thanks, James. Look, yes, you’ve obviously – the most important part with the project of this is to ensure that you minimize that carryover because there is a cost multiple of taking jobs out of the yard to offshore. So that’s clearly the point of optimization now. How do you ensure that you’re not taking significant amount out offshore? Yes. So I think our objective is for the FPSO to serve with very little carryover. That traditionally has been the way to deliver successful offshore projects, and that’s clearly the focus of BP today. So I think you’ve asked the right question. And clearly, from our perspective, it is an important criteria to ensure that we deliver both on time and on budget now. Yes. And in terms of Phase 2, yes, it is really important that we put capital in a slightly inflationary period that is truly efficient and again, as you go through cycles to ensure that we’re not investing at a time, putting heavy amounts of capital in when inflationary pressures are there. So that’s the reason we’re going back and making sure that we’ve got a properly optimized concept, both in terms of scale and timing and those inflationary pressures. And it’s not only the inflationary, but it’s actually the execution issues on the supply chain have been properly evaluated. So that’s the work that’s ongoing at the moment with the partners and with the government.

Okay, thanks. And then just a follow-up to that last comment then. Is it potentially the end up looking at like a Tortue Phase 1.5, where you kind of – you upscale the project, but not to the size that you’re previously talking about on Tortue Phase 2?

Look, again, what we’re trying to do is make sure that we’ve got the right concept for the environment, yes. So I think as it were, we’re going back and making sure that the work that we’re ensuring fully captures the timing and the scale to best execute the project. Yes, it’s a great resource. It’s a resource that the world needs. We’ve got to make sure that we’ve properly optimized that.

Okay, thank you.

Thank you. [Operator Instructions] Our next question comes from the line of Mark Wilson with Jefferies. Please proceed with your question.

Hi, good afternoon, good morning. I’d like to ask about the greater Tortue area rather than volumes outside of Tortue in BirAllah and Yakaar-Teranga. You’ve got a very clear path to monetization Tortue Phase 1 and then Phase 2. You’ve got over 20 years of reserve life. So these additional volumes, very large gas volumes in terms of in place. What would be the strategy for monetization of those now for Kosmos? Has the market view towards them changed? In the last few years, a few years before you had a sale process going. And indeed, would there be any additional appraisal drilling required, do you think to maximize valuation there? Thanks.

Yes, Mark. Good questions. The significant resource, yes. The fundamental strategy has not changed. I think when you look at Yakaar-Teranga Angus adjacent to the Dakar Peninsular and the first phase of Yakaar-Teranga is focused on a gas power scheme, so a relatively low cost, almost early production scheme. It allows you actually to appraise while developing. So you wouldn’t do additional appraisal. And for the country, what it does is it displaces diesel burning power with gas burnings, both lower cost, lower carbon. So I think you can see Yakaar-Teranga being developed in that way, and that’s the agenda with the government about how do we move forward with that scheme rightsizing the initial development that gives them the sort of baseload power – gas power that allows them to deal more credibly with a very volatile external world. So I don’t think nothing sort of changed on that and almost the volatility externally has actually probably reinforced that agenda. When you look at BirAllah, it’s different. I think BirAllah is driven by resources in the country with a relatively low population sort of around four million people. Power used domestically is probably not the long-term agenda. There is a need for gas resource in the near term, and there are other fields that can be developed to do that. So BirAllah is fundamentally, how do you get to a low cost modular development that allows you to access the market with the right timing and sort of build another export scheme. So that’s the concept work that we’re pursuing now. So I think there are clear plans and in our view today is we have a resource where significant value can be added by the progression of those development plans and making them real. And I think the external environment has made that easier rather than harder, and that’s the work that we’ll pursue with both with BP and the government.

Okay, understood. I suppose, down the line knows concept – plans have gone through would be a decision of whether Kosmos would enter into such developments. But understood. And second question, therefore, on Winterfell. Just like to ask you speak about the $100 million of resources in the area. But what sort of percentage of that do you think you develop in the initial phase as tieback?

You probably – I think the initial two-well scheme could grow to something as large as sort of six wells probably to cover the full development. So you think about it in concept. I think we might see three phases of up to six wells. So the initial phase is probably around a third of the resource, something like that. May be a first half on the upside, Mark.

Got it. Okay. No, thank you. I’ll hand it over.

Our next question is from the line of Matthew Smith with Bank of America. Please proceed with your question.

Thanks and thanks for all the details so far. So it’s just a quick point of clarification left for me, please, and that was, could I just check on your understanding on the sort of Shell exploration campaign so far, whether it’s your belief that you’ve triggered the, one, of the contingent sort of consideration payments of $50 million or whether you think; two, and therefore, you’re already at the cap of $100 million, which you’re expecting to receive, please?

Yes. Thanks, Matt. Just so we’re clear about what we said. The payment comes following an exploration well that is included in an appraisal plan. So I’ve indicated that they anticipate to drill further at the end of this year, which would require an appraisal plan, whether it’s 50 or 100 would depend on whether they include both discovery wells or one of them.

Sure. Okay. Understood. Very clear. Thanks Andy.

Great. Thanks.

Thank you. At this time, there are no additional questions. I will hand the floor back to management for any further or closing remarks.

Yes. Thanks, everyone, for joining today and don’t hesitate to get in contact if you have any further questions. Thanks very much.

This will conclude today’s conference. You may disconnect your lines at this time. We thank you for your participation.