Kosmos Energy Announces Second Quarter 2015 Results

DALLAS--()--Kosmos Energy Ltd. (“Kosmos”) (NYSE: KOS) announced today financial and operating results for the second quarter of 2015, which included a net loss of $75.2 million, or $0.20 per diluted share, as compared to net income of $56.5 million, or $0.15 per diluted share in the same quarter last year. When adjusted for certain items that impact the comparability of results, including non-cash changes in the fair value of derivative instruments, cash settlements on commodity derivatives, gain on sale of assets, and other similar non-cash and non-recurring charges, the Company generated an adjusted net loss(1) of $1.3 million or $0.00 per diluted share for the second quarter of 2015.

Highlights for the quarter ended June 30, 2015, include:

  • Made a significant, basin-opening gas discovery offshore Mauritania
  • Sold 1.9 million barrels of oil, net to Kosmos
  • Completed approximately 65 percent of the development of the TEN project
  • Improved liquidity through add-on offering of senior notes, and refinancing of our corporate revolving credit facility

“Kosmos continued to build momentum in the second quarter,” said Andrew G. Inglis, chairman and chief executive officer. “Our Tortue-1 gas discovery offshore Mauritania is the industry’s largest offshore find so far this year. The Jubilee field delivered growing production averaging approximately 108,000 barrels of oil per day gross (sales). The TEN project is now approximately 65 percent complete and remains on schedule to produce first oil in the third quarter of 2016. With our strong balance sheet, we remain focused on executing our plans with discipline and maximizing shareholder value.”

Second quarter 2015 oil revenues were $119.2 million versus $328.3 million in the same quarter of 2014, on sales of 1.9 million barrels in second quarter 2015 and 2.9 million barrels in the same period in 2014. Realized oil revenue was $82.96 per barrel of oil sold in the second quarter of 2015 versus $112.53 per barrel of oil sold in the second quarter of 2014, including the impact of the Company’s hedging program. At the end of the quarter, the Company was in a net underlift position of approximately 620 thousand barrels of oil.

Production expense for the second quarter of 2015 was $20.2 million, or $10.40 per barrel, versus $22.9 million, of $7.87 per barrel, in the second quarter of 2014.

Exploration expenses in the second quarter of 2015 totaled $14.5 million, compared to $23.5 million in the same period of 2014.

Depletion and depreciation expense was $37.5 million, or $19.29 per barrel, versus $23.85 per barrel in the second quarter of 2014.

General and administrative expenses were $41.2 million for the second quarter of 2015, compared to $38.7 million in the first quarter of 2015.

The second quarter results included a mark-to-market loss of $44.9 million related to the Company’s oil derivative contracts. The Company’s hedging position as of June 30, 2015, was 11.1 million barrels through 2017.

Income tax expense for the second quarter of 2015 was $25.4 million. Income taxes during the quarter were impacted by a one-time charge of $16.4 million as a result of the vesting of equity awards associated with the Company’s initial public offering. Additionally, we recorded a tax benefit of $15.7 million associated with the mark-to-market of our commodity hedges during the quarter.

Total capital expenditures in the second quarter were $149.7 million. This amount is net of the $28.7 million of proceeds collected by Kosmos during the second quarter associated with the previously announced farm-out of a 30% interest in our Mauritania licenses to a wholly owned subsidiary of Chevron Corporation.

Kosmos exited the second quarter of 2015 with $1.9 billion of liquidity, consisting of cash on hand and availability under our debt facilities, and $530.8 million of net debt compared to $1.7 billion of liquidity and $407.4 million of net debt as of March 31, 2015.

Operational Update

In April, the Company announced that the Tortue-1 exploration well made a significant, play-opening gas discovery offshore Mauritania. The Company encountered 107 meters (351 feet) of net pay in the Cenomanian, which was the primary objective. Subsequently, Tortue-1 intersected an additional 10 meters (32 feet) of gas in the lower Albian section. An appraisal program is being planned to delineate the Ahmeyim discovery, previously referred to as Tortue. In addition, the Marsouin-1 exploration well, located in the central part of Block C-8 in Mauritania, is expected to spud in the third quarter of 2015.

Gross production from the Jubilee field was strong during the quarter, averaging sales of approximately 108,000 barrels of oil per day (bopd). Gas exports continued to operate reliably, exporting between 70 and 80 million cubic feet per day (MMcfpd). In July, a gas compressor on the floating production, storage and offloading vessel (FPSO) ceased operations, which limited our ability to export or inject gas. Repair of the compressor is underway and we expect to resume full production shortly. Gross Jubilee production guidance for 2015 remains unchanged at approximately 100,000 bopd sales and eight cargoes, net to Kosmos. The Company also remains on track to submit a full-field development plan before the end of the year for the development of all future phases of the Jubilee field, as well as the Mahogany, Teak and Akasa discoveries.

The Tweneboa, Enyenra and Ntomme (TEN) project, the second major oil development project in Ghana, remains on-budget and on-track to deliver first oil in the third quarter of 2016. The project is now approximately 65 percent complete.

(1) A Non-GAAP measure, see attached reconciliation of adjusted net income

Conference Call and Webcast Information

Kosmos will host a conference call and webcast to discuss second quarter 2015 financial and operating results today at 10:00 a.m. Central time (11:00 a.m. Eastern time). A live webcast of the event can be accessed on the Investors page of Kosmos’ website at investors.kosmosenergy.com. The dial-in telephone number for the call is +1.877.407.3982. Callers outside the United States should dial +1.201.493.6780. A replay of the webcast will be available on the Investors page of Kosmos’ website for approximately 90 days following the event.

About Kosmos Energy

Kosmos Energy is a leading independent oil and gas exploration and production company focused on frontier and emerging areas along the Atlantic Margin. Our assets include existing production and other major development projects offshore Ghana, as well as exploration licenses with significant hydrocarbon potential offshore Ireland, Mauritania, Portugal, Senegal, Suriname, Morocco and Western Sahara. As an ethical and transparent company, Kosmos is committed to doing things the right way. The Company’s Business Principles articulate our commitment to transparency, ethics, human rights, safety and the environment. Read more about this commitment in the Kosmos 2014 Corporate Responsibility Report. Kosmos is listed on the New York Stock Exchange and is traded under the ticker symbol KOS. For additional information, visit www.kosmosenergy.com.

Non-GAAP Financial Measures

EBITDAX, Adjusted net income (loss) and Adjusted net income (loss) per share are supplemental non-GAAP financial measures used by management and external users of the Company's consolidated financial statements, such as industry analysts, investors, lenders and rating agencies. The Company defines EBITDAX as net income (loss) plus (i) depletion and depreciation, (ii) exploration expenses, (iii) interest and other financing costs, net, (iv) unrealized (gain) loss on commodity derivatives, (v) income tax expense, (vi) equity-based compensation, (vii) (gain) loss on sale of oil and gas properties, (viii) restructuring charges and (ix) similar other material items, which management believes affect the comparability of operating results. The Company defines adjusted net income (loss) as net income (loss) after adjusting for the impact of certain non-cash and non-recurring items, including non-cash changes in the fair value of derivative instruments, cash settlements on commodity derivatives, gain on sale of assets, and other similar non-cash and non-recurring charges, and then the non-cash and related tax impacts in the same period.

We believe that EBITDAX, Adjusted net income (loss), and Adjusted net income (loss) per share and other similar measures are useful to investors because they are frequently used by securities analysts, investors and other interested parties in the evaluation of companies in the oil and gas sector and will provide investors with a useful tool for assessing the comparability between periods, among securities analysts, as well as company by company. Because EBITDAX, Adjusted net income (loss), and Adjusted net income (loss) per share excludes some, but not all, items that affect net income, these measures as presented by us may not be comparable to similarly titled measures of other companies.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements, other than statements of historical facts, included in this press release that address activities, events or developments that Kosmos expects, believes or anticipates will or may occur in the future are forward-looking statements. Kosmos’ estimates and forward-looking statements are mainly based on its current expectations and estimates of future events and trends, which affect or may affect its businesses and operations. Although Kosmos believes that these estimates and forward-looking statements are based upon reasonable assumptions, they are subject to several risks and uncertainties and are made in light of information currently available to Kosmos. When used in this press release, the words “anticipate,” “believe,” “intend,” “expect,” “plan,” “will” or other similar words are intended to identify forward-looking statements. Such statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond the control of Kosmos, which may cause actual results to differ materially from those implied or expressed by the forward-looking statements. Further information on such assumptions, risks and uncertainties is available in Kosmos’ Securities and Exchange Commission (“SEC”) filings. Kosmos undertakes no obligation and does not intend to update or correct these forward-looking statements to reflect events or circumstances occurring after the date of this press release, except as required by applicable law. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release. All forward-looking statements are qualified in their entirety by this cautionary statement.

     

Kosmos Energy Ltd.

Consolidated Statements of Operations

(In thousands, except per share amounts, unaudited)

 
Three Months Ended June 30,

Six Months Ended

June 30,

  2015       2014   2015       2014
Revenues and other income:

Oil and gas revenue

$ 119,200 $ 328,297

$

 

228,364

$ 541,150
Gain on sale of assets 1,900 24,651 23,769
Other income   713     869   1,355     1,308
Total revenues and other income 121,813 329,166 254,370 566,227
 
Costs and expenses:
Oil and gas production 20,224 22,946 52,324 39,269
Exploration expenses 14,539 23,509 113,480 36,318
General and administrative 41,179 32,480 79,846 59,893
Depletion and depreciation 37,532 69,546 74,539 115,924
Interest and other financing costs, net 8,998 9,998 19,749 19,135
Derivatives, net 44,877 21,566 12,550 19,538
Restructuring charges 11,804 11,804
Other expenses, net   4,266     26   4,894     1,303
Total costs and expenses   171,615     191,875   357,382     303,184
 
Income (loss) before income taxes (49,802 ) 137,291 (103,012 ) 263,043
Income tax expense   25,390     80,784   51,089     131,567
 
Net income (loss) $ (75,192 ) $ 56,507 $ (154,101 ) $ 131,476
 
Net income (loss) per share:
Basic $ (0.20 ) $ 0.15 $ (0.40 ) $ 0.34
Diluted $ (0.20 ) $ 0.15 $ (0.40 ) $ 0.34
 
 

Weighted average number of shares used to compute net income (loss) per share:

Basic   382,138     378,820   381,238     378,327
Diluted   382,138     381,818   381,238     381,157
       

Kosmos Energy Ltd.

Condensed Consolidated Balance Sheets

(In thousands, unaudited)

 
June 30, December 31,
2015 2014
Assets
Current assets:
Cash and cash equivalents $ 252,611 $ 554,831
Receivables 144,422 163,544
Other current assets 239,436 292,101
Total current assets 636,469 1,010,476
 
Property and equipment, net 1,960,681 1,784,846
Other non-current assets 144,113 177,444
Total assets $ 2,741,263 $ 2,972,766
 
Liabilities and shareholders’ equity
Current liabilities:
Accounts payable $ 149,719 $ 184,400
Accrued liabilities 110,006 201,967
Deferred tax liability 43,316 61,683
Other current liabilities 924 721
Total current liabilities 303,965 448,771
 
Long-term liabilities:
Long-term debt 798,543 794,269
Deferred tax liability 358,569 337,961
Other non-current liabilities 64,993 52,806
Total long-term liabilities 1,222,105 1,185,036
 
Total shareholders’ equity 1,215,193 1,338,959
Total liabilities and shareholders’ equity $ 2,741,263 $ 2,972,766
   

 

Kosmos Energy Ltd.

Condensed Consolidated Statements of Cash Flow

(In thousands, unaudited)

 
Three Months Ended June 30, Six Months Ended

June 30,

2015     2014   2015     2014  
Operating activities:
Net income (loss) $ (75,192 ) $ 56,507 $ (154,101 ) $ 131,476

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Depletion, depreciation and amortization 40,141 72,105 79,758 121,269
Deferred income taxes

17,232

25,550 23,015

55,817

Unsuccessful well costs 2,976 3,060 86,603 2,815
Change in fair value of derivatives 46,585 23,111 11,605 22,301
Cash settlements on derivatives 39,343 45 93,275 (1,510 )
Equity-based compensation 23,344 22,998 48,527 40,898
Gain on sale of assets (1,900 ) (24,651 ) (23,769 )
Loss on extinguishment of debt 165 165 2,898
Other 4,806 88 5,977 (4,132 )
Changes in assets and liabilities:
Net changes in working capital (5,067 ) (30,989 ) (86,720 ) (62,002 )
Net cash provided by operating activities 92,433 172,475 83,453 286,061
 
Investing activities:
Oil and gas assets (199,295 ) (89,977 ) (384,194 ) (186,463 )
Other property (256 ) (486 ) (536 ) (914 )
Proceeds from sale of assets 28,603 23,734 28,603 58,315
Restricted cash (9,515 ) 583   (9,574 ) (1,827 )
Net cash used in investing activities (180,463 ) (66,146 ) (365,701 ) (130,889 )
 
Financing activities:
Payments on long-term debt (200,000 ) (200,000 ) (100,000 )
Net proceeds from issuance of senior secured notes 206,774 206,774
Purchase of treasury stock (17,807 ) (10,869 ) (17,955 ) (10,940 )
Deferred financing costs   (8,791 )   (1,857 )   (8,791 )   (20,709 )
Net cash used in financing activities   (19,824 )   (12,726 )   (19,972 )   (131,649 )
 
Net increase (decrease) in cash and cash equivalents (107,854 ) 93,603 (302,220 ) 23,523
Cash and cash equivalents at beginning of period   360,465     528,028     554,831     598,108  
Cash and cash equivalents at end of period $ 252,611   $ 621,631   $ 252,611   $ 621,631  
       

Kosmos Energy Ltd.

EBITDAX

(In thousands, unaudited)

 
Three Months Ended June 30, Six Months Ended

June 30,

Twelve Months

Ended

June 30,

  2015       2014     2015       2014     2015  
 
Net income (loss) $ (75,192 ) $ 56,507

 

$

(154,101

)

$ 131,476 $ (6,207 )
Exploration expenses 14,539 23,509 113,480 36,318 170,681
Depletion and depreciation 37,532 69,546 74,539 115,924 156,695
Equity-based compensation 23,344 18,043 48,527 35,943 87,171
Derivatives, net 44,877 21,566 12,550 19,538 (288,841 )
Cash settlements on commodity derivatives 42,203 (162 ) 93,501 (190 ) 112,044
Gain on sale of assets (1,900 ) (24,651 ) (23,769 ) (24,651 )
Interest and other financing costs, net 8,998 9,998 19,749 19,135 46,162
Income tax expense 25,390 80,784 51,089 131,567 218,420
Restructuring charges       11,804         11,804     (62 )
EBITDAX

$

119,791

 

$

291,595

  $ 234,683   $ 477,746   $ 471,412  
     

Adjusted Net Income

(In thousands, unaudited)

 
   
Three Months Ended June 30, Six Months Ended

June 30,

2015     2014   2015     2014  
 
Net income (loss) $ (75,192 ) $ 56,507 $ (154,101 ) $ 131,476
 
Derivatives, net 44,877 21,566 12,550 19,538
Cash settlements on commodity derivatives 42,203 (162 ) 93,501 (190 )
Gain on sale of assets (1,900 ) (24,651 ) (23,769 )
Restructuring charges 11,804 11,804
Other 4,316     4,316   2,898  
Total selected items before tax 89,496   33,208  

85,716

  10,281  

Income tax expense on adjustments (1)

(31,931 ) (10,032 ) (38,571 ) (10,471

 

)

Income tax expense related to tax shortfall associated with IPO equity awards

16,371   6,265   16,371   6,265  
Adjusted net income (loss) $ (1,256 ) $ 85,948   $ (90,585 ) $ 137,551  
 

 

(1)  Income tax expense is calculated at the statutory rate in which such item(s) reside. Statutory rate for Ghana is 35%.

     

Oil Revenue Summary

(In thousands, except barrel and per barrel data, unaudited)

 
Three Months Ended June 30, Six Months Ended

June 30,

  2015       2014   2015       2014  
 
Net Oil Volume Sold (MMBbls) 1.946 2.916   3.845 4.853
 
Oil revenue $ 119,200 $ 328,297 $ 228,364 $ 541,150
Cash settlements on commodity derivatives   42,203   (162 )   93,501   (190 )
Realized oil revenue $ 161,403 $ 328,135   $ 321,865 $ 540,960  

Per Barrel:

Oil revenue $ 61.26 $ 112.58 $ 59.39 $ 111.50
Cash settlements on commodity derivatives   21.70   (0.05 )   24.31   (0.04 )
Realized oil revenue $ 82.96 $ 112.53   $ 83.70 $ 111.46  
 

Underlifted by approximately 620 thousand barrels as of June 30, 2015.

         

 

Hedging Summary

As of June 30, 2015

(Unaudited)

 
2015

2016(1)

2017(2) Total
 
Hedging Position (millions of barrels) 3.1 6.0 2.0 11.1
Weighted Average Floor Price ($/Bbl) $89.41 $81.67 $72.50
 

(1) Includes 2.0 MMBbl of hedged volumes in 2016 where we swapped 2.0 MMBbl at $75/Bbl and a corresponding put was sold at $60/Bbl. Weighted average floor price reflects the swap price and does not include the impact from the sold put.

 
(2) Includes 2.0 MMBbl of hedged volumes in 2017 where we swapped 2.0 MMBbl at $72.50/Bbl, a corresponding put was sold at $55/Bbl, and a corresponding call was purchased at $90/Bbl. Weighted average floor price reflects the swap price and does not include the impact from the sold put. Excludes 2.0 MMBbl of calls sold at $85/Bbl.

Contacts

Kosmos Energy Ltd.
Investor Relations
Neal Shah, +1-214-445-9628
nshah@kosmosenergy.com
or
Media Relations
Thomas Golembeski, +1-214-445-9674
tgolembeski@kosmosenergy.com

Contacts

Kosmos Energy Ltd.
Investor Relations
Neal Shah, +1-214-445-9628
nshah@kosmosenergy.com
or
Media Relations
Thomas Golembeski, +1-214-445-9674
tgolembeski@kosmosenergy.com