Kosmos Energy (NYSE: NYSE:KOS) has reported a strong first quarter in 2024, making significant strides towards its ambitious growth targets and financial resilience. The company is on track to grow production by approximately 50% from the latter half of 2022 to the end of 2024.
The CEO, Andy Inglis, highlighted key project developments and financial strategies that are expected to drive revenue and free cash flow in the near future. Kosmos is poised to start oil production in the Gulf of Mexico and anticipates first gas from the Tortue project in the fourth quarter. The company is also focusing on debt reduction, aiming for a leverage ratio of less than 1.5 times, and plans to maintain annual capital expenditures around $550 million from 2025.
Key Takeaways
- Kosmos Energy is on course to achieve a 50% production increase by the end of 2024.
- The Jubilee production wells in Ghana are fully operational, with more developments expected.
- The Tortue project in Mauritania and Senegal is progressing towards its first gas production.
- Kosmos has secured a two-year license extension for the Yakaar Teranga project.
- Financial resilience has been bolstered through a convertible bond issuance and refinancing efforts.
- The company anticipates reaching a free cash flow inflection point soon and aims to sustain annual CapEx at approximately $550 million from 2025.
Company Outlook
- Kosmos Energy expects to generate revenues from new startups later in the year.
- The company is working towards an exit rate of 90,000 barrels of oil equivalent per day by year-end.
- Kosmos is advancing low-cost, low-carbon oil and gas projects, with a focus on organic growth.
Bearish Highlights
- Kosmos Energy plans to be cautious with external opportunities, considering them only if they are significantly cash flow accretive.
Bullish Highlights
- The company's differentiation lies in not having a decline in assets, which supports a stable growth outlook.
- Kosmos remains open to inorganic opportunities that align with its long-term objectives and are cash flow positive.
Misses
- There were no significant misses reported during the earnings call.
Q&A highlights
- The earnings call concluded with no further questions, indicating that the presentation covered the company's status and outlook comprehensively.
In conclusion, Kosmos Energy is navigating a period of growth and consolidation, with a clear focus on increasing production, enhancing financial resilience, and reducing debt. The company's strategic projects and financial maneuvers set the stage for a positive outlook, barring any unforeseen challenges in the dynamic energy market. Kosmos Energy's ticker, KOS, will be one to watch as these developments unfold.
InvestingPro Insights
Kosmos Energy (NYSE: KOS) has displayed a robust performance in the first quarter of 2024, as reflected in the company's commitment to growth and financial stability. To further understand the company's position, here are some key metrics and insights from InvestingPro:
- The company's market capitalization stands at a solid $2.77 billion, indicating a substantial market presence.
- With a Price to Earnings (P/E) ratio of 12.91, based on the last twelve months as of Q4 2023, KOS trades at a valuation that reflects its earnings potential relative to its share price.
- The Gross Profit Margin for the same period was notably high at 76.64%, showcasing the company's ability to retain a significant portion of its sales revenue after accounting for the cost of goods sold.
InvestingPro Tips that are particularly relevant to KOS's current financial narrative include:
1. Analysts predict the company will be profitable this year, aligning with the CEO's positive outlook for revenue and free cash flow in the near future.
2. Kosmos Energy operates with a significant debt burden, which the company aims to address by targeting a leverage ratio of less than 1.5 times.
For investors seeking a deeper dive into Kosmos Energy's financial health and future prospects, InvestingPro offers additional insights. There are currently 6 more InvestingPro Tips available, which can provide a more comprehensive analysis of KOS's financial and operational outlook. To access these insights and enhance your investment strategy, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription. Visit InvestingPro for a full suite of tools and data at your fingertips.
Full transcript - Kosmos Energy Ltd (KOS) Q1 2024:
Operator: Ladies and gentlemen, good morning, and welcome to the Kosmos Energy First Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jamie Buckland, VP Investor Relations. Please go ahead.
Jamie Buckland: Thank you, operator, and thanks to everyone for joining us today. This morning we issued our first quarter 2024 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 material, 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 that 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.
Andy Inglis: Thanks, Jamie, and good morning and afternoon to everyone. Thank you for joining us today for our first quarter results call. It's been an active start to the year for Kosmos, and I'll start today's presentation looking at the operational and financial momentum we've built in the first few months of the year. Neal will then walk you through this quarter's financial results before I look ahead to the catalysts for the remainder of the year. We'll then open up the call for Q&A. Starting on slide 3 with the delivery of our major projects. Kosmos had a strong first quarter with significant progress towards our goal of growing production by around 50% from the second half of 2022 to the end of 2024. In Ghana, all the planned 2024 Jubilee production wells are online with one water injection well expected online later this quarter. Following completion of this well, the planned drilling campaign will conclude approximately six months ahead of schedule as a result of efficiencies in the drilling operations. In the Gulf of Mexico, oil production of Winterfell is expected to begin shortly from the initial two wells. Our third well is due to come online later this year increasing expected gross production to around 20,000 barrels of oil per day. In Mauritania and Senegal, the Tortue project continues to move towards first gas with several key milestones achieved already this year. I'll talk more about our progress on these projects later in the presentation. Looking further ahead, we continue to advance our next phase of growth projects. Long lead items are being secured for time various to optimize the development time line and project costs. We have also secured a two year license extension for Yakaar Teranga. While we see continued growth as an important part of the Company's future, as I said last quarter, it will be selective and more measured in the coming years, consistent with sustained annual CapEx of around $550 million per year. That is targeted from 2025 onwards. On the financial side of the business, we enhanced the Company's financial resilience with the convertible bond issuance and the RBL refinancing. Neal will talk about these in more detail shortly. The transactions improved liquidity and extended our near-term maturities. The free cash flow inflection point we've been anticipating of around $100 million to $150 million per quarter once our development projects come online is now only a few months away. I'll now talk through the operational progress across our different business units starting in Ghana on slide 4. Jubilee production in the first quarter was around 93,000 barrels of oil per day growth, almost 30% higher than the first quarter last year. This reflects the progress made from both the startup of the Jubilee Southeast project and the ongoing infill drilling program. Jubilee FPSO reliability, continues to remain high at approximately 99% uptime for the first quarter. Moody's (NYSE:MCO) replacement was also strong in the quarter, around 110% as a result of high levels of water and gas injection. Gross Jubilee gas sales for the quarter was around 16,500 barrels of oil equivalent per day. Recently, the partnership agreed an 18 month extension to the Jubilee gas sales agreement for approximately $3 per MMBtu. In the second quarter, there is some planned maintenance of the onshore plant, which receives the Jubilee gas. And this is reflected in the 2Q guidance. On TEN, gross production at 18,600 barrels of oil per day was in line with expectations, with high FPSO uptime of around 99% similar to Jubilee. Turning to Slide 5. Production in the Gulf of Mexico for the quarter, was approximately 14,500 barrels of oil equivalent per day net, in line with guidance. At Winterfell where Kosmos has a 25% working interest, first oil from the two initial wells is expected shortly with another well expected online, in the second half of the year. Gross production when all three wells were online is expected to be around 20,000 barrels of oil equivalent, per day. We estimate total gross resource across greater Winterfell about 200 million barrels of oil equivalent, providing significant future follow-on potential. To enhance existing production, we continue to invest selectively in high return projects like the Odd Job subsea pump and Kodiak workover, both expected to finish around the middle of the year. The combined uplift from both of these projects is expected to contribute around 5,000 barrels of oil equivalent per day net Kosmos’s year end exit rate. The tornado field is expected to be offline for most of the second quarter, for scheduled routine maintenance of the HP-1 floating production unit, which has been factored into our guidance for the quarter. On Tiberius, where Kosmos is operator we acquired part of Equinor’s interest during the first quarter to maintain an aligned partnership. We now hold a 50% interest in the project, which is already included in our 2024 capital guidance. This phased developments as subsea tieback to Oxy-operated Lucius platform is progressing. The project sanction expected later in the year. Certain long-lead items have been secured to optimize the development time line and project costs. Around the time of project sanction, Kosmos plans to farm down to optimize our working interest to fit within our targeted capital program for 2025 and beyond. Please turn to Slide 6. Production in Equatorial Guinea averaged approximately 24,400 barrels of oil per day gross and 8,400 net in the first quarter. Kosmos lifted one cargo from Equatorial Guinea during the quarter in line with guidance. In early February, as previously communicated, the operator pause the Ceiba and Okume drilling campaign as a result of safety issues, with the previous rig. The partnership has now secured the Noble Venturer to resume the drilling campaign with a rig expected on-location midyear. The rig is scheduled to drill and complete two infill wells in Block G, before moving to drill the Akeng Deep ILX prospects in Block S. The new infill wells are expected to add around 3,000 barrels of oil per day net to Kosmos at year end exit rate. The result of the Akeng Deep well which is targeting gross resource of around 180 million barrels is expected around the end of the year. Turning to Slide 7. The Greater Tortue Ahmeyim Project continues to move towards first gas with significant progress across all work streams so far this year, with first gas expected in the third quarter and first LNG expected in the fourth quarter. The floating LNG vessel arrived in the first quarter as being moored to hub terminal.. The partnership is now working with the vessel operator to accelerate commissioning. The subsea work is progressing in line with expectations with a flowline installation complete and final connection work ongoing. Inspection and repair of the FPSO fairly is now complete and the vessel has left Tenerife and his own route to the project site more in work to commence thereafter. Hookup and commissioning of the FPSO remains on the critical path, first gas which is expected in the first quarter. I'll now turn it over to Neil to take you through the financials.
Neal Shah: Thanks, Andy. Turning to slide 8, which looks at the first quarter. Production in the quarter of approximately 66,700 barrels of oil equivalent per day, net was an increase of around 13% compared to the same quarter last year. Costs for the quarter were within or slightly better than guidance leading to the earnings beat against consensus. CapEx for the first quarter was $286 million which was in line with guidance and is largely made up of the Ghana drilling campaign and the progress made on both Winterfell and on Tortue. As previously communicated, we expect the majority of this year's CapEx be in the first half of this year with the free cash flow inflection that Andy talked about in his opening slide expected as the development projects complete and production ramps up throughout the end of the year. Turning to slide 9, which looks at our debt maturities. We took two important steps this year to further enhance the financial resilience of the company. First, was the convertible bond issuance in March which proactively replaces the liquidity from the $250 million undrawn RCF is due to expire at the end of this year. The convertible also lowered our overall interest expense as we paid down a portion of our RBL with the available proceeds which is our highest cost debt. We've also seen the yields on our high-yield bonds tightened which should help pricing when we come to think about potentially refinancing those in the future. To limit future equity dilution, we purchased a capped call which means there will be no dilution until the shares get to almost $11 per share. We also took the option to cash settle the principal amount raised which also reduces any future dilution. The second important step was the refinancing of our reserve-based lending facility with in terms of broadly in line with the previous facility. The overall facility size increased to $1.35 billion from $1.25 billion with current commitments of around $1.2 billion. Through the refinancing we have extended the final maturity by approximately three years. At the same time, we have had some of our banks transfer their commitment to the RBL from the RCF, which as I mentioned expires at the end of this year. I'd like to thank our banks for their continued support as we continue to grow the company. The chart on the right shows the impact of both the convertible bond issuance and the RBL refinancing on the maturity schedule. We now have no near-term debt and the staggered maturity schedule from 2026 onwards. As we reach the expected free cash flow inflection point plan to continue to prioritize paying down the RBL, reducing the amounts in the dark blue on the chart on the right. We continue to target leverage below 1.5 times at mid-cycle oil prices with deleveraging expected commence once revenues from 4Q to start up later in the year. With that I'll hand it back to Andy to conclude today's presentation.
Andy Inglis: Thank you. Turning now to slide 10. As I said in my opening remarks, it was a busy first quarter and we have achieved a lot in just three months. The operational financial momentum we built has rolled into the same quarter with several milestones already achieved and more to come in the near future. The graphic on this slide shows a rich portfolio of catalysts throughout the year across all our business units. They contribute towards our goal for year end exit rate of 90,000 barrels of oil equivalent per day and free cash flow inflection points combined we believe these will create significant value for our shareholders. Thank you and I'd now like to turn the call over to the operator to open the session questions.
Operator: Thank you. Ladies and gentlemen, we will now be conducting a question-and-answer session. [Operator Instructions] Our first question is from the line of David Round with Stifel. Please go ahead.
David Round: Thanks. Thanks for the presentation guys. Just two questions from me, please. Firstly, can I just ask about Senegal, please? And whether the following the recent elections that you've seen any impact at all to business activities in country. And there's been quite a lot in the press, so I'd appreciate any comments there, please. Secondly, just some on Equatorial Guinea, obviously good to see activity there again, that's obviously been a great asset from memory. That was quite a big in-place number there with a relatively modest recovery factor so far. I'm just wondering could that become a bigger an area of activity going forward once you see CapEx elsewhere drop off? Thank you.
Andy Inglis: Yeah. Hi David. Yeah. Thanks to both of those. I'll pick them up? I think turning to Senegal first, I think the starting point is, really is that elections in our host countries and our new for Kosmos and ethos is to align with the countries and their needs irrespective of changes of government. I think in Senegal, our approach is no different where we're enabling the development of low cost gas to sustainably grow the Senegalese economy and drive social progress for the country. So there's a high degree of alignment between what we're doing and the new government's objectives which are clear, they want to lower the cost of living for its population and improve their -- improve the economic environment. I think its early days for the new administration. There are many officials still to be appointed, but my team in Santiago, have met with, the new Energy and Mining minister. And I'm pleased to say it was a very constructive dialogue. You know that the conversation centered around, actually how can we accelerate the development of the gas resources, to accelerate the benefits to the country. So you know in terms of the day-to-day, I know our business Santiago is unchanged. We're working to bring Phase 1 online later this year. It moved forward with a capital efficient Phase 2, the expansion of Phase 1 that will enhance the revenues to the states and the partners and then move forward with a domestic gas LNG export scheme and YT, all of which will bring economic and social benefits for the country. So I do think is a real basis for a win-win. And I'm pleased to say that we're actually in a constructive dialogue as to how we shape that shape that agenda. On Equatorial Guinea, I think you're correct to say that there's actually a lot of undeveloped resource. And when we initially took over the asset it was it was about enhancing the production from essentially sort of workover activities. If you remember, I think it was you know we talked about it being gas-lift constrained. So we actually move to ESPs. And we've seen the benefit of that activity. We're now moving I think into a different phase which is about infill drilling, which is this the current campaign as you rightly say, we're targeting an infill well in Ceiba 1 and Okume and then actually we're following it up with Akeng Deep which is a test a deeper test of the Albian. And clearly if that comes in, we've got a significant amount of knowledge in the facilities to bring that on and very short tieback distances. So I think we've got sort of two avenues. And what we would see for Ceiba and Okume is an intermittent infill drilling campaign./ Two or three wells every sort of 18 months something like that where I think you can certainly sustain the production profile. All of that CapEx is in the forward forecast of maintenance of the base. And then with an Akeng Deep I think you've got the ability to actually grow the profile. So I think we've got a clear plan about sustaining the profile in actual Guinea through that infill drilling with I think still some sort of workover type activities growth coming, if you had success at Akeng Deep. So I think it's been a really good acquisition. I think we worked really well now go through a very programmatic program to target the quick wins which were really around so the workover activities. And now we're moving into a more phased approach with infill. But there's plenty to go out here. And clearly having the capacity in the facilities enables us to move it forward quickly.
David Round: Okay. Thanks Andy.
Andy Inglis: Good. Thanks David. Appreciate that.
Operator: Thank you. Our next question is from the line of Charles Meade with Johnson Rice. Please go ahead.
Charles Meade: Yes. Good morning, Andy and Neal and to the rest of the Kosmos team there. Andy, I'm sure you're probably more excited than we are to see that that FPSO underway, and so congratulations for that. But I’m wondering if you can take us through just the highlights or what the next pieces or pieces of the puzzle or milestones are to get to first gas. I imagine that some pieces, it would be getting the FPSO moored, hooking up the risers, introducing the gas to FLNG (OL:FLNG), and then go into the whole FLNG cool down, but maybe you can elaborate that or add pieces to it that we should be lookout for?
Andy Inglis: I love questions whether you've already answered the question Charles. Sorry about that. And I think you've got it. I think clearly, I think we've had a lot of progress in this sort of first four months of the year. We've got the FLNG vessel now at the hub terminal. It's more than the -- and the connection work is ongoing. The last piece of equipment arrived to the FPSO, which you said it will be on location in the matter of few days. The next step then is mooring and while some moorings done we start to work on the top signs in terms of the commissioning work. The hookup of the risers is clearly the step that enables gas to be introduced. And then it's a question of the gas. As you say, coming into the FLNG vessel, you start to cool down process and then you start to make FLNG first cargo, et cetera. So I think the -- as you look through that process, you described it, I mean really well where are we with the subsea equipment. All the major pieces of that are now doing the final tie-ins and that work is proceeding as we envisage. So we're pleased with the progress there. The FPSO work, the hookup and commissioning of the FPSO remains on the critical path but clearly getting the vessel on location has enabled us to start to liquidate that activity. So I think you know we were well on track to do what we said we were going to do and the milestones have been achieved so far this year. So, getting the FPSO on location is clearly an important step. And we'll update you next quarter as we now get that work behind us and hopefully with the completion of the riser hookup and then the -- which will then allow us to start flowing gas.
Charles Meade: Got it. And then the follow-up. I wonder if you could add some detail and context around the BirAllah exploration, and I'm wondering if this is kind of along the lines of how Yakaar Teranga played out in that BP (NYSE:BP) maybe it didn't want to be involved but you guys are still have some plans and you just tell us what's going on?
Andy Inglis: No. Yes, good question, Charles. I think that you're going to be sort of step back. It was sort of repeating the both YT and BirAllah will scale discovered gas resources sort of in-place numbers. I think a YT 25 Tcf per outlet probably around 30 Tcf. And we believe it is advantaged gas. It has negligible CO2 and it's close to Europe. So with BP no longer on either license, we can now work independently with the NOCs of both countries on innovative, cost efficient schemes that BP didn't propose but we believe will lead to attractive returns for both the project partners and the government. We've secured the license on YT. We've secured the extension to allow us to proceed with that work. And we're in discussions with the Mauritanian government around how we can help them progress the development of BirAllah that they're keen to move it forward. And we believe we have both the subsurface knowledge and the concepts that will enable it to be an attractive project. So I think that's where we are. And there's been a lot of third party interest in the assets as well. So we believe that actually working both with Patterson on YT and SMH Barilla. We're trying to create an equal partnership where they're properly represented, which we believe is actually a good thing. Clearly, for both government and we're working with them to find ways to bring in a partner that will enable the development to move forward. So, I think you characterized it correctly, and we're energized to work on that agenda.
Charles Meade: Great. Thanks for the detail.
Andy Inglis: Great. Thanks Charles.
Operator: Thank you. Our next question is from the line of Bob Brackett with Bernstein Research. Please go ahead.
Q – Bob Brackett: Good morning, Charles -- stole most of my thunder, so let me try to follow-up. The Tortue FPSO, so that vessel's been expected by the operator, by you all, passed muster and so it is ready to go.
Andy Inglis: Yes, as with all things Bob, as it were because of having to do the work on the Fairlead is a blessing, that it does allow us to what we had additional sort of three months and in January – it is close to three months in January to further progress the topsides work. So I think, we understand the scope very well. And I think, you're right to sort of push the question around FPSOs has sailed in the past with a lot of work to come to execute. So I think, we've got a good understanding of what the workscope is clearly and therefore clear plans on how to execute that workscope. So, yes, I feel good about that and nothing's done until it's done. But clearly, we do have I think the advantages of having extra time to work on the topsides, as a result of the time on the on the Fairlead
Q – Bob Brackett: It's very clear. The follow-up. Good comes back to Golar [ph]. The PSC had been extended for two years view and the government and BP had been working in good faith to kind of push that project along, the clock ran out. How do we think about whether you are the natural owner of a partnership that brings that asset to market or does it go to a competitive bid, where you're in line with one of many and I'm intrigued, by what you think the concept could be for fast track development there?
Andy Inglis: Yes. No yes. Interesting, Bob. I think that the government is actually trying to find a way of moving the project forward, in a constructive way. And what do I mean by that? Actually, they could go out to the market with bids, et cetera. Clearly the negative of that is, it creates an uncertain partnership. You know, you're on bringing potentially somebody new, that doesn't have the subsurface knowledge that we have.
,: And ultimately, that's where we've seen the big cost increases in the industry is in the subsea. So minimizing that architecture. You minimize that actually by putting the FLNG vessel directly out of the field, that has the additional benefit of lowering the pressure drops, which gives you enhanced recovery. So those, without going into engineering in too much detail, but those are the ways in which you can change the cost basis of the development. And those are the concepts we’re working on and YT and those are the concepts we're bringing to Golar
Q – Bob Brackett: Very clear. Thank you.
Andy Inglis: Great. Thanks, Bob
Operator: Thank you. Our next question is from Matthew Smith with Bank of America (NYSE:BAC). Please go ahead.
Q – Matthew Smith: Hi, there. good morning, guys. Thanks for taking my questions. I had a couple please. the first one was just and apologies if I missed some of the commentary around this at the start of the call. But any additional color, you could give us on the performance of in Ghana I guess at Jubilee in particular in the quarter, just how that's fared versus your own expectations what confidence that gives you in the full year outlook? Because you had an additional oil producer online in April? If you could sort of talk to that at all and sort of exit rates what you've seen post the quarter, just to sort of frame how Ghana started the year off and the confidence that gives you for the rest of the year that that would be interesting to hear them yet. But perhaps, I'll try and come back to the second.
Andy Inglis: Okay, yeah, thanks, Matt. I think sort of updating you, sort of, if you look across March and April, I think, we averaged around 95,000 barrels of oil per day. So, as you say, we brought on the, recently just brought on the final producer, and we're optimizing its setup in the subsea to maximize the benefits from that. And then finally, we've got the final water injection, which is currently being drilled. And then actually, we're going to start the completion of that shortly. So I think, I think it's early days. So, as you look forward to the performance of the field over the remaining part of the year, I think there was sort of three fundamental things we're focusing on. The first is the contribution of the recently added wealth to the ramp up in rate. The second is we have really good reliability in the first quarter, I think, close to 99% on the Jubilee FPS. So clearly, we need to maintain that high level of reliability going forward. And then I think the third one is really the most important point is around, maintaining the high levels of voidage replacement. That was a challenge, last year where, we had downtime and didn't get to 100%. Now, we sort of worked pretty good in the first quarter. We need to sort of maintain that going forward. We have had a GTG down, I think, for a couple of weeks. So we're probably, been slightly under the 110% in the last month. But that is, that's a critical factor. So, I think it's, those are the things we're, we're focusing on. And therefore, those are the things that are going to influence the outcome across the rest of the year. All that said, the drilling has actually gone well. We've really drilled, the operators have done a great job on the drilling performance and the wells, the timing of the wells has absolutely met, our expectations. And when the final water injection is done, I think, over this program, we've probably, created probably close to six months of reduction in the overall program, which is pretty impressive. So, that's sort of where we stand today. Matt?
Q – Matthew Smith: No, perfect. Thanks, Andy. That's really helpful. And perhaps the second one, perhaps would be for Neal, I imagine. It's just coming back to the free cash flow, sort of indication that you've given us 100 to 150 million per quarter, once the growth projects are online. I think, if I remember rightly, you talked to that sort of being underpinned, broadly speaking, by a $70 WTI75 rent. Although, please correct me if I'm mistaken there. But I just wondered if you could speak to sort of sensitivities and, upside to those free cash flow numbers if we're in an 80 or 85 rent world.
Neal Shah: Yeah, sure, Matt. And yes, that's about right in terms of the $100 million to $150 million of cash flow, free cash per quarter, post getting Winterfell and Tortue online at a quarterly pace in that sort of $75 rent, 70 TI sort of realm. And, yeah, I think in terms of the price sensitivity, generally, and it'll stay roughly the same, is about $100 million of free cash flow for the year for every $5 change in the oil price. And so, $25 million plus or minus a quarter. If you move to $80 rent, and then $200 million for the year, $50 million a quarter at 85 rent. So, it is -- yeah, and, we currently have sort of full access to the upside. So, we can fully participate in that.
Q – Matthew Smith: Perfect. Well, that's very clear. Thanks for your time and happy to pass it on.
Andy Inglis: Great. Thanks, Matt.
Operator: Thank you. Our next question is from the line of Mark Wilson with Jefferies. Please go ahead.
Mark Wilson: Thank you for that. Good afternoon, gentlemen. My question is regarding the main drivers of production increase into the second half with your reiterated group guide at 71, 72. We know that Tortue comes on first LNG in the fourth quarter. Can I just check if that is how you then start to report the gas from Tortue? Or is it in the third quarter as it comes across the FPSO that that would be my first question.
Neal Shah: Yes. So Mark will record on an entitlement basis similar to how we report, but on for just the quarterly production. But in terms of sales it will be done similar to how we do in Ghana and EG where it's driven by cargoes. And so overall entitlement production will be driven by it basically LNG that goes into the FLNG vessel and condensate that goes into the FPSO as a sort of entitlement volumes. But for sales volumes will ultimately be tied to cargoes the same way we are doing cargoes in Ghana and EG.
Mark Wilson: Got it. Okay. Understand that. Okay. So FPSO for -- in 3Q and then entitlement in 4Q. My second question I guess another big driver for production would be Jubilee and you just spoke to it there Andy to some degree. So taking all those various points into account you still expect that field can average 100 for the rest of the year or even higher?
Andy Inglis: Again as I said you know, Mark we're doing what we said we would do which is to deliver that outcome we need to see the incremental benefit of the infill wells for the final two to finish and then optimize the system for the new well configuration and that's ongoing. So that's the first sort of variable that we need to get right. The second is clearly you know maintaining the reliability and a good start to the year and we need to continue it. And then I think the fundamental part then is really around bodies replacement and the distribution of that water again because we're changing the patterns of offtake, because of the new wells coming in the optimization of that patent of the new sort of reservoir offtake partners is critical. So I think there's a lot to work on Mark to deliver that outcome. Yes. The first half is in all of that is to get the wells drilled and online and we've got sort of one more to go so you know this it's you know there's work to do clearly and then we'll keep you up to-date on progress as we go through the quarter.
Mark Wilson: Okay. Thank you for that. And last question for me. As my understanding on the Yakaar-Teranga is working towards getting the pre-feed out of the way and then that's when you'll be looking it to see what the where the market is that for farm-outs? Is that a fair representation?
Andy Inglis: Yes it is absolutely, Mark. So you know we sort of talk about the future there which is really what your question was about. I think that we've got a piece of work now where we're doing the we're completing the pre-FEED. One of the pre-FEED done by the middle of the year. With the pre-FEED we've got the technical validation of concept and then we've got a cost base to then discuss with the new administration. Clearly this is about creating a new partnership for Yakaar Teranga. Our objective is for the 5% them in a line partner around a third ourselves a third new partner the third. So we have to work with the new government to bring that partner in and they're clearly going to have to say in that. And we need to have a fiscal arrangement which enables us to create the economics that support a low-cost gas and LNG export scheme. Now with those two pieces in place you can then work on the financing. The intent is to have the FLNG vessel financed. So there's a series of steps here that this technical work done to be done which is sort of the milestone in pre-FEED that work to be done on alignment with the new administration around fiscals and new partner and then there's work to be done there for on financing. You bring all those four together then you can start work on the real world which is on feed but we won't be starting feed until we've got those things done. So again I think we've made a lot of progress so far on the pre-FEED. And post the election we can now start working on those next items.
Mark Wilson: And that's really appreciate. Then it did occur to me in that answer that maybe the differences between Yakaar-Teranga and Perella [ph] and the respective governments would be interested --interesting to comment on. It did look like Perella was moving faster towards the development concept arguably when you last extended PSC and then Yakaar-Teranga now has moved to this the set that you have now. So the respective differences would be interested to hear your comment on?
Andy Inglis: Yeah, look, I actually don't think there's a difference. You know, both governments are anxious to enable the development of their gas resources to benefit the country. And I think -- I think the Mauritanian government has been equally clear about it. It's objected to move forward with Perella, you know, post the exit of BP. So I don't think there's any fundamental differences there, Mark, and therefore, it's about how can we participate to help them on those agendas and come up with compelling investment opportunities.
Mark Wilson: Okay. Thank you very much. I'll hand it over.
Andy Inglis: Great. Thanks.
Operator: Thank you. Our next question comes from the line of Neil Mehta with Goldman Sachs (NYSE:GS) Asset Management. Please go ahead.
Neil Mehta: Yeah. This is Neil Mehta with Goldman Sachs Equity Research. Today, a couple of questions I have here. The first is just your perspective on deleveraging as you get into that free cash flow inflection that Neal referred to, and those are really big numbers. Now, how do you think about reducing the debt on the balance sheet? What are the priorities, and, and what's the target level, and how quickly can you get there?
Andy Inglis: Yeah, thanks, Neil. I'll let the other Neal answer that.
Neal Shah: Hey, Neil. Yeah, so I think, our objective on leveraging it hasn't changed. We want to get to less than one and a half times on a sustainable basis through this cycle. And so the free cash flow that we generate once the products are online are going to be allocated towards that and probably initially preferentially towards the RBL, just given its floating rate and sort of our highest cost interest piece at the moment. And so, yes, we've got some work to do on debt reduction, and that's been a clear priority for the free cash flow. And, again, I think from our perspective, you'd see sort of the front end of that free cash flow clearly directed towards the RBL. And then once we get to less than that one and a half times in a normalized oil price environment, then it comes around sort of the competing priorities in terms of some allocation towards debt repayments versus capital returns. So, yeah, that's a discussion to have in the future. But, as of today, we'll continue to focus on just getting to that less than one and a half times the normalized price first.
Neil Mehta: That makes sense. I wanted to give you an opportunity to talk about the convertible bond issuance because it created a lot of volatility around the stock, but I think a lot of it was just to manage near-term interest expenses around floating rate debt. So just your perspective on why you thought that was the most cost-effective approach to financing and how should we think about that over the long term?
Neal Shah: Yeah, and so, -- again, we've had a number of discussions around the convertible bond with both debt and equity holders over the last couple of months since we executed that back in March. And, again, I think for us it's around where our current bonds were trading and how do we optimize access to the debt capital markets without, at a sort of the lowest cost available. And the issue that we've had for the past 18 months when you look back into 2022 and 2023 is really where Ghana has traded and therefore the impact to our secondary levels on the bonds and therefore a new issuance. And the regular bond market would have been quite expensive just from a regular new issue market and therefore trying to get ahead of the liquidity and maturity wall, something that we've always tried to be proactive about. And so thought that was, the best instrument at the time to, manage the maturity schedule. And as you can see in the presentation, with that and the RBL, we've really cleared the runway for the next couple of years for us to execute and continue to pay down debt. And so it's really around taking the balance sheet off of the agenda, focusing on the organic delivery of the business plan, and using sort of the most efficient tool at the time to try to execute that. So, that was really the background there.
Neil Mehta: Thanks, Neal.
Neal Shah: Sure.
Operator: Thank you. Our next question is from the line of Subash Chandra with The Benchmark Company. Please go ahead.
Subash Chandra: All right. Thank you. Yeah, following up, I guess, on Neil and a couple of the other questions with regards to free cash flow. It's sort of the organizing principle beyond the next year to sort of be in that $500 million, $600 million maintenance CapEx number and then everything beyond that, obviously pay the RBL off and then payouts et cetera? Or are there some appetites that you might have deferred pending getting GTA on either organic or acquisition oriented that might get us to a different spend level down the road?
Andy Inglis: Yeah. Thanks Subash, we just take that. I think when we talked about the 550 we've talked about it from two dimensions. We've talked about a sort of base maintenance capital of 300 to 350, which so that covers the infill drilling program in Ghana, the continuing development of Jubilee, it covers the infill program in Equatorial Guinea that I talked about earlier. And then what sort of post the startup of windfall and then at Tiberius looking longer-term, the additional wells there. So I think we probably are allocating capital to that. And clearly those are very high-return projects. And then we've talked on top of that about sort of 200 to 250 of spend that would be in growth, include the two to three projects that we're focused on today are Tiberius and the Yakaar-Teranga with an expansion project at Tortue. And that capital on that 200 to 250 incorporate spend on those projects sort of post-financing, bank financing of the FPSO on Yakaar-Teranga. So I think we're what we're clear about the forward projection of the Company, where we believe we can not only can we can grow. It'll be more modest right than we have done over the last two years. There is growth in high-quality projects and it will be a mix of sort of half to low-cost, low-carbon oil, EG Tiberius, low-cost low-carbon gas EG and expansion of Phase 1, EE Yakaar Teranga. And it's sort of mid single-digits, middle single-digits sort of growth rates. But at the same time with our capital level of 550, now we believe we can -- we have significant free cash flow which as Neal says, we can direct to the paydown of debt. And then subsequently when we get to the right leverage levels, we can look at shareholder distribution. And I think that's ultimately what differentiates Kosmos as a company. It has an organic activity set which you can sustain really through decade and beyond. We have an RP of over 20 on a 2P basis. So the ability to it creates something now which can not only continue to grow, but can actually return cash and with we think a really competitive free cash flow yield is something that's quite unique. So that's our objective now. So we're clear about the frame. And I think that's a point that I absolutely want to emphasize on the call. The 550 in that sense is clear and where we're clear about the capital frame and therefore how it's going to be allocated.
Subash Chandra: Got it. Okay. So I hear you loud and clear so no real interest in external opportunities. I mean given what seems like a greater churn in sort of the assets whether they're stranded gas or the Gulf of Mexico et cetera, you're going to stick with the with the footprint you have?
Andy Inglis: Yeah. I think what we've been clear actually Subash is that on any inorganic has to be accretive from a cash flow basis that actually that accelerates that journey. Yeah. And I think that having set that out as the organic path of the Company to improve upon it you have to accelerate it through an organic and inorganic that actually is cash -- significantly cash flow accretive which it has been the case for the three acquisitions that we've actually done as we've grown the Company. Equally well, there may be opportunity and particularly on the gas side to lighten the portfolio which again accelerates that objective. So I think we were absolutely clear about the company we're building and therefore, as it were how an inorganic opportunity would fit. What we don't have to do clearly is, buying things to mitigate the decline. We do not have declined. And I think that's again what differentiates us from others. So if something is accretive from a cash flow perspective inorganically accelerates those quality assets, then clearly those are the things we look for equally well the reverse. If we can accelerate the delivery of free cash flow for our shareholders and by lightening, let's say on the gas assets then we would do that.
Subash Chandra: Okay. Thank you for that.
Andy Inglis: Great. All right. Thank you.
Operator: Thank you. Ladies and gentlemen, since there are no further questions at this time, I would like to bring the call to a close. Thanks, to everyone joining today. You may now disconnect your lines. And thank you for your participation.
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