Components of natural gas that are separated from the gas state in the form of liquids. These include propane, butane, and ethane, among others.
“Net debt”
Total long-term debt less cash and cash equivalents and total restricted cash.
“NYSE”
New York Stock Exchange.
“Petroleum contract”
A contract in which the owner of hydrocarbons gives an E&P company temporary and limited rights, including an exclusive option to explore for, develop, and produce hydrocarbons from the lease area.
“Petroleum system”
A petroleum system consists of organic material that has been buried at a sufficient depth to allow adequate temperature and pressure to expel hydrocarbons and cause the movement of oil and natural gas from the area in which it was formed to a reservoir rock where it can accumulate.
“Plan of development” or “PoD”
A written document outlining the steps to be undertaken to develop a field.
“Productive well”
An exploratory or development well found to be capable of producing either oil or natural gas in sufficient quantities to justify completion as an oil or natural gas well.
“Prospect(s)”
A potential trap that may contain hydrocarbons and is supported by the necessary amount and quality of geologic and geophysical data to indicate a probability of oil and/or natural gas accumulation ready to be drilled. The five required elements (generation, migration, reservoir, seal and trap) must be present for a prospect to work and if any of these fail neither oil nor natural gas may be present, at least not in commercial volumes.
“Proved reserves”
Estimated quantities of crude oil, natural gas and natural gas liquids that geological and engineering data demonstrate with reasonable certainty to be economically recoverable in future years from known reservoirs under existing economic and operating conditions, as well as additional reserves expected to be obtained through confirmed improved recovery techniques, as defined in SEC Regulation S‑X 4‑10(a)(2).
“Proved developed reserves”
Those proved reserves that can be expected to be recovered through existing wells and facilities and by existing operating methods.
“Proved undeveloped reserves”
Those proved reserves that are expected to be recovered from future wells and facilities, including future improved recovery projects which are anticipated with a high degree of certainty in reservoirs which have previously shown favorable response to improved recovery projects.
“RSC”
Ryder Scott Company, L.P.
“SOFR”
Secured Overnight Financing Rate
“SEC”
Securities and Exchange Commission.
“7.125% Senior Notes”
7.125% Senior Notes due 2026.
“7.750% Senior Notes”
7.750% Senior Notes due 2027.
“7.500% Senior Notes”
7.500% Senior Notes due 2028.
“8.750% Senior Notes”
8.750% Senior Notes due 2031.
“Shelf margin”
The path created by the change in direction of the shoreline in reaction to the filling of a sedimentary basin.
“SMH”
Societe Mauritanienne des Hydrocarbures
“Stratigraphy”
The study of the composition, relative ages and distribution of layers of sedimentary rock.
“Stratigraphic trap”
A stratigraphic trap is formed from a change in the character of the rock rather than faulting or folding of the rock and oil is held in place by changes in the porosity and permeability of overlying rocks.
“Structural trap”
A topographic feature in the earth’s subsurface that forms a high point in the rock strata. This facilitates the accumulation of oil and gas in the strata.
“Structural‑stratigraphic trap”
A structural‑stratigraphic trap is a combination trap with structural and stratigraphic features.
A fan‑shaped deposit of sediments occurring in a deep water setting where sediments have been transported via mass flow, gravity induced, processes from the shallow to deep water. These systems commonly develop at the bottom of sedimentary basins or at the end of large rivers.
“TAG GSA”
TEN Associated Gas - Gas Sales Agreement.
“TEN”
Tweneboa, Enyenra and Ntomme.
“Three‑way fault trap”
A structural trap where at least one of the components of closure is formed by offset of rock layers across a fault.
“Tortue Phase 1SPA”
Greater Tortue Ahmeyim Agreement for a Long Term Sale and Purchase of LNG.
“Trap”
A configuration of rocks suitable for containing hydrocarbons and sealed by a relatively impermeable formation through which hydrocarbons will not migrate.
“Trident”
Trident Energy.
“Undeveloped acreage”
Lease acreage on which wells have not been drilled or completed to a point that would permit the production of commercial quantities of natural gas and oil regardless of whether such acreage contains discovered resources.
Preference shares, $0.01 par value; 200,000,000 authorized shares; zero issued at September 30, 2024 and December 31, 2023
—
—
Common stock, $0.01 par value; 2,000,000,000 authorized shares; 516,079,940 and 504,392,980 issued at September 30, 2024 and December 31, 2023, respectively
5,161
5,044
Additional paid-in capital
2,504,637
2,536,621
Accumulated deficit
(1,075,891)
(1,272,321)
Treasury stock, at cost, 44,263,269 shares at September 30, 2024 and December 31, 2023, respectively
Kosmos Energy Ltd. is incorporated in the State of Delaware as a holding company for Kosmos Energy Delaware Holdings, LLC, a Delaware limited liability company. As a holding company, Kosmos Energy Ltd.’s management operations are conducted through a wholly-owned subsidiary, Kosmos Energy, LLC. The terms “Kosmos,” the “Company,” “we,” “us,” “our,” “ours,” and similar terms refer to Kosmos Energy Ltd. and its wholly-owned subsidiaries, unless the context indicates otherwise.
Kosmos is a full-cycle, deepwater, independent oil and gas exploration and production company focused along the offshore Atlantic Margins. Our key assets include production offshore Ghana, Equatorial Guinea and the U.S. Gulf of Mexico, as well as world-class gas projects offshore Mauritania and Senegal. We also pursue a proven basin exploration program in Equatorial Guinea and the U.S. Gulf of Mexico. Kosmos is listed on the NYSE and LSE and is traded under the ticker symbol KOS.
Kosmos is engaged in a single line of business, which is the exploration, development, and production of oil and natural gas. Substantially all of our long-lived assets and all of our product sales are related to operations in four geographic areas: Ghana, Equatorial Guinea, Mauritania/Senegal and the U.S. Gulf of Mexico.
2. Accounting Policies
General
The interim consolidated financial statements included in this report are unaudited and, in the opinion of management, include all adjustments of a normal recurring nature necessary for a fair presentation of the results for the interim periods. The results of the interim periods shown in this report are not necessarily indicative of the final results to be expected for the full year. The interim consolidated financial statements were prepared in accordance with the requirements of the SEC for interim reporting. As permitted under those rules, certain notes or other financial information that are normally required by GAAP have been condensed or omitted from these interim consolidated financial statements. These interim consolidated financial statements and the accompanying notes should be read in conjunction with our audited consolidated financial statements for the year ended December 31, 2023, included in our annual report on Form 10-K.
Reclassifications
Certain prior period amounts have been reclassified to conform with the current presentation. Such reclassifications had no significant impact on our reported net income, current assets, total assets, current liabilities, total liabilities, stockholders’ equity or cash flows.
Cash, Cash Equivalents and Restricted Cash
September 30, 2024
December 31, 2023
(In thousands)
Cash and cash equivalents
$
51,581
$
95,345
Restricted cash - long-term
305
3,416
Total cash, cash equivalents and restricted cash shown in the consolidated statements of cash flows
$
51,886
$
98,761
Cash and cash equivalents include demand deposits and funds invested in highly liquid instruments with original maturities of three months or less at the date of purchase.
The Company’s joint interest billings consist of receivables from partners with interests in common oil and gas properties operated by the Company for shared costs. Joint interest billings are classified on the face of the consolidated balance sheets as current and long-term receivables based on when collection is expected to occur.
Inventories
Inventories consisted of $151.2 million and $143.0 million of materials and supplies and $3.7 million and $9.1 million of hydrocarbons as of September 30, 2024 and December 31, 2023, respectively. The Company’s materials and supplies inventory primarily consists of casing and wellheads and is stated at the lower of cost, using the weighted average cost method, or net realizable value.
Hydrocarbon inventory is carried at the lower of cost, using the weighted average cost method, or net realizable value. Hydrocarbon inventory costs include expenditures and other charges incurred in bringing the inventory to its existing condition. Selling expenses and general and administrative expenses are reported as period costs and excluded from inventory costs.
Revenue Recognition
Our oil and gas revenues are recognized when hydrocarbons have been sold to a purchaser at a fixed or determinable price, title has transferred and collection is probable. Certain revenues are based on contracts with provisional pricing and quantity optionality which contain a derivative that is separated from the host contract for accounting purposes. The host contract is the receivable from oil sales at the spot price on the date of sale. The derivative, which is not designated as a hedge, is marked to market through oil and gas revenue each period until the final settlement occurs, which generally is limited to the month of or month after the sale.
Oil and gas revenue is composed of the following:
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
(In thousands)
Revenues from contracts with customers:
Equatorial Guinea
$
71,267
$
74,998
$
187,328
$
182,738
Ghana
237,725
355,098
828,279
735,675
U.S. Gulf of Mexico
103,476
102,968
267,000
285,735
Total revenues from contracts with customers
412,468
533,064
1,282,607
1,204,148
Provisional oil sales contracts
(4,674)
(6,716)
(4,810)
(10,305)
Oil and gas revenue
$
407,794
$
526,348
$
1,277,797
$
1,193,843
Concentration of Credit Risk
Our revenue can be materially affected by current economic conditions and the price of oil and natural gas. However, based on the current demand for crude oil and natural gas and the fact that alternative purchasers are readily available, we believe that the loss of our purchasers and/or marketing agents would not have a long‑term material adverse effect on our financial position or results of operations.
In December 2023, the FASB issued ASU 2023-09, “Improvements to Income Tax Disclosures (Topic 740).” The amendments focus on income tax disclosures around effective tax rates and cash income taxes paid. The amendments in the ASU are effective for annual periods beginning after December 15, 2024. Early adoption is permitted, however, we do not plan to early adopt ASU 2023-09.
In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures.” The amendment requires disclosures of significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”) and included within each reported measure of segment profit or loss, an amount and description of its composition for other segment items, and interim disclosures of a reportable segment’s profit or loss and assets. The amendments are effective for fiscal years beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. Upon adoption, this guidance should be applied retrospectively to all prior periods presented. The Company is currently evaluating this ASU to determine its impact on disclosures.
3. Acquisitions and Divestitures
In March 2024, Kosmos completed the acquisition of an additional 16.7% participating interest in the Keathley Canyon Blocks 920 and 964, offshore U.S. Gulf of Mexico. As a result of the transaction, Kosmos’ participating interest in the Tiberius discovery area increased from 33.3% to 50.0%.
4. Receivables
Receivables consisted of the following:
September 30, 2024
December 31, 2023
(In thousands)
Joint interest billings, net
53,025
35,632
Oil sales
89,975
64,958
Other current receivables
18,967
20,143
Total receivables
161,967
120,733
Long-term receivables
333,493
325,181
The Company’s joint interest billings consist of receivables from partners with interests in common oil and gas properties operated by the Company for shared costs. Joint interest billings are classified as current and long-term receivables based on when collection is expected to occur.
Long-term receivables
In February 2019, Kosmos and BP signed Carry Advance Agreements with the national oil companies of Mauritania and Senegal obligating us to finance a portion of the respective national oil company’s share of certain development and production costs incurred through the Commercial Production Date for Greater Tortue Ahmeyim Phase 1, as defined in the Carry Advance Agreements. The amount financed by Kosmos is to be repaid with interest through the national oil companies’ share of future revenues. As of September 30, 2024 and December 31, 2023, the principal balance due from the national oil companies was $261.8 million and $259.2 million, respectively, which is classified as Long-term receivables in our consolidated balance sheets. As of September 30, 2024 and December 31, 2023, accrued interest on the balance due from the national oil companies was $51.4 million and $37.3 million, respectively, which is classified as Long-term receivables in our consolidated balance sheets. Interest income on the long-term notes receivable was $4.7 million and $4.0 million for the three months ended September 30, 2024 and 2023, respectively, and $14.0 million and $11.3 million for the nine months ended September 30, 2024 and 2023, respectively.
Property and equipment is stated at cost and consisted of the following:
September 30, 2024
December 31, 2023
(In thousands)
Oil and gas properties:
Proved properties
$
8,301,777
$
7,600,252
Unproved properties
541,102
423,050
Total oil and gas properties
8,842,879
8,023,302
Accumulated depletion
(4,152,627)
(3,868,946)
Oil and gas properties, net
4,690,252
4,154,356
Other property
66,546
65,095
Accumulated depreciation
(62,363)
(59,222)
Other property, net
4,183
5,873
Property and equipment, net
$
4,694,435
$
4,160,229
We recorded depletion expense of $110.4 million and $123.5 million for the three months ended September 30, 2024 and 2023, respectively, and $283.7 million and $307.0 million for the nine months ended September 30, 2024 and 2023, respectively. During the nine months ended September 30, 2024, additions to our proved properties primarily related to continued infill development in the Jubilee Field in Ghana, development costs associated with the Greater Tortue Ahmeyim project in Mauritania/Senegal, the Winterfell development project and Odd Job Field subsea pump installation in the U.S. Gulf of Mexico, and infill development drilling in Block G in Equatorial Guinea.
6. Suspended Well Costs
The following table reflects the Company’s capitalized exploratory well costs on drilled wells as of and during the nine months ended September 30, 2024.
September 30, 2024
(In thousands)
Beginning balance
$
211,959
Additions to capitalized exploratory well costs pending the determination of proved reserves
26,282
Reclassification due to determination of proved reserves
—
Capitalized exploratory well costs charged to expense
The following table provides an aging of capitalized exploratory well costs based on the date drilling was completed and the number of projects for which exploratory well costs have been capitalized for more than one year since the completion of drilling:
September 30, 2024
December 31, 2023
(In thousands, except project counts)
Exploratory well costs capitalized for a period of one year or less
$
—
$
54,274
Exploratory well costs capitalized for a period of one to five years
108,051
34,775
Exploratory well costs capitalized for a period of six to ten years
130,190
122,910
Ending balance
$
238,241
$
211,959
Number of projects that have exploratory well costs that have been capitalized for a period greater than one year
3
2
As of September 30, 2024, the projects with exploratory well costs capitalized for more than one year since the completion of drilling are related to the Yakaar and Teranga discoveries in the Cayar Offshore Profond block offshore Senegal, the Asam discovery in Block S offshore Equatorial Guinea and the Tiberius discovery in Keathley Canyon Block 964 in the U.S. Gulf of Mexico.
Yakaar and Teranga Discoveries — In May 2016, we drilled the Teranga-1 exploration well in the Cayar Offshore Profond block offshore Senegal, which encountered hydrocarbon pay. In June 2017, we drilled the Yakaar-1 exploration well in the Cayar Offshore Profond block offshore Senegal, which encountered hydrocarbon pay. In November 2017, an integrated Yakaar-Teranga appraisal plan was submitted to the government of Senegal. In September 2019, we drilled the Yakaar-2 appraisal well which encountered hydrocarbon pay. The Yakaar-2 well was drilled approximately nine kilometers from the Yakaar-1 exploration well. In March 2024, the current phase of the Cayar Block exploration license was extended an additional two years to July 2026. The Yakaar and Teranga discoveries are being analyzed as a joint development. During 2024, we have continued progressing appraisal studies and maturing concept design. Following additional evaluation, a final investment decision for the development of the project is expected to be made.
Asam Discovery — In October 2019, we drilled the S-5 exploration well offshore Equatorial Guinea, which encountered hydrocarbon pay. The discovery was subsequently named Asam. In July 2020, an appraisal work program was approved by the government of Equatorial Guinea. The well is located within tieback range of the Ceiba FPSO and the appraisal work program is currently ongoing to integrate all available data into models to establish the scale of the discovered resource and evaluate the optimum development solution. In December 2022 the Asam Field appraisal report was submitted to the Government of Equatorial Guinea. During 2024, studies and concept design continued to progress. Following additional evaluation, a decision regarding commerciality is expected to be made. Additionally, in October 2024, Kosmos elected to enter the next phase of the Block S exploration license with a scheduled expiration in December 2025 and no well commitments. The election is subject to customary government approvals.
Tiberius Discovery — In July 2023, we spud the Tiberius infrastructure-led exploration prospect located in Block 964 of Keathley Canyon in the U.S. Gulf of Mexico, which encountered hydrocarbon pay. Initial fluid and core analysis supports the production potential of the well, with characteristics analogous with similar nearby discoveries in the Wilcox trend. In March 2024, we completed the acquisition of an additional 16.7% participating interest in the Keathley Canyon Blocks 920 and 964, offshore U.S. Gulf of Mexico. As a result of the transaction, Kosmos’ participating interest in the Tiberius discovery area increased from 33.3% to 50.0%. The Tiberius project is being analyzed as a phased development with discussions currently ongoing with our partner to finalize the development plan. Following additional evaluation, a final investment decision for the development of the project is expected to be made.
Unamortized deferred financing costs and discounts(1)
(58,362)
(34,086)
Long-term debt, net
$
2,691,912
$
2,390,914
(1)Includes $31.9 million and $20.8 million of unamortized deferred financing costs related to the Facility, $14.9 million and $13.3 million of unamortized deferred financing costs and discounts related to the Senior Notes, and $11.6 million and nil of unamortized deferred financing costs related to the 3.125% Convertible Senior Notes as of September 30, 2024 and December 31, 2023, respectively.
Facility
The Facility supports our oil and gas exploration, appraisal and development programs and corporate activities. In April 2024, in conjunction with the spring borrowing base redetermination, the Company executed an amendment and restatement of the Facility. The amendment includes the following material changes: an increase in the Facility size and borrowing base capacity to $1.35 billion (from $1.25 billion), an increase in the interest margin by 0.25% or 0.50%, depending on the length of time that has passed from the date the Facility was entered into, and an extension in the tenor by approximately three years (final maturity date now occurs December 31, 2029). The amended Facility size and borrowing base capacity of approximately $1.35 billion was capped by total commitments of approximately $1.21 billion as of June 30, 2024. The borrowing base amount is based on the sum of the net present values of net cash flows and relevant capital expenditures reduced by certain percentages as well as value attributable to certain assets’ reserves and/or resources in the Company’s production assets in Ghana and Equatorial Guinea. As part of the amendment, the Company recognized a loss on debt modifications and extinguishments of approximately $22.0 million during the second quarter of 2024. In September 2024, we added two new lenders to the Facility syndicate, increasing current total commitments by approximately $145.0 million to the full Facility size and borrowing base capacity of $1.35 billion. As of September 30, 2024, borrowings under the Facility totaled $850.0 million and the undrawn availability under the Facility was $500.0 million.
In October 2024, during the Fall 2024 redetermination, the Company’s lending syndicate approved a borrowing base capacity of $1.35 billion.
As amended, interest on the Facility is the aggregate of the applicable margin (4.00% to 5.50%, depending on the length of time that has passed from the date the Facility was entered into), plus the term SOFR reference rate administered by CME Group Benchmark Administration Limited for the relevant period published. Interest is payable on the last day of each interest period (and, if the interest period is longer than six months, on the dates falling at six-month intervals after the first day of the interest period). We pay commitment fees on the undrawn and unavailable portion of the total commitments, if any. Commitment fees are equal to 30% per annum of the then-applicable respective margin when a commitment is available for utilization and, equal to 20% per annum of the then-applicable respective margin when a commitment is not available for utilization. We recognize interest expense in accordance with ASC 835 — Interest, which requires interest expense to be recognized using the effective interest method. We determined the effective interest rate based on the estimated level of borrowings under the Facility.
The Facility provides a revolving credit and letter of credit facility. As of September 30, 2024, we had no letters of credit issued under the Facility.
We were in compliance with the financial covenants contained in the Facility as of September 30, 2024 (the most recent assessment date). The Facility, as amended, contains customary cross default provisions.
The Corporate Revolver is available for general corporate purposes and for oil and gas exploration, appraisal and development programs. In April 2024, in connection with the amendment and restatement of the Facility, we amended the Corporate Revolver reducing the borrowing capacity from $250.0 million to approximately $165 million. All of the commitments that were cancelled (either in full or in part) under the Corporate Revolver were transferred to the Facility as part of the amendment and restatement. As of September 30, 2024, there were no outstanding borrowings under the Corporate Revolver and the undrawn availability was approximately $165 million.
The Company capitalized $6.1 million of deferred financing costs associated with entering into the revolving credit facility in March 2022, which is being amortized over the term of the new revolving credit facility. Interest on the Corporate Revolver is the aggregate of a 7.0% margin, the term SOFR reference rate administered by CME Group Benchmark Administration Limited for the relevant period published and a credit adjustment spread. Interest is payable on the last day of each interest period (and, if the interest period is longer than six months, on the dates falling at six-month intervals after the first day of the interest period). We pay commitment fees on the undrawn portion of the total commitments. Commitment fees for the lenders are equal to 30% per annum of the respective margin when a commitment is available for utilization.
We were in compliance with the financial covenants contained in the Corporate Revolver as of September 30, 2024 (the most recent assessment date). The Corporate Revolver contains customary cross default provisions.
In October 2024, pursuant to a voluntary cancellation notice sent by the Company, the Corporate Revolver was terminated.
7.125% Senior Notes due 2026
In April 2019, the Company issued $650.0 million of 7.125% Senior Notes and received net proceeds of approximately $640.0 million after deducting fees.
The 7.125% Senior Notes mature on April 4, 2026. Interest is payable in arrears each April 4 and October 4, commencing on October 4, 2019. The 7.125% Senior Notes are senior, unsecured obligations of Kosmos Energy Ltd. and rank equal in right of payment with all of its existing and future senior indebtedness (including all borrowings under the Corporate Revolver, the 7.750% Senior Notes, the 7.500% Senior Notes, the 8.750% Senior Notes and the 3.125% Convertible Senior Notes) and rank effectively junior in right of payment to all of its existing and future secured indebtedness (including all borrowings under the Facility). The 7.125% Senior Notes are guaranteed on a senior, unsecured basis by certain subsidiaries owning the Company's U.S. Gulf of Mexico assets, and on a subordinated, unsecured basis by certain subsidiaries that borrow under, or guarantee, the Facility and that guarantee the Corporate Revolver, the 7.750% Senior Notes, the 7.500% Senior Notes, the 8.750% Senior Notes and the 3.125% Convertible Senior Notes. On September 24, 2024, the Company completed the repurchase of an aggregate principal amount of $400.0 million of the 7.125% Senior Notes pursuant to the Company’s cash tender offers for portions of the 7.125% Senior Notes, the 7.750% Senior Notes, and the 7.500% Senior Notes announced on September 9, 2024 (the “Tender Offers”). The 7.125% Senior Notes contain customary cross default provisions.
7.750% Senior Notes due 2027
In October 2021, the Company issued $400.0 million of 7.750% Senior Notes and received net proceeds of approximately $395.0 million after deducting fees.
The 7.750% Senior Notes mature on May 1, 2027. Interest is payable in arrears each May 1 and November 1, commencing on May 1, 2022. The 7.750% Senior Notes are senior, unsecured obligations of Kosmos Energy Ltd. and rank equal in right of payment with all of its existing and future senior indebtedness (including all borrowings under the Corporate Revolver, the 7.125% Senior Notes, the 7.500% Senior Notes, the 8.750% Senior Notes and the 3.125% Convertible Senior Notes) and rank effectively junior in right of payment to all of its existing and future secured indebtedness (including all borrowings under the Facility). The 7.750% Senior Notes are guaranteed on a senior, unsecured basis by certain subsidiaries owning the Company's U.S. Gulf of Mexico assets, and on a subordinated, unsecured basis by certain subsidiaries that borrow under, or guarantee, the Facility and that guarantee the Corporate Revolver, the 7.125% Senior Notes, the 7.500% Senior Notes, the 8.750% Senior Notes and the 3.125% Convertible Senior Notes. On September 24, 2024, the Company completed the repurchase of an aggregate principal amount of $50.0 million of the 7.750% Senior Notes pursuant to the Tender Offers. The 7.750% Senior Notes contain customary cross default provisions.
In March 2021, the Company issued $450.0 million of 7.500% Senior Notes and received net proceeds of approximately $444.4 million after deducting fees.
The 7.500% Senior Notes mature on March 1, 2028. Interest is payable in arrears each March 1 and September 1, commencing on September 1, 2021. The 7.500% Senior Notes are senior, unsecured obligations of Kosmos Energy Ltd. and rank equal in right of payment with all of its existing and future senior indebtedness (including all borrowings under the Corporate Revolver, the 7.125% Senior Notes, the 7.750% Senior Notes, the 8.750% Senior Notes and the 3.125% Convertible Senior Notes) and rank effectively junior in right of payment to all of its existing and future secured indebtedness (including all borrowings under the Facility). The 7.500% Senior Notes are guaranteed on a senior, unsecured basis by certain subsidiaries owning the Company's U.S. Gulf of Mexico assets, and on a subordinated, unsecured basis by certain subsidiaries that borrow under, or guarantee, the Facility and that guarantee the Corporate Revolver, and the 7.125% Senior Notes, the 7.750% Senior Notes, the 8.750% Senior Notes and the 3.125% Convertible Senior Notes. On September 24, 2024, the Company completed the repurchase of an aggregate principal amount of approximately $49.7 million of the 7.500% Senior Notes pursuant to the Tender Offers. The 7.500% Senior Notes contain customary cross default provisions.
8.750% Senior Notes due 2031
In September 2024, the Company issued $500.0 million of 8.750% Senior Notes (the “8.750% Senior Notes”) and received net proceeds of approximately $494.9 million after deducting fees. We used the net proceeds, together with cash on hand, to fund the Tender Offers and to pay expenses related to the issuance of the 8.750% Senior Notes.
The 8.750% Senior Notes mature on October 1, 2031. Interest is payable in arrears each April 1 and October 1, commencing on April 1, 2025. The 8.750% Senior Notes are senior, unsecured obligations of Kosmos Energy Ltd. and rank equal in right of payment with all of its existing and future senior indebtedness (including all borrowings under the Corporate Revolver, the 7.125% Senior Notes, the 7.750% Senior Notes, the 7.500% Senior Notes and the 3.125% Convertible Senior Notes) and rank effectively junior in right of payment to all of its existing and future secured indebtedness (including all borrowings under the Facility). The 8.750% Senior Notes are guaranteed on a senior, unsecured basis by certain subsidiaries owning the Company’s U.S. Gulf of Mexico assets and on a subordinated, unsecured basis by certain subsidiaries that borrow under, or guarantee, the Facility and that guarantee the Corporate Revolver, the 7.125% Senior Notes, the 7.750% Senior Notes, the 7.500% Senior Notes and the 3.125% Convertible Senior Notes. The 8.750% Senior Notes contain customary cross default provisions.
At any time prior to October 1, 2027, and subject to certain conditions, the Company may, on one or more occasions, redeem up to 40% of the original principal amount of the 8.750% Senior Notes with an amount not to exceed the net cash proceeds of certain equity offerings at a redemption price of 108.750% of the outstanding principal amount of the 8.750% Senior Notes, together with accrued and unpaid interest and premium, if any, to, but excluding, the date of redemption. Additionally, at any time prior to October 1, 2027, the Company may, on any one or more occasions, redeem all or part of the 8.750% Senior Notes at a redemption price equal to 100%, plus any accrued and unpaid interest, and plus a “make-whole” premium. On and after October 1, 2027, the Company may redeem all or a part of the 8.750% Senior Notes at the following redemption prices (expressed as a percentage of principal amount), plus accrued and unpaid interest, if any, on the notes redeemed during the twelve-month period indicated beginning on October 1 of the years indicated below:
Year
Percentage
2027
104.375
%
2028
102.188
%
2029 and thereafter
100.000
%
We may also redeem the 8.750% Senior Notes in whole, but not in part, at any time if changes in tax laws impose certain withholding taxes on amounts payable on the 8.750% Senior Notes at a price equal to the principal amount of the 8.750% Senior Notes plus accrued interest and additional amounts, if any, as may be necessary so that the net amount received by each holder after any withholding or deduction on payments of the 8.750% Senior Notes will not be less than the amount such holder would have received if such taxes had not been withheld or deducted.
Upon the occurrence of a change of control triggering event as defined under the 8.750% Senior Notes indenture, the Company will be required to make an offer to repurchase the 8.750% Senior Notes at a repurchase price equal to 101% of the principal amount, plus accrued and unpaid interest to, but excluding, the date of repurchase.
If we sell assets, under certain circumstances outlined in the 8.750% Senior Notes indenture, we will be required to use the net proceeds to make an offer to purchase the 8.750% Senior Notes at an offer price in cash in an amount equal to 100% of the principal amount of the 8.750% Senior Notes, plus accrued and unpaid interest to, but excluding, the repurchase date.
The 8.750% Senior Notes indenture restricts the ability of the Company and its restricted subsidiaries to, among other things: incur or guarantee additional indebtedness, create liens, pay dividends or make distributions in respect of capital stock, purchase or redeem capital stock, make investments or certain other restricted payments, sell assets, enter into agreements that restrict the ability of the Company’s subsidiaries to make dividends or other payments to the Company, enter into transactions with affiliates, or effect certain consolidations, mergers or amalgamations. Certain of these covenants will be terminated if the 8.750% Senior Notes are assigned an investment grade rating by both Standard & Poor’s Rating Services and Fitch Ratings Inc. and no default or event of default has occurred and is continuing.
3.125% Convertible Senior Notes due 2030
In March 2024, the Company issued $400.0 million of 3.125% Convertible Senior Notes (the “3.125% Convertible Senior Notes”) and received net proceeds of $390.4 million after deducting fees.
The 3.125% Convertible Senior Notes mature on March 15, 2030, unless earlier converted, redeemed or repurchased. Interest is payable in arrears each March 15 and September 15, commencing September 15, 2024. The 3.125% Convertible Senior Notes are senior, unsecured obligations of Kosmos Energy Ltd. and rank equal in right of payment with all of its existing and future senior indebtedness (including all borrowings under the Corporate Revolver, the 7.125% Senior Notes, the 7.750% Senior Notes, the 7.500% Senior Notes and the 8.750% Senior Notes) and rank effectively junior in right of payment to all of its existing and future secured indebtedness (including all borrowings under the Facility, to the extent of the value of the assets securing such indebtedness). The 3.125% Convertible Senior Notes are guaranteed on a senior, unsecured basis by certain of our existing subsidiaries that guarantee on a senior basis the Corporate Revolver, the 7.125% Senior Notes, the 7.750% Senior Notes, the 7.500% Senior Notes and the 8.750% Senior Notes, and, in certain circumstances, certain of our other existing or future subsidiaries. The 3.125% Convertible Senior Notes are guaranteed on a subordinated, unsecured basis by certain of our existing subsidiaries that borrow under or guarantee the Facility and guarantee on a subordinated basis the Corporate Revolver and the 7.125% Senior Notes, the 7.750% Senior Notes, the 7.500% Senior Notes and the 8.750% Senior Notes, and, in certain circumstances, certain of our other existing or future subsidiaries.
Holders of the 3.125% Convertible Senior Notes may convert all or any portion of their 3.125% Convertible Senior Notes at their option at any time prior to the close of business on the business day immediately preceding December 15, 2029 only under the following circumstances:
•during any calendar quarter commencing after the calendar quarter ending on June 30, 2024 (and only during such calendar quarter), if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day;
•during the five business day period after any five consecutive trading day period (the “measurement period”) in which the trading price per $1,000 principal amount of 3.125% Convertible Senior Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate on each such trading day;
•if we call any or all of the 3.125% Convertible Senior Notes for redemption, the 3.125% Convertible Senior Notes called (or deemed called) for redemption may be converted at any time prior to the close of business on the second scheduled trading day immediately preceding the redemption date; or
•upon the occurrence of certain specified corporate events.
On or after December 15, 2029 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert at any time all or any portion of their 3.125% Convertible Senior Notes at the option of the holder.
The conversion rate for the 3.125% Convertible Senior Notes is initially 142.4501 shares of our common stock per $1,000 principal amount of 3.125% Convertible Senior Notes (which is equivalent to an initial conversion price of approximately $7.02 per share of our common stock), subject to adjustments.
Upon conversion, we will pay cash up to the aggregate principal amount of the 3.125% Convertible Senior Notes to be converted and payor deliver, as the case may be, cash, shares of our common stock or a combination of cash and shares of our
common stock, at our election, in respect of the remainder, if any, of our conversion obligation in excess of the aggregate principal amount of the 3.125% Convertible Senior Notes being converted. The amount of cash and shares of our common stock, if any, due upon conversion will be based on a daily conversion value calculated on a proportionate basis for each trading day in a 40 consecutive trading day observation period.
In addition, following certain corporate events that occur prior to the maturity date or if we deliver a notice of redemption, we will, in certain circumstances, increase the conversion rate for a holder who elects to convert its 3.125% Convertible Senior Notes in connection with such a corporate event or to convert its 3.125% Convertible Senior Notes called (or deemed called) for redemption in connection with such notice of redemption, as the case may be.
Other than in connection with certain tax law changes, we may not redeem the notes prior to March 22, 2027. We may redeem for cash all or any portion of the 3.125% Convertible Senior Notes, at our option, on or after March 22, 2027 and prior to the 41st scheduled trading day immediately preceding the maturity date, if the last reported sale price of our common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive), including the trading day immediately preceding the date on which the Company provides notice of redemption, during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which we provide the related notice of redemption, at a redemption price equal to 100% of the principal amount of the 3.125% Convertible Senior Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. We are not required to redeem or retire the 3.125% Convertible Senior Notes periodically. We may not elect to redeem less than all of the outstanding 3.125% Convertible Senior Notes unless at least $75.0 million aggregate principal amount of 3.125% Convertible Senior Notes are outstanding and not subject to redemption as of the time we send the related redemption notice. The 3.125% Convertible Senior Notes indenture contains customary terms and covenants.
The Company recorded the 3.125% Convertible Senior Notes, including the debt itself and all embedded derivatives, at cost less debt issuance costs of $9.6 million and has presented the 3.125% Convertible Senior Notes as a single financial instrument in Long-term debt, net in our consolidated balance sheet. No portion of the embedded derivatives required bifurcation from the host debt contract. As of September 30, 2024, the effective annual interest rate on the 3.125% Convertible Senior Notes is approximately 3.70%, including amortization of debt issuance costs.
Capped Call Transactions
In connection with the issuance of the 3.125% Convertible Senior Notes, the Company used $49.8 million of the net proceeds from the issuance of the 3.125% Convertible Senior Notes to enter into capped call transactions (the “Capped Call Transactions”). The Capped Call Transactions are generally expected to reduce potential dilution to holders of our common stock upon any conversion of the 3.125% Convertible Senior Notes and/or offset any cash payments that we are required to make in excess of the principal amount of any 3.125% Convertible Senior Notes that are converted, as the case may be, with such reduction and/or offset subject to a cap.
The Capped Call Transactions have an initial cap price of $10.80 per share, which represents a premium of 100% over the last reported sale price of our common stock on March 5, 2024, and is subject to certain adjustments under the terms of the Capped Call Transactions. The Capped Call Transactions cover, initially, the number of shares of our common stock underlying the 3.125% Convertible Senior Notes, subject to anti-dilution adjustments substantially similar to those applicable to the conversion rate of the 3.125% Convertible Senior Notes.
The Capped Call Transactions qualify for a derivative scope exception as they are indexed to our common stock and are not required to be accounted for as a separate derivative. Consequently, the Capped Call Transactions have been included as a net reduction to additional-paid-in-capital within stockholders’ equity in our consolidated balance sheet and do not require subsequent remeasurement.
Principal Debt Repayments
At September 30, 2024, the estimated repayments of debt during the five fiscal year periods and thereafter are as follows:
(1)Includes the scheduled maturities for outstanding principal debt balances. The scheduled maturities of debt related to the Facility as of September 30, 2024 are based on our level of borrowings and our estimated future available borrowing base commitment levels in future periods. Any increases or decreases in the level of borrowings or increases or decreases in the available borrowing base would impact the scheduled maturities of debt during the next five years and thereafter.
(2)Represents payments for the period October 1, 2024 through December 31, 2024.
Interest and other financing costs, net
Interest and other financing costs, net incurred during the periods is comprised of the following:
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
(In thousands)
Interest expense
$
54,530
$
54,643
$
162,467
$
155,123
Amortization—deferred financing costs
2,159
2,462
6,814
7,543
Debt modifications and extinguishments
2,263
1,503
24,794
1,503
Capitalized interest
(42,081)
(36,029)
(126,007)
(99,920)
Deferred interest
2,571
(488)
(411)
(135)
Interest income
(5,710)
(4,793)
(16,584)
(13,379)
Other, net
8,380
8,142
24,766
23,644
Interest and other financing costs, net
$
22,112
$
25,440
$
75,839
$
74,379
Cash payments for interest totaled $42.2 million and $55.7 million for the three months ended September 30, 2024 and 2023, respectively, and $132.7 million and $150.7 million for the nine months ended September 30, 2024 and 2023, respectively. Capitalized interest of $42.1 million and $36.0 million for the three months ended September 30, 2024 and 2023, respectively, and $126.0 million and $99.9 million for the nine months ended September 30, 2024 and 2023, respectively, primarily relates to spend on the Greater Tortue Ahmeyim Phase 1 project. We will no longer capitalize interest on the Greater Tortue Ahmeyim Phase 1 project after first gas production.
8. Derivative Financial Instruments
We use financial derivative contracts to manage exposures to commodity price and interest rate fluctuations. We do not hold or issue derivative financial instruments for trading purposes.
We manage market and counterparty credit risk in accordance with our policies and guidelines. In accordance with these policies and guidelines, our management determines the appropriate timing and extent of derivative transactions. We have included an estimate of non-performance risk in the fair value measurement of our derivative contracts as required by ASC 820 — Fair Value Measurement.
Oil Derivative Contracts
The following table sets forth the volumes in barrels underlying the Company’s outstanding oil derivative contracts and the weighted average prices per Bbl for those contracts as of September 30, 2024. Volumes and weighted average prices are net of any offsetting derivative contracts entered into.
In October 2024, we entered into Dated Brent two-way collar contracts for 2.0 MMBbl from January 2025 through December 2025 with a floor price of $70.00 per barrel and a ceiling rice of $85.00 per barrel. In addition, we entered into Dated Brent swap contracts for 2.0 MMBbl from January 2025 through June 2025 with a weighted average fixed price of $75.48 per barrel and Dated Brent call spread contracts with a purchased price of $95.00 per barrel and a sold price of $85.00 per barrel for 2.0 MMBbl from January 2025 through June 2025, effectively reducing the ceiling on our 2025 two-way collars to $85.00 per barrel.
Interest Rate Derivative Contracts
The following table summarizes our open interest rate swaps whereby we pay a fixed rate of interest and the counterparty pays a variable SOFR-based rate as of September 30, 2024:
Weighted Average
Term
Type of Contract
Floating Rate
Notional
Fixed Rate
(In Thousands)
Jan - Dec 2025
Swap
1-Month TERM SOFR
$
500,000
3.645
%
The following tables disclose the Company’s derivative instruments as of September 30, 2024 and December 31, 2023, and gain/(loss) from derivatives during the three and nine months ended September 30, 2024 and 2023, respectively:
Estimated Fair Value
Asset (Liability)
Type of Contract
Balance Sheet Location
September 30, 2024
December 31, 2023
(In thousands)
Derivatives not designated as hedging instruments:
Derivative assets:
Commodity
Derivatives assets—current
$
11,077
$
8,346
Commodity
Derivatives assets—long-term
—
1,594
Derivative liabilities:
Commodity
Derivatives liabilities—current
—
(3,103)
Provisional oil sales
Receivables: Oil sales
(84)
(72)
Interest rate
Derivatives liabilities—current
(527)
—
Interest rate
Derivatives liabilities—long-term
(755)
—
Total derivatives not designated as hedging instruments
$
9,711
$
6,765
Amount of Gain/(Loss)
Amount of Gain/(Loss)
Three Months Ended
Nine Months Ended
September 30,
September 30,
Type of Contract
Location of Gain/(Loss)
2024
2023
2024
2023
(In thousands)
Derivatives not designated as hedging instruments:
Provisional oil sales
Oil and gas revenue
$
(4,674)
$
(6,716)
$
(4,810)
$
(10,305)
Commodity
Derivatives, net
$
15,254
$
(45,971)
$
(5,716)
$
(42,162)
Interest rate
Interest expense
(1,282)
—
(1,282)
—
Total derivatives not designated as hedging instruments
Offsetting of Derivative Assets and Derivative Liabilities
Our derivative instruments which are subject to master netting arrangements with our counterparties only have the right of offset when there is an event of default. As of September 30, 2024 and December 31, 2023, there was not an event of default and, therefore, the associated gross asset or gross liability amounts related to these arrangements are presented on the consolidated balance sheets.
9. Fair Value Measurements
In accordance with ASC 820 — Fair Value Measurement, fair value measurements are based upon inputs that market participants use in pricing an asset or liability, which are classified into two categories: observable inputs and unobservable inputs. Observable inputs represent market data obtained from independent sources, whereas unobservable inputs reflect a company’s own market assumptions, which are used if observable inputs are not reasonably available without undue cost and effort. We prioritize the inputs used in measuring fair value into the following fair value hierarchy:
•Level 1 — quoted prices for identical assets or liabilities in active markets.
•Level 2 — quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability and inputs derived principally from or corroborated by observable market data by correlation or other means.
•Level 3 — unobservable inputs for the asset or liability. The fair value input hierarchy level to which an asset or liability measurement in its entirety falls is determined based on the lowest level input that is significant to the measurement in its entirety.
The following tables present the Company’s assets and liabilities that are measured at fair value on a recurring basis as of September 30, 2024 and December 31, 2023, for each fair value hierarchy level:
The book values of cash and cash equivalents and restricted cash approximate fair value based on Level 1 inputs. Joint interest billings, oil sales and other receivables, and accounts payable and accrued liabilities approximate fair value due to the short-term nature of these instruments. Our long-term receivables, after any allowances for credit losses, and other long-term assets approximate fair value. The estimates of fair value of these items are based on Level 2 inputs.
Commodity Derivatives
Our commodity derivatives represent crude oil collars, put options and call options for notional barrels of oil at fixed Dated Brent oil prices. The values attributable to our oil derivatives are based on (i) the contracted notional volumes, (ii) independent active futures price quotes for the respective index, (iii) a credit-adjusted yield curve applicable to each counterparty by reference to the credit default swap (“CDS”) market and (iv) an independently sourced estimate of volatility for the respective index. The volatility estimate was provided by certain independent brokers who are active in buying and selling oil options and was corroborated by market-quoted volatility factors. The deferred premium is included in the fair market value of the commodity derivatives. See Note 8 — Derivative Financial Instruments for additional information regarding the Company’s derivative instruments.
Provisional Oil Sales
The value attributable to provisional oil sales derivatives is based on (i) the sales volumes and (ii) the difference in the independent active futures price quotes for the respective index over the term of the pricing period designated in the sales contract and the spot price on the lifting date.
Interest Rate Derivatives
Our interest rate derivatives consist of interest rate swaps, whereby the Company pays a fixed rate of interest and the counterparty pays a variable SOFR-based rate. The values attributable to the Company’s interest rate derivative contracts are based on (i) the contracted notional amounts, (ii) SOFR yield curves provided by independent third parties and corroborated with forward active market-quoted SOFR yield curves and (iii) a credit-adjusted yield curve as applicable to each counterparty by reference to the CDS market.
Debt
The following table presents the carrying values and fair values at September 30, 2024 and December 31, 2023:
September 30, 2024
December 31, 2023
Carrying Value
Fair Value
Carrying Value
Fair Value
(In thousands)
7.125% Senior Notes
$
249,185
$
249,032
$
646,912
$
622,824
7.750% Senior Notes
347,709
347,043
396,718
374,764
7.500% Senior Notes
397,493
387,878
446,291
412,461
8.750% Senior Notes
494,866
493,955
—
—
3.125% Convertible Senior Notes
391,238
374,920
—
—
Facility
850,000
850,000
925,000
925,000
Total
$
2,730,491
$
2,702,828
$
2,414,921
$
2,335,049
The carrying values of our 7.125% Senior Notes, 7.750% Senior Notes, 7.500% Senior Notes, 8.750% Senior Notes and 3.125% Convertible Senior Notes represent the principal amounts outstanding less unamortized discounts. The fair values of our 7.125% Senior Notes, 7.750% Senior Notes, 7.500% Senior Notes, 8.750% Senior Notes and 3.125% Convertible Senior Notes are based on quoted market prices, which results in a Level 1 fair value measurement. The carrying value of the Facility approximates fair value since they are subject to short-term floating interest rates that approximate the rates available to us for those periods.
Nonrecurring Fair Value Measurements - Long-lived assets
Certain long-lived assets are reported at fair value on a non-recurring basis on the Company's consolidated balance sheet. These long-lived assets are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances. Our long-lived assets are reviewed for impairment when changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
The Company calculates the estimated fair values of its long-lived assets using the income approach described in the ASC 820 — Fair Value Measurements. Significant inputs associated with the calculation of estimated discounted future net cash flows include anticipated future production, pricing estimates, capital and operating costs, market-based weighted average cost of capital, and risk adjustment factors applied to reserves. These are classified as Level 3 fair value assumptions. The Company utilizes an average of third-party industry forecasts of Dated Brent, adjusted for location and quality differentials, to determine our pricing assumptions. In order to evaluate the sensitivity of the assumptions, we analyze sensitivities to prices, production, and risk adjustment factors.
During the three and nine months ended September 30, 2024 and 2023, the Company did not recognize impairment of proved oil and gas properties. If we experience material declines in oil pricing expectations in the future, significant increases in our estimated future expenditures or a significant decrease in our estimated production profile, our long-lived assets could be at risk of impairment.
10. Equity-based Compensation
Restricted Stock Units
We record equity-based compensation expense equal to the fair value of share-based payments over the vesting periods of the LTIP awards. We recorded compensation expense from awards granted under our LTIP of $10.0 million and $10.6 million during the three months ended September 30, 2024 and 2023, respectively, and $27.8 million and $31.8 million during the nine months ended September 30, 2024 and 2023, respectively. The total tax benefit for the three months ended September 30, 2024 and 2023 was $1.7 million and $1.9 million, respectively, and $4.5 million and $5.6 million during the nine months ended September 30, 2024 and 2023, respectively. Additionally, we recorded a net tax shortfall (windfall) related to equity-based compensation of (0.1) million for the three months ended September 30, 2024 and 2023, respectively, and $(9.6) million and $(3.2) million during the nine months ended September 30, 2024 and 2023, respectively. The fair value of awards vested during the three months ended September 30, 2024 and 2023 was $0.4 million and $0.2 million, respectively, and $82.0 million and $44.9 million during the nine months ended September 30, 2024 and 2023, respectively. The Company granted restricted stock units with service vesting criteria and a combination of market and service vesting criteria under the LTIP. Substantially all of these grants vest over three years. Upon vesting, restricted stock units become issued and outstanding stock.
For restricted stock units with a combination of market and service vesting criteria, the number of common shares to be issued is determined by comparing the Company’s total shareholder return with the total shareholder return of a predetermined group of peer companies over the performance period and can vest in up to 200% of the awards granted. The grant date fair value ranged from $1.06 to $13.06 per award. The Monte Carlo simulation model utilized multiple input variables that determined the probability of satisfying the market condition stipulated in the award grant and calculated the fair value of the award. The expected volatility utilized in the model was estimated using our historical volatility and the historical volatilities of our peer companies and ranged from 50.0% to 105.0%. The risk-free interest rate was based on the U.S. treasury rate for a term commensurate with the expected life of the grant and ranged from 0.2% to 4.1%.
The following table reflects the outstanding restricted stock units as of September 30, 2024:
Weighted-
Market / Service
Weighted-
Service Vesting
Average
Vesting
Average
Restricted Stock
Grant-Date
Restricted Stock
Grant-Date
Units
Fair Value
Units
Fair Value
(In thousands)
(In thousands)
Outstanding at December 31, 2023
4,710
$
5.77
12,370
$
6.59
Granted(1)
4,364
6.30
6,176
8.63
Forfeited(1)
(373)
6.30
(480)
9.57
Vested
(3,997)
2.96
(9,327)
3.91
Outstanding at September 30, 2024
4,704
6.41
8,739
9.07
__________________________________
(1)The restricted stock units with a combination of market and service vesting criteria may vest between 0% and 200% of the originally granted units depending upon market performance conditions. Awards vesting over or under target shares of 100% results in additional shares granted or forfeited, respectively, in the period the market vesting criteria is determined.
As of September 30, 2024, total equity-based compensation to be recognized on unvested restricted stock units is $37.0 million over a weighted average period of 1.82 years. At September 30, 2024, the Company had approximately 10.5 million shares that remain available for issuance under the LTIP.
11. Income Taxes
We evaluate our estimated annual effective income tax rate each quarter, based on current and forecasted business results and enacted tax laws, and apply this tax rate to our ordinary income or loss to calculate our estimated tax expense or benefit. The Company excludes zero statutory tax rate and tax-exempt jurisdictions from our evaluation of the estimated annual effective income tax rate. The tax effect of discrete items are recognized in the period in which they occur at the applicable statutory tax rate.
Income before income taxes is composed of the following:
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
(In thousands)
United States
$
(35,934)
$
(13,425)
$
(110,976)
$
(62,548)
Foreign
142,486
150,966
494,621
392,904
Income before income taxes
$
106,552
$
137,541
$
383,645
$
330,356
For the three months ended, September 30, 2024 and 2023, our effective tax rate was 58% and 38%, respectively. For the nine months ended September 30, 2024 and 2023, our effective tax rate was 49% and 42%, respectively. For the three and nine months ended September 30, 2024 and 2023, our overall effective tax rates were impacted by:
•The difference in our 21% U.S. income tax reporting rate and the statutory income tax rates applicable to our foreign operations, primarily in Ghana and Equatorial Guinea,
•Jurisdictions that have a 0% statutory tax rate or that are tax exempt,
•Jurisdictions where we have incurred losses and have recorded valuation allowances against the corresponding deferred tax assets, and
•Other non-deductible expenses, primarily in the U.S.
The following table is a reconciliation between net income and the amounts used to compute basic and diluted net income per share and the weighted average shares outstanding used to compute basic and diluted net income per share. Potentially dilutive securities include shares issuable upon conversion of our 3.125% Convertible Senior Notes using the if-converted method and restricted stock units awards under our equity-based compensation plan.
Three Months Ended
Nine Months Ended
September 30,
September 30,
2024
2023
2024
2023
(In thousands, except per share data)
Numerator:
Net income allocable to common stockholders
$
44,974
$
85,185
$
196,430
$
191,839
Denominator:
Weighted average number of shares outstanding:
Basic
471,816
460,108
470,491
459,477
Restricted stock units(1)
7,374
20,991
8,210
20,261
Shares issuable assuming conversion of 3.125% Convertible Senior Notes(2)
—
—
—
—
Diluted
479,190
481,099
478,701
479,738
Net income per share:
Basic
$
0.10
$
0.19
$
0.42
$
0.42
Diluted
$
0.09
$
0.18
$
0.41
$
0.40
__________________________________
(1)We excluded restricted stock units of 3.1 million and nil for the three months ended September 30, 2024 and 2023, respectively, and 2.8 million and nil for the nine months ended September 30, 2024 and 2023, respectively from the computations of diluted net income per share because the effect would have been anti-dilutive.
(2)Represents the dilutive impact for the Company’s 3.125% Convertible Senior Notes due 2030. As of September 30, 2024, the if-converted value is less than the outstanding principal of the 3.125% Convertible Senior Notes and therefore anti-dilutive. The 3.125% Convertible Senior Notes are subject to a capped call arrangement that potentially reduces the dilutive effect as described in “Note 7 - Debt”. Any potential impact of the capped call arrangement is excluded from this table as any proceeds under the capped call arrangement are considered anti-dilutive.
13. Commitments and Contingencies
From time to time, we are involved in litigation, regulatory examinations and administrative proceedings primarily arising in the ordinary course of our business in jurisdictions in which we do business. Although the outcome of these matters cannot be predicted with certainty, management believes none of these matters, either individually or in the aggregate, would have a material effect upon the Company’s financial position; however, an unfavorable outcome could have a material adverse effect on our results from operations for a specific interim period or year.
As of September 30, 2024, we have a commitment to drill two development wells and one exploration well in Equatorial Guinea. One of the two development wells is currently being drilled.
In February 2019, Kosmos and BP signed Carry Advance Agreements with the national oil companies of Mauritania and Senegal, which obligate us separately to finance the respective national oil companies’ share of certain development and production costs. Kosmos’ total share for the two agreements combined is currently estimated at approximately $370.0 million, of which $261.8 million has been incurred through September 30, 2024, excluding accrued interest.
In August 2021, BP as the operator of the Greater Tortue project (“BP Operator”), with the consent of the Greater Tortue Unit participants and the respective States, agreed to sell the Greater Tortue FPSO to an affiliate of BP Operator (“BP Buyer”) once construction is completed by Technip Energies and the Greater Tortue FPSO has been commissioned (the “FPSO Handover”). As of September 30, 2024, we have a $200.2 million FPSO Contract Liability in Other long-term liabilities related to the deferred sale of the Greater Tortue FPSO. Delivery of the Greater Tortue FPSO to BP Buyer and Handover is expected to occur in the fourth quarter of 2024. The FPSO Contract Liability will be non-cash settled against FPSO asset costs in our Consolidated Balance Sheet, reducing both assets and liabilities. The Greater Tortue FPSO will then be leased back to BP Operator under a long-term lease agreement, for exclusive use in the Greater Tortue project. Greater Tortue FPSO lease costs will be recognized as oil and gas production expenses as incurred in our Consolidated Statement of Operations.
In April 2024, a Decommissioning Trust agreement with the Jubilee unit partners to cash fund future retirement obligations associated with the Jubilee Field was finalized. The operator currently estimates the total commitment to be approximately $148.9 million, net to Kosmos, which will be funded annually by Kosmos over an estimated 13 year period. The contributions into the trust will be invested into various securities. Those investments will be accounted for as trading securities and reported as long-term investments in our consolidated balance sheet and as operating activities in our statement of cash flows.
Performance Obligations
As of September 30, 2024 and December 31, 2023, the Company had performance and supplemental bonds totaling $172.9 million and $194.1 million, respectively, related to bonding requirements stipulated by the BOEM and other third parties for anticipated plugging and abandonment costs of certain wells and the removal of certain facilities in our U.S. Gulf of Mexico fields.
Kosmos is engaged in a single line of business, which is the exploration, development and production of oil and gas. At September 30, 2024, the Company had operations in four geographic reporting segments: Ghana, Equatorial Guinea, Mauritania/Senegal and the U.S. Gulf of Mexico. To assess performance of the reporting segments, the Chief Operating Decision Maker reviews capital expenditures. Capital expenditures, as defined by the Company, may not be comparable to similarly titled measures used by other companies and should be considered in conjunction with our consolidated financial statements and notes thereto. Financial information for each area is presented below:
(1)Interest expense is recorded based on actual third-party and intercompany debt agreements. Capitalized interest is recorded on the business unit where the assets reside.
(1)Interest expense is recorded based on actual third-party and intercompany debt agreements. Capitalized interest is recorded on the business unit where the assets reside.
Nine Months Ended September 30,
2024
2023
(In thousands)
Consolidated capital expenditures:
Consolidated Statements of Cash Flows - Investing activities:
Oil and gas assets
$
772,238
$
611,914
Adjustments:
Changes in capital accruals
25,108
25,441
Exploration expense, excluding unsuccessful well costs and leasehold impairments(1)
36,120
31,061
Capitalized interest
(126,007)
(99,920)
Other
4,193
131
Total consolidated capital expenditures, net
$
711,652
$
568,627
______________________________________
(1)Costs related to unsuccessful exploratory wells and leaseholds that are subsequently written off to Exploration expense are included in oil and gas assets when incurred.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with our consolidated financial statements and notes thereto contained herein and our annual financial statements for the year ended December 31, 2023, included in our annual report on Form 10-K along with the section Management’s Discussion and Analysis of financial condition and Results of Operations contained in such annual report. Any terms used but not defined in the following discussion have the same meaning given to them in the annual report. Our discussion and analysis includes forward-looking statements that involve risks and uncertainties and should be read in conjunction with “Risk Factors” under Item 1A of this report and in the annual report, along with “Forward-Looking Information” at the end of this section for information about the risks and uncertainties that could cause our actual results to be materially different than our forward-looking statements.
Overview
We are a full-cycle, deepwater, independent oil and gas exploration and production company focused along the offshore Atlantic Margins. Our key assets include production offshore Ghana, Equatorial Guinea and the U.S. Gulf of Mexico, as well as world-class gas projects offshore Mauritania and Senegal. We also pursue a proven basin exploration program in Equatorial Guinea and the U.S. Gulf of Mexico.
Globally, the impacts of Russia’s war in Ukraine, potential instability in the Middle East, a potential recession, inflationary pressures and other varying macroeconomic conditions have impacted supply and demand for oil and gas, which also has resulted in variability in oil and gas prices. The Company’s revenues, earnings, cash flows, capital investments, debt capacity and, ultimately, future rate of growth are highly dependent on these commodity prices.
Recent Developments
Corporate
In September 2024, the Company issued $500.0 million of 8.750% Senior Notes and received net proceeds of approximately $494.9 million after deducting fees. We used the net proceeds, together with cash on hand, to complete the repurchase of an aggregate principal amount of $400.0 million of the 7.125% Senior Notes, $50.0 million of the 7.750% Senior Notes, and approximately $49.7 million of the 7.500% Senior Notes and to pay expenses related to the issuance of the 8.750% Senior Notes.
In October 2024, pursuant to a voluntary cancellation notice sent by the Company, the Corporate Revolver was terminated.
Ghana
During the third quarter of 2024, Ghana production averaged approximately 118,800 Boepd gross (40,500 Boepd net).
The three year infill drilling campaign in Ghana concluded in the second quarter of 2024. The partnership now plans to conduct a new 4D seismic survey on the Jubilee Field starting in early 2025.
During 2023, the Jubilee partners reached an interim agreement to sell Jubilee Field gas at a price of $2.95 per MMBtu to the Government of Ghana. This interim gas sales agreement has been extended for a further 18 months to November 2025 at a price of approximately $3.00 per MMBtu.
U.S. Gulf of Mexico
Production from the U.S. Gulf of Mexico averaged approximately 16,900 Boepd net (~84% oil) for the third quarter of 2024.
In July 2024, we announced start-up of oil production at the Winterfell development in the Green Canyon area of the U.S. Gulf of Mexico (25% working interest). The Winterfell project is a phased development with the initial two production wells of the first phase brought online in the third quarter of 2024. The third development well was drilled in the second quarter of 2024 and brought online in October 2024. Shortly after startup of the third well, production at the field was curtailed due to
sand production from the third well seen at the production facility. We are currently working with the operator to restart production from the first two wells and to evaluate options to remediate the third well.
The Odd Job Field subsea pump installation project was completed and successfully brought online in July 2024.
The Kodiak #3 infill well located in Mississippi Canyon was initially brought online in April 2021. The well experienced production issues and was shut-in. In March 2022, the Company commenced operations to plug back and side-track the original Kodiak #3 infill well. The Kodiak-3ST well was brought online in early September 2022. Well results and initial production were in line with expectations, however well productivity declined thereafter. Workover operations were completed in July 2024 and successfully restored well productivity.
In October 2023, we announced the Tiberius infrastructure-led exploration well, located in Keathley Canyon Block 964 in the Outer Wilcox play, encountered approximately 75 meters (250 feet) of net oil pay in the primary Wilcox target. Initial fluid and core analysis supports the production potential of the well, with characteristics analogous with similar nearby discoveries in the Wilcox trend. During the first quarter of 2024, Kosmos was awarded five blocks in the U.S. Gulf of Mexico Lease Sale 261, including three blocks nearby to our Tiberius discovery. In March 2024, Kosmos completed the acquisition of an additional 16.7% participating interest in the Keathley Canyon Blocks 920 and 964, offshore U.S. Gulf of Mexico. As a result of the transaction, Kosmos’ participating interest in the Tiberius discovery area increased from 33.3% to 50.0%. The Tiberius project continues to progress as a phased development with discussions ongoing with our partner to finalize the development plan and timing of a final investment decision.
Equatorial Guinea
Production in Equatorial Guinea averaged approximately 22,900 Bopd gross (8,000 Bopd net) in the third quarter of 2024.
The Ceiba Field and Okume Complex workover and infill drilling campaign commenced in the fourth quarter of 2023, completing one production well workover. However, as a result of safety issues with the drilling rig, the operator terminated the rig contract in early February 2024. In the second quarter of 2024, the partnership secured an alternative rig and drilling contractor to resume the drilling campaign. The infill drilling campaign re-commenced in July 2024 bringing one infill production well in Block G online in October 2024. The second infill production well has been drilled and the partnership expects to bring it online in the fourth quarter of 2024. Following completion of the second infill production well, the rig is contracted to drill the Akeng Deep ILX prospect in Block S, with results expected around the end of the year.
In October 2024, Kosmos elected to enter the next phase of the Block S exploration license with a scheduled expiration in December 2025 and no well commitments. The election is subject to customary government approvals.
Mauritania and Senegal
Greater Tortue Ahmeyim Unit
The Greater Tortue liquefied natural gas project continues to make good progress. The following milestones have been achieved:
•Drilling: The first batch of four wells has been completed with expected production capacity significantly higher than is required for first gas.
•Hub Terminal: The Hub Terminal has been handed over to operations.
•Subsea: The subsea workscope for first gas is mechanically complete.
•FPSO: The FPSO is ready for startup shortly with first gas expected thereafter.
•FLNG: Cool down and commissioning of the FLNG vessel has commenced with first LNG expected around the end of the fourth quarter of 2024.
On October 7, 2024, the International Chamber of Commerce informed the Company that a final award had been issued in the arbitration proceedings with BP Gas Marketing regarding future LNG sales from Phase 1 of Greater Tortue Ahmeyim. The final, binding award prohibits the Company from selling LNG cargos to third party buyers during the contract term of the Tortue Phase 1 SPA, which the Company has an option to end in 2033. The final award does not change the terms of the Tortue Phase 1 SPA and is therefore not expected to have an impact on the Company’s long-term expectations and financial condition.
Yakaar and Teranga Discoveries
The Yakaar and Teranga discoveries continue to be analyzed as a joint development. The participating interests in the Cayar Offshore Profond Block are: Kosmos 90% and PETROSEN 10%, with PETROSEN having the right to increase its participating interest after issuance of an exploitation authorization to up to 35%. In March 2024, the current phase of the Cayar Block exploration license was extended an additional two years to July 2026. Kosmos has completed the concept development work and will now transition towards finalizing the partnership to support advancement of the project.
All of our results, as presented in the table below, represent operations from Ghana, the U.S. Gulf of Mexico and Equatorial Guinea. Certain operating results and statistics for the three and nine months ended September 30, 2024 and 2023 are included in the following tables:
The following table shows the number of wells in the process of being drilled or in active completion stages, and the number of wells suspended or waiting on completion as of September 30, 2024:
Actively Drilling or
Wells Suspended or
Completing
Waiting on Completion
Exploration
Development
Exploration
Development
Gross
Net
Gross
Net
Gross
Net
Gross
Net
Ghana
Jubilee Unit
—
—
—
—
—
—
3
1.16
TEN
—
—
—
—
—
—
5
1.02
Equatorial Guinea
Block S
—
—
—
—
1
0.40
—
—
Block G
—
—
1
0.40
—
—
1
0.40
U.S. Gulf of Mexico
Tiberius
—
—
—
—
1
0.50
—
—
Mauritania / Senegal
Greater Tortue Ahmeyim Unit
—
—
—
—
1
0.27
—
—
Senegal Cayar Profond
—
—
—
—
3
0.90
—
—
Total
—
—
1
0.40
6
2.07
9
2.58
The discussion of the results of operations and the period-to-period comparisons presented below analyze our historical results. The following discussion may not be indicative of future results.
Three months ended September 30, 2024 compared to three months ended September 30, 2023
Oil and gas revenue. Oil and gas revenue decreased by $118.6 million during the three months ended September 30, 2024, as compared to the three months ended September 30, 2023 as a result of lower sales volumes due to the timing of a TEN oil lifting in Ghana and lower average realized oil and gas prices. We sold 5,811 MBoe at an average realized price per barrel equivalent of $70.18 during the three months ended September 30, 2024 and 6,727 MBoe at an average realized price per barrel equivalent of $78.24 during the three months ended September 30, 2023.
Oil and gas production. Oil and gas production costs decreased by $5.3 million during the three months ended September 30, 2024, as compared to the three months ended September 30, 2023 primarily as a result of the timing of a TEN cargo lifting in Ghana offset by inclusion of operating costs associated with Greater Tortue Ahmeyim and increased production costs in Equatorial Guinea.
Exploration expenses. Exploration expenses increased by $4.4 million during the three months ended September 30, 2024, as compared to the three months ended September 30, 2023 primarily as a result of increased seismic data acquisition costs in the U.S. Gulf of Mexico business unit.
Depletion, depreciation and amortization. Depletion, depreciation and amortization decreased by $11.6 million during the three months ended September 30, 2024, as compared with the three months ended September 30, 2023 primarily as a result of the timing of a TEN oil lifting in Ghana and a lower depletion rate per barrel in Jubilee resulting from an increase in reserves at the end of 2023, partially offset by increased production and a higher depletion rate per barrel in the U.S. Gulf of Mexico related to the Winterfell and Odd Job fields, post project completion in the third quarter of 2024.
Interest and other financing costs, net. Interest and other financing costs, net decreased by $3.3 million during the three months ended September 30, 2024, as compared to the three months ended September 30, 2023 primarily as a result of increased capitalized interest related to the Greater Tortue Ahmeyim project partially offset by an increase in interest expense due to higher interest rates.
Derivatives, net. During the three months ended September 30, 2024 and 2023, we recorded a gain of $15.3 million and a loss of $46.0 million, respectively, on our outstanding hedge positions. The amounts recorded were a result of changes in the forward oil price curve during the respective periods.
Other expenses, net. Other expenses, net decreased by $8.8 million during the three months ended September 30, 2024, as compared to the three months ended September 30, 2023 primarily as a result of loss on asset retirement obligations in the U.S. Gulf of Mexico business unit during the third quarter of 2023.
Income tax expense. For the three months ended September 30, 2024 and 2023, changes to our effective tax rates are driven by which tax jurisdictions our income before income taxes is generated. The jurisdictions in which we operate have statutory tax rates ranging from 0% to 35%.
Nine months ended September 30, 2024 compared to nine months ended September 30, 2023
Nine Months Ended
September 30,
Increase
2024
2023
(Decrease)
(In thousands)
Revenues and other income:
Oil and gas revenue
$
1,277,797
$
1,193,843
$
83,954
Other income, net
109
(115)
224
Total revenues and other income
1,277,906
1,193,728
84,178
Costs and expenses:
Oil and gas production
377,822
286,297
91,525
Exploration expenses
39,992
33,305
6,687
General and administrative
76,724
77,731
(1,007)
Depletion, depreciation and amortization
311,750
331,634
(19,884)
Interest and other financing costs, net
75,839
74,379
1,460
Derivatives, net
5,716
42,162
(36,446)
Other expenses, net
6,418
17,864
(11,446)
Total costs and expenses
894,261
863,372
30,889
Income before income taxes
383,645
330,356
53,289
Income tax expense
187,215
138,517
48,698
Net income
$
196,430
$
191,839
$
4,591
Oil and gas revenue. Oil and gas revenue increased by $84.0 million during the nine months ended September 30, 2024, as compared to the nine months ended September 30, 2023 primarily due to higher sales volumes primarily driven by increased production at Jubilee and higher average realized gas prices in Ghana. We sold 17,465 MBoe at an average realized price per barrel equivalent of $73.16 during the nine months ended September 30, 2024 and 16,344 MBoe at an average realized price per barrel equivalent of $73.04 during the nine months ended September 30, 2023.
Oil and gas production. Oil and gas production costs increased by $91.5 million during the nine months ended September 30, 2024, as compared to the nine months ended September 30, 2023 primarily as a result of increased sales volumes, inclusion of operating costs associated with Greater Tortue Ahmeyim and costs incurred related to planned workovers in the U.S. Gulf of Mexico and Equatorial Guinea.
Exploration expenses. Exploration expenses increased by $6.7 million during the nine months ended September 30, 2024, as compared to the nine months ended September 30, 2023 primarily as a result of increased seismic data acquisition costs in the U.S. Gulf of Mexico business unit.
Depletion, depreciation and amortization. Depletion, depreciation and amortization decreased $19.9 million during the nine months ended September 30, 2024, as compared with the nine months ended September 30, 2023 primarily as a result of a lower depletion rate per barrel in Ghana resulting from an increase in Jubilee reserves at the end of 2023 and a lower cost basis in our TEN Fields due to the impairment loss recorded in the year ended December 31, 2023 partially offset by higher sales volumes in the current year.
Interest and other financing costs, net. Interest and other financing costs, net increased $1.5 million during the nine months ended September 30, 2024, as compared to the nine months ended September 30, 2023, primarily as a result of a $24.8 million loss on debt modifications and extinguishments for the nine months ended September 30, 2023 related to the amendment and restatement of the Facility during the second quarter of 2024 and the repurchase of aggregate principal amounts of the 7.125% Senior Notes, the 7.750% Senior Notes, and the 7.500% Senior Notes during the third quarter of 2024 and increase in interest expense for the period due to higher interest rates offset by increased capitalized interest related to the Greater Tortue Ahmeyim project.
Derivatives, net. During the nine months ended September 30, 2024 and 2023, we recorded a loss of $5.7 million and a loss of $42.2 million, respectively, on our outstanding hedge positions. The changes recorded were a result of changes in the forward curve of oil prices during the respective periods.
Other expenses, net. Other expenses, net decreased by $11.4 million during the nine months ended September 30, 2024, as compared to the nine months ended September 30, 2023 primarily as a result of loss on asset retirement obligations in the U.S. Gulf of Mexico business unit and approximately $5.4 million of asset impairments recorded in 2023.
Income tax expense. For the nine months ended September 30, 2024 and 2023, our overall effective tax rates were impacted by the difference in our 21% U.S. income tax reporting rate and the 35% statutory tax rates applicable to our Ghanaian and Equatorial Guinean operations, jurisdictions that have a 0% statutory tax rate or where we have incurred losses and have recorded valuation allowances against the corresponding deferred tax assets, and other non-deductible expenses, primarily in the U.S.
Liquidity and Capital Resources
We are actively engaged in an ongoing process of anticipating and meeting our funding requirements related to our strategy as a full-cycle exploration and production company. We have historically met our funding requirements through cash flows generated from our operating activities and obtained additional funding from issuances of equity and debt, as well as partner carries.
Oil prices are historically volatile and a significant decrease in oil prices could negatively impact our ability to generate sufficient operating cash flows to meet our funding requirements. This volatility could also result in wide fluctuations in future oil prices, which could impact our ability to comply with our financial covenants. To partially mitigate this price volatility, we maintain an active hedging program and review our capital spending program on a regular basis. Our investment decisions are based on longer-term commodity prices based on the nature of our projects and development plans. Current commodity prices, combined with our hedging program and our current liquidity position support our remaining capital program for 2024.
As such, our 2024 capital budget is based on our exploitation and production plans for Ghana, Equatorial Guinea and the U.S. Gulf of Mexico, our infrastructure-led exploration and appraisal program in the U.S. Gulf of Mexico and Equatorial Guinea, and our appraisal and development activities in the U.S. Gulf of Mexico, Mauritania and Senegal.
Our future financial condition and liquidity can be impacted by, among other factors, the success of our exploitation, exploration and appraisal drilling programs, the number of commercially viable oil and natural gas discoveries made and the quantities of oil and natural gas discovered, the speed with which we can bring such discoveries to production, the reliability of our oil and gas production facilities, our ability to continuously export oil and gas, our ability to secure and maintain partners and their alignment with respect to capital plans, the actual cost of exploitation, exploration, appraisal and development of our oil and natural gas assets, and coverage of any claims under our insurance policies.
As of September 30, 2024, borrowings under the Facility totaled $850.0 million and the undrawn availability under the Facility was $500.0 million. Additionally, as of September 30, 2024, there were no outstanding borrowings under the Corporate Revolver and the undrawn availability was approximately $165 million. In October 2024, pursuant to a voluntary cancellation notice sent by the Company, the Corporate Revolver was terminated.
The following table presents the sources and uses of our cash and cash equivalents and restricted cash for the nine months ended September 30, 2024 and 2023:
Nine Months Ended
September 30,
2024
2023
(In thousands)
Sources of cash, cash equivalents and restricted cash:
Net cash provided by operating activities
$
502,502
$
471,394
Net proceeds from issuance of senior notes
885,285
—
Borrowings under long-term debt
275,000
300,000
1,662,787
771,394
Uses of cash, cash equivalents and restricted cash:
Oil and gas assets
772,238
611,914
Notes receivable from partners
2,575
46,632
Payments on long-term debt
350,000
145,000
Purchase of capped call transactions
49,800
—
Repurchase of senior notes
499,515
—
Dividends
—
166
Other financing costs
35,534
12,345
1,709,662
816,057
Increase (decrease) in cash, cash equivalents and restricted cash
$
(46,875)
$
(44,663)
Net cash provided by operating activities. Net cash provided by operating activities for the nine months ended September 30, 2024 was $502.5 million compared with net cash provided by operating activities for the nine months ended September 30, 2023 of $471.4 million. The increase in cash provided by operating activities in the nine months ended September 30, 2024 when compared to the same period in 2023 is primarily a result of higher sales volumes and higher average realized gas prices for the nine months ended September 30, 2024 offset by higher oil and gas production costs and changes in working capital.
The following table presents our liquidity and financial position as of September 30, 2024 and December 31, 2023:
September 30, 2024
December 31, 2023
(In thousands)
Outstanding debt principal balances:
Facility
$
850,000
$
925,000
7.125% Senior Notes
250,000
650,000
7.750% Senior Notes
350,000
400,000
7.500% Senior Notes
400,274
450,000
8.750% Senior Notes
500,000
—
3.125% Convertible Senior Notes
400,000
—
Total long-term debt
2,750,274
2,425,000
Cash and cash equivalents
51,581
95,345
Total restricted cash
305
3,416
Net debt
$
2,698,388
$
2,326,239
Availability under the Facility
$
500,000
$
325,000
Availability under the Corporate Revolver(1)
$
163,750
$
250,000
Available borrowings plus cash and cash equivalents
$
715,331
$
670,345
(1)In October 2024, pursuant to a voluntary cancellation notice sent by the Company, the Corporate Revolver was terminated.
Capital Expenditures and Investments
We expect to incur capital costs as we:
• drill additional infill wells and execute exploitation and production activities in Ghana, Equatorial Guinea and the U.S. Gulf of Mexico;
• execute appraisal and development activities in Ghana, the U.S. Gulf of Mexico, Mauritania and Senegal; and
• execute infrastructure-led exploration and appraisal efforts in the U.S. Gulf of Mexico and Equatorial Guinea.
We have relied on a number of assumptions in budgeting for our future activities. These include the number of wells we plan to drill, our paying interests in our operations including disproportionate payment amounts, the costs involved in developing or participating in the development of a prospect, the timing of third‑party projects, the availability of suitable equipment and qualified personnel and our cash flows from operations. We also evaluate potential corporate and asset acquisition opportunities to support and expand our asset portfolio which may impact our budget assumptions. These assumptions are inherently subject to significant business, political, economic, regulatory, health, environmental and competitive uncertainties, contingencies and risks, all of which are difficult to predict and many of which are beyond our control. We may need to raise additional funds more quickly if market conditions deteriorate, or one or more of our assumptions proves to be incorrect, or if we choose to expand our acquisition, exploration, appraisal, development efforts or any other activity more rapidly than we presently anticipate. We may decide to raise additional funds before we need them if the conditions for raising capital are favorable. We may seek to sell assets, equity or debt securities or obtain additional bank credit facilities. The sale of equity securities could result in dilution to our shareholders. The incurrence of additional indebtedness could result in increased fixed obligations and additional covenants that could restrict our operations.
2024 Capital Program
We estimate we will spend around $800 million of capital for the year ending December 31, 2024, excluding any acquisitions or divestiture of oil and gas properties during the year. This capital expenditure budget consists of:
•Approximately $350 million related to maintenance activities across our Ghana, Equatorial Guinea and U.S. Gulf of Mexico assets, including infill development drilling and integrity spend;
•Approximately $375 million related to the development of Phase 1 of Greater Tortue Ahmeyim in Mauritania and Senegal and Winterfell in the U.S. Gulf of Mexico;
•Approximately $75 million related to progressing our infrastructure-led exploration and appraisal programs in the U.S. Gulf of Mexico, including Tiberius appraisal activities, and the drilling of the ILX prospect Akeng Deep in Equatorial Guinea, as well as the appraisal plans of our greater gas resources in Mauritania and Senegal, including the next phase of Greater Tortue Ahmeyim and Yakaar-Teranga.
The ultimate amount of capital we will spend may fluctuate materially based on market conditions and the success of our exploitation and drilling results among other factors. Our future financial condition and liquidity will be impacted by, among other factors, our level of production of oil and the prices we receive from the sale of oil, our ability to effectively hedge future production volumes, the success of our multi-faceted infrastructure-led exploration and appraisal drilling programs, the number of commercially viable oil and natural gas discoveries made and the quantities of oil and natural gas discovered, the speed with which we can bring such discoveries to production, our partners’ alignment with respect to capital plans, and the actual cost of exploitation, exploration, appraisal and development of our oil and natural gas assets, and coverage of any claims under our insurance policies.
Significant Sources of Capital
Facility
The Facility supports our oil and gas exploration, appraisal and development programs and corporate activities. The amount of funds available to be borrowed under the Facility, also known as the borrowing base amount, is determined every March and September. The borrowing base amount is based on the sum of the net present values of net cash flows and relevant capital expenditures reduced by certain percentages as well as value attributable to certain assets’ reserves and/or resources in the Jubilee and TEN Fields in Ghana and the Ceiba Field and Okume Complex in Equatorial Guinea. As of September 30, 2024, borrowings under the Facility totaled $850.0 million and the undrawn availability under the Facility was $500.0 million.
In April 2024, in conjunction with the spring borrowing base redetermination, the Company executed an amendment and restatement of the Facility. The amendment includes the following material changes: an increase in the Facility size and borrowing base capacity to $1.35 billion (from $1.25 billion), an increase in the interest margin by 0.25% or 0.50%, depending on the length of time that has passed from the date the Facility was entered into, and an extension in the tenor by approximately three years (final maturity date now occurs December 31, 2029). The amended Facility size and borrowing base capacity of approximately $1.35 billion was capped by total commitments of approximately $1.21 billion as of June 30, 2024. In September 2024, we added two new lenders to the Facility syndicate, increasing current total commitments by approximately $145.0 million to the full Facility size and borrowing base capacity of $1.35 billion. The available facility amount is subject to borrowing base constraints and, beginning on April 1, 2027, outstanding borrowings will be constrained by an amortization schedule.
In October 2024, during the Fall 2024 redetermination, the Company’s lending syndicate approved a borrowing base capacity of $1.35 billion.
The Facility provides a revolving credit and letter of credit facility. The availability period for the revolving credit facility expires one month prior to the final maturity date. The letter of credit facility expires on the final maturity date. As of September 30, 2024, we had no letters of credit issued under the Facility. We have the right to cancel all the undrawn commitments under the amended and restated Facility.
If an event of default exists under the Facility, the lenders can accelerate the maturity and exercise other rights and remedies, including the enforcement of security granted pursuant to the Facility over certain assets. We were in compliance with the financial covenants contained in the Facility as of September 30, 2024 (the most recent assessment date). The Facility contains customary cross default provisions.
The U.S. and many foreign economies continue to experience uncertainty driven by varying macroeconomic conditions. Although some of these economies have shown signs of improvement, macroeconomic recovery remains uneven. Uncertainty in the macroeconomic environment and associated global economic conditions have resulted in extreme volatility in credit, equity, and foreign currency markets, including the European sovereign debt markets and volatility in various other markets. If any of the financial institutions within our Facility are unable to perform on their commitments, our liquidity could be impacted. We actively monitor all of the financial institutions participating in our Facility. None of the financial institutions have indicated to us that they may be unable to perform on their commitments. In addition, we periodically review our banking and financing relationships, considering the stability of the institutions and other aspects of the relationships. Based on our monitoring activities, we currently believe our banks will be able to perform on their commitments.
Corporate Revolver
The Corporate Revolver is available for general corporate purposes and for oil and gas exploration, appraisal and development programs. In April 2024, in connection with the amendment and restatement of the Facility, we amended the Corporate Revolver reducing the borrowing capacity from $250.0 million to approximately $165 million. All of the commitments that were cancelled (either in full or in part) under the Corporate Revolver were transferred to the Facility as part of the amendment and restatement. As of September 30, 2024, there were no outstanding borrowings under the Corporate Revolver and the undrawn availability was approximately $165 million.
The available amount is not subject to borrowing base constraints. We have the right to cancel all the undrawn commitments under the Corporate Revolver. We are required to repay certain amounts due under the Corporate Revolver with sales of certain subsidiaries or sales of certain assets. If an event of default exists under the Corporate Revolver, the lenders can accelerate the maturity and exercise other rights and remedies, including the enforcement of security granted pursuant to the Corporate Revolver over certain assets held by us.
We were in compliance with the financial covenants contained in the Corporate Revolver as of September 30, 2024 (the most recent assessment date). The Corporate Revolver contains customary cross default provisions.
In October 2024, pursuant to a voluntary cancellation notice sent by the Company, the Corporate Revolver was terminated.
Senior Notes
We have four series of senior notes outstanding as of September 30, 2024, which we collectively refer to as the “Senior Notes.” Our 7.125% Senior Notes have an outstanding balance of $250.0 million and mature on April 4, 2026. Interest is payable on the 7.125% Senior Notes each April 4 and October 4. Our 7.750% Senior Notes have an outstanding balance of $350.0 million and mature on May 1, 2027. Interest is payable on the 7.750% Senior Notes each May 1 and November 1. Our 7.500% Senior Notes have an outstanding balance of approximately $400.3 million and mature on March 1, 2028. Interest is payable on the 7.500% Senior Notes each March 1 and September 1. In September 2024, the Company issued $500.0 million of 8.750% Senior Notes that mature on October 1, 2031. Interest is payable on the 8.750% Senior Notes each April 1 and October 1.
The Senior Notes are senior, unsecured obligations of Kosmos Energy Ltd. and rank equally in right of payment with all of its existing and future senior indebtedness (including all borrowings under the Corporate Revolver and the 3.125% Convertible Senior Notes) and rank effectively junior in right of payment to all of its existing and future secured indebtedness (including all borrowings under the Facility). The Senior Notes are jointly and severally guaranteed on a senior, unsecured basis by certain subsidiaries owning the Company's U.S. Gulf of Mexico assets, and on a subordinated, unsecured basis by entities that borrow under, or guarantee, our Facility.
3.125% Convertible Senior Notes due 2030
We have one series of senior convertible notes outstanding. Our 3.125% Convertible Senior Notes mature on March 15, 2030, unless earlier converted, redeemed or repurchased. Interest is payable in arrears each March 15 and September 15, commencing September 15, 2024.
The 3.125% Convertible Senior Notes are senior, unsecured obligations of Kosmos Energy Ltd. and rank equal in right of payment with all of its existing and future senior indebtedness (including all borrowings under the Corporate Revolver and the Senior Notes) and rank effectively junior in right of payment to all of its existing and future secured indebtedness (including all borrowings under the Facility, to the extent of the value of the assets securing such indebtedness). The 3.125% Convertible Senior Notes are guaranteed on a senior, unsecured basis by certain of our existing subsidiaries that guarantee on a senior basis the Corporate Revolver and the Senior Notes, and, in certain circumstances, certain of our other existing or future subsidiaries.
The 3.125% Convertible Senior Notes are guaranteed on a subordinated, unsecured basis by certain of our existing subsidiaries that borrow under or guarantee the Facility and guarantee on a subordinated basis the Corporate Revolver and the Senior Notes, and, in certain circumstances, certain of our other existing or future subsidiaries.
Holders of the 3.125% Convertible Senior Notes may convert all or any portion of their 3.125% Convertible Senior Notes at their option at any time prior to the close of business on the business day immediately preceding December 15, 2029
only under the following circumstances:
•during any calendar quarter commencing after the calendar quarter ending on June 30, 2024 (and only during such calendar quarter), if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day;
•during the five business day period after any five consecutive trading day period (the “measurement period”) in which the trading price per $1,000 principal amount of 3.125% Convertible Senior Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate on each such trading day;
•if we call any or all of the 3.125% Convertible Senior Notes for redemption, the 3.125% Convertible Senior Notes called (or deemed called) for redemption may be converted at any time prior to the close of business on the second scheduled trading day immediately preceding the redemption date; or
•upon the occurrence of certain specified corporate events.
On or after December 15, 2029 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert at any time all or any portion of their 3.125% Convertible Senior Notes at the option of the holder.
The conversion rate for the 3.125% Convertible Senior Notes is initially 142.4501 shares of our common stock per $1,000 principal amount of 3.125% Convertible Senior Notes (which is equivalent to an initial conversion price of approximately $7.02 per share of our common stock), subject to adjustments.
Upon conversion, we will pay cash up to the aggregate principal amount of the 3.125% Convertible Senior Notes to be converted and pay or deliver, as the case may be, cash, shares of our common stock or a combination of cash and shares of our common stock, at our election, in respect of the remainder, if any, of our conversion obligation in excess of the aggregate principal amount of the 3.125% Convertible Senior Notes being converted. The amount of cash and shares of our common stock, if any, due upon conversion will be based on a daily conversion value calculated on a proportionate basis for each trading day in a 40 consecutive trading day observation period.
In addition, following certain corporate events that occur prior to the maturity date or if we deliver a notice of redemption, we will, in certain circumstances, increase the conversion rate for a holder who elects to convert its 3.125% Convertible Senior Notes in connection with such a corporate event or to convert its 3.125% Convertible Senior Notes called (or deemed called) for redemption in connection with such notice of redemption, as the case may be.
Other than in connection with certain tax law changes, we may not redeem the notes prior to March 22, 2027. We may redeem for cash all or any portion of the 3.125% Convertible Senior Notes, at our option, on or after March 22, 2027 and prior to the 41st scheduled trading day immediately preceding the maturity date, if the last reported sale price of our common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive), including the trading day immediately preceding the date on which we provide notice of redemption, during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which we provide the related notice of redemption, at a redemption price equal to 100% of the principal amount of the 3.125% Convertible Senior Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. We are not required to redeem or retire the 3.125% Convertible Senior Notes periodically. We may not elect to redeem less than all of the outstanding 3.125% Convertible Senior Notes unless at least $75.0 million aggregate principal amount of 3.125% Convertible Senior Notes are outstanding and not subject to redemption as of the time we send the related redemption notice. The 3.125% Convertible Senior Notes indenture contains customary terms and covenants.
In connection with the issuance of the 3.125% Convertible Senior Notes, the Company entered into capped call transactions (the “Capped Call Transactions”). The Capped Call Transactions are generally expected to reduce potential dilution to holders of our common stock upon any conversion of the 3.125% Convertible Senior Notes and/or offset any cash payments that we are required to make in excess of the principal amount of any 3.125% Convertible Senior Notes that are converted, as the case may be, with such reduction and/or offset subject to a cap.
The Capped Call Transactions have an initial cap price of $10.80 per share, which represents a premium of 100% over the last reported sale price of our common stock on March 5, 2024, and is subject to certain adjustments under the terms of the Capped Call Transactions. The Capped Call Transactions cover, initially, the number of shares of our common stock underlying the 3.125% Convertible Senior Notes, subject to anti-dilution adjustments substantially similar to those applicable to the conversion rate of the 3.125% Convertible Senior Notes.
Contractual Obligations
The following table summarizes by period the payments due for our estimated contractual obligations as of September 30, 2024, and the weighted average interest rates expected to be paid on the Facility and Corporate Revolver given current contractual terms and market conditions, and the instrument’s estimated fair value. Weighted-average interest rates are based on implied forward rates in the yield curve at the reporting date. This table does not include amortization of deferred financing costs.
Asset
(Liability)
Fair Value at
Years Ending December 31,
September 30,
2024(2)
2025
2026
2027
2028
Thereafter
Total
2024
(In thousands, except percentages)
Fixed rate debt:
7.125% Senior Notes
$
—
$
—
250,000
$
—
$
—
$
—
$
250,000
$
249,032
7.750% Senior Notes
—
—
—
350,000
—
—
350,000
347,043
7.500% Senior Notes
—
—
—
—
400,274
400,274
387,878
8.750% Senior Notes
—
—
—
—
—
500,000
500,000
493,955
3.125% Convertible Senior Notes
—
—
—
—
—
400,000
400,000
374,920
Variable rate debt:
Weighted average interest rate
9.29
%
7.86
%
7.99
%
8.21
%
8.81
%
9.06
%
Facility(1)
$
—
$
—
$
—
$
—
$
283,375
$
566,625
$
850,000
$
850,000
Total principal debt repayments
$
—
$
—
$
250,000
$
350,000
$
683,649
$
1,466,625
$
2,750,274
Interest & commitment fee payments on long-term debt
91,854
241,162
219,922
181,602
141,450
182,078
1,058,068
Operating leases(3)
1,042
4,215
4,286
4,215
3,844
2,808
20,410
Purchase obligations(4)
7,875
27,662
—
—
—
—
35,537
Decommissioning Trust Funds(5)
11,460
11,460
11,460
11,460
11,460
91,600
$
148,900
Firm transportation commitments
520
3,472
4,413
2,222
—
—
10,627
__________________________________
(1)The amounts included in the table represent principal maturities only. The scheduled maturities of debt related to the Facility are based on the level of borrowings and the available borrowing base as of September 30, 2024. Any increases or decreases in the level of borrowings or increases or decreases in the available borrowing base would impact the scheduled maturities of debt during the next five years and thereafter.
(2)Represents the period October 1, 2024 through December 31, 2024.
(3)Primarily relates to corporate and foreign office leases.
(4)Represents gross contractual obligations to execute planned future capital projects. Other joint owners in the properties operated by Kosmos will be billed for their working interest share of such costs. Does not include our share of operator’s purchase commitments for jointly owned fields and facilities where we are not the operator and excludes commitments for exploration activities, including well commitments and seismic obligations, in our petroleum contracts. The Company’s liabilities for asset retirement obligations associated with the dismantlement, abandonment and restoration costs of oil and gas properties are not included. See Note 14 - Additional Financial Information for additional information regarding these liabilities.
(5)In April 2024, a Decommissioning Trust agreement with the Jubilee unit partners to cash fund future retirement obligations associated with the Jubilee Field was finalized. The operator currently estimates the total commitment to be approximately $148.9 million, net to Kosmos, which will be funded annually by Kosmos over an estimated 13 year period. The contributions into the trust will be invested into various securities. Those investments will be accounted for as trading securities and reported as long-term investments in our consolidated balance sheet and as operating activities in our statement of cash flows. It is possible that our funding requirements could change based on future changes in the decommissioning plan or estimates.
As of September 30, 2024, we have a commitment to drill two development wells and one exploration well in Equatorial Guinea. One of the two development wells is currently being drilled.
In February 2019, Kosmos and BP signed Carry Advance Agreements with the national oil companies of Mauritania and Senegal, which obligate us separately to finance the respective national oil companies’ share of certain development and production costs. Kosmos’ total share for the two agreements combined is currently estimated at approximately $370.0 million, of which $261.8 million has been incurred through September 30, 2024, excluding accrued interest. These amounts will be repaid through the national oil companies’ share of future revenues.
As of September 30, 2024, we have a $200.2 million FPSO Contract Liability in Other long-term liabilities related to the deferred sale of the Greater Tortue FPSO. Delivery of the Greater Tortue FPSO to BP Buyer and Handover is expected to occur in the fourth quarter of 2024. The FPSO Contract Liability will be non-cash settled against FPSO asset costs in our Consolidated Balance Sheet, reducing both assets and liabilities. The Greater Tortue FPSO will then be leased back to BP Operator under a long-term lease agreement, for exclusive use in the Greater Tortue project. Greater Tortue FPSO lease costs will be recognized as oil and gas production expenses as incurred in our Consolidated Statement of Operations.
Critical Accounting Policies
We consider accounting policies related to our revenue recognition, exploration and development costs, receivables, income taxes, derivative instruments and hedging activities, estimates of proved oil and natural gas reserves, asset retirement obligations and impairment of long-lived assets as critical accounting policies. The policies include significant estimates made by management using information available at the time the estimates are made. However, these estimates could change materially if different information or assumptions were used. Other than items discussed in Note 2 — Accounting Policies, there have been no changes to our critical accounting policies which are summarized in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” section in our annual report on Form 10-K, for the year ended December 31, 2023.
This quarterly report on Form 10-Q contains estimates and forward-looking statements, principally in “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Our estimates and forward-looking statements are mainly based on our current expectations and estimates of future events and trends, which affect or may affect our businesses and operations. Although we believe 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 us. Many important factors, in addition to the factors described in our quarterly report on Form 10-Q and our annual report on Form 10-K, may adversely affect our results as indicated in forward-looking statements. You should read this quarterly report on Form 10-Q, the annual report on Form 10-K and the documents that we have filed with the Securities and Exchange Commission completely and with the understanding that our actual future results may be materially different from what we expect. Our estimates and forward-looking statements may be influenced by the following factors, among others:
•the impact of a potential regional or global recession, inflationary pressures and other varying macroeconomic conditions on us and the overall business environment;
•the impacts of Russia’s war in Ukraine and potential instability in the Middle East and the effects these events have on the oil and gas industry as a whole, including increased volatility with respect to oil, natural gas and NGL prices and operating and capital expenditures;
•our ability to find, acquire or gain access to other discoveries and prospects and to successfully develop and produce from our current discoveries and prospects;
•uncertainties inherent in making estimates of our oil and natural gas data;
•the successful implementation of our and our block partners’ prospect discovery and development and drilling plans;
•projected and targeted capital expenditures and other costs, commitments and revenues;
•termination of or intervention in concessions, rights or authorizations granted to us by the governments of the countries in which we operate (or their respective national oil companies) or any other federal, state or local governments or authorities;
•our dependence on our key management personnel and our ability to attract and retain qualified technical personnel;
•the ability to obtain financing and to comply with the terms under which such financing may be available;
•the volatility of oil, natural gas and NGL prices, as well as our ability to implement hedges addressing such volatility on commercially reasonable terms;
•the availability, cost, function and reliability of developing appropriate infrastructure around and transportation to our discoveries and prospects;
•the availability and cost of drilling rigs, production equipment, supplies, personnel and oilfield services;
•other competitive pressures;
•potential liabilities inherent in oil and natural gas operations, including drilling and production risks and other operational and environmental risks and hazards;
•current and future government regulation of the oil and gas industry, applicable monetary/foreign exchange sectors or regulation of the investment in or ability to do business with certain countries or regimes;
•cost of compliance with laws and regulations;
•changes in, or new, environmental, health and safety or climate change or GHG laws, regulations and executive orders, or the implementation, or interpretation, of those laws, regulations and executive orders;
•adverse effects of sovereign boundary disputes in the jurisdictions in which we operate;
•environmental liabilities;
•geological, geophysical and other technical and operations problems, including drilling and oil and gas production and processing;
•military operations, civil unrest, outbreaks of disease, terrorist acts, wars or embargoes;
•the cost and availability of adequate insurance coverage and whether such coverage is enough to sufficiently mitigate potential losses and whether our insurers comply with their obligations under our coverage agreements;
•our vulnerability to severe weather events, including, but not limited to, tropical storms and hurricanes, and the physical effects of climate change;
•our ability to meet our obligations under the agreements governing our indebtedness;
•the availability and cost of financing and refinancing our indebtedness;
•the amount of collateral required to be posted from time to time in our hedging transactions, letters of credit, performance bonds and other secured debt;
•our ability to obtain surety or performance bonds on commercially reasonable terms;
•the result of any legal proceedings, arbitrations, or investigations we may be subject to or involved in;
•our success in risk management activities, including the use of derivative financial instruments to hedge commodity and interest rate risks; and
•other risk factors discussed in the “Item 1A. Risk Factors” section of our quarterly reports on Form 10-Q and our annual report on Form 10-K.
The words “believe,” “may,” “will,” “aim,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” “plan” and similar words are intended to identify estimates and forward-looking statements. Estimates and forward-looking statements speak only as of the date they were made, and, except to the extent required by law, we undertake no obligation to update or to review any estimate and/or forward-looking statement because of new information, future events or other factors. Estimates and forward-looking statements involve risks and uncertainties and are not guarantees of future performance. As a result of the risks and uncertainties described above, the estimates and forward-looking statements discussed in this quarterly report on Form 10-Q might not occur, and our future results and our performance may differ materially from those expressed in these forward-looking statements due to, including, but not limited to, the factors mentioned above. Because of these uncertainties, you should not place undue reliance on these forward-looking statements.
Item 3. Qualitative and Quantitative Disclosures About Market Risk
The primary objective of the following information is to provide forward-looking quantitative and qualitative information about our potential exposure to market risks. The term “market risks” as it relates to our currently anticipated transactions refers to the risk of loss arising from changes in commodity prices and interest rates. These disclosures are not meant to be precise indicators of expected future losses, but rather indicators of reasonably possible losses. This forward-looking information provides indicators of how we view and manage ongoing market risk exposures. We enter into market-risk sensitive instruments for purposes other than to speculate.
We manage market and counterparty credit risk in accordance with our policies. In accordance with these policies and guidelines, our management determines the appropriate timing and extent of derivative transactions. See “Item 8. Financial Statements and Supplementary Data — Note 2 — Accounting Policies, Note 9 — Derivative Financial Instruments and Note 10— Fair Value Measurements” section of our annual report on Form 10-K for a description of the accounting procedures we follow relative to our derivative financial instruments.
The following table reconciles the changes that occurred in fair values of our open derivative contracts during the nine months ended September 30, 2024:
Derivative Contracts Assets (Liabilities)
Commodities
Interest Rates
Total
(In thousands)
Fair value of contracts outstanding as of December 31, 2023
$
6,765
$
—
$
6,765
Changes in contract fair value
(10,526)
(1,282)
(11,808)
Contract maturities
14,754
—
14,754
Fair value of contracts outstanding as of September 30, 2024
$
10,993
$
(1,282)
$
9,711
Commodity Price Risk
The Company’s revenues, earnings, cash flows, capital investments and, ultimately, future rate of growth are highly dependent on the prices we receive for our crude oil, which have historically been very volatile. Substantially all of our oil sales are indexed against Dated Brent, and Heavy Louisiana Sweet. Oil prices in the first nine months of 2024 ranged between $70.56 and $93.35 per Bbl for Dated Brent, with Heavy Louisiana Sweet experiencing similar volatility during the first nine months of 2024.
Commodity Derivative Instruments
We enter into various oil derivative contracts to mitigate our exposure to commodity price risk associated with anticipated future oil production. These contracts currently consist of collars, put options and call options. In regards to our obligations under our various commodity derivative instruments, if our production does not exceed our existing hedged positions, our exposure to our commodity derivative instruments would increase. In addition, a reduction in our ability to access credit could reduce our ability to implement derivative contracts on commercially reasonable terms.
The following table provides information about our oil derivative financial instruments that were sensitive to changes in oil prices as of September 30, 2024. Volumes and weighted average prices are net of any offsetting derivatives entered into.
Weighted Average Price per Bbl
Asset
Net Deferred
(Liability)
Premium
Fair Value at
Payable/
Sold
September 30,
Term
Type of Contract
Index
MBbl
(Receivable)
Swap
Put
Floor
Ceiling
2024(1)
(In thousands)
2024:
Oct - Dec
Three-way collars
Dated Brent
2,000
$
1.15
$
—
$
45.00
$
70.00
$
93.12
$
1,719
Oct - Dec
Two-way collars
Dated Brent
500
0.46
—
—
70.00
100.00
820
2025:
Jan - Jun
Two-way collars
Dated Brent
2,000
0.50
—
—
70.00
95.00
8,538
__________________________________
(1)Fair values are based on the average forward oil prices on September 30, 2024.
In October 2024, we entered into Dated Brent two-way collar contracts for 2.0 MMBbl from January 2025 through December 2025 with a floor price of $70.00 per barrel and a ceiling price of $85.00 per barrel. In addition, we entered into Dated Brent swap contracts for 2.0 MMBbl from January 2025 through June 2025 with a weighted average fixed price of $75.48 per barrel and Dated Brent call spread contracts with a purchased price of $95.00 per barrel and a sold price of $85.00 per barrel for 2.0 MMBbl from January 2025 through June 2025, effectively reducing the ceiling on our 2025 two-way collars to $85.00 per barrel.
At September 30, 2024, our open commodity derivative instruments were in a net asset position of $11.1. million. As of September 30, 2024, a hypothetical 10% price increase in the commodity futures price curves would decrease future pre-tax earnings by approximately $9.2 million. Similarly, a hypothetical 10% price decrease would increase future pre-tax earnings by approximately $18.9 million.
Interest Rate Derivative Instruments
See Note 8 — Derivative Financial Instruments and Note 9— Fair Value Measurements for specific information regarding the terms of our interest rate derivative instruments that are sensitive to changes in interest rates.
Interest Rate Sensitivity
Changes in market interest rates affect the amount of interest we pay on certain of our borrowings. Outstanding borrowings under the Facility, which as of September 30, 2024 total $850.0 million and have a weighted average interest rate of 9.3%, are subject to variable interest rates which expose us to the risk of earnings or cash flow loss due to potential increases in market interest rates. If the floating market rate increased 10% at this level of floating rate debt, we would pay an estimated additional $3.7 million interest expense per year. The impact of the 2025 fixed interest rate swap would reduce the estimated additional interest expense to $1.5 million for the twelve months ending December 31, 2025. The commitment fees on the undrawn availability under the Facility and the Corporate Revolver are not subject to changes in interest rates. All of our other long-term indebtedness is fixed rate and does not expose us to the risk of cash flow loss due to changes in market interest rates. Additionally, a change in the market interest rates could impact interest costs associated with future debt issuances or any future borrowings and future payments associated with the Tortue FPSO lease arrangement.
As of September 30, 2024, the fair market value of our interest rate swaps was a net liability of approximately $1.3 million. If SOFR changed by 10%, it would have a negligible impact on the fair market value of our interest rate swaps.
As of the end of the period covered by this report, an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) was performed under the supervision and with the participation of the Company’s management, including our Chief Executive Officer and Chief Financial Officer. This evaluation considered the various processes carried out under the direction of our disclosure committee in an effort to ensure that information required to be disclosed in the SEC reports we file or submit under the Exchange Act is accurate, complete and timely. However, a control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. The design of a control system must reflect the fact that there are resource constraints, and the benefit of controls must be considered relative to their costs. Consequently, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected. Based upon this evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2024, in ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, including that such information is accumulated and communicated to the Company’s management, including our Chief Executive Officer and our Chief Financial Officer, to allow timely decisions regarding required disclosure.
Evaluation of Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during our most recent fiscal quarter that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
There have been no material changes from the information concerning legal proceedings discussed in the “Item 3. Legal Proceedings” section of our annual report on Form 10-K.
Item 1A. Risk Factors
There have been no material changes from the risks discussed in the “Item 1A. Risk Factors” sections of our annual report on Form 10-K for the year ended December 31, 2023.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information.
There have been no material changes required to be reported under this Item that have not previously been disclosed in the annual report on Form 10-K.
Pursuant to the requirements of the Securities Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Kosmos Energy Ltd.
(Registrant)
Date
November 4, 2024
/s/ NEAL D. SHAH
Neal D. Shah
Senior Vice President and Chief Financial Officer
(Principal Financial Officer)
Item 6. Exhibits
The information required by this Item 6 is set forth in the Index to Exhibits accompanying this quarterly report on Form 10‑Q.
