Kosmos Energy Ltd. Q3 FY2025 earnings call

Key priorities include growing production, reducing costs, and strengthening the balance sheet. On production, at Jubilee, the first producer well of the 2025/26 drilling campaign is online with strong performance, and the second producer well is underway. GTA production continues to ramp up towards the nameplate capacity. In the Gulf of America, progress is made on future developments like Tiberius and Gettysburg. In Equatorial Guinea, progress is being made on repairing subsea pumps. On costs, CapEx continues to fall with the year-end CapEx expected to be below $350 million, an absolute reduction of around $500 million year-on-year. The company is on track to deliver $25 million in overhead savings by the end of the year. Operating costs are coming down across all businesses. On the balance sheet, the company secured a $250 million term loan from Shell to repay 2026 bond maturities, successfully completed the RBL semi-annual re-determination and passed the maturity test for the 2027 bonds, and increased hedging for 2026.

In the third quarter, Jubilee saw the first producer well of the 2025/26 drilling campaign come online in July, with gross production around 10,000 barrels of oil per day. The second producer well in the campaign is expected to come online around the end of the year, and the partnership has a committed drilling program of 5 more wells in 2026. GTA had third quarter net production of around 11,400 barrels of oil equivalent per day, lifting 6.8 gross LNG cargos during the quarter and lifting the first gross condensate cargo early in the fourth quarter, targeting to reach the FLNG nameplate capacity of 2.7 million tonnes per annum by the end of the year. Gulf of America had net production around 16,600 barrels of oil equivalent per day, affected by unplanned facility downtime and the abandonment of the Winterfell-4 well. Equatorial Guinea had net production around 6,200 barrels of oil per day, down quarter-on-quarter due to subsea pump issues, with normalized production expected in the first half of 2026.

CapEx for the year is expected to be below $350 million. GTA targets to reach the 2.7 million tonne per annum nameplate capacity towards the end of the year. Unit cost is expected to fall by over 50% in 2026. The fourth quarter production guidance is 66,000 barrels of oil per day to 72,000 barrels of oil per day.

Commodity price volatility poses a risk. Operational challenges such as the issues encountered during the completion operations of the Winterfell-4 well are risks. There are also balance sheet risks related to debt maturities and covenant compliance.

Q: Could you give further details on the financial implications of the 10 FPSO and timing for lease finishing? And sense of cash flows and deleveraging for 2026?

A: Neal Shah said on TEN, working on the purchase option for the FPSO lease, with no additional cash upfront, serving out the lease until 2027 with a discounted purchase option. On cash flows and deleveraging, production is increasing and costs are coming down, with free cash flow depending on oil prices beyond the mid-$50 per barrel range.

Q: Any lessons learned on Winterfell?

A: Andrew Inglis said these are operational issues, not reservoir issues. Need to be very rigorous in planning and execution, focusing on the Winterfell-3 fault block in 2026 with a simple completion.

Q: What's driving 2025 Ghana 4Q production between 66,000 and 72,000 barrels a day?

A: Andrew Inglis said it's a timing issue, dictated by performance, around year-end cargo timing.

Q: How does GTA condensate cargo fit in guidance and 4Q reporting?

A: Neal Shah said it's the first cargo, with pro rata cash flow in 4Q, and going forward, it will be allocated on an entitlement basis.

Q: Thoughts on balance sheet liquidity and mitigating risks?

A: Neal Shah said the company is proactive in refinancing, through the Shell term loan, RBL re-determination, and looking at secured debt and non-core asset divestments. Andrew Inglis added looking at secured debt against the GTA asset and non-core asset divestments.

Q: Underlying decline rates at Jubilee and CapEx savings?

A: Andrew Inglis said Jubilee production is around 62,000-63,000 bbls/day now, expecting an exit at around 70,000 bbls/day in 2025, with drilling efficiencies and lower contract rates contributing to savings. Neal Shah said the savings are from Ghana drilling efficiencies and Gulf costs, being real savings not deferrals.

Q: GTA Phase 1+ evaluation and Gimi upside?

A: Andrew Inglis said $200 million extra gas can be obtained without investment, needing a GSA signed, with FID within the next 12 months. Gimi upside comes through modifications, but it's hard to give an exact number now.

Q: Net leverage covenant and liquidity test for 2027?

A: Andrew Inglis said there was a waiver for the September test, with 4x leverage, and the March 2026 test uses December 31 financials, with the company working on mitigation for compliance.

Q: Jubilee seismic and new knowledge?

A: Andrew Inglis said OBN seismic enhances subsurface understanding, high grades targets, with the view of long-term potential unchanged, focusing on delivering the drilling program.

Q: 4Q production expectation and free cash flow?

A: Neal Shah said it started strong in October, with normal downtime affecting, and no big working capital expected. Andrew Inglis said it's off to a strong start in the 4Q, well within guidance