| Kosmos Energy is investing US$500 million more into its operations in Ghana this year despite falling crude prices and a tumbling cedi.
The amount is to be spent primarily on development activity in Jubilee field discoveries in the Cape Three Point, investments in the Tweneboa, Enyenra and Ntomme (TEN) Project and other opportunities that might occur.
As part of the company’s planned exploration expenditure, which total approximately $300 million for the year, Kosmos expects to participate in the drilling of four offshore exploration wells.
This investment in Ghana constitutes about 70% of the company’s entire capital expenditure for 2015.
“Kosmos is a company that is here for the long term. We are financially strong and we have the ability to withstand some of these fluctuations and we are on course to maintain our $500 million investments in Ghana this year,” Kenneth Keag, Vice-President and Country Manager of Kosmos, told The Finder in an interview.
Realised pricing was $72.89 per barrel of oil sold in the fourth quarter of 2014 versus $111.13 per barrel of oil sold in the fourth quarter of 2013, excluding the impact of the company’s hedging programme.
Including the impact of their settled hedges, Kosmos’ realised pricing was $80.52 per barrel in the fourth quarter of 2014.
The company’s resilience amidst price and currency volatilities is mainly due to the company’s forward-looking policies and a hedging plan that is helping the company absorb the shock of the current volatilities.
“Equally, we also looked carefully at the oil price sector in terms of hedging our production such that we have protection against the low side and that is how very much we budget based on hedged pricing and that has allowed us again to continue with every activity that we currently have doing in Ghana without any interruption.”
He noted that one thing that the company had recognised is that there has been a lot of volatility in oil price over the years and at some point the demand supply equation was most likely going to get imbalanced and “we needed to be prepared for that to ensure that we could handle what has happened in terms of the price decline.”
Keag emphasised that although the company could not have predicted the magnitude of the decline in oil prices, it has positioned itself such that “we have not had to make any reactive changes to our organisation because of what has occurred.”
Many companies in the country have had to lay off workers and embark on other organisational adjustments in reaction to the depreciating cedi and a worsening energy crises which have lasted over three years, but Keag assures that Kosmos has the right organisational size to embark on its operations.
He explained that the company, in the previous year, made some “adjustments to ensure that we are prepared for the future as much as we could.”
He also hinted of measures by the company to support the country to be energy sufficient by exploring its gas resources.
Kosmos’ 2014 performance
For the full year 2014, the company reported net income of $279 million or $0.72 per diluted share.
Excluding the impact of unrealised commodity derivatives, the company generated net income of $114 million or $0.29 per diluted share for the full year 2014.
In 2013, Kosmos reported net loss of $91 million or $0.24 per diluted share. Total oil revenues in 2014 were $856 million on nine oil liftings, net to Kosmos.
The company’s proved net reserves at the end of 2014 were 75 million barrels of oil equivalent, an increase of 28 million barrels of oil equivalent from year-end 2013.
The year-end 2014 volumes also include natural gas reserves of 2 million barrels of oil equivalent, slightly higher than in 2013, which represents only the gas anticipated to be used for power generation on the Jubilee and TEN floating production, storage and offloading (FPSO) vessels.
A reserve replacement ratio of 336%, on a net proved basis, was realised primarily due to the inclusion of reserves associated with the TEN Project and observed field performance of Jubilee.
With a strong balance sheet and access to $1.9 billion in liquidity, Kosmos enters 2015 in a position of financial strength, with the opportunity to create significant value as Kosmos pushes ahead to drill the most promising prospects in our exploration portfolio.
Fourth quarter 2014 oil revenues were $177 million versus $215 million in the same quarter of 2013, on sales of 2.4 million barrels of oil for 2014 as compared to 1.9 million barrels in 2013.
At the end of 2014, the company was in a net underlift position of approximately 99,000 barrels of oil.
Production expense for the fourth quarter of 2014 was $46 million, or $18.82 per barrel sold, versus $17 million in the fourth quarter of 2013, due to additional work over activities in the latest quarter as well as an additional lifting. For the year, production expense averaged $11.48 per barrel.
Exploration expenses in the fourth quarter of 2014 totalled $36 million. Included in the quarter were costs related to the large 3D seismic survey in Senegal, as well as ongoing seismic processing and interpretation expenditure throughout the company’s portfolio.
Depletion and depreciation expense was $45 million, or $18.59 per barrel of oil sold versus $24.33 per barrel sold in the fourth quarter of 2013.
The decrease in the fourth quarter 2014 depletion rate was a result of the increase in proved reserves as of year-end 2014.
General and administrative expenses were $40 million for the fourth quarter of 2014, consistent with the fourth quarter of 2013. General and administrative expenses for the year were $135 million, representing a 15% reduction over 2013.
The fourth quarter results benefited from the non-cash mark-to-market gain of $244 million related to the company’s oil derivative contracts.
The company’s hedging position as of January 15, 2015 included 6.2 million barrels of 2015 production and 6 million barrels of 2016 production.
Income tax expense for the fourth quarter of 2014 was $129 million. The majority of the amount was related to deferred taxes in Ghana.
Total capital expenditures, including exploration expenses, came in under budget at $528 million in 2014.
The reduction is primarily attributable to reduced Ghana expenditures as we were able to maintain production without incremental capital expenditures.
Kosmos exited 2014 with $1.9 billion of liquidity and $213 million of net debt compared to $1.2 billion of liquidity and $249 million of net debt as of year-end 2013.
The Tweneboa, Enyenra and Ntomme (TEN) Project, the second major oil development project in Ghana, remains within budget and on-track to deliver first oil in the second half of 2016.
The project is now greater than 50% complete, with all 10 of the wells expected to be online as first oil already drilled.
Activity is expected to increase in 2015 as completions begin and fabrication continues in advance of installation.
The appraisal for the Mahogany, Teak and Akasa (MTA) discoveries within the Greater Jubilee area was completed in December as scheduled.
The results of the appraisal will be combined with the partnership’s views on additional phases of development at Jubilee.
A plan for the full field development of Jubilee and MTA is expected to be presented to the Government of Ghana in 2015.
During the fourth quarter, Kosmos continued to mature the prospectivity on its exploration acreage.
A 7,000 square kilometre 3D seismic programme in the Senegal Basin offshore Senegal was completed in January.
In preparation for its 2015 drilling campaign, the farm-out of Kosmos’ Mauritania licenses was announced in February with Chevron acquiring a 30% non-operating interest in the blocks.
The farm-out is subject to customary closing conditions, including approval from the Government of Mauritania.
The CB-1 well, targeting the Al Khayr prospect offshore Western Sahara, was spud on December 19, 2014.
Year-End 2014 Reserves
The company’s proved net reserves at the end of 2014 were 75 million barrels of oil equivalent, an increase of 28 million barrels of oil equivalent from year-end 2013.
The year-end 2014 volumes also include natural gas reserves of 2 million barrels of oil equivalent, slightly higher than in 2013, which represents only the gas anticipated to be used for power generation on the Jubilee and TEN floating production, storage and offloading (FPSO) vessels.
A reserve replacement ratio of 336%, on a net proved basis, was realised primarily due to the inclusion of reserves associated with the TEN Project and observed field performance of Jubilee.
The company’s reported reserves are prepared by Ryder Scott Company, L.P., an independent reserve engineering firm. |
