Kosmos Energy Ltd.

Good day, everyone. Welcome to Cosmos Energy's fourth quarter 2020 conference call. Just a reminder, today's call is being recorded. At this time, let me turn the call over to Jamie Buckland, Vice President of Investor Relations at Cosmos Energy.

And thanks to everyone for joining us today. This morning, we issued our fourth quarter earnings release. And this release and the slide presentations will accompany today's call are available on the Investors page of our website. Joining me on the call today to go through the materials are Andy Ingalls, Chairman and CEO, and Neil Shah, CFO. During today's presentation, we will make forward-looking statements that refer to our estimates, plans, and expectations. Actual results and outcomes could differ materially due to factors we note in this presentation and in our UK and SEC filings. please refer to our annual report, stock exchange announcement, and SEP filings for more details. These documents are available on our website. At this time, I will turn the call over to Andy.

Thanks, Jamie, and good morning and afternoon to everyone. I'll start today's presentation with a reminder of our strategy and the characteristics that differentiate Cosmos. I'll then look back at 2020 and the strategic strategies steps we made during the year, despite the COVID-related challenges, before Neil walks through the quarterly numbers and the financial progress we made in 2020. I'll then wrap up the presentation with a look forward into 2021 and the increased momentum we expect through an active year ahead. Turning to slide two, which looks at our portfolio and the unique characteristics that define the company. Cosmos has a high-quality portfolio, world-class, conventional, oil and gas assets with strong ESG credentials. Our focus on offshore exploration development production along the Atlantic margin has not changed. We have three oil production hubs in Ghana, the Gulf of Mexico, and Extraordinary Guinea, as well as a world-scale LNG development in Mauritania and Senegal. These advantage assets have low decline rates, Brents or HLS price benchmarks, and an overall carbon intensity that is significantly lower than the industry average. As our recent climate risk and resilience report showed, we are making portfolio decisions and capital choices to deliver shareholder value consistent with a lower carbon world. Safety and sustainability are two core values that are critical to the delivery of our strategy, and I'll talk about both subjects in more detail later in the presentation. Alongside the producing assets and our LNG development, we continue to high-grade our exploration portfolio with a focus on returns. This means prioritizing proven bases where we have a deep technical understanding, a large resource portfolio, and can leverage existing infrastructure. Our acquisitions at Equatorial Guinea and the Gulf of Mexico targeted opportunities that created value through optimizing the existing production base and through infrastructure-led exploration, or ILX, and we've built a diverse hopper of ILX opportunities across the three basins. Given their low cost and low decline rates, these assets produce significant free cash flow, even at low oil prices. Through the 2020 cost reduction, as Neil will talk about later, we are materially low in our corporate free cash flow break-evens. and we expect our base business to generate a healthy level of free cash flow at current oil prices this quarter. On the gas side, the phase development of Tortue is expected to generate a long-term free cash flow stream to complement the cash-generative oil assets in the portfolio today. First gas at Tortue phase one is expected in the first half of 2023. And finally, the business is underpinned by a solid balance sheet that enables us to execute our plans. We came through 2020 with ample liquidity, a staggered debt maturity schedule with nothing maturing this year, and the business that is expected to generate cash and reduce leverage. Certainly supply-free, where I'd like to focus on our strategic progress last year. The environment for most of 2020 was extremely challenging for the sector. and for society as a whole. However, against that backdrop, Cosmos delivered on its key strategic priorities. Our production assets delivered robust performance in 2020, producing around 61,000 barrels of oil equivalent per day. This is only an 8% decline year-on-year, despite a reduction in capex of around 40% over the same period. Tour 2 Phase 1 was around 50% complete at year-end, with the project back on track despite COVID-related impacts. We published our first ever TCFD-aligned climate risk and resilience report during the year, followed this with our sustainability report, and set a goal to be carbon neutral for scope one and scope two emissions by 2030 or sooner. This climate risk analysis supported our decision to monetize a portfolio of exploration assets bringing in around $100 million of proceeds in the fourth quarter, with further upside potential on future success with no more capital exposed. Following that transaction, we now have an expiration portfolio focused on high return, fast payback opportunities in the proven basins we know well, where we restarted drilling in 4Q with a successful Winterfell ILX well. On cash, we reached a cash flow inflection point in the second half of the year, with positive free cash flow in 4Q driven by higher prices, as well as significant and sustainable cost reductions, which have lowered our corporate break-even. We established a financing path for Tortue Phase 1, which should enable us to fund our current interest through to first gas. Working closely with BP, the operator, we have also optimised Phase 2, significantly lowering capex, which we expect to enhance future returns and cash flow. And finally, on the balance sheet, we diversified our available source of capital with the Gulf of Mexico term loan, and we maintained healthy liquidity through the year with around $570 million available at year end. Turning to slide four, which looks at our reserves. A sustainable EMP business requires low cost, lower carbon assets, and a strong reserve base. Cosmos has both, with total 2p reserves around 480 million barrels of oil equivalent, a 2p reserves to production ratio of over 20 years. As you can see on the top chart on this slide, our 2p reserves are split evenly between the oil producing assets in Ghana, Equatorial Guinea, and the Gulf of Mexico, and the Tortue gas assets, which we expect to come online in 2023. Year-on-year changes to 2P reserves largely reflect 2020 production and the optimized second phase of the torture development, which should increase project capacity to 5 million tons per annum. Our 1P SEC reserve base of 140 million barrels largely reflects the impact from 2020 production and a lower SEC price deck that is around $20 per barrel lower than 2019 prices. which impacted the economic limit for some assets later in life. At current prices, we'd expect those price-related reserve changes to reverse in 2021. Looking forward, we have significant additional discovered resources that should increase our reserves when booked. On 1P, future ads are expected to come primarily from Tortue Phase 1, which would add an additional 100 million barrels of oil equivalent at current prices, while Assam and Winterfell are expected to further increase our 2p reserve bets. Turning to slide five, as I said in my opening remarks, safety is a core value at Cosmos, and nothing is more important than the safety of our employees and contractors. The slide shows our safety metrics over the last five years, benchmarked against the industry. Our One Team One Goal initiative to deliver HSE excellence has recently become even more important in the wake of a tragic incident in the Gulf of Mexico this January, in which a subcontractor working on a Cosmos-contracted drill ship was fatally injured. The incident is a stark and tragic reminder that the journey to zero incidents and accidents is more than a set of HSE metrics. As a company, we're determined to learn and prevent anything like this happening again. The incident is still being investigated, and we've already begun to share the initial learnings with our peer companies, engaging with more than 20 operators in the Gulf of Mexico. Looking at the right-hand side of the slide, our commitment to health and safety extends beyond our direct operations and informs how we engage with our communities. In each of our countries, our teams were quick to support the COVID-19 response effort with critical medical equipment, testing kits, and other supplies. We also set up a hunger relief program to address food insecurity that's been made worse by the pandemic. I'm proud of the way our people rose to the challenge, supporting each other and our communities through the year. Turning to slide six, the operational performance for the quarter. In Ghana, cargoes and sales were in line with our guidance, while entitlement production was sequentially lower due to the lack of drilling activity in the same half of the year. Uptime and reliability numbers were strong in the quarter, as they have been through 2020, and we continue to work closely with the operator to ensure this performance is sustained. The extra-organic performance was in line with expectations, and we look forward to our first drilling campaign starting later this year. In the Gulf of Mexico, production was in line with guidance. The production number on the slide does include the benefit of contractual royalty relief, which we received due to lower realized oil prices in 2020. In December, we spotted the successful Winterfell ILX well, which I'll talk about later. In Mauritania and Senegal, phase one of the Torchy project ended the year around 50% complete, with the force majeure dispute the goal I resolved in October finalizing the 11th month delay. Overall, most of 2020 saw a slowdown in operational activity across the company due to the pandemic and ability to safely execute. However, in the fourth quarter, activity started to return. We expect momentum to continue building as we move through 2021. More on that in a few minutes. Now I'd like to hand over to Neil to take you through the financials.

Thanks, Andy. Good morning and good afternoon to everyone on the call. Just as Andy talked about the strategic progress Cosmos made in 2020, I'd like to start off with the financial progress we made during the year. Specifically, the decisive actions we took to reduce costs early in 2020, which have materially lowered the company's cash break even. As you can see on the charts on page 7, we made significant reductions to operating expenses, cash G&A, expiration expense, and base business capex. resulting in Cosmis being a much leaner and fitter business today. We expect most of these cost savings to be sustainable as we move forward with fewer people working on a more concentrated set of high-graded objectives, which we believe positions the company to create the most shareholder value. In a higher price environment, this lower cost base should significantly enhance future returns and cash generation. However, one point to note is that due to the pandemic, we underinvested in our base production assets compared to our typical maintenance CapEx levels. In 2020, we are planning to normalize our spend, which should allow production to grow back to 2020 levels by year end with further upside potential in 2022. Turning now to slide eight. This is a slide many of you have seen before and it looks at the key line items per quarter. I don't plan to spend time on each item, other than say the results for the quarter were consistent with our expectations with significant progress, both sequentially and against the same period last year. While production and realized price were lower, we were successful in our cost initiatives as noted on the previous slide. We made progress on OpEx in 2020. However, we didn't deliver everything we wanted to and therefore our per barrel metrics are a bit higher than expected in the fourth quarter. This is an area we will continue to work with our respective operators through 2021. Turning now to slide nine, which looks at the balance sheet and our liquidity position. Despite the volatility in record low oil prices in 2020, Cosmis maintained a solid balance sheet with healthy liquidity levels through the year as can be seen on the chart. In the fourth quarter, we closed the Shell transaction, receiving around 100 million of proceeds. There's also up to 100 million of additional contingent consideration payable on future drilling success. We maintained tight control of CapEx during the year with around 147 million of total CapEx, which takes into account the shell proceeds and is in line with company guidance. Hedging remains an important part of our financial strategy, and we've hedged around 60% of this year's production and have started to hedge our 2022 production. With that, I'll hand it back to Andy.

Thanks, Neil. I mentioned earlier in the presentation that operational momentum slowed in 2020 as we reduced activity and focused on protecting our people and operations across the portfolio. The end of 4Q and into the start of this year, activity levels have picked up in all areas. As the slide shows, infill drilling activity on our base business was curtailed in 2020. In 2021, we expect to triple the amount of activity this year, with a total of nine wells spread across Ghana, Extraordinary Guinea and the Gulf of Mexico. This increased activity is expected to reverse declines and drive up production, with year-end exit rates maturely higher than those seen at the start of the year. At tour two, we're already seeing significant momentum after last year's pause and expect phase one to be around 80% complete by year-end. We're also returning to exploration with two to three wells planned this year. We've already seen success with Winterfell in January, and we aimed to drill Zora in the second half of the year. Success at Zora would open additional opportunities that we would evaluate later in 2021. Turning to slide 11 to look at that activity set in more detail. In Ghana, we've seen the successful installation of the Calm Buoy with the first offloading earlier this month. The start-up of the Kalmburi removes the need for shuttle tankers to move oil from the FPSO to the tanker, so it should result in lower operating costs for the partnership going forward. As the operators communicated to the market, the drilling rig has been contracted as expected to arrive in the second quarter. We plan to drill two producer wells and one injector on Jubilee in 2021, as well as a gas injector well in 10. The rig has a contract length of up to four years, given the amount of high quality infill targets available in Ghana. And the partnership is also evaluating having a secondary to accelerate that production growth. We also continue to work with the operator on optimizing projects that can deliver incremental production. We plan to start the development of Jubilee Southeast this year with drilling activity targeted for 2022 and 2023. In Exxon Guinea, phase two of our ESP program began this month, and we've started an infrastructure enhancement campaign to increase operational uptime on the assets. In the second and third quarters, we expect to drill three infill wells with the aim of keeping production growing through 2021. In the Gulf of Mexico, the Kodiak completion is underway and is expected online next month. We also plan to drill the Tornado 5 well mid-year which is expected online in the third quarter. With this increase in activity, we expect production to grow with a year-end exit rate of around 60,000 barrels of oil equivalent per day with further momentum into 2022. Turning to slide 12. 2021 is a year of significant delivery for Torchy. Phase one was around 50% complete, at the end of last year and we expect to be around 80% complete at year end 2021. The two images on the slide show the areas where we expect the most progress, namely the subsea and the concrete breakwater. The top image shows one of the subsea marine structures being fabricated in the yard in Indonesia. The fabrication of the subsea equipment is expected to be complete by year end with the manifolds and flow lines installed by early 2022. The bottom image shows one of the concrete caissons forming the breakwater for the hub terminal. The concrete pour for two of the 21 caissons is now complete with a production line ramping up. The floating dock arrived in Dakar in mid-January and has started preparations for caisson offloading in early summer. There's a great video online from Eiffage, copied in the footnotes on the slide, showing the forward steps to complete the breakwater. As we outlined in our 3Q results in November, our funding path has been established, with the sale and leaseback of the FPSO making good progress. Earlier this month, we signed an MOU with BP, outlining the terms and conditions around the sale. As previously communicated, the FPSO will be sold for back costs to an SPV controlled by BP and leased back to the partnership. The joint venture will utilise the FPSO proceeds to fund group cash calls. We expect the net proceeds to cover $250 million of our capital requirements in 2021 and a targeting close within the second quarter. We expect that further savings will be rolled over into 2022, reducing our overall future capital obligations by $320 million in total. While advancing Phase 1 financing, we've also moved Phase 2 forward, where we're still targeting FID around the end of 2022. We anticipate the capital requirements for the optimised Phase 2 to be largely funded at Phase 1 cash flows. We see this as a very important value driver for the company, which gives us greater flexibility around future gas sales and pricing with significant value potential in LNG markets that are already showing signs of tightness. Turning to slide 13, which shows the recent signals of that tightening market. 2020 saw the lowest LNG supply growth since 2014, with only 5 million tonnes of new supply entering the market. In addition, there was only one new project, FIB. Against that tightening supply picture, LNG demand continued to rise up 3% in 2020 versus 2019, despite the impact of COVID-19 on global energy demand. We believe that this strong demand for LNG is set to continue. The top chart is a Woodmack analysis we showed in November that forecasts a significant supply-demand gap opening up in the middle of the decade Even incorporating the recently FID Northfield expansion project in Qatar, would McKenzie still forecast a supply gap of around 50 million tonnes to the end of the decade and around 175 million tonnes for 2035? The bottom chart on the slide shows the significant increase in gas prices we've seen in the last few months. The dashed line is the JKM future strip from May this year, with a solid blue line, the future strip today, which reflects a strong rally we've seen as the market has tightened. Average NBP and JKM futures for the next three years both average above $6 an MMBTU. Tortue Phase 1 is contracted at an oil in slope, which at current prices should generate significant cash flows. For phase two, we've not contracted the gas, so we retain the option of pricing it against oil, gas, or a combination of both. We're both looking like attractive options today's prices. Given its low break-even, we expect significant value creation from this phase of the project. Then slide 14. I've talked about our ramp-up in infill drilling in 2021. Now I'd like to look at our exploration activities for the year. Cosmos has a diverse and deep inventory of ILX and play extension opportunities across three proven basins, and we expect to increase our activity in 2021. In January, we had early success with Winspell. We've discovered and de-risked around 100 million barrels of gross resource across Cosmos' acreage. The partners are now working on the appraisal and development plans, and we'll update the market as we have more information. Winterfell is a great example of why Cosmos made the DG acquisition in late 2018, accessing low-cost hydrocarbons, which can be tied into existing infrastructure with quick payback and high returns. What's more, the development solution expected to have a carbon intensity significantly below sector averages because of the natural advantages of the deepwater Gulf of Mexico. More on that shortly. We anticipate the next ILX well will be Zora, but in the second half of the year. Like Winterfell, this has the potential to be a meaningful hub-scale development in the case of success. One advantage of our diverse exploration portfolio is the flexibility to invest our capital across multiple basins. If drilling plans are interrupted in the Gulf of Mexico, we'll look to invest in equally high return opportunities in Ecuador, Guinea, or Ghana. And now I'd like to hand back to Neil to talk about guidance for the year.

Thanks, Andy. On slide 15, we've included our usual detailed guidance for the year. We've included our detailed guidance for the year in the appendix. On this slide, I'd like to focus on the key items. As Andy outlined earlier, in 2021, we are resetting the dial with production expected to rise through the year as activity increases. Our guidance of 53,000 to 57,000 barrels of oil equivalent per day reflects today's production of around 53,000, rising to an exit rate of around 60,000 barrels equivalent per day at year end. We expect to spend around $225 to $275 million in 2021 on the base business, with an 80-20 split between sustaining and growth capex, with capital being directed to the infill drilling and ILX opportunities with the highest returns. At $55 Brent, we expect the base business, including Mauritania and Senegal, to generate around $1 to $200 million of free cash flow, which we plan to use to delever the balance sheet. In Mauritania and Senegal, CapEx for the year is expected to be around $350 million. As previously communicated, we expect this to be funded primarily for the sale of the FPSO and the refinancing of the National Oil Company loans in 2021, a $100 million benefit to Cosmos. As Andy mentioned, we are planning to close the FPSO sale within the second quarter, at which point we expect the benefit to be $250 million net to Cosmos in 2021, with the residual proceeds from the FPSO sale benefiting 2022. I'll now hand it back to Andy.

Turning slide 16. Cosmos plans on deploying its capital towards the most compelling opportunities in our portfolio, both in terms of returns and fitness for the future. As I mentioned on the earlier ILX slide, the deep water Gulf of Mexico has one of the lowest carbon intensities of any oil basin in the world. This is due to the natural aquifer drive in the Gulf of Mexico, pipeline network that limits flaring, and the ability to utilize existing infrastructure. This was highlighted in the recent Woodmap Report, which can be seen on slide 16, which shows the deepwater Gulf of Mexico to have the second lowest emission intensity of the major U.S. crude oil suppliers. What's more, in the analysis of the players in the Gulf of Mexico, COSMOS has the assets with the lowest carbon intensity. This can be seen on the second chart on the slide. It is for these reasons that we believe Cosmos can play its role in the energy transition. Cosmos supports the Paris Agreement, and we welcome the US's return to it. We've tested the resilience of the company against the Paris Agreement scenarios, adjusted our portfolio accordingly, and believe we are well positioned. The US administration's recent executive orders have not affected our Gulf of Mexico production operations, and we have a deep inventory of more than 20 high-grade ILX prospects on existing acreage. Like other companies in the sector, we are watching the developments carefully to understand how new policies will be implemented on a practical basis. As a new US administration that shapes these policies, we are both ready to engage and open to working with policymakers to develop creative solutions to deliver the energy the world needs with fewer carbon emissions. With its abundant infrastructure, the deep water Gulf of Mexico is an important source of supply in the world, delivering advantage oil that is both low cost and lower in carbon intensity. Turning now to slide 17. Sustainability is a core value for Cosmos, and we are a company with strong ESG credentials across all the categories. Managing through the pandemic, our focus on sustainability has not changed. Looking at the three categories, on the environment, Cosmos performed detailed scenario analysis found the value of our assets would fare in various climate scenarios. We published the results in our climate risk and resilience report. The conclusion of this analysis was in a transition to a Paris two-degree world, the value of long cycle exploration was most at risk because of the long timeframes needed to enter a new country, drill, discover, appraise, and develop. The risk to invest the capital over that period increases significantly. For that reason, we decided in early 2020 not to pursue long-cycle frontier exploration opportunities in new basins. Following that decision, we monetized a portfolio of frontier exploration assets to focus on our shorter-cycle infrastructure-led opportunities in proven basins. Earlier this year, we set a target to become carbon neutral for scope one and scope two emissions by 2030 or sooner, and we're making progress to measure, reduce, and mitigate emissions across the business in line with that target. One of our flagship social investments is the Cosmos Innovation Center, an award-winning program in West Africa that invests in young entrepreneurs and small businesses. We empower entrepreneurs to turn their ideas into viable, self-sustaining businesses. We work alongside promising small businesses to help them scale up and reach their full potential. This program started in Ghana in 2016 and subsequently expanded into Mauritania and Senegal. On governance, Cosmos has an industry-leading position on transparency. We believe we remain the only US oil and gas company that publishes all of its contracts with host governments on its website, a clear differentiator from the rest. We continue to challenge ourselves to be better in all of these areas as we strive to be a leader in the industry, both in terms of financial performance and our ESG credentials. Cosmos was recognized this year as one of America's most responsible companies by Newsweek and Statista, and we retain a double A rating in our ESG ranking from MSCI, which puts us in the top quartile amongst our peers. We're turning finally to slide 18 to wrap up today's presentation. In conclusion, I want to reiterate the characteristics that make Cosmos unique before opening up to Q&A. We have a portfolio of world-class advantage assets with strong ESG credentials. We have a diverse proven base and exploration portfolio of high-graded ILX opportunities that's focused on short paybacks and high returns. Our assets generate cash, and with last year's cost-cutting initiatives, we are a leaner company with a lower cost base in a much more constructive commodity price environment. And we have a solid balance sheet and healthy liquidity that will support the operational momentum we expect to build through 2021 and into the future. Thank you, and I'd now like to hand the call over to the operator to open the session for questions.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing star keys. One moment please while we poll for questions. Thank you. Our first question comes from the line of Charles Mead with Johnson Rice. Please proceed with your question.

Good morning, Andy and Neil. I appreciate all your comments this morning. I wonder if you could give a little bit of sense on the FPSO sale leaseback. You guys say that it's – I guess there's two parts to the question. It's targeted for a 2Q close. Can you talk about what – To the extent you can, what are the steps between now and closing? And I guess the second piece, Neil, I wanted to make sure I understood. Will the CapEx be on your ledger up until the close and then after that it's going to be gone? So it will essentially be kind of a first half CapEx? Yes.

I'll take the first part of the question and then Neil can follow up with the detail on the CapEx. As we talked about in November, we laid out a funding path for First Gas. I think we're absolutely executing on that plan and we've made a lot of progress in the first part of this quarter. and that obviously involved the signing of the MOU with BP, which contained all the key terms for the sale and lease back. The structure is the same structure we articulated in November. We have an SPV purchasing the FPSO from the Tortue JV. The SPV will be a BP-controlled entity. That raises the debt, and it has a BP guarantee associated with it. So actually, the most important point is that this is a very straightforward process. It involves BP and Cosmos. And clearly, we've gone through the work to set up the structure and the terms. So in terms of steps forward, we've got to take the MOU and convert that into the detailed agreements. And we're working hard on that. Then it's a question then of going out and raising the external debt. So we're well on track to get all of that done by the second quarter.

Okay. And then to your second question, Charles, yes. So from a CapEx perspective, the $350 million for the year is spread pretty ratably through the year. And so we are currently funding sort of cash calls, and we'll recognize CapEx related to that. But as you noted, sort of post the FPSO sale, you would net the proceeds essentially against the CapEx for the project, thereby sort of offsetting each other post-close.

Got it. That's helpful detail. I appreciate it. And then a second question on the EG assets, Andy, you know, I noticed that you're going to have three infill wells, but on your slide, I think it's 14, where you show some exploration targets. It doesn't look like any of those ILX wells are going to have an exploration tail or exploration element to them. Is that the right read?

Yeah, I think the first thing, Charles, is sort of step back. There's a lot of opportunity in the acreage. You know, when we went into EG, it was all about, you know, looking at both the production enhancement opportunities that we could see in Sabre and Akume. You know, they hadn't been the focus for the prior owner. And we're continuing to work through those. So, you know, we've obviously had a campaign for increasing lift, you know, ESPs. We're continuing with our second campaign of ESPs. That's Underways We Speak. We did the work to enhance the seismic imaging in the existing fields in Sabre and Akume. That's identified the input targets, and we're getting on with those. And then the next phase of activity is going to be the exploration targets. So we're drilling the input targets first because those are the things that we believe have the shortest payback. And we'll then come to the ILX program you know, with drilling targets for 2022. But I think, you know, what's interesting about it is that, you know, the opportunity set's rich and the most important part of it is to ensure that we execute, you know, effectively, efficiently, you know, deploy the capital in the right way to bring forward that opportunity set. And, you know, we're, you know, we'll We're doing okay. We've clearly had an interregnum in the back end of last year with COVID, but we're back with the activity ramping up now, both in terms of the production optimization, the ESP program, and then the rig, which will start next quarter. Got it. That's helpful detail. Thank you, Andy. Great.

Thanks, Charles. Our next question comes from the line of Neil Meadow with Goldman Sachs. Please proceed with your question.

Good morning, guys, and thank you for all this great detail here today. The first question is around leverage levels, you know, net debt around $2 billion. Is there a level, Andy and Neil, that you want to target, an absolute level of either debt or net debt that you want to aim towards? And just talk about the path to getting there.

Yeah, Neil picked that up, Neil.

Hey, good morning, Neil. Yeah, so in terms of, you know, we were on a path to sort of deleveraging, you know, pre-COVID. And, you know, post-COVID, you know, we still remain on the same path. You know, we've stated sort of our target is to get one to one and a half times net leverage. So that's, you know, net debt about $500 or a billion less than what we have today, combined with sort of rising EBITDAX. And so, you know, the good thing about sort of, you know, our exposure is, you know, we are, we have high margin oils. And therefore, as prices are in a sort of $60-plus range, leverage comes down relatively quickly. And so we need to – the EBITDA will naturally rise as both production and price improves from sort of COVID levels. And at the same time, we will redirect sort of the free cash flow out of the business to continue that pay down. So it's a long-winded way of answering the question, but we're on that same path. And, you know, we can, especially given sort of the constructive commodity price environment, we can get there pretty quickly.

That's helpful. And then the second question is just around Gulf of Mexico. And there's been a lot of investor feedback and questions about your exposure there. If the counterpoint would be as tour two comes on, this becomes a smaller part of the portfolio. How are you sizing risk in the Gulf of Mexico? Help us walk through the difference between bans on federal leasing versus your ability to drill, and how do you see this asset fitting into the long-term story for Cosmos?

Yeah, Neil, I'll pick that up. As I said in my remarks, actually, Cosmos has supported the Paris Agreement, and we're pleased that the U.S. is back in. We see the Gulf of Mexico as being an important contributor long-term to the world's oil supply. It's naturally advantaged and is lower carbon. I think we therefore look forward to working with the new administration on the right practical steps forward to enable that resource to be appropriately developed. So I think, you know, the long term, as you were, if you look at it, and actually the medium term, it remains an advantage basin, sort of, you know, I believe nothing has changed in that regard. You know, so how does it practically unfold? You know, from a leasing perspective, I think, you know, Cosmos is... relatively not impacted. We've got a deep hopper of opportunities on existing acreage we hold. We've got around 20 high-graded prospects today that are ready to drill. So if there were a longer-term effect from no leasing, that won't affect our business. And then I think, you know, we just have to wait and see what's going to happen when it comes to drilling permits. But again, you know, I'm hopeful that actually the practical steps will enable that to move forward. I don't think that's the intent of the administration. So, you know, we remain very constructive, both from where it sits in our portfolio today. I think it remains very competitive just because of the natural advantages it has And I think it was just interesting to share with you actually the Woodmac analysis of that and where our portfolio sits. So I think it's naturally advantaged. It therefore has a place. We are robust to a slowdown in leasing because of the work that we did over the last couple of years to build the portfolio. And yes, there will be some practical things that need to be done from a drilling perspective, but we're confident that that's going to move forward. So, you know, I remain actually very positive about the basin and about the conversations that we'll have with the administration as a result.

That's great, guys. Thank you.

Our next question comes from the line of Bob Brackett with Bernstein Research. Please proceed with your question.

Good morning. Thank you. I had a question on the sustaining CAPEX program. I think you're guiding to around 200 million, and that holds you at, say, around 60,000 barrel oil equivalent a day. At what sort of internal decline rate?

Yeah, you know, Bob, I think if you look at the sustaining context, you're right. It's in that sort of 200, maybe a little more, 200, 225 level. So we're sort of ramping up in 2021 that gets you to that level. But at that sort of, you know, range, you know, you can hold production flat, yeah? So that's the level of capex to sustain production across Ghana, Gulf of Mexico, and Equatorial Guinea. Against what sort of decline rate? Underlying decline rate. You know, it's probably... You've got to split it out between infill drilling and... the production optimization that we do. So there are some activities, Bob, you know, the ESPs, for instance, would be expense as opposed to capitalize. But if you look at the overall decline rates, probably around 10%, and then you're offsetting that with the production optimization and then the infill drilling.

Great. Thanks. Quick follow-up. On the TOR2 Phase 2 FID, so the front-running concept is this lean sort of concept that you've laid out before. Are you bringing a single concept to FID, or are you carrying several concepts that could potentially be FID'd?

Yeah, you know, we're clearly at a point of optimizing the concepts. Yeah, work is being done to optimize the detail. But the fundamental concept in terms of maximizing the use of the existing infrastructure is the way forward that we've agreed with BP. So what does that mean? It means that you're fully utilizing the subsea infrastructure, you're fully utilizing the available gas processing capacity on the FPSO, you're fully utilizing the pipeline from the FPSO to the near shore. So that remains unchanged. And then ultimately, there are some opportunities around the number of additional wells that you can fit into those subsea manifolds. You can do some additional sort of extensions, et cetera. But ultimately, what you're trying to do is say, what's the best configuration for the reservoir and subsea that fully optimizes the facilities infrastructure that we have in place? So the concept is sort of not changed. The issue is how do you get the most out of it?

Yeah, that's clear. So there's no stalking horse concept of, say, a 4 million ton per annum concept?

No, no, there's no stalking horse, no. And in fact, it's almost the reverse, Bob. It's sort of saying, you know, let's make sure we've absolutely optimized this to get the most through it. Yeah, it's quite the reverse, yeah? Yep, that's clear. Thank you. All right, thanks.

Our next question comes from the line of James Carmichael with Barenburg. Please proceed with your question.

Hi. Afternoon, guys. Just a couple. Firstly, on Equatorial Guinea, I guess just looking at the transaction there recently and the incoming partner sort of outlined an ambition to get to 55,000 barrels a day, I think, over the next two or three years. Just wondering if that's in line with your ambitions there as well or your sort of understanding of the upside potential. And then maybe if you could just remind us around the options of the 300 million dollar direct investment to get you to first gas at Tour 2 and I guess sort of expectations around timing and your preference for how that's structured. Thanks.

Yeah, hi James. I'll take the first question and then Neil can handle the second one. It's great to have a new partner. And actually it's great to have a partner that sees the potential in the asset. They clearly invested into EG on that basis. So, you know, I think the fundamental potential that we both see is very similar. You know, we, as I said earlier, you know, in the comments to Charles, you know, the The EG assets have a layer cake of opportunities. There's a layer cake from production optimization, which we've done very successfully on the second round of that. There's a layer cake now that we're building in from the infill drilling. And then there's a layer cake from the ILX opportunities that sit around the assets. So I think we see a very similar view of the opportunity set. And it's good to have a part that wants to invest alongside us. So I don't think we have a different view. I'm not going to comment ultimately about the production because that's for them to talk about. And clearly, we're not giving guidance today that far out. But I think the most important part of the story actually is the scale of the opportunity set. In a sense, this is a third-party verification of the story that, you know, we talked about when we first went into extra-organic. We talked about exactly those layers. And, you know, clearly last year was a bit of a challenge in terms of having to hold back on the pace at which we pursued that. But we're back in action now. And, you know, there remains a lot of oil to be produced from Sabre and Akumia and the surrounding areas. ILX opportunities, and this has a long-term role in our portfolio.

James, just to answer your question on the direct investment in Mauritania and Senegal, it is the last piece of the financing puzzle that we'll put in place. We clearly focus on putting the FPSO in place within the second quarter and then the NFC financing. As for the direct investment, we're looking at a number of options, as we sort of referred to in November, to fill that last $300 million. Those alternatives, there's a couple of them, including the partial sale of our non-TOR2 gas assets as part of the funding solution. We have the ability to put it within the RBL. And then lastly, we have the ability to fund it from excess cash flow at sort of higher oil prices. And so... there's a number of different solutions, and I think we're keeping the optionality around which is the best ultimate solution, but we'll do that last within the sequence of more TANY Senecal financing.

Great, thanks. I'm sorry, just one other one, if I can answer that again. Just on the AtNet Zero target, Does that include your non-op assets as well? And can you just give us a sort of sense of how the West African portfolio stacks up against the GOM on those intensity metrics that you outlined?

Yeah, good question, Mark. So scope one and scope two, the definition is around your growth operated. So clearly that's in the Gulf of Mexico. And we've got about sort of 50,000 barrels a day of gross operated production in the GOM. So clearly, you know, with that scope one and scope two target, we're focused on the things that, you know, that we can control. And therefore, you know, that covers that operated activity. And, of course, it benefits from having a lower carbon intensity. It's at around, as we showed on that slide, it's sort of around 10 kilograms per tonne. So if you look around the world's oil basins, that is differentiated. As you start to look more broadly at the non-operated activities, They're probably closer to sort of the industry average. It's around 20. That said, the assets in Ghana, for instance, are advantaged because you do have the ability to export gas. So we're connected to the gas grid. The gas goes to power. And actually... The need for that gas is increasing through time. We've probably doubled the amount of gas export over the last couple of years from around sort of 60 to closest probably to averaging 100 to 120 currently. So the demand for the gas is there. So the ability to drive down the carbon intensity of the Ghana assets I think is high. So they start, I think, from a higher starting point, but the operator is, you know, we've got clear plans, you know, and we're fully supported of, you know, of moving the Ghana assets, you know, down the carbon intensity route. So the scope one, scope two is about things you operate, and that's the Gulf of Mexico for us. We've got, you know, a significant gross operated footprint there. And then, you know, and we're targeting the delivery of that alongside our other ESG commitments, you know, through that 2030 timeframe.

Great. Thanks a lot, Ricky. Great. Thanks.

Our next question comes from the line of Mark Wilson with Jefferies. Please proceed with your question.

Hi. Good afternoon. I'd like to ask about the bigger picture for Mauritania and Senegal. I think it's this presentation last year that had our last slide on the greater TOR2 resource base, 100 TCF gas in place, plus the three hubs, TOR2 Yakka and Birala, and 10 million tonnes for anem potential across each one of those. Obviously, TOR2 is now 5 million tonnes proposed for the two trains. Could you give us a view on the bigger picture of across all those assets, and also what are your current marketing plans for a potential sell down there? Neil just mentioned possible sale of non-Tortu gas assets regarding the direct investment. Thank you.

Yeah, Mark. Yeah, I think, you know, the same gas base and actually, you know, different character of assets. I think the interesting... You know, for Tortue itself, Phase 2 gets you to 5 million tonnes per annum. That fully utilises the available infrastructure. It's the most capital-efficient project. Therefore, it's the right thing as the next building block. You know, beyond that, there is significant resource that would support a 10 million tonne per annum scheme. That would require additional infrastructure. So that is remaining upside for the future. I think Yakuturanga is interesting because... It's actually closer to the Dakar Peninsula. And the concept work that the BP is pursuing at the moment would have a domestic gas scheme first, followed by an LNG export scheme. So that is an important component, actually, of the energy plans for Senegal to be able to replace you know, diesel burning power with gas and therefore, you know, enable a lower carbon future for Senegal with that gas powered generation. So I think, you know, the significant population of Senegal, you know, the desire to grow their power generating capacity, but obviously to do that in a carbon friendly way. So the concepts around Yekateranga are to, you know, how do you stage the right infrastructure that enables that domestic scheme to be the bedrock of the development and then actually, you know, supplement it with gas exports. And again, the infrastructure is different because it's more adjacent, actually, to the major urban areas in Senegal. And then, you know, Borala is, again, different. You have a smaller population in Mauritania, but still a need for gas, yeah? But not the scale of gas that would actually enable a full development of Borala. So in terms of the thinking, I think, around the development concepts, it's the area where there's probably, you know, more work to be done to come up with the optimized development scheme for Borala. But in terms of its cost point, as you look at it across the world today, it's as competitive as a tortue. Very similar reservoir density, very similar therefore economics and cost of supply. So I think, you know, the resource is significant, you know, as you're rightly saying, Mark. I think our focus has been on getting the cash flow from the first project, optimizing it with phase two. And then I think it's about conversations with both countries, which are around how is the resource optimally developed that fits their plans and the resource descriptions.

Do you see yourself going back to the active sort of sales process you had about a year ago on those assets?

I think, you know, on that, I think this is about – it's one of the options that Neil's discussed. I think it's about – It's about finding the right fit for the project. So we're clear about what the concept is. And, you know, as you look through the energy transition, there are more companies looking to find a gas resource to be able to be a long-term source for their own portfolios. And that's what we have in Mauritania and Senegal. So I don't, you know, when we're having those conversations with interested parties, The conversation is not about a formal sort of bid process, but it's actually bringing on board the right people that can support the long-term vision for both the development concept and with the government.

Okay. Thanks a lot. Very clear. Thank you. Great. Thanks.

Our next question comes from the line of Nick Stefano with Renaissance Capital. Please proceed with your question.

Thank you for the questions. It's Nick from Rencap. Andy, that awesome discovery you made a couple of years ago in EG, you spoke about infield drilling and ILEX opportunities, but what's the latest on that? Is it still not being considered as a type of... to the target, to the FPO. That's the first question. The second one is for Neil. Are you looking to refinance the RBL in the first half of the year? I have expected that it should be around this time, but there was no mention of it. So, yeah, that's the question.

Okay, yeah, thanks, Neil. Yeah, you know, Assam was an important sort of discovery for us. We're now doing the work to properly appraise the opportunity and actually figuring out the best way to integrate it into the infrastructure. So there's more work to be done this year to position that for a development plan that fully optimises all the Sabre and Akume infrastructure. So I think for us, it was just a demonstration of the additional resource there is there. We need to ensure that we've got a development plan which properly optimizes the reservoir, in particular, the sort of reservoir development of Assam for the future. And so for 2021, we're focusing on the infill opportunities. You know, they're platform-drilled opportunities, therefore they're easy to tie back and get into production. So the time between, you know, completing the well in production is very short. You know, ASAM will require some subsea infrastructure to be put in place, and therefore, you know, as we look at it, we need to make sure we've optimized that correctly.

Yeah, and then, Nick, just on your question on the RBL, we do have a redetermination planned at the end of the first quarter, and we've just started discussions with those banks, and they're going well so far. As you know, the last redetermination was done in a much lower oil price environment, and so having more constructive oil prices will help that process. And it's also, as you rightly mentioned, as part of that process, we will speak to the banks around less of a refinancing, but more of an extension of the existing facility. And that unlocks additional borrowing capacity as well, as we've done in the past. And so, the banks have been very supportive and we plan to continue sort of our regular process and as part of that we'll continue to extend the maturities and increase the capacity on available capacity on the RBL.

Okay, got it. And a quick follow-up. The free cash flow rate, it's 100 to 200. That's quite large. Is it other deltas solely due to the upper and lower end of the production guidance, or are there other factors behind that delta, basically?

Yeah, I mean, there is... A large piece of that is production, and then it's just the timing of some of the expenses. But I think, you know, because one cargo, even in a $55 world, is $55 million, right? So it is sensitive to that, which is why we've sort of left the range intentionally pretty vague.

Yeah, fair enough. Okay, guys, thank you so much.

Great, thanks, Nick.

Our next question comes from the line of Richard Tullis with Capital One Securities. Please proceed with your question.

Hey, thanks. Good morning, Andy and Neil. Two quick ones. Sorry if I missed this. What's the rough breakout of the 60,000 a day 2020 exit rate by major area?

Yeah, so just off the top of my head, Richard, you know, it'll be pretty close to historical knowns with sort of Ghana's 40% to 45%. EG is around 20%, and then the GOM is around a third to 35%. Okay.

Okay. And then follow-up, looking at the Gulf of Mexico guidance for the first quarter, the 20 to 25, excuse me, 20 to 22,000 a day, when you compare that to where it was, say, a year ago, somewhere in the neighborhood of 28,000 a day, What are the main drivers of the reduced production there? Is it mainly the lack of drilling in 2020 due to the pricing or any other contributing factors, maybe, you know, planned downtime issues, bringing production back on from the storm season, et cetera?

Yeah, hey, Richard. Yeah, no, you're right. So if you look at it, you know, we only had, you know, one infill well actually in 2020. which was the the tornado injector yeah and of course you know that that through time actually starts to build the reservoir pressure which leads to an increase in production so you know with there was natural decline which was you know which is it which is you know where we're seeing the current rate and therefore you know with the the additional what we know the Kodiak well which we're completing at the moment second Kodiak well and then the Tornado 5 well plan for the middle of the year. That will help us sort of bring production up. The only fact when you look at it on a quarterly basis, okay, the first quarter has been weak. We had an unplanned downtown issue on the Kodiak No. 1 well, which came off stream around December. And we're finishing that repair, and the well will be back on by the end of the month Um, so that's affected the, um, quarter one, uh, sort of uniquely. Yeah. So I think, you know, if you look at the numbers overall and you're looking on a yearly basis, the, uh, the lowering of 2021 versus the sort of underlying rates in, in 20 is simply around the, uh, the decline rate. If you look at specifically at quarter one, the, the, the, uh, the unplanned downtime on the Kodiak-Warnwell has had a differential impact.

Okay. Well, thanks very much. Okay.

Thanks, Richard.

Our next question comes from the line of Al Stanton with RBC Capital Markets. Please proceed with your question.

Yes, guys. Good evening. Just two very simple questions, if I may. Just with respect to Tortui and the sale of the FPSO, should we just assume that the later that sale happens, the more money you get. So we might as well just ink in the 250 and worry about the quarterly breakdown when we put out quarterly numbers. And I suppose the other question is about hedging. Neil, rather unfortunately, the forward curve isn't probably the shape you want. What are you doing about your hedging policy given the forward curve is much lower than spot price? So are you Are you just sucking that up or are you taking a change in strategy?

Yes. So just on the first question from a timing perspective, yeah, I mean – we're basically forecasting that $250 million benefit. The longer it takes, there's a larger working capital impact before you get that back. But in terms of the overall transaction, you still save the $320 million net to us in any case. So there is a sort of shift around depending on when it closes in terms of how that pushes forward. But that will just be a timing effect around the transaction and doesn't change sort of the overall benefit from the transaction. On your second point, just on hedging, yeah, I mean, it is in, you know, backwardation, which is a little more difficult to hedge into. But, you know, again, I think from a general perspective, you know, the business does great in the $60 world. And so what we're trying to do, and even in a $50 world, and so, you know, as we're continuing to layer in hedges on a pretty regular basis into 22, you know, the goal is to put in downside protection that lets us fund the business And so we're putting in floors around that $50-ish level and trying to keep as much upside as possible. So in the last few trades, we've been able to get upside up to, call it, $70 per barrel. And we'll layer those in across the year. So the good thing is, as you go out in time, the curves continue to move up. And so it'll continue to help us layer in more and more attractive hedges. But it is something we're going to consistently do, as we've done in the past. And and that'll guarantee our ability to fund future expenses.

Should we expect you to move away from swaps and three-way collars, or we'll just see how it goes?

Yeah, I mean, I think in terms of overall program design, we're not going to massively change the way we've done it. We've done it pretty consistently, and so there'll be a combination of instruments depending on what's most attractive at the time. But ultimately, again, what we're trying to do is forecast or put in hedges that ultimately allow us to fund the plan and within that context keep as much upside as possible. And so as the prices move around, you know, different instruments will look different, you know, look attractive at different points in time. And so we started with wider collars. That gave us that downside and as much upside today. And as sort of things normalized, you know, we could, you know, shift into some of those other structures, but the objective overall stays the same. Cool. Thank you. All right. Thanks, Al.

Thank you. Since there are no further questions at this time, I would like to bring the call to a close. Thanks to everyone joining today. You may disconnect your lines at this time, and thank you for your participation.