Kosmos Energy Ltd.

Good day, everyone, and welcome to Cosmos Energy's third quarter 2021 conference call. Just as 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.

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

Thanks, Jamie, and good morning and afternoon to everyone. Thank you for joining us today for our third quarter results call. I'll run through the highlights for the quarter before handing over to Neil to take you through the financials. I'll then provide a few closing thoughts in summary before taking questions at the end. Starting on slide one, a lot has been achieved at Cosmos since our last quarterly call in August. We've delivered several transactions that have advanced the company's strategy and significantly improved our financial position. We'll talk more about the OxyGyn acquisition shortly, but in summary, the acquisition is expected to materially increase our free cash flow from high-margin oil assets, which we plan to invest in our portfolio transition to LNG at a time of rising global natural gas demand while reducing debt. The transaction is strategically consistent and financially compelling for Cosmos and is highly accretive across all financial metrics. In Mauritania and Senegal, we closed the FPSO transaction in mid-August, which materially reduces our capital expenditure to first gas. With increased production, including from the OxyGarner transaction and higher oil prices, we now expect to fund our remaining capex to first gas through organic cash flow. We expect the newly acquired assets and our base business to generate significant free cash flow from 4Q21 and are currently hedging our growing production at attractive levels. With EBITDAX growing and excess cash used to reduce absolute debt going forward, we expect to lever the balance sheet rapidly, and we are targeting a leverage ratio of less than two times at year-end 2022 at $65 Brent. Using current oil prices, that target would be around one and a half times. And finally on this slide, the recent transactions continue to strengthen our ESG agenda, with growing investment in Africa across our portfolio aligned with our objective of supporting a just energy transition. Turning to slide two. The acquisition of additional interest in the Jubilee and Tenfields in Ghana accelerates Cosmos' strategic delivery across three key dimensions. First, the acquired assets generate significant pre-cash flow. At $65 Brent, we expect the assets to generate around $1 billion of incremental pre-cash flow between now and the end of 2026, over two times our initial investment. At current prices, that figure could be materially higher. While we manage our business to perform at much lower oil prices, the recent strength in Brent and WTI does highlight the considerable upside potential if OPEC Plus continues to be disciplined on supply management over the coming years. Second, we expect the assets to materially enhance EBITDAX and cash flow, enabling us to grow the company organically while reducing our absolute debt. With rising EBITDAX and excess cash to further pay down debt, we expect the transaction to accelerate the pace of deleveraging to our target level of one to one and a half times. Third, we plan to use some of our increased Cash flow to fund our growing gas activities in Mauritania and Senegal, including our remaining capex to first gas on Tortue Phase 1. On the right-hand side of the slide, you'll see how the portfolio mix is expected to change as our LNG activities in Mauritania and Senegal ramp up. We plan to use low-cost, lower-carbon oil production to finance the transition to low-cost, lower-carbon natural gas, thereby shifting the balance of our portfolio over time and increasing our exposure to the fuel with the strongest long-term demand and a necessary part of the energy transition. In our 1Q results earlier this year, we detailed the five-year goal to get production up to around 100,000 barrels a day of oil equivalent by 2026, when Phases 1 and 2 of Torture are expected online. Clearly, this transaction accelerates that production goal by several years, whilst at the same time strengthening the balance sheet. Turning now to Slide 3. We announced the OxyGarner transaction on 13 October, with our intention to fund the transaction through a mix of new equity and new senior notes. With the green shoot, we issued around 43 million shares in total, raising approximately $140 million of equity in total. The shares were issued at a small premium to the previous night's closing price, with the transaction multiple times oversubscribed, with strong demand from new and existing investors in Europe and the U.S. We launched the senior notes up in the following week, issuing $400 million of five-and-a-half-year notes, non-call-to, which were priced at 7.75%. The issue was also heavily oversubscribed with strong demand from both high-yield and emerging market investors. I'd like to thank our equity and bond investors for their support for both the deal itself and the subsequent financings, which have put the company and the balance sheet in great shape to execute our strategy. It's very much appreciated. At the bottom of the slide, you can see the impact of the transaction on our near-term metrics. Pro forma for the assets acquired, we expect our year-end exit production to be greater than 75,000 barrels of oil equivalent per day, with pro forma EBITDAX of over $900 million for 2021, resulting in year-end pro forma leverage of around two and a half times. Turning to slide four. Operationally, we continue to make good progress in each of our production hubs. In Ghana, Jubilee is currently producing above 80,000 barrels of oil per day, gross, with the J56 producer coming online in July and the J55 water injector online in September. The second Jubilee producer is currently being drilled and is expected to be online before year-end. This should result in Jubilee production exiting the air above 85,000 barrels per day. At 10, gross production is currently around 30,000 barrels of oil per day. The gas injector came online last month and is expected to support current production levels. In offshore Guinea, gross production is currently around 30,000 barrels of oil per day. The partnership finished the Sabre reliability projects in the third quarter with completion of the Kumi upgrade project expected this quarter. The first of three planned infill wells in the Akume complex was completed in August, with hookup currently in progress. In the third quarter, the operator began drilling the second well, which is expected to be online in December. The third planned well is now expected to be deferred, as a rig is being utilized to plug and abandon an existing well in Exeral Guinea, and is required to mobilize for its next contract before it can complete the drilling of the last well. We do expect the output from the first two wells will largely compensate for any deferral of the third well, given reservoir data at the high end of expectations from the first two wells. In the Gulf of Mexico, as previously noted, production in the quarter was impacted by Hurricane Ida, which resulted in around 4,000 barrels of oil equivalent being shut in versus our previous guidance. While none of COSMOS' infrastructure in the Gulf of Mexico was damaged in the storm, lengthy shut-ins arose from key pipelines and receiving terminals being offline, leading to basin-wide shutdowns in the aftermath of the hurricane. Production across our GOM assets was restored to pre-IDA levels by the end of September. We should allow for a strong rebound in the fourth quarter. We are currently in the process of drilling the Winterfell appraisal well, with the results expected later this quarter. Turning to slide 5, which looks at Tortue, our world-class gas development. As you've heard me say in the past, Tortue is the right project at the right time. The chart on the left is one you've seen before. It shows that Tortue is the right project because of where it sits on the cost curve. With Phase 1 gas all sold to BP, the real upside potential is with Phase 2, where we have a huge amount of optionality because the gas is currently uncontracted. We believe that Tortue Phase 2 can deliver gas into Japan at a break-even cost of just over $4 per mm BTU, so therefore competes very favourably with other new LNG projects expected to start production in coming years. The chart on the right shows the project is due to come online at the right time, with global gas demand continuing to grow strongly as the world exits the restrictions of the pandemic. The chart shows the forward curves for JKM and TTF today versus the forward curves a year ago. If we ignore the near-term elevated prices and look further out to December 2023, the chart shows a re-rating of future price expectations, with both JKM and TTF levelling out at around $10 per mm BTU, approximately double the same curve from a year ago. This is fundamentally about robust, long-term demand for gas as it places more carbon-intensive alternatives and acts as a baseload partner to renewables in the energy transition. As demand grows, long-term gas prices are likely to be supported at a level necessary for the marginal cost of supply to meet that demand. In a recent research note, Morgan Stanley predicted that LNG demand is set to rise twice as fast as supply through 2025, with prices expected to be 60% higher over the next five years versus the last five years on average. In this environment, the lowest-cost gas projects should come out on top. With Tortue making good progress and other significant gas discoveries we have in Mauritania and Senegal, we believe Cosmos is well-placed to take advantage of these strengthening market dynamics. We have contracted Phase 1 volumes at a slope of around 10% to Brent, which means we'd be selling Phase 1 gas at around $8 per mm BTU at current oil prices. For Phase 2, we are yet to sell the gas, which gives us greater flexibility on pricing, whether we choose long-term contracts, different indices, spot sales, or a combination. Turning to Slide 6, Tortue Phase 1 continues to make good operational and funding progress, with the four key work streams all moving forward. On the floating LNG vessel, mechanical completion activities have commenced with instrument loop checks, Control system commissioning is expected to commence in the first quarter of next year. On the FPSO, topside integration and Hull and Living Quarters mechanical completion activities have commenced. Pre-commissioning activities are expected to commence later this quarter. On the breakwater, we've commenced fabrication of 20 of 21 caissons with 12 now installed. Jetty piling is expected to commence later this quarter. And finally, on the subsea, the Nouakchott and Dakar marine supply bases are being established. This is expected to enable the offshore installation campaign to commence in the first quarter of next year. As you can see in the top picture on the slide, the hub terminal and breakwater is now starting to take shape. The image shows the caissons in position, and you can see the impact on the sea state on the protected side of the breakwater. The bottom picture on the cover slide of today's presentation shows the top science modules being loaded onto the FPSO, another significant milestone for that key work stream. With regards to project funding, we've completed the FPSO transaction and now have a clear financing path to First Gas on Tortube. The FPSO transaction materially reduces our outstanding capex on the project, with all 2021 cash calls now funded through year-end and the remaining benefit expected in 2022. As mentioned earlier, we now expect to fund our outstanding capex to first gas with the free cash flow from our base business, which we are currently hedging at attractive levels. We're also working on the NOC loan refinancing, targeting completion around year-end. As BP flagged on its earnings call last week, the project partners and the governments of Mauritania and Senegal are working hard to advance phase two of the project, and we expect a final investment decision in 2022. I'll now hand over to Neil to take you through the financials for the quarter.