Kosmos Energy Ltd.

Good day, everyone. Welcome to Cosmos Energy's first quarter 2022 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. Please go ahead.

Thank you, Operator, and thanks to everyone for joining us today. This morning, we issued our first quarter earnings release. 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 materials are Andy Ingalls, Chairman and CEO, and Neil Sharpe, 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 SEC filings for more details. These documents are available on our website. And at this time, I'll turn the call over to Andy.

Thanks, Jamie, and good morning and afternoon to everyone. Thank you for joining us today for our first quarter results call. I'd like to start today's presentation looking at the company's portfolio, focusing on the key characteristics which differentiate Cosmos and position as well in a rapidly changing oil and gas sector. We'll then talk about the quarter, looking at both the operational and financial progress we've made year-to-date before opening up for Q&A. Starting on slide three. This is a slide we showed with our full year results in February, updated for Tolo's preemption in Ghana. The war in the Ukraine has fundamentally restructured the global oil and gas markets, and we believe we have the right portfolio at the right time to address the challenges this irreversible change has introduced. Our production is expected to grow by approximately 50% in the next two years, helping to provide the oil and gas the world needs today. We have a strategic LNG resource needed to support a just transition in Africa while enhancing energy security. We think these attributes differentiate Cosmos and offer investors a compelling opportunity to own a company with a purpose and a portfolio. that is fit for the future. First, on the left, we have low-cost, high-quality assets. The company is underpinned by world-class fields with a combined 2P reserve life of over 20 years and the longevity to deliver sustainable high-margin cash flow. This gives us the ability to invest in our existing assets to materially grow production and free cash flow while simultaneously reducing debt. And we've made excellent progress on that during the quarter. Second, as the chart on the right shows, we're increasing our exposure to LNG at a time when both the strategic and financial value of gas is rising. We have Tortue Phase 1 expected to come online late next year and have other world-class gas development opportunities in Mauritania and Senegal that should provide further growth beyond 2024. Third, we have a robust balance sheet which continues to get stronger. Liquidity is increasing and absolute debt is reducing, with leverage making good progress towards our year-end target of less than one and a half times at current prices. Fourth, as planned capex falls and free cash flow grows, there is potential for meaningful shareholder returns once we reduce leverage sustainably below our target. And finally, we have strong ESG credentials, underpinned by our commitments to climate targets, track record on sustainability, and strong governance. Our stakeholders are asking us to do more than formulaic ESG, and our company has a bigger agenda. With growing exposure to gas, we support a just energy transition for our host countries in Africa, as well as provide enhanced energy security for regions of the world, Europe in particular, that are looking to diversify their current supply sources. Turning to slide four. Events of the last two months have emphasized the importance of having reliable access to energy and gas in particular. At Cosmos, we have a material stake in a significant and strategic gas resource that can play an important role in enhancing energy security. Over the last 18 months and well before the war in Ukraine, we've seen the impact on gas markets of rising energy demand and years of underinvestment in supply. The chart on the top right, based on Woodmark data, shows how LNG demand is expected to grow sharply over the coming years, almost doubling by 2035, an enduring forecast. The chart on the bottom left of the slide shows the expected shortfall of new LNG needed to satisfy that rising demand has grown significantly in the last few months. This is as a direct result of countries in Europe looking to reduce their dependence on pipeline gas and replace it with LNG from international markets on the back of the war in Ukraine. With demand expected to strengthen further over that period, prices have responded accordingly. The chart on the bottom right shows the forward curve for TTF today versus November last year, with forward prices around $13 and MMBTU higher today on average over the next three and a half years than they were in late 2021. While short-term prices have traded at all-time highs, it's important to look at the impact of the current situation in Europe over the medium to long term. We believe the longer-term outlook for LNG has fundamentally changed, with higher prices likely to persist as a result of a premium placed on greater security and flexibility. At Cosmos, we have around 27% of an estimated 100 TCF of gas in place across Mauritania and Senegal. We expect this gas to have an important role to play in meeting rising demand with enhanced energy security. Turning now to slide five, Our gas in Mauritania and Senegal is cost-advantaged due to both location and also the quality of the resource. It's geographically advantaged into Europe with a major time and distance benefit over U.S. supply, resulting in significantly lower transportation costs. For an LNG cargo traveling from Tortue into one of the existing U.K. terminals or into Willemshaven, the proposed site of one of the new German import terminals, The sailing distance is around 2,000 nautical miles, or a sailing time of five to six days. From the U.S. Gulf Coast, the distance is closer to 6,000 nautical miles, or three times as long to deliver the same cargo, resulting in shipping costs that could almost be $1 MMBTU higher at long-term charter rates. We believe we can produce gas at an upstream cost of approximately $2 to $3 per mm BTU of the life of the field, which compares favorably with current US gas prices of around $8 per mm BTU. Whilst we believe the US will be an important partner to Europe for future LNG supply, The data on the slide shows that Tortue competes favourably on both upstream and transportation costs to Europe, and therefore should have an important role to play in the growing European LNG market. Our suburb gas in Mauritania and Senegal also has a carbon advantage, with almost no CO2 in the feed gas coming from the fields. As a reminder, our gas from phase two of the project is yet to be priced, which creates a significant opportunity for Cosmos when we bring that gas to market. Turning to slide six, this is also a slide we showed at year end, which we've updated for the Tolo preemption and the first quarter of the year, which are now behind us. In one queue, the business generated free cash flow of around $220 million, excluding Tolo preemption proceeds. With minimal capital expenditure in Mauritania and Senegal in the quarter, the number demonstrates the steady state cash flow potential of the business once our growth capex is behind us. At $75, we'd expect the business to generate over $700 million of free cash flow in 2024 as production ramps up and capex falls. At current prices, that number will be significantly higher. We believe this level of cash generation is sustainable and underpinned by our 20-year 2P reserve life, putting us in a position to be able to deliver consistent material shareholder returns at the appropriate time. The combination of quality growth and cash flow generation of our portfolio is unique within our peer group, which is why my team is excited by the future potential of our company. Next, we'll look at the 1Q results in more detail, starting with slide 8. It was another quarter of strong operational financial delivery. Operationally, we performed well, with production at the upper end of our guidance range, helped by the sustained, robust performance of Jubilee in particular, which continues to perform strongly. Adjusting for the impact of Tolo's preemption, we're at the top end of our original guidance. And our developments, both Tortue Phase 1 and Jubilee Southeast remain on track, currently overcoming the more challenging operating environment we're seeing with regards to supply chain issues and cost inflation. FID on Winterfell is expected around mid-year as we continue work to optimize the development in response to the current environment. On the financial side, as I mentioned, we had an excellent quarter for cash generation. helped by the strong production and supportive commodity prices. That strong cash generation, coupled with preemption proceeds from Tolo, allowed us to reduce net debt by $330 million in the quarter, resulting in leverage at the end of one Q of 1.9 times. On the balance sheet, we successfully completed all our financing requirements with the RBL redetermination, RCF refinancing, which were important steps to secure our strong liquidity position. Turning to slide 9, which focuses on the operational performance in the quarter. As I mentioned on the previous slide, Jubilee performance during the quarter was strong, averaging just over 91,000 barrels of oil per day gross, with 99% uptime. The field is currently shut in for the planned two-week shutdown and is expected back online at the end of this week. Prior to the shutdown, Jubilee was producing a daily rate of around 95,000 barrels of oil per day gross, which demonstrates the potential of the field with improved reliability and disciplined investment. We expect an additional production well and water injection well to be online later this quarter, which should help to support production levels through the end of the year. On 10, gross production in the quarter of around 25,000 barrels of oil per day, again with high uptime of 99%, is in line with expectations with the next wells planned for the third quarter. On Jubilee Southeast, we're making good progress with the ordering of long lead items ahead of drilling, which is expected to commence around the end of the year. Production from the First Wells is targeted for mid-2023, which should push gross production at Jubilee over 100,000 barrels of oil per day. On the OXY transaction, the completion of the Petro SA preemption has not yet taken place and we'll update the market in due course once it has been done, although the impact in our production and guidance is immaterial. In actual Guinea, gross production in the quarter of around 35,000 barrels of oil per day was supported by high uptime on the SAVA FPSO. The reliability projects we've invested in over the past several years are delivering with 99% uptime at Sabre within the quarter. Combined with the benefit of the wells we drilled in the second half of the year, first quarter production was 15% higher than 4Q 2021. In the quarter, we also successfully completed the ACUMA upgrade project, which increases our ability to support additional ESPs, which we started to install in April to further support production levels. In the Gulf of Mexico, average production in the quarter was around 19,000 barrels of oil equivalent per day net, impacted by unplanned facility downtimes. All facilities are now back online, and April production was around 22,000 barrels of oil equivalent per day net. We're currently drawing the Kodiak sidetrack with production expected next quarter. Turning to slide 10, which focuses on three low-cost resource additions in the Gulf of Mexico and Exxon Guinea, deepening in our existing asset base. Combined, we're adding around 12 million barrels of resource at a total cost of around $4 per barrel with very attractive economics. Firstly, on Winterfell, we increased our interest in the central Winterfell blocks where we have the initial discovery and successful appraisal well. We acquired an additional 5.5% from one of the partners for around $10 million taking our overall interest in those four core blocks to around 22% and to 36.5% in the de-risked northern blocks. The consideration will be offset by capital reductions elsewhere in the Gulf of Mexico business units. Secondly, we exercise our preferential right to purchase an additional 6% in Kodiak for a total cost of around $28 million, with the first installment in 2022 and a subsequent deferred payment. It's important to note the original transaction was negotiated largely in 2021 at much lower oil prices, which created the opportunity for Cosmos. On Kodiak, the transaction has a forecast Payback around 13 months at $75 per barrel and an IRR of over 95%. At the current oil price strip, payback should be less than a year with an IRR of above 180%. To fund the Kodiak preemption, we'll recycle a small amount of the Ghana preemption process to invest in this compelling opportunity. Third, alongside our JV partners, we've agreed with the Ministry of Mines and Hydrocarbons in Exeter or Guinea to extend the Block G license to 2040, adding 11 years to SABRE and six years to Accumate, which supports the next phase of investment in the country. As part of the extension, we're paying a signature bonus, which is already included in our four-year CAPEX guidance, and have agreed to undertake a work program focusing on the next infill and exploration drilling campaign. The extension adds around 6 million barrels of 2P reserves, which generates around $100 million of NPV10 at $75 Brent net to Cosmos. Turning to slide 11, our developments in Mauritania and Senegal. Phase one of Tortue continues to advance with all major work streams making progress in the quarter. On the hub terminal, construction continues on schedule with the 21st and final caissons shipped offshore in early March 2022 with three caissons left to be installed. On the subsea, the offshore installation campaign is expected to commence this month. Drilling of the four wells required for first gas commenced last month with two top holes completed. On the FPSO, mechanical completion continues. There was a two-week COVID-related lockdown of the Costco yard in China in early April, but that now has been removed and the yard is back up and running. As the operator communicated in its first quarter results call last week, the FPSO is on the critical path and the team is working hard to mitigate these disruptions and maintain the contract to sail away schedule of N3Q. The FLNG vessel is making good progress at the Kapoyard in Singapore, with the pipe rack installation now complete. Overall, the project was around 75% complete at the end of the first quarter, with first gas target in the third quarter next year. On Torchy Phase 2, we continue to work closely with the operator, the governments and the NOCs to optimize the development scheme with regards to both scale and timing. That work is progressing and we expect a development decision around mid-year with formal feed and FID to follow. It's important we manage future cost pressures in the right way to maintain the project's attractive economics. On Borrella and Yaka-Turanga, we continue to work with both governments and our partners to progress development concepts that will optimally position the projects to take advantage of the current market conditions. With that, I'll hand over to Neil to take you through the financials for the quarter.