Kosmos Energy Ltd. Common Shares (DE)

Greetings and welcome to the Cosmos Energy third quarter 2022 earnings call. At this time, all participants are in a listen-only mode. The question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the call over to Jamie Buckland, Vice President of Investor Relations. Thank you. You may begin.

Thank you, operator, and thanks to everyone for joining us today. This morning, we issued our third quarter earnings release. This release and the slide presentations to accompany today's call are available on the investor's 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, funds, 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. 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'd like to start today's presentation with a few comments on the macro environment and the role COSMOS can play in addressing the energy challenges the world is facing. I'll then give an update on the quarter and a progress report on the oil and gas development projects we have across the portfolio. I'll then hand over to Neil to talk through the financials before I wrap up today's presentation and we open the call for Q&A. Turning to slide three. The world's grappling with a need for affordable, secure, and cleaner energy with a balanced approach required to address the three dimensions. Cosmos has the right strategy and portfolio at the right time to be part of the solution. we have a strong oil-weighted portfolio that can supply more of the energy the world needs today. We're investing in growing oil supply in each of our core production hubs with an emphasis on high-graded projects that yield low-cost, lower-carbon barrels that are highly cash-generative. At the same time, we're working with our partners to bring new sources of natural gas into production. These projects address affordability and increase energy security by supplying more gas to global energy markets, as well as into domestic markets in Africa. This should benefit our host countries in two ways. First, the revenues from the export of LNG can be invested in critical infrastructure to promote economic development. Second, providing base load domestic gas supply will help expand access to electricity, a key goal in each of the countries where we work in Africa. Over the next two years, we expect to increase oil and gas production by about 50% as we optimize current production and bring new projects online. The COSMOS, the cash flow from our current and planned activities, enables selective reinvestment into the most compelling opportunities in our deep natural gas portfolio, which can help meet demand and support the energy transition for decades to come. Longer term, we plan to continue shifting the balance of our portfolio from oil to natural gas and LNG to help meet the world's energy needs as clean and natural gas displaces coal, heavy fuel oil, and biomass as a primary source of energy in both developed and emerging economies. The world's demand for energy continues to grow, particularly in Africa, and few E&P companies are investing to meet this demand. Given the quality of our asset base and the wealth of opportunities within our differentiated portfolio, we believe Cosmos has an important role to play in responding to these global energy challenges. The next slide highlights the characteristics that differentiate Cosmos. On the left side of the slide, we identify the distinctive features of our portfolio. First, we have a high-quality and long-dated asset base that 2P reserves for production life of over 20 years. Second, Our low-cost, high-margin assets are highly cash-generative, particularly at current commodity prices. First, we forecast around 50% growth in production from now into 2024 from three development projects, which are progressing well. The largest portion of that growth is expected to be driven by tortue, which increases the gas content of our portfolio materially just from phase one. with a larger transition anticipated as we deliver subsequent phases in our other gas projects in Mauritania and Senegal. On the right are the embedded values and qualities of the company that underpin our strategy. We have a strong focus on capital discipline, only pursuing the most compelling value-added projects in the portfolio, while making sure the balance sheet remains robust. We continue to reduce absolute debt and drive down leverage. And Neil will talk about the progress we've made this year. We have a highly experienced management team who have the energy to deliver our strategy and respond to the challenges we see across the industry today. And finally, we have a strong track record across the E, S, and G spectrum from near-term emission reduction targets the contract transparency, the funding social programs in our host countries. MSCI, one of the leading ESG rating agencies, recognizes this commitment and the progress we are making and has recently upgraded POSMOS to AAA, its highest possible rating. The combination of these qualities makes POSMOS unique and supports our ability to create substantial shareholder value. over the short, medium, and long term. So to summarize, I strongly believe Cosmos is well positioned for the future with a clear, compelling strategy, and we continue to live a progress on our strategic priorities each quarter. Turning to slide five. Looking at 3Q, it was another quarter of solid execution for Cosmos as highlighted by the boxes on this slide. Our production assets are performing as expected with production for the quarter in line with guidance. We continue to grow the value of our oil portfolio with progress at the Jubilee Southeast and Winterfell development, and we have high-graded our ILX hopper for next year's drilling activity. We are also growing the value of our gas portfolio with the continued execution of the torching projects, And at Borala, where we've signed a new PSC with the government of Mauritania. And finally, the balance sheet continues to improve as the portfolio generates cash, which drives down leverage, with our year-end target leverage at one and a half times achieved with further progress expected. We'll dig into each of these themes in today's presentation. Turning to slide six, which focuses on the performance of our production assets during the quarter. In Ghana, the Jubilee field continues to deliver gross production for the quarter, around 89,000 barrels of oil per day. Following the excellent drilling performance year to date, which has seen wells drilled safely and quicker than planned, we have now started to drill the first of the three Jubilee Southeast wells ahead of schedule. We have completed a handover of the Jubilee FBSO operations and maintenance from MODEC at the beginning of the third quarter, and the results so far have been encouraging, with multiple opportunities identified to drive further efficiencies and reduce costs. Since transition, the operating performance has been strong, with no reportable safety incidents and facility uptime of over 98%. On costs, we've identified potential savings through direct contracting, focused work scopes, and competitive re-tendering. At 10, gross production of around 22,000 barrels of oil today for the quarter was in line with expectations. The EN21 well was brought online in late September and has since been shown back awaiting pressure support from the injector pair, which we expect to see soon. The partnership also drilled a second intonally riser-based well during the quarter, which encountered approximately five metres of net oil pay, but with poorer quality reservoirs than expected. The data from the two riser-based wells will be incorporated into the expansion plans for 10, which will now be focused on proved accumulations in areas where we have existing well control. In actual Guinea, gross production has been consistent and stable, with around 30,000 barrels of oil per day for the quarter, again in line with expectations. In late August, the partnership entered into a rigged contract for next year's drilling campaign, activities scheduled to begin in the second half of 2023, when the partnership expects to drill several infill wells in Block G, followed by an ILX well. In the Gulf of Mexico, net production of 14,700 barrels of oil equivalent per day was slightly below expectations due to an extended Delta House turnaround and leaf currents impacting production of tornadoes after the planned ride-off of the production vessels concluded. At Delta House, there was an unplanned shutdown for around two weeks last month due to an outage of the gas compressors. The issue is being resolved and factored into our 4Q guidance for the Gulf of Mexico in the appendix slide at the back of the material. On Kodiak, the number 3 well came online in mid-September. Well results in initial production were in line with expectations. However, as one of our partners flagged in their results last week, well productivity has declined and workover plans are being developed. So there have been a few issues with unplanned downtime over the past couple of months, but we're now back at around 18,000 barrels of oil equivalent per day net and focused on growing argon production. Work also began on the Oddjob subsea pump project during the quarter, following sanction in Tuku, which is an important step in sustaining the long-term performance of the field. Turning now to slide seven. As we move our development projects forward, we continue to grow the value of the portfolio. This slide looks at the recent progress we've made growing the value of our oil portfolio. On Jubilee Southeast, the project is now over 50% complete, with the drilling of the first wells now underway. Initial production is expected in mid-2023, and the partnership is targeting a ramp-up in gross Jubilee production to around 100,000 barrels of oil per day. At Winterfell, all partners signed the field development plan in September, and the operator has signed a recommitment letter to drill and complete three wells starting mid-23. Those facility production handling agreements and midstream export agreements are also expected to be completed within the next several months, supporting our target of first oil at the end of the first quarter in 2024. Given the scale of the potential resource with approximately 200 million barrels of recoverable oil, we remain excited about this project. Within the quarter, acquired an additional interest, taking our overall interest in the project up to 25%. In addition, we are targeting further growth and drilling two high-graded opportunities in our ILX copper. We expect to drill the Tiberias well in the Gulf of Mexico mid-2023 and the Akeem Deep well in Extraordinary Guinea around a year later. Both projects are targeting over 100 million barrels of oil gross and would be high-return tieback projects if successful. Now that I've talked about our near-term upside in oil, I'd like to switch gear on slide eight, which looks at how we're growing the long-term value of our gas portfolios. So let's talk to you phase one, our LNG project in Mauritania and Senegal. All work streams continue to make good progress with the project approximately 85% complete at the end of the third quarter. The hub terminal is now largely complete with the living quarters platform installed and the commissioning activity now commenced. On drilling, four wells have been drilled with the total capacity of around 700 million standard cubic feet per day. We recently completed the first of the four wells and have floated back to the roof for a short cleanup period. Combined across the four wells, we now have significantly more capacity than the 400 million standard cubic feet per day required to supply the liquefaction volumes for phase one. On the floating LNG vessel, which has been constructed in Singapore, we remain on track for sail away in the first half of 2023, as communicated by GOLA in their most recent results. On the subsea, the shallow water gas export pipeline, the FPSO to the hub terminal, has been installed, and the deep water pipeline vessel has arrived in the region. Final testing has been conducted prior to mobilization in the coming weeks delaying the deep water pipeline and the infield flow line. On the FESO, the timing of the sea trials by the sail away was impacted by the typhoon which swept through the yard in mid-September and caused the vessels to drift away from the quayside. Around two weeks later, the vessel was returned to the quayside, and following the inspections carried out today, there continues to be no material damage reported. With the required inspections and additional work scope resulting from Typhoon, the impact on the FBSO schedule has been around a month. And as a result, we expect sail away of the vessel around the year end. Stepping back and looking at the project overall, the operator is working hard and making good progress to overcome the challenges from COVID, supply chain constraints, and more recently, Typhoon Muifah. We expect first gas around nine months from FPSO's sale away and continue to target first LNG around year-end 2023. On the cargo sales opportunity we talked about last quarter, a process of engagement has commenced with significant interest received to date, including majors, traders, and end users. We'll provide further updates as we progress the process and remain focused on crystallizing additional value for our shareholders from this opportunity. Elsewhere in Mauritania and Senegal, we continue to move the various projects forward. On Tortue Phase 2, we're in advanced discussions with our partners, BP, Petrosan, SMH, and the two governments, including their respective presidents, on the right concept to accelerate the second phase of the project. In light of the changed global market conditions following the invasion of Ukraine and the continuing volatility, our aim is to agree the best concept in the coming months, which will enable us to advance at pace for the right expansion. This is taking longer than initially envisaged, as we work to obtain the full agreement for both governments who are rightly considering the importance of their gas resource and the opportunity to build new government-to-government partnerships. Overall, I'm pleased with the level of alignment on the route forward. There's a sharp focus on building the right, low-cost solution, leveraging synergies with Phase 1, and accessing attractive pricing opportunities given the high-demand environment. On Boralla, we've now signed the PSE with the government of Mauritania as flags in last quarter's results. We're working with BP on a future development concept, and the PSE allows us up to 30 months to reach FID. So that sets the clock on that project. We expect this project to take a similar phased approach as TallTube to manage both cost and pay. In Senegal, we're continuing to progress the domestic gas scheme with the operator and the government. There is a large and growing need for domestic gas in Senegal, and the government intends to move this forward quickly. With that, I'll hand over to Neil to take you through the financials. Thanks, Andy. Turning to slide nine, the third quarter saw continued progress as we further enhanced our financial position.

We are taking advantage of higher oil prices to continue to strengthen our balance sheet with net debt down approximately $400 million year to date.

EVA DAX and 3Q was around $301 million, up almost four times compared to the third quarter of 2021 on higher production and higher realized prices. This was despite a significant underlift in the quarter, which we expect to reverse in the fourth quarter of this year. We generated around $30 million of free cash flow in the quarter, which takes us up to around $320 million for the year to date. Strong EBITDAX performance helped to drive leverage to the one and a half times target we set out to achieve by year end, with further progress on this expected. The chart on the right shows the quarterly progress we are making on both EBITDAX and leverage. As our production has grown on a year-on-year basis,

We now expect around $1.5 billion of EBITDAX for 2022 at an average oil price of around $100 per barrel.

Liquidity has grown consistently over the last year and remains over $1 billion.

Looking forward, with expectations that the business continues to generate strong levels of free cash at current commodity prices, we plan to continue to prioritize debt paydown in the near term.

Turning to slide 10. I've talked about the financial highlights on the previous slide, but plan to just cover the key items on this slide. As Andy mentioned, net production of around 61,000 barrels of oil at Brooklyn per day was in line with guidance, helped in particular by strong performance at Jubilee and offset by some weakness in the Gulf of Mexico. With the continued higher unplanned downtime in the Gulf of Mexico in September and October, full-year production guidance has been tightened to 63 to 65,000 barrels of oil equivalent per day. We realized a price of approximately $81 per barrel of oil equivalent, including the impact of hedging. Excluding hedging, we realized the price was around $97 per barrel of oil equivalent. Costs generally came in line with guidance. However, OpEx was lower than forecast due to lower Ghana operating expenses and some delayed projects in Equatorial Guinea. Looking forward, we expect an increase on our floating debt costs as interest rates rise. However, this is anticipated to be offset by reducing the amount of our floating rate debt. And as a result, overall interest costs should remain largely flat into next year. On capital, we expect 4Q to be broadly in line with the third quarter, which includes some slightly higher capex on Winterfell, reflecting the costs associated with the acquisition of our additional working interest. On the Graded Portrait project, there's also some uncertainty on the timing of accruals around the end of the year, which could either accelerate or defer capital between 2022 and 2023. So to conclude the financial section of today's presentation, it was another good quarter of progress.

We continue to fund our differentiated growth and deliver excess cash, which helps further reduce debt and improve our balance sheet.

We expect more of the same in the fourth quarter. I'll now hand it back to Andy to close today's presentation. Thanks, Neil. Turning to slide 11 to wrap up today's presentation. Cosmos has had another solid quarter of strategic and operational delivery. Our production assets continue to perform well. We are growing the value of our oil business through advancing developments in Ghana and the Gulf of Mexico. with additional potential from high-grade ILX opportunities that we plan to start drilling next year. We're also growing value across our gas portfolio with further progress in Tortue and the signing of the Verala TSC in Mauritania. Our financial position continues to improve with another quarter of free cash generation. This has put leverage at multi-year lows with further progress planned. And finally, we have the right low-cost, lower-carbon portfolio at the right time, providing the energy the world needs today and supporting a just transition that addresses the trilemma of energy security, energy affordability, and climate change. Thank you. I'd now like to turn the call over to the operator to open the session for questions. Operator.

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 the star keys. One moment, please, while we poll for your questions. Our first questions come from the line of Neil Mehta with Goldman Sachs. Please proceed with your questions.

Yeah, good morning, Andy and team. Thanks for taking the time. The first question is really around the sale date for the FPSO. Obviously, there was a weather impact there. It sounds like you guys have been able to work through it quite effectively. So any more detail that you can provide and Based on the test that you've done on the asset, any structural damage or no real impact? Thank you.

Yeah, hi, Neil. Yeah, thanks for the question. Yeah, you know, we obviously suffered the impacts of the typhoon going through the yard. The mooring line's compromised. Vessel moved 200 meters away. It's now been back at Quayside now. And as I said on my remarks, all of the inspections to date have not revealed any significant damage, no structural damage. And we've really suffered about a month's delay from that work. The additional inspections that were required and the work that was required to address the minor damage that occurred. So the operator's targeting SailAway around the end of the year. And with that, and we can talk more broadly if you want around the overall schedule, but that still puts us in the place whereby year-end 23, we can be delivering the first LNG. So as with all big projects, it's a question of dealing with the sometimes the challenges that are put your way. And clearly, you know, BP's been challenged with the COVID shutdowns and with the typhoon, but they've done a really good job at overcoming those and making progress. The project's made a lot of progress in the quarter. We're now at 85% complete, you know, with progress across all dimensions. And clearly, you know, overcoming the latest issues with the FPSO has been an important piece of delivery in the quarter.

Yeah, I think that's going to be an important catalyst for the story. And that's the follow-up, which is – As the investment community, as we track where you are right now to ultimate completion, what are the milestones we should be watching between now and year end 23 to determine if everything's on track?

Yeah, no, thanks, Neil. Again, it's good to be able to talk about it. If you sort of go through the five work streams in the project, and obviously the integration of those five work streams is important. You start with the wells, you know, we've drilled four wells, we've just done the first completion, flowed the well back, you know, with a good clean up. So, you know, one completion done, three more to do and that's the wells finished and we expect to get all of that done by the end of the first quarter. You then sort of move to the hub terminal, essentially complete, a very high level of completion. Actually, the pack that we distributed this morning has a picture of the current state of the hub terminal. You can see from that picture a level of completion that's there. We expect to be fully commissioned and ready for the FLNG vessel by the end of the first quarter of next year. FLNG vessel, as GOLA have declared in their own disclosures, should depart Singapore in the first half, and it's 60-day to 90-day transit, so it should be scheduled to arrive and hook up through the third quarter. And then finally, you've got the subsea. As I said in my remarks, the shallow water line has been done. The deep-water pipe-lay vessel is in the vicinity and it expects to start work later this quarter and to finish all the deep-water pipe-lay and flow lines by the second quarter. And then the critical path through the FPSO Sales around year end, expected to arrive 90 days later. We do the hookup of the FPSO, the connection of the subsea when all the equipment is laid, which is sort of the end of the third, around the third quarter. So therefore, you know, you start, you know, to introduce gas around that timeline, which leads you to, you know, first LNG by the end of the year. So all the component pieces are there, and we continue to deliver on those milestones as we go. As with all big projects, there will be challenges around the integration of all of that, but there is a clear way forward and a lot of energy now in the delivery of that timeline.

Thanks, Phil. Thank you.

Yeah, great. Thanks. Right. We'll go to the next question then.

Thank you. Our next question has come from the line of Bob Brackett with Bernstein Research. Please proceed with your questions.

Yeah, good morning. I'm curious about 23 capex, but I'll leave that question for somebody else and instead focus on GTA Phase II. I hear your language around government to government, and I recollect high-level visits between the president of Germany and Senegal. And could you provide some color on that? To the extent that governments get involved, does it change the scope of the project, the timing, or perhaps the assurance of counterparties? How do I think about that?

Good question, Bob, and the answer is sort of all of the above. You know, we've gone through a process of sort of revisiting the right concept for Phase 2. And we've done that with, you know, full engagement of all the partners, obviously with BP leading that piece of work. And, you know, the ministries involved and actually both presidents involved. And for them, it's about ensuring that they've got the right project which enables them to to position their gas as an important trade relationship with Europe. And you mentioned the visits of Schultz to Senegal. part of actually the whole issue of energy security in Africa being an important new source of LNG. So the right project, right scale, right timing, as the governments think about their government-to-government relationships, has factored into this piece of work. So it's more than just the engineering. It's actually about them having to rethink their approach, really, as a result of everything that's happened in the last six months. But I think it's been appropriate for them to do that. And of course, it's slightly more complicated, Bob, because you've got two governments involved. And that's always been the challenge with GTA. That said, we have an important piece of delivery here. We have a project which is truly low cost, which has lower costs. Low carbon gas, there's no CO2, and therefore it's an important piece of new supply for Europe. And I think, you know, as a result of those conversations, I think we've made real progress. I think I'm optimistic that the operator will put forward a proposal actually this month that incorporates all of that feedback, which will enable us to agree the concept of which enables us to do the work to optimize that concept and then move the project forward into around that concept into feed and ultimately construction. So I think we are making real progress, and I think the challenge has been around a changing world and actually ensuring that we create alignment around both government positions.

Very clear. And if you had your choice, if you controlled the path, would you prefer a smaller but quicker phase two as had been recently envisioned versus what potentially could be larger and maybe not any slower scale project?

Yeah, Bob, you know, and I think, you know, I'm only one voice in this, so I need to be careful about what my view, singular view is. It's not about what I want to do or what Cosmos wants to do. It's what's best for the partnerships. I think the partnership really understands that we have an opportunity to deliver truly low-cost project by leveraging fully the infrastructure that we've invested in in phase one. I think there's clear alignment around that. Therefore, really, the debate has been around what's the best liquefaction solution that fully utilizes the infrastructure that we've laid in And therefore, how do you build out that liquefaction that gives you the best opportunities you think about that, you know, the largest scale, but at the best timing, right? And that's really, where's the edge of that? That's been the debate. But I think there's, you know, really good alignment around the fact that we have essentially a brownfield expansion now. And how do we optimize fully the investments that we've made in phase one? Very clear. Thanks for that. Thanks, Bob.

Thank you. Our next question has come from the line of Charles Meade with Johnson Rice. Please proceed with your questions.

Good morning, Andy. To you and your team there, I wanted to ask just a follow-up about Phase 2, but perhaps from the financial perspective. I think when you have spoken about Phase 2 in the past, the idea would be that the cash flows from Phase 1 would essentially make your pathway through building phase two cash neutral. I have to imagine that as you guys have gone back and reexamined your contracting strategy for phase one, that you're shifting more to a free cash flow positive position in Mauritania and Senegal, even once you begin phase two. Is that the right sense? Or maybe is there any more detail you can offer on that?

Yeah, no, I'll share the answer with Neil. Yeah, I think overall, Charles, I think you're right. So when we talked about it and about the phasing of the projects, it was always about ensuring that we had a really capital-efficient phase two by fully leveraging the phase one. And we talked about a very sort of modest upstream investment, sort of less than a billion dollars, and I think that absolutely holds true, and I think we have the opportunity to do better than that. And therefore, ultimately, the question is, how do you deal with the CapEx on the midstream? And within that, we will have sort of financing or leasing options. So I don't think anything sort of changed on that. And I think you're correct, I think, in saying that I think probably from a cash flow perspective, there could be an opportunity to be slightly more positive as a result of that.

yeah i mean i think the environment for you know gas prices and oil prices will clearly be positive versus the long-term deck that we put out in terms of creating that wedge charles and so there's some upside there and clearly around the cargo sales opportunity there's additional upside that would give us some more cash in that near-term period so uh yeah i think it's definitely moving in in a positive direction versus just the neutral position that's helpful detail thank you neil and then uh if i could uh ask a question about the

this uh tiberius prospect in the gulf of mexico i i i guess i've been operating under the impression there aren't a lot of uh untested four ways still out there in the gulf of mexico but but um perhaps that's not uh that's not correct i mean can you give us a little bit of the provenance of this of this uh prospect and and uh a timeline for testing it yeah no you're right so charles it's uh

There aren't many four ways left in the Outer Wilcox. This is maybe the, you never say the last, but this is one of the remaining few I think there are there. And so we really like the prospect because, as you know, that genre of prospects that are four ways in the Outer Wilcox have been highly successful. So we like the prospect, and we're targeting on drilling it around mid-year. Actually, we're out securing a rig as we speak. So it's a high-quality prospect, I think, from a geologic perspective. It's got scale, over 100 million barrels of resources. and it is a tie back. So it absolutely fits our strategy. And as you rightly, you know, I think implicit in your question is this idea about quality. How do you get to the very best? And I think as we look at the prospects that remain in this play, this is one of the very best. That's helpful detail. Thank you, Andy. Great.

Thanks, Charles.

Thank you. Our next questions come from the line of Alex Smith with Investec. Please proceed with your questions.

Hi, guys. Thanks for the call. Just a quick question on the results of the two 10 strategic wells. Both have been fairly disappointing from maybe expectations. Can you comment on the short to medium term impact this will have at 10? What the next plan of action is? Is it the case of reanalyzing the data and reassessing the interim plans? Or you mentioned targeting proven accumulations. So could you provide some details of those areas that you'll be targeting as opposed to the interim prospect?

Yeah, no, thanks. Thanks, Alec. You know, look, the purpose of the two wells, they were appraisal wells, it was to, you and allow us to calibrate the seismic to ensure that we have a solid development plan going forward. And just remember, this is new resource that we're bringing to TEN. So this is sort of new resource that obviously when developed becomes new reserves. So it's about bringing more rather than what we have today. I think, you know, the appraisal wells have allowed us, I think, to get a better understanding now of the quality of that greater end zone area. And I think as we look, we can see the potential to bring new resource across that area, but we will be targeting accumulations where we have well control and therefore is lower risk. And that's the process we're in now with the operator, to sort of bring a plan together that has that characteristic. It will be a mix of sort of oil and gas, associated gas and non-associated gas. But so there is new resource to be brought. The appraisal wells have served the purpose in terms of properly defining the opportunity set so that we can bring something forward that is of the right risk profile and competes for capital within our overall allocation. So it has done what we want it to do, and we're now sort of fully integrating the results of those wells into the plan, and this is something that we will be debating with the operator over the turn of the year.

Great, very clear. Maybe just another quick one. You've hit the gearing target that you had planned for year-end. Does the question of potential dividends or buybacks now enter the realm, and maybe should we hear an update on that?

Yeah, great. Why don't I pass it over to Neil, and he'll give you our thoughts on that.

Yeah. Hey, Alex. So, you know, where are we? You know, we've made good progress in terms of debt reduction, which we've been clear that that has been our key focus. So, you know, we brought net debt down from $2.5 billion at the beginning of this year to $2.1. Leverage has come down from $2.5 to $1.5 times. You know, we've been consistent in saying, you know, our near-term objective is to get leverage down to $1.5 times in the sort of sustainable oil prices. And that will require us to continue to push debt down further than where we are today. And so the good thing is we continue to get closer to that point. And so it's an issue of timing. And oil price is a big driver within that outcome. And so if oil prices sort of stay where they are, I think we can get to the right place in the back half of next year. to start having that discussion around shareholder returns. And based on the discussions we've had with our shareholders in the past, I think we're continuing to lean on the side of buybacks versus dividends. So we're in a good place to continue to move the path forward on continued debt reduction, and then when we get to the right time, push on the shareholder returns.

Great. Thank you. Thank you. Our next questions come from the line of James Hosey with Barclay. Please proceed with your questions.

Hi there. I've just got a question on Ghana there. You've talked quite a bit about monetizing gas resources. Can you give us an update on where the partnership is in Ghana with securing new off-take agreements for the associated gas? And does Ghanaian gas play any part in your 50% production growth by 2024? Yeah, thanks, James.

No, it's a great question. And clearly today we're producing around 100 million scuffs of gas from Jubilee. We're coming to the end of the foundation volumes, and so therefore we're starting a conversation with the government about a gas sales contract for that gas. Integrated with that, is the development of 10, which I talked about on a prior question, which will be an integrated gas and oil development with gas, but it's both associated gas from the oil and non-associated accumulations and putting in the infrastructure that enables us to optimize that. So I think, you know, the way you should think about it really is that gas will... will be a part of that growth in 10. The approval of that plan by the government will then give the government an important source of domestic gas at a price which is competitive with our current cost of gas. So if you start to think about the growth target, I think the big chunks of it are clearly tortue, which is the biggest chunk, You then have the growth in Jubilee, Jubilee Southeast, then Winterfell. And then, you know, there is some growth. You know, there's some growth in 10, and it's going to be a mix of oil and gas. So a piece of it, you know, is going to be 10 gas. But, you know, overall, it's a minor part of the contribution to the 50% growth.

That's great. Thank you very much.

Great. Thanks, James.

Thank you. Our next questions come from the line of James Carmichael with Berenberg. Please proceed with your questions.

Hi, guys. Just a quick one on Jubilee. You mentioned in the release some options for potential cost reductions there. Just wondering if you could provide a bit more color on that. And then I guess nobody else has sort of picked up on Bob's 2023 CapEx questions that I've It's probably a bit early, but if there's anything you can say on that. Yeah, sure.

You know, good. Thanks, James. Yeah, I think, you know, clearly what's caused the opportunity, you know, created the opportunity is the transfer of the responsibility for the operations and maintenance from MODEC. And so it's given us really a direct line of sight to that. And I think that we're seeing opportunities coming from really optimizing the work scope because you're coming in with a different mindset, I think, from somebody who is a sort of third-party operator to one that is now 100% focused on that task. So an opportunity from work scope optimization. I think there is some work to do with the contracting strategies. and how we can get, you know, better value from those. So I think the combination of those two things are the things that are allowing us to... will allow us to make reductions in terms of the cost space. Now, clearly, there is a more inflationary environment out there, but I think we have real opportunity to mitigate that. And you saw a piece of that come through in 3Q. You know, the 3Q production costs were, I think, you know... below where we'd guided, primarily because we had a shift in the operational activity in Extraordinary from 3Q to 4Q, but there was an underlying piece of self-help from Ghana, in particular in Jubilee, and we expect more of the same going forward. And it is just all about getting to top quartile performance, both in terms of reliability of the facility, which has been excellent, the operating costs where we have, I think, greater access to those opportunities. And again, I think I do want to, you know, comment on how good the drilling performance has been. And, you know, that has enabled us to accelerate the Jubilee Southeast wells. So, you know, good performance to today, you know, in Jubilee. And I think, you know, on the cost side, you know, there's probably a little more to go.

Yeah. And then, James, I'll just take the second part of your question around 2023. I think You are right. It is still a bit early because we're still finalizing the activity within the various partnerships that we have. But I think generally we're looking to stay broadly flat into 23 being sort of the last big capital year for us as we finish out the development projects. And we're being able to manage sort of the inflationary. pressure through, you know, as Andy mentioned, even on the work scope side. So making sure we're efficient around every dollar we spend across the capital end as well as the operating end of the business. And so that lets us keep things in a generally sort of flat area.

Great. And maybe if we can, just a quick follow-up on where you're seeing the most inflationary pressure at the moment.

Yeah, you know, it's interesting. You know, again, deep water is different from the lower 48 in terms of the timing of the contracts. So, you know, we've got some good contracts, I think, in place in Ghana, and we've benefited from those. You know, if you look out to sort of where the areas of capital spend, you know, we are seeing it in our deep water rig contracts. We've, you know, the operator, I think, did a really good job on Winterfell in getting sort of ahead of the market in getting that rig at a very good price. You know, we're following with the rig on Tiberius. And I think, you know, we're getting a fairly high utilization rate. So for quality equipment, I think, you know, we are seeing inflation in those rig rates. And I think that's probably for us the biggest variable. Other things, you know, we're well locked in. You know, there's clearly... You know, still stuff to finish on Tortue and, you know, the edges of contracts, which have to be finalized access to some of the workboats as we get into the installation campaign. That will be an issue for us. You know, we've talked about, you know, Jubilee Southeast, the biggest contracted equipment as well as on long-term orders. We don't see a lot of inflationary pressure there. And then finally on Winterfell, I talked about really what the operator has been doing to get ahead of it. So for us, the next sort of, you know, big capital item actually that we're focused on is securing the rig for Tiberius.

Great. Thanks, James.

Thank you. Our next questions come from the line of Mark Wilson with Jefferies. Please proceed with your questions.

Hi. Good morning, everyone. You've taken a lot of questions here. I'm going to focus on the gas, and you've given good clarity on the TOR2 side of things. But maybe looking beyond that to Birala and Yak-Arturanga, you've got the 30-month extension of Birala there. So my question, Andy, is should we consider Cosmos as staying in those two projects through to development, or do you see them more as monetization options? And also, would those two require further drilling ahead of a development decision? Thanks.

Yeah, no, great questions. I think, you know, if you start off, you know, from the biggest sort of strategic level, and there are different projects, I think, as we look at Borrella and Yankaturanga. Look at Borrella, I think this is about another, you know, it's a new source of gas, in particular for Europe. It has the attributes of being lower carbon. Borrella is the same as GTA gas, essentially no CO2 in it. And it is about coming forward with a development scheme that is low cost. I think it will be phased. And can we get a cost-competitive gas into Europe where we see an enduring market need? So the work that's ongoing at the moment, as you say, there's a 30-day clock to 30-month clock to get to FID. In fact, Cosmos is doing the concept work. on that, and it will be about a low-cost phase development targeting a market in Europe where we're geographically advantaged. And so I'm optimistic that we can come forward with something that's really credible. And I think, you know, the inherent value of the project is then developed. And I think, you know, subsequent decisions would follow. But for me, our first objective is to generate something which is truly value added. And, you know, as you look to the strategy of the company, I believe gas, as I said in my opening remarks, is something that is core to our future. It creates longevity and quality to the company. Building out GTA is a piece of it. Following it with a project like Borrello is entirely part of that. So I don't think we're, you know, we're not questioning the relevance of that Borrello in the portfolio. But clearly we have work to do to come up with something where we truly have a compelling cost competitive project. And with regard to further appraisal, the answer is sort of no. How can you come forward with a scheme now where you're not getting caught up in the timeline of putting a lot of money into appraisal, which generally is only going to destroy returns and extend timelines? On Yakutanga, it's a different start. I think the country's very clear about its needs. It's a significantly larger population than Mauritania, a growing population. They have They're burning heavy fuel oil today for power generation, displacing that with gas. Not only brings economic benefit, it brings climate benefits. And so how can we accelerate the development of Yucca-Turanga? It will be a modest domestic gas project as they convert those power stations, but one which is serving a real need for the country that creates a great investment opportunity for us. And then the follow-on that can come from that, if you like, early gas scheme to one where I think there is an export component to that as well. So that's our twin focus on these projects. How do we create a really cost-competitive LNG export opportunity in Mauritania? And then getting on with a domestic gas project, which the country does need, and then how do you create optionality from that that follows? you know, we focused obviously a lot of our energy on phase one and then getting phase two moving. But I think, you know, you rightly talk about the value that's in our portfolio from these two projects because I genuinely believe they are competitive gas sources globally and both in an export sense and from a domestic sense.

That's great. Thanks for the commentary. Good. Thanks, Mark. Anything else? You good? All right.

I'll go to... Thank you. Sorry. Thank you. Our next question has come from the line of Bob Brackett with Bernstein Research. Please proceed with your questions.

Thanks. Just coming back with a fairly minor question. I was trying to understand the strategic or financial logic around the Panora Farm in Equatorial Guinea. What sort of consideration did you receive and what sort of drove that decision?

Yeah, no, it's, you know, it's interesting, Bob. Yeah. I won't go, you know, we can do it offline in terms of the exact numbers, but you know, not, you know, not big actually in the overall scheme of things. But I think most important thing is to create alignment across the partnership. Um, Panora obviously came in and picked up the Tolo share, so they're going to Sabre and Akimek. We haven't talked about it, but the big upside, the asset is performing well. We're seeing the extension of production profiles from good production engineering, particularly around the ESP program. But the real upside is going to come from the opportunity in the Albion and untested play, but some very, very strong four ways. And Panora wanted to get access to that opportunity, which is great because the decimals aren't quite right. But then we have alignment between the exploration potential and the ownership in the infrastructure. So he's really around getting alignment around that rather than as not liking, as it were, the opportunity in a king deep. I think Charles asked the question around Tiberius, what did we like about it? And it is a compelling four-way. The Albion play in actual Guinea is equally interesting because it's got really strong geology. These are solid four-ways. There's clear source. And we have fundamentally a very good initial prospect and then real play extension now with the acreage around it. Thanks for that. Great. Thanks, Bob.

Thank you. There are no further questions at this time. I would now like to turn the call back over to management for any closing comments.

Well, thank you, everyone, for joining us today. And that concludes today's call. If you have any follow-up questions, please reach out to Jamie. Thank you.

Thank you. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.