Kosmos Energy Ltd. Common Shares (DE)

Good day, everyone. Welcome to Cosmos Energy's fourth quarter and full year 2022 conference call. As a reminder, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If you require operator assistance during the program, please press star zero on your telephone keypad. 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.

Thank you, Operator, and thanks to everyone for joining us today. This morning, we issued our fourth quarter and full year 2022 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 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 SEC filing 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 fourth quarter and full year 2022 results call. As I normally do with our full year results, I'll start today's presentation by taking a step back to talk about our strategy and how the solid progress we made in 2022 has supported the delivery of that strategy. We'll then focus on 2023, an important year of inflection for the company. Turning to slide three, which looks at Cosmos' role in helping address the world's energy challenges. The world is grappling with a need for affordable, secure, and cleaner energy, with a balanced approach required to address the three dimensions of this energy trilemma. Cosmos has the right strategy and portfolio at the right time to be part of the solution. We have an oil-weighted portfolio that could 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 assists our host countries in two ways. First, the revenues from the export of LNG can be invested in critical infrastructure to promote economic development. And second, providing baseload 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 year, we're targeting an increase in production of around 50% as we optimize current production and bring new projects online. But Cosmos, the expected 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 helping address these global energy challenges. Turning to slide four, which looks at the execution of our strategy over the past five years. Throughout its history, Cosmos has been contrarian in its thinking and has pursued a differentiated and often counter-cyclical strategy. Cosmos' strategy has delivered value for our investors over the last five years, with more to come as we continue to execute on our plans. As part of our contrarian approach, while much of the industry moved onshore, we maintained our focus offshore, where Cosmos has deep expertise. This decision provided an opportunity to take advantage of a market with few credible buyers for high-quality deepwater assets, enabling three strategic and value-accreted acquisitions. Where many Pierce have publicly stated they are pursuing no or low growth. Cosmos has pursued a series of organic growth projects, which are planned to come online at a time when the world needs more energy. We believe that the industry is under-investing for the needs of the future, and that companies with quality opportunities can outperform. We're an early mover among our peers in transitioning our portfolio to gas, and we now have a unique hopper of world-class gas and LNG opportunities that are well aligned with the needs of the energy transition. And we've invested counter-cyclically when commodity prices were low to drive value across the portfolio, which should continue to play out over the next several years. A fundamental measure of any E&P company valuation is its 2P reserve base, which for Cosmos has almost tripled over this timeframe from around 200 million barrels of oil equivalent at the end of 2017 to around 550 million barrels of oil equivalent at the end of 2022, with a lengthy runway of additional discovered resource potential beyond that, which I'll talk more about on the next slide. Turning to slide five, For an oil and gas company to have a sustainable future, it needs a robust reserve base of advantaged hydrocarbons. As mentioned on the previous slide, over the last five years, our reserve base has enhanced materially in terms of size, quality, and diversity. Breaking down these elements, Our 1P proven reserves awaited more towards oil today, reflecting the near-term exposure to low-cost, lower-carbon barrels with high returns ensured payback. On a 2P basis, our proved and probable reserves have reserves to production ratio of over 20 years and a split almost 50-50 oil to gas, demonstrating the future direction of the company. Our strategy is to invest our oil revenues into world-class gas and LNG opportunities, which are aligned with the energy transition. The chart on the right shows the diversity in the reserve base, with a 2P reserve plus 2C contingent resource for life of over 30 years across five countries. We have materially grown our reserve space over the last five years and expect further growth over the next five. from our discovered resource base, highlighting the runway for future value creation for years to come. Turning to slide six, the consistent pursuit of our strategy has created a unique investment proposition for investors, which is characterized by the elements on this slide. A portfolio of high-quality assets that have longevity. These assets are differentiated in that they offer material and visible near-term growth. The assets are highly cash-generative, with low break-evens and benefit from access to premium markets, giving us exposure to both Brent and international gas prices. We have a unique set of gas and LNG opportunities that have the potential to capture that premium price upside that will allow us to transition more to gas over time. We have a management team focused on the execution of our clear strategy and meeting the expectations of our investors. We also continue to focus on capital discipline with a rigorous capital allocation framework. And finally, we have sector-leading ESG credentials, which I'll talk more about on the next slide. Turning to slide seven. Building our ESG credentials has been a core part of our strategy over the last five years. A key goal is to help our host nations develop their hydrocarbons in a responsible way and expand access to affordable, reliable energy. Through creating economic benefits, we help drive sustainable development in our host countries. I'm pleased to say we continue to deliver progress across the ESG spectrum in 2022. First on environment, 2019, we set a carbon neutrality target of 2030 or sooner for our operating scope one and scope two emissions, which we achieved in both 2021 and 2022. We are building on this progress with a plan to disclose equity emissions and targets in this year's sustainability report. We are increasing the gas weighting of our portfolio, with first gas a torture expected in the fourth quarter and a long pipeline of future gas projects. We should enhance our scope through emissions going forward. Second, on social. We care deeply about the people who work for Cosmos and those who work with Cosmos. In our host countries, we employ 100% local nationals, and our offices in Dallas and Houston are consistently named among the top places to work in both cities. We aim to be a trusted partner and a good corporate citizen in our host countries, working with a range of stakeholders in our communities to facilitate sustainable development. We have worked in this manner for nearly 20 years, going back to when the company was founded. Each year, we fund important social investment programs in Ghana, Exxon Guinea, Senegal, and Mauritania that are aimed at creating economic opportunity, advancing social progress, and improving standards of living. The success of the Cosmos Innovation Center is a prime example. This initiative in Ghana, Mauritania, and Senegal invests in young entrepreneurs and small businesses outside the oil and gas industry, We train and empower young people to turn their ideas into viable businesses, and we work alongside promising startups to help them reach their full potential. In Ghana, the Cosmos Innovation Center recently entered into a partnership with the MasterCard Foundation, in which MasterCard will fund a significant expansion of the program across Ghana. And finally, governance. Governance has always been a pillar of our business, and starts at the top with our experienced and diverse board of directors, down through to the executive leadership team, and onto our employees. We have always taken an industry-leading position on transparency, publishing all of our material petroleum contracts online, along with all government payments. In summary, our consistent commitment to ESG and sustainability is a core value for Cosmos. one that has been recognized by stakeholders. MSCI, one of the leading ESG rating agencies, recently ran Cosmos AAA, the highest possible rating, which puts us in the top 20% of companies in our sector. Similarly, Newsweek and Statista recently named Cosmos one of America's most responsible companies for the third consecutive year. Our consistent focus on operating responsibly in all that we do supports our ability to deliver long-term value to our diverse range of stakeholders. Switching gears, I would now like to look back at our solid delivery in 2022 and how it laid the foundation for future success. Turning now to slide nine. 2022 was a year of strong operational delivery, supporting our longer-term strategic objectives. I'm proud to report that we delivered an injury and incident-free workplace with zero recordable or lost-time safety incidents and no spills. Our production of around 64,000 barrels of oil equivalent per day was in line with guidance, representing 70% growth over 2021. Our LNG development, Torchy Phase 1, is around 90% complete. Our other development projects are moving forward with Jubilee Southeast and Winterfell making good progress. Last quarter, we reached full payback from our most recent acquisition in Ghana, achieved in just 14 months, demonstrating our track record of value creation from M&A. And as flagged on the previous slide, RESG progress was recognized by MSCI with its highest AAA rating. Turning to slide 10, 2022 was a record year for Cosmos. There's a lot of important data on this slide, but I'd like to highlight the standout points. Over the last five years, we've seen revenue and EBITDA double. Liquidity has almost doubled over the same period, while net leverage is almost halved, both a reflection of the growing financial resilience of the company. As I mentioned earlier, our two pre-reserved banks has almost tripled from year-end 2017 to year-end 2022, alongside the diversification of our asset base. The scale of this reserve base underpins the future of the company and has enabled us to grow shareholder value. I'll now hand over to Neil to talk about the financial highlights of the year.

Thanks, Andy. Turning to slide 11. As Andy said, 2022 was a record year for Cosmos with the financial highlights noted on this slide. We posted record revenue in EBITDAX for the year, helped by oil prices, but also by the highly creative acquisition of the OxyGona assets in late 2021. Free cash flow was strong with around $350 million for the year, which enabled us to pay down over $400 million of debt during the year, and we exited the year below our year-end net debt target of 1.5 times. We expect further progress on debt pay down in 2023 at current oil prices with our free cash flow back in loaded due to the timing of CapEx and production increases. Turning to slide 12, which looks at the fourth quarter in more detail. 4Q numbers came in largely as expected. CapEx in the quarter was slightly higher than guidance due to the timing of accrued CapEx on Tortube, which we flagged as a possibility when we reported last quarter. Depreciation was lower than guidance due to an increase of reserves at Jubilee booked at year end. And as you've seen in today's press release, we have booked an impairment on 10, as now we forecast a more conservative activity set, which is deferred in time based on last year's well results. The reduction to 2p reserves is fairly small at around 3.5%. However, the bulk of the impairment related to the timing and mix of reserves between oil and gas. We still believe 10 has significant potential, but it does carry more risk, and therefore any future activity must compete for capital with other opportunities across our portfolio, which we'll touch on a bit later when we talk about the year ahead. With that, I'll hand it back to Andy.

Thanks, Neil. Looking forward to 2023, we expect this year to be a major inflection point for Cosmos as we start to bring new developments online with multiple catalysts expected across the portfolio. Starting in Ghana on slide 14. In late 2021, we materially enhanced our stake in Jubilee to almost 40% through the acquisition of Oxy's interest because we believe in the upside in the field. In 2021, the field produced 75,000 barrels of oil per day. We expect it to increase by around 25% from that level to 95,000 barrels of oil per day this year due to the startup of the Jubilee Southeast project, which is on track to come online at the end of next quarter. Jubilee is a big field which continues to get bigger. From first production back in 2010, the total oil in place has more than doubled to around 2 billion barrels, as the partnership has drilled more wells, discovered more productive horizons, and proved up more resource. We're now working closely with our partners to drive a higher recovery factor, which combined with more oil in place could increase gross recoverable reserves to over 1 billion barrels of oil equivalent, with less than 40% of that produced to date. The partnership has identified more than 30 additional drilling locations, which should enable a production plateau at these higher levels for several years to come. Recent drilling progress has been excellent, with three Jubilee Southeast wells drilled, all of which have come in ahead of expectations. The results have been encouraging from two dimensions. Firstly, the wells have located reserves in more oil horizons than expected, and secondly, the primary horizons have indicated connectivity to the main Jubilee field. We look forward to providing further updates on this important project over the coming months. Elsewhere, we're working with the partnership on a commercial gas sales agreement to replace the arrangement whereby the government receives gas for free until the end of 2022 under the terms of the initial Jubilee POD. There is an interim agreement for the first half of this year which mirrors the key terms of the existing TEN gas sales agreement to take account of gas substitutes from TEN to fulfill the Jubilee gas obligation. We're also pleased with the progress made since the handover of operations and maintenance of the Jubilee FPSO last year, with cost savings and operational efficiencies materializing with more to go. OPEX in the second half of 2022 was 30% lower than the first half of the year. In 2023, Jubilee OPEX is expected to decline around 15% on a gross basis, which is rare in an inflationary environment. This equates to around a 25% reduction per barrel, given the expected increase in production year-on-year. On 10, the partnership is working to high-grade the future opportunity set, with production guidance for the year flat against current levels, with no drilling activity currently planned for the year. Production guide to both fields was provided by the operator in January, with Jubilee at 95,000 barrels of oil per day gross and TEN at 20,000 barrels of oil per day gross. Turning slide 15. Necklace Royal Guinea operations continue to go to plan. The key deliverable last year was the extension of the Sabre and Akumi licenses out to 2040, which has enabled the next phase of investment, including the planned three-wall infill drilling campaign beginning in the fourth quarter of 2023. We expect production this year in EG to be broadly flat year on year, although we do expect to see production levels rise towards the end of the year from the current level of approximately 30,000 barrels of oil per day gross on the back of the infill drilling program. In addition, on expiration, we plan to progress the King Deep ILX opportunity for drilling in the first half of 2024, along with the infill drilling program. A king deep has the potential to create a step change in ED production if successful. The well is a high-graded prospect that delivers around 180 million barrels of resource in a deeper albion horizon between the existing Sabre and Akume fields and the source rock. In a success case, the field will be tied back to the Sabre FPSO, where there is ample spare capacity. There is also significant follow-on potential with around 400 million barrels of resource identified as a deeper albion horizon across Blocks S and EG21. In the first quarter of 2023, COSMOS was awarded a 24% working interest in Block EG01, which contains an extension of this albion trend. Turning to slide 16, in the Gulf of Mexico, this year's activities largely focused on three areas. First, production optimization. On Kodiak, we have worked with our partners to formulate a workover plan for the Kodiak 3 well in the second half of the year. The well continues to experience productivity issues, but we anticipate the workover will restore production to a more normalized rate in the fourth quarter. We're also progressing the odd job subsea pump project that was sanctioned last year. The project is approximately 30% complete and adding the pump is expected to increase oil throughput from the odd job field starting in the middle of 2024. Secondly, we continue to progress the Winterfell development. The field development plan has been signed by all partners and we're near to finalizing the production handling agreement and the export agreement, which will lock in production and pipeline capacity for the project. The rig has been contracted and we plan to start drilling the first phase one wells when it arrives on location in the third quarter. This timing would allow for first oil around the end of the first quarter of 2024 as previously communicated. Turning to slide 17, the third area of focus for 2023 in the Gulf of Mexico is the Tiberias infrastructure-led exploration well. This is one of the few remaining four-way structures in this prolific outboard Wilcox trend, where historical success rate for four-ways has been around 50%. We expect to spread the well in the second half of the year. We're targeting gross resource, of around 135 million barrels of oil equivalent, and Cosmos has operatorship and a one-third interest alongside Oxy and Equinor. The well is in close proximity to a production facility owned by one of the partners, which has sufficient spare capacity in the event of success. This is one of the best prospects in our exploration portfolio and could materially grow our Gulf of Mexico business. Turning to slide 18. On tour two, phase one continues to progress. With the project now around 90% complete, we wanted to show how the infrastructure will come together in the coming months. There are several key milestones through the year as we deliver the major work streams for the project. As announced in January, the FPSO left the yard in China and has made assured staff in Singapore to have a piece of equipment fitted and progress commissioning. The vessel will then continue its journey to West Africa and is due to arrive in the second quarter as previously communicated. Construction of the hub terminal is now complete, as can be seen in the image on the slide, with commissioning underway and completion expected ahead of the arrival of the floating LNG vessel. The floating LNG vessel is due to leave the construction yard in Singapore in the second quarter and is expected to arrive in West Africa in the third quarter. On drilling, four wells have been drilled and completed. Flowback of the wells has demonstrated rates significantly higher than required for Phase I liquefaction. On the subsea, the Amazon vessel has now arrived in the field to commence the deepwater pipeline, which will be followed by the installation of the subsea structures with subsequent mechanical completion and commissioning. Hookup activities are due to begin in the second half of the year, targeting first gas in the fourth quarter, as communicated by the operator BP with their fourth quarter results earlier this month. A huge amount has been achieved today, and we look forward to reporting on these key milestones through 2023 as we continue to get closer to first gas. Turning to slide 19, looking more broadly at our other gas opportunities in Mauritania and Senegal. In recent days, the partnership approved the LNG concept selection for the second phase of Tortue, which is an important step forward for the project. The partners selected a gravity-based structure, or GBS, which is an LNG storage tank with the base of the structure sitting on the seafloor with the liquefaction units on top. The concept selected adds around 2.5 to 3 million tons per annum of LNG capacity to torture and includes new wells and subsidy equipment that maximizes the use of the existing Phase I infrastructure. The partnership will work over the next year to optimize the size, cost, and schedule prior to entering into fees and sanctioning the project. During this period of optimization work, we will start engaging with potential off-takers. On the Acoturanga, as BP recently stated, the partnership is working to develop a domestic gas-to-power scheme as a first step for the development. there is then the potential for a future LNG export opportunity to complement the domestic gas project. Umbrella, we recently signed a new PSE with the government of Mauritania and are working with a partnership to progress that opportunity based on an LNG export scheme. In terms of the total gas opportunity in Mauritania and Senegal, There's potentially around 15 TCF of recoverable gas at each of Tortue, Boralla, and the Ataturanga, or approximately 12 TCF of recoverable gas next to Cosmos, which is around 2 billion barrels of oil equivalent. The takeaway from this slide is that we have significant exposure to multiple potential future gas and LNG opportunities, and we are continuing to progress all of them to create future optionality for Cosmos. That's the overview of the planned activity set for 2023, and I'll now hand back to Neil to talk about our capital plan.

Thanks, Andy. Turning now to slide 20. With a busy year of activity, we remain committed to disciplined capital allocation. In 2023, we are targeting capital spend of between 700 and 750 million, which is in line with 2022 levels as we continue to progress our three key developments. Approximately 250 to 300 million is for maintenance activities across Ghana, EG, and the Gulf of Mexico, which primarily includes our infill drilling programs and the subsea pump project in the Gulf of Mexico. $350 to $400 million is related to our three key development projects, Jubilee Southeast, Tortue Phase 1, and Winifred. Between $50 and $100 million is planned for our ILX activities in the GOM and EG, as well as the appraisal of our greater gas resources in Mauritania and Senegal. We also remain committed to continued debt paydowns. At current oil prices, we expect to generate around $1 to $200 million of free cash flow this year before working capital, which is back-end loaded as we reach the anticipated inflection point of lower CapEx and higher production. All excess cash flow this year will be prioritized to debt repayment. We remain focused on debt paydown until we get leverage to below 1.5 times in a normalized oil price environment. which should come from both increased EBITDAX from high oil production and continued reduction of absolute debt. When we reach that level, we have the potential for shareholder returns, which is an active conversation with our board. But in the near term, we see debt pay down as the best use of cash flow to ensure we continue to strengthen the financial resilience of the company. Turning to slide 21. Having outlined the capital plan for 2023, this slide shows the multiple catalysts we expect from that investment throughout the year. I don't plan to touch on every catalyst on the slide, but as you can see, there's a consistent stream of important milestones across each part of our portfolio. Already in the first two months of the year, we have finished drilling the Jubilee Southeast wells, which are expected online at the end of next quarter. On tour two, the FPSO has left the shipyard in China, the wells have all been drilled and completed, and we've announced further progress on phase two. We'll be reporting on the rest of these catalysts as we move throughout the year, and as I mentioned on the prior slide, we expect to see a major inflection point in the second half of this year as CapEx ramps down and production ramps up in Ghana. It's going to be a busy and exciting year across all of our geographies. With that, I'll hand it back to Andy to wrap up today's presentation.

Thanks, Neil. Turning to slide 22 to conclude today's presentation. COSMOS has a differentiated strategy that we pursued catastrophically over the last five years. This has built a high-quality, diverse portfolio of low-cost, lower-carbon oil assets, low-cost, lower-carbon gas assets, which have longevity, a 2P reserve life of over 20 years. We plan to deliver around 50% growth in production between 2022 and 2024, and these assets have the potential to generate significant pre-cash flow with a major inflection point expected mid-year as production grows and CapEx starts to fall. A key differentiator of our portfolio is our deep hopper of future gas and LNG opportunities, which have exposure to premium international pricing. And finally, we have a management team focused on creating value for our investors with a clear strategy and rigorous capital discipline. Thank you, and I'd now like to turn 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 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 key.

One moment, please, while we poll for your questions. Our first questions come from the line of Charles Mead with Johnson Rice.

Please proceed with your questions.

Good morning, Andy, Neil, and to the rest of the Cosmos team there.

Good morning, Charles.

Andy, I wonder if you could talk us through, I guess, the process of selecting the gravity-based structure for Phase 2 of Tour 2. I'm not as familiar with those as a solution, so I'm curious. why the departure from the design of Phase 1 being an FLNG, and what are the relative advantages of this gravity-based design concept, and what perhaps are some of the compromises that go along with those advantages?

Yeah, thanks, Charles. You know, what a nice sort of start at the top. You know, clearly BP has well communicated the decision around the Phase 2 concept decision, and You know, I would say that, you know, all the partners, the governments, the NOCs, BP, Cosmos are aligned around building a West African energy hub. And ultimately, it's about, you know, alignment of strategy of developing resilient hydrocarbons for the energy transition. And phase two is an important next step on that journey. you know, I'm sure we'll get questions across, you know, many callers around the concept, so why don't I sort of address sort of three big questions, you know, why the concept, the timing, and the cost. I think when you look at the concept, we did a lot of work with the government, as I discussed, I think, you know, three months ago, around ensuring that we had properly evaluated the concept primarily as we looked at the changing market conditions, what was the right next step in the development of this significant gas resource. So the decision around a gravity-based structure for phase two is primarily sort of three primary considerations. One is the fundamental cost efficiency of the concept versus alternatives. I think the second issue, which is unique around the GBS, is you have the opportunity to upscale the storage, and that actually creates operational efficiencies as we integrate phase one and phase two. And I think the third element that contributed to the decision was flexibility around financing if we choose to go down that path and then ultimately the cost of that financing. So those are the three things that sort of drove the selection of the GBS for the midstream. But it's sort of worth, I think, reiterating that we have for Phase 2 a concept which is going to leverage heavily the infrastructure from Phase 1. So what does Phase 2 comprise of? There's clearly additional wells, manifolds for those. but we're going to de-bottleneck the FPSO, so the actual capital contribution to that is very small. Use the existing pipeline, obviously the breakwater, and the export. So you're adding some additional storage and you're adding the LNG processing on top. Again, to sort of anticipate the next question, where are you on the timing? I think we're really going to spend the next year through pre-feed really ensuring that we've got the right approach to the market, that we've evaluated optionality around the GBS. You can go concrete-based, you can go steel-based, and to fully optimize the concept and fine-tune the volume between 2.5 and 3 million tons, which is really dependent on the de-bottlenecking of the FPSA. So a huge amount of work at the front end to front end load that, and particularly important given the inflationary environment we're in. But again, this is a very cost-competitive brownfield expansion of an existing LNG project. And therefore, we'd anticipate sort of entering feed, which BP would regard as the sanctioning of the project in about 12 months' time. And then in terms of cost, it is, as I said, really cost-competitive because of the brownfield expansion. The upstream, relatively minor, given the use of the existing infrastructure, additional wells, manifolds. And then you've got the LNG processing itself, which we believe is absolutely top quartile versus other opportunities. So I think, you know, hopefully, Charles, that gives you the full view of the project. And as you can sense, I think we, BP, the partnership, are very excited about moving forward now on the next stage of the expansion of the development of this field.

Yeah, it is. Thank you for your comments, Andy. It's an exciting prospect and one we're going to be able to follow for a while here. My follow-up. Jubilee Southeast, you made a couple comments in your prepared remarks about, and I think you also had some in the press release, that not only did you establish pressure connectivity with the main field pays in Jubilee proper, but that you found, it seems like you found maybe some new sand, some new reservoirs. And that's a near-term upside for you guys, it seems like. So I wonder if you could perhaps... Elaborate a bit on your prepared marks there.

Yeah, no, look, you know, I think those three wells that we've drilled down to the southeast were important. We're obviously testing an expansion of the field. You know, from the slide that we included with our presentation, you can see the step out of the field to the southeast. And so, you know, important that those wells actually delivered the subsurface result that we were hoping for. And actually it was more than we'd hoped for. We, as you say, there were a couple of things that were important. We believe that, you know, we have the indication of connectivity to the main field, which clearly sort of says that there was additional resource sort of inboard of the wells that we drilled. And then we found some deeper horizons. So, you know, I think if you step back from the detail charge, you know, you're absolutely right. You know, Jubilee, as we said, is a big field, gets bigger. We're continuing to see upside from the development of the field. And, you know, from a near-term perspective, having sort of de-risk the subsurface now for Jubilee Southeast, at least for the initial phase of the field, we think there's additional follow-on potential. There are 30 development locations that we've found, which gives you an indication, I think, of the longevity of the plateau that we can build.

Great. Thank you for your comments, Andy.

Great. Thanks, Charles. Appreciate it.

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 today. Just a question on 10 for me, please, given the impairment. It looks like decision has been taken on the back of the two strategic wells and the greater interme area back in 2022. So it would be good to hear your views on the medium-term prospects for that asset and any opportunities you feel there could be to kind of get things back on track and grow the area, especially maybe the opportunity for gas for TEN as opposed to oil in terms of growth, given that gas agreements are being signed with the government. So any kind of clear views on TEN would be great. Thank you.

Yeah, no, thanks, Alex. Good question. Look, when you step back from it from a reserves perspective, it was relatively small, you know, 3.5%. So, you know, there was, you know, some reduction in oil, you know, offset by some additions of gas. So sort of on a reserve basis, a relatively small impact, but obviously that traded then the assessment against the ceiling test. I think when we look at, though, the investment in 10, we actually see a... you know, less capital going in, you know, therefore a more conservative development case. So there is, you know, future development in the field, but we are going to target lower risk areas where we have good well control. And fundamentally for Cosmos, it's about how would that development therefore compete with other opportunities that we have in our portfolio. You know, clearly in the material today we've talked about the deep hopper of opportunities that we have in Mauritania and Senegal, opportunities that are opening up in the Gulf of Mexico and in Equatorial Guinea. So I think ultimately this is about quality through choice and therefore where TEN would rank in our future opportunities. So we do see future potential. It will be a combination in TEN. of both oil and gas, but clearly it's smaller than we'd anticipated and therefore, you know, the decision as we look at the capital allocation to take the impairment.

Very clear. Thank you. Thanks, Alec.

Thank you. Our next questions come from the line of Neil Mehta with Goldman Sachs. Please proceed with your questions.

Hey, good morning, Andy, Neil, and team. Thank you. So congratulations to you guys on getting the FPSO moving towards West Africa. Just would love your perspective on what are the gating items that we should be thinking about, about getting to first gas by the end of the year at Tour 2 Phase 1?

Yeah, thanks, Neil. You know, we've achieved a lot on the project, and as you say, it's not done yet, but we continue to make progress, you know, quarter on quarter. The FPSO is an important delivery in the first quarter, and we anticipated being in location in the field in the second quarter, so that's clearly a milestone for you to track. The SLNG vessel is targeted to leave Singapore in the second quarter, getting there in the third quarter. So that's, again, an important milestone for you to track. In terms of the drilling of the wells, sort of all complete, done, the completions flowed back, and we're very positive about the well results. As we said in our remarks, we've achieved rates significantly higher than required for Phase 1 liquefaction, so we feel good about the subsea. We also feel very good about the hub terminal. I think we included some pictures in the deck which show that the construction is complete, you know, commissioning underway, and the hub terminal will be ready to receive the FONG vessel when it arrives in the third quarter. So really now it's about the completion of the subsea installation. The Amazon vessel is on location in the field now. We'll complete the lay of the deepwater pipeline, and then we start to install the structures. So I think as you sort of think about it, you know, you're really into the – completion of construction of the subsea through the third quarter, beginning of the fourth quarter mechanically complete, which then enables first gas in the fourth quarter. So the big things to look at are obviously the arrival of the FPSO and its anchoring in position, the arrival of the FLNG vessel and its connection to the hub terminal, the completion of the installation of the deepwater pipeline, and then the mechanical completion of the subsea equipment with the installation of the subsea equipment. Those are the big things. And as BP indicated in their results, I think the closer we get to it, the more confident we get around the delivery of gas by the end of the year.

Thanks, Andy. The follow-up question is a tricky one because maybe not all the moving pieces are there, so feel free to pass on it. But you gave a 2023 free cash flow number of $100 to $200 million at current prices. I think for a lot of investors, what they're really playing for is 2024 because at that point you've got Phase 1 coming online and get that big inflection. Is there any parameters that you can provide around what the free cash flow could look like X Phase 2 where we haven't gotten to FID yet?

I'm going to give Neil a minute to think about the answer to that question, Neil. But I think it's a great question because what we're talking about is the inflection point that is occurring in 23 for Cosmos. And, you know, mid-2023, middle of this year, we're going to start to see first product from Jubilee Southeast, which is a significant contribution to the growth in production. We obviously see an end of the capital going into that project. We then go through the back end of the year and we see a continuing decline in CapEx as Tour 2 Phase 1 is complete. And then we go into the beginning of 24 The startup of production at the back end of 23 on Tortue and then the startup of production in Winterfell at the end of the first quarter. So I think the most important thing is you're going to see a progressive increase in free cash flow quarter on quarter. as we go through the second half of this year into the first half of next year. And then, you know, once we have Winterfell on, then you're starting to get to a sort of plateau number. Yeah, so that inflection is really close. You know, we're not far away now. The forecasting of free cash flow in 23 is going to be dependent on the exact timing of those projects. As you move to 24, Neil?

Yeah, so without giving you... new numbers, I'd say all the things Andy said structurally are still sort of in play, which is sort of operating cash flow increases and the sort of maintenance or the capex required for the business to maintain that production certainly comes down quite a bit. I think the key piece that will continue to progress On top of that, we've got some choices then to make around sort of where do we redirect that incremental free cash flow. And I think we feel good, as we've said in the past, around being able to direct cash flow towards future growth, high-graded onto the projects that we want, continued debt pay down to get the balance sheet into a stronger, more resilient place. and then an additional piece on top of that for shareholder returns. And so I think we should be unique in that ability to do all three, given the quality of the portfolio and kind of where we are, and that's certainly where we're taking it.

Thank you. Our next questions come from the line of Suvas Chandra with the benchmark.

Please proceed with your question.

Yeah, hi. Thank you. A couple of questions, follow-ups, I guess, on the gravity-based. First is, how do you compare cycle times post-FID for that versus floating? And what do you think about sort of the novelty of gravity-based, at least for this purpose? Do you think it actually increases the risk or the operational risk or decreases it?

Yeah, no, good questions. I think, you know, thanks, Sebastian. In terms of the cycle time, we would see the cycle time being very competitive with floating, I think simply because you've got a broader access to construction yards, you know, shipyards relatively full at the moment. So I think you have a broader contracting base to draw upon. So we see no... disbenefit from a contract cycle time. In terms of the novelty of it, it's a proven development approach. It's been used elsewhere. There are proven designs that have both a concrete base and a steel base. So we don't see any increased complexity associated with the approach. In some respects, it's a very straightforward piece of design and engineering. that's been proven. And, you know, as a base structure, it obviously gives you a very simple architecture then for putting the FLNG trains on, you know, a very simple sort of top site. So I really think it has a lot of benefit in terms of both the the contracting strategy, the access to different providers, and ultimately the architecture that you create. So when you look at all of those combined, we think that it's the right approach. As I say, we looked at it from a capital efficiency perspective, which I've talked about, which is both cost and time. We looked at it from the ability to sort of create incremental operational efficiencies from fine-tuning the storage capacity and then greater flexibility to do that. And then if we chose from a financing perspective, we could create greater flexibility there. So I think, you know, we don't see any increased technical risk impact probably, you know, nothing there where we feel we're taking, you know, There's any disbenefit to it, and I think in cycle times, it's absolutely competitive.

I got it. Makes sense. A follow-up. The Kodiak workover, what do you think that could do for Gulf Volumes? How do you think of, if everything worked out, exit Gulf Volumes in 23?

Yeah, well, I think we're... Clay, just to go back, you know, obviously the sidetrack well, we've had some skin issues. We've done an investigation, you know, partners involved. We believe we have an effective way to intervene on the well, work over the well, and anticipate that it's going to, you know, execute, you know, in the sort of back end of the third quarter, around the third quarter. So we'll have a production impact in the fourth quarter. I think in terms of volumes probably coming from the well, we could probably, around what, Neil, double?

One to 2,000 barrels a day.

Yeah, a couple thousand barrels a day net increase is chubash. I think that's sort of, it could be greater than that, but that's sort of what we're targeting.

Okay, thank you very much.

All right, thank you.

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

Hi there. Thanks for the presentation. It's encouraging to see all the updates on Tertui. I'm just wondering if you want or need LNG offtake contracts before you sanction Phase 2, and then also, is there any update on the possibility of redirecting some of your Phase 1 cargoes to realize some of the upside to your contracted price?

Yeah, no, good questions, James. You know, fundamentally, Phase 2 is different from Phase 1. The capital that's involved is significantly lower and therefore we believe we absolutely will not require full sale of the contracts before we sanction. I think that with the announcement now of phase two in terms of the concept and the scale and the timing of the project, we intend to engage in the market this year to look at options that we have around flexibility on sales. And without wanting to preempt that process, I would say there will be an element of fixed to it. We'll have to review what indexes we choose, but an element of fixed. And I believe that we will have an element of spot in it as well to be able to fully capture upside. So we will not have to have sold all the gas at FID. So the FID is sort of separating from that, whereas when we were at phase one, it was very much linked. On phase one, with the cargo opportunities, we continue to make progress on that. We have engaged now with a sort of high-graded list of potential buyers. We're working with those buyers on a contract structure, which we believe will give us the best opportunity to capture the upside. And we anticipate that we would be in a position to sort of select the high-graded buyer and the contract structure probably in the first half of this year. With regard to BP Gas Marketing, we've continued to debate, discuss with them the contract structure. There's clearly a difference of opinion between us in terms of how it would actually operate. So, you know, when you have a disagreement amongst friends, we've gone to a third party. So we have agreed to go to arbitration. and have the contract interpreted for us. And this is actually a good thing. It's a positive outcome because it allows us to get everything clear before we would start to use those the cargo optimization options, which comes at the end of the commissioning period, which is sort of around the middle of 24. So getting everything lined out and sorted out in terms of how it would actually work is an important step forward and would have all of that sorted out, I think, within a year as we go through that process. So those are the key updates. But going to the market now with Phase 2, at the same time as we're discussing Phase 1, allows us to get a really good understanding of the sort of fixed nature of the future contracts and the spot nature and then optimizing that between Phase 1 and Phase 2.

Okay, thanks. I guess a follow-up for me, if I could just wonder a little bit about the future project you've got both in Senegal and Mauritania, I guess we've seen some press reports that, I guess, naturally indicate the countries are very eager for you to get on and develop them. Is there increasing pressure on yourselves and BP to commit to Berala and Yakut Ranga, or is it just noise?

No, look, I think it's actually a positive, James. I wouldn't see it as a negative. You know, as I sort of step back, I think, Yeah, real alignment amongst the government, the NFC, BP, Cosmos around the development of their resources. And again, from a BP perspective, they view it as a key part of their strategy for the development of resilient hydrocarbons. So I think we're moving forward on both of Yakutanga and Borala. Yakutanga will have a domestic element to it. Clearly the project is aimed at displacing heavy fuel oil, expensive heavy fuel oil for power generation in Senegal and enables us to start the project in that way with a competitive domestic gas project with the option then of LNG export. In Mauritania, there is a difference because you're looking primarily at an LNG scheme there. And again, we're looking at a way in which we can get an efficient phased approach that uses some existing infrastructure. in a port in Mauritania. So, you know, for us it is about how do we continue to progress those projects and the absolute alignment between BP and Cosmos to do that. do it in a way where we come up with really competitive schemes that compete. And yes, ultimately there may be a choice within Cosmos around which ones we invest in and which ones we bring in partners. But I think that's ultimately a great problem for us to have going forward. So I don't feel any pressure. I think it's great. I think we have a resource the world needs. We're addressing energy security in Europe. We're creating affordable power in Africa and ultimately contributing to a lower carbon future. And if we can do all of that, I think, you know, we will only create value for Cosmos' shareholders. So I'm excited about it, and phase two moving forward is just a signal, I think, of the progress that we're making.

Okay, that's a great answer. Thanks very much.

Great. Thanks, James.

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

All right. Thank you. I've got two questions, one on the GVS concept and one on exploration, please. On the GBS, you've talked before about the floating concept for Phase 2 being approximately a billion dollars capex. Now, that was a few years ago. We've had inflation, and it appears to be a bigger scale. So I'm just wondering if you can give any sort of parameters to help us on what you think capex of that concept select could be, maybe as a percentage of Tour 2 Phase 1, as one example. Also on the GBS, one thing that... I was going to say, one thing that strikes me is you've built all these concrete caissons for Tour 2 Phase 1, so there's a big knowledge of using concrete to build large things in Senegal. So is that part of the concept sector as well, local content and possibly building it there? Thank you.

Yeah, all right, Mark. Yeah, we'll do that one first. Just sort of when we talked about cost in the past and we talked about the billion dollars, it was clearly around at the time the upstream component on the basis of the sort of the least midstream. So I think those were early costs and I think that we'll do a lot better than that on the upstream now as we've done further work to delineate what's actually going to be required to de-bottleneck the infrastructure that we have in place today to take another gas flow of around 400, 450 million standard cubic feet a day that you need to provide for 2.5 to 3 million tons of LNG liquefaction. So I think that's the first point. So I think in terms of that billion dollar number, the actual upstream cost I think is going to be below that now that we've done the work. Then you come to the midstream, and clearly we've got options to do with leased. finance, which obviously the capital will not be on our books, or do we capitalize? And that's a decision that we have yet to make. But clearly when we look at the GBS as an option, we believe whether it's a capital or whether it's leased, it is more cost effective than going down the FLNG route. Does that make sense?

It does, yeah, definitely. And then on that local content point, given, as I say, the phase one case on work that's gone on in Senegal.

No, yeah, absolutely, Mark. And again, what we're looking to do is build that local content as we look at phase two. What I don't want to do is sort of preempt the work that we'll do with the market. There are various ways of doing it. You can clearly do it with a concrete base. You can do it with a steel base, and what we need to do is go out, work it with the market to come up with the most cost-effective way of doing it, and one that is aligned with the local content. So I think what you're unpicking is we have some real optionality now of how we create the most capital-efficient way of doing it and leveraging some of the knowledge that we've built from the past. So we see this, as we say, as absolutely the most cost-effective way to move forward, and it gives us the most flexibility on storage size and financing.

Okay, thank you. Just one quick follow-up, a couple of really quite punchy exploration wells in the coming year at Tiberias and at Kang Deep. Yeah. On that, on the Akeng Deep, could you remind us who your partners are in Block S, please?

So, partners in... There's many partners in Block G, in Noro and Trident. In Trident, yeah.

Okay, very good. Thank you.

Yeah, the point about that, great question, Mark. The point about that is that, again, you know, we see it as being highly, you know, highly prospective. This is an untested... deeper objective, clearly between the source rock and the currently producing horizons in Sabre and the Kume, with a very solid four-way structure. And the great thing about it is then the alignment around the partnership that enables us then to bring it back to the existing capacity that we have in Sabre and Akume. So, no, we're excited by it. I think, you know, it's a great exploration prospect, but actually the capital, again, it's a very low-cost F&D because of the existing capacity in Sabre and Akume and the fact that we have alignment amongst the partnership.

Appreciate the colour. Thank you.

Great. Thanks, Mark.

Thank you. As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. Our next questions come from the line of Matt Smith with Bank of America. Please proceed with your questions.

Hi there. Thanks very much. I just wondered if I could come back to the free cash flow guidance for 2023, please. And I guess just in light of how that compares to the results in 2022, Production, I guess, broadly flat, slightly up. CapEx, broadly the same. Clearly, there's a macro element. But I think due to the hedges in 2022, your post-hedge realized price wasn't too far from what we see on the screen today. So I just want to make sure if I'm missing anything in terms of moving parts for free cash flow in 2023, please. And then I think a related follow-up would probably be just to check On shareholder returns, am I interpreting the comments correctly? That's probably a story for 2024. If we're looking at further deleveraging across 2023, please.

Yeah, sure, Matt. Yeah, so when you sort of reconcile 23 versus 22, clearly production's higher. and we're sort of forecasting a lower sort of oil price, which is the biggest sort of impact to that free cash flow number. As you noted, hedges aren't a headwind. We've put in the floors around in the 70s and have ceilings up to 110 on average, and so we've got much better access to higher oil prices as well. as the year goes down, as the year goes on. OPEX, you know, clearly is trending, you know, slightly higher, but is lower on a per barrel basis given sort of the increased amount of production we're running through. Just from a free cash flow perspective, as you said, capex is about the same. There is a bit higher interest cost just given, you know, we do have some variable rate debt And then cash taxes are a bit higher, partially just reflecting timing. So EG taxes are paid sort of a year in arrears, and therefore the benefit we got from last year, we'll pay a little higher tax on that front this year. But on the whole, we generated $400 million, $350 million of free cash flow last year at $100 oil. You know, the sensitivity is still around $100 for every $5 an oil price, and we're assuming sort of an oil price between sort of $80 and $85. So, you know, that's the biggest portion of the difference.

Perfect. Thanks very much. And just on the shareholder distributions?

Sorry, can you repeat the question, Matt?

Yep, sure. Sorry, I just wanted to double check whether I was interpreting the comments correctly. I think you referenced that 100% of the free cash flow in 23 will go to DeGear, the balance sheet. So therefore, are we thinking about shareholder returns being a 2024 story?

Correct. Yeah, I think that's the way to think about it. I think As we get through the mid-year inflection point, we'll be close to the point to where we can provide external guidance in terms of what that looks like in 24 and beyond. I think there are clearly a number of moving parts, both on the oil price and the project side that we are working through. It is an active discussion at the board in terms of what is the quantum and form of that shareholder return policy. But it is a 24-plus given sort of oil prices backed off a bit from where they were six months ago.

Perfect. Well, thanks very much, guys. Appreciate the call.

Great. Thanks, Matt.

Thank you. At this time, we have reached the end of our question and answer session. With that, I would like to bring the call to a close. Thanks to everyone for joining today. You may disconnect your lines at this time and thank you for your participation.