This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk04: Good day, everyone. Welcome to Cosmos Energy's first quarter 2023 conference call. Just a reminder, today's call is being recorded. At this time, let me turn the call over to Jamie Buckman, Vice President of Investor Relations at Cosmos Energy.
spk05: Thank you, Operator, and thanks to everyone for joining us today. This morning, we issued our first quarter earnings release. This release and the slide presentation to accompany today's call are available on the Investors page of our website. Joining me on the call today to go through the materials are Andy Ingalls, Chairman and CEO, and Neil 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 filings for more details. These documents are available on our website. At this time, I will turn the call over to Andy.
spk07: Thanks, Jamie, and good morning and afternoon to everyone. Thank you for joining us today for our first quarter results call. I'm going to run through the progress we've made during the quarter before handing over to Neil to take you through the financials. We'll then open up the call for questions. Starting on slide three, it's been just over two months since our fourth quarter earnings call, which brings us closer to the anticipated mid-year pre-cash flow inflection point we talked about at our year-end results. Over that period, we made steady progress on advancing our strategic agenda, and one cue was another quarter of solid delivery. On production, we averaged approximately 59,000 barrels of oil equivalent per day net during the quarter, in line with guidance. We expect production to rise in the third and fourth quarters as new wells come online primarily at Jubilee. Our development project, which we expect to collectively increase the company's production by around 50% from now to 2024, continue to make good progress. On Jubilee Southeast, we are targeting first oil next month. On Tortue Phase 1, we're targeting first gas at the end of the fourth quarter. And on Winterfell, we're targeting first oil at the end of the first quarter next year. While we're focused on the delivery of these near-term development projects, we're also progressing our future growth pipeline beyond that. We plan to drill the Tiberias Infrastructure Lead Exploration, or ILX, well in the Gulf of Mexico next quarter. We're making progress on the second phase of TORCHU with our partners in Mauritania and Senegal. The LNG concept has been selected and the project is moving into pre-feed. Elsewhere in Mauritania and Senegal, we're continuing to optimize the development concept for the Borrella and Yacaturanga discoveries to advance our next gas development. Turning to slide four, this slide looks at operations across our three production hubs during the quarter and highlights the upcoming activity steps. As I said, net production of around 59,000 barrels of oil equivalent per day was consistent with 1Q guidance, and full-year guidance remains unchanged at 65,000, 69,000 barrels of oil equivalent per day net. In Ghana, Jubilee gross oil production averaged around 72,000 barrels per day, down from the fourth quarter due to reduced water injection, primarily to manage reservoir pressure during Jubilee southeast drilling. Production is now stable since we re-established normal water injection levels in February. Five wells in total, comprising four producers and one injector, are expected to online from the end of the second quarter through the end of the third quarter. These wells should drive a material increase in Jubilee production over the coming month. I'll talk about that in more detail on the next slide. At 10, gross oil production averaged just over 20,000 barrels per day. During the second quarter, the operator submitted to the Ministry of Energy the draft plan of development for a high-graded activity set of additional wells at 10. The plan includes a combined associated gas sales agreement which covers all future gas sales for both Jubilee and TEN fields. This activity set aims to maintain TEN oil production around current levels whilst increasing gas exports. Securing additional domestic gas is a priority for the government, and we look forward to advancing this proposed oil and gas development at TEN. Moving to Equestrial Guinea, gross oil production averaged just over 27,000 barrels per day during the quarter, in line with expectations. The three-well infill drilling campaign is expected to begin in the fourth quarter, with the first well online around the end of the year. The Aking D-Biolex well is planned for the end of the first quarter next year, on the back of the infill drilling campaign. Lastly, in the Gulf of Mexico, net production was approximately 16,000 barrels of oil equivalent per day, in line with guidance. On Kodiak, we've contracted the vessel for the work over at the Kodiak 3 well, with work expected to start in the fourth quarter. The odd job subsea pump project continues to make good progress and is expected online in mid-2024 as planned. As I mentioned on the previous slide, we're on track to spud the Tiberius ILX well next quarter, which is a high-graded prospect within the outer Wilcox trend. And on Winterfell, additional long-lead items have been ordered. The export and host platform agreements are expected to be executed around mid-year. Drillings on track to commence in 3Q with first oil targeted at the end of the first quarter next year. Also in the latest Gulf of Mexico lease sale, Cosmos, in a joint bid with a Winterfell operator, was the apparent high bidder on a neighboring block to Winterfell, which could grow the resource from this hub beyond the two phases currently planned. Turning to slide five, which provides more detail on Jubilee, which is expected to drive our near-term production growth this year. Now, fall year results in late February talked about the significant upside potential of Jubilee over the coming years. This is a big field that continues to get bigger, with an estimated resource of over 2 billion barrels in place, and over a billion barrels equivalent expected to be recoverable. Less than 40% of these recoverable barrels have been produced since the field came online in late 2010, which creates the opportunity to extend the plateau of this high-margin production. Over the year, we expect to see production growth coming from both the main field and through the new Jubilee Southeast infrastructure as additional wells are brought online. In the main field, the partnership is planning to add two producer wells and one water injection well this year, with the first producer expected online shortly. The other producer and injector should be online during the third quarter. On Jubilee's southeast, first production is expected to start up in June. Two producer wells and one injector well have been drilled, with the producers anticipated online in late 2Q and early 3Q, respectively, with the water injector coming online in early 2024. The chart on the right shows the expected impact of the new wells coming on stream, with gross production expected to rise over 50%, from the first quarter to more than 110,000 barrels of oil per day in the fourth quarter. With over 30 identified development drilling opportunities, the partnership is aiming to maintain gross production above 100,000 barrels of oil per day through the end of the decade. Following the oxytransaction in late 2021, Cosmos increased its stake in Jubilee from 24% to around 39%. The investment has already paid back in 14 months. Looking ahead, the real benefit of this transaction is yet to come as we work to increase production and maintain the plateau. On the chart on the right, we've also flagged the likely timing of cargo listings from Jubilee, which Neil will talk about shortly. Due to the ramp-up through the third quarter, the Jubilee cargo listing schedule is heavily weighted towards the second half of the year, with only two Jubilee cargos expected in the second quarter. In summary, it's an exciting time for our core assets at Jubilee. Initial production from the new wells is the first major step of the anticipated production and cash flow inflection point. Turn to slide six, which shows the first phase of the Torchy project with good progress across the four key work streams during the quarter. Firstly, the subsea. The wells have been drilled, completed, and flowed back ready for production. The Amazon vessel is now laying the deepwater pipeline, which will then be followed by the infield flow lines and installation of the subsea structure. Timely execution of this subsea work scope is now the critical path to the first gap by the end of the year. Pre-commissioning work on the FPSO advanced during its scheduled stop in Singapore. The vessel is expected to arrive on location around the end of the second quarter. Construction of the hub terminal is now complete with handover to operations expected at the end of this quarter. And finally, construction and mechanical completion of the floating LNG vessel is finishing and commissioning work is now underway. Sail away from the shipyard is expected mid-year. At this point, the operator is focused on the integration of these key work streams and managing the critical path through the subsea to enable first gas by year end. Turning to slide 7, which looks at the future gas and LNG growth potential we have across the portfolio. While the team is fully focused on the delivery of Tortue Phase 1 this year, we have also progressed the next phase of gas development. Across the Mauritania-Senegal Basin, the partnership has discovered and de-risked around 80 PCF in place of an advantage gas resource across our acreage. This equates to around 15 TCF of recoverable gas net to COSMOS, or over 2 billion barrels oil equivalent, over four times our current 2P reserve base. Recent transactions seen across the sector have highlighted the value of strategic world-scale gas assets. Our deep resource base across Tortue, Varela, and Yakuturanga is a real differentiator for the company, a portfolio that we believe is truly unique across independent E&P companies. As you may have seen in a press release in late April, we recently strengthened the company's board of directors. Our new directors bring valuable international operations and LNG experience to the company as we execute on our strategic goals and maximize the value of our gas resources. looking specifically at future growth opportunities on the slide. At Torture Phase 2, we recently announced the gravity-based structure development concept, which was a key step to advancing the project into free feed. At Borrella, following the new PSC agreed with the government of Mauritania late last year, we're working with partners on project optimization and concept collections. And finally, at Yaka Turanga, we're progressing the domestic gas scheme with our partners and the government of Senegal with LNG export potential thereafter. In summary, we continue to advance our differentiated opportunity set across Mauritania and Senegal, progressing multiple options that we can high-grade deliver future gas and LNG growth across the basin. That concludes the portfolio review. I'll now hand over to Neil to talk about the financial highlights of the quarter.
spk01: Thanks, Andy, and good morning and good afternoon to everyone. Turning to slide eight, the first quarter of the year was in line with expectations with production flat against the fourth quarter last year and cost in line with guidance. Realized pricing was lower quarter-on-quarter due to lower commodity prices during 1Q. This was offset by lower OPEX quarter-on-quarter First quarter OPEX was lower largely as a result of a changing sales mix in Ghana, where we did not have a 10 lifting this quarter as we did in the fourth quarter. CAPEX was in line with guidance with about half related to Mauritania and Senegal. As discussed at our fourth quarter results, CAPEX is expected to be more weighted to the first half of the year as we progress toward phase one and complete the Jubilee Southeast development. and should therefore start to come down in the second half of the year. Free cash flow, which is slightly negative in the first quarter, should start to ramp up in the second half of the year as we reach that inflection point of higher production and lower capex. As Andy pointed out earlier on the Jubilee slide, we expect only two cargos in Ghana in the second quarter, which leads to an underlift position and an expected cash outflow in 2Q. With that, I'll hand it back to Andy.
spk07: Thanks, Neil. Turning to slide nine to conclude today's presentation. 2023 is a busy year with multiple catalysts for Cosmos with key milestones already delivered in the first quarter. The next major milestone is the increase in Jubilee production from the new producer coming online in the main field, followed by the startup of Jubilee Southeast expected next month. Next, we expect the sail away of the FLNG vessel from the shipyard in Singapore and the arrival of the FPSO on location, both around the middle of the year. Tiberius and Winterfell drilling should commence in the third quarter. Around the same time, we expect hookup activities to commence on Tortue, targeting first gas at the end of the year and first LNG in early 2024. Thank you. I'd now like to turn the call over to the operator to open the session for questions.
spk04: Thank you. And at this time, we will 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 lines 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 key. And one moment, please, while we poll for questions. Our first question comes from the line of Neil Mehta with Goldman Sachs. Please proceed with your question.
spk02: Hi, good morning. Thank you for taking the time. This is Nicolette on for Neil Mehta. The first question here is on the free cash flow outlook for the year. And I know that it is a little bit more back end weighted. But I understand you mentioned on the last quarter call the expected range for the year would be around 100 to 200 million at current oil prices. Should we be thinking about any update to the range and any idea where we may fall at current strip?
spk07: Yeah, hi, Nicolette. I want to pass that over to Neil. Yeah, hi, Nicolette.
spk03: Yeah, I mean, when we put guidance at the fourth quarter, yeah, we were sort of in the sort of low to mid $80 range versus sort of mid $70 today. So, yeah, sort of $100 to $200 is closer to flat at sort of current oil prices, and that sort of with sort of the normal variation we've seen in oil prices, where $5 is roughly $100 million in free cash flow. So I think that still holds in terms of that correlation.
spk02: Very helpful. Thank you. And then the follow-up here is just on Tour 2 Phase 1. I was just wondering if there was any insight or update you could provide around arbitration and the contract structure there. Thank you.
spk07: Yeah, I'll take that. No real update. As we talked about at 4Q, we've agreed to move to arbitration to ensure that the interpretation of the contract is aligned between ourselves and BP. The process has started and we anticipated it all being complete prior to the opportunities Market the cargos which happens after the commissioning period after the startup of a torture phase one So, you know everything on track and just being handled as part of the normal course of business Great thing great time And our next question comes from the line of Alex Smith with investing please foresee with your questions
spk08: Yeah, hi, guys. Thanks for the call today. Just a quick question on Ghana, and in particular, Jubilee. Looks like a slight change of guidance to 110 gross production from, I guess, you and your operator. Kind of what's driving that? Have the wells drilled ahead of expectations, or are you just more confident in the base, Jubilee, and then just the southeast wells on top of that? Just good to hear your insight there, please.
spk07: Yeah, no, thanks, Alex. I don't think there's a big difference, really. I think we're reaching 110 by the fourth quarter. I think it's consistent with the operator's guidance. So I think overall we're on track to do what we said we would do. We've clearly got better knowledge now of the wells and the individual performance of those wells, having drilled and completed those wells. So it's now, you know, through the process of startup. We've got the first well in the main field starting up shortly. Then, you know, with the completion of the infrastructure on Jubilee Southeast, we've got one well starting up at the end of the second quarter, third in the third quarter, followed by a producer and injector in the main field. So I think the build-up to that $110,000, I think it's clearly laid out. The activity set is on plan, and the well rates that we're targeting are clearly consistent with our and slightly ahead of our pre-drill estimates.
spk08: Great. Very clear. Thank you.
spk04: And our next question comes from the line of Matt Smith with Bank of America. Please proceed with your question.
spk10: Hi there, morning, guys. Thanks for taking my questions. I had a couple. Perhaps I'll go one at a time. The first would be on Jubilee. Just noting the reduced water pressure that you had there across January and February. Just wondering if you're able to provide a March or more recent production data point just to understand how we... enter into 2Q or all else equal before the new wells come on stream?
spk07: Yeah, no, thanks, Matt. Yeah, I think that, you know, we clearly saw the drop between 4Q and the 1Q rate, which was really around under injection while we completed the drilling on Djibouti Southeast. We now sort of play catch-up, so we're sort of flat with that level that we achieved in the quarter. The production essentially flat around $70,000 a day. And then we start the build process with the new wells coming on. And I think as we look at that, as I said on the prior question from Alex, I think we've got a clear activity set to complete in terms of the infrastructure build-out, that things are on track. You know, the wells, we've had good results from those, both in the main field and in Jubilee Southeast. So we're starting that steady build-up now. And then, you know, I think, you know, as we said in my remarks, I think, you know, this is a big field that continues to get bigger. We've got a, you know, a real target now to maintain. the plateau level above 100,000 barrels a day, we see plenty of opportunity in the infill program that we've got. So I think, you know, now it's really about getting up to that plateau level and then maintaining it through a quality drilling program. And, you know, clearly we've been very efficient on the drilling in this phase of the main field and Jubilee Southeast.
spk10: Perfect. Thanks. Appreciate the color. And then the second question, if I may, would be on Tortue. And just noting the comments here for phase one around the subsea equipment being a critical path item. But I just wanted to understand really whether this is a risk that you sort of become incrementally concerned about since the last quarter or is this just a natural progression of what is the critical path given the fact that the FPSO probably was that critical item and perhaps it's no longer at the front of the queue. So I'm just trying to get a sense whether you think the risks have changed at all. Thank you.
spk07: Yeah, no, thanks, Matt. Yeah, yeah, good question. I think, you know, with a big project like this where you've got the integration of the key work streams, clearly, you know, the focus is on the item which is moving on to the critical path. I'd say we've done, the operator's done a good job of ensuring that the hub terminal was finished on time and then clearly, you know, it is the big in-country project work scope so there's clear there were risks around that particularly during the coded period but we're pleased with the progress there and as i said in my remarks we'll be you know it'll be handed over to operations uh the end of the quarter so that's a big milestone and sort of de-risk that part of the uh the activity set the sbso as you said, was clearly a worry. We now sort of, you know, completed, I think, you know, the construction work, the vessels out of the shipyard. It's on its way to the field, and they expect it to be there in the middle of the year. And, you know, there's a lot of work being done while it's been in Singapore to ensure that there's a good understanding of the work scope covering the critical pre-commissioning work to enable first gas to occur. I think we've got a much better understanding of that during the period that it's been in Singapore, and I think, again, that moves that sort of lower down the items on the critical path. So clearly the attention is now focused on the subsea. And again, with that, we've done the shallow water piece has been done, you know, that piece has been executed. So really it's now about that deep water part of the subsea installation, which is the Amazon vessel weighing the deep water pipeline and then the follow-up with the installation of the subsea structures and the infield flow line. So I think, you know, it's just a gradual shifting of the activity set to focus on the part of the project, which is now the determining factor to first count.
spk10: Very clear. Thanks very much, Andy. Great. Thanks, Matt.
spk04: Our next question comes from the line of Charles Mead with Johnson & Rice. Please proceed with your question.
spk00: Good morning, Andy, Neil, and the whole Cosmos team there. I want to thank you, Andy, for your answer to the previous question. I thought you gave a lot of incremental detail there that was helpful. I guess my first question would be on the Jubilee Southeast development. Just to pull on the thread that you guys kind of left us with last quarter, when you talked about there were some additional pay zones that you guys that you guys encountered with your drilling there. And I'm curious, what work have you guys done, or how do those additional zones factor into the development and the plateau that you're referring to, either in the short term or the long term?
spk07: Yeah, no, good question, Charles. I think that it's really around a couple of things, I would say. You know, in Jubilee... We have an opportunity set that we've identified through the 4D on the main field. We've had one cycle of it, initial second cycle, and then we've got another cycle coming up next year. So the main field, you're building that hopper of opportunity. The piece around Jubilee Southeast, though, is that it's It's virgin reservoir and therefore comes essentially at a lower GOR and therefore the incremental production that you get from those wells given we're really gas constrained on the facility is important. So I think the ability to differentially pull forward the Jubilee Southeast wells maybe ahead of some of those main fields is the part of maintaining the plateau and then actually extending it. So I think it's that opportunity that Jubilee Southeast has sort of grown in relative scale versus, I would say, the opportunities set in the main field. But again, back to the commentary, overall, therefore, there's a lot of opportunity, as it were, in the main field from unswept areas. identified by 40 and in the undeveloped part of Jubilee Southeast with additional pay zones coming in which gives us the confidence around that ultimate length of the plateau. So I think it's an interesting time in the development of Jubilee. You know, we're going through a phase now of ramp up, and then I think, you know, then, you know, the real opportunity comes from being able to hydrate that activity set and therefore extend the plateau. So, you know, it's really what I would ultimately say is it's the longevity of the plateau that and it's because you're seeing unswept areas in the main field, but you're also seeing, as you rightly point out, additional horizons in Jubilee Southeast, and again, they come with probably a slightly higher initial production rate because of the lower GLR.
spk00: Right, yeah, it's a great example of big fields get bigger. Second, on the EG infill campaign, could you just calibrate our expectations for for how, for what kind of rates you're expecting from those wells, if there's any exploration risk and timing and what, you know, can roll it all into what that means for EG Cargos perhaps in 24?
spk07: Yeah, again, good question. I think that You know, again, you sort of step back from the detail. The reason why we were fascinated by the opportunity in actual Guinea was the ability to, you know, existing infrastructure on Saipanakume, not fully filled, the ability, therefore, to sort of bring new sources of production where really there hadn't been really a drilling activity in the last 10 years. Therefore, there was opportunity for infill drilling, which is where we're targeting. We've got updated seismics. I think that you should regard these as true development wells. And I think if you sort of think about that, Charles, over the medium term, let's say, it sort of sustains production. Marginal growth, but I think it sort of sustains production. I think the big kick-up comes in with the King Deep well where we're drilling a significant prospect which has the ability to tie back to the infrastructure. That's when you would see a step up in production. So the well will be drilled around the end of the first quarter next year and then sort of tie back opportunities probably in that 18-month timeline, yeah? So I think, you know, we see future growth in Equitable Guinea from that ILS program, but it's probably, you know, 25 onwards.
spk00: Thanks for the detail, Andy.
spk07: Great. Thanks, Charles.
spk04: Our next question comes from the line of Ashley Kelly. I'm sorry, Ashley Kelty with Ann Muir Gordon. Please proceed with your question.
spk09: Morning, gents. Just a quick question on Tortue. You've said previously that you were looking into forward selling some of your LNG. Just wondering if you could give us an update on whether you've managed to do that, and if so, what sort of pricing you were looking at?
spk07: No, I don't think actually we've Maybe we've miscommunicated, but I don't think we've really had any intention to forward sell from phase one. We have a sales contract, as we've discussed with BP. We're going through the process of clarifying how we would use those cargos outside of that contract. So we have the opportunity from those diversions, but actually that's the key upside from it. At the moment, we're engaged with various parties, but we haven't yet put in place any contractual terms for that.
spk09: Okay, that's great. Thank you.
spk07: Great, thanks.
spk04: And our next question comes from the line of Mark Wilson with Jefferies. Please proceed with your question.
spk06: Okay, thank you. Good morning, gents. I'd just like to ask Andy again on the subsea critical path answer. Because FPSO is going to arrive around mid-year and the FLNG vessel leaves Singapore around mid-year. Is it the critical path because the vessels will be on location before the deep water pipeline is finished. Is that what you're saying here?
spk07: What I'm saying, Mark, is that you're pulling all of the work scopes together. Clearly, one can slip, one can advance, but as we look at it today, the key determining work scope to complete is not around the FPSO. It's not around the hub terminal. We don't believe it's currently through the FLNG vessel. So, you know, the timely execution of the offshore work, the subsidy work in the deep water section is the critical path through to first gas.
spk06: Okay. But that's proceeding as per plan, though.
spk07: Sorry?
spk06: But that's proceeding as per plan, the subsidy installation.
spk07: Yeah, clearly, you know, as we look at the startup of that, it started a little later than we'd anticipated. The Amazon vessel, you know, came onto location a little later. But now, you know, that work scope is now proceeding. And as I said, the objective is to ensure that it's all done and enables the first gas day.
spk06: Great. Okay. Thank you. And then secondly, on to Jubilee and the maintaining of that. 100,000 plus plateau towards the end of the decade. You mentioned about the 10 gas volumes being included in the gas sales agreement. Could you talk about the interplay of gas volumes versus the oil production plateau that's expected to be maintained?
spk07: Yeah, specifically on Jubilee, we We're at a state today where we're exporting around 100,000 million cubic feet from Jubilee. That's an incredible level of export where we're getting the right balance between the gas export, voyage replacement with gas and with water. So I don't think that ultimately that sort of gas, the oil rate, is being influenced by the gas export rate on Jubilee.
spk03: Mark, the only thing I'd add is sort of, yeah, the gas related to 10 would be additive to the gas we're selling from Jubilee. So Jubilee sort of runs on its own. The 10 GSA and the agreement that we're looking to put in with the government would be additional gas that wouldn't impact Jubilee production.
spk06: Got it. Okay. And... And yes, and one last for yourself there, actually, Neil. You mentioned expect a small cash outflow in Q2, I think you said. Can you just give us an update on where we stand with the exploration bonus payments from Shell?
spk03: Yeah, so we're not planning for any other bonus payments from Shell at the moment. So we collected the $50 million back in the fourth quarter of last year. If they put forth another plan of development, either related to one of the discoveries that they've had, we would see another payment potentially come through. But at the moment, we're not planning or including any of that in our forecast.
spk06: Okay, thank you very much. I'll turn it over. All right, great. Thanks, Mark.
spk04: And since there are no further questions at this time, I would like to bring the call to a close. Thanks to everyone joining today. You may disconnect your lines at this time, and thank you for your participation.
Disclaimer