Kosmos Energy Ltd. Common Shares (DE)

Ladies and gentlemen, good morning and welcome to the Cosmos Energy first quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star and zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jamie Birkeland, VP, Investor Relations. Please go ahead.

Thank you, Operator, and thanks to everyone for joining us today. This morning, we issued our first quarter 2024 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, funds, and expectations. Actual results and outcomes could differ materially due to factors we note in the presentation and in our UK and SEC filing. Please refer to our annual report stock exchange announcement, and SEC filings for more details. These documents are available on our website. And at this time, I'll turn the call over to Andy.

Thanks, Jamie, and good morning and afternoon to everyone. Thank you for joining us today for our first quarter results call. It's been an active start to the year for Cosmos, and I'll start today's presentation looking at the operational and financial momentum we've built in the first few months of the year. Neil will then walk you through this quarter's financial results before I look ahead to the catalyst for the remainder of the year. We'll then open up the call for Q&A. Starting on slide three with the delivery of our major projects, Cosmos had a strong first quarter with significant progress towards our goal of growing production by around 50% from the second half of 2022 to the end of 2024. In Ghana, all the planned 2024 Jubilee production wells are online, with one water injection well expected online later this quarter. Following completion of this well, the planned drilling campaign will conclude approximately six months ahead of schedule as a result of efficiencies in the drilling operations. In the Gulf of Mexico, oil production at Winterfell is expected to begin shortly from the initial two wells. A third well is due to come online later this year, increasing expected gross production to around 20,000 barrels of oil per day. In Mauritania and Senegal, the Tortue project continues to move towards first gas with several key milestones achieved already this year. I'll talk more about our progress on these projects later in the presentation. Looking further ahead, we continue to advance our next phase of growth projects. Long lead items are being secured for Tiberias to optimize the development timeline and project costs. We have also secured a two-year license extension for Yaka Turanga. While we see continued growth as an important part of the company's future, as I said last quarter, it will be selective and more measured in the coming years, consistent with sustained annual capex of around $550 million per year that is targeted from 2025 onwards. On the financial side of the business, we enhanced the company's financial resilience with the convertible bond issuance and the RBL refinancing. Neil will talk about these in more detail shortly. The transactions improved liquidity and extended our near-term maturities. The free cash flow inflection point we've been anticipating of around $100 million to $150 million per quarter once our development projects come online is now only a few months away. I'll now talk through the operational progress across our different business units starting in Ghana on slide four. Jubilee production in the first quarter was around 93,000 barrels of oil per day gross, almost 30% higher than the first quarter last year. This reflects the progress made from both the startup of the Jubilee Southeast project and the ongoing infill drilling program. Jubilee FPSO reliability continues to remain high at approximately 99% uptime for the first quarter. Boarding replacement was also strong in the quarter, around 110% as a result of high levels of water and gas injection. Gross Jubilee gas sales for the quarter was around 16,500 barrels of oil equivalent per day. Recently, the partnership agreed an 18-month extension to the Jubilee gas sales agreement at approximately $3 per mm BTU. In the second quarter, there is some planned maintenance of the onshore plant, which receives the Jubilee gas, and this is reflected in the 2Q guidance. On 10, gross production of 18,600 barrels of oil per day was in line with expectations, with high FPSO uptime of around 99%, similar to Jubilee. Turning to slide 5, production in the Gulf of Mexico for the quarter was approximately 14,500 barrels of oil equivalent per day net, in line with guidance. At Winterfell, where Cosmos has a 25% working interest, first oil from the two initial wells is expected shortly, with another well expected online in the second half of the year. Gross production when all three wells are online is expected to be around 20,000 barrels of oil equivalent per day. We estimate total gross resource across greater Winterfell of up to 200 million barrels of oil equivalent, providing significant future follow-on potential. To enhance existing production, we continue to invest selectively in high-return projects like the Oddjob subsea pump and Kodiak workover, both expected to finish around the middle of the year. The combined uplift from both these projects is expected to contribute around 5,000 barrels of oil equivalent per day net to Cosmos' year-end exit rate. The tornado field is expected to be offline for most of the second quarter for scheduled routine maintenance of the HP1 floating production unit, which has been factored into our guidance for the quarter. On Tiberias, where Cosmos is operator, we acquired part of Equinor's interest during the first quarter to maintain an aligned partnership. We now hold a 50% interest in the project, which is already included in our 2024 capital guidance. This phase development, a subsea tieback to Oxy's nearby Lucius platform, is progressing, with project sanction expected later in the year. Certain long lead items are being secured to optimize the development timeline and project costs. Around the time of project sanction, Cosmos plans to farm down to optimize our working interests to fit within our targeted capital program for 2025 and beyond. Please turn to slide six. Production in actual Guinea averaged approximately 24,400 barrels of oil per day gross, an 8,400 net in the first quarter. Cosmos lifted one cargo from actual Guinea during the quarter in line with guidance. In early February, as previously communicated, the operator paused the Sabre and Akume drilling campaign as a result of safety issues with the previous rig. The partnership has now secured the noble venture to resume the drilling campaign with a rig expected on location mid-year. The rig is scheduled to drill and complete two infill wells in Block G before moving to drill the King Deep ILX prospect in Block S. The new infill wells are expected to add around 3,000 barrels of oil per day net to Cosmos' year-end exit rate. The result of the King Deep Well, which is targeting gross resource of around 180 million barrels, is expected around the end of the year. Turning to slide seven. The Greater Tortue-Akmim project continues to move towards first gas, with significant progress across all work streams so far this year, with first gas expected in the third quarter and first LNG expected in the fourth quarter. The floating LNG vessel arrived in the first quarter and has been moored to the hub terminal. The partnership is now working with the vessel operator to accelerate commissioning. The subsea work is progressing in line with expectations, with the flowline installation complete and final connection work ongoing. Inspection and repair of the SDSO Fairleaf is now complete, and the vessel has left Tenerife and is en route to the project site with mooring work to commence thereafter. Hookup and commissioning of the FPSO remains on the critical path to first gas, which is expected in the first quarter. I'll now turn it over to Neil to take you through the financials.

Thanks, Andy. Turning to slide 8, which looks at the first quarter. Production in the quarter of approximately 66,700 barrels of oil equivalent per day, net, was an increase of around 13% compared to the same quarter last year. Costs for the quarter were within or slightly better than guidance, leading to the earnings beat against consensus. CapEx for the first quarter was $286 million, which was in line with guidance and is largely made up of the Ghana drilling campaign and the progress made on both Winterfell and on Tour 2. As previously communicated, we expect the majority of this year's CapEx to be in the first half of this year, with the free cash flow inflection that Andy talked about in his opening slide expected as the development projects complete and production ramps up throughout the end of the year. Turning to slide nine, which looks at our debt maturities. We took two important steps this year to further enhance the financial resilience of the company. The first was the convertible bond issuance in March, which practically replaces the liquidity from the $250 million undrawn RCF, which is due to expire at the end of this year. The convertible also lowered our overall interest expense as we paid down a portion of our RBL with the available proceeds, which is our highest cost debt. We've also seen the yields on our high yield bonds tighten, which should help pricing when we come to think about potentially refinancing those in the future. To limit future equity dilution, we purchased a capped call, which means there will be no dilution until the shares get to almost $11 per share. We also took the option to cash settle the principal amount raised, which also reduces any future dilution. The second important step was the refinancing of our reserve-based lending facility, with the terms broadly in line with the previous facility. The overall facility size increased to $1.35 billion from $1.25 billion, with current commitments of around $1.2 billion. Through the refinancing, we have extended the final maturity by approximately three years. At the same time, we have had some of our banks transfer their commitment to the RBL from the RCF, which, as I mentioned, expires at the end of this year. I'd like to thank our banks for their continued support as we continue to grow the company. The chart on the right shows the impact of both the convertible bond issuance and the RBL refinancing on the maturity schedule. We now have no near-term debt and a staggered maturity schedule from 2026 onwards. As we reach the expected free cash flow inflection point, we plan to continue to prioritize paying down the RBL, reducing the amounts in the dark blue on the chart on the right. We continue to target leverage below 1.5 times at mid-cycle oil prices, with the leveraging expected to commence once revenues from TOR2 start up later in the year. With that, I'll hand it back to Andy to conclude today's presentation.

Thanks, Neil. Turning now to slide 10. As I said in my opening remarks, it was a busy first quarter, and we have achieved a lot in just three months. The operational financial momentum we built has rolled into the same quarter with several milestones already achieved and more to come in the near future. The graphic on the slide shows a rich portfolio of catalysts throughout the year across all our business units. They contribute towards our goal for year-end exit rate of 90,000 barrels of oil equivalent per day and a free cash flow inflection point. Combined, we believe these will create significant value for our shareholders. Thank you, and I'd now like to turn the call over to the operator to open the session for questions.

Thank you. Ladies and gentlemen, we will now be conducting a question and answer session. If you would like to ask a question, please press star and one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star and 2 if you'd 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. Ladies and gentlemen, we will wait for a moment while we poll for questions. Our first question is from the line of David Round with Stiefel. Please go ahead.

Thanks for the presentation, guys. Two questions from me, please. Firstly, can I just ask about Senegal, please, and whether following the recent elections there, you've seen any impact at all to business activities in country? There's been quite a lot in the press, so I'd appreciate any comments there, please. Secondly, just on Equatorial Guinea, obviously good to see activity there again. That's obviously been a great asset. From memory, there was quite a big in-place number there with a relatively modest recovery factor so far. I'm just wondering, could that become a bigger area of activity going forward once you see CapEx elsewhere drop off? Thank you.

Yeah, hey, David. Yeah, thanks for both of those. I'll pick them up. I think, you know, turning to Senegal first, I think, you know, the starting point really is that elections in our host countries are not new for Cosmos, and our ethos is to align with the countries and their needs irrespective of changes of government. I think in Senegal our approach is no different, where we're enabling the development of low-cost gas to sustainably grow the Senegalese economy and drive social progress for the country. So there's a high degree of alignment between what we're doing and the new government's objectives, which are clear. They want to lower the cost of living for its population and improve the economic environment. I think it's early days for the new administration. There are many officials still to be appointed, but my team in Senegal have met with the new energy and mining minister, and I'm pleased to say it was a very constructive dialogue. You know, the conversation centered around, actually, how can we accelerate the development of the gas resources to accelerate the benefits to the country? So, you know, in terms of the day-to-day, you know, our business center goes unchanged. You know, we're working to bring Phase 1 online later this year, you know, move forward with a capital-efficient program phase two, the expansion of phase one that will enhance the revenues to the states and the partners, and then move forward with a domestic gas LNG export scheme at YT, all of which will bring economic and social benefits for the country. So I do think there's a real basis for a win-win, and I'm pleased to say that we're actually in a constructive dialogue as to how we shape that agenda. On Equestrial Guinea, I think you're correct to say that there's actually a lot of undeveloped resource. And when we initially took over the assets, it was about enhancing the production from essentially sort of work over activities. If you remember, I think it was, you know, we talked about it being gas lift constrained. So we actually moved to ESPs and we've seen the benefit of that activity. We're now moving, I think, into a different phase, which is about infill drilling, which is the current campaign, as you rightly say. We're targeting an infill well in Sabre and one in Akume. And then actually we're following it up with the King Deep, which is a deeper test of the Albion. And clearly if that comes in, we've got a significant amount of knowledge in the... in the facilities to bring that on and very short tieback distances. So I think we've got sort of, you know, two avenues. And, you know, what we would see for Sabre and Akume is an intermittent, you know, infill drilling campaign, you know, two or three wells every sort of 18 months, something like that, where I think you can certainly sustain the production profile. All of that CapEx is in the forward direction. forecast of maintenance of the base. And then, you know, with a king deep, I think you've got the ability to actually grow the profile. So I think we've got a clear plan about sustaining the profile in extraorganic through that infill drilling, you know, with, I think, still some sort of work over type activities, growth coming if you have success at a king deep. So I think, you know, it's been a really good acquisition. I think we've worked really well to... you know, go through a very programmatic program to target the quick wins, which were really around sort of the work over activities. And now we're moving into a more phased approach with infill. But there's plenty to go out here. And clearly having, you know, the capacity in the facilities enables us to move it forward quickly. Okay. Thanks, Andy.

Good.

Thanks, David. Appreciate it.

Thank you. Our next question is from the line of Charles Mead with Johnson Rice. Please go ahead.

Good morning, Andy and Neil, and to the rest of the Cosmos team there. Andy, I'm sure you're probably more excited than we are to see that FPSO underway, and so congratulations for that. But I wonder if you can take us through just the highlights or what the next piece is, you know, pieces of the puzzle or milestones are to get to first gas. I imagine that some pieces of it would be getting the FPSO moored, hooking up the risers, introducing the gas to the FLNG, and then going through the whole FLNG cool down. But maybe you can elaborate that or add pieces to it that we should be on the lookout for.

I love questions where you've already answered the question, Charles. Sorry about that. No, I think you've got it. Clearly, I think we've had a lot of progress in this sort of first four months. We've got the FLNG vessel now at the hub terminal. It's moored and the connection work is ongoing. The last piece of equipment to arrive, particularly with the FPSO, as you said, it will be on location in a matter of a few days. The next step then is mooring, and once the mooring is done, we start to work on the top signs in terms of the commissioning work. The hookup of the risers is clearly the step that enables gas to be introduced. And then it's a question of the gas, as you say, coming into the FLNG vessel. You start the cool-down process, and then you start to make FLNG, first cargo, et cetera. So I think, you know, if you look through that process, you described it really well. You know, where are we? You know, with the subsea equipment, all the major pieces are there. They're now doing the final tie-ins. and that work is proceeding as we envisage. So we're pleased with the progress there. You know, the FPSO work, the hookup and commissioning of the FPSO, remains on the critical path, but clearly getting the vessel on location has enabled us to start to liquidate that activity. So I think, you know, we're on track to do what we said we were going to do, and the milestones... have been achieved so far this year. So, you know, getting the FPSO on location is clearly an important step. And, um, we'll update you the next quarter as we, you know, get that, you know, work behind us and hopefully, you know, with, with the completion of the riser hookup and then the, uh, which will then allow us to start flowing gas.

Got it. And then the followup, uh, I wonder if you could, you could add some, some detailed context around the beer Allah, uh, uh, And I'm wondering if this is kind of along the lines of how Yakar Tarango played out in that BP maybe didn't want to be involved, but you guys are still, you guys still have some plans. I mean, just tell us what's going on.

No, no, good question, Charles. And I think that, again, if you sort of step back, it's worth sort of, you know, repeating that both, you know, Whitey and Borrella will scale discovered gas resources, you know, sort of in place numbers, I think, of Y2, you know, 25 TCF, Borala probably around 30 TCF. And we believe it is advantaged gas. It has negligible CO2, and it's close to Europe. So with BP no longer on either license, we can now work independently with the NSCs of both countries on innovative technologies cost-efficient schemes that BP didn't propose, but we believe will lead to attractive returns for both the project partners and the governments. We've secured the license on YT. We've secured the extension to allow us to proceed with that work. And we're in discussions with the Mauritanian government around how we can help them progress the development of Borala. They're keen to move it forward. and we believe we have both the subsurface knowledge and the concepts that will enable it to be an attractive project. So I think, you know, that's where we are, and there's been a lot of third-party interest in the assets as well. So we believe that actually working both with Petrosan on YT and SMH on Borala We're trying to create an equal partnership where they're properly represented, which we believe is actually a good thing, clearly, for both governments. And we're working with them to find ways to bring in a partner that will enable the development to move forward. So I think, you know, you characterized it correctly, and we're energized to work on that agenda. Great. Thanks for the detail. Great. Thanks, Charles.

Thank you. Our next question is from the line of Bob Brackett with Bernstein Research. Please go ahead.

Good morning. Charles stole most of my thunder, so let me try to follow up. The TOR2F PSO, so that vessel's been expected by the operator, by you all, past muster, and so it is ready to go?

Yeah, you know... As with all things, Bob, you know, as it were, the curse of having to do the work on the Fairleads is a blessing that it does allow us to, you know, we had additional sort of three months in Tenerife, it's close to three months in Tenerife, to further progress the top size work. So I think, you know, we understand the scope very well. And I think, you know, you're right to sort of push the question around. FPOSOs have sailed in the past with a lot of work to execute. So I think, you know, we've got a good understanding of what the work scope is, clearly, and therefore clear plans on how to execute that work scope. So, you know, I feel good about that. You know, nothing's done until it's done, but clearly we do have, I think, the advantage of having extra time to work on the top sides as a result of the time on the fail leads.

Very clear. The follow-up comes back to Birala. The PFC had been extended for two years. You and the government and BP had been working in good faith to kind of push that project along. The clock ran out. How do we think about whether you are the natural owner of a partnership that brings that asset to market, or does this go to a competitive bid where you're in line with one of many And I'm intrigued by what you think the concept could be for a fast-track development there.

Yeah, no, yeah, interesting, Bob. I think that, you know, the government is actually trying to find a way of moving the project forward in a constructive way. And what do I mean by that? Yeah, clearly they could go out to the open market with bids, et cetera. You know, clearly the negative of that is that it – It creates an uncertain partnership. You know, you're bringing potentially somebody new that doesn't have the subsurface knowledge that we have. You know, we believe that there is a genuine desire to try and work with existing partners who have the knowledge. You know, we probably, you know, we bring the knowledge of two wells in Borrella, you know, one on Mossue and one on Orca. We bring the knowledge of all the appraisal wells on GTA and the development wells on GTA, and then the calibration of the seismic against that data set. So there's significant knowledge, I believe, that we bring. In terms of the development concept, it's really about how do you get cost efficient in terms of the subsea layout. And ultimately, that's where we've seen the big cost increases in the industry. is in the subsea. So minimizing that architecture, you minimize it actually by putting the FLNG vessel directly over the field. That has the additional benefit of lowering the pressure drops, which gives you enhanced recovery. So without going into the engineering in too much detail, Bob, those are the ways in which you can change the cost basis of the development. And those are the concepts we're working on in YT, and those are the concepts we're bringing to Borrella. Very clear. Thank you. Great. Thanks, Bob.

Thank you. Our next question is from Matthew Smith with Bank of America. Please go ahead.

Hi there. Good morning, guys. Thanks for taking my questions. Add a couple, please. The first one was just an apologies if I missed some of the commentary around this at the start of the call, but any additional color you could give us on the performance of in Ghana, I guess, at Jubilee in particular in the quarter, just how that fared versus your your own expectations what confidence that gives you in the full year outlook i suppose you had an additional oil producer online in april if you could sort of talk to that at all and sort of exit rates what you've seen post the quarter just to sort of frame um how ghana started the year off and the confidence that gives you um for the rest of the year that that'd be interesting to hear um yeah but perhaps i'll leave that and come back to the second

Okay, yeah, thanks, Matt. I think sort of updating you, if you look across March and April, I think we averaged around 95,000 barrels of oil per day. So as you say, we recently just brought on the final producer, and we're optimizing its setup in the subsea to maximize the benefits from that. And then finally, we've got the final water injection, which is currently being drilled. And then actually, we're going to start the completion of that shortly. So I think, you know, I think it's early days. So as you look forward to the performance of the field over the remaining part of the year, I think there were sort of three fundamental things we're focusing on. You know, the first is the contribution of the recently added wells to the ramp-up in rates. You know, the second is we had really good reliability in the first quarter, I think, you know, close to 99% on the Jubilee APSO. Clearly, we need to maintain that high level of reliability going forward. And then I think the third one is really the most important point, is around, you know, maintaining the high levels of avoidance replacement. You know, that was a challenge, you know, last year where, you know, we had downtime. and didn't get to 100%. Now, we sort of were pretty good in the first quarter. We need to sort of maintain that going forward. We have had a GTG down, I think, for a couple of weeks. So we're probably, you know, been slightly under the 110% in the last month. But that is, you know, that's a critical factor. So I think it's, you know, those are the things we're, you know, we're focusing on and therefore those are the things that are going to influence the outcome across the rest of the year. You know, all that said, the drilling has actually gone well. You know, we've really drilled, you know, the operators have done a great job on the drilling performance and the wells and the timing of the wells has absolutely met, you know, our expectations. And, you know, when the final water injection is done, I think over this program, we probably, you know, created probably close to six months of reduction in the overall program, which is pretty impressive. So that's sort of where we stand today, Matt.

Perfect. Thanks, Andy. That's really helpful. And perhaps the second one, perhaps it would be for Neil, I imagine, just coming back to the free cash flow sort of indication that you've given us 100 to 150 million per quarter, you know, once the growth projects are online. I think if I remember rightly, you talked to that sort of being underpinned, broadly speaking, by a $70 WTI 75 Brent, although please correct me if I'm mistaken there. But I just wondered if you could speak to sort of sensitivities and, you know, upside to those free cash flow numbers if we're in an 80 or 85 Brent world.

Yeah, sure, Matt. And yes, yeah. That's about right in terms of the $100 to $150 million of cash flow, free cash per quarter, post getting Winterfell and Tortu online at a quarterly pace in that $75 Brent, $70 TI realm. Yeah, I think in terms of the price sensitivity, generally, and it'll stay roughly the same, is about $100 million of free cash flow for the year for every $5 change in the oil price. And so $25 million plus or minus a quarter. If you move to $80 Brenton, then $200 million for the year, $50 million a quarter. And we currently have full access to the upside, so we can fully participate in that.

Well, that's very clear. Thanks for your time and happy to pass it on.

Great. Thanks, Matt.

Thank you. Our next question is from the line of Mark Wilson with Jefferies. Please go ahead.

Thank you for that. Good afternoon, gentlemen. My question is regarding the main drivers of production increase into the second half with your reiterated group guidance, 71-72. We know that Tour 2 comes on the first LNG in the fourth quarter. Could I just check if that is how you then start to report the gas from Tour 2, or is it in the third quarter as it comes across the FBSO? That would be my first question.

Mark, we'll record it on an entitlement basis similar to how we report for just the quarterly production, but in terms of sales, it'll be done similar to how we do it in Ghana and EG where it's driven by cargoes. Overall entitlement production will be driven by basically LNG that goes into the FLNG vessel and condensate that goes into the FPSO vessel. as a sort of entitlement volumes, but for sales volumes will ultimately be tied to cargoes, the same way we do cargoes in Ghana, in Niji.

Got it, okay, I understand that. Okay, so FBSO in 3Q and then entitlement in 4Q. My second question, I guess, another big driver for production would be Jubilee, and you just spoke to it there, Andy, to some degree. So taking all those various points into account, do you still expect that field can average 100 for the rest of the year or even higher?

As I said, Mark, we're doing what we said we would do, which is to deliver that outcome, we need to see the incremental benefit of the infill wells. We've got the final two to finish and then optimize the system for the new well configuration and that's ongoing. So that's the first sort of variable that we need to get right. The second is clearly, you know, maintaining the reliability and, you know, good start to the year and, you know, we need to continue it. And then I think the fundamental part then is really around boardage replacement and the distribution of that water. Again, because we're changing the patterns of offtake because of the new wells coming in, the optimization of that pattern, of the new sort of reservoir offtake pattern is critical. So I think, you know, there's lots to work on, Mark, to deliver that outcome. You know, the first step in all of that is to get the wells drilled and online, and we've got sort of one more to go. So, you know, there's work to do, clearly, and we'll keep you up to date on progress as we go through the quarter.

Okay, thank you for that. Last question for me. My understanding on the Yakarth Taranga is that working towards getting the pre-feed out of the way, and then that's when you'd be looking to see where the market is for farmhouse. Is that a fair representation?

Yeah, it is, absolutely, Mark. So, you know, if you sort of talk about the future there, which is really what your question was about, I think that we've got a piece of work now where we're completing the pre-feed. We want to get the pre-feed done by the middle of the year. With the pre-feed, we've got the technical validation of the concept, and then we've got a cost base to then discuss with the new administration. Clearly, this is about creating a new partnership for Yakuturanga. Our objective is for Petrocent to be an aligned partner around a third, ourselves a third new partner, So we have to work with the new government to bring that partner in. They're clearly going to have a say in that. And we need to have a fiscal arrangement which enables us to create the economics that support a low-cost gas and an LNG export scheme. Now, with those two pieces in place, you can then work on the financing. The intent is to have the FLNG vessel financed. So there's a series of steps here. There's technical work to be done, which is sort of there's a milestone in pre-feed. There's work to be done on alignment with the new administration around fiscal to new partner. And then there's work to be done, therefore, on financing. You bring all those four together, then you can start work on the real work, which is on feed. But we won't be starting feed until we've got those things done. So, you know, again, I think we've made a lot of progress so far on the pre-fee. And post-election, we can now start working on those next items.

That's really appreciated. It did occur to me in that answer that maybe the differences between Yakar, Taranga and Berala and their respective governments would be interesting to comment on. It did look like Berala was moving faster towards a development concept, arguably. when you last extended the PSC and then Jakarta now has moved to this, the setup you have now. So the respective differences would be interested to hear a comment on.

Yeah, look, I actually don't think there's a difference. You know, both governments are anxious to enable the development of their gas resources to benefit the country. And I think, you know, I think the Mauritanian government has been equally clear about its objective to move forward with Borrella, you know, post the exit of BP. So I don't think there's any fundamental differences there, Mark, and therefore, you know, it's about how can we participate to help them on those agendas and come up with, you know, compelling investment opportunities.

Okay. Thank you very much. I'll hand it over.

Great, thanks.

Thank you. Our next question comes from the line of Neil Mehta with Goldman Sachs Asset Management. Please go ahead.

Yeah, this is Neil Mehta with Goldman Sachs Equity Research. There are a couple questions I have here. The first is just your perspective on deleveraging. As you get into that free cash flow inflection that Neil referred to, and those are really big numbers, Now, how do you think about reducing the debt on the balance sheet? What are the priorities? And, you know, what's the target level and how quickly can you get there?

Yeah, thanks, Neil. I'll let the other Neil answer that.

Hey, Neil. Yeah, so I think, you know, our objective on leveraging it hasn't changed. You know, we want to get to less than one and a half times on a sustainable basis through this cycle. And so, you know, the free cash flow that we generate once the products are online are going to be allocated towards that, and probably initially preferentially towards the RBL, just given its floating rate and sort of our highest cost interest piece at the moment. And so we've got some work to do on debt reduction, and that's been a clear priority for the free cash flow. And again, I think from our perspective, you'd see sort of the front end of that free cash flow clearly directed towards And then once we get to less than that one and a half times in a normalized oil price environment, then it comes around sort of the competing priorities in terms of some allocation towards debt repayment versus capital returns. So that's a discussion to have in the future, but as of today, we'll continue to focus on just getting to that less than one and a half times in the normalized price first.

That makes sense, Neil. I want to give you an opportunity to talk about the convertible bond issuance because it created a lot of volatility around the stock. But I think a lot of it was just to manage near-term interest expenses around floating rate debt. So just your perspective on why you thought that was the most cost-effective approach to financing and how should we think about that over the long term?

Yeah. And so, again, we've had a number of discussions around the convertible bond with both debt and equity holders over the last couple of months since we executed that back in March. And again, I think for us is around where our current bonds were trading and how do we optimize access to the debt capital markets at the lowest cost available. And the issue that we've had for the past 18 months, when you look back into 22 and 23, is really where Ghana has traded and therefore the impact to our secondary levels on the bonds and therefore a new issuance in the regular bond market would have been quite expensive just from a regular new issue market and therefore trying to get ahead of the liquidity and maturity wall is something that we've always tried to be proactive about and so thought that was the best instrument at the time to manage The maturity schedule, and as you can see in the presentation, with that and the RBL, would really clear the runway for the next couple of years for us to execute and continue to pay down debt. And so it's really around taking the balance sheet off of the agenda, focusing on the organic delivery of the business plan, and using sort of the most efficient tool at the time to try to execute that. So, you know, that was really the background there.

Thanks, Neal.

Sure.

Thank you. Our next question is from the line of Subhash Chandra with The Benchmark Company. Please go ahead. Thank you.

Following up, I guess, on Neil and a couple of the other questions with regards to free cash flow, it's sort of the organizing principle beyond the next year to sort of be in that 500, 600 mil maintenance capex number And then everything beyond that, obviously, you know, pay the RBL off and then payouts, et cetera. Or are there some appetites that you might have deferred, you know, pending getting GTA on either organic or acquisition oriented? That might get us to a different spend level down the road.

You know, thanks, Subash. Let me just take that. You know, I think we're, When we talked about the 550, we've talked about it from two dimensions. We've talked about a sort of base maintenance capital of 300 to 350, which sort of covers the infill drilling program in Ghana, the continuing development of Jubilee. It covers the infill program in Akril, Guinea, that I talked about earlier. And then, you know, sort of post the startup of Winterfell and then Tiberius looking longer term, you know, the additional wells there. So I think we're properly allocating capital to that. And clearly those are very high return projects. And then we've talked on top of that about sort of 200 to 250 of spend that would be in growth. And clearly the two projects that, you know, we're focused on today are Tiberius and Yakuturanga with, you know, an expansion project at Torchy. And that capital, you know, that $200 to $250 incorporates the spend on those projects sort of post-financing, you know, financing of the FPSO on, let's say, Yakuturanga. So I think we're... We're clear about the forward projection of the company, where we believe we can not only grow, it'll be at a more modest rate than we have seen over the last two years, but there is growth in high-quality projects, and it'll be a mix of low-cost, low-carbon oil, e.g. Tiberias, you know, low-cost, low-carbon gas, e.g. an expansion of Phase I, you know, or Yakut Ranga. So, you know, and it's sort of, you know, single digits, middle single digits sort of growth rates. But at the same time, with a capital level of 550, you know, we believe we can, we have significant free cash flow, which, as Neil says, we can direct to the pay down of debt. And then subsequently, when we get to the right leverage levels, we can look at shareholder distribution. And I think that's ultimately what differentiates Cosmos as a company. It has an organic activity set, which it can sustain really through a decade and beyond. We have an R2P of over 20 on a 2P basis. So the ability to create something now which can not only continue to grow, but can actually return cash. And we think a really competitive free cash flow yield is something that's quite unique. So that's our objective now. But we're clear about the frame. And I think that's the point that I absolutely want to emphasize on the call, that the 550 in that sense is clear. and we're clear about the capital frame and therefore how it's going to be allocated.

Got it. Okay, so I hear you loud and clear, so no real interest in external opportunities. I mean, given what seems like a greater churn in sort of the assets, whether they're stranded gas or in the Gulf of Mexico, et cetera, you're going to stick with the footprint you have.

Yeah, and I think what we've been clear about, Subhash, is that any inorganic has to be accreted from a cash flow basis that actually therefore accelerates that journey. And I think that having set that out as the organic path of the company, to improve upon that, you have to accelerate it through an inorganic that actually is significantly cash flow accreted. which it has been the case for the three acquisitions that we've actually done as we've grown the company. Equally well, there may be opportunity, particularly on the gas side, to lighten the portfolio, which again accelerates that objective. So I think we're absolutely clear about the company we're building and therefore, as it were, how... an inorganic opportunity would fit. What we don't have to do, clearly, is buy things to mitigate decline. We do not have decline. And I think that's, again, what differentiates us from others. So if something is accretive from a cash flow perspective and organically accelerates that, quality assets, then clearly those are the things we look for. Equally well, the reverse, if we can accelerate the delivery of free cash flow for our shareholders by lightning on the gas assets, then we would do that.

Thank you for that.

Great. All right. Thank you.

Thank you. Ladies and gentlemen, 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 now disconnect your lines. and thank you for your participation.