Kosmos Energy's Q3 2025: Contradictions Emerge on GTA Cost-Cutting, Production Forecasts, and Leverage Management

Guidance:

• Q4 production expected 66,000–72,000 boe/d.
• Full-year CapEx now expected below $350M (3Q CapEx $67M; YTD ~ $240M).
• GTA to reach ~2.7 MTPA nameplate by year-end; Phase 1+ FID targeted within ~12 months.
• Jubilee: second producer expected online ~end of year; 2026 drilling program 5 wells (incl. water injector).
• Targeting GTA FPSO refinancing by year-end; exploring secured financing against GTA and non-core divestments to address 2027 maturities.
• Hedging: 2.5M bbls left in 2025 (floor $62/ceiling $77); 8.5M bbls for 2026 (floor $66/ceiling $73).
• Equatorial Guinea pumps repair: normalized production expected in H1 2026.

Business Commentary:

* Production Growth and Cost Reduction: - Kosmos Energy reported a significant increase in production, with total net production reaching around 31,300 barrels of oil equivalent per day in Q3, driven by strong performance from new wells at Jubilee and increased production at GTA. - The rise in production was attributed to successful drilling campaigns at Jubilee and the lifting of 13.5 gross LNG cargos from GTA, with a target to increase production further to nameplate capacity by year-end.

• Cost Management:
• CapEx for the year is expected to fall below $350 million, a significant reduction from the previous forecast of $500 million.

• The reduction in costs is due to the completion of major project outlays, particularly at GTA, and a focus on reducing overhead and operating costs across all business units.

• Financial Resilience and Balance Sheet Enhancements:

• Kosmos completed a $250 million term loan from Shell, using the funds to repay early the $150 million of 2026 unsecured notes.

• The company successfully passed the liquidity test for the 2027 bonds, ensuring financial resilience amid ongoing commodity price volatility, and continues to increase hedging protections against near-term price fluctuations.

• Technological Advancements at Jubilee:

• The implementation of Ocean Bottom Seismic (OBS) at Jubilee is expected to provide enhanced understanding of subsurface structures, which should support optimum well selection in future drilling campaigns.
• This technology is anticipated to support resource recovery and drive material uplift in 2P reserves, contributing to the long-term potential of the Jubilee field.

Sentiment Analysis:

Overall Tone: Positive

• Management repeatedly cited progress: "we've made important progress across all 3 of these areas this quarter"; "production near record highs"; "CapEx for the year to be below our $350 million forecast, an absolute reduction year-on-year of around $500 million"; and balance-sheet actions: "we have created more space until our nearest maturities". These statements emphasize rising production, falling costs and active liquidity measures.

Q&A:

• Question from Matthew Smith (BofA Securities): Could you give further details on the 10 FPSO sale and repurchase agreement and timing for that lease finishing? Also, can you give a sense of cash flows and deleveraging expected for 2026?
  Response: No upfront cash for the FPSO purchase option; a discounted buyout payable around 2027 that will lower operating cost; Shell $250M term loan used to repay 2026 notes; company targets breakeven in the mid-$50s/bbl and expects improving free cash flow and deleveraging as production and costs improve into 2026.

• Question from Bob Brackett (Sanford C. Bernstein): On GTA OpEx — am I right to think you're running around $60/barrel and targeting roughly half that (~$30)?
  Response: OpEx is trending down: ~$70M in 2Q, ~$60M in 3Q, and guidance implies ~ $50M per quarter net to Kosmos in 4Q with further unit-cost reductions expected into 2026.

• Question from Bob Brackett (Sanford C. Bernstein): Any lessons learned on Winterfell — is there a common theme to the challenges?
  Response: Issues are operational (screen/casing failures), not reservoir; management will simplify and rigorously plan future operations and focus 2026 activity on restoring production (recomplete/reuse wellbore) before pursuing full development.

• Question from Charles Meade (Johnson Rice): What will drive 2 cargos versus 3 cargos from Ghana in 4Q — is it J-72 performance or other factors?
  Response: It's primarily timing/performance around the year-end cargo (well performance dictates whether a third cargo falls in 4Q).

• Question from Charles Meade (Johnson Rice): The GTA condensate cargo you sold — how does that fit into guidance and 4Q reporting?
  Response: The first gross condensate cargo was lifted early in 4Q; proceeds will be allocated on entitlement/pro rata basis so Kosmos will record its share in 4Q; partners will rotate lifts going forward.

• Question from Neil Mehta (Goldman Sachs): For investors worried about the balance sheet, can you spell out liquidity, why you’re confident, and mitigation steps?
  Response: Company has increased resilience via the $250M Shell term loan (repaying 2026 notes), a successful RBL redetermination, added hedges, and is pursuing secured financing against GTA plus non-core asset divestments to address 2027 maturities.

• Question from Neil Mehta (Goldman Sachs): What upfront investment is required for GTA expansion and differences versus a 5 MTPA floating facility?
  Response: Phase 1+ is largely low-CapEx: ~200 MMscfd available with effectively zero upstream CapEx today, another ~100 MMscfd via FPSO debottlenecking; expansion targets domestic gas with modest FEED work and FID within ~12 months.

• Question from Unknown Analyst (Clarksons/Christopher Bake): Jubilee underlying decline rates and expected 2025 exit rate; are CapEx reductions timing or real; and what OpEx savings from FPSO lease refinancing?
  Response: Jubilee expected to exit ~70,000 bpd and could move into the 80ks as new wells come online in 2026; CapEx savings are real (drilling efficiencies and lower contract rates); current TEN lease cost ~ $60M/year (~$15M/qtr) and a buyout could reduce that to ~$40–50M/year.

• Question from Unknown Analyst (Clarksons/Christopher Bake): With Phase 1 nearing nameplate at GTA, what drives FID timing and upside on Gimi beyond nameplate?
  Response: FID timing driven by securing gas sales agreements for domestic supply; initial low-cost uplift available now (200 MMscfd) and modest debottlenecking for extra capacity; Gimi upside post-modifications could be ~10–20%, with work and benefits expected around 2029.

• Question from Stella Cridge (Barclays): What borrowing capacity might GTA support today and what structures are you considering for secured financing?
  Response: Management believes GTA has sufficient security capacity to cover the 2027 bonds and is targeting bond-like secured solutions at attractive rates; due diligence/tests being run before execution.

• Question from Nikhil Bhat (JPMorgan): Regarding the RBL covenant increase to 4x in Sept 2025 — are you under cure/waiver and does this affect March 2026/2027 tests?
  Response: A waiver/adjustment was obtained ahead of the Sept test (uses June LTM); the next relevant covenant (4.25%) uses Dec 31 financials and is tested end of March — management says they are close to the covenant and are implementing mitigation options.

• Question from Mark Wilson (Jefferies): Where is the ocean-bottom seismic work and reprocessing, and what has it delivered for Jubilee?
  Response: Early OBN/4D results materially improve subsurface imaging, identify undrilled lobes and unswept oil, help optimize water injection patterns, and materially expand the high‑grade prospect hopper for future wells.

• Question from Kay Hope (BofA Securities): Why is Q4 guide 66k–72k when you said current production is ~72k; and should we expect any working capital reversal or FCF positivity in 4Q?
  Response: Range reflects allowance for planned/unplanned downtime (including one short train outage) and routine variability; working capital headwinds from project delivery have normalized and no material WC surprises expected today, but fourth-quarter FCF outcome is price‑dependent (management notes a strong start in October).

Contradiction Point 1

Cost Reduction Efforts for GTA

It highlights differing expectations and strategies regarding cost reduction, which can impact financial performance and long-term planning.

Is GTA OpEx expected to be around $30 per barrel of oil equivalent? - Bob Brackett (Sanford C. Bernstein & Co., LLC., Research Division)

2025Q3: GTA OpEx in Q3 was $60 million, with expectations of $50 million per quarter in Q4. The goal is to reduce OpEx by over 50% through cost savings and production increases. - Neal Shah(CFO)

What are the potential cost reductions and their magnitude for GTA by exploring different operating models? - Charles Meade (Johnson Rice & Company, L.L.C., Research Division)

2025Q2: Focus is on optimizing the project to reduce costs, with efforts including refining the FPSO lease and exploring alternative operating models to drive costs down further. - Andrew Inglis(CEO)

Contradiction Point 2

Production and Cost Expectations at GTA

It involves differing expectations for GTA's operational expenses and production levels, which directly impact financial forecasting and operational strategy.

Can you clarify if GTA OpEx is expected to remain around $30 per barrel of oil equivalent? - Bob Brackett (Sanford C. Bernstein & Co., LLC., Research Division)

2025Q3: GTA OpEx in Q3 was $60 million, with expectations of $50 million per quarter in Q4. The goal is to reduce OpEx by over 50% through cost savings and production increases. - Neal Shah(CFO)

How are you managing financial leverage and liquidity under lower commodity prices, and how does this impact your 1.5x leverage target? - Lydia Gould (Goldman Sachs)

2025Q1: Our adjusted operating expenses are approximately $130 million in the first quarter of 2025, which are roughly $100 million less than the previous quarter. We expect these expenses to remain below $100 million per quarter going forward. - Andy Inglis(CEO)

Contradiction Point 3

Leverage and Liquidity Management

It involves differing approaches to managing financial leverage and liquidity, which are critical for the company's financial health and investor confidence.

Can you address the balance sheet and liquidity risks and outline steps to mitigate them? - Neil Mehta (Goldman Sachs Group, Inc., Research Division)

2025Q3: Recent progress includes the Shell term loan, addressing 2026 bond maturities. The RBL was successfully re-determined, and additional hedges were added. - Andrew Inglis(CEO)

How do you assess financial leverage and liquidity amid lower commodity prices, and what does this mean for your 1.5x leverage target? - Lydia Gould (Goldman Sachs)

2025Q1: Our debt maturities are managed, with bulk of '26 notes expected to be repaid with cash flow. We maintain sufficient liquidity, and unencumbered assets like Gulf of America and Mauritania could be used for cost-effective financing if needed. - Neal Shah(CFO)