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Kosmos says won't expand in new oil basins, unveils climate change-focused strategy

Highlights

Company plans tests of existing 'strong' Africa portfolio

All current projects remain net value positive

Seeking to expand exposure to LNG projects

Houston — Midcap upstream producer Kosmos Energy, which has incorporated climate risk into its business strategy, will not pursue new basins for oil exploration and instead plans to increase its focus on natural gas, its top executive said Monday.

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Kosmos, which operates in several African countries and the US Gulf of Mexico, recently completed a climate risk analysis in which gas plays a "critical role" in the emerging energy transition to less polluting fuels, CEO Andy Inglis said in webcast remarks during a fourth-quarter 2019 earnings conference call.

"We will not pursue new basin opening oil exploration," Inglis said.

The company plans to test its "strong" portfolio of existing frontier opportunities in Namibia, South Africa, Sao Tome, offshore Equatorial Guinea and Suriname, but not seek access to new oil basins, he said.

Instead, "we'll use our short-dated oil production to finance a move towards medium to long-term natural gas projects, all the while delivering shareholder returns," Inglis said.

RECORD OUTPUT IN US GULF OF MEXICO

Kosmos' total production averaged 65,200 barrels of oil equivalent/day in Q4, down 5% sequentially and flat year on year.

In the US Gulf of Mexico, the company achieved record production of 26,000 boe/d in Q4, of which 82% was oil, up about 1% compared with the third quarter of 2019 and an increase of about 10% from the year-ago period.

Its forecast for net 2020 US Gulf production is 24,000 boe/d-28,000 boe/d. Three exploratory wells are expected to be drilled in that arena this year as the company continues to raise the grade of its multi-year exploration prospect inventory there, led by tieback opportunities to existing infrastructure.

Kosmos, which closed its $1.2 billion acquisition of Deep Gulf Energy in September 2018, did not immediately provide an exact Q4 US Gulf output average but instead said its September 2018 to December 2018 US Gulf production was 23,700 boe/d.

Inglis said the company plans to continue pursuing attractive drilling US Gulf drilling opportunities in future bidding rounds, one of which is scheduled for mid-March. Kosmos now has 23 prospects in the US Gulf across 71 blocks, amounting to roughly 375 million boe of total net resource, he said, which represents more than five years of future drilling at three to four wells a year.

Its Equatorial Guinea production averaged about 11,400 boe/d in Q4, flat with Q3. But the company's Ghanaian production averaged 27,800 b/d of oil, down nearly 12% from Q3.

COMPLETED GHANA PROJECT INCREASES OIL RATE

Inglis said Kosmos has taken steps to increase the oil rate at the Jubilee field, which is limited by the associated gas rate. A gas-handling project scheduled for Q4 was pushed back to early this year and was completed in February.

Further explaining its environmental analysis, Inglis said Kosmos' present portfolio is generally "climate resilient" under current sustainable development scenarios and is net present value-positive.

For example, current oil assets are generally short-dated, meaning its assets in the US Gulf and Ghana see "almost no value erosion," due to fast paybacks in the former and a mid-2030s license expiry in the latter, he said.

But long-dated oil exploration faces "significant" value erosion, and has led to decisions by Kosmos executives on the company's portfolio. The company plans to increase its net exposure to LNG from 3 million mt/year to around 5 million mt/year, and fund higher interest in the Greater Tortue Ahmeyim LNG development offshore Mauritania and Senegal through partial monetization of other assets in those two countries.

Kosmos' goal is to achieve carbon neutrality for Scope 1 (direct emissions produced by burning of fuels) and Scope 2 (indirect emissions generated by electricity consumed and bought by the emitter) by 2030 or sooner, he added.

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