Kosmos Energy Ltd. Q3 FY2022 Earnings Call

Greeting and welcome to the Kosmos Energy Third Quarter 2022 Earnings Call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. I’d now like to turn the call over to Jamie Buckland, Vice President of Investor Relations. Thank you. You may begin.

Thank you, operator, and thanks to everyone for joining us today. This morning, we issued our third 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 Inglis, Chairman and CEO; and Neal 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 U.K. 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.

Thanks, Jamie, and good morning and afternoon to everyone. Thank you for joining us today for our third quarter results call. I'd like to start today's presentation with a few comments on the macro environment and the role Kosmos plays in addressing the energy challenges the world is facing. I'll then give an update on the quarter and a progress report on the oil & gas development projects we have across the portfolio. I'll then hand over to Neal to talk through the financials before I wrap up today's presentation and we open the call for Q&A. Moving to slide three, the world is grappling with a need for affordable, secure and cleaner energy with a balanced approach required to address the three dimensions. Kosmos has the right strategy and portfolio at the right time to be part of the solution. We have a strong oil-weighted portfolio that can 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 of yield, low-cost, lower-carbon barrels that are highly cash generative. At the same time, we're working with our partners with new sources of natural gas into production. These projects address affordability and increase energy security by supplying more gas to the global energy market, as well as into domestic markets in Africa. This should benefit our host countries in two ways. First, the revenues from the export of LNG can be invested in critical infrastructure to promote economic development. Second, providing baseload domestic gas supply will help expand access to electricity, a key goal in each of the countries where we operate in Africa. Over the next two years, we expect to increase oil & gas production by about 50% as we optimize current production and bring new projects online. The 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 cleaner natural gas displaces coal, heavy fuel oil, and biomass as a prime resource 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 Kosmos has an important role to play in responding to these global energy challenges. The next slide highlights the characteristics that differentiate Kosmos. On the left side of the slide, we are identifying the distinctive features of our portfolio. First, we have a high-quality and long-dated asset base, with 2P reserves for a production life of over 20 years. Second, our low-cost, high-margin assets are highly cash generative, particularly at current commodity prices. Third, we forecast around 50% growth in production from now into 2024 from three development projects, which are progressing well. The largest portion of that growth is expected to be driven by Tortue, which increases the gas content of our portfolio materially just from Phase 1 with a larger transition anticipated as we deliver subsequent phases and our other gas projects in Mauritania & Senegal. On the right side of the embedded values and policies of the company that underpin our strategy, we have a strong focus on capital discipline, only pursuing the most compelling value-added projects in the portfolio while making sure the balance sheet remains robust. We continue to reduce absolute debt and write down leverage and Neal will talk about the progress we've made this year. We have a highly experienced management team, and we have the energy to deliver our strategy and respond to the challenges we see across the industry today. Finally, we have a strong track record across the ESG spectrum from near-term emission reduction targets to contract transparency and funding social programs in our host countries. MSCI, one of the leading ESG rating agencies, recognizes this commitment and the progress we are making and has recently upgraded Kosmos to AAA, its highest possible rating. The combination of these policies makes Kosmos unique and supports our ability to create substantial shareholder value over the short, medium, and long term. So to summarize, I strongly believe Kosmos is well positioned for the future with a clear compelling strategy, and we continue to deliver progress on our strategic priorities each quarter. Turning to slide five, looking at Q3, it was another quarter of solid execution for Kosmos as highlighted by the boxes on this slide. Our production assets are performing as expected with production for the quarter in line with guidance. We continue to grow the value of our oil portfolio with progress at the Jubilee Southeast and Winterfell development, and we have finalized our ILX offer for next year's drilling activity. We are also growing the value of our gas portfolio with the continued execution of the Tortue project and at BirAllah, where we have signed a new PSC with the Government of Mauritania. Finally, the balance sheet continues to improve as the portfolio generates cash, which drives down leverage with our year-end target leverage of 1.5 times achieved with further progress expected. We'll dig into each of these themes in today's presentation. Turning to slide six, which focuses on the performance of our production assets during the quarter. In Ghana, the Jubilee field continues to deliver with gross production for the quarter at around 69,000 barrels of oil per day. Following the excellent drilling performance year-to-date, which is seeing wells drilled safely and quicker than planned, we have now started to drill the first of the three Jubilee Southeast wells ahead of schedule. We've completed the handover of the Jubilee FPSO operations and maintenance from MODEC at the beginning of the third quarter and the results so far have been encouraging with multiple opportunities identified to drive further efficiencies and reduce costs. Since the transition, the operating performance has been strong with no reportable safety incidents and facility uptime of over 98%. On costs, we've identified potential savings in direct contracting, focused work stubs, and competitive retendering. TEN gross production of around 22,000 barrels of oil per day for the quarter was in line with expectations. The EN-21 well was brought online in late September and has since been shut back awaiting pressure support from the injector pair, which we expect to see soon. The partnership also drilled the second and only riser-based well during the quarter, which encountered approximately five meters of oil pay, but with poorer quality reservoir than expected. The data from these two riser-based wells will be incorporated into the expansion plans for TEN, which will now be focused on proved accumulation areas where we have existing well control. Equatorial Guinea's gross production has been consistent and stable with around 30,000 barrels of oil per day for the quarter, again in line with expectations. In late August, the partnership entered into a rig contract for next year's drilling campaign, with activity scheduled to begin in the second half of 2023, when the partnership expects to drill several infill wells in Block G, followed by an ILX well. The Gulf of Mexico's net production of 40,700 barrels of oil equivalent per day was slightly below expectations, due to an extended Delta House turnaround and lease curtailment impacting production after the planned drydock at the production vessel concluded. At Delta House, there was an unplanned shutdown for around two weeks last month due to a malfunction of the gas compressor. The issue has been resolved and factored into our Q4 guidance for the Gulf of Mexico in the appendix slide at the back of the material. On Kodiak, the number three well came online in mid-September, with initial production results in line with expectations. However, as one of our partners flagged in their results last week, well productivity is declining and workover plans are being developed. There have been a few issues with unplanned downtime over the past couple of months, but we're now back at around 18,000 barrels of oil equivalent per day net and focused on growing our Gulf of Mexico production. Work also began on the Odd Job subsea pump project during the quarter, following sanction in Q2, which is an important step into sustaining the long-term performance of the field. Turning now to slide seven, as we move our development projects forward, we continue to grow the value of the portfolio. This slide looks at the recent progress we've made in growing the value of our oil portfolio. On Jubilee Southeast, the project is now over 50% complete with the drilling of the first well is now underway. Initial production is expected in mid-2023 and the partnership is targeting a ramp-up in gross Jubilee production to around 100,000 barrels of oil per day. At Winterfell, all partners signed the build development plan in September, and the operator has signed a recommissioned license to drill and complete three wells starting mid-2023. Host facility production handling agreements and midstream export agreements are also expected to be completed within the next several months, supporting our target of first oil at the end of the first quarter in 2024. Given the scale of the potential resource with approximately 200 million barrels of recoverable oil, we remain excited about this project. Within the quarter, we acquired additional interest, taking our overall interest in the project up to 25%. In addition, we are targeting further growth by drilling two high-graded opportunities in our ILX offer. We expect to drill the Tiberius well in the Gulf of Mexico mid-2023 and the deeper well in extra G&A around a year later. Both projects are targeting over 100 million barrels of oil gross and would be high-return tieback projects if successful. Now that I've talked about our near-term oil growth, I'd like to switch gears on slide eight, which looks at how we're growing the long-term value of our gas portfolio. First, Tortue Phase 1, our LNG project in Mauritania & Senegal, all workstreams continue to make good progress, with the project approximately 85% complete at the end of the third quarter. The hub terminal is now largely complete, the living quarters platform is installed, and commissioning activity has now commenced. On drilling, four wells have been drilled in total, with a capacity of around 700 million standard cubic feet per day. We recently completed the first of the four wells and have sent the rig for a short cleanup period. Combined across the four wells, we now have significantly more capacity than the 400 million standard cubic feet per day required to supply the liquefaction volumes for Phase 1. On the floating LNG vessel, which has been constructed in Singapore, we remain on track for sail away in the first half of 2023 as communicated by our partners in their most recent results. On the subsea side, the shallow water gas export pipeline and the FPSO for the hub terminal have been installed, and the deepwater pipeline vessel has arrived in the region. Final testing has been conducted, and commercialization is expected in the coming weeks, completing the deepwater pipeline and the infill flow line. On the FPSO, the timing of the FEED trial by the sail away was impacted back on the Typhoon, which swept through the yard in mid-September and caused the vessel to drift away from the quayside. Around two weeks later, the vessel returned to the quayside and following the inspection conducted today, there continues to be no material damage reported. With the required inspections and additional work scope resulting from the Typhoon, the impact on the FPSO schedule has been around a month. As a result, we expect to sail away the vessel around year-end. Stepping back and looking at the projects overall, the operator is working hard to make good progress to overcome the challenges from COVID, supply chain constraints, and more recently, Typhoon Muifa. We expect first gas around nine months from the FPSO sail away and continue to target first LNG around year-end 2023. On the cargo sales opportunities we talked about last quarter, a process of engagement has commenced with significant interest received to-date, including from majors, traders, and end users. We'll provide further updates as we progress the process, and we remain focused on crystallizing additional value for shareholders from this opportunity. Elsewhere in Mauritania & Senegal, we continue to move the various projects forward. On Tortue Phase 2, we're in advanced discussions with our partners BP, Petrosen, and the two governments, including their respective Presidents, on the right concept to accelerate the second phase of the project. In light of the changed global market conditions following the invasion of Ukraine and the continuing volatility, our aim is to agree on the best concept in the coming months, which will enable us to advance the pace with the right expansion. This is taking longer than initially envisioned as we work to obtain the full agreement from both governments, which are rightly considering the importance of their gas resources and the opportunity to build new government-to-government partnerships. Overall, I'm pleased with the level of alignment on the route forward. There's a sharp focus on building the arise, low-cost solution, leveraging synergies of Phase 1, and accessing attractive pricing opportunities, given the high-demand environment. On BirAllah, we've now signed the PSC with the Government of Mauritania as flagged in last quarter's results. We're working with BP on a future development concept, and the PSC allows us up to 30 months to reach FID, so that's set the clock on that project. We expect this project to take a similar phased approach to Tortue to manage both costs and pace. In Senegal, we're continuing to progress the domestic gas scheme with the operator and the government. There is a large and growing need for domestic gas in Senegal, and the government intends to move this forward quickly. With that, I'll hand over to Neal to take you through the financials.

Thanks, Andy. Turning to Slide nine, the third quarter saw continued progress as we further enhanced our financial position. We are taking advantage of higher oil prices to continue to strengthen our balance sheet, with net debt down approximately $500 million year-to-date. EBITDAX in Q3 was around $301 million, up almost four times compared to the third quarter of 2021 on higher production and higher realized prices. This was despite a significant underlift in the quarter, which we expect to reverse in the fourth quarter of this year. We generated around $30 million of free cash flow in the quarter, which takes us up to around $320 million for the year-to-date. Strong EBITDAX performance helped to drive leverage to the 1.5 times target we set out to achieve by year-end, with further progress expected. The chart on the right shows the quarterly progress we are making on both EBITDAX and leverage. As our production has grown year-on-year, we now expect around $1.5 billion of EBITDAX for 2022 at an average oil price of around $100 per barrel. Liquidity has grown consistently over the last year and remains over $1 billion. Looking forward, with expectations that the business continues to generate strong levels of free cash at current commodity prices, we plan to continue to prioritize debt paydown in the near term. Turning to slide 10, I talked about the financial highlights on the previous slide. We plan to cover the key items on this slide. As Andy mentioned, net production of around 61,000 barrels of oil equivalent per day was in line with guidance, helped in particular by strong performance at Jubilee and offset by some weakness in the Gulf of Mexico. With the continued higher unplanned downtime in the Gulf of Mexico in September and October, full-year production guidance has been tightened to 63,000 to 65,000 barrels of oil equivalent per day. We realized a price of approximately $81 per barrel of oil equivalent, including the impact of hedging. Excluding hedging, the realized price was around $97 per barrel of oil equivalent. Costs generally came in line with guidance; our OpEx was lower than forecast due to lower Ghana operating expenses and some delayed projects in Equatorial Guinea. Looking forward, we expect some increase in our floating debt costs as interest rates rise. However, this is anticipated to be offset by reducing the amount of our floating rate debt, and as a result, overall interest costs should remain largely flat into next year. On capital, we expect Q4 to be broadly in line with the third quarter, which includes some slightly higher CapEx on Winterfell, reflecting the costs associated with the acquisition of our additional working interest. To conclude the financial section of today's presentation, it was another good quarter of progress. We continue to fund our differentiated growth and deliver excess cash, which helps further reduce debt and improve our balance sheet. We expect more of the same in the fourth quarter. I'll now hand it back to Andy to close today's presentation.

Thanks, Neal. Turning to Slide 11 to wrap up today's presentation. Kosmos has had another solid quarter of strategic and operational delivery. Our production assets continue to perform well. We are growing the value of our oil business, advancing developments in Ghana and the Gulf of Mexico, with additional potential from the high-graded ILX opportunities that we plan to start drilling next year. We're also growing value across our gas portfolio with further progress in Tortue, and the signing of the BirAllah PSC in Mauritania. Our financial position continues to improve with another quarter of free cash generation. This has put leverage at multiyear lows with further progress planned. Finally, we have the right low-cost, lower-carbon portfolio at the right time, providing the energy the world needs today and supporting a just transition that addresses the trilemma of energy security, energy affordability, and climate change. Thank you. 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. Our first question is coming from the line of Neil Mehta with Goldman Sachs. Please proceed with your questions.

Yes. Good morning, Andy and team. Thanks for taking the time. The first question is really around the sale date for the FPSO. Obviously, there was weather impact there. It sounds like you guys have been able to work through it quite effectively. So any more detail that you can provide? And based on the tests that you've done on the asset, any structural damage or no real impact? Thank you.

Yes. Hi, Neil. Thanks for the question. Yes, we obviously suffered the impacts of the Typhoon going through the yard. The mooring lines compromised, the vessel moved 200 meters away. It's now been back at the quayside. As I said in my remarks, all of the inspections to date have not revealed any significant damage, no structural damage. We have only suffered about a month delay from that work, additional inspections that were required and the work that was needed to address the minor damage that occurred. The operator is targeting sail away around the end of the year. We can talk more broadly if you want around the overall schedule, but that still puts us in the position whereby by year-end ’23, we can be delivering the first LNG. As with all big projects, there's a question of dealing with the challenges that are thrown your way. Clearly, BP has faced challenges with the COVID shutdowns and the Typhoon, but they've done a really good job of overcoming those and making progress. The project has made significant progress in the quarter; we're now at 85% complete with advancements across all dimensions, and clearly overcoming the latest issues with the FPSO has been an important piece of delivery in the quarter.

Yes. I think that's going to be an important catalyst for the story. And that's the follow-up, which is as the investment community, as we track where you are right now to ultimate completion, what are the milestones we should be watching between now and year-end ’23 to determine if everything's on track?

Yes, no. Thanks, Neil. Again, it's good to be able to talk about it. If you sort of go through the five work streams in the project, obviously, the integration of those five work streams is important. You start with the wells; we've drilled four wells, we've just completed the first and are flowing the well back with a good clean up. That's the wells finished, and we expect to get all of that done by the end of the first quarter. Moving to the hub terminal, it's essentially complete at a very high level of completion; actually, the pack that we distributed this morning contains a picture of the current stage at the hub terminal, which shows a strong level of completion. We expect to be fully commissioned and ready for the FLNG vessel by the end of the first quarter next year. The FLNG vessel, as mentioned in their own disclosures, should depart Singapore in the first half and has a 60-day to 90-day transit. Therefore, it should be scheduled to arrive and hook up in the third quarter. Finally, you’ve got the subsea components. The shallow water line has been completed, the deepwater pipeline vessel is in the vicinity, and it is expected to start work later this quarter, finishing all deepwater pipeline and flow lines by the second quarter. The critical pass-through of the FPSO, the sail away around year-end is expected to arrive 90 days later. We will do the hookup of the FPSO, the connection of the subsea, when all the equipment is laid, which brings us to the end of the third quarter. You will start to introduce gas around that timeline, leading to the first LNG by the end of the year. So, as we continue to navigate those component pieces, we'll remain focused on delivering those milestones.

Got it.

Great. Thanks, Neil. Let's move to the next question then.

Thank you. Our next question is coming from the line of Bob Brackett with Bernstein Research. Please proceed with your questions.

Yes, good morning. I'm curious about ’23 CapEx, but I'll leave that question for somebody else and instead focus on GTA Phase 2. I hear your language around government-to-government engagements, and I recollect high-level visits between the President of Germany and Senegal. Could you provide some color on that? To the extent that governments get involved, does it change the scope of the project, the timing, or perhaps the assurance of counterparties? How should I think about that?

Hey, good question, Bob, and the answer is sort of all of the above. We've gone through a process of revisiting the right concept for Phase 2, and we've done that with full engagement of all the partners, obviously with BP leading that piece of work. The Ministries are involved, along with both Presidents. For them, it’s about ensuring they've got the right framework for the project, enabling them to position their gas as an important trade relationship with Europe. Your mention of the discussions between the German president and Senegal relates to the whole energy security issue in Africa being a crucial new source of LNG. So, the right project, scale, and timing as the governments revisit their relationships are factored into this piece of work; it's more than simply the engineering. Of course, it's slightly more complicated as you've got two governments involved, and that's always been a challenge with GTA. That said, we have an essential piece of delivery here. We have a project that is genuinely low-cost and lower-carbon gas, with no CO2 produced, making it an important piece of new supply for Europe. I believe we've made real progress as a result of those conversations. I'm optimistic that the operator will put forward a proposal this month that incorporates all of that feedback, which will enable us to finalize the concept, optimize that concept, and ultimately move the project forward to FEED and construction.

Very clear. If you had your choice, if you controlled the path, would you prefer a smaller but quicker Phase 2, as has been recently envisioned, versus a potentially larger and maybe slower project?

Yes, Bob. And I think I'm only one voice in this, so I need to be careful about what my singular view is. It’s not solely about what I want to do, or what is best for the partnership. I think the partnership understands that we have an opportunity to deliver a truly low-cost project by fully leveraging the infrastructure we've invested in Phase 1. I think there is clear alignment around that. So, the debate has been about what's the best liquefaction solution that fully utilizes the infrastructure we've laid in, considering both the larger scale and timing. I believe there is good consensus regarding the idea of a brownfield expansion and the best ways to fully maximize the investments we've made in Phase 1.

Very clear. Thanks for that.

Thanks, Bob.

Thank you. Our next question is coming from the line of Charles Meade with Johnson Rice. Please proceed with your questions.

Good morning, Andy, to you and your team there. I wanted to follow-up about Phase 2, but perhaps from a financial perspective. I think when you've spoken about this in the past, the idea would be that the cash flows from Phase 1 would essentially make your pathway to building Phase 2 cash neutral. I have to imagine that as you guys have gone back and reexamined your contracting strategy for Phase 1, you're shifting more to a free cash flow positive positioning. Do you see Kosmos staying in those two projects through the development? Or do you see them more as monetization options? Would those two require further drilling ahead of a development decision? Thanks.

Yes, no, I'll share the answer with Neal. I think overall Charles, I think you're right. When we talk about our plans, it was always about ensuring we had a really capital-efficient Phase 2 by fully leveraging Phase 1. We talked about a modest upstream investment of less than $1 billion, and I think that absolutely holds true; we have opportunities to do better than that. Ultimately, the question is how to manage CapEx on the midstream. We will have financing or leasing options, so I don't think anything has changed there. Overall, I think, from a cash flow perspective, there could be an opportunity to slightly improve upon the neutral position established previously.

I think the environment for gas prices and oil prices will clearly be positive versus the long-term projections we put out in creating that wedge, Charles. There's some upside there, and certainly around the cargo sales opportunity means additional near-term cash flows. So yes, I think it's definitely moving in a positive direction.

That's helpful detail. Thank you, Neal. And then if I could ask a question about the Tiberius prospect in the Gulf of Mexico. I've been operating under the impression that there aren't a lot of untested four-ways still out there in the Gulf of Mexico, but perhaps that's not correct. Can you give us a bit of the provenance of this prospect and a timeline for testing it?

You are right, Charles. There aren't many four-ways left in the Gulf of Mexico; this may be the last, but it's certainly one of the remaining few. We really like the prospect because that genre of prospects that are four-ways have been highly successful. We are targeting to drill around mid-year as we finalize the rig contract. It's a high-quality prospect, I think, from a geologic perspective, it has scale, over 100 million barrels of resource, and it's a tieback. It absolutely fits our strategy. Implicit in your question is the idea of quality and how to get to the best opportunities. As we analyze the remaining prospects, this is one of the very best.

That's helpful detail. Thank you, Andy.

Great. Thanks, Charles.

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. Just a quick question on the results of the two TEN strategic wells. Both have been fairly disappointing from expectations; can you comment on the short to medium term impact this will have at TEN? What’s the next plan of action? Is it the case of reanalyzing the data and reassessing the interim plans? Or you mentioned targeting proven accumulation, so could you provide just some detail about those areas you'll be targeting as opposed to the interim prospects?

Yes. No, thanks, Alex. Look, the purpose of the two wells was that they were appraisal wells. It was to test the greater and some area and allow us to calibrate the seismic to ensure that we have a solid development plan moving forward. This is essentially new resource that we are bringing to TEN, so these are new resources that will become new reserves once developed. I think the appraisal wells have given us a better understanding now of the quality of the greater and some area. As we look forward, we can see the potential to bring new resource across that area, but we will be targeting accumulations where we have well control, thus minimizing risk. That's the process we're in with the operator now to bring together a plan that has the right characteristics. It will be a mix of oil and gas, associated gas, and non-associated gas; none of our moves moving forward should result in a significant investment in appraisal that generally would only destroy returns and extend timelines. Our goal is to define opportunities that will be compatible for capital allocation within our overall strategy. So it has achieved what we wanted, and we're now fully integrating the results of those wells into the plan, which we will be discussing with the operator over the turn of the year.

Great, very clear. Maybe just another quick one. You hit the gearing target that you had planned for year-end. So does the question of potential dividends or buybacks now enter the realm, and when should we hear an update on that?

Yes. Great. Why don't I pass that over to Neal, and he'll give you our thoughts on that.

Yes. Hey, Alex. We've made good progress in terms of debt reduction, which has been our focus. We've reduced net debt from $2.5 billion at the start of this year to $2.1 billion, with leverage dropping from 2.5 times to 1.5 times. We've consistently stated that our near-term objective is to maintain leverage around the 1.5 times mark in a sustainable oil price framework that requires ongoing debt reduction. The positive aspect is that we are getting closer to achieving that point. Timing is now a key aspect, and oil price remains a significant driver for such outcomes. If oil prices remain stable, I believe we can reach the right position in the back half of next year, thus beginning discussions around shareholder returns. Based on conversations with our shareholders, we are leaning more toward buybacks rather than dividends. We're in a solid position to keep working on debt reduction while preparing to move forward with shareholder returns at the right time.

Great. Thank you.

Thank you. Our next question is coming from the line of James Hosie with Barclays. Please proceed with your questions.

Hi there. I've just got a question on Ghana. You've talked a bit about monetizing gas resources. Can you give us an update on where the partnership is in Ghana with securing your offtake agreement for the associated gas? And does Guinean gas play any part in your 50% production growth by 2024?

Yes. Thanks, James. It's an excellent question. We're currently producing around 100 million standard cubic feet of gas from Jubilee. We're nearing the end of the foundation volumes and thus starting discussions with the government regarding a gas sales contract for that gas. This is integrated with the development of TEN, which I spoke about earlier; it will be an integrated gas and oil development incorporating both associated gas from oil and non-associated accumulations, in addition to building the infrastructure needed to optimize that gas. The way to consider your inquiry is that gas will contribute to our growth in TEN. The approval of that plan by the government will provide a key source of domestic gas at a competitive price alongside our existing gas costs. As you think about the growth target, the main drivers are clearly Tortue, Jubilee, Jubilee Southeast, and Winterfell. TEN will contribute to this growth, but will only make a minor contribution to the 50% growth target.

Okay, that's great. Thanks very much.

Thanks, James.

Thank you. Our next question is coming from the line of James Carmichael with Berenberg. Please proceed with your questions.

Hi, guys. Just a quick one on Jubilee. You mentioned at least some options for potential cost reductions. Just wondering if you could provide a bit more color on that? And then I guess nobody else has really picked up on Bob's 2023 CapEx question.

Good. Thanks, James. Yes, I think what's caused the opportunities to arise is the transfer of the responsibility for operations and maintenance from MODEC. This transition has allowed us a direct line of sight to that area. I think we are identifying opportunities from optimizing the work scope and also from a mindset change that comes when a third-party operator is replaced by a dedicated operator focused solely on this task. Thus, a combination of work scope optimization and contractor strategy will lead to reductions in our cost base. Clearly, there is an inflationary climate, but I believe we do have solid opportunities to combat that. You saw some of that translate into Q3. The production costs for Q3 were below our guidance primarily due to shifting operational activities in Equatorial Guinea from Q3 to Q4. However, there were also underlying gains from Ghana, particularly in Jubilee, and we expect further progress in that area. It’s crucial for us to achieve top-quartile performance in terms of facility reliability and operating costs.

And James, I’ll just touch on the second part of your question regarding 2023. I think it is still early since we are finalizing activities among the various partnerships we hold. Generally, we plan to keep capital spending broadly flat into ’23, which will be the last significant capital year for us, as we wrap up development projects. We aim to manage inflationary pressure through efficiency so we can effectively balance each dollar we spend across both capital and operational costs, allowing us to keep our figures steady.

Right. And maybe if I can, just a quick follow-up on where you're seeing the most inflation compression?

It's fascinating. Again, deepwater projects differ from the last 48 in terms of contract timing. We've got some strong contracts in place in Ghana and we've benefited from those. If you assess the areas of capital spend, we are seeing inflation particularly in our deepwater rig contracts. The operator has done exceptionally well on Winterfell, securing a rig at an advantageous price. We’re locking in a fair rate for Tiberius, but I think we're noticing the biggest variable in rig contracts. Other areas should remain stable, but there are details we still need to finalize regarding Tortue and access to workflows as we enter the installation phase, which could present us with some challenges. We’ve addressed these proactively in Jubilee Southeast and secured good value on those contracts, so we’re not overly concerned about inflation impacting that. Our commitment lies in securing the rig for Tiberius at present.

Great. Thank you.

Great. Thanks, James.

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

Hi. Good morning, everyone, you've taken a lot of questions here. I'm going to focus on the gas, and you've given a good clarity on the Tortue side of things. But maybe looking beyond that to BirAllah and Yakaar-Teranga, you've got the 30-month extension of BirAllah there. So, should we consider Kosmos are staying in those two projects through the development? Or do you see them more as monetization options? Would those two require further drilling ahead of a development decision? Thanks.

Yes. Good. Yes, great questions. If we look at the strategic level, these projects are different. I think for BirAllah and Yakaar-Teranga, this is about another source of gas for Europe. It has attributes of being lower carbon; BirAllah is similar to GTA gas with essentially zero CO2 output. This is about delivering a development scheme that is low-cost. We can provide cost-competitive gas into Europe as we see lasting market needs. We've got a clock running out for 30 months to reach FID, and Kosmos is initiating concept work. The goal is to craft a development with competitive gas pricing into the European market. I am optimistic about coming up with something with credible inherent value, as we craft that. With regard to further appraisal, there is no need for extensive drilling ahead of the development decision; we can move forward without excessive additional investment. The scenario in Equatorial Guinea differs. The country's needs are apparent, with a growing population relying on heavy fuel oil for power generation. Displacing that with gas presents not only economic benefits but also environmental benefits. Our aim will be to expedite Yakaar-Teranga's development as it aligns with a true need for the country. We can generate an investment opportunity serving domestic interests, with a potential future export component. We're focusing our efforts on both projects to create competitive offerings for the broader market.

That’s great. Thanks for the commentary.

Good. Thanks, Mark. Anything else? You're good? Right, I’ll go to.

Thank you. Our next question is coming from the line of Bob Brackett with Bernstein Research. Please proceed with your questions.

Thanks. Just coming back with a fairly minor question. I was trying to understand the strategic or financial logic around the Panoro farm-in in Equatorial Guinea. What sort of consideration did you receive? And what sort of drove that decision?

Yes. Bob, it’s interesting. I won't provide exact figures publicly, but they’re not substantial in the overall context. The most critical aspect was creating alignment across the partnership. Panoro came in and purchased the total share, which allowed them to pursue the Albian play which they believed was compelling. The assets are exhibiting strong production characteristics; our production engineering is yielding good results, especially regarding the ESP program. The real upside comes from the opportunity in the Albian play, an untested area, but possessing robust geological prospects. Panoro wanted to access that opportunity, which enhances alignment with the exploration potential and ownership of the infrastructure. Hence, it’s more about alignment versus a lack of appreciation for the opportunity in Akeng Deep. Similar to what Charles discussed regarding Tiberius, our play in the Albian has equally enticing geological potential, with strong four-way prospects.

Great. Thanks for that.

Great. Thanks, Bob.

Thank you. There are no further questions at this time. I would now like to turn the call back over to management for any closing comments.

Well, thank you everyone for joining us today, and that concludes today's call. If you have any follow-up questions, please reach out to Jamie. Thank you.

Thank you. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.