Q3 2026 Kosmos Energy Earnings Conference Call - KOSMOS ENERGY LTD

Explicit Guidance:

• Production (Ghana/Jubilee): Q4 2026 production expected to exit around mid-70s bbl/day (vs. 70,000–80,000 bbl/day prior guidance); full-year 2026 gross LNG cargo guidance 32–36, on track to achieve upper end (27 lifted by Q3).
• Financials: FY 2026 free cash flow expected at ~$300 million net of hedging; hedging impact estimated at ~$200 million; Q4 2026 financing costs of ~$20 million related to RBL extension.
• Debt & Leverage: Leverage targeted at ~2.0x by end of 2026; Net debt target of ~$2.4 billion (or less) by end of 2026; Target net debt of ~$2.0 billion by end of 2027 at strip prices; Address 2028 bond maturities via cash flow prioritization in Q4 2026.
• Operating Costs: Continued focus on OPEX reduction; Q4 2026 production expected to decline quarter-on-quarter due to maintenance and weather.
• 2027 Outlook: Hedges for 2027 secured at higher average floors and ceilings than 2026, increasing exposure to elevated commodity prices.

Business-Segment Outlook:

• Ghana (Jubilee): Reservoir management focus (voidage replacement >120%, sustained water injection, FPSO uptime >98%) to mitigate decline until next drilling campaign in mid-2027; Q4 2026 expected to realize ~3 LNG cargoes (revised from 4 due to production constraints and underlift inventory).
• GTA (Senegal): Phase 1+ onshore pipeline construction >25% complete; new segments for southern demand centers to commence construction in 2027, with full commissioning targeted for 2029; Goal to replace imported diesel with low-cost domestic gas for power/industry.
• Gulf of America (Tiberius): First Oil expected in second half of 2028; Tiberius development CapEx covered by Navitas carry through 2026 and into first half of 2027; Operator role retained by Cosmos with 33.34% interest post-farm-down.
• Gulf of America (Trailblazer): Exploration well (ILX) scheduled to drill in first half of 2027; 1/3 working interest with Shell via Exploration Alliance; Success would allow rapid tie-back to Appomattox facility.
• Inventory/Lifting: Q4 2026 expected to monetize ~1.1 million barrels of underlift inventory gradually (a few thousand bbl/day), with remaining inventory unwound in Q2 2027.

Market and Competitive Outlook:

• Pricing: Realized pricing remains supportive; Q4 2026 realized prices expected to be strong (Brent near $120/bbl), with specific cargo realizations noted around $120/bbl or better; Q4 2026 expected to be a strong cash flow quarter.
• M&A Environment: No immediate consolidation activity in West Africa seen; future M&A strictly contingent on synergies, value creation, and reducing break-even costs rather than reserve extension.
• Commodity Price Exposure: Entering 2027 with higher exposure to elevated commodity prices due to completed 2026 hedging program and reduced cost base.

Macro / Industry Outlook:

• Ghana Governance: Positive government partnership outlook; shared vision for energy prosperity, low-cost domestic gas utilization, and knowledge transfer.
• Sovereign Projects: Senegal and Mauritania governments prioritizing gas-to-power and gas-to-industry goals, aligning with Cosmos expansion strategy.
• Regulatory/Commodity Markets: Monitoring credit spreads for bond refinancing; target single-digit credit rating (single-B) to access broader financing markets.

Strategic Initiatives:

• Drilling Campaigns: Next drilling campaign (up to 10 wells) in Ghana (27–28 campaign) with Noble rig arriving mid-2027; enhanced by 4D OBN seismic for high-grading.
• Capital Discipline: Maintaining minimal CapEx growth for 2026 portfolio advancement; Tiberius CapEx funded by carry from 2026–2027.
• Debt Management: Priority on addressing 2028 maturities via cash flow after 2027 bonds; potential refinancing of 2028 bonds anticipated in 5–7 year window (targeting ~2031–2033 maturity); 2027 bonds may be extended or modified post-30-month call period (mid-2028).
• **Partnerships:**深化 (Deepening) of Shell Exploration Alliance for Norfolk basin; potential to increase Jubilee stake if transaction opportunities arise (no active pursuit currently).

Risks and Headwinds to Outlook:

• Operational Execution: Jubilee production decline risk dependent on successful reservoir management (water injection >120% and uptime); any failure to mitigate decline impacts Q4 and 2027 guidance.
• Weather & Maintenance: Q4 2026 production suppression due to Hurricane Isaiah, Delta House maintenance, and Kodiak workover; GTA condensate lifting delayed by weather.
• Market Volatility: Commodity price volatility could impact realized pricing and hedging effectiveness; credit rating performance affects refinancing terms for 2028 maturity.
• Partnership Dynamics: Dependent on partner execution (e.g., Shell for Trailblazer, Navitas for Tiberius funding).

Management Tone on the Future:

• Confidence: High confidence in delivering 2026 targets (production growth, cost reduction, debt reduction) and achieving a "more resilient and valuable" company in 2027.
• Cautious Optimism: Acknowledges current operational challenges (Jubilee decline mitigation) but frames them as solvable through daily excellence; emphasizes "selective" investment in 2027.
• Discipline: Strong commitment to capital discipline and debt reduction before considering significant shareholder returns; balance sheet target of <2.0x leverage viewed as a prerequisite for future capital returns or accelerated growth.
• Strategic Focus: "Not distracted" by competitor struggles; focus remains on organic self-help and high-quality growth opportunities with minimal capital input.