Kosmos Energy Ltd. (KOS) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. It's now 8:00 a.m. here in Dallas and in accordance with the notice of the Annual Stockholders' Meeting, I call the Kosmos Energy Ltd. 2020 Annual Stockholder Meeting to order. I am Andy Inglis, Chairman of the Board of Directors and Chief Executive Officer. I will preside as Chairman at today's meeting, as designated by the vote of a majority of the directors present at today's meeting. And Jason Doughty will act as the secretary of the meeting. As a result of the COVID-19 mitigation measures, we're hosting today's Annual Stockholders' Meeting as a virtual meeting. We have stockholders attending via the web portal today, which ensures an inclusive process to reach all of our stockholders. On behalf of my fellow Board members, who are also attending this virtual meeting, I welcome you to our Annual Stockholders' Meeting. The Board has appointed Tony Carideo to act as the inspector of election with respect to this meeting to certify as to the votes received. The inspector of election has taken the oath of office, which I direct to be filed with the company's records. It's important that we have an orderly meeting. The agenda, rules of conduct and disclosure regarding forward-looking statements for this meeting are on our virtual meeting web portal, each of which will apply in carrying out the business of this meeting. As you'll see on the agenda, time has been allotted for any questions concerning the matters to be voted upon today as well as right in the meeting for any questions or comments you may have about the company. If you have a question that you want to ask, you're encouraged to submit it on the web portal now for discussion at the appropriate point in the meeting. So that all of the items of the agenda may be presented before that time, the 4 proposals will be presented first in succession without comment. After these matters have been presented, the polls will be opened and stockholders will have an opportunity to ask questions on the items to be voted upon today. The polls will remain open until balloting has been completed. There are a few formalities to cover before we get into the business of this day. Will the secretary please report on the record date, listing of stockholders, notice, quorum and matters to be considered at today's Annual Stockholders' Meeting? Jason?

Thank you, Andy. April 13, 2020, was set by resolution of the Board of Directors as the record date for today's Annual Stockholders' Meeting. A listing of registered stockholders is available on our virtual meeting web portal. A duplicate listing was on file at the company's office for the last 10 days and was available for inspection by stockholders during regular business hours. Notice of this meeting was duly given in accordance with the company's bylaws and Delaware law. Each of the matters to be considered today is described in the proxy statement, which we made available via the Internet to each stockholder and mailed to those stockholders who had requested a hard copy. Concerning quorum. Based on the proxies received prior to this meeting, the holders of a majority of the total voting power of all outstanding securities of the company generally entitled to vote are present in person or represented by proxy at this meeting. Therefore, a quorum is present and the business of the meeting may proceed.

Thank you, Jason. Legal notice having been given and a quorum being present, this meeting is now convened and open for the transaction of business. We will now introduce the 4 proposals as specified on today's agenda. After these have been formally presented to the meeting, we will have a period for discussion and the presentation of those statements in opposition or support. The first item of business is election of the 2 Class I directors to serve until the 2023 Annual General Meeting of Shareholders. The Board's nominee for election are myself, Andrew Inglis; and Sir Richard Dearlove. The second item of business is the ratification of Ernst & Young LLP as the company's independent auditors for the fiscal year ending December 31, 2020, and the authorization of the company's Audit Committee of the Board to determine their remuneration. The third item of business is the approval on a nonbinding advisory basis of named executive officer compensation. The fourth item of business is the approval of an amendment to our certificate of incorporation to effect a reverse stock split and proportionally reduce the number of authorized common shares. There are no other proposals to properly come before this meeting since management has not made any other proposals and since no other proposals were submitted by stockholders in the manner prescribed in the company's bylaws, which required certain information concerning stockholders' proposals be provided to the company before the date of the meeting. I now declare polls open for voting on the items I have just outlined. Any stockholder who hasn't yet voted or wishes to change their vote may do so by clicking on the Vote Here button on the web portal and follow the instructions there. Stockholders who have sent in proxies or voted by telephone or Internet and do not want to change their votes do not need to take any further action. It's important that each stockholder be given an opportunity to cast his or her vote. Accordingly, the polls will remain open until the balloting is complete. [Voting]

The meeting is now open to stockholder questions on the items to be voted upon this morning. [Operator Instructions] You should confine your comments or questions to the matters being voted on at this meeting. If there are matters of individual concern to stockholders and not of a general concern to all stockholders, they should be raised after the meeting. Are there any questions or comments with respect to the items to be voted upon this morning? I don't see any questions on the web. Since there are no questions, we will proceed with our agenda. I would now like to take the opportunity to say a few words about the company's 2019 results and plans for 2020 and beyond. In our earnings call last month, I focused on 4 key points. First, Kosmos delivered strong operational performance in the first quarter of this year. COVID-19 has created unprecedented disruption across the world, which has resulted in historically low and volatile oil prices. During this difficult period, the health and safety of our employees and contractors remains our primary concern while ensuring the strength of our balance sheet is maintained. Whilst there have been cases of COVID-19 offshore Ghana, these have been handled expeditiously by the operator, and production has not been impacted. All of Kosmos' 3 production hubs in Ghana, Gulf of Mexico and Equatorial Guinea performed well during the first quarter, with production in Ghana and the U.S. Gulf of Mexico ahead of expectations and in-line in Equatorial Guinea. Second, in response to the volatile market decisions, we took decisive actions to protect the business in 2020 and position it for increased activity in 2021. These actions have been -- these actions include materially lowering our cost base by reducing capital, operating and G&A expenditure by around $250 million or 30% in total. We also restructured our hedging portfolio. We're moving around 80% of price exposure for the remainder of the year. We've also completed our reserve-based lending redetermination in a tough market conditions in April and have no near-term debt maturities. The Board also took the difficult decision to suspend the company's dividend. Third, Kosmos has a differentiated business of advantaged assets. Our portfolio is well positioned to withstand the lower oil price environment we're in today. The assets are characterized by low-cost production, low decline rates and low breakevens. In a world where the energy transition is gaining significant momentum, there are also lower carbon than many oil and gas assets around the world. In more normal circumstances, these assets generate a significant amount of free cash as we've demonstrated over the last 3 years. As the market starts to recover, we expect our strong free cash flow generation to continue. Fourth is that despite these challenging times, we have not lost sight of the future. When global energy demand returns to more normalized levels, Kosmos will be ready. We have a deep coffer of high-quality opportunities spread across our infrastructure-led exploration and basin opening portfolios, and we continue to progress these through 2020 to be ready to drill in 2021. For our infrastructure-led portfolio, we maintain the option to drill 2 to 3 wells in the Gulf of Mexico next year. As a reminder, these wells have low costs and attractive economics, and we can be quick to react when the market conditions improve. For our basin opening portfolio, we have several attractive opportunities across some of the most prolific basins in the world. As we prepare to drill these opportunities in 2021, we are working to finalize the partnerships and working interests this year to allow us to drill these opportunities on a carried basis. We have completed our process at São Tomé with Shell and plan to advance Suriname and Namibia this summer. To summarize. In operations, the company has performed well so far in 2020. We've taken decisive actions to protect our people and our assets and are taking the necessary steps to maintain our balance sheet given that oil prices may continue to be volatile. We have a high-quality, differentiated portfolio of advantaged assets. And finally, we continue to progress the business to be ready when the sector does start to recover. I'll now be pleased to answer any questions or address any comments about the company to the extent that they do not require us to disclose material nonpublic information. Since there are no questions, we'll proceed with our agenda. This concludes the time allocated to cast your vote. I now declare the polls closed. Will the secretary please announce the preliminary voting results?

Based on the preliminary tabulation of the votes, more than the necessary number of votes cast in person or by proxy by the holders of common shares voted in favor of: one, the election of 2 Class I directors to serve until the 2023 Annual General Meeting of Stockholders; two, the appointment of Ernst & Young LLP as our independent auditors for the fiscal year ending December 31, 2020, and the authorization of the company's Audit Committee of the Board to determine their remuneration; three, the approval on a nonbinding advisory basis of named executive officer compensation; and four, the approval of an amendment to our certificate of incorporation to effect a reverse stock split and proportionately reduce the number of authorized common shares.

In view of the reports of the inspector of elections and the secretary, I declare that the stockholders have approved each of the items voted upon today. I'm aware of no other business that should be brought before this meeting. Accordingly, I now declare this meeting formally adjourned and all matters before it closed. On behalf of the Board of Directors and employees of Kosmos Energy, I thank you for attending today's meeting.