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

Good day, everyone. Welcome to Cosmos Energy's second quarter 2026 conference call. As a reminder, today's call is being recorded. At this time, let me turn the call over to Jamie Buckland, Vice President of Investor Relations at Cosmos Energy.

Thank you, Operator, and thanks to everyone for joining us today. This morning, we issued our second quarter 2026 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 Ingalls, Chairman and CEO, and Neil 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 that we note in this presentation in our UK 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'll turn the call over to Andy. Thanks, Jamie, and good morning and afternoon to everyone. Thank you for joining us today for our second quarter 2026 results call. I'll begin today's call by reviewing the progress we've made against the four 2026 goals that we laid out at the start of the year before giving an update on each of our business units.

I'll then hand it over to Neil to talk about the financials before I wrap up the closing remarks. We'll then open up the call for Q&A. Starting on slide three, when we released our full year 2025 results in March, we laid out four key objectives for Cosmos in 2026, which is shown on the slide. I'm pleased to say in the first half of the year, we've made excellent progress across all four. We've grown production from our core assets, namely Jubilee and GTA. delivered significant absolute and per BOE cost reductions year on year with a specific focus on operating costs. We've delivered a meaningful reduction in net debt already this year and are making good progress towards hitting a 20% reduction in net debt, a target we increased with our first quarter results in May. And we continue to advance our high-quality growth portfolio, particularly in the Gulf of America with minimal capital input. Through these actions, we're delivering a stronger and more valuable cosmos. A company with high production, lower costs, and lower debt is more resilient to future price volatility with significant upside from our deep hopper of future growth opportunities. I'll now go into more detail as we move through the slides. Starting with Ghana on slide four. We've seen a lot of positive progress in Ghana this year with an active drilling campaign that is delivering towards the upper end of our expectations, demonstrating Jubilee's potential. We used a chart on this slide for the last few quarters to highlight the ramp-up in Jubilee production since the start of the current drilling campaign in the second half of 2025. Since we reported first quarter results in May, two new producers have come online, J76 and J77. The final producer while the campaign, J50, is the completion of a previously drilled well is expected to start up in the coming days. With J50 online, we expect Jubilee Gross Production 90,000 barrels of oil per day. J76 in particular came in at the top end of our expectations and based on performance so far is the best world we've seen at Jubilee in over a decade. The one as an example of the upside potential of the asset, ensures there is a lot of future value left to play for, particularly as we start to integrate the results of the 2025 OVN seismic into our future world planning. With seven months of production, we have a robust track record that underpins our full-year guidance for Jubilee, which remains unchanged at 70,000 to 80,000 barrels of oil per day. before the latest wells continues to support the upper end of this range. The important takeaway from the chart at the top of the slide is the correlation between activity and performance. During periods of drilling, high FPSO, uptime, and sustained water injection, the field has performed well. We're therefore working closely with the operators to secure a rig for the 27-28 drilling campaign for up to 10 wells with the objective of starting in mid-2027. from both the fully processed 4D and FastTrack OBN seismic, which will help refine and high-grade future well locations and give the partnership the best opportunity to maximize future reserve recovery. So, in summary, it's an exciting time in Ghana. Jubilee, our highest margin production, is performing strongly at a time of higher oil prices, helping us to deliver our debt reduction targets for the year. And looking forward with the benefit of new technologies, we're working closely with the operators to plan and implement a new technology for the year. and progress next year's drilling campaign. Turning slide five. The ETA has continued to perform well this year. In the second quarter, gross LNG production was around 2.65 million tons per annum equivalent, in line with our expectations. Nine gross LNG cargoes were listed during the quarter at the upper end of guidance. For the full year, our guidance of 32 to 36 gross LNG cargos remains unchanged with 18.5 lifted in the first half of the year. During the second quarter, one condensate cargo was jointly listed by COSMOS and the NSCs, with around 300,000 barrels net to COSMOS. An additional condensate cargo is expected late in the third quarter, which is also expected to be assigned to COSMOS and the NSCs, with around 400,000 barrels. net to Cosmos. Due to the seasonality that we've flagged in the past, daily LNG production expected to remain slightly lower during the summer months because of the warmer sea and air temperatures. Volumes should then pick up again late in the year as cooler temperatures return. On costs, we remain on track to hit our 50% reduction target for OpExpert MMBTU this year and see scope for further reduction in 2027. On the phase one expansion for domestic gas to power, which should materially enhance project returns, there's been good progress on the ground in both Senegal and Mauritania so far this year. In Senegal, the land has now been cleared to the onshore section, the northern segment of the gas pipeline, which will connect GTA to the 250 megawatt Gandon power station being built near St. Louis. Photographs on the top of the slide show the gathering in China in May to celebrate the completion of the fabrication of the onshore pipeline before it was shipped to Senegal. The pipeline is due to arrive in country in the coming days after taking a longer route than initially planned to avoid the Middle East. In Mauritania, the country just signed a 25-year agreement with a Saudi power company for the development, finance, construction and operation of a new 230-megawatt gas-fired power plant in Ndiago, which is expected to use gas from the GTA field. These developments in Senegal and Mauritania are important steps for both countries to enhance domestic electricity generation, reduce reliance on imported fuels, and support the country's long-term energy security and industrial development. Turning to slide six. Production in the Gulf of America for the second quarter was in line with expectations, with continued solid performance for our operated odd job and Kodiak fields. On Winterfell, the number five well was temporarily abandoned by the operator due to casing issues encountered during drilling. Turning to the growth side of the business, following final investment decision in March, the Tiberias project is making good progress. Last week, we successfully completed a highly competitive farm down on Tiberias, bringing Navitas into the project as a 33.33% partner. Following the farm in Cosmos will remain as operator with a 33.34% interest. Obviously, the owner and operator of the nearby Lucius facility will have a 33.33% interest. The farm-in proceeds are a mix of upfront cash carried for future development capex and future milestone payments. We expect the carry element to cover all of our Tiberius capex in 2026 and fund our share of the development through the first half of 2027. Tiberius is a low-cost, high-margin development. We now have an aligned partnership to move it forward, with first-law expect in the same half of 2028. I'll swear in the Gulf as previously discussed, we entered into a strategic exploration alliance with Shell earlier in the year. As part of the alliance, we exchanged interests across multiple blocks across the North of the Plague, which houses several material exploration prospects. Nell plans to start drilling the first of these, Trailblazer, in the first quarter of 2027. Trailblazer is targeting around 200 million barrels oil, gross equivalent resource, and Cosmos is designated as a development operator in the event of success.

I'll now turn it over to Neil to take you through the financials. Thanks, Andy. Turning now to slide seven, which looks at the financials for the second quarter in detail. As Andy mentioned, it's been a strong quarter for the company, with production around 12% higher year on year, driven by the new wells coming online at Jubilee and the ramp up at GTA. price is higher year on year, reflecting the elevated pricing seen in the second quarter following the war in the Middle East. as flagged last quarter, some of the pricing of our production has a lag impact. So we should also see some benefit of the higher 2Q pricing in the third quarter. On operating costs, we've seen a material reduction in both absolute and unit costs year on year. Absolute operating costs in the second quarter are around 25% lower year-on-year, consistent with our ongoing efforts to drive down costs across the business. With the EG disposal, we've now sold our highest cost barrels, so we'd expect absolute operating costs and costs per unit to continue to fall through the second half of the year. The rest of the cost lines for the quarter were in line with guidance, but it's worth highlighting the interest expense reduction, which we expect to continue as we deliver on our debt reduction targets for the year. In terms of guidance for the third quarter and the full year 2026, we have updated the table in the appendix to reflect the Equatorial Guinea sale, which is completed in June. The two main line items that have been updated are production and operating costs. On production, the midpoint of the range has been moved down around 2,500 barrels of oil equivalent per day net, taking out the EG barrels for the second half of the year. the remaining portfolio on track following the strong performance year to date. With slightly lower production post the EG sale and significantly lower costs, we remain on track to reduce OpEx per barrel by around 35% in 2026. Turning to slide eight, we've had an active first half of the year, carrying out several important initiatives to drive a meaningful reduction in both debt and leverage, clear near-term maturities, and increased liquidity. The successful GTA bond largely addressed at 2027 bond maturity, and we intend to pay the remaining stub with free cash flow. down approximately $420 million of debt through free cash flow, the equity raised, and proceeds from the EG sale. and we ended the quarter with over $500 million of available liquidity. This progress is recognized by the rating agencies, with both S&P and Fitch upgrading the company to B-, reflecting the work we've done to enhance the balance sheet in the first half of the year. Looking at the second half of the year and the things that remain on our to-do list, Commence discussions with the lending banks around amending and extending the RBL, and we expect that process to close during the fourth quarter, targeting a facility size of around $1.2 billion. As we make further progress on the capital structure, we will also look potentially to repay the 2028 notes later in the year. And lastly, we'll continue to take advantage of higher prices to layer in more hedges for 2027. With continued execution, we expect leverage to fall further towards two times by year-end, a pretty significant turnaround in only 12 months. So in summary, we've worked hard in the first half of the year to reduce absolute debt and leverage while improving liquidity. There's more to do in the second half, and we are being proactive and methodical to get it all done. With that, I'll hand it back to Andy.

Thanks Neil, turning now to slide nine to conclude today's presentation. As stated in my opening remarks, we have four key objectives for 2026. Grow production, lower costs, reduce debt, and advance our quality growth portfolio with minimal CapEx in 2026. This slide shows the progress we've achieved year to date against those goals. Production for the first half of 2026 is up 18% versus the same period last year. Absolute operating costs are down 24% in the first half of 2026 versus 2025. deliver a reduction in net debt around 50% versus year-end 2025. And we are advancing our growth portfolio with the Tiberius FID and FarmDow, continuing progress on GTA expansion and the exploration alliance with Shell in the Gulf of America. We're working hard to deliver a stronger, more valuable cosmos and look forward to delivering on our full-year targets to support long-term value creation for our investors. Thank you. And I now like to turn the call over to the operator to open the session for questions.

Thank you. We will now begin the question and answer session. If you'd like to ask a question at this time, please press star, then the number one on your telephone keypad to raise your hand. If you'd like to withdraw your question at any time, you can press star 1 again. We'll pause just for a second. And our first question comes from Charles Mead with Johnson Rice. Your line is open.

Yes, good day to you, Andy, and to the rest of your team there. I'd like to ask about the J76 well, and if you could characterize for us the setting of that well and i'm thinking along the lines of uh... you know is it uptick above of one of your previous strong producers in the known for block or or is it uh... you know maybe on the other end of spectrum maybe it's up in some fallback that you hadn't been connected to. And I'm really trying to understand what the nature of the remaining opportunity for you is. Maybe not. Just the nature of the opportunity in the next couple of years in Jubilee for you guys.

Yes, yes, thanks Charles. Look, you know, clearly J76 has been a very strong, well, I think actually one of the best wells we've drilled in over a decade. You know, I think ultimately we're in the core part of the field. So when we've used the latest 4D to be able to identify some opportunities that are in that core part of the field that are up there and being an unswept. So the other interesting thing about 76 is we have actually picked up some deeper horizons as well. So there's a combination of sort of what I would say the core areas of the field we've looked at in the past, plus some deeper opportunity. So I think in total, it sort of demonstrates two things. There are significant opportunities in the field where we have oil that has been bypassed by the current drilling program and injection patterns. and therefore can provide wells that have both significant resource and the ability to drill a well where you can have a secondary target deeper that introduces additional resource. And I think it's those two elements that are important as we go forward. I think there's significant bypass oil opportunities, and I think there'll be continuing opportunities to find potentially deeper horizons that we haven't accessed in the past.

Got it. And that's exactly the kind of detail I was looking for. And then a follow-up question on Tiberius. I I read or I went through the Navitas press release, and I had a hard time following it, even though it wasn't the Hebrew version. And so I'm wondering if you could – I recognize some of this may be sensitive. I wonder if you could frame up for us how we should think about the value that you achieved. Sure.

for your sell down of 70% there. Thanks for looking at this this morning. I'll pass it over to Neil who can give you the full translation. Yes, Charles. Hi. Yes, so if you just take the math simply in terms of what we got for what we've sold, it implies a gross valuation for Tiberius of around $250 million as of January. 1st 2026 and and you know again we've got sort of a total of a bit under 45 million dollars of consideration in between sort of upfront cash carry and milestone payments and so again I think a very good result from from the team in in executing a really good competitive farm down process and we're excited that we have the right partnership.

for the future. That's exactly the kind of detail I was looking for, Neil. To be clear, that $250 million gross valuation, does that include the future contingent payments?.

Now that's it is a gross value of the asset so our net you'd add our net plus the value of the carriage, okay?.

Okay, thanks. Yes. Great, thanks, Charles. Your next question comes from Bob Brackett with Bernstein Research. Your line is open.

Good morning. Question, a bit of a follow-up, I suppose. Can you talk about the Logan discovery that you all picked up and is now part of this Veritas JV? Maybe what are the volumes in place, and what is the future plan to sort of bring that part of Tiberius into production? Yes.

Thanks Bob, I'll pass it over to Neil, he's been handling that. Yes, good morning Bob.

We're still sort of up, we've just got updated seismic over Tiberias. There's a good discovery well that's already on Tiberias that was drilled, I think. 10 plus years ago. And so whether it's in the tens of millions of barrels of resource, but we do look at it as a potential add-on into the sort of greater Tiberias area. So we're looking at a handful of wells in Tiberias in terms of different fault blocks and ultimately connecting Logan into the system. But yes, so it's a potential well or two into that area to add some additional recovery.

Very clear. And a follow-up. I imagine you're frustrated with Winterfell either by the operator, by the reservoir, by something. Is there recourse there, or do you think you finally tackled some of the challenges there?.

Yes, and so just on, again, I think just from a... Winterfell basis, yes, I mean, I do think, ultimately, there's a big prize in terms of reserves there. You know, we've drilled a number of wells. There's good pay. But we have been disappointed by the drilling performance on, you know, again, what are relatively routine operations and the additional costs that have been incurred as a result. And so, you know, hence the pause on activity to fully understand sort of what's causing the issues. And, yes, again, there hasn't been a material daily impact to sort of production, but we do want to make sure sort of those drilling issues are resolved before any more capital gets spent on the project. So, yes, it has been frustrating, but it's something the team's working hard on with the operator to make sure. sure gets comprehensively resolved. Very clear. Thank you.

Thanks, Bob. Your next question comes from the line of Neil Meta with Goldman Sachs. Your line is open. Yes, good morning, team, Andy, Neil. I just want to first congratulate you guys on the progress on your net debt reduction, 15 percent since you're in 2025. And so, Neil, maybe the first question is for you on slide 8. you want to walk with your plan is through the balance of the year to hit 20 or above 20% or above.

Yes, Neil. Hey, good morning and thank you. Yes, so it has been a lot of good work by the entire team to deliver a good first half in terms of almost $500 million of debt reduction in the first half of the year. It's a bit under $600 million. We're at 2.5 and change. And then the goal would be to get closer to 2.4 by the end of the year. And, again, I think from where we are from a production and cost perspective, we feel pretty good about the ability to get there even in a sort of lower commodity price environment. And, you know, that'll be the big variable that sort of exists between now and the end of the year. but yes the balance of that difference which is about call it 150 million is expected to be generated from free cash flow, right? And so, again, I think we've delivered free cash for the last two quarters. The expectation is to do that. do that as well and that'll get us to sort of that net debt number of around 20% reduction year on year. And then in addition to that, again, I think we remain proactive in terms of just managing the maturity schedule. So we've tackled the 26s first earlier this year, we tackled the 27s thereafter, we're working on the RBL at the moment. and then we'll tackle the 28th. And once we're sort of done with that, we have plus, call it three years plus of runway to without sort of worrying about sort of the debt in front of us. And we'll continue to focus on free cash flow and managing that level down beyond the 20% reduction in 26. And so again, I think, you know, strong financial performance is driven by sort of good operational backbone at the beginning. And so, again, the focus on doing both things.

simultaneously to get to the right result. Yes, thanks, Neal. And then just a follow up is on the unit cost at phase one. Again, year over year, there should be significant reductions in OpEx as we work through startup costs and you get towards the end of the year. more attenuant to get Senegal scale, but just talk about where you stand in terms of the reduction in cost and then how does phase one plus fit into the equation? Like what could the cost trend down to on a multi-year basis?.

as we try to dial in that number. Yes, I'll pick that up, Neil. Yes, you're correct. Clearly, we're getting the, The effect of two dynamics this year. We clearly pushed volume up on GTA and the performance the first half of the year has been very strong. You know, we were targeting, you know... thirty two to thirty six car goes with the dating of in the front end of the year uh... So, you know, the overall production level, you know, clearly strong. That's obviously helped in terms of managing the unit costs, and we've also had the benefit of some of the final commissioning costs coming out. And then I think there's still improvement to make in the cost base in 27. with different operating models that we're discussing with BP. And then you have the additional impact of increasing production. As we said in the past, you can add at least another 50% to the FPSO, the current throughput that's being supplied to the the FLNG vessel for domestic gas. So that additional volume is going to have a significant impact on the unit cost because it comes with no additional cost. So I think, as we said in the remarks, the big agenda now, and it's an agenda that's deeply aligned with both. countries in Mauritania and Senegal is to push on with the supply of the domestic gas. We saw the progress, I think some pictures in the DAC that showed the progress in Senegal in terms of getting pipe in the ground. Connection to the first offtake, which would be the Gandon Power Station, and then in Mauritania the work that they've done with a Saudi developer for their power station. So, you know, that volumetric effect just simply then, you know, impacts the per unit costs. So I think we've got continuing growth in margin in GTA through that phase one export. and I think we're aligned with the governments in both countries in terms of how we deliver that.

Great, thanks Neil. Your next question comes from the line of David Round with Stiefel. The line is open. Great, thanks guys. Jubilee, I mean the production side there has been really good. I guess I wouldn't mind if you could just touch on please the and whether previous decline assumptions may change if that's been going well.

Yes, no, thanks, David. I think it's a really good question. Clearly, our focus through the first half of the year has been on the drilling program. And I think we've seen the impact of new data, the ability to influence then the sort selection of good wells. And I think that selection then with good operator drilling performance has led to the current levels that we're experiencing. So I think big check in the box there. I think when it comes to water injection, I'd say this is an area where there is an opportunity to do better. We did well in the first quarter, you know, a boarders replacement, you know, around 130%, which is sort of what you need. That's what sort of world-class performance looks like. It hasn't been as strong in 2Q. It's been around about half that level, actually around 65%. Some of it was scheduled maintenance. Some of it was availability of the water injection pumps. So we're working really hard with the operator now to focus on that issue. And it's just an operational issue. It's not a reservoir issue. It's just simply about keeping the water injection pumps up and with high availability. So we've had high availability on the oil side. We need to sort of match that on the water side. So that's the focus in 3Q and 4Q and then in the beginning of next year as we... as we take a time out on the drilling program and then restart, planned restarts around the middle of the year. We're making good progress on the rig contract. So I think we're clear about what we need to do and the back end of the year will be a strong focus.

on the water injection. Okay, thanks Andy. In terms of the forward program and the program you're looking at next year, I mean is it too early to think about how many of those might be injectors versus producers?.