Kosmos Energy Ltd (KOS) 2022 Q3 法說會逐字稿

Greetings, and welcome to the Kosmos Energy Third Quarter 2022 Earnings Call. (Operator Instructions). I would now like to turn the call over to Jamie Buckland, Vice President of Investor Relations. Thank you.

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 of Kosmos 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 and gas development projects we have across the portfolio. I'll then hand over to Neil to talk through the financials before I wrap up today's presentation, and we open the call for Q&A.

Turning to Slide 3, the world is grappling with the need for affordable, secure and cleaner energy with a balanced approach required to address the 3 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 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 project that yields low-cost, lower carbon barrels that are highly cash generative. At the same time, we're working with our partners to bring new sources of natural gas into production. These projects address affordability and increase energy security by supplying more gas to global energy market as well as in the domestic markets in Africa.

This should benefit our host countries in two ways. First, the revenue 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 country where we are in Africa. Over the next 2 years, we expect to increase oil and gas production by about 50% as we optimize current production and bring new projects online. The Kosmos' cash flow from our current and planned activities enable 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 primary source of energy in both developed and emerging economy. 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 characteristic that differentiates Kosmos. On the left side of the slide, we identify the distinctive features of our portfolio. First, we have a high-quality and long-dated asset base, the 2P reserves to 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 in our other gas projects in Mauritania and Senegal.

On the right are 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-additive projects in the portfolio while making sure the balance sheet remains robust. We continue to reduce absolute debt and drive down leverage, and Neal will talk about the progress we've made this year. We have a highly experienced management team, we have the energy to deliver our strategy and respond to the challenges we see across the industry today. And finally, we have a strong track record across the ESG spectrum from near-term emission reduction target to contract transparency, the funding social programs in our host countries. MSCI, one of the leading ESG rating agency recognizes this commitment to the progress we are making and has recently upgraded Kosmos to AAA, its highest possible rating. The combination of these qualities 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 5, looking at 3Q, 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 high-graded 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, BirAllah, where we signed a new PSC with the government of Mauritania. And finally, the balance sheet continues to improve as the portfolio generates cash, which drives down leverage with our year-end target leverage of 1.5x achieved with further progress expected. We'll dig into each of these themes in today's presentation.

Turning to Slide 6, which focuses on the performance of our production assets during the quarter. In Ghana, the Jubilee field continues to deliver gross production for the quarter around 89,000 barrels of oil per day. Following the excellent drilling performance year-to-date, which has seen wells drilled safely and quicker than planned, we have now started to drill the first of the 3 Jubilee Southeast wells ahead of schedule. We have completed a 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 to identify to drive further efficiencies and reduce costs. Since transition, the operating performance has been strong with no reportable safety incident and facility uptime of over 98%. On costs, we've identified potential savings with direct contracting, focused work scopes and competitive retendering.

At 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 has since been choked back awaiting pressure support from the injected, which we expect to see soon. The partnership also drilled a second of the two riser-based well during the quarter, which encountered approximately 5 meters of net oil pay but with poorer quality reservoir than expected. The data from the two riser-based wells will be incorporated into the expansion plans for TEN, which will now be focused on improved accumulations in areas where we have existing well controlled. In Equatorial Guinea, 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, 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 loop currents back in production of Tornado after the planned write-off of the production vessel completed. At Delta House, there was an unplanned shutdown for around 2 weeks last month due to an outage of the gas compressor. The issue has been resolved and backed into our 4Q guidance for the Gulf of Mexico in the appendix slide of the back of the material. On Kodiak, the #3 well came online in mid-September, well results in initial production were in line with expectations. However, as one of our hardest plants in our results last week, well productivity has declined in workover plans are being developed. So 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 GoM production. Work also began on the Odd job subsea pump project during the quarter following sanction in 2Q, which is an important step in sustaining their long-term performance of the field.

Turning now to Slide 7, 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 growing the value of our oil portfolio. On Jubilee Southeast, the project is now over 50% complete with the drilling of the first well 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 field development plan in September, and the operator has signed a recommitment letter to drill and complete 3 wells starting mid-'23. The host facility production handling agreement 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, acquired an additional interest, taking our overall interest in the project up to 25%.

In addition, we are targeting further growth in drilling 2 high-graded opportunities in our ILX offer. We expect to drill the Tiberius well in the Gulf of Mexico mid-2023 and the Akeng deep well in Equatorial Guinea around a year later. Both projects are targeting over 100 million barrels of oil gross would be high-return tieback projects if successful.

Now that I've talked about our near-term upside in oil, I'd like to switch gears on Slide 8, which looks at how we're growing the long-term value of our gas portfolio. Greater Tortue Phase 1, our LNG project in Mauritania and Senegal, all work streams 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 with the living quarters platform installed and the commissioning activity now commenced. On drilling, 4 wells have been drilled with total capacity of around 700 million standard cubic feet per day. We recently completed the first of the 4 wells and have flowed back to the race for a short cleanup period. Combined across the 4 wells, we now have significantly more capacity than the 400 million standard cubic feet per day required to supply the liquefaction volumes for Phase I. On the floating LNG vessel, which has been constructed in Singapore, we remain on track for sailaway in the first half of 2023 as communicated by Golar in their most recent results.

On the subsea, the shallow water gas export pipeline, the FPSO to the hub terminal has been installed, but the deepwater pipelay vessel has arrived in the region. Final testing is being conducted prior to mobilization in the coming weeks to lay the deepwater pipeline and the infield flow line. On the FPSO, the timing of the sea trials by the sailaway was impacted by the typhoon was swept through the mid-September and caused the vessel to drift away from the quayside. Around 2 weeks later, the vessel was returned to quayside. And following the inspections carried out to-date, there continues to be no material damage reported. With the required inspections and additional work got resulting from the time (inaudible). The impact on the FPSO schedule has been around a month. And as a result, we expect sailaway of the vessel around year-end. Stepping back and looking at the project overall, the operator is working hard on making good progress to overcome the challenges from COVID, supply-chain constraints and more recently, typhoon Muifa.

We expect first gas around 9 months from FPSO sailaway, and continue to target first LNG around year-end 2023. On the cargo sales opportunity we talked about last quarter, the process of engagement has commenced with significant interest received to date, including (inaudible). We'll provide further updates as we progress the process, and we remain focused on crystalline and additional value for our shareholders from this opportunity. Elsewhere in Mauritania and Senegal, we continue to move the various projects forward. On Tortue Phase 2, we're in advanced discussions with our partners, BP, Petrosen, SMH and the two governments improving their respective presidents on the right concept to accelerate the second phase of the project. In light of a change global market conditions following the evasion of Ukraine and the continuing volatility, our aim is to agree 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 envisaged as we work to obtain the full agreement of both governments who are rightly considering the importance of the gas resource 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 right low-cost solution, leveraging synergies with Phase 1 and accessing attractive pricing opportunities given the high-demand environment. On BirAllah, we've now signed a PSC with the government of Mauritania is flagged in last quarter's results. We're working with BP on our future development concept and the PSC allows up to 13 months to reach FID. So that set the clock on that project. We expect this project to take a similar phased approach as told to manage both costs and pay. In Senegal, we continue 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 9, 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 $400 million year-to-date. EBITDAX in 3Q was around $301 million, up almost 4x 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 1.5x target we've set out to achieve by year-end with further progress on this expected. The chart on the right shows the quarterly progress we are making on both EBITDAX and leverage. As our production has grown on a year-on-year basis, 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 remained 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 just 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 the 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. However, Opex was lower than forecast due to lower Ghana operating expenses and some delayed projects in Equatorial Guinea.

Looking forward, we expect some increase on our floating debt cost 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 4Q 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. On the Greater Tortue project, there's also some uncertainty on the timing of accruals around the end of the year, which could either accelerate or defer capital between 2022 and 2023. So to conclude the financial section of today's presentation, it is another good quarter of progress. We continue to fund our differentiated growth and deliver excess cash, which helps further to 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 continued to perform well. We are growing the value of our oil business to advancing developments in Ghana and the Gulf of Mexico with additional potential from high-grade ILX opportunities that we plan to start really next year. We're also growing value across our gas portfolio with further progress in Tortue, 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 of multiyear loans with further progress plan. And 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. (Operator Instructions) our first questions come from the line of Neil Mehta with Goldman Sachs.

The first question is really around the sale date for the FPSO. Obviously, there was a 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 test that you've done on the asset, any structural damage or no real impact.

Neil, yes, thanks for the question. Yes, we obviously suffered the impacts of the typhoon going through the yard. The mooring lines compromised, vessel moved 200 meters away. It's now been back at quayside now. And as I said on my remarks, all of the inspections to date have not revealed any significant damage, no structural damage. And we've really suffered about a month's delay from that work, the additional inspections that were required and the work that was required to address the minor damage that occurred. So the operators targeting sailaway around the end of the year. And with that, and we can talk more broadly, if you want around the overall schedule, but that still puts us in the place where by year-end '23, we can be delivering the first LNG. So that's with all big projects. It's a question of dealing with the sometimes the challenges that are put your way. And clearly, BP has been challenged with the COVID shutdowns and with the typhoon, but they've done a really good job at overcoming those and making progress. The project has made a lot of progress in the quarter. We're now at 85% complete with progress 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. That's the follow-up. 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 is on track?

Thanks Neil, Neil. Again, it's good to be able to talk about it. If you sort of go through the 5 workstreams in the project and obviously, the integration of those 5 workstreams is important. If you start with the wells, we've drilled 4 wells. We've just done the first completion, flow the well back with a good cleanup. So one completion done, 3 more to do, and that's the wells finished, and we expect to get all of that done by the end of the first quarter. You then sort of move to the hub terminal, essentially complete, very high level of completion as to the pack that we distributed this morning has a picture of the current state of the hub terminal you can see from that picture, a level of completion that's there. We expect to be fully commissioned and ready for the FLNG vessel by the end of the first quarter of next year. FLNG vessel as Golar had declared in their own disclosures, should depart Singapore in the first half and it's a 60- to 90-day transit. So it should be scheduled to arrive and hook up through the third quarter.

And then finally, you've got the sort of the subsea. As I said in my remarks, the shallow water line has been done. The deepwater pipelay vessel is in the vicinity, and expects to start work later this quarter and the finished all the deepwater pipelay and flow lines by the second quarter. And then the critical pass-through the FPSO sales around year-end, expected to arrive 90 days later. We do the hookup of the FPSO, the connection of the subsea when all the equipment is laid, which is sort of around the third quarter. So therefore, you start to introduce gas around that time line, which leads you to first LNG by the end of the year. So, all the component pieces of that and we continue to labor on those milestones. As we go big projects, there will be challenges around the integration of all of that. But there is a clear way forward and a lot of energy now in the delivery of that time line.

Our next question has come from the line of Bob Brackett with Bernstein Research.

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, and I recollect high-level visits between the President of Germany and Senegal. And 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 do I think about that?

Good question, Bob. And the answer is sort of all of the above. We've gone through a process of sort 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. And the ministry is involved and actually both presidents involved. And for them, it's about ensuring that they've got the right project, which enables them to position their gas as an important trade relationship with Europe. And you mentioned the visits to Senegal. And that's part of actually the whole issue of energy security in Africa being an important new source of LNG. So the right project, right scale, right timing, as the governments think about their government-to-government relationships has factored into this piece of work. So it's more than just the engineering.

It's actually about them having to rethink their approach really as a result of everything that's happened in the last 6 months. But I think it's been appropriate for them to do that. And of course, it's slightly more complicated, Bob, because you've got two governments involved, and that's always been the challenge with GTA. That said, we have an important piece of delivery here. We have a project which is truly low cost, which has lower low carbon gas, and no CO2, and therefore, it's an important piece of new supply for Europe. And I think as a result of those conversations, I think we've made real progress. I think I'm optimistic that the operator will put forward a proposal actually this month that incorporates all of that feedback, which will enable us to agree the concept, which enables us to do the work to optimize that concept and then move the project forward into around that concept into feed and ultimately construction. So I think we are making real progress. And I think the challenge has been around a changing world and actually ensuring that we create alignment around both government positions.

Very clear. And if you had your choice, if you control the path, would you prefer a smaller but quicker Phase 2 as it has been recently envisioned versus what potentially could be larger and maybe not any slower scale project.

Yes, Bob, and I think I'm only one voice in this, so I need to be careful about what my view, singular view. It's not about what I want to do or what Kosmos wants to do. It wants best for the partnership. I think the partnership really understands that we have an opportunity to deliver truly low-cost project by leveraging fully the infrastructure that we've invested in Phase 1. I think there's clear alignment around that. Therefore, really the debate has been around what's the best liquefaction solution that fully utilizes the infrastructure that we've laid in and therefore, how do you build out that liquefaction that gives you the best opportunities you think about the larger scale but at the best timing. And that's really where is the edge of that, that's been the debate. But I think there's really good alignment around the fact that we have essentially a brownfield expansion now and how do we optimize fully the investments that we've made in Phase 1.

Our next questions come from the line of Charles Meade with Johnson Rice.

I wanted to ask just a follow-up about Phase 2, but perhaps from the financial perspective. I think when you have spoken about Phase 2 in the past, the idea would be that the cash flows from Phase 1 would essentially make your pathway through building Phase 2 cash neutral. I have to imagine that as you guys have gone back and reexamined your contracting strategy for Phase 1 that you're shifting more to a free cash flow positive position in Mauritania and Senegal even once you begin Phase 2, is that the right sense or maybe the any more detail you can offer around that?

I'll share the answer with Neil. I think overall, Charles, I think you're right. So when we talked about the phasing of the projects, it was always about ensuring that we had a really capital efficient Phase 2 by fully leveraging the Phase 1. And we talked about a very sort of modest upstream investment as sort of less than $1 billion. And I think that absolutely holds true. And I think we have the opportunity to do better than that. And then ultimately, the question is how do you deal with the CapEx on the midstream? And within that, we will have sort of financing or leasing options. So I don't think anything sort of changed on that. And I think you're correct, probably from a cash flow perspective, there could be an opportunity to be slightly more positive as a result of that.

I think the environment for gas prices and oil prices will clearly be positive versus the long-term deck that we put out in terms of creating that (inaudible). There's some upside there and clearly around the cargo sales opportunity. There's additional upside that would give us some more cash in that near-term period. I think it's definitely moving in a positive direction versus just the neutral position.

That's helpful detail. Thank you Neal. if I could ask a question about the this Tiberius prospect in the Gulf of Mexico, I guess, have been operating under impression that there aren't a lot of untested 4 wells still out there in the Gulf of Mexico, but perhaps that's not correct. Can you give us a little bit of the provenance of this prospect and a time line for testing it?

You're right, Charles. There are 4 wells left in the (inaudible). You never say the last, but this is one of the remaining few I think there are. And so we really like the prospect because as you know, that that genre prospects that are (inaudible) have been highly successful. So we like the prospect. And we're targeting on drilling it around midyear. As you were out securing a rig as we speak. It's a high-quality prospect, I think, from a geologic perspective. It's got scale over 100 million barrels of resource and it is a tieback. So it absolutely fits our strategy. I think implicit in your question is this idea about quality, how do you get to the very best and I think as we look at the prospects that remain in this play, this is one of the very best.

Our next questions come from the line of Alex Smith with Investec.

Just a quick question on the results of the two TEN strategic wells, and both have been fairly disappointing from maybe expectations. Can you comment on the short to medium-term impacts this will have at TEN, what the next plan of action is? Is it the case of reanalyzing the data and reassessing medium-term plans? Or you mentioned targeting proven accumulations. So could you provide us some detail of those areas that you'll be targeting as opposed to the prospect?

Thanks, Alex. The purpose of the two wells that were appraisal wells as it was to test the Greater Ahmeyim area and allows us to calibrate the seismic to ensure that we have a solid development plan going forward. Just remember, this is new resource that we're bringing to two TEN. So this is sort of a new resource that obviously when developed becomes new reserves. So it's about bringing more rather than what we have today. I think the appraisal wells have allowed us to, I think, to get a better understanding now of the quality of a Greater Ahmeyim area. We can see the potential to bring new resource across that area. But we will be targeting in accumulations where we have well control and therefore, is lower risk. And that's the process we're in now with the operator to sort of bring a plan together that has that characteristic. It will be a mix of sort of oil and gas, associated gas and non-associated gas. But so there is a new resource to be brought. The appraisal ones have served the purpose in terms of properly defining the opportunity set so that we can bring something forward that is of the right risk profile and competes for capital within our overall allocation. So it has done what we want it to do, and we're now sort of fully integrated the results of those wells into the plan, and this is something that we will be debating with the operator over the turn of the year.

Great. Very clear. Maybe just another quick one. You've hit the gearing target that you planned for year-end. That's the question of potential dividends or buybacks now enter the (inaudible) we hear an update on that?

I want to pass it over to Neal, and he'll give you our thoughts on that.

We've made good progress in terms of debt reduction, which we've been cleared that and has been our key focus. So we brought net debt down from $2.5 billion at the beginning of this year to $2.1 billion. Leverage has come down from 2.5 to 1.5x. We've been consistent in saying our near-term objective is to get leverage down to 1.5x in the sort of sustainable oil price, and that will require us to continue to push debt down further than where we are today. And so the good thing is we continue to get closer to that point. And so it's an issue of timing and oil price is a big driver within that outcome. If oil prices sort of stay where they are, I think we can get to the right place in the back half of next year to start having that discussion around shareholder returns and based on the discussions we've had with our shareholders in the past, I think we're continuing to lean on the side of buybacks versus dividends. So, we're in a good place to continue to move the path forward on the continued debt reduction and then when we get to the right time, push on the shareholder returns.

Our next questions come from the line of James Hosie with Barclays.

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

Yes. Thanks, James. It's a great question and clearly, today, we're producing around 100 million of gas from Jubilee. We're coming to the end of the foundation volumes. So therefore, we're starting a conversation with the government about a gas sales contract for that gas. Integrated with that is the development of TEN, which I talked about on a prior question, which will be an integrated gas and oil development with gas, but there's both associated gas from the oil and non-associated accumulations and putting in the infrastructure that enables us to optimize that. So I think the way you should think about it really is that gas will be a part of that growth in Ten. The approval of that plan by the government will then give the government an important source of domestic gas at a price which is competitive with our current cost of gas. So as you start to think about the growth target, I think the big chunks of it are clearly Tortue, which is the biggest chunk. You then have the growth in Jubilee, Jubilee Southeast, then Winterfell. There is some growth in TEN and it's going to be a mix of oil and gas. So a piece of it is going to be TEN gas. But overall, it's a minor part of the contribution to the 50% growth.

Our next questions come from the line of James Carmichael with Berenberg.

Just a quick one on Jubilee. You mentioned in the release 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 sort of picked up on Bob's 2023 CapEx question. It's probably a bit early, but is anything you can say on that.

Thanks, James. I think clearly what's created the opportunity is the transfer of the responsibility for the operations and maintenance from MODEC. And so it's given us really a direct line of sight to that. And I think that we're seeing opportunities coming from really optimizing the work scope. And because you're coming in with a different mindset, I think from somebody who is a sort of third-party operator to one is that is now 100% focused on that task. So an opportunity from work scope optimization, I think there is some work to do with the contracting strategies and how we can get better value from those. So I think the combination of those two things, other things that will allow us to make reductions in terms of the cost base.

Now clearly, there is a more price environment out there. But I think we have real opportunity to mitigate that. And you saw a piece of that come through in 3Q. The 3Q production costs were below where we've guided primarily because we had a shift in the operational activity in Equatorial Guinea from 3Q to 4Q, but there was an underlying piece of self-help from Ghana in particular in Jubilee, and we expect more of the same going forward. And it is just all about getting to top quartile performance, both in terms of reliability of the facility, which has been excellent. The operating costs where we have, I think, greater access to those opportunities. And again, I think I do want to comment on how good the drilling performance has been and that has enabled us to accelerate the Jubilee Southeast wells. Good performance today in Jubilee and I think on the cost side, there's probably a little more to go.

James, I'll just take the second part of your question around 2023. I think you are right, it is still a bit early because we're still finalizing the activity within the various partnerships that we have. But I think, generally, we're looking to stay broadly flat into '23 being sort of the last big capital year for us as we finish out the development projects. And we're being able to manage sort of the inflationary pressure through. As Andy mentioned, even on the work scope side, so making sure we're efficient around every dollar we spend across the capital and as well as the operating end of the business, and so, that lets us keep things in a generally sort of flat area.

Just a quick follow-up on where you're seeing the most inflation pressure.

It's interesting. Again, deepwater is different from the (inaudible) in terms of the timing of the contracts. So we've got some good contracts, I think, in place in Ghana, and we've benefited from those. If you look out to sort of where the areas of capital spend, we are seeing it in our deepwater rig contracts, the operator, I think, did a really good job on Winterfell and getting sort of ahead of the market in getting that rig at a very good price. We're following with the rig on Tiberius, and we're getting fairly high utilization rates for quality equipment. I think we are seeing inflation in those rig rates. And I think that's probably, for us, the biggest variable. Other things were well locked in. There's clearly still stuff to finish on Tortue and the edges of contracts, which have to be finalized access to some of the work scope as we get into the installation campaign, that will be an issue for us. We've talked about Jubilee Southeast, the rig is contracted equipment as on long-term orders, we don't see a lot of inflationary pressure there. And then finally, on Winterfell, I talked about really what the operator has been doing to get ahead of it. So for us, the next sort of (inaudible) that we're focused on is securing the rig for Tiberius.

Our next questions come from the line of Mark Wilson with Jefferies.

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 at BirAllah. So my question, Andy, is should we consider Kosmos is staying in those 2 projects through to development? Or do you see them more as monetization options? And also, would those two require further drilling ahead of a development decision.

Great questions. I think if you start off from the biggest sort of strategic level and there are different projects. As we look at BirAllah and Yakaar-Teranga; look at BirAllah, I think this is about it's a new source of gas, in particular for Europe. It has the attributes of being lower carbon. BirAllah is the same as GTA gas, essentially no CO2 in it. It is about coming forward with a development scheme that is low cost, I think it will be phased. And we get a cost competitive gas into Europe where we see an enduring market need. So the work is ongoing at the (inaudible), as you say, this is a 30-month clock to get to FID. In fact, Kosmos is doing the concept work on that and it will be about a low-cost phase development targeting a market in Europe where we're geographically advantaged. I'm optimistic that we can come forward with something that's really credible. And I think the inherent value of the project is then developed. And I think subsequent decisions would follow. But for me, our first objective is to generate something which is truly value-added. And as you look to the strategy of the company, I believe gas, as I said in my opening remarks, is something that is core to our future. It creates longevity and quality to the company. Building out GTA is a piece of it, following with a project like BirAllah is entirely part of that. So I don't think we're not questioning the relevance of that BirAllah in the portfolio, but clearly, we have work to do to come up with something where we truly have a compelling cost competitive project.

With regard to further appraisal, the answer is sort of no. How can you come forward with a scheme now where you're not getting caught up in the time line of putting a lot of money into appraisal, which generally is only going to destroy returns and extend time lines. On the Yakaar-Teranga, it's a different start. I think the country is very clear about its needs, its significantly larger population than the Mauritania, growing population. They're burning heavy fuel oil today for power generation, displacing that with gas, not only it brings economic benefit, it brings climate benefits and so how can we accelerate the development of Yakaar-Teranga will be a modest domestic gas project as they convert to those power stations, but one which is serving a real need for the country that creates a great investment opportunity for us. And then the follow-on, that can come from that, if you like early (inaudible), I think there is an export component to that as well. So that's our twin focus on these projects. How do we really cost-competitive LNG export opportunity in Mauritania and then getting on with a domestic gas project which a country does need and then how do you create optionality from that follows. So we focus obviously a lot of our energy on Phase 1 and then getting Phase 2 moving. But I think you rightly talk about the value that's in our portfolio from these two projects because I genuinely believe they are competitive gas sources globally and both in an export sense and from a domestic sense.

Our next questions come from the line of Bob Brackett with Bernstein Research.

Just coming back with a fairly minor question. Just 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?

It's interesting, Bob. We can get offline in terms of the exact numbers, but not big actually in the overall scheme of things. But I think the most important thing is to create alignment across the partnership. Panora obviously came in and picked up the total shares. So they're going to (inaudible). We haven't talked about it, but the big upside. The asset is performing well. We're seeing the extension of production profiles from good production engineering, particularly around the DSP program. But the real upside is going to come from the opportunity in the Albian and untested play, but in a very, very strong four ways, and Panoro wanted to get access to that opportunity, which is great because the decimals aren't quite right, but then we have alignment between the exploration potential and the ownership in the infrastructure. So it's really around getting alignment around that rather than as not liking as it were the opportunity in the (inaudible). I think Charles asked the question around Tiberius, what did we like about it, and it is a compelling four ways. The Albion play in Equatorial Guinea is equally interesting because it's got really strong geology. These are solid 4 ways, there's clear source. We have fundamentally a very good initial prospect and then real play extension now with the acreage around it.

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 JD. 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.