Kosmos Energy Ltd - $KOS - Earnings Analysis: Commencement of production at the GTA LNG project provides a new revenue stream and potential for future growth.

Business Model

Kosmos Energy generates revenue primarily through the sale of oil and gas from its assets in Ghana, Equatorial Guinea, Mauritania, Senegal, and the Gulf of America.

Revenue Sources

• Oil sales contribute the largest portion of revenue.
• Gas sales are a growing revenue stream, particularly with the commencement of production at the GTA LNG project.
• NGL sales contribute a smaller portion of overall revenue.

Income Statement Analysis

• Oil and gas revenue decreased by 21.7% due to a decrease in sales volume
• Exploration expenses increased significantly due to costs associated with the Akeng Deep ILX prospect.
• Kosmos recorded $28 million of exploration expense related to the well in the fourth quarter and the well has now been plugged and abandoned.
• Kosmos also wrote off $37.2 million of exploration expense off related to the Asam discovery in Block S offshore Equatorial Guinea which was successfully drilled in 2019, but is now not expected to be developed in the near-term.

Balance Sheet Analysis

• Total assets increased by 7.5% due to Property and equipment, net increase.
• Total stockholders’ equity increased by 16.3% due to Net income (loss).
• Total Liabilities increased due to Long-term debt, net increase.

Cash Flow Analysis

• Decrease in net cash provided by operating activities primarily due to decreased revenues
• Decrease in net cash used in investing activities primarily due to Oil and gas assets
• The net cash provided by (used in) financing activities increase primarily due to Borrowings under long-term debt

Capital Allocation

Kosmos Energy is focused on prioritizing the generation of free cash flow from its increased production base and disciplined capital investment. The company's forecast 2025 capex budget of $400 million is a reduction of over 50% from recent years. The company has minimal near-term debt maturities with only $250 million in 2026, which it intends to fund from free cash flow.

Management Commentary

With the end of this highly capital-intensive period for the company we will now prioritize the generation of free cash flow from our increased production base together with disciplined capital investment.

GTA is a world-scale asset in the Kosmos portfolio and with the initial capital intensive phase complete, we can focus on delivering the full potential of the asset with significant room to grow production and cash flow.

The Noble Venturer rig successfully completed the infill drilling campaign with both wells now online.

Production was below guidance primarily due to lower production at Jubilee (flagged by the operator in January) and the timing impact of new project startups.

The Akeng Deep well was drilled to a total vertical depth of approximately 13,225 feet (~4030 meters) and encountered sub-commercial quantities of hydrocarbons

Overall Sentiment: Positive, with a focus on delivering projects and generating free cash flow, but with some operational challenges in certain areas.

Disclaimer: This report is for informational purposes only and not investment advice. The analysis is based on limited information and subject to change. Investing in securities involves risks, including potential loss of principal. Past performance doesn't guarantee future results. Always conduct your own research, understand the risks, and consult a financial professional before making investment decisions.