The Armchair Trader wrote about Kosmos Energy [LON:KOS NYSE:KOS], the Dallas-based upstream oil and gas production company about nine months ago, when we asked if it was overvalued?
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The oil junior, with operations in Ghana, Equatorial Guinea and the US Gulf of Mexico, an offshore gas development in Mauritania and Senegal, as well as an exploration play in São Tomé and Príncipe has seen an incredible spike in its share price since the end of Covid-lockdown in March 2020, over three years when it put on some 700%
At the time we praised the ambition of Kosmos’ management in an industry that is dominated by billion-dollar behemoths, and that it was very active and willing to duke it out with the majors on established ground, as well as maintaining the nimbleness of a junior explorer and pioneering more speculative and difficult fields. The result was that Kosmos has pound-for-pound outperformed most of the biggest oil companies.
But was it able to maintain its performance?
The company opened this week (30th October) at 597.5p, offering a year-to-date return of 16% and a one-year return of 8.6%. So, the pace of growth in the share price has slowed down somewhat – but 700% is a big number to follow. In February over one-year Kosmos gave shareholders a 69% return, which without a great deal of technical or statistical analysis would lead one to believe that the market saw Kosmos running a bit too hot for its taste this year.
It’s not as though there has been no activity in the shares, over 52-week the share price has ranged between 426.36p and 693.25p. The back end of February and through March saw the share price jump on the elevator, before a significant summer lull in June, but by the beginning of July Kosmos was on the up again.
But how’s it going to fare for the rest of the year?
Kosmos Energy expecting good results
The company is scheduled to publish its 3Q23 results next Monday (6th November) and barring any late hitches they should be a good set of results. The company struck oil at its Tiberius exploration well in the Gulf of Mexico, justifying the expense of buying Deep Gulf Energy in 2018. The oil company has proved that there is oil under that bit of the seabed (some 7,800m below), but the next question is how much is there and how much can Kosmos get out?
The firm said it was starting rock and fluid analysis. It’s early days, but things are looking good. Lucius Spar, an Occidental Petroleum Corporation NYSE:OXY (and a partner in the development where Kosmos holds a third along with Occidental and Norwegian-state owned Equinor Energy) has its production facility six miles to the southeast of the well. However, Kosmos’ CEO, Andrew Inglis said that it was likely that Lucius Spar might be running at full capacity of 80,000 barrels-a-day (bpd) processing the outflow from three fields, so scheduling was a hurdle that the company would have to negotiate nearer to the time of production.
Nevertheless, it’s a bit more positive newsflow from the Dallas-based company, as back in July 2023, Kosmos announced the start-up of the Jubilee South East (JSE) project off the coast of Ghana. Its partners in the JSE project include Tullow Oil LON:TLW , Ghana National Petroleum Corporation and Petro and was producing 100,000bpd from the site.
Kosmos still has the hunger. It emerged last week that BP LON:BP. was considering exiting its 60% share in the Yakaar-Teranga offshore gas field in Senegal, leaving Kosmos which currently has a 30% stake as the main operator, the senior partner to Senegal state-owned entity Petrosen.
In its last results update in August, covering the period 2Q23, Kosmos said it was producing 58,000bpd and selling about 45,200 of those generating revenues of USD273m at USD66.38/barrel. Kosmos was spending USD15.46/barrel to produce the oil and in total capital expenditure was USD170m.
Sensitivity to Oil prices
The company had around USD2.4bn of long-term debt on its books at the end of the 2Q23 and around USD2.3bn net debt with around USD700m available to draw, generating USD18m of operating cash with net income of USD27m.
Kosmos is well-diversified geographically, however, its biggest risk is its sensitivity to oil prices – up about 10% this year to date, but looking a bit flaky in the last month. However, with the current instability in the Middle East, oil prices might start heading up sharply, which is good news for Kosmos.
