A MESSAGE FROM OUR CHAIRMAN AND CEO
April 28, 202225, 2024
Fellow shareholders:
Just as we were looking forwardThe global energy landscape continues to be overshadowed by the resurgencewar in Ukraine, conflict in the Middle East, and subsequent disruptions to energy markets and supply routes. COP28 once again confirmed the importance of the Paris Agreement’s goal of keeping global economy afterwarming to an increase of 1.5 degrees Celsius – but, importantly, noted that this must be achieved through a “just, orderly and equitable” energy transition. Against this backdrop, it is more important than ever that our purpose and vision remain clear and vibrant. I am proud to say that they do. Kosmos Energy is focused on meeting the difficult yearsworld’s growing demand for secure, affordable, and cleaner energy now and in the future.
With oil production from our advantaged assets in Ghana, the U.S. Gulf of the pandemic, Russia’s invasion of Ukraine has shockedMexico, and Equatorial Guinea, we are providing the world and illustrated the fragility of the peace and democracy we hold so dear. The tragic loss of life, the displacement of millions of people, and the economic devastation will cast a long shadow.
Forwith the energy sector, the conflict is re-shaping the industry’s outlook.it needs today. At the most basic level, it has reminded the world of the necessity of ensuring the energy transition whilst providing energy security. Europe’s reliance on Russia highlights the need for newsame time, we are developing cleaner sources of energy ultimately renewables with hydrocarbons playingfor tomorrow through world-scale natural gas and LNG projects offshore Mauritania and Senegal. We believe it is not enough that we simply deliver this energy, our mission is that we should leave each country better off through Kosmos’ presence. Consequently, we strive to be a long-term roleforce for good in our host countries – acting responsibly, supporting a just and orderly energy transition, and accelerating economic and social progress.
Kosmos continued to deliver on its strategic objectives throughout 2023. We advanced our key development projects, which aim to deliver around 50% production growth from the second half of 2022. The start-up of Jubilee South East in Ghana was a major step toward achieving this goal and, we expect production from Winterfell in the transition. Kosmos can play a roleU.S. Gulf of Mexico to be an important contributor as well. We expect that these milestones will be followed by first gas at Greater Tortue Ahmeyim offshore Mauritania and Senegal later this year. With these three projects, we are targeting an increase in meeting that challenge with aproduction to around 90,000 barrels of oil equivalent per day by the end of 2024. As part of this growth, we expect to increase gas production from about 10% of overall production to around 25% during this period.
Beyond advancing our development projects, we also strengthened our portfolio of low cost, lower carbon investment opportunities. We delivered a significant oil discovery at Tiberius in the U.S. Gulf of Mexico, which added an attractive short-cycle oil development to our portfolio. Kosmos also assumed operatorship and a larger working interest at Yakaar-Teranga, which is a key asset in Senegal’s ‘Gas-to-Power’ and ‘Gas-to-Industry’ initiatives. These developments put Kosmos in a strong position to continue growing the value of the company beyond 2024.
Given the operational progress we are making and the additional opportunities we have unlocked, we can look ahead with a great deal of optimism. Kosmos expects to reach an important inflection point when our development projects come online and capital expenditures begin to fall. With higher production and low cost, lower carbon liquified natural gas (LNG) projects offshore Mauritania and Senegal, which are poised to bring a new source of gas to the world as soon as production starts late next year. By sourcing LNG from Mauritania and Senegal, Europe would enhance its energy security and help these countries meet their own development goals – a positive and necessary outcome for all involved. For Kosmos, this illustrates our role in bringing a just and secure energy transition to life, and 2021 was a productive year for the company in fulfilling that vision.
We rebuilt operational momentum across the portfolio with a return to drilling in Ghana, Equatorial Guinea, and the Gulf of Mexico. This increased activity helped push net production above our year-end exit target of 75,000 barrels of oil equivalent per day. Importantly, this increased production boosted free cash flow and reduced leverage to around 2.5 times at year-end. Our LNG development offshore Mauritania and Senegal made significant progress with Greater Tortue Ahmeyim Phase 1 around 70% complete at year end. In addition, Kosmos executed a highly accretive transaction in Ghana, acquiring additional interests in the Jubilee and TEN fields, which has helped transform the balance sheet and further increase free cash flow generation.
As we executed the company’s strategy in 2021, we continued to be guided by our long-standing commitment to sustainability. Our most recent TCFD-aligned Sustainability Report advances the approach we introduced last year and covers our full ESG agenda, including the actions we have taken to mitigate climate-related risks and enhance the resilience of our business. Given the importance of ESG performance, the data in our most recent report has been reviewed by our independent auditor. This is an added step we have taken to increase confidence in our reporting, further demonstrating our commitment to transparency and openness.
The outlook for Kosmos in 2022 and beyond remains positive. The company is underpinned by low-cost, lower carbon assets – world class fields that have the longevity to deliver sustainable, high-margin cash flow at current prices. With our existing assets and sanctioned projects, production is expected to grow around 50% in the next two years, with a growing natural gas weighting at a time when there is a need for new sources of gas. With growing production and a strong commodity price backdrop, we expect to make further progress de-leveraging the balance sheet, with a year-end 2022 leverage target of around 1.5 times at current prices. As we deliver on this plan and new projects start up, sustainablecapital, free cash flow is expected to increase materially, creatingand our priorities are to: strengthen the potentialbalance sheet through debt reduction, fund selective growth projects, and consider returns to shareholders at the right time.
As we pursue our strategy, Kosmos will continue to be guided by our belief that we can grow value for meaningful shareholder returns.shareholders while prioritizing sustainability. With our advantaged oil and gas production, we can be a responsible producer that the world can count on to balance energy security and affordability with the need to lower emissions. For the third consecutive year, we have maintained carbon neutrality for our operated Scope 1 and Scope 2 emissions, and in 2023 we announced a new near-term target to reduce by 25% our Scope 1 equity emissions by 2026 from a 2022 baseline. We are making excellent progress towards this goal, which involves initiatives such as working with partners to eliminate routine flaring in Ghana and Equatorial Guinea.
