Kosmos to slash capex, suspend dividend, and reduce headcount in response to market volatility

U.S.-based oil and gas company Kosmos Energy has decided to reduce its capital and operational expenditures as well as administrative costs, and suspend the dividend in response to the current market price volatility.

Illustration. Source: Kosmos Energy

In an update on Tuesday, Kosmos said it is taking several actions to maintain balance sheet strength and preserve flexibility thereby joining a number other oil and gas operators who have decided to reduce their spending in 2020 as a result of sharp decline in oil price and the outbreak of the coronavirus.

At the 4Q19 results, Kosmos guided to a 2020 capital budget for its base production business of $325-$375 million.

The company has identified over $100 million of discretionary expenditure largely related to exploration activities in the Gulf of Mexico and its basin-opening exploration portfolio.

“We are now targeting to reduce our 2020 capital budget for the base business by around 30% to under $250 million whilst keeping 2020 production flat, in line with previous guidance and with minimal expected impact on 2021 production,” the company said.

The company also has significant flexibility in its 2021 capital program should current market conditions persist.

In Mauritania & Senegal, Kosmos said it is working with the operator to defer 2020 Tortue Phase 1 capital spending with the goal of extending the carry of our capital obligations through the end of this year.

“In addition, our priority remains to sell down our interests to support a self-funded growing gas business,” the company added.

Tortue Phases 2 and 3 are expected to take final investment decision (FID) in mid-2022 and mid-2023 respectively with minimal capital required ahead of FID with the objective to project finance both thereafter.

 

Reducing both Opex and general and administrative costs 

 

Kosmos said it plans to implement cost reductions with over $60 million of savings expected in Opex and G&A in 2020.

“Whilst a significant portion of our Opex is fixed, we are targeting a reduction of $1/boe without impacting asset integrity or near-term production.

“Through a reduction in company headcount, no planned cash bonuses for employees in 2020 and other cost reductions we plan to significantly reduce cash G&A in 2020,” Kosmos said.

 

Dividend suspension

 

According to Kosmos, its priority is to ensure the strength of the balance sheet in the current market price volatility. The board has therefore decided to suspend the dividend after the announced 4Q19 payment until market conditions improve. This will provide savings of approximately $75 million annually.

As a result of these actions and taking into account the company’s hedging position, Kosmos believes it can be free cash flow neutral beginning in 2Q and fund all of its obligations at a $35/bbl Brent price.

Kosmos has recently released its 4Q 2019 report. In the report the company said it had generated a net loss of $35.8 million in the fourth quarter of 2019 compared to a profit of $185.6 million in the same period of 2018. The company’s total revenues in the period increased to $460 million from $309.5 million in 4Q 2018.


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