Kosmos Energy Ltd. (KOS) Q3 2022 Earnings Report, Transcript and Summary

Greeting and welcome to the Kosmos Energy Third Quarter 2022 Earnings Call. At this time all participants’ are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I’d now like to turn the call over to Jamie Buckland, Vice President of Investor Relations. Thank you. You may begin.

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 roll Kosmos imply 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 & gas development project we have across the portfolio. I'll then hand over to Neal to talk through the financials before I wrap up today's presentation and we open the call for Q&A. Moving to slide three, the world is grappling with a need for affordable, secure and cleaner energy with a balanced approach required to address the three 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 of the energy the world need today. We're investing in growing oil supply in each of our core production hubs with an emphasis on high graded projects of yield, of low cost, lower carbon barrel that are highly cash generative. At the same time, we're working with our partners with 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 into domestic markets in Africa. This should benefit our host countries in two ways. First, the revenues from the export of LNG can be invested in critical infrastructure to promote economic development. Second, providing base load domestic gas supply will help expand access to electricity, a key goal in each of the countries where we were in Africa. Over the next two years, we expect to increase oil & gas production by about 50% as we optimize current production and bring new projects online. The Kosmos, the cash flow from our current and planned activities enabled 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 need as cleaner natural gas displaces coal, heavy fuel oil and biomass as a prime resource of energy in both developed and emerging economies. 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 characteristics that differentiate Kosmos. On the left side of the slide, we are identifying the distinctive features of our portfolio. First, we have a high quality and long dated asset base, the 2P reserves for 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 and our other gas projects in Mauritania & Senegal. On the right of the embedded values and policies of the company that underpin our strategy. We have strong focus on capital discipline, only pursuing the most compelling value-added projects in the portfolio, while making sure the balance sheet remains robust. We continue to reduce absolute debt and write 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, the contract transparency, the funding social programs in our host countries. MSCI, one of the leading ESG racing agencies recognizes this commitment and the progress we are making and has recently upgraded Kosmos to AAA its highest possible rating. The combination of these policies 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 five. 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 with 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 hydrated 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 and at BirAllah where we have signed a new PSC with the Government to 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 1.5 times achieved with further progress expected. We'll dig into each of these themes in today's presentation. Turning to slide six, which focuses on the performance of our production assets during the quarter. In Ghana, the Jubilee field continues to deliver with gross production for the quarter, around 69,000 barrels of oil per day. Following the excellent drilling performance year-to-date, which is seeing wells drilled safely and quicker than planned, we have now started to drill the first of the three Jubilee southeast wells ahead of schedule. We've completed the 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 identified, drive further efficiencies and reduce costs. Since transition, the operating performance being strong with no reportable safety incidents and facility up time of over 98%. On costs, we've identified potential savings in direct contracting, focused work stubs and competitive retendering. A TEN gross production of around 22,000 barrels of oil per day for the quarter was in line with expectation. The EN-21 well was brought online in late September, they since been shows back awaiting pressure support from the injector pair, which we expect to see soon. The partnership also drilled the second and only riser based well during the quarter, which encountered approximately five meters in that 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 proved accumulation areas where we have existing well control. 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 expectation. 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 grow several infill wells in Block G, followed by an ILX well. The Gulf of Mexico net production of 40,700 barrels of oil equivalent per day was slightly below expectations, due to an extended Delta House turnaround and lease current impact in production of Tornado after the planned drydock at the production vessel concluded. At Delta House, there was an unplanned shutdown for around two weeks last month, due to an [indiscernible] of the gas compressor. The issue has been resolved and factored into our 4Q guidance for the Gulf of Mexico in the appendix slide in the back of the material. On Kodiak, the number three well came online in mid-September, well results in initial production were in line with expectations. However, as one of our partners flagged in their results last week, well productivity is declining 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 Odd Job subsea pump project during the quarter, following sanction in 2Q, which is an important step into sustaining the long-term performance of the field. Turning now to slide seven. 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 is 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 build development plan in September and the operator has signed a recommissioned lesson to drill and complete three wells starting mid-‘23. Host facility production handling agreement and mid-stream export agreements are also expected to be completed within the next several months, supporting our target of first oil at the end of 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. And within the quarter, acquiring additional interest taking our overall interest in the project upto 25%. In addition, we are targeting further growth of drilling two high graded opportunities in our ILS offer. We expect to drill the [indiscernible] well in the Gulf of Mexico mid-2023 and they are keeping deep well in extra G&A around a year later. Both projects are targeting over 100 million barrels of oil gross and would be high return tieback project if successful. Now that I've talked about our near-term, that's not an oil, I'd like to switch gear on slide eight, which looks at how we're growing the long-term value of our gas portfolio. First, Tortue Phase 1, our LNG project in Mauritania & Senegal, all work streams continue to make good progress with a project approximately 85% complete at the end of the third quarter. The hub terminal is now largely complete, but the living quarters platform installed and the commissioning activity now commenced. On drilling, four wells have been drilled in total capacity of around 700 million standard cubic feet per today. We recently completed the first of the four wells and the [indiscernible] to the rig for a short cleanup period. Combined across the four wells, we now have significantly more capacity than the 400 million standard cubic feet per day required to supply the liquefaction volumes for Phase 1. On the floating LNG vessel, which has been constructed in Singapore, we remain on track for sale away in the first half of 2023 as communicated by [Ghana] (ph) in their most recent results. On the subsea, the shallow water gas export pipeline in the FPSO for the hub terminal has been installed and the deepwater pipeline vessel has arrived in the region. Final testing has been conducted by commercialization in the coming weeks delayed a deep water pipeline and the infill flow line. On the FPSO, the timing of the FEED trial by the sale away was impact back on the Typhoon, we swept through the yard in mid-September and caused the vessels to burst away from the key side. Around two weeks later, the vessel was returned to Kingstine and following the inspection carried out today there continues to be no material damage reported. With the required inspections and additional work scope resulting in Typhoon, the impact on the FPSO schedule has been around a month. And as a result, we expect to stay away the vessel around year-end. Stepping back and looking at the projects overall, the operator is working hard at making good progress to overcome the challenges with COVID, supply chain constraints, and more recently Typhoon Muifa. We expect first gas around nine months from FPSO sale away and continue to target first LNG around year-end 2023. On the cargo sales opportunities, we talked about last quarter, a process of engagement has commenced with significant interest received to-date, including majors, traders and end users. We'll provide further updates as we progress the process, and we remain focused on crystallizing additional value by shareholders from this opportunity. Elsewhere in Mauritania & Senegal, we continue to move the various projects forward. On Tortue Phase 2, we're in advanced discussions with our partners BP, Petrosen and SMH, the two governments, including their respective Presidents, on the right concept to accelerate the second phase of the project. In light of the changed global market conditions following the invasion 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 envisage as we were to obtain the full agreement for both government, who are rightly considering the importance of their 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 arise, low constellation, leveraging synergies of Phase 1 and accessing attractive pricing opportunities given the high demand environment. On BirAllah, we've now signed the PSC with the Government of Mauritania that's flagged in last quarter's results. We're working with BP on a future development content and the PSC allows us up to 30-months to reach FID. So that's set the clock on that project. We expect this project to take a similar phase approach to Tortue to manage both costs and pace. In Senegal, we're continuing 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 nine, 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 $500 million year-to-date. EBITDAX in 3Q was around $301 million, up almost 4 times, compared to the third quarter of 2021 on higher production and higher realized prices. This was despite a significant under lift 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 1.5 times target we 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 remains 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 a price of approximately $81 per barrel of oil equivalent, including the impact of hedging. Excluding hedging, realized price was around $97 per barrel of oil equivalent. Costs generally came in line with guidance, our 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 costs as interest rates rise. However, this is anticipated to be offset 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 is also some uncertainty on the timing of accruals throughout the end of the year, which could either accelerate or defer capital between 2022 and 2023. To conclude the financial section of today's presentation, it was another good quarter of progress. We continue to fund our differentiated growth and deliver excess cash, which helps further 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 continue 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 graded 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 at multiyear lows with further progress planned. 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 it addresses the trilemma with 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. Operator?

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question is coming from the line of Neil Mehta with Goldman Sachs. Please proceed with your questions.

Yes. Good morning, Andy and team. Thanks for taking the time. The first question is really around the sale date for the FPSO. Obviously, there was 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 tests that you've done on the asset, any structural damage or no real impact? Thank you.

Yes. Hi, 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 Keysight 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 delay from that work, additional inspections that were required and the work that was required to address the minor damage that occurred. So the operators targeting sail away 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 whereby year-end ’23 we can be delivering the first LNG. So as with all big projects, it's a question of dealing with the sometimes 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 projects 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. And that's the follow-up, which is 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's on track?

Yes, no. Thanks, Neil. Yes, again, it's good to be able to talk about it. If you sort of go through the five work streams in the project and obviously the integration of those five work streams is important. You start with the wells, we've drilled four wells, we've just done the first completion, flowed the well back with a good clean up. So one completion done, three 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 end sort of move to the hub terminal, essentially complete very high level of completion, actually the pack that we distributed this morning has a picture of the current stage at 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 next year. FLNG vessel as the goal of -- declared in their own disclosures, it should depart Singapore in the first half and it's 60-day 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 that the shallow water line has been done, the deepwater pipeline vessel is in the vicinity and it expects to start work later this quarter and have finished all the deepwater pipeline and flow lines by the second quarter. And then the critical pass-through of 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 the end of the third -- around third quarter. So therefore, you start to introduce gas around that timeline, which leads you to first LNG by the end of the year. So all the component pieces of that and when continue to deliver on those milestones as we go big projects there will be challenges around the integration of all of that, where there is a clear way forward and a lot of energy now in the delivery of that timeline.

Got it.

Great. Thanks, Neil. Yes. Great, thanks. We go to the next question then.

Thank you. Our next question is coming from the line of Bob Brackett with Bernstein Research. Please proceed with your questions.

Yes, good morning. 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?

Hey, 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 they've got the [indiscernible] project, which enables them to position their gas as an important trade relationship with Europe. And you mentioned the visits of shops 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 that government to government relationships is factored into this piece of work, 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 last, sort of, last six 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, there's no CO2 and therefore is an important piece of new supply for Europe. And I think as a result of those conversations, I think we 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. 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 controlled the path, would you prefer a smaller, but quicker Phase 2 has had 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 is. It's not about what I want to do. And as it were or what customers wants to do, 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 it's clear alignment around that. Therefore, really the debate has been around what's the best liquefaction solution that fully utilizes the infrastructures that we've laid in and therefore how do you build out that liquefaction that gives you the best opportunities you think about that at the larger scale, but at the best timing, right? 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 brownfield expansion now and how do we optimize fully the investments that we've made in Phase 1.

Very clear. Thanks for that.

Thanks, Bob.

Thank you. Our next question is coming from the line of Charles Meade with Johnson Rice. Please proceed with your questions.

Good morning, Andy, to you and your team there. Wanted to ask just a follow-up about Phase 2, but perhaps from the financial perspective, I think when you have spoken about this about Phase 2 in the past, the idea would be that the cash flows from Phase 1 would essentially make your pathway to -- or 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 positioning Mauritania & Senegal you have been actually -- even once you begin Phase 1, is that the right sense? Or maybe just any more detail you can offer around that?

Yes, no, no, I'll share the answer with Neal. Yes, I think overall Charles, I think you're right. So when we talked about it, and 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 that's 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, I think in saying that I think probably from a cash flow perspective there could an opportunity to be slightly more positive as a result of that.

Yes. I mean, I think the environment for gas prices and oil prices will clearly be positive versus the long-term that we put out in terms of creating that wedge, Charles. And so 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. So, yes, I think it's definitely moving in a positive direction versus just the neutral position.

That's helpful detail. Thank you, Neal. And then if I could ask a question about the -- this tiberious prospect in the Gulf of Mexico. I guess I've been operating under your impression, there aren't a lot of untested four ways still out there in the Gulf of Mexico, but perhaps that's not correct. I mean, can you give us a little bit of the provenance of this prospect in a timeline for testing it?

Yes, you know, you're right, So Charles, there aren't many four ways left in the Outer World Cup, this is maybe the -- you never say the last, but this is one of the remaining few I think there are there. And so we really like the prospect, because as you know that, that genre of prospects that are four ways in the out of Wilcox have been highly successful. So we like the prospect and we're targeting on drilling it around midyear as you get around some -- securing the rig as we speak. So 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. And as you rightly, 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.

That's helpful detail. Thank you, Andy.

Great. Thanks, Charles.

Thank you. Our next questions come from the line of Alex Smith with Investec. Please proceed with your questions.

Hi, guys. Thanks for the call. Just a quick question on the results of the two TEN strategic wells. Both have been fairly disappointing from maybe expectations, can you comment on the short to medium term impact this will have at TEN? What the next plan of action is? Is it the case of reanalyzing the data and reassessing the in term plans? Or you mentioned targeting proven accumulation, so could you provide just some detail of those areas that you'll be targeting as opposed to the [interim] (ph) prospect?

Yes. No, thanks, Alex. Look, the purpose of the two wells, they were appraisal wells, it was to test the greater and some area and allow us to calibrate the seismic to ensure that we have a solid development plan going forward. And just remember, this is new resource that we're bringing to TEN, so this is sort of new resource that obviously when developed becomes new reserves. So it's about bringing more rather than what we have to today. I think with the appraisal wells have allowed us, I think, to get a better understanding now of the quality of greater and some area. And I think as we look, we can see the potential to bring new resource across that area, but we will be targeting accumulations where we have well control and therefore is lower risk. And that's the process we're in now with the operator. So 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 new resource to be brought, I think the appraisal wants to serve the purpose in terms of properly defining the opportunities that, 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 wanted to do and we're now, sort of, fully integrating 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 hit the gearing target that you had a bit planned for year-end. So that's the question of potential dividends or buybacks now into the realm and maybe when should we hear an update on that?

Yes. Great, why don't I get pass it over to Neal, and he'll give you our thoughts on that.

Yes. Hey, Alex. So we've made good progress in terms of debt reduction, which we've been clear that has been our key focus. So we brought net debt down from $2.5 billion at the beginning of this year to 2.1 leverage has come down from 2.5 times to 1.5 times. We've been consistent in saying our near-term objective is to get leverage down to 1.5 times 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. And so 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. But -- so we're in a good place to continue to pass -- move the path forward on continued debt reduction and then when we get to the right time, push on the shareholder returns.

Great. Thank you.

Thank you. Our next question is coming from the line of James Hosie with Barclays. Please proceed with your questions.

Hi, there. I've just got a question on Ghana there, you've talked a bit about monetizing gas resources. Can you give us an update on where the partnership is in Ghana with securing your uptick agreement for the associated gas? And does Guinean gas play any part in your 50% production growth by 2024?

Yes. Thanks, James. No, it's been a great question. And clearly today, we're producing around 100 million scuffs of gas from Jubilee. We're coming to the end of the foundation volumes. And 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 it'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. And then there is some growth. There's some growth in TEN and it's going to be a mix of oil and gas. So a piece of it, it's going to be TEN gas. But overall, it's a minor part of the contribution to the 50% percent growth.

Okay, that's great. Thanks very much.

Right. Thanks, James.

Thank you. Our next question is coming from the line of James Carmichael with Berenberg. Please proceed with your questions.

Hi, guys. Just a quick one on Jubilee, you mentioned at least some options for potential cost reductions there. 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. So it's probably a bit early, but there's nothing you can say on that?

Good. Thanks, James. Yes, I think clearly what's caused the -- 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 are allowing us to -- will allow us to make reductions in terms of the cost base. Now clearly, there is a more inflationary 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 I think below where we 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 is 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 all enabled us to accelerate the Jubilee Southeast wells. So good performance to-date in Jubilee. And I think on the cost side, there's probably a little more to go.

Yes, and then James, I'll just take the second part of your question around 2023. I think you're 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 up 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 end as well as the operating end of the business. And so that lets us keep things in a generally sort of flat area.

Right. And maybe if I can, just a quick follow-up on where you're seeing the most inflation compression [indiscernible]?

Yes. It's interesting. Again, deepwater is different from the last 48 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. We've -- the operator, I think, did a really good job on winterfell and getting sort of ahead of the market and getting that rig at a very good price. We're following with the rig on Tiberias, and I think we're getting a 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 we're 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 workflows as we get into the installation campaign, that will be an issue for us. We've talked about Jubilee Southeast, the rig is contract, the equipment as well as our 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 in that sort of big comfort lines and actually that we're focused on is securing the rig for Tiberias.

Great. Thank you.

Great. Thanks, James.

Thank you. Our next question has come from the line of Mark Wilson with Jefferies. Please proceed with your questions.

Hi. Good morning, everyone, you've taken a lot of questions here. I'm going to focus on the gas and you're giving 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 of BirAllah there. So my question, Andy, should we consider Kosmos are staying in those two projects through the development? Or do you see them more as monetization options and also would those two require further drilling ahead of a development decision? Thanks.

Yes. No, good. Yes, great questions, I think if you start off from the biggest, sort of the strategic level, and they're different projects. I think as we look at BirAllah and Yakaar-Teranga look at BirAllah, I think this is about another -- it's a new source of gas in particular for Europe. It has the attributes of being lower carbon, BirAllah is the same as GGA gas, essentially no CO2 in it. And it is about coming forward with a development scheme that is low cost. I think it will be phased. And then can we get a cost competitive gas into Europe where we see an enduring market need? So the work is ongoing at the moment as you said, there's a 30-day clock to 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. And 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 that following it 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. And with regard to further appraisal, the answer is sort of no. How can you come forward with the scheme now where you're not getting caught up in the timeline of putting a lot of money into appraisal, which generally is only going to destroy returns and extend timelines. On the Equatorial Guinea, it's a different start. I think the country is very clear about its needs, it’s significantly larger population than the Mauritania, a growing population, they have -- they're burning heavy fuel oil today and for power generation displacing that with gas, not only 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 those power stations. For one which is serving a real need for the country, that creates a great investment opportunity for us. And then the follow-on, the follow-up that can come from that, if you like, early gas scheme to one where I think there is an export component to that as well. So that's our twin focus on these projects. How do we create a really cost competitive LNG export opportunity in Mauritania? And then getting on with a domestic gas project, which the country does need and then how do you credit 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.

That’s great. Thanks for the commentary.

Good. Thanks, Mark. Anything else? You're good? Right, I'll go to --

Sorry, thank you. Our next question is coming from the line of Bob Brackett with Bernstein Research. Please proceed with your questions.

Thanks. Just coming back with a fairly minor question, I was trying to understand the strategic or finance logic around the Panoro farm in Equatorial Guinea. What sort of consideration did you receive? And what sort of drove that decision?

Yes. No, it's interesting, Bob. Yes, I won't go and we can do it offline in terms of exact numbers, but not big actually in the overall scheme of things. But I think most important thing is to create alignment across the partnership. Panoro obviously came in, picked up the total share, so they're going to [indiscernible], we haven't talked about it, but the big upside at Equatorial Guinea we tend -- the asset is performing well. We're seeing the extension of production profiles from good production engineering, particularly around the ESP program, but the real upside is going to come from the opportunity in the Albian an untested play, but some good, very, very strong four ways. And Panoro wanted to get access to that opportunity, which is great, because it sort of -- 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 it's not liking as it were the opportunity in Akeng Deep. I think Charles asked the question around Tiberius, if you like about it, and it is a compelling four way. The Albian play in actual Guinea is equally interesting, because it's got really strong geology. These are solid four ways. There's clear source, and we have fundamentally a very good initial prospect and then real play extension now with the acreage around it.

Great. Thanks for that.

Great. Thanks, Bob.

Thank you. 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 Jamie. 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.