Kosmos Energy - Q1 2024

Transcript

Operator (participant)

Ladies and gentlemen, good morning, and welcome to the Kosmos Energy first quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star and zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jamie Buckland, VP, Investor Relations. Please go ahead.

Jamie Buckland (VP of Investor Relations)

Thank you, operator, and thanks to everyone for joining us today. This morning, we issued our first quarter 2024 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 the 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, and at this time, I will turn the call over to Andy.

Andy Inglis (Chairman and CEO)

Thanks, Jamie, and good morning and afternoon to everyone. Thank you for joining us today for our first quarter results call. It's been an active start to the year for Kosmos, and I'll start today's presentation looking at the operational and financial momentum we built in the first few months of the year. Neal will then walk you through this quarter's financial results before I look ahead to the catalyst for the remainder of the year. We'll then open up the call for Q&A. Starting on slide three with the delivery of our major projects. Kosmos had a strong first quarter with significant progress towards our goal of growing production by around 50% from the second half of 2022 to the end of 2024. In Ghana, all the planned 2024 Jubilee production wells are online, with one water injection well expected online later this quarter.

Following completion of this well, the planned drilling campaign will conclude approximately six months ahead of schedule as a result of efficiencies in the drilling operations. In the Gulf of Mexico, oil production at Winterfell is expected to begin shortly from the initial two wells. A third well is due to come online later this year, increasing expected gross production to around 20,000 barrels of oil per day. In Mauritania and Senegal, the Tortue project continues to move towards first gas, with several key milestones achieved already this year. I'll talk more about our progress on these projects later in the presentation. Looking further ahead, we continue to advance our next phase of growth projects. Long lead items are being secured for Tiberius to optimize the development timeline and project costs. We have also secured a two-year license extension for Yakaar-Teranga.

While we see continued growth as an important part of the company's future, as I said last quarter, it will be selective and more measured in the coming years, consistent with sustained annual CapEx of around $550 million per year that is targeted from 2025 onwards. On the financial side of the business, we enhanced the company's financial resilience with a convertible bond issuance and the RBL refinancing. Neal will talk about these in more detail shortly. The transactions improved liquidity and extended our near-term maturities. The free cash flow inflection point we've been anticipating of around $100-$150 million per quarter, once our development projects come online, is now only a few months away. I'll now talk through the operational progress across our different business units, starting in Ghana on slide four.

Jubilee production in the first quarter was around 93,000 barrels of oil per day gross, almost 30% higher than the first quarter last year. This reflects the progress made from both the startup of the Jubilee South East project and the ongoing infill drilling program. Jubilee FPSO reliability continues to remain high at approximately 99% uptime for the first quarter. Voidage replacement was also strong in the quarter, around 110%, as a result of high levels of water and gas injection. Gross Jubilee gas sales for the quarter was around 16,500 barrels of oil equivalent per day. Recently, the partnership agreed an 18-month extension to the Jubilee gas sales agreement at approximately $3 per MMBtu.

In the second quarter, there is some planned maintenance of the onshore plant, which receives the Jubilee gas, and this is reflected in the 2Q guidance. On TEN, gross production of 18,600 barrels of oil per day was in line with expectations, with high FPSO uptime of around 99%, similar to Jubilee. Turning to slide 5. Production in the Gulf of Mexico for the quarter was approximately 14,500 barrels of oil equivalent per day net in line with guidance. At Winterfell, where Kosmos has a 25% working interest, first oil from the two initial wells is expected shortly, with another well expected online in the second half of the year. Gross production, when all three wells are online, is expected to be around 20,000 barrels of oil equivalent per day.

We estimate total gross resource across Greater Winterfell of up to 200 million barrels of oil equivalent, providing significant future follow-on potential. To enhance existing production, we continue to invest selectively in high-return projects like the Odd Job subsea pump and Kodiak workover, both expected to finish around the middle of the year. The combined uplift from both these projects is expected to contribute around 5,000 barrels of oil equivalent per day net to Kosmos' year-end exit rate. The Tornado field is expected to be offline for most of the second quarter for scheduled routine maintenance of the HP-1 floating production unit, which has been factored into our guidance for the quarter. On Tiberius, where Kosmos is operator, we acquired part of Equinor's interest during the first quarter to maintain an aligned partnership.

We now hold a 50% interest in the project, which is already included in our 2024 capital guidance. This phase development, a subsea tieback to Oxy's nearby Lucius platform, is progressing, with project sanction expected later in the year. Certain long lead items are being secured to optimize the development timeline and project costs. Around the time of project sanction, Kosmos plans to farm down to optimize our working interest to fit within our targeted capital program for 2025 and beyond. Please turn to slide six. Production in Equatorial Guinea averaged approximately 24,400 barrels of oil per day gross and 8,400 net in the first quarter. Kosmos lifted one cargo from Equatorial Guinea during the quarter, in line with guidance.

In early February, as previously communicated, the operator paused the Ceiba and Okume drilling campaign as a result of safety issues with the previous rig. The partnership has now secured the Noble Venturer to resume the drilling campaign, with the rig expected on location mid-year. The rig is scheduled to drill and complete two infill wells in Block G before moving to drill the Akeng Deep ILX prospect in Block S. The new infill wells are expected to add around 3,000 barrels of oil per day net to Kosmos' year-end exit rate. The result of the Akeng Deep well, which is targeting gross resource of around 180 million barrels, is expected around the end of the year. Turning to slide seven.

The Greater Tortue Ahmeyim project continues to move towards first gas, with significant progress across all work streams so far this year, with first gas expected in the third quarter and first LNG expected in the fourth quarter. The floating LNG vessel arrived in the first quarter and has been moored to the hub terminal. The partnership is now working with the vessel operator to accelerate commissioning. The subsea work is progressing in line with expectations, with the flow line installation complete and final connection work ongoing. Inspection and repair of the FPSO fairlead is now complete, and the vessel has left Tenerife and is en route to the project site, with mooring work to commence thereafter. Hookup and commissioning of the FPSO remains on the critical path to first gas, which is expected in the first quarter.

I'll now turn it over to Neal to take you through the financials.

Neal Shah (CFO)

Thanks, Andy. Turning to slide eight, which looks at the first quarter. Production in the quarter of approximately 66,700 barrels of oil equivalent per day net was an increase of around 13% compared to the same quarter last year. Costs for the quarter were within or slightly better than guidance, leading to the earnings beat against consensus. CapEx for the first quarter was $286 million, which was in line with guidance and is largely made up of the Ghana drilling campaign and the progress made on both Winterfell and on Tortue. As previously communicated, we expect the majority of this year's CapEx to be in the first half of this year, with the free cash flow inflection that Andy talked about in his opening slide, expected as the development projects complete and production ramps up throughout the end of the year.

Turning to slide nine, which looks at our debt maturities. We took two important steps this year to further enhance the financial resilience of the company. The first was the convertible bond issuance in March, which proactively replaces the liquidity from the $250 million undrawn RCF, which is due to expire at the end of this year. The convertible also lowered our overall interest expense as we paid down a portion of our RBL with the available proceeds, which is our highest cost debt. We've also seen the yields on our high-yield bonds tighten, which should help pricing when we come to think about potentially refinancing those in the future. To limit future equity dilution, we purchased a capped call, which means there will be no dilution until the shares get to almost $11 per share.

We also took the option to cash settle the principal amount raised, which also reduces any future dilution. The second important step was the refinancing of our reserve-based lending facility, with the terms broadly in line with the previous facility. The overall facility size increased to $1.35 billion from $1.25 billion, with current commitments of around $1.2 billion. Through the refinancing, we have extended the final maturity by approximately three years. At the same time, we have had some of our banks transfer their commitment to the RBL from the RCF, which, as I mentioned, expires at the end of this year. I'd like to thank our banks for their continued support as we continue to grow the company. The chart on the right shows the impact of both the convertible bond issuance and the RBL refinancing on the maturity schedule.

We now have no near-term debt and a staggered maturity schedule from 2026 onwards. As we reach the expected free cash flow inflection point, we plan to continue to prioritize paying down the RBL, reducing the amounts in the dark blue on the chart on the right. We continue to target leverage below 1.5 times at mid-cycle oil prices, with deleveraging expected to commence once revenues from Tortue start up later in the year. With that, I'll hand it back to Andy to conclude today's presentation.

Andy Inglis (Chairman and CEO)

Thanks, Neal. Turning now to slide 10. As I said in my opening remarks, it was a busy first quarter, and we have achieved a lot in just three months. The operational financial momentum we built has rolled in the same quarter, with several milestones already achieved and more to come in the near future. The graphic on the slide shows a rich portfolio of catalysts throughout the year across all our business units. They contribute towards our goal of a year-end exit rate of 90,000 barrels of oil equivalent per day and a free cash flow inflection point. Combined, we believe these will create significant value for our shareholders. Thank you, and I'd now like to turn the call over to the operator to open the session for questions.

Operator (participant)

Thank you. Ladies and gentlemen, we will now be conducting a question-and-answer session. If you would like to ask a question, please press star and one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star and two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Ladies and gentlemen, we will wait for a moment while we poll for questions. Our first question is from the line of David Round with Stifel. Please go ahead.

David Round (Director of Oil and Gas)

Thanks. Thanks for the presentation, guys. Two questions from me, please. Firstly, can I just ask about Senegal, please, and whether following the recent elections there, you've seen any impact at all to business activities in country? There's been quite a lot in the press, so I'd appreciate any comments there, please. Secondly, just on Equatorial Guinea, obviously, good to see activity there again. That's obviously been a great asset. From memory, there was quite a big in-place number there with a relatively modest recovery factor so far. I'm just wondering, could that become a bigger area of activity going forward once you see CapEx elsewhere drop off? Thank you.

Andy Inglis (Chairman and CEO)

Yeah. Hey, David. Yeah, thanks for both of those. I'll pick them up. I think, you know, turning to Senegal first, I think, you know, the starting point really is that elections in our host countries are not new for Kosmos, and our ethos is to align with the countries and their needs, irrespective of changes of government. I think in Senegal, our approach is no different, where we're enabling the development of low-cost gas to sustainably grow the Senegalese economy and drive social progress for the country. So there's a high degree of alignment between what we're doing and the new government's objectives, which are clear. They want to lower the cost of living for its population and improve the economic environment. I think it's early days for the new administration.

There are many officials still to be appointed, but my team in Senegal have met with the new energy and mining minister, and I'm pleased to say it was a very constructive dialogue. You know, the conversation centered around actually, how can we accelerate the development of the gas resources to accelerate the benefits to the country? So, you know, in terms of the day-to-day, you know, our business in Senegal is unchanged. You know, we're working to bring phase one online later this year. You know, move forward with a capital-efficient phase two, the expansion of phase one, that will enhance the revenues to the states and the partners.

And then, you know, move forward with a domestic gas LNG export scheme at YT, all of which will bring, you know, economic and social benefits for the country. So I do think there's a real basis for a win-win, and I'm pleased to say that we're actually in a constructive dialogue as to how we shape that agenda. On Equatorial Guinea, I think you're correct to say that there's actually a lot of undeveloped resource. And when we initially, you know, took over the asset, it was about enhancing the production from essentially sort of work over activities.

If you remember, I think it was, you know, we, we talked about it being gas-lift constrained, so we actually moved to, to ESPs, and we've seen the benefit of, of that activity. We're now moving, I think, into a different phase, which is about, infill drilling, which is this, you know, the current campaign, as you rightly say. We're targeting an infill well in Ceiba and one in Okume. And then actually, we're following it up with the Akeng Deep, which is a deeper test of the Albian. And clearly, if that comes in, we've got, you know, significant amount of knowledge in the facilities to bring that on, and in the very short tie-back distances. So I think we've got sort of, you know, two avenues.

You know, what we would see for Ceiba and Okume is a, you know, an intermittent, you know, infill drilling campaign, you know, two or three wells every sort of 18 months, something like that, where I think you can certainly sustain the production profile. All of that CapEx is in the forward forecast of maintenance of the base. And then, you know, with Akeng Deep, I think you've got the ability to actually grow the profile. So I think we've got a clear plan about sustaining the profile in Equatorial Guinea through that infill drilling. You know, with, I think, still some sort of workover type activities, growth coming if you have success at Akeng Deep.

I think, you know, it's been a really good acquisition. I think we've worked really well to, you know, go through a very programmatic program to target the, you know, the quick wins, which were really around sort of the workover activities, and now we're moving into a more phased approach with with infill. But there's plenty to go out here. And clearly having, you know, the capacity and the facilities enables us to move it forward quickly.

David Round (Director of Oil and Gas)

Okay. Thanks, Andy.

Andy Inglis (Chairman and CEO)

Good. Thanks, David. Appreciate it.

Operator (participant)

Thank you. Our next question is from the line of Charles Meade with Johnson Rice. Please go ahead.

Charles Meade (Research Analyst)

Yes, good morning, Andy and Neal, and to the rest of the Kosmos team there. Andy, I'm sure you're probably more excited than we are to see that FPSO underway, and so, congratulations for that. But I wonder if you can take us through just the highlights or what the next pieces, you know, pieces of the puzzle or milestones are to get to first gas. I imagine that some pieces of it would be, you know, getting the FPSO moored, hooking up the risers, introducing the gas to the FLNG, and then going through the whole FLNG cool down. But maybe you can elaborate that or add pieces to it that we should be on the lookout for.

Andy Inglis (Chairman and CEO)

I love questions where you've already answered the question, Charles, but yeah.

Charles Meade (Research Analyst)

Sorry about that.

Andy Inglis (Chairman and CEO)

No, it's... No, I think you've got it. I think, you know, clearly, I think we've had a lot of progress in the in this sort of first four months of the, of the, you know, we've got the FLNG vessel now at the hub terminal. It's moored, and the connection work is ongoing. You know, the last piece of equipment to arrive, hopefully, with FPSO, as you said, it will be on location in a matter of a few days. The next step then is the mooring, and once the mooring is done, we start to work on the topsides in terms of the commissioning work. The hookup of the risers is clearly the step that enables gas to be introduced.

Then it's a question of the gas, as you say, coming into the FLNG vessel. You start the cool down process, and then you start to make LNG, first cargo, et cetera. So I think, you know, if you look through that process, you described it, you know, really well. You know, where are we? You know, with the subsea equipment, all the major pieces are there. They're now doing the final tie-ins, and that work is proceeding as we envisage. So we're pleased with the progress there. You know, the FPSO work, the hookup and commissioning of the FPSO remains on the critical path, but clearly, getting the vessel on location has enabled us to start to liquidate that activity.

So I think, you know, we're, we're on track to do what we said we were gonna do, and the milestones have been achieved so far this year. So, you know, getting the FPSO on location is clearly an important step. And, we'll update you the next quarter as we, you know, get that, you know, work behind us. And hopefully, you know, with, with the completion of the riser hookup and then the, which will then allow us to start flowing gas.

Charles Meade (Research Analyst)

Got it. And then the follow-up. I wonder if you could, you could add some, some detailed context around the BirAllah, exploration. And I'm wondering if this is kind of along the lines of, of how Yakaar-Teranga, played out in that BP, maybe, didn't want to be involved, but you guys are, are still, you guys still have some, some plans. I mean, just, you know, tell us what's going on.

Andy Inglis (Chairman and CEO)

No, no, good, yeah, good question, Charles. Well, and I think that, again, if you sort of step back, it's worth sort of, you know, repeating that both, you know, YT and BirAllah are world-scale discovered gas resources, you know, sort of in place numbers, I think, of YT, you know, 25 TCF, BirAllah probably around 30 TCF. And we believe it is advantaged gas. It has negligible CO2, and it's close to Europe. So with BP no longer on either license, we can now work independently with the NOCs of both countries on innovative, cost-efficient schemes that BP didn't propose, but we believe will lead to attractive returns for both the project partners and the governments. We've secured the license on YT. We've secured the extension to allow us to proceed with that work.

We're in discussions with the Mauritanian government around how we can help them progress the development of BirAllah. They're keen to move it forward, and we believe we have both the subsurface knowledge and the concept that will enable it to be an attractive project. So I think, you know, that's where we are. And there's been a lot of third-party interest in the assets as well. So we believe that actually working both with PETROSEN on YT and SMH on BirAllah, we're trying to create an equal partnership where they're properly represented, which we believe is actually a good thing, clearly, for both governments. And we're working with them to find ways to bring in a partner that will enable the development to move forward.

I think, you know, you characterized it correctly, and we're energized to work on that agenda.

Charles Meade (Research Analyst)

Great, thanks for the detail.

Andy Inglis (Chairman and CEO)

Great. Thanks, Charles.

Operator (participant)

Thank you. Our next question is from the line of Bob Brackett with Bernstein Research. Please go ahead.

Bob Brackett (Senior VP and Senior Research Analyst)

Yeah. Good morning, Charles, stole most of my thunder, so let me try to follow up. The Tortue FPSO, so that vessel's been expected by the operator, by you all, passed muster, and so it is ready to go?

Andy Inglis (Chairman and CEO)

Yeah. You know, as with all things, Bob, you know, as it were, the curse of having to do the work on the fairleads is a blessing that it does allow us to. You know, we had additional sort of three months in Tenerife. It was close to three months in Tenerife to further progress the topsides work. So I think, you know, we understand the scope very well. And I think, you know, you're right to sort of push the question around. FPSOs have sailed in the past with a lot of work to execute. So I think, you know, we've got a good understanding of what the work scope is, clearly, and therefore clear plans on how to execute that work scope. So, you know, I feel good about that.

You know, nothing's done till it's done, but clearly, we do have, I think, the advantage of having extra time to work on the topsides as a result of the time on the fairleads.

Bob Brackett (Senior VP and Senior Research Analyst)

Very clear. The follow-up comes back to BirAllah. The PSC had been extended for two years. You and the government and BP had been working in good faith to kind of push that project along. The clock ran out. How do we think about whether you are the natural owner of a partnership that brings that asset to market, or does this go to a competitive bid where you're in line with one of many? And I'm intrigued by what you think the concept could be for a fast-track development there.

Andy Inglis (Chairman and CEO)

Yeah, no. Yeah, interesting, Bob. I think that, you know, the government is actually trying to find a way of moving the project forward in a constructive way. And what do I mean by that? Yeah, clearly, they could go out to the open market with bids, et cetera. You know, clearly, the negative of that is that it creates an uncertain partnership. You know, you're bringing potentially somebody new that doesn't have the subsurface knowledge that we have. You know, we believe that there is a genuine desire to try and work with existing partners who have the knowledge. You know, we've probably, you know, we bring the knowledge of two wells in BirAllah, you know, one on Marsouin, one on Orca.

We bring the knowledge of all the appraisal wells on GTA and the development wells on GTA, and then the calibration of the seismic against that data set. So there's significant knowledge, I believe, that we bring. In terms of the development concept, it's really about how do you get cost efficient in terms of the subsea layout? And ultimately, that's where we've seen the big cost increases in the industry, is in the subsea. So minimizing that architecture, you minimize it actually by putting the FLNG vessel directly over the field. That has the additional benefit of lowering the pressure drops, which gives you enhanced recovery.

So those, you know, without going into the engineering in too much detail, Bob, those are the ways in which you can change the cost basis of the development. And those are the concepts we're working on in YT, and those are the concepts we're bringing to BirAllah.

Bob Brackett (Senior VP and Senior Research Analyst)

Very clear. Thank you.

Andy Inglis (Chairman and CEO)

Great. Thanks, Bob.

Operator (participant)

Thank you. Our next question is from Matthew Smith with Bank of America. Please go ahead.

Matthew Smith (Data Support Manager)

Hi there. Good morning, guys. Thank you for taking my questions, and a couple, please. The first one was just, and apologies if I missed some of the commentary around this at the start of the call, but any additional color you could give us on the performance of in Ghana, I guess, at Jubilee in particular in the quarter? Just how that's fared versus your own expectations, what confidence that gives you in the full year outlook. I suppose you had an additional oil producer online in April. If you could sort of talk to that at all and sort of exit rates, what you've seen post the quarter, just to sort of frame how Ghana started the year off and the confidence that gives you for the rest of the year.

That, that'd be interesting to hear. But yeah, perhaps I'll leave that and come back to the second.

Andy Inglis (Chairman and CEO)

... Okay, yeah, thanks, Matt. I think sort of updating you, sort of, if you look across March and April, I think we, you know, we averaged around 95,000 barrels of oil per day. So, you know, as you say, we recently just brought on the final producer, and we're optimizing its setup in the subsea to maximize the benefits from that. And then finally, we've got the final water injection, which is currently being drilled. And then actually, we're gonna start the completion of that shortly. So I think, you know, I think it's early days. So as you look forward to the performance of the field over the remaining part of the year, I think, yeah, there was sort of three fundamental things we're focusing on.

You know, the first is the contribution of the recently added wells to the ramp-up in rate. You know, the second is we had really good reliability in the first quarter, I think, you know, close to 99% on the Jubilee FPSO. Clearly, we need to maintain that high level of reliability going forward. And then I think the third one is really the most important point, is around, you know, maintaining the high levels of voidage replacement. You know, that was a challenge, you know, last year, where, you know, we had downtime and didn't get to 100%. Now, we sort of were pretty good in the first quarter. We need to sort of maintain that going forward.

We have had a GTG down, I think, for a couple of weeks, so we've probably, you know, been slightly under the 110% in the last month. But that is, you know, that's a critical factor. So I think it's, you know, those are the things we're, you know, we're focusing on, and then therefore those are the things that are gonna influence the outcome across the rest of the year. You know, all that said, the drilling has actually gone well. You know, we've really drilled, you know, the operator's done a great job on the drilling performance and the wells, and the timing of the wells has absolutely met, you know, our expectations.

You know, when the final water injection is done, I think over this program, we've probably, you know, created probably close to six months of reduction in the overall program, which is pretty impressive. So that's sort of where we stand today, Matt.

Matthew Smith (Data Support Manager)

Now, perfect. Thanks, Andy. That's really helpful. And perhaps the second one, perhaps would be for Neal, I imagine. Just coming back to the free cash flow sort of indication that you've given us, $100 million-$150 million per quarter, you know, once the growth projects are online. I think if I remember rightly, you talked to that sort of being underpinned, broadly speaking, by a $70 WTI, $75 Brent, although please correct me if I'm mistaken there. But I just wondered if you could speak to sort of sensitivities and, you know, upside to those free cash flow numbers if we're in a 80 or 85 Brent world.

Neal Shah (CFO)

Yeah, sure, Matt. And yes, yeah, that's about right in terms of the $100 million-$150 million of cash flow, free cash per quarter, you know, post getting Winterfell and Tortue online, at a quarterly pace in that sort of $75 Brent, $70 WTI sort of realm. And yeah, I think in terms of the price sensitivity, you know, generally, it'll stay roughly the same, about $100 million of free cash flow for the year, for every $5 change in the oil price, and so $25 million plus or minus a quarter. If you move to $80 Brent, and then $200 million for the year, $50 million a quarter at $85 Brent.

So it is, and, you know, we currently have sort of full access to the upside, so, you know, we can fully participate in that.

Matthew Smith (Data Support Manager)

Perfect. Well, that's very clear. Thanks both for your time, and happy to pass it on.

Andy Inglis (Chairman and CEO)

Great. Thanks, Matt.

Operator (participant)

Thank you. Our next question is from the line of Mark Wilson with Jefferies. Please go ahead.

Mark Wilson (Senior Equity Research Analyst)

Thank you for that. Good afternoon, gentlemen. My question's regarding the main drivers of production increase into the second half with your reiterated group guidance, 71, 72. We know that Tortue comes on for first LNG in the fourth quarter. Could I just check if that is how you then start to report the gas from Tortue, or is it in the third quarter as it comes across the FPSO? That would be my first question.

Neal Shah (CFO)

Yeah. So, Mark, we'll record it on an entitlement basis, similar to how we report, but, for just the quarterly production. But in terms of sales, it'll be done similar to how we do it in Ghana and EG, where it's driven by cargoes. And so overall entitlement production will be driven by, yeah, basically, LNG that goes into the, you know, FLNG, vessel, and condensate that goes into the FPSO, as a sort of entitlement volumes. But for sales volumes will ultimately be tied to cargoes the same way, we are, do cargoes in Ghana, in EG.

Mark Wilson (Senior Equity Research Analyst)

Got it. Okay, understand that. Okay. So FPSO for 3Q and then entitlement in 4Q. My second question, I guess another big driver for production would be Jubilee, and you just spoke to it there, Andy, to some degree. So taking all those various points into account, do you still expect that field can average 100 for the rest of the year or even higher?

Andy Inglis (Chairman and CEO)

... Yeah, yeah, as I said, you know, Mark, we're doing what we said we would do, which is to deliver that outcome. We need to see the incremental benefit of the infill wells. We've got the final two to finish and then optimize the system for the new well configuration, and that's ongoing. So that's the first sort of variable that we need to get right. The second is clearly, you know, maintaining the reliability and, you know, good start to the year, and, you know, we need to continue it. Then I think the fundamental part then is really around bodies replacement and the distribution of that water.

Again, because we're changing the patterns of offtake because of the new wells coming in, the optimization of that pattern of the new sort of reservoir offtake pattern is critical. So I think, you know, there's lots to work on, Mark, to deliver that outcome. You know, the first step is, in all of that, to get the wells drilled and online, and we've got sort of one more to go. So, you know, there's work to do, clearly, and we'll keep you up to date on progress as we go through the quarter.

Mark Wilson (Senior Equity Research Analyst)

Okay, thank you for that. And then last question for me. My understanding on the, on the Yakaar-Teranga, is that working towards getting the pre-FEED out of the way, and then that's when you'd be looking to see where the market is for farm outs. Is that a fair representation?

Andy Inglis (Chairman and CEO)

Yeah, it is. Absolutely, Mark. So, you know, we've, if you sort of talk about the future there, if you, you know, which is really what your question was about, I think that we've got a piece of work now where we're completing the pre-FEED. We want to get the pre-FEED done by the middle of the year. With the pre-FEED, we've got the technical validation of the concept, and then we've got a cost base to then discuss with the new administration. Clearly, this is about creating a new partnership for Yakaar-Teranga. Our objective is for the PETROSEN to be an aligned partner around a third, ourselves, a third, new partner, a third. So we have to work with the new government to bring that partner in.

They're certainly going to have a say in that, and we need to have a fiscal arrangement which enables us to create the economics that support a low-cost gas and an LNG export scheme. Now, with those two pieces in place, you can then work on the financing. The intent is to have the FLNG vessel financed. So there's a series of steps here. There's technical work to be done, you know, which is sort of there's a milestone in pre-FEED. There's work to be done on alignment with the new administration around fiscals and new partner, and then there's work to be done on financing.

You bring all those four together, then you can start work on the real work, which is on FEED. But we won't be starting FEED until we've got those things done. So, you know, again, I think we've made a lot of progress so far on the pre-FEED, and post-election, we can now start working on those next items.

Mark Wilson (Senior Equity Research Analyst)

That's really appreciated. Then it did occur to me in that answer that maybe the differences between Yakaar-Teranga and BirAllah and the respective governments would be interested, interesting to comment on. It did look like BirAllah was moving faster towards a development concept, arguably, when you last extended the PSC, and then Yakaar-Teranga now has moved to this the setup you have now. So the respective differences would be interested to to hear a comment on.

Andy Inglis (Chairman and CEO)

Yeah, look, I actually don't think there's a difference. You know, both governments are anxious to enable the development of their gas resources to benefit the country. And I think, you know, I think the Mauritanian government has been equally clear about its objective to move forward with BirAllah, you know, post the exit of BP. So I don't think there's any fundamental differences there, Mark, and therefore, you know, it's about how can we participate to help them on those agendas and come up with, you know, compelling investment opportunities.

Mark Wilson (Senior Equity Research Analyst)

Okay. Thank you very much. I'll hand over.

Andy Inglis (Chairman and CEO)

Great, thanks.

Operator (participant)

Thank you. Our next question comes from the line of Neil Mehta with Goldman Sachs Asset Management. Please go ahead.

Neil Mehta (Head of Americas Natural Resources Equity Research)

Yeah, this is Neil Mehta with Goldman Sachs Equity Research today. There are a couple of questions I have here. The first is just your perspective on deleveraging. As you get into that free cash flow inflection that Neal referred to, and those are big, really big numbers, now, how do you think about reducing the debt on the balance sheet? What are the priorities? And, you know, and how what's the target level, and how quickly can you get there?

Andy Inglis (Chairman and CEO)

Yeah, thanks, Neil. Well, I'll let the other Neal answer that.

Neal Shah (CFO)

Hey, Neil. Yeah, so I think, you know, our objective on leveraging it yeah, hasn't changed. You know, we want to get to less than 1.5 times on a sustainable basis, through the cycle. And so, you know, the free cash flow that we generate once the products are online are going to be allocated towards that, and probably initially, preferentially towards the RBL, just given its yeah, floating rate and sort of our highest cost interest piece at the moment. And so, yeah, we've got some work to do on debt reduction, and that's been a clear priority for the free cash flow. And, you know, again, I think from our perspective, you'd see sort of the front end of that free cash flow clearly directed towards the RBL.

Then once we get to less than that 1.5 times, in a normalized, lower price environment, then it comes around sort of the competing priorities in terms of some allocation towards debt repayments versus capital returns. So, yeah, that's a discussion to have in the future. But, you know, as of today, we're continuing to focus on just getting to that less than 1.5 times the normalized price first.

Neil Mehta (Head of Americas Natural Resources Equity Research)

Yeah, that makes sense, Neal. Then I want to give you an opportunity to talk about the convertible bond issuance, because it created a lot of volatility around the stock. But I think a lot of it was just to manage near-term interest expenses around floating rate debt. So just your perspective on why you thought that was the most cost-effective approach to financing, and how should we think about that over the long term?

Neal Shah (CFO)

Yeah, and so, you know, again, we've had a number of discussions around the convertible bond with both debt and equity holders over the last couple of months since we executed that back in March. Again, I think for us, it is around, you know, where our current bonds were trading and how do we optimize access to the debt capital markets without, you know, at a sort of, yeah, the lowest cost available. The issue that we've had for the past 18 months, when you look back into 2022 and 2023, is really where Ghana has traded, and therefore the impact to our secondary levels on the bonds.

And therefore, a new issuance in the regular bond market would have been quite expensive just from a regular new issue new issue market, and therefore, trying to get ahead of the liquidity and the maturity wall, you know, something that we've always tried to be proactive about. And so thought that was, you know, the best instrument at the time to, you know, to manage the maturity schedule. And as you can see in the presentation, you know, with that and the RBL, we've really cleared the runway for the next couple of years for us to execute and continue to pay down debt.

And so it's really around taking the balance sheet off the agenda, focusing on the organic delivery of the business plan, and using it sort of the most efficient tool at the time, to try to execute that. So, you know, yeah, that was really the background there.

Neil Mehta (Head of Americas Natural Resources Equity Research)

Thanks, Neal.

Neal Shah (CFO)

Mm-hmm. Sure.

Operator (participant)

Thank you. Our next question is from the line of Subash Chandra with The Benchmark Company. Please go ahead.

Subash Chandra (Equity Research Analyst)

Great. Thank you. Yeah, I, you know, following up, I guess, on Neal, and a couple of the other questions, with regards to free cash flow. Is sort of the organizing principle, you know, beyond the next year to sort of be in that $500-$600 million maintenance CapEx number, and then everything beyond that, obviously, you know, pay the RBL off and then payouts, et cetera. Or, are there some appetites that you might have deferred, you know, pending getting GTA on either organic or acquisition-oriented, that might get us to a different spend level down the road?

Andy Inglis (Chairman and CEO)

You know, thanks, Subash. Let me just take that. You know, no, I think we—when we talked about the $550 million, we've talked about it from two dimensions. We've talked about a sort of base maintenance capital of $300 million-$350 million, which sort of covers the infill drilling program in Ghana, the continuing development of Jubilee. It covers the infill program in Equatorial Guinea, that you know, that I talked about earlier. And then, you know, what sort of post the startup of Winterfell and Tiberius, looking longer term, you know, the additional wells there. So I think we've properly allocating capital to that, and clearly, those are very high return projects.

And then we've talked on top of that about sort of $200-$250 of spend that would be in growth. And clearly, the two projects that, you know, we're focused on today are Tiberius and Yakaar-Teranga, with, you know, an expansion project at Tortue. And that capital, you know, that $200-$250 incorporates the spend on those projects, sort of post-financing, financing of the FPSO on the, let's say, Yakaar-Teranga. So I think we're clear about the forward projection of the company, where we believe we can not only, we can grow, it'll be at a more modest rate than we obviously have done over the last two years.

But there is growth in high-quality projects, and it'll be a mix of sort of low cost, low carbon oil, you know, e.g., Tiberius, you know, low cost, low carbon gas, e.g., an expansion of Phase One, you know, or Yakaar-Teranga. So, you know, and it's sort of, you know, single digits, middle single digits, sort of growth rates. But at the same time, with a capital level of $550 million, you know, we believe we can, we have significant free cash flow, which as Neal says, we can direct to the pay down of debt, and, and then subsequently, you know, when we get to the right leverage levels, we can look at shareholder distribution. And I think that's, you know, that, that's ultimately what differentiates Kosmos as, as a company.

It has an organic, activity set, which it can sustain really, you know, through, through a decade and beyond. We, you know, we, we have an R/P of, of over 20 on a 2P basis. So the ability to, you know, create something now which can not only continue to grow, but can actually return cash and with a, you know, we think a really competitive, free cash flow yield is, is something that's quite unique. So that's our objective now. So we're, we're but we're clear about the frame, and I think that's the point that I, you know, absolutely want to, emphasize on the call, that the $550 in that sense is, is clear, and we're, we're clear about the capital frame and, and, and, and therefore, how it's going to be allocated.

Subash Chandra (Equity Research Analyst)

... Got it. Okay, so I hear you loud and clear. So no real interest in external opportunities. I mean, given what seems like a greater churn in sort of, you know, the assets, whether they're stranded gas or in the Gulf of Mexico, et cetera, you're going to stick with the footprints you have?

Andy Inglis (Chairman and CEO)

Yeah, and I think what I've you know, what we've been clear about, Subash, is that you know, any inorganic has to be accretive from a cash flow basis that actually therefore accelerates that journey. Yeah? And I think that that's you know, having set that out as the organic path of the company, to improve upon that, you have to accelerate it through an inorganic that actually is significantly cash flow accretive, which it has been the case for the three acquisitions that we've actually done as we've grown the company. Equally well, you know, there may be opportunity you know, and particularly on the gas side, to lighten the portfolio, which again, accelerates that objective.

So I think we're absolutely clear about the company we're building, and therefore, as it were, how an inorganic opportunity would fit. What we don't have to do, clearly, is buy things to mitigate decline. You know, we do not have decline. Yeah. And I think that's again what differentiates us from others. So if something is accretive from a cash flow perspective and organically accelerates that quality assets, then clearly those are the things we look for. Equally well, the reverse, if we can accelerate the delivery of free cash flow for our shareholders by lightening less on the gas assets, then we would do that.

Subash Chandra (Equity Research Analyst)

Thank you for that.

Andy Inglis (Chairman and CEO)

Great! All right. Thank you.

Operator (participant)

Thank you. Ladies and gentlemen, since there are no further questions at this time, I would like to bring the call to a close. Thanks to everyone joining today. You may now disconnect your lines. Thank you for your participation.