Kosmos Energy - Earnings Call - Q4 2019

Transcript

Speaker 0

And welcome to Cosmos Energy's Fourth Quarter twenty nineteen Conference Call. Just a reminder, today's call is being recorded. At this time, let me turn the call over to Jamie Buckland, Vice President of Investor Relations at Cosmos Energy.

Speaker 1

Thank you, operator, and thanks to you all for joining us today. This morning, we issued our fourth quarter earnings release and a slide presentation to accompany today's call, and the materials are available on the investors page of our website. Joining me on the call today to go through that material are Andy Ingels, Chairman and Chief Executive Officer and Tom Chambers, Chief Financial Officer. 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 UK 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.

Speaker 2

Thanks, Jamie, and good morning and afternoon to everyone. Before I turn to the agenda, I would like to acknowledge Tom's retirement, which was announced today. Tom has done an incredible job as CFO for Kosmos over the last five years. He will be replaced by Neil, a ten year Kosmos veteran, who many of you know already. So turning to today's agenda, I'm going to focus on three areas.

First, a look back at 2019 operational and financial performance second, integrating climate risk into Kosmos' strategy and third, the plan for 2020. Turning to slide three. In 2019, Kosmos delivered on all of its key targets for the year. On safety, we reported no lost time or recordable incidents, best in class performance. Financially, we delivered approximately $250,000,000 of free cash flow exceeding our forecast.

In Mauritania and Senegal, we made excellent progress on the Tortue development with Phase one around 25% complete at year end. In exploration and appraisal, five of the seven wells drilled during the year succeeded. And finally, on reserves, we reported our seventh year in a row of reserve replacement greater than 100%, demonstrating the quality of our asset base. On the following slides, I will focus on these areas in more detail. Turning to Slide four.

Safety is a fundamental value of our business and underpins our license to operate. As you can see on the slide, 2019 was one of the most active years in company history with five wells drilled in Equatorial Guinea and the Gulf Of Mexico as operator, more than 1,700,000 man hours in total. It was a record year for safety with no lost time or recordable incidents, demonstrating that zero is possible. Slide five focuses on our financial performance in 2019 and shows we delivered on our key metrics. Kosmos generated around $250,000,000 of free cash, exceeding our target of $200,000,000 despite the operational challenges we experienced in Ghana.

Importantly, this is the third consecutive year of strong organic free cash flow generation, almost $600,000,000 in total over the last three years, demonstrating a key attribute of our business model. As you can see on the right hand chart, we've used that free cash flow to reduce debt. As a result of strong cash generation and CapEx control, leverage has continued to fall, ending the year at around 1.8 times. We paid out an overall dividend of $0.18 per share in 2019, and this morning we announced our first quarter dividend of $0.45 per share, consistent with prior quarters. Turning to Slide six.

Our exploration and appraisal program was successful with five positive results from the seven wells drilled. Total resources given net to Kosmos was around three eighty million barrels oil equivalent or 80% of the four eighty million barrels oil equivalent targeted at the beginning of the year. These drilling results came from three different business units, which highlights the depth of opportunities we have across the portfolio. We had 100% success rate in Mauritania and Senegal with the GTA-one well and the Yakar-two appraisal wells and the Orca-one exploration well, which is the largest deepwater hydrocarbon discovery in 2019. In addition, our infrastructure led exploration, or ILX, delivered a 50 success rate in 2019, in line with our expectations, with success in the Gulf Of Mexico with Gladden Deep and Extraor Guinea with the S-five well.

Turning to slide seven, our development projects in Mauritania and Senegal continue to move forward. At Tortue, we advanced phase one of the project to approximately 25% completion at year end. With all key work streams on schedule, we remain on track to deliver gas in the first half of twenty twenty two. The signing of the SPA with BP Gas Marketing in February was an important milestone as it finalized the offtake for all Phase one gas and enabled Kosmos to book the 1P reserves, materially increasing our proved reserves space. For Phases two and three, we have made significant progress with BP on finalizing the development concept to increase the LNG capacity from 2,500,000 tons per annum to approximately 10,000,000 tons per annum.

The concept will leverage the Phase one infrastructure and the near shore location with the goal to deliver highly cost competitive LNG scheme with one of the lowest carbon intensities in the world. On Yakaar Teranga, the Yakaar 2 appraisal well proved up the southern extension of the field, confirming the world scale resource in place. We are working with partners to develop the resource. We are applying an initial phase one domestic gas to power project supporting Senegal's plan emerge on by replacing higher carbon diesel with natural gas. At Boralla, the Orca 1 exploration well discovered 13 Tcf of gas, materially increasing the size of the Mauritanian resource potential to around 50 Tcf of gas in place.

Importantly, this well derisks more than enough resource to underpin a third LNG hub in the region. Turning to slide eight, look to the evolution of Kosmos' reserve base in recent years. This year, the company announced a 1P and 2P reserve replacement rate of greater than 100%, highlighting the quality of our underlying assets. This is now the seventh consecutive year of greater than 100% 1P reserve replacement. There are two important takeaways from this slide.

First, the diversity in our reserves has increased significantly since 2016 when we had just Ghana. Through exploration success and strategic acquisitions in EG and the GOM, the Kosmos reserves have grown at over 50% annually, both on a 1P and 2P basis. With over five fifty million barrels oil equivalent of 2P reserves, our reserves to production ratio is around twenty two years, one of the best in the industry for a mid cap E and P company. This growing and increasingly diverse portfolio means Kosmos no longer relies on a single field or geography to drive performance. Second, with reserve bookings in Mauritania and Senegal, Kosmos now has a much more balanced mix of oil and gas.

Through continued progress in the developments in Mauritania and Senegal, the gas component is likely to increase naturally over time. That wraps up the summary for 2019. I'd now like to move on to the next section of today's presentation, our approach to integrating climate risk into our strategy. Kosmos has always recognized the impact of climate change and the role played by humanity. It's a defining issue of our time and requires urgent action from everyone: government, civil society and the private sector.

We know that investors and stakeholders want to understand the risks that climate change presents to our business, as well as the actions we're taking to support the energy transition and deliver the Paris goals. I want to focus on our role in tackling this challenge, on the importance of gas in the transition, and how our innovative approach as a company brings wider social, economic and technological benefit. We don't have all the answers for how a business like ours can fully adapt to tackling climate change as part of the broader ESG agenda. But based on the extensive work we've done so far and on engagement with shareholders and others, we believe a mid cap E and P like Kosmos can indeed play an important role and make a difference. Turning to slide 10.

With resources and operations mostly in developing countries, especially in Africa, Kosmos faces the dual challenge. How do you provide the affordable energy needed for economic development and social progress, and do it while reducing carbon emissions? This challenge is especially stark in our host countries, where demographics will drive increased demand for energy. Africa is expected to double its current population and grow by more than 1,000,000,000 people by 02/1950, representing more than 50% of the worldwide growth projected during that time. These men and women aspire to a standard of living that we take for granted, which was built on hydrocarbons.

Many African leaders have made this point on behalf of their citizens, who often lack the basic necessities for a decent and secure life. Kosmos can promote that economic development and social progress by providing affordable energy and helping countries accelerate their transition to cleaner sources of energy through oil to gas and renewables. With our partner, BP, we are working on this agenda in Mauritania and Senegal through our natural gas development projects. Our goal is to deliver the lowest carbon LNG projects, providing affordable gas to the local population and connecting to their considerable future capacity for renewables, especially solar and wind. This leads to our purpose as a company, a purpose that has the creation of social value at its heart.

First, Kosmos is going to supply the energy needed today. Demand forecasts show the world will need oil for the immediate future, and we can provide oil that's advantaged, low cost, short cycle, and at the lower end of carbon intensity in its production. Not every barrel is the same. Second, Kosmos is going to find and develop cleaner energy for tomorrow. Our portfolio will have a greater focus on gas.

While I fully expect the energy mix to maximize the use of renewables, the world cannot achieve the Paris goals without natural gas playing a major role in the energy transition. Natural gas emits about 50% less carbon dioxide than coal and power generation. It's more reliable than wind or solar. And finally, Kosmos is going to continue working in the right way as a force for good in our host countries, supporting economic and social progress. By staying true to this purpose, we believe we can generate attractive long term shareholder returns and advance the societies in which we operate while working in a sustainable way.

Turning now to slide 11. We take our cue from the UN Sustainable Development Goals, which provide a template for how our actions can impact the greater good. Kosmos contributes to all the Sustainable Development Goals, but in some areas the impacts are larger. For example, in Mauritania and Senegal, as I mentioned earlier, our natural gas projects are being developed with a potential tie in to renewables. They will provide affordable and cleaner energy that both countries can use to develop their economies, reducing poverty and improving infrastructure.

Across our footprint in Africa, we employ a 100% local nationals in our offices, providing meaningful work and economic opportunity while also promoting gender equality. Through the Kosmos Innovation Center, we're fostering innovation in sectors like agriculture, as well as investing in young people who aspire to be entrepreneurs. Turning now to slide 12. Our business principles shape how we manage the company. They support strong ESG performance and are reinforced by underlying policies, some of which are industry leading.

For example, Kosmos has been at the forefront of contract transparency for nearly a decade, commended by key NGO partners such as the Extractive Industries Transparency Initiative. As far as we know, Kosmos is the only oil and gas company to publish all its petroleum agreements with host countries. In addition, we publish our payments to governments at the project level. We take these actions because they're the right thing to do and because we believe resource revenues are more likely to be managed in the best interest of citizens when payments and receipts are made transparently and when you can promote accountability. I share these examples because I want to show you that Kosmos is not afraid to be progressive.

We're not afraid to be transparent. We are committed to bringing a similar approach to how we manage climate change risk. On slide 13, you can see an overview of our climate policy, which is now being published in full on our website. It represents an integrated approach to managing climate related risks and follows the recommendations of the Task Force on Climate Related Financial Disclosure, or TCFD. The policy is fully embedded in our business from the board to day to day operations.

To have an impact, you need the right governance structures, clear performance targets, and a plan for eliminating or mitigating emissions. Engagement and transparency are essential. Slide 14 shows our governance model and transparency commitments. The governance structure ensures that climate change gets the attention it deserves every level of the company. As part of the governance, we have set performance targets linked to compensation, a way to hold everyone, including myself and the rest of my leadership team, accountable for delivering on climate related initiatives.

Regarding transparency, we have made several commitments to help shareholders better understand the work we're doing. In addition to submitting data to CDP again this year, we will publish our first Climate Risk and Resilience Report that expands upon the information we share today and aligns with TCFD recommendations and SASB guidelines. To provide broader information about our ESG related activities, we will also publish a comprehensive sustainability report that builds on our historic disclosures in an easily accessible format. Turning now to slide 15. I want to talk about how we look at our current portfolio through a climate lens, first from a Scope one and Scope two perspective.

Kosmos is well positioned to thrive during the energy transition. The portfolio is built on a foundation of advantaged oil and gas, both low cost and at the lower end of the spectrum in terms of carbon intensity in production. Not every barrel of oil or cubic foot of gas is the same, and ours are better than most. In a low carbon future, advantaged oil and gas will be the first to be purchased and the last to be shut in. The chart on the left shows how our oil producing assets in the Gulf Of Mexico, Ghana and Equatorial Guinea compared to the global average in terms of carbon intensity.

In particular, I want to point out the competitiveness of the deepwater Gulf Of Mexico versus the Permian. Based on an expert third party analysis of public data, carbon intensity is twice as high in the Permian Basin compared to the Gulf Of Mexico. The advantage stems from the natural aquifer drive, which requires no gas or water injection, an abundance of existing and available infrastructure, no routine flaring and no fracking. The chart on the right shows how the three phase Tortue project compares to other notable LNG developments. The project is expected to be at the lower end of the carbon intensity scale with future phases benefiting from a feed of renewable power.

Slide 16 describes the work we're doing to measure, reduce and mitigate emissions from our current portfolio. We have calculated our Scope one and Scope two operated emissions. Today, we announced our goal to achieve carbon neutrality for these emissions by 2030 or sooner. To meet this target, we will work with our service providers, as drilling and seismic contractors, to minimize our carbon footprint. Any emissions that cannot be eliminated will be mitigated through nature based solutions.

We have more work to do on Scope three emissions. The first step is to develop a trusted methodology for measuring our Scope three emissions across the value chain, particularly the end use of our products. This is challenging for a pure upstream company because we don't always have clear line of sight into where our oil is refined or how the derivative products are used. Nonetheless, we know Scope three emissions are ultimately the governing yardstick if we are to help meet the Paris goals. I pledge today that we will provide a plan for addressing them once we have completed the work to understand the scale of the issue as it applies to Kosmos.

Turning to slide 17. On mitigation, we have joined two established reforestation projects, one in Ghana and one located along The US Gulf Coast, with carbon credits allocated to these projects through an agreement with Shell. In addition and in keeping with our role as an offshore operator, we're putting our entrepreneurial spirit and commitment to innovation behind a leading edge Blue Carbon initiative. Blue Carbon is the ability of tidal wetlands and seagrass habitats to capture and store CO2 acting as vast carbon sinks. We're investing forefront of wetlands restoration and blue carbon markets.

Tiara runs a project that redirects treated municipal wastewater onto eight fifty acres of project lands, accelerating tree growth and soil carbon sequestration, supporting biodiversity and increasing coastline resilience. Sierra has also developed a novel approach to quantifying the benefits of restoration activity, proving its impact on climate change. The sequestration capability of blue carbon still needs to be fully recognized. This is precisely the kind of innovative thinking required to tackle climate change. With our strong aboveground expertise, honed by the Kosmos Innovation Center and other initiatives, we're planning to support the expansion of this groundbreaking work to other areas along The U.

S. Gulf Coast and other countries where we operate. Slide 18 describes the way we're fully integrating climate risk into our overall business strategy through scenario analysis. There's no universal methodology for climate scenario analysis, and approaches continue to evolve. At Kosmos, we've developed a robust process supported by a leading independent sustainability firm, and with guidance from climate experts across industry, the investment community, and civil society.

In our climate modeling, we looked at the ways in which different transitions to a low carbon economy could impact the value of our assets. We've selected three external publicly available scenarios outlined in the International Energy Agency's 2018 World Energy Outlook as the basis for our analysis, including a sub two degree scenario aimed at delivering the Paris goals. The independent sustainability advisor, Critical Resource, modeled how the transitions outlined under each of these scenarios would impact three value drivers: hydrocarbon prices, country risk and fiscal take. Of these value drivers, changes in hydrocarbon prices have the biggest impact on valuations. However, we recognize that the energy transition will have other effects.

We therefore incorporated two additional factors, country risk and fiscal take in the countries where we operate into our scenario analysis. It's important to note that the purpose of these scenarios is to better understand the relative impacts on our portfolio and these are not company asset forecasts. Slide 19 shows the potential impacts that the climate scenarios could have on the net present value or NPV of our assets, thereby testing the resilience of our portfolio to climate risk. So what did we learn? First, our portfolio is resilient.

Under the sustainable development scenario, a sub two degree world, all of our current projects remain strongly NPV positive. This reflects a climate resilient portfolio that can continue to meet global energy demand. Second, our oil assets, which are generally short dated, see very limited impact to their NPVs. Our Gulf Of Mexico and Ghana assets see almost no value erosion. Both assets are relatively short dated.

The Gulf Of Mexico having fast paybacks and Ghana having license expiry in the mid 2030s. Third, country risk and fiscal take and the different climate scenarios may have some impact. Our Equatorial Guinea asset could face greater potential value erosion than Ghana, despite a similar production life, given the greater dependency of Equatorial Guinea on oil revenues. Fourth, our Mauritania Senegal LNG assets provide cleaner sources of energy into the long term. The NPV of our Mauritania Senegal asset is impacted to some degree under the sustainable development scenario as a result of the asset's longevity.

However, the impact is not significant, largely because natural gas is recognized in these scenarios to be a key energy source for meeting global energy demand over the medium term. Fifth, long dated oil exploration faces significant value erosion and experiences the greatest value impact under the scenarios. This exercise has led to strategic decisions regarding our portfolio, as noted on slide 20. In the immediate future, we will continue to meet current demand for oil through short cycle infrastructure led exploration in the proven basins of the Gulf Of Mexico and Extraordinary Guinea, because new discoveries in these areas can be tied back to existing assets on accelerated timelines at low cost with lower overall carbon intensity in production. To remain relevant through the energy transition, we intend to increase the gas weighting in our portfolio with exposure to around 5,000,000 tons per annum of LNG net to Kosmos versus 3,000,000 tons per annum if we sold down to 10% across the MauritaniaSenegal Basin.

To achieve this, we plan to partially monetize other MauritaniaSenegal assets in order to fund and retain a larger interest in the Tortue development. As I said earlier, I believe gas will play a critical role in the energy transition and therefore retaining a larger interest in Tortue is the right thing to do. It has all the characteristics of a successful LNG project: cost competitive, lower carbon intensity, and is set to begin production at the right time in the market. In addition, we will not pursue new basin opening oil exploration. We have a strong portfolio of frontier opportunities in Namibia, South Africa, Sao Tome, Equatorial Guinea and Suriname.

We will efficiently test these opportunities, but not seek access to new frontier oil basins. In essence, we'll use our short dated oil production to finance the move towards medium to long term natural gas projects, all while delivering shareholder returns. We believe these portfolio decisions meet both our financial duties to our shareholders and Kosmos' purpose and responsibilities to all stakeholders. On slide 21, to summarize this section before moving on, Kosmos has a role to play in the energy transition and our approach will bring innovation and new technologies to the challenge. We are responding fully to the UN Sustainable Development Goals by providing affordable and cleaner sources of energy and investment to fuel the economic growth in less advantaged countries.

We have a clear policy on managing climate related risk with board level oversight and executive accountability. It's our goal to achieve Scope one and Scope two carbon neutrality for our operated emissions by 2030 or sooner, including by developing innovative nature based carbon capture projects. We are committed to measuring and addressing Scope three emissions. We will publish later this year a TCSD aligned climate risk and resilience report that is consistent with our transparent approach to doing business. We have completed a robust risk analysis, resulting in actions to continue to expand our short cycle ILX portfolio, increase natural gas weighting in our portfolio and stop seeking access to new frontier oil basins.

With our purpose and strategic direction for the company, I'd now like to look at our activity set for 2020 and the associated targets. Turning to Slide '23, which shows our forecasted production by geography for 2020. Company wide, our production range for the year is 62,000 to 70,000 barrel oil equivalent per day or 66,000 barrel of oil equivalent per day at the midpoint. In Ghana, as you're aware, the operator published initial 2020 guidance last year following a change in senior management. Since then, we've worked with the operator to address the issues outlined in their December press release and we're making good progress.

At Jubilee, the fundamental issue is that oil production is limited by the associated gas rate. The first step we've taken to increase the oil rate is the gas handling expansion project, which was successfully completed in early February and has enabled higher gas throughput. Daily production levels of around 90,000 barrels of oil per day have now been achieved. Work is also underway to increase the reliability of gas compressors, which should enable us to continue producing at this rate. As we increase the gas production capacity, we also need to focus on lowering the gas oil ratio or GOR of the reservoir to further enhance the oil rate.

We're tackling this on two fronts and are making good progress. First, improving the reliability of the water injection pumps, which increases the voidage replacement and provides the necessary pressure support needed to lower the field wide GOR. Second, increase the gas offtake from the field by working with the government to ensure more of Jubilee gas is used for domestic power consumption. In addition, we have a rig contracted for the first six months of the year in Ghana and expect to add one producer and two water injection wells in Jubilee, which should further support field performance. As we highlighted in our recent reserves press release, the underlying reservoir performance at Jubilee has been strong.

So resolving the facility issues to drive better performance remains our priority. On 10, we are currently drilling a producer well on Entome, which should increase production when it comes online in April. At Enyenra, we're working with the operator to understand the water injection response of the reservoir to optimize the location of wells post 2020. As a result, we estimate a production range from Ghana in 2020 of 27,000 to 29,000 barrels of oil equivalent per day net to Kosmos. The lower end of our range encompasses the operator's December guidance.

In the Gulf Of Mexico, production remains strong, setting a new record in the fourth quarter with a tie in of Gladden Deep and Nearly Headless Nick. We're currently drilling an infill well in Kodiak, which we expect to come online in early 3Q. Our forecast range for the GOM in 2020 is 24,000 to 28,000 barrels of oil equivalent per day. In Equatorial Guinea, we're currently working through the upgrade of the Kume facilities required for Phase two of our ESB program, which we anticipate will begin in 4Q. Later this year, we plan to drill our first two infill wells as part of a jackup program that will likely continue into 2021.

Net production for the year is expected to be 11,000 to 13,000 barrel oil equivalent per day. Turning to Slide 24. I'd now like to focus on our portfolio in the GOM and EG, starting with the Gulf Of Mexico. As previously communicated, we expect to drill three ILX wells in 2020 from five high graded prospects beginning midyear. Spencer and Tiberias are two prospects in Keathley Canyon within tieback range of the Lucius Spar that could potentially be drilled with a single well.

Spencer will test a Pliocene prospect, while Tarberis will test a deeper Wilcox prospect. We have also high graded the Zura, Honeyrider and Highland Rim prospects. Zura and Honeyrider are Miocene amplitudes in a new mini basin adjacent to our Odd Job field. Highland Rim is also another Miocene amplitude in tieback range of Devil's Tower. All of these prospects share similar financial characteristics tiebacks to existing infrastructure resulting in high return fast payback projects.

Turning to slide 25. This looks at the depth of the portfolio we've built in the GOM since the acquisition. Through a combination of lease sales and farming activity, Kosmos now has 23 prospects across 71 blocks or approximately three seventy five million barrels oil equivalent of net unrisked resource in total. To put that in context, this resource potential compares to around 80,000,000 barrels of net 2P reserves we currently have booked. That deep hopper of opportunities amounts to over five years of future drilling inventory at three to four wells a year.

We will continue to pursue attractive opportunities in future lease rounds, where we continue to experience low levels of competition. Turning to slide 26, moving now to Equatorial Guinea. Following the S-five discovery, now named Assam, we are advancing the development concept and integrating well results and the final seismic volumes into our models. Second half of the year, we'll focus on optimizing the development concept. Assam was our first ILX target, identified from a fast track portion of the new seismic across all of our blocks in EG.

In March, we expect delivery of the final PSDM seismic volumes, and there are several leads that have been identified, as you can see on the map on this slide. Through 2020, we'll continue to analyze this data and high grade ILX opportunities ahead of drilling as early as 2021. Turning to Slide '27. Post the successful exploration appraisal campaign in 2019, Kosmos now has three very distinctive and material assets in Mauritania and Senegal. Tortue is currently under development and is on track to deliver first gas in the first half of twenty twenty two.

In 2020, we expect to move the project around 70% completion by year end. The Yakaar Taranga hub is in the appraisal phase and we expect to begin pre FEED work on the Phase one domestic gas scheme during the year. Borrelo is the newest of the three hubs with around 50 Tcf of gas in place now derisked with the Orca one success. BP Cosmos and SMH PM will begin appraisal activity in 2020. As I discussed earlier in the presentation, our position in the world class Mauritania and Senegal gas basin, a source of low cost, lower carbon LNG, is core to the strategy of the company, and we've decided to retain a greater interest in the Tortue project.

We still have more gas resource than a company of our size can develop, and we're focusing on monetizing either a smaller portion of Tortue or a larger portion of the remainder of our Mauritania Senegal portfolio to fund the increased interest in Tortue, with the goal to deliver a self funded long term source of cash flow to the company. With the right portfolio management, we believe we can retain close to the 5,000,000 tons per annum, while keeping the balance sheet of the company protected. It's worth remembering the fundamental characteristics of an LNG project. Once they're on stream, they deliver a reliable brick of cash flow for many years, which provides a solid foundation for the company. Each additional 1,000,000 ton per annum of LNG post development could deliver free cash flow of 100,000,000 to $150,000,000 per year for twenty plus years.

Buyer interest in the three assets remains strong, and we're currently in the process of sharing the data acquired in the 2019 exploration appraisal activity. Buyer pool includes end users, utilities and super majors. Slide 28 looks at our basin opening exploration portfolio, which includes well defined quality exploration opportunities in promising basins. Sao Tome Principe and outboard Equatorial Guinea, Namibia and Suriname. Our objective is to test these basins with key wells in twenty twenty, twenty twenty one, ensuring our capital is used efficiently.

In 4Q twenty twenty, we expect to drill the Jaka prospect in Block 6 offshore Sao Tome And Principe. Jaka is a four way prospect, which is ABO support and is one of several similar prospects in the area. Our partners in the well are Shell following their recent farm in GALP and the National Oil Company. We then plan to drill in Namibia and Suriname in 2021. In Namibia, we have partnered with Shell and Namcor, and we have several cretaceous prospects in PL-thirty 9, where Kosmos has a 45% working interest.

We're working with our partners to finalize our drilling plans in 2021. In Suriname, where we're partnered with Hess and Chevron, we are encouraged by Apache's recent success in the block to the south. There are several other important wells being drilled in neighboring blocks during 2020, which will provide important data points as we high grade the prospect for drilling in 2021. The price from this activity remains significant. Kosmos' net unrisked resource potential in these three basins is over 6,000,000,000 barrels equivalent.

The strategic challenge is to ensure that with success, these resources can be developed in an accelerated timeline with low cost and low carbon. Turning to Slide 29, we look to the capital plan for the year. As we've done in previous years, this slide sets out the CapEx breakdown by geography and by expenditure time. The capital expenditure budget for the base business, I. E, excluding Mauritania and Senegal, is $325,000,000 to $375,000,000 and will be primarily focused on maintaining the existing production base with growth coming from ILX.

As a result, we would expect free cash flow pre dividends of 150,000,000 to $200,000,000 at $60 Brent in 2020. In Mauritania and Senegal, total CapEx during the year for a full 30% working interest is expected to be around $250,000,000 which is second half weighted after we have used up the BP development carry. We expect to fund this CapEx from proceeds from one of the previously discussed farm out transactions. Turning to Slide 30, the guidance for the year. We have split the 2020 guidance into current quarter and full year guidance as we've done in the past.

I don't plan on covering everything on the slide, but one aspect I would like to mention is the timing of cargoes. We expect 10 Ghana cargoes in total, seven from Jubilee and three from TEN, and 4.5 from EG. That concludes today's presentation. So, to summarize on slide 31. Kosmos performed well in 2019 with safe operations and strong cash delivery.

We're integrating climate risk into our strategy and see the energy transition as a major opportunity for progressive companies like Kosmos to play a role in achieving the Paris goals and be part of the solution. And finally, we see twenty twenty as another year of strategic progress for the company underpinned by strong free cash flow delivery. Thank you. And I'd now like to turn the call over to the operator to open the session for questions.

Speaker 0

Thank you. We will now be conducting a question and answer session. Our first comes from the line of Charles Meade with Johnson Rice. Please proceed with your question.

Speaker 3

Good morning, Andy. Andy, to you and your team there.

Speaker 2

Good morning, Charles. Yes,

Speaker 3

I want to just go clarify something you said in your prepared comments and I just wanted to see if you would elaborate a little bit more on it. So I get that you're not gonna sell the full, 20% targeted working interest at least in this Tortue LNG, but you did identify the possibility that you may would sell some smaller portion. And I wonder if you could kind of confirm that that's the right interpretation and then help us understand how you're making the decision about how much you're going to sell in this Tortue FLNG?

Speaker 2

Yes. Thanks, Charles. If you look at the assets that we've got in Mauritania Senegal, we have three distinct assets at different stages of their maturation. We got the project going in Tortue, Phase one going well, first gas targeted for 2022, Phase two and three to follow. We then got an appraisal project in Senegal, Yakaar, Turanga, have success with the appraisal of Yakaar and we have a concept being worked for early gas to power supporting the government's transition to a lower carbon future.

And ultimately we have Orca, which is the third hub, which is another world class LNG opportunity. So three hubs and if you took off sort of 30% share 10,000,000 tons, you've got around sort of 10,000,000 tons of potential there. Ultimately, we believe something about half that size is the right size for Kosmos around 5,000,000 tons. And we're waiting that to the projects that are going to sort of deliver earlier cash flows, which would be a slightly higher weighting in Tortue. So the sell down process is proceeding well.

We've got sort of three distinct assets. They each have different optionality for buyers. And I think it's the combination of the different attributes to the assets has broadened the buyer pool for us and it gives us the optionality as Cosmos to tune the portfolio into one which we believe is ultimately the best for our shareholders. So that's the process that we're going through. And we feel good about building a future for Kosmos, which has these core LNG assets at its heart.

Speaker 3

Got it. And then if we could talk about the not seeking to enter new oil basins. Is this is it right to think about this? This is kind of implicitly a call on your part or on the part of the company that the economics ultimately, even though LNG is spot LNG is weak now, but ultimately the economics of LNG developments are going to be more attractive

Speaker 2

Yes, that's absolutely the point we're making. And I think it's driven by sort of two drivers. Think we as you saw in the presentation, we've done a lot of work to conform with the TTFE requirements to understand climate risk. And we're putting out a full report later in the year. But what it fundamentally sort of sense is, if you see a world where you can foresee peak oil demand, ultimately you're facing a world where the margin for oil is going to be challenged.

I think the world for gas is different. I think you're going to see growing demand and I think it's quite interesting that Shell went out with their presentation. I think last week they talked about the doubling for doubling of LNG demand in next twenty years. If you think about the length of time it takes to get an LNG project going, I think that's a very significant prognosis. So the world of oil is going to be driven by things that are ultimately low cost.

They have to be low carbon in their production, but also short cycle, things where you know you can get your money back. And that's where we're going to focus our oil exploration and we've built a really good portfolio. We believe in a long term demand for gas that is resilient, but actually lots of gas in the world. So you've got to be low cost and low carbon to compete. And ultimately, the challenge is around in a frontier oil basin, if you were sort of entering it, trying to get access today, you shoot your seismic, you ultimately get to something where you have an exploration success maybe by the middle of this decade.

Then you go through the project phase and you're at the end of the decade, significant infrastructure in place that you have to remunerate and pay back in a world where there is margin pressure. So this is fundamentally about where we believe we can allocate capital to deliver the best returns for our shareholders. And in a broader sense for our stakeholders, it is about playing our role to a transition supporting lower carbon world, where ultimately you will need more renewables and more gas.

Speaker 3

Got it. Thank you. That's the details I was looking for.

Speaker 2

Great. Thanks Charles.

Speaker 0

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

Speaker 4

Hi, good morning. Could you talk a little about contingency planning? I'm thinking particularly if Brent is in 60 and if the farm out proceeds don't arrive, how do you balance the call on CapEx against cash flow?

Speaker 2

Yes. So the first contingency planning is all around hedging, Bob. So we've got 60% of our 2020 production hedged at 4 a 59. So and about 20 of 2021 that's slightly higher around 60. Yes.

So we've actually got a very well hedged position, which allows us to manage what I think is an uncertain future at the moment in terms of oil price volatility.

Speaker 4

And then in terms of the farm out proceeds not arriving?

Speaker 2

I think it's a question of timing. And we're working hard through the process. At the moment, we've got a number of options that are out there. So the contingency is all about the pace of the various options. So we remain optimistic that we've got enough options there to be able to deliver the outcome that we're forecasting.

Speaker 4

Okay. I guess my sense is contingency planning is what happens when the optimistic view doesn't occur. So in the case where the call on CapEx is $2.50, but free cash flow is 150 to 200 at 60, do you use the balance sheet, do you use debt? How do you square those two?

Speaker 2

Yes, we've ultimately, if we have to pull back on it, we've done an awful lot to repair the balance sheet over the last couple of years. So liquidity sits at over $800,000,000 So we've got the balance sheet strength. We've removed taking the gearing down to around 1.8. So ultimately we've got the full box option of the balance sheet if we have to. But ultimately, it is about ensuring that we can move through with the sell down processes and move forward on that basis.

Speaker 4

Okay, great. Thank you for that.

Speaker 2

All right. Thanks.

Speaker 0

Thank you. Our next question comes from the line of David Round with BMO Capital Markets. Please proceed with your question.

Speaker 5

Hi, Andy. Thanks for the presentation. Just got a couple on West Africa. First one, Jubilee, I think you talked about plans to try and maintain production matter around current levels, which would be a pretty good outcome given where guidance has gone to. But I was just interested in dynamic with the operator, particularly at the moment given the leadership changes there and your ability to actually do a lot of the work you actually want to do and you talked about earlier?

And maybe the second one, just a follow-up on the sell down process. I think you've said the preferences for Tortue is around access to near term cash flows. But have you seen significantly different levels of interest for each hub? Does something like Berala's higher in place number make it a more attractive and marketable asset?

Speaker 2

Yes. Good. Thanks, David. I'll take the two questions. Starting off with Tollak.

Clearly, there's been a lot of change, change in the senior leadership. They've obviously announced significant downsizing and new people in post actually at many levels within. So I think overall, we actually see the change in organization in a positive way. The conversations that we've had over the last couple of months of allowing, I think real progress to be made on the agenda that we've outlined. On Jubilee, it's pretty simple agenda.

Literally get more water in the ground to lower GOR. It's about ensuring that you can handle a higher gas capacity and the project to demobilenet the tank system was successfully executed earlier this month. And then they sort of work with the government to take more gas out of the system. But overall, I feel as though there's real progress been made and feel that the approach that Tello has taken is pretty pragmatic and address the right issues. When it comes to Tortue and the broader conversation around the sell down of the assets, I think as you rightly said, they're very different.

And I think one of the challenges we had when we had initial marketing was that we actually haven't had the success with the appraisal of Tortue or the appraisal of the Yako or the exploration success of Borrelia. So you've got three very distinct assets and I think breaking it out into three packages has allowed us to have very different conversations. There are some that are looking exploration potential and the sort of long dated nature of the assets and the exploration upside. Now there is a deeper apt in play in Verala that we that's yet to be tested. So those are our options that certain players are looking for.

Others are looking for a near term source of LNG production, which sort of brings you to the Tall Tube hub. So I think overall, we would start, I would say that the sell down process because of the different attributes in the assets is has been actually been strengthened because of the distinct buying requirements of the different people that are involved. And I think the other thing I would say has changed massively as we've gone through the process is from an ESG perspective, the world is actually very different a year on from when we started. And I think a greater alignment around the role that renewables and gas will play in the future is causing a different conversation as well.

Speaker 5

Okay. Thanks, Andy. Appreciate it.

Speaker 2

Great. Thanks.

Speaker 0

Thank you. Our next question comes from the line of Richard Tullis with Capital One Securities. Please proceed with your question.

Speaker 6

Hey, thanks. Good morning, everyone. Congratulations to Tom and Neil. Andy, when you look at the total company production profile until Tortue Phase one arrives, do you look at it as kind of a flattish production level similar to 2020?

Speaker 2

No, we see growth coming from the ILX opportunities. And we've seen growth actually in the Gulf Of Mexico. When we took the asset on, it was less than 25,000 barrels a day. We're forecasting a range up to 28,000 barrels a day for this year. So and that's come from the tie back of the initial successes that we have in Gladden and Nearly Headless Day.

So these things have a relatively fast time to production. So in terms of the medium term, the growth is going to come from ILX success. So we've got a three well program in the 2020 in the Gulf Of Mexico. We've got the work that we're doing on the Assam discovery in actual Guinea, that's coming on. And then also actual Guinea, we've got a program of infill wells supported by the ESP.

So I think the growth in the near term is going to come through from those short dated faster payback ILX development type opportunities and then you have the growth coming in from the start of Tortue Phase one.

Speaker 6

Okay. That's helpful. So the way to look at it is growth in 2021 and kind of flattish in 2020?

Speaker 2

I think flattish in 2020. I think that's the guidance that we've given today. It's flattish in 2020 and then growth thereafter.

Speaker 6

Okay. And then going back once again to the farm down process, kind of what are you looking at for the near term milestones? I mean, do you think you might be able to announce something definitive there?

Speaker 2

Yes, Richard, think what you got to I'm not going to box myself in and sort of negotiate in a way where I set myself off their lines that I have to meet with an external market. We're clearly focused on the outcome, which is to ensure that we deliver what we need to deliver to deliver the cash outcome for 2020 and that's the goal.

Speaker 7

Okay. That's fine.

Speaker 8

Thank you.

Speaker 2

Right. Thanks.

Speaker 0

Thank you. Our next question comes from the line of Pavel Molchanov with Raymond James. Please proceed with your question.

Speaker 9

Thanks for taking the question. You talked about helping provide gas for the local economy in Senegal. Just to clarify, what percentage of the Tortue projects output will be going into the domestic market? And do you have a sense of what the pricing on that will be?

Speaker 2

Yes. For Bortugi, it's relatively minor. It's 35,000,000 standard cubic feet will go to Mauritania, 35,000,000 standard cubic feet will go to Senegal. And the pricing will sort of be driven by equivalent sort of offtake pricing from LNG. But it's a very, very small percentage of the revenue stream, very small.

Ultimately, what you're looking to do in the future is Mauritania is a relatively small country in our population for 4,000,000. Its power demands are relatively low. And so a 35,000,000 scuff feed gives them a significant base load of gas power, where they can displace the current diesel in the power station. But then actually link that to a solar fee and a wind fee, which provides then a very quick and rapid transition to a cleaner powered economy. But based on from the place of having a very low population base today, which means that the physical quantity is quite small.

Speaker 9

But one more question on the ESG strategy. To get to that net zero by 02/1930, do you plan to use carbon capture at any of your operations?

Speaker 2

Yes. Now what we're going to use is nature based solutions, which is what we know what I talked about in the presentation, Pavel. So we admit today in new scope one, scope two definition, our operating activities about 80,000 tons of CO2 equivalent, that was 2019. That's driven primarily by our drilling activities, seismic activities. So the conversation with our both of our contractors in both those phases, how do we drive efficiency.

We won't get to net zero through that. Therefore, it's about using other methods of capture. So nature based solutions are the ones that we're going to focus on. Why? Because we're actually they have a broader ESG impact in the countries in which we work.

Their reforestation projects in Ghana, reforestation projects in the Gulf Coast and they employ people, provide investment, they improve the local environment. So those are things that we're focused on and we're also it's early stages, but the blue carbon approach we're taking to weapon restoration in the Gulf Of Mexico is another really novel approach which has broader applications. So it's how do we pull those technologies, emerging technologies together with our operated footprint And we're confident that we can get to net zero on an operated basis by 2030 or sooner.

Speaker 9

All right. Thank you very much.

Speaker 2

All right. Thanks.

Speaker 0

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

Speaker 7

Hi, good afternoon. My question is I'd like to just go back towards where we were last year in the CMD and there was three longer term or medium term outlooks put out the 810% CAGR growth in production, a billion dollars free cash flow at $60 Brent to 2021, and a target leverage at between one to 1.5 times. Now there's been a lot of things that have gone very well this year, and arguably, Ghana is the is the only and non operated position that has has really been the the backward step. So I'd just like to know where those those 03/2021 targets stand and is it only Ghana that has been the change, if indeed there has been a change?

Speaker 2

Yes, think when you look back at that, I think, Mark, I think a lot has changed. I think in terms of when we were talking about those targets, were talking about only holding 10% of our overall position in Mauritania. So I think we're targeting holding a larger amount. I think the ultimate sort of rate of growth in production sense, which is dependent on the growth of the portfolio coming in from Mauritania and Senegal is unchanged. I think probably the front end is slightly flatter, which is ultimately around the pace of the ILX delivery in the Gulf Of Mexico.

So I think if you were to look at the list of things that you've raised, I think absolutely, Ghana is less than we'd anticipated in that. I think it's we're headed in the right direction and we need to demonstrate the delivery from the operator, but I believe it's headed in the right direction. And then I think the other delta will just be the individual phasing of the ILX projects.

Speaker 7

Okay. All right. Thank you. If I could follow-up to ask about the carbon neutrality target, a very ambitious target by 2030 puts you at the forefront of such targets, I'd say, on a timeline. Could we ask about a capital commitment that might be required with investments into these natural solutions?

And could you tell us what the actual investment in Tiara Resources is?

Speaker 2

Yes. So if you look at it overall, Cosmos benefits from having a relatively small operator footprint. So from that sort of scope one, scope two perspective say about 80,000 tons of CO2 equivalent in 2019. It will vary depending on the quantum of drilling that's pursued. But with efficiency drives plus the investments in the nature based capture solutions, we've got a very clear plan on how we get to carbon neutrality by 2030 or sooner.

And the investment levels are less than $5,000,000 per annum to get us there. That's the level of expenditure we would envisage in the nature based solutions.

Speaker 7

Got it. Okay. And is that the level you've invested to date?

Speaker 2

It is. We're nowhere ramping up to be fair, Mark. We haven't I'd say there's a lot of expense 2020 will be the first year of actual dollars into nature based solution.

Speaker 7

Got it. Okay. And then lastly, if I may, just one last question on Ghana. I'd just like to know about the production levels at the moment at 90,000. Clearly, that means there's a gas solution getting a lot more sustainable.

I'm just wondering how the offtake scenario offtake levels of gas across the FPSO are going to look through 2020 or is it a case that the government has given a greater flexibility to flaring? Thank you.

Speaker 2

Yes, there's a lot going on in Ghana. As I said, I think we're headed in the right direction. What they the operator successfully done the capacity expansion which allows you to flow more gas through the system. There are some other operational issues that are going on in the first quarter. So not associated directly with our operations that the picking operation of the Western Gas Pipeline and then there's also a plant shutdown of the gas plant.

So as you go through those operational issues, they do affect the ability to off take the gas. So the government has given a dispensation for flaring while those issues are going on. And then the other item which the operators I think taking the right approach is we've increased the gas capacity. We've got to make sure that we don't overstress the rest of the system. And so the folks now is on the reliability of gas compression.

You're right to point out that the deposit flowering dispensation has helped with gas rates. But our objective is to establish once all the maintenance and so on is done onshore to and the system is fully reestablished that the government will actually increase gas offtake rates.

Speaker 7

Okay, great. Thank you very much. I'll hand it over.

Speaker 2

Great, thanks.

Speaker 0

Thank you. Our next question comes from the line of Al Stanton with RBC. Please proceed with your question.

Speaker 8

Yes. Good afternoon, guys. Can I just try and nail down some numbers in terms of the Tortue cost and carry and make sure that I've understood what you mean by post BP carry? So I'll give you my understanding and then you can correct me. So the way I understand it is that your $500,000,000 carry from BP will be used up by the middle of the year and then you're going to spend $250,000,000 in the second half.

So assuming even spending across 2020, that's your investment, 30% on Tortue is €500,000,000 And then if that's right, how complete will the project be at the end of this year, given it started at 25%? What will it be? And what should we be expecting in terms of spending in 2021?

Speaker 2

Yes, you got the numbers about right, Al. So if you think about it on a post the BP carry runs at about midyear and our exposure to full 30% is around $250,000,000 And at that point, the project is about 70% complete.

Speaker 8

Okay. Okay, fine. If I can do the other math between now and then.

Speaker 2

You do the math.

Speaker 8

And then if I if I can just ask a a second question. Can you see the three projects in in Mauritania and Senegal competing with each other? And would you be happy to have different stakes in competing projects?

Speaker 2

Yes, we would. And I don't think they compete. It's quite interesting. I think in Mauritania, there's work to be done in terms of fully describing the potential of the hub, the exploration that will take place. So that is kind of the focus there and how do you leverage the learnings from Tortue to sort of carry that forward.

Ultimately in Senegal, you have a project where you will bring forward a domestic gas scheme that is in accordance with the Senegal plan of Majeong, which is ultimately about how do they power in a very different population base to Mauritania. So I think they're going to be driven by the individual needs of the country rather than competing as individual projects. They're all good investments in themselves and will be driven by an aligned view of how the countries want to take them forward. So I think at the end of the day when you look at it from that perspective having different percentages in the different pieces is absolutely feasible. You're not going to be in a situation where one is being held ransom for the other project to go ahead.

It isn't going to work like that. They have very different agendas being driven by ultimately the different power needs of the countries and how they want to see their resources develop.

Speaker 8

Cool. Thank you.

Speaker 2

Great. Thanks,

Speaker 0

Thank you. Thank you. We have reached the end of our question and answer session. I'd like to turn the call back over to Jamie Buckland for any closing remarks.

Speaker 1

Thank you, operator. We appreciate all of you joining us on the call today and your interest in Kosmos. If you have any further questions, please don't hesitate to contact me. Thank you very much.

Speaker 0

Thank you. Ladies and gentlemen, this concludes today's teleconference. You may disconnect your lines at this time and thank you for your participation.