Kosmos Energy Ltd.: Form 10-Q for the period ended Jun 30, 2024

The following discussion and analysis should be read in conjunction with our consolidated financial statements and notes thereto contained herein and our annual financial statements for the year ended December 31, 2023, included in our annual report on Form 10-K along with the section Management’s Discussion and Analysis of financial condition and Results of Operations contained in such annual report. Any terms used but not defined in the following discussion have the same meaning given to them in the annual report. Our discussion and analysis includes forward-looking statements that involve risks and uncertainties and should be read in conjunction with “Risk Factors” under Item 1A of this report and in the annual report, along with “Forward-Looking Information” at the end of this section for information about the risks and uncertainties that could cause our actual results to be materially different than our forward-looking statements.

Overview

We are a full-cycle, deepwater, independent oil and gas exploration and production company focused along the offshore Atlantic Margins. Our key assets include production offshore Ghana, Equatorial Guinea and the U.S. Gulf of Mexico, as well as world-class gas projects offshore Mauritania and Senegal. We also pursue a proven basin exploration program in Equatorial Guinea and the U.S. Gulf of Mexico.

Globally, the impacts of Russia’s war in Ukraine, potential instability in the Middle East, a potential recession, inflationary pressures and other varying macroeconomic conditions have impacted supply and demand for oil and gas, which also has resulted in variability in oil and gas prices. The Company’s revenues, earnings, cash flows, capital investments, debt capacity and, ultimately, future rate of growth are highly dependent on these commodity prices.

Recent Developments

Corporate

In April 2024, in conjunction with the spring borrowing base redetermination, the Company executed an amendment and restatement of the Facility. As amended, the Facility size and borrowing base capacity is approximately $1.35 billion (increased from $1.25 billion) with current total commitments of approximately $1.21 billion. In April 2024, in connection with the amendment and restatement of the Facility, we also amended the Corporate Revolver, reducing the borrowing capacity from $250.0 million to approximately $165 million, with all of the commitments that were cancelled (either in full or in part) under the Corporate Revolver being transferred to the Facility as part of the amendment and restatement.

Ghana

During the second quarter of 2024, Ghana production averaged approximately 123,400 Boepd gross (41,900 Boepd net).

The Jubilee Field infill drilling campaign continued during the second quarter of 2024 bringing one water injection well and one production well online during the quarter. The rig contract concluded in the second quarter of 2024 completing the three year infill drilling campaign in Ghana. The partnership now plans to conduct a new 4D seismic survey starting in early 2025.

During 2023, the Jubilee partners reached an interim agreement to sell Jubilee Field gas at a price of $2.95 per MMBtu to the Government of Ghana. This interim gas sales agreement has been extended for a further 18 months to November 2025 at a price of approximately $3.00 per MMBtu.

U.S. Gulf of Mexico

Production from the U.S. Gulf of Mexico averaged approximately 11,700 Boepd net (~83% oil) for the second quarter of 2024.

In July 2024, we announced start-up of oil production at the Winterfell development in the Green Canyon area of the U.S. Gulf of Mexico (25% working interest). The Winterfell development project is a phased development with the initial two production wells of the first phase now online. The third development well was successfully drilled in the second quarter of 2024. We expect Winterfell-3 to be online by the end of the third quarter of 2024.

The Odd Job Field subsea pump installation project continued during the second quarter of 2024 and was successfully brought online in July 2024. The project is expected to sustain long-term production from the Odd Job Field.

In October 2023, we announced the Tiberius infrastructure-led exploration well, located in Keathley Canyon Block 964 in the Outer Wilcox play, encountered approximately 75 meters (250 feet) of net oil pay in the primary Wilcox target. Initial fluid and core analysis supports the production potential of the well, with characteristics analogous with similar nearby discoveries in the Wilcox trend. During the first quarter of 2024, Kosmos was awarded five blocks in the U.S. Gulf of Mexico Lease Sale 261, including three blocks nearby to our Tiberius discovery. In March 2024, Kosmos completed the acquisition of an additional 16.7% participating interest in the Keathley Canyon Blocks 920 and 964, offshore US. Gulf of Mexico. As a result of the transaction, Kosmos’ participating interest in the Tiberius discovery area increased from 33.3% to 50.0%. The Tiberius project continues to progress as a phased development, with a final investment decision expected later in 2024. Kosmos plans to farm down our participating interest to optimize our working interest to fit within the capital program for 2025 and beyond.

The Kodiak #3 infill well located in Mississippi Canyon was initially brought online in April 2021. The well experienced production issues and was shut-in. In March 2022, the Company commenced operations to plug back and side-track the original Kodiak #3 infill well. The Kodiak-3ST well was brought online in early September 2022. Well results and initial production were in line with expectations, however well productivity declined thereafter. Recent workover operations were completed in July 2024 and successfully restored well productivity.

Equatorial Guinea

Production in Equatorial Guinea averaged approximately 24,200 Bopd gross (8,500 Bopd net) in the second quarter of 2024.

The Ceiba Field and Okume Complex workover and infill drilling campaign commenced in the fourth quarter of 2023, completing one production well workover. However, as a result of safety issues with the drilling rig, the operator terminated the rig contract in early February 2024. In the second quarter of 2024, the partnership secured an alternative rig and drilling contractor to resume the drilling campaign. The infill drilling campaign re-commenced in July 2024 and is now planned to include the drilling and completion of two infill production wells in Block G with both wells expected online in the fourth quarter of 2024. Following completion of the second infill well, the rig is contracted to drill the Akeng Deep ILX prospect in Block S, with results expected around the end of the year.

Mauritania and Senegal

Greater Tortue Ahmeyim Unit

The Greater Tortue liquefied natural gas project continues to make good progress. The following milestones have been achieved:

• Drilling: The operator has successfully drilled and completed the first batch of four wells with expected production capacity significantly higher than what is required for first gas.
• Hub Terminal: The Hub Terminal has been handed over to operations.
• Subsea: The subsea workscope is progressing in line with expectations with final connection work ongoing. Mechanical completion for first gas is expected in August 2024.
• FPSO: The vessel arrived on location offshore Mauritania/Senegal during the second quarter of 2024 with mooring now complete. All risers were installed in June 2024 and commissioning is ongoing with handover to operations targeted for September 2024 with first gas expected shortly thereafter.
• FLNG: The vessel arrived on location offshore Mauritania and Senegal during the first quarter of 2024 and is now moored to the Hub Terminal. The partnership is working with the vessel operator to advance commissioning work and plans to bring in a pre-commissioning cargo to accelerate the cool down of the vessel in August 2024. First LNG is expected in the fourth quarter of 2024.

Yakaar and Teranga Discoveries

The Yakaar and Teranga discoveries continue to be analyzed as a joint development. The participating interests in the Cayar Offshore Profond Block are: Kosmos 90% and PETROSEN 10%, with PETROSEN having the right to increase its participating interest after issuance of an exploitation authorization to up to 35%. In March 2024, the current phase of the Cayar Block exploration license was extended an additional two years to July 2026. Kosmos has completed the concept development work and will now transition towards finalizing the partnership to support advancement of the project.

BirAllah and Orca Discoveries

In April 2024, the PSC covering the BirAllah and Orca discoveries offshore Mauritania expired. Kosmos continues to work closely with Mauritania’s national oil company (SMH) and the government of Mauritania to advance attractive gas opportunities in the country.

Sao Tome and Principe

In April 2024, we received approval for a twelve month extension to May 2025 for the current exploration phase for Block 5 offshore Sao Tome and Principe.

Results of Operations

All of our results, as presented in the table below, represent operations from Ghana, the U.S. Gulf of Mexico and Equatorial Guinea. Certain operating results and statistics for the three and six months ended June 30, 2024 and 2023 are included in the following tables:

(In thousands, except per volume data)

35

The following table shows the number of wells in the process of being drilled or in active completion stages, and the number of wells suspended or waiting on completion as of June 30, 2024:

The discussion of the results of operations and the period-to-period comparisons presented below analyze our historical results. The following discussion may not be indicative of future results.

Three months ended June 30, 2024 compared to three months ended June 30, 2023

(In thousands)

36

Oil and gas revenue. Oil and gas revenue increased by $177.6 million during the three months ended June 30, 2024, as compared to the three months ended June 30, 2023 as a result of higher sales volumes primarily driven by increased production at Jubilee, timing of our international oil liftings and higher average realized oil and gas prices. We sold 5,954 MBoe at an average realized price per barrel equivalent of $75.73 during the three months ended June 30, 2024 and 4,116 MBoe at an average realized price per barrel equivalent of $66.38 during the three months ended June 30, 2023.

Oil and gas production. Oil and gas production costs increased by $87.2 million during the three months ended June 30, 2024, as compared to the three months ended June 30, 2023 primarily as a result of increased sales volumes, higher production costs per barrel related to a TEN cargo lifting in Ghana, inclusion of operating costs associated with Greater Tortue Ahmeyim and workover costs in the U.S. Gulf of Mexico associated with Kodiak #3 well.

Depletion, depreciation and amortization. Depletion, depreciation and amortization increased by $0.2 million during the three months ended June 30, 2024, as compared with the three months ended June 30, 2023 primarily as a result of higher sales volumes during the quarter offset by a lower depletion rate per barrel in Ghana resulting from an increase in Jubilee reserves at the end of 2023 and a lower cost basis in our TEN Fields due to the impairment loss recorded in the year ended December 31, 2023.

Interest and other financing costs, net. Interest and other financing costs, net increased by $12.9 million during the three months ended June 30, 2024, as compared to the three months ended June 30, 2023 primarily as a result of a $22.0 million loss on debt modifications and extinguishments related to the amendment and restatement of the Facility during the second quarter of 2024 partially offset by increased capitalized interest related to the Greater Tortue Ahmeyim project.

Derivatives, net. During the three months ended June 30, 2024 and 2023, we recorded a gain of $2.9 million and a loss of $3.0 million, respectively, on our outstanding hedge positions. The amounts recorded were a result of changes in the forward oil price curve during the respective periods.

Income tax expense. For the three months ended June 30, 2024 and 2023, changes to our effective tax rates are driven by which tax jurisdictions our income before income taxes is generated. The jurisdictions in which we operate have statutory tax rates ranging from 0% to 35%.

Six months ended June 30, 2024 compared to six months ended June 30, 2023

(In thousands)

37

Oil and gas revenue. Oil and gas revenue increased by $202.5 million during the six months ended June 30, 2024, as compared to the six months ended June 30, 2023 primarily as a result of higher sales volumes primarily driven by increased production at Jubilee, timing of our international liftings and higher average realized oil and gas prices. We sold 11,653 MBoe at an average realized price per barrel equivalent of $74.66 during the six months ended June 30, 2024 and 9,618 MBoe at an average realized price per barrel equivalent of $69.40 during the six months ended June 30, 2023.

Oil and gas production. Oil and gas production costs increased by $96.8 million during the six months ended June 30, 2024, as compared to the six months ended June 30, 2023 primarily as a result of increased sales volumes, higher production costs per barrel related to a TEN cargo lifting in Ghana, inclusion of operating costs associated with Greater Tortue Ahmeyim and workover costs in the U.S. Gulf of Mexico and Equatorial Guinea.

Depletion, depreciation and amortization. Depletion, depreciation and amortization decreased $8.3 million during the six months ended June 30, 2024, as compared with the six months ended June 30, 2023 primarily as a result by a lower depletion rate per barrel in Ghana resulting from an increase in Jubilee reserves at the end of 2023 and a lower cost basis in our TEN Fields due to the impairment loss recorded in the year ended December 31, 2023 partially offset by higher sales volumes in the current year.

Interest and other financing costs, net. Interest and other financing costs, net increased $4.8 million during the six months ended June 30, 2024, as compared to the six months ended June 30, 2023, primarily as a result of a $22.0 million loss on debt modifications and extinguishments related to the amendment and restatement of the Facility during the second quarter of 2024 partially offset by increased capitalized interest related to the Greater Tortue Ahmeyim project.

Derivatives, net. During the six months ended June 30, 2024 and 2023, we recorded a loss of $21.0 million and a gain of $3.8 million, respectively, on our outstanding hedge positions. The changes recorded were a result of changes in the forward curve of oil prices during the respective periods.

Income tax expense. For the six months ended June 30, 2024 and 2023, our overall effective tax rates were impacted by the difference in our 21% U.S. income tax reporting rate and the 35% statutory tax rates applicable to our Ghanaian and Equatorial Guinean operations, jurisdictions that have a 0% statutory tax rate or where we have incurred losses and have recorded valuation allowances against the corresponding deferred tax assets, and other non-deductible expenses, primarily in the U.S.

Liquidity and Capital Resources

We are actively engaged in an ongoing process of anticipating and meeting our funding requirements related to our strategy as a full-cycle exploration and production company. We have historically met our funding requirements through cash flows generated from our operating activities and obtained additional funding from issuances of equity and debt, as well as partner carries.

Oil prices are historically volatile and a significant decrease in oil prices could negatively impact our ability to generate sufficient operating cash flows to meet our funding requirements. This volatility could also result in wide fluctuations in future oil prices, which could impact our ability to comply with our financial covenants. To partially mitigate this price volatility, we maintain an active hedging program and review our capital spending program on a regular basis. Our investment decisions are based on longer-term commodity prices based on the nature of our projects and development plans. Current commodity prices, combined with our hedging program and our current liquidity position support our remaining capital program for 2024.

As such, our 2024 capital budget is based on our exploitation and production plans for Ghana, Equatorial Guinea and the U.S. Gulf of Mexico, our infrastructure-led exploration and appraisal program in the U.S. Gulf of Mexico and Equatorial Guinea, and our appraisal and development activities in the U.S. Gulf of Mexico, Mauritania and Senegal.

Our future financial condition and liquidity can be impacted by, among other factors, the success of our exploitation, exploration and appraisal drilling programs, the number of commercially viable oil and natural gas discoveries made and the quantities of oil and natural gas discovered, the speed with which we can bring such discoveries to production, the reliability of our oil and gas production facilities, our ability to continuously export oil and gas, our ability to secure and maintain partners and their alignment with respect to capital plans, the actual cost of exploitation, exploration, appraisal and development of our oil and natural gas assets, and coverage of any claims under our insurance policies.

As of June 30, 2024, borrowings under the Facility totaled $750.0 million and the undrawn availability under the Facility was $455.0 million. Additionally, as of June 30, 2024, there were no outstanding borrowings under the Corporate Revolver and the undrawn availability was approximately $165 million.

Sources and Uses of Cash

The following table presents the sources and uses of our cash and cash equivalents and restricted cash for the six months ended June 30, 2024 and 2023:

(In thousands)

Net cash provided by operating activities. Net cash provided by operating activities for the six months ended June 30, 2024 was $496.2 million compared with net cash provided by operating activities for the six months ended June 30, 2023 of $222.0 million. The increase in cash provided by operating activities in the six months ended June 30, 2024 when compared to the same period in 2023 is primarily a result of higher sales volumes and higher average oil prices for the six months ended June 30, 2024 and changes in working capital.

The following table presents our liquidity and financial position as of June 30, 2024 and December 31, 2023:

(In thousands)

Capital Expenditures and Investments

We expect to incur capital costs as we:

• drill additional infill wells and execute exploitation and production activities in Ghana, Equatorial Guinea and the U.S. Gulf of Mexico;
• execute appraisal and development activities in Ghana, the U.S. Gulf of Mexico, Mauritania and Senegal; and
• execute infrastructure-led exploration and appraisal efforts in the U.S. Gulf of Mexico and Equatorial Guinea.

We have relied on a number of assumptions in budgeting for our future activities. These include the number of wells we plan to drill, our paying interests in our operations including disproportionate payment amounts, the costs involved in developing or participating in the development of a prospect, the timing of third‑party projects, the availability of suitable equipment and qualified personnel and our cash flows from operations. We also evaluate potential corporate and asset acquisition opportunities to support and expand our asset portfolio which may impact our budget assumptions. These assumptions are inherently subject to significant business, political, economic, regulatory, health, environmental and competitive uncertainties, contingencies and risks, all of which are difficult to predict and many of which are beyond our control. We may need to raise additional funds more quickly if market conditions deteriorate, or one or more of our assumptions proves to be incorrect, or if we choose to expand our acquisition, exploration, appraisal, development efforts or any other activity more rapidly than we presently anticipate. We may decide to raise additional funds before we need them if the conditions for raising capital are favorable. We may seek to sell assets, equity or debt securities or obtain additional bank credit facilities. The sale of equity securities could result in dilution to our shareholders. The incurrence of additional indebtedness could result in increased fixed obligations and additional covenants that could restrict our operations.

2024 Capital Program

We estimate we will spend around $750 million of capital for the year ending December 31, 2024 with the EG drilling campaign now included in our firm guidance, excluding any acquisitions or divestiture of oil and gas properties during the year. This capital expenditure budget consists of:

• Approximately $300 million related to maintenance activities across our Ghana, Equatorial Guinea and U.S. Gulf of Mexico assets, including infill development drilling and integrity spend;
• Approximately $350-$400 million related to the development of Phase 1 of Greater Tortue Ahmeyim in Mauritania and Senegal and Winterfell in the U.S. Gulf of Mexico;
• Approximately $50-$100 million related to progressing our infrastructure-led exploration and appraisal programs in the U.S. Gulf of Mexico, including Tiberius appraisal activities, and the drilling of the ILX prospect Akeng Deep in Equatorial Guinea, as well as the appraisal plans of our greater gas resources in Mauritania and Senegal, including the next phase of Greater Tortue Ahmeyim and Yakaar-Teranga.

The ultimate amount of capital we will spend may fluctuate materially based on market conditions and the success of our exploitation and drilling results among other factors. Our future financial condition and liquidity will be impacted by, among other factors, our level of production of oil and the prices we receive from the sale of oil, our ability to effectively hedge future production volumes, the success of our multi-faceted infrastructure-led exploration and appraisal drilling programs, the number of commercially viable oil and natural gas discoveries made and the quantities of oil and natural gas discovered, the speed with which we can bring such discoveries to production, our partners’ alignment with respect to capital plans, and the actual cost of exploitation, exploration, appraisal and development of our oil and natural gas assets, and coverage of any claims under our insurance policies.

Significant Sources of Capital

Facility

The Facility supports our oil and gas exploration, appraisal and development programs and corporate activities. The amount of funds available to be borrowed under the Facility, also known as the borrowing base amount, is determined every March and September. The borrowing base amount is based on the sum of the net present values of net cash flows and relevant capital expenditures reduced by certain percentages as well as value attributable to certain assets’ reserves and/or resources in the Jubilee and TEN Fields in Ghana and the Ceiba Field and Okume Complex in Equatorial Guinea. As of June 30, 2024, borrowings under the Facility totaled $750.0 million and the undrawn availability under the Facility was $455.0 million.

In April 2024, in conjunction with the spring borrowing base redetermination, the Company executed an amendment and restatement of the Facility. The amendment includes the following material changes: an increase in the Facility size and borrowing base capacity to $1.35 billion (from $1.25 billion), an increase in the interest margin by 0.25% or 0.50%, depending on the length of time that has passed from the date the Facility was entered into, and an extension in the tenor by approximately three years (final maturity date now occurs December 31, 2029). The amended Facility size and borrowing base capacity of approximately $1.35 billion is currently capped by total commitments of approximately $1.21 billion. The available facility amount is subject to borrowing base constraints and, beginning on April 1, 2027, outstanding borrowings will be constrained by an amortization schedule.

The Facility provides a revolving credit and letter of credit facility. The availability period for the revolving credit facility expires one month prior to the final maturity date. The letter of credit facility expires on the final maturity date. As of June 30, 2024, we had no letters of credit issued under the Facility. We have the right to cancel all the undrawn commitments under the amended and restated Facility.

If an event of default exists under the Facility, the lenders can accelerate the maturity and exercise other rights and remedies, including the enforcement of security granted pursuant to the Facility over certain assets. We were in compliance with the financial covenants contained in the Facility as of March 31, 2024 (the most recent assessment date). The Facility contains customary cross default provisions.

Corporate Revolver

The Corporate Revolver is available for general corporate purposes and for oil and gas exploration, appraisal and development programs. In April 2024, in connection with the amendment and restatement of the Facility, we amended the Corporate Revolver reducing the borrowing capacity from $250.0 million to approximately $165 million. All of the commitments that were cancelled (either in full or in part) under the Corporate Revolver were transferred to the Facility as part of the amendment and restatement. There is no change to the final maturity date of December 31, 2024. As of June 30, 2024, there were no outstanding borrowings under the Corporate Revolver and the undrawn availability was approximately $165 million with an expiration date of December 31, 2024.

The available amount is not subject to borrowing base constraints. We have the right to cancel all the undrawn commitments under the Corporate Revolver. We are required to repay certain amounts due under the Corporate Revolver with sales of certain subsidiaries or sales of certain assets. If an event of default exists under the Corporate Revolver, the lenders can accelerate the maturity and exercise other rights and remedies, including the enforcement of security granted pursuant to the Corporate Revolver over certain assets held by us.

We were in compliance with the financial covenants contained in the Corporate Revolver as of March 31, 2024 (the most recent assessment date). The Corporate Revolver contains customary cross default provisions.

The U.S. and many foreign economies continue to experience uncertainty driven by varying macroeconomic conditions. Although some of these economies have shown signs of improvement, macroeconomic recovery remains uneven. Uncertainty in the macroeconomic environment and associated global economic conditions have resulted in extreme volatility in credit, equity, and foreign currency markets, including the European sovereign debt markets and volatility in various other markets. If any of the financial institutions within our Facility or Corporate Revolver are unable to perform on their commitments, our liquidity could be impacted. We actively monitor all of the financial institutions participating in our Facility and Corporate Revolver. None of the financial institutions have indicated to us that they may be unable to perform on their commitments. In addition, we periodically review our banking and financing relationships, considering the stability of the institutions and other aspects of the relationships. Based on our monitoring activities, we currently believe our banks will be able to perform on their commitments.

Senior Notes

We have three series of senior notes outstanding, which we collectively referred to as the “Senior Notes.” Our 7.125% Senior Notes mature on April 4, 2026, and interest is payable on the 7.125% Senior Notes each April 4 and October 4. Our 7.500% Senior Notes mature on March 1, 2028, and interest is payable on the 7.500% Senior Notes each March 1 and September 1. Our 7.750% Senior Notes mature on May 1, 2027, and interest is payable on the 7.750% Senior Notes each May 1 and November 1.

The Senior Notes are senior, unsecured obligations of Kosmos Energy Ltd. and rank equally in right of payment with all of its existing and future senior indebtedness (including all borrowings under the Corporate Revolver and the 3.125% Convertible Senior Notes) and rank effectively junior in right of payment to all of its existing and future secured indebtedness (including all borrowings under the Facility). The Senior Notes are jointly and severally guaranteed on a senior, unsecured basis by certain subsidiaries owning the Company's U.S. Gulf of Mexico assets and the interests acquired in the Anadarko WCTP Acquisition, and on a subordinated, unsecured basis by entities that borrow under, or guarantee, our Facility.

3.125% Convertible Senior Notes due 2030

We have one series of senior convertible notes outstanding. Our 3.125% Convertible Senior Notes mature on March 15, 2030, unless earlier converted, redeemed or repurchased. Interest is payable in arrears each March 15 and September 15, commencing September 15, 2024.

The 3.125% Convertible Senior Notes are senior, unsecured obligations of Kosmos Energy Ltd. and rank equal in right of payment with all of its existing and future senior indebtedness (including all borrowings under the Corporate Revolver and the Senior Notes) and rank effectively junior in right of payment to all of its existing and future secured indebtedness (including all borrowings under the Facility, to the extent of the value of the assets securing such indebtedness). The 3.125% Convertible Senior Notes are guaranteed on a senior, unsecured basis by certain of our existing subsidiaries that guarantee on a senior basis the Corporate Revolver and the Senior Notes, and, in certain circumstances, certain of our other existing or future subsidiaries. The 3.125% Convertible Senior Notes are guaranteed on a subordinated, unsecured basis by certain of our existing subsidiaries that borrow under or guarantee the Facility and guarantee on a subordinated basis the Corporate Revolver and the Senior Notes, and, in certain circumstances, certain of our other existing or future subsidiaries.

Holders of the 3.125% Convertible Senior Notes may convert all or any portion of their 3.125% Convertible Senior Notes at their option at any time prior to the close of business on the business day immediately preceding December 15, 2029

only under the following circumstances:

• during any calendar quarter commencing after the calendar quarter ending on June 30, 2024 (and only during such calendar quarter), if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day;
• during the five business day period after any five consecutive trading day period (the “measurement period”) in which the trading price per $1,000 principal amount of 3.125% Convertible Senior Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate on each such trading day;
• if we call any or all of the 3.125% Convertible Senior Notes for redemption, the 3.125% Convertible Senior Notes called (or deemed called) for redemption may be converted at any time prior to the close of business on the second scheduled trading day immediately preceding the redemption date; or
• upon the occurrence of certain specified corporate events.

On or after December 15, 2029 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert at any time all or any portion of their 3.125% Convertible Senior Notes at the option of the holder.

The conversion rate for the 3.125% Convertible Senior Notes is initially 142.4501 shares of our common stock per $1,000 principal amount of 3.125% Convertible Senior Notes (which is equivalent to an initial conversion price of approximately $7.02 per share of our common stock), subject to adjustments.

Upon conversion, we will pay cash up to the aggregate principal amount of the 3.125% Convertible Senior Notes to be converted and pay or deliver, as the case may be, cash, shares of our common stock or a combination of cash and shares of our common stock, at our election, in respect of the remainder, if any, of our conversion obligation in excess of the aggregate principal amount of the 3.125% Convertible Senior Notes being converted. The amount of cash and shares of our common stock, if any, due upon conversion will be based on a daily conversion value calculated on a proportionate basis for each trading day in a 40 consecutive trading day observation period.

In addition, following certain corporate events that occur prior to the maturity date or if we deliver a notice of redemption, we will, in certain circumstances, increase the conversion rate for a holder who elects to convert its 3.125% Convertible Senior Notes in connection with such a corporate event or to convert its 3.125% Convertible Senior Notes called (or deemed called) for redemption in connection with such notice of redemption, as the case may be.

Other than in connection with certain tax law changes, we may not redeem the notes prior to March 22, 2027. We may redeem for cash all or any portion of the 3.125% Convertible Senior Notes, at our option, on or after March 22, 2027 and prior to the 41st scheduled trading day immediately preceding the maturity date, if the last reported sale price of our common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive), including the trading day immediately preceding the date on which we provide notice of redemption, during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which we provide the related notice of redemption, at a redemption price equal to 100% of the principal amount of the 3.125% Convertible Senior Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. We are not required to redeem or retire the 3.125% Convertible Senior Notes periodically. We may not elect to redeem less than all of the outstanding 3.125% Convertible Senior Notes unless at least $75.0 million aggregate principal amount of 3.125% Convertible Senior Notes are outstanding and not subject to redemption as of the time we send the related redemption notice. The 3.125% Convertible Senior Notes indenture contains customary terms and covenants.

In connection with the issuance of the 3.125% Convertible Senior Notes, the Company entered into capped call transactions (the “Capped Call Transactions”). The Capped Call Transactions are generally expected to reduce potential dilution to holders of our common stock upon any conversion of the 3.125% Convertible Senior Notes and/or offset any cash payments that we are required to make in excess of the principal amount of any 3.125% Convertible Senior Notes that are converted, as the case may be, with such reduction and/or offset subject to a cap.

The Capped Call Transactions have an initial cap price of $10.80 per share, which represents a premium of 100% over the last reported sale price of our common stock on March 5, 2024, and is subject to certain adjustments under the terms of the Capped Call Transactions. The Capped Call Transactions cover, initially, the number of shares of our common stock underlying the 3.125% Convertible Senior Notes, subject to anti-dilution adjustments substantially similar to those applicable to the conversion rate of the 3.125% Convertible Senior Notes.

Contractual Obligations

The following table summarizes by period the payments due for our estimated contractual obligations as of June 30, 2024, and the weighted average interest rates expected to be paid on the Facility and Corporate Revolver given current contractual terms and market conditions, and the instrument’s estimated fair value. Weighted-average interest rates are based on implied forward rates in the yield curve at the reporting date. This table does not include amortization of deferred financing costs.

(In thousands, except percentages)

(1) The amounts included in the table represent principal maturities only. The scheduled maturities of debt related to the Facility are based on the level of borrowings and the available borrowing base as of June 30, 2024. Any increases or decreases in the level of borrowings or increases or decreases in the available borrowing base would impact the scheduled maturities of debt during the next five years and thereafter.

(2) Represents the period July 1, 2024 through December 31, 2024.

(3) Primarily relates to corporate and foreign office leases.

(4) Represents gross contractual obligations to execute planned future capital projects. Other joint owners in the properties operated by Kosmos will be billed for their working interest share of such costs. Does not include our share of operator’s purchase commitments for jointly owned fields and facilities where we are not the operator and excludes commitments for exploration activities, including well commitments and seismic obligations, in our petroleum contracts. The Company’s liabilities for asset retirement obligations associated with the dismantlement, abandonment and restoration costs of oil and gas properties are not included. See Note 14 - Additional Financial Information for additional information regarding these liabilities.

(5) In April 2024, a Decommissioning Trust agreement with the Jubilee unit partners to cash fund future retirement obligations associated with the Jubilee Field was finalized. The operator currently estimates the total commitment to be approximately $148.9 million, net to Kosmos, which will be funded annually by Kosmos over an estimated 13 year period. The contributions will be accounted for as trading securities and reported as a long-term investment in our consolidated balance sheet and as operating activities in our statement of cash flows. It is possible that our funding requirements could change based on future changes in the decommissioning plan or estimates.

We have a commitment to drill 3 development wells and one exploration well in Equatorial Guinea. We have a $200.2 million FPSO Contract Liability in Other long-term liabilities related to the deferred sale of the Greater Tortue FPSO which will be non-cash settled with the delivery of the Greater Tortue FPSO to BP Buyer upon commissioning of the Greater Tortue FPSO which is currently targeted to be in September 2024.

In February 2019, Kosmos and BP signed Carry Advance Agreements with the national oil companies of Mauritania and Senegal, which obligate us separately to finance the respective national oil companies’ share of certain development and production costs. Kosmos’ total share for the two agreements combined is currently estimated at approximately $370.0 million, of which $261.8 million has been incurred through June 30, 2024, excluding accrued interest. These amounts will be repaid through the national oil companies’ share of future revenues.

Critical Accounting Policies

We consider accounting policies related to our revenue recognition, exploration and development costs, receivables, income taxes, derivative instruments and hedging activities, estimates of proved oil and natural gas reserves, asset retirement obligations, leases and impairment of long-lived assets as critical accounting policies. The policies include significant estimates made by management using information available at the time the estimates are made. However, these estimates could change materially if different information or assumptions were used. Other than items discussed in Note 2 — Accounting Policies, there have been no changes to our critical accounting policies which are summarized in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” section in our annual report on Form 10-K, for the year ended December 31, 2023.

Cautionary Note Regarding Forward-looking Statements

This quarterly report on Form 10-Q contains estimates and forward-looking statements, principally in “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Our estimates and forward-looking statements are mainly based on our current expectations and estimates of future events and trends, which affect or may affect our businesses and operations. Although we believe that these estimates and forward-looking statements are based upon reasonable assumptions, they are subject to several risks and uncertainties and are made in light of information currently available to us. Many important factors, in addition to the factors described in our quarterly report on Form 10-Q and our annual report on Form 10-K, may adversely affect our results as indicated in forward-looking statements. You should read this quarterly report on Form 10-Q, the annual report on Form 10-K and the documents that we have filed with the Securities and Exchange Commission completely and with the understanding that our actual future results may be materially different from what we expect. Our estimates and forward-looking statements may be influenced by the following factors, among others:

• the impact of a potential regional or global recession, inflationary pressures and other varying macroeconomic conditions on us and the overall business environment;
• the impacts of Russia’s war in Ukraine and potential instability in the Middle East and the effects these events have on the oil and gas industry as a whole, including increased volatility with respect to oil, natural gas and NGL prices and operating and capital expenditures;
• our ability to find, acquire or gain access to other discoveries and prospects and to successfully develop and produce from our current discoveries and prospects;
• uncertainties inherent in making estimates of our oil and natural gas data;
• the successful implementation of our and our block partners’ prospect discovery and development and drilling plans;
• projected and targeted capital expenditures and other costs, commitments and revenues;
• termination of or intervention in concessions, rights or authorizations granted to us by the governments of the countries in which we operate (or their respective national oil companies) or any other federal, state or local governments or authorities;
• our dependence on our key management personnel and our ability to attract and retain qualified technical personnel;
• the ability to obtain financing and to comply with the terms under which such financing may be available;
• the volatility of oil, natural gas and NGL prices, as well as our ability to implement hedges addressing such volatility on commercially reasonable terms;
• the availability, cost, function and reliability of developing appropriate infrastructure around and transportation to our discoveries and prospects;
• the availability and cost of drilling rigs, production equipment, supplies, personnel and oilfield services;
• other competitive pressures;
• potential liabilities inherent in oil and natural gas operations, including drilling and production risks and other operational and environmental risks and hazards;
• current and future government regulation of the oil and gas industry, applicable monetary/foreign exchange sectors or regulation of the investment in or ability to do business with certain countries or regimes;
• cost of compliance with laws and regulations;
• changes in, or new, environmental, health and safety or climate change or GHG laws, regulations and executive orders, or the implementation, or interpretation, of those laws, regulations and executive orders;
• adverse effects of sovereign boundary disputes in the jurisdictions in which we operate;
• environmental liabilities;
• geological, geophysical and other technical and operations problems, including drilling and oil and gas production and processing;
• military operations, civil unrest, outbreaks of disease, terrorist acts, wars or embargoes;
• the cost and availability of adequate insurance coverage and whether such coverage is enough to sufficiently mitigate potential losses and whether our insurers comply with their obligations under our coverage agreements;
• our vulnerability to severe weather events, including, but not limited to, tropical storms and hurricanes, and the physical effects of climate change;
• our ability to meet our obligations under the agreements governing our indebtedness;
• the availability and cost of financing and refinancing our indebtedness;
• the amount of collateral required to be posted from time to time in our hedging transactions, letters of credit, performance bonds and other secured debt;
• our ability to obtain surety or performance bonds on commercially reasonable terms;
• the result of any legal proceedings, arbitrations, or investigations we may be subject to or involved in;
• our success in risk management activities, including the use of derivative financial instruments to hedge commodity and interest rate risks; and
• other risk factors discussed in the “Item 1A. Risk Factors” section of our quarterly reports on Form 10-Q and our annual report on Form 10-K.

The words “believe,” “may,” “will,” “aim,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” “plan” and similar words are intended to identify estimates and forward-looking statements. Estimates and forward-looking statements speak only as of the date they were made, and, except to the extent required by law, we undertake no obligation to update or to review any estimate and/or forward-looking statement because of new information, future events or other factors. Estimates and forward-looking statements involve risks and uncertainties and are not guarantees of future performance. As a result of the risks and uncertainties described above, the estimates and forward-looking statements discussed in this quarterly report on Form 10-Q might not occur, and our future results and our performance may differ materially from those expressed in these forward-looking statements due to, including, but not limited to, the factors mentioned above. Because of these uncertainties, you should not place undue reliance on these forward-looking statements.

The primary objective of the following information is to provide forward-looking quantitative and qualitative information about our potential exposure to market risks. The term “market risks” as it relates to our currently anticipated transactions refers to the risk of loss arising from changes in commodity prices and interest rates. These disclosures are not meant to be precise indicators of expected future losses, but rather indicators of reasonably possible losses. This forward-looking information provides indicators of how we view and manage ongoing market risk exposures. We enter into market-risk sensitive instruments for purposes other than to speculate.

We manage market and counterparty credit risk in accordance with our policies. In accordance with these policies and guidelines, our management determines the appropriate timing and extent of derivative transactions. See “Item 8. Financial Statements and Supplementary Data — Note 2 — Accounting Policies, Note 9 — Derivative Financial Instruments and Note 10— Fair Value Measurements” section of our annual report on Form 10-K for a description of the accounting procedures we follow relative to our derivative financial instruments.

The following table reconciles the changes that occurred in fair values of our open derivative contracts during the six months ended June 30, 2024:

(In thousands)

Commodity Price Risk

The Company’s revenues, earnings, cash flows, capital investments and, ultimately, future rate of growth are highly dependent on the prices we receive for our crude oil, which have historically been very volatile. Substantially all of our oil sales are indexed against Dated Brent, and Heavy Louisiana Sweet. Oil prices in the first six months of 2024 ranged between $75.70 and $93.35 per Bbl for Dated Brent, with Heavy Louisiana Sweet experiencing similar volatility during the first six months of 2024.

Commodity Derivative Instruments

We enter into various oil derivative contracts to mitigate our exposure to commodity price risk associated with anticipated future oil production. These contracts currently consist of collars, put options and call options. In regards to our obligations under our various commodity derivative instruments, if our production does not exceed our existing hedged positions, our exposure to our commodity derivative instruments would increase. In addition, a reduction in our ability to access credit could reduce our ability to implement derivative contracts on commercially reasonable terms.

Commodity Price Sensitivity

The following table provides information about our oil derivative financial instruments that were sensitive to changes in oil prices as of June 30, 2024. Volumes and weighted average prices are net of any offsetting derivatives entered into.

(In thousands)

(1) Fair values are based on the average forward oil prices on June 30, 2024.

In July 2024, we entered into Dated Brent two-way collar contracts for 2.0 MMBbl from January 2025 through June 2025 with a floor price of $70.00 per barrel and a ceiling price of $95.00 per barrel.

At June 30, 2024, our open commodity derivative instruments were in a net liability position of $6.7. million. As of June 30, 2024, a hypothetical 10% price increase in the commodity futures price curves would decrease future pre-tax earnings by approximately $14.2 million. Similarly, a hypothetical 10% price decrease would increase future pre-tax earnings by approximately $8.1 million.

Interest Rate Sensitivity

Changes in market interest rates affect the amount of interest we pay on certain of our borrowings. Outstanding borrowings under the Facility, which as of June 30, 2024 total $750.0 million and have a weighted average interest rate of 9.3%, are subject to variable interest rates which expose us to the risk of earnings or cash flow loss due to potential increases in market interest rates. If the floating market rate increased 10% at this level of floating rate debt, we would pay an estimated additional $4.0 million interest expense per year. The commitment fees on the undrawn availability under the Facility and the Corporate Revolver are not subject to changes in interest rates. All of our other long-term indebtedness is fixed rate and does not expose us to the risk of cash flow loss due to changes in market interest rates. Additionally, a change in the market interest rates could impact interest costs associated with future debt issuances or any future borrowings and future payments associated with the Tortue FPSO lease arrangement.

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report, an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) was performed under the supervision and with the participation of the Company’s management, including our Chief Executive Officer and Chief Financial Officer. This evaluation considered the various processes carried out under the direction of our disclosure committee in an effort to ensure that information required to be disclosed in the SEC reports we file or submit under the Exchange Act is accurate, complete and timely. However, a control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. The design of a control system must reflect the fact that there are resource constraints, and the benefit of controls must be considered relative to their costs. Consequently, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected. Based upon this evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of June 30, 2024, in ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, including that such information is accumulated and communicated to the Company’s management, including our Chief Executive Officer and our Chief Financial Officer, to allow timely decisions regarding required disclosure.

Evaluation of Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during our most recent fiscal quarter that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

There have been no material changes from the risks discussed in the “Item 1A. Risk Factors” sections of our annual report on Form 10-K for the year ended December 31, 2023.