Kosmos Energy: Scratched And Dented, But Still A Strong Buy

seekingalpha11-08

Kosmos Energy (KOS) has faced challenges but is poised for growth with the upcoming start of the Tortue LNG project, lower capex, and increased cash flow.Operational issues at Winterfell and Jubilee, ...

Source Link

Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.

Comments

We need your insight to fill this gap

Leave a comment

{"i18n":{"language":"en_US"},"isChannel":false,"data":{"share":"https://ttm.financial/m/news/2481102395?lang=en_US&edition=fundamental","thumbnail":"https://static.seekingalpha.com/cdn/s3/uploads/getty_images/2181829305/image_2181829305.jpg","is_english":true,"pubTime":"2024-11-08 21:30","share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","id":"2481102395","market":"nz","top_or_hot":-1,"title":"Kosmos Energy: Scratched And Dented, But Still A Strong Buy","media":"seekingalpha","content":"<div>\n<p>Kosmos Energy (KOS) has faced challenges but is poised for growth with the upcoming start of the Tortue LNG project, lower capex, and increased cash flow.Operational issues at Winterfell and Jubilee, ...</p>\n\n<a href=\"https://seekingalpha.com/article/4733649-kosmos-energy-scratched-and-dented-but-still-a-strong-buy\">Source Link</a>\n\n</div>\n","source":"seekingalpha","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Kosmos Energy: Scratched And Dented, But Still A Strong Buy</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nKosmos Energy: Scratched And Dented, But Still A Strong Buy\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-11-08 21:30 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4733649-kosmos-energy-scratched-and-dented-but-still-a-strong-buy><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Kosmos Energy (KOS) has faced challenges but is poised for growth with the upcoming start of the Tortue LNG project, lower capex, and increased cash flow.Operational issues at Winterfell and Jubilee, ...</p>\n\n<a href=\"https://seekingalpha.com/article/4733649-kosmos-energy-scratched-and-dented-but-still-a-strong-buy\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"BK4213","symbol_name":"石油与天然气的勘探与生产","start_time":0,"source_url":"https://seekingalpha.com/article/4733649-kosmos-energy-scratched-and-dented-but-still-a-strong-buy","article_id":"2481102395","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/2181829305/image_2181829305.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2481102395","pubTimestamp":1731072600,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"Kosmos Energy (KOS) has faced challenges but is poised for growth with the upcoming start of the Tortue LNG project, lower capex, and increased cash flow.Operational issues at Winterfell and Jubilee, ","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"BK4213":"石油与天然气的勘探与生产","KOS":"Kosmos Energy"},"translate_title":"Kosmos Energy：有划痕和凹痕，但仍值得强力买入","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"KOS":0.9},"content_text":"Kosmos Energy (KOS) has faced challenges but is poised for growth with the upcoming start of the Tortue LNG project, lower capex, and increased cash flow.Operational issues at Winterfell and Jubilee, and the FID delay for Tiberius, have been offset by positive developments in other projects and debt rescheduling.The balance sheet is stronger with new senior notes, and reduced capex will allow for debt reduction and potential shareholder returns by 2026.Despite current market reactions, I maintain a Strong Buy rating for KOS, with a price target of $8.00-$10.00 as cash flow improves.   FatCamera/E+ via Getty Images  Introduction Kosmos Energy, (NYSE:KOS) has had a tough year on Wall Street and in some of its GoM and Ghanan operations. The macro environment for gas upon which its marquee, Tortue LNG project in Mauritania/Senegal rests, hasn't helped either. The other day when they released earnings and held the call, the market pretty much shrugged, taking the stock down a few more pennies. We think the market was too hasty and this should be a bottom for the stock. Most of the big capex cash drain is behind them. With the start-up of BP (BP) operated Tortue over the next month, lower capex and increased cash flow should get the market's attention. The company largely hit their marks on analyst expectations and guidance was very positive, although as noted the market focused on the negative in initial trading. KOS price chart (Seeking Alpha) The company current trades at a relatively low multiple consistent with other microcap peers as shown below, and I wouldn't be afraid to add to or initiate a new position in KOS at current levels. The entire microcap sector has been beaten down in relation to the megacaps like Chevron, (CVX), and ExxonMobil, (XOM). For growth from current levels and eventual shareholder returns, KOS remains my favorite. KOS peers comparison (Seeking Alpha) KOS operational progress during Q-3 The quarter was a mixed bag operationally. Problems at Winterfell and Jubilee dominated the discussion in the call, followed by the discussion around the FID delay for Tiberius. The stock trailed lower during the call as a result. That was a little surprising as there were a lot of positives that over the next few years will have a greater impact on the investibility of the stock in my view. Q-3 Operational report (KOS) The problems at Winterfell top the list in my view. Sand production at this stage of the game is problematic, and at the very least they are looking at an expensive workover to fix. Before doing that, they will have to analyze what happened-screen failure is my bet, and if that's the case we are looking at a rig for a couple of months and new hardware and new sand control installation. Millions. And, lost production of at least 6-7K BOEPD while they figure out a path forward. Hopefully, they can get the other two wells back on-line quickly and realize the 13K BOEPD from them. On the upside, these problems get worked out all the time-all reservoirs will make sand eventually, and KOS is an experienced operator. The service industry is also good at fixing sand problems, so I won't lose any sleep over current problems. The underlift problems at Jubilee-their big Ghanan cash cow, by a few thousand BOPD, come in second. This is related to some mechanical problems that caused water injection to fall off in the quarter. Pressure maintenance is critical for Jubilee production, and the problem with the generators supplying power to the pumps has been worked. They are also shooting new 4D seismic for the first time in eight years to better understand flow dynamics in the reservoir, and help to optimize future drilling campaigns. The deferral of the FID for Tiberius to 2025 is problematic as well. This seems to be a cash flow/accummulation issue for both KOS and partner, Occidental Petroleum, (OXY). It may also relate to the subdued macro picture for oil and gas currently, and perhaps could be impacting a \"farm down\" of the prospect. The company noted good interest from the market, but wasn't specific as to the time frame. So a deferral makes sense-now pushed to 2027 for production, but could put a hole in their production a few years hence. On the upside The balance sheet was enhanced by the rescheduling of debt as discussed in the call, and noted in the slides. KOS issued $500 million of new senior notes due 2031 at 8.75%. Alongside the new issue, they completed a series of tender offers to repurchase $500 million of their outstanding senior notes, across multiple maturities, paying down the majority of 2026 notes, while also reducing the outstanding amounts of their notes due 2027 and 2028. These actions give them a pretty clear field, with no maturities in 2025, and only a minimal amount in 2026. Free cash flow from the business should be able to meet debt targets with the prospect of shareholder returns in 2026. KOS financial resilience (KOS) Investors are getting a break from the big capex outlays of the past few years, as I noted in chat. The freed up cash flow will be going to reduce debt in the near term, but once targets are met, shareholder returns will follow. Neal Shah, CFO, commented in this regard- We're very much focused on getting leverage down to less than one and a half times. And once we get beyond sort of that one and a half times, then we'll look at shareholder returns, which is clearly an option that we're keeping on the table. KOS Capex plans (KOS) Management was pretty confident in the reduced capex number-$400 mm being able to maintain output, after previously guiding to $550 mm to hit targets. CEO Andy Inglis discussed this in the call-  $550 million was more of a guideline and we characterized it as saying it's around $200 million to $250 million going forward in growth on average, and around maybe $300 million, $350 million in the base going forward. So as we look towards '25, as we said in the remarks, our focus is on free cash flow delivery next year. And therefore the CapEx $400 million is ensuring that we put sufficient CapEx into the base. We have drilling projects in the Gulf of Mexico, in Winterfell with two additional wells, and we have the restart of the Ghana or infill program in Jubilee. In EG, there's not a lot of maintenance capital. We've had the drilling program in '24, and there's little maintenance CapEx in GTA, because we've got more than sufficient well capacity.  The other Ghanan field Ten is performing well-ahead of expectations, and there is an in-fill drilling campaign underway that will raise production from the current ~18.5K BOEPD to around 30K in 2025. The GoM workovers at Kodiak, and the startup of the Odd Job wells (a James Bond Goldfinger reference) have gone well. GoM production is currently 20K BOEPD, up 50% YoY. Then there is the Akeng Deep well now being drilled. CEO Andy Inglis commented in detail on the importance of this well to EG operations-  Akeng Deep is an important well, because it opens up a whole new play that enables us to use existing infrastructure, it's ILX, tie back the wells. I think when you look at '25 with success in the Akeng Deep, we won't rush at it. I think what we want to do is make sure that we're high grading the right opportunities that exist across Equatorial Guinea. So we've had an infill program in Ceiba and Okume. There's more of those wells. With success of the Akeng Deep, you have a deeper target that you can bring in. So I would see it actually impacting '26 forward when we're actually high-grading the capital that we planned before for '26 in Equatorial Guinea. And actually, it will be about debating an infill while and say Okume or Ceiba versus Akeng Deep. Now the good news is, if you remember that we extended the leases in the blocks to out beyond 2040, all right? So we're not in a big rush. So this is about ensuring that we get the right hydrating of the opportunity set. I'm actually - I'm excited because I think we're we've drilled, we finished the first well on Ceiba, because we just finished the second well on Okume. The rig is literally moving as we speak to go and drill the Akeng Deep. But I think that between the success of the infill program, we're going to create quite a lot of optionality now. And with success, we will have some choices to make. I think, around the future infill program.  Finally, there is the start up of the long awaited Tortue. Cool down operations are underway on the FLNG vessel, and final FPSO operations by contractor-Technip, (OTC:TNHPF) are nearly complete. Management noted the departure of the personnel Flotel as an indication of how far along this is. They also gave some firm- $2 mmbtu cost guidance for Tortue cargoes. The offshore subsea wells are ready to flow, and once the FPSO is handed over, feed gas will be initiated. Source Risks I think commodity risks are the number one issue for KOS over the next year. Prices for both oil and gas are spongy thanks to burgeoning production with spillover effects in storage volumes, and concerns about demand. The only lever I see to tip traders sentiment in favor being long crude and gas, is what's happening in the Permian Basin. The Permian's meteoric growth appears to have flatlined in the neighborhood of 6.3 mm BOPD and relies on technology improvements to sustain. Projections by the EIA are for modest growth to 6.6 mm BOPD in 2025. If that occurs, oil prices could dip, other geopolitical factors not withstanding. Counterbalancing that is the fact the average well in the Permian is now over 2 years old. The inventory is aging rapidly and could begin watering out over the next year. It would take a prodigious amount of drilling over a couple of years to reverse this outcome. I don't see this happening. Your takeaway We are just about there with KOS. I think the current market reaction is overdone, and we should see shares bottom and start to rally as cash flow increases. In my earlier article on the company this year, I'd mentioned an $8.00-$10.00 target for the shares as cash flow from Tortue rolled in, and I am sticking with that estimate, and am keeping KOS as a Strong Buy. Analysts are modestly bullish at current levels, rating the stock as an Overweight. Price targets range from current levels to $9.50 per share, with a median of $7.00. It will take a reset of expectations for crude oil and gas to deliver the upper end of that range. As I noted above, a peak in the Permian-the source of most of the global production growth in the last decade, and the start of a decline, could deliver that result.  Investors looking for growth in the upstream sector with a modest risk tolerance should consider taking a position in KOS for growth and eventual shareholder returns.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"1","news_tag":"analysis","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.1","shortVersion":"4.29.1","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2481102395"}