Kosmos Energy: Santa's Bringing A Deal On This Beaten Down LNG Stock

Summary

  • Kosmos Energy is currently trading at a discounted price, making it an optimal entry point for investors.
  • The company's core thesis is the impending startup of the Greater Tortue Ahmeyim-GTA project offshore Senegal and Mauritania.
  • Kosmos Energy has taken a 90% stake in the Yakaar-Teranga-Y&T field, which is expected to be larger than GTA and has strong market potential.
  • We rate KOS as a strong buy at current prices but may look for a slightly better entry point, given present market conditions.

Santa...Pssst. I'd like a full position in Kosmos Energy in my stocking.

AlexRaths/iStock via Getty Images

Introduction

In my view, we are being given a gift by the market's current disdain for everything related to oil or gas. Burgeoning supplies of oil and gas, combined with demand fears have sent prices toward mid-year lows, and in so doing have knocked

Kosmos Energy price chart (Seeking Alpha)

The thesis for KOS

The delivery of gas in the first quarter of 2024, as signalled by BP, the operator, in its third quarter results last week, depends on the execution of this workstream (FPSO and FLNG vessel commissioning), which has the potential to slip into the second quarter of 2024.

KOS Q-3 highlights (KOS)

KOS Tiberius project (KOS)

A catalyst for KOS 2-3 years down the road

KOS Y&T Project (KOS)

Yakaar Teranga, is a distinctive gas resource. It has low CO2 content. It is close to shore, 75 kilometers of the Dakar Peninsula. And from both a domestic and an LNG perspective, it has a strong market pull. There's a need to replace heavy fuel oil as a source of power in Senegal. Kosmos believes that this gas is distinctive and is well described. Well described, what do I mean by that? I mean that in Tortue, we drilled four exploration and appraisal wells and a DST that enabled us to calibrate the seismic that led to four successful development wells. It's a huge amount of subsurface data that directly correlates to Yakaar Teranga, where we have three exploration and appraisal wells. I think this is a great opportunity for the company. We've inherited our share. We started at 90%. Our objective is for Petrosen to build their share so that they are an equal partner with ourselves and whoever comes in. We'd anticipate, therefore, 25% to maybe 33% shares. We've got work to do now on fully describing the concept that we laid out in the material, and we've got work to do to bring in a partner and underpin the financing. But with all of that done, this is an incredibly commercial opportunity, but it has to be done in a low-cost way that fully leverages all of the subsurface knowledge. With control now of Yakaar Teranga, I think we can then position that as the next building block in that sequence. And I would imagine that Tortue Phase two could sit behind that.

  • YT is advantaged by existing infrastructure.
  • Much of the reservoir information collected for GTA is applicable to YT.
  • The Market is bifurcated with domestic needs in Senegal, and a straight shot to Europe.

Q-3, 2023, and Guidance

KOS Full Year 23 Guidance (KOS)

We expect this growth to drive a material step-up in free-cash flow as these projects are delivered, enabling the Company to further de-lever and ultimately to fund shareholder returns when leverage falls below our target level.

A reminder on the impact of GTA on revenues for 2024

Risks

Your takeaway

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.

Report

Comment

  • Top
  • Latest
empty
No comments yet