Kosmos Energy Announces Fourth Quarter and Full Year 2012 Results

DALLAS--(BUSINESS WIRE)--Kosmos Energy (“Kosmos”) (NYSE: KOS) announced today financial and operating results for the fourth quarter and full year 2012. For the fourth quarter of 2012, the Company reported net income attributable to common shareholders of $32 million, or $0.08 per basic and diluted share. For the fourth quarter of 2011, Kosmos reported net income attributable to common shareholders of $34 million, or $0.09 per basic and diluted share. For the full year 2012, the Company generated a net loss attributable to common shareholders of $67 million. Total oil revenues in 2012 were $668 million on six oil liftings, net to Kosmos.

Highlights for the quarter ended December 31, 2012, include:

• Sold approximately two million barrels of oil, net to Kosmos
• Performed two successful acid treatments on Jubilee Phase 1 production wells
• Commenced production from the Phase 1A development at Jubilee
• Exited 2012 with Jubilee production of approximately 110,000 barrels of oil per day
• Submitted a Plan of Development for the Tweneboa, Enyenra, and Ntomme fields on the Deepwater Tano Block to the government of Ghana
• Completed the assignment of 50 percent of the Company’s 100 percent participating interest in Blocks 42 and 45, offshore Suriname, to Chevron
• Secured a new Corporate Revolving Credit Facility, with $260 million available
• Enhanced financial liquidity position, with cash on hand of $515 million and available borrowings of over $600 million at the end of 2012

Brian F. Maxted, Chief Executive Officer, commented, “During the fourth quarter, we achieved a number of significant milestones, exiting 2012 in our best position ever, both operationally and financially. We have established great momentum at Jubilee, with production now at a record level, and we are working to enhance throughput even further. Moving forward, we are preparing for additional developments in Ghana, as well as the commencement of a high-impact exploration program elsewhere, with multiple wells anticipated annually beginning as soon as late 2013. Our disciplined strategy, strong balance sheet and substantial existing cash flows have positioned Kosmos to internally fund our investment programs well into the future. I am excited about all we have accomplished, even more so, the meaningful potential in our exploration and development programs ahead.”

Fourth quarter 2012 oil revenues were $218 million versus $220 million in the same quarter of 2011, on sales of nearly two million barrels of oil for each period. The average fourth quarter 2012 realized oil price was approximately $109 per barrel versus $110 per barrel in the fourth quarter of 2011, excluding the impact of the Company’s strategic hedging program. At the end of 2012, the Company was in a net overlift position of approximately 51,000 barrels of oil since field startup.

Production expense for the fourth quarter of 2012 was $23 million, which included costs from two acid stimulation treatments performed on Phase 1 wells at the Jubilee field. Excluding workover costs, production expense for the quarter was approximately $8.60 per barrel sold. The reduction from the fourth quarter 2011 per barrel rate is primarily attributable to the purchase of the Jubilee floating production, storage and offloading vessel (FPSO) in late 2011, which capitalized the asset and ceased ongoing lease payments.

Exploration expense in the fourth quarter of 2012 totaled $4 million. Included in the fourth quarter of 2012 were costs related to the Okure well offshore Ghana. The completion of the Company’s assignment of interest in Blocks 42 and 45 offshore Suriname during the fourth quarter of 2012 resulted in a reduction to exploration expense. In the fourth quarter of 2011, exploration expense included seismic acquisition costs related to the Company’s Morocco acreage position.

General and administrative expense was $45 million for the fourth quarter of 2012, with the increase from the same quarter of 2011 mostly a result of higher non-cash, equity-based compensation expense.

Depletion and depreciation expense was $57 million in the fourth quarter of 2012, or $28.75 per barrel sold. The fourth quarter 2012 per barrel rate was positively impacted by the recording of year-end 2012 reserves, which reflected a reclassification of proved reserves from undeveloped to developed. This was primarily a result of the Company’s successful acid stimulation program in 2012. The per barrel rate increase versus the fourth quarter of 2011 is mostly a result of the purchase of the Jubilee FPSO and the ongoing capital spend for development of the Jubilee field.

Derivative expense for the fourth quarter of 2012 was $5 million, which represents the change in the mark to market of the Company’s oil derivative contracts as of December 31, 2012. During the fourth quarter of 2012, Kosmos added new hedge positions covering two million barrels of oil in 2013 and 1.5 million barrels in 2014.

Included in the Company’s fourth quarter 2012 results was a $5 million loss on the extinguishment of debt resulting from the amendment of the Company’s reserve-based lending facility.

Income tax expense for the fourth quarter of 2012 was $36 million, with the majority of the amount resulting from the Company’s Ghana operations.

Year-End 2012 Reserves

The Company’s proved reserves at the end of 2012 were 43 million barrels of oil equivalent, with the difference from year-end 2011 largely a result of the Company’s net sales volumes in 2012. In addition, Kosmos removed 14 billion cubic feet of natural gas from its proved reserves in 2012 as a result of lower anticipated utilization of fuel gas for operations. The Company’s proved natural gas reserves at the end of 2012 represent only those amounts anticipated to be consumed on the FPSO in association with proved oil reserves.

Kosmos’ proved developed reserves as a percentage of total proved increased from 50 percent at year-end 2011 to 77 percent at year-end 2012. The increase was a result of the successful acid stimulation treatments on Jubilee Phase 1 wells and the startup of Phase 1A. The Company’s reported reserves are prepared by Netherland Sewell & Associates, Inc., an independent reserve engineering firm.

Total costs incurred in oil and gas activities in 2012 were $419 million. Exploration represented approximately 60 percent of the costs incurred amount, with development comprising the remainder.

Conference Call and Webcast Information

Kosmos will host a conference call and webcast to discuss fourth quarter and full year 2012 financial and operating results today at 10:00 a.m. Central time (11:00 a.m. Eastern time). A live webcast of the event can be accessed on the Investors page of Kosmos’ website at www.kosmosenergy.com. The dial-in telephone number for the call is +1.877.407.3982. Callers outside the United States should dial +1.201.493.6780. A replay of the webcast will be available on the Investors page of Kosmos’ website for approximately 90 days following the event.

About Kosmos Energy

Kosmos Energy is a leading independent oil and gas exploration and production company focused on frontier and emerging areas in Africa and South America. The Company’s asset portfolio includes existing production and other major project developments offshore Ghana, as well as exploration licenses with significant hydrocarbon potential offshore Mauritania, Morocco and Suriname and onshore Cameroon. Kosmos is listed on the New York Stock Exchange and is traded under the ticker symbol KOS. For additional information, visit www.kosmosenergy.com.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements, other than statements of historical facts, included in this press release that address activities, events or developments that Kosmos expects, believes or anticipates will or may occur in the future are forward-looking statements. Kosmos’s estimates and forward-looking statements are mainly based on its current expectations and estimates of future events and trends, which affect or may affect its businesses and operations. Although Kosmos believes 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 Kosmos. When used in this press release, the words “anticipate,” “believe,” “intend,” “expect,” “plan,” “will” or other similar words are intended to identify forward-looking statements. Such statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond the control of Kosmos, which may cause actual results to differ materially from those implied or expressed by the forward-looking statements. Further information on such assumptions, risks and uncertainties is available in Kosmos’s Securities and Exchange Commission (“SEC”) filings. Kosmos undertakes no obligation and does not intend to update or correct these forward-looking statements to reflect events or circumstances occurring after the date of this press release, except as required by applicable law. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release. All forward-looking statements are qualified in their entirety by this cautionary statement.

Kosmos Energy Ltd.
Consolidated Statement of Operations
(in thousands, except per share amounts, unaudited)
	Three Months
	Ended					Year Ended
	December 31,					December 31,
	2012			2011		2012			2011
Revenues and other income:
Oil and gas revenue	$	217,591		$	219,998	$	667,951		$	666,912
Interest income		(57	)		1,634		1,108			9,093
Other income		2,220			40		3,150			775
Total revenues and other income		219,754			221,672		672,209			676,780
Costs and expenses:
Oil and gas production		23,318			25,070		95,109			83,551
Exploration expenses		3,808			21,752		97,712			126,409
General and administrative		45,239			41,439		160,027			113,579
Depletion and depreciation		57,265			51,509		185,707			140,469
Amortization - deferred financing costs		2,402			2,194		8,984			16,193
Interest expense		8,490			10,510		52,207			65,749
Derivatives, net		5,083			6,527		31,490			11,777
Loss on extinguishment of debt		5,342			—		5,342			59,643
Doubtful accounts expense		—			—		—			(39,782	)
Other expenses, net		747			167		1,475			149
Total costs and expenses		151,694			159,168		638,053			577,737
Income before income taxes		68,060			62,504		34,156			99,043
Income tax expense		36,454			28,181		101,184			76,686
Net income (loss)		31,606			34,323		(67,028	)		22,357
Accretion to redemption value of convertible
preferred units		—			—		—			(24,442	)
Net income (loss) attributable to common
shareholders/unit holders	$	31,606		$	34,323	$	(67,028	)	$	(2,085	)
Net income (loss) per share attributable to
common shareholders (the year ended
December 31, 2011 represents the period from
May 16, 2011 to December 31, 2011):
Basic	$	0.08		$	0.09	$	(0.18	)	$	0.09
Diluted	$	0.08		$	0.09	$	(0.18	)	$	0.09
Weighted average number of shares used to
compute net income (loss) per share (the year
ended December 31, 2011 represents the
period from May 16, 2011 to December 31,
2011):
Basic		373,953			369,134		371,847			368,474
Diluted		374,146			369,134		371,847			368,607

Kosmos Energy Ltd.
Condensed Consolidated Balance Sheets
(in thousands, unaudited)
	December 31,		December 31,
	2012		2011
Assets
Current assets:
Cash and cash equivalents	$	515,164	$	673,092
Receivables		134,216		310,155
Other current assets		100,738		129,234
Total current assets		750,118		1,112,481
Property and equipment, net		1,525,762		1,377,041
Other non-current assets		90,243		62,412
Total assets	$	2,366,123	$	2,551,934
Liabilities and shareholders’ equity
Current liabilities:
Accounts payable	$	128,855	$	278,006
Accrued liabilities		41,021		37,194
Other current liabilities		20,377		24,407
Total current liabilities		190,253		339,607
Long-term liabilities:
Long-term debt		1,000,000		1,110,000
Deferred tax liability		104,137		47,608
Other non-current liabilities		42,827		33,993
Total long-term liabilities		1,146,964		1,191,601
Total shareholders’ equity		1,028,906		1,020,726
Total liabilities and shareholders’ equity	$	2,366,123	$	2,551,934

Kosmos Energy Ltd.
Condensed Consolidated Statements of Cash Flows
(in thousands, unaudited)
	Three Months
	Ended						Year Ended
	December 31,						December 31,
	2012			2011			2012			2011
Operating Activities:
Net income (loss)	$	31,606		$	34,323		$	(67,028	)	$	22,357
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depletion, depreciation and amortization		59,667			53,703			194,691			156,662
Deferred income taxes		28,169			19,281			80,036			56,457
Unsuccessful well costs		12,872			3,409			32,229			91,254
Non-cash change in fair value of derivatives		4,618			4,068			18,465			21,014
Cash settlements on derivatives		(9,839	)		(14,424	)		(28,594	)		(19,203	)
Equity-based compensation		25,208			21,702			83,423			50,966
Doubtful accounts expense		—			—			—			(39,782	)
Loss on extinguishment of debt		5,342			—			5,342			59,643
Other		151			1,014			7,890			2,953
Changes in assets and liabilities:
Net changes in working capital		63,626			(25,313	)		45,076			(37,412	)
Net cash provided by (used in) operating activities		221,420			97,763			371,530			364,909
Investing activities:
Oil and gas assets		(96,309	)		(196,845	)		(368,990	)		(478,943	)
Other property		(964	)		(2,375	)		(9,994	)		(4,303	)
Notes receivable		—			9,205			—			13,653
Restricted cash		(589	)		(1,098	)		(23,678	)		84,453
Net cash used in investing activities		(97,862	)		(191,113	)		(402,662	)		(385,140	)
Financing activities:
Borrowings under long-term debt		—			110,000			—			1,503,000
Payments on long-term debt		—			—			(110,000	)		(1,438,000	)
Net proceeds from the initial public offering		—			—			—			580,374
Purchase of treasury stock		—			—			(8,378	)		—
Deferred financing costs		(8,044	)		—			(8,418	)		(52,466	)
Net cash provided by (used in) financing activities		(8,044	)		110,000			(126,796	)		592,908
Net increase (decrease) in cash and cash equivalents		115,514			16,650			(157,928	)		572,677
Cash and cash equivalents at beginning of period		399,650			656,442			673,092			100,415
Cash and cash equivalents at end of period	$	515,164		$	673,092		$	515,164		$	673,092

Net Proved Developed and Undeveloped Reserves
(unaudited)
	Oil		Gas		Total
	(MMBbl)		(Bcf)		(MMBoe)
Net proved developed and undeveloped reserves
at December 31, 2011	47		24		51
Extensions and discoveries	—		—		—
Production	(6	)	(1	)	(6	)
Purchases of minerals-in-place	—		—		—
Revisions in estimates	1		(14	)	(2	)
Net proved developed and undeveloped reserves
at December 31, 2012	42		9		43
	Oil		Gas		Total
	(MMBbl)		(Bcf)		(MMBoe)
Proved reserves at December 31, 2012 (1)
Proved developed reserves	32		9		33
Proved undeveloped reserves	10		1		10

(1)	The sum of proved developed reserves and proved undeveloped reserves may not add to net proved developed and undeveloped reserves due to rounding

Costs Incurred in Oil and Gas Activities
(unaudited)

The following table reflects total costs incurred, both capitalized and expensed, for oil and gas property acquisition, exploration, and development activities for the year ended December 31, 2012.

	Ghana		Other (2)		Total
			(in thousands)
Property acquisition
Unproved	$	—	$	5,000	$	5,000
Proved		—		—		—
Exploration		173,463		78,939		252,402
Development		161,925		—		161,925
Total costs incurred	$	335,388	$	83,939	$	419,327

(2)	Includes Africa, excluding Ghana, and South America.