Kosmos to repay $500 million of debt, aims for 1.5x ratio by year-end

By Devika Patel

Knoxville, Tenn., March 1 – Kosmos Energy Ltd. plans to keep deleveraging rapidly, with a goal of reaching net leverage of 1.5x by the end of 2022 from the current ratio of 2.5x.

The company has been generating strong free cash flow, enabling the deleveraging efforts, and EBITDAX has also risen dramatically.

These trends are expected to continue, and the company plans to pay down $500 million of absolute debt in 2022 as well in order to reach its year-end target.

“For the last 18 months, we have been focused on deleveraging and have made good progress,” chairman and chief executive officer Andrew G. Inglis said on the company’s fourth quarter and year ended Dec. 31, 2021 earnings conference call on Monday.

“With a portfolio of highly cash-generative assets, we expect leverage to continue to fall sharply this year.

“As guided, we ended 2021 at around 2.5x, a significant year-on-year reduction.

“We remain on track to end this year below pre-Covid levels. Our year-end target for 2022 is around 1.5x at strip pricing.

“We expect to achieve the deleveraging through a combination of rising EBITDAX and absolute debt reduction,” Inglis said.

The company expects EBITDAX to rise and also plans to cut absolute debt by up to $500 million.

“EBITDAX is expected to increase materially year-on-year through several drivers, including higher production and stronger oil prices, which we have been able to hedge in much higher levels than 2021.

“We also plan to reduce absolute debt by up to $500 million this year, which will further drive the leverage multiple lower.

“This absolute debt reduction is driven by the free cash flow we generate, but could be enhanced with the potential for contingent payments from Shell, the Oxy Ghana preemption proceeds and the NOC loan refinancing,” Inglis said.

Strong free cash flow contributed to the deleveraging effort, which allowed Kosmos Energy to deleverage to 2.5x and defer all near-term debt maturities.

“Our producing assets generated strong free cash flow of around $175 million during the year, excluding working capital, in line with our guidance,” senior vice president and chief financial officer Neal D. Shah said on the call.

“The combination of these, along with the bond transactions we executed, have deferred all of our near-term debt maturities and helped increase our liquidity to over $750 million available at year-end.

“Through strong operational performance in the Oxy Ghana transaction, we materially reduced leverage during the year, ending at around 2.5x as planned,” Shah said.

Cash and cash equivalents were $131.62 million as of Dec. 31, 2021, compared to $149,027,000 as of Dec. 31, 2020.

Net long-term debt was $2,590,495,000 as of Dec. 31, 2021, compared to $2,103,931,000 as of Dec. 31, 2020.

Current maturities of long-term debt were $30 million as of Dec. 31, 2021, compared to $7.5 million as of Dec. 31, 2020.

On Oct. 21, 2021, Kosmos Energy priced $400 million of senior notes (B3/B+/B) due May 1, 2027 at par to yield 7¾%. The issue settled on Oct. 26, 2021.

The yield came 12.5 basis points tighter than the 7 7/8% to 8% yield talk and 50 bps beneath the midpoint of initial guidance in the 8¼% area.

Joint global coordinator Barclays billed and delivered.

The Houston-based deepwater energy exploration and production company earmarked the proceeds plus cash on hand to pay off the bridge notes issued to fund its acquisition of Anadarko WCTP Co.

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