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Kosmos (KOS) Dives Due to Partners' Ghana Production Issues

Zacks Equity Research

Shares of Kosmos Energy Limited KOS plunged to an 11-month low after one of its major exploration partners Tullow Oil Plc. TUWOY suffered lower-than-expected results, thanks to low productivity in their Ghana fields. The stock declined more than 16% to close at $5.05 as of Dec 10, a level last seen in February.  

Partnership Woes for Kosmos

Recently, Tullow showed a drop in 2020 production due to unsatisfactory returns from the TEN and Jubilee fields in Ghana, two of the company’s main producing assets. The company owns the fields in partnership with Kosmos.

Tullow Oil is the operator of TEN (Tweneboa, Enyenra, Ntomme) offshore fields and has 47.18% interest in the block. Kosmos holds 17% stake in the venture. Tullow also owns 35.48% working interest in the Jubilee field. Its partners in the venture include Kosmos, which has a 24.08% share.

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Production Issues at the Two Fields in Ghana

A major slump in the production of gas by the Ghana National Gas Company at Tullow’s Jubilee field along with the rising water cut on certain wells and poorer facility uptime caused the underperformance.

Meanwhile, TEN’s Enyenra field struggled with some mechanical issues in two of its new wells, which further restricted the presence of well stocks. This, in turn, accelerated the drop in the field’s resource.

Tullow’s 2020 production guidance is anticipated in the range of 70,000-80,000 barrels of oil per day (bopd), lower than the current year’s expected figure of 87,000 bopd. For the three years following 2020, average production is projected to be 70,000 bopd.

Concerns for Kosmos

The major concerns for Kosmos are weak yields from its partners which might hamper the company's cash generating assets as it has to fund its other offshore development projects over the next few years.

Further, this Hamilton-based player recently announced completing the drilling of the Resolution exploration well, jointly owned by BP plc. BP in the U.S. Gulf of Mexico, wherein it unearthed reservoir quality sands. However, the primary exploration work led to a well holding water.

While the well will now be plugged and abandoned, the company anticipates that drilling of the Resolution prospect will cost it around $55 million in the fourth quarter.

News of this unsuccessful drilling of the Resolution well induced its share price depreciation, thereby dampening investor confidence.

Kosmos Energy Ltd. Price

Kosmos Energy Ltd. Price
Kosmos Energy Ltd. Price

Kosmos Energy Ltd. price | Kosmos Energy Ltd. Quote

Earlier in 2019, management announced that of the four wells in the infrastructure-led exploration program in the U.S. Gulf of Mexico this year, Resolution is one, the other three being Gladden Deep, Moneypenny and Oldfield.

This exploration and production company also informed about its successful discovery of oil at Gladden Deep whereas the Moneypenny dig was unproductive.

Additionally, Kosmos is looking forward to spud the Oldfield prospect this month wherein it owns 40% stake while the rest of the well is held by Hess Corporation HES.

Further, this Zacks Rank #3 (Hold) continues to upgrade its multi-year infrastructure-led exploration prospect inventory in the Gulf of Mexico with three-well drilling awaiting next year. You can see  the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Kosmos Energy Ltd. (KOS) : Free Stock Analysis Report
 
Tullow Oil PLC (TUWOY) : Free Stock Analysis Report
 
BP p.l.c. (BP) : Free Stock Analysis Report
 
Hess Corporation (HES) : Free Stock Analysis Report
 
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