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Kosmos Energy Says Targeting to Reduce 2020 Capital Budget for the Base Business by ~30% to under $250M; Suspend Dividend

Following the announcement of Kosmos Energy's (NYSE/LSE: KOS) full year 2019 results on February 24, 2020, the company is today providing an operational update. In response to the current market price volatility, Kosmos is taking the following actions to maint

Benzinga · 03/17/2020 09:17

Following the announcement of Kosmos Energy's (NYSE/LSE: KOS) full year 2019 results on February 24, 2020, the company is today providing an operational update.

In response to the current market price volatility, Kosmos is taking the following actions to maintain balance sheet strength and preserve flexibility:

Reduce Capital Expenditures:

At the 4Q19 results, we guided to a 2020 capital budget for our base production business of $325-$375 million. We have identified over $100 million of discretionary expenditure largely related to exploration activities in the Gulf of Mexico and our basin-opening exploration portfolio. We are now targeting to reduce our 2020 capital budget for the base business by around 30% to under $250 million whilst keeping 2020 production flat, in line with previous guidance and with minimal expected impact on 2021 production. The company also has significant flexibility in its 2021 capital program should current market conditions persist.

In Mauritania & Senegal, we are working with the Operator to defer 2020 Tortue Phase 1 capital spending with the goal of extending the carry of our capital obligations through the end of this year. In addition, our priority remains to sell down our interests to support a self-funded growing gas business. Tortue Phases 2 and 3 are expected to take final investment decision (FID) in mid-2022 and mid-2023 respectively with minimal capital required ahead of FID with the objective to project finance both thereafter.

Reduce Both Operational Expenditures (Opex) and General and Administrative Costs (G&A)

We plan to implement cost reductions with over $60 million of savings expected in Opex and G&A in 2020. Whilst a significant portion of our Opex is fixed, we are targeting a reduction of $1/boe without impacting asset integrity or near-term production. Through a reduction in company headcount, no planned cash bonuses for employees in 2020 and other cost reductions we plan to significantly reduce cash G&A in 2020.

Suspend the Dividend

Our priority is to ensure the strength of the balance sheet in the current market price volatility. The Board has therefore decided to suspend the dividend after the announced 4Q'19 payment until market conditions improve. This will provide savings of approximately $75 million annually.

As a result of the actions above, and taking into account the company's hedging position, Kosmos believes it can be free cash flow neutral beginning in 2Q and fund all of its obligations at a $35/bbl Brent price.