Africa-focused Kosmos Energy plans to spend about $300 million on exploration efforts this year, mostly to drill wells in the offshore Western Sahara Al Khayr, Tortue and Marsouin prospects as well as a fourth well, either another exploration prospect or an appraisal well.

The plans were delivered Feb. 23 as the Dallas-based company reported its fourth-quarter 2014 earnings results, capping off a year that saw average gross production at the colossal Jubilee Field offshore Ghana at about 102,000 bbl/d, appraisal completed at the Mahogany, Teak and Akasa (MTA) discoveries, a 7,000 sq km (2,703 sq miles) seismic program offshore Senegal and added licenses in Senegal and Portugal.

“On the exploration side, 2015 will be a critical year for Kosmos,” Kosmos CEO Andy Inglis said as the company pushes forward its so-called “second-inning” exploration portfolio. “We are currently drilling the CB-1 well tying in the Al Khayr prospect and expect the results in early March. After the Atwood Achiever departs from the CB-1 well location, the rig will go to Mauritania to drill two high-quality prospects.”

The drillship is set to test the Tortue prospect, which has estimated resources of about 2 Bboe across Mauritania and Senegal. From there, the drillship will move on to test the Marsouin prospect, which has estimated resources of about 300 MMboe. In addition, Kosmos will continue working with Chevron in the C8, C12 and C13 contract areas in Mauritania following news earlier this month of the two reaching a farm-out agreement in which Chevron Mauritania E&P will attain 30% interest in the areas.

“We believe the success of the farm-out process, especially in this market, demonstrates the quality and potential of this asset which we have held since 2012,” Inglis said, noting each of the prospects has significant follow-on potential that could be unlocked as a result of initial exploration success.

Exploration investment is expected to be $300 million for 2015, mostly associated with drilling and some seismic work, according to Kosmos CFO Tom Chambers. That is a big jump from 2014.

The $94 million exploration expense in 2014 was significantly below the 2013 expense of $230 million, he said, explaining that the main difference was that Kosmos benefited from the BP carry on the FA1 exploration well in Morocco.

Production expense for fourth-quarter 2014 was $46 million, compared with $17 million for the same quarter in 2013, due to additional workover activities and the additional lifting.

Of the total planned $800 million investment program for 2015, about two-thirds will go toward projects in Ghana.

“If oil prices average $50 per barrel over the course of 2015, we expect to net just over $80 per barrel,” Chambers said.

Kosmos’ second-inning portfolio is expected to have very low full-cycle breakevens—in the $40 to $60 per barrel range, Inglis said.

“However, these were based on costs in the $100 per barrel world. Low oil prices should translate into lower service costs, but the industry has yet to fully see the benefits,” Inglis said. “We suspect that in a sustained lower oil price environment we should be able to realize substantial savings on development costs that could reduce the full-cycle breakevens in our exploration portfolio to approximately $30 to $50 per barrel. This is why we believe our differentiated exploration strategy executed with discipline can create significant value even in this current oil price environment.”

On a full-cycle basis, the break-even of Jubilee is in the low $40/bbl range; however, considering most of the capex requirements have been incurred already with cash costs low, he said, the figure is around $20/bbl.

Jubilee: Having replaced 115% of production with new reserves, Inglis said Jubilee continues to exhibit good reservoir characteristics. Chambers said the company anticipates average Jubilee production to mirror 2014 levels, but have one fewer oil cargo lifting this year (variation being an extra cargo in December 2014). Moreover, completion of the Atuabo gas plant by the Ghana National Gas Co. is expected to help ease some of the debottlenecking issues at Jubilee.

Tweneboa, Enyenra and Ntomme (TEN): First oil is set to be delivered in the second half of 2016. Currently, the project is more than 50% complete with the 10 wells set to go online, Kosmos said. Located offshore Ghana, the Late Cretaceous play that will be developed utilizing the FPSO concept could produce about 80,000 bbl/d. Following Jubilee, TEN is Ghana’s second largest oil development.

Mahogany, Teak and Akasa: The MTA project, located in the West Cape Three Points Block offshore Ghana, also remains on track. Appraisal was completed last year. So far, 10 wells have been drilled in the three areas. Plans are for the development to be tied back to the Jubilee FPSO vessel. The development plan for the greater Jubilee area, which will include the learnings from the MTA development appraisal program, will be submitted to the government of Ghana later this year.

According to the earnings report, Kosmos generated net income of $129 million for fourth-quarter 2014. Reported net income for the full year was $279 million.

“Our balance sheet remains strong and we ended 2014 with $1.9 billion of liquidity and only $213 million of net debt. … We are well prepared if prices remain at their current levels,” Inglis said. “On the operational side, the growth plan in Ghana continues to deliver,” he added pointing out Kosmos’ net reserve replacement ratio of 336%. “Big fields get bigger. In the Jubilee alone, we replaced 115% of production with new reserves added through field performance. We also booked our initial reserves related to the TEN project this year.

“With an increased in gas processing and exports at Jubilee, we anticipate that we should be able to produce at the FPSO capacity by the end of the year,” he continued. “Along with the delivery of TEN, we have clear line of sight to 200,000 barrels per day of gross production out of Ghana in 2017.”

Contact the author, Velda Addison, at vaddison@hartenergy.com.

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