Kosmos Energy's CEO Discusses Q2 2011 Results - Earnings Call Transcript

Aug.11.11 | About: Kosmos Energy (KOS)

Kosmos Energy Ltd (NYSE:KOS)

Q2 2011 Earnings Call

August 11, 2011 11:00 AM ET

Executives

Brian Maxted – President and CEO

Greg Dunlevy – CFO

Paul Dailly – SVP, Exploration

Brad Whitmarsh – VP, IR

Analysts

Robert Morris – Citigroup

Doug Leggate – Bank of America

Edward Westlake – Credit Suisse

John Herrlin – Societe Generale

Brandon Warren – Jefferies

Anish Kapadia – UBS

Al Stanton – RBC

Brendan Warn – Jefferies

Operator

Good day everyone and welcome to Kosmos Energy’s second-quarter 2011 conference call. Just a reminder today’s call is being recorded.

Before we get started, one housekeeping matter. This conference call includes forward-looking statements, the risks associated with forward-looking statements have been outlined in the earnings release and in Kosmos SEC filings and they are incorporated by reference for this call. Management may also refer to certain non-GAAP measures such as EBITDA or earnings before interest, taxes, DD&A and exploration. Management believes such measures are important in looking at the company’s historical and future performance and these are commonly referred to metrics in the industry. Historical non-GAAP performance is reconciled to the appropriate GAAP measure in the earnings release.

At this time I would like to turn the call over to the President and CEO of Kosmos Mr. Brian Maxted for introduction and opening remarks. Please go ahead sir.

Brian Maxted

Good morning everyone and good afternoon to our overseas callers. Thank you for joining us for Kosmos Energy’s second quarter 2011 conference call. Joining me on the call today are Greg Dunlevy, our CFO; Paul Dailly, our Senior Vice President of Exploration; and Brad Whitmarsh who has just joined Kosmos as Vice President of Investor Relations. I’m sure many of you know Brad.

I plan to start our comments with a review of our exploration production portfolio as well as our main events. Greg will then discuss our financial results followed by Paul will provide an operations review. We hope that everyone has seen the release that issued this morning. In addition we will find our second quarter 10-Q today.

We created Kosmos energy to execute the strategy of technical and commercial excellence focus on the exploration development of the world-class upstream portfolio. This approach has led to an unparalleled record of success and significant value creation for our shareholders. Our overall strategy is focused on doing three things: creating value through exploration, maximizing and delivering value through developments in production and managing the risks inherent in our business.

We believe in building a balanced portfolio of long-term core assets. For us that means continuing our strong government programs focused on high margin production growth and then combining that significant low cost high value exploration. The Jubilee Field offshore Ghana is the core of our portfolio and the foundation of this company. Jubilee is one of the largest discoveries worldwide in 2007. As technical operations of the development, we and our partners brought the field on stream in a record 42 months with first oil achieved last November.

This is a world-class project with strong production capabilities and we expect net EBITDAX to Kosmos around a billion dollars per year at least at current strip prices. The stable long-term production cash flow from this core asset coupled with our strong balance sheet provides us the capital base to substantially grow this company.

In addition to ramping up to and maintaining plateau production at Jubilee, our operational strategy is focused on for additional elements: firstly, we are working to bring our other discoveries offshore Ghana into production, the progress is being made on this front with delineation and appraisal of the Enyenra and Tweneboa discoveries on the Deepwater Tano Block underway. On the West Cape Three Points Block the Mahogany’s plant development discussions are ongoing with the Ministry of Energy and GMPC. And finally appraisal of the Teak discovery is planned in the near term as well.

Secondly, there remains plenty upside in our Ghana position. Recent exploration drilling on our West Cape Three Points Block has primarily targeted new deeper, previously on tested place and together with other recent drilling success elsewhere in the Tano Basin there is new play type of highway (ph) opportunities. We are off to pursue on our acreage through 2012. Results on our Akasa prospect which is currently drilling are expected in the next couple of weeks.

Thirdly we are continuing to mature our exploration portfolio in Cameroon and Morocco. In Cameroon through our interest in the Kombe N’sepe and N’dian River licenses we have a significant position into emerging petroleum systems, both of which he believes share substantial geological similarities five blocks offshore Ghana.

We have recently completed our joint commitment on our Kombe N’sepe block, while we had drilling challenges that very much demonstrates the presence of viable reservoir and a working hydrocarbon system. The operator of this well has exercised the contractual right for a six-month extension of the exploration phase of the license and that will allow us to complete additional analysis of the well resource to-date and decide on our forward plan.

In addition, as the operator of N’dian River block we are preparing drill our first well at Liwenyi in 2012 timeframe.

In Morocco, consistent with our new venture strategy, we’ve expanded our portfolio with the signing of new petroleum agreement covering the offshore Foum Assaka area, which comprises 1.6 million acres. We’ve also recently signed a new agreement covering Cap Boujdour area which covers the high graded part operational block. Cap Boujdour area is approximately 7.3 million acres. So, we have a huge area of a potential to work with the Morocco.

Morocco, we hope is underexplored frontier in emerging basin, which contain significant exploration potential and attractive physical terms with low cost entry, economics. We expect to drill our first well offshore Morocco as early as 2013. And fourthly, we’re concentrating on leveraging our knowledge, skill and experience in replenishing a further growing our exploration portfolio through the identification and other capture of strategic positions in new frontier and emerging petroleum systems.

We do this by initially focusing on existing geographic areas and similar geological themes. We are including new exploration themes in our existing geographies as well as now expanding to new geographies. This is being done in a very disciplined, deliberate and decisive way through our intensive upfront geological drilling approach and process. Our new ventures team is actively generating new finding ideas create competitive advantage and identify strategic exploration opportunities and we’re making good progress in capture lease.

We are aggressively pursuing low-cost growth through development of discoveries and exploration success through the drill bit and we have the financing flexibility to pursue our problems.

One last thing. I’d like to highlight that we are successfully growing our organizational capability to build a necessary function capacity to not only be a successful public company, but also to assure that we can execute our operating strategy to successfully identify, capture, explore and develop growth opportunities and therefore deliver superior shareholder returns.

Now, I’d like to handover the call to Greg and Paul for financial and operating review respectively.

Greg Dunlevy

Thank you, Brian. Before reviewing our results for the quarter, let me start by commenting on our strong financial position. The cornerstone of which is our sizable Jubilee cash flow as Brian mentioned earlier. Cash and cash equivalents at the end of the quarter was 818 million and total liquidity was near $1 billion including cash and available borrowing under our debt facility.

Since the end of the quarter, we have repaid 300 million on our debt facility from cash on hand. We feel confident in our financial position with sufficient liquidity to fund our development appraisal and exploration programs over the next several years.

Turning to second quarter financials, we reported a net loss of 9.1 million or $0.03 per basic and diluted common share. As we went public in the second quarter this year, there are no equivalent per share numbers for 2010 and the second quarter of 2011 per share numbers are pro forma for the IPO.

Oil revenues in the quarter were $124.1 million from Jubilee lifting of 986,000 barrel with cash received in third quarter. The average daily production for the quarter was approximately 15,000 barrels per day, net to Kosmos or 66,000 barrels per day growth from the Jubilee Field. We were in under looked position for the quarter to the tune of approximately 340,000 barrels or approximately 35 million in revenues.

Oil and gas production costs were below $15 per barrel sold in the quarter, with depletion and depreciation about 22 per barrel. General and administrative costs were approximately 20 for the quarter. Of this, approximately 40% was non cash and related to long-term equity base compensation. Our interest expense was 18 million for the quarter, which is up slightly from last year on higher average debt outstanding balance.

For the quarter, exploration expense was 85 million, which included costs related to Odum, (inaudible), Banda and Makore. In coordination with our partners, we have decided there was insufficient basis to declare Odum commercial during the second quarter. The West Cape Three Points exploration period as you know ended in July of this year and we are pursuing a plan to relicense the relinquished acreage including the Odum area.

Looking forward to the second half of the year. We anticipate two liftings in the third quarter and two liftings in the fourth quarter. There is a small possibility, we might have a third lifting in the fourth quarter though this will depend on exact timing of partner liftings and the field production ramp up rate during the balance of the year.

I want to provide a bit of cost guidance to go along with the outlook for liftings at Jubilee. As you would expect, these estimates have a band of uncertainty around them. For the full year 2011, we expect oil and gas production costs of around $100 million, which correlates to our six liftings in the year four of which will be in the second half. Interest expense should be approximately 75 million and our G&A expense, we anticipate in the range of $95 million. Again, 40% of that being non-cash expense permanently so to say with company’s long-term equity incentive compensation program.

Our 2011 budget remains at 500 million, which is unchanged from the guidance previously given to you of which 85 to 90% is planned for Ghana. To conclude, we are in a very solid position to executive our corporate strategy and fund our capital programs through the end of 2013.

Now, let me turn the call over to Paul Dailly.

Paul Dailly

Thanks, Greg. I’d like to spend a moment discussing our current portfolio and then focus on our forward program. The company’s overall portfolio has great breadth and depth. In Ghana, we made a number of world class discoveries, highlighted by our first producing asset, the Jubilee. We have a number of additional discoveries under appraisal, additional prospects later to be drilled.

In Cameroon, we have a substantial position in two petroleum system. The size of more than 200 Kombe N’sepe Blocks with very limited drilling density to-date. And in Morocco, we have some of the largest more strategic blocks in Africa and we are embarking on the exploration of multiple underexplored play systems.

We’ve build a portfolio here at Kosmos that we believe is world class. On the appraisal and development side, while the ramp up in production ad Jubilee continues. We continue to work with partners and the Ghana government on the optimal approach for the development of Mahogany East. Our appraisal program with the Tweneboa discoveries with recent success of drillstem test of Tweneboa-2 and the current ongoing test at Tweneboa-4. In Enyenra, we are planning to drill two additional appraisal wells beginning later this year. And at Teak, we plan the first of two appraisal wells late in 2011.

On the exploration side, we spud the Akasa-1 exploration well in July on the West Cape Three Points Block. Now, we expect results of this well in the few weeks. Many of you have seen that we delivered of course, as you notice the Government of Ghana and Ghana National Petroleum Corporation related to the Cedrela prospect, when the drilling rate that we scheduled to arrive on location was delayed due to rig. The rig was working for another operator on a different block at that time.

Looking forward, we see an active drilling program in 2012 on both the Deepwater Tano on West Cape Three Points Block. We are also excited about drilling our first operated well in Cameroon on the Indian River Block. We’ve recently finished our drilling commitment on Kombe N’sepe Block in Cameroon when we encountered reservoirs and hydrocarbons and we will be evaluating the data to identify play elements in areas of the block through a liquid content and track effectiveness may improve. This will help us to better plan for future exploration in the Kombe N’sepe Block.

In Morocco, our program is moving forward. We are excited about the large potential we have access to between the Cap Boujdour and Foum Assaka areas. The new Foum Assaka license is located in the Aaiun Basin, which is underexplored area with some similar opportunities to Kosmos core plays in the late Cretaceous as well as a new potential pre-salt play. The acreage has proven source-rock and abundant structuring.

The first phase of exploration includes acquisition of 3D seismic project drilling decision. We are eager to get to work and could drill a cross well in the Foum Assaka license as early as 2013.

Our new ventures group continues to identify and evaluate numerous opportunities across the globe. Our approach is always been to tick our experience that large volumes of oil and apply to new opportunities and overlooked provinces and that’s the strategy that we continue to follow.

Now, I’ll turn the call back to Brian.

Brian Maxted

Thanks Dailly, and thank you everyone for joining us on a call today. As you can tell, we are now excited to continue building on our track record of success and value creation. Now, we’ll be happy to answer some questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Our first question this morning is from the line of Doug Leggate with Bank of America. Please state your question. Mr. Doug Leggate, your line is open for question sir.

Brian Maxted

You can go to the next question operator.

Operator

Thank you, sir. Our next question is from Bob Morris, Citigroup.

Robert Morris – Citigroup

Good morning.

Brian Maxted

Good morning.

Greg Dunlevy

Good morning, Bob.

Robert Morris – Citigroup

Can you give us a little bit more color on the timing of Cedrela. First is the Marianas rig repaired in, you mentioned that you ready to proceed with drilling Cedrela and then also could there be any delay even once the rig is fixed in getting the government approval to extend the term of that lease to be able to drill Cedrela.

Brian Maxted

Paul, do you want answer to that question.

Paul Dailly

Yes, sure. Good morning everyone. Right now, the rig is been in (inaudible) in Ghana being repaired and repairing proceeding quite well. So, we expect the rig to be ready sometime in the fourth quarter. We’re discussing the Force Majeure situation with Government of Ghana and as soon as that’s resolved, we expect to drill the well.

Robert Morris – Citigroup

Can you see the rig be ready fourth quarter?

Paul Dailly

Yes.

Robert Morris – Citigroup

Okay. And then, this is second quick question on the budget, you mentioned that there is no change in 500 million a year. What displace I know the recent budget did not include Cedrela and did not include potential sidetrack at Jubilee. So, is there – was it that those expenses displacing now Odum that was previously planned to be drilled or how does that shape out to be unchanged?

Brian Maxted

Greg, if you want to go.

Greg Dunlevy

Bob, this is Greg. Two things, we actually have revised our budget during the year upward to cover some of these additional costs and we have a small amount of unallocated in the budget. So, given that we have adequate amount in the number, we provided as we estimate about seven, eight weeks ago. That included the Cedrela in that number as well. So, it was there. The total cost of the additional sidetrack we mentioned are released, is not material in the overall budget given the room we had in it. So, I don’t think 80 million will change – gross will change the 500 million for the year.

Robert Morris – Citigroup

Okay, great. Thank you.

Brian Maxted

Thanks Bob.

Operator

Thank you. Our next question is coming from Doug Leggate of Bank of America. Mr. Leggate, please state your question.

Doug Leggate – Bank of America

Hi, guys. Can you hear me now?

Brian Maxted

We can hear you Doug, yeah fine.

Doug Leggate – Bank of America

Probably guys – you could hear me before. A couple of quick ones if I may. Greg, can you give us an update on the current stock as so – I guess the negotiations are on the license extension on West Cape Three Points and I just want to be clear on what you said about Odum. Did you see Odum was not the declared commercial and does that mean Odum that is also you had to relinquish there because you run does well. Any update there that would be appreciated and I have a quick follow-up.

Greg Dunlevy

I’d be glad to answer that. Odum, our partners have great deal of time discussing the technical merits and where we stand with the Odum discovery. During the quarter, we concluded we were not prepared to go forward with commercial exploration and therefore a development or plan a development with government.

On July 21st, the seven year exploration period for the license expired and with that the area related to Odum. As you may recall, we have under our existing license rewrite on similar terms to relicense the relinquished area as well as a right of first refusal should GNPC given off of the third party to match that offer and thereby we acquire the relinquished area. The total cost related to the Odum charged exploration expense was approximately 32.5 million pretax or 21 million after the tax effected for 35% gaining of tax rate.

Doug Leggate – Bank of America

Thanks Greg. I guess the reason for the question is my understanding originally was that Odum was perhaps probably looked out as a potential development along with some of the other smaller discoveries. Does that changed the game plan and in terms of how you might move forward with some of the other developments on the block.

Greg Dunlevy

No, I don’t see this having an impact on the other developments.

Brian Maxted

Yeah Doug, this is Brian here. I think you are exactly right, we think – we have seen, still see Odum as a path for integrated development and the central and western part of the West Cape Three Points Block and tied back into the Teak in Mahogany East area is the most sensible and most likely way forward for Odum, which is challenged for couple of technical reasons principally the lower gravity oil that exists in that reservoir.

Doug Leggate – Bank of America

Great. Thanks Brian. My own – my very quick follow-up then is this one is for Paul. Paul, the relationship between Cedrela as a prospect on the Paradise well that has start, could you maybe just give any kind of prognosis of how the Paradise result make the potential prospectively of Cedrela and I leave it at that. Thank you.

Paul Dailly

Okay. The Paradise well and also the Banda well are being drilled into deeper horizons than we previously drilled anything in the block and so we opened up a new play theory and that play theory extends over we think over our acreage and as a consequence of this information, we’ve high graded some of the additional prospects and Cedrela is one of the prospects which emerged in that process. So, we’re quite excited about it and hope to be able to drill it soon.

Doug Leggate – Bank of America

Is your understanding is Cedrela is a separate prospect or a part of the same formation possibly in the context of Paradise.

Paul Dailly

We don’t really have that information to know the answer to that to be honest. We’re certainly treating it as an independent prospect right now.

Doug Leggate – Bank of America

Got it. Thanks for taking my question guys.

Paul Dailly

Okay.

Operator

Our next question is from the line of Edward Westlake with Credit Suisse. Please state your question.

Edward Westlake – Credit Suisse

Yes, good morning everyone and congratulation on the strong realizations and cost control. Just on the realizations, I guess we one cargo with it’s tricky to make a comparison against the quarter average price of Brent. Can you give us a feeling of what you achieve relative to Brent for that cargo?

Brian Maxted

Hey Greg, do you want to take that?

Greg Dunlevy

Yeah, that cargo was priced at approximately $1 above Brent. Our most recent cargo was priced at approximately $0.40 above Brent and it really depends on the market for African and specifically West African crudes. These are the Brent exactly where that differential will be. We’re still on the process. We and our partners Anadarko, Tullow, GNPC and others, building market awareness of the crude. We’ve only sold to a limited number of buyers so far. That group is expanding and we as expand that further, we would expect that band of pricing to now or to Brent to a bit. But, fundamentally the difference is that the West African market, these will be the North Sea market and the relative differentials for transportation that are incurred.

Edward Westlake – Credit Suisse

Thanks. And the second question relate around timing on FID of next project. Obviously, just you flagged appraisal work at Enyenra, Kombe N’sepe, Teak, and Mahogany East. So, quite an active program. At what point do you think you’ll be able to make a decision potentially around taking the next FID on the next perhaps project in either block.

Brian Maxted

Edward, this is Brian. Maybe, I’ll take that one. You can see from the activity in the last quarter through this part of the year that we have a major focus of the appraisal we’re doing Enyenra in particular, but also at Tweneboa. And Enyenra appears to be the simplest, most conventional oil development along lines of Jubilee itself. And so, because of that for instance more reason to being move forward quickly. And I think the partnership as a whole sees that as a like in next development. Tullow, the operator is looking towards completion appraisal declaring commerciality on submitting a development plan probably in the early part of next year.

Edward Westlake – Credit Suisse

And if I was to just talk about Teak and Mahogany East because you could tie this back to Jubilee or potentially to Odum. So, what are thoughts there?

Brian Maxted

Yeah, I mean Teak and Mahogany East at various stages of appraisal obviously. Teak quite early and we believe there is a very substantial resource in that west central part of West Cape Three Points. But, over the course of the delineation program, it’s probably going to just to having the volumes that justify a standalone development. So, we are eager to move continued – continuing to move Mahogany East along same time in parallel with delineation in later part of this year and into next year of Teak which is multiple reservoirs, multiple pay zones, multiple fluid types and could be quite a significant development for us.

Edward Westlake – Credit Suisse

Right. And then, my final question, just picking on a comment. You said, you are discussing Force Majeure with the government. Presume that would happen on any Force Majeure, but, this is around the rig for Cedrela. But, are there any risks of that acreage would have to be relinquished or you feel these discussions basically will work out in your favor and that that acreage will continue to be part of existing seven-year license period?

Brian Maxted

We think we are in a pretty strong force majeure position given the situation and what happened in the rig with handling the tankers (ph) before coming to the block and so we believe we will ultimately move forward on south, there is always the risk of course, but we’re hopeful to move forward.

Edward Westlake – Credit Suisse

Okay, thank you.

Operator

Our next question is from the line of John Herrlin of Societe Generale. Please state your question.

John Herrlin – Societe Generale

Hi, some quick ones. With the Tweneboa DST that you did finish, could you discuss the results more.

Brian Maxted

Hi, John, it’s Brian. Paul do you want to take that.

Paul Dailly

Yeah, sure. Iweneboa-2 an oil DST which he completed probably a month or so doing that. That was successful test of the one of the oil zone Tweneboa fluid at 6.5 million barrels a day with about 5 million cubic feet of gas. So that was successful DST and right now we are in the middle of a second DST Tweneboa-4 which is slightly shallower in the gas condensate pay and that’s an operation that’s ongoing but you should be completed here in the next week or so probably and it’s been successful to-date.

John Herrlin – Societe Generale

Okay. How long will the Enyenra wells take to TD?

Paul Dailly

Once we finish Tweneboa-4 we are going to go back and start drilling Enyenra again. The next activity there is in Enyenra-3 we should be fairly quick because they’ve already drilled the top full section, only three weeks once we’ve – three to four weeks once we re-spud it. And then following that we will do DST in Enyenra on the original well, discovery well is drilled and then towards the end of the year, late fourth-quarter will probably drill Enyenra-4. So by the end of the year we should a lot more information on Enyenra.

John Herrlin – Societe Generale

Okay. With Cameroon what kind of shares did you have, can you be more specific about information you’ve found with your partners?

Paul Dailly

Well, in terms of gas and water in a variety of different sands, we actually had quite thick sand section, thicker than we had anticipated. Right now we are going back and remapping to understand what the implications are for the track and geometrics and for the migration. So there is probably a few months of work to be done there to understand what our next move is in the block.

John Herrlin – Societe Generale

Was that dry gas or it was wet gas or…?

Paul Dailly

It was a mixture, there was some dry gas and we also had some wetter gas there as well.

John Herrlin – Societe Generale

Last one from me is on Morocco, will you try to bring in partners given your high working interests on some of your blogs there or religious way to do the P&G and then consider promotes?

Paul Dailly

Right now in Morocco, we have some work to do with seismic with reprocessing and acquisition, so that’s our first step. We will likely do that first, so you understand exactly what our strategy is before bringing partners in.

John Herrlin – Societe Generale

Great, thank you.

Brian Maxted

Okay, John. Thanks.

Operator

Thank you. Our next question is coming from the line of Brandon Warren with Jefferies. Please state your question.

Brandon Warren – Jefferies

Hi, guys. This is Brandon Warren from London here.

Brian Maxted

Hi, Brandon.

Brandon Warren – Jefferies

Just a couple of questions, most have been answered, but just one I guess following Banda in the Campanian, now that you have time to evaluate it and build it back into your models, I mean just how has that changed your view on the Campanian on the West Cape Three Points Block. And then there is secondly also read through from obviously the Eni discovery, does that mean sort of any further prospectively on your acreages will.

Brian Maxted

Paul, they are probably your questions. Thanks, Brandon.

Paul Dailly

Okay. Well, you’re right. Banda had two objectives, the Campanian with a shallower objective and then the kind of the pay zone was done in Cenomanian. We were pretty done there on the Campanian. It was wet and that was a disappointment. It fit into the whole discussion around Odum, but of course there is an update potential in there, Odum scale of that potential which we’re still looking at. The ENI discovery is – we don’t know that much better to be honest with you and operator hasn’t result – released that much clear results. But in general, with the ENI discovery, the Banda deeper pay, which was the first well to open up this new Cenomanian play and then a well to the south, there is a deeper play in these blocks which we’re evaluating in some detail now and we’ll probably add some interest to the area.

Brandon Warren – Jefferies

Okay, cheers. Thanks for that.

Operator

Thank you. Our next question is from the line of Anish Kapadia with UBS. Please state your question.

Anish Kapadia – UBS

Good morning. There are a few questions. Firstly on the gas side of things, there has been quite a lot of gas discovered now in Ghana. I was just wondering what your thoughts are around gas monetization if you had any conversations with your partners. And secondly on production from Jubilee, I was just wondering if you could run through some of the issues you had with production and some of the reasons for the delay in the ramp up of that. And then just a final one on the West Cape Three Points Block, just wondering when should we expect to hear something about the extension over here, and what do you hope to drill.

Brian Maxted

Okay, Anish, thanks for those questions. Let me, probably, let me take them in the following order, let me talk about the West Cape Three Points license extension or renewal. What we’ve talked – touched on that, the process is ongoing with GMPC, as you know we have first right refusal and they do have the opportunity to market the area. We are in the middle of preparing for that process. And our estimate is a roundabout six months to get through this process on the license renewal. So, that’s ongoing, it’s under way.

In terms of Jubilee production, the first thing to know is this is a world-class field. Everything that we have seen from the reservoir in terms of performance since the start of production is nothing but confirmed the originally predicted volumetric range that we saw for the first oil. So this remains a giant field with spectacular production capability. The challenges that we’ve had been ramping up to plateau production is not a typical during the start-up phase of any major field and obviously particularly the one – particularly one they’re accelerating in the development.

The delays – the delays are really related to two principal thing and probably an additional factor. The principal issue has been a significant amount of rig maintenance particularly with respect BOP, refurbishment was necessarily on the already crowded rig which delayed completion, cyclical completion of wells, that’s (inaudible) mostly the producers.

And then secondly we’ve got some operational challenges on commissioning both the water injection system the gas injection system, those are now on their way to being resolved, which is good news. And then there have been one or two wells that suffered largely from completion related problems in productivity. And as we discussed part of plan to get to plateau production involves sidetracking of one of those wells into a better position. So, we are alongside with the operator, we’re confident this field is going to get to achieve its potential plateau production target around the end of the year, and then we folks will be on maintaining that production, we plateau for as long as obviously possible.

The third question on the gas and this is a great point. There is obviously a substantial amount of gas discovered already in the base of the well there (ph) and others now both associated and free gas. And as we look to start exploring some of these deeper horizons, the phase risk for gas gets higher. So, we could very – we could end up with a very significant amount of gas in this province. And finding solutions both for the Jubilee but also for the other fields is going to be crucial to commercialize the liquids in particular on these discoveries.

So we were very pleased to see the establishment of the GNGC by the government. We think that’s a major step forward in formalizing the business from the government standpoint. And we look forward to working with GNGC both as Kosmos and as part of a broader consortium with any industry to assist the government and support the government in putting that structure to commercial the gas.

Anish Kapadia – UBS

Okay. Thank you. Could I just ask one very quick follow-up, on the Cedrela prospect, I’m just wondering what size you carry about that?

Brian Maxted

Paul, do you want to take that?

Paul Dailly

Yes. I mean, we think it’s a pretty substantial prospect between 100 and 200 million barrels.

Anish Kapadia – UBS

Is that on a pre-term basis?

Paul Dailly

No, that’s around the (inaudible) meaning is, somewhere between 100 to 200 million barrel.

Anish Kapadia – UBS

Thank you.

Operator

Our next question is from Al Stanton with RBC. Please state your question.

Al Stanton – RBC

Yes. Good morning, guys. Just a follow onto that question on whether that was an oil or an oil equivalent figure. But my main question is really in terms of the renegotiation of the West Cape Three Point. I was wondering what elements of the PFC (ph) can be flexed. Is it the thins like the equity stake, is it the fiscal terms, is it work commitments? Thank you.

Brian Maxted

Yes, this is Brian here. As we mentioned earlier in the questions, this process is ongoing. Our GMP has the market to – the right to market the acreage. The language in the petroleum agreement talks about substantially the – essentially the same terms. Obviously this will be a discussion in negotiation and will be subject to whatever third parties may put on the table. And we will have to wait and see what that is.

On Cedrela, Paul, do you want to take the Cedrela part of question?

Paul Dailly

Yes. That’s an Mmboe number. We – some of the horizons are deeper, then the Jubilee reservoir for example, so there’s some fees risk attached to that.

Al Stanton – RBC

And then – sorry, just a follow on question. In terms of as we stand today, what do you reckon is going to be the 2012 exploration campaign?

Brian Maxted

That’s a good question, Al. And I’ll let Paul answer that one too.

Paul Dailly

Well, all the – we’ll see how it goes with West Cape Three Points of where we end up. But actually, we explained how a fairly robust drilling campaign in the Deepwater Tano Block in 2012. And this year, Deepwater Tano is mostly refocused on appraisal of Enyenra and Tweneboa. That process will come to an end sometime early 2012. And the operator who I think, is going to give some sort of presentation in the next couple of weeks will – is planning affiliate robust drilling program next year in Deepwater Tano.

In West Cape Three Points, this year, we have Akasa which is currently drilling. Potentially, Cedrela and then we’ll go and drill Teak-3 potentially Teak-4. And then in addition to that, next year, we’ll have first operated well in Cameroon in the Indian River Block on the Liwenyi prospect. And the timing really depends on rig availability, so it’s shaping up to be quite an exploration program next year.

Al Stanton – RBC

Thanks, Paul.

Operator

(Operator Instructions) Gentlemen, we have a question from Brendan Warn from Jefferies. Please state your question.

Brendan Warn – Jefferies

Sorry, gentlemen. Just a quick follow-up question regarding that statement, just in 2012 what sort of risk we got (inaudible) us in not being drilled and if they fall outside of the West Cape Three Points current license area.

Brian Maxted

Paul.

Paul Dailly

Well, I mean, as Brian already total debate, we got a process with GNPC where we’re looking for sub party offers as is the rights under the terms of the petroleum agreement and we have the right to match whatever offer they get. So, we feel fairly good that we have the opportunity to drill those prospects if we think it’s appropriate for us to do so.

Brendan Warn – Jefferies

And within that timeframe when you flag next six months, at what point would be call booking a rig slot so those wells and the risk of sliding into 2013.

Paul Dailly

We have quite a lot of rig capacity with the Atwood Hunter next year, which will be split between a variety of activities, either appraisal or exploration depending on what we think the priorities are. So, that’s something that we’ll finalize here over the next few months as we plan our 2012 budget.

Brendan Warn – Jefferies

Okay. Thanks guys. Just a follow-up question on the Jubilee Field. It may be too early, but, are there any deep bottlenecking opportunities being highlighted in terms of the actually facility itself?

Brian Maxted

Sorry, Brendan. This is Brian. Yes, there are as we talked earlier. Some bottleneck opportunities. Fundamentally, we believe these facilities have the capability of up to 140 barrels a day. We’ve really not focused on those at this point. We are focused ongoing production capacity in place and ensuring particularly the water injection and the gas injection systems are working on a good enough time basis which possibly get them FSO (ph) as a whole is working about 95% up time at the moment which is spectacular really and we’re focused on ensuring that performance continues and as we go into next year, we got up to our plateau and the operator will be focusing few bottleneck – on optimizing the top side facilities to get to make full use of the facilities that are available.

Brendan Warn – Jefferies

Okay. Thanks guys.

Brian Maxted

And Brendan, I made one of the comments on the prospectively that the West Cape Three Points. Obviously, we try to manage a portfolio, we bring new things into the portfolio at all the time and we haven’t had chance to discuss Foum Assaka in Morocco. But, as we start to pickup new petroleum systems with very, very significant potential which have all the hallmarks of Ghana four or five years ago. We have to look at all the prospects in Ghana within the context of allocating capital on whatever our best prospects are and they may not – they just may not be in Ghana, they maybe in Cameroon or Morocco or indeed in another new venture that will come into – that we expect to come into the portfolio in the coming months.

Operator

Thank you. I would now like to the turn the call back over to Mr. Whitmarsh for closing comments.

Brad Whitmarsh

Thank you all for joining us today and for interest in Kosmos Energy. Do you additional questions as the day end, please call. Don’t hesitate to give us a call. Thanks.

Operator

This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.

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