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Kosmos Energy Is On Fire

Apr. 04, 2022 4:45 PM ETKosmos Energy Ltd. (KOS)58 Comments
Harold Goldmeier profile picture
Harold Goldmeier


  • Shares are up 158% over the past year but have a potential upside for another 16%-18% growth.
  • Kosmos Energy reported a strong Q4 '21, refinanced its revolving credit line, and is benefiting from the potential market for alternative oil and gas sources.
  • The company suffers vulnerabilities that are caveats for risk-intolerant retail investors, especially asset-to-liability numbers and the debt-to-equity ratio.

Oil Or Gas Transportation With Blue Gas Or Pipe Line Valves On Soil And Sunrise Background

onurdongel/E+ via Getty Images

Investors in Kosmos Energy Ltd. (NYSE:KOS) have celebrated. As its NYSE stock trading anniversary (May 2011) approaches, shares are pushing up from $4.23 in February ’22 to $7.91 at the close of March. There is still time to join the party. Extrinsic circumstances

This article was written by

Harold Goldmeier profile picture
I write for retail value investors who cannot afford to lose money but sometimes like to take a risk. I speak for free to community and school groups. I was teaching business, social/political activism, and Middle East politics to international university students in Tel Aviv b4 the pandemic hit. A college in Jerusalem hired me to teach business and American Politics beginning in the fall of 2023. I consult with startups and mid-level companies. I co-manage Goldmeier Investments LLC with my son Daniel. I founded the Sappanos Decorating Centers, Chicago, with more than 70 employees and real estate holdings in excess of $15m. I am a former Research and Teaching Fellow at Harvard and Assoc. Prof Tufts Medical School.

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (58)

so, what I was referring to earlier....there is now a subsequent article stating...."an intent to partner"....which, from reading the two or three INITIAL articles....that seemed to be the case.

As they say though, the devil is in the details. The unique nature of the LNG business is that - at least in terms of what you see from the published articles - e.g., Venture capital on the plaquemines LNG - there are huge capital outlays, and it seems, bc of that, what you also see are 20 year contracts ... a buyer obligating himself to buy.....all in advance of the delivered product. Seems quite unique to me.

In either case, in line with that has been my thinking.....Senegal wants to be like South Louisiana and Texas, build these LNG facilities, etc. How else can Senegal take that step with out direct foreign investment - someone like Germany, years of surplus exports (though I have not kept up lately), so, with the funds to invest

And maybe using natural gas REALLY will reduce greenhouse emissions in the power generation of electricity. Electrical sector is the number one emitter (??)......the number one fuel source is coal, KING coal. In spite of all the talk (that is what I am getting at here), is there really a climate issue, and are governments really sincere about confronting it (Biden just used it to get votes, there is no Biden record that demonstrates a plan of action consistent with the multitude of complex issues that face any nation with energy transition - for the U.S., that is what - CURRENT- 85 maybe 90 percent plus fossil fuels - coal, gas, oil - ESPECIALLY what a complex and large economy like the U.S would have to go through - just the new infrastructure alone is maybe insurmountable).

China, in spite of all their talk, are bringing on more coal fired plants to produce electricity (to grow their economy) that the coal fired plants they are retiring. COAL is king, and it is the dirtiest of the dirty and there are many countries using more of it every day. A result of the globalization of trade was to bring more countries into the light of wealth....and the light of electricity......coal.

There are a lot of poor people in the world who don't want to hear the wealthy WEST 's noble objectives on climate. They are just now coming into the light, and they want all that comes with it. Just study what all that money did for Saudi Arabia. They were a nomadic, sparsely populated country. A consequence of all that money - petro dollars - has been the production of people, lots of people. And they didn't not grow up like their ancestors, living on a little and making a small environmental footprint. That story is everywhere, and its in Africa, and they are a lot of people who are aware of the creature comforts that the world has to offer.

Maybe Germany is really going all the way......cleanest fossil fuel and really saying good bye to Russia.

In an official visit to Senegal on the 21st of May, 2022, German Chancellor H.E. Olaf Scholz affirmed Germany’s intent to partner with the west African nation in the exploration and development of its world-class natural gas reserves. Senegal forecasts first Liquefied Natural Gas (LNG) production of 2.5 million tons next year alone with increases of up to 10 million tons by 2030, taking a leading role in Africa’s emerging gas markets. With these expected output
Yakaar-TerangaYakaar-Teranga is a product of GTA’s success, targeting 20 tcf of gas in Senegal at a 3,000-meter water depth.

Of note: re the Yahara Terega field...build out of pertro chemical plants. Senegal can't do this on their own. They need foreign investment.

The Yakaar-Teranga field is situated in the Cayer Profond block discovered in 2017, with the final investment decision (FID) to be made by the end of this year and production to start in 2024.

Its development will be carried out in two phases; the first establishing 150 million cubic feet per day of natural gas extraction and the second to build export facilities and local petrochemical processing plants.

Senegal is ideally positioned to supply German and other European markets aiming to cut back on their reliance on Russian gas. The Chancellor’s inaugural trip to Africa will conclude in South Africa with both Senegalese and South African governments receiving official guest invites to attend the G7 summit in Germany this June, along with the governments of India and Indonesia.
HunterKiller89 profile picture
@marinecmiller "a buyer obligating himself to buy.....all in advance of the delivered product. Seems quite unique to me."

Really? This is unique?
Utilities often lock down long term contracts, as do most companies building infrastructure for them. Nearly every pipeline operator for example negotiates such contracts. Similarly, so do most LNG producers.

You don't need to obligate yourself to a specific LNG price, you can just sign for a reference plus surcharge, like agreeing to buy NG at Henry Hub spot prices + Liquefaction fees for a 20 year period (Cheniere's standard model). You profit on the liquefaction fees, regardless of what NG pricing does (or transport fees for pipelines)

"In spite of all the talk (that is what I am getting at here), is there really a climate issue, and are governments really sincere about confronting it" .ummm....yes? HOW they confront it varies significantly, but most call for increased NG consumption to phase out coal, and eventual NG phase out with non-carbon emitting power (renewables, hydro, nuclear, etc). I mean, how could you invest in energy companies and not know what energy sources governments have been shifting towards for years?

"China, in spite of all their talk, are bringing on more coal fired plants to produce electricity (to grow their economy) that the coal fired plants they are retiring. "
That has been part of their talk for a decade plus. They have never pretended that they wouldn't need to ramp up coal in the short term.
Their renewable deployment, however, is in line with expectations, as they continue to dominate that category of generation as well.

I had to stop here.... That's a LOOOONG post filled mostly with admissions of your own ignorance (I don't mean that in a disrespectful way, despite the word's typical negative connotations), but most of the questions or uncertainties described are a simple google search away from answering.
Bous Investments profile picture
I had to pay $8.416 for KOS today for a (100) share lot. It is on fire. Supplying Europe is the factor (along with good LNG/oil prices.)
I may add, but I felt that I had to increase my position. Researched all available information. I just waited too long. My Wife had bought at < $2 in her Robinhood account. Also, I bought EGY, CPG, and RIG. I think that one will be a (5)-(10) bagger.
@Bous Investments I m waiting on the news....what made it jump today. All I know is that the German Chancellor made a point to emphasize his visit to Senegal and his discussion re LNG. From a visit to Israel, the resulting headline made mention of a working together, or a partnership, or something...more that just the general statement on the heels of the Senegal visit.

Israel is now producing (???) HUGE has find in their west sea - HUGE - turned him from an importing nation of gas (and energy?) to an exporting nation. Exxon is the operator (???) of the field - go EXXON.

Exxon big on its Guyana wells....keeps missing offshore Brazil, they just need to bring in Kosmos' deep water expertise.

Ultimately, the Tortue is 5 phases.....GTA, Phase 2, and 3, Yenegar-Terenga and Birallah. I know they struck gold on 5 straight wells.

Maybe the news is not German partnership, or LNG investment, but, instead the results of the top hole drilling.
Bous Investments profile picture
@marinecmiller Thanks for your thoughts on KOS. All of my small energy stocks had similiar moves today. Very powerful. My thoughts are that the market has seen the huge gains in larger companies (OXY, CVE, APA, EQT, CTRA, CNQ, MRO.) They realize that the smaller companies may have similar moves ahead. Of course, the need for Oil/Gas and its prices has become evident.
I like it ! Read the entire article

The MSGBC Oil, Gas & Power Conference & Exhibition – from 1-2 September this year – will explore this promising new development avenue in depth with a targeted panel discussion on Yakaar-Teranga led by representatives from all key sectors. As the successor to GTA, Yakaar-Teranga is the largest, most ambitious planned hydrocarbons project in the MSGBC region to date, involving extensive investment, progressive policy development and governance as well as unique engineering challenges.
I guess some of what we are seeing in all this good price action is the long awaited rotation into oil equities. Alot of my other stuff is making me smile.

Man o man.... I know its good to be early into a position (okay, that is whining.....the stock has moved up a lot from it s earlier stuck range of 2 plus to the low 4s), but, I sure wish we had some "growth" news. I think the next growth news is that Kodiak (GOM) well that they are working on; otherwise the next big news (???) is top hole drilling in Tortue and Winterfell (and maybe another field).

First gas in 2023 from Tortue can't get here soon enough!!
Tying into Billhilly and Harold here bc this is so unique. I've read this idea in other readings.....this idea that an event might not significantly reduce the price of oil, and or, have a lasting effect on the price of oil.

See, its so hard to accept that if for no other reason....bc of the past...... the commodity cycle was always boss......the highs were always met with the lows. Now, super cycle, years of underinvestment while global demand for fossil fuels has remained high/at similar levels, ?? Saudi spare capacity, all that pent up covid demand/return to normal (heck jet fuel travel is still coming), ETC, ETC, ETC

For those of us who like to read and enjoy scholarship - this is good times!!
@Harold Goldmeier I'm a "long time" fan of KOS (~2 years) but since they're a small cap, high debt operator (albeit with some great catalysts in the coming years), I suspect they might be hit hard if a recession occurs and oil price drops (even mildly, to the $80-$90 area). Considering trimming / disposing my position. How do you see their performance considering the macro situation?
Harold Goldmeier profile picture
@BillHiIIy what event is going to precipitate a significant drop in oil prices. Gulf states are not going to produce more; they hate Biden. Russia's not quitting the war and is likely to expand controls over its energy supplies. Oil companies will come in with huge profits from price increases because demand is high and there are no price controls on energy like in times of wars. KOS and GLP which I've written about are doing ok.
@Harold Goldmeier I'm not talking about supply increase - I'm on the same page with you here. I'm talking about a reduced demand scenario, due to a global recession, or even one that's only constrained to the EU.
Harold Goldmeier profile picture
@BillHiIIy I understand. I believe human consumption of oil and gas is as basic as food in modern society until there are new technologies for power. There are dips in demand and sometimes cavernous dips that last a while but demand for oil and gas comes roaring back.
So Harold -

turn into floating storage units
May 23, 2022
LNG vessels continue to head to Northwest Europe for regasification while gas export

The above from an article but to ur earlier question. And ……. a posit on Germany leaving Qatar w out a deal (the posit being the commitment) .

U asked me what I thought long term about in general Europe sticking to ….. no more gas from Russia etc.

A point I made previously u can tie into what we see unfold ing now - China and India and Saudi Arabia NOT aligning w us against Russian energy, the above article….ships in a holding pattern off the coast of LNG importing nations, etc. Like I said somewhere earlier, when the woes of Ukraine 🇺🇦 r no longer on the front page, etc.

Reading one of Vaclav Smil s books - he demonstrate s the reality of switching from the required energy infrastructure to THE REQUIRED new ENERGY INFRASTRUCTURE.

So u hv Germany - the most linked to Russian gas - read …. the most national treasure invested in infrastructure to import Russian pipeline natural gas. And now u hv LNG ships floating on the high seas functioning as storage units and or waiting to off load. Just think of THAT additional cost.

And in general you hv more costs coming from the demise in - the negative impact of the war on the globalization of trade.
Harold Goldmeier profile picture
@marinecmiller Very insightful, thanks. Finland is more tied than Germany but in lower quantities of energy, I think. We know why Saudi Arabia isn't lifting a finger for America. Because Biden denigrated the Prince over the reporter's murder during his campaign and blasted SA'a human rights record. They hated (rightfully) Carter too and caused the 70s oil shortage. It will be interesting to see if KOS can capitalize and profit from all this activity.
So we r waiting to hear about drilling and/or field progress on Tortue 1 or 2, kodiak, Winterfell, or Jubilee SE. OR squeeze ing more from existing plays.

Otherwise, I guess the big news is a year out ? 🤔
Harold Goldmeier profile picture
@marinecmiller but shares holding up pretty good considering the market
@Harold Goldmeier yes and it’s what I would expect. Kos’ “big”horizon r those 5 phases in the gas fields/deep water of Senegal and Mauritania. Relative to the current stock price, there is a lot coming. There is some waiting though - anything can happen - kos share in phase one is 30 percent of 2.5 mmtpa, starting next year. Above that they do have more BPD of oil coming. Within a year plus ur probably looking at 100,000 bpd oil alone. At 75, that is 7.5 mil a day. Kos is small and lean and well led (u guys wld say managed). And then there is all that gas. I think in 6 plus years ur at around 9 mmpta. Kos gets 3 of that.

There is just a lot of debt. And I don’t accept that relative decline like some do. I think the key. …..What the market will exact upon….. is absolute reduction of debt bc kos is small. Exxon can grow away the market s concern w 50 billion plus in debt (relative reduction)……not the same for KOS.
Well, Q2 revenue projections quickly (in SA) went from 472 to 530 - NICE. The other good thing is we are halfway through the quarter and product prices are still high - (some lag in areas, overall predictions r less demand but travel (jet) is up).

As I surmised in earlier posts, not much organic growth until H2 2023 - a little from a new purchase (Kodiak in GOM) and their continued improvement in existing fields. All of which makes me a little nervous - KOS needs to sell, sell, sell into the teeth of these great prices. Ultimately, IMO Mr. market is MORE focused on absolute debt reduction vs relative/ratio reductions (just see the stock price reaction not so long ago when they "redid" the credit facility). So, the absence of growth in this VERY friendly price environment is a little hard to stomach - especially since they are executing/good management team.

I really liked that they moved up the food chain - buying those small bits and pieces (assets) VICE as in the past when they had to sell their interest in a field/development - allowing someone else the better part of the feast.

A very impressive item in the Q1 was that they used some of the Ghana preemption proceeds to pay for one of these small asset purchases - AND STILL REDUCED DEBT BY 330 MILLION.

If management can keep it together, given the LARGE POTENTIAL of the Greater Tortue project (5 phases at least, over what, the next ten years plus), this play could be very interesting.

Go American Industry - pushing the envelope further and further by solving what couldn't be solved (isn't shale one of the best examples of that!!). Freedom - the freedom to utilize/pursue your god given talents as opposed to that government control that Biden and his fools want to lay on America (along with his inflation, stoked by his welfare bills to feed the pie eaters instead of investing in the pie makers).
Well darn!! Not exactly the excitement on the last trading before Q1 reporting.

As great as the commodity markets are and the 3-4 bumps we got on Kos' estimates - revenues and earnings, today wasn't a barn burner. A reminder of how tense the markets are - e.g., look at Exxon (another energy focus of mine).. trades at 9 times earnings.....or just below.

Its not all roses, so lets hope we have a great management team that execute the potential of Tortue, etc.
@marinecmiller Buy OXY is my humble advice
@energyguy921 I own OXY too - how much longer ? Buffett just bought more ! More credence to those earlier claims that he wants to bring OXY into the buffet stables ???!!!

OXY DVN and PXD - those r my middle beta s. And man o man have they done well ! U saw the 2 cent div bump today ??? Pioneer just declared 7 plus bucks. I know different debt issues.
@marinecmiller you are a wise man and I’m going to follow you!

I focus in on FCF. I don’t like companies with hedges.

Dividends don’t matter to me, if I need the money, I will sell something.

When a company pays a dividend, they are in essence increasing your taxes. People treat it as found money, if they pay out 100 m, the value of the company is 100 m lower.

But, I do acknowledge that the investment community loves dividends

Oxy is 100 per cent unhedged. Today ng hit 9.00

They earn 9. Other dopey companies hedged (pre sold at 2.40..maddening!

When it looks like we have a glut you can hedge then
All is so quite on the kos threads. My thoughts r that much of the good news is reflected in the price. Read - Monday will hv to be real good to move the price a lot.
Harold Goldmeier profile picture
@marinecmiller agree...and America, et al., will seriously have to seek alternative energy sources than Russian imports as a spur to suppliers' share prices
Well. We r down to 2 Monday s. Though the macro is really bad out there, the revenue estimate keeps bumping up - on SA most recently from 611 to 625 million. And earlier the earnings estimate up to 30 cents per share.
Estimate s up again. Both EPS and revenue
So from the 14 April Fitch upgrade article....Kos has been paid on the preemption. I'd prefer if they did like Comstock (CRK) , make a big debt payment now. See Fitch below:

Pre-Emption Options Immaterial: Following Kosmos' acquisition of incremental interests in Jubilee and TEN, both of its partners in these fields, Tullow Oil plc and PetroSA, elected to exercise their pre-emption rights. This ultimately decreases the working interest Kosmos will have in the assets somewhat, but this is offset by the strong underlying production performance and Kosmos has already received USD118 million of pre-emption proceeds from Tullow, which we expect to be used for debt reduction.
Today Fitch upgraded Kosmos to B plus and in the press release provided an excellent analysis of KOS position/execution. Of note, they referred to one of my main concerns - organic development (read increased production from existing operating fields). - and a focus on deleveraging and capex in its capital allocation over shareholder distributions (their guess is not until 2023).

Vy nice read boys, search it up.
Four Mondays until Q1 report. The keys will include: How much debt did they pay off/will be paid off in 2022 - what is the impact of the higher prices on the Q4 21 forecast; FCF (just about in question related to this); What is the BOEPD - in the quarter and going forward - Tullow preemption - did they pay for it yet, when; where are they on Tortue (drilling to start in Q2); FIDs on Tortue II and GOM Winterfell. What we really need is continued success in KOS' efforts to squeeze out more production in the existing/producing fields, especially in light of the "loss"/reduction in BOEPD due to the exercise of the preemption rights.

With the GAS realignment - taking the Russian supplied gas imported by Europe, principally Germany, and now finding other suppliers, seems practical to me that companies like KOS (and its BP partner) would allocate more resources to Tortue (speed things up).

I will say this, I have two "GAS" stocks that are going bonkers - Comstock and Conterra; especially Comstock CRK. For months, I watched CRK bounce up and down from 5 plus to 9 plus. Now, it just goes up and up. The word is they are increasing production to meet this new demand. CRK Q1 reports on 3 May - I can't wait for that one.

By now, I thought there would have been more on the infrastructure build/how to squeeze more out of the existing infrastructure. As far as I can tell, all the new GAS to Europe will be LNG transport. They (Europe) established the demand (agreed to buy X from now to 2030). Great, but, the devil is in the details. New LNG infrastructure is capital intensive - takes years to bring on line. Germany has committed to build two new terminals. They also rely on their pipeline grid connected to other Euro nations; so, they benefit from the imports from those "other" Euro LNG terminals.

Where is the grand plan of how the West will make a difference?
@marinecmiller see boys this is what I’m talking about - re kos a company like kos w debt issues selling into the teeth of these great prices ….. stocks.apple.com/...

FRISCO, TX, April 14, 2022 (GLOBE NEWSWIRE) -- Comstock Resources, Inc. ("Comstock" or the "Company") (NYSE: CRK) announced today the early redemption of all of its outstanding 7.50% Senior Notes due 2025 (CUSIP Nos. 22304LAA8/U2201LAA1; and ISIN Nos. US22304LAA89/USU2201LAA18) (the "2025 Senior Notes"). The 2025 Senior Notes have an outstanding aggregate principal amount of $244.4 million and will be redeemed in full on May 15, 2022 (the "Redemption Date").
In accordance with the terms and conditions set forth in the indenture governing the 2025 Senior Notes, the Company will pay the redemption price of 101.875% of the principal amount of the 2025 Senior Notes for a total of approximately $249.0 million, and will pay any accrued and unpaid interest up to the Redemption Date.
Notices of redemption of the 2025 Senior Notes are being sent by the trustee to all currently registered holders of the 2025 Senior Notes.
The Company expects to fund this redemption by using cash on hand and borrowings under its revolving credit facility.
Harold Goldmeier profile picture
@marinecmiller curious about your assessment on "gas realignment." Do you believe it's possible that Europe will forgo Russian oil and gas? So far, the Euro leaders have their heads in the sand, pun intended. No one is taking any action. They're barely speaking to Egypt, Israel, and Turkey about alternatives to Russian natural gas. Even the US still buys Russian oil propping up the R economy.
Fluidsdoc profile picture
Agreed. Might have chosen another title for a gas stock though. 😉
So I just looked at my other heavy in the gas stocks - EOG, CTRA, CRK - huge bumps. Yesterday, they met with some european delegates, etc......to discuss what.......GAS. See, KOS is a year behind on this - bummer.
Jefferies also bumped it up to 10. Today though, volume down. I guess this means the street - lack of coverage - just isn't convinced. Last few several days we had some good volume. Last quarter report, suggested 2022 could wipe out 500 million in debt. That is all the debt maturities through 2025. 2026 has a whopper of debt maturity.

Moreover, that debt (retiring) projection is based on 75 dollar oil. I think that would be key - getting way ahead of the debt right now (paying it down); which is why I sure hope to see that they continued to increase production from existing fields. Read need to sell more barrels - raise more BOEPD - while these prices are so good. I don't think there is any more new production until GOM winterfell and tortue. We should hear about this is the Q1 report - FIDs in GOM and Tortue, drilling in Tortue, etc.

9 May is just too far away. I am expecting good news - the results that support all these nice bumps in stock price.
Harold Goldmeier profile picture
@marinecmiller I respect your positivity and frustration.
Wow - Barclays bumped its price recommendation up to 11 today. Maybe its "alot has to go right". Just hope the macro events in the economy don't get us.
@BillHiIIy news wire. Anywhere on the internet. For me. I saw it on my Schwab account. Click on kos. Then under news
@marinecmiller Yeah I saw these but they just included the headline, I was wondering what the details are... :)
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