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Kosmos Forays Into GoM With Deep Gulf Energy Acquisition

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Kosmos Energy Ltd. (KOS - Free Report) recently agreed to acquire Deep Gulf Energy from First Reserve, which is a private equity investment firm focused on energy and other shareholders, for $1.2 billion. With the acquisition, Kosmos will enter the prolific Gulf of Mexico (GoM). As of now, the company’s assets are concentrated in Africa and South America. The deal is expected to close by the end of third quarter.

Kosmos will pay for the transaction through $925 million in cash and $300 million in common stock. The cash part will be funded with borrowings under the company’s existing credit facilities.

The deal is expected to increase the company’s production to 70 thousand barrels of oil equivalent per day (MBoe/d) from 45 MBoe/d. Majority of the output (85%) is expected to be oil. The stock and cash deal will enhance the company’s estimated reserves of 200 million barrels of oil equivalent (MMBoe), as of Jun 30, 2018, by 40% to around 280 MMBoe.

Significance of the Deal

With bottlenecks in shale plays and improved cost structure in deepwater assets, GoM has recently returned to the limelight. Therefore, the acquisition is an attractive investment choice for Kosmos, providing it with  both short and long cycle exploration opportunities. Furthermore, the company expects to generate significant cash flow from the assets, which can enable Kosmos to pay dividends to its shareholders starting from the first quarter of 2019.

Price Performance

Hamilton, Bermuda-based Kosmos, an upstream energy company, has gained 11.3% in the past year compared with 18.3% rally of its industry.

Zacks Rank and Stocks to Consider

Currently, Kosmos has a Zacks Rank #3 (Hold). Investors interested in the Energy sector can opt for some better-ranked stocks like Canadian Natural Resources Limited (CNQ - Free Report) , ConocoPhillips (COP - Free Report) and Cheniere Energy, Inc. (LNG - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Calgary, Canada-based Canadian Natural Resources is an upstream energy company. The company’s top line for 2018 is anticipated to improve 35.3% year over year, while its bottom line is expected to increase more than 182%.

Houston, TX-based ConocoPhillips is an integrated energy company. The company’s top line for 2018 is likely to improve 14.1% year over year. In the last four reported quarters, the company delivered an average positive earnings surprise of 27.6%.

Houston, TX-based Cheniere Energy mainly focuses on liquefied natural gas-related businesses. The company’s top line for 2018 is anticipated to improve 25.9% year over year, while its bottom line is expected to increase more than 225%.

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