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Kosmos Energy to Abandon Pontoenoe-1, Issues Business Update

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Kosmos Energy Ltd (KOS - Free Report) plans to abandon the well — the Pontoenoe-1 — in Block 42 offshore Suriname, after it failed to discover oil. This turned out to be the second dry well in the region in recent months.

High-quality reservoir was discovered offshore Suriname but the main exploration goal proved to be water bearing. Also, the company did not encounter commercial hydrocarbons.

Kosmos Energy, the exploration operator of Block 42, holds 33.3%, under a production sharing contract with the Government of Suriname’s Staatsolie Maatschappij Suriname N.V. (Staatsolie). The other partners include Hess Corporation (HES - Free Report) and Chevron Corporation (CVX - Free Report) holding 33.3% each.

Kosmos Energy intends to continue tests in the Suriname-Guyana basin, as it still considers the area to carry potential. The company also stated that production in Ghana received a boost following the Jubilee turret remediation work and with the commissioning of the new wells at Jubilee and TEN during the quarter.

The company proposes to add a second rig in Ghana, taking advantage of the current low rig rates. This will facilitate the partnership to ramp up the addition of new wells in Ghana, which will boost production to reach FPSO capacity. The partnership has an objective of keeping gross production from Jubilee and TEN of 180,000 to 200,000 barrels of oil per day (bopd) in the next three years.

Equatorial Guinea also delivered strong performance in the first half of 2018, where production averaged about 42,500 bopd during the third quarter, in line with guidance of 43,000 bopd. Further, the setting up of electrical submersible pumps (ESP) to boost artificial lift capacity and increase production is projected to commence in the fourth quarter. At the end of the third quarter, Kosmos Energy received about $208 million in dividends from the Kosmos-Trident joint venture (90% of the purchase price) and is on track for a one-year payback.

Odd Job in the Gulf of Mexico delivered growth earlier than scheduled, with the second and the third well drilled in May expected to start production by early 2020. Gulf of Mexico production during the period from transaction close until the end of the third quarter averaged about 24,000 barrels of oil equivalent per day (boepd). During the third quarter, production in the Gulf of Mexico, including periods prior to the closing of the transaction, was about 24,200 boepd.

The company also employed short-cycle tie-back strategy in Gulf of Mexico and Equatorial Guinea that bode well and is expected to boost total production.

Under its business update, Kosmos Energy stated that 2018, it expects to generate considerable free cash flow that will enable it to initiate a dividend in the first quarter of 2019.

For 2018, the partnership anticipates capital expenditure at about $400 million. This excludes the DGE acquisition purchase price. Of this, $100 million has been allocated toward the Gulf of Mexico.  At the end of third quarter, Kosmos Energy’s net debt stood at about $2.0 billion and liquidity of about $650 million.

For the third quarter, Kosmos Energy expects total production in the range of 3,285-3,355 thousand barrels of oil equivalent (Mboe). Exploration expense is estimated in the range of $84-$92 million.

Price Performance

In the past year, Kosmos Energy’s shares have gained 10.9% compared with the industry’s 15.2% rally.


Zacks Rank & Other Stocks to Consider

Kosmos Energy currently carries a Zacks Rank #2 (Buy).

Another top-ranked player in the same sector is Petroleo Brasileiro S.A. (PBR - Free Report) or Petrobras SA, flaunting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Petrobras is the largest integrated energy firm in Brazil and one of the major players in Latin America. It pulled off an average positive earnings surprise of 10.4% in the last four quarters.

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