Kosmos Eyes 30% Cut in 2020 Capex

Texan oil and gas producer Kosmos Energy aims to slash its capital expenditure for this year by around 30% to $250mn, in response to current market volatility.

In a statement on March 17, the company said it had identified more than $100mn of discretionary planned spending, mostly relating to exploration activities in the Gulf of Mexico and its basin-opening exploration portfolio, that could be cut. Production is expected to be flat, in line with Kosmos' previous guidance, and only a minimal impact is expected on output in 2021.

"The company also has significant flexibility in its 2021 capital programme should current market conditions persist," it said.

Kosmos is a partner in the Greater Tortue Ahmeyim (GTA) LNG development off the coast of Mauritania and Senegal. The company said it was working with GTA's operator BP on deferring planned capital spending in 2020 relating to the project's first phase, sanctioned in December 2018. The phase is set to produce 2.5mn mt/yr of LNG starting in 2022.

Kosmos said its priority remained selling down its interests in Mauritania and Senegal to support its growing gas business. Spending on GTA's second and third phases should be minimal until final investment decisions (FIDs) on them are taken, expected in mid-2022 and mid-2023 respectively.

The company also said it would trim forecasted operating expenditure and general and administrative costs in 2020 by $60mn. It aims to slash opex by $1/boe, without affecting near-term production. The reduction in general and administrative costs will be achieved by cutting staff and scrapping all bonuses, Kosmos said. It will also cancel dividends announced in the fourth quarter of 2019 until market conditions improve, saving a further $75mn annually.

Kosmos expects to be free cash flow neutral starting in the second quarter, and believes it can fund all its obligations if Brent is at $35/barrel. At time of press, Brent crude was trading at $30/barrel.