Kosmos (KOS) Dives Due To Partners' Ghana Production Issues
Zacks Investment Research | Dec 11, 2019 10:45PM ET
Shares of Kosmos Energy Limited (NYSE:KOS) plunged to an 11-month low after one of its major exploration partners Tullow Oil (LON:TLW) Plc. (OTC:TUWOY) suffered lower-than-expected results, thanks to low productivity in their Ghana fields. The stock declined more than 16% to close at $5.05 as of Dec 10, a level last seen in February.
Partnership Woes for Kosmos
Recently, Tullow showed a drop in 2020 production due to unsatisfactory returns from the TEN and Jubilee fields in Ghana, two of the company’s main producing assets. The company owns the fields in partnership with Kosmos.
Tullow Oil is the operator of TEN (Tweneboa, Enyenra, Ntomme) offshore fields and has 47.18% interest in the block. Kosmos holds 17% stake in the venture. Tullow also owns 35.48% working interest in the Jubilee field. Its partners in the venture include Kosmos, which has a 24.08% share.
Production Issues at the Two Fields in Ghana
A major slump in the production of gas by the Ghana National Gas Company at Tullow’s Jubilee field along with the rising water cut on certain wells and poorer facility uptime caused the underperformance.
Meanwhile, TEN’s Enyenra field struggled with some mechanical issues in two of its new wells, which further restricted the presence of well stocks. This, in turn, accelerated the drop in the field’s resource.
Tullow’s 2020 production guidance is anticipated in the range of 70,000-80,000 barrels of oil per day (bopd), lower than the current year’s expected figure of 87,000 bopd. For the three years following 2020, average production is projected to be 70,000 bopd.
Concerns for Kosmos
The major concerns for Kosmos are weak yields from its partners which might hamper the company's cash generating assets as it has to fund its other offshore development projects over the next few years.
Further, this Hamilton-based player recently announced completing the drilling of the Resolution exploration well, jointly owned by BP (LON:BP) plc. (NYSE:BP) in the U.S. Gulf of Mexico, wherein it unearthed reservoir quality sands. However, the primary exploration work led to a well holding water.
While the well will now be plugged and abandoned, the company anticipates that drilling of the Resolution prospect will cost it around $55 million in the fourth quarter.
News of this unsuccessful drilling of the Resolution well induced its share price depreciation, thereby dampening investor confidence.
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