Kosmos guides fourth-quarter output 10% lower but extends bank loan to 2033

Kosmos Energy produces oil and gas from assets offshore Ghana, Mauritania, Senegal and the Gulf of America. Ghana is the core: it supplied about 40,500 of the company's roughly 69,200 barrels of oil equivalent a day in the third quarter, including its 38.6% share of the Jubilee field.¹ The Jubilee and TEN licenses in Ghana now run to 2040. The Greater Tortue Ahmeyim project, a liquefied natural gas venture off Mauritania and Senegal, added about 14,600 a day, and the Gulf of America about 14,100.² The buyer list is short: BP plc took 77% of second-quarter oil and gas revenue.³

Kosmos ended 2025 with net debt of about $2.98 billion, and its bank-loan leverage ratio stood at 5.49 times. It has spent 2026 shrinking that load.¹ In March it sold 112.1 million new shares for about $206.4 million of net proceeds. In June it sold its Equatorial Guinea fields for about $127.0 million in cash.² In July it brought in Navitas as a one-third partner in its Tiberius project in the Gulf of America. In September it filed two notices to redeem $25 million slices of its 7.750% notes due 2027, set for September 18 and September 30.³

The second quarter had been a boom. Oil and gas revenue reached $607.3 million and net income $184.8 million, helped by an average oil price of $108.57 a barrel.¹ By the third quarter Kosmos's average oil price had eased to $88.57.² AP reported that oil prices were retreating sharply that morning, and our price file has no November 2 price for energy funds, so we cannot say how much of the 8.4% drop is the results and how much is oil.³ Politics adds risk in West Africa: in March, Reuters reported that Senegal called the BP-operated gas contract unfair, with talks going on.⁴

Offshore fields need new wells to hold output, and Kosmos says its 2026 Ghana drilling is over while it works with the operator to slow decline. The partners have hired a rig for up to 10 more Jubilee wells, starting in mid-2027.¹ Like most producers, Kosmos sells at market prices, so it hedges part of its output. Its 10-Q warns that if output falls short of the hedged volumes, its exposure to those contracts grows.²

The headline loss is mostly a hedging effect. Kosmos booked a $133.9 million derivatives loss, and $107.0 million of that was a change in the hedges' market value, which uses no cash in the quarter.¹ Cash paid to settle commodity hedges was $39.8 million. Tax was still $15.7 million despite a $27.3 million loss before tax.² Adjusted net income, the company's own measure, was $35.0 million, against an adjusted loss of $72.3 million a year earlier.³

Revenue was $410.1 million, up from $311.0 million a year earlier but down about 32% from the second quarter's $607.3 million.¹ Two things drove the drop. The average oil price fell by $20 a barrel, to $88.57, and sales of about 62,400 barrels a day ran below output of about 69,200, after about 77,000 of sales in the second quarter.² That left Kosmos underlifted by about 1.1 million barrels, oil it is owed but has not yet loaded and sold. Costs fell too: production cost was $17.72 per barrel of oil equivalent, down from $26.78 a year earlier.³

Cash flow tells a better story than earnings. Operations produced about $164 million, and free cash flow was $90.1 million.¹ Kosmos defines free cash flow as operating cash flow less spending on oil and gas assets, other property and certain other items, and it leaves out asset sales.² Through September, free cash flow was $193.3 million, against an outflow of $145.4 million in the same months of 2025.³

The fourth-quarter guide is the weak spot. Kosmos expects 60,000 to 64,000 barrels of oil equivalent a day, about 10% below the third quarter at the midpoint, or about 7,200 a day fewer.¹ The Gulf of America is guided to 10,000 to 11,500 a day, from about 14,100, because of planned Delta House platform maintenance, a workover on the Kodiak-1 well and Hurricane Isaias downtime. That is about 3,350 a day, nearly half the drop.²

Some of the hit is timing: Kosmos expects three Ghana cargos in the fourth quarter, and it carries its underlift into the quarter.¹ At the third quarter's $71.39 of revenue per barrel of oil equivalent, 7,200 fewer barrels a day for a quarter would be roughly $47 million of revenue, though sales do not track output one for one, as the third quarter showed.² Spending also falls: capital spending is guided to $50 million to $75 million, against $85 million in the third quarter. Operating cost is guided to $18 to $20 per barrel of oil equivalent, slightly above the third quarter's $17.72.³

The race is to get net debt below $2.4 billion by year-end, which Kosmos says it expects. From $2,473.4 million at September 30, that takes at least $73 million of further paydown, about 80% of third-quarter free cash flow.¹ Net interest expense is guided at $50 million to $55 million for the quarter. The remaining 2026 Brent swaps cover 750,000 barrels at $70.62, well below the third quarter's $88.57 average price, so they cost cash for as long as prices stay above that level.²

Leverage has come down but is not low. Net debt was about 2.8 times the last twelve months of EBITDAX, the non-GAAP profit measure that the bank loan's leverage test is built on.¹ The test also counts the $63.9 million lease on the TEN field's production vessel, which puts the ratio near about 2.85 times on our rough math, against 5.49 times at the end of 2025.² The 10-Q said the limit returns to 3.5 times after the September 2026 test, and the November release does not say whether the amended loan changed that. Third-quarter EBITDAX of $254.3 million covered interest costs of $53.7 million about 4.7 times. Kosmos says it expects leverage to fall toward 2.0 times.³

Liquidity was about $570 million at September 30. Cash was $103.7 million, plus $54.4 million of restricted cash.¹ Current liabilities of $710.5 million exceeded current assets of $381.4 million. They include a new $97.3 million line of other current liabilities that the release does not explain, plus $95.3 million of debt due within a year.²

The bank deal is the quarter's big repair. Commitments stay at $1.2 billion with $750 million drawn, the final maturity moves from December 2029 to April 2033, and at the current draw scheduled repayments would not start until 2031.¹ Under the old terms, the 10-Q said borrowings would face an amortization schedule from April 1, 2027.² The release says the facility is secured against Kosmos's Ghana production assets, and it does not disclose fees paid to the banks or the new covenant terms.³ The rate is a benchmark rate plus 4.5% for the first three years, 0.25 points below the old margin.⁴

Two note maturities come before 2030. The 7.750% notes due May 1, 2027 had $100.0 million outstanding at June 30, and the two September redemptions of $25 million each should leave about $50 million, in line with $50.0 million of note redemptions in the quarter's cash flow.¹ The bigger one is about $400.3 million of 7.500% notes due March 1, 2028, as of June 30. Kosmos says it will now look to address its 2028 bond maturities.²

Shareholders have paid for the repair in dilution. Weighted diluted shares were 595.5 million in the third quarter, up about 24.5% from 478.3 million a year earlier, mainly from the March share sale at about $1.84 a share net.¹ About 595.5 million shares were outstanding on July 30. The $400 million of 3.125% convertible notes convert at about $7.02 a share and mature March 15, 2030, and the 10-Q counts them as anti-dilutive because their conversion value is below face value.² Restricted stock units add about 18 million potential shares: about 6.66 million service units and about 11.5 million market-and-service units at June 30.³

Common shareholders are paid last. The senior notes rank behind the secured bank loan, the Gulf of America term loan and, at the Mauritania and Senegal subsidiaries, the Nordic bonds.

The debt cut was not all earned from operations. Of the roughly $509 million fall in net debt since the end of 2025, the share sale and the Equatorial Guinea sale supplied about $333 million, while free cash flow through September was $193.3 million.¹ Shareholders gave up a stake equal to about 19% of today's shares to fund that, and Kosmos gave up its Equatorial Guinea output.² In Tiberius, Kosmos gave Navitas a one-third stake in exchange for upfront cash, a carry expected to pay Kosmos's project spending through the first half of 2027, and future milestone payments. The release gives no amounts.³

For 2027, Kosmos has hedged 8 million barrels of oil with an average floor near $68 and a ceiling near $84 a barrel. That protects cash if prices keep falling but gives away gains above the ceilings.¹ Some are three-way collars, which stop protecting below a lower sold-put price, such as $55 on the first-half 2027 Brent collars.²

The bull case: the business now makes cash at an average oil price of $88.57, and the bank deal removes the nearest refinancing cliff. Free cash flow through September was $193.3 million, production cost per barrel fell by about a third from a year ago, and liquidity is about $570 million.¹ The fourth-quarter dip is partly planned maintenance and storm downtime in the Gulf, and the underlift and three Ghana cargos could keep sales steadier than output.² On our math, at the $2.62 pre-market price the company's value including net debt is about 4.5 times trailing EBITDAX, and the $73 million of paydown still needed is about 5% of the stock's market value.³

The bear case, strongest first. Kosmos's average oil price eased from $108.57 a barrel in the second quarter to $88.57 in the third, and fourth-quarter output is guided about 10% lower, with no new Jubilee wells until mid-2027.¹ Kosmos says its 2026 Ghana drilling is over, and the next Jubilee campaign, of up to ten wells, is the 2027/28 program that the partners expect to start in mid-2027.² Next, about $400.3 million of notes due in 2028 remain, and the release does not say how Kosmos will handle them. The equity is a thin slice: net debt of about $2.47 billion sits ahead of a market value of about $1.56 billion, and the company already sold 112.1 million new shares this year.³ Finally, Kosmos depends on one buyer, BP plc, for most of its sales.⁴

Kosmos's own goals, which are targets and not results: net debt below $2.4 billion at year-end, a net debt cut of about 20% for 2026, leverage falling toward 2.0 times, and full-year capital spending of about $350 million, unchanged.¹ It expects full-year gas cargos at the upper end of its 32 to 36 range, a handover of the TEN production vessel to the partners in the first quarter of 2027, and new Jubilee drilling from mid-2027.² The Trailblazer exploration well with Shell, with about 200 million barrels of oil equivalent of gross resource, is now expected to start in the first half of 2027. In August, Kosmos said Shell planned to start it in the first quarter.³

KOS was $2.62 before the open on November 2, down 8.4% from $2.86 on October 30, while the S&P 500 fund rose 0.4% to $758.57.¹ In our price file, which starts in mid-September, the stock ranged from $2.50 on October 2 to $3.09 on September 15.²

Dates to watch: the results call at 10:00 a.m. Central on November 2, fourth-quarter results with the year-end net debt figure, the 7.750% notes due May 1, 2027, Jubilee drilling from mid-2027, and the 7.500% notes due March 1, 2028.¹ What would prove the bull case wrong: year-end net debt above $2.4 billion, or a 2028 refinancing that needs new shares or a much higher rate. We learn the first with the fourth-quarter report, and the second when Kosmos acts on the 2028 notes.²

Kosmos says it will now look to address its 2028 bond maturities, but the release gives no plan, size, rate or timing for a refinancing.

The bank loan release gives the new loan's size, maturity and rate, but not its leverage limit or the ratio measured at the September 30 test.

The release names upfront cash, a spending carry and milestone payments, but no amounts for any of them.

A $97.3 million line of other current liabilities appeared on the balance sheet, against none at the end of 2025, with no explanation in the release.

Only the Gulf of America has its own fourth-quarter forecast. The release does not say how much Ghana or the Tortue gas project will fall.

No transcript of the November 2 call was available when this was written, so any answers on the 2028 notes or the guide are not covered here.