Executive Summary / Key Takeaways

• Kosmos Energy Ltd. (NYSE:KOS) is undergoing a significant transformation, shifting from a capital-intensive growth phase to prioritizing free cash flow generation, driven by new production and rigorous cost controls.
• The Greater Tortue Ahmeyim (GTA) LNG project in Mauritania and Senegal is ramping up, targeting 2.7 million tonnes per annum (mtpa) nameplate capacity by year-end 2025, with 2026 cargo counts expected to nearly double 2025 levels.
• Ghana's Jubilee field is set for a material production increase by late 2026, supported by a renewed drilling campaign (two wells in 2025, five in 2026) and advanced seismic technology.
• The company is aggressively reducing costs, with 2025 capital expenditures projected below $350 million (a >50% reduction from 2023-2024 average) and a $25 million overhead reduction targeted by year-end 2025.
• Despite recent financial losses and elevated leverage, proactive debt management, including a $250 million secured term loan from Shell and ongoing refinancing efforts for the TEN FPSO, aims to strengthen the balance sheet and achieve a sub-1.5x net leverage target by late 2026.

A Deepwater Specialist's Strategic Pivot

Kosmos Energy Ltd., a deepwater exploration and production company founded in 2003, has carved a niche in meeting global energy demand through its diversified oil and gas assets across Ghana, Equatorial Guinea, Mauritania, Senegal, and the Gulf of America. The company's strategic journey has been marked by significant exploration successes, notably the 2015 Tortue discovery with approximately 25 Tcf of gas in place, which positioned it as a key player in the emerging Atlantic Margin. This history of frontier exploration and resource identification now underpins a strategic pivot towards disciplined cash generation and balance sheet resilience.

In an industry increasingly shaped by global energy demands, including a surge in electricity needs from AI and data centers, Kosmos's focus on both oil and gas assets positions it to capitalize on evolving market dynamics. Its oil assets are characterized by low operating costs and high cash margins, while its gas assets, particularly LNG, are poised for growth in revenue and margins as gas gains prominence in the global energy mix. This dual-asset strategy, combined with a strong emphasis on capital efficiency, is central to its current investment thesis.

Technological Edge: Unlocking Subsurface Value

A core differentiator for Kosmos lies in its advanced technological capabilities, particularly in seismic imaging and reservoir management. The company leverages state-of-the-art 4D seismic data, such as the narrow-azimuth seismic (NAZ) acquired in Ghana's Jubilee field in early 2025, the first in eight years. This technology provides enhanced imaging, generating a clearer understanding of the subsurface, identifying new undrilled lobes and unswept oil, and improving reservoir models. The tangible benefit is a more precise selection of drilling targets, which directly contributes to higher success rates and optimized resource recovery over the life of the field.

Further enhancing this technological moat, Kosmos plans to acquire Ocean Bottom Node (OBN) seismic data over Jubilee and Tiberius later in 2025. OBN data is expected to significantly improve the velocity model, further uplifting the NAZ processing and providing even greater clarity for future well selection. This "step change in imaging technology" is anticipated to support optimum well selection in future drilling campaigns, ultimately enhancing resource recovery. The company also integrates AI-supported production optimization and reservoir modeling, which brings new ideas for optimizing water injection patterns and maximizing recovery. These technological advancements are not merely R&D initiatives; they are directly linked to improving drilling efficiency, reducing operational risks, and ultimately enhancing the financial performance through higher production and lower costs.

Operational Momentum and Segment Contributions

Kosmos's operational narrative in 2025 is one of ramp-up and optimization across its diverse portfolio.

Ghana: Reinvigorating a Core Asset

Ghana's Jubilee and TEN fields remain foundational. In Q3 2025, Ghana's net production averaged approximately 31,300 barrels of oil equivalent per day (Boepd), a decrease from the prior year, partly due to lower gas volumes from scheduled maintenance. However, a significant turnaround is underway. The 2025/26 drilling campaign commenced with the first producer well coming online in July 2025, delivering a strong gross production of around 10,000 barrels of oil per day. A second producer well is expected online by year-end 2025, followed by four planned producer wells and an additional water injector in 2026, all within the original budget due to drilling efficiencies. This aggressive drilling program is projected to drive Jubilee production "materially higher than current levels" by late 2026. The extension of the Jubilee and TEN licenses to 2040, formalized through a Memorandum of Understanding in June 2025, provides the long-term investment horizon necessary to maximize the field's potential and is expected to lead to a "material uplift in 2P reserves." Furthermore, efforts are underway to refinance the TEN FPSO lease, which currently accounts for over 60% of TEN's operating costs, with a target to reduce annual costs from approximately $60 million to $40-$50 million.

Mauritania/Senegal: The GTA LNG Hub Comes Online

The Greater Tortue Ahmeyim (GTA) LNG project represents a new and significant revenue stream. After achieving first gas in December 2024 and first LNG production in February 2025, the project successfully exported its first gross LNG cargo in April 2025, establishing Mauritania and Senegal as LNG exporting nations. The Gimi FLNG vessel reached Commercial Operations Date (COD) in June 2025, signaling the end of Kosmos's funding for the national oil companies' capital expenditures on the project. By October 2025, 13.5 gross LNG cargoes had been lifted, alongside the first condensate cargo. Production is targeting the FLNG's 2.7 mtpa nameplate capacity by year-end 2025, with 2026 cargo counts anticipated to be almost double those of 2025. Absolute operating expenses are decreasing, and unit costs are expected to fall by over 50% in 2026 as production ramps up and a lower-cost operating model is implemented. Future expansion, dubbed Phase 1+, is targeting domestic gas markets and increased LNG production, leveraging existing infrastructure with minimal additional capital expenditure.

Gulf of America: Strategic Re-evaluation Amidst Challenges

In the Gulf of America, Q3 2025 net production was approximately 16,600 Boepd, supported by strong performance from Odd Job and Kodiak. However, the segment faced setbacks with the abandonment of the Winterfell-4 well in September 2025 due to completion challenges, resulting in a $51.10 million write-off. Future activity in 2026 will focus on restoring production from the Winterfell-3 fault block. The Tiberius discovery is progressing with a production handling agreement signed with Oxy (OXY), and a Final Investment Decision (FID) and farm-down are expected in 2026.

Equatorial Guinea: Production Optimization

Equatorial Guinea's net production in Q3 2025 was around 6,200 barrels of oil per day, impacted by subsea pump mechanical failures at Ceiba. Repairs are underway, with normalized production anticipated in the first half of 2026. The company is reprocessing seismic data to identify future infill drilling opportunities, with the next campaign planned for 2027.

Financial Performance and Liquidity Management

Kosmos Energy reported a net loss of $124 million for Q3 2025, with an adjusted net loss of $72 million. Oil and gas revenue declined by $96.8 million in Q3 2025 compared to the prior year, primarily due to lower realized commodity prices and reduced volumes from Jubilee and Ceiba, partially offset by new GTA LNG sales. For the nine months ended September 30, 2025, revenue decreased by $284.1 million year-over-year.

Operating cash flow also saw a significant decrease, falling to $98.7 million for the nine months ended September 30, 2025, from $502.5 million in the same period of 2024. This reflects the impact of lower prices, reduced volumes in Ghana and Equatorial Guinea, and the ramp-up costs associated with GTA.

Despite these challenges, Kosmos is aggressively managing its cost structure. Capital expenditures for 2025 are projected to be less than $350 million, a substantial reduction of over 50% from the 2023-2024 average. This includes approximately $250 million for maintenance and infill drilling, $75 million for GTA Phase 1 completion, and $25 million for appraisal and development. The company is also targeting a $25 million reduction in annual overhead by year-end 2025.

Liquidity and debt management are paramount. As of September 30, 2025, net debt stood at $2.95 billion. The company's Facility had $1.10 billion drawn with $225 million undrawn availability, and the borrowing base was approved at $1.35 billion. Critically, Kosmos secured an amendment to its debt cover ratio covenant for the Facility, making it less restrictive for the September 2025 (max 4x) and March 2026 (max 4.25x) assessment dates, acknowledging the impact of GTA ramp-up costs and lower oil prices. To address upcoming maturities, Kosmos entered into a $250 million senior secured term loan facility with Shell (SHEL) in September 2025, using $150 million of the proceeds in October 2025 to partially redeem its 7.12% Senior Notes due 2026. The remaining $100 million is expected to be used for the outstanding 2026 notes in Q1 2026. The company also maintains a rolling hedging program, with 2.5 million barrels of oil production hedged for the remainder of 2025 (with a $62 floor and $77 ceiling) and 8.5 million barrels for 2026 ($66 floor, $73 ceiling), providing downside protection against commodity price volatility.

Competitive Landscape and Strategic Positioning

Kosmos operates in a competitive deepwater E&P landscape, often alongside and against industry giants like ExxonMobil (XOM), Chevron (CVX), BP (BP), Shell (RDS.A), and Occidental Petroleum (OXY). As a more specialized player, Kosmos differentiates itself through agility and expertise in high-potential, less-developed Atlantic Margin regions. While larger integrated companies benefit from scale, diversification, and robust financial resilience, Kosmos's focused strategy allows for greater operational efficiency in targeted deepwater projects, potentially leading to lower operating costs for specific operations.

However, Kosmos's smaller scale and pure-play focus make it more susceptible to commodity price volatility and regional risks compared to its diversified rivals. Its competitive advantages, particularly in proprietary seismic technology and deepwater exploration expertise, enable faster innovation cycles and improved project success rates. This technological edge helps Kosmos mitigate some of the disadvantages of its size by enhancing capital efficiency and margins, allowing it to compete effectively in its chosen niches. For instance, its advanced seismic imaging can lead to notably faster project development in niche areas, a differentiator against the broader, more capital-intensive strategies of majors.

Customer and supplier dynamics, such as global oil price fluctuations, directly impact Kosmos's costs and margins. The company's strategic partnerships, like the one with BP on GTA and Shell on the GoA Term Loan, are crucial for project development and financial flexibility, demonstrating its ability to collaborate with larger entities while maintaining its independent operational focus.

Outlook and Risks

Kosmos's outlook is centered on delivering sustainable free cash flow and reducing leverage. Management projects the company can achieve a breakeven in the mid-$50 per barrel range across all costs, with a target breakeven of approximately $50 per barrel Brent for 2026. The goal is to reach a net leverage target of below 1.5x by the second half of 2026, primarily through debt paydown from generated free cash flow. Beyond this, the conversation will shift to balancing further debt reduction with shareholder returns.

Key risks include the execution of the GTA ramp-up, which has seen some initial curtailments, and the successful delivery of the Jubilee drilling campaign. The company's ability to remain compliant with its debt cover ratio covenants in March and September 2026, despite the recent amendment, remains a critical factor. Operational challenges, as seen with the Winterfell-4 abandonment and Ceiba pump failures, highlight inherent execution risks in deepwater E&P. Commodity price volatility also poses a continuous threat to profitability and cash flow, although hedging strategies are in place to mitigate this.

Conclusion

Kosmos Energy is at a pivotal juncture, transforming into a more capital-efficient and cash-generative deepwater E&P company. The successful ramp-up of the GTA LNG project and the reinvigorated drilling campaign in Ghana's Jubilee field are set to drive significant production growth. Coupled with aggressive cost reduction initiatives, including a substantial cut in capital expenditures and overhead, the company is building a stronger financial foundation. While challenges remain, particularly concerning debt covenants and operational execution, Kosmos's strategic focus on maximizing free cash flow, leveraging advanced technology for reservoir optimization, and proactive balance sheet management positions it for long-term value creation. The path to deleveraging and sustained profitability is clear, making Kosmos Energy a compelling investment story for discerning investors.