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Rating Action:

Moody's assigns a B1 CFR to Kosmos Energy

11 Jul 2019

Approximately $650 million of senior notes rated

NOTE: On July 12, 2019, the press release was corrected as follows: In the second sentence of the second paragraph of the Ratings Rationale section, the interest percentage was changed to 20%. Revised release follows.

New York, July 11, 2019 -- Moody's Investors Service ("Moody's") assigned first time ratings to Kosmos Energy Ltd (Kosmos Energy), including a B1 Corporate Family Rating (CFR), a B1-PD Probability of Default Rating (PDR) and a B2 rating to the company's senior unsecured notes. Moody's also assigned an SGL-2 Speculative Grade Liquidity Rating, indicating good liquidity. The rating outlook is positive.

Assignments:

..Issuer: Kosmos Energy Ltd

....Corporate Family Rating, Assigned B1

....Probability of Default Rating, Assigned B1-PD

....Senior Unsecured Notes, Assigned B2 (LGD5)

....Speculative Grade Liquidity, Assigned SGL-2

....Outlook, Positive

RATINGS RATIONALE

Kosmos Energy's B1 CFR is supported by its high-quality and growing offshore assets in West Africa and the US Gulf of Mexico, good geographic diversification, a well-established track record of organic as well as acquisition driven growth and a visible pipeline of low risk growth projects. The company generates strong cash margins and can deliver free cash flow even in a $35/bbl oil price environment because of its low production costs, Brent-linked price realizations and predominantly oil-weighted production (92% in first quarter 2019). Kosmos has a demonstrated track record of successfully partnering with experienced E&P companies in sharing risks and developing large scale projects on time and on budget. Historically known as an exploration-focused E&P, Kosmos Energy has become more development and production focused since 2017, and management plans to dedicate most of its capital towards high probability development drilling and boosting production at an 8%-10% annual rate through 2021.

The positive outlook reflects Moody's expectation of free cash flow generation and asset sales leading to significant deleveraging through 2020. If the company manages to sell down an additional 20% interest in its Tortue natural gas and LNG development project in Senegal/Mauritania, a substantial portion of the proceeds will likely be used for debt reduction.

Kosmos Energy's ratings are constrained by its smaller production and reserves relative to higher rated E&P companies, deepwater focused operations that tend to present greater technical, geological and logistical challenges compared to onshore operations, high but improving financial leverage, significant capital and execution risks over the next several years around the planned growth, and ongoing exposure to high risk / high reward type exploration activities.

The $650 million 2026 notes issued by Kosmos Energy Ltd. in April 2019, are rated B2, one notch below the B1 CFR, given their unsecured claim to the company's assets as well as their subordinated position to the $1.6 billion reserve based lending (RBL) revolving credit facility (RBL) with regards to a substantial portion of the company's producing assets in West Africa. The RBL facility has a secured first-lien claim to Kosmos Energy's Ghana and Equatorial Guinea assets that comprised 69% of the company's production in the first quarter of 2019. Moody's believes a B2 rating is more appropriate than what is suggested by our Loss Given Default Methodology given the existence of significant unencumbered assets In the capital structure that should improve overall recovery for the noteholders. Kosmos Energy's US Gulf of Mexico subsidiaries are guarantor for the notes, but they do not provide guarantee or security to the RBL facility.

Kosmos Energy should have good liquidity through 2020, which is captured in the SGL-2 rating. The company had $134 million in unrestricted cash and $375 million of combined availability under its $400 million corporate revolver and $1.6 billion RBL facility as of March 31, 2019. Moody's expects the company to generate free cash flow through 2020 based on annual capex and dividends of $450-$500 million and $75-$82 million, respectively. The company routinely hedges a substantial portion of its forward production and at the end of the first quarter 2019 had price protection for roughly half of its projected production through 2020. The company does not have any material debt maturities until 2022. There is ample headroom under the financial covenants governing the two credit facilities to ensure continued access through 2020.

The CFR could be upgraded if the company can reduce leverage and sustain the debt/average daily production below 22,000/boe and debt/PD reserves near $8 per/boe. A downgrade is most likely to occur from a material increase in financial leverage or a sharp decline in production leading to a RCF/debt ratio declining below 15%.

Kosmos Energy Ltd is a Dallas, Texas based publicly traded exploration and production company with assets in offshore West Africa and the US Gulf of Mexico.

The principal methodology used in these ratings was Independent Exploration and Production Industry published in May 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Sajjad Alam
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Steven Wood
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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