Fitch Ratings has assigned Kosmos Energy Ltd. upcoming issue of US$400 million notes an expected senior unsecured rating of ‘B’ and placed it on Rating Watch Positive (RWP).
The RWP follows the announced acquisition of additional interests in Kosmos’s existing assets in Ghana from Occidental Petroleum Ltd. Fitch described such a transaction as significantly credit-enhancing, due to its low-risk, immediate contribution to cash flows and production.
Additionally, the significant amount of equity being used to fund the acquisition also lends credence to the credit-enhancing nature of the transaction. Following the transaction, Fitch expects Kosmos to be able to internally fund committed capital expenditure related to its Tortue LNG project, and to deleverage below 3 times by 2023.
RWP hinged on successful completion of other aspects of the transaction
According to Fitch Ratings, Kosmos’s new senior unsecured notes will benefit from a senior guarantee from the acquired assets, which are not hindered by any secured debt.
Furthermore, the resolution for a rating watch positive is hinged on the successful finalisation of all outstanding aspects of the transaction, Fitch affirmed. This includes the contemplated bond issuance and expiration of the pre-emption period, at which point Fitch may upgrade the IDR and senior unsecured ratings by one notch.
Similarly, the acquisition of additional stakes in the Ghanaian assets for approximately US$550 million (US$460 million net of purchase-price adjustments) provides Kosmos with an immediate stream of cash flows.
This contributes around 17 kboepd of incremental pro-forma net volumes from assets adjacent to its existing Ghana acreage. The assets’ cash flow contribution, alongside US$125 million of equity financing used for the acquisition, will support deleveraging in 2022 and beyond.
Fitch expects Kosmos to self-fund remaining capex
Currently, Occidental Petroleum’s partners in the Ghanaian assets have pre-emption rights on a portion of the acquired assets. By these rights they may elect to pre-emptively purchase certain portions of the assets under the same conditions as agreed by Kosmos within 30 days of the transaction announcement.
Fitch Ratings averred that: “while the exercise of these rights by one or more partners is not our base case, we do not expect this to have a meaningful rating impact…”
Kosmos has successfully executed the sale and leaseback of its Mauritania & Senegal floating production storage and offloading (FPSO) asset, which is expected to yield total cash preservation of over US$300 million through 2023.
In addition, it has made substantial progress on additional funding transactions that have been largely de-risked following a recovery in hydrocarbon pricing during 2021. “We now expect Kosmos to self-fund its remaining capex in the Tortue LNG.”
Expectations are that Kosmos will reduce its funds from operations (FFO) net leverage to below 3 times by 2023 under our rating-case assumptions. Fitch notes that the improved leverage expectations are predicated on immediate cash flow accretion from the newly acquired stakes in the Ghanaian assets.