Kosmos Energy (KOS) likes to talk about exploration more than most large oil and gas independents. After a mixed half year of frontier drilling – during which unsuccessful well costs hit $45m (£35m) – the Dallas-headquartered group has made what looks like a decent discovery, at least in price terms. For $925m in cash and $300m in shares, Kosmos is to buy Deep Gulf Energy (DGE), a Gulf of Mexico-based producer.
Executive chairman Andrew Inglis believes shale-hungry competitors have left “a huge opportunity” in the basin, and on first reading the deal looks attractive. With a break-even return at $48 per barrel, DGE’s assets will increase Kosmos’ proved and probable reserves by 40 per cent, and add 25,000 barrels of oil-equivalent production per day. The resulting boost to cash flows means investors can expect dividends from the start of 2019.
The transaction values DGE’s enterprise value at 3.4 times its earnings before interest, tax, depreciation, amortisation and exploration costs (Ebitdax), which compares favourably to Kosmos’ multiple of 6.4. But there are risks. Post-acquisition, pro-forma net debt will sit at a lofty 2.2 times Ebitdax, and de-leveraging plans assume $74 a barrel Brent in 2019. Any further losses from derivative contracts – such as the $140m first-half hit – would be a big worry.
Consensus forecasts are for adjusted pre-tax profit of $34.7m and EPS of 1.6¢ this year, and $269m and 22¢ in 2019.
| KOSMOS ENERGY (KOS) | ||||
| ORD PRICE: | 594p | MARKET VALUE: | £2.35bn | |
| TOUCH: | 572-594p | 12-MONTH HIGH: | 666p | LOW: 400p |
| DIVIDEND YIELD: | nil | PE RATIO: | na | |
| NET ASSET VALUE: | 188¢ | NET DEBT: | 145% | |
| Half-year to 30 Jun | Turnover ($m) | Pre-tax profit ($m) | Earnings per share (¢) | Dividend per share (¢) |
| 2017 | 298 | 8.6 | -10 | nil |
| 2018 | 343 | -223 | -39 | nil |
| % change | +15 | - | - | - |
| Ex-div: | na | |||
| Payment: | na | |||
| £1=$1.30 | ||||
