Kosmos Strikes $200mn Farm-Down Deal with Shell

Texas-based Kosmos Energy has struck a deal to farm down its interests in a raft of exploration projects in Africa and Latin America to Shell for up to $200mn, it said in a stock filing on September 9.

Kosmos will sell interests in exploration blocks off Sao Tome & Principe, Suriname, Namibia and South Africa for $100mn in cash upfront, it said. The company will receive up to a further $100mn in contingent payments depending on whether commercial discoveries are made at the first four exploration wells planned at the sites. Three of the four wells are due to be drilled in 2021.

"Kosmos plans to use up to one-third of the initial proceeds to test two high-quality infrastructure-led exploration prospects in the Gulf of Mexico, each offering hub scale potential with a low-cost, lower-carbon development scheme," it said. The remaining proceeds will be used to settle debts.

"With this transaction, we are continuing to focus our exploration portfolio on proven basins that offer superior returns with shorter payback and significant resource potential," the company said. "The proceeds enable Kosmos to accelerate high graded exploration opportunities while strengthening the balance sheet, positioning Kosmos to create additional shareholder value."

The contingent payments mean Kosmos will potentially make further gains from the assets without investing in them, it said. The transaction, subject to government approvals, is due to close in the fourth quarter but will be backdated to September 1.

Once the deal is completed, Kosmos will be left with a "focused" exploration portfolio with 6bn barrels of gross resource potential in the Gulf of Mexico and West Africa. It expects to save $125mn in capital expenditure and general and administration expenses over the next two years thanks to the divestment.