Kosmos Energy (NYSE: KOS, LSE: KOS) has announced that it has entered into a deal with B.V. Dordtsche Petroleum Maatschappij, a wholly-owned subsidiary of Royal Dutch Shell plc (LSE: RDSA), to farm down interests in a portfolio of exploration assets for up to $200 million.
Under the terms of the agreement, which includes an upfront cash payment of $100 million and contingent payments of up to $100 million, Shell will buy Kosmos’ participating interest in blocks offshore Sao Tome & Príncipe, Suriname, Namibia and South Africa. Closing of the transaction, which is subject to customary conditions including government approvals, is expected in the fourth quarter of this year with an effective date of September 1.
Kosmos said it 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. The company noted that it expects to use the remainder of the proceeds to reduce borrowings outstanding under its credit facilities.
After the completion of the deal, Kosmos said it will retain a focused exploration portfolio with over six billion barrels of gross resource potential in the Gulf of Mexico and West Africa. Kosmos also revealed that it expects to realize approximately $125 million in total savings across capital expenditures and general and administrative expenses over the next two years as a result of the transaction.
“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,” Andrew G. Inglis, Kosmos Energy’s chairman and chief executive officer, said in a company statement.
“The proceeds enable Kosmos to accelerate high graded exploration opportunities while strengthening the balance sheet, positioning Kosmos to create additional shareholder value,” he added.
“The contingent payments locked into the agreement with Shell ensure we retain upside from frontier exploration with no further investment,” Inglis went on to say.
Commenting on the deal on LinkedIn, Welligence Energy Analytics stated, “high risk/high reward exploration is not dead yet”.
“This bolsters the supermajor’s exposure to the South Atlantic conjugate margin, including a re-entry to the Guyana Basin, the world’s #1 exploration play,” the Houston based upstream analytics firm added.
“This is a timely deal for Kosmos – it helps shore up its balance sheet, reduces future capital commitments and helps fund the company’s short-cycle exploration program in the U.S. GOM,” Welligence Energy Analytics continued.
Kosmos describes itself as a full-cycle deepwater independent oil and gas exploration and production company focused along the Atlantic margins. Shell describes itself as a global group of energy and petrochemical companies with an average of 86,000 employees in more than 70 countries.
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