Kosmos puts focus on gas in strategy switch

US independent Kosmos Energy has unveiled a fresh business strategy to address climate change that will see it boost its exposure to gas and stop seeking access to new oil basins.

Chief executive Andrew Inglis admitted that, while “we don’t have all the answers about how a business like ours can adapt... we believe a mid-cap E&P like Kosmos can play a role and make a difference".

Speaking on the company’s fourth-quarter results call this week, he said the UN Sustainable Development Goals act as a template for the company’s new strategy.

Scope 1 emissions are direct emissions from a company's operations that are under their control; Scope 2 emissions refers to indirect emissions from energy used by the organisation; and Scope 3 emissions refers to end-user emissions.

Inglis explained how the company tested the resilience — in terms of net present value (NPV) — of its E&P portfolio to climate risk and established that it should increase its exposure to gas.

Fleshing out these findings, he said that, in a world that has met its 2 degree Celsius reduction, all the current projects remain strongly NPV positive, while its generally short-dated oil assets in the US Gulf of Mexico and Ghana see very limited impact in their NPVs.

Country risk and fiscal take in the different climate scenarios may have some impact, he said, highlighting how its Equatorial Guinea assets could face greater potential value erosion given the government’s dependence on oil revenues.

As for Kosmos’ liquefied natural gas assets in Mauritania and Senegal — Greater Tortue Ahmeyim (GTA), Yakaar-Teranga and BirAllah — their NPV is impacted to some degree as a result of their longevity.

“The impact is not significant, largely because gas is recognised... to be a key energy source for meeting global energy demand over the medium term,” said Inglis.

However, Kosmos’ studies found that long-dated oil exploration faces significant value erosion and experiences the greatest value impact under the scenarios.

This exercise led to Kosmos’ decision to increase its net exposure to LNG from its previous target of 3 million tonnes per annum to about 5 million tpa.

Kosmos has a 30% stake in BP’s GTA project and was in talks to reduce this holding to 10%. Its new goal is to retain a larger stake in GTA while offloading interests in Yakaar-Teranga and BirAllah.

It will continue to invest in short-cycle oil exploration and development activities close to existing infrastructure in the US and Equatorial Guinea because of their lower carbon intensity and ability to be brought on stream quickly.

Inglis also said there will be no new basin-opening oil exploration beyond its current portfolio in Namibia, South Africa, Suriname and Sao Tome & Principe.

Speaking at the IP Week conference in London this week, the day after his investor call, Inglis said that in countries like Mauritania and Senegal it faces the dual challenge of providing affordable energy for economic development and social progress while reducing carbon emissions.

“We’re looking at opportunities in Mauritania and Senegal where you can use renewable energy as the power source for the liquefaction of the gas.”

He said Mauritania wants to move to a clean power offering for the region and “they need us” to bring the technology, thinking and finance to make it happen.

“We can help countries develop a low carbon solution. We need to support (their) goals in terms of access to heat, light and mobility and in a way where they are transitioning rapidly.”

At the same time, Inglis pointed out that investors want companies to “deliver shareholder returns and pay dividends — it’s a tough challenge.”

He believes oil and gas assets can still compete for capital if they are both low cost and low carbon, while any oil project must have a short payback period.

Another part of Kosmos’ climate strategy is to support reforestation schemes in Ghana and the US, highlighting how it has invested in a US company focused on “blue carbon” projects — restoring tidal wetlands and sea grass ecosystems — which have significant carbon absorption capacity.