Kosmos Energy announced that the company has entered into an agreement to acquire Deep Gulf Energy, a leading deepwater company operating in the Gulf of Mexico, from First Reserve and other shareholders for a total consideration of $1.225 billion, subject to certain adjustments. By acquiring DGE, Kosmos adds to its deepwater Atlantic Margin portfolio an established business with attractive assets and a strong record of growing production and reserves through infrastructure-led exploration. This immediately accretive acquisition enhances the scale of the company and is expected to generate significant free cash flow, enabling Kosmos to return cash to shareholders through a dividend, beginning in the first quarter of 2019.
Transaction highlights
- Immediately accretive:
- Acquisition EV / 2018 estimated EBITDAX: 3.4x vs. Kosmos at 6.4x2
- Acquisition EV / 2018 estimated 2P reserves: approximately $15 per barrel of oil equivalent (boe) vs. Kosmos at approximately $21 per boe
- Adds approximately 25,000 barrels of oil equivalent per day (boed) production (~85% oil), with an estimated reserves to production ratio of 8.8, growing 2018 pro forma production by 50% from approximately 45,000 to 70,000 boed
- Adds estimated 2P reserves of approximately 80 million barrels of oil equivalent3 (MMboe), increasing total 2P reserves by 40% from over 200 MMboe to approximately 280 MMboe
- Adds experienced deepwater Gulf of Mexico management team with track record of delivering short-cycle, high-margin production
- Attractive acquisition with NPV-10 breakeven of approximately $48.00 per barrel WTI
- Low asset retirement obligation of approximately $100 million undiscounted
- Enables commencement of dividend payment in the first quarter of 2019, underpinned by expected production growth and sustainable free cash flow
Andrew G. Inglis, chairman and chief executive officer, said: “With this acquisition, Kosmos continues to grow into a larger, more balanced exploration and production company, with increasingly diversified production, a pipeline of world-class development projects, and a portfolio of short- and longer-cycle exploration opportunities. Over the last four years, Kosmos has doubled production, and this acquisition creates the platform to double production again in the next four years. With many competitors leaving the Gulf of Mexico to chase onshore shale plays, a huge opportunity has opened in the basin. The best deepwater assets can compete with the best of shale, and now is a good time to enter the Gulf of Mexico. This highly complementary transaction is immediately accretive – delivering sustainable production and free cash flow growth, and enabling dividend payments to begin in the first quarter of 2019.”
Transaction details
Under the terms of the transaction, Kosmos will acquire DGE for total consideration of $1.225 billion, comprised of $925 million in cash and $300 million in Kosmos common shares issued to First Reserve, management, and other DGE shareholders. Kosmos intends to fund the cash portion of the purchase price with borrowings under its existing credit facilities. In connection with the transaction, Kosmos has received $200 million of additional firm commitments to increase its reserves-based loan facility capacity.
The acquisition is expected to close around the end of the third quarter 2018, subject to receipt of regulatory approval and the satisfaction of customary closing conditions.
Evercore Inc. and Goldman Sachs & Co. LLC acted as financial advisors to Kosmos.
