Shell Buys Kosmos' Frontier Exploration Assets for Up to $200M

Illustration: Offshore drilling rig - Credit: Bartkowski/AdobeStock
Illustration: Offshore drilling rig - Credit: Bartkowski/AdobeStock

Oil and gas company Kosmos Energy said Wednesday it had agreed to sell some of its frontier exploration asset interests to Shell for up to $200 million

Shell will acquire Kosmos’ interest in blocks offshore São Tomé & Príncipe, Suriname, Namibia, and South Africa for which will pay $100 million upfront. The deal also includes contingent payments of $50 million payable upon each commercial discovery from the first four exploration wells drilled across the asset portfolio, capped at $100 million in aggregate. Three of the four wells are currently planned for 2021.

Kosmos said it would 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. 

The company said it expected to use the remainder of the proceeds to reduce borrowings outstanding under its credit facilities.

Andrew G. Inglis, Kosmos Energy’s chairman and chief executive officer said: “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 proceeds enable Kosmos to accelerate high graded exploration opportunities while strengthening the balance sheet, positioning Kosmos to create additional shareholder value. The contingent payments locked into the agreement with Shell ensure we retain upside from frontier exploration with no further investment.”

Closing of the transaction is expected in the fourth quarter of 2020 with an effective date of September 1, 2020, and is subject to customary conditions including government approvals.

Under the agreement Shell will acquire Kosmos' 45% interest in PEL0039 block offshore Namibia; 45% interest in Block NCUD in South Africa; 33,33% in Block 42 in Suriname. In São Tomé & Príncipe Shell will acquire Kosmos' shares in the following blocks: Block 6 / 25%; Block 11 / 35%; Blocks 10 & 13 / 35%.

Commenting on the deal via social media on Wednesday, Energy intelligence company Welligence Energy Analytics said Wednesday that the deal meant that "high risk/high reward exploration is not dead yet," deeming it a good move for Kosmos as it helps to bolster its balance sheet, fund U.S. Gulf of Mexico drilling program, and reduce future capital exposure to the blocks sold.

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