Kosmos Energy (ticker: KOS), an oil and gas E&P company headquartered in Bermuda, announced a 2015 capital budget of $800 million in its Q4’14 results on February 23, 2015. The planned expenditures represents an increase of 52% compared to its 2014 budget, and is a result of “An increase in activity,” said the company release.
An estimated $300 million, or about 38%, of the budget will be used for four exploration wells. The remaining $500 million will be allocated to the further development of existing Ghana assets. Kosmos also has operations in the early stages in Mauritania, Morocco, Senegal, Suriname and offshore Ireland.
Against the Grain
KOS’s 52% expenditure increase (on a year-over-year basis) is the largest we have seen to date. OAG360 has compiled 55 companies with 2015 guidance announcements, and only ten plan on either increasing or maintaining spending levels from 2014. Similar to Kosmos, the majority of such companies are not focused exclusively on projects in the United States, but abroad. Canadian Natural Resources (ticker: CNQ) and Encana (ticker: ECA) are two Canada-based E&Ps bumping up capex. Oilservice and midstream companies like Helmerich & Payne (ticker: HP) and Williams (ticker: WMB) are also projecting an upward climb in year-over-year expenditures.
Overall, the 55 companies in OAG360’s guidance list average a spending decrease of 30% compared to 2014, and that includes the companies with plans to escalate investment. The others are all projecting large cuts and dialing back on exploration ventures. In fact, 24 of the 55 companies plan on slashing capex by 40% or more.
Kosmos Aided by Balance Sheet
Of course, not many E&Ps would be able to ramp up spending in the current commodity environment. Kosmos, however, has kept its debt level low (about 15% debt to market cap) and has the flexibility to execute the capital jump. Wells Fargo describes KOS’ endeavors as “high-risk, high-reward” due to its explorations focus and has its current 2016E EBITDA multiple at 6x, within its traditional E&P range of 5-7x.
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