The following discussion and analysis should be read in conjunction with our consolidated financial statements and notes thereto contained herein and our annual financial statements for the year ended
December 31, 2021, included in our annual report on Form 10-K along with the section Management's Discussion and Analysis of financial condition and Results of Operations contained in such annual report. Any terms used but not defined in the following discussion have the same meaning given to them in the annual report. Our discussion and analysis includes forward-looking statements that involve risks and uncertainties and should be read in conjunction with "Risk Factors" under Item 1A of this report and in the annual report, along with "Forward-Looking Information" at the end of this section for information about the risks and uncertainties that could cause our actual results to be materially different than our forward-looking statements.
We are a full-cycle deepwater independent oil and gas exploration and production company focused along the Atlantic Margins. Our key assets include production offshore
Ghana, Equatorial Guineaand the U.S. Gulf of Mexico, as well as a world-class gas development offshore Mauritaniaand Senegal. We also maintain a sustainable proven basin exploration program in Equatorial Guinea, Ghanaand the U.S. Gulf of Mexico. The ongoing COVID-19 pandemic that emerged at the beginning of 2020 has resulted in travel restrictions, including border closures, travel bans, social distancing restrictions and office closures being ordered in the various countries in which we operate, impacting some of our business operations. These ongoing restrictions have had an impact on the supply chain, resulting in the delay of various operational projects.
Globally, the impacts of COVID-19,
Following the closing of the acquisition of
Anadarko WCTP Company(" AnadarkoWCTP") in the fourth quarter of 2021, Kosmos' interest in the Jubilee Unit Area and the TEN fields offshore Ghanawere 42.1% and 28.1%, respectively. Under the DT Block Joint Operating Agreement, certain joint venture partners have pre-emption rights in the Jubilee Unit Area and the TEN fields. In November 2021, we received notice from Tullow Oil plc ("Tullow") and PetroSA that they intend to exercise their pre-emption rights in relation to Kosmos' acquisition of Anadarko WCTP. After execution of definitive transaction documentation and receipt of governmental approvals, Kosmos concluded the pre-emption transaction with Tullow in March 2022. Following the completion of the pre-emption by Tullow, Kosmos' interest in the Jubilee Unit Area decreased from 42.1% to 38.6% and Kosmos' interest in the TEN fields decreased from 28.1% to 20.4%. Tullow paid Kosmos $118.2 millionin cash consideration after post closing adjustments for the pre-emption. During the first quarter of 2022, our oil and gas properties, net balance was reduced by $175.5 millionwhich includes the cash proceeds and net liabilities transferred to the purchaser as a result of concluding the Tullow pre-emption transaction. The difference in the net book value of the proved property, net liabilities transferred and adjusted purchase price was treated as a recovery of cost and normal retirement, which resulted in no gain or loss being recognized. The net 2022 production impact of the Tullow pre-emption exercise for Kosmos is a reduction of approximately 4,000 barrels of oil per day, based on the March 17, 2022closing date, and is expected to result in one less Ghanacargo lifting this year and a reduction in 2022 capital expenditure of approximately $30.0 million. For PetroSA, the pre-emption process is ongoing and remains subject to execution of definitive agreements and required government approvals. Following completion of the pre-emption for PetroSA, Kosmos' ultimate interests in the Jubilee Unit Area and TEN fields would be reduced to 38.3% and 19.8%, respectively. In March 2022, we refinanced the Corporate Revolver by replacing it with a new revolving credit facility agreement. The new revolving credit facility decreases the borrowing capacity from $400.0 millionto $250.0 millionand extends the maturity date from May 2022to the end of 2024. In anticipation of the cessation of the London Interbank Offered Rate ("LIBOR"), as part of the refinancing, interest for the Corporate Revolver is now linked to the Secured Overnight Financing Rate ("SOFR") administered by the Federal Reserve Bank of New York. The Company expects the reduced borrowing capacity of the Corporate Revolver to offset an increase in the margin, resulting in slightly lower interest expenses going forward. 28
Under the terms of our 2020 farm-out agreement with Shell, potential contingent consideration is payable by Shell depending on the results of the first four exploration wells Shell drills in the purchased assets, excluding
South Africa. Upon approval of the relevant operating committee of an appraisal plan for submission to the relevant governmental authority for any of those first four exploration wells, Shell will be required to pay Kosmos $50.0 millionof consideration for each discovery for which an appraisal plan is approved by the relevant operating committee, capped in the aggregate at a maximum of $100.0 milliontotal. There were two oil discoveries announced in Namibiaduring the first half of 2022. Under the terms of Shell's Petroleum Agreement with Namibia, if Shell decides to appraise one or both of the discoveries, an appraisal plan is required to be submitted within 150 days from completion of tests on either discovery well. GhanaDuring the first quarter of 2022, Ghanaproduction averaged approximately 116,200 Bopd gross (42,300 Bopd net). Jubilee production averaged approximately 91,200 Bopd gross (36,000 Bopd net) with consistent water injection and gas offtake. TEN production averaged approximately 25,000 Bopd gross (6,300 Bopd net). In the first quarter of 2022, the multi-year development drilling program continued to progress with the successful drilling and completion of one water injector well in the Jubilee Field which came online in the first quarter of 2022. A producer and second water injection well have been drilled in Jubilee, which are now being completed with both wells expected online during the second quarter of 2022. Following Jubilee completion operations, the rig is expected to move to the TEN fields and continue drilling operations. In April 2022, the Jubilee facilities were shut-down to complete a scheduled two week routine maintenance program.
Manufacture of the
March 2022, the Company commenced operations to plug back and side-track the original Kodiak #3 infill well located in Mississippi Canyon(29.1% working interest). The side-tracked well is expected to be online in the third quarter of 2022, with insurance proceeds expected to cover the costs incurred to return the Kodiak #3 well to production. In January 2021, we announced the Winterfell exploration well encountered approximately 26 meters (85 feet) of net oil pay in two intervals. Winterfell was designed to test a sub-salt Upper Miocene prospect located in Green CanyonBlock 944. In January 2022, the Winterfell-2appraisal well in Green CanyonBlock 943 was drilled to evaluate the adjacent fault block to the northwest of the original Winterfell discovery and was designed to test two horizons that were oil bearing in the Winterfell-1 well, with an exploration tail into a deeper horizon. The well discovered approximately 40 meters (120 feet) of net oil pay in the first and second horizons with better oil saturation and porosity than pre-drill expectations. The exploration tail discovered an additional oil-bearing horizon in a deeper reservoir which is also prospective in the blocks immediately to the north. We are currently in discussions with partners to define the development plan. In March 2022, Kosmos completed the acquisition of an additional 5.5% interest in the Winterfell area in Green Canyon Blocks943, 944, 987 and 988 and an additional 1.5% interest in Green Canyonblocks 899 and 900 for $9.6 million. In May 2022, Kosmos exercised our preferential right to purchase an additional 5.9% interest in Kodiak from Marubeni for approximately $21.0 millionwith an additional deferred payment of $7.0 million.
Equatorial Guineaaveraged approximately 34,900 Bopd gross (11,500 Bopd net) in the first quarter of 2022. In May 2022, Kosmos and its Joint Venture partners agreed with the Ministry of Mines and Hydrocarbons of Equatorial Guineato extend the Block G petroleum contract term which will harmonize the expiration of the Ceiba and Okume field production licenses (presently expiring in 2029 and 2034 respectively) to 2040. The license extension will support the next phase of investment in the license. As part of the extension, Kosmos has agreed to pay a signature bonus, included in our 2022 capital plan, as well as to undertake an agreed work program.
The partnership is currently in discussions with the government of
Mauritaniato extend the exploration phase of Block C8 which is currently set to expire in June 2022. The BirAllah and Orca discoveries are located in Block C8. 29
Great Ahmeyim Turtle Unit
Phase 1 of the Greater Tortue project continues to make steady progress in 2022 with first gas for the project expected in the third quarter of 2023. The following milestones were achieved as of the end of the first quarter of 2022 and post quarter-end:
• FLNG: start of installation and testing of pipe rack equipment and equipment
• FPSO: Mooring piles have been pre-installed offshore and work on the FPSO in the shipyard continues with mechanical finishing activities and inspection tests
• Terminal Hub: construction continues on schedule with the 21st and last caisson shipped offshore at the start of
•Subsea: the offshore construction campaign should start in
• Drilling: started with first holes completed on two of the four wells required for first gas
All of our results, as presented in the table below, represent operations from Jubilee and TEN fields in
Ghana, the U.S. Gulf of Mexicoand Equatorial Guinea. Certain operating results and statistics for the three months ended March 31, 2022and 2021 are included in the following tables: Three Months Ended March 31, 20222021 (In thousands, except per volume data)
Sales volumes: Oil (MBbl) 6,348 3,068 Gas (MMcf) 1,004 1,325 Total (MBoe) 6,515 3,289 Total (Boepd) 72,393 36,543 Revenues: Oil sales $ 654,079
$ 171,934Gas sales 4,936 4,540 Total revenues $ 659,015 $ 176,474Average oil sales price per Bbl $ 103.04 $ 56.04Average gas sales price per Mcf 4.92 3.43 Average total sales price per Boe 101.15 53.66
Oil and gas production, excluding workovers $ 121,223
$ 42,492Oil and gas production, workovers 3,480 3,260 Total oil and gas production costs $ 124,703 $ 45,752Depletion, depreciation and amortization $ 158,969 $ 76,541Average cost per Boe: Oil and gas production, excluding workovers $ 18.61 $ 12.92Oil and gas production, workovers 0.53 0.99 Total oil and gas production costs 19.14 13.91 Depletion, depreciation and amortization 24.40 23.27 Total $ 43.54 $ 37.1831
The following table shows the number of wells in the process of being drilled or in active completion stages, and the number of wells suspended or waiting on completion as of
March 31, 2022: Actively Drilling or Wells Suspended or Completing Waiting on Completion Exploration Development Exploration Development Gross Net Gross Net Gross Net Gross Net GhanaJubilee Unit - - 1 0.39 - - 8 3.09 TEN - - - - - - 5 1.02 Equatorial Guinea Block S - - - - 1 0.40 - - Okume - - - - - - 1 0.43 U.S. Gulf of Mexico Winterfell - - - - 2 0.44 - - Kodiak 727 #3 - - 1 0.29 - - - - Mauritania / Senegal Mauritania C8 - - - - 2 0.56 - - Greater Tortue Ahmeyim Unit - - - - 3 0.80 1 0.27 Senegal Cayar Profond - - - - 3 0.90 - - Total - - 2 0.68 11 3.10 15 4.81 32
The discussion of the results of operations and the period-to-period comparisons presented below analyze our historical results. The following discussion may not be indicative of future results. Three months ended
March 31, 2022compared to three months ended March 31, 2021Three Months Ended March 31, Increase 2022 2021 (Decrease) (In thousands) Revenues and other income: Oil and gas revenue $ 659,015 $ 176,474 $ 482,541Gain on sale of assets - 26 (26) Other income, net 52 70 (18) Total revenues and other income 659,067 176,570
Costs and expenses: Oil and gas production 124,703 45,752
Facilities insurance modifications, net 7,136 671 6,465 Exploration expenses 11,876 8,181 3,695 General and administrative 25,793 22,441 3,352
Depletion, depreciation and amortization 158,969 76,541
Interest and other financing costs, net 33,139 24,528
8,611 Derivatives, net 282,172 102,461 179,711 Other expenses, net 2,426 3,468 (1,042) Total costs and expenses 646,214 284,043 362,171 Income (loss) before income taxes 12,853 (107,473)
Income tax expense (benefit) 11,453 (16,705) 28,158 Net income (loss)
$ 1,400 $ (90,768) $ 92,168Oil and gas revenue. Oil and gas revenue increased by $482.5 millionduring the three months ended March 31, 2022, as compared to the three months ended March 31, 2021primarily as a result of higher average realized oil prices and increased sales volumes related to the timing of liftings in Ghanaand Equatorial Guineaand our acquisition of additional interests in Ghanaduring the fourth quarter of 2021. We sold 6,515 MBoe at an average realized price per barrel equivalent of $101.15during the three months ended March 31, 2022and 3,289 MBoe at an average realized price per barrel equivalent of $53.66during the three months ended March 31, 2021. Oil and gas production. Oil and gas production costs increased by $79.0 millionduring the three months ended March 31, 2022, as compared to the three months ended March 31, 2021primarily as a result of higher overall sales volumes across our portfolio and field production mix in our international business units. Exploration expenses. Exploration expenses increased by $3.7 millionduring the three months ended March 31, 2022, as compared to the three months ended March 31, 2021primarily as result of higher geological, geophysical, and seismic costs in the U.S. Gulf of Mexicoand Mauritaniaand Senegalbusiness units.
Depletion, Depreciation and Amortization. Depletion, depreciation and amortization increased
Interest and other financing costs, net. Interest and other financing costs, net increased
$8.6 millionduring the three months ended March 31, 2022, as compared with the three months ended March 31, 2021primarily as a result of increased interest expense on the 7.750% Senior Notes and the 7.500% Senior Notes issued during 2021 partially offset by increased capitalized interest related to the Greater Tortue Ahmeyim project. 33
Derivatives, net. During the three months ended
March 31, 2022and 2021, we recorded a loss of $282.2 millionand a loss of $102.5 million, respectively, on our outstanding hedge positions. The amounts recorded were a result of changes in the forward oil price curve during the respective periods. Income tax expense (benefit). For the three months ended March 31, 2022and 2021, our overall effective tax rates were impacted by the difference in our 21% U.S.income tax reporting rate and the 35% statutory tax rates applicable to our Ghanaian and Equatorial Guinean operations, jurisdictions that have a 0% statutory tax rate or where we have incurred losses and have recorded valuation allowances against the corresponding deferred tax assets, and other non-deductible expenses, primarily in the U.S.
Cash and capital resources
We are actively engaged in an ongoing process of anticipating and meeting our funding requirements related to our strategy as a full-cycle exploration and production company. We have historically met our funding requirements through cash flows generated from our operating activities and obtained additional funding from issuances of equity and debt, as well as partner carries. Current oil prices are volatile and could negatively impact our ability to generate sufficient operating cash flows to meet our funding requirements. This volatility could result in wide fluctuations in future oil prices, which could impact our ability to comply with our financial covenants. To partially mitigate this price volatility, we maintain an active hedging program and review our capital spending program on a regular basis. Our investment decisions are based on longer-term commodity prices based on the nature of our projects and development plans. Current commodity prices, combined with our hedging program, partner carries and our current liquidity position support our remaining capital program for 2022. Sources and Uses of Cash The following table presents the sources and uses of our cash and cash equivalents and restricted cash for the three months ended
March 31, 2022and 2021: Three Months Ended March 31, 20222021
(In thousands) Sources of cash, cash equivalents and restricted cash: Net cash provided by (used in) operating activities
$ 329,628 $ (46,626)Net proceeds from issuance of senior notes - 444,375 Borrowings under long-term debt - 100,000 Proceeds on sale of assets 118,222 631 447,850 498,380
Uses of Cash, Cash Equivalents and Restricted Cash: Oil and Gas Assets
108,834 128,802 Notes receivable from partners - 22,416 Payments on long-term debt 107,500 350,000 Purchase of treasury stock 2,753 1,018 Dividends 642 430 Deferred financing costs 5,738 1,034 225,467 503,700
Increase (decrease) in cash, cash equivalents and restricted cash
Net cash provided by (used in) operating activities. Net cash provided by operating activities for the three months ended
March 31, 2022was $329.6 millioncompared with net cash used in operating activities for the three months ended March 31, 2021of $46.6 million. The increase in cash provided by operating activities in the three months ended March 31, 2022when compared to the same period in 2021 is primarily a result of increased sales volumes and higher oil prices. 34
The following table presents our net debt and liquidity as of
March 31, 2022: March 31, 2022 (In thousands) Cash and cash equivalents $ 337,834Restricted cash 59,445 7.125% Senior Notes 650,000 7.750% Senior Notes 400,000 7.500% Senior Notes 450,000 Borrowings under the Facility 900,000 Borrowings under the GoM Term Loan 167,500 Net debt $ 2,170,221Availability under the Facility(1) $ 335,155Availability under the Corporate Revolver $ 250,000
Available borrowings plus cash and cash equivalents
Capital expenditure and investments
We expect to incur capital expenditures when we:
• drill additional infill wells and carry out exploration and production activities in
• Execute infrastructure-focused exploration and evaluation efforts
• carry out evaluation and development activities in
We have relied on a number of assumptions in budgeting for our future activities. These include the number of wells we plan to drill, our participating, paying and carried interests in our prospects including disproportionate payment amounts, the costs involved in developing or participating in the development of a prospect, the timing of thirdparty projects, the availability of suitable equipment and qualified personnel and our cash flows from operations. We also evaluate potential corporate and asset acquisition opportunities to support and expand our asset portfolio which may impact our budget assumptions. These assumptions are inherently subject to significant business, political, economic, regulatory, health, environmental and competitive uncertainties, contingencies and risks, all of which are difficult to predict and many of which are beyond our control. We may need to raise additional funds more quickly if market conditions deteriorate, or one or more of our assumptions proves to be incorrect, or if we choose to expand our acquisition, exploration, appraisal, development efforts or any other activity more rapidly than we presently anticipate. We may decide to raise additional funds before we need them if the conditions for raising capital are favorable. We may seek to sell assets, equity or debt securities or obtain additional bank credit facilities. The sale of equity securities could result in dilution to our shareholders. The incurrence of additional indebtedness could result in increased fixed obligations and additional covenants that could restrict our operations. 2022 Capital Program
We estimate that we will spend approximately
$100-$140 millionrelated to growth activities across our Ghana, Equatorial Guineaand U.S. Gulf of Mexicoassets, primarily pre-investment for infrastructure required to support production growth in 2023 and beyond 35
March 31, 2022, we have spent approximately $100.5 millionon capital expenditures, excluding the offsetting impact of the proceeds received for the Tullow pre-empt transaction. The ultimate amount of capital we will spend may fluctuate materially based on market conditions and the success of our exploitation and drilling results among other factors. Our future financial condition and liquidity will be impacted by, among other factors, our level of production of oil and the prices we receive from the sale of oil, our ability to effectively hedge future production volumes, the success of our multi-faceted infrastructure-led exploration and appraisal drilling programs, the number of commercially viable oil and natural gas discoveries made and the quantities of oil and natural gas discovered, the speed with which we can bring such discoveries to production, our partners' alignment with respect to capital plans, and the actual cost of exploitation, exploration, appraisal and development of our oil and natural gas assets, and coverage of any claims under our insurance policies.
Important sources of capital
The Facility supports our oil and gas exploration, appraisal and development programs and corporate activities with a borrowing base calculation that includes value related to the Jubilee, TEN, Ceiba and Okume fields, however, the additional interests in Jubilee and TEN acquired in the
October 2021acquisition of Anadarko WCTP are not included in the borrowing base calculation. During the first quarter of 2022, the Company made principal repayments totaling $100.0 millionon the Facility. In April 2022, during the Spring 2022 redetermination, the Company's lending syndicate approved a borrowing base capacity in excess of the facility size of $1.25 billion. As of March 31, 2022, borrowings under the Facility totaled $900.0 millionand the undrawn availability under the facility was $335.2 million. In April 2022, the Company made a voluntary early principal repayment of an additional $100 millionwith the proceeds from the Tullow pre-emption transaction. See Note 3 - Acquisitions and Divestitures. Accordingly, $100 millionof the total $900.0 millionof borrowings under the Facility have been classified within Current maturities of long-term debt on our consolidate balance sheet as of March 31, 2022. The Facility provides a revolving credit and letter of credit facility. The availability period for the revolving credit facility expires one month prior to the final maturity date. The letter of credit facility expires on the final maturity date. The available facility amount is subject to borrowing base constraints and, beginning on March 31, 2024, outstanding borrowings will be constrained by an amortization schedule. The Facility has a final maturity date of March 31, 2027. As of March 31, 2022, we had no letters of credit issued under the Facility. We have the right to cancel all the undrawn commitments under the amended and restated Facility. The amount of funds available to be borrowed under the Facility, also known as the borrowing base amount, is determined every March and September. The borrowing base amount is based on the sum of the net present values of net cash flows and relevant capital expenditures reduced by certain percentages as well as value attributable to certain assets' reserves and/or resources in Ghanaand Equatorial Guinea, however, excludes the additional interests in Jubilee and TEN acquired in the recent acquisition of AnadarkoWCTP. If an event of default exists under the Facility, the lenders can accelerate the maturity and exercise other rights and remedies, including the enforcement of security granted pursuant to the Facility over certain asset. We were in compliance with the financial covenants contained in the Facility as of March 31, 2022(the most recent assessment date). The Facility contains customary cross default provisions.
March 31, 2022, we refinanced the Corporate Revolver by replacing it with a new revolving credit facility agreement resulting in the following changes to the terms:
• The total size of the Corporate Revolver is reduced by
• The due date is extended by
•Borrowings under the Corporate Revolver now bear interest at a rate equal to the secured overnight financing rate administered by the
Federal Reserve Bank of New Yorkplus a credit adjustment spread plus a 7.0% margin plus mandatory costs, if applicable. •Addition of a negative pledge covenant over the participating interests held by the Company's wholly-owned subsidiary, Kosmos Energy Ghana Investments, in the WCTP and DT blocks offshore Ghana. •As the Corporate Revolver is intended to continue to largely remain undrawn, the Company is required to use the proceeds from any capital markets and loan transactions to first repay any drawn outstanding balance under the Corporate Revolver and the Company is subject to a cash sweep of at least 50% of the Company's Excess Cash (as defined in the Corporate Revolver) to pay outstanding balances as of March 31or September 30in any calendar year. The Corporate Revolver is available for general corporate purposes and for oil and gas exploration, appraisal and development programs. The Company expects the reduced Corporate Revolver size to offset an increase in the margin, resulting in slightly lower interest expenses going forward. As of March 31, 2022, there were no outstanding borrowings under the Corporate Revolver and the undrawn availability was $250.0 million. The available amount is not subject to borrowing base constraints. We have the right to cancel all the undrawn commitments under the Corporate Revolver. We are required to repay certain amounts due under the Corporate Revolver with sales of certain subsidiaries or sales of certain assets. If an event of default exists under the Corporate Revolver, the lenders can accelerate the maturity and exercise other rights and remedies, including the enforcement of security granted pursuant to the Corporate Revolver over certain assets held by us. We were in compliance with the financial covenants contained in the Corporate Revolver as of March 31, 2022(the most recent assessment date). The Corporate Revolver contains customary cross default provisions. The U.S.and many foreign economies continue to experience uncertainty driven by varying macroeconomic conditions. Although some of these economies have shown signs of improvement, macroeconomic recovery remains uneven. Uncertainty in the macroeconomic environment and associated global economic conditions have resulted in extreme volatility in credit, equity, and foreign currency markets, including the European sovereign debt markets and volatility in various other markets. If any of the financial institutions within our Facility or Corporate Revolver are unable to perform on their commitments, our liquidity could be impacted. We actively monitor all of the financial institutions participating in our Facility and Corporate Revolver. None of the financial institutions have indicated to us that they may be unable to perform on their commitments. In addition, we periodically review our banking and financing relationships, considering the stability of the institutions and other aspects of the relationships. Based on our monitoring activities, we currently believe our banks will be able to perform on their commitments.
We have three series of senior notes outstanding, which we collectively referred to as the "Senior Notes." Our 7.125% Senior Notes mature on
April 4, 2026, and interest is payable on the 7.125% Senior Notes each April 4and October 4. Our 7.500% Senior Notes mature on March 1, 2028, and interest is payable on the 7.500% Senior Notes each March 1and September 1. Our 7.750% Senior Notes mature on May 1, 2027, and interest is payable on the 7.750% Senior Notes each May 1and November 1. The Senior Notes are senior, unsecured obligations of Kosmos Energy Ltd.and rank equally in right of payment with all of its existing and future senior indebtedness (including all borrowings under the Corporate Revolver) and rank effectively junior in right of payment to all of its existing and future secured indebtedness (including all borrowings under the Facility and the GoM Term Loan). The Senior Notes are jointly and severally guaranteed on a senior, unsecured basis by certain subsidiaries owning the Company's U.S. Gulf of Mexicoassets and the interests acquired in the Anadarko WCTP Acquisition, and on a subordinated, unsecured basis by entities that borrow under, or guarantee, our Facility. GoM Term Loan In September 2020, the Company entered into a five-year $200.0 millionsenior secured term-loan credit agreement secured against the Company's U.S. Gulf of Mexicoassets with net proceeds received of $197.7 millionafter deducting fees and other expenses. The GoM Term Loan also includes an accordion feature providing for incremental commitments of up to $100.0 millionsubject to certain conditions. As of March 31, 2022, borrowings under the GoM Term Loan totaled $167.537
the GoM term loan outstanding has been classified as current maturities of long-term debt in our consolidated balance sheet.
The GoM Term Loan contains customary affirmative and negative covenants, including covenants that affect our ability to incur additional indebtedness, create liens, merge, dispose of assets, and make distributions, dividends, investments or capital expenditures, among other things. The GoM Term Loan is guaranteed on a senior, secured basis by certain subsidiaries owning the Company's
U.S. Gulf of Mexicoassets. The GoM Term Loan includes certain representations and warranties, indemnities and events of default that, subject to certain materiality thresholds and grace periods, arise as a result of a payment default, failure to comply with covenants, material inaccuracy of representation or warranty, and certain bankruptcy or insolvency proceedings. If there is an event of default, all or any portion of the outstanding indebtedness may be immediately due and payable and other rights may be exercised including against the collateral.
The following table summarizes by period the payments due for our estimated contractual obligations as of
March 31, 2022and the weighted average interest rates expected to be paid on the Facility, Corporate Revolver and GoM Term Loan given current contractual terms and market conditions, and the instrument's estimated fair value. Weighted-average interest rates are based on implied forward rates in the yield curve at the reporting date. This table does not include amortization of deferred financing costs. Asset (Liability) Fair Value at Years Ending December 31, March 31, 2022(2) 2023 2024 2025 2026 Thereafter Total(3) 2022 (In thousands, except percentages) Fixed rate debt: 7.125% Senior Notes $ - $ -
$ 650,000 $ 638,2487.750% Senior Notes - - - - - 400,000 $ 400,000 $ 394,0047.500% Senior Notes - - - - - 450,000 450,000 432,666 Variable rate debt: Weighted average interest rate 5.42 % 6.61 % 6.87 % 6.62 % 6.82 % 7.03 % Facility(1) $ 100,000$ - $ 107,785 $ 242,977 $ 289,350 $ 159,888 $ 900,000 $ 900,000GoM Term Loan 22,500 30,000 30,000 85,000 - - 167,500 167,500 Total principal debt repayments(1) $ 122,500 $ 30,000
$ 2,567,500Interest & commitment fee payments on long-term debt 144,337 183,429 179,550 154,354 109,312 68,982 839,964 Operating leases(4) 2,997 4,065 4,136 4,207 4,278 10,866 30,549
(1)The amounts included in the table represent principal maturities only. The scheduled maturities of debt related to the Facility are based on the level of borrowings and the available borrowing base as of
March 31, 2022. Any increases or decreases in the level of borrowings or increases or decreases in the available borrowing base would impact the scheduled maturities of debt during the next five years and thereafter. In April 2022, the Company made a voluntary early principal repayment of an additional $100.0 millionwith the proceeds from the Tullow pre-emption transaction. See Note 3 - Acquisitions and Divestitures. Accordingly, $100.0 millionof the total $900.0 millionof borrowings under the Facility have been classified within Current maturities of long-term debt on our consolidated balance sheet as of March 31, 2022.
(2)Represents the period
(3)Does not include our share of operator's purchase commitments for jointly owned fields and facilities where we are not the operator and excludes commitments for exploration activities, including well commitments and seismic obligations, in our petroleum contracts. The Company's liabilities for asset retirement obligations associated with the dismantlement, abandonment and restoration costs of oil and gas properties are not included. See Note 14 - Additional Financial Information for additional information regarding these liabilities.
(4) Mainly concerns corporate leases and offices abroad.
We are currently committed to drilling an exploration well in
Critical accounting policies
We consider accounting policies related to our revenue recognition, exploration and development costs, receivables, income taxes, derivative instruments and hedging activities, estimates of proved oil and natural gas reserves, asset retirement obligations, leases and impairment of long-lived assets as critical accounting policies. The policies include significant estimates made by management using information available at the time the estimates are made. However, these estimates could change materially if different information or assumptions were used. Other than items discussed in Note 2 - Accounting Policies, there have been no changes to our critical accounting policies which are summarized in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" section in our annual report on Form 10-K, for the year ended
December 31, 2021.
Caution Regarding Forward-Looking Statements
This quarterly report on Form 10-Q contains estimates and forward-looking statements, principally in "Management's Discussion and Analysis of Financial Condition and Results of Operations." Our estimates and forward-looking statements are mainly based on our current expectations and estimates of future events and trends, which affect or may affect our businesses and operations. Although we believe that these estimates and forward-looking statements are based upon reasonable assumptions, they are subject to several risks and uncertainties and are made in light of information currently available to us. Many important factors, in addition to the factors described in our quarterly report on Form 10-Q and our annual report on Form 10-K, may adversely affect our results as indicated in forward-looking statements. You should read this quarterly report on Form 10-Q, the annual report on Form 10-K and the documents that we have filed with the
Securities and Exchange Commissioncompletely and with the understanding that our actual future results may be materially different from what we expect. Our estimates and forward-looking statements may be influenced by the following factors, among others: •the impact of the COVID-19 pandemic on the Company and the overall business environment; •the impact of Russia'sinvasion of Ukraineand the effects it has on the oil and gas industry as a whole, including increased volatility with respect to oil, natural gas and NGL prices and operating and capital expenditures •our ability to find, acquire or gain access to other discoveries and prospects and to successfully develop and produce from our current discoveries and prospects; •uncertainties inherent in making estimates of our oil and natural gas data; •the successful implementation of our and our block partners' prospect discovery and development and drilling plans; •projected and targeted capital expenditures and other costs, commitments and revenues; •termination of or intervention in concessions, rights or authorizations granted to us by the governments of the countries in which we operate (or their respective national oil companies) or any other federal, state or local governments or authorities; •our dependence on our key management personnel and our ability to attract and retain qualified technical personnel; •the ability to obtain financing and to comply with the terms under which such financing may be available; •the volatility of oil, natural gas and NGL prices, as well as our ability to implement hedges addressing such volatility on commercially reasonable terms; •the availability, cost, function and reliability of developing appropriate infrastructure around and transportation to our discoveries and prospects; •the availability and cost of drilling rigs, production equipment, supplies, personnel and oilfield services; •other competitive pressures; •potential liabilities inherent in oil and natural gas operations, including drilling and production risks and other operational and environmental risks and hazards; •current and future government regulation of the oil and gas industry or regulation of the investment in or ability to do business with certain countries or regimes; •cost of compliance with laws and regulations; •changes in, or new, environmental, health and safety or climate change or GHG laws, regulations and executive orders, or the implementation, or interpretation, of those laws, regulations and executive orders; •adverse effects of sovereign boundary disputes in the jurisdictions in which we operate; •environmental liabilities; •geological, geophysical and other technical and operations problems, including drilling and oil and gas production and processing; 39
•military operations, civil unrest, outbreaks of disease, terrorist acts, wars or embargoes; •the cost and availability of adequate insurance coverage and whether such coverage is enough to sufficiently mitigate potential losses and whether our insurers comply with their obligations under our coverage agreements; •our vulnerability to severe weather events, including tropical storms and hurricanes in the
Gulf of Mexico; •our ability to meet our obligations under the agreements governing our indebtedness; •the availability and cost of financing and refinancing our indebtedness; •the amount of collateral required to be posted from time to time in our hedging transactions, letters of credit, performance bonds and other secured debt; •the result of any legal proceedings, arbitrations, or investigations we may be subject to or involved in; •our success in risk management activities, including the use of derivative financial instruments to hedge commodity and interest rate risks; and •other risk factors discussed in the "Item 1A. Risk Factors" section of our quarterly reports on Form 10-Q and our annual report on Form 10-K. The words "believe," "may," "will," "aim," "estimate," "continue," "anticipate," "intend," "expect," "plan" and similar words are intended to identify estimates and forward-looking statements. Estimates and forward-looking statements speak only as of the date they were made, and, except to the extent required by law, we undertake no obligation to update or to review any estimate and/or forward-looking statement because of new information, future events or other factors. Estimates and forward-looking statements involve risks and uncertainties and are not guarantees of future performance. As a result of the risks and uncertainties described above, the estimates and forward-looking statements discussed in this quarterly report on Form 10-Q might not occur, and our future results and our performance may differ materially from those expressed in these forward-looking statements due to, including, but not limited to, the factors mentioned above. Because of these uncertainties, you should not place undue reliance on these forward-looking statements.
Item 3. Qualitative and quantitative information on market risk
The primary objective of the following information is to provide forward-looking quantitative and qualitative information about our potential exposure to market risks. The term "market risks" as it relates to our currently anticipated transactions refers to the risk of loss arising from changes in commodity prices and interest rates. These disclosures are not meant to be precise indicators of expected future losses, but rather indicators of reasonably possible losses. This forward-looking information provides indicators of how we view and manage ongoing market risk exposures. We enter into market-risk sensitive instruments for purposes other than to speculate. We manage market and counterparty credit risk in accordance with our policies. In accordance with these policies and guidelines, our management determines the appropriate timing and extent of derivative transactions. See "Item 8. Financial Statements and Supplementary Data - Note 2 - Accounting Policies, Note 9 - Derivative Financial Instruments and Note 10- Fair Value Measurements" section of our annual report on Form 10-K for a description of the accounting procedures we follow relative to our derivative financial instruments.
The following table reconciles changes in the fair values of our open derivative contracts during the three months ended
Derivative Contracts Assets (Liabilities) Commodities (In thousands) Fair value of contracts outstanding as of December 31, 2021 $ (66,315) Changes in contract fair value (290,806) Contract maturities 93,050 Fair value of contracts outstanding as of March 31, 2022 $ (264,071) 40
Commodity Price Risk
The Company's revenues, earnings, cash flows, capital investments and, ultimately, future rate of growth are highly dependent on the prices we receive for our crude oil, which have historically been very volatile. Substantially all of our oil sales are indexed against Dated Brent, and Heavy Louisiana Sweet. Oil prices in the first three months of 2022 ranged between
$78.99and $137.64per Bbl for Dated Brent, with Heavy Louisiana Sweet experiencing similar volatility during the first three months of 2022.
We enter into various oil derivative contracts to mitigate our exposure to commodity price risk associated with anticipated future oil production. These contracts currently consist of collars, put options and call options. In regards to our obligations under our various commodity derivative instruments, if our production does not exceed our existing hedged positions, our exposure to our commodity derivative instruments would increase. In addition, a reduction in our ability to access credit could reduce our ability to implement derivative contracts on commercially reasonable terms.
Commodity price sensitivity
The following table provides information about our oil derivative financial instruments that were sensitive to changes in oil prices as of
March 31, 2022. Volumes and weighted average prices are net of any offsetting derivatives entered into. Weighted Average Price per Bbl Asset Net Deferred (Liability) Premium Fair Value at Payable/ Sold March 31, Term Type of Contract Index MBbl (Receivable) Put Floor Ceiling 2022(2) (In thousands) 2022: Apr - Dec Three-way collars Dated Brent 3,375 $ 0.64 $ 43.33 $ 56.67 $ 76.91 $ (85,675)Apr - Dec Three-way collars NYMEX WTI 750 1.45 50.00 65.00 85.00 (11,149) Apr - Dec Two-way collars Dated Brent 5,000 1.15 - 63.25 84.00 (100,470) Apr - Dec Sold calls(1) Dated Brent 1,186 - - - 60.00 (46,964)
Jan - Dec Three-way collars Dated Brent 2,000 0.92 47.50 65.00 95.25 (19,813)
(1) Represents call option contracts sold to counterparties to improve other derivative positions
(2) Fair values are based on average forward oil prices
March 31, 2022, our open commodity derivative instruments were in a net liability position of $264.1 million. As of March 31, 2022, a hypothetical 10% price increase in the commodity futures price curves would decrease future pre-tax earnings by approximately $97.3 million. Similarly, a hypothetical 10% price decrease would increase future pre-tax earnings by approximately $98.3 million.
Sensitivity to interest rates
Changes in market interest rates affect the amount of interest we pay on certain of our borrowings. Outstanding borrowings under the Facility and GoM Term Loan, which as of
March 31, 2022total $1.1 billionand have a weighted average interest rate of 4.5%, are subject to variable interest rates which expose us to the risk of earnings or cash flow loss due to potential increases in market interest rates. If the floating market rate increased 10% at this level of floating rate debt, we would pay an estimated additional $0.5 millioninterest expense per year. The commitment fees on the undrawn availability under the Facility and the Corporate Revolver are not subject to changes in interest rates. All of our other long-term indebtedness is fixed rate and does not expose us to the risk of cash flow loss due to changes in market interest rates. Additionally, a change in the market interest rates could impact interest costs associated with future debt issuances or any future borrowings.
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