On 2 August, Kosmos announced that it will be seeking a main-market listing in London during the third quarter in order to access European investors. According to Reuters, the company indicates “There are a number of European investment funds and specialist international oil and gas investors that are currently unable to hold Kosmos’ shares due to their listing outside of a European regulated market”
We also believe it is a function of the differing attitudes the investor bases have towards exploration. Given the multitude of onshore producers, US investors typically place more emphasis on near-term cashflows and production. Especially since the advent of shale fracking, exploration risk is smaller and a greater attention is given to cashflows and financial leverage.
European exchanges tend to see more international explorers focussing on frontier areas, leading to a greater understanding of international exploration and willingness to value it. European exchanges are more used to taking a risked approach to longer term value ideas such as 2P/3P reserves and exploration.
This may explain why European analysts have higher target prices given Kosmos’ mix of production/ development/exploration assets.
Given these differences it makes sense for Kosmos to list in London. Of the companies operating (or those that had recent drilling) in the West African coast, many of them are European listed. The majors are joined by Tullow, Cairn, Ophir , GALP, Genel, Seplat and many smaller and micro-cap peers. While recent years have seen the London market paying less attention to exploration, we believe it is a more natural home for Kosmos, which will be exploring for more resource in 2017-2018 than any other E&P (according to the company).
For European investors interested in exploration, Kosmos may be an attractive prospect.
In 2017-2018 it is targeting six material wells. In Africa four targets represent large opportunities (pre-drill estimates of gross unrisked resources are Yakaar 833mmboe, Requin 833mmboe, Lamarin 833mmboe, Requin Tigre 2.5bn boe). Of these, Yakaar has been a successful discovery which, added to Teranga, opens up 20tcf of pMean gas resource and a large LNG development in Senegal. With partner BP, Kosmos is targeting a 2018 FID and 2023 first LNG. Given the LNG environment at the moment, we would not be surprised to see dates slip slightly, but Kosmos is well placed to monetise these resources.
In South America, Kosmos holds interests in two blocks close to the existing Liza and Payara discoveries made by Exxon. Anapai and Aurora could each hold 300mmboe according to the company.
Additionally, it has production cashflows from Jubilee and TEN, which will be well known to Tullow’s base. In May 2017, its presentation indicated around $260m of FCF could be generated at $50/bbl oil (including farm-out proceeds).
Other observations US vs Euro listed E&Ps
If the analysts are a guide to investors’ attitudes, it’s possible that greater European investor shareholdings could contribute to an increase in the share price, as existing European-focussed analysts for the company have markedly higher average target prices than their US-focussed counterparts.
Source: Bloomberg. Black dot is Kosmos, green dots are European E&Ps
In fact, if we apply only the target prices for European analysts and assume that Kosmos moves towards the trend line in EV vs discount to target price seen in the chart above, it could lead to more than a 20% increase in share price.
Given the relative paucity of European E&Ps (vs US), it is very possible the listing of a $3.5bn EV company on London exchange will attract more investors and interest – only Tullow will be bigger. More analysts are likely to cover the company (Kosmos has 15 at the moment, Ophir 18 and Tullow 27).