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Kosmos Energy's (NYSE: KOS) stock surged on Monday, rising more than 11% by 3:00 p.m. EST after the company announced a partnership with BP (NYSE: BP).
Kosmos Energy will combine its exploration expertise in Mauritania and Senegal with BP's deepwater development and LNG production and marketing experience to turn recent basin-opening discoveries into future developments. Under the terms of the deal, Kosmos Energy will receive $162 million in up-front cash as well as a $221 million carry to pay a portion of the future exploration and appraisal drilling relating to the Tortue gas project. Furthermore, BP will pay a maximum of $533 million toward the front-end engineering and design (FEED) study needed on the Tortue project, which could lead to a final investment decision on the project by 2018. In exchange, BP will acquire operatorship and a 62% working interest in several offshore exploration blocks in Mauritania as well as a 32.49% working interest in two offshore licenses in Senegal.
This transaction is a potential win-win for both companies. Kosmos Energy gets a deep-pocketed supermajor partner to help it develop a potential large-scale LNG project as well as future projects in the region. Meanwhile, BP gains access to what appears to be a world-class resource basin.
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Kosmos Energy accomplished several goals with this deal. It was able to secure an immediate cash infusion to bolster its balance sheet and reduce future capex costs via the carry agreements and the transfer of an ownership interest (as well as a percentage of future development costs) to BP. It also secured a long-term partner, which should help Kosmos develop these assets more efficiently than it could have done on its own. That said, these developments will require quite a bit more time and a lot more money before Kosmos and BP will see a tangible return from today's transaction.
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