Why Kosmos Energy Ltd.'s Stock Is Plunging Today

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What happened

Kosmos Energy Ltd.'s (NYSE: KOS) stock slumped on Monday, falling more than 12% at 10:45 a.m. EST after announcing that it completed drilling its latest exploration well off the shores of Senegal in West Africa.

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So what

Kosmos Energy and its partners, British oil giant BP (NYSE: BP) and the national oil company of Senegal, recently finished drilling the Requin Tigre-1 exploration well. However, Kosmos said that after extensive testing, the partners didn't encounter any oil and gas. This dry hole in is the latest in a string of exploration misses for Kosmos since it signed an exploration deal with BP at the end of 2016, only hitting on one of the four wells in the second phase of its program. It was much more successful in the first phase, going 3-for-3 and discovering a major natural gas resource.

Those past successes are leading Kosmos to continue exploring for more oil and gas this year. That said, this time it's heading to South America with its drill ship, where it will target two oil prospects off the coast of Suriname. The company expects to start drilling them early next quarter.

Now what

Offshore exploration can be hit or miss. While Kosmos has hit big several times, it hasn't been quite as successful in recent months. Though its luck could change as it shifts to a new region, there are no guarantees. That makes Kosmos a high-risk oil stock that's not suitable for most investors since it will be years before the company turns any of its exploration successes into cash-flowing production.

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Matthew DiLallo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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