Kosmos Energy Ltd. New Senior Unsecured Notes Rated 'BB-'; Recovery Rating: '2'

NEW YORK (S&P Global Ratings) March 14, 2019--S&P Global Ratings today 
assigned its 'BB-' issue-level rating and '2' recovery rating to the proposed 
$600 million senior unsecured notes due 2026 that will be issued by U.S.-based 
oil and gas exploration and production company Kosmos Energy Ltd. The '2' 
recovery rating indicates our expectation for substantial (70%-90%; rounded 
estimate: 80%) recovery to creditors in the event of a payment default. The 
notes are guaranteed by the company's U.S. operating subsidiaries on an 
unsecured basis and by certain international operating subsidiaries on a 
subordinated basis.  

We expect the company to use the proceeds from these notes to refinance its 
7.875% senior secured notes due 2021 ($525 million outstanding), as well as 
pay down amounts outstanding on its revolving credit facility ($325 million as 
of Dec. 21, 2018) and fees and expenses.  

Our 'B+' issuer credit rating and stable outlook remain unchanged.  

Key analytical factors
  • We assume Kosmos' $1.7 billion reserve-based revolver is fully covered by the assets pledged (the Ghana and Equatorial Guinea assets), generating neither a deficiency claim nor providing excess value to Kosmos in the event of hypothetical default.
  • We assume the new unsecured notes will rank pari passu with the company's $400 million unsecured revolving credit facility maturing in 2022 (unrated).
  • The unsecured notes will be guaranteed on a senior unsecured basis by Kosmos' U.S. operating subsidiary, which holds the recently acquired assets from Deep Gulf Energy, and on a subordinated basis by certain operating subsidiaries that hold the company's producing assets in Ghana and Equatorial Guinea.
  • We value the Gulf of Mexico reserves on a PV10 basis at $890 million before 7% administration expenses.
  • We assume the $400 million revolver would be 85% drawn at the time of default, in line with our recovery methodology.
  • We assume proceeds from the new unsecured notes will be used to fully repay the $525 million in senior secured notes due 2021.
Simulated default assumptions
  • Our hypothetical default is in 2023, resulting from a severe decline in oil prices.
  • Kosmos Energy Ltd. is a U.S.-based issuer.
  • Jurisdiction/jurisdiction ranking assessment: U.S./Group A
Simplified waterfall
  • Total value available to senior unsecured notes and $400 million revolving credit facility: $805 million
  • Total debt claims: $980 million
  • --Recovery range: 70%-90% (rounded estimate: 80%)
Note that if the amount of new debt issued exceeds $800 million, our recovery 
expectation could drop below 70%, which would likely lead to a revision of our 
recovery rating.