Kosmos Energy (KOS) said Monday it will acquire Deep Gulf Energy, a deepwater firm operating in the Gulf of Mexico, for $1.225 billion.
The company said the acquisition will add to its deepwater Atlantic Margin portfolio and will be immediately accretive. The deal will enhance the scale of the company and is expected to generate “significant” free cash flow that will allow Kosmos to return cash to shareholders through a dividend starting in the first quarter of 2019.
The acquisition adds about 25,000 barrels a day of oil equivalent to the company’s production with an estimated reserves-to-production ratio of 8.8, growing 2018 pro-forma production by 50% from about 45,000 to 70,00 barrels a day, Kosmos said. Its 2P reserves will rise by about 80 million barrels, increasing by 40% to more than 280 million barrels.
Kosmos called the acquisition “attractive” due to its breakeven of about $48 a barrel for West Texas Intermediate, low-asset retirement obligation of about $100 million undiscounted, and it enables commencement of dividend payments in the first quarter of 2019.
“With this acquisition, Kosmos continues to grow into a larger, more balanced exploration and production company,” Chief Executive Andrew G. Inglis said in a statement on Monday.
Kosmos shares fell more than 4% in early trading Monday.
Under the terms of the transaction, Kosmos will pay $925 million in cash and $300 million in common shares issued to first reserve, management and other Deep Gulf Energy shareholders. Kosmos will fund the acquisition using its existing credit facilities. In connection with the transaction, Kosmos received $200 million in firm commitments to increase its reserves-based loan facility capacity.
The acquisition is expected to close around the end of the third quarter.