Kosmos Energy Ltd. (KOS) stock intrinsic value fair value estimate & owner earnings analysis

Kosmos Energy is a deepwater oil and gas producer with production offshore Ghana, Equatorial Guinea, Mauritania and Senegal, and the Gulf of America. It is a single line of business, and its results follow oil and gas prices, its drilling spending and its debt. What the business has actually earned for owners. We measure owner earnings as operating cash flow, less working-capital swings, less stock compensation, less the part of capital spending needed just to stand still. Kosmos spends heavily to drill and develop, and in most years that spending has exceeded what the business generates. On this basis owner earnings per share were negative in five of the last seven years (2020, 2023, 2024, 2025 and, before that window, 2016), and positive in 2019 ($1.32), 2021 ($0.48) and 2022 ($1.29). For 2023 to 2025 they were about -$0.30, -$0.52 and -$0.29 per share. We use 2019 to 2025 as the reference window, because it begins after the 2018 purchase of Gulf of Mexico assets, and its median is about -$0.29 per share. We do not treat this as a level to grow from. Revenue fell from $2.25 billion in 2022 to $1.29 billion in 2025, and in 2025 the company recorded a net loss of $699.8 million, which included $202.5 million of unsuccessful well costs and leasehold impairments. These non-cash charges are already added back in operating cash flow, so they do not lower our earnings figure a second time. Owner earnings per share improved from -$0.52 in 2024 to -$0.29 in 2025 only because capital spending fell from $933.7 million to $314.4 million; we assume no growth from that, and our first-year assumption is no better than the trailing year. What the shares appear to be worth. Because owner earnings have not been positive on a sustained basis, we value the business on the oil and gas it has already proven. The company's own year-end 2025 reserve report shows $12.6 billion of future revenue from proved reserves. After production costs, future development and abandonment costs ($3.1 billion) and taxes, that leaves $3.3 billion of undiscounted net cash flows, or $1.9 billion discounted at 10%. A year earlier the same measures were $4.8 billion and $3.3 billion, and a year before that $6.6 billion and $4.6 billion, so the proved reserves have been shrinking in value. Almost all of what remains is in Ghana ($1.5 billion discounted). Mauritania and Senegal show $27 million and Equatorial Guinea a negative $6 million on that measure. Against this stands debt. Total long-term debt was $3.1 billion at year-end 2025, including $1.2 billion drawn on the bank facility and a $400 million convertible note. In January and February 2026 the company issued $350 million of 11.25% secured bonds due 2031 and used the proceeds and other funds to retire the 7.125% notes due 2026 and part of the 7.75% notes due 2027, and to repay $100 million of the bank facility. Owner earnings are measured after cash interest paid, so interest is the main claim on these cash flows. Based on the stated coupons on the notes and the bonds, plus an assumed rate on the bank facility and term loan that we could not confirm, we estimate cash interest at roughly $250 million a year. We do not subtract the debt principal itself. Each case below is built from the reserve report cash flows, less interest, stock compensation and overhead, over an assumed ten-year period, discounted at 6%. The reserve report does not give an exact schedule, so the ten years is our assumption, and after that we credit nothing. We do not add the company's cash balance to any case. Growth from new discoveries, further drilling beyond the proved reserves, or higher prices is left out of all three cases because none is secured by a contract or already paid for in the filings we reviewed. Base case, about $0.20 per share. Proved reserves deliver the $3.3 billion of net cash flows in the year-end report. Discounted at 6% this is about $2.4 billion, and interest, stock compensation and overhead over the same period cost about $2.3 billion in present value. The equity is left with a thin sliver, and the result is very sensitive to the interest cost estimate. Bear case, about -$1.40 per share. Reserve value falls again by about a third, as it did between year-end 2024 ($4.8 billion) and year-end 2025 ($3.3 billion), while the interest bill stays. Under this case the business earns less than its debt costs, and the company appears to owe more than it is worth, by very roughly $0.65 billion in present-value terms. The bank facility carries financial covenants that were in effect and being amended in February 2026, which is one place where stress would show up first. Bull case, about $2.20 per share. Proved reserves deliver the $4.8 billion of net cash flows that the year-earlier reserve report showed, with the same interest cost. This is the largest recovery we can tie to something the company has already reported, not to a forecast. What would make this wrong. The analysis is most exposed to the interest estimate, to the assumed ten-year life, and to reserve revisions in either direction, since each of these moves the result by hundreds of millions of dollars against a base of about zero. We also did not reconcile the share of the year-end reserve value that would be needed to service the 11.25% bonds, and we did not confirm the coupon on the bank facility. Because the shares are worth very little in the base case, sit well below zero in the bear case, and the company is highly leveraged, the margin-of-safety price is only a token amount, and it applies only if debt is materially lower.