Kosmos Energy (KOS) Q3 2021 Earnings Call Transcript

Kosmos Energy (KOS)
Q3 2021 Earnings Call
Nov 08, 2021, 11:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, everyone, and welcome to Kosmos Energy's third quarter 2021 conference call. Just as a reminder, today's call is being recorded. At this time, let me turn the call over to Jamie Buckland, vice president of investor relations at Kosmos Energy.

Jamie Buckland -- Vice President of Investor Relations

Thank you, operator, and thanks to everyone for joining us today. This morning, we issued our third quarter earnings release, and this release and the slide presentation to accompany today's call are available on the Investors page of our website. Joining me on the call today to go through the materials are Andy Inglis, chairman and CEO; and Neal Shah, CFO. During today's presentation, we will make forward-looking statements that refer to our plans, estimates, and expectations.

Actual results and outcomes could differ materially due to factors we note in this presentation and in our UK and SEC filings. Please refer to our annual report, stock exchange announcement, and SEC filings for the details. These documents are available on our website. And at this time, I will turn the call over to Andy.

Andy Inglis -- Chairman and Chief Executive Officer

Thanks, Jamie, and good morning and afternoon to everyone. Thank you for joining us today for our third quarter results call. I'll run through the highlights for the quarter before handing over to Neal to take you through the financials. I'll then provide a few closing thoughts in summary before taking questions at the end.

Starting on Slide 1. A lot has been achieved at Kosmos since our last quarterly call in August. We've delivered several transactions that have advanced the company's strategy and significantly improved our financial position. We'll talk more about the Oxy Ghana acquisition shortly.

But in summary, the acquisition is expected to materially increase our free cash flow from high-margin oil assets which we plan to invest in our portfolio transition to LNG at a time of rising global natural gas demand while reducing debt. The transaction is strategically consistent and financially compelling for Kosmos and is highly accretive across all financial metrics. In Mauritania and Senegal, we closed the FPSO transaction in mid-August, which materially reduces our capital expenditure at the first gas. With increased production, including from the Oxy Ghana transaction and higher oil prices, we now expect to fund our remaining capex to first gas through organic cash flow.

We expect the newly acquired assets and our base business to generate significant free cash flow from 4Q '21 and are currently hedging our growing production at attractive levels. With EBITDAX growing and excess cash used to reduce absolute debt going forward, we expect to lever the balance sheet rapidly and we are targeting a leverage ratio of less than two times at year end 2022 at $65 Brent. Using current oil prices, that target would be around one and a half times. And finally, on this slide, the recent transactions continue to strengthen our ESG agenda with growing investment in Africa across our portfolio aligned with our objective of supporting a just energy transition.

Turning to Slide 2. The acquisition of additional interest in the Jubilee and TEN fields in Ghana accelerates Kosmos' strategic delivery across three key dimensions. First, the acquired assets generate significant free cash flow. At $65 Brent, we expect the assets to generate around $1 billion of incremental free cash flow between now and the end of 2026 over two times our initial investment.

At current prices, that figure could be materially higher. While we manage our business to perform at much lower oil prices, the recent strength in Brent and WTI does highlight the considerable upside potential if OPEC+ continues to be disciplined on supply management over the coming years. Second, we expect the assets to materially enhance EBITDAX and cash flow, enabling us to grow the company organically while reducing our absolute debt. With rising EBITDAX and excess cash to further pay down debt, we expect the transaction to accelerate the pace of deleverage to our target level of one to one and a half times.

Third, we plan to use some of our increase cash flow to fund our growing gas activities in Mauritania and Senegal, including our remaining capex to first gas on Tortue phase one. On the right-hand side of the slide, you will see how the portfolio mix is expected to change as our LNG activities in Mauritania and Senegal ramp up. We plan to use low cost, lower carbon oil production to finance the transition to low-cost, lower-carbon natural gas, thereby shifting the balance of our portfolio over time and increasing our exposure to the fuel with the strongest long-term demand and a necessary part of the energy transition. In our 1Q results earlier this year, we detailed the five-year goal to get production up to around 100,000 barrels a day of oil equivalent by 2026 when phases one and two of Tortue are expected online.

Clearly, this transaction accelerates our production goal by several years, while at the same time, strengthening the balance sheet. Turning now to Slide 3. We announced the Oxy Ghana transaction on the 13th of October with our intention to fund the transaction through a mix of new equity and new senior notes. With the greenshoe, we issued around 43 million shares in total, raising approximately $140 million of equity in total.

The shares were issued at a small premium to the previous night's closing price with the transaction multiple times oversubscribed with strong demand from new and existing investors in Europe and the US. We launched the senior notes offering the following week, issuing $400 million of 5.5 year notes, non-call two, which were priced at 7.75%. The issue was also heavily oversubscribed with strong demand from both high-yield and emerging market investors. I'd like to thank our equity and bond investors for their support for both the deal itself and the subsequent financings, which have put the company and the balance sheet in great shape to execute our strategy.

It's very much appreciated. At the bottom of the slide, you can see the impact of the transaction on our near-term metrics. Pro forma for the assets acquired, we expect our year-end exit productions to be greater than 75,000 barrels of oil equivalent per day with pro forma EBITDAX of over $900 million for 2021, resulting in year-end pro forma leverage of around two and a half times. Turning to Slide 4.

Operationally, we continue to make good progress in each of our production hubs. In Ghana, Jubilee is currently producing above 80,000 barrels of oil per day gross with a J-56 producer coming online in July and the J-55 water injector online in September. The second Jubilee produce is currently being drilled and is expected to be online before year-end. This should result in Jubilee production exiting the year above 85,000 barrels per day.

At TEN, gross production is currently around 30,000 barrels of oil per day. The gas injector came online last month and is expected to support current production levels. In Equatorial Guinea, gross production is currently around 30,000 barrels of oil per day. The partnership finished at Ceiba reliability projects in the third quarter with completion of the Okume upgrade project expected this quarter.

The first of three-planned infill wells in the Ceiba complex was completed in August with hookup currently in progress. In the third quarter, the operator began drilling the second well, which is expected to be online in December. The third plan well is now expected to be deferred as the rig is being utilized to plug and abandon existing well in Equatorial Guinea is required to mobilize for its next contract before it can complete the drilling of the last well. We do expect the output from the first two wells will largely compensate for any deferral of the third well, given reservoir down to the high end of expectations from the first two wells.

In the Gulf of Mexico, as previously noted, production in the quarter was impacted by Hurricane Ida, which resulted in around 4,000 barrels of oil equivalent being shut in versus our previous guidance. While none of Kosmos' infrastructure in the Gulf of Mexico was damage in the storm, lengthy shut-ins arose from key pipelines and receiving terminals being offline, leading to basinwide shutdowns in the aftermath of the hurricane. Production across our GoM assets was restored to pre-Ida levels by the end of September, which should allow for a strong rebound in the fourth quarter. We are currently in the process of drilling the Winterfell appraisal well with the results expected later this quarter.

Turning to Slide 5, which looks at Tortue our world-class gas development. As you've heard me say in the past, Tortue is the right project at the right time. The chart on the left is one you've seen before. It shows that Tortue is the right project because of where it sits on the cost curve.

With phase one gas all sold to BP, the real upside potential is a phase two, where we have a huge amount of optionality because the gas is currently uncontracted. We believe that Tortue phase two can deliver gas into Japan at a breakeven cost of just over $4 per MMBtu. So therefore, competes very favorably with other new LNG projects expected to start production in coming years. The chart on the right shows the project is due to come online at the right time, with global gas demand continuing to grow strongly as the world exits the restrictions of the pandemic.

The chart shows the forward curves for JKM and TTF today versus the forward curves a year ago. If we ignore the near-term elevated prices and look further out to December 2023, the chart shows a rerating of future price expectations with both JKM and TTF leveling out at around $10 per MMBtu, approximately double the same curve from a year ago. This is fundamentally about robust long-term demand for gas as it places more carbon-intensive alternatives and acts as a baseload partner to renewables in the energy transition. As demand grows, long-term gas prices are likely to be supported at a level necessary for the marginal cost of supply to meet that demand.

The recent research note Morgan Stanley predicted that LNG demand is expect to rise twice as fast as supply through 2025 with prices expected to be 60% higher over the next five years versus the last five years on average. In this environment, the lowest-cost gas projects should come out on top. With Tortue making good progress and other significant gas discoveries we have in Mauritania and Senegal, we believe Kosmos is well placed to take advantage of the strengthening market dynamics. We have contracted phase one volumes at a slope of around $0.10 to Brent, which means we'd be selling phase one gas at around $8 per MMBtu at current oil prices.

For phase two, we are yet to sell the gas, which gives us greater flexibility on pricing, whether we choose long-term contracts, different indices, spot sales or a combination. Turning to Slide 6. Tortue phase one continues to make good operational and funding progress with the four-key work streams all moving forward. On the floating LNG vessel, mechanical completion activities have commenced with instrument loop checks.

Control system commissioning is expected to commence in the first quarter of next year. On the FPSO topside integration and hull and living quarters mechanical repletion activities have commenced, pre-commissioning activities are expected to commence later this quarter. On the Breakwater, we commenced fabrication of 20 of 21 caissons with 12 now installed. Jetty piling is expected to commence later this quarter.

And finally, on the Subsea, the Nouakchott and Dakar marine supply bases are being established. This is expected to enable the offshore installation campaign to commence in the first quarter of next year. As you can see in the top picture on the slide, the Hub Terminal and Breakwater is now starting to take shape. The image shows the caissons in position, and you can see the impact on the sea state on the protected side of the Breakwater.

The bottom picture and the cover slide of today's presentation shows the Topsides modules being loaded on to the FPSO, another significant milestone for that key work stream. With regards to project funding, we've completed the FPSO transaction and now have a clear financing path to first gas on Tortue. The FPSO transaction materially reduces our outstanding capex on the project with all 2021 cash calls now funded through year end and the remaining benefit expected in 2022. As mentioned earlier, we now expect to fund our outstanding capex to first gas with free cash flow from our base business, which we are currently hedging at attractive levels.

We're also working on the NOC loan refinancing, targeting completion around year end. As BP planned on its earnings call last week, the project partners and the governments of Mauritania and Senegal are working hard to advance phase two of the project, and we expect a final investment decision in 2022. I'll now hand over to Neal to take you through the financials for the quarter.

Neal Shah -- Chief Financial Officer

Thanks, Andy. Turning to Slide 7. Production of approximately 49,000 barrels of oil equivalent in the quarter was in line with expectations, taking into account the unplanned downtime in the Gulf of Mexico from Hurricane Ida that Andy talked about, which had an impact of around 4,000 barrels of oil equivalent per day in 3Q. As guided last quarter, sales volumes for 3Q were expected to be low due to the number of cargo liftings, which resulted in a significant underlift of around 1.5 million barrels at the end of the quarter.

Most sales volumes, coupled with a working capital draw, partly related to the underlift and partly related to cash payments in Mauritania and Senegal, prior to the FPSO transaction closing, led to a cash outflow within the quarter. The lower realized price in 3Q reflects regular monthly settlement of hedges despite lower sales volumes in the quarter. With 5.5 cargoes expected in Ghana and EG in the fourth quarter and down production restored to pre-hurricane Ida levels, we expect a significant cash inflow in the fourth quarter as we close out the year with more production selling at significantly higher realized prices. The rest of the line items were largely in line with prior guidance.

Turning to Slide 8. You've heard both Andy and myself talking about our commitment to reducing leverage with a target of between one and one and a half times. The Oxy Ghana transaction helps to accelerate delivery of that goal. The equity debt mix we put in place to execute the Ghana transaction and then the acquired assets had a leverage multiple of less than two times using a trailing 12-month EBITDAX.

This meant the transaction was deleveraging immediately. The chart on the top slide shows the pace of expected deleveraging through year end '21 and into '22 as we benefit from growing production and higher oil prices, which we are able to lock in with new hedges. We have started to hedge the acquired barrels with two-way collars at a floor of $70 per barrel and a ceiling of around $90 per barrel. This gives us EBITDAX and cash flow visibility, both of which should positively enhance leverage over the coming months.

By the end of next year, we are targeting leverage of around one and a half times at current oil prices, which would be below the level at which we exited 2019 and before any benefit from new production in Tortue in 2023. With that, I'll let Andy wrap up today's presentation.

Andy Inglis -- Chairman and Chief Executive Officer

Thanks, Neal. Turning to Slide 9. As I said in my opening remarks, it's a transformational time for Kosmos, and I'm proud of what the team has achieved within the last quarter. As I look back, 2020 was a year of survival for the sector, where Kosmos took the opportunity to reposition its portfolio to be fit for the future.

2021 has been a year of resuming operational activity and strengthening the balance sheet, which has been significantly enhanced by the two major transactions I've talked about in today's presentation. Looking ahead, 2022 is the year in which Kosmos can really start to thrive. We have the right portfolio for the future and a clear pathway to unlocking shareholder value. Looking at some of the important milestones we see through 4Q and into next year.

First, we expect our base business assets and the newly acquired assets from the Oxy Ghana transaction to generate significant free cash flow, which we plan to use to fund the Tortue project and to pay down debt. As we move through 2022, first gas at Tortue comes into view with the bulk of the capital funded. We also expect to take FID on phase two during the year. And our 2021 hedges are now rolling off, and we are able to hedge our growing production base at significantly higher levels, giving us increased visibility to enhance future cash flows.

And finally, building on Neal's comments from the previous slide, we're committed to deleveraging the company with 2022 year-end leverage of around one and half times at current oil prices. Thank you. And I'd now like to turn the call over to the operator to open the session for questions.

Questions & Answers:

Operator

[Operator instructions] Our first question is from Charles Meade with Johnson Rice. Please proceed.

Charles Meade -- Johnson Rice -- Analyst

Good morning, Andy and Neal. My first question on the phase two FID for Tortue. Are there any significant questions or unknowns you guys are still grappling with? Or alternatively, is this just -- you have to follow the process, but this is a -- this is a fait accompli?

Andy Inglis -- Chairman and Chief Executive Officer

OK. Charles, I'll take that question. I think we're clear on the approach, which is we pre-invested in the infrastructure to enable both the phase one, phase two developments. The objective there for is to ensure that we fully optimize the phase two.

And to do that, we need to ensure that we've got the right approach for the Subsea pipeline and the LNG solution. I think the work on the offshore side of it is well described. We know exactly how we're going to get the most out of what we've pre-invested in, in terms of the FPSO and pipeline. So with the minimal incremental spend there.

And we're now working through the commercial negotiations to optimize the LNG solution. So that's really the key activity to progress. And with that in place, that then enables us to move forward. So I would say that we're in a -- we're certainly in a position where we can complete that work in a timely manner.

And clearly, the external environment today is helping all parties, the partners, ourselves, BP, and the NOCs.

Charles Meade -- Johnson Rice -- Analyst

Got it. And then a follow-up question on your activity levels, your capex levels. Is I -- from the outside looking in, it looks to me like your activity levels across your portfolio in '22 are going to be about -- about the level that we're seeing for Q4? And I guess the question is, is that a fair read? And is 4Q kind of activity in spending a reasonable baseline to use for '22 levels?

Neal Shah -- Chief Financial Officer

Yes. So let me take that, Andy or Charles. Yes, I'd say the piece that 4Q doesn't reflect in terms of the implications for '22 are really around sort of Mauritania and Senegal. And so I think from the Ghana business, the activity level would be the same.

EG spend is sort of moves around by quarter, but broadly will be similar to sort of the levels we spent this year as well as within the Gulf of Mexico. And so we will be spending a bit more on Mauritania and Senegal to get sort of the phase one to first gas when we've talked about that around having $300 million left to go post the FPSO transaction in the '22, '23 time frame.

Charles Meade -- Johnson Rice -- Analyst

Thanks for that added detail.

Neal Shah -- Chief Financial Officer

Yeah. Sure.

Operator

Our next question is from Neil Mehta with Goldman Sachs. Please proceed.

Neil Mehta -- Goldman Sachs -- Analyst

Can you hear me, OK?

Andy Inglis -- Chairman and Chief Executive Officer

Yes. We hear you well, Neal.

Neil Mehta -- Goldman Sachs -- Analyst

Thanks, Andy. So first question is just around Tortue, and how you're thinking about phase two, and specifically the economics of phase two relative to phase one? I think that the Brent slope on phase one is lower than maybe some would have desired, although the economics will get to be better if we sustain an $80 rent type of environment. But phase two, it feels like there could be some outsized economics. So talk about where we are in terms of gating process to getting to phase two and just how you think about the contracting environment, especially with global LNG prices having firmed up so much?

Andy Inglis -- Chairman and Chief Executive Officer

Yes. Thanks, Neil. I think -- as I said to Charles, I think we're clear on the basis for the expansion of phase two. The minimum amount of capex to put into the expansion and using the capital that we've invested in phase one.

So that enables some very low breakeven costs, which is what we showed in the presentation. So as you look around the world for brownfield expansions, we believe it -- it is one of the most cost-competitive projects around. So hence, the desire of the partnership to move forward. So it's advantage from that perspective.

And then I think from a Kosmos perspective, it's advantaged because we have flexibility now on how we price the back gas. We have flexibility because we have the cash flows clearly from phase one. The fundings for phase two is considerably lower than phase one. We've talked to the partnership with a number growth being less than $1 billion.

So from a funding perspective, there are no sort of financing requirements that cause us to not optimize the pricing. So I think you'll see us going forward now, look at how we capture the current market conditions in the best way. And as I said in my remarks, I think we have opportunities now to look at different indexation. We have the ability to look at some gas being contracted longer term, some proportion of the gas being spot.

So we see it as a significant opportunity now to capture what I believe will be a strong LNG market going through the rest of this decade and firmly believe in an engineering sense, it's the right project at the right time because it has a very low cost of supply, and it's the right project at the right time because it's entering the market when there were very few competing projects, and therefore, it can benefit from a very good price environment. So I think all of that is to come, Neil. And as you sort of sense, we see it as a major upside.

Neil Mehta -- Goldman Sachs -- Analyst

There are a lot of moving pieces with the business. Certainly, Tortue is in flight, the Oxy Ghana transaction is in motion as well, and obviously, the oil price. But is there any way you guys can help us understand what the mid-cycle free cash flow power of this business looks like in a more constructive commodity price environment? Or at a minimum at the curve once you have phase one on and layered in the Ghana assets as well?

Neal Shah -- Chief Financial Officer

Yes. So, Neil, I guess the way I'd answer that is we sort of given guidance around sort of phase one and phase two free cash flow of around sort of $150 million to $200 million of free cash flow per year. And the way to think about it is we've got the spend to get it online than phase one truly sort of funds phase two. And then once phase one and phase two are online, and you get sort of that sort of $150 million to $200 million number out of that for sort of 20-ish years out of that business.

I think the oil prices -- the oil business should be pretty easy to model at this point. We are -- all of the businesses between Ghana, EG and the Gulf of Mexico are broadly similar in terms of operating cost in sort of the $10 to $15 range, additional sort of maintenance capex for -- to keep sort of production at sort of that now sort of 75,000 barrel a day level and then some cash taxes, particularly on the front end in Ghana and EG and then we will start paying cash taxes at some point within sort of three to four years or after three or four years in the Gulf of Mexico. So there's a number of moving parts on that piece. But all of themselves that solidly produce free cash flow down to sort of $40, $50 oil price environment, and then you bolt-on sort of the free cash from the gas business in 2026 plus.

Neil Mehta -- Goldman Sachs -- Analyst

And, Neal, just remind us again the oil price sensitivity?

Neal Shah -- Chief Financial Officer

Yes. So it's around $100 million unhedged every year for a $5 change in the $5 change in the oil price, yes.

Neil Mehta -- Goldman Sachs -- Analyst

OK. Great. Thank you.

Operator

Our next question is from Bob Brackett with Bernstein Research. Please proceed.

Bob Brackett -- Sanford C. Bernstein -- Analyst

Good morning. I got a short-term question and a longer-term question. On the short term, can you talk about the path to the refinancing of the NOC loans by year end? Anything we should watch for or worry about?

Neal Shah -- Chief Financial Officer

Yes. So, Bob, it's sort of a live discussion that we're in with a number of banks and financial institutions to get that across. So there won't be really any milestones between now and then. It's really been a function of being able to have the conversations.

We got -- we needed to get the FPSO transaction done before we could have the conversations on the NSEs. And then clearly, the last few weeks or months we've been working on the financing related to the Oxy Ghana transaction. But yes, I wouldn't -- there's no other sort of milestones expected outside of once we have a deal done.

Bob Brackett -- Sanford C. Bernstein -- Analyst

Great. And then the bit of the longer-term question. If I think about Winterfell going to appraisal, are you maintaining the ability to convert that appraisal well into a development well? Or is that something you shy away from?

Andy Inglis -- Chairman and Chief Executive Officer

No. We're maintaining that optionality, Bob. Yes. So as you rightly said, we had the first discovery well.

We're now drilling the second fault block, and we're currently -- operations are underway. And once we have the results of that, we could then have the opportunity of an early production scheme that brought those wells back online.

Bob Brackett -- Sanford C. Bernstein -- Analyst

Great. Thanks for that.

Operator

Our next question is from Nick Stefanou with Ren Capital. Please proceed.

Nick Stefanou -- Renaissance Capital -- Analyst

Hi, guys. It's Nick from RenCap. I've got three to ask, if I may. Andy, the first one is for you.

If I go back a year ago, when the BP announced to reduce the scope of Tortue and make it a smaller project, but clearly like at a lower cost. That time, it made a lot of sense, but I mean gas markets moved up quite a bit since then. I'm just wondering, do you think that, that decision still makes sense? And then I kind of like as a follow-up to that question. How should I be thinking about future phases of Tortue? I mean, the optionality to do like a brownfield development after phase two not -- I don't think be there anymore.

So what would the other phases look like? And then my third question is for -- it's for Neal. I think we've got maybe less than a week left for either partners are gone up to exercise the pre-emption rights. And can we kind of like take it as a given that end up on our exercise at this point?

Andy Inglis -- Chairman and Chief Executive Officer

Yes. Nick, look, good question. I think fundamentally, every dollar we put into Kosmos has to earn the highest possible return. And our objective on the next phase of Tortue was to absolutely deliver the most capitally efficient scheme.

And the scheme we've described of expansion to 5 million tonnes essentially sort of utilizing fully the infrastructure we have in place is, I believe, absolutely the right decision. And we're driven by ensuring that we create the highest possible returns and generate the most value. And this scheme is the one that actually does that. So I think it's absolutely the right objective.

Irrespective of the price environment, clearly, in a higher-price world, will make a much stronger margin. And that's great for any day of the week. I think when you then look beyond that, I think we would then look, I think, for the next phase as it were phase three to sort of fully optimize the resource base, which can support around 10 million tonnes per annum. And I think that's where you then make the next step up.

You fully sort of utilize the existing offshore infrastructure in terms of the FPSO and the pipeline. How do you then increment to 10 million tonnes, it will require additional facilities offshore, it will require additional pipeline. How do you then integrate that into the existing hub terminal. So I think that, to me, is a very logical process, yes.

You enabled the project through the first phase. phase two is the logical brownfield development to fully utilize the invested capital and delivers the highest return. The third phase should then be about the long-term expansion to fully utilize all of the resource. So that was the objective.

I think we've stuck to that plan in a really rigorous way. And I believe through that, we've optimized the -- through that, the rigor of that approach, we've optimized the capital efficiency and therefore, the value creation. Neal?

Neal Shah -- Chief Financial Officer

Yes. So just on the pre-emption, Nick, yes, you're right. I mean, they have -- there's about a week left within that option. And again, we're not going to opine in terms of what the partners do.

I think if you sort of step back, the transaction for us was around sort of gaining access to a materially larger stick in Ghana, particularly in the Jubilee field, where we've gone up from 24% to 42%. And while pre-emption is possible, the good thing from our perspective is we retain a much larger stake in Jubilee, which is where we see the largest sort of near-term upside and the impact is largely beyond a reduction in the TEN assets. And so it's still outstanding, and we'll know when the time's gone through.

Nick Stefanou -- Renaissance Capital -- Analyst

OK. Cool. And then that sensitivity you gave just a few minutes ago, I think that was the pre-Oxy deal one, right? Shouldn't that be a bit higher now with the -- with the interest stake in Ghana?

Neal Shah -- Chief Financial Officer

Yes. Yes. I mean there is -- yes, I mean, the number hasn't materially changed in terms of maybe there's another $15 million, $20 million for $5. But again, it's sort of not a huge overall change.

Nick Stefanou -- Renaissance Capital -- Analyst

Thanks so much.

Operator

Our next question is from James Hosie with Barclays. Please proceed.

James Hosie -- Barclays -- Analyst

Yeah. Hi. Thank you. Just a couple of questions from me.

Just first off, how should we think about shareholder returns now? Is that something that can come when leverage falls below one and a half EBITDA? Or are the other considerations or metrics you think of the trigger for that catalyst? And then just on Tortue, I was wondering what the carbon intensity of that production, what you expect it to be? And if there's scope for you to look at marketing carbon-neutral cargoes from that project?

Andy Inglis -- Chairman and Chief Executive Officer

Yes. I'll talk to shareholder returns and Neal will chime in. We talked about getting to a leverage range of one to one and a half times. Clearly, when we're in that range, I think it is a valid conversation to have.

And I think the only commentary out on top of that is it needs to be sort of sustainable. So how do we get to a world where we can see a sustainable leverage of one to one and a half? And when we're in that world, we'll then have that debate. Clearly, our objective is to get there as fast as we can. And I think we're pretty clear today on how we're doing that while supporting the transition of the business from purely a low-carbon, low-cost oil business to a balanced portfolio.

Neal Shah -- Chief Financial Officer

Yes. The only thing I'd add on that, Andy, is to Neil's question earlier, and the business generates a lot of free cash flow in oil prices where we are right now. So as we do get leverage to that point, within that range by the end of next year. We've gotten the capital from Tortue largely behind us at that point and then additional production on the come.

I think that's the appropriate time to have that conversation. And again, I think we'll be very sort of well positioned to do it at that time frame. So there's some more work to be done on our end. But again, we've got a pretty clear line of sight to the delivery of that in a reasonably short time frame.

Andy Inglis -- Chairman and Chief Executive Officer

Yes. When you look at how Tortue benchmarks from a carbon intensity perspective, it's pretty good when you look across the range of both existing projects and new projects that are being brought on. It's got a significantly better-than-average carbon intensity. So we feel good about it from that perspective.

And then looking forward to the marketing of carbon-neutral cargoes, yes, it is something that we're looking into. Clearly, we're a little ways from that point in terms of having those cargoes on the water but it would be another opportunity, I think, for us to get a differential price for the cargoes. And that's ultimately what it is, initially the cargoes are obviously being sold to BP. So in that sense, that's their world.

I think the opportunity comes when we start to think about phase two and cargoes that we may market through different mechanisms. I think that's where you could start to see some a way to differentiate the cargoes and see a potentially more attractive price. So I think that's where we would focus that effort on, James, is the sort of the longer-term view of Tortue in particular, the unmarketed phase two cargoes.

James Hosie -- Barclays -- Analyst

Thanks very much.

Operator

[Operator instructions] Our next question is from Mark Wilson with Jefferies. Please proceed.

Mark Wilson -- Jefferies -- Analyst

Good afternoon, gentlemen. I'd like to ask about Ghana first. There was some discussion around the time of the deal potential implication for operatorship. Do you believe is there any reason to think that could change post this deal? Can you remind us on the timing of a second break into Ghana and whether that might be accelerated? And then lastly, Andy, you mentioned about TEN gas injector supporting current levels.

Is 30,000 level what should we look at through 2022, let's say, as further drilling? That's on the Ghana side. And then lastly, if there's any commentary regarding the greater Tortue acreage now BirAllah there any change to what you think about those assets?

Andy Inglis -- Chairman and Chief Executive Officer

Great. Thanks, Mark. Yes. Going through Ghana in terms of the sort of three areas you mentioned, I think I've been very clear on operatorship.

We have a very good working relationship with Telo. And we've seen, as a result, I think, of a strong partnership, significant progress being made in terms of the operational delivery, both in terms of reliability, in terms of the water injunction, gas offtake and actually drilling performance. So that's what we're focused on now is to ensure that, that partnership continues. It's great for GNPC to have a large stake as well as part of the transaction.

We have the same partnership as it were going forward now. And our objective is to ensure that we continue to leverage that partnership to create more value through higher production, good cost management and delivery of the targets. In terms of the second rig, we're clearly in a debate at the moment with our partners on the drilling program. I think the timing is probably around year end.

Why? It allows us then to fully utilize a rig string on Jubilee itself where we're starting the drilling in Jubilee Southeast. And then there are other opportunities that we want to pursue, in particular, I think, across the existing areas that are under development in Jubilee and on TEN. So I think you'll see us make that decision toward the end of the year and then being able to sort of open up those work fronts. I think what we need to stay focused on at the moment is to ensure that we deliver -- continue to deliver really good drilling performance and that comes by having a very clear program that's well described and the targets are delivering what they said they would do.

But you're absolutely right, longer term, and we see more opportunity in Jubilee, more opportunity in TEN, in particular in Jubilee on Jubilee Southeast. And then in terms of TEN, you're absolutely right. We completed the gas injection Ntomme. That's about sort of supporting the Ntomme production going forward.

Improvements in rate from TEN will come from additional wells. And so it is that balance of a one-rig program, what do we drill on Jubilee, what did we drill on TEN and how do we optimize that program, in particular, as we look forward to 2023 where we will then start to sort of want to focus on Jubilee Southeast, how do we bring the same focus to TEN. So I think you're going to see a more rapid increase in production in Jubilee, sort of a longer-term ramp-up in TEN. And in terms of '22 will depend on the ultimate optimization of that rig program.

So turning to Mauritania and Senegal. You're right. Obviously, our initial focus -- our focus at the moment is on phase one, getting phase one on production, on time and ensure that we're -- we have a phase two that is moving forward in parallel, and I feel good about both of those pieces. We've clearly got a significant gas resource in the north in BirAllah, in Mauritania and then the south in Senegal.

In Senegal, Yakaar Teranga is ultimately about a domestic gas scheme first. It's a scheme where there's real synergy where the country's agenda replacing diesel burning with gas. This is a gas resource that's close to the Dakar peninsula. And so the work that BP and ourselves are pursuing is doing the front-end engineering around describing that scheme.

And then it's ultimately a conversation with the government around the commercial basis for that moving forward. In Mauritania, BirAllah, again, a very significant resource. And our objective there is to find the right way to advance that project is probably more of an export project, yes, much more population in Mauritania, lower energy demand. There will be gas for domestic consumption coming from Tortue.

Therefore, it is about how do we have a follow-on project in BirAllah, which leverages the technologies and approaches that we've established for Tortue. So again, in a world where I see sustained long-term demand for gas and a few areas of the world that have world-class low-carbon gas. Gas in Mauritania and Senegal have very de minimis amount of CO2. This is very LNG-friendly gas.

How do we facilitate its development? So that's the -- those are the two areas where we're working on now with both of those projects. And I'm optimistic with both. I think we've got a huge resource to develop there. And the timing is sort of coming into the frame because of the need for that gas longer term.

Mark Wilson -- Jefferies -- Analyst

OK. Thank you very much.

Operator

Our final question from Matthew Smith with Bank of America. Please proceed.

Matthew Smith -- Bank of America Merrill Lynch -- Analyst

Yeah. Hi there. I'm here now. Thanks for taking the question.

Just one to finish off, and that was just whether you were looking into revenue sharing at all on your cargoes in Ghana, in particular? Because it does seem as though the market sometimes struggles to assess the underlying sort of free cash flow or earnings potential of the company just due to the quarter-on-quarter volatility, and I sometimes feel the sort of share price reaction is almost a bit inevitable based upon the nature of the quarter. And I think we've had a few questions on this call around the underlying sort of free cash flow potential of the business. So I was just wondering if a revenue sharing agreement is something you're considering at this stage.

Neal Shah -- Chief Financial Officer

Yes. Thanks, Matt. That's a good question. It is something obviously we're cognizant of and actually has been almost exacerbated as production levels in Ghana decreased in the early part of this year.

And so increasing the production actually will help even out that issue. So where it should be less of a concern. And then to your point, we are planning to sort of co-lift our own barrels in terms of the acquired barrels plus our existing barrels. If we put them together, we will also get rid of some of the sort of the timing issues.

So we'll have much more regular volume going forward. So it is something that we're attended to because I think it does create a bit of a distraction around some of the quarterly numbers. And it will -- as we look to '22, it does naturally become less of an issue as we're both growing production and actually colift our barrels, the ones that we acquired plus our existing barrels helps smooth that out to where we don't have as much variation in 4Q and beyond.

Matthew Smith -- Bank of America Merrill Lynch -- Analyst

Sure. Understood. Thanks.

Neal Shah -- Chief Financial Officer

Thanks, Matt.

Operator

[Operator signoff]

Duration: 55 minutes

Call participants:

Jamie Buckland -- Vice President of Investor Relations

Andy Inglis -- Chairman and Chief Executive Officer

Neal Shah -- Chief Financial Officer

Charles Meade -- Johnson Rice -- Analyst

Neil Mehta -- Goldman Sachs -- Analyst

Bob Brackett -- Sanford C. Bernstein -- Analyst

Nick Stefanou -- Renaissance Capital -- Analyst

James Hosie -- Barclays -- Analyst

Mark Wilson -- Jefferies -- Analyst

Matthew Smith -- Bank of America Merrill Lynch -- Analyst

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