Equity Method Investments

9 Months Ended

Sep. 30, 2019

Equity Method Investments and Joint Ventures [Abstract]

Equatorial Guinea

As part of our acquisition of KTIPI in 2017, a corporate joint venture entity in which we owned a 50% interest until January 2019, we acquired an indirect participating interest in Block G offshore Equatorial Guinea. The objective of this transaction was to acquire the Ceiba Field and Okume Complex with the intent to optimize production and increase reserves. Below is a summary of financial information for KTIPI presented on a 100% basis for 2018. The financial information for 2019 is presented as part of our consolidated financial statements based on our direct 40.375% ownership in the Ceiba Field and Okume Complex.



	December 31,
	2018
	(In thousands)
Assets
Total current assets	$	149,950
Property and equipment, net	271,627
Other assets	21
Total assets	$	421,598

Liabilities and stockholders' equity
Total current liabilities	$	226,311
Total long-term liabilities	536,178
Shareholders' equity:
Total shareholders' equity	(340,891		)
Total liabilities and shareholders' equity	$	421,598



	Three Months Ended September 30, 2018			Nine Months Ended September 30, 2018
	(In thousands)
Revenues and other income:
Oil and gas revenue	$	215,408		$	600,158
Other income	(72		)	44
Total revenues and other income	215,336			600,202

Costs and expenses:
Oil and gas production	40,334			115,366
Depletion, depreciation and amortization	33,044			108,996
Other expenses, net	(58		)	(211		)
Total costs and expenses	73,320			224,151

Income before income taxes	142,016			376,051
Income tax expense	50,796			134,047
Net income	$	91,220		$	242,004

Kosmos' share of net income	$	45,610		$	121,002
Basis difference amortization(1)	20,769			61,365
Equity in earnings - KTIPI	$	24,841		$	59,637

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(1)	The basis difference, which was associated with oil and gas properties and subject to amortization, has been allocated to the Ceiba Field and Okume Complex. We amortized the basis difference using the unit-of-production method.

With an effective date of January 1, 2019, our outstanding shares in KTIPI were transferred to Trident in exchange for a 40.375% undivided participating interest in the Ceiba Field and Okume Complex. As a result, our interest in the Ceiba Field and Okume Complex is accounted for under the proportionate consolidation method of accounting going forward. This transaction was accounted for as an asset acquisition. The carrying value of the equity method investment was allocated to the undivided interest acquired and net working capital based on the estimated relative fair value of the acquired assets.

The estimated fair value measurements of oil and gas assets acquired and liabilities assumed are based on inputs that are not observable in the market and therefore represent Level 3 inputs. The fair value of oil and gas properties and asset retirement obligations were measured using the discounted cash flow technique of valuation. Significant inputs to the valuation of oil and gas properties include estimates of: (i) reserves, (ii) future operating and development costs, (iii) future commodity prices, (iv) future plugging and abandonment costs, (v) estimated future cash flows, and (vi) a market-based weighted average cost of capital rate.



	Carrying Value Allocation (in thousands)
Assets acquired:
Proved oil and gas properties	$	372,144
Unproved oil and gas properties	103,909
Prepaids and other	7,273
Total assets acquired	$	483,326

Liabilities assumed:
Asset retirement obligations	$	114,395
Deferred tax liabilities	247,636
Accrued liabilities and other	69,399
Total liabilities assumed	$	431,430

Carrying value:
Equity method investment carrying value at December 31, 2018	$	51,896