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POSITIVEENERGY2014ANNUALREPORT KosmosEnergyisproudlycontrarian.Westrivetobearstmovernotafollower.Asaself-fundedexplorerwetargethigh-valuehigh-volumebarrelsinfrontierandemergingbasins.Thisstrategydeliveredworld-classproductionanddevelopmentassetsinGhana.Buildingonthissuccesswearenowembarkingonasecondinningexplorationcampaignwithmultiplebasinandplayopeningwellstestingseveralbillionbarrelsofpotentialgrossresource. Withworld-classassetsthatgeneratesignicantcashoweveninthecurrentpriceenvironmentandastrongbalancesheetwearewellpositionedtoseizetheopportunitiesprovidedbytheoilandgasmarketandcreatevalueforourshareholders.RESERVESANDPRODUCTIONGROWTHINGHANAThroughstrongreservesgrowthwedemonstratedthequalityofourGhanaassetslastyear.Weended2014withtotalprovedreservesof75millionbarrelsofoilequivalentupfrom47millionbarrelstheyearbeforeanimpressiveresultthathighlightsthegrowthpotentialofourGhanaassets.TheincreaseinreservesstemmedfromcontinuedstrongperformanceatJubileeeldaswellastheinitialbookingofreservesfromtheTweneboaEnyenraandNtommeTENdevelopment.GrossproductionatJubileeaveraged102000barrelsofoilperdaysalesthroughouttheyearandasaresultweliftedninecargoesfortheyearnettoKosmosslightlyaheadofexpectations.InNovember2014theJubileepartnershipconnectedtheFPSOKwameNkrumahtotheGhanaNationalGasCompanysonshoregasprocessingfacilityatAtuabo.ThisnewinfrastructurehasenabledtheJubileepartnerstoshipnaturalgastothefacility.OnceprocessedgasisthentransportedtoaVoltaRiverAuthorityfacilityatAboadzewhereitisusedtogenerateelectricityforpublicandindustrialuse.ThiswasanimportantmilestoneforboththeJubileepartnershipandthecountryasitenabledincreasedoilproductionandequallyimportantmorereliableandcheaperpowergenerationatatimewhenthepeopleofGhanaaresufferingfromseverepoweroutages.AswecontinuetoincreasegasexportsfromJubileeandlifttheFPSOgasprocessingrateweexpecttoraiseoilproductiontowardFPSOcapacityin2015.Withcashcostsaround20perbarrelJubileeproductionwillcontinuetogeneratesignicantcashoweveninthecurrentoilpriceenvironment.TheTENprojectthesecondmajoroildevelopmentinGhanaremainswithinbudgetandon-tracktodeliverrstoilinthesecondhalfof2016.Theprojectisnowmorethan50percentcompletewithall10ofthewellsexpectedtobeonlineatrstoilalreadydrilled.Activityisexpectedtoincreasein2015aswellcompletionsbeginandequipmentcontinuestobefabricatedinadvanceofinstallation.TheappraisaloftheMahoganyTeakandAkasaMTAdiscoverieswascompletedatyear-end2014asscheduled.TheresultsoftheappraisalwillbecombinedwiththepartnershipsviewsonadditionalphasesofdevelopmentatJubilee.TheplanforfullelddevelopmentofJubileeandMTAisexpectedtobepresentedtotheGovernmentofGhanain2015.ThisplanisexpectedtomaximizeproductionandprotsforallandmakeamaterialdifferencetothelivesofpeopleinGhana.WithJubileeproductionincreasingtowardFPSOcapacityandTENexpectedtocomeonlineinthesecondhalfof2016webelievethatwehaveaclearpathtodoublingproductionto200000barrelsgrossperdayinGhanaby2017.EXPLORATIONPORTFOLIOWITHSCALEANDQUALITYKosmosdifferentiatedexplorationstrategyfocusesonunder-exploredfrontierandemergingbasinsthatareatthelowendofthedevelopmentcostcurveandthushavethepotentialtoproducegoodeconomicreturns2014wasagoodyearforKosmos.Weacteddecisivelyandaheadoftheindustrytopreparethecompanyforcontinuedsuccessinaperiodofloweroilprices.FellowShareholders1 inaloweroilpriceenvironment.Thecombinationotargetinggiantprospectsandqualityfscaltermsmakesthispossibleanddrivesourexplorationstrategy.RecentlyweaddedtoourexplorationportoliowiththeacquisitiononewlicensesoshoreSenegalandPortugal.Includingtheseassetsourcurrentexplorationportolioisapproximately114000squarekilometersatotalareaaboutthesizeoOhio.Wealsohaveanindustry-leadingpositionoshoreNorthwestArica.Asawholewebelievethattheportoliohasanun-riskedpotentialoapproximately37billionbarrels.Eachoouracreagepositionsoersmultipleplaysandairwayswithnumeroushighlydependentprospectswhichmaximizesthechanceoinitialsuccessaswellaspost-discoveryvaluecreation.Whileportolioscaleisimportantqualityisalsocriticalespeciallyinthecurrentenvironment.Withsomecostdeationwebelieveourexplorationportoliocanachievebreak-evensinthe30to50perbarrelrange.ThisenablesKosmostoremainatthelow-endothesupplycostcurve.ThiscombinationoscaleandqualityenablesKosmostocontinueitsrontierexplorationdrillingprogramcounter-cyclicaltotheindustry.Webelieveourassetsandapproacharedierentiated.Asaresultwewillbepushingaheadwithexplorationastheindustrypullsbackgivingusadditionaloptionalityandopportunities.Ourdrillingprogramisexpectedtotestthisworld-classportoliowiththreetoourpotentiallybasin-openingwellsperyearoverthenextthreeyearsprovidingconsistentcatalyststocreateshareholdervalue.SOLIDFINANCIALPOSITIONKosmoscancontinuetoinvestthroughthecyclebecauseweareasel-undedexplorerwithastrongbalancesheet.Weentered2015inourstrongestfnancialpositioneverwithapproximately1.9billioninliquidityand213milliononetdebt.Wewereaheadothecurveinbuildingliquiditybyrefnancingourdebtandreducingcosts.InAugustweaccessedthehigh-yieldmarkettoraisecapitalaheadoourneeds.InMaywereorganizedthecompanyandreducedgeneralandadministrativecostsby33percentbeoretheoilpricedrop.Ouractivehedgingprogramalsohelpstomanageoilpriceuncertaintyandunderpinsoursel-undedmodel.Asomid-January2015wehadapproximately12millionbarrelshedgedthroughtheendo2016withanaverageoorpriceabove85perbarrel.AtertheTENprojectcomesonlinein2016weexpecttogeneratesignifcantreecashowromGhanathatwillprovidegreaterundingandexibilityorournextdevelopment.APARTNEROFCHOICESuccessulexplorationanddevelopmentintodaysworldrequiresmorethantechnicalexpertise.Itdemandsthatwearejustasgoodatmanagingourrelationshipsabovegroundasweareoperatingbelowground.In2014weraisedourleveloengagementinGhanabyorminganindependentadvisorycouncilcomprisedorespectedGhanaianbusinessleaderstohelpussupportthecountrysneedsasadevelopingeconomy.InWesternSaharaKosmoswasthefrstinternationaloilcompanytoengagelocalpeopleregardingthepotentialbeneftsohydrocarbonexploration.Nomatterwhereweworkourcommitmenttocorporateresponsibilityisunwavering.Wesupportthelong-termdevelopmentoourhostcountriesthroughprogramsthatimprovelivesandbuildcapability.In2014wecompletedourprojectwithSaeWaterNetworktobringpotablewatertomorethan27000peoplein19communitiesinGhanasWesternRegion.In2015wewillbringtechnicalpersonnelromGhanaNationalPetroleumCorporationtoourofceinDallasonour-to-sixmonthassignmentstoworkalongsideourin-houseexperts.Themoresuccessulourhostcountriesbecomethemorevaluableourassetswillbe.Beingaresponsibleoperatorandagoodneighborinonecountryopensnewopportunitiesinanother.OUTLOOKTheuturecontinuestolookverypromisingorKosmos.WereexcitedbythedevelopmentopportunitiesinGhanaandthepotentialoourexplorationportolio.WhenIarrivedatKosmosin2014IsetaveryclearagendaorthecompanyGrowproductionandreservesinGhanaDeliverexplorationsuccessromourextensiveandhigh-qualityportolioandCreateapositiveandlastingimpactonpeopleslivesinthecountrieswherewework.Weachievedagreatdealin2014butthereismuchmoreorustodo.Iamconfdentwewilldeliver.WhenIvisitouroperationsaroundtheworlditisclearthatKosmosteammembersareflledwithapositiveenergythattheybringtoeachtaskandeveryencounter.Theydemonstrateastrongandenduringcommitmenttoexcellencewhichdrivesourstrategy.Byworkingtogetherwedeliveredstrongperormancein2014andIlookorwardto2015beingevenbetter.AndrewAndyG.InglisChairmanotheBoardandChieExecutiveOfcerWeentered2015inourstrongestfnancialpositioneverwithapproximately1.9billioninliquidityand213milliononetdebt.2 2014BUSINESSHIGHLIGHTS3JubileeExceeds100000bpdProductionTargetWesuccessfullydeliveredour2014operationsplaninGhanamaintaininggrossaverageproductionabove100000barrelsofoilperdayanddeliveringninecargoesnettoKosmos.Gasexportbeganinthefourthquarterof2014andfullcommissioningoftheGhanaNationalGasCompanyonshorenaturalgasprocessingfacilityisongoing.In2015gasexportsareexpectedtoincreaseenablingoilproductionfromtheeldtorisetowardFPSOcapacity.TENDevelopmentMoreThan50CompleteTheTweneboaEnyenraandNtommeTENprojectthesecondmajoroildevelopmentprojectinGhanaremainson-budgetandon-tracktodeliverrstoilinthesecondhalfof2016.Attheendof2014theprojectwasgreaterthan50percentcompletewithall10ofthewellsexpectedtobeonlineatrstoilalreadydrilled.Activityisexpectedtoincreasein2015aswellcompletionsbeginandequipmentfabricationcontinues.MTAAppraisalCompletedIn2014wecompletedtheappraisalprogramforourMahoganyTeakandAkasadiscoveries.WeintendtosubmitaplanforfullelddevelopmentofJubileeandMTAtotheGovernmentofGhanain2015.WeexpectMTAwillbetiedbacktotheJubileeFPSO.ExplorationPortfolioMaturesDrillingBeginsKosmoshasinvestedapproximately150millioninacquiringseismicsurveysoverthepastthreeyearscoveringapproximately42000squarekilometers.In2014weconductednew3DsurveysoffshoreMoroccoWesternSaharaandSenegaltodeepenourunderstandingoftheirhydrocarbonpotential.WiththeAtwoodAchieverdrillshipdeliveredonschedulein2014wehavebegunaprogramtotestthebestprospectsinourexplorationportfolio.NewAcreageAcquiredinSenegalandPortugalKosmosrecentlysignedagreementstocapturelargeandhighlyprospectiveexplorationpositionsinSenegalandPortugalwhichtogethersignicantlyincreasethesizeofourexplorationportfolio.TheseacreageacquisitionsareconsistentwithourstrategyofexportingthecoreCretaceousthemeweprovedintheGulfofGuineatootherfrontierandemergingareasalongtheAtlanticMargin.ImprovedFinancialPositionKosmosexited2014inafavorablenancialposition.Totalcorporateliquiditywasapproximately1.9billionatyear-endanearly650millionimprovementinliquidityoveryear-end2013.InMay2014wereorganizedthecompanyaheadofthedropinoilpricesresultingina33percentreductioningeneralandadministrativeexpenses.Laterintheyearweaccessedthehigh-yieldmarkettotermoutsomeofourexistingdebtandraisecapitalaheadofourneeds.Withastrongbalancesheetandwell-hedgedpositionKosmosisreadyforsuccessin2015andbeyond.100000bpdMOROCCOWESTERNSAHARASENEGALREDUCTIONINGENERALANDADMINISTRATIVECOSTS3350TEN OPERATIONSCORPORATERESPONSIBILITYCorporateresponsibilityiscentraltowhoweareandwhatwedo.ItisanimportantpartofourstrategyforcreatingvalueandpositioningKosmosasapreferredpartnerforgovernmentsandcitizensalike.Indeliveringonourcommitmenttoadvancingthesocietieswhereweworkandliveweareopentotryingnewapproachesthatmeetthediverseneedsofthecommunitiesinwhichweoperate.OurcorporatecharacterandpoliciesareguidedbyourBusinessPrincipleswhichdeneourstandardsintheareasofethicalconductourworkplacesenvironmentalperformancehumanrightscommunityengagementandcommercialrelationships.WeinviteyoutolearnmorebyreadingourCorporateResponsibilityReportandourBusinessPrincipleswhicharebothavailablefordownloadonourwebsite.FINANCIALHIGHLIGHTS4YearEnded201420132012inthousandsexceptvolumedataRevenuesandotherincome882738852153671101Incometaxexpense298898166998101184Netincomelossattributabletocommonshareholders2793709104467028Netcashprovidedbyoperatingactivities443586522404371530Capitalinvestments548991437750426894TotalAssets297276623458262366123Totallong-termdebt7942699000001000000Totalshareholdersequity13389599923351028906Productionthousandbarrelsofoilperday23.422.516.6Salesvolumesmillionbarrels8.77.85.9Totalprovedreservesmillionbarrelsofoilequivalent754743Crudeoilmillionbarrels734542Naturalgasbillioncubicfeet14119SurinameIrelandGhanaPortugalMoroccoWesternSaharaSenegalMauritania 6APR201207345158UNITEDSTATESSECURITIESANDEXCHANGECOMMISSIONWashingtonD.C.20549FORM10-KMarkOneANNUALREPORTPURSUANTTOSECTION13OR15dOFTHESECURITIESEXCHANGEACTOF1934ForthefiscalyearendedDecember312014TRANSITIONREPORTPURSUANTTOSECTION13OR15dOFTHESECURITIESEXCHANGEACTOF1934ForthetransitionperiodfromtoCommissionfilenumber001-35167KosmosEnergyLtd.ExactnameofregistrantasspecifiedinitscharterBermuda98-0686001StateorotherjurisdictionofI.R.S.EmployerincorporationororganizationIdentificationNo.ClarendonHouse2ChurchStreetHamiltonBermudaHM11AddressofprincipalexecutiveofficesZipCodeRegistrantstelephonenumberincludingareacode14412955950SecuritiesregisteredpursuanttoSection12boftheActTitleofeachclassNameofeachexchangeonwhichregisteredCommonShares0.01parvalueNewYorkStockExchangeSecuritiesregisteredpursuanttoSection12goftheActNoneIndicatebycheckmarkiftheregistrantisawell-knownseasonedissuerasdefinedinRule405oftheSecuritiesAct.YesNoIndicatebycheckmarkiftheregistrantisnotrequiredtofilereportspursuanttoSection13orSection15doftheAct.YesNoIndicatebycheckmarkwhethertheregistrant1hasfiledallreportsrequiredtobefiledbySection13or15doftheSecuritiesExchangeActof1934duringthepreceding12monthsorforsuchshorterperiodthattheregistrantwasrequiredtofilesuchreportsand2hasbeensubjecttosuchfilingrequirementsforthepast90days.YesNoIndicatebycheckmarkwhethertheregistranthassubmittedelectronicallyandpostedonitscorporateWebsiteifanyeveryInteractiveDataFilerequiredtobesubmittedandpostedpursuanttoRule405ofRegulationS-T232.405ofthischapterduringthepreceding12monthsorforsuchshorterperiodthattheregistrantwasrequiredtosubmitandpostsuchfiles.YesNoIndicatebycheckmarkifdisclosureofdelinquentfilerspursuanttoItem405ofRegulationS-K229.405ofthischapterisnotcontainedhereinandwillnotbecontainedtothebestofregistrantsknowledgeindefinitiveproxyorinformationstatementsincorporatedbyreferenceinPartIIIofthisForm10-KoranyamendmenttothisForm10-K.Indicatebycheckmarkwhethertheregistrantisalargeacceleratedfileranacceleratedfileranon-acceleratedfilerorasmallerreportingcompany.SeethedefinitionsoflargeacceleratedfileracceleratedfilerandsmallerreportingcompanyinRule12b-2oftheExchangeAct.LargeacceleratedfilerAcceleratedfilerNon-acceleratedfilerSmallerreportingcompanyDonotcheckifasmallerreportingcompanyIndicatebycheckmarkwhethertheregistrantisashellcompanyasdefinedinRule12b-2oftheExchangeAct.YesNoTheaggregatemarketvalueofthevotingandnon-votingcommonsharesheldbynon-affiliatesbasedontheper-shareclosingpriceoftheregistrantscommonsharesasofthelastbusinessdayoftheregistrantsmostrecentlycompletedsecondfiscalquarterwas1506618282.ThenumberoftheregistrantsCommonSharesoutstandingasofFebruary182015was387587007.DOCUMENTSINCORPORATEDBYREFERENCEPartIIIItems10-14isincorporatedbyreferencefromtheProxyStatementfortheAnnualMeetingofShareholderswhichwillbefiledwiththeSecuritiesandExchangeCommissionnotlaterthan120dayssubsequenttoDecember312014.CertainexhibitspreviouslyfiledwiththeSecuritiesandExchangeCommissionareincorporatedbyreferenceintoPartIVofthisreport. TABLEOFCONTENTSUnlessotherwisestatedinthisreportreferencestoKosmosweusorthecompanyrefertoKosmosEnergyLtd.anditssubsidiaries.WehaveprovideddefinitionsforsomeoftheindustrytermsusedinthisreportintheGlossaryandSelectedAbbreviationsbeginningonpage2.PageGlossaryandSelectedAbbreviations....................................2CautionaryStatementRegardingForward-LookingStatements.................6PARTIItem1.Business........................................................8Item1A.RiskFactors......................................................42Item1B.UnresolvedStaffComments..........................................73Item2.Properties.......................................................73Item3.LegalProceedings.................................................73Item4.MineSafetyDisclosures.............................................73PARTIIItem5.MarketfortheRegistrantsCommonEquityRelatedStockholderMattersandIssuerPurchasesofEquitySecurities.......................................74Item6.SelectedFinancialData.............................................76Item7.ManagementsDiscussionandAnalysisofFinancialConditionandResultsofOperations.....................................................78Item7A.QuantitativeandQualitativeDisclosuresAboutMarketRisk..................96Item8.FinancialStatementsandSupplementaryData.............................99Item9.ChangesinandDisagreementsWithAccountantsonAccountingandFinancialDisclosure.....................................................143Item9A.ControlsandProcedures.............................................143Item9B.OtherInformation.................................................144PARTIIIItem10.DirectorsExecutiveOfficersandCorporateGovernance.....................147Item11.ExecutiveCompensation.............................................147Item12.SecurityOwnershipofCertainBeneficialOwnersandManagementandRelatedStockholderMatters..............................................147Item13.CertainRelationshipsandRelatedTransactionsandDirectorIndependence.......147Item14.PrincipalAccountingFeesandServices..................................147PARTIVItem15.ExhibitsFinancialStatementSchedules..................................1481 KOSMOSENERGYLTD.GLOSSARYANDSELECTEDABBREVIATIONSThefollowingareabbreviationsanddefinitionsofcertaintermsthatmaybeusedinthisreport.UnlesslistedbelowalldefinedtermsunderRule4-10aofRegulationS-Xshallhavetheirstatutorilyprescribedmeanings.2Dseismicdata...............Two-dimensionalseismicdataservingasinterpretivedatathatallowsaviewofaverticalcross-sectionbeneathaprospectivearea.3Dseismicdata...............Three-dimensionalseismicdataservingasgeophysicaldatathatdepictsthesubsurfacestratainthreedimensions.3Dseismicdatatypicallyprovidesamoredetailedandaccurateinterpretationofthesubsurfacestratathan2Dseismicdata.API.......................Aspecificgravityscaleexpressedindegreesthatdenotestherelativedensityofvariouspetroleumliquids.Thescaleincreasesinverselywithdensity.ThuslighterpetroleumliquidswillhaveahigherAPIthanheavierones.ASC.......................FinancialAccountingStandardsBoardAccountingStandardsCodification.ASU.......................FinancialAccountingStandardsBoardAccountingStandardsUpdate.BarrelorBbl...............Astandardmeasureofvolumeforpetroleumcorrespondingtoapproximately42gallonsat60degreesFahrenheit.BBbl.......................Billionbarrelsofoil.BBoe......................Billionbarrelsofoilequivalent.Bcf........................Billioncubicfeet.Boe.......................Barrelsofoilequivalent.Volumesofnaturalgasconvertedtobarrelsofoilusingaconversionfactorof6000cubicfeetofnaturalgastoonebarrelofoil.Boepd......................Barrelsofoilequivalentperday.Bopd......................Barrelsofoilperday.Bwpd......................Barrelsofwaterperday.Debtcoverratio...............Thedebtcoverratioisbroadlydefinedforeachapplicablecalculationdateastheratioofxtotallong-termdebtlesscashandcashequivalentsandrestrictedcashtoytheaggregateEBITDAXseebelowoftheCompanyfortheprevioustwelvemonths.Developedacreage.............Thenumberofacresthatareallocatedorassignabletoproductivewellsorwellscapableofproduction.Development.................Thephaseinwhichanoilornaturalgasfieldisbroughtintoproductionbydrillingdevelopmentwellsandinstallingappropriateproductionsystems.2 Dryhole....................Awellthathasnotencounteredahydrocarbonbearingreservoirexpectedtoproduceincommercialquantities.EBITDAX...................Netincomelossplusiexplorationexpenseiidepletiondepreciationandamortizationexpenseiiiequity-basedcompensationexpenseivunrealizedgainlossoncommodityderivativesvgainlossonsaleofoilandgaspropertiesviinterestincomeexpenseviiincometaxesviiilossonextinguishmentofdebtixdoubtfulaccountsexpenseandxsimilarothermaterialitemswhichmanagementbelievesaffectthecomparabilityofoperatingresults.EP.......................Explorationandproduction.FASB......................FinancialAccountingStandardsBoard.Farm-in.....................Anagreementwherebyapartyacquiresaportionoftheparticipatinginterestinablockfromtheownerofsuchinterestusuallyinreturnforcashandfortakingonaportionofthedrillingcostsofoneormorespecificwellsorotherperformancebytheassigneeasaconditionoftheassignment.Farm-out....................Anagreementwherebytheowneroftheparticipatinginterestagreestoassignaportionofitsparticipatinginterestinablocktoanotherpartyforcashandorfortheassigneetakingonaportionofthedrillingcostsofoneormorespecificwellsandorotherworkasaconditionoftheassignment.Fieldlifecoverratio............ThefieldlifecoverratioisbroadlydefinedforeachapplicableforecastperiodastheratioofxtheforecastednetpresentvalueofnetcashflowthroughthedepletionoftheJubileeFieldplusthenetpresentvalueoftheforecastofcertaincapitalexpendituresincurredinrelationtotheJubileeFieldandcertainotherfieldsinGhanatoytheaggregateloanamountsoutstandingundertheFacilitylesstheResourceBridgeasapplicable.FPSO......................Floatingproductionstorageandoffloadingvessel.Interestcoverratio.............TheinterestcoverratioisbroadlydefinedforeachapplicablecalculationdateastheratioofxtheaggregateEBITDAXseeaboveoftheCompanyfortheprevioustwelvemonthstoyinterestexpenselessinterestincomefortheCompanyfortheprevioustwelvemonths.Loanlifecoverratio............TheloanlifecoverratioisbroadlydefinedforeachapplicableforecastperiodastheratioofxnetpresentvalueofforecastednetcashflowthroughthefinalmaturitydateoftheFacilityplusthenetpresentvalueofforecastedcapitalexpendituresincurredinrelationtotheJubileeFieldandcertainotherfieldsinGhanatoytheaggregateloanamountsoutstandingundertheFacilitylesstheResourceBridgeasapplicable.3 Make-wholeredemptionprice.....Themake-wholeredemptionpriceisequaltotheoutstandingprincipalamountofsuchnotesplusthegreaterof11ofthethenoutstandingprincipalamountofsuchnotesand2thepresentvalueofthenotesat103.9andrequiredinterestpaymentsthereonthroughAugust12017atsuchredemptiondate.MBbl......................Thousandbarrelsofoil.Mcf.......................Thousandcubicfeetofnaturalgas.Mcfpd......................Thousandcubicfeetperdayofnaturalgas.MMBbl.....................Millionbarrelsofoil.MMBoe.....................Millionbarrelsofoilequivalent.MMcf......................Millioncubicfeetofnaturalgas.NaturalgasliquidorNGL......Componentsofnaturalgasthatareseparatedfromthegasstateintheformofliquids.Theseincludepropanebutaneandethaneamongothers.Petroleumcontract.............AcontractinwhichtheownerofhydrocarbonsgivesanEPcompanytemporaryandlimitedrightsincludinganexclusiveoptiontoexplorefordevelopandproducehydrocarbonsfromtheleasearea.Petroleumsystem..............Apetroleumsystemconsistsoforganicmaterialthathasbeenburiedatasufficientdepthtoallowadequatetemperatureandpressuretoexpelhydrocarbonsandcausethemovementofoilandnaturalgasfromtheareainwhichitwasformedtoareservoirrockwhereitcanaccumulate.PlanofdevelopmentorPoD....Awrittendocumentoutliningthestepstobeundertakentodevelopafield.Productivewell................Anexploratoryordevelopmentwellfoundtobecapableofproducingeitheroilornaturalgasinsufficientquantitiestojustifycompletionasanoilornaturalgaswell.Prospects..................Apotentialtrapthatmaycontainhydrocarbonsandissupportedbythenecessaryamountandqualityofgeologicandgeophysicaldatatoindicateaprobabilityofoilandornaturalgasaccumulationreadytobedrilled.Thefiverequiredelementsgenerationmigrationreservoirsealandtrapmustbepresentforaprospecttoworkandifanyofthesefailneitheroilnornaturalgasmaybepresentatleastnotincommercialvolumes.Provedreserves................EstimatedquantitiesofcrudeoilnaturalgasandnaturalgasliquidsthatgeologicalandengineeringdatademonstratewithreasonablecertaintytobeeconomicallyrecoverableinfutureyearsfromknownreservoirsunderexistingeconomicandoperatingconditionsaswellasadditionalreservesexpectedtobeobtainedthroughconfirmedimprovedrecoverytechniquesasdefinedinSECRegulationS-X4-10a2.4 Proveddevelopedreserves........Thoseprovedreservesthatcanbeexpectedtoberecoveredthroughexistingwellsandfacilitiesandbyexistingoperatingmethods.Provedundevelopedreserves......Thoseprovedreservesthatareexpectedtoberecoveredfromfuturewellsandfacilitiesincludingfutureimprovedrecoveryprojectswhichareanticipatedwithahighdegreeofcertaintyinreservoirswhichhavepreviouslyshownfavorableresponsetoimprovedrecoveryprojects.Reconnaissancecontract.........AcontractinwhichtheownerofhydrocarbonsgivesanEPcompanyrightstoperformevaluationofexistingdataorpotentiallyacquireadditionaldatabutmaynotconveyanexclusiveoptiontoexplorefordevelopandorproducehydrocarbonsfromtheleasearea.ResourceBridge...............BorrowingBaseavailabilityattributabletoprobablereservesandcontingentresourcesfromJubileeFieldFuturePhasesTweneboaEnrenraandNtommefieldsandpotentiallyMahoganyTeakandAkasafields.Shelfmargin.................Thepathcreatedbythechangeindirectionoftheshorelineinreactiontothefillingofasedimentarybasin.Structuraltrap................Atopographicfeatureintheearthssubsurfacethatformsahighpointintherockstrata.Thisfacilitatestheaccumulationofoilandgasinthestrata.Structural-stratigraphictrap.......Astructural-stratigraphictrapisacombinationtrapwithstructuralandstratigraphicfeatures.Stratigraphy..................Thestudyofthecompositionrelativeagesanddistributionoflayersofsedimentaryrock.Stratigraphictrap..............Astratigraphictrapisformedfromachangeinthecharacteroftherockratherthanfaultingorfoldingoftherockandoilisheldinplacebychangesintheporosityandpermeabilityofoverlyingrocks.Submarinefan................Afan-shapeddepositofsedimentsoccurringinadeepwatersettingwheresedimentshavebeentransportedviamassflowgravityinducedprocessesfromtheshallowtodeepwater.Thesesystemscommonlydevelopatthebottomofsedimentarybasinsorattheendoflargerivers.Three-wayfaulttrap............Astructuraltrapwhereatleastoneofthecomponentsofclosureisformedbyoffsetofrocklayersacrossafault.Trap.......................Aconfigurationofrockssuitableforcontaininghydrocarbonsandsealedbyarelativelyimpermeableformationthroughwhichhydrocarbonswillnotmigrate.Undevelopedacreage............Leaseacreageonwhichwellshavenotbeendrilledorcompletedtoapointthatwouldpermittheproductionofcommercialquantitiesofnaturalgasandoilregardlessofwhethersuchacreagecontainsdiscoveredresources.5 CautionaryStatementRegardingForward-LookingStatementsThisannualreportonForm10-Kcontainsestimatesandforward-lookingstatementsprincipallyinItem1.BusinessItem1A.RiskFactorsandItem7.ManagementsDiscussionandAnalysisofFinancialConditionandResultsofOperations.Ourestimatesandforward-lookingstatementsaremainlybasedonourcurrentexpectationsandestimatesoffutureeventsandtrendswhichaffectormayaffectourbusinessesandoperations.Althoughwebelievethattheseestimatesandforward-lookingstatementsarebaseduponreasonableassumptionstheyaresubjecttoseveralrisksanduncertaintiesandaremadeinlightofinformationcurrentlyavailabletous.ManyimportantfactorsinadditiontothefactorsdescribedinourannualreportonForm10-Kmayadverselyaffectourresultsasindicatedinforward-lookingstatements.YoushouldreadthisannualreportonForm10-Kandthedocumentsthatwehavefiledasexhibitsheretocompletelyandwiththeunderstandingthatouractualfutureresultsmaybemateriallydifferentfromwhatweexpect.Ourestimatesandforward-lookingstatementsmaybeinfluencedbythefollowingfactorsamongothersourabilitytofindacquireorgainaccesstootherdiscoveriesandprospectsandtosuccessfullydevelopandproducefromourcurrentdiscoveriesandprospectsuncertaintiesinherentinmakingestimatesofouroilandnaturalgasdatathesuccessfulimplementationofourandourblockpartnersprospectdiscoveryanddevelopmentanddrillingplansprojectedandtargetedcapitalexpendituresandothercostscommitmentsandrevenuesterminationoforinterventioninconcessionsrightsorauthorizationsgrantedbythegovernmentsofGhanaIrelandMauritaniaMoroccoincludingWesternSaharaPortugalSenegalorSurinameortheirrespectivenationaloilcompaniesoranyotherfederalstateorlocalgovernmentsorauthoritiestousourdependenceonourkeymanagementpersonnelandourabilitytoattractandretainqualifiedtechnicalpersonneltheabilitytoobtainfinancingandtocomplywiththetermsunderwhichsuchfinancingmaybeavailablethevolatilityofoilandnaturalgaspricestheavailabilitycostfunctionandreliabilityofdevelopingappropriateinfrastructurearoundandtransportationtoourdiscoveriesandprospectstheavailabilityandcostofdrillingrigsproductionequipmentsuppliespersonnelandoilfieldservicesothercompetitivepressurespotentialliabilitiesinherentinoilandnaturalgasoperationsincludingdrillingandproductionrisksandotheroperationalandenvironmentalrisksandhazardscurrentandfuturegovernmentregulationoftheoilandgasindustryorregulationoftheinvestmentinorabilitytodobusinesswithcertaincountriesorregimescostofcompliancewithlawsandregulationschangesinenvironmentalhealthandsafetyorclimatechangelawsgreenhousegasregulationortheimplementationorinterpretationofthoselawsandregulationsenvironmentalliabilitiesgeologicaltechnicaldrillingproductionandprocessingproblems6 militaryoperationscivilunrestoutbreaksofdiseaseterroristactswarsorembargoesthecostandavailabilityofadequateinsurancecoverageourvulnerabilitytosevereweathereventsourabilitytomeetourobligationsundertheagreementsgoverningourindebtednessincludingtheindenturegoverningthe7.875SeniorSecuredNotesdue2021SeniorNotestheavailabilityandcostoffinancingandrefinancingourindebtednesstheamountofcollateralrequiredtobepostedfromtimetotimeinourhedgingtransactionstheresultofanylegalproceedingsorinvestigationswemaybesubjecttooursuccessinriskmanagementactivitiesincludingtheuseofderivativefinancialinstrumentstohedgecommodityandinterestraterisksandotherriskfactorsdiscussedintheItem1A.RiskFactorssectionofthisannualreportonForm10-K.Thewordsbelievemaywillaimestimatecontinueanticipateintendexpectplanandsimilarwordsareintendedtoidentifyestimatesandforward-lookingstatements.Estimatesandforward-lookingstatementsspeakonlyasofthedatetheyweremadeandexcepttotheextentrequiredbylawweundertakenoobligationtoupdateortoreviewanyestimateandorforward-lookingstatementbecauseofnewinformationfutureeventsorotherfactors.Estimatesandforward-lookingstatementsinvolverisksanduncertaintiesandarenotguaranteesoffutureperformance.Asaresultoftherisksanduncertaintiesdescribedabovetheestimatesandforward-lookingstatementsdiscussedinthisannualreportonForm10-Kmightnotoccurandourfutureresultsandourperformancemaydiffermateriallyfromthoseexpressedintheseforward-lookingstatementsduetoincludingbutnotlimitedtothefactorsmentionedabove.Becauseoftheseuncertaintiesyoushouldnotplaceunduerelianceontheseforward-lookingstatements.7 PARTIItem1.BusinessGeneralKosmosisaleadingindependentoilandgasexplorationandproductioncompanyfocusedonfrontierandemergingareasalongtheAtlanticMargin.OurassetsincludeexistingproductionandothermajordevelopmentprojectsoffshoreGhanaaswellasexplorationlicenseswithsignificanthydrocarbonpotentialoffshoreIrelandMauritaniaMoroccoincludingWesternSaharaSenegalandSuriname.KosmosislistedontheNewYorkStockExchangeNYSEandistradedunderthetickersymbolKOS.Kosmoswasfoundedin2003tofindoilinunder-exploredoroverlookedpartsofWestAfrica.MembersofthemanagementteamwhohadpreviouslyworkedtogethermakingsignificantdiscoveriesanddevelopingtheminAfricatheGulfofMexicoandotherareasestablishedthecompanyonasinglegeologicconceptthatpreviouslyhadbeenoverlookedbyothersintheindustrytheLateCretaceousplaysystem.FollowingourformationweacquiredmultipleexplorationlicensesandprovedthegeologicconceptwiththediscoveryoftheJubileeFieldwithintheTanoBasininthedeepwatersoffshoreGhanain2007.ThiswasthefirstofourdiscoveriesoffshoreGhanaitwasoneofthelargestoildiscoveriesworldwidein2007andisconsideredoneofthelargestfindsoffshoreWestAfricaduringthelastdecade.AstechnicaloperatoroftheinitialphaseofJubileeFieldweplannedandexecutedthedevelopment.OilproductionfromtheJubileeFieldbeganinNovember2010just42monthsafterinitialdiscoveryarecordforadeepwaterdevelopmentinthiswaterdepthinWestAfrica.GrossproductionfromtheJubileeFieldaveragedapproximately102000Bopdfor2014.WehaveadualfocusofmaximizingthevalueofourGhanaassetsandincreasingvaluethroughahigh-impactexplorationprogram.InGhanawearefocusedonincreasingproductioncashflowsandreservesfromtheJubileeFieldthedevelopmentoftheTweneboa-Enyenra-NtommeTENprojectpursuanttoaplanofdevelopmentwhichwasapprovedbytheMinistryofEnergyin2013andtheappraisalanddevelopmentofourotherGhanaiandiscoveries.Inourexplorationportfoliowehavealargeinventoryofleadsandprospects.Weplantotesttheprospectivityofthisinventorythroughtheexecutionofamulti-yeardrillingprogramtargetinghighimpactopportunitiesalongtheAtlanticMargin.OurBusinessStrategyGrowprovedreservesandproductionthroughdevelopmentexplorationandappraisalInthenear-termweplantogrowprovedreservesandproductionbyfurtherdevelopinganddebottleneckingtheJubileeFieldandbycompletingthedevelopmentoftheTENprojectwhichisexpectedtodeliverfirstoilin2016throughaseconddedicatedFPSO.GrowthcouldalsoberealizeddependingontheresultofourongoingassessmentofcommercialityanddevelopmentoveralloraportionofourMahoganyTeakAkasaandorWawadiscoveries.Inthelonger-termweplantodrillexplorationprospectswiththeintenttoprovidefurthergrowth.SuccessfullyopenanddevelopouroffshoreexplorationplaysWebelievetheprospectsandleadspotentiallyexistingoffshoreIrelandMauritaniaMoroccoincludingWesternSaharaSenegalandSurinameprovideafavorableopportunitytocreatesubstantialvalue.Weanticipatedrillingbetweentwoandfourpotentiallyplay-openingexploratorywellsperyeardependingontheresultsofouranalysisofseismicdatainitialexplorationdrillingresultsandavailabilityofrequiredequipmentandservices.Subjecttotheresultsoftheseexploratorywells8 additionalexplorationandorappraisalwellsmaybedrilled.Giventhepotentialsizeoftheseprospectsandleadswebelievethatexploratorysuccessinouroperatingareascouldsignificantlyaddtoourgrowthprofile.Applyourtechnically-drivenculturewhichfostersinnovationandcreativitytocontinueoursuccessfulexplorationanddevelopmentprogramWedifferentiateourselvesfromotherexplorationandproductioncompaniesthroughourapproachtoexplorationanddevelopment.Ourgeoscientistsandengineersarecriticaltothesuccessofourbusinessstrategy.Wehavecreatedanenvironmentthatenablesthemtofocustheirknowledgeskillsandexperienceonfindinganddevelopingthesefields.Culturallywehaveanopenteam-orientedworkenvironmentthatfostersentrepreneurialcreativeandcontrarianthinking.Thisapproachenablesustofullyconsiderandunderstandbothriskandrewardaswellasdeliberatelyandcollectivelypursuestrategiesthatmaximizevalue.ThisphilosophyandapproachwassuccessfullyutilizedintheTanoBasinoffshoreGhanaresultinginthediscoveryofasignificantnewpetroleumsystemwhichtheindustrypreviouslydidnotconsidereitherprospectiveorcommerciallyviableandtheaccelerateddevelopmenttofirstoil.FocusonoptimallydevelopingourdiscoveriestoinitialproductionWefocusonfielddevelopmentsdesignedtodeliverearlylearningsandaccelerateproduction.Incertaincircumstanceswebelieveaphasedapproachcanbeemployedtooptimizefull-fielddevelopmentthroughabetterunderstandingofdynamicreservoirbehaviorandenablenumerousactivitiestobeperformedinaparallelratherthanasequentialmanner.Aphasedapproachalsofacilitatesrefinementofthedevelopmentplansbasedonexperiencegainedininitialphasesofproductionandbyleveragingexistinginfrastructureassubsequentphasesofdevelopmentareimplemented.Productionandreservoirperformancefromtheinitialphasearemonitoredcloselytodeterminethemostefficientandeffectivetechniquestomaximizetherecoveryofreservesandreturns.Otherbenefitsincludeminimizingupfrontcapitalcostsreducingexecutionrisksthroughsmallerinitialinfrastructurerequirementsandenablingcashflowfromtheinitialphaseofproductiontofundaportionofcapitalcostsforsubsequentphases.Incontrastatraditionaldevelopmentapproachconsistsoffullappraisalconceptualengineeringpreliminaryengineeringdetailengineeringprocurementandfabricationoffacilitiesdevelopmentdrillingandinstallationoffacilitiesforthefull-fielddevelopmentallperformedsequentiallybeforefirstproductionisachieved.Thisapproachcanconsiderablylengthenthetimefromdiscoverytofirstproduction.Forexamplepost-discoveryin2007firstoilproductionfromtheJubileeFieldcommencedinNovember2010.ThisdevelopmenttimelinefromdiscoverytofirstoilwassignificantlylessthantheseventotenyearindustryaverageandsetarecordforadeepwaterdevelopmentofthissizeandscaleatthiswaterdepthinWestAfrica.Thiscondensedtimelinereflectsthelessonslearnedbyourexperiencedteamwhileleadingotherlargescaledeepwaterdevelopments.TheTENdevelopmentinGhanaisalsobeingexecutedinaphasedmannerwiththeaimofachievingsimilarbenefits.TheplanofdevelopmentforTENwasdesignedtoincludeanexpandablesubseasystemthatwouldprovideformultiplephases.Phase1oftheTENdevelopmentisexpectedtobea17-welldevelopmentprojectwithfirstoilanticipatedtooccurinthesecondhalfof2016.Phase2ofthedevelopmentisexpectedtobeaseven-wellprojectwithdrillinganticipatedtocommenceapproximatelyoneyearafterfirstoilfromPhase1.BothphaseswillfocusprimarilyondevelopmentoftheEnyenraandNtommeoilfields.Additionallywelooktopartnerwithhighqualityindustrypartnerswithworld-classdevelopmentcapabilitiesearlyinourexplorationprojects.Thisstrategyisdesignedtoensurethatuponsuccessfulexplorationandappraisalactivitiestheprojectcanbenefitfromdevelopmentandproduction9 operationsexpertiseprovidedbythesepartnersaswehavedonewithBPinMoroccoandChevroninSurinameandMauritania.IdentifyaccessandexploreemergingregionsandhydrocarbonplaysOurmanagementandexplorationteamshavedemonstratedanabilitytoidentifyregionsandhydrocarbonplaysthatyieldmultiplelargecommercialdiscoveries.Wefocusonfrontierandemergingareasthathavebeenunderexploredyetofferattractivecommercialtermsasaresultoffirst-moveradvantage.Weexpecttocontinuetouseoursystematicandprovengeologically-focusedapproachinfrontierandemergingpetroleumsystemswheregeologicaldatasuggestshydrocarbonaccumulationsarelikelytoexistbutwherecommercialdiscoverieshaveyettobemade.Webelievethisapproachreducestheexploratoryriskinpoorlyunderstoodunder-exploredorotherwiseoverlookedhydrocarbonbasinsthatoffersignificantoilpotential.ThiswasthecasewithrespecttoourLateCretaceouscorethemeinWestAfricathenicheinwhichwechosetoinitiallyfocus.Manyofourcurrentlicensessharesimilargeologiccharacteristicsfocusedonuntestedstructural-stratigraphictraps.Inadditionourexplorationportfolioincludessub-saltplayswhichhavebeenanotherrecentsuccessfulplayconceptalongtheAtlanticMargin.Thisapproachandfocuscoupledwithafirst-moveradvantageandourmanagementandtechnicalteamsdisciplineinexecutionprovideacompetitiveadvantageinidentifyingandaccessingnewstrategicgrowthopportunities.Weexpecttocontinueseekingnewopportunitieswhereoilhasnotbeendiscoveredorproducedinmeaningfulquantitiesbyleveragingthereputationandrelationshipsofourexperiencedtechnicalandmanagementteams.Thisincludesourexistingareasofinterestaswellasselectivelyexpandingourreachintootherlocations.Farm-inopportunitiesmayofferawaytoparticipateinnewventureopportunitiestoundertakeexplorationinemergingbasinsnewplaysandfairwaystoenhanceandoptimizeourportfolio.Consistentwiththisstrategywemayalsoevaluatepotentialcorporateandassetacquisitionopportunitiesasasourceofnewventurestosupportandexpandourassetportfolio.MaintainFinancialDisciplineWestrivetomaintainaconservativefinancialprofileandstrongbalancesheetwithampleliquidity.Typicallywefundexplorationactivitiesfromacombinationofproductioncashflowsorpartnercarriesanddevelopmentactivitiesfromacombinationofproductioncashflowsanddebt.AsofDecember312014wehaveapproximately1.9billionofliquidityavailabletofundouropportunities.Additionallyweusederivativeinstrumentstolimitourexposuretofluctuationsinoilpricesandinterestrates.Wehaveanactivecommodityhedgingprogramwherewehedgeaportionofouranticipatedsalesvolumesonatwo-to-threeyearrollingbasis.AsofDecember312014wehavehedgedpositionscovering10.2millionbarrelsofoilin2015and2016whichprovidepartialdownsideprotectionshouldDatedBrentoilpricesremainbelowour85to94floorprices.WealsomaintaininsurancetopartiallyprotectagainstlossofproductionrevenuesfromourJubileeasset.KosmosExplorationApproachKosmosexplorationphilosophyisdeeplyrootedinafundamentalgeologically-basedapproachgearedtowardtheidentificationofmisunderstoodunder-exploredoroverlookedpetroleumsystems.Thisprocessbeginswithdetailedgeologicstudiesthatmethodicallyassessaparticularregionssubsurfacewithcarefulconsiderationgiventothoseattributesthatleadtoworkingpetroleumsystems.Theprocessincludesbasinmodelingtopredictoilchargeandfluidmigrationaswellasstratigraphicandstructuralanalysistoidentifyreservoirsealpairdevelopmentandtrapdefinition.Thisanalysisintegratesdatafrompreviouslydrilledwellsandavailableseismicdata.Importantlythisapproachalsotakesintoaccountadetailedanalysisofgeologictimingtoensurethatwehaveanappropriate10 understandingofwhetherthesequencingofgeologicaleventscouldsupportandpreservehydrocarbonaccumulation.Onceanareaishigh-gradedbasedonthisplayfairwayanalysisgeophysicalanalysisisconductedtoidentifyprospectivetrapsofinterest.AlongsidethesubsurfaceanalysisKosmosperformsananalysisofcountry-specificriskstogainanunderstandingoftheabove-grounddynamicswhichmayinfluenceaparticularcountrysrelativedesirabilityfromanoveralloilandnaturalgasoperatingandrisk-adjustedreturnperspective.Thisiterativeprocessisemployedinbothareasthathaveexistingoilandnaturalgasproductionaswellasthoseregionsthathaveyettoachievecommercialhydrocarbonproduction.OnceanareaofinteresthasbeenidentifiedKosmostargetslicensesovertheparticularbasinorfairwaytoachieveanearly-moverorinmanycasesafirst-moveradvantage.IntermsoflicenseselectionKosmostargetsspecificregionsthathavesufficientsizetoprovidescaleshouldtheexplorationconceptprovesuccessful.Kosmosalsolooksforlong-termcontractdurationtoenabletherightexplorationprogramtobeexecutedplaytypediversitytoprovidemultipleexplorationconceptoptionsprospectdependencytoenhancethechanceofreplicatingsuccessandsufficientlyattractivefiscaltermstomaximizethecommercialviabilityofdiscoveredhydrocarbons.OperationsbyGeographicAreaWecurrentlyhaveoperationsinAfricaEuropeandSouthAmerica.CurrentlyallrevenuesaregeneratedfromouroperationsoffshoreGhana.GhanaTheWestCapeThreePointsWCTPBlockandDeepwaterTanoDTBlockarelocatedwithintheTanoBasinoffshoreGhana.Thisbasincontainsaprovenworld-classpetroleumsystemasevidencedbyourdiscoveries.TheTanoBasinrepresentstheeasternextensionoftheDeepIvorianBasinwhichresultedfromthedevelopmentofanextensionalsedimentarybasincausedbytensionalforcesassociatedwithopeningoftheAtlanticOceanasSouthAmericaseparatedfromAfricaintheMid-Cretaceousperiod.TheTanoBasinformspartoftheresultingtransformmarginwhichextendsfromSierraLeonetoNigeria.TheTanoBasinsedimentscompriseathickUpperCretaceousdeepwaterturbiditesequencewhichincombinationwithamodestTertiarysectionprovidedsufficientthicknesstomatureanearlytoMid-CretaceoussourcerockinthecentralpartoftheTanoBasin.Thiswell-definedreservoirandchargefairwayformstheplaywhichwhendrapedovertheSouthTanohighastructuralhighdippingintothebasinresultedintheformationoftrappinggeometries.Theprimaryreservoirtypesconsistofwell-imagedTuronianandCampanianagedsubmarinefanssituatedalongthesteeplydippingshelfmarginandtrappedinanupdipdirectionbythinningofthereservoirandorfaults.Manyofourdiscoverieshavesimilartrapgeometries.11 OurGhanaianDiscoveriesInformationaboutourGhanaiandiscoveriesissummarizedinthefollowingtable.KosmosYearorExpectedParticipatingYearofPoDDiscoveriesLicenseInterestOperatorStageTypeSubmissionGhanaJubileeFieldPhase1andPhase1A1.........WCTPDT324.15TullowProductionDeepwater200820112JubileeFieldsubsequentphases.............WCTPDT324.15TullowDevelopmentDeepwater20157TEN1...........................DT17.06TullowDevelopmentDeepwater20128Mahogany.........................WCTP30.94KosmosAppraisalDeepwater20157Teak.............................WCTP30.94KosmosAppraisalDeepwater20157Akasa............................WCTP30.94KosmosAppraisalDeepwater20157Wawa............................DT18.04TullowAppraisalDeepwater20161ForinformationconcerningourestimatedprovedreservesasofDecember312014seeOurReserves.2TheJubileePhase1andPhase1APoDswereapprovedbyGhanasMinistryofEnergyin2009and2012respectively.OilproductionfromtheJubileeFieldoffshoreGhanacommencedinNovember2010andwereceivedourfirstoilrevenuesinearly2011.3TheJubileeFieldstraddlestheboundarybetweentheWCTPpetroleumcontractandtheDTpetroleumcontractoffshoreGhana.ConsistentwiththeGhanaianPetroleumLawtheWCTPpetroleumcontractandDTpetroleumcontractandasrequiredbyGhanasMinistryofEnergyinordertooptimizeresourcerecoveryinthisfieldweenteredintotheUnitizationandUnitOperatingAgreementtheUUOAinJuly2009withGhanaNationalPetroleumCorporationGNPCandtheotherblockpartnersofeachofthesetwoblocks.TheUUOAgovernstheinterestsinanddevelopmentoftheJubileeFieldandcreatedtheJubileeUnitfromportionsoftheWCTPpetroleumcontractandtheDTpetroleumcontractareas.4GNPChastheoptiontoacquireadditionalpayinginterestsinacommercialdiscoveryontheWCTPBlockandtheDTBlockof2.5and5.0respectively.Theseinterestpercentagesdonotgiveeffecttotheexerciseofsuchoptions.5TheseinterestpercentagesaresubjecttoredeterminationoftheparticipatinginterestsintheJubileeFieldpursuanttothetermsoftheUUOA.GNPCexerciseditsWCTPpetroleumcontractandDTpetroleumcontractoptionswithrespecttotheJubileeUnittoacquireanadditionalunitizedpayinginterestof3.6intheJubileeField.TheJubileeFieldinterestpercentagesgiveeffecttotheexerciseofsuchoption.OurpayinginterestondevelopmentactivitiesintheJubileeFieldis26.9.6InFebruary2013GNPCexerciseditsDTpetroleumcontractoptionwithrespecttoTENtoacquireanadditionalpayinginterestof5.0.TheTENinterestpercentagegiveseffecttotheexerciseofsuchoption.OurpayinginterestondevelopmentactivitiesinTENis19.7TherevisedJubileeFullFieldDevelopmentPlanJFFDPisexpectedtobesubmittedduring2015althoughwecangivenoassurancethatsuchapprovalswillbeforthcomingorinatimelymanneroratall.TheJFFDPisexpectedtocoverallfuturedevelopmentactivityoftheJubileeFieldandthedevelopmentoftheMahoganyTeakandAkasadiscoveriesshouldsuchdiscoveriesbedeclaredcommercial.8TheTENPoDwasapprovedbythegovernmentofGhanain2013andisexpectedtodeliverfirstoilinthesecondhalfof2016.ThefollowingisabriefdiscussionofourdiscoveriestodateonourlicenseareasoffshoreGhana.JubileeDiscoveryTheJubileeFieldwasdiscoveredbyKosmosin2007withfirstoilinNovember2010.AppraisalactivitiesconfirmedthattheJubileediscoverystraddledtheWCTPandDTblocks.PursuanttothetermsoftheUUOAthediscoveryareawasunitizedforpurposesofjointdevelopmentbytheWCTPandDTBlockpartners.Ourcurrentunitinterestis24.1.TheJubileeFieldisacombinationstructural-stratigraphictrapwithreservoirintervalsconsistingofaseriesofstackedUpperCretaceousTuronian-ageddeepwaterturbiditefanlobeandchanneldeposits.TheJubileeFieldislocatedapproximately37milesoffshoreGhanainwaterdepthsof3250to5800feetwhichledtothedecisiontoimplementanFPSObaseddevelopment.TheFPSOisdesignedtoprovidewaterandnaturalgasinjectiontosupportreservoirpressuretoprocessandstoreoilandtoexportgasthroughapipelinetothemainland.TheJubileeFieldisbeingdevelopedinaphasedapproach.ThePhase1developmentfocusedonpartialdevelopmentofcertainreservoirsintheJubileeField.TheKosmos-ledIntegratedProjectTeamIPTsuccessfullyexecutedtheinitial17welldevelopmentplanwhichincludednineproducingwellssixwaterinjectionwellsandtwonaturalgasinjectionwellsproducingthroughsubseainfrastructuretotheKwameNkrumahFPSO.Thisinitialphaseprovidedadditionalsubseainfrastructurecapacityforfurtherproductionandinjectionwellstobedrilledinfuturephasesofdevelopment.12 ThePhase1AdevelopmentprovidesfurtherdevelopmenttothecurrentlyproducingJubileeFieldreservoirs.ThePhase1Adevelopmentincludesthedrillingofeightadditionalwellsconsistingoffiveproductionwellsandthreewaterinjectionwells.Sixwellsthreeproducersandthreewaterinjectionwellsareonlinewithproductioncommencinginlate2012.Programexecutionisexpectedtobecompletedin2015.Futurephasesincludethefurtherdevelopmentofthethreeproducingreservoirsanddevelopmentofthetworemainingreservoirstomaximizeultimaterecoveryandassetvalue.TheGovernmentofGhanacompletedtheconstructionandconnectionofagaspipelinefromtheJubileeFieldtotransportnaturalgastothemainlandforprocessingandsale.InNovember2014thetransportationofgasproducedfromtheJubileeFieldcommencedthroughthegaspipelinetotheonshoregasplant.Howevertheuptimeofthefacilityduring2015andinfutureperiodsisnotknown.IntheabsenceofthecontinuousremovaloflargequantitiesofnaturalgasfromtheJubileeFielditisanticipatedthatwewillneedtoflaresuchnaturalgas.CurrentlywehavenotbeenissuedanamendedpermitfromtheGhanaEnvironmentalProtectionAgencyGhanaEPAtoflarenaturalgasproducedfromtheJubileeFieldinsubstantialquantities.IfweareunabletoresolvepotentialissuesrelatedtothecontinuousremovalofassociatednaturalgasinlargequantitiesfromtheJubileeFieldouroilproductionwillbenegativelyimpacted.InprioryearscertainnearwellboreproductivityissueswereidentifiedimpactingseveralPhase1productionwells.WehavealsoexperiencedmechanicalissuesintheJubileeFieldincludingfailuresofourwaterinjectionfacilitiesontheFPSOandwaterandgasinjectionwells.Thisequipmentdowntimenegativelyimpactedpastoilproduction.TheJubileeUnitpartnersidentifiedameansofsuccessfullymitigatingthenearwellboreproductivityissueswithongoingacidstimulationtreatmentsandcorrectingthemechanicalissuesexperiencedintheJubileeField.OilproductionfromtheJubileeFieldaveragedapproximately102000barrelsgrossofoilperdayduring2014.WesubmittedtheJFFDPtoGhanasMinisterofEnergyinDecember2012andsubsequentlywithdrewtheapplicationbasedondiscussionswiththegovernmentofGhana.ArevisedJFFDPprovidingforfullfielddevelopmentoftheGreaterJubileeFieldisexpectedtobesubmittedduring2015althoughwecangivenoassurancethatsuchapprovalswillbeforthcominginatimelymanneroratall.WeastheTechnicalOperatoroftheJubileeFieldPhase1developmentledtheIPTwhichconsistedofgeoscienceengineeringcommercialprojectservicesandoperationsdisciplinesfromwithintheJubileeUnitpartnership.Weevaluatedtheresourcebaseanddevelopedanoptimizedreservoirdepletionplan.Thisplanincludedthedesignandplacementofwellsandtheselectionoftopsideandsubseafacilities.Ourresponsibilitiesalsoextendedtoprojectmanagementofthedesignandimplementationofthecompletefielddevelopmentsystem.OurresponsibilityasTechnicalOperatoroftheJubileeFieldPhase1developmentwascompleteduponcommissioningofthegascompressionandinjectionsystemsandprojectadministrativecloseout.TheUnitOperatorassumedresponsibilityfortheday-to-dayoperationsandmaintenanceoftheFPSOaswellasoverseeingandoptimizingthereservoirmanagementplanbasedonfieldperformanceincludinganywellworkoveractivityoradditionalin-filldrillingandsubsequentphases.DTBlockDiscoveriesTheTweneboaEnyenraandNtommefieldsarelocatedinthewesternandcentralportionsoftheDTBlockapproximately30milesoffshoreGhanainwaterdepthsofrangingfrom3300to5700feet.InNovember2012wesubmittedadeclarationofcommercialityandPoDovertheTENdiscoveries.InMay2013thegovernmentofGhanaapprovedtheTENPoD.ThediscoveriesarebeingjointlydevelopedwithsharedinfrastructureandasingleFPSO.TheTENfieldsconsistofmultiplestratigraphictrapswithreservoirintervalsconsistingofaseriesofstackedUpperCretaceousTuronian-ageddeepwaterfanlobesandchanneldeposits.Fluidsamples13 recoveredfromthefieldsindicateanoilgravityofapproximately31-35degreesAPIandanaturalgascondensategravityofbetween41and48degreesAPI.TheTENprojectisbeingdevelopedinaphasedmanner.TheplanofdevelopmentforTENwasdesignedtoincludeanexpandablesubseasystemthatwouldprovideformultiplephases.Phase1oftheTENdevelopmentincludesthedrillingandcompletionofupto17wellswithsevenadditionaldevelopmentwellsexpectedtobedrilledduringPhase2withhalfofthewellsdesignatedasproductionwellsandtheremainderaswaterorgasinjectionwellstomaximizerecovery.Phase2drillingisanticipatedtocommenceapproximatelyoneyearafterfirstoilfromPhase1.BothphaseswillfocusprimarilyontheEnyenraandNtommeoilfields.TheTENdevelopmentisexpectedtodeliverfirstoilinthesecondhalfof2016andisexpectedtoincreasetowardstheFPSOcapacityof80000barrelsgrossperdayasthephaseddevelopmentprogresses.FuturedevelopmentofgasresourcesattheTENdevelopmentisanticipatedfollowingthecommencementofoilstartup.TheWawa-1explorationwellintersectedoilandgas-condensateinaTuronian-agedturbiditechannelsystem.PressuredatashowsthatitisaseparateaccumulationfromtheTENfields.FollowingadditionalappraisalandevaluationadecisionregardingthecommercialityoftheWawadiscoverywillbemadebytheDTBlockpartners.ShouldthediscoverybedeclaredcommercialaPoDwouldbepreparedforsubmissiontoGhanasMinistryofEnergywithinsixmonthsofthedeclarationofcommerciality.WCTPBlockDiscoveriesMahoganyislocatedwithintheWCTPBlocksoutheastoftheJubileeField.Thefieldisapproximately37milesoffshoreGhanainwaterdepthsofapproximately4100to5900feet.Webelievethefieldisacombinationstratigraphic-structuraltrapwithreservoirintervalscontainedinaseriesofstackedUpperCretaceousTuronian-ageddeepwaterfanlobeandchanneldeposits.TheMahogany-3Mahogany-4Mahogany-5andMahoganyDeep-2wellshaveintersectedmultipleoilbearingreservoirsinaTuronianturbiditesequence.Fluidsamplesrecoveredfromthewellsindicateanoilgravityofbetween31and37degreesAPI.TheTeakdiscoveryislocatedinthewesternportionoftheWCTPBlocknortheastoftheJubileeField.Thefieldisapproximately31milesoffshoreGhanainwaterdepthsofapproximately650to3600feet.Webelievethefieldisastructural-stratigraphictrapwithanelementoffour-wayclosure.TheTeak-1Teak-2andTeak-3wellshaveintersectedmultipleoilandnaturalgascondensatebearingreservoirsinCampanianandTuronianzones.Fluidsamplesrecoveredfromthewellsindicateanoilgravityofbetween32and39degreesAPIandnaturalgascondensategravityofbetween40and45degreesAPI.TheTeak-4AappraisalwellcompletedinMay2012encounterednon-commercialreservoirsandaccordinglywaspluggedandabandoned.TheAkasadiscoveryislocatedinthewesternportionoftheWCTPBlockapproximately31milesoffshoreGhanainwaterdepthsofapproximately3200to5050feet.ThediscoveryissoutheastoftheJubileeField.Webelievethetargetreservoirsarechannelsandlobesthatarestratigraphicallytrapped.TheAkasa-1wellintersectedoilbearingreservoirsintheTuronianzones.Fluidsamplesrecoveredfromthewellindicateanoilgravityof38degreesAPI.TheAkasa-2AappraisalwellwasdrilledinMay2012.FollowingadditionalevaluationadecisionregardingthecommercialityofourWCTPBlockdiscoverieswillbemadebytheWCTPBlockpartners.ShouldadiscoverybedeclaredcommercialweanticipatethatitwouldbeincludedintheJFFDPwhichisexpectedtobesubmittedtotheGhanaianMinistryofEnergyduring2015althoughwecangivenoassurancethatsuchapprovalswillbe14 forthcominginatimelymanneroratall.WeexpectthatanyfuturedevelopmentoftheWCTPBlockdiscoverieswouldbeasubseatie-backthroughtheJubileeFPSO.LicenseAreasOperatorParticipatingInterestPartnersParticipatingInterestIrelandFEL113...........................Kosmos75Antrim25FEL213...........................Kosmos85Europa15FEL313...........................Kosmos85Europa15Mauritania1BlockC8...........................Kosmos90SMHPM10BlockC12..........................Kosmos90SMHPM10BlockC13..........................Kosmos90SMHPM10MoroccoincludingWesternSaharaCapBoujdour........................Kosmos55Cairn20ONHYM25Essaouira...........................Kosmos30BP45ONHYM25FoumAssaka........................Kosmos29.9BP26.3ONHYM25.0Pathfinder9.4SKInnovationCo.Ltd9.4Tarhazoute..........................Kosmos30BP45ONHYM25SenegalCayarOffshoreProfound...............Kosmos60Petrosen10Timis30SaintLouisOffshoreProfound...........Kosmos60Petrosen10Timis30SurinameBlock42...........................Kosmos50Chevron50Block45...........................Kosmos50Chevron501InFebruary2015weenteredintoafarm-outagreementwithanaffiliateofChevroncoveringourthreelicenseareasinMauritania.Theparticipatinginterestshowndoesnotreflectthefarm-outastheagreementwasnotclosedasofDecember312014.Oncethefarm-outagreementbecomeseffectiveKosmosChevronandSMHPMsparticipatinginterestinBlockC8BlockC12andBlockC13willbe6030and10respectively.InAugust2014weenteredintoafarm-inagreementwithRepsolExploracionS.A.Repsoltoacquireanon-operatedinterestintheCamaraoAmeijoaMexilhaoandOstrablocksoffshorePortugal.Certaingovernmentalapprovalsandprocessesarestillrequiredtobecompletedbeforethisacquisitioniseffective.Aftercompletingtheacquisitionourparticipatinginterestintheblockswillbe31.RepsolPetroleosdePortugalPetrogalS.A.GalpandPartexIberiaS.A.Partexparticipatinginterestintheblockswillbe3430and5respectively.Repsolwillremaintheoperator.IrelandWearetheoperatorforFrontierExplorationLicensesFEL1-132-13and3-13whicharelocatedinthePorcupineBasinOffshoreIreland.WehaveidentifiedthePorcupineBasinasanunderexploredbasinthathasthepotentialforlargehydrocarbonaccumulations.ThePorcupineBasinisaJurassicagedriftbasinlocatedontheeasternAtlanticmarginoffshoreSouthwestIreland.PreviousexplorationwasfocusedonJurassicandTertiaryagedsandstoneslocatedintheshallowwaterportionsofthebasin.ThesewellsencounteredJurassicCretaceousandTertiary15 reservoirsJurassicsourcerocksandoilandgashowevernocommercialdevelopmentshavetakenplaceinthebasin.WehaveidentifiedanumberofCretaceousagestratigraphictrapson3DseismicdatawhichhaveplaypotentialsimilartothefeaturesidentifiedinourAtlanticMarginacreage.Wecompletedacquisitionofa3Dseismicsurveymeasuringapproximately5000squarekilometersovertheseblocksandinthesurroundingareainOctober2013.Theprocessingofthisseismicdatawascompletedinlate2014.Wehaveidentifiednumerousprospectsinourblocksandin2015wewillcontinuetorefineandassesstheprospectivityoftheselicenseareas.MauritaniaWeareoperatorofthreeOffshoreBlocksC8C12andC13whicharelocatedonthewesternmarginoftheMauritaniaSaltBasin.OurblocksareadjacenttoaprovenpetroleumsystemwithourprimarytargetsbeingCretaceoussedimentsinstructuralandstratigraphictraps.WebelievethattheTriassicsaltbasinformedattheonsetofriftingandcontainsJurassicCretaceousandTertiarypassivemarginsequencesoflimestonessandstoneandshales.InterpretationofavailablegeologicandgeophysicaldatahasidentifiedpossibleCretaceousbasinfloorchannelsandfansinpossibletrappinggeometriesoutboardoftheSaltBasin.CretaceoussourcerockspenetratedbywellsandtypedtooilsintheMauritaniaSaltBasinarebelievedtobethesameageasthosewhichchargeotheroilandgasfieldsintheLateCretaceousofWestAfrica.AnumberofexplorationwellshavebeendrilledinthebasininshallowtomoderatewaterdepthsandhaveresultedinoilandgasdiscoveriesinbothTertiaryandCretaceousagedfeatures.OneofthesetheChinguettiFieldiscurrentlyproducing.Ouracreageislocatedoutboardoftheproducingareaandrangeinwaterdepthfrom1500to3000meters.Theseblockscoveranaggregateareaofapproximately6.6millionacres.TheblocksliebeyondtheedgeofthesaltprovinceonthebasinfloorwherepotentiallyreservoirbearingMidtoLate-Cretaceousagedsedimentshavebeenidentifiedonvintage2Dseismicdata.InMay2013wecompleteda2Dseismicdataacquisitionprogramonapproximately6000line-kilometerscoveringBlocksC8C12andC13.InNovember2013wecompleteda3Dseismicprogramofapproximately10300squarekilometersoverportionsofBlocksC8andC12.Processingofthisseismicdatawascompletedin2014.ThisseismicdatahashelpedidentifynumerousprospectsinourblocksandwecontinuetointerpretthedatatoassessthefullprospectivityonourlicenseareasinMauritania.InNovember2014wedrilledthetop-holesectionoftheTortue-1explorationwellinBlockC8.Weexpecttocompletetheexplorationwellandhaveresultsduringthefirsthalfof2015.MoroccoincludingWesternSaharaOurpetroleumcontractsinMoroccoincludetheCapBoujdourOffshoreblockwhichiswithintheAaiunBasinandtheEssaouiraOffshoreblocktheFoumAssakaOffshoreblockandtheTarhazouteOffshoreblockwhicharewithintheAgadirBasin.Wearetheoperatorofthesepetroleumcontracts.AaiunBasinTheCapBoujdourOffshoreblockislocatedwithintheAaiunBasinalongtheAtlanticpassivemarginandcoversahigh-gradedareawithintheoriginalBoujdourOffshoreblockwhichexpiredinFebruary2011.Detailedseismicsequenceanalysissuggeststhepossibleexistenceofstackeddeepwaterturbiditesystemsthroughouttheregion.Thescaleofthelicenseareahasallowedustoidentifydistinctexplorationfairwaysinthisblockwhichprovidesubstantialexplorationopportunities.Themainplay16 elementsoftheprospectivitywithintheCapBoujdourOffshoreblockconsistofaLateJurassicsourcerockchargingEarlytoMid-Cretaceousdeepwatersandstonestrappedinanumberofdifferentstructuraltrends.Intheinboardareaanumberofthree-wayfaultclosuresarepresentwhichcontainEarlytoMid-Cretaceoussandstonesequencessomeofwhichhavebeenpenetratedinwellsonthecontinentalshelf.Outboardofthesefaulttraptrendslargefour-wayclosureandcombinationstructuralstratigraphictrapsarepresentindiscretenortheasttosouthwesttrendingstructurallydefinedfairways.During2014weconductedanew3Dseismicsurveyofapproximately5100kilometersovertheCapBoujdourOffshoreblock.Theprocessingofthisseismicdataisexpectedtobecompletedin2015.TheCB-1explorationwellontheCapBoujdourOffshoreblockwasspudinDecember2014totesttheAlKhayrprospectformerlynamedGargaa.Weexpectwellresultsduringthefirstquarterof2015.AgadirBasinTheFoumAssakaOffshoreEssaouiraOffshoreandTarhazouteOffshoreblocksarelocatedintheAgadirBasin.AworkingpetroleumsystemhasbeenestablishedintheonshoreareaoftheAgadirBasinbasedononshoreandshallowoffshorewells.ExistingwelldataandgeologicalandgeochemicalstudieshavedemonstratedthepresenceofCretaceoussourcerocksintheacreage.OnshoreproductionsuggeststhatpossibleJurassicsourcerocksarealsopresentintheoffshoreAgadirBasin.TheoffshoreAgadirBasinsedimentsareinterpretedtocomprisethicksequencesofLowertoUpperCretaceousageformationsconsistingofdeepwaterchannelsandlobes.Theinterpretedprospectstrappingstylesarevariedandincludepre-saltpondedslopefanssaltdomessalt-coredanticlinesandsub-saltstructures.Wecompletedinterpretationofapproximately7800squarekilometersofnewandreprocessed3DseismicdatainourFoumAssakaOffshoreandEssaouiraOffshoreblocks.During2014weconducteda3Dseismicdataacquisitionprogramofapproximately4300squarekilometersovertheTarhazouteOffshoreandEssaouiraOffshoreblocks.Theprocessingofthisseismicdataisexpectedtobecompletedin2015.During2014wedrilledtheFA-1explorationwellintheFoumAssakaOffshoreblock.TheFA-1encounteredoilandgasshowswhiledrillingandinsidewallcoressuggestingthepresenceofaworkingpetroleumsystemhoweveritfailedtoencountercommercialreservoirsandwaspluggedandabandoned.WearecurrentlyassessingprospectivityonourAgadirbasinblocksoffshoreMoroccoandplantocontinueprocessingandinterpretingseismicinformationtoassesstheprospectivityoftheselicenseareas.PortugalInAugust2014weenteredintoafarm-inagreementtoacquireanon-operatedinterestintheCamaraoAmeijoaMexilhaoandOstrablocksoffshorePortugal.Certaingovernmentalapprovalsandprocessesarestillrequiredtobecompletedbeforethisacquisitioniseffective.OffshoreAtlanticPortugalhasbeenidentifiedasanattractiveCentralAtlanticmarginareawithJurassicsourcerocksandLowerCretaceousreservoirsincombinationtraps.ThisoverlookedandunderexploredareahasanumberofwellsshowinggoodevidenceforworkingchargefromoilshowsanddrillstemtestsinLateJurassicandEarlyCretaceoussandstonesandlimestones.SenegalWearetheoperatorforpetroleumcontractscoveringtheCayarOffshoreProfondandSaintLouisOffshoreProfondblocksoffshoreSenegal.TheCayarOffshoreProfondandSaintLouisOffshore17 ProfondpetroleumcontractsareintheSenegalRiverMid-CretaceousdeepwatersystemwithmultipleLowerCretaceoussourcerocksAlbo-CenomanianreservoirsandsandarelocatedsouthoftheMauritaniaSaltBasinwhichhasaworkingpetroleumsystem.Wecompleteda3Dseismicsurveyofapproximately7000squarekilometersovertheCayarOffshoreProfondandSaintLouisOffshoreProfondblocksinJanuary2015.Wehaveidentifiedseveralprospectsfromexisting2Dseismicdata.Aswecontinuetoprocessandinterpretdatafromthe3Dseismicsurveywewillcontinuetoassesstheprospectivityontheblocks.SurinameWearetheoperatorforpetroleumcontractscoveringBlock42andBlock45offshoreSurinamewhicharelocatedwithintheGuyana-SurinameBasinalongtheAtlantictransformmarginofnorthernSouthAmerica.ThebasinresultedfromrockdeformationcausedbytensionalforcesassociatedwiththeopeningoftheAtlanticOceanasSouthAmericaseparatedfromAfricaintheMid-Cretaceousperiod.ThisbasinhasexperiencedthesamegeologicforceswhichoccurredalongthetransformmarginofAfrica.ThereforewebelievethebasinspetroleumsystemtobeanalogoustopetroleumsystemsseeninWestAfrica.ApetroleumsysteminSurinamehasbeenprovenbythepresenceofonshoreproducingfields.WebelievetheplaytypesoffshoreSurinamearerelativelysimilartothoseoffshoreWestAfricaandmaycontainsubtlestratigraphictrapssimilartothosediscoveredoffshoreGhanaintheJubileeField.TargetreservoirsareUpperandMiddleCretaceousagebasinfloorfansandmid-slopechannelsandswhichmayhavegoodlateralcontinuity.TheTambaredjoandCalcuttaFieldsonshoreSurinamedemonstratethataworkingpetroleumsystemexistsinthearea.Geologicalandgeochemicalstudiessuggestthehydrocarbonsinthesefieldsweregeneratedinsourcerockslocatedintheoffshorebasin.ThesourcerocksarebelievedtobesimilarinagetothosewhichchargedsomeofthefieldsoffshoreWestAfrica.SurinameliesontheAtlantictransformmarginofSouthAmericalocatedbetweenGuyanaandFrenchGuyana.ThedeepwaterbasinissubdividedbytheDemeraraHighaplatformareawhichseparatestheSurinamedeepwaterbasinfromtheFrenchGuyanaBasinwheretheZaedyusoildiscoverywasmadeinLateCretaceoussandstonesinastratigraphictrap.Block42andBlock45areinthedeepwaterareawestoftheDemeraraPlatforminthecenterofathickCretaceousandTertiarysuccessionassociatedwiththepostriftsubsidenceoftheAtlanticcontinentalmargin.AnumberofonshoreandshelfwellshaveencounteredoilandaspreviouslynotedtheTamberedjoandCalcuttafieldsarecurrentlyproducing.ThesefieldsarebelievedtobesourcedfromdeepwaterCretaceoussourcerocks.SeismicevidencesuggeststhickLateCretaceousandTertiaryreservoirsystemshavebeendepositedinthedeepwaterareaandthisstratigraphymaycontainstratigraphicandstructuraltrappinggeometriesanalogoustoboththeZaedyusandJubileediscoveries.During2012wecompleteda3Dseismicdataacquisitionprogramwhichcoveredapproximately3900squarekilometersoverportionsofBlock42andBlock45offshoreSuriname.InAugust2013wecompleteda2Dseismicprogramofapproximately1400linekilometersoveraportionofBlock42outsideoftheexisting3Dseismicsurvey.Theprocessingoftheseismicdatawascompletedduring2014.WehavecompiledaninitialinventoryofprospectsonthelicenseareasinSurinameandwillcontinuetorefineandassesstheprospectivityoftheseareasduring2015.OurReservesThefollowingtablesetsforthsummaryinformationaboutourestimatedprovedreservesasofDecember312014.SeeItem8.FinancialStatementsandSupplementaryDataSupplementalOilandGasDataUnauditedforadditionalinformation.18 AllofourestimatedprovedreservesasofDecember312014wereassociatedwithourJubileeFieldandtheTENdevelopmentinGhana.OurestimatedprovedreservesasofDecember312013and2012wereassociatedwithourJubileeFieldinGhana.SummaryofOilandGasReserves2014NetProvedReserves12013NetProvedReserves12012NetProvedReserves1OilOilOilCondensateNaturalCondensateNaturalCondensateNaturalNGLsGas2TotalNGLsGas2TotalNGLsGas2TotalMMBblBcfMMBoeMMBblBcfMMBoeMMBblBcfMMBoeReservesCategoryProveddeveloped....4394536103832933Provedundeveloped3.3063191910110Total.............731475451147429431OurreservesassociatedwiththeJubileeFieldarebasedonthe54.445.6redeterminationsplitbetweentheWCTPBlockandDTBlock.Totalswithinthetablemaynotaddduetorounding.2ThesereservesrepresentonlythequantitiesoffuelgasrequiredtooperatetheJubileeandTENFPSOsduringnormalfieldoperations.Nonaturalgasvolumesoutsideofthefuelgasreportedhavebeenclassifiedasreserves.IfandwhenasubsequentgassalesagreementisexecutedforJubileeaportionoftheremaininggasmayberecognizedasreserves.IfandwhenagassalesagreementandtherelatedinfrastructureisinplacefortheTENdevelopmentaportionoftheremaininggasmayberecognizedasreserves.3Allofourprovedundevelopedreservesareexpectedtobedevelopedwithinfiveyearsorlessfromtheirinitialdisclosure.AsofDecember312014werecognized27MMBlsofprovedundevelopedreservesrelatedtotheTENdevelopmentwhichisexpectedtobeginfirstoilproductioninthesecondhalfof2016.ChangesfortheyearendedDecember312014includeanincreaseof27MMBblofnetprovedreservesrelatedtotheinitialrecognitionofreservesassociatedwiththeTENdevelopment.Jubileenetprovedoilreservesincreased11MMBblasaresultoffieldperformanceandin-filldrillingresultswhichwaspartiallyoffsetby8.5MMBblofnetJubileeproductionduring2014.DuringtheyearendedDecember312014weincurred82.8millionofcapitalexpendituresrelatedtotheJubileeFieldPhase1Adevelopmentwhichresultedintheconversionofapproximately6MMBblofnetprovedundevelopedreservesatDecember312013toproveddevelopedreservesasofDecember312014.ThisconversionofprovedundevelopedreservestoproveddevelopedreserveswasduetothedrillingoftheremainingJubileeFieldPhase1Adevelopmentwells.ChangesfortheyearendedDecember312013includeanincreaseof11MMBblofprovedreservesasaresultofdrillingandreservoirperformancewhichispartiallyoffsetby8MMBblofnetproductionduring2013.During2013approximately1MMBblofprovedundevelopedreservesatDecember312012wereconvertedtoproveddevelopedreservesasofDecember312013.DuringtheyearendedDecember312013weincurred116.6millionofcapitalexpendituresrelatedtotheJubileeFieldPhase1Adevelopment.ChangesfortheyearendedDecember312012includeareclassificationof15MMBblofprovedundevelopedreservestoproveddevelopedreservesrelatedtothesuccessfulremediationeffortsintreatingthenearwellboreproductivityissuesoncertainoftheproducingwellsintheJubileeFieldandcontinuedfielddevelopment.ThesesuccessfulremediationeffortsreducedthenumberoffuturedrillinglocationsfortheJubileeFieldwhichincludeddrillinglocationsrelatedtoourprovedundevelopedreservesandasaresultapproximately5MMBblofprovedundevelopedreservesfromDecember312011convertedtoproveddevelopedreservesasofDecember312012.Additionalchangesincludeadecreaseof14BcfinprovedgasreservesduetoadecreaseinourestimateoffuelgasutilizedforoperatingtheFPSO.AsaresultoftheprogressonthePhase1Adevelopmentapproximately10MMBblofprovedundevelopedreservesfromDecember312011wereconvertedtoproveddevelopedreservesasofDecember312012.DuringtheyearendedDecember312012weincurred163.7millionofcapitalexpendituresrelatedtoPhase1A.19 ThefollowingtablesetsforththeestimatedfuturenetrevenuesexcludingderivativescontractsfromnetprovedreservesandtheexpectedbenchmarkpricesusedinprojectingnetrevenuesatDecember312014.AllestimatedfuturenetrevenuesareattributabletoprojectedproductionfromtheJubileeFieldandtheTENdevelopmentinGhana.IfweareunabletocontinuouslyremoveassociatednaturalgasinlargequantitiesfromtheJubileeFieldandthepotentialproductionrestraintscausedtherebythentheJubileeFieldsfuturenetrevenuesdiscussedhereinwillbeadverselyaffected.ProjectedNetRevenuesinmillionsexceptBblFuturenetrevenues......................................3352PresentvalueoffuturenetrevenuesPV-101............................................2383Futureincometaxexpenseleviedatacorporateparentandintermediatesubsidiarylevel............................Discountoffutureincometaxexpenseleviedatacorporateparentandintermediatesubsidiarylevelat10perannum..........StandardizedMeasure2................................2383BenchmarkanddifferentialoilpriceBbl3...................101.551PV-10representsthepresentvalueofestimatedfuturerevenuestobegeneratedfromtheproductionofprovedoilandnaturalgasreservesnetoffuturedevelopmentandproductioncostsroyaltiesadditionaloilentitlementsandfuturetaxexpenseleviedatanassetlevelinourcasefutureGhanaiantaxexpenseleviedundertheWCTPandDTpetroleumcontractsusingpricesbasedonanaverageofthefirst-day-of-the-monthsthroughout2014andcostsasofthedateofestimationwithoutfutureescalationwithoutgivingeffecttohedgingactivitiesnon-propertyrelatedexpensessuchasgeneralandadministrativeexpensesdebtserviceanddepreciationdepletionandamortizationanddiscountedusinganannualdiscountrateof10toreflectthetimingoffuturecashflows.PV-10isanon-GAAPfinancialmeasureandoftendiffersfromStandardizedMeasurethemostdirectlycomparableGAAPfinancialmeasurebecauseitdoesnotincludetheeffectsoffutureincometaxexpenserelatedtoprovedoilandgasreservesleviedatacorporateparentorintermediatesubsidiarylevelonfuturenetrevenues.HoweveritdoesincludetheeffectsoffuturetaxexpenseleviedatanassetlevelinourcaseitdoesincludetheeffectsoffutureGhanaiantaxexpenseleviedundertheWCTPandDTpetroleumcontracts.NeitherPV-10norStandardizedMeasurerepresentsanestimateofthefairmarketvalueofouroilandnaturalgasassets.PV-10shouldnotbeconsideredasanalternativetotheStandardizedMeasureascomputedunderGAAPhoweverweandothersintheindustryusePV-10asameasuretocomparetherelativesizeandvalueofprovedreservesheldbycompanieswithoutregardtothespecificcorporatetaxcharacteristicsofsuchentities.2StandardizedMeasurerepresentsthepresentvalueofestimatedfuturecashinflowstobegeneratedfromtheproductionofprovedoilandnaturalgasreservesnetoffuturedevelopmentandproductioncostsfutureincometaxexpenserelatedtoourprovedoilandgasreservesleviedatacorporateparentandintermediatesubsidiarylevelroyaltiesadditionaloilentitlementsandfuturetaxexpenseleviedatanassetlevelinourcasefutureGhanaiantaxexpenseleviedundertheWCTPandDTpetroleumcontractswithoutgivingeffecttohedgingactivitiesnon-propertyrelatedexpensessuchasgeneralandadministrativeexpensesdebtserviceanddepreciationdepletionandamortization20 anddiscountedusinganannualdiscountrateof10toreflecttimingoffuturecashflowsandusingthesamepricingassumptionsaswereusedtocalculatePV-10.StandardizedMeasureoftendiffersfromPV-10becauseStandardizedMeasureincludestheeffectsoffutureincometaxexpenserelatedtoourprovedoilandgasreservesleviedatacorporateparentandintermediatesubsidiarylevelonfuturenetrevenues.HoweverasweareataxexemptedcompanyincorporatedpursuanttothelawsofBermudaandastheCompanysintermediatesubsidiariespositionedbetweenitandthesubsidiarythatisasignatorytotheWCTPandDTpetroleumcontractscontinuetobetaxexemptedcompanieswedonotexpecttobesubjecttofutureincometaxexpenserelatedtoourprovedoilandgasreservesleviedatacorporateparentorintermediatesubsidiarylevelonfuturenetrevenues.Thereforetheyear-end2014estimateofPV-10isequivalenttotheStandardizedMeasure.3Theunweightedarithmeticaveragefirst-day-of-the-monthpricesfortheprior12monthswas101.30BblforDatedBrentatDecember312014.Thepricewasadjustedforcrudehandlingtransportationfeesqualityandaregionalpricedifferential.Theseadjustmentsareestimatedtoadda0.25BblpremiumrelativetoDatedBrentfortheJubileeField.TheadjustedpriceutilizedtoderivetheJubileeFieldPV-10is101.55Bbl.ItwasdeterminedthatnodifferentialshouldbeappliedfortheTENdevelopmentsinceoilproductionhasnotyetbegunforthosefieldshencethepriceutilizedtoderivetheTENPV-10is101.30Bbl.EstimatedprovedreservesUnlessotherwisespecificallyidentifiedinthisreportthesummarydatawithrespecttoourestimatednetprovedreservesfortheyearendedDecember312014presentedabovehasbeenpreparedbyRyderScottCompanyL.P.RSCourindependentreserveengineeringfirmandfortheyearsendedDecember312013and2012presentedabovewaspreparedbyNetherlandSewellAssociatesInc.NSAIourindependentreserveengineeringfirmforsuchyearsinaccordancewiththerulesandregulationsoftheSecuritiesandExchangeCommissionSECapplicabletocompaniesinvolvedinoilandnaturalgasproducingactivities.TheserulesrequireSECreportingcompaniestopreparetheirreserveestimatesusingreservedefinitionsandpricingbasedon12-monthhistoricalunweightedfirst-day-of-the-monthaveragepricesratherthanyear-endprices.ForadefinitionofprovedreservesundertheSECrulesseetheGlossaryandSelectedAbbreviations.FormoreinformationregardingourindependentreserveengineerspleaseseeIndependentpetroleumengineersbelow.OurestimatedprovedreservesandrelatedfuturenetrevenuesPV-10andStandardizedMeasureweredeterminedusingindexpricesforoilwithoutgivingeffecttoderivativetransactionsandwereheldconstantthroughoutthelifeoftheassets.Futurenetrevenuesrepresentprojectedrevenuesfromthesaleofprovedreservesnetofproductionanddevelopmentcostsincludingoperatingexpensesandproductiontaxes.SuchcalculationsatDecember312014arebasedoncostsineffectatDecember312014andthe12-monthunweightedarithmeticaverageofthefirst-day-of-the-monthpriceforthefiscalyearendedDecember312014adjustedforanticipatedmarketpremiumwithoutgivingeffecttoderivativetransactionsandareheldconstantthroughoutthelifeoftheassets.Therecanbenoassurancethattheprovedreserveswillbeproducedwithintheperiodsindicatedorpricesandcostswillremainconstant.21 IndependentpetroleumengineersRyderScottCompanyL.P.RSCourindependentreserveengineersfortheyearendedDecember312014wasestablishedin1937.Overthepast75yearsRSChasprovidedservicestotheworldwidepetroleumindustrythatincludetheissuanceofreservesreportsandauditsappraisalofoilandgaspropertiesincludingfairmarketvaluedeterminationreservoirsimulationstudiesenhancedrecoveryservicesexpertwitnesstestimonyandmanagementadvisoryservices.RSCprofessionalssubscribetoacodeofprofessionalconductandRSCisaRegisteredEngineeringFirmintheStateofTexas.FortheyearendedDecember312014weengagedRSCtoprepareindependentestimatesoftheextentandvalueoftheprovedreservesofcertainofouroilandgasproperties.ThesereportswerepreparedatourrequesttoestimateourreservesandrelatedfuturenetrevenuesandPV-10fortheperiodsindicatedtherein.OurestimatedreservesatDecember312014andrelatedfuturenetrevenuesandPV-10atDecember312014aretakenfromreportspreparedbyRSCinaccordancewithpetroleumengineeringandevaluationprincipleswhichRSCbelievesarecommonlyusedintheindustryanddefinitionsandcurrentregulationsestablishedbytheSEC.TheDecember312014reservereportwascompletedonJanuary212015andacopyisincludedasanexhibittothisreport.InconnectionwiththepreparationoftheDecember312014reservesreportRSCprepareditsownestimatesofourprovedreserves.IntheprocessofthereservesevaluationRSCdidnotindependentlyverifytheaccuracyandcompletenessofinformationanddatafurnishedbyuswithrespecttoownershipinterestsoilandgasproductionwelltestdatahistoricalcostsofoperationanddevelopmentproductpricesoranyagreementsrelatingtocurrentandfutureoperationsofthefieldsandsalesofproduction.HoweverifinthecourseoftheexaminationsomethingcametotheattentionofRSCwhichbroughtintoquestionthevalidityorsufficiencyofanysuchinformationordataRSCdidnotrelyonsuchinformationordatauntilithadsatisfactorilyresolveditsquestionsrelatingtheretoorhadindependentlyverifiedsuchinformationordata.RSCindependentlypreparedreservesestimatestoconformtotheguidelinesoftheSECincludingthecriteriaofreasonablecertaintyasitpertainstoexpectationsabouttherecoverabilityofreservesinfutureyearsunderexistingeconomicandoperatingconditionsconsistentwiththedefinitioninRule4-10a2ofRegulationS-X.RSCissuedareportonourprovedreservesatDecember312014baseduponitsevaluation.RSCsprimaryeconomicassumptionsinestimatesincludedanabilitytosellJubileeFieldoilandTENprojectoilatapriceof101.55Bbland101.30Bblrespectivelyandcertainlevelsoffuturecapitalexpenditures.TheassumptionsdatamethodsandprecedentswereappropriateforthepurposeservedbythesereportsandRSCusedallmethodsandproceduresasitconsiderednecessaryunderthecircumstancestopreparethereport.NetherlandSewellAssociatesInc.NSAIwasestablishedin1961.Overthepast50yearsNSAIhasprovidedservicestotheworldwidepetroleumindustrythatincludetheissuanceofreservesreportsandauditsacquisitionanddivestitureevaluationssimulationstudiesexplorationresourcesassessmentsequitydeterminationsandmanagementandadvisoryservices.NSAIprofessionalssubscribetoacodeofprofessionalconductandNSAIisaRegisteredEngineeringFirmintheStateofTexas.FortheyearsendedDecember312013and2012weengagedNSAItoprepareindependentestimatesoftheextentandvalueoftheprovedreservesofcertainofouroilandgasproperties.ThesereportswerepreparedatourrequesttoestimateourreservesandrelatedfuturenetrevenuesandPV-10fortheperiodsindicatedtherein.OurestimatedreservesatDecember312013andrelatedfuturenetrevenuesandPV-10atDecember312012aretakenfromreportspreparedbyNSAIinaccordancewithpetroleumengineeringandevaluationprincipleswhichNSAIbelievesarecommonlyusedintheindustryanddefinitionsandcurrentregulationsestablishedbytheSEC.22 InconnectionwiththepreparationoftheDecember312013and2012reservesreportsNSAIprepareditsownestimatesofourprovedreserves.IntheprocessofthereservesevaluationNSAIdidnotindependentlyverifytheaccuracyandcompletenessofinformationanddatafurnishedbyuswithrespecttoownershipinterestsoilandgasproductionwelltestdatahistoricalcostsofoperationanddevelopmentproductpricesoranyagreementsrelatingtocurrentandfutureoperationsofthefieldsandsalesofproduction.HoweverifinthecourseoftheexaminationsomethingcametotheattentionofNSAIwhichbroughtintoquestionthevalidityorsufficiencyofanysuchinformationordataNSAIdidnotrelyonsuchinformationordatauntilithadsatisfactorilyresolveditsquestionsrelatingtheretoorhadindependentlyverifiedsuchinformationordata.NSAIindependentlypreparedreservesestimatestoconformtotheguidelinesoftheSECincludingthecriteriaofreasonablecertaintyasitpertainstoexpectationsabouttherecoverabilityofreservesinfutureyearsunderexistingeconomicandoperatingconditionsconsistentwiththedefinitioninRule4-10a2ofRegulationS-X.NSAIissuedareportonourprovedreservesatDecember312013and2012baseduponitsevaluation.TechnologyusedtoestablishprovedreservesUndertheSECrulesprovedreservesarethosequantitiesofoilandnaturalgaswhichbyanalysisofgeoscienceandengineeringdatacanbeestimatedwithreasonablecertaintytobeeconomicallyproduciblefromagivendateforwardfromknownreservoirsandunderexistingeconomicconditionsoperatingmethodsandgovernmentregulations.Thetermreasonablecertaintyimpliesahighdegreeofconfidencethatthequantitiesofoilandornaturalgasactuallyrecoveredwillequalorexceedtheestimate.Reasonablecertaintycanbeestablishedusingtechniquesthathaveprovedeffectivebyactualcomparisonofproductionfromprojectsinthesamereservoirintervalananalogousreservoirorbyotherevidenceusingreliabletechnologythatestablishesreasonablecertainty.Reliabletechnologyisagroupingofoneormoretechnologiesincludingcomputationalmethodsthathavebeenfieldtestedandhavebeendemonstratedtoprovidereasonablycertainresultswithconsistencyandrepeatabilityintheformationbeingevaluatedorinananalogousformation.InordertoestablishreasonablecertaintywithrespecttoourestimatedprovedreservesRSCandNSAIemployedtechnologiesthathavebeendemonstratedtoyieldresultswithconsistencyandrepeatability.Thetechnologiesandeconomicdatausedintheestimationofourprovedreservesincludebutarenotlimitedtoproductionandinjectiondataelectricallogsradioactivitylogsacousticlogswholecoreanalysissidewallcoreanalysisdownholepressureandtemperaturemeasurementsreservoirfluidsamplesgeochemicalinformationgeologicmapsseismicdatawelltestandinterferencepressureandratedata.Reservesattributabletoundevelopedlocationswereestimatedusingperformancefromanalogouswellswithsimilargeologicdepositionalenvironmentsrockqualityappraisalplansanddevelopmentplanstoassesstheestimatedultimaterecoverablereservesasafunctionoftheoriginaloilinplace.Thesequalitativemeasuresarebenchmarkedandvalidatedagainstsoundpetroleumreservoirengineeringprinciplesandequationstoestimatetheultimaterecoverablereservesvolume.Thesetechniquesincludebutarenotlimitedtonodalanalysismaterialbalanceandnumericalflowsimulation.InternalcontrolsoverreservesestimationprocessInourtechnicalservicesteamwecurrentlymaintainaninternalstaffoftenpetroleumengineeringandgeoscienceprofessionalswithsignificantinternationalexperiencethatcontributetoourinternalreserveandresourceestimates.Thisteamworkscloselywithourindependentpetroleumengineerstoensuretheintegrityaccuracyandtimelinessofdatafurnishedintheirreserveandresourceestimationprocess.Ourtechnicalservicesteamisresponsibleforoverseeingthepreparationofourreservesestimatesandhasover100combinedyearsofindustryexperienceamongthemwithpositionsofincreasingresponsibilityinengineeringandevaluations.EachmemberofourteamholdsaminimumofBachelorofSciencedegreeinpetroleumengineeringorgeology.23 TheRSCtechnicalpersonprimarilyresponsibleforpreparingtheestimatessetforthintheRSCreservesreportincorporatedhereinisMr.GuadalupeRamirez.Mr.RamirezhasbeenpracticingconsultingpetroleumengineeringatRSCsince1981.Mr.RamirezisaLicensedProfessionalEngineerintheStateofTexasNo.48318andhasover35yearsofpracticalexperienceinpetroleumengineering.HegraduatedfromTexasAMUniversityin1976withaBachelorofScienceDegreeinMechanicalEngineering.Mr.RamirezmeetsorexceedstheeducationtrainingandexperiencerequirementssetforthintheStandardsPertainingtotheEstimatingandAuditingofOilandGasReservesInformationpromulgatedbytheSocietyofPetroleumEngineersandisproficientinjudiciouslyapplyingindustrystandardpracticestoengineeringandgeoscienceevaluationsaswellasapplyingSECandotherindustryreservesdefinitionsandguidelines.TheAuditCommitteeprovidesoversightontheprocessesutilizedinthedevelopmentofourinternalreserveandresourceestimatesonanannualbasis.Inadditionourtechnicalservicesteammeetswithrepresentativesofourindependentreserveengineerstoreviewourassetsanddiscussmethodsandassumptionsusedinpreparationofthereserveandresourceestimates.Finallyourseniormanagementreviewreserveandresourceestimatesonanannualbasis.GrossandNetUndevelopedandDevelopedAcreageThefollowingtablesetsforthcertaininformationregardingthedevelopedandundevelopedportionsofourlicenseareasasofDecember312014forthecountriesinwhichwecurrentlyoperate.DevelopedAreaUndevelopedAreaAcresAcresTotalAreaAcresGrossNet1GrossNet1GrossNet1InthousandsGhanaJubileeUnit.......................27.16.527.16.5WestCapeThreePoints2............101.431.3101.431.3DeepwaterTano2..................137.823.4137.823.4IrelandFEL113.........................259.9194.9259.9194.9FEL213.........................189.8161.3189.8161.3FEL313.........................193.2164.2193.2164.2Mauritania3BlockC8.........................2940.62646.52940.62646.5BlockC12........................1748.31573.41748.31573.4BlockC13........................1927.41734.71927.41734.7MoroccoincludingWesternSaharaCapBoujdour.....................5502.53026.45502.53026.4Essaouira.........................2171.2651.42171.2651.4FoumAssaka......................1199.6359.01199.6359.0Tarhazoute........................1915.9574.81915.9574.8SenegalCayarOffshoreProfound.............1950.91170.51950.91170.5SaintLouisOffshoreProfound.........2338.41403.02338.41403.0SurinameBlock42.........................1526.1763.11526.1763.1Block45.........................1266.7633.31266.7633.3Total..............................27.16.525369.715111.225396.815117.71NetacreagebasedonKosmosparticipatinginterestbeforetheexerciseofanyoptionsorback-inrightsexceptforournetacreageassociatedwiththeJubileeFieldandtheTENprojectwhichare24 aftertheexerciseofoptionsorback-inrights.OurnetacreageinGhanamaybeaffectedbyanyredeterminationofinterestsintheJubileeUnit.2TheexplorationphaseoftheWCTPpetroleumcontractandDTpetroleumcontracthasexpired.Theundevelopedareareflectedinthetableaboverepresentsacreagewithinourdiscoveryareasthatwerenotsubjecttorelinquishmentontheexpiryoftheexplorationphase.3InFebruary2015weenteredintoafarm-outagreementcoveringourthreelicenseareasinMauritania.Thenetacresshowndonotreflectthefarm-outastheagreementwasnotclosedasofDecember312014.Oncethefarm-outagreementbecomeseffectiveourestimatednetacresintheBlockC8BlockC12andBlockC13are1764.3thousandacres1049.0thousandacresand1156.5thousandacresrespectively.InAugust2014weenteredintoafarm-inagreementwithRepsoltoacquireanon-operatedinterestintheCamaraoAmeijoaMexilhaoandOstrablocksoffshorePortugal.Certaingovernmentalapprovalsandprocessesarestillrequiredtobecompletedbeforethisacquisitioniseffective.Aftercompletingtheacquisitionourparticipatinginterestintheblockswillbe31.Thegrossandnetundevelopedareawillbe3004.8thousandacresand931.5thousandacresrespectively.ProductiveWellsProductivewellsconsistofproducingwellsandwellscapableofproductionincludingwellsawaitingconnections.Forwellsthatproducebothoilandgasthewellisclassifiedasanoilwell.ThefollowingtablesetsforththenumberofproductiveoilandgaswellsinwhichweheldaninterestatDecember312014ProductiveProductiveOilWellsGasWellsTotalGrossNetGrossNetGrossNetGhanaJubileeUnit..............................235.52235.5225 DrillingactivityTheresultsofoilandnaturalgaswellsdrilledandcompletedforeachofthelastthreeyearswereasfollowsExploratoryandAppraisalWells1DevelopmentWells1Productive2Dry3TotalProductive2Dry3TotalTotalTotalGrossNetGrossNetGrossNetGrossNetGrossNetGrossNetGrossNetYearEndedDecember312014GhanaJubileeUnit............TEN.................MoroccoincludingWesternSaharaFoumAssaka............10.3010.3010.30Total..................10.3010.3010.30YearEndedDecember312013GhanaJubileeUnit............20.4820.4820.48DeepwaterTano..........10.1810.1810.18CameroonNdianRiver............11.0011.0011.00Total..................21.1821.1820.4820.4841.66YearEndedDecember312012GhanaJubileeUnit............51.2051.2051.20WestCapeThreePoints.....10.3110.3110.31DeepwaterTano..........10.1810.1810.18Total..................20.4920.4951.2051.2071.691AsofDecember31201410exploratoryandappraisalwellshavebeenexcludedfromthetableuntiladeterminationismadeifthewellshavefoundprovedreserves.Alsoexcludedfromthetableare17developmentwellsawaitingcompletion.ThesewellsareshownasWellsSuspendedorWaitingonCompletioninthetablebelow.2Aproductivewellisanexploratoryordevelopmentwellfoundtobecapableofproducingeitheroilornaturalgasinsufficientquantitiestojustifycompletionasanoilornaturalgasproducingwell.Productivewellsareincludedinthetableintheyeartheyweredeterminedtobeproductiveasopposedtotheyearthewellwasdrilled.3Adrywellisanexploratoryordevelopmentwellthatisnotaproductivewell.Drywellsareincludedinthetableintheyeartheyweredeterminednottobeaproductivewellasopposedtotheyearthewellwasdrilled.26 ThefollowingtableshowsthenumberofwellsthatareintheprocessofbeingdrilledorareinactivecompletionstagesandthenumberofwellssuspendedorwaitingoncompletionasofDecember312014.ActivelyDrillingorWellsSuspendedorCompletingWaitingonCompletionExplorationDevelopmentExplorationDevelopmentGrossNetGrossNetGrossNetGrossNetGhanaJubileeUnit......................10.2420.48WestCapeThreePoints.............92.78TEN...........................10.17152.55DeepwaterTano...................10.18MoroccoincludingWesternSaharaCapBoujdour.....................10.55MauritaniaBlockC81......................10.90Total.............................21.4520.41102.96173.031InFebruary2015weenteredintoafarm-outagreementcoveringourthreelicenseareasinMauritaniawithChevron.OncetheagreementbecomeseffectiveandifChevronexercisestheiroptiontoparticipateintheTortue-1explorationwellournetinterestinthewellwillbe60.DomesticSupplyRequirementsManyofourpetroleumcontractsorinsomecasestheapplicablelawgoverningsuchagreementsgrantarighttotherespectivehostcountrytopurchasecertainamountsofoilproducedpursuanttosuchagreementsatinternationalmarketpricesfordomesticconsumption.InadditioninconnectionwiththeapprovaloftheJubileePhase1PoDtheJubileeFieldpartnersagreedtoprovidethefirst200BcfofnaturalgasproducedfromtheJubileeFieldPhase1developmenttoGNPCatnocost.SignificantLicenseAgreementsBelowisadiscussionconcerningthepetroleumcontractsgoverningourcurrentdrillingandproductionoperations.WestCapeThreePointsBlockEffectiveJuly222004KosmostheEOGroupandGNPCenteredintotheWCTPpetroleumcontractcoveringtheWCTPBlockoffshoreGhanaintheTanoBasin.Asaresultoffarm-outagreementsandothersalesofpartnersinterestsfortheWCTPBlockKosmosAnadarkoWCTPCompanyAnadarkoTullowGhanaLimitedasubsidiaryofTullowOilplcTullowandPetroSAGhanaLimitedPetroSAawhollyownedsubsidiaryofPetroS.A.participatinginterestsare30.930.926.4and1.8respectively.Kosmosistheoperator.GNPChasa10participatinginterestandwillbecarriedthroughtheexplorationanddevelopmentphases.GNPChastheoptiontoacquireadditionalpayinginterestsinacommercialdiscoveryontheWCTPBlockof2.5.UndertheWCTPpetroleumcontractGNPCexerciseditsoptioninDecember2008toacquireanadditionalpayinginterestof2.5intheJubileeFielddevelopmentseeJubileeFieldUnitization.GNPCisobligatedtopayits2.5shareofallfuturepetroleumcostsaswellascertainhistoricaldevelopmentandproductioncostsattributabletoits2.5additionalpayinginterestsintheJubileeUnit.Furthermoreitisobligatedtopay10oftheproductioncostsoftheJubileeFielddevelopmentasallocatedtotheWCTPBlock.InAugust2009GNPCnotifiedusandourunitpartnersitwould27 exerciseitsrightforthecontractorgrouptopayits2.5WCTPBlockshareoftheJubileeFielddevelopmentcostsandbereimbursedforsuchcostsplusinterestoutofGNPCsproductionrevenuesunderthetermsoftheWCTPpetroleumcontract.Kosmosisrequiredtopayafixedroyaltyof5andasliding-scaleroyaltyadditionaloilentitlementwhichescalatesasthenominalprojectrateofreturnincreases.Theseroyaltiesaretobepaidin-kindorattheelectionofthegovernmentofGhanaincash.Acorporatetaxrateof35isappliedtoprofitsatacountrylevel.TheWCTPpetroleumcontracthasadurationof30yearsfromitseffectivedateJuly2004howeverinJuly2011attheendoftheseven-yearexplorationphasepartsoftheWCTPBlockonwhichwehadnotdeclaredadiscoveryareawerenotinadevelopmentandproductionareaorwerenotintheJubileeUnitwererelinquishedWCTPRelinquishmentArea.WemaintainrightstoourthreeexistingdiscoverieswithintheWCTPBlockAkasaMahoganyandTeakastheWCTPpetroleumcontractremainsineffectaftertheendoftheexplorationphase.EffectiveJanuary142014theMinistryofEnergyandGNPCenteredintoaMemorandumofUnderstandingwithKosmosEnergyonbehalfofthetheWCTPpetroleumcontractBlockpartnerswhereinallpartieshavesettledallmatterspertainingtotheNoticesofDisputefortheMahoganyEastPoDandtheCedrelaNoticeofForceMajeureandtheMinistryofEnergyhasapprovedtheAppraisalProgramsfortheMahoganyTeakandAkasadiscoveries.AsaresultofthesettlementaportionoftheWCTPpetroleumcontractareawhichcontainedtheCedrelaprospecthasbeenrelinquished.WeandourWCTPBlockpartnershavecertainrightstonegotiateanewpetroleumcontractwithrespecttotheWCTPRelinquishmentArea.WeandourWCTPBlockpartnerstheGhanaMinistryofEnergyandGNPChaveagreedsuchWCTPpetroleumcontractrightstonegotiateextendfromJuly212011untilsuchtimeaseitheranewpetroleumagreementisnegotiatedandenteredintowithusorwedeclinetomatchabonafidethirdpartyofferGNPCmayreceivefortheWCTPRelinquishmentArea.DeepwaterTanoBlockEffectiveJuly2006KosmosTullowandPetroSAenteredintotheDTpetroleumcontractwithGNPCcoveringtheDTBlockoffshoreGhanaintheTanoBasin.TheDTpetroleumcontracthasadurationof30yearsfromitseffectivedateofJuly192006.Asaresultoffarm-outagreementsandothersalesofpartnersinterestsfortheDTBlockKosmosAnadarkoTullowandPetroSAsparticipatinginterestsare181850.0and4.0respectively.Tullowistheoperator.GNPChasa10participatinginterestandwillbecarriedthroughtheexplorationanddevelopmentphases.GNPChastheoptiontoacquireadditionalpayinginterestsinacommercialdiscoveryontheDTBlockof5.UndertheDTpetroleumcontractGNPCexerciseditsoptiontoacquireanadditionalpayinginterestof5inthecommercialdiscoverywithrespecttotheJubileeFielddevelopmentandTENdevelopment.GNPCisobligatedtopayits5ofallfuturepetroleumcostsincludingdevelopmentandproductioncostsattributabletoits5additionalpayinginterest.Furthermoreitisobligatedtopay10oftheproductioncostsoftheJubileeFielddevelopmentasallocatedtotheDTBlock.InAugust2009GNPCnotifiedusandourunitpartnersthatitwouldexerciseitsrightforthecontractorgrouptopayits5DTBlockshareoftheJubileeFielddevelopmentcostsandbereimbursedforsuchcostsplusinterestoutofaportionofGNPCsproductionrevenuesunderthetermsoftheDTpetroleumcontract.Kosmosisrequiredtopayafixedroyaltyof5andanadditionaloilentitlementwhichescalatesasthenominalprojectrateofreturnincreases.Theseroyaltiesaretobepaidin-kindorattheelectionofthegovernmentofGhanaincash.Acorporatetaxrateof35isappliedtoprofitsatacountrylevel.InJanuary2013attheendoftheseven-yearexplorationphasepartsoftheDTBlockonwhichwehadnotdeclaredadiscoveryareawerenotinadevelopmentandproductionareaorwerenotintheJubileeUnitwererelinquished.OurexistingWawadiscoverywithintheDTBlockwasnotsubjecttorelinquishmentuponexpirationoftheexplorationphaseoftheDTpetroleumcontractastheDTpetroleumcontractremainsineffectaftertheendoftheexplorationphasewhilecommercialityis28 beingdetermined.AdditionallytheTENdevelopmentprojectwasnotsubjecttorelinquishment.TheGhanaianPetroleumLawandtheWCTPandDTpetroleumcontractsformthebasisofourexplorationdevelopmentandproductionoperationsontheseblocks.PursuanttothesepetroleumcontractsmostsignificantdecisionsincludingPoDsandannualworkprogramsforoperationsotherthanexplorationandappraisalmustbeapprovedbyajointmanagementcommitteeconsistingofrepresentativesofcertainblockpartnersandGNPC.Certaindecisionsrequireunanimity.JubileeFieldUnitizationTheJubileeFielddiscoveredbytheMahogany-1wellinJune2007coversanareawithinboththeWCTPandDTBlocks.ConsistentwiththeGhanaianPetroleumLawtheWCTPandDTpetroleumcontractsandasrequiredbyGhanasMinistryofEnergyitwasagreedtheJubileeFieldwouldbeunitizedforoptimalresourcerecovery.APreUnitAgreementwasagreedtobetweenthecontractorsgroupsoftheWCTPandDTBlocksin2008withamorecomprehensiveunitagreementtheUUOAagreedtoin2009whichgoverneachpartysrespectiverightsanddutiesintheJubileeUnit.TullowistheUnitOperatorwhileKosmoswastheTechnicalOperatorfortheinitialdevelopmentoftheJubileeField.TheJubileeUnitholdersinterestsaresubjecttoredeterminationinaccordancewiththetermsoftheUUOA.AsaresultoftheinitialredeterminationprocesscompletedinOctober2011thetractparticipationwasdeterminedtobe54.4fortheWCTPBlockand45.6fortheDTBlock.OurUnitInterestwasincreasedfrom23.5to24.1.TheaccountingfortheJubileeUnitisinaccordancewiththeredeterminedtractparticipationstated.AlthoughtheJubileeFieldisunitizedKosmosparticipatinginterestsineachblockoutsidetheboundaryoftheJubileeUnitremainsthesame.KosmosremainsoperatoroftheWCTPBlockoutsidetheJubileeUnitarea.MoroccoincludingWesternSaharaExplorationAgreementsEffectiveSeptember12011weenteredintotheCapBoujdourOffshorePetroleumAgreementastheoperator.InOctober2013weenteredintoafarm-outagreementwithCairncoveringtheCapBoujdourOffshoreblockoffshoreWesternSahara.Inthefirstquarterof2014theMoroccangovernmentissuedajointministerialorderapprovingtheagreement.Underthetermsofthefarm-outagreementCairnacquireda20non-operatedinterestintheexplorationpermitscomprisingtheCapBoujdourOffshoreblock.Cairnpaid150ofitsshareofcostsofa3Dseismicsurveycappedat25.0million.The3DseismicsurveywascompletedinSeptember2014.Cairnalsocontributed12.3milliontowardsourfuturecostsandpaid1.5millionfortheirshareofcostsincurredfromtheeffectivedateofthecontractthroughtheclosingdate.CairnwillfundKosmosshareofoneexplorationwellcappedat100.0million.IntheeventtheexplorationwellisdeterminedtobeapotentiallycommercialdiscoveryCairnwillpay200ofitsshareofcostsontwoappraisalwellscappedat100.0millionperwell.Aftergivingeffecttothefarm-outourparticipatinginterestintheCapBoujdourOffshoreblockis55.0andweremaintheoperator.TheMoroccannationaloilcompanyONHYMhasacarried25participatinginterest.Wearerequiredtopaya10royaltyonoilproducedinwaterdepthsof200metersorlessthefirst300000tonsproducedareexemptfromroyaltyand7royaltyonoilproducedinwaterdepthsdeeperthan200metersthefirst500000tonsproducedareexemptfromroyalty.Theseroyaltiesaretobepaidin-kindorattheelectionofthegovernmentofMoroccoincash.Acorporatetaxrateof30isappliedtoprofitsatthelicenselevelfollowinga10-yeartaxholidaypostfirstproductionifany.TheexplorationtermoftheCapBoujdourOffshorePermitsiseightyearsandincludesaninitialexplorationperiodofoneyearandsixmonthswhichwasextendedforoneyeartoMarch52014followedbythefirstextensionperiodoftwoyearsandthesecondextensionperiodofthreeyearsandsixmonths.WeenteredthefirstextensionperiodonMarch52014.Byenteringthefirstextensionperiodweareobligatedtodrilloneexplorationwell.TomeetthisobligationwebegandrillingtheCB-1explorationwellinDecember2014.Intheeventofcommercialsuccesswehavetherighttodevelopandproduceoilandorgasforaperiodof25years29 fromthegrantofanexploitationauthorizationfromthegovernmentwhichmaybeextendedforanadditionalperiodof10yearsundercertaincircumstances.EffectiveJuly12011weenteredintotheFoumAssakaOffshorePetroleumAgreementasoperator.InAugust2013finalgovernmentapprovalsandprocesseswerecompletedfortheacquisitionofanadditional18.8participatinginterestintheFoumAssakablockintheAgadirBasinoffshoreMoroccofromPathfinderawhollyownedsubsidiaryofFastnetoneofourblockpartnersandresultedinourparticipatinginterestbeing56.2.InOctober2013weenteredintoafarm-outagreementwithBP.Inthefirstquarterof2014theMoroccangovernmentissuedjointministerialordersapprovingthefarm-outagreement.UnderthetermsoftheagreementBPacquiredanon-operatinginterestintheFoumAssakaOffshoreblock.BPfundedKosmosshareofthecostofoneexplorationwellintheblocksubjecttoamaximumspendof120.0millionandpaiditsproportionateshareofanywellcostsabovethemaximumspend.IntheeventasecondexplorationwellisdrilledBPwillpay150ofitsshareofcostssubjecttoamaximumspendof120.0million.Aftergivingeffecttothefarm-outourparticipatinginterestis29.9intheFoumAssakaOffshoreblockandweremaintheoperator.TheMoroccannationaloilcompanyONHYMhasa25carriedparticipatinginterestandiscarriedbytheblockpartnersproportionatelyduringtheexplorationphase.Wearerequiredtopaya10royaltyonoilproducedinwaterdepthsof200metersorlessthefirst300000tonsproducedareexemptfromroyaltyand7royaltyonoilproducedinwaterdepthsdeeperthan200metersthefirst500000tonsproducedareexemptfromroyalty.Theseroyaltiesaretobepaidin-kindorattheelectionofthegovernmentofMoroccoincash.Acorporatetaxrateof30isappliedtoprofitsatthelicenselevelfollowinga10-yeartaxholidaypostfirstproduction.ThetermoftheFoumAssakaOffshorePermitsbeginningonJuly12011iseightyearsandincludesaninitialexplorationperiodoftwoyearsandsixmonthsfollowedbythefirstextensionperiodoftwoyearsandsixmonthsandthesecondextensionperiodofthreeyears.WeenteredthefirstextensionperiodeffectiveJanuary12014.Byenteringthefirstextensionperiodweareobligatedtodrilloneexplorationwell.TomeetthisobligationwedrilledtheFA-1explorationwellin2014.Thewellfailedtoencountercommercialreservoirsandwaspluggedandabandoned.Intheeventofcommercialsuccesswehavetherighttodevelopandproduceoilandorgasforaperiodof25yearsfromthegrantofanexploitationauthorizationfromthegovernmentwhichmaybeextendedforanadditionalperiodof10yearsundercertaincircumstances.EffectiveApril22012weenteredintotheEssaouriaOffshorePetroleumAgreementasoperator.InJanuary2013weclosedonanagreementtoacquireanadditional37.5participatinginterestintheEssaouiraOffshoreblockfromCanamensEnergyMoroccoSARLoneofourblockpartners.GovernmentalapprovalsandprocessesforthisacquisitionwerefinalizedinNovember2013andresultedinourparticipatinginterestintheEssaouiraOffshoreblockbeing75.InOctober2013weenteredintoafarm-outagreementwithBP.Inthefirstquarterof2014theMoroccangovernmentissuedjointministerialordersapprovingthefarm-outagreement.UnderthetermsoftheagreementBPacquiredanon-operatinginterestintheEssaouriaOffshoreblock.BPwillfundKosmosshareofthecostofoneexplorationwellintheblocksubjecttoamaximumspendof120.0millionandpayitsproportionateshareofanywellcostsabovethemaximumspend.IntheeventasecondexplorationwellisdrilledBPwillpay150ofitsshareofcostssubjecttoamaximumspendof120.0million.Aftergivingeffecttothefarm-outourparticipatinginterestis30.0intheEssaouriaOffshoreblockandweremaintheoperator.TheMoroccannationaloilcompanyONHYMhasa25carriedparticipatinginterestandiscarriedbytheblockpartnersproportionatelyduringtheexplorationphase.Wearerequiredtopaya10royaltyonoilproducedinwaterdepthsof200metersorlessthefirst300000tonsproducedareexemptfromroyaltyand7royaltyonoilproducedinwaterdepthsdeeperthan200metersthefirst500000tonsproducedareexemptfromroyalty.Theseroyaltiesaretobepaidin-kindorattheelectionofthegovernmentofMoroccoincash.Acorporatetaxrateof30isappliedtoprofitsatthelicenselevelfollowinga10-yeartaxholidaypostfirstproduction.ThetermoftheEssaouriaOffshorePermitsbeginningNovember82011iseightyearsandincludesaninitialexplorationperiodoftwoyearsandsixmonthsfollowedbythefirstextensionperiodofthreeyearsand30 thesecondextensionperiodoftwoyearsandsixmonths.WearecurrentlyinthefirstextensionperiodoftheexplorationpermitwhichendsinMay2017.Theworkprogramforthefirstextensionperiodincludesadrillingobligation.Theextensionoftheexplorationphasesaresubjecttofulfillmentofspecificworkobligations.Intheeventofcommercialsuccesswehavetherighttodevelopandproduceoilandorgasforaperiodof25yearsfromthegrantofanexploitationauthorizationfromthegovernmentwhichmaybeextendedforanadditionalperiodof10yearsundercertaincircumstances.EffectiveDecember62013weenteredintotheTarhazouteOffshorePetroleumAgreementasoperatorwitha75participatinginterest.TheMoroccannationaloilcompanyONHYMhasa25carriedparticipatinginterestandiscarriedbytheblockpartnersproportionatelyduringtheexplorationphase.InOctober2013weenteredintoafarm-outagreementwithBP.Inthefirstquarterof2014theMoroccangovernmentissuedjointministerialordersapprovingthefarm-outagreement.UnderthetermsoftheagreementBPacquiredanon-operatinginterestintheTarhazouteOffshoreblock.BPwillfundKosmosshareofthecostofoneexplorationwellintheblocksubjecttoamaximumspendof120.0millionandpayitsproportionateshareofanywellcostsabovethemaximumspend.IntheeventasecondexplorationwellisdrilledBPwillpay150ofitsshareofcostssubjecttoamaximumspendof120.0million.Aftergivingeffecttothefarm-outourparticipatinginterestis30.0intheTarhazouteOffshoreblockandweremaintheoperator.Wearerequiredtopaya10royaltyonoilproducedinwaterdepthsof200metersorlessthefirst300000tonsproducedareexemptfromroyaltyand7royaltyonoilproducedinwaterdepthsdeeperthan200metersthefirst500000tonsproducedareexemptfromroyalty.Theseroyaltiesaretobepaidin-kindorattheelectionofthegovernmentofMoroccoincash.Acorporatetaxrateof30isappliedtoprofitsatthelicenselevelfollowinga10-yeartaxholidaypostfirstproduction.TheexplorationtermoftheTarhazouteOffshorePermitsbeginningDecember92013iseightyearsandincludesaninitialexplorationperiodoftwoyearsandsixmonthsfollowedbythefirstextensionperiodoftwoyearsandsixmonthsandthesecondextensionperiodofthreeyears.Intheeventofcommercialsuccesswehavetherighttodevelopandproduceoilandorgasforaperiodof25yearsfromthegrantofanexploitationauthorizationfromthegovernmentwhichmaybeextendedforanadditionalperiodof10yearsundercertaincircumstances.SurinameExplorationAgreementsOnDecember132011wesignedapetroleumcontractcoveringOffshoreBlock42locatedoffshoreSuriname.Wehavea50participatinginterestintheblockandaretheoperator.StaatsolieMaatschappijSurinameN.V.StaatsolieSurinamesnationaloilcompanyhastheoptiontobackintothecontractwithaninterestofnotmorethan10uponapprovalofadevelopmentplan.InNovember2012KosmosclosedanagreementwithChevronunderwhichKosmosassignedhalfofitsinterestinBlock42offshoreSurinametoChevron.Eachpartynowhasa50participatinginterestinBlock42andKosmosremainstheoperator.TheBlock42petroleumcontractprovidesforustorecoverourshareofexpensesincurredcostrecoveryoilandourshareofremainingoilprofitoil.CostrecoveryoilisapportionedtoKosmosfromupto80ofgrossproductionpriortoprofitoilbeingsplitbetweenthegovernmentofSurinameandthecontractor.ProfitoilisthenapportionedbaseduponR-factortrancheswheretheR-factoriscumulativenetrevenuesdividedbycumulativenetinvestment.Acorporatetaxrateof36isappliedtoprofits.WeareintheinitialperiodoftheexplorationphasewhichendsinDecember2015.Therearetworenewalperiodsconsistingofthreeyearsforthefirstrenewalperiodandtwoyearsforthesecondrenewalperiod.Eachrenewalperiodcarriesaonewelldrillingobligation.Intheeventofcommercialsuccessthedurationofthecontractwillbe30yearsfromtheeffectivedateor25yearsfromgovernmentalapprovalofaplanofdevelopmentwhicheverislonger.Block42comprisesapproximately1.5millionacresapproximately6176squarekilometers.OnDecember132011wesignedapetroleumcontractcoveringOffshoreBlock45locatedoffshoreSuriname.Wehavea50participatinginterestintheblockandaretheoperator.Staatsolie31 willbecarriedthroughtheexplorationandappraisalphasesandhastheoptiontobackintothepetroleumcontractwithaninterestofnotmorethan15uponapprovalofadevelopmentplan.InNovember2012KosmosclosedanagreementwithChevronunderwhichKosmosassignedhalfofitsinterestinBlock45offshoreSurinametoChevron.Eachpartynowhasa50participatinginterestinBlock45andKosmosremainstheoperator.TheBlock45petroleumcontractprovidesforustorecoverourshareofexpensesincurredcostrecoveryoilandourshareofremainingoilprofitoil.CostrecoveryoilisapportionedtoKosmosfromupto80ofgrossproductionpriortoprofitoilbeingsplitbetweenthegovernmentofSurinameandthecontractor.ProfitoilisthenapportionedbaseduponR-factortrancheswheretheR-factoriscumulativenetrevenuesdividedbycumulativenetinvestment.Acorporatetaxrateof36isappliedtoprofits.WearecurrentlyintheinitialperiodoftheexplorationphasewhichhasbeenextendedforuptoninemonthsorSeptember2015.Followingtheinitialperiodtherearetworenewalperiodsconsistingoftwoyearseach.Eachrenewalperiodcarriesaonewelldrillingobligation.Intheeventofcommercialsuccessthedurationofthecontractwillbe30yearsfromtheeffectivedateor25yearsfromgovernmentalapprovalofaplanofdevelopmentwhicheverislonger.MauritaniaExplorationAgreementsEffectiveJune152012weenteredintothreepetroleumcontractscoveringoffshoreMauritaniablocksC8C12andC13withtheIslamicRepublicofMauritania.Wehavea90participatinginterestandaretheoperator.TheMauritaniannationaloilcompanySocieteMauritaniennedesHydrocarburesSMHnowcalledSocieteMauritaniennedesHydrocarburesetdePatrimoineMinierSMHPMcurrentlyhasa10carriedparticipatinginterestduringtheexplorationperiodonly.ShouldacommercialdiscoverybemadeSMHPMs10carriedinterestisextinguishedandSMHPMwillhaveanoptiontoacquireaparticipatinginterestof10to14.SMHPMwillpayitsportionofdevelopmentandproductioncostsinacommercialdevelopment.CostrecoveryoilisapportionedtoKosmosfromupto55oftotalproductionpriortoprofitoilbeingsplitbetweenthegovernmentofMauritaniaandthecontractor.ProfitoilisthenapportionedbaseduponR-factortrancheswheretheR-factoriscumulativenetrevenuesdividedbythecumulativeinvestment.AttheelectionofthegovernmentofMauritaniathegovernmentmayreceiveitsshareofproductionincashorinkind.Acorporatetaxrateof27isappliedtoprofitsatthelicenselevel.ThetermsofexplorationperiodsoftheseOffshoreBlocksarealltenyearsandincludeaninitialexplorationperiodoffouryearsfollowedbythefirstextensionperiodofthreeyearsandthesecondextensionperiodofthreeyears.KosmosiscurrentlyinthefirstexplorationperiodoftheblocksexpiringinJune2016.Intheeventofcommercialsuccesswehavetherighttodevelopandproduceoilfor25yearsandgasfor30yearsfromthegrantofanexploitationauthorizationfromthegovernmentwhichmaybeextendedforanadditionalperiodof10yearsundercertaincircumstances.InFebruary2015weenteredintoafarm-outagreementwithChevronMauritaniaExplorationLimitedawhollyownedsubsidiaryofChevronCorporationChevroncoveringtheC8C12andC13petroleumcontractsoffshoreMauritania.Underthetermsofthefarm-outagreementChevronwillacquirea30non-operatedworkinginterestineachofthecontractareas.Chevronwillpayadisproportionateshareofthecostsofoneexplorationwellandasecondcontingentexplorationwellsubjecttomaximumexpenditurecaps.InadditionChevronwillpayitsproportionateshareofpreviouslyincurredexplorationcosts.ChevronwillnotinitiallyfunddrillingoftheTortueprospectbutretainstheoptiontoparticipateinthisprospectafterthetransactioniscompleted.ThetransactionissubjecttocustomaryclosingconditionsincludingapprovalbytheMauritaniagovernment.Oncethesefarm-outagreementsbecomeeffectiveKosmosChevronandSMHPMsparticipatinginterestinBlockC8BlockC12andBlockC13willbe6030and10respectively.32 IrelandExplorationAgreementsEffectiveApril172013weenteredintothreefarm-inagreementswherebywehavean85participatinginterestinFrontierExplorationLicense213and313anda75participatinginterestinFrontierExplorationLicense113allpartofthePorcupineBasinoffshoreIreland.Wearetheoperatorofthethreeblocks.Wearerequiredtopayacorporateincometaxrateof25andpotentiallyapetroleumresourcerenttaxofbetween0and15asdeterminedbyaprofitability-basedslidingscale.Thetermofeachcontractis15yearsunlesssurrenderedorrevokedandisdividedintoaninitialphaseofthreeyearsandthreesubsequentphasesoffouryearseach.Thesecondphaseworkprogrammustincludeanexplorationwell.Thecontractareamustbesurrenderedifasecondexplorationwellhasnotbeencommencedbytheendofthethirdphase.UponenteringtheseFrontierExplorationLicensesweandtheotherblockpartnersrelinquishedapproximately25oftheacreagecoveredbytheLicensingOptions.IntheeventofcommercialsuccesswehavetherighttodevelopandproduceoilforaperiodoftimeasagreedwiththeMinisterofCommunicationsEnergyandNaturalResourcesfromthegrantofaPetroleumLeasefromthegovernmentwhichmaybeextendedforanadditionalperiodasagreedwiththeMinisterofCommunicationsEnergyandNaturalResourcesundercertaincircumstances.InFrontierExplorationLicense213and313Europahasa15participatinginterestintheareas.Inadditiontofullyfundinga3Dseismicacquisitionandprocessingifwedrillwewillalsofund100ofthecostsofthefirstexplorationwelloneachblocksubjecttoaninvestmentcapof90.0milliononFrontierExplorationLicense213and110.0milliononFrontierExplorationLicense313.InFrontierExplorationLicense113Antrimhasa25participatinginterestinthearea.Wefullyfundeda3Dseismicprogramontheblock.PortugalExplorationsAgreementsInAugust2014weenteredintoafarm-inagreementwithRepsoltoacquireanon-operatedinterestintheCamaraoAmeijoaMexilhaoandOstrablocksinthePenicheBasinoffshorePortugal.AspartoftheagreementwewillreimburseaportionofRepsolspreviouslyincurredexplorationcostsaswellaspartiallycarryRepsolsshareofthecostsofaplanned3Dseismicprogram.Certaingovernmentalapprovalsandprocessesarestillrequiredtobecompletedbeforethisacquisitioniseffective.Aftercompletingtheacquisitionourparticipatinginterestintheblockswillbe31.ThecontractsforthefourblockswereawardedinMayof2007andprovidedforaninitialexplorationphaseofeightyearsandpossibleextensions.Theinitialexplorationperiodhasbeenextendedthroughvariousamendments.Theexplorationperiodnowendsin2020withdrillingobligationsinyearsfourJune2015toJune2016sixJune2017toJune2018andeightJune2019toJune2020.Drillingawellonanyblockservestofulfilltherequirementforallfourblocks.Wemayrelinquishtheblocksatanytimeintheeventwedecidenottodrill.Wecurrentlyareindiscussionswithpartnersandthegovernmentregardinganextensiontothecurrentperiodtoallowacquisitionofa3Dseismicsurveyandfurtherassessmentoftheprospectivityoftheblocks.SenegalExplorationAgreementsInAugust2014weenteredintoafarm-inagreementwithTimisCorporationLimitedwherebyweacquireda60participatinginterestandoperatorshipcoveringtheCayarOffshoreProfondandSaintLouisOffshoreProfondblocksoffshoreSenegal.InSeptember2014theSenegalgovernmentissuedtherequisiteapprovalsforthefarm-outagreement.Aspartoftheagreementwecarriedthefullcostsofa3DseismicprogramwhichwascompletedinJanuary2015.Additionallywewillcarrythefullcostsofoneexplorationwellineachoftheblockssubjecttoamaximumgrosscostperwellof120.0millionshouldKosmoselecttodrillsuchwells.Wealsoretaintheoptiontoincreaseourequity33 interestineachblockto65inexchangeforcarryingthefullcostofathirdexplorationorappraisalwellsubjecttoamaximumgrosscostof120.0million.TheCayarOffshoreProfondandSaintLouisOffshoreProfondblocksarecurrentlyinaone-yearextensionofthefirstexplorationperiodofeachpetroleumcontractwhichnowendsinJuneof2015.EachexplorationphasemaybeextendedtoDecember2020atourelectionsubjecttoourfulfillingspecificworkobligationsincludinganexplorationwellinthenextexplorationperiodofthreeyearsandanexplorationwellinthefinalperiodoftwoandonehalfyears.Intheeventofcommercialsuccesswehavetherighttodevelopandproduceoilandorgasforaperiodof25yearsfromthegrantofanexploitationauthorizationfromthegovernmentwhichmaybeextendedforatleastoneadditionalperiodof10yearsundercertaincircumstances.SalesandMarketingAsprovidedundertheUUOAandtheWCTPandDTpetroleumcontractsweareentitledtoliftandsellourshareoftheJubileeproductioninconjunctionwiththeJubileeUnitpartners.WehaveenteredanagreementwithanoilmarketingagenttomarketourshareoftheJubileeFieldoilandweapprovethetermsofeachsaleproposedbysuchagent.Wedonotanticipateenteringintoanylongtermsalesagreementsatthistime.Thereareavarietyoffactorswhichaffectthemarketforoilincludingtheproximityandcapacityoftransportationfacilitiesdemandforoilthemarketingofcompetitivefuelsandtheeffectsofgovernmentregulationsonoilproductionandsales.Ourrevenuecanbemateriallyaffectedbycurrenteconomicconditionsandthepriceofoil.Howeverbasedonthecurrentdemandforcrudeoilandthefactthatalternativepurchasersareavailablewebelievethatthelossofourmarketingagentandoranyofthepurchasersidentifiedbyourmarketingagentwouldnothavealong-termmaterialadverseeffectonourfinancialpositionorresultsofoperations.CompetitionTheoilandgasindustryiscompetitive.Weencounterstrongcompetitionfromotherindependentoperatorsandfrommajoroilcompaniesinacquiringanddevelopinglicenses.Manyofthesecompetitorshavefinancialandtechnicalresourcesandstaffthataresubstantiallylargerthanours.Asaresultourcompetitorsmaybeabletopaymorefordesirableoilandnaturalgasassetsortoevaluatebidforandpurchaseagreaternumberoflicensesthanourfinancialorpersonnelresourceswillpermit.Furthermorethesecompaniesmayalsobebetterabletowithstandthefinancialpressuresoflowercommoditypricesunsuccessfulwellsvolatilityinfinancialmarketsandgenerallyadverseglobalandindustry-wideeconomicconditions.Thesecompaniesmayalsobebetterabletoabsorbtheburdensresultingfromchangesinrelevantlawsandregulationswhichmayadverselyaffectourcompetitiveposition.Historicallywehavealsobeenaffectedbycompetitionfordrillingrigsandtheavailabilityofrelatedequipment.Highercommoditypricesgenerallyincreasethedemandfordrillingrigssuppliesservicesequipmentandcrews.Shortagesoforincreasingcostsforexperienceddrillingcrewsandequipmentandservicesrestrictourabilitytodrillwellsandconductouroperations.Theoilandgasindustryasawholeexperiencedasignificantdeclineincrudeoilpricesduringthesecondhalfof2014.DatedBrentcrudethebenchmarkforouroilsalespeakedabove115perbarrelinJunebeforefallingbelow60perbarrelatyear-end.ExcludingtheimpactofhedgesourDecemberrealizedpricewas62.00perbarrel.Webelievelowerpriceswillresultingreateravailabilityofassetsandnecessaryequipmenthowevertheimpactsontheindustryfromacompetitionperspectivearenotentirelyknownatthispoint.34 TitletoPropertyOtherthanasspecifiedinthisannualreportonForm10-Kwebelievethatwehavesatisfactorytitletoouroilandnaturalgasassetsinaccordancewithstandardsgenerallyacceptedintheinternationaloilandgasindustry.Ourlicensesaresubjecttocustomaryroyaltyandotherinterestsliensunderoperatingagreementsandotherburdensrestrictionsandencumbrancescustomaryintheoilandgasindustrythatwebelievedonotmateriallyinterferewiththeuseoforaffectthecarryingvalueofourinterests.EnvironmentalMattersGeneralWearesubjecttovariousstringentandcomplexinternationalforeignfederalstateandlocalenvironmentalhealthandsafetylawsandregulationsgoverningmattersincludingtheemissionanddischargeofpollutantsintothegroundairorwaterthegenerationstoragehandlinguseandtransportationofregulatedmaterialsandthehealthandsafetyofouremployees.Theselawsandregulationsmayamongotherthingsrequiretheacquisitionofvariouspermitsbeforeoperationscommenceenjoinsomeoralloftheoperationsorfacilitiesdeemednotincompliancewithpermitsrestrictthetypesquantitiesandconcentrationofvarioussubstancesthatcanbereleasedintotheenvironmentinconnectionwithoilandnaturalgasdrillingproductionandtransportationactivitieslimitorprohibitdrillingactivitiesincertainlocationslyingwithinprotectedorotherwisesensitiveareasandrequiremeasurestomitigateorremediatepollutionincludingpollutionresultingfromouroperations.Theselawsandregulationsmayalsorestricttherateofoilandnaturalgasproductionbelowtheratethatwouldotherwisebepossible.Compliancewiththeselawscanbecostlytheregulatoryburdenontheoilandgasindustryincreasesthecostofdoingbusinessintheindustryandconsequentlyaffectsprofitability.Wecannotassureyouthatwehavebeenorwillbeatalltimesincompliancewithsuchlawsorthatenvironmentallawsandregulationswillnotchangeorbecomemorestringentinthefutureinamannerthatcouldhaveamaterialadverseeffectonourfinancialconditionandresultsofoperations.Moreoverpublicinterestintheprotectionoftheenvironmentcontinuestoincrease.Offshoredrillinginsomeareashasbeenopposedbyenvironmentalgroupsandinotherareashasbeenrestricted.Ouroperationscouldbeadverselyaffectedtotheextentlawsareenactedorothergovernmentalactionistakenthatprohibitsorrestrictsoffshoredrillingorimposesenvironmentalrequirementsthatincreasecoststotheoilandgasindustryingeneralsuchasmorestringentorcostlywastehandlingdisposalorcleanuprequirementsorfinancialresponsibilityandassurancerequirements.ForexampletheMacondospillintheGulfofMexicoin2010hasresultedandwilllikelycontinuetoresultinincreasedscrutinyregulationcostsandliabilitiesintheUnitedStates.Thegovernmentsofthecountriesinwhichwecurrentlyorinthefuturemayoperatemayalsoimposeincreasedregulationasaresultofthisorsimilarincidentswhichcouldmateriallydelayrestrictorpreventouroperationsinthosecountries.35 CappingandContainmentWeenteredintoanagreementwithathirdpartyserviceprovidertosupplysubseacappingandcontainmentequipmentonaglobalbasis.Theequipmentincludescappingstacksdebrisremovalsubseadispersantandauxillaryequipment.Theequipmentmeetsindustryacceptedstandardsandcanbedeployedbyaircargoandotherconventionalmeanstosuitmultipleapplicationscenarios.Wealsodevelopedanemergencyresponseplanandresponseorganizationtoprepareanddemonstrateourreadinesstorespondtoasubseawellcontrolincident.OilSpillResponseTocomplementouragreementdiscussedaboveforsubseacappingandcontainmentequipmentwebecameachartermemberoftheGlobalDispersantStockpile.ThenewdispersantstockpilewhichismanagedbyOilSpillResponseLimitedOSRLofSouthamptonUnitedKingdomUKanoilspillresponsecontractorconsistsof5000cubicmetersofdispersantstrategicallylocatedatOSRLbasesaroundtheworld.ThetotalvolumeofthestockpilelocatedattheOSRLbasesisapproximatetotheamountusedintheMacondospillresponse.GhanaWehavedevelopedandadoptedanOilSpillContingencyPlanOSCPforthecoordinationofresponsestooilspillsarisingfromouroperationsinGhanaincludingtheWCTPBlock.InadditionTullowmaintainsanOSCPcoveringtheJubileeFieldandDTBlock.BothplansarebasedontheprincipleofTieredResponsetooilspillsGuidetoTieredResponseandPreparednessIPIECAReportSeriesVolume142007.ATier1spillisdefinedasasmall-scaleoperationalincidentwhichcanbeaddressedwithresourcesthatareimmediatelyavailabletous.ATier2spillisalargerincidentwhichwouldneedtobeaddressedwithregionallybasedsharedresources.ATier3spillisalargeincidentwhichwouldrequireassistancefromnationalorworld-widespillco-operatives.UndertheOSCPsemergencyresponseteamsmaybeactivatedtorespondtooilspillincidents.Wemaintainatieredresponsesystemforthemobilizationofresourcesdependingontheseverityofanincident.Morethan200personnelcomposedprimarilyofTullowandKosmosemployeesGhanaianNavyGhanaEPAMaritimeAuthorityPetroleumCommissionPortsandHarborpersonnellocalcontractorsandcommunityrepresentativeshavebeentrainedontheassemblyandoperationofTier1andTier2onshorenearshoreandharborresponseequipment.InthecaseofaTier3incidentwewouldengagetheservicesofOSRL.OurassociatemembershipwithOSRLentitlesustoutilizeitsoilspillresponseservicescomprisingtechnicalexpertiseandassistanceincludingaccesstoresponseequipmentanddispersantsprayingsystems.Kosmosdoesnotownanyoilspillresponseequipment.InsteadKosmosandTulloweachmaintainseparateleaseagreementswithOSRLforTier1andTier2packagesofoilspillresponseequipment.Tier1equipmentwhichisstoredinreadytogotrailersforeffectivemobilizationanddeploymentincludesboomsandancillariesrecoverysystemspumpsanddeliverysystemsoilstoragecontainerspersonalprotectionequipmentsorbentmaterialshandtoolscontainersandfirstaidequipment.Tier2equipmentconsistsoflargerboomandoilrecoverysystemspumpanddeliverysystemsandauxiliaryequipmentsuchasgeneratorsandlightingsetsandisalsocontainerizedandpre-packedintrailersandreadyformobilization.AsUnitOperatorfortheJubileeFieldTullowhasadditionalresponsecapabilitytohandleanoffshoreTier1response.FurtherourmembershipintheWestandCentralAfricaAerialSurveillanceandDispersantSprayingServicegivesusaccesstoaircraftforsurveillanceandsprayingofdispersantwhichisadministeredbyOSRLforaTier2offshoreresponse.TheaircraftisbasedattheKotokaInternationalAirportinAccraGhanawithacontractualresponsetimeloadedwithdispersantofsixhours.AdditionalstockpilesofdispersantaremaintainedinTakoradi.36 InthecaseofaTier3eventourassociatemembershipinOSRLprovidesuswithaccesstothelargestockpileofequipmentinSouthamptonUnitedKingdomalongwithaccesstoadditionaldispersantsprayingaircraft.Kosmoscouldhireadditionalresourcessuchasboatsearthmovingequipmentandpersonnelasnecessarytorespondtosuchanevent.Whilewehavetheaboveinplacewecanmakenoassurancethattheseresourceswillbeavailableorrespondinatimelymannerasintendedperformasdesignedorbeabletofullycontainorcapanyoilspillblow-outoruncontrolledflowofhydrocarbons.MoroccoincludingWesternSaharaandMauritaniaWehaveanOilSpillContingencyPlantosupportourdrillingoperations.TheplancallsfortheadditionofTier1spillequipmenttoourshorebaseinAgadirMoroccotorespondtoaharbororshorelineincidentinthearea.WewillhaveaccesstoadditionalTier2andTier3equipmentfromtheSouthamptonUKlocation.Percommonindustrypracticeundertheagreementscurrentlyinplaceoragreementswemayenterintoduringthefuturegoverningthetermsofuseofthedrillingrigsusedbyusorourblockpartnersthedrillingrigcontractorsindemnifyusandourblockpartnersinrespectofpollutionandenvironmentaldamagearisingoutofoperationswhichoriginateabovethesurfaceofthewaterandfromadrillingrigcontractorspropertyincludingbutnotlimitedtotheirdrillingrigandotherrelatedequipment.Furthermorepursuanttothetermsoftheoperatingagreementscoveringtheblocksinwhichweorourblockpartnersarecurrentlydrillingexceptincertaincircumstanceseachblockpartnerisresponsiblefortheshareofliabilitiesinproportiontoitsrespectiveparticipatinginterestintheblockincurredasaresultofpollutionandenvironmentaldamagecontainmentandclean-upactivitieslossordamagetoanywelllossofoilornaturalgasresultingfromablowoutcraterfireoruncontrolledwelllossofstoredoilandnaturalgasandliabilitiesincurredinconnectionwithpluggingorbringingundercontrolanywell.Wemaintainorexpecttomaintainuponcommencementofdrillingoperationsinsurancecoveragetypicaloftheindustryintheareasweoperateintheseincludepropertydamageinsurancelossofproductioninsurancewreckremovalinsurancecontrolofwellinsurancegeneralliabilityincludingpollutionliabilitytocoverpollutionfromwellsandotheroperations.WealsoparticipateinaninsurancecoverageprogramfortheJubileeFPSO.Ourinsuranceisorwillbecarriedinamountstypicalfortheindustryandrelativetooursizeandoperationsandinaccordancewithourcontractualandregulatoryobligations.OtherRegulationoftheOilandGasIndustryGhanaTheGhanaianPetroleumLawcurrentlygovernstheupstreamGhanaianoilandnaturalgasregulatoryregimeandsetsoutthepolicyandframeworkforindustryparticipants.AllpetroleumfoundinitsnaturalstatewithinGhanaisdeemedtobenationalpropertyandistobedevelopedonbehalfofthepeopleofGhana.GNPCisempoweredtocarryoutexplorationanddevelopmentworkeitheronitsownorinassociationwithlocalorforeigncontractors.CompanieswhowishtogainrightstoexploreandproduceinGhanacanonlydosobyenteringintoapetroleumagreementwithGhanaandGNPC.ThelawrequiresforthetermsofthepetroleumagreementtobenegotiatedandagreedbetweenGNPCandoilandgascompanies.TheParliamentofGhanahasfinalapprovalrightsoverthenegotiatedpetroleumagreement.GhanasMinistryofEnergyrepresentsthestateinitsexecutivecapacity.ThePetroleumCommissionistheregulatorybodyfortheupstreampetroleumindustryandtheadvisortotheMinistryofEnergy.GNPChasrightstoundertakepetroleumoperationsinanyacreagedeclaredopenbyGhanasMinistryofEnergy.AswellwhenpetroleumoperationsareundertakenbyGNPCinassociationwithcontractsGNPChasacarriedinterestineachpetroleumagreementandfollowingthedeclarationofanycommercialdiscoverysuchcarriedinterestistypicallysubjecttoincreasebyacertainagreeduponamountattheoptionofGNPC.Petroleumagreementsare37 requiredtoincludecertaindomesticsupplyrequirementsincludingthesaletoGhanaofoilforconsumptioninGhanaatinternationalmarketprices.TheGhanaianPetroleumExplorationandProductionActandourGhanaianpetroleumagreementscontainprovisionsrestrictingthedirectorindirectassignmentortransferofsuchpetroleumagreementsorintereststhereunderwithoutthepriorwrittenconsentofGNPCandtheMinistryofEnergy.ThePetroleumExplorationandProductionActalsoimposescertainrestrictionsonthedirectorindirecttransferbyacontractorofsharesofitsincorporatedcompanyinGhanatoathirdpartywithoutthepriorwrittenconsentofGhanasMinisterofEnergy.TheGhanaianTaxLawmayimposecertaintaxesuponthedirectorindirecttransferofinterestsinthepetroleumagreementsorintereststhereunder.GhanasParliamentisconsideringtheenactmentofanewPetroleumExplorationandProductionActandhasenactedanewPetroleumRevenueManagementActandthePetroleumCommissionActof2011.ThenewPetroleumExplorationandProductionActremainsinadraftformwithindustrycommentshavingbeensubmitted.ThenewPetroleumRevenueManagementActof2011pertainsprimarilytothecollectionallocationandmanagementbythegovernmentofGhanaofthepetroleumrevenue.ThePetroleumCommissionActcreatesthePetroleumCommissionwhoseobjectiveistoregulateandmanagetheuseofpetroleumresourcesandcoordinatethepoliciesthereto.ThePetroleumCommissionbecameeffectiveinJanuary2012.AmongthePetroleumCommissionsfunctionsareadvisingtheMinisterofEnergyonmatterssuchasappraisalplansfielddevelopmentplansrecommendingtotheMinisternationalpoliciesrelatedtopetroleumandstoringandmanagingdata.WeunderstandtheprimarypurposeofthePetroleumCommissionistofulfilltheregulatoryfunctionspreviouslyundertakenbyGNPC.WecurrentlybelievethatsuchlawswillonlyhaveprospectiveapplicationandassuchwillnotmodifythetermsoforinterestsundertheagreementsgoverningourlicenseinterestsinGhanaincludingtheWCTPandDTpetroleumcontractswhichincludestabilizationclausesandtheUUOAandwillnotimposeadditionalrestrictionsonthedirectorindirecttransferofourlicenseinterestsincludinguponachangeofcontrol.ThePetroleumLocalContentandLocalParticipationinPetroleumActivitiesRegulationscameintoeffectinFebruary2014.TheRegulationsmandatecertainlevelsoflocalparticipationinservicecompaniesin-countrymanufacturingofgoodsandtheprovisionofservicesandcertainreportingrequirements.IrelandTheprimarylegislativeactsrelevanttoouroperationsintheRepublicofIrelandare1ThePetroleumandOtherMineralsDevelopmentAct1960theIrishPetroleumActand2theGasAct1960.TheMinistryofCommunicationsEnergyandNaturalResourcesistheregulatoryauthoritytaskedwithmaximizingthebenefitstotheIrishStatefromexplorationforandproductionofindigenousoilandgasresources.TheIrishPetroleumActvestsallStatepetroleumintheMinister.OnlytheMinisterlicenseesunderanexplorationlicenseapetroleumprospectinglicenseorareservedarealicenseandlesseesunderavalidpetroleumleasemaysearchforpetroleum.TheMinistryentersintopetroleumagreementslicensesforexplorationandleasesfordevelopmentandproductiononbehalfoftheState.AssignmentsofinterestsinlicensesalsorequiretheconsentofTheMinistry.TherelevanttaxlawistheTaxesConsolidationAct1997asamendedbytheFinanceAct1999.ThecurrentlicenseandleasetermsarefoundintheLicensingTermsforOffshoreOilandGasExplorationDevelopmentProduction2007.MauritaniaThemainlegislativeactsintheIslamicRepublicofMauritaniarelevanttopetroleumexplorationandproductionareLawNo.2010-033datedJuly202010anditsamendmenttheHydrocarbonLaws.TheregulatoryauthorityinMauritaniaistheMinistryofPetroleumEnergyandMinesandthenationaloilcompanyactingonitsbehalfisSMHPM.SMHPMwasinstitutedbyDecreeNo.2005-10638 ofNovember72005andmodifiedbyDecreeNo.2009-168ofMay32009andDecreeNo.2014-01datedJanuary62014.PursuanttotheHydrocarbonLawsMauritaniaorSMHPMmayundertakepetroleumoperationsandmayauthorizeotherlegalentitiestoundertakepetroleumoperationsunderexploration-productioncontracts.TheMinistryshallsignpetroleumcontractsonbehalfofMauritania.AssignmentsofinterestsinpetroleumcontractsalsorequiretheconsentofTheMinistry.Theexplorationperiodshallnotbemorethantenyearssubjecttocertainpermittedextensionsandtheexploitationperiodshallnotbemorethan25years.PetroleumcontractsmayprovidethatMauritaniahasacarriedinterestofupto10duringtheexplorationperiod.PetroleumcontractsshallgrantMauritaniatheoptiontoparticipateforapercentagenotlessthan10intherightsofthecontractorduringtheexploitationperiod.MoroccoincludingWesternSaharaThetwomainlegislativeactsinMoroccorelevanttopetroleumexplorationandproductionareitheLaw21-90April11992asamendedandcompletedbytheLaw27-99February152000andiitheDecree2-93-786November31993asamendedandcompletedbydecree2-99-210March162000togetherMoroccosPetroleumLaws.TheregulatoryauthorityinMoroccoistheMinistryofEnergyMinesWaterandEnvironmentandthenationaloilcompanyactingonitsbehalfisONHYM.ONHYMisapublicestablishmentetablissementpublicwiththelegalpersonalityandfinancialautonomycreatedpursuanttotheLaw33-01November112003whichwasfurthercompletedbytheDecree2-04-372December292004.PursuanttotheLaw21-90thegrantingofanexplorationpermitissubjecttotheconclusionofapetroleumcontractwiththeMoroccanState.ThereforecompanieswhowishtogainrightstoexploreandproduceinMoroccocanonlydosobyenteringintoapetroleumcontractwithONHYMactingonbehalfoftheState.ItisfurtherprovidedthattheStateofMoroccoviaONHYMshallretainaparticipationinexplorationpermitsorexploitationconcessionswhichshallnotbeinexcessof25.MoregenerallyONHYMisrepresentingtheStateofMoroccoforlicensingexplorationandexploitationmatterswithinthelimitofitsprerogativessetoutpursuanttotheLaw33-01.AssignmentsofinterestsinexplorationpermitsalsorequiretheconsentoftheadministrationpursuanttotheLaw21-90.TheSahrawaiArabDemocraticRepublictheSADRhasclaimedsovereigntyovertheWesternSaharaterritoryincludingtheareaoffshoreandhasissuedexplorationlicenseswhichconflictwiththoseissuedbyMoroccoincludingcertainlicenseswhichconflictwiththeCapBoujdourOffshoreblocklicenseissuedtoKosmos.PortugalTheprimarylegislativeactsinPortugalrelevanttopetroleumexplorationandproductionareDecree-Law10994ofApril161994governingpetroleumexplorationandproductionactivitiesthePetroleumLawandOrder79094ofSeptember51994concerningthestandardtermsforconcessioncontracts.ThemainregulatoryauthoritiesinPortugalaretheMinistryofEnvironmentSpatialPlanningandEnergytheGeneralDirectorateforEnergyandGeologytheDGEGandtheNationalEntityfortheFuelMarketENMC.ThislatterentityisfairlyrecentandforthatreasonthereisagreyareabetweenDGEGsandENMCspowersandauthorityinrespectoftheupstreamoilsector.DGEGsauthorityderivesfromDecree-Law1302014ofAugust292014whichapprovesDGEGsorganicstatuteandENMCsfromDecree-Law1652013ofDecember162013whichcreatedENMCanddefineditsresponsibilities.Theawardofpetroleumexplorationandproductionrightsismadethroughconcessioncontracts.Asageneralruletheawardingprocedureisapublictender.Theassignmentortransferofinterestsinconcessioncontractsaswellastransfersof50ormoreoftheconcessionairessharecapitalrequirestheconsentoftheMinister.39 SenegalThePetroleumCodeofSenegalLawNo.98-05ofJanuary81998governspetroleumoperationsinSenegalincludingtheexplorationdevelopmentandproductionofhydrocarbonsandthemarketingandtransportationthereofaswellastherightsoflandowners.TheimplementingdecreeisNo98-810ofOctober61998.TheMinistryinchargeofEnergygrantsordeniesapplicationsforpetroleumagreementsandsucharegrantedbydecree.AnyamendmenttothepetroleumagreementsrequirestheconsentoftheMinister.TheSenegalesenationaloilcompanySocietedesPetrolesduSenegalPETROSENastheregulatorybodytaskedwithbothupstreamanddownstreammissionsisunderthesupervisionoftheMinistryofEnergy.PETROSENpreparesandnegotiatesallhydrocarbonlicensesandcontracts.PETROSENhasacarriedinterestduringtheexplorationphase.TheassignmentofinterestsinpetroleumcontractsaswellasamendmentstheretorequiretheconsentoftheMinister.SurinameThethreesetsofrulesgoverningpetroleumexplorationandproductioninSurinameareiStaatsoliesConcessionAgreementDecreeE8-BOfficialGazette1981no.59iitheMiningDecreeof1986OfficialGazette1986no.28andiiithePetroleumLaw1990OfficialGazette1991no.7asamendedin2001.TheMiningDecreegrantedconcessionrightsforpetroleumactivitiestostateenterprises.Staatsoliewasfoundedin1980asastateenterpriseandholdsminingrightsonshoreandoffshoreinSuriname.TheSurinamePetroleumLawgrantedstateenterpriseswithpetroleumconcessionrightstheauthorityupontheapprovaloftheMinisterofNaturalResourcestoenterintopetroleumcontractswithEPcompanies.ThereforecompanieswhowishtogainrightstoexploreandproduceinSurinamecanonlydosobyenteringintoapetroleumcontractwithStaatsoliesubjecttoapprovalbytheMinisterofNaturalResources.AssignmentsofinterestsinpetroleumcontractsalsorequiretheconsentofStaatsolieandorTheMinisterofNaturalResources.CertainBermudaLawConsiderationsAsaBermudaexemptedcompanywearesubjecttoregulationinBermuda.AmongotherthingswemustcomplywiththeprovisionsoftheBermudaCompaniesActregulatingthepaymentofdividendsandmakingofdistributionsfromcontributedsurplus.WehavebeendesignatedbytheBermudaMonetaryAuthorityasanon-residentforBermudaexchangecontrolpurposes.ThisdesignationallowsustoengageintransactionsincurrenciesotherthantheBermudadollarandtherearenorestrictionsonourabilitytotransferfundsotherthanfundsdenominatedinBermudadollarsinandoutofBermudaortopaydividendstoUnitedStatesresidentswhoareholdersofourcommonshares.UnderBermudalawexemptedcompaniesarecompaniesformedforthepurposeofconductingbusinessoutsideBermudafromaprincipalplaceofbusinessinBermuda.AsanexemptedcompanywemaynotwithoutalicenseorconsentgrantedbytheMinisterofFinanceparticipateincertainbusinesstransactionsincludingtransactionsinvolvingBermudalandholdingrightsandthecarryingonofbusinessofanykindforwhichwearenotlicensedinBermuda.EmployeesAsofDecember312014wehadapproximately230employees.Noneoftheseemployeesarerepresentedbylaborunionsorcoveredbyanycollectivebargainingagreement.Webelievethatrelationswithouremployeesaresatisfactory.40 CorporateInformationWewereincorporatedpursuanttothelawsofBermudaasKosmosEnergyLtd.inJanuary2011tobecomeaholdingcompanyforKosmosEnergyHoldings.KosmosEnergyHoldingswasformedasanexemptedcompanylimitedbyguaranteepursuanttothelawsoftheCaymanIslandsinMarch2004.PursuanttothetermsofacorporatereorganizationthatwascompletedsimultaneouslywiththeclosingofourinitialpublicofferingalloftheinterestsinKosmosEnergyHoldingswereexchangedfornewlyissuedcommonsharesofKosmosEnergyLtd.andasaresultKosmosEnergyHoldingsbecameawhollyownedsubsidiaryofKosmosEnergyLtd.WemaintainaregisteredofficeinBermudaatClarendonHouse2ChurchStreetHamiltonHM11Bermuda.Thetelephonenumberofourregisteredofficesis441295-5950.OurU.S.subsidiarymaintainsitsheadquartersat8176ParkLaneSuite500DallasTexas75231anditstelephonenumberis214445-9600.AvailableInformationKosmosislistedontheNYSEandourcommonsharesaretradedunderthesymbolKOS.WefileorfurnishannualquarterlyandcurrentreportsproxystatementsandotherinformationwiththeSEC.ThepublicmayreadandcopyanyreportsstatementsorotherinformationattheSECsPublicReferenceRoomat100FStreetN.E.WashingtonD.C.20549.ThepublicmayobtaininformationabouttheoperationofthepublicreferenceroombycallingtheSECat1-800-SEC-0330.InadditiontheSECmaintainsawebsiteathttpwww.sec.govthatcontainsdocumentswefileelectronicallywiththeSEC.TheCompanyalsomaintainsaninternetwebsiteunderthenamewww.kosmosenergy.com.TheinformationonourwebsiteisnotincorporatedbyreferenceintothisannualreportonForm10-KandshouldnotbeconsideredapartofthisannualreportonForm10-K.Ourwebsiteisincludedasaninactivetechnicalreferenceonly.WemakeavailablefreeofchargeonourwebsiteourannualreportonForm10-KquarterlyreportsonForm10-QcurrentreportsonForm8-KandifapplicableamendmentstothosereportsfiledorfurnishedpursuanttoSection13aoftheExchangeActassoonasreasonablypracticableaftersuchreportsareelectronicallyfiledwithorfurnishedtotheSEC.41 Item1A.RiskFactorsYoushouldconsiderandreadcarefullyalloftherisksanduncertaintiesdescribedbelowtogetherwithalloftheotherinformationcontainedinthisreportincludingtheconsolidatedfinancialstatementsandtherelatednotesincludedinItem8.FinancialStatementsandSupplementaryData.Ifanyofthefollowingrisksactuallyoccursourbusinessbusinessprospectsfinancialconditionresultsofoperationsorcashflowscouldbemateriallyadverselyaffected.Therisksbelowarenottheonlyonesweface.Additionalrisksnotcurrentlyknowntousorthatwecurrentlydeemimmaterialmayalsoadverselyaffectus.RisksRelatingtotheOilandNaturalGasIndustryandOurBusinessWehavelimitedprovedreservesandareasthatwedecidetodrillmaynotyieldoilandnaturalgasincommercialquantitiesorqualityoratall.Wehavelimitedprovedreserves.AportionofouroilandnaturalgasassetsconsistsofdiscoverieswithoutapprovedPoDsandwithlimitedwellpenetrationsaswellasidentifiedyetunprovenprospectsbasedonavailableseismicandgeologicalinformationthatindicatesthepotentialpresenceofhydrocarbons.Howevertheareaswedecidetodrillmaynotyieldoilornaturalgasincommercialquantitiesorqualityoratall.Manyofourcurrentdiscoveriesandallofourprospectsareinvariousstagesofevaluationthatwillrequiresubstantialadditionalanalysisandinterpretation.Evenwhenproperlyusedandinterpreted2Dand3Dseismicdataandvisualizationtechniquesareonlytoolsusedtoassistgeoscientistsinidentifyingsubsurfacestructuresandhydrocarbonindicatorsanddonotenabletheinterpretertoknowwhetherhydrocarbonsareinfactpresentinthosestructures.Accordinglywedonotknowifanyofourdiscoveriesorprospectswillcontainoilornaturalgasinsufficientquantitiesorqualitytorecoverdrillingandcompletioncostsortobeeconomicallyviable.EvenifoilornaturalgasisfoundonourdiscoveriesorprospectsincommercialquantitiesconstructioncostsofgatheringlinessubseainfrastructureandfloatingproductionsystemsandtransportationcostsmaypreventsuchdiscoveriesorprospectsfrombeingeconomicallyviableandapprovalofPoDsbyvariousregulatoryauthoritiesanecessarystepinordertodesignateadiscoveryascommercialmaynotbeforthcoming.Additionallytheanalogiesdrawnbyususingavailabledatafromotherwellsmorefullyexploreddiscoveriesorproducingfieldsmaynotprovevalidwithrespecttoourdrillingprospects.Wemayterminateourdrillingprogramforadiscoveryorprospectifdatainformationstudiesandpreviousreportsindicatethatthepossibledevelopmentofadiscoveryorprospectisnotcommerciallyviableandthereforedoesnotmeritfurtherinvestment.Ifasignificantnumberofourdiscoveriesorprospectsdonotprovetobesuccessfulourbusinessfinancialconditionandresultsofoperationswillbemateriallyadverselyaffected.ThedeepwateroffshoreGhanaanareainwhichwefocusasubstantialamountofourappraisalanddevelopmenteffortshasonlyrecentlybeenconsideredpotentiallyeconomicallyviableforhydrocarbonproductionduetothecostsanddifficultiesinvolvedindrillingforoilatsuchdepthsandtherelativelyrecentdiscoveryofcommercialquantitiesofoilintheregion.LikewiseourdeepwateroffshoreMoroccoincludingWesternSaharaPortugalSenegalSurinameMauritaniaandIrelandlicenseshavenotyetprovedtobeeconomicallyviableproductionareasastodatewedonothaveacommerciallyviablediscoveryorproductionintheseregions.Wehavelimitedprovedreservesandwemaynotbesuccessfulindevelopingadditionalcommerciallyviableproductionfromourotherdiscoveriesandprospects.Wefacesubstantialuncertaintiesinestimatingthecharacteristicsofourunappraiseddiscoveriesandourprospects.Inthisreportweprovidenumericalandothermeasuresofthecharacteristicsofourdiscoveriesandprospects.Thesemeasuresmaybeincorrectastheaccuracyofthesemeasuresisafunctionofavailabledatageologicalinterpretationandjudgment.Todatealimitednumberofourprospectshave42 beendrilled.Anyanalogiesdrawnbyusfromotherwellsdiscoveriesorproducingfieldsmaynotprovetobeaccurateindicatorsofthesuccessofdevelopingprovedreservesfromourdiscoveriesandprospects.Furthermorewehavenowayofevaluatingtheaccuracyofthedatafromanalogwellsorprospectsproducedbyotherpartieswhichwemayuse.Itispossiblethatfewornoneofourwellstobedrilledwillfindaccumulationsofhydrocarbonsincommercialqualityorquantity.Anysignificantvariancebetweenactualresultsandourassumptionscouldmateriallyaffectthequantitiesofhydrocarbonsattributabletoanyparticularprospect.Drillingwellsisspeculativeofteninvolvingsignificantcoststhatmaybemorethanweestimateandmaynotresultinanydiscoveriesoradditionstoourfutureproductionorreserves.Anymaterialinaccuraciesindrillingcostsestimatesorunderlyingassumptionswillmateriallyaffectourbusiness.Exploringforanddevelopinghydrocarbonreservesinvolvesahighdegreeofoperationalandfinancialriskwhichprecludesdefinitivestatementsastothetimerequiredandcostsinvolvedinreachingcertainobjectives.Thebudgetedcostsofplanningdrillingcompletingandoperatingwellsareoftenexceededandcanincreasesignificantlywhendrillingcostsriseduetoatighteninginthesupplyofvarioustypesofoilfieldequipmentandrelatedservicesorunanticipatedgeologicconditions.Beforeawellisspudweincursignificantgeologicalandgeophysicalseismiccostswhichareincurredwhetherawelleventuallyproducescommercialquantitiesofhydrocarbonsorisdrilledatall.Drillingmaybeunsuccessfulformanyreasonsincludinggeologicconditionsweathercostoverrunsequipmentshortagesandmechanicaldifficulties.Exploratorywellsbearamuchgreaterriskoflossthandevelopmentwells.Inthepastwehaveexperiencedunsuccessfuldrillingeffortshavingdrilleddryholes.Furthermorethesuccessfuldrillingofawelldoesnotnecessarilyresultinthecommerciallyviabledevelopmentofafieldorbeindicativeofthepotentialforthedevelopmentofacommerciallyviablefield.Avarietyoffactorsincludinggeologicandmarket-relatedcancauseafieldtobecomeuneconomicoronlymarginallyeconomic.Alackofdrillingopportunitiesorprojectsthatceaseproductionmaycauseustoincursignificantcostsassociatedwithanidlerigparticularlyifwecannotcontractoutrigslotstootherparties.Manyofourprospectsthatmaybedevelopedrequiresignificantadditionalexplorationappraisalanddevelopmentregulatoryapprovalandcommitmentsofresourcespriortocommercialdevelopment.Inadditionasuccessfuldiscoverywouldrequiresignificantcapitalexpenditureinordertodevelopandproduceoilevenifwedeemedsuchdiscoverytobecommerciallyviable.SeeOurbusinessplanrequiressubstantialadditionalcapitalwhichwemaybeunabletoraiseonacceptabletermsoratallinthefuturewhichmayinturnlimitourabilitytodevelopourexplorationappraisaldevelopmentandproductionactivities.Intheareasinwhichweoperatewefacehigherabove-groundrisksnecessitatinghigherexpectedreturnstherequirementforincreasedcapitalexpendituresduetoagenerallackofinfrastructureandunderdevelopedoilandgasindustriesandincreasedtransportationexpensesduetogeographicremotenesswhicheitherrequireasinglewelltobeexceptionallyproductiveortheexistenceofmultiplesuccessfulwellstoallowforthedevelopmentofacommerciallyviablefield.SeeOuroperationsmaybeadverselyaffectedbypoliticalandeconomiccircumstancesinthecountriesinwhichweoperate.Furthermoreifouractualdrillinganddevelopmentcostsaresignificantlymorethanourestimatedcostswemaynotbeabletocontinueourbusinessoperationsasproposedandcouldbeforcedtomodifyourplanofoperation.Developmentdrillingmaynotresultincommerciallyproductivequantitiesofoilandgasreserves.Ourexplorationsuccesshasprovideduswithanumberofmajordevelopmentprojectsonwhichwearemovingforwardandanyfutureexplorationdiscoverieswillalsorequiresignificantdevelopmenteffortstobringtoproduction.Wemustsuccessfullyexecuteourdevelopmentprojectsincludingdevelopmentdrillinginordertogeneratefutureproductionandcashflow.Howeverdevelopmentdrillingisnotalwayssuccessfulandtheprofitabilityofdevelopmentprojectsmaychangeovertime.43 Forexampleinnewdevelopmentprojectsavailabledatamaynotallowustocompletelyknowtheextentofthereservoirorchoosethebestlocationsfordrillingdevelopmentwells.Adevelopmentwellwedrillmaybeadryholeorresultinnoncommercialquantitiesofhydrocarbons.Allcostsofdevelopmentdrillingandotherdevelopmentactivitiesarecapitalizedeveniftheactivitiesdonotresultincommerciallyproductivequantitiesofhydrocarbonreserves.Thisputsapropertyathigherriskforfutureimpairmentifcommoditypricesdecreaseoroperatingordevelopmentcostsincrease.Ouridentifieddrillinglocationsarescheduledoutoverseveralyearsmakingthemsusceptibletouncertaintiesthatcouldmateriallyaltertheoccurrenceortimingoftheirdrilling.Ourmanagementteamhasidentifiedandscheduleddrillinglocationsonourlicenseareasoveramulti-yearperiod.Ourabilitytodrillanddeveloptheselocationsdependsonanumberoffactorsincludingtheavailabilityofequipmentandcapitalapprovalbyblockpartnersandregulatorsseasonalconditionsoilpricesassessmentofriskscostsanddrillingresults.Thefinaldeterminationonwhethertodrillanyoftheselocationswillbedependentuponthefactorsdescribedelsewhereinthisreportaswellastosomedegreetheresultsofourdrillingactivitieswithrespecttoourestablisheddrillinglocations.Becauseoftheseuncertaintieswedonotknowifthedrillinglocationswehaveidentifiedwillbedrilledwithinourexpectedtimeframeoratallorifwewillbeabletoeconomicallyproducehydrocarbonsfromtheseoranyotherpotentialdrillinglocations.Assuchouractualdrillingactivitiesmaybemateriallydifferentfromourcurrentexpectationswhichcouldadverselyaffectourresultsofoperationsandfinancialcondition.Asubstantialorextendeddeclineinbothglobalandlocaloilandnaturalgaspricesmayadverselyaffectourbusinessfinancialconditionandresultsofoperations.Thepricesthatwewillreceiveforouroilandnaturalgaswillsignificantlyaffectourrevenueprofitabilityaccesstocapitalandfuturegrowthrate.Historicallytheoilandnaturalgasmarketshavebeenvolatileandwilllikelycontinuetobevolatileinthefuture.Oilpriceshaverecentlyexperiencedsignificantdeclinesandwilllikelycontinuetobevolatileinthefuture.Thepricesthatwewillreceiveforourproductionandthelevelsofourproductiondependonnumerousfactors.ThesefactorsincludebutarenotlimitedtothefollowingchangesinsupplyanddemandforoilandnaturalgastheactionsoftheOrganizationofthePetroleumExportingCountriesspeculationastothefuturepriceofoilandnaturalgasandthespeculativetradingofoilandnaturalgasfuturescontractsglobaleconomicconditionspoliticalandeconomicconditionsincludingembargoesinoil-producingcountriesoraffectingotheroil-producingactivitiesparticularlyintheMiddleEastAfricaRussiaandCentralandSouthAmericathecontinuedthreatofterrorismandtheimpactofmilitaryandotheractionincludingU.S.militaryoperationsintheMiddleEastthelevelofglobaloilandnaturalgasexplorationandproductionactivitythelevelofglobaloilinventoriesandoilrefiningcapacitiesweatherconditionsandnaturalorman-madedisasterstechnologicaladvancesaffectingenergyconsumptiongovernmentalregulationsandtaxationpolicies44 proximityandcapacityoftransportationfacilitiesthepriceandavailabilityofcompetitorssuppliesofoilandnaturalgasandthepriceavailabilityormandateduseofalternativefuels.Loweroilpricesmaynotonlyreduceourrevenuesonapersharebasisbutalsomaylimittheamountofoilthatwecanproduceeconomically.Asubstantialorextendeddeclineinoilandnaturalgaspricesmaymateriallyandadverselyaffectourfuturebusinessfinancialconditionresultsofoperationsliquidityorabilitytofinanceplannedcapitalexpenditures.Underthetermsofourvariouspetroleumcontractswearecontractuallyobligatedtodrillwellsanddeclareanydiscoveriesinordertoretainexplorationandproductionrights.Inthecompetitivemarketforourlicenseareasfailuretodrillthesewellsordeclareanydiscoveriesmayresultinsubstantiallicenserenewalcostsorlossofourinterestsintheundevelopedpartsofourlicenseareaswhichmayincludecertainofourprospects.Inordertoprotectourexplorationandproductionrightsinourlicenseareaswemustmeetvariousdrillinganddeclarationrequirements.Ingeneralunlesswemakeanddeclarediscoverieswithincertaintimeperiodsspecifiedinourvariouspetroleumagreementsandlicensesourinterestsintheundevelopedpartsofourlicenseareasmaylapse.ShouldtheprospectswehaveidentifiedinthisannualreportonForm10-Kunderthelicenseagreementscurrentlyinplaceyielddiscoverieswecannotassureyouthatwewillnotfacedelaysindrillingtheseprospectsorotherwisehavetorelinquishtheseprospects.Thecoststomaintainpetroleumcontractsoversuchareasmayfluctuateandmayincreasesignificantlysincetheoriginaltermandwemaynotbeabletoreneworextendsuchpetroleumcontractsoncommerciallyreasonabletermsoratall.Ouractualdrillingactivitiesmaythereforemateriallydifferfromourcurrentexpectationswhichcouldadverselyaffectourbusiness.Underthesepetroleumcontractswehaveworkcommitmentstoperformexplorationandotherrelatedactivities.Failuretodosomayresultinourlossofthelicenses.AsofDecember312014wehaveunfulfilleddrillingobligationsinourCapBoujdourandEssaouriapetroleumcontracts.Inourotherpetroleumcontractsweareinthefirstexplorationphasesomeofwhichhavecertainobligationsthathaveyettobefulfilled.Overthecourseofthenextseveralyearswemaychoosetoenterintothesecondphaseofthosepetroleumcontractswhichwilllikelyincludefirmobligationstodrillwells.Failuretoexecuteourobligationsmayresultinourlossofthelicenses.TheexplorationphaseoftheWCTPandDTpetroleumcontractshasexpired.PursuanttothetermsofsuchpetroleumcontractswhileweandourrespectiveblockpartnershavecertainrightstonegotiatenewpetroleumcontractswithrespecttotheWCTPRelinquishmentAreawecannotassureyouthatwewilldeterminetoenteranysuchnewpetroleumcontracts.Foreachofourpetroleumcontractswecannotassureyouthatanyrenewalsorextensionswillbegrantedorwhetheranynewagreementswillbeavailableoncommerciallyreasonabletermsorinsomecasesatall.ForadditionaldetailregardingthestatusofouroperationswithrespecttoourvariouspetroleumcontractspleaseseeItem1.BusinessOperationsbyGeographicArea.Theinabilityofoneormorethirdpartieswhocontractwithustomeettheirobligationstousmayadverselyaffectourfinancialresults.Wemaybeliableforcertaincostsifthirdpartieswhocontractwithusareunabletomeettheircommitmentsundersuchagreements.Wearecurrentlyexposedtocreditriskthroughjointinterestreceivablesfromourblockandorunitpartners.Ifanyofourpartnersintheblocksorunitinwhichweholdinterestsareunabletofundtheirshareoftheexplorationanddevelopmentexpenseswemaybeliableforsuchcosts.InthepastcertainofourWCTPandDTBlockpartnershavenotpaidtheirshareofblockcostsinthetimeframerequiredbythejointoperatingagreementsfortheseblocks.ThishasresultedinsuchpartybeingindefaultwhichinreturnrequiresKosmosanditsnon-defaulting45 blockpartnerstopaytheirproportionateshareofthedefaultingpartyscostsduringthedefaultperiod.ShouldadefaultnotbecuredKosmoscouldberequiredtopayitsshareofthedefaultingpartyscostsgoingforward.Inadditionwecontractwiththirdpartiestoconductdrillingandrelatedservicesonourdevelopmentprojectsandexplorationprospects.Suchthirdpartiesmaynotperformtheservicestheyprovideusonscheduleorwithinbudget.Furthermorethedrillingequipmentfacilitiesandinfrastructureownedandoperatedbythethirdpartieswecontractwithishighlycomplexandsubjecttomalfunctionandbreakdown.Anymalfunctionsorbreakdownsmaybeoutsideourcontrolandresultindelayswhichcouldbesubstantial.Anydelaysinourdrillingcampaigncausedbyequipmentfacilityorequipmentmalfunctionorbreakdowncouldmateriallyincreaseourcostsofdrillingandcauseanadverseeffectonourbusinessfinancialpositionandresultsofoperations.Ourprincipalexposuretocreditriskwillbethroughreceivablesresultingfromthesaleofouroilwhichweplantomarkettoenergymarketingcompaniesandrefineriesandtocoverourcommodityderivativescontracts.Theinabilityorfailureofoursignificantcustomersorcounterpartiestomeettheirobligationstousortheirinsolvencyorliquidationmayadverselyaffectourfinancialresults.Inadditionouroilandnaturalgasderivativearrangementsexposeustocreditriskintheeventofnonperformancebycounterparties.Jointinterestreceivablesarisefromourblockpartners.Theinabilityorfailureofthirdpartieswecontractwithtomeettheirobligationstousortheirinsolvencyorliquidationmayadverselyaffectourfinancialresults.Weareunabletopredictsuddenchangesincreditworthinessorabilitytoperform.Evenifwedoaccuratelypredictsuddenchangesourabilitytonegatetheriskmaybelimitedandwecouldincursignificantfinanciallosses.TheunitpartnersrespectiveinterestsintheJubileeUnitaresubjecttoredeterminationandourinterestsinsuchunitmaydecreaseasaresult.TheinterestsinanddevelopmentoftheJubileeFieldaregovernedbythetermsoftheUUOA.ThepartiestotheUUOAthecollectiveinterestholdersineachoftheWCTPandDTBlocksinitiallyagreedthatinterestsintheJubileeUnitwillbesharedequallywitheachblockdeemedtocontribute50oftheareaofsuchunit.TherespectiveinterestsintheJubileeUnitwerethereforeinitiallydeterminedbytherespectiveinterestsinsuchcontributedblockinterests.PursuanttothetermsoftheUUOAthepercentageofsuchcontributedinterestsissubjecttoaprocessofredeterminationoncesufficientdevelopmentworkhasbeencompletedintheunit.TheinitialredeterminationprocesswascompletedonOctober142011.Asaresultoftheinitialredeterminationprocessthetractparticipationwasdeterminedtobe54.4fortheWCTPBlockand45.6fortheDTBlock.OurUnitInterestparticipatinginterestintheJubileeUnitwasincreasedfrom23.5ourpercentageafterTullowsacquisitionofablockpartnersinterestinJuly2011to24.1.Anadditionalredeterminationcouldoccursometimeifrequestedbyapartythatholdsgreaterthana10interestintheunit.WecannotassureyouthatanyredeterminationpursuanttothetermsoftheUUOAwillnotnegativelyaffectourinterestsintheJubileeUnitorthatsuchredeterminationwillbesatisfactorilyresolved.Wearenotandmaynotbeinthefuturetheoperatoronallofourlicenseareasanddonotandmaynotinthefutureholdalloftheworkinginterestsincertainofourlicenseareas.Thereforewewillnotbeabletocontrolthetimingofexplorationordevelopmenteffortsassociatedcostsortherateofproductionofanynon-operatedandtoanextentanynon-whollyownedassets.Aswecarryoutourexplorationanddevelopmentprogramswehavearrangementswithrespecttoexistinglicenseareasandmayhaveagreementswithrespecttofuturelicenseareasthatresultinagreaterproportionofourlicenseareasbeingoperatedbyothers.CurrentlywearenottheUnitOperatorontheJubileeUnitanddonotholdoperatorshipinoneofourtwoblocksoffshoreGhanatheDTBlock.InadditionthetermsoftheUUOAgoverningtheunitpartnersinterestsintheJubileeUnitrequirecertainactionsbeapprovedbyatleast80oftheunitvotinginterestsandthe46 termsofourothercurrentorfuturelicenseorventureagreementsmayrequireatleastthemajorityofworkingintereststoapprovecertainactions.Asaresultwemayhavelimitedabilitytoexerciseinfluenceovertheoperationsofthediscoveriesorprospectsoperatedbyourblockorunitpartnersorwhicharenotwhollyownedbyusasthecasemaybe.Dependenceonblockorunitpartnerscouldpreventusfromrealizingourtargetreturnsforthosediscoveriesorprospects.Furtherbecausewedonothavemajorityownershipinallofourpropertieswemaynotbeabletocontrolthetimingorthescopeofexplorationordevelopmentactivitiesortheamountofcapitalexpendituresandthereforemaynotbeabletocarryoutoneofourkeybusinessstrategiesofminimizingthecycletimebetweendiscoveryandinitialproduction.Thesuccessandtimingofexplorationanddevelopmentactivitiesoperatedbyourblockpartnerswilldependonanumberoffactorsthatwillbelargelyoutsideofourcontrolincludingthetimingandamountofcapitalexpenditurestheoperatorsexpertiseandfinancialresourcesapprovalofotherblockpartnersindrillingwellstheschedulingpre-designplanningdesignandapprovalsofactivitiesandprocessesselectionoftechnologyandtherateofproductionofreservesifany.Thislimitedabilitytoexercisecontrolovertheoperationsonsomeofourlicenseareasmaycauseamaterialadverseeffectonourfinancialconditionandresultsofoperations.Ourestimatedprovedreservesarebasedonmanyassumptionsthatmayturnouttobeinaccurate.Anysignificantinaccuraciesinthesereserveestimatesorunderlyingassumptionswillmateriallyaffectthequantitiesandpresentvalueofourreserves.Theprocessofestimatingoilandnaturalgasreservesistechnicallycomplex.Itrequiresinterpretationsofavailabletechnicaldataandmanyassumptionsincludingthoserelatingtocurrentandfutureeconomicconditionsandcommodityprices.Anysignificantinaccuraciesintheseinterpretationsorassumptionscouldmateriallyaffecttheestimatedquantitiesandpresentvalueofreservesshowninthisreport.SeeItem1.BusinessOurReservesforinformationaboutourestimatedoilandnaturalgasreservesandthepresentvalueofournetrevenuesata10discountratePV-10andStandardizedMeasureofdiscountedfuturenetrevenuesasdefinedhereinasofDecember312014.Inordertoprepareourestimateswemustprojectproductionratesandthetimingofdevelopmentexpenditures.Wemustalsoanalyzeavailablegeologicalgeophysicalproductionandengineeringdata.Theprocessalsorequireseconomicassumptionsaboutmatterssuchasoilandnaturalgaspricesdrillingandoperatingexpensescapitalexpenditurestaxesandavailabilityoffunds.Actualfutureproductionoilandnaturalgaspricesrevenuestaxesdevelopmentexpendituresoperatingexpensesandquantitiesofrecoverableoilandnaturalgasreserveswillvaryfromourestimates.Anysignificantvariancecouldmateriallyaffecttheestimatedquantitiesandpresentvalueofreservesshowninthisreport.Inadditionwemayadjustestimatesofprovedreservestoreflectproductionhistoryresultsofexplorationanddevelopmentprevailingoilandnaturalgaspricesandotherfactorsmanyofwhicharebeyondourcontrol.47 Thepresentvalueoffuturenetrevenuesfromourprovedreserveswillnotnecessarilybethesameasthecurrentmarketvalueofourestimatedoilandnaturalgasreserves.Youshouldnotassumethatthepresentvalueoffuturenetrevenuesfromourprovedreservesisthecurrentmarketvalueofourestimatedoilandnaturalgasreserves.InaccordancewiththeSECrequirementswehavebasedtheestimateddiscountedfuturenetrevenuesfromourprovedreservesonthe12-monthunweightedarithmeticaverageofthefirst-day-of-the-monthpricefortheprecedingtwelvemonthsadjustedforanticipatedmarketpremiumwithoutgivingeffecttoderivativetransactions.Actualfuturenetrevenuesfromouroilandnaturalgasassetswillbeaffectedbyfactorssuchasactualpriceswereceiveforoilandnaturalgasactualcostofdevelopmentandproductionexpendituresderivativetransactionstheamountandtimingofactualproductionandchangesingovernmentalregulationsortaxation.Thetimingofbothourproductionandourincurrenceofexpensesinconnectionwiththedevelopmentandproductionofoilandnaturalgasassetswillaffectthetimingandamountofactualfuturenetrevenuesfromprovedreservesandthustheiractualpresentvalue.Inadditionthe10discountfactorweusewhencalculatingdiscountedfuturenetrevenuesmaynotbethemostappropriatediscountfactorbasedoninterestratesineffectfromtimetotimeandrisksassociatedwithusortheoilandgasindustryingeneral.Actualfuturepricesandcostsmaydiffermateriallyfromthoseusedinthepresentvalueestimatesincludedinthisreport.Ifoilpricesdeclineby1.00perBblfrompricesusedincalculatingsuchestimatesthenthePV-10andtheStandardizedMeasureasofDecember312014wouldeachdecreasebyapproximately50.4million.Oilpriceshaverecentlyexperiencedsignificantdeclines.SeeItem1.BusinessOurReserves.Wearedependentoncertainmembersofourmanagementandtechnicalteam.Ourperformanceandsuccesslargelydependontheabilityexpertisejudgmentanddiscretionofourmanagementandtheabilityofourtechnicalteamtoidentifydiscoverevaluateanddevelopreserves.Thelossordepartureofoneormoremembersofourmanagementandtechnicalteamcouldbedetrimentaltoourfuturesuccess.AdditionallyasignificantamountofsharesinKosmosheldbymembersofourmanagementandtechnicalteamhavevested.Therecanbenoassurancethatourmanagementandtechnicalteamwillremaininplace.Ifanyoftheseofficersorotherkeypersonnelresignsorbecomesunabletocontinueintheirpresentrolesandisnotadequatelyreplacedourresultsofoperationsandfinancialconditioncouldbemateriallyadverselyeffected.Ourabilitytomanageourgrowthifanywillrequireustocontinuetotrainmotivateandmanageouremployeesandtoattractmotivateandretainadditionalqualifiedpersonnel.Competitionforthesetypesofpersonnelisintenseandwemaynotbesuccessfulinattractingassimilatingandretainingthepersonnelrequiredtogrowandoperateourbusinessprofitably.Ourbusinessplanrequiressubstantialadditionalcapitalwhichwemaybeunabletoraiseonacceptabletermsoratallinthefuturewhichmayinturnlimitourabilitytodevelopourexplorationappraisaldevelopmentandproductionactivities.Weexpectourcapitaloutlaysandoperatingexpenditurestobesubstantialasweexpandouroperations.Obtainingseismicdataaswellasexplorationappraisaldevelopmentandproductionactivitiesentailconsiderablecostsandwemayneedtoraisesubstantialadditionalcapitalthrough48 additionaldebtfinancingstrategicalliancesorfutureprivateorpublicequityofferingsifourcashflowsfromoperationsorthetimingofarenotsufficienttocoversuchcosts.Ourfuturecapitalrequirementswilldependonmanyfactorsincludingthescoperateofprogressandcostofourexplorationappraisaldevelopmentandproductionactivitiesthesuccessofourexplorationappraisaldevelopmentandproductionactivitiesoilandnaturalgaspricesourabilitytolocateandacquirehydrocarbonreservesourabilitytoproduceoilornaturalgasfromthosereservesthetermsandtimingofanydrillingandotherproduction-relatedarrangementsthatwemayenterintothecostandtimingofgovernmentalapprovalsandorconcessionsandtheeffectsofcompetitionbylargercompaniesoperatingintheoilandgasindustry.Wedonotcurrentlyhaveanycommitmentsforfutureexternalfundingbeyondthecapacityofourcommercialdebtfacilityandrevolvingcreditfacility.Additionalfinancingmaynotbeavailableonfavorabletermsoratall.Evenifwesucceedinsellingadditionalequitysecuritiestoraisefundsatsuchtimetheownershippercentageofourexistingshareholderswouldbedilutedandnewinvestorsmaydemandrightspreferencesorprivilegesseniortothoseofexistingshareholders.Ifweraiseadditionalcapitalthroughdebtfinancingthefinancingmayinvolvecovenantsthatrestrictourbusinessactivities.Ifwechoosetofarm-outinterestsinourlicenseswewoulddiluteourownershipinterestsubjecttothefarm-outandanypotentialvalueresultingtherefromandmayloseoperatingcontrolorinfluenceoversuchlicenseareas.Assumingweareabletocommenceexplorationappraisaldevelopmentandproductionactivitiesorsuccessfullyexploitourlicensesduringtheexploratorytermourinterestsinourlicensesorthedevelopmentproductionareaofsuchlicensesastheyexistedatthattimeasapplicablecouldextendbeyondthetermsetfortheexploratoryphaseofthelicensetoafixedperiodorlifeofproductiondependingonthejurisdiction.Ifweareunabletomeetourwellcommitmentsandordeclarecommercialityoftheprospectiveareasofourlicensesduringthistimewemaybesubjecttosignificantpotentialforfeitureofallorpartoftherelevantlicenseinterests.Ifwearenotsuccessfulinraisingadditionalcapitalwemaybeunabletocontinueourexplorationandproductionactivitiesorsuccessfullyexploitourlicenseareasandwemaylosetherightstodeveloptheseareas.SeeUnderthetermsofourvariouslicenseagreementswearecontractuallyobligatedtodrillwellsanddeclareanydiscoveriesinordertoretainexplorationandproductionrights.Inthecompetitivemarketforourlicenseareasfailuretodeclareanydiscoveriesandtherebyestablishdevelopmentareasmayresultinsubstantiallicenserenewalcostsorlossofourinterestsintheundevelopedpartsofourlicenseareaswhichmayincludecertainofourprospects.AllofourprovedreservesoilproductionandcashflowsfromoperationsarecurrentlyassociatedwithourlicensesoffshoreGhana.ShouldanyeventoccurwhichadverselyaffectssuchprovedreservesoilproductionandcashflowsfromtheselicensesincludingwithoutlimitationanyeventresultingfromtherisksanduncertaintiesoutlinedinthisRiskFactorssectionourbusinessfinancialconditionresultsofoperationsliquidityorabilitytofinanceplannedcapitalexpendituresmaybemateriallyandadverselyaffected.49 Wemayberequiredtotakewrite-downsofthecarryingvaluesofouroilandnaturalgasassetsasaresultofdecreasesinoilandnaturalgaspricesandsuchdecreasescouldresultinreducedavailabilityunderourcorporaterevolverandcommercialdebtfacility.Wecapitalizecoststoacquirefindanddevelopouroilandnaturalgaspropertiesunderthesuccessfuleffortsaccountingmethod.Undersuchmethodwearerequiredtoperformimpairmenttestsonourassetsperiodicallyandwhenevereventsorchangesincircumstanceswarrantareviewofourassets.Basedonspecificmarketfactorsandcircumstancesatthetimeofprospectiveimpairmentreviewsandthecontinuingevaluationofappraisalanddevelopmentplansproductiondataoilandnaturalgaspriceseconomicsandotherfactorswemayberequiredtowritedownthecarryingvalueofouroilandnaturalgasassets.Awrite-downconstitutesanon-cashchargetoearnings.Asaresultoftherecentdropinoilandnaturalgaspriceswemayincurfuturewrite-downsandchargesshouldpricesremainatlowlevels.Inadditionourborrowingbaseunderthecommercialdebtfacilityissubjecttoperiodicredeterminations.Wecouldbeforcedtorepayaportionofourborrowingsunderthecommercialdebtfacilityduetoredeterminationsofourborrowingbase.Redeterminationsmayoccurasaresultofavarietyoffactorsincludingoilandnaturalgascommoditypriceassumptionsassumptionsregardingfutureproductionfromouroilandnaturalgasassetsoperatingcostsandtaxburdensorassumptionsconcerningourfutureholdingsofprovedreserves.Ifweareforcedtodosowemaynothavesufficientfundstomakesuchrepayments.Ifwedonothavesufficientfundsandareotherwiseunabletonegotiaterenewalsofourborrowingsorarrangenewfinancingwemayhavetosellsignificantassets.Anysuchsalecouldhaveamaterialadverseeffectonourbusinessandfinancialresults.Wemaynotbeabletocommercializeourinterestsinanynaturalgasproducedfromourlicenseareas.Thedevelopmentofthemarketfornaturalgasinourlicenseareasisinitsearlystages.Currentlytheinfrastructuretotransportandprocessnaturalgasoncommercialtermsislimitedandtheexpensesassociatedwithconstructingsuchinfrastructureourselvesmaynotbecommerciallyviablegivenlocalpricescurrentlypaidfornaturalgas.Accordinglytheremaybelimitedornovaluederivedfromanynaturalgasproducedfromourlicenseareas.InGhanawecurrentlyproduceassociatedgasfromtheJubileeField.AgaspipelinefromtheJubileeFieldhasbeenconstructedtotransportsuchnaturalgasforprocessingandsale.Howeverwegrantedthefirst200BCFofnaturalgasfromtheJubileePhase1toGhanaatnocost.ThusinGhanaevenifadditionalinfrastructurewasinplacefornaturalgasprocessingandsalesitwouldstillbequitesometimebeforewewouldbeabletocommercializeourGhananaturalgas.AsaresultwedonothaveprovedgasreservesassociatedwithfuturegassalesfromJubileeFieldinGhana.Ourinabilitytoaccessappropriateequipmentandinfrastructureinatimelymannermayhinderouraccesstooilandnaturalgasmarketsordelayouroilandnaturalgasproduction.OurabilitytomarketouroilandnaturalgasproductionwilldependsubstantiallyontheavailabilityandcapacityofprocessingfacilitiesoiltankersandotherinfrastructureincludingFPSOsownedandoperatedbythirdparties.Ourfailuretoobtainsuchfacilitiesonacceptabletermscouldmateriallyharmourbusiness.Wealsorelyoncontinuingaccesstodrillingrigssuitablefortheenvironmentinwhichweoperate.Thedeliveryofdrillingrigsmaybedelayedorcancelledandwemaynotbeabletogaincontinuedaccesstosuitablerigsinthefuture.Wemayberequiredtoshutinoilwellsbecauseoftheabsenceofamarketorbecauseaccesstoprocessingfacilitiesmaybelimitedorunavailable.Ifthatweretooccurthenwewouldbeunabletorealizerevenuefromthosewellsuntilarrangementsweremadetodelivertheproductiontomarketwhichcouldcauseamaterialadverseeffectonourfinancialconditionandresultsofoperations.Inadditiontheshuttinginofwellscanlead50 tomechanicalproblemsuponbringingtheproductionbackonlinepotentiallyresultingindecreasedproductionandincreasedremediationcosts.Additionallythefutureexploitationandsaleofassociatedandnon-associatednaturalgasandliquidswillbesubjecttotimelycommercialprocessingandmarketingoftheseproductswhichdependsonthecontractingfinancingbuildingandoperatingofinfrastructurebythirdparties.TheGovernmentofGhanacompletedtheconstructionandconnectionofagaspipelinefromtheJubileeFieldtotransportsuchnaturalgastothemainlandforprocessingandsale.Howevertheuptimeofthefacilityduring2015andinfutureperiodsisnotknown.IntheabsenceofthecontinuousremovaloflargequantitiesofnaturalgasfromtheJubileeFielditisanticipatedthatwewillneedtoflaresuchnaturalgasinordertomaintaincrudeoilproduction.CurrentlywehavenotbeenissuedanamendedpermitfromtheGhanaEPAtoflarenaturalgasproducedfromtheJubileeFieldinsubstantialquantities.IfweareunabletoresolvepotentialissuesrelatedtothecontinuousremovalofassociatednaturalgasinlargequantitiesfromtheJubileeFieldouroilproductionwillbenegativelyimpacted.Wearesubjecttonumerousrisksinherenttotheexplorationandproductionofoilandnaturalgas.Oilandnaturalgasexplorationandproductionactivitiesinvolvemanyrisksthatacombinationofexperienceknowledgeandinterpretationmaynotbeabletoovercome.Ourfuturewilldependonthesuccessofourexplorationandproductionactivitiesandonthedevelopmentofaninfrastructurethatwillallowustotakeadvantageofourdiscoveries.Additionallymanyofourlicenseareasarelocatedindeepwaterwhichgenerallyincreasesthecapitalandoperatingcostschancesofdelayplanningtimetechnicalchallengesandrisksassociatedwithoilandnaturalgasexplorationandproductionactivities.Asaresultouroilandnaturalgasexplorationandproductionactivitiesaresubjecttonumerousrisksincludingtheriskthatdrillingwillnotresultincommerciallyviableoilandnaturalgasproduction.Ourdecisionstopurchaseexploreordevelopdiscoveriesprospectsorlicenseswilldependinpartontheevaluationofseismicdatathroughgeophysicalandgeologicalanalysesproductiondataandengineeringstudiestheresultsofwhichareofteninconclusiveorsubjecttovaryinginterpretations.Furthermorethemarketabilityofexpectedoilandnaturalgasproductionfromourdiscoveriesandprospectswillalsobeaffectedbynumerousfactors.Thesefactorsincludebutarenotlimitedtomarketfluctuationsofpricesproximitycapacityandavailabilityofdrillingrigsandrelatedequipmentqualifiedpersonnelandsupportvesselsprocessingfacilitiestransportationvehiclesandpipelinesequipmentavailabilityaccesstomarketsandgovernmentregulationsincludingwithoutlimitationregulationsrelatingtopricestaxesroyaltiesallowableproductiondomesticsupplyrequirementsimportingandexportingofoilandnaturalgastheabilitytoflareorventnaturalgasenvironmentalprotectionandclimatechange.Theeffectofthesefactorsindividuallyorjointlymayresultinusnotreceivinganadequatereturnoninvestedcapital.Intheeventthatourcurrentlyundevelopeddiscoveriesandprospectsaredevelopedandbecomeoperationaltheymaynotproduceoilandnaturalgasincommercialquantitiesoratthecostsanticipatedandourprojectsmayceaseproductioninpartorentirelyincertaincircumstances.Discoveriesmaybecomeuneconomicasaresultofanincreaseinoperatingcoststoproduceoilandnaturalgas.Ouractualoperatingcostsandratesofproductionmaydiffermateriallyfromourcurrentestimates.Moreoveritispossiblethatotherdevelopmentssuchasincreasinglystrictenvironmentalclimatechangehealthandsafetylawsandregulationsandenforcementpoliciesthereunderandclaimsfordamagestopropertyorpersonsresultingfromouroperationscouldresultinsubstantialcostsandliabilitiesdelaysaninabilitytocompletethedevelopmentofourdiscoveriesortheabandonmentofsuchdiscoverieswhichcouldcauseamaterialadverseeffectonourfinancialconditionandresultsofoperations.51 Wearesubjecttodrillingandotheroperationalandenvironmentalrisksandhazards.Theoilandnaturalgasbusinessinvolvesavarietyofoperatingrisksincludingbutnotlimitedtofiresblowoutsspillscrateringandexplosionsmechanicalandequipmentproblemsincludingunforeseenengineeringcomplicationsuncontrolledflowsorleaksofoilwellfluidsnaturalgasbrinetoxicgasorotherpollutantsorhazardousmaterialsgasflaringoperationsmarinehazardswithrespecttooffshoreoperationsformationswithabnormalpressurespollutionotherenvironmentalrisksandgeologicalproblemsandweatherconditionsandnaturalorman-madedisasters.Theserisksareparticularlyacuteindeepwaterdrillingandexploration.Anyoftheseeventscouldresultinlossofhumanlifesignificantdamagetopropertyenvironmentalornaturalresourcedamageimpairmentdelayorcessationofouroperationslowerproductionratesadversepublicitysubstantiallossesandcivilorcriminalliability.Inaccordancewithcustomaryindustrypracticeweexpecttomaintaininsuranceagainstsomebutnotalloftheserisksandlosses.Theoccurrenceofanyoftheseeventswhetherornotcoveredbyinsurancecouldhaveamaterialadverseeffectonourfinancialpositionandresultsofoperations.Thedevelopmentscheduleofoilandnaturalgasprojectsincludingtheavailabilityandcostofdrillingrigsequipmentsuppliespersonnelandoilfieldservicesissubjecttodelaysandcostoverruns.Historicallysomeoilandnaturalgasdevelopmentprojectshaveexperienceddelaysandcapitalcostincreasesandoverrunsduetoamongotherfactorstheunavailabilityorhighcostofdrillingrigsandotheressentialequipmentsuppliespersonnelandoilfieldservicesaswellasmechanicalandtechnicalissues.Thecosttodevelopourprojectshasnotbeenfixedandremainsdependentuponanumberoffactorsincludingthecompletionofdetailedcostestimatesandfinalengineeringcontractingandprocurementcosts.Ourconstructionandoperationschedulesmaynotproceedasplannedandmayexperiencedelaysorcostoverruns.Anydelaysmayincreasethecostsoftheprojectsrequiringadditionalcapitalandsuchcapitalmaynotbeavailableinatimelyandcost-effectivefashion.Ouroffshoreanddeepwateroperationswillinvolvespecialrisksthatcouldadverselyaffectourresultsofoperations.Offshoreoperationsaresubjecttoavarietyofoperatingrisksspecifictothemarineenvironmentsuchascapsizingsinkingcollisionsanddamageorlosstopipelinesubseaorotherfacilitiesorfromweatherconditions.Wecouldincursubstantialexpensesthatcouldreduceoreliminatethefundsavailableforexplorationdevelopmentorlicenseacquisitionsorresultinlossofequipmentandlicenseinterests.Deepwaterexplorationgenerallyinvolvesgreateroperationalandfinancialrisksthanexplorationinshallowerwaters.Deepwaterdrillinggenerallyrequiresmoretimeandmoreadvanceddrillingtechnologiesinvolvingahigherriskofequipmentfailureandusuallyhigherdrillingcosts.Inadditiontheremaybeproductionrisksofwhichwearecurrentlyunaware.Ifweparticipateinthedevelopmentofnewsubseainfrastructureandusefloatingproductionsystemstotransportoilfromproducingwellstheseoperationsmayrequiresubstantialtimeforinstallationorencountermechanicaldifficultiesandequipmentfailuresthatcouldresultinlossofproductionsignificantliabilitiescostoverrunsordelays.52 ForexamplewehaveexperiencedmechanicalissuesintheJubileeFieldincludingfailuresofourwaterinjectionfacilitiesontheFPSOandwaterandgasinjectionwells.Thisequipmentdowntimenegativelyimpactedoilproductionduringtheyear.FurthermoredeepwateroperationsgenerallyandoperationsinAfricaandSouthAmericainparticularlackthephysicalandoilfieldserviceinfrastructurepresentinotherregions.Asaresultasignificantamountoftimemayelapsebetweenadeepwaterdiscoveryandthemarketingoftheassociatedoilandnaturalgasincreasingboththefinancialandoperationalrisksinvolvedwiththeseoperations.BecauseofthelackofandthehighcostofthisinfrastructurefurtherdiscoverieswemaymakeinAfricaSouthAmericaandEuropemayneverbeeconomicallyproducible.Inadditionintheeventofawellcontrolincidentcontainmentandpotentiallycleanupactivitiesforoffshoredrillingarecostly.Theresultingregulatorycostsorpenaltiesandtheresultsofthirdpartylawsuitsaswellasassociatedlegalandsupportexpensesincludingcoststoaddressnegativepublicitycouldwellexceedtheactualcostsofcontainmentandcleanup.Asaresultawellcontrolincidentcouldresultinsubstantialliabilitiesforusandhaveasignificantnegativeimpactonourearningscashflowsliquidityfinancialpositionandstockprice.WehaddisagreementswiththeRepublicofGhanaandtheGhanaNationalPetroleumCorporationregardingcertainofourrightsandresponsibilitiesundertheWCTPandDTPetroleumAgreements.AllofourprovedreservesandourdiscoveredfieldsarelocatedoffshoreGhana.TheWCTPpetroleumcontracttheDTpetroleumcontractandtheUUOAcoverthetwoblocksandtheJubileeUnitthatformthebasisofourcurrentoperationsinGhana.PursuanttothesepetroleumcontractsmostsignificantdecisionsincludingourplansfordevelopmentandannualworkprogramsmustbeapprovedbyGNPCandorGhanasMinistryofEnergy.WehavepreviouslyhaddisagreementswiththeMinistryofEnergyandGNPCregardingcertainofourrightsandresponsibilitiesunderthesepetroleumcontractsthePetroleumLawof1984PNDCL84theGhanaianPetroleumLawandtheInternalRevenueAct2000Act592theGhanaianTaxLaw.TheseincludeddisagreementsoversharinginformationwithprospectivepurchasersofourinterestspledgingourintereststofinanceourdevelopmentactivitiespotentialliabilitiesarisingfromdischargesofsmallquantitiesofdrillingfluidsintoGhanaianterritorialwatersthefailuretoapprovetheproposedsaleofourGhanaianassetsassertionsthatcouldbereadtogiverisetotaxespayableundertheGhanaianTaxLawinconnectionwithourinitialpublicofferingfailuretoapprovePoDsrelatingtocertaindiscoveriesoffshoreGhanaandtherelinquishmentofcertainexplorationareasonourlicensedblocksoffshoreGhana.Thesepastdisagreementshavebeenresolved.TheresolutionofcertainofthesedisagreementsrequiredustopayagreedsettlementcoststoGNPCandorthegovernmentofGhana.Therecanbenoassurancethatfuturedisagreementswillnotarisewithanyhostgovernmentandornationaloilcompaniesthatmayhaveamaterialadverseeffectonourexplorationordevelopmentactivitiesourabilitytooperateourrightsunderourlicensesandlocallawsorourrightstomonetizeourinterests.ThegeographiclocationsofourlicensesinAfricaSouthAmericaandEuropesubjectustoanincreasedriskoflossofrevenueorcurtailmentofproductionfromfactorsspecificallyaffectingthoseareas.OurcurrentexplorationlicensesarelocatedinAfricaSouthAmericaandEurope.Someoralloftheselicensescouldbeaffectedshouldanyregionexperienceanyofthefollowingfactorsamongotherssevereweathernaturalorman-madedisastersoractsofGoddelaysordecreasesinproductiontheavailabilityofequipmentfacilitiespersonnelorservicesdelaysordecreasesintheavailabilityofcapacitytotransportgatherorprocessproductionmilitaryconflictsorcivilunrestandorinternationalborderdisputes.53 ForexampleoilandnaturalgasoperationsinourlicenseareasinAfricaandSouthAmericamaybesubjecttohigherpoliticalandsecurityrisksthanthoseoperationsunderthesovereigntyoftheUnitedStates.Weplantomaintaininsurancecoverageforonlyaportionoftheriskswefacefromdoingbusinessintheseregions.Therealsomaybecertainriskscoveredbyinsurancewherethepolicydoesnotreimburseusforallofthecostsrelatedtoaloss.Furtherasmanyofourlicensesareconcentratedinthesamegeographicareaanumberofourlicensescouldexperiencethesameconditionsatthesametimeresultinginarelativelygreaterimpactonourresultsofoperationsthantheymighthaveonothercompaniesthathaveamorediversifiedportfoliooflicenses.Ouroperationsmaybeadverselyaffectedbypoliticalandeconomiccircumstancesinthecountriesinwhichweoperate.Oilandnaturalgasexplorationdevelopmentandproductionactivitiesaresubjecttopoliticalandeconomicuncertaintiesincludingbutnotlimitedtochangesinenergypoliciesorthepersonneladministeringthemchangesinlawsandpoliciesgoverningoperationsofforeign-basedcompaniesexpropriationofpropertycancellationormodificationofcontractrightsrevocationofconsentsorapprovalsobtainingvariousapprovalsfromregulatorsforeignexchangerestrictionscurrencyfluctuationsroyaltyincreasesandotherrisksarisingoutofforeigngovernmentalsovereigntyaswellasrisksoflossduetocivilstrifeactsofwarguerrillaactivitiesterrorismactsofsabotageterritorialdisputesandinsurrection.Inadditionwearesubjectbothtouncertaintiesintheapplicationofthetaxlawsinthecountriesinwhichweoperateandtopossiblechangesinsuchtaxlawsortheapplicationthereofeachofwhichcouldresultinanincreaseinourtaxliabilities.TheserisksmaybehigherinthedevelopingcountriesinwhichweconductamajorityofouractivitiesasitisthecaseinGhanawheretheGhanaianRevenueAuthoritytheGRAhasdisputedcertaintaxdeductionswehaveclaimedinpriorfiscalyearsGhanaiantaxreturnsasnon-allowableunderthetermsoftheGhanaianPetroleumIncomeTaxLawaswellasnon-paymentofcertaintransactionaltaxes.OuroperationsintheseareasincreaseourexposuretorisksofwarlocaleconomicconditionspoliticaldisruptioncivildisturbanceexpropriationpiracytribalconflictsandgovernmentalpoliciesthatmaydisruptouroperationsrequireustoincurgreatercostsforsecurityrestrictthemovementoffundsorlimitrepatriationofprofitsleadtoU.S.governmentorinternationalsanctionsorlimitaccesstomarketsforperiodsoftime.Somecountriesinthegeographicareaswhereweoperatehaveexperiencedpoliticalinstabilityinthepastorarecurrentlyexperiencinginstability.Disruptionsmayoccurinthefutureandlossescausedbythesedisruptionsmayoccurthatwillnotbecoveredbyinsurance.Consequentlyourexplorationdevelopmentandproductionactivitiesmaybesubstantiallyaffectedbyfactorswhichcouldhaveamaterialadverseeffectonourresultsofoperationsandfinancialcondition.Furthermoreintheeventofadisputearisingfromnon-U.S.operationswemaybesubjecttotheexclusivejurisdictionofcourtsoutsidetheUnitedStatesormaynotbesuccessfulinsubjectingnon-U.S.personstothejurisdictionofcourtsintheUnitedStateswhichcouldadverselyaffecttheoutcomeofsuchdispute.OuroperationsmayalsobeadverselyaffectedbylawsandpoliciesofthejurisdictionsincludingthejurisdictionswhereouroilandgasoperatingactivitiesarelocatedaswellastheUnitedStatestheUnitedKingdomBermudaandtheCaymanIslandsandotherjurisdictionsinwhichwedobusiness54 thataffectforeigntradeandtaxation.Changesinanyoftheselawsorpoliciesortheimplementationthereofcouldmateriallyandadverselyaffectourfinancialpositionresultsofoperationsandcashflows.AportionofourassetportfolioisinWesternSaharaandwecouldbeadverselyaffectedbythepoliticaleconomicandmilitaryconditionsinthatregion.OurexplorationlicensesinthisregionconflictwithexplorationlicensesissuedbytheSahrawaiArabDemocraticRepublic.MoroccoclaimstheterritoryofWesternSaharawhereourCapBoujdourOffshoreblockisgeographicallylocatedaspartoftheKingdomofMoroccoandithasdefactoadministrativecontrolofapproximately80ofWesternSahara.HoweverWesternSaharaisontheUnitedNationstheUNlistofNon-Self-Governingterritoriesandtheterritoryssovereigntyhasbeenindisputesince1975.ThePolisarioFrontrepresentingtheSADRhasaconflictingclaimofsovereigntyoverWesternSahara.NocountrieshaveformallyrecognizedMoroccosclaimtoWesternSaharaalthoughsomecountriesimplicitlysupportMoroccosposition.OthercountrieshaveformallyrecognizedtheSADRbuttheUNhasnot.AUN-administeredcease-firehasbeeninplacesince1991andwhiletherehavebeenintermittentUN-sponsoredtalksbetweenMoroccoandSADRrepresentedbythePolisariothedisputeremainsstalemated.ItisuncertainwhenandhowWesternSaharassovereigntyissueswillberesolved.Weowna55participatinginterestintheCapBoujdourOffshoreblocklocatedgeographicallyoffshoreWesternSahara.OurlicensewasgrantedbythegovernmentofMoroccohowevertheSADRhasissueditsownoffshoreexplorationlicenseswhichinsomeareasconflictwithourlicenses.AsaresultofSADRsconflictingclaimofrightstooilandnaturalgaslicensesgrantedbyMoroccoandtheSADRsclaimsthatMoroccosexploitationofWesternSaharasnaturalresourcesviolatesinternationallawourinterestscoulddecreaseinvalueorbelost.AnypoliticalinstabilityterrorismchangesingovernmentorescalationinhostilitiesinvolvingtheSADRMoroccoorneighboringstatescouldadverselyaffectouroperationsandassets.InadditionMoroccohasrecentlyexperiencedpoliticalandsocialdisturbancesthatcouldaffectitslegalandadministrativeinstitutions.AchangeinU.S.foreignpolicyorthepoliciesofothercountriesregardingWesternSaharacouldalsoadverselyaffectouroperationsandassets.Wearenotinsuredagainstpoliticalorterrorismrisksbecausemanagementdeemsthepremiumcostsofsuchinsurancetobecurrentlyprohibitivelyexpensiverelativetothelimitedcoverageprovidedthereby.FurthermorevariousactivistgroupshavemountedpublicrelationscampaignstoforcecompaniestoceaseanddivestoperationsinWesternSaharaandwecouldcomeundersimilarpublicpressure.SomeinvestorshaverefusedtoinvestincompanieswithoperationsinWesternSaharaandwecouldbesubjecttosimilarpressure.Anyofthesefactorscouldhaveamaterialadverseeffectonourresultsofoperationsandfinancialcondition.MaritimeboundarydemarcationbetweenCoteDIvoireandGhanamayaffectaportionofourlicenseareas.Inearly2010GhanaswesternneighbortheRepublicofCotedIvoirepetitionedtheUnitedNationstodemarcatetheIvorianterritorialmaritimeboundarywithGhana.InresponsetothepetitionGhanaestablishedaBoundaryCommissiontoundertakenegotiationswithCotedIvoireinordertoagreetoGhanaslandandmaritimeboundaries.InSeptember2014GhanasubmittedthedisputetoarbitrationundertheUnitedNationsConventionontheLawoftheSeabutinDecember2014thetwopartiesagreedtotransferthedisputetotheInternationalTribunalfortheLawoftheSeatheITLOS.OnJanuary122015theITLOSformedaspecialchambertoaddressthemaritimeboundarydispute.Theissueremainsunresolvedatpresent.TheGhanaian-IvorianmaritimeboundaryformsthewesternboundaryoftheDTBlockoffshoreGhana.InSeptember2011theIvorianGovernmentissuedamapreflectingpotentialpetroleumlicenseareasthatoverlapwiththeDTBlock.Uncertaintyremainswithregardtotheoutcomeoftheboundary55 demarcationbetweenGhanaandCotedIvoireandwedonotknowifthemaritimeboundarywillchangethereforeaffectingourrightstodevelopourdiscoverieswithinsuchareas.IntheeventthatCotedIvoireissuccessfulinitsmaritimeborderclaimsoriftheproceedingsresultinanunfavorableoutcomeforGhanaouroperationswithinsuchareascouldbemateriallyimpacted.Theoilandgasindustryincludingtheacquisitionofexploratorylicensesisintenselycompetitiveandmanyofourcompetitorspossessandemploysubstantiallygreaterresourcesthanus.Theinternationaloilandgasindustryishighlycompetitiveinallaspectsincludingtheexplorationforandthedevelopmentofnewlicenseareas.Weoperateinahighlycompetitiveenvironmentforacquiringexploratorylicensesandhiringandretainingtrainedpersonnel.Manyofourcompetitorspossessandemployfinancialtechnicalandpersonnelresourcessubstantiallygreaterthanuswhichcanbeparticularlyimportantintheareasinwhichweoperate.Thesecompaniesmaybebetterabletowithstandthefinancialpressuresofunsuccessfuldrillingeffortssustainedperiodsofvolatilityinfinancialmarketsandgenerallyadverseglobalandindustry-wideeconomicconditionsandmaybebetterabletoabsorbtheburdensresultingfromchangesinrelevantlawsandregulationswhichcouldadverselyaffectourcompetitiveposition.Ourabilitytoacquireadditionalprospectsandtofindanddevelopreservesinthefuturewilldependonourabilitytoevaluateandselectsuitablelicensesandtoconsummatetransactionsinahighlycompetitiveenvironment.Alsothereissubstantialcompetitionforavailablecapitalforinvestmentintheoilandgasindustry.Asaresultoftheseandotherfactorswemaynotbeabletocompetesuccessfullyinanintenselycompetitiveindustrywhichcouldcauseamaterialadverseeffectonourresultsofoperationsandfinancialcondition.Participantsintheoilandgasindustryaresubjecttonumerouslawsthatcanaffectthecostmannerorfeasibilityofdoingbusiness.Explorationandproductionactivitiesintheoilandgasindustryaresubjecttolocallawsandregulations.Wemayberequiredtomakelargeexpenditurestocomplywithgovernmentallawsandregulationsparticularlyinrespectofthefollowingmatterslicensesfordrillingoperationstaxincreasesincludingretroactiveclaimsunitizationofoilaccumulationslocalcontentrequirementsincludingthemandatoryuseoflocalpartnersandvendorsandenvironmentalrequirementsandobligationsincludingthoserelatedtoremediationinvestigationorpermitting.Undertheseandotherlawsandregulationswecouldbeliableforpersonalinjuriespropertydamageandothertypesofdamages.Failuretocomplywiththeselawsandregulationsalsomayresultinthesuspensionorterminationofouroperationsandsubjectustoadministrativecivilandcriminalpenalties.Moreovertheselawsandregulationscouldchangeortheirinterpretationscouldchangeinwaysthatcouldsubstantiallyincreaseourcosts.Theserisksmaybehigherinthedevelopingcountriesinwhichweconductamajorityofouroperationswheretherecouldbealackofclarityorlackofconsistencyintheapplicationoftheselawsandregulations.Anyresultingliabilitiespenaltiessuspensionsorterminationscouldhaveamaterialadverseeffectonourfinancialconditionandresultsofoperations.ForexampleGhanasParliamenthasenactedthePetroleumRevenueManagementActandisconsideringtheenactmentofanewPetroleumExplorationandProductionAct.TherecanbenoassurancethattheselawswillnotseektoretroactivelyeitherontheirfaceorasinterpretedmodifythetermsoftheagreementsgoverningourlicenseinterestsinGhanaincludingtheWCTPandDT56 petroleumcontractsandtheUUOArequiregovernmentalapprovalfortransactionsthateffectadirectorindirectchangeofcontrolofourlicenseinterestsorotherwiseaffectourcurrentandfutureoperationsinGhana.Anysuchchangesmayhaveamaterialadverseeffectonourbusiness.Wealsocannotassureyouthatgovernmentapprovalwillnotbeneededfordirectorindirecttransfersofourpetroleumagreementsorintereststhereunderbasedonexistinglegislation.SeeItem1.BusinessOtherRegulationoftheOilandGasIndustryGhana.TheSECpromulgatedfinalrulesundertheDodd-FrankActrequiringSECreportingcompaniesthatengageinthecommercialdevelopmentofoilnaturalgasormineralstodisclosepaymentsincludingtaxesroyaltiesfeesandotheramountsmadebysuchcompaniesoranentitycontrolledbysuchcompaniestotheUnitedStatesortoanynon-U.S.governmentforthepurposeofcommercialdevelopmentofoilnaturalgasorminerals.Thefinalrulesdonotcontainanexceptionthatwouldallowcompaniestoexcludepaymentswhichmaynotbedisclosedpursuanttoforeignlawsorconfidentialityagreements.HoweverinJuly2013theUnitedStatesDistrictCourtfortheDistrictofColumbiavacatedthefinalrulesandtheSEChasnotasyetproposedrevisedrulesimplementingtheapplicablesectionoftheDodd-FrankAct.Therecanbenoassurancethatwewillbeabletocomplywiththeseregulationsoncepromulgatedwithoutcreatingdisagreementswiththesepartnersorgovernments.Furthersuchregulationsmayplaceusatadisadvantagetoournon-U.S.competitorsindoingbusinessintheinternationaloilandgasindustry.Anyoftheseconsequencescouldhaveamaterialadverseeffectonourfinancialconditionandourresultsofoperations.Wearesubjecttonumerousenvironmentalhealthandsafetyregulationswhichmayresultinmaterialliabilitiesandcosts.Wearesubjecttovariousinternationalforeignfederalstateandlocalenvironmentalhealthandsafetylawsandregulationsgoverningamongotherthingstheemissionanddischargeofpollutantsintothegroundairorwaterthegenerationstoragehandlingusetransportationanddisposalofregulatedmaterialsandthehealthandsafetyofouremployees.Wearerequiredtoobtainenvironmentalpermitsfromgovernmentalauthoritiesforouroperationsincludingdrillingpermitsforourwells.Wehavenotbeenormaynotbeatalltimesincompletecompliancewiththesepermitsandlawsandregulationstowhichwearesubjectandthereisarisksuchrequirementscouldchangeinthefutureorbecomemorestringent.Ifweviolateorfailtocomplywithsuchrequirementswecouldbefinedorotherwisesanctionedbyregulatorsincludingthroughtherevocationofourpermitsorthesuspensionorterminationofouroperations.Ifwefailtoobtainmaintainorrenewpermitsinatimelymanneroratallduetooppositionfrompartnerscommunityorenvironmentalinterestgroupsgovernmentaldelaysorotherreasonsorifwefaceadditionalrequirementsimposedasaresultofchangesinorenactmentoflawsorregulationssuchfailuretoobtainmaintainorrenewpermitsorsuchchangesinorenactmentoflawsorregulationscouldimpedeoraffectouroperationswhichcouldhaveamaterialadverseeffectonourresultsofoperationsandfinancialcondition.Weasaninterestownerorasthedesignatedoperatorofcertainofourpastcurrentandfuturediscoveriesandprospectscouldbeheldliableforsomeorallenvironmentalhealthandsafetycostsandliabilitiesarisingoutofouractionsandomissionsaswellasthoseofourblockpartnersthird-partycontractorspredecessorsorotheroperators.Totheextentwedonotaddressthesecostsandliabilitiesorifwedonototherwisesatisfyourobligationsouroperationscouldbesuspendedorterminated.Wehavecontractedwithandintendtocontinuetohirethirdpartiestoperformservicesrelatedtoouroperations.Thereisariskthatwemaycontractwiththirdpartieswithunsatisfactoryenvironmentalhealthorsafetyrecordsorthatourcontractorsmaybeunwillingorunabletocoveranylossesassociatedwiththeiractsandomissions.Accordinglywecouldbeheldliableforallcostsandliabilitiesarisingoutoftheiractsoromissionswhichcouldhaveamaterialadverseeffectonourresultsofoperationsandfinancialcondition.57 Wearenotfullyinsuredagainstallrisksandourinsurancemaynotcoveranyorallenvironmentalhealthorsafetyclaimsthatmightarisefromouroperationsoratanyofourlicenseareas.Ifasignificantaccidentorothereventoccursandisnotcoveredbyinsurancesuchaccidentoreventcouldhaveamaterialadverseeffectonourresultsofoperationsandfinancialcondition.Releasesofregulatedsubstancesmayoccurandcanbesignificant.Undercertainenvironmentallawswecouldbeheldresponsibleforallofthecostsrelatingtoanycontaminationatourcurrentorformerfacilitiesandatanythirdpartywastedisposalsitesusedbyusoronourbehalf.Inadditionoffshoreoilandnaturalgasexplorationandproductioninvolvesvarioushazardsincludinghumanexposuretoregulatedsubstanceswhichincludenaturallyoccurringradioactiveandothermaterials.Assuchwecouldbeheldliableforanyandallconsequencesarisingoutofhumanexposuretosuchsubstancesorforotherdamageresultingfromthereleaseofanyregulatedorotherwisehazardoussubstancestotheenvironmentpropertyortonaturalresourcesoraffectingendangeredspecies.Inadditionweexpectcontinuedandincreasingattentiontoclimatechangeissues.VariouscountriesandregionsincludingGhanaIrelandMauritaniaMoroccoincludingWesternSaharaSenegalandSurinamearepartnerstotheKyotoProtocolaninternationaltreatyaimedatreducingemissionsofgreenhousegasesGHGsincludingmethaneaprimarycomponentofnaturalgasandcarbondioxideabyproductofoilandnaturalgascombustion.WhiletheKyotoProtocolwassettoexpirein2012ithasbeenextendedbyamendmentuntil2020withtheunderstandingamongthepartiesthatanewclimatechangeregimewillbenegotiatedinDecember2015andimplementedby2020.IrelandisalsoapartytotheEuropeanUnionEmissionsTradingSystemacapandtradeGHGemissionsframework.TheincreasedregulationofGHGsbyanyoftheareasinwhichweourcustomersandtheend-usersofourproductscurrentlyorinthefutureoperatemayincreaseourcompliancecostssuchasformonitoringsequesteringpurchasingemissionsallowancesorreducingemissionsandmayhaveanadverseimpactontheglobalsupplyanddemandforoilandnaturalgaswhichcouldhaveamaterialadverseimpactonourbusinessorresultsofoperations.Thephysicalimpactsofclimatechangeintheareasinwhichourassetsarelocatedorinwhichweotherwiseoperateincludingthroughincreasedseverityandfrequencyofstormsfloodsandotherweathereventscouldadverselyimpactouroperationsordisrupttransportationorotherprocess-relatedservicesprovidedbyourthird-partycontractors.Environmentalhealthandsafetylawsarecomplexchangefrequentlyandhavetendedtobecomeincreasinglystringentovertime.Ourcostsofcomplyingwithcurrentandfutureclimatechangeenvironmentalhealthandsafetylawstheactionsoromissionsofourblockpartnersandthirdpartycontractorsandourliabilitiesarisingfromreleasesoforexposuretoregulatedsubstancesmayadverselyaffectourresultsofoperationsandfinancialcondition.SeeItem1.BusinessEnvironmentalMattersformoreinformation.Wefacevariousrisksassociatedwithincreasedactivismagainstoilandgasexplorationanddevelopmentactivities.Oppositiontowardoilandgasdrillinganddevelopmentactivityhasbeengrowingglobally.Companiesintheoilandgasindustryareoftenthetargetofactivisteffortsfrombothindividualsandnon-governmentalorganizationsregardingsafetyhumanrightsenvironmentalmatterssustainabilityandbusinesspractices.Anti-developmentactivistsareworkingtoamongotherthingsdelayorcancelcertainoperationssuchasoffshoredrillinganddevelopment.Futureactivisteffortscouldresultinthefollowingdelayordenialofdrillingpermitsshorteningofleasetermsorreductioninleasesizerestrictionsordelaysonourabilitytoobtainadditionalseismicdata58 restrictionsoninstallationoroperationofgatheringorprocessingfacilitiesrestrictionsontheuseofcertainoperatingpracticeslegalchallengesorlawsuitsdamagingpublicityaboutusincreasedregulationincreasedcostsofdoingbusinessreductionindemandforourproductsandotheradverseeffectsonourabilitytodevelopourproperties.Ourneedtoincurcostsassociatedwithrespondingtotheseinitiativesorcomplyingwithanyresultingnewlegalorregulatoryrequirementsresultingfromtheseactivitiesthataresubstantialandnotadequatelyprovidedforcouldhaveamaterialadverseeffectonourbusinessfinancialconditionandresultsofoperations.WemaybeexposedtoliabilitiesundertheU.S.ForeignCorruptPracticesActandotheranti-corruptionlawsandanydeterminationthatweviolatedtheU.S.ForeignCorruptPracticesActorothersuchlawscouldhaveamaterialadverseeffectonourbusiness.WearesubjecttotheU.S.ForeignCorruptPracticesActFCPAandotherlawsthatprohibitimproperpaymentsoroffersofpaymentstoforeigngovernmentofficialsandpoliticalpartiesforthepurposeofobtainingorretainingbusinessorotherwisesecuringanimproperbusinessadvantage.InadditiontheUnitedKingdomhasenactedtheBriberyActof2011andwemaybesubjecttothatlegislationundercertaincircumstances.Wedobusinessandmaydoadditionalbusinessinthefutureincountriesandregionsinwhichwemayfacedirectlyorindirectlycorruptdemandsbyofficials.Wefacetheriskofunauthorizedpaymentsoroffersofpaymentsbyoneofouremployeesorconsultants.Ourexistingsafeguardsandanyfutureimprovementsmayprovetobelessthaneffectiveinpreventingsuchunauthorizedpaymentsandouremployeesandconsultantsmayengageinconductforwhichwemightbeheldresponsible.ViolationsoftheFCPAmayresultinseverecriminalorcivilsanctionsandwemaybesubjecttootherliabilitieswhichcouldnegativelyaffectourbusinessoperatingresultsandfinancialcondition.InadditiontheU.S.governmentmayseektoholdusliableforsuccessorliabilityforFCPAviolationscommittedbycompaniesinwhichweinvestinforexamplebywayofacquiringequityinterestsinparticipatingasajointventurepartnerwithacquiringtheassetsoforenteringintocertaincommercialtransactionswithorthatweacquire.Deteriorationinthecreditorequitymarketscouldadverselyaffectus.Wehaveexposuretodifferentcounterparties.Forexamplewehaveenteredormayenterintotransactionswithcounterpartiesinthefinancialservicesindustryincludingcommercialbanksinvestmentbanksinsurancecompaniesinvestmentfundsandotherinstitutions.Thesetransactionsexposeustocreditriskintheeventofdefaultbyourcounterparty.Deteriorationinthecreditmarketsmayimpactthecreditratingsofourcurrentandpotentialcounterpartiesandaffecttheirabilitytofulfillexistingobligationstousandtheirwillingnesstoenterintofuturetransactionswithus.Wemayhaveexposuretothesefinancialinstitutionsthroughanyderivativetransactionswehaveormayenterinto.Moreovertotheextentthatpurchasersofourfutureproductionifanyrelyonaccesstothecreditorequitymarketstofundtheiroperationsthereisariskthatthosepurchaserscoulddefaultintheircontractualobligationstousifsuchpurchaserswereunabletoaccessthecreditorequitymarketsforanextendedperiodoftime.59 Wemayincursubstantiallossesandbecomesubjecttoliabilityclaimsasaresultoffutureoilandnaturalgasoperationsforwhichwemaynothaveadequateinsurancecoverage.Weintendtomaintaininsuranceagainstcertainrisksintheoperationofthebusinessweplantodevelopandinamountsinwhichwebelievetobereasonable.Suchinsurancehowevermaycontainexclusionsandlimitationsoncoverage.Forexamplewearenotinsuredagainstpoliticalorterrorismrisks.Wemayelectnottoobtaininsuranceifwebelievethatthecostofavailableinsuranceisexcessiverelativetotheriskspresented.Lossesandliabilitiesarisingfromuninsuredandunderinsuredeventscouldmateriallyandadverselyaffectourbusinessfinancialconditionandresultsofoperations.Weoperateinalitigiousenvironment.Someofthejurisdictionswithinwhichweoperatehaveproventobelitigiousenvironments.Oilandgascompaniessuchasuscanbeinvolvedinvariouslegalproceedingssuchastitleorcontractualdisputesintheordinarycourseofbusiness.Fromtimetotimewemaybecomeinvolvedinvariouslegalandregulatoryproceedingsarisinginthenormalcourseofbusiness.Wecannotpredicttheoccurrenceoroutcomeoftheseproceedingswithcertaintyandifweareunsuccessfulintheselitigationsandanylossexceedsouravailableinsurancethiscouldhaveamaterialadverseeffectonourresultsofoperations.Becausewemaintainadiversifiedportfolioofassetsoverseasthecomplexityandtypesoflegalprocedureswithwhichwemaybecomeinvolvedmayvaryandwecouldincursignificantlegalandsupportexpensesindifferentjurisdictions.Ifwearenotabletosuccessfullydefendourselvestherecouldbeadelayorevenhaltinourexplorationdevelopmentorproductionactivitiesorotherbusinessplansresultinginareductioninreserveslossofproductionandreducedcashflows.Legalproceedingscouldresultinasubstantialliabilityandornegativepublicityaboutusandadverselyaffectthepriceofourcommonshares.Inadditionlegalproceedingsdistractmanagementandotherpersonnelfromtheirprimaryresponsibilities.Wefacevariousrisksassociatedwithglobalpopulism.Globallycertainindividualsandorganizationsareattemptingtofocuspublicattentiononincomedistributionwealthdistributionandcorporatetaxationlevelsandimplementincomeandwealthredistributionpolicies.Theseeffortsiftheygainpoliticaltractioncouldresultinincreasedtaxationonindividualsandorcorporationsaswellaspotentiallyincreasedregulationoncompaniesandfinancialinstitutions.Ourneedtoincurcostsassociatedwithrespondingtothesedevelopmentsorcomplyingwithanyresultingnewlegalorregulatoryrequirementsaswellasanypotentialincreasedtaxexpensecouldincreaseourcostsofdoingbusinessreduceourfinancialflexibilityandotherwisehaveamaterialadverseeffectonourbusinessfinancialconditionandresultsofouroperations.Slowerglobaleconomicgrowthratesmaymateriallyadverselyimpactouroperatingresultsandfinancialposition.Therecoveryfromtheglobaleconomiccrisisof2008andresultingrecessionhasbeenslowanduneven.Marketvolatilityandreducedconsumerdemandhaveincreasedeconomicuncertaintyandthecurrentglobaleconomicgrowthrateisslowerthanwhatwasexperiencedinthedecadeprecedingthecrisis.Manydevelopedcountriesareconstrainedbylongtermstructuralgovernmentbudgetdeficitsandinternationalfinancialmarketsandcreditratingagenciesarepressingforbudgetaryreformanddiscipline.Thisneedforfiscaldisciplineisbalancedbycallsforcontinuinggovernmentstimulusandsocialspendingasaresultoftheimpactsoftheglobaleconomiccrisis.Asmajorcountriesimplementgovernmentfiscalreformsuchmeasuresiftheyareundertakentoorapidlycouldfurtherundermineeconomicrecoveryreducingdemandandslowinggrowth.ImpactsofthecrisiscouldspreadtoChina60 andotheremergingmarketswhichhavefueledglobaleconomicdevelopmentinrecentyearsslowingtheirgrowthratesreducingdemandandresultinginfurtherdragontheglobaleconomy.Globaleconomicgrowthdrivesdemandforenergyfromallsourcesincludinghydrocarbons.Alowerfutureeconomicgrowthrateislikelytoresultindecreaseddemandgrowthforourcrudeoilandnaturalgasproduction.Adecreaseindemandnotwithstandingimpactsfromotherfactorscouldpotentiallyresultinlowercommoditypriceswhichwouldreduceourcashflowsfromoperationsourprofitabilityandourliquidityandfinancialposition.Increasedcostsofcapitalcouldadverselyaffectourbusiness.Ourbusinessandoperatingresultscanbeharmedbyfactorssuchastheavailabilitytermsandcostofcapitalincreasesininterestratesorareductionincreditrating.Changesinanyoneormoreofthesefactorscouldcauseourcostofdoingbusinesstoincreaselimitouraccesstocapitallimitourabilitytopursueacquisitionopportunitiesreduceourcashflowsavailablefordrillingandplaceusatacompetitivedisadvantage.Recentandcontinuingdisruptionsandvolatilityintheglobalfinancialmarketsmayleadtoanincreaseininterestratesoracontractionincreditavailabilityimpactingourabilitytofinanceouroperations.Werequirecontinuedaccesstocapital.Asignificantreductionintheavailabilityofcreditcouldmateriallyandadverselyaffectourabilitytoachieveourplannedgrowthandoperatingresults.Ourderivativeactivitiescouldresultinfinanciallossesorcouldreduceourincome.Toachievemorepredictablecashflowsandtoreduceourexposuretoadversefluctuationsinthepricesofoilandnaturalgaswehaveandmayinthefutureenterintoderivativearrangementsforaportionofouroilandnaturalgasproductionincludingbutnotlimitedtoputscollarsandfixed-priceswaps.Inadditionwecurrentlyandmayinthefutureholdswapsdesignedtohedgeourinterestraterisk.Wedonotcurrentlydesignateanyofourderivativeinstrumentsashedgesforaccountingpurposesandrecordallderivativeinstrumentsonourbalancesheetatfairvalue.Changesinthefairvalueofourderivativeinstrumentsarerecognizedinearnings.Accordinglyourearningsmayfluctuatesignificantlyasaresultofchangesinthefairvalueofourderivativeinstruments.Derivativearrangementsalsoexposeustotheriskoffinanciallossinsomecircumstancesincludingwhenproductionislessthanthevolumecoveredbythederivativeinstrumentsthecounter-partytothederivativeinstrumentdefaultsonitscontractobligationsorthereisanincreaseinthedifferentialbetweentheunderlyingpriceandactualpricesreceivedinthederivativeinstrument.Inadditionthesetypesofderivativearrangementsmaylimitthebenefitwecouldreceivefromincreasesinthepricesforoilandnaturalgasorbeneficialinterestratefluctuationsandmayexposeustocashmarginrequirements.OurcommercialdebtfacilityrevolvingcreditfacilityandindenturegoverningtheSeniorNotescontaincertaincovenantsthatmayinhibitourabilitytomakecertaininvestmentsincuradditionalindebtednessandengageincertainothertransactionswhichcouldadverselyaffectourabilitytomeetourfuturegoals.OurcommercialdebtfacilityrevolvingcreditfacilityandindenturegoverningtheSeniorNotesincludecertaincovenantsthatamongotherthingsrestrictourinvestmentsloansandadvancesandcertainofoursubsidiariespaymentofdividendsandotherrestrictedpayments61 ourincurrenceofadditionalindebtednessthegrantingofliensotherthanlienscreatedpursuanttothecommercialdebtfacilityrevolvingcreditfacilityortheindenturegoverningtheSeniorNotesandcertainpermittedliensmergersconsolidationsandsalesofallorasubstantialpartofourbusinessorlicensesthehedgingforwardsaleorswapofourproductionofcrudeoilornaturalgasorothercommoditiesthesaleofassetsotherthanproductionsoldintheordinarycourseofbusinessandinthecaseofthecommercialdebtfacilityandtherevolvingcreditfacilityourcapitalexpendituresthatwecanfundwiththeproceedsofourcommercialdebtfacilityandrevolvingcreditfacility.Ourcommercialdebtfacilityrevolvingcreditfacilityandletterofcreditfacilityrequireustomaintaincertainfinancialratiossuchasdebtservicecoverageratiosandcashflowcoverageratios.Alloftheserestrictivecovenantsmaylimitourabilitytoexpandorpursueourbusinessstrategies.OurabilitytocomplywiththeseandotherprovisionsofourcommercialdebtfacilityrevolvingcreditfacilityandindenturegoverningtheSeniorNotesmaybeimpactedbychangesineconomicorbusinessconditionsourresultsofoperationsoreventsbeyondourcontrol.ThebreachofanyofthesecovenantscouldresultinadefaultunderourcommercialdebtfacilityrevolvingcreditfacilityandindenturegoverningtheSeniorNotesinwhichcasedependingontheactionstakenbythelendersthereunderortheirsuccessorsorassigneessuchlenderscouldelecttodeclareallamountsborrowedunderourcommercialdebtfacilityrevolvingcreditfacilityandindenturegoverningtheSeniorNotestogetherwithaccruedinteresttobedueandpayableandinthecaseoftheletterofcreditfacilitythebreachofanyoftheapplicablecovenantscouldresultinadefaultinwhichcasethecashcollateralwearerequiredtomaintainundertheletterofcreditfacilitywouldincreasefrom75to100ofalloutstandinglettersofcreditandifsuchadditionalcashisnotpostedthelendersthereundercouldelecttodeclareallamountsoutstandingthereundertogetherwithaccruedinteresttobedueandpayable.Ifwewereunabletorepaysuchborrowingsorinterestourlenderssuccessorsorassigneescouldproceedagainsttheircollateral.IftheindebtednessunderourcommercialdebtfacilityrevolvingcreditfacilityletterofcreditfacilityandindenturegoverningtheSeniorNotesweretobeacceleratedourassetsmaynotbesufficienttorepayinfullsuchindebtedness.InadditionthelimitationsimposedbythecommercialdebtfacilitytherevolvingcreditfacilitytheletterofcreditfacilityandtheindenturegoverningtheSeniorNotesonourabilitytoincuradditionaldebtandtotakeotheractionsmightsignificantlyimpairourabilitytoobtainotherfinancing.ProvisionsofourSeniorNotescoulddiscourageanacquisitionofusbyathirdparty.CertainprovisionsoftheindenturegoverningtheSeniorNotescouldmakeitmoredifficultormoreexpensiveforathirdpartytoacquireusormayevenpreventathirdpartyfromacquiringus.ForexampleupontheoccurrenceofachangeofcontroltriggeringeventasdefinedintheindenturegoverningtheSeniorNotesholdersofthenoteswillhavetherightattheiroptiontorequireustorepurchasealloftheirnotesoranyportionoftheprincipalamountofsuchnotes.Bydiscouraginganacquisitionofusbyathirdpartytheseprovisionscouldhavetheeffectofdeprivingtheholdersofourcommonsharesofanopportunitytoselltheircommonsharesatapremiumoverprevailingmarketprices.Ourlevelofindebtednessmayincreaseandtherebyreduceourfinancialflexibility.AtDecember312014wehad500.0millionoutstandingand1.0billionofcommittedundrawncapacityunderourcommercialdebtfacilitysubjecttoborrowingbaseavailability.AsofDecember312014therewerenoborrowingsoutstandingundertheCorporateRevolverandtheundrawnavailability62 was300.0million.AsofDecember312014thereweresevenoutstandinglettersofcredittotaling21.5millionundertheletterofcreditfacilityagreementand300.0millionprincipalamountofSeniorNotesoutstanding.Wealsocurrentlyhaveandmayinthefutureincursignificantoffbalancesheetobligations.Inthefuturewemayincursignificantindebtednessinordertomakeinvestmentsoracquisitionsortoexploreappraiseordevelopouroilandnaturalgasassets.Ourlevelofindebtednesscouldaffectouroperationsinseveralwaysincludingthefollowingasignificantportionorallofourcashflowswhengeneratedcouldbeusedtoserviceourindebtednessahighlevelofindebtednesscouldincreaseourvulnerabilitytogeneraladverseeconomicandindustryconditionsthecovenantscontainedintheagreementsgoverningouroutstandingindebtednesswilllimitourabilitytoborrowadditionalfundsdisposeofassetspaydividendsandmakecertaininvestmentsahighlevelofindebtednessmayplaceusatacompetitivedisadvantagecomparedtoourcompetitorsthatarelessleveragedandthereforemaybeabletotakeadvantageofopportunitiesthatourindebtednesscouldpreventusfrompursuingourdebtcovenantsmayalsoaffectourflexibilityinplanningforandreactingtochangesintheeconomyandinourindustryadditionalhedginginstrumentsmayberequiredasaresultofourindebtednessahighlevelofindebtednessmaymakeitmorelikelythatareductioninourborrowingbasefollowingaperiodicredeterminationcouldrequireustorepayaportionofourthen-outstandingbankborrowingsandahighlevelofindebtednessmayimpairourabilitytoobtainadditionalfinancinginthefutureforworkingcapitalcapitalexpendituresacquisitionsgeneralcorporateorotherpurposes.Ahighlevelofindebtednessincreasestheriskthatwemaydefaultonourdebtobligations.Ourabilitytomeetourdebtobligationsandtoreduceourlevelofindebtednessdependsonourfutureperformance.Generaleconomicconditionsrisksassociatedwithexploringforandproducingoilandnaturalgasoilandnaturalgaspricesandfinancialbusinessandotherfactorsaffectouroperationsandourfutureperformance.Manyofthesefactorsarebeyondourcontrol.Wemaynotbeabletogeneratesufficientcashflowstopaytheinterestonourindebtednessandfutureworkingcapitalborrowingsorequityfinancingmaynotbeavailabletopayorrefinancesuchindebtedness.Factorsthatwillaffectourabilitytoraisecashthroughanofferingofourequitysecuritiesorarefinancingofourindebtednessincludefinancialmarketconditionsthevalueofourassetsandourperformanceatthetimeweneedcapital.WeareaholdingcompanyandourabilitytomakepaymentsonouroutstandingindebtednessincludingourSeniorNotesandourcommercialdebtfacilityisdependentuponthereceiptoffundsfromoursubsidiariesbywayofdividendsfeesinterestloansorotherwise.Weareaholdingcompanyandoursubsidiariesownallofourassetsandconductallofouroperations.AccordinglyourabilitytomakepaymentsofinterestandprincipalontheSeniorNotesandcommercialdebtfacilitywillbedependentonthegenerationofcashflowbyoursubsidiariesandtheirabilitytomakesuchcashavailabletousbydividenddebtrepaymentorotherwise.Unlesstheyareguarantorsoursubsidiarieswillnothaveanyobligationtopayamountsdueonthenotesortomakefundsavailableforthatpurpose.OursubsidiariesmaynotbeabletoormaynotbepermittedtomakedistributionstoenableustomakepaymentsinrespectoftheSeniorNotesorthecommercialdebtfacility.Eachsubsidiaryisadistinctlegalentityandundercertaincircumstanceslegaland63 contractualrestrictionsmaylimitourabilitytoobtaincashfromoursubsidiaries.TheindenturegoverningtheSeniorNoteslimitstheabilityofoursubsidiariestoincurconsensualencumbrancesorrestrictionsontheirabilitytopaydividendsormakeotherintercompanypaymentstouswithsignificantqualificationsandexceptions.InadditionthetermsofthecommercialdebtfacilitylimittheabilityoftheobligorsthereunderincludingourmaterialoperatingsubsidiariesthatholdinterestsinourassetslocatedoffshoreGhanaandtheirintermediateparentcompaniesotherthanKosmosEnergyHoldingstoprovidecashtousthroughdividenddebtrepaymentorintercompanylending.IntheeventthatwedonotreceivedistributionsfromoursubsidiarieswemaybeunabletomakerequiredprincipalandinterestpaymentsonourindebtednessincludingtheSeniorNotesandcommercialdebtfacility.Wemaybesubjecttorisksinconnectionwithacquisitionsandtheintegrationofsignificantacquisitionsmaybedifficult.Weperiodicallyevaluateacquisitionsofprospectsandlicensesreservesandotherstrategictransactionsthatappeartofitwithinouroverallbusinessstrategy.Thesuccessfulacquisitionoftheseassetsorbusinessesrequiresanassessmentofseveralfactorsincludingrecoverablereservesfutureoilandnaturalgaspricesandtheirappropriatedifferentialsdevelopmentandoperatingcostsandpotentialenvironmentalandotherliabilities.Theaccuracyoftheseassessmentsisinherentlyuncertain.Inconnectionwiththeseassessmentsweperformareviewofthesubjectassetsthatwebelievetobegenerallyconsistentwithindustrypractices.Ourreviewwillnotrevealallexistingorpotentialproblemsnorwillitpermitustobecomesufficientlyfamiliarwiththeassetstofullyassesstheirdeficienciesandpotentialrecoverablereserves.Inspectionsmaynotalwaysbeperformedoneverywellandenvironmentalproblemsarenotnecessarilyobservableevenwhenaninspectionisundertaken.Evenwhenproblemsareidentifiedthesellermaybeunwillingorunabletoprovideeffectivecontractualprotectionagainstallorpartoftheproblems.Wemaynotbeentitledtocontractualindemnificationforenvironmentalliabilitiesandcouldacquireassetsonanasisbasis.Significantacquisitionsandotherstrategictransactionsmayinvolveotherrisksincludingdiversionofourmanagementsattentiontoevaluatingnegotiatingandintegratingsignificantacquisitionsandstrategictransactionsthechallengeandcostofintegratingacquiredoperationsinformationmanagementandothertechnologysystemsandbusinesscultureswiththoseofourswhilecarryingonourongoingbusinessdifficultyassociatedwithcoordinatinggeographicallyseparateorganizationsandthechallengeofattractingandretainingpersonnelassociatedwithacquiredoperations.Theprocessofintegratingoperationscouldcauseaninterruptionoforlossofmomentumintheactivitiesofourbusiness.Membersofourseniormanagementmayberequiredtodevoteconsiderableamountsoftimetothisintegrationprocesswhichwilldecreasethetimetheywillhavetomanageourbusiness.Ifourseniormanagementisnotabletoeffectivelymanagetheintegrationprocessorifanysignificantbusinessactivitiesareinterruptedasaresultoftheintegrationprocessourbusinesscouldsuffer.64 Ifwefailtorealizetheanticipatedbenefitsofasignificantacquisitionourresultsofoperationsmaybeadverselyaffected.Thesuccessofasignificantacquisitionwilldependinpartonourabilitytorealizeanticipatedgrowthopportunitiesfromcombiningtheacquiredassetsoroperationswiththoseofours.Evenifacombinationissuccessfulitmaynotbepossibletorealizethefullbenefitswemayexpectinestimatedprovedreservesproductionvolumecostsavingsfromoperatingsynergiesorotherbenefitsanticipatedfromanacquisitionorrealizethesebenefitswithintheexpectedtimeframe.Anticipatedbenefitsofanacquisitionmaybeoffsetbyoperatinglossesrelatingtochangesincommoditypricesincreasedinterestexpenseassociatedwithdebtincurredorassumedinconnectionwiththetransactionadversechangesinoilandgasindustryconditionsorbyrisksanduncertaintiesrelatingtotheexploratoryprospectsofthecombinedassetsoroperationsoranincreaseinoperatingorothercostsorotherdifficultiesincludingtheassumptionofenvironmentalorotherliabilitiesinconnectionwiththeacquisition.Ifwefailtorealizethebenefitsweanticipatefromanacquisitionourresultsofoperationsmaybeadverselyaffected.Ourbye-lawscontainaprovisionrenouncingourinterestandexpectancyincertaincorporateopportunitieswhichcouldadverselyaffectourbusinessorfutureprospects.Ourbye-lawsprovidethattothefullestextentpermittedbyapplicablelawwerenounceanyrightinterestorexpectancyinorinbeingofferedanopportunitytoparticipateinanybusinessopportunitythatmaybefromtimetotimebepresentedtocertainofouraffiliatesoranyoftheirrespectiveofficersdirectorsagentsshareholdersmemberspartnersaffiliatesandsubsidiariesotherthanusandoursubsidiariesorbusinessopportunitiesthatsuchpartiesparticipateinordesiretoparticipateineveniftheopportunityisonethatwemightreasonablyhavepursuedorhadtheabilityordesiretopursueifgrantedtheopportunitytodosoandnosuchpersonshallbeliabletousforbreachofanystatutoryfiduciarycontractualorotherdutyasadirectororotherwisebyreasonofthefactthatsuchpersonpursuesoracquiresanysuchbusinessopportunitydirectsanysuchbusinessopportunitytoanotherpersonorfailstopresentanysuchbusinessopportunityorinformationregardinganysuchbusinessopportunitytousunlessinthecaseofanysuchpersonwhoisourdirectorsuchpersonfailstopresentanybusinessopportunitythatisexpresslyofferedtosuchpersonsolelyinhisorhercapacityasourdirector.Asaresultourdirectorsandcertainofouraffiliatesandtheirrespectiveaffiliatesmaybecomeawarefromtimetotimeofcertainbusinessopportunitiessuchasacquisitionopportunitiesandmaydirectsuchopportunitiestootherbusinessesinwhichtheyortheiraffiliateshaveinvestedinwhichcasewemaynotbecomeawareoforotherwisehavetheabilitytopursuesuchopportunity.Furthersuchbusinessesmaychoosetocompetewithusfortheseopportunities.Asaresultourrenouncingofourinterestandexpectancyinanybusinessopportunitythatmaybefromtimetotimepresentedtoourdirectorsandcertainofouraffiliatesandtheirrespectiveaffiliatescouldadverselyimpactourbusinessorfutureprospectsifattractivebusinessopportunitiesareprocuredbysuchpartiesfortheirownbenefitratherthanforours.WereceivecertainbeneficialtaxtreatmentasaresultofbeinganexemptedcompanyincorporatedpursuanttothelawsofBermuda.Changesinthattreatmentcouldhaveamaterialadverseeffectonournetincomeourcashflowandourfinancialcondition.WeareanexemptedcompanyincorporatedpursuanttothelawsofBermudaandoperatethroughsubsidiariesinanumberofcountriesthroughouttheworld.ConsequentlywearesubjecttochangesintaxlawstreatiesorregulationsortheinterpretationorenforcementthereofintheUnitedStatesBermudaGhanaandotherjurisdictionsinwhichweoranyofoursubsidiariesoperateorareresident.InthepastlegislationhasbeenintroducedintheCongressoftheUnitedStatesthatwouldreformtheU.S.taxlawsastheyapplytocertainnon-U.S.entitiesandoperationsincludinglegislationthatwould65 treataforeigncorporationasaU.S.corporationforU.S.federalincometaxpurposesifsubstantiallyallofitsseniormanagementislocatedintheUnitedStates.IfthisorsimilarlegislationispassedthatchangesourU.S.taxpositionitcouldhaveamaterialadverseeffectonournetincomeourcashflowandourfinancialcondition.WemaybecomesubjecttotaxesinBermudaafterMarch312035whichmayhaveamaterialadverseeffectonourresultsofoperations.TheBermudaMinisterofFinanceundertheExemptedUndertakingsTaxProtectionAct1966ofBermudaasamendedhasgivenusanassurancethatifanylegislationisenactedinBermudathatwouldimposetaxcomputedonprofitsorincomeorcomputedonanycapitalassetgainorappreciationoranytaxinthenatureofestatedutyorinheritancetaxthentheimpositionofanysuchtaxwillnotbeapplicabletousoranyofouroperationssharesdebenturesorotherobligationsuntilMarch312035exceptinsofarassuchtaxappliestopersonswhoordinarilyresideinBermudaortoanytaxespayablebyusinrespectofrealpropertyownedorleasedbyusinBermuda.TheimpactofBermudasletterofcommitmenttotheOrganizationforEconomicCooperationandDevelopmenttoeliminateharmfultaxpracticesisuncertainandcouldadverselyaffectourtaxstatusinBermuda.TheOrganizationforEconomicCooperationandDevelopmentOECDhaspublishedreportsandlaunchedaglobalinitiativeamongmemberandnon-membercountriesonmeasurestolimitharmfultaxcompetition.Thesemeasuresarelargelydirectedatcounteractingtheeffectsoftaxhavensandpreferentialtaxregimesincountriesaroundtheworld.AccordingtotheOECDBermudaisajurisdictionthathassubstantiallyimplementedtheinternationallyagreedtaxstandardandassuchislistedontheOECDwhitelist.Howeverwearenotabletopredictwhetheranychangeswillbemadetothisclassificationorwhethersuchchangeswillsubjectustoadditionaltaxes.TheadoptionoffinancialreformlegislationbytheUnitedStatesCongressin2010anditsimplementingregulationscouldhaveanadverseeffectonourabilitytousederivativeinstrumentstoreducetheeffectofcommoditypriceandotherrisksassociatedwithourbusiness.Weusederivativeinstrumentstomanageourcommoditypriceandinterestraterisk.TheUnitedStatesCongressadoptedcomprehensivefinancialreformlegislationin2010thatestablishesfederaloversightandregulationoftheover-the-counterderivativesmarketandentitiessuchasoursthatparticipateinthatmarket.TheDodd-FrankActwassignedintolawbythePresidentonJuly212010.ManyoftheprovisionsoftheDodd-FrankActrequireimplementingregulationsbyagenciesincludingtheCommodityFuturesTradingCommissiontheCFTCandtheSEC.Theadoptingandimplementationoftheseregulationsisunderwaybuthasnotyetbeencompletedanditisnotpossibleatthistimetopredictwhenthiswillbeaccomplished.OfparticularimportancetoustheCFTChastheauthoritytoundercertainfindingsestablishpositionlimitsforcertainfuturesoptionsonfuturesandswapcontracts.Certainbonafidehedgingtransactionsorpositionswouldbeexemptfromthesepositionlimits.TheCFTCadoptedfinalpositionlimitrulesfor28physicalcommoditycontractsandrelatedfuturesoptionsonfuturesandswapsonNovember182011buttheseruleswerevacatedbytheUnitedStatesDistrictCourtforColumbiaonSeptember282012afteralawsuitwasbroughtbymarketparticipants.InNovember2013theCFTCproposednewrulesthatwouldplacelimitsonpositionsincertaincorefuturesandequivalentswapscontractsfororlinkedtocertainphysicalcommoditiessubjecttoexceptionsforcertainbonafidehedgingtransactions.ItisnotpossibleatthistimetopredictwhentheCFTCwillfinalizetheseregulationsthereforetheimpactofthoseprovisionsonusisuncertainatthistime.66 TheCFTChasdesignatedcertaininterest-rateswapsformandatoryclearingandexchangetrading.TheCFTChasnotyetproposedrulesdesignatinganyotherclassesofswapsincludingphysicalcommodityswapsformandatoryclearing.TheapplicationofthemandatoryclearingandtradeexecutionrequirementstoothermarketparticipantssuchasswapdealersmaychangethecostandavailabilityoftheswapsthattheCompanyusesforhedging.Thefinancialreformlegislationmayalsorequireustocomplywithmarginrequirementsandwithcertainclearingandtrade-executionrequirementsinconnectionwithourderivativesactivities.Rulesthatrequireend-userstopostinitialorvariationmargincouldimpactliquidityandreduceourcashavailableforcapitalexpendituresthereforereducingourabilitytoenterintoderivativestoreduceriskandprotectcashflows.Whiletherearelikelytobeexceptionsfrommanyoftheserequirementsforcommercialendusersofderivativeslikeusthefinalcontoursofmanyoftheseexceptionsandwhetherwechoosetousethemisuncertainatthistime.TheDodd-FrankActanditsimplementingregulationsmayalsorequirethecounterpartiestoourderivativeinstrumentstoregisterwiththeCFTCandbecomesubjecttosubstantialregulationorevenspinoffsomeoftheirderivativesactivitiestoaseparateentitywhichmaynotbeascreditworthyasthecurrentcounterparty.Theserequirementsandotherscouldsignificantlyincreasethecostofderivativescontractsincludingthroughrequirementstoclearswapsandtopostcollateraleachofwhichcouldadverselyaffectouravailableliquiditymateriallyalterthetermsofderivativescontractsreducetheavailabilityofderivativestoprotectagainstrisksweencounterreduceourabilitytomonetizeorrestructureourexistingderivativecontractsandincreaseourexposuretolesscreditworthycounterparties.Ifwereduceouruseofderivativesasaresultofthelegislationandregulationsourresultsofoperationsmaybecomemorevolatileandourcashflowsmaybelesspredictablewhichcouldadverselyaffectourabilitytoplanforandfundcapitalexpenditures.Ourrevenuescouldalsobeadverselyaffectedifaconsequenceofthelegislationandregulationsistolowercommodityprices.TheEuropeanUnionandothernon-U.S.jurisdictionsarealsoimplementingregulationswithrespecttothederivativesmarket.Totheextentwetransactwithcounterpartiesinforeignjurisdictionswemaybecomesubjecttosuchregulations.Atthistimetheimpactofsuchregulationsisnotclear.Anyoftheseconsequencescouldhaveamaterialadverseeffectonourconsolidatedfinancialpositionresultsofoperationsorcashflows.WemaybecomeapassiveforeigninvestmentcompanyforU.S.federalincometaxpurposeswhichcouldcreateadversetaxconsequencesforU.S.investors.U.S.investorsthatholdstockinapassiveforeigninvestmentcompanyPFICaresubjecttospecialrulesthatcancreateadverseU.S.federalincometaxconsequencesincludingimputedinterestchargesandrecharacterizationofcertaingainsanddistributions.BasedonmanagementestimatesandprojectionsoffuturerevenuewedonotbelievethatwewillbeaPFICforthecurrenttaxableyearandwedonotexpecttobecomeoneintheforeseeablefuture.BecausePFICstatusisafactualdeterminationthatismadeannuallyandthusissubjecttochangetherecanbenoassurancethatwewillnotbeaPFICforanytaxableyear.Acyberincidentcouldresultininformationtheftdatacorruptionoperationaldisruptionandorfinancialloss.Theoilandgasindustryhasbecomeincreasinglydependentondigitaltechnologiestoconductday-to-dayoperationsincludingcertainexplorationdevelopmentandproductionactivities.Forexamplesoftwareprogramsareusedtointerpretseismicdatamanagedrillingrigsconductreservoirmodelingandreservesestimationandtoprocessandrecordfinancialandoperatingdata.67 Wedependondigitaltechnologyincludinginformationsystemsandrelatedinfrastructureaswellascloudapplicationandservicestoprocessandrecordfinancialandoperatingdatacommunicatewithouremployeesandbusinesspartnersanalyzeseismicanddrillinginformationestimatequantitiesofoilandgasreservesandformanyotheractivitiesrelatedtoourbusiness.Ourbusinesspartnersincludingvendorsserviceprovidersco-venturerspurchasersofourproductionandfinancialinstitutionsarealsodependentondigitaltechnology.Thecomplexityofthetechnologiesneededtoexploreforanddevelopoilandgasinincreasinglydifficultphysicalenvironmentssuchasdeepwaterandglobalcompetitionforoilandgasresourcesmakecertaininformationmoreattractivetothieves.Asdependenceondigitaltechnologieshasincreasedcyberincidentsincludingdeliberateattacksorunintentionaleventshavealsoincreased.Acyber-attackcouldincludegainingunauthorizedaccesstodigitalsystemsforpurposesofmisappropriatingassetsorsensitiveinformationcorruptingdataorcausingoperationaldisruptionorresultindenial-of-serviceonwebsites.Forexamplein2012awaveofnetworkattacksimpactedSaudiArabiasoilindustryandbreachedfinancialinstitutionsintheU.S.CertaincountriesarebelievedtopossesscyberwarfarecapabilitiesandarecreditedwithattacksonAmericancompaniesandgovernmentagencies.Ourtechnologiessystemsnetworksandthoseofourbusinesspartnersmaybecomethetargetofcyber-attacksorinformationsecuritybreachesthatcouldresultintheunauthorizedreleasegatheringmonitoringmisuselossordestructionofproprietaryandotherinformationorotherdisruptionofourbusinessoperations.Inadditioncertaincyberincidentssuchassurveillancemayremainundetectedforanextendedperiod.Acyberincidentinvolvingourinformationsystemsandrelatedinfrastructureorthatofourbusinesspartnerscoulddisruptourbusinessplansandnegativelyimpactouroperations.Althoughtodatewehavenotexperiencedanysignificantcyber-attackstherecanbenoassurancethatwewillnotbethetargetofcyber-attacksinthefutureorsuffersuchlossesrelatedtoanycyber-incident.Ascyberthreatscontinuetoevolvewemayberequiredtoexpendsignificantadditionalresourcestocontinuetomodifyorenhanceourprotectivemeasuresortoinvestigateandremediateanyinformationsecurityvulnerabilities.Outbreaksofdiseaseinthegeographiesinwhichweoperatemayadverselyaffectourbusinessoperationsandfinancialcondition.Manyofouroperationsarecurrentlyandwilllikelyremaininthenearfutureindevelopingcountrieswhicharesusceptibletooutbreaksofdiseaseandmaylacktheresourcestoeffectivelycontainsuchanoutbreakquickly.Suchoutbreaksmayimpactourabilitytoexploreforoilandgasdeveloporproduceourlicenseareasbylimitingaccesstoqualifiedpersonnelincreasingcostsassociatedwithensuringthesafetyandhealthofourpersonnelrestrictingtransportationofpersonnelequipmentsuppliesandoilandgasproductiontoandfromourareasofoperationanddivertingthetimeattentionandresourcesofgovernmentagencieswhicharenecessarytoconductouroperations.Inadditionanylossesweexperienceasaresultofsuchoutbreaksofdiseasewhichimpactsalesordelayproductionmaynotbecoveredbyourinsurancepolicies.AnepidemicoftheEbolavirusdiseaseiscurrentlyongoinginpartsofWestAfrica.AsubstantialnumberofdeathshavebeenreportedbytheWorldHealthOrganizationWHOinWestAfricaandtheWHOhasdeclareditaglobalhealthemergency.ItisimpossibletopredicttheeffectandpotentialspreadoftheEbolavirusinWestAfricaandsurroundingareas.ShouldtheEbolaviruscontinuetospreadincludingtothecountriesinwhichweoperateornotbesatisfactorilycontainedourexplorationdevelopmentandproductionplansforouroperationscouldbedelayedorinterruptedaftercommencement.Anychangestotheseoperationscouldsignificantlyincreasecostsofoperations.OuroperationsrequirecontractorsandpersonneltotraveltoandfromAfricaaswellastheunhinderedtransportationofequipmentandoilandgasproductioninthecaseofourproducingfields.SuchoperationsalsorelyoninfrastructurecontractorsandpersonnelinAfrica.IftravelbansareimplementedorextendedtothecountriesinwhichweoperateincludingGhanaorcontractorsor68 personnelrefusetotraveltherewecouldbeadverselyaffected.Ifservicesareobtainedcostsassociatedwiththoseservicescouldbesignificantlyhigherthanplannedwhichcouldhaveamaterialadverseeffectonourbusinessresultsofoperationsandfuturecashflow.InadditionshouldtheEbolaepidemicspreadtoGhanaaccesstotheFPSOoperatingattheJubileeFieldcouldberestrictedandorterminated.TheFPSOispotentiallyabletooperateforashortperiodoftimewithoutaccesstothemainlandbutifrestrictionsextendedforalongerperiodweandtheoperatoroftheJubileeFieldwouldlikelyberequiredtoceaseproductionandotheroperationsuntilsuchrestrictionswerelifted.RisksRelatingtoOurCommonSharesOursharepricemaybevolatileandpurchasersofourcommonsharescouldincursubstantiallosses.Oursharepricemaybevolatile.Thestockmarketingeneralhasexperiencedextremevolatilitythathasoftenbeenunrelatedtotheoperatingperformanceofparticularcompanies.ThemarketpriceforourcommonsharesmaybeinfluencedbymanyfactorsincludingbutnotlimitedtothepriceofoilandnaturalgasthesuccessofourexplorationanddevelopmentoperationsandthemarketingofanyoilandnaturalgasweproduceregulatorydevelopmentsinBermudatheUnitedStatesandforeigncountrieswhereweoperatetherecruitmentordepartureofkeypersonnelquarterlyorannualvariationsinourfinancialresultsorthoseofcompaniesthatareperceivedtobesimilartousmarketconditionsintheindustriesinwhichwecompeteandissuanceofneworchangedsecuritiesanalystsreportsorrecommendationsthefailureofsecuritiesanalyststocoverourcommonsharesorchangesinfinancialestimatesbyanalyststheinabilitytomeetthefinancialestimatesofanalystswhofollowourcommonsharestheissuanceorsaleofanyadditionalsecuritiesofoursinvestorperceptionofourcompanyandoftheindustryinwhichwecompeteandgeneraleconomicpoliticalandmarketconditions.Asubstantialportionofourtotalissuedandoutstandingcommonsharesmaybesoldintothemarketatanytime.Thiscouldcausethemarketpriceofourcommonsharestodropsignificantlyevenifourbusinessisdoingwell.AllofthesharessoldinourinitialpublicofferingarefreelytradablewithoutrestrictionsorfurtherregistrationunderthefederalsecuritieslawsunlesspurchasedbyouraffiliatesasthattermisdefinedinRule144undertheSecuritiesActof1933asamendedtheSecuritiesAct.SubstantiallyalloftheremainingcommonsharesarerestrictedsecuritiesasdefinedinRule144undertheSecuritiesActunlesstheyhavebeensoldpursuanttoRule144todate.RestrictedsecuritiesmaybesoldintheU.S.publicmarketonlyifregisteredoriftheyqualifyforanexemptionfromregistrationincludingbyreasonofRule144orRule701undertheSecuritiesAct.AllofourrestrictedsharesareeligibleforsaleinthepublicmarketsubjectincertaincircumstancestothevolumemannerofsalelimitationswithrespecttosharesheldbyouraffiliatesandotherlimitationsunderRule144.Additionallywehaveregisteredallourcommonsharesthatwemayissueunderouremployeebenefitplans.Theseshares69 canbefreelysoldinthepublicmarketuponissuanceunlesspursuanttotheirtermstheseshareawardshavetransferrestrictionsattachedtothem.Salesofasubstantialnumberofourcommonsharesortheperceptioninthemarketthattheholdersofalargenumberofsharesintendtosellcommonsharescouldreducethemarketpriceofourcommonshares.Theconcentrationofoursharecapitalownershipamongourlargestshareholdersandtheiraffiliateswilllimityourabilitytoinfluencecorporatematters.Ourtwolargestshareholderscollectivelyownapproximately55ofourissuedandoutstandingcommonshares.Consequentlytheseshareholdershavesignificantinfluenceoverallmattersthatrequireapprovalbyourshareholdersincludingtheelectionofdirectorsandapprovalofsignificantcorporatetransactions.Thisconcentrationofownershipwilllimityourabilitytoinfluencecorporatemattersandasaresultactionsmaybetakenthatyoumaynotviewasbeneficial.Holdersofourcommonshareswillbedilutedifadditionalsharesareissued.Wemayissueadditionalcommonsharespreferredshareswarrantsrightsunitsanddebtsecuritiesforgeneralcorporatepurposesincludingbutnotlimitedtorepaymentorrefinancingofborrowingsworkingcapitalcapitalexpendituresinvestmentsandacquisitions.Wecontinuetoactivelyseektoexpandourbusinessthroughcomplementaryorstrategicacquisitionsandwemayissueadditionalcommonsharesinconnectionwiththoseacquisitions.Wealsoissuerestrictedsharestoourexecutiveofficersemployeesandindependentdirectorsaspartoftheircompensation.Ifweissueadditionalcommonsharesinthefutureitmayhaveadilutiveeffectonourcurrentoutstandingshareholders.WeareacontrolledcompanywithinthemeaningoftheNYSErulesandasaresultqualifyforandrelyonexemptionsfromcertaincorporategovernancerequirements.FundsaffiliatedwithWarburgPincusLLCandTheBlackstoneGroupL.P.respectivelycontinuetocontrolamajorityofthevotingpowerofourissuedandoutstandingcommonsharesandweareacontrolledcompanywithinthemeaningoftheNYSEcorporategovernancestandards.UndertheNYSErulesacompanyofwhichmorethan50ofthevotingpowerisheldbyanotherpersonorgroupofpersonsactingtogetherisacontrolledcompanyandmayelectnottocomplywithcertainNYSEcorporategovernancerequirementsincludingtherequirementsthatamajorityoftheboardofdirectorsconsistofindependentdirectorsthenominatingandcorporategovernancecommitteebecomposedentirelyofindependentdirectorswithawrittencharteraddressingthecommitteespurposeandresponsibilitiesthecompensationcommitteebecomposedentirelyofindependentdirectorswithawrittencharteraddressingthecommitteespurposeandresponsibilitiesandtherebeanannualself-assessmentevaluationofthenominatingandcorporategovernanceandcompensationcommittees.Wehaveelectedtobetreatedasacontrolledcompanyandutilizetheseexemptionsincludingtheexemptionforaboardofdirectorscomposedofamajorityofindependentdirectors.Inadditionalthoughwehaveadoptedchartersforourauditnominatingandcorporategovernanceandcompensationcommitteesandconductannualself-assessmentsforthesecommitteescurrentlyonlyourauditcommitteeiscomposedentirelyofindependentdirectors.AccordinglyyoumaynothavethesameprotectionsaffordedtoshareholdersofcompaniesthataresubjecttoalloftheNYSEcorporategovernancerequirements.70 Wedonotintendtopaydividendsonourcommonsharesandconsequentlyyouronlyopportunitytoachieveareturnonyourinvestmentisifthepriceofoursharesappreciates.Wedonotplantodeclaredividendsonsharesofourcommonsharesintheforeseeablefuture.Additionallycertainofoursubsidiariesarecurrentlyrestrictedintheirabilitytopaydividendstouspursuanttothetermsofourcommercialdebtfacilityunlesstheymeetcertainconditionsfinancialandotherwise.Consequentlyinvestorsmustrelyonsalesoftheircommonsharesafterpriceappreciationwhichmayneveroccurastheonlywaytorealizeareturnontheirinvestment.WeareaBermudacompanyandasignificantportionofourassetsarelocatedoutsidetheUnitedStates.AsaresultitmaybedifficultforshareholderstoenforcecivilliabilityprovisionsofthefederalorstatesecuritieslawsoftheUnitedStates.WeareaBermudaexemptedcompany.AsaresulttherightsofholdersofourcommonshareswillbegovernedbyBermudalawandourmemorandumofassociationandbye-laws.TherightsofshareholdersunderBermudalawmaydifferfromtherightsofshareholdersofcompaniesincorporatedinotherjurisdictions.SomeofourdirectorsarenotresidentsoftheUnitedStatesandasubstantialportionofourassetsarelocatedoutsidetheUnitedStates.AsaresultitmaybedifficultforinvestorstoeffectserviceofprocessonthatpersonintheUnitedStatesortoenforceintheUnitedStatesjudgmentsobtainedinU.S.courtsagainstusorthatpersonbasedonthecivilliabilityprovisionsoftheU.S.securitieslaws.ItisdoubtfulwhethercourtsinBermudawillenforcejudgmentsobtainedinotherjurisdictionsincludingtheUnitedStatesagainstusorourdirectorsorofficersunderthesecuritieslawsofthosejurisdictionsorentertainactionsinBermudaagainstusorourdirectorsorofficersunderthesecuritieslawsofotherjurisdictions.BermudalawdiffersfromthelawsineffectintheUnitedStatesandmightaffordlessprotectiontoshareholders.OurshareholderscouldhavemoredifficultyprotectingtheirintereststhanwouldshareholdersofacorporationincorporatedinajurisdictionoftheUnitedStates.AsaBermudacompanywearegovernedbytheCompaniesAct1981ofBermudatheBermudaCompaniesAct.TheBermudaCompaniesActdiffersinsomematerialrespectsfromlawsgenerallyapplicabletoU.S.corporationsandshareholdersincludingtheprovisionsrelatingtointeresteddirectorsmergersandacquisitionstakeoversshareholderlawsuitsandindemnificationofdirectors.Setforthbelowisasummaryoftheseprovisionsaswellasmodificationsadoptedpursuanttoourbye-lawswhichdifferincertainrespectsfromprovisionsofDelawarecorporatelaw.BecausethefollowingstatementsaresummariestheydonotdiscussallaspectsofBermudalawthatmayberelevanttousandourshareholders.InterestedDirectors.UnderBermudalawandourbye-lawsaslongasadirectordisclosesadirectorindirectinterestinanycontractorarrangementwithusasrequiredbylawsuchdirectorisentitledtovoteinrespectofanysuchcontractorarrangementinwhichheorsheisinterestedunlessdisqualifiedfromdoingsobythechairmanofthemeetingandsuchacontractorarrangementwillnotbevoidablesolelyasaresultoftheinteresteddirectorsparticipationinitsapproval.Inadditionthedirectorwillnotbeliabletousforanyprofitrealizedfromthetransaction.IncontrastunderDelawarelawsuchacontractorarrangementisvoidableunlessitisapprovedbyamajorityofdisinteresteddirectorsorbyavoteofshareholdersineachcaseifthematerialfactsastotheinteresteddirectorsrelationshiporinterestsaredisclosedorareknowntothedisinteresteddirectorsorshareholdersorsuchcontractorarrangementisfairtothecorporationasofthetimeitisapprovedorratified.Additionallysuchinteresteddirectorcouldbeheldliableforatransactioninwhichsuchdirectorderivedanimproperpersonalbenefit.MergersandSimilarArrangements.TheamalgamationofaBermudacompanywithanothercompanyorcorporationotherthancertainaffiliatedcompaniesrequirestheamalgamationagreement71 tobeapprovedbythecompanysboardofdirectorsandbyitsshareholders.Unlessthecompanysbye-lawsprovideotherwisetheapprovalof75oftheshareholdersvotingatsuchmeetingisrequiredtoapprovetheamalgamationagreementandthequorumforsuchmeetingmustbetwopersonsholdingorrepresentingmorethanone-thirdoftheissuedsharesofthecompany.Ourbye-lawsprovidethatanamalgamationotherthanwithawhollyownedsubsidiarypertheBermudaCompaniesActthathasbeenapprovedbytheboardmustonlybeapprovedbyshareholdersowningamajorityoftheissuedandoutstandingsharesentitledtovote.UnderBermudalawintheeventofanamalgamationofaBermudacompanywithanothercompanyorcorporationashareholderoftheBermudacompanywhoisnotsatisfiedthatfairvaluehasbeenofferedforsuchshareholderssharesmaywithinonemonthofnoticeoftheshareholdersmeetingapplytotheSupremeCourtofBermudatoappraisethefairvalueofthoseshares.UnderDelawarelawwithcertainexceptionsamergerconsolidationorsaleofallorsubstantiallyalltheassetsofacorporationmustbeapprovedbytheboardofdirectorsandamajorityoftheissuedandoutstandingsharesentitledtovotethereon.UnderDelawarelawashareholderofacorporationparticipatingincertainmajorcorporatetransactionsmayundercertaincircumstancesbeentitledtoappraisalrightspursuanttowhichsuchshareholdermayreceivecashintheamountofthefairvalueofthesharesheldbysuchshareholderasdeterminedbyacourtinlieuoftheconsiderationsuchshareholderwouldotherwisereceiveinthetransaction.ShareholdersSuit.ClassactionsandderivativeactionsaregenerallynotavailabletoshareholdersunderBermudalaw.TheBermudacourtshoweverwouldordinarilybeexpectedtopermitashareholdertocommenceanactioninthenameofacompanytoremedyawrongtothecompanywheretheactcomplainedofisallegedtobebeyondthecorporatepowerofthecompanyorillegalorwouldresultintheviolationofthecompanysmemorandumofassociationorbye-laws.FurthermoreconsiderationwouldbegivenbyaBermudacourttoactsthatareallegedtoconstituteafraudagainsttheminorityshareholdersorwhereanactrequirestheapprovalofagreaterpercentageofthecompanysshareholdersthanthatwhichactuallyapprovedit.WhentheaffairsofacompanyarebeingconductedinamannerwhichisoppressiveorprejudicialtotheinterestsofsomepartoftheshareholdersoneormoreshareholdersmayapplytotheSupremeCourtofBermudawhichmaymakesuchorderasitseesfitincludinganorderregulatingtheconductofthecompanysaffairsinthefutureororderingthepurchaseofthesharesofanyshareholdersbyothershareholdersorbythecompany.Ourbye-lawscontainaprovisionbyvirtueofwhichweandourshareholderswaiveanyclaimorrightofactionthattheyhavebothindividuallyandonourbehalfagainstanydirectororofficerinrelationtoanyactionorfailuretotakeactionbysuchdirectororofficerexceptinrespectofanyfraudordishonestyofsuchdirectororofficer.ClassactionsandderivativeactionsgenerallyareavailabletoshareholdersunderDelawarelawforamongotherthingsbreachoffiduciarydutycorporatewasteandactionsnottakeninaccordancewithapplicablelaw.Insuchactionsthecourthasdiscretiontopermitthewinningpartytorecoverattorneysfeesincurredinconnectionwithsuchaction.IndemnificationofDirectors.Wemayindemnifyourdirectorsandofficersintheircapacityasdirectorsorofficersforanylossarisingorliabilityattachingtothembyvirtueofanyruleoflawinrespectofanynegligencedefaultbreachofdutyorbreachoftrustofwhichadirectororofficermaybeguiltyinrelationtothecompanyotherthaninrespectofhisownfraudordishonesty.UnderDelawarelawacorporationmayindemnifyadirectororofficerofthecorporationagainstexpensesincludingattorneysfeesjudgmentsfinesandamountspaidinsettlementactuallyandreasonablyincurredindefenseofanactionsuitorproceedingbyreasonofsuchpositionifsuchdirectororofficeractedingoodfaithandinamannerheorshereasonablybelievedtobeinornotopposedtothebestinterestsofthecorporationandwithrespecttoanycriminalactionorproceedingsuchdirectororofficerhadnoreasonablecausetobelievehisorherconductwasunlawful.Inadditionwehaveenteredintocustomaryindemnificationagreementswithourdirectors.72 Item1B.UnresolvedStaffCommentsNotapplicable.Item2.PropertiesSeeItem1.Business.Wealsohavevariousoperatingleasesforrentalofofficespaceofficeandfieldequipmentandvehicles.SeeNote15ofNotestotheConsolidatedFinancialStatementsincludedinItem8.FinancialStatementsandSupplementaryDataforthefutureminimumrentalpayments.Suchinformationisincorporatedhereinbyreference.Item3.LegalProceedingsFromtimetotimewemaybeinvolvedinvariouslegalandregulatoryproceedingsarisinginthenormalcourseofbusiness.Whilewecannotpredicttheoccurrenceoroutcomeoftheseproceedingswithcertaintywedonotbelievethatanadverseresultinanypendinglegalorregulatoryproceedingindividuallyorintheaggregatewouldbematerialtoourconsolidatedfinancialconditionorcashflowshoweveranunfavorableoutcomecouldhaveamaterialadverseeffectonourresultsofoperationsforaspecificinterimperiodoryear.Item4.MineSafetyDisclosuresNotapplicable.73 PARTIIItem5.MarketforRegistrantsCommonEquityRelatedStockholderMattersandIssuerPurchasesofEquitySecuritiesCommonSharesTradingSummaryOurcommonsharesaretradedontheNYSEunderthesymbolKOS.Thefollowingtableshowsthequarterlyhighandlowsalepricesofourcommonshares.20142013HighLowHighLowFirstQuarter........................................11.609.8813.0510.15SecondQuarter......................................11.2710.0012.1710.09ThirdQuarter.......................................11.239.2411.159.71FourthQuarter......................................10.416.9611.4210.03AsofFebruary182015basedoninformationfromtheCompanystransferagentComputershareTrustCompanyN.A.thenumberofholdersofrecordofKosmoscommonshareswas192.OnFebruary182015thelastreportedsalepriceofKosmoscommonsharesasreportedontheNYSEwas8.87pershare.Wehaveneverpaidanydividendsonourcommonshares.Atthepresenttimeweintendtoretainallofourfutureearningsifanygeneratedbyouroperationsforthedevelopmentandgrowthofourbusiness.AdditionallywearesubjecttoBermudalegalconstraintsthatmayaffectourabilitytopaydividendsonourcommonsharesandmakeotherpayments.UndertheBermudaCompaniesActwemaynotdeclareorpayadividendiftherearereasonablegroundsforbelievingthatweareorwouldafterthepaymentbeunabletopayourliabilitiesastheybecomedueorthattherealizablevalueofourassetswouldthereafterbelessthantheaggregateofourliabilitiesissuedsharecapitalandsharepremiumaccounts.CertainofoursubsidiariesarealsocurrentlyrestrictedintheirabilitytopaydividendstouspursuanttothetermsoftheSeniorNotestheFacilityandtheCorporateRevolverunlesswemeetcertainconditionsfinancialandotherwise.Anydecisiontopaydividendsinthefutureisatthediscretionofourboardofdirectorsanddependsonourfinancialconditionresultsofoperationscapitalrequirementsandotherfactorsthatourboardofdirectorsdeemsrelevant.Currentlywedonotanticipatepayinganydividendsintheforeseeablefuture.IssuerPurchasesofEquitySecuritiesUnderthetermsofourLongTermIncentivePlanLTIPwehaveissuedsharesofrestrictedsharesandrestrictedshareunitstoouremployees.OnthedatethattheserestrictedsharesandrestrictedshareunitsvestweprovidesuchemployeestheoptiontowithholdviaanetexerciseprovisionpursuanttoourapplicablerestrictedshareawardagreementsandtheLTIPthenumberofvestedsharesbasedontheclosingpriceofourcommonsharesonsuchvestingdateequaltothetaxliabilityowedbysuchgrantee.Theshareswithheldfromthegranteestosettletheirtaxliabilityare74 17FEB201519413208reallocatedtothenumberofsharesavailableforissuanceundertheLTIP.Thefollowingtableoutlinesthetotalnumberofshareswithheldduringfiscalyear2014andtheaveragepricepaidpershare.TotalNumberAverageofSharesPricePaidWithheldPurchasedperShareInthousandsJanuary12014January312014.............................February12014February282014...........................710.34March12014March312014...............................April12014April302014.................................110.99May12014May312014..................................92310.46June12014June302014.................................2310.48July12014July312014..................................111.10August12014August312014..............................September12014September302014.........................October12014October312014............................210.02November12014November302014.........................December12014December312014.........................Total.................................................95710.46SharePerformanceGraphThefollowingPerformanceGraphandrelatedinformationshallnotbedeemedsolicitingmaterialortobefiledwiththeSECnorshallsuchinformationbeincorporatedbyreferenceintoanyfuturefilingsundertheSecuritiesActof1933orSecuritiesExchangeActof1934eachasamendedexcepttotheextentthattheCompanyspecificallyincorporatesitbyreferenceintosuchfilings.ThefollowinggraphillustrateschangesovertheperiodfromMay112011dateourcommonsharescommencedtradingontheNYSEthroughDecember312014incumulativetotalstockholderreturnonourcommonsharesasmeasuredagainstthecumulativetotalreturnoftheSP500IndexandtheSIGOilExplorationProductionIndex.Thegraphtrackstheperformanceofa100investmentinourcommonsharesandineachindexwiththereinvestmentofalldividends.20015017512510075502505111211121212141213KosmosEnergyLtd.KOSSIGOilExplorationProductionIndexEPXSP500SPXDecember31May1120112011201220132014KosmosEnergyLtd.KOS.................100.0068.1168.6162.1146.61SP500SPX..........................100.0094.55109.36143.24161.77SIGOilExplorationProductionIndexEPX..100.0084.3378.5399.0371.7175 Item6.SelectedFinancialDataThefollowingselectedconsolidatedfinancialinformationsetforthbelowasofandforthefiveyearsendedDecember312014shouldbereadinconjunctionwithItem7.ManagementsDiscussionandAnalysisofFinancialConditionandResultsofOperationsandItem8.FinancialStatementsandSupplementaryData.ConsolidatedStatementsofOperationsInformationYearsEndedDecember31201420132012201112010InthousandsexceptpersharedataRevenuesandotherincomeOilandgasrevenue....................855877851212667951666912Gainonsaleofassets...................23769Otherincome.........................309294131507755109Totalrevenuesandotherincome..........8827388521536711016676875109CostsandexpensesOilandgasproduction..................100122967919510983551Explorationexpenses....................9351923031410065212875373126Generalandadministrative...............13523115842115708711123598967Depletionanddepreciation...............1980802225441857071404692423Interestandotherfinancingcostsnet........45548475906542513249284178Derivativesnet........................28185317027314901177728319Restructuringcharges...................11742Doubtfulaccountsexpense................3978239782Otherexpensesnet.....................2081351214751491094Totalcostsandexpenses................304470776199636945568644327889Incomelossbeforeincometaxes............578268759543415699043322780Incometaxexpensebenefit..............2988981669981011847668677108Netincomeloss........................279370910446702822357245672Accretiontoredemptionvalueofconvertiblepreferredunits........................2444277313Netincomelossattributabletocommonshareholdersunitholders.................27937091044670282085322985NetincomelosspershareattributabletocommonshareholderstheyearendedDecember312011representstheperiodfromMay162011toDecember3120112Basic.............................0.730.240.180.09Diluted............................0.720.240.180.09WeightedaveragenumberofsharesusedtocomputenetincomelosspersharetheyearendedDecember312011representstheperiodfromMay162011toDecember3120112Basic.............................379195376819371847368474Diluted............................3861193768193718473686071PursuanttothetermsofourcorporatereorganizationthatwascompletedsimultaneouslywiththeclosingoftheinitialpublicofferingalloftheinterestsinKosmosEnergyHoldingswereexchangedfornewlyissuedcommonsharesofKosmosEnergyLtd.basedontheseinterestsrelativerightsassetforthin76 KosmosEnergyHoldingsthen-currentoperatingagreement.ThisincludedconvertiblepreferredunitsofKosmosEnergyHoldingswhichwereredeemedupontheconsummationofthequalifiedpublicofferingasdefinedintheoperatingagreementineffectpriortotheinitialpublicofferingintocommonsharesofKosmosEnergyLtd.basedonthepre-offeringequityvalueofsuchinterests.2FortheyearendedDecember312011wehavepresentednetincomelosspershareattributabletocommonshareholdersincludingweightedaveragenumberofsharesusedtocomputenetincomelosspershareattributabletocommonshareholdersfromthedateofourcorporatereorganizationMay162011toDecember312011.NetincomefortheperiodfromMay162011throughDecember312011was36.1million.Fortheperiodspresentedpriortoourcorporatereorganizationwedonotcalculatehistoricalnetincomelosspershareattributabletocommonshareholdersbecausewedidnothaveacommonunitofownershipinthoseperiods.ConsolidatedBalanceSheetsInformationAsofDecember3120142013201220112010InthousandsCashandcashequivalents.........554831598108515164673092100415Totalcurrentassets..............10104767349617501181112481559920Totalpropertyandequipmentnet...1784846152296215257621377041998000Totalotherassets................177444879039024362412133615Totalassets....................29727662345826236612325519341691535Totalcurrentliabilities............448771219324190253339607482057Totallong-termliabilities..........1185036113416711469641191601845383Totalconvertiblepreferredunits.....978506Totalshareholdersequityunitholdingsequity................133895999233510289061020726614411Totalliabilitiesconvertiblepreferredunitsandshareholdersequityunitholdingsequity................29727662345826236612325519341691535ConsolidatedStatementsofCashFlowsInformationYearsEndedDecember3120142013201220112010InthousandsNetcashprovidedbyusedinOperatingactivities.................443586522404371530364909191800Investingactivities..................347679324133402662385140589975Financingactivities.................13918411532712679659290874268577 Item7.ManagementsDiscussionandAnalysisofFinancialConditionandResultsofOperationsThefollowingdiscussionandanalysiscontainsforward-lookingstatementsthatinvolverisksanduncertainties.Ouractualresultsmaydiffermateriallyfromthosediscussedintheforward-lookingstatementsasaresultofvariousfactorsincludingwithoutlimitationthosesetforthinCautionaryStatementRegardingForward-LookingStatementsandItem1A.RiskFactors.ThefollowingdiscussionofourfinancialconditionandresultsofoperationsshouldbereadinconjunctionwithourconsolidatedfinancialstatementsandthenotestheretoincludedelsewhereinthisannualreportonForm10-K.OverviewKosmosisaleadingindependentoilandgasexplorationandproductioncompanyfocusedonfrontierandemergingareasalongtheAtlanticMargin.OurassetsincludeexistingproductionandothermajordevelopmentprojectsoffshoreGhanaaswellasexplorationlicenseswithsignificanthydrocarbonpotentialoffshoreIrelandMauritaniaMoroccoincludingWesternSaharaSenegalandSuriname.RecentDevelopmentsCommodityPricesTheoilandgasindustryasawholeexperiencedasignificantdeclineincrudeoilpricesduringthesecondhalfof2014.DatedBrentcrudethebenchmarkforouroilsalespeakedabove115perbarrelinJunebeforefallingbelow60atyear-end.ExcludingtheimpactofhedgesourDecemberrealizedpricewas62.00perbarrel.February2015indicesindicatethatpricesaretrendingaroundourDecemberrealizedpriceasthepriceofcrudeoilcontinuestofluctuate.CorporateDuringtheyearendedDecember312014werecognized11.7millioninrestructuringchargesforemployeeseveranceandrelatedbenefitswhichincludes5.0millionofacceleratednon-cashexpenserelatedtoawardspreviouslygrantedundertheLong-TermIncentivePlantheLTIP.DebtInMarch2014theCompanyamendedandrestatedthethenexistingcommercialdebtfacilitytheFacilitywithatotalcommitmentof1.5billionfromanumberoffinancialinstitutionsandextendedthetermtoMarch312021.DuringAugust2014theCompanyissued300.0millionof7.875SeniorSecuredNotesdue2021SeniorNotesandreceivednetproceedsofapproximately292.5millionafterdeductingdiscountscommissionsanddeferredfinancingcosts.WeusedthenetproceedstorepayaportionoftheoutstandingindebtednessundertheFacilityandforgeneralcorporatepurposes.RigAgreementInSeptember2014wetookdeliveryofthenewbuild6thgenerationdrillshipAtwoodAchieverfromAtwoodOceanicsInc.Therigagreementcoversaninitialperiodofthreeyearsatadayrateofapproximately0.6millionwithanoptiontoextendtheagreementforanadditionalthree-yearterm.Wehaveenteredintoarigsharingagreementwherebytworigslotsestimatedtobe130daysintotalduring2015and30daysduring2016wereassignedtoathird-party.78 GhanaInearly2014wedeepenedaJubileeFielddevelopmentwelltofurtherappraisetheMahoganydiscoverywhichconfirmedanextensionoftheMahoganydiscovery.InMay2014wecompleteda3Dseismicprogramofapproximately940squarekilometersovertheTweneboaEnyenraandNtommeTENdevelopmentandWawaappraisalareasintheDeepwaterTanoDTBlock.In2014theGhanaNationalPetroleumCorporationGNPCnotifiedusandourblockpartnersthatitwouldexerciseitsrightforthecontractorgrouptopayits5shareoftheTENdevelopmentcostscurrentlyestimatedas4.9billiongross.OurportionofGNPCsshareisestimatedat49.0million.TheblockpartnerswillbereimbursedforsuchcostsplusinterestoutofaportionofGNPCsTENproductionrevenuesunderthetermsoftheDTpetroleumcontract.ApprovalwasgrantedbytheGovernmentofGhanaandtheGhanaianEnvironmentalProtectionAgencyinJune2014topermittheflaringof500MMcfofgaspermonthfromtheJubileeFielduntiltheendofOctober2014.ThislimitedflaringassistedinthemaintenanceofexistingproductionlevelsuntiltheWesternCorridorGasInfrastructureJubileeGasExportwasoperational.TheJubileeGasExportcommencedinNovember2014.Theexportvolumesareexpectedtoincreasein2015andcontinueformultipleyears.MoroccoincludingWesternSaharaInthefirstquarterof2014weclosedthreefarm-outagreementswithBPExplorationMoroccoLimitedawhollyownedsubsidiaryofBPplcBPcoveringourthreeblocksintheAgadirBasinoffshoreMorocco.UnderthetermsoftheagreementsBPacquiredanon-operatinginterestineachoftheEssaouiraOffshoreFoumAssakaOffshoreandTarhazouteOffshoreblocks.Thesalesproceedsofthefarm-outswere56.9million.Aftergivingeffecttothesefarm-outsourparticipatinginterestsare30.029.9and30.0intheEssaouiraOffshoreFoumAssakaOffshoreandTarhazouteOffshoreblocksrespectivelyandweremaintheoperator.Theproceedsonthesaleoftheinterestsexceededourbookbasisintheassetsresultingina23.8milliongainonthetransaction.Inthefirstquarterof2014weclosedafarm-outagreementwithCapricornExplorationandDevelopmentCompanyLimitedawhollyownedsubsidiaryofCairnEnergyPLCCairncoveringtheCapBoujdourOffshoreblockoffshoreWesternSahara.Cairnpaid1.5millionfortheirshareofcostsincurredfromtheeffectivedateofthefarm-outagreementthroughtheclosingdatewhichwasrecordedasareductioninourbasis.Aftergivingeffecttothefarm-outourparticipatinginterestintheCapBoujdourOffshoreblockis55.0andweremaintheoperator.InJuly2014wecompleteda3Dseismicprogramofapproximately4300squarekilometersovertheTarhazouteOffshoreandEssaouiraOffshoreblocks.InSeptember2014wecompleteda3Dseismicsurveyofapproximately5100squarekilometersovertheCapBoujdourOffshoreblock.Inthesecondquarterof2014theFA-1explorationwellontheFoumAssakaOffshoreblockintheAgadirBasinwasdeterminedtobenon-commercialandaccordinglywaspluggedandabandoned.BPfundedourshareoftheFA-1explorationwellsubjecttoamaximumgrossspendof120.0million.FortheyearendedDecember312014weexpensed0.7millionassociatedwiththeFA-1wellasexplorationexpensesintheaccompanyingconsolidatedstatementofoperations.WeenteredthefirstextensionperiodontheEssaouiraOffshoreblockinMay2014whichrequiresustodrilloneexplorationwell.AftertherequiredrelinquishmentofacreagetoenterthefirstextensionperiodtheEssaouiraOffshoreblockcomprisesapproximately2.2millionacres.79 WereceivedfinalgovernmentalapprovalsforenteringtheTarhazouteOffshoreblockinearly2014.Weareintheinitialexplorationphaseofthepetroleumcontractwhichcomprises1.9millionacres.TheCB-1explorationwellontheCapBoujdourOffshoreblockwasspudinDecember2014totesttheAlKhayrprospectformerlynamedGargaa.Weexpectwellresultsduringthefirstquarterof2015.MauritaniaInthefourthquarterof2014wedrilledthetop-holesectionoftheTortue-1explorationwellinblockC8.Asplannedoperationsweresuspendedafterdrillingthetophopesectionofthewell.WeexpecttocompletethedrillingofTortue-1duringthefirsthalfof2015.PortugalInAugust2014weenteredintoafarm-inagreementwithRepsolExploracionS.A.Repsoltoacquireanon-operatedinterestintheCamaraoAmeijoaMexilhaoandOstrablocksoffshorePortugal.AspartoftheagreementwewillreimburseaportionofRepsolspreviouslyincurredexplorationcostsaswellaspartiallycarryRepsolsshareofthecostsofaplanned3Dseismicprogram.Certaingovernmentalapprovalsandprocessesarestillrequiredtobecompletedbeforethisacquisitioniseffective.Aftercompletingtheacquisitionourparticipatinginterestintheblockswillbe31.SenegalInAugust2014weenteredintoafarm-inagreementwithTimisCorporationLimitedwherebyweacquireda60participatinginterestandoperatorshipcoveringtheCayarOffshoreProfondandSaintLouisOffshoreProfondblocksoffshoreSenegal.Aspartoftheagreementwearecarryingthefullcostsofaplanned3Dseismicprogram.Additionallywewillcarrythefullcostsoftwocontingentexplorationwellssubjecttoamaximumgrosscostperwellof120.0millionshouldKosmoselecttodrillsuchwells.Wealsoretaintheoptiontoincreaseourinterestto65inexchangeforcarryingthefullcostofathirdcontingentexplorationorappraisalwellsubjecttoamaximumgrosscostof120.0million.InSeptember2014wecommenceda3Dseismicsurveyofapproximately7000squarekilometersovertheCayarOffshoreProfondandSaintLouisOffshoreProfondblockswhichwascompletedinJanuary2015.SurinameInBlock42wereceivedanextensionoftheinitialexplorationphaseofupto9monthswhichnowexpiresonSeptember132015.80 ResultsofOperationsAllofourresultsaspresentedinthetablebelowrepresentoperationsfromtheJubileeFieldinGhana.CertainoperatingresultsandstatisticsfortheyearsendedDecember3120142013and2012areincludedinthefollowingtableYearsEndedDecember31201420132012InthousandsexceptperbarreldataSalesvolumesMBbl................................872877785905RevenuesOilsales..............................855877851212667951AveragesalespriceperBbl..................98.06109.44113.12CostsOilproductionexcludingworkovers..........796485760850640Oilproductionworkovers.................204743918344469Totaloilproductioncosts................1001229679195109Depletionanddepreciation................198080222544185707AveragecostperBblOilproductionexcludingworkovers..........9.137.418.58Oilproductionworkovers.................2.355.047.53Totaloilproductioncosts................11.4812.4516.11Depletionanddepreciation................22.6928.6131.45Oilproductioncostanddepletioncosts.......34.1741.0647.5681 Thediscussionoftheresultsofoperationsandtheperiod-to-periodcomparisonspresentedbelowanalyzeourhistoricalresults.Thefollowingdiscussionmaynotbeindicativeoffutureresults.YearEndedDecember312014vs.2013YearsEndedDecember31Increase20142013DecreaseInthousandsRevenuesandotherincomeOilandgasrevenue....................8558778512124665Gainonsaleofassets...................2376923769Otherincome.........................30929412151Totalrevenuesandotherincome.........88273885215330585CostsandexpensesOilandgasproduction..................100122967913331Explorationexpenses...................93519230314136795Generalandadministrative...............13523115842123190Depletionanddepreciation...............19808022254424464Interestandotherfinancingcostsnet.......45548475902042Derivativesnet.......................28185317027298880Restructuringcharges...................1174211742Otherexpensesnet....................208135121431Totalcostsandexpenses...............304470776199471729Incomebeforeincometaxes................57826875954502314Incometaxexpense....................298898166998131900Netincomeloss........................27937091044370414Oilandgasrevenue.Oilandgasrevenueincreasedby4.7millionduringtheyearendedDecember312014ascomparedtotheyearendedDecember312013primarilyduetoanincreaseinsalesvolumesnineliftingsin2014comparedtoeightin2013partiallyoffsetbyalowerrealizedpriceperbarrel.Weliftedandsoldapproximately8728MBblatanaveragerealizedpriceperbarrelof98.06in2014andapproximately7778MBblatanaveragerealizedpriceperbarrelof109.44in2013.Gainonsaleofassets.DuringtheyearendedDecember312014weclosedthreefarm-outagreementswithBP.Aspartofthetransactionwereceivedproceedsinexcessofourbookbasisresultinginagainof23.8million.Oilandgasproduction.Oilandgasproductioncostsincreasedby3.3millionduringtheyearendedDecember312014ascomparedtotheyearendedDecember312013primarilyduetoanincreaseinroutineoperatingexpensesoffsetbyareductioninwellworkovercostsandnon-routineoperatingcosts.Ourworkovercostsarerelatedtoperformingworkoversonourwellswhichareperformedonanasneededbasis.Weexpecttheamountofcostsassociatedwithworkoverstofluctuatebasedontheactivitylevelduringeachyear.Explorationexpenses.Explorationexpensesdecreasedby136.8millionduringtheyearendedDecember312014ascomparedtotheyearendedDecember312013.Thedecreaseisprimarilydueto105.8millionofunsuccessfulwellandotherrelatedcostsprimarilyrelatedtotheCameroonSipo-1explorationwelltheGhanaSapele-1explorationwellandtheGhanaAkasa-2Aappraisalwelland110.4millionforseismiccostsprimarilyforMauritaniaIrelandMoroccoandnewbusinessactivities82 incurredduringtheyearendedDecember312013comparedto81.2millionforseismiccostsforSenegalMoroccoincludingWesternSaharaMauritaniaIrelandSurinameandnewbusinessduringtheyearendedDecember312014.Generalandadministrative.Generalandadministrativecostsdecreasedby23.2millionduringtheyearendedDecember312014ascomparedtotheyearendedDecember312013.Thedecreasefromprioryearisrelatedtoanincreaseincapitalizedgeneralandadministrativecostsandgeneralandadministrativecostsincurredforthebenefitofandallocatedtoexplorationexpenseandadecreaseinprofessionalfeesandoccupancyandgeneralexpensespartiallyoffsetbyanincreaseincompensationandbenefits.Depletionanddepreciation.Depletionanddepreciationdecreased24.5millionduringtheyearendedDecember312014ascomparedwiththeyearendedDecember312013primarilyduetoalowerdepletionratein2014duetoanincreaseinourprovedreservesassociatedwiththeJubileeField.Interestandotherfinancingcosts.Interestexpensedecreasedby2.0millionduringtheyearendedDecember312014ascomparedtotheyearendedDecember312013primarilyduetoawrite-downofthedeferredinterestreductionininterestexpenseasaresultofrefinancingourcommercialdebtfacilityeffectiveinMarch2014andaloweraverageoutstandingdebtbalanceduringtheyearendedDecember312014ascomparedtotheyearendedDecember312013.Derivativesnet.DuringtheyearsendedDecember312014and2013werecordedagainof281.9millionandalossof17.0millionrespectivelyonouroutstandinghedgepositions.Thegainandlossrecordedwerearesultofchangesintheforwardcurveofoilpricesduringtherespectiveperiods.Restructuringcharges.DuringtheyearendedDecember312014werecognized11.7millioninrestructuringchargesforemployeeseveranceandrelatedbenefitcostsincurredaspartofacorporatereorganizationwhichincludes5.0millionofnon-cashexpenserelatedtoawardsgrantedunderourLTIP.Incometaxexpense.TheCompanyseffectivetaxratesfortheyearsendedDecember312014and2013were51.7and219.9respectively.Theeffectivetaxratesfortheperiodspresentedareimpactedbylossesprimarilyrelatedtoexplorationexpensesincurredinjurisdictionsinwhichwearenotsubjecttotaxesandthereforedonotgenerateanyincometaxbenefitsandlossesincurredinjurisdictionsinwhichwehavevaluationallowancesagainstourdeferredtaxassetsandthereforewedonotrealizeanytaxbenefitonsuchlosses.Incometaxexpenseincreased131.9millionduringtheyearsendedDecember312014ascomparedwithDecember312013primarilyduetodeferredtaxesrelatedtothesignificantmark-to-marketgainonderivatives.83 YearEndedDecember312013vs.2012YearsEndedDecember31Increase20132012DecreaseInthousandsRevenuesandotherincomeOilandgasrevenue.....................851212667951183261Otherincome..........................94131502209Totalrevenuesandotherincome..........852153671101181052CostsandexpensesOilandgasproduction...................96791951091682Explorationexpenses.....................23031497712132602Generalandadministrative................1584211600271606Depletionanddepreciation................22254418570736837Interestandotherfinancingcostsnet........475906542517835Derivativesnet.........................170273149014463Otherexpensesnet......................351214752037Totalcostsandexpenses.................776199636945139254Incomelossbeforeincometaxes.............759543415641798Incometaxexpense......................16699810118465814Netloss................................910446702824016Oilandgasrevenue.Oilandgasrevenueincreasedby183.3millionduringtheyearendedDecember312013ascomparedtotheyearendedDecember312012primarilyduetoanincreaseinsalesvolumes.Weliftedandsoldapproximately7778MBblatanaveragerealizedpriceperbarrelof109.44in2013andapproximately5905MBblatanaveragerealizedpriceperbarrelof113.12in2012.Oilandgasproduction.Oilandgasproductioncostsincreasedby1.7millionduringtheyearendedDecember312013ascomparedtotheyearendedDecember312012.Thechangeisduetoanincreaseinroutineoperatingexpensesoffsetbyareductioninworkoverandrigequipmentcosts.DuringtheyearendedDecember312013weincurredworkovercostsfortwowaterinjectionwells.DuringtheyearendedDecember312012weincurredworkovercostsrelatedtoacidjobsforsixproducingwells.Explorationexpenses.Explorationexpensesincreasedby132.6millionduringtheyearendedDecember312013ascomparedtotheyearendedDecember312012.DuringtheyearendedDecember312013weincurred105.8millionofunsuccessfulwellandotherrelatedcostsprimarilyrelatedtotheCameroonSipo-1explorationwelltheGhanaSapele-1explorationwellandtheGhanaAkasa-2Aappraisalwelland110.4millionforseismiccostsprimarilyforMauritaniaIrelandMoroccoandnewbusinessactivities.DuringtheyearendedDecember312012weincurred53.9millionforseismiccostsforMoroccoSurinameGhanaandCameroon32.2millionofunsuccessfulwellcostsprimarilyrelatedtotheGhanaTeak-4AappraisalwellandGhanaOkure-1explorationwelland9.9millionofnewbusinesscosts.Generalandadministrative.Generalandadministrativecostsdecreasedby1.6millionduringtheyearendedDecember312013ascomparedtotheyearendedDecember312012.CashGeneralandadministrativecostsincreased16.0millionduringtheyearduetoanincreaseinprofessionalfeesandcompensationandbenefitshoweverthiswaspartiallyoffsetbya14.4milliondecreaseinnon-cashgeneralandadministrativecostsassociatedwithourlong-termincentiveplan.84 Depletionanddepreciation.Depletionanddepreciationincreased36.8millionduringtheyearendedDecember312013ascomparedwiththeyearendedDecember312012primarilyduetodepletionrelatedtoanincreaseinproductionvolumesduringtheyear.Interestandotherfinancingcostsnet.Interestexpenseandotherfinancingcostsnetdecreasedby17.8millionduringtheyearendedDecember312013ascomparedtotheyearendedDecember312012primarilyduetoreducedtransactiontaxesdecreasesinouroutstandingdebtbalanceandthemark-to-marketchangesonourinterestrateswapsduringtheyearendedDecember312013.Derivativesnet.ThedecreaseinDerivativesnetisduetothechangeinfairvalueofthecommodityderivativeinstruments.ThechangeinfairvalueincludestheimpactofincreasesanddecreasesintheDatedBrentforwardcurvecomparedtoourexecutedhedgingarrangementsandderivativesenteredintoorsettledduringeachperiod.Incometaxexpense.TheCompanyrecognizedanincometaxprovisionattributabletoearningsof167.0millionand101.2millionduring2013and2012respectively.TheCompanyseffectivetaxratesfor2013and2012were219.9and296.2respectively.Thelargeeffectivetaxratesfortheperiodspresentedareduetolossesincurredinjurisdictionsinwhichwearenotsubjecttotaxesandthereforedonotgenerateanyincometaxbenefitsaswellaslossesincurredinjurisdictionsinwhichwehavevaluationallowancesagainstourdeferredtaxassetsandthereforewedonotrealizeanytaxbenefitonsuchlosses.Incometaxexpenseincreased65.8millionduringtheyearendedDecember312013ascomparedwithDecember312012primarilyduetoanincreaseinpre-taxincomefromourGhanaiansubsidiary.LiquidityandCapitalResourcesWeareactivelyengagedinanongoingprocessofanticipatingandmeetingourfundingrequirementsrelatedtoexploringforanddevelopingoilandnaturalgasresourcesalongtheAtlanticMargin.Wehavehistoricallymetourfundingrequirementsthroughcashflowsgeneratedfromouroperatingactivitiesandobtainedfundingfromissuancesofequityanddebt.InrelationtocashflowgeneratedfromouroperatingactivitiesifweareunabletocontinuouslyremoveassociatednaturalgasinlargequantitiesfromtheJubileeFieldandthepotentialproductionrestraintscausedtherebythentheCompanyscashflowsfromoperationswillbeadverselyaffectedWhilewearepresentlyinastrongfinancialpositionthedeclineinoilpricingexperiencedduringthefourthquarterof2014ifprolongedoriffurtherdeteriorationofpricingcontinuescouldimpactourabilitytogeneratesufficientoperatingcashflowstomeetourfundingrequirementsaswellasimpacttheborrowingbaseavailableundertheFacility.Commoditypricesarevolatileandfuturepricescannotbeaccuratelypredictedhoweverwemaintainahedgingprogramtomitigatethepricevolatility.Ourinvestmentdecisionsarebasedonlonger-termcommoditypricesbasedonthelong-termnatureofourprojectsanddevelopmentplans.Currentcommoditypricesourhedgingprogramandourcurrentliquiditypositionsupportourcapitalprogramfor2015.Assuchour2015capitalbudgetisbasedonourdevelopmentplansforGhanaandourexplorationprogramfor2015.85 SourcesandUsesofCashThefollowingtablepresentsthesourcesandusesofourcashandcashequivalentsfortheyearsendedDecember3120142013and2012YearsEndedDecember31201420132012InthousandsSourcesofcashandcashequivalentsNetcashprovidedbyoperatingactivities......443586522404371530Proceedsonsaleofassets.................58315Netproceedsfromissuanceofseniorsecurednotes..............................294000Restrictedcash........................20924816825522404371530UsesofcashandcashequivalentsOilandgasassets......................424535317413368990Otherproperty........................238349709994Paymentsonlong-termdebt...............400000100000110000Purchaseoftreasurystock................11096131018378Deferredfinancingcosts..................2208822268418Restrictedcash........................175023678860102439460529458Increasedecreaseincashandcashequivalents..4327782944157928Netcashprovidedbyoperatingactivities.Netcashprovidedbyoperatingactivitiesin2014was443.6millioncomparedwithnetcashprovidedbyoperatingactivitiesof522.4millionin2013and371.5millionin2012respectively.ThedecreaseincashprovidedbyoperatingactivitiesintheyearendedDecember312014whencomparedtothesameperiodin2013wasprimarilyduetoanincreaseinresultsfromoperationsoffsetbyanegativechangeinworkingcapitalitems.Theincreaseincashprovidedbyoperatingactivitiesin2013whencomparedto2012wasprimarilyduetoanincreaseinoilandgasrevenuesandapositivechangeinworkingcapitalitems.ThefollowingtablepresentsourliquidityandfinancialpositionasofDecember312014December312014InthousandsCashandcashequivalents..............................554831Restrictedcash......................................32051SeniorNotesatpar...................................300000DrawingsundertheFacility.............................500000Netdebt.........................................213118AvailabilityundertheFacility............................1000000AvailabilityundertheCorporateRevolver...................300000Availableborrowingspluscashandcashequivalents...........185483186 CapitalExpendituresandInvestmentsWeexpecttoincursubstantialcostsaswedevelopourdiscoveriesthatwedeterminetobecommerciallyviableexecuteour2015explorationandappraisaldrillingprograminourlicenseareaspurchaseandanalyzeseismicandothergeologicalandgeophysicaldatatoidentifyfutureprospectsandinvestinadditionaloilandnaturalgasleasesandlicenses.Wehavereliedonanumberofassumptionsinbudgetingforourfutureactivities.Theseincludethenumberofwellsweplantodrillourparticipatinginterestsinourprospectsthecostsinvolvedindevelopingorparticipatinginthedevelopmentofaprospectthetimingofthird-partyprojectsourabilitytoutilizeouravailabledrillingrigcapacityandtheavailabilityofsuitableequipmentandqualifiedpersonnel.Theseassumptionsareinherentlysubjecttosignificantbusinesspoliticaleconomicregulatoryenvironmentalandcompetitiveuncertaintiescontingenciesandrisksallofwhicharedifficulttopredictandmanyofwhicharebeyondourcontrol.Wemayneedtoraiseadditionalfundsmorequicklyifoneormoreofourassumptionsprovestobeincorrectorifwechoosetoexpandouracquisitionexplorationappraisaldevelopmenteffortsoranyotheractivitymorerapidlythanwepresentlyanticipate.Wemaydecidetoraiseadditionalfundsbeforeweneedthemiftheconditionsforraisingcapitalarefavorable.Wemayseektosellequityordebtsecuritiesorobtainadditionalbankcreditfacilities.Thesaleofequitysecuritiescouldresultindilutiontoourshareholders.Theincurrenceofadditionalindebtednesscouldresultinincreasedfixedobligationsandadditionalcovenantsthatcouldrestrictouroperations.2015CapitalProgramWeestimatewewillspendapproximately800millionofcapitalfortheyearendingDecember312015.Thiscapitalexpenditurebudgetconsistsofapproximately500millionfordevelopmentalrelatedexpendituresoffshoreGhanaandapproximately300millionforexplorationandappraisalrelatedexpendituresincludingnewventureopportunities.Theultimateamountofcapitalwewillspendmayfluctuatemateriallybasedonmarketconditionsandthesuccessofourdrillingresults.Ourfuturefinancialconditionandliquiditywillbeimpactedbyamongotherfactorsourlevelofproductionofoilandthepriceswereceivefromthesaleofthesecommoditiesthesuccessofourexplorationandappraisaldrillingprogramthenumberofcommerciallyviableoilandnaturalgasdiscoveriesmadeandthequantitiesofoilandnaturalgasdiscoveredthespeedwithwhichwecanbringsuchdiscoveriestoproductionandtheactualcostofexplorationappraisalanddevelopmentofouroilandnaturalgasassets.SignificantSourcesofCapitalFacilityInMarch2014theCompanyamendedandrestatedtheFacilitywithatotalcommitmentof1.5billionfromanumberoffinancialinstitutions.TheFacilitysupportsouroilandgasexplorationappraisalanddevelopmentprogramsandcorporateactivities.AspartofthedebtrefinancinginMarch2014therepaymentofborrowingsundertheexistingfacilityattributabletofinancialinstitutionsthatdidnotparticipateintheamendedFacilitywasaccountedforasanextinguishmentofdebtandexistingunamortizeddebtissuancecostsattributable87 tothoseparticipantswereexpensed.Asaresultwerecordeda2.9millionlossontheextinguishmentofdebt.AsofDecember312014wehave44.6millionofnetdeferredfinancingcostsrelatedtotheFacilitywhichwillbeamortizedovertheremainingtermoftheFacilityincludingcertaincostsrelatedtotheamendment.AsofDecember312014borrowingsundertheFacilitytotaled500.0millionandtheundrawnavailabilityundertheFacilitywas1.0billion.Interestistheaggregateoftheapplicablemargin3.25to4.50dependingonthelengthoftimethathaspassedfromthedatetheFacilitywasenteredintoLIBORandmandatorycostifanyasdefinedintheFacility.Interestispayableonthelastdayofeachinterestperiodandiftheinterestperiodislongerthansixmonthsonthedatesfallingatsix-monthintervalsafterthefirstdayoftheinterestperiod.Wepaycommitmentfeesontheundrawnandunavailableportionofthetotalcommitmentsifany.Commitmentfeesareequalto40perannumofthethen-applicablerespectivemarginwhenacommitmentisavailableforutilizationandequalto20perannumofthethen-applicablerespectivemarginwhenacommitmentisnotavailableforutilization.WerecognizeinterestexpenseinaccordancewithASC835Interestwhichrequiresinterestexpensetoberecognizedusingtheeffectiveinterestmethod.AspartoftheMarch2014amendmenttheFacilitysestimatedeffectiveinterestratewaschangedandaccordinglyweadjustedourestimateofdeferredinterestpreviouslyrecordedduringprioryearsby4.5millionwhichwasrecordedasareductiontointerestexpense.TheFacilityprovidesarevolving-creditandletterofcreditfacility.Theavailabilityperiodfortherevolving-creditfacilityasamendedinMarch2014expiresonMarch312018howevertheFacilityhasarevolving-creditsublimitwhichwillbethelesserof500.0millionandthetotalavailablefacilityatthattimethatwillbeavailablefordrawinguntilthedatefallingonemonthpriortothefinalmaturitydate.Theletterofcreditsublimitexpiresonthefinalmaturitydate.TheavailablefacilityamountissubjecttoborrowingbaseconstraintsandbeginningonMarch312018outstandingborrowingswillbeconstrainedbyanamortizationschedule.TheFacilityhasafinalmaturitydateofMarch312021.AsofDecember312014wehadnolettersofcreditissuedundertheFacility.WehavetherighttocancelalltheundrawncommitmentsundertheFacility.TheamountoffundsavailabletobeborrowedundertheFacilityalsoknownastheborrowingbaseamountisdeterminedeachyearonMarch31andSeptember30.TheborrowingbaseamountisbasedonthesumofthenetpresentvaluesofnetcashflowsandrelevantcapitalexpendituresreducedbycertainpercentagesaswellasvalueattributabletocertainassetsreservesandorresourcesinGhana.IfaneventofdefaultexistsundertheFacilitythelenderscanacceleratethematurityandexerciseotherrightsandremediesincludingtheenforcementofsecuritygrantedpursuanttotheFacilityovercertainassetsheldbyoursubsidiaries.TheFacilitycontainscustomarycrossdefaultprovisions.WewereincompliancewiththefinancialcovenantscontainedintheFacilityasoftheSeptember302014forecastthemostrecentassessmentdatewhichrequiresthemaintenanceofthefieldlifecoverratioasdefinedintheglossarynotlessthan1.30xandtheloanlifecoverratioasdefinedintheglossarynotlessthan1.10xandthedebtcoverratioasdefinedintheglossarynotmorethan3.5xandtheinterestcoverratioasdefinedintheglossarynotlessthan2.25xCorporateRevolverInNovember2012wesecuredaCorporateRevolverfromanumberoffinancialinstitutionswhichasamendedhasanavailabilityof300.0million.TheCorporateRevolverisavailableforall88 subsidiariesforgeneralcorporatepurposesandforoilandgasexplorationappraisalanddevelopmentprograms.AsofDecember312014therewerenoborrowingsoutstandingundertheCorporateRevolverandtheundrawnavailabilityundertheCorporateRevolverwas300.0million.Interestistheaggregateoftheapplicablemargin6.0LIBORandmandatorycostifanyasdefinedintheCorporateRevolver.Interestispayableonthelastdayofeachinterestperiodandiftheinterestperiodislongerthansixmonthsonthedatesfallingatsix-monthintervalsafterthefirstdayoftheinterestperiod.Wepaycommitmentfeesontheundrawnportionofthetotalcommitments.Commitmentfeesforthelendersareequalto40perannumoftherespectivemarginwhenacommitmentisavailableforutilization.TheCorporateRevolverhasa3-yearavailabilityperiodthatexpiresonNovember202015.Theavailableamountisnotsubjecttoborrowingbaseconstraints.WehavetherighttocancelalltheundrawncommitmentsundertheCorporateRevolver.WearerequiredtorepaycertainamountsdueundertheCorporateRevolverwithsalesofcertainsubsidiariesorsalesofcertainassets.IfaneventofdefaultexistsundertheCorporateRevolverthelenderscanacceleratethematurityandexerciseotherrightsandremediesincludingtheenforcementofsecuritygrantedpursuanttotheCorporateRevolverovercertainassetsheldbyus.WewereincompliancewiththefinancialcovenantscontainedintheCorporateRevolverasofSeptember302014themostrecentassessmentdatewhichrequiresthemaintenanceofthedebtcoverratioasdefinedintheglossarynotmorethan3.5xandtheinterestcoverratioasdefinedintheglossarynotlessthan2.25x.TheU.S.andmanyforeigneconomiescontinuetoexperienceuncertaintydrivenbyvaryingmacroeconomicconditions.Althoughsomeoftheseeconomieshaveshownsignsofimprovementmacroeconomicrecoveryremainsuneven.UncertaintyinthemacroeconomicenvironmentandassociatedglobaleconomicconditionshaveresultedinextremevolatilityincreditequityandforeigncurrencymarketsincludingtheEuropeansovereigndebtmarketsandvolatilityinvariousothermarkets.IfanyofthefinancialinstitutionswithinourFacilityorCorporateRevolverareunabletoperformontheircommitmentsourliquiditycouldbeimpacted.WeactivelymonitorallofthefinancialinstitutionsparticipatinginourFacilityandCorporateRevolver.Noneofthefinancialinstitutionshaveindicatedtousthattheymaybeunabletoperformontheircommitments.Inadditionweperiodicallyreviewourbankingandfinancingrelationshipsconsideringthestabilityoftheinstitutionsandotheraspectsoftherelationships.Basedonourmonitoringactivitieswecurrentlybelieveourbankswillbeabletoperformontheircommitments.TheCorporateRevolvercontainscustomarycrossdefaultprovisions.RevolvingLetterofCreditFacilityInJuly2013weenteredintoarevolvingletterofcreditfacilityagreementLCFacility.ThesizeoftheLCFacilityis100.0millionwithadditionalcommitmentsupto50.0millionbeingavailableiftheexistinglenderincreasesitscommitmentsorifcommitmentsfromnewfinancialinstitutionsareadded.TheLCFacilityprovidesthatweshallmaintaincashcollateralinanamountequaltoatleast75ofalloutstandinglettersofcreditundertheLCFacilityprovidedthatduringtheperiodofanybreachofcertainfinancialcovenantstherequiredcashcollateralamountshallincreaseto100.Thefeesassociatedwithoutstandinglettersofcreditissuedwillbe0.5perannum.TheLCFacilityhasanavailabilityperiodwhichexpiresonJune12016.WemayvoluntarilycancelanycommitmentsavailableundertheLCFacilityatanytime.AsofDecember312014thereweresevenoutstandinglettersofcredittotaling21.5millionundertheLCFacility.TheLCFacilitycontainscustomarycrossdefaultprovisions.89 7.875SeniorSecuredNotesdue2021DuringAugust2014theCompanyissued300.0millionofSeniorNotesandreceivednetproceedsofapproximately292.5millionafterdeductingdiscountscommissionsanddeferredfinancingcosts.TheCompanyusedthenetproceedstorepayaportionoftheoutstandingindebtednessundertheFacilityandforgeneralcorporatepurposes.TheSeniorNotesmatureonAugust12021.Interestispayablesemi-annuallyinarrearseachFebruary1andAugust1commencingonFebruary12015.TheSeniorNotesaresecuredsubjecttocertainexceptionsandpermittedliensbyafirstrankingfixedequitablechargeonallsharesheldbyusinourdirectsubsidiaryKosmosEnergyHoldings.TheSeniorNotesarecurrentlyguaranteedonasubordinatedunsecuredbasisbyourexistingrestrictedsubsidiariesthatguaranteetheFacilityandtheCorporateRevolverandincertaincircumstancestheSeniorNoteswillbecomeguaranteedbycertainofourotherexistingorfuturerestrictedsubsidiariestheGuarantees.RedemptionandRepurchase.AtanytimepriortoAugust12017andsubjecttocertainconditionstheCompanymayonanyoneormoreoccasionsredeemupto35oftheaggregateprincipalamountofSeniorNotesissuedundertheindenturedatedAugust12014relatedtotheSeniorNotestheIndentureataredemptionpriceof107.875plusaccruedandunpaidinterestwiththecashproceedsofcertaineligibleequityofferings.AdditionallyatanytimepriortoAugust12017theCompanymayonanyoneormoreoccasionsredeemallorapartoftheSeniorNotesataredemptionpriceequalto100plusanyaccruedandunpaidinterestandplusamake-wholepremium.OnorafterAugust12017theCompanymayredeemallorapartoftheSeniorNotesattheredemptionpricesexpressedaspercentagesofprincipalamountsetforthbelowplusaccruedandunpaidinterestYearPercentageOnorafterAugust12017butbeforeAugust12018...............103.9OnorafterAugust12018butbeforeAugust12019...............102.0OnorafterAugust12019andthereafter........................100.0WemayalsoredeemtheSeniorNotesinwholebutnotinpartatanytimeifchangesintaxlawsimposecertainwithholdingtaxesonamountspayableontheSeniorNotesatapriceequaltotheprincipalamountoftheSeniorNotesplusaccruedinterestandadditionalamountsifanyasmaybenecessarysothatthenetamountreceivedbyeachholderafteranywithholdingordeductiononpaymentsoftheSeniorNoteswillnotbelessthantheamountsuchholderwouldhavereceivedifsuchtaxeshadnotbeenwithheldordeducted.UpontheoccurrenceofachangeofcontroltriggeringeventasdefinedundertheIndenturetheCompanywillberequiredtomakeanoffertorepurchasetheSeniorNotesatarepurchasepriceequalto101oftheprincipalamountplusaccruedandunpaidinteresttobutexcludingthedateofrepurchase.IfwesellassetsundercertaincircumstancesoutlinedintheIndenturewewillberequiredtousethenetproceedstomakeanoffertopurchasetheSeniorNotesatanofferpriceincashinanamountequalto100oftheprincipalamountoftheSeniorNotesplusaccruedandunpaidinteresttobutexcludingtherepurchasedate.Covenants.TheIndenturerestrictsourabilityandtheabilityofourrestrictedsubsidiariestoamongotherthingsincurorguaranteeadditionalindebtednesscreatelienspaydividendsormakedistributionsinrespectofcapitalstockpurchaseorredeemcapitalstockmakeinvestmentsorcertainotherrestrictedpaymentssellassetsenterintoagreementsthatrestricttheabilityofoursubsidiariestomakedividendsorotherpaymentstousenterintotransactionswithaffiliatesoreffectcertainconsolidationsmergersoramalgamations.Thesecovenantsaresubjecttoanumberofimportant90 qualificationsandexceptions.CertainofthesecovenantswillbeterminatediftheSeniorNotesareassignedaninvestmentgraderatingbybothStandardPoorsRatingServicesandFitchRatingsInc.andnodefaultoreventofdefaulthasoccurredandiscontinuing.Collateral.TheSeniorNotesaresecuredsubjecttocertainexceptionsandpermittedliensbyafirstrankingfixedequitablechargeonallcurrentlyoutstandingsharesadditionalsharesdividendsorotherdistributionspaidinrespectofsuchsharesoranyotherpropertyderivedfromsuchsharesineachcaseheldbyusinrelationtotheCompanysdirectsubsidiaryKosmosEnergyHoldingspursuanttothetermsoftheChargeoverSharesofKosmosEnergyHoldingsdatedNovember232012asamendedandrestatedonMarch142014betweentheCompanyandBNPParibasasSecurityandIntercreditorAgent.TheSeniorNotesshareparipassuinthebenefitofsuchequitablechargebasedontherespectiveamountsoftheobligationsundertheIndentureandtheamountofobligationsundertheCorporateRevolver.TheGuaranteesarenotsecured.ContractualObligationsThefollowingtablesummarizesbyperiodthepaymentsdueforourestimatedcontractualobligationsasofDecember312014PaymentsDueByYear4Total20152016201720182019ThereafterInthousandsPrincipaldebtrepayments1............80000057571742429Interestpaymentsonlong-termdebt2.....352620611925889861630557075420760986Operatingleases....................1609532603158322333233131AtwoodAchieverdrillingrigcontract3....4861151398251999201463701IncludesthescheduledprincipalmaturitiesfortheSeniorNotesandtheFacility.ThescheduledmaturitiesofdebtrelatedtotheFacilityarebasedonthelevelofborrowingsandtheestimatedfutureavailableborrowingbaseasofDecember312014.Anyincreasesordecreasesinthelevelofborrowingsorincreasesordecreasesintheavailableborrowingbasewouldimpactthescheduledmaturitiesofdebtduringthenextfiveyearsandthereafter.AsofDecember312014therewerenoborrowingsundertheCorporateRevolver.2Basedonoutstandingborrowingsasnotedin1aboveandtheLIBORyieldcurvesatthereportingdateandcommitmentfeesrelatedtotheFacilityandCorporateRevolverandinterestontheSeniorNotes.3Commitmentscalculatedusingadayrateof595000excludingapplicabletaxes.Therigcommitmentsreflecttheexecutionofarigsharingagreementwherebytworigslotsestimatedtobe130daysduring2015and30daysduring2016wereassignedtoathird-party.4Doesnotincludepurchasecommitmentsforjointlyownedfieldsandfacilitieswherewearenottheoperatorandexcludescommitmentsforexplorationactivitiesincludingwellcommitmentsinourpetroleumcontracts.91 ThefollowingtablepresentsmaturitiesbyexpecteddebtmaturitydatestheweightedaverageinterestratesexpectedtobepaidontheFacilitygivencurrentcontractualtermsandmarketconditionsandthedebtsestimatedfairvalue.Weighted-averageinterestratesarebasedonimpliedforwardratesintheyieldcurveatthereportingdate.Thistabledoesnottakeintoaccountamortizationofdeferredfinancingcosts.LiabilityFairValueatYearsEndingDecember31December3120152016201720182019Thereafter2014InthousandsexceptpercentagesFixedratedebtSeniorNotes......................300000255000Fixedinterestrate...................7.887.887.887.887.887.88VariableratedebtFacility1........................57571442429500000Weightedaverageinterestrate2.........3.644.555.255.906.276.89InterestrateswapsNotionaldebtamount3..............168756250329Fixedratepayable.................2.222.22Variableratereceivable4............0.521.18Notionaldebtamount3..............168756250346Fixedratepayable.................2.312.31Variableratereceivable4............0.521.18Notionaldebtamount3..............23137114Fixedratepayable.................1.34Variableratereceivable4............0.361Theamountsincludedinthetablerepresentprincipalmaturitiesonly.ThescheduledmaturitiesofdebtarebasedonthelevelofborrowingsandtheavailableborrowingbaseasofDecember312014.Anyincreasesordecreasesinthelevelofborrowingsorincreasesordecreasesintheavailableborrowingbasewouldimpactthescheduledmaturitiesofdebtduringthenextfiveyearsandthereafter.AsofDecember312014therewerenoborrowingsundertheCorporateRevolver.2Basedonoutstandingborrowingsasnotedin1aboveandtheLIBORyieldcurvesplusapplicablemarginatthereportingdate.ExcludescommitmentfeesrelatedtotheFacilityandCorporateRevolver.3Representsweightedaveragenotionalcontractamountsofinterestratederivatives.InthefinalyearofmaturityrepresentsnotionalamountfromJanuary-June.4Basedonimpliedforwardratesintheyieldcurveatthereportingdate.SubsequenttoDecember312014weenteredintocappedinterestrateswapsfor200.0millionfromJanuary2016throughDecember2018.For200.0millionofdebtthatishedgedweexpecttopayanaverage1-monthLIBORrateof1.23ifLIBORisbelow3.0andpaythemarketrateless1.77ifLIBORisabove3.0netofthecappedinterestrateswaps.Off-BalanceSheetArrangementsWemayenterintooff-balancesheetarrangementsandtransactionsthatcangiverisetomaterialoff-balancesheetobligations.AsofDecember312014ourmaterialoff-balancesheetarrangementsandtransactionsincludeoperatingleasesandundrawnlettersofcredit.TherearenoothertransactionsarrangementsorotherrelationshipswithunconsolidatedentitiesorotherpersonsthatarereasonablylikelytomateriallyaffectKosmosliquidityoravailabilityoforrequirementsforcapitalresources.92 CriticalAccountingPoliciesThisdiscussionoffinancialconditionandresultsofoperationsisbasedupontheinformationreportedinourconsolidatedfinancialstatementswhichhavebeenpreparedinaccordancewithgenerallyacceptedaccountingprinciplesintheUnitedStates.Thepreparationofourfinancialstatementsrequiresustomakeassumptionsandestimatesthataffectthereportedamountsofassetsliabilitiesrevenuesandexpensesaswellasthedisclosureofcontingentassetsandliabilitiesasofthedatethefinancialstatementsareavailabletobeissued.Webaseourassumptionsandestimatesonhistoricalexperienceandothersourcesthatwebelievetobereasonableatthetime.Actualresultsmayvaryfromourestimates.OursignificantaccountingpoliciesaredetailedinItem8.FinancialStatementsandSupplementaryDataNote2AccountingPolicies.Wehaveoutlinedbelowcertainaccountingpoliciesthatareofparticularimportancetothepresentationofourfinancialpositionandresultsofoperationsandrequiretheapplicationofsignificantjudgmentorestimatesbyourmanagement.RevenueRecognition.Weusethesalesmethodofaccountingforoilandgasrevenues.Underthismethodwerecognizerevenuesonthevolumessoldbasedontheprovisionalsalesprices.Thevolumessoldmaybemoreorlessthanthevolumestowhichweareentitledbasedonourownershipinterestintheproperty.Thesedifferencesresultinaconditionknownintheindustryasaproductionimbalance.Areceivableorliabilityisrecognizedonlytotheextentthatwehaveanimbalanceonaspecificpropertygreaterthantheexpectedremainingprovedreservesonsuchproperty.AsofDecember312014and2013wehadnooilandgasimbalancesrecordedinourconsolidatedfinancialstatements.Ouroilandgasrevenuesarebasedonprovisionalpricecontractswhichcontainanembeddedderivativethatisrequiredtobeseparatedfromthehostcontractforaccountingpurposes.Thehostcontractisthereceivablefromoilsalesatthespotpriceonthedateofsale.Theembeddedderivativewhichisnotdesignatedasahedgeforaccountingpurposesismarkedtomarketthroughoilandgasrevenueeachperioduntilthefinalsettlementoccurswhichgenerallyislimitedtothemonthafterthesaleoccurs.ExplorationandDevelopmentCosts.Wefollowthesuccessfuleffortsmethodofaccountingforouroilandgasproperties.Acquisitioncostsforprovedandunprovedpropertiesarecapitalizedwhenincurred.Costsofunprovedpropertiesaretransferredtoprovedpropertieswhenadeterminationthatprovedreserveshavebeenfound.Explorationcostsincludinggeologicalandgeophysicalcostsandcostsofcarryingunprovedpropertiesarechargedtoexpenseasincurred.Exploratorydrillingcostsarecapitalizedwhenincurred.Ifexploratorywellsaredeterminedtobecommerciallyunsuccessfulordryholestheapplicablecostsareexpensed.Costsincurredtodrillandequipdevelopmentwellsincludingunsuccessfuldevelopmentwellsarecapitalized.Costsincurredtooperateandmaintainwellsandequipmentandtoliftcrudeoilandnaturalgastothesurfaceareexpensed.Receivables.Ourreceivablesconsistofjointinterestbillingsoilsalesandotherreceivables.Forouroilsalesreceivablewerequirealetterofcredittobepostedtosecuretheoutstandingreceivable.Receivablesfromjointinterestownersarestatedatamountsduenetofanyallowancesfordoubtfulaccounts.Wedetermineourallowancebyconsideringthelengthoftimepastduefuturenetrevenuesofthedebtorsownershipinterestinoilandnaturalgaspropertiesweoperateandtheownersabilitytopayitsobligationamongotherthings.IncomeTaxes.WeaccountforincometaxesasrequiredbytheASC740IncomeTaxesASC740.Wemakecertainestimatesandjudgmentsindeterminingourincometaxexpenseforfinancialreportingpurposes.Theseestimatesandjudgmentsoccurinthecalculationofcertaintaxassetsandliabilitiesthatarisefromdifferencesinthetimingandrecognitionofrevenueandexpensefortaxandfinancialreportingpurposes.Ourfederalstateandinternationaltaxreturnsaregenerallynotpreparedorfiledbeforetheconsolidatedfinancialstatementsarepreparedthereforeweestimate93 thetaxbasisofourassetsandliabilitiesattheendofeachperiodaswellastheeffectsoftaxratechangestaxcreditsandnetoperatinglosscarryforwards.Adjustmentsrelatedtotheseestimatesarerecordedinourtaxprovisionintheperiodinwhichwefileourincometaxreturns.Furtherwemustassessthelikelihoodthatwewillbeabletorealizeorutilizeourdeferredtaxassets.Ifrealizationisnotmorelikelythannotwemustrecordavaluationallowanceagainstsuchdeferredtaxassetsfortheamountwewouldnotexpecttorecoverwhichwouldresultinnobenefitforthedeferredtaxamounts.AsofDecember312014and2013wehaveavaluationallowancetoreducecertaindeferredtaxassetstoamountsthataremorelikelythannottoberealized.Ifourestimatesandjudgmentsregardingourabilitytorealizeourdeferredtaxassetschangethebenefitsassociatedwiththosedeferredtaxassetsmayincreaseordecreaseintheperiodourestimatesandjudgmentschange.Onaquarterlybasismanagementevaluatestheneedforandadequacyofvaluationallowancesbasedontheexpectedrealizabilityofthedeferredtaxassetsandadjuststheamountofsuchallowancesifnecessary.ASC740providesamore-likely-than-notstandardinevaluatingwhetheravaluationallowanceisnecessaryafterweighingalloftheavailableevidence.Whenevaluatingtheneedforavaluationallowanceweconsiderallavailablepositiveandnegativeevidenceincludingthefollowingthestatusofouroperationsintheparticulartaxingjurisdictionincludingwhetherwehavecommencedproductionfromacommercialdiscoverywhetheracommercialdiscoveryhasresultedinsignificantprovedreservesthathavebeenindependentlyverifiedtheamountsandhistoryoftaxableincomeorlossesinaparticularjurisdictionprojectionsoffuturetaxableincomeincludingthesensitivityofsuchprojectionstochangesinproductionvolumesandpricestheexistenceorlackthereofofstatutorylimitationsontheperiodthatnetoperatinglossesmaybecarriedforwardinajurisdictionandthecreationandtimingoffuturetaxableincomeassociatedwiththeturnaroundofdeferredtaxliabilitiesinexcessofdeferredtaxassets.DerivativeInstrumentsandHedgingActivities.Weutilizeoilderivativecontractstomitigateourexposuretocommoditypriceriskassociatedwithouranticipatedfutureoilproduction.Thesederivativecontractsconsistofthree-waycollarsswapswithcallsandpurchasedputs.Wealsouseinterestrateswapcontractstomitigateourexposuretointerestratefluctuationsrelatedtoourlong-termdebt.Ourderivativefinancialinstrumentsarerecordedonthebalancesheetaseitherassetsoraliabilitiesmeasuredatfairvalue.Wedonotapplyhedgeaccountingtoouroilderivativecontracts.EffectiveJune12010wediscontinuedhedgeaccountingonourinterestrateswapcontractsandaccordinglythechangesinthefairvalueoftheinstrumentsarerecognizedinearningsintheperiodofchange.TheeffectiveportionsofthediscontinuedhedgesasofMay312010areincludedinaccumulatedothercomprehensiveincomeorlossAOCIintheequitysectionoftheaccompanyingconsolidatedbalancesheetsandarebeingtransferredtoearningswhenthehedgedtransactionssettle.EstimatesofProvedOilandNaturalGasReserves.Reservequantitiesandtherelatedestimatesoffuturenetcashflowsaffectourperiodiccalculationsofdepletionandassessmentofimpairmentofouroilandnaturalgasproperties.Provedoilandnaturalgasreservesaretheestimatedquantitiesofcrudeoilnaturalgasandnaturalgasliquidswhichgeologicalandengineeringdatademonstratewithreasonablecertaintytoberecoverableinfutureperiodsfromknownreservoirsunderexistingeconomicandoperatingconditions.Asadditionalprovedreservesarediscoveredreservequantitiesandfuturecashflowswillbeestimatedbyindependentpetroleumconsultantsandpreparedinaccordancewith94 guidelinesestablishedbytheSECandtheFASB.Theaccuracyofthesereserveestimatesisafunctionoftheengineeringandgeologicalinterpretationofavailabledataestimatesoftheamountandtimingoffutureoperatingcostproductiontaxesdevelopmentcostandworkovercosttheaccuracyofvariousmandatedeconomicassumptionsandthejudgmentsofthepersonspreparingtheestimates.AssetRetirementObligations.WeaccountforassetretirementobligationsasrequiredbytheASC410AssetRetirementandEnvironmentalObligations.Underthesestandardsthefairvalueofaliabilityforanassetretirementobligationisrecognizedintheperiodinwhichitisincurredifareasonableestimateoffairvaluecanbemade.Ifareasonableestimateoffairvaluecannotbemadeintheperiodtheassetretirementobligationisincurredtheliabilityisrecognizedwhenareasonableestimateoffairvaluecanbemade.Ifatangiblelong-livedassetwithanexistingassetretirementobligationisacquiredaliabilityforthatobligationshallberecognizedattheassetsacquisitiondateasifthatobligationwereincurredonthatdate.Inadditionaliabilityforthefairvalueofaconditionalassetretirementobligationisrecordedifthefairvalueoftheliabilitycanbereasonablyestimated.Wecapitalizetheassetretirementcostsbyincreasingthecarryingamountoftherelatedlong-livedassetbythesameamountastheliability.Werecordincreasesinthediscountedabandonmentliabilityresultingfromthepassageoftimeindepletionanddepreciationintheconsolidatedstatementofoperations.Estimatingthefuturerestorationandremovalcostsrequiresmanagementtomakeestimatesandjudgmentsbecausemostoftheremovalobligationsaremanyyearsinthefutureandcontractsandregulationsoftenhavevaguedescriptionsofwhatconstitutesremoval.Additionallyassetremovaltechnologiesandcostsareconstantlychangingasareregulatorypoliticalenvironmentalsafetyandpublicrelationsconsiderations.Inherentinthepresentvaluecalculationarenumerousassumptionsandjudgmentsincludingtheultimatesettlementamountsinflationfactorscreditadjusteddiscountratestimingofsettlementandchangesinthelegalregulatoryenvironmentalandpoliticalenvironments.Totheextentfuturerevisionstotheseassumptionsimpactthepresentvalueoftheexistingassetretirementobligationsacorrespondingadjustmentismadetotheoilandgaspropertybalance.ImpairmentofLong-LivedAssets.Wereviewourlong-livedassetsforimpairmentwhenchangesincircumstancesindicatethatthecarryingamountofanassetmaynotberecoverable.ASC360PropertyPlantandEquipmentrequiresanimpairmentlosstoberecognizedifthecarryingamountofalong-livedassetisnotrecoverableandexceedsitsfairvalue.Thecarryingamountofalong-livedassetisnotrecoverableifitexceedsthesumoftheundiscountedcashflowsexpectedtoresultfromtheuseandeventualdispositionoftheasset.Thatassessmentshallbebasedonthecarryingamountoftheassetatthedateitistestedforrecoverabilitywhetherinuseorunderdevelopment.Animpairmentlossshallbemeasuredastheamountbywhichthecarryingamountofalong-livedassetexceedsitsfairvalue.Assetstobedisposedofandassetsnotexpectedtoprovideanyfutureservicepotentialtousarerecordedatthelowerofcarryingamountorfairvaluelesscosttosell.NewAccountingPronouncementsInApril2014theFASBissuedASU2014-08PresentationofFinancialStatementsTopic205andPropertyPlantandEquipmentTopic360ReportingDiscontinuedOperationsandDisclosuresofDisposalsofComponentsofanEntity.ASU2014-08prospectivelychangesthecriteriaforreportingdiscontinuedoperationswhileenhancingdisclosuresarounddisposalsofassetswhetherornotthedisposalmeetsthedefinitionofadiscontinuedoperation.ASU2014-08iseffectiveforannualandinterimperiodsbeginningafterDecember152014withearlyadoptionpermittedbutonlyfordisposalsthathavenotbeenreportedinfinancialstatementspreviouslyissued.TheadoptionofthisnewguidanceisnotexpectedtohaveamaterialimpactontheCompanysconsolidatedfinancialstatements.95 InMay2014theFinancialAccountingStandardsBoardFASBissuedAccountingStandardsUpdateASU2014-09RevenuefromContractswithCustomersTopic606whichsupersedestherevenuerecognitionrequirementsinAccountingStandardsCodificationASCTopic605RevenueRecognitionandmostindustry-specificguidance.ASU2014-09isbasedontheprinciplethatrevenueisrecognizedtodepictthetransferofgoodsorservicestocustomersinanamountthatreflectstheconsiderationtowhichtheentityexpectstobeentitledinexchangeforthosegoodsorservices.ASU2014-09alsorequiresadditionaldisclosureaboutthenatureamounttiminganduncertaintyofrevenueandcashflowsarisingfromcustomercontracts.ASU2014-09appliestoallcontractswithcustomersexceptthosethatarewithinthescopeofothertopicsintheFASBASC.ThenewguidanceiseffectiveforannualreportingperiodsbeginningafterDecember152016forpubliccompanies.Earlyadoptionisnotpermitted.EntitieshavetheoptionofusingeitherafullretrospectiveormodifiedapproachtoadoptASU2014-09.TheCompanyiscurrentlyevaluatingthenewguidanceandhasnotdeterminedtheimpactthisstandardmayhaveonitsfinancialstatementsordecideduponthemethodofadoption.InJune2014theFASBissuedASU2014-12CompensationStockCompensationTopic718AccountingforShare-BasedPaymentsWhentheTermsofanAwardProvideThataPerformanceTargetCouldBeAchievedaftertheRequisiteServicePeriod.ASU2014-12requiresareportingentitytotreataperformancetargetthataffectsvestingandthatcouldbeachievedaftertherequisiteserviceperiodasaperformancecondition.ItiseffectiveforannualandinterimperiodsbeginningafterDecember152015withearlyadoptionpermitted.Thestandardmaybeadoptedeitherprospectivelyforshare-basedpaymentawardsgrantedormodifiedonoraftertheeffectivedateorretrospectivelyusingamodifiedretrospectiveapproach.Themodifiedretrospectiveapproachwouldapplytoshare-basedpaymentawardsoutstandingasofthebeginningoftheearliestannualperiodpresentedinthefinancialstatementsonadoptionandtoallnewormodifiedawardsthereafter.TheadoptionisnotexpectedtohaveamaterialimpactontheCompanysconsolidatedfinancialstatements.InAugust2014theFASBissuedASU2014-15PresentationofFinancialStatementsGoingConcernSubtopic205-40DisclosureofUncertaintiesaboutanEntitysAbilitytoContinueasaGoingConcern.ASU2014-15requiresmanagementtoevaluatewhetherthereareconditionsandeventsthatraisesubstantialdoubtabouttheentitysabilitytocontinueasagoingconcernwithinoneyearafterthefinancialstatementsareissuedoravailabletobeissuedwhenapplicableandifsotodisclosethatfact.ASUNo.2014-15iseffectiveforannualperiodsendingafterDecember152016andinterimperiodswithinannualperiodsbeginningafterDecember152016.Managementwillberequiredtomakethisevaluationforbothannualandinterimreportingperiodsifapplicable.TheadoptionofthisamendmentisnotexpectedtohaveamaterialimpactontheCompanysconsolidatedfinancialstatements.Item7A.QualitativeandQuantitativeDisclosuresAboutMarketRiskTheprimaryobjectiveofthefollowinginformationistoprovideforward-lookingquantitativeandqualitativeinformationaboutourpotentialexposuretomarketrisks.Thetermmarketrisksasitrelatestoourcurrentlyanticipatedtransactionsreferstotheriskoflossarisingfromchangesincommoditypricesandinterestrates.Thesedisclosuresarenotmeanttobepreciseindicatorsofexpectedfuturelossesbutratherindicatorsofreasonablypossiblelosses.Thisforward-lookinginformationprovidesindicatorsofhowweviewandmanageongoingmarketriskexposures.Weenterintomarket-risksensitiveinstrumentsforpurposesotherthantospeculate.Wemanagemarketandcounterpartycreditriskinaccordancewithourpolicies.Inaccordancewiththesepoliciesandguidelinesourmanagementdeterminestheappropriatetimingandextentofderivativetransactions.SeeItem8.FinancialStatementsandSupplementaryDataNote2AccountingPoliciesNote9DerivativeFinancialInformationandNote10FairValueMeasurementsforadescriptionoftheaccountingprocedureswefollowrelativetoourderivativefinancialinstruments.96 ThefollowingtablereconcilesthechangesthatoccurredinfairvaluesofouropenderivativecontractsduringtheyearendedDecember312014DerivativeContractsAssetsLiabilitiesCommoditiesInterestRatesTotalInthousandsFairvalueofcontractsoutstandingasofDecember312013...................11017273413751Changesincontractfairvalue.............270192285269907Contractmaturities....................669022304460FairvalueofcontractsoutstandingasofDecember312014...................252485789251696CommodityPriceRiskTheCompanysrevenuesearningscashflowscapitalinvestmentsandultimatelyfuturerateofgrowtharehighlydependentonthepriceswereceiveforourcrudeoilwhichhavehistoricallybeenveryvolatile.Crudeoilpricesin2014begantheyearstrongandremainedstrongthroughthesummerbeforedecreasingrapidlyduringthefourthquarter.DatedBrentcrudethebenchmarkagainstwhichouroilsalesareindexedpeakedabove115perbarrelinJunebeforefallingbelow60atyear-end.CommodityDerivativeInstrumentsWeenterintovariousoilderivativecontractstomitigateourexposuretocommoditypriceriskassociatedwithanticipatedfutureoilproduction.Thesecontractscurrentlyconsistofthree-waycollarspurchasedputsandswapswithcalls.Inregardstoourobligationsunderourvariouscommodityderivativeinstrumentsifourproductiondoesnotexceedourexistinghedgedpositionsourexposuretoourcommodityderivativeinstrumentswouldincrease.CommodityPriceSensitivityThefollowingtableprovidesinformationaboutouroilderivativefinancialinstrumentsthatweresensitivetochangesinoilpricesasofDecember312014AssetWeightedAverageDatedBrentPriceperBblFairValueDeferredatPremiumDecember31TermTypeofContractMBblPayableSwapFloorCeilingCall201412015JanuaryDecember..Three-waycollars42300.4687.43110.00133.82111955JanuaryDecember..Swapswithcalls200093.59115.00648202016JanuaryDecember..Purchasedputs20003.4185.0035620JanuaryDecember..Three-waycollars200085.00110.00135.00400901FairvaluesarebasedontheaverageforwardDatedBrentoilpricesonDecember312014whichbyyearare201561.25and201668.81.Thesefairvaluesaresubjecttochangesintheunderlyingcommodityprice.TheaverageforwardDatedBrentoilpricesbasedonFebruary182015marketquotesbyyearare201563.12201668.53and201771.74.InJanuary2015weenteredintoswapcontractsandsoldputcontractsfor2.0MMBblfromJanuary2016throughDecember2016withafixedpriceof75.00perbarrelandashortputpriceof97 60.00perbarrel.Inadditionwesoldcallcontractsfor2.0MMBblfromJanuary2017throughDecember2017withastrikepriceof85.00perbarrel.ThecontractsareindexedtoDatedBrentpricesandwepaidanetpremiumof3.0million.AtDecember312014ouropencommodityderivativeinstrumentswereinanetassetpositionof252.5million.AsofDecember312014ahypothetical10priceincreaseinthecommodityfuturespricecurveswoulddecreasefuturepre-taxearningsbyapproximately75.4million.Similarlyahypothetical10pricedecreasewouldincreasefuturepre-taxearningsbyapproximately55.8million.InterestRateDerivativeInstrumentsSeeItem7.ManagementsDiscussionandAnalysisofFinancialConditionandResultsofOperationsContractualObligationsforspecificinformationregardingthetermsofourinterestratederivativeinstrumentsthataresensitivetochangesininterestrates.InterestRateSensitivityAtDecember312014wehadfloatingrateindebtednessoutstandingundertheFacilityof500.0millionofwhich434.4millionboreinterestatfloatingratesafterconsiderationofourinterestratehedges.TheinterestrateonthisindebtednessasofDecember312014wasapproximately3.4.IfLIBORincreased10atthisleveloffloatingratedebtwewouldpayanadditional0.1millionininterestexpenseperyearontheFacility.Wepaycommitmentfeesonthe1.0billionofundrawnavailabilityundertheFacilityandonthe300.0millionofundrawnavailabilityundertheCorporateRevolverwhicharenotsubjecttochangesininterestrates.AsofDecember312014thefairmarketvalueofourinterestrateswapswasanetliabilityofapproximately0.8million.IfLIBORincreasedby10weestimateitwouldhaveanegligibleimpactonthefairmarketvalueofourinterestrateswaps.98 Item8.FinancialStatementsandSupplementaryDataINDEXTOCONSOLIDATEDFINANCIALSTATEMENTSPageConsolidatedFinancialStatementsofKosmosEnergyLtd.ReportsofIndependentRegisteredPublicAccountingFirm..........................100ConsolidatedBalanceSheetsasofDecember312014and2013.......................102ConsolidatedStatementsofOperationsfortheyearsendedDecember3120142013and2012103ConsolidatedStatementsofComprehensiveIncomeLossfortheyearsendedDecember3120142013and2012.....................................................104ConsolidatedStatementsofShareholdersEquityfortheyearsendedDecember3120142013and2012.............................................................105ConsolidatedStatementsofCashFlowsfortheyearsendedDecember3120142013and2012................................................................106NotestoConsolidatedFinancialStatements.....................................107SupplementalOilandGasDataUnaudited....................................136SupplementalQuarterlyFinancialInformationUnaudited..........................14299 ReportofIndependentRegisteredPublicAccountingFirmTheBoardofDirectorsandShareholdersKosmosEnergyLtd.WehaveauditedtheaccompanyingconsolidatedbalancesheetsofKosmosEnergyLtd.asofDecember312014and2013andtherelatedconsolidatedstatementsofoperationscomprehensiveincomelossshareholdersequityandcashflowsforeachofthethreeyearsintheperiodendedDecember312014.OurauditsalsoincludedthefinancialstatementschedulesincludedatItem15a.ThesefinancialstatementsandschedulesaretheresponsibilityoftheCompanysmanagement.Ourresponsibilityistoexpressanopiniononthesefinancialstatementsandschedulesbasedonouraudits.WeconductedourauditsinaccordancewiththestandardsofthePublicCompanyAccountingOversightBoardUnitedStates.Thosestandardsrequirethatweplanandperformtheaudittoobtainreasonableassuranceaboutwhetherthefinancialstatementsarefreeofmaterialmisstatement.Anauditincludesexaminingonatestbasisevidencesupportingtheamountsanddisclosuresinthefinancialstatements.Anauditalsoincludesassessingtheaccountingprinciplesusedandsignificantestimatesmadebymanagementaswellasevaluatingtheoverallfinancialstatementpresentation.Webelievethatourauditsprovideareasonablebasisforouropinion.InouropinionthefinancialstatementsreferredtoabovepresentfairlyinallmaterialrespectstheconsolidatedfinancialpositionofKosmosEnergyLtd.atDecember312014and2013andtheconsolidatedresultsofitsoperationsanditscashflowsforeachofthethreeyearsintheperiodendedDecember312014inconformitywithU.S.generallyacceptedaccountingprinciples.Alsoinouropiniontherelatedfinancialstatementscheduleswhenconsideredinrelationtothebasicfinancialstatementstakenasawholepresentfairlyinallmaterialrespectsthefinancialinformationsetforththerein.WealsohaveauditedinaccordancewiththestandardsofthePublicCompanyAccountingOversightBoardUnitedStatesKosmosEnergyLtd.sinternalcontroloverfinancialreportingasofDecember312014basedoncriteriaestablishedinInternalControlIntegratedFrameworkissuedbytheCommitteeofSponsoringOrganizationsoftheTreadwayCommission2013frameworkandourreportdatedFebruary232015expressedanunqualifiedopinionthereon.sErnstYoungLLPDallasTexasFebruary232015100 ReportofIndependentRegisteredPublicAccountingFirmTheBoardofDirectorsandShareholdersKosmosEnergyLtd.WehaveauditedKosmosEnergyLtd.sinternalcontroloverfinancialreportingasofDecember312014basedoncriteriaestablishedinInternalControlIntegratedFrameworkissuedbytheCommitteeofSponsoringOrganizationsoftheTreadwayCommission2013frameworktheCOSOcriteria.KosmosEnergyLtd.smanagementisresponsibleformaintainingeffectiveinternalcontroloverfinancialreportingandforitsassessmentoftheeffectivenessofinternalcontroloverfinancialreportingincludedintheaccompanyingManagementsAnnualReportonInternalControloverFinancialReportingappearinginItem9A.Ourresponsibilityistoexpressanopiniononthecompanysinternalcontroloverfinancialreportingbasedonouraudit.WeconductedourauditinaccordancewiththestandardsofthePublicCompanyAccountingOversightBoardUnitedStates.Thosestandardsrequirethatweplanandperformtheaudittoobtainreasonableassuranceaboutwhethereffectiveinternalcontroloverfinancialreportingwasmaintainedinallmaterialrespects.Ourauditincludedobtaininganunderstandingofinternalcontroloverfinancialreportingassessingtheriskthatamaterialweaknessexiststestingandevaluatingthedesignandoperatingeffectivenessofinternalcontrolbasedontheassessedriskandperformingsuchotherproceduresasweconsiderednecessaryinthecircumstances.Webelievethatourauditprovidesareasonablebasisforouropinion.Acompanysinternalcontroloverfinancialreportingisaprocessdesignedtoprovidereasonableassuranceregardingthereliabilityoffinancialreportingandthepreparationoffinancialstatementsforexternalpurposesinaccordancewithgenerallyacceptedaccountingprinciples.Acompanysinternalcontroloverfinancialreportingincludesthosepoliciesandproceduresthat1pertaintothemaintenanceofrecordsthatinreasonabledetailaccuratelyandfairlyreflectthetransactionsanddispositionsoftheassetsofthecompany2providereasonableassurancethattransactionsarerecordedasnecessarytopermitpreparationoffinancialstatementsinaccordancewithgenerallyacceptedaccountingprinciplesandthatreceiptsandexpendituresofthecompanyarebeingmadeonlyinaccordancewithauthorizationsofmanagementanddirectorsofthecompanyand3providereasonableassuranceregardingpreventionortimelydetectionofunauthorizedacquisitionuseordispositionofthecompanysassetsthatcouldhaveamaterialeffectonthefinancialstatements.Becauseofitsinherentlimitationsinternalcontroloverfinancialreportingmaynotpreventordetectmisstatements.Alsoprojectionsofanyevaluationofeffectivenesstofutureperiodsaresubjecttotheriskthatcontrolsmaybecomeinadequatebecauseofchangesinconditionsorthatthedegreeofcompliancewiththepoliciesorproceduresmaydeteriorate.InouropinionKosmosEnergyLtd.maintainedinallmaterialrespectseffectiveinternalcontroloverfinancialreportingasofDecember312014basedontheCOSOcriteria.WealsohaveauditedinaccordancewiththestandardsofthePublicCompanyAccountingOversightBoardUnitedStatestheconsolidatedbalancesheetsofKosmosEnergyLtd.asofDecember312014and2013andtherelatedconsolidatedstatementsofoperationscomprehensiveincomelossshareholdersequityandcashflowsforeachofthethreeyearsintheperiodendedDecember312014ofKosmosEnergyLtd.andourreportdatedFebruary232015expressedanunqualifiedopinionthereon.sErnstYoungLLPDallasTexasFebruary232015101 KOSMOSENERGYLTD.CONSOLIDATEDBALANCESHEETSInthousandsexceptsharedataDecember3120142013AssetsCurrentassetsCashandcashequivalents............................................554831598108Restrictedcash....................................................1592621475ReceivablesJointinterestbillings..............................................6059219930Oilsales......................................................61731281Other........................................................412211115Inventories......................................................5535447424Prepaidexpensesandother...........................................2527827010Deferredtaxassets.................................................3226819618Derivatives......................................................163275Totalcurrentassets..................................................1010476734961PropertyandequipmentOilandgaspropertiesnet............................................17731861508062Otherpropertynet.................................................1166014900Totalpropertyandequipmentnet........................................17848461522962OtherassetsRestrictedcash....................................................1612531500Long-termreceivablesjointinterestbillings................................14174Deferredfinancingcostsnetofaccumulatedamortizationof33389and24976atDecember312014and2013respectively................................4875340111Long-termdeferredtaxassets..........................................918216292Derivatives......................................................89210Totalassets.......................................................29727662345826LiabilitiesandshareholdersequityCurrentliabilitiesAccountspayable..................................................18440094172Accruedliabilities..................................................201967115212Deferredtaxliability................................................61683Derivatives......................................................7219940Totalcurrentliabilities................................................448771219324Long-termliabilitiesLong-termdebt...................................................794269900000Derivatives......................................................683811Assetretirementobligations...........................................4402339596Deferredtaxliability................................................337961170226Otherlong-termliabilities............................................871520534Totallong-termliabilities...............................................11850361134167ShareholdersequityPreferenceshares0.01parvalue200000000authorizedshareszeroissuedatDecember312014and2013.........................................Commonshares0.01parvalue2000000000authorizedshares392443048and391974287issuedatDecember312014and2013respectively..................39243920Additionalpaid-incapital.............................................18601901781535Accumulateddeficit................................................494850774220Accumulatedothercomprehensiveincome.................................7672158Treasurystockatcost5555088and4400135sharesatDecember312014and2013respectively....................................................3107221058Totalshareholdersequity..............................................1338959992335Totalliabilitiesandshareholdersequity....................................29727662345826Seeaccompanyingnotes.102 KOSMOSENERGYLTD.CONSOLIDATEDSTATEMENTSOFOPERATIONSInthousandsexceptpersharedataYearsEndedDecember31201420132012RevenuesandotherincomeOilandgasrevenue..................................855877851212667951Gainonsaleofassets.................................23769Otherincome.......................................30929413150Totalrevenuesandotherincome.......................882738852153671101CostsandexpensesOilandgasproduction................................1001229679195109Explorationexpenses.................................93519230314100652Generalandadministrative.............................135231158421157087Depletionanddepreciation.............................198080222544185707Interestandotherfinancingcostsnet.....................455484759065425Derivativesnet.....................................2818531702731490Restructuringcharges.................................11742Otherexpensesnet..................................208135121475Totalcostsandexpenses.............................304470776199636945Incomebeforeincometaxes..............................5782687595434156Incometaxexpense..................................298898166998101184Netincomeloss.....................................2793709104467028NetincomelosspershareattributabletocommonshareholdersBasic.............................................0.730.240.18Diluted...........................................0.720.240.18WeightedaveragenumberofsharesusedtocomputenetincomelosspershareBasic.............................................379195376819371847Diluted...........................................386119376819371847Seeaccompanyingnotes.103 KOSMOSENERGYLTD.CONSOLIDATEDSTATEMENTSOFCOMPREHENSIVEINCOMELOSSInthousandsYearsEndedDecember31201420132012Netincomeloss.......................................2793709104467028OthercomprehensiveincomeReclassificationadjustmentsforderivativegainslossesincludedinnetincomeloss....................................13911527163Incometaxbenefit....................................1027Othercomprehensiveincomeloss......................139115271190Comprehensiveincomeloss..............................2779799257165838Seeaccompanyingnotes.104 KOSMOSENERGYLTD.CONSOLIDATEDSTATEMENTSOFSHAREHOLDERSEQUITYInthousandsAccumulatedAdditionalOtherCommonSharesPaid-inAccumulatedComprehensiveTreasurySharesAmountCapitalDeficitIncomeStockTotalBalanceasofDecember312011...........39053139051629453616148352261020726Equity-basedcompensation.............8342383423Derivativesnet.....................163163Restrictedstockawards................89399Restrictedstockforfeitures.............1313Purchaseoftreasurystock..............83788378Netloss.........................6702867028BalanceasofDecember312012...........39142439141712880683176368583971028906Equity-basedcompensation.............6910169101Derivativesnet.....................15271527Restrictedstockawardsandunits.........55066Restrictedstockforfeitures.............66Purchaseoftreasurystock..............4461265513101Netloss.........................9104491044BalanceasofDecember312013...........39197439201781535774220215821058992335Equity-basedcompensation.............7974179741Derivativesnet.....................13911391Restrictedstockawardsandunits.........46944Restrictedstockforfeitures.............22Purchaseoftreasurystock..............10841001211096Netincome.......................279370279370BalanceasofDecember312014...........39244339241860190494850767310721338959Seeaccompanyingnotes.105 KOSMOSENERGYLTD.CONSOLIDATEDSTATEMENTSOFCASHFLOWSInthousandsYearsEndedDecember31201420132012OperatingactivitiesNetincomeloss....................................2793709104467028AdjustmentstoreconcilenetincomelosstonetcashprovidedbyoperatingactivitiesDepletiondepreciationandamortization................208628233598194691Deferredincometaxes.............................2164098238080036Unsuccessfulwellcosts.............................110510756532229Changeinfairvalueofderivatives.....................2712982309318465Cashsettlementsonderivatives.......................44603341128594Equity-basedcompensation..........................795416902683423Gainonsaleofassets..............................23769Lossonextinguishmentofdebt.......................28985342Other..........................................387549167890ChangesinassetsandliabilitiesIncreasedecreaseinreceivables....................156192111677176905Increaseininventories............................8100167637385Increasedecreaseinprepaidexpensesandother.......1732165403443Increasedecreaseinaccountspayable...............9022834683126401Increasedecreaseinaccruedliabilities...............22449825901486Netcashprovidedbyoperatingactivities...................443586522404371530InvestingactivitiesOilandgasassets....................................424535317413368990Otherproperty......................................238349709994Proceedsfromsaleofassets.............................58315Restrictedcash......................................20924175023678Netcashusedininvestingactivities.......................347679324133402662FinancingactivitiesPaymentsonlong-termdebt.............................400000100000110000Netproceedsfromissuanceofseniorsecurednotes...........294000Purchaseoftreasurystock..............................11096131018378Deferredfinancingcosts...............................2208822268418Netcashusedinfinancingactivities.......................139184115327126796Netincreasedecreaseincashandcashequivalents...........4327782944157928Cashandcashequivalentsatbeginningofperiod.............598108515164673092Cashandcashequivalentsatendofperiod..................554831598108515164SupplementalcashflowinformationCashpaidforInterest..........................................231823631341234Incometaxes......................................1080686843722020Seeaccompanyingnotes.106 KOSMOSENERGYLTD.NotestoConsolidatedFinancialStatements1.OrganizationKosmosEnergyLtd.wasincorporatedpursuanttothelawsofBermudainJanuary2011tobecomeaholdingcompanyforKosmosEnergyHoldings.KosmosEnergyHoldingsisaprivatelyheldCaymanIslandscompanythatwasformedinMarch2004.AsaholdingcompanyKosmosEnergyLtd.smanagementoperationsareconductedthroughawhollyownedsubsidiaryKosmosEnergyLLC.ThetermsKosmostheCompanyweusouroursandsimilartermsrefertoKosmosEnergyLtd.anditswhollyownedsubsidiariesunlessthecontextindicatesotherwise.KosmosisaleadingindependentoilandgasexplorationandproductioncompanyfocusedonfrontierandemergingareasalongtheAtlanticMargin.OurassetsincludeexistingproductionandothermajordevelopmentprojectsoffshoreGhanaaswellasexplorationlicenseswithsignificanthydrocarbonpotentialoffshoreIrelandMauritaniaMoroccoincludingWesternSaharaSenegalandSuriname.KosmosislistedontheNewYorkStockExchangeandistradedunderthetickersymbolKOS.Wehaveonereportablesegmentwhichistheexplorationandproductionofoilandnaturalgas.Substantiallyallofourlong-livedassetsandproductsalesarerelatedtoproductionlocatedoffshoreGhana.2.AccountingPoliciesPrinciplesofConsolidationTheaccompanyingconsolidatedfinancialstatementsincludetheaccountsofKosmosEnergyLtd.anditswhollyownedsubsidiaries.Allintercompanytransactionshavebeeneliminated.UseofEstimatesThepreparationoffinancialstatementsinconformitywithaccountingprinciplesgenerallyacceptedintheUnitedStatesrequiresmanagementtomakeestimatesandassumptionsthataffectthereportedamountsofassetsliabilitiesrevenuesandexpensesandthedisclosuresofcontingentassetsandliabilities.Actualresultscoulddifferfromtheseestimates.ReclassificationsCertainpriorperiodamountshavebeenreclassifiedtoconformwiththecurrentyearpresentation.Suchreclassificationshadnoimpactonourreportednetincomecurrentassetstotalassetscurrentliabilitiestotalliabilitiesorshareholdersequity.CashandCashEquivalentsCashandcashequivalentsincludesdemanddepositsandfundsinvestedinhighlyliquidinstrumentswithoriginalmaturitiesofthreemonthsorlessatthedateofpurchase.RestrictedCashInaccordancewithourcommercialdebtfacilitytheFacilitywearerequiredtomaintainarestrictedcashbalancethatissufficienttomeetthepaymentofinterestandfeesforthenextsix-monthperiodonthe7.875SeniorSecuredNotesdue2021SeniorNotesplustheCorporateRevolveror107 KOSMOSENERGYLTD.NotestoConsolidatedFinancialStatementsContinued2.AccountingPoliciesContinuedtheFacilitywhicheverisgreater.AsofDecember312014and2013wehad15.9millionand18.6millionrespectivelyincurrentrestrictedcashtomeetthisrequirement.Inadditioninaccordancewithcertainofourpetroleumcontractswehavepostedlettersofcreditrelatedtoperformanceguaranteesforourminimumworkobligations.Theselettersofcreditarecashcollateralizedinaccountsheldbyusandassuchareclassifiedasrestrictedcash.Uponcompletionoftheminimumworkobligationsandorenteringintothenextphaseofthepetroleumcontracttherequirementtopostlettersofcreditwillbesatisfiedandthecashcollateralwillbereleased.Howeveradditionallettersofcreditmayberequiredshouldwechoosetomoveintothenextphaseofcertainofourpetroleumcontracts.AsofDecember312014and2013wehadzeroand2.9millionrespectivelyofcurrentrestrictedcashand16.1millionand31.5millionrespectivelyoflong-termrestrictedcashusedtocashcollateralizeperformanceguaranteesrelatedtoourpetroleumcontracts.ReceivablesOurreceivablesconsistofjointinterestbillingsoilsalesandotherreceivables.Forouroilsalesreceivablewerequirealetterofcredittobepostedtosecuretheoutstandingreceivable.Receivablesfromjointinterestownersarestatedatamountsduenetofanyallowancesfordoubtfulaccounts.Wedetermineourallowancebyconsideringthelengthoftimepastduefuturenetrevenuesofthedebtorsownershipinterestinoilandnaturalgaspropertiesweoperateandtheownersabilitytopayitsobligationamongotherthings.WedidnothaveanyallowancefordoubtfulaccountsasofDecember312014and2013.InventoriesInventoriesconsistedof55.3millionand45.8millionofmaterialsandsuppliesand0.1millionand1.6millionofhydrocarbonsasofDecember312014and2013respectively.TheCompanysmaterialsandsuppliesinventoryprimarilyconsistsofcasingandwellheadsandisstatedatthelowerofcostusingtheweightedaveragecostmethodormarket.Hydrocarboninventoryiscarriedatthelowerofcostusingtheweightedaveragecostmethodormarket.Hydrocarboninventorycostsincludeexpendituresandotherchargesincurredinbringingtheinventorytoitsexistingcondition.Sellingexpensesandgeneralandadministrativeexpensesarereportedasperiodcostsandexcludedfrominventorycosts.ExplorationandDevelopmentCostsTheCompanyfollowsthesuccessfuleffortsmethodofaccountingforitsoilandgasproperties.Acquisitioncostsforprovedandunprovedpropertiesarecapitalizedwhenincurred.Costsofunprovedpropertiesaretransferredtoprovedpropertieswhenadeterminationthatprovedreserveshavebeenfound.Explorationcostsincludinggeologicalandgeophysicalcostsandcostsofcarryingunprovedpropertiesareexpensedasincurred.Exploratorydrillingcostsarecapitalizedwhenincurred.Ifexploratorywellsaredeterminedtobecommerciallyunsuccessfulordryholestheapplicablecostsareexpensedandrecordedinexplorationexpenseontheconsolidatedstatementofoperations.Costsincurredtodrillandequipdevelopmentwellsincludingunsuccessfuldevelopmentwellsarecapitalized.Costsincurredtooperateandmaintainwellsandequipmentandtoliftoilandnaturalgastothesurfaceareexpensedasoilandgasproductionexpense.108 KOSMOSENERGYLTD.NotestoConsolidatedFinancialStatementsContinued2.AccountingPoliciesContinuedTheCompanyevaluatesunprovedpropertyotherthanwellrelatedcostsperiodicallyforimpairment.Thesecostsaregenerallyrelatedtotheacquisitionofleaseholdcosts.Theimpairmentassessmentconsidersresultsofexplorationactivitiescommoditypriceoutlooksplannedfuturesalesorexpirationofalloraportionofsuchprojects.IfthequantityofpotentialfuturereservesdeterminedbysuchevaluationsisnotsufficienttofullyrecoverthecostinvestedineachprojecttheCompanywillrecognizeanimpairmentlossatthattime.DepletionDepreciationandAmortizationProvedpropertiesandsupportequipmentandfacilitiesaredepletedusingtheunit-of-productionmethodbasedonestimatedprovedoilandnaturalgasreserves.Capitalizedexploratorydrillingcoststhatresultinadiscoveryofprovedreservesanddevelopmentcostsareamortizedusingtheunit-of-productionmethodbasedonestimatedproveddevelopedoilandnaturalgasreservesfortherelatedfield.Depreciationandamortizationofotherpropertyiscomputedusingthestraight-linemethodovertheassetsestimatedusefullivesnottoexceedtheleasetermforleaseholdimprovementsrangingfromonetoeightyears.YearsDepreciatedLeaseholdimprovements...................................1to8Officefurniturefixturesandcomputerequipment.................3to7Vehicles................................................5Amortizationofdeferredfinancingcostsiscomputedusingthestraight-linemethodoverthelifeoftherelateddebt.CapitalizedInterestInterestcostsfromexternalborrowingsarecapitalizedonmajorprojectswithanexpectedconstructionperiodofoneyearorlonger.Capitalizedinterestisaddedtothecostoftheunderlyingassetandisdepletedontheunit-of-productionmethodinthesamemannerastheunderlyingassets.AssetRetirementObligationsTheCompanyaccountsforassetretirementobligationsasrequiredbyASC410AssetRetirementandEnvironmentalObligations.Underthesestandardsthefairvalueofaliabilityforanassetretirementobligationisrecognizedintheperiodinwhichitisincurredifareasonableestimateoffairvaluecanbemade.Ifareasonableestimateoffairvaluecannotbemadeintheperiodtheassetretirementobligationisincurredtheliabilityisrecognizedwhenareasonableestimateoffairvaluecanbemade.Ifatangiblelong-livedassetwithanexistingassetretirementobligationisacquiredaliabilityforthatobligationisrecognizedattheassetsacquisitiondate.Inadditionaliabilityforthefairvalueofaconditionalassetretirementobligationisrecordedifthefairvalueoftheliabilitycanbereasonablyestimated.Wecapitalizetheassetretirementcostsbyincreasingthecarryingamountoftherelatedlong-livedassetbythesameamountastheliability.Werecordincreasesinthediscountedabandonmentliabilityresultingfromthepassageoftimeindepletionanddepreciationintheconsolidatedstatementofoperations.109 KOSMOSENERGYLTD.NotestoConsolidatedFinancialStatementsContinued2.AccountingPoliciesContinuedImpairmentofLong-livedAssetsTheCompanyreviewsitslong-livedassetsforimpairmentwhenchangesincircumstancesindicatethatthecarryingamountofanassetmaynotberecoverableoratleastannually.ASC360PropertyPlantandEquipmentrequiresanimpairmentlosstoberecognizedifthecarryingamountofalong-livedassetisnotrecoverableandexceedsitsfairvalue.Thecarryingamountofalong-livedassetisnotrecoverableifitexceedsthesumoftheundiscountedcashflowsexpectedtoresultfromtheuseandeventualdispositionoftheasset.Thatassessmentshallbebasedonthecarryingamountoftheassetatthedateitistestedforrecoverabilitywhetherinuseorunderdevelopment.Animpairmentlossshallbemeasuredastheamountbywhichthecarryingamountofalong-livedassetexceedsitsfairvalue.AssetstobedisposedofandassetsnotexpectedtoprovideanyfutureservicepotentialtotheCompanyarerecordedatthelowerofcarryingamountorfairvaluelesscosttosell.DerivativeInstrumentsandHedgingActivitiesWeutilizeoilderivativecontractstomitigateourexposuretocommoditypriceriskassociatedwithouranticipatedfutureoilproduction.Thesederivativecontractsconsistofthree-waycollarsswapswithcallsandpurchasedputs.Wealsouseinterestrateswapcontractstomitigateourexposuretointerestratefluctuationsrelatedtoourlong-termdebt.Ourderivativefinancialinstrumentsarerecordedonthebalancesheetaseitherassetsorliabilitiesandaremeasuredatfairvalue.Wedonotapplyhedgeaccountingtoouroilderivativecontracts.EffectiveJune12010wediscontinuedhedgeaccountingonourinterestrateswapcontracts.Thereforefromthatdateforwardthechangesinthefairvalueoftheinstrumentsarerecognizedinearningsduringtheperiodofchange.TheeffectiveportionsofthediscontinuedhedgesasofMay312010areincludedinaccumulatedothercomprehensiveincomeorlossAOCIintheequitysectionoftheaccompanyingconsolidatedbalancesheetsandarebeingtransferredtoearningswhenthehedgedtransactionssettle.SeeNote9DerivativeFinancialInstruments.EstimatesofProvedOilandNaturalGasReservesReservequantitiesandtherelatedestimatesoffuturenetcashflowsaffectourperiodiccalculationsofdepletionandassessmentofimpairmentofouroilandnaturalgasproperties.Provedoilandnaturalgasreservesaretheestimatedquantitiesofcrudeoilnaturalgasandnaturalgasliquidsthatgeologicalandengineeringdatademonstratewithreasonablecertaintytoberecoverableinfutureperiodsfromknownreservoirsunderexistingeconomicandoperatingconditions.AsadditionalprovedreservesarediscoveredreservequantitiesandfuturecashflowswillbeestimatedbyindependentpetroleumconsultantsandpreparedinaccordancewithguidelinesestablishedbytheSecuritiesandExchangeCommissionSECandtheFinancialAccountingStandardsBoardFASB.Theaccuracyofthesereserveestimatesisafunctionoftheengineeringandgeologicalinterpretationofavailabledataestimatesoftheamountandtimingoffutureoperatingcostproductiontaxesdevelopmentcostandworkovercosttheaccuracyofvariousmandatedeconomicassumptionsandthejudgmentsofthepersonspreparingtheestimates.110 KOSMOSENERGYLTD.NotestoConsolidatedFinancialStatementsContinued2.AccountingPoliciesContinuedRevenueRecognitionWeusethesalesmethodofaccountingforoilandgasrevenues.Underthismethodwerecognizerevenuesonthevolumessoldbasedontheprovisionalsalesprices.Thevolumessoldmaybemoreorlessthanthevolumestowhichweareentitledbasedonourownershipinterestintheproperty.Thesedifferencesresultinaconditionknownintheindustryasaproductionimbalance.Areceivableorliabilityisrecognizedonlytotheextentthatwehaveanimbalanceonaspecificpropertygreaterthantheexpectedremainingprovedreservesonsuchproperty.AsofDecember312014and2013wehadnooilandgasimbalancesrecordedinourconsolidatedfinancialstatements.Ouroilandgasrevenuesarebasedonprovisionalpricecontractswhichcontainanembeddedderivativethatisrequiredtobeseparatedfromthehostcontractforaccountingpurposes.Thehostcontractisthereceivablefromoilsalesatthespotpriceonthedateofsale.Theembeddedderivativewhichisnotdesignatedasahedgeismarkedtomarketthroughoilandgasrevenueeachperioduntilthefinalsettlementoccurswhichgenerallyislimitedtothemonthafterthesale.Equity-basedCompensationForequity-basedcompensationawardscompensationexpenseisrecognizedintheCompanysfinancialstatementsovertheawardsvestingperiodsbasedontheirgrantdatefairvalue.TheCompanyutilizesitheclosingstockpriceonthedateofgranttodeterminethefairvalueofservicevestingrestrictedstockawardsandrestrictedstockunitsandiiaMonteCarlosimulationtodeterminethefairvalueofrestrictedstockawardsandrestrictedstockunitswithacombinationofmarketandservicevestingcriteria.RestructuringChargesTheCompanyaccountsforrestructuringchargesinaccordancewithASC420ExitorDisposalCostObligations.Underthesestandardsthecostsassociatedwithrestructuringchargesarerecordedduringtheperiodinwhichtheliabilityisincurred.DuringtheyearendedDecember312014werecognized11.7millioninrestructuringchargesforemployeeseveranceandrelatedbenefitcostsincurredaspartofacorporatereorganizationwhichincludes5.0millionofacceleratednon-cashexpenserelatedtoawardspreviouslygrantedunderourLong-TermIncentivePlantheLTIP.TreasuryStockWerecordtreasurystockpurchasesatcost.ThemajorityofourtreasurystockpurchasesarefromouremployeesthatsurrenderedsharestotheCompanytosatisfytheirminimumtaxwithholdingrequirementsandwerenotpartofaformalstockrepurchaseplan.Theremainderofourtreasurystockisforfeitedrestrictedstockawardsgrantedunderourlong-termincentiveplan.IncomeTaxesTheCompanyaccountsforincometaxesasrequiredbyASC740IncomeTaxes.Underthismethoddeferredincometaxesaredeterminedbasedonthedifferencebetweenthefinancialstatementandtaxbasisofassetsandliabilitiesusingenactedtaxratesineffectfortheyearinwhichthedifferencesareexpectedtoreverse.Valuationallowancesareestablishedwhennecessarytoreducedeferredtaxassetstotheamountsexpectedtoberealized.Onaquarterlybasismanagementevaluates111 KOSMOSENERGYLTD.NotestoConsolidatedFinancialStatementsContinued2.AccountingPoliciesContinuedtheneedforandadequacyofvaluationallowancesbasedontheexpectedrealizabilityofthedeferredtaxassetsandadjuststheamountofsuchallowancesifnecessary.Werecognizetaxbenefitsfromuncertaintaxpositionsonlyifitismorelikelythannotthatthetaxpositionwillbesustaineduponexaminationbythetaxauthoritiesbasedonthetechnicalmeritsoftheposition.Accordinglywemeasuretaxbenefitsfromsuchpositionsbasedonthemostlikelyoutcometoberealized.ForeignCurrencyTranslationTheU.S.dollaristhefunctionalcurrencyforalloftheCompanysmaterialforeignoperations.Foreigncurrencytransactiongainsandlossesandadjustmentsresultingfromtranslatingmonetaryassetsandliabilitiesdenominatedinforeigncurrenciesareincludedinotherexpenses.Cashbalancesheldinforeigncurrenciesarenotsignificantandassuchtheeffectofexchangeratechangesisnotmaterialtoanyreportingperiod.ConcentrationofCreditRiskOurrevenuecanbemateriallyaffectedbycurrenteconomicconditionsandthepriceofoil.Howeverbasedonthecurrentdemandforcrudeoilandthefactthatalternativepurchasersarereadilyavailablewebelievethatthelossofourmarketingagentandoranyofthepurchasersidentifiedbyourmarketingagentwouldnothavealong-termmaterialadverseeffectonourfinancialpositionorresultsofoperations.RecentAccountingStandardsInApril2014theFASBissuedASU2014-08PresentationofFinancialStatementsTopic205andPropertyPlantandEquipmentTopic360ReportingDiscontinuedOperationsandDisclosuresofDisposalsofComponentsofanEntity.ASU2014-08prospectivelychangesthecriteriaforreportingdiscontinuedoperationswhileenhancingdisclosuresarounddisposalsofassetswhetherornotthedisposalmeetsthedefinitionofadiscontinuedoperation.ASU2014-08iseffectiveforannualandinterimperiodsbeginningafterDecember312014withearlyadoptionpermittedbutonlyfordisposalsthathavenotbeenreportedinfinancialstatementspreviouslyissued.TheadoptionofthisnewguidanceisnotexpectedtohaveamaterialimpactontheCompanysconsolidatedfinancialstatements.InMay2014theFASBissuedASU2014-09RevenuefromContractswithCustomersTopic606whichsupersedestherevenuerecognitionrequirementsinASCTopic605RevenueRecognitionandmostindustry-specificguidance.ASU2014-09isbasedontheprinciplethatrevenueisrecognizedtodepictthetransferofgoodsorservicestocustomersinanamountthatreflectstheconsiderationtowhichtheentityexpectstobeentitledinexchangeforthosegoodsorservices.ASU2014-09alsorequiresadditionaldisclosureaboutthenatureamounttiminganduncertaintyofrevenueandcashflowsarisingfromcustomercontracts.ASU2014-09appliestoallcontractswithcustomersexceptthosethatarewithinthescopeofothertopicsintheFASBASC.ThenewguidanceiseffectiveforannualreportingperiodsbeginningafterDecember152016forpubliccompanies.Earlyadoptionisnotpermitted.EntitieshavetheoptionofusingeitherafullretrospectiveormodifiedapproachtoadoptASU2014-09.TheCompanyiscurrentlyevaluatingthenewguidanceandhasnotdeterminedtheimpactthisstandardmayhaveonitsfinancialstatementsordecideduponthemethodofadoption.112 KOSMOSENERGYLTD.NotestoConsolidatedFinancialStatementsContinued2.AccountingPoliciesContinuedInJune2014theFASBissuedASU2014-12Compensation-StockCompensationTopic718AccountingforShare-BasedPaymentsWhentheTermsofanAwardProvideThataPerformanceTargetCouldBeAchievedaftertheRequisiteServicePeriod.ASU2014-12requiresareportingentitytotreataperformancetargetthataffectsvestingandthatcouldbeachievedaftertherequisiteserviceperiodasaperformancecondition.ItiseffectiveforannualandinterimperiodsbeginningafterDecember152015withearlyadoptionpermitted.Thestandardmaybeadoptedeitherprospectivelyforshare-basedpaymentawardsgrantedormodifiedonoraftertheeffectivedateorretrospectivelyusingamodifiedretrospectiveapproach.Themodifiedretrospectiveapproachwouldapplytoshare-basedpaymentawardsoutstandingasofthebeginningoftheearliestannualperiodpresentedinthefinancialstatementsonadoptionandtoallnewormodifiedawardsthereafter.TheadoptionisnotexpectedtohaveamaterialimpactontheCompanysconsolidatedfinancialstatements.InAugust2014theFASBissuedASU2014-15PresentationofFinancialStatementsGoingConcernSubtopic205-40DisclosureofUncertaintiesaboutanEntitysAbilitytoContinueasaGoingConcern.ASU2014-15requiresmanagementtoevaluatewhetherthereareconditionsandeventsthatraisesubstantialdoubtabouttheentitysabilitytocontinueasagoingconcernwithinoneyearafterthefinancialstatementsareissuedoravailabletobeissuedwhenapplicableandifsotodisclosethatfact.ASUNo.2014-15iseffectiveforannualperiodsendingafterDecember152016andinterimperiodswithinannualperiodsbeginningafterDecember152016.Managementwillberequiredtomakethisevaluationforbothannualandinterimreportingperiodsifapplicable.TheadoptionofthisamendmentisnotexpectedtohaveamaterialimpactontheCompanysconsolidatedfinancialstatements.3.AcquisitionsandDivestituresInNovember2012wefinalizedtheassignmentofa50participatinginterestinourblocksoffshoreSurinameBlock42andBlock45toChevron.Weretaina50participatinginterestintheblocksandremaintheoperatorfortheexplorationphaseofthepetroleumcontracts.Inthefourthquarterof2012wereceived23.7millioninreimbursementofpreviouslyincurredexpensesasaresultofclosingthetransaction.Accordinglyexplorationexpenseandgeneralandadministrativeexpensewerereducedby22.7millionand1.0millionrespectively.InJanuary2013weclosedanagreementtoacquireanadditional37.5participatinginterestintheEssaouiraOffshoreblockfromCanamensEnergyMoroccoSARLoneofourblockpartners.GovernmentapprovalsforthisacquisitionwerefinalizedinNovember2013.InApril2013weenteredintoafarm-inagreementwithAntrimEnergyInc.wherebyweacquireda75participatinginterestandoperatorshipcoveringLicensingOption115offshorethewestcoastofIreland.Aspartoftheagreementwereimbursedaportionofpreviously-incurredexplorationcostsaswellascarrythepartneronfuture3Dseismiccosts.InApril2013weenteredintoafarm-inagreementwithEuropaOilGasHoldingsplcwherebyweacquiredan85participatinginterestandoperatorshipcoveringLicensingOption117and118offshorethewestcoastofIreland.Aspartoftheagreementwereimbursedaportionofpreviouslyincurredexplorationcostsaswellascarrythepartneronfuture3Dseismiccosts.Contingentuponanelectionbyusandourpartnertoenterintoasubsequentexplorationdrillingphaseononeorbothoftheblockswewillalsofund100ofthecostsofthefirstexplorationwellon113 KOSMOSENERGYLTD.NotestoConsolidatedFinancialStatementsContinued3.AcquisitionsandDivestituresContinuedeachblocksubjecttoaninvestmentcapof90.0millionand110.0millionrespectivelyoneachblock.InAugust2013finalgovernmentapprovalsandprocesseswerecompletedfortheacquisitionoftheadditional18.8participatinginterestintheFoumAssakablockintheAgadirBasinoffshoreMoroccofromPathfinderHydrocarbonVenturesLimitedPathfinderawhollyownedsubsidiaryofFastnetOilandGasPlcFastnetoneofourblockpartners.Inthefirstquarterof2014weclosedthreefarm-outagreementswithBPExplorationMoroccoLimitedawhollyownedsubsidiaryofBPplcBPcoveringourthreeblocksintheAgadirBasinoffshoreMorocco.UnderthetermsoftheagreementsBPacquiredanon-operatinginterestineachoftheEssaouiraOffshoreFoumAssakaOffshoreandTarhazouteOffshoreblocks.BPwillfundKosmosshareofthecostofoneexplorationwellineachofthethreeblockssubjecttoamaximumspendof120.0millionperwellandpayitsproportionateshareofanywellcostsabovethemaximumspend.IntheeventasecondexplorationwellisdrilledinanyblockBPwillpay150ofitsshareofcostssubjecttoamaximumspendof120.0millionperwell.Thesalesproceedsofthefarm-outswere56.9million.Aftergivingeffecttothesefarm-outsourparticipatinginterestsare30.029.9and30.0intheEssaouiraOffshoreFoumAssakaOffshoreandTarhazouteOffshoreblocksrespectivelyandweremaintheoperator.Theproceedsonthesaleoftheinterestsexceededourbookbasisintheassetsresultingina23.8milliongainonthetransaction.Inthefirstquarterof2014weclosedafarm-outagreementwithCapricornExplorationandDevelopmentCompanyLimitedawhollyownedsubsidiaryofCairnEnergyPLCCairncoveringtheCapBoujdourOffshoreblockoffshoreWesternSahara.UnderthetermsoftheagreementCairnacquireda20non-operatedinterestintheexplorationpermitscomprisingtheCapBoujdourOffshoreblock.UnderthetermsoftheagreementCairnwillpay150ofitsshareofcostsofa3Dseismicsurveycappedat25.0millionandoneexplorationwellcappedat100.0million.IntheeventtheexplorationwellissuccessfulCairnwillpay200ofitsshareofcostsontwoappraisalwellscappedat100.0millionperwell.AdditionallyCairnwillcontribute12.3milliontowardsourfuturecosts.Cairnpaid1.5millionfortheirshareofcostsincurredfromtheeffectivedateofthefarm-outagreementthroughtheclosingdatewhichwasrecordedasareductioninourbasis.Aftergivingeffecttothefarm-outourparticipatinginterestintheCapBoujdourOffshoreblockis55.0andweremaintheoperator.InAugust2014weenteredintoafarm-inagreementwithTimisCorporationLimitedwherebyweacquireda60participatinginterestandoperatorshipcoveringtheCayarOffshoreProfondandSaintLouisOffshoreProfondblocksoffshoreSenegal.Aspartoftheagreementwewillcarrythefullcostsofaplanned3Dseismicprogram.Additionallywewillcarrythefullcostsoftwocontingentexplorationwellssubjecttoamaximumgrosscostperwellof120.0millionshouldKosmoselecttodrillsuchwells.Wealsoretaintheoptiontoincreaseourequityto65inexchangeforcarryingthefullcostofathirdcontingentexplorationorappraisalwellsubjecttoamaximumgrosscostof120.0million.InFebruary2015weenteredintoafarm-outagreementwithChevroncoveringtheC8C12andC13petroleumcontractsoffshoreMauritania.Underthetermsofthefarm-outagreementChevronwillacquirea30non-operatedworkinginterestineachofthecontractareas.Chevronwillpayadisproportionateshareofthecostsofoneexplorationwellandasecondcontingentexplorationwellsubjecttomaximumexpenditurecaps.InadditionChevronwillpayitsproportionateshareof114 KOSMOSENERGYLTD.NotestoConsolidatedFinancialStatementsContinued3.AcquisitionsandDivestituresContinuedpreviouslyincurredexplorationcosts.ChevronwillnotinitiallyfunddrillingoftheTortueprospectbutretainstheoptiontoparticipateinthisprospectafterthetransactioniscompleted.Thetransactionissubjecttocustomaryclosingconditions.Oncethesefarm-outagreementsbecomeeffectiveKosmosChevronandSMHPMsparticipatinginterestinBlockC8BlockC12andBlockC13willbe6030and10respectively.4.JointInterestBillingsTheCompanysjointinterestbillingsconsistofreceivablesfrompartnerswithinterestsincommonoilandgaspropertiesoperatedbytheCompany.Jointinterestbillingsareclassifiedonthefaceoftheconsolidatedbalancesheetsascurrentandlong-termreceivablesbasedonwhencollectionisexpectedtooccur.In2014theGhanaNationalPetroleumCorporationGNPCnotifiedusandourblockpartnersthatitwouldexerciseitsrightforthecontractorgrouptopayits5shareoftheTweneboaEnyenraandNtommeTENdevelopmentcosts.TheblockpartnerswillbereimbursedforsuchcostsplusinterestoutofaportionofGNPCsTENproductionrevenuesunderthetermsoftheDTpetroleumcontract.AsofDecember312014thejointinterestbillingreceivablesduefromGNPCfortheTENdevelopmentcostswere14.2millionwhichwereclassifiedaslong-termontheconsolidatedbalancesheets.5.PropertyandEquipmentPropertyandequipmentisstatedatcostandconsistedofthefollowingDecember3120142013InthousandsOilandgaspropertiesProvedproperties.............................1156868801348Unprovedproperties...........................363717524257Supportequipmentandfacilities..................968722710289Totaloilandgasproperties....................24893072035894Lessaccumulateddepletion.....................716121527832Oilandgaspropertiesnet........................17731861508062Otherproperty...............................3371831658Lessaccumulateddepreciation...................2205816758Otherpropertynet.............................1166014900Totalpropertyandequipmentnet..................17848461522962Werecordeddepletionexpenseof188.3million213.7millionand178.6millionfortheyearsendedDecember3120142013and2012respectively.115 KOSMOSENERGYLTD.NotestoConsolidatedFinancialStatementsContinued6.SuspendedWellCostsTheCompanycapitalizesexploratorywellcostsintooilandgaspropertiesuntiladeterminationismadethatthewellhaseitherfoundprovedreservesorisimpaired.Ifprovedreservesarefoundthecapitalizedexploratorywellcostsarereclassifiedtoprovedproperties.Thewellcostsarechargedtoexpenseiftheexploratorywellisdeterminedtobeimpaired.ThefollowingtablereflectstheCompanyscapitalizedexploratorywellcostsoncompletedwellsasofandduringyearsendedDecember3120142013and2012.Thetableexcludes1.1million78.5millionand29.6millionincoststhatwerecapitalizedandsubsequentlyexpensedduringthesameyearfortheyearsendedDecember3120142013and2012respectively.During2014theexploratorywellcostsassociatedwiththeTENdevelopmentwerereclassifiedtoprovedproperty.YearsEndedDecember31201420132012InthousandsBeginningbalance........................376166372492267592Additionstocapitalizedexploratorywellcostspendingthedeterminationofprovedreserves..7103932804107527Reclassificationduetodeterminationofprovedreserves..............................220491Capitalizedexploratorywellcostschargedtoexpense..............................291302627Endingbalance..........................226714376166372492ThefollowingtableprovidesagingofcapitalizedexploratorywellcostsbasedonthedatedrillingwascompletedandthenumberofprojectsforwhichexploratorywellcostshavebeencapitalizedformorethanoneyearsincethecompletionofdrillingYearsEndedDecember31201420132012InthousandsexceptwellcountsExploratorywellcostscapitalizedforaperiodofoneyearorless.........................1681411426106635Exploratorywellcostscapitalizedforaperiodonetotwoyears...........................40865229140179933Exploratorywellcostscapitalizedforaperiodthreetofiveyears...........................16903513560085924Endingbalance...........................226714376166372492Numberofprojectsthathaveexploratorywellcoststhathavebeencapitalizedforaperiodgreaterthanoneyear..........................587AsofDecember312014theprojectswithexploratorywellcostscapitalizedformorethanoneyearsincethecompletionofdrillingarerelatedtoMahoganyTeak-1Teak-2andAkasadiscoveriesintheWestCapeThreePointsWCTPBlockandtheWawadiscoveryintheDeepwaterTanoDTBlockwhichareallinGhana.116 KOSMOSENERGYLTD.NotestoConsolidatedFinancialStatementsContinued6.SuspendedWellCostsContinuedMahoganyThreeappraisalwellshavebeendrilled.AdditionallywedeepenedadevelopmentwellintheJubileeFieldtofurtherappraisetheMahoganydiscovery.FollowingadditionalevaluationadecisionregardingcommercialityoftheMahoganydiscoveryisexpectedtobemadebytheWCTPBlockpartnersinearly2015.WithinsixmonthsofsuchadeclarationaPoDwouldbepreparedandsubmittedtoGhanasMinistryofEnergyasrequiredundertheWCTPpetroleumcontract.Teak-1DiscoveryTwoappraisalwellshavebeendrilled.FollowingadditionalevaluationadecisionregardingcommercialityoftheTeak-1discoveryisexpectedtobemadebytheWCTPBlockpartnersinearly2015.WithinsixmonthsofsuchadeclarationaPoDwouldbepreparedandsubmittedtoGhanasMinistryofEnergyasrequiredundertheWCTPpetroleumcontract.Teak-2DiscoveryWehaveperformedagaugeinstallationonthewellandreprocessedseismicdata.FollowingadditionalevaluationadecisionregardingcommercialityoftheTeak-2discoveryisexpectedtobemadebytheWCTPBlockpartnersinearly2015.WithinsixmonthsofsuchadeclarationaPoDwouldbepreparedandsubmittedtoGhanasMinistryofEnergyasrequiredundertheWCTPpetroleumcontract.AkasaDiscoveryWeperformedadrillstemtestandgaugeinstallationonthediscoverywellanddrilledoneappraisalwelltheAkasa-2A.FollowingadditionalevaluationadecisionregardingcommercialityoftheAkasadiscoveryisexpectedtobemadebytheWCTPBlockpartnersinearly2015.WithinsixmonthsofsuchadeclarationaPoDwouldbepreparedandsubmittedtoGhanasMinistryofEnergyasrequiredundertheWCTPpetroleumcontract.WawaDiscoveryWearecurrentlyreprocessingseismicdataandhaveacquiredahighresolutionseismicsurveyoverthediscoveryarea.FollowingadditionalevaluationandpotentialappraisalactivitiesadecisionregardingcommercialityoftheWawadiscoveryisexpectedtobemadebytheDTBlockpartnersin2016.WithinsixmonthsofsuchdeclarationaPoDwouldbepreparedandsubmittedtoGhanasMinistryofEnergyasrequiredundertheDTpetroleumcontract.7.AccruedLiabilitiesAccruedliabilitiesconsistedofthefollowingDecember3120142013InthousandsAccruedliabilitiesAccruedexplorationdevelopmentandproduction........13939373976Accruedgeneralandadministrativeexpenses............219264255Accruedtaxesotherthanincome....................2031515188Accruedinterest................................10271Incometaxes...................................923320379Accruedother..................................8291414201967115212117 KOSMOSENERGYLTD.NotestoConsolidatedFinancialStatementsContinued8.DebtDebtconsistedofthefollowingDecember3120142013InthousandsOutstandingdebtprincipalbalancesFacility.......................................500000900000SeniorNotes...................................300000Total.......................................800000900000Unamortizedissuancediscounts.......................5731Long-termdebt...................................794269900000FacilityInMarch2014theCompanyamendedandrestatedtheFacilitywithatotalcommitmentof1.5billionfromanumberoffinancialinstitutionsincludingtheInternationalFinanceCorporation.TheFacilitysupportsouroilandgasexplorationappraisalanddevelopmentprogramsandcorporateactivities.AspartofthedebtrefinancinginMarch2014therepaymentofborrowingsundertheexistingfacilityattributabletofinancialinstitutionsthatdidnotparticipateintheamendedFacilitywasaccountedforasanextinguishmentofdebtandexistingunamortizeddebtissuancecostsattributabletothoseparticipantswereexpensed.Asaresultwerecordeda2.9millionlossontheextinguishmentofdebt.AsofDecember312014wehave44.6millionofnetdeferredfinancingcostsrelatedtotheFacilitywhichwillbeamortizedovertheremainingtermoftheFacilityincludingcertaincostsrelatedtotheamendment.AsofDecember312014borrowingsundertheFacilitytotaled500.0millionandtheundrawnavailabilityundertheFacilitywas1.0billion.Interestistheaggregateoftheapplicablemargin3.25to4.50dependingonthelengthoftimethathaspassedfromthedatetheFacilitywasenteredintoLIBORandmandatorycostifanyasdefinedintheFacility.Interestispayableonthelastdayofeachinterestperiodandiftheinterestperiodislongerthansixmonthsonthedatesfallingatsix-monthintervalsafterthefirstdayoftheinterestperiod.Wepaycommitmentfeesontheundrawnandunavailableportionofthetotalcommitmentsifany.Commitmentfeesareequalto40perannumofthethen-applicablerespectivemarginwhenacommitmentisavailableforutilizationandequalto20perannumofthethen-applicablerespectivemarginwhenacommitmentisnotavailableforutilization.WerecognizeinterestexpenseinaccordancewithASC835Interestwhichrequiresinterestexpensetoberecognizedusingtheeffectiveinterestmethod.WedeterminedtheeffectiveinterestratebasedontheestimatedlevelofborrowingsundertheFacility.AspartoftheMarch2014amendmenttheFacilitysestimatedeffectiveinterestratewaschangedandaccordinglyweadjustedourestimateofdeferredinterestpreviouslyrecordedduringprioryearsby4.5millionwhichwasrecordedasareductiontointerestexpense.TheFacilityprovidesarevolving-creditandletterofcreditfacility.Theavailabilityperiodfortherevolving-creditfacilityasamendedinMarch2014expiresonMarch312018howevertheFacilityhas118 KOSMOSENERGYLTD.NotestoConsolidatedFinancialStatementsContinued8.DebtContinuedarevolving-creditsublimitwhichwillbethelesserof500.0millionandthetotalavailablefacilityatthattimethatwillbeavailablefordrawinguntilthedatefallingonemonthpriortothefinalmaturitydate.Theletterofcreditsublimitexpiresonthefinalmaturitydate.TheavailablefacilityamountissubjecttoborrowingbaseconstraintsandbeginningonMarch312018outstandingborrowingswillbeconstrainedbyanamortizationschedule.TheFacilityhasafinalmaturitydateofMarch312021.AsofDecember312014wehadnolettersofcreditissuedundertheFacility.KosmoshastherighttocancelalltheundrawncommitmentsundertheFacility.TheamountoffundsavailabletobeborrowedundertheFacilityalsoknownastheborrowingbaseamountisdeterminedeachyearonMarch31andSeptember30.TheborrowingbaseamountisbasedonthesumofthenetpresentvaluesofnetcashflowsandrelevantcapitalexpendituresreducedbycertainpercentagesaswellasvalueattributabletocertainassetsreservesandorresourcesinGhana.IfaneventofdefaultexistsundertheFacilitythelenderscanacceleratethematurityandexerciseotherrightsandremediesincludingtheenforcementofsecuritygrantedpursuanttotheFacilityovercertainassetsheldbyoursubsidiaries.TheFacilitycontainscustomarycrossdefaultprovisions.WewereincompliancewiththefinancialcovenantscontainedintheFacilityasoftheSeptember302014themostrecentassessmentdate.CorporateRevolverInNovember2012wesecuredaCorporateRevolverfromanumberoffinancialinstitutionswhichasamendedhasanavailabilityof300.0million.TheCorporateRevolverisavailableforallsubsidiariesforgeneralcorporatepurposesandforoilandgasexplorationappraisalanddevelopmentprograms.AsofDecember312014wehave2.9millionofnetdeferredfinancingcostsrelatedtotheCorporateRevolverwhichwillbeamortizedovertheremainingtermorNovember202015.AsofDecember312014therewerenoborrowingsoutstandingundertheCorporateRevolverandtheundrawnavailabilityundertheCorporateRevolverwas300.0million.Interestistheaggregateoftheapplicablemargin6.0LIBORandmandatorycostifanyasdefinedintheCorporateRevolver.Interestispayableonthelastdayofeachinterestperiodandiftheinterestperiodislongerthansixmonthsonthedatesfallingatsix-monthintervalsafterthefirstdayoftheinterestperiod.Wepaycommitmentfeesontheundrawnportionofthetotalcommitments.Commitmentfeesforthelendersareequalto40perannumoftherespectivemarginwhenacommitmentisavailableforutilization.Theavailableamountisnotsubjecttoborrowingbaseconstraints.KosmoshastherighttocancelalltheundrawncommitmentsundertheCorporateRevolver.TheCompanyisrequiredtorepaycertainamountsdueundertheCorporateRevolverwithsalesofcertainsubsidiariesorsalesofcertainassets.IfaneventofdefaultexistsundertheCorporateRevolverthelenderscanacceleratethematurityandexerciseotherrightsandremediesincludingtheenforcementofsecuritygrantedpursuanttotheCorporateRevolverovercertainassetsheldbyus.WewereincompliancewiththefinancialcovenantscontainedintheCorporateRevolverasofSeptember302014themostrecentassessmentdate.TheCorporateRevolvercontainscustomarycrossdefaultprovisions.119 KOSMOSENERGYLTD.NotestoConsolidatedFinancialStatementsContinued8.DebtContinuedRevolvingLetterofCreditFacilityInJuly2013weenteredintoarevolvingletterofcreditfacilityagreementLCFacility.ThesizeoftheLCFacilityis100.0millionwithadditionalcommitmentsupto50.0millionbeingavailableiftheexistinglenderincreasesitscommitmentorifcommitmentsfromnewfinancialinstitutionsareadded.TheLCFacilityprovidesthatwemaintaincashcollateralinanamountequaltoatleast75ofalloutstandinglettersofcreditundertheLCFacilityprovidedthatduringtheperiodofanybreachofcertainfinancialcovenantstherequiredcashcollateralamountshallincreaseto100.Thefeesassociatedwithoutstandinglettersofcreditissuedwillbe0.5perannum.TheLCFacilityhasanavailabilityperiodwhichexpiresonJune12016.WemayvoluntarilycancelanycommitmentsavailableundertheLCFacilityatanytime.AsofDecember312014thereweresevenoutstandinglettersofcredittotaling21.5millionundertheLCFacility.TheLCFacilitycontainscustomarycrossdefaultprovisions.7.875SeniorSecuredNotesdue2021DuringAugust2014theCompanyissued300.0millionofSeniorNotesandreceivednetproceedsofapproximately292.5millionafterdeductingdiscountscommissionsanddeferredfinancingcosts.TheCompanyusedthenetproceedstorepayaportionoftheoutstandingindebtednessundertheFacilityandforgeneralcorporatepurposes.TheSeniorNotesmatureonAugust12021.Interestispayablesemi-annuallyinarrearseachFebruary1andAugust1commencingonFebruary12015.TheSeniorNotesaresecuredsubjecttocertainexceptionsandpermittedliensbyafirstrankingfixedequitablechargeonallsharesheldbyusinourdirectsubsidiaryKosmosEnergyHoldings.TheSeniorNotesarecurrentlyguaranteedonasubordinatedunsecuredbasisbyourexistingrestrictedsubsidiariesthatguaranteetheFacilityandtheCorporateRevolverandincertaincircumstancestheSeniorNoteswillbecomeguaranteedbycertainofourotherexistingorfuturerestrictedsubsidiariestheGuarantees.RedemptionandRepurchase.AtanytimepriortoAugust12017andsubjecttocertainconditionstheCompanymayonanyoneormoreoccasionsredeemupto35oftheaggregateprincipalamountofSeniorNotesissuedundertheindenturedatedAugust12014relatedtotheSeniorNotestheIndentureataredemptionpriceof107.875plusaccruedandunpaidinterestwiththecashproceedsofcertaineligibleequityofferings.AdditionallyatanytimepriortoAugust12017theCompanymayonanyoneormoreoccasionsredeemallorapartoftheSeniorNotesataredemptionpriceequalto100plusanyaccruedandunpaidinterestandplusamake-wholepremium.OnorafterAugust12017theCompanymayredeemallorapartoftheSeniorNotesattheredemptionpricesexpressedaspercentagesofprincipalamountsetforthbelowplusaccruedandunpaidinterestYearPercentageOnorafterAugust12017butbeforeAugust12018...............103.9OnorafterAugust12018butbeforeAugust12019...............102.0OnorafterAugust12019andthereafter........................100.0WemayalsoredeemtheSeniorNotesinwholebutnotinpartatanytimeifchangesintaxlawsimposecertainwithholdingtaxesonamountspayableontheSeniorNotesatapriceequaltothe120 KOSMOSENERGYLTD.NotestoConsolidatedFinancialStatementsContinued8.DebtContinuedprincipalamountoftheSeniorNotesplusaccruedinterestandadditionalamountsifanyasmaybenecessarysothatthenetamountreceivedbyeachholderafteranywithholdingordeductiononpaymentsoftheSeniorNoteswillnotbelessthantheamountsuchholderwouldhavereceivedifsuchtaxeshadnotbeenwithheldordeducted.UpontheoccurrenceofachangeofcontroltriggeringeventasdefinedundertheIndenturetheCompanywillberequiredtomakeanoffertorepurchasetheSeniorNotesatarepurchasepriceequalto101oftheprincipalamountplusaccruedandunpaidinteresttobutexcludingthedateofrepurchase.IfwesellassetsundercertaincircumstancesoutlinedintheIndenturewewillberequiredtousethenetproceedstomakeanoffertopurchasetheSeniorNotesatanofferpriceincashinanamountequalto100oftheprincipalamountoftheSeniorNotesplusaccruedandunpaidinteresttobutexcludingtherepurchasedate.Covenants.TheIndenturerestrictsourabilityandtheabilityofourrestrictedsubsidiariestoamongotherthingsincurorguaranteeadditionalindebtednesscreatelienspaydividendsormakedistributionsinrespectofcapitalstockpurchaseorredeemcapitalstockmakeinvestmentsorcertainotherrestrictedpaymentssellassetsenterintoagreementsthatrestricttheabilityofoursubsidiariestomakedividendsorotherpaymentstousenterintotransactionswithaffiliatesoreffectcertainconsolidationsmergersoramalgamations.Thesecovenantsaresubjecttoanumberofimportantqualificationsandexceptions.CertainofthesecovenantswillbeterminatediftheSeniorNotesareassignedaninvestmentgraderatingbybothStandardPoorsRatingServicesandFitchRatingsInc.andnodefaultoreventofdefaulthasoccurredandiscontinuing.Collateral.TheSeniorNotesaresecuredsubjecttocertainexceptionsandpermittedliensbyafirstrankingfixedequitablechargeonallcurrentlyoutstandingsharesadditionalsharesdividendsorotherdistributionspaidinrespectofsuchsharesoranyotherpropertyderivedfromsuchsharesineachcaseheldbyusinrelationtotheCompanysdirectsubsidiaryKosmosEnergyHoldingspursuanttothetermsoftheChargeoverSharesofKosmosEnergyHoldingsdatedNovember232012asamendedandrestatedonMarch142014betweentheCompanyandBNPParibasasSecurityandIntercreditorAgent.TheSeniorNotesshareparipassuinthebenefitofsuchequitablechargebasedontherespectiveamountsoftheobligationsundertheIndentureandtheamountofobligationsundertheCorporateRevolver.TheGuaranteesarenotsecured.AtDecember312014theestimatedrepaymentsofdebtduringthefiveyearsandthereafterareasfollowsPaymentsDuebyYear20152016201720182019ThereafterInthousandsPrincipaldebtrepayments1.........575717424291IncludesthescheduledprincipalmaturitiesfortheSeniorNotesandtheFacility.ThescheduledmaturitiesofdebtrelatedtotheFacilityarebasedonthelevelofborrowingsandtheestimatedfutureavailableborrowingbaseasofDecember312014.Anyincreasesordecreasesinthelevelofborrowingsorincreasesordecreasesintheavailableborrowingbasewouldimpactthescheduledmaturitiesofdebtduringthenextfiveyearsandthereafter.AsofDecember312014therewerenoborrowingsundertheCorporateRevolver.121 KOSMOSENERGYLTD.NotestoConsolidatedFinancialStatementsContinued8.DebtContinuedInterestandotherfinancingcostsnetInterestandotherfinancingcostsnetincurredduringtheperiodcomprisedofthefollowingYearsEndedDecember31201420132012InthousandsInterestexpense..........................578764931756298Amortizationdeferredfinancingcosts..........10548110548984Lossonextinguishmentofdebt...............28985342Capitalizedinterest........................205771307410302Deferredinterest..........................356216583584Interestratederivativesnet..................110610902627Interestincome...........................5292751108Interestandotherfinancingcostsnet.........4554847590654259.DerivativeFinancialInstrumentsWeusefinancialderivativecontractstomanageexposurestocommoditypriceandinterestratefluctuations.Wedonotholdorissuederivativefinancialinstrumentsfortradingpurposes.Wemanagemarketandcounterpartycreditriskinaccordancewithourpoliciesandguidelines.Inaccordancewiththesepoliciesandguidelinesourmanagementdeterminestheappropriatetimingandextentofderivativetransactions.WehaveincludedanestimateofnonperformanceriskinthefairvaluemeasurementofourderivativecontractsasrequiredbyASC820FairValueMeasurementsandDisclosures.OilDerivativeContractsThefollowingtablesetsforththevolumesinbarrelsunderlyingtheCompanysoutstandingoilderivativecontractsandtheweightedaverageDatedBrentpricesperBblforthosecontractsasofDecember312014.WeightedAverageDatedBrentPriceperBblDeferredPremiumTermTypeofContractMBblPayableSwapFloorCeilingCall2015JanuaryDecember..........Three-waycollars42300.4687.43110.00133.82JanuaryDecember..........Swapswithcalls200093.59115.002016JanuaryDecember..........Purchasedputs20003.4185.00JanuaryDecember..........Three-waycollars200085.00110.00135.00122 KOSMOSENERGYLTD.NotestoConsolidatedFinancialStatementsContinued9.DerivativeFinancialInstrumentsContinuedInJanuary2015weenteredintoswapcontractsandsoldputcontractsfor2.0MMBblfromJanuary2016throughDecember2016withafixedpriceof75.00perbarrelandashortputpriceof60.00perbarrel.Inadditionwesoldcallcontractsfor2.0MMBblfromJanuary2017throughDecember2017withastrikepriceof85.00perbarrel.ThecontractsareindexedtoDatedBrentpricesandwepaidanetpremiumof3.0million.InterestRateSwapsDerivativeContractsThefollowingtablesummarizesouropeninterestrateswapsasofDecember312014wherebywepayafixedrateofinterestandthecounterpartypaysavariableLIBOR-basedrateWeightedAverageWeightedAverageTermNotionalAmountFixedRateFloatingRateInthousandsJanuary2015December2015..............453192.036-monthLIBORJanuary2016June2016..................125002.276-monthLIBORSubsequenttoDecember312014weenteredintocappedinterestrateswapsfor200.0millionfromJanuary2016throughDecember2018.For200.0millionofdebtthatishedgedweexpecttopayanaverage1-monthLIBORrateof1.23ifLIBORisbelow3.0andpaythemarketrateless1.77ifLIBORisabove3.0netofthecappedinterestrateswaps.EffectiveJune12010wediscontinuedhedgeaccountingonallinterestratederivativeinstruments.Thereforefromthatdateforwardchangesinthefairvalueoftheinstrumentsarerecognizedinearningsduringtheperiodofchange.TheeffectiveportionsofthediscontinuedhedgesasofMay312010areincludedinAOCIintheequitysectionoftheaccompanyingconsolidatedbalancesheetsandarebeingtransferredtoearningswhenthehedgedtransactionsettles.TheCompanyexpectstoreclassify0.6millionofgainsfromAOCItointerestexpensewithinthenext12months.SeeNote10FairValueMeasurementsforadditionalinformationregardingtheCompanysderivativeinstruments.123 KOSMOSENERGYLTD.NotestoConsolidatedFinancialStatementsContinued9.DerivativeFinancialInstrumentsContinuedThefollowingtablesdisclosetheCompanysderivativeinstrumentsasofDecember312014and2013andgainlossfromderivativesduringtheyearsendedDecember3120142013and2012EstimatedFairValueAssetLiabilityDecember31TypeofContractBalanceSheetLocation20142013InthousandsDerivativesnotdesignatedashedginginstrumentsDerivativeassetsCommodity1....................Derivativesassetscurrent163275Commodity2....................Derivativesassetslong-term89210DerivativeliabilitiesCommodity3....................Derivativesliabilitiescurrent7873Interestrate.....................Derivativesliabilitiescurrent7212067Commodity4....................Derivativesliabilitieslong-term3144Interestrate.....................Derivativesliabilitieslong-term68667Totalderivativesnotdesignatedashedginginstruments............251696137511Includesnetdeferredpremiumspayableof1.8millionandzerorelatedtocommodityderivativecontractsasofDecember312014and2013respectively.2Includesnetdeferredpremiumspayableof6.9millionandzerorelatedtocommodityderivativecontractsasofDecember312014and2013respectively.3Includesnetdeferredpremiumspayableofzeroand0.1millionrelatedtocommodityderivativecontractsasofDecember312014and2013respectively.4Includesnetdeferredpremiumspayableofzeroand6.5millionrelatedtocommodityderivativecontractsasofDecember312014and2013respectively.124 KOSMOSENERGYLTD.NotestoConsolidatedFinancialStatementsContinued9.DerivativeFinancialInstrumentsContinuedAmountofGainLossYearsEndedDecember31TypeofContractLocationofGainLoss201420132012InthousandsDerivativesincashflowhedgingrelationshipsInterestrate1......................Interestexpense13911527163Totalderivativesincashflowhedgingrelationships.....................13911527163DerivativesnotdesignatedashedginginstrumentsCommodity2.......................Oilandgasrevenue11661715615652Commodity.........................Derivativesnet2818531702731490Interestrate........................Interestexpense2854372464Totalderivativesnotdesignatedashedginginstruments.....................26990724620183021AmountswerereclassifiedfromAOCIintoearningsuponsettlement.2Amountsrepresentthechangeinfairvalueofourprovisionaloilsalescontracts.OffsettingofDerivativeAssetsandDerivativeLiabilitiesOurderivativeinstrumentswhicharesubjecttomasternettingarrangementswithourcounterpartiesonlyhavetherightofoffsetwhenthereisaneventofdefault.AsofDecember312014and2013therewasnotaneventofdefaultandthereforetheassociatedgrossassetorgrossliabilityamountsrelatedtothesearrangementsarepresentedontheconsolidatedbalancesheets.AdditionallyifaneventofdefaultoccurredtheoffsettingamountswouldbeimmaterialasofDecember312014and2013.10.FairValueMeasurementsInaccordancewithASC820FairValueMeasurementsandDisclosuresfairvaluemeasurementsarebaseduponinputsthatmarketparticipantsuseinpricinganassetorliabilitywhichareclassifiedintotwocategoriesobservableinputsandunobservableinputs.Observableinputsrepresentmarketdataobtainedfromindependentsourceswhereasunobservableinputsreflectacompanysownmarketassumptionswhichareusedifobservableinputsarenotreasonablyavailablewithoutunduecostandeffort.WeprioritizetheinputsusedinmeasuringfairvalueintothefollowingfairvaluehierarchyLevel1quotedpricesforidenticalassetsorliabilitiesinactivemarkets.Level2quotedpricesforsimilarassetsorliabilitiesinactivemarketsquotedpricesforidenticalorsimilarassetsorliabilitiesinmarketsthatarenotactiveinputsotherthanquotedpricesthatareobservablefortheassetorliabilityandinputsderivedprincipallyfromorcorroboratedbyobservablemarketdatabycorrelationorothermeans.125 KOSMOSENERGYLTD.NotestoConsolidatedFinancialStatementsContinued10.FairValueMeasurementsContinuedLevel3unobservableinputsfortheassetorliability.Thefairvalueinputhierarchyleveltowhichanassetorliabilitymeasurementinitsentiretyfallsisdeterminedbasedonthelowestlevelinputthatissignificanttothemeasurementinitsentirety.ThefollowingtablespresenttheCompanysassetsandliabilitiesthataremeasuredatfairvalueonarecurringbasisasofDecember312014and2013foreachfairvaluehierarchylevelFairValueMeasurementsUsingQuotedPricesinActiveMarketsforSignificantOtherSignificantIdenticalAssetsObservableInputsUnobservableInputsLevel1Level2Level3TotalInthousandsDecember312014AssetsCommodityderivatives.........252485252485LiabilitiesCommodityderivatives.........Interestratederivatives.........789789Total.....................251696251696December312013LiabilitiesCommodityderivatives.........1101711017Interestratederivatives.........27342734Total.....................1375113751ThebookvaluesofcashandcashequivalentsandrestrictedcashapproximatefairvaluebasedonLevel1inputs.Jointinterestbillingsoilsalesandotherreceivablesandaccountspayableandaccruedliabilitiesapproximatefairvalueduetotheshort-termnatureoftheseinstruments.Ourlong-termreceivablesifanyafteranyallowancesfordoubtfulaccountsapproximatefairvalue.TheestimatesoffairvalueoftheseitemsarebasedonLevel2inputs.CommodityDerivativesOurcommodityderivativesrepresentcrudeoilthree-waycollarspurchasedputsandswapswithcallsfornotionalbarrelsofoilatfixedDatedBrentoilprices.ThevaluesattributabletoouroilderivativesarebasedonithecontractednotionalvolumesiiindependentactivefuturespricequotesforDatedBrentiiiacredit-adjustedyieldcurveapplicabletoeachcounterpartybyreferencetotheCDSmarketandivanindependentlysourcedestimateofvolatilityforDatedBrent.Thevolatilityestimatewasprovidedbycertainindependentbrokerswhoareactiveinbuyingandsellingoiloptionsandwascorroboratedbymarket-quotedvolatilityfactors.Thedeferredpremiumisincludedinthefairmarketvalueofthecommodityderivatives.SeeNote9DerivativeFinancialInstrumentsforadditionalinformationregardingtheCompanysderivativeinstruments.126 KOSMOSENERGYLTD.NotestoConsolidatedFinancialStatementsContinued10.FairValueMeasurementsContinuedProvisionalOilSalesThevalueattributabletotheprovisionaloilsalesderivativeisbasedonithesalesvolumessubjecttoprovisionalpricingandiianindependentlysourcedforwardcurveoverthetermoftheprovisionalpricingperiod.InterestRateDerivativesWehaveinterestrateswapswherebytheCompanypaysafixedrateofinterestandthecounterpartypaysavariableLIBOR-basedrate.ThevaluesattributabletotheCompanysinterestratederivativecontractsarebasedonithecontractednotionalamountsiiLIBORyieldcurvesprovidedbyindependentthirdpartiesandcorroboratedwithforwardactivemarket-quotedLIBORyieldcurvesandiiiacredit-adjustedyieldcurveasapplicabletoeachcounterpartybyreferencetotheCDSmarket.DebtThefollowingtablepresentsthecarryingvaluesandfairvaluesoffinancialinstrumentsthatarenotcarriedatfairvalueintheconsolidatedbalancesheetsDecember312014December312013CarryingFairCarryingFairValueValueValueValueInthousandsLong-termdebt..................794269755000900000900000ThecarryingvalueoftheFacilityapproximatesfairvaluesinceitissubjecttoshort-termfloatinginterestratesthatapproximatetheratesavailabletousforthoseperiods.ThefairvalueofourSeniorNotesisbasedonquotedmarketpriceswhichresultsinaLevel1fairvaluemeasurement.11.AssetRetirementObligationsThefollowingtablesummarizesthechangesintheCompanysassetretirementobligationsDecember3120142013InthousandsAssetretirementobligationsBeginningassetretirementobligations..................3959627484Liabilitiesincurredduringperiod......................8558Revisionsinestimatedretirementobligations.............Accretionexpense.................................44273554Endingassetretirementobligations....................4402339596TheGhanaianlegalandregulatoryregimeregardingoilfieldabandonmentandotherenvironmentalmattersisevolving.CurrentlynoGhanaianenvironmentalregulationsexpresslyrequirethatcompaniesabandonorremoveoffshoreassets.UndertheEnvironmentalPermitfortheJubileeFieldadecommissioningplanwillbepreparedandsubmittedtotheGhanaEnvironmentalProtectionAgency.ASC410AssetRetirementandEnvironmentalObligationsrequirestheCompanyto127 KOSMOSENERGYLTD.NotestoConsolidatedFinancialStatementsContinued11.AssetRetirementObligationsContinuedrecognizethisliabilityintheperiodinwhichtheliabilitywasincurred.Wehaverecordedanassetretirementobligationforfieldsthathavecommencedproduction.Additionalassetretirementobligationswillberecordedintheperiodinwhichwellswithinsuchproducingfieldsarecommissioned.12.Equity-basedCompensationRestrictedStockAwardsandRestrictedStockUnitsPriortoourcorporatereorganizationKosmosEnergyHoldingsissuedcommonunitsdesignatedasprofitunitswithathresholdvaluerangingfrom0.85to90toemployeesmanagementanddirectors.Profitunitswereequityawardsthatweremeasuredonthegrantdateandexpensedoveravestingperiodoffouryears.Foundingmanagementanddirectorsvested20asofthedateofissuanceandanadditional20ontheanniversarydateforeachofthenextfouryears.Profitunitsissuedtoemployeesvested50onthesecondandfourthanniversariesoftheissuancedate.Aspartofthecorporatereorganizationvestedprofitunitswereexchangedfor31.7millioncommonsharesofKosmosEnergyLtd.unvestedprofitunitswereexchangedfor10.0millionrestrictedstockawardsandthe90profitunitswerecancelled.BasedonthetermsandconditionsofthecorporatereorganizationtheexchangeofprofitunitsforcommonsharesofKosmosEnergyLtd.resultedinnoincrementalcompensationcosts.InApril2011theBoardofDirectorsapprovedtheLTIPwhichprovidesforthegrantingofincentiveawardsintheformofstockoptionsstockappreciationrightsrestrictedstockawardsrestrictedstockunitsamongotherawardtypes.TheLTIPprovidesfortheissuanceof24.5millionsharespursuanttoawardsundertheplaninadditiontothe10.0millionrestrictedstockawardsexchangedforunvestedprofitunits.AsofDecember312014theCompanyhadapproximately2.1millionsharesthatremainavailableforissuanceundertheLTIP.Werecordcompensationexpenseequaltothefairvalueofshare-basedpaymentsoverthevestingperiodsoftheLTIPawards.WerecordedcompensationexpensefromawardsgrantedunderourLTIPof74.5million69.0millionand83.4millionduringtheyearsendedDecember3120142013and2012respectively.DuringtheyearendedDecember312014anadditional5.0millionofequity-basedcompensationwasrecordedasrestructuringcharges.ThetotaltaxbenefitfortheyearsendedDecember3120142013and2012was25.7million23.5millionand28.8millionrespectively.Additionallyweexpensedataxshortfallrelatedtoequity-basedcompensationof6.5million7.0millionand8.1millionfortheyearsendedDecember3120142013and2012respectively.Thefairvalueofawardsvestedduring20142013and2012wasapproximately37.0million41.1millionand75.7millionrespectively.TheCompanygrantedbothrestrictedstockawardsandrestrictedstockunitswithservicevestingcriteriaandgrantedbothrestrictedstockawardsandrestrictedstockunitswithacombinationofmarketandservicevestingcriteriaundertheLTIP.Theseawardsvestoverafouryearperiod.Restrictedstockawardsareissuedandincludedinthenumberofoutstandingsharesuponthedateofgrantandifsuchawardsareforfeitedtheybecometreasurystock.Uponvestingrestrictedstockunitsbecomeissuedandoutstandingstock.128 KOSMOSENERGYLTD.NotestoConsolidatedFinancialStatementsContinued12.Equity-basedCompensationContinuedThefollowingtablereflectstheoutstandingrestrictedstockawardsasofDecember312014Weighted-MarketServiceWeighted-ServiceVestingAverageVestingAverageRestrictedStockGrant-DateRestrictedStockGrant-DateAwardsFairValueAwardsFairValueInthousandsInthousandsOutstandingatDecember312011....1719513.36352213.30Granted......................59012.053039.45Forfeited.....................99413.8729112.68Vested.......................68938.05OutstandingatDecember312012....989816.92353412.93Granted......................35110.73Forfeited.....................46216.519612.35Vested.......................340317.18OutstandingatDecember312013....638416.48343812.95Granted......................Forfeited.....................12215.207710.74Vested.......................302216.02OutstandingatDecember312014....324016.95336113.00ThefollowingtablereflectstheoutstandingrestrictedstockunitsasofDecember312014Weighted-MarketServiceWeighted-ServiceVestingAverageVestingAverageRestrictedStockGrant-DateRestrictedStockGrant-DateUnitsFairValueUnitsFairValueInthousandsInthousandsOutstandingatDecember312011....Granted......................107010.6085415.81Forfeited.....................4710.882915.81Vested.......................OutstandingatDecember312012....102310.5982515.81Granted......................159110.79110515.44Forfeited.....................13310.517215.74Vested.......................24310.59OutstandingatDecember312013....223810.74185815.59Granted......................211310.80157215.71Forfeited.....................41210.9018415.48Vested.......................57210.74OutstandingatDecember312014....336710.76324615.66AsofDecember312014totalequity-basedcompensationtoberecognizedonunvestedrestrictedstockawardsandrestrictedstockunitsis80.2millionoveraweightedaverageperiodof1.61years.ForrestrictedstockawardsandrestrictedstockunitswithacombinationofmarketandservicevestingcriteriathenumberofcommonsharestobeissuedisdeterminedbycomparingtheCompanystotalshareholderreturnwiththetotalshareholderreturnofapredeterminedgroupofpeercompanies129 KOSMOSENERGYLTD.NotestoConsolidatedFinancialStatementsContinued12.Equity-basedCompensationContinuedovertheperformanceperiodandcanvestinupto100oftheawardsgrantedforrestrictedstockawardsandupto200oftheawardsgrantedforrestrictedstockunits.Thegrantdatefairvalueoftheseawardsrangedfrom6.70to13.57perawardforrestrictedstockawardsand15.44to15.81perawardforrestrictedstockunits.TheMonteCarlosimulationmodelutilizesmultipleinputvariablesthatdeterminetheprobabilityofsatisfyingthemarketconditionstipulatedintheawardgrantandcalculatesthefairvalueoftheaward.Theexpectedvolatilityutilizedinthemodelwasestimatedusingourhistoricalvolatilityandthehistoricalvolatilitiesofourpeercompaniesandrangedfrom41.3to56.7forrestrictedstockawardsand39.0to54.0forrestrictedstockunits.Therisk-freeinterestratewasbasedontheU.S.treasuryrateforatermcommensuratewiththeexpectedlifeofthegrantandrangedfrom0.5to1.1forrestrictedstockawardsand0.5to1.2forrestrictedstockunits.Forprofitunitsthatwereexchangedforrestrictedstockawardsthesignificantassumptionsusedtocalculatethefairvaluesoftheprofitunitsgrantedascalculatedusingabinomialtreewereasfollowsnodividendyieldexpectedvolatilityrangingfromapproximately25to66risk-freeinterestraterangingfrom1.3to5.1expectedliferangingfrom1.2to8.1yearsandprojectedturnoverratesrangingfrom7.0to27.0foremployeesandnoneformanagement.Forprofitunitsgrantedimmediatelypriortoourinitialpublicofferingweutilizedthemidpointoftherangeoftheestimatedofferingpriceor17.00pershare.13.IncomeTaxesKosmosEnergyLtd.isaBermudacompanythatisnotsubjecttotaxationatthecorporatelevel.Weprovideforincometaxesbasedonthelawsandratesineffectinthecountriesinwhichouroperationsareconducted.Therelationshipbetweenourpre-taxincomeorlossfromcontinuingoperationsandourincometaxexpenseorbenefitvariesfromperiodtoperiodasaresultofvariousfactorswhichincludechangesintotalpre-taxincomeorlossthejurisdictionsinwhichourincomeisearnedandthetaxlawsinthosejurisdictions.ThecomponentsofincomebeforeincometaxeswereasfollowsYearsEndedDecember31201420132012InthousandsBermuda...............................317872649211651UnitedStates............................156841187214342Foreignother...........................5943719057431465Incomebeforeincometaxes..................5782687595434156130 KOSMOSENERGYLTD.NotestoConsolidatedFinancialStatementsContinued13.IncomeTaxesContinuedThecomponentsoftheprovisionforincometaxesattributabletoourincomebeforeincometaxesconsistofthefollowingYearsEndedDecember31201420132012InthousandsCurrentBermuda.............................UnitedStates..........................271671418221148Foreignother.........................5532270436Totalcurrent............................824898461821148DeferredBermuda.............................UnitedStates..........................1440326657908Foreignother.........................2308128504587944Totaldeferred...........................2164098238080036Incometaxexpense.......................298898166998101184OurreconciliationofincometaxexpensecomputedbyapplyingourBermudastatutoryrateandthereportedeffectivetaxrateonincomefromcontinuingoperationsisasfollowsYearsEndedDecember31201420132012InthousandsTaxatBermudastatutoryrate..............Foreignincometaxedatdifferentrates........26699312730173277Changeinvaluationallowance1............16401406514103Non-deductibleandotheritems1...........8957366645669Taxshortfallonequity-basedcompensation.....654770988135Totaltaxexpense.........................298898166998101184Effectivetaxrate2.......................51.7219.9296.21WetookallactionsrequiredtovoluntarilyrelinquishtheNdianRiverBlockandFakoBlockinCameroonthereforethedeferredtaxassetanditscorrespondingvaluationallowancewerewrittenoffin2013.AsofDecember312012wehada40.1milliondeferredtaxassetandrelatedvaluationallowancewhichwerewrittenoffduring2013.Thewriteoffofthedeferredtaxassetandtherelatedvaluationallowancedoesnothaveanimpactontheincometaxexpense.2TheeffectivetaxrateduringtheyearsendedDecember3120142013and2012wasalsoimpactedbylossesof159.9million178.8millionand168.5millionrespectivelyincurredinjurisdictionsinwhichwearenotsubjecttotaxesandthereforedonotgenerateanyincometaxbenefits.131 KOSMOSENERGYLTD.NotestoConsolidatedFinancialStatementsContinued13.IncomeTaxesContinuedAsofDecember312013ourGhanaoperationswereinanetdeferredtaxliabilityposition.TheGhananetoperatinglosscarryforwardexistingasofDecember2012wasutilizedduring2013.TheeffectivetaxratefortheUnitedStatesisapproximately8197and92fortheyearsendedDecember3120142013and2012respectively.TheeffectivetaxrateintheUnitedStatesisimpactedbytheeffectoftaxshortfallsrelatedtoequity-basedcompensation.TheeffectivetaxrateforGhanaisapproximately36fortheyearsendedDecember3120142013and2012.Ourotherforeignjurisdictionshavea0effectivetaxratebecausetheyresideincountrieswitha0statutoryrateorwehaveexperiencedlossesinthosecountriesandhaveafullvaluationallowancereservedagainstthecorrespondingnetdeferredtaxassets.Deferredtaxassetsandliabilitieswhicharecomputedontheestimatedincometaxeffectoftemporarydifferencesbetweenfinancialandtaxbasesinassetsandliabilitiesaredeterminedusingthetaxrateexpectedtobeineffectwhentaxesareactuallypaidorrecovered.Inassessingtherealizabilityofdeferredtaxassetsmanagementconsiderswhetheritismorelikelythannotthatsomeportionorallofthedeferredtaxassetswillnotberealized.Theultimaterealizationofdeferredtaxassetsisdependentuponthegenerationoffuturetaxableincomeduringtheperiodsinwhichthosetemporarydifferencesbecomedeductible.ThetaxeffectsofsignificanttemporarydifferencesgivingrisetodeferredtaxassetsandliabilitiesareasfollowsDecember3120142013InthousandsDeferredtaxassetsForeigncapitalizedoperatingexpenses1.............6040146087Foreignnetoperatinglosses1....................1554817579Equitycompensation............................3671128112Unrealizedderivativelosses.......................10197Other.......................................206579582Totaldeferredtaxassets...........................133317111557Valuationallowance1..........................7594159540Totaldeferredtaxassetsnet........................5737652017DeferredtaxliabilitiesDepletiondepreciationandamortizationrelatedtopropertyandequipment........................322895186333Unrealizedderivativegains.......................92675Totaldeferredtaxliabilities.........................415570186333Netdeferredtaxassetliability.....................3581941343161WetookallactionsrequiredtovoluntarilyrelinquishtheNdianRiverBlockandFakoBlockinCameroonthereforethedeferredtaxassetanditscorrespondingvaluationallowancewerewrittenoffin2013.AsofDecember312012wehada40.1milliondeferredtaxassetandrelatedvaluationallowancewhichwerewrittenoffduring2013.Thewriteoffofthedeferredtaxassetandtherelatedvaluationallowancedoesnothaveanimpactontheincometaxexpense.132 KOSMOSENERGYLTD.NotestoConsolidatedFinancialStatementsContinued13.IncomeTaxesContinuedTheCompanyhasrecordedafullvaluationallowanceagainstthenetdeferredtaxassetsinIrelandMauritaniaMoroccoSenegalandSuriname.Thenetchangeinthevaluationallowanceof16.4millionisduetoadditionallossesgeneratedinthesecountries.TheCompanyhasenteredintovariouspetroleumcontractsinMorocco.Thesepetroleumcontractsprovideforataxholidayata0taxrateforaperiodof10yearsbeginningonthedateoffirstproductionifany.TheCompanycurrentlyhasrecordeddeferredtaxassetsof28.9millionrecordedattheMoroccanstatutoryrateof30withanoffsettingvaluationallowanceof28.9million.Wewillre-evaluateourdeferredtaxpositionuponenteringthetaxholidayperiodandatsuchtimemayreducethestatutoryrateappliedtothedeferredtaxassetsinMoroccototheextentthosedeferredtaxassetsarerealizedwithinthetaxholidayperiod.TheCompanyhasforeignnetoperatinglosscarryforwardsof52.4million.Oftheselossesweexpect0.8million9.4million35.5millionand0.6milliontoexpirein201420152016and2021respectivelyand6.1milliondonotexpire.Alloftheselossescurrentlyhaveoffsettingvaluationallowances.AsubsidiaryoftheCompanyfilesaU.S.federalincometaxreturnandaTexasmargintaxreturn.InadditiontotheUnitedStatestheCompanyfilesincometaxreturnsinthecountriesinwhichtheCompanyoperates.TheCompanyisopentoU.S.federalincometaxexaminationsfortaxyears2012through2014andtoTexasmargintaxexaminationsforthetaxyears2010through2014.InadditiontheCompanyisopentoincometaxexaminationsforyears2004through2014initssignificantotherforeignjurisdictionsGhanaCameroonandMorocco.AsofDecember312014theCompanyhadnomaterialuncertaintaxpositions.TheCompanyspolicyistorecognizepotentialinterestandpenaltiesrelatedtoincometaxmattersinincometaxexpensebuthashadnoneedtoaccrueanytodate.14.NetIncomeLossPerShareInthecalculationofbasicnetincomepercommonshareattributabletocommonshareholdersparticipatingsecuritiesareallocatedearningsbasedonactualdividenddistributionsreceivedplusaproportionateshareofundistributednetincomeattributabletocommonshareholdersifanyafterrecognizingdistributedearnings.Wecalculatebasicnetincomepercommonshareattributabletocommonshareholdersunderthetwo-classmethod.TheCompanysparticipatingsecuritieswhichconsistsolelyofservicevestingrestrictedstockawardsSeeNote12Equity-basedCompensationdonotparticipateinundistributednetlossesbecausetheyarenotcontractuallyobligatedtodoso.ThecomputationofdilutednetincomelosspershareattributabletocommonshareholdersreflectsthepotentialdilutionthatcouldoccurifsecuritiesorothercontractstoissuecommonsharesthataredilutivewereexercisedorconvertedintocommonsharesorresultedintheissuanceofcommonsharesthatwouldthenshareintheearningsoftheCompany.DuringperiodsinwhichtheCompanyrealizesalossfromcontinuingoperationsattributabletocommonshareholderssecuritieswouldnotbedilutivetonetlosspershareandconversionintocommonsharesisassumednottooccur.Dilutednetincomelosspershareattributabletocommonshareholdersiscalculatedunderboththetwo-classmethodandthetreasurystockmethodandthemoredilutiveofthetwocalculationsispresented.Basicnetincomelosspershareattributabletocommonshareholdersiscomputedasinetincomelossattributabletocommonshareholdersiilessincomeallocabletoparticipatingsecurities133 KOSMOSENERGYLTD.NotestoConsolidatedFinancialStatementsContinued14.NetIncomeLossPerShareContinuediiidividedbyweightedaveragebasicsharesoutstanding.TheCompanysdilutednetincomelosspershareattributabletocommonshareholdersiscomputedasibasicnetincomelossattributabletocommonshareholdersiiplusdilutedadjustmentstoincomeallocabletoparticipatingsecuritiesiiidividedbyweightedaveragedilutedsharesoutstanding.YearEndedDecember31Inthousandsexceptpersharedata201420132012NumeratorNetincomelossattributabletocommonshareholders.........2793709104467028LessBasicincomeallocabletoparticipatingsecurities1........3286Basicnetincomelossallocabletocommonshareholders.......2760849104467028Dilutedadjustmentstoincomeallocabletoparticipatingsecurities1.......................................58Dilutednetincomelossallocabletocommonshareholders.....2761429104467028DenominatorWeightedaveragenumberofsharesusedtocomputenetincomelosspershareBasic..............................................379195376819371847Restrictedstockawardsandunits12.....................6924Diluted............................................386119376819371847NetincomelosspershareattributabletocommonshareholdersBasic..............................................0.730.240.18Diluted............................................0.720.240.181Ourservicevestingrestrictedstockawardsrepresentparticipatingsecuritiesbecausetheyparticipateinnon-forfeitabledividendswithcommonequityowners.Incomeallocabletoparticipatingsecuritiesrepresentsthedistributedandundistributedearningsattributabletotheparticipatingsecurities.Ourrestrictedstockawardswithmarketandservicevestingcriteriaandallrestrictedstockunitsarenotconsideredtobeparticipatingsecuritiesandthereforeareexcludedfromthebasicnetincomelosspercommonsharecalculation.Ourservicevestingrestrictedstockawardsdonotparticipateinundistributednetlossesandthereforeareexcludedfromthebasicnetincomelosspercommonsharecalculationinperiodsweareinanetlossposition.2FortheyearsendedDecember3120142013and2012weexcluded4.4million13.9millionand15.3millionoutstandingrestrictedstockawardsandrestrictedstockunitsrespectivelyfromthecomputationsofdilutednetincomepersharebecausetheeffectwouldhavebeenanti-dilutive.15.CommitmentsandContingenciesFromtimetotimeweareinvolvedinlitigationregulatoryexaminationsandadministrativeproceedingsprimarilyarisingintheordinarycourseofourbusinessinjurisdictionsinwhichwedobusiness.Althoughtheoutcomeofthesematterscannotbepredictedwithcertaintymanagementbelievesnoneofthesematterseitherindividuallyorintheaggregatewouldhaveamaterialeffect134 KOSMOSENERGYLTD.NotestoConsolidatedFinancialStatementsContinued15.CommitmentsandContingenciesContinuedupontheCompanysfinancialpositionhoweveranunfavorableoutcomecouldhaveamaterialadverseeffectonourresultsfromoperationsforaspecificinterimperiodoryear.TheJubileeFieldinGhanacoversanareawithinboththeWCTPandDTpetroleumcontractareas.ConsistentwiththeGhanaianPetroleumLawtheWCTPandDTpetroleumcontractsandasrequiredbyGhanasMinistryofEnergyitwasagreedtheJubileeFieldwouldbeunitizedforoptimalresourcerecovery.KosmosanditspartnersexecutedacomprehensiveunitoperatingagreementtheJubileeUUOAtounitizetheJubileeFieldandgoverneachpartysrespectiverightsanddutiesintheJubileeUnitwhichwaseffectiveJuly162009.PursuanttothetermsoftheJubileeUUOAthetractparticipationsaresubjecttoaprocessofredetermination.TheinitialredeterminationprocesswascompletedonOctober142011.AsaresultoftheinitialredeterminationprocessourUnitInterestis24.1.Theseconsolidatedfinancialstatementsarebasedonthesere-determinedtractparticipations.Ourunitinterestmaychangeinthefutureshouldanotherredeterminationoccur.TheCompanyleasesfacilitiesundervariousoperatingleasesthatexpirethrough2019includingourofficespace.Rentexpenseundertheseagreementswas4.6million4.1millionand4.3millionfortheyearsendedDecember3120142013and2012respectively.InJune2013wesignedalong-termrigagreementwithasubsidiaryofAtwoodOceanicsInc.forthenewbuild6thgenerationdrillshipAtwoodAchiever.WetookdeliveryoftheAtwoodAchieverinSeptember2014.Therigagreementcoversaninitialperiodofthreeyearsatadayrateofapproximately0.6millionwithanoptiontoextendtheagreementforanadditionalthree-yearterm.Wehaveenteredintoarigsharingagreementwherebytworigslotsestimatedtobe130daysduring2015and30daysduring2016wereassignedtoathird-party.FutureminimumrentalcommitmentsundertheseleasesatDecember312014areasfollowsPaymentsDueByYear1Total20152016201720182019ThereafterInthousandsOperatingleases.........1609532603158322333233131AtwoodAchieverdrillingrigcontract2............4861151398251999201463701Doesnotincludepurchasecommitmentsforjointlyownedfieldsandfacilitieswherewearenottheoperatorandexcludescommitmentsforexplorationactivitiesincludingwellcommitmentsinourpetroleumcontracts.2Commitmentscalculatedusingadayrateof595000excludingapplicabletaxes.Therigcommitmentsreflecttheexecutionofarigsharingagreementwherebytworigslotsestimatedtobe130daysduring2015and30daysduring2016wereassignedtoathirdparty.16.SubsequentEventsJanuary2015LTIPGrantInJanuary2015wegranted1.7millionservicevestingrestrictedstockawardsandrestrictedstockunitsand3.3millionmarketandservicevestingrestrictedstockunitstoouremployeesunderourlong-termincentiveplan.Weexpecttorecognizeapproximately46.8millionofnon-cashcompensationexpenserelatedtothesegrantsoverthenext3years.135 KOSMOSENERGYLTD.SupplementalOilandGasDataUnauditedNetprovedoilandgasreserveestimatespresentedwerepreparedbyRyderScottCompanyL.P.RSCfortheyearendedDecember312014andNetherlandSewellAssociatesInc.NSAIfortheyearsendedDecember312013and2012.RSCandNSAIareindependentpetroleumengineerslocatedinHoustonTexasandDallasTexasrespectively.RSCandNSAIhavepreparedthereserveestimatespresentedhereinandmeettherequirementsregardingqualificationsindependenceobjectivityandconfidentialitysetforthintheStandardsPertainingtotheEstimatingandAuditingofOilandGasReservesInformationpromulgatedbytheSocietyofPetroleumEngineers.Wemaintainaninternalstaffofpetroleumengineersandgeoscienceprofessionalswhoworkcloselywithourindependentreserveengineerstoensuretheintegrityaccuracyandtimelinessofdatafurnishedtoindependentreserveengineersfortheirreservesestimationprocess.NetProvedDevelopedandUndevelopedReservesThefollowingtableisasummaryofnetproveddevelopedandundevelopedoilandgasreservestoKosmosinterestintheJubileeFieldandTENdevelopmentinGhana.OilGasTotalMMBblBcfMMBoeNetproveddevelopedandundevelopedreservesatDecember3120111......................472451Extensionsanddiscoveries...................Production..............................616Revisioninestimate2.....................1142Purchasesofminerals-in-place................NetproveddevelopedandundevelopedreservesatDecember3120121......................42943Extensionsanddiscoveries...................Production..............................818Revisioninestimate3.....................11312Purchasesofminerals-in-place................NetproveddevelopedandundevelopedreservesatDecember3120131......................451147Extensionsanddiscoveries4.................26627Production..............................919Revisioninestimate5.....................11210Purchasesofminerals-in-place................NetproveddevelopedandundevelopedreservesatDecember3120141......................731475Proveddevelopedreserves1December312012........................32933December312013........................361038December312014........................43945Provedundevelopedreserves1December312012........................10110December312013........................919December312014........................306311Thesumofproveddevelopedreservesandprovedundevelopedreservesmaynotaddtonetproveddevelopedandundevelopedreservesduetorounding.136 2TheestimateddecreaseingasreservesrepresentsadecreaseinestimatedgasreservestobeutilizedasfuelgasfortheJubileeFieldFPSO.3Theincreaseinprovedreservesisaresultofa2.5MMBblincreaseassociatedwithimprovedreservoirpropertiessubstantiatedbydrillingresultsandan8.5MMBblincreaseassociatedwithimprovedreservoirperformance.4DiscoveriesarerelatedtotheTENdevelopmentbeingmovedfromunprovedtoprovedduring2014.5Theincreaseinprovedreservesisaresultofa3MMBblincreaseassociatedwithin-filldrillingresultsandan8MMBblincreaseassociatedwithfieldperformance.Netprovedreserveswerecalculatedutilizingthetwelvemonthunweightedarithmeticaverageofthefirst-day-of-the-monthoilpriceforeachmonthforBrentcrudeintheperiodJanuarythroughDecember2014.Theaverage2014Brentcrudepriceof101.30perbarrelisadjustedforcrudehandlingtransportationfeesqualityandaregionalpricedifferential.Basedonthecrudequalitytheseadjustmentsareestimatedtobeanadditional0.25perbarrelthereforetheadjustedoilpriceis101.55perbarrel.Thisoilpriceisheldconstantthroughoutthelivesoftheproperties.Thereisnogaspriceusedbecausegasreservesareconsumedinoperationsasfuel.ProvedoilandgasreservesaredefinedbytheSECRule4.10aofRegulationS-Xasthosequantitiesofoilandgaswhichbyanalysisofgeoscienceandengineeringdatacanbeestimatedwithreasonablecertaintytobecommerciallyrecoveredundercurrenteconomicconditionsoperatingmethodsandgovernmentregulations.Inherentuncertaintiesexistinestimatingprovedreservequantitiesprojectingfutureproductionratesandtimingofdevelopmentexpenditures.CapitalizedCostsRelatedtoOilandGasActivitiesThefollowingtablepresentsaggregatecapitalizedcostsrelatedtooilandgasactivitiesGhanaOther1TotalInthousandsAsofDecember312014Unprovedproperties..................252051111666363717Provedproperties.....................2125590212559023776411116662489307Accumulateddepletiondepreciationandamortization........................716121716121Netcapitalizedcosts....................16615201116661773186AsofDecember312013Unprovedproperties..................49206532192524257Provedproperties.....................151163715116372003702321922035894Accumulateddepletiondepreciationandamortization........................527832527832Netcapitalizedcosts....................14758703219215080621IncludesAfricaexcludingGhanaEuropeandSouthAmerica.137 CostsIncurredinOilandGasActivitiesThefollowingtablereflectstotalcostsincurredbothcapitalizedandexpensedforoilandgaspropertyacquisitionexplorationanddevelopmentactivitiesfortheyear.GhanaOther1TotalInthousandsYearendedDecember312014PropertyacquisitionUnproved.............................Proved...............................Exploration3...........................62813167381230194Development............................316738316738Totalcostsincurred.......................379551167381546932YearendedDecember312013PropertyacquisitionUnproved.............................1378713787Proved...............................Exploration2...........................61071183213244284Development2..........................183635183635Totalcostsincurred.......................244706197000441706YearendedDecember312012PropertyacquisitionUnproved.............................50005000Proved...............................Exploration.............................17346381879255342Development............................161925161925Totalcostsincurred.......................335388868794222671IncludesAfricaexcludingGhanaEuropeandSouthAmerica.2TheexplorationanddevelopmentcostsincurredinGhanaasreportedinourprioryearannualreportonForm10-Kwere183.6millionand61.1millionrespectively.Thetableabovehasbeenrevisedtoproperlypresenttheamounts.3Doesnotincludereimbursementofcostsassociatedwithexplorationexpensesincurredinprioryearswhichresultedina23.8milliongainonsaleinthecurrentyear.StandardizedMeasureforDiscountedFutureNetCashFlowsThefollowingtableprovidesprojectedfuturenetcashflowsbasedonthetwelvemonthunweightedarithmeticaverageofthefirst-day-of-the-monthoilpriceforBrentcrudeintheperiodJanuarythroughDecember2014.Theaverage2014Brentcrudepriceof101.30perbarrelisadjustedforcrudehandlingtransportationfeesqualityandaregionalpricedifferential.Basedonthecrudequalitytheseadjustmentsareestimatedtobeanadditional0.25perbarrelfortheJubileeFieldthereforetheadjustedoilpriceis101.55perbarrelforJubilee.TENwasnotadjustedasitdoesnotcurrentlyhaveanyproduction.Becausepricesusedinthecalculationareaveragepricesforthatyearthestandardizedmeasurecouldvarysignificantlyfromyeartoyearbasedonmarketconditionsthatoccur.138 TheprojectionshouldnotbeinterpretedasrepresentingthecurrentvaluetoKosmos.Materialrevisionstoestimatesofprovedreservesmayoccurinthefuturedevelopmentandproductionofthereservesmaynotoccurintheperiodsassumedactualpricesrealizedareexpectedtovarysignificantlyfromthoseusedandactualcostsmayvary.Kosmosinvestmentandoperatingdecisionsarenotbasedontheinformationpresentedbutonawiderangeofreserveestimatesthatincludeprobableaswellasprovedreservesandonawiderangeofdifferentpriceandcostassumptions.ThestandardizedmeasureisintendedtoprovideabettermeanstocomparethevalueofKosmosprovedreservesatagiventimewiththoseofotheroilproducingcompaniesthanisprovidedbycomparingrawprovedreservequantities.GhanaInmillionsAtDecember312014Futurecashinflows.......................................7412Futureproductioncosts....................................1466Futuredevelopmentcosts..................................1051FutureGhanaiantaxexpenses1.............................1543Futurenetcashflows.....................................335210annualdiscountforestimatedtimingofcashflows............969Standardizedmeasureofdiscountedfuturenetcashflows...........2383AtDecember312013Futurecashinflows.......................................4921Futureproductioncosts....................................617Futuredevelopmentcosts..................................300FutureGhanaiantaxexpenses1.............................1168Futurenetcashflows.....................................283610annualdiscountforestimatedtimingofcashflows............599Standardizedmeasureofdiscountedfuturenetcashflows...........2237AtDecember312012Futurecashinflows.......................................4708Futureproductioncosts....................................599Futuredevelopmentcosts..................................429FutureGhanaiantaxexpenses1.............................1068Futurenetcashflows.....................................261210annualdiscountforestimatedtimingofcashflows............540Standardizedmeasureofdiscountedfuturenetcashflows...........20721StandardizedMeasureincludestheeffectsofbothfutureincometaxexpenserelatedtotheCompanysprovedoilandgasreservesleviedatacorporateparentandintermediatesubsidiarylevelonfuturenetrevenuesandfuturetaxexpenseleviedatanassetlevelintheCompanyscasefutureGhanaiantaxexpenseleviedundertheWCTPandDTpetroleumcontracts.AstheCompanyhasbeenataxexemptedcompanyincorporatedpursuanttothelawsoftheCaymanIslandstodateandisnowataxexemptedcompanyincorporatedpursuanttothelawsofBermudasincethecompletionofthecorporatereorganizationandastheCompanysintermediatesubsidiariespositionedbetweenitandthesubsidiarythatisasignatorytotheWCTPandDTpetroleumcontractswillcontinuetobetaxexemptedcompaniestheCompanyhasnotbeenanddoesnotexpecttobe139 subjecttofutureincometaxexpenserelatedtoitsprovedoilandgasreservesleviedatacorporateparentorintermediatesubsidiarylevel.AccordinglytheCompanysStandardizedMeasurefortheyearsendedDecember3120142013and2012respectivelyonlyreflecttheeffectsoffutureGhanaiantaxexpenseleviedundertheWCTPandDTpetroleumcontracts.ChangesintheStandardizedMeasureforDiscountedCashFlowsGhanaInmillionsBalanceatDecember312011................................2016SalesandTransfers2012...................................573Netchangesinpricesandcosts..............................32Previouslyestimateddevelopmentcostsincurredduringtheperiod....158Netchangesindevelopmentcosts............................122Revisionsofpreviousquantityestimates........................49NetchangesinGhanaiantaxexpenses1.......................105Accretionofdiscount.....................................274Changesintimingandother................................99BalanceatDecember312012................................2072SalesandTransfers2013...................................754Netchangesinpricesandcosts..............................95Previouslyestimateddevelopmentcostsincurredduringtheperiod....123Netchangesindevelopmentcosts............................53Revisionsofpreviousquantityestimates........................804Changesinproductiontiming...............................41NetchangesinGhanaiantaxexpenses1.......................32Accretionofdiscount.....................................289Changesintimingandother................................182BalanceatDecember312013................................2237SalesandTransfers2014...................................756Extensionsanddiscoveries..................................451Netchangesinpricesandcosts..............................291Previouslyestimateddevelopmentcostsincurredduringtheperiod....115Netchangesindevelopmentcosts............................151Revisionsofpreviousquantityestimates........................690NetchangesinGhanaiantaxexpenses1.......................44Accretionofdiscount.....................................306Changesintimingandother................................174BalanceatDecember312014................................23831StandardizedMeasureincludestheeffectsofbothfutureincometaxexpenserelatedtotheCompanysprovedoilandgasreservesleviedatacorporateparentandintermediatesubsidiarylevelonfuturenetrevenuesandfuturetaxexpenseleviedatanassetlevelintheCompanyscasefutureGhanaiantaxexpenseleviedundertheWCTPandDTpetroleumcontracts.AstheCompanyhasbeenataxexemptedcompanyincorporatedpursuanttothelawsoftheCaymanIslandstodateandisnowataxexemptedcompanyincorporatedpursuanttothelawsofBermudasincethecompletionofthecorporatereorganizationandastheCompanysintermediatesubsidiariespositionedbetweenitandthesubsidiarythatisasignatorytotheWCTPandDTpetroleumcontractswillcontinue140 tobetaxexemptedcompaniestheCompanyhasnotbeenanddoesnotexpecttobesubjecttofutureincometaxexpenserelatedtoitsprovedoilandgasreservesleviedatacorporateparentorintermediatesubsidiarylevel.AccordinglytheCompanysStandardizedMeasurefortheyearsendedDecember3120142013and2012respectivelyonlyreflecttheeffectsoffutureGhanaiantaxexpenseleviedundertheWCTPandDTpetroleumcontracts.141 KOSMOSENERGYLTD.SupplementalQuarterlyFinancialInformationUnauditedQuarterEndedMarch31June30September30December31Inthousandsexceptpersharedata2014Revenues................................237061329166138367178144Expenses................................1113091918758077679490Netincome...............................749695650719123128771Netincomeattributabletocommonshareholders...749695650719123128771NetincomeattributabletocommonshareholderspershareBasic1................................0.200.150.050.34Diluted1..............................0.190.150.050.332013Revenues................................228390193778215379214881Expenses................................164205218341225643168285Netincomeloss..........................2009470816444884166Netincomelossattributabletocommonshareholders............................2009470816444884166NetincomelossattributabletocommonshareholderspershareBasic1................................0.050.190.120.01Diluted1..............................0.050.190.120.011Thesumofthequarterlyearningspershareinformationmaynotaddtotheannualearningspershareinformationduetorounding.142 Item9.ChangesinandDisagreementswithAccountantsonAccountingandFinancialDisclosureNone.Item9A.ControlsandProceduresEvaluationofDisclosureControlsandProceduresAsoftheendoftheperiodcoveredbythisreportanevaluationoftheeffectivenessofthedesignandoperationoftheCompanysdisclosurecontrolsandproceduresasdefinedinRule13a-15eundertheSecuritiesExchangeActof1934asamendedtheExchangeActwasperformedunderthesupervisionandwiththeparticipationoftheCompanysmanagementincludingourChiefExecutiveOfficerandChiefFinancialOfficer.ThisevaluationconsideredthevariousprocessescarriedoutunderthedirectionofourdisclosurecommitteeinanefforttoensurethatinformationrequiredtobedisclosedintheSECreportswefileorsubmitundertheExchangeActisaccuratecompleteandtimely.Howeveracontrolsystemnomatterhowwellconceivedandoperatedcanprovideonlyreasonablenotabsoluteassurancethattheobjectivesofthecontrolsystemaremet.Thedesignofacontrolsystemmustreflectthefactthatthereareresourceconstraintsandthebenefitofcontrolsmustbeconsideredrelativetotheircosts.Consequentlynoevaluationofcontrolscanprovideabsoluteassurancethatallcontrolissuesandinstancesoffraudifanywithinourcompanyhavebeendetected.BaseduponthisevaluationourChiefExecutiveOfficerandourChiefFinancialOfficerconcludedthattheCompanysdisclosurecontrolsandprocedureswereeffectiveasofDecember312014inensuringthatinformationrequiredtobedisclosedbytheCompanyinthereportsthatitfilesorsubmitsundertheExchangeActisrecordedprocessedsummarizedandreportedwithinthetimeperiodsspecifiedintheSECsrulesandformsincludingthatsuchinformationisaccumulatedandcommunicatedtotheCompanysmanagementincludingourChiefExecutiveOfficerandourChiefFinancialOfficertoallowtimelydecisionsregardingrequireddisclosure.EvaluationofChangesinInternalControloverFinancialReportingTherewerenochangesinourinternalcontroloverfinancialreportingthatoccurredduringourmostrecentfiscalquarterthatmateriallyaffectedorarereasonablylikelytomateriallyaffectourinternalcontroloverfinancialreporting.ManagementsAnnualReportonInternalControloverFinancialReportingOurmanagementisresponsibleforestablishingandmaintainingadequateinternalcontroloverfinancialreporting.OurinternalcontrolhasbeendesignedtoprovidereasonableassuranceregardingthereliabilityoffinancialreportingandthepreparationofourfinancialstatementsforexternalpurposesinaccordancewithU.S.generallyacceptedaccountingprinciples.Allinternalcontrolsystemshaveinherentlimitationsincludingthepossibilityofhumanerrorandthepossiblecircumventionoforoverridingofcontrols.Thedesignofaninternalcontrolsystemisalsobasedinpartuponassumptionsandjudgmentsmadebymanagement.Asaresultevenaneffectivesystemofinternalcontrolscanprovidenomorethanreasonableassurancewithrespecttothefairpresentationoffinancialstatementsandtheprocessesunderwhichtheywereprepared.Alsoprojectionsofanyevaluationofeffectivenesstofutureperiodsaresubjecttotheriskthatinternalcontrolmaybecomeinadequatebecauseofchangesinconditionsorthatthedegreeofcompliancewiththepoliciesorproceduresmaydeteriorate.UnderthesupervisionandwiththeparticipationofmanagementincludingourChiefExecutiveOfficerandourChiefFinancialOfficerweassessedtheeffectivenessofourinternalcontroloverfinancialreportingasoftheendoftheperiodcoveredbythisreportbasedontheframeworkinInternalControlIntegratedFramework2013issuedbytheCommitteeofSponsoringOrganizationsoftheTreadwayCommission.BasedontheassessmentourChiefExecutiveOfficerandourChiefFinancialOfficerconcludedthatourinternalcontroloverfinancialreportingwaseffectiveto143 providereasonableassuranceregardingthereliabilityofourfinancialreportingandthepreparationofourfinancialstatementsforexternalpurposesinaccordancewithU.S.generallyacceptedaccountingprinciples.ErnstYoungLLPtheindependentregisteredpublicaccountingfirmthatauditedourconsolidatedfinancialstatementsincludedinthisannualreportonForm10-KhasissuedanattestationreportontheeffectivenessofinternalcontroloverfinancialreportingasofDecember312014whichisincludedinItem8.FinancialStatementsandSupplementaryData.Item9B.OtherInformationDisclosuresRequiredPursuanttoSection13roftheSecuritiesExchangeActof1934UndertheIranThreatReductionandSyriaHumanRightsActof2012whichaddedSection13roftheExchangeActwearerequiredtoincludecertaindisclosuresinourperiodicreportsifweoranyofouraffiliatesasdefinedinRule12b-2undertheExchangeActknowinglyengagedincertainspecifiedactivitiesduringtheperiodcoveredbythereport.BecausetheSecuritiesandExchangeCommissionSECdefinesthetermaffiliatebroadlyitincludesanyentitycontrolledbyusaswellasanypersonorentitythatcontrolsusorisundercommoncontrolwithuscontrolisalsoconstruedbroadlybytheSEC.WearenotpresentlyawarethatweandourconsolidatedsubsidiarieshaveknowinglyengagedinanytransactionordealingreportableunderSection13roftheExchangeActduringthefiscalquarterendedDecember312014.InadditionexceptasdescribedbelowatthetimeoffilingthisanuualreportonForm10-Kwearenotawareofanysuchreportabletransactionsordealingsbycompaniesthatmaybeconsideredouraffiliatesastowhethertheyhaveknowinglyengagedinanysuchreportabletransactionsordealingsduringsuchperiod.UponthefilingofperiodicreportsbysuchothercompaniesforthefiscalquarterorfiscalyearendedDecember312014asthecasemaybeadditionalreportabletransactionsmaybedisclosedbysuchcompanies.AsofDecember312014fundsaffiliatedwithTheBlackstoneGroupBlackstoneheldapproximately25ofouroutstandingcommonsharesandfundsaffiliatedwithWarburgPincusWarburgPincusheldapproximately31ofouroutstandingcommonshares.WearealsoapartytoashareholdersagreementwithBlackstoneandWarburgPincuspursuanttowhichamongotherthingsBlackstoneandWarburgPincuseachcurrentlyhastherighttodesignatethreemembersofourboardofdirectors.AccordinglyeachofBlackstoneandWarburgPincusmaybedeemedanaffiliateofusbothcurrentlyandduringthefiscalquarterendedDecember312014.DisclosurerelatingtoWarburgPincusanditsaffiliatesWarburgPincusinformedusofitheinformationreproducedbelowtheSAMIHDisclosureregardingSantanderAssetManagementInvestmentHoldingsLimitedSAMIHandiitheinformationreproducedbelowtheEIGDisclosureregardingtheEnduranceInternationalGroupEIG.EachofSAMIHandEIGarecompaniesthatmaybeconsideredaffiliatesofWarburgPincus.BecauseweSAMIHandEIGmaybedeemedtobecontrolledbyWarburgPincuswemaybeconsideredanaffiliateofeachofSAMIHandEIGrespectivelyforthepurposesofSection13roftheExchangeAct.SAMIHDisclosureQuarterendedDecember312014SantanderUKholdsfrozensavingsandcurrentaccountsforthreecustomersresidentintheU.K.whoarecurrentlydesignatedbytheU.S.forterrorism.Theaccountsheldbyeachcustomerwereblockedafterthecustomersdesignationandremainedblockedanddormantthroughout2014.No144 revenuehasbeengeneratedbySantanderUKontheseaccounts.Thebankaccountheldforoneofthesecustomerswasclosedinthefourthquarterof2014.AnIraniannationalresidentintheU.K.whoiscurrentlydesignatedbytheU.S.undertheIranianFinancialSanctionsRegulationsandtheWeaponsofMassDestructionProliferatorsSanctionsRegulationsNPWMDsanctionsprogramholdsamortgagewithSantanderUKthatwasissuedpriortoanysuchdesignation.NofurtherdrawdownhasbeenmadeorwouldbepermittedunderthismortgagealthoughSantanderUKcontinuestoreceiverepaymentinstallments.In2014totalrevenueinconnectionwiththemortgagewasapproximately2580andnetprofitswerenegligiblerelativetotheoverallprofitsofSantanderUK.ThesameIraniannationalalsoholdstwoinvestmentaccountswithSantanderAssetManagementUKLimited.Theaccountshaveremainedfrozenduring2014.Theinvestmentreturnsarebeingautomaticallyreinvestedandnodisbursementshavebeenmadetothecustomer.TotalrevenuefortheSantanderGroupinconnectionwiththeinvestmentaccountswas250andnetprofitsin2014werenegligiblerelativetotheoverallprofitsofBancoSantanderS.A.Inadditionduringthethirdquarter2014SantanderUKidentifiedtwoadditionalcustomersaUKnationaldesignatedbytheU.S.undertheNPWMDsanctionsprogramheldabusinessaccount.Notransactionsweremadeandtheaccountwasclosedinthefourthquarterof2014.Norevenueorprofithasbeengenerated.AsecondUKnationaldesignatedbytheUSforreasonsofterrorismheldapersonalcurrentaccountandapersonalcreditcardaccountbothofwhichwereclosedinthethirdquarterof2014.Althoughtransactionstookplaceonthecurrentaccountduringthethirdquarterof2014revenueandprofitsgeneratedwerenegligible.Notransactionstookplaceonthecreditcard.TheSAMIHDisclosurerelatessolelytoactivitiesconductedbySAMIHanddonotrelatetoanyactivitiesconductedbyus.WehavenoinvolvementinorcontrolovertheactivitiesofSAMIHanyofitspredecessorcompaniesoranyofitssubsidiaries.OtherthanasdescribedabovewehavenoknowledgeoftheactivitiesofSAMIHwithrespecttotransactionswithIranandwehavenotparticipatedinthepreparationoftheSAMIHDisclosure.WehavenotindependentlyverifiedtheSAMIHDisclosurearenotrepresentingtotheaccuracyorcompletenessoftheSAMIHDisclosureandundertakenoobligationtocorrectorupdatetheSAMIHDisclosure.EIGDisclosureQuarterendedDecember312014OnJuly22013thebillinginformationforasubscriberaccounttheSubscriberAccountwasupdatedtoincludeSeyedMahmoudMohaddesMohaddes.OnSeptember162013theOfficeofForeignAssetsControlOFACdesignatedMohaddesasaSpeciallyDesignatedNationalSDNpursuantto31C.F.R.Part560.304.OnoraroundSeptember262014duringaroutinecompliancescanofnewandexistingsubscriberaccountsEIGdiscoveredthatMohaddesaSDNwasnamedasanaccountcontactfortheSubscriberAccount.EIGpromptlysuspendedtheSubscriberAccountlockedthedomainnameIOCUKLTD.COMwhichwasregisteredtotheSubscriberAccountandreportedthedomainnametoOFACaspotentiallythepropertyofaSDNsubjecttoblockingpursuanttoExecutiveOrder13599.SinceSeptember162013whenMohaddeswasaddedtotheSDNlistchargesinthetotalamountof120.35weremadetotheSubscriberAccountforwebhostinganddomainprivacyservices.EIGhasceasedbillingfortheSubscriberAccount.TodateEIGhasnotreceivedanycorrespondencefromOFACregardingthismatter.OnJuly102014OFACdesignatedeachofStarsGroupHoldingStarsandTeleservePlusSALTeleserveasSDNsunderExecutiveOrder13224andtheirpropertybecamesubjecttoblockingpursuanttotheGlobalTerrorismSanctionsRegulations31C.F.R.Part594.OnJuly152014aspartofEIGscompliancereviewprocessesEIGdiscoveredthatthedomainnames145 associatedwitheachofStarsSTARSCOM.NETandTeleserveTELESERVEPLUS.COMcollectivelytheStarsTeleserveDomainNameswereregisteredthroughEIGsplatform.EIGimmediatelytookstepstosuspendandlocktheStarsTeleserveDomainNamestopreventthemfrombeingtransferredorresolvingtoawebsiteandEIGpromptlyreportedtheDomainNamesaspotentiallyblockedpropertytoOFAC.EIGdidnotgenerateanyrevenuefromtheStarsTeleserveDomainNamesbetweenwhentheywereaddedtotheSDNlistonJuly102014andwhenEIGdiscoveredthattheywereregisteredthroughEIGsplatformonJuly152014.TodateEIGhasnotreceivedanycorrespondencefromOFACregardingthematter.OnJuly152014duringacompliancescanofalldomainnamesononeofourplatformsEIGidentifiedthedomainnameKAHANETZADAK.COMtheDomainNamewhichwaslistedasanalsoknownasorAKAoftheentityKahaneChaiwhichoperatesastheAmericanFriendsoftheUnitedYeshiva.KahaneChaiwasdesignatedasaSDNonNovember22001pursuanttoExecutiveOrder13224.BecausetheDomainNamewastransferredintoacustomeraccountofoneofEIGsresellerstherewasnodirectfinancialtransactionbetweenEIGandtheregisteredowneroftheDomainName.TheDomainNamewassuspendeduponEIGsdiscoveringitonEIGsplatformandEIGreportedtheDomainNametoOFACaspotentiallythepropertyofaSDN.TodateEIGhavenotreceivedanycorrespondencefromOFACregardingthematter.TheEIGDisclosurerelatessolelytoactivitiesconductedbyEIGanddonotrelatetoanyactivitiesconductedbyus.WehavenoinvolvementinorcontrolovertheactivitiesofEIGanyofitspredecessorcompaniesoranyofitssubsidiaries.OtherthanasdescribedabovewehavenoknowledgeoftheactivitiesofEIGwithrespecttotransactionswithIranandwehavenotparticipatedinthepreparationoftheEIGDisclosure.WehavenotindependentlyverifiedtheEIGDisclosurearenotrepresentingtotheaccuracyorcompletenessoftheEIGDisclosureandundertakenoobligationtocorrectorupdatetheEIGDisclosure.DisclosurerelatingtoBlackstoneanditsaffiliatesBlackstoneinformedusoftheinformationreproducedbelowtheTravelportDisclosureregardingTravelportLimitedTravelportacompanythatmaybeconsideredoneofBlackstonesaffiliates.BecausebothweandTravelportmaybedeemedtobecontrolledbyBlackstonewemaybeconsideredanaffiliateofTravelportforthepurposesofSection13roftheExchangeAct.TravelportDisclosureQuarterendedDecember312014Aspartofourglobalbusinessinthetravelindustryweprovidecertainpassengertravel-relatedGDSandTechnologyServicestoIranAir.WealsoprovidecertainTechnologyServicestoIranAirTours.AlloftheseservicesareeitherexemptfromapplicablesanctionsprohibitionspursuanttoastatutoryexemptionpermittingtransactionsordinarilyincidenttotravelortotheextentnototherwiseexemptspecificallylicensedbytheU.S.OfficeofForeignAssetsControl.Subjecttoanychangesintheexemptlicensedstatusofsuchactivitiesweintendtocontinuethesebusinessactivitieswhicharedirectlyrelatedtoandpromotethearrangementoftravelforindividuals.TravelporthasnotprovidedBlackstonewithgrossrevenuesandnetprofitsattributabletotheactivitiesdescribedabove.TheTravelportDisclosurerelatessolelytoactivitiesconductedbyTravelportanddonotrelatetoanyactivitiesconductedbyus.WehavenoinvolvementinorcontrolovertheactivitiesofTravelportanyofitspredecessorcompaniesoranyofitssubsidiaries.OtherthanasdescribedabovewehavenoknowledgeoftheactivitiesofTravelportwithrespecttotransactionswithIranandwehavenotparticipatedinthepreparationoftheTravelportDisclosure.WehavenotindependentlyverifiedtheTravelportDisclosurearenotrepresentingtotheaccuracyorcompletenessoftheTravelportDisclosureandundertakenoobligationtocorrectorupdatetheTravelportDisclosure.146 PARTIIIItem10.DirectorsExecutiveOfficersandCorporateGovernanceTheinformationrequiredbythisitemisincorporatedhereinbyreferencetothe2014ProxyStatementwhichwillbefiledwiththeSECnotlaterthan120dayssubsequenttoDecember312014.Item11.ExecutiveCompensationTheinformationrequiredbythisitemisincorporatedhereinbyreferencetothe2014ProxyStatementwhichwillbefiledwiththeSECnotlaterthan120dayssubsequenttoDecember312014.Item12.SecurityOwnershipofCertainBeneficialOwnersandManagementandRelatedStockholderMattersTheinformationrequiredbythisitemisincorporatedhereinbyreferencetothe2014ProxyStatementwhichwillbefiledwiththeSECnotlaterthan120dayssubsequenttoDecember312014.Item13.CertainRelationshipsandRelatedTransactionsandDirectorIndependenceTheinformationrequiredbythisitemisincorporatedhereinbyreferencetothe2014ProxyStatementwhichwillbefiledwiththeSECnotlaterthan120dayssubsequenttoDecember312014.Item14.PrincipalAccountingFeesandServicesTheinformationrequiredbythisitemisincorporatedhereinbyreferencetothe2014ProxyStatementwhichwillbefiledwiththeSECnotlaterthan120dayssubsequenttoDecember312014.147 PARTIVItem15.ExhibitsFinancialStatementSchedulesaThefollowingdocumentsarefiledaspartofthisreport1FinancialstatementsThefinancialstatementsfiledaspartoftheAnnualReportonForm10-KarelistedintheaccompanyingindextoconsolidatedfinancialstatementsinItem8FinancialStatementsandSupplementaryData.2FinancialstatementschedulesScheduleICondensedParentCompanyFinancialStatementsUnderthetermsofagreementsgoverningtheindebtednessofsubsidiariesofKosmosEnergyLtd.for20142013and2012collectivelyKELtheParentCompanysuchsubsidiariesarerestrictedfrommakingdividendpaymentsloansoradvancestoKEL.ScheduleIofArticle5-04ofRegulationS-XrequiresthecondensedfinancialinformationoftheParentCompanytobefiledwhentherestrictednetassetsofconsolidatedsubsidiariesexceed25percentofconsolidatednetassetsasoftheendofthemostrecentlycompletedfiscalyear.Thefollowingcondensedparent-onlyfinancialstatementsofKELhavebeenpreparedinaccordancewithRule12-04ScheduleIofRegulationS-Xandincludedherein.TheParentCompanys100investmentinitssubsidiarieshasbeenrecordedusingtheequitybasisofaccountingintheaccompanyingcondensedparent-onlyfinancialstatements.ThecondensedfinancialstatementsshouldbereadinconjunctionwiththeconsolidatedfinancialstatementsofKosmosEnergyLtd.andsubsidiariesandnotesthereto.ThetermsKosmostheCompanyandsimilartermsrefertoKosmosEnergyLtd.anditswhollyownedsubsidiariesunlessthecontextindicatesotherwise.Certainpriorperiodamountshavebeenreclassifiedtoconformwiththecurrentyearpresentation.Suchreclassificationshadnoimpactonourreportednetincomecurrentassetstotalassetscurrentliabilitiestotalliabilitiesorshareholdersequity.148 KOSMOSENERGYLTD.CONDENSEDPARENTCOMPANYBALANCESHEETSInthousandsexceptsharedataDecember3120142013AssetsCurrentassetsCashandcashequivalents....................................16589435092Receivablesfromsubsidiaries..................................154Prepaidexpensesandother...................................435524Totalcurrentassets...........................................16648335616Investmentinsubsidiariesatequity...............................1474105955460Deferredfinancingcostsnetofaccumulatedamortizationof6488and3300respectively.........................................41635950Totalassets................................................1644751997026LiabilitiesandshareholdersequityCurrentliabilitiesAccountspayable..........................................35Accountspayabletosubsidiaries................................3761Accruedliabilities..........................................11523895Totalcurrentliabilities........................................115234691Long-termdebt.............................................294269ShareholdersequityPreferenceshares0.01parvalue200000000authorizedshareszeroissuedatDecember312014and2013.........................Commonshares0.01parvalue2000000000authorizedshares392443048and391974287issuedatDecember312014and2013respectively.............................................39243920Additionalpaid-incapital.....................................18601901781535Accumulateddeficit.........................................494850774220Accumulatedothercomprehensiveincome........................7672158Treasurystockatcost5555088and4400135sharesatDecember312014and2013respectively..................................3107221058Totalshareholdersequity......................................1338959992335Totalliabilitiesandshareholdersequity...........................1644751997026149 KOSMOSENERGYLTD.CONDENSEDPARENTCOMPANYSTATEMENTSOFOPERATIONSInthousandsYearsEndedDecember31201420132012RevenuesandotherincomeOilandgasrevenue...................................Totalrevenuesandotherincome........................CostsandexpensesGeneralandadministrative.............................887898430693472Generalandadministrativerecoveriesrelatedparty...........788806786582370Interestandotherfinancingcostsnet.....................205599997542Otherexpensesnet...................................1319546Equityinearningslossesofsubsidiaries...................3111576455255378Totalcostsandexpenses..............................2793709104467028Incomelossbeforeincometaxes..........................2793709104467028Incometaxexpense...................................Netincomeloss......................................2793709104467028150 KOSMOSENERGYLTD.CONDENSEDPARENTCOMPANYSTATEMENTSOFCASHFLOWSInthousandsYearsEndedDecember31201420132012OperatingactivitiesNetincomeloss....................................2793709104467028AdjustmentstoreconcilenetincomelosstonetcashprovidedbyoperatingactivitiesEquityinearningslossesofsubsidiaries.................3111576455255378Equity-basedcompensation............................797416910183423Amortization......................................31883017283Other...........................................269ChangesinassetsandliabilitiesIncreasedecreaseinprepaidexpensesandother.........8914919Increasedecreaseduetofromrelatedparty.............391541341531Increaseinaccountspayableandaccruedliabilities.........10593794136Netcashprovidedbyoperatingactivities...................581785040570680InvestingactivitiesInvestmentinsubsidiaries..............................208879133066275070Netcashusedininvestingactivities.......................208879133066275070FinancingactivitiesNetproceedsfromissuanceofseniorsecurednotes...........294000Purchaseoftreasurystock..............................11096131018378Deferredfinancingcosts...............................140117207530Netcashprovidedbyusedinfinancingactivities.............2815031482115908Netincreasedecreaseincashandcashequivalents...........13080297482220298Cashandcashequivalentsatbeginningofperiod.............35092132574352872Cashandcashequivalentsatendofperiod..................16589435092132574151 ScheduleIIKosmosEnergyLtd.ValuationandQualifyingAccountsFortheYearsEndedDecember3120142013and2012AdditionsChargedtoChargedDeductionsBalanceCostsandToOtherFromBalanceDescriptionJanuary1ExpensesAccountsReservesDecember312014Allowancefordoubtfulreceivables......Allowancefordeferredtaxasset........5954016401759412013Allowancefordoubtfulreceivables......Allowancefordeferredtaxasset........636052804032105595402012Allowancefordoubtfulreceivables......Allowancefordeferredtaxasset........495021410363605SchedulesotherthanScheduleIandScheduleIIhavebeenomittedbecausetheyarenotapplicableortherequiredinformationispresentedintheconsolidatedfinancialstatementsorthenotestoconsolidatedfinancialstatements.3ExhibitsSeeIndextoExhibitsonpage155foradescriptionoftheexhibitsfiledaspartofthisreport.152 SIGNATURESPursuanttotherequirementsofSection13or15doftheSecuritiesActof1934theRegistranthasdulycausedthisreporttobesignedonitsbehalfbytheundersignedthereuntodulyauthorized.KOSMOSENERGYLTD.DateFebruary232015BysTHOMASP.CHAMBERSThomasP.ChambersSeniorVicePresidentandChiefFinancialOfficerPursuanttotherequirementsoftheSecuritiesExchangeActof1934thisreporthasbeensignedbelowbythefollowingpersonsonbehalfoftheRegistrantandinthecapacitiesandonthedatesindicated.SignatureTitleDateChairmanoftheBoardofDirectorssANDREWG.INGLISandChiefExecutiveOfficerPrincipalFebruary232015AndrewG.InglisExecutiveOfficersBRIANF.MAXTEDDirectorandChiefExplorationOfficerFebruary232015BrianF.MaxtedSeniorVicePresidentandChiefsTHOMASP.CHAMBERSFinancialOfficerPrincipalFinancialFebruary232015ThomasP.ChambersOfficerSeniorVicePresidentandChiefsPAULM.NOBELAccountingOfficerPrincipalFebruary232015PaulM.NobelAccountingOfficersSIRRICHARDB.DEARLOVEDirectorFebruary232015SirRichardB.DearlovesDAVIDI.FOLEYDirectorFebruary232015DavidI.FoleysDAVIDB.KRIEGERDirectorFebruary232015DavidB.Krieger153 SignatureTitleDatesJOSEPHP.LANDYDirectorFebruary232015JosephP.LandysPRAKASHA.MELWANIDirectorFebruary232015PrakashA.MelwanisADEBAYOO.OGUNLESIDirectorFebruary232015AdebayoO.OgunlesisLARSH.THUNELLDirectorFebruary232015LarsH.ThunellsCHRISTONGDirectorFebruary232015ChrisTongsCHRISTOPHERA.WRIGHTDirectorFebruary232015ChristopherA.Wright154 INDEXOFEXHIBITSExhibitNumberDescriptionofDocumentGoverningDocuments3.1CertificateofIncorporationoftheCompanyfiledasExhibit3.1totheCompanysRegistrationStatementonFormS-1AfiledMarch232011FileNo.333-171700andincorporatedhereinbyreference.3.2MemorandumofAssociationoftheCompanyfiledasExhibit3.2totheCompanysRegistrationStatementonFormS-1AfiledMarch232011FileNo.333-171700andincorporatedhereinbyreference.3.3Bye-lawsoftheCompanyfiledasExhibit4totheCompanysRegistrationStatementonForm8-AfiledMay62011FileNo.001-35167andincorporatedhereinbyreference.4.1SpecimensharecertificatefiledasExhibit4.1totheCompanysRegistrationStatementonFormS-1AfiledApril252011FileNo.333-171700andincorporatedhereinbyreference.OperatingAgreementsGhana10.1PetroleumAgreementinrespectofWestCapeThreePointsBlockOffshoreGhanadatedJuly222004amongtheGNPCKosmosGhanaandtheE.O.GroupfiledasExhibit10.1totheCompanysRegistrationStatementonFormS-1AfiledMarch32011FileNo.333-171700andincorporatedhereinbyreference.10.2OperatingAgreementinrespectofWestCapeThreePointsBlockOffshoreGhanadatedJuly272004betweenKosmosGhanaandE.O.GroupfiledasExhibit10.2totheCompanysRegistrationStatementonFormS-1AfiledMarch32011FileNo.333-171700andincorporatedhereinbyreference.10.3PetroleumAgreementinrespectoftheDeepwaterTanoContractAreadatedMarch102006amongGNPCTullowGhanaSabreandKosmosGhanafiledasExhibit10.3totheCompanysRegistrationStatementonFormS-1AfiledMarch32011FileNo.333-171700andincorporatedhereinbyreference.10.4JointOperatingAgreementinrespectoftheDeepwaterTanoContractAreaOffshoreGhanadatedAugust142006amongTullowGhanaSabreOilandGasLimitedandKosmosGhanafiledasExhibit10.4totheCompanysRegistrationStatementonFormS-1AfiledMarch32011FileNo.333-171700andincorporatedhereinbyreference.10.5AssignmentAgreementinrespectoftheDeepwaterTanoBlockdatedSeptember12006amongAnadarkoWCTPandKosmosGhanafiledasExhibit10.5totheCompanysRegistrationStatementonFormS-1AfiledMarch32011FileNo.333-171700andincorporatedhereinbyreference.10.6UnitizationandUnitOperatingAgreementcoveringtheJubileeFieldUnitlocatedoffshoretheRepublicofGhanadatedJuly132009amongGNPCTullowKosmosGhanaAnadarkoWCTPSabreandE.O.GroupfiledasExhibit10.6totheCompanysRegistrationStatementonFormS-1AfiledMarch32011FileNo.333-171700andincorporatedhereinbyreference.155 ExhibitNumberDescriptionofDocument10.7SettlementAgreementdatedDecember182010amongKosmosGhanaGhanaNationalPetroleumCorporationandtheGovernmentoftheRepublicofGhanafiledasExhibit10.32totheCompanysRegistrationStatementonFormS-1AfiledApril142011FileNo.333-171700andincorporatedhereinbyreference.Morocco10.8PetroleumAgreementregardingtheexplorationforandexploitationofhydrocarbonsintheareaofinterestnamedBoujdourOffshoredatedMay32006betweenONHYMandKosmosMoroccofiledasExhibit10.14totheCompanysRegistrationStatementonFormS-1AfiledMarch32011FileNo.333-171700andincorporatedhereinbyreference.10.9AssociationContractregardingtheexplorationforandexploitationofhydrocarbonsintheBoujdourOffshoreBlockdatedMay32006betweenONHYMandKosmosMoroccofiledasExhibit10.15totheCompanysRegistrationStatementonFormS-1AfiledMarch32011FileNo.333-171700andincorporatedhereinbyreference.10.10MemorandumofUnderstandingregardinganewpetroleumagreementcoveringcertainareasoftheBoujdourOffshoreBlockdatedSeptember272010betweenONHYMandKosmosMoroccofiledasExhibit10.16totheCompanysRegistrationStatementonFormS-1AfiledMarch32011FileNo.333-171700andincorporatedhereinbyreference.10.11PetroleumAgreementRegardingtheExplorationforExploitationofHydrocarbonsamongOfficeNationalDesHydrocarburesEtDesMinesactingonbehalfoftheKingdomofMoroccoKosmosEnergyDeepwaterMoroccoandCanamensEnergyMoroccoSARLintheareaofinterestnamedEssaouiraOffshoredatedSeptember92011filedasExhibit10.12totheCompanysQuarterlyReportonForm10-QforthequarterendedSeptember302013andincorporatedhereinbyreference.10.12DeedofAssignmentinPetroleumAgreementfortheExplorationforandExploitationofHydrocarbonsinthezoneofinterestnamedEssaouiraOffshorebetweenCanamensEnergyMoroccoSARLandKosmosEnergyDeepwaterMoroccodatedDecember192012filedasExhibit10.13totheCompanysQuarterlyReportonForm10-QforthequarterendedSeptember302013andincorporatedhereinbyreference.10.13PetroleumAgreementRegardingtheExplorationforExploitationofHydrocarbonsamongOfficeNationalDesHydrocarburesEtDesMinesactingonbehalfoftheKingdomofMoroccoKosmosEnergyDeepwaterMoroccoandPathfinderHydrocarbonVenturesLimitedintheareaofinterestnamedFoumAssakaOffshoredatedMay42011filedasExhibit10.14totheCompanysQuarterlyReportonForm10-QforthequarterendedSeptember302013andincorporatedhereinbyreference.10.14DeedofAssignmentinPetroleumAgreementfortheExplorationforandExploitationofHydrocarbonsinthezoneofinterestnamedFoumAssakaOffshorebetweenPathfinderHydrocarbonVenturesLimitedandKosmosEnergyDeepwaterMoroccodatedJune112012filedasExhibit10.15totheCompanysQuarterlyReportonForm10-QforthequarterendedSeptember302013andincorporatedhereinbyreference.156 ExhibitNumberDescriptionofDocument10.15PetroleumAgreementRegardingtheExplorationforExploitationofHydrocarbonsamongOfficeNationalDesHydrocarburesEtDesMinesactingonbehalfoftheKingdomofMoroccoandKosmosEnergyDeepwaterMoroccointheareaofinterestnamedTarhazouteOffshoredatedOctober102013filedasExhibit10.16totheCompanysQuarterlyReportonForm10-QforthequarterendedSeptember302013andincorporatedhereinbyreference.10.16PetroleumAgreementRegardingtheExplorationforExploitationofHydrocarbonsbetweenOfficeNationalDesHydrocarburesEtDesMinesactingonbehalfoftheStateandKosmosEnergyOffshoreMoroccoHCintheareaofinterestnamedCapBoujdourOffshoredatedJuly72011filedasExhibit10.27totheCompanysQuarterlyReportonForm10-QforthequarterendedSeptember302013andincorporatedhereinbyreference.Senegal10.17HydrocarbonExplorationandProductionSharingContractfortheCayarOffshoreProfondbetweentheRepublicofSenegalandPetro-TimLimitedandSocietedesPetrolesduSenegaldatedJanuary172012filedasExhibit10.1totheCompanysQuarterlyReportonForm10-QforthequarterendedSeptember302014andincorporatedhereinbyreference.10.18HydrocarbonExplorationandProductionSharingContractfortheSaintLouisOffshoreProfondbetweentheRepublicofSenegalandPetro-TimLimitedandSocietedesPetrolesduSenegaldatedJanuary172012filedasExhibit10.2totheCompanysQuarterlyReportonForm10-QforthequarterendedSeptember302014andincorporatedhereinbyreference.10.19DeedofTransferbetweenLaSocieteDesPetrolesDuSenegalPetrosenTimisCorporationLimitedandKosmosEnergySenegalconcerningtheHydrocarbonsExplorationandProductionSharingContractsandJointOperatingAgreementscoveringtheCayarOffshoreandSaintLouisOffshorePermitsdatedAugust252014filedasExhibit10.3totheCompanysQuarterlyReportonForm10-QforthequarterendedSeptember302014andincorporatedhereinbyreference.Suriname10.20ProductionSharingContractforPetroleumExplorationDevelopmentandProductionrelatingtoBlock42OffshoreSurinamebetweenStaatsolieMaatshappijSurinameN.V.andKosmosEnergySurinamedatedDecember132011filedasExhibit10.20totheCompanysQuarterlyReportonForm10-QforthequarterendedSeptember302013andincorporatedhereinbyreference.10.21ProductionSharingContractforPetroleumExplorationDevelopmentandProductionrelatingtoBlock45OffshoreSurinamebetweenStaatsolieMaatshappijSurinameN.V.andKosmosEnergySurinamedatedDecember132011filedasExhibit10.21totheCompanysQuarterlyReportonForm10-QforthequarterendedSeptember302013andincorporatedhereinbyreference.10.22DeedofAssignmentandTransferrelatingtoBlocks42and45OffshoreSurinamebetweenKosmosEnergySurinameandChevronSurinameExplorationLimiteddatedMay312012filedasExhibit10.22totheCompanysQuarterlyReportonForm10-QforthequarterendedSeptember302013andincorporatedhereinbyreference.157 ExhibitNumberDescriptionofDocumentMauritania10.23ExplorationandProductionContractbetweenTheIslamicRepublicofMauritaniaandKosmosEnergyMauritaniaBlockC8datedApril52012filedasExhibit10.17totheCompanysQuarterlyReportonForm10-QforthequarterendedSeptember302013andincorporatedhereinbyreference.10.24ExplorationandProductionContractbetweenTheIslamicRepublicofMauritaniaandKosmosEnergyMauritaniaBlocC12datedApril52012filedasExhibit10.18totheCompanysQuarterlyReportonForm10-QforthequarterendedSeptember302013andincorporatedhereinbyreference.10.25ExplorationandProductionContractbetweenTheIslamicRepublicofMauritaniaandKosmosEnergyMauritaniaBlocC13datedApril52012filedasExhibit10.19totheCompanysQuarterlyReportonForm10-QforthequarterendedSeptember302013andincorporatedhereinbyreference.Ireland10.26IrishContinentalShelfPetroleumExplorationLicenseNo.113FrontierbetweentheMinisterforCommunicationsEnergyandNaturalResourcesIrelandandKosmosEnergyIrelandandAntrimExplorationIrelandLtddatedAugust282013filedasExhibit10.23totheCompanysQuarterlyReportonForm10-QforthequarterendedSeptember302013andincorporatedhereinbyreference.10.27IrishContinentalShelfPetroleumExplorationLicenseNo.213FrontierbetweentheMinisterforCommunicationsEnergyandNaturalResourcesIrelandandKosmosEnergyIrelandandEuropaOilandGasHoldingsPlc.datedAugust232013filedasExhibit10.24totheCompanysQuarterlyReportonForm10-QforthequarterendedSeptember302013andincorporatedhereinbyreference.10.28IrishContinentalShelfPetroleumExplorationLicenseNo.313FrontierbetweentheMinisterforCommunicationsEnergyandNaturalResourcesIrelandandKosmosEnergyIrelandandEuropaOilandGasHoldingsPlc.datedAugust232013filedasExhibit10.25totheCompanysQuarterlyReportonForm10-QforthequarterendedSeptember302013andincorporatedhereinbyreference.10.29LicensingTermsforOffshoreOilandGasExplorationDevelopmentandProduction2007relatingtothePetroleumExplorationLicensesNo.113No.213andNo.313offshoreIrelandfiledasExhibit10.26totheCompanysQuarterlyReportonForm10-QforthequarterendedSeptember302013andincorporatedhereinbyreference.DrillingRigs10.30DeepwaterDrillingUnitContractAgreementdatedasofJune92013betweenKosmosEnergyVenturesandAlphaOffshoreDrillingServicesCompanyfiledasExhibit10.3totheCompanysQuarterlyReportonForm10-QforthequarterendedJune302013andincorporatedhereinbyreference.158 ExhibitNumberDescriptionofDocumentFinancingAgreements10.31IntercreditorAgreementdatedMarch282011amongBNPParibasKosmosFinanceInternationalKosmosOperatingKosmosInternationalKosmosDevelopmentKosmosGhanaandthevariousfinancialinstitutionsandotherspartytheretofiledasExhibit10.20totheCompanysRegistrationStatementonFormS-1AfiledApril252011FileNo.333-171700andincorporatedhereinbyreference.10.32FacilityAgreementdatedFebruary172012amongKosmosEnergyFinanceInternationalKosmosEnergyOperatingKosmosEnergyInternationalKosmosEnergyDevelopmentKosmosEnergyGhanaHCandInternationalFinanceCorporationfiledasExhibit10.2totheCompanysQuarterlyReportonForm10-QforthequarterendedMarch312012andincorporatedhereinbyreference.10.33DeedofTransferandAmendmentdatedFebruary172012amongKosmosEnergyFinanceInternationalKosmosEnergyOperatingKosmosEnergyInternationalKosmosEnergyDevelopmentKosmosEnergyGhanaHCBNPParibasCitibankN.A.CreditSuisseInternationalSocieteGeneraleLondonBranchandInternationalFinanceCorporationfiledasExhibit10.1totheCompanysQuarterlyReportonForm10-QforthequarterendedMarch312012andincorporatedhereinbyreference.10.34DeedofGuaranteeandIndemnitydatedasofNovember232012amongKosmosEnergyLtd.andKosmosEnergyOperatingKosmosEnergyInternationalKosmosEnergyDevelopmentKosmosEnergyGhanaHCandKosmosEnergyFinanceInternationalasOriginalGuarantorsandBNPParibasasSecurityandIntercreditorAgentfiledasExhibit10.29totheCompanysAnnualReportonForm10-KfortheyearendedDecember312012andincorporatedhereinbyreference.10.35IntercreditorAgreementdatedasofNovember232012amongKosmosEnergyLtd.asHYNoteIssuerandRCFBorrowerKosmosEnergyFinanceInternationalasOriginalSeniorBorrowerBNPParibasasSecurityAgentSecurityandIntercreditorAgentandProceedsAgentandStandardCharteredBankasRCFAgentfiledasExhibit10.31totheCompanysAnnualReportonForm10-KfortheyearendedDecember312012andincorporatedhereinbyreference.10.36Multi-CurrencyRevolvingLetterofCreditFacilityAgreementdatedasofJuly32013andamendedandrestatedonJuly292013amongKosmosEnergyCreditInternationalastheOriginalBorrowerKosmosEnergyLtd.astheOriginalGuarantorandSocieteGeneraleLondonBranchastheOriginalLenderFacilityAgentSecurityAgentandAccountBankfiledasExhibit10.1totheCompanysQuarterlyReportonForm10-QforthequarterendedJune302013andincorporatedhereinbyreference.10.37ChargeonCashDepositsandAccountBankAgreementdatedasofJuly32013amongKosmosEnergyCreditInternationalandSocieteGeneraleLondonBranchasSecurityAgentandAccountBankfiledasExhibit10.2totheCompanysQuarterlyReportonForm10-QforthequarterendedJune302013andincorporatedhereinbyreference.159 ExhibitNumberDescriptionofDocument10.38DeedofAmendmentandRestatementrelatingtotheRevolvingCreditFacilityAgreementdatedMarch142014amongKosmosEnergyLtd.asOriginalBorrowercertainofitssubsidiarieslistedthereinasOriginalGuarantorsStandardCharteredBankasFacilityAgentBNPParibasasSecurityandIntercreditorAgentandthefinancialinstitutionslistedthereinasOriginalLendersfiledasExhibit10.1totheCompanysQuarterlyReportonForm10-QforthequarterendedMarch312014andincorporatedhereinbyreference.10.39DeedofAmendmentandRestatementrelatingtotheFacilityAgreementandaChargeoverSharesinKosmosEnergyOperatingdatedMarch142014amongKosmosEnergyFinanceInternationalasOriginalBorrowerKosmosEnergyOperatingKosmosEnergyInternationalKosmosEnergyDevelopmentandKosmosEnergyGhanaHCasOriginalGuarantorsKosmosEnergyHoldingsasChargorandBNPParibasasFacilityAgentandSecurityAgentfiledasExhibit10.2totheCompanysQuarterlyReportonForm10-QforthequarterendedMarch312014andincorporatedhereinbyreference.10.40IndenturedatedasofAugust12014amongtheCompanyKosmosEnergyOperatingKosmosEnergyInternationalKosmosEnergyDevelopmentKosmosEnergyGhanaHCandKosmosEnergyFinanceInternationalWilmingtonTrustNationalAssociationastrusteetransferagentregistrarandpayingagentandBanqueInternationaleaLuxembourgS.A.asLuxembourglistingagenttransferagentandpayingagentincludingtheFormofNotesfiledasExhibit4.1totheCompanysCurrentReportonForm8-KfiledAugust42014FileNo.001-35167andincorporatedhereinbyreference.10.41KELIntercreditorandSecuritySharingAgreementdatedasofAugust12014amongtheCompanyBNPParibasassecurityandintercreditoragentStandardCharteredBankasRCFAgentandWilmingtonTrustNationalAssociationastrusteetransferagentregistrarandpayingagentfiledasExhibit4.2totheCompanysCurrentReportonForm8-KfiledAugust42014FileNo.001-35167andincorporatedhereinbyreference.AgreementswithShareholdersandDirectors10.42FormofDirectorIndemnificationAgreementfiledasExhibit10.27totheCompanysRegistrationStatementonFormS-1AfiledApril142011FileNo.333-171700andincorporatedhereinbyreference.10.43ShareholdersAgreementdatedasofMay102011amongKosmosEnergyLtd.andtheotherpartiessignatorytheretofiledasExhibit9.1totheCompanysAnnualReportonForm10-KfortheyearendedDecember312012andincorporatedhereinbyreference.10.44RegistrationRightsAgreementdatedasofOctober72009amongKosmosEnergyHoldingsandtheotherpartiessignatorytheretofiledasExhibit10.32totheCompanysAnnualReportonForm10-KfortheyearendedDecember312012andincorporatedhereinbyreference.10.45JoinderAgreementtotheRegistrationRightsAgreementdatedasofMay102011amongKosmosEnergyLtd.andtheotherpartiessignatorytheretofiledasExhibit10.33totheCompanysAnnualReportonForm10-KfortheyearendedDecember312012andincorporatedhereinbyreference.10.46AmendmentNo.1totheRegistrationRightsAgreementdatedasofFebruary82013amongKosmosEnergyLtd.andtheotherpartiessignatorytheretofiledasExhibit10.34totheCompanysAnnualReportonForm10-KfortheyearendedDecember312012andincorporatedhereinbyreference.160 ExhibitNumberDescriptionofDocumentManagementContractsCompensatoryPlansorArrangements10.47LongTermIncentivePlanfiledasExhibit99.1totheCompanysRegistrationStatementonFormS-8filedMay162011FileNo.333-174234andincorporatedhereinbyreference.10.48AnnualIncentivePlanfiledasExhibit10.22totheCompanysRegistrationStatementonFormS-1AfiledMarch302011FileNo.333-171700andincorporatedhereinbyreference.10.49FormofRestrictedStockAwardAgreementExchangefiledasExhibit10.24totheCompanysRegistrationStatementonFormS-1AfiledMarch302011FileNo.333-171700andincorporatedhereinbyreference.10.50FormofRestrictedStockAwardAgreementServiceVesting.10.51FormofRestrictedStockAwardAgreementPerformanceVesting.10.52FormofRSUAwardAgreementServiceVesting.10.53FormofRSUAwardAgreementPerformanceVesting.10.54FormofDirectorsRSUAwardAgreementServiceVesting.10.55SeparationandReleaseAgreementdatedMay122014betweenKosmosEnergyLLCandDarrellMcKennafiledasExhibit10.4totheCompanysQuarterlyReportonForm10-QforthequarterendedJune302014andincorporatedhereinbyreference.10.56OfferLetterdatedSeptember12011betweenKosmosEnergyLLCandJasonDoughtyfiledasExhibit10.1totheCompanysQuarterlyReportonForm10-QforthequarterendedJune302014andincorporatedhereinbyreference.10.57OfferLetterdatedMay222013betweenKosmosEnergyLLCandChristopherBallfiledasExhibit10.2totheCompanysQuarterlyReportonForm10-QforthequarterendedJune302014andincorporatedhereinbyreference.10.58OfferLetterdatedJanuary102014betweenKosmosEnergyLLCandAndrewInglisfiledasExhibit10.58totheCompanysAnnualReportonForm10-KfortheyearendedDecember312013andincorporatedhereinbyreference.10.59AssignmentAgreementdatedApril162014betweenKosmosEnergyLLCandBrianF.MaxtedfiledasExhibit10.3totheCompanysQuarterlyReportonForm10-QforthequarterendedJune302014andincorporatedhereinbyreference.10.60OfferLetterdatedOctober162014betweenKosmosEnergyLLCandThomasP.Chambers.10.61ConsultingAgreementdatedOctober312011betweenKosmosEnergyLtd.andJohnR.KempIIIfiledasExhibit10.33totheCompanysAnnualReportonForm10-KfortheyearendedDecember312011andincorporatedhereinbyreference.10.62AmendmentNo.1toConsultingAgreementdatedFebruary232012betweenKosmosEnergyLtd.andJohnR.KempIIIfiledasExhibit10.3totheCompanysQuarterlyReportonForm10-QforthequarterendedMarch312012andincorporatedhereinbyreference.161 ExhibitNumberDescriptionofDocument10.63AmendmentNo.2effectiveasofJanuary12013toConsultingAgreementbetweenKosmosEnergyLtd.andJohnR.KempIIIfiledasExhibit10.4totheCompanysQuarterlyReportonForm10-QforthequarterendedSeptember302013andincorporatedhereinbyreference10.64AmendmentNo.3effectiveasofOctober12013toConsultingAgreementbetweenKosmosEnergyLtd.andJohnR.KempIIIfiledasExhibit10.5totheCompanysQuarterlyReportonForm10-QforthequarterendedSeptember302013andincorporatedhereinbyreference.10.65KosmosEnergyLtd.ChangeinControlSeverancePolicyforU.S.EmployeesdatedDecember192013filedasExhibit10.66totheCompanysAnnualReportonForm10-KfortheyearendedDecember312013andincorporatedhereinbyreference.OtherExhibits14.1CodeofBusinessConductandEthicsfiledasExhibit14.1totheCompanysAnnualReportonForm10-KfortheyearendedDecember312011andincorporatedhereinbyreference.21.1ListofSubsidiaries.23.1ConsentofErnstYoungLLP.23.2ConsentofRyderScottCompanyL.P.23.3ConsentofNetherlandSewellAssociatesInc.31.1CertificationofChiefExecutiveOfficerPursuanttoSection302oftheSarbanes-OxleyActof2002.31.2CertificationofChiefFinancialOfficerPursuanttoSection302oftheSarbanes-OxleyActof2002.32.1CertificationofChiefExecutiveOfficerPursuanttoSection906oftheSarbanes-OxleyActof2002.32.2CertificationofChiefFinancialOfficerPursuanttoSection906oftheSarbanes-OxleyActof2002.99.1ReportofRyderScottCompanyL.P.JubileeField99.2ReportofRyderScottCompanyL.P.TENProjectArea101.INSXBRLInstanceDocument.101.SCHXBRLTaxonomyExtensionSchemaDocument.101.CALXBRLTaxonomyExtensionCalculationLinkbaseDocument.101.LABXBRLTaxonomyExtensionLabelLinkbaseDocument.101.PREXBRLTaxonomyExtensionPresentationLinkbaseDocument.101.DEFXBRLTaxonomyExtensionDefinitionLinkbaseDocument.Filedherewith.Furnishedherewith.Managementcontractorcompensatoryplanorarrangement.162 CORPORATEOFFICEClarendonHouse2ChurchStreetHamiltonHM11BermudaU.S.OFFICEKosmosEnergyLtd.coKosmosEnergyLLC8176ParkLaneSuite500DallasTX75231WEBSITEwww.kosmosenergy.comSTOCKEXCHANGELISTINGNewYorkStockExchangeSymbolKOSANNUALMEETINGJune32015800a.m.AtlanticDaylightTimeRosewoodTuckersPoint60TuckersPointDriveHamiltonParishHS02BermudaFORM10-KCopiesofthecorporations10-Kareavailableonourwebsiteatwww.kosmosenergy.comAUDITORSErnstYoungDallasTXSHAREHOLDERSERVICESComputershare250RoyallStreetCantonMA020211-800-962-4284Toll-Free1-781-575-3120InternationalINVESTORRELATIONSAdditionalcorporateinformationisavailableonourwebsiteatwww.kosmosenergy.comFORWARD-LOOKINGSTATEMENTSThisAnnualReportcontainsforward-lookingstatementswithinthemeaningofSection27AoftheSecuritiesActof1933andSection21EoftheSecuritiesExchangeActof1934.AllstatementsotherthanstatementsofhistoricalfactsincludedinthisdocumentthataddressactivitieseventsordevelopmentsthatKosmosexpectsbelievesoranticipateswillormayoccurinthefutureareforward-lookingstatements.Kosmosestimatesandforward-lookingstatementsaremainlybasedonitscurrentexpectationsandestimatesoffutureeventsandtrendswhichaffectormayaffectitsbusinessesandoperations.AlthoughKosmosbelievesthattheseestimatesandforward-lookingstatementsarebaseduponreasonableassumptionstheyaresubjecttoseveralrisksanduncertaintiesandaremadeinlightofinformationcurrentlyavailabletoKosmos.Whenusedinthisdocumentthewordsanticipatebelieveintendexpectplanwillorothersimilarwordsareintendedtoidentifyforward-lookingstatements.SuchstatementsaresubjecttoanumberofassumptionsrisksanduncertaintiesmanyofwhicharebeyondthecontrolofKosmoswhichmaycauseactualresultstodiffermateriallyfromthoseimpliedorexpressedbytheforward-lookingstatements.FurtherinformationonsuchassumptionsrisksanduncertaintiesisavailableinKosmosSecuritiesandExchangeCommissionSEClings.Kosmosundertakesnoobligationanddoesnotintendtoupdateorcorrecttheseforward-lookingstatementstoreecteventsorcircumstancesoccurringafterthedateofthisdocumentexceptasrequiredbyapplicablelaw.Youarecautionednottoplaceunduerelianceontheseforward-lookingstatementswhichspeakonlyasofthedateofthisdocument.Allforward-lookingstatementsarequaliedintheirentiretybythiscautionarystatement.CORPORATEINFORMATIONAndrewG.InglisChairmanoftheBoardofDirectorsChiefExecutiveOfcerBrianF.MaxtedChiefExplorationOfcerSirRichardB.DearloveMasterofPembrokeCollegeUniversityofCambridgeRetiredHeadoftheBritishSecretIntelligenceServiceMI6DavidI.FoleySeniorManagingDirectorBlackstoneGroupL.P.ChiefExecutiveOfcerBlackstoneEnergyPartnersDavidB.KriegerManagingDirectorWarburgPincusLLCJosephP.LandyCo-PresidentWarburgPincusCompanyPrakashA.MelwaniSeniorManagingDirectorBlackstoneGroupL.P.AdebayoO.OgunlesiChairmanandManagingPartnerGlobalInfrastructurePartnersLarsH.ThunellRetiredExecutiveVicePresidentandChiefExecutiveOfcerInternationalFinanceCorporationChrisTongDirectorTargaResourcesCorp.ChristopherA.WrightRetiredExecutiveChairmanandChiefExecutiveOfcerFaireldEnergyLimitedAndrewG.InglisChairmanoftheBoardofDirectorsandChiefExecutiveOfcerBrianF.MaxtedChiefExplorationOfcerDirectorThomasP.ChambersSeniorVicePresidentandChiefFinancialOfcerMichaelAndersonSeniorVicePresidentExternalAffairsGovernmentRelationsandSecurityChristopherJ.BallSeniorVicePresidentPlanningandBusinessDevelopmentJasonE.DoughtyGeneralCounselandSeniorVicePresidentLegalHumanResourcesandAdministrationMarvinM.GarrettSeniorVicePresidentDrillingEricJ.HaasSeniorVicePresidentProductionandDevelopmentPaulM.NobelSeniorVicePresidentandChiefAccountingOfcerBOARDOFDIRECTORSSENIORLEADERSHIP 8176ParkLaneSuite500DallasTX75231