Talos Energy Announces Second Quarter 2024 Operational and Financial Results

HOUSTON, Texas, Aug. 7, 2024 /PRNewswire/ -- Talos Energy Inc. ("Talos" or the "Company") (NYSE: TALO) today announced its operational and financial results for fiscal quarter ended June 30, 2024. Talos also provided third quarter 2024 production guidance and reiterated its operational and financial guidance for the full year 2024.

Key Highlights

Production of 95.5 thousand barrels of oil equivalent per day ("MBoe/d") (73% oil, 81% liquids), which is at the high end of Talos's second quarter 2024 guidance range.Repurchased 3.8 million shares of common stock for approximately $43 million at an average price of $11.26 per share, and Talos's Board of Directors authorized an additional $150 million for Talos's existing common stock repurchase program.Reduced debt by $100 million, maintaining leverage at 1.0x* and liquidity of $738.7 million at the end of the second quarter.Purchased a 21.4% working interest ("W.I.") in the Monument discovery located in the Walker Ridge area in the Gulf of Mexico.Returned the Helix Producer I ("HP-I") to service ahead of schedule.Completed integration for QuarterNorth acquisition and increased expected synergies to $35 million since March 2024.

Second Quarter Summary

Revenue of $549.2 million, driven by realized prices (excluding hedges) of $80.50 per barrel for oil, $22.33 per barrel for natural gas liquids ("NGLs"), and $2.59 per thousand cubic feet ("Mcf") for natural gas.Net Income of $12.4 million, or $0.07 Net Income per diluted share, and Adjusted Net Income* of $5.2 million, or $0.03 Adjusted Net Income per diluted share*.Adjusted EBITDA* of $344.0 million.Capital expenditures of $122.8 million, excluding plugging and abandonment and settled decommissioning obligations.Net cash provided by operating activities of $289.4 million.Adjusted Free Cash Flow* of $148.0 million.

Talos President and Chief Executive Officer Tim Duncan stated, "The second quarter 2024 marked our first full quarter following the closing of the QuarterNorth transaction, resulting in record levels of production, Adjusted EBITDA, and Adjusted Free Cash Flow. This achievement enabled us to remain on track with our debt repayments while opportunistically buying back 3.8 million shares, representing 2% of our market capitalization. Our team's hard work and commitment have put us ahead of schedule on our integration efforts, leveraging the advantages of our increased scale and diversity.

"In our capital drilling program, the Lobster waterflood project commenced water injection in the second quarter 2024, and we anticipate a positive impact on production rates by 2025. We are currently drilling at our non-operated Ewing Bank 953, with results expected later in the third quarter 2024. Additionally, we anticipate receiving the West Vela deepwater rig late in the third quarter 2024, which will begin drilling three consecutive high-impact subsalt wells, including the Katmai West #2 appraisal in 2024, followed by the Daenerys and Helms Deep prospects in 2025.

"Subsequent to the second quarter 2024, we executed an important transaction securing a 21.4% non-operated interest in the Monument deepwater discovery. The Monument discovery presents an attractive post-FID subsea tie-back opportunity with gross resource potential exceeding 150 MMBoe, including a potential drilling opportunity beyond the appraised discovery. We have built a meaningful acreage position within the prolific Wilcox play in the deepwater Gulf of Mexico, and Monument represents the first of several potential investments in this well-established geological trend. We are pleased to have added this project to our projected 2024 capital program."

Footnotes:

*See "Supplemental Non-GAAP Information" for details and reconciliations of GAAP to non-GAAP financial measures.

RECENT DEVELOPMENTS AND OPERATIONS UPDATE

Shareholder Return Program: In June 2024, Talos opportunistically repurchased 3.8 million shares of common stock for approximately $43 million, representing an average price of $11.26 per share. In addition, in July 2024, Talos's Board of Directors authorized an additional $150 million for its existing common stock repurchase program.

Monument Discovery: Recently, Talos agreed to acquire a 21.4% W.I. in Monument, a large Wilcox oil discovery located in Walker Ridge blocks 271, 272, 315, and 316, for a purchase price of $32 million as of the effective date. Monument will be developed as a subsea tie-back to the Shenandoah production facility in Walker Ridge. The Monument discovery is post-FID with appraised proved plus probable gross reserves of approximately 115 million barrels of oil equivalent. First production is expected between 20 – 30 MBoe/d gross by late 2026 under restricted flow due to facility rate-constraints. The proved and probable PV-10 of Monument's reserves is valued at approximately $265 million(1). There is an additional 25 – 35 MMBoe drilling location adjacent to the discovery that could extend the resource and Talos's pipeline of drill-ready opportunities. Talos expects a net investment of approximately $25 million in 2024 and approximately $160 million over 2025 and 2026, with no changes to its 2024 capital expenditures guidance. Talos strategically reallocated a portion of its 2024 capital investments for the Monument discovery, given the later-than-anticipated arrival of the West Vela rig. Other partners include Beacon as operator with 30.0% W.I., Navitas Petroleum 28.6% W.I., and Repsol E&P USA Inc. 20.0% W.I.

QuarterNorth Integration Complete: Operational and organizational integration is complete for the QuarterNorth acquisition that closed in March 2024, and we increased expected synergies to $35 million. Talos expects to fully realize projected synergies from the combination by year-end 2024.

Production Updates:

Katmai: Talos expects to take possession of the Seadrill-owned drillship West Vela and commence drilling the Katmai West #2 well in the late third quarter 2024 to further appraise the field, potentially adding significant reserves. Talos projects achieving first production from the Katmai West #2 well in the second quarter 2025. Modifications to the facility, Tarantula, will increase capacity from 27 MBoe/d to 35 MBoe/d. The Katmai wells will be rate-constrained under the upgraded capacity allowing for extended flat-to-low decline production from the facility. Talos will hold 50% W.I. and Ridgewood Energy 50% in Katmai. Talos is the 100% owner and operator of the Tarantula facility.

Sunspear Completion: Talos is in the final stages of securing a rig contract to complete the Sunspear discovery. The Sunspear well, successfully drilled in July 2023, is expected to commence first production during the second quarter 2025, with production flowing to the Prince platform. Partners are Talos 48.0% W.I., an entity managed by Ridgewood Energy Corporation 47.5% W.I., and Houston Energy 4.5% W.I.

Lobster Waterflood: In the second quarter 2024, Talos completed the waterflood (down-hole water injection) well in the Lobster Field, which Talos successfully drilled in the first quarter of 2024. The well began injecting water into the BUL-1 sand at 7,000 barrels of water per day in May 2024. Production is expected to increase by over 2 MBoe/d gross in the next 12-18 months. Talos owns 67% W.I., and Chevron owns 33% W.I.

Exploitation and Exploration Updates:

Ewing Bank 953: Talos is currently drilling the Walter-operated amplitude-supported exploitation well in Ewing Bank 953. The Ewing Bank 953 well targets a Pliocene age reservoir at approximately 19,000 feet with an estimated gross resource potential of 15 – 25 million barrels of oil equivalent, with results expected by the end of the third quarter 2024. Talos holds 33.3% W.I., with Walter Oil & Gas holding 56.7% W.I. and Gordy Oil holding 10% W.I.

Daenerys: Talos expects to utilize the West Vela drillship to drill the Daenerys exploration well subsequent to the Katmai West #2 well. The Daenerys well is a high-impact subsalt project that will evaluate the regionally prolific Middle and Lower Miocene section and carries an estimated gross resource potential between 100 – 300 MMBoe. The prospect is part of a broader farm-in transaction executed in 2023 with a combined approximately 23,000 gross acres in the Walker Ridge area. The well is expected to spud in the first quarter 2025 after drilling Katmai West #2. Talos holds a 27% W.I. Partners include Red Willow, Houston Energy, and Cathexis.

Helms Deep: Talos expects to mobilize the West Vela drillship to Helms Deep after completing drilling operations at Daenerys. The West Vela is set to commence drilling at Helms Deep, an amplitude-supported, near-infrastructure subsalt Pliocene exploitation well, in the third quarter 2025. The Helms Deep well has a proposed depth of approximately 18,000 feet and an estimated gross resource potential between 17 - 27 MMBoe. Talos is targeting 50% W.I.

HP-I Update:

HP-I Resumed Production: In mid-June 2024, the HP-I vessel resumed production ahead of schedule following the completion of the planned regulatory required dry-dock maintenance. The dry-dock period was 52 days and resulted in an estimated deferred production of approximately 4.8 MBoe/d in the second quarter 2024.

(1)Proved and probable reserves are estimated by Netherland, Sewell & Associates, Inc. ('NSAI"). PV-10 utilizes SEC pricing of $78.21 / BBL WTI and $2.64 per MCF per MMBTU.

SECOND QUARTER 2024 RESULTS

Key Financial Highlights:

($ thousands, except per share and per Boe amounts)Three Months EndedJune 30, 2024Total revenues$549,165Net Income (Loss)$12,381Net Income (Loss) per diluted share$0.07Adjusted Net Income (Loss)*$5,179Adjusted Net Income (Loss) per diluted share*$0.03Adjusted EBITDA*$343,984Adjusted EBITDA excluding hedges*$361,502Capital Expenditures$122,812

Production

Production for the second quarter 2024 was 95.5 MBoe/d and was 73% oil and 81% liquids.

Three Months EndedJune 30, 2024Oil (MBbl/d)69.3Natural Gas (MMcf/d)110.8NGL (MBbl/d)7.7Total average net daily (MBoe/d)95.5

Three Months EndedJune 30, 2024Production% Oil% Liquids% OperatedGreen Canyon Area31.979%86%44%Mississippi Canyon Area50.075%83%77%Shelf and Gulf Coast13.549%59%61%Total average net daily (MBoe/d)95.573%81%64%

Three Months EndedJune 30, 2024Average realized prices (excluding hedges)Oil ($/Bbl)$80.50Natural Gas ($/Mcf)$2.59NGL ($/Bbl)$22.33Average realized price ($/Boe)$63.22Average NYMEX pricesWTI ($/Bbl)$80.66Henry Hub ($/MMBtu)$2.06

Lease Operating & General and Administrative Expenses

Total lease operating expenses for the second quarter 2024, inclusive of workover, maintenance and insurance costs, were $157.3 million, or $18.11 per Boe. Excluding workover expenses, total lease operating expenses were $148.4 million, or $17.09 per Boe. Lease operating expenses were $16.27 per Boe, adjusting for workover expenses and the impact of the HP-I during the second quarter 2024.

General and Administrative expenses for the second quarter, adjusted to exclude one-time transaction-related costs and non-cash equity-based compensation, were $35.6 million, or $4.10 per Boe. Talos expects General and Administrative expenses to be significantly lower in the second half of 2024, due to the realization of projected synergies.

($ thousands, except per Boe amounts)Three Months EndedJune 30, 2024Lease Operating Expenses$157,310Lease Operating Expenses per Boe$18.11Lease Operating Expenses excluding workover$148,410Lease Operating Expenses excluding workover per Boe$17.09Adjusted General & Administrative Expenses*$35,600Adjusted General & Administrative Expenses per Boe*$4.10

Capital Expenditures

Capital expenditures for the second quarter 2024, excluding plugging and abandonment and settled decommissioning obligations, totaled $122.8 million.

($ thousands)Three Months EndedJune 30, 2024U.S. drilling & completions$71,265Asset management(1)36,726Seismic and G&G, land, capitalized G&A and other14,821Total Capital Expenditures$122,812

____________________(1)Asset management consists of capital expenditures for development-related activities primarily associated with recompletions and improvements to our facilities and infrastructure.

Plugging & Abandonment Expenses

Capital expenditures for plugging and abandonment and settled decommissioning obligations for the second quarter 2024 totaled $22.0 million.

Three Months EndedJune 30, 2024Plugging & Abandonment and Decommissioning Obligations Settled(1)$22,044

____________________ (1)Settlement of decommissioning obligations as a result of working interest partners or counterparties of divestiture transactions that were unable to perform the required abandonment obligations due to bankruptcy or insolvency.

Liquidity and Leverage

At June 30, 2024, Talos had approximately $738.7 million of liquidity, with $740.0 million undrawn on its credit facility and approximately $37.8 million in cash, less approximately $39.1 million in outstanding letters of credit. On June 30, 2024, Talos had $1,475.0 million in total debt. Net Debt* was $1,437.2 million. Net Debt to Pro Forma Last Twelve Months ("LTM") Adjusted EBITDA* was 1.0x.

OPERATIONAL & FINANCIAL GUIDANCE UPDATES

For the third quarter 2024, Talos expects average daily production of 92.0 - 97.0 MBoe/d (71% oil).

Talos's reiterates its full year 2024 operational and financial guidance and continues to expect average daily production of 89.0 - 95.0 MBoe/d (71% oil).

Talos expects to generate Free Cash Flow in the second half 2024 in excess of its Credit Facility balance, and is targeting a long-term leverage ratio below 1.0x.

The following summarizes Talos's previously disclosed full-year 2024 operational and production guidance.

FY 2024($ Millions, unless highlighted):LowHighProductionOil (MMBbl)23.424.7Natural Gas (Mcf)40.044.2NGL (MMBbl)2.52.7Total Production (MMBoe)32.634.8Avg Daily Production (MBoe/d)89.095.0Cash ExpensesCash Operating Expenses and Workovers(1)(2)(4)*$555$585G&A(2)(3)*$100$110CapexCapital Expenditures(5)$570$600P&A ExpendituresP&A, Decommissioning$90$100InterestInterest Expense(6)$175$185

(1)Includes Lease Operating Expenses and Maintenance. (2)Includes insurance costs.(3)Excludes non-cash equity-based compensation and transaction and other expenses.(4)Includes reimbursements under production handling agreements.(5)Excludes acquisitions.(6)Includes cash interest expense on debt and finance lease, surety charges and amortization of deferred financing costs and original issue discounts.*Due to the forward-looking nature a reconciliation of Cash Operating Expenses and G&A to the most directly comparable GAAP measure could not reconciled without unreasonable efforts.

HEDGES

The following table reflects contracted volumes and weighted average prices the Company will receive under the terms of its derivative contracts as of August 6, 2024. The table includes derivative instruments assumed as part of the QuarterNorth acquisition:

Instrument TypeAvg. DailyVolumeW.A. SwapW.A. Sub-FloorW.A. FloorW.A. CeilingCrude – WTI(Bbls)(Per Bbl)(Per Bbl)(Per Bbl)(Per Bbl)July - September 2024Fixed Swaps39,696$76.75---------Collar1,000------$70.00$75.00Long Puts4,000------$70.00---Short Puts1,000---$60.00------October - December 2024Fixed Swaps38,674$76.07---------Collar1,000------$70.00$75.00Long Puts4,000------