Talos Energy Announces Third Quarter 2022 Operational and Financial Results – QNT Press Release


HOUSTON, Nov. 2, 2022 /PRNewswire/ — Talos Energy Inc. ("Talos" or the "Company") (NYSE:TALO) today announced its operational and financial results for the third quarter of 2022.

Key Highlights:

  • Production of 53.0 thousand barrels of oil equivalent per day ("MBoe/d") (67% oil, 75% liquids), inclusive of the impact of approximately 9.1 MBoe/d of primarily planned maintenance downtime associated with regulatory dry-dock of the HP-1 facility.
  • Revenue of $377.1 million, driven by realized prices (excluding hedges) of $90.73 per barrel for oil, $32.71 per barrel for natural gas liquids ("NGLs") and $9.37 per thousand cubic feet ("Mcf") for natural gas.
  • Net Income of $250.5 million, or $2.99 Net Income per diluted share, and Adjusted Net Income(1) of $62.8 million, or $0.75 Adjusted Net Income per diluted share.
  • Adjusted EBITDA(1) of $197.6 million, or $40.52 Adjusted EBITDA per Boe; Adjusted EBITDA excluding hedges of $278.7 million, or $57.16 per Boe.
  • Capital Expenditures of $128.9 million, inclusive of plugging and abandonment.
  • Free Cash Flow(1) (after realized hedges and before changes in working capital) of $39.4 million.
  • Repaid $140.0 million in credit facility borrowings and achieved record liquidity of $806.8 million and leverage of 0.8x. Debt has been reduced by approximately $450.0 million since March 31, 2021.
  • Announced the strategic acquisition of EnVen Energy Corporation ("EnVen") for $1.1 billion(2) on September 22, 2022, which is expected to add approximately 24 MBoe/d (2022E) and 78 million barrels of oil equivalent of Proved + Probable reserves (Year-End 2021 SEC).

President and Chief Executive Officer Timothy S. Duncan commented: "I'm proud of our team's efforts this quarter as we completed the planned HP-1 dry dock process. Despite the scheduled production downtime, we continued our recent trends of strong margins, solid free cash flow generation and aggressive debt repayment, which now totals almost $450 million since our refinancing transactions in early 2021. Most importantly, this was a quarter focused on positioning the Company for the future and investing in key catalysts. We took delivery of our deepwater rig and have commenced our drilling program, which includes several key organic growth prospects that will set the foundation for the next several years. In our Talos Low Carbon Solutions business we are busy developing our carbon storage portfolio, enhancing partnerships in our core project areas and continuing fruitful discussions with industrial emitters, and we hope to announce new milestones by year end. Lastly, we announced a major in-basin acquisition that provides an excellent strategic fit with our existing business and enhances our strong financial profile. By focusing on catalysts that are unique to our operating and business strengths, we believe we can accelerate our ability to provide steady growth and long-term value creation for our shareholders."

Duncan continued: "We expect to close our acquisition of EnVen around year end. The transaction adds material scale to our business, both in terms of production and operated infrastructure, while also diversifying our production across a broader asset base. The Company will have an even stronger financial profile post-closing with high liquidity and low leverage, plus significant expected cost synergies to further improve margins going forward. Importantly, the transaction also improves our Scope 1 GHG Intensity profile while also acting as a catalyst to make important governance enhancements to our Board of Directors as well. In summary, we believe this is an excellent transaction for Talos shareholders and look forward to completing the acquisition in the coming few months."

RECENT DEVELOPMENTS AND OPERATIONS UPDATE

Debt Repayment & Reserves-Based Loan: Talos repaid $140.0 million in credit facility borrowings during the quarter, achieving record liquidity of more than $800.0 million and a record low leverage metric of 0.8x Net Debt / LTM Adjusted EBITDA. Talos is currently undergoing its semi-annual borrowing base redetermination process for the Company's reserves-based credit facility and expects results by late November 2022. Net Debt now stands at approximately $666.0 million.

EnVen Acquisition: On September 22, 2022, Talos announced the strategic acquisition of EnVen, a private deepwater operator in the U.S. Gulf of Mexico. The strategic transaction expands Talos's Gulf of Mexico operations with high margin, oil-weighted assets, is expected to be accretive to Talos shareholders on 2023E Free Cash Flow per Share(3) and is immediately de-leveraging. The transaction is expected to increase Talos's production by approximately 40%, gross acreage by 35% and double the Company's operated deepwater infrastructure footprint. The acquisition lowers Talos's Scope 1 GHG Emissions Intensity and will be a catalyst to de-classify Talos's Board of Directors and enhance its independence to better align with shareholder interests.

The mandatory 30-day waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 has elapsed and Talos has completed this regulatory step. Talos has also successfully obtained consent from its bondholders to combine the capital structures of the two companies upon closing of the transaction. Lastly, the Company filed its S-4 registration statement with the U.S. Securities and Exchange Commission (which includes documents serving as a prospectus/proxy statement for Talos and a consent solicitation statement for EnVen) ahead of the shareholder vote, which is an important step before closing the acquisition in late 2022 or early 2023.

Inflation Reduction Act: On August 16, 2022, President Biden signed into law the Inflation Reduction Act of 2022, which stipulates two important items that benefit Talos. First, the reinstatement of Lease Sale 257 and a path forward for future Gulf of Mexico lease sales. Second, the expansion of 45Q carbon tax credits that incentivize carbon capture and sequestration ("CCS") activities, enhancing opportunities across the Company's CCS portfolio. With respect to Lease Sale 257, Talos recently entered into nine federal leases covering approximately 52,000 acres and which include several prospects that could be drilled as early as 2024.

Open Water Rig Program: The Seadrill Sevan Louisiana rig most recently commenced operations on the Company's Lime Rock prospect near its operated Ram Powell facility in Mississippi Canyon. Prior to Lime Rock, the rig was executing a recompletion on the Bulleit project that was delayed due to sustained, strong loop currents in the Green Canyon area of the U.S. Gulf of Mexico. Following the Lime Rock prospect, Talos intends to drill the Venice prospect, also located in proximity to the Ram Powell facility, before returning to finalize the Bulleit completion in the first quarter of 2023, and thereafter intends to drill the Rigolets prospect near the Pompano facility. Talos owns a 60% working interest in the exploitation prospects and expects first oil in approximately 12-18 months, if successful, at rates of approximately 5.0-15.0 MBoe/d gross.

Platform Rig Program: Talos is currently drilling the Mount Hunter prospect from the Pompano platform and expects results in early 2023 and first production in the first quarter of 2023.

Puma West: The Puma West appraisal well in Green Canyon was spud in October 2022 and is being drilled with the Diamond Ocean BlackHornet rig. The well was previously permitted to a depth of approximately 26,700 feet. Preliminary drilling results are expected by early 2023.

Dry-Dock & Other Downtime: As previously announced as part of the Company's second quarter 2022 earnings, Talos incurred planned downtime in the quarter resulting from the HP-1 floating production unit regulatory dry-dock process as well as third-party midstream maintenance projects. The planned maintenance resulted in deferred production of approximately 8.0 MBoe/d for the quarter. All planned maintenance has subsequently been completed and been brought online. Additionally, Talos experienced unplanned downtime impacts of approximately 1.0 MBoe/d for the quarter primarily as a result of significant loop currents in the region of the HP-1 facility.

Phoenix Field Update: Production from one of the Company's Tornado wells generated increased water volumes during the third quarter primarily as a result of the ongoing sub-surface water flood project in the Phoenix Field. This water breakthrough occurred earlier than originally expected, though within the range of projected outcomes in previous reservoir simulations used for 2021 year-end reserves. We currently expect minor negative revisions to proved reserves as a result of timing impacts of early water breakthrough.

THIRD QUARTER 2022 RESULTS

Key Financial Highlights:

Three Months Ended
September 30, 2022

($ million):

Total Revenues

$

377.1

Net Income

$

250.5

Net Income per diluted share

$

2.99

Adjusted Net Income(1)

$

62.8

Adjusted Net Income per diluted share(1)

$

0.75

Adjusted EBITDA(1)

$

197.6

Adjusted EBITDA excluding hedges(1)

$

278.7

Capital Expenditures (including Plug & Abandonment)

$

128.9

Adjusted EBITDA Margin:

Adjusted EBITDA per Boe

$

40.52

Adjusted EBITDA excluding hedges per Boe

$

57.16

Production
Production for the quarter was 53.0 MBoe/d net and was 67% oil and 75% liquids. Production was impacted by approximately 9.1 MBoe/d of downtime, primarily as a result of the scheduled HP-1 dry-dock maintenance project, which satisfies regulatory upkeep requirements for the floating production unit and contributes to otherwise high uptime rates.

Three Months Ended September 30, 2022

Production

% Oil

% Liquids

% Operated

Average net daily production volumes by Core Area (MBoe/d)

Green Canyon Area

12.7

84

%

88

%

98

%

Mississippi Canyon Area

25.2

74

%

84

%

61

%

Shelf and Gulf Coast

15.1

40

%

50

%

54

%

Total average net daily

53.0

67

%

75

%

68

%

Capital Expenditures
Capital expenditures for the quarter, including plugging and abandonment activities, totaled $128.9 million.

($ million):

Three Months Ended
September 30, 2022

Capital Expenditures

U.S. Drilling & Completions

$

50.0

Mexico Appraisal & Exploration

0.1

Asset Management

42.9

Seismic and G&G / Land / Capitalized G&A and other

16.0

CCS(4)

(0.6)

Total Capital Expenditures

108.4

Plugging & Abandonment

20.5

Total Capital Expenditures and Plugging & Abandonment

$

128.9

Liquidity and Leverage
At quarter-end the Company had approximately $806.8 million of liquidity, with $746.3 million undrawn on its RBL facility and approximately $64.5 million in cash, less approximately $3.9 million in outstanding letters of credit. On September 30, 2022, Talos had $730.5 million in total debt, inclusive of $20.5 million related to the HP-1 finance lease. Net Debt was $666.0 million(1). Net Debt to Credit Facility LTM Adjusted EBITDA(1), as determined in accordance with the Company's credit agreement, was 0.8x(1).

Footnotes:

(1)

Adjusted Net Income, Adjusted Net Income per diluted share, Adjusted EBITDA, Adjusted EBITDA excluding hedges, Adjusted EBITDA margin, Adjusted EBITDA margin excluding hedges, Credit Facility LTM Adjusted EBITDA, Net Debt, Net Debt to Credit Facility LTM Adjusted EBITDA and Free Cash Flow are non-GAAP financial measures. See "Supplemental Non-GAAP Information" below for additional detail and reconciliations of GAAP to non-GAAP measures.

(2)

Enterprise Value based on Talos share price as of September 21, 2022 and EnVen estimated capital structure at December 31, 2022.

(3)

Free Cash Flow per Share presented before changes in working capital; accretion for EnVen acquisition inclusive of $30 million in expected annual synergies.

(4)

Excludes $0.6 million of expenditures reflected as "Other operating (income) expense" on the Condensed Consolidated Statements of Operations.

OPERATIONAL & FINANCIAL GUIDANCE

Talos has provided production guidance for the fourth quarter of 2022 as well as an update on guidance related to full year 2022 production, cash operating expenses, general and administrative expenses and capital expenditures (inclusive of plugging and abandonment).

4Q 2022

Low

High

Oil (MMBbl)

3.5

3.6

Natural Gas (Bcf)

7.4

7.5

NGL (MMBbl)

0.4

0.4

Total (MMBoe)

5.2

5.2

Avg Daily Production (MBoe/d)

56.0

57.0

  • Production for the fourth quarter of 2022 is expected to be 56.0 – 57.0 MBoe/d, inclusive of the impact of 3.5 – 4.0 MBoe/d of downtime associated with ongoing loop currents, Odyssey pipeline maintenance, unplanned maintenance at the third-party operated Delta House facility, timing of the Bulleit recompletion and lower royalty relief on natural gas production as a result of higher realized prices throughout 2022. Utilizing fourth quarter 2022 production guidance, full year 2022 production is expected to be modestly below the low end of Talos's original guidance range.
  • Cash operating expenses and General & Administrative expenses for the full year 2022 are expected towards the upper half of the originally guided ranges of $300$320 million and $68$73 million, respectively.
  • Capital Expenditures for the fourth quarter of 2022 is expected to be $170$180 million, inclusive of plugging and abandonment. Capital Expenditures for the full year 2022 is expected towards the high end of the originally guided range of $450$480 million.

HEDGES

The following table reflects contracted volumes and weighted average prices the Company will receive under the terms of its derivative contracts as of November 3, 2022 and includes contracts entered into after September 30, 2022:

Type

Avg. Daily
Volume

Weighted Avg.
Swap Price

Weighted Avg.
Collar Floor

Weighted Avg.
Collar Ceiling

Crude – WTI

(Bbls)

(Per Bbl)

(Per Bbl)

(Per Bbl)

4Q 2022

Swap

19,326

$55.05

1Q 2023

Swap

23,000

$69.44

2Q 2023

Swap

19,000

$73.78

3Q 2023

Swap

9,674

$72.95

3Q 2023

Collar

2,000

$75.00

$90.43

4Q 2023

Swap

8,000

$75.20

4Q 2023

Collar

2,000

$65.00

$81.75

1Q 2024

Swap

6,000

$76.32

1Q 2024

Collar

2,000

$70.00

$88.00

2Q 2024

Swap

8,000

$74.67

3Q 2024

Swap

3,000

$71.50

4Q 2024

Swap

1,000

$70.00

Natural Gas – HH NYMEX

(MMBtu)

(Per MMBtu)

(Per MMBtu)

(Per MMBtu)

4Q 2022

Swap

44,000

$4.21

1Q 2023

Swap

42,000

$3.87

1Q 2023

Collar

10,000

$5.25

$8.46

2Q 2023

Swap

34,000

$3.38

2Q 2023

Collar

10,000

$5.25

$8.46

3Q 2023

Swap

15,000

$3.46

3Q 2023

Collar

10,000

$5.25

$8.46

4Q 2023

Swap

15,000

$4.62

4Q 2023

Collar

10,000

$5.25

$8.46

1Q 2024

Swap

10,000

$3.25

1Q 2024

Collar

10,000

$4.00

$6.90

2Q 2024

Swap

10,000

$3.25

2Q 2024

Collar

10,000

$4.00

$6.90

3Q 2024

Collar

10,000

$4.00

$6.90

4Q 2024

Collar

10,000

$4.00

$6.90

CONFERENCE CALL AND WEBCAST INFORMATION

Talos will host a conference call, which will be broadcast live over the internet, on Thursday, November 3, 2022 at 10:00 AM Eastern Time (9:00 AM Central Time). Listeners can access the conference call through a webcast link on the Company's website at: https://www.talosenergy.com/investor-relations/events-calendar/. Alternatively, the conference call can be accessed by dialing (888) 348-8927 (U.S. toll free), (855) 669-9657 (Canada toll-free) or (412) 902-4263 (international). Please dial in approximately 15 minutes before the teleconference is scheduled to begin and ask to be joined into the Talos Energy call. A replay of the call will be available one hour after the conclusion of the conference until November 10, 2022 and can be accessed by dialing (877) 344-7529 and using access code 1341833.

ABOUT TALOS ENERGY

Talos Energy (NYSE:TALO) is a technically driven independent exploration and production company focused on safely and efficiently maximizing long-term value through its operations, currently in the United States and offshore Mexico, both through upstream oil and gas exploration and production and the development of carbon capture and sequestration opportunities. As one of the Gulf of Mexico's largest public independent producers, we leverage decades of technical and offshore operational expertise towards the acquisition, exploration and development of assets in key geological trends that are present in many offshore basins around the world. With a focus on environmental stewardship, we are also utilizing our expertise to explore opportunities to reduce industrial emissions through our carbon capture and sequestration initiatives both in and along the coast of the U.S. Gulf of Mexico. For more information, visit www.talosenergy.com.

INVESTOR RELATIONS CONTACT

Sergio Maiworm
[email protected] 

CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING STATEMENTS

This communication may contain "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact included in this communication, regarding our strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects, plans and objectives of management are forward-looking statements. When used in this communication, the words "will," "could," "believe," "anticipate," "intend," "estimate," "expect," "project," "forecast," "may," "objective," "plan" and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. These forward-looking statements are based on our current expectations and assumptions about future events and are based on currently available information as to the outcome and timing of future events.

We caution you that these forward-looking statements are subject to numerous risks and uncertainties, most of which are difficult to predict and many of which are beyond our control. These risks include, but are not limited to, our ability to realize the results contemplated by our 2022 guidance, the success of the proposed transaction with EnVen and anticipated future performance of the combined company, the success of our carbon capture and sequestration projects, commodity price volatility, the lack of a resolution to the war in Ukraine and its impact on certain commodity markets; the ability or willingness of the Organization of Petroleum Exporting Countries ("OPEC") and non-OPEC countries, such as Saudi Arabia and Russia, to set and maintain oil production levels and the impact of any such actions; the impact of the ongoing sub-surface water flood project in the Phoenix Field and any updates to our estimated ultimate recovery from such project; lack of transportation and storage capacity as a result of oversupply, government regulations and actions or other factors; sustained inflation and the impact of central bank policy in response thereto; lack of availability of drilling and production equipment and services; environmental risks; drilling and other operating risks; regulatory changes; adverse weather events, including tropical storms, hurricanes and winter storms; cybersecurity threats; the continued impact of the coronavirus disease 2019 ("COVID-19"), including any new strains or variants, and governmental measures related thereto; the uncertainty inherent in estimating reserves and in projecting future rates of production, cash flow and access to capital; the timing of development expenditures; the possibility that the anticipated benefits of recent acquisitions are not realized when expected or at all, including as a result of the impact of, or problems arising from, the integration of such acquisitions; changes to federal income tax laws and regulations, including the Inflation Reduction Act of 2022; environmental risks; failure to find, acquire or gain access to other discoveries and prospects or to successfully develop and produce from our current discoveries and prospects; geologic risk; drilling and other operating risks; well control risk; regulatory changes; the uncertainty inherent in estimating reserves and in projecting future rates of production; cash flow and access to capital; the timing of development expenditures; potential adverse reactions or competitive responses to our acquisitions and other transactions; the possibility that the anticipated benefits of our acquisitions are not realized when expected or at all, including as a result of the impact of, or problems arising from, the integration of acquired assets and operations, and the other risks discussed in Part I, Item 1A. "Risk Factors" of Talos Energy Inc.'s Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on February 25, 2022, Part II, Item 1A. "Risk Factors" of Talos Energy Inc.'s Quarterly Report on Form 10-Q for the period ended March 31, 2022, filed with the SEC on May 5, 2022 and Part II, Item 1A. "Risk Factors" of Talos Energy Inc's Quarterly Report on Form 10-Q for the period ended June 30, 2022, filed with the SEC on August 5, 2022. Should one or more of the risks or uncertainties described herein occur, or should underlying assumptions prove incorrect, our actual results and plans could differ materially from those expressed in any forward-looking statements. All forward-looking statements, expressed or implied, included in this communication are expressly qualified in their entirety by this cautionary statement. This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue. Except as otherwise required by applicable law, we disclaim any duty to update any forward-looking statements, all of which are expressly qualified by the statements in this …

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