Talos Energy Announces Third Quarter 2023 Operational and Financial Results

HOUSTON, Nov. 6, 2023 /PRNewswire/ -- Talos Energy Inc. ("Talos" or the "Company") (NYSE: TALO) today announced its operational and financial results for fiscal quarter ended September 30, 2023.

Third Quarter 2023 Highlights:          

• Production of 63.7 thousand barrels of oil equivalent per day ("MBoe/d") (76% oil, 83% liquids), inclusive of 2.4 MBoe/d of impacts from sustained loop currents requiring intermittent shut-ins of Talos's HP-1 floating production unit and associated infrastructure, as well as additional downtime.
• Revenue of $383.1 million, driven by realized prices (excluding hedges) of $80.75 per barrel for oil, $17.02 per barrel for natural gas liquids ("NGLs"), and $2.81 per thousand cubic feet ("Mcf") for natural gas.
• Net Loss of $2.1 million, or $0.02 Net Loss per diluted share, and Adjusted Net Income* of $18.6 million, or $0.15 Adjusted Net Income per diluted share*.
• Adjusted EBITDA* of $248.8 million and Upstream Adjusted EBITDA* of $255.2 million.
• Capital expenditures of $194.6 million, inclusive of plugging and abandonment and Carbon Capture & Sequestration ("CCS").
• Net cash provided by operating activities of $65.7 million.
• Adjusted Free Cash Flow* of $8.5 million, excluding the $74.85 million cash received at closing of the partial sale in Talos Energy Mexico 7, S. de R.L. de C.V. ("Talos Mexico") to an affiliate of Grupo Carso.

Talos President and Chief Executive Officer Timothy S. Duncan commented: "During the third quarter, we were pleased with the advancements we made on several aspects of our business. Our operations team is working hard on our Lime Rock and Venice discoveries, which are expected to come online as scheduled in early 2024. We have recently signed an important exploration agreement with Repsol, where we are pooling resources with the goal of developing an inventory of impactful wells that could be tied to existing Talos infrastructure. Additionally, we closed the Talos Mexico transaction with Grupo Carso and are encouraged about growing our partnership and progressing Zama toward FID and first oil. Our CCS portfolio continues to receive strong endorsement from the industry, as we welcomed Equinor as a partner with a 25% interest in Bayou Bend following its purchase from Carbonvert. Lastly, at Harvest Bend, we have several EPA Class VI permit applications in process."

Duncan continued: "Weather-related disruptions in the Gulf of Mexico typically impact our production and drilling operations during the third quarter of the year. This quarter, we experienced production downtime related to sustained loop currents in the Green Canyon area which impacted the floating production unit in our Phoenix Field. However, our oil-weighted assets continued to deliver strong realizations, with a netback margin of close to $45 per barrel of oil equivalent. As that production is restored and new developments are added, we look forward to positive momentum as we close out the year."

RECENT DEVELOPMENTS AND OPERATIONS UPDATE

Drilling Joint Venture: In November 2023, Talos and an affiliate of Repsol entered into a 50/50 partnership to conduct a seismic reprocessing project covering approximately 400,000 gross acres, of which 96,500 acres are under lease by Talos, in the deepwater Green Canyon and Atwater Valley areas of the U.S. Gulf of Mexico. The joint venture aims to identify future subsea tie-back exploitation and exploration prospects in the area using Talos's Neptune facility as the host platform.

Mexico Divestiture: In September 2023, Talos announced the closing of the sale of a 49.9% equity interest in Talos Mexico to an affiliate of Grupo Carso. Talos received $74.85 million in cash at closing, with an additional $49.90 million due upon first production, for an aggregate price of $124.75 million. Talos Mexico, now owned 50.1% by Talos and 49.9% by Grupo Carso, holds a 17.4% unitized interest in the Zama project.

Exploration and Production Updates:

Lime Rock and Venice: Completion, construction, and subsea installation operations for Talos's Lime Rock and Venice discoveries remain on track. The Company anticipates first production by early 2024 from both wells, which will be tied-backed to the Talos-owned and operated Ram Powell facility. Talos owns a 60% working interest in both wells.

Non-Operated Updates: Drilling of the Marmalard well, operated by Murphy Oil Corporation, was recently completed, finding pay sands in both field targets, and will be moving to completion operations in an effort to achieve first production in early 2024. Talos holds an 11.4% working interest. The Odd Job subsea pump project, operated by Kosmos Energy, intended to sustain long-term production from the field, continues to progress and remains on track to be in service by mid-2024. Talos holds a 17.5% working interest.

Downtime Updates: During the third quarter 2023, sustained loop currents requiring intermittent shut-ins of Talos's HP-1 floating production unit and associated infrastructure impacted production by approximately 2.4 MBoe/d for the quarter, or 0.8 MBoe/d for the full year 2023. On Talos's operated Neptune facility, Talos continues to work on optimization efforts, including new chemical treatments and topside modifications, expected to be completed in the fourth quarter 2023. The Claiborne #1 well, operated by Beacon Offshore Energy LLC, was shut-in early in the third quarter 2023, impacting production by approximately 1.2 MBoe/d. The operator is planning a rig intervention for the fourth quarter 2023 to reinstate production in the first quarter of 2024. Talos holds a 25.25% working interest.

TLCS Updates:

Stratigraphic Wells: The Bayou Bend CCS partnership expects to spud the Talos-operated offshore stratigraphic well during the fourth quarter 2023. As previously announced, the partnership also expects to drill a Chevron-operated onshore stratigraphic well in the first half 2024. Talos Low Carbon Solutions ("TLCS") also intends to drill its first stratigraphic wells at its Harvest Bend CCS and Coastal Bend CCS projects in 2024. 

Class VI Permits: TLCS's first EPA Class VI permit application filed in August 2023 for its Harvest Bend CCS project received administrative completeness status in October 2023. This first step of the EPA's permitting process determines that the permit application contains all required information. The next step is technical review. In October 2023, TLCS filed its second Class VI permit application for two additional wells at its Harvest Bend CCS project. TLCS aims to file additional Class VI permit applications in 2024 for its Bayou Bend CCS, Harvest Bend CCS,  and Coastal Bend CCS projects. 

Capital Raise: Talos continues to explore a capital raise in TLCS. The Company will provide further updates when available.

THIRD QUARTER 2023 RESULTS

Key Financial Highlights:

Production

Production was 63.7 MBoe/d for the third quarter 2023 and was 76% oil and 83% liquids.

Lease Operating & General and Administrative Expenses

Total lease operating expenses, inclusive of workover and maintenance and insurance costs for the quarter, were $103.5 million or $17.69/Boe. Upstream General and Administrative expenses* for the quarter, excluding non-cash equity-based compensation, was $20.7 million, or $3.54/Boe. Upstream General and Administrative expenses* is shown inclusive of $1.7 million in transaction-related expenses.

Capital Expenditures

Upstream capital expenditures, including plugging and abandonment and settled decommissioning obligations, totaled $180.5 million for the third quarter 2023.

CCS expenses totaled $5.0 million for the third quarter 2023, which is accounted for in the Company's reported Adjusted EBITDA* figure. CCS capital expenditures totaled $14.1 million for the third quarter 2023, which mainly includes investments in Bayou Bend and funding for general ongoing operations.

Liquidity and Leverage

At September 30, 2023, Talos had approximately $752.9 million of liquidity, with $750.0 million undrawn on its credit facility and approximately $13.6 million in cash, less approximately $10.8 million in outstanding letters of credit.

On September 30, 2023, Talos had $1,096.0 million in total debt. Net Debt* was $1,082.4 million. Net Debt to Pro Forma Last Twelve Months ("LTM") Adjusted EBITDA* was 1.1x.

Footnotes:

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

OPERATIONAL & FINANCIAL GUIDANCE UPDATES

For the fourth quarter 2023, Talos expects average daily production of 66.5 - 68.5 MBoe/d.

For the full year 2023, Talos's average daily production per day is projected toward the low end of the current guidance of 66.0 - 71.0 MBoe/d given the fourth quarter 2023 production guidance update,

Cash operating expenses and general and administrative expenses are expected towards the low end of the current range of $410 - $430 million and $90 - $95 million, respectively.

Overall, capital expenditures, inclusive of plugging and abandonment, settled decommissioning obligations, and CCS Investments are projected to be in line with the current total guidance range. Specifically, Upstream capital expenditures are expected towards the low end of the current guided range of $650 - $675 million and CCS Investments are projected at or below the low end of the current range of $70 - $90 million. Plugging and abandonment and decommissioning spending for the full year 2023 is now estimated to be $120 - $130 million.

Note: 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 November 6, 2023:

CONFERENCE CALL AND WEBCAST INFORMATION 

Talos will host a conference call, which will be broadcast live over the internet, on Tuesday, November 7, 2023 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/default.aspx. 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 14, 2023 and can be accessed by dialing (877) 344-7529 and using access code 4883529.

ABOUT TALOS ENERGY

Talos Energy (NYSE: TALO) is a technically driven, innovative, independent energy company focused on safely and efficiently maximizing long-term value through its Upstream Exploration & Production and Low Carbon Solutions businesses. We currently operate in the United States ("U.S.") and offshore Mexico. We leverage decades of technical and offshore operational expertise to acquire, explore, and produce assets in key geological trends while developing opportunities to reduce industrial emissions through carbon capture and storage projects along the U.S. Gulf Coast. For more information, visit www.talosenergy.com.

INVESTOR RELATIONS CONTACT
[email protected]

CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING STATEMENTS

The information in this communication includes "forward-looking statements" within the meaning of the Securities Act of 1933, as amended (the "Securities Act"), and the Securities Exchange Act of 1934, as amended (the "Exchange Act"). 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. Forward-looking statements are based on management's current expectations and assumptions about future events and are based on currently available information as to the outcome and timing of future events. Forward-looking statements may include statements about: business strategy; reserves and prospective storage resources; drilling prospects, inventories, projects and programs; our ability to replace the reserves through drilling and property acquisitions; financial strategy, liquidity and capital required for our development program and other capital expenditures; realized oil and natural gas prices; timing and amount of future production of oil, natural gas and NGLs; our hedging strategy and results; future drilling and CCS plans; availability of pipeline connections on economic terms; competition, government regulations and legislative and political developments; the timing of, and our ability to obtain, permits and governmental approvals; pending legal, governmental or environmental matters; our marketing of our products; our integration of acquisitions, including EnVen, and future performance of the combined company; future leasehold or business acquisitions on desired terms; costs of developing properties; general economic conditions, including the impact of continued inflation and associated changes in monetary policy; political and economic conditions and events in foreign oil, natural gas and NGL producing countries, including embargoes, hostilities and acts of terrorism or sabotage; credit markets; estimates of future income taxes; our estimates and forecasts of the timing, number, profitability and other results of wells we expect to drill and other exploration activities; the success of our CCS opportunities, including as a result of the associated permitting process, our access to capital to finance such opportunities, the timing and amount of revenues therefrom and potential future customers; the uncertainty inherent in estimating subsurface storage resources and utilization capacity in our CCS projects; our ongoing strategy with respect to our Zama asset; uncertainty regarding our future operating results and our future revenues and expenses; impact of new accounting pronouncements on earnings in future periods; and plans, objectives, expectations and intentions contained in this communication that are not historical.

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. Examples of such risks include, but are not limited to, commodity price volatility; global demand for oil and natural gas; the ability or willingness of OPEC and other state-controlled oil companies to set and maintain oil production levels and the impact of any such actions; the lack of a resolution to the war in Ukraine and increasing hostilities in the Middle East, and their impact on certain commodity markets; lack of transportation and storage capacity as a result of oversupply, government and regulations; lack of availability of drilling and production equipment and services; adverse weather events, including tropical storms, hurricanes, winter storms and loop currents; cybersecurity threats; sustained inflation and the impact of governmental policy in response thereto; 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; risks associated with permitting for—and access to capital to finance—our CCS opportunities; technological innovations and scientific developments; physical and transition risks associated with climate change; increased attention to ESG and sustainability-related matters; risks that the Company may face regarding potentially conflicting anti-ESG initiatives from certain U.S. state or other governments; 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, 2022 and in Part II, Item 1A. "Risk Factors" of Talos Energy Inc.'s Quarterly Report on Form 10-Q for the period ended March 31, 2023 , each as filed with the SEC.

Reserve engineering is a process of estimating underground accumulations of oil, natural gas and NGLs that cannot be measured in an exact way. The accuracy of any reserve estimate depends on the quality of available data, the interpretation of such data and price and cost assumptions made by reserve engineers. In addition, the results of drilling, testing and production activities may justify upward or downward revisions of estimates that were made previously. If significant, such revisions would change the schedule of any further production and development drilling. Accordingly, reserve estimates may differ significantly from the quantities of oil, natural gas and NGLs that are ultimately recovered.

Should any risks or uncertainties 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 section, to reflect events or circumstances after the date of this communication.

SUPPLEMENTAL NON-GAAP INFORMATION 

Certain financial information included in our financial results are not measures of financial performance recognized by accounting principles generally accepted in the United States, or GAAP. These non-GAAP financial measures may not be viewed as a substitute for results determined in accordance with GAAP and are not necessarily comparable to non-GAAP measures which may be reported by other companies.

Reconciliation of General and Administrative Expenses to Upstream General and Administrative Expenses

We believe the presentation of Upstream General and Administrative Expenses excluding non-cash equity-based compensation provides management and investors with (i) important supplemental indicators of the operational performance of our core upstream business, (ii) additional criteria for evaluating our performance relative to our peers and (iii) supplemental information to investors about certain material non-cash and/or other items that may not continue at the same level in the future. Upstream General & Administrative Expenses has limitations as an analytical tool and should not be considered in isolation or as substitutes for analysis of our results as reported under GAAP or as alternatives to general and administrative expenses, net income (loss), operating income (loss) or any other measure of financial performance presented in accordance with GAAP. We define these as the following:

General and Administrative Expenses. General and administrative expenses consists of costs incurred for overhead, including payroll and benefits for our corporate staff, costs of maintaining our headquarters, costs of managing our production operations, bad debt expense, equity-based compensation expense, audit and other fees for professional services and legal compliance. A portion of these expenses are allocated based on the percentage of employees dedicated to each operating segment.

Upstream General and Administrative Expenses. Upstream general and administrative expenses consist of general and administrative expenses for the Upstream Segment.

Reconciliation of Net Income (Loss) to EBITDA, Adjusted EBITDA and Upstream Adjusted EBITDA

"EBITDA," "Adjusted EBITDA" and "Upstream Adjusted EBITDA" provide management and investors with (i) additional information to evaluate, with certain adjustments, items required or permitted in calculating covenant compliance under our debt agreements, (ii) important supplemental indicators of the operational performance of our business, (iii) additional criteria for evaluating our performance relative to our peers and (iv) supplemental information to investors about certain material non-cash and/or other items that may not continue at the same level in the future. EBITDA, Adjusted EBITDA, and Upstream Adjusted EBITDA have limitations as analytical tools and should not be considered in isolation or as substitutes for analysis of our results as reported under GAAP or as alternatives to net income (loss), operating income (loss) or any other measure of financial performance presented in accordance with GAAP. We define these as the following:

EBITDA. Net income (loss) plus interest expense; income tax expense (benefit); depreciation, depletion and amortization; and accretion expense.

Adjusted EBITDA. EBITDA plus non-cash write-down of oil and natural gas properties, transaction and other (income) expenses, decommissioning obligations, derivative fair value (gain) loss, net cash receipts (payments) on settled derivatives, (gain) loss on debt extinguishment, non-cash write-down of other well equipment inventory and non-cash equity-based compensation expense.

Adjusted EBITDA excluding hedges. We have historically provided as a supplement to—rather than in lieu of—Adjusted EBITDA including hedges, provides useful information regarding our results of operations and profitability by illustrating the operating results of our oil and natural gas properties without the benefit or detriment, as applicable, of our financial oil and natural gas hedges. By excluding our oil and natural gas hedges, we are able to convey actual operating results using realized market prices during the period, thereby providing analysts and investors with additional information they can use to evaluate the impacts of our hedging strategies over time.

Upstream Adjusted EBITDA. Adjusted EBITDA plus equity method investment loss, general and administrative expense, other operating expenses (income), other income, and non-cash equity-based compensation expense attributable to CCS and unallocated corporate costs.

We also present Adjusted EBITDA excluding hedges and Upstream Adjusted EBITDA excluding hedges as a percentage of revenue and on a per barrel of oil equivalent basis, respectively, to further analyze our business, which are outlined below:

Adjusted EBITDA Margin and Upstream Adjusted EBITDA Margin. Adjusted EBITDA divided by Revenue, as a percentage. It is also defined as Upstream Adjusted EBITDA divided by the total production volume, expressed in Boe, in the period, and described as dollar per Boe. We believe the presentation of Adjusted EBITDA margin is important to provide management and investors with information about how much we retain in Adjusted EBITDA terms as compared to the revenue we generate and how much per barrel of Upstream Adjusted EBITDA we generate after accounting for certain operational and corporate costs.

The following tables present a reconciliation of the GAAP financial measure of Net Income (loss) to EBITDA, Adjusted EBITDA, Adjusted EBITDA excluding hedges, Adjusted EBITDA Margin and Adjusted EBITDA Margin excluding hedges, and Upstream Adjusted EBITDA, Upstream Adjusted EBITDA excluding hedges, Upstream Adjusted EBITDA Margin, and Upstream Adjusted EBITDA Margin excluding hedges for each of the periods indicated (in thousands, except for Boe, $/Boe and percentage data):

Reconciliation of Adjusted EBITDA to Adjusted Free Cash Flow and Reconciliation of Net Cash Provided by Operating Activities to Adjusted Free Cash Flow

"Adjusted Free Cash Flow" before changes in working capital provides management and investors with (i) important supplemental indicators of the operational performance of our business, (ii) additional criteria for evaluating our performance relative to our peers and (iii) supplemental information to investors about certain material non-cash and/or other items that may not continue at the same level in the future. Adjusted Free Cash Flow has limitations as an analytical tool and should not be considered in isolation or as substitutes for analysis of our results as reported under GAAP or as alternatives to net income (loss), operating income (loss) or any other measure of financial performance presented in accordance with GAAP. We define these as the following:

Capital Expenditures and Plugging & Abandonment. Actual capital expenditures and plugging & abandonment recognized in the quarter, inclusive of accruals.

Interest Expense. Actual interest expense per the income statement.

Talos did not pay any cash income taxes in the period, therefore cash income taxes have no impact to the reported Adjusted Free Cash Flow before changes in working capital number.

Reconciliation of Net Income to Adjusted Net Income (Loss) and Adjusted Earnings per Share

"Adjusted Net Income (Loss)" and "Adjusted Earnings per Share" are to provide management and investors with (i) important supplemental indicators of the operational performance of our business, (ii) additional criteria for evaluating our performance relative to our peers and (iii) supplemental information to investors about certain material non-cash and/or other items that may not continue at the same level in the future. Adjusted Net Income (Loss) and Adjusted Earnings per Share have limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP or as an alternative to net income (loss), operating income (loss), earnings per share or any other measure of financial performance presented in accordance with GAAP.

Adjusted Net Income (Loss). Net income (loss) plus accretion expense, transaction related costs, derivative fair value (gain) loss, net cash receipts (payments) on settled derivative instruments and non-cash equity-based compensation expense.

Adjusted Earnings per Share. Adjusted Net Income (Loss) divided by the number of common shares.

Reconciliation of Total Debt to Net Debt and Net Debt to LTM Adjusted EBITDA

We believe the presentation of Net Debt, LTM Adjusted EBITDA, and Net Debt to LTM Adjusted EBITDA is important to provide management and investors with additional important information to evaluate our business. These measures are widely used by investors and ratings agencies in the valuation, comparison, rating and investment recommendations of companies.

Net Debt. Total Debt principal minus cash and cash equivalents.

Net Debt to LTM Adjusted EBITDA. Net Debt divided by the LTM Adjusted EBITDA.

SOURCE Talos Energy

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