Talos Energy Conference Call, Webcast

(Talos Energy Inc. 6.Aug.2018) – Talos Energy Inc. will host a conference call, which will also be broadcast live over the internet, on Tuesday, August 7, 2018 at 10:00 am Eastern Time (9:00am Central Time).

Listeners can access the conference call live over the internet through a webcast link on the Company’s website at: https://www.talosenergy.com/investors. Alternatively, the conference call can be accessed by dialing 1-877-870-4263 (U.S. toll-free), 1-855-669-9657 (Canada toll-free) or 1-412-317-0790 (international). Please dial in approximately 10 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 call through Tuesday, August 14, 2018 and can be accessed by dialing 1-877-344-7529 and using access code 10122717.

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Talos Energy Announces 2Q:18 Financial, Operational Results

(Talos Energy Inc., 6.Aug.2018) – Talos Energy Inc. announced its financial and operational results for the second quarter ended June 30, 2018, and reaffirmed the previously released pro forma full year 2018 production, expenses and capital expenditure guidance.

Combination with Stone Energy Corporation

On May 10, 2018, Talos Energy LLC and Stone Energy Corporation completed a strategic transaction pursuant to which both became wholly-owned subsidiaries of the Company (“Stone Combination”). Talos Energy LLC was considered the accounting acquirer in the Stone Combination under accounting principles generally accepted in the United States of America (“GAAP”). Accordingly, the Company’s historical financial and operating data, which cover periods prior to May 10, 2018, reflect only the assets, liabilities and operations of Talos Energy LLC (as the Company’s predecessor through May 10, 2018), and do not reflect the assets, liabilities and operations of Stone prior to May 10, 2018.

The pro forma financial information set forth in this press release gives pro forma effect to the Stone Combination as if it occurred on January 1, 2018. Stone’s acquisition of the Ram Powell deepwater assets on May 1, 2018 and Ram Powell’s respective financial results are included in the Company’s pro forma results from May 1, 2018 onwards. Unless expressly stated as pro forma, the financial and operating data in this press release is presented in accordance with GAAP.

President and Chief Executive Officer Timothy S. Duncan commented, “It was a historical quarter for Talos, as we closed our transformational acquisition of Stone and the Ram Powell deepwater asset, both in May 2018. These assets will also provide significant scale and diversity to our base business, which we expect will allow us to continue to maintain positive free cash flow after investing in our capital program and servicing our debt. Production from the acquired assets will be more impactful in the second half of 2018, since Ram Powell was only partially included in the second quarter. The commencement of production from the Mt. Providence well in July, at the high end of our production rate expectations, will also positively impact the remainder of the year as compared to the first six months.

“Our growth capital is focused on two main goals, which are investing in projects that utilize our existing infrastructure to add high margin barrels with superior pricing, and continuing to pursue moderate risk but high impact exploration efforts, following the success of our significant Zama discovery in offshore Mexico. We continue to stay on schedule on both fronts.

“We also continue to find synergies related to the combination with Stone and our integration team is focused on realizing these savings by year end. The strength of the combined business will deepen our inventory portfolio and will also put us in a position to pursue accretive business development opportunities in the core areas where we currently operate.”

Reaffirmation of 2018 pro forma Full-Year Financial and Operating guidance

The Company reaffirms the previously released 2018 pro forma full-year financial and operating guidance. This guidance is subject to all cautionary statements and limitations described under “Cautionary Statement About Forward-Looking Statements” below:

Recent Developments and Operations Update

U.S. Gulf of Mexico

— On July 10, 2018, our Mt. Providence well began producing 60 days ahead of the originally scheduled completion date of early September. The Mt. Providence well was successfully drilled in January 2018 by Stone. We completed the well and connected it to the 100% Talos owned Pompano platform in the Company’s Mississippi Canyon Complex within six months of concluding drilling operations. The well is currently producing 3,850 Boe per day (“Boe/d”) gross (3,370 Boe/d net).

— We drilled the first two development wells in our 2018 Shelf drilling program – Ship Shoal 224 (“SS224”) E21ST and Ewing Banks 306 (“EW306”) A20 – during the first half of 2018:

– SS224 E21ST is currently producing at approximately 750 Boe/d gross (610 Boe/d net)

– The EW306 A20 well encountered approximately 120 feet of pay across 5 sands. The A20 well successfully targeted three previously defined field sands and discovered two deeper reservoirs. The deeper discovery will be completed first with an expected initial production rate of approximately 1,250 – 1,500 Boe/d gross (1,000 – 1,200 Boe/d net) starting in the third quarter of 2018. Talos owns 100% working interest (“WI”) in EW306

— Our asset management activities, typically consisting of smaller recompletions and well work, added approximately 2,000 Boe/d in the second quarter and year to date have added approximately 2,600 Boe/d, using the 30 day average of their first month of production. These opportunities represent low conversion costs, quick payouts, lower unit cost per barrel and allow us to better manage the timing of the plugging obligations of our more mature assets.

Mexico

— In April of 2018, Talos submitted the appraisal plan relating to Block 7 for the Zama discovery to the Mexican industry regulator, the National Hydrocarbons Commission (“CNH”). This appraisal plan involves, at a minimum, the drilling of three boreholes, a Drill Stem Test (DST) and extensive coring and reservoir fluid sampling. Talos has been in consultation with the CNH and anticipates timely approval of the appraisal plan. The first well in the appraisal program is planned to spud in the fourth quarter of 2018 utilizing the semi-submersible rig Ensco 8503, which is the same rig that drilled the Zama #1 discovery well in 2017. We expect the appraisal program to last through mid-year 2019.

— In July 2018, Talos requested approval from the Mexico Ministry of Energy (“SENER”) to enter into a Preliminary Unitization Agreement (“PUA”) with Pemex for a potential unit involving the Zama field in Block 7 and the Pemex grant to the east of Block 7. The PUA serves primarily to create a clear path to signing the governing Unit Agreement and Unit Operating Agreement for the Zama discovery. This will allow for a timely Final Investment Decision (“FID”) and commencement of development activities, with a goal of first production from Zama in 2022.

— In addition to Zama, the appraisal campaign proposes to deepen one wellbore to test the Marte prospect in Block 7.

— We are also focusing our efforts on executing our first exploration project on Block 2, which is located in approximately 100 feet of water. The first well will test the Bacab prospect, which is expected to be drilled in the second quarter of 2019.

SECOND QUARTER 2018 RESULTS

Production, Realized Prices and Revenue

Production: Production for the second quarter of 2018 was 3.9 million Boe compared to 2.6 million Boe for the second quarter of 2017. Second quarter of 2018 production was comprised of 2.7 million barrels of oil, 0.3 million barrels of NGLs and 5.9 billion cubic feet (“Bcf”) of natural gas. Oil and NGLs production accounted for 75% of the total production for the second quarter of 2018, as compared to 73% of the same period in 2017.

On a pro forma basis, production for the second quarter of 2018 was 4.7 million Boe. Second quarter of 2018 pro forma production was comprised of 3.2 million barrels of oil, 0.3 million barrels of NGLs and 7.0 Bcf of natural gas. Oil and NGLs production accounted for 75% of the total pro forma production for the second quarter of 2018.

Production was negatively affected by two unplanned third-party downtime events in the second quarter. Helix required an eight-day downtime in the Helix Producer 1 (“HP-1”), effectively shutting-in production from the Phoenix and Tornado fields by the same number of days. In addition, downtime in third-party pipelines further affected the quarter by curtailing production from several shallow water fields. These brief interruptions were limited to the second quarter and are not expected to have an impact in our reaffirmed annual production guidance.

The table below provides additional detail of our oil, natural gas and NGLs production volumes and sales prices per unit for the three months and six months ended on June 30, 2018:

Revenue: Total revenue for the three months ended June 30, 2018 was $203.9 million compared to $95.4 million for the three months ended June 30, 2017, an increase of approximately $108.5 million, or 114%.

Oil revenue increased approximately $101.4 million, or 129%, during the three months ended June 30, 2018. This increase was primarily due to an increase of $21.98 per Bbl in our realized oil sales price and a 10.3 MBbl per day increase in oil production volumes, 9.6 MBbl per day of which was attributable to the Stone Combination.

Natural gas revenue increased approximately $3.6 million, or 28%, during the three months ended June 30, 2018. This increase was primarily due to a 19.1 MMcf per day increase in gas volumes, 22.6 MMcf per day of which was attributable to the Stone Combination, partially offset by a $0.29 per Mcf decrease in our realized gas sales price.

NGL revenue increased approximately $3.9 million, or 112%, during the three months ended June 30, 2018. This increase was due to an increase of $6.03 per Bbl in our realized NGL sales price and a 1.2 MBbl per day increase in NGL volumes, all of which were attributable to the Stone Combination.

Expenses

Lease operating expense: Total lease operating expense for three months ended June 30, 2018 was $38.9 million compared to $31.9 million for the three months ended June 30, 2017, an increase of approximately $6.9 million, or 22%. This increase was primarily related to $9.9 million of lease operating expense in connection with the Stone Combination, partially offset by a $2.9 million decrease due to additional reimbursements related to our production handling agreements primarily in the Phoenix Field.

Depreciation, depletion and amortization: Depreciation, depletion and amortization expense for the three months ended June 30, 2018 was $67.7 million compared to $36.2 million for the three months ended June 30, 2017, an increase of approximately $31.6 million, or 87%. This increase is primarily due to a $3.33 per Boe, or 24%, increase in the depletion rate on our proved oil and natural gas properties during the three months ended June 30, 2018. Depletion on a per Boe basis increased primarily due to an increase in proved properties related to the Stone Combination and higher estimated future development costs related to proved undeveloped reserves in the Phoenix Field.

General and administrative expense: General and administrative expense for the three months ended June 30, 2018 was $30.9 million compared to $7.5 million for the three months ended June 30, 2017, an increase of approximately $23.4 million, or 313%. This increase was primarily attributable to $18.3 million in transaction related costs related to the Stone Combination and additional general and administrative expenses as a result of the combined company. In connection with the Stone Combination, we expect to capture significant synergies, and Talos is focused on realizing these savings by year-end 2018.

Other operating expense: Other operating expense for the three months ended June 30, 2018 was $27.2 million compared to $13.5 million for the three months ended June 30, 2017, an increase of approximately $13.7 million, or 101%. This increase was primarily related to an increase of $4.5 million and $4.1 million in workover and maintenance expense and accretion expense, respectively, in connection with the Stone Combination. This increase also relates to a $5.0 million increase in repairs and maintenance during the three months ended June 30, 2018 primarily related to $1.3 million in repairs on SMI 130 and inspection and reconnection support in the Phoenix Field of $1.2 million.

Price risk management activities: Price risk management activities for the three months ended June 30, 2018 resulted in a $91.2 million expense compared to income of $39.0 million for the three months ended June 30, 2017. The change of approximately $130.2 million was attributable to an $87.4 million decrease in the fair value of our open derivative contracts and a $42.8 million decrease in cash settlement gains for the three months ended June 30, 2018.

Other financial metrics

Net Income (Loss) and Adjusted EBITDA: Net Income (Loss) in the second quarter of 2018 was ($75) million and in the first six months of the year ($98) million. The loss numbers are primarily due to non-cash mark-to-market expenses associated with unrealized commodity hedges. Pro forma Net Income (Loss) in the second quarter of 2018 was ($46) million and in the first six months of the year ($51) million. The pro forma loss numbers are primarily due to non-cash mark-to-market expenses associated with unrealized commodity hedges.

Adjusted EBITDA for the three months ended on June 30, 2018 was $101 million and Adjusted EBITDA margin was 50%, or $25.89 per Boe. For the first half of 2018, Adjusted EBITDA was $187 million, with a margin of 53% or $27.37 per Boe. Excluding the effect of hedges, the margins would have been 66% or $34.48 per Boe for the second quarter and 69% or $35.28 for the first six months of the year.

Pro forma Adjusted EBITDA for the three months ended June 30, 2018 was $128 million and pro forma Adjusted EBITDA margin was 52%, or $27.18 per Boe. For the first half of 2018, pro forma Adjusted EBITDA was $269 million, with a margin of 57% or $29.30 per Boe. Excluding the effect of hedges, the pro forma margins would have been 67% or $34.79 per Boe for the second quarter and 70% or $35.79 per Boe for the first six months of the year.

Financial position: As of June 30, 2018, the Company had approximately $648 million of long-term debt, excluding deferred financing costs and original issue discount. The balance includes $397 million of second lien notes, $240 million of borrowings under the bank credit facility and an $11 million building loan. In addition to the Company’s long-term debt, as of June 30, 2018, Talos had a capital lease obligation with a balance of approximately $100 million.

Liquidity position: As of June 30, 2018, the Company had a liquidity position of approximately $433 million, which included $354 million available under the $600 million bank credit facility and approximately $79 million of cash.

Leverage and credit metrics: The pro forma annualized Adjusted EBITDA for the six months ended on June 30, 2018 was $538 million. As of June 30, 2018, the Company’s total debt was $748 million and net debt was $669 million, both including capital lease. Therefore, the Net Debt to annualized pro forma Adjusted EBITDA ratio of Talos was 1.2x.

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How Venezuela Gets Plundered

Refinery in Venezuela. Source: DW

(DW.com, Andreas Knobloch, 6.Aug.2018) – A money-laundering scandal involving Venezuela’s state oil company PDVSA could turn into a problem for a Swiss bank. A German banker recently affiliated with the lender has been arrested in Miami.

When it comes to the causes behind the severe economic and supply crisis in oil-rich Venezuela, government policies along with corruption and capital outflows worth billions of dollars play an important role.

In recent days, the US Department of Justice has opened up publicly about a huge money-laundering scandal surrounding Venezuela’s state oil company Petroleos de Venezuela (PDVSA).

A group of Venezuelan ex-officials with the assistance of foreign businesses are reported to have laundered $1.2 billion (€1 billion) of PDVSA funds in Florida. The case is a prime example of how the Venezuelan state is being methodically plundered.

The international “money-laundering plot” began about four years ago, according to American authorities. Through bribery and fraud, around $600 million in PDVSA funds were siphoned off. Later that estimate was doubled — the millions were systematically taken out of the country and laundered through property purchases in Miami with the help of European and US banks.

Hydrocarbon field in Venezuela. Source: DW

100 million for 10 million

The whole scam was only possible because of the contradictory and confusing exchange rate regime of Venezuela. For example, the state allows certain officials to exchange dollars at a preferential rate set by the government, above that amount there is a fixed exchange rate and a black market rate.

The US investigators point out that the difference between the black market and the official rate in 2014 was around 10 to 1. “Essentially, in two transactions, someone could buy $100 million for $10 million.”

At the heart of the allegations is Derwick Associates, a Venezuelan company specializing in the construction of power plants. Venezuelan Attorney General Tarek William Saab mentioned Derwick Associates last year in connection with corruption investigations into contracting in the Orinoco Delta.

Two investment firms, Global Security Advisors and Global Strategic Investments, are accused of using fictional investment funds and real estate purchases in Miami — the final phase in the laundering scam.

A German in Panama

The investigation began two years ago, when one of the participants in the money-laundering plan made himself available to the US authorities as an informant. There were two arrests in the past week related to the case; arrest warrants were issued by US authorities for a further four Venezuelans, a man from Portugal and one from Uruguay.

Some of these are former Venezuelan government officials or employees of PDVSA. They are referred to by the US judiciary as “Bolibourgeoisie,” members of the Venezuelan elite who have enriched themselves through political or business ties to Chavism, which refers to the political ideology of former Venezuelan President Hugo Chavez, who died in 2013 and combined elements of socialism, feminism and patriotism.

On July 24, the US authorities in Miami arrested Matthias Krull, who formerly held a leadership position at Swiss private bank Julius Bär in Panama. He is accused of being involved in the case. Sabine Jaenecke, a spokeswoman for Julius Bär, told DW that they had taken note of the allegations against him. “Mr. Krull no longer works for Julius Bär. We are fully cooperating with the authorities, but cannot comment on ongoing investigations.”

Born in Germany, 44-year-old Krull, previously worked at Credit Suisse and UBS and lived for a long time in Caracas, where he had excellent relationships with the very highest levels, including many politically exposed persons or “PEPs.”

Not the first scandal for Julius Bär

Later, for security reasons Krull moved to Panama but he was still able to continue serving Venezuelan clients and ensured high cash flows at Julius Bär. But recently, Krull left the bank and was due to move to Gonet & Cie’s branch in the Bahamas later this year.

According to Pascal Pupet, head of human resources and corporate communications for the Geneva-based private bank, “given the facts that are a priori proven, this is no longer relevant,” adding in a statement that Gonet has nothing to do with the PDVSA case.

But at Julius Bär, the Swiss Financial Market Supervisory Authority, Finma, opened an enforcement probe earlier this year. Such a procedure is opened in case of abnormalities or indications of breaches of supervisory laws. In regard to the PDVSA affair, the bank is accused of not exercising due diligence while taking on and supervising clients.

The Zurich-based bank is now linked to several corruption cases and possible money-laundering matters — from football association FIFA to Brazilian companies Petrobras and Odebrecht, and now PDVSA. If the allegations against Krull are confirmed, it could be a serious problem for the Swiss financial institution.

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The Weirdest Oil Lawsuit Of 2018

(OilPrice.com, Viktor Katona, 6.Aug.2018) – Rosneft has been rocking the Russian oil sector for quite some time already – first it acquired several domestic assets, in some cases bordering on hostile takeover, then it took on a couple of international commitments in Iraqi Kurdistan and Venezuela and secured hefty tax concessions. This has led to a sense of satiation, fortified by CEO Igor Sechin opining recently that the oil giant will focus on organic growth from now on. In a somewhat dubious manifestation of Rosneft’s new policy, it is now suing its partners in the Sakhalin-I project for an unprecedented 89 billion roubles ($1.4 billion). The reason, coded with great deliberation in legal gobbledygook, seems remarkably humdrum at first sight, yet there is more to it.

Rosneft claims that the Sakhalin-I shareholders have gained 81.7 billion roubles by means of unjust enrichment, whilst another 7.3 billion roubles are to be paid back as interest gained having used third party funds between 2015 and 2018. The basis of the unjust enrichment claim is Rosneft’s allegation that the exploitation of Sakhalin-I has led to oil crossing over from its Northern Chayvo field to the consortium’s Chayvo deposits. Oil migration is a regular feature of any upstream specialist’s life and so far there were only few examples of taking similar issues to court, especially to such a noteworthy sum required. Further complicating matters, two Rosneft subsidiaries, Rosneft-Astra and Sakhalinmorneftegaz-Shelf, are also present in the Sakhalin-I shareholder structure (20 percent) and Rosneft is claiming money from them, too (17.5 billion roubles in total).

Before we start looking at the political underpinning of Rosneft’s claim, it would be expedient to compare the two projects as they are incomparable in size, importance and scale. Sakhalin-I consists of three oil fields that were deemed commercially attractive in 2000 – Chayvo, Odoptu and Arkutun-Dagi – production at which has started in 2005. The three field’s reserves boast an aggregate of 310 million tons of oil and 485 BCm of natural gas (17 TCf), making it Russia’s biggest project in the Pacific Ocean. By comparison, the Northern Tip of the Chayvo field (also called Chayvo North Dome) contains a “mere” 15 million tons of oil and 13 BCm of gas. It also started production significantly later than Sakhalin-I, with the first producing well of the presumed five having been drilled in September 2014.

What the two projects do have in common, however, is their relatively swift peaking out – Sakhalin-I peaked in 2007, roughly one and a half year after production started (11.2 mtpa or 225 kbpd) and has failed to regain that level ever since, even though two additional fields were brought online in 2010 and 2015 – Odoptu and Arkutun-Dagi, respectively. Currently the Sakhalin-I oil output stands at So did the Northern Tip of the Chayvo field – having reached a 50 kbpd peak in 2016, it fell by some 60 percent in the past two years since. From Rosneft’s standpoint, this is mostly due to oil migrating from the northern dome to the southern and central parts of the field.

With the abovementioned facts in mind, one gets a clear picture of why Sakhalin-I is more important from a federal point of view – moreover, interestingly enough, it is the last project on Russian soil to be operated by a foreign company (ExxonMobil, holding the largest stake of 30 percent). Rosneft is demanding payment of 26.7 billion roubles from both ExxonMobil and the Japanese consortium SODECO (consisting of Marubeni, Japan Petroleum Exploration, ITOCHU, INPEX and JOGMEC), whilst the Indian ONGC Videsh should pay 17.8 billion roubles and its subsidiaries 17.5 billion roubles. The amounts in question are indubitably far-fetched – even though oil migration has been an issue for Rosneft for several years already, the required sum is equivalent to 18-19 million barrels of oil under current circumstances, almost a quarter of Sakhalin-I’s total annual production and 17-18 percent of Northern Chayvo’s reserves.

Herein lies the main tenet of the claim – it is less to establish truth and compensate for real losses, rather to exert pressure on shareholders. Rosneft’s ultimate goal is unclear as the Russian state has so far refrained from any sanctions against oil majors operating in the country, be it in an operator or non-operator status, and any deterioration would be deemed inopportune now that the post-World Cup period has brought in a semblance of a thaw. It is clear, however, that the once very powerful Rosneft-Exxon Mobil link is getting weaker following the departure of Rex Tillerson (whose good personal relationship with Igor Sechin helped to forge effective deals) – even though Exxon’s recent abandonment of upstream ventures with Rosneft did not allegedly close the door for any future cooperation, the contours of anything similar happening in the future are increasingly dim.

More than ten years ago, Gazprom has managed to push out then-operator Shell out of the Sakhalin-II venture, using environmental violations as a pretext. Although environmental breaches have been brought up once again this month – a significant herring die off off the Sakhalin coast aroused suspicion that it might have been caused by oil production – it is highly unlikely that Rosneft would follow the same path. Rumours are circulating that the state-owned oil giant is seeking an out-of-court settlement and does not want to take the issue all the way through the Paris arbitration, from the point of view of placating fears about another takeover it would be politic to state that Rosneft does not intend to reshuffle the ownership structure. Yet so far, Rosneft has been highly reluctant to show its cards.

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Petrobras Approves Pmt of Interest on Capital

(Petrobras, 6.Aug.2018) – Petrobras reports that its Board of Directors approved in a meeting held yesterday the distribution of early remuneration to shareholders as Interest on Capital (IOC), as defined in art. 9, sole paragraph of its bylaws and in article 9 of Law 9.249/95.

The value to be distributed, totaling R$652.2 million, corresponds to a gross amount of R$0.05 per share, to be paid on August 23, 2018 proportional to each shareholder’s stake and to be provisioned in the 3Q 2018 financial statements, based on shareholding positions as of August 13, 2018.

Starting from the first business day after the cut-off date (August 14, 2018), shares will be traded ex-interest on capital at B3 and other stock exchanges where the company is listed.

This IOC advance will be imputed to the mandatory minimum dividend (article 53, paragraph 4, of the Bylaws) including for the purpose of payment of priority minimum dividends of preferred shares.

The amount of R$ 0.05 per common share or preferred share related to the JCP will be subject to income tax, by applying the applicable tax rate. Income tax withholdings will not be applied to shareholders whose registered data proves to be immune or exempt, or shareholders domiciled in countries or jurisdictions for which the law establishes different treatment.

The Shareholder Compensation Policy can be accessed on the Internet at the company’s website. 

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Ecopetrol Reports Resignation of María Fernanda Suárez

(Energy Analytics Institute, Piero Stewart, 6.Aug.2018) – María Fernanda Suárez has resigned from Ecopetrol.

The state oil company announced in an official statement that the resignation was due to her appointment as the Republic of Colombia’s Minister of Mines and Energy, effective August 6, 2018.

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