(Talos, 4.May.2022) — Talos Energy Inc. (NYSE: TALO) announced its operational and financial results for the first quarter of 2022 and the increase of its borrowing base under the company’s reserves-based lending (“RBL”) credit facility as part of its semi-annual redetermination process.
Key Highlights:
- Production of 63.2 thousand barrels of oil equivalent per day (“MBoe/d”) (67% oil, 75% liquids), including the impact of approximately 4.7 MBoe/d resulting from approximately 40 cumulative shut-in days of third-party midstream downtime.
- Revenue of $413.6mn, driven by realized prices (excluding hedges) of $93.42 per barrel for oil, $36.54 per barrel for natural gas liquids (“NGLs”) and $4.97 per thousand cubic feet (“Mcf”) for natural gas.
- Net Loss of $66.4mn, or $0.81 Net Loss per diluted share, and Adjusted Net Income(1) of $64.0mn, or $0.77 Adjusted Net Income per diluted share.
- Adjusted EBITDA(1) of $208.2mn, or $36.61 Adjusted EBITDA per Boe; Adjusted EBITDA excluding hedges of $335.3mn, or $58.96 per Boe.
- Capital Expenditures of $84.7mn, inclusive of plugging and abandonment.
- Free Cash Flow(1) (before changes in working capital) of $92.0 million.
- Continued rapid debt reduction trend to 1.4x leverage and liquidity of approximately $516.1 million at quarter end.
- Extended deepwater rig contract from three to six projects for the company’s subsea tie-back drilling program, which is expected to begin in the third quarter of 2022 and extend into the 2023 capital program.
- Expanded the Bayou Bend CCS joint venture with Carbonvert Inc. by entering into a memorandum of understanding with Chevron U.S.A., Inc. in May.
- Increased RBL borrowing base from $950.0mn to $1,100mn and commitments from $791.3mn to $806.3mn as part of successful semi-annual redetermination process.
President and Chief Executive Officer Timothy S. Duncan commented: “We continue to believe Talos is one of the most compelling investment opportunities in the energy sector. In the first quarter of 2022 we generated over $92 million of free cash flow before working capital, despite unplanned third-party downtime and hedge losses. We continued to outperform our plan in the Upstream business while also significantly expanding our Carbon Capture venture. This strong performance contributed to our broader debt reduction priority, which has now reduced net debt by over $160 million in the last four quarters, allowing us to advance toward our de-leveraging goal of around 1.0x by year end 2022, if not sooner.”
Duncan continued: “On the operations front, we expect activity for our capital investment program to increase in late summer as we initiate our operated deepwater rig program. During the quarter we extended the contract for that rig into 2023, adding three additional operations to secure availability for our 2023 open water campaign, which reflects our strong conviction in our inventory of subsea tieback opportunities. We will execute a series of projects that we believe can add material reserves and production in 2023 and 2024. It was also a busy quarter for our growing CCS business. Not only did we move into two new markets in the Mississippi River and Corpus Christi industrial corridors, we also partnered with critical midstream infrastructure providers in each area to provide what we believe to be the best end-to-end CO2 transportation and storage solution for future customers. Separately, we are excited to expand our Bayou Bend CCS project with the addition of Chevron to the partnership, which adds a significant partner committed to low-carbon investments and increases the potential impact this CCS hub can have. We are proud of our accomplishments in the quarter and hope to maintain the positive momentum for the remainder of 2022.”
RECENT DEVELOPMENTS AND OPERATIONS UPDATE
Pompano Platform Rig Program: Activities related to the platform rig program at the Pompano field provided approximately 2.4 MBoe/d of incremental average production in March following first oil during the quarter. Talos spud the Seville exploitation well in late March 2022 and expects first production in the third quarter of 2022 if successful.
Operated Deepwater Rig Program: In the first quarter, Talos extended its contract for the Seadrill Sevan Louisiana by adding three additional consecutive rig operations, currently scheduled for early 2023. The Company expects the program to execute a total of six straight operated projects beginning in the second half of 2022 through the first half of 2023. The addition of the operations provides Talos with significant operational synergies that could reduce the total number of days required to drill and complete these projects if successful. Delivery of the rig is scheduled for early third quarter of 2022. These projects include three high-impact subsea tie-back projects with pre-drill resource estimates of 10-30 gross million barrels of oil equivalent gross per project.
Non-Operated Deepwater Rig Program: The company separately expects to participate in three non-operated deepwater wells, all subsea tiebacks to existing infrastructure, with working interest ranges between 10-25%. Among these projects is the appraisal of the 2021 Puma West discovery, which is set to spud in the second half of 2022.
Carbon Capture (Talos Low Carbon Solutions): Talos has recently made numerous key announcements related to its rapidly emerging CCS business:
- River Bend CCS: In February, Talos announced the River Bend CCS site lease and associated memorandum of understanding with EnLink Midstream. The agreements encompass approximately 26,000 acres with a total estimated storage capacity of more than 500 million metric tons of CO2. The project will utilize significant portions of EnLink’s existing regional pipeline infrastructure of approximately 4,000 miles in southeast Louisiana, thereby providing an integrated transportation and sequestration solution to potential customers.
- Coastal Bend CCS: In February, the company also announced the execution of an option agreement with Howard Energy Partners and the Port of Corpus Christi Authority to evaluate CCS opportunities on-site at the Port of Corpus Christi. The agreement encompasses approximately 13,000 acres with a total estimated storage capacity of 50-100 million metric tons of CO2. Howard’s Javelina midstream system is directly connected to over half of the total regional emissions.
- Bayou Bend CCS: In March, the company finalized its previously announced lease with the State of Texas General Land Office, the first ever major offshore CCS site in the United States. In May, Talos, along with partner Carbonvert, entered into a memorandum of understanding to add Chevron to the joint venture in exchange for a cash consideration and a capital carry through final investment decision (“FID”).
- Alliance with Core Lab: In March, Talos established a strategic alliance with Core Laboratories N.V. to provide technical evaluation and assurance services for sequestration subsurface analysis, including the company’s upcoming 2022 stratigraphic evaluation wells, and joined a joint-industry CCS consortium as an inaugural member.
Successful Semi-Annual Borrowing Base Redetermination: Talos successfully completed its semi-annual borrowing base redetermination in accordance with its RBL credit facility. The borrowing base was increased to $1,100.0mn, from $950.0mn, and the total bank commitments increased to $806.3mn from $791.3mn.
Zama: Talos received the final Unitization Resolution (UR) from Mexico’s Ministry of Energy (SENER) regarding the development of the Zama field in offshore Mexico, affirming the appointment of Petróleos Mexicanos (Pemex) as operator of the unit. Talos will maintain a 17.35% participating interest in the Zama field, and the company anticipates submission of a Unit Development Plan for approval by the working interest partners, a critical step before the parties can make an FID in 2023.
Unplanned and Planned Downtime: Talos experienced approximately 40 days of unplanned third-party downtime resulting from maintenance of the Eugene Island Pipeline System. The third-party pipeline shut-in resulted in a total production impact of approximately 4.7 MBoe/d for the first quarter of 2022 or 1.2 MBoe/d for the full year 2022. This impact is incorporated into the company’s 2022 operational and financial guidance. Separately, Talos experienced approximately 11 days of downtime from the acceleration of annual maintenance at the Delta House facility from the third quarter of 2022 into the first quarter of 2022, resulting in an impact of approximately 0.9 MBoe/d for the first quarter of 2022.
HP-1 Dry Dock and Second Quarter 2022 Planned Downtime: Talos expects to begin the dry-dock maintenance process for its HP-1 floating production unit during the month of June, which will defer production from the company’s Tornado and Phoenix fields for approximately 45-60 days. In addition to the HP-1 dry-dock, Talos expects other planned events to impact second quarter 2022 production. All of these events were already accounted for in the company’s annual guidance and are not incremental. Total planned downtime in the second quarter of 2022 is expected to be approximately 4.5 – 5.0 MBoe/d, as compared to a normalized quarterly production.
| FIRST QUARTER 2022 RESULTS Key Financial Highlights: | |||
| Three Months Ended March 31, 2022 | |||
| Period results ($ million): | |||
| Total Revenues | $ | 413.6 | |
| Net Loss | $ | (66.4) | |
| Net Loss per diluted share | $ | (0.81) | |
| Adjusted Net Income(1) | $ | 64.0 | |
| Adjusted Net Income per diluted share(1) | $ | 0.77 | |
| Adjusted EBITDA(1) | $ | 208.2 | |
| Adjusted EBITDA excluding hedges(1) | $ | 335.3 | |
| Capital Expenditures (including Plug & Abandonment) | $ | 84.7 | |
| Adjusted EBITDA Margin(1): | |||
| Adjusted EBITDA per Boe | $ | 36.61 | |
| Adjusted EBITDA excluding hedges per Boe | $ | 58.96 |
Production
Production for the quarter was 63.2 MBoe/d net, inclusive of unplanned downtime of 4.7 MBoe/d net.
| Three Months Ended March 31, 2022 | ||||
| Average net daily production volumes | ||||
| Oil (MBbl/d) | 42.1 | |||
| Natural Gas (MMcf/d) | 96.1 | |||
| NGL (MBbl/d) | 5.1 | |||
| Total average net daily (MBoe/d) | 63.2 |
| Three Months Ended March 31, 2022 | ||||||||||||
| Production | % Oil | % Liquids | % Operated | |||||||||
| Average net daily production volumes by Core Area (MBoe/d) | ||||||||||||
| Green Canyon Area | 20.0 | 82 | % | 89 | % | 98 | % | |||||
| Mississippi Canyon Area | 27.0 | 74 | % | 83 | % | 58 | % | |||||
| Shelf and Gulf Coast | 16.2 | 35 | % | 43 | % | 53 | % | |||||
| Total average net daily (MBoe/d) | 63.2 | 67 | % | 75 | % | 70 | % |
Capital Expenditures
Capital expenditures for the quarter, including plugging and abandonment activities, totaled $84.7 million.
| Three Months Ended March 31, 2022 | |||
| Capital Expenditures | |||
| U.S. Drilling & Completions | $ | 29.4 | |
| Mexico Appraisal & Exploration | 0.1 | ||
| Asset Management | 20.3 | ||
| Seismic and G&G / Land / Capitalized G&A / CCS and Other | 14.9 | ||
| Total Capital Expenditures | 64.7 | ||
| Plugging & Abandonment | 20.0 | ||
| Total Capital Expenditures and Plugging & Abandonment | $ | 84.7 |
Liquidity and Leverage
At quarter-end the Company had approximately $516.1mn of liquidity, with $451.3 mn undrawn on its RBL facility and approximately $78.3mn in cash, less approximately $13.6mn in outstanding letters of credit. On 31 March 2022, Talos had $1,030.0mn in total debt, inclusive of $34.0mn related to the HP-I finance lease. Net Debt was $951.7mn(1). Net Debt to Credit Facility LTM Adjusted EBITDA(1), as determined in accordance with the Company’s credit agreement, was 1.4x(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. |
HEDGES
The following table reflects contracted volumes and weighted average prices the Company will receive under the terms of its derivative contracts as of 4 May 2022 and includes contracts entered into after 31 March 2022:
| Instrument Type | Avg. Daily Volume | Weighted Avg. Swap Price | ||||
| Crude – WTI | (Bbls) | (Per Bbl) | ||||
| April – June 2022 | Swaps | 27,341 | $52.38 | |||
| July – September 2022 | Swaps | 18,000 | $52.20 | |||
| October – December 2022 | Swaps | 19,326 | $55.05 | |||
| January – March 2023 | Swaps | 23,000 | $69.44 | |||
| April – June 2023 | Swaps | 12,000 | $62.48 | |||
| July – September 2023 | Swaps | 9,000 | $73.09 | |||
| October – December 2023 | Swaps | 5,000 | $67.44 | |||
| January – March 2024 | Swaps | 4,000 | $72.56 | |||
| April – June 2024 | Swaps | 2,000 | $69.85 | |||
| Natural Gas – HH NYMEX | (MMBtu) | (Per MMBtu) | ||||
| April – June 2022 | Swaps | 56,352 | $3.00 | |||
| July – September 2022 | Swaps | 31,000 | $2.63 | |||
| October – December 2022 | Swaps | 34,000 | $2.72 | |||
| January – March 2023 | Swaps | 42,000 | $3.87 | |||
| April – June 2023 | Swaps | 29,000 | $3.17 | |||
| July – September 2023 | Swaps | 15,000 | $3.46 | |||
| October – December 2023 | Swaps | 5,000 | $3.39 | |||
| January – March 2024 | Swaps | 10,000 | $3.25 | |||
| April – June 2024 | Swaps | 10,000 | $3.25 |
CONFERENCE CALL AND WEBCAST INFORMATION
Talos will host a conference call, which will be broadcast live over the internet, on Thursday, 5 May 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/investors. Alternatively, the conference call can be accessed by dialing (888) 348-8927 (US 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 May 12, 2022 and can be accessed by dialing (877) 344-7529 and using access code 6364444.
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