(Talos, 8.Aug.2023) — Talos Energy Inc. (NYSE: TALO) announced its operational and financial results for fiscal quarter ended June 30, 2023.
Key Highlights:
- Drilled a successful commercial discovery at the Talos-operated Sunspear prospect.
- Announced a transaction with Grupo Carso, selling a 49.9% interest in Talos Energy Mexico 7, S. de R.L. de C.V. (“Talos Mexico”), a wholly-owned subsidiary of the Company, which holds a working interest in the Zama project, for approximately $125 million.
- Filed first EPA Class VI permit for carbon sequestration, with at least one additional permit expected to be filed by year-end.
- Continue to explore a capital raise for the Company’s Talos Low Carbon Solutions (“TLCS”) platform.
- Repurchased 1.5 million shares of common stock for $20.9 million at an average price of $13.89 per share.
Second Quarter Summary:
- Production of 70.3 thousand barrels of oil equivalent per day (“MBoe/d”) (75% oil, 83% liquids).
- Revenue of $367.2 million, driven by realized prices (excluding hedges) of $71.44 per barrel for oil, $16.25 per barrel for natural gas liquids (“NGLs”), and $2.46 per thousand cubic feet (“Mcf”) for natural gas.
- Net Income of $13.7 million, or $0.11 Net Income per diluted share, and Adjusted Net Income(1) of $11.5 million, or $0.09 Adjusted Net Income per diluted share.
- Upstream Adjusted EBITDA(1) of $253.6 million.
- Capital expenditures of $191.2 million, inclusive of plugging and abandonment and Carbon Capture & Sequestration (“CCS”).
- Net cash provided by operating activities of $214.2 million.
- Adjusted Free Cash Flow(1) of $12.9 million.
Talos President and Chief Executive Officer Timothy S. Duncan commented: “We made great progress advancing key catalysts and had solid execution across our business in the second quarter. The ongoing integration of the EnVen transaction and our increased oil and liquids exposure underpinned another quarter with strong margins. We are excited about our discovery at Sunspear, a prospect and host facility acquired in the EnVen transaction. This success further demonstrates our belief that owning critical assets in the Gulf of Mexico can significantly enhance subsea drilling economics. We announced a transaction for our Talos Mexico subsidiary, welcoming Grupo Carso as a co-owner in a structure that establishes a baseline valuation for Zama but retains significant upside as we work to maximize the value of that asset. Finally, we are pleased to see the progress in our CCS business. We recently filed a Class VI permit application, which is an important milestone. We also continue to explore a capital raise for our Talos Low Carbon Solution platform and we’ll provide an update when appropriate.”
RECENT DEVELOPMENTS AND OPERATIONS UPDATE
Shareholder Return Program: During the second quarter 2023, Talos opportunistically repurchased 1.5 million shares of common stock for $20.9 million, representing an average price of $13.89 per share. As of June 30, 2023, the Company has purchased 3.4 million shares or 3% of total outstanding shares with remaining authorization to repurchase up to approximately $52.5 million of additional common stock under its $100 million program.
Mexico Divestiture: In May 2023, Talos announced a transaction with Grupo Carso to sell a 49.9% interest in Talos Mexico, which holds a 17.4% stake in Zama. The transaction valued the Talos Mexico entity at a $250 million valuation. Talos expects to receive approximately $125 million for the 49.9% stake, including approximately $75 million paid at closing and approximately $50 million due upon first production. The transaction is expected to close during the third quarter 2023, subject to regulatory approval.
In June 2023, Mexico’s Comisión Nacional de Hidrocarburos approved the Zama Unit Development Plan previously submitted in March 2023. Talos is actively working with the Zama Unit’s Integrated Project Team to progress the front-end engineering and design (“FEED”) and other workstreams required to reach a Final Investment Decision (“FID”).
Drilling and Completion 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 the first quarter 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.
Sunspear: The Sunspear exploitation well successfully discovered commercial quantities of oil and natural gas in July 2023. Talos’s preliminary post-drill analysis indicates approximately 260 feet of gross true vertical thickness of oil pay (177 feet net across two targets), including 149 feet of net oil pay in the main target in line with pre-drill expectations. The project will flow to the recently acquired Prince platform with first oil expected in the next 18 to 24 months. Working interest partners are Talos 48.0%, an entity managed by Ridgewood Energy Corporation 47.5%, and Houston Energy 4.5%.
Longhorn: The Longhorn prospect, designed to test deep objectives underneath the Lobster field, found non-commercial levels of hydrocarbons in the deep zone, though the well encountered over 50 feet of pay across two legacy field pays. The well has been suspended and will be analyzed for completion alongside the next Lobster field development well, which is expected to spud in the third quarter 2023.
Pancheron: Drilling of the Pancheron exploration prospect in the second quarter 2023 encountered non-commercial quantities of hydrocarbons, and plugging and abandonment operations have been completed. Talos held a 30% working interest, bp held a 33% working interest, and Oxy held a 37% working interest and was the operator. Pre-drill probability of success was estimated at approximately 30%.
Other Operated Production and Downtime Updates: During the second quarter 2023, Talos completed the planned well interventions on its operated Bulleit DTR-10 Sand recompletion and Mount Hunter development well. The interventions successfully improved overall reservoir productivity. Additionally, on Talos’s operated Neptune facility, the Company continues to work on optimization efforts, including new chemical treatments and topside modifications, expected to be completed in the fourth quarter 2023.
Non-Operated Project Updates: The Odd Job subsea pump project, operated by Kosmos Energy, which is intended to sustain long-term production from the field, continues to progress and remains on track to be in service by mid-2024. Talos has a 17.5% working interest. Drilling on the Marmalard well, operated by Murphy Oil, is expected to commence in the third quarter 2023. Talos holds a 11.4% working interest.
TLCS Updates:
Exploring Capital Raise: Talos continues to explore a capital raise to scale up the development of its existing TLCS portfolio and accelerate its growth. The Company will provide further updates when available.
Stratigraphic Wells and Class VI Permits: As previously announced, the Bayou Bend partnership has contracted a rig and expects to drill a Talos-operated offshore stratigraphic well during the second half 2023. Additionally, the partnership expects to drill a Chevron-operated onshore stratigraphic well in the first half 2024. Separately, in early August 2023, TLCS filed its first EPA Class VI permit for its Harvest Bend CCS project (formerly known as River Bend CCS), in which TLCS holds a 60% interest. TLCS also intends to file at least one additional EPA Class VI permit application across its portfolio by year-end.
SECOND QUARTER 2023 RESULTS
Key Financial Highlights:
| ($ thousands, except per share and per BOE amounts) | Three Months EndedJune 30, 2023 | ||
| Total revenues | $ | 367,210 | |
| Net income | $ | 13,677 | |
| Net income per diluted share | $ | 0.11 | |
| Adjusted Net Income(1) | $ | 11,537 | |
| Adjusted Net Income per diluted share(1) | $ | 0.09 | |
| Adjusted EBITDA(1) | $ | 249,723 | |
| Adjusted EBITDA excluding hedges(1) | $ | 241,561 | |
| Upstream Adjusted EBITDA(1) | $ | 253,615 | |
| Upstream Adjusted EBITDA excluding hedges(1) | $ | 245,453 | |
| Capital Expenditures (including Plug & Abandonment, Decommissioning Obligations Settled and CCS) | $ | 191,205 | |
| Upstream Adjusted EBITDA Margin: | |||
| Upstream Adjusted EBITDA per Boe(1) | $ | 39.67 | |
| Upstream Adjusted EBITDA excluding hedges per Boe(1) | $ | 38.39 |
Production
Production was 70.3 MBoe/d for the second quarter 2023 and was 75% oil and 83% liquids.
| Three Months EndedJune 30, 2023 | |||
| Average daily production volumes | |||
| Oil (MBbl/d) | 52.8 | ||
| Natural Gas (MMcf/d) | 72.9 | ||
| NGL (MBbl/d) | 5.3 | ||
| Total average daily (MBoe/d) | 70.3 |
| Three Months Ended June 30, 2023 | ||||||||||||
| Production | % Oil | % Liquids | % Operated | |||||||||
| Average daily production volumes by Core Area (MBoe/d) | ||||||||||||
| Green Canyon Area | 22.7 | 84 | % | 91 | % | 88 | % | |||||
| Mississippi Canyon Area | 34.6 | 79 | % | 87 | % | 70 | % | |||||
| Shelf and Gulf Coast | 13.0 | 50 | % | 58 | % | 61 | % | |||||
| Total average daily (MBoe/d) | 70.3 | 75 | % | 83 | % | 74 | % |
Lease Operating & General and Administrative Expenses
Total lease operating expenses, inclusive of workover and maintenance and insurance costs for the quarter, were $101.2 million or $15.82/Boe. Upstream General and Administrative expenses for the quarter, excluding non-cash equity-based compensation, was $25.0 million, or $3.91/Boe. Upstream General and Administrative expenses is shown inclusive of $3.5 million in transaction-related expenses.
| ($ thousands, except per BOE amounts) | Three Months EndedJune 30, 2023 | Per Boe | ||||
| Lease Operating Expenses | $ | 101,165 | $ | 15.82 | ||
| Upstream General & Administrative Expenses (excluding non-cash equity-based compensation)(1) | $ | 24,994 | $ | 3.91 |
Capital Expenditures
Upstream capital expenditures, including plugging and abandonment, totaled $189.3 million for the second quarter 2023.
| ($ thousands) | Three Months EndedJune 30, 2023 | Six Months EndedJune 30, 2023 | ||||
| Upstream Capital Expenditures | ||||||
| U.S. drilling & completions | $ | 120,331 | $ | 232,661 | ||
| Mexico appraisal & exploration | 101 | 197 | ||||
| Asset management(1) | 15,784 | 60,728 | ||||
| Seismic and G&G, land, capitalized G&A and other | 14,212 | 36,045 | ||||
| Total Upstream Capital Expenditures | 150,428 | 329,631 | ||||
| Plugging & Abandonment | 37,570 | 47,683 | ||||
| Decommissioning Obligations Settled(2) | 1,339 | 2,047 | ||||
| Total Upstream | $ | 189,337 | $ | 379,361 |
| (1) | Asset management consists of capital expenditures for development-related activities primarily associated with recompletions and improvements to our facilities and infrastructure. |
| (2) | Settlement of decommissioning obligations as a result of working interest partners or counterparties of divestiture transactions that were unable to perform the required abandonment obligations due to bankruptcy or insolvency. |
CCS expenses totaled $2.4 million for the second quarter 2023, which is accounted for in the Company’s reported Adjusted EBITDA figure. CCS capital expenditures totaled $1.9 million for the second quarter 2023, which mainly includes investments in Bayou Bend and funding for general ongoing operations.
| ($ thousands) | Three Months EndedJune 30, 2023 | Six Months EndedJune 30, 2023 | ||||
| CCS Investments | ||||||
| CCS Expenses | $ | 2,360 | $ | 8,517 | ||
| CCS Capital Expenditures | 1,868 | 23,057 | ||||
| Total CCS Investments | $ | 4,228 | $ | 31,574 |
Liquidity and Leverage
At June 30, 2023, Talos had approximately $771.8 million of liquidity, with $765.0 million undrawn on its credit facility and approximately $17.5 million in cash, less approximately $10.8 million in outstanding letters of credit.
On June 30, 2023, Talos had $1,081.0 million in total debt. Net Debt was $1,063.5 million(1). Net Debt to Pro Forma LTM Adjusted EBITDA was 1.0x(1).
| Footnotes: | |
| (1) | Adjusted Net Income (Loss), Adjusted Income (Loss) per Share, Adjusted EBITDA, Adjusted EBITDA excluding hedges, Upstream Adjusted EBITDA, Upstream Adjusted EBITDA excluding hedges, Adjusted EBITDA margin, Adjusted EBITDA margin excluding hedges, Upstream Adjusted EBITDA margin or per Boe, Upstream Adjusted EBITDA margin excluding hedges or per Boe, Upstream General and Administrative Expenses, Credit Facility LTM Adjusted EBITDA, Net Debt, Net Debt to Pro Forma LTM Adjusted EBITDA, Adjusted Free Cash Flow and PV-10 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 August 8, 2023:
| Instrument Type | Avg. DailyVolume | W.A. Swap | W.A.Sub-Floor | W.A. Floor | W.A. Ceiling | ||||||||||
| Crude – WTI | (Bbls) | (Per Bbl) | (Per Bbl) | (Per Bbl) | (Per Bbl) | ||||||||||
| July – September 2023 | Fixed Swaps | 14,348 | $ | 73.92 | — | — | — | ||||||||
| July – September 2023 | Collar | 4,500 | — | — | $ | 70.56 | $ | 89.99 | |||||||
| July – September 2023 | 3-Way Collar | 9,200 | — | $ | 51.86 | $ | 65.11 | $ | 109.25 | ||||||
| October – December 2023 | Fixed Swaps | 12,000 | $ | 75.25 | — | — | — | ||||||||
| October – December 2023 | Collar | 7,826 | — | — | $ | 67.76 | $ | 86.40 | |||||||
| October – December 2023 | 3-Way Collar | 9,200 | — | $ | 51.86 | $ | 65.11 | $ | 109.25 | ||||||
| January – March 2024 | Fixed Swaps | 15,000 | $ | 72.55 | — | — | — | ||||||||
| January – March 2024 | Collar | 3,000 | — | — | $ | 70.00 | $ | 83.67 | |||||||
| January – March 2024 | 3-Way Collar | 3,200 | — | $ | 57.27 | $ | 70.00 | $ | 98.01 | ||||||
| April – June 2024 | Fixed Swaps | 18,500 | $ | 72.68 | — | — | — | ||||||||
| April – June 2024 | Collar | 1,000 | — | — | $ | 70.00 | $ | 75.00 | |||||||
| July – September 2024 | Fixed Swaps | 8,000 | $ | 72.53 | — | — | — | ||||||||
| July – September 2024 | Collar | 1,000 | — | — | $ | 70.00 | $ | 75.00 | |||||||
| October – December 2024 | Fixed Swaps | 7,000 | $ | 70.68 | — | — | — | ||||||||
| October – December 2024 | Collar | 1,000 | — | — | $ | 70.00 | $ | 75.00 | |||||||
| January – March 2025 | Fixed Swaps | 4,000 | $ | 67.00 | — | — | — | ||||||||
| Natural Gas – HH NYMEX | (MMBtu) | (Per MMBtu) | (Per MMBtu) | (Per MMBtu) | (Per MMBtu) | ||||||||||
| July – September 2023 | Fixed Swaps | 20,000 | $ | 3.35 | — | — | — | ||||||||
| July – September 2023 | Collar | 10,000 | — | — | $ | 5.25 | $ | 8.46 | |||||||
| October – December 2023 | Fixed Swaps | 20,000 | $ | 4.22 | — | — | — | ||||||||
| October – December 2023 | Collar | 10,000 | — | — | $ | 5.25 | $ | 8.46 | |||||||
| January – March 2024 | Fixed Swaps | 25,000 | $ | 3.48 | — | — | — | ||||||||
| January – March 2024 | Collar | 10,000 | — | — | $ | 4.00 | $ | 6.90 | |||||||
| April – June 2024 | Fixed Swaps | 25,000 | $ | 3.33 | — | — | — | ||||||||
| April – June 2024 | Collar | 10,000 | — | — | $ | 4.00 | $ | 6.90 | |||||||
| July – September 2024 | Fixed Swaps | 10,000 | $ | 3.52 | — | — | — | ||||||||
| July – September 2024 | Collar | 10,000 | — | — | $ | 4.00 | $ | 6.90 | |||||||
| October – December 2024 | Fixed Swaps | 10,000 | $ | 3.52 | — | — | — | ||||||||
| October – December 2024 | Collar | 10,000 | — | — | $ | 4.00 | $ | 6.90 | |||||||
| January – March 2025 | Fixed Swaps | 10,000 | $ | 4.37 | — | — | — |
CONFERENCE CALL AND WEBCAST INFORMATION
Talos will host a conference call, which will be broadcast live over the internet, on Wednesday, August 9, 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 August 16, 2023 and can be accessed by dialing (877) 344-7529 and using access code 7754475.
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