Talos Energy Announces Third Quarter 2024 Operational and Financial Results
HOUSTON, Nov. 11, 2024 /PRNewswire/ -- Talos Energy Inc. ("Talos" or the "Company") (NYSE:TALO) today announced its operational and financial results for fiscal quarter ended September 30, 2024.
Recent Key Highlights
Production of 96.5 thousand barrels of oil equivalent per day ("MBoe/d") (70% oil, 80% liquids), at the high-end of third quarter 2024 guidance range.
Reduced debt by $100 million, bringing leverage to 0.9x*.
Commenced drilling at the high-impact Katmai West #2 well in the Gulf of Mexico to further appraise the field, potentially adding additional proved reserves over the initial discovery well in the west fault block, Katmai West #1 well.
Discovered commercial quantities of oil and natural gas at the Ewing Bank 953 well, with first production expected in mid-2026.
Purchased a 21.4% non-operated working interest ("W.I.") in the Monument discovery located in the Walker Ridge area in the Gulf of Mexico.
Re-completed the 100% Talos-owned Brutus A3 well yielding a peak production rate of over 30 million cubic feet per day ("MMcf/d").
Improved 2024 production guidance with revised estimate of 91.0, 94.0 Mboe/d and lowered 2024 capital expenditures guidance to $510 - $530 million.
Third Quarter Summary
Revenue of $509.3 million, driven by realized prices (excluding hedges) of $74.72 per barrel for oil, $19.42 per barrel for natural gas liquids ("NGLs"), and $2.39 per thousand cubic feet ("Mcf") for natural gas.
Net Income of $88.2 million, or $0.49 Net Income per diluted share, and Adjusted Net Loss* of $25.6 million, or $0.14 Adjusted Net Loss per diluted share*.
Adjusted EBITDA* of $324.4 million.
Capital expenditures of $118.9 million, excluding plugging and abandonment and settled decommissioning obligations.
Net cash provided by operating activities of $227.0 million.
Adjusted Free Cash Flow* of $121.5 million.
Talos Interim President and Chief Executive Officer Joseph Mills stated, "For the third quarter 2024, we are proud to report that we achieved another consecutive quarter of record production of 96.5 MBoe/d, along with strong Adjusted EBITDA and Adjusted Free Cash Flow. This is a testament to our team's focus on delivering results. Our solid cash flow generation enabled us to continue making strides in reducing our debt and attain 0.9x leverage, below our target leverage of 1.0x. We remain focused on paying down the balance of our debt under the Bank Credit Facility by year end 2024. Since closing the QuarterNorth acquisition in March 2024, we have repaid $425 million of debt, demonstrating our focus on maintaining a strong balance sheet and financial flexibility.
"Regarding our drilling and recompletion program, we are pleased with the results of the re-completion at the 100% Talos-owned Brutus A3 well in July 2024, which yielded a peak production rate of over 30 MMcf/d during the third quarter. We are also pleased about the previously announced Ewing Bank 953 well results in September 2024 and the acquired non-operated stake in the Monument deepwater discovery in August 2024. We logged better than expected rock properties at our Ewing Bank 953 well, which we anticipate will be producing by mid-2026. Our participation in the non-operated Monument project, a large deepwater oil and gas discovery in the Wilcox trend, presents an attractive post-FID subsea tie-back opportunity, including a potential drilling opportunity beyond the appraised discovery.
"Additionally, we recently began drilling the first of three consecutive high-impact subsalt wells utilizing the West Vela deepwater drillship, starting with the Katmai West #2 appraisal well in October 2024, to be followed by the Daenerys and Helm's Deep prospects in 2025. We are placing a strong emphasis on operational execution and capital discipline as we embark on a very important drilling campaign.
"I'm honored to have stepped in as interim CEO of Talos at the beginning of September 2024, allowing me the opportunity to work more closely with our highly skilled and talented employees to achieve these results. The Board, in partnership with an external search firm, is diligently searching for a new CEO who can build on Talos's strong foundation and lead the Company into its next phase of growth. I have the utmost confidence in our management team, Board, and the future direction and strategy of the Company. Talos's management team and Board are laser-focused on executing our strategic initiatives and maximizing long-term stockholder value. I'm pleased to be here to ensure a seamless transition until a permanent CEO is named."
Footnotes:
*See "Supplemental Non-GAAP Information" for details and reconciliations of GAAP to non-GAAP financial measures.
RECENT DEVELOPMENTS AND OPERATIONS UPDATE
Production Updates:
Katmai: In October 2024, the Seadrill-owned drillship West Vela commenced drilling the Katmai West #2 well which will further appraise the field, potentially adding additional proved reserves. The well is expected to reach total depth early in the first quarter 2025. In preparation of the completion of Katmai West #2 well, modifications to the host facility, Tarantula, have been completed between October and November 2024, and has increased capacity from 27 MBoe/d to 35 MBoe/d. Talos projects achieving first production from the Katmai West #2 well in the second quarter 2025. We anticipate the Katmai wells will be rate-constrained under the upgraded capacity allowing for extended flat-to-low decline production from the facility. Talos holds a 50% W.I. and Ridgewood Energy holds a 50% W.I. in Katmai. Talos is the 100% owner and operator of the Tarantula facility.
Sunspear Completion: In October 2024, Talos secured a rig contract for Transocean's Deepwater Conqueror to complete the Sunspear discovery. The Sunspear well, successfully drilled in July 2023, is expected to commence first production during the second quarter 2025, with production flowing to the Talos operated Prince platform. The initial gross production rate is estimated to be between 8, 10 Mboe/d. Talos holds a 48.0% W.I., an entity managed by Ridgewood Energy Corporation holds a 47.5% W.I., and Houston Energy holds a 4.5% W.I.
Brutus Re-completion: In July 2024, the 100% Talos-owned Brutus A-3 well was re-completed to the E1/E2 sand, yielding higher rates than expected, and reached a peak production rate of over 30 million cubic feet per day.
Exploitation and Exploration Updates:
Ewing Bank 953: In September 2024, Ewing Bank 953 well encountered approximately 127 feet of net pay in the target sand at approximately 19,000 feet true vertical depth. Preliminary data indicates an estimated gross recoverable resource potential of approximately 15, 25 million barrels of oil equivalent ("MMBoe") from a single subsea well with an initial gross production rate of 8, 10 MBoe/d. First production is expected in mid-2026. Current plans are for the well to be tied back to the South Timbalier 311 Megalodon host platform, which Talos partially owns. Talos holds a 33.3% W.I., with Walter Oil & Gas Corp. as operator holding a 56.7% W.I. and Gordy Oil Company holding a 10.0% W.I.
Monument Discovery: In August 2024, Talos acquired a 21.4% W.I. in Monument, a large Wilcox oil discovery located in Walker Ridge blocks 271, 272, 315, and 316, for a purchase price of $32 million. Monument will be developed as a subsea tie-back to the Shenandoah production facility in Walker Ridge. The Monument discovery is post-FID with appraised proved plus probable gross reserves of approximately 115 million barrels of oil equivalent. First production is expected between 20, 30 MBoe/d gross by late 2026 under restricted flow due to facility rate-constraints. The proved and probable PV-10 of Monument's reserves is valued at approximately $265 million(1). There is an additional 25, 35 MMBoe drilling location adjacent to the discovery that could extend the resource. Talos expects a net investment of approximately $25 million in 2024 and approximately $160 million over 2025 and 2026. Other partners include Beacon as operator with a 30.0% W.I., Navitas Petroleum with a 28.6% W.I., and Repsol E&P USA Inc. with a 20.0% W.I.
Daenerys: Talos expects to utilize the West Vela drillship to drill the Daenerys exploration well following the Katmai West #2 well. The Daenerys well is a high-impact subsalt project that will evaluate the regionally prolific Middle and Lower Miocene section and carries an estimated gross resource potential between 100, 300 MMBoe. The prospect is part of a broader farm-in transaction executed in 2023 that totals approximately 23,000 gross acres in the Walker Ridge area. The well is expected to spud in the first quarter 2025. Talos holds a 27% W.I. and partners include Red Willow, Houston Energy, and Cathexis.
Helm's Deep: Talos plans to mobilize the West Vela drillship to Helms Deep after completing drilling operations at Daenerys. The West Vela is expected to commence drilling at Helms Deep, an amplitude-supported, near-infrastructure subsalt Pliocene exploitation well, in the third quarter 2025. The Helms Deep well has a proposed depth of approximately 18,000 feet and an estimated gross resource potential between 17 - 27 MMBoe. Talos is targeting a 50.0% W.I.
Sebastian: Drilling of the Sebastian prospect in the third quarter 2024 encountered non-commercial quantities of hydrocarbons and has been plugged and abandoned. Talos held a 25.0% W.I., with Murphy Oil Corporation as operator holding a 26.8% W.I., Westlawn Americas Offshore a 18.2% W.I, Alta Mar Energy holding a 20.0% W.I., and Houston Energy holding a 10.0% W.I.
Other Business Developments
Common Stock Repurchase Program: Year-to-date 2024, Talos repurchased approximately 4.0 million shares of common stock for approximately $45.1 million. As of September 30, 2024, there is $157.5 million remaining under the authorized plan. The timing of future repurchases under the share repurchase program will depend on market conditions, contractual limitations, and other considerations. The program may be extended, modified, suspended or discontinued at any time, and does not obligate the Company to repurchase any dollar amount or number of shares.
Limited Duration Stockholder Rights Plan: In October 2024, Talos's Board adopted a limited duration stockholder rights Plan (the "Rights Plan"). The Board adopted the Rights Plan solely in response to the continued accumulation of approximately 24% of shares of Talos common stock by Control Empresarial De Capitales ("Control Empresarial"). The Rights Plan is similar to those adopted by other publicly traded companies and is intended to enable all Talos stockholders to realize the long-term value of their investment and protect Talos from any future efforts to obtain control of Talos that are inconsistent with the best interests of its stockholders. Control Empresarial has been an important Talos stockholder and Talos will continue to maintain an active and constructive dialogue with Control Empresarial.
Audit Committee Internal Review: In September 2024, the Company received notification from an external third party suggesting a mid-level employee was engaged in inappropriate procurement practices. In response, the Audit Committee of the Company's board of directors, conducted a review of such alleged practices by engaging independent external legal counsel to assist in reviewing the matter and determining the extent of such activities. Such review with external legal counsel did not identify or implicate other current or former employees and the employee was separated from the Company. The Audit Committee also has not identified any related material errors in the historical financial statements.
Talos plans to file an amended Form 10-K/A to our Annual Report on Form 10-K for the year ended December 31, 2023 (our "Annual Report"), and an amended Form 10-Q/A for each of the Quarterly Reports on Form 10-Q for the quarters ended March 31, 2024, and June 30, 2024, (together, our "Quarterly Reports"), respectively, to amend and restate certain disclosures. These amended disclosures will address the material weaknesses identified at the end of 2023 in our internal controls over our financial reporting practices and investors can continue to rely on numbers previously disclosed. Notwithstanding the identified material weakness, management has concluded that the financial statements included in our Annual Report and Quarterly reports present fairly, in all material respects, the Company's financial position, results of operations and cash flows as of the dates, and for the periods presented, in accordance with GAAP. The Company expects to file these amendments and the Quarterly Report on Form 10-Q for the quarter end September 30, 2024, on November 12, 2024.
(1) Proved and probable reserves are estimated by Netherland, Sewell & Associates, Inc. ('NSAI"). PV-10 utilizes SEC pricing of $78.21 / BBL WTI and $2.64 per MCF per MMBTU.
THIRD QUARTER 2024 RESULTS
Key Financial Highlights:
($ thousands, except per share and per Boe amounts)
Three Months Ended September 30, 2024
Total revenues
$
509,286
Net Income (Loss)
$
88,173
Net Income (Loss) per diluted share
$
0.49
Adjusted Net Income (Loss)*
$
(25,583)
Adjusted Net Income (Loss) per diluted share*
$
(0.14)
Adjusted EBITDA*
$
324,359
Adjusted EBITDA excluding hedges*
$
318,288
Capital Expenditures
$
118,922
Production
Production for the third quarter 2024 was 96.5 MBoe/d and was 70% oil and 80% liquids.
Three Months Ended September 30, 2024
Oil (MBbl/d)
68.0
Natural Gas (MMcf/d)
118.0
NGL (MBbl/d)
8.8
Total average net daily (MBoe/d)
96.5
Three Months Ended September 30, 2024
Production
% Oil
% Liquids
% Operated
Green Canyon Area
39.7
71
%
81
%
54
%
Mississippi Canyon Area
44.7
75
%
84
%
77
%
Shelf and Gulf Coast
12.1
51
%
60
%
59
%
Total average net daily (MBoe/d)
96.5
70
%
80
%
65
%
Three Months Ended September 30, 2024
Average realized prices (excluding hedges)
Oil ($/Bbl)
$
74.72
Natural Gas ($/Mcf)
$
2.39
NGL ($/Bbl)
$
19.42
Average realized price ($/Boe)
$
57.37
Average NYMEX prices
WTI ($/Bbl)
$
75.10
Henry Hub ($/MMBtu)
$
2.23
Lease Operating & General and Administrative Expenses
Total lease operating expenses for the third quarter 2024, inclusive of workover, maintenance and insurance costs, were $163.3 million, or $18.40 per Boe. Excluding workover expenses, total lease operating expenses were $134.1 million, or $15.10 per Boe. Total lease operating expenses inclusive of workover does not include $14 million of service credit related to workover expenses incurred in the same quarter.
Adjusted General and Administrative expenses for the third quarter, adjusted to exclude one-time transaction-related costs and non-cash equity-based compensation, were $32.9 million, or $3.70 per Boe.
($ thousands, except per Boe amounts)
Three Months Ended September 30, 2024
Lease Operating Expenses
$
163,347
Lease Operating Expenses per Boe
$
18.40
Lease Operating Expenses excluding workover
$
134,054
Lease Operating Expenses excluding workover per Boe
$
15.10
Adjusted General & Administrative Expenses*
$
32,855
Adjusted General & Administrative Expenses per Boe*
$
3.70
Capital Expenditures
Capital expenditures for the third quarter 2024, excluding plugging and abandonment and settled decommissioning obligations, totaled $118.9 million.
($ thousands)
Three Months Ended September 30, 2024
U.S. drilling & completions
$
69,974
Asset management(1)
34,326
Seismic and G&G, land, capitalized G&A and other
14,622
Total Capital Expenditures
$
118,922
___________________
(1) Asset management consists of capital expenditures for development-related activities primarily associated with recompletions and improvements to our facilities and infrastructure.
Plugging & Abandonment Expenses
Capital expenditures for plugging and abandonment and settled decommissioning obligations for the third quarter 2024 totaled $37.7 million.
Three Months Ended September 30, 2024
Plugging & Abandonment and Decommissioning Obligations Settled(1)
$
37,713
___________________
(1) 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.
Liquidity and Leverage
At September 30, 2024, Talos had approximately $842.9 million of liquidity, with $840.0 million undrawn on its credit facility and approximately $45.5 million in cash, less approximately $42.7 million in outstanding letters of credit. On September 30, 2024, Talos had $1,375.0 million in total debt. Net Debt* was $1,329.5 million. Net Debt to Pro Forma Last Twelve Months ("LTM") Adjusted EBITDA* was 0.9x.
OPERATIONAL & FINANCIAL GUIDANCE UPDATES
Talos provided the following updates to it previously issued 2024 operational and financial guidance:
Improved average daily production guidance to 91.0 - 94.0 MBoe/d (71% oil) for the full year 2024.
Cash Operating Expenses and Workovers guidance of $555 - $585 million, inclusive of a $14 million service credit recognized in the third quarter 2024, which was previously held as an asset on Talos's balance sheet.
Total General & Administrative expenses, including both expense and capitalized costs, remains in line with prior guidance. Talos increased its G&A Expense range to $120 - $130 million to reflect a higher expense ratio, with offsetting savings recognized in capital expenditures guidance. The increased range also accounts for various other one-time expenses.
Capital Expenditures guidance was reduced significantly to $510 - $530 million, reflecting updated project timing and capitalized G&A cost reductions.
P&A, Decommissioning range increased to $100 - $110 to reflect the acceleration of selected non-operated activities into 2024 from previously planned 2025.
Interest Expense guidance of $175 - $185 million, excluding a $4.9 million one-time fee recognized earlier in 2024 as part of the QuarterNorth transaction financings.
Talos expects to maintain a long-term leverage ratio below 1.0x.
The following summarizes Talos's updated disclosed full-year 2024 operational and production guidance.
Original
Revised
FY 2024
FY 2024
($ Millions, unless highlighted):
Low
High
Low
High
Production
Oil (MMBbl)
23.4
24.7
23.6
24.4
Natural Gas (Mcf)
40.0
44.2
40.5
41.8
NGL (MMBbl)
2.5
2.7
2.9
3.0
Total Production (MMBoe)
32.6
34.8
33.3
34.4
Avg Daily Production (MBoe/d)
89.0
95.0
91.0
94.0
Cash Expenses
Cash Operating Expenses and Workovers(1)(2)(4)*
$
555
$
585
$
555
$
585
G&A(2)(3)*
$
100
$
110
$
120
$
130
Capex
Capital Expenditures(5)
$
570
$
600
$
510
$
530
P&A Expenditures
P&A, Decommissioning
$
90
$
100
$
100
$
110
Interest
Interest Expense(6)
$
175
$
185
$
175
$
185
(1) Includes Lease Operating Expenses and Maintenance.
(2) Includes insurance costs.
(3) Excludes non-cash equity-based compensation and transaction and other expenses.
(4) Includes reimbursements under production handling agreements.
(5) Excludes acquisitions.
(6) Includes cash interest expense on debt and finance lease, surety charges and amortization of deferred financing costs and original issue discounts.
*Due to the forward-looking nature a reconciliation of Cash Operating Expenses and G&A to the most directly comparable GAAP measure could not be 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, 2024. The table includes derivative instruments assumed as part of the QuarterNorth acquisition:
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)
October - December 2024
Fixed Swaps
38,674
$
76.07
---
---
---
Collar
1,000
---
---
$
70.00
$
75.00
Long Puts
4,000
---
---
$
70.00
---
Short Puts
1,000
---
$
60.00
---
---
January - March 2025
Fixed Swaps
32,000
$
72.52
---
---
---
Collar
3,000
---
---
$
65.00
$
84.35
April - June 2025
Fixed Swaps
33,000
$
73.53
---
---
---
July - September 2025
Fixed Swaps
20,685
$
71.81
---
---
---
October - December 2025
Fixed Swaps
14,000
$
73.93
---
---
---
Natural Gas, HH NYMEX
(MMBtu)
(Per MMBtu)
(Per MMBtu)
(Per MMBtu)
(Per MMBtu)
October - December 2024
Fixed Swaps
35,000
$
2.85
---
---
---
Collar
10,000
