HOUSTON,– Talos Energy Inc. (“Talos,” or the “Company”) (NYSE: TALO) today announced its financial and operational results for the fourth quarter of 2019 and provided an operations update. Additionally, in response to recent commodity price trends, the Company will reduce its previously announced 2020 spending guidance by more than $125 million. Inclusive these reductions, Talos expects to remain free cash flow positive for 2020 with average WTI prices of $30 per barrel or higher. Specific details of the revised 2020 guidance will be disclosed in the coming weeks.
Key fourth quarter of 2019 highlights:
(1) |
Adjusted Net Income, Adjusted Earnings per Share, Adjusted EBITDA, Adjusted EBITDA excluding hedges, Adjusted EBITDA Margin and Adjusted EBITDA Margin excluding hedges, Cash Flow per Share, Free Cash Flow and Net Debt to LTM Adjusted EBITDA are non-GAAP financial measures. See “Supplemental Non-GAAP Information” below for additional detail and reconciliations of GAAP to non-GAAP measures. |
President and Chief Executive Officer Timothy S. Duncan commented: “We exited 2019 with another consecutive quarter generating significant free cash flow and adjusted earnings per share. Talos also exited the year with one of the lowest leverage ratios in our sector, with a 1.2x Net Debt to LTM Adjusted EBITDA, and high levels of liquidity. Because of the oil-weighted and highly proved developed nature of our reserve base, significant value is sustained at various commodity prices, with additional upside from our probable reserves and our drilling portfolio. The results from the Claiborne #3 well, which just reached total depth, came in above pre-drill expectations and the well will be tied to existing infrastructure in order to be brought online by mid-year, demonstrating the upside potential of the assets we acquired.”
Duncan continued, “With the closing of our recent acquisition, we are a larger, more diverse, and more resilient business with an improved combination of free cash flowing assets and a strong balance sheet. As we look into 2020 with the context of recent commodity price trends, we are re-examining costs throughout the organization in order to maintain our healthy leverage and liquidity metrics while also remaining free cash flow positive despite the challenging price environment. We have flexibility in our previously announced capital program for the year through our short-term rig contract structures, and will utilize this flexibility to reduce our discretionary capital investments. Talos’s management team and employees have weathered this situation before. In order to be prepared for these situations, we always strive to maintain a conservative leverage position, high liquidity and a strong hedge book. We believe we are well-positioned to safely navigate current market conditions.”
RECENT DEVELOPMENTS AND OPERATIONS UPDATE
Closing of Transformative Acquisition of U.S. Gulf of Mexico Portfolio
On February 28, 2020, Talos closed the acquisition of affiliates of ILX Holdings, among other entities (the “Acquired Assets,” the “Acquisition,” or the “Transaction”). After taking into account customary closing adjustments based on an effective date of July 1, 2019, total cash consideration paid by Talos was reduced from $385.0 million to $291.6 million as the Acquired Assets generated approximately $100.0 million of free cash flow in the eight-month period since the effective date, partially offset by a small working capital position acquired in conjunction with one of the assets. The cash consideration was funded primarily through the Company’s revolving credit facility and cash on hand. In addition to the cash consideration, the Company delivered 110,000 shares of Series A Convertible Preferred Stock to certain of the sellers. The preferred shares are expected to automatically convert into 11.0 million common shares on March 30, 2020.
The Acquired Assets’ average production in the fourth quarter of 2019, impacted by certain downtime, was 18.7 MBoe/d. Also included in the Transaction are over 700,000 gross acres, of which approximately 480,000 are primary term.
Borrowing Base Increase
On February 28, 2020, concurrently with the closing of the Acquisition, the borrowing base under Talos’s credit facility was upsized from $950.0 million to $1,150.0 million.
Macro-Economic Developments and Revised 2020 Guidance
In response to recent trends in oil and gas commodity markets, Talos is reducing its previous 2020 capital and operating expenditure guidance. Among other items, Talos expects to utilize the flexibility provided by its short-term rig contracts to reduce its 2020 guidance by more than $125 million of capital and operating expense from the original budget. Talos expects that, following these changes, it will be able to generate positive free cash flow in 2020 with average WTI prices of $30.00 per barrel or above, inclusive of the Company’s existing hedge position.
Talos plans to provide additional detail on the revised 2020 guidance in the coming weeks.
Drilling and Exploration Activities – U.S. Gulf of Mexico
Drilling and Exploration Activities – Mexico
FOURTH QUARTER 2019 RESULTS |
|||||
Key Financial Highlights: |
|||||
Period results ($ million): |
|||||
Revenues(2) |
$ |
233.2 |
|||
Net Income |
$ |
0.3 |
|||
Earnings per share – diluted |
$ |
0.01 |
|||
Adjusted Net Income(1) |
$ |
71.6 |
|||
Adjusted Earnings per share – diluted(1) |
$ |
1.31 |
|||
Adjusted EBITDA(1) |
$ |
155.8 |
|||
Adjusted EBITDA excl. hedges(1) |
$ |
157.4 |
|||
Capital Expenditures (including Plug & Abandonment) |
$ |
86.8 |
|||
Adjusted EBITDA Margin(1): |
|||||
Adjusted EBITDA (% of Revenue) |
67 |
% |
|||
Adjusted EBITDA per Boe |
$ |
31.37 |
|||
Adjusted EBITDA excl. hedges (% of Revenue) |
67 |
% |
|||
Adjusted EBITDA excl. hedges per Boe |
$ |
31.70 |
|||
Production, Realized Prices and Revenue
Production for the fourth quarter of 2019 was 5.0 MMBoe, with oil production accounting for 73% of the total. Oil price realizations, net of certain gathering, transportation, quality differentials and other costs, were $57.65 per barrel, representing an average for the quarter of $0.83 per barrel above the average WTI price over the same period.
Three Months Ended |
|||
Production volumes |
|||
Oil production volume (MBbls) |
3,619 |
||
NGL production volume (MBbls) |
313 |
||
Natural Gas production volume (MMcf) |
6,205 |
||
Total production volume (MBoe) |
4,966 |
||
Average net daily production volumes |
|||
Oil (MBbl/d) |
39.3 |
||
NGL (MBbl/d) |
3.4 |
||
Natural Gas (MMcf/d) |
67.4 |
||
Total average net daily (MBoe/d) |
54.0 |
||
Average realized prices (excluding hedges)(3) |
|||
Oil ($/Bbl) |
$57.65 |
||
NGL ($/Bbl) |
$14.62 |
||
Natural Gas ($/Mcf) |
$2.18 |
||
Average Realized Price ($/Boe) |
$47.90 |
||
Average NYMEX prices |
|||
WTI ($/Bbl) |
$ |
56.82 |
|
Henry Hub ($/MMBtu) |
$ |
2.40 |
|
Revenues ($ million) |
|||
Oil |
$ |
208.6 |
|
NGL |
4.6 |
||
Natural Gas |
13.5 |
||
Revenue – Operations |
226.7 |
||
Other revenue |
6.5 |
||
Total revenue |
$ |
233.2 |
Three Months Ended December 31, 2019 |
|||||||||||||||
Production |
% Oil |
% Liquids |
% |
||||||||||||
Average net daily production volumes by asset (MBoe/d) |
|||||||||||||||
Green Canyon |
|||||||||||||||
Phoenix Complex |
19.2 |
80 |
% |
86 |
% |
100 |
% |
||||||||
Green Canyon 18 |
1.0 |
88 |
% |
92 |
% |
100 |
% |
||||||||
Green Canyon Area |
20.2 |
80 |
% |
86 |
% |
100 |
% |
||||||||
Mississippi Canyon |
|||||||||||||||
Amberjack |
2.1 |
90 |
% |
93 |
% |
99 |
% |
||||||||
Pompano |
10.9 |
83 |
% |
88 |
% |
100 |
% |
||||||||
Ram Powell |
4.7 |
63 |
% |
74 |
% |
100 |
% |
||||||||
Gunflint |
1.0 |
79 |
% |
84 |
% |
0 |
% |
||||||||
Mississippi Canyon Area |
18.7 |
79 |
% |
85 |
% |
94 |
% |
||||||||
Shelf and Other Deepwater |
|||||||||||||||
Shelf |
13.3 |
54 |
% |
61 |
% |
92 |
% |
||||||||
Other deepwater |
1.8 |
67 |
% |
75 |
% |
74 |
% |
||||||||
Shelf and Other Deepwater Area |
15.1 |
56 |
% |
62 |
% |
90 |
% |
||||||||
Total average net daily (MBoe/d) |
54.0 |
73 |
% |
79 |
% |
95 |
% |
Expenses
Total lease operating expenses (“LOE”), inclusive of Workover and Maintenance and insurance costs for the fourth quarter of 2019 were $59.2 million or $11.92/Boe. General and administrative expenses (“G&A”) for the quarter were $17.5 million (excluding $1.8 million of stock-based compensation and $4.1 million of transaction-related expenses), or $3.52/Boe.
Three Months Ended |
Per Boe |
||||||
Lease Operating Expenses – includes workover & maintenance and insurance(4) |
$ |
59.2 |
$ |
11.92 |
|||
General & Administrative Expenses(4)(5) |
$ |
17.5 |
$ |
3.52 |
Other Financial Metrics
Capital Expenditures & Asset Management Activities
Capital expenditures for the fourth quarter of 2019 were $86.8 million, inclusive of plugging & abandonment costs.
Three Months Ended |
|||
Capital Expenditures |
|||
U.S. Drilling & Completions |
$ |
48.2 |
|
Mexico Appraisal & Exploration |
(2.9) |
||
Asset Management |
8.8 |
||
Seismic and G&G / Land / Capitalized G&A |
11.8 |
||
Total Capital Expenditures |
$ |
65.9 |
|
Plugging & Abandonment |
20.9 |
||
Total Capital Expenditures and Plugging & Abandonment |
$ |
86.8 |
Liquidity
As of December 31, 2019, the Company had approximately $826.5 million in total debt, inclusive of the HP-I finance lease. Already accounted for in this figure is the additional $35.0 million borrowed from the Company’s credit facility to pay for the $31.8 million deposit related to the Acquisition, and the $5.0 million acquisition of certain leases from Venari Resources.
Talos had a liquidity position of $673.4 million as of year-end 2019, including $586.4 million available under the Bank Credit Facility and approximately $87.0 million of cash. LTM Adjusted EBITDA(1) for the twelve month period ended December 31, 2019 was $614.2 million. Net Debt to LTM Adjusted EBITDA(1) ratio was 1.2x.
PROVED RESERVES – AS OF DECEMBER 31, 2019
As of December 31, 2019, Talos had proved reserves of 141.7 MMBoe, with 82% comprised of liquids (75% crude oil and 7% NGLs).
The discovered resources associated with the Company’s offshore Mexico assets are not yet qualified as proved reserves per Securities and Exchange Commission (the “SEC”) rules and, therefore, are not included in any of the reserves information provided in this press release.
The standardized measure of proved reserves and the present value of the Company’s proved reserves, discounted at 10% (“PV-10”)(1), at year-end 2019 were $2.5 billion and $3.0 billion, respectively. Standardized measure and PV-10 include the present value of all asset retirement obligations associated with the relevant assets and properties.
The following table summarizes our proved reserves at December 31, 2019:
Summary of Proved Reserves(7) |
||||||||||||||||||||
MBoe |
Percent of |
Percent |
Standardized |
PV-10(6) |
||||||||||||||||
(in thousands) |
(in thousands) |
|||||||||||||||||||
Proved Developed Producing |
68,331 |
48% |
79% |
$ |
1,837,964 |
|||||||||||||||
Proved Developed Non-Producing |
29,648 |
21% |
62% |
378,244 |
||||||||||||||||
Total Proved Developed |
97,979 |
69% |
74% |
2,216,208 |
||||||||||||||||
Proved Undeveloped |
43,756 |
31% |
79% |
776,814 |
||||||||||||||||
Total Proved |
141,735 |
$ |
2,537,595 |
$ |
2,993,022 |
(6) |
PV-10 is a non-GAAP financial measure and differs from the standardized measure of discounted future net cash flows, which is the most directly comparable GAAP financial measure. See “Supplemental Non-GAAP Information” below for additional detail and reconciliations of GAAP to non-GAAP measures, including a reconciliation of PV-10 of our proved reserves to the standardized measure of discounted future net cash flows at December 31, 2019. |
(7) |
Proved oil, natural gas and NGL reserves attributable to our net interests in oil and natural gas properties were estimated and compiled for reporting purposes by our reservoir engineers and audited by Netherland, Sewell & Associates, Inc. |
The following table summarizes our proved reserves by asset at December 31, 2019:
Estimated Proved Reserves(7) |
Full Year 2019(7) |
|||||||||||||||||||||||||||||||||||||||
MBoe |
% Oil |
% Natural Gas |
% NGLs |
% Proved Developed |
Net (MBoe) |
% |
||||||||||||||||||||||||||||||||||
United States Core Properties |
||||||||||||||||||||||||||||||||||||||||
Phoenix Complex |
55,381 |
80 |
% |
14 |
% |
6 |
% |
51 |
% |
5,980 |
100 |
% |
||||||||||||||||||||||||||||
Pompano |
27,241 |
80 |
% |
12 |
% |
8 |
% |
85 |
% |
3,946 |
100 |
% |
||||||||||||||||||||||||||||
Ram Powell |
12,795 |
55 |
% |
32 |
% |
13 |
% |
100 |
% |
2,039 |
100 |
% |
||||||||||||||||||||||||||||
Amberjack |
8,581 |
92 |
% |
6 |
% |
2 |
% |
100 |
% |
784 |
99 |
% |
||||||||||||||||||||||||||||
United States Core Properties Subtotal |
103,998 |
78 |
% |
15 |
% |
7 |
% |
70 |
% |
12,749 |
||||||||||||||||||||||||||||||
Other United States Properties(8) |
37,737 |
69 |
% |
27 |
% |
4 |
% |
66 |
% |
6,207 |
82 |
% |
||||||||||||||||||||||||||||
Total United States |
141,735 |
75 |
% |
18 |
% |
7 |
% |
69 |
% |
18,956 |
(8) |
Other United States Properties includes Gulf of Mexico shelf and deepwater. |
Pro Forma proved and probable reserves – as of December 31, 2019
Pro forma for the Acquired Assets, Talos proved reserves as of December 31, 2019, were 181.3 MMBoe, with 70% crude oil. The PV-10 at year-end 2019 was 3.6 billion.
The following table summarizes Talos’s pro forma proved reserves at December 31, 2019 at SEC Pricing:
Summary of Pro Forma Proved Reserves(9) – SEC prices |
|||||||||||||||||||||
MBoe |
Percent of |
Percent |
PV-10 |
||||||||||||||||||
(in thousands) |
|||||||||||||||||||||
Proved Developed Producing |
90,203 |
50% |
74% |
$ |
2,303,981 |
||||||||||||||||
Proved Developed Non-Producing |
41,568 |
23% |
58% |
504,997 |
|||||||||||||||||
Total Proved Developed |
131,771 |
73% |
69% |
2,808,978 |
|||||||||||||||||
Proved Undeveloped |
49,521 |
27% |
74% |
817,798 |
|||||||||||||||||
Total Proved |
181,292 |
$ |
3,626,776 |
||||||||||||||||||
In addition to the proved reserves, Talos’s pro forma probable reserves at year-end 2019 were 61.4 MMBoe and had a PV-10 of $1.5 billion.
In accordance with guidelines established by the SEC, the Company’s estimated proved reserves as of December 31, 2019 were determined to be economically producible under existing economic conditions, which requires the use of the 12-month average price for each commodity, calculated as the unweighted arithmetic average of the price on the first day of each month for the year end December 31, 2019. The West Texas Intermediate spot price and the Henry Hub spot price were utilized as the referenced price and appropriately adjusted for quality, transportation, fees, energy content and basis differentials. Therefore, the standardized measure and PV-10 of Talos’s proved reserves at December 31, 2019, are based on an average crude oil price of $55.69 per barrel and an average natural gas price of $2.58 per MMBtu, prior to being adjusted for quality, transportation, fees, energy content and basis differentials.
The following table provides a supplement sensitivity for Talos’s pro forma proved reserves at December 31, 2019 at flat $45.00 WTI and $2.00 Henry Hub pricing:
Summary of Pro Forma Proved Reserves – $45.00/Bbl WTI |
|||||||||||||||||||||
MBoe |
Percent of |
Percent |
PV-10 |
||||||||||||||||||
(in thousands) |
|||||||||||||||||||||
Proved Developed Producing |
85,297 |
51% |
74% |
$ |
1,670,417 |
||||||||||||||||
Proved Developed Non-Producing |
35,987 |
22% |
58% |
308,325 |
|||||||||||||||||
Total Proved Developed |
121,284 |
73% |
69% |
1,978,743 |
|||||||||||||||||
Proved Undeveloped |
45,407 |
27% |
75% |
514,649 |
|||||||||||||||||
Total Proved |
166,691 |
$ |
2,493,392 |
||||||||||||||||||
In addition to the proved reserves, Talos’s pro forma probable reserves at year-end 2019 were 61.9 MMBoe and had a PV-10 of $1.1 billion.
Footnotes: |
|
(1) |
Adjusted Net Income, Adjusted Earnings per Share, Adjusted EBITDA, Adjusted EBITDA excluding hedges, Adjusted EBITDA Margin, Adjusted EBITDA Margin excluding hedges and Net Debt to LTM Adjusted EBITDA are non-GAAP financial measures. See “Supplemental Non-GAAP Information” below for additional detail and reconciliations of GAAP to non-GAAP measures. |
(2) |
Includes $6.5 million of federal royalty refund. |
(3) |
Average realized prices are net of certain gathering, transportation, quality differentials and other costs. |
(4) |
Includes insurance costs. |
(5) |
Excludes non-cash stock based compensation and transaction-related expenses. |
(6) |
PV-10 is a non-GAAP financial measure and differs from the standardized measure of discounted future net cash flows, which is the most directly comparable GAAP financial measure. See “Supplemental Non-GAAP Information” below for additional detail and reconciliations of GAAP to non-GAAP measures, including a reconciliation of PV-10 of our proved reserves to the standardized measure of discounted future net cash flows at December 31, 2019. |
(7) |
Proved oil, natural gas and NGL reserves attributable to our net interests in oil and natural gas properties were estimated and compiled for reporting purposes by our reservoir engineers and audited by Netherland, Sewell & Associates, Inc. |
(8) |
Other United States Properties includes Gulf of Mexico shelf and deepwater. |
(9) |
Pro forma proved oil, natural gas and NGL reserves attributable to our net interests in oil and natural gas properties were estimated and compiled for reporting purposes by our reservoir engineers. Approximately 85% of the reserves were audited by Netherland, Sewell & Associates, Inc. and Cawley, Gillespie and Associates. |
HEDGES
The following table reflects the contracted volumes and weighted average prices the Company will receive under the terms of its derivative contracts as of December 31, 2019, including contracts entered into following the end of the fiscal year:
Production Period |
Instrument Type |
Average Daily Volumes |
Weighted Average Swap Price |
Weighted Average Put Price |
Weighted Average Call Price |
|||||||||||||
Crude Oil – WTI: |
(Bbls) |
(per Bbl) |
(per Bbl) |
(per Bbl) |
||||||||||||||
January 2020 – December 2020 |
Swap |
21,366 |
$ |
53.72 |
$ |
— |
$ |
— |
||||||||||
January 2021 – December 2021 |
Swap |
2,984 |
$ |
50.08 |
$ |
— |
$ |
— |
||||||||||
January 2020 – December 2020 |
Collar |
7,481 |
$ |
— |
$ |
55.00 |
$ |
64.23 |
||||||||||
Natural Gas – Henry Hub NYMEX: |
(MMBtu) |
(per MMBtu) |
(per MMBtu) |
(per MMBtu) |
||||||||||||||
January 2020 – December 2020 |
Swaps |
20,724 |
$ |
2.65 |
$ |
— |
$ |
— |
||||||||||
January 2021 – December 2021 |
Swaps |
5,000 |
$ |
2.39 |
$ |
— |
$ |
— |
CONFERENCE CALL AND WEBCAST INFORMATION
Talos will host an earnings conference call, which will be broadcast live over the internet, tomorrow, Thursday, March 12, 2020 at 10:00 AM Eastern Time.
Listeners can access the earnings 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 1-888-348-8927 (U.S. toll-free), 1-855-669-9657 (Canada toll-free) or 1-412-902-4263 (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 through March 19, 2020 and can be accessed by dialing 1-877-344-7529 and using access code 10139354.
ABOUT TALOS ENERGY
Talos Energy (NYSE: TALO) is a technically driven independent exploration and production company focused on safely and efficiently maximizing cash flows and long-term value through its operations, currently in the United States Gulf of Mexico and offshore Mexico. As one of the U.S. Gulf of Mexico’s largest public independent producers, we leverage decades of geology, geophysics and offshore operations expertise towards the acquisition, exploration, exploitation and development of assets in key geological trends that are present in many offshore basins around the world. Our activities in offshore Mexico provide high impact exploration opportunities in an oil rich emerging basin. For more information, visit www.talosenergy.com.