Talos Energy Announces Fourth Quarter and Full Year 2023 Operational and Financial Results

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HOUSTON, Feb. 28, 2024 /PRNewswire/ — Talos Energy Inc. (“Talos” or the “Company”) (NYSE:TALO) today announced its operational and financial results for fiscal quarter and full year ended December 31, 2023. Talos also announced its year-end 2023 reserves estimates and the Company’s 2024 operational and financial guidance pro forma for the pending QuarterNorth acquisition.

Recent Highlights

Fourth quarter 2023 production and full year 2023 production, operating expenses, general and administrative expenses, and capital expenditures all in-line or better than guidance.
First production from Lime Rock and Venice projects was achieved ahead of schedule at rates near the high end of expectations.
Announced the $1.29 billion acquisition of QuarterNorth Energy Inc. (“QuarterNorth”), which is expected to close in March 2024.
Refinanced approximately $865 million in 2026 notes, extending maturities to 2029 and 2031 and reducing interest costs on Talos’s bonds by 275-300 basis points.

2024 Guidance

Production between 87.0 and 93.0 thousand barrels of oil equivalent per day (“MBoe/d”) (over 70% oil), assuming only nine months of contributions from QuarterNorth. As a reference, actual production from the combined asset base was approximately 99 MBoe/d in the fourth quarter of 2023 and 106 MBoe/d in January 2024.
Upstream capital expenditures, inclusive of QuarterNorth, of $565 to $595 million, a reduction from Talos standalone 2023 levels.
Evaluating a full range of strategic alternatives for the Talos Low Carbon Solutions (“TLCS”) subsidiary.
Capital allocation framework focused on material debt reduction and investment in key Upstream projects.
Based on recent strip pricing, Talos is targeting year-end 2024 leverage of 1.0x or less, including acquisition debt incurred offset by targeted debt paydown of approximately $400 million throughout the year from cash flow generation, excluding any potential proceeds from TLCS.

Talos President and Chief Executive Officer Timothy S. Duncan, stated, “The fourth quarter and early 2024 provided several examples of progress toward our goal of becoming a large-scale offshore exploration and production company. We had a solid operational fourth quarter, delivering 67.7 Mboe/d of oil-weighted production, generating Upstream margins of approximately $42 per barrel of oil equivalent. We brought our Venice and Lime Rock discoveries online ahead of schedule and near the high end of our rate guidance, allowing us to enter 2024 with a strong production rate. Through multiple tactical transactions, we laid the groundwork for inventory expansion, consolidating leases and adding acreage and prospects with high-quality partners. Finally, in January we announced the QuarterNorth acquisition, which should significantly grow our 2024 production, lower our corporate decline rate, expand our inventory, and improve our margins.”

Duncan continued, “Following the announcement of the QuarterNorth transaction, we launched several capital markets offerings, which reduced our financing rates and deferred bond maturities to the end of the decade. In 2024, we expect year-over-year production growth of approximately 35%-40%, while capital expenditures are expected to be less than standalone 2023 levels, resulting in material expected free cash flow generation. I am pleased about the trajectory of our business and look forward to an exciting year.”

RECENT DEVELOPMENTS AND OPERATIONS UPDATE

Exploration and Production Updates:

QuarterNorth Acquisition: In January 2024, Talos announced the acquisition of QuarterNorth, a privately-held U.S. Gulf of Mexico exploration and production company. The transaction advances Talos’s portfolio with valuable operated infrastructure and oil-weighted deepwater assets that will grow our production and provide attractive future development opportunities. We expect the transaction to enhance Talos’s financial performance on key metrics, accelerate deleveraging and improve credit strength. The transaction is currently expected to close in March 2024.

Lime Rock and Venice: Talos successfully started production from the Lime Rock and Venice discoveries in late 2023 ahead of schedule and with early production rates near the high end of expected ranges. Talos expects combined gross recoverable resources of 20-30 MMBoe and owns a 60% working interest in both wells.

Exploration Updates: In December 2023, Talos executed agreements to consolidate acreage across 15 deepwater blocks in the Green Canyon area. The consolidation provides the ability to execute prospective drilling opportunities more efficiently and includes several identified prospects. Talos’s participation is expected to be between 15% and 20%. Also in December 2023, Talos was selected as a high bidder on 13 deepwater blocks in the latest federal offshore lease sale. In November 2023, Talos and Repsol S.A. entered into a drilling joint venture covering approximately 400,000 prospective gross acres. The joint venture aims to identify future subsea tie-back prospects in the area using Talos’s Neptune facility as the host platform.

Joint Decommissioning Agreement: In February 2024, Talos and Helix Energy Solutions Group, Inc. (“Helix”) executed a five-year agreement in which Helix will provide decommissioning services for offshore wells and infrastructure, primarily on the U.S. Gulf of Mexico Shelf. Decommissioning work under the agreement is expected to start in the second quarter 2024.

TLCS Updates:

Seeking Strategic Alternatives: Talos is expanding its capital raise process to include a full range of strategic alternatives for its TLCS subsidiary, and will provide additional updates as available. Talos intends to focus its capital allocation in 2024 on maximizing free cash flow generation net of planned Upstream investments and is primarily focused on debt reduction in the near term.

Other CCS Updates: Bayou Bend CCS LLC commenced drilling an offshore and an onshore stratigraphic well for carbon sequestration in the first quarter 2024. Harvest Bend CCS LLC filed and received administrative completeness status from the EPA for two Class VI permit applications in late 2023. 

FOURTH QUARTER AND FULL YEAR 2023 RESULTS

Key Financial Highlights:

($ thousands, except per share amounts)

Three Months Ended December 31, 2023

Twelve Months Ended December 31, 2023

Total revenues

$

384,959

$

1,457,886

Net Income (Loss)

$

85,898

$

187,332

Net Income (Loss) per diluted share

$

0.68

$

1.55

Adjusted Net Income (Loss)*

$

(960)

$

27,887

Adjusted Net Income (Loss) per diluted share*

$

(0.01)

$

0.23

Adjusted EBITDA*

$

249,115

$

950,718

Adjusted EBITDA excluding hedges*

$

248,098

$

960,175

Upstream Capital Expenditures

$

148,109

$

596,470

Production

Production for the fourth quarter and full year 2023 was 67.7 MBoe/d (76% oil, 83% liquids), and 66.3 MBoe/d (75% oil, 82% liquids), respectively.

Three Months Ended
December 31, 2023

Twelve Months Ended
December 31, 2023

Oil (MBbl/d)

51.1

49.5

Natural Gas (MMcf/d)

69.8

71.8

NGL (MBbl/d)

4.9

4.8

Total average net daily (MBoe/d)

67.7

66.3

 

Three Months Ended December 31, 2023

Production

% Oil

% Liquids

% Operated

Green Canyon Area

22.3

83

%

89

%

88

%

Mississippi Canyon Area

32.3

79

%

87

%

75

%

Shelf and Gulf Coast

13.1

55

%

63

%

60

%

Total average net daily (MBoe/d)

67.7

76

%

83

%

76

%

 

Twelve Months Ended December 31, 2023

Production

% Oil

% Liquids

% Operated

Green Canyon Area

21.4

84

%

89

%

88

%

Mississippi Canyon Area

31.8

79

%

87

%

71

%

Shelf and Gulf Coast

13.1

50

%

58

%

60

%

Total average net daily (MBoe/d)

66.3

75

%

82

%

74

%

Capital Expenditures

Upstream capital expenditures for the fourth quarter and full year 2023, including plugging and abandonment and settled decommissioning obligations, totaled $173.8 million, and $733.7 million respectively.

($ thousands)

Three Months Ended December 31, 2023

Twelve Months Ended December 31, 2023

U.S. drilling & completions

$

129,354

$

447,254

Mexico appraisal & exploration

291

Asset management(1)

2,293

83,970

Seismic and G&G, land, capitalized G&A and other

16,462

64,955

Total Upstream Capital Expenditures

148,109

596,470

Plugging & Abandonment and Decommissioning Obligations Settled(2)

25,687

137,199

Total Upstream

$

173,796

$

733,669

__________________________________

(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 for the fourth quarter and full year 2023 totaled $9.3 million, and $22.9 million, respectively, which is included in Talos’s reported Adjusted EBITDA* figure. CCS capital expenditures for the fourth quarter and full year 2023 totaled $3.8 million, and $41.0 million, respectively, which mainly includes investments in Bayou Bend and funding for general ongoing operations.

($ thousands)

Three Months Ended
December 31, 2023

Twelve Months Ended
December 31, 2023

CCS Expenses

$

9,321

$

22,883

CCS Capital Expenditures

3,778

40,961

Total CCS Costs Incurred

$

13,099

$

63,844

Liquidity and Leverage

At December 31, 2023, Talos had approximately $787.9 million of liquidity, with $765.0 million undrawn on its credit facility and approximately $33.6 million in cash, less approximately $10.8 million in outstanding letters of credit. On December 31, 2023, Talos had $1,066.0 million in total debt. Net Debt* was $1,032.4 million. Net Debt to Pro Forma Last Twelve Months (“LTM”) Adjusted EBITDA* was 1.0x, inclusive of EnVen pre-closing contributions to Adjusted EBITDA in early 2023, as permitted by the terms of our Bank Credit Facility.

($ thousands)

December 31, 2023

Bank Credit Facility-matures March 2027

$

200,000

12.00% Second-Priority Senior Secured Notes — due January 2026

638,541

11.75% Senior Secured Second Lien Notes — due April 2026

227,500

Total Debt

1,066,041

Less: Cash and cash equivalents

(33,637)

Net Debt

$

1,032,404

On February 7, 2024, Talos completed an upsized debt offering of $1,250.0 million in aggregate principal amount of Second-Priority Senior Secured Notes, consisting of $625.0 million of 9.000% Second-Priority Senior Secured Notes due 2029 and $625.0 million of 9.375% Second-Priority Senior Secured Notes due 2031. Talos used the net proceeds from the debt offering to fund the redemption of all of the outstanding 12.00% Second-Priority Senior Secured Notes due January 2026 and the 11.75% Senior Secured Second Lien Notes due April 2026.

The following table summarizes Talos’s bonds outstanding as of December 31, 2023 and pro forma for the refinancing subsequent to year-end 2023.

($ thousands)

December 31, 2023

Pro Forma for
Refinancing

12.00% Second-Priority Senior Secured Notes — due January 2026

$

638,541

$

11.75% Senior Secured Second Lien Notes — due April 2026

227,500

New 9.000% Second-Priority Senior Secured Notes — due February 2029

625,000

New 9.375% Second-Priority Senior Secured Notes — due February 2031

625,000

Total Second Lien Notes

$

866,041

$

1,250,000

Footnotes:

*See “Supplemental Non-GAAP Information” for details and reconciliations of GAAP to non-GAAP financial measures.

 

HISTORICAL AND PRO FORMA YEAR-END 2023 RESERVES

SEC Reserves

As of December 31, 2023, Talos had proved reserves of 152.8 MMBoe and, on a pro forma basis, including assets expected to be acquired from QuarterNorth, would have had proved reserves of 215.8 MMBoe. The Standardized Measure of Talos’s standalone reserves was approximately $3.0 billion and the PV-10 of Talos proved reserves was approximately $3.5 billion. The PV-10 of pro forma proved reserves was approximately $5.1 billion. Talos’s reserves and Talos’s QuarterNorth figures are prepared by Talos management and audited by Netherland Sewell & Associates (“NSAI”). All figures are fully burdened by and net of all plugging and abandonment costs associated with the properties included in the reserves report. The following tables summarize proved reserves at December 31, 2023 based on SEC pricing of $78.21 per barrel of oil and $2.64 per MMBtu of natural gas. The acquisition of QuarterNorth is currently expected to close in March 2024.

In addition to proved reserves, Talos’s audited probable reserves were 87.4 MMBoe and pro forma audited probable reserves were  148.4 MMBoe with a corresponding PV-10 of approximately $2.5 billion and $3.9 billion, respectively.

Pro Forma SEC Reserves as of December 31, 2023(1)(2)(3)

MBoe

% of Total
Proved

% Oil

PV -10
(in thousands)

Proved Developed Producing

128,674

60

%

76

%

$

4,214,100

Proved Developed Non-Producing

42,661

20

%

65

%

438,256

Total Proved Developed

171,335

79

%

73

%

4,652,356

Proved Undeveloped

44,442

21

%

62

%

441,992

Total Proved

215,778

100

%

71

%

$

5,094,348

Reserves Sensitivities

The following tables summarize the PV-10 values of Talos’s proved reserves at December 31, 2023, at various crude oil prices and a flat $3.50 per MMBtu gas price, except as noted below, inclusive of QuarterNorth.

Pro Forma Year-End 2023 Reserves Sensitivity (PV-10) ($000)(4)

$65

$75

SEC(2)

$85

$95

Proved Developed Producing

$

3,300,092

$

4,078,540

$

4,214,100

$

4,866,048

$

5,653,819

Proved Developed Non-Producing

193,174

401,457

438,256

608,591

804,670

Total Proved Developed

3,493,266

4,479,997

4,652,356

5,474,640

6,458,489

Proved Undeveloped

261,985

429,085

441,992

601,967

777,635

Total Proved

$

3,755,252

$

4,909,082

$

5,094,348

$

6,076,607

$

7,236,124

(1)

This table summarizes year end 2023 reserves of Talos and QuarterNorth collectively. The acquisition of QuarterNorth cannot be guaranteed. In the event the QuarterNorth acquisition is not completed, the reserve volumes and associated figures presented above would be materially reduced.

(2)

Reserves figures are presented inclusive of the plugging and abandonment obligations and before hedges, utilizing SEC pricing of $78.21 per barrel of oil and $2.64 per MMBtu of natural gas.

(3)

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 stand-alone proved reserves to the corresponding standardized measure of discounted future net cash flows at December 31, 2023. With respect to the pro forma PV-10 giving effect to our pending acquisition, we are unable to reconcile to Standardized Measure without unreasonable efforts. Similarly, PV-10 cannot be reconciled to Standardized Measure for prices other than SEC pricing, because GAAP does not prescribe any corresponding measure based on other pricing, and accordingly it is not practicable to prepare any such reconciliation.

(4)

Pro forma sensitivities are based on Talos and QuarterNorth SEC reserves databases as of December 31, 2023. Reserves volumes may fluctuate slightly based on economic limitations.

 

2024 OPERATIONAL & FINANCIAL GUIDANCE

Talos intends to prioritize significant free cash flow generation and the advancement of key Upstream projects expected to drive future shareholder value creation in its 2024 operational and financial plan, in addition to the integration of QuarterNorth. Talos expects its level of capital investments in 2024, inclusive of QuarterNorth, to be less than Talos standalone 2023 levels. This is expected to result in an attractive reinvestment rate of 45%-50% (excluding plugging and abandonment) and material cash flow generation. Talos is targeting total debt reduction of approximately $400 million and to end 2024 with a leverage ratio of 1.0x or less, inclusive of acquisition debt incurred offset by debt paydown.

Talos’s 2024 production guidance includes known and expected deductions from baseline production of the assets, including 1) only nine assumed months of QuarterNorth contributions (versus twelve months pro forma), 2) expected planned downtime for facility and downstream maintenance, including the Helix Producer I (“HP-I”) drydock and Katmai shut-in, among others, and 3) expected but unplanned downtime for risking and weather-related events.

For the first quarter 2024, Talos expects average daily production of 70.0 – 72.0 MBoe/d, which includes the impact of the planned HP-1 dry-dock shut-in in March 2024 and does not include any contributions from QuarterNorth. Talos’s actual January 2024 standalone production was approximately 73.5 MBoe/d, and preliminary standalone February 2024 production was approximately 75.0 MBoe/d.

The following summarizes key elements of Talos’s 2024 production guidance.

FY 2024

Low

High

Pro Forma Estimate Before Known & Estimated Unplanned Reductions

105.0

110.0

Less: QuarterNorth Partial Year Contribution

(8.3)

(8.0)

Less: Planned Downtime Impacts

(5.8)

(5.5)

Less: Weather and Unplanned Downtime Risking

(4.0)

(3.5)

Net Risked Production Estimate (MBoe/d)

87.0

93.0

Note: Figures may not sum due to rounding.

Cash operating expenses include a full twelve month impact of EnVen, as compared to approximately ten and a half months in 2023, and nine assumed months of QuarterNorth as well as approximately $15 million related to the HP-1 drydock and other associated maintenance. This guidance also includes the execution of multiple deepwater workover projects that will increase and/or reinstate production.  The following summarizes Talos’s full year 2024 operational and financial guidance.

For more information, please refer to the Fourth Quarter 2023 Earnings Presentation available under Presentations and Filings on the Investor Relations section of Talos’s website.

FY 2024

($ Millions, unless highlighted):

Low

High

Production

Oil (MMBbl)

23.0

24.0

Natural Gas (Mcf)

38.0

44.0

NGL (MMBbl)

2.5

2.7

Total Production (MMBoe)

31.8

34.0

Avg Daily Production (MBoe/d)

87.0

93.0

Cash Expenses

Cash Operating Expenses(1)(2)(4)*

$

505

$

525

Workovers

$

45

$

55

G&A(2)(3)*

$

100

$

110

Capex

Upstream Capital Expenditures(5)

$

565

$

595

P&A Expenditures

P&A, Decommissioning

$

90

$

100

Interest

Interest Expense(6)

$

175

$

185

 

(1)

Includes Lease Operating Expenses and Maintenance. 

(2)

Includes insurance costs.

(3)

Excludes non-cash equity-based compensation.

(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 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 February 28, 2024. The table includes Talos volumes only and does not include any associated derivative instruments assumed as part of the QuarterNorth acquisition:

Instrument Type

Avg. Daily Volume

W.A. Swap

W.A. Sub-Floor

W.A. Floor

W.A. Ceiling

Crude – WTI

(Bbls)

(Per Bbl)

(Per Bbl)

(Per Bbl)

(Per Bbl)

January – March 2024

Fixed Swaps

19,363

$

74.06

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

25,500

$

74.06

April – June 2024

Collar

1,000

$

70.00

$

75.00

July …

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