Talos Energy Announces Third Quarter 2019 Financial And Operational Results

HOUSTON, Nov. 6, 2019 /PRNewswire/ -- Talos Energy Inc. ("Talos," or the "Company") (NYSE: TALO) today announced its financial and operational results for the third quarter of 2019 and provided an operations update.

Key third quarter highlights include:

    --  Production of 52.6 thousand barrels of oil equivalent per day
        ("MBoe/d"), or 4.8 million barrels of oil equivalent ("MMBoe") in total,
        of which 73% was oil and 80% was liquids. As previously disclosed, third
        quarter production was impacted by Hurricane Barry, resulting in the
        deferral of approximately 4.0 MBoe/d.
    --  Revenue((1)) of $228.9 million and average realized prices of $59.54/Bbl
        of oil and $2.12/Mcf of natural gas, net of deductions. 93% of operating
        revenues were derived from oil production and reflect a significant
        realized price premium, which is net of transport and quality
        deductions, of $3.09/Bbl above the average WTI benchmark price of
        $56.45/Bbl during the same period.
    --  Net Income of $73.3 million ($1.35 earnings per share - diluted) and
        Adjusted Net Income((2)) of $44.3 million ($0.81 adjusted earnings per
        share - diluted).
    --  Adjusted EBITDA((2)) of $157.8 million and Adjusted EBITDA excluding
        hedges((2)) of $152.4 million. Adjusted EBITDA Margin((2)) per Boe of
        $32.57, or 69%, and Adjusted EBITDA Margin excluding hedges((2)) per Boe
        of $31.47, or 67%.
    --  Capital expenditures of $115.8 million, including investment of $99.7
        million in the U.S. Gulf of Mexico and $16.1 million in offshore Mexico.
    --  As of September 30, 2019, liquidity position of $612.1 million. Net Debt
        to Last Twelve Months ("LTM") Adjusted EBITDA((2)) was 1.1x.
    --  In the third quarter of 2019, the Company had a successful discovery in
        offshore Mexico Block 31, executed two separate exploration transactions
        with BP and ExxonMobil, respectively, and drilled and completed its
        Grand Isle 82 A-22 exploration well, which achieved first production in
        October 2019.
    --  The Company was added to the S&P SmallCap 600 Index on November 1, 2019.
        Talos was included in the Index as one of just 19 exploration and
        production companies and was the sixth largest by market capitalization
        amongst the Energy Sector designated companies. Talos was also included
        in the S&P SmallCap 600 GICS Oil and Gas Exploration and Production
        Sub-Industry Index.


            (1)            Includes $1.0 million of federal
                              royalty refund.



            (2)            Adjusted Net Income, Adjusted
                              Earnings per Share, Adjusted
                              EBITDA, Adjusted EBITDA excluding
                              hedges, Adjusted EBITDA Margin and
                              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.

President and Chief Executive Officer Timothy S. Duncan commented: "I am proud of our team for achieving another positive earnings quarter, bolstered by another period of generating significant free cash flow in our U.S. Gulf of Mexico business. Our focus on investing in opportunities around core infrastructure that we own or operate continues to allow us to achieve top quartile net back margins, which are enhanced by better than expected results of our cost control initiatives throughout 2019. We also continue to balance those investments with high impact exploration projects, including more success in offshore Mexico.

As we begin to focus on our 2020 drilling campaign, success in our Bulleit project and acceleration of first oil at Orlov provide a strong foundation, with additional potential upside from our exploration activities related to our recent Puma West and Hershey transactions. Among other activities, we plan to execute a platform rig contract for a near-field drilling program around assets we acquired in the past year and we look forward to progressing our offshore Mexico discoveries closer to final investment decisions.

We believe our strategy of combining low entry cost M&A with field development upside and high impact exploration, while also maintaining a prudent financial and conservative leverage profiles and strong free cash flow generation, allows us to grow equity value while maintaining a strong balance sheet. We are excited about the direction of the Company moving forward."

RECENT DEVELOPMENTS AND OPERATIONS UPDATE

Drilling and Exploration Activities - U.S. Gulf of Mexico

    --  Puma West Prospect: Talos entered an agreement with BP to drill the Puma
        West prospect located on Green Canyon Block 821. BP is the operator of
        the prospect holding a 50% working interest, Talos retained a 25%
        working interest, and Chevron now also has a 25% working interest. The
        Puma West well is being drilled by the Seadrill West Auriga
        ultra-deepwater drillship and was spud in October, targeting Miocene
        sands similar to those seen in the Mad Dog development located less than
        15 miles away.
    --  Bulleit Prospect: As previously disclosed, the Green Canyon Block 21
        Bulleit exploration well encountered approximately 140 feet of net true
        vertical depth ("TVD") oil pay in the shallow target, the DTR-10 Sand,
        and approximately 110 feet of net TVD oil pay in the deeper MP Sand.
        Talos expects first production in the third quarter of 2020 with a
        possible initial flow rate of 7.0 - 10.0 MBoe/d gross, 2.8 - 4.0 MBoe/d
        net. Talos holds a 50.0% working interest in the Bulleit prospect and is
        the operator, with EnVen and Otto Energy holding 33.3% and 16.7% working
        interests, respectively.
    --  Orlov Prospect: After successfully discovering oil pay in the main
        target Aspen J sand in the Green Canyon 200 Orlov project, the operator,
        Fieldwood Energy, is finalizing drilling operations and plans to
        complete the well by year end. Talos expects that the project could
        produce 7.0 - 10.0 MBoe/d gross, 1.8 - 2.5 MBoe/d net with first
        production recently accelerated and now expected in early first quarter
        of 2020. Talos owns a 30% working interest in the project.
    --  Hershey Prospect: Talos acquired a 100% working interest and
        operatorship of Green Canyon Blocks 326, 327, 370 and 371, constituting
        approximately 23,000 gross acres. The Hershey prospect is targeting a
        potential large sub-salt Miocene accumulation with potential
        oil-weighted, gross unrisked resources of 100 - 300 MMBoe. Consideration
        for the transaction is 100% contingent-based and the agreement contains
        no well commitment. Talos expects to initiate a process to sell-down a
        portion of its working interest in the project in the fourth quarter of
        2019.
    --  2020 Rig Contracts: In advance of the Company's 2020 drilling and
        completions program, Talos is finalizing contractual terms with two
        drilling contractors following a competitive bidding process. One
        contractor is expected to provide a deepwater drillship to be used for
        the Company's deepwater exploration and exploitation activities. The
        second contractor is expected to provide a platform rig to be used for
        near-field drilling opportunities in assets that were acquired over the
        last 18 months, starting with our Green Canyon 18 asset in the first
        quarter of 2020, with the option of subsequently moving to our Pompano
        and Amberjack assets in our Mississippi Canyon core area in the fourth
        quarter of 2020.

Drilling and Exploration Activities - Mexico

    --  Block 7: Following the successful completion of the Zama appraisal
        program, Talos is working with Netherland, Sewell & Associates, Inc. to
        complete a formal resource report by year end 2019. The Company
        reiterates its previously stated resource guidance in the upper half of
        its pre-appraisal estimated range of 400 - 800 MMBoe gross recoverable
        resources. Talos has initiated early FEED work to allow for the earliest
        possible initial production date and is utilizing all of the appraisal
        data to create an optimal development plan for the field. Zama
        unitization discussions with Petróleos Mexicanos ("Pemex") are ongoing.
        As previously announced in September 2019, the Company was also recently
        granted a two-year contract term extension as well as regulatory
        approvals to allow for exploration activities on additional retained
        acreage in Block 7, which is separate and incremental to the Zama asset.

    --  Block 31: The Block 31 exploration project consisted of two wells,
        Xaxamani-2EXP and Tolteca-1EXP, both drilled in the third quarter of
        2019. The Xaxamani-2EXP well logged approximately 148 feet (45 meters)
        of gross TVD pay, with a net to gross ratio of approximately 78% in two
        shallow oil sands. Subsequently, the Tolteca-1EXP well logged
        approximately 123 feet (37 meters) of gross TVD pay, with a net to gross
        ratio of approximately 97%, all located in the deeper of the two sands
        found in the Xaxamani-2EXP well. The Tolteca-1EXP well expected to find
        an oil-water contact but logged hydrocarbons "full to base," exceeding
        pre-drill expectations for reservoir thickness and areal extent, thereby
        increasing resource expectations not only in the drilling program to
        date, but also increasing expectations of similar geophysical anomalies
        that could open up a shallow oil play in the contract area. The Xaxamani
        discovery is located approximately one mile from shore in less than 100
        feet of water. Talos holds a 25% working interest in Block 31. Since
        2017, Talos has now drilled or participated in eight wells in offshore
        Mexico, including five exploration wells, resulting in two material oil
        discoveries.

Derivatives Activities

    --  Derivatives Update: The following table reflects the contracted volumes
        and weighted average prices the Company will receive under its
        derivative contracts as of September 30, 2019. During the third quarter
        of 2019, Talos hedged additional fourth quarter 2019 and fiscal year
        2020 oil production of 1,967,500 Bbls and natural gas production of
        2,750,000 MMBtu. The weighted average prices the Company will receive
        under these West Texas Intermediate and Henry Hub swap contracts are
        $55.40 per Bbl and $2.45 per MMBtu, respectively.



       
                Production Period 
         
               Instrument Average          Weighted                  Weighted                  Weighted

                                         
         
                Type     Daily           Average                   Average                  Average

                                                                    Volumes        Swap Price                  Put Price                  Call Price

    ---


       Crude Oil - WTI:                                            (Bbls)          (per Bbl)                  (per Bbl)                  (per Bbl)



       Oct 2019 - Dec 2019                 
             Swap                  29,468                 $
      56.04 
            $             
     $



       Jan 2020 - Dec 2020                 
             Swap                  13,492                 $
      56.13 
            $             
     $



       Jan 2020 - Dec 2020               
         Costless collars             7,481             
     $                         $
     55.00     $
              64.23



       Natural Gas - Henry Hub NYMEX:                              (MMBtu)        (per MMBtu)                 (per MMBtu)                  (per MMBtu)



       Oct 2019 - Dec 2019                 
             Swap                  37,475                  $
      2.92 
            $             
     $



       Jan 2020 - Dec 2020                 
             Swap                  16,216                  $
      2.78 
            $             
     $



     
                THIRD QUARTER 2019 RESULTS





     
                Key Financial Highlights:




                   Period results ($ million):



     Revenues(1)                                  $
      228.9



     Net Income                                    $
      73.3


      Earnings per share - diluted                  $
      1.35



     Adjusted Net Income(2)                        $
      44.3


      Adjusted Earnings per share -
       diluted(2)                                   $
      0.81



     Adjusted EBITDA(2)                           $
      157.8


      Adjusted EBITDA excl. hedges(2)              $
      152.4


      Capital Expenditures (including Plug
       & Abandonment)                              $
      115.8


                   Adjusted EBITDA Margin(2):


      Adjusted EBITDA (% of Revenue - Operations)       69
                                                           %



     Adjusted EBITDA per Boe                      $
      32.57


      Adjusted EBITDA excl. hedges (% of Revenue -      67
       Operations)                                       %


      Adjusted EBITDA excl. hedges per Boe         $
      31.47

Production, Realized Prices and Revenue
Production for the third quarter of 2019 was 4.8 MMBoe, with oil production accounting for 73% of the total. Oil price realizations, net of certain gathering, transportation, quality differentials and other costs, were $59.54 per barrel, representing an average for the quarter of $3.09 per barrel above the average WTI price over the same period. As previously disclosed, third quarter production was impacted by Hurricane Barry, which prompted the shut-in of approximately 85% of the Company's production for approximately one week on average, and resulted in the production deferral of approximately 4.0 MBoe/d.


                                         Three Months Ended
                             September 30, 2019



                 Production
                  volumes


     Oil
      production
      volume
      (MBbls)                                                       3,559


     NGL
      production
      volume
      (MBbls)                                                         299


     Natural
      Gas
      production
      volume
      (MMcf)                                                        5,909


                 Total
                  production
                  volume
                  (MBoe)                                            4,843




                 Average
                  net daily
                  production
                  volumes


     Oil (MBbl/
      d)                                                             38.7


     NGL (MBbl/
      d)                                                              3.2


     Natural
      Gas
      (MMcf/d)                                                       64.2


                 Total
                  average
                  net daily
                  (MBoe/d)                                           52.6




                 Average
                  realized
                  prices
                  (excluding
                  hedges)(3)


     Oil
      ($/Bbl)                                        $59.54


     NGL
      ($/Bbl)                                        $11.32


     Natural
      Gas
      ($/Mcf)                                         $2.12


                 Average
                  Realized
                  Price
                  ($/Boe)                            $47.04




                 Average
                  NYMEX
                  prices


     WTI
      ($/Bbl)                                                   $
      56.45


     Henry Hub
      ($/MMBtu)                                                  $
      2.23




                 Revenues
                  ($
                  million)


     Oil                                                        $
      211.9


     NGL                                                              3.4


     Natural
      Gas                                                            12.6



                 Revenue -
                  Operations                                        227.9


     Other
      revenue                                                         1.0



                 Total
                  revenue                                   $
     
        228.9


                                           
            
     Three Months Ended September 30, 2019


                                         Production                                         % Oil    % Liquids % Operated



                   Average net daily
                    production
                    volumes by asset
                    (MBoe/d)


                   Green Canyon


      Phoenix Complex                                     18.7                                    81
                                                                                                                        %   %
                                                                                                  %                    87  100


      Green Canyon 18                                      1.0                                    89
                                                                                                                        %   %
                                                                                                  %                    91  100



                                     81

                                                                                                                            %
                                                                                                                        %

                   Green Canyon Area                      19.7                                     %                    87  100




                   Mississippi
                    Canyon


      Amberjack                                            2.1                                    90
                                                                                                                        %   %
                                                                                                  %                    92   99


      Pompano                                             10.9                                    83
                                                                                                                        %   %
                                                                                                  %                    89  100


      Ram Powell                                           4.9                                    61
                                                                                                                        %   %
                                                                                                  %                    74  100


      Gunflint                                             1.1                                    79
                                                                                                                        %   %
                                                                                                  %                    84    0



                   Mississippi        77
                    Canyon Area
                                                                                                                            %
                                                                                                                        %

                                                          19.0                                     %                    84   94




                   Shelf and Other
                    Deepwater



     Shelf                                               12.6                                    55
                                                                                                                        %   %
                                                                                                  %                    61   88


      Other deepwater                                      1.3                                    73
                                                                                                                        %   %
                                                                                                  %                    77   73



                   Shelf and Other    61
                    Deepwater Area
                                                                                                                            %
                                                                                                                        %

                                                          13.9                                     %                    67   87




                   Total average net  73
                    daily (MBoe/d)
                                                                                                                            %
                                                                                                                        %

                                                          52.6                                     %                    80   94

Expenses
Total lease operating expenses ("LOE") for the third quarter of 2019 were $47.6 million, inclusive of insurance costs, or $9.83/Boe. LOE/Boe for the quarter was negatively impacted by reduced production volumes as a result of the production shut-in related to Hurricane Barry. Workover and maintenance expense for the quarter was $14.2 million, or $2.93/Boe. Workover and maintenance expense was also negatively impacted by Hurricane Barry with approximately $2.0 million of incremental, one-time expenses. General and administrative expenses ("G&A") for the quarter were $15.4 million (excluding $1.9 million of stock-based compensation), or $3.18/Boe. Total G&A expenses continues to be lower than expected due to continuous focus on cost control; however, G&A/Boe for the quarter was negatively impacted by the deferred production volumes associated with Hurricane Barry.


                               Three Months Ended         Per Boe
                      September 30,



     Lease Operating
      Expenses                                    $
     47.6         $
     9.83


     Workover and
      Maintenance
      Expenses                                    $
     14.2         $
     2.93


     General &
      Administrative
      Expenses
      (excluding non-
      cash items)(5)                              $
     15.4         $
     3.18

Other Financial Metrics

Capital Expenditures & Asset Management Activities
Capital expenditures for the third quarter of 2019 were $115.8 million, inclusive of plugging & abandonment costs. Asset management workover and recompletion activities accounted for incremental production of 2.7 MBoe/d gross, 1.5 MBoe/d, net to Talos in the third quarter. The combined net production conversion cost was $3,422 per Boe/d.


                                            Three Months Ended
                                September 30, 2019


                  Capital
                   Expenditures


     U.S.
      Drilling
      &
      Completions                                                    $
      52.6


     Mexico
      Appraisal
      &
      Exploration                                                        12.6


     Asset
      Management                                                         14.0


     Seismic
      and G&G
      /Land
      /
      Capitalized
      G&A                                                                14.5



                  Total
                   Capital
                   Expenditures                                 $
      
        93.6


     Plugging
      &
      Abandonment                                                        22.2



                  Total
                   Capital
                   Expenditures
                   and
                   Plugging
                   &
                   Abandonment                                 $
      
        115.8

Liquidity
As of September 30, 2019, the Company had approximately $795.3 million in total debt, inclusive of the HP-I finance lease, and a liquidity position of $612.1 million, including $521.4 million available under the Bank Credit Facility and approximately $90.7 million of cash. LTM Adjusted EBITDA((2)) for the twelve month period ended September 30, 2019 was $617.2 million. Net Debt to LTM Adjusted EBITDA((2)) ratio was 1.1x.

2019 GUIDANCE UPDATES

Updates and adjustments to the Company's 2019 full year financial guidance are listed in the table below.


                2019 Guidance ($ millions)


     Production (MBoe/d)                   
           53 - 56        Full Year
                                                                   2019
                                                                   production
                                                                   is expected
                                                                   near the low
                                                                   end of the
                                                                   previously
                                                                   guided
                                                                   range,
                                                                   driven
                                                                   mainly by
                                                                   already
                                                                   disclosed
                                                                   impacts from
                                                                   Hurricane
                                                                   Barry, Boris
                                                                   3 production
                                                                   and Pompano
                                                                   shut-in in
                                                                   the first
                                                                   quarter of
                                                                   2019


     Lease Operating Expenses(4)             
            $195 - $205 Expected near
                                                                   lower end of
                                                                   range


     Workover & Maintenance                    
            $60 - $65 Expected near
      Expenses                                                     higher end
                                                                   of range


     General & Administrative                  
            $60 - $65 Expected near
      Expenses(4)(5)                                               lower end of
                                                                   range


     Capital Expenditures(6)                 
            $540 - $550 Updated
                                                                   range,
                                                                   primarily
                                                                   driven by:

                                                                  1)   $20 -
                                                                   $25 million:
                                                                   Puma West
                                                                   well cost

                                              2) $15 -
                                                                   $20 million:
                                                                   Success-
                                                                   driven
                                                                   capital
                                                                   expenditures
                                                                   as a result
                                                                   of the
                                                                   expected
                                                                   full
                                                                   realization
                                                                   of
                                                                   development
                                                                   spending for
                                                                   Bulleit,
                                                                   Orlov and
                                                                   Ewing Bank
                                                                   306

                                              3) $30 -
                                                                   $35 million:
                                                                   Timing
                                                                   shifts
                                                                   mainly
                                                                   related to
                                                                   acceleration
                                                                   of non-
                                                                   operated
                                                                   projects,
                                                                   including
                                                                   pull-
                                                                   forward of
                                                                   Orlov first
                                                                   oil


              (1)              Includes $1 million of federal
                                  royalty refund.



              (2)              Adjusted Net Income, Adjusted
                                  Earnings per Share, Adjusted
                                  EBITDA, Adjusted EBITDA excluding
                                  hedges, Adjusted EBITDA Margin and
                                  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.



              (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 expense.



              (6)              Includes $70 -$75 million of Mexico
                                  capital expenditures.

CONFERENCE CALL AND WEBCAST INFORMATION

Talos will host a conference call, which will also be broadcast live over the internet, on November 7, 2019 at 9:00 AM CST. Listeners can access the 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 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 call through November 14, 2019 and can be accessed by dialing 1-877-344-7529 and using access code 10136203.

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.

INVESTOR RELATIONS CONTACT

Sergio Maiworm
+1.713.328.3008
investor@talosenergy.com

CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING STATEMENTS

This communication may contain "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact included in this communication, regarding our strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects, plans and objectives of management are forward-looking statements. When used in this communication, the words "could," "believe," "anticipate," "intend," "estimate," "expect," "project," "forecast, "may," "objective," plan" and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. These forward-looking statements are based on our current expectations and assumptions about future events and are based on currently available information as to the outcome and timing of future events.

We caution you that these forward-looking statements are subject to numerous risks and uncertainties, most of which are difficult to predict and many of which are beyond our control. These risks include, but are not limited to, commodity price volatility, inflation, lack of availability of drilling and production equipment and services, environmental risks, drilling and other operating risks, regulatory changes, the uncertainty inherent in estimating reserves and in projecting future rates of production, cash flow and access to capital, the timing of development expenditures, potential adverse reactions or changes to competitive responses to the business combination between Talos Energy LLC and Stone Energy Corporation, the possibility that the anticipated benefits of such business combination are not realized when expected or at all, including as a result of the impact of, or problems arising from, the integration of the two companies, and other factors that may affect our future results and business, generally, including those discussed under the heading "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2018, filed with the SEC on March 14, 2019, and in our Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, to be filed with the SEC subsequent to the issuance of this communication.

Should one or more of these risks occur, or should underlying assumptions prove incorrect, our actual results and plans could differ materially from those expressed in any forward-looking statements. All forward-looking statements, expressed or implied, are expressly qualified in their entirety by this cautionary statement. This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue. Except as otherwise required by applicable law, we disclaim any duty to update any forward-looking statements, to reflect events or circumstances after the date of this communication.

Estimates for our future production volumes are based on assumptions of capital expenditure levels and the assumption that market demand and prices for oil and gas will continue at levels that allow for economic production of these products. The production, transportation and marketing of oil and gas are subject to disruption due to transportation and processing availability, mechanical failure, human error, hurricanes and numerous other factors. Our estimates are based on certain other assumptions, such as well performance, which may vary significantly from those assumed. Therefore, we can give no assurance that our future production volumes will be as estimated.

Cautionary Note to Investors

The SEC permits oil and gas companies, in their filings with the SEC, to disclose only proved, probable and possible reserves that meet the SEC's definitions for such terms. In this communication, the Company uses certain broader terms such as "gross unrisked resources" and "gross recoverable resources" that the SEC's guidelines strictly prohibit the Company from including in filings with the SEC. These types of estimates do not represent, and are not intended to represent, any category of reserves based on SEC definitions, are by their nature more speculative than estimates of proved, probable and possible reserves and do not constitute "reserves" within the meaning of the SEC's rules. These estimates are subject to greater uncertainties, and accordingly, are subject to a substantially greater risk of actually being realized. Investors are urged to consider closely the disclosures and risk factors in the reports the Company files with the SEC.


                                                                                                                                            
      
                Talos Energy Inc.

                                                                                                                                          
      
        Condensed Consolidated Balance Sheets

                                                                                                                                         
      
        (In thousands, except per share amounts)




                                                                                                                                                                                          September 30, 2019                   December 31, 2018



                                                                                                                                                                                              (Unaudited)


                                                                                             
            
                ASSETS



     Current assets:



     Cash and cash equivalents                                                                                                                                                                                 $
          90,682                     $
           139,914



     Restricted cash                                                                                                                                                                                                                                        1,248



     Accounts receivable



     Trade, net                                                                                                                                                                                                       108,354                              103,025



     Joint interest, net                                                                                                                                                                                               17,562                               20,244



     Other                                                                                                                                                                                                             31,768                               19,686



     Assets from price risk management activities                                                                                                                                                                      43,058                               75,473



     Prepaid assets                                                                                                                                                                                                    39,378                               38,911



     Income tax receivable                                                                                                                                                                                                                                 10,701



     Other current assets                                                                                                                                                                                               1,952                                7,644




     Total current assets                                                                                                                                                                                             332,754                              416,846




     Property and equipment:



     Proved properties                                                                                                                                                                                              4,012,100                            3,629,430



     Unproved properties, not subject to amortization                                                                                                                                                                 178,174                              108,209



     Other property and equipment                                                                                                                                                                                      28,690                               33,191




     Total property and equipment                                                                                                                                                                                   4,218,964                            3,770,830



     Accumulated depreciation, depletion and amortization                                                                                                                                                         (1,967,610)                         (1,719,609)




     Total property and equipment, net                                                                                                                                                                              2,251,354                            2,051,221




     Other long-term assets:



     Assets from price risk management activities                                                                                                                                                                       7,820



     Other well equipment inventory                                                                                                                                                                                     9,251                                9,224



     Operating lease assets                                                                                                                                                                                             8,082



     Other assets                                                                                                                                                                                                       2,624                                2,695




     Total assets                                                                                                                                                                                           $
          2,611,885                   $
           2,479,986



                                                                              
              
              LIABILITIES AND STOCKHOLDERS' EQUITY



     Current liabilities:



     Accounts payable                                                                                                                                                                                          $
          95,737                      $
           51,019



     Accrued liabilities                                                                                                                                                                                              169,152                              188,650



     Accrued royalties                                                                                                                                                                                                 37,763                               38,520



     Current portion of long-term debt                                                                                                                                                                                                                        443



     Current portion of asset retirement obligations                                                                                                                                                                   63,404                               68,965



     Liabilities from price risk management activities                                                                                                                                                                  3,832                                  550



     Accrued interest payable                                                                                                                                                                                          21,058                               10,200



     Current portion of operating lease liabilities                                                                                                                                                                     1,416



     Other current liabilities                                                                                                                                                                                         18,993                               22,071




     Total current liabilities                                                                                                                                                                                        411,355                              380,418




     Long-term liabilities:



     Long-term debt, net of discount and deferred financing costs                                                                                                                                                     697,192                              654,861



     Asset retirement obligations                                                                                                                                                                                     321,808                              313,852



     Liabilities from price risk management activities                                                                                                                                                                    750



     Operating lease liabilities                                                                                                                                                                                       17,249



     Other long-term liabilities                                                                                                                                                                                       88,707                              123,359




     Total liabilities                                                                                                                                                                                              1,537,061                            1,472,490




     Commitments and contingencies (Note 11)



     Stockholders' equity:



     Preferred stock, $0.01 par value; 30,000,000 shares authorized; no shares issued or

          outstanding as of September 30, 2019 and December 31, 2018



     Common stock $0.01 par value; 270,000,000 shares authorized; 54,196,145 and 54,155,768 shares                                                                                                                        542                                  542

          issued and outstanding as of September 30, 2019 and December 31, 2018, respectively



     Additional paid-in capital                                                                                                                                                                                     1,342,993                            1,334,090



     Accumulated deficit                                                                                                                                                                                            (268,711)                           (327,136)




     Total stockholders' equity                                                                                                                                                                                     1,074,824                            1,007,496




     Total liabilities and stockholders' equity                                                                                                                                                             $
          2,611,885                   $
           2,479,986


                                                                                           
             
                Talos Energy Inc.

                                                                                
           
              Condensed Consolidated Statements of Operations

                                                                                
           
              (In thousands, except per common share amounts)

                                                                                              
             
                (Unaudited)




                                               Three Months Ended September 30,                                                         Nine Months Ended September 30,



                                                                           2019                                     2018                                                2019              2018




     Revenues and other:



     Oil revenue                                                                 $
           211,899                                           $
              248,100             $
           624,486   $
          555,954



     Natural gas revenue                                                                   12,545                                                        20,193                       41,738            49,364



     NGL revenue                                                                            3,384                                                        14,575                       15,095            27,306



     Other                                                                                  1,029                                                                                    13,061




     Total revenue                                                                        228,857                                                       282,868                      694,380           632,624



     Operating expenses:



     Direct lease operating expense                                                        43,439                                                        42,090                      122,243           101,065



     Insurance                                                                              4,167                                                         4,125                       12,462            11,059



     Production taxes                                                                        (21)                                                          578                        1,067             1,533




     Total lease operating expense                                                         47,585                                                        46,793                      135,772           113,657


      Workover and maintenance expense                                                      14,210                                                        25,084                       49,525            49,703


      Depreciation, depletion and amortization                                              88,125                                                        87,808                      248,518           204,574


      Write-down of oil and natural gas
       properties                                                                            1,417                                                                                    13,778



     Accretion expense                                                                      7,316                                                        10,162                       26,868            24,414


      General and administrative expense                                                    17,321                                                        21,660                       53,795            61,120




     Total operating expenses                                                             175,974                                                       191,507                      528,256           453,468




     Operating income                                                                      52,883                                                        91,361                      166,124           179,156



     Interest expense                                                                    (23,123)                                                     (24,837)                    (73,273)         (66,257)


      Price risk management activities income
       (expense)                                                                            43,760                                                      (53,330)                    (35,829)        (196,482)



     Other income (expense)                                                                   567                                                          (85)                       1,831           (1,163)



      Income (loss) before income taxes                                                     74,087                                                        13,109                       58,853          (84,746)



     Income tax benefit                                                                     (790)                                                                                    (428)




     Net income (loss)                                                            $
           73,297                                            $
              13,109              $
           58,425  $
          (84,746)





      Net income (loss) per common share:



     Basic                                                                          $
           1.35                                              $
              0.24                $
           1.08    $
          (1.96)



     Diluted                                                                        $
           1.35                                              $
              0.24                $
           1.07    $
          (1.96)


      Weighted average common shares
       outstanding:



     Basic                                                                                 54,200                                                        54,156                       54,178            43,329



     Diluted                                                                               54,430                                                        54,164                       54,364            43,329


                                                       
              
                Talos Energy Inc.

                                                   
     
              Condensed Consolidated Statements of Cash Flows

                                                        
              
                (In thousands)

                                                          
              
                (Unaudited)




                                                          Nine Months Ended September 30,



                                                                                     2019                              2018



      Cash flows from operating activities:



     Net income (loss)                                                                             $
              58,425      $
         (84,746)


      Adjustments to reconcile net loss to net
       cash provided by operating activities


      Depreciation, depletion, amortization and
       accretion expense                                                                                       275,386              228,988


      Write-down of oil and natural gas
       properties                                                                                               13,778


      Amortization of deferred financing costs and
       original issue discount                                                                                   3,723                3,589


      Equity based compensation, net of amounts
       capitalized                                                                                               5,164                2,129


      Price risk management activities expense                                                                  35,829              196,482


      Net cash paid on settled derivative
       instruments                                                                                             (7,202)            (94,802)


      Settlement of asset retirement obligations                                                              (54,406)            (85,674)


      Changes in operating assets and liabilities:



     Accounts receivable                                                                                     (14,729)             (4,460)



     Other current assets                                                                                      11,384             (14,524)



     Accounts payable                                                                                          32,541             (54,029)



     Other current liabilities                                                                               (26,753)              40,410


      Other non-current assets and liabilities,
       net                                                                                                       (727)              10,324



      Net cash provided by operating activities                                                                332,413              143,687



      Cash flows from investing activities:


      Exploration, development and other capital
       expenditures                                                                                          (372,920)           (174,349)


      Cash (paid for) acquired in acquisitions                                                                (32,916)             278,409


      Proceeds from sale of other property and
       equipment                                                                                                 5,369



      Net cash provided by (used in) investing
       activities                                                                                            (400,467)             104,060



      Cash flows from financing activities:


      Redemption of Senior Notes and other long-
       term debt                                                                                              (10,567)            (25,151)


      Proceeds from Bank Credit Facility                                                                        75,000              319,000



     Repayment of Bank Credit Facility                                                                       (25,000)            (54,000)


      Repayment of LLC Bank Credit Facility                                                                                      (403,000)



     Deferred financing costs                                                                                 (1,268)            (16,990)



     Other deferred payments                                                                                  (9,921)



     Payments of finance lease                                                                               (10,344)             (9,874)



     Employee stock transactions                                                                                (326)



      Net cash provided by (used in) financing
       activities                                                                                               17,574            (190,015)





      Net increase (decrease) in cash, cash
       equivalents and restricted cash                                                                        (50,480)              57,732


      Cash, cash equivalents and restricted cash:



     Balance, beginning of period                                                                             141,162               33,433




     Balance, end of period                                                                        $
              90,682        $
         91,165





      Supplemental Non-Cash Transactions:


      Capital expenditures included in accounts
       payable and accrued liabilities                                                              $
              24,622        $
         36,775


      Supplemental Cash Flow Information:


      Interest paid, net of amounts capitalized                                                     $
              36,011        $
         27,307

SUPPLEMENTAL NON-GAAP INFORMATION

Certain financial information included in our financial results are not measures of financial performance recognized by accounting principles generally accepted in the United States, or GAAP. These non-GAAP financial measures are "Adjusted Net Income," "Adjusted Earnings per Share," "EBITDA", "Adjusted EBITDA," "Adjusted EBITDA excluding hedges," "Adjusted EBITDA Margin," "Adjusted EBITDA Margin excluding hedges," "Net Debt," "LTM Adjusted EBITDA" and "Net Debt to LTM Adjusted EBITDA." These disclosures may not be viewed as a substitute for results determined in accordance with GAAP and are not necessarily comparable to non-GAAP measures which may be reported by other companies.

Reconciliation of Net Income (Loss) to EBITDA and Adjusted EBITDA

"EBITDA" and "Adjusted EBITDA" are to provide management and investors with (i) additional information to evaluate, with certain adjustments, items required or permitted in calculating covenant compliance under our debt agreements, (ii) important supplemental indicators of the operational performance of our business, (iii) additional criteria for evaluating our performance relative to our peers and (iv) supplemental information to investors about certain material non-cash and/or other items that may not continue at the same level in the future. EBITDA and Adjusted EBITDA have limitations as analytical tools and should not be considered in isolation or as substitutes for analysis of our results as reported under GAAP or as alternatives to net income (loss), operating income (loss) or any other measure of financial performance presented in accordance with GAAP.

We define these as the following:

EBITDA. Net income (loss) plus interest expense, income tax expense (benefit), depreciation, depletion and amortization, and accretion expense.

Adjusted EBITDA. EBITDA plus non-cash write-down of oil and natural gas properties, loss on debt extinguishment, transaction related costs, derivative fair value (gain) loss, net cash receipts (payments) on settled derivatives, non-cash (gain) loss on sale of assets, non-cash write-down of other well equipment inventory and non-cash equity-based compensation expense.

We also present Adjusted EBITDA excluding hedges and as a percentage of revenue to further analyze our business, which are outlined below:

Adjusted EBITDA excluding hedges. Adjusted EBITDA plus net cash receipts (payments) on settled derivative instruments. We believe the presentation of Adjusted EBITDA excluding hedges is important to provide management and investors with information about the impact of actual commodity price changes on our business.

Adjusted EBITDA Margin. EBITDA divided by Revenue, as a percentage. It is also defined as Adjusted EBITDA divided by the total production volume, expressed in Boe, in the period, and described as dollar per Boe. We believe the presentation of Adjusted EBITDA Margin is important to provide management and investors with information about how much we retain in Adjusted EBITDA terms as compared to the revenue we generate and how much per barrel we generate after accounting for certain operational and corporate costs.

Adjusted EBITDA Margin excluding hedges bears the same definition and our intended utility of Adjusted EBITDA Margin, but using Adjusted EBITDA excluding hedges instead of Adjusted EBITDA.

The following table presents a reconciliation of the GAAP financial measure of net income (loss) to EBITDA, Adjusted EBITDA, Adjusted EBITDA excluding hedges, Adjusted EBITDA Margins and Adjusted EBITDA Margins excluding hedges for each of the periods indicated (in thousands, except for Boe, $/Boe and percentage data):


        ($ thousands, except per
         Boe)                                          Three Months                           Three Months                             Three Months                  Three Months
                                                Ended,                                 Ended,                                   Ended,                       Ended
                                                                                                                                                         September 30,
                                                       December 31,                             March 31,                                June 30,                            2019
                                                               2018                                    2019                                      2019



                     Reconciliation of net
                      income (loss) to Adjusted
                      EBITDA:


        Net income (loss)                                               $
         306,286                         $
         (109,636)                                 $
              94,764      $
          73,297


        Interest expense                                                        23,857                                   25,218                                              24,932              23,123


        Income tax expense
         (benefit)                                                               2,922                                  (6,359)                                              5,997                 790


        Depreciation, depletion
         and amortization                                                       84,145                                   64,587                                              95,806              88,125


        Accretion expense                                                       10,930                                    9,607                                               9,945               7,316

    ---

                     EBITDA                                                    428,140                                 (16,583)                                            231,444             192,651


        Write-down of oil and
         natural gas properties                                                                                                                                            12,361               1,417


        Loss on debt
         extinguishment


        Transaction related costs                                                4,579                                    2,493                                                 710                 146


        Derivative fair value
         (gain) loss(1)                                                      (256,917)                                 109,579                                            (29,990)           (43,760)


        Net cash receipts
         (payments) on settled
         derivative instruments(1)                                            (16,345)                                 (3,019)                                            (9,543)              5,360


        Non-cash (gain) loss on
         sale of assets                                                        (1,710)


        Non-cash write-down of
         other well equipment
         inventory                                                                 244


        Non-cash equity-based
         compensation expense                                                      764                                    1,259                                               1,961               1,944

    ---

                     Adjusted EBITDA                                $
     
           158,755                      $
       
           93,729                       $
           
                206,943 $
     
            157,758

    ===

        Net cash receipts
         (payments) on settled
         derivative instruments(1)                                              16,345                                    3,019                                               9,543             (5,360)

    ---

                     Adjusted EBITDA excluding
                      hedges                                        $
     
           175,100                      $
       
           96,748                       $
           
                216,486 $
     
            152,398

    ===

                     Production and Revenue:



       Boe(2)                                                                   4,910                                    3,782                                               5,369               4,843


        Revenue - Operations                                                   258,664                                  175,192                                             278,299             227,828


                     Adjusted EBITDA margin and
                      Adjusted EBITDA excl
                      hedges margin:


        Adjusted EBITDA divided by                                                  61                                       54                                                  74                  69
         Revenue - Operations (%)                                                   %                                       %                                                  %                  %


        Adjusted EBITDA per Boe(2)                                        $
         32.33                             $
         24.78                                   $
              38.54       $
          32.57


        Adjusted EBITDA excl
         hedges divided by Revenue                                                   %                                       %                                                  %                  %
         - Operations (%)                                                          68                                       55                                                  78                  67


        Adjusted EBITDA excl
         hedges per Boe(2)                                                $
         35.66                             $
         25.58                                   $
              40.32       $
          31.47




              (1)              The adjustments for the
                                  derivative fair value (gain)
                                  loss and net cash receipts
                                  (payments) on settled derivative
                                  instruments have the effect of
                                  adjusting net income (loss) for
                                  changes in the fair value of
                                  derivative instruments, which
                                  are recognized at the end of
                                  each accounting period because
                                  we do not designate commodity
                                  derivative instruments as
                                  accounting hedges. This results
                                  in reflecting commodity
                                  derivative gains and losses
                                  within Adjusted EBITDA on a cash
                                  basis during the period the
                                  derivatives settled.



              (2)              One Boe is equal to six Mcf of
                                  natural gas or one Bbl of oil or
                                  NGLs based on an approximate
                                  energy equivalency. This is an
                                  energy content correlation and
                                  does not reflect a value or
                                  price relationship between the
                                  commodities.

Reconciliation of Net Income (Loss) to Adjusted Net Income and Adjusted Earnings per Share
"
Adjusted Net Income" and "Adjusted Earnings per Share" are to provide management and investors with (i) important supplemental indicators of the operational performance of our business, (ii) additional criteria for evaluating our performance relative to our peers and (iii) supplemental information to investors about certain material non-cash and/or other items that may not continue at the same level in the future. Adjusted Net Income and Adjusted Earnings per Share have limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP or as an alternative to net income (loss), operating income (loss), earnings per share or any other measure of financial performance presented in accordance with GAAP.

Adjusted Net Income. Net income (loss) plus accretion expense, transaction related costs, derivative fair value (gain) loss, net cash receipts (payments) on settled derivative instruments and non-cash equity-based compensation expense.

Adjusted Earnings per Share. Adjusted Net Income divided by the number of common shares.


     ($
      thousands,
      except
      per
      share
      amounts)                                Three Months Ended
                                  September 30, 2019



                   Reconciliation
                   of Net
                   Income
                   to
                   Adjusted
                   Net
                   Income:


     Net
      Income                                                         $
         73,297


      Accretion
      expense                                                                7,316


      Transaction
      related
      costs                                                                    146


      Derivative
      fair
      value
      (gain)
      loss(1)                                                             (43,760)


     Net
      cash
      receipts
      (payments)
      on
      settled
      derivative
      instruments(1)                                                         5,360


     Non-
      cash
      equity-
      based
      compensation
      expense                                                                1,944



                   Adjusted
                   Net
                   Income                                        $
     
           44,303




                   Weighted
                   average
                   common
                   shares
                   outstanding
                   at
                   September
                   30,
                   2019:


     Basic                                                                  54,200


     Diluted                                                                54,430




                  Net
                   Income
                   per
                   common
                   share
                   (Earnings
                   Per
                   Share):


     Basic                                                             $
         1.35


     Diluted                                                           $
         1.35




                   Adjusted
                   Net
                   Income
                   per
                   common
                   share
                   (Adjusted
                   Earnings
                   Per
                   Share):


     Basic                                                             $
         0.82


     Diluted                                                           $
         0.81




              (1)              The adjustments for the
                                  derivative fair value (gain)
                                  loss and net cash receipts
                                  (payments) on settled
                                  derivative instruments have
                                  the effect of adjusting net
                                  income (loss) for changes in
                                  the fair value of derivative
                                  instruments, which are
                                  recognized at the end of each
                                  accounting period because we
                                  do not designate commodity
                                  derivative instruments as
                                  accounting hedges. This
                                  results in reflecting
                                  commodity derivative gains and
                                  losses within Adjusted Net
                                  Income on a cash basis during
                                  the period the derivatives
                                  settled.

Reconciliation of Total Debt to Net Debt and Net Debt to LTM Adjusted EBITDA
We believe the presentation of Net Debt, LTM Adjusted EBITDA and Net Debt to LTM Adjusted EBITDA is important to provide management and investors with additional important information to evaluate our business. These measures are widely used by investors and ratings agencies in the valuation, comparison, rating and investment recommendations of companies.

Net Debt Total Debt principal of the Company plus the Finance Lease balance minus Cash.

Net Debt to LTM Adjusted EBITDA. Net Debt divided by the LTM Adjusted EBITDA.


                   Reconciliation of Total Debt to Net
                    Debt ($ thousands) at September 30,
                    2019:



     Debt principal                                        $
      711,928



     Finance lease                                              83,324




     
                Total Debt                                   795,252



     Cash                                                     (90,682)




     
                Net Debt                             $
     
        704,570





                   Calculation of LTM EBITDA:


      Adjusted EBITDA for the three month
       period ended December 31, 2018                           158,755


      Adjusted EBITDA for the three month
       period ended March 31, 2019                               93,729


      Adjusted EBITDA for the three month
       period ended June 30, 2019                               206,943


      Adjusted EBITDA for the three month
       period ended September 30, 2019                          157,758



                   LTM Adjusted EBITDA                          617,185




                   Calculation of Net Debt to LTM
                    Adjusted EBITDA:


      Net Debt /LTM Adjusted EBITDA                                 1.1

The Adjusted EBITDA information included in this communication provides additional relevant information to our investors and creditors. Talos needs to comply with a financial covenant included in its Bank Credit Facility that requires it to maintain a Net Debt to LTM Adjusted EBITDA ratio equal to or lower than 3.0x. For purposes of covenant compliance, LTM Adjusted EBITDA, with certain adjustments, is calculated, as of September 30, 2019 and in subsequent quarters, as the sum of quarterly Adjusted EBITDA for the 12-month period ended on that quarter.

View original content to download multimedia:http://www.prnewswire.com/news-releases/talos-energy-announces-third-quarter-2019-financial-and-operational-results-300953261.html

SOURCE Talos Energy