Talos Energy Announces Second Quarter 2020 Financial And Operational Results
HOUSTON, Aug. 5, 2020 /PRNewswire/ -- Talos Energy Inc. ("Talos," or the "Company") (NYSE: TALO) today announced its financial and operational results for the second quarter of 2020.
Key Highlights:
-- Production of 52.4 thousand barrels of oil equivalent per day
("MBoe/d"), of which 69% was oil and 76% was liquids. Production for the
quarter was impacted by 14.4 MBoe/d of production deferrals associated
with voluntary shut-ins, accelerated maintenance, Tropical Storm
Cristobal and other miscellaneous items.
-- Net Loss of $140.6 million in the quarter, or $2.14 loss per diluted
share, and Adjusted Net Loss((1)) in the quarter of $29.4 million, or
$0.45 adjusted loss per diluted share. Year-to-date, Net Income of $17.1
million, or $0.28 per diluted share, and year-to-date Adjusted Net
Loss((1)) of $13.8 million, or $0.22 per diluted share.
-- Adjusted EBITDA((1)) of $97.5 million for the second quarter and
Adjusted EBITDA((1)) of $245.2 million for the first half of the year.
-- Capital expenditures, inclusive of plugging and abandonment costs, of
$129.1 million during the quarter. Year-to-date capital expenditures
were $202.3 million.
-- As of June 30, 2020, proved reserves for the Company totaled 189.5 MMBoe
with a PV-10 of $2.8 billion. Additionally, probable reserves were 79.7
MMBoe with a PV-10 of $1.3 billion. Figures are presented pro forma for
the recently closed acquisition.
-- Eliminated $39.2 million, or approximately 10% of the outstanding
balance, of the Company's 11.00% Second Lien Notes.
-- On August 5, 2020, closed the acquisition of additional working
interests in 16 selected producing properties from affiliates of Castex
2005.
-- As of June 30, 2020, maintained a leverage position of 1.4x Net Debt to
Credit Facility LTM Adjusted EBITDA((1)).
-- Over $400.0 million of liquidity from $107.9 million in cash and
availability under the Company's $985.0 million borrowing base.
(1) Adjusted Net Loss, Adjusted Loss per
Share, Adjusted EBITDA, Adjusted
EBITDA Margin, Free Cash Flow,
Credit Facility LTM Adjusted EBITDA
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: "Although the second quarter presented unprecedented challenges for our industry, we took several actions in the quarter that have made us a stronger company for the remainder of this year and beyond, including opportunistically lowering our debt, significantly reducing our costs, adding to our working interest in several producing assets we currently own and deepening our inventory of high impact prospects.
"We successfully completed our Tornado IV project, which will provide additional production from the main producing interval in the near term before we turn the well into a water injection well in early 2021. We are currently on location in our Kaleidoscope and Bulleit projects with first oil expected from both late in the third quarter, establishing a strong foundation for 2021.
"In Mexico, we are making progress on our Zama project by finalizing engineering design while continuing to work with Pemex on unitization as part of the formal instructions to reach an agreement in the next six months. Separately, Netherland, Sewell and Associates completed their review of our Xaxamani discovery in Block 31, providing a "best estimate" of the gross resources in the contract area at over 100.0 MMBoe. Xaxamani is our second major discovery in offshore Mexico and highlights our capabilities to drive exploration success in basins beyond the U.S. Gulf of Mexico."
Duncan continued: "We lowered our capital program in 2020 compared to 2019 and, even with the integration of new assets, we currently expect to complete the year well inside our capital, cash operating and general and administrative expense guidance. Our teams are working tirelessly during a stressful time to keep us on track in realizing these savings. Looking ahead, we expect to exit the year with a production rate between 71.0 - 73.0 MBoe/d, remain free cash flow positive for the year and sustain one of the most competitive credit profiles amongst our peers. We remain focused on continuing to drive down our lifting cost structure while bolstering our deep project inventory and executing on ample business development opportunities to become a more diversified and resilient company."
RECENT DEVELOPMENTS AND OPERATIONS UPDATE
Corporate Activities
-- Cost Reduction Initiatives: Talos continues to realize substantial cost
reductions across its cash operating, general and administrative and
capital expense categories. In total, the Company expects over $200
million in cumulative savings for the full year 2020 from its original
financial guidance released in February 2020, which will allow the
Company to maintain a positive free cash flow profile for the year
despite lower commodity prices and associated shut-ins. Additionally,
compared to 2019 on a pro forma basis, Talos expects to reduce general
and administrative costs approximately by $20.0 million, or
approximately 25%. Cash operating expenses is expected to reduce by
approximately $40.0 million, or approximately 12%.
-- Debt Exchange Transaction: During the second quarter Talos eliminated
$39.2 million of debt, primarily from one exchange transaction that
eliminated $37.2 million of its 11.00% Second Lien Notes. The exchange
transaction will eliminate future cash interest payments on the Notes of
approximately $7.5 million from settlement through maturity.
-- Bolt-On Acquisition: On August 5, 2020, Talos closed the value accretive
acquisition of additional working interest in 16 selected producing
properties from affiliates of Castex Energy 2005. The transaction was
valued at PV-20 of PDP, provides strong incremental cash flow and
ensures operational control over most of the assets, which the Company
already held working interest in. At closing, the Company issued
approximately 4.60 million common shares to the sellers, bringing the
current outstanding share count to 73.0 million. Talos has entered into
several gas hedging contracts accounting for the majority of the PDP
volumes associated with the acquired assets through year-end 2022.
-- Lease Sale 254: Results of the March 2020 lease sale were recently
finalized, with Talos acquiring four Green Canyon area blocks in a joint
package bid with affiliates of bp plc. The Company acquired a 25.0%
working interest in several sub-salt Miocene prospects in Green Canyon
blocks 319, 320, 322 and 363, comprising 23,040 gross or 5,760 net
acres, for a net cost of approximately $0.9 million, or $159/acre. As of
June 30, 2020, Talos holds approximately 1.4 million gross acres of
leasehold in the U.S. Gulf of Mexico (0.7 million net), of which
approximately 50% is held by production and 50% is primary term.
-- Production Shut-ins: Production deferrals for the quarter totaled
approximately 1.3 MMBoe or 14.4 MBoe/d, primarily comprised from
non-operated well and facilities shut-ins, Talos accelerated maintenance
projects and Tropical Storm Cristobal. Additionally, the company
permanently shuttered approximately 0.6 MBoe/d from legacy shallow water
properties that had higher operating costs.
-- Ram Powell Platform: Production at the Company's Ram Powell facility is
currently shut-in for an unplanned riser repair procedure. Talos expects
production at the facility to resume in September of 2020 pending the
completion and certification of repairs. Prior to the shut-in, Talos's
net production from Ram Powell was approximately 4.8 MBoe/d net.
-- COVID-19 Response: In response to COVID-19, Talos has continued to take
precautionary measures to protect the safety of its employees and
contractors as well as to ensure operational continuity. Talos corporate
employees are continuing to work from home until further notice
regarding formal office location re-openings. The Company has instituted
numerous safety procedures and health checks for offshore staff,
resulting in zero facility downtime to date due to COVID-19.
Drilling and Exploration Activities - U.S. Gulf of Mexico
-- Claiborne: The Claiborne #3 development well and Claiborne #1
recompletion project were finalized in the second quarter and brought
online late June, collectively increasing production rates from the
field by 13.5 MBoe/d gross, 2.6 MBoe/d net.
-- Tornado IV: Drilling operations encountered geological and pressure
conditions in line with expectations and logged 87 feet of net pay in
the B-6 Upper zone. Talos has finalized the completion of the B-6 Upper
zone and expects first production by the end of the third quarter.
-- Kaleidoscope: Drilling operations from the Company's Green Canyon 18
facility are ongoing with the first objective expected to be encountered
early August. Talos expects to initiate completion activities soon
thereafter with first production expected by the end of the third
quarter of 2020.
-- Bulleit: Following start-up of the Tornado IV well, the rig will
mobilize to the Green Canyon 21 Bulleit well and commence completion
activities. Tie-in activities to Talos's Green Canyon 18 facility are
ongoing in preparation for first production, which is expected by the
end of the third quarter of 2020.
Upon completion of these projects by the end of September, the Company's capital investment is expected to be significantly reduced, with the fourth quarter expected to have the lowest level of investment of 2020.
Drilling and Exploration Activities - Mexico
-- Block 7: On July 7, 2020, the Company received a notice from Mexico's
Ministry of Energy ("SENER") instructing the partners of Block 7 and
Petróleos Mexicanos ("Pemex") to unitize the Zama field. The formal
notice establishes a firm deadline to advance the unitization process,
which is required before a field development plan can be finalized and
the partners can reach Final Investment Decision ("FID").
-- Block 31: Netherland, Sewell and Associates, Inc. ("NSAI") recently
completed an independent resource evaluation of the Xaxamani discovery.
NSAI provided a "best estimate" of the gross resources for the asset at
over 100.0 MMBoe, with approximately 95% oil. The discovery is located
in very shallow waters (approximately 60 feet) and is less than two
miles from shore. Talos holds a 25% participation interest in Block 31.
2020 Guidance
Talos expects to exit 2020 with a production rate between 71.0 - 73.0 MBoe/d.
For the full year 2020, the Company expects production at the low end of its previously stated production forecast range of 61.0 - 64.4 MBoe/d primarily due to greater than anticipated second quarter shut-ins across our portfolio and Ram Powell repairs impacting third-quarter production, offset by production from the recently acquired assets.
Talos expects cash operating expenses and general and administrative expenses to be in the lower-end of its previously stated forecast ranges of $275 - $300 million and $57 - $62 million, respectively, for the full year 2020. The full year expectations reflect Talos's progress in realizing operational efficiencies and more appropriately sizing project and corporate staffing for current activity levels. The Company's expectations are inclusive of incremental lease operating expenses and other costs associated with the recently closed acquisition as well as additional expenses associated with operational safety related to COVID-19.
Talos expects capital expenditures to remain in line with its forecast range of $355 - $380 million for the full year 2020.
Mid-Year 2020 Reserves
As of June 30, 2020, Talos had proved reserves of 189.5 MMBoe, with 67.0% oil and 76.0% proved developed, pro forma for the recently closed acquisition. The PV-10 of proved reserves was $2.8 billion. The reserves and associated PV-10 are fully burdened by and net of all plugging & abandonment costs associated with the properties included in the reserves report. The following table summarizes Talos's pro forma proved reserves at June 30, 2020:
Summary of Pro Forma Proved Reserves
MBoe %of Total Proved Percent Oil PV-10
(1)
($MM)
Proved Developed Producing 93,298 49.2% 69.6% $1,822
Proved Developed Non-Producing 50,641 26.7% 61.7% 548
Total Proved Developed 143,938 76.0% 66.8% 2,370
Proved Undeveloped 45,527 24.0% 67.4% 450
Total Proved 189,465 100.0% 67.0% $2,820
In addition to the proved reserves, Talos's pro forma probable reserves at mid-year 2020 were 79.7 MMBoe and had a PV-10 of $1.3 billion.
In accordance with guidelines established by the SEC, the Company's estimated proved reserves as of June 30, 2020 were determined to be economically producible under existing economic conditions, which requires the use of the 12-month average price for each commodity, calculated as the unweighted arithmetic average of the price on the first day of each month for the year end June 30, 2020. The West Texas Intermediate spot price and the Henry Hub spot price were utilized as the referenced price and appropriately adjusted for quality, transportation, fees, energy content and basis differentials. Therefore, the PV-10 of Talos's proved reserves at June 30, 2020 is based on an average crude oil price of $47.17 per barrel and an average natural gas price of $2.07 per MMBtu, prior to being adjusted for quality, transportation, fees, energy content and basis differentials.
FIRST QUARTER 2020 RESULTS
Key Financial Highlights:
Three Months Ended
June 30, 2020
Period results ($ million, except per share and per Boe amounts):
Total Revenues(2) (inclusive of hedges) $
174.9
Net Loss $
(140.6)
Loss per diluted share $
(2.14)
Adjusted Net Loss (1) $
(29.4)
Adjusted Loss per diluted share(1) $
(0.45)
Adjusted EBITDA(1) $
97.5
Capital Expenditures (including Plug & Abandonment) $
129.1
Adjusted EBITDA Margin(1):
Adjusted EBITDA (% of Revenue, inclusive of hedges) 56
%
Adjusted EBITDA per Boe $
20.41
Production, Realized Prices and Revenue
Production for the second quarter of 2020 was 4.8 MMBoe, with oil production accounting for 69% of the total. Oil price realizations, net of certain gathering, transportation, quality differentials and other costs, were $22.71 per barrel equivalent, before hedges.
Three Months Ended
June 30, 2020
Production volumes
Oil production volume (MBbls) 3,279
Natural Gas production volume (MMcf) 6,997
NGL production volume (MBbls) 330
Total production volume (MBoe) 4,775
Average net daily production volumes
Oil (MBbl/d) 36.0
Natural Gas (MMcf/d) 76.9
NGL (MBbl/d) 3.6
Total average net daily (MBoe/d) 52.4
Average realized prices (excluding hedges)(3)
Oil ($/Bbl) $
22.71
Natural Gas ($/MMBtu) 1.59
NGL ($/Bbl) 5.95
Average realized price ($/Boe) 18.34
Average NYMEX prices
WTI ($/Bbl) $
27.96
Henry Hub ($/MMBtu) $
1.71
Revenues ($ million)
Oil $
74.5
Natural Gas 11.1
NGL 2.0
Revenue - Operations $
87.6
Other revenue 1.3
Total revenue $
88.9
Net cash receipts (payments) on settled derivative instruments 86.0
Total revenue inclusive of realized impact of hedges $
$174.9
Three Months Ended June
30,
2020
Production % % %
Oil Liquids Operated
Average net daily production volumes by Core Area (MBoe/d)
Green Canyon Area 12.8 80% 87% 96%
Mississippi Canyon Area 25.0 79% 87% 65%
Shelf and Gulf Coast 14.7 41% 47% 69%
Total average net daily (MBoe/d) 52.4 69% 76% 75%
Expenses
Total lease operating expenses ("LOE"), inclusive of workover and maintenance and insurance costs for the quarter, were $63.9 million or $13.38/Boe. General and administrative expenses ("G&A") for the quarter, excluding stock-based compensation, transaction-related expenses and other one-time time expenses, was $11.3 million, or $2.38/Boe.
Three Months Per Boe
Ended June 30,
2020
Lease Operating
Expenses $
63.9 $
13.38
General &
Administrative
Expenses
(excluding non-
cash and non-
recurring items) $
11.3 $
2.38
Other Financial Metrics
Capital Expenditures & Asset Management Activities
Capital expenditures for the quarter were $129.1 million, inclusive of plugging & abandonment costs.
Three Months Ended
June 30, 2020
Capital Expenditures
U.S. Drilling & Completions $
90.3
Mexico Appraisal & Exploration (0.1)
Asset Management 11.4
Seismic and G&G / Land / Capitalized G&A 15.1
Total Capital Expenditures $
116.9
Plugging & Abandonment 12.2
Total Capital Expenditures and Plugging & Abandonment $
129.1
Liquidity & Debt
Talos has over $400.0 million of liquidity and as of June 30, 2020, maintained $107.9 million in cash on hand and $650.0 million drawn on the $985.0 million borrowing base under its credit facility. Not included in the liquidity number is an additional $25.0 million the Company could have access to, pending certain lender approvals.
The Company had approximately $1,079 million in total debt, inclusive of $71.2 million related to the HP-I finance lease. Inclusive of eight months contribution from the recent ILX/Castex acquisition, Net Debt to Credit Facility LTM Adjusted EBITDA((1)), as determined in accordance with the Company's credit agreement, was 1.4x. Credit Facility LTM Adjusted EBITDA((1) )does not include any pro forma impact from the Company's most recently announced acquisition of assets from Castex Energy 2005. Excluding the ILX/Castex contribution, Net Debt to LTM Adjusted EBITDA((1)) ratio was 1.7x.
Footnotes:
(1) Adjusted Net Loss, Adjusted Loss per
Share, Adjusted EBITDA, Adjusted
EBITDA Margin, Credit Facility LTM
Adjusted EBITDA and Net Debt to LTM
Adjusted EBITDA are non-GAAP
financial measures. See
"Supplemental Non-GAAP
Information" below for additional
detail and reconciliations of GAAP
to non-GAAP measures.
(2) Includes $1.3 million of federal
royalty refund.
(3) Average realized prices are net of
certain gathering, transportation,
quality differentials and other
costs.
HEDGES
The following table reflects the current contracted volumes and weighted average prices the Company will receive under the terms of its derivative contracts, including contracts entered into following the end of the quarter:
Instrument Avg. Daily
Weighted
Weighted
Weighted
Type Volume Avg. Swap Avg. Put Avg. Call
Price Price Price
Crude-WTI
(Bbls)
(Per Bbl)
(Per Bbl)
(Per Bbl)
July -
December
2020
Swaps 30,674 $44.45
?
?
July -
December
2020
Collars 5,000
? $50.00 $57.09
January -
December
2021
Swaps 11,718 $42.29
?
?
January -
December
2021
Collars 1,000
? $30.00 $40.00
January -
December
2022
Swaps 3,496 $44.25
?
?
Crude-LLS
January -
December
2021
Swaps 3,000 $38.83
?
?
Natural Gas-
HH NYMEX
(MMBtu)
(Per MMBtu)
(Per MMBtu)
(Per MMBtu)
July -
December
2020
Swaps 64,261 $2.26
?
?
January -
December
2021
Swaps 48,737 $2.47
?
?
January -
December
2021
Collars 5,000
? $2.50 $3.10
January -
December
2022
Swaps 15,490 $2.42
?
?
CONFERENCE CALL AND WEBCAST INFORMATION
Talos will host an earnings conference call, which will be broadcast live over the internet, tomorrow, Thursday, August 6, 2020 at 10:00 AM Eastern Time. Listeners can access the earnings conference call live over the Internet through a webcast link on the Company's website at: https://www.talosenergy.com/investors. Alternatively, the conference call can be accessed by dialing 1-888-348-8927 (U.S. toll-free), 1-855-669-9657 (Canada toll-free) or 1-412-902-4263 (International). Please dial in approximately 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 through August 13, 2020 and can be accessed by dialing 1-877-344-7529 and using access code 10146030.
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, including the sharp decline in oil prices beginning in March 2020, the impact of the coronavirus disease 2019 ("COVID-19") and governmental measures related thereto on global demand for oil and natural gas and on the operations of our business, the ability or willingness of the Organization of Petroleum Exporting Countries ("OPEC") and non-OPEC countries, such as Saudi Arabia and Russia, to set and maintain oil production levels and the impact of any such actions, lack of transportation and storage capacity as a result of oversupply, government regulations and actions, including with respect to repairs to the Ram Powell facility, or other factors, 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, the possibility that the anticipated benefits of recent acquisitions are not realized when expected or at all, including as a result of the impact of, or problems arising from, the integration of such acquisitions, 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, 2019 and our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2020, 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, marketing and storage of oil and gas are subject to disruption due to transportation, processing and storage 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.
Talos Energy Inc.
Condensed Consolidated Balance Sheets
(In thousands, except per share amounts)
June 30, 2020 December 31, 2019
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $
107,855 $
87,022
Accounts receivable
Trade, net 67,042 107,842
Joint interest, net 52,777 16,552
Other 21,697 6,346
Assets from price risk management activities 72,666 8,393
Prepaid assets 45,689 65,877
Other current assets 1,982 1,952
Total current assets 369,708 293,984
Property and equipment:
Proved properties 4,674,529 4,066,260
Unproved properties, not subject to
amortization 274,690 194,532
Other property and equipment 32,262 29,843
Total property and equipment 4,981,481 4,290,635
Accumulated depreciation, depletion and
amortization (2,247,009) (2,065,023)
Total property and equipment, net 2,734,472 2,225,612
Other long-term assets:
Assets from price risk management activities 1,409
Other well equipment inventory 14,458 7,732
Operating lease assets 7,351 7,779
Other assets 47,250 54,375
Total assets $
3,174,648 $
2,589,482
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $
104,151 $
71,357
Accrued liabilities 184,992 154,816
Accrued royalties 12,772 31,729
Current portion of asset retirement obligations 44,977 61,051
Liabilities from price risk management
activities 26,615 19,476
Accrued interest payable 10,603 10,249
Current portion of operating lease liabilities 1,695 1,594
Other current liabilities 22,073 20,180
Total current liabilities 407,878 370,452
Long-term liabilities:
Long-term debt, net of discount and deferred
financing costs 997,041 732,981
Asset retirement obligations 387,083 308,427
Liabilities from price risk management
activities 7,018 511
Operating lease liabilities 19,228 17,239
Other long-term liabilities 61,847 81,595
Total liabilities 1,880,095 1,511,205
Commitments and contingencies (Note 11)
Stockholders' Equity:
Preferred stock, $0.01 par value; 30,000,000
shares authorized and no shares issued or
outstanding as of June 30, 2020 and December
31, 2019
Common stock $0.01 par value; 270,000,000
shares authorized; 68,414,782 and 54,197,004
shares issued and outstanding as of June 30,
2020 and December 31, 2019, respectively 684 542
Additional paid-in capital 1,545,138 1,346,142
Accumulated deficit (251,269) (268,407)
Total stockholders' equity 1,294,553 1,078,277
Total liabilities and stockholders'
equity $
3,174,648 $
2,589,482
Talos Energy Inc.
Condensed Consolidated Statements of Operations
(In thousands, except per common share amounts)
Three Months Ended June 30, Six Months Ended June 30,
2020 2019 2020 2019
Revenues:
Oil revenue $
74,471 $
256,908 $
241,095 $
412,587
Natural gas revenue 11,140 14,746 23,038 29,193
NGL revenue 1,964 6,645 6,265 11,711
Other 1,299 8,511 6,240 12,032
Total revenue 88,874 286,810 276,638 465,523
Operating expenses:
Lease operating expense 63,882 54,455 122,123 122,414
Production taxes 166 506 415 1,088
Depreciation, depletion and
amortization 88,443 95,806 181,986 160,393
Write-down of oil and natural gas
properties 12,361 57 12,361
Accretion expense 13,794 9,945 26,211 19,552
General and administrative expense 17,192 18,865 44,661 36,474
Total operating expenses 183,477 191,938 375,453 352,282
Operating income (expense) (94,603) 94,872 (98,815) 113,241
Interest expense (26,190) (24,932) (52,040) (50,150)
Price risk management activities
income (expense) (68,682) 29,990 174,535 (79,589)
Other income (expense) (528) 831 (674) 1,264
Net income (loss) before income taxes (190,003) 100,761 23,006 (15,234)
Income tax benefit (expense) 49,392 (5,997) (5,868) 362
Net income (loss) $
(140,611) $
94,764 $
17,138 $
(14,872)
Net income (loss) per common share:
Basic $
(2.14) $
1.75 $
0.28 $
(0.27)
Diluted $
(2.14) $
1.74 $
0.28 $
(0.27)
Weighted average common shares
outstanding:
Basic 65,807 54,178 62,023 54,167
Diluted 65,807 54,451 62,318 54,167
Talos Energy Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
Six Months Ended June 30,
2020 2019
Cash flows from operating activities:
Net income (loss) $
17,138 $
(14,872)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities
Depreciation, depletion, amortization and
accretion expense 208,197 179,945
Write-down of oil and natural gas properties
and other well inventory 190 12,361
Amortization of deferred financing costs and
original issue discount 3,985 2,393
Equity based compensation, net of amounts
capitalized 3,974 3,220
Price risk management activities expense
(income) (174,535) 79,589
Net cash received (paid) on settled derivative
instruments 122,499 (12,562)
Gain on extinguishment of debt (1,470)
Settlement of asset retirement obligations (18,496) (32,206)
Changes in operating assets and liabilities:
Accounts receivable (5,164) (32,118)
Other current assets 15,128 12,259
Accounts payable 12,645 23,646
Other current liabilities 16,039 (37,164)
Other non-current assets and liabilities, net (8,518) (1,870)
Net cash provided by operating activities 191,612 182,621
Cash flows from investing activities:
Exploration, development and other capital
expenditures (154,628) (229,601)
Cash paid for acquisitions, net of cash
acquired (296,966) (32,916)
Proceeds from sale of other property and
equipment 5,369
Net cash (used in) investing activities (451,594) (257,148)
Cash flows from financing activities:
Redemption of Senior Notes and other long-term
debt (1,209) (10,567)
Proceeds from Bank Credit Facility 300,000 75,000
Repayment of Bank Credit Facility (25,000)
Deferred financing costs (1,287)
Other deferred payments (7,575) (9,921)
Payments of finance lease (8,323) (6,759)
Employee stock transactions (791) (283)
Net cash provided by financing activities 280,815 22,470
Net increase (decrease) in cash, cash
equivalents and restricted cash 20,833 (52,057)
Cash, cash equivalents and restricted cash:
Balance, beginning of period 87,022 141,162
Balance, end of period $
107,855 $
89,105
Supplemental Non-Cash Transactions:
Capital expenditures included in
accounts payable and accrued
liabilities $
113,461 $
165,310
Debt exchanged for common stock $
35,960
Supplemental Cash Flow Information:
Interest paid, net of amounts
capitalized $
34,163 $
31,413
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," "Free Cash Flow," "Cash-Based G&A," "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 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.
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 Three Three Three
Months Months Months Months
ended ended ended ended
June March December September
31, 2019 30, 2019
30, 2020 31, 2020
Reconciliation of net income (loss)
to Adjusted EBITDA:
Net income (loss) $
(140,611) $
157,749 $
304 $
73,297
Interest expense 26,190 25,850 24,574 23,123
Income tax expense (benefit) (49,392) 55,260 (36,569) 790
Depreciation, depletion and
amortization 88,443 93,543 97,413 88,125
Accretion expense 13,794 12,417 7,521 7,316
EBITDA (61,576) 344,819 93,243 192,651
Write-down of oil and natural gas
properties 57 (1,557) 1,417
Transaction and non-recurring
expenses(2) 3,498 7,758 4,111 146
Derivative fair value (gain) loss(1) 68,682 (243,217) 59,508 (43,760)
Net cash receipts (payments) on
settled derivative instruments(1) 86,039 36,460 (1,618) 5,360
Gain on extinguishment of debt (1,470) (1,470)
Non-cash write-down of other well
equipment inventory 133 165
Non-cash equity-based compensation
expense 2,347 1,627 1,800 1,944
Adjusted EBITDA 97,520 147,637 154,182 157,758
Net cash receipts (payments) on
settled derivative instruments(1) (86,039) (36,460) 1,618 (5,360)
Adjusted EBITDA excluding hedges 11,481 111,177 155,800 152,398
Production and Revenue:
Boe(2) 4,775 5,287 4,966 4,843
Revenue - Operations 87,575 182,823 233,240 227,828
Adjusted EBITDA margin and Adjusted
EBITDA excl hedges margin:
Adjusted EBITDA divided by Revenue -
Operations (%) 111% 81% 66% 69%
Adjusted EBITDA per Boe(2) $
20.41 $
27.92 $
31.05 $
32.57
Adjusted EBITDA excl hedges divided
by Revenue -Operations (%) 13% 61% 67% 67%
Adjusted EBITDA excl hedges per
Boe(2) $
2.40 $
21.03 $
31.37 $
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 Adjusted EBITDA to Free Cash Flow
We believe the presentation of Free Cash Flow is important to provide investors with additional important information to evaluate our business. These measures are widely used by investors in the valuation, comparison, rating and investment recommendations of companies. Please see "Reconciliation of Net Income (Loss) to EBITDA and Adjusted EBITDA" above.
($ thousands, except per Three Months
share amounts) Ended
June 30, 2020
Reconciliation of
Adjusted EBITDA to Free
Cash Flow
Adjusted EBITDA $
97,519
Less: Capital
Expenditures and
Plugging & Abandonment (129,050)
Less: Interest Expense (26,190)
Free Cash Flow $
(57,721)
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
June 30, 2020
Reconciliation of Net Income to Adjusted Net Income:
Net Income $
(140,611)
Transaction related costs 3,498
Derivative fair value (gain) loss(1) 68,682
Net cash receipts (payments) on settled derivative instruments(1) 86,039
Non-cash income tax expense (49,392)
Non-cash equity-based compensation expense 2,347
Adjusted Net Income $
(29,437)
Weighted average common shares outstanding at March 31, 2020:
Basic 65,807
Diluted 65,807
Loss per common share:
Basic $
(2.14)
Diluted $
(2.14)
Adjusted Loss per common share:
Basic $
(0.45)
Diluted $
(0.45)
(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 and Credit Facility LTM Adjusted EBITDA
We believe the presentation of Net Debt, LTM Adjusted EBITDA, Credit Facility LTM Adjusted EBITDA, Net Debt to LTM Adjusted EBITDA and Net Debt to Credit Facility 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.
Net Debt to Credit Facility LTM Adjusted EBITDA. Net Debt divided by the Credit Facility LTM Adjusted EBITDA.
Reconciliation of Net Debt ($ thousands) at December 31, 2019:
11.00% Second-Priority Senior Secured Notes - due April 2022 $
351,659
7.50% Senior Notes - due May 2022 6,060
Bank Credit Facility - matures May 2022 650,000
Finance lease 71,212
Total Debt $
1,078,931
Less: Cash and cash equivalent (107,855)
Net Debt $
971,076
Calculation of LTM EBITDA:
Adjusted EBITDA for three months period ended September 30, 2019 $
157,758
Adjusted EBITDA for three months period ended December 31, 2019 155,784
Adjusted EBITDA for three months period ended March 31, 2020 147,619
Adjusted EBITDA for three months period ended June 30, 2020 97,519
LTM Adjusted EBITDA $
558,680
ILX/Castex Assets Adjusted EBITDA for eight months prior to closing 135,345
Credit Facility LTM Adjusted EBITDA $
694,025
Reconciliation of Net Debt to LTM Adjusted EBITDA:
Net Debt / LTM Adjusted EBITDA
1.7x
Net Debt / Credit Facility LTM Adjusted EBITDA
1.4x
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 Credit Facility LTM Adjusted EBITDA ratio, as determined in accordance with the Company's credit agreement, equal to or lower than 3.0x. For purposes of covenant compliance, Credit Facility LTM Adjusted EBITDA, with certain adjustments, is calculated as the sum of quarterly Adjusted EBITDA for the 12-month period ended on that quarter, inclusive of revenue less direct operating expenditures of the Acquired Assets for periods prior to closing of the Transaction.
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SOURCE Talos Energy
