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