Talos Energy Announces Third Quarter 2020 Financial And Operational Results

HOUSTON, Nov. 4, 2020 /PRNewswire/ -- Talos Energy Inc. ("Talos" or the "Company") (NYSE: TALO) today announced its financial and operational results for the third quarter of 2020.

Key Highlights:

    --  Production of 48.6 thousand barrels of oil equivalent per day
        ("MBoe/d"), of which 67% was oil and 74% was liquids. Production for the
        quarter was significantly impacted by deferrals associated with
        weather-related shut-ins, third party downtime and other miscellaneous
        items.
    --  Net Loss of $52.0 million in the quarter, or $0.73 loss per diluted
        share, and Adjusted Net Loss((1)) in the quarter of $37.4 million, or
        $0.52 adjusted loss per diluted share.
    --  Adjusted EBITDA((1)) of $78.6 million for the third quarter.
    --  Capital expenditures, inclusive of plugging and abandonment costs, of
        $132.3 million during the quarter.
    --  As of September 30, 2020, maintained a leverage position of 1.8x Net
        Debt to Credit Facility LTM Adjusted EBITDA((1)).
    --  As of September 30, 2020, $353.8 million of liquidity including $32.4
        million in cash and $321.4 million of availability under the Company's
        $985.0 million borrowing base.
    --  The Company published its inaugural Environmental, Social and Governance
        report highlighting the Company's initiatives and commitments across
        health and safety, environmental and social responsibility and corporate
        governance topics.



            (1)            Adjusted Net Loss, Adjusted Loss per
                              Share, Adjusted EBITDA, Adjusted
                              EBITDA Margin, Credit Facility LTM
                              Adjusted EBITDA and Net Debt to
                              Credit Facility 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: "As we discussed in our October 7(th) operations update, the third quarter was particularly challenging, dominated by the busiest storm season in the last 15 years in the Gulf of Mexico. These storms did not cause significant damage to our infrastructure, but shut-in production and project delays resulted in a decrease in revenue as well as an increase in capital spending and delays in first production on active development projects. Despite those challenges, we made significant progress in our operations to exit 2020 on strong footing with a more resilient set of assets, with more scale and diversity and with a lower cost structure than how we entered the year."

Duncan continued: "There have been several important milestones as we close out the year. We are proud to have published our first ESG report and look forward to providing annual updates going forward. The report highlights our mission to provide life-improving energy with minimal impact to the environment and climate, while also promoting a company culture that's recognized as one of the best in Houston. On the operations front, we continue to deliver on the low end of our operating cost guidance, even with the additional hurricane-related costs, allowing us to have a highly competitive cost structure as we ramp to our full expected run-rate to exit the year. As we conclude our 2020 capital program in November and restore production to our target exit rate of 71-73 MBoe/d, we look forward to generating solid results in the fourth quarter and moving forward into 2021."

RECENT DEVELOPMENTS AND OPERATIONS UPDATE

Drilling and Exploration Activities - U.S. Gulf of Mexico
Tornado Water Flood: Injection from the B-4 aquifer into the B-6 producing reservoir continues at an injection rate of more than 20,000 barrels of water per day. Preliminary results from the producing Tornado wells are very positive, having exhibited both an increase in total production rate and an increase in measured reservoir pressures in the B-6 reservoir. Talos holds a 65.0% working interest in the Tornado field and is the operator, with Kosmos Energy holding a 35.0% working interest.

Kaleidoscope: Following the previously announced successful drilling of the Kaleidoscope well from the Green Canyon 18 platform, Talos expects first production from the well in late November 2020. Talos holds a 100.0% working interest in the well.

Ram Powell Facility: As a result of weather conditions from Tropical Storm Beta and Hurricane Zeta in October 2020, the completion of repairs and restart of the facility is now expected in November 2020. Talos holds a 100.0% working interest in Ram Powell.

Bulleit: After initiating flowback, the ramping up of production was halted for personnel evacuations resulting from Hurricane Zeta. Talos expects to re-initiate production following the re-staffing of the Green Canyon 18 platform in November 2020. Talos holds a 50.0% working interest and is the operator, with EnVen and Otto Energy holding 33.3% and 16.7% working interests, respectively.

Puma West: Drilling of the Puma West exploration prospect is expected to resume in the fourth quarter of 2020. The well was temporarily halted in January 2020 prior to drilling through the Middle and Lower Miocene main objectives. bp is the operator and holds a 50.0% working interest. Talos and Chevron each hold a 25.0% working interest.

Drilling and Exploration Activities - Mexico
Zama Unitization: Unitization discussions with Petróleos Mexicanos ("Pemex") continue regarding the Company's Zama discovery in offshore Mexico. Talos maintains its target to conclude unitization negotiations by mid-January, as directed by Mexico's Ministry of Energy ("SENER").

Corporate Activities
ESG Report: The Company recently published its inaugural Environmental, Social and Governance report. Highlights from 2019 include strong performance and year-over-year improvements in numerous safety and environmental categories, continued material support for local communities and charitable organizations and sustained employee support as evidenced by the Company's seventh consecutive year voted as a Top Workplace in Houston by the Houston Chronicle.

Fall Borrowing Base Redetermination: Talos has recently initiated its Fall 2020 borrowing base redetermination discussion for the Company's RBL facility, and expects to conclude the process over the next several weeks.

THIRD QUARTER 2020 RESULTS

Key Financial Highlights:


                                                                                Three Months Ended
                                                                    September 30, 2020




     Period results ($ million, except per share and Boe amounts):



     Total Revenues (inclusive of hedges)(2)                                                       $
           154.2



     Net Loss                                                                                     $
           (52.0)



     Loss per diluted share                                                                       $
           (0.73)



     Adjusted Net Loss(1)                                                                         $
           (37.4)



     Adjusted Loss per diluted share(1)                                                           $
           (0.52)



     Adjusted EBITDA(1)                                                                             $
           78.6



     Capital Expenditures (including Plug & Abandonment)                                           $
           132.3



     Adjusted EBITDA Margin(1):



     Adjusted EBITDA (% of Revenue inclusive of hedges)                                                51
          %



     Adjusted EBITDA per Boe                                                                       $
           17.59

Production, Realized Prices and Revenue
Production for the third quarter of 2020 was 48.6 MMBoe, with oil production accounting for 67% of the total. Oil price realizations, net of certain gathering, transportation, quality differentials and other costs, were $39.00 per barrel, before hedges. Natural Gas price realizations, net of certain gathering, transportation and other costs, were $1.78 per Mcf, before hedges.


                                                                                    Three Months Ended
                                                                        September 30, 2020




     Production volumes



     Oil production volume (MBbls)                                                                            3,005



     Natural Gas production volume (MMcf)                                                                     6,922



     NGL production volume (MBbls)                                                                              311



     
                Total production volume (MBoe)                                                              4,470





     Average net daily production volumes



     Oil (MBbl/d)                                                                                              32.7



     Natural Gas (MMcf/d)                                                                                      75.2



     NGL (MBbl/d)                                                                                               3.4



     
                Total average net daily (MBoe/d)                                                             48.6





     Average realized prices (excluding hedges)(3)



     Oil ($/Bbl)                                                                                          $
      39.00



     Natural Gas ($/Mcf)                                                                                       1.78



     NGL ($/Bbl)                                                                                              10.96



     Average realized price ($/Boe)                                                                       $
      29.74





     Average NYMEX prices



     WTI ($/Bbl)                                                                                          $
      40.89



     Henry Hub ($/MMBtu)                                                                                   $
      2.00





     Revenues ($ million)



     Oil                                                                                                  $
      117.2



     Natural Gas                                                                                               12.3



     NGL                                                                                                        3.4




     
                Revenue - Operations                                                                $
     
        132.9



     Other revenue                                                                                              2.2




     
                Total revenue                                                                       $
     
        135.1



        Net cash receipts (payments) on settled derivative instruments                                         19.0




     
                Total revenue inclusive of realized impact of hedges                                $
     
        154.2


                                   
            
       Three Months Ended September 30, 2020



                                     Production                                       % Oil    % Liquid % Operated



     Average net
      daily
      production
      volumes by
      Core Area
      (MBoe/d)


     Green Canyon                                         13.2                              80
      Area                                                                                                       %  %
                                                                                            %                   87  96


     Mississippi                                          19.9                              82
      Canyon Area                                                                                                %  %
                                                                                            %                   89  60


     Shelf and                                            15.5                              38
      Gulf Coast                                                                                                 %  %
                                                                                            %                   45  63



                  Total average 67
                   net daily
                   (MBoe/d)                                                                                         %
                                                                                                                 %

                                                          48.6                               %                   74  71

Expenses
Total lease operating expenses ("LOE"), inclusive of workover and maintenance and insurance costs for the quarter, were $62.1 million or $13.89/Boe. General and administrative expenses ("G&A") for the quarter, excluding stock-based compensation, transaction-related expenses and other one-time time expenses, was $13.9 million, or $3.10/Boe.


                                                                Three Months         Per Boe
                                                        Ended
                                                   September 30,
                                                                        2020




     Lease Operating Expenses                                               $
     62.1         $
      13.89


      General & Administrative Expenses (excluding
       non-cash and non-recurring items)                                     $
     13.9          $
      3.10

Other Financial Metrics
Capital Expenditures & Asset Management Activities


                                                                                     Three Months Ended
                                                                         September 30, 2020




     Capital Expenditures



     U.S. Drilling & Completions                                                                            $
      81.0



     Mexico Appraisal & Exploration                                                                            (0.2)



     Asset Management                                                                                           20.4



     Seismic and G&G / Land / Capitalized G&A                                                                   15.1




     Total Capital Expenditures                                                                            $
      116.2



     Plugging & Abandonment                                                                                     16.0




     
                Total Capital Expenditures and Plugging & Abandonment                                $
     
        132.3

Liquidity & DebtAs of September 30, 2020, Talos had $353.8 million of liquidity and maintained $32.4 million in cash on hand and $650.0 million drawn on the $985.0 million borrowing base under its credit facility. The Company had approximately $1,070.7 million in total debt, inclusive of $66.7 million related to the HP-I finance lease. Inclusive of pre-closing contributions from the recent ILX/Castex and Castex 2005 acquisitions, Net Debt to Credit Facility LTM Adjusted EBITDA((1)), as determined in accordance with the Company's credit agreement, was 1.8x. Excluding the contribution from the Acquired Assets, Net Debt to LTM Adjusted EBITDA((1)) ratio was 2.2x.



              
                Footnotes:



              (1)              Adjusted Net Loss, Adjusted Loss per
                                  Share, Adjusted EBITDA, Adjusted
                                  EBITDA Margin, Credit Facility LTM
                                  Adjusted EBITDA and Net Debt to
                                  Credit Facility 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 $2.2 million of other
                                  revenue.



              (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)



       October - December 2020            
          Swaps                     31,315                  $43.29



       October - December 2020           
          Collars                     5,000                                          $50.00                   $57.09



       January - December 2021            
          Swaps                     17,690                  $42.72



       January - December 2021           
          Collars                     1,000                                          $30.00                   $40.00



       January - December 2022            
          Swaps                     10,370                  $44.44





     
                Crude - LLS



       January - December 2021            
          Swaps                      3,000                  $38.83





     
                Natural Gas - HH NYMEX                          
           (MMBtu) 
              (per MMBtu)  
              (per MMBtu)  
              (per MMBtu)



       October - December 2020            
          Swaps                     71,815                   $2.29



       January - December 2021            
          Swaps                     58,408                   $2.56



       January - December 2021           
          Collars                     5,000                                           $2.50                    $3.10



       January - December 2022            
          Swaps                     29,778                   $2.60



       January - June 2023                
          Swaps                      5,000                   $2.61

CONFERENCE CALL AND WEBCAST INFORMATION

Talos will host an earnings conference call, which will be broadcast live over the internet, tomorrow, Thursday, November 5, 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 call can be accessed by dialing (888) 348-8927 (U.S. toll-free), (855) 669-9657 (Canada toll-free) or (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 November 12, 2020 and can be accessed by dialing (877) 344-7529 and using access code 10148673.

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 September 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)




                                                        September 30, 2020                                             December 31, 2019



                                                            (Unaudited)


          
              
                ASSETS



     Current assets:



     Cash and cash equivalents                                                        $
              32,377                                   $
           87,022



     Accounts receivable



     Trade, net                                                                                   64,948                                           107,842



     Joint interest, net                                                                          61,054                                            16,552



     Other                                                                                        13,396                                             6,346


      Assets from price risk management activities                                                 38,716                                             8,393



     Prepaid assets                                                                               44,148                                            65,877



     Other current assets                                                                          1,802                                             1,952




     Total current assets                                                                        256,441                                           293,984




     Property and equipment:



     Proved properties                                                                         4,855,152                                         4,066,260


      Unproved properties, not subject to
       amortization                                                                               254,243                                           194,532



     Other property and equipment                                                                 32,323                                            29,843




     Total property and equipment                                                              5,141,718                                         4,290,635


      Accumulated depreciation, depletion and
       amortization                                                                           (2,327,556)                                      (2,065,023)




     Total property and equipment, net                                                         2,814,162                                         2,225,612




     Other long-term assets:


      Assets from price risk management activities                                                  4,458



     Other well equipment inventory                                                               14,478                                             7,732



     Operating lease assets                                                                        7,060                                             7,779



     Other assets                                                                                 75,682                                            54,375




     Total assets                                                                  $
              3,172,281                                $
           2,589,482



                   LIABILITIES AND STOCKHOLDERS? EQUITY



     Current liabilities:



     Accounts payable                                                                $
              110,895                                   $
           71,357



     Accrued liabilities                                                                         172,741                                           154,816



     Accrued royalties                                                                            18,464                                            31,729


      Current portion of asset retirement
       obligations                                                                                 53,976                                            61,051


      Liabilities from price risk management
       activities                                                                                  33,443                                            19,476



     Accrued interest payable                                                                     20,088                                            10,249


      Current portion of operating lease
       liabilities                                                                                  1,713                                             1,594



     Other current liabilities                                                                    23,104                                            20,180




     Total current liabilities                                                                   434,424                                           370,452




     Long-term liabilities:


      Long-term debt, net of discount and
       deferred financing costs                                                                   994,748                                           732,981



     Asset retirement obligations                                                                377,160                                           308,427


      Liabilities from price risk management
       activities                                                                                   8,201                                               511



     Operating lease liabilities                                                                  18,998                                            17,239



     Other long-term liabilities                                                                  56,474                                            81,595




     Total liabilities                                                                         1,890,005                                         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 September 30, 2020 and
       December 31, 2019


      Common stock $0.01 par value; 270,000,000
       shares authorized; 73,029,989 and
       54,197,004 shares issued and outstanding as
       of September 30, 2020 and December 31,
       2019, respectively                                                                             730                                               542



     Additional paid-in capital                                                                1,584,815                                         1,346,142



     Accumulated deficit                                                                       (303,269)                                        (268,407)




     Total stockholders? equity                                                                1,282,276                                         1,078,277



      Total liabilities and stockholders? equity                                    $
              3,172,281                                $
           2,589,482


                                                                                    
          
                Talos Energy Inc.


                                                                            
       
            Condensed Consolidated Statements of Operations


                                                                            
       
            (In thousands, except per common share amounts)




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



                                                                      2020                             2019                                                2020             2019




     Revenues:



     Oil revenue                                                           $
       117,190                                        $
              211,899               $
        358,285   $
          624,486



     Natural gas revenue                                                         12,337                                                     12,545                      35,375            41,738



     NGL revenue                                                                  3,409                                                      3,384                       9,674            15,095



     Other                                                                        2,201                                                      1,029                       8,441            13,061




     Total revenue                                                              135,137                                                    228,857                     411,775           694,380



     Operating expenses:



     Lease operating expense                                                     62,064                                                     61,816                     184,187           184,230



     Production taxes                                                               225                                                       (21)                        640             1,067


      Depreciation, depletion and
       amortization                                                               80,547                                                     88,125                     262,533           248,518


      Write-down of oil and natural gas
       properties                                                                                                                            1,417                          57            13,778



     Accretion expense                                                           11,537                                                      7,316                      37,748            26,868


      General and administrative expense                                          17,823                                                     17,321                      62,484            53,795




     Total operating expenses                                                   172,196                                                    175,974                     547,649           528,256



      Operating income (expense)                                                (37,059)                                                    52,883                   (135,874)          166,124



     Interest expense                                                          (24,124)                                                  (23,123)                   (76,164)         (73,273)


      Price risk management activities
       income (expense)                                                         (19,882)                                                    43,760                     154,653          (35,829)



     Other income                                                                   813                                                        567                         139             1,831



      Net income (loss) before income
       taxes                                                                    (80,252)                                                    74,087                    (57,246)           58,853


      Income tax benefit (expense)                                                28,252                                                      (790)                     22,384             (428)




     Net income (loss)                                                    $
       (52,000)                                        $
              73,297              $
        (34,862)   $
          58,425





      Net income (loss) per common share:



     Basic                                                                  $
       (0.73)                                          $
              1.35                $
        (0.54)     $
          1.08



     Diluted                                                                $
       (0.73)                                          $
              1.35                $
        (0.54)     $
          1.07


      Weighted average common shares
       outstanding:



     Basic                                                                       71,286                                                     54,200                      65,134            54,178



     Diluted                                                                     71,286                                                     54,430                      65,134            54,364


                                                        
              
                Talos Energy Inc.


                                                    
     
              Condensed Consolidated Statements of Cash Flows


                                                          
              
                (In thousands)




                                                           Nine Months Ended September 30,



                                                                                      2020                              2019



      Cash flows from operating activities:



     Net income (loss)                                                                            $
              (34,862)          $
         58,425


      Adjustments to reconcile net income (loss) to
       net cash provided by operating activities


      Depreciation, depletion, amortization and
       accretion expense                                                                                        300,281                 275,386


      Write-down of oil and natural gas properties
       and other well inventory                                                                                     190                  13,778


      Amortization of deferred financing costs and
       original issue discount                                                                                    5,393                   3,723


      Equity based compensation, net of amounts
       capitalized                                                                                                6,321                   5,164


      Price risk management activities expense
       (income)                                                                                               (154,653)                 35,829


      Net cash received (paid) on settled
       derivative instruments                                                                                   141,529                 (7,202)



     Gain on extinguishment of debt                                                                            (1,644)


      Settlement of asset retirement obligations                                                               (34,502)               (54,406)


      Changes in operating assets and liabilities:



     Accounts receivable                                                                                       (1,729)               (14,729)



     Other current assets                                                                                       21,835                  11,384



     Accounts payable                                                                                           23,500                  32,541



     Other current liabilities                                                                                  31,826                (26,753)


      Other non-current assets and liabilities,
       net                                                                                                     (41,418)                  (727)



      Net cash provided by operating activities                                                                 262,067                 332,413



      Cash flows from investing activities:


      Exploration, development and other capital
       expenditures                                                                                           (280,273)              (372,920)


      Cash paid for acquisitions, net of cash
       acquired                                                                                               (304,879)               (32,916)


      Proceeds from sale of other property and
       equipment                                                                                                                         5,369



      Net cash used in investing activities                                                                   (585,152)              (400,467)



      Cash flows from financing activities:


      Redemption of Senior Notes and other long-
       term debt                                                                                                (4,735)               (10,567)



     Proceeds from Bank Credit Facility                                                                        300,000                  75,000



     Repayment of Bank Credit Facility                                                                                               (25,000)



     Deferred financing costs                                                                                  (1,287)                (1,268)



     Other deferred payments                                                                                  (11,921)                (9,921)



     Payments of finance lease                                                                                (12,790)               (10,344)



     Employee stock transactions                                                                                 (827)                  (326)



      Net cash provided by financing activities                                                                 268,440                  17,574





      Net decrease in cash, cash equivalents and
       restricted cash                                                                                         (54,645)               (50,480)


      Cash, cash equivalents and restricted cash:



     Balance, beginning of period                                                                               87,022                 141,162




     Balance, end of period                                                                         $
              32,377           $
         90,682





      Supplemental Non-Cash Transactions:


      Capital expenditures included in accounts
       payable and accrued liabilities                                                               $
              97,517           $
         24,622



     Debt exchanged for common stock                                                                $
              35,960      
     $


      Supplemental Cash Flow Information:


      Interest paid, net of amounts capitalized                                                      $
              41,188           $
         36,011

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," "Net Debt," "LTM Adjusted EBITDA," "Credit Facility LTM Adjusted EBITDA" and "Net Debt to Credit Facility 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 Margin and Adjusted EBITDA Margin excluding hedges for each of the periods indicated (in thousands, except for Boe, $/Boe and percentage data):


      ($ thousands, except per Boe)                  Three                        Three Months                             Three            Three
                                            Months                          ended                                 Months           Months
                                             ended                                                                 ended            ended
                                                                                  June 30, 2020
                                                   September                                                             March 31,        December
                                                    30, 2020                                                                  2020         31, 2019



      Reconciliation of net income (loss)
       to Adjusted EBITDA:



     Net income (loss)                                      $
        (52,000)                     $
         (140,611)                   $
          157,749   $
          304



     Interest expense                                               24,124                                26,190                             25,850        24,574


      Income tax expense (benefit)                                 (28,252)                             (49,392)                            55,260      (36,569)


      Depreciation, depletion and
       amortization                                                  80,547                                88,443                             93,543        97,413



     Accretion expense                                              11,537                                13,794                             12,417         7,521




     EBITDA                                                         35,956                              (61,576)                           344,819        93,243


      Write-down of oil and natural gas
       properties                                                                                                                               57       (1,557)


      Transaction and non-recurring
       expenses(2)                                                    1,607                                 3,498                              7,758         4,111


      Derivative fair value (gain) loss(1)                           19,882                                68,682                          (243,217)       59,508


      Net cash receipts (payments) on
       settled derivative instruments(1)                             19,030                                86,039                             36,460       (1,618)


      Loss (Gain) on extinguishment of debt                           (174)                              (1,470)                                            132


      Non-cash write-down of other well
       equipment inventory                                                                                                                     133           165


      Non-cash equity-based compensation
       expense                                                        2,347                                 2,347                              1,627         1,800




      Adjusted EBITDA                                               78,648                                97,520                            147,637       155,784


      Net cash receipts (payments) on
       settled derivative instruments(1)                           (19,030)                             (86,039)                          (36,460)        1,618



      Adjusted EBITDA excluding hedges                               59,618                                11,481                            111,177       157,402




     Production and Revenue:



     Boe(2)                                                          4,470                                 4,775                              5,287         4,966



     Revenue - Operations                                          132,936                                87,575                            182,823       233,240


      Adjusted EBITDA margin and Adjusted
       EBITDA margin excluding hedges:


      Adjusted EBITDA divided by Revenue -                               59                                   111                                 81            67
       Operations (%)                                                    %                                    %                                 %            %



     Adjusted EBITDA per Boe(2)                                $
        17.59                        $
           20.42                      $
          27.92 $
          31.37


      Adjusted EBITDA excluding hedges                                   45                                    13                                 61            67
       divided by Revenue -Operations (%)                                %                                    %                                 %            %


      Adjusted EBITDA excluding hedges per
       Boe(2)                                                   $
        13.34                         $
           2.40                      $
          21.03 $
          31.70




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



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

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

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

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



     ($ thousands, except per share amounts)                                       Three Months Ended
                                                                        September 30, 2020




     Reconciliation of Net Loss to Adjusted Net Loss:



     Net Loss                                                                                         $
       (52,000)



     Transaction related costs                                                                                1,607



     Derivative fair value loss(1)                                                                           19,882



     Net cash receipts on settled derivative instruments(1)                                                  19,030



     Non-cash income tax expense                                                                           (28,252)



     Non-cash equity-based compensation expense                                                               2,347




     Adjusted Net Loss                                                                                $
       (37,386)





     Weighted average common shares outstanding at September 30, 2020:



     Basic                                                                                                   71,286



     Diluted                                                                                                 71,286





     Loss per common share:



     Basic                                                                                              $
       (0.73)



     Diluted                                                                                            $
       (0.73)





     Adjusted Loss per common share:



     Basic                                                                                              $
       (0.52)



     Diluted                                                                                            $
       (0.52)




              (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.


                                                                       September 30, 2020




     Reconciliation of Net Debt ($ thousands):



     11.00% Second-Priority Senior Secured Notes - due April 2022                                $
       347,908



     7.50% Senior Notes - due May 2022                                                                  6,060



     Bank Credit Facility - matures May 2022                                                          650,000



     Finance lease                                                                                     66,746




     Total Debt                                                                                     1,070,714



     Less: Cash and cash equivalent                                                                  (32,377)




     
                Net Debt                                                               $
       
         1,038,337






     Calculation of LTM EBITDA:



     Adjusted EBITDA for three months period ended December 31, 2019                             $
       155,784



     Adjusted EBITDA for three months period ended March 31, 2020                                     147,637



     Adjusted EBITDA for three months period ended June 30, 2020                                       97,520



     Adjusted EBITDA for three months period ended September 30, 2020                                  78,648




     
                LTM Adjusted EBITDA                                                      $
       
         479,589



     Acquired Assets Adjusted EBITDA prior to closing                                                  93,765




     
                Credit Facility LTM Adjusted EBITDA                                      $
       
         573,354






     Reconciliation of Net Debt to LTM Adjusted EBITDA:



     Net Debt / LTM Adjusted EBITDA                                                                       2.2 x



     Net Debt / Credit Facility LTM Adjusted EBITDA                                                       1.8 x

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