U.S. markets close in 2 hours 9 minutes

Talos Energy Announces Fourth Quarter And Full Year 2019 Financial And Operational Results And Reduction Of 2020 Spending Guidance

HOUSTON , March 11, 2020 /PRNewswire/ -- Talos Energy Inc. ("Talos," or the "Company") (NYSE: TALO) today announced its financial and operational results for the fourth quarter of 2019 and provided an operations update. Additionally, in response to recent commodity price trends, the Company will reduce its previously announced 2020 spending guidance by more than $125 million . Inclusive these reductions, Talos expects to remain free cash flow positive for 2020 with average WTI prices of $30 per barrel or higher. Specific details of the revised 2020 guidance will be disclosed in the coming weeks.

(PRNewsfoto/Talos Energy)

Key fourth quarter of 2019 highlights:

  • Net Income of $0.3 million ( $0.01 earnings per share diluted) for the fourth quarter and Adjusted Net Income (1) of $71.6 million ( $1.31 adjusted earnings per share diluted) in the fourth quarter of 2019.
  • Production of 54.0 thousand barrels of oil equivalent per day ("MBoe/d") in the fourth quarter, of which 73% was oil and 79% was liquids.
  • Average realized prices of $57.65 /Bbl of oil in the fourth quarter, net of transport and quality deductions, or $0.83 /Bbl above the average WTI benchmark price of $56.82 /Bbl during the same period.
  • Adjusted EBITDA (1) of $155.8 million in the fourth quarter and Adjusted EBITDA excluding hedges (1) of $157.4 million . Adjusted EBITDA Margin (1) per Boe of $31.37 , or 67%, and Adjusted EBITDA Margin excluding hedges (1) per Boe of $31.70 , or 67%.
  • Capital expenditures, inclusive of plugging and abandonment costs, were $86.8 million in the fourth quarter.
  • Free Cash Flow (1) of $44.4 million in the fourth quarter.
  • Year-end 2019 proved reserves of 141.7 million barrels of oil equivalent ("MMBoe"), of which 69% is proved developed with a PV-10 of $3.0 billion and Standardized Measure of $2.5 billion . Pro forma year-end 2019 proved reserves for the recently closed transaction, inclusive of plugging and abandonment obligations:
  • As of December 31, 2019 , liquidity position of $673.4 million . Net Debt to Last Twelve Months ("LTM") Adjusted EBITDA (1) was 1.2x. Liquidity as of February 28, 2020 was approximately $600.0 million .
  • Borrowing base increased to $1,150.0 million from $950.0 million as of February 28, 2020 .
  • Approximately 10.6 million barrels of oil hedged for 2020 with a weighted average price of $54.05 per barrel of WTI.

 

(1)

Adjusted Net Income, Adjusted Earnings per Share, Adjusted EBITDA, Adjusted EBITDA excluding hedges, Adjusted EBITDA Margin and Adjusted EBITDA Margin excluding hedges, Cash Flow per Share, Free Cash Flow 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: "We exited 2019 with another consecutive quarter generating significant free cash flow and adjusted earnings per share. Talos also exited the year with one of the lowest leverage ratios in our sector, with a 1.2x Net Debt to LTM Adjusted EBITDA, and high levels of liquidity.  Because of the oil-weighted and highly proved developed nature of our reserve base, significant value is sustained at various commodity prices, with additional upside from our probable reserves and our drilling portfolio. The results from the Claiborne #3 well, which just reached total depth, came in above pre-drill expectations and the well will be tied to existing infrastructure in order to be brought online by mid-year, demonstrating the upside potential of the assets we acquired."

Duncan continued, "With the closing of our recent acquisition, we are a larger, more diverse, and more resilient business with an improved combination of free cash flowing assets and a strong balance sheet. As we look into 2020 with the context of recent commodity price trends, we are re-examining costs throughout the organization in order to maintain our healthy leverage and liquidity metrics while also remaining free cash flow positive despite the challenging price environment. We have flexibility in our previously announced capital program for the year through our short-term rig contract structures, and will utilize this flexibility to reduce our discretionary capital investments. Talos's management team and employees have weathered this situation before. In order to be prepared for these situations, we always strive to maintain a conservative leverage position, high liquidity and a strong hedge book. We believe we are well-positioned to safely navigate current market conditions."

RECENT DEVELOPMENTS AND OPERATIONS UPDATE

Closing of Transformative Acquisition of U.S. Gulf of Mexico Portfolio
On February 28, 2020 , Talos closed the acquisition of affiliates of ILX Holdings, among other entities (the "Acquired Assets," the "Acquisition," or the "Transaction"). After taking into account customary closing adjustments based on an effective date of July 1, 2019 , total cash consideration paid by Talos was reduced from $385.0 million to $291.6 million as the Acquired Assets generated approximately $100.0 million of free cash flow in the eight-month period since the effective date, partially offset by a small working capital position acquired in conjunction with one of the assets. The cash consideration was funded primarily through the Company's revolving credit facility and cash on hand. In addition to the cash consideration, the Company delivered 110,000 shares of Series A Convertible Preferred Stock to certain of the sellers. The preferred shares are expected to automatically convert into 11.0 million common shares on March 30, 2020 .

The Acquired Assets' average production in the fourth quarter of 2019, impacted by certain downtime, was 18.7 MBoe/d. Also included in the Transaction are over 700,000 gross acres, of which approximately 480,000 are primary term.

Borrowing Base Increase
On February 28, 2020 , concurrently with the closing of the Acquisition, the borrowing base under Talos's credit facility was upsized from $950.0 million to $1,150.0 million .

Macro-Economic Developments and Revised 2020 Guidance
In response to recent trends in oil and gas commodity markets, Talos is reducing its previous 2020 capital and operating expenditure guidance. Among other items, Talos expects to utilize the flexibility provided by its short-term rig contracts to reduce its 2020 guidance by more than $125 million of capital and operating expense from the original budget. Talos expects that, following these changes, it will be able to generate positive free cash flow in 2020 with average WTI prices of $30.00 per barrel or above, inclusive of the Company's existing hedge position.

Talos plans to provide additional detail on the revised 2020 guidance in the coming weeks.

Drilling and Exploration Activities U.S. Gulf of Mexico

  • Claiborne Drilling Success : The third development well (MC 794 #3) being drilled in the Claiborne field has reached total depth and has determined to be a success. The well logged 284 feet of true vertical pay across five different pay sands. The well was drilled on budget, exceeds pre-drill expectations and will allow partners to materially increase production and more efficiently develop the asset. The well will be tied-back to the Coelacanth production facility via existing subsea infrastructure with first production expected by mid-year 2020. Completion operations in the MC 794#3 well will follow workover and recompletion activities in the MC 794 #1ST1 well, currently underway, that are designed to target highly productive existing pay sands in the Disc 12 reservoir. Talos owns a 25.3% working interest in the project. The Claiborne field is operated by Beacon Offshore Energy, and partners include affiliates of LLOG Exploration, Ridgewood Claiborne , LLC, a managed entity of Ridgewood Energy Corporation, Red Willow Offshore and CL&F Offshore.

Drilling and Exploration Activities Mexico

  • Block 7: Following the successful completion of the Zama appraisal program, Talos engaged Netherland, Sewell & Associates, Inc. (" Netherland Sewell ", or "NSAI") to complete an independent analysis of the discovery. Netherland Sewell's "Best Estimate" of the 2C gross recoverable resource estimate is approximately 670 MMBoe, with 60% of those volumes on Talos's Block 7. NSAI's "High Estimate" of the 3C gross recoverable resource estimate is approximately 1,010 MMBoe, exceeding the high end of the Company's pre-appraisal estimated range of 400 800 MMBoe. Talos continues to progress the project closer towards a final investment decision ("FID") by focusing efforts on the front-end engineering and design ("FEED"). Talos continues to be engaged in unitization discussions with Petroleos Mexicanos ("Pemex") with the goal of declaring FID in 2020; however, as previously disclosed, the timing to FID is in part dependent on finalizing unitization discussions with Pemex. Talos holds a 35% participating interest and is Operator of Block 7.

    Since 2017, Talos has drilled or participated in eight wells in offshore Mexico , with six successful results leading to two material oil discoveries.

 

 

FOURTH QUARTER 2019 RESULTS


Key Financial Highlights:


Period results ($ million):





Revenues (2)

$


233.2


Net Income

$


0.3


Earnings per share diluted

$


0.01


Adjusted Net Income (1)

$


71.6


Adjusted Earnings per share diluted (1)

$


1.31


Adjusted EBITDA (1)

$


155.8


Adjusted EBITDA excl. hedges (1)

$


157.4


Capital Expenditures (including Plug & Abandonment)

$


86.8


Adjusted EBITDA Margin (1) :





Adjusted EBITDA (% of Revenue)



67

%

Adjusted EBITDA per Boe

$


31.37


Adjusted EBITDA excl. hedges (% of Revenue)



67

%

Adjusted EBITDA excl. hedges per Boe

$


 

31.70







Production, Realized Prices and Revenue
Production for the fourth quarter of 2019 was 5.0 MMBoe, with oil production accounting for 73% of the total. Oil price realizations, net of certain gathering, transportation, quality differentials and other costs, were $57.65 per barrel, representing an average for the quarter of $0.83 per barrel above the average WTI price over the same period.


Three Months Ended
December 31, 2019


Production volumes




Oil production volume (MBbls)


3,619


NGL production volume (MBbls)


313


Natural Gas production volume (MMcf)


6,205


Total production volume (MBoe)


4,966






Average net daily production volumes




Oil (MBbl/d)


39.3


NGL (MBbl/d)


3.4


Natural Gas (MMcf/d)


67.4


Total average net daily (MBoe/d)


54.0






Average realized prices (excluding hedges) (3)




Oil ($/Bbl)

$57.65


NGL ($/Bbl)

$14.62


Natural Gas ($/Mcf)

$2.18


Average Realized Price ($/Boe)

$47.90






Average NYMEX prices




WTI ($/Bbl)

$

56.82


Henry Hub ($/MMBtu)

$

2.40






Revenues ($ million)




Oil

$

208.6


NGL


4.6


Natural Gas


13.5


Revenue Operations


226.7


Other revenue


6.5


Total revenue

$

233.2


 


Three Months Ended December 31, 2019



Production



% Oil



% Liquids



%
Operated


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
















Green Canyon
















Phoenix Complex


19.2




80

%



86

%



100

%

Green Canyon 18


1.0




88

%



92

%



100

%

Green Canyon Area


20.2




80

%



86

%



100

%

















Mississippi Canyon
















Amberjack


2.1




90

%



93

%



99

%

Pompano


10.9




83

%



88

%



100

%

Ram Powell


4.7




63

%



74

%



100

%

Gunflint


1.0




79

%



84

%



0

%

Mississippi Canyon Area


18.7




79

%



85

%



94

%

















Shelf and Other Deepwater
















Shelf


13.3




54

%



61

%



92

%

Other deepwater


1.8




67

%



75

%



74

%

Shelf and Other Deepwater Area


15.1




56

%



62

%



90

%

















Total average net daily (MBoe/d)


54.0




73

%



79

%



95

%

Expenses
Total lease operating expenses ("LOE"), inclusive of Workover and Maintenance and insurance costs for the fourth quarter of 2019 were $59.2 million or $11.92 /Boe. General and administrative expenses ("G&A") for the quarter were $17.5 million (excluding $1.8 million of stock-based compensation and $4.1 million of transaction-related expenses), or $3.52 /Boe.


Three Months Ended
December 31, 2019



Per Boe


Lease Operating Expenses includes workover & maintenance and insurance (4)

$

59.2



$

11.92


General & Administrative Expenses (4)(5)

$

17.5



$

3.52


Other Financial Metrics

Capital Expenditures & Asset Management Activities
Capital expenditures for the fourth quarter of 2019 were $86.8 million , inclusive of plugging & abandonment costs.


Three Months Ended
December 31, 2019


Capital Expenditures




U.S. Drilling & Completions

$

48.2


Mexico Appraisal & Exploration


(2.9)


Asset Management


8.8


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


11.8


Total Capital Expenditures

$

65.9


Plugging & Abandonment


20.9


Total Capital Expenditures and Plugging & Abandonment

$

86.8


Liquidity
As of December 31, 2019 , the Company had approximately $826 .5 million in total debt, inclusive of the HP-I finance lease. Already accounted for in this figure is the additional $35.0 million borrowed from the Company's credit facility to pay for the $31.8 million deposit related to the Acquisition, and the $5.0 million acquisition of certain leases from Venari Resources.

Talos had a liquidity position of $673.4 million as of year-end 2019, including $586.4 million available under the Bank Credit Facility and approximately $87 .0 million of cash. LTM Adjusted EBITDA (1) for the twelve month period ended December 31, 2019 was $614 .2 million. Net Debt to LTM Adjusted EBITDA (1) ratio was 1.2x.

PROVED RESERVES AS OF DECEMBER 31, 2019

As of December 31, 2019 , Talos had proved reserves of 141.7 MMBoe, with 82% comprised of liquids (75% crude oil and 7% NGLs).

The discovered resources associated with the Company's offshore Mexico assets are not yet qualified as proved reserves per Securities and Exchange Commission (the "SEC") rules and, therefore, are not included in any of the reserves information provided in this press release.

The standardized measure of proved reserves and the present value of the Company's proved reserves, discounted at 10% ("PV-10") (1) , at year-end 2019 were $2.5 billion and $3.0 billion , respectively. Standardized measure and PV-10 include the present value of all asset retirement obligations associated with the relevant assets and properties. 

The following table summarizes our proved reserves at December 31, 2019 :



Summary of Proved Reserves (7)




MBoe



Percent of
Total
Proved



Percent
Oil



Standardized
Measure



PV-10 (6)


(in thousands)

(in thousands)

Proved Developed Producing




68,331




48%




79%







$

1,837,964

Proved Developed Non-Producing




29,648




21%




62%








378,244

Total Proved Developed




97,979




69%




74%








2,216,208

Proved Undeveloped




43,756




31%




79%








776,814

Total Proved




141,735











$

2,537,595



$

2,993,022

 



(6)

PV-10 is a non-GAAP financial measure and differs from the standardized measure of discounted future net cash flows, which is the most directly comparable GAAP financial measure. See "Supplemental Non-GAAP Information" below for additional detail and reconciliations of GAAP to non-GAAP measures, including a reconciliation of PV-10 of our proved reserves to the standardized measure of discounted future net cash flows at December 31, 2019.



(7)

Proved oil, natural gas and NGL reserves attributable to our net interests in oil and natural gas properties were estimated and compiled for reporting purposes by our reservoir engineers and audited by Netherland, Sewell & Associates, Inc.

The following table summarizes our proved reserves by asset at December 31, 2019 :

...


Estimated Proved Reserves (7)





Full Year 2019 (7)




MBoe





% Oil





% Natural

Gas





% NGLs





% Proved

Developed





Net
Production

(MBoe)





%
Operated


United States Core Properties









































Phoenix Complex



55,381






80

%





14

%





6

%





51

%





5,980






100

%

Pompano



27,241