Talos Energy (TALO) Q1 Results - May 6

[dan_s]

Talos Energy Inc. ("Talos" or the "Company") (NYSE: TALO) announced its operational and financial results for the first quarter of 2021.

Key Highlights:

Successful high-impact sub-salt Miocene deepwater exploration discovery at Puma West, located approximately 15 miles from the prolific Mad Dog field. < This is a significant discovery for a company of this size, Talos owns 25% of Puma West that is operated by BP.

Successful multi-well drilling program at Green Canyon 18 concluded. Rig mobilizing to Pompano to begin multi-well campaign.

Completed two high-yield transactions that increased liquidity and materially extended the Company's maturity profile.

Record production of 66.1 thousand barrels of oil equivalent per day ("MBoe/d") net (68% oil, 76% liquids). < Compares to my Q1 forecast of 66,500 Boepd, 67.7% oil. This is the Company's highest quarterly production since inception.

Net Loss of $121.5 million, inclusive of $137.5 million in commodity hedging losses, or $1.49 loss per diluted share, and Adjusted Net Loss of $27.3 million, inclusive of $48.4 million of realized hedging losses, or $0.34 adjusted loss per diluted share. < Adjusted Net Loss compares to my forecast of $5.2 million.

Adjusted EBITDA of $136.6 million, or approximately $23 per Boe. Adjusted EBITDA excluding hedges of $185.0 million, or over $31 per Boe. < Compares to my EBITDA forecast of $134.6 million for Q1.

Capital expenditures, inclusive of plugging and abandonment costs, of $71.2 million.

Free Cash Flow of $31.3 million before changes in working capital, reflecting the quarter's strong operational performance. < Good news as my full year forecast for 2021 is Free Cash Flow of approximately $83 million based on the midpoint of their capex budget.

President and Chief Executive Officer Timothy S. Duncan commented: "The first quarter of 2021 was a busy period for Talos with multiple development and exploration projects underway. We achieved success across the board on those projects, ranging from in-field developments to a high-impact deepwater sub-salt discovery at Puma West. We believe this discovery builds momentum around our sub-salt Miocene portfolio in our Green Canyon and Mississippi Canyon core areas, where we are focused on accelerating significant value creation in the coming years through exploration. On the development and exploitation front, we look forward to drilling an additional well at Tornado to maximize our water flood project, as well as starting the Pompano platform rig program campaign, which should deliver high-value projects in the second half of 2021 and into 2022."

Duncan continued: "It was also a strong quarter financially with over $31 million of free cash flow generation, despite hedge settlements, winter weather events and planned downtime at Pompano. Thematically, the results of the quarter illustrate what's possible with our high-quality asset base, diverse project inventory and competitive cost structure, all of which allowed us to generate over $31 per Boe of Adjusted EBITDA margin before hedge settlements. With our oil-weighted asset base we expect this high margin trend to continue and we believe our balanced capital program will generate solid returns moving forward."

RECENT DEVELOPMENTS AND OPERATIONS UPDATE

Puma West: The Puma West deepwater sub-salt discovery was drilled on Green Canyon Block 821 to a total depth of 23,530 feet. The well encountered high quality Miocene pay with similar rock and fluid properties as other significant discoveries in the prolific sub-salt Miocene basin. bp is the operator and holds a 50.0% working interest. Talos and Chevron each hold a 25.0% working interest. Talos holds over 17,000 acres in the surrounding area. Additionally, the Company also holds an inventory of sub-salt Miocene prospects throughout its Green Canyon and Mississippi Canyon core areas and is active in exploration business development activities in similar high-impact opportunities.

Platform Rig Program: Talos recently completed a year-long redevelopment campaign in the Green Canyon 18 field. The project included four new completions, which added net production of over 7.5 – 8.0 MBoe/d, significantly lowering the production cost per barrel in the asset and enhancing its margins. The drilling program also generated several future asset management opportunities that the Company plans to execute in due course. The platform rig will next move to the Company's Pompano platform to begin a multi-well development and exploitation campaign through the remainder of 2021 and into 2022.

Zama Unitization: Talos continues to work to finalize unitization beyond the March 2021 deadline previously established by Mexico's Ministry of Energy ("SENER"). A final unitization agreement will address operatorship, initial participating interest splits and the mechanism to re-determine participating interest splits in the future, among other key topics. Talos is continuing to finalize its field development plans in parallel and is prepared to rapidly advance the project to Final Investment Decision ("FID") following the conclusion of unitization.

Tornado Attic well: Signed a contract with the Seadrill West Neptune deepwater rig to drill the Tornado Attic well to build on the water flood project in the Tornado field. The rig is expected to be on location in the first half of May with drilling activities commencing soon thereafter. Production impact from this well is expected sometime in the third quarter of 2021. This additional infill well will provide additional production and have pressure support from the previously completed deepwater intra-well, or "dump flood" water flood project, which was a first of its kind in the deepwater Gulf of Mexico.

Spring Borrowing Base Redetermination: Talos has begun working on its semi-annual redetermination, including seeking a material extension of its credit facility maturity. Finalization and announcement is expected in the second quarter of 2021.
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My initial take: Production and operating cash flow were inline with my forecast. Miss on the net income a result of non-cash items. Puma West discovery is very good news.