Talos Energy Inc. (TALO, $6.77, Buy; Target 17.00)
Lowering Estimates on Weather Impact, Positive Ops Update - Michael S. Scialla at Stifel
In the wake of the most active GOM tropical storm season in 15 years, Talos lowered 2H20 production guidance, which was 30%/10% below SF and 28%/8% below consensus 3Q20/4Q20 estimates, respectively. Despite the diminished outlook, management reiterated its YE20 exit rate target of 71-73 MBoepd. In addition, recent operational activity has generally met or exceeded expectations. The company also added to its 2021 hedge book.
Talos Energy (TALO) Update - Oct 8
Talos Energy (TALO) Update - Oct 8
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Talos Energy (TALO) Update - Oct 8
KeyBanc net report. They rate TALO a BUY with a price target of $14.00
Key Investment Points
TALO Raised Its 2020 Capex Guide 5% and Cut Its 2020 Production Guidance
9% Due to Inclement Weather in the GOM. TALO raised its 2020 capex guidance
5% to ~$387M and cut its 2020 production guidance ~9% to ~55,900 Boepd. TALO
cited bad weather from seven named storms with five in 3Q20 as the reason for the
guidance changes as this caused significant shut-ins, storm-related evacuations, and
project delays. However, TALO reiterated its previously announced 71,000-73,000 Boepd
2020 December production rate guidance. Additionally, TALO said BP plans to resume
drilling of the Puma West exploration prospect in 4Q20, which adds a little 2Q20 capex.
TALO Added Around 5,200 Bopd of WTI Swaps in 2021 at $43.85/Bbl and 6,200
Bopd of WTI Swaps in 2022 at $44.78/Bbl, and It Raised Its 2020 G&A Guide by
Around $11M. TALO added around 5,200 Bopd of WTI swaps in 2021 at $43.85/Bbl and
it added 6,200 Bopd of WTI swaps in 2022 at $44.78. Additionally, TALO added around
5,700 MMBtupd of HH gas swaps in 2021 at close to $2.96/MMBtu. TALO also raised its
2020 G&A guide by ~19% to roughly $71M.
We Are Lowering Our 2020 CFPS Estimate by 15% and Cutting Our PT to $14. We
are lowering our 2020 CFPS estimates by 15% due to lower production and higher costs.
We are cutting our PT to $14 and our new target is based on a 3.3x multiple of 2021 DACF.
Leverage Is Below Peers; We Expect a FCF Deficit in 2020, but Positive FCF in
2021. TALO’s leverage is below peers, with 2020 net debt/EBITDA of 2.0x, and TALO has
decent liquidity with $300M of revolver capacity and $108M in cash. We expect TALO to
generate a modest FCF deficit of $19M in 2020 at $40 WTI, but for it to generate positive
FCF of $79M in 2021 at $55 WTI.
Valuation Is Below Peers. TALO trades below peers with a 2021 EV/DACF multiple of
2.5x at $55/$2.50. Its offshore exposure and field concentration risk are negatives, while
its low production decline rate and reasonable leverage are clear positives. TALO also
reflects roughly $35 WTI based on our NAV, which is below peers.
Key Investment Points
TALO Raised Its 2020 Capex Guide 5% and Cut Its 2020 Production Guidance
9% Due to Inclement Weather in the GOM. TALO raised its 2020 capex guidance
5% to ~$387M and cut its 2020 production guidance ~9% to ~55,900 Boepd. TALO
cited bad weather from seven named storms with five in 3Q20 as the reason for the
guidance changes as this caused significant shut-ins, storm-related evacuations, and
project delays. However, TALO reiterated its previously announced 71,000-73,000 Boepd
2020 December production rate guidance. Additionally, TALO said BP plans to resume
drilling of the Puma West exploration prospect in 4Q20, which adds a little 2Q20 capex.
TALO Added Around 5,200 Bopd of WTI Swaps in 2021 at $43.85/Bbl and 6,200
Bopd of WTI Swaps in 2022 at $44.78/Bbl, and It Raised Its 2020 G&A Guide by
Around $11M. TALO added around 5,200 Bopd of WTI swaps in 2021 at $43.85/Bbl and
it added 6,200 Bopd of WTI swaps in 2022 at $44.78. Additionally, TALO added around
5,700 MMBtupd of HH gas swaps in 2021 at close to $2.96/MMBtu. TALO also raised its
2020 G&A guide by ~19% to roughly $71M.
We Are Lowering Our 2020 CFPS Estimate by 15% and Cutting Our PT to $14. We
are lowering our 2020 CFPS estimates by 15% due to lower production and higher costs.
We are cutting our PT to $14 and our new target is based on a 3.3x multiple of 2021 DACF.
Leverage Is Below Peers; We Expect a FCF Deficit in 2020, but Positive FCF in
2021. TALO’s leverage is below peers, with 2020 net debt/EBITDA of 2.0x, and TALO has
decent liquidity with $300M of revolver capacity and $108M in cash. We expect TALO to
generate a modest FCF deficit of $19M in 2020 at $40 WTI, but for it to generate positive
FCF of $79M in 2021 at $55 WTI.
Valuation Is Below Peers. TALO trades below peers with a 2021 EV/DACF multiple of
2.5x at $55/$2.50. Its offshore exposure and field concentration risk are negatives, while
its low production decline rate and reasonable leverage are clear positives. TALO also
reflects roughly $35 WTI based on our NAV, which is below peers.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group