Talos Energy (TALO) Update - Jan 21

[dan_s]

I have updated my forecast/valuation model for TALO and posted it to the EPG website. My valuation increases by $2.00 to $30.00.

TALO closed on Friday at $9.75.
TipRanks: "In the last 3 months, 3 ranked analysts set 12-month price targets for TALO of $12.50, $23.00 and $26.00. The average price target among the 3 analysts is $20.50."

Talos reported a big dip in production from Q2 to Q3 2021 because of hurricane Ida. The production has been restored to approximate 65,000 Boepd in Q4 and production should ramp higher in 1H 2022. I expect the Company's production should increase to 70,000 Boepd in 2022 with an exit rate over 75,000 Boepd.
Operating cash flow should ramp up each quarter as their "Bad Hedges" roll off. Operating cash flow per share s/b $4.83 in 2021 and $8.86 per share in 2022. My model does include an adjustment for hurricane risk in Q3 each year.

As we all know, Talos does have "hurricane risk" but it has some very valuable projects in the Gulf of Mexico.

Talos is free cash flow positive and should generate more than enough cash flow from operations to fully fund a capital program that will generate 10% to 15% annual production growth. As discussed in today's podcast, there is nothing in my valuation for the Zama Oilfield Development project that is now operated by PEMEX.

[CreativeEquity]

Just my opinion but I strongly believe they are going to have to start returning capital to shareholders if they want a decent multiple otherwise the debt holders essentially own the company.

[dan_s]

Paying dividends is the "flavor of the day" with investors currently, but growing production and proven reserves (especially if growth is self-funded) is also a way to increase shareholder value.
Talos has significant exploration upside, like the Puma West oil discovery announced in April, 2021. They have several more high potential prospects to drill.

I worked for Hess Corp for 18 years. Offshore is high risk, but also has high reward potential. While I was at Hess, they drilled the Baldpate oil discovery in over 1,600 ft. of water (considered "deep water" in the 1990s. It turned into more than a $Billion asset.

Loosing operatorship of Zama followed by Hurricane Ida has TALO trading below fair value. Q4 results and 2022 guidance should draw more investor interest. Talos has a first class team, which is extremely important in the Gulf of Mexico.