Talos Energy (TALO) Q4 Results - Feb 29

[dan_s]

Q4 production exceeded my forecast and PV10 Net Asset Value based only on their Proved reserves is over $50/share. I will be updating my valuation of TALO this afternoon.

Recent Highlights

Fourth quarter 2023 production and full year 2023 production, operating expenses, general and administrative expenses, and capital expenditures all in-line or better than guidance.
First production from Lime Rock and Venice projects was achieved ahead of schedule at rates near the high end of expectations.
Announced the $1.29 billion acquisition of QuarterNorth Energy Inc. ("QuarterNorth"), which is expected to close in March 2024.
Refinanced approximately $865 million in 2026 notes, extending maturities to 2029 and 2031 and reducing interest costs on Talos's bonds by 275-300 basis points.

2024 Guidance

Production between 87.0 and 93.0 thousand barrels of oil equivalent per day ("MBoe/d") (over 70% oil), assuming only nine months of contributions from QuarterNorth. As a reference, actual production from the combined asset base was approximately 99 MBoe/d in the fourth quarter of 2023 and 106 MBoe/d in January 2024.

Upstream capital expenditures, inclusive of QuarterNorth, of $565 to $595 million, a reduction from Talos standalone 2023 levels.

Evaluating a full range of strategic alternatives for the Talos Low Carbon Solutions ("TLCS") subsidiary.

Capital allocation framework focused on material debt reduction and investment in key Upstream projects.

Based on recent strip pricing, Talos is targeting year-end 2024 leverage of 1.0x or less, including acquisition debt incurred offset by targeted debt paydown of approximately $400 million throughout the year from cash flow generation, excluding any potential proceeds from TLCS.

Talos President and Chief Executive Officer Timothy S. Duncan, stated, "The fourth quarter and early 2024 provided several examples of progress toward our goal of becoming a large-scale offshore exploration and production company. We had a solid operational fourth quarter, delivering 67.7 Mboe/d of oil-weighted production, generating Upstream margins of approximately $42 per barrel of oil equivalent. We brought our Venice and Lime Rock discoveries online ahead of schedule and near the high end of our rate guidance, allowing us to enter 2024 with a strong production rate. Through multiple tactical transactions, we laid the groundwork for inventory expansion, consolidating leases and adding acreage and prospects with high-quality partners. Finally, in January we announced the QuarterNorth acquisition, which should significantly grow our 2024 production, lower our corporate decline rate, expand our inventory, and improve our margins."

Duncan continued, "Following the announcement of the QuarterNorth transaction, we launched several capital markets offerings, which reduced our financing rates and deferred bond maturities to the end of the decade. In 2024, we expect year-over-year production growth of approximately 35%-40%, while capital expenditures are expected to be less than standalone 2023 levels, resulting in material expected free cash flow generation. I am pleased about the trajectory of our business and look forward to an exciting year."