Talos Energy (TALO) Q4 Results - Mar 14

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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.

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 of $71.6 million ( $1.31 adjusted earnings per share diluted) in the fourth quarter of 2019. < Adjusted Net Income compares to my forecast of $36.9 million ($0.68/share).
> 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. < My forecast was 53,643 Boepd for Q4.
> 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 of $155.8 million in the fourth quarter and Adjusted EBITDA excluding hedges of $157.4 million .
> Adjusted EBITDA Margin per Boe of $31.37 , or 67%, and Adjusted EBITDA Margin excluding hedges 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 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 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. < Very Important.

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.