Energy Prospectus

Talos Energy is the only offshore company in the Sweet 16. I added it to the portfolio soon after they announced a world class oil discovery offshore Mexico in shallow water.

Key Highlights:

> Production of 58.1 thousand barrels of oil equivalent per day ("MBoe/d"), of which 70% was oil and 78% was liquids. March production, which included a full month of production from the Acquired Assets, averaged 70.3 MBoe/d. < Compares to my 1st production forecast of 56,200 Boepd, 72% crude oil.

> Net Income of $157.7 million , or $2.69 earnings per share diluted, and Adjusted Net Income of $15.6 million , or $0.27 adjusted earnings per share diluted. Net Income for the quarter includes approximately $55.3 million of non-cash income tax expenses. < Adjusted net income compares to my forecast of a $6.1 million net loss.

> Adjusted EBITDA of $147.6 million . Adjusted EBITDA Margin per Boe of $27.92 , or 81%.

> Capital expenditures, inclusive of plugging and abandonment costs, were $73.2 million .

> Free Cash Flow of $48.6 million . < Compares to my forecast of $19.7 FCF in Q1.

Average realized oil price of $44.72 /Bbl before hedges and net of transport and quality deductions.
The Company has approximately 10.3 million barrels of oil hedged for the remainder of 2020 with a weighted average price of $47.29 per barrel WTI.

Talos closed the acquisition of affiliates of ILX Holdings, among other entities, on February 28, 2020 . The Acquired Assets generated average daily production of 19.7 MBoe/d for the full first quarter of 2020.

As of March 31, 2020 , liquidity position of $593.4 million .
Net Debt to LTM Adjusted EBITDA was 1.5x. Inclusive of eleven months of Acquired Assets contribution, Net Debt to Credit Facility LTM Adjusted EBITDA, as determined in accordance with the Company's credit agreement, would have been 1.2x.

President and Chief Executive Officer Timothy S. Duncan commented: "Talos generated strong results in the first quarter of 2020, with solid production, healthy margins and material free cash flow. We've expanded our asset base and are beginning to realize the benefits of our recently-closed acquisition in March. However, the end of the quarter also brought unforeseen and unprecedented challenges to our industry, from the COVID-19 virus, the impact of a sudden and historic drop in global oil demand and concerns from Saudi Arabia and Russia oversupply in the early moments of the crisis. Despite these challenges, I'm proud of how we have responded and how we are maintaining the health of our Company."

"First and foremost, we have kept our workforce safe with robust onboard screening and social distancing measures for our offshore workers while also having our corporate employees work from home. Second, we instituted cost cutting measures that provide material reductions from our initial 2020 guidance and our pro forma 2019 cost structure. We have reduced our 2020 capital program by approximately 40% and our operating and overhead cost structure by approximately 15% compared to pro forma 2019 levels, and we expect those levels to continue to improve throughout the year. We also increased the size of our hedge book, with approximately 80% of the mid-point of our updated 2020 oil production guidance hedged over the full year at a weighted average price for the remainder of the year of $47.29 /bbl. The projects remaining in our capital program this year aim to utilize our infrastructure to continue to generate attractive economics even in the current commodity environment, continue to lower our unit operating cost structure and add collateral value as we move into the second half of the year."

Duncan continued: "Although we expect the second quarter to be difficult for everyone in the oil and gas sector, we are positioning Talos to have a strong second half of 2020 and beyond. We will be prepared for whichever direction the commodity market turns, and we believe we will have positive free cash flow in 2020, inclusive of our hedges, in the current commodity price environment. I remain confident in our ability to create value during uncertain times."

Note from John White at Roth Capital 5-7-2020

Our valuation is based on a net asset value (NAV) analysis which produced $12.95 per share which we adjusted higher to our $13.00 per share price target.

TALO: Production In-Line, Reducing Capex, Expense, Production Guide: Positive

Strong Liquidity and Hedges: As of 3/31/2020, TALO had a liquidity position of $593 million, including $486.4 million available under the credit facility and approximately $107 million of cash.
Hedge book: approximately 80% of the mid-point of 2020 oil production guidance hedged over the full year at a weighted average price for the remainder of the year of $47.29/bbl.

TALO’s updated guidance reflects reductions between operating and capital costs from the March guidance as a result of lower service costs and improved operating efficiencies, as follows: production: from a mid-point of 69 MBOE per day to a new mid-point of 63 MBOE per day (for the year) or an 8% reduction; cash operating expenses: from a mid-point of $313 million to a new mid-point of $288 million or an 8% reduction; G&A: from a mid-point of $73 million to a new mid-point of $60 million or an 18% reduction; Capex: from a mid-point of $533 million to a new mid-point of $368 million or a 31% reduction.

TALO reported 1Q 2020 production of 58,100 BOE per day, in line with our figure of 57,930 BOE per day and the consensus of 58,503 BOE per day. March production, which included a full month of production from the recently acquired assets, averaged 70,300 BOE per day.

TALO expects shut-in impacts to 2Q production of approximately 12,500 to 13,500 BOE per day for the quarter, including 6,000 to 7,000 BOE per day of accelerated planned maintenance. TALO has not yet encountered any required production shut-ins resulting from midstream or storage capacity constraints. In our opinion, so far, this is a very light amount of shut-in’s and is encouraging.

TALO reported 2Q 2020 EBITDA of $147.6 million, beating our figure of $135.8 million.

We will further review these results and consider our estimates accordingly
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I have updated my forecast/valuation model for TALO based on their fresh guidance and it will be posted to the EPG website this evening. My valuation is a few dollars higher than John's price target because I'm using higher oil prices in Q4 and 2021. Since over 80% of Talo's oil is hedged for this year, it doesn't make much difference in 2020. I am assuming WTI will average $50/bbl in 2021.