Talos Energy (TALO) Update - Oct 20
Posted: Tue Oct 20, 2020 2:34 pm
As hurricane risk goes down the multiple of operating cash flow used to value this stock goes up.
Since Talos put out an operations update with detailed production and expense guidance on October 7th, TipRanks added two new analysts' reports:
> 10/8/2020: Subash Chandra at Northland Securities rates it a BUY with a price target of $18.00
> 10/20/2020: Leo Mariani at KeyBanc rates it a BUY with a price target of $10.00
At the time of this post TALO is trading at $7.03.
My valuation is now $15.40, up since 10/7 because I've raised the natural gas and NGL price assumptions used in all of my models.
Talos Energy is the only company in the Sweet 16 that has offshore operations; 100% in the Gulf of Mexico. I added it to the Sweet 16 on 9/1/2020 because I believe it has HUGE upside for us offshore Mexico in shallow water and I still believe that. However, their offshore Mexico discoveries have zero to do with my valuation because they won't come online until 2022.
> Thanks to hurricanes Laura and Delta, Talos' production will be down from Q2 to Q3 to ~46,700 BOE per day. Then it will ramp back up to ~72,000 BOE per day by year end.
> Production mix in 2021 s/b approximately 69% crude oil, 25% natural gas and 6% NGLs.
> Their oil sells into the Gulf Coast market at close to Brent prices.
> Their natural gas sells for close to Henry Hub prices.
Based on my forecast/valuation model, assuming a realized oil price of $45/bbl, Talos should generate over $7.00 operating cash flow per share in 2021. A multiple of at least 3X CFPS is reasonable for an upstream company of this quality that is also moving forward to develop a major oil discovery offshore Mexico ("Zama").
My forecast is that WTI oil will be over $60/bbl by this time next year. If so, TALO should be setting a new high. On July 1, 2018 TALO closed at $37.14 and a year from today it should have a clear line-of-sight to Zama's first production.
Since Talos put out an operations update with detailed production and expense guidance on October 7th, TipRanks added two new analysts' reports:
> 10/8/2020: Subash Chandra at Northland Securities rates it a BUY with a price target of $18.00
> 10/20/2020: Leo Mariani at KeyBanc rates it a BUY with a price target of $10.00
At the time of this post TALO is trading at $7.03.
My valuation is now $15.40, up since 10/7 because I've raised the natural gas and NGL price assumptions used in all of my models.
Talos Energy is the only company in the Sweet 16 that has offshore operations; 100% in the Gulf of Mexico. I added it to the Sweet 16 on 9/1/2020 because I believe it has HUGE upside for us offshore Mexico in shallow water and I still believe that. However, their offshore Mexico discoveries have zero to do with my valuation because they won't come online until 2022.
> Thanks to hurricanes Laura and Delta, Talos' production will be down from Q2 to Q3 to ~46,700 BOE per day. Then it will ramp back up to ~72,000 BOE per day by year end.
> Production mix in 2021 s/b approximately 69% crude oil, 25% natural gas and 6% NGLs.
> Their oil sells into the Gulf Coast market at close to Brent prices.
> Their natural gas sells for close to Henry Hub prices.
Based on my forecast/valuation model, assuming a realized oil price of $45/bbl, Talos should generate over $7.00 operating cash flow per share in 2021. A multiple of at least 3X CFPS is reasonable for an upstream company of this quality that is also moving forward to develop a major oil discovery offshore Mexico ("Zama").
My forecast is that WTI oil will be over $60/bbl by this time next year. If so, TALO should be setting a new high. On July 1, 2018 TALO closed at $37.14 and a year from today it should have a clear line-of-sight to Zama's first production.