Talos Energy (TALO) Update - Sept 30
Posted: Thu Sep 30, 2021 10:09 am
Note from Leo Mariani at KeyBanc 9-30-2021
TALO - ALERT: Virtual Marketing Highlighted Management
Conviction and High-Teens Return Expectations on CCS (Carbon Capture Sequestration) Projects; Expect Slight Positive Reaction Tomorrow
KeyBanc Capital Markets Inc. hosted Talos Energy (TALO) for virtual investor
meetings today, and we were pleased with the update and expect the stock to
react somewhat positively vs. its peers tomorrow. The Company highlighted its
belief that it can best contribute on the geology and land relationship side in
the CCS value chain as it has some deep relationships with landowners along
the Texas/Louisiana Gulf Coast, and it also has seismic and deep geologic
knowledge around a lot of these areas as well. TALO believes it will be
competitive in the storing, injecting, and monitoring side of carbon capture, and
it will likely look to partner with midstream players on the transportation piece.
TALO is currently looking at other big land tracts in Texas and Louisiana for
sequestration, and it is having conversations with state regulators and large
landowners. Ultimately, TALO said that it would like to control three to four
regional hubs along the Gulf Coast in the next year. TALO sees fairly limited
pre-FID capex regarding these CCS projects, and the Company recognizes
that a post FID equity contribution is needed from TALO, but it expects to tap
cheap sources of capital for this. The Company thinks that there is potential
for 8M-10M tons per annum of CO 2 injection into its Jefferson County Project.
Overall, the Company is targeting three to four years out on first CO 2 injection
revenue. TALO also implied that it could announce another storage site around
two months from now that could be tied to a specific emitter. TALO thinks returns
will be in the mid- to high teens before leverage on CO2 sequestration projects,
and it thinks the midstream is the least difficult part of the CCS value chain.
Additionally, TALO said that the trend on the restoration of its production post
Hurricane Ida was a little bit better than the improvement trends discussed by
the BSEE. However, the Company also said that it does have some limited
exposure to downstream and midstream infrastructure that will require longer
lead time repairs. Lastly, TALO generally believes that it needs to step up capital
in 2022 and beyond so it can invest in more than one deep water project per
year.
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The CCS business unit is nice, but it has no impact on my valuation. However, it does draw attention from the Wall Street Gang that is look for profitable companies that they can promote to their clients a "green". I like the sentence in blue above.
TALO - ALERT: Virtual Marketing Highlighted Management
Conviction and High-Teens Return Expectations on CCS (Carbon Capture Sequestration) Projects; Expect Slight Positive Reaction Tomorrow
KeyBanc Capital Markets Inc. hosted Talos Energy (TALO) for virtual investor
meetings today, and we were pleased with the update and expect the stock to
react somewhat positively vs. its peers tomorrow. The Company highlighted its
belief that it can best contribute on the geology and land relationship side in
the CCS value chain as it has some deep relationships with landowners along
the Texas/Louisiana Gulf Coast, and it also has seismic and deep geologic
knowledge around a lot of these areas as well. TALO believes it will be
competitive in the storing, injecting, and monitoring side of carbon capture, and
it will likely look to partner with midstream players on the transportation piece.
TALO is currently looking at other big land tracts in Texas and Louisiana for
sequestration, and it is having conversations with state regulators and large
landowners. Ultimately, TALO said that it would like to control three to four
regional hubs along the Gulf Coast in the next year. TALO sees fairly limited
pre-FID capex regarding these CCS projects, and the Company recognizes
that a post FID equity contribution is needed from TALO, but it expects to tap
cheap sources of capital for this. The Company thinks that there is potential
for 8M-10M tons per annum of CO 2 injection into its Jefferson County Project.
Overall, the Company is targeting three to four years out on first CO 2 injection
revenue. TALO also implied that it could announce another storage site around
two months from now that could be tied to a specific emitter. TALO thinks returns
will be in the mid- to high teens before leverage on CO2 sequestration projects,
and it thinks the midstream is the least difficult part of the CCS value chain.
Additionally, TALO said that the trend on the restoration of its production post
Hurricane Ida was a little bit better than the improvement trends discussed by
the BSEE. However, the Company also said that it does have some limited
exposure to downstream and midstream infrastructure that will require longer
lead time repairs. Lastly, TALO generally believes that it needs to step up capital
in 2022 and beyond so it can invest in more than one deep water project per
year.
-------------------------
The CCS business unit is nice, but it has no impact on my valuation. However, it does draw attention from the Wall Street Gang that is look for profitable companies that they can promote to their clients a "green". I like the sentence in blue above.