Quarterly / Earnings Reports | Third Quarter (3Q) Update | Drilling Activity

Talos Energy Reports Q3 2019 Results

Share Print Bookmark    |    Wednesday,November 06,2019

Talos Energy Inc. reported its Q3 2019 results.

Key third quarter highlights include:

• Production of 52.6 thousand barrels of oil equivalent per day ("MBoe/d"), or 4.8 million barrels of oil equivalent ("MMBoe") in total, of which 73% was oil and 80% was liquids. As previously disclosed, third quarter production was impacted by Hurricane Barry, resulting in the deferral of approximately 4.0 MBoe/d.
• Revenue⁽¹⁾ of $228.9 million and average realized prices of $59.54/Bbl of oil and $2.12/Mcf of natural gas, net of deductions. 93% of operating revenues were derived from oil production and reflect a significant realized price premium, which is net of transport and quality deductions, of $3.09/Bbl above the average WTI benchmark price of $56.45/Bbl during the same period.
• Net Income of $73.3 million ($1.35 earnings per share - diluted) and Adjusted Net Income⁽²⁾ of $44.3 million ($0.81 adjusted earnings per share - diluted).
• Adjusted EBITDA⁽²⁾ of $157.8 million and Adjusted EBITDA excluding hedges⁽²⁾ of $152.4 million. Adjusted EBITDA Margin⁽²⁾ per Boe of $32.57, or 69%, and Adjusted EBITDA Margin excluding hedges⁽²⁾ per Boe of $31.47, or 67%.
• Capital expenditures of $115.8 million, including investment of $99.7 million in the U.S. Gulf of Mexico and $16.1 million in offshore Mexico.
• As of September 30, 2019, liquidity position of $612.1 million. Net Debt to Last Twelve Months ("LTM") Adjusted EBITDA⁽²⁾ was 1.1x.
• In the third quarter of 2019, the Company had a successful discovery in offshore Mexico Block 31, executed two separate exploration transactions with BP and ExxonMobil, respectively, and drilled and completed its Grand Isle 82 A-22 exploration well, which achieved first production in October 2019.
• The Company was added to the S&P SmallCap 600 Index on November 1, 2019. Talos was included in the Index as one of just 19 exploration and production companies and was the sixth largest by market capitalization amongst the Energy Sector designated companies. Talos was also included in the S&P SmallCap 600 GICS Oil and Gas Exploration and Production Sub-Industry Index

President and Chief Executive Officer Timothy S. Duncan commented: "I am proud of our team for achieving another positive earnings quarter, bolstered by another period of generating significant free cash flow in our U.S. Gulf of Mexico business. Our focus on investing in opportunities around core infrastructure that we own or operate continues to allow us to achieve top quartile net back margins, which are enhanced by better than expected results of our cost control initiatives throughout 2019. We also continue to balance those investments with high impact exploration projects, including more success in offshore Mexico.

"As we begin to focus on our 2020 drilling campaign, success in our Bulleit project and acceleration of first oil at Orlov provide a strong foundation, with additional potential upside from our exploration activities related to our recent Puma West and Hershey transactions. Among other activities, we plan to execute a platform rig contract for a near-field drilling program around assets we acquired in the past year and we look forward to progressing our offshore Mexico discoveries closer to final investment decisions.

"We believe our strategy of combining low entry cost M&A with field development upside and high impact exploration, while also maintaining a prudent financial and conservative leverage profiles and strong free cash flow generation, allows us to grow equity value while maintaining a strong balance sheet. We are excited about the direction of the Company moving forward."

Production

Production for the third quarter of 2019 was 4.8 MMBoe, with oil production accounting for 73% of the total. Oil price realizations, net of certain gathering, transportation, quality differentials and other costs, were $59.54 per barrel, representing an average for the quarter of $3.09 per barrel above the average WTI price over the same period. As previously disclosed, third quarter production was impacted by Hurricane Barry, which prompted the shut-in of approximately 85% of the Company's production for approximately one week on average, and resulted in the production deferral of approximately 4.0 MBoe/d.

Recent Developments & Ops Update

Drilling and Exploration Activities - U.S. Gulf of Mexico

• Puma West Prospect: Talos entered an agreement with BP to drill the Puma West prospect located on Green Canyon Block 821. BP is the operator of the prospect holding a 50% working interest, Talos retained a 25% working interest, and Chevron now also has a 25% working interest. The Puma West well is being drilled by the Seadrill West Auriga ultra-deepwater drillship and was spud in October, targeting Miocene sands similar to those seen in the Mad Dog development located less than 15 miles away.
• Bulleit Prospect: As previously disclosed, the Green Canyon Block 21 Bulleit exploration well encountered approximately 140 feet of net true vertical depth ("TVD") oil pay in the shallow target, the DTR-10 Sand, and approximately 110 feet of net TVD oil pay in the deeper MP Sand. Talos expects first production in the third quarter of 2020 with a possible initial flow rate of 7.0 - 10.0 MBoe/d gross, 2.8 - 4.0 MBoe/d net. Talos holds a 50.0% working interest in the Bulleit prospect and is the operator, with EnVen and Otto Energy holding 33.3% and 16.7% working interests, respectively.
• Orlov Prospect: After successfully discovering oil pay in the main target Aspen J sand in the Green Canyon 200 Orlov project, the operator, Fieldwood Energy, is finalizing drilling operations and plans to complete the well by year end. Talos expects that the project could produce 7.0 - 10.0 MBoe/d gross, 1.8 - 2.5 MBoe/d net with first production recently accelerated and now expected in early first quarter of 2020. Talos owns a 30% working interest in the project.
• Hershey Prospect: Talos acquired a 100% working interest and operatorship of Green Canyon Blocks 326, 327, 370 and 371, constituting approximately 23,000 gross acres. The Hershey prospect is targeting a potential large sub-salt Miocene accumulation with potential oil-weighted, gross unrisked resources of 100 - 300 MMBoe. Consideration for the transaction is 100% contingent-based and the agreement contains no well commitment. Talos expects to initiate a process to sell-down a portion of its working interest in the project in the fourth quarter of 2019.
• 2020 Rig Contracts: In advance of the Company's 2020 drilling and completions program, Talos is finalizing contractual terms with two drilling contractors following a competitive bidding process. One contractor is expected to provide a deepwater drillship to be used for the Company's deepwater exploration and exploitation activities. The second contractor is expected to provide a platform rig to be used for near-field drilling opportunities in assets that were acquired over the last 18 months, starting with our Green Canyon 18 asset in the first quarter of 2020, with the option of subsequently moving to our Pompano and Amberjack assets in our Mississippi Canyon core area in the fourth quarter of 2020.

Drilling and Exploration Activities - Mexico

• Block 7: Following the successful completion of the Zama appraisal program, Talos is working with Netherland, Sewell & Associates, Inc. to complete a formal resource report by year end 2019. The Company reiterates its previously stated resource guidance in the upper half of its pre-appraisal estimated range of 400 - 800 MMBoe gross recoverable resources. Talos has initiated early FEED work to allow for the earliest possible initial production date and is utilizing all of the appraisal data to create an optimal development plan for the field. Zama unitization discussions with Petróleos Mexicanos ("Pemex") are ongoing. As previously announced in September 2019, the Company was also recently granted a two-year contract term extension as well as regulatory approvals to allow for exploration activities on additional retained acreage in Block 7, which is separate and incremental to the Zama asset.
• Block 31: The Block 31 exploration project consisted of two wells, Xaxamani-2EXP and Tolteca-1EXP, both drilled in the third quarter of 2019. The Xaxamani-2EXP well logged approximately 148 feet (45 meters) of gross TVD pay, with a net to gross ratio of approximately 78% in two shallow oil sands. Subsequently, the Tolteca-1EXP well logged approximately 123 feet (37 meters) of gross TVD pay, with a net to gross ratio of approximately 97%, all located in the deeper of the two sands found in the Xaxamani-2EXP well. The Tolteca-1EXP well expected to find an oil-water contact but logged hydrocarbons "full to base," exceeding pre-drill expectations for reservoir thickness and areal extent, thereby increasing resource expectations not only in the drilling program to date, but also increasing expectations of similar geophysical anomalies that could open up a shallow oil play in the contract area.
  The Xaxamani discovery is located approximately one mile from shore in less than 100 feet of water. Talos holds a 25% working interest in Block 31. Since 2017, Talos has now drilled or participated in eight wells in offshore Mexico, including five exploration wells, resulting in two material oil discoveries.

Derivatives Activities

• Derivatives Update: The following table reflects the contracted volumes and weighted average prices the Company will receive under its derivative contracts as of September 30, 2019. During the third quarter of 2019, Talos hedged additional fourth quarter 2019 and fiscal year 2020 oil production of 1,967,500 Bbls and natural gas production of 2,750,000 MMBtu. The weighted average prices the Company will receive under these West Texas Intermediate and Henry Hub swap contracts are $55.40 per Bbl and $2.45 per MMBtu, respectively.