Why is Talos Energy Built for Success?

July 2, 2018 - By 

Talos Energy went public in May of this year after the independent oil and gas company merged with Stone Energy Corporation. Technically, Talos acquired Stone for accounting purposes but either way the new company is built to succeed. For those unfamiliar with Talos, the energy company is a technically driven independent E&P company operating in the United States Gulf of Mexico and Mexico’s portion of the gulf. Management over at Talos have on average 30 years of experience with exploration, acquisition, exploitation and development of shallow and deepwater assets in the Gulf of Mexico. Mexico’s emerging offshore shallow water fields provide the company with high impact exploration opportunities in an up and coming basin.

Co-Founder and current CEO of Talos, Tim Duncan summed up the company’s prime directive best when he said:

“Our plan is to follow large operators, it could be a major, it could be an investment grade type of independent, usilize the infrastructure they typically put in place, and then use the most modern seismic technology available to essentially explore like a world class operator. What would not be material to a major as a basin matures would be material to us as a smaller company. But we need to be able to be as smart as those majors were in how they explored and utilize the infrastructure that is in place which changes the economy of scales which allows us to operate smaller discoveries.”

With the recent Stone merger, Talos Energy has announced it’s 2018 Financial and Operating Guidance, which gives a glimpse of the E&P companies initial 2019 Outlook and Operations Update. The guidance gives the public a look at crucial information regarding various Talos assets. Tim Duncan commented:

“We are pleased to present our Financial and Operational guidance, including a detailed view on the company and its strategy, which outlines Talos’ high-quality portfolio on both sides of the Gulf of Mexico, and value proposition as the largest pure-play public company in the basin. Our guidance reflects a strong free cash flow generating business, with our capital program being internally financed, while effectively managing our liquidity and maintaining balance sheet flexibility.  We believe this flexibility will allow us to be a natural consolidator in the basin.”

Some Highlights of the Operating Guidance include:

  • Talos anticipates generating positive free cash flow after debt service in 2018 – on a pro forma basis – and also in 2019, while investing in the development of its US.S. assets, appraising the Zama find in offshore Mexican waters and continue its proactive exploration initiatives both in Mexico and the US.
  • The Company predicts:
    • 2018 pro forma production sales volumes of 18.0 – 19.5 million barrels of oil equivalent (“MMBoe”), which represents an average daily production of 49 – 53 thousand barrels of oil equivalent per day (“MBoe/d”)
    • 2018 pro forma capital expenditures of $430 million to $450 million that is expected to be funded with cash on hand and cash flow from operations
  • Successfully drilled Mt. Providence well in January 2018, which is expected to be completed and brought online by September 2018
  • Tornado #3 well is expected to be spud in 4Q 2018 with first oil expected in 2Q 2019
  • Pro forma 1Q 2018 EBITDA margin per barrel of oil equivalent (“Boe”) of $31.20/Boe

Many in the independent oil and gas sector have found success with shale production. But while the industry zigged, Talos zagged relying on their technical and operational expertise within the Gulf of Mexico. This gamble has turned out to be a productive one as Talos successfully spudded the Zama-1 well only to find a large subsea formation. Zama-1 is now one of the 20 biggest shallow-water fields discovered internationally over the past twenty years. Oil Fields that rival Zama-1 in size can produce 100,000 barrels daily.

The company not only seeks to improve production performance on all of its projects and improved hydrocarbon recovery methods, but Talos is also dedicated to the environmental health of the basin’s they operate in. Environmental compliance is of the utmost importance to Talos. And it is this holistic approach to the upstream energy sector that is driving the success of the Houston based independent oil and gas company.

 

 

CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING STATEMENTS

This communication may contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact included in this communication, regarding our strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects, plans and objectives of management are forward-looking statements. When used in this communication, the words “could,” “believe,” “anticipate,” “intend,” “estimate,” “expect,” “project” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. These forward-looking statements are based on our current expectations and assumptions about future events and are based on currently available information as to the outcome and timing of future events.

We caution you that these forward-looking statements are subject to numerous risks and uncertainties, most of which are difficult to predict and many of which are beyond our control. These risks include, but are not limited to, commodity price volatility, inflation, lack of availability of drilling and production equipment and services, environmental risks, drilling and other operating risks, regulatory changes, the uncertainty inherent in estimating reserves and in projecting future rates of production, cash flow and access to capital, the timing of development expenditures,  potential adverse reactions or changes to business or employee relationships resulting from the business combination between Talos Energy LLC and Stone Energy Corporation, competitive responses to such business combination, the possibility that the anticipated benefits of such business combination are not realized when expected or at all, including as a result of the impact of, or problems arising from, the integration of the two companies, litigation relating to the business combination, and other factors that may affect our future results and business, generally, including those discussed under the heading “Risk Factors” in our final consent solicitation statement/prospectus, dated April 9, 2018, filed with the Securities and Exchange Commission pursuant to Rule 424(b)(3) under the Securities Act.

Reserve engineering is a process of estimating underground accumulations of oil, natural gas and NGLs that cannot be measured in an exact way. The accuracy of any reserve estimate depends on the quality of available data, the interpretation of such data and price and cost assumptions made by reserve engineers. In addition, the results of drilling, testing and production activities may justify revisions of estimates that were made previously. If significant, such revisions would change the schedule of any further production and development drilling. Accordingly, reserve estimates may differ significantly from the quantities of oil, natural gas and NGLs that are ultimately recovered.

Should one or more of these risks occur, or should underlying assumptions prove incorrect, our actual results and plans could differ materially from those expressed in any forward-looking statements. All forward-looking statements, expressed or implied, are expressly qualified in their entirety by this cautionary statement. This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue. Except as otherwise required by applicable law, we disclaim any duty to update any forward-looking statements, to reflect events or circumstances after the date of this communication.

Free cash flow after debt service is a supplemental non-GAAP financial measure used by management and external users of the Company’s financial statements, such as industry analysts, investors, lenders and rating agencies.  The Company defines free cash flow after debt service as net cash from operations less capital expenditures, dividends and cash interest paid.

Talos Energy has been voted one of Houston’s Top-work-places

 

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