TALOS ENERGY INC. Q3 FY2024 earnings call

• Production: Record production of 96,500 Boe/day achieved despite hurricanes, at the high-end of third quarter guidance. - EBITDA: $324 million, with netback margin slightly lower due to lower oil prices but still top quartile among public E&P companies. - Free Cash Flow: $122 million generated, used to pay down $100 million of debt. - Integration: On track to realize $65 million in synergies from QuarterNorth integration by 2025. - Drilling Program: Robust drilling program underway, including Katmai West #2 delineation well, Daenerys prospect spudding in Q1 2025, and work on Helm’s Deep. - Katmai Field: Production from Katmai field, with Tarantula facility topside work completed to increase throughput from 27,000 to 35,000 Boe/day. - Wilcox Trend: Significant acreage position in lower Wilcox trend, evaluating prospects like Coronado, Enterprise, and Dunharrow. - Monument Acquisition: Owns 21.4% interest in Monument discovery, expecting first production by late 2026 with incremental upside. - Stockholder Rights Agreement: Implemented to protect stockholders from single stockholder control. - Audit Committee Review: Reviewed inappropriate procurement practices, found no material financial impact, identified internal control weaknesses. - CEO Transition: Board is searching for new permanent CEO with specific experience requirements.

Talos Energy reported record production of 96,500 barrels of oil equivalent per day (70% oil, 80% liquids) for the third quarter. EBITDA was $324 million, with an EBITDA netback margin of about $37 per Boe. Capital expenditures were $119 million, resulting in positive free cash flow of $122 million. The company paid down $100 million of debt, lowering the leverage ratio to 0.9, hitting the leverage target of 1 or below ahead of schedule. Revenue contribution details weren't explicitly broken down by product segment beyond the oil and liquids composition of production.

• 2024 Production: Revised guidance to 91,000-94,000 barrels of oil equivalent per day. - 2024 CapEx: Lowered guidance to $510 million to $530 million. - 2025 Plans: Advancing drilling program, evaluating capital allocation including potential increases in capital return to shareholders, dependent on market conditions. - Timing: Decisions on discretionary CapEx in second half of 2025 to be made by end of first quarter 2025.

• Audit Risk: Inappropriate procurement practices identified, leading to internal control reviews and amended filings. - Weather Risk: Impacts from hurricanes, including production shut-ins, evacuations, and associated costs. - Commodity Price Risk: Sensitivity to oil price fluctuations affecting netback margins. - M&A Risk: Uncertainty around financial assurance plan impact on M&A activity in the Gulf of Mexico. - CEO Transition Risk: Uncertainty in leadership transition affecting strategy execution.

Q: Could you quantify the downtime in 3Q from storms and the 4Q outlook?

A: Had some downtime from storms, but Rafael's impact was limited. 2024 production guidance revised to 91,000-94,000 Boe/day after analyzing Rafael's impact.

Q: View on M&A and Gulf of Mexico for Talos specifically?

A: Gulf of Mexico is key, M&A activity affected by financial assurance plan; Talos looking for M&A opportunities similar to Monument acquisition, expecting more activity with potential changes to financial assurance plan.

Q: CEO strategy change and future direction?

A: New CEO expected to advance strategy, chase bigger targets including international arenas, avoid landmines in international projects while continuing acquisition focus.

Q: CapEx direction in 2025 and production outlook?

A: CapEx likely up in 2025 due to delayed drilling program, volumes expected to be flat to up depending on commodity prices.

Q: Tarantula facility expansion constraints?

A: Constrained by pipeline flow line and deck space, working on solutions like additional flow line and maximizing deck space, expecting full rate by early December.

Q: Hedging book and pricing environment?

A: Fairly consistent hedging practices, with significant portion of 2025 production already hedged in the 70s, continuing to add to hedge book.

Q: Capital flexibility in 2025 second half and decision timing?

A: Decisions on discretionary CapEx in second half of 2025 need to be made by end of first quarter 2025, as rig commitments are required.

Q: Hurricane season impacts on financial costs?

A: Evacuations and production shut-ins have real costs, involving evacuating non-essential personnel and associated logistical expenses, varying by storm