TALOS ENERGY INC. Q1 FY2025 earnings call

• Paul highlighted the fifth consecutive quarter of record production, with first quarter production at 100.9 thousand barrels of oil equivalent per day. - Operational progress includes completion operations on Sunspear done, Katmai West number 2 nearing completion, drilling of Daenerys to start late second quarter, Ewing Bank 953 and Monument projects advancing. - Emphasis on safety and environmental performance as a critical practice. - Mentioned the company's entrepreneurial culture and workforce pride. - Discussed the three strategic lenses (near-term, medium-term, long-term) for the go-forward strategy.

For the first quarter, Talos achieved production totaling 100.9 thousand barrels of oil equivalent per day, which was at the top end of the quarterly guidance range. The production was comprised of 68% oil and including the NGL barrels was 78% liquids. They reported record EBITDA of $363 million and record free cash flow of $195 million. CapEx in the quarter was $118 million and an additional $10 million on plugging and abandonment activities.

• Capital expenditures guidance: $500 million to $540 million for the full year, with $100 million to $120 million expected for plugging and abandonment activities. - Production guidance for 2025: 90,000 to 95,000 barrels of oil equivalent per day. - Share repurchase authorization increased to $200 million, with plan to allocate up to 50% of annual free cash flow to share buybacks. - Robust hedge positions supporting cash flow stability, with approximately 42% of 2025 oil production hedged.

• Factors that could cause results to differ materially, including commodity price volatility. - Weather-related disruptions such as hurricanes and potential unplanned downtime affecting third-party facilities and pipelines. - Uncertainties in the execution of planned maintenance and operational activities.

Q: Good morning and thank you for taking my questions and congratulations on the quarter. I wanted to first touch on your share repurchase authorization increase. Can you speak to any tentative expectations around the timeline for deploying the current authorization outstanding or any other key factors influencing how you’re thinking about the timing?

A: Hi, Greta, good morning. This is Sergio. Yes, happy to answer that. So the plan is effective immediately. So we have the ability to execute on that outside of our blackout windows, right. So we have the ability to execute on that immediately.

Q: Good morning folks and thanks for taking my questions. I wanted to follow up on repurchases. They’ve been challenging for a lot of small cap E&P’s. Many management teams say, they won’t be cyclical, but they tend to kind of end up being cyclical without a lot of dry powder to buy at troughs. So Paul, can you – or maybe Sergio, can you explain when you say you’re going to be programmatic, what does that mean? And then when we look at that 50% of free cash flow level, is it your expectation that you would – if the share price stays kind of in the current range that you would sort of allocate that amount on an annual basis? Just trying to get more color on timing and intensity. Thanks.

A: Thanks, Tim. Let me maybe start with that. I think as we mentioned in the comments, balancing investing in the business with having a strong balance sheet and actually returning cash to shareholders via a buyback program is really our focus. And that’s why we announced that we would return up to 50% of free cash flow per year. And I think it’s in that that we talk about the programmatic effect. So rather than just doing it as a one off, we’re actually looking forward to say as we balance these three components of investing in the business, maintaining a strong balance sheet and actually returning cash to shareholders, we can actually look at where we are as a company, look at where the macro is, and then make that decision as to what proportion up to that 50% that we would look to return. That’s the conversation agreement that we have with the board, hence the announcement of increasing the level up to $200 million and also announcing it as a programmatic approach that looks to return up to 50% on an annual basis.

Q: Good morning and congrats on a strong quarter. With the softness in oil prices, are you seeing any deflation on the cost side or increased rig availability that could benefit investing through the cycle, as you’ve mentioned previously?

A: Yes. Nate, good morning. Nice to speak to you, again. I would say it’s early in that cycle at this point in time. We’re not seeing mass reductions in terms of the price levels at this point. We do get indications that there is maybe some softness coming in the rig market for the second half of the year. But I think what’s important is the fact that we have breakeven projects in the $30s and $40s a barrel that allows us to have robustness against the current price environment that we see now. Clearly, if we stay at that level of price, we would expect the service sector in totality to maybe soften a little bit with respect to prices. But what’s important, of course, is that we drive efficient outcome and actually look for the total cost of the project and the well, that generally comes through having strong relationships as we have with the West Vela rig at the moment versus just always going after the marginal dollar. And so again, that is really the focus that we have looking at how do we drive down the cost of the project and therefore the breakevens in totality, but clearly, I think with the macro that we’re in at the moment. We would expect to see some softening as we continue into the second and third quarters of this year.

Q: Hi, good morning. Thanks for taking my questions and congratulations on an isolated wires. My question is about LOE. I think like LOE has been low since fourth quarter 2024 and you have started again in the first quarter 2025. So I just want to ask like, was this because of any one time items? Is this going to be the runway moving forward for LOE?

A: Thanks, Phu, for the question. We have an incredibly strong and efficient operational organization here at Talos that really searches after every dollar of efficiency and effectiveness that it can take out of the business. And that I think is what you’re seeing through the first quarter of this year where operating costs are in the high teens, dollars per barrel. We’ve maintained the guidance because what we have not seen yet is sort of the planned maintenance activities that are just starting some of the intervention work that we will execute that will be counted as OpEx. But as I said in my comments, the challenge that we have and we’ve laid down to the organization is how do we drive continuous improvement and efficiency and how do we forge our own future of which one element of that will be how do we actually take cost and drive efficiency further into the business. So I would expect that the type of run rate that we see at the future, that we see at the moment is what we continue to see in the future. And clearly that is something that we will update about when we sort of roll out the broader strategic frame towards the back end of Q2.

Q: Good morning everybody. Paul, you mentioned the 12 to 18-month cycle for most of your investments. With that in mind, I wanted to ask about the visibility you have on activity that could impact next year’s production. I know you mentioned Ewing Bank should be online kind of mid-year and Monument late in the year. Are there any other exploitation projects you’re doing this year that could help keep production flat next year? Or would you expect based on what you’re seeing right now for production to decline?

A: I would say that the investment program that we currently think about for next year is probably in line with the levels that we are looking at today. We have a number of projects that are in the funnel that we’ll need to actually think about bringing through to maturity. And there are a number that are in the sort of exploration, going into the exploitation phase that would then add in to that. But that Michael is sort of work at his underway at the moment and we will build that as we go through the second and third quarters.

Q: Hey, good morning. Thanks for having me on and taking my questions. Paul, I’d like to go back to one of your statements in the prepared remarks that Talos is well positioned to capitalize on growth opportunities. Typically, what we see with pullback in commodity prices, there’s a divergence between bid ask spreads which makes these inorganic growth opportunities a bit more challenged with the current macro environment. So my question is, is this dynamic at play currently right now in the offshore space and is that maybe what’s driving the change to the buyback program? And if so, should we anticipate buybacks returning to a more normalized rate at mid cycle prices when these growth opportunities return?

A: Hi Michael, thanks for joining. I would say that it’s not just about M&A, it’s about what is the cost at which we can for develop all of the opportunities that we have out in front of us. And we will look at the full suite of opportunities that we have in terms of looking at from an organic perspective of entering early in the life cycle in terms of leases all the way through to if there are assets where or opportunities more broadly where we can clearly bring added value because of the way we can integrate those assets, drive costs out, capture synergies with the footprint that we have, then we will absolutely look towards that. I would probably leave it at that at this point in time, given that this market is probably just starting to evolve.

Q: Hi, good morning. This is Nevin on for Tarek. Of the bucket that you have built into your production guidance for weather and unplanned downtimes, how much of that is specific to hurricane season in 3Q? And can you quantify any potential upside from if we have a more modest hurricane season in 3Q?

A: Yes. Let me start on that and Paul can supplement the answer. Look, most of that is related to weather disruptions, right? We have a couple of different buckets there. And the bucket related to weather, it’s focused on hurricanes, potential loop currents, et cetera. Look, we have not even gotten into hurricane season yet, so I don’t want to speculate on what’s the potential upside. We tend to take a very conservative view on that. We tend to look at what’s the average disruption we’ve had over the last few years, and we tend to bake that into our projections. But obviously, we don’t control the weather. We don’t know exactly how that’s going to behave or perform. So I’ll just leave it at that. There’s still a lot to happen as we go into the second quarter and third quarter, which is where the biggest part of the hurricane season is.

Q: Thank you. Good morning. Thanks for taking the call. I just want to touch base quickly on Katmai West 2 and Sunspear both kind of tentatively lined up for first oil end of this coming quarter. Just want to get an idea of like how much of that is built into the 92 to 96 guidance, how we should be thinking about modeling that, the timing of that.

A: Yes. Thanks, Paul. And so yes, for both of those in our plan we have – we’ve built in to the plan that they will be on sort of at the midpoint of the range that we are planning with the rates that we’ve shared with you in terms of the 8,000 to 10,000 barrels a day for Sunspear, et cetera. Now clearly with any new well, there is always a possibility of those wells performing better. But there’s also a possibility of those wells maybe performing not quite as well as we expect. From everything that we’ve seen at the moment, I would say that the guidance range we have given you for those is extremely robust. But clearly, we will update you as we start to see those wells come on and start their production journey.

Q: Hi, good morning. Just had a couple. Paul with your coming aboard and sort of taking a fresh look at the portfolio, I’m just thinking of the last few years, the company’s grown a lot through acquisition and as a result the company, its current size just definitely has more resources to apply to the various prospects. And I’m just wondering, do you sort of see the ownership interest, typical interest that the company has been taking in projects or retaining in projects as being about right now, considering the strength of the balance sheet, the benefits of higher interest as far as just higher impact on cash flow or are you sort of more in the board of maybe a broader set of projects, maybe at with somewhat lower working interest, just sort of be able to spread your bets. I just wonder if you have an inclination one way or the other.

A: Yes, Noel, look, I would say that the development of the go forward strategy that we’re working on is progressing well. As I mentioned, we’ll look to come to yourselves at the back end of the second quarter as I promised to do and share that with full color. Now within that we’ll look at the various time horizons in terms of how we think about how we drive through self help within the near-term. How we look at opportunities in the mid-term as well as over the longer-term, of course looking at all of those in parallel. Part of that will be how do we think about the risk return of the various sort of elements of the portfolio that we have. So clearly where we have development type of projects or where we are looking to bring infills back into the tremendous asset infrastructure footprint that we have. We will be willing to take a maybe much higher working interest in that type of an opportunity as compared to working on maybe the frontier where we would look to share that risk with partners as we are doing today. But as I said, that’s just a little bit of color and we’ll deepen that when we come and talk about strategy more broadly in several weeks time.

Q: Thanks. Good morning. Paul and Sergio, given the commentary around this strong liquidity position that Talos has, can you talk about whether or not that’s actually attracting M&A activity or prospects of people who recognize your position and want to come talk to you about either acquiring or partnering on prospects?

A: Hey, Jeff, good morning. Look, we’re not going to comment on any discussions around M&A, right? So that’s not something that we typically do. But we’re very happy with the liquidity position that we are. That actually puts us in a very good spot from a strategic standpoint that we can actually act on potentially weaker situations for other companies or partners that need a strong partner to join them into opportunities, so we can farm into really good projects. So we’re very happy with the liquidity position that we have and we’re going to continue to look for opportunities to create value with for the company using that liquidity. But other than that, I can’t comment any further.