Talos Energy Inc. Q2 FY2025 earnings call

Strategic Pillars - Focused on improving the business daily, with initiatives to generate $100 million of additional free cash flow annually starting 2026, $25 million anticipated by end of 2025. - Grow production and cash flow through high-margin projects, organic growth, and selective bolt-on acquisitions. - Build a portfolio with scale and longevity by developing projects in the Gulf of America and other conventional basins. ### Second Quarter Accomplishments - Strong financial and operational results across the board. - Achieved adjusted EBITDA of $294 million, adjusted free cash flow of $99 million. - CapEx and P&A spending led to improved financials. - Repurchased 3.8 million shares for $33 million, bringing total repurchases under the program to $100 million. ### Specific Projects - Arnold P&A project: Successfully completed under budget by reengineering execution plan and minimizing downtime. - Commercial: Marketing team improved price realizations through direct sales, extended contracts, and optimized transportation, expected to uplift ~$5 million in 2025. - Organizational: Simplified entity structure for future cash tax savings. - Offshore operations: Increased utilization of internal resources to monitor unmanned facilities, reducing operating costs. - Drilling and Development: Extended West Vela rig use through first half of 2026; updated drilling schedule for second half of 2025 and first half of 2026; added Monterrey prospect; Sunspear and Katmai wells initiated production; Daenerys drilling progressing; Monument project to spud first well late 2025 with first production in late 2026. ### Safety and Environmental: Strong safety and environmental performance aligned with operational excellence.

In the second quarter, Talos Energy's production averaged 93,300 barrels of oil equivalent per day. Oil made up 69% of the total, and including NGLs, liquids accounted for 77% of overall production. Adjusted EBITDA for the quarter was $294 million. CapEx in the second quarter was $126 million, and an additional $29 million was spent on plugging and abandonment activities. Adjusted free cash flow for the quarter was $99 million.

Capital Budget - Modest adjustment to 2025 capital budget, reducing it by ~$10 million, now ranging from $590 million to $650 million. ### Production - Revised production guidance for 2025 ranges from 91,000 to 95,000 barrels of oil equivalent per day. Third quarter production expected to be between 86,000 and 90,000 barrels of oil equivalent per day. ### Hedge Positions - Mark-to-market value of hedge positions was $56 million as of June 30th. ### Share Repurchase - Board authorized $200 million share repurchase program, with expectation to allocate up to 50% of annual free cash flow to buybacks.

Commodity Price Volatility - Fluctuations in oil and gas prices can impact cash flow. ### Hurricane Impacts - Weather-related disruptions, including hurricanes, can affect production. ### Rig Market Conditions - Changes in rig rates and availability can impact drilling operations. ### Equipment Issues - Potential problems with equipment like subsurface safety valves, as seen with the Sunspear well, can lead to downtime and impact production.

Q: Michael Scialla asked about free cash flow priorities with leverage at 0.7x and liquidity, and about new development projects and the West Vela rig.

A: Paul Goodfellow said they look at it through the capital framework, focusing on investing in the base business, leveraging Gulf of America strength, and the West Vela rig has shown strong performance with a favorable rate.

Q: Tim Rezvan asked about Zama project, acquisition targets, and deepwater market.

A: Greg Babcock mentioned Zama transaction expected to close end of third quarter. Paul Goodfellow said they're looking at opportunities in Gulf of America and international, seeing interest in deepwater.

Q: Nitin Kumar asked about Gulf of Mexico leases and organic growth plans.

A: Paul Goodfellow said leasing activity is positive, they'll be active participants, leveraging technical knowledge.

Q: Nate Pendleton asked about drivers behind improving guidance.

A: Paul Goodfellow said it's due to focus on effectiveness and efficiency in all activities, considering planning elements like hurricane season.

Q: Margaret Drefke asked about $100 million savings plan and share repurchase cadence.

A: Greg Babcock talked about near-term and next-year items for savings plan. Paul Goodfellow said share repurchases are based on capital allocation framework, looking at over quarters.

Q: Phu Pham asked about Sunspear shutdown and Marmalard greenfield delay.

A: Paul Goodfellow explained Sunspear shut-in due to subsurface safety valve failure, and Marmalard greenfield delay is due to ongoing work.

Q: Michael Furrow asked about why West Vela was chosen for Sunspear repair.

A: Paul Goodfellow said it's due to the team's performance, risk assessment, and favorable rate.

Q: Noel Parks asked about non-operated opportunities.

A: Paul Goodfellow said they're looking at non-operated opportunities in Gulf of America and international, considering value.