Talos Energy Inc. ("Talos"") (NYSE: TALO) announced its operational and financial results for the first quarter of 2021.
- Successful high-impact sub-salt Miocene deepwater exploration discovery at Puma West, located approximately 15 miles from the prolific Mad Dog field.
- Successful multi-well drilling program at Green Canyon 18 concluded. Rig mobilizing to Pompano to begin multi-well campaign.
- Completed two high-yield transactions that increased liquidity and materially extended the Company's maturity profile.
- Record production of 66.1 thousand barrels of oil equivalent per day ("MBoe/d") net (68% oil, 76% liquids). This is the Company's highest quarterly production since inception.
- Net Loss of $121.5 million, inclusive of $137.5 million in commodity hedging losses, or $1.49 loss per diluted share, and Adjusted Net Loss(1) of $27.3 million, inclusive of $48.4 million of realized hedging losses, or $0.34 adjusted loss per diluted share.
- Adjusted EBITDA(1) of $136.6 million, or approximately $23 per Boe. Adjusted EBITDA excluding hedges of $185.0 million, or over $31 per Boe.
Capital expenditures, inclusive of plugging and abandonment costs, of $71.2 million.
- Free Cash Flow(1) of $31.3 million before changes in working capital, reflecting the quarter's strong operational performance.
President and Chief Executive Officer Timothy S. Duncan commented: "The first quarter of 2021 was a busy period for Talos with multiple development and exploration projects underway. We achieved success across the board on those projects, ranging from in-field developments to a high-impact deepwater sub-salt discovery at Puma West. We believe this discovery builds momentum around our sub-salt Miocene portfolio in our Green Canyon and Mississippi Canyon core areas, where we are focused on accelerating significant value creation in the coming years through exploration. On the development and exploitation front, we look forward to drilling an additional well at Tornado to maximize our water flood project, as well as starting the Pompano platform rig program campaign, which should deliver high-value projects in the second half of 2021 and into 2022."
Duncan continued: "It was also a strong quarter financially with over $31 million of free cash flow generation, despite hedge settlements, winter weather events and planned downtime at Pompano. Thematically, the results of the quarter illustrate what's possible with our high-quality asset base, diverse project inventory and competitive cost structure, all of which allowed us to generate over $31 per Boe of Adjusted EBITDA margin before hedge settlements. With our oil-weighted asset base we expect this high margin trend to continue and we believe our balanced capital program will generate solid returns moving forward."
RECENT DEVELOPMENTS AND OPERATIONS UPDATE
Puma West: The Puma West deepwater sub-salt discovery was drilled on Green Canyon Block 821 to a total depth of 23,530 feet. The well encountered high quality Miocene pay with similar rock and fluid properties as other significant discoveries in the prolific sub-salt Miocene basin. bp is the operator and holds a 50.0% working interest. Talos and Chevron each hold a 25.0% working interest. Talos holds over 17,000 acres in the surrounding area. Additionally, the Company also holds an inventory of sub-salt Miocene prospects throughout its Green Canyon and Mississippi Canyon core areas and is active in exploration business development activities in similar high-impact opportunities.
Platform Rig Program: Talos recently completed a year-long redevelopment campaign in the Green Canyon 18 field. The project included four new completions, which added net production of over 7.5 – 8.0 MBoe/d, significantly lowering the production cost per barrel in the asset and enhancing its margins. The drilling program also generated several future asset management opportunities that the Company plans to execute in due course. The platform rig will next move to the Company's Pompano platform to begin a multi-well development and exploitation campaign through the remainder of 2021 and into 2022.
Zama Unitization: Talos continues to work to finalize unitization beyond the March 2021 deadline previously established by Mexico's Ministry of Energy ("SENER"). A final unitization agreement will address operatorship, initial participating interest splits and the mechanism to re-determine participating interest splits in the future, among other key topics. Talos is continuing to finalize its field development plans in parallel and is prepared to rapidly advance the project to Final Investment Decision ("FID") following the conclusion of unitization.
Tornado Attic well: Signed a contract with the Seadrill West Neptune deepwater rig to drill the Tornado Attic well to build on the water flood project in the Tornado field. The rig is expected to be on location in the first half of May with drilling activities commencing soon thereafter. Production impact from this well is expected sometime in the third quarter of 2021. This additional infill well will provide additional production and have pressure support from the previously completed deepwater intra-well, or "dump flood" water flood project, which was a first of its kind in the deepwater Gulf of Mexico.
Spring Borrowing Base Redetermination: Talos has begun working on its semi-annual redetermination, including seeking a material extension of its credit facility maturity. Finalization and announcement is expected in the second quarter of 2021.
Environmental, Social and Governance: Talos renamed the Safety Committee of the Board of Directors to the Safety, Sustainability and Corporate Responsibility Committee to better reflect the Company's expanded environment stewardship initiatives to lower emissions from operations, explore investments in evolving offshore carbon reduction markets and reinforce engagement within local communities. Talos expects to deliver its next annual ESG report in the coming months. The Company also announced the nomination of Paula Glover to the Board of Directors.
FIRST QUARTER 2021 RESULTS
Production in the first quarter of 2021 averaged 66.1 MBoe/d, the Company's highest quarterly production since inception. This production level was achieved despite the unplanned downtime related to significant winter storms as well as planned downtime at the Pompano facility for preventative maintenance and topsides preparation to host the third-party Praline well.
In addition to planned Praline tieback downtime at Pompano, the Company expects to mobilize the platform rig from Green Canyon 18 to Pompano. As a result, significant downtime is expected at both platforms in the second quarter of 2021.
At quarter-end, the Company had approximately $546.4 million of liquidity, nearing all-time highs, with $495.0 million undrawn on its credit facility and approximately $65.0 million in cash, less approximately $13.6 in outstanding letters of credit. The Company expects to continue its solid operational performance, aimed at generating significant free cash flow in 2021 and beyond. Excess free cash flow is generally expected to be used to pay down the Company's revolving credit facility, thus further enhancing liquidity in the future.
On March 31, 2021, Talos had $1,178.0 million in total debt, inclusive of $57.0 million related to the HP-I finance lease. Net Debt was $1,113.0 million. Net Debt to Credit Facility LTM Adjusted EBITDA, as determined in accordance with the Company's credit agreement, was 2.6x.
As an additional measure of the performance of the Company's assets during the quarter, by annualizing the Company's first quarter Adjusted EBITDA excluding hedges, Talos's net leverage ratio would have been 1.5x.