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Positioned to Create Value in the Gulf of Mexico

We hosted a fireside chat with President and CEO Tim Duncan on May 16, 2024, to discuss how Talos’s transformative acquisitions position the company for the future. This report contains a transcript of the conversation, which can be accessed on demand. Link is accessible in our full report. Talos executed four transactions during 1Q24, including the QuarterNorth acquisition that materially expanded its Gulf of Mexico production base and prospect portfolio, two capital markets transactions, and the sale of Talos Low Carbon Solutions (TLCS). QuarterNorth added an oil-weighted deepwater asset base that is expected to contribute ~30 MBOE/d of estimated production in 2024 and a prospect portfolio that immediately competes for capital and exposes Talos to material reserve and production growth potential. The capital markets transactions lowered Talos’s secured notes borrowing costs by 275 bps and extended the maturities to 2029/2031 from 2026. Talos’s Gulf of Mexico operating philosophy is built on the concept of managing the full life cycle of assets to maximize their value potential. The philosophy revolves around owning key infrastructure facilities that serve as hubs for nearby exploration and development projects that can be tied back. Management leverages infrastructure to extract economic value from its own working interest production and handling third-party volumes. As the fourth-largest acreage holder and fifth-largest operator in the Gulf of Mexico, Talos is positioned as a key counterparty in the industry. The company has formed strategic acreage partnerships with the likes of BP, Chevron, Hess, and Repsol to identify new exploration prospects that are often supported by its existing infrastructure. Its operating reputation and financial stability keep Talos in the consolidation mix as sellers consider buyers’ ability to execute. The Katmai West #2 development well, which is expected to spud in 3Q24, exposes Talos to material reserve and production upside from an asset acquired in the QuarterNorth deal. This is a downdip test that could extend the lowest known oil contact, which would increase the gross resource potential. Management estimates the total gross resource potential at Katmai West to be ~100 MMBOE (50% Talos working interest). Management expects to spud the high-impact Daenerys exploration well in 2H24. Talos expects to retain a 30% working interest in the well, which will test a structure with 100-300 MMBOE of gross resource potential. Talos produced 79.6 MBOE/d during 1Q24, near the high end of management’s guidance range. Management’s FY24 production estimate is 89.0-95.0 MBOE/d. The company expects to realize the full $50 million of annualized cost synergies from the QuarterNorth acquisition toward the end of 2024. Talos is expected to generate sufficient free cash flow in 2024 to reduce the RBL credit facility to zero by year-end. At the end of 1Q24, total long-term debt was $1,575 million, including $325 million outstanding on the RBL.