Targeting Free Cash Flow Waterfall in 2024
Talos’s FY24 operating plan prioritizes free cash flow generation. The midpoint of FY24 production guidance is nearly 40% above FY23 production, while the midpoint of the FY24 upstream capex budget is 7% lower than FY23. Our modeling suggests the combination could generate $479 million of free cash flow in FY24, compared with $3 million in FY23. The anticipated free cash flow waterfall could allow Talos to repay nearly $400 million of borrowings under the existing RBL credit facility. Our updated FY24 and initial FY25 financial estimates suggest the company could reduce RBL borrowings to zero by year-end, increasing total liquidity to more than $1 billion in the process. Talos’s solid liquidity outlook positions it to continue the pursuit of accretive consolidation opportunities. New production volumes from the Venice and Lime Rock exploitation projects in 4Q23 and the contribution from the QuarterNorth acquisition, which closed on March 4, 2024, underpin the production outlook. The QuarterNorth assets overlap portions of Talos’s existing Gulf of Mexico asset base, providing operational costs savings synergies to dovetail with administrative savings. Management is targeting the full realization of annual run-rate savings amounting to $50 million by the end of 2024. QuarterNorth is the latest example of an acquisition that exemplifies management’s full life cycle approach to build value in the Gulf of Mexico. Talos relies on reaping the benefits of technological advances in seismic reprocessing techniques to identify incremental resource opportunities around owned infrastructure. QuarterNorth added ownership positions seven production hubs in major Gulf of Mexico producing trends and catapulted Talos to the fifth-largest operator as ranked by 2022 gross production. Talos announced the sale of its Talos Low Carbon Solutions (TLCS) business to TotalEnergies for $148 million on March 18, 2024, realizing a ~2.0x multiple on invested capital and an IRR exceeding 100%. Proceeds could accelerate management’s debt reduction ambitions. A strong liquidity outlook could position Talos to accelerate future cash returns to shareholders. As of December 31, 2023, $52.5 million remained on a share repurchase authorization plan that was approved in March 2023. Our updated FY24 and FY25 adjusted EBITDA estimates are ~$1.3 billion and ~$1.5 billion, respectively. Oil represents 71% of our estimated production and more than 90% of estimated revenue. Talos is currently trading at EV/adjusted EBITDA multiples of 2.4x and 2.0x our FY24 and FY25 estimates. The current pro forma EV represents a 19% discount to proved (1P) PV-10 and a 54% discount to proved plus probable (2P) PV-10 based on pro forma proved reserves and SEC pricing as of December 31, 2023.Talos Energy is a holding company. Through its subsidiaries, the company is an exploration and production company with operations in the United States Gulf of Mexico and offshore Mexico. The company's focus in the United States Gulf of Mexico is the acquisition of deep water assets with existing infrastructure and the exploration, exploitation and development of such assets in key geological trends.
Water Tower Research is built on the foundation of democratizing information flow. We bridge the growing information gap between companies and investors through our investor engagement strategies and open-access research platform.
Our research analysts are Wall Street veterans with the experience and knowledge to work with companies and investors in tandem. We provide access to the information and content that anchors the due diligence process for both professional money managers and individual investors. We leverage traditional research distribution channels and the best of modern digital strategies and tactics to amplify this information flow globally to engage all categories of investors and stakeholders.
Information flow is the foundation for creating investor awareness, knowledge, and engagement. Our mission is to help companies and investors have the tools they need and achieve their goals.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.