EX-99.1 2 d252440dex991.htm EX-99.1 EX-99.1

Exhibit 99.1

 

LOGO

TALOS ENERGY ANNOUNCES THIRD QUARTER 2021 RESULTS

Houston, Texas, November 3, 2021 – Talos Energy Inc. (“Talos” or the “Company”) (NYSE: TALO) today announced its operational and financial results for the third quarter of 2021.

Key Highlights:

 

 

Production of 56.5 thousand barrels of oil equivalent per day (“MBoe/d”) net (69% oil, 78% liquids), inclusive of Hurricane Ida production deferrals of 10.0 – 11.0 MBoe/d net

 

 

Talos was named the winning bidder and operator of the Texas General Land Office’s (“GLO”) Jefferson County carbon storage site, the only major offshore carbon capture and storage (“CCS”) site in the United States

 

 

Net Loss of $16.7 million, inclusive of $81.5 million in commodity hedging losses, or $0.20 Net Loss per diluted share, and Adjusted Net Loss (1) of $3.2 million, inclusive of $71.6 million of realized hedging losses, or $0.04 Adjusted Net Loss per diluted share

 

 

Adjusted EBITDA(1) of $131.4 million, or approximately $25 per Boe; Adjusted EBITDA excluding hedges of $203.1 million, or approximately $39 per Boe

 

 

Capital expenditures of $86.2 million

 

 

Free Cash Flow(1) (before changes in working capital) of $12.8 million

President and Chief Executive Officer Timothy S. Duncan commented: “Following two consecutive quarters of record production, we were anticipating a very robust third quarter, including the benefit of several new wells coming online, prior to the impacts of Hurricane Ida. Despite those production deferrals, primarily caused by complications affecting downstream, third-party service providers, we still generated meaningful Adjusted EBITDA and free cash flow in the quarter, validating the operational and financial resiliency of our asset base and the success of our 2021 capital program thus far. Entering the fourth quarter with production largely restored, we still expect to meet our original free cash flow generation goals for the year, with production, expenses and capital expenditures remaining within our guidance, and look forward to entering 2022 on strong footing across our business.

During the third quarter we also made meaningful progress in our carbon capture and storage business, in which we are leveraging our Gulf Coast and shallow water expertise to become a leader in a quickly growing and important sector. We were awarded and will be the operator of what is expected to be the first-ever dedicated offshore sequestration site in the U.S., located just off the coast of Beaumont and Port Arthur, Texas, providing an avenue for the major industrial region to permanently sequester CO2 emissions. In our regional partnership with Storegga Geotechnologies we are working to assemble a portfolio of opportunities and look forward to providing market updates in the coming months. Most recently, we announced an alliance with TechnipFMC, one of the leading engineering and technology firms in our industry, which we believe further demonstrates the interest level and pace of commercial development in this quickly evolving space.”

RECENT DEVELOPMENTS AND OPERATIONS UPDATE

Carbon Capture: In August, Talos, along with partner Carbonvert, Inc. (“Carbonvert”), was selected as the winning bidder for the GLO’s Jefferson County carbon storage site. The successful bid makes Talos the operator of what is expected to be the first and only large-scale offshore carbon storage location in the United States, comprising over 40,000 acres in close proximity to the Beaumont and Port Arthur, Texas industrial corridor. Subsequently, on October 18, 2021, Talos announced a strategic alliance with TechnipFMC related to full project lifecycle engineering and design, leveraging TechnipFMC’s extended history in subsea engineering, system integration and automation and control. The alliance builds on Talos’s partnerships with Storegga Geotechnologies and Carbonvert to further advance the Company’s leadership in Gulf Coast CCS project opportunities.

Pompano Rig Program: Talos recently commenced its platform rig program from the Company’s Pompano facility. The Company expects to bring online 1.5 – 2.0 MBoe/d of low-risk recompletion and asset management projects in the fourth quarter of 2021, executing rapid turnaround production additions and capitalizing on favorable commodity price trends. The platform rig will remain at the Pompano facility into 2022 when the Company expects to execute development and exploitation step-out projects as part of the 2022 capital program.

Hurricane Ida: Talos experienced significant deferred production of 10.0 – 11.0 MBoe/d net for the third quarter of 2021 (compared to the Company’s projections for the quarter pre-hurricane) driven by facilities shut-ins, and to a greater extent, complications affecting third-party downstream service providers such as refiners, crude oil terminals and pipelines. The Company’s assets did not experience significant damage and the majority have been returned to normal operations, producing an average of approximately 66.5 MBoe/d net in the last week of September of 2021. Talos continues to expect annual production near the lower end of the previously guided annual range, and expects production for the fourth quarter of 2021 of 64.0 – 66.0 MBoe/d net. All other previously guided line items (including operating expenses, G&A and capital expenditures) remain within the existing range of guidance. Additionally, the Company still expects to generate meaningful free cash flow for the full year 2021.

 

TALOS ENERGY INC.         333 Clay St., Suite 3300, Houston, TX 77002


Zama: Following the Company’s previously-announced submission of formal Notices of Dispute to the Government of Mexico related to, among other items, operatorship of the Zama field, Talos continues to pursue a resolution with all stakeholders and continues to review all legal and commercial options.

THIRD QUARTER 2021 RESULTS

Key Financial Highlights:

 

     Three Months Ended
September 30, 2021
 

Period results ($ million):

  

Total Revenues and other

   $ 290.9  

Net Loss

   $ (16.7

Net Loss per diluted share

   $ (0.20

Adjusted Net Loss(1)

   $ (3.2

Adjusted Net Loss per diluted share(1)

   $ (0.04

Adjusted EBITDA(1)

   $ 131.4  

Adjusted EBITDA excluding hedges(1)

   $ 203.1  

Capital expenditures (including Plug & Abandonment)

   $ 86.2  

Adjusted EBITDA Margin(1):

  

Adjusted EBITDA per Boe

   $ 25.27  

Adjusted EBITDA excluding hedges per Boe

   $ 39.05  

Production

Production for the quarter was 56.5 MBoe/d net, inclusive of Hurricane Ida production deferrals of 10.0 – 11.0 MBoe/d net.

 

     Three Months Ended
September 30, 2021
 

Average net daily production volumes

  

Oil (MBbl/d)

     39.2  

Natural Gas (MMcf/d)

     75.8  

NGL (MBbl/d)

     4.7  

Total average net daily (MBoe/d)

     56.5  

 

     Three Months Ended September 30, 2021  
     Production      % Oil     % Liquids     % Operated  

Average net daily production volumes by Core Area (MBoe/d)

         

Green Canyon area

     20.8        81     88     98

Mississippi Canyon area

     21.2        78     87     58

Shelf and Gulf Coast

     14.5        40     50     52
  

 

 

        

Total average net daily (MBoe/d)

     56.5        69     78     72
  

 

 

        

Capital Expenditures

Capital expenditures for the quarter, including plugging and abandonment activities, totaled $86.2 million.

 

     Three Months Ended
September 30, 2021
 

Capital Expenditures

  

U.S. Drilling & Completions

   $ 18.8  

Mexico Appraisal & Exploration

     0.1  

Asset Management

     32.4  

Seismic and G&G / Land / Capitalized G&A

     13.2  
  

 

 

 

Total Capital Expenditures

     64.5  

Plugging & Abandonment

     21.7  
  

 

 

 

Total Capital Expenditures and Plugging & Abandonment

   $ 86.2  
  

 

 

 

 

TALOS ENERGY INC.         333 Clay St., Suite 3300, Houston, TX 77002


Liquidity and Leverage

At quarter-end the Company had approximately $375.8 million of liquidity, with $330.0 million undrawn on its credit facility and approximately $59.4 million in cash, less approximately $13.6 million in outstanding letters of credit.

On September 30, 2021, Talos had $1,102.2 million in total debt, inclusive of $46.1 million related to the HP-I finance lease. Net Debt was $1,042.7 million(1). Net Debt to Credit Facility LTM Adjusted EBITDA, as determined in accordance with the Company’s credit agreement, was 2.0x(1).

Footnotes:

 

(1)

Adjusted Net Loss, Adjusted Loss per Share, Adjusted EBITDA, Adjusted EBITDA excluding hedges, Adjusted EBITDA margin, Adjusted EBITDA margin excluding hedges, Credit Facility LTM Adjusted EBITDA, Net Debt, Net Debt to Credit Facility LTM Adjusted EBITDA and Free Cash Flow are non-GAAP financial measures. See “Supplemental Non-GAAP Information” below for additional detail and reconciliations of GAAP to non-GAAP measures.

 

TALOS ENERGY INC.         333 Clay St., Suite 3300, Houston, TX 77002


HEDGES

The following table reflects contracted volumes and weighted average prices the Company will receive under the terms of its derivative contracts as of November 3, 2021 and includes contracts entered into after September 30, 2021:

 

     Instrument
Type
     Avg. Daily
Volume
    Weighted
Avg. Swap
Price
    Weighted
Avg. Put
Price
    Weighted
Avg. Call
Price
 

Crude - WTI

        (Bbls     (Per Bbl     (Per Bbl     (Per Bbl

October - December 2021

     Swaps        27,989     $ 50.23       —         —    

October - December 2021

     Collars        1,000       —       $ 30.00     $ 40.00  

January - March 2022

     Swaps        26,600     $ 48.42       —         —    

April - June 2022

     Swaps        25,000     $ 50.54       —         —    

July - September 2022

     Swaps        18,000     $ 52.20       —         —    

October - December 2022

     Swaps        17,326     $ 53.89       —         —    

January - March 2023

     Swaps        10,000     $ 59.94       —         —    

April - June 2023

     Swaps        10,000     $ 61.46       —         —    

Crude - LLS

           

October - December 2021

     Swaps        3,000     $ 38.83       —         —    

Natural Gas - HH NYMEX

        (MMBtu     (Per MMBtu     (Per MMBtu     (Per MMBtu

October - December 2021

     Swaps        54,630     $ 2.58       —         —    

October - December 2021

     Collars        5,000       —       $ 2.50     $ 3.10  

January - March 2022

     Swaps        56,000     $ 2.81       —         —    

April - June 2022

     Swaps        43,000     $ 2.61       —         —    

July - September 2022

     Swaps        31,000     $ 2.63       —         —    

October - December 2022

     Swaps        34,000     $ 2.72       —         —    

January - March 2023

     Swaps        17,000     $ 3.36       —         —    

April - June 2023

     Swaps        19,000     $ 2.99       —         —    

 

TALOS ENERGY INC.         333 Clay St., Suite 3300, Houston, TX 77002


CONFERENCE CALL AND WEBCAST INFORMATION

Talos will host a conference call, which will be broadcast live over the internet, on Thursday, November 4, 2021 at 10:00 AM Eastern Time (9:00 AM Central Time). Listeners can access the conference call live over the Internet through a webcast link on the Company’s website at: https://www.talosenergy.com/investors. Alternatively, the conference call can be accessed by dialing (888) 348-8927 (U.S. toll free), (855) 669-9657 (Canada toll-free) or (412) 902-4263 (international). Please dial in approximately 15 minutes before the teleconference is scheduled to begin and ask to be joined into the Talos Energy call. A replay of the call will be available one hour after the conclusion of the conference until November 11, 2021 and can be accessed by dialing (877) 344-7529 and using access code 10161177.

ABOUT TALOS ENERGY

Talos Energy (NYSE: TALO) is a technically driven independent exploration and production company focused on safely and efficiently maximizing long-term value through its operations, currently in the United States and offshore Mexico, both upstream through oil and gas exploration and production and downstream through the development of future carbon capture and storage opportunities. As one of the Gulf of Mexico’s largest public independent producers, we leverage decades of technical and offshore operational expertise towards the acquisition, exploration and development of assets in key geological trends that are present in many offshore basins around the world. With a focus on environmental stewardship, we are also utilizing our expertise to explore opportunities to reduce industrial emissions through our carbon capture and storage collaborative arrangements along the U.S. Gulf Coast and Gulf of Mexico. For more information, visit www.talosenergy.com.

INVESTOR RELATIONS CONTACT

Sergio Maiworm

+1.713.328.3008

investor@talosenergy.com

 

TALOS ENERGY INC.         333 Clay St., Suite 3300, Houston, TX 77002


CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING STATEMENTS

This communication may contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact included in this communication, regarding our strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects, plans and objectives of management are forward-looking statements. When used in this communication, the words “will”, “could,” “believe,” “anticipate,” “intend,” “estimate,” “expect,” “project,” “forecast, “may,” “objective,” “plan” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. These forward-looking statements are based on our current expectations and assumptions about future events and are based on currently available information as to the outcome and timing of future events.

We caution you that these forward-looking statements are subject to numerous risks and uncertainties, most of which are difficult to predict and many of which are beyond our control. These risks include, but are not limited to, Company’s liquidity and financial condition; the Company’s ongoing strategy with respect to its Zama asset; the success of the Company’s carbon capture and storage opportunities; the performance of the Company’s recently drilled and completed wells; commodity price volatility due to the continued impact of the coronavirus disease 2019 (“COVID-19”), including any new strains or variants, and governmental measures related thereto on global demand for oil and natural gas and on the operations of our business; the ability or willingness of the Organization of Petroleum Exporting Countries (“OPEC”) and non-OPEC countries, such as Saudi Arabia and Russia, to set and maintain oil production levels; the impact of any such actions, lack of transportation and storage capacity as a result of oversupply; government and regulations; lack of availability of drilling and production equipment and services; adverse weather events including tropical storms, hurricanes, and winter storms; cybersecurity threats; inflation; environmental risks; failure to find, acquire or gain access to other discoveries and prospects or to successfully develop and produce from our current discoveries and prospects; geologic risks; drilling and other operating risks; well control risk; regulatory changes; the uncertainty inherent in estimating reserves and in projecting future rates of production; cash flow and access to capital; the timing of development expenditures; potential adverse reactions or competitive responses to our acquisitions and other transactions; the possibility that the anticipated benefits of our acquisitions are not realized when expected or at all, including as a result of the impact of, or problems arising from, the integration acquired assets and operations, and the other risks discussed in Part I, Item 1A. “Risk Factors” of Talos Energy Inc.’s Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC on March 11, 2021 and Talos Energy Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2021, to be filed with the SEC subsequent to the issuance of this communication.

Should one or more of these risks occur, or should underlying assumptions prove incorrect, our actual results and plans could differ materially from those expressed in any forward-looking statements. All forward-looking statements, expressed or implied, are expressly qualified in their entirety by this cautionary statement. This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue. Except as otherwise required by applicable law, we disclaim any duty to update any forward-looking statements, to reflect events or circumstances after the date of this communication.

Estimates for our future production volumes are based on assumptions of capital expenditure levels and the assumption that market demand and prices for oil and gas will continue at levels that allow for economic production of these products. The production, transportation, marketing and storage of oil and gas are subject to disruption due to transportation, processing and storage availability, mechanical failure, human error, hurricanes and numerous other factors. Our estimates are based on certain other assumptions, such as well performance, which may vary significantly from those assumed. Therefore, we can give no assurance that our future production volumes will be as estimated.

 

TALOS ENERGY INC.         333 Clay St., Suite 3300, Houston, TX 77002


Talos Energy Inc.

Condensed Consolidated Balance Sheets

(In thousands, except per share amounts)

 

     September 30, 2021     December 31, 2020  
     (Unaudited)        
ASSETS     

Current assets:

    

Cash and cash equivalents

   $ 59,427     $ 34,233  

Accounts receivable:

    

Trade, net

     111,471       106,220  

Joint interest, net

     21,480       50,471  

Other

     13,606       18,448  

Assets from price risk management activities

     2       6,876  

Prepaid assets

     46,024       29,285  

Other current assets

     1,718       1,859  
  

 

 

   

 

 

 

Total current assets

     253,728       247,392  
  

 

 

   

 

 

 

Property and equipment:

    

Proved properties

     5,190,096       4,945,550  

Unproved properties, not subject to amortization

     250,629       254,994  

Other property and equipment

     28,904       32,853  
  

 

 

   

 

 

 

Total property and equipment

     5,469,629       5,233,397  

Accumulated depreciation, depletion and amortization

     (2,986,142     (2,697,228
  

 

 

   

 

 

 

Total property and equipment, net

     2,483,487       2,536,169  
  

 

 

   

 

 

 

Other long-term assets:

    

Assets from price risk management activities

     49       945  

Other well equipment inventory

     21,163       18,927  

Operating lease assets

     5,748       6,855  

Other assets

     21,989       24,258  
  

 

 

   

 

 

 

Total assets

   $ 2,786,164     $ 2,834,546  
  

 

 

   

 

 

 
LIABILITIES AND STOCKHOLDERS’ EQUITY     

Current liabilities:

    

Accounts payable

   $ 106,098     $ 104,864  

Accrued liabilities

     133,261       163,379  

Accrued royalties

     40,404       27,903  

Current portion of long-term debt

     6,060       —    

Current portion of asset retirement obligations

     51,488       49,921  

Liabilities from price risk management activities

     248,361       66,010  

Accrued interest payable

     17,812       9,509  

Current portion of operating lease liabilities

     1,651       1,793  

Other current liabilities

     30,697       24,155  
  

 

 

   

 

 

 

Total current liabilities

     635,832       447,534  
  

 

 

   

 

 

 

Long-term liabilities:

    

Long-term debt, net of discount and deferred financing costs

     978,777       985,512  

Asset retirement obligations

     406,475       392,348  

Liabilities from price risk management activities

     35,856       9,625  

Operating lease liabilities

     16,781       18,554  

Other long-term liabilities

     37,819       54,372  
  

 

 

   

 

 

 

Total liabilities

     2,111,540       1,907,945  
  

 

 

   

 

 

 

Commitments and Contingencies

    

Stockholders’ equity:

    

Preferred stock, $0.01 par value; 30,000,000 shares authorized and no shares issued or outstanding as of September 30, 2021 and December 31, 2020

     —         —    

Common stock $0.01 par value; 270,000,000 shares authorized; 81,881,477 and 81,279,989 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively

     819       813  

Additional paid-in capital

     1,671,781       1,659,800  

Accumulated deficit

     (997,976     (734,012
  

 

 

   

 

 

 

Total stockholders’ equity

     674,624       926,601  
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 2,786,164     $ 2,834,546  
  

 

 

   

 

 

 

 

TALOS ENERGY INC.         333 Clay St., Suite 3300, Houston, TX 77002


Talos Energy Inc.

Condensed Consolidated Statements of Operations

(In thousands, except per common share amounts)

 

     Three Months Ended September 30,     Nine Months Ended September 30,  
     2021     2020     2021     2020  

Revenues and other:

        

Oil

   $ 246,208     $ 117,190     $ 743,759     $ 358,285  

Natural gas

     31,723       12,337       86,088       35,375  

NGL

     12,978       3,409       31,738       9,674  

Other

     —         2,201       1,000       8,441  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues and other

     290,909       135,137       862,585       411,775  

Operating expenses:

        

Lease operating expense

     70,034       62,064       208,675       184,187  

Production taxes

     764       225       2,539       640  

Depreciation, depletion and amortization

     88,596       80,547       290,094       262,533  

Write-down of oil and natural gas properties

     —         —         —         57  

Accretion expense

     13,668       11,537       44,110       37,748  

General and administrative expense

     20,427       17,823       58,993       62,484  

Other operating expense

     5,081       —         7,864       —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     198,570       172,196       612,275       547,649  
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (expense)

     92,339       (37,059     250,310       (135,874

Interest expense

     (32,390     (24,124     (100,036     (76,164

Price risk management activities income (expense)

     (81,479     (19,882     (405,604     154,653  

Other income (expense)

     4,475       813       (7,916     139  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) before income taxes

     (17,055     (80,252     (263,246     (57,246

Income tax benefit (expense)

     364       28,252       (718     22,384  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ (16,691   $ (52,000   $ (263,964   $ (34,862
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) per common share:

        

Basic

   $ (0.20   $ (0.73   $ (3.23   $ (0.54

Diluted

   $ (0.20   $ (0.73   $ (3.23   $ (0.54

Weighted average common shares outstanding:

        

Basic

     81,901       71,286       81,721       65,134  

Diluted

     81,901       71,286       81,721       65,134  

 

TALOS ENERGY INC.         333 Clay St., Suite 3300, Houston, TX 77002


Talos Energy Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

 

     Nine Months Ended
September 30,
 
     2021     2020  

Cash flows from operating activities:

    

Net income (loss)

   $ (263,964   $ (34,862

Adjustments to reconcile net income (loss) to net cash provided by operating activities

    

Depreciation, depletion, amortization and accretion expense

     334,204       300,281  

Write-down of oil and natural gas properties and other well inventory

     —         190  

Amortization of deferred financing costs and original issue discount

     10,085       5,393  

Equity-based compensation, net of amounts capitalized

     8,294       6,321  

Price risk management activities expense (income)

     405,604       (154,653

Net cash received (paid) on settled derivative instruments

     (189,252     141,529  

Loss (gain) on extinguishment of debt

     13,225       (1,644

Settlement of asset retirement obligations

     (58,001     (34,502

Gain on sale of assets

     (677     —    

Changes in operating assets and liabilities:

    

Accounts receivable

     29,078       (1,729

Other current assets

     (16,598     21,835  

Accounts payable

     (1,591     23,500  

Other current liabilities

     16,395       31,826  

Other non-current assets and liabilities, net

     846       (41,418
  

 

 

   

 

 

 

Net cash provided by operating activities

     287,648       262,067  
  

 

 

   

 

 

 

Cash flows from investing activities:

    

Exploration, development and other capital expenditures

     (211,580     (280,273

Cash paid for acquisitions, net of cash acquired

     (5,399     (304,879

Proceeds from sale of property and equipment, net

     4,826       —    
  

 

 

   

 

 

 

Net cash used in investing activities

     (212,153     (585,152
  

 

 

   

 

 

 

Cash flows from financing activities:

    

Issuance of senior notes

     600,500       —    

Redemption of senior notes and other long-term debt

     (356,803     (4,735

Proceeds from Bank Credit Facility

     75,000       300,000  

Repayment of Bank Credit Facility

     (315,000     —    

Deferred financing costs

     (26,991     (1,287

Other deferred payments

     (7,921     (11,921

Payments of finance lease

     (15,925     (12,790

Employee stock awards tax withholdings

     (3,161     (827
  

 

 

   

 

 

 

Net cash (used in) provided by financing activities

     (50,301     268,440  
  

 

 

   

 

 

 

Net increase in cash and cash equivalents

     25,194       (54,645

Cash and cash equivalents:

    

Balance, beginning of period

     34,233       87,022  
  

 

 

   

 

 

 

Balance, end of period

   $ 59,427     $ 32,377  
  

 

 

   

 

 

 

Supplemental non-cash transactions:

    

Capital expenditures included in accounts payable and accrued liabilities

   $ 72,802     $ 97,517  

Debt exchanged for common stock

   $ —       $ 35,960  

Supplemental cash flow information:

    

Interest paid, net of amounts capitalized

   $ 64,603     $ 41,188  

 

TALOS ENERGY INC.         333 Clay St., Suite 3300, Houston, TX 77002


SUPPLEMENTAL NON-GAAP INFORMATION

Certain financial information included in our financial results are not measures of financial performance recognized by accounting principles generally accepted in the United States, or GAAP. These non-GAAP financial measures are “Adjusted Net Income (Loss),” “Adjusted Earnings per Share,” “EBITDA,” “Adjusted EBITDA,” “Adjusted EBITDA excluding hedges,” “Adjusted EBITDA Margin,” “Adjusted EBITDA Margin excluding hedges,” “Free Cash Flow,” “Net Debt,” “LTM Adjusted EBITDA,” “Credit Facility LTM Adjusted EBITDA” and “Net Debt to Credit Facility LTM Adjusted EBITDA.” These disclosures may not be viewed as a substitute for results determined in accordance with GAAP and are not necessarily comparable to non-GAAP measures which may be reported by other companies.

Reconciliation of Net Income (Loss) to EBITDA and Adjusted EBITDA

“EBITDA” and “Adjusted EBITDA” are to provide management and investors with (i) additional information to evaluate, with certain adjustments, items required or permitted in calculating covenant compliance under our debt agreements, (ii) important supplemental indicators of the operational performance of our business, (iii) additional criteria for evaluating our performance relative to our peers and (iv) supplemental information to investors about certain material non-cash and/or other items that may not continue at the same level in the future. EBITDA and Adjusted EBITDA have limitations as analytical tools and should not be considered in isolation or as substitutes for analysis of our results as reported under GAAP or as alternatives to net income (loss), operating income (loss) or any other measure of financial performance presented in accordance with GAAP. We define these as the following:

EBITDA. Net income (loss) plus interest expense, income tax expense (benefit), depreciation, depletion and amortization and accretion expense.

Adjusted EBITDA. EBITDA plus non-cash write-down of oil and natural gas properties, transaction and non-recurring expenses, derivative fair value (gain) loss, net cash receipts (payments) on settled derivatives, (gain) loss on debt extinguishment, non-cash write-down of other well equipment inventory and non-cash equity-based compensation expense.

We also present Adjusted EBITDA excluding hedges and as a percentage of revenue to further analyze our business, which are outlined below:

Adjusted EBITDA Margin. EBITDA divided by Revenue, as a percentage. It is also defined as Adjusted EBITDA divided by the total production volume, expressed in Boe, in the period, and described as dollar per Boe. We believe the presentation of Adjusted EBITDA margin is important to provide management and investors with information about how much we retain in Adjusted EBITDA terms as compared to the revenue we generate and how much per barrel we generate after accounting for certain operational and corporate costs.

The following table presents a reconciliation of the GAAP financial measure of net income (loss) to EBITDA, Adjusted EBITDA, Adjusted EBITDA excluding hedges, Adjusted EBITDA Margin and Adjusted EBITDA Margin excluding hedges for each of the periods indicated (in thousands, except for Boe, $/Boe and percentage data):

 

TALOS ENERGY INC.         333 Clay St., Suite 3300, Houston, TX 77002


     Three Months Ended  
($ thousands, except per Boe)    September 30,
2021
    June 30,
2021
    March 31,
2021
    December 31,
2020
 

Reconciliation of net loss to Adjusted EBITDA:

        

Net loss

   $ (16,691   $ (125,782   $ (121,491   $ (430,743

Interest expense

     32,390       33,570       34,076       23,251  

Income tax expense (benefit)

     (364     498       584       57,967  

Depreciation, depletion and amortization

     88,596       99,841       101,657       101,813  

Accretion expense

     13,668       15,457       14,985       11,993  
  

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

     117,599       23,584       29,811       (235,719

Write-down of oil and natural gas properties

     —         —         —         267,859  

Transaction and non-recurring expenses(1)

     1,370       4,083       1,778       2,054  

Derivative fair value loss(2)

     81,479       186,617       137,508       66,968  

Net cash receipts (payments) on settled derivative instruments(2)

     (71,634     (69,237     (48,381     2,376  

(Gain) loss on extinguishment of debt

     —         —         13,225       (18

Non-cash write-down of other well equipment inventory

     —         —         —         566  

Non-cash equity-based compensation expense

     2,613       3,017       2,664       2,348  
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

     131,427       148,064       136,605       106,434  

Net cash receipts (payments) on settled derivative instruments(2)

     71,634       69,237       48,381       (2,376
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA excluding hedges

   $ 203,061     $ 217,301     $ 184,986     $ 104,058  
  

 

 

   

 

 

   

 

 

   

 

 

 

Production and Revenue:

        

Boe(3)

     5,200       6,031       5,949       5,467  

Revenue - Operations

     290,909       303,768       266,908       172,602  

Adjusted EBITDA margin and Adjusted EBITDA excl hedges margin:

        

Adjusted EBITDA divided by Revenue - Operations (%)

     45     49     51     62

Adjusted EBITDA per Boe(3)

   $ 25.27     $ 24.55     $ 22.96     $ 19.47  

Adjusted EBITDA excluding hedges divided by Revenue - Operations (%)

     70     72     69     60

Adjusted EBITDA excluding hedges per Boe(3)

   $ 39.05     $ 36.03     $ 31.10     $ 19.03  

 

(1)

Includes transaction related expenses, restructuring expenses, cost saving initiatives and other miscellaneous income and expenses.

(2)

The adjustments for the derivative fair value (gain) loss and net cash receipts (payments) on settled derivative instruments have the effect of adjusting net income (loss) for changes in the fair value of derivative instruments, which are recognized at the end of each accounting period because we do not designate commodity derivative instruments as accounting hedges. This results in reflecting commodity derivative gains and losses within Adjusted EBITDA on an unrealized basis during the period the derivatives settled.

(3)

One Boe is equal to six Mcf of natural gas or one Bbl of oil or NGLs based on an approximate energy equivalency. This is an energy content correlation and does not reflect a value or price relationship between the commodities.

Reconciliation of Adjusted EBITDA to Free Cash Flow

“Free Cash Flow” before changes in working capital provides management and investors with (i) important supplemental indicators of the operational performance of our business, (ii) additional criteria for evaluating our performance relative to our peers and (iii) supplemental information to investors about certain material non-cash and/or other items that may not continue at the same level in the future. Free Cash Flow has limitations as an analytical tool and should not be considered in isolation or as substitutes for analysis of our results as reported under GAAP or as alternatives to net income (loss), operating income (loss) or any other measure of financial performance presented in accordance with GAAP. We define these as the following:

Capital Expenditures and Plugging & Abandonment. Actual capital expenditures and plugging & abandonment recognized in the quarter, inclusive of accruals.

Interest Expense. Actual interest expense per the income statement.

Talos did not pay any cash taxes in the period, therefore cash taxes have no impact to the reported Free Cash Flow before changes in working capital number.

 

TALOS ENERGY INC.         333 Clay St., Suite 3300, Houston, TX 77002


($ thousands, except per share amounts)    Three Months
Ended
September 30,
2021
 

Reconciliation of Adjusted EBITDA to Free Cash Flow (before changes in working capital)

  

Adjusted EBITDA

   $ 131,427  

Less: Capital Expenditures and Plugging & Abandonment

     (86,190

Less: Interest Expense

     (32,390
  

 

 

 

Free Cash Flow (before changes in working capital)

   $ 12,847  
  

 

 

 

Reconciliation of Net Income (Loss) to Adjusted Net Income (Loss) and Adjusted Earnings per Share

“Adjusted Net Income (Loss)” and “Adjusted Earnings per Share” are to provide management and investors with (i) important supplemental indicators of the operational performance of our business, (ii) additional criteria for evaluating our performance relative to our peers and (iii) supplemental information to investors about certain material non-cash and/or other items that may not continue at the same level in the future. Adjusted Net Income (Loss) and Adjusted Earnings per Share have limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP or as an alternative to net income (loss), operating income (loss), earnings per share or any other measure of financial performance presented in accordance with GAAP.

Adjusted Net Income (Loss). Net income (loss) plus accretion expense, transaction related costs, derivative fair value (gain) loss, net cash receipts (payments) on settled derivative instruments and non-cash equity-based compensation expense.

Adjusted Earnings per Share. Adjusted Net Income (Loss) divided by the number of common shares.

 

($ thousands, except per share amounts)    Three Months
Ended
September 30,
2021
 

Reconciliation of Net Loss to Adjusted Net Loss:

  

Net Loss

   $ (16,691

Write-down of oil and natural gas properties

     —    

Transaction related costs and non-recurring expenses

     1,370  

Derivative fair value loss(1)

     81,479  

Net cash payments on settled derivative instruments(1)

     (71,634

Non-cash income tax benefit

     (364

Non-cash equity-based compensation expense

     2,613  
  

 

 

 

Adjusted Net Loss

   $ (3,227
  

 

 

 

Weighted average common shares outstanding at September 30, 2021:

  

Basic

     81,901  

Diluted

     81,901  

Net Loss per common share:

  

Basic

   $ (0.20

Diluted

   $ (0.20

Adjusted Net Loss per common share:

  

Basic

   $ (0.04

Diluted

   $ (0.04

 

(1)

The adjustments for the derivative fair value (gain) loss and net cash receipts (payments) on settled derivative instruments have the effect of adjusting net income (loss) for changes in the fair value of derivative instruments, which are recognized at the end of each accounting period because we do not designate commodity derivative instruments as accounting hedges. This results in reflecting commodity derivative gains and losses within Adjusted Net Income (Loss) on an unrealized basis during the period the derivatives settled.

Reconciliation of Total Debt to Net Debt and Net Debt to LTM Adjusted EBITDA and Credit Facility LTM Adjusted EBITDA

We believe the presentation of Net Debt, LTM Adjusted EBITDA, Credit Facility LTM Adjusted EBITDA, Net Debt to LTM Adjusted EBITDA and Net Debt to Credit Facility LTM Adjusted EBITDA is important to provide management and investors with additional important information to evaluate our business. These measures are widely used by investors and ratings agencies in the valuation, comparison, rating and investment recommendations of companies

Net Debt. Total Debt principal of the Company plus the finance lease balance minus cash and cash equivalents.

 

TALOS ENERGY INC.         333 Clay St., Suite 3300, Houston, TX 77002


Net Debt to LTM Adjusted EBITDA. Net Debt divided by the LTM Adjusted EBITDA.

Net Debt to Credit Facility LTM Adjusted EBITDA. Net Debt divided by the Credit Facility LTM Adjusted EBITDA.

 

Reconciliation of Net Debt ($ thousands) at September 30, 2021:

  

12.00% Second-Priority Senior Secured Notes – due January 2026

   $ 650,000  

7.50% Senior Notes – due May 2022

     6,060  

Bank Credit Facility – matures November 2024

     400,000  

Finance lease

     46,101  
  

 

 

 

Total Debt

   $ 1,102,161  

Less: Cash and cash equivalents

     (59,427
  

 

 

 

Net Debt

   $ 1,042,734  
  

 

 

 

Calculation of LTM EBITDA:

  

Adjusted EBITDA for three months period ended December 31, 2020

   $ 106,434  

Adjusted EBITDA for three months period ended March 31, 2021

     136,605  

Adjusted EBITDA for three months period ended June 30, 2021

     148,064  

Adjusted EBITDA for three months period ended September 30, 2021

     131,427  
  

 

 

 

LTM Adjusted EBITDA

   $ 522,530  

Acquired Assets Adjusted EBITDA for pre-closing periods

     60  
  

 

 

 

Credit Facility LTM Adjusted EBITDA

   $ 522,590  
  

 

 

 

Reconciliation of Net Debt to LTM Adjusted EBITDA:

  

Net Debt / LTM Adjusted EBITDA

     2.0x  

Net Debt / Credit Facility LTM Adjusted EBITDA

     2.0x  

The Adjusted EBITDA information included in this communication provides additional relevant information to our investors and creditors. Talos needs to comply with a financial covenant included in its Bank Credit Facility that requires it to maintain a Net Debt to Credit Facility LTM Adjusted EBITDA ratio, as determined in accordance with the Company’s credit agreement, equal to or lower than 3.0x. For purposes of covenant compliance, Credit Facility LTM Adjusted EBITDA, with certain adjustments, is calculated as the sum of quarterly Adjusted EBITDA for the 12-month period ended on that quarter, inclusive of revenue less direct operating expenditures of the Acquired Assets for periods prior to closing of the Transaction.

 

TALOS ENERGY INC.         333 Clay St., Suite 3300, Houston, TX 77002