HOUSTON, March 13, 2019 /PRNewswire/ -- Talos Energy Inc. ("Talos" or the "Company") (NYSE: TALO) today announced its financial and operational results for the fourth quarter and full year 2018.
Key Highlights of the Fourth Quarter 2018:
- Year-end 2018 proved reserves of 151.7 million barrels of oil equivalent ("MMBoe"), of which 76% is proved developed
- Standardized measure of discounted future net cash flows of $3.3 billion and PV-10(1) of proved reserves of $3.9 billion, with proved developed producing ("PDP") reserves accounting for $2.5 billion
- Production of 53.4 thousands of barrels of oil equivalent per day ("MBoe/d"), or 4.9 MMBoe in the fourth quarter
- Net Income of $306.3 million and Earnings Per Share of $5.66 in the fourth quarter
- Adjusted Net Income(2) of $49.3 million and Adjusted Earnings Per Share(2) of $0.91 in the fourth quarter
- Adjusted EBITDA(2) of $158.8 million in the fourth quarter. Excluding hedges, Adjusted EBITDA(2) was $175.1 million
- Adjusted EBITDA Margin(2) of 61% or $32.33 per barrel of oil equivalent ("Boe") in the fourth quarter. Excluding hedges, the Adjusted EBITDA Margin(2) was 68% or $35.66 per Boe.
- As of December 31, 2018, liquidity position of $460.3 million, including $320.4 million available under the $600.0 million Bank Credit Facility and approximately $139.9 million of cash. In the fourth quarter of 2018 the Company's Borrowing Base was increased by approximately 42% to $850 million; however, Talos elected to maintain the commitments at $600 million
- As of December 31, 2018 the Company's total debt principal balance was $766.2 million, inclusive of $93.7 million capital lease. Net Debt to Annualized Adjusted EBITDA(2) was 1.0x
- Capital expenditures, inclusive of Plugging and Abandonment costs, was $142.4 million in the fourth quarter
(1) | PV-10 is a non-GAAP financial measure and differs from the standardized measure of discounted future net cash flows, which is the most directly comparable GAAP financial measure. See "Supplemental Non-GAAP Information" below for additional detail and reconciliations of GAAP to non-GAAP measures, including a reconciliation of PV-10 of our proved reserves to the standardized measure of discounted future net cash flows at December 31, 2018. |
(2) | Adjusted Net Income, Adjusted Earnings per share, Adjusted EBITDA, Adjusted EBITDA excluding hedges, Adjusted EBITDA Margin, Adjusted EBITDA Margin excluding hedges, Net Debt, Annualized Adjusted EBITDA, and Net Debt to Annualized Adjusted EBITDA are non-GAAP financial measures. See "Supplemental Non-GAAP Information" below for additional detail and reconciliations of GAAP to non-GAAP measures. |
Combination with Stone Energy Corporation
On May 10, 2018, Talos Energy LLC and Stone Energy Corporation ("Stone") completed a strategic transaction pursuant to which both became wholly-owned subsidiaries of the Company ("Stone Combination"). Talos Energy LLC was considered the accounting acquirer in the Stone Combination under accounting principles generally accepted in the United States of America ("GAAP"). Accordingly, the Company's historical financial and operating data, which cover periods prior to May 10, 2018, reflect only the assets, liabilities and operations of Talos Energy LLC (as the Company's predecessor prior to May 10, 2018), and do not reflect the assets, liabilities and operations of Stone prior to May 10, 2018.
The pro forma financial information set forth in this press release gives pro forma effect to the Stone Combination as if it occurred on January 1, 2018. Stone's acquisition of the Ram Powell deepwater assets on May 1, 2018 and Ram Powell's respective financial results are included in the Company's pro forma results from May 1, 2018 onwards. Unless expressly stated as pro forma, the financial and operating data in this press release is presented in a historical basis.
Additional Highlights
Three months ended | Year ended | ||||
As | As | Pro | |||
Total production volumes (MBoe) | 4,910 | 16,742 | 19,143 | ||
Oil (MBbl/d) - Avg daily production | 38.9 | 32.2 | 36.8 | ||
NGLs (MBbl/d) - Avg daily production | 3.2 | 3.2 | 3.7 | ||
Natural Gas (MMcfe/d) - Avg daily production | 67.6 | 62.4 | 71.7 | ||
Total average daily (MBoe/d) | 53.4 | 45.9 | 52.4 | ||
Period results ($ million): | |||||
Revenues | $258.7 | $891.3 | $1,013.2 | ||
Net Income | $306.3 | $221.5 | $274.6 | ||
Earnings per share | $5.66 | $4.81 | $5.96 | ||
Adjusted Net Income(1) | $49.3 | $122.4 | $173.8 | ||
Adjusted Earnings per share(1) | $0.91 | $2.66 | $3.77 | ||
Adjusted EBITDA(1) | $158.8 | $502.7 | $585.0 | ||
Adjusted EBITDA excl. hedges(1) | $175.1 | $613.9 | $701.7 | ||
Capital Expenditures (including Plug & Abandonment) | $142.4 | $397.8 | $452.4 | ||
Adjusted EBITDA margin(1): | |||||
Adjusted EBITDA (% of revenue) | 61% | 56% | 58% | ||
Adjusted EBITDA per Boe | $32.33 | $30.03 | $30.56 | ||
Adjusted EBITDA excl hedges (% of revenue) | 68% | 69% | 69% | ||
Adjusted EBITDA excl hedges per Boe | $35.66 | $36.67 | $36.66 | ||
(1) | Adjusted Net Income, Adjusted Earnings per share, Adjusted EBITDA, Adjusted EBITDA excluding hedges, Adjusted EBITDA Margin, Adjusted EBITDA Margin excluding hedges, Net Debt and Net Debt to Annualized Adjusted EBITDA are non-GAAP financial measures. See "Supplemental Non-GAAP Information" below for additional detail and reconciliations of GAAP to non-GAAP measures. |
President and Chief Executive Officer Timothy S. Duncan commented: "2018 was a transformative year for the company, as we combined the best aspects of two companies, following our merger with Stone Energy. The benefits of the combination have shown results immediately, as we are a stronger, free cash flow positive company with ample liquidity and a significant inventory of drilling locations in both the US Gulf of Mexico and offshore Mexico. Our strategy of executing asset management and drilling projects around existing infrastructure in the US Gulf of Mexico complements our high impact exploration and development projects in offshore Mexico."
"In the last twelve months we have seen our proved developed reserves increase 20%, as compared to the pro forma reserves at December 31, 2017. We have also added three small bolt-on transactions at a low entry cost, including the Gunflint acquisition in January of 2019. We have increased our liquidity position and continued to improve our already robust leverage metrics. We have also re-affirmed the potential of our globally recognized Zama discovery through our ongoing appraisal program."
"Our average daily production in 2018 on a pro forma basis was 52.4 MBoe/d, which was on the high end of our pro forma guidance range of 49.0 – 53.0 MBoe/d, allowing us to generate $585 million of pro forma Adjusted EBITDA for the full year 2018, inclusive of hedges, and a pro forma capital program of $452 million, inclusive of plugging and abandoning activities ("P&A"). Although the merger with Stone required us to spend more capital in 2018 on P&A and non-recurring repairs and maintenance than we normally would have, in 2019 those costs are expected to go down materially."
"In the US Gulf of Mexico, we executed a series of deepwater subsea tie-back projects in 2018 and early 2019, namely the Mt. Providence well, which was connected to our Pompano facility, and the Tornado 3 and Boris 3 wells, that will flow back to the Helix Producer 1 ("HP-1") in our operated Phoenix complex once the wells are completed. The HP-1 dry-dock project in the first quarter of 2019 was flawlessly executed by the Talos team and our partner Helix Energy Solutions, and we expect the production in the Phoenix complex to be restarted in the coming days. Soon thereafter we expect to bring the impactful Tornado 3 and Boris 3 wells online, which will put Talos in a position to grow production year over year while continuing to generate free cash flow in the current price environment for 2019. In shallow water, our asset management and drilling activities have allowed assets such as Ewing Bank 305/306 to achieve production levels not seen in the last 15 years."
"We also continue to be active and to execute on our business development and commercial activities. In addition to the aforementioned bolt-on acquisitions, we have acquired the Antrim stranded discovery from ExxonMobil and have entered into partnerships to drill two deepwater projects in 2019, the Bulleit and Orlov prospects."
"In Mexico on the Zama project, our operations execution has been outstanding. As part of the ongoing appraisal program we confirmed the oil-water contact per our geological model and have encountered more sand than expected in the first down-dip location. We are excited about the impact this discovery will have in the Mexican economy and to Talos shareholders. Also in offshore Mexico, we will start to execute on the inventory we acquired as part of the cross-assignment of interest between Block 2 and Block 31, which includes the low-risk but high impact Olmeca project on Block 31."
"In conclusion, we are very happy with our 2018 results, but we are already looking forward to 2019 and beyond. We will continue to relentlessly execute on our operations and strategy of responsibly growing production at an appropriate pace that allows for the continued generation of positive free cash flow while diligently pursuing additional business development opportunities that fit our asset footprint and core competencies. We believe this is only the beginning of the Talos journey."
RECENT DEVELOPMENTS AND OPERATIONS UPDATE
Drilling and Exploration Activities
Deepwater
- Helix Producer 1 dry-dock: the HP-1 departed the shipyard on March 7, 2019. After a period of sea trials, Talos expects production from the Phoenix complex to re-start on or about March 20, 2019, resulting in a total shut-in period of 56 days. The production impact of the shut-in in the Phoenix complex in the first quarter of 2019 is estimated to be between 9.0 – 13.0 MBoe/d, whereas the annualized impact for full year 2019 production is estimated to be between 2.0 – 3.0 MBoe/d. This impact is already accounted for in our annual guidance, as the shut-in in the Phoenix complex was a known, expected event.
- The Tornado 3 well was drilled in December, 2018 and is scheduled to begin completions operations in late March, with an expected duration of 21 days. The well is anticipated to commence production by early second quarter 2019, with an expected gross production rate between 10.0 MBoe/d – 15.0 MBoe/d, or 5.0 MBoe/d – 7.5 MBoe/d net to Talos after royalties. Talos is the operator and owns a 65% working interest, with Kosmos Energy owning the remaining 35% working interest.
- The Boris 3 well was spud in January 2019 and was drilled to a total depth of approximately 15,000 feet and logged approximately 75 feet gross and 56 feet net of true vertical pay, 360 feet up-dip of 27 MMBoe of historical production in the B-4 Sand. Boris 3 is scheduled to begin completion operations in mid-April with an expected duration of 21 days and is expected to initiate production in the second quarter of 2019. Talos expects Boris 3 to have initial production between 3.0 – 5.0 MBoe/d gross, or 2.8 – 4.6 MBoe/d net to Talos after royalties. Talos is the operator and owns 100% working interest in all Boris wells.
- Bulleit prospect: Talos has signed a participation agreement with a subsidiary of EnVen Corporation to drill the Green Canyon 21 Bulleit prospect. Talos will be the operator and has an initial working interest of 66.7% in the lease. Bulleit is an amplitude-supported Pliocene prospect with similar seismic attributes to the analogous sand section in Talos's Green Canyon 18 field, which has produced approximately 39 MMBoe to date. Talos expects to spud the well in the second quarter of 2019. If successful, the well would be completed and tied back to the Talos owned and operated Green Canyon 18 ("GC 18") facility approximately 10 miles away. Talos anticipates first production within 12-18 months from spud date and estimates that Bulleit has the potential to deliver initial production between 8.0 MBoe/d – 15.0 MBoe/d gross on an unrisked basis.
- Orlov prospect: Talos has signed a participation agreement to engage in the drilling of the Green Canyon 200 Orlov prospect. Fieldwood Energy will be the operator and Talos has a working interest of 30% in the prospect. Orlov is an amplitude-supported Miocene prospect with similar geophysical and structural attributes to the Talos operated Boris field, which has produced approximately 27 MMBoe to date. Talos expects the well to spud near the end of the first quarter of 2019. If successful, the well would be completed and tied-back to the Fieldwood operated Green Canyon 158 Bullwinkle facility. Talos anticipates first production within 12-18 months from spud date and estimates that Orlov has the potential to deliver between 8.0 MBoe/d – 15.0 MBoe/d gross on an unrisked basis
Mexico
Block 7 – Zama appraisal program
As previously announced, the Zama-2 appraisal penetration was successfully and safely completed approximately 28 days ahead of schedule and 25% below projected costs. The well confirmed a contiguous Zama Upper Miocene sandstone interval thicker than the Zama-1 discovery well and slightly thicker than the pre-drill estimates for the Zama-2 well, with high quality rock properties analogous to Upper Miocene sands in the US Gulf of Mexico.
The Zama-2 penetration also reached the oil-water contact slightly deeper than the anticipated depth and consistent with our geophysical models. Preliminary pressure data indicates that the reservoir area around the Zama-2 appraisal well is connected to the Zama-1 discovery well and Talos expects the Zama-2 vertical sidetrack and the Zama-3 wells will provide additional information about the reservoir connectivity and consistency.
The next step of the appraisal program is currently underway with an up-dip vertical penetration in the Zama reservoir from the main bore hole of the Zama-2 well, called the Zama 2-ST, which has been cored and a drill stem test will be performed in the coming weeks. The second appraisal well, Zama-3, will be drilled to the south of the original discovery well and will help delineate the reservoir continuity and quality in the southern part of the field and will be cored to better understand the reservoir geology.
Block 2 and Block 31 Exploration program
Talos and its partners expect to drill two exploration wells in Block 2 and two delineation wells in Block 31 in 2019.
- In Block 2, the well to test the Acan prospect is expected to spud in the second quarter of 2019.
- In Block 31, the Olmeca-1 well is expected to be drilled in the second half of 2019. The Olmeca complex has been significantly de-risked by the Xaxamani-1 well drilled by Pemex in 2003. The 2019 drilling campaign will be to appraise the same geological structure initially tested by Pemex and, if successful, a final investment decision to develop these assets could be reached in 2020.
Business Development Activities
Acquisition of the Antrim Discovery from ExxonMobil
On January 23, 2019, Talos and ExxonMobil ("Exxon") executed an Acquisition Agreement through which Talos acquired 100% interest in the Antrim Project in Green Canyon Block 364 ("GC 364").
Exxon drilled an exploratory well in GC 364 in November 2017 that encountered hydrocarbons in a sub-salt Miocene reservoir and subsequently divested of the discovery well and the GC 364 lease to Talos for further appraisal and a possible development.
Talos plans to drill an additional well to further appraise the discovered resource. The Company is still developing a detailed timeline for the appraisal and development plan over the next few years with significant time ahead of the June 2025 lease expiration. If the appraisal is successful, Talos is currently considering a tie-back to the Talos owned and operated GC 18 facility acquired from Whistler in 2018.
In addition to a nominal upfront cash consideration payment by Talos, Exxon will receive an overriding royalty interest in the lease as well as a future cash payment upon the earlier of 30 days following the completion of drilling operations on the first well or by the end of the third quarter of 2020.
Gunflint Acquisition
On January 11, 2019, Talos acquired an approximate 9.6% non-operated working interest in the Gunflint producing asset for $29.6 million from Samson Offshore Mapleleaf, LLC. Gunflint is located in the Company's Mississippi Canyon core area. The asset's average production for October and November of 2018 was approximately 1.5 - 1.8 MBoe/d and as of November 30, 2018, had proved reserves of 2.2 MMBoe (approximately 80% proved developed) - both production and reserves are net to the Company's acquired interest, which are not included in our year-end reserves.
PROVED RESERVES – AS OF DECEMBER 31, 2018
As of December 31, 2018, Talos had proved reserves of 151.7 MMBoe, with 81% comprised of liquids (74% crude oil and 7% NGLs). As compared to the pro forma year-end 2017 reserves, the Company achieved 100% reserve replacement rate. Talos accomplished this replacement rate in a year that the drilling program was mainly designed to convert proved undeveloped reserves into proved developed reserves while integrating the Stone merger. As such, proved developed reserves increased approximately 20% year over year, and is not inclusive of the recently successful Boris 3 well in the Phoenix complex, which is still classified as proved undeveloped in the year-end reserves. The recently announced Gunflint transaction is also not included in the year end reserves.
The discovered resources associated with the Company's offshore Mexico assets are not yet qualified as proved reserves per Securities and Exchange Commission (the "SEC") rules and, therefore, are not included in any of the information provided in this press release.
The standardized measure of proved reserves and the present value of the Company's proved reserves, discounted at 10% ("PV-10")(1), at year-end 2018 were $3.3 billion and $3.9 billion, respectively. Standardized measure and PV-10 include the present value of all asset retirement obligations associated with the relevant assets and properties.
The following table summarizes our proved reserves at December 31, 2018:
Summary of Proved Reserves(2) | ||||||||||||||
MBoe | Percent of | Percent | Standardized | PV-10(1) | ||||||||||
Proved Developed Producing | 78,072 | 51% | 80% | $ | 2,510,213 | |||||||||
Proved Developed Non-Producing | 37,456 | 25% | 62% | 680,942 | ||||||||||
Total Proved Developed | 115,528 | 76% | 74% | 3,191,155 | ||||||||||
Proved Undeveloped | 36,211 | 24% | 75% | 734,108 | ||||||||||
Total Proved | 151,739 | $ | 3,340,246 | $ | 3,925,263 | |||||||||
(1) | PV-10 is a non-GAAP financial measure and differs from the standardized measure of discounted future net cash flows, which is the most directly comparable GAAP financial measure. See "Supplemental Non-GAAP Information" below for additional detail and reconciliations of GAAP to non-GAAP measures, including a reconciliation of PV-10 of our proved reserves to the standardized measure of discounted future net cash flows at December 31, 2018. |
(2) | Proved oil, natural gas and NGL reserves attributable to our net interests in oil and natural gas properties were estimated and compiled for reporting purposes by our reservoir engineers and audited by Netherland, Sewell & Associates, Inc. |
The following table summarizes our proved reserves by asset at December 31, 2018:
Proved Reserves | ||||||||||||||||||||
Operating Area | MBoe | % Oil | % Natural Gas | % NGLs | % Proved Developed | |||||||||||||||
United States Core Properties | ||||||||||||||||||||
Phoenix Complex | 63,931 | 78 | % | 14 | % | 8 | % | 55 | % | |||||||||||
Pompano | 28,206 | 81 | % | 14 | % | 5 | % | 100 | % | |||||||||||
Ram Powell | 18,094 | 59 | % | 28 | % | 13 | % | 100 | % | |||||||||||
Amberjack | 8,148 | 88 | % | 10 | % | 2 | % | 100 | % | |||||||||||
United States Core Properties Subtotal | 118,379 | 77 | % | 16 | % | 7 | % | 76 | % | |||||||||||
Other United States Properties(1) | 33,360 | 65 | % | 30 | % | 5 | % | 78 | % | |||||||||||
Total United States | 151,739 | 74 | % | 19 | % | 7 | % | 76 | % | |||||||||||
(1) | Other United States Properties includes Gulf of Mexico shelf and deepwater. |
In accordance with guidelines established by the SEC, the Company's estimated proved reserves as of December 31, 2018 were determined to be economically producible under existing economic conditions, which requires the use of the 12-month average price for each commodity, calculated as the unweighted arithmetic average of the price on the first day of each month for the year end December 31, 2018. The West Texas Intermediate spot price and the Henry Hub spot price were utilized as the referenced price and appropriately adjusted for quality, transportation, fees, energy content and basis differentials. Therefore, the standardized measure and PV-10 of Talos's proved reserves at December 31, 2018, are based on an average crude oil price of $65.56 per barrel and an average natural gas price of $3.10 per MMBtu, prior to being adjusted for quality, transportation, fees, energy content and basis differentials. The average adjusted product prices used in determining standardized measure and PV-10 are $69.42 per barrel of oil, $29.50 per barrel of NGL, and $3.08 per Mcf of gas.
FOURTH QUARTER 2018 RESULTS
Production, Realized Prices and Revenue
Production: Production for the fourth quarter of 2018 was 4.9 million Boe and was comprised of 3.6 million barrels of oil, 0.3 million barrels of NGLs and 6.2 billion cubic feet ("Bcf") of natural gas. Oil and NGLs production accounted for 79% of the total production for the fourth quarter of 2018.
During the quarter, Talos evacuated non-essential personnel and shut-in production on certain Gulf of Mexico assets as a result of Hurricane Michael, which negatively impacted production. Talos suffered no damage to its assets. In addition to Hurricane Michael, production was negatively affected by several minor third-party downtime events.
Although a certain level of third party downtime is expected and planned for, these interruptions in production were limited to the fourth quarter and are not expected to have a material impact going forward.
The table below provides additional detail of the Company's oil, natural gas and NGLs production volumes and sales prices per unit for the three months and year ended December 31, 2018: