Talos Energy Announces Third Quarter 2020 Financial And Operational Results

Talos Energy Announces Third Quarter 2020 Financial And Operational Results

PR Newswire

HOUSTON, Nov. 4, 2020

HOUSTON, Nov. 4, 2020 /PRNewswire/ -- Talos Energy Inc. ("Talos" or the "Company") (NYSE: TALO) today announced its financial and operational results for the third quarter of 2020.

Key Highlights:

 

(1)

Adjusted Net Loss, Adjusted Loss per Share, Adjusted EBITDA, Adjusted EBITDA Margin, Credit Facility LTM Adjusted EBITDA and Net Debt to Credit Facility LTM 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: "As we discussed in our October 7th operations update, the third quarter was particularly challenging, dominated by the busiest storm season in the last 15 years in the Gulf of Mexico. These storms did not cause significant damage to our infrastructure, but shut-in production and project delays resulted in a decrease in revenue as well as an increase in capital spending and delays in first production on active development projects. Despite those challenges, we made significant progress in our operations to exit 2020 on strong footing with a more resilient set of assets, with more scale and diversity and with a lower cost structure than how we entered the year."

Duncan continued: "There have been several important milestones as we close out the year. We are proud to have published our first ESG report and look forward to providing annual updates going forward. The report highlights our mission to provide life-improving energy with minimal impact to the environment and climate, while also promoting a company culture that's recognized as one of the best in Houston. On the operations front, we continue to deliver on the low end of our operating cost guidance, even with the additional hurricane-related costs, allowing us to have a highly competitive cost structure as we ramp to our full expected run-rate to exit the year. As we conclude our 2020 capital program in November and restore production to our target exit rate of 71-73 MBoe/d, we look forward to generating solid results in the fourth quarter and moving forward into 2021."

RECENT DEVELOPMENTS AND OPERATIONS UPDATE

Drilling and Exploration Activities – U.S. Gulf of Mexico
Tornado Water Flood: Injection from the B-4 aquifer into the B-6 producing reservoir continues at an injection rate of more than 20,000 barrels of water per day. Preliminary results from the producing Tornado wells are very positive, having exhibited both an increase in total production rate and an increase in measured reservoir pressures in the B-6 reservoir. Talos holds a 65.0% working interest in the Tornado field and is the operator, with Kosmos Energy holding a 35.0% working interest.

Kaleidoscope: Following the previously announced successful drilling of the Kaleidoscope well from the Green Canyon 18 platform, Talos expects first production from the well in late November 2020. Talos holds a 100.0% working interest in the well.

Ram Powell Facility: As a result of weather conditions from Tropical Storm Beta and Hurricane Zeta in October 2020, the completion of repairs and restart of the facility is now expected in November 2020. Talos holds a 100.0% working interest in Ram Powell.

Bulleit: After initiating flowback, the ramping up of production was halted for personnel evacuations resulting from Hurricane Zeta. Talos expects to re-initiate production following the re-staffing of the Green Canyon 18 platform in November 2020. Talos holds a 50.0% working interest and is the operator, with EnVen and Otto Energy holding 33.3% and 16.7% working interests, respectively.

Puma West: Drilling of the Puma West exploration prospect is expected to resume in the fourth quarter of 2020. The well was temporarily halted in January 2020 prior to drilling through the Middle and Lower Miocene main objectives. bp is the operator and holds a 50.0% working interest. Talos and Chevron each hold a 25.0% working interest.

Drilling and Exploration Activities – Mexico
Zama Unitization: Unitization discussions with Petróleos Mexicanos ("Pemex") continue regarding the Company's Zama discovery in offshore Mexico. Talos maintains its target to conclude unitization negotiations by mid-January, as directed by Mexico's Ministry of Energy ("SENER").

Corporate Activities
ESG Report: The Company recently published its inaugural Environmental, Social and Governance report. Highlights from 2019 include strong performance and year-over-year improvements in numerous safety and environmental categories, continued material support for local communities and charitable organizations and sustained employee support as evidenced by the Company's seventh consecutive year voted as a Top Workplace in Houston by the Houston Chronicle.

Fall Borrowing Base Redetermination: Talos has recently initiated its Fall 2020 borrowing base redetermination discussion for the Company's RBL facility, and expects to conclude the process over the next several weeks.

THIRD QUARTER 2020 RESULTS

Key Financial Highlights:



Three Months Ended
September 30, 2020


Period results ($ million, except per share and Boe amounts):





Total Revenues (inclusive of hedges)(2)


$

154.2


Net Loss


$

(52.0)


Loss per diluted share


$

(0.73)


Adjusted Net Loss(1)


$

(37.4)


Adjusted Loss per diluted share(1)


$

(0.52)


Adjusted EBITDA(1)


$

78.6


Capital Expenditures (including Plug & Abandonment)


$

132.3


Adjusted EBITDA Margin(1):





Adjusted EBITDA (% of Revenue inclusive of hedges)



51

%

Adjusted EBITDA per Boe


$

17.59


Production, Realized Prices and Revenue
Production for the third quarter of 2020 was 48.6 MMBoe, with oil production accounting for 67% of the total. Oil price realizations, net of certain gathering, transportation, quality differentials and other costs, were $39.00 per barrel, before hedges. Natural Gas price realizations, net of certain gathering, transportation and other costs, were $1.78 per Mcf, before hedges.



Three Months Ended
September 30, 2020


Production volumes





Oil production volume (MBbls)



3,005


Natural Gas production volume (MMcf)



6,922


NGL production volume (MBbls)



311


Total production volume (MBoe)



4,470







Average net daily production volumes





Oil (MBbl/d)



32.7


Natural Gas (MMcf/d)



75.2


NGL (MBbl/d)



3.4


Total average net daily (MBoe/d)



48.6







Average realized prices (excluding hedges)(3)





Oil ($/Bbl)


$

39.00


Natural Gas ($/Mcf)



1.78


NGL ($/Bbl)



10.96


Average realized price ($/Boe)


$

29.74







Average NYMEX prices





WTI ($/Bbl)


$

40.89


Henry Hub ($/MMBtu)


$

2.00







Revenues ($ million)





Oil


$

117.2


Natural Gas



12.3


NGL



3.4


Revenue - Operations


$

132.9


Other revenue



2.2


Total revenue


$

135.1


   Net cash receipts (payments) on settled derivative instruments



19.0


Total revenue inclusive of realized impact of hedges


$

154.2


 



Three Months Ended September 30, 2020




Production



% Oil



% Liquid



% Operated


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

















Green Canyon Area



13.2




80

%



87

%



96

%

Mississippi Canyon Area



19.9




82

%



89

%



60

%

Shelf and Gulf Coast



15.5




38

%



45

%



63

%

Total average net daily (MBoe/d)



48.6




67

%



74

%



71

%

Expenses
Total lease operating expenses ("LOE"), inclusive of workover and maintenance and insurance costs for the quarter, were $62.1 million or $13.89/Boe. General and administrative expenses ("G&A") for the quarter, excluding stock-based compensation, transaction-related expenses and other one-time time expenses, was $13.9 million, or $3.10/Boe.



Three Months
Ended
September 30,
2020



Per Boe


Lease Operating Expenses


$

62.1



$

13.89


General & Administrative Expenses (excluding non-cash and non-recurring items)


$

13.9



$

3.10


Other Financial Metrics
Capital Expenditures & Asset Management Activities



Three Months Ended
September 30, 2020


Capital Expenditures





U.S. Drilling & Completions


$

81.0


Mexico Appraisal & Exploration



(0.2)


Asset Management



20.4


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



15.1


Total Capital Expenditures


$

116.2


Plugging & Abandonment



16.0


Total Capital Expenditures and Plugging & Abandonment


$

132.3


Liquidity & DebtAs of September 30, 2020, Talos had $353.8 million of liquidity and maintained $32.4 million in cash on hand and $650.0 million drawn on the $985.0 million borrowing base under its credit facility. The Company had approximately $1,070.7 million in total debt, inclusive of $66.7 million related to the HP-I finance lease. Inclusive of pre-closing contributions from the recent ILX/Castex and Castex 2005 acquisitions, Net Debt to Credit Facility LTM Adjusted EBITDA(1), as determined in accordance with the Company's credit agreement, was 1.8x. Excluding the contribution from the Acquired Assets, Net Debt to LTM Adjusted EBITDA(1) ratio was 2.2x.

Footnotes:

(1)

Adjusted Net Loss, Adjusted Loss per Share, Adjusted EBITDA, Adjusted EBITDA Margin, Credit Facility LTM Adjusted EBITDA and Net Debt to Credit Facility LTM Adjusted EBITDA are non-GAAP financial measures. See "Supplemental Non-GAAP Information" below for additional detail and reconciliations of GAAP to non-GAAP measures.

(2)

Includes $2.2 million of other revenue.

(3)

Average realized prices are net of certain gathering, transportation, quality differentials and other costs.

HEDGES

The following table reflects the current contracted volumes and weighted average prices the Company will receive under the terms of its derivative contracts, including contracts entered into following the end of the quarter:



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 2020


Swaps


31,315


$43.29



---


---

  October - December 2020


Collars


5,000


---



$50.00


$57.09

  January - December 2021


Swaps


17,690


$42.72



---


---

  January - December 2021


Collars


1,000


---



$30.00


$40.00

  January - December 2022


Swaps


10,370


$44.44



---


---













Crude - LLS












  January - December 2021


Swaps


3,000


$38.83



---


---













Natural Gas - HH NYMEX




(MMBtu)


(per MMBtu)



(per MMBtu)


(per MMBtu)

  October - December 2020


Swaps


71,815


$2.29



---


---

  January - December 2021


Swaps


58,408


$2.56



---


---

  January - December 2021


Collars


5,000


---



$2.50


$3.10

  January - December 2022


Swaps


29,778


$2.60



---


---

  January - June 2023


Swaps


5,000


$2.61



---


---

CONFERENCE CALL AND WEBCAST INFORMATION

Talos will host an earnings conference call, which will be broadcast live over the internet, tomorrow, Thursday, November 5, 2020 at 10:00 AM Eastern Time. Listeners can access the earnings conference call live over the Internet through a webcast link on the Company's website at: https://www.talosenergy.com/investors. Alternatively, the 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 through November 12, 2020 and can be accessed by dialing (877) 344-7529 and using access code 10148673.

ABOUT TALOS ENERGY

Talos Energy (NYSE: TALO) is a technically driven independent exploration and production company focused on safely and efficiently maximizing cash flows and long-term value through its operations, currently in the United States Gulf of Mexico and offshore Mexico. As one of the U.S. Gulf of Mexico's largest public independent producers, we leverage decades of geology, geophysics and offshore operations expertise towards the acquisition, exploration, exploitation and development of assets in key geological trends that are present in many offshore basins around the world. Our activities in offshore Mexico provide high impact exploration opportunities in an oil rich emerging basin. For more information, visit www.talosenergy.com.

INVESTOR RELATIONS CONTACT

Sergio Maiworm
+1.713.328.3008
investor@talosenergy.com 

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 "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, commodity price volatility, including the sharp decline in oil prices beginning in March 2020, the impact of the coronavirus disease 2019 ("COVID-19") 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 and the impact of any such actions, lack of transportation and storage capacity as a result of oversupply, government regulations and actions, including with respect to repairs to the Ram Powell facility, or other factors, inflation, lack of availability of drilling and production equipment and services, environmental risks, drilling and other operating risks, 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, the possibility that the anticipated benefits of recent acquisitions are not realized when expected or at all, including as a result of the impact of, or problems arising from, the integration of such acquisitions, and other factors that may affect our future results and business, generally, including those discussed under the heading "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2019 and our Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2020, 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.

Condensed Consolidated Balance Sheets

(In thousands, except per share amounts)




September 30, 2020



December 31, 2019




(Unaudited)






ASSETS









Current assets:









Cash and cash equivalents


$

32,377



$

87,022


Accounts receivable









Trade, net



64,948




107,842


Joint interest, net



61,054




16,552


Other



13,396




6,346


Assets from price risk management activities



38,716




8,393


Prepaid assets



44,148




65,877


Other current assets



1,802




1,952


Total current assets



256,441




293,984


Property and equipment:









Proved properties



4,855,152




4,066,260


Unproved properties, not subject to amortization



254,243




194,532


Other property and equipment



32,323




29,843


Total property and equipment



5,141,718




4,290,635


Accumulated depreciation, depletion and amortization



(2,327,556)




(2,065,023)


Total property and equipment, net



2,814,162




2,225,612


Other long-term assets:









Assets from price risk management activities



4,458





Other well equipment inventory



14,478




7,732


Operating lease assets



7,060




7,779


Other assets



75,682




54,375


Total assets


$

3,172,281



$

2,589,482


LIABILITIES AND STOCKHOLDERSʼ EQUITY









Current liabilities:









Accounts payable


$

110,895



$

71,357


Accrued liabilities



172,741




154,816


Accrued royalties



18,464




31,729


Current portion of asset retirement obligations



53,976




61,051


Liabilities from price risk management activities



33,443




19,476


Accrued interest payable



20,088




10,249


Current portion of operating lease liabilities



1,713




1,594


Other current liabilities



23,104




20,180


Total current liabilities



434,424




370,452


Long-term liabilities:









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



994,748




732,981


Asset retirement obligations



377,160




308,427


Liabilities from price risk management activities



8,201




511


Operating lease liabilities



18,998




17,239


Other long-term liabilities



56,474




81,595


Total liabilities



1,890,005




1,511,205


Commitments and contingencies (Note 11)









Stockholdersʼ Equity:









Preferred stock, $0.01 par value; 30,000,000 shares authorized and no shares issued or outstanding as of September 30, 2020 and December 31, 2019







Common stock $0.01 par value; 270,000,000 shares authorized; 73,029,989 and 54,197,004 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively



730




542


Additional paid-in capital



1,584,815




1,346,142


Accumulated deficit



(303,269)




(268,407)


Total stockholdersʼ equity



1,282,276




1,078,277


Total liabilities and stockholdersʼ equity


$

3,172,281



$

2,589,482


 

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,




2020



2019



2020



2019


Revenues:

















Oil revenue


$

117,190



$

211,899



$

358,285



$

624,486


Natural gas revenue



12,337




12,545




35,375




41,738


NGL revenue



3,409




3,384




9,674




15,095


Other



2,201




1,029




8,441




13,061


Total revenue



135,137




228,857




411,775




694,380


Operating expenses:

















Lease operating expense



62,064




61,816




184,187




184,230


Production taxes



225




(21)




640




1,067


Depreciation, depletion and amortization



80,547




88,125




262,533




248,518


Write-down of oil and natural gas properties






1,417




57




13,778


Accretion expense



11,537




7,316




37,748




26,868


General and administrative expense



17,823




17,321




62,484




53,795


Total operating expenses



172,196




175,974




547,649




528,256


Operating income (expense)



(37,059)




52,883




(135,874)




166,124


Interest expense



(24,124)




(23,123)




(76,164)




(73,273)


Price risk management activities income (expense)



(19,882)




43,760




154,653




(35,829)


Other income



813




567




139




1,831


Net income (loss) before income taxes



(80,252)




74,087




(57,246)




58,853


Income tax benefit (expense)



28,252




(790)




22,384




(428)


Net income (loss)


$

(52,000)



$

73,297



$

(34,862)



$

58,425



















Net income (loss) per common share:

















Basic


$

(0.73)



$

1.35



$

(0.54)



$

1.08


Diluted


$

(0.73)



$

1.35



$

(0.54)



$

1.07


Weighted average common shares outstanding:

















Basic



71,286




54,200




65,134




54,178


Diluted



71,286




54,430




65,134




54,364


 

Talos Energy Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)




Nine Months Ended September 30,




2020



2019


Cash flows from operating activities:









Net income (loss)


$

(34,862)



$

58,425


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









Depreciation, depletion, amortization and accretion expense



300,281




275,386


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



190




13,778


Amortization of deferred financing costs and original issue discount



5,393




3,723


Equity based compensation, net of amounts capitalized



6,321




5,164


Price risk management activities expense (income)



(154,653)




35,829


Net cash received (paid) on settled derivative instruments



141,529




(7,202)


Gain on extinguishment of debt



(1,644)





Settlement of asset retirement obligations



(34,502)




(54,406)


Changes in operating assets and liabilities:









Accounts receivable



(1,729)




(14,729)


Other current assets



21,835




11,384


Accounts payable



23,500




32,541


Other current liabilities



31,826




(26,753)


Other non-current assets and liabilities, net



(41,418)




(727)


Net cash provided by operating activities



262,067




332,413


Cash flows from investing activities:









Exploration, development and other capital expenditures



(280,273)




(372,920)


Cash paid for acquisitions, net of cash acquired



(304,879)




(32,916)


Proceeds from sale of other property and equipment






5,369


Net cash used in investing activities



(585,152)




(400,467)


Cash flows from financing activities:









Redemption of Senior Notes and other long-term debt



(4,735)




(10,567)


Proceeds from Bank Credit Facility



300,000




75,000


Repayment of Bank Credit Facility






(25,000)


Deferred financing costs



(1,287)




(1,268)


Other deferred payments



(11,921)




(9,921)


Payments of finance lease



(12,790)




(10,344)


Employee stock transactions



(827)




(326)


Net cash provided by financing activities



268,440




17,574











Net decrease in cash, cash equivalents and restricted cash



(54,645)




(50,480)


Cash, cash equivalents and restricted cash:









Balance, beginning of period



87,022




141,162


Balance, end of period


$

32,377



$

90,682











Supplemental Non-Cash Transactions:









Capital expenditures included in accounts payable and accrued liabilities


$

97,517



$

24,622


Debt exchanged for common stock


$

35,960



$


Supplemental Cash Flow Information:









Interest paid, net of amounts capitalized


$

41,188



$

36,011


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," "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, loss on debt extinguishment, transaction related costs, derivative fair value (gain) loss, net cash receipts (payments) on settled derivatives, non-cash (gain) loss on sale of assets, 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):

($ thousands, except per Boe)


Three
Months
ended

September
30, 2020



Three Months
ended

June 30, 2020



Three
Months
ended

March 31,
2020



Three
Months
ended

December
31, 2019


Reconciliation of net income (loss) to Adjusted EBITDA:

















Net income (loss)


$

(52,000)



$

(140,611)



$

157,749



$

304


Interest expense



24,124




26,190




25,850




24,574


Income tax expense (benefit)



(28,252)




(49,392)




55,260




(36,569)


Depreciation, depletion and amortization



80,547




88,443




93,543




97,413


Accretion expense



11,537




13,794




12,417




7,521


EBITDA



35,956




(61,576)




344,819




93,243


Write-down of oil and natural gas properties



-




-




57




(1,557)


Transaction and non-recurring expenses(2)



1,607




3,498




7,758




4,111


Derivative fair value (gain) loss(1)



19,882




68,682




(243,217)




59,508


Net cash receipts (payments) on settled derivative instruments(1)



19,030




86,039




36,460




(1,618)


Loss (Gain) on extinguishment of debt



(174)




(1,470)




-




132


Non-cash write-down of other well equipment inventory



-




-




133




165


Non-cash equity-based compensation expense



2,347




2,347




1,627




1,800


 Adjusted EBITDA



78,648




97,520




147,637




155,784


Net cash receipts (payments) on settled derivative instruments(1)



(19,030)




(86,039)




(36,460)




1,618


Adjusted EBITDA excluding hedges



59,618




11,481




111,177




157,402


Production and Revenue:

















Boe(2)



4,470




4,775




5,287




4,966


Revenue - Operations



132,936




87,575




182,823




233,240


Adjusted EBITDA margin and Adjusted EBITDA margin excluding hedges:

















Adjusted EBITDA divided by Revenue - Operations (%)



59

%



111

%



81

%



67

%

Adjusted EBITDA per Boe(2)


$

17.59



$

20.42



$

27.92



$

31.37


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



45

%



13

%



61

%



67

%

Adjusted EBITDA excluding hedges per Boe(2)


$

13.34



$

2.40



$

21.03



$

31.70




(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 EBITDA on a cash basis during the period the derivatives settled.

(2)

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

($ thousands, except per share amounts)


Three Months Ended
September 30, 2020


Reconciliation of Net Loss to Adjusted Net Loss:





Net Loss


$

(52,000)


Transaction related costs



1,607


Derivative fair value loss(1)



19,882


Net cash receipts on settled derivative instruments(1)



19,030


Non-cash income tax expense



(28,252)


Non-cash equity-based compensation expense



2,347


Adjusted Net Loss


$

(37,386)







Weighted average common shares outstanding at September 30, 2020:





Basic



71,286


Diluted



71,286







Loss per common share:





Basic


$

(0.73)


Diluted


$

(0.73)







Adjusted Loss per common share:





Basic


$

(0.52)


Diluted


$

(0.52)




(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 on a cash 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.

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.



September 30, 2020


Reconciliation of Net Debt ($ thousands):





11.00% Second-Priority Senior Secured Notes – due April 2022


$

347,908


7.50% Senior Notes – due May 2022



6,060


Bank Credit Facility – matures May 2022



650,000


Finance lease



66,746


Total Debt



1,070,714


Less: Cash and cash equivalent



(32,377)


Net Debt


$

1,038,337







Calculation of LTM EBITDA:





Adjusted EBITDA for three months period ended December 31, 2019


$

155,784


Adjusted EBITDA for three months period ended March 31, 2020



147,637


Adjusted EBITDA for three months period ended June 30, 2020



97,520


Adjusted EBITDA for three months period ended September 30, 2020



78,648


LTM Adjusted EBITDA


$

479,589


Acquired Assets Adjusted EBITDA prior to closing



93,765


Credit Facility LTM Adjusted EBITDA


$

573,354







Reconciliation of Net Debt to LTM Adjusted EBITDA:





Net Debt / LTM Adjusted EBITDA



2.2

x

Net Debt / Credit Facility LTM Adjusted EBITDA



1.8

x

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.

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