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Talos Energy LLC Announces Fourth Quarter and Year End 2017 Financial and Operating Results

 

Houston, TX — March 15, 2018 — Talos Energy LLC ("Talos”, or the "Company”) today announced its financial and operating results for the fourth quarter ended December 31, 2017.

Operating and financial highlights for the fourth quarter 2017 include:

Production for the fourth quarter 2017 averaged 28.4 thousand barrels of oil equivalent per day ("MBoepd”) representing a 15% increase over the fourth quarter of 2016 

Total revenue for the fourth quarter 2017 was $115.6 million compared to $76.9 million for the fourth quarter 2016

Adjusted earnings before interest, taxes, depreciation and amortization ("Adjusted EBITDA”) were $70.6 million and additions to property and equipment, excluding acquisitions, plugging and abandonment costs and asset retirement costs, on an accrual basis were $65.7 million for the fourth quarter 2017.

Initial production from the Tornado II well commenced on December 15, 2017 

Estimated proved reserves totaled approximately 100.6 million barrels of oil equivalent ("MMBoe”) and a standardized measure of approximately $1,807.7 million at December 31, 2017

 

Tim Duncan, Talos President and Chief Executive Officer, commented, "Our results for the fourth quarter continue to reflect the Company’s ability to deliver visible growth and attractive returns by focusing on our drilling and asset management programs around our infrastructure, which allows us to organically grow production and lower our lifting costs on a year over year basis. We were able to do this with a capital program well under our available adjusted EBITDA, inclusive of our plugging and abandoning activities. The deep water Tornado II project was drilled and completed as a subsea producer, achieving production within 127 days and on budget, an accomplishment we are very proud of. We are in the planning stages of appraising our recent Zama-1 discovery off the coast of Mexico, one of the 15 largest shallow-water discoveries globally in the last 20 years, where Talos is the operator. We remain focused on executing the combination with Stone Energy to create a premier independent offshore exploration and production company.”

FINANCIAL RESULTS

Talos recorded a net loss from operations of $85.8 million for the fourth quarter 2017. The net loss includes $85.9 million from mark-to-market losses on open oil and natural gas derivative contracts. Adjusted EBITDA was $70.6 million, or $27.02 per barrel of oil equivalent sold in the fourth quarter 2017. For the year ended 2017, Talos recorded a net loss from operations of $62.9 million. The net loss includes $51.4 million from mark-to-market losses on open oil and natural gas derivative contracts. Adjusted EBITDA was $256.9 million, or $24.53 per barrel of oil equivalent sold in the year ended 2017. See the definition of Adjusted EBITDA and a reconciliation to net income in the "Supplemental Non-GAAP Measure” schedule below.

Production volumes for the fourth quarter of 2017 were 28.4 MBoepd compared to 24.6 MBoepd for the fourth quarter of 2016. Production volumes for the year ended 2017 were 28.7 MBoepd compared to 24.4 MBoepd for the year ended 2016. The increase was primarily attributable to our ongoing asset management program and a 5.4 MBoepd and 8.2 MBoepd increase in production volumes for the fourth quarter 2017 and year ended 2017, respectively, from the Tornado wells, GC 281 #1ST (T-9), which commenced on October 27, 2016, and GC 281 #2ST, which commenced on December 15, 2017, in the Phoenix Field. Production volumes in the fourth quarter 2017 include a partial shut-in for 6 days during Hurricane Nate. The production mix for the fourth quarter of 2017 and the year ended 2017 was 67% oil, 26% natural gas and 7% natural gas liquids ("NGLs”).

Total revenue for the fourth quarter 2017 was $115.6 million compared to $76.9 million for the fourth quarter of 2016. Fourth quarter 2017 revenues exclude $1.5 million of realized derivative settlements. Prices realized during the fourth quarter of 2017, excluding the impact of derivatives, averaged $56.02 per Bbl of oil, $2.88 per Mcf of natural gas and $28.80 per Bbl of NGLs. For the year ended 2017, total revenue was $412.8 million compared to $258.8 million for the year ended 2016. The year ended 2017 revenues exclude $23.8 million of realized derivative settlements. Prices realized for the year ended 2017, excluding the impact of derivatives, averaged $48.92 per Bbl of oil, $3.00 per Mcf of natural gas and $23.59 per Bbl of NGLs.

Total lease operating expense, consisting of direct lease operating expenses, insurance costs and production taxes for the fourth quarter 2017 was $30.0 million, or $11.49 per barrels of oil equivalent ("Boe”), which is a 16% per Boe decrease on a lifting cost basis, compared to $31.1 million, or $13.72 per Boe, for the fourth quarter 2016. For the year ended 2017, total lease operating expense was $121.4 million, or $11.59 per Boe, which is a 26% per Boe decrease on a lifting costs basis, compared to $139.4 million, or $15.67 per Boe, for the year ended 2016.

Depreciation, depletion and amortization expense for the fourth quarter 2017 was $43.5 million compared to $33.5 million for the fourth quarter 2016. For the year ended 2017, depreciation, depletion and amortization expense was $157.4 million compared to $124.7 million for the year ended 2016. The increase in the fourth quarter 2017 and year ended 2017 is primarily related to an increase in production volumes compared to the respective 2016 period.

General and administrative expense for the fourth quarter 2017 was $9.8 million compared to $7.9 million for fourth quarter 2016. The increase was primarily attributable to $2.2 million in transaction related costs primarily attributable to the Stone Energy combination, partially offset by a $0.5 million decrease in employee related expenses. The general and administrative expenses, excluding transaction related expenses, were $2.91 per Boe for the fourth quarter 2017 compared to $3.51 per Boe for the fourth quarter 2016, a decrease of 17% on a lifting cost basis. For the year ended 2017, general and administrative expense was $36.7 million compared to $28.7 million for year ended 2016. The increase was primarily attributable to $9.7 million in transaction related costs associated with the Stone Transaction and the 2017 debt exchange, partially offset by a decrease in employee related expenses of $0.7 million. The general and administrative expenses, excluding transaction related expenses, were $2.58 per Boe for the year ended 2017 compared to $3.21 per Boe for the year ended 2016, a decrease of 20% on a lifting cost basis.

Price risk management expense for the fourth quarter 2017 was $84.4 million compared to $32.7 million for fourth quarter 2016. The increase of $51.7 million was attributable to a $25.3 million decrease in mark to market fair value of our open derivative contracts and a $26.4 million decrease in cash settlement gains. Price risk management expense for the year ended 2017 was $27.6 million compared to $57.4 million for the year ended 2016. The decrease of $29.8 million was attributable to a $178.2 million increase in mark to market fair value of our open derivative contracts and a $148.2 million decrease in cash settlement gains.

YEAR END 2017 ESTIMATED PROVED RESERVES AND STANDARDIZED MEASURE

Estimated proved reserves as of December 31, 2017 totaled approximately 100.6 MMBoe, a decrease of 3.1 MMBoe compared to 103.7 MMBoe of estimated proved reserves as of December 31, 2016. The year-end 2017 estimated proved reserves were 72% oil, 21% natural gas and 7% NGLs, with 74% located in deep water. The decrease in reserves from year-end 2016 to year-end 2017 include production of 10.5 MMBoe and negative revisions related to well performance and remapping of proved undeveloped reserves of 5.1 MMBoe, offset by extensions and discoveries primarily from our drilling program of 12.5 MMboe. These volumes do not include the contingent resource discovered in offshore Mexico.

The standardized measure from our estimated proved reserves at December 31, 2017 was approximately $1,807.7 million, using a 10% discount rate and twelve month Securities and Exchange Commission average prices of $51.36 per barrel of oil, $3.20 per Mcf of gas, and $24.64 per barrel of NGLs, after differentials. The year-end 2017 estimated proved reserves include proved developed reserves of approximately 53.7 MMBoe and proved undeveloped reserves of approximately 46.9 MMBoe. 

COMBINATION OF TALOS ENERGY LLC AND STONE ENERGY CORPORATION

On November 21, 2017, the Company executed an agreement to combine with Stone Energy to form Talos Energy, Inc. in an all-stock transaction, which is expected to close during the second quarter of 2018. Each outstanding share of Stone Energy common stock will be exchanged for one share of Talos Energy, Inc. common stock and Talos Energy stakeholders will be issued an aggregate of approximately 34.2 million common shares. At closing, Talos Energy stakeholders will own 63% of the combined company, with Stone shareholders owning 37%.

OPERATING RESULTS 

United States Gulf of Mexico — Asset Management

During the fourth quarter 2017, we performed 9 recompletions and well work projects, of which 8 were successful. The average incremental production provided by these recompletions and well work projects during the 30 days after completion of the project was approximately 3,600 gross Boepd. We will continue to focus on low risk projects that offer attractive yields in today’s commodity price environment.

United States Gulf of Mexico — Drilling Portfolio

In October 2017, the Company completed the Tornado II deepwater drilling campaign in the Phoenix Field of the Gulf of Mexico in approximately 2,700 feet of water. The Tornado II drilling campaign consisted of an exploratory test penetration in a fault block adjacent to the Company’s initial Tornado discovery in 2016, followed by a sidetrack well to delineate the initial reservoir. Initial production from Tornado II commenced on December 15, 2017 and flows through the existing Phoenix Field subsea infrastructure into the Helix Producer I, a dynamically positioned floating production unit. Coupled with the first Tornado well, the company plans to flow the wells at a combined gross rate of 24 – 27 MBoepd.

On February 8, 2018, the Company amended a previous agreement to use the Ensco 75, a jackup drilling rig, to execute a portion of the Company’s 2018 drilling campaign. Under the terms of the amendment, the Company will pay Ensco a base vessel day work rate based on the number of days contracted for 60 additional days during 2018. The estimated payments in 2018 are approximately $7.8 million, which includes the $3.9 million related to the previous agreement.

Offshore Mexico

In July 2017, Talos completed drilling operations on the offshore Mexico Zama-I exploration well under budget, which resulted in a contiguous oil bearing interval of over 1,100 feet, with 558-656 feet of net oil pay with no water contact and led to an announcement of a discovered resource between 1.4 and 2.0 billion barrels of original oil in place, some of which could extend into a neighboring block. The well is currently suspended as a future producer. Talos is analyzing data gathered from Zama-I and evaluating the optimal methods for appraisal and development of the discovery. We are currently in the planning phases of drilling the first appraisal well.

CAPITAL SUMMARY

Our additions to property and equipment, excluding acquisitions, plugging and abandonment costs and asset retirement costs, on an accrual basis were $65.7 million for the fourth quarter 2017 and $194.5 million for the year ending December 31, 2017. Additionally, we incurred $6.8 million and $32.7 million on plugging and abandonment during the fourth quarter 2017 and year ending December 31, 2017, respectively.

 

  

 

Three Months Ended

December 31, 2017

 

 

Year Ended

December 31, 2017

 

Exploration

 

$

9,440

 

 

$

77,243

 

Development

 

 

54,352

 

 

 

106,899

 

Geological and geophysical/seismic

 

 

1,712

 

 

 

5,644

 

Land and lease

 

 

151

 

 

 

4,422

 

Other

 

 

33

 

 

 

327

 

Total

 

$

65,688

 

 

$

194,535

 

LIQUIDITY UPDATE

As of December 31, 2017, the Company’s available liquidity was $99.3 million consisting of $32.2 million in cash and $67.1 million of available capacity under our revolving credit facility. On January 24, 2018, Talos Energy executed the tenth amendment to our credit agreement deferring the next borrowing base redetermination to May 31, 2018 in response to our recently announced combination with Stone Energy.

OIL AND NATURAL GAS DERIVATIVES

The following table reflects the contracted volumes and weighted average prices we will receive under our derivative contracts as of December 31, 2017:

 

Production Period

 

Instrument

Type

 

Average

Daily

Volumes

 

 

Weighted

Average

Swap Price

 

Crude Oil – WTI:

 

 

 

(Bbls)

 

 

(per Bbl)

 

January 2018 – December 2018

 

Swap

 

 

24,804

 

 

$

53.79

 

January 2019 – December 2019

 

Swap

 

 

15,866

 

 

$

53.17

 

Natural Gas – Henry Hub NYMEX:

 

 

 

(MMBtu)

 

 

(per MMBtu)

 

January 2018 – December 2018

 

Swap

 

 

26,346

 

 

$

3.00

 

January 2019 – December 2019

 

Swap

 

 

10,146

 

 

$

2.99

 

Subsequent to December 31, 2017, we entered into 2019 WTI crude oil swap contracts for 1,008 Bbls per day at $56.25 per Bbl.

ABOUT TALOS ENERGY LLC

Talos is a technically driven independent exploration and production company with operations in the United States Gulf of Mexico and in the shallow waters off the coast of Mexico. Our focus in the United States Gulf of Mexico is the exploration, acquisition, exploitation and development of shallow and deepwater assets near existing infrastructure. The shallow waters off the coast of Mexico provide us high impact exploration opportunities in an emerging basin. The Company’s website is located at www.talosenergyllc.com.

FORWARD-LOOKING STATEMENTS

The information in this press release includes "forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact included in this press release, regarding our strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects, plans and objectives of management are forward-looking statements. 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 all of the risks and uncertainties, most of which are difficult to predict and many of which are beyond our control, incident to the exploration for and development, production, gathering and sale of oil, natural gas and NGLs. These risks include, but are not limited to, commodity price volatility, 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, and the other risks described in "Item 1A, Risk Factors” in the Company’s 2016 Annual Report.

Should one or more of the risks or uncertainties described in the Company’s 2017 Annual Report 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, included in the Company’s 2016 Annual Report 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, all of which are expressly qualified by the statements in this section, to reflect events or circumstances after the date of this press release.

NON-GAAP FINANCIAL MEASURES

This news release contains certain non-GAAP financial measures that management believes are good tools for internal use and the investment community in evaluating Talos Energy LLC’s overall financial performance. These non-GAAP financial measures are broadly used to value and compare companies in the crude oil and natural gas industry, although no all companies define these measures in the same way. In addition, these non-GAAP measures are not a substitute for financial measures prepared in accordance with GAAP, and should therefore be considered only as supplemental to such GAAP financial measures. Please see the attached schedules for reconciliations of the differences between the non-GAAP financial measures used in this news release and the most directly comparable GAAP financial measures.

Supplemental Non-GAAP Measure

Adjusted EBITDA

"Adjusted EBITDA” is not a measure of net income (loss) as determined by accounting principles generally accepted in the United States of America ("GAAP”). We use this measure as a supplemental measure because we believe it provides meaningful information to our investors. We define Adjusted EBITDA as net income (loss) plus interest and provision for income taxes, depreciation, depletion and amortization, accretion expense, transaction related costs, impairment, adjusted for the net change in the fair value of derivatives (mark to market effect, net of cash settlements and premiums related to these derivatives), non-cash write-down of oil and natural gas properties, non-cash write-down of other well equipment inventory and non-cash equity based compensation expense. We believe the presentation of Adjusted EBITDA is important to provide management and investors with (i) additional information to evaluate 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. Adjusted EBITDA 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 an alternative to net income (loss), operating income (loss) or any other measure of financial performance presented in accordance with GAAP.

The following table presents a reconciliation of the GAAP financial measure of net loss to Adjusted EBITDA for each of the periods indicated (in thousands, except for Boe data):

 

  

 

Three Months Ended

December 31, 2017

 

 

Year Ended

December 31, 2017

 

Reconciliation of net loss to Adjusted EBITDA:

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(85,760

)

 

$

(62,868

)

Interest expense

 

 

19,893

 

 

 

80,934

 

Depreciation, depletion and amortization

 

 

43,518

 

 

 

157,352

 

Accretion expense

 

 

4,487

 

 

 

19,295

 

Transaction related costs

 

 

2,199

 

 

 

9,652

 

Derivative fair value gain(1)

 

 

84,365

 

 

 

27,563

 

Net cash receipts on settled derivative instruments(1)

 

 

1,547

 

 

 

23,834

 

Non-cash write-down of other well equipment inventory

 

 

260

 

 

 

260

 

Non-cash equity-based compensation

 

 

105

 

 

 

875

 

Adjusted EBITDA

 

$

70,614

 

 

$

256,897

 

Production:

 

 

 

 

 

 

 

 

Boe(2)

 

 

2,613

 

 

 

10,472

 

Other Financial Data:

 

 

 

 

 

 

 

 

Adjusted EBITDA per Boe(2)

 

$

27.02

 

 

$

24.53

 

 

(1)         The adjustments for the derivative fair value (gains) losses and net cash receipts on settled commodity 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.

CONTACT: INQUIRIES TO THE COMPANY

Timothy S. Duncan
President & CEO
713-328-3000

investor@talosenergyllc.com




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