Release Date: November 12, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Talos Energy Inc (TALO, Financial) reported another consecutive quarter of record production, totaling 96,500 barrels of oil equivalent per day, despite disruptions from hurricanes.
- The company achieved positive free cash flow generation of $122 million during the quarter, allowing them to pay down $100 million of debt and lower their leverage ratio to 0.9.
- Talos Energy Inc (TALO) is on track to realize estimated synergies of $65 million in 2025 from the integration of QuarterNorth assets.
- The company has a robust drilling program underway, including high-potential projects like the Katmai West #2 delineation well and the Daenerys exploration well.
- Talos Energy Inc (TALO) continues to focus on strategic growth opportunities, such as the acquisition of a 21.4% interest in the Monument discovery, which is expected to contribute to future production and reserve growth.
Negative Points
- The company faced challenges from four named hurricanes affecting the Gulf of Mexico, which caused some production disruptions.
- Talos Energy Inc (TALO) identified two material weaknesses in their control environment, related to internal controls over asset retirement obligations and expenditure reviews.
- The financial assurance plan by the Biden administration has put a chilling effect on M&A activity in the Gulf of Mexico, impacting potential acquisition opportunities.
- The CEO transition process is ongoing, with the Board seeking a new leader to align with Talos' future growth strategy, which may create some uncertainty in the interim.
- The company is concerned about a potentially softer commodity price environment in 2025, which could impact their capital expenditure plans and production growth.
Q & A Highlights
Q: Can you quantify the downtime in Q3 due to storms, and what is the expected downtime in Q4?
A: We experienced some downtime in Q3 due to multiple storms, but the asset base performed well, resulting in better-than-expected production. For Q4, despite Hurricane Rafael, we are confident in our guidance of 91,000 to 94,000 barrels of oil equivalent per day, as the impact was minimal and the Tarantula facility shutdown is complete. - Sergio Maiworm, CFO
Q: With the West Vela rig running most of next year, will capital expenditure increase in 2025 compared to 2024?
A: Yes, CapEx will likely be higher in 2025 due to the delayed start of our drilling program. The West Vela rig will be with us until at least the end of Q2, possibly into Q3. We have also committed to the Conquer rig for completions, which may affect timing and costs. - Joseph Mills, Interim CEO
Q: What is the outlook for M&A in the Gulf of Mexico, and how does Talos view acquisition opportunities?
A: The Gulf of Mexico is our focus, but M&A activity has been affected by financial assurance plans. We hope for more opportunities with potential changes in administration policies. Talos aims to pursue high-impact acquisitions similar to the Monument deal, focusing on larger projects and growth potential. - Joseph Mills, Interim CEO
Q: With the leverage target achieved, what is the plan for free cash flow allocation next year?
A: We aim to repay the revolver by year-end. Beyond that, the Board will evaluate capital deployment options, including share repurchases and other returns to shareholders, while considering market conditions and investment opportunities. - Sergio Maiworm, CFO
Q: Will the strategy change with the new CEO, and what qualities are you looking for in a candidate?
A: The strategy will not change materially; we will continue acquisitions and pursue larger projects, potentially internationally. The new CEO should have offshore experience, a track record of value creation, and the ability to lead Talos in high-margin, oil-weighted deepwater operations. - Joseph Mills, Interim CEO
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
