Executive Summary

Q2 2025 was operationally strong with 93.3 MBoe/d production (69% oil) and non-GAAP Adjusted EBITDA of $294.2M, but GAAP results were impacted by a $223.9M non-cash ceiling test impairment, yielding GAAP diluted EPS of -$1.05 and Adjusted EPS of -$0.27 .
Versus Street, revenue missed ($424.7M vs $439.6M consensus*) while EPS modestly beat (-$0.27 vs -$0.28 consensus*); management emphasized that Adjusted EBITDA and Adjusted Free Cash Flow exceeded consensus .
FY25 guidance was enhanced: higher average daily production (91–95 MBoe/d), lower cash operating expenses/workovers ($555–585M) and capex ($490–530M). Q3 production guided to 86–90 MBoe/d (temporary Sunspear shut-in) .
Capital return accelerated: 3.8M shares repurchased for $32.6M in Q2; authorization increased to $200M; net leverage fell to ~0.7x with liquidity of ~$1.1B .
Near-term stock reaction catalysts: cost-savings execution ($100M run-rate by 2026), Daenerys prospect progress (Q3 results; later confirmed discovery on Aug 19), Sunspear remediation and return to production by late October .

What Went Well and What Went Wrong

What Went Well
- Adjusted EBITDA ($294.2M) and Adjusted Free Cash Flow ($98.5M) topped consensus per management; strong netback margins and disciplined cost execution supported beat .
- Strategic progress: first oil from Katmai West #2 and Sunspear; Daenerys drilling resumed with high-impact potential; Monument development advanced .
- Capital allocation discipline: $32.6M buybacks (3.8M shares) and leverage ~0.7x; CEO: “Adjusted EBITDA and Adjusted Free Cash Flow exceeding consensus estimates” and focus on becoming a leading pure-play offshore E&P .
What Went Wrong
- Revenue declined to $424.7M on lower realized prices ($64.08/bbl oil vs $71.73/bbl in Q1) and lower volumes vs Q1 (93.3 vs 100.9 MBoe/d), driving a consensus revenue miss .
- Sunspear shut-in due to SCSSV failure; impacts FY production by ~0.8 MBoe/d and required rig-based remediation (target <30 days once rig moves) .
- Non-cash impairment ($223.9M) under SEC ceiling test, primarily driven by accumulated non-productive capital in the full cost pool; GAAP net loss of $185.9M .

Financial Results

Metric	Q2 2024	Q1 2025	Q2 2025	Q2 2025 Consensus
Revenue ($USD Millions)	$549.2	$513.1	$424.7	$439.6*
Diluted EPS (GAAP) ($)	$0.07	-$0.05	-$1.05	—
Adjusted EPS (non-GAAP) ($)	—	$0.06	-$0.27	Primary EPS consensus: -$0.28*

Profitability and Cost Metrics	Q2 2024	Q1 2025	Q2 2025
Adjusted EBITDA ($USD Millions)	$343.984	$363.003	$294.247
Adjusted EBITDA per Boe ($/Boe)	$39.60	$39.98	$34.64
LOE per Boe ($/Boe)	$12.14	$14.08	$16.12
Adjusted G&A per Boe ($/Boe)	$3.84	$3.34	$4.05
Avg Realized Price ($/Boe)	$53.43	$56.50	$50.00

Segment Production (Q2 2025)	MBoe/d	% Oil	% Liquids	% Operated
Deepwater	83.4	71%	79%	81%
Shelf & Gulf Coast	9.9	49%	58%	73%
Total	93.3	69%	77%	80%

KPIs	Q1 2025	Q2 2025
Production (MBoe/d)	100.9 (68% oil, 78% liquids)	93.3 (69% oil, 77% liquids)
Oil (MBbl/d)	68.3	64.0
Gas (MMcf/d)	135.7	129.7
NGL (MBbl/d)	10.0	7.7
Capex ($USD Millions)	$117.6	$126.1
Adjusted Free Cash Flow ($USD Millions)	$194.5	$98.5
Cash ($USD Millions)	$203.0	$357.3
Net Debt ($USD Millions)	$1,047.1	$892.7
Net Debt / LTM Adjusted EBITDA (x)	0.8x	0.7x
Liquidity ($USD Millions)	$960.2	~$1,114.5

Notes: Asterisked consensus values are retrieved from S&P Global.

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Avg Daily Production (MBoe/d)	Q3 2025	—	86.0–90.0 (69% oil)	New
Avg Daily Production (MBoe/d)	FY 2025	90.0–95.0	91.0–95.0	Raised
Cash Operating Expenses & Workovers ($M)	FY 2025	$580–610	$555–585	Lowered
G&A ($M)	FY 2025	$120–130	$120–130	Maintained
Capital Expenditures ($M)	FY 2025	$500–540	$490–530	Lowered
P&A, Decommissioning ($M)	FY 2025	$100–120	$100–120	Maintained
Interest Expense ($M)	FY 2025	$155–165	$155–165	Maintained

Management cited improved cost execution (“Improving Our Business Every Day” initiatives) and drilling schedule modifications (including Sunspear remediation and better-than-expected drilling efficiencies) as drivers of lower OpEx and capex and modestly higher production .

Earnings Call Themes & Trends

Topic	Previous Mentions (Q4’24, Q1’25)	Current Period (Q2’25)	Trend
Corporate Strategy & Cash Flow Growth	Prioritized FCF; strong Q4 Adjusted EBITDA; CEO transition announced	Enhanced strategy with three pillars; $100M run-rate cash flow target by 2026; ~$25M contribution anticipated in 2025	Improving
Cost Savings & Execution	Early cost controls; strong netbacks	Specific savings examples (Arnold P&A cut from $52M gross to < $35M); marketing uplift ~$5M in 2025; expanded internal ops to reduce LOE	Improving
Drilling & Project Pipeline	Katmai West #2 success; Sunspear completion underway; Daenerys to spud	First oil from Katmai West #2 and Sunspear; Daenerys drilling ongoing; Monument first wells in Q4; rig retained at favorable dayrate (<$400k/d)	Improving
Capital Allocation & Buybacks	Authorization raised; buybacks begin	$33M Q2 buybacks; programmatic up to 50% FCF; leverage ~0.7x; liquidity ~$1B	Improving
Sunspear Operational Issue	N/A	SCSSV failure; downtime baked into guidance; remediation planned within ~30 days post Daenerys	Temporary headwind
Regulatory & Lease Sales	N/A	Positive view on mandated Gulf lease sales (two per year, ~80M acres, lower royalties); commingling rules changes supportive	Improving
Zama/Mexico & Partnerships	Pending sell-down; regulatory approvals in process	Paperwork refiling; expected close by late Q3; partnership strong; optimizing development concept with Pemex	Stable
Inorganic Growth & Market	Evaluating bolt-ons; deepwater interest rising	Active pipeline in Gulf and select international; disciplined lens; rig market softening benefits costs	Improving

Management Commentary

“We outperformed consensus estimates for adjusted EBITDA, posting $294,000,000 for the second quarter… [and] achieved adjusted free cash flow of $99,000,000” .
“We have identified and are executing on initiatives designed to generate $100,000,000 of additional free cash flow annually starting in 2026…” .
“Originally budgeted at $52,000,000 gross, [Arnold P&A] was successfully completed for under $35,000,000 gross” .
“We… extended [West Vela]… the rate… is… just south of the $400,000 a day mark” .
“Sunspear… expected to be back online by… October… impact… approximately 800 boe/d” .
From press release: “Adjusted EBITDA and Adjusted Free Cash Flow exceeding consensus estimates” .

Q&A Highlights

Capital priorities with low leverage: maintain balance between investing in high-return projects, buybacks (up to 50% FCF), and optionality for accretive M&A; leverage strength of balance sheet .
Rig strategy and costs: West Vela retained given performance and safety; dayrate < $400k/d; refine schedule for Cardona/CPM; value vs risk drove choice to use West Vela for Sunspear remediation .
Zama updates: regulatory paperwork refiling; closing expected late Q3; partners aligned; working with Pemex to optimize a lower-cost development concept before FID .
Policy backdrop: increased lease sale frequency, lower royalties, commingling rule changes viewed as supportive to organic Gulf growth .
Buyback cadence: $33M in Q2 sits within “up to 50% of FCF” framework; expect lumpiness offshore—assess over multiple quarters .

Estimates Context

Q2 revenue: $424.7M actual vs $439.6M consensus* → miss, driven by lower realized oil prices ($64.08/bbl vs $71.73/bbl in Q1) and lower volumes (93.3 vs 100.9 MBoe/d) .
Q2 EPS: -$0.27 actual vs -$0.28 consensus* → modest beat; GAAP EPS -$1.05 impacted by non-cash impairment .
Management indicated Adjusted EBITDA and Adjusted FCF beat consensus .
Forward context: FY25 consensus revenue ~$1.839B* and Primary EPS -$0.87*, with Q3 actuals subsequently reported (post period) at ~$450.0M revenue and -$0.19 EPS*; per Q3 guide, Sunspear downtime and hurricane season were contemplated .
Values retrieved from S&P Global.

Consensus vs Actual	Q1 2025	Q2 2025	Q3 2025
Revenue ($USD Millions)	Est: $498.3; Act: $512.9*	Est: $439.6; Act: $424.6*	Est: $428.4; Act: $450.0*
Primary EPS ($)	Est: -$0.096; Act: $0.06*	Est: -$0.281; Act: -$0.27*	Est: -$0.367; Act: -$0.19*

Values retrieved from S&P Global.

Key Takeaways for Investors

Non-GAAP performance remains strong despite macro softness: Adjusted EBITDA $294.2M and Adjusted FCF $98.5M beat internal/Street expectations, supported by cost savings and hedge program (oil ~38% H2 coverage, floors ~$71.5/bbl) .
FY25 outlook improved: production nudged up, OpEx/workovers and capex reduced—expect higher cash conversion; Q3 guide reflects Sunspear downtime and planned maintenance/weather risks .
Execution edge: Arnold P&A cost-out, marketing uplift, internalization of select operations—supports margin resilience and LOE management over next 12–18 months .
Rig and project continuity: retaining West Vela at sub-$400k/d and pipeline (Cardona, CPM, Monument) provides visible growth and efficient execution .
Capital returns credible: buybacks programmatic up to 50% FCF with $100M cumulative since inception; balance sheet flexibility (~0.7x ND/LTM, ~$1.1B liquidity) supports opportunistic M&A .
Near-term trading lens: watch Sunspear remediation completion (late Oct), Daenerys appraisal path (discovery announced Aug 19), and hurricane season impacts on Q3 volumes .
Medium-term thesis: corporate strategy pillars, $100M savings run-rate by 2026, and deepwater wedge (Monument, Daenerys, tie-backs) underpin FCF durability through cycles .

Citations: All company data and quotes from earnings materials and press releases . Asterisked consensus values are retrieved from S&P Global.

TALOS ENERGY INC. (TALO)·Q2 2025 Earnings Summary