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TALOS ENERGY INC. (TALO)·Q3 2024 Earnings Summary

Executive Summary

  • Q3 2024 delivered record production of 96.5 MBoe/d, revenue of $509.3M, diluted EPS of $0.49, and Adjusted EBITDA of $324.4M; netback margin per BOE moderated QoQ due to lower oil prices, but leverage improved to 0.9x with $100M of debt repaid .
  • Guidance revisions: FY 2024 production raised to 91–94 MBoe/d, capex lowered to $510–$530M, G&A increased to $120–$130M, and P&A increased to $100–$110M; interest expense unchanged at $175–$185M .
  • Strategic progress: Katmai West #2 spud (Oct), Ewing Bank 953 discovery (127’ net pay; mid-2026 first oil), Monument acquisition (21.4% WI; 115 MMboe 2P; late-2026 first production); Tarantula facility capacity upgraded to 35 MBoe/d .
  • Governance and controls: adoption of a limited-duration stockholder rights plan in response to a ~24% stake by Control Empresarial; internal review identified two material weaknesses with planned amended 10-K/A and 10-Q/As, no material impact to historical financials .
  • Near-term stock catalysts: drilling updates at Katmai West #2 and Daenerys, revolver paydown by year-end from strong FCF, and clarity on internal control remediation disclosures .

What Went Well and What Went Wrong

What Went Well

  • Record production and strong cash generation: “another consecutive quarter of record production of 96.5 MBoe/d... strong Adjusted EBITDA and Adjusted Free Cash Flow... attained 0.9x leverage” .
  • Strategic drilling and discoveries: Katmai West #2 commenced; EB 953 discovered 127’ net pay with 15–25 MMboe potential; Monument WI acquired in Wilcox trend .
  • Debt reduction and leverage: $100M repaid in Q3; revolver targeted to be fully repaid by year-end; “another quarter of beating expectations across the board” .

What Went Wrong

  • Margin headwind from oil prices: EBITDA netback margin “slightly lower quarter-over-quarter due primarily to lower oil prices” .
  • Weather disruptions: multiple hurricanes caused intermittent shut-ins; Q4 guidance considers hurricane risk though impact from Rafael was limited .
  • Internal controls: two material weaknesses identified (AROs review control; segregation of duties) with amended filings planned, though management indicates no material impact to previously disclosed numbers .

Financial Results

Core P&L and Operating Metrics (Q1 → Q2 → Q3 2024)

MetricQ1 2024Q2 2024Q3 2024
Revenue ($USD Millions)$429.9 $549.2 $509.3
Net Income ($USD Millions)$(112.4) $12.4 $88.2
Diluted EPS ($USD)$(0.71) $0.07 $0.49
Adjusted Net Income (Loss) ($USD Millions)$(20.9) (ex-CCS) $5.2 $(25.6)
Adjusted EBITDA ($USD Millions)$257.7 $344.0 $324.4
Production (MBoe/d)79.6 95.5 96.5
Avg Realized Price ($/Boe)$59.32 $63.22 $57.37
LOE per Boe ($/Boe)$18.65 $18.11 $18.40

Cash Flow and Balance Sheet (Q1 → Q2 → Q3 2024)

MetricQ1 2024Q2 2024Q3 2024
Net Cash from Operating Activities ($USD Millions)$96.4 $289.4 $227.5
Capex ($USD Millions)$112.4 $122.8 $118.9
Adjusted Free Cash Flow ($USD Millions)$77.7 (ex-CCS) $148.0 $121.5
Liquidity ($USD Millions)$650.2 $738.7 $842.9
Net Debt ($USD Millions)$1,554.0 $1,437.2 $1,329.5
Net Debt / Pro Forma LTM Adj. EBITDA (x)1.0x 1.0x 0.9x

Year-over-Year Snapshot (Q3 2023 → Q3 2024)

MetricQ3 2023Q3 2024
Total Revenues ($USD Millions)$383.1 $509.3
Net Income (Loss) ($USD Millions)$(2.1) $88.2
Diluted EPS ($USD)$(0.02) $0.49

Segment Production by Area (MBoe/d, oil/liquids %, operated %) (Q1 → Q2 → Q3 2024)

AreaQ1 2024Q2 2024Q3 2024
Green Canyon24.0; 81% oil; 88% liquids; 90% operated 31.9; 79% oil; 86% liquids; 44% operated 39.7; 71% oil; 81% liquids; 54% operated
Mississippi Canyon42.6; 73% oil; 82% liquids; 83% operated 50.0; 75% oil; 83% liquids; 77% operated 44.7; 75% oil; 84% liquids; 77% operated
Shelf & Gulf Coast13.0; 47% oil; 58% liquids; 57% operated 13.5; 49% oil; 59% liquids; 61% operated 12.1; 51% oil; 60% liquids; 59% operated
Total79.6; 71% oil; 80% liquids 95.5; 73% oil; 81% liquids 96.5; 70% oil; 80% liquids

KPIs (Q1 → Q2 → Q3 2024)

KPIQ1 2024Q2 2024Q3 2024
Avg Oil Price ($/Bbl)$76.01 $80.50 $74.72
Avg Gas Price ($/Mcf)$2.74 $2.59 $2.39
Avg NGL Price ($/Bbl)$20.59 $22.33 $19.42
EBITDA netback ($/Boe)$37.40 (Adj EBITDA ex-CCS & hedges) ~$40 (commentary) ~ $37 (commentary)
LOE per Boe ($/Boe)$18.65 $18.11 $18.40
Adjusted G&A per Boe ($/Boe)$3.78 (ex-CCS) $4.10 $3.70

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Avg Daily Production (MBoe/d)FY 202489.0 – 95.0 91.0 – 94.0 Raised (narrowed up)
Capital Expenditures ($M)FY 2024$570 – $600 $510 – $530 Lowered
Cash OpEx & Workovers ($M)FY 2024$555 – $585 $555 – $585 (incl. $14M service credit) Maintained (credit applied)
G&A Expense ($M)FY 2024$100 – $110 $120 – $130 Raised
P&A, Decommissioning ($M)FY 2024$90 – $100 $100 – $110 Raised
Interest Expense ($M)FY 2024$175 – $185 $175 – $185 (excl. $4.9M one-time fee) Maintained
Leverage Target (x)FY 2024<1.0x (long-term) <1.0x (maintain) Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q-2 and Q-1)Current Period (Q3 2024)Trend
Weather/HurricanesQ2 widened Q3 guidance due to weather season Multiple named hurricanes; limited Q4 impact from Rafael; Tarantula shutdown for capacity expansion now complete Manageable, incorporated in ops
Drilling Program (Katmai, Daenerys, Helms Deep)Q1 planned Katmai West #2 in 3Q; Daenerys 1Q25; Helms Deep 3Q25 Katmai West #2 spud Oct; Daenerys to spud 1Q25; Helms Deep 3Q25; West Vela drillship utilization through at least 2Q25 Execution ramping
Monument (Wilcox trend)Announced 21.4% WI; $265M PV-10 value; late-2026 first oil Reinforced reserves, schedule, and net investment; synergy to Wilcox acreage Strategic Wilcox build
Internal Controls Review—Two material weaknesses identified; amended filings planned; no material financial impact Remediation underway
Capital Returns & LeverageQ1 targeted $550M debt reduction; leverage 1.0x; Q2 buyback $43M, +$150M authorization $100M repaid in Q3; leverage 0.9x; revolver to be repaid by year-end; Board evaluating capital returns vs. liquidity/opportunities Balance sheet improving; returns evaluated
Hedging StrategyHedges disclosed Q1/Q2; consistent approach ~half of 2025 oil hedged in 70s; maintain consistent hedging practice Stable hedging posture
Regulatory/M&A (Financial Assurance)—Financial assurance plan dampened GOM M&A; potential rollback under new administration could revive deal flow Cautious optimism
Rights Plan / Shareholder ConcentrationQ2 discussed Grupo Carso’s stake; supportive investor Rights plan adopted in Oct to protect all shareholders amid ~24% accumulation Governance action taken

Management Commentary

  • “We achieved another consecutive quarter of record production of 96.5 MBoe/d, along with strong Adjusted EBITDA and Adjusted Free Cash Flow... attained 0.9x leverage, below our target leverage of 1.0x.” — Joseph Mills, Interim CEO .
  • “We recently began drilling... starting with the Katmai West #2 appraisal well in October 2024, to be followed by the Daenerys and Helm’s Deep prospects in 2025.” — Joseph Mills .
  • “We logged better than expected rock properties at our Ewing Bank 953 well, which we anticipate will be producing by mid-2026.” — Joseph Mills .
  • “We had another quarter of beating expectations across the board... we repaid $100 million of debt... leverage metric reached 0.9x... on track to fully pay off the revolver by year-end.” — Sergio Maiworm, CFO .
  • “The rights agreement... is meant to protect all of our stockholders by preventing any single stockholder from taking actual or effective control... without paying a premium.” — Joseph Mills .

Q&A Highlights

  • Production and hurricane downtime: Management noted intermittent shut-ins from multiple storms in Q3 but assets outperformed internal expectations; Q4 guidance (91–94 MBoe/d) reflects hurricane impacts, with Tarantula expansion complete .
  • 2025 capex cadence: West Vela likely active through end-2Q (possibly into 3Q); capex expected to be higher in 2025 due to rig commitments; flexibility to slow discretionary second-half projects if oil prices weaken .
  • M&A outlook in GOM: Financial assurance regime dampened M&A; potential changes under new administration could revive opportunities; Talos focused on high-impact acquisitions akin to Monument rather than full-company buys .
  • Capital returns: Near term focus on repaying revolver by year-end; Board evaluating share repurchases versus liquidity and investment opportunities, reflecting commodity backdrop .
  • Tarantula capacity and constraints: Capacity increased from 27 to ~35 MBoe/d; commissioning underway; constraints include subsea flowline throughput and deck space; potential loop line considered to reach ~40 MBoe/d longer-term .
  • Hedging: Approximately half of 2025 oil hedged in the 70s; consistent hedging approach to manage price uncertainty .
  • Evacuation costs: Evacuations during storms can be costly (helicopters, boats, lodging), reflecting conservative safety-first operations; quantification varies by storm .

Estimates Context

  • Wall Street consensus estimates from S&P Global could not be retrieved at this time due to SPGI request limits; therefore, explicit consensus comparisons are unavailable. Values would typically include Primary EPS Consensus Mean and Revenue Consensus Mean for Q3 2024, and prior quarters. Management indicated performance exceeded expectations this quarter . Values retrieved from S&P Global are unavailable.

Key Takeaways for Investors

  • Production and FCF durability: Record production with robust FCF generation even amidst weather disruptions; EBITDA/BOE remains top-quartile, albeit modestly lower QoQ on oil prices .
  • Balance sheet catalysts: Continued deleveraging (0.9x) and targeted revolver repayment by year-end highlight financial discipline; potential for increased capital returns thereafter subject to market and opportunity set .
  • 2025 drilling visibility: Katmai West #2 results (early 2025) and Daenerys spud (1Q25) are key operational catalysts; facility debottlenecking at Tarantula could elongate flat production profiles .
  • Resource growth: EB 953 discovery and Monument stake provide medium-term reserve and production additions (mid/late-2026 start-ups); strengthens Wilcox trend exposure .
  • Governance/controls: Rights plan mitigates control risk; internal control remediation planned without impacting historical financials; monitor amended filings and timeline .
  • Trading implications (short term): Updates on Katmai West #2 drilling milestones, revolver paydown progress, and internal control remediation disclosures may drive near-term sentiment.
  • Medium-term thesis: High-margin, oil-weighted GOM portfolio with infrastructure ownership supports sustained FCF and disciplined growth; M&A optionality could improve with regulatory shifts .