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Acquisitions

12 Months Ended

Dec. 31, 2021

Note 3 — Acquisitions

Asset Acquisitions

Acquisitions qualifying as an asset acquisition requires, among other items, that the cost of the assets acquired and liabilities assumed to be recognized on the Consolidated Balance Sheets by allocating the asset cost on a relative fair value basis. The fair value measurements of the oil and natural gas properties acquired and asset retirement obligations assumed were derived utilizing an income approach and based, in part, on significant inputs not observable in the market. These inputs represent Level 3 measurements in the fair value hierarchy and include, but are not limited to, estimates of reserves, future operating and development costs, future commodity prices, estimated future cash flows and appropriate discount rates. These inputs required significant judgments and estimates by the Company’s management at the time of the valuation. Transaction costs incurred on an asset acquisition are capitalized as a component of the assets acquired and any contingent consideration is recognized as the contingency is resolved.

Acquisition of LLOG Properties — On November 16, 2020, the Company completed the acquisition of select oil and natural gas assets from LLOG Exploration & Production Company, L.L.C. with an effective date of August 1, 2020 (the “LLOG Acquisition”). The oil and natural gas assets consist of interests in the Mississippi Canyon core area. The LLOG Acquisition was consummated pursuant to a Purchase and Sale Agreement executed on November 16, 2020 for $13.2 million in cash, inclusive of customary closing adjustments and $0.2 million of transaction related expenses.

The following table presents the allocation of the purchase price to the assets acquired and liabilities assumed, based on their relative fair values, on November 16, 2020 (in thousands):


Property and equipment	$	17,421
Asset retirement obligations		(4,234	)
Allocated purchase price	$	13,187

Acquisition of Castex Energy 2005 — On August 5, 2020, the Company completed the acquisition of select oil and natural gas assets from affiliates of Castex Energy 2005 Holdco, LLC with an effective date of April 1, 2020 (the “Castex Energy 2005 Acquisition”). The oil and natural gas assets consisted of 16 properties in the U.S. Gulf of Mexico shelf and Gulf Coast core area. The Castex Energy 2005 Acquisition was consummated pursuant to a Purchase and Sale Agreement dated June 19, 2020 for consideration consisting of (i) $6.5 million in cash, (ii) 4.6 million shares of the Company’s common stock and (iii) $1.4 million in transaction related expenses, inclusive of customary closing adjustments.

The following table summarizes the purchase price, inclusive of customary closing adjustments (in thousands except share and per share data):


Talos common stock		4,602,460
Talos common stock price per share(1)	$	7.69
Talos common stock value	$	35,393

Cash consideration	$	6,500
Transaction cost	$	1,413

Total purchase price	$	43,306

(1)

Represents the closing price of the Company’s common stock on August 5, 2020, the closing date of the Castex Energy 2005 Acquisition.

The following table presents the allocation of the purchase price to the assets acquired and liabilities assumed, based on their relative fair values, on August 5, 2020 (in thousands):


Property and equipment	$	46,626
Asset retirement obligations		(3,320	)
Allocated purchase price	$	43,306

Acquisition of Gunflint Field — On January 11, 2019, the Company completed the acquisition of an approximate 9.6% non-operated working interest in the Gunflint Field located in the Mississippi Canyon area (the “Gunflint Acquisition”) from Samson Offshore Mapleleaf, LLC for $29.6 million ($27.9 million after customary purchase price adjustments).

Business Combination

Acquisitions qualifying as business combinations are accounted for under the acquisition method of accounting, which requires, among other items, that assets acquired and liabilities assumed be recognized on the Consolidated Balance Sheets at their fair values as of the acquisition date. The fair value measurements of the oil and natural gas properties acquired and asset retirement obligations assumed were derived utilizing an income approach and based, in part, on significant inputs not observable in the market. These inputs represent Level 3 measurements in the fair value hierarchy and include, but are not limited to, estimates of reserves, future operating and development costs, future commodity prices, estimated future cash flows and appropriate discount rates. These inputs required significant judgments and estimates at the time of the valuation.

ILX and Castex Acquisition — On February 28, 2020, the Company acquired the outstanding limited liability interests in certain wholly owned subsidiaries of ILX Holdings, LLC; ILX Holdings II, LLC; ILX Holdings III LLC and Castex Energy 2014, LLC, each a related party and an affiliate of the Riverstone Funds (as defined in Note 11 — Related Parties) (the “Riverstone Sellers”), and Castex Energy 2016, LP (together with the Riverstone Sellers, the “Sellers”) with an effective date of July 1, 2019 (collectively, the “ILX and Castex Acquisition”). The ILX and Castex Acquisition was consummated pursuant to separate Purchase and Sale Agreements, dated December 10, 2019 (as amended from time to time, the “Purchase Agreements”) for aggregate consideration consisting of (i) $385.0 million in cash subject to customary closing adjustments and (ii) an aggregate 110,000 shares (the “Preferred Shares”) of a series of the Company’s preferred stock designated as “Series A Convertible Preferred Stock” which subsequently converted to 11.0 million shares of the Company’s common stock on March 30, 2020 (such common stock, the “Conversion Stock”). The cash consideration was funded with borrowings under the Bank Credit Facility.

The following table summarizes the purchase price (in thousands except share and per share data):


Talos Conversion Stock		11,000,000
Talos common stock price per share(1)	$	14.20
Conversion Stock value	$	156,200

Cash consideration	$	385,000
Customary closing and post-closing adjustments		(81,878	)
Net cash consideration	$	303,122

Total purchase price	$	459,322

(1)

Represents the closing price of the Company’s common stock on February 28, 2020, the closing date of the ILX and Castex Acquisition. The purchase price was based on the value of the Conversion Stock as the value approximates the value of the Preferred Shares as a result of the automatic conversion and dividend rights described in that certain Certificate of Designation, Preferences, Rights and Limitations.

The following table presents the final allocation of the purchase price to the assets acquired and liabilities assumed, based on their fair values on February 28, 2020 (in thousands):


Current assets(1)	$	11,060
Property and equipment		496,835
Other long-term assets		148
Current liabilities		(16,520	)
Other long-term liabilities		(32,201	)
Allocated purchase price	$	459,322

(1)

Includes trade and other receivables of $8.2 million.

The Company incurred $12.1 million of transaction related costs, of which $8.7 million and $3.4 million were recognized in the years ended December 31, 2020 and 2019, respectively. These costs are reflected in “General and administrative expense” on the Consolidated Statements of Operations.

The following table presents revenue and net income attributable to the assets acquired in the ILX and Castex Acquisition:


	Year Ended December 31, 2020
Revenue	$	126,857
Net loss	$	(6,011	)

Pro Forma Financial Information (Unaudited) — The following supplemental pro forma financial information (in thousands, except per common share amounts), presents the consolidated results of operations for the years ended December 31, 2020 and 2019 as if the ILX and Castex Acquisition had occurred on January 1, 2019. The unaudited pro forma information was derived from historical statements of operations of the Company and the Sellers adjusted to (i) include depletion expense applied to the adjusted basis of the oil and natural gas properties acquired, (ii) include interest expense to reflect borrowings under the Bank Credit Facility, (iii) eliminate the write-down of oil and natural gas properties on the assets acquired to reflect the pro-forma ceiling test calculation and (iv) include weighted average basic and diluted shares of common stock outstanding, which was calculated assuming the 11.0 million shares of Conversion Stock were issued to the Sellers. This information does not purport to be indicative of results of operations that would have occurred had the ILX and Castex Acquisition occurred on January 1, 2019, nor is such information indicative of any expected future results of operations.


	Year Ended December 31,
	2020			2019
Revenue	$	634,921		$	1,246,391
Net income (loss)	$	(449,988	)	$	148,091
Basic net income (loss) per common share	$	(6.48	)	$	2.27
Diluted net income (loss) per common share	$	(6.48	)	$	2.26