Acquisitions qualifying as an asset acquisition requires, among other items, that the cost of the assets acquired and liabilities assumed be recognized on the condensed consolidated balance sheet 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 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).

The following table presents the allocation of the purchase price to the assets acquired and liabilities assumed, based on their relative fair values, on January 11, 2019 (in thousands):

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 condensed consolidated balance sheet 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 (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 payment and escrow deposit were funded with borrowings under the Bank Credit Facility (as defined below).

The following table summarizes the purchase price, subject to customary post-closing adjustments (in thousands except per share data):

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

Cash consideration	$	385,000
Customary closing adjustments		(88,034	)
Net cash consideration paid at closing	$	296,966

Total purchase price	$	453,166

While the Company has substantially completed the determination of the fair values of the assets acquired and liabilities assumed, the Company is still finalizing the fair value analysis related to the oil and natural gas properties acquired and asset retirement obligations assumed. The Company anticipates finalizing the determination of fair values by December 31, 2020.

The following table presents the preliminary allocation of the purchase price to the assets acquired and liabilities assumed, based on their fair values on February 28, 2020 and June 30, 2020, including the associated measurement period adjustments (in thousands):

	February 28, 2020			Adjustments			June 30, 2020
Current assets⁽¹⁾	$	10,969		$	(4,428	)	$	6,541
Property and equipment		489,796			6,580			496,376
Other long-term assets		148			—			148
Current liabilities		(7,129	)		(1,604	)		(8,733	)
Other long-term liabilities		(44,489	)		3,323			(41,166	)
Allocated purchase price	$	449,295		$	3,871		$	453,166

The Company incurred approximately $11.7 million of transaction related costs, of which $0.8 million and $8.3 million was recognized in the three and six months ended June 30, 2020, respectively, and $3.4 million was recognized in the fourth quarter of 2019. These costs have been reflected in “General and administrative expense” on the condensed consolidated statements of operations.

The following table presents revenue and net income attributable to the assets acquired in the ILX and Castex Acquisition for the three and six months ended June 30, 2020:

	Three Months Ended June 30, 2020			Six Months Ended June 30, 2020
Revenue	$	26,299		$	40,191
Net loss	$	(15,161	)	$	(11,952	)

Pro Forma Financial Information (Unaudited) — The following supplemental pro forma financial information (in thousands, except per common share amounts), presents the condensed consolidated results of operations for the six months ended June 30, 2020 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.

	Three Months Ended June 30,		Six Months Ended June 30,
	2019		2020		2019
Revenue	$	372,462	$	324,073	$	633,433
Net income	$	130,715	$	29,996	$	51,267
Basic net income per common share	$	2.01	$	0.46	$	0.79
Diluted net income per common share	$	2.00	$	0.46	$	0.78

Acquisition of Castex Energy 2005 — On June 19, 2020, the Company entered into a purchase and sale agreement for select oil and natural gas assets from affiliates of Castex Energy 2005 (“Castex 2005 Acquisition”). The oil and natural gas assets consist of 16 properties in the U.S. Gulf of Mexico shelf core area. Consideration for the Castex 2005 Acquisition consists of 4.6 million shares of the Company’s common stock and $6.5 million of cash, subject to customary closing adjustments. The Castex 2005 Acquisition closed on August 5, 2020 with an April 1, 2020 effective date. Due to the timing of the Castex 2005 Acquisition, the Company is unable to make a reasonable estimate of the purchase price allocation of such acquisition at this time.