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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2020

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from          to

Commission File Number: 001-38497

Talos Energy Inc.

(Exact Name of Registrant as Specified in its Charter)

 

Delaware

82-3532642

( State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

333 Clay Street, Suite 3300

Houston, TX

77002

(Address of principal executive offices)

(Zip Code)

 

Registrant’s telephone number, including area code: (713) 328-3000

Securities registered pursuant to Section 12(b) of the Act:

 

Title of Each Class

 

Trading Symbol(s)

 

Name of Each Exchange on Which Registered

Common Stock

 

TALO

 

NYSE

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

 

Accelerated filer

Non-accelerated filer

 

 

Smaller reporting company

Emerging growth company

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

As of October 28, 2020, the registrant had 73,029,989 shares of common stock, $0.01 par value per share, outstanding.

 

 

 


 

TABLE OF CONTENTS

 

 

 

 

 


 

GLOSSARY

The following are abbreviations and definitions of certain terms used in this document, which are commonly used in the oil and natural gas industry:

Barrel or Bbl — One stock tank barrel, or 42 United States gallons liquid volume.

Boe — One barrel of oil equivalent determined using the ratio of six Mcf of natural gas to one barrel of crude oil or condensate.

Btu — British thermal unit, which is the heat required to raise the temperature of a one-pound mass of water one degree Fahrenheit.

Completion — The installation of permanent equipment for the production of oil or natural gas.

Deepwater — Water depths of more than 600 feet.

Field — An area consisting of a single reservoir or multiple reservoirs all grouped on or related to the same individual geological structural feature or stratigraphic condition.

MBbls — One thousand barrels of crude oil or other liquid hydrocarbons.

MBblpd — One thousand barrels of crude oil or other liquid hydrocarbons per day.

MBoe — One thousand barrels of oil equivalent.

MBoepd — One thousand barrels of oil equivalent per day.

Mcf — One thousand cubic feet of natural gas.

Mcfpd — One thousand cubic feet of natural gas per day.

MMBoe — One million barrels of oil equivalent.

MMBtu — One million British thermal units.

MMcf — One million cubic feet of natural gas.

MMcfpd — One million cubic feet of natural gas per day.

NGL — Natural gas liquid. Hydrocarbons which can be extracted from wet natural gas and become liquid under various combinations of increasing pressure and lower temperature. NGLs consist primarily of ethane, propane, butane and natural gasoline.

NYMEX — The New York Mercantile Exchange.

NYMEX Henry Hub — Henry Hub is the major exchange for pricing natural gas futures on the New York Mercantile Exchange. It is frequently referred to as the Henry Hub index.

Proved reserves — Proved reserves are those quantities of oil and natural gas, which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible – from a given date forward, from known reservoirs and under existing economic conditions, operating methods and government regulations - prior to the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether deterministic or probabilistic methods are used for the estimation. The project to extract the hydrocarbons must have commenced or the operator must be reasonably certain that it will commence the project within a reasonable time.

Proved undeveloped reserves — In general, proved reserves that are expected to be recovered from new wells on undrilled acreage or from existing wells where a relatively major expenditure is required for recompletion.

SEC — The Securities and Exchange Commission.

SEC pricing — The unweighted average first-day-of-the-month commodity price for crude oil or natural gas for the prior twelve months, adjusted by lease for market differentials (quality, transportation, fees, energy content, and regional price differentials). The SEC provides a complete definition of prices in “Modernization of Oil and Gas Reporting” (Final Rule, Release Nos. 33-8995; 34-59192).

Working interest — The operating interest that gives the owner the right to drill, produce and conduct operating activities on the property and a share of production.

WTI or West Texas Intermediate — A light crude oil produced in the United States with an American Petroleum Institute gravity of approximately 38-40 and the sulfur content is approximately 0.3%.

1


 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

The information in this report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements, other than statements of historical fact included in this report, regarding our strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects, plans and objectives of management are forward-looking statements. When used in this report, the words “could,” “believe,” “anticipate,” “intend,” “estimate,” “expect,” “project,” “forecast,” “may,” “objective”, “plan,” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. These forward-looking statements are based on our current expectations and assumptions about future events and are based on currently available information as to the outcome and timing of future events. These forward-looking statements are based on management’s current belief, based on currently available information, as to the outcome and timing of future events. Forward-looking statements may include statements about:

 

business strategy;

 

reserves;

 

exploration and development drilling prospects, inventories, projects and programs;

 

our ability to replace the reserves that we produce through drilling and property acquisitions;

 

financial strategy, liquidity and capital required for our development program and other capital expenditures;

 

realized oil and natural gas prices;

 

timing and amount of future production of oil, natural gas and NGLs;

 

our hedging strategy and results;

 

future drilling plans;

 

availability of pipeline connections on economic terms;

 

competition, government regulations and political developments, including as a result of the upcoming presidential and congressional elections in the U.S.;

 

our ability to obtain permits and governmental approvals, including with respect to repairs to the Ram Powell facility;

 

pending legal, governmental or environmental matters;

 

our marketing of oil, natural gas and NGLs;

 

leasehold or business acquisitions on desired terms;

 

costs of developing properties;

 

general economic conditions;

 

credit markets;

 

impact of new accounting pronouncements on earnings in future periods;

 

estimates of future income taxes;

 

our estimates and forecasts of the timing, number, profitability and other results of wells we expect to drill and other exploration activities;

 

uncertainty regarding our future operating results and our future revenues and expenses; and

 

plans, objectives, expectations and intentions contained in this report that are not historical.

2


 

We caution you that these forward-looking statements are subject to numerous risks and uncertainties, most of which are difficult to predict and many of which are beyond our control. These risks include, but are not limited to, commodity price volatility, including the sharp decline in oil prices beginning in March 2020, the impact of the coronavirus disease 2019 (“COVID-19”) and governmental measures related thereto on global demand for oil and natural gas and on the operations of our business; the ability or willingness of the Organization of Petroleum Exporting Countries (“OPEC”) and non-OPEC countries, such as Saudi Arabia and Russia, to set and maintain oil production levels; the impact of any such actions, lack of transportation and storage capacity as a result of oversupply, government regulations and actions or other factors; lack of availability of drilling and production equipment and services; inflation; environmental risks; failure to find, acquire or gain access to other discoveries and prospects or to successfully develop and produce from our current discoveries and prospects; geologic risk; drilling and other operating risks; well control risk; regulatory changes; the uncertainty inherent in estimating reserves and in projecting future rates of production; cash flow and access to capital; the timing of development expenditures; potential adverse reactions or competitive responses to our acquisitions and other transactions; the possibility that the anticipated benefits of our business combination are not realized when expected or at all, including as a result of the impact of, or problems arising from, the integration of acquired assets and operations; and the other risks discussed in Part I, Item 1A, “Risk Factors” of Talos Energy Inc.’s Annual Report on Form 10-K for the year ended December 31, 2019 (the “2019 Annual Report”) and Part II, Item 1A. “Risk Factors” of this Quarterly Report on Form 10-Q (this “Quarterly Report”).

Reserve engineering is a process of estimating underground accumulations of oil, natural gas and NGLs that cannot be measured in an exact way. The accuracy of any reserve estimate depends on the quality of available data, the interpretation of such data and price and cost assumptions made by reserve engineers. In addition, the results of drilling, testing and production activities may justify upward or downward revisions of estimates that were made previously. If significant, such revisions would change the schedule of any further production and development drilling. Accordingly, reserve estimates may differ significantly from the quantities of oil, natural gas and NGLs that are ultimately recovered.

Should one or more of the risks or uncertainties described herein occur, or should underlying assumptions prove incorrect, our actual results and plans could differ materially from those expressed in any forward-looking statements. All forward-looking statements, expressed or implied, included in this report are expressly qualified in their entirety by this cautionary statement. This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue. Except as otherwise required by applicable law, we disclaim any duty to update any forward-looking statements, all of which are expressly qualified by the statements in this section, to reflect events or circumstances after the date of this Quarterly Report.

 

 

3


 

PART I—FINANCIAL INFORMATION

 

Item 1. Financial Statements

TALOS ENERGY INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts)

 

 

 

September 30, 2020

 

 

December 31, 2019

 

 

 

(Unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

32,377

 

 

$

87,022

 

Accounts receivable

 

 

 

 

 

 

 

 

Trade, net

 

 

64,948

 

 

 

107,842

 

Joint interest, net

 

 

61,054

 

 

 

16,552

 

Other

 

 

13,396

 

 

 

6,346

 

Assets from price risk management activities

 

 

38,716

 

 

 

8,393

 

Prepaid assets

 

 

44,148

 

 

 

65,877

 

Other current assets

 

 

1,802

 

 

 

1,952

 

Total current assets

 

 

256,441

 

 

 

293,984

 

Property and equipment:

 

 

 

 

 

 

 

 

Proved properties

 

 

4,855,152

 

 

 

4,066,260

 

Unproved properties, not subject to amortization

 

 

254,243

 

 

 

194,532

 

Other property and equipment

 

 

32,323

 

 

 

29,843

 

Total property and equipment

 

 

5,141,718

 

 

 

4,290,635

 

Accumulated depreciation, depletion and amortization

 

 

(2,327,556

)

 

 

(2,065,023

)

Total property and equipment, net

 

 

2,814,162

 

 

 

2,225,612

 

Other long-term assets:

 

 

 

 

 

 

 

 

Assets from price risk management activities

 

 

4,458

 

 

 

 

Other well equipment inventory

 

 

14,478

 

 

 

7,732

 

Operating lease assets

 

 

7,060

 

 

 

7,779

 

Other assets

 

 

75,682

 

 

 

54,375

 

Total assets

 

$

3,172,281

 

 

$

2,589,482

 

LIABILITIES AND STOCKHOLDERSʼ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

110,895

 

 

$

71,357

 

Accrued liabilities

 

 

172,741

 

 

 

154,816

 

Accrued royalties

 

 

18,464

 

 

 

31,729

 

Current portion of asset retirement obligations

 

 

53,976

 

 

 

61,051

 

Liabilities from price risk management activities

 

 

33,443

 

 

 

19,476

 

Accrued interest payable

 

 

20,088

 

 

 

10,249

 

Current portion of operating lease liabilities

 

 

1,713

 

 

 

1,594

 

Other current liabilities

 

 

23,104

 

 

 

20,180

 

Total current liabilities

 

 

434,424

 

 

 

370,452

 

Long-term liabilities:

 

 

 

 

 

 

 

 

Long-term debt, net of discount and deferred financing costs

 

 

994,748

 

 

 

732,981

 

Asset retirement obligations

 

 

377,160

 

 

 

308,427

 

Liabilities from price risk management activities

 

 

8,201

 

 

 

511

 

Operating lease liabilities

 

 

18,998

 

 

 

17,239

 

Other long-term liabilities

 

 

56,474

 

 

 

81,595

 

Total liabilities

 

 

1,890,005

 

 

 

1,511,205

 

Commitments and contingencies (Note 11)

 

 

 

 

 

 

 

 

Stockholdersʼ Equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.01 par value; 30,000,000 shares authorized and

   no shares issued or outstanding as of September 30, 2020 and

   December 31, 2019

 

 

 

 

 

 

Common stock $0.01 par value; 270,000,000 shares authorized;

   73,029,989 and 54,197,004 shares issued and outstanding as of

   September 30, 2020 and December 31, 2019, respectively

 

 

730

 

 

 

542

 

Additional paid-in capital

 

 

1,584,815

 

 

 

1,346,142

 

Accumulated deficit

 

 

(303,269

)

 

 

(268,407

)

Total stockholdersʼ equity

 

 

1,282,276

 

 

 

1,078,277

 

Total liabilities and stockholdersʼ equity

 

$

3,172,281

 

 

$

2,589,482

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

4


 

TALOS ENERGY INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share amounts)

(Unaudited)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Oil revenue

 

$

117,190

 

 

$

211,899

 

 

$

358,285

 

 

$

624,486

 

Natural gas revenue

 

 

12,337

 

 

 

12,545

 

 

 

35,375

 

 

 

41,738

 

NGL revenue

 

 

3,409

 

 

 

3,384

 

 

 

9,674

 

 

 

15,095

 

Other

 

 

2,201

 

 

 

1,029

 

 

 

8,441

 

 

 

13,061

 

Total revenue

 

 

135,137

 

 

 

228,857

 

 

 

411,775

 

 

 

694,380

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lease operating expense

 

 

62,064

 

 

 

61,816

 

 

 

184,187

 

 

 

184,230

 

Production taxes

 

 

225

 

 

 

(21

)

 

 

640

 

 

 

1,067

 

Depreciation, depletion and amortization

 

 

80,547

 

 

 

88,125

 

 

 

262,533

 

 

 

248,518

 

Write-down of oil and natural gas properties

 

 

 

 

 

1,417

 

 

 

57

 

 

 

13,778

 

Accretion expense

 

 

11,537

 

 

 

7,316

 

 

 

37,748

 

 

 

26,868

 

General and administrative expense

 

 

17,823

 

 

 

17,321

 

 

 

62,484

 

 

 

53,795

 

Total operating expenses

 

 

172,196

 

 

 

175,974

 

 

 

547,649

 

 

 

528,256

 

Operating income (expense)

 

 

(37,059

)

 

 

52,883

 

 

 

(135,874

)

 

 

166,124

 

Interest expense

 

 

(24,124

)

 

 

(23,123

)

 

 

(76,164

)

 

 

(73,273

)

Price risk management activities income

   (expense)

 

 

(19,882

)

 

 

43,760

 

 

 

154,653

 

 

 

(35,829

)

Other income

 

 

813

 

 

 

567

 

 

 

139

 

 

 

1,831

 

Net income (loss) before income taxes

 

 

(80,252

)

 

 

74,087

 

 

 

(57,246

)

 

 

58,853

 

Income tax benefit (expense)

 

 

28,252

 

 

 

(790

)

 

 

22,384

 

 

 

(428

)

Net income (loss)

 

$

(52,000

)

 

$

73,297

 

 

$

(34,862

)

 

$

58,425

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.73

)

 

$

1.35

 

 

$

(0.54

)

 

$

1.08

 

Diluted

 

$

(0.73

)

 

$

1.35

 

 

$

(0.54

)

 

$

1.07

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

71,286

 

 

 

54,200

 

 

 

65,134

 

 

 

54,178

 

Diluted

 

 

71,286

 

 

 

54,430

 

 

 

65,134

 

 

 

54,364

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

5


 

TALOS ENERGY INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN

STOCKHOLDERS’ EQUITY

(In thousands, except share amounts)

(Unaudited)

 

 

 

Shares

 

 

Par Value

 

 

Additional

 

 

 

 

 

 

Total

 

 

 

Common

Stock

 

 

Preferred

Stock

 

 

Common

Stock

 

 

Preferred

Stock

 

 

Paid- In

Capital

 

 

Accumulated

Deficit

 

 

Stockholdersʼ

Equity

 

Balance at June 30, 2019

 

 

54,191,693

 

 

 

 

 

$

542

 

 

$

 

 

$

1,339,507

 

 

$

(342,008

)

 

$

998,041

 

Equity based compensation

 

 

6,527

 

 

 

 

 

 

 

 

 

 

 

 

3,529

 

 

 

 

 

 

3,529

 

Shares withheld for taxes on equity

   transactions

 

 

(2,075

)

 

 

 

 

 

 

 

 

 

 

 

(43

)

 

 

 

 

 

(43

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

73,297

 

 

 

73,297

 

Balance at September 30, 2019

 

 

54,196,145

 

 

 

 

 

$

542

 

 

$

 

 

$

1,342,993

 

 

$

(268,711

)

 

$

1,074,824

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2020

 

 

68,414,782

 

 

 

 

 

$

684

 

 

$

 

 

$

1,545,138

 

 

$

(251,269

)

 

$

1,294,553

 

Equity based compensation

 

 

17,879

 

 

 

 

 

 

 

 

 

 

 

 

4,366

 

 

 

 

 

 

4,366

 

Shares withheld for taxes on equity

   transactions

 

 

(5,132

)

 

 

 

 

 

 

 

 

 

 

 

(36

)

 

 

 

 

 

(36

)

Issuance of common stock

 

 

4,602,460

 

 

 

 

 

 

46

 

 

 

 

 

 

35,347

 

 

 

 

 

 

35,393

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(52,000

)

 

 

(52,000

)

Balance at September 30, 2020

 

 

73,029,989

 

 

 

 

 

$

730

 

 

$

 

 

$

1,584,815

 

 

$

(303,269

)

 

$

1,282,276

 

 

 

 

Shares

 

 

Par Value

 

 

Additional

 

 

 

 

 

 

Total

 

 

 

Common

Stock

 

 

Preferred

Stock

 

 

Common

Stock

 

 

Preferred

Stock

 

 

Paid- In

Capital

 

 

Accumulated

Deficit

 

 

Stockholdersʼ

Equity

 

Balance at December 31, 2018

 

 

54,155,768

 

 

 

 

 

$

542

 

 

$

 

 

$

1,334,090

 

 

$

(327,136

)

 

$

1,007,496

 

Equity based compensation

 

 

52,574

 

 

 

 

 

 

 

 

 

 

 

 

9,229

 

 

 

 

 

 

9,229

 

Shares withheld for taxes on equity

   transactions

 

 

(12,197

)

 

 

 

 

 

 

 

 

 

 

 

(326

)

 

 

 

 

 

(326

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

58,425

 

 

 

58,425

 

Balance at September 30, 2019

 

 

54,196,145

 

 

 

 

 

$

542

 

 

$

 

 

$

1,342,993

 

 

$

(268,711

)

 

$

1,074,824

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2019

 

 

54,197,004

 

 

 

 

 

$

542

 

 

$

 

 

$

1,346,142

 

 

$

(268,407

)

 

$

1,078,277

 

Equity based compensation

 

 

248,357

 

 

 

 

 

 

2

 

 

 

 

 

 

12,133

 

 

 

 

 

 

12,135

 

Shares withheld for taxes on equity

   transactions

 

 

(67,832

)

 

 

 

 

 

(1

)

 

 

 

 

 

(826

)

 

 

 

 

 

(827

)

Issuances of preferred shares

 

 

 

 

 

110,000

 

 

 

 

 

 

1

 

 

 

156,199

 

 

 

 

 

 

156,200

 

Conversion of preferred shares into

   common shares

 

 

11,000,000

 

 

 

(110,000

)

 

 

110

 

 

 

(1

)

 

 

(109

)

 

 

 

 

 

 

Issuance of common stock

 

 

7,652,460

 

 

 

 

 

 

77

 

 

 

 

 

 

71,276

 

 

 

 

 

 

71,353

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(34,862

)

 

 

(34,862

)

Balance at September 30, 2020

 

 

73,029,989

 

 

 

 

 

$

730

 

 

$

 

 

$

1,584,815

 

 

$

(303,269

)

 

$