Talos Energy (TALO) 8-K Talos Energy Announces Commencement of Underwritten Public Offering of Common Stock

Exhibit 99.2

Unless the context otherwise requires, references to:

• “Talos,” “we,” “us,” “our,” or the “Company,” refer to Talos Energy Inc., a Delaware corporation, and its subsidiaries;

• “Talos Production” refer to Talos Production Inc., a Delaware corporation;

• “SEC” refer to the U.S. Securities and Exchange Commission;

• “EnVen” refer to EnVen Energy Corporation, a Delaware corporation; and

• “QuarterNorth” refer to QuarterNorth Energy Inc., a Delaware corporation.

1

TALOS ENERGY INC.

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

QuarterNorth Acquisition

On January 13, 2024, we entered into a definitive agreement to acquire QuarterNorth, a private operator in the Deepwater U.S. Gulf of Mexico, for consideration consisting of (i) $1,273.9 million in cash and (ii) 24.8 million shares of our common stock (the “QuarterNorth Acquisition,” and such agreement the “QuarterNorth Merger Agreement”). We expect to fund the cash portion of the purchase price for the QuarterNorth Acquisition via borrowings under the Talos Production bank credit facility (the “Bank Credit Facility”), the proceeds from an underwritten equity offering, available cash on hand and, opportunistically to the extent market conditions warrant, other capital markets offerings or other debt financings, as appropriate. The QuarterNorth Acquisition is expected to close in the first quarter of 2024, subject to customary closing conditions.

EnVen Acquisition

On February 13, 2023, we completed the acquisition (the “EnVen Acquisition”) of EnVen, a private operator in the Deepwater U.S. Gulf of Mexico, for consideration consisting of (i) $207.3 million in cash, (ii) 43.8 million shares of the Company’s common stock valued at $832.2 million and (iii) the effective settlement of an accounts receivable balance of $8.4 million.

Other Transaction Accounting Adjustments

The transaction accounting adjustments in the pro forma financial statements for the QuarterNorth Acquisition and EnVen Acquisition consists of those necessary to account for the transactions. Separately, we expect to generate gross proceeds of $300.0 million by issuing shares of our common stock in an underwritten equity offering to partially fund the cash consideration in the QuarterNorth Acquisition. The adjustments related to the issuance of common stock are shown in a separate column as “Equity Financing.”

Pro Forma Presentation

The following unaudited pro forma combined financial statements (which we refer to as the “pro forma financial statements”) have been prepared from the respective historical consolidated financial statements of Talos, EnVen, and QuarterNorth adjusted to give effect to the EnVen Acquisition and QuarterNorth Acquisition and related financing consisting of borrowings under the Bank Credit Facility and planned proceeds from the underwritten equity offering. The unaudited pro forma condensed combined statement of operations for the nine months ended September 30, 2023, and the year ended December 31, 2022, combine the historical consolidated statement of operations of Talos, EnVen, and QuarterNorth, giving effect to the EnVen Acquisition and QuarterNorth Acquisition and related financing as if the transactions had been consummated on January 1, 2022. The unaudited pro forma condensed combined balance sheet combines the historical consolidated balance sheets of Talos and QuarterNorth as of September 30, 2023, giving effect to the QuarterNorth Acquisition and related financing as if the transactions had been consummated on September 30, 2023. The pro forma financial statements contain certain reclassification adjustments to conform the historical EnVen and QuarterNorth financial statement presentation to Talos’s financial statement presentation.

The pro forma financial statements are presented to reflect the EnVen Acquisition and QuarterNorth Acquisition and related financing and do not represent what Talos’s financial position or results of operations would have been had these acquisitions occurred on the dates noted above, nor do they project the financial position or results of operations of the combined company following these acquisitions. The pro forma financial statements are intended to provide information about the continuing impact of the acquisitions and related financing as if the transaction had been consummated earlier. The pro forma adjustments are based on available information and certain assumptions that management believes are factually supportable and are expected to have a continuing impact on Talos’s results of operations. In the opinion of management, all adjustments necessary to present fairly the pro forma financial statements have been made.

Talos used currently available information to determine preliminary fair value estimates for the consideration and its allocation to the QuarterNorth assets acquired and liabilities assumed. The estimates of fair value of QuarterNorth’s assets and liabilities are based on reviews of QuarterNorth’s internally generated financial statements and other due diligence procedures. The assumptions and estimates used to determine the preliminary purchase price allocation and fair value adjustments are described in the notes accompanying the pro forma financial statements.

2

The preliminary purchase price allocation is subject to change due to changes in the estimated fair value of QuarterNorth’s identifiable assets acquired and liabilities assumed as of the closing date, which could result from Talos’s additional valuation analysis, reserves estimates, discount rates and other factors.

As a result of the foregoing, the pro forma adjustments are preliminary and subject to change as additional information becomes available and additional analysis is performed. The preliminary pro forma adjustments have been made solely for the purpose of providing the pro forma financial statements presented below. Any increases or decreases in the fair value of assets acquired and liabilities assumed upon completion of the final valuation will result in adjustments to the pro forma balance sheet and if applicable, the pro forma statement of operations. The final purchase price allocation may be materially different than that reflected in the preliminary purchase price allocation presented herein.

The pro forma financial statements have been developed from and should be read in conjunction with the separate historical consolidated financial statements and related notes thereto in Talos’s SEC filings, EnVen’s historical consolidated financial statements and related notes thereto included in the April 12, 2023 current report on Form 8-K, and QuarterNorth’s historical consolidated financial statements and related notes thereto included in this current report on Form 8-K.

3

UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET

As of September 30, 2023

(In thousands, except share amounts)

	Historical					Transaction Accounting Adjustments
	Talos			QuarterNorth		Reclass Adjustment (a)			Pro Forma Adjustments				Equity Financing		Pro Forma Combined Talos
						(see Note 4)			(see Note 4)				(see Note 5)
ASSETS
Current assets:
Cash and cash equivalents	$	13,631		$	387,722	$	—		$	584,708		(b)	$	287,800	$	—
									$	(1,273,861	)	(d)
Accounts receivable:
Trade, net		181,384			—		83,520			—				—		264,904
Joint interest, net		93,798			—		64,458			—				—		158,256
Other, net		10,744			—		31,511			—				—		42,255
Accounts receivable, net		—			179,489		(179,489	)		—				—		—
Assets from price risk management activities		11,497			—		12			—				—		11,509
Prepaid assets		86,077			—		13,606			—				—		99,683
Other current assets		14,457			40,492		(13,606	)		—				—		41,343
Material and supplies		—			49,166		(49,166	)		—				—		—
Total current assets		411,588			656,869		(49,154	)	$	(689,153	)			287,800		617,950
Property and equipment:
Proved properties		7,691,828			—		1,301,937			(30,513	)	(i)		—		8,963,252
Unproved properties, not subject to amortization		267,297			181,384		—			246,720		(i)		—		695,401
Proved properties, net		—			858,737		(858,737	)		—				—		—
Other property and equipment		33,795			2,667		4,074			—				—		40,536
Total property and equipment		7,992,920			1,042,788		447,274			216,207				—		9,699,189
Accumulated depreciation, depletion and amortization		(3,985,613	)		—		(447,274	)		447,274		(i)		—		(3,985,613	)
Total property and equipment, net		4,007,307			1,042,788		—		$	663,481				—		5,713,576
Other long-term assets:
Restricted cash		101,760			—		—			—				—		101,760
Assets from price risk management activities		4,550			—		65			—				—		4,615
Equity method investments		141,682			—		—			—				—		141,682
Other well equipment inventory		44,643			—		49,166			—				—		93,809
Notes receivable, net		15,805			—		—			—				—		15,805
Operating lease assets		12,313			—		5,836			—				—		18,149
Other assets		13,452			6,704		(5,836	)		—				—		14,320
Total assets	$	4,753,100		$	1,706,361	$	77		$	(25,672	)		$	287,800	$	6,721,666

The accompanying notes are an integral part of the unaudited pro forma condensed combined financial statements.

4

UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET

As of September 30, 2023

(In thousands, except share amounts)

	Historical					Transaction Accounting Adjustments
	Talos			QuarterNorth		Reclass Adjustment (a)			Pro Forma Adjustments				Equity Financing		Pro Forma Combined Talos
						(see Note 4)			(see Note 4)				(see Note 5)
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	125,557		$	56,860	$	—		$	—			$	—	$	182,417
Accrued liabilities		205,095			122,680		(14,320	)		14,649		(c)		—		331,753
										3,649		(n)
Accrued royalties		54,092			—		14,182			—				—		68,274
Current portion of long-term debt		33,109			—		—			—				—		33,109
Current portion of asset retirement obligations		69,288			10,577		—			—				—		79,865
Liabilities from price risk management activities		55,042			43,711		12			—				—		98,765
Accrued interest payable		30,536			—		138			—				—		30,674
Current portion of operating lease liabilities		2,859			—		1,225			—				—		4,084
Other current liabilities		54,221			2,943		(1,225	)		—				—		55,939
Total current liabilities		629,799			236,771		12			18,298				—		884,880
Long-term liabilities:
Long-term debt		1,018,774			182,060		—			584,708		(b)		—		1,788,482
										2,940		(h)
Asset retirement obligations		747,560			112,732		—			—				—		860,292
Liabilities from price risk management activities		8,981			9,576		65			—				—		18,622
Operating lease liabilities		18,888			—		4,848			—				—		23,736
Other long-term liabilities		267,036			4,848		(4,848	)		143,998		(k)		—		479,042
							68,008
Deferred income taxes		—			68,008		(68,008	)						—		—
Total liabilities		2,691,038			613,995		77			749,944				—		4,055,054
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.01 par value; 30,000,000 shares authorized and no shares issued or outstanding as of September 30, 2023		—			—		—			—				—		—
Common stock $0.01 par value; 270,000,000 shares authorized; 127,480,361 shares (174,486,135 pro forma shares) issued as of September 30, 2023		1,275			��		—			248		(e)		222		1,745
Common stock		—			79		—			(79	)	(f)				—
Additional paid-in capital		2,541,906			978,531		—			(978,531	)	(f)		287,578		3,164,284
										334,800		(e)
Accumulated earnings (deficit)		(433,615	)		113,756		—			(113,756	)	(f)		—		(451,913	)
										(14,649	)	(c)
										(3,649	)	(n)
Treasury stock, at cost; 3,400,000 shares as of September 30, 2023		(47,504	)		—		—			—				—		(47,504	)
Total stockholders’ equity		2,062,062			1,092,366		—			(775,616	)			287,800		2,666,612
Total liabilities and stockholders’ equity	$	4,753,100		$	1,706,361	$	77			(25,672	)		$	287,800	$	6,721,666

The accompanying notes are an integral part of the unaudited pro forma condensed combined financial statements.

5

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

For the Nine Months Ended September 30, 2023

(In thousands, except per share amounts)

					Historical			Transaction Accounting Adjustments
	Talos pro forma adjusted for EnVen Acquisition				QuarterNorth			Reclass Adjustment (a)			Pro Forma Adjustments				Equity Financing		Pro Forma Combined Talos
	(see Note 2)							(see Note 4)			(see Note 4)				(see Note 5)
Revenues:
Oil	$	1,043,775			$	448,064		$	—		$	—			$	—	$	1,491,839
Natural gas	$	55,704				24,600			—			—				—		80,304
NGL	$	25,491				13,273			—			—				—		38,764
Turnkey revenue		—				87,157			—			(87,157	)	(l)		—		—
Other revenue		—				18,005			—			—				—		18,005
				��
Total revenues		1,124,970				591,099			—			(87,157	)			—		1,628,912
Operating expenses:
Lease operating expense		297,387				115,481			13,492			—				—		426,360
Decommissioning costs of goods sold		—				61,927			—			(61,927	)	(l)		—		—
Production taxes		1,813				—			—			—				—		1,813
Depreciation, depletion and amortization		501,455				155,261			—			(377	)	(j)		—		656,339
Accretion expense		66,244				8,488			—			—				—		74,732
General and administrative expense		162,041				27,314			1,377			—				—		190,732
Insurance expense		—				16,175			(16,175	)		—				—		—
Other operating (income) expense		(55,172	)			11,428			—			—				—		(43,744	)
Total operating expenses		973,768				396,074			(1,306	)		(62,304	)			—		1,306,232
Operating income (loss)		151,202				195,025			1,306			(24,853	)			—		322,680
Interest expense		(136,814	)			(5,769	)		(1,306	)		(35,507	)	(b)		—		(183,052	)
												(3,656	)	(m)
Price risk management activities expense		(10,312	)			(56,562	)		—			—				—		(66,874	)
Equity method investment income		2,938				—			—			—				—		2,938
Other income (expense)		12,107				6,411			—			—				—		18,518
Net income (loss) before income taxes		19,121				139,105			—			(64,016	)			—		94,210
Income tax benefit (expense)		60,742				(30,276	)		—			13,443		(g)		—		43,909
Net income (loss)	$	79,863			$	108,829		$	—		$	(50,573	)		$	—	$	138,119
Net income (loss) per common share:
Basic	$	0.64															$	0.80
Diluted	$	0.63															$	0.80
Weighted average common shares outstanding:
Basic		125,358										24,800		(e)		22,206		172,364
Diluted		126,161										24,800		(e)		22,206		173,167

The accompanying notes are an integral part of the unaudited pro forma condensed combined financial statements.

6

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

For the Year Ended December 31, 2022

(In thousands, except per share amounts)

				Historical			Transaction Accounting Adjustments
	Talos pro forma adjusted for EnVen Acquisition			QuarterNorth			Reclass Adjustment (a)			Pro Forma Adjustments				Equity Financing		Pro Forma Combined Talos
	(see Note 2)						(see Note 4)			(see Note 4)				(see Note 5)
Revenues:
Oil	$	2,007,690		$	709,484		$	—		$	—			$	—	$	2,717,174
Natural gas		274,634			83,066			—			—				—		357,700
NGL		72,891			27,127			—			—				—		100,018
Turnkey revenue		—			70,008			—			(70,008	)	(l)		—		—
Other revenue		—			22,787			—			—				—		22,787
Total revenues		2,355,215			912,472			—			(70,008	)			—		3,197,679
Operating expenses:
Lease operating expense		392,257			158,603			16,060			—				—		566,920
Decommissioning costs of goods sold		—			57,410			—			(57,410	)	(l)		—		—
Production taxes		3,488			—			—			—				—		3,488
Depreciation, depletion and amortization		696,533			223,755			—			(2,463	)	(j)		—		917,825
Accretion expense		79,635			15,835			—			—				—		95,470
General and administrative expense		181,281			20,400			1,697			14,649		(c)		—		221,676
											3,649		(n)
Insurance expense		—			19,198			(19,198	)		—				—		—
Other operating expense		33,902			6,826			—			—				—		40,728
Total operating expenses		1,387,096			502,027			(1,441	)		(41,575	)			—		1,846,107
Operating income		968,119			410,445			1,441			(28,433	)			—		1,351,572
Interest expense		(178,758	)		(20,876	)		(1,441	)		(31,998	)	(b)		—		(237,948	)
											(4,875	)	(m)
Price risk management activities expense		(365,420	)		(98,104	)		—			—				—		(463,524	)
Equity method investment income		14,222			—			—			—				—		14,222
Other income (expense)		38,503			59,891			—			—				—		98,394
Net income (loss) before income taxes		476,666			351,356			—			(65,306	)			—		762,716
Income tax benefit (expense)		(1,130	)		(77,918	)		—			13,714		(g)		—		(65,334	)
Net income (loss)	$	475,536		$	273,438		$	—		$	(51,592	)		$	—	$	697,382
Net income (loss) per common share:
Basic	$	3.77														$	4.03
Diluted	$	3.73														$	4.00
Weighted average common shares outstanding:
Basic		126,254									24,800		(e)		22,206		173,260
Diluted		127,483									24,800		(e)		22,206		174,489

The accompanying notes are an integral part of the unaudited pro forma condensed combined financial statements.

7

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

Note 1—Basis of Presentation

The Talos historical financial information has been derived from its Annual Report on Form 10-K for the year ended December 31, 2022 and Quarterly Report on Form 10-Q for the nine months ended September 30, 2023. The EnVen historical financial information has been derived from its audited annual financial statements for the year ended December 31, 2022 and unaudited financial statements from January 1, 2023 through February 12, 2023. The QuarterNorth historical financial information have been derived from its audited annual financial statements for the year ended December 31, 2022 and unaudited financial statements for the nine months ended September 30, 2023. Certain EnVen and QuarterNorth historical amounts have been reclassified to conform to Talos’s financial statement presentation. The pro forma financial statements should be read in conjunction with Talos’s, EnVen’s, and QuarterNorth’s historical consolidated financial statements and the notes thereto. EnVen’s historical consolidated financial statements and the notes thereto are included in the April 12, 2023 current report on Form 8-K. QuarterNorth’s historical consolidated financial statements and the notes thereto are included in this current report on Form 8-K. The pro forma balance sheet gives effect to the QuarterNorth Acquisition and related financing consisting of borrowings under the Bank Credit Facility and proceeds from an underwritten equity offering as if they had been completed on September 30, 2023. The pro forma statement of operations gives effect to the EnVen Acquisition and QuarterNorth Acquisition and related financing as if they had been completed on January 1, 2022.

The pro forma adjustments for the EnVen Acquisition and QuarterNorth Acquisition and the related financing are described in the accompanying notes to the pro forma financial statements. The transaction accounting adjustments in the pro forma financial statements for the QuarterNorth Acquisition and EnVen Acquisition consists of those necessary to account for the transactions. Separately, we expect to generate gross proceeds of $300.0 million by issuing shares of our common stock in an underwritten equity offering to partially fund the cash consideration in the QuarterNorth Acquisition. The adjustments related to the issuance of common stock are shown in a separate column as “Equity Financing.”

In the opinion of Talos’s management, all material adjustments have been made that are necessary to present fairly, in accordance with Article 11 of Regulation S-X of the SEC, the pro forma financial statements. The pro forma financial statements do not purport to be indicative of the financial position or results of operations of the combined company that would have occurred if the EnVen Acquisition and QuarterNorth Acquisition and related financing had occurred on the dates indicated, nor are they indicative of Talos’s future financial position or results of operations.

8

Note 2—EnVen Acquisition Transaction Accounting Adjustments

The following tables present the unaudited pro forma condensed combined statement of operations for the EnVen Acquisition for the nine months ended September 30, 2023 and the year ended December 31, 2022.

Unaudited Pro Forma Condensed Combined Statement of Operations

For the Nine Months Ended September 30, 2023

(In thousands, except per share amounts)

	Historical
	Talos (1)			EnVen (2)			Pro Forma Adjustments				Talos pro forma adjusted for EnVen Acquisition
Revenues:
Oil	$	995,081		$	48,694		$	—			$	1,043,775
Natural gas		53,383			2,321			—				55,704
NGL		24,463			1,028			—				25,491
Total revenues		1,072,927			52,043			—				1,124,970
Operating expenses:
Lease operating expense		286,075			11,312			—				297,387
Production taxes		1,813			—			—				1,813
Depreciation, depletion and amortization		480,476			17,047			3,932		(b)		501,455
Accretion expense		63,430			3,391			(577	)	(c)		66,244
General and administrative expense		121,257			40,784			—				162,041
Other operating expense		(55,172	)		—			—				(55,172	)
Total operating expenses		897,879			72,534			3,355				973,768
Operating income (loss)		175,048			(20,491	)		(3,355	)			151,202
Interest expense		(128,850	)		(6,623	)		204		(d)		(136,814	)
								(1,526	)	(e)
								(19	)	(f)
Price risk management activities expense		(13,668	)		3,356			—				(10,312	)
Equity method investment income		2,938			—			—				2,938
Other income (expense)		10,450			1,555			102		(g)		12,107
Net income (loss) before income taxes		45,918			(22,203	)		(4,594	)			19,121
Income tax benefit (expense)		55,516			4,261			965		(h)		60,742
Net income (loss)	$	101,434		$	(17,942	)	$	(3,629	)		$	79,863
Net income (loss) per common share:
Basic	$	0.86									$	0.64
Diluted	$	0.85									$	0.63
Weighted average common shares outstanding:
Basic		118,459						6,899		(i)		125,358
Diluted		119,262						6,899		(i)		126,161

(1) Represents Talos consolidated results of operations for the nine months ended September 30, 2023, which includes EnVen beginning on February 13, 2023.

(2) Represents EnVen stand-alone consolidated results of operations for the period from January 1, 2023 to February 12, 2023 conformed to the Talos financial statement presentation.

Talos historical general and administrative (“G&A”) expense above includes approximately $12.8 million of nonrecurring acquisition-related costs in connection with the EnVen Acquisition. Additionally, Talos incurred $24.9 million in severance expense in connection with the EnVen Acquisition that is included in G&A. EnVen historical G&A expense above includes $20.8 million of stock-based compensation due to restricted stock awards that vested and accelerated as a result of the closing of the EnVen Acquisition as well as $12.7 million of nonrecurring transaction costs associated with the EnVen’s merger with Talos.

9

Unaudited Pro Forma Condensed Combined Statement of Operations

For the Year Ended December 31, 2022

(In thousands, except per share amounts)

	Historical						Transaction Accounting Adjustments
	Talos			EnVen			Reclass Adjustment (a)			Pro Forma Adjustments				Talos pro forma adjusted for EnVen Acquisition
Revenues:
Oil	$	1,365,148		$	—		$	642,542		$	—			$	2,007,690
Natural gas		227,306			—			47,328			—				274,634
NGL		59,526			—			13,365			—				72,891
Oil, natural gas, and NGL revenue		—			703,235			(703,235	)		—				—
Production handling and other income		—			27,505			(27,505	)		—				—
Total revenues		1,651,980			730,740			(27,505	)		—				2,355,215
Operating expenses:
Lease operating expense		308,092			81,394			24,302			—				392,257
								8,939
								(2,965	)
								(27,505	)
Workover, repair, and maintenance		—			24,302			(24,302	)		—				—
Transportation, gathering, and processing costs		—			8,939			(8,939	)		—				—
Production taxes		3,488			—			—			—				3,488
Depreciation, depletion and amortization		414,630			149,441			—			132,462		(b)		696,533
Accretion expense		55,995			26,901			—			(3,261	)	(c)		79,635
General and administrative expense		99,754			78,562			2,965			—				181,281
Other operating expense		33,902			—			—			—				33,902
Total operating expenses		915,861			369,539			(27,505	)		129,201				1,387,096
Operating income (loss)		736,119			361,201			—			(129,201	)			968,119
Interest expense		(125,498	)		(46,446	)		—			2,589		(d)		(178,758	)
											(8,929	)	(e)
											(474	)	(f)
Price risk management activities expense		(272,191	)		(93,229	)		—			—				(365,420	)
Equity method investment income		14,222			—			—			—				14,222
Other income (expense)		31,800			5,203			—			1,500		(g)		38,503
Net income (loss) before income taxes		384,452			226,729			—			(134,515	)			476,666
Income tax benefit (expense)		(2,537	)		(26,841	)		—			28,248		(h)		(1,130	)
Net income (loss)	$	381,915		$	199,888		$	—		$	(106,267	)		$	475,536
Net income (loss) per common share:
Basic	$	4.63												$	3.77
Diluted	$	4.56												$	3.73
Weighted average common shares outstanding:
Basic		82,454									43,800		(i)		126,254
Diluted		83,683									43,800		(i)		127,483

Talos historical general and administrative (“G&A”) expense above includes approximately $9.0 million of nonrecurring acquisition-related costs in connection with the EnVen Acquisition. EnVen historical G&A expense above includes $7.3 million of nonrecurring transaction costs associated with the EnVen merger with Talos.

The following adjustments and assumptions were made in the preparation of the unaudited pro forma financial statements:

(a) Reflects reclassifications to the EnVen historical financial statements to conform to Talos’ financial statement presentation.

(b) Reflects changes in depletion that would have been recorded with respect to the allocated fair values attributable to proved oil and natural gas properties acquired as a result of the application of the full cost method of accounting for oil and natural gas activities following the EnVen Acquisition. The pro forma depletion rate for the year ended December 31, 2022 was estimated using the proved property amounts based on the preliminary purchase price allocation and estimates of reserves at December 31, 2022, adjusted for actual production. The pro forma depletion rates were applied to production volumes for the Talos properties and EnVen properties for the respective period. Depreciation, depletion and amortization increased by $132.5 million for the year ended December 31, 2022 and $3.9 for the period from January 1, 2023 to February 12, 2023.

(c) Reflects changes in accretion expense that would have been recorded with respect to the allocated fair values attributable to asset retirement obligations assumed with a decrease to accretion expense of $3.3 million for the year ended December 31, 2022 and a decrease to accretion expense of $0.6 million for the period from January 1, 2023 to February 12, 2023.

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(d) Reflects amortization of the premium associated with senior notes assumed as a reduction to interest expense of $2.6 million for the year ended December 31, 2022 and $0.2 for the period from January 1, 2023 to February 12, 2023.

(e) Reflects an increase in interest expense assuming additional borrowings of $163.2 million under the Bank Credit Facility to fund a portion of the cash consideration. For the year ended December 31, 2022, pro forma interest expense was based on a weighted-average interest rate of 5.47%. For the period from January 1, 2023 to February 12, 2023, pro forma interest expense was based on a weighted-average interest rate of 7.94%. The table below represents the effects of a one-eighth percentage point change in the interest rate on the pro forma interest associated with the additional borrowings (dollars in thousands):

	Nine Months Ended September 30, 2023			Year Ended December 31, 2022
Weighted-average interest rate		7.94	%		5.47	%
Interest expense	$	1,526		$	8,929
Weighted-average interest rate—increase 0.125%		8.07	%		5.60	%
Interest expense	$	1,550		$	9,133
Weighted-average interest rate—decrease 0.125%		7.82	%		5.35	%
Interest expense	$	1,502		$	8,725

(f) Reflects accretion of the discount as an increase to interest expense of $0.4 million and less than $0.1 million for the year ended December 31, 2022 and period from January 1, 2023 to February 12, 2023, respectively, associated with a consent solicitation fee of $3.1 million related to Talos Production’s senior notes.

(g) Reflects accretion of discount as an increase to other income (expense) of $1.5 million and $0.1 million for the year ended December 31, 2022 and period from January 1, 2023 to February 12, 2023, respectively, associated with acquired notes receivable.

(h) Reflects the income tax effect of the transaction accounting adjustments presented using the statutory tax rate in effect during the period. Because the tax rates used for these unaudited pro forma condensed combined statement of operations are an estimate, the blended rate will vary from the actual effective rate in periods subsequent to completion of the EnVen Acquisition.

(i) Reflects the increase in shares of Talos common stock resulting from the issuance of shares of Talos common stock to EnVen stockholders to effect the EnVen Acquisition.

Note 3—QuarterNorth Preliminary Acquisition Accounting

Talos has determined it is the accounting acquirer for the QuarterNorth Acquisition which will be accounted for under the acquisition method of accounting for business combinations in accordance with Accounting Standards Codification 805, Business Combinations (“ASC 805”). The allocation of the preliminary estimated purchase price with respect to the QuarterNorth Acquisition is based upon management’s estimates of and assumptions related to the fair values of assets to be acquired and liabilities to be assumed as of September 30, 2023 using currently available information. Due to the fact that the unaudited pro forma combined financial statements have been prepared based on these preliminary estimates, the final purchase price allocation and the resulting effect on Talos’s financial position and results of operations may differ significantly from the pro forma amounts included herein.

The final purchase price allocation for the business combination will be performed subsequent to closing and adjustments to estimated amounts or recognition of additional assets acquired or liabilities assumed may occur as more detailed analyses are completed and additional information is obtained about the facts and circumstances that existed as of the closing date of the QuarterNorth Acquisition. Talos expects to finalize the purchase price allocation as soon as practicable after completing the QuarterNorth Acquisition.

The preliminary purchase price allocation is subject to change due to changes in the estimated fair value of QuarterNorth’s identifiable assets acquired and liabilities assumed as of the closing date of the QuarterNorth Acquisition, which could result from Talos’s additional valuation analysis, reserves estimates, discount rates and other factors.

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Preliminary Estimated Purchase Price

The following table summarizes the preliminary estimate of the purchase price (in thousands, except per share data):

Shares of Talos common stock		24,800
Talos common stock price	$	13.51
Stock consideration	$	335,048
Cash consideration	$	1,273,861
Total purchase price	$	1,608,909

The stock consideration was determined using the closing price of Talos common stock on January 12, 2024. The final stock consideration will be based on the market price of Talos common stock when the QuarterNorth Acquisition is consummated. The following table summarizes the change in stock consideration resulting from a 10% fluctuation in the market price of Talos common stock (in thousands, except per share amounts):

	Talos share price		Purchase price (equity portion)
As presented	$	13.51	$	335,048
10% increase		14.86		368,553
10% decrease		12.16		301,543

Preliminary Estimated Purchase Price Allocation

The following table summarizes the allocation of the preliminary estimate of the purchase price to the assets acquired and liabilities assumed (in thousands):

Assets Acquired
Current assets:
Cash and cash equivalents	$	387,722
Accounts receivable		179,489
Prepaid expenses and other current assets		40,504
Property and equipment:
Proved properties		1,271,424
Unproved properties, not subject to amortization		428,104
Other property and equipment		6,741
Other long-term assets:
Operating lease assets		5,836
Other well equipment inventory		49,166
Other assets		933
Total assets to be acquired	$	2,369,919
Liabilities assumed
Current liabilities:
Accounts payable		56,860
Accrued liabilities		108,360
Accrued royalties		14,182
Current portion of asset retirement obligations		10,577
Liabilities from price risk management activities		43,723
Accrued interest payable		138
Current portion of operating lease liabilities		1,225
Other current liabilities		1,718
Long-term liabilities:
Long-term debt		185,000
Asset retirement obligations		112,732
Liabilities from price risk management activities		9,641
Operating lease liabilities		4,848
Deferred tax liability		212,006
Total liabilities to be assumed		761,010
Net assets to be acquired	$	1,608,909

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Note 4—QuarterNorth Transaction Accounting Adjustments

The following adjustments and assumptions were made in the preparation of the unaudited pro forma financial statements:

(a) Reflects reclassifications to the QuarterNorth historical financial statements to conform to Talos’s financial statement presentation.

(b) Reflects an increase of $584.7 million in long-term debt and associated interest expense attributable to additional borrowings under the Bank Credit Facility to fund a portion of the cash consideration. The increase in interest expense assumes the borrowing occurred on January 1, 2022 and was outstanding for both the year ended December 31, 2022 and nine months ended September 30, 2023. For the year ended December 31, 2022 and nine months ended September 30, 2023, pro forma interest expense was based on a weighted-average interest rate of 5.47% and 8.10%, respectively. The table below represents the effects of a one-eighth percentage point change in the interest rate on the pro forma interest associated with the additional borrowings (dollars in thousands):

	Nine Months Ended September 30, 2023			Year Ended December 31, 2022
Weighted-average interest rate		8.10	%		5.47	%
Interest expense	$	35,507		$	31,998
Weighted-average interest rate—increase 0.125%		8.22	%		5.60	%
Interest expense	$	36,055		$	32,729
Weighted-average interest rate—decrease 0.125%		7.97	%		5.35	%
Interest expense	$	34,958		$	31,267

(c) Reflects the accrual for transaction costs of $14.6 million related to the QuarterNorth Acquisition including, among others, fees paid for financial advisors, legal services and professional accounting services. The costs are not reflected in the historical September 30, 2023 consolidated balance sheet of Talos, but are reflected in the Talos combined pro forma balance sheet as of September 30, 2023, as an increase to Accrued liabilities and increase to Accumulated deficit. The Talos combined pro forma statement of operations for the year ended December 31, 2022, reflects a $14.6 million expense to General and administrative expense as the transaction costs will be expensed by Talos as incurred. These amounts and their corresponding tax effect have not been reflected in the pro forma statement of operations for the nine months ended September 30, 2023, due to their nonrecurring nature. These costs are not expected to be incurred in any period beyond 12 months from the closing date of the QuarterNorth Acquisition.

(d) Reflects the cash consideration paid to QuarterNorth stockholders to effect the QuarterNorth Acquisition.

(e) Reflects the increase in shares of Talos common stock and additional paid-in capital in excess of par resulting from the issuance of shares of Talos common stock to QuarterNorth stockholders to effect the QuarterNorth Acquisition based on the Talos closing share price of $13.51 on January 12, 2024.

(f) Reflects the elimination of QuarterNorth’s historical equity balances in accordance with the acquisition method of accounting.

(g) Reflect the income tax effects of the transaction accounting adjustments presented using the statutory tax rate in effect during the period. Because the tax rates used for these unaudited pro forma condensed combined statement of operations are an estimate, the blended rate will vary from the actual effective rate in periods subsequent to completion of the QuarterNorth Acquisition.

(h) Reflects the write-off of QuarterNorth’s historical unamortized and deferred financing costs.

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(i) Reflects the adjustments to reflect the preliminary estimated fair value of Talos common stock of $335.0 million and cash consideration of $1,273.9 million allocated to the estimated fair values of the assets acquired and liabilities assumed.

Reflects a $663.5 million increase to Total Property and Equipment, net calculated as the difference between the estimated fair value and QuarterNorth’s historical net book value. The change is primarily a result of (i) a decrease in Proved properties as a result of QuarterNorths’s partial depletion of proved oil and natural gas reserves which is presented in Accumulated depreciation, depletion and amortization offset by the increase in estimated fair value of the remaining proved reserves over historical cost, (ii) increase in Unproved properties, not subject to amortization due to higher fair values of properties compared to historical value and (iii) the elimination of the historical QuarterNorth Accumulated depreciation, depletion and amortization. The fair value of oil and natural gas properties were measured using a discounted cash flow technique of valuation. Inputs to the valuation of oil and natural gas properties include estimates of: (i) reserves, (ii) future operating and development costs, (iii) future commodity prices, (iv) future plugging and abandonment costs, (v) estimated cash flows and (vi) a market-based weighted average cost of capital rate. These estimates require significant judgment and may vary due to many factors, such as, but not limited to, the inputs to the fair value measure described above.

(j) Reflects changes in depletion that would have been recorded with respect to the allocated fair values attributable to proved oil and natural gas properties acquired as a result of the application of the full cost method of accounting for oil and natural gas activities following the QuarterNorth Acquisition. The pro forma depletion rate for the year ended December 31, 2022 was estimated using the proved property amounts based on the preliminary purchase price allocation and estimates of reserves at December 31, 2022, adjusted for actual production. The pro forma depletion rate for the nine months ended September 30, 2023 was estimated using the proved property amounts based on the preliminary purchase price allocation and estimates of reserves at September 30, 2023, adjusted for actual production. The pro forma depletion rates were applied to production volumes for the Talos properties, the EnVen properties and QuarterNorth properties for the respective periods. Depreciation, depletion and amortization decreased by $2.5 million for the year ended December 31, 2022 and $0.4 million for the nine months ended September 30, 2023.

(k) Reflects purchase accounting adjustment to the Historical QuarterNorth Deferred tax liability of $68.0 million to record the estimated deferred income tax effects of $144.0 million to reflect the QuarterNorth Acquisition. Because the tax rates used for these unaudited pro forma condensed balance sheet are an estimate, the blended rate will vary from the actual effective rate in periods subsequent to completion of the QuarterNorth Acquisition.

(l) Reflects the elimination of revenues and costs of good sold associated with the disposition of QuarterNorth’s decommissioning services business under turnkey agreements. The revenues and costs are not expected to be incurred in any period beyond 12 months from the closing date of the QuarterNorth Acquisition.

(m) In the event that additional financing is needed to fund the cash consideration for the QuarterNorth Acquisition, we received a $650.0 million commitment under a bridge credit facility from a syndicate of lenders, including some lenders under our Bank Credit Facility. For pro forma purposes, the bridge loan was unused and the adjustment reflects the amortization of debt issuance costs associated with the unused bridge facility. If the bridge loan were fully utilized to partially fund the cash consideration for the QuarterNorth Acquisition, the incremental interest expense in the pro forma financial statements would be $59.2 million and $37.5 million for the year ended December 31, 2022 and nine months ended September 30, 2023, respectively.

(n) Reflects the accrual of contractual severance and other separation benefits associated with existing QuarterNorth employment agreements in connection with the termination of certain executive officers of QuarterNorth that will occur immediately after the consummation of the QuarterNorth Acquisition. The post-combination expense is reflected in the Talos combined pro forma balance sheet as of September 30, 2023, as an increase to Accrued liabilities and to Accumulated deficit, and in the Talos combined pro forma statement of operations for the year ended December 31, 2022, within General and administrative expense.

Note 5—Equity Financing

We expect to generate gross proceeds of $300.0 million (before underwriting discounts and commissions and offering expenses) in an underwritten offering of our common stock to partially fund the cash consideration in the QuarterNorth Acquisition. After deducting the underwriting discounts and commissions and offering expenses payable by us, the total net proceeds are expected to be approximately $287.8 million. Based on the closing price of Talos common stock on January 12, 2024 of $13.51, we expect to issue approximately 22.2 million shares of common stock (assuming no exercise of underwriters’ option to purchase additional shares). The following table summarizes the estimated common stock to be issued resulting from a 10% fluctuation in the market price of Talos common stock (in thousands, except per share amounts):

	Talos share price		Common stock issued
As presented	$	13.51		22,206
10% increase		14.86		20,187
10% decrease		12.16		24,673

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Note 6—Supplemental Pro Forma Oil and Gas Reserves Information

The following tables present the estimated pro forma combined net proved developed and undeveloped oil and gas reserves information as of December 31, 2022, along with a summary of changes in quantities of net remaining proved reserves during the year ended December 31, 2022.

The following estimated pro forma oil and gas reserves information is not necessarily indicative of the results that might have occurred had the EnVen Acquisition and QuarterNorth Acquisition been completed on January 1, 2022, and is not intended to be a projection of future results.

	Crude Oil Reserves (MBbls)
	Historical Talos			Historical EnVen			Historical QuarterNorth			Pro Forma Combined Talos
Total proved reserves at January 1, 2022		107,764			42,596			42,507			192,867
Revision of previous estimates		(5,625	)		4,113			10,500			8,988
Production		(14,561	)		(7,049	)		(7,559	)		(29,169	)
Purchase of reserves		—			—			244			244
Sales of reserves		(158	)		—			(1,913	)		(2,071	)
Extensions and discoveries		3,639			2,502			4,304			10,445
Total proved reserves at December 31, 2022		91,059			42,162			48,083			181,304
Total proved developed reserves as of:
December 31, 2021		93,420			36,281			22,732			152,433
December 31, 2022		80,285			34,468			25,201			139,954
Total proved undeveloped reserves as of:
December 31, 2021		14,344			6,315			19,775			40,434
December 31, 2022		10,774			7,694			22,882			41,350

	Natural Gas Reserves (MMcf)
	Historical Talos			Historical EnVen			Historical QuarterNorth			Pro Forma Combined Talos
Total proved reserves at January 1, 2022		236,353			41,003			111,155			388,511
Revision of previous estimates		(8,302	)		195			7,147			(960	)
Production		(32,215	)		(5,921	)		(11,689	)		(49,825	)
Purchase of reserves		—			—			363			363
Sales of reserves		(7,625	)		—			(3,274	)		(10,899	)
Extensions and discoveries		31,340			1,710			8,599			41,649
Total proved reserves at December 31, 2022		219,551			36,987			112,301			368,839
Total proved developed reserves as of:
December 31, 2021		186,442			36,930			58,526			281,898
December 31, 2022		161,727			25,717			55,383			242,827
Total proved undeveloped reserves as of:
December 31, 2021		49,911			4,073			52,629			106,613
December 31, 2022		57,824			11,270			56,918			126,012

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	NGL Reserves (MBbls)
	Historical Talos			Historical EnVen			Historical QuarterNorth			Pro Forma Combined Talos
Total proved reserves at January 1, 2022		14,435			980			5,522			20,937
Revision of previous estimates		(2,002	)		340			274			(1,388	)
Production		(1,793	)		(308	)		(686	)		(2,787	)
Purchase of reserves		—			—			17			17
Sales of reserves		—			—			(244	)		(244	)
Extensions and discoveries		2,288			109			562			2,959
Total proved reserves at December 31, 2022		12,928			1,121			5,445			19,494
Total proved developed reserves as of:
December 31, 2021		11,792			854			2,968			15,614
December 31, 2022		9,315			1,036			2,700			13,051
Total proved undeveloped reserves as of:
December 31, 2021		2,643			126			2,554			5,323
December 31, 2022		3,613			85			2,745			6,443

	Total Reserves (Mboe)
	Historical Talos			Historical EnVen			Historical QuarterNorth			Pro Forma Combined Talos
Total proved reserves at January 1, 2022		161,591			50,410			66,555			278,556
Revision of previous estimates		(9,010	)		4,485			11,965			7,440
Production		(21,723	)		(8,344	)		(10,194	)		(40,261	)
Purchase of reserves		—			—			322			322
Sales of reserves		(1,429	)		—			(2,703	)		(4,132	)
Extensions and discoveries		11,150			2,896			6,300			20,346
Total proved reserves at December 31, 2022		140,579			49,447			72,245			262,271
Total proved developed reserves as of:
December 31, 2021		136,286			43,290			35,454			215,030
December 31, 2022		116,555			39,790			37,132			193,477
Total proved undeveloped reserves as of:
December 31, 2021		25,305			7,120			31,101			63,526
December 31, 2022		24,024			9,657			35,113			68,794

Pro Forma Standardized Measure of Discounted Future Net Cash Flows

The following table presents the estimated pro forma discounted future net cash flows at December 31, 2022. The pro forma standardized measure information set forth below gives effect to the EnVen Acquisition and QuarterNorth Acquisition as if these acquisitions had been completed on January 1, 2022. The disclosures below were determined by referencing the “Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil, Natural Gas and NGL Reserves” reported in Talos’s Annual Report on Form 10-K for the year ended December 31, 2022, the “Standardized Measure of Discounted Future Net Cash Flows” reported in EnVen’s Annual Report for the year ended December 31, 2022 and the “Standardized Measure of Discounted Future Net Cash Flows” reported in QuarterNorth’s Annual Report for the year ended December 31, 2022. An explanation of the underlying methodology applied, as required by SEC regulations, can be found within the Talos Annual Report on Form 10-K, EnVen Annual Report and QuarterNorth Annual Report. The calculations assume the continuation of existing economic, operating and contractual conditions at December 31, 2022.

Therefore, the following estimated pro forma standardized measure is not necessarily indicative of the results that might have occurred had these acquisitions been completed on January 1, 2022 and is not intended to be a projection of future results.

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	Historical			Historical			Historical			Pro Forma Combined
	Talos			EnVen			QuarterNorth			Talos
	(In thousands)
At December 31, 2022
Future cash inflows	$	10,674,896		$	4,172,745		$	5,507,038		$	20,354,679
Future costs:
Production		(1,906,752	)		(999,608	)		(1,273,184	)		(4,179,544	)
Development and abandonment		(1,873,453	)		(524,314	)		(521,676	)		(2,919,443	)
Future net cash flows before income taxes		6,894,691			2,648,823			3,712,178			13,255,692
Future income tax expense		(1,114,409	)		(521,708	)		(686,808	)		(2,322,925	)
Future net cash flows after income taxes		5,780,282			2,127,115			3,025,370			10,932,767
Discount at 10% annual rate		(1,411,834	)		(500,588	)		(775,938	)		(2,688,360	)
Standardized measure of discounted future net cash flows	$	4,368,448		$	1,626,527		$	2,249,432		$	8,244,407

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Pro Forma Change in Standardized Measure of Discounted Future Net Cash Flows

The change in the pro forma standardized measure of discounted future net cash flows relating to proved reserves for the year ended December 31, 2022 are as follows:

	Historical			Historical			Historical			Pro Forma Combined
	Talos			EnVen			QuarterNorth			Talos
	(In thousands)
Standardized measure at January 1, 2022	$	3,440,611		$	1,140,435		$	1,381,632		$	5,962,678
Sales and transfers of oil, net gas and NGLs produced during the period		(1,340,400	)		(588,601	)		(769,587	)		(2,698,588	)
Net change in prices and production costs		2,388,442			734,853			1,345,716			4,469,011
Changes in estimated future development and abandonment costs		(84,391	)		(10,620	)		10,717			(84,294	)
Previously estimated development and abandonment costs incurred		20,107			8,866			4,788			33,761
Accretion of discount		392,600			139,678			138,163			670,441
Net change in income taxes		(327,265	)		(131,681	)		(517,669	)		(976,615	)
Purchase of reserves		—			—			14,149			14,149
Sales of reserves		(5,218	)		—			(63,448	)		(68,666	)
Extensions and discoveries		202,239			184,936			289,031			676,206
Net change due to revision in quantity estimates		(255,743	)		198,557			471,733			414,547
Changes in production rates (timing) and other		(62,534	)		(49,896	)		(55,793	)		(168,223	)
Standardized measure at December 31, 2022	$	4,368,448		$	1,626,527		$	2,249,432		$	8,244,407

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