Exhibit 99.1
EXCERPTS FROM THE PRELIMINARY OFFERING MEMORANDUM,
DATED JANUARY 23, 2024
As used in this Exhibit 99.1, the terms “we,” “us” and “our” refer to Talos Energy Inc. and its consolidated subsidiaries, and not to QuarterNorth and its subsidiaries, unless context suggests otherwise. The term “QuarterNorth” refers to QuarterNorth Energy Inc., and the term “QuarterNorth Acquisition” refers to the transactions contemplated by the definitive agreement that we entered into on January 13, 2024 to acquire QuarterNorth. The term “EnVen Acquisition” refers to the business combination whereby, among other things, EnVen Energy Corporation merged with and into Talos Production Inc., with Talos Production Inc. surviving the merger.
Our Competitive Strengths
Oil-Weighted, Predominantly Operated Production Base. Our reserves and production are primarily oil-weighted, and we operate approximately 75% of our production for the quarter ended September 30, 2023. For the quarter ended September 30, 2023, our production was approximately 76% oil.
Non-GAAP Financial Measures
QuarterNorth Historical (in thousands) | Three Months Ended September 30, 2023 | |||
Net income (loss) | $ | 29,968 | ||
Interest expense | 3,574 | |||
Income tax expense (benefit) | 7,430 | |||
Depreciation, depletion and amortization | 56,343 | |||
Accretion expense | 127 | |||
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EBITDA | 97,442 | |||
Write-down of oil and natural gas properties | — | |||
Transaction and other (income) expense(1) | (2,774 | ) | ||
Decommissioning obligations | — | |||
Derivative fair value (gain) loss(2) | 67,347 | |||
Net cash received (paid) on settled derivative instruments(2) | (8,896 | ) | ||
(Gain) loss on debt extinguishment | — | |||
Non-cash write-down of other well equipment inventory | — | |||
Non-cash equity-based compensation expense | — | |||
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Adjusted EBITDA | $ | 153,119 | ||
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(1) | Other income (expense) includes restructuring expenses, cost saving initiatives and other miscellaneous income and expenses that we do not view as a meaningful indicator of our operating performance. For the three months ended September 30, 2023, transaction expenses include $3.3 million in costs related to the QuarterNorth Acquisition incurred by QuarterNorth. |
(2) | The adjustments for the derivative fair value (gains) losses and net cash receipts (payments) on settled commodity derivative instruments have the effect of adjusting net loss for changes in the fair value of derivative instruments, which are recognized at the end of each accounting period because we do not designate commodity derivative instruments as accounting hedges. This results in reflecting commodity derivative gains and losses within Adjusted EBITDA on an unrealized basis during the period the derivatives settled. |
Summary Reserve and Operating Data
The following tables summarize our historical and pro forma production and operating data for the periods ended on the dates indicated below.
Historical | Pro Forma(1) | |||||||||||||||||||||||||||
Year Ended December 31, | Nine Months Ended September 30, | Year Ended December 31, | Nine Months Ended September 30, | |||||||||||||||||||||||||
2022 | 2021 | 2020 | 2023 | 2022 | 2022 | 2023 | ||||||||||||||||||||||
Production Volumes: | ||||||||||||||||||||||||||||
Oil (MBbl) | 14,561 | 16,159 | 13,665 | 13,358 | 11,020 | 29,169 | 19,870 | |||||||||||||||||||||
Natural gas (MMcf) | 32,215 | 32,795 | 28,652 | 19,769 | 24,746 | 49,825 | 29,237 | |||||||||||||||||||||
NGLs (MBbl) | 1,793 | 1,875 | 1,559 | 1,318 | 1,372 | 2,787 | 1,872 | |||||||||||||||||||||
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Total production volume (MBoe) | 21,723 | 23,500 | 19,999 | 17,971 | 16,516 | 40,261 | 26,615 | |||||||||||||||||||||
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Average Net Daily Production Volumes: | ||||||||||||||||||||||||||||
Oil (MBbl/d) | 39.9 | 44.3 | 37.3 | 48.9 | 40.4 | 79.9 | 72.8 | |||||||||||||||||||||
Natural gas (MMcf/d) | 88.3 | 89.8 | 78.3 | 72.4 | 90.6 | 136.5 | 107.1 | |||||||||||||||||||||
NGLs (MBbl/d) | 4.9 | 5.1 | 4.3 | 4.8 | 5.0 | 7.6 | 6.9 | |||||||||||||||||||||
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Total average net daily (MBoe/d) | 59.5 | 64.4 | 54.7 | 65.8 | 60.5 | 110.3 | 97.5 | |||||||||||||||||||||
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Average Sales Price (excluding commodity derivatives)(2): | ||||||||||||||||||||||||||||
Oil ($/Bbl) | 93.75 | 65.86 | 37.09 | 74.49 | 97.89 | 93.15 | 75.08 | |||||||||||||||||||||
Natural gas ($/Mcf) | 7.06 | 3.98 | 1.87 | 2.70 | 7.34 | 7.18 | 2.75 | |||||||||||||||||||||
NGLs ($/Bbl) | 33.20 | 26.54 | 9.90 | 18.56 | 35.88 | 35.89 | 20.71 | |||||||||||||||||||||
Average realized price ($/Boe) | 76.05 | 52.96 | 28.80 | 59.70 | 79.30 | 78.86 | 60.53 | |||||||||||||||||||||
Revenues (in thousands): | ||||||||||||||||||||||||||||
Oil | $ | 1,365,148 | $ | 1,064,161 | $ | 506,788 | $ | 995,081 | $ | 1,078,800 | $ | 2,717,174 | $ | 1,491,839 | ||||||||||||||
Natural gas | 227,306 | 130,616 | 53,714 | 53,383 | 181,747 | 357,700 | 80,304 | |||||||||||||||||||||
NGLs | 59,526 | 49,763 | 15,434 | 24,463 | 49,232 | 100,018 | 38,764 | |||||||||||||||||||||
Other | — | — | — | — | — | 22,787 | 18,005 | |||||||||||||||||||||
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Total revenue | $ | 1,651,980 | $ | 1,244,540 | $ | 575,936 | $ | 1,072,927 | $ | 1,309,779 | $ | 3,197,679 | $ | 1,628,912 | ||||||||||||||
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Operating Expenses (in thousands): | ||||||||||||||||||||||||||||
Lease operating expense | $ | 308,092 | $ | 283,601 | $ | 246,564 | $ | 286,075 | $ | 229,156 | 566,920 | $ | 426,360 | |||||||||||||||
Production taxes | 3,488 | 3,363 | 1,054 | 1,813 | 2,670 | 3,488 | 1,813 | |||||||||||||||||||||
Depreciation, depletion and amortization | 414,630 | 395,994 | 364,346 | 480,476 | 295,174 | 917,825 | 656,339 | |||||||||||||||||||||
Write-down of oil and natural gas properties | — | 18,123 | 267,916 | — | — | — | — | |||||||||||||||||||||
Accretion expense | 55,995 | 58,129 | 49,741 | 63,430 | 42,400 | 95,470 | 74,732 | |||||||||||||||||||||
General and administrative expense | 99,754 | 78,677 | 79,175 | 121,257 | 70,742 | 221,676 | 190,732 | |||||||||||||||||||||
Other operating (income) expense | 33,902 | 32,037 | (11,550 | ) | (55,172 | ) | 12,142 | 40,728 | (43,744 | ) | ||||||||||||||||||
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Total operating expenses | $ | 915,861 | $ | 869,924 | $ | 997,246 | $ | 897,879 | $ | 652,284 | $ | 1,846,107 | $ | 1,306,232 | ||||||||||||||
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(1) | The summary pro forma production and operating data gives effect to the EnVen Acquisition and the QuarterNorth Acquisition as if they had been completed on January 1, 2022. |
(2) | Average realized prices are net of certain gathering, transportation, quality differentials and other costs. |
QuarterNorth Historical | Three Months Ended September 30, 2023 | |||
Production Volumes: | ||||
Oil (MBbl) | 2,213 | |||
Natural gas (MMcf) | 3,344 | |||
NGLs (MBbl) | 194 | |||
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Total production volume (MBoe) | 2,874 | |||
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Average Net Daily Production Volumes: | ||||
Oil (MBbl/d) | 23.1 | |||
Natural gas (MMcf/d) | 36.3 | |||
NGLs (MBbl/d) | 2.1 | |||
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Total average net daily (MBoe/d) | 31.2 | |||
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Average Sales Price (excluding commodity derivatives)(1): | ||||
Oil ($/Bbl) | 83.86 | |||
Natural gas ($/Mcf) | 2.95 | |||
NGLs ($/Bbl) | 26.46 | |||
Average realized price ($/Boe) | 67.17 | |||
Revenues (in thousands): | ||||
Oil | $ | 178,041 | ||
Natural gas | 9,859 | |||
NGLs | 5,134 | |||
Turkey revenue | 63,179 | |||
Other | 7,815 | |||
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Total revenue | $ | 264,028 | ||
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Operating Expenses (in thousands): | ||||
Lease operating expense | $ | 38,750 | ||
Decommissioning cost of goods sold | 40,544 | |||
Depreciation, depletion and amortization | 56,343 | |||
Accretion expense | 127 | |||
General and administrative expense | 11,810 | |||
Insurance expense | 5,585 | |||
Other operating (income) expense | 8,593 | |||
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Total operating expenses | $ | 161,752 | ||
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(1) | Average realized prices are net of certain gathering, transportation, quality differentials and other costs. |
Capitalization
As of September 30, 2023 and December 31, 2023, QuarterNorth had long-term debt of $185.0 million and $85.0 million, respectively, and cash on hand of $387.7 million and $394.0 million, respectively.