TALO - Earnings call transcript Q4 2019

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Operator

Good day. And welcome to the Talos Energy Fourth Quarter 2019 Earnings Conference Call. All participants will be in a listen-only mode Operator Instructions]. After today's presentation, there will be an opportunity to ask a question [Operator Instruction]. Please note that this event is being recorded.

to conference like Maiworm. to now would turn over the Sergio I go sir. Please ahead

Sergio Maiworm

operator. And Thank fourth morning, Good you, everyone. earnings call. quarter welcome conference XXXX our to

Duncan, discuss Joining today Vice President Officer. and our President Financial Executive and Chief results Shane me Young, Chief to are here and Officer Executive Tim

by on for XX-K remarks Factors as like we and no forward-looking differ Form forward-looking include statements. events. could results with that may new of the started, Before this results materially to obligation will we I'd XXXX later undertake these statements to get future or statements. remind to the of on in are based today opportunity from these those to result statements cause be these set contemplated this materially take filed and as that yesterday's assumptions to you year forward-looking ended information that on our a we differ release today, Any today. press make update Actual SEC are call forth

this both non-GAAP measures. GAAP present call, we financial and During may

GAAP site of now, like earnings which filed Tim. to to also included the and in our the reconciliation release, And which A non-GAAP was measures press with on available over call is at SEC to talosenergy.com. Web was yesterday's turn I'd

Tim Duncan

response was that of our Zama progress accomplished and competitive Talos a a free finalized quarter brought financial the solid profile significant address year. cash and fourth of throughout Mexico. Thank you, asset this as and crude the the results, Sergio. and generation. we for oil strong flow I'm happy in broadly, quarter appraisal to the offshore will world-class earnings XXXX maintained More present we in our positive we credit The generated results discuss Also our fourth recent another quarter all markets. XXXX call, developments on to year

positions additional high assets flowing We also a oil portfolio closed producing of with a our scale to conservative while the our announced acquisition business, and and of future. cash preserving since for liquidity and diversity weighted major leverage

the have conditions. price well companies. environment events the weather considerable market current Talos, and for market Recent independent in uncertainty resulting E&P the however, is positioned many commodity to introduced

is to favorable Our and premium producing WTI, lifting with resilient a costs. pricing competitive fiscal assets portfolio regime of

Our and adjusted a balance no positioned approximately sheet is with leverage pro-forma X.X well maturities. in million of liquidity near-term times $XXX EBITDA,

Finally, cash preserve barrel approximately a hedged help oil XXXX million will WTI, profile at we've XX.X flow of approximately our barrels of which the near-term. generation production in $XX

recent our have the and the reduction we a decided program In reduce decisively operating we to total, million combination our compared and previous lower sharply a through to in capital $XXX response trends investments market, spending of by guidance. our in expenses. more expect than XXXX to reduce However, in XXXX our capital to

asset a coverage, The drilling come can expect XXXX, quick we existing on in of to turnaround budget which still in to early to can are high projects prolonged maintain focused PDP nearby oil levels further so our already us infrastructure that that remain those or downturn. our in we first XXXX position and withstand will online XXXX

hedges. these breakeven With a a point at below can that flow cash sustain with business barrel we a positive measures, free estimate our $XX we

We expect to provide guidance additional coming detailed revised in the XXXX week.

past. preserving cutting experience and organization has costs across gross responding And and crisis management addressing we industry seen liquidity team and spending, deep commodity by are a has in credit Our prudently our season profile. the

of shocks times able market. contracts, access the low XXXX, XXXX we're navigated hedging company be crisis, and commodity and market these leverage more now. the XXXX, the term the to management to short to a of in active types team XXXX financial like equity right our strategy the successfully built that private navigated going successfully from And world we've are together through resulted as crisis and absorb without we the the both crisis, of Members also recent

market are ourselves to We position current take environment, in we want and of confident other the best that side downturn. independents advantage a present put this to on that Talos among positioned the to might weather of is opportunities the themselves

backdrop, our XX% let's XX,XXX With oil day, that XX% Production highlights turn equivalent for of quarter quarter. the the approximately and per barrels liquid. averaged to for comprised

quarter of million. quarter, to This resulted for $X.XX approximately production perspective. WTI above hedges, $XXX inclusive for was fourth approximately of a the margins revenue percentage $XX.XX BOE a impact basis continue EBITDA, of realized receive on barrel pricing equivalent in for per XX% the quarter the of million premium strong oil price and $XXX in We the with with and Adjusted of our $XX.XX benchmark. per a for the

the cash December accordingly from with this cash-on-hand. flow. was credit revolving We to million primarily million. the purchase to borrowing the unanimous the assets the $XXX Capital component Concurrently, acquired our acquisition produced was cash the of barrels approximately the for to P&A flow acquisition, per of free we day. of period, of December. eight of $XXX of Therefore, quarter during banks $X.XX syndicate. cash date XX our effective resulting quarter in in expenditures price XXXX, closing, in fourth closing inclusive assets million totaled spending transaction and the of increased closed the component, consent the we announcement $XX from announced million XXXX, the In $XX.X billion, these was approximately and generated free And the which for in million. base $XXX XX.XXXX On and XX, the prior month required bank facility the funded the equivalent quarter, February between cash of reduced Talos’ secured

field what Claiborne of we it Because already was pay reached the vertical by acquisition more expected with pre-drill different different countered is of then and beyond expected, our this complete and XXX And will feet and field just a has well true pays XXXX. bearing pay on in paid Beacon success. net mid the original across re-completion surpassing than accelerate expectations. first a The fruits total more a and both depth well The oil #X the operator well logged back sands sands, #X five expectations. Offshore well the come Claiborne of

announced project. Sewell's In XC design year, resource recoverable gross offshore XX% million of discovery. we best independent evaluation gross the in Block Talos of Mexico, X. is Netherland focus XXX earlier Netherland continues to with end on on Zama these of of the or results front this Talos’s barrels to feed equivalent Sewell's engineering quote estimate volumes estimate

on as the we've in possible. the first with of conclusion FID timing is soon But mentioned as declare still dependent as our Our FID XXXX of can have to Pemex. before, goal this development is agreement so oil on unitization we

Pemex our what with and quick We represent discussions Mexico partners for We remain on also continue only those from resolution. we're for excited about but the the Talos to not a project, be hoping they this and potential engaged in of term. can long

have under acres X on of over those The We and of gross primary expire or majority acreage. lease million $X.X beyond. this term million until doesn't over XXXX acreage

appropriate available cuts environment, the deep So flow of to will a the for free be to still us although, commodity at we making cash maintain time. bench execute we have current generation opportunities during are immediate

leverage be manage the uncertain try several we positioned utilize months, further our long-term maintain for us which our sheet We generate commodity low to in opportunity our Talos. infrastructure, cash prices, better We we our rig look to to times. have I protect successful to coming we in flow. for more we hedge swings into outlook balance of margins and cash the acquired long-term think remain allows tenants As contracts. and and in these from free conservatively to actively appropriately confident flows approach how avoid

details our to financial results. turn to Shane it I'll of discuss now over

Shane Young

revised including further guidance current Thank quarter crude select XXXX our provide I financial our the performance you, recent details on during for year Tim. dislocations will details focus in on the our now of and the the market. on capital given fourth XXXX,

higher adjusted BOE total resulted high quarter mentioned, $XX.XX with approximately or a structure EBITDA in and margins production $XXX cost of per oil lean realized quarter pricing, previously of adjusted the As XX%, EBITDA with million. another weighting for of margin strong

free quarter was $XX quarter quarter interest the income $X.XX $XX million. After diluted share. net Adjusted or of capital for the expense, was for flow million $XX for the strong per expenditures approximately cash a and million

We for Talos million. guidance guidance, midpoint EPS are adjusted our to pleased four to all and year income XXXX note generated $XXX in at our positive of that adjusted net quarters capital Compared full at year XXXX. Talos concluded revised the the

operating addition, low-end the below our million, we total total guidance or $XX actually $XXX range. of outperformed costs with on In million of a

end on representing our closing not debt debt the our year had a On our maintained cash million X.X ratio. under transaction RBL $XXX HP-X recent to or yet net adjusted sheet, $XX EBITDA. closed for LTM pro-forma acquisition which the approximately facility. Year of the lease, at is same at times deposit February $X.XX pro-forma the availability debt we approximately million our of X.X million times billion for On $XXX acquisition, year-end. Also credit concluded net liquidity with we and net-debt XXth, basis on of the of closing we included inclusive balance financing

to and recent including to position, adjustments crude operational developments reducing capital making plans. response our quickly spending our is protect In XXXX the in liquidity Talos significantly markets,

than projects. deferring $XXX reduce to from by expect We capital budget more our XXXX million, certain primarily

do have not changes them these some While on expect to we be XXXX production, will major. impact

in and Although, reevaluate they the or adds for operating production delay additional future savings. potential teams years. efficiencies overhead could we've expenses all to or asked Moreover, any

a strong recently some XXXX, the in prices week. into While add the others hedge book continued January year this we book, at as to we came with higher crude as in

above February release mentioned million the you XXXX. no an is barrels per generate time XXs down low last our the that XX.X As our barrel. XXXX $XX being that in in at that's hedge currently per to and will cash satisfactory. We we we barrel guidance average night, have for price see Well, to in changed free longer flow the expect world WTI

accordingly. are we responding So

will down expect drive I positive guidance that, year in the weeks. provide like these for items and to current on the $XX cash We greater flow With call barrel to over our to would the free in in remain plan coming environment. below detail neutrality per line With the Tim. changes, back cash forthcoming revised to XXXX, to we hand will we

Tim Duncan

challenges to the present will current were that make. we the future, foreseeable of summary, that aware we commodity very the the to adjustments scenario price industry and the in In need

prices This the knowing to these that similar also situations. managing structured appropriately borne of before, but successfully have business of experience our navigate is awareness other out used we

taking and execute period. this manage focus I XXXX budget earlier, the a prudent we're And maintaining believe we'll liquidity to truly to organic Talos will in discussed when continue deep environment, on to but development of to highest prevail current as bench approach stabilize. our business the levels drive position of and only markets that opportunities be the a our will not in and

I line that, for With the open Q&A. will

Operator

Thank you.

begin question-and-answer will Please now question will And go from our first Markets. Jeff session Northland [Operator Instructions]. Capital We Grampp the from ahead. come

Jeff Grampp

in to to working I balancing the looking guys that maybe next during longer the was share sacrificing cash if in of Can wondering, you lion guys kind or is of kind a guys lower two million of level and you're some $XXX exploration of versus about of the will? cited, months of to from do of whatnot. finalize the the maybe upside you of of are term you just maybe near deferment, getting act flowing risk savings term, those you which of talk high terms projects kind couple bring kind the

Tim Duncan

that it's think months. couple sure of couple mean are be the So immediate. XX again covenant to about a over to. when through before, of those I And I talked we've years don't Jeff. mentioned would breach lucky you these you've I we've we cuts things, I’ve before, cuts been to through next been plan and enough a that, are you And tell these never and and been bank

And so you have immediately. to react

this asked over asked, what trying and most can And to manage, do. what are question things then which to what focus prioritize. the weekend had on we the pulled immediate trying are so together the very And we of you is are kind we to team we we

ILX is in we're project We great first Tornado have focused contract, success contract the well Claiborne. a short that water that doing about in is converting the had on asset up the box on it's the Bulleit flood rig out the well, XXX hooking field. our What’s of that with rig We that focused nice and recompletion. on days

have keep you you might sacrifice to you impact so with know And trying to some high what you're do exploration. decide what in. Yes, to

of some canceled, get doesn't that, that Jeff, of just Some gets postponed.

for some You created. inventory the is have the infrastructure, you've that bigger of targets of in portfolio faith might down have in the that be by inventory life. keep some inventory to of And mind cycle later

you’ve a high And position. guidance the So in of I impact in strategy the you I and you've wanted some a think stuff, your look that's is announcement, a our the term business the reasons postpone to you that's lower acreage then one if in get near built later. deck. to And price we can it of to the why run can that you we believe got did way have back that reiterate to a and at put at it, take

at and legal got sensitivity release. you do kind you that earnings a at lower of so to the And deck. first do you And when can can run see deck, deck, price a a lower in yourself you've mention SEC price reserve then keep the a

at long-term again remember that's got couple Always the think in and months. that's next long-term the of couple $XX I hedges So next months. in we've not

You've got $X developed billions value. of proved

You to your value maintain want that collateralized value. that's

of those up investments price we in a have focus budget to to lower decide stabilize and developed and prop we making that around; driven the cash value free will one, keep flow; continue So two, a sure deck. is create to that proved what

it. how And think we about that's so

Again, cuts not be may all the to immediate. They of be them. got

take team into little layer. with Now dig to a time we'll go more the every

there couple by more might re-guide And so of cuts. time in the some we be weeks, a

process. itemized that's a an of more little So

out a Over getting get more the kind scalpel. you're over of knife then time little and more of a of you a butcher weekend,

and have talked about. which price created base then reserve to got long-term, stabilized created keeping your and You business you faith prospects year. the in managing you how the exit that bake And that and we've it, deck you're in you lower

it. so that's And think about how we

Jeff Grampp

that the follow-up, present on of want downs of after really sell savings balancing something Or this into I the wondering guys to want contemplating get referenced? guys any kind the maybe, was for in the you all be And kind you to is talked baked that predicated guys that spending of $XXX potential as or it. projects my any you maybe that of year? guys million you evaluating at the Is but that are year that you about plus

Tim Duncan

bake to hard It's no. think I Yes, in.

mean have what at of have the knows kind you just down the you market the to as think I look on sell is projects prospect. them. I And heavens

and So that I the think you interest what really, are. you focused on the those ones you want to execute on

have partner. those the of some And project a has Bulleit a has Tornado partner, partners,

maybe a putting do, things thinking on at date. later up thing. And so one They're year? with and the other at then you partnership hey, say, to you look program focus the we same then might ones on work the to those. you package some delay want next probably think the And can you and about the of into can And a that

think the can ahead partner re-guide idea we find go to the smartest that I it. the do and probably has that an something to isn't assumption So we're way going

convert that can partner, if to PDP experiences, had longer becomes some cycle. you're I potential the control, then sell focus and by swimming flow access, the of think think, material again, can on been can base do through the this and but you if developed certainly the but be to I you maybe draw it also and you you have, current find down Again, to things what what the going go pulled commodity a you enough proved out on execute execute try end upstream. before, you cash generate what environment free think I costs how in of can to the year for to system, those you can

I don't we so make. assumption that's think an And want to

Operator

come will question of Richard Please next ahead. Our Capital Instruction] go One [Operator from Tullis Security.

Richard Tullis

to accomplishment ticker screen Tim, there. see an today, it's nice the green that's a so on

Tim Duncan

right come going I'm it, jinxed you if you. Richard, to after

Richard Tullis

All take right. responsibility. I'll

$X.XX this using oil do hurdle for gas in $XX $X price? look return future or environment, rate say projects, of at of you typically for, maybe Tim, sort a price rate So drilling what

Tim Duncan

I think about as the let’s because to lower Yes, about mean, part of that's what's fair. low say, that minimum XX% like we as about a portfolio. of our little things, of, interesting that some typically them we might these you We have time about is XX%, thinking cost lower look the bit, goods. start when's think to

at you're that you about see lower life lower and maybe knowing project that, a baking So lower think costs not little will you rate but accept can of of return in and of cycle the of the probably goods, a part project that there. deck

we're keeping we've or of we have last they're types infrastructure than the year. economics is what. there matter reasons we I the a tell for that the up we're And plan, IRRs. sunk in is, XX% that well part and the would past, greater drilled have next about still no talked hooking still this of in would cost They're right to

we to that our a which system, decided focused about we things et our of the have getting getting redeterminations, OpEx, in fall into things so using on minimalist adding infrastructure, program as think from with reduction infrastructure, set PHA to OpEx fees really the we And our is PDP third rig our parties our cetera. are keep

typically so that's the have highest And focus IRRs. those that on and

we've past. And you no know commodity is Richard, talked when budget, this the about think we the construct our in we've past environment talked matter what in about I the and,

those high then if stuff stuff our that's keep you infrastructure typically to can on Jeff. obligations focus with cancel try do management, drilling those our with something, we can easiest impact, in the where And program our the to you cancel offset answered decline, but the focused are that, recompletions, we we high asset respect things have we the that on to have we tend about you We have workovers get to to second. system. first our We P&A, think first. Hopefully, to we love defer, back impact and question I've to

life have rate particularly return. it’s the know, sometimes lowers have deck, lower you they PV sometimes so longer cycles those if discount returns, flat And lower a because the of at and

your of to focus your the cycles. the be economic ship goods going go you can side that are lower get cost get focus typically get those be you're you the other you available But on on back, opportunistic. of keep those ones Now in on cancel and moving first. when Hope margins, then to those infrastructure,

Richard Tullis

and then interesting that found in prices, And regarding $X at the have PV-XX table the $XX lower may gas. prices? much follow-up, standardized it earnings you think commodity I helpful and the Roughly, what do to oil measure associated be the the at release the same

Tim Duncan

think I putting measure in of into Well, that? standardized just taxes terms

Richard Tullis

Yes, liability and all P&A that?

Tim Duncan

are keep tax in some you in that take pretty we is or I liability would proved low. with So And liability you the But flows think that idea do probably this can question brought make kind to environment them would term of off, the near you in we mind, emphasize out standardized We these have take that. liability be run, I this. asset mean minus could P&A reserves in measure. because tax to that a non-proved plus there. $XXX get these to this reserves P&A a I a have and would always want million XX%, I'm we the XX%. any up, be anytime what associated have to liability might glad sure And then them

one by this, uplifted I reductions there this, be hedge. market the So reason did that you're market by might and there the we some I but thing and mean think the to way,

could value. that value, bring that things would its uplift ended down there's potentially that things there’s be So

look, trading you asset what's And coverage one of run for I that the debt why those of there. our we asset $X shows, I broader lower value developed think there's I of but of things a away for in environment And take some you against this plenty value billion still covers obviously, there's off of proved market it some it of bit think to for of current this And think everyone's other where debt shake shows and I offset outstanding. obviously shows stock. reasons. in lot the we elaborate, also the and One, with think it can equity the even the but reasons the $XXX a on little look, the want of important, two the do think million net off in concerns, of equity company. these kind have you prices

Operator

Instruction] Marshall Please come next Heikkinen from Advisors. question Energy [Operator ahead. Carver go Our will of

Marshall Carver

Do that on claim development You have an it one. achieved you expected when the success comes well online? rate

Tim Duncan

we operator because not to we I re-completion. guys had have operator, accelerator thought, was again, think the know we'll re-guide. well we about it You Beacon don't project but a getting the actually little reason not we of another is being when a the And realized can a what a about go and and projects, great done and the we're Marshall, we this to at couple than It’s these admittedly yet, success nice job. we're now more used offset

And two play of in completion it we play. here, completions have one instead having like so looks in

think of last the I so study that. kind This to several we all And days. is got in

think what's those both of think about to that impact and need I completions. of so the study we And

Either is different it's that if than system, and their this it one way, it's infrastructure in upside are for of us. infrastructure so volumes was our by And ours system. no these

least like looks new guidance. Again of up transaction. we can yet. in kind online about round the we what certainly at have this in to potentially So quite an of when just of those one I do closed those wells redetermination. But, next don't think fall we'll we're just partnership, tighten we the We'll by really the as have mid-year, And think impact mid-year. the we that be them numbers

Marshall Carver

the base what is performer reserve base think say published, your new assets, you just report what decline what's you the do being decline with And your guess for the was… would I company,

Tim Duncan

well think of said part out the bit flat reserve the be of very influx speaks past we how or these can is, thing to middle but little you I part there XX%, front can a a most firms flatten kind I've the it little it decline think generally of good right the it report. that of and I see is to part in on hold curve. of properties, the decline, curve, typical which then and rock offshore be have things kind causes a in around And late these get types XX% generic curve, which we sometimes compression, don't decline like base the but of of with of there's out. that middle out first, exponential it is, one flat three rolls offshore of But whatever for curves in the water typically that whatever well, XX%. reason, And can it I part over, be the

then have exponential view you Our parts and between get that obviously, in mix Putting you wells, you those those, those want have a wells, firm, flat going when early XX%. have mature piece. a good around to together, offshore to you're that

And we engaging of system so those the always part That's some kind you the wells to that capital to one of completions, that. can of the in in expect new the new reasons want keep curve. have absence flat why

right year So with we're combination. entering a calendar the into

year-over-year, you managed. so maintain XX% is right are question, kind to getting of right really can of do of so wells decline your that the the the But answer. how you types broader is typically combination issue the have And

Operator

Please like Tim I session. President our and turn conference question-and-answer Duncan, ahead, This remarks. Officer, to to would back Executive go closing Chief the any for concludes over sir.

Tim Duncan

trying you, certainly operator. Couple it's Thank difficult of it's remarks, time, closing one, times.

we've that difficult to looked done some we this we've issues. think provide these I before, competency at and wanted

now, and are in if long we have So inventory decisively, year what of a half attack look to can a do. business a model and like have how amount going we them to term see look and from year the We're to created tremendous continuing forward a still and from more faith we to quickly. we've there's what it manage in the this now. through we looks to But

some folks remind to on the that to the But obvious Day Day got for Analyst reasons anyone didn't want call afternoon. as this not there to having look on that won't we obviously, down crisis. be Day our afternoon. notice is all the just forward that back focus this getting price also an on we peeling onion this think the oil Analyst we're get notice But right on, the case planning related a having the so an Analyst and that everyone now that that were hunkering all reminder having in We I through Hopefully, that and things travel. on business interesting. make

that's up We come everybody of weeks. on to look the today. being soon. working with so call, will everything we've that to you to the I where appreciate we back today's hard We that with to call. and some do landed updated hope talked coming think tighten speaking guidance. We we’ve in the We're about But forward many for time being,

Operator

presentation. The for attending you conference Thank is today's now concluded.

disconnect. may now You

Talos Energy (TALO) 12 Mar 202019 Q4 Earnings call transcript