Company Quick10K Filing
Talos Energy
Price16.74 EPS7
Shares54 P/E2
MCap911 P/FCF3
Net Debt621 EBIT438
TEV1,532 TEV/EBIT3
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-03-31 Filed 2020-05-07
10-K 2019-12-31 Filed 2020-03-12
10-Q 2019-09-30 Filed 2019-11-06
10-Q 2019-06-30 Filed 2019-08-07
10-Q 2019-03-31 Filed 2019-05-09
10-K 2018-12-31 Filed 2019-03-13
10-Q 2018-09-30 Filed 2018-11-05
10-Q 2018-06-30 Filed 2018-08-09
8-K 2020-07-09 Regulation FD, Exhibits
8-K 2020-06-22
8-K 2020-06-19
8-K 2020-06-15
8-K 2020-06-15
8-K 2020-05-12
8-K 2020-05-06
8-K 2020-03-23
8-K 2020-03-11
8-K 2020-03-10
8-K 2020-02-27
8-K 2020-02-24
8-K 2020-02-18
8-K 2020-01-31
8-K 2020-01-29
8-K 2020-01-20
8-K 2020-01-07
8-K 2019-12-10
8-K 2019-12-10
8-K 2019-11-06
8-K 2019-10-30
8-K 2019-09-19
8-K 2019-09-11
8-K 2019-08-26
8-K 2019-08-07
8-K 2019-07-03
8-K 2019-06-16
8-K 2019-06-14
8-K 2019-06-03
8-K 2019-05-22
8-K 2019-05-08
8-K 2019-05-06
8-K 2019-04-24
8-K 2019-04-15
8-K 2019-03-13
8-K 2019-02-15
8-K 2019-01-23
8-K 2019-01-16
8-K 2018-12-03
8-K 2018-11-21
8-K 2018-11-20
8-K 2018-11-05
8-K 2018-10-17
8-K 2018-09-27
8-K 2018-09-20
8-K 2018-09-14
8-K 2018-09-10
8-K 2018-08-29
8-K 2018-08-06
8-K 2018-06-01
8-K 2018-05-18
8-K 2018-05-18
8-K 2018-05-10

TALO 10Q Quarterly Report

Part I - Financial Information
Item 1. Financial Statements
Note 1 - Formation and Basis of Presentation
Note 2 - Acquisitions
Note 3 - Property, Plant and Equipment
Note 4 - Leases
Note 5 - Financial Instruments
Note 6 - Debt
Note 7 - Employee Benefits Plans and Share - Based Compensation
Note 8 - Income Taxes
Note 9 - Income (Loss) per Share
Note 10 - Related Party Transactions
Note 11 - Commitments and Contingencies
Note 12 - Condensed Consolidating Financial Information
Note 13 - Subsequent Events
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 talo-ex311_8.htm
EX-31.2 talo-ex312_13.htm
EX-32.1 talo-ex321_12.htm

Talos Energy Earnings 2020-03-31

Balance SheetIncome StatementCash Flow
2.72.21.61.10.50.02016201720182020
Assets, Equity
0.40.30.20.0-0.1-0.22016201720182020
Rev, G Profit, Net Income
0.20.10.0-0.0-0.1-0.22016201720182020
Ops, Inv, Fin

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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 March 31, 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 April 29, 2020, the registrant had 65,342,273 shares of common stock, $0.01 par value per share, outstanding.

 

 

 


 

TABLE OF CONTENTS

 

 

 

Page

GLOSSARY

1

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

3

 

PART I — FINANCIAL INFORMATION

 

Item 1.

Condensed Consolidated Financial Statements

5

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

30

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

41

Item 4.

Controls and Procedures

41

 

PART II — OTHER INFORMATION

 

Item 1.

Legal Proceedings

42

Item 1A.

Risk Factors

42

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

45

Item 3.

Defaults Upon Senior Securities

45

Item 4.

Mine Safety Disclosures

45

Item 5.

Other Information

45

Item 6.

Exhibits

46

 

Signatures

48

 

 

 

 


 

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.

1


 

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 (“API”) gravity of approximately 38-40 and the sulfur content is approximately 0.3%.

2


 

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;

 

our ability to obtain permits and governmental approvals;

 

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.

3


 

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 such 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 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.

 

 

4


 

PART I—FINANCIAL INFORMATION

 

Item 1. Financial Statements

TALOS ENERGY INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts)

 

 

 

March 31, 2020

 

 

December 31, 2019

 

 

 

(Unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

106,952

 

 

$

87,022

 

Accounts receivable

 

 

 

 

 

 

 

 

Trade, net

 

 

81,027

 

 

 

107,842

 

Joint interest, net

 

 

32,894

 

 

 

16,552

 

Other

 

 

36,556

 

 

 

6,346

 

Assets from price risk management activities

 

 

192,553

 

 

 

8,393

 

Prepaid assets

 

 

50,273

 

 

 

65,877

 

Other current assets

 

 

2,046

 

 

 

1,952

 

Total current assets

 

 

502,301

 

 

 

293,984

 

Property and equipment:

 

 

 

 

 

 

 

 

Proved properties

 

 

4,538,100

 

 

 

4,066,260

 

Unproved properties, not subject to amortization

 

 

277,050

 

 

 

194,532

 

Other property and equipment

 

 

31,966

 

 

 

29,843

 

Total property and equipment

 

 

4,847,116

 

 

 

4,290,635

 

Accumulated depreciation, depletion and amortization

 

 

(2,158,566

)

 

 

(2,065,023

)

Total property and equipment, net

 

 

2,688,550

 

 

 

2,225,612

 

Other long-term assets:

 

 

 

 

 

 

 

 

Assets from price risk management activities

 

 

8,794

 

 

 

 

Other well equipment inventory

 

 

9,178

 

 

 

7,732

 

Operating lease assets

 

 

7,590

 

 

 

7,779

 

Other assets

 

 

21,774

 

 

 

54,375

 

Total assets

 

$

3,238,187

 

 

$

2,589,482

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

58,750

 

 

$

71,357

 

Accrued liabilities

 

 

138,271

 

 

 

154,816

 

Accrued royalties

 

 

24,631

 

 

 

31,729

 

Current portion of asset retirement obligations

 

 

38,028

 

 

 

61,051

 

Liabilities from price risk management activities

 

 

4,286

 

 

 

19,476

 

Accrued interest payable

 

 

22,257

 

 

 

10,249

 

Current portion of operating lease liabilities

 

 

1,613

 

 

 

1,594

 

Other current liabilities

 

 

20,918

 

 

 

20,180

 

Total current liabilities

 

 

308,754

 

 

 

370,452

 

Long-term liabilities:

 

 

 

 

 

 

 

 

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

 

 

1,033,162

 

 

 

732,981

 

Asset retirement obligations

 

 

387,868

 

 

 

308,427

 

Liabilities from price risk management activities

 

 

1,898

 

 

 

511

 

Operating lease liabilities

 

 

19,138

 

 

 

17,239

 

Other long-term liabilities

 

 

92,470

 

 

 

81,595

 

Total liabilities

 

 

1,843,290

 

 

 

1,511,205

 

Commitments and contingencies (Note 11)

 

 

 

 

 

 

 

 

Stockholders' Equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.01 par value; 30,000,000 shares authorized and no shares

    issued or outstanding as of March 31, 2020 and December 31, 2019

 

 

 

 

 

 

Common stock $0.01 par value; 270,000,000 shares authorized; 65,342,273 and

   54,197,004 shares issued and outstanding as of March 31, 2020 and

   December 31, 2019, respectively

 

 

652

 

 

 

542

 

Additional paid-in capital

 

 

1,504,903

 

 

 

1,346,142

 

Accumulated deficit

 

 

(110,658

)

 

 

(268,407

)

Total stockholders' equity

 

 

1,394,897

 

 

 

1,078,277

 

Total liabilities and stockholders' equity

 

$

3,238,187

 

 

$

2,589,482

 

 

 

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

5


 

TALOS ENERGY INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share amounts)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

Revenues:

 

 

 

 

 

 

 

 

Oil revenue

 

$

166,624

 

 

$

155,679

 

Natural gas revenue

 

 

11,898

 

 

 

14,447

 

NGL revenue

 

 

4,301

 

 

 

5,066

 

Other

 

 

4,941

 

 

 

3,521

 

Total revenue

 

 

187,764

 

 

 

178,713

 

Operating expenses:

 

 

 

 

 

 

 

 

Lease operating expense

 

 

58,241

 

 

 

67,959

 

Production taxes

 

 

249

 

 

 

582

 

Depreciation, depletion and amortization

 

 

93,543

 

 

 

64,587

 

Write-down of oil and natural gas properties

 

 

57

 

 

 

 

Accretion expense

 

 

12,417

 

 

 

9,607

 

General and administrative expense

 

 

27,469

 

 

 

17,609

 

Total operating expenses

 

 

191,976

 

 

 

160,344

 

Operating income (expense)

 

 

(4,212

)

 

 

18,369

 

Interest expense

 

 

(25,850

)

 

 

(25,218

)

Price risk management activities income (expense)

 

 

243,217

 

 

 

(109,579

)

Other income (expense)

 

 

(146

)

 

 

433

 

Net income (loss) before income taxes

 

 

213,009

 

 

 

(115,995

)

Income tax benefit (expense)

 

 

(55,260

)

 

 

6,359

 

Net income (loss)

 

$

157,749

 

 

$

(109,636

)

 

 

 

 

 

 

 

 

 

Net income (loss) per common share:

 

 

 

 

 

 

 

 

Basic

 

$

2.71

 

 

$

(2.02

)

Diluted

 

$

2.69

 

 

$

(2.02

)

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

Basic

 

 

58,240

 

 

 

54,156

 

Diluted

 

 

58,572

 

 

 

54,156

 

 

 

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

6


 

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

 

 

Stockholders

Equity

 

Balance at January 1, 2019

 

 

54,155,768

 

 

 

 

 

$

542

 

 

$

 

 

$

1,334,090

 

 

$

(327,136

)

 

$

1,007,496

 

Equity based compensation

 

 

37

 

 

 

 

 

 

 

 

 

 

 

 

2,126

 

 

 

 

 

 

2,126

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(109,636

)

 

 

(109,636

)

Balance at March 31, 2019

 

 

54,155,805

 

 

 

 

 

$

542

 

 

$

 

 

$

1,336,216

 

 

$

(436,772

)

 

$

899,986

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at January 1, 2020

 

 

54,197,004

 

 

 

 

 

$

542

 

 

$

 

 

$

1,346,142

 

 

$

(268,407

)

 

$

1,078,277

 

Equity based compensation

 

 

200,077

 

 

 

 

 

 

 

 

 

 

 

 

3,381

 

 

 

 

 

 

3,381

 

Shares withheld for taxes on equity

   transactions

 

 

(54,808

)

 

 

 

 

 

 

 

 

 

 

 

(710

)

 

 

 

 

 

(710

)

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

)

 

 

 

 

 

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

157,749

 

 

 

157,749

 

Balance at March 31, 2020

 

 

65,342,273

 

 

 

 

 

$

652

 

 

$

 

 

$

1,504,903

 

 

$

(110,658

)

 

$

1,394,897

 

 

 

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

7


 

TALOS ENERGY INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income (loss)

 

$

157,749

 

 

$

(109,636

)

Adjustments to reconcile net income (loss) to net cash

   provided by operating activities

 

 

 

 

 

 

 

 

Depreciation, depletion, amortization and accretion expense

 

 

105,960

 

 

 

74,194

 

Write-down of oil and natural gas properties and other well inventory

 

 

190

 

 

 

 

Amortization of deferred financing costs and original issue

   discount

 

 

1,466

 

 

 

1,188

 

Equity based compensation, net of amounts capitalized

 

 

1,627

 

 

 

1,259

 

Price risk management activities expense (income)

 

 

(243,217

)

 

 

109,579

 

Net cash received (paid) on settled derivative instruments

 

 

36,460

 

 

 

(3,019

)

Settlement of asset retirement obligations

 

 

(6,302

)

 

 

(3,945

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(11,578

)

 

 

2,305

 

Other current assets

 

 

18,318

 

 

 

11,370

 

Accounts payable

 

 

(18,547

)

 

 

(8,284

)

Other current liabilities

 

 

13,337

 

 

 

(25,933

)

Other non-current assets and liabilities, net

 

 

54,769

 

 

 

(7,956

)

Net cash provided by operating activities

 

 

110,232

 

 

 

41,122

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Exploration, development and other capital expenditures

 

 

(83,588

)

 

 

(102,396

)

Cash paid for acquisitions, net of cash acquired

 

 

(293,095

)

 

 

(32,916

)

Net cash (used in) investing activities

 

 

(376,683

)

 

 

(135,312

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Redemption of Senior Notes and other long-term debt

 

 

 

 

 

(109

)

Proceeds from Bank Credit Facility

 

 

300,000

 

 

 

35,000

 

Repayment of Bank Credit Facility

 

 

 

 

 

(25,000

)

Deferred financing costs

 

 

(1,285

)

 

 

 

Other deferred payments

 

 

(7,575

)

 

 

(6,575

)

Payments of finance lease

 

 

(4,049

)

 

 

(3,311

)

Employee stock transactions

 

 

(710

)

 

 

 

Net cash provided by financing activities

 

 

286,381

 

 

 

5

 

 

 

 

 

 

 

 

 

 

Net increase (decrease) in cash, cash equivalents and restricted

     cash

 

 

19,930

 

 

 

(94,185

)

Cash, cash equivalents and restricted cash:

 

 

 

 

 

 

 

 

Balance, beginning of period

 

 

87,022

 

 

 

141,162

 

Balance, end of period

 

$

106,952

 

 

$

46,977

 

 

 

 

 

 

 

 

 

 

Supplemental Non-Cash Transactions:

 

 

 

 

 

 

 

 

Capital expenditures included in accounts payable and accrued liabilities

 

$

66,712

 

 

$

134,722

 

Supplemental Cash Flow Information:

 

 

 

 

 

 

 

 

Interest paid, net of amounts capitalized

 

$

4,906

 

 

$

4,614

 

 

 

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

8


 

TALOS ENERGY INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020

(Unaudited)

Note 1 — Formation and Basis of Presentation

Formation and Nature of Business

Talos Energy Inc. (“Talos” or the “Company”) is a technically driven independent exploration and production company focused on safely and efficiently maximizing value through it’s operations, currently in the United States (“U.S.”) Gulf of Mexico and offshore Mexico. The Company leverages decades of geology, geophysics and offshore operations expertise towards the acquisition, exploration, exploitation and development of assets in key geological trends that are present in many offshore basins around the world.

Talos was formed in connection with the previously disclosed business combination between Talos Energy LLC and Stone Energy Corporation (“Stone”) that occurred on May 10, 2018, pursuant to which Talos Energy LLC and Stone became indirect wholly owned subsidiaries of Talos (the “Stone Combination”). Talos Energy LLC was formed in 2011 and commenced commercial operations on February 6, 2013. Prior to February 6, 2013, Talos Energy LLC had incurred certain general and administrative expenses associated with the start-up of its operations.

On February 3, 2012, Talos Energy LLC completed a transaction with funds and other alternative investment vehicles managed by Apollo Management VII, L.P. and Apollo Commodities Management, L.P., with respect to Series I (“Apollo Funds”), and entities controlled by or affiliated with Riverstone Energy Partners V, L.P. (“Riverstone Funds” and, together with the Apollo Funds, the “Sponsors”) and members of management pursuant to which the Company received a private equity capital commitment.

Basis of Presentation and Consolidation

The condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the SEC regarding interim financial reporting. Accordingly, certain information and disclosures normally included in complete financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, these financial statements include all adjustments, which unless otherwise disclosed, are of a normal recurring nature, necessary for a fair presentation of the financial position, results of operations, cash flows and changes in equity for the periods presented. The results for interim periods are not necessarily indicative of results for the entire year. The Company has evaluated subsequent events through the date the condensed consolidated financial statements were issued. The unaudited financial statements and related notes included in this Quarterly Report on Form 10-Q should be read in conjunction with the Company’s audited Consolidated Financial Statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements, the reported amounts of revenues and expenses during the reporting periods and the reported amounts of proved oil and natural gas reserves. Actual results could differ from those estimates.

As discussed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, operating expenses previously presented as “Direct lease operating expense,” “Insurance” and “Workover and maintenance expense” have been combined and presented as “Lease operating expense” on the Company’s Condensed Consolidated Statements of Operations. Such reclassification had no effect on the Company’s results of operations, financial position or cash flows.

The Company has one reportable segment, which is the exploration and production of oil and natural gas. Substantially all the Company’s long-lived assets, proved reserves and production sales are related to the Company’s operations in the United States.

9


 

Recently Adopted Accounting Standards

Credit Risk Losses In June 2016, the Financial Accounting Standards Board issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which changes accounting requirements for the recognition of credit losses from an incurred or probable impairment methodology to a current expected credit losses (“CECL”) methodology. The CECL model is applicable to the measurement of credit losses on financial assets measured at amortized cost, including but not limited to trade receivables. The guidance was adopted on January 1, 2020 using a modified retrospective approach. The adoption of this guidance did not have a material effect on the Company’s condensed consolidated financial statements or related disclosures.

Accounts receivable resulting from the sale of crude oil, NGL and natural gas production and joint interest billings to our partners for their share of expenses on joint venture projects for which we are the operator are the primary financial assets within the scope of the standard. Although these receivables are from a diverse group of companies, including major energy companies, pipeline companies and joint interest owners they are concentrated in the oil and gas industry. This concertation has the potential to impact our overall exposure to credit risk in that these companies may be similarly affected by changes in economic and financial conditions, commodity prices, or other conditions. A loss-rate methodology is used to estimate the allowance for expected credit losses to be accrued on material receivables to reflect the net amount to be collected. At each reporting period the loss-rate is determined utilizing historical data, current market conditions and reasonable and supported forecast of future economic conditions. Our allowance for uncollectable receivables was $9.9 million at March 31, 2020 and $9.9 million at December 31, 2019.

Note 2 — Acquisitions

Asset Acquisitions

Acquisitions qualifying as an asset acquisition that requires, among other items that the cost of the assets acquired and liabilities assumed be recognized on the condensed consolidated balance sheet by allocating the asset cost on a relative fair value basis. The fair value measurements of the oil and natural gas properties acquired and asset retirement obligations assumed were derived utilizing an income approach and based, in part, on significant inputs not observable in the market. These inputs represent Level 3 measurements in the fair value hierarchy and include, but are not limited to, estimates of reserves, future operating and development costs, future commodity prices, estimated future cash flows and appropriate discount rates. These inputs required significant judgments and estimates by the Company’s management at the time of the valuation. Transaction costs incurred on an asset acquisition are capitalized as a component of the assets acquired and any contingent consideration is recognized as the contingency is resolved.

Acquisition of Gunflint Field — On January 11, 2019, the Company completed the acquisition of an approximate 9.6% non-operated working interest in the Gunflint Field located in the Mississippi Canyon area (the “Gunflint Acquisition”) from Samson Offshore Mapleleaf, LLC for $29.6 million ($27.9 million after customary purchase price adjustments).

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

 

Property and equipment

 

$

28,912

 

Asset retirement obligations

 

 

(996

)

Allocated purchase price

 

$

27,916

 

 

Business Combination

Acquisitions qualifying as business combinations are accounted for under the acquisition method of accounting, which requires, among other items, that assets acquired and liabilities assumed be recognized on the condensed consolidated balance sheet at their fair values as of the acquisition date. The fair value measurements of the oil and natural gas properties acquired and asset retirement obligations assumed were derived utilizing an income approach and based, in part, on significant inputs not observable in the market. These inputs represent Level 3 measurements in the fair value hierarchy and include, but are not limited to, estimates of reserves, future operating and development costs, future commodity prices, estimated future cash flows and appropriate discount rates. These inputs required significant judgments and estimates at the time of the valuation.

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ILX and Castex Acquisition — On February 28, 2020, the Company acquired the outstanding limited liability interests in certain wholly owned subsidiaries of ILX Holdings, LLC, ILX Holdings II, LLC, ILX Holdings III LLC and Castex Energy 2014, LLC, each a related party and an affiliate of the Riverstone Funds (the “Riverstone Sellers”), and Castex Energy 2016, LP (together with the Riverstone Sellers, the “Sellers”) with an effective date of July 1, 2019 (collectively, the “ILX and Castex Acquisition). The ILX and Castex Acquisition was consummated pursuant to separate Purchase and Sale Agreements, dated December 10, 2019 (as amended from time to time, the “Purchase Agreements”) for aggregate consideration consisting of (i) $385.0 million in cash subject to customary closing adjustments and (ii) an aggregate 110,000 shares (the “Preferred Shares”) of a series of the Company’s preferred stock designated as “Series A Convertible Preferred Stock” which subsequently converted to 11.0 million shares of the Company’s common stock on March 30, 2020 (such common stock, the “Conversion Stock). The cash payment and escrow deposit were funded