10-Q 1 talo-20240331.htm 10-Q 10-Q
Q10001724965false--12-31http://fasb.org/us-gaap/2023#OtherOperatingIncomeExpenseNethttp://fasb.org/us-gaap/2023#OperatingLeaseLiabilityCurrenthttp://fasb.org/us-gaap/2023#OperatingLeaseLiabilityCurrenthttp://fasb.org/us-gaap/2023#CapitalizedCostsProvedPropertieshttp://fasb.org/us-gaap/2023#CapitalizedCostsProvedPropertieshttp://fasb.org/us-gaap/2023#OtherLiabilitiesCurrenthttp://fasb.org/us-gaap/2023#OtherLiabilitiesCurrenthttp://fasb.org/us-gaap/2023#OtherLiabilitiesNoncurrenthttp://fasb.org/us-gaap/2023#OtherLiabilitiesNoncurrent2029-02-152031-02-152026-01-152026-01-152026-04-152026-04-15http://fasb.org/us-gaap/2023#Assetshttp://fasb.org/us-gaap/2023#Assetshttp://fasb.org/us-gaap/2023#Assetshttp://fasb.org/us-gaap/2023#Assetshttp://fasb.org/us-gaap/2023#Liabilitieshttp://fasb.org/us-gaap/2023#Liabilitieshttp://fasb.org/us-gaap/2023#Liabilitieshttp://fasb.org/us-gaap/2023#Liabilitieshttp://fasb.org/us-gaap/2023#Assetshttp://fasb.org/us-gaap/2023#Assetshttp://fasb.org/us-gaap/2023#Assetshttp://fasb.org/us-gaap/2023#Assetshttp://fasb.org/us-gaap/2023#Liabilitieshttp://fasb.org/us-gaap/2023#Liabilitieshttp://fasb.org/us-gaap/2023#Liabilitieshttp://fasb.org/us-gaap/2023#Liabilities2029-02-012031-02-012026-01-152026-01-152026-04-152026-04-152027-03-312027-03-310001724965us-gaap:SeniorNotesMembertalo:ElevenPointSevenFivePercentSeniorSecuredSecondLienNotesDueAprilTwoThousandTwentySixMember2023-01-012023-12-310001724965us-gaap:RetainedEarningsMember2023-01-012023-03-3100017249652023-03-310001724965us-gaap:SeniorNotesMembertalo:ElevenPointSevenFivePercentSeniorSecuredSecondLienNotesDueAprilTwoThousandTwentySixMember2024-03-310001724965talo:TwelvePointZeroZeroPercentageSecondPrioritySeniorSecuredNotesMember2024-03-310001724965us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2024-03-310001724965talo:CarbonCaptureAndSequestrationMembertalo:BayouBendCcsLlcMember2023-12-310001724965talo:QuarternorthAcquisitionMemberus-gaap:BeneficialOwnerMember2024-03-310001724965talo:DebtInstrumentsRedemptionPeriodOneMembertalo:NinePointThreeSevenFivePercentSeniorSecuredNotesDueFebruaryTwoThousandThirtyOneMember2024-01-012024-03-310001724965us-gaap:GeneralAndAdministrativeExpenseMembertalo:TlcsMember2024-01-012024-03-310001724965us-gaap:TreasuryStockCommonMember2024-03-310001724965us-gaap:SeniorNotesMembertalo:ElevenPointSevenFivePercentSeniorSecuredSecondLienNotesDueAprilTwoThousandTwentySixMember2024-02-072024-02-070001724965us-gaap:AdditionalPaidInCapitalMember2023-03-310001724965srt:NaturalGasPerThousandCubicFeetMembertalo:CollarMembertalo:AprilTwoThousandAndTwentyFourToDecemberTwoThousandAndTwentyFourMember2024-01-012024-03-310001724965srt:NaturalGasPerThousandCubicFeetMembertalo:MayTwoThousandAndTwentyFourToDecemberTwoThousandTwentyFourProductionMembertalo:LongPutsMember2024-03-3100017249652024-04-290001724965talo:QuarternorthAcquisitionMemberus-gaap:GeneralAndAdministrativeExpenseMember2023-01-012023-12-310001724965us-gaap:TreasuryStockCommonMember2023-12-310001724965talo:OilAndNaturalGasDerivativesMember2023-12-310001724965country:US2024-01-012024-03-310001724965us-gaap:GeneralAndAdministrativeExpenseMembertalo:EnvenEnergyCorporationMember2023-01-012023-03-310001724965talo:QuarternorthAcquisitionMembersrt:ProFormaMemberus-gaap:CommonStockMember2024-01-012024-03-310001724965us-gaap:GeneralAndAdministrativeExpenseMembertalo:EnvenEnergyCorporationMember2023-03-310001724965talo:NinePercentSecondPrioritySeniorSecuredNotesDueFebruaryTwoThousandTwentyNineMembertalo:DebtInstrumentsRedemptionPeriodOneMember2024-01-012024-03-310001724965talo:TlcsMember2024-01-012024-03-310001724965talo:QuarternorthAcquisitionMemberus-gaap:GeneralAndAdministrativeExpenseMember2024-03-310001724965srt:NaturalGasPerThousandCubicFeetMembertalo:CollarMembertalo:AprilTwoThousandAndTwentyFourToDecemberTwoThousandAndTwentyFourMember2024-03-310001724965srt:CrudeOilMembertalo:SwapsWithSoldPutsMembertalo:AprilTwoThousandAndTwentyFourToDecemberTwoThousandAndTwentyFourMember2024-03-310001724965Slim Family Office2024-02-070001724965us-gaap:OperatingSegmentsMembertalo:QuarternorthEnergyIncMember2024-01-012024-03-310001724965talo:QuarterNorthEnergyMember2024-03-040001724965talo:UpstreamMembertalo:TalosEnergyMexicoMember2024-03-310001724965us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMember2024-03-310001724965us-gaap:LineOfCreditMembertalo:BankCreditFacilityMaturesMarchTwoThousandTwentySevenMember2024-03-310001724965us-gaap:CommodityContractMember2024-01-012024-03-310001724965talo:NinePointZeroZeroZeroPercentageSecondPrioritySeniorSecuredNotesMember2023-12-310001724965us-gaap:RestrictedStockUnitsRSUMember2024-03-310001724965talo:NinePointZeroZeroZeroPercentageSecondPrioritySeniorSecuredNotesMember2024-03-310001724965talo:QuarternorthAcquisitionMemberus-gaap:CommonStockMember2024-03-042024-03-040001724965srt:NaturalGasPerThousandCubicFeetMembertalo:MayTwoThousandAndTwentyFourToDecemberTwoThousandTwentyFourProductionMembertalo:LongPutsMember2024-01-012024-03-310001724965us-gaap:SeniorNotesMembertalo:TwelvePercentSecondPrioritySeniorSecuredNotesDueJanuaryTwoThousandTwentySixMember2024-02-072024-02-070001724965us-gaap:TreasuryStockCommonMember2023-03-310001724965talo:NinePercentSecondPrioritySeniorSecuredNotesDueFebruaryTwoThousandTwentyNineMemberus-gaap:SeniorNotesMember2024-02-070001724965us-gaap:CommonStockMember2023-03-310001724965us-gaap:EmployeeSeveranceMembertalo:EnvenEnergyCorporationMember2023-01-012023-03-310001724965talo:CounterpartyRiskInvestmentGradeMember2024-01-012024-03-310001724965talo:SecondPrioritySeniorSecuredNotesMember2024-02-070001724965talo:OilAndNaturalGasDerivativesMemberus-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMember2024-03-3100017249652023-01-012023-03-310001724965talo:QuarternorthAcquisitionMembersrt:ProFormaMembertalo:JanuaryTwoThousandAndTwentyFourEquityOfferingMemberus-gaap:CommonStockMember2024-01-012024-03-310001724965us-gaap:SeniorNotesMembertalo:TwelvePercentSecondPrioritySeniorSecuredNotesDueJanuaryTwoThousandTwentySixMember2023-01-012023-12-310001724965country:US2023-01-012023-03-310001724965talo:OilAndNaturalGasDerivativesMemberus-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2023-12-310001724965talo:NinePercentSecondPrioritySeniorSecuredNotesDueFebruaryTwoThousandTwentyNineMemberus-gaap:SeniorNotesMember2024-01-012024-03-310001724965us-gaap:SeniorNotesMembertalo:ElevenPointSevenFivePercentSeniorSecuredSecondLienNotesDueAprilTwoThousandTwentySixMember2023-12-310001724965talo:BankCreditFacilityMember2024-03-310001724965us-gaap:CommonStockMember2023-12-310001724965talo:CarbonCaptureAndSequestrationMembertalo:BayouBendCcsLlcMember2024-03-310001724965us-gaap:OtherCurrentLiabilitiesMembertalo:DecommissioningAbandonmentObligationsMember2023-12-310001724965talo:DecommissioningAbandonmentObligationsMember2023-12-310001724965talo:NinePercentSecondPrioritySeniorSecuredNotesDueFebruaryTwoThousandTwentyNineMemberus-gaap:SeniorNotesMember2024-03-310001724965us-gaap:RestrictedStockUnitsRSUMember2023-12-310001724965us-gaap:GeneralAndAdministrativeExpenseMembertalo:QuarternorthEnergyIncMembertalo:NonrecurringAdjustmentsMember2023-01-012023-03-310001724965us-gaap:LineOfCreditMembertalo:BankCreditFacilityMaturesMarchTwoThousandTwentySevenMember2024-01-012024-03-310001724965talo:DecommissioningAbandonmentObligationsMember2023-01-012023-12-310001724965talo:QuarternorthAcquisitionMember2024-01-012024-03-310001724965us-gaap:SeniorNotesMembertalo:ElevenPointSevenFivePercentSeniorSecuredSecondLienNotesDueAprilTwoThousandTwentySixMemberus-gaap:SubsequentEventMember2024-04-150001724965talo:SlimFamilyMember2024-03-310001724965talo:OilAndNaturalGasDerivativesMemberus-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2024-03-310001724965talo:EnvenElevenPointSevenFivePercentSeniorSecuredNotesDueTwoThousandTwentySixMember2024-01-012024-03-310001724965us-gaap:FairValueMeasurementsRecurringMember2024-03-310001724965us-gaap:OperatingSegmentsMembertalo:ReportableSegmentMember2023-01-012023-03-310001724965talo:GainLossOnDerivativeInstrumentsUnrealizedComponentMember2024-01-012024-03-310001724965talo:SlimFamilyMemberus-gaap:BeneficialOwnerMember2024-03-310001724965talo:UpstreamMembertalo:TalosEnergyMexicoMember2023-12-310001724965talo:BankCreditFacilityMember2024-01-130001724965srt:CrudeOilMemberus-gaap:SwapMembertalo:AprilTwoThousandAndTwentyFourToDecemberTwoThousandAndTwentyFourMember2024-03-310001724965us-gaap:PerformanceSharesMember2023-12-310001724965us-gaap:SeniorNotesMembertalo:TwelvePercentSecondPrioritySeniorSecuredNotesDueJanuaryTwoThousandTwentySixMember2024-01-012024-03-310001724965talo:BankCreditFacilityMaturesMarchTwoThousandTwentySevenMember2024-01-012024-03-310001724965talo:UpstreamMembertalo:SPFourtyNinePipelineLLCMember2023-12-310001724965us-gaap:EquityMethodInvesteeMember2024-03-310001724965talo:OilAndNaturalGasDerivativesMemberus-gaap:FairValueMeasurementsRecurringMember2023-12-310001724965talo:DecommissioningAbandonmentObligationsMember2024-03-310001724965talo:QuarternorthAcquisitionMemberus-gaap:EmployeeSeveranceMember2024-01-012024-03-310001724965us-gaap:EmployeeSeveranceMember2023-12-310001724965talo:NinePointThreeSevenFivePercentageSecondPrioritySeniorSecuredNotesMember2023-12-310001724965us-gaap:SeniorNotesMembertalo:NinePointThreeSevenFivePercentSeniorSecuredNotesDueFebruaryTwoThousandThirtyOneMember2024-02-070001724965us-gaap:TreasuryStockCommonMember2023-01-012023-03-310001724965us-gaap:CommonStockMember2024-03-310001724965us-gaap:SeniorNotesMembertalo:NinePointThreeSevenFivePercentSeniorSecuredNotesDueFebruaryTwoThousandThirtyOneMember2024-03-310001724965us-gaap:GeneralAndAdministrativeExpenseMembertalo:NonrecurringAdjustmentsMembertalo:EnvenEnergyCorporationMember2023-01-012023-03-310001724965talo:UpstreamMembertalo:SPFourtyNinePipelineLLCMember2024-03-310001724965us-gaap:OperatingSegmentsMemberus-gaap:AllOtherSegmentsMember2023-01-012023-03-310001724965us-gaap:OperatingSegmentsMember2024-01-012024-03-310001724965talo:DebtInstrumentRedemptionPeriodAfterTwoMembertalo:NinePointThreeSevenFivePercentSeniorSecuredNotesDueFebruaryTwoThousandThirtyOneMember2024-01-012024-03-310001724965us-gaap:MaterialReconcilingItemsMember2023-01-012023-03-310001724965talo:SecondaryOfferingExpensesMember2023-01-012023-03-310001724965talo:NinePercentSecondPrioritySeniorSecuredNotesDueFebruaryTwoThousandTwentyNineMembertalo:DebtInstrumentsRedemptionPeriodTwoMember2024-01-012024-03-310001724965us-gaap:RestrictedStockUnitsRSUMember2024-01-012024-03-310001724965talo:CarbonCaptureAndSequestrationMembertalo:HarvestBendCCSLLCMember2023-12-310001724965talo:GainLossOnDerivativeInstrumentsRealizedComponentMemberus-gaap:CommodityContractMember2024-01-012024-03-310001724965us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2023-12-310001724965us-gaap:CommodityContractMember2023-01-012023-03-310001724965us-gaap:NaturalGasProductionMember2023-01-012023-03-310001724965us-gaap:OtherNoncurrentLiabilitiesMember2024-03-310001724965talo:QuarternorthAcquisitionMemberus-gaap:InterestExpenseMember2024-01-012024-03-310001724965talo:EnvenElevenPointSevenFivePercentSeniorSecuredNotesDueTwoThousandTwentySixMember2023-12-310001724965talo:TalosLowCarbonSolutionsMember2024-03-182024-03-180001724965talo:TwelvePointZeroZeroPercentageSecondPrioritySeniorSecuredNotesMember2024-01-012024-03-310001724965talo:DecommissioningAbandonmentObligationsMember2022-12-310001724965talo:TotalEnergiesEPUSAIncMember2024-03-182024-03-180001724965us-gaap:SeniorNotesMembertalo:TwelvePercentSecondPrioritySeniorSecuredNotesDueJanuaryTwoThousandTwentySixMember2024-03-310001724965us-gaap:OtherNoncurrentLiabilitiesMember2023-12-310001724965us-gaap:OperatingSegmentsMembertalo:CapitalCarryMembertalo:BayouBendCcsLlcMember2023-01-012023-03-310001724965us-gaap:OperatingSegmentsMembertalo:ReportableSegmentMember2024-01-012024-03-310001724965us-gaap:PerformanceSharesMember2024-01-012024-03-310001724965us-gaap:CommonStockMember2024-01-012024-03-310001724965us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2024-03-310001724965srt:CrudeOilMemberus-gaap:SwapMembertalo:AprilTwoThousandAndTwentyFourToDecemberTwoThousandAndTwentyFourMember2024-01-012024-03-310001724965us-gaap:SeniorNotesMembertalo:ElevenPointSevenFivePercentSeniorSecuredSecondLienNotesDueAprilTwoThousandTwentySixMember2024-02-070001724965us-gaap:SeniorNotesMembertalo:ElevenPointSevenFivePercentSeniorSecuredSecondLienNotesDueAprilTwoThousandTwentySixMember2024-01-012024-03-310001724965us-gaap:SeniorNotesMemberus-gaap:OtherNonoperatingIncomeExpenseMembertalo:TwelvePercentSecondPrioritySeniorSecuredNotesDueJanuaryTwoThousandTwentySixMember2024-02-072024-02-070001724965us-gaap:AccruedLiabilitiesMemberus-gaap:RestrictedStockUnitsRSUMember2024-03-310001724965us-gaap:PendingLitigationMember2024-03-310001724965talo:NinePercentSecondPrioritySeniorSecuredNotesDueFebruaryTwoThousandTwentyNineMemberus-gaap:SeniorNotesMembersrt:ScenarioForecastMember2026-01-312026-01-310001724965us-gaap:OtherNoncurrentLiabilitiesMembertalo:DecommissioningAbandonmentObligationsMember2024-03-310001724965talo:QuarternorthAcquisitionMember2024-03-040001724965us-gaap:SeniorNotesMembertalo:NinePointThreeSevenFivePercentSeniorSecuredNotesDueFebruaryTwoThousandThirtyOneMember2023-12-310001724965talo:EnvenElevenPointSevenFivePercentSeniorSecuredNotesDueTwoThousandTwentySixMember2024-03-310001724965srt:NaturalGasPerThousandCubicFeetMemberus-gaap:SwapMembertalo:AprilTwoThousandAndTwentyFourToDecemberTwoThousandAndTwentyFourMember2024-03-310001724965us-gaap:SeniorNotesMembertalo:TwelvePercentSecondPrioritySeniorSecuredNotesDueJanuaryTwoThousandTwentySixMember2024-02-070001724965talo:OilAndNaturalGasDerivativesMemberus-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2024-03-310001724965talo:OilAndNaturalGasDerivativesMemberus-gaap:FairValueMeasurementsRecurringMember2024-03-310001724965talo:QuarternorthAcquisitionMembertalo:BankCreditFacilityMember2024-01-130001724965us-gaap:DisposalGroupHeldForSaleOrDisposedOfBySaleNotDiscontinuedOperationsMembertalo:TalosLowCarbonSolutionsMember2024-01-012024-03-310001724965talo:EnvenElevenPointSevenFivePercentSeniorSecuredNotesDueTwoThousandTwentySixMember2023-01-012023-12-310001724965us-gaap:GeneralAndAdministrativeExpenseMembertalo:TlcsMember2024-03-310001724965srt:CrudeOilMembertalo:CollarMembertalo:JanuaryTwoThousandAndTwentyFiveToMarchTwoThousandAndTwentyFiveMember2024-03-310001724965talo:QuarternorthAcquisitionMemberus-gaap:GeneralAndAdministrativeExpenseMember2024-01-012024-03-310001724965talo:DecommissioningAbandonmentObligationsMember2024-01-012024-03-310001724965talo:NinePointThreeSevenFivePercentageSecondPrioritySeniorSecuredNotesMember2024-03-310001724965us-gaap:LineOfCreditMember2024-01-012024-03-310001724965talo:QuarternorthAcquisitionMembertalo:TwelvePercentSecondPrioritySeniorSecuredNotesDueJanuaryTwoThousandTwentySixMember2024-02-072024-02-070001724965talo:QuarternorthAcquisitionMemberus-gaap:CommonStockMember2024-03-042024-03-040001724965us-gaap:SuretyBondMember2024-03-310001724965talo:BankCreditFacilityMaturesMarchTwoThousandTwentySevenMember2024-03-310001724965us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2023-12-3100017249652023-12-310001724965us-gaap:EquityMethodInvesteeMember2023-12-310001724965srt:NaturalGasReservesMembercountry:US2024-01-012024-03-310001724965talo:EnvenEnergyCorporationMember2023-02-132023-02-130001724965talo:NinePointZeroZeroZeroPercentageSecondPrioritySeniorSecuredNotesMember2024-01-012024-03-310001724965srt:CrudeOilMembertalo:CollarMembertalo:AprilTwoThousandAndTwentyFourToDecemberTwoThousandAndTwentyFourMember2024-03-310001724965us-gaap:OilAndCondensateMember2023-01-012023-03-310001724965talo:QuarternorthAcquisitionMembersrt:ProFormaMemberus-gaap:EmployeeSeveranceMember2024-01-012024-03-310001724965us-gaap:OilAndCondensateMember2024-01-012024-03-310001724965talo:QuarternorthEnergyIncMember2024-01-012024-03-3100017249652024-01-012024-03-180001724965talo:EnvenEnergyCorporationMemberus-gaap:CommonStockMember2023-02-132023-02-130001724965us-gaap:FairValueMeasurementsRecurringMember2023-12-310001724965srt:NaturalGasLiquidsReservesMember2023-01-012023-03-310001724965talo:HarvestBendCCSLLCMembertalo:CarbonCaptureAndSequestrationMember2024-03-310001724965talo:DebtInstrumentsRedemptionPeriodTwoMembertalo:NinePointThreeSevenFivePercentSeniorSecuredNotesDueFebruaryTwoThousandThirtyOneMember2024-01-012024-03-310001724965us-gaap:AdditionalPaidInCapitalMember2023-01-012023-03-310001724965srt:NaturalGasLiquidsReservesMember2024-01-012024-03-310001724965us-gaap:OperatingSegmentsMembertalo:EnvenEnergyCorporationMember2023-01-012023-03-310001724965talo:SecondaryOfferingExpensesMember2024-01-012024-03-310001724965talo:TwelvePointZeroZeroPercentageSecondPrioritySeniorSecuredNotesMember2023-12-310001724965us-gaap:AdditionalPaidInCapitalMember2024-01-012024-03-310001724965talo:FirmTransportationMembersrt:ScenarioForecastMember2025-01-012028-12-310001724965talo:QuarternorthAcquisitionMember2023-01-012023-03-310001724965talo:QuarternorthAcquisitionMember2024-03-042024-03-040001724965us-gaap:OperatingSegmentsMemberus-gaap:EmployeeSeveranceMembertalo:EnvenEnergyCorporationMember2023-01-012023-03-310001724965us-gaap:NaturalGasProductionMember2024-01-012024-03-310001724965talo:NinePercentSecondPrioritySeniorSecuredNotesDueFebruaryTwoThousandTwentyNineMembertalo:DebtInstrumentRedemptionPeriodAfterTwoMember2024-01-012024-03-310001724965us-gaap:SeniorNotesMembertalo:TwelvePercentSecondPrioritySeniorSecuredNotesDueJanuaryTwoThousandTwentySixMember2023-12-310001724965talo:OilAndNaturalGasDerivativesMemberus-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMember2023-12-310001724965us-gaap:EmployeeSeveranceMember2024-03-310001724965us-gaap:SeniorNotesMembersrt:ScenarioForecastMembertalo:NinePointThreeSevenFivePercentSeniorSecuredNotesDueFebruaryTwoThousandThirtyOneMember2027-01-312027-01-310001724965us-gaap:MaterialReconcilingItemsMember2024-01-012024-03-310001724965us-gaap:LetterOfCreditMembertalo:BankCreditFacilityMember2024-03-310001724965us-gaap:RetainedEarningsMember2023-03-310001724965talo:FuturePluggingAndAbanonmentObligationsMember2024-03-310001724965us-gaap:GeneralAndAdministrativeExpenseMembertalo:QuarternorthEnergyIncMembertalo:NonrecurringAdjustmentsMember2024-01-012024-03-310001724965srt:CrudeOilMembertalo:CollarMembertalo:AprilTwoThousandAndTwentyFourToDecemberTwoThousandAndTwentyFourMember2024-01-012024-03-310001724965us-gaap:OperatingSegmentsMembertalo:UpstreamMember2023-01-012023-03-310001724965talo:EnvenEnergyCorporationMember2023-01-012023-03-310001724965us-gaap:RetainedEarningsMember2024-03-310001724965us-gaap:EmployeeSeveranceMember2024-01-012024-03-310001724965us-gaap:PerformanceSharesMember2024-03-310001724965srt:OilReservesMembercountry:US2024-01-012024-03-310001724965us-gaap:SeniorNotesMembertalo:NinePointThreeSevenFivePercentSeniorSecuredNotesDueFebruaryTwoThousandThirtyOneMember2024-01-012024-03-310001724965us-gaap:RetainedEarningsMember2024-01-012024-03-310001724965talo:OilAndNaturalGasDerivativesMember2024-03-310001724965us-gaap:OtherCurrentLiabilitiesMembertalo:DecommissioningAbandonmentObligationsMember2024-03-310001724965us-gaap:CommonStockMember2023-01-012023-03-310001724965us-gaap:OtherNoncurrentLiabilitiesMembertalo:DecommissioningAbandonmentObligationsMember2023-12-310001724965us-gaap:LineOfCreditMembertalo:BankCreditFacilityMaturesMarchTwoThousandTwentySevenMember2023-01-012023-12-3100017249652024-01-012024-03-310001724965us-gaap:OperatingSegmentsMember2023-01-012023-03-310001724965talo:TwelvePointZeroZeroPercentageSecondPrioritySeniorSecuredNotesMember2023-01-012023-12-310001724965us-gaap:SeniorNotesMembertalo:ElevenPointSevenFivePercentSeniorSecuredSecondLienNotesDueAprilTwoThousandTwentySixMemberus-gaap:OtherNonoperatingIncomeExpenseMember2024-02-072024-02-070001724965us-gaap:RetainedEarningsMember2022-12-310001724965us-gaap:AdditionalPaidInCapitalMember2023-12-310001724965talo:NinePointThreeSevenFivePercentSeniorSecuredNotesDueFebruaryTwoThousandThirtyOneMember2024-01-012024-03-310001724965talo:BainCapitalLpMemberus-gaap:BeneficialOwnerMember2024-03-310001724965talo:OilAndNaturalGasDerivativesMemberus-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2023-12-310001724965us-gaap:AdditionalPaidInCapitalMember2022-12-310001724965talo:EnvenEnergyCorporationMembertalo:ElevenPointSevenFivePercentNotesMember2024-03-310001724965srt:NaturalGasPerThousandCubicFeetMembertalo:JanuaryTwoThousandAndTwentyFiveToDecemberTwoThousandAndTwentyFiveMemberus-gaap:SwapMember2024-03-310001724965us-gaap:RetainedEarningsMember2023-12-310001724965talo:CarbonCaptureAndSequestrationMembertalo:CoastalBendCcsLlcMember2023-12-310001724965us-gaap:OperatingSegmentsMemberus-gaap:AllOtherSegmentsMember2024-01-012024-03-310001724965talo:SettlementsOfPreexistingRelationshipMembertalo:EnvenEnergyCorporationMember2023-02-132023-02-130001724965talo:BankCreditFacilityMaturesMarchTwoThousandTwentySevenMember2023-12-310001724965talo:NinePointThreeSevenFivePercentageSecondPrioritySeniorSecuredNotesMember2024-01-012024-03-3100017249652024-03-310001724965srt:CrudeOilMembertalo:JanuaryTwoThousandAndTwentyFiveToDecemberTwoThousandAndTwentyFiveMemberus-gaap:SwapMember2024-03-310001724965talo:EnvenEnergyCorporationMember2024-01-012024-03-310001724965talo:CounterpartyRiskDiversificationMember2024-03-310001724965us-gaap:NonrelatedPartyMembertalo:BancoInbursaMember2024-02-072024-02-070001724965srt:CrudeOilMembertalo:AprilTwoThousandAndTwentyFourToDecemberTwoThousandAndTwentyFourMembertalo:LongPutsMember2024-01-012024-03-310001724965us-gaap:CommonStockMember2022-12-310001724965srt:NaturalGasPerThousandCubicFeetMembertalo:JanuaryTwoThousandAndTwentyFiveToDecemberTwoThousandAndTwentyFiveMemberus-gaap:SwapMember2024-01-012024-03-310001724965talo:CarbonCaptureAndSequestrationMembertalo:CoastalBendCcsLlcMember2024-03-310001724965talo:GainLossOnDerivativeInstrumentsUnrealizedComponentMember2023-01-012023-03-310001724965us-gaap:AdditionalPaidInCapitalMember2024-03-310001724965srt:CrudeOilMembertalo:AprilTwoThousandAndTwentyFourToDecemberTwoThousandAndTwentyFourMembertalo:LongPutsMember2024-03-310001724965srt:ProFormaMemberus-gaap:CommonStockMembertalo:EnvenEnergyCorporationMember2024-01-012024-03-310001724965talo:NinePercentSecondPrioritySeniorSecuredNotesDueFebruaryTwoThousandTwentyNineMemberus-gaap:SeniorNotesMember2023-12-310001724965srt:CrudeOilMembertalo:JanuaryTwoThousandAndTwentyFiveToDecemberTwoThousandAndTwentyFiveMemberus-gaap:SwapMember2024-01-012024-03-310001724965talo:NinePercentSecondPrioritySeniorSecuredNotesDueFebruaryTwoThousandTwentyNineMember2024-01-012024-03-310001724965srt:CrudeOilMembertalo:SwapsWithSoldPutsMembertalo:AprilTwoThousandAndTwentyFourToDecemberTwoThousandAndTwentyFourMember2024-01-012024-03-310001724965us-gaap:OperatingSegmentsMembertalo:UpstreamMember2024-01-012024-03-310001724965us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMember2023-12-310001724965talo:QuarternorthAcquisitionMember2024-01-132024-01-130001724965srt:NaturalGasLiquidsReservesMembercountry:US2024-01-012024-03-310001724965talo:GainLossOnDerivativeInstrumentsRealizedComponentMemberus-gaap:CommodityContractMember2023-01-012023-03-310001724965us-gaap:LineOfCreditMembertalo:BankCreditFacilityMaturesMarchTwoThousandTwentySevenMember2023-12-310001724965srt:CrudeOilMembertalo:CollarMembertalo:JanuaryTwoThousandAndTwentyFiveToMarchTwoThousandAndTwentyFiveMember2024-01-012024-03-310001724965srt:NaturalGasPerThousandCubicFeetMemberus-gaap:SwapMembertalo:AprilTwoThousandAndTwentyFourToDecemberTwoThousandAndTwentyFourMember2024-01-012024-03-3100017249652022-12-31iso4217:USDutr:MMBTUxbrli:pureutr:bbltalo:Segmentxbrli:sharesutr:MMBTUtalo:Counterpartyiso4217:USDutr:Mcfiso4217:USDiso4217:USDutr:bbliso4217:USDxbrli:shares

 

 

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, 2024

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

img125116702_0.jpg 

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

 

New York Stock Exchange

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, 2024, the registrant had 183,919,349 shares of common stock, $0.01 par value per share, outstanding.

 

 

 


 

TABLE OF CONTENTS

 

 

 

Page

GLOSSARY

3

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

5

 

PART I — FINANCIAL INFORMATION

 

Item 1.

Financial Statements

7

 

Condensed Consolidated Balance Sheets

7

 

Condensed Consolidated Statements of Operations

8

 

Condensed Consolidated Statements of Changes in Stockholders’ Equity

9

 

Condensed Consolidated Statements of Cash Flows

10

 

Notes to Condensed Consolidated Financial Statements

11

 

Note 1 — Organization, Nature of Business and Basis of Presentation

11

 

Note 2 — Acquisitions and Divestitures

12

 

Note 3 — Property, Plant and Equipment

14

 

Note 4 — Leases

14

 

Note 5 — Financial Instruments

15

 

Note 6 — Equity Method Investments

18

 

Note 7 — Debt

18

 

Note 8 — Asset Retirement Obligations

20

 

Note 9 — Employee Benefits Plans and Share-Based Compensation

21

 

Note 10 — Income Taxes

22

 

Note 11 — Income (Loss) Per Share

22

 

Note 12 — Related Party Transactions

23

 

Note 13 — Commitments and Contingencies

23

 

Note 14 — Segment Information

25

Item 2.

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

27

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

37

Item 4.

Controls and Procedures

37

 

PART II — OTHER INFORMATION

 

Item 1.

Legal Proceedings

38

Item 1A.

Risk Factors

38

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

38

Item 3.

Defaults Upon Senior Securities

38

Item 4.

Mine Safety Disclosures

38

Item 5.

Other Information

38

Item 6.

Exhibits

39

 

Signatures

42

 

 

2


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.

BOEM — Bureau of Ocean Energy Management.

BSEE — Bureau of Safety and Environmental Enforcement.

Boepd — Barrels of oil equivalent per day.

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

CCS — Carbon capture and sequestration.

CO2 Carbon dioxide.

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.

GAAP — Accounting principles generally accepted in the United States of America.

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.

OPEC — Organization of Petroleum Exporting Countries.

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. The SEC provides a complete definition of undeveloped oil and gas reserves in Rule 4-10(a)(31) of Regulation S-X.

SEC — The U.S. Securities and Exchange Commission.

3


SEC pricing — The unweighted average first-day-of-the-month commodity price for crude oil or natural gas for each month within the 12-month period prior to the end of the reporting period, 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).

Shelf — Water depths of up to 600 feet.

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

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

4


CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

The information in this Quarterly Report on Form 10-Q (this “Quarterly 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 Quarterly 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 Quarterly Report, the words “will,” “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;
recoverable resources and reserves;
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;
risks related to future mergers and acquisitions and/or to realize the expected benefits of any such transaction;
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, including financial assurance requirements, and legislative 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;
our integration of acquisitions, including the QuarterNorth Acquisition (as defined herein), and the anticipated performance of the combined company;
future leasehold or business acquisitions on desired terms;
costs of developing properties;
general economic conditions, including the impact of continued inflation and associated changes in monetary policy;
political and economic conditions and events in foreign oil, natural gas and NGL producing countries and acts of terrorism or sabotage;
credit markets;
volatility in the political, legal and regulatory environments ahead of the upcoming domestic and foreign presidential elections;
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;
our ongoing strategy with respect to our Zama asset;
uncertainty regarding our future operating results and our future revenues and expenses;

5


impact of new accounting pronouncements on earnings in future periods; and
plans, objectives, expectations and intentions contained in this Quarterly Report that are not historical.

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; global demand for oil and natural gas; the ability or willingness of OPEC and other state-controlled oil companies (“OPEC Plus”) to set and maintain oil production levels and the impact of any such actions; the lack of a resolution to the war in Ukraine and increasing hostilities in the Middle East, and their impact on commodity markets; the impact of any pandemic, and governmental measures related thereto; lack of transportation and storage capacity as a result of oversupply, government and regulations; the effect of a possible U.S. government shutdown and resulting impact on economic conditions and delays in regulatory and permitting approvals; lack of availability of drilling and production equipment and services; adverse weather events, including tropical storms, hurricanes, winter storms and loop currents; cybersecurity threats; sustained inflation and the impact of central bank policy in response thereto; 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, including the impact of financial assurance requirements; the uncertainty inherent in estimating reserves and in projecting future rates of production; cash flow and access to capital; the timing of development expenditures; potential adverse reactions or competitive responses to our acquisitions and other transactions; the possibility that the anticipated benefits of our acquisitions are not realized when expected or at all, including as a result of the impact of, or problems arising from, the integration of acquired assets and operations; and the other risks discussed in Part I, Item 1A. “Risk Factors” of Talos Energy Inc.’s Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 Annual 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 Quarterly 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.

6


PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

TALOS ENERGY INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts)

 

March 31, 2024

 

December 31, 2023

 

 

(Unaudited)

 

 

 

ASSETS

 

 

 

 

Current assets:

 

 

 

 

Cash and cash equivalents

$

21,001

 

$

33,637

 

Accounts receivable:

 

 

 

 

Trade, net

 

248,892

 

 

178,977

 

Joint interest, net

 

143,801

 

 

79,337

 

Other, net

 

16,652

 

 

19,296

 

Assets from price risk management activities

 

18,753

 

 

36,152

 

Prepaid assets

 

75,776

 

 

64,387

 

Other current assets

 

16,036

 

 

10,389

 

Total current assets

 

540,911

 

 

422,175

 

Property and equipment:

 

 

 

 

Proved properties

 

9,268,050

 

 

7,906,295

 

Unproved properties, not subject to amortization

 

654,906

 

 

268,315

 

Other property and equipment

 

34,440

 

 

34,027

 

Total property and equipment

 

9,957,396

 

 

8,208,637

 

Accumulated depreciation, depletion and amortization

 

(4,383,970

)

 

(4,168,328

)

Total property and equipment, net

 

5,573,426

 

 

4,040,309

 

Other long-term assets:

 

 

 

 

Restricted cash

 

103,360

 

 

102,362

 

Assets from price risk management activities

 

5,355

 

 

17,551

 

Equity method investments

 

108,036

 

 

146,049

 

Other well equipment

 

63,507

 

 

54,277

 

Notes receivable, net

 

16,619

 

 

16,207

 

Operating lease assets

 

12,676

 

 

11,418

 

Other assets

 

10,494

 

 

5,961

 

Total assets

$

6,434,384

 

$

4,816,309

 

LIABILITIES AND STOCKHOLDERSʼ EQUITY

 

 

 

 

Current liabilities:

 

 

 

 

Accounts payable

$

136,833

 

$

84,193

 

Accrued liabilities

 

272,231

 

 

227,690

 

Accrued royalties

 

71,007

 

 

55,051

 

Current portion of long-term debt

 

 

 

33,060

 

Current portion of asset retirement obligations

 

71,799

 

 

77,581

 

Liabilities from price risk management activities

 

74,033

 

 

7,305

 

Accrued interest payable

 

21,106

 

 

42,300

 

Current portion of operating lease liabilities

 

3,543

 

 

2,666

 

Other current liabilities

 

46,310

 

 

48,769

 

Total current liabilities

 

696,862

 

 

578,615

 

Long-term liabilities:

 

 

 

 

Long-term debt

 

1,533,952

 

 

992,614

 

Asset retirement obligations

 

1,037,533

 

 

819,645

 

Liabilities from price risk management activities

 

3,747

 

 

795

 

Operating lease liabilities

 

18,271

 

 

18,211

 

Other long-term liabilities

 

391,834

 

 

251,278

 

Total liabilities

 

3,682,199

 

 

2,661,158

 

Commitments and contingencies (Note 13)

 

 

 

 

Stockholdersʼ equity:

 

 

 

 

Preferred stock; $0.01 par value; 30,000,000 shares authorized and zero shares issued or outstanding as of March 31, 2024 and December 31, 2023, respectively

 

 

 

 

Common stock; $0.01 par value; 270,000,000 shares authorized; 187,307,298 and 127,480,361 shares issued as of March 31, 2024 and December 31, 2023, respectively

 

1,873

 

 

1,275

 

Additional paid-in capital

 

3,257,972

 

 

2,549,097

 

Accumulated deficit

 

(460,156

)

 

(347,717

)

Treasury stock, at cost; 3,400,000 and 3,400,000 shares as of March 31, 2024 and December 31, 2023, respectively

 

(47,504

)

 

(47,504

)

Total stockholdersʼ equity

 

2,752,185

 

 

2,155,151

 

Total liabilities and stockholdersʼ equity

$

6,434,384

 

$

4,816,309

 

 

See accompanying notes.

7


TALOS ENERGY INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)

 

Three Months Ended March 31,

 

 

2024

 

2023

 

Revenues:

 

 

 

 

Oil

$

393,221

 

$

292,694

 

Natural gas

 

23,698

 

 

20,183

 

NGL

 

13,013

 

 

9,705

 

Total revenues

 

429,932

 

 

322,582

 

Operating expenses:

 

 

 

 

Lease operating expense

 

135,178

 

 

81,362

 

Production taxes

 

544

 

 

606

 

Depreciation, depletion and amortization

 

215,664

 

 

147,323

 

Accretion expense

 

26,903

 

 

19,414

 

General and administrative expense

 

69,841

 

 

63,187

 

Other operating (income) expense

 

(86,043

)

 

2,838

 

Total operating expenses

 

362,087

 

 

314,730

 

Operating income (expense)

 

67,845

 

 

7,852

 

Interest expense

 

(50,845

)

 

(37,581

)

Price risk management activities income (expense)

 

(87,062

)

 

58,937

 

Equity method investment income (expense)

 

(8,054

)

 

7,443

 

Other income (expense)

 

(55,896

)

 

6,666

 

Net income (loss) before income taxes

 

(134,012

)

 

43,317

 

Income tax benefit (expense)

 

21,573

 

 

46,543

 

Net income (loss)

$

(112,439

)

$

89,860

 

 

 

 

 

 

Net income (loss) per common share:

 

 

 

 

Basic

$

(0.71

)

$

0.85

 

Diluted

$

(0.71

)

$

0.84

 

Weighted average common shares outstanding:

 

 

 

 

Basic

 

158,490

 

 

105,634

 

Diluted

 

158,490

 

 

106,950

 

 

See accompanying notes.

8


TALOS ENERGY INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN

STOCKHOLDERS’ EQUITY

(In thousands, except share amounts)

(Unaudited)

 

Common Stock

 

Additional
Paid-In

 

Accumulated

 

Treasury Stock

 

Total
Stockholdersʼ

 

 

Shares Issued

 

Par Value

 

Capital

 

Deficit

 

Shares

 

Amount

 

Equity

 

Balance at December 31, 2022

 

82,570,328

 

$

826

 

$

1,699,799

 

$

(535,049

)

 

 

$

 

$

1,165,576

 

Equity-based compensation

 

 

 

 

 

7,232

 

 

 

 

 

 

 

 

7,232

 

Equity-based compensation tax withholdings

 

 

 

 

 

(7,378

)

 

 

 

 

 

 

 

(7,378

)

Equity-based compensation stock issuances

 

1,085,747

 

 

11

 

 

(11

)

 

 

 

 

 

 

 

 

Issuance of common stock for acquisitions (Note 2)

 

43,799,890

 

 

438

 

 

831,760

 

 

 

 

 

 

 

 

832,198

 

Purchase of treasury stock

 

 

 

 

 

 

 

 

 

1,900,000

 

 

(26,647

)

 

(26,647

)

Net income (loss)

 

 

 

 

 

 

 

89,860

 

 

 

 

 

 

89,860

 

Balance at March 31, 2023

 

127,455,965

 

$

1,275

 

$

2,531,402

 

$

(445,189

)

 

1,900,000

 

$

(26,647

)

$

2,060,841

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2023

 

127,480,361

 

$

1,275

 

$

2,549,097

 

$

(347,717

)

 

3,400,000

 

$

(47,504

)

$

2,155,151

 

Equity-based compensation

 

 

 

 

 

4,646

 

 

 

 

 

 

 

 

4,646

 

Equity-based compensation tax withholdings

 

 

 

 

 

(5,520

)

 

 

 

 

 

 

 

(5,520

)

Equity-based compensation stock issuances

 

977,485

 

 

10

 

 

(10

)

 

 

 

 

 

 

 

 

Issuance of common stock for acquisitions (Note 2)

 

24,349,452

 

 

243

 

 

322,387

 

 

 

 

 

 

 

 

322,630

 

Issuance of common stock

 

34,500,000

 

 

345

 

 

387,372

 

 

 

 

 

 

 

 

387,717

 

Net income (loss)

 

 

 

 

 

 

 

(112,439

)

 

 

 

 

 

(112,439

)

Balance at March 31, 2024

 

187,307,298

 

$

1,873

 

$

3,257,972

 

$

(460,156

)

 

3,400,000

 

$

(47,504

)

$

2,752,185

 

 

See accompanying notes.

9


TALOS ENERGY INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

Three Months Ended March 31,

 

 

2024

 

2023

 

Cash flows from operating activities:

 

 

 

 

Net income (loss)

$

(112,439

)

$

89,860

 

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

 

 

 

 

Depreciation, depletion, amortization and accretion expense

 

242,567

 

 

166,737

 

Amortization of deferred financing costs and original issue discount

 

2,598

 

 

4,148

 

Equity-based compensation expense

 

2,754

 

 

3,938

 

Price risk management activities (income) expense

 

87,062

 

 

(58,937

)

Net cash received (paid) on settled derivative instruments

 

(3,494

)

 

(12,323

)

Equity method investment (income) expense

 

8,054

 

 

(7,443

)

Loss (gain) on extinguishment of debt

 

60,256

 

 

 

Settlement of asset retirement obligations

 

(27,907

)

 

(10,113

)

Loss (gain) on sale of business

 

(86,940

)

 

 

Changes in operating assets and liabilities:

 

 

 

 

Accounts receivable

 

8,020

 

 

36,821

 

Other current assets

 

(5,818

)

 

7,735

 

Accounts payable

 

10,707

 

 

(4,894

)

Other current liabilities

 

(65,249

)

 

(116,637

)

Other non-current assets and liabilities, net

 

(23,745

)

 

(36,035

)

Net cash provided by (used in) operating activities

 

96,426

 

 

62,857

 

Cash flows from investing activities:

 

 

 

 

Exploration, development and other capital expenditures

 

(146,077

)

 

(103,962

)

Proceeds from (cash paid for) acquisitions, net of cash acquired

 

(916,045

)

 

17,617

 

Contributions to equity method investees

 

(17,519

)

 

(12,835

)

Investment in intangible assets

 

 

 

(7,796

)

Proceeds from sales of businesses

 

141,997

 

 

 

Net cash provided by (used in) investing activities

 

(937,644

)

 

(106,976

)

Cash flows from financing activities:

 

 

 

 

Issuance of common stock

 

387,717

 

 

 

Issuance of senior notes

 

1,250,000

 

 

 

Redemption of senior notes

 

(897,116

)

 

 

Proceeds from Bank Credit Facility

 

670,000

 

 

275,000

 

Repayment of Bank Credit Facility

 

(545,000

)

 

(110,000

)

Deferred financing costs

 

(25,505

)

 

(11,346

)

Other deferred payments

 

(672

)

 

 

Payments of finance lease

 

(4,324

)

 

(3,987

)

Purchase of treasury stock

 

 

 

(25,173

)

Employee stock awards tax withholdings

 

(5,520

)

 

(7,378

)

Net cash provided by (used in) financing activities

 

829,580

 

 

117,116

 

 

 

 

 

 

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

 

(11,638

)

 

72,997

 

Cash, cash equivalents and restricted cash:

 

 

 

 

Balance, beginning of period

 

135,999

 

 

44,145

 

Balance, end of period

$

124,361

 

$

117,142

 

 

 

 

 

 

Supplemental non-cash transactions:

 

 

 

 

Capital expenditures included in accounts payable and accrued liabilities

$

101,794

 

$

174,597

 

Supplemental cash flow information:

 

 

 

 

Interest paid, net of amounts capitalized

$

55,224

 

$

40,988

 

 

See accompanying notes.

10


TALOS ENERGY INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2024

(Unaudited)

Note 1 — Organization, Nature of Business and Basis of Presentation

Organization and Nature of Business

Talos Energy Inc. (the “Parent Company”) is a Delaware corporation originally incorporated on November 14, 2017. The Parent Company conducts all business operations through its operating subsidiaries, owns no operating assets and has no material operations, cash flows or liabilities independent of its subsidiaries. The Parent Company’s common stock is traded on The New York Stock Exchange under the ticker symbol “TALO.”

The Parent Company (including its subsidiaries, collectively “Talos” or the “Company”) is a technically driven independent exploration and production company focused on safely and efficiently maximizing long-term value through its operations, currently in the United States (“U.S.”) and offshore Mexico. The Company leverages decades of technical and offshore operational expertise towards the acquisition, exploration and development of assets in key geological trends that are present in many offshore basins around the world.

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 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 unaudited financial statements and related notes included in this Quarterly Report should be read in conjunction with the Company’s audited Consolidated Financial Statements and accompanying notes included in the 2023 Annual Report.

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 and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

Segments

From January 1, 2024 through March 18, 2024, the Company had two operating segments: (i) exploration and production of oil, natural gas and NGLs (“Upstream Segment”) and (ii) CCS (“CCS Segment”), of which the Company’s only reportable segment was the Upstream Segment. Subsequent to the TLCS Divestiture (as defined herein) and sale of the Company’s entire CCS business, the Company had one operating segment. See additional information in Note 14 — Segment Information.

Summary of Significant Accounting Policies

The Company has provided a discussion of its significant accounting policies, estimates and judgments in Note 2 – Summary of Significant Accounting Policies included in the accompanying Notes to Consolidated Financial Statements in the 2023 Annual Report. The Company has not changed any of its significant accounting policies from those described in our 2023 Annual Report.

Cash, Cash Equivalents and Restricted Cash

The following table provides a reconciliation of the amount of cash, cash equivalents and restricted cash reported within the Condensed Consolidated Balance Sheets to the total of the same such amounts shown in the Condensed Consolidated Statements of Cash Flows (in thousands):

 

March 31, 2024

 

December 31, 2023

 

Cash and cash equivalents

$

21,001

 

$

33,637

 

Restricted cash included in Other long-term assets

 

103,360

 

 

102,362

 

Total cash, cash equivalent and restricted cash

$

124,361

 

$

135,999

 

 

11


Note 2 — Acquisitions and Divestitures

Acquisitions — Business Combinations

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 Consolidated Balance Sheets at their fair values as of the acquisition date.

QuarterNorth Acquisition The Company executed an agreement and plan of merger, dated as of January 13, 2024, by and among Talos, QuarterNorth Energy Inc. (“QuarterNorth”), Compass Star Merger Sub Inc. and the Equityholder Representatives named therein (the “QuarterNorth Merger Agreement”) to acquire QuarterNorth, a privately-held U.S. Gulf of Mexico exploration and production company (such acquisition, the “QuarterNorth Acquisition”). On March 4, 2024, the Company completed the QuarterNorth Acquisition for consideration consisting of (i) $1,247.4 million in cash and (ii) 24.3 million shares of the Company’s common stock valued at $322.6 million. The cash payment was partially funded with an upsized underwritten public offering of 34.5 million shares of the Company’s common stock, borrowings under the Bank Credit Facility and the New Senior Notes (as defined in Note 7 — Debt).

The following table summarizes the purchase price (in thousands except share and per share data):

Shares of Talos common stock

 

24,349,452

 

Talos common stock price(1)

$

13.25

 

Common stock value

$

322,630

 

 

 

 

Cash consideration

$

1,247,419

 

 

 

 

Total purchase price(2)

$

1,570,049

 

 

(1)
Represents the closing price of the Company’s common stock on March 4, 2024, the date of the closing of the QuarterNorth Acquisition.
(2)
Total purchase price net of $331.4 million cash and cash equivalents acquired at closing is $1,238.7 million.

The following table presents the preliminary allocation of the purchase price to the assets acquired and liabilities assumed, based on their fair values on March 4, 2024 (in thousands):

Cash and cash equivalents

$

331,374

 

Other current assets

 

160,978

 

Property and equipment

 

1,621,507

 

Other long-term assets

 

20,780

 

Current liabilities:

 

 

Current portion of asset retirement obligations

 

(6,748

)

Other current liabilities

 

(194,278

)

Long-term liabilities:

 

 

Asset retirement obligations

 

(192,771

)

Deferred tax liabilities

 

(168,481

)

Other long-term liabilities

 

(2,312

)

Allocated purchase price

$

1,570,049

 

The fair values determined for accounts receivable, accounts payable and other current assets and most current liabilities were generally equivalent to the carrying value due to their short-term nature.

The fair value of proved oil and natural gas properties as of the acquisition date is based on estimated proved oil, natural gas and NGL reserves and related discounted future net cash flows incorporating market participant assumptions. Significant inputs to the valuation include estimates of future production volumes, future operating, development and plugging and abandonment costs, future commodity prices, and a weighted average cost of capital discount rate. When estimating the fair value of proved and unproved properties, additional risk adjustments were applied to proved developed non-producing, proved undeveloped and probable reserves to reflect the relative uncertainty of each reserve class. These inputs are classified as Level 3 unobservable inputs, including the underlying commodity price assumptions which are based on the three-year NYMEX forward strip prices, escalated for inflation thereafter, and adjusted for price differentials.

The fair value of asset retirement obligations is determined by calculating the present value of estimated future cash flows related to the liabilities. The Company utilizes several assumptions, including a credit-adjusted risk-free interest rate, estimated costs of decommissioning services, estimated timing of when the work will be performed and a projected inflation rate.

The fair values of derivative instruments were estimated using a third-party industry standard pricing model which considers various inputs such as quoted forward commodity prices, discount rates, volatility factors and current market and contractual prices for the underlying instruments, as well as other relevant data.

12


The Company is still finalizing the fair value analysis related to the oil and natural gas properties, other well equipment, asset retirement obligations assumed, certain contingent liabilities and deferred tax liabilities arising from the assets acquired and liabilities assumed. The preliminary purchase price allocation will be subject to further refinement as the Company continues to refine its estimates and assumptions based on further information available at the acquisition date. These refinements may result in material changes to the estimated fair value of assets acquired and liabilities assumed. The Company anticipates finalizing the determination of fair values by December 31, 2024.

The Company incurred approximately $21.8 million of acquisition-related costs in connection with the QuarterNorth Acquisition exclusive of severance expense, of which $18.8 million was recognized during the three months ended March 31, 2024 and $3.0 million was recognized for the year ended December 31, 2023. These costs were reflected in “General and administrative expense” on the Condensed Consolidated Statements of Operations except for $4.9 million of fees associated with an unutilized bridge loan that was included in “Interest expense” on the Condensed Consolidated Statements of Operations during the three months ended March 31, 2024. Additionally, the Company incurred $14.2 million in severance expense in connection with the QuarterNorth Acquisition for the three months ended March 31, 2024. See Note 9 — Employee Benefits Plans and Share-Based Compensation for additional discussion.

The following table presents revenue and net income attributable to the QuarterNorth Acquisition for the period from March 4, 2024 to March 31, 2024:

 

Three Months Ended March 31, 2024

 

Revenue

$

43,949

 

Net income (loss)

$

6,749

 

Pro Forma Financial Information (Unaudited) — The following supplemental pro forma financial information (in thousands, except per common share amounts), presents the condensed consolidated results of operations for the three months ended March 31, 2024 and 2023 as if the QuarterNorth Acquisition had occurred on January 1, 2023. The unaudited pro forma information was derived from historical statements of operations of the Company and QuarterNorth adjusted to include (i) depletion expense applied to the adjusted basis of the oil and natural gas properties acquired, (ii) interest expense to reflect borrowings under the Bank Credit Facility and New Senior Notes, (iii) general and administrative expense adjusted for transaction related costs incurred (including severance), (iv) weighted average basic and diluted shares of common stock outstanding from the issuance of 24.3 million shares of common stock to QuarterNorth and (v) weighted average basic and diluted shares of common stock outstanding from the issuance of 34.5 million shares of common stock from the upsized underwritten public offering in January 2024 that partially funded the cash portion of the QuarterNorth Acquisition. Supplemental pro forma earnings for the three months ended March 31, 2023 were adjusted to include $31.7 million of general and administrative expenses. Supplemental pro forma earnings for the three months ended March 31, 2024 were adjusted to exclude $25.0 million of general and administrative expenses. This information does not purport to be indicative of results of operations that would have occurred had the QuarterNorth Acquisition occurred on January 1, 2023, nor is such information indicative of any expected future results of operations.

 

Three Months Ended March 31,

 

 

2024

 

2023

 

Revenue

$

557,201

 

$

482,951

 

Net income (loss)

$

(110,459

)

$

74,320

 

Basic net income (loss) per common share

$

(0.60

)

$

0.45

 

Diluted net income (loss) per common share

$

(0.60

)

$

0.45

 

EnVen Acquisition — On February 13, 2023, the Company completed the acquisition of EnVen Energy Corporation (“EnVen”), a private operator in the Deepwater U.S. Gulf of Mexico (the “EnVen Acquisition,” and the merger agreement related thereto, the “EnVen Merger Agreement”) 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. No gain or loss was recognized on settlement as the payable was effectively settled at the recorded amount. The cash payment was partially funded with borrowings under the Bank Credit Facility.

The Company incurred approximately $21.8 million of acquisition-related costs in connection with the EnVen Acquisition exclusive of severance expense, of which $12.6 million was recognized during the three months ended March 31, 2023 and reflected in “General and administrative expense” on the Condensed Consolidated Statements of Operations. Additionally, the Company incurred $22.6 million in severance expense in connection with the EnVen Acquisition for the three months ended March 31, 2023.

The following table presents revenue and net income (loss) attributable to the EnVen Acquisition for the period from February 13, 2023 to March 31, 2023 (in thousands):

 

Three Months Ended March 31, 2023

 

Revenue

$

62,059

 

Net income (loss)

$

(6,090

)

 

13


Pro Forma Financial Information (Unaudited) — The following supplemental pro forma financial information (in thousands, except per common share amounts), presents the condensed consolidated results of operations for the three months ended March 31, 2023 as if the EnVen Acquisition had occurred on January 1, 2022. The unaudited pro forma information was derived from historical statements of operations of the Company and EnVen adjusted to include (i) depletion expense applied to the adjusted basis of the oil and natural gas properties acquired, (ii) interest expense to reflect borrowings under the Bank Credit Facility and to adjust the amortization of the premium of the 11.75% Notes (as defined in Note 7 — Debt), (iii) general and administrative expense adjusted for transaction related costs incurred (including severance), (iv) other income (expense) to adjust the accretion of the discount on the two notes receivable to settle future asset retirement obligations and (v) weighted average basic and diluted shares of common stock outstanding from the issuance of 43.8 million shares of common stock to EnVen. Supplemental pro forma earnings for the three months ended March 31, 2023 were adjusted to exclude $62.6 million of general and administrative expenses. This information does not purport to be indicative of results of operations that would have occurred had the EnVen Acquisition occurred on January 1, 2022, nor is such information indicative of any expected future results of operations (in thousands, except for the per share data).

 

Three Months Ended March 31, 2023

 

Revenue

$

374,625

 

Net income (loss)

$

118,090

 

Basic net income (loss) per common share

$

0.93

 

Diluted net income (loss) per common share

$

0.92

 

 

Divestiture

Talos Low Carbon Solutions Divestiture On March 18, 2024, the Company entered into a definitive agreement relating to and subsequently completed the sale of its wholly owned subsidiary, Talos Low Carbon Solutions LLC to TotalEnergies E&P USA, Inc. for a purchase price of $125.0 million plus customary reimbursements and adjustments, combined totaling approximately $142.0 million (the “TLCS Divestiture”). The TLCS Divestiture includes the Company’s entire CCS business including its equity investments in three projects along the U.S. Gulf Coast: Bayou Bend CCS LLC, Harvest Bend CCS LLC, and Coastal Bend CCS LLC. A gain of $86.9 million was recognized on the TLCS Divestiture during the three months ended March 31, 2024, which is presented as “Other operating income (expense)” on the Condensed Consolidated Statements of Operations.

The Company incurred approximately $6.7 million of costs in connection with the TLCS Divestiture exclusive of severance expense, of which $6.1 million was recognized during the during the three months ended March 31, 2024 and reflected in “General and administrative expense” on the Condensed Consolidated Statements of Operations. Additionally, the Company incurred $3.7 million in severance expense in connection with the TLCS Divestiture for the three months ended March 31, 2024. See Note 9 — Employee Benefits Plans and Share-Based Compensation for additional discussion.

Note 3 — Property, Plant and Equipment

Proved Properties

During the three months ended March 31, 2024 and 2023, the Company’s ceiling test computations did not result in a write-down of its U.S. oil and natural gas properties. At March 31, 2024, the Company’s ceiling test computation was based on SEC pricing of $78.19 per Bbl of oil, $2.50 per Mcf of natural gas and $17.08 per Bbl of NGLs.

Note 4 — Leases

The Company has operating leases principally for office space, drilling rigs, compressors and other equipment necessary to support the Company’s operations. Additionally, the Company has a finance lease related to the use of the Helix Producer I (the “HP-I”), a dynamically positioned floating production facility that interconnects with the Phoenix Field through a production buoy. The HP-I is utilized in the Company’s oil and natural gas development activities and the right-of-use asset was capitalized and included in proved property and depleted as part of the full cost pool. Once items are included in the full cost pool, they are indistinguishable from other proved properties. The capitalized costs within the full cost pool are amortized over the life of the total proved reserves using the unit-of-production method, computed quarterly. Costs associated with the Company’s leases are either expensed or capitalized depending on how the underlying asset is utilized.

14


The lease costs described below are presented on a gross basis and do not represent the Company’s net proportionate share of such amounts. A portion of these costs have been or may be billed to other working interest owners. The Company’s share of these costs is included in property and equipment, lease operating expense or general and administrative expense, as applicable. The components of lease costs were as follows (in thousands):

 

Three Months Ended March 31,

 

 

2024

 

2023

 

Finance lease cost - interest on lease liabilities

$

3,372

 

$

3,708

 

Operating lease cost, excluding short-term leases(1)

 

897

 

 

908

 

Short-term lease cost(2)

 

12,652

 

 

32,985

 

Variable lease cost(3)

 

616

 

 

363

 

Variable and fixed sublease income

 

(359

)

 

 

Total lease cost

$

17,178

 

$

37,964

 

 

(1)
Operating lease cost reflect a single lease cost, calculated so that the cost of the lease is allocated over the lease term on a straight-line basis.
(2)
Short-term lease costs are reported at gross amounts and primarily represent costs incurred for drilling rigs, most of which are short-term contracts not recognized as a right-of-use asset and lease liability on the Condensed Consolidated Balance Sheets.
(3)
Variable lease costs primarily represent differences between minimum payment obligations and actual operating charges incurred by the Company related to its long-term leases.

The present value of the fixed lease payments recorded as the Company’s right-of-use (“ROU”) assets and lease liabilities, adjusted for initial direct costs and incentives were as follows (in thousands):

 

March 31, 2024

 

December 31, 2023

 

Operating leases:

 

 

 

 

Operating lease assets

$

12,676

 

$

11,418

 

 

 

 

 

 

Current portion of operating lease liabilities

$

3,543

 

$

2,666

 

Operating lease liabilities

 

18,271

 

 

18,211

 

Total operating lease liabilities

$

21,814

 

$

20,877

 

 

 

 

 

 

Finance leases:

 

 

 

 

Proved properties

$

166,261

 

$

166,261

 

 

 

 

 

 

Other current liabilities

$

18,279

 

$

17,834

 

Other long-term liabilities

 

126,461

 

 

131,230

 

Total finance lease liabilities

$

144,740

 

$

149,064

 

 

The table below presents the supplemental cash flow information related to leases (in thousands):

 

Three Months Ended March 31,

 

 

2024

 

2023

 

Operating cash outflow from finance leases

$

3,372

 

$

3,708

 

Operating cash outflow from operating leases

$

1,217

 

$

1,265

 

 

 

 

 

 

ROU assets obtained in exchange for new operating lease liabilities(1)

$

1,601

 

$

12,971

 

 

(1)
See QuarterNorth Acquisition and EnVen Acquisition each in Note 2 — Acquisitions and Divestitures.

Note 5 — Financial Instruments

As of March 31, 2024 and December 31, 2023, the carrying amounts of cash and cash equivalents, restricted cash, accounts receivable and accounts payable approximate their fair values because they are highly liquid or due to the short-term nature of these instruments.

15


Debt Instruments

The following table presents the carrying amounts, net of discount, premium and deferred financing costs, and estimated fair values of the Company’s debt instruments (in thousands):

 

March 31, 2024

 

December 31, 2023

 

 

Carrying
Amount

 

Fair
Value

 

Carrying
Amount

 

Fair
Value

 

9.000% Second-Priority Senior Secured Notes – due February 2029

$

609,107

 

$

663,894

 

$

 

$

 

9.375% Second-Priority Senior Secured Notes – due February 2031

$

608,985

 

$

666,175

 

$

 

$

 

12.00% Second-Priority Senior Secured Notes – due January 2026

$

 

$

 

$

601,353

 

$

655,130

 

11.75% Senior Secured Second Lien Notes – due April 2026

$

 

$

 

$

234,221

 

$

233,410

 

Bank Credit Facility – matures March 2027

$

315,860

 

$

325,000

 

$

190,100

 

$

200,000

 

The carrying value of the senior notes are adjusted for discount, premium and deferred financing costs. Fair value is estimated (representing a Level 1 fair value measurement) using quoted secondary market trading prices and, where such prices are not available, other observable (Level 2) inputs are used such as quoted prices for similar liabilities in the active market.

The carrying amount of the Company’s bank credit facility, as amended and restated (the “Bank Credit Facility”), is presented net of deferred financing costs. The fair value of the Bank Credit Facility is estimated based on the outstanding borrowings since it is secured by the Company’s reserves and the interest rates are variable and reflective of market rates (representing a Level 2 fair value measurement).

Oil and Natural Gas Derivatives

The Company attempts to mitigate a portion of its commodity price risk and stabilize cash flows associated with sales of oil and natural gas production. The Company is currently utilizing oil and natural gas swaps, costless collars and put options. Swaps are contracts where the Company either receives or pays depending on whether the oil or natural gas floating market price is above or below the contracted fixed price. Costless collars consist of a purchased put option and a sold call option with no net premiums paid to or received from counterparties. Typical collar contracts require payments by the Company if the NYMEX average closing price is above the ceiling price or payments to the Company if the NYMEX average closing price is below the floor price (“two-way collar”). Put options give the owner the right but not the obligation, to sell the underlying commodity at a specified price (i.e. strike price) within a specific period. Certain of the Company’s put options have a deferred premium, which is presented net of the derivative asset. For the deferred premium puts, the Company agrees to pay a premium to the counterparty at the time of settlement. At settlement, if the applicable index price is below the strike price of the put, the Company receives the difference between the strike price and the applicable index price multiplied by the contract volumes less the premium. If the applicable index price settles at or above the strike price of the put, the Company pays only the premium at settlement.

The following table presents the impact that derivatives, not designated as hedging instruments, had on its Condensed Consolidated Statements of Operations (in thousands):

 

Three Months Ended March 31,

 

 

2024

 

2023

 

Net cash received (paid) on settled derivative instruments

$

(3,494

)

$

(12,323

)

Unrealized gain (loss)

 

(83,568

)

 

71,260

 

Price risk management activities income (expense)

$

(87,062

)

$

58,937

 

The following tables reflect the contracted average daily volumes and weighted average prices under the terms of the Company's derivative contracts as of March 31, 2024:

Swap Contracts

 

Production Period

Settlement Index

Volumes

 

Swap Price

 

Crude oil:

 

(Bbls)

 

(per Bbl)

 

April 2024 – December 2024

NYMEX WTI CMA

 

28,147

 

$

73.47

 

January 2025 – December 2025

NYMEX WTI CMA

 

19,679

 

$

73.19

 

Natural gas:

 

(MMBtu)

 

(per MMBtu)

 

April 2024 – December 2024

NYMEX Henry Hub

 

34,455

 

$

2.91

 

January 2025 – December 2025

NYMEX Henry Hub

 

38,644

 

$

3.60

 

 

16


Two-Way Collar Contracts

 

Production Period

Settlement Index

Volumes

 

Floor Price

 

Ceiling Price

 

Crude oil:

 

(Bbls)

 

(per Bbl)

 

(per Bbl)

 

April 2024 – December 2024

NYMEX WTI CMA

 

1,000

 

$

70.00

 

$

75.00

 

January 2025 – March 2025

NYMEX WTI CMA

 

3,000

 

$

65.00

 

$

84.35

 

Natural gas:

 

(MMBtu)

 

(per MMBtu)

 

(per MMBtu)

 

April 2024 – December 2024

NYMEX Henry Hub

 

10,000

 

$

4.00

 

$

6.90

 

 

Long Puts

 

Production Period

Settlement Index

Volumes

 

Strike Price

 

Deferred Premium Price

 

Crude oil:

 

(Bbls)

 

(per Bbl)

 

(per Bbl)

 

April 2024 – December 2024

NYMEX WTI CMA

 

4,000

 

$

70.00

 

$

(6.28

)

Natural gas:

 

(MMBtu)

 

(per MMBtu)

 

(per MMBtu)

 

May 2024 – December 2024

NYMEX Henry Hub

 

13,660

 

$

2.90

 

$

(0.40

)

 

Swaps with Sold Puts

 

Production Period

Settlement Index

Volumes

 

Swap Price

 

Strike Price

 

Crude oil:

 

(Bbls)

 

(per Bbl)

 

(per Bbl)

 

April 2024 – December 2024

NYMEX WTI CMA

 

1,000

 

$

72.20

 

$

60.00

 

 

The following tables provide additional information related to financial instruments measured at fair value on a recurring basis (in thousands):

 

March 31, 2024

 

 

Level 1

 

Level 2

 

Level 3

 

Total

 

Assets:

 

 

 

 

 

 

 

 

Oil and natural gas derivatives

$

 

$

24,108

 

$

 

$

24,108

 

Liabilities:

 

 

 

 

 

 

 

 

Oil and natural gas derivatives

 

 

 

(77,780

)

 

 

 

(77,780

)

Total net asset (liability)

$

 

$

(53,672

)

$

 

$

(53,672

)

 

December 31, 2023

 

 

Level 1

 

Level 2

 

Level 3

 

Total