Talos Energy Inc. (NYSE:TALO) Q3 2022 Results Conference Call November 3, 2022 10:00 AM ET

Company Participants

Sergio Maiworm - IR

Tim Duncan - President and CEO

Shane Young - EVP and CFO

Robin Fielder - EVP, Low Carbon Strategy and Chief Sustainability Officer

Conference Call Participants

Subash Chandra - Benchmark Company

Jeff Robertson - Water Tower Research

Operator

Good morning, and welcome to the Talos Energy Third Quarter 2022 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note that this event is being recorded today.

I would now like to turn the conference over to Sergio Maiworm, Investor Relations. Please go ahead.

Sergio Maiworm

Thank you, operator. Good morning, everyone, and welcome to our Third Quarter 2022 Earnings Conference Call.

Joining me today to discuss our results are Tim Duncan, President and Chief Executive Officer; Shane Young, Executive Vice President and Chief Financial Officer; and Robin Fielder, Executive Vice President, Low Carbon Strategy and Chief Sustainability Officer.

Before we get started, I’d like to take this opportunity to remind you that our remarks today will include forward-looking statements. Actual results may differ materially from those contemplated by these forward-looking statements. Factors that could cause these results to differ materially are set forth in yesterday’s press release and in our Form 10-Q for the quarter ending September 30, 2022, filed with the SEC yesterday. Any forward-looking statements that we make on this call are based on assumptions as of today, and we undertake no obligation to update these statements as a result of new information or future events. During this call, we may present both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures was included in yesterday’s earnings press release, which was filed with the SEC and which is also available on our website at talosenergy.com. And now I’d like to turn the call over to Tim.

Tim Duncan

Thank you, Sergio. Good morning, everyone, and thank you for joining our call today. As we discussed in our second quarter earnings call, we knew we were going to have substantial planned downtime in the third quarter with the HP-1 dry dock and the Shell Odyssey pipeline maintenance. But despite these planned production outages, we surpassed our internal expectations for the quarter by controlling our operating costs, allowing us to generate substantial free cash flow in the quarter and to continue to rapidly delever our balance sheet. Over the last 6 quarters, Talos has repaid approximately $450 million of its debt, which equates to approximately $5.40 per share outstanding in debt repaid over the period. In the third quarter alone, Talos paid back $140 million in our credit facility. This is another record-breaking quarter on the balance sheet front for Talos. Our leverage metric is now at 0.8x, the lowest level in the company’s history, and Talos’ liquidity is now more than $800 million, the highest in the company’s history. We continue to generate and cultivate several catalysts to make our business unique, which include a robust organic drilling inventory, growth in our carbon capture and sequestration business and the pursuit of accretive M&A opportunities. On the drilling side, we kicked off our deepwater drilling campaign in the third quarter, which is expected to continue into 2023 and which exposes Talos to significant additional organic resource upside. If successful, these opportunities could represent tens, if not hundreds, of millions of barrels of oil equivalent of additional resources on a gross basis. Because most of these projects are not currently in our reserve report, they could add significant growth to our proved reserves and add multiple years of reserve replacement, which makes for exciting times in the months ahead. It should be noted that most of the prospects we expect to drill in the coming months were generated in-house by a very talented team of geoscientists. These leases are typically acquired in M&A transactions or through federal lease sales and our initial ownership levels are usually very high, often 100% working interest. After applying our seismic reprocessing techniques to better define the project’s potential, we then look to farm them down to a Talos ownership level that fits our capital allocation strategy. I think the fact that we were able to attract such sophisticated partners for these projects to include BP, Chevron, Oxy, Ecopetrol and Walter Oil and Gas, among others, speaks to the quality of these opportunities.