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 June 30, 2022 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 ...

Talos Energy Inc. (NYSE:TALO) Q1 2022 Earnings Conference Call May 5, 2022 10:00 AM ET Company Participants Sergio Maiworm - VP, Finance, IR & Treasurer Tim Duncan - President and CEO Shane Young - EVP and CFO Robin Fielder - EVP, Low Carbon Strategy and CSO Conference Call Participants Subash Chandra - Benchmark Company Jeff Roberston - Watertown Research Steven Dechert - KeyBanc Operator Good morning and welcome to the Talos Energy First Quarter 2022 Earnings Call. All participants will be in listen-only ...

[GLOSSARY](index=3&type=section&id=GLOSSARY) This section defines key terms and abbreviations used in the oil and natural gas industry and financial reporting - The glossary provides definitions for common terms used in the oil and natural gas industry, such as **Barrel (Bbl)**, **Boe (Barrel of oil equivalent)**, **BOEM (Bureau of Ocean Energy Management)**, **Btu (British thermal unit)**, **Deepwater**, **GAAP (Generally Accepted Accounting Principles)**, **MBbls (One thousand barrels)**, **Mcf (One thousand cubic feet)**, **MMBoe (One million barrels of oil equivalent)**, **NGL (Natural gas liquid)**, **NYMEX (New York Mercantile Exchange)**, **OPEC (Organization of Petroleum Exporting Countries)**, **Proved reserves**, **Proved undeveloped reserves**, **SEC (U.S. Securities and Exchange Commission)**, **SEC pricing**, **Shelf**, **Working interest**, and **WTI (West Texas Intermediate)**[10](index=10&type=chunk)[11](index=11&type=chunk)[12](index=12&type=chunk)[13](index=13&type=chunk)[15](index=15&type=chunk)[17](index=17&type=chunk)[18](index=18&type=chunk)[19](index=19&type=chunk) [CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS](index=5&type=section&id=CAUTIONARY%20STATEMENT%20REGARDING%20FORWARD-LOOKING%20STATEMENTS) This statement outlines risks and uncertainties inherent in the company's forward-looking projections and strategic objectives - The report contains forward-looking statements regarding the company's strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects, plans, and objectives, which are based on current expectations and assumptions and are subject to numerous risks and uncertainties[21](index=21&type=chunk)[26](index=26&type=chunk) - Key areas of forward-looking statements include business strategy, reserves, exploration and development drilling, financial strategy, realized commodity prices, future production, hedging, drilling plans, government regulations, legal/environmental matters, acquisitions, costs, economic conditions, and carbon capture and sequestration opportunities[23](index=23&type=chunk)[27](index=27&type=chunk) - Significant risks and uncertainties include commodity price volatility (due to **COVID-19**, **OPEC+ actions**, **Russia-Ukraine war**), transportation/storage capacity, equipment availability, adverse weather, cybersecurity threats, inflation, environmental risks, geological risk, regulatory changes, and the inherent uncertainty in reserve estimation[24](index=24&type=chunk)[25](index=25&type=chunk) [PART I — FINANCIAL INFORMATION](index=7&type=section&id=PART%20I%20%E2%80%94%20FINANCIAL%20INFORMATION) This section presents the company's unaudited condensed consolidated financial statements and management's discussion and analysis [Item 1. Condensed Consolidated Financial Statements](index=7&type=section&id=Item%201.%20Condensed%20Consolidated%20Financial%20Statements) This section presents Talos Energy Inc.'s unaudited condensed consolidated financial statements and notes for Q1 2022 and Q1 2021 [Condensed Consolidated Balance Sheets](index=7&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This statement provides a snapshot of the company's assets, liabilities, and equity at specific reporting dates | Metric | March 31, 2022 (in thousands USD) | December 31, 2021 (in thousands USD) | | :----------------------------------- | :----------------------------- | :------------------------------ | | Total Current Assets | $401,806 | $340,003 | | Total Property and Equipment, net | $2,370,948 | $2,388,582 | | Total Assets | $2,810,494 | $2,766,815 | | Total Current Liabilities | $705,594 | $600,526 | | Total Liabilities | $2,115,369 | $2,006,162 | | Total Stockholders' Equity | $695,125 | $760,653 | - Total assets increased by **$43.679 million** from December 31, 2021, to March 31, 2022, primarily driven by an increase in current assets[30](index=30&type=chunk) - Total liabilities increased by **$109.207 million**, largely due to an increase in current liabilities, particularly liabilities from price risk management activities[30](index=30&type=chunk) - Total stockholders' equity decreased by **$65.528 million**, mainly due to the net loss incurred during the period[30](index=30&type=chunk) [Condensed Consolidated Statements of Operations](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) This statement details the company's revenues, expenses, and net loss for the three-month periods | Metric | Three Months Ended March 31, 2022 (in thousands USD) | Three Months Ended March 31, 2021 (in thousands USD) | Change (YoY) | | :----------------------------------- | :--------------------------------------------- | :--------------------------------------------- | :----------- | | Total Revenues | $413,566 | $266,908 | +$146,658 | | Total Operating Expenses | $196,046 | $202,281 | -$6,235 | | Operating Income | $217,520 | $64,627 | +$152,893 | | Price Risk Management Activities Expense | $281,219 | $137,508 | +$143,711 | | Net Loss | $(66,441) | $(121,491) | +$55,050 | | Basic Net Loss Per Common Share | $(0.81) | $(1.49) | +$0.68 | - Total revenues increased significantly by **$146.658 million**, or **54.9%**, driven by higher commodity prices[32](index=32&type=chunk) - Operating income surged by **$152.893 million**, or **236.6%**, reflecting strong revenue growth and a slight decrease in total operating expenses[32](index=32&type=chunk) - Despite higher operating income, the company reported a net loss of **$(66.441) million**, an improvement from **$(121.491) million** in the prior year, primarily due to a substantial increase in price risk management activities expense[32](index=32&type=chunk) [Condensed Consolidated Statements of Changes in Stockholders' Equity](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Stockholders%27%20Equity) This statement outlines changes in the company's equity components, including common stock and accumulated deficit | Metric | March 31, 2022 (in thousands USD) | December 31, 2021 (in thousands USD) | | :----------------------------------- | :----------------------------- | :------------------------------ | | Common Stock Par Value | $825 | $819 | | Additional Paid-In Capital | $1,677,705 | $1,676,798 | | Accumulated Deficit | $(983,405) | $(916,964) | | Total Stockholders' Equity | $695,125 | $760,653 | - Total stockholders' equity decreased by **$65.528 million** from December 31, 2021, to March 31, 2022, primarily due to the net loss of **$(66.441) million** for the period[35](index=35&type=chunk) - Equity-based compensation contributed **$5.389 million** to additional paid-in capital, partially offset by tax withholdings of **$(4.476) million**[35](index=35&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This statement summarizes cash inflows and outflows from operating, investing, and financing activities | Cash Flow Activity | Three Months Ended March 31, 2022 (in thousands USD) | Three Months Ended March 31, 2021 (in thousands USD) | Change (YoY) | | :----------------------------------- | :--------------------------------------------- | :--------------------------------------------- | :----------- | | Net Cash Provided by Operating Activities | $113,610 | $66,956 | +$46,654 | | Net Cash Used in Investing Activities | $(59,382) | $(72,737) | +$13,355 | | Net Cash (Used in) Provided by Financing Activities | $(45,732) | $36,527 | -$82,259 | | Net Increase in Cash and Cash Equivalents | $8,496 | $30,746 | -$22,250 | | Cash and Cash Equivalents, End of Period | $78,348 | $64,979 | +$13,369 | - Net cash provided by operating activities increased by **$46.654 million**, or **69.7%**, primarily due to higher revenues net of lease operating expenses, despite increased cash payments on derivative instruments[38](index=38&type=chunk)[138](index=138&type=chunk) - Net cash used in investing activities decreased by **$13.355 million**, or **18.4%**, mainly due to lower capital expenditures and acquisition payments[38](index=38&type=chunk)[139](index=139&type=chunk) - Net cash used in financing activities was **$(45.732) million**, a significant decrease of **$82.259 million** compared to the prior year's cash provided, driven by net repayments on the Bank Credit Facility in 2022 versus proceeds from senior notes issuance in 2021[38](index=38&type=chunk)[140](index=140&type=chunk)[141](index=141&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) These notes provide detailed explanations of the company's accounting policies and specific financial statement line items [Note 1 — Organization, Nature of Business and Basis of Presentation](index=11&type=section&id=Note%201%20%E2%80%94%20Organization%2C%20Nature%20of%20Business%20and%20Basis%20of%20Presentation) This note describes the company's core business, operational segments, and the basis for financial statement presentation - Talos Energy Inc. is a Delaware corporation focused on oil and gas exploration and production in the U.S. Gulf of Mexico and offshore Mexico, and also developing carbon capture and sequestration (CCS) opportunities[41](index=41&type=chunk) - The company operates with two segments: Upstream (oil, natural gas, NGLs E&P) as the only reportable segment, and CCS, which did not meet reportable thresholds, incurring **$2.4 million** in operating expenses and holding **$4.1 million** in assets as of **March 31, 2022**[45](index=45&type=chunk) [Note 2 — Property, Plant and Equipment](index=12&type=section&id=Note%202%20%E2%80%94%20Property%2C%20Plant%20and%20Equipment) This note details the company's oil and natural gas properties and asset retirement obligations - The company's proved oil and natural gas properties are primarily located in the U.S. Gulf of Mexico, with no write-down resulting from ceiling test computations for the three months ended **March 31, 2022** or **2021**[47](index=47&type=chunk) - Asset retirement obligations totaled **$442.079 million** at **March 31, 2022**, with a current portion of **$51.273 million** and a long-term portion of **$390.806 million**[48](index=48&type=chunk) [Note 3 — Leases](index=12&type=section&id=Note%203%20%E2%80%94%20Leases) This note provides information on the company's finance and operating lease costs and liabilities | Lease Cost Type | Three Months Ended March 31, 2022 (in thousands USD) | Three Months Ended March 31, 2021 (in thousands USD) | | :----------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Finance lease cost - interest | $2,059 | $3,256 | | Operating lease cost (excl. short-term) | $568 | $716 | | Short-term lease cost | $5,762 | $5,760 | | Variable lease cost | $363 | $322 | | Total Lease Cost | $8,752 | $10,054 | | Lease Liability Type | March 31, 2022 (in thousands USD) | December 31, 2021 (in thousands USD) | | :----------------------------------- | :----------------------------- | :------------------------------ | | Operating lease assets | $5,649 | $5,714 | | Total operating lease liabilities | $17,631 | $18,045 | | Total finance lease liabilities | $33,965 | $40,221 | [Note 4 — Financial Instruments](index=13&type=section&id=Note%204%20%E2%80%94%20Financial%20Instruments) This note describes the company's debt instruments, derivative activities, and credit risk management | Debt Instrument | March 31, 2022 Carrying Amount (in thousands USD) | March 31, 2022 Fair Value (in thousands USD) | December 31, 2021 Carrying Amount (in thousands USD) | December 31, 2021 Fair Value (in thousands USD) | | :----------------------------------- | :------------------------------------------ | :--------------------------------------- | :--------------------------------------------- | :------------------------------------------ | | 12.00% Second-Priority Senior Secured Notes | $591,639 | $703,625 | $588,838 | $685,945 | | 7.50% Senior Notes | $6,060 | $5,696 | $6,060 | $6,145 | | Bank Credit Facility | $333,442 | $340,000 | $367,829 | $375,000 | | Derivative Impact | Three Months Ended March 31, 2022 (in thousands USD) | Three Months Ended March 31, 2021 (in thousands USD) | | :----------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Net cash paid on settled derivative instruments | $(127,086) | $(48,381) | | Unrealized loss | $(154,133) | $(89,127) | | Price risk management activities expense | $(281,219) | $(137,508) | - The company uses oil and natural gas swaps and costless collars to mitigate commodity price risk, with all derivative contracts recorded at fair value and changes recognized as 'Price risk management activities expense' due to not designating them for hedge accounting[56](index=56&type=chunk)[58](index=58&type=chunk) | Derivative Type | March 31, 2022 (in thousands USD) | December 31, 2021 (in thousands USD) | | :----------------------------------- | :----------------------------- | :------------------------------ | | Total gross amounts presented on balance sheet (Liabilities) | $350,860 | $200,464 | | Total gross amounts presented on balance sheet (Assets) | $0 | $3,737 | | Net amounts (Liabilities) | $350,860 | $196,727 | - The company manages credit risk with counterparties through International Swaps and Derivative Association agreements and credit policies, with all eight counterparties being investment grade and parties under the Bank Credit Facility[61](index=61&type=chunk) [Note 5 — Debt](index=15&type=section&id=Note%205%20%E2%80%94%20Debt) This note provides details on the company's various debt instruments and compliance with covenants | Debt Instrument | March 31, 2022 (in thousands USD) | December 31, 2021 (in thousands USD) | | :----------------------------------- | :----------------------------- | :------------------------------ | | 12.00% Second-Priority Senior Secured Notes – due January 2026 | $650,000 | $650,000 | | 7.50% Senior Notes – due May 2022 | $6,060 | $6,060 | | Bank Credit Facility – matures November 2024 | $340,000 | $375,000 | | Total debt, before discount and deferred financing cost | $996,060 | $1,031,060 | | Total debt, net of discount and deferred financing costs | $931,141 | $962,727 | - As of **March 31, 2022**, the company was in compliance with all debt covenants[63](index=63&type=chunk) - Subsequent to the quarter end, on **May 4, 2022**, the Bank Credit Facility's borrowing base increased from **$950.0 million** to **$1.1 billion**, and commitments increased from **$791.3 million** to **$806.3 million**[64](index=64&type=chunk) [Note 6 — Employee Benefits Plans and Share-Based Compensation](index=16&type=section&id=Note%206%20%E2%80%94%20Employee%20Benefits%20Plans%20and%20Share-Based%20Compensation) This note outlines the company's share-based compensation plans and associated costs | RSU Activity | Unvested RSUs at Dec 31, 2021 | Granted | Vested | Forfeited | Unvested RSUs at Mar 31, 2022 | | :----------------------------------- | :---------------------------- | :------ | :----- | :-------- | :---------------------------- | | Number of RSUs | 1,983,199 | 2,206,473 | (921,729) | (13,372) | 3,254,571 | | Weighted Average Grant Date Fair Value | $13.02 | $12.96 | $14.08 | $12.59 | $12.68 | | PSU Activity | Unvested PSUs at Dec 31, 2021 | Granted | Forfeited | Cancelled | Unvested PSUs at Mar 31, 2022 | | :----------------------------------- | :---------------------------- | :------ | :-------- | :-------- | :---------------------------- | | Number of PSUs | 1,015,459 | 591,062 | (16,486) | (975,564) | 614,471 | | Weighted Average Grant Date Fair Value | $16.41 | $23.59 | $17.48 | $16.42 | $23.27 | - During **March 2022**, outstanding PSUs for certain executive officers were cancelled and replaced with **1,147,352** Retention RSUs, resulting in an incremental cost of **$9.7 million** to be recognized over two years[68](index=68&type=chunk) | Share-based Compensation Costs | Three Months Ended March 31, 2022 (in thousands USD) | Three Months Ended March 31, 2021 (in thousands USD) | | :----------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Total share-based compensation costs | $5,652 | $4,915 | | Less: Capitalized to oil and gas properties | $2,334 | $2,251 | | Total share-based compensation expense | $3,318 | $2,664 | [Note 7 — Income Taxes](index=17&type=section&id=Note%207%20%E2%80%94%20Income%20Taxes) This note details the company's income tax benefit/expense and effective tax rate | Income Tax Metric | Three Months Ended March 31, 2022 (in thousands USD) | Three Months Ended March 31, 2021 (in thousands USD) | | :----------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Income tax benefit (expense) | $472 | $(584) | | Effective tax rate | 0.7% | -0.5% | - The effective tax rate differs from the U.S. federal statutory rate of **21%** primarily due to a valuation allowance recorded for deferred tax assets[72](index=72&type=chunk)[74](index=74&type=chunk) - As of **March 31, 2022**, the company maintains a full valuation allowance for U.S. federal, state, and foreign net deferred tax assets[74](index=74&type=chunk) [Note 8 — Income (Loss) Per Share](index=17&type=section&id=Note%208%20%E2%80%94%20Income%20%28Loss%29%20Per%20Share) This note presents the basic and diluted net loss per common share for the reporting periods | EPS Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :----------------------------------- | :-------------------------------- | :-------------------------------- | | Net loss | $(66,441) (in thousands USD) | $(121,491) (in thousands USD) | | Weighted average common shares outstanding — basic | 82,071 (in thousands) | 81,435 (in thousands) | | Basic Net Loss Per Common Share | $(0.81) | $(1.49) | | Diluted Net Loss Per Common Share | $(0.81) | $(1.49) | - Basic and diluted net loss per common share improved to **$(0.81)** in Q1 2022 from **$(1.49)** in Q1 2021[76](index=76&type=chunk) - Anti-dilutive potentially issuable securities excluded from diluted common shares were **3,329 thousand** in Q1 2022[76](index=76&type=chunk) [Note 9 — Related Party Transactions](index=18&type=section&id=Note%209%20%E2%80%94%20Related%20Party%20Transactions) This note describes the company's relationships and transactions with significant shareholders and equity method investments - Apollo Funds ceased being a beneficial owner of more than five percent of the company's common stock on **January 3, 2022**, while Riverstone Funds held **19.7%** as of **March 31, 2022**[77](index=77&type=chunk) - The Amended and Restated Stockholders' Agreement, entered into on **March 29, 2022**, terminated Apollo Funds' rights and eliminated the requirement for a ten-member Board of Directors[81](index=81&type=chunk) - The company owns a **50%** membership interest in Bayou Bend CCS LLC, an equity method investment, and provides services to facilitate its operations[85](index=85&type=chunk)[86](index=86&type=chunk) [Note 10 — Commitments and Contingencies](index=19&type=section&id=Note%2010%20%E2%80%94%20Commitments%20and%20Contingencies) This note details the company's performance bonds, letters of credit, and litigation settlements - As of **March 31, 2022**, the company had secured performance bonds of approximately **$707.1 million** and letters of credit of **$13.6 million**, primarily for plugging and abandonment of wells and facility removal[87](index=87&type=chunk) - On **March 23, 2022**, the company entered into a settlement agreement to receive **$27.5 million** to resolve litigation against a third-party supplier, recorded as 'Other income (expense)'[89](index=89&type=chunk) - The company recorded **$0.3 million** related to estimated decommissioning obligations during the three months ended **March 31, 2022**, with total obligations of **$3.3 million** (current) and **$20.6 million** (long-term) as of **March 31, 2022**[90](index=90&type=chunk) [Note 11 — Subsequent Events](index=20&type=section&id=Note%2011%20%E2%80%94%20Subsequent%20Events) This note reports significant events that occurred after the balance sheet date - On **May 4, 2022**, the company's Bank Credit Facility borrowing base increased from **$950.0 million** to **$1.1 billion**, and commitments increased from **$791.3 million** to **$806.3 million**[64](index=64&type=chunk)[93](index=93&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=21&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's analysis of the company's financial condition, operational results, and key trends for Q1 2022 [Our Business](index=21&type=section&id=Our%20Business) This section outlines Talos Energy's core business as an independent E&P company with a focus on the U.S. Gulf of Mexico and CCS - Talos Energy is an independent exploration and production company focused on the U.S. Gulf of Mexico and offshore Mexico, with a growing emphasis on carbon capture and sequestration (CCS) opportunities[96](index=96&type=chunk) - The company leverages technical and offshore operational expertise, extensive seismic data, and a disciplined portfolio management approach to optimize its drilling program and evaluate business development opportunities[97](index=97&type=chunk)[98](index=98&type=chunk) [Significant Developments](index=21&type=section&id=Significant%20Developments) This section highlights key operational and strategic advancements, including the Zama Field update and carbon capture initiatives - Zama Field Update: Received the final Unitization Resolution from Mexico's Ministry of Energy on **March 23, 2022**, affirming Pemex as the operator of the unit, with Talos holding a **17.35%** participating interest[100](index=100&type=chunk) - Carbon Capture Initiatives: Bayou Bend CCS LLC (equity method investment) formalized a lease for a CCS site offshore Jefferson County, Texas, and a strategic alliance was formed with Core Laboratories N.V. for technical evaluation[101](index=101&type=chunk) - Expanded CCS Venture: On **May 3, 2022**, a MOU was announced with Carbonvert and Chevron U.S.A., Inc. to jointly develop the Bayou Bend CCS project, with Talos, Carbonvert, and Chevron holding **25%**, **25%**, and **50%** equity interests, respectively, and Talos remaining the operator[102](index=102&type=chunk) [Factors Affecting the Comparability of our Financial Condition and Results of Operations](index=22&type=section&id=Factors%20Affecting%20the%20Comparability%20of%20our%20Financial%20Condition%20and%20Results%20of%20Operations) This section discusses specific events, such as unplanned downtime, that impact the comparability of financial results - The company experienced approximately **40 days** of unplanned third-party downtime in Q1 2022 due to maintenance of the Eugene Island Pipeline System, resulting in an estimated deferred production of **4.7 thousand barrels of oil equivalent per day**[104](index=104&type=chunk) [Known Trends and Uncertainties](index=22&type=section&id=Known%20Trends%20and%20Uncertainties) This section addresses market volatility, operational risks, and regulatory changes that could influence future performance - Volatility in Oil, Natural Gas and NGL Prices: Commodity markets remain volatile due to **COVID-19** impacts, the **Russia-Ukraine war**, and chronic underinvestment in new reserves, with NYMEX WTI crude oil ranging from **$75.99** to **$123.64 per barrel** and NYMEX Henry Hub natural gas from **$3.73** to **$6.70 per million British thermal units** in Q1 2022[106](index=106&type=chunk)[107](index=107&type=chunk)[108](index=108&type=chunk)[109](index=109&type=chunk) - Impairment of Oil and Natural Gas Properties: No impairment was recognized in Q1 2022 or Q1 2021 based on ceiling test computations, which used SEC pricing of **$75.88 per barrel** of oil, **$4.20 per thousand cubic feet** of natural gas, and **$30.86 per barrel** of NGLs at **March 31, 2022**[111](index=111&type=chunk) - Third Party Planned Downtime: The Helix Producer I (HP-I) is scheduled for a **45-60 day** dry-dock in mid-2022 for inspection, which will halt production from the Phoenix Field[114](index=114&type=chunk) - BOEM Bonding Requirements: Future costs of compliance with potential new or more stringent supplemental bonding requirements from the BOEM could materially affect financial condition[116](index=116&type=chunk) - Deepwater Operations: Operations in the U.S. Gulf of Mexico Deepwater carry increased operational risks, including potential liabilities for environmental losses, personal injury, and regulatory fines[117](index=117&type=chunk) - Hurricanes and Tropical Storms: Operations in the U.S. Gulf of Mexico are vulnerable to hurricanes and tropical storms, which can lead to production reductions, deferred revenues, increased operating expenses, and accelerated plugging and abandonment costs[119](index=119&type=chunk) [How We Evaluate Our Operations](index=24&type=section&id=How%20We%20Evaluate%20Our%20Operations) This section describes the key financial and operational metrics used by management to assess company performance - The company assesses operational performance using metrics such as production volumes, realized prices (including commodity derivatives), lease operating expenses, capital expenditures, and Adjusted EBITDA[120](index=120&type=chunk) [Results of Operations](index=24&type=section&id=Results%20of%20Operations) This section provides a detailed analysis of the company's revenues and operating expenses for the period [Revenue](index=24&type=section&id=Revenue) This subsection analyzes the drivers of total revenue, including commodity prices and production volumes | Metric | Three Months Ended March 31, 2022 (in thousands USD) | Three Months Ended March 31, 2021 (in thousands USD) | Change (YoY) | | :----------------------------------- | :--------------------------------------------- | :--------------------------------------------- | :----------- | | Oil Revenues | $353,886 | $229,561 | +$124,325 | | Natural Gas Revenues | $42,981 | $28,234 | +$14,747 | | NGL Revenues | $16,699 | $9,113 | +$7,586 | | Total Revenues | $413,566 | $266,908 | +$146,658 | | Production Volume | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | Change (YoY) | | :----------------------------------- | :-------------------------------- | :-------------------------------- | :----------- | | Oil (thousand barrels) | 3,788 | 4,049 | (261) | | Natural Gas (million cubic feet) | 8,649 | 8,508 | 141 | | NGL (thousand barrels) | 457 | 482 | (25) | | Total Production Volume (million barrels of oil equivalent) | 5,687 | 5,949 | (262) | | Daily Production Volume (thousand barrels of oil equivalent per day) | 63.2 | 66.1 | (2.9) | | Average Sale Price Per Unit | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | Change (YoY) | | :----------------------------------- | :-------------------------------- | :-------------------------------- | :----------- | | Oil (per barrel) | $93.42 | $56.70 | +$36.72 | | Natural Gas (per thousand cubic feet) | $4.97 | $3.32 | +$1.65 | | NGL (per barrel) | $36.54 | $18.91 | +$17.63 | | Price per barrel of oil equivalent | $72.72 | $44.87 | +$27.85 | | Price per barrel of oil equivalent (incl. derivatives) | $50.37 | $36.73 | +$13.64 | - Total revenues increased by **$146.658 million**, primarily driven by a **$161.462 million** increase due to higher commodity prices, partially offset by a **$14.804 million** decrease due to lower production volumes[120](index=120&type=chunk) - Production volumes decreased by **2.9 thousand barrels of oil equivalent per day** (**4.4%**) to **63.2 thousand barrels of oil equivalent per day**, mainly due to **4.7 thousand barrels of oil equivalent per day** deferred production from the Eugene Island Pipeline System downtime and **3.2 thousand barrels of oil equivalent per day** decrease at Delta House, partially offset by a **4.5 thousand barrels of oil equivalent per day** increase from Phoenix Field recompletions[121](index=121&type=chunk) [Operating Expenses](index=25&type=section&id=Operating%20Expenses) This subsection details the various components of the company's operating expenses [Lease Operating Expense](index=25&type=section&id=Lease%20Operating%20Expense) This sub-section examines changes in lease operating expenses, both in total and on a per-unit basis | Metric | Three Months Ended March 31, 2022 (in thousands USD) | Three Months Ended March 31, 2021 (in thousands USD) | | :----------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Lease operating expenses | $59,814 | $66,628 | | Lease operating expenses per barrel of oil equivalent | $10.52 | $11.20 | - Total lease operating expense decreased by **$6.8 million** (**10%**) to **$59.814 million**, primarily due to a **$3.6 million** increase in production handling fee reimbursements and a **$2.0 million** decrease in hurricane-related repairs[122](index=122&type=chunk) - On a per-unit basis, lease operating expense decreased by **$0.68 per barrel of oil equivalent** to **$10.52 per barrel of oil equivalent**, mainly due to lower production[122](index=122&type=chunk) [Depreciation, Depletion and Amortization](index=25&type=section&id=Depreciation%2C%20Depletion%20and%20Amortization) This sub-section analyzes the depreciation, depletion, and amortization expense for the period | Metric | Three Months Ended March 31, 2022 (in thousands USD) | Three Months Ended March 31, 2021 (in thousands USD) | | :----------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Depreciation, depletion and amortization | $98,340 | $101,657 | | Depreciation, depletion and amortization per barrel of oil equivalent | $17.29 | $17.09 | - Depreciation, depletion, and amortization expense decreased by **$3.3 million** (**3%**) to **$98.340 million**, primarily due to decreased production volumes, partially offset by a **1%** increase in the depletion rate[123](index=123&type=chunk) [General and Administrative Expense](index=25&type=section&id=General%20and%20Administrative%20Expense) This sub-section reviews the general and administrative expenses, including those related to the CCS segment | Metric | Three Months Ended March 31, 2022 (in thousands USD) | Three Months Ended March 31, 2021 (in thousands USD) | | :----------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | General and administrative expense | $22,528 | $19,189 | | General and administrative expense per barrel of oil equivalent | $3.96 | $3.23 | - General and administrative expense increased by **$3.3 million** (**17%**) to **$22.528 million**, mainly due to **$2.3 million** incurred by the emerging CCS operating segment and a **$0.7 million** increase in non-cash equity-based compensation[124](index=124&type=chunk) [Miscellaneous](index=26&type=section&id=Miscellaneous) This subsection covers other income and expense items, including price risk management and litigation settlements | Metric | Three Months Ended March 31, 2022 (in thousands USD) | Three Months Ended March 31, 2021 (in thousands USD) | | :----------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Accretion expense | $14,377 | $14,985 | | Other operating (income) expense | $136 | $(1,000) | | Interest expense | $31,490 | $34,076 | | Price risk management activities expense | $281,219 | $137,508 | | Other (income) expense | $(28,134) | $13,950 | | Income tax (benefit) expense | $(472) | $584 | - Price risk management activities expense increased significantly to **$281.2 million**, comprising **$127.1 million** in cash settlement losses and **$154.1 million** in non-cash losses from fair value changes of open derivative contracts[127](index=127&type=chunk) - Other (income) expense shifted to a gain of **$28.134 million**, primarily due to a **$27.5 million** gain from a litigation settlement in Q1 2022, compared to a **$13.2 million** loss on debt extinguishment in Q1 2021[128](index=128&type=chunk) - Income tax shifted to a benefit of **$0.5 million** from an expense of **$0.6 million**, mainly due to recording a valuation allowance on deferred tax assets[129](index=129&type=chunk) [Supplemental Non-GAAP Measure](index=26&type=section&id=Supplemental%20Non-GAAP%20Measure) This section defines and reconciles non-GAAP financial measures like EBITDA and Adjusted EBITDA - EBITDA is defined as Net income (loss) plus interest expense, income tax expense (benefit), depreciation, depletion and amortization, and accretion expense[136](index=136&type=chunk) - Adjusted EBITDA further adjusts EBITDA by adding non-cash write-downs, transaction/non-recurring expenses, net change in derivative fair value (net of cash settlements), gain/loss on debt extinguishment, and non-cash equity-based compensation[136](index=136&type=chunk) | Metric | Three Months Ended March 31, 2022 (in thousands USD) | Three Months Ended March 31, 2021 (in thousands USD) | | :----------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Net loss | $(66,441) | $(121,491) | | EBITDA | $77,294 | $29,811 | | Adjusted EBITDA | $208,213 | $136,605 | - Adjusted EBITDA increased by **$71.608 million** (**52.4%**) to **$208.213 million**, reflecting improved operational performance before non-cash and non-recurring items[132](index=132&type=chunk) [Liquidity and Capital Resources](index=27&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses the company's cash flow activities, capital expenditures, and debt instruments [Capital Expenditures](index=28&type=section&id=Capital%20Expenditures) This subsection details the company's capital spending across various categories, including drilling and CCS | Capital Expenditure Category | Three Months Ended March 31, 2022 (in thousands USD) | | :----------------------------------- | :--------------------------------------------- | | U.S. drilling & completions | $29,436 | | Mexico appraisal & exploration | $101 | | Asset management | $20,275 | | Seismic and G&G, land, capitalized G&A, CCS and other | $14,871 | | Total capital expenditures | $64,683 | | Plugging & abandonment | $20,023 | | Total capital expenditures and plugging & abandonment | $84,706 | - The company's board-approved 2022 capital spending program is **$450.0 million** to **$480.0 million**, with approximately **$30.0 million** allocated to CCS[137](index=137&type=chunk) [Overview of Cash Flow Activities](index=28&type=section&id=Overview%20of%20Cash%20Flow%20Activities) This subsection summarizes the net cash flows from operating, investing, and financing activities | Cash Flow Activity | Three Months Ended March 31, 2022 (in thousands USD) | Three Months Ended March 31, 2021 (in thousands USD) | | :----------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Operating activities | $113,610 | $66,956 | | Investing activities | $(59,382) | $(72,737) | | Financing activities | $(45,732) | $36,527 | - Net cash provided by operating activities increased by **$46.7 million**, while net cash used in investing activities decreased by **$13.4 million**; net cash from financing activities decreased by **$82.3 million**, shifting from a source to a use of cash[138](index=138&type=chunk)[139](index=139&type=chunk)[140](index=140&type=chunk) [Overview of Debt Instruments](index=29&type=section&id=Overview%20of%20Debt%20Instruments) This subsection provides an overview of the company's Bank Credit Facility and senior notes - The Bank Credit Facility's borrowing base increased to **$1.1 billion** (from **$950.0 million**) and commitments to **$806.3 million** (from **$791.3 million**) on **May 4, 2022**[142](index=142&type=chunk) - The **12.00%** Second-Priority Senior Secured Notes mature in **January 2026** and are secured by the same collateral as the Bank Credit Facility[143](index=143&type=chunk) - The **7.50%** Senior Notes mature on **May 31, 2022**[144](index=144&type=chunk) | Guarantor Financial Information | March 31, 2022 (in thousands USD) | December 31, 2021 (in thousands USD) | | :----------------------------------- | :----------------------------- | :------------------------------ | | Total assets | $2,677,746 | $2,636,270 | | Total liabilities | $2,113,801 | $2,003,444 | | Net loss | $(64,033) | N/A | [Material Cash Requirements](index=30&type=section&id=Material%20Cash%20Requirements) This section outlines significant future cash obligations, including vessel commitments and performance bonds - Vessel commitments increased by approximately **$33.6 million** due to an offshore drilling rig agreement executed on **April 6, 2022**[152](index=152&type=chunk) - Derivative net liabilities increased from **$196.7 million** to **$350.9 million**[152](index=152&type=chunk) - Performance bonds totaled approximately **$707.1 million** and letters of credit **$13.6 million** as of **March 31, 2022**, primarily for plugging and abandonment and facility removal[148](index=148&type=chunk) [Critical Accounting Policies and Estimates](index=30&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) This section identifies the key accounting policies and estimates that require significant management judgment - Critical accounting policies include those related to oil and natural gas properties, proved reserve estimates, fair value measurement of financial instruments, asset retirement obligations, revenue recognition, imbalances and production handling fees, and income taxes[150](index=150&type=chunk) [Recently Adopted Accounting Standards](index=30&type=section&id=Recently%20Adopted%20Accounting%20Standards) This section reports on any new accounting standards adopted during the period - No recently adopted accounting standards were reported[151](index=151&type=chunk) [Recently Issued Accounting Standards](index=30&type=section&id=Recently%20Issued%20Accounting%20Standards) This section reports on any newly issued accounting standards that could impact the company - No recently issued accounting standards material to the company were reported[152](index=152&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=31&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section refers to the company's 2021 Annual Report for detailed disclosures on market risk, stating no material changes since that report - No material changes in market risk disclosures from the 2021 Annual Report[153](index=153&type=chunk) [Item 4. Controls and Procedures](index=31&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2022, with no material changes in internal control over financial reporting during the quarter [Disclosure Controls and Procedures](index=31&type=section&id=Disclosure%20Controls%20and%20Procedures) Management assessed the effectiveness of the company's disclosure controls and procedures - The principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective as of **March 31, 2022**[154](index=154&type=chunk) [Internal Control over Financial Reporting](index=31&type=section&id=Internal%20Control%20over%20Financial%20Reporting) This section reports on any material changes in the company's internal control over financial reporting - There were no changes in internal control over financial reporting during the quarter ended **March 31, 2022**, that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[155](index=155&type=chunk) [PART II — OTHER INFORMATION](index=32&type=section&id=PART%20II%20%E2%80%94%20OTHER%20INFORMATION) This section provides additional information not covered in the financial statements, including legal proceedings and risk factors [Item 1. Legal Proceedings](index=32&type=section&id=Item%201.%20Legal%20Proceedings) The company settled litigation for **$27.5 million** on March 23, 2022, with no other material legal developments reported - On **March 23, 2022**, the company entered into a settlement agreement to receive **$27.5 million** to resolve litigation filed in **October 2017** against a third-party supplier related to quality issues[158](index=158&type=chunk) - No additional material developments with respect to legal proceedings previously reported in the 2021 Annual Report[159](index=159&type=chunk) [Item 1A. Risk Factors](index=32&type=section&id=Item%201A.%20Risk%20Factors) This section highlights the adverse impact of the Russia-Ukraine war on the company's business, financial condition, and commodity prices - The ongoing war between **Russia** and **Ukraine** could adversely affect the business, financial condition, and results of operations due to significant market disruptions, commodity price volatility, instability in financial markets, supply chain interruptions, and increased cyberattacks[161](index=161&type=chunk) - Expanded international sanctions against **Russia** and **Belarus**, including blocking sanctions on financial institutions and individuals, and restrictions on foreign currency and capital outflow, contribute to global economic and financial market instability[162](index=162&type=chunk)[163](index=163&type=chunk) - While sanctions have increased commodity prices in Q1 2022, a cessation of hostilities and easing of sanctions could cause commodity prices to decline, which would reduce revenues[166](index=166&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=33&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) There were no unregistered sales of equity securities or use of proceeds to report for the period - None[167](index=167&type=chunk) [Item 3. Defaults Upon Senior Securities](index=33&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) There were no defaults upon senior securities to report for the period - None[168](index=168&type=chunk) [Item 4. Mine Safety Disclosures](index=33&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company's operations - Not applicable[169](index=169&type=chunk) [Item 5. Other Information](index=33&type=section&id=Item%205.%20Other%20Information) There is no other information to report for the period - None[170](index=170&type=chunk) [Item 6. Exhibits](index=34&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Quarterly Report on Form 10-Q, covering corporate governance, debt, and certifications - Key exhibits include the Amended and Restated Certificate of Incorporation, Bylaws, and Stockholders' Agreement, providing details on corporate governance[172](index=172&type=chunk) - Debt-related exhibits include the Indenture and First Supplemental Indenture for the **12.00%** Second-Priority Senior Secured Notes due **2026**, along with associated Registration Rights Agreements[172](index=172&type=chunk) - Employee compensation plans, such as the 2021 Long Term Incentive Plan Restricted Stock Unit and Performance Share Unit Grant Notices and Agreements, are also filed[172](index=172&type=chunk) - Certifications from the Chief Executive Officer and Chief Financial Officer, pursuant to the Sarbanes-Oxley Act of 2002, are included[172](index=172&type=chunk)[173](index=173&type=chunk) [Signatures](index=36&type=section&id=Signatures) This section formally attests to the accuracy and completeness of the quarterly report - The report was signed on behalf of Talos Energy Inc. by Shannon E. Young III, Executive Vice President and Chief Financial Officer, on **May 4, 2022**[175](index=175&type=chunk)[176](index=176&type=chunk)

February 28, 2022 Investor Discussion Materials Cautionary Statements Cautionary StatementRegarding Forward-LookingStatements This presentation contains "forward-looking statements" for purposes of the federal securities laws. All statements, other than statements of historical fact included in this presentation, regarding our strategy, future operations, the impact of regulatory changes, financial position, estimated capital expenditures, production, revenues and losses, projected costs, prospects, plans a ...

Talos Energy Inc. (NYSE:TALO) Q4 2021 Earnings Conference Call February 25, 2022 10:00 AM ET Company Participants Tim Duncan – President & Chief Executive Officer Shane Young – Executive Vice President & Chief Financial Officer Robin Fielder – Executive Vice President, Low Carbon Strategy and Chief Sustainability Officer Sergio Maiworm – Vice President-Finance Investor Relations & Treasurer Conference Call Participants Subash Chandra – Benchmark Company Michael Scialla – Stifel Steven Dechert – KeyBanc Je ...

[Glossary](index=3&type=section&id=GLOSSARY) [Cautionary Statement Regarding Forward-Looking Statements](index=5&type=section&id=CAUTIONARY_STATEMENT_REGARDING_FORWARD_LOOKING_STATEMENTS) This section outlines forward-looking statements and associated risks - Forward-looking statements cover business strategy, reserves, exploration, financial position, realized prices, drilling plans, competition, and carbon capture opportunities[26](index=26&type=chunk) - Key risks include **commodity price volatility**, lack of transportation capacity, adverse weather, cybersecurity threats, inflation, and regulatory changes[27](index=27&type=chunk) [Summary Risk Factors](index=7&type=section&id=SUMMARY_RISK_FACTORS) This section summarizes key risks related to the business and capital structure - Business risks include **volatile commodity prices**, geographic concentration in the U.S. Gulf of Mexico, high reserve replacement needs, and potential write-downs[33](index=33&type=chunk) - Capital structure risks involve **high debt levels**, substantial capital expenditure requirements, significant asset retirement obligations, and potential litigation outcomes[35](index=35&type=chunk) Part I [Items 1 and 2. Business and Properties](index=9&type=section&id=Items%201%20and%202.%20Business%20and%20Properties) Talos Energy is an independent E&P company focused on the U.S. Gulf of Mexico and offshore Mexico, also developing carbon capture and storage (CCS) opportunities - The company is a technically-driven independent exploration and production company focused on the U.S. Gulf of Mexico and offshore Mexico[37](index=37&type=chunk) - The business strategy aims to increase stockholder value by growing hydrocarbon reserves, production, and cash flow, while exploring CCS opportunities[39](index=39&type=chunk) - The hydrocarbon strategy utilizes in-house technical staff, seismic data, and operational experience for acquisitions, exploration, and development[40](index=40&type=chunk)[41](index=41&type=chunk)[43](index=43&type=chunk) - The CCS business leverages U.S. Gulf of Mexico expertise for CO2 removal solutions, targeting large-scale 'Regional Hub Projects' and 'Point Source Projects'[47](index=47&type=chunk)[51](index=51&type=chunk) - The company maintains high safety and environmental standards, reflected in a **lower recordable incident rate in 2021** compared to industry averages[46](index=46&type=chunk) [Hydrocarbon Properties](index=11&type=section&id=Hydrocarbon%20Properties) The company's core hydrocarbon operations are concentrated in the U.S. Gulf of Mexico and offshore Mexico, facing challenges with the Zama Field unitization | Area | Estimated Proved Reserves (MBoe) | % Oil | % Natural Gas | % NGLs | % Proved Developed | Net Production (MBoe) | % Operated | | :----------------- | :----------------------------- | :---- | :------------ | :----- | :----------------- | :------------------- | :---------- | | Green Canyon | 52,777 | 79% | 14% | 7% | 81% | 7,765 | 98% | | Mississippi Canyon | 67,349 | 75% | 16% | 9% | 90% | 9,643 | 52% | | Shelf & Gulf Coast | 41,465 | 38% | 51% | 11% | 79% | 6,092 | 53% | | **Total United States** | **161,591** | **67%** | **24%** | **9%** | **84%** | **23,500** | **68%** | - In Mexico, the Talos-led Block 7 consortium made a significant discovery (Zama Field), but Mexico's Ministry of Energy designated **PEMEX as the operator**, leading to disputes[56](index=56&type=chunk)[57](index=57&type=chunk) - Talos owns a 25% PI in Mexico's Block 31 but non-consented the appraisal program, resulting in an **$18.1 million impairment**[60](index=60&type=chunk) [Carbon Capture & Sequestration Projects](index=14&type=section&id=Carbon%20Capture%20%26%20Sequestration%20Projects) Talos Energy is actively pursuing carbon capture and sequestration (CCS) opportunities along the U.S. Gulf Coast through several key projects - Talos and its partner were selected for the Texas General Land Office's Jefferson County carbon storage site, the first large-scale offshore location in the U.S[61](index=61&type=chunk) - A letter of intent was executed with Freeport LNG and Storegga to develop a CCS project, with first injection anticipated by the end of 2024[62](index=62&type=chunk) - In February 2022, Talos announced a major CCS project along the Mississippi River industrial corridor and a joint service offering with EnLink Midstream, LLC[64](index=64&type=chunk) [Summary of Reserves](index=15&type=section&id=Summary%20of%20Reserves) Total proved reserves decreased slightly in 2021, with an increase in proved developed reserves offset by a decrease in proved undeveloped reserves Total Proved Reserves (MBoe) | Year | Total Proved (MBoe) | Oil (MBbls) | Natural Gas (MMcf) | NGL (MBbls) | Standardized Measure ($ thousands) | PV-10 ($ thousands) | | :--- | :------------------ | :---------- | :----------------- | :---------- | :--------------------------------- | :------------------ | | 2021 | 161,591 | 107,764 | 236,353 | 14,435 | 3,440,611 | 3,925,997 | | 2020 | 163,033 | 109,307 | 257,208 | 10,858 | 1,904,934 | 1,998,485 | | 2019 | 141,735 | 106,754 | 155,998 | 8,981 | 2,537,595 | 2,993,022 | - **PV-10 for 2021 was $3,926.0 million**, calculated from the standardized measure ($3,440.6 million) plus future income taxes ($485.4 million)[67](index=67&type=chunk) - Proved developed reserves **increased by 9.2 MMBoe (7%)** in 2021, driven by upward price revisions and successful drilling[68](index=68&type=chunk)[69](index=69&type=chunk) - Proved undeveloped (PUD) reserves **decreased by 10.6 MMBoe (30%)** in 2021, mainly due to conversions to proved developed reserves[70](index=70&type=chunk)[71](index=71&type=chunk) [Internal Controls over Reserve Estimates and Reserve Estimation Procedures](index=17&type=section&id=Internal%20Controls%20over%20Reserve%20Estimates%20and%20Reserve%20Estimation%20Procedures) Talos Energy maintains robust internal controls for estimating reserves, which are prepared internally and audited by independent petroleum engineers - Reserve estimates are prepared by internal engineers and audited by Netherland, Sewell & Associates, Inc. (NSAI) in accordance with SEC regulations[74](index=74&type=chunk)[75](index=75&type=chunk) - Internal controls include secure database access, variance analysis, senior management review, and a requirement for external audit variance of no more than 10%[78](index=78&type=chunk) - NSAI issued **unqualified audit opinions** on the company's reserves for 2021, 2020, and 2019, confirming estimates were reasonable[77](index=77&type=chunk) [Technologies Used in Reserve Estimation](index=18&type=section&id=Technologies%20Used%20in%20Reserve%20Estimation) Talos Energy utilizes a range of proven technologies and economic data to estimate proved reserves with reasonable certainty - Technologies and data used include well logs, geologic maps, seismic data, production data, and historical price and cost information[79](index=79&type=chunk) - The accuracy of reserve estimates depends on data quality, interpretation, and judgments regarding future costs and prices[83](index=83&type=chunk) [Qualifications of Primary Internal Engineer](index=18&type=section&id=Qualifications%20of%20Primary%20Internal%20Engineer) The company's Director of Reserves possesses over 47 years of industry experience and a professional engineering license - The Director of Reserves has **over 47 years of industry experience**, including 39 years as a reserves evaluator or manager, and holds a State of Texas Professional Engineering License[80](index=80&type=chunk) [Drilling Activity](index=18&type=section&id=Drilling%20Activity) Drilling in 2021 included 2.0 gross dry exploratory wells and 5.0 gross productive development wells in the United States Drilling Activity Summary (Gross/Net Wells) | Year Ended Dec 31 | Exploratory & Appraisal Productive (Gross/Net) | Exploratory & Appraisal Dry (Gross/Net) | Development Productive (Gross/Net) | Development Dry (Gross/Net) | Total Gross/Net | | :------------------ | :--------------------------------------------- | :------------------------------------ | :--------------------------------- | :-------------------------- | :-------------- | | 2021 | 0 / 0 | 2.0 / 1.5 | 5.0 / 2.4 | 0 / 0 | 7.0 / 3.9 | | 2020 | 2.0 / 0.7 | 0 / 0 | 3.0 / 1.9 | 0 / 0 | 5.0 / 2.6 | | 2019 | 3.0 / 2.3 | 3.0 / 1.3 | 3.0 / 2.7 | 0 / 0 | 9.0 / 6.3 | Wells Actively Drilling/Completing or Suspended/Waiting on Completion (as of Dec 31, 2021) | Status | Exploratory (Gross/Net) | Development (Gross/Net) | | :-------------------------------- | :---------------------- | :---------------------- | | Actively Drilling or Completing | 0 / 0 | 1.0 / 1.0 | | Wells Suspended or Waiting on Completion | 5.0 / 1.8 | 0 / 0 | [Productive Wells](index=19&type=section&id=Productive%20Wells) As of December 31, 2021, Talos Energy reported a total of 268.0 gross productive wells Productive Wells (as of Dec 31, 2021) | Type | Gross | Net | | :--------- | :---- | :---- | | Crude oil | 198.0 | 148.7 | | Natural gas | 70.0 | 38.8 | | **Total** | **268.0** | **187.5** | [Acreage](index=19&type=section&id=Acreage) As of December 31, 2021, Talos Energy held a total of 1,256,329 gross acres, with a significant portion of undeveloped leases expiring in 2022 and 2023 Acreage Summary (Gross/Net Acres as of Dec 31, 2021) | Region | Developed Acres (Gross/Net) | Undeveloped Acres (Gross/Net) | Total Acres (Gross/Net) | | :------------ | :-------------------------- | :---------------------------- | :-------------------- | | United States | 568,807 / 313,466 | 617,992 / 306,723 | 1,186,799 / 620,189 | | Mexico | 0 / 0 | 69,530 / 17,843 | 69,530 / 17,843 | | **Total** | **568,807 / 313,466** | **687,522 / 324,566** | **1,256,329 / 638,032** | Undeveloped Acreage Lease Expiration Schedule (Gross/Net Acres as of Dec 31, 2021) | Year | Gross | Net | | :--- | :---- | :---- | | 2022 | 133,630 | 46,066 | | 2023 | 174,813 | 120,090 | | 2024 | 107,480 | 37,710 | | 2025 | 46,166 | 25,778 | | 2026 | 23,040 | 10,656 | | 2027 and beyond | 202,393 | 84,266 | | **Total** | **687,522** | **324,566** | [Crude Oil, Natural Gas and NGL Production, Prices and Production Costs](index=20&type=section&id=Crude%20Oil%2C%20Natural%20Gas%20and%20NGL%20Production%2C%20Prices%20and%20Production%20Costs) In 2021, the company saw increased production volumes and significantly higher average sales prices, while average lease operating expenses per Boe decreased Production Volumes, Average Sales Prices, and Average Production Costs (2019-2021) | Metric | 2021 | 2020 | 2019 | | :------------------------------------------------ | :----- | :----- | :----- | | **Production Volumes:** | | | | | Crude oil (MBbls) | 16,159 | 13,665 | 13,847 | | Natural gas (MMcf) | 32,795 | 28,652 | 23,306 | | NGLs (MBbls) | 1,875 | 1,559 | 1,228 | | **Total (MBoe)** | **23,500** | **19,999** | **18,959** | | Percent of MBoe from crude oil | 69% | 68% | 73% | | **Average Sales Price (including commodity derivatives):** | | | | | Crude oil (per Bbl) | $49.67 | $47.36 | $59.23 | | Natural gas (per Mcf) | $3.11 | $2.00 | $2.55 | | NGLs (per Bbl) | $26.54 | $9.90 | $16.02 | | **Average (per Boe)** | **$40.61** | **$35.99** | **$47.43** | | **Average Sales Price (excluding commodity derivatives):** | | | | | Crude oil (per Bbl) | $65.86 | $37.09 | $60.17 | | Natural gas (per Mcf) | $3.98 | $1.87 | $2.37 | | NGLs (per Bbl) | $26.54 | $9.90 | $16.02 | | **Average (per Boe)** | **$52.96** | **$28.80** | **$47.90** | | **Average Lease Operating Expense (per Boe)** | **$12.07** | **$12.33** | **$12.84** | - The Phoenix Field contributed **5,257 MBoe in 2021**, with an average sales price (excluding derivatives) of $58.66/Boe and lease operating expense of $4.86/Boe[90](index=90&type=chunk) - The Pompano Field contributed **3,408 MBoe in 2021**, with an average sales price (excluding derivatives) of $59.17/Boe and lease operating expense of $3.57/Boe[92](index=92&type=chunk) [Title to Properties](index=21&type=section&id=Title%20to%20Properties) Talos Energy believes it holds satisfactory title to its properties, subject to customary industry burdens, and conducts title investigations before acquisition or drilling - The company believes it has satisfactory title to its oil and natural gas properties, subject to customary industry burdens like royalties[94](index=94&type=chunk) - Title investigations are conducted prior to acquiring producing properties and before drilling on undeveloped properties[94](index=94&type=chunk) [Commodity Price Risks and Price Risk Management Activities](index=21&type=section&id=Commodity%20Price%20Risks%20and%20Price%20Risk%20Management%20Activities) Talos Energy manages commodity price risks by marketing its production and utilizing derivative contracts to stabilize cash flows - Sales prices are negotiated based on industry factors like index price, regulations, commodity quality, and supply and demand conditions[95](index=95&type=chunk) - The company enters into derivative contracts to stabilize cash flows and reduce the financial impact of downward commodity price movements[95](index=95&type=chunk) [Significant Customers](index=22&type=section&id=Significant%20Customers) In 2021, revenues were significantly concentrated, with two customers accounting for 74% of total revenues Major Customers (2021 Revenue Share) | Customer | Revenue Share | | :-------------------------- | :------------ | | Shell Trading (US) Company | 45% | | Chevron Products Company | 29% | [Competitive Conditions](index=22&type=section&id=Competitive%20Conditions) Despite intense industry competition, Talos Energy maintains a strong position due to its high-quality production base, technical expertise, and operational control - The oil and natural gas business is highly competitive in exploration, acquisition, equipment, personnel, and marketing[98](index=98&type=chunk) - Competitive advantages include a **high-quality oil-weighted production base**, expertise in seismic technology, and significant operating control[99](index=99&type=chunk) [Seasonality of Business](index=22&type=section&id=Seasonality%20of%20Business) The company's business is subject to seasonality, as weather conditions influence the demand for and prices of oil and natural gas - Weather conditions affect demand and prices, leading to seasonal fluctuations in operating results[100](index=100&type=chunk) - Generally, demand for natural gas decreases during summer and increases during winter[100](index=100&type=chunk) [Insurance Matters](index=22&type=section&id=Insurance%20Matters) The company maintains insurance for various operational risks, particularly from hurricanes in the U.S. Gulf of Mexico, but not all risks are fully insured - Operations are subject to risks like blowouts, fires, and pollution, with particular vulnerability to hurricanes in the U.S. Gulf of Mexico[101](index=101&type=chunk) - Insurance coverage includes general liability (**$500 million**), Offshore Pollution Act (**$150 million**), and U.S. Gulf of Mexico windstorm (**$175 million**)[104](index=104&type=chunk) - An operators extra expense policy provides up to **$500 million** for U.S. Gulf of Mexico Deepwater drilling wells[104](index=104&type=chunk)[105](index=105&type=chunk) [Government Regulation](index=23&type=section&id=Government%20Regulation) Operations are subject to extensive and evolving governmental regulations, with recent trends indicating more stringent environmental, safety, and financial requirements - Operations are subject to various laws covering well location, permits, production, environmental protection, waste disposal, and emissions[107](index=107&type=chunk)[109](index=109&type=chunk)[113](index=113&type=chunk) - U.S. OCS operations are regulated by BSEE, BOEM, and ONRR, with the Biden Administration proposing more stringent requirements[111](index=111&type=chunk)[112](index=112&type=chunk)[115](index=115&type=chunk)[118](index=118&type=chunk) - Operations in Mexico are regulated by SENER and CNH, with recent reforms impacting permits and market regulation[120](index=120&type=chunk)[122](index=122&type=chunk) - The company is subject to numerous environmental and safety regulations, with an increasing focus on **climate change and GHG emissions** posing significant risks[123](index=123&type=chunk)[124](index=124&type=chunk)[126](index=126&type=chunk)[127](index=127&type=chunk)[129](index=129&type=chunk)[130](index=130&type=chunk)[131](index=131&type=chunk)[133](index=133&type=chunk)[134](index=134&type=chunk)[135](index=135&type=chunk)[136](index=136&type=chunk)[138](index=138&type=chunk)[139](index=139&type=chunk)[140](index=140&type=chunk)[142](index=142&type=chunk) - Sales of natural gas and crude oil are generally unregulated, but transportation is subject to FERC jurisdiction and anti-manipulation rules[148](index=148&type=chunk)[149](index=149&type=chunk)[150](index=150&type=chunk)[151](index=151&type=chunk)[153](index=153&type=chunk)[154](index=154&type=chunk)[155](index=155&type=chunk)[156](index=156&type=chunk)[157](index=157&type=chunk) [Human Capital](index=34&type=section&id=Human%20Capital) Talos Energy employs approximately 443 people and focuses on human capital management through commitments to human rights, safety, and employee development - As of December 31, 2021, Talos Energy employed approximately **443 people**, primarily in Texas, Louisiana, and Mexico[158](index=158&type=chunk) - The company is committed to human rights, diversity, and a safety-first culture, evidenced by its Code of Business Conduct and Human Rights Policy[160](index=160&type=chunk)[162](index=162&type=chunk)[163](index=163&type=chunk) - Talos fosters employee growth through performance reviews and training, contributing to a **low 4.9% turnover rate in 2021**[168](index=168&type=chunk) - The company offers competitive wages and benefits and actively engages in community support through volunteer events and fundraising[169](index=169&type=chunk)[170](index=170&type=chunk) [Item 1A. Risk Factors](index=37&type=section&id=Item%201A.%20Risk%20Factors) This section details risks that could adversely affect the business, including price volatility, asset concentration, and evolving governmental regulations - **Oil and natural gas prices are highly volatile**, impacting revenues, cash flows, and the economic viability of production[174](index=174&type=chunk)[175](index=175&type=chunk)[176](index=176&type=chunk) - The company's production and revenue are **concentrated in the U.S. Gulf of Mexico and offshore Mexico**, increasing vulnerability to regional events[180](index=180&type=chunk)[182](index=182&type=chunk)[183](index=183&type=chunk) - Actual recovery of reserves may differ substantially from estimates, with **16% of proved reserves undeveloped** as of December 31, 2021[186](index=186&type=chunk)[187](index=187&type=chunk)[192](index=192&type=chunk) - Operations are subject to numerous drilling and production risks, including equipment failures, adverse weather, and the higher risks of Deepwater exploration[238](index=238&type=chunk)[239](index=239&type=chunk)[240](index=240&type=chunk)[243](index=243&type=chunk) - Evolving governmental regulations may impose **stricter environmental, safety, and financial requirements**, potentially increasing costs and delaying operations[214](index=214&type=chunk)[215](index=215&type=chunk)[216](index=216&type=chunk)[220](index=220&type=chunk)[224](index=224&type=chunk) - The Carbon Capture and Sequestration (CCS) business is dependent on **financial incentives (e.g., Section 45Q tax credits)** and stringent regulatory permits[287](index=287&type=chunk)[288](index=288&type=chunk)[291](index=291&type=chunk)[292](index=292&type=chunk)[293](index=293&type=chunk) [Item 1B. Unresolved Staff Comments](index=63&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) This item indicates that there are no unresolved staff comments from the SEC [Item 3. Legal Proceedings](index=63&type=section&id=Item%203.%20Legal%20Proceedings) Talos Energy is involved in various lawsuits and regulatory proceedings, the outcomes of which are uncertain but not expected to be materially adverse - A derivative and class action lawsuit related to the ILX and Castex Acquisition was dismissed but is currently under appeal[327](index=327&type=chunk) - The company assumed litigation alleging violations of the Coastal Resources Management Act (CRMA) in Louisiana parishes[330](index=330&type=chunk)[331](index=331&type=chunk) - The outcome of these legal proceedings is subject to substantial uncertainties, but management does not expect a material adverse effect on financial condition[332](index=332&type=chunk) [Item 4. Mine Safety Disclosures](index=64&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to Talos Energy Inc Part II [Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases Of Equity Securities](index=65&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20Of%20Equity%20Securities) The company's common stock is listed on the NYSE under 'TALO', and it has not paid cash dividends and does not anticipate doing so - Talos Energy Inc.'s common stock is listed on the NYSE under the symbol 'TALO', with approximately **152 holders of record** as of February 17, 2022[336](index=336&type=chunk)[337](index=337&type=chunk) - The company has **never declared or paid any cash dividends** on its common stock and does not anticipate paying any in the foreseeable future[338](index=338&type=chunk) Stockholder Return Performance (May 10, 2018 - Dec 31, 2021) | Index | May 10, 2018 | 2018 | 2019 | 2020 | 2021 | | :----------------------------------- | :----------- | :--- | :--- | :--- | :--- | | Talos Energy Inc. | $100 | $45 | $83 | $23 | $27 | | S&P 500 Index | $100 | $93 | $123 | $145 | $187 | | Dow Jones U.S. Exploration & Production Index | $100 | $71 | $78 | $53 | $93 | [Item 6. [Reserved]](index=66&type=section&id=Item%206.%20%5BReserved%5D) This item is reserved and contains no information [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=67&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's analysis of financial condition and operational results, including business strategy, market outlook, and key performance metrics - Talos is a technically-driven independent E&P company in the U.S. Gulf of Mexico and offshore Mexico, also developing carbon capture opportunities[347](index=347&type=chunk) - The outlook for commodity prices is favorable, but risks of disruption from new COVID-19 variants and OPEC+ policy changes remain[350](index=350&type=chunk)[352](index=352&type=chunk)[353](index=353&type=chunk) - Significant developments include new carbon capture initiatives, unplanned downtime impacting Q1 2022 production, and ongoing Zama Field disputes in Mexico[354](index=354&type=chunk)[355](index=355&type=chunk)[356](index=356&type=chunk)[357](index=357&type=chunk) [Factors Affecting the Comparability of our Financial Condition and Results of Operations](index=69&type=section&id=Factors%20Affecting%20the%20Comparability%20of%20our%20Financial%20Condition%20and%20Results%20of%20Operations) Financial comparability was impacted by significant 2020 acquisitions, hurricane-related production deferrals, and a major facility shut-in - The company completed several asset acquisitions in 2020: LLOG, Castex Energy 2005, and ILX and Castex[360](index=360&type=chunk)[361](index=361&type=chunk)[362](index=362&type=chunk) - Production was impacted by hurricanes, resulting in approximately **4.2 MBoepd deferred production in 2021** and **4.1 MBoepd in 2020**[363](index=363&type=chunk)[364](index=364&type=chunk) - The Ram Powell facility experienced a shut-in from June to November 2020, deferring **2.1 MBoepd of production**[365](index=365&type=chunk) - The company recorded an **$18.1 million impairment** in Mexico in 2021 and a **$267.9 million write-down** of U.S. properties in 2020[369](index=369&type=chunk)[371](index=371&type=chunk) - Future comparability may be affected by planned downtime and potential for more stringent BOEM bonding requirements[372](index=372&type=chunk)[374](index=374&type=chunk) [How We Evaluate Our Operations](index=71&type=section&id=How%20We%20Evaluate%20Our%20Operations) Talos Energy evaluates its operations using key metrics including production volumes, realized prices, operating expenses, capital expenditures, and Adjusted EBITDA - The company assesses performance using production volumes, realized prices, lease operating expenses, capital expenditures, and Adjusted EBITDA[382](index=382&type=chunk) - Revenues are primarily derived from the sale of oil (**86% in 2021**), natural gas (**10% in 2021**), and NGLs (**4% in 2021**)[379](index=379&type=chunk) Average Sales Price (excluding commodity derivatives) | Commodity | 2021 | 2020 | 2019 | | :---------- | :----- | :----- | :----- | | Crude oil | $65.86 | $37.09 | $60.17 | | Natural gas | $3.98 | $1.87 | $2.37 | | NGLs | $26.54 | $9.90 | $16.02 | | **Average (per Boe)** | **$52.96** | **$28.80** | **$47.90** | - Key expenses include lease operating expense, production taxes, depreciation/depletion/amortization, accretion expense, G&A, and interest expense[386](index=386&type=chunk)[387](index=387&type=chunk)[388](index=388&type=chunk)[390](index=390&type=chunk)[391](index=391&type=chunk)[392](index=392&type=chunk)[393](index=393&type=chunk) [Results of Operations](index=74&type=section&id=Results%20of%20Operations) Total revenues increased significantly in 2021 due to higher commodity prices and production, though the company recorded a net loss due to derivative expenses - **Total revenues increased by $668.6 million (116%)** to $1,244.5 million in 2021 from $575.9 million in 2020[395](index=395&type=chunk) Revenue Change Analysis (2021 vs 2020, $ thousands) | | Price | Volume | Total | | :---------- | :------ | :----- | :------ | | Oil | $464,871 | $92,502 | $557,373 | | Natural gas | $69,155 | $7,747 | $76,902 | | NGL | $31,201 | $3,128 | $34,329 | | **Total** | **$565,227** | **$103,377** | **$668,604** | - Production volumes **increased by 9.7 MBoepd (17.7%)** to 64.4 MBoepd in 2021[395](index=395&type=chunk) - Lease operating expense increased by $37.0 million to $283.6 million in 2021, but **decreased $0.26 per Boe to $12.07 per Boe**[397](index=397&type=chunk)[399](index=399&type=chunk) - The company recorded a **net loss of $(182.9) million** in 2021, compared to $(465.6) million in 2020, including a $419.1 million expense from derivatives[405](index=405&type=chunk)[407](index=407&type=chunk)[527](index=527&type=chunk) [Supplemental Non-GAAP Measure](index=77&type=section&id=Supplemental%20Non-GAAP%20Measure) Talos Energy uses non-GAAP measures, EBITDA and Adjusted EBITDA, to provide additional insights into operational performance and debt covenant compliance - EBITDA is defined as Net income (loss) plus interest expense, income tax expense (benefit), depreciation, depletion and amortization, and accretion expense[413](index=413&type=chunk) - Adjusted EBITDA further adjusts for non-cash write-downs, transaction expenses, derivative value changes, debt extinguishment gains/losses, and equity-based compensation[413](index=413&type=chunk) Adjusted EBITDA (2019-2021, $ thousands) | Year | Net Income (Loss) | EBITDA | Adjusted EBITDA | | :--- | :---------------- | :----- | :-------------- | | 2021 | $(182,952) | $402,674 | $606,474 | | 2020 | $(465,605) | $83,480 | $430,239 | | 2019 | $58,729 | $500,755 | $614,214 | [Liquidity and Capital Resources](index=78&type=section&id=Liquidity%20and%20Capital%20Resources) Liquidity is derived from operating cash flows and its Bank Credit Facility, with total debt at approximately $962.7 million as of December 31, 2021 - As of December 31, 2021, **available liquidity was $472.6 million**[416](index=416&type=chunk) - Capital expenditures for 2021 totaled **$270.8 million**, with a 2022 budget of **$450.0 million to $480.0 million**[418](index=418&type=chunk)[420](index=420&type=chunk) Cash Flow Activities (2021 vs 2020, $ thousands) | Activity | 2021 | 2020 | | :------------------ | :--------- | :--------- | | Operating activities | $411,388 | $301,923 | | Investing activities | $(293,747) | $(678,904) | | Financing activities | $(82,022) | $324,192 | - **Total debt was approximately $962.7 million** as of December 31, 2021, comprising $650.0 million 12.00% Notes and $367.8 million under the Bank Credit Facility[425](index=425&type=chunk) Material Cash Requirements from Contractual Obligations (as of Dec 31, 2021, $ thousands) | Obligation | 2022 | 2023 | 2024 | 2025 | 2026 | Thereafter | Total | | :-------------------------- | :----- | :----- | :----- | :----- | :----- | :--------- | :-------- | | Debt principal | $6,060 | $0 | $375,000 | $0 | $650,000 | $0 | $1,031,060 | | Debt interest | $93,785 | $93,596 | $91,733 | $78,000 | $3,250 | $0 | $360,364 | | Vessel commitments | $29,710 | $0 | $0 | $0 | $0 | $0 | $29,710 | | Derivative liabilities | $186,526 | $13,938 | $0 | $0 | $0 | $0 | $200,464 | | Operating lease obligations | $3,712 | $3,652 | $3,454 | $3,519 | $3,584 | $9,258 | $27,179 | | Finance lease | $45,000 | $18,750 | $0 | $0 | $0 | $0 | $63,750 | | Purchase obligations | $3,153 | $0 | $0 | $0 | $0 | $0 | $3,153 | | **Total contractual obligations** | **$367,946** | **$129,936** | **$470,187** | **$81,519** | **$656,834** | **$9,258** | **$1,715,680** | [Critical Accounting Policies and Estimates](index=81&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) Financial reporting relies on critical accounting policies involving significant judgment, including the full cost method, reserve estimations, and fair value measurements - The company follows the **full cost method** of accounting, capitalizing costs which are subject to a quarterly ceiling test impairment calculation[439](index=439&type=chunk)[442](index=442&type=chunk) - **Proved reserve estimates** are made in accordance with SEC guidelines and are subject to annual review and revision[445](index=445&type=chunk)[446](index=446&type=chunk) - **Fair value measurements** for financial instruments, including commodity derivatives, utilize a three-level hierarchy and require significant judgment[449](index=449&type=chunk)[450](index=450&type=chunk) - **Asset retirement obligations** are accrued based on estimates of timing and costs for plugging and abandonment[451](index=451&type=chunk)[452](index=452&type=chunk) - **Income taxes** involve significant judgment in evaluating tax positions, with deferred tax assets subject to a valuation allowance[456](index=456&type=chunk) [Item 7A. Quantitative and Qualitative Disclosures About Market Risk](index=84&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Talos Energy is exposed to market risks from commodity prices and interest rates, which it manages through derivative financial instruments - Talos Energy is exposed to market risk in **commodity prices** and, to a lesser extent, **interest rate risk**[461](index=461&type=chunk) - The company uses derivative financial instruments (swaps) to mitigate commodity price risk and stabilize cash flows[461](index=461&type=chunk)[464](index=464&type=chunk) Commodity Price Realizations (after derivatives, 2021 vs 2020) | Commodity | 2021 | 2020 | Change | | :---------- | :----- | :----- | :----- | | Oil (per Bbl) | $49.67 | $47.36 | +5% | | Natural gas (per Mcf) | $3.11 | $2.00 | +56% | - As of December 31, 2021, the company had a **net derivative liability position of $196.7 million**[465](index=465&type=chunk) - Approximately **$375.0 million** of the company's total debt was subject to variable interest rates at December 31, 2021[466](index=466&type=chunk) [Item 8. Financial Statements and Supplementary Data](index=85&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This item directs readers to the Consolidated Financial Statements and auditor's report included in Part IV, Item 15 of this Annual Report [Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=85&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) This item states there were no changes in or disagreements with accountants on accounting and financial disclosure [Item 9A. Controls and Procedures](index=86&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures, as well as internal control over financial reporting, were effective as of December 31, 2021 - Management concluded that **disclosure controls and procedures were effective** at a reasonable assurance level as of December 31, 2021[470](index=470&type=chunk) - Management concluded that **internal control over financial reporting was effective** as of December 31, 2021, based on the COSO framework[471](index=471&type=chunk) - **No material changes** in internal controls over financial reporting were identified during the fourth quarter of 2021[472](index=472&type=chunk) [Item 9B. Other Information](index=86&type=section&id=Item%209B.%20Other%20Information) This item states that there is no other information to disclose [Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections](index=86&type=section&id=Item%209C.%20Disclosure%20Regarding%20Foreign%20Jurisdictions%20that%20Prevent%20Inspections) This item is not applicable to Talos Energy Inc Part III [Item 10. Directors, Executive Officers and Corporate Governance](index=87&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information regarding directors, executive officers, and corporate governance is incorporated by reference from the 2022 Proxy Statement - Information required by this item is incorporated by reference to the company's Proxy Statement for the 2022 Annual Meeting of Stockholders[477](index=477&type=chunk) - The company's Code of Business Conduct and Ethics is available on its website[478](index=478&type=chunk) [Item 11. Executive Compensation](index=87&type=section&id=Item%2011.%20Executive%20Compensation) Information concerning executive compensation is incorporated by reference from the 2022 Proxy Statement - Information required by this item is incorporated by reference to the company's Proxy Statement for the 2022 Annual Meeting of Stockholders[479](index=479&type=chunk) [Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=87&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information regarding security ownership is incorporated by reference from the 2022 Proxy Statement - Information required by this item is incorporated by reference to the company's Proxy Statement for the 2022 Annual Meeting of Stockholders[480](index=480&type=chunk) [Item 13. Certain Relationships and Related Transactions, and Director Independence](index=87&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information on related transactions and director independence is incorporated by reference from the 2022 Proxy Statement - Information required by this item is incorporated by reference to the company's Proxy Statement for the 2022 Annual Meeting of Stockholders[481](index=481&type=chunk) [Item 14. Principal Accounting Fees and Services](index=87&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) Information regarding principal accounting fees and services is incorporated by reference from the 2022 Proxy Statement - Information required by this item is incorporated by reference to the company's Proxy Statement for the 2022 Annual Meeting of Stockholders[482](index=482&type=chunk) Part IV [Item 15. Exhibits and Financial Statement Schedules](index=88&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists all financial statements, schedules, and exhibits filed as part of the Annual Report, providing a comprehensive overview of supporting documentation - The Annual Report includes Financial Statements, Financial Statement Schedules, and a comprehensive list of Exhibits[485](index=485&type=chunk)[486](index=486&type=chunk)[487](index=487&type=chunk) - Exhibits cover a wide range of documents, including Transaction Agreements, Credit Agreements, Incentive Plans, and various certifications[487](index=487&type=chunk)[488](index=488&type=chunk)[489](index=489&type=chunk)[490](index=490&type=chunk)[491](index=491&type=chunk)[492](index=492&type=chunk)[495](index=495&type=chunk) [Item 16. Form 10-K Summary](index=93&type=section&id=Item%2016.%20Form%2010-K%20Summary) This item states that there is no Form 10-K Summary provided [Index to Consolidated Financial Statements](index=95&type=section&id=Index_to_Consolidated_Financial_Statements) [Reports of Independent Registered Public Accounting Firm](index=96&type=section&id=Reports_of_Independent_Registered_Public_Accounting_Firm) This section contains the auditor's opinions on the financial statements and internal controls - Ernst & Young LLP issued an **unqualified opinion** on the consolidated financial statements for the period ended December 31, 2021[507](index=507&type=chunk) - An **unqualified opinion** was also issued on the effectiveness of the company's internal control over financial reporting as of December 31, 2021[508](index=508&type=chunk)[517](index=517&type=chunk) - The critical audit matter identified was the **depreciation, depletion, and amortization (DD&A)** of oil and natural gas properties[513](index=513&type=chunk) Consolidated Financial Statements [Consolidated Balance Sheets](index=99&type=section&id=Consolidated%20Balance%20Sheets) Total assets decreased to $2,766.8 million in 2021, while total liabilities increased to $2,006.2 million, leading to a decrease in stockholders' equity Consolidated Balance Sheet Highlights ($ thousands) | Metric | Dec 31, 2021 | Dec 31, 2020 | | :-------------------------- | :----------- | :----------- | | Total Assets | $2,766,815 | $2,834,546 | | Total Liabilities | $2,006,162 | $1,907,945 | | Total Stockholders' Equity | $760,653 | $926,601 | [Consolidated Statements of Operations](index=100&type=section&id=Consolidated%20Statements%20of%20Operations) Total revenues increased significantly to $1,244.5 million in 2021, though the company reported a net loss of $(182.9) million Total Revenues ($ thousands) | Year | Amount | | :--- | :------- | | 2021 | $1,244,540 | | 2020 | $575,936 | | 2019 | $908,064 | Net Income (Loss) ($ thousands) | Year | Amount | | :--- | :------- | | 2021 | $(182,952) | | 2020 | $(465,605) | | 2019 | $58,729 | Basic Earnings Per Share (EPS) | Year | EPS | | :--- | :---- | | 2021 | $(2.24) | | 2020 | $(6.88) | | 2019 | $1.08 | [Consolidated Statements of Changes in Stockholders' Equity (Deficit)](index=101&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Stockholders'%20Equity%20(Deficit)) Total stockholders' equity decreased from $926.6 million in 2020 to $760.7 million in 2021, primarily due to the net loss Total Stockholders' Equity ($ thousands) | Year | Amount | | :--- | :------- | | Dec 31, 2021 | $760,653 | | Dec 31, 2020 | $926,601 | | Dec 31, 2019 | $1,078,277 | Common Stock Outstanding (Shares) | Year | Shares | | :--- | :------- | | Dec 31, 2021 | 81,881,477 | | Dec 31, 2020 | 81,279,989 | | Dec 31, 2019 | 54,197,004 | [Consolidated Statements of Cash Flows](index=102&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Net cash from operating activities increased to $411.4 million in 2021, while financing activities resulted in a net cash outflow due to debt repayment Net Cash Provided by Operating Activities ($ thousands) | Year | Amount | | :--- | :------- | | 2021 | $411,388 | | 2020 | $301,923 | | 2019 | $393,733 | Net Cash Used in Investing Activities ($ thousands) | Year | Amount | | :--- | :------- | | 2021 | $(293,747) | | 2020 | $(678,904) | | 2019 | $(495,956) | Net Cash Provided by (Used in) Financing Activities ($ thousands) | Year | Amount | | :--- | :------- | | 2021 | $(82,022) | | 2020 | $324,192 | | 2019 | $48,083 | Cash and Cash Equivalents (End of Period, $ thousands) | Year | Amount | | :--- | :------- | | 2021 | $69,852 | | 2020 | $34,233 | | 2019 | $87,022 | Notes to Consolidated Financial Statements [Note 1 — Organization, Nature of Business and Basis of Presentation](index=103&type=section&id=Note%201%20%E2%80%94%20Organization%2C%20Nature%20of%20Business%20and%20Basis%20of%20Presentation) This note outlines the company's core business as an independent E&P company in the U.S. Gulf of Mexico and offshore Mexico, with an emerging CCS segment - Talos Energy Inc. was incorporated in 2017 and consummated the Stone Combination in 2018[535](index=535&type=chunk) - The company is an independent E&P company with an emerging CCS segment that incurred **$4.3 million in G&A expenses** in 2021[535](index=535&type=chunk)[539](index=539&type=chunk) [Note 2 — Summary of Significant Accounting Policies](index=103&type=section&id=Note%202%20%E2%80%94%20Summary%20of%20Significant%20Accounting%20Policies) This note details significant accounting policies, including the full cost method, fair value measurement, asset retirement obligations, and revenue recognition - Accounts receivable are stated net of an allowance for expected credit losses, which was **$15.1 million in 2021** and $9.2 million in 2020[542](index=542&type=chunk) - The company follows the **full cost method** for oil and natural gas activities, capitalizing costs which are subject to a quarterly ceiling test[550](index=550&type=chunk)[553](index=553&type=chunk) - Impairment of other well equipment inventory resulted in expenses of **$5.6 million in 2021**[557](index=557&type=chunk) - Asset retirement obligations are accrued based on estimates of timing and costs; decommissioning obligations due to defaulting third parties were **$24.4 million** at year-end 2021[562](index=562&type=chunk)[563](index=563&type=chunk)[565](index=565&type=chunk) - Commodity derivatives are not designated for hedge accounting; major customers in 2021 were **Shell Trading (45% of revenue)** and **Chevron (29% of revenue)**[567](index=567&type=chunk)[584](index=584&type=chunk) [Note 3 — Acquisitions](index=109&type=section&id=Note%203%20%E2%80%94%20Acquisitions) This note details acquisition activities, including asset acquisitions of LLOG and Castex Energy 2005, and the business combination of ILX and Castex - In November 2020, Talos completed the LLOG Acquisition for **$13.2 million in cash**[586](index=586&type=chunk) - The Castex Energy 2005 Acquisition in August 2020 involved **$6.5 million in cash and 4.6 million shares** of common stock (valued at $35.4 million)[589](index=589&type=chunk)[590](index=590&type=chunk) - The ILX and Castex Acquisition in February 2020 was for **$385.0 million in cash** and **11.0 million common shares** (valued at $156.2 million)[593](index=593&type=chunk)[595](index=595&type=chunk) Pro Forma Financial Information (ILX and Castex Acquisition, 2020 & 2019, $ thousands) | Year | Revenue | Net Income (Loss) | Basic EPS | Diluted EPS | | :--- | :-------- | :---------------- | :-------- | :---------- | | 2020 | $634,921 | $(449,988) | $(6.48) | $(6.48) | | 2019 | $1,246,391 | $148,091 | $2.27 | $2.26 | [Note 4 — Property, Plant and Equipment](index=112&type=section&id=Note%204%20%E2%80%94%20Property%2C%20Plant%20and%20Equipment) This note summarizes property, plant, and equipment, highlighting an $18.1 million impairment for unproved properties in Mexico in 2021 - No write-down of U.S. proved properties occurred in 2021, compared to a **$267.9 million write-down in 2020**[599](index=599&type=chunk) Unproved Oil and Natural Gas Property Costs Not Being Amortized (as of Dec 31, 2021, $ thousands) | Year Incurred | Total | 2021 | 2020 | 2019 | 2018 and Prior | | :------------ | :---- | :--- | :--- | :--- | :------------- | | Acquisition United States | $46,757 | $0 | $37,704 | $3,216 | $5,837 | | Exploration United States | $62,038 | $16,242 | $11,195 | $31,111 | $3,490 | | Exploration Mexico | $110,260 | $2,736 | $13,853 | $48,508 | $45,163 | | **Total** | **$219,055** | **$18,978** | **$62,752** | **$82,835** | **$54,490** | - A non-cash **impairment of $18.1 million** was recorded in 2021 for unproved property investment in Mexico's Block 31[602](index=602&type=chunk) Asset Retirement Obligations (ARO, $ thousands) | Metric | 2021 | 2020 | | :-------------------------- | :--------- | :--------- | | Balance, beginning of period | $442,269 | $369,478 | | Obligations acquired | $433 | $44,311 | | Obligations settled | $(67,988) | $(43,933) | | Accretion expense | $58,129 | $49,741 | | Changes in estimate | $1,451 | $18,346 | | **Balance, end of period** | **$434,006** | **$442,269** | | Less: Current portion | $60,311 | $49,921 | | Long-term portion | $373,695 | $392,348 | [Note 5 — Leases](index=113&type=section&id=Note%205%20%E2%80%94%20Leases) This note details operating and finance leases, with total lease costs of $54.0 million in 2021, down from $73.2 million in 2020 Total Lease Cost ($ thousands) | Year | Amount | | :--- | :----- | | 2021 | $53,987 | | 2020 | $73,225 | | 2019 | $108,252 | Lease Liabilities (as of Dec 31, 2021, $ thousands) | Lease Type | Current Portion | Long-term Portion | Total | | :----------- | :-------------- | :---------------- | :---- | | Operating | $1,715 | $16,330 | $18,045 | | Finance | $27,083 | $13,138 | $40,221 | Lease Maturity by Year (Undiscounted, as of Dec 31, 2021, $ thousands) | Year | Operating Leases | Finance Leases | | :--- | :--------------- | :------------- | | 2022 | $3,712 | $33,257 | | 2023 | $3,652 | $13,857 | | 2024 | $3,454 | $0 | | 2025 | $3,519 | $0 | | 2026 | $3,584 | $0 | | Thereafter | $9,258 | $0 | | **Total Lease Payments** | **$27,179** | **$47,114** | - As of December 31, 2021, the weighted average remaining lease term for operating leases was **7.4 years** and for finance leases was **1.4 years**[610](index=610&type=chunk) [Note 6 — Financial Instruments](index=114&type=section&id=Note%206%20%E2%80%94%20Financial%20Instruments) This note details fair value information for debt and derivative contracts, with a net derivative liability of $196.7 million as of December 31, 2021 Debt Instruments Carrying Amount and Fair Value (as of Dec 31, 2021, $ thousands) | Debt Type | Carrying Amount | Fair Value | | :------------------------------------------ | :-------------- | :--------- | | 12.00% Second-Priority Senior Secured Notes | $588,838 | $685,945 | | 7.50% Senior Notes | $6,060 | $6,145 | | Bank Credit Facility | $367,829 | $375,000 | Oil and Natural Gas Derivatives Impact on Operations ($ thousands) | Metric | 2021 | 2020 | 2019 | | :------------------------------------------ | :--------- | :--------- | :--------- | | Net cash received (paid) on settled derivatives | $(290,164) | $143,905 | $(8,820) | | Unrealized loss | $(128,913) | $(56,220) | $(86,517) | | **Price risk management activities income (expense)** | **$(419,077)** | **$87,685** | **$(95,337)** | - As of December 31, 2021, the company had a **net derivative liability position of $196.7 million**[617](index=617&type=chunk) - The company's commodity derivatives are with seven 'investment grade' counterparties, and it is not required to post collateral[620](index=620&type=chunk) [Note 7 — Debt](index=116&type=section&id=Note%207%20%E2%80%94%20Debt) This note summarizes debt instruments, including $650.0 million in Senior Secured Notes and a Bank Credit Facility with a $950.0 million borrowing base Total Debt (net of discount and deferred financing costs, $ thousands) | Year | Amount | | :--- | :------- | | 2021 | $962,727 | | 2020 | $985,512 | - The **12.00% Second-Priority Senior Secured Notes**, issued in January 2021 with a principal of **$650.0 million**, mature in 2026[622](index=622&type=chunk) - The company redeemed $347.3 million of 11.00% notes in January 2021, resulting in a **$13.2 million loss on extinguishment of debt**[624](index=624&type=chunk) - The Bank Credit Facility, maturing in November 2024, had a borrowing base of **$950.0 million** and commitments of **$791.3 million** as of December 31, 2021[628](index=628&type=chunk)[631](index=631&type=chunk) - The company was in compliance with all debt covenants at December 31, 2021[629](index=629&type=chunk)[631](index=631&type=chunk) [Note 8 — Employee Benefit Plans and Share-Based Compensation](index=119&type=section&id=Note%208%20%E2%80%94%20Employee%20Benefit%20Plans%20and%20Share-Based%20Compensation) This note describes the Long Term Incentive Plans, with total share-based compensation expense of $10.99 million in 2021 - The 2021 Long Term Incentive Plan (LTIP) was approved in May 2021, authorizing grants of up to **8,639,415 shares**[633](index=633&type=chunk) - As of December 31, 2021, total unrecognized share-based compensation expense was approximately **$14.2 million for RSUs** and **$8.8 million for PSUs**[634](index=634&type=chunk)[639](index=639&type=chunk) Share-based Compensation Costs (Expensed & Capitalized, $ thousands) | Metric | 2021 | 2020 | 2019 | | :-------------------------------- | :----- | :----- | :----- | | Total share-based compensation costs | $20,560 | $16,462 | $12,924 | | Less: Amounts capitalized to oil and gas properties | $9,568 | $7,793 | $5,960 | | **Total share-based compensation expense** | **$10,992** | **$8,669** | **$6,964** | [Note 9 — Income Taxes](index=121&type=section&id=Note%209%20%E2%80%94%20Income%20Taxes) This note details income tax, which was a $1.6 million benefit in 2021, with the effective tax rate influenced by valuation allowances against deferred tax assets Total Income Tax Benefit (Expense) ($ thousands) | Year | Amount | | :--- | :------- | | 2021 | $(1,635) | | 2020 | $35,583 | | 2019 | $(36,141) | - The effective tax rate was **0.89% in 2021**, (8.27)% in 2020, and (159.99)% in 2019, influenced by a full valuation allowance[645](index=645&type=chunk)[646](index=646&type=chunk)[647](index=647&type=chunk) Net Operating Loss Carryforwards (as of Dec 31, 2021, $ thousands) | Type | Amount | Expiration Year | | :------------------------ | :------- | :-------------- | | Federal net operating losses | $534,964 | 2035 - 2037 | | Federal net operating losses | $197,651 | Unlimited | | Foreign tax loss carryforward | $166,440 | 2025 - 2031 | | State net operating losses | $125,958 | 2025 - 2037 | | State net operating losses | $268,221 | Unlimited | - A valuation allowance of **$224.3 million in 2021** was recorded against deferred tax assets, reflecting uncertainty about their future realization[651](index=651&type=chunk) [Note 10 — Income (Loss) Per Share](index=124&type=section&id=Note%2010%20%E2%80%94%20Income%20(Loss)%20Per%20Share) This note presents the computation of basic and diluted income (loss) per share, which was $(2.24) for 2021 Net Income (Loss) Per Common Share | Year | Basic EPS | Diluted EPS | | :--- | :-------- | :---------- | | 2021 | $(2.24) | $(2.24) | | 2020 | $(6.88) | $(6.88) | | 2019 | $1.08 | $1.08 | - Weighted average common shares outstanding for basic EPS were **81,769 thousand in 2021**[656](index=656&type=chunk) [Note 11 — Related Party Transactions](index=124&type=section&id=Note%2011%20%E2%80%94%20Related%20Party%20Transactions) This note details transactions with related parties, including the Apollo and Riverstone Funds, who collectively held 36.4% of common stock at year-end 2021 - As of December 31, 2021, entities affiliated with Apollo Funds and Riverstone Funds collectively held **36.4% of the company's common stock**[657](index=657&type=chunk) - The ILX and Castex Acquisition in February 2020 involved acquiring assets from affiliates of the Riverstone Funds[659](index=659&type=chunk) - A **$4.4 million gain** was recognized in 2021 from the settlement of a dispute related to the Whistler Acquisition, an affiliate of the Apollo Funds[660](index=660&type=chunk) - The company incurred legal fees of approximately **$3.1 million in 2021** from a firm where an executive's immediate family member is a partner[668](index=668&type=chunk) [Note 12 — Commitments and Contingencies](index=126&type=section&id=Note%2012%20%E2%80%94%20Commitments%20and%20Contingencies) This note outlines legal proceedings and performance obligations, with $724.4 million in performance bonds secured as of December 31, 2021 - The company is involved in various lawsuits and regulatory proceedings, but management believes none will have a material adverse effect[669](index=669&type=chunk) - As of December 31, 2021, Talos Energy had secured approximately **$724.4 million in performance bonds** and **$13.6 million in letters of credit**[670](index=670&type=chunk) Total Minimum Commitments (as of Dec 31, 2021, $ thousands) | Obligation | 2022 | 2023 | 2024 | 2025 | 2026 | Thereafter | Total | | :------------------------ | :----- | :----- | :----- | :----- | :----- | :--------- | :----- | | Vessel Commitments | $29,710 | $0 | $0 | $0 | $0 | $0 | $29,710 | | Committed purchase orders | $3,153 | $0 | $0 | $0 | $0 | $0 | $3,153 | | **Total** | **$32,863** | **$0** | **$0** | **$0** | **$0** | **$0** | **$32,863** | - The company recorded **$21.1 million in 2021** related to estimated decommissioning obligations due to defaulting third parties[674](index=674&type=chunk) [Note 13 — Supplemental Oil and Gas Disclosures (Unaudited)](index=127&type=section&id=Note%2013%20%E2%80%94%20Supplemental%20Oil%20and%20Gas%20Disclosures%20(Unaudited)) This unaudited note provides supplemental disclosures on oil and gas activities, including capitalized costs, costs incurred, and proved reserve quantities Net Capitalized Costs (Oil & Gas Properties, $ thousands) | Year | Amount | | :--- | :------- | | 2021 | $2,378,627 | | 2020 | $2,520,290 | - The depletion and amortization rate was **$16.71 per MBoe in 2021**, compared to $31.42 per MBoe in 2020[677](index=677&type=chunk) Total Costs Incurred for Property Acquisition, Exploration and Development Activities ($ thousands) | Year | Amount | | :--- | :------- | | 2021 | $269,112 | | 2020 | $939,508 | | 2019 | $545,430 | Estimated Proved Reserves (Net Ownership Interest, MBoe) | Year | Total Proved (MBoe) | | :--- | :------------------ | | Dec 31, 2021 | 161,591 | | Dec 31, 2020 | 163,033 | | Dec 31, 2019 | 141,735 | Standardized Measure of Discounted Future Net Cash Flows ($ thousands) | Year | Amount | | :--- | :--------- | | 2021 | $3,440,611 | | 2020 | $1,904,934 | | 2019 | $2,537,595 |

December 1-3, 2021 Stephens Investment Conference Cautionary Statements Cautionary StatementRegarding Forward-LookingStatements This presentation contains "forward-looking statements" for purposes of the federal securities laws. All statements, other than statements of historical fact included in this presentation, regarding our strategy, future operations, the impact of regulatory changes, financial position, estimated capital expenditures, production, revenues and losses, projected costs, prospects, plans ...

Financial Data and Key Metrics Changes - The company generated average daily production of 56,500 barrels of oil equivalent (BOE) per day for Q3 2021, a decrease of approximately 10,000 to 11,000 BOE per day compared to pre-hurricane expectations [10][34] - Revenues were approximately $291 million with realized pricing of $68.22 per barrel and $4.55 per Mcf [34] - EBITDA was $131.4 million for the quarter, with adjusted EBITDA over $203 million, resulting in near record margins of approximately $39 per BOE [35] - The company generated approximately $13 million of free cash flow before working capital changes despite production downtime and realized hedge losses of $71 million [36][42] Business Line Data and Key Metrics Changes - The company experienced a commodity mix of 69% oil and 78% total liquids, indicating a strong focus on oil production [11] - Capital expenditures for the quarter were approximately $86 million, with expectations to stay within the full-year capital guidance range [36] Market Data and Key Metrics Changes - The company expects fourth quarter production to average between 64,000 and 66,000 BOE per day, with full-year 2021 production anticipated to be at the low end of the guidance range [38] Company Strategy and Development Direction - The company is diversifying its energy offerings, making significant strides in carbon capture and storage initiatives, including being awarded a dedicated offshore sequestration site off the coast of Texas [8][22] - The company plans to continue its drilling program in 2022, focusing on low-risk asset management projects and a combination of infield development and step-out exploitation opportunities [15][19] - The company aims to maintain a balanced capital program across risk-reward categories while generating significant free cash flow and reducing total debt and leverage ratios [19][41] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to deliver record production and positive free cash flow despite challenges from Hurricane Ida [9][47] - The company anticipates continued improvement in its credit profile and liquidity, with a goal to reduce leverage metrics below 2 times net debt-to-EBITDA by year-end [13][42] Other Important Information - The company is focused on growing its carbon capture business and pursuing transformational M&A opportunities, particularly in the US Gulf of Mexico and other offshore regions [28][29] - The company plans to publish its second annual ESG and sustainability report in November, highlighting progress in emissions reductions and governance changes [30] Q&A Session Summary Question: How would you characterize the current M&A climate? - Management noted that the M&A environment is influenced by fluctuating prices, and while they remain active buyers, the timing and goals of sellers can vary significantly [52][53] Question: What are your thoughts on cleaning up bank debt? - Management indicated a focus on reducing leverage and improving liquidity by paying down the RBL, which would provide flexibility for future transactions [56][58] Question: How do you view your competitive posture in the CCS space? - Management acknowledged the competitive nature of the CCS market but emphasized their expertise in project development and execution as a differentiator [60][62] Question: What are your thoughts on the hedging program for next year? - Management stated they will continue to layer on hedges opportunistically while adhering to minimum requirements set by their bank agreement [71][72] Question: What are the capital requirements for your CCS business next year? - Management indicated that capital requirements for CCS will be manageable and focused on pre-FID activities, with potential for growth as projects advance [76][78] Question: How does the Build Back Better Act affect your CCS business? - Management stated that while the act may influence market reception, it does not change their approach to developing CCS projects [81][85] Question: What are your plans for the subsalt Miocene play next year? - Management expressed excitement about upcoming projects in the subsalt Miocene play and plans to execute on a couple of projects outside of Puma West [89][90]

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 September 30, 2021 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 UNITED STATES SECURITIES AND EXCHANGE COMMISSION 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 | | --- | --- | | ( St ...

August 16-18, 2021 EnerCom Conference Cautionary Statements Cautionary StatementRegarding Forward-LookingStatements This presentation contains "forward-looking statements" for purposes of the federal securities laws. All statements, other than statements of historical fact included in this presentation, regarding our strategy, future operations, the impact of regulatory changes, financial position, estimated capital expenditures, production, revenues and losses, projected costs, prospects, plans and objecti ...