UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2023 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 o ...

Talos Energy Inc. (NYSE:TALO) Q4 2022 Earnings Conference Call March 1, 2023 10:00 AM ET Company Participants Sergio Maiworm - VP, Finance, IR and Treasurer Tim Duncan - President and CEO Shane Young - EVP and CFO Robin Fielder - EVP, Low Carbon Strategy and Chief Sustainability Officer Conference Call Participants Nate Pendleton - Stifel Subash Chandra - Benchmark Company Jeff Robertson - Water Tower Research Leo Mariani - MKM Partners Operator Good day, and welcome to the Talos Energy Fourth Quarter and F ...

Mergers and Acquisitions - The company executed a merger agreement to acquire EnVen for $207.3 million in cash and 43.8 million shares valued at $832.2 million, closing on February 13, 2023[369]. - The company assumed EnVen's 11.75% Senior Secured Second Lien Notes with a principal amount of $257.5 million as part of the EnVen Acquisition[458]. Financial Performance - Total revenues for the year ended December 31, 2022, increased by approximately $407.4 million, or 33%, to $1,651.98 million compared to $1,244.54 million in 2021[418]. - For the year ended December 31, 2022, net income was $381.9 million, a significant increase from a net loss of $182.9 million in 2021[438]. - EBITDA for 2022 was $980.6 million, compared to $402.7 million in 2021, reflecting strong operational performance[438]. - Adjusted EBITDA for 2022 was $841.8 million, up from $606.5 million in 2021, indicating improved financial health[438]. - Revenues for the year ended December 31, 2022, were $1,651,980 thousand, with a net income of $380,146 thousand, indicating a strong performance[462]. Production and Sales - The company experienced deferred production of approximately 1.6 MBoepd due to a 41-day shut-in period for maintenance in 2022[378]. - Total production volumes decreased by 1,777 MBoe, or 7.5%, to 21,723 MBoe for the year ended December 31, 2022[418]. - The average oil sales price per Bbl (excluding commodity derivatives) was $93.75 in 2022, compared to $65.86 in 2021[407]. - The average natural gas sales price per Mcf (excluding commodity derivatives) was $7.06 in 2022, up from $3.98 in 2021[407]. - Oil revenues rose by $300.99 million, or 28.3%, to $1,365.15 million, while natural gas revenues increased by $96.69 million, or 74.1%, to $227.31 million[418]. Expenses and Liabilities - Lease operating expenses increased by approximately $24.5 million, or 9%, to $308.09 million, with lease operating expenses per Boe rising to $14.18 from $12.07[419]. - General and administrative expenses increased by approximately $21.1 million, or 27%, to $99.75 million, driven by transaction costs related to the EnVen Acquisition[421]. - Depreciation, depletion, and amortization expenses rose by approximately $18.6 million, or 5%, to $414.63 million, with per Boe costs increasing to $19.09 from $16.85[420]. - Interest expense decreased by $7.6 million, or 5.7%, to $125.50 million compared to $133.14 million in 2021[426]. - Current liabilities slightly increased to $599,669 thousand in 2022 from $598,062 thousand in 2021, while non-current liabilities decreased to $1,285,992 thousand from $1,405,382 thousand[462]. Market Conditions and Economic Factors - U.S. inflation peaked at 9.0% in June 2022, with the Federal Reserve raising interest rates multiple times, impacting economic conditions and potentially leading to a mild recession in 2023[367]. - The Fed raised interest rates to a range of 4.50%-4.75% on February 1, 2023, in response to inflationary pressures[387]. - Daily spot prices for NYMEX WTI crude oil ranged from a high of $123.64 per Bbl to a low of $71.05 per Bbl in 2022, indicating significant price volatility[385]. - The EIA expects the Henry Hub spot price to average $3.40 per MMBtu in 2023, influenced by weather conditions and LNG export facility operations[386]. Regulatory and Compliance Risks - The company’s operations are subject to extensive federal, state, local, and foreign laws and regulations, which may change and impact profitability[108]. - The Biden Administration may implement more stringent safety and performance requirements for oil and natural gas operations, potentially increasing capital and operating costs significantly[116]. - Environmental compliance costs have been increasing, and future regulatory changes may lead to further significant expenses for the company[124]. - The Oil Pollution Act imposes strict liability for oil spills, with a current damages liability cap of $137.7 million, which could materially impact financial results if amended[127]. - The SEC's proposed rule for climate risk reporting may lead to increased compliance costs and restrictions on capital access, with a final rule expected in Q2 2023[142]. Capital Expenditures and Investments - The company plans to allocate $650.0 million to $675.0 million for its 2023 Upstream capital spending program[447]. - Total capital expenditures for 2022 were $455.5 million, with $384.2 million allocated to drilling and completions in the U.S.[444]. - The company has total contractual obligations of $1,398,645 thousand as of December 31, 2022, with significant obligations in debt interest and the EnVen Acquisition[463]. Insurance and Risk Management - The company’s general liability insurance program provides a limit of $500 million for each occurrence and in the aggregate[105]. - The Offshore Pollution Act insurance is subject to a maximum of $150 million for each occurrence and in the aggregate, including a $100,000 retention[105]. - The company enters into derivative contracts on oil and natural gas production primarily to stabilize cash flows and reduce risks from downward price movements[96]. Workforce and Safety - As of December 31, 2022, the company employs approximately 436 people, with 216 in offshore operations, and no employees are represented by labor unions[160]. - The company emphasizes a safety-first culture, with strict safety standards and a Stop Work Authority policy allowing employees to halt work for safety concerns[162].

Talos Energy Inc. (NYSE:TALO) Q3 2022 Results Conference Call November 3, 2022 10:00 AM ET Company Participants Sergio Maiworm - IR Tim Duncan - President and CEO Shane Young - EVP and CFO Robin Fielder - EVP, Low Carbon Strategy and Chief Sustainability Officer Conference Call Participants Subash Chandra - Benchmark Company Jeff Robertson - Water Tower Research Operator Good morning, and welcome to the Talos Energy Third Quarter 2022 Earnings Conference Call. All participants will be in a listen-only mode. ...

GLOSSARY This section provides definitions for key terms used throughout the report CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS This statement warns readers about the inherent risks and uncertainties associated with forward-looking statements in the report - The report contains forward-looking statements regarding business strategy, reserves, exploration and development, financial strategy, realized prices, the proposed EnVen acquisition, future production, hedging, drilling plans, and various market and regulatory conditions[20](index=20&type=chunk)[21](index=21&type=chunk)[26](index=26&type=chunk) - These forward-looking statements are subject to numerous risks and uncertainties, including commodity price volatility (due to COVID-19, OPEC+ actions, Ukraine war), lack of transportation/storage, equipment availability, adverse weather, cybersecurity, inflation, environmental risks, and geological risks[23](index=23&type=chunk) - Reserve estimates are inherently uncertain, depending on data quality, interpretation, and price/cost assumptions, and may differ significantly from ultimately recovered quantities[24](index=24&type=chunk) PART I — FINANCIAL INFORMATION This part presents the company's unaudited condensed consolidated financial statements and related disclosures [Item 1. Condensed Consolidated Financial Statements](index=7&type=section&id=Item%201.%20Condensed%20Consolidated%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements of Talos Energy Inc. for the period ended September 30, 2022, including balance sheets, statements of operations, changes in stockholders' equity, and cash flows, along with detailed notes explaining the company's organization, accounting policies, and significant financial activities [Condensed Consolidated Balance Sheets](index=7&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This section provides a snapshot of the company's assets, liabilities, and equity at specific points in time **Condensed Consolidated Balance Sheets:** | Metric | Sep 30, 2022 (in thousands) | Dec 31, 2021 (in thousands) | | :----------------------------------- | :-------------------------- | :-------------------------- | | Total current assets | $371,978 | $340,003 | | Total property and equipment, net | $2,380,230 | $2,388,582 | | Total assets | $2,813,366 | $2,766,815 | | Total current liabilities | $556,328 | $600,526 | | Total liabilities | $1,658,023 | $2,006,162 | | Total stockholders' equity | $1,155,343 | $760,653 | - Total assets increased by **$46.55 million**, and total stockholders' equity significantly increased by **$394.69 million** from December 31, 2021, to September 30, 2022[29](index=29&type=chunk) [Condensed Consolidated Statements of Operations](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) This section details the company's revenues, expenses, and net income or loss over specific periods **Condensed Consolidated Statements of Operations:** | Metric (in thousands) | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Total revenues | $377,128 | $290,909 | $1,309,779 | $861,585 | | Total operating expenses | $213,140 | $198,570 | $652,284 | $611,275 | | Operating income | $163,988 | $92,339 | $657,495 | $250,310 | | Net income (loss) | $250,465 | $(16,691) | $379,165 | $(263,964) | | Basic EPS | $3.03 | $(0.20) | $4.60 | $(3.23) | | Diluted EPS | $2.99 | $(0.20) | $4.54 | $(3.23) | - The company reported a significant turnaround from a net loss in 2021 to substantial net income in 2022 for both the three and nine-month periods, driven by increased revenues and operating income[31](index=31&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 section outlines the changes in the company's equity accounts over specific periods **Condensed Consolidated Statements of Changes in Stockholders' Equity:** | Metric (in thousands) | Balance at Dec 31, 2021 | Balance at Sep 30, 2022 | | :-------------------- | :---------------------- | :---------------------- | | Common Stock Par Value | $819 | $826 | | Additional Paid-In Capital | $1,676,798 | $1,692,316 | | Accumulated Deficit | $(916,964) | $(537,799) | | Total Stockholders' Equity | $760,653 | $1,155,343 | - Total stockholders' equity increased by **$394.69 million** from December 31, 2021, to September 30, 2022, primarily due to net income of **$379.17 million** and equity-based compensation[34](index=34&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section reports the cash generated and used by operating, investing, and financing activities **Condensed Consolidated Statements of Cash Flows:** | Metric (in thousands) | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :-------------------- | :-------------------------- | :-------------------------- | | Net cash provided by operating activities | $538,928 | $287,648 | | Net cash used in investing activities | $(198,652) | $(212,153) | | Net cash used in financing activities | $(345,638) | $(50,301) | | Net increase (decrease) in cash and cash equivalents | $(5,362) | $25,194 | | Cash and cash equivalents, end of period | $64,490 | $59,427 | - Net cash provided by operating activities significantly increased by **$251.28 million** year-over-year, while net cash used in financing activities also increased substantially due to debt repayments[36](index=36&type=chunk) [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) Talos Energy Inc. is an independent exploration and production company focused on upstream oil and gas in the U.S. and offshore Mexico, and developing carbon capture and sequestration (CCS) opportunities. The company operates through two segments: Upstream (reportable) and CCS (non-reportable, unrestricted subsidiary) - Talos Energy Inc. operates in two segments: Upstream (oil, natural gas, NGLs exploration and production) and CCS (carbon capture and sequestration) The Upstream Segment is the only reportable segment[39](index=39&type=chunk)[43](index=43&type=chunk) **CCS Segment Asset and Income Information (in thousands):** | Metric | September 30, 2022 | | :----- | :----------------- | | Total assets | $20,087 | | Metric | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2022 | | :----- | :-------------------------- | :-------------------------- | | Net income | $620 | $6,493 | [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 property, plant, and equipment, including proved and unproved properties, and asset retirement obligations. It confirms no write-downs resulted from ceiling test computations for the period - No write-down of U.S. oil and natural gas properties resulted from ceiling test computations for the three and nine months ended September 30, 2022 and 2021[46](index=46&type=chunk) **Asset Retirement Obligations (in thousands):** | Metric | Amount (Sep 30, 2022) | | :---------------------------------- | :-------------------- | | Asset retirement obligations at Dec 31, 2021 | $434,006 | | Obligations incurred | $78 | | Obligations settled | $(60,304) | | Obligations divested | $(1,572) | | Accretion expense | $42,400 | | Changes in estimate | $38,656 | | Asset retirement obligations at Sep 30, 2022 | $453,264 | | Less: Current portion at Sep 30, 2022 | $65,613 | | Long-term portion at Sep 30, 2022 | $387,651 | [Note 3 — Leases](index=12&type=section&id=Note%203%20%E2%80%94%20Leases) The company holds operating leases for office space, drilling rigs, and equipment, and a finance lease for the Helix Producer I facility. Lease costs include finance, operating, short-term, and variable components, with short-term drilling rig contracts being a significant portion **Total Lease Costs (in thousands):** | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :---------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Finance lease cost - interest | $1,386 | $2,749 | $5,179 | $9,017 | | Operating lease cost (excl. short-term) | $568 | $702 | $1,703 | $2,138 | | Short-term lease cost | $12,982 | $14,541 | $24,838 | $32,393 | | Variable lease cost | $363 | $350 | $1,088 | $994 | | **Total lease cost** | **$15,299** | **$18,342** | **$32,808** | **$44,542** | - Short-term lease costs, primarily for drilling rigs, represent the largest component of total lease costs, decreasing from **$14.54 million** to **$12.98 million** for the three months ended September 30, 2022[50](index=50&type=chunk)[51](index=51&type=chunk) [Note 4 — Financial Instruments](index=13&type=section&id=Note%204%20%E2%80%94%20Financial%20Instruments) This note details the company's financial instruments, including debt and oil/natural gas derivatives used to mitigate commodity price risk. It provides fair value measurements and the impact of derivatives on the statements of operations, highlighting a shift from a net derivative liability of $196.73 million at year-end 2021 to $59.38 million at September 30, 2022 **Debt Instruments Carrying Amounts and Fair Values (in thousands):** | Debt Instrument | Sep 30, 2022 Carrying Amount | Sep 30, 2022 Fair Value | Dec 31, 2021 Carrying Amount | Dec 31, 2021 Fair Value | | :------------------------------------------ | :--------------------------- | :---------------------- | :--------------------------- | :---------------------- | | 12.00% Second-Priority Senior Secured Notes | $597,570 | $678,438 | $588,838 | $685,945 | | 7.50% Senior Notes | $0 | $0 | $6,060 | $6,145 | | Bank Credit Facility | $54,538 | $60,000 | $367,829 | $375,000 | **Impact of Derivatives on Statements of Operations (in thousands):** | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :---------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net cash paid on settled derivatives | $(81,162) | $(71,634) | $(368,483) | $(189,252) | | Unrealized gain (loss) | $195,342 | $(9,845) | $137,350 | $(216,352) | | Price risk management activities income (expense) | $114,180 | $(81,479) | $(231,133) | $(405,604) | **Net Fair Value of Oil and Natural Gas Derivatives (in thousands):** | Metric | September 30, 2022 | December 31, 2021 | | :-------------------- | :----------------- | :---------------- | | Total net liability | $(59,377) | $(196,727) | [Note 5 — Debt](index=16&type=section&id=Note%205%20%E2%80%94%20Debt) This note provides a summary of the company's debt instruments, including the 12.00% Second-Priority Senior Secured Notes and the Bank Credit Facility. It highlights the redemption of the 7.50% Senior Notes and an increase in the Bank Credit Facility's borrowing base to $1.1 billion **Summary of Debt (in thousands):** | Debt Instrument | Sep 30, 2022 | Dec 31, 2021 | | :------------------------------------------ | :----------- | :----------- | | 12.00% Second-Priority Senior Secured Notes | $650,000 | $650,000 | | 7.50% Senior Notes | $0 | $6,060 | | Bank Credit Facility | $60,000 | $375,000 | | Total debt, before discount and deferred financing cost | $710,000 | $1,031,060 | | Total debt, net of discount and deferred financing costs | $652,108 | $962,727 | - The **7.50%** Senior Notes matured and were redeemed on May 31, 2022, for **$6.1 million**[64](index=64&type=chunk) - 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** on May 4, 2022[65](index=65&type=chunk) [Note 6 — Employee Benefits Plans and Share-Based Compensation](index=17&type=section&id=Note%206%20%E2%80%94%20Employee%20Benefits%20Plans%20and%20Share-Based%20Compensation) This note outlines the company's long-term incentive plans, including Restricted Stock Units (RSUs) and Performance Share Units (PSUs), and the associated share-based compensation costs. It details RSU and PSU activity and a modification event in March 2022 involving the cancellation of PSUs and grant of Retention RSUs **RSU Activity (9 Months Ended Sep 30, 2022):** | Metric | RSUs | | :-------------------------- | :--------- | | Unvested RSUs at Dec 31, 2021 | 1,983,199 | | Granted | 2,297,465 | | Vested | (967,269) | | Forfeited | (63,599) | | Unvested RSUs at Sep 30, 2022 | 3,249,796 | **PSU Activity (9 Months Ended Sep 30, 2022):** | Metric | PSUs | | :-------------------------- | :--------- | | Unvested PSUs at Dec 31, 2021 | 1,015,459 | | Granted | 629,666 | | Forfeited | (16,486) | | Cancelled | (975,564) | | Unvested PSUs at Sep 30, 2022 | 653,075 | **Share-Based Compensation Costs (in thousands):** | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :---------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Total share-based compensation expense | $4,310 | $2,613 | $11,677 | $8,294 | [Note 7 — Income Taxes](index=18&type=section&id=Note%207%20%E2%80%94%20Income%20Taxes) This note discusses the company's income tax expense/benefit and effective tax rates, which are significantly impacted by a full valuation allowance on deferred tax assets. The effective tax rate for the three and nine months ended September 30, 2022, was 0.0% and 0.6%, respectively, primarily due to this valuation allowance **Income Tax Benefit (Expense) and Effective Tax Rate:** | Period | Income Tax Benefit (Expense) (in millions) | Effective Tax Rate | | :-------------------------- | :--------------------------------- | :----------------- | | 3 Months Ended Sep 30, 2022 | $(0.1) | 0.0% | | 3 Months Ended Sep 30, 2021 | $0.4 | 2.1% | | 9 Months Ended Sep 30, 2022 | $(2.3) | 0.6% | | 9 Months Ended Sep 30, 2021 | $(0.7) | -0.3% | - The company maintains a full valuation allowance for U.S. federal, state, and foreign net deferred tax assets, which is the primary reason for the low effective tax rates[75](index=75&type=chunk)[76](index=76&type=chunk)[79](index=79&type=chunk) [Note 8 — Income (Loss) Per Share](index=19&type=section&id=Note%208%20%E2%80%94%20Income%20%28Loss%29%20Per%20Share) This note provides the computation of basic and diluted income (loss) per common share, including the impact of dilutive securities like RSUs and PSUs **Income (Loss) Per Common Share (in thousands, except per share amounts):** | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :---------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net income (loss) | $250,465 | $(16,691) | $379,165 | $(263,964) | | Basic EPS | $3.03 | $(0.20) | $4.60 | $(3.23) | | Diluted EPS | $2.99 | $(0.20) | $4.54 | $(3.23) | | Weighted average common shares outstanding – basic | 82,576 | 81,901 | 82,406 | 81,721 | | Weighted average common shares outstanding – diluted | 83,818 | 81,901 | 83,438 | 81,721 | [Note 9 — Related Party Transactions](index=19&type=section&id=Note%209%20%E2%80%94%20Related%20Party%20Transactions) This note details transactions and agreements with related parties, including Apollo Funds and Riverstone Funds, the Whistler Acquisition settlement, registration rights agreements (including one for the pending EnVen Acquisition), and the Amended and Restated Stockholders' Agreement. It also covers legal fees paid to a firm with a related partner and the partial sale of the Bayou Bend CCS LLC interest to Chevron - Riverstone Funds held **14.9%** of the Company's common stock as of September 30, 2022[82](index=82&type=chunk) - In connection with the EnVen Acquisition, a new registration rights agreement was entered into with Adage Capital Partners, L.P. and Bain Capital, LP, who are expected to hold **5.1%** and **15.2%** of the company's common stock, respectively, post-acquisition[86](index=86&type=chunk) - The company recognized a **$1.4 million** gain (Q3 2022) and a **$15.3 million** gain (YTD Q3 2022) on the partial sale of its **25%** membership interest in Bayou Bend CCS LLC to Chevron[94](index=94&type=chunk)[95](index=95&type=chunk) [Note 10 — Commitments and Contingencies](index=21&type=section&id=Note%2010%20%E2%80%94%20Commitments%20and%20Contingencies) This note outlines the company's performance obligations, including secured performance bonds and letters of credit, and discusses legal proceedings and decommissioning obligations. It also provides details on the pending EnVen Acquisition, including consideration and potential termination fees - As of September 30, 2022, the company had **$689.5 million** in secured performance bonds and **$3.9 million** in letters of credit[99](index=99&type=chunk) - The company entered into a settlement agreement on March 23, 2022, to receive **$27.5 million** to resolve previously pending litigation against a third-party supplier[101](index=101&type=chunk) - The EnVen Acquisition consideration consists of **43.8 million shares** of common stock and **$212.5 million in cash**, with closing expected by late December 2022 or early January 2023[104](index=104&type=chunk) [Note 11 — Subsequent Event](index=23&type=section&id=Note%2011%20%E2%80%94%20Subsequent%20Event) This note describes a subsequent event where Talos Production Inc. commenced a consent solicitation to amend the indenture governing its 12.00% Second-Priority Senior Secured Notes to permit EnVen's 11.75% Senior Secured Second Lien Notes. The consent was obtained, and a supplemental indenture became effective on October 27, 2022 - On October 21, 2022, Talos Production Inc. initiated a consent solicitation to amend the indenture for its **12.00%** Notes, allowing EnVen's **11.75%** Senior Secured Second Lien Notes Consent was received from **95.8%** of holders, and a second supplemental indenture became effective on October 27, 2022[106](index=106&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=24&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial condition and operational results, detailing its business, significant developments, factors affecting comparability, known trends, and liquidity. It highlights the EnVen acquisition, drilling program updates, and the impact of the Inflation Reduction Act [Our Business](index=24&type=section&id=Our%20Business) This section describes Talos Energy Inc.'s core operations in upstream oil and gas and carbon capture and sequestration - Talos Energy Inc. is an independent exploration and production company focused on upstream oil and gas in the U.S. Gulf of Mexico and offshore Mexico, and developing carbon capture and sequestration (CCS) opportunities[111](index=111&type=chunk) - The company leverages deep experience and technical expertise in the U.S. Gulf of Mexico, utilizing state-of-the-art three-dimensional seismic data to optimize drilling programs and evaluate business development opportunities[112](index=112&type=chunk)[113](index=113&type=chunk) [Significant Developments](index=24&type=section&id=Significant%20Developments) This section highlights major corporate events, acquisitions, and operational milestones impacting the company - Talos Energy executed a merger agreement to acquire EnVen Energy Corporation for approximately **$1.1 billion** in stock and cash, expected to close by late December 2022 or early January 2023 This acquisition is projected to increase production by **~40%** (**24.0 MBoepd**) and gross acreage by **35%**[115](index=115&type=chunk)[116](index=116&type=chunk) - The company commenced drilling operations on its Lime Rock prospect and plans to move to the Venice prospect, both with a **60%** working interest, expecting first oil within 12-18 months[119](index=119&type=chunk) - The Inflation Reduction Act of 2022 (IRA) is expected to benefit the company's upstream and CCS businesses by reinstating Lease Sale 257, mandating future Gulf of Mexico lease sales, and increasing the Section 45Q tax credit for CCS to **$85** per metric ton[122](index=122&type=chunk)[123](index=123&type=chunk) [Factors Affecting the Comparability of our Financial Condition and Results of Operations](index=26&type=section&id=Factors%20Affecting%20the%20Comparability%20of%20our%20Financial%20Condition%20and%20Results%20of%20Operations) This section explains key events and operational factors influencing the period-over-period financial comparisons - Planned downtime for the Helix Producer I (HP-I) dry-dock resulted in an estimated deferred production of **6.2 MBoepd** (Q3 2022) and **2.1 MBoepd** (YTD Q3 2022)[127](index=127&type=chunk) - Planned third-party downtime for Shell Odyssey Pipeline maintenance caused an estimated deferred production of **1.8 MBoepd** (Q3 2022) and **0.6 MBoepd** (YTD Q3 2022)[128](index=128&type=chunk) - Unplanned third-party downtime for the Eugene Island Pipeline System resulted in an estimated deferred production of **1.5 MBoepd** (YTD Q3 2022)[129](index=129&type=chunk) [Known Trends and Uncertainties](index=26&type=section&id=Known%20Trends%20and%20Uncertainties) This section discusses market conditions, regulatory changes, and other factors that could impact future financial performance - Oil and natural gas prices remain volatile, with NYMEX WTI crude oil ranging from **$75.99** to **$123.64 per Bbl** and NYMEX Henry Hub natural gas from **$3.73** to **$9.85 per MMBtu** from January 1 to September 30, 2022[134](index=134&type=chunk) - The EIA forecasts Henry Hub spot prices to average **$9.03/MMBtu** in Q4 2022 and **$6.01/MMBtu** in 2023, and WTI spot prices to average **$91.98/Bbl** in Q4 2022 and **$90.91/Bbl** in 2023, with significant volatility expected[135](index=135&type=chunk) - The Inflation Reduction Act imposes a federal methane emissions charge starting at **$900** per metric ton in 2024, increasing to **$1,500** per metric ton by 2026, which could raise operating costs[124](index=124&type=chunk) [How We Evaluate Our Operations](index=29&type=section&id=How%20We%20Evaluate%20Our%20Operations) This section explains the key financial and operational metrics used by management to assess company performance - The company evaluates its operations using metrics such as production volumes, realized prices (including derivatives), lease operating expenses, capital expenditures, and Adjusted EBITDA[152](index=152&type=chunk) [Results of Operations](index=30&type=section&id=Results%20of%20Operations) This section analyzes the company's financial performance, including revenues, expenses, and profitability for the reported periods **Total Revenues (in thousands):** | Period | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | Change | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | Change | | :----- | :-------------------------- | :-------------------------- | :----- | :-------------------------- | :-------------------------- | :----- | | Oil | $295,585 | $246,208 | $49,377 | $1,078,800 | $743,759 | $335,041 | | Natural gas | $68,360 | $31,723 | $36,637 | $181,747 | $86,088 | $95,659 | | NGL | $13,183 | $12,978 | $205 | $49,232 | $31,738 | $17,494 | | **Total revenues** | **$377,128** | **$290,909** | **$86,219** | **$1,309,779** | **$861,585** | **$448,194** | **Average Sale Price Per Unit:** | Product | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | Change | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | Change | | :------ | :-------------------------- | :-------------------------- | :----- | :-------------------------- | :-------------------------- | :----- | | Oil (per Bbl) | $90.73 | $68.22 | $22.51 | $97.89 | $62.89 | $35.00 | | Natural gas (per Mcf) | $9.37 | $4.55 | $4.82 | $7.34 | $3.58 | $3.76 | | NGL (per Bbl) | $32.71 | $30.25 | $2.46 | $35.88 | $23.61 | $12.27 | | Price per Boe | $77.34 | $55.94 | $21.40 | $79.30 | $50.15 | $29.15 | | Price per Boe (incl. realized commodity derivatives) | $60.70 | $42.17 | $18.53 | $56.99 | $39.13 | $17.86 | **Key Operating Expenses (in thousands):** | Expense | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :---------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Lease operating expense | $81,760 | $70,034 | $229,156 | $208,675 | | Depreciation, depletion and amortization | $92,323 | $88,596 | $295,174 | $290,094 | | General and administrative expense | $25,289 | $20,427 | $70,742 | $58,993 | [Supplemental Non-GAAP Measure](index=34&type=section&id=Supplemental%20Non-GAAP%20Measure) This section provides reconciliation and explanation of non-GAAP financial measures like Adjusted EBITDA - EBITDA and Adjusted EBITDA are non-GAAP measures used to evaluate operational performance and covenant compliance Adjusted EBITDA includes adjustments for non-cash items like derivative fair value changes and equity-based compensation[173](index=173&type=chunk)[174](index=174&type=chunk) **Reconciliation of Net Income (Loss) to Adjusted EBITDA (in thousands):** | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :---------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net income (loss) | $250,465 | $(16,691) | $379,165 | $(263,964) | | EBITDA | $385,353 | $117,599 | $810,526 | $170,994 | | **Adjusted EBITDA** | **$197,560** | **$131,427** | **$656,550** | **$416,096** | [Liquidity and Capital Resources](index=35&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses the company's ability to meet its short-term and long-term financial obligations and fund operations - Primary liquidity sources are cash from operations and borrowings under the Bank Credit Facility As of September 30, 2022, available liquidity (cash + Bank Credit Facility capacity) was **$806.8 million**[178](index=178&type=chunk) **Capital Expenditures (excluding acquisitions) for 9 Months Ended Sep 30, 2022 (in thousands):** | Category | Amount | | :---------------------------------- | :------- | | U.S. drilling & completions | $120,510 | | Mexico appraisal & exploration | $301 | | Asset management | $80,704 | | Seismic and G&G, land, capitalized G&A and other | $35,667 | | CCS | $2,027 | | **Total capital expenditures** | **$239,209** | | Plugging & abandonment | $60,304 | | **Total capital expenditures and plugging & abandonment** | **$299,513** | - 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[182](index=182&type=chunk) - The Bank Credit Facility's borrowing base increased to **$1.1 billion**, and commitments to **$806.3 million**, with the next redetermination scheduled for Q4 2022[187](index=187&type=chunk) [Critical Accounting Policies and Estimates](index=38&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) This section identifies the accounting policies requiring significant judgment and estimation by management - 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 No material changes to these policies were reported[196](index=196&type=chunk) [Recently Adopted Accounting Standards](index=38&type=section&id=Recently%20Adopted%20Accounting%20Standards) This section reports on new accounting standards that the company has recently implemented - No recently adopted accounting standards were reported[197](index=197&type=chunk) [Recently Issued Accounting Standards](index=38&type=section&id=Recently%20Issued%20Accounting%20Standards) This section discusses new accounting standards that have been issued but not yet adopted by the company - No recently issued accounting standards material to the company were reported[198](index=198&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=39&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section refers to previous disclosures regarding market risk exposures, noting no material changes except for the minimum hedging requirement under the Bank Credit Facility - No material changes to market risk disclosures were reported, except for the minimum hedging requirement under the Bank Credit Facility[199](index=199&type=chunk) [Item 4. Controls and Procedures](index=39&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the principal executive and financial officers, evaluated the effectiveness of disclosure controls and procedures, concluding they were effective as of September 30, 2022. No material changes to internal control over financial reporting occurred during the quarter - Disclosure controls and procedures were evaluated and deemed effective as of September 30, 2022[200](index=200&type=chunk) - No material changes in internal control over financial reporting occurred during the quarter ended September 30, 2022[201](index=201&type=chunk) PART II — OTHER INFORMATION This part contains additional disclosures not included in the financial statements section [Item 1. Legal Proceedings](index=40&type=section&id=Item%201.%20Legal%20Proceedings) The company entered into a settlement agreement on March 23, 2022, to receive $27.5 million to resolve previously pending litigation against a third-party supplier. No additional material developments were reported - The company received **$27.5 million** from a settlement agreement on March 23, 2022, resolving litigation against a third-party supplier[204](index=204&type=chunk) [Item 1A. Risk Factors](index=40&type=section&id=Item%201A.%20Risk%20Factors) This section refers to previously reported risk factors in the 2021 Annual Report and other SEC filings, stating that no material changes have occurred - No material changes in risk factors were reported from those described in the 2021 Annual Report or other SEC filings[206](index=206&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=40&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section reports on any sales of equity securities not registered under the Securities Act [Item 3. Defaults Upon Senior Securities](index=40&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This section discloses any instances of default on the company's senior debt obligations [Item 4. Mine Safety Disclosures](index=40&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section states the applicability or non-applicability of mine safety reporting requirements to the company [Item 5. Other Information](index=40&type=section&id=Item%205.%20Other%20Information) This section includes any other material information not covered in previous items [Item 6. Exhibits](index=41&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Quarterly Report on Form 10-Q, including merger agreements, certificates of incorporation, bylaws, indentures, registration rights agreements, and certifications SIGNATURES This section contains the required signatures for the filed report

Financial Data and Key Metrics Changes - The company achieved record revenues of over $500 million, with nearly 80% adjusted EBITDA margins before adjusting for financial hedges [9][30] - Free cash flow for the quarter was over $130 million after hedges and before changes in working capital, contributing to a total of $226 million for the first half of 2022 [9][32] - Net income for the quarter was $195 million, or $2.33 per diluted share, while adjusted net income was $101 million, or $1.20 per diluted share [31] Business Line Data and Key Metrics Changes - The Upstream business delivered strong results, with production averaging 65,400 barrels of oil equivalent per day [30] - Capital spending during the second quarter totaled $86 million, with lease operating expenses at $88 million, equating to approximately $14.70 per barrel equivalent [30][32] Market Data and Key Metrics Changes - Realized prices were approximately $108 per barrel and $8 per Mcf before the impact of financial hedges, marking the highest quarterly revenue in the company's history [30] - The company reached a leverage multiple of 1x and available liquidity of over $700 million, both best in the company's history [33] Company Strategy and Development Direction - The company plans to focus on a deepwater drilling campaign and continued growth in its carbon capture and storage (CCS) business [8][12] - The company is actively pursuing higher impact drilling opportunities and has extended rig contracts to perform multiple operations targeting significant resource potential [13][14] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to generate significant free cash flow and reduce debt levels, even with a capital program weighted towards the second half of the year [34][36] - The company is optimistic about the potential impacts of the proposed Inflation Reduction Act, particularly regarding lease sales and carbon capture incentives [25][27] Other Important Information - The company is working on the Zama project in Mexico, with a field development plan submission deadline in March 2023, which has significant contingent resources [19][20] - The CCS business has secured a partnership with Chevron, enhancing the company's position in the carbon capture market [22][23] Q&A Session Summary Question: Comments on the EnVen Reuters story - Management reiterated their ongoing interest in M&A opportunities, focusing on accretive deals within the Gulf of Mexico and beyond [44][45] Question: Thoughts on the Inflation Reduction Act and lease sales - Management highlighted the potential positive impacts of the act, particularly regarding predictable lease sales and the reinstatement of Lease Sale 257 [49][50] Question: Update on Class 6 permitting and state primacy - Management confirmed ongoing discussions with state agencies regarding Class 6 permitting, emphasizing the importance of a robust application process [60][63] Question: Shareholder returns and capital allocation - Management indicated that while they recognize the undervaluation of their stock, the priority remains on reducing debt before considering dividends or buybacks [67][68] Question: Impact of downtime on production guidance - Management confirmed that despite anticipated downtime, they did not change their production guidance for the year, maintaining a range of 60,000 to 64,000 barrels per day [84][86]

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 ...