Talos Energy(TALO) - 2025 Q2 - Quarterly Report

PART I — FINANCIAL INFORMATION Item 1. Financial Statements The company reported a $195.8 million net loss for the first half of 2025, driven by a $223.9 million impairment charge, with total assets decreasing to $5.92 billion Condensed Consolidated Balance Sheets Total assets decreased to $5.92 billion as of June 30, 2025, from $6.19 billion, while cash and equivalents significantly increased Condensed Consolidated Balance Sheet Highlights (In thousands) | Account | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $357,287 | $108,172 | | Total current assets | $870,645 | $659,383 | | Total property and equipment, net | $4,746,835 | $5,215,274 | | Total assets | $5,924,702 | $6,191,795 | | Liabilities & Equity | | | | Total current liabilities | $712,126 | $723,055 | | Long-term debt | $1,223,736 | $1,221,399 | | Total liabilities | $3,405,689 | $3,432,090 | | Total stockholders' equity | $2,519,013 | $2,759,705 | Condensed Consolidated Statements of Operations Net loss for Q2 2025 was $185.9 million, and $195.8 million for the six months, primarily due to a $223.9 million impairment charge Statement of Operations Summary (In thousands, except per share data) | Metric | Q2 2025 | Q2 2024 | YTD 2025 | YTD 2024 | | :--- | :--- | :--- | :--- | :--- | | Total revenues | $424,721 | $549,165 | $937,780 | $979,097 | | Total operating expenses | $698,313 | $494,795 | $1,167,921 | $856,882 | | Impairment of oil and natural gas properties | $223,881 | $0 | $223,881 | $0 | | Operating income (expense) | ($273,592) | $54,370 | ($230,141) | $122,215 | | Net income (loss) | ($185,937) | $12,381 | ($195,805) | ($100,058) | | Diluted EPS | ($1.05) | $0.07 | ($1.10) | ($0.59) | Condensed Consolidated Statements of Cash Flows Operating cash flow significantly increased to $619.9 million for H1 2025, while investing activities used $292.3 million Six Months Ended June 30, Cash Flow Summary (In thousands) | Cash Flow Activity | 2025 | 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $619,878 | $385,790 | | Net cash used in investing activities | ($292,303) | ($1,062,845) | | Net cash provided by (used in) financing activities | ($76,923) | $683,221 | | Net increase in cash | $250,652 | $6,166 | Notes to Condensed Consolidated Financial Statements Key notes detail the $223.9 million impairment, a $20.0 million deferred tax valuation allowance, and a reduced credit facility - The company's Upstream Segment is its only reportable segment following the sale of its Carbon Capture and Sequestration (CCS) business in March 2024[39][101] - A non-cash impairment of $223.9 million was recorded for U.S. oil and natural gas properties during Q2 2025 due to the ceiling test, based on SEC pricing of $70.41/Bbl for oil and $3.24/Mcf for natural gas[57] - The company recorded a $20.0 million valuation allowance against its deferred tax assets in Q2 2025, as it determined it could no longer rely on forecasts of taxable income to support their realizability due to recent losses[85] - Subsequent to quarter-end, on August 4, 2025, the company's bank credit facility borrowing base and commitments were decreased to $700.0 million from $925.0 million[75][116] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the Q2 2025 net loss, driven by a $223.9 million impairment, and outlines an enhanced corporate strategy Significant Developments Recent developments include new well production, a reduced credit facility, strategic acquisitions, and share repurchases - The Sunspear well was shut-in shortly after first production due to a valve failure and is expected to return to production in October 2025[123] - On June 17, 2025, the company announced an enhanced corporate strategy focused on increasing cash flow, high-margin organic growth, and building a scaled U.S. Gulf of Mexico portfolio[126] - During Q2 2025, the company repurchased 3.8 million shares for $32.6 million, leaving $145.4 million available under its share repurchase program[127] Known Trends and Uncertainties The company faces risks from volatile commodity prices, inflation, and regulatory changes, including potential for further impairments - The company recorded a $223.9 million impairment in Q2 2025; a hypothetical 10% decrease in commodity prices could result in an additional impairment of approximately $691.6 million[144][145] - The EIA forecasts NYMEX WTI spot prices to average $65.22 per barrel in 2025 and Henry Hub natural gas prices to average around $3.70 per MMBtu[136][139] - Significant uncertainty remains regarding BOEM's financial assurance rule for offshore operations, though revisions may reduce potential bonding requirements[147][148] Results of Operations Q2 2025 revenues decreased to $424.7 million due to lower oil prices, with results dominated by a $223.9 million impairment charge Production and Price Analysis | Metric | Q2 2025 | Q2 2024 | Change | | :--- | :--- | :--- | :--- | | Total production volume (MBoepd) | 93.3 | 95.5 | (2.2) | | Average Oil Price (per Bbl) | $64.08 | $80.50 | ($16.42) | | Average Natural Gas Price (per Mcf) | $3.34 | $2.59 | $0.75 | | Total revenues ($ thousands) | $424,721 | $549,165 | ($124,444) | - Lease operating expense decreased by $20.3 million (13%) in Q2 2025 compared to Q2 2024, mainly due to reduced facility and workover expenses at the Phoenix Field[165] - General and administrative expense decreased by $8.8 million (18%) in Q2 2025, primarily because the prior-year period included $12.0 million in transaction and severance costs for the QuarterNorth Acquisition[169] Supplemental Non-GAAP Measure Adjusted EBITDA for Q2 2025 decreased to $294.2 million, while the six-month period saw an increase to $657.3 million Reconciliation of Net Income (Loss) to Adjusted EBITDA (In thousands) | Metric | Q2 2025 | Q2 2024 | YTD 2025 | YTD 2024 | | :--- | :--- | :--- | :--- | :--- | | Net income (loss) | ($185,937) | $12,381 | ($195,805) | ($100,058) | | EBITDA | $120,200 | $350,203 | $462,778 | $509,603 | | Impairment of oil and natural gas properties | $223,881 | $0 | $223,881 | $0 | | Adjusted EBITDA | $294,247 | $343,984 | $657,250 | $601,660 | Liquidity and Capital Resources Total liquidity was $1.01 billion as of June 30, 2025, with capital expenditures of $282.5 million for the first half - Total available liquidity was $1,014.5 million as of June 30, 2025, reflecting cash on hand and availability under the recently redetermined $700.0 million borrowing base[189] Capital Expenditures - Six Months Ended June 30, 2025 (In thousands) | Category | Amount | | :--- | :--- | | U.S. drilling & completions | $192,189 | | Asset management | $16,579 | | Seismic and G&G, land, capitalized G&A and other | $32,867 | | Plugging & abandonment | $38,249 | | Total | $282,508 | - Since March 2023, the company has repurchased 13.5 million shares for a total of $147.1 million, with $145.4 million remaining under authorization as of June 30, 2025[193] Item 3. Quantitative and Qualitative Disclosures About Market Risk No material changes occurred in market risk exposures, including commodity price and interest rate risks, since the 2024 Annual Report - There have been no material changes from the disclosures presented in the 2024 Annual Report regarding the company's exposures to market risks[205] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2025, with no material changes in internal controls - The principal executive officer and principal financial officer concluded that as of June 30, 2025, the company's disclosure controls and procedures were effective at a reasonable assurance level[206] - There were no changes in internal control over financial reporting during the quarter ended June 30, 2025, that materially affected, or are reasonably likely to materially affect, internal controls[208] PART II — OTHER INFORMATION Item 1. Legal Proceedings The company is involved in ordinary course legal proceedings, with no material developments since the 2024 Annual Report - There have been no additional material developments with respect to legal proceedings previously reported in the 2024 Annual Report[211] Item 1A. Risk Factors The company highlights the risk of future ceiling test impairments, noting the $223.9 million impairment recorded in Q2 2025 - The company emphasizes the risk of future ceiling test impairments, noting that for the three and six months ended June 30, 2025, it recorded an impairment of $223.9 million; this risk increases with low or volatile commodity prices[213] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During Q2 2025, the company repurchased 3,838,670 shares for an average of $8.48 per share, with $145.4 million remaining for repurchases Issuer Purchases of Equity Securities (Q2 2025) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | April 2025 | 0 | $0.00 | | May 2025 | 2,040,277 | $8.23 | | June 2025 | 1,798,393 | $8.76 | | Total | 3,838,670 | $8.48 | Item 5. Other Information No director or officer adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during Q2 2025 - During Q2 2025, no director or officer of the Company adopted or terminated a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement[217] Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including CEO/CFO certifications and corporate agreements