Talos Energy(TALO) - 2021 Q1 - Quarterly Report

GLOSSARY This section defines key terms and abbreviations used in the oil and natural gas industry, facilitating a clearer understanding of the report - The glossary provides abbreviations and definitions of terms commonly used in the oil and natural gas industry, such as Barrel (Bbl), Barrel of oil equivalent (Boe), British thermal unit (Btu), Completion, Deepwater, Field, GAAP, MBbls, MBblpd, MBoe, MBoepd, Mcf, Mcfpd, MMBoe, MMBtu, MMcf, MMcfpd, NGL, NYMEX, NYMEX Henry Hub, Proved reserves, Proved undeveloped reserves, SEC, SEC pricing, Shelf, Working interest, and WTI[9][10][11][12][13][14][15][16] CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS This statement advises readers that the report contains forward-looking information subject to various risks and uncertainties that could cause actual results to differ materially - 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, based on current expectations and assumptions about future events and subject to numerous risks and uncertainties, many of which are beyond the company's control[18][20][22] - Key risks include commodity price volatility (exacerbated by COVID-19 and OPEC+ actions), lack of transportation/storage capacity, availability of drilling equipment, adverse weather, inflation, environmental risks, failure to find/acquire reserves, geologic and operating risks, regulatory changes, uncertainty in reserve estimation, cash flow, access to capital, and potential adverse reactions to acquisitions[19][20][21] PART I — FINANCIAL INFORMATION This section presents Talos Energy Inc.'s unaudited condensed consolidated financial statements and management's discussion and analysis of financial condition and results of operations Item 1. Condensed Consolidated Financial Statements This section presents Talos Energy Inc.'s unaudited condensed consolidated financial statements, including balance sheets, statements of operations, changes in stockholders' equity, and cash flows, along with detailed notes explaining the nature of business, significant accounting policies, acquisitions, property and equipment, leases, financial instruments, debt, employee benefits, income taxes, earnings per share, related party transactions, and commitments and contingencies for the period ended March 31, 2021 Condensed Consolidated Balance Sheets This statement provides a snapshot of the company's financial position, detailing total assets, liabilities, and stockholders' equity at specific reporting dates Metric (in thousands) | Metric (in thousands) | March 31, 2021 | December 31, 2020 | | :-------------------- | :------------- | :---------------- | | Total Assets | $2,839,694 | $2,834,546 | | Total Liabilities | $2,032,540 | $1,907,945 | | Total Stockholders' Equity | $807,154 | $926,601 | - Total assets increased slightly from $2.83 billion at December 31, 2020, to $2.84 billion at March 31, 2021 Total liabilities increased from $1.91 billion to $2.03 billion, while total stockholders' equity decreased from $926.6 million to $807.2 million[26] Condensed Consolidated Statements of Operations This statement outlines the company's financial performance over a period, reporting revenues, operating expenses, and net income or loss Metric (in thousands, except per share) | Metric (in thousands, except per share) | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :------------------------------------ | :-------------------------------- | :-------------------------------- | | Total revenues and other | $267,908 | $187,764 | | Total operating expenses | $203,281 | $191,976 | | Operating income (expense) | $64,627 | $(4,212) | | Net income (loss) | $(121,491) | $157,749 | | Basic Net income (loss) per common share | $(1.49) | $2.71 | | Diluted Net income (loss) per common share | $(1.49) | $2.69 | - The company reported a net loss of $121.5 million for the three months ended March 31, 2021, a significant decrease from a net income of $157.7 million in the prior-year period This was primarily driven by a $137.5 million expense from price risk management activities in 2021, compared to an income of $243.2 million in 2020[28] Condensed Consolidated Statements of Changes in Stockholders' Equity This statement details the changes in common stock, additional paid-in capital, and accumulated deficit, leading to the period's total stockholders' equity Metric (in thousands, except shares) | Metric (in thousands, except shares) | Balance at December 31, 2020 | Balance at March 31, 2021 | | :----------------------------------- | :--------------------------- | :------------------------ | | Common Stock Shares | 81,279,989 | 81,707,214 | | Common Stock Par Value | $813 | $817 | | Additional Paid-In Capital | $1,659,800 | $1,661,840 | | Accumulated Deficit | $(734,012) | $(855,503) | | Total Stockholders' Equity | $926,601 | $807,154 | - Total stockholders' equity decreased from $926.6 million at December 31, 2020, to $807.2 million at March 31, 2021, primarily due to a net loss of $121.5 million during the period[31] Condensed Consolidated Statements of Cash Flows This statement summarizes the cash inflows and outflows from operating, investing, and financing activities, showing the net change in cash over the period Cash Flow Activity (in thousands) | Cash Flow Activity (in thousands) | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash provided by operating activities | $66,956 | $110,232 | | Net cash used in investing activities | $(72,737) | $(376,683) | | Net cash provided by financing activities | $36,527 | $286,381 | | Net increase in cash, cash equivalents and restricted cash | $30,746 | $19,930 | | Balance, end of period | $64,979 | $106,952 | - Net cash provided by operating activities decreased by $43.3 million year-over-year, primarily due to increased cash payments on derivative instruments[165] - Net cash used in investing activities significantly decreased by $303.9 million, mainly due to lower payments for acquisitions[166] - Net cash provided by financing activities decreased by $249.9 million, influenced by changes in Bank Credit Facility proceeds and debt redemptions[167] Notes to Condensed Consolidated Financial Statements These notes provide detailed explanations and disclosures supporting the condensed consolidated financial statements, covering accounting policies, acquisitions, debt, and other key financial areas Note 1 — Nature of Business and Basis of Presentation Talos Energy Inc. is an independent exploration and production company focused on oil, natural gas, and NGLs in the U.S. Gulf of Mexico and offshore Mexico. The condensed consolidated financial statements are prepared in accordance with GAAP and SEC rules for interim reporting, involving management estimates and assumptions. The company operates as a single reportable segment - Talos Energy Inc. is a technically driven independent exploration and production company operating in the U.S. Gulf of Mexico and offshore Mexico[35] - The financial statements are prepared under GAAP and SEC interim reporting rules, relying on management estimates and assumptions, particularly for proved oil and natural gas reserves[36][37] - The company has one reportable segment: exploration and production of oil, natural gas, and NGLs, with substantially all long-lived assets, proved reserves, and production sales in the United States[38] Note 2 — Acquisitions Talos Energy completed several acquisitions, including LLOG Properties for $13.2 million in cash and Castex Energy 2005 for $43.3 million (cash and common stock) in 2020. The largest was the ILX and Castex Acquisition in February 2020 for $459.3 million (cash and preferred stock converted to common stock), which significantly impacted revenue and net income from acquired assets - On November 16, 2020, Talos acquired select oil and natural gas assets from LLOG Exploration & Production Company, L.L.C. for $13.2 million in cash[40] - On August 5, 2020, Talos acquired select oil and natural gas assets from Castex Energy 2005 Holdco, LLC affiliates for $43.3 million, consisting of $6.5 million in cash and 4.6 million shares of common stock valued at $35.4 million[41][42] - On February 28, 2020, Talos completed the ILX and Castex Acquisition for $459.3 million, comprising $303.1 million in net cash and 110,000 preferred shares (converted to 11.0 million common shares) valued at $156.2 million[46][47] Revenue and Net Income from ILX and Castex Acquisition Assets (in thousands) | Metric (in thousands) | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :-------------------- | :-------------------------------- | :-------------------------------- | | Revenue | $71,639 | $13,892 | | Net income | $27,375 | $3,209 | Note 3 — Property, Plant and Equipment The company follows the full cost method of accounting for oil and natural gas properties, primarily in the U.S. Gulf of Mexico. No write-downs occurred in Q1 2021 or Q1 2020 based on ceiling test computations. Unproved properties include unevaluated assets and exploration expenditures in Mexico. Asset retirement obligations increased to $452.2 million at March 31, 2021 - Talos Energy uses the full cost method for oil and natural gas exploration and development, primarily in the U.S. Gulf of Mexico[53] - No write-down of oil and natural gas properties was required for the three months ended March 31, 2021 or 2020, with the Q1 2021 ceiling test based on SEC pricing of $39.49/Bbl for oil, $2.15/Mcf for natural gas, and $11.19/Bbl for NGLs[54] Asset Retirement Obligations (in thousands) | Metric | March 31, 2021 | | :-------------------------------------- | :------------- | | Beginning asset retirement obligations | $442,269 | | Obligations settled | $(10,120) | | Accretion expense | $14,985 | | Changes in estimate | $5,206 | | Ending asset retirement obligations | $452,168 | | Less: Current portion | $(45,478) | | Long-term portion | $406,690 | Note 4 — Leases The company leases office space, drilling, completion, and production equipment, classifying them as operating or finance leases. Total lease costs increased to $10.05 million in Q1 2021 from $8.67 million in Q1 2020, primarily due to higher short-term lease costs for drilling rigs. Operating lease liabilities were $19.94 million and finance lease liabilities were $56.97 million as of March 31, 2021 - Talos Energy leases various assets, including office space and drilling/production equipment, classifying them as operating or finance leases[58] Total Lease Costs (in thousands) | Metric | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :---------------- | :-------------------------------- | :-------------------------------- | | Finance lease cost | $3,256 | $4,265 | | Operating lease cost | $716 | $866 | | Short-term lease cost | $5,760 | $3,535 | | Variable lease cost | $322 | $3 | | Total lease cost | $10,054 | $8,669 | Lease Liabilities (in thousands) | Metric | March 31, 2021 | December 31, 2020 | | :---------------------------- | :------------- | :---------------- | | Total operating lease liabilities | $19,942 | $20,347 | | Total finance lease liabilities | $56,968 | $62,026 | Note 5 — Financial Instruments The company uses oil and natural gas swaps and costless collars to mitigate commodity price risk, not designating them for hedge accounting. In Q1 2021, price risk management activities resulted in a $137.5 million expense, a significant shift from a $243.2 million income in Q1 2020, driven by unrealized losses on derivatives. Derivative liabilities increased substantially from $75.6 million at December 31, 2020, to $160.8 million at March 31, 2021 - Talos Energy uses oil and natural gas swaps and costless collars to manage commodity price risk, but does not apply hedge accounting[70][71] Price Risk Management Activities (in thousands) | Metric | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :---------------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash received (paid) on settled derivative instruments | $(48,381) | $36,460 | | Unrealized gain (loss) | $(89,127) | $206,757 | | Price risk management activities income (expense) | $(137,508) | $243,217 | Fair Value of Derivative Financial Instruments (in thousands) | Metric | March 31, 2021 | December 31, 2020 | | :------------------------------------ | :------------- | :---------------- | | Total Assets (Oil and natural gas derivatives) | $3,843 | $7,821 | | Total Liabilities (Oil and natural gas derivatives) | $160,784 | $75,635 | Note 6 — Debt The company's total debt, net of discount and deferred financing costs, increased to $1,049.4 million at March 31, 2021, from $985.5 million at December 31, 2020. This change was primarily due to the issuance of $650.0 million in 12.00% Second-Priority Senior Secured Notes due January 2026, used to redeem $347.3 million of 11.00% Notes, resulting in a $13.2 million loss on extinguishment of debt. The Bank Credit Facility borrowing base was reduced to $960.0 million, with $465.0 million outstanding Total Debt (in thousands) | Metric | March 31, 2021 | December 31, 2020 | | :---------------------------------------- | :------------- | :---------------- | | 12.00% Second-Priority Senior Secured Notes – due January 2026 | $650,000 | $— | | 11.00% Second-Priority Senior Secured Notes – due April 2022 | $— | $347,254 | | 7.50% Senior Notes – due May 2022 | $6,060 | $6,060 | | Bank Credit Facility – matures May 2022 | $465,000 | $640,000 | | Total debt, net of discount and deferred financing costs | $1,049,365 | $985,512 | - On January 13, 2021, the company redeemed $347.3 million of 11.00% Notes using proceeds from the new 12.00% Notes, incurring a $13.2 million loss on extinguishment of debt[81] - The Bank Credit Facility borrowing base was reduced from $985.0 million to $960.0 million due to the issuance of the 12.00% Notes As of March 31, 2021, $465.0 million was outstanding under the facility, and the company was in compliance with all debt covenants[85][86] Note 7 — Employee Benefits Plans and Share-Based Compensation Talos Energy Inc. operates a Long Term Incentive Plan (LTIP) for equity-based compensation, including Restricted Stock Units (RSUs) and Performance Share Units (PSUs). As of March 31, 2021, there were 2,096,729 unvested RSUs and 1,421,156 unvested PSUs. Total share-based compensation expense, net of capitalized amounts, increased to $2.66 million in Q1 2021 from $1.63 million in Q1 2020 - The LTIP authorizes grants of up to 5,415,576 shares of common stock for various equity-based awards[88] Unvested RSUs and PSUs Activity (Three Months Ended March 31, 2021) | Metric | RSUs | PSUs |\ | :----------------------------------- | :---------- | :---------- |\ | Unvested at December 31, 2020 | 1,652,988 | 834,172 |\ | Granted | 1,067,141 | 586,984 |\ | Vested | (623,400) | — |\ | Forfeited | — | — |\ | Unvested at March 31, 2021 | 2,096,729 | 1,421,156 | Share-Based Compensation Expense, Net (in thousands) | Metric | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :---------------------------------------- | :-------------------------------- | :-------------------------------- | | Total share-based compensation expense, net | $2,664 | $1,627 | Note 8 — Income Taxes For Q1 2021, Talos Energy recognized an income tax expense of $0.6 million, resulting in an effective tax rate of -0.5%, significantly lower than the 21% U.S. federal statutory rate, primarily due to a valuation allowance on deferred tax assets. In contrast, Q1 2020 had an income tax expense of $55.3 million with an effective tax rate of 25.9%. The company maintains a full valuation allowance for U.S. federal, state, and foreign net deferred tax assets as of March 31, 2021 Income Tax Expense and Effective Tax Rate | Metric | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :---------------------- | :-------------------------------- | :-------------------------------- | | Income tax expense | $0.6 million | $55.3 million | | Effective tax rate | -0.5% | 25.9% | - The effective tax rate for Q1 2021 was -0.5%, primarily due to recording a valuation allowance for deferred tax assets, compared to 25.9% in Q1 2020[96] - As of March 31, 2021, the company maintains a full valuation allowance for U.S. federal, state, and foreign net deferred tax assets[98] Note 9 — Income (Loss) Per Share For the three months ended March 31, 2021, Talos Energy reported a basic and diluted net loss per common share of $(1.49), a significant decline from basic EPS of $2.71 and diluted EPS of $2.69 in the prior-year period. This was based on 81,435 thousand weighted average common shares outstanding Net Income (Loss) Per Common Share | Metric | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :---------------------------------------- | :-------------------------------- | :-------------------------------- | | Net income (loss) | $(121,491) | $157,749 | | Weighted average common shares outstanding — basic | 81,435 | 58,240 | | Weighted average common shares outstanding — diluted | 81,435 | 58,572 | | Basic net income (loss) per common share | $(1.49) | $2.71 | | Diluted net income (loss) per common share | $(1.49) | $2.69 | - Basic and diluted net loss per common share was $(1.49) for Q1 2021, compared to basic EPS of $2.71 and diluted EPS of $2.69 for Q1 2020[101] Note 10 — Related Party Transactions Talos Energy has significant related party transactions, primarily with Apollo Funds and Riverstone Funds, who hold a majority of the company's voting power. This includes the ILX and Castex Acquisition in 2020 and the Whistler Acquisition in 2018. The company also has a Registration Rights Agreement and a Stockholders' Agreement with these funds, and incurs legal fees with a firm where an executive's family member is a partner - Apollo Funds and Riverstone Funds, who hold a majority of the company's voting power, are key related parties[102] - The ILX and Castex Acquisition (February 2020) and Whistler Acquisition (August 2018) involved affiliates of these funds[103][104] - The company has a Registration Rights Agreement and a Stockholders' Agreement with these funds, providing customary registration rights and director nomination rights[105][106][108][110] - Legal fees of $0.9 million in Q1 2021 and $1.6 million in Q1 2020 were incurred with Vinson & Elkins L.L.P., where an executive's immediate family member is a partner[111] Note 11 — Commitments and Contingencies Talos Energy has performance bonds totaling approximately $691.2 million as of March 31, 2021, primarily for plugging and abandonment of wells and removal of facilities in the U.S. Gulf of Mexico, and for minimum work programs in Mexico. The company is involved in ordinary course legal proceedings but does not expect a material adverse effect. There's a potential risk of assuming abandonment obligations from bankrupt counterparties - As of March 31, 2021, Talos Energy had secured performance bonds of approximately $691.2 million for decommissioning obligations in the U.S. Gulf of Mexico and minimum work programs in Mexico[112] - The company is a party to certain lawsuits and regulatory proceedings in the ordinary course of business, which are not expected to have a material adverse effect on its financial condition[114] - There is a risk that the company may be required to assume abandonment obligations for divested properties if counterparties or third parties file for bankruptcy[115] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on Talos Energy's financial condition and results of operations, highlighting its business strategy, outlook on market conditions (including COVID-19 and commodity prices), factors affecting comparability, known trends and uncertainties, and key performance metrics It also details the analysis of revenues, operating expenses, non-GAAP measures like Adjusted EBITDA, and the company's liquidity and capital resources Our Business This section describes Talos Energy's core business strategy, focusing on exploration and production in the U.S. Gulf of Mexico and offshore Mexico through technical expertise and disciplined capital deployment - Talos Energy is a technically driven independent exploration and production company focused on maximizing value in the U.S. Gulf of Mexico and offshore Mexico[118] - The company leverages geology, geophysics, and offshore operations expertise, utilizing state-of-the-art 3D seismic data to generate high-quality prospects and optimize drilling programs[119] - A disciplined portfolio management approach is used to evaluate drilling prospects and efficiently deploy capital[120] Outlook This section discusses the company's future prospects, addressing potential impacts from the COVID-19 pandemic, commodity price volatility, and global market conditions - The COVID-19 pandemic continues to pose unpredictable risks to operating results, workforce continuity, and global energy demand, despite gradual easing of restrictions[121][122] - Commodity prices, though stabilized in Q4 2020 and slightly increased in Q1 2021, are expected to remain depressed due to over-supply, decreased demand, and potential global economic recession, leading the company to adopt a flexible 2021 capital spending budget[124] - Global equity market volatility is expected to continue, and potential changes in FERC's oil pipeline index methodology could impact future transportation revenues[125][126] Factors Affecting the Comparability of our Financial Condition and Results of Operations This section identifies key events, primarily significant acquisitions, that impact the comparability of the company's financial condition and results of operations across reporting periods - The LLOG Properties Acquisition (November 2020 for $13.2 million cash) and Castex Energy 2005 Acquisition (August 2020 for $43.3 million cash and stock) impact comparability[128][129] - The ILX and Castex Acquisition (February 2020 for $459.3 million cash and preferred stock) significantly affects comparative financial results[131] - Transaction-related and restructuring costs associated with business development activities also cause significant variations in historical results[132] Known Trends and Uncertainties This section highlights significant market and operational trends and uncertainties, including commodity price volatility, potential impairments, and deepwater operational risks - Volatility in oil, natural gas, and NGL prices, influenced by supply/demand dynamics and geopolitical events, significantly impacts revenue and profitability[133] - The company performs quarterly ceiling tests for oil and natural gas properties; a 10% decrease in SEC pricing could result in an approximately $345.5 million impairment[134][135] - Operational risks include third-party planned downtime (e.g., HP-I dry-dock in H1 2022), potential for more stringent BOEM bonding requirements, inherent risks of deepwater operations, and vulnerability to hurricanes in the U.S. Gulf of Mexico[138][139][141][143] How We Evaluate Our Operations This section outlines the key financial and operational metrics, such as production volumes, realized prices, and Adjusted EBITDA, used by management to assess the company's 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[146] Results of Operations This section provides a detailed analysis of the company's financial performance, examining changes in revenues, operating expenses, and other income and expense items Revenue Total revenues and other increased by $80.1 million, or 42.7%, to $267.9 million in Q1 2021 compared to Q1 2020. This was driven by a $66.1 million increase due to higher sales prices and a $18.0 million increase from higher production volumes. Total production volume increased by 8.0 MBoepd to 66.1 MBoepd, primarily due to acquired assets and new wells, partially offset by natural decline and deferred production Revenues and Other (in thousands) | Metric | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | Change | | :------------------ | :-------------------------------- | :-------------------------------- | :----- | | Oil | $229,561 | $166,624 | $62,937 | | Natural gas | $28,234 | $11,898 | $16,336 | | NGL | $9,113 | $4,301 | $4,812 | | Other | $1,000 | $4,941 | $(3,941) | | Total revenues and other | $267,908 | $187,764 | $80,144 | Total Production Volumes and Average Sale Price Per Unit | Metric | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | Change | | :---------------------- | :-------------------------------- | :-------------------------------- | :----- | | Total production volume (MBoe) | 5,949 | 5,287 | 662 | | Daily Production Volume (MBoepd) | 66.1 | 58.1 | 8.0 | | Oil (per Bbl) | $56.70 | $44.72 | $11.98 |\ | Natural gas (per Mcf) | $3.32 | $1.69 | $1.63 |\ | NGL (per Bbl) | $18.91 | $11.11 | $7.80 |\ | Price per Boe | $44.87 | $34.58 | $10.29 |\ | Price per Boe (including realized commodity derivatives) | $36.73 | $41.48 | $(4.75) | - Production volumes increased by 8.0 MBoepd, primarily due to a 16.5 MBoepd increase from acquired assets (ILX, Castex 2005) and 3.9 MBoepd from new wells in the Green Canyon 18 Field, partially offset by declines in other fields[147] Expenses Total lease operating expense increased by 14% to $66.6 million in Q1 2021, mainly due to acquired assets. Depreciation, depletion, and amortization (DD&A) increased by 9% to $101.7 million, driven by higher production volumes. General and administrative (G&A) expense decreased by 30% to $19.2 million, primarily due to lower transaction-related costs from the prior year's ILX and Castex Acquisition Operating Expenses (in thousands, except per Boe) | Metric | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :---------------------------------------- | :-------------------------------- | :-------------------------------- | | Lease operating expenses | $66,628 | $58,241 | | Lease operating expenses per Boe | $11.20 | $11.02 | | Depreciation, depletion and amortization | $101,657 | $93,543 | | Depreciation, depletion and amortization per Boe | $17.09 | $17.69 | | General and administrative expense | $19,189 | $27,469 | | General and administrative expense per Boe | $3.23 | $5.20 | - Lease operating expense increased by $8.4 million (14%) due to acquired assets, while G&A expense decreased by $8.3 million (30%) due to lower transaction costs from the ILX and Castex Acquisition in Q1 2020[148][151] Other Income and Expense Price risk management activities shifted from a $243.2 million income in Q1 2020 to a $137.5 million expense in Q1 2021, primarily due to non-cash losses from the decrease in fair value of open derivative contracts. Other expense included a $13.2 million loss on extinguishment of debt from the redemption of 11.00% Notes. Income tax expense decreased significantly to $0.6 million in Q1 2021 from $55.3 million in Q1 2020, mainly due to recording a valuation allowance on deferred tax assets Other Income and Expense (in thousands) | Metric | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :---------------------------------------- | :-------------------------------- | :-------------------------------- | | Price risk management activities (income) expense | $137,508 | $(243,217) |\ | Other expense | $13,950 | $146 |\ | Income tax expense | $584 | $55,260 | - Price risk management activities resulted in a $137.5 million expense in Q1 2021, a $380.7 million decrease from Q1 2020, driven by non-cash losses on derivatives[153] - A $13.2 million loss on extinguishment of debt was recorded in Q1 2021 due to the redemption of 11.00% Notes[154] - Income tax expense decreased to $0.6 million in Q1 2021 from $55.3 million in Q1 2020, primarily due to a valuation allowance on deferred tax assets[154] Supplemental Non-GAAP Measure This section defines and reconciles non-GAAP financial measures like EBITDA and Adjusted EBITDA, used by management to evaluate operational performance and covenant compliance - EBITDA and Adjusted EBITDA are non-GAAP measures used to evaluate operational performance and covenant compliance[156] - EBITDA is defined as Net income (loss) plus interest expense, income tax expense (benefit), depreciation, depletion and amortization, and accretion expense[160] Reconciliation of Net Income (Loss) to Adjusted EBITDA (in thousands) | Metric | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :---------------------------------------- | :-------------------------------- | :-------------------------------- | | Net income (loss) | $(121,491) | $157,749 | | EBITDA | $29,811 | $344,819 | | Adjusted EBITDA | $136,605 | $147,637 | Liquidity and Capital Resources As of March 31, 2021, Talos Energy had $521.4 million in available liquidity (cash plus Bank Credit Facility capacity). The company funds activities through operating cash flows and borrowings, with a board-approved 2021 capital spending program of $340.0 million to $370.0 million. The Bank Credit Facility has a $960.0 million borrowing base, with $465.0 million outstanding, and the company was in compliance with all debt covenants - As of March 31, 2021, available liquidity (cash plus Bank Credit Facility capacity) was $521.4 million, or $546.4 million including capacity requiring lender approval[159] Capital Expenditures (excluding acquisitions, in thousands) | Category | Three Months Ended March 31, 2021 | | :-------------------------------- | :-------------------------------- | | U.S. drilling & completions | $38,226 | | Mexico appraisal & exploration | $591 | | Asset management | $6,108 | | Seismic and G&G, land, capitalized G&A and other | $16,178 | | Total capital expenditures | $61,103 | | Plugging & abandonment | $10,120 | | Total capital expenditures and plugging & abandonment | $71,223 | - The company's 2021 capital spending program is $340.0 million to $370.0 million, expected to be funded by operating cash flows and the Bank Credit Facility[162] - The Bank Credit Facility has a $960.0 million borrowing base (reduced from $985.0 million), with $465.0 million outstanding and $13.6 million in letters of credit as of March 31, 2021 The company was in compliance with all debt covenants[170][171] Critical Accounting Policies and Estimates This section details the significant accounting policies and estimates that require management's judgment and can materially impact the company's financial statements - 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[181] Recently Adopted Accounting Standards This section reports on recently adopted accounting standards and their impact on the company's financial reporting - There were no recently adopted accounting standards[182] Recently Issued Accounting Standards This section reports on recently issued accounting standards and their potential future impact on the company's financial reporting - There were no recently issued accounting standards[183] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section refers to the company's 2020 Annual Report for detailed disclosures on market risk exposures, noting no material changes in Q1 2021 - Information regarding market risk exposures is consistent with the 2020 Annual Report, with no material changes disclosed in this Quarterly Report[185] Item 4. Controls and Procedures Management, including the principal executive and financial officers, evaluated the effectiveness of disclosure controls and procedures as of March 31, 2021, concluding they were effective There were no material changes in internal control over financial reporting during the quarter - Disclosure controls and procedures were evaluated and deemed effective as of March 31, 2021[186] - No material changes in internal control over financial reporting occurred during the quarter ended March 31, 2021[187] PART II – OTHER INFORMATION This section provides additional information not covered in the financial statements, including legal proceedings, risk factors, and other required disclosures Item 1. Legal Proceedings There have been no material developments in legal proceedings since the 2020 Annual Report - No material developments in legal proceedings have occurred since the information reported in the 2020 Annual Report[190] Item 1A. Risk Factors No material changes to the risk factors previously disclosed in the 2020 Annual Report or other SEC filings were identified - No material changes to the risk factors from those described in the 2020 Annual Report or other SEC filings[191] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities or use of proceeds to report - No unregistered sales of equity securities or use of proceeds to report[192] Item 3. Defaults Upon Senior Securities There were no defaults upon senior securities to report - No defaults upon senior securities to report[193] Item 4. Mine Safety Disclosures There were no mine safety disclosures to report - No mine safety disclosures to report[193] Item 5. Other Information There was no other information to report - No other information to report[194] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including various purchase and sale agreements, corporate organizational documents, indentures for senior secured notes, registration rights agreements, long-term incentive plan documents, and certifications from the CEO and CFO - The exhibits include various agreements related to acquisitions (e.g., Purchase and Sale Agreements for ILX Holdings and Castex Energy), corporate governance documents (e.g., Certificate of Incorporation, Bylaws), debt instruments (e.g., Indentures for 12.00% Senior Secured Notes), equity-related agreements (e.g., Registration Rights Agreements, LTIP documents), and certifications (e.g., CEO/CFO certifications)[195][196][198] Signatures The report is duly signed on behalf of Talos Energy Inc. by Shannon E. Young III, Executive Vice President and Chief Financial Officer, on May 5, 2021 - The report was signed by Shannon E. Young III, Executive Vice President and Chief Financial Officer, on May 5, 2021[201]