Talos Energy(US:TALO)2022-08-05 21:15Financial 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]