Talos Energy(TALO) - 2019 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Talos Energy achieved record levels of production and adjusted EBITDA in Q2 2019, with production at 59,000 barrels equivalent per day and revenue of $286.6 million [17][18] - Adjusted EBITDA for the quarter was approximately $206.9 million, with a margin of $38.54 per BOE hedged and $40.32 per BOE unhedged, marking the highest unhedged adjusted EBITDA margin ever achieved [18][44] - Net income for the quarter was approximately $95 million or $1.74 per share, with total debt just under $800 million [45] Business Line Data and Key Metrics Changes - The U.S. Gulf of Mexico business generated significant free cash flow, which was reinvested into offshore Mexico, particularly in the Zama appraisal [15][19] - In the Mississippi Canyon core area, total net production was 20,700 barrels equivalent per day, with successful asset management activities adding 3,700 barrels equivalent per day gross [24][25] - The Green Canyon area, including the Tornado field, accounted for net daily production of 23,900 barrels equivalent, with successful completions in the Phoenix complex [27] Market Data and Key Metrics Changes - WTI prices averaged $59.81 per barrel during the period, while Talos realized a price of $64.13 per barrel after deductions, reflecting the quality of its oil and access to infrastructure [17] - The company’s liquidity position increased to over $600 million, supported by a reaffirmed $850 million borrowing base [16][48] Company Strategy and Development Direction - Talos aims to maximize opportunities within its portfolio and through external business development efforts in the U.S. Gulf of Mexico and offshore Mexico [12] - The company is focused on maintaining a flexible capital approach and has added significantly to its 2020 crude hedge book to protect future cash flow [50] - The strategy includes a strong emphasis on cost control and operational efficiency, which has led to improved margins even in a lower commodity price environment [13][44] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company’s positioning for a successful second half of the year, highlighting the importance of maintaining liquidity and flexibility in a challenging market [52] - The management team is optimistic about the potential of the Zama field, with expectations of peak production exceeding 150,000 barrels equivalent per day once fully developed [35][36] - There are short-term challenges due to Hurricane Barry, which impacted production, but management remains focused on long-term growth and operational success [33] Other Important Information - The company completed its Zama appraisal program ahead of schedule, collecting extensive data to support future development plans [37][38] - Talos is actively engaged in discussions with Pemex regarding unitization and aims to reach Final Investment Decision (FID) in 2020 [39][90] Q&A Session Summary Question: How does Talos plan to position itself in a $50 oil environment? - Management emphasized the importance of hedging and maintaining liquidity to navigate lower oil prices while focusing on capital flexibility [59][62] Question: What is the timeline for potential production from Block 31 compared to Zama? - Management indicated that while Block 31 could potentially produce sooner due to its shallow water location, it is too early to provide specific timelines [63][66] Question: Can you provide more details on the Bulleit prospect and its completion strategy? - Management noted the presence of two pay zones and indicated that decisions on dual completion versus separate wells will depend on market conditions and capital allocation [72][75] Question: What are the next steps toward moving to FID at Zama? - Management highlighted ongoing discussions with Pemex and the need to process extensive data before finalizing unitization and development plans [88][90] Question: How does the current M&A market look for Talos? - Management acknowledged the challenges in the current market but remains open to smaller, accretive deals that align with the company’s strategy [92][95]