Earnings call transcript: Talos Energy beats Q4 2024 EPS estimates, stock rises

Talos Energy (NYSE:TALO) reported a strong financial performance in Q4 2024, with earnings per share (EPS) significantly surpassing expectations at $0.08 compared to the forecasted $0.02. However, the company fell short on revenue, reporting $485.18 million against a forecast of $505.25 million. Following the earnings announcement, Talos Energy’s stock rose by 5.88%, closing at $9.19, reflecting investor confidence in the company’s operational efficiency and financial management. According to InvestingPro data, the company maintains a healthy gross profit margin of 70% and trades at an attractive EV/EBITDA ratio of 2.3x, suggesting potential undervaluation. For deeper insights into Talos Energy’s valuation metrics and growth potential, explore the comprehensive Pro Research Report, available exclusively on InvestingPro.

Key Takeaways

• Talos Energy’s EPS exceeded expectations by 400%, reflecting strong financial management.
• Despite a revenue miss, the company achieved record production and EBITDA figures.
• The stock gained 5.88% post-earnings, signaling positive investor sentiment.
• Debt reduction by $550 million in 2024 improved financial stability.
• Future EPS forecasts remain negative, indicating potential challenges.

Company Performance

Talos Energy demonstrated robust operational performance in Q4 2024, achieving record production levels of 98,700 barrels of oil equivalent per day and a record EBITDA of $362 million. For the full year, the company produced 92,600 barrels per day and generated $1.3 billion in EBITDA. These results underscore Talos’s strong position in the Gulf of Mexico’s deepwater exploration sector, supported by strategic asset expansions and operational efficiencies. InvestingPro analysis shows the company achieved impressive revenue growth of 32.5% in the last twelve months, though its Financial Health Score remains "FAIR" at 2.46 out of 5, indicating room for improvement.

Financial Highlights

• Revenue: $485.18 million, below the forecast of $505.25 million.
• Earnings per share: $0.08, significantly above the forecast of $0.02.
• Free cash flow for 2024: $511 million.
• Total (EPA:TTEF) debt reduction in 2024: $550 million.
• Cash balance at year-end: $108 million.

Earnings vs. Forecast

Talos Energy’s Q4 2024 EPS of $0.08 surpassed the forecasted $0.02, marking a 400% surprise. This result highlights the company’s effective cost management and operational efficiency. However, revenue came in at $485.18 million, missing the forecast by $20.07 million, which may raise concerns about future growth potential.

Market Reaction

Following the earnings release, Talos Energy’s stock surged by 5.88%, closing at $9.19. This positive market reaction reflects investor confidence in the company’s ability to deliver strong financial results despite revenue challenges. The stock’s performance is notable, considering its 52-week range of $8.48 to $14.67. InvestingPro data reveals analyst price targets ranging from $11 to $20, suggesting significant upside potential. With a beta of 1.9, investors should note the stock’s higher volatility compared to the market. Get access to 6 additional exclusive ProTips and comprehensive valuation metrics with an InvestingPro subscription.

Outlook & Guidance

Looking ahead, Talos Energy has outlined a capital expenditure plan of $500-$540 million for 2025, with production guidance set at 185,000 barrels of oil equivalent per day. The company is focusing on cost-efficient production enhancements and strategic asset expansions. InvestingPro analysts forecast negative EPS of -$0.32 for FY2024, with 7 analysts recently revising their earnings estimates downward. The company’s Price/Book ratio of 0.59 suggests potential undervaluation, though investors should consider the challenging profit outlook. Discover more detailed financial analysis and expert insights with InvestingPro’s comprehensive Research Report.

Executive Commentary

Interim CEO Bill Moss expressed confidence in the leadership transition, stating, "We are confident that Paul’s extensive experience and expertise...will take Talos to the next level." CFO Sergio Myworm emphasized the company’s financial strategy, noting, "It generates a tremendous amount of free cash flow." John Spath, Head of Operations, highlighted the company’s commitment to operational excellence.

Risks and Challenges

• Revenue shortfall may impact future growth prospects.
• High capital expenditure could affect cash flow.
• Negative future EPS forecasts indicate potential profitability challenges.
• Market volatility and regulatory changes in the Gulf of Mexico could pose risks.
• Maintaining operational efficiency amid rising costs is crucial.

Q&A

Analysts questioned the potential upside of the Katmai field, with expectations beyond 200 million barrels. The company also addressed its focus on bolt-on acquisitions and organic growth, maintaining a comfortable leverage ratio of 0.8x. Further exploratory results from the Denaris well are anticipated in Q3/Q4 2025.

Full transcript - Talos Energy (TALO) Q4 2024:

Conference Operator: Good morning, ladies and gentlemen, and welcome to the TELUS (NYSE:TU) Energy Fourth Quarter twenty twenty four Earnings Conference Call. At this time, all lines are in a listen only mode. Following the presentation, we will conduct a question and answer session. This call is being recorded on Thursday, 02/27/2025. I would now like to turn the conference over to Clay Johnson, Head of Investor Relations.

You may begin.

Clay Johnson, Head of Investor Relations, Talos Energy: Thank you, operator. Good morning, everyone, and welcome to our fourth quarter and full year twenty twenty four earnings conference call. Joining me today to discuss our results are Bill Moss, Interim Chief Executive Officer, Co President and General Counsel Sergio Myworm, Interim Co President and Chief Financial Officer and John Spath, Interim Co President and Head of Operations. For our prepared remarks, please refer to our fourth quarter twenty twenty four earnings presentation that is available on Talos’ website under the Investor Relations section for a more detailed look at our results and operations update. Before we start, I’d like to remind you that our remarks will include forward looking statements subject to various cautionary statements identified in our presentation and earnings release.

Actual results may differ materially from those contemplated by the company. Factors that could cause these results to differ materially are set forth in yesterday’s press release and our Form 10 K for the period ending 12/31/2024, filed with the SEC. Forward looking statements are based on assumptions as of today, and we undertake no obligations to update these statements as a result of new information or future events. During this call, we may present GAAP and non GAAP financial measures. A reconciliation of certain non GAAP to GAAP measures is included in yesterday’s press release, which was furnished with our Form eight K filed with the SEC and is available on our website.

And now, I’d like to turn the call over to Bill.

Bill Moss, Interim Chief Executive Officer, Co President and General Counsel, Talos Energy: Thanks, Clay. Good morning, everyone, and thank you for joining us on our call today. I would like to start by providing some brief introductory remarks. I will then turn the call over to Sergio and John for highlights on our financial performance, operational activities and outlook. We will then open the call up for questions after our prepared remarks.

First, I want to express on behalf of management our appreciation and gratitude to our Talus employees. Your hard work and dedication and your commitment to safety and protection of the environment over the past year has been unwavering. Thank you for all that you do to drive our success and uphold our values. Next (LON:NXT), I want to share how excited we are about Paul Goodfellow joining Talus as our new CEO. Paul’s first day in the office will be this coming Monday, March 3.

He brings over three decades of experience in domestic and international operations. His impressive background includes leading Shell (LON:SHEL)’s global deepwater business, overseeing Shell’s global drilling, completions and well intervention organization and serving as a key member of the projects and technology and upstream leadership teams and internal audit function. We are confident that Paul’s extensive experience and expertise, especially in deepwater operations, combined with his strategic judgment and proven leadership will take Talos to the next level. During his first one hundred days at Talos, Paul intends to identify the key drivers of Talos’ success. He’ll be working closely with the leadership team to refine our strategic plan and determine our next steps.

And we will announce to you the results of these efforts as soon as they are completed. I will now turn the call over to Sergio to discuss some financial highlights for the fourth quarter and full year as well as our 2025 operational and financial guidance.

Sergio Myworm, Interim Co President and Chief Financial Officer, Talos Energy: Thank you, Bill, and good morning, everyone. Taking a look at our financial performance highlighted in Slide four, we’re very pleased with our results for the fourth quarter, which demonstrates our focus on operational execution and consistent free cash flow generation. If you turn to Slide five, we have consistently exceeded quarterly expectations on production, EBITDA and free cash flow every quarter throughout 2024. This strong financial performance enabled us to fully repay our credit facility during 2024, reducing our leverage ratio to 0.8 times net debt to EBITDA, while finishing the year with a healthy cash position of $108,000,000 Operationally, we made real progress in our drilling program with the successful drilling of the Katmai West No. Two well, 35% under budget and over a month ahead of schedule.

That is a great achievement and a testament to the quality of the team. We have initiated completion operations for the Sunspear Discovery (NASDAQ:WBD) and expect it to be online in the second quarter. Following that, we plan to complete the Capmai West No. 2 well before drilling the Daenerys exploratory well. John will go into more detail on these operational developments in his remarks.

For the fourth quarter, we achieved record production totaling 98,700 barrels of oil equivalent per day, which was 70% oil and including the NGL barrels, a total of 79% liquids. We reported record EBITDA of $362,000,000 for the fourth quarter, which equates to an EBITDA netback margin of about $40 per barrel of oil equivalent. Throughout the past year, we believe we have consistently ranked in the top quartile amongst public E and P companies in netback margin as shown in Slide six. Our CapEx for the quarter was $133,000,000 and we dedicated an additional $23,000,000 to plugging in abandonment activities during the fourth quarter, which resulted in $164,000,000 in free cash flow. Now I want to touch on our year end results, which were prepared by Netherland and Sol.

We ended 2024 with a larger and more oil weighted reserve base. This is primarily attributable to our acquisition of Quarter North in 2024, which marked a pivotal milestone for Talos, adding more scale and related infrastructure to our portfolio. Talos proved reserves are 194,000,000 barrels of oil equivalent, which is approximately 74% oil. The PV-ten of our proved reserves is approximately $4,200,000,000 which is calculated at SEC pricing. Dallas also has significant value beyond our proved reserves with an additional $3,000,000,000 improbable reserves PV-ten also based on SEC prices.

So approximately $7,200,000,000 in 2b value. Moving on for the full year of 2024, Talos produced 92,600 barrels of oil equivalent per day, slightly above the midpoint of our full year guidance range, which was highly liquids weighted at 80%. Our total annual EBITDA for 2024 was approximately $1,300,000,000 As shown on Slide seven, our financial performance enabled us to generate record free cash flow of $511,000,000 With the increased scale from our previous acquisitions, we have strengthened our asset base and the base business production. This positions us to make the right long term investments in the business, while keeping the base production healthy without requiring outsized capital investments. That increases our capability to consistently generate free cash flow now and in the future.

We expect a similar pattern of performance in 2025 and we will discuss our guidance momentarily. With that free cash flow in 2024, we stayed true to our commitments to pay down our debt and we were able to completely pay off our RBL in the fourth quarter and accumulate a healthy cash balance at year end. As shown on Slide eight, during the year, we reduced our total debt by $550,000,000 including $125,000,000 paid down during the fourth quarter alone. As I mentioned earlier, we also ended the year with a cash position of $108,000,000 Our total net debt at year end stood at approximately $1,100,000,000 with no outstanding borrowings on our RBL and we closed the year with a leverage ratio of 0.8 times net debt to EBITDA. I wanted to point out that the $550,000,000 of debt repayment this year equates to over $3 per share of value accretion for our shareholders.

These milestones reflect our commitment to financial discipline, low leverage and building a solid foundation for profitable growth. Before turning the call over to John to discuss our operational activities in more detail, I’d like to touch on our production expectation and capital spending plans for 2025. Moving to Slide nine, in 2025, we expect to invest between $500,000,000 and $540,000,000 With that investment, we expect full year 2025 production to be between 185,000 barrels of oil equivalent per day, of which approximately 69% is expected to be oil and 79% liquids. In addition, we expect to allocate between 100,000,000 and $120,000,000 to P and A and decommissioning activities in 2025. Our capital program reflects a strategic balance across low risk development, exploitation and exploration projects.

We’re also making investments and ordering long lead equipment for key projects including Monuments and Ewing Bank nine fifty three. Asset management efforts are focused on cost efficient production adds and enhancements and extending the operational lifespan of fields. Additionally, our ongoing geological and geophysical and land investments aim to refine and continue to bolster our inventory. On Slide 10, we provide a more detailed look at 2025 guidance. For cash operating expenses, we expect between $580,000,000 and $610,000,000 including workover expenses for activities that will increase production throughout the year.

For G and A, we project between $120,000,000 and 130,000,000 including the realization of synergies from the quarter north transaction we completed in 2024. Turning to Slide 11, I want to talk briefly about how we thought about our production guidance for 2025. There are a few items impacting production guidance. As you can see from this waterfall chart, the business currently runs consistently north of 100,000 barrels a day. So the base continues to be very healthy.

As is typical for every offshore operator, several large maintenance projects are scheduled later in 2025, which we will reduce our production rate for the year, but will also ensure safe operations and high uptime throughout the life of those assets. We then account for weather related downtime such as hurricanes and loop current shut ins, as well as an estimate of unplanned downtime associated with third party facilities and pipelines. So that leads us to 90,000 to 95,000 barrels of oil equivalent per day in 2025. We have also guided our expectations for the first quarter of twenty twenty five. Our assets have been performing quite well during the challenging winter months despite some minor interruptions.

We are confident that our production for the quarter will be between 200,000 barrels of oil per day. Based on the production and cost profiles laid out in the guidance, we expect to generate significant free cash flow again in 2025. With that, I’ll turn the call over to John to address our 2025 drilling plan in more detail.

John Spath, Interim Co President and Head of Operations, Talos Energy: Thank you, Sergio, and good morning, everyone. Moving to Slide twelve and thirteen, our 2025 drilling program is underway utilizing the West Village drillship. We started the year strong with successful results drilling and evaluating the Katmai West No. 2 well. Following this success, we cased and suspended the well in preparation for completion operations later in the rig campaign.

We then mobilized the West Villa to begin completion operations on Sunspear and Green Canyon Block 78. Once we finish the Sunspear completion, the West Villa will return to Katmai West No. 2 to complete the well. After completing both Sunspear and Katmai West No. 2, we were mobilized to our high impact Miocene prospect, Denaries, located in Walker Ridge Box 100 And Six-one Hundred And 7.

Turning to the Katmai West No. 2 well, which is on Slide 14 of the presentation. Drilling commenced in late October twenty twenty four, reaching a true vertical depth of 27,000 feet. In early January twenty twenty five, we announced successful drilling results encountering over 400 feet of gross hydrocarbon pay with excellent rock properties. The drilling and subsurface teams delivered an outstanding performance, drilling the well under budget and approximately forty days ahead of schedule.

This drilling efficiency placed Katmai West No. 2 in the top quartile of similar wells drilled in the Gulf Of America. We will begin completion operation on Katmai following Sunspear’s completion with Katmai West Number 2 being completed as a single zone frac pack with the potential initial production rate of 15,000 to 20,000 BOE per day. First production is anticipated in late second quarter twenty twenty five. Gatmot field is a key asset and strategic focus area for us.

The strong performance of Katmai West Number 1 well combined with the successful results of Katmai West Number 2 has nearly doubled approved estimated ultimate recovery of the Katmai Westfield to approximately $50,000,000 gross oil equivalent. This success reaffirms Thales (EPA:TCFP) total resource potential in the Katmai area, which is estimated at approximately 200,000,000 barrels of gross oil equivalent. Talos holds a 50% working interest in and operates the Katmott Field. Additionally, we own and operate 100% of the Tarantula host facility. Last fall, we increased the daily throughput capacity at our Tarantula facility from 27,000 BOE per day to 35,000 BOE per day.

Our Tarantula facility will be running at maximum capacity once we bring on Katmai West Number 2 late in the second quarter. Moving to Sunspear Discovery on Slide 15, we recently started operations on Sunspear utilizing West Vela. The well will be completed as a single zone frac frac with projected gross production rate estimated between 8,000 to 10,000 BOE per day. The well is being tied back to the Thales operated prints platform, which is currently undergoing upgrades. We hold a 48% working interest in Sunspear and expect to achieve first production by the latter part of the second quarter of twenty twenty five.

Moving on to Denaris prospect on Slide 16, following the completions of Sunspear and Katmai West, the Westville will be mobilized to Walker Ridge 100 And Six-one Hundred And 7 to begin drilling the Denaris prospect, which will be drilled to a total vertical depth of 31,000 feet to evaluate the large middle and lower Miocene four way structure. Thales holds a 30% working interest and serves as operator of Denaries. A successful outcome at Denaries would further enhance Talos’ long term organic production growth. Another exciting area for Talos is the Wilcox Tran in the ultra deep waters of the Gulf Of America. Talos has significant acreage position in the Lower Wilcox Tran, which we believe represents a growth opportunity for Talos.

Turning to the Monument discovery on Slide 17, we recently agreed to increase our working interest in Monument from 21.4% to 29.76%. The project operated by Beacon Offshore Energy, was drilled and appraised with two well penetrations and reached FID in February of twenty twenty four. We estimate proved and probable gross reserves of approximately 115,000,000 barrels of oil, with production expected to tie back to the Shenandoah production facility and first production anticipated in late twenty twenty six. Additionally, we have identified a promising exploration prospect within the field that could provide an estimated incremental upside of $25,000,000 to $35,000,000 Boe, further enhancing the project’s long term value. Talos is well positioned to be a key player in the growing Wilcox play and we intend to leverage our broader acreage position to drive future production and reserve growth.

On a final note, to reiterate Bill’s comments, I want to thank all Thales employees for their dedication and focus in driving our strong 2024 performance, while at the same time maintaining our core operating priorities, health and safety of all personnel, protecting the environment, regulatory compliance and operational excellence. In 2024, we continue to have an outstanding safety record by working approximately 6,600,000 man hours. Notably, Thales has completed 3,000,000 man hours since our last reportable incident, reflecting our commitment to a safe and responsible workplace. Additionally, in 2024, Thales continued to outperform the Gulf Of America average and regulatory compliance metrics, which reflects the dedication of our field personnel whose commitment to rigorous safety system testing and proactive facility maintenance ensures we uphold the highest operational standards. This marks the sixth year that TELUS has exceeded industry benchmarks and regulatory performance.

These achievements underscore the collective progress we have made as a company and reflect the hard work and dedication of the entire TELUS team. Our commitment to health and safety, environmental stewardship, regulatory compliance and operational excellence continues to drive our success. With that, I’ll turn the call back over to Sergio to sum up our performance in 2024.

Sergio Myworm, Interim Co President and Chief Financial Officer, Talos Energy: Thank you, John. Before concluding, I want to sum up 2024 and reflect on Talus’ progress. Slide 18 presents a scorecard that highlights Talus’ strong performance and commitment to delivering long term value for all shareholders. By focusing on capital discipline, operational excellence and free cash flow generation, we have achieved significant milestones and believe we have laid out a solid foundation for 2025 and beyond. With that operator, we will open the line for Q and A.

Conference Operator: Thank you. We will now begin the question and answer session. With that, your first question comes from the line of Nate Pendleton with Texas Capital. Please go ahead.

Nate Pendleton, Analyst, Texas Capital: Good morning. Congrats on a great quarter and update.

Analyst: I wanted to start with a

Nate Pendleton, Analyst, Texas Capital: question on of course, I wanted to start off with a question on Katmai building on John’s prepared remarks. Specifically, I wanted to get your perspective on how the field compares to your initial expectations when you acquired the position. And based on what you’ve learned, do you see any upside to that 200,000,000 barrel potential shown on Slide 14?

Sergio Myworm, Interim Co President and Chief Financial Officer, Talos Energy: Hey, Nate. No, that’s a great question. Thank you for asking that. Look, it’s a better field than what we thought we were buying. So it’s a fantastic field.

We knew it was a fantastic field when we made the Quarter North acquisition. But the more we learned about it, the better we feel about Quarter North. So I would say it’s in line or better than what we thought. And to answer your question, yes, we do see some upside from that 200,000,000 barrels. Right now, we are counting the 200,000,000 barrels from a combination of the west side of the field where we already have two wells and the east side of the field where we have one well producing.

There are other aspects of the field that we are currently investigating, we’re not ready to talk about, but we do see some upside from that for sure.

Nate Pendleton, Analyst, Texas Capital: Got it. That’s really exciting. And referencing Slide 12 for a moment, it looks like you’ll have three projects starting up around mid year and you have referenced planned downtime during the second half of the year as well. How should we think about the shape of production throughout 2025 and what could an exit rate look like?

Sergio Myworm, Interim Co President and Chief Financial Officer, Talos Energy: Yes. I mean, let me give you some high level thoughts on how to think about that. So, we don’t expect a lot of planned downtime in the first quarter. That’s how we’re thinking about our production being roughly between 200,000 barrels per day. As we start going into the second quarter or the kind of spring months, you don’t have as much of the winter storms offshore and you’re not yet in hurricane season.

So that’s where a lot of your maintenance projects happen. So second quarter should be heavily weighted towards some of those planned downtime. As you start getting into the third quarter, you still have some of those planned maintenance, but you also have some of the hurricane risking that we are applying to our production. And as you go into the fourth quarter, you have fewer of those planned downtime or planned maintenance, but you still have a little bit of hurricane risk associated with that. So that’s how you should think about the production shape throughout the year.

Leo Mariani, Analyst, Roth: Got it.

Nate Pendleton, Analyst, Texas Capital: Thanks for taking my questions.

Sergio Myworm, Interim Co President and Chief Financial Officer, Talos Energy: You bet.

Conference Operator: Your next question comes from the line of Leo Mariani with Roth. Please go ahead.

Leo Mariani, Analyst, Roth: Hi guys. Wanted to just touch base briefly on the 2025 CapEx here. I know that there were periods of time during 2024 where Talos had kind of articulated that you might have to kind of spend more money in 2025 that you were modestly undercapitalizing things with the 2024 budget. And now kind of looking at 2025 CapEx is not maybe too dramatically different versus 24% here. So just kind of wanted to get a sense whether or not there’s been any kind of philosophical shift in terms of the approach to kind of capital.

And do you think that the 2025 budget might lead to some kind

Analyst: of modest declines in production in 2026?

Sergio Myworm, Interim Co President and Chief Financial Officer, Talos Energy: Hi, Dew. Good morning. Thank you for the question. So I think we’ve communicated throughout 2024 and we were very cautious to caveat that look, there’s the plans are still ongoing, right. So none of that was written in stone.

We were discussing live as some of the plans were still being formed. I would say the 2025 capital program is heavily influenced by the high efficiency that we’re seeing in the West Vela rig, right. So we are much more efficient in the drilling and completion operations than we thought we were going to be. So that is allowing us to save quite a bit of money on the capital side of things. So we feel like this is the right level of investment for the company.

It generates a tremendous amount of free cash flow. And as I pointed out in my prepared remarks, the base of the business is very healthy. So it’s very early for us to start giving us any indication around 2026, but we think that this is the right level of investment for the business to generate the amount of free cash flow that we should be generating and that’s it. So it’s mostly drilling efficiencies that’s driving the lower capital than the street was expecting.

Leo Mariani, Analyst, Roth: Okay. And then obviously, you guys did a great job on the balance sheet here, I think paying off the debt even maybe a little quicker than expected in ending the year with cash. I’m sure that you guys are somewhat frustrated by the stock price performance here. Just curious as to whether or not given the health of the balance sheet that you guys might be able to accelerate that buyback program here in 2025?

Sergio Myworm, Interim Co President and Chief Financial Officer, Talos Energy: Yes, Leo. No, that’s a great question. Look, first and foremost, we’re very blessed to have a very healthy balance sheet and a very stable business that generates a tremendous amount of free cash flow. So that is a great position to be in. And with Paul coming in and us kind of looking at the strategic planning for the company and refining what our strategy is going to be like, capital allocation priorities is going to be a huge focus as part of that discussion.

But I can tell you that capital returns to shareholders are always being considered and we’re going to continue to consider that. So once Paul comes in and we finalize our strategic review, we’re going to communicate to The Street what our plans are around that.

Leo Mariani, Analyst, Roth: I appreciate that. And then just last one for me here guys. On Monument, you picked up an extra working interest in that well. Was there a cash outlay associated with that?

Sergio Myworm, Interim Co President and Chief Financial Officer, Talos Energy: I mean, it’s an incremental working interest from the interest that we already had. We already own 21.4%. We’re increasing at another eight percentage points there in that ownership. So it’s incrementally higher. 2025, it’s still very manageable.

It’s mostly ordering long lead items. 2026, that’s when we’re going to actually drill the wells and complete the wells. So it’s a marginally higher number, Leo, but it’s very, very manageable for us.

Leo Mariani, Analyst, Roth: Okay. So was there an acquisition cost on that though? Yes.

Sergio Myworm, Interim Co President and Chief Financial Officer, Talos Energy: It was about $12,000,000 plus some closing adjustments as part of the between the effective date and the actual

Leo Mariani, Analyst, Roth: closing. Okay. Thank you.

Sergio Myworm, Interim Co President and Chief Financial Officer, Talos Energy: Thanks, Leo. Thanks, Leo.

Conference Operator: Your next question comes from the line of Tim Breslin with KeyBanc Capital Markets. Please go ahead.

Tim Breslin, Analyst, KeyBanc Capital Markets: Good morning folks and thanks for taking my question. As we think about the 2025 outlook, it seems fairly cautious, a maintenance program, heavy field maintenance and then sort of a goal on free cash flow. So I was wondering if you could speak kind of from the Board’s perspective, how much of this is not wanting to get aggressive amid a leadership change? How much is caution on the oil macro? Just kind of curious any insight you can provide on that?

Sergio Myworm, Interim Co President and Chief Financial Officer, Talos Energy: Hey, Tim. Good morning. No, that’s a great question. Look, there’s a bit of all of that as part of the plan, right? So we’re trying to be cautious about our guidance around production.

We do have a very heavy maintenance year. Obviously, hurricane season last year wasn’t as impactful to us as it has been in the past. So we’re still being very conservative in our estimates around weather related downtime. But we think that that is the right approach for our production guidance in 2025. So we’re comfortable with that.

And as the year progresses, if things continue to do better than what we’re estimating, we’re going to update the Street accordingly.

Tim Breslin, Analyst, KeyBanc Capital Markets: Okay. That’s fair. Some of my other questions have been addressed, but quickly on Diana Eris, is the plan to spud that late in the second quarter? I know you’re not the operator. And then just what would that mean in terms of potential timing on what you’ve done?

Does that sound would be maybe a 4Q or 3Q earnings commentary? Just curious on kind of the timeline of data points there.

Sergio Myworm, Interim Co President and Chief Financial Officer, Talos Energy: Yes, no, for for sure. And just to be sure, we are the operators on Denairys. Okay. Yes, so we are. So the plan is to we’re now doing the completions on Sunspear.

After that is done, we’re going to do the completion on Katmai West Number 2 and then we’re going to move on to drill deniers. So we should start that in the second quarter of twenty twenty five and that is roughly one hundred to one hundred and twenty days of drilling. So it’s a pretty long well. So I expect late in the third quarter, early in the fourth quarter, we’re going to have some results. So perhaps around third quarter earnings, we’re going to be able to speak to the results of that well.

Tim Breslin, Analyst, KeyBanc Capital Markets: Okay. I appreciate that. I got Dineris and Monument confused, but appreciate all the context. Thank you.

Sergio Myworm, Interim Co President and Chief Financial Officer, Talos Energy: Okay. Thank you.

Conference Operator: And your next question comes from the line of Michael Scialla with Stephens. Please go ahead.

Clay Johnson, Head of Investor Relations, Talos Energy0: Hi, good morning. I wanted to ask on the planned downtime, the 6,000 BOE a day, what’s built into that? Is that the HP1 facility or can you give us some detail on what all is in there?

Sergio Myworm, Interim Co President and Chief Financial Officer, Talos Energy: Sure. Hey, Mike, good morning. That’s a great question. No, we do not have the HP1 regulatory stopped this year. So that happened last year, but we do have a lot of other facilities that are that requires maintenance.

And there are some shut ins related to wells that we’re going to actually bring online. For example, in the second quarter, we’re going to shut in our Prince facility to connect or to hook up the Sunspear well. We’re also going to shut in Tarantula to connect the Katmai West Number 2. But there are other maintenance projects like on Brutus, on Pompano and a few others. There’s quite a few of those that these four that I mentioned are the largest ones, but there are a few others as well.

So it’s a little dispersed. There’s not one major event. It’s a lot of smaller events throughout the year.

Clay Johnson, Head of Investor Relations, Talos Energy0: Got it. And I wanted to ask if there’s any update on that. I think you were looking to sell down your interest at Helm’s Deep. I think you wanted to get that to 50% before you drilled. Any update there?

Sergio Myworm, Interim Co President and Chief Financial Officer, Talos Energy: Yes, we’re still working on that. That is still in the works. And as you can see, we actually put it in our presentation an unnamed well. So Helms Deep is absolutely under consideration to be drilled this year yet. It might slip into 2026, but we are having some other commercial discussions around other wells.

So instead of committing to one, we think it’s best to leave it as a potential for different ones. So Helms Deep is being considered still, but there are other wells in our inventory that we feel very confident about as well. So it’s all about the commercial discussions that we’re having and as soon as those are finalized, we’re going to announce it.

Nate Pendleton, Analyst, Texas Capital: Great. Thank you.

Sergio Myworm, Interim Co President and Chief Financial Officer, Talos Energy: All right.

Conference Operator: And your next question comes from the line of Jess Robertson with Watertown Research. Please go ahead.

Bill Moss, Interim Chief Executive Officer, Co President and General Counsel, Talos Energy: Thank you. Sergio, on the West Vela, do you have that through potentially the well that you would drill after Denarius in terms of the contract?

Sergio Myworm, Interim Co President and Chief Financial Officer, Talos Energy: Hey, Jeff. Good morning. Right now the contract with the West Vela goes through Denaris. We have the option to extend that and there are other rigs available as well in the market. So we’re not concerned about actually having a rig secured for the second half of the year to execute that plan.

But right now the contract with the West Vela ends with Daenerys.

Bill Moss, Interim Chief Executive Officer, Co President and General Counsel, Talos Energy: The efficiencies that allowed you to drill Katmai West 2 under budget and in a much shorter number of days, is that from the rig operation or the geology that you encountered while you were drilling the well or a combination of the two?

Sergio Myworm, Interim Co President and Chief Financial Officer, Talos Energy: It’s mostly the operations of the rig. The team did a fantastic job of planning everything to a T. So we did a really good job on the planning side of things. We had some time before actually taking possession of the rig to execute a few items before started drilling. So we feel like the rig operations itself and how the team is planning these activities is what’s making the difference.

Bill Moss, Interim Chief Executive Officer, Co President and General Counsel, Talos Energy: And on capital allocation, can you just remind us how you think about risking contingent capital for maybe follow on work at Denarius or for some of the capital that might be necessitated by success as you think about your future mix between exploration development, contingent capital and the opportunity to repurchase shares?

Sergio Myworm, Interim Co President and Chief Financial Officer, Talos Energy: Yes. No, that’s a great question. So obviously, we there is a possibility that we might need to spend additional capital within areas if that is a discovery, we may need to appraise that and that is all part of the plan. So that is part of the risk or that’s the appetite for risk that we have in this business to drill these types of wells is to continue to appraise the well and then develop that. So that is something that we would like to continue to deploy capital into.

And then the additional free cash flow that we generate and how we deploy that, whether it’s buybacks or making additional investments, we’re going to tighten that up as we go along. But these types of projects like Denerys, we would like to have more of those, not less of those.

Bill Moss, Interim Chief Executive Officer, Co President and General Counsel, Talos Energy: Lastly, just on a regulatory front, I know it’s still very early in the current administration. Have you seen anything regulatory wise or permitting wise that you think will have an impact on your business yet?

Sergio Myworm, Interim Co President and Chief Financial Officer, Talos Energy: Yes, it’s still a little early, Jeff, but we do expect to have more lease sales than we were having over the last four years. That is probably the most impactful change from the previous administration, having kind of regular lease sales. We’re expecting to have two lease sales per year going forward. So that is going to be the most impactful item. We didn’t have any issues with permitting.

We didn’t have any of those issues with the previous administration. But lease sales that is the one that we’re looking forward to the most.

Bill Moss, Interim Chief Executive Officer, Co President and General Counsel, Talos Energy: Thank you.

Sergio Myworm, Interim Co President and Chief Financial Officer, Talos Energy: You bet.

Conference Operator: Your next question comes from the line of Michael Ferow with Pickering Energy Partners. Please go ahead.

Analyst: Hi, good morning. Thanks for having us on this morning.

Sergio Myworm, Interim Co President and Chief Financial Officer, Talos Energy: Good morning.

Analyst: Like others, we’re trying to get an understanding of sort of the 25 CapEx budget sort of the puts and takes here. Specifically, I’m looking at your Slide nine with the pie chart capital allocations. The company is spending a pretty good amount of money this year on the long lead equipment for Monument and Ewing Bank nine fifty three. I was just wondering if you could provide some color on where that long lead equipment sits within the pie chart and maybe its associated percentages?

Sergio Myworm, Interim Co President and Chief Financial Officer, Talos Energy: Yes, Mike, that’s a good question. So that is still within The U. S. Drilling and completions section of the pie. So that’s part of the D and C budget.

Analyst: Any color on how big that slice is?

Sergio Myworm, Interim Co President and Chief Financial Officer, Talos Energy: We haven’t disclosed that publicly, but it’s not a significant amount of that pie. It’s a good chunk, but it’s not a big, big part of that. It’s still relatively minor compared to the actual drilling of the wells, the running of the West Vela. So it’s not a significant part of our D and C budget this year. Monument will be a much more significant part of the budget next year once we’re actually drilling and completing the wells.

Analyst: All right. Understood. That’s good color. My follow-up question is just sort of on the Westela. I believe previously the company was consider utilizing the Conqueror to complete Katmai West 2.

Sergio Myworm, Interim Co President and Chief Financial Officer, Talos Energy: That’s right.

Analyst: And then sending the Westela to the Daenerys prospect and it looks like the decision was made to continue utilizing the West Ella for completing the Katmai West well, which sort of pushes the timeline back marginally for the Daenerys spud. But I was wondering if you could provide a little more information about what went into this decision and why the company felt like this was the best course of action?

Sergio Myworm, Interim Co President and Chief Financial Officer, Talos Energy: No, that’s right. That’s a great question, Mike. So you’re right about that. The Conqueror is also a little delayed. So instead of waiting for the Conqueror to arrive, we decided to rearrange the rig schedule.

That actually is another way that we’re saving on capital. Instead of running two rigs, we’re just running one rig. So that’s another big chunk of the capital savings that we have in our budget this year. But that decision was driven by the delay on the Concuror to arrive. So we had the right to just not take that rig and then just use the West Vela to do all of the operations that we needed.

So that’s how we came up with that decision.

Analyst: All right. Thank you. It’s very helpful. I’ll turn it back.

Clay Johnson, Head of Investor Relations, Talos Energy1: All right.

Conference Operator: Your next question comes from the line of Paul Diamond with Citi. Please go ahead.

Clay Johnson, Head of Investor Relations, Talos Energy1: Good morning, all. Thanks for taking the call. Just a quick question on given the progress you guys have made on your debt reduction, can you remind us what you all think is kind of the right level of financial gearing or will that be part of the new strategic review with Paul coming in on Monday?

Sergio Myworm, Interim Co President and Chief Financial Officer, Talos Energy: Hey, Paul, good morning and thanks for the question. I would say that we’re always refining our views on what’s the right balance sheet for us. But I would say today I feel very, very comfortable with our 0.8 times leverage metric. I don’t feel like we need to delever from here. So I feel very comfortable living in this neighborhood.

Clay Johnson, Head of Investor Relations, Talos Energy1: Understood. And then one quick follow-up on Tarantula. With the recent expansion, do you all see any kind of need or potential thoughts around expanding that further? Are you comfortable with this kind of letting it run flat out for the foreseeable future or post?

Sergio Myworm, Interim Co President and Chief Financial Officer, Talos Energy: Yes, no, thank you. That’s a great question. So with the wells that we have online, we feel very comfortable with the capacity perhaps a few more wells that we could drill. And if those wells are successful, then we will look for opportunities to expand the capacity of Tarantula. Right now, the biggest bottleneck in the facility is the flow lines going from the plat to the facility itself.

We would also need to expand the topsides once the flow lines the new flow lines are installed if we were to do that. So but that is that’s a pretty I would say pretty significant investment that we need to make in those facilities to do that. So we need to have real conviction that the additional wells will be successful. So these are things that we’re studying right now. It’s not a decision that we need to make today.

But in the future, if those additional wells are successful, that is something that we will look very carefully into.

Clay Johnson, Head of Investor Relations, Talos Energy1: Understood. Thanks for clarity. I’ll leave it there.

Clay Johnson, Head of Investor Relations, Talos Energy2: All right. Thanks, Paul.

Conference Operator: And your next question comes from the line of Arun Jayaram with JPMorgan. Please go ahead.

Nate Pendleton, Analyst, Texas Capital: Yes. Good morning. Wanted to

Clay Johnson, Head of Investor Relations, Talos Energy2: see if you could talk about the path to prove up more resource at CatMed. It looks like you’re at 50,000,000 barrels gross. What’s the path and what activity you need to do to get to 100 or even beyond that?

Sergio Myworm, Interim Co President and Chief Financial Officer, Talos Energy: Yes. Hey, Arun, good morning and thanks for the question. Now that’s an excellent question. And it goes a little bit about how the rules around how you book reserves in a conventional world or in an offshore world, right. So we can only book the reserves to the lowest known, unlike our shale friends that once they drill a well, they can book all of those reserves in PDP.

We cannot do that. We have to book only some of that in PDP. The rest sits in probable. So a lot of it comes it’s an economic decision, right? Do we drill more wells to prove more of, but that doesn’t really help us on the economics front or you just wait for the passage of time and as you produce some of that, the probables will transfer into PDP.

So it’s a combination of both. Once we continue to evaluate additional drilling opportunities within the Kathmite Complex, we will drill more wells and that will prove up more reserves. But with the passage of time and just producing more, those probables will transfer from those that 2P back into PDP and that will happen naturally. So we may not need to actually spend a lot of capital to do it, but we just won’t accelerate that booking of reserves. But the production and the actual recoverability of the field doesn’t really change whether we book those improved or not.

It’s just kind of a different reserves booking rule for offshore conventional companies versus onshore.

Clay Johnson, Head of Investor Relations, Talos Energy2: Great. Thanks a lot.

Sergio Myworm, Interim Co President and Chief Financial Officer, Talos Energy: All right. You bet.

Conference Operator: Your next question comes from the line of Neil Mehta with Goldman Sachs. Please go ahead.

Analyst: Yes. Good morning, Sergio and team. And it was really a super year for you guys from a free cash flow generation standpoint. But I think the challenge with the stock has been just around a lot of management transition and it’s going to be really good to get some clarity and steadiness on the ship with Paul coming in. And so Sergio, I’m curious from your perspective as a leader of the organization, just what are the two or three strategic areas that the new leadership team you guys will be focused on to help to provide a little bit more clarity around the forward path?

Sergio Myworm, Interim Co President and Chief Financial Officer, Talos Energy: Good morning, Neil, and thank you for the question. That’s a great observation. And look, as Bill mentioned earlier on the call, we are very excited to have Paul joining. Paul is a fantastic professional and individual. His background speaks for itself.

So we’re looking forward to having him as part of the team and working closely with him to refine that strategy. I don’t want to get ahead of my skis here and start saying what are the priorities. Let us kind of get together with Paul once he starts next week and we’re going to have those conversations and in the coming weeks and months we’re going to tell you and everybody else what we think the priorities are. But for the time being, we’re very excited to have Paul and I agree we need some stability there and I think we will have it. I think the team is very excited to have Paul and I think that is going to be a great addition to the team.

Analyst: Yes. All right. Well, thanks Tim, but it’s good to see. The follow-up is just how you guys are thinking about the A and D environment. You’ve done some really good bolt on acquisitions here, Sergio.

So do you see the opportunity to continue to be a consolidator recognizing the equity might not be at the optimal cost of capital right now? Or do you want to pursue much more of an organic strategy here over the next twelve months?

Sergio Myworm, Interim Co President and Chief Financial Officer, Talos Energy: Yes, Neil, that’s a great question. So I would say this, as we continue to refine our strategy, we will make some kind of bigger decisions after that. Some bolt on acquisitions, some things that are obviously kind of like very easy for us to do, yes, we’ll continue to do that. If there are opportunities for us to do more of the monuments type of projects, yes, we will do that. If there are some additional bolt ons in the Gulf Of America, we will continue to focus on those.

But for the time being, as we continue to refine our strategy, I think the focus is going to be on the organic, the project execution, the operational excellence. And look, our balance sheet is in great shape, right? So depending on the acquisition that we’re talking about, we may not need to use any equity to do any of that or very little equity if we were to do anything a little bigger. But kind of bear with us, let us refine the strategy here. Let’s make sure that we know exactly what we should be doing and we’ll move on from there.

But we do think that there will be opportunities for us to continue to bolster the portfolio through some bolt on acquisitions or some even bigger opportunities down the road.

Analyst: And Sergey, one quick follow-up on that. Can you just remind us, give us an update on Mexico and the asset sale that you executed in December? I guess that will also be an area, I would imagine you guys, the new leadership team will be focused on is what the long term strategy is in Mexico, but you did provide an update there in December, so a little color there would be great.

Sergio Myworm, Interim Co President and Chief Financial Officer, Talos Energy: Yes, that’s right. So for sure, we’ll continue to refine that as well. We’re still in Mexico. We still have an ownership in the Zama project. We still think that that is a fantastic project.

We would still like to see that moving forward. We have a great partner or great partners in Mexico. We need to continue to kind of straighten our relationship with them. So we will continue to do that. That is of great importance to us.

But we have announced, as you pointed out in December, another sale down of our Talos Mexico subsidiary to the Carsal Group in Mexico, which is a fantastic partner. And that is going through the regulatory process to approve that transaction and we expect that that will close in the coming months.

Analyst: Thank you, sir.

Sergio Myworm, Interim Co President and Chief Financial Officer, Talos Energy: All right. Appreciate it, Neil.

Conference Operator: Thank you. And that concludes today’s question and answer session. I would like to turn it back to Bill Moss for closing remarks.

Bill Moss, Interim Chief Executive Officer, Co President and General Counsel, Talos Energy: Thank you. I want to thank everyone for joining the call today. We’re really proud of our results for the fourth quarter. We had a really good 2024 and we’re looking forward to continuing that performance into 2025 and to Paul starting next week. So thanks again everyone and we’ll talk to you soon.

Conference Operator: Thank you. And ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.

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