Earnings call transcript: Talos Energy reports Q1 2025 earnings beat, stock surges

Talos Energy Inc. (TALO) reported a stronger-than-expected financial performance for the first quarter of 2025, beating earnings expectations and witnessing a significant stock price increase. The company posted an earnings per share (EPS) of $0.06, surpassing the forecasted -$0.11. Revenue reached $513.06 million, exceeding the anticipated $496.85 million. Following the announcement, Talos Energy’s stock surged by 8.56% to $7.68 in after-hours trading. According to InvestingPro analysis, the company currently appears undervalued based on its Fair Value assessment, with analysts setting price targets ranging from $9 to $20 per share.

Key Takeaways

• Talos Energy achieved record Q1 EBITDA of $363 million.
• The company reported a record free cash flow of $195 million.
• Production reached 100,900 barrels of oil equivalent per day.
• Talos Energy’s stock increased by 8.56% post-earnings announcement.

Company Performance

Talos Energy’s performance in Q1 2025 marked a continuation of its growth trajectory, with the company achieving its fifth consecutive quarter of record production. The production mix was predominantly oil, comprising 68% of the total, with 78% being liquids. Despite a challenging low oil price environment, Talos maintained a breakeven point of approximately $35 per barrel, demonstrating strong operational efficiency. InvestingPro data shows the company maintains a strong gross profit margin of 71.3% and has achieved revenue growth of 35.5% over the last twelve months. Two key InvestingPro Tips highlight both opportunities and challenges: the company shows a strong free cash flow yield, but analysts have recently revised earnings expectations downward. Subscribers can access 4 additional exclusive ProTips on the platform.

Financial Highlights

• Revenue: $513.06 million, up from the forecasted $496.85 million.
• Earnings per share: $0.06, exceeding the forecast of -$0.11.
• EBITDA: $363 million, a record high for the company.
• Free cash flow: $195 million, another record achievement.

Earnings vs. Forecast

Talos Energy’s actual EPS of $0.06 represents a significant positive surprise compared to the forecasted -$0.11, marking a 154.5% beat. This performance highlights the company’s ability to generate profits despite market challenges and positions it favorably compared to previous quarters.

Market Reaction

Following the earnings announcement, Talos Energy’s stock price jumped by 8.56%, reaching $7.68. This movement is a positive signal from investors, reflecting confidence in the company’s financial health and future prospects. The stock’s performance is notable against its 52-week range, with a low of $6.23 and a high of $13.19. InvestingPro’s comprehensive analysis indicates an overall Financial Health Score of "GOOD," despite the stock’s YTD decline of 27.2%. The company’s detailed Pro Research Report, available to subscribers along with reports on 1,400+ other US stocks, provides deeper insights into its valuation and growth potential.

Outlook & Guidance

Looking ahead, Talos Energy has set a production guidance of 185,000 barrels of oil equivalent per day for 2025, with 69% oil and 79% liquids. Capital expenditures are projected to range between $500 million and $540 million. The company expects to continue generating free cash flow even in a low oil price environment, supported by hedge positions covering 42% of 2025’s projected oil production at over $72 per barrel.

Executive Commentary

CEO Paul Goodfellow remarked, "My goal is to take a very good company and make it great," underscoring the company’s strategic focus on growth and operational excellence. He also noted, "We’re making steady progress through the first one hundred days as planned, advancing the development of our go forward strategy."

Risks and Challenges

• Volatility in oil prices could impact profitability.
• Potential operational disruptions during planned maintenance.
• Market competition from other energy producers.
• Regulatory changes affecting offshore drilling activities.
• Economic conditions influencing energy demand.

Q&A

During the earnings call, analysts inquired about Talos Energy’s share repurchase program, which could utilize up to 50% of free cash flow. The company also discussed potential mergers and acquisitions and international expansion opportunities, highlighting its strategic flexibility in adapting to market conditions.

Full transcript - Talos Energy (TALO) Q1 2025:

Conference Operator: Good morning, ladies and gentlemen, and welcome to the Talos Energy First Quarter twenty twenty five Earnings Conference Call. This call is being recorded on Tuesday, 05/06/2025. I would now like to turn the conference over to Clay Johnson. Please go ahead.

Clay Johnson, Investor Relations, Talos Energy: Thank you, operator. Good morning, everyone, and welcome to our first quarter twenty twenty five earnings conference call. Joining me today to discuss our results are Paul Goodfellow, President and Chief Executive Officer and Sergio Myworm, Executive Vice President and Chief Financial Officer. For our prepared remarks, please refer to our first quarter twenty twenty five earnings presentation that is available on Talos’ website under the Investors 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 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 Q for the period ending 03/31/2025 filed with the SEC. Forward looking statements are based on assumptions as of today, and we undertake no obligation 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 ks filed with the SEC and is available on our website.

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

Paul Goodfellow, President and Chief Executive Officer, Talos Energy: Thank you, Clay. Good morning, everyone, and thank you for joining us on our call today. I’d like to begin with some remarks on our financial and operational results for the quarter. Following that, I will hand the call over to Sergio, who will provide a more detailed overview of our financial performance and guidance. Finally, I’ll conclude with some closing thoughts before opening the call to Q and A.

I want to start by saying how honored I am to be here and join you all for my first earnings call as Talos’ CEO. Over the past two months, I’ve spent a lot of time connecting with our employees and stakeholders. These conversations have been invaluable. They’ve given me a deeper understanding of where we stand as a company, the challenges we face, and the opportunities ahead. I’ve spent my entire career in the oil and gas industry with a particular focus on deepwater operations.

With over thirty years of experience, getting the chance to lead a company like Callas presented an extraordinary and exciting opportunity. Callas has a solid asset base in The Gulf along with a history of operational performance. The company’s established infrastructure coupled with its ability to capitalize on growth opportunities positions it well in the industry. However, what has stood out even more is the entrepreneurial culture and the sense of pride shared by Talos’ talented and skilled workforce. It is something I noticed early on in my time here, and it is a fundamental strength that I intend to build on during my tenure.

I’d like to thank our Talus team for their warm welcome, sharing their perspectives, and their hard work and dedication that delivered the strong results that we will discuss with you today. We are leveraging our unique culture, history, and strengths to enhance our assets and foster stronger relationships with both internal and external stakeholders. By maintaining open communication and collaboration with stakeholders, employees, shareholders, analysts, and partners, we gain valuable insights that drive progress and build on Talos’ success. My goal is to take a very good company and make it great. I believe great companies are built on continuous improvement.

So I’m challenging our entire team to enhance efficiency and reduce costs across the board. We’re making steady progress through the first one hundred days as planned, advancing the development of our go forward strategy. This plan is built around three strategic lenses, the near term, medium term, and long term to build upon our strong assets and further strengthen the organization. I understand that you are eager for more details. Rest assured, I plan to present the full plan to you in the coming weeks.

Now, I’d like to address our strong first quarter results starting with slide four. Our first quarter results demonstrate our continued focus on operational execution and consistent free cash flow generation. We’re extremely proud that the first quarter marks our fifth consecutive quarter of record production. This is also highlighted on slide five. For the first quarter, we achieved production totaling 100,900 barrels of oil equivalent per day, which was at the top end of our quarterly guidance range.

The production was comprised of 68% oil and including the NGL barrels was 78% liquids. We reported record EBITDA of $363,000,000 for the first quarter, which equates to an EBITDA netback margin of about $40 per barrel of oil equivalent. We believe we have consistently ranked in the top quartile among public E and P companies in net back margins as shown on slide six. Our CapEx in the quarter was $118,000,000 and we spent an additional $10,000,000 on plugging and abandonment activities. We’re executing our plugging and abandonment activities with a prudent approach.

Typically, these activities are better performed during the summer months despite potential weather disruptions. As planned, we anticipate an increase in plugging and abandonment expenditures throughout the remainder of the year. After taking into account our capital expenditures and plugging in abandonment spending, we achieved record free cash flow of $195,000,000 for the quarter. Given our robust free cash flow and the inherent value of our asset base, the board has approved an increase in our stock repurchase authorization to $200,000,000 We plan to execute the share repurchase plan through a structured, programmatic approach, and we expect to allocate up to 50% of our annual free cash flow to share buybacks. During the quarter, we repurchased 2,300,000.0 shares for some $22,000,000 Our strong financial results enabled us to maintain our leverage ratio of 0.8.

At the end of the quarter, we built our cash balance to approximately $2.00 $3,000,000 while also repurchasing our shares and improved our liquidity to approximately $960,000,000 This positions us well to capitalize on opportunities that may arise in the current environment. Operationally, we continue to make real progress in our drilling program, finishing our completion operations on our Sunspear discovery and starting completion operations on Katmai West Number 2. Moving to slide seven and eight, our 2025 drilling program is progressing as planned with significant progress across multiple projects. The team from Thales and the West Vailer drillship are working in close coordination, which is helping to drive smooth and efficient operations, ensuring we meet our operational milestones. At the Sunspear discovery, completion operations have concluded successfully.

First production is anticipated late second quarter twenty twenty five as planned. The well is being tied back to the Talos operated Prince platform with a projected gross production rate estimated to be between 8,000 to 10,000 barrels of oil equivalent per day. And we hold a 48% working interest in Sunspear. Similarly, completion activities are underway on the Katmai West number two well and are nearing completion as planned. First production is also expected by late second quarter twenty twenty five.

Production will flow back to Talus’ one hundred percent owned and operated Tarantula facility, which is expected to be running at maximum capacity. Talus holds a 50% working interest in and operates the Katmai field. Following this, we expect drilling operations for the high impact Miocene prospect, Daenerys, to start late second quarter twenty twenty five. We estimate it will take around one hundred to one hundred and twenty days to drill the well with results expected mid to late third quarter twenty twenty five. Callis holds a 30% working interest in and serves as the operator of Daenerys.

Additionally, our non operated Ewing Bank nine fifty three discovery, a monument project, are advancing as planned as we continue making investments in ordering and procuring long lead equipment for both. As previously announced, preliminary assessments for Ewing Bank nine fifty three indicate an estimated recoverable resource potential of approximately 15,000,000 to 25,000,000 barrels of oil equivalent, which we believe should lead to a production flow rate of between 18,000 barrels of oil equivalent per day. The well will be a single subsea tieback to the Megalodon platform, which TELUS partially owns. We estimate that Ewing Bank nine fifty three is economic at some $25 per barrel. Palos owns a 33% working interest in the well, and we expect first production by mid-twenty twenty six.

For our Monument Development Project, a large Wilcox oil discovery in the deep waters of The Gulf, 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. We expect to spud our first well at Monument by late fourth quarter twenty twenty five, with first production anticipated in late twenty twenty six. Palace has a significant acreage position in the Lower Wilcox trend, which we believe represents a growth opportunity for the company. In March, we increased our working interest in Monument from 21.4% to just under 29.8%. These updates highlight steady achievements in our key operational projects.

Before handing over the call to Sergio, I want to reiterate my gratitude to all Talos employees for their continued efforts driving our success while upholding our values and key priorities, safety and environmental performance and protection. Slide nine highlights our continued attention to safety and protection of the environment. This success reflects our personnel’s commitment to rigorous safety systems, proactive maintenance, and to upholding the highest operational standards here at Thales. We never take safety for granted and view it as a critical practice that reflects our commitment to our most important asset, our people.

Sergio Myworm, Executive Vice President and Chief Financial Officer, Talos Energy: With that, I’ll now turn over the call to Sergio. Thank you, Paul, and good morning, everyone. For my remarks, I’ll touch on Talos’ commitment to financial discipline and our ability to deliver value through our strong cash flow generation and the flexibility of our capital budget, especially in light of lower commodity prices. Additionally, I’ll provide a review of our guidance and our commitment to maintaining a strong balance sheet and robust hedging positions. These efforts aim to support cash flow stability and enhance shareholder value.

Let me begin by reaffirming our commitment to achieving our operational and financial objectives by focusing on disciplined capital allocation and free cash flow generation. Looking at slide 10, we have a lot of flexibility in our budget for the second half of twenty twenty five, allowing us to adapt if oil prices decline further. Our confidence remains strong in the economic viability of the key projects we are advancing, though. For instance, our upcoming projects are expected to be economic on average at approximately $35 per barrel of oil. These projects underscore Talos’ resilience, flexibility, and depth of portfolio, even in a volatile commodity price environment, and that we’re positioned to balance short cycle and long cycle investments with robust returns aimed at delivering production, positive free cash flow, and a robust shareholder value.

As mentioned before, we still have significant flexibility on our capital plans in the second half of the year, and we’ll continue to monitor the market for continued softness in the commodity before using that flexibility. If oil prices deteriorate materially, we will consider postponing certain projects, but as of now, we’re convinced the right approach is to continue to invest in these projects. They are very economic at current prices, but more importantly, we need to think about this with a through the cycle prices approach. On slide 11, we reaffirm our operational and financial guidance for 2025. Regarding our capital expenditures guidance, we maintain our investment of 500,000,000 to $540,000,000 for the full year.

In addition, we expect to execute between 100,000,000 and $120,000,000 of P and A and decommissioning activities this year. Our capital program reflects a strategic balance between low risk development and higher risk, with the potential of high reward, exploration projects. Asset management efforts are focused on cost efficient, high rates of return production additions and enhancements, as well as extending the operational lifespan of fields. Additionally, our ongoing geological, geophysical and land investments aim to refine and bolster our inventory. Capital spending in the first quarter came in lower than anticipated due to several projects phasing into the second quarter.

Looking ahead, we anticipate the second quarter will reflect the highest level of investment for the year, driven by our high level of activity and the phasing of projects, including some long lead items pushed to the second quarter, as well as timing of certain projects. Turning to Slide 12, I want to briefly review how we think about our production guidance for ’25. As demonstrated by our first quarter production, Talos’ business has the ability to produce well over 100,000 barrels of oil equivalent per day, so the base business continues to be very healthy. As an offshore operator, we have a number of things that can impact production guidance. While these activities will temporarily lower our production rates for the year, as shown on slide 12, they are essential to ensuring the long term safety, reliability, and uptime of our assets.

Additionally, we account for external factors such as weather related disruptions, including hurricanes, and estimated potential unplanned downtime affecting third party facilities and pipelines. Taking all of these considerations into account, we continue to expect production for 2025 to range between 185,000 barrels of oil equivalent per day, of which approximately 69% is expected to be oil and 79% liquids. As previously mentioned, the warmer months are the ideal times for various offshore activities, including preventative maintenance on our assets and tieback operations. Specifically, scheduled downtime will impact operations at Brutus for routine maintenance and at Tarantula as we complete Cap My West 2. Additionally, the Prince facility will have some downtime as we tie back the Sunspear discovery alongside other scheduled third party pipelines and maintenance projects.

With that said, we expect our production for the second quarter will be between 188,000 barrels of oil equivalent per day. This range is a little wider than the one we provided for the first quarter, but that is a reflection of the increased levels of simultaneous operational activities we are expecting in the second quarter, and therefore the greater uncertainty associated with that increased activity. But to be sure, we have confidence in this range, and we’re very happy with how the base business is performing, as well as how the various teams are executing on their projects. As I mentioned, our approach emphasizes adaptability amid the current lower oil price environment. Even at current price levels, we still expect to generate free cash flow for the full year.

Our robust hedge positions over this timeline, as shown on slide 13, support our cash flow stability in a fluctuating commodity market. This enhances our ability to continue generating free cash flow for the year, even at oil prices in the low 40s per barrel. Approximately 42% of the projected balance of our 2025 oil production, based on the midpoint of guidance is hedged at prices over $72 per barrel of oil. These hedges provide robust financial stability and support the 2025 capital program. The current mark to market value of these hedge positions stand at $120,000,000 as of April 30, and is even higher today given the current outlook, which further highlights the effectiveness of Talos’ proactive risk management strategy.

Maintaining a strong balance sheet is paramount to our financial strategy, providing us with options and flexibility for long term success. As shown on slide 14, our strong balance sheet includes no near term debt maturities and no borrowings on our credit facility. At the end of the first quarter, we had $2.00 $3,000,000 in cash, contributing to a total liquidity of approximately $960,000,000 Additionally, we maintained a leverage ratio of 0.8 times. We’re committed to maintaining our strong balance sheet to help ensure we’re prepared to capitalize on opportunities that may arise in the current low oil price environment. Our financial framework is built on a balanced three pronged approach that targets sustainable investments in the business in high returning projects to maintain production through the cycle and create value for shareholders.

Looking at slide 15, we focus on making strategic long term investments to cultivate a sustainable asset base that generates robust returns through the cycle, strengthening our balance sheet to prepare to capitalize on opportunities, and returning cash to shareholders. As Paul mentioned earlier, our Board increased our share repurchase authorization to $200,000,000 and we now expect to allocate up to 50% of our annual free cash flow to share buybacks in a programmatic approach. We believe our shares are significantly undervalued and repurchasing them represents a compelling use of capital. Our approach also reinforces our commitment to enhancing shareholder value, while maintaining flexibility for future inorganic and organic growth opportunities. Maintaining the longevity and stability of Talos’ base business remains a top priority for how we allocate our cash, while also striving to maintain a robust balance sheet and generating meaningful free cash flow.

With that, I’ll now turn it back to Paul for some additional closing comments.

Paul Goodfellow, President and Chief Executive Officer, Talos Energy: Thanks, Sergio. As I wrap up our earnings call, I want to summarize the key achievements of the first quarter. Slide 16 presents a scorecard of these accomplishments, highlighting our commitment to delivering results and maintaining a strong focus on execution. This quarter, our robust operational performance and financial discipline led to solid results, including record production levels of 100,900 barrels of oil equivalent per day, a record EBITDA of $363,000,000 and record free cash flow of $195,000,000 Our approach to value creation is built around making long term investments to maintain a sustainable asset base that delivers strong returns through commodity cycles. We are committed to strengthening our balance sheet to capitalize on the opportunities that may arise from the current environment while returning cash to our shareholders.

By focusing on capital discipline, operational excellence, and free cash flow generation, we have achieved some significant milestones. I believe we have laid a solid foundation for 2025 and beyond. With that, we’ll open the line for Q and A. Thank you.

Conference Operator: Ladies and gentlemen, we will now begin the question and answer session. Your first question comes from Greta Drachea from Goldman Sachs. Please go ahead.

Greta Drachea, Analyst, Goldman Sachs: Good morning and thank you for taking my questions and congratulations on the quarter. I wanted to first touch on your share repurchase authorization increase. Can you speak to any tentative expectations around the timeline for deploying the current authorization outstanding or any other key factors influencing how you’re thinking about the timing?

Sergio Myworm, Executive Vice President and Chief Financial Officer, Talos Energy: Hi, Greta. Good morning. This is Sergio. Happy to answer that. So, the plan is effective immediately.

So, we have the ability to execute on that outside of our blackout windows. We have the ability to execute on that immediately.

Greta Drachea, Analyst, Goldman Sachs: Great, thanks so much. And then for my second question, I just wanted to touch on maybe the second half of the year’s flexibility in the current program. Is the flexibility just mostly the unnamed Gulf Of America well you have listed on slide seven? And if current market expectations persist or worsen, do you expect any changes to non operated project or capital expectations?

Paul Goodfellow, President and Chief Executive Officer, Talos Energy: Hey, Greta. Good morning. This is Paul. Look, I’d say that we’ve kept guidance flat given the robust project set that we have for the rest of ’twenty five and going into 2026. Those projects breakeven on average is around $35 per barrel.

Now we do have flexibility probably up to the level of about 20% of the totality of the CapEx budget that we are guiding for the year. And we’ll look at making those calls as we go into the second quarter, dependent on how the macro develops. And so it is more than just the unnamed project that we have at the moment. There are other projects that we can look to postpone if we see that the macro is deteriorating further. But I would just reiterate that the breakevens of the projects that we have are incredibly robust.

And of course, we need to look at that through the lens of this twelve to eighteen month investment cycle that it actually takes before we generate cash flow from those projects.

Greta Drachea, Analyst, Goldman Sachs: Thank you.

Conference Operator: Your next question comes from Tim Rezvan from KeyBanc Capital Markets. Please go ahead.

Tim Rezvan, Analyst, KeyBanc Capital Markets: Good morning, folks, and thanks for taking my questions. I wanted to follow-up on repurchases. They’ve been challenging for a lot of small cap E and Ps. Many management teams say they won’t be cyclical, but they tend to kind of end up being cyclical without a lot of dry powder to buy at troughs. So Paul, can you or maybe Sergio, can you explain when

Pho Pham, Analyst, Roth Capital: you say you’re going to

Tim Rezvan, Analyst, KeyBanc Capital Markets: be programmatic, what does that mean? And then when we look at that 50% of free cash flow level, is it your expectation that you would if the share price stays kind of in the current range that you would sort of allocate that amount on an annual basis? Just trying to get more color on timing and intensity. Thanks.

Paul Goodfellow, President and Chief Executive Officer, Talos Energy: Thanks, Tim. Let me maybe start with that. I think as we mentioned in the comments, investing in the business with having a strong balance sheet and actually returning cash to shareholders via a buyback program is really our focus. And that’s why we announced that we would return up to 50% of free cash flow per year. And I think it’s in that that we talk about the programmatic effect.

So rather than just doing it as a one off, we’re actually looking forward to say, as we balance these three components of investing in the business, maintaining a strong balance sheet, and actually returning cash to shareholders, we can actually look at where we are as a company, look at where the macro is, and then make that decision as to what proportion up to that 50% that we would look to return. That’s the conversation agreement that we have with the board. Hence the announcement of increasing the level up to $200,000,000 and also announcing it as a programmatic approach that looks to return up to 50% on an annual basis.

Tim Rezvan, Analyst, KeyBanc Capital Markets: Okay, thank you for that context. And my follow-up maybe for you Paul or even Sergio, it’s hard to control leverage, but it’s easier to control a debt balance. The team has made big strides getting debt below $1,000,000,000 So Paul, kind of what do you think holistically is sort of the right debt load for this company? And then related to that, some of your debt is now trading closer to 90% of par. So how do think about the right level of debt and maybe being opportunistic on debt reduction if you can kind of pick some debt off at a discount?

Thank you.

Paul Goodfellow, President and Chief Executive Officer, Talos Energy: Yeah, let me make an opening comment and I’ll hand it over to Sergio to maybe fill in. I think we’ve said that it’s important that we maintain a strong balance sheet. For us, that is having leverage below one as we look at it over a period of time. That’s the work that we’ve done to get the balance sheet in that strength. And we will continue in that vein as we go forward.

Again, balancing those three components, sort of looking to invest in the business to maintain our free cash flow, maintaining the strength of the balance sheet, and then looking to also return cash to shareholders. That’s the frame in which I think you should think about it. But let me hand over to Sergio maybe to fill in some of

Sergio Myworm, Executive Vice President and Chief Financial Officer, Talos Energy: the color. Yeah, thanks Paul. Tim, that’s a good question. Look, we are, as Paul said, we’re balancing all of those things, but from a total leverage or total debt load, we feel comfortable where we are. I think the business is doing really well, still generating free cash flow.

So we’re in a really good spot. But as you pointed out, if the market presents us with opportunities to reduce that further, if the bonds trade off and we have the opportunity to buy them, we will consider doing that as well. So that is part of the broader frame that Paul talked about. But we’re not in a hurry to reduce that. We don’t feel like the business needs to reduce leverage or reduce debt that much more.

But if there are opportunities to do so in a way that creates a better economic proposition for us, we will absolutely evaluate that.

Tim Rezvan, Analyst, KeyBanc Capital Markets: Thank you for the comments.

Conference Operator: Your next question comes from Nate Pendleton, Texas Capital. Please go ahead.

Nate Pendleton, Analyst, Texas Capital: Good morning and congrats on the strong quarter.

Sergio Myworm, Executive Vice President and Chief Financial Officer, Talos Energy: Thanks, mate.

Nate Pendleton, Analyst, Texas Capital: With the softness in oil prices, are you seeing any deflation on the cost side or increased rig availability that could benefit investing through the cycle as you’ve mentioned previously?

Paul Goodfellow, President and Chief Executive Officer, Talos Energy: Yeah, Nate. Good morning. Nice to speak to you again. I would say it’s early in that cycle at this point in time. We’re not seeing mass reductions in terms of the price levels at this point.

We do get indications that there is maybe some softness coming in the rig market for the second half of the year. But I think what’s important is the fact that we have breakeven projects in the 30s and 40s dollars a barrel that allows us to have robustness against the current price environment that we see. Now, clearly, if we stay at that level of price, we would expect the service sector in totality to maybe soften a little bit with respect to prices. But what’s important of course is that we drive efficient outcome and actually look for the total cost of the project and the well that generally comes through having strong relationships as we have with the West Vella rig at the moment versus just always going after the marginal dollar. And so again, that is really the focus that we have looking at how do we drive down the cost of the project and therefore the breakevens in totality.

But clearly, I think with the macro that we’re the moment, we would expect to see some softening as we continue into the second and third quarters of this year.

Nate Pendleton, Analyst, Texas Capital: Got it. Thanks, Paul. And referencing slide 15, you talk about having the balance sheet to capitalize on potential opportunities. Is there a cash on hand target that you’re contemplating there? And how would you characterize the size of potential opportunities that you are looking to take advantage of?

Sergio Myworm, Executive Vice President and Chief Financial Officer, Talos Energy: Hey, Nate, this is Sergio. There’s no target of cash balance I think as Paul mentioned and we’ve mentioned many times during this call is, we’re going to look to what is the best deployment of that cash, whether that is investing in new organic opportunities, whether that is returning some of that cash to shareholders, whether that is repurchasing some of the bonds in the market, or whether that’s some inorganic opportunity that we see in the market. All of those things are in consideration and we just have to look at the value that we can generate by doing that. Keeping that on the balance sheet certainly is an option as we continue to strengthen the balance sheet of the company, but that’s not necessarily a goal, to keep a certain number of balance sheet.

It’s just a matter of we’re waiting for the right opportunity to deploy that cash.

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

Conference Operator: Your next question comes from Pho Pham from Roth Capital. Please go ahead.

Pho Pham, Analyst, Roth Capital: Hi. Good morning. Thanks for taking my questions, and congratulations on isolated wires. So my question is about LOE. I think, like, LOE has been low since the fourth quarter twenty four, and you have started again in the first quarter twenty five.

So I just wanna ask, like, what is because of any onetime items? Is this gonna be the runway moving forward for LOE?

Paul Goodfellow, President and Chief Executive Officer, Talos Energy: Thanks, Bruce, for the question. We have an incredibly strong and efficient operational organization here at Talos that really searches after every dollar of efficiency and effectiveness that it can take out of the business. And that I think is what you’re seeing through the first quarter of this year where operating costs are in the high teens dollars per barrel. We’ve maintained the guidance because what we have not seen yet is sort of the planned maintenance activities that are just starting some of the intervention work that we will execute that will be counted as OpEx. But as I said in my comments, the challenge that we have and we’ve laid down to the organization is how do we drive continuous improvement and efficiency and how do we forge our own future, which one element of that will be how do we actually take cost and drive efficiency further into the business.

So I would expect that the type of run rate that we see at moment is what we continue to see in the future. And clearly that is something that we will update about when we sort of roll out the broader strategic frame towards the back end of Q2.

Pho Pham, Analyst, Roth Capital: Thank you. That’s very helpful. Also, my second question is gonna be about M and As. So given the macro headwinds right now, low oil price environment, What do you think about the m n M and As? Like, what you guys saying about that?

Like, are you gonna, like, looking for opportunities in the couple of America? Yeah. Just want to hear about that.

Paul Goodfellow, President and Chief Executive Officer, Talos Energy: So the strategic frame that we’re developing is progressing well. And as I just mentioned, we will come and share that with the markets towards the end of the second quarter. Clearly as part of that, Talos has shown that it can create significant value from both organic and inorganic activity. And we will continue to look at both tracks for accretive opportunities, whether that’s from being active in lease sales to looking at how we can deliver bolt on type of opportunities into the portfolio as we did with the monument project. But always with the lens of what is the incremental accretive value that we can create through that.

And so, yes, we will be looking at opportunities both within The Gulf but maybe outside The Gulf to actually further bolster the robustness of the company.

Pho Pham, Analyst, Roth Capital: Great. Thank you so much.

Conference Operator: Your next question comes from Michael Shalif from Stephens. Please go ahead.

Michael Shalif, Analyst, Stephens: Good morning, everybody. Paul, you mentioned the twelve to eighteen month cycle for most of your investments. With that in mind, wanted to ask about the visibility you have on activity that could impact next year’s production. I know you mentioned Ewing Bank should be online kind of midyear and Monument late in the year. Are there any other exploitation projects you’re doing this year that could help keep production flat next year?

Or would you expect based on what you’re seeing right now for production to decline?

Paul Goodfellow, President and Chief Executive Officer, Talos Energy: So I would say that the investment program that we currently think about for next year is probably in line with the levels that we are looking at today. We have a number of projects that are in the funnel that we’ll need to actually think about bringing through to maturity. And there are a number that are in the sort of exploration going into the exploitation phase that would then add in to that. But that Michael is sort of work that is underway at the moment and we will build that as we go through the second and third quarters.

Michael Shalif, Analyst, Stephens: Are any of those possible to shift toward natural gas versus oil given the outlook for the two commodities or are

Paul Diamond, Analyst, Citi: they pretty well set on oil?

Paul Goodfellow, President and Chief Executive Officer, Talos Energy: Yeah. Are probably a liquids rich company. We have some projects that clearly have a higher proportion of gas such as the Brutus wells that are performing incredibly well at the moment, which is why maybe you see that our total oil volume is slightly lower than the average that we’ve guided for the year. We will continue to look for robust projects that have low breakevens, where we can deploy our skills. And that’s almost irrespective of whether they are oil or gas, given that this is a cyclical commodity market in which we work.

Michael Shalif, Analyst, Stephens: One more if I could slip in. I know you’ve sold Zama, Your interest there way down. Looks like Pemex is contemplating monetizing at least a portion of their interest and maybe giving up operatorship altogether. Is there any interest in that given that you you have a looks like a distressed seller, especially if you could take over operatorship completely?

Paul Goodfellow, President and Chief Executive Officer, Talos Energy: Yeah, we’re very happy with the partnership that we have down in Mexico with Zama at this point in time and we’ll continue to work that project through to a potential investment decision later in the year.

Michael Shalif, Analyst, Stephens: Okay, fair enough. Thank you.

Conference Operator: Your next question comes from Michael Furrow from Pickering Energy Partners. Please go ahead.

Clay Johnson, Investor Relations, Talos Energy0: Hey, good morning. Thanks for having me on and taking my questions. Paul, I’d like to go back to one of your statements in the prepared remarks that Talos is well positioned to capitalize on growth opportunities. Typically, what we see with pullback in commodity prices, there’s a divergence between bid ask spreads, which makes these inorganic growth opportunities a bit more challenged with current macro environment. So my question is, is this dynamic at play currently right now in the offshore space?

And is that maybe what’s driving the change to the buyback program? And if so, should we anticipate buybacks returning to a more normalized rate at mid cycle prices when these growth opportunities return?

Paul Goodfellow, President and Chief Executive Officer, Talos Energy: Hi, Michael. Thanks for joining. I would say that it’s not just about M and A, it’s about what is the cost at which we can sort of develop all of the opportunities that we have out in front of us. And we will look at the full suite of opportunities that we have in terms of looking at from an organic perspective of entering early in the life cycle in terms of leases, all the way through to if there are assets where, or opportunities more broadly, where we can clearly bring added value because of the way we can integrate those assets, drive costs out, capture synergies with the footprint that we have, then we will towards that. And I would probably leave it at that at this point in time, given that this market is probably just starting to evolve.

Sergio Myworm, Executive Vice President and Chief Financial Officer, Talos Energy: All right, great color. Appreciate it.

Nate Pendleton, Analyst, Texas Capital: Next, I want to hit

Clay Johnson, Investor Relations, Talos Energy0: on the West Vella. That rig seems to be performing at or above expectations with completing of the Katmai West, rigs plans to be mobilized to drill the Daenerys. Upon successful drilling and completions there, what’s on deck for that rig? And where is that rig in terms of its contract? And where does the company see that rig involved next year?

Sergio Myworm, Executive Vice President and Chief Financial Officer, Talos Energy: Hey, Michael, this is Sergio. I’ll start and Paul can provide additional comments if needed. So, we have the contract of the West Vela through the drilling of the Denares exploration well that we’re going to drill starting at the end of the second quarter. After that, I don’t believe the rig has any additional contracts, so we still have the ability to extend that contract or sign a new contract with that. That is also part of the broader opportunities in this lower commodity cycle, we may have better opportunities to lock in some differentiated rates and differentiated service costs as well.

So it’s not just M and A, as Paul mentioned, there’s an ability to actually partner with some of the service providers as well and increase value through that. So and the West Vela probably falls on that category as well. Like if we continue to see softness in the oil markets, we may have even better opportunities to continue to lock up that rig for longer periods of time. All right, thanks. That’s great.

I’ll turn it back.

Conference Operator: Your next question comes from Tarek Hammond from JPMorgan. Please go ahead.

Michael Shalif, Analyst, Stephens: Hi, good morning. This is Devin on for Tarek. Of the bucket that you have built into your production guidance for weather and unplanned downtimes, how much of that is specific to hurricane season in 3Q? And can you quantify any potential upside from if we have a more modest hurricane season in 3Q?

Sergio Myworm, Executive Vice President and Chief Financial Officer, Talos Energy: Yeah, let me start on that and Paul can supplement the answer. Look, most of that is related to weather disruptions, right? We have a couple of different buckets there and the bucket related to weather, it’s focused on hurricanes, potential loop currents, etcetera. Look, we have not even gotten into hurricane season yet. So I don’t want to speculate on what’s the potential upside.

We tend to take a very conservative view on that. We tend to look at what’s the average disruption we’ve had over the last few years and we take to bake we tend to bake that into our projections. But obviously, we don’t control the weather. We don’t know exactly how that’s going to behave or perform. So I don’t want to speculate on what’s the potential upside on that one, because there might be potential for downside as well if the activity, if the hurricane activity is larger than what we expected.

So I’ll just leave it at that. There’s still a lot to happen as we go into the second quarter and third quarter, which is where the biggest part of the hurricane season is.

Paul Goodfellow, President and Chief Executive Officer, Talos Energy: Let me just add maybe a comment on the sort of the maintenance and the turnaround component. So we do have a significant set of activities this year, both in terms of the planned maintenance that we do. And focus on that because that is what helps drive our uptime towards the top quartile of the industry. In addition, we have some outages to take to tie the Sunspear and Katmai projects, which will happen later in the second quarter. And so we have significant sort of maintenance and shutdown activities related to Katmai, to Pompano, to Prince, to Brutus, and then some other third party related activities.

Now clearly, the focus on that as we sort of forge our future going forward is how do we do that in the most efficient effective way as we can. But again, so the way we’re guiding that, I would say think about it as a midpoint that’s based off sort of current levels of performance that we’ve seen. But clearly, will always be searching for ways to do that more effectively and to mitigate the risk of it taking longer than we had planned.

Michael Shalif, Analyst, Stephens: Appreciate the color. Thank you.

Conference Operator: Your next question comes from Paul Diamond from Citi. Please go ahead.

Paul Diamond, Analyst, Citi: Thank you. Good morning, all. Thanks for taking the call. Just wanna touch base quickly on Katmai West 2 and Sunspear, both kind of tentatively aligned up for first oil end of this coming quarter. Just wanna get an idea of, like, how much of that is built in the ninety two to ninety six guidance.

I guess how we should be thinking about modeling that for the timing of that?

Paul Goodfellow, President and Chief Executive Officer, Talos Energy: Yeah. Thanks, Paul. So for both of those, in our plan, we’ve built in to the plan that they will be on sort of at the midpoint of the range that we are planning with the rates that we’ve shared with you in terms of the 8,000 to 10,000 barrels a day for Sunspear, etcetera. Now clearly with any new well, there is always a possibility of those wells performing better. But there’s also possibility of those wells maybe performing not quite as well as we expect.

From everything that we’ve seen at the moment, I would say that the guidance range we have given you for those is extremely robust. But clearly, we will update you as we start to see those wells come on and start their production journey.

Paul Diamond, Analyst, Citi: Understood. Appreciate the clarity. And just one quick one following up on OCTG. You mentioned that your parents pre ordered well out on the horizon. Just want to get an idea if that was ’25 or if that extended to ’26 or if any potential tariff induced inflationary pressures could start to bite at that point.

Paul Goodfellow, President and Chief Executive Officer, Talos Energy: Yeah. Because we have one of the things, the differentiations that Thales has is that we do look to design our offshore deepwater wells in a standardized way. That means that we can pre purchase casings and tubulars and they have some fungibility between the projects that we have. And so where we sit at the moment is that the majority of all of the OCTGs that we need for ’25 and well into 2026, actually we have under our control and have purchased and therefore our exposure to tariffs is minimal. If you think about the well in totality because that part is taken care of.

Paul Diamond, Analyst, Citi: Understood. Appreciate the clarity. I’ll leave it there.

Paul Goodfellow, President and Chief Executive Officer, Talos Energy: Thank you.

Conference Operator: Your next question comes from Noel Parks from Tuohy Brothers. Please go ahead.

Clay Johnson, Investor Relations, Talos Energy1: Hi, good morning. Just had a couple. Paul, with your coming aboard and sort of taking a fresh look at the portfolio, I’m just thinking of what the last few years, the company has grown a lot through acquisition. And as a result, the company at its current size just definitely has more resources to apply to the various prospects. And I’m just wondering, do you sort of see the ownership interest, typical interest that the company has been taking in projects or retaining in projects as being about right now considering the strength of the balance sheet, the benefits of a higher interest as far as just higher impact on cash flow?

Or are you sort of more in the boat of maybe a broader set of projects, maybe somewhat lower working interest, just sort of be able to spread your bet? I was wondering if you have an inclination one way or the other.

Paul Goodfellow, President and Chief Executive Officer, Talos Energy: Look, I would say that the development of the go forward strategy that we’re working on is progressing well. As I mentioned, we’ll look to come to yourselves at the back end of the second quarter, as I promised to do, and share that with sort of full color. Now, that, we’ll look at the various time horizons in terms of how we think about how we drive through self help within the near term, how we look at opportunities in the midterm, as well as over the longer term, of course, looking at all of those in parallel. Part of that will be how do we think about the risk return of the various sort of elements of the portfolio that we have. So clearly where we have development type of projects or where we are looking to bring infills back into the tremendous asset infrastructure footprint that we have.

We will be willing to take a maybe much higher working interest in that type of an opportunity as compared to working on maybe the frontier where we’d look to share that risk with partners as we are doing today. But as I said, that’s just a little bit of color and we’ll deepen that when we come and talk about the strategy more broadly in several weeks’ time.

Clay Johnson, Investor Relations, Talos Energy1: Great, thanks. Yeah, I was thinking of it partly in the context of just with the acquired assets, the traffic to date has been terrific as far as just success in both the exploratory and the development projects. I just wonder if that meant that we’re at a technology threshold where the average product is just somewhat less risky than we used to think of it as.

Paul Goodfellow, President and Chief Executive Officer, Talos Energy: But maybe one more comment on that. I think what it shows is the just tremendous capability that the organization at TELUS has to take assets, to integrate them, and to create incremental value because of the capabilities that we have. I think that’s maybe the lens at which you should think about this through.

Clay Johnson, Investor Relations, Talos Energy1: Great. And just my last one is, I’m just interested to hear your thoughts on the company branching out more internationally. It’s been a topic of discussion for a while and I was talking about exploration before. We are seeing more dollars going to the deep water in general and in particular even some a little bit more exploratory work going on than we had for quite a while. So just any thoughts or interests that are on your radar screen?

Paul Goodfellow, President and Chief Executive Officer, Talos Energy: And the deep water is an advantaged play segments in the energy complex in totality. It can give us advantage margins as well as sort of advantage carbon intensity, which is important. As part of the go forward strategy that we’re working on, we’re looking at the totality of the opportunities that lie in front of us from organic opportunities for deepening where we are. It’s also looking at the global basins and where can we leverage our capabilities to actually create incremental value and take advantage of opportunities that may exist there. And so yes, we will look as part strategy work that we’re doing across the totality of that.

And we’ll share the outcome of that, as I’ve mentioned in the end of the second quarter.

Clay Johnson, Investor Relations, Talos Energy1: Great, thanks a lot.

Conference Operator: Your next question comes from Jeff Robertson from Water Tower Research. Please go ahead.

Paul Goodfellow, President and Chief Executive Officer, Talos Energy: Thanks, good morning. Paul and Sergio, given the commentary around this, strong liquidity position that Talos has, can you talk about whether or not that’s actually attracting, M and A activity or prospects of people who recognize your position and want to come talk to you about either acquiring or partnering on prospects?

Sergio Myworm, Executive Vice President and Chief Financial Officer, Talos Energy: Hey, Jeff. Good morning. Look, we’re not gonna comment on any discussions around M and A, right? So, that’s not something that we typically do. But we’re very happy with the liquidity position that we are.

That actually puts us in a very good spot from a strategic standpoint that we can actually act on potentially weaker situations for other companies partners that need a strong partner to join them into opportunities, so we can farm into really good projects. So, we’re very happy with the liquidity position that we have, and we’re gonna continue to look for opportunities to create value for the company using that liquidity. But other than that, I can’t comment any further.

Paul Goodfellow, President and Chief Executive Officer, Talos Energy: Sergio, you’ve owned Envin now for a little over two years and Quarter North for one. Can you talk a little bit about or how your review of those assets is filling out your opportunity set for 2025, ’twenty six and beyond?

Sergio Myworm, Executive Vice President and Chief Financial Officer, Talos Energy: For sure. Look, we’re very happy with the acquisitions that we’ve made over the last two years. Each one of them set us in a course that has kind of led to where we are now with a very strong base production with really good and robust portfolio. So we’re very happy with how those acquisitions have performed. Some of them some of the assets have really unlocked a really good upside potential for us.

Cat Mai is a great example of that, but there are others in the portfolio. So we feel like the inventory that we’ve acquired plus the inventory that Talos already had and the inventory that the team continues to generate is very attractive, and as Paul said, very low breakeven prices. And I think those two acquisitions have just bolstered that. So we’re very happy with the outcome of all of those.

Michael Shalif, Analyst, Stephens: Thank you.

Conference Operator: There are no further questions at this time. I will now turn the call over to Paul Goodfellow, President and Chief Executive Officer. Please continue.

Paul Goodfellow, President and Chief Executive Officer, Talos Energy: Thank you, Desiree. And let me thank you all for joining us this morning, for the interest that you’ve shown in TELUS and your questions. And we look forward to further engaging with you in the months ahead. And again, just a huge, huge thanks for your time this morning.

Conference Operator: Ladies and gentlemen, this concludes today’s conference call. Thank you for your participation. You may now disconnect your lines.

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