Talos Energy, Inc.

Good morning and welcome to the Talos Energy first quarter 2020 earnings call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your touchtone phone. To withdraw your question, please press star, then two. Please note, this event is being recorded. I would now like to turn the conference over to Sergio Myworm, Vice President of Finance, Investor Relations, and Treasurer. Please go ahead.

Thank you, Operator. Good morning, everyone, and welcome to our first quarter 2020 earnings conference call. Speakers on the call today are Tim Duncan, President and Chief Executive Officer, and Shane Young, Executive Vice President and Chief Financial Officer. Before we get started, I'd like to take this opportunity to remind you that our remarks today will include forward-looking statements. Actual results may differ materially from those contemplated by these forward-looking statements. Factors that could cause these results to differ materially are set forth in yesterday's press release and on our Form 10-Q for the quarter ending on March 31, 2020, filed with the SEC yesterday. Any forward-looking statements that we make on this call 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 both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures was included in yesterday's press release, which was filed with the SEC and which is also available on our website at talusenergy.com. and now I'd like to turn the call over to Tim.

Thank you, Sergio. I look forward to discussing our results for the quarter as well as recent developments with the company and the industry. The combined effects of the COVID-19 pandemic and the associated sudden drop in global demand across all sectors of the economy have rapidly resulted in an unprecedented situation for our industry. The environment is challenging. It is a challenge we are working every day to meet and emerge as an even stronger and better positioned company than before. Our first and foremost priority is always the health and safety of our employees, our contractors, and the community. In recent weeks, we've bolstered our offshore HSE procedures to include daily temperature scans, consistent use of face masks and social distancing in their daily work, and health surveys and other advanced screening techniques as we onboard new crews. To date, we have not encountered any COVID-19 cases amongst our offshore workforce. We also quickly moved our corporate staff to work-from-home status. As various jurisdictions in which we operate begin to reopen, we stay vigilant to continue to protect our people, their families, and our broader network of suppliers and partners in the community. I still believe TALIS is well positioned to weather this current commodity downturn. As I mentioned in our last call, we entered March with the right ingredients to manage an abrupt decline in oil prices. We have low leverage, high liquidity, Robust Hedges, and Minimum Long-Term Commitments. With our recently expanded asset portfolio following the closing of our acquisition, our asset base is more diverse and resilient than ever, with a broad production base across the asset lifecycle, highly competitive margins, and a flexible portfolio of opportunities that utilize our infrastructure, allowing us to generate material free cash flow in the first quarter and still remain free cash flow positive for the full year of 2021. even at current strip prices in combination with our hedges. With respect to the acquisition, that transaction closed on February 28th of this year. The transaction brings interest in numerous high-profile Gulf of Mexico assets such as Marmalade, Oddjob, and Claiborne. It also substantially increases our exposure in our Mississippi Canyon core area while introducing new partnerships with other high-quality operators throughout the Gulf of Mexico. At closing, we benefited from the free cash flow adjustment from the effective date of July 1, 2019, which reduced our cash consideration at closing. We also used our equity to finance a large part of the transaction, with the number of common shares issued to the seller being fixed when we signed the contract in December of 2019. For the last 12-month period, ending March 31, 2020, these acquired assets generated an average daily production of just over 19,000 barrels equivalent a day, and continue to produce an average of 19.7,000 barrels equivalent a day in the first quarter of 2020. The transaction is also providing encouraging near-term upside, such as the successful drilling of the Claiborne No. 3 development well that was recently announced. We expect that well to be online by mid-year this year. We've also seen the announcement of an impactful third-party discovery in the region, Equinor's Monument Discovery, that may unlock value from our offsetting primary-term acreage that we acquired in the transaction that is on trend with this announced discovery. However, as we enter March, the markets deteriorated during the spread of COVID-19 and the associated government-mandated economic shutdown, and we've rapidly responded to the evolving situation by reducing our capital spending and deferring or canceling growth projects, reducing our operating costs, and reducing our G&A expenses. When considering the assets we currently own, on a pro forma basis, our capital budget is now 40% lower than the capital program across the same set of assets in 2019. On a similar basis, total operating and G&A costs are down 15%, and we expect to continue to find more savings as we work with our suppliers and service providers. We expect to continue to benefit from our strong hedge book throughout the year, and we have continued to opportunistically add additional hedges. Looking forward to the second quarter and second half of 2020, we will continue to execute on our adjusted and reduced capital plan, which focuses on previously committed or already commenced projects that remain attractive even in the current environment. Each of these projects utilizes existing infrastructure that we either operate or have access to. That allows for a quick turnaround to production, leads to improved margin profile within our own infrastructure, and increases the collateral value of our portfolio. resulting in the best possible liquidity position to withstand any uncertainty with respect to the direction of the commodity market. So with that backdrop, let's turn to our highlights of the quarter. And as a reminder, all figures include one month of results from the recent acquisition. Production for the quarter totaled 58.1 thousand barrels equivalent a day. Production in March was 70.3 thousand barrels equivalent a day. The 58.1 thousand barrels equivalent a day ties to an EBITDA which remains strong at $148 million inclusive of hedges. Capital expenditures for the quarter inclusive of P&A totaled approximately $73 million and included a $7.6 million seismic change of control expenditure from our 2018 Stone Energy transaction. We had positive $0.27 adjusted earnings per share continuing a trend of six straight positive adjusted EPS quarters. Pre-cash flow for the quarter totaled approximately $49 million and was our third straight quarter of solid pre-cash flow. As we move into the second quarter, the flexibility provided by a broader and more diverse portfolio gives us more optionality to respond to the current price environment while maintaining a healthy production base. In recent weeks, we've initiated production shut-ins in several fields in order to either accelerate previously planned maintenance and upgrade activities or reduce production where it makes sense to do so in the near term. The company has not yet encountered any required production shut-ins resulting from midstream or storage capacity constraints. Approximately half of the current shut-ins are driven by the acceleration of various maintenance and other activities planned throughout 2020, which should better position the company later in the year as prices improve. Importantly, we are continuing to monitor the market environment and work with other operating partners in our non-op assets regarding additional potential shut-ins and production planning in the near term. As mentioned in our earnings release, Talos recently took delivery of both a Helmer & Payne platform rig as well as the Transocean Discoverer Inspiration drill strip. Both rigs are conducting previously planned, relatively low-risk projects including the Kaleidoscope Exploitation Well near our Green Canyon 18 platform, the hookup of our Bullet Discovery, and then our Tornado Waterflow project. Upon completion of these projects, Talos currently plans to release the rigs utilizing the flexibility from our short-term contract. While we focus on the immediate environment and best positioning our business for the near term, we also continue to advance our Zama discovery toward a final investment decision as we push the delivery of our engineering and design work. In the coming weeks, we expect completion of a key regulatory step to declare Zama a shared reservoir, following by a directive and a timeline from the government to complete unitization. We are continuing to progress on the project to reach FID as soon as possible, and we look forward to moving our world-class discovery to the next phase and eventual first oil. I'll now turn it over to Shane to discuss the details of our financial results.