Talos Energy, Inc.

Tellis Energy, Second Quarter 2020 Earnings Call. All participants will be in listen-only mode. Should you need assistance, please signal conference specialists by pressing the star key followed by zero. After today's presentation will be an opportunity to ask questions. To ask questions, you may press star then one on your touchtone phone. To withdraw your question, please press star then two. Please note that this event is being recorded. and I'd like to turn the conference over to Mr. Sergio Byworm, Vice President of Finance, Investor Relations and Treasurer. Please go ahead.

Thank you, operator. Good morning, everyone, and welcome to our second quarter 2020 earnings conference call. Joining me today to discuss our results 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 June 30, 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 obligation 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 earnings 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, and good morning to everyone joining us today. The past quarter brought unprecedented challenges that had significant impact across not only our energy industry, but the global economy as a whole, as well as our daily lives and livelihood. Despite all of this, I'm proud of how we've rapidly adapted to make the best of the quarter and to set ourselves up for even greater success moving forward. We've dramatically reduced costs across the board, we lowered our net debt, executed a tactical bolt-on transaction and added depth to our exploration inventory, all which leave the company in a better position today than 90 days ago, despite the difficult macroeconomic backdrop. We have a number of key developments in the second half of the year, starting with the closing of the discussed bolt-on transaction yesterday, as well as completing our 2020 development drilling campaign, which we expect in the next two months. We remain excited about our business and the opportunities that await moving forward. I'll address the key highlights of the quarter. We recorded an average daily production rate of 52.4 thousand barrels equivalent a day, which includes the reduction of approximately 14.4 thousand barrels equivalent a day from various material production deferrals and the shuttering of an additional 600 barrels equivalent a day of legacy shallow water production. However, as that production returns and we bring new wells online in the second half of 2020, we expect to exit the year with approximately 71 to 73 thousand barrels equivalent a day. During the quarter, we continued to adapt to the rapidly changing environment with aggressive and decisive cost-cutting measures and expect approximately $200 million of cost reductions from our initial 2020 guidance. On a year-over-year basis, as compared to our pro forma 2019 cost, we expect approximately $20 million or 25% in sustained G&A cost reductions and approximately $40 million or 12% in sustained LOE reductions. Finally, during the quarter, we lowered our total debt and net debt balances, closing the quarter with an attractive leverage metric of 1.4 times net debt to the last 12 months EBITDA and over $400 million of available liquidity. Earlier in the week, we closed our previously announced acquisition of additional working interest in certain shallow water producing assets. It was an opportunistic acquisition valued at approximately PV20 of PDP based on our evaluation and was value accretive for our shareholders. and the economics will continue to improve as the commodity prices have rebound. In addition, it provided us with operational control over most of those fields moving forward. On the portfolio side, we were awarded over 23,000 acres in a bidding partnership with BP. The acreage covers several high-impact deepwater sub-salt myosin prospects at a lease cost of under $160 an acre. Taos won a 25% working interest on those leases. Late in the second quarter, we brought online production from our Claiborne No. 3 well and made several advancements on key projects, including Tornado 4, Kaleidoscope, and Bullet, all of which we expect to achieve first oil by the end of the third quarter. Each of these projects remain highly economic in the current price environment and will provide fresh production rate and cash flow in the fourth quarter and moving into 2021. We have also taken positive steps forward in both of our high-impact discoveries in offshore Mexico. The Mexican government's instructions to unitize on our Zama discovery on Block 7 with the adjacent Pemex block. We have a firm timeline for unitization discussions and expect resolution by January of 2021, when the 120 business days period required by unitization instruction ends. We certainly hope to reach an agreement sooner, and we continue to maintain a constructive dialogue with Pemex in order to hit that target. Separately, on Block 31, we received the results of Netherland Sewell's independent evaluation of our Shoshamani discovery, which provides a gross resource best estimate of over 100 million barrels of oil equivalent and provides third-party validation of our second major discovery in the country. As a reminder, this discovery is estimated to be over 95% good quality oil, is located in 60 feet of water and less than two miles from shore, all of which contribute to the highly competitive economics for the project. at mid-year, and pro forma to the closed transaction, Tallis had approved reserves of approximately 189 million barrels of oil equivalent, representing a PV10 of over $2.8 billion at SEC prices. PDP reserves alone were over 93 million barrels and 1.8 billion of PV10. SEC oil prices at mid-year were just over $47 a barrel, WTI flat held in perpetuity, and these figures are inclusive of the plugging and abandonment costs associated with these properties. It is also important to highlight that neither of our offshore Mexico discoveries are included in these reserve numbers. These figures compare to our current enterprise value of approximately $1.5 billion, based on Tuesday's close and a new share count of 73 million shares outstanding. I'll turn the call over to Shane to discuss the quarterly results, and we'll then discuss how we're focusing TALIS on the second half of the year and into 2021.