Talos Energy, Inc.

Good morning and welcome to the TALIS Energy fourth quarter and full year 2020 earnings call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the store key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press store then one on your telephone keypad. To withdraw your question, please press store then two. Please note, this event is being recorded. I'd now like to turn the conference over to Sergio Myhwurm. Please go ahead.

Thank you, operator. Good morning, everyone, and welcome to our fourth 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 in our Form 10-K for the year ending December 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 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 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. Good morning to everyone and thanks for joining us today. The fourth quarter capped off a year of resiliency for the company on numerous aspects. Around this time a year ago, we were adjusting our plans so we could manage our business through the commodity crisis brought on by the demand pullback associated with the global pandemic that was ensuing. Those adjustments included making difficult decisions to lower our overall cost structure, and cutting projects from our capital program to focus our investments and those projects that were previously committed to and those that had short turnaround times to First Oil, which would support our credit and liquidity positions to withstand an extended commodity price downturn. 2020 also saw historical levels of hurricane activity in the Gulf of Mexico, which caused major production disruptions and project delivery delays. Despite all these challenges, Thales maintained its operating excellence, and in the fourth quarter we saw the benefits of those decisions taking hold. We exited the year with just over 71,000 barrels of oil equivalent a day, and we continued to manage our operating costs below our guidance and generated solid free cash flow. Also in the fourth quarter, in early 2021, we opportunistically accessed the capital markets, with proceeds used to refinance our old notes and significantly improve our liquidity position, which is now similar to what it was pre-pandemic. Today, TALIS is very well positioned to execute on its strategy, which is a well-balanced combination of development wells and lower-risk subsea tiebacks, high-impact exploration, and value-added M&A activities. We have a more diverse set of assets today than a year ago, robust liquidity, and a drilling program that will allow us to generate meaningful free cash flow in 2021 and beyond. Let's dive into some key highlights for the quarter and full-year results. Production averaged 59.4 thousand barrels of oil equivalent per day for the quarter and 54.7 thousand barrels of oil equivalent per day for the year. As discussed on previous calls, an unprecedented hurricane season was a large part of the production story in 2020, which persisted into the fourth quarter and is something we are being more conservative on as we guide 2021. Production was approximately 67% oil for the quarter and 68% oil for the full year. With NGLs, Total liquids averaged 76% for the year. Lease operating expenses totaled $62.4 million, and G&A expenses totaled $12.3 million for the quarter, excluding non-cash and non-recurring items. These figures equate to a competitive cost per BOE metric, considering the oily nature of our assets of less than $11.50 per BOE and $2.25 per BOE, respectively. Capital expenditures for the quarter totaled $71 million, inclusive of P&A. This capital number was higher than expected to the late change of scope and completion operations on our successful kaleidoscope well, earlier than expected awards of leases from the November 2020 federal lease sale and unexpected costs related to properties that are operated by others. The adjusted EBITDA for the quarter was $106.4 million on significantly improved margins, which allowed the company to generate $12.2 million of free cash flow for the quarter. At year-end, TALIS recorded 163 million barrels equivalent approved reserves with a PV10 value of approximately $2 billion utilizing SEC prices of $39.54 per barrel and $1.99 per MMBTU. Audited probable reserves at year-end comprised of an additional 69 million barrels equivalent with a PV10 of approximately $770 million at the same price deck These numbers are net of all plugging and abandonment costs associated with those reserves. Yesterday's earnings press release included price sensitivities on our year-end reserve volumes and associated PV10s to highlight those figures at prices closer to what we're experiencing today. For example, at $55 a barrel and $2.50 in MMBTU, which is closer to the SEC price at year-end 2019, pre-reserves increased to approximately 185 million barrels equivalent. which if compared to 142 million barrels equivalent from year in 2019 would represent an increase of over 30%, with a PV10 of almost $3.3 billion. When the oil price moves to $60 a barrel, the current value of approved reserves increases to almost $3.8 billion. All of these figures also include and are fully burdened by the plugging and abandonment obligations associated with those reserves. They do not include, however, any volumes from our two discoveries in offshore Mexico. Specifically, and I want to be clear here, these reserves and values do not include anything from our Zama field yet, where our third-party reserve auditors have recently updated and increased their most likely gross contingent recoverable volume to 735 million barrels equivalent. On the drilling and completions front, TALIS was highly active in the fourth quarter of 2020, We continue to see positive results from our first-of-its-kind tornado intra-well water flood, which we expect to generate increased recovery of 25 to 35 million barrels equivalent in combination with our planned tornado attic well in 2021, which is part of the guidance that Shane will discuss shortly. We initiated production from our kaleidoscope well in late December 2020, which is flowing at almost 5,000 barrels equivalent gross per day. and the Puma West Project, BP re-entered that well in late February of 2021 after suspending operations in early 2020. Talos and its Block 7 partners in Pemex continue to advance unitization discussions ahead of the March 25th, 2021 deadline to submit a unitization plan to Mexico's Ministry of Energy, or CNER, which we expect they will need to review before any public announcements. Assuming unitization is completed on a timely basis, TALIS hopes to achieve final investment decision or FID on this project by year end 2021, which would immediately allow us to book a significant portion of the Zama contingent resources into the company's approved reserves once the FID milestone is reached. The completion of unitization and the declaration of FID represents major catalysts for the company, removing uncertainties and allowing a line of sight to first oil from this extraordinary asset. TALIS continued to advance its ESG activities during 2020. releasing our first annual ESG report in the third quarter of 2020. We anticipate in this year's report, which we expect to be released in the summer, we'll show a third straight year of meaningful emissions reductions. Regarding safety, we had one recordable incident by a Thales employee for the entire year, and we continued an excellent spill track record relative to industry with less than one barrel released from over 24 million barrels of production operated and handled by Thales. We have built a culture of ownership and inclusion at TALIS, and it shows in our employee-led ESG Advisory Committee that is tackling 11 key initiatives from emissions reductions to key environmental best practices offshore to expanding diversity inclusion programs and community involvement. Furthermore, we're fortunate that our employees have recognized our company as a top workplace in Houston for eight straight years. Each year, we have been in business. Finally, on the regulatory front, recent actions by the Department of Interior and the White House have not had any material near-term impact on our business. We have continued to receive permits for our production and drilling activities. We have recently been officially awarded new leases where we were high bidder in the last lease sale, and we continue to see collaboration and timely responses across our regulatory interactions day to day. It's important to clarify again that we believe we are well-positioned to tackle any perceived regulatory risks moving forward. Our management team has spent the majority of their careers offshore, focused in the Gulf of Mexico. Throughout our careers, the basin has continuously been not only a prolific producing basin, but has represented the leading edge of technology, safety, and environmental performance for the industry across the globe. Although our company does not expect material near-term impacts from these recent regulatory actions, we believe the discourse around oil and gas production on federal lands is an opportunity to remind policymakers of the benefit of our operations as an industry offshore. The demand for energy continues to grow because of the positive impact it has on all our lives. and the supply of these resources should logically come from our own domestic efforts, which are secure, safe, reliable and also provide hundreds of thousands of high paying jobs, particularly along the Gulf Coast. From a safety standpoint, the Gulf of Mexico is one of the best performing areas, not only in energy and exploration and production, but across many industrial sectors of the economy. Finally, deep water Gulf of Mexico oil production carries the lowest emissions intensity per unit of production and certainly lower than many other areas or countries where we would otherwise likely would have to import supply to meet domestic demand. The U.S. Gulf of Mexico is a critical part of the energy discussion today, which must balance domestic growth and renewables with reliable and responsible delivery of traditional oil and gas production so that affordable energy costs are maintained with the highest environmental standards and with the biggest economic impact to our local communities. Thoughtful environmental and economic policy should include the Gulf of Mexico for years to come. With that, I'll turn the call over to Shane to discuss further details of the quarter and our 2021 guidance.