Talos Energy, Inc.

Good day, and welcome to the Talus Energy second quarter of 2021 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing star, then 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 second quarter of 2021 Earnings Conference Call. Joining me today to discuss our results are Tim Duncan, President and Chief Executive Officer, Shane Young, Executive Vice President and Chief Financial Officer, and Bob Abenshine, Executive Vice President and Head of Operations. 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-Q for the quarter ending June 30, 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. Before I specifically discuss the results and recent activities of the second quarter, it's worth reflecting more broadly on the year we've had to date, because I'm really excited about the execution and results shown across our entire organization. The team has done a tremendous job. We have seen back-to-back record production quarters and improving margins. We had a significant deepwater subsalt discovery at Puma West in the first quarter, as well as a successful exploitation drilling program that we're looking to repeat as the rig moves to another key asset. We extended the maturity of our credit facility in an evolving lending space and recently added a new lending bank to the syndicate. We launched a carbon capture and storage initiative that we believe reshapes what is possible for a Gulf Coast and Gulf of Mexico energy company. It's been a very busy six months, and I'm encouraged by the great results year to date, and I expect this to continue into the second half of this year. Moving into the specifics of the quarter, we're proud to report record production for the second straight quarter, reaching 66.3 thousand barrels of oil equivalent per day in the second quarter, aided by very solid execution on minimizing production downtime. That solid execution, coupled with the oil-weighted production of 69% oil and 76% total liquid, is reflected in our margins for the quarter, where we recorded adjusted EBITDA margins of over $36 per barrel of oil equivalent, or approximately 72%, before including the impact of financial hedges. The realized adjusted EBITDA margin after hedges was approximately $25 per barrel of oil equivalent. This led to an adjusted EBITDA values of over 217 million before hedges and 148 million after hedges. Second quarter capital expenditures of $117 million is expected to be the high quarter for the year, as is typically the case in most years when we plan our capital projects around what is generally our best weather window offshore during the second and early third quarters. Shane will talk about his guidance in his remarks, but we do expect our capital program to taper back materially from here with significant free cash flow generation in the second half of the year. At Tornado, we drilled and completed our attic well in the second quarter below budget and ahead of schedule. We've increased the water injection rates to over 30,000 barrels of water per day from the injector well that we drilled in 2020. As a result, we are seeing initial production from the attic well above our original expectation of 8,000 to 10,000 barrels of oil equivalent per day gross. This is a very complicated project where the injection well sources water from the same well bore, which is then immediately injected into the deeper producing B6 sand. creating reservoir energy to help maintain output into producing wells. It is the first project of its kind in a deepwater subsea environment, and we're proud to show success from our team's innovative and creative approach here, which is expected to significantly improve recovery and extend the field life of Tornado, one of our key assets. In the first quarter earnings call, we discussed the success of our exploitation program in the Green Canyon field, utilizing a platform rig for an immediate production impact. That allowed this field to enjoy production rates it had not seen in over 20 years. In the second quarter, we moved that platform rig to our Pompano field, where we believe a multi-year field study bolstered by a proprietary seismic reprocessing project will lead to numerous drilling opportunities to revitalize this field. The Pompano drilling campaign will begin in the coming weeks, and we expect to see some production from our first project there in the fourth quarter. We are also utilizing the spare capacity of our Pompano facility to host third-party production with log explorations praline discovery initiating first oil in the third quarter. As a reminder, production handling fees from this project and from many other projects around our owned infrastructure help lower our already competitive cost structure across our asset base. Additionally, on the non-operated side, we also announced the success of our crown and anchor development well, which we expect online late in the third quarter. In the second quarter, we also made key announcements on the ESG front. In May, we presented to the market our long-term GHG emissions reduction targets, which is to lower our Scope 1 emissions from our assets by 30% from our 2018 baseline by 2025. We're continuing to advance towards that goal and making solid progress. We also made adjustments to executive compensation to better align specific ESG objectives with a portion of our annual bonus program. From a social and governance perspective, in our most recent annual meeting, we added a key new board member in Paula Glover. Paula has a long history of advocating for energy efficiency issues and how energy policy impacts local communities. She will bolster our sustainability and community responsibility initiatives and will help inform our ESG reporting going forward. And as a reminder, we expect TALIS' second ESG and sustainability report to be published by the end of the third quarter. Over a year ago, we initiated an employee-led, grassroots approach to ESG, not only looking at more ways to get involved in our communities, but also reviewing where we could apply the same core skill sets that have made us a successful oil and gas company into the evolving low-carbon economy and energy solution space. We concluded that a natural space where we could leverage our organization and skill set with the most impact was in carbon capture and storage. In the second quarter, we announced an exclusive carbon capture and storage venture along the U.S. Gulf Coast. We are pleased to be partnering with Storega Geotechnologies, one of the most recognizable firms in the space, and the company responsible for the ACORN project, which is being developed in real time today in the U.K. North Sea with partners including Shell and ExxonMobil. Storega brings a solid CCS value chain and project delivery track record and was looking to expand in the United States, where we will now be their exclusive operating partner across the U.S. Gulf Coast. We're excited to be working with them going forward. For Talos, offshore CCS is a natural extension of our existing skill set, an excellent way for us to leverage our core competencies and add diversity of energy solutions and eventually add important scale to our business. The region contains a significant concentration of the United States industrial and petrochemical activity, yet is almost immediately adjacent to one of the largest potential storage provinces in the country as well. Located in the inland state and federal waters, of Texas, Louisiana, and Alabama, a region we have a long history of operating in safely and successfully. Many of the functions we handle on a daily basis in our hydrocarbon business are directly applicable to the Gulf Coast and offshore carbon capture, offshore operations and project management, drilling wells, understanding the appropriate conventional geology for sequestration, seismic data interpretation and reservoir management, as well as things like regulatory procedures, permitting and leasing. So we see this as a way to take the skills and corporate knowledge we have in-house and add a new element to our business. Our CCS offering is off to a fast start since announcement. We built a dedicated team led by our Executive Vice President, Bob Avonshine, and we have been advancing numerous discussions with potential partners along the full value chain just in the last 60 days, including emitters, midstream and infrastructure providers, and storage site landowners, among others. We believe we have a technical and commercial advantage, in addition to our speed and commerciality that permeates our culture. We expect CCS to be an integral part of our business going forward and grow into a real driver over time. We are hopeful that we will show progress in this rapidly advancing area in the near term. Across the Gulf and offshore Mexico, we received disappointing news from New Mexico's Ministry of Energy, or CENER, as they awarded unit operatorship of Talos' Zama Discovery to Pemex. To be clear, we are committed to preserving and optimizing the value of our Zama discovery for shareholders, which includes evaluating all commercial and legal options at our disposal. We will limit our comments on this topic at this point, given the sensitivity and evolving status of the situation, but I want to reemphasize to our investors that TALIS is doing absolutely everything possible, given the circumstances, to maximize value from this asset. As I reflect on the quarter in our positioning today, it's clear that the investment case in TALIS is very solid and continues to be attractive. We're the largest pure play independent in our basin, and our assets are strong, as evidenced by this quarter's production and margins. We're executing through the drill bit and across the board in innovative projects like the Tornado Entrowell Water Flood and exploration partnerships with majors like BP and Chevron in Puma West, and in short cycle development opportunities around our infrastructure like Green Canyon 18, and Pompano's platform rig program. We have a strong balance sheet and solid credit, and we are utilizing our core skill set to be a player in a low-carbon energy solution. Finally, we are more bullish on the accretive and value-creating inorganic growth opportunities through business development and M&A. And we see those not only in the Gulf of Mexico, which remains our core focus area, but outside the GOM, particularly in other basins with rich producing history that we believe, where we believe there's also exploration upside. M&A will always be a significant part of our strategy, and we continue to actively evaluate opportunities. I'll have some closing comments, but in the interim, I'll hand it over to Shane to provide more financial details for the quarter.