Talos Energy, Inc.

Good morning, and welcome to the Talos Energy second quarter 2022 earnings call. All participants will be in a listen-only mode. Should you need any assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there'll be an opportunity to ask questions. To ask a question, you may press star, then one on your telephone keypad. To withdraw your question, please press star, then two. Please note that this event is being recorded today. I would now like to turn the conference over to Sergio Maiwurm. Please go ahead.

Thank you, operator. Good morning, everyone, and welcome to our second quarter 2022 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 Robin Fielder, Executive Vice President, Low Carbon Strategy and Chief Sustainability 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-Q for the quarter ending June 30, 2022, 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. As I mentioned in our earnings release, it was a great quarter for our company that included record revenues, strong margins, and significant free cash flow, facilitating rapid debt repayment. This quarter, we achieved our lowest leverage multiple and our highest liquidity in the company's history, positioning TALIS well for the second half of the year that will focus on our deepwater drilling campaign, continued growth in our CCS business, and ongoing debt reduction. All of these developments are continuing to strengthen the company for sustainable and profitable growth, enhancing a solid credit profile and positioning the company to build long-term shareholder value. I'll first address quarterly results and recent updates from our upstream business. We delivered a record quarter, which included over $500 million in revenues, nearly 80% adjusted EBITDA margins before adjusting for financial hedges, and over $130 million of free cash flow after hedges and before changes in working capital. Shane will provide more details on our financial performance during the quarter and his prepared remarks, but I want to recognize our team for their strong cost control efforts and a diligent focus on ongoing operations that generated strong earnings despite an inflationary macro environment. As we have discussed in previous calls and in our analyst day, Our intention is to use a constructive commodity environment to accelerate higher impact drilling opportunities in our portfolio, starting in the second half of 2022 and throughout 2023. These opportunities exemplify how we utilize our core skill set and organic growth strategy to leverage our existing acreage set, proprietary seismic reprocessing expertise, and well-positioned operating infrastructure to unlock meaningful additional resources with attractive economic returns. even when accounting for the risk of an occasional dry hole along the way. The projects we are undertaking later this year and early next year are both operated and non-operated opportunities that we expect will provide reserve and production growth over the next 12 to 18 months. On the operated front, we expect to take possession of our contracted Seadrill Savon, Louisiana deepwater drilling rig in the coming days and launching our open water drilling campaign, which will run through the remainder of 2022 and into 2023. As previously announced, we extended the rig contract to take additional slots, allowing us to perform six straight operations in which we plan to target at least four prospects, totaling 65 to 100 million barrels equivalent of gross resource potential. With an individual potential well rates between 5 and 15,000 barrels equivalent a day gross. All of those were in proximity to our owned and operated facilities. which will help accelerate First Oil and deliver attractive economics on those projects. We have recently brought in industry partners into our Lime Rock, Venice, and Rigolese prospects, allowing us to reach our target working interest of 60% on each of these wells. This has multiple benefits for us. First, it provides industry validation on our drilling program. Second, we have a better diversity of our capital allocation and concentration risk. And third, it allows us to further monetize the value of our physical infrastructure by receiving a production handling fee on the production volumes owned by our partners that will flow through our facilities. We're excited to begin this campaign and expect these projects to provide a solid foundation for the future as we expect to bring successful wells into production over the coming 12 to 18 months. Separately, we are also participating in a number of non-operated projects. Most notably, we expect to spud the Puma West appraisal well early in the fourth quarter this year with our partners BP and Chevron. That well has been permitted to a depth of 26,000 feet and will be drilled with the Diamond Ocean Black Hornet rig following the completion of other rig operations BP is currently undertaking. We are also actively working to finalize a five-block exploration unit in the Green Canyon and Walker Ridge areas with another large Gulf of Mexico operator that will lead to a high-impact exploration well in 2023, targeting both subsalt Miocene and Wilcox targets across nearly a 30,000-acre unit. More details on that opportunity will be provided in due course, but we are proud of our track record of pulling our acres together with some of the most sophisticated Gulf of Mexico explorers and producers to better execute our drilling inventory. And we hope to announce additional partnerships in the months to come. In Mexico, at our Zama project, we're continuing to work with both our Block 7 partners as well as PEMEX to finalize a field development plan ahead of the March 2023 submission deadline. Simultaneously, We were also discussing the formation of an integrated project team, or IPT, which is common in international projects and would provide a variety of roles in the project for all of the partners and enhance governance rights for all the parties. In our opinion, that will significantly benefit the Zama project going forward. While the project has experienced significant delays during the unitization discussions, we're encouraged that the project is advancing towards the submission of the final field development plan. The approval of the FTP, is the last major hurdle before final investment decision can be taken on this project by all the partners. As a reminder, the contingent resource of Zama, as prepared by an independent third-party engineering report, was over 700 million barrels equivalent gross. So progress here still represents meaningful value for Talis to shareholders as we continue to move toward FID. Once the project is sanctioned, we would expect to be able to book proof reserves that in this case would represent multiple years of reserve replacements. and we would have more certainty around final development timelines, financing, and ultimately first oil. Each step we were able to achieve in the coming months is important as we move closer to realizing significant value from this important discovery. Navigating Zama has not been easy, to say the least, but I would like to reiterate that we are doing everything we can to maximize the value of this discovery for our shareholders. Finally, on the upstream front, we've begun the process of mobilizing our HP1 facility for the regulatory required dry dock maintenance to satisfy Coast Guard requirements. A process that we expect will defer approximately 6,000 to 9,000 barrels equivalent a day net in the third quarter, but at the same time ensuring long-term high uptime in our tornado and Phoenix fields. This downtime has already been included in our full year 2022 guidance, though it is now expected to be isolated in the third quarter instead of being spread across the second and third quarters as we initially expected. In the end, the delay has allowed us to take advantage of strong commodity prices over the full second quarter. Moving into our carbon capture business, I want to applaud the Talos Low Carbon Solutions team for delivering an important transaction in May that brought Chevron into our Bayou Bend CCS joint venture, joining us alongside CarbonRivert. Financial terms of the transactions delivered upfront cash as well as a material capital cost payments by Chevron that will expect to cover all the expenses for the project through the project's FID. And that capital is being put to good use as we finalize plans to drill our stratigraphic well test in the fourth quarter. The strat well will allow us to collect rock property data that will provide critical information for our Class VI permit for permanent CO2 sequestration. We are excited to have a major partner like Chevron and Bodybin. Not only do they provide critical sequestration experience and an unquestioned balance sheet to the project, We believe it's also another strong endorsement of the solid platform we are building as one of the CCS leaders in the United States. Our overall portfolio today includes close to 1 billion metric tons of storage capacity across our four project areas in Texas and Louisiana, all operated by Talos, all with strong partners, and all in key industrial regions where we are aggressively working to secure long-term anchor customers. We're very proud of our rapid success in this new business unit. We're working hard to enhance our leadership by continuing to advance these projects as well as expanding our storage footprint in these core areas in the future. Lastly, I'll also quickly address recent developments in Washington with the proposed Inflation Reduction Act of 2022, but I'll not comment on any political views. While we recognize this bill may be subject to change and acknowledge the remaining process for potential passage in the law, We think it's important to highlight the potential impacts for TALIS if this bill were to pass in its current form, as no other company in the small and medium-cap EMP space in the U.S. has both the level of exposure to offshore Gulf of Mexico and to carbon capture and sequestration, and both of these areas are key focus areas of this proposed bill. On the upstream front, if signed into law, as it's initially proposed, the Inflation Reduction Act would reinstate Lease Sale 257 from last November, in which we were one of the most active bidders and won 10 deepwater blocks. This bill would also ensure future lease sales in a prescriptive manner and remove more of the regulatory uncertainty. On the carbon capture side, the bill proposes an increase of the 45Q credit from $50 a ton to $85 a ton and introduces direct pay mechanisms. both of which we believe are key attractors for potential industrial partners around our projects in moving towards long-term carbon sequestration solutions. We believe this bill will be meaningful for TALIS in both of our business lines, and we're closely monitoring future developments. With those key updates, I'll turn it over to Shane to address some of the financial details of the quarter.