Talos Energy, Inc.

Good day, and welcome to the Talos Energy fourth quarter and full year 2022 earnings conference 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 a 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 Mayworm, Vice President of Finance, Investor Relations, and Treasurer. Please go ahead.

Thank you, Operator. Good morning, everyone, and welcome to our fourth quarter and full year 2022 earnings conference call. Joining me today to discuss our results are Tim Duncan, President and Chief Executive Officer of 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-K for the period ending December 31, 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 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, and thanks for joining our call. 2022 was another transformative year for Talus, with key milestones across our upstream and CCS businesses. Our achievements advanced the catalyst to drive future value creation. These accomplishments have only been possible with our employees' hard work and focus. So thank you, first and foremost, to our Talus employees for a job well done over the past year. In 2022, we attained record-setting financial performance, completed a major M&A addition to our business with the Inven acquisition, and advanced our carbon capture and sequestration business from infancy to one of the largest carbon storage portfolios in the United States. We meaningfully strengthened our credit statistics and liquidity profile throughout the year with free cash flow generation, and today our credit position is the best in our history. These strategic accomplishments were achieved while maintaining our high safety and environmental performance standards. Before addressing the fourth quarter and full year 2022 projects and results in detail, I want to take a moment to address four very important topics. First, the value of our year-end reserves. Second, our 2023 guidance and long-term outlook that Shane will discuss in more detail later. Third, our capital allocation framework and how we intend to balance investments in our highly cash flow generative upstream business and our high-growth CCS business while also providing a path towards returning capital to shareholders. And fourth, the solid results of our ongoing drilling programs. Starting with the value of our year in reserves. On a pro forma basis for the Inven transaction, we ended 2022 with a larger, more diverse, and more liquids-weighted reserve base. Talus's pre-reserves are 190 million barrels of oil equivalent, which is approximately 70% oil. The PV10 of our pre-reserves is approximately $7.2 billion at SEC prices. Assuming a flat $75 per barrel price deck, which is more in line with today's prices, The PV-10 of our approved reserves is $4.8 billion. The PV-10 of Thales' approved developed producing reserve base, or PDP, is $3.5 billion, still at $75 per barrel. The PV-10 of our current production alone is approximately 5% greater than our current enterprise value and 45% higher than our current market capitalization. I bring that up because I believe investors are able to get extraordinary option value for all the investments we are making in the business outside our current production. It is also why we are extremely focused on bringing the value of key catalysts forward, from our ongoing drilling program to reaching FID and Zama, to continuing to be an active acquirer of assets in the Gulf of Mexico and substantially growing our CCS business. The runway for Upside and our stock is tremendous. Turning to our 2023 guidance we provided yesterday in the earnings release, TALIS is estimating production between 72,000 and 76,000 barrels of oil equivalent per day for the year. That expectation is based on our very conscious decision that we made to focus the business on 2023 free cash flow generation and long-term shareholder value creation. With that in mind, we decided to remove the gas-weighted Lisbon prospect from our 2023 drilling calendar despite its near-term potential gross production impact of approximately 8,000 to 10,000 barrels of oil equivalent per day. Instead, we will preserve Lisbon in inventory for a subsequent year when the economics of gas-weighted projects are more attractive. That decision was also made as we will incur additional success-based development capital in 2023 to accelerate our recent venison-lime rock discoveries to first production in early 2024. We knew this decision could cause some short-term volatility to our 2023 production, but we firmly believe this is the right decision to position Talus for long-term value creation for our shareholders. Longer term, Talus is healthier than it's ever been. Because of our recent successes in our development and exploitation drilling program, most of which will come online throughout 2023 and 2024, and our bullish outlook on several of the projects we're planning to drill this year, We expect our production will grow 20% to 25% between now and 2026. That's a compounded annual growth rate of approximately 6% to 8% per year. We also expect to generate cumulative free cash flow of $2 to $2.3 billion during the same period between 2023 and 2026 at a flat $75 per barrel price forecast. That is a very healthy business and one that we're really excited about. Concerning our capital allocation framework, our priority continues to be free cash flow generation and paying down debt. Over the last two years, we have paid back over $480 million in debt, bringing our leverage metric near its lowest level in our history. In the last 12 months alone, we have transferred firm value to shareholders by repaying $4.77 per share worth of debt. But we think there's still a bit more we need to do. In addition to leverage metrics, we're also paying attention to the overall quantum of debt on our balance sheet. As a catalyst-rich company, we fundamentally believe in the equity growth projects that we have in our portfolio. We intend to continue to invest in those projects, whether it's in our oil and gas business or our CCS business, because we believe they will create substantial value to our shareholders. After we prioritize continued debt reduction and continue to appropriately reinvest in our business, We are also prepared to return incremental free cash flow generation to our shareholders, primarily through opportunistic share repurchases, subject to further approvals of our board of directors. We expect to be in a position to accelerate this return of capital once we meet our debt reduction goals. In addition, TALIS will consider participating in share repurchases in connection with any potential private equity shareholder monetization event that could occur over the next several years, subject to approval by our board. We believe this could help alleviate the technical overhang in our stock and significantly benefit TALIS's broader shareholder base. Finally, looking at our ongoing drilling program and on a pro forma basis, including the recently acquired invent assets, we have drilled six successful development and exploitation wells. We look forward to the positive impact those wells will provide throughout 2023 and into 2024. In Puma West, we commenced drilling of our appraisal well in late 2022, which we subsequently followed up with a sidetrack of the appraisal well bore. The project has had mixed results to date, as the appraisal wells did encounter hydrocarbons in multiple sands. However, our preliminary analysis suggests that additional hydrocarbons from a subsequent well or a sidetrack well would be necessary to move forward with a full-scale development. With that said, We have temporarily suspended the current wellbore, which provides us the flexibility to drill a future sidetrack. We are actively working to incorporate the data from the appraisal wells to determine the best path forward. Our teams are studying the data now and will continue to provide important updates as available. For the remainder of my prepared remarks, I'll quickly address our financial results for the full year, highlight our drilling program, comment on our value or creative invent transaction, discuss our advancements in CCS, and conclude with a few remarks about our safety and environmental performance. For the full year of 2022, our production was approximately 59,500 BOE per day, weighted at 67% oil and 75% liquids. We achieved adjusted EBITDA of more than $840 million. We generated a record $261 million of adjusted free cash flow. which allowed us to end the year with the highest liquidity and near the lowest leverage in our company's history. Shane will provide more details on this shortly. Regarding our previously mentioned drilling successes, the second half of 2022 and early 2023 have been very busy with drilling projects across the Gulf. I'm very proud of our team for our successes thus far, totaling six successful projects to date. Our previously announced Lime Rock and Venice discoveries, located near TELUS's 100% owned and operated RAMPOW platform in Mississippi Canyon, were both successful. Those projects could deliver a combined 15,000 to 20,000 barrels of oil equivalent per day gross once they come online in the first quarter of 2024, contributing to the highest gross production rate achieved in the RAMPOW facility in over 15 years. which is exactly what our strategy of infrastructure-led drilling is expected to achieve. The existing infrastructure grants us the ability to flow our newly discovered barrels in a subsea environment, which has a much lower emissions footprint than other oil-producing basins. This highlights why the Deepwater Gulf of Mexico continues to be a leader in low-emissions barrels. The Thales-operated Mount Hunter prospect in the Pompano Field was successful. and we expect this project to deliver gross production rates of 2,000 to 4,000 barrels of oil equivalent per day, with first production expected by the second quarter of 2023. Inven's lobster platforming program also generated solid results toward the end of last year, discovering pay in multiple field horizons and achieving fresh production in the first quarter of this year. Our non-operated projects are also achieving a high degree of success, with recent discoveries from the Gunn-Flint No. 1 sidetrack and the Spruance West Wells. The rig on our open water program has moved to a recompletion project at our bullet discovery. After that, the rig will move to the Rigolese prospect, our third exploitation target in the open water rig program. If successful, Rigolese would flow via subsea tieback to Tallis' Pompano platform. We could see gross production rates of about 8,000 to 12,000 barrels of oil equivalent per day at Rigolese, with first oil reach by the second half of 2024. Taos owns a 60% working interest in this project. Following Rigolete's, we plan to drill the Sunspear prospect. This is a great prospect from the Inven portfolio, and we are excited to drill it in the second half of the year. If successful, we expect to tie it back to the Prince platform that we acquired in the Inven transaction. Gross production rates are expected to be between 8,000 to 10,000 barrels of oil equivalent per day. We own a 48% working interest in this project. Another project we're very excited about is Panteron. Panteron is a high impact project we own with Oxy. Following the completion of a 46,000 acre continuous track, we were able to combine with them. Oxy is the operator of the project and we expect to spud the well in the first half of 2023. Tallis owns a 30% working interest. Overall, We are excited about the potential material production growth and cash flow in 2024 and beyond that these discoveries in our drill campaign will add. We pride ourselves on utilizing our core technical and operational skills to optimize projects across our portfolio while leveraging infrastructure we own or acquire through active business development. That strategy has led to successes at Lime Rock, Venice, and Mount Hunter just in the last quarter, with Rigolese, Sunspear, and others on the immediate horizon. This is a strategy that is generating solid results, which leads me to our Inven acquisition. As previously announced, we closed the Inven transaction in mid-February. The transaction expands our Gulf of Mexico operations with high margin, oil-weighted assets, and ample infrastructure, is accreted to Talos' shareholders, and further improves our outstanding credit position. With the acquisition, Talos is better positioned to accelerate organic value-creating activities through both our upstream and CCS businesses, as well as any subsequent M&A and business development activities. The integration of our companies is on track and we will work to realize the valuable synergies that we expect to generate for the combination. We will continue to update the market on this integration and our synergy realizations later this year. Turning to our CCS business, I want to first reiterate the incredible progress the team made in 2022. This included securing multiple major sequestration sites, bringing in key partners across the portfolio, and building out a team that will drive those projects and more to maturation. I'm incredibly proud of our early leadership position and our advancements in the business along the U.S. Gulf Coast. There is an extraordinary level of enthusiasm about the promise of what CCS can become after the expansion of the 45Q tax incentive structure in 2022. We have often said that if CCS is going to work anywhere in the world, it has to work in the Gulf Coast of the United States. Here we have the combination of the right economic incentives, a large concentrated industrial emissions market, existing midstream infrastructure, and the superb geology required to permanently sequester and monitor the injected CO2. Having the right geology that can store large amounts of CO2 in close proximity to the emissions is going to be critical to the success of this business. That will allow us to be competitive from a price standpoint. And to continue to complement our already strong acreage position across our portfolio, yesterday we announced that TELUS elected to participate, alongside Chevron, in an onshore CO2 sequestration leasehold in southeast Texas that, combined with our Bayou Bend CCS project, will give us a gross storage capacity of more than 1 billion tons of CO2 in this project alone. That will allow us to be very competitive for emissions in the Houston Ship Channel, as well as the Beaumont-Port Arthur Industrial Corridor. Additionally, earlier this month, our Coastal Bend Carbon Management Partnership, which includes TALOS, Howard Energy Partners, the Port of Corpus Christi Authority, and the Texas A&M University System, was selected for a $9 million grant from the U.S. Department of Energy's Carbon Storage Assurance Facility Enterprise, also known as Carbon Safe. Under the terms of the award, grant funding will directly reimburse a majority of the upcoming technical and economic feasibility costs, including a stratigraphic evaluation well, feed studies, and other key project work streams. The grant award is subject to final negotiation with the Department of Energy. Additionally, Tallis and the Howard teams finalized in February definitive documents for the 13,000-acre lease with the Port of Corpus Christi team, securing the port space for that regional project with additional potential opportunities to expand in the future. For TLCS, our 2023 goals are straightforward. Grow our existing portfolio and increase storage capacity in existing project areas, expand partnerships in existing project areas, progress the permitting and front-end engineering design workstreams, advance and execute commercial contracts, and develop additional point source projects. We look forward to providing more exciting updates throughout the year as we continue to grow the business. Our record-setting trend continued in the categories of safety and environmental responsibility. 2022 was another historic year for reducing our lost time incident rates and greenhouse gas emissions intensity. Over the years, Thales' proactive and continuous evolving approach to HSE management has improved our incident rates, resulting in a 25% reduction from our previous year's TRIR. In 2022, we reduced our Scope 1 GHG emissions intensity by 30% from the company's 2018 baseline year, achieving the company's initial goal three years sooner on a pro forma basis, including the invent assets. With that, I'll turn the call over to Shane to address our financial details for the fourth quarter and the full year, as well as an overview of our 2023 operational and financial guidance.