Talos Energy, Inc.

Good morning and welcome to the TELUS Energy first quarter 2023 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 your telephone keypad. To withdraw your question, please press star then two. Please note today's event is being recorded. I would now like to turn the conference over to Sergio Marwarm, Vice President of Finance, Investment Relations, and Treasurer. Please go ahead.

Thank you, Operator. Good morning, everyone, and welcome to our first quarter 2023 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 10Q for the period ending March 31st, 2023, 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. This quarter was a busy one for Talus. At a strategic level, I'm proud of the major strides we've made in the first 90 days of the year in our upstream and CCS businesses. We started the year off announcing two key discoveries that we are currently working to tie back to our existing Rampal facility, which we expect to complete in the next eight to 10 months. We closed a $1.1 billion acquisition that is strategically sound and accretive to our shareholders. We executed on multiple major CCS lease acquisitions and launched our first ever return to capital program. These are accomplishments that we're very proud of and set the stage for long-term value creation. But I'll acknowledge head on that we also started to face unexpected operational challenges late in the quarter and early April through a combination of existing well underperformance, selected drilling results, and unplanned downtime expectations. These challenges are expected to last for several months and have led us to take the more conservative approach, which led to revising our production guidance for 2023. I can assure you we are not taking these 2023 production revisions lightly. but I still believe this level of transparency with the market is the right approach, and you can always expect that from us. Having said that, I'd like to stress that our 2023 expense and capital guidance remains unchanged, as is our outlook for the 2024 to 2026 growth in production and free cash flow we disclosed last quarter. We are seeing the production underperformance in three areas, namely our most recent drilling results, steeper decline from selected existing wells, and additional unplanned downtime. While each category in isolation represents a relatively small impact, collectively, we felt this was necessary time to update the market in real time on how we see our production operations for the remainder of the year. We will continue to evaluate every option to enhance production rates across our asset base and optimize costs to minimize the financial impact of this revision. But we're taking a more conservative approach with our revised guidance and not including this potential upside. With respect to the first quarter, Taos generated production of 63.6 thousands of barrels of oil equivalent a day, which led to 323 million in revenue and 203 million in adjusted EBITDA. We reported an adjusted net loss of one cent per share. Capital expenditures during the quarter were 190 million in our upstream business, while we invested 21 million in our CCS business. Our leverage stayed on track at around 0.9 times, which includes the pro forma effect of the last 12 months EBITDA contribution from Inven prior to closing. I'll now turn to discussing some of the important recent upstream and CCS developments since our last market update. In our upstream business, we spud the high-impact Pancheron exploration well in April and are looking forward to results by mid-year. This project followed a 40,000-acre business development deal with Oxy, to which BP subsequently joined the project ahead of drilling. This is an exciting subsalt prospect, even though it carries significant geological risk, and we will provide further updates to the market as they become available. In the recent March federal lease sale, we were a high bidder on four deepwater blocks covering 23,000 acres. Based on our analysis, these blocks include multiple exploitation subsea tieback projects that will further increase our inventory of robust drilling opportunities. More recently, We completed a separate transaction to combine another 23,000 acres in the Walker Ridge area of the Gulf, where Talos will operate the Daenerys Exploration Well, which we plan to drill in the second half of 2024. This is yet another high-impact sub-salt project, and we estimate a gross, unrisked recoverable resource potential between 100 and 300 million barrels of oil equivalent. With these projects and others like them, we're continually fine-tuning our long-term drilling calendar and reevaluating our inventory of opportunities to develop annual capital programs that balance risk and reward, balance cycle times, and also offer exposure to the high-impact opportunities in deep water that make our basin unique in the United States. In our Zama project in Mexico, we announced during the quarter that we filed the unit development plan with the industry regulator in the country. We also announced the formation of an Integrated Project Team, or IPT. As part of that IPT, Talos will have a more active and visible role in executing offshore activities, such as drilling wells and constructing and installing the offshore infrastructure. We see these two steps as significant towards bringing this asset closer to final investment decision and a line of sight to First Oil. Because of this progress, I'm more encouraged we are going to be able to crystallize value for this important asset. In our TALIS low-carbon solutions business, we've been extremely busy. We have more than doubled our CO2 storage capacity so far this year across multiple projects. Most recently, we expanded our acres position in the Baton Rouge and New Orleans Industrial Corridor with an additional 21,000 acres. This brings our sequestration footprint in the region, one of the country's densest industrial regions, to approximately 110,000 gross acres under lease or option. That equates to over 620 million metric tons of CO2 storage capacity in a market with over 80 million metric tons per year of industrial emissions. We believe that we are very well positioned in that market. This acreage expansion follows our previously announced Bayou Bend acquisition of nearly 100,000 onshore acres in southeast Texas, located between the Houston Ship Channel and the Beaumont-Port Arthur region. This transaction puts our total gross acreage position at over 140,000 acres and up to 1 billion metric tons of CO2 storage available to service such a critical industrial corridor in Southeast Texas. We're also preparing to drill our first stratigraphic well offshore at Bayou Bend later this year. This test well will provide critical data to support our permitting application process. Ultimately, we expect to file multiple Class VI permit applications by year end. As we continue to be successful in this space, We are seeing even more opportunities to accelerate the growth of our CCS business. Therefore, Taos is currently evaluating the possibility of bringing a financial partner into TLCS to provide additional growth capital. We are seeing tremendous market interest for this type of investment, but it's still early days for us, and we'll update the market on our progress at the appropriate time. As I have said before, there is an extraordinary level of enthusiasm about the promise of what CCS can become for our shareholders. Taos owns a leading CO2 storage portfolio with the superb geology that is required to permanently sequester and monitor the injected CO2. Our footprint is located in large, concentrated industrial emissions markets with existing midstream infrastructure, and we have a market that provides the right economic incentives to make these projects economic and viable. Finally, on the M&A front, as a logical partner in the Gulf of Mexico, we continue to actively evaluate business development opportunities that fit our skill set and strategies, are accretive to our shareholders, and preserve or improve our strong credit position. This spans both tactical business development, as you saw recently in the Pantron and Daenerys prospects, as well as larger strategic transactions such as Inven. With respect to that transaction, we're actively progressing our integration activities and are encouraged by the progress we've made to date. We are highly confident in our ability to achieve the original estimate of annualized $30 million of synergies by year-end and may even exceed that amount. As we advance the integration work, we'll continue to update the market on our cost rationalization progress. With these key updates on our 2023 plans and goals, I will turn the call over to Shane to address our financial details for the first quarter.