Talos Energy, Inc.

Good day, and welcome to the Talos Energy fourth quarter 2023 earnings 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 touch-tone 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 Jordan Kaiser, Director of Corporate Finance. Please go ahead.

Good morning, everyone, and welcome to our fourth quarter and full year 2023 earnings conference call. Joining me today to discuss our results are Tim Duncan, President and Chief Executive Officer, Sergio Myworm, Senior Vice President and Chief Financial Officer, and Robin Fielder, Executive Vice President, Low Carbon Strategy and Chief Sustainability Officer. Before we start, I'd like to remind you that our remarks 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 on our Form 10-K for the period ending December 31, 2023, filed yesterday with the SEC. Forward-looking statements 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 GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in yesterday's press release, filed with the SEC, and available on our website. And now I'd like to turn the call over to Tim.

Thanks, Jordan, and thanks to everyone for joining the call. As a reminder, we're going to use an earnings deck that you can pull from our website. We're going to start that deck on page 3. On the left side, we're going to talk about recent developments, and it's been a really busy three months. Let's start with the solid financial and operating quarter that we're going to talk about on the next slide. A lot of this was due to bringing on Venice and Lime Rock ahead of schedule and above our own rate expectations. We had three different drilling JVs we structured in the fourth quarter. Those are all outlined in the appendix. One of those was our activity in the lease sale. A second one was an acreage and prospect swap with BP, Chevron, and Hess. The third one was a large drilling JV acreage area with Repsol. We announced our quarter north transaction that we're super excited about. We spent a lot of time talking about today. We exited the year with our leverage stat at one time and $788 million of liquidity. And then as you walk into January, we were able to do a refinancing of our high yield notes and extending our maturities and lowering our borrowing costs. And then we're super proud of that effort. Now, where it really gets interesting to me is on the right side of the page as we start to outline our 2024 objectives here. What we're talking about in quarter north is owning those assets for nine months out of the year as we anticipate closing that transaction in March. But even with only owning those assets in nine months, we're talking about a 35% to 40% increase from a year-over-year basis on production. But with that, an actual lowering of our capital expenditures, that's going to allow us to generate meaningful free cash flow. And with that free cash flow, we expect to pay down debt by approximately $400 million and end year in 2024 with the lever stat at one time. We're still going to invest in our upstream projects, and we've got a nice mix of risk and reward that we'll talk about on the drilling calendar. Those projects are outlined in the appendix. Certainly still going to pursue a creative M&A, but what's not in this guidance is specific capital related to our TLCS business. Now, we're proud of being a first mover there, and we're proud of the portfolio we built. I think we disclosed in earlier calls that we had a capital raise process And what we found out is that through that process, it presented optionalities that we can really think about a full strategic alternatives process. And we're going to explore that as well. You know, I think this really comes through of us prioritizing capital allocation around free cash flow generation in the upstream business in 2024. So as we turn to page four, and before we turn our attention to 2024, Let's talk about the quarter we had in the fourth quarter of 2023. In the fourth quarter, we produced 67.7 thousand barrels equivalent a day of production. That is 76% oil and 83% liquids. Total corporate adjusted EBITDA was $249 million, but I should note the upstream adjusted EBITDA was $260 million, leading to a net back EBITDA margin of approximately $42 of BOE. CapEx was $174 million, which is actually a little lighter than we expected, allowing us to generate $27 million of adjusted free cash flow. As I mentioned earlier, we exited the year at one time sliver. Now, as we start to think about 2024, and because we were able to bring on venison lime rock a little earlier than expected, we exited the year on the tallow side at around 75,000 barrels equivalent a day. Now, as we pull in quarter north and think about what that business was doing, both those businesses combined in January were producing 106,000 barrels equivalent a day. And I want to anchor that as I hand it over to Sergio later to talk about our production guidance. So moving to page five, let's talk about venison lime rock and why we think it's such an important reflection of our strategy. You've got an image of the facility on the left. And again, it's really one of the anchor facilities in that part of the Gulf of Mexico. But as you shift the story to the right and you look at the graph, what you see is kind of the strategy in action. First and foremost, the dashed curve represents what we underwrote in the transaction. From there, the team was able to work on asset management projects. We were able to track some third-party volumes into the facility. But more importantly, we were looking for drilling inventory. And that drilling inventory effort manifested in our ability to pull in venison lime rock. And the exciting part about that is what you see in the yellow on the far right side of the graph. That is the impact. of that venison lime rock production. And what we're noting and what we talked about in our release is this facility will now see the highest oil volumes in production through this facility than it's seen over the last 15 years. Let's turn to page six and go through the quarter north transaction. This is a slide many of you have seen on the call we did related to the transaction, and we'll start on the right side of the page. These assets should produce approximately 30,000 barrels equivalent a day in 2024, keeping in mind We expect to close this deal in the month of March, and what we're guiding here is nine months of production. It's 75% oil-weighted and over 95% operated. It's a great fit operationally and strategically, and it's a highly accretive transaction. One of the reasons it's accretive is because we think it'll lower our corporate-based decline, and that's influenced by Katmai's success. We also think we can unlock $50 million of annual synergies. We think it's going to long-term be credit-accretive and credit-enhancing And we think there's a good portfolio of prospects, again, anchored by Katmai and of a lot of the assets they have in the Mississippi Canyon core area for us. If we move to page seven, we get to visually see how these assets lay over. So our acreage is in blue and the quarter north acreage is in gold. You can see key facilities for both sides. And so what you see here is a culmination, again, of the strategy. We have a lot of key infrastructure. It's oil-weighted. There's a lot of seismic and a lot of acreage. In fact, if you look at the right side of the page, when you put the companies together, it's over 216 million barrels of proved equivalent reserves with a total proved value of over $5 billion. In fact, just the PDP value alone at SEC prices is $4.2 billion. As we continue to aggregate acreage, we find ourselves now being the fifth largest operator in the Gulf of Mexico and the fourth largest by acreage. We think that puts us in a great position to execute the strategy that we believe in. So let's go to slide eight. And before I talk about capital program for the year, I want to start and remind of the earlier comments that with nine months of owning quarter north, do we expect to increase year over year production by 35 to 40%. And if we think about that in a similar price environment, we think about a similar increase in our revenue generation as well. But yet our CapEx for 2024, we expect to go down. If we isolated upstream CapEx alone, that would be lower than that guy, the midpoint of that guy would be lower than we were in 2023. And if we look at P&A and decommissioning guidance, that we expect to be materially lower than we were in 2023. And we hope that's aided by a recent joint venture with Helix that helps us have more cost efficiencies in our P&A capital program. If we think about that on a reinvestment rate, what we're talking about is 45 to 50% if we're excluding P&A in the upstream business, 55 to 60% if we're including P&A. Again, we'll spend more time talking about the drilling program. As always, we have a robust asset management program We're certainly going to lean in and think about new seismic expenditures with all the new acreage we're getting through the quarter north transaction. So let's go to page nine and dig into the capital program and look at our RIG program. We've got a nice mix and range of risk and reward, some development projects, including the lobster water flood. We have some exploitation ideas, including what we're doing at Helms Deep and what we're doing at Ewing Bank 953 on a non-operated basis. And then we have the Daenerys Project, which is a high-impact prospect that, if successful, has 100 to 300 million barrel type of target range. So to dive into more details and related to guidance, I'm going to hand it over to Sergio.