Talos Energy Inc (TALO) Q2 2024 Earnings Call Highlights: Record Production and Strategic ...
Production: 955,000 barrels equivalent per day.
Adjusted EBITDA: $344 million.
Adjusted Free Cash Flow: $148 million.
Oil Liquids Percentage: 81% leading to a $40 Boe netback EBITDA margin.
Capital Expenditure: $123 million for the quarter.
Reinvestment Rate: 36% on capital program, 42% including $22 million of P&A spend.
Debt Repayment: $100 million paid down.
Share Buyback: 3.8 million shares repurchased, with an increased authorization of $150 million.
Leverage: Maintained at 1x.
Third Quarter Production Guidance: 92,000 to 97,000 barrels equivalent per day.
Free Cash Flow for First Half of 2024: $225 million.
Net Value Creation from Monument Project: $265 million.
Share Repurchases: 3.8 million shares for $43 million in Q2 2024.
Proved PV-10: $5.1 billion.
Release Date: August 08, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
Talos Energy Inc (NYSE:TALO) achieved record production of 955,000 barrels equivalent per day, $344 million of adjusted EBITDA, and $148 million in adjusted free cash flow for the quarter.
The company successfully reduced its debt by $100 million and repurchased 3.8 million shares, with an increased buyback authorization of $150 million.
Talos Energy Inc (NYSE:TALO) maintained a leverage ratio of 1x, achieving its target early in the year, partly due to the sale of its CCS business.
The integration of QuarterNorth assets is on track, with synergies expected to exceed initial forecasts, potentially reaching $65 million by 2025.
The company introduced a new high-impact project, Monument, which is expected to add significant value with a net worth of $265 million and potential production of up to 30,000 barrels a day gross.
Negative Points
General and administrative (G&A) expenses ran higher than expected in the second quarter due to integration activities, though they are expected to decrease in the third and fourth quarters.
The delivery of the West Vela rig was delayed, which may impact the timing of the Katmai West drilling program.
The company anticipates a slowdown in free cash flow generation in the second half of the year due to increased capital expenditures.
The Lobster Waterflood project is not expected to show production increases for 12 to 18 months, indicating a delay in realizing benefits.
Talos Energy Inc (NYSE:TALO) faces challenges in changing market perceptions about the risk profile and cost of capital associated with Gulf of Mexico operations, which may affect stock valuation.
Q & A Highlights
Q: Can you talk a little bit more about how the Monument project came together? Are there other opportunities like that in the Gulf of Mexico? A: The Monument project came together as part of our strategy to build a large acreage position. We typically acquire significant acreage around transactions, and we are a top participant in deepwater lease sales. We had been eyeing the Wilcox trend and had built an acreage position over time. The partnership with Beacon, a great operator focused on Wilcox development, allowed us to enter the project post-FID, providing immediate value. We are excited about the execution and the potential for similar opportunities in the Gulf.
Q: How do you respond to those who think the cost of capital for Gulf of Mexico E&P is higher than the traditional PV-10 metric? A: We recognize that some may view the cost of capital as higher than PV-10, but there's significant value beyond proved reserves. Even with a higher discount rate, the stock is undervalued compared to the fundamental value of our business. We believe the value outside of proved reserves supports a higher valuation, and our diverse asset base and projects like Katmai and Monument add to this potential.
Q: Regarding the Monument project, is the capital for this project additive to the budget over the next couple of years? A: The incremental spending on Monument, estimated at $160 million net over 2025 and 2026, will not change our long-term capital budget. We can shuffle projects around, as much of our acreage is operated and under our control. We aim to fit this project into our existing budget without altering our guidance for 2024.
Q: How are you balancing share buybacks versus debt paydown in the second half? A: Our share buyback program is opportunistic, and we will continue to evaluate market conditions. We aim to balance debt repayment with potential buybacks, depending on circumstances. We have a goal of deleveraging the balance sheet while also considering shareholder returns.
Q: Are there other opportunities across the asset base for waterflood projects like Tornado and Lobster? A: We are always looking for similar opportunities, but they require specific conditions and a bit of courage. While we don't have another project on the horizon, the success of Tornado and Lobster encourages us to keep exploring. These projects have been successful, and we are happy with the results so far.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.