Talos Energy Merges with Stone Energy: A Complete Guide

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Talos Energy Inc. (TALOS) and the Stone Energy Corporation merged into “Talos Energy” this last May, making waves in the energy and production industry. The two independent oil and gas companies have a history of intuitive asset management and strategic development. While Stone was navigating financially strenuous waters after filing for bankruptcy in late 2016, Talos is no stranger to turning around struggling assets. The merger of the publicly traded Stone Energy Corp and Talos Energy Inc. allowed Talos Energy to go public without the associated cost of an initial public offering.

Former Talos Energy Inc. CEO and now Talos Energy CEO, Tim Duncan commented on the merger, “This is a transformational combination, in which shareholders will greatly benefit from our increased scale and liquidity. Talos is very well positioned to capitalize on its high-quality asset portfolio and returns focused capital programs in the U.S. Gulf of Mexico and offshore Mexico, as well as take advantage of potential business development opportunities. We deeply appreciate the efforts of everyone involved in getting us to this point.” Duncan’s efforts were more than admirable in orchestrating the $2.5 billion-dollar merger as the CEO spent four months getting the deal together.

Talos and Stone Energy Merger

Combined Production

As the industry rebounds from the 2015 price collapse of oil, recent developments have seen the price of oil increase to over $60 dollars per gallon. America’s oil and gas companies are poised to serve the energy needs of the nation as domestic crude oil production reached a steady peak late in 2017. Talos Energy will also see an increased oil production as result of the merger and stands to produce 47,000 barrels a day. Further, the new company has assets with proved reserves of 136 million barrels of oil equivalents. The new company will maintain 1.2 million combined gross acres in the Gulf of Mexico with roughly 160,000 acres being off the coast of Mexico.

Increased Financial Flexibility

Upon completion of the merger the new company Talos announced it had entered into a new credit facility agreement with an initial Borrowing Base of $600 million dollars, in which $300.0 million is available. Further, the new company has a liquidity of $450 million dollars which includes roughly $150 million of cash on hand, net of transaction related costs. The new company also boast Pro forma Year-End 2017 2P Reserves, at SEC pricing, of approximately 205 MMBoe (roughly 80% liquids), of which approximately 150 MMBoe were proved reserves. This increased financial flexibility paired with the independent producer’s ability to stay nimble among market pressures will surely lead to innovation in the E&P sector.

Newly Announced Financial and Operating Guidance

The new Talos energy has just released it’s financial and operating guidance for 2018 and things are looking up. CEO, Tim Duncan stated, “We are pleased to present…a detailed view on the company and its strategy, which outlines Talos’ high-quality portfolio on both sides of the Gulf of Mexico, and value proposition as the largest pure-play public company in the basin. Our guidance reflects a strong free cash flow generating business, with our capital program being internally financed, while effectively managing our liquidity and maintaining balance sheet flexibility.  We believe this flexibility will allow us to be a natural consolidator in the basin.”

Some highlights of the Financial and Operating Guidance include:

  • An expectation that Talos Energy will generate positive free cash flow after debt service in 2018 – on a pro forma basis – and also in 2019, while investing in the development of its high-quality US Gulf of Mexico assets, appraise the Zama discovery offshore Mexico and continue its high-impact exploration programs both in the US and Mexico
  • Successfully drilled Mt. Providence well in January 2018, which is expected to be completed and brought online by September 2018
  • Tornado #3 well is expected to be spud in 4Q 2018 with first oil expected in 2Q 2019

For a complete picture of the new companies Financial and Operating guidance, visit the company’s website at https://www.talosenergy.com/news/press-release-details/2018/Talos-Energy-Announces-2018-Financial-And-Operating-Guidance-Provides-Initial-2019-Outlook-And-Operations-Update/default.aspx

The Proven Leadership of Tim Duncan

Any independent oil and gas company requires the leadership of a dynamic and forward-thinking CEO. One of Mr. Duncan’s earlier success shed’s light on his ability to successfully turn around assets that many integrated oil and gas producers consider too risky. In 2005, Hurricane Rita struck Phoenix oil field capsizing the platform that serviced the field. In 2006, Sr. Vice President of Phoenix Exploration Company LP, Tim Duncan, acquired an interest in Phoenix field from Cabot Oil and Gas Corporation. Mr. Duncan quickly turned this disaster into hub of productivity and the phoenix field is now Talos’ largest asset.

Discovering and securing the Mexican offshore, Zama-1 field was also a personal achievement of Duncan’s that is showing signs of long-term success. After an 80-year halt on private development of Mexican oil fields, Talos teamed up with U.K.-listed Premier Oil and Riverstone-backed Sierra Oil & Gas to drill a 1,000-foot indicator well in Zama-1. The exploration proved to be a success as the group hit oil-saturated sandstone that is estimated to contain 2 billion barrels of oil which could be developed and flowing in a five-year timeframe.

Talos Energy Zamba

Tim Duncan’s refusal to become stagnate has positioned the newly merged Talos Energy to become a promising producer in the Gulf of Mexico and Gulf Coast regions. Keep an eye on Talos Energy to stay abreast of the independent oil and gas producer’s imminent growth and development

 

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CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING STATEMENTS

This communication may contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact included in this communication, regarding our strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects, plans and objectives of management are forward-looking statements. When used in this communication, the words “could,” “believe,” “anticipate,” “intend,” “estimate,” “expect,” “project” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. These forward-looking statements are based on our current expectations and assumptions about future events and are based on currently available information as to the outcome and timing of future events.

We caution you that these forward-looking statements are subject to numerous risks and uncertainties, most of which are difficult to predict and many of which are beyond our control. These risks include, but are not limited to, commodity price volatility, inflation, lack of availability of drilling and production equipment and services, environmental risks, drilling and other operating risks, regulatory changes, the uncertainty inherent in estimating reserves and in projecting future rates of production, cash flow and access to capital, the timing of development expenditures,  potential adverse reactions or changes to business or employee relationships resulting from the business combination between Talos Energy LLC and Stone Energy Corporation, competitive responses to such business combination, the possibility that the anticipated benefits of such business combination are not realized when expected or at all, including as a result of the impact of, or problems arising from, the integration of the two companies, litigation relating to the business combination, and other factors that may affect our future results and business, generally, including those discussed under the heading “Risk Factors” in our final consent solicitation statement/prospectus, dated April 9, 2018, filed with the Securities and Exchange Commission pursuant to Rule 424(b)(3) under the Securities Act.

Reserve engineering is a process of estimating underground accumulations of oil, natural gas and NGLs that cannot be measured in an exact way. The accuracy of any reserve estimate depends on the quality of available data, the interpretation of such data and price and cost assumptions made by reserve engineers. In addition, the results of drilling, testing and production activities may justify revisions of estimates that were made previously. If significant, such revisions would change the schedule of any further production and development drilling. Accordingly, reserve estimates may differ significantly from the quantities of oil, natural gas and NGLs that are ultimately recovered.

Should one or more of these risks occur, or should underlying assumptions prove incorrect, our actual results and plans could differ materially from those expressed in any forward-looking statements. All forward-looking statements, expressed or implied, are expressly qualified in their entirety by this cautionary statement. This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue. Except as otherwise required by applicable law, we disclaim any duty to update any forward-looking statements, to reflect events or circumstances after the date of this communication.

Free cash flow after debt service is a supplemental non-GAAP financial measure used by management and external users of the Company’s financial statements, such as industry analysts, investors, lenders and rating agencies.  The Company defines free cash flow after debt service as net cash from operations less capital expenditures, dividends and cash interest paid.

 

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