Q4 2024 Talos Energy Inc Earnings Call
Speaker Change: Good morning, ladies and gentlemen, and welcome to the TELUS Energy fourth quarter 2024 earnings conference call.
At this time, all lines are in a listen-only mode.
Speaker Change: Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator.
This call is being recorded on Thursday, February 27, 2025.
Speaker Change: I would now like to turn the conference over to Clay Jeansonne, Head of Investor Relations. Thank you, operator. Good morning, everyone, and welcome to our fourth quarter and full year 2024 earnings conference call.
Speaker Change: Joining me today to discuss our results are Bill Moss, Interim Chief Executive Officer, Co-President, and General Counsel.
Speaker Change: Sergio Maiworm, Interim Co-President and Chief Financial Officer, and John Spaff, Interim Co-President and Head of Operations.
Speaker Change: For our prepared remarks, please refer to our fourth quarter 2024 earnings presentation that is available on Talos's website under the Investor Relations section for a more detailed look at our results and operations update.
Speaker Change: Before we start, I'd like to remind you that our remarks will include forward-looking statements subject to various cautionary statements identified in our presentation and earnings release. Actual results may differ materially from those contemplated by the company.
Speaker Change: Factors that could cause these results to differ materially are set forth in yesterday's press release and our Form 10-K for the period ending December 31st, 2024, filed with the SEC.
Speaker Change: Forward looking statements are based on assumptions as of today and we undertake no obligations to update these statements as a result of new information or future events.
Speaker Change: During this call, we may present GAAP and non-GAAP financial measures. A reconciliation of certain non-GAAP to GAAP measures is included in yesterday's press release, which was furnished with our Form 8K filed with the SEC and is available on our website.
Speaker Change: And now I'd like to turn the call over to Bill. Thanks, Clay. Good morning, everyone, and thank you for joining us on our call today. I would like to start by providing some brief introductory remarks. I will then turn the call over to Sergio and John for highlights on our financial performance, operational activities, and outlook.
Speaker Change: We will then open the call up for questions after our prepared remarks.
Speaker Change: First I want to express on behalf of management our appreciation and gratitude to our TALUS employees. Your hard work and dedication and your commitment to safety and protection of the environment over the past year has been unwavering.
Speaker Change: Thank you for all that you do to drive our success and uphold our values.
Speaker Change: Next, I want to share how excited we are about Paul Goodfellow joining TALIS as our new CEO.
Speaker Change: Paul's first day in the office will be this coming Monday, March 3rd. He brings over three decades of experience in domestic and international operations.
Speaker Change: His impressive background includes leading Shell's global deepwater business, overseeing Shell's global drilling, completions, and well intervention organization, and serving as a key member of the projects and technology and upstream leadership teams and internal audit function.
Speaker Change: We are confident that Paul's extensive experience and expertise, especially in deepwater operations, combined with his strategic judgment and proven leadership, will take TALIS to the next level.
Speaker Change: During his first 100 days at TALIS, Paul intends to identify the key drivers of TALIS' success.
Speaker Change: They'll be working closely with the leadership team to refine our strategic plan and determine our next steps.
Speaker Change: And we will announce to you the results of these efforts as soon as they are completed.
Speaker Change: I will now turn the call over to Sergio to discuss some financial highlights for the fourth quarter and full year, as well as our 2025 operational and financial guidance.
Thank you, Bill, and good morning, everyone.
Speaker Change: Taking a look at our financial performance highlighted in slide four, we're very pleased with our results for the fourth quarter, which demonstrates our focus on operational execution and consistent free cash flow generation.
Speaker Change: If you turn to slide five, we have consistently exceeded quarterly expectations on production, dividend, and free cash flow every quarter throughout 2024.
Speaker Change: This strong financial performance enabled us to fully repay our credit facility during 2024, reducing our leverage ratio to 0.8 times net debt to EBITDA, while finishing the year with a healthy cash position of $108 million.
Speaker Change: Operationally, we made real progress in our drilling program with the successful drilling of the Katmai West No. 2 well, 35% under budget and over a month ahead of schedule.
Speaker Change: That is a great achievement in attestment to the quality of the team.
Speaker Change: We have initiated completion operations for the Sunspear Discovery and expect it to be online in the second quarter.
Speaker Change: Following that, we plan to complete the Cap My West No. 2 well before drilling the Daenerys Exploratory well.
Speaker Change: John will go into more detail on these operational developments in his remarks.
Speaker Change: For the fourth quarter, we achieved record production, totaling 98.7 thousand barrels of oil equivalent per day, which was 70 percent oil and including the NGL barrels, a total of 79 percent liquids.
Speaker Change: We reported record EBITDA of $362 million for the fourth quarter, which equates to an EBITDA net back margin of about $40 per barrel of oil equivalent.
Speaker Change: Throughout the past year, we believe we have consistently ranked in the top quartile amongst public E&P companies in that back margin as shown in slide six.
Speaker Change: Our capex for the quarter was $133 million, and we dedicated an additional $23 million to plugging in abandonment activities during the fourth quarter, which resulted in $164 million in free cash flow.
Speaker Change: Now, I want to touch on our year-end shirts, which were prepared by Netherlands and Seoul.
Speaker Change: We ended 2024 with a larger and more oil-weighted reserve base.
Speaker Change: This is primarily attributable to our acquisition of Quarter North in 2024, which marked a pivotal milestone for Talos, adding more scale and related infrastructure to our portfolio.
Speaker Change: Talos Proved Reserves are 194 million barrels of oil equivalent, which is approximately 74% oil.
Speaker Change: The PV10 of our approved reserves is approximately $4.2 billion, which is calculated at SEC pricing.
Speaker Change: Talos also has significant value beyond approved reserves with an additional 3 billion improbable reserves PV10 also based on SEC prices.
So approximately $7.2 billion in 2P value.
Speaker Change: Moving on, for the full year of 2024, TALOS produced 92.6 thousand barrels of oil equivalent per day, slightly above the midpoint of our full year guidance range, which was highly liquids-weighted at 80 percent.
Our total annual EBITDA for 2024 was approximately $1.3 billion.
Speaker Change: As shown on slide 7, our financial performance enabled us to generate record free cash flow of $511 million.
Speaker Change: With the increased scale from our previous acquisitions, we have strengthened our asset base and the base business production.
Speaker Change: This positions us to make the right long-term investments in the business while keeping the base production healthy without requiring outsized capital investments.
Speaker Change: That increases our capability to consistently generate free cash flow now and in the future.
Speaker Change: We expect a similar pattern of performance in 2025, and we will discuss our guidance momentarily.
Speaker Change: With that free cash flow in 2024, we stayed true to our commitment to pay down our debt and we were able to completely pay off our RBL in the fourth quarter and accumulate a healthy cash balance at year end.
Speaker Change: As shown on slide 8, during the year, we reduce our total debt by $550 million, including $125 million paid down during the fourth quarter alone.
Speaker Change: As I mentioned earlier, we also ended the year with a cash position of $108 million.
Speaker Change: Our total net debt at year-end stood at approximately $1.1 billion with no outstanding borrowings on our RBL, and we closed the year with a leverage ratio of 0.8 times net debt to EBITDA.
Speaker Change: I wanted to point out that the $550 million of debt repayment this year equates to over $3 per share of value accretion for our shareholders.
Speaker Change: These milestones reflect our commitment to financial discipline, low leverage, and building a solid foundation for profitable growth.
Speaker Change: Before turning the call over to John to discuss our operational activities in more detail, I'd like to touch on our production expectation and capital spending plans for 2025.
Speaker Change: Moving to slide 9. In 2025, we expect to invest between $500 million and $540 million.
Speaker Change: With that investment, we expect full year 2025 production to be between 90 and 95,000 barrels of oil equivalent per day, of which approximately 69% is expected to be oil and 79% liquids.
Speaker Change: In addition, we expect to allocate between $100 and $120 million to P&A and decommissioning activities in 2025.
Speaker Change: Our capital program reflects a strategic balance across low-risk development, exploitation, and exploration projects.
Speaker Change: We're also making investments and ordering long-lead equipment for key projects including Monuments and Ewing Bank 953.
Speaker Change: Asset management efforts are focused on cost-efficient production ads and enhancements in extending the operational lifespan of fields.
Speaker Change: Additionally, our ongoing geological and geophysical and land investments aim to refine and continue to bolster our inventory.
Speaker Change: On slide 10, we provide a more detailed look at 2025 guidance.
Speaker Change: For cash operating expenses, we expect between 580 and 610 million dollars, including workover expenses for activities that will increase production throughout the year.
Speaker Change: For GNA, we project between $120 and $130 million, including the realization of synergies from the quarter north transaction we completed in 2024.
Speaker Change: Turning to slide 11, I want to talk briefly about how we thought about our production guidance for 2025. There are a few items impacting production guidance.
Speaker Change: As you can see from this waterfall chart, the business currently runs consistently north of 100,000 barrels a day, so the base continues to be very healthy.
Speaker Change: As is typical for every offshore operator, several large maintenance projects are scheduled later in 2025, which we will
Speaker Change: Reduce our production rate for the year, but we'll also ensure safe operations and high uptime throughout the life of those assets.
Speaker Change: We then account for weather related downtime such as hurricanes and loop current shut-ins, as well as an estimate of unplanned downtime associated with third-party facilities and pipelines.
Speaker Change: So that leads us to 90 to 95,000 barrels of oil equivalent per day in 2025.
Speaker Change: We have also guided our expectations for the first quarter of 2025.
Speaker Change: Our assets have been performing quite well during the challenging winter months, despite some minor interruptions.
Speaker Change: We are confident that our production for the quarter will be between 99 and 101,000 barrels of oil per day.
Speaker Change: Based on the production and cost profiles laid out in the guidance, we expect to generate significant free cash flow again in 2025.
Speaker Change: With that, I'll turn the call over to John to address our 2025 drilling plan in more detail.
Thank you, Sergio, and good morning, everyone.
Speaker Change: Moving to the slide 12 and 13, our 2025 jeweling program is underway utilizing the West Village drill ship.
Speaker Change: We started the year strong with successful results drilling and evaluating a cap my west number two. Well
Speaker Change: Following this success, we cased and suspended the well in preparation for completion operations later in the rig campaign.
Speaker Change: We then mobilized the West Village to begin completion operations on Sun Spear and Green Canyon Block 78.
Speaker Change: Once we finish the Sunspear completion, the West Vela will return to Katmai West No. 2 to complete the well.
Speaker Change: After completing both Sun Spear and Cap My West number two, we were mobilized to a high-impact myosine prospect, Daenerys, located in Walker Ridge Box 106-107.
Speaker Change: Turning to the Katmai West number two well, which is on slide 14 of the presentation, drilling commenced in late October 2024, reaching a true vertical depth of 27,000 feet.
Speaker Change: In early January 2025, we announced successful drilling results, encountering over 400 feet of gross hydrocarbon pay with excellent rock properties.
Speaker Change: The drilling and subsurface teams delivered an outstanding performance, drilling the well under budget and approximately 40 days ahead of schedule.
Speaker Change: This drilling efficiency placed Katmai West number 2 in the top quartile of similar wells drilled in the Gulf of America.
Speaker Change: We will begin completion operation on Katmai Fall and Sun Spears completion, with Katmai West No. 2 being completed as a single-zone frack pack with a potential initial production rate of 15,000 to 20,000 BOE per day. First production is anticipated in late second quarter 2025.
Speaker Change: The CADMOT field is a key asset and strategic focus area for us.
Speaker Change: The strong performance of Cat My West No. 1 well, combined with the successful results of Cat My West No. 2, has nearly doubled the proved estimated ultimate recovery of the Cat My West field to approximately 50 million gross boil equivalent.
Speaker Change: This success reaffirms Talas' total resource potential in the Katmai area, which is estimated at approximately 200 million barrels of gross oil equivalent. Talas holds a 50% working interest in and operates the Katmai field.
Speaker Change: Additionally, we own and operate 100% of the Tarantula host facility.
Speaker Change: Last fall we increased the daily throughput capacity at our tarantula facility from 27,000 BUE per day to 35,000 BUE per day.
Speaker Change: Our Tarantula facility will be running at maximum capacity once we bring on Catmai West No. 2 late in the second quarter.
Speaker Change: Moving to Sunspear Discovery on slide 15. We recently started completion operations on Sunspear utilizing the West Vella.
Speaker Change: The well will be completed as a single zone frack rack with projected gross production rate estimated between 8 to 10,000 BOE per day.
Speaker Change: The well is being tied back to the Talus Operated Prints Platform, which is currently undergoing upgrades.
Speaker Change: Behold a 48% working interest in Sunspear and expect to achieve first production by the latter part of the second quarter of 2025.
Speaker Change: Moving on to Daenerys Prospect on slide 16, following the completions of Sunspear in Katmai West, the West Villa will be mobilized to Walker Ridge 106-107 to begin drilling the Daenerys Prospect, which will be drilled to a total vertical depth of 31,000 feet to evaluate the large middle and lower miocene four-way structure.
Speaker Change: Talas holds a 30% working interest and serves as operator of Teneri's.
Speaker Change: A successful outcome at Daenerys would further enhance Talos' long-term organic production growth.
Speaker Change: Another exciting area for TALUS is the Wilcox Trim in the ultra-deep waters of the Gulf of America.
Speaker Change: Talos has a significant acreage position in the lower Wilcox strand which we believe represents a growth opportunity for Talos.
Speaker Change: Turning to the monument discovery on slide 17, we recently agreed to increase our working interest in monument from 21.4 percent to 29.76 percent.
Speaker Change: We estimate proved and probable gross reserves of approximately 150 million barrels of oil.
Speaker Change: With production expected to tie back to the Shenandoah production facility and first production anticipated in late 2026.
Speaker Change: Additionally, we have identified a promising exploration prospect within the field that could provide an estimated incremental upside of $25 to $35 million BOE, further enhancing the project's long-term value.
Speaker Change: TALUS is well positioned to be a key player in the growing Wilcox play and we intend to leverage our broader acreage position to drive future production and reserve growth. On a final note, to reiterate Bill's comments, I want to thank all TALUS employees for the dedication and focus in driving our strong 2024 performance.
At the same time, maintaining our core operating priorities.
Speaker Change: Health and Safety of All Personnel, Protecting the Environment, Regulatory Compliance, and Operational Excellence.
Speaker Change: In 2024, we continue to have an outstanding safety record by working approximately 6.6 million man-hours.
Speaker Change: Notably, TALUS has completed 3 million man-hours since our last reportable incident.
Reflecting our commitment to a safe and responsible workplace.
Speaker Change: Additionally, in 2024, TALIS continued to outperform the Gulf of America average in regulatory compliance metrics, which reflects the dedication of our field personnel whose commitment to rigorous safety system testing and proactive facility maintenance ensures we uphold the highest operational standards.
Speaker Change: This marks the sixth year that TELUS has exceeded industry benchmarks and regulatory performance.
Speaker Change: These achievements underscore the collective progress we have made as a company and reflect the hard work and dedication of the entire Talos team. Our commitment to health and safety, environmental stewardship, regulatory compliance, and operational excellence continues to drive our success.
Speaker Change: With that, I'll turn the call back over to Sergio to sum up our performance in 2024.
Thank you, John.
Sergio Maiworm: Before concluding, I want to sum up 2024 and reflect on TALIS' progress.
Speaker Change: Slide 18 presents a scorecard that highlights Thales' strong performance and commitment to delivering long-term value for all shareholders.
Speaker Change: By focusing on capital discipline, operational excellence, and free cash flow generation, we have achieved significant milestones and believe we have laid out a solid foundation for 2025 and beyond.
With that, Operator, we will open the line for Q&A.
Speaker Change: Unknown Speaker 0 . . . . . . . . . . . .
Speaker Change: Thank you. We will now begin the question and answer session. To ask a question, you may press star followed by the number one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star followed by the number two. With that, your first question comes from the line of Nate Pendleton with Texas Capital. Please go ahead.
Nate Pendleton: Good morning, congrats on a great quarter and update. I wanted to start with a question on...
Speaker Change: Of course, I wanted to start off with a question on Katmai, building on John's prepared remarks.
Speaker Change: Specifically, I want to get your perspective on how the field compares to your initial expectations when you acquired the position. And based on what you've learned, do you see any upside to that 200 million barrel potential shown on slide 14?
Speaker Change: Hey Nate, now that's a great question. Thank you for asking that. Look, it's a better field than what we thought we were buying. So it's a fantastic field. We knew it was a fantastic field when we made the quarter north acquisition.
Speaker Change: But the more we learn about it, the better we feel about Cordon Noir. So I would say it's in line or better than what we thought. And to answer your question.
Speaker Change: Yes, we do see some upside from that 200 million barrels. Right now, we're counting the 200 million barrels from a combination of the west side of the field where we already have two wells, and the east side of the field where we have one well producing.
Speaker Change: There are other aspects of the field that we are currently investigating, we're not ready to talk about, but we do see some upside from that, for sure.
Speaker Change: Got it. That's really exciting. And referencing slide 12 for a moment, it looks like you'll have three projects starting up around mid-year, and you have referenced planned downtime during the second half of the year as well. How should we think about the shape of production throughout 2025? And what could an exit rate look like?
Unknown Speaker
Speaker Change: Yeah, I mean, let me give you some, some high level thoughts on how to think about that. So,
Speaker Change: We don't expect a lot of planned downtime in the first quarter, that's how we're thinking about our production being roughly between 99 and 101,000 barrels per day.
Speaker Change: As we start going into the second quarter or the spring months, you don't have as much of the winter storms offshore and you're not yet in hurricane season. So that's where a lot of your maintenance projects happen. So second quarter should be heavily weighted towards some of those planned downtime.
Speaker Change: As we start getting into the third quarter, you still have some of those planned maintenance, but you also have some of the hurricane risking that we are applying to our production.
Speaker Change: And as you go into the fourth quarter, you have fewer of those planned downtime or planned maintenance, but you still have a little bit of hurricane risking associated with that. So that's how you should think about the production shape throughout the year.
Got it. Thanks for taking my questions.
You bet.
Speaker Change: Your next question comes from the line at Leo Mariani with Roth. Please go ahead.
Unknown Speaker 0
Leo Mariani: Hi, guys. Why don't you just touch base briefly on the 2025 CapEx year?
Leo Mariani: I know that there were periods of time during 2024, where Talos had kind of articulated that you might have to kind of spend more money in 25 that you were.
Leo Mariani: Modestly undercapitalizing things with the 24 budget and now kind of looking at, you know, 25 CapEx. It's not, you know, maybe too dramatically different, you know, versus, you know, 24 here. So just kind of wanted to get a sense whether or not there's been a
Leo Mariani: You know, any kind of philosophical shift, you know, in terms of the approach to kind of capital and, you know, do you think that the 25 budget, you know, might lead to some, you know, kind of modest declines in production in 26?
Speaker Change: I do good morning. Thank you for the question So I think we've communicated throughout 24 and we were very cautious to caveat that look There's the plans are still ongoing right? So none of that was written in stone. We were
Speaker Change: discussing live as some of the the plans were still being formed.
Speaker Change: I would say the 2025 capital program is heavily influenced by the high efficiency that we're seeing in the West Vela rig, right? So we are...
Speaker Change: Much more efficient in the drilling and completion operations than we thought we were going to be, so that is allowing us to save quite a bit of money.
Speaker Change: On the capital side of things so we feel like this is the right
Speaker Change: level of investment for the company. It generates a tremendous amount of free cash flow, and as I pointed out in my prepared remarks, the base of the business is very healthy.
Speaker Change: So it's very early for us to start giving us any indication around 2026, but we think that this is the right level of investment for the business.
Speaker Change: to generate the amount of free cash flow that we should be generating. And, and that's it. So it's mostly drilling efficiencies that's driving the lower capital than the street was expecting.
Speaker Change: Okay, and then obviously you guys did a great job on the balance sheet here. I think paying off the debt even maybe a little quicker than expected ending the year with cash.
Speaker Change: I'm sure that you guys are somewhat frustrated by the stock price performance here. Just curious as to whether or not, given the health of the balance sheet, that you guys might be able to accelerate that buyback program here in 2025.
Yeah, Leo, no, that's a, that's a great question. Look.
Speaker Change: First and foremost, we're very blessed to have a very healthy balance sheet and a very stable business that generates
Speaker Change: A tremendous amount of free cash flow, so that is a great position to be in.
and with Paul coming in and us.
Speaker Change: … kind of looking at the strategic planning for the company and refining what our strategy is going to be like. Capital allocation priorities is going to be a huge focus as part of that discussion. But I can tell you…
Speaker Change: that capital returns to shareholders are always being considered and we're gonna continue to consider that. So once fall comes in and we finalize our strategic review, we're gonna communicate to the street what our plans are around that.
Speaker Change: Well, I appreciate that. And then just last thing for me here, guys, on Monument, you picked up an extra working interest in that well. Was there a cash outlay associated with that?
Leo Mariani: I mean, it's an incremental work in interest from the interest that we already have. We already own 21.4%. We're increasing at another 8 percentage points there in that ownership. So it's incrementally higher. 2025 is still very manageable. It's mostly ordering long lead items. 2026, that's when we're going to actually drill the wells and complete the wells. So it's a marginally higher number, Leo, but it's very, very manageable for us.
Leo Mariani: Okay, so was there an acquisition cost on that though? Yeah, it was about $12 million plus some closing adjustments as part of the between the effective date and the actual closing.
Okay, thank you. Thanks, Leo. Thanks, Leo.
Speaker Change: Your next question comes from the line of Team Breslin with KeyBank Capital Markets. Please go ahead.
Speaker Change: Good morning folks, thanks for taking my question. As we think about the 2025 outlook, it seems, you know, fairly cautious, you know, a maintenance program.
Speaker Change: you know, heavy field maintenance, and then sort of a goal on free cash flow.
Speaker Change: I was wondering if you could speak kind of from the board's perspective, how much of this is not wanting to get aggressive amid a leadership change? How much is caution on the oil macro? Just kind of curious any insight you can provide on that.
Unknown Speaker 0
Unknown Speaker
Speaker Change: Hey, Tim, good morning. No, that's a great question. Look, there's a bit of all of that as part of the as part of the plan, right? So we're trying to be cautious about our, our, our guidance around production, we do have a very heavy maintenance year.
Speaker Change: Obviously, hurricane season last year wasn't as impactful to us as it has been in the past, so we're still being very conservative in our estimates around.
Speaker Change: weather-related downtime. But we think that that is the right approach for our production guidance in 2025. So we're comfortable with that. And as the year progresses, if things continue to do better than what we're estimating, we're going to update the street accordingly.
Okay.
Speaker Change: That's fair. Some of the other questions have been addressed, but quickly on Dianaris, if the plan to spud that late in the second quarter, I know you're not the operator, and then just what would that mean in terms of potential timing?
Speaker Change: on what you've done. Is that something that would be maybe a 4Q or 3Q earnings?
Commentary. Just curious on the timeline of data points.
Speaker Change: Unknown Speaker Yeah, no, for sure. And just to be sure, we are the operators on Daenerys. Yeah, so we are. So the plan is to we're now doing the completions on Sunspear. After that is done, we're going to do the completion on Katmai West number two, and then we're going to move on to drill Daenerys. So we should start that.
Speaker Change: In the second quarter of 2025 and that is roughly 100 to 120 days of drilling. So it's a it's a pretty long well
Speaker Change: So I expect late in the third quarter, early in the fourth quarter, we're going to have some results, so perhaps around third quarter earnings, we're going to be able to speak to the results of that well.
Speaker Change: Okay, I appreciate that man. I got Dianaris and Monument confused, but I appreciate all the context. Thank you. Okay. Thank you
Speaker Change: And your next question comes from the line of Michael Schalla with Stevens. Please go ahead.
Unknown Speaker
Hi, good morning. I wanted to ask on the
Speaker Change: Planned downtime, the 6,000 BOE a day, what's built into that? Is that the HP1 facility or can you give us some some detail on?
on what all is in there.
Speaker Change: Sure. Hey, Mike, good morning. That's a great question. No, we do not have the HP1 regulatory stop this year. So that happened last year. But we do have a lot of other facilities that require maintenance. And there are some shut-ins related to wells that we're going to actually bring online. For example, in the second quarter, we're going to shut in our Prince facility to connect or to hook up.
The Sun Spear, well, we're also going to
Speaker Change: shut in Tarantula to connect the Katmai West No. 2. But there are other maintenance projects, like on Brutus, on Pompano, and a few others. There's quite a few of those. These four that I mentioned are the largest ones, but there are a few others as well. So it's a little dispersed. There's not one major event. It's a lot of smaller events throughout the year.
Got it.
Speaker Change: and I wanted to ask if there's any update on, I think you were looking to sell down your interest at Helms Deep. I think you wanted to get that to 50% before you drilled. Any update there?
Speaker Change: Yeah, we're still working on that. That is still in the works. And as you can see, we, we actually put it put it in our presentation and unnamed well, so Helms Deep is absolutely under consideration to be drilled this year yet it might slip into 2020 to 2026.
Speaker Change: But we are having some other commercial discussions around other wells, so instead of committing to one, we think it's best to leave it as a potential for a different one. So Helms Deep is being considered still, but there are other wells in our inventory that we feel very confident about as well.
Speaker Change: So, it's all about the commercial discussions that we're having and as soon as those are finalized we're going to announce it.
Great, thank you.
Art.
Unknown Speaker
Speaker Change: And your next question comes from the line of Jess Robertson with Water Tower Research. Please go ahead.
Jess Robertson: Thank you. Sergio, on the West Vella, do you have that through potentially the well that you would drill after Denarius in terms of the contract?
Jess Robertson: Hey Jeff, good morning. Right now the contract with the West Vella goes through Daenerys.
Jess Robertson: We have the option to extend that, and there are other rigs available as well in the market. So we're not concerned about actually having a rig secured for the second half of the year to execute that plan. But right now the contract with the West Vela ends with Daenerys.
Jess Robertson: The efficiency that allowed you to drill Katmai West 2 under budget and in a much shorter number of days, is that from the rig operation or the geology that you encountered while you were drilling the well or a combination of the two?
Jess Robertson: It's mostly the operations of the rig. The team did a fantastic job of planning everything to a T.
Jess Robertson: So, we did a really good job on the planning side of things. We had some time before actually taking possession of the rig to execute a few items.
Jess Robertson: before started drilling. So we we feel like the rig operations itself and how the team is planning these activities is what's making the difference.
Unknown Speaker
Speaker Change: And on capital allocation, can you just remind us how you think about risking contingent capital or maybe follow on work at Denarius or for some of the capital that might be necessitated by success as you think about your future mix between exploration development, contingent capital and the opportunity to repurchase shares?
Speaker Change: Yeah, no, that's a great question. So obviously, we that there is a possibility that we might need to spend additional capital in areas if that is a discovery, we may need to appraise that, and that is all part of the plan.
Speaker Change: So that that is that is part of the risk or that that's the appetite for risk that we have in this business to drill these types of wells is to continue to appraise the well and then develop that so
Speaker Change: That is something that we would like to continue to deploy capital into and then the
Speaker Change: The additional free cash flow that we generate and how we deploy that, whether it's buybacks or making additional investments, we're going to tighten that up as we go along. But these types of projects like Denarius, we would like to have more of those, not less of those.
Speaker Change: Lastly, just on a regulatory front, I know it's still very early in the current administration. Have you seen anything
Speaker Change: Regulatory-wise or permitting-wise that you think will have an impact on your business yet?
Speaker Change: Unknown Speaker 0 . . . . . . . . .
Speaker Change: Yeah, it's still a little early, Jeff, but we do expect to have more lease sales than we were having over the last four years. That is probably the most impactful change from the previous administration, having kind of regular lease sales.
Speaker Change: We're expecting to have two lease sales per year going forward, so that is going to be the most impactful item. We didn't have any issues with permitting. We didn't have any of those issues with the previous administration, but lease sales, that is the one that we're looking forward to the most.
Thank you.
Okay. Thank you. Thank you.
You bet.
Speaker Change: Your next question comes from the line of Michael Furrow with Pickering Energy Partners. Please go ahead.
Good morning. Thanks for having us on this morning.
Good morning.
Speaker Change: Like others, we're trying to get an understanding of sort of the 25 CapEx budget, sort of the puts and takes here.
Speaker Change: You know, specifically, I'm looking at your slide nine with the pie chart capital allocations. The company is spending a pretty good amount of money this year on the long lead equipment for monuments and Ewing Bank 953.
Speaker Change: I'm just wondering if you could provide some color on, you know, where that Longley equipment sits within the pie chart and, you know, maybe its associated percentages.
Speaker Change: Yeah, Mike, that's a good question. So that is still within the U.S. drilling and completions section of the pie. So that's part of the DNC budget.
Any color on, you know, how big that slice is?
Speaker Change: We haven't disclosed that publicly, but it's not a significant amount of that pie. It's a good chunk, but it's not the big, big part of that.
Speaker Change: It's still relatively minor compared to the actual drilling of the wells, the running of the West Vella. So it's not a significant part of our DNC budget this year. Monument will be a much more significant part of the budget next year once we're actually drilling and completing the wells.
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Speaker Change: All right, understood. That's good color. My follow-up question is just sort of on the West Bella. I believe previously the company was considering utilizing the Conqueror to complete Katmai West 2.
Speaker Change: That's right. And then sending the West Vella to the Daenerys prospect and it looks like the decision was made to continue utilizing the West Vella for completing the Katmai West well.
Speaker Change: which, you know, sort of pushes the timeline back marginally for the Daenerys spud, but, you know, I was wondering if you could provide a little more information about what went into this decision and why the company felt like this was the best course of action.
Speaker Change: That's right. That's a great question, Mike. So you're right about that. The Conqueror is also a little delayed. So instead of waiting for the Conqueror to arrive, we decided to rearrange the rig schedule. That actually is another...
Speaker Change: Another way that we're saving on capital instead of running two rigs. We're just running one rig
Speaker Change: So, that's another big chunk of the capital savings that we have in our budget this year. But that decision was driven by the delay on the Conqueror to arrive, so we had the right to just not take that rig and then just use the Westfella to do all the operations that we needed. So, that's how we came up with that decision.
Speaker Change: All right, thank you. It's very helpful. I'll turn it back. All right.
Speaker Change: Your next question comes from the line of Paul Diamond with Citi. Please go ahead.
Paul Diamond: Good morning all, thanks for taking the call. Just a quick question on, given the progress you guys have made on your debt reduction, can you remind us what you all think is kind of the right level of financial gearing, or will that be part of the
The new strategic review with Paul coming in on Monday.
Hey Paul, good morning and thanks for the question.
Paul Diamond: I would say that we're always refining our views on what's the right balance sheet for us. But I would say today I feel very, very comfortable with our point A times.
Paul Diamond: I don't feel like we need to delever from here. So I feel very comfortable living in this neighborhood.
Paul Diamond: Understood. One quick follow-up on Tarantula. With the recent expansion, do you all see any kind of need or potential thoughts around expanding that further? Are you comfortable just kind of letting it run flat out for the foreseeable future or post? Yeah, no, thank you. That's a great question.
Paul Diamond: So, with the wells that we have online, we feel very comfortable with the capacity as it is today. That allows us to have production flat, to extend that plateau for several years into the future with no decline.
Paul Diamond: But as we mentioned earlier, there are a few other opportunities in the field, perhaps a few more wells that we could drill, and if those wells are successful, then we will look for opportunities to expand.
Paul Diamond: the capacity of Tarantula. Right now the biggest bottleneck in the facility is the flow lines going from the plat to the facility itself. We would also need to expand the top sides once the flow lines
Paul Diamond: The new flow lines are installed if we were to do that.
So, but, but that is, that's a pretty.
Paul Diamond: I would say pretty significant investment that we need to make in the facilities to do that. So we need to have real conviction that the additional wells will be successful. So these are things that we're studying right now. It's not a decision that we need to make today, but in the future, if those additional wells are successful, that is something that we will look very carefully into.
Paul Diamond: Understood. Thanks for clarity. I'll get there. All right. Thanks, Paul.
Speaker Change: And your next question comes from the line of Arun Jayaram with JPMorgan Discohead.
Arun Jayaram: Yeah, good morning. I wanted to see if you could talk about the past.
Speaker Change: To prove up more resource at Katmai. It looks like you're at 50 million barrels gross You know, what's the path and what activities you need to do to to get to a hundred or even beyond that?
Speaker Change: Yeah. Hey, everyone. Good morning and thank you for the question.
Speaker Change: That's an excellent question and it goes a little bit about how the rules around how you book Reserves in a conventional world or in an offshore world, right? So we can only book the reserves to the lowest known
Speaker Change: Unlike our shale friends that once they drill a well they can book all of those reserves in PDP, we cannot do that. We have to book only some of that in PDP, the rest sits improbable.
Speaker Change: So, a lot of it comes, it's an economic decision, right? Do we drill more wells to prove more up? But that doesn't really...
Speaker Change: Help us on the economics front or you just wait for the passage of time and as you produce.
Speaker Change: Some of that, the probables will transfer into PDP. So it's a combination of both. Once we continue to evaluate additional drilling opportunities within the Katmai complex,
Speaker Change: We will drill more wells and that will prove up more more reserves but with the passage of time and just producing more
Speaker Change: Those probables will transfer from those that 2P back into PDP and that will happen naturally So we may not need to actually spend a lot of capital to do it
Speaker Change: But we just won't accelerate that booking of reserves, but the production and the actual recoverability of the field doesn't really change whether we book those improved or not. It's just kind of a different reserves booking rule for offshore conventional companies versus onshore.
Great, thanks a lot. All right, you bet.
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Speaker Change: Once again, if you would like to ask a question, simply press star one on your telephone keypad. Your next question comes from the line of Neil Meadow with Golden Stacks, please go ahead.
Neil Meadow: Yeah, good morning Sergio and team and it was really a super year for you guys from a free cash flow generation standpoint but I think the
Speaker Change: This challenge with the stock has been just around a lot of management transition, and it's going to be really good to get some clarity and steadiness on the ship.
Speaker Change: with Paul coming in. And so Sergio, I'm curious from your perspective, as a leader of the organization, just what are the two or three strategic areas that the new leadership team you guys will be focused on to help to provide a little bit more clarity around the forward path?
Sergio Maiworm: Good morning, Neil, and thank you for the question. That's a great observation. And look, as Bill mentioned earlier on the call, we are very excited to have Paul joining. Paul is a fantastic professional and individual.
Sergio Maiworm: His background speaks for itself, so we're looking forward to having him as part of the team and working closely with him to refine that strategy. I don't want to get ahead of my skis here and start saying what are the priorities. Let us kind of get together with Paul once he starts next week.
Sergio Maiworm: And we're going to have those conversations. And in the coming weeks and months, we're going to tell you and everybody else what we think the priorities are. But for the time being, we're very excited to have Paul. And I agree, we need some stability there. And I think we will have it. I think the team is very excited to have Paul.
Sergio Maiworm: and I think that is going to be a great addition to the team.
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All right. Well, stay tuned. It's good to see you.
Speaker Change: The follow-up is just how you guys are thinking about the A&D environment. You've done some really good bolt-on acquisitions here, Sergio. So, you know, do you see the opportunity to continue to be a consolidator, recognizing the equity might not be?
Speaker Change: at the optimal cost of capital right now, or do you want to pursue much more of an organic strategy here over the next 12 months?
Speaker Change: Yeah, Neil, that's a great question. So I would say this, as we continue to refine our strategy, we will make some kind of bigger decisions after that. Some bolt-on acquisitions, some things that are obviously kind of like
Speaker Change: Very easy for us to do. Yes, we'll continue to do that. If there are opportunities for us to do more of the monuments type of projects, yes, we will do that. If there are some additional bolt-ons in the Gulf of America, we will continue to focus on those.
Speaker Change: But for the time being, as we continue to refine our strategy, I think the focus is going to be on the organic, the project execution, the operational excellence.
Speaker Change: and and look our balance sheet is in great shape right so depending on the acquisition that we're talking about
Speaker Change: We may not need to use any equity to do any of that, or very little equity if we were to do anything a little bigger.
Speaker Change: But kind of bear with us, let us refine the strategy here. Let's make sure that we know exactly what we should be doing and we'll move on from there. But we do think that there will be opportunities for us to continue to bolster the portfolio through some bolt-on acquisitions or some even bigger opportunities down the road.
Speaker Change: And Sergio, one quick follow up on that. Can you just remind us, give us an update on Mexico and the asset sale that you executed in December? I guess that will also be an area I would imagine you guys and your leadership team will be focused on is what the long term strategy is in Mexico, but you did provide it. You added an update there in December, so a little color there would be great.
Speaker Change: Yeah, that's right. So for sure, we'll continue to refine that as well. We're still...
Speaker Change: We're still in Mexico. We still have an ownership in the Zama project. We still think that that is a fantastic project. We would still like to see that moving forward. We have a great partner or great partners in Mexico. We need to continue to kind of straighten our relationship with them.
Speaker Change: So we will continue to do that. That is of great importance to us.
Speaker Change: But we have announced, as you pointed out in December, another sell-down of our Talos Mexico subsidiary to the Carso Group in Mexico, which is a fantastic partner.
Speaker Change: and that is going through the regulatory process to approve that transaction and we expect that that will close in the coming months.
Thank you, sir.
All right. Appreciate it, Neil.
Speaker Change: Thank you. And that concludes today's question and answer session. I would like to turn it back to Bill Moss for closing remarks.
Bill Moss: Thank you. I want to thank everyone for joining the call today. We're really proud of our results for the fourth quarter. We had a really good 2024 and we're looking forward to continuing that performance into 2025 and DePaul starting next week. So thanks again everyone and we'll talk to you soon.
Unknown Speaker
Speaker Change: Thank you. And ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.