Good day, and welcome to the Talos Energy Third Quarter 2018 Earnings Conference Call and Webcast. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference call over to Mr. Sergio Maiworm, Investor Relations. Mr. Maiworm, the floor is yours sir.

Thank you, operator. Good morning, everyone and welcome to our third quarter 2018 earnings conference call. Joining me today to discuss our results are Tim Duncan, President and Chief Executive Officer, and Michael Harding, Executive Vice President and Chief Financial Officer. Before we get started, I would 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, our Form 10-Q for the quarter ended June 30, filed with the SEC on August 9, 2018 and on Form 10-Q for the quarter ended on September 30, 2018 which we 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 press release which was filed with the SEC yesterday and which is also available on our website at talosenergy.com. And now I would like to turn the call over to Tim.

Thanks, Sergio, and thank you, everyone, for joining our call. It has been six months from closing this Stone Energy mergers, so it's been exceptionally busy, not only continuing to integrate the companies organizationally, but bringing forward the potential of the two companies operationally. I think the third quarter showed that potential which included increased production, drill-bit success, prospect inventory growth, and multiple value adding transactions, while continuing to generate free cash flow and decreasing our annualized leverage ratio. As a reminder and Mike will discuss specifics as you walks through the information. We continue to show two sets of values in our earnings release. One, is on a year-to-date basis you'll see GAAP values and pro form of values. And the GAAP values include the legacy Talos assets for the entire year together with the Stone assets from may forward including the Ram Powell asset. However, the most useful measure of the assets in our view is the pro form of view of the company, which looks at the performance of Talos and Stone on a pro forma basis from the beginning of the year, adding Ram Powell from may forward. The good news is all these assets in the May closing are in the third quarter of values. So it's a good clean quarter from a reporting perspective. The 2018 annual guidance that we provided upon closing the Stone transaction was provided on a pro forma basis. So for example, our annual net production guidance on a pro forma basis was 49,000 to 53,000 barrels equivalent a day for 2018 and our net pro forma production for the first nine months of the year has averaged 52,100 barrels equivalent a day. For the third quarter averaging 54,900 barrels equivalent a day In six months post closing, which represents…

Thank you, Tim. Talos continues to focus on creating shareholder value and remains committed to continue to generate free cash flow, moderate organic growth, full cycle return, financial flexibility, while maintaining robust liquidity. As Tim mentioned, this quarter is the first full quarter we're reporting the results of the combined company. As our combination was closed in the middle of the second quarter and resulted impartial GAAP results. Talos is consistent, exceptional operational execution continues to set us apart. We continued to organically increased production, manage our P&A obligation and understand our capital program while consistently delivering on our project execution. Talos also continues to strengthen its balance sheet based on the analyze results of the third quarter our net debt to EBITDA ratio is 1.1x. Also mentioned at the end of the third quarter, we had $419 million of liquidity. This includes $329 million of available capacity on our credit facility and available cash on hand of $90 million. We held our RBL redetermination meeting on October 31 and we expect the post, the results of that redetermination the week of November 12. Now I'll turn to the results of the quarter. Talos is average daily production for the quarter was 54,900 barrels a day, which surpasses their expectations despite to downtime incident, one involving the Helix Producer 1 where the owner of the ship had to address operational issues on the vessel and this required us to shut into Phoenix Field for 12 days. The second downtime occurrence resulted from Talos is prudent decision to evacuate non-essential personnel and shut in certain assets for three days during Tropical Storm Gordon. Third quarter total revenues for $282.9 million underpinned by robust production and a strong commodity price backdrop. Our average realized oil prices continue to be above WTI as…

Okay. Operator, if we could let's open up for questions.

Yes sir. We will now begin the question-and-answer session. [Operator Instructions] The first question we have will come from Jeff Grampp of Northland Capital Markets. Please go ahead.

Good morning, guys. Nice quarter.

Hey Jeff.

Was curious, Tim, maybe if I can kind of run a little bit the slide deck that you guys will be putting out with an updated inventory or some color there. But as you guys kind of look into 2019 on the deepwater side of things in the U.S., any particular areas that are exciting to you that that you guys are kind of maybe prime to go after as you guys look in the 2019 deepwater program?

Yes. I think we've talked about in the call that we've got the Don Taylor drill ship for at least two wells. We've got an option to do something else with that ship. And I think a lot of it is – I would tell you one of the reasons we don't want to guide that too soon is if you were sitting in my shop right now, you would see the tug of war that goes between new leases we picked up in the lease sale. I tell you the Ram Powell area that we're excited about, even the Whistler has some ideas right around that leasehold. And so, kind of as we speak and then there's also a little business development on the exploration side. I think we've talked about. That's an area where we're very active in the business development space. So as we speak and as we prepare for our fourth quarter Board meeting, we're trying to figure out what's the right optionality when where to allocate dollars against those ideas. And so a little premature, again I think what you can rely on with us is and you can see it in the deck is out there right now and you'll see it in the upcoming deck is no, we've got – we try to stay within the knitting of obviously where we have a lot of seismic and where we have facilities and that's something you can count on. And then we really just look at rig optionality, permitting, that that has a lot to do with the Jeff. I mean, we just picked up these leases even though we've got an idea how quickly can we get the permits ready? But we've got probably a little more than we can say grace over. So we're excited about putting that out there. But again, we'll probably get through this year to firm up those plans and then come up with that guidance in early January.

Okay, right. That's really helpful. And I guess by our model looking into 2019, you guys will be in great shape to continue generating the nice free cash flow? Any particular plan, so we just generically think about, continued leverage reduction, maybe paying down the bank line with that or just generically wondering how you guys view potential uses of that free cash?

Yes, I mean look the ship goes in every 2.5 years. Obviously we had a little downtime events, so arguably it's time for the ship to go in and get some upgrades and that's an event that although painful when it happens for the quarter, it happens in. It helps the long-term value of that asset. It's an asset we believe in for years to come. But because of that, it's hard for me to kind of envision where that that really – obviously we think we're going to manage this thing inside free cash flow. But will I be in a situation where I have a material more amount, if you will of that free cash flow, I'd like to make sure that ship comes back and then we hook the two wells we're drilling in the phoenix field and then I think we're in a better position to have that discussion as a general matter. I think it's a good time to be thinking about the M&A market. Obviously, we've done two transactions this year. We might want to do a little more in Mexico. Certainly we can always think about debt reduction. I think we've got a nice, a nice group of options to think about what to do with that available cash and I think we're in a position where we want to try to continue to build diversity around our assets and so I think we would focus on where we can make those investments if not paying down a little bit of the revolver.

Okay, great. And if I can sneak one more and you kind of touched on the M&A side, you guys have obviously had a very busy year, but would you say you're largely kind of past the integration phase of a lot of the things you want to have accomplished and you guys are now kind of back in the game and can continue to look at a creative acquisition opportunities of scale for you guys?

Yes, Look I think we did two of them while we're in the integration stage. So the integrating of the businesses didn't stop us and I think I made that note in the call. It didn't stop us from trying to be commercial and trying to focus on, deals and focused on transactions and not allow ourselves to be on the sidelines at a time where we think there's good opportunity in the marketplace. So I think, where these guys probably could use a little bit of a Thanksgiving holiday and I want my team to get out there and have a Thanksgiving holidays, is they've done a hell of a job, kind of combining the real duties of integration and getting it right and then maintaining a presence in the marketplace. Are you still saw some transaction costs in the third quarter? Have not done yet? Obviously we integrated a business that had a different corporate headquarters in a different town and that's not always easy. But I think we've plowed through that. I think everybody's done a great job. We've got some great employees that came over from the stone side. So we'll be in that market. My first focus is always to build this business organically, but, there's things to do in that market. We have faith in our ability to use our seismic find upside and so we're just going to – kind of continue to be in that market. But I do think you see the integration. We're starting to be on the tail end of that integration and we're very happy with what we have as a result of it.

All right, understood.

All right. Thanks.

Next we have Marshall Carver of Heikkinen Energy Advisors.

Yes. Good morning. Regarding the production at the high end of the range, if you had to say what that was due to, would that be better, well performance, lower downtime, better well timing? Could you give some qualifiers around that?

Yes, so I think it's probably more Marshall by the way, I hope we're doing well. But I think it's probably more on the performance side. Obviously in Mt. Providence, well came in a little better than what we thought. Look, if you drill shallow water well, off of the shelf platform, it probably hasn't seen a well drilled and then a good chunk of years and it comes in at 2,000 barrels a day that's a pretty darn pleasant surprise. And so I think a little more on the well performance side. The downtime is just something that, we always have to account for. It is one of the bigger challenges operating offshore assets. We're lucky to have a kind of infrastructure, but that does cause some downtime on some of those flow lines. So you never know where that's going to end up. If you do a little better than that, you'll probably do a little better for the quarter. Obviously, we had a bigger event in the Phoenix Field, but I would say the beat was really on some of the well performance on the new related to the capital program.

Okay. Thank you. And follow-up with regards to the successful Gulf of Mexico shelf drilling where those PUD locations or probable locations and what would be the reserves associated with those [indiscernible]?

Yes. So I think what I talked about in the call and his we like to – we have some shelf assets, a lot of those are legacy assets. We have a heritage of knowing exactly kind of what areas we like and where we think we can reprocess seismic data and have it be responsive to our efforts. And look it's one of the quickest ways to get production online is to drill wells off of those assets. And so obviously we've drilled four wells this year. We talked about keeping a shallow water rig going, really throughout next year. All four wells have worked so far this year, two have those for PUDs Marshall, two of those, we decided not to put on the books. And sometimes that's just a judgment call. How many PUDs do we have on the books? Do we want to maintain some flexibility? Are we doing something that's maybe a little deeper, has just a touch more risk it's appropriate to keep it off the books. And just see how it comes in. We typically are looking for a shelf target if we're off the platform between 1 million and 2 million barrels regardless of whether it's a PUD, if we have a little deeper target, and then maybe it's a little more than that. But I think the two PUDs between 1 million and 1.5 million barrels gross. I think what's interesting about what we're doing in shallow water is where we can we're looking for something deeper to go test. And so in that Ewing Bank well, yes we were drilling through some field pace and those field pace work. But then we found that deeper target, that's the one that came in at a couple thousand barrels a day and now the team's got a couple more ideas related to that deeper interval. And as we think about our read program, we might just shift some of what we're doing and go back to that asset in 2019 to look for that. So I think if we can debunk a myth that there's not things left to do on the shelf hopefully that program so for us doing that.

All right. Thank you very much and nice results.

Okay. Thanks Marshall.

The next we have John White with ROTH Capital.

Good morning and congratulations on a nice quarter guys.

Thanks John.

So you had quite a bit higher NGL price realizations in 3Q compared to 2Q? Is that a contribution from the Stone properties?

I don't know if we were what 8%. And so typically we've been running around 8% or 9%, so I don't know if the price being - do we have any idea on kind of why the pricings a little higher. From a content perspective, I think we've been running 8% to 9% consistently have you looked to Phoenix assets are rich on NGLs, the Ewing Bank asset, might've been a little rich on NGLs as well. But Mike is…

And I think another factor is the fact that the second quarter only had Stone in it for just two of the months in the quarter. So yes, the combination of Stone Ram Powell and then in the third quarter we also had a month of Whistler. I think that's contributing…

Yes, I think you are exactly right. So the Mike, I think hit it there so full contribution of Ram Powell, which has got some rich gas in it, in a full contribution of Stones probably why I saw that pickup.

Yes. It’s nice to have those heavier appraisals. And on Block 2 offshore Mexico. Whom do you think that well rich TD.

Well, so what we're going to do on, if you think about Mexico, obviously the appraisal plan, we were going to have delivery of that rig here in the coming weeks. And then immediately that's a lot of the focus and we know why and we're thrilled and always grateful for that discovery. But I think the Block 2 trade actually to me is a fascinating trade. We're in the last year of our primary term lease there. The Block 2 the south is in the first year of its primary term lease and we really have a nice mix of opportunities to go across both of those leases. The first well will be drilled in the second quarter. So we're working on that rig tinder right now with Pan American we'll wrap up that rig tinder. And then that well needs to be drilled probably sometime in the second quarter of next year. And then that rig stays there and executes a couple of things on our Block and may go execute a couple of things on Block 31. And that's really where you see the benefit of pulling everything together. So it'd be a second quarter, late second quarter event. John.

I appreciate it. Thanks for taking my questions.

All right, John. Thanks.

[Operator Instructions] Next we have Richard Tullis of Capital One. Please go ahead, sir.

Thanks. Good morning, Tim. I’ll echo the nice quarter comment.

Thanks Richard.

You're welcome. I know it's not time for 2019 CapEx final budget yet, but given that you're at the low end of this year’s guidance range. How do you see 2019 shaping up at this point?

Well, again, like I mentioned in an earlier comment, when that ship leaves, you kind of wave at it and you really start counting the days down until it comes back. And although in the typical drydock, this is now our third drydock with this ship over the five or six years we've been out here. And in both times that we've got the ship back within the range. But I think the prudent thing to do is to make sure you are back and make sure you're running and then you can kind of adjust your plans. And that's exactly why we have Don Taylor out there drilling two wells right now to have those ready to hook up, so you can kind of come back with an immediate bang if you will on production. So we're going to take a cautious approach to making sure we have our plan set. We've got a good kind of initial first half of the year capital plan set and we're having active conversations about the second half of the year. And so I think that's why like I mentioned earlier, I want to kind of get through the rest of the year and look at the rest of the inventory. What's different in our combination, Richard compared to maybe other calls you've listened to this week because we've really spent a lot of time in the last six months integrating Stone's portfolio and trying to make what makes the most sense on how to attack these ideas over the next two or three years. And I think we're going to roll all that out in January, but needless to say, we've had a good quarter. We have a heck of a lot more confidence and faith on what this organization can do together. We're excited about what we're going to put together. So I think we feel pretty good about where we are.

That's fine, Tim. So January you're looking to put out the full budget?

Right. That's exactly.

Okay. You talked a little bit about the M&A landscape and just trying to get an indication of what level of producing properties could be coming to the market, say in the next year. I mean, how do you see that playing out in the Gulf of Mexico over say the next four to six quarters?

Yes, it's interesting. I think the Gulf is a place where certainly there's still exploration activity. All the bigger companies are still exploring. They're still looking for targets. I do think as we see some operators that are traditional operators offshore make more commitments to launch or I think it leaves with a question of where do some of these properties that are producing sit in their portfolio, Richard. And our job is just to be available and be a very good potential counterparty to any offering that comes up. And sometimes you think company maybe in it for the long haul and then they realize they're rationalizing two or three assets. You need to be available for that. So we're just trying to make sure we understand the landscape and we're not alone in that. Obviously, there's some good companies out there that are interested in buying assets in the Gulf of Mexico. And so we try to look at a full diversification of opportunities. It could be expanded exploration opportunity. It could be an asset that's in our data set. So it's in an area where we really have faith in what we're doing seismically. And so we'll take on maybe a smaller asset and obviously you can look at some bigger deals, but I do think there are potentially more assets on the market then there could be buyers for them. But look, I mean there's, yes, I think you've probably been on several calls this week and there's other folks looking at these assets. But the Gulf of Mexico shrunk. I think there's really good companies out there participating on the M&A front and we just have to stay patient and make sure we find the right set of assets.

Okay. Tim, and then just the last one for me, any updates on what rough estimate might be for your PV-10 values, say using mid-year reserve numbers and current strip pricing considering where you're trading right now?

On the reserves?

As far as the PV-10 value goes associated with them, say midyear reserves and current strip pricing.

Yes. Well look, I mean I don't know if I didn't disclose it in a previous deck, I don't know if I'm trying to prepare to disclose it on this call, Richard. But I think as you remember at the beginning of the year 151 million barrels and the SEC approved number, which by the way is $53 was $2.4 billion. I think if we use on that reserve set, which is 150 million barrels, we use 65 and $3, you would be somewhere around $3.2 billion. So I think we'll just roll that forward and put in the adds and put it in the revisions and kind of guide that later. But just going back to year end, again at $53, you were at $2.4 billion and then 65 and $3 just as a normal flat price. Again, at year end 2017 reserves, I think that's $3.2 billion. And you can go look at the enterprise value and make an estimate on where you think the value is, but anyway that that just takes you back to the end.

Okay. That works, Tim. Thanks very much.

Richard, thank you.

Next we have Sean Sneeden of Guggenheim.

Hi and thanks for taking the questions. Tim, I know you highlight the economic value in uplift with infrastructure and how it helps to differentiate you on the M&A front? But can you talk a little bit about how – any kind of potential needs for infrastructure as you go through development program here?

Well, I mean I think as you can imagine as we look at allocating capital next year and I think we start to ask the question of, hey look, where do we have inventory and where do we have some meaningful assurance that we can get this thing hooked up and hit the timelines. And that's where as I'm thinking about a budget, if you can imagine, we've got a host of ideas, where am I willing to take a little bit of risk on timing certainty because maybe the prospects more impactful that would be in an area maybe where I don't have access to the infrastructure and where am I not willing to take that risk and I want to make sure I can hit the timing mark. And so we're, infrastructure helps is in the planning process. It certainly helps with the economies of scale. And I think you've seen the chart. Obviously if you, own the infrastructure, you're drilling something with 10, 15 miles into deepwater case or you're drilling it right off the platform and the shallow water case. The benefits of that are obvious and we don't have to state those. At the same time, we may want to invest in something that's a little more higher impact, it’s going to take a little longer and have a little more breadth of uncertainty on when you're going to see those volumes. And so having an inventory that covers both of those types of ideas allows us to kind of make some decisions on where we can see certainty of timing and where we're willing to take a little risk because maybe it's a little more high impact. So again, as we like having the infrastructure, we don't have to have the infrastructure, but having that infrastructure helps us from a planning perspective – Sean, are you in the line?

I’m still here, yes.

All right, make sure that was on our end, any other questions?

Sure, maybe just one last one. Just on your rig utilization, I think obviously that's kind of picked up since the beginning of the year. Are you guys seeing any inflationary pressures specifically on the rig side and any concern around your rig availability as you kind of start forward planning for 2019 and beyond?

Yes, look, so if I go right now till last year, not a lot of inflationary pressure and that's fine. I think that's allowed the offshore environment to recover a little bit and look, I think we could use a little runway in that regard. As we move forward, I do think you're seeing the black law grow. Obviously there's less rigs in the Gulf of Mexico then there was. So yes, I'm a little more concerned about utilization. I think we can handle a little inflationary pressure. Obviously we've got a bit of a commodity uptake if you think about where we were a year-ago, 18 months ago, and a rig rate that isn't too dissimilar to where we were 12 months ago. So we can handle a little inflationary pressure. I think you can expect that. I think I'm more concerned about a rig utilization look after Mexico's picking up, I think you're seeing the rig we have with the Ensco 8503 rig, we're using down there very well. It could stay down there. Another rig can move down there. So I think we have to be mindful of that and it's something we're trying to keep our eyes on. End of Q&A

At this time, it looks like we have no further questions.

Thank you. So I'd like to thank everybody for joining on the call. Again, I think the third quarter kind of represents the potential of this business. We continue to be happy with the progress we're making and certainly happy about the integration process and pulling the Stone team over and getting them incorporated into the culture of Dallas and we're really excited about where we're going to be in the quarters and years to come. So thanks everyone again for joining and taking the time.

And we thank you sir to the rest of the management team for your time also today. Again, the conference call is now concluded. At this time, you may disconnect line. Thank you again everyone. Take care and have a great day.