Good morning and welcome to the Talos Energy Second Quarter 2019 Earnings Conference Call. 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 like to now turn the conference over to Sergio Maiworm, Investor Relations. Please go ahead.

Thank you, operator. Good morning, everyone and welcome to our second quarter 2019 earnings conference call. Joining me today to discuss our results are Tim Duncan, President and Chief Executive Officer and Shane Young, Executive Vice President and Chief Financial Officer. Before we get started, I'd 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; on Form 10-Q for the quarter ended on June 30, 2019, filed with the SEC yesterday; and on Form 10-K for the year ended 2018 filed with the SEC on March 13, 2019. Any forward-looking statements that we make on this call 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. 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 earnings press release, which was filed with the SEC and which is also available on our website at talosenergy.com. And now, I'd like to turn the call over to Tim.

Thanks, Sergio, and thank you everyone for joining our call. We also welcome our new Executive Vice President and Chief Financial Officer, Shane Young, to the call. Shane was a senior investment banker for over 20 years; including stops at Morgan Stanley and Goldman Sachs prior to leaving banking to become our CFO in 2014 and 2015 and we're thrilled to have him back. It's a pleasure to discuss our second quarter, one of our busiest and most productive in the history of Talos. We're certainly happy with our operating metrics highlighted by Talos's best quarter in terms of production and adjusted EBITDA with and without the impact of our hedges. When we look back a year ago, the second quarter of 2018 was our first publicly reported quarter. At that time, we discussed the pro forma results, which included the then recently closed business combination with Stone Energy and the Ram Powell asset transaction in our Mississippi Canyon core area. It was our expectation back then that in the following 12 months, if we continued to allocate capital toward drilling activities in and around the assets we owned, focused on asset management and relentlessly pursued the synergies we knew existed in the combined portfolio, we would have a more efficient company with greater scale and diversity. We expected to see continued improvements in our balance sheet and liquidity position and we hoped we'd be well positioned to maximize the opportunities that we believed were available, both inside our portfolio and through external business development efforts in the U.S. Gulf of Mexico and offshore Mexico. And in the second quarter of 2019, we're very pleased to report that we have achieved all of that, plus additional great milestones. We think you can now see the potential of what we have…

Thank you, Tim. It has been wonderful to be back at Talos for the past three months and I couldn't be more excited to have rejoined such a well-positioned company with a great team and great assets. Talos has grown tremendously over the past several years and accomplished much since I was here last. That said, I couldn't have rejoined at a more exciting time and I look forward to the substantial opportunities for value-added growth that lie ahead for the company. I'd like to take a minute to review the second quarter results and then touch on liquidity and hedging. As Tim highlighted, Talos recorded adjusted EBITDA in the quarter of approximately $207 million inclusive of an $8.5 million federal royalty refund. This equated to a $38.54 margin for BOE or 72% margin. These results reflect our record quarterly production, the pricing premium we realized relative to WTI, and the continued focus on cost control throughout the entire business. Net income for the quarter was approximately $95 million or $1.74 per share. From a balance sheet perspective we ended the quarter with just under $800 million of total debt. This includes approximately $87 million for the financed lease on the HP-1. Adjusting for cash of approximately $89 million, our net debt to LTM adjusted EBITDA was less than 1.2 times and our net debt to second quarter annualized adjusted EBITDA was less than 0.9 times. As was previously noted, capital expenditures for the quarter including just over $28 million for P&A were approximately $187 million. This figure includes a little more than $31 million spent in Mexico during the second quarter. Recall our 2019 capital program is front-end loaded for the year and therefore we spent just over 70% of our budget during the first six months. With activity…

Thanks Shane. In conclusion, the second quarter was one of our best on record with production and adjusted EBITDA up, expenses down, and margins at all-time highs. Our U.S. Gulf of Mexico business continues to generate a significant amount of free cash flow which is also expected to increase in the second half of the year and we have a peer-leading balance sheet with one of the most conservative leverage profiles in the small to mid-cap universe. We are thrilled to have the recent drilling success in nearly all of our drilling wells that will continue to set us apart. We believe that Talos is very well-positioned for a successful second half of the year and beyond. And with that, I'll now open it up for questions.

We will now begin the question-and-answer session. [Operator Instructions.] The first question comes from Jeff Grampp with Northland Capital Management. Please go ahead.

Good morning guys.

Good morning Jeff.

I was curious Tim. As oil kind of we're catching a bit today, but it's weakened down toward the $50 range. How do you think about positioning Talos as you start to put together the 2020 plan in a $50 world versus say a $60 world? What are some of the gives and takes or just operationally how you want to position the company should we be hanging at this little bit lower level for longer?

Yeah, no. Well, I think as Shane said it in his remarks, one of the first things -- one of the things we did in the last, I would say, three to six months is we can't position this company to rely on being long oil. I think obviously that hasn't worked out for some folks in the past. And so when we have a number that we think we can hedge into we want to hedge into it. So from a protect the balance sheet, maintaining a certain level of liquidity have flexibility I think Shane made all the right moves in the third quarter in that regard. As we think about next year and typically we do our budgeting process -- at this time of the year we start thinking about it. We get through second quarter earnings. Keep in mind, there's not going to be as much spend in Mexico and so you can take a little bit of that off the board. We're going to spend a lot of time in unitization a lot of time on our development plans and we want to get to FID and those are great milestones for 2020. But there's some capital that comes out of the system there. And then I think we look at really where the rig market is and what are some of the things we're trying to achieve next year. We want to hook up our discoveries. And so you get into, what's the maintenance capital look like and then what do you want to do or what do you need to do on top of that. But I think we can be flexible in our capital approach. We may not have as much spending in Mexico and I think we've got a good hedge book. And I think all that sets up well for 2020.

Got it. Appreciate those details. And for my follow-up speaking of Mexico here, Block 31, you obviously had some nice success there. I was just wondering given the shallower depths and the early success could that potentially produce before Zama? I understand, you don't want to front-run the operator, but just from a high-level perspective what does the timeline look like if that was FID'd to first oil you think and how does that relate to your Zama operations?

Yes, yes. You're right in the fact that I don't want to front-run the operator there. But I think look it is in very shallow water. It's very close to shore. It's a shallow oil play and it's very, very fresh. There's a lot to do just in getting through the rest of the year on that project. It's nice to have a little bit of encouraging results. Yeah, it could. I don't want to signal that it will, but it could just because of those water depths. There isn't a unitization discussion, which is one of the things that we have to work through on the Zama process all of the resources that are still a constraint to the contract area. So there are some part of that that are simpler to navigate. At the same token we're just now scratching the surface on it. And obviously if you look at what we've done in the appraisal of Zama that discovery is fairly fully appraised. And so different projects, different time line. Certainly, there's a case there, but probably too early for us to have specifics on that.

All right. understood. Appreciate the time guys.

|All right. Thanks Jeff.

The next question comes from John White with ROTH Capital. Please go ahead.

Good morning guys and congratulations on the strong quarter.

Thanks John.

On the Bulleit prospect, you've got the DTR-10 and the MP sand. Is that well going to be dual completed or can you offer some more color on...

Yes that's a -- so we have pay in two zones and I would tell you this could actually you could almost go back to Jeff's question. I think one thing we have to sit down and ask is, it's great to have two thick sands, rock properties in both those sands are very good, oil content in both those sands so that checks all the boxes. I think the question is, do you want to potentially drill two wells and hook that up or should you pull back one well and have two completions? And a lot of that gets into the question that Jeff alluded to, what's the price environment? Where do you want to see your capital spend? Where can you get your best returns? And those look we just logged the deeper pay over the weekend and I think we've got to take that in and process that and make a plan relative to where we think the market is relative to where we think costs are. And then we'll probably – we’ll probably guide that certainly by the end of the year maybe even sooner than that. But we have to probably pull that in and figure it out. I think the broader takeaway though John it's nice to have something 10 miles from something we own. I think really that well is more of an application as much of an application of the strategy as it is the project itself.

Yes, you got a big pile of sand there. Its very encouraging. Congratulations again.

Yes, thanks.

All right, thank you. I will turn it back.

The next question comes from Marshall Carver with Heikkinen Energy Advisors. Please go ahead.

All right. Pretty close on the firm name.

I was thinking about that, Marshall, but how are you?

I am doing fine. Doing fine. Tim I'll ask a big-picture question. How do you feel the business is going a year after the combination with Stone Energy?

Yes, it's interesting because certainly sometimes you have to separate the market and it's obviously a difficult and choppy market and then the business itself. And putting the market aside again, Jeff had a good question on where do you see the commodity going etcetera? When I look back at the business, a year ago you're taking a private company, you're kind of reversing into a public company, you're pulling that business combination together. We quickly added a disregarded asset by a major pull that in. And the question is can we make all that excel? Hunkered down on cost savings, tried to look for prospects, doing the reprocessing around those that infrastructure and you fast-forward a year, and a 75% unhedged margin is actually pretty interesting for us when you look back three years and we couldn't achieve that margin in an almost $100 environment. It really speaks to the paradigm shift of what I think is the right strategy for this basin. And even though there's a little more capital we wanted in the second quarter when you look at that Gulf business, it's ripping off quite a bit of free cash flow. We're reinvesting that in a discovery in offshore Mexico that McKinsey calls one of the best ones on the planet and one of the lowest breakevens on the planet. So from where I situation, I really like what we're doing. I like how hard the team is working. I like what the cash flow of these assets are producing and I like the margins we're achieving. We've got to just figure out how to continue to put that story out there? And obviously we've got to make sure we protect we've built, so we can withstand a choppier commodity environment and general capital markets environment. But stepping back from that, I couldn't be more proud of what we've done a year later.

Thank you.

Thanks Marshall.

[Operator Instructions.] The next question comes from Richard Tullis with Capital One Securities. Please go ahead.

Sure, thank you. Good morning everyone. Tim or Shane if you could where we sit now and what are the next steps expected toward moving -- toward FID at Zama, including the unitization process? How do you see it potentially playing out over the next couple of quarters?

Yeah. Hey, Richard. Look, we're in the middle of those discussions almost on a weekly basis with Pemex. And obviously, they haven't been able to drill their well yet. We hope they do. We still have a commitment to share the data. We do that quite often. And look, we have a lot of data we need to process. I know you heard my comments on how much data that was. I wouldn't underscore. I've been doing this a long time and Steve Heitzman's here. He's been doing it, much, much longer than I have. And we've never collected this much data. It's a ton of data we're putting it all together. We're sharing it with our consortium partners. We're going to share with Netherland Sewell, we're sharing with Pemex. And we've got to kind of get through that unitization hopefully by the end of the year. And then we've got to put all that in front of the government. We've worked well with them and then that has its own process. So that's why, we've talked about that's really an objective for next year, and that's also why you're not going to see us spend a lot of money on that project over the next year. There's a lot to do there, that's kind of non-capital intensive. The road map's there and we're trying to execute the road map. I wish I could tell you, you lock it. We'll be done with the unitization in X number of days. But there's -- it's a different jurisdiction. There's an ebb and flow, and there's a lot of data to process and a lot of decisions to be made. But I can just tell you that we are deep in those conversations right now.

That's helpful Tim, and just my follow-up. When you look at the M&A market, how do you see things currently given where we are with oil prices the investor environment and really what properties are available currently? How do you see things right now?

Yeah. Look, as you know, we're always looking. It's trickier. I think for folks to think it's not as tricky when you don't have as robust of a public equity market. It is. And so you have to be thoughtful about what you can get accomplished and what you might not be able to get accomplished and you only have so many resources in the office. You want to use them effectively. So you're looking at maybe smaller deals. You're looking – obviously, we want things that are accretive from a cash flow basis. We want things that fit our strategy that give us access to upside. We want the same things we've always wanted. We just have to be a little more creative on what those deals might look like. We have to talk to more people. You've got to work a little harder when the sources aspect of a sources-and-uses transaction isn't as easy to procure, as it normally would be in a more robust market. So we've got a team, as you know, that's dedicated. That's all they do. These are guys that have been with us a long time, some of them through multiple companies, and they know what works for us. But we've never -- not been in the market. I think it's rare we've been through a year and not transacted. Sometimes those are real material transactions, Richard that you're aware of and sometimes they're smaller transactions. I think Bulleit prospect has really benefited from a very small transaction we did in the third quarter last year, but that made perfect sense for us. And so, we'll see what the rest of the year brings, but it's certainly not as easy as it would be. But yet in theory, there's potentially more opportunities. You just have to be a little more creative.

All right, Jim. Thanks so much. I appreciate it.

All right, Richard. Thank you.

This concludes our question-and-answer session. I would like to turn the conference back over to Tim Duncan for any closing remarks.

No, I don't have anything in particular. I want to thank everybody for joining the second quarter call. Obviously we're very proud of the quarter. The team is working very hard, and we look forward to continuing to provide updates throughout the rest of the year. So thanks for everyone's attendance.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.