Good day, and welcome to the Talos Energy Second Quarter of 2021 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] please note this even it being recorded. I would now like to turn the conference over to Sergio Maiworm, Vice President of Finance, Investor Relations and Treasurer. Please go ahead.

Thank you, operator. Good morning, everyone, and welcome to our second quarter of 2021 earnings conference call. Joining me today to discuss our results are Tim Duncan, President and Chief Executive Officer; Shane Young, Executive Vice President and Chief Financial Officer; and Bob Abendschein, Executive Vice President and Head of Operations. 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 and in our Form 10-Q for the quarter ending June 30, 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 earnings press release, which was filed with the SEC and which is also available on our website at talosenergy.com. And now I would like to turn the call over to Tim.

Thank you, Sergio. Before I specifically discuss the results and recent activities of the second quarter, it is worth reflecting more broadly on the year we have had to date because I’m really excited about the execution and results shown across our entire organization. The team has done a tremendous job. We have seen back-to-back record production quarters and improving margins. We had a significant deepwater sub-salt discovery at Puma West in the first quarter as well as a successful exploitation drilling program that we are looking to repeat as the rig moves to another key asset. We extended the maturity of our credit facility in an evolving lending space and recently added a new lending bank to the syndicate. We launched a carbon capture and storage initiative that we believe reshapes what is possible for a Gulf Coast and Gulf of Mexico energy company. It is been a very busy six-months, and I’m encouraged by the great results year-to-date, and I expect this to continue into the second half of this year. Moving into the specifics of the quarter. We are proud to report record production for the second straight quarter, reaching 66,300 barrels of oil equivalent per day in the second quarter, aided by very solid execution on minimizing production downtime. That solid execution, coupled with the oil-weighted production of 69% oil and 76% total liquid is reflected in our margins for the quarter, where we recorded adjusted EBITDA margins of over $36 per barrel of oil equivalent or approximately 72% before including the impact of financial hedges. The realized adjusted EBITDA margin after hedges was approximately $25 per barrel of oil equivalent. This led to an adjusted EBITDA values of over $217 million before hedges and $148 million after hedges. Second quarter capital expenditures of 117 million…

Thank you, Tim. Good morning, everybody. We appreciate you taking the time to join our second quarter conference call today. This morning, I will address four topics: First, the Company’s record-setting results from the second quarter. Second, the reaffirmation of our full-year 2021 guidance. Third, I will provide a preview of how we will approach 2022. Finally, I will address the recent success of our RBL extension and how that leaves Talos well positioned for the second half of 2021 and beyond. Sufficed to say, this is a very exciting time at Talos for so many positive things happening on both the financial and operating fronts. Let me start with the strong results for the quarter. Realized prices were $64.28 per barrel and $3.05 per Mcf, resulting in revenue of approximately $304 million. We performed well on the recurring cash cost front with LOE and G&A of less than $12 per BOE and approximately $2.50 per BOE, respectively. Strong commodity prices, record production and disciplined cash costs resulted in EBITDA of $148.1 million for the quarter. Adjusted for realized hedge losses, EBITDA would have been a company record $217.3 million in the second quarter with unhedged margins of over $36 per BOE or roughly 72%. As discussed earlier in the call, the second quarter was expected to be the highest capital quarter for 2021, driven by the high level of operational activity as we took advantage of what is typically the optimal weather window for the year. We expect capital expenditures to taper over the balance of the year and should stay well inside our full-year guidance for 2021. The business continues to execute on all fronts. And therefore, we are reiterating our operational and financial guidance for the full-year 2021 originally issued back in March. We believe that we…

Thank you, Shane. It is important for me to reiterate that I have the highest expectations and confidence in our team to deliver on strategic initiatives across the board. We think the second quarter started the process of rethinking the impact of what an independent oil and gas company can become over the next five to 10-years. First, we think what we do as an oil and gas company is very important. Delivering low-cost and efficient energy improves lives and makes our country stronger as we transition into other energy sources over the next several decades. Additionally, as larger companies monetize their oil and gas portfolio, it is important that the emissions and safety story on those assets improves, not declines, as they move into new hands. We have a history of being a trusted counterparty, and we want to stay a leader among independents in this important area. Lastly, as we focus on lowering emissions in our own production, we are also focused on lowering emissions into communities where we work and live through our CCS initiative. From our huge technical success in Mexico to our innovation at Tornado to our early leadership in carbon capture, we pride ourselves on being a nimble, commercial and an outside of the box team with a tremendous amount of resolve, and we are proud of the success we have had with that approach. As we look forward, I’m counting on our team to continue to deliver with this culture at its core. To conclude our prepared remarks this morning, I’m very pleased with our operational and financial performance in the quarter as well as all that we have accomplished on the strategic front. We are executing well on everything that we can control and delivering solid results while we find ways to add and accelerate catalysts to the business that will drive long-term value creation in the future. The platform we built is solid, and we are excited about continuing to deliver in the second half of the year. With that, operator, we will open the line for Q&A.

Thank you. We will now begin the question and answer session. [Operator Instructions] The first question will come from Subash Chandra with Northland Securities.

Hey Tim, I guess, a question about 2022, and this is really a question for most EMPs. But as you sort of look at your priorities, and maybe this is a false choice, but I will lay it out anyway. You talked about 60% - Shane talked about 60% to 75% reinvestment rate. How would I prioritize the following? The reinvestment rate, a production growth cap, which I don’t think you have previously communicated or paying off the revolver, given some of the liquidity concerns the industry has been through, I would think that, that might be a priority as well. If you have to choose between those three and rank them, how would you?

We wouldn’t rank kind of growing production first. I think we certainly want to continue to have that leverage tick down. I mean, I think it is a priority, Shane, talked about the direction in which it is going. That is something we are very proud of. In terms of reinvestment rate, I think the one thing that we talked about in previous call, and I think that it applies today is when you think about what we do compared maybe to different than our onshore friends, we are going to reinvest a little bit in exploration. So there is a maintenance component to what we do, and then there is an exploration component to what we do. And we have added a little bit of that back. And obviously, we got some good results in Puma West. We want to add more of that back next year as well, if we have the right price environment. And we have a portfolio where we can dial that back if we don’t have that price environment. But if we do, we want to reintroduce that, and that is part of that kind of distribution of reinvestment rate that Shane talked about. And I think it was more 60% to 70% than 75%, just by the way. But again, part of that is in that exploration. If you are lucky and you have success in that exploration, we would anticipate we do, now you have to think about how to develop those Greenfields. And there is a portion of your budget that has to kind of be involved in that. And that is really where you think about long-term value creation is through the drill bid. So it is not about growing production. I think it is really more about maintaining the right level of free cash flow, maintaining the right level of discipline with respect to paying down the revolver and paying down debt. But reintroducing some of that high-impact dollars that you can think about long-term as a value creator, where you want to be is in a position where you have an abundance of riches, and you have to pick between projects.

On the revolver, is there a comfort level that you have? We have seen others just kind of want to shape the banks entirely. And would that be a preference for you?

Yes. Look, one thing about the revolver, and I’m going to hand some of this over to Shane. But if you thought about kind of where we are in kind of the current aspect of the banking community. So we had 12 banks affirm a $950 million buying base. And we think that is great, and we would love to have that affirmation that sets that senior secured credit capacity. We had commitments at $655 million, that gave us some room to add banks, and we were able to attract a new bank. And I think just that news alone speaks to the value and the content of our assets. Shane can talk about the additional capacity, where we like to kind of keep those borrowings. I don’t know if you have any kind of comments on that.

Yes. So look, again, I think we see people trying to get away from the bank market. We are certainly cognizant of the challenges the bank market and certainly lived through it a little bit when we went through our extension process. But we have a great relationship with the banks. We want to keep the banks involved. We may get that utilization rate down a little bit, but they are great partners to us, whether it is our hedge book, which we are pretty consistent at, whether it is M&A, whether it is capital markets, whether it is other things, we want to maintain that strong level of relationships that we have always had. And Tim just highlighted that we added a new bank this week. We are glad to do it. I think it is going to be outstanding for us. And look, we will continue to have dialogues as we head into the fall and see where things shake out. But today, we have got 13 banks that are committed to Talos and we like that position.

And I think it is nice to add a bank from a different jurisdiction as well because it speaks to kind of the direction of where the firm is going, how we think about how we want to look five to 10-years from now. It is certainly centric in the Gulf of Mexico, could be in other areas. And I think bringing in an international bank, I think, solidifies that that message is being received.

And then could you sort of remind us how you are risking weather in the back half as the season is about to begin, if it isn’t underway already?

Yes. We probably talked about this in previous calls, but we always kind of had this five-year rolling average of downtime as a starting point as we build our corporate model. And before last year, and we thought about those five rolling years, we were averaging, I think, six or seven days a year, where we would have some - a material level of shut in. A storm sometimes can only shut in 10% of your production for three days. That is fine. Another storm may not even be too powerful. It just happens to move across your assets and it shuts in 80% of your production for three or four days. You just never quite know. But we had a nice rolling five-year average. Last year, I would say, disrupted that five-year average. But we have tried to stay kind of true to that principle. So we didn’t put in a similar year to last year. We think last year was an anomaly, but we did let those days blend into kind of how we thought about what this year could be. And I think that is why we guided that down. Now obviously, we are in August and so far, so good, and we had certainly a nice month last month. But we are in that point of the year going forward where the next three months could be busy. And so we will just have to see. If they are slow, we should have a really robust second half of the year. If we have a busy season, then we might get closer to where we are in guidance. But I think that is why we - it is easy to think when you look at the way production is running, and our team has done a phenomenal job certainly on the downtime to think about the high end of that guidance. But we are just hitting that time of the year where you just have to recognize you could have some storms.

Yes. And then this quarter, P&A was a larger expense than it has been, I imagine COVID had something to do with it. And you didn’t change your overall budget, but I was wondering if there is a back story to the P&A for the quarter, especially in light of some of the other news announcements we have seen in the Gulf?

Yes. No, there is nothing special about that. It is all weather. Those guys do a nice job of saying, "Hey, look, where are my best weather months, what are my best weather windows, and we are going to have kind of high activities." And I think that is why typically, April, May, June and July are really, really good weather windows offshore, and you want to get as much done as you can. And I think we try to reemphasize and we will continue to work with those who follow our story or when we are on the road, that the second quarter is always that lumpy capital quarter. And even if a guy comes to me and says, "Hey, this crew is working great, weather is great. Can we move this crew from this platform to another facility," and it is May. It is late May. I’m probably going to say yes to that within the confines of an annual budget because it just makes good operational sense to take those weather windows. So it is nothing kind of any more complicated than that.

Got it. Okay. And final one for me, Tim. The CCS stuff, I mean, it sounds like it is picking up momentum, et cetera. Could you sort of - even with a broad brush paint what a final outcome might look like for the project?

Yes. I will start it and Bob must weigh in on a little more, he can as well. I think what is interesting about, and then, look, Subash, you have been a thought leader here in reading about this and you are trying to get your investors thinking about it, your clients thinking about this as well. I mean it is an enormous industrial complex along the Gulf Coast, I think, 300 million to 350 million metric tons of emissions a year. The current tax structure doesn’t work for all emitters. There are certain emitters that they probably need a higher kind of tax credit structure. And I think that is probably coming, and different conversation for a different time. But there are some emitters, chemical plants, methane related plants, ammonia plants, where the current tax credit scheme works right now. The question is, when you kind of extract the CO2 and then move it and sequester it, where is the right place to do it. And I think that is the key part here. And the right place to do it is when you are not around a lot of wells, and we think the inland water, state waters is a great place to do that. You have got to have the right rock properties at the right depths, the right salinities in those aquifers. As we contemplate this, it is not for EOR purposes. We are really talking about just putting away CO2. I think as we looked at it, what we realized is that it is right kind of down the fairway of what we do very, very well. And it is logistics and it is labor and it is permitting, it is drilling, it is monitoring. And these are just, yes, the geoscience side of it.…

And Tim, I promise, it is the last one. Just as a follow-up to that, the midstream element which is the final element. I guess some of the midstream companies have sort of pushed back on the ability of older pipes to be retrofit for CO2. How would you characterize that? I mean it is just a pretty dense system of pipelines there. Would you bracket those pipelines in any way that they need to be built within the last several years or to be able to handle CO2 or do you not think it is that big a deal?

Well, so there is a couple of things on that. And it is actually - you almost have to pull a map out and look at it. But obviously, yes, there is a lot of infrastructure that can’t just be repurposed for various reasons. CO2 is a corrosive material. There are certain pipe sizes and working pressures. And again, there is a little more of an in-depth conversation around that. But that doesn’t mean some of it can’t. Some pipeline systems have redundancies and separate lines, and you might be able to use redundant lines. But the one thing a lot of these pipelines do have. And so much of this is about timing and about urgency and about project deliveries, they have right-of-ways. They have the space. And that actually is an important key in when you think about putting a project together, which was your original question. So it is all bespoke, Subash, every one of these is different. They are going to have different partners, different emitters and different geographical locations. There is plenty of room for a lot of different stores here. We are not the only ones and we shouldn’t be the only ones. But the key elements that somebody’s midstream guys have, they’ve got access to emitters and they’ve got right-of-ways within their existing infrastructure that you potentially can use to speed up the timing of your project.

Thanks.

Thanks. I appreciate it.

And the next question will come from David Heikkinen with Heikkinen Energy Advisors. Please go ahead.

Good morning guys and really wanted to continue on the carbon capture side. Did you all submit a proposal in the Texas Land Office submission that was due in mid May? Are you thinking more Louisiana Coast?

I don’t think those submissions are public, David. So if we did, I don’t think we can talk about it. Yes. Right. That is great. That is why I’m not answering. But look, here’s what I would tell you, the JV we have with Storegga contemplates kind of Corpus Christi through the State of Mississippi and really even heading into Alabama and Florida. So these guys are leaders in the space in terms of how they think about these projects. That is a project in the U.K. North Sea that I think started with two million to three million metric tons of commitments and then by clustering more folks, they could be up to 20. And so can we duplicate that in offshore Texas? Absolutely. Can you duplicate that in the inland waters of Louisiana that you know well, so well, David, in your background? Absolutely. And so there isn’t an area along the Gulf Coast, we are not focused on.

Okay and then looking at like Northern Lights in Norway and Acorn, like leases were awarded in 2019, and they are talking about 2021 for like planning injection and then up scaling. Is that the type of cycle time we are thinking a couple of years from award to getting close to considering injection or having, like you said, opening the store is probably the better description. Just trying to get an idea of the North Sea projects?

Yes. Well, first, I don’t if it was - I don’t know if that quick, like on the Acorn project, I think, and again, it is not our project or your project. So we don’t want to misquote it, and I don’t need Nick calling me and saying, get my darn project right. But I think they are kind of [FIDing] (Ph) this year and looking at injecting in 2027.

Late 2025.

Okay. Nick would call me obviously.

So they are opening with - I was using - that is the opening of the store component.

Yes.

So you start with FID and then the tenants are coming in, in five years is the way to think about it.

But I think that five years from open store to inject, we might be able to speed that up again for the - so you are right, in the one sense that getting the store. And again, the store in our view, and I think this is the part that you understand very well as well, is getting the store in the right geology, the right space, the right pore space, the right amount of kind of geographical area, so you can [plum] (Ph). But getting that store in place brings the clustered emitters and now you are working. Can you get first injections sooner here than over there? I think so, by the way, we can capture the carbon emissions right off the stack and move it in the Gulf Coast. There is so much infrastructure, there so many right-of-ways. I do think we can move on these projects, maybe a little quicker. But again, they are also bespoke. It is kind of hard to be able to compare one to the other. What is the distance and proximity to that first anchor tenant, things like that, David. But yes, I think it starts with the store, but not just a store. If you are going to get a project moving quickly, you have got to have other partners. I mean, you got to have a transportation partner. You got to have an anchored tenant on the emitter side. You want all of that to come together as close to the same time as possible. But ultimately, it is got to go somewhere.

Kudos to you all, it reminds me of the vision that Danish Oil and Natural Gas had before they became [indiscernible]. It takes some years, but a vision in the upstream space is something we are looking for. I like the way you are thinking?

Well, David, I appreciate that. I mean I think it is not deemphasizing what we do on the oil and gas side. Frankly, we want to be a much bigger conventional oil and gas company. We want to -- we have an ambition of what that needs to look like. And someone needs to own oil and gas assets for the foreseeable future. We know the bigger companies are thinking about monetizing those assets. But I think for an independent to be relevant in the space going forward. You get away just from oil and gas in kind of what I would call energy solutions. And this is what this is about, using the talent, the team we have to solve more problems and keep it local. And that is really what we are trying to do. And I really think we are going to be able to pull it off. We have got a lot of hard work. We have got to keep finding partners, but I’m glad you see it because we see it. And if we see it, we are determined to make it work.

I think you all is the partner of choice for buying properties fits. We saw another private company in the Gulf of Mexico had some liabilities flow back to Hess this year and probably some flow back to other people, and you all are a good acquirer and you do things the right way and don’t have those abandonment costs come back at the seller. So that is a good thing as well.

Yes, it always is. Thanks David.

[Operator Instructions] The next question will come from Steven Dechert with KeyBanc.

With what is happened at Zama, just want to see where you guys plan to focus on opportunities. Do you think it will be more in the Gulf of Mexico? Or are you looking more at other regions?

Yes. Well, look, I wouldn’t say we have 100% given up on Zama. I think there is just a process there to try to monetize the right value. And so we won’t go into great detail, but I would just say, let’s not consider ourselves giving up. We are going to work hard there and try to create value for shareholders. But as we think about the other areas, yes, look, we are excited about the discovery at Puma West. I actually noticed the other day that it hit BP’s earnings release, they mentioned it. So there is a lot more we want to kind of peel the onion back, but there is the right process and timing around that type of project. It is underneath a lot of salt. There is appraisal that we are planning. And so you will learn more about that in time. But it is in a good neighborhood. It is around a lot of facilities. It speaks to the very thing we are trying to do. There is other emerging plays on the eastern side of the Gulf of Mexico. And I think there is wells that we are not drilling, but some of the majors are drilling that could open up some plays where we have a lot of acreage. And so we are excited about some things happening in the eastern side of the deepwater Gulf of Mexico. And then absolutely, we are looking outside the Gulf in areas where we can buy both production or areas where there is Greenfield opportunities. And so again, we want to be a company that is not only growing the base business through exploitation and M&A, but has that Greenfield project. You see the benefit it is created for folks like Hess as a young engineer as it has and I’m proud of those guys for what they are doing in Guyana. But that is - you want to have some of that in your portfolio. And so we certainly did in Zama, and we still do, and we are not giving up on that. But we are absolutely going to keep looking for areas to replace that, both through our own investment and risk-taking on our own portfolio or really through potentially other Greenfield assets that have been found that are looking for partners.

Okay great, thanks. And then just with your expectation for higher production in the second half of the year, do you think that kind of puts you towards the high end of your production guidance range for the full-year?

Hello, Steven, yes, it is Shane here. Look, I would say first half of the year, we averaged 6,200 barrels of oil a day equivalent. Our guidance range is 63% to 67%, and we expect to be higher than 66.2% in the second half of the year. So again, it is a tricky time of year. So we are not coming out with a re-guide or any statements, but I think it would be safe to say that, that would be our outlook.

Okay. Thanks.

Alright. Thank you.

At this time, there are no further questions in the question queue. This will conclude today’s question-and-answer session. And I would like to turn the conference back over to CEO, Tim Duncan for any closing remarks.

Right. Thank you, operator. And again, thanks, everybody, for joining the call. Good questions and conversation. Again, the team’s execution was fantastic, both in the second quarter and in the first half of the year. As we mentioned, some of the lumpiness on the capital side, obviously, related to the second quarter weather window, you are going to see that taper off. You are going to see a lot of free cash flow gets generated in the second half of the year. But I think what you also saw in the second quarter that I repeated our prepared - I said in my prepared remarks, is you are starting to see the vision of what we are trying to become and how we think about ourselves over the next five and 10-years. Not only are we trying to grow the oil and gas side and proud of that and proud of what we do, we are tipping our toe into trying to diversify kind of how we are going to look as an energy company going forward. And it is a lot of hard work. We have got a team that is dedicated to doing it, and we are excited. We are going to be excited about giving you those updates in the coming quarters. So thanks for your participation, and we look forward to talking to everybody again soon.

The conference has now concluded. Thank you for attending today’s presentation. And you may now disconnect.