Talos Energy Inc. has announced its financial and operational results for the fourth quarter and full year 2018. 

Key Highlights of the Fourth Quarter 2018: 

• Year-end 2018 proved reserves of 151.7 million barrels of oil equivalent ("MMBoe"), of which 76% is proved developed 
• Standardized measure of discounted future net cash flows of $3.3 billion and PV-10(1) of proved reserves of $3.9 billion, with proved developed producing ("PDP") reserves accounting for $2.5 billion 
• Production of 53.4 thousands of barrels of oil equivalent per day ("MBoe/d"), or 4.9 MMBoe in the fourth quarter 
• Net Income of $306.3 million and Earnings Per Share of $5.66 in the fourth quarter 
• •Adjusted Net Income(2) of $49.3 million and Adjusted Earnings Per Share(2) of $0.91 in the fourth quarter 
• Adjusted EBITDA(2) of $158.8 million in the fourth quarter. Excluding hedges, Adjusted EBITDA(2) was $175.1 million 
• Adjusted EBITDA Margin(2) of 61% or $32.33 per barrel of oil equivalent ("Boe") in the fourth quarter. Excluding hedges, the Adjusted EBITDA Margin(2) was 68% or $35.66 per Boe. 
• As of December 31, 2018, liquidity position of $460.3 million, including $320.4 million available under the $600.0 million Bank Credit Facility and approximately $139.9 million of cash. In the fourth quarter of 2018 the Company's Borrowing Base was increased by approximately 42% to $850 million; however, Talos elected to maintain the commitments at $600 million 
• As of December 31, 2018 the Company's total debt principal balance was $766.2 million, inclusive of $93.7 million capital lease. Net Debt to Annualized Adjusted EBITDA(2) was 1.0x 
• Capital expenditures, inclusive of Plugging and Abandonment costs, was $142.4 million in the fourth quarter

(1) PV-10 is a non-GAAP financial measure and differs from the standardized measure of discounted future net cash flows, which is the most directly comparable GAAP financial measure. See "Supplemental Non-GAAP Information" below for additional detail and reconciliations of GAAP to non-GAAP measures, including a reconciliation of PV-10 of our proved reserves to the standardized measure of discounted future net cash flows at December 31, 2018. 
 
(2) Adjusted Net Income, Adjusted Earnings per share, Adjusted EBITDA, Adjusted EBITDA excluding hedges, Adjusted EBITDA Margin, Adjusted EBITDA Margin excluding hedges, Net Debt, Annualized Adjusted EBITDA, and Net Debt to Annualized Adjusted EBITDA are non-GAAP financial measures. See "Supplemental Non-GAAP Information" below for additional detail and reconciliations of GAAP to non-GAAP measures. 

Combination with Stone Energy Corporation  

On May 10, 2018, Talos Energy LLC and Stone Energy Corporation completed a strategic transaction pursuant to which both became wholly-owned subsidiaries of the Company ("Stone Combination"). Talos Energy LLC was considered the accounting acquirer in the Stone Combination under accounting principles generally accepted in the United States of America ("GAAP"). Accordingly, the Company's historical financial and operating data, which cover periods prior to May 10, 2018, reflect only the assets, liabilities and operations of Talos Energy LLC (as the Company's predecessor prior to May 10, 2018), and do not reflect the assets, liabilities and operations of Stone prior to May 10, 2018. 

President and Chief Executive Officer Timothy S. Duncan commented: 
"2018 was a transformative year for the company, as we combined the best aspects of two companies, following our merger with Stone Energy. The benefits of the combination have shown results immediately, as we are a stronger, free cash flow positive company with ample liquidity and a significant inventory of drilling locations in both the US Gulf of Mexico and offshore Mexico. Our strategy of executing asset management and drilling projects around existing infrastructure in the US Gulf of Mexico complements our high impact exploration and development projects in offshore Mexico."

"In the last twelve months we have seen our proved developed reserves increase 20%, as compared to the pro forma reserves at December 31, 2017. We have also added three small bolt-on transactions at a low entry cost, including the Gunflint acquisition in January of 2019. We have increased our liquidity position and continued to improve our already robust leverage metrics. We have also re-affirmed the potential of our globally recognized Zama discovery through our ongoing appraisal program."

"Our average daily production in 2018 on a pro forma basis was 52.4 MBoe/d, which was on the high end of our pro forma guidance range of 49.0 – 53.0 MBoe/d, allowing us to generate $585 million of pro forma Adjusted EBITDA for the full year 2018, inclusive of hedges, and a pro forma capital program of $452 million, inclusive of plugging and abandoning activities ("P&A"). Although the merger with Stone required us to spend more capital in 2018 on P&A and non-recurring repairs and maintenance than we normally would have, in 2019 those costs are expected to go down materially."

"In the US Gulf of Mexico, we executed a series of deepwater subsea tie-back projects in 2018 and early 2019, namely the Mt. Providence well, which was connected to our Pompano facility, and the Tornado 3 and Boris 3 wells, that will flow back to the Helix Producer 1 ("HP-1") in our operated Phoenix complex once the wells are completed. The HP-1 dry-dock project in the first quarter of 2019 was flawlessly executed by the Talos team and our partner Helix Energy Solutions, and we expect the production in the Phoenix complex to be restarted in the coming days. Soon thereafter we expect to bring the impactful Tornado 3 and Boris 3 wells online, which will put Talos in a position to grow production year over year while continuing to generate free cash flow in the current price environment for 2019.  In shallow water, our asset management and drilling activities have allowed assets such as Ewing Bank 305/306 to achieve production levels not seen in the last 15 years."

"We also continue to be active and to execute on our business development and commercial activities. In addition to the aforementioned bolt-on acquisitions, we have acquired the Antrim stranded discovery from ExxonMobil and have entered into partnerships to drill two deepwater projects in 2019, the Bulleit and Orlov prospects."

"In Mexico on the Zama project, our operations execution has been outstanding. As part of the ongoing appraisal program we confirmed the oil-water contact per our geological model and have encountered more sand than expected in the first down-dip location. We are excited about the impact this discovery will have in the Mexican economy and to Talos shareholders. Also in offshore Mexico, we will start to execute on the inventory we acquired as part of the cross-assignment of interest between Block 2 and Block 31, which includes the low-risk but high impact Olmeca project on Block 31."

"In conclusion, we are very happy with our 2018 results, but we are already looking forward to 2019 and beyond. We will continue to relentlessly execute on our operations and strategy of responsibly growing production at an appropriate pace that allows for the continued generation of positive free cash flow while diligently pursuing additional business development opportunities that fit our asset footprint and core competencies. We believe this is only the beginning of the Talos journey."

Proved Reserves 

As of December 31, 2018, Talos had proved reserves of 151.7 MMBoe, with 81% comprised of liquids (74% crude oil and 7% NGLs). As compared to the pro forma year-end 2017 reserves, the Company achieved 100% reserve replacement rate. Talos accomplished this replacement rate in a year that the drilling program was mainly designed to convert proved undeveloped reserves into proved developed reserves while integrating the Stone merger. As such, proved developed reserves increased approximately 20% year over year, and is not inclusive of the recently successful Boris 3 well in the Phoenix complex, which is still classified as proved undeveloped in the year-end reserves. The recently announced Gunflint transaction is also not included in the year end reserves.

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