Talos acquires Gulf of Mexico portfolio through multiple transactions

Talos Energy has entered into a series of definitive agreements to acquire a broad portfolio of US Gulf of Mexico producing assets, exploration prospects and acreage from affiliates of ILX Holdings, Castex Energy and Venari Resources for $640 million.

Specifically, Talos has signed definitive agreements to acquire all producing assets, primary term acreage and prospects of ILX Holdings; all producing assets and certain primary term acreage and prospects of ILX Holdings II; all primary term acreage and prospects of ILX Holdings III (ILX Acquisitions); and certain subsidiaries of the Castex 2014 and Castex 2016 entities (Castex Acquisitions).

In a separate transaction, Talos executed a purchase and sale agreement and closed on the acquisition of all primary term acreage and prospects from Venari Resources.

Key highlights of the transactions include:

• The addition of approximately 19 million BOED consisting of approximately 65% oil and over 70% liquids, increasing the company’s pro forma daily production to 72 million BOED based on Q3 2019 results;
• Acquired assets are expected to generate approximately $150 million of free cash flow in 2019, from an estimated $210 million in adjusted EBITDA and projected capital spending of approximately $60 million;
• Material held-by-production and primary term acreage position across 700,000 gross acres, much of which lies within the company’s existing seismic data footprint and which also includes a significant portfolio of identified, high-impact exploration prospects providing the company with several years of additional drillable inventory;
• Immediately accretive to Talos shareholders on all key transaction metrics; $640 million gross purchase price translates to valuation metrics of approximately $33,684 per BOED, $9.41 per BOE of estimated 2P reserves and 3.0x 2019E Adjusted EBITDA;
• Funding sources for the transaction consist of $250 million in new Talos shares to be issued to sellers at closing and cash from existing sources of liquidity;
• As part of the regular fall redetermination, the company’s borrowing base has been increased from $850 million to $950 million effective 10 December 2019, and will be further increased to $1,150 million at closing of the ILX Acquisitions and Castex Acquisitions;
• Pro forma leverage metrics and liquidity will remain conservative at approximately 1.2x net debt toQ3 2019 annualized Adjusted EBITDA (from 1.1x Talos standalone) and approximately $600 million of liquidity at closing; and
• Transaction places Talos in the top 20% of all S&P Oil & Gas Exploration & Production (XOP) index E&P constituents in key metrics, including Free Cash Flow Yield, Net Debt to Adjusted EBITDA and Adjusted EBITDA Margin, all based on actual pro forma Q3 2019 annualized figures

“The acquisition of these assets significantly strengthens Talos’s position as a basin leading independent E&P company, providing increased scale and free cash flow, greater operational diversity and broader optionality in future growth,” Timothy Duncan, Talos President and Chief Executive Officer, said. “We are executing the transaction at an attractive valuation that is accretive to our shareholders and with a funding structure that preserves our strong balance sheet and liquidity. What makes this transaction unique is the combination of high-margin production and a deep portfolio of prospects. As we consider the full scale of the pro forma business, the combined cash flow profile and the significant exploration portfolio, we are excited about the tremendous potential to build long-term value, not only from these assets alone but from the optimization of the combined asset base, high-grading of investment opportunities, follow-on business development and M&A activity.”

The net consideration at closing of the ILX Acquisitions and Castex Acquisitions is expected to be funded with the issuance of new Talos shares and cash from existing sources of liquidity. Talos will issue 11.0 million shares to sellers at closing, or $250 million in equity consideration based upon the volume-weighted average price for the 30 trading days ending 5 December 2019. Effective 10 December 2019, the borrowing base under the company’s revolving credit facility increased from $850 million to $950 million as part of the regular fall redetermination process, and will be further increased to a total size of $1,150 million simultaneous with the closing of the ILX Acquisitions and Castex Acquisitions. The purchase price is subject to customary purchase price adjustments between the 1 July 2019 effective date and the expected close date, which will significantly reduce Talos’s cash requirements at closing. In advance of the transaction, Talos entered into WTI swaps, including 1.1 million BOE for 2020 at a weighted average price of $55.46/bbl.

The ILX Acquisitions and Castex Acquisitions were unanimously approved by a subset of the company’s board of directors comprised of representatives unaffiliated with Riverstone Holdings and the acquired assets. Simultaneous with the execution of definitive documentation, affiliates of Apollo Global Management and Riverstone Holdings, which collectively control approximately 63% of the company’s outstanding common stock, provided their stockholder approvals.