Talos Energy Inc 10-Q for FY2026 Q3
Talos Energy Inc. (TALO)
About this 10-Q
Talos Energy Inc filed this 10-Q on November 4, 2026, covering the quarter ended September 30, 2026 (FY2026 Q3).
Talos Energy reported third-quarter revenue of $595,991 thousand, versus $450,053 thousand, and Adjusted EBITDA attributable of $406,067 thousand versus $301,240 thousand. It closed the Coulomb and Na Kika Acquisition; available liquidity reached $1,076.3 million. AI summary
Headline figures
Quarter ended September 30, 2026, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $595.99M
- up 32.4% from $450.05M a year earlier
- Net loss
- $81.24M
- compared with a net loss of $95.91M a year earlier
- Diluted EPS
- -$0.49
- compared with -$0.55 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number:
(Exact Name of Registrant as Specified in its Charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
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Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
As of October 28, 2026, the registrant had
TABLE OF CONTENTS
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Item 1. |
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Condensed Consolidated Statements of Changes in Stockholders’ Equity |
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Note 1 — Organization, Nature of Business and Basis of Presentation |
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Note 9 — Employee Benefits Plans and Share-Based Compensation |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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Item 4. |
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Item 1. |
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Item 1A. |
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Item 2. |
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Item 3. |
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Item 4. |
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Item 5. |
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Item 6. |
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2
GLOSSARY
The following are abbreviations and definitions of certain terms commonly used in the oil and natural gas industry and frequently used in our periodic reports filed with the U.S. Securities and Exchange Commission:
Barrel or Bbl — One stock tank barrel, or 42 United States gallons liquid volume.
Boe — One barrel of oil equivalent determined using the ratio of six Mcf of natural gas to one barrel of crude oil or condensate.
BOEM — Bureau of Ocean Energy Management.
BSEE — Bureau of Safety and Environmental Enforcement.
Boepd — Barrels of oil equivalent per day.
Btu — British thermal unit, which is the heat required to raise the temperature of a one-pound mass of water one degree Fahrenheit.
Completion — The installation of permanent equipment for the production of oil or natural gas.
Deepwater — Water depths of more than 600 feet.
Developed acres — Acreage that is allocated or assignable to producing wells or wells capable of production.
Dry well — An exploratory or development well that is not a productive well.
DOI — U.S. Department of the Interior.
Field — An area consisting of a single reservoir or multiple reservoirs all grouped on or related to the same individual geological structural feature or stratigraphic condition.
GAAP — Accounting principles generally accepted in the United States of America.
Gross acres or gross wells — The total acres or wells in which the Company owns a working interest.
MBbls — One thousand barrels of crude oil or other liquid hydrocarbons.
MBblpd — One thousand barrels of crude oil or other liquid hydrocarbons per day.
MBoe — One thousand barrels of oil equivalent.
MBoepd — One thousand barrels of oil equivalent per day.
MBopd — One thousand barrels of oil per day.
Mcf — One thousand cubic feet of natural gas.
Mcfpd — One thousand cubic feet of natural gas per day.
MMA — Marine Minerals Administration, established in July 2026, is a unified DOI bureau that combines BOEM and BSEE to oversee offshore energy and marine mineral resources under the Outer Continental Shelf Lands Act.
MMBoe — One million barrels of oil equivalent.
MMBtu — One million British thermal units.
MMcf — One million cubic feet of natural gas.
MMcfpd — One million cubic feet of natural gas per day.
Net acres or net wells — The sum of the fractional working interests the Company owns in gross acres or gross wells.
NGL — Natural gas liquid. Hydrocarbons which can be extracted from wet natural gas and become liquid under various combinations of increasing pressure and lower temperature. NGLs consist primarily of ethane, propane, butane, and natural gasoline.
NYMEX — The New York Mercantile Exchange.
NYMEX Henry Hub — Henry Hub is the major exchange for pricing natural gas futures on the New York Mercantile Exchange. It is frequently referred to as the Henry Hub index.
OPEC — Organization of Petroleum Exporting Countries.
Productive well — A well that is found to be capable of producing hydrocarbons in sufficient quantities such that proceeds from the sale of such production exceed production expenses and taxes.
3
Proved developed reserves — In general, proved reserves that can be expected to be recovered from existing wells with existing equipment and operating methods. The SEC provides a complete definition of developed oil and gas reserves in Rule 4-10(a)(6) of Regulation S-X.
Proved reserves — Proved reserves are those quantities of oil and natural gas, which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible – from a given date forward, from known reservoirs and under existing economic conditions, operating methods, and government regulations — prior to the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether deterministic or probabilistic methods are used for the estimation. The project to extract the hydrocarbons must have commenced or the operator must be reasonably certain that it will commence the project within a reasonable time.
Proved undeveloped reserves — In general, proved reserves that are expected to be recovered from new wells on undrilled acreage or from existing wells where a relatively major expenditure is required for recompletion. The SEC provides a complete definition of undeveloped oil and gas reserves in Rule 4-10(a)(31) of Regulation S-X.
PV-10 — The present value, discounted at 10% annually, of estimated future revenues to be generated from the production of proved reserves determined in accordance with SEC guidelines, net of estimated production costs, future development costs, and abandonment costs using prices and costs as of the date of estimation without future escalation, without giving effect to (i) non-property related expenses such as general and administrative expenses, derivatives, debt service, and future income tax expense or (ii) depreciation, depletion, and amortization expense.
SEC — The U.S. Securities and Exchange Commission.
SEC pricing — The unweighted average first-day-of-the-month commodity price for crude oil or natural gas for each month within the 12-month period prior to the end of the reporting period, adjusted by lease for market differentials (quality, transportation, fees, energy content, and regional price differentials). The SEC provides a complete definition of prices in “Modernization of Oil and Gas Reporting” (Final Rule, Release Nos. 33-8995; 34-59192).
Shelf — Water depths of up to 600 feet.
Standardized Measure — The present value of estimated future net revenue to be generated from the production of proved reserves, determined in accordance with the rules, regulations, or standards established by the SEC and the Financial Accounting Standards Board (using prices and costs in effect as of the date of estimation), less future development costs, production costs, abandonment costs, and income tax expenses, and discounted at 10% per annum to reflect the timing of future net revenue.
Undeveloped acreage — Lease acreage on which wells have not been drilled or completed to a point that would permit the production of commercial quantities of oil and gas regardless of whether such acreage contains proved reserves.
Working interest — The operating interest that gives the owner the right to drill, produce and conduct operating activities on the property and a share of production.
WTI or West Texas Intermediate — A light crude oil produced in the United States with an American Petroleum Institute gravity of approximately 38-40 and the sulfur content is approximately 0.3%.
4
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
The information in this Quarterly Report on Form 10-Q (this “Quarterly Report”) includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements, other than statements of historical fact included in this Quarterly Report, regarding our strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects, plans, and objectives of management are forward-looking statements. When used in this Quarterly Report, the words “will,” “could,” “believe,” “anticipate,” “intend,” “estimate,” “expect,” “project,” “potential,” “forecast,” “may,” “objective,” “plan,” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. These forward-looking statements are based on our current expectations, assumptions and beliefs concerning future events and are based on currently available information as to the outcome and timing of future events. Examples of forward-looking statements include, but are not limited to, statements about:
5
We caution you that these forward-looking statements are subject to numerous risks and uncertainties, most of which are difficult to predict and many of which are beyond our control. These risks include, but are not limited to, commodity price volatility; global demand for oil and natural gas; the ability or willingness of OPEC and other state-controlled oil companies (“OPEC Plus”) to set and maintain oil production levels and the impact of any such actions; foreign wars and conflicts, including the lack of a resolution to the war in Ukraine and ongoing hostilities in Israel and the Middle East, such as the war in Iran, and their impact on commodity markets; the impact of any pandemic and governmental measures related thereto; lack of necessary infrastructure, transportation and storage capacity as a result of oversupply, and government regulations; political risks, including a global trade war or the impact of any prolonged federal government shutdown or lapse in federal appropriations that could disrupt our operations and future drilling plans and opportunities; lack of availability of drilling and production equipment and services; adverse weather events, including tropical storms, hurricanes, winter storms and loop currents; cybersecurity threats and incidents; elevated inflation and the impact of central bank policy in response thereto; environmental risks; failure to find, acquire or gain access to other discoveries and prospects or to successfully develop and produce from our current and future discoveries and prospects; geologic risk; drilling and other operating risks; well control risk; regulatory changes, including the impact of financial assurance requirements; changes in U.S. trade and labor policies, including the imposition of increased tariffs and the resulting consequences; the uncertainty inherent in estimating reserves and in projecting future rates of production; cash flow and access to capital; the timing of development expenditures; potential adverse reactions or competitive responses to our acquisitions and other transactions; the possibility that the anticipated benefits of our acquisitions are not realized when expected or at all, including as a result of the impact of, or problems arising from, the integration of acquired assets and operations; and the other risks discussed in Part I, Item 1A. “Risk Factors” of Talos Energy Inc.’s Annual Report on Form 10-K for the year ended December 31, 2025 (the “2025 Annual Report”), Part II, Item 1A. “Risk Factors” in our Quarterly Report on Form 10-Q for the three months ended March 31, 2026, Part II, Item 1A. “Risk Factors” in our Quarterly Report on Form 10-Q for the three months ended June 30, 2026, and Part II, Item 1A. “Risk Factors” of this Quarterly Report.
Reserve engineering is a process of estimating underground accumulations of oil, natural gas and NGLs that cannot be measured in an exact way. The accuracy of any reserve estimate depends on the quality of available data, the interpretation of such data and price and cost assumptions used by reserve engineers. In addition, the results of drilling, testing and production activities may justify revisions upward or downward of estimates that were made previously. If significant, such revisions would change the schedule of any further production and development drilling. Accordingly, reserve estimates may differ significantly from the quantities of oil, natural gas, and NGLs that are ultimately recovered.
Should one or more of the risks or uncertainties described herein occur, or should underlying assumptions prove incorrect, our actual results and plans could differ materially from those expressed in any forward-looking statements. All forward-looking statements, expressed or implied, included in this Quarterly Report are expressly qualified in their entirety by this cautionary statement. This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue. Except as otherwise required by applicable law, we disclaim any duty to update any forward-looking statements, all of which are expressly qualified by the statements in this section, to reflect events or circumstances after the date of this Quarterly Report.
6
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements
TALOS ENERGY INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
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September 30, 2026 |
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December 31, 2025 |
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(Unaudited) |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
$ |
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$ |
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Accounts receivable, net |
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Assets from price risk management activities |
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Prepaid assets |
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Other current assets |
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Total current assets |
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Property and equipment: |
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Proved properties |
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Unproved properties, not subject to amortization |
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Other property and equipment |
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Total property and equipment |
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Accumulated depreciation, depletion and amortization |
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Total property and equipment, net |
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Other long-term assets: |
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Restricted cash |
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Assets from price risk management activities |
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Equity method investments |
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Other well equipment |
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Notes receivable, net |
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Operating lease assets |
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Other assets |
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Total assets |
$ |
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$ |
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LIABILITIES AND EQUITY |
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Current liabilities: |
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Accounts payable |
$ |
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$ |
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Accrued liabilities |
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Accrued royalties |
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Current portion of asset retirement obligations |
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Liabilities from price risk management activities |
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Accrued interest payable |
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Current portion of operating lease liabilities |
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Other current liabilities |
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Total current liabilities |
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Long-term liabilities: |
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Long-term debt |
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Asset retirement obligations |
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Liabilities from price risk management activities |
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Operating lease liabilities |
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Other long-term liabilities |
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Total liabilities |
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(Note 13) |
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Equity: |
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Talos Energy Inc. stockholdersʼ equity: |
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Preferred stock; $ |
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Common stock; $ |
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Additional paid-in capital |
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Accumulated deficit |
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( |
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( |
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Treasury stock, at cost; |
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( |
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Total Talos Energy Inc. stockholders' equity |
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Noncontrolling interest |
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Total equity |
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Total liabilities and equity |
$ |
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$ |
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See accompanying notes.
7
TALOS ENERGY INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
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Three Months Ended September 30, |
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Nine Months Ended September 30, |
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2026 |
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2025 |
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2026 |
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2025 |
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Revenues: |
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Oil |
$ |
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$ |
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$ |
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$ |
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Natural gas |
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NGL |
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Total revenues |
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Operating expenses: |
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Lease operating expense |
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Production taxes |
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Depreciation, depletion and amortization |
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Impairment of oil and natural gas properties |
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Accretion expense |
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General and administrative expense |
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Other operating (income) expense |
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( |
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Total operating expenses |
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Operating income (expense) |
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Interest expense |
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( |
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( |
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Price risk management activities income (expense) |
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Equity method investment income (expense) |
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Other income (expense) |
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Net income (loss) before income taxes |
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( |
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( |
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Income tax benefit (expense) |
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( |
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( |
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Net income (loss) |
$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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Net income (loss) attributable to noncontrolling interest |
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( |
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( |
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Net income (loss) attributable to Talos Energy Inc. |
$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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Net income (loss) per share attributable to common stockholders: |
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Basic |
$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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Diluted |
$ |
( |
) |
$ |
( |
) |
$ |
( |
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$ |
( |
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Weighted average common shares outstanding: |
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Basic |
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Diluted |
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See accompanying notes.
8
TALOS ENERGY INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS’ EQUITY
(In thousands, except share amounts)
(Unaudited)
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Talos Energy Inc. Stockholders' Equity |
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Common Stock |
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Additional Paid-In |
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Accumulated |
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Common Stock |
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Total |
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Noncontrolling |
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Total Equity |
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Balance at June 30, 2025 |
$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
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$ |
— |
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$ |
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Equity-based compensation |
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— |
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— |
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— |
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— |
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Equity-based compensation tax withholdings |
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— |
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( |
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— |
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— |
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( |
) |
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— |
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( |
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Equity-based compensation stock issuances |
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( |
) |
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— |
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— |
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— |
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— |
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— |
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Initial consolidation of subsidiary |
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— |
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— |
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— |
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— |
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— |
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Purchase of treasury stock |
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— |
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— |
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— |
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( |
) |
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( |
) |
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— |
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( |
) |
Net income (loss) |
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— |
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— |
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( |
) |
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— |
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( |
) |
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( |
) |
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( |
) |
Balance at September 30, 2025 |
$ |
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$ |
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$ |
( |
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$ |
( |
) |
$ |
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$ |
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$ |
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Balance at June 30, 2026 |
$ |
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$ |
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$ |
( |
) |
$ |
( |
) |
$ |
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$ |
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$ |
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Equity-based compensation |
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— |
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— |
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— |
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— |
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Equity-based compensation tax withholdings |
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— |
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( |
) |
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— |
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— |
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( |
) |
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— |
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( |
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Equity-based compensation stock issuances |
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( |
) |
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— |
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— |
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— |
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— |
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— |
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Purchase of treasury stock |
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— |
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— |
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— |
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( |
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( |
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— |
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( |
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Net income (loss) |
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— |
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— |
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( |
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— |
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( |
) |
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( |
) |
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Balance at September 30, 2026 |
$ |
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$ |
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$ |
( |
) |
$ |
( |
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$ |
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$ |
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$ |
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Common Stock Share Activity |
Issued |
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Held in Treasury |
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Outstanding |
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Balance at June 30, 2025 |
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( |
) |
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Equity-based compensation stock issuances |
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— |
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Purchase of treasury stock |
|
— |
|
|
( |
) |
|
( |
) |
Balance at September 30, 2025 |
|
|
|
( |
) |
|
|
||
|
|
|
|
|
|
|
|||
Balance at June 30, 2026 |
|
|
|
( |
) |
|
|
||
Equity-based compensation stock issuances |
|
|
|
— |
|
|
|
||
Purchase of treasury stock |
|
— |
|
|
( |
) |
|
( |
) |
Balance at September 30, 2026 |
|
|
|
( |
) |
|
|
||
See accompanying notes.
9
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN
(In thousands, except share amounts)
(Unaudited)
|
Talos Energy Inc. Stockholders' Equity |
|
|
|
|
|
|||||||||||||||
|
Common Stock |
|
Additional Paid-In |
|
Accumulated |
|
Common Stock |
|
Total |
|
Noncontrolling |
|
Total Equity |
|
|||||||
Balance at December 31, 2024 |
$ |
|
$ |
|
$ |
( |
) |
$ |
( |
) |
$ |
|
$ |
— |
|
$ |
|
||||
Equity-based compensation |
|
— |
|
|
|
|
— |
|
|
— |
|
|
|
|
— |
|
|
|
|||
Equity-based compensation tax withholdings |
|
— |
|
|
( |
) |
|
— |
|
|
— |
|
|
( |
) |
|
— |
|
|
( |
) |
Equity-based compensation stock issuances |
|
|
|
( |
) |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
Initial consolidation of subsidiary |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
|
||
Purchase of treasury stock |
|
— |
|
|
— |
|
|
— |
|
|
( |
) |
|
( |
) |
|
— |
|
|
( |
) |
Net income (loss) |
|
— |
|
|
— |
|
|
( |
) |
|
— |
|
|
( |
) |
|
( |
) |
|
( |
) |
Balance at September 30, 2025 |
$ |
|
$ |
|
$ |
( |
) |
$ |
( |
) |
$ |
|
$ |
|
$ |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Balance at December 31, 2025 |
$ |
|
$ |
|
$ |
( |
) |
$ |
( |
) |
$ |
|
$ |
|
$ |
|
|||||
Equity-based compensation |
|
— |
|
|
|
|
— |
|
|
— |
|
|
|
|
— |
|
|
|
|||
Equity-based compensation tax withholdings |
|
— |
|
|
( |
) |
|
— |
|
|
— |
|
|
( |
) |
|
— |
|
|
( |
) |
Equity-based compensation stock issuances |
|
|
|
( |
) |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
Purchase of treasury stock |
|
— |
|
|
— |
|
|
— |
|
|
( |
) |
|
( |
) |
|
— |
|
|
( |
) |
Net income (loss) |
|
— |
|
|
— |
|
|
( |
) |
|
— |
|
|
( |
) |
|
|
|
( |
) |
|
Balance at September 30, 2026 |
$ |
|
$ |
|
$ |
( |
) |
$ |
( |
) |
$ |
|
$ |
|
$ |
|
|||||
Common Stock Share Activity |
Issued |
|
Held in Treasury |
|
Outstanding |
|
|||
Balance at December 31, 2024 |
|
|
|
( |
) |
|
|
||
Equity-based compensation stock issuances |
|
|
|
— |
|
|
|
||
Purchase of treasury stock |
|
— |
|
|
( |
) |
|
( |
) |
Balance at September 30, 2025 |
|
|
|
( |
) |
|
|
||
|
|
|
|
|
|
|
|||
Balance at December 31, 2025 |
|
|
|
( |
) |
|
|
||
Equity-based compensation stock issuances |
|
|
|
— |
|
|
|
||
Purchase of treasury stock |
|
— |
|
|
( |
) |
|
( |
) |
Balance at September 30, 2026 |
|
|
|
( |
) |
|
|
||
See accompanying notes.
10
TALOS ENERGY INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
|
Nine Months Ended September 30, |
|
||||
|
2026 |
|
2025 |
|
||
Cash flows from operating activities: |
|
|
|
|
||
Net income (loss) |
$ |
( |
) |
$ |
( |
) |
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |
|
|
|
|
||
Depreciation, depletion, amortization and accretion expense |
|
|
|
|
||
Impairment of oil and natural gas properties |
|
|
|
|
||
Amortization of deferred financing costs and original issue discount |
|
|
|
|
||
Equity-based compensation expense |
|
|
|
|
||
Price risk management activities (income) expense |
|
|
|
( |
) |
|
Net cash received (paid) on settled derivative instruments |
|
( |
) |
|
|
|
Equity method investment (income) expense |
|
( |
) |
|
|
|
Loss on extinguishment of debt |
|
|
|
|
||
Settlement of asset retirement obligations |
|
( |
) |
|
( |
) |
Loss (gain) on sale of assets |
|
|
|
|
||
Changes in operating assets and liabilities: |
|
|
|
|
||
Accounts receivable |
|
( |
) |
|
|
|
Other current assets |
|
|
|
|
||
Accounts payable |
|
|
|
( |
) |
|
Other current liabilities |
|
|
|
( |
) |
|
Other non-current assets and liabilities, net |
|
( |
) |
|
( |
) |
Net cash provided by (used in) operating activities |
|
|
|
|
||
Cash flows from investing activities: |
|
|
|
|
||
Exploration, development and other capital expenditures |
|
( |
) |
|
( |
) |
Cash acquired in excess of payments for acquisitions |
|
|
|
|
||
Payments for acquisitions, net of cash acquired |
|
( |
) |
|
( |
) |
Proceeds from (cash paid for) sale of property and equipment, net |
|
( |
) |
|
|
|
Contributions to equity method investees |
|
( |
) |
|
( |
) |
Proceeds from sale of equity method investments |
|
|
|
|
||
Net cash provided by (used in) investing activities |
|
( |
) |
|
( |
) |
Cash flows from financing activities: |
|
|
|
|
||
Issuance of senior notes |
|
|
|
|
||
Redemption of senior notes |
|
( |
) |
|
|
|
Deferred financing costs |
|
( |
) |
|
|
|
Other deferred payments |
|
( |
) |
|
( |
) |
Payments of finance lease |
|
( |
) |
|
( |
) |
Purchase of treasury stock |
|
( |
) |
|
( |
) |
Employee stock awards tax withholdings |
|
( |
) |
|
( |
) |
Distribution to noncontrolling interest |
|
|
|
( |
) |
|
Net cash provided by (used in) financing activities |
|
|
|
( |
) |
|
|
|
|
|
|
||
Net increase (decrease) in cash, cash equivalents and restricted cash |
|
|
|
|
||
Cash, cash equivalents and restricted cash: |
|
|
|
|
||
Balance, beginning of period |
|
|
|
|
||
Balance, end of period |
$ |
|
$ |
|
||
|
|
|
|
|
||
Supplemental non-cash transactions: |
|
|
|
|
||
Capital expenditures included in accounts payable and accrued liabilities |
$ |
|
$ |
|
||
Supplemental cash flow information: |
|
|
|
|
||
Interest paid, net of amounts capitalized |
$ |
|
$ |
|
||
See accompanying notes.
11
TALOS ENERGY INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 — Organization, Nature of Business and Basis of Presentation
Organization and Nature of Business
Talos Energy Inc. (the “Parent Company”) is a Delaware corporation originally incorporated on
The Parent Company (including its subsidiaries, collectively “Talos” or the “Company”) is a technically driven, innovative, independent energy company focused on maximizing long-term value through our oil and gas exploration and production (“Upstream”) business in the United States (“U.S.”) Gulf of America and offshore Mexico. The Company’s activities are primarily concentrated in the Deepwater area of the U.S. Gulf of America, which the Company defines as water depths of more than 600 feet. The Company leverages decades of technical and offshore operational expertise to acquire, explore, and produce assets in key geological trends while maintaining a focus on safe and efficient operations, environmental responsibility and community impact.
Basis of Presentation and Consolidation
The Condensed Consolidated Financial Statements have been prepared pursuant to the rules and regulations of the SEC regarding interim financial reporting. Accordingly, certain information and disclosures normally included in complete financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, these financial statements include all adjustments, which unless otherwise disclosed, are of a normal recurring nature, necessary for a fair presentation of the financial position, results of operations, cash flows and changes in equity for the periods presented. The results for interim periods are not necessarily indicative of results for the entire year. The unaudited financial statements and related notes included in this Quarterly Report should be read in conjunction with the Company’s audited Consolidated Financial Statements and accompanying notes included in the 2025 Annual Report.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
Segments
The Company has
Summary of Significant Accounting Policies
The Company has provided a discussion of its significant accounting policies, estimates and judgments in Note 2 – Summary of Significant Accounting Policies included in the accompanying Notes to Consolidated Financial Statements in the 2025 Annual Report. The Company has not changed any of its significant accounting policies from those described in our 2025 Annual Report.
Recently Adopted Accounting Standards
Derivative Scope Refinements — In September 2025, the FASB issued guidance, which refines derivatives scope and clarifies accounting for share-based noncash consideration from customers. The Company elected to early-adopt both components of the standard and applied the amendments prospectively to contracts entered into or materially modified after adoption. The adoption did not have a material impact on the Company’s consolidated financial statements for the three and nine months ended September 30, 2026.
Recently Issued Accounting Standards Not Yet Adopted
Disaggregation of Income Statement Expenses — As disclosed in the Notes to Consolidated Financial Statements of the Company’s 2025 Annual Report, in November 2024, the FASB issued new disclosure guidance relating to the disaggregation of income statement expenses. The Company continues to evaluate the disclosure requirements, which is effective for annual reporting periods beginning after December 15, 2026 and interim reporting periods beginning after December 15, 2027.
12
Cash, Cash Equivalents and Restricted Cash
The following table provides a reconciliation of the amount of cash, cash equivalents and restricted cash reported within the Condensed Consolidated Balance Sheets to the total of the same such amounts shown in the Condensed Consolidated Statements of Cash Flows (in thousands):
|
September 30, 2026 |
|
December 31, 2025 |
|
||
Cash and cash equivalents |
$ |
|
$ |
|
||
Restricted cash included in Other long-term assets |
|
|
|
|
||
Total cash, cash equivalents and restricted cash |
$ |
|
$ |
|
||
Accounts Receivable
The following table provides the components of “Accounts receivable, net” as presented on the Condensed Consolidated Balance Sheets (in thousands):
|
September 30, 2026 |
|
December 31, 2025 |
|
||
Trade |
$ |
|
$ |
|
||
Joint interest |
|
|
|
|
||
Other |
|
|
|
|
||
Total accounts receivable, net |
$ |
|
$ |
|
||
Note 2 — Acquisitions and Divestitures
Asset Acquisitions
Acquisitions accounted for as asset acquisitions require, among other items, the cost of the acquisition to be allocated to the assets acquired and liabilities assumed based on relative fair value basis.
Acquisition of Incremental Working Interest in Monument Oil Discovery — On
Acquisition of Incremental Working Interest in Mississippi Canyon Blocks — On
Offshore Mexico Farm-In Transaction — On
Offshore Honduras Transaction — On
Coulomb and Na Kika Acquisition — On
The cash purchase price was $
The Shell Purchase Agreement also provides for certain contingent payments, including a price-based upside sharing arrangement through December 31, 2027, which will be recognized as incurred as incremental consideration. The Company is also required to provide financial assurance for future abandonment obligations as further discussed in Note 13 — Commitments and Contingencies.
13
The following table presents the allocation of the cost of the acquisition, including $
Property and equipment(1) |
$ |
|
|
Asset retirement obligations |
|
( |
) |
Other current liabilities |
|
( |
) |
Net assets acquired |
$ |
|
Divestitures
During the nine months ended September 30, 2026, the Company sold a portion of its equity method investment in Talos Energy Mexico 7, S. de R.L. de C.V. (“TEM 7”). See Note 6 – Equity Method Investments for additional information.
Note 3 — Property, Plant and Equipment
Proved Properties
Capitalized oil and natural gas costs are limited to a ceiling based on the present value of future net revenues from proved reserves, computed using a discount factor of
The Company did
Because the ceiling calculation uses trailing twelve-month first day of the month average commodity prices, the effect of increases and decreases in period-over-period prices can significantly impact the ceiling limitation calculation. In addition, other factors that impact the ceiling limitation calculation include, but are not limited to, incremental proved reserves that may be added each period, revisions to previous reserve estimates, capital expenditures, operating costs, depletion expense, and all related tax effects. Depending on fluctuations in these factors, including price changes, the Company may incur ceiling test impairments in future quarters.
Note 4 — Leases
The Company has operating leases principally for office space, drilling rigs and other equipment necessary to support the Company’s operations. Costs associated with the Company’s leases are either expensed or capitalized depending on how the underlying asset is utilized. Additionally, the Company has a finance lease and the right-of-use (“ROU”) asset was capitalized and included in proved properties and is being depleted as part of the full cost pool.
14
The lease costs described below are presented on a gross basis and do not represent the Company’s net proportionate share of such amounts. A portion of these costs have been or may be billed to other working interest owners. The Company’s share of these costs is included in property and equipment, lease operating expense or general and administrative expense, as applicable.
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
||||||||
|
2026 |
|
2025 |
|
2026 |
|
2025 |
|
||||
Finance lease costs - interest on lease liabilities |
$ |
|
$ |
|
$ |
|
$ |
|
||||
Operating lease costs, excluding short-term leases(1) |
|
|
|
|
|
|
|
|
||||
Short-term lease costs(2) |
|
|
|
|
|
|
|
|
||||
Variable lease costs(3) |
|
|
|
|
|
|
|
|
||||
Variable and fixed sublease income |
|
( |
) |
|
( |
) |
|
( |
) |
|
( |
) |
Total lease costs |
$ |
|
$ |
|
$ |
|
$ |
|
||||
The present value of the fixed lease payments recorded as the Company’s ROU asset and lease liability, adjusted for initial direct costs and incentives were as follows (in thousands):
|
September 30, 2026 |
|
December 31, 2025 |
|
||
Operating leases: |
|
|
|
|
||
Operating lease assets |
$ |
|
$ |
|
||
|
|
|
|
|
||
$ |
|
$ |
|
|||
Operating lease liabilities |
|
|
|
|
||
Total operating lease liabilities |
$ |
|
$ |
|
||
|
|
|
|
|
||
Finance leases: |
|
|
|
|
||
Proved properties |
$ |
|
$ |
|
||
|
|
|
|
|
||
$ |
|
$ |
|
|||
|
|
|
|
|||
Total finance lease liabilities |
$ |
|
$ |
|
||
The table below presents the supplemental cash flow information related to leases (in thousands):
|
Nine Months Ended September 30, |
|
||||
|
2026 |
|
2025 |
|
||
Operating cash outflow from finance leases |
$ |
|
$ |
|
||
Operating cash outflow from operating leases |
$ |
|
$ |
|
||
On July 1, 2026, the Company entered into a 365-day minimum commitment vessel contract with a financial commitment of approximately $
Note 5 — Financial Instruments
As of September 30, 2026 and December 31, 2025, the carrying amounts of cash and cash equivalents, accounts receivable and accounts payable approximate their fair values because they are highly liquid or due to the short-term nature of these instruments.
15
Debt Instruments
The following table presents the carrying amounts, net of discount and deferred financing costs, and estimated fair values of the Company’s debt instruments (in thousands):
|
September 30, 2026 |
|
December 31, 2025 |
|
||||||||
|
Carrying |
|
Fair |
|
Carrying |
|
Fair |
|
||||
$ |
|
$ |
|
$ |
|
$ |
|
|||||
$ |
|
$ |
|
$ |
|
$ |
|
|||||
$ |
|
$ |
|
$ |
|
$ |
|
|||||
The carrying values of the
Oil and Natural Gas Derivatives
The Company attempts to mitigate a portion of its commodity price risk and stabilize cash flows associated with sales of oil and natural gas production. The Company is currently utilizing oil and natural gas swaps and costless collars. Swaps are contracts where the Company either receives or pays depending on whether the oil or natural gas floating market price is above or below the contracted fixed price. Costless collars consist of a purchased put option and a sold call option with no net premiums paid to or received from counterparties. Typical collar contracts require payments by the Company if the NYMEX average closing price is above the ceiling price or payments to the Company if the NYMEX average closing price is below the floor price.
The following table presents the impact that derivatives, not designated as hedging instruments, had on its Condensed Consolidated Statements of Operations (in thousands):
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
||||||||
|
2026 |
|
2025 |
|
2026 |
|
2025 |
|
||||
Net cash received (paid) on settled derivative instruments |
$ |
( |
) |
$ |
|
$ |
( |
) |
$ |
|
||
Unrealized gain (loss) |
|
( |
) |
|
( |
) |
|
( |
) |
|
|
|
Price risk management activities income (expense) |
$ |
( |
) |
$ |
|
$ |
( |
) |
$ |
|
||
The following tables reflect the contracted average daily volumes and weighted average prices under the terms of the Company's derivative contracts as of September 30, 2026:
Swap Contracts |
|
||||||
Production Period |
Settlement Index |
Volumes |
|
Swap Price |
|
||
Crude oil: |
|
(Bbls) |
|
(per Bbl) |
|
||
October 2026 – December 2026 |
|
|
$ |
|
|||
January 2027 – June 2027 |
|
|
$ |
|
|||
Natural gas: |
|
(MMBtu) |
|
(per MMBtu) |
|
||
October 2026 – December 2026 |
|
|
$ |
|
|||
Two-Way Collar Contracts |
|
|||||||||
Production Period |
Settlement Index |
Volumes |
|
Floor Price |
|
Ceiling Price |
|
|||
Crude oil: |
|
(Bbls) |
|
(per Bbl) |
|
(per Bbl) |
|
|||
October 2026 – December 2026 |
|
|
$ |
|
$ |
|
||||
January 2027 – December 2027 |
|
|
$ |
|
$ |
|
||||
Natural gas: |
|
(MMBtu) |
|
(per MMBtu) |
|
(per MMBtu) |
|
|||
October 2026 – December 2026 |
|
|
$ |
|
$ |
|
||||
January 2027 – June 2027 |
|
|
$ |
|
$ |
|
||||
16
The following tables provide additional information related to financial instruments measured at fair value on a recurring basis (in thousands):
|
September 30, 2026 |
|
||||||||||
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
|
||||
Assets: |
|
|
|
|
|
|
|
|
||||
$ |
|
$ |
|
$ |
|
$ |
|
|||||
Liabilities: |
|
|
|
|
|
|
|
|
||||
|
|
|
( |
) |
|
|
|
( |
) |
|||
Total net asset (liability) |
$ |
|
$ |
( |
) |
$ |
|
$ |
( |
) |
||
|
December 31, 2025 |
|
||||||||||
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
|
||||
Assets: |
|
|
|
|
|
|
|
|
||||
$ |
|
$ |
|
$ |
|
$ |
|
|||||
Liabilities: |
|
|
|
|
|
|
|
|
||||
|
|
|
( |
) |
|
|
|
( |
) |
|||
Total net asset (liability) |
$ |
|
$ |
|
$ |
|
$ |
|
||||
Financial Statement Presentation
Derivatives are classified as either current or non-current assets or liabilities based on their anticipated settlement dates. Although the Company has master netting arrangements with its counterparties, the Company presents its derivative financial instruments on a gross basis in its Condensed Consolidated Balance Sheets.
|
September 30, 2026 |
|
December 31, 2025 |
|
||||||||
|
Assets |
|
Liabilities |
|
Assets |
|
Liabilities |
|
||||
Oil and natural gas derivatives: |
|
|
|
|
|
|
|
|
||||
Current |
$ |
|
$ |
|
$ |
|
$ |
|
||||
Non-current |
|
|
|
|
|
|
|
|
||||
Total gross amounts presented on balance sheet |
|
|
|
|
|
|
|
|
||||
Less: Gross amounts not offset on the balance sheet |
|
|
|
|
|
|
|
|
||||
Net amounts |
$ |
|
$ |
|
$ |
|
$ |
|
||||
Credit Risk
Note 6 — Equity Method Investments
As of September 30, 2026 and December 31, 2025, the Company's ownership interest in TEM 7 was
17
On March 25, 2026, the Company sold an additional
The Company will receive $
Note 7 — Debt
A summary of the detail comprising the Company’s debt and the related book values for the respective periods presented is as follows (in thousands):
|
Maturity Date |
September 30, 2026 |
|
December 31, 2025 |
|
||
$ |
|
$ |
|
||||
|
|
|
|
||||
|
|
|
|
||||
Revolving credit facility |
|
|
|
|
|||
Total debt, before deferred financing cost |
|
|
|
|
|
||
Unamortized deferred financing cost, net |
|
|
( |
) |
|
( |
) |
Total debt(1) |
|
$ |
|
$ |
|
||
8.000% Second-Priority Senior Secured Notes due July 2034
Talos Production Inc. (“Talos Production” or “Issuer”), a Delaware corporation and wholly-owned subsidiary of the Company, issued $
The first supplemental indenture was executed on September 22, 2026, in connection with the closing of the Coulomb and Na Kika Acquisition, pursuant to which a newly formed subsidiary agreed to unconditionally guarantee Talos Production’s obligations under the 2034 Indenture.
18
At any time prior to July 15, 2029, Talos Production may redeem up to
Period |
|
Redemption Price |
|
|
2029 |
|
|
% |
|
2030 |
|
|
% |
|
2031 and thereafter |
|
|
% |
|
9.375% Second-Priority Senior Secured Notes due February 2031
The
Redemption of 9.000% Second-Priority Senior Secured Notes due February 2029
On July 13, 2026, the Company redeemed all $
Revolving Reserve-based Credit Facility
The Company maintains a bank credit facility with a syndicate of financial institutions.
On January 20, 2026, the Parent Company, Talos Production, and certain other direct and indirect subsidiaries of both the Parent Company and Talos Production entered into the Amended and Restated Credit Agreement (as it may be amended, supplemented, waived or otherwise modified from time to time, the “A&R Credit Agreement”) among the Parent Company, Talos Production, as Borrower, JPMorgan Chase Bank, N.A., as administrative agent (the “Administrative Agent”), the issuing banks, the lenders party thereto, and the other persons from time to time party thereto. The A&R Credit Agreement amended and restated in its entirety the prior credit agreement, dated as of May 10, 2018 (as amended, the “Prior Credit Agreement”), by and among the Parent Company, Talos Production, as Borrower, JPMorgan Chase Bank, N.A., as administrative agent, the issuing banks, the lenders party thereto, and the other persons party thereto.
Interest accrues at Talos Production’s option either at an alternate base rate (“ABR”) plus the applicable margin (“ABR Loans”), an adjusted term secured overnight financing rate (“SOFR”) plus the applicable margin (“Term Benchmark Loans”) or adjusted daily simple SOFR plus the applicable margin (“RFR Loans”). ABR is based on the greater of (a) the prime rate, (b) a federal funds rate plus
19
The A&R Credit Agreement includes certain conditions to borrowings, representations and warranties, and events of default customary for financings of its type and size. The A&R Credit Agreement also limits the Company’s, Talos Production’s and their respective subsidiaries’ ability to, among other things, incur additional indebtedness, grant liens on any assets, pay dividends or make certain restricted payments, make certain investments, consummate certain asset sales, make certain payments on indebtedness, and merge, consolidate or engage in other fundamental changes. The A&R Credit Agreement has certain customary affirmative and negative covenants, including that Talos Production must maintain a Consolidated Total Debt to EBITDAX Ratio (as defined in the A&R Credit Agreement) of no greater than
On June 30, 2026, contemporaneously with execution of the Shell Purchase Agreement,
On July 22, 2026, the Company entered into the Second Amendment to the A&R Credit Agreement (the “Second Amendment”), which provides additional financing flexibility for costs associated with the Offshore Mexico Farm-In Transaction. The Second Amendment also increases, solely with respect to qualifying investments in Phoenix-Durango Offshore Company, S. de R.L. de C.V. made before December 31, 2027, the maximum Consolidated Total Debt to EBITDAX Ratio applicable to investments made without regard to Available Free Cash Flow from
Note 8 — Asset Retirement Obligations
The asset retirement obligations included in the Condensed Consolidated Balance Sheets in current and non-current liabilities, and the changes in that liability were as follows (in thousands):
Asset retirement obligations at December 31, 2025 |
$ |
|
|
Obligations incurred |
|
|
|
Obligations settled |
|
( |
) |
Obligations assumed(1) |
|
|
|
Obligations divested(2) |
|
( |
) |
Accretion expense |
|
|
|
Changes in estimate |
|
|
|
Asset retirement obligations at September 30, 2026 |
$ |
|
|
Less: Current portion at September 30, 2026 |
|
|
|
Long-term portion at September 30, 2026 |
$ |
|
At September 30, 2026, the Company has (1) restricted cash of $
20
Note 9 — Employee Benefits Plans and Share-Based Compensation
The Second Amended and Restated Talos Energy Inc. 2021 Long Term Incentive Plan (the “A&R LTIP”) became effective on June 4, 2026 and authorizes the Company to grant awards of up to
The A&R LTIP provides for potential grants of: (i) incentive stock options qualified as such under U.S. federal income tax laws (“ISOs”), (ii) stock options that do not qualify as ISOs, (iii) stock appreciation rights, (iv) restricted stock awards, (v) restricted stock units, (vi) awards of vested stock, (vii) dividend equivalents, (viii) other share-based or cash awards and (ix) substitute awards. Employees, non-employee directors and other service providers of the Company and its affiliates are eligible to receive awards under the A&R LTIP.
Long Term Incentive Plans
Restricted Stock Units (“RSUs”) —
|
Restricted |
|
Weighted Average |
|
||
Unvested RSUs at December 31, 2025 |
|
|
$ |
|
||
Granted |
|
|
$ |
|
||
Vested |
|
( |
) |
$ |
|
|
Forfeited |
|
( |
) |
$ |
|
|
Unvested RSUs at September 30, 2026 |
|
|
$ |
|
||
Performance Share Units (“PSUs”) —
|
Performance |
|
Weighted Average |
|
||
Unvested PSUs at December 31, 2025 |
|
|
$ |
|
||
Granted(1)(2) |
|
|
$ |
|
||
Forfeited |
|
( |
) |
$ |
|
|
Unvested PSUs at September 30, 2026 |
|
|
$ |
|
||
The following table summarizes the assumptions used in the
|
March 5, 2026 |
|
|
Expected term (in years) |
|
|
|
Expected volatility |
|
% |
|
Risk-free interest rate |
|
% |
|
Dividend yield |
|
% |
|
Share-based Compensation Costs
Share-based compensation costs associated with RSUs and PSUs are reflected as “General and administrative expense,” on the Condensed Consolidated Statements of Operations, net of amounts capitalized to “Proved properties,” on the Condensed Consolidated Balance Sheets.
The following table presents the amount of costs expensed and capitalized (in thousands):
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
||||||||
|
2026 |
|
2025 |
|
2026 |
|
2025 |
|
||||
Share-based compensation costs |
$ |
|
$ |
|
$ |
|
$ |
|
||||
Less: Amounts capitalized to oil and gas properties |
|
|
|
|
|
|
|
|
||||
Total share-based compensation expense |
$ |
|
$ |
|
$ |
|
$ |
|
||||
21
Note 10 — Income Taxes
The Company is a corporation that is subject to U.S. federal, state and local and non-U.S. income taxes.
For the three months ended September 30, 2026, the Company recognized an income tax expense of $
For the three months ended September 30, 2025, the Company recognized an income tax benefit of $
For the nine months ended September 30, 2026, the Company recognized an income tax expense of $
For the nine months ended September 30, 2025, the Company recognized an income tax benefit of $
The Company evaluates and updates the estimated annual effective income tax rate on a quarterly basis based on current and forecasted operating results and tax laws. Consequently, based upon the mix and timing of the Company’s actual earnings compared to annual projections, the effective tax rate may vary quarterly and may make quarterly comparisons not meaningful. The quarterly income tax provision is generally comprised of tax expense on income or benefit on loss at the most recent estimated annual effective tax rate. The tax effect of discrete items is recognized in the period in which they occur at the applicable statutory rate.
Deferred income tax assets and liabilities are recorded related to net operating losses and temporary differences between the book and tax basis of assets and liabilities expected to produce deductions and income in the future. The deferred tax asset estimates are subject to revision, either up or down, in future periods based on new facts or circumstances. The Company reduces deferred tax assets by a valuation allowance when, based on estimates, it is more likely than not that a portion of those assets will not be realized in a future period. In evaluating the Company’s valuation allowance, the Company considers cumulative losses, the reversal of existing temporary differences, the existence of taxable income in carryback years, tax optimization planning and future taxable income for each of its taxable jurisdictions. The Company assesses the realizability of its deferred tax assets quarterly, and changes to the Company’s assessment of its valuation allowance in future periods could materially impact its results of operations. The Company’s valuation allowance primarily relates to accruals for asset retirement obligations. A net deferred tax liability of $
Note 11 — Income (Loss) Per Share
Basic earnings per common share is computed by dividing net income (loss) attributable to common stockholders by the weighted average number of shares of common stock outstanding during the period. Except when the effect would be antidilutive, diluted earnings per common share includes the impact of RSUs and PSUs.
The following table presents the computation of the Company’s basic and diluted income (loss) per share attributable to common stockholders (in thousands, except for the per share amounts):
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
||||||||
|
2026 |
|
2025 |
|
2026 |
|
2025 |
|
||||
Net income (loss) attributable to Talos Energy Inc. |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) |
|
|
|
|
|
|
|
|
|
||||
Weighted average common shares outstanding — basic |
|
|
|
|
|
|
|
|
||||
Dilutive effect of securities |
|
|
|
|
|
|
|
|
||||
Weighted average common shares outstanding — diluted |
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
||||
Net income (loss) per share attributable to common stockholders: |
|
|
|
|
|
|
|
|
||||
Basic |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) |
Diluted |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) |
Anti-dilutive potentially issuable securities excluded from diluted common shares |
|
|
|
|
|
|
|
|
||||
22
Note 12 — Related Party Transactions
Slim Family and Affiliates
Carlos Slim Helú, Carlos Slim Domit, Marco Antonio Slim Domit, Patrick Slim Domit, María Soumaya Slim Domit, Vanessa Paola Slim Domit and Johanna Monique Slim Domit (collectively, the “Slim Family”) are beneficiaries of a Mexican trust which in turn owns all of the outstanding voting securities of Control Empresarial de Capitales S.A. de C.V. (“Control Empresarial” together with the Slim Family, the “Slim Family Office”). Control Empresarial held approximately
The Company has a cooperation agreement with Control Empresarial that limits additional acquisitions of the Company’s voting securities by Control Empresarial if such acquisitions would result in ownership exceeding
The Slim Family owns a majority stake in Carso. Carso, through its subsidiary, has a majority ownership interest in TEM 7. See Note 6 – Equity Method Investments for additional information on TEM 7. At December 31, 2025, the Company had a $
In connection with the offering of the
Equity Method Investments
The Company had a $
Note 13 — Commitments and Contingencies
Performance Obligations
Regulations with respect to the Company's operations govern, among other things, engineering and construction specifications for production facilities, safety procedures, plugging and abandonment of wells, and removal of facilities in the U.S. Gulf of America.
As of September 30, 2026, the Company had outstanding performance bonds issued by third-party sureties totaling approximately $
The Company is party to various agreements with surety providers and other counterparties that require the Company to provide financial security in the form of cash or letters of credit. Collateral funded with cash will be reflected as “Restricted cash” within the Condensed Consolidated Balance Sheets. The funding commitments, and ultimately any posted cash collateral, will be reduced as plugging and abandonment activities are completed and underlying surety bonds are released.
23
The following table summarizes the Company’s aggregate funding commitments under various arrangements as of September 30, 2026 (in thousands):
Period |
Funding Commitments |
|
|
2027 |
$ |
|
|
2028 |
|
|
|
2029 |
|
|
|
2030 |
|
|
|
Thereafter(1) |
|
|
|
Total |
$ |
|
|
Additionally, certain of the agreements with surety providers require minimum annual plugging and abandonment expenditures of $
Firm Transportation Commitments
The Company has firm transportation agreements in place with pipeline carriers for future transportation of oil and gas production wherein the Company is obligated to transport minimum monthly volumes or pay for any deficiencies. As of September 30, 2026, the future minimum transportation payments under the Company’s commitments total approximately $
Legal Proceedings and Other Contingencies
From time to time, the Company is involved in litigation, disputes related to our business, regulatory examinations and administrative proceedings primarily arising in the ordinary course of business in jurisdictions in which the Company does business. Although the outcome of these matters cannot be predicted with certainty, the Company’s management believes none of these matters, either individually or in the aggregate, would have a material effect upon the Company’s financial position; however, an unfavorable outcome could have a material adverse effect on the Company’s results of operations for a specific interim period or year.
Other than as described below, during the nine months ended September 30, 2026, there were no material developments to those matters discussed in the Notes to the Consolidated Financial Statements in the 2025 Annual Report:
By virtue of the Company’s acquisition of QuarterNorth Energy Inc. (“QuarterNorth”), as discussed in Note 3 – Acquisitions and Divestitures included in the accompanying Notes to Consolidated Financial Statements in the 2025 Annual Report, the Company defended a lawsuit brought by a contractor concerning amounts allegedly owed for drilling operations at several locations in the U.S. Gulf of America. The lawsuit alleged that the contractor was entitled under Louisiana Law to certain statutory liens and payment. While the Company disputed the contractor’s liens and damages claims, the Company and the plaintiff settled the lawsuit during the second quarter of 2026 with a $
By virtue of the Company’s acquisition of QuarterNorth, the Company is defending a lawsuit brought by plaintiffs (“Warrant Holders”) that held warrants issued by QuarterNorth pursuant and subject to warrant agreements. The Warrant Holders alleged that the QuarterNorth board improperly reduced the value of the warrants, which diluted their ownership interest in QuarterNorth prior to its acquisition by the Company. Warrant Holders claimed damages of approximately $
Decommissioning Obligations
Decommissioning in the U.S. is governed by both federal and state laws and regulations. The Company, as a co-lessee or predecessor-in-interest in oil and natural gas leases located in the U.S. Gulf of America, is in the chain of title with unrelated third parties either directly or by virtue of divestiture of certain oil and natural gas assets previously owned and assigned by our subsidiaries. Certain counterparties in these divestiture transactions or third parties in existing leases have filed for bankruptcy protection or undergone associated reorganizations and may not be able to perform required abandonment obligations. Both federal and state laws and regulations could require the Company to assume such obligations. The Company reflects such costs as “Other operating (income) expense” on the Condensed Consolidated Statements of Operations.
24
The decommissioning obligations are included in the Condensed Consolidated Balance Sheets as “Other current liabilities” and “Other long-term liabilities”, and the changes in that liability were as follows (in thousands):
Decommissioning Obligations at December 31, 2025 |
$ |
|
|
Additions |
|
|
|
Changes in estimate |
|
|
|
Settlements |
|
( |
) |
Obligations divested(1) |
|
( |
) |
Decommissioning Obligations at September 30, 2026 |
$ |
|
|
Less: Current portion at September 30, 2026 |
|
|
|
Long-term portion at September 30, 2026 |
$ |
|
Although it is reasonably possible that the Company could receive state or federal decommissioning orders in the future or be notified of defaulting third parties in existing leases, the Company cannot predict with certainty, if, how or when such orders or notices will be resolved or estimate a possible loss or range of loss that may result from such orders. However, the Company could incur judgments, enter into settlements or revise its opinion regarding the outcome of certain notices or matters, and such developments could have a material adverse effect on its results of operations in the period in which the amounts are accrued and its cash flows in the period in which the amounts are paid.
Note 14 — Segment Information
The chief operating decision maker (“CODM”) is currently the . The Company’s CODM does not review assets by segment as part of the financial information provided and therefore,
The following table presents selected segment information (in thousands):
|
Three Months Ended September 30, |
|
||||
|
2026 |
|
2025 |
|
||
|
Upstream |
|
||||
Revenues from external customers |
$ |
|
$ |
|
||
Significant expenses: |
|
|
|
|
||
Direct operating and maintenance(1) |
|
( |
) |
|
( |
) |
Workover(1) |
|
( |
) |
|
( |
) |
Adjusted general and administrative expense(2) |
|
( |
) |
|
( |
) |
Net cash received (paid) on settled derivative instruments |
|
( |
) |
|
|
|
Interest expense |
|
( |
) |
|
( |
) |
Other segment items: |
|
|
|
|
||
Other(3) |
|
|
|
( |
) |
|
Depreciation, depletion and amortization |
|
( |
) |
|
( |
) |
Impairment of oil and natural gas properties |
|
|
|
( |
) |
|
Accretion expense |
|
( |
) |
|
( |
) |
Mark-to-market derivative fair value gain (loss) |
|
( |
) |
|
( |
) |
Equity-based compensation expense |
|
( |
) |
|
( |
) |
Equity method investment income (expense) |
|
( |
) |
|
|
|
Gain (loss) on extinguishment of debt |
|
( |
) |
|
|
|
Income tax benefit (expense) |
|
( |
) |
|
|
|
Net income (loss) |
|
( |
) |
|
( |
) |
25
The following table presents selected segment information (in thousands):
|
Nine Months Ended September 30, |
|
||||
|
2026 |
|
2025 |
|
||
|
Upstream |
|
||||
Revenues from external customers |
$ |
|
$ |
|
||
Significant expenses: |
|
|
|
|
||
Direct operating and maintenance(1) |
|
( |
) |
|
( |
) |
Workover(1) |
|
( |
) |
|
( |
) |
Adjusted general and administrative expense(2) |
|
( |
) |
|
( |
) |
Net cash received (paid) on settled derivative instruments |
|
( |
) |
|
|
|
Interest expense |
|
( |
) |
|
( |
) |
Other segment items: |
|
|
|
|
||
Other(3) |
|
|
|
|
||
Depreciation, depletion and amortization |
|
( |
) |
|
( |
) |
Impairment of oil and natural gas properties |
|
( |
) |
|
( |
) |
Accretion expense |
|
( |
) |
|
( |
) |
Mark-to-market derivative fair value gain (loss) |
|
( |
) |
|
|
|
Equity-based compensation expense |
|
( |
) |
|
( |
) |
Equity method investment income (loss) |
|
|
|
( |
) |
|
Gain (loss) on extinguishment of debt |
|
( |
) |
|
|
|
Income tax benefit (expense) |
|
( |
) |
|
|
|
Net income (loss) |
|
( |
) |
|
( |
) |
Reconciliations
The following table presents the reconciliation of Segment Expenditures to the Company’s consolidated totals (in thousands):
|
Nine Months Ended September 30, |
|
||||
|
2026 |
|
2025 |
|
||
Segment Expenditures: |
|
|
|
|
||
Total reportable segments |
$ |
|
$ |
|
||
Change in capital expenditures included in accounts payable and accrued liabilities |
|
|
|
|
||
Plugging & abandonment |
|
( |
) |
|
( |
) |
Decommissioning obligations settled |
|
( |
) |
|
( |
) |
Investment in TEM 7 |
|
( |
) |
|
( |
) |
Deferred payments |
|
( |
) |
|
( |
) |
Other |
|
|
|
|
||
Exploration, development and other capital expenditures |
$ |
|
$ |
|
||
26
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Unless otherwise indicated or the context requires otherwise, references in this Quarterly Report to “us,” “we,” “our,” “Talos,” or the “Company” refer to Talos Energy Inc. and its subsidiaries. References to “Parent Company” refer to Talos Energy Inc.
The following discussion and analysis of our financial condition and results of operations is based on, and should be read in conjunction with, our Condensed Consolidated Financial Statements and notes thereto in Part I, Item 1. “Financial Statements” of this Quarterly Report, as well as our audited Consolidated Financial Statements and the notes thereto in our 2025 Annual Report and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations included in Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 2025 Annual Report.
Our Business
We are a technically driven, innovative, independent energy company focused on safely maximizing long-term value through our oil and gas exploration and production (“Upstream”) business in the United States (“U.S.”) Gulf of America and offshore Mexico. We leverage decades of technical and offshore operational expertise to acquire, explore, and produce assets in key geological trends while maintaining a focus on safe and efficient operations, environmental responsibility and community impact.
We combine our technical experience in geology, geophysics and engineering with innovative resource evaluation techniques and seismic imaging expertise to discover new resources. We rely on our operational experience to optimize our assets’ production and reserve recovery, safely and responsibly. Finally, we leverage our commercial and corporate management experience to most effectively allocate our capital to balance risk and reward, grow our business and maximize long-term stockholder value.
Operational Update
The following encompasses recent operational updates since the filing of our Quarterly Report on Form 10-Q for the three months ended June 30, 2026.
CPN — We achieved first oil at the CPN well (“CPN”) in late September 2026. We are the operator of CPN and hold a 65% working interest.
Monument — The second development well in the Monument oil discovery (“Monument”) was spud in early September 2026, later than previously anticipated, after the operator redeployed the rig to another asset in which we do not hold a working interest before returning the rig to Monument. Completion operations on both development wells are expected to commence after the second well reaches target depth. First oil from Monument is now expected in the first quarter of 2027. We hold a 29.7% non-operated working interest in Monument.
Brutus Program — The development program at our Brutus Field (“Brutus Program”) commenced during the third quarter with operations from the platform-based rig. First oil from the Brutus Program is expected to be phased from the second quarter through the fourth quarter of 2027. The Brutus Program has also expanded from four to five wells to include an additional sidetrack opportunity.
Daenerys — The appraisal well at our Daenerys discovery (“Daenerys”) was spud in early July 2026 and successfully reached its target depth in late August 2026. We expect to conduct further appraisal activity at Daenerys in 2027, including a sidetrack designed to further evaluate the discovery. We also expect to drill an exploration well in late 2027 targeting a prospect near Daenerys that we acquired in the December 2025 Big Beautiful Gulf 1 lease sale.
Offshore Honduras — We commenced the 3D seismic campaign in October 2026, initially targeting a portion of the deepwater acreage.
Recent Developments
The following encompasses recent developments since the filing of our Quarterly Report on Form 10-Q for the three months ended June 30, 2026.
Closing of the Coulomb and Na Kika Acquisition — On September 22, 2026, we closed on the acquisition of certain oil and gas properties and related assets in the Mississippi Canyon area of the U.S. Gulf of America, including interests in the Coulomb and Na Kika Deepwater producing assets (the “Coulomb and Na Kika Acquisition”) from Shell Offshore Inc. (“Shell”). See Part I, Item 1. “Financial Statements — Note 2 — Acquisitions and Divestitures” for additional information.
Credit Facility Updates — In connection with the closing of the Coulomb and Na Kika Acquisition, the borrowing base under our bank credit facility increased from $700.0 million to $850.0 million, and the letter of credit sublimit increased from $250.0 million to $300.0 million. See Part I, Item 1. “Financial Statements — Note 7 — Debt” for additional information.
Share Repurchase Program — During the three months ended September 30, 2026, we repurchased approximately 1.4 million shares for $23.6 million exclusive of broker commissions under our share repurchase program, which was previously authorized by our Board of Directors (the “Board”), resulting in $176.4 million available under the share repurchase program as of September 30, 2026. See “Liquidity and Capital Resources — Share Repurchase Program” for additional information.
27
Factors Affecting the Comparability of our Financial Condition and Results of Operations
No material events, such as acquisitions or divestitures, affected the comparability of our financial condition or results of operations for the periods presented herein other than the Coulomb and Na Kika Acquisition and the debt refinancing discussed in Part I, Item 1. “Financial Statements — Note 2 — Acquisitions and Divestitures” and Part I, Item 1. “Financial Statements — Note 7 — Debt,” respectively. Management does not currently expect any material factors to affect the comparability of our future financial condition or results of operations, other than the Coulomb and Na Kika Acquisition and the debt refinancing.
Known Trends and Uncertainties
Except as discussed below, there have been no material developments to known trends and uncertainties discussed in our 2025 Annual Report:
Volatility in Oil, Natural Gas and NGL Prices — Oil, natural gas, and NGL prices have been, and are expected to continue to be, volatile. The war in Iran, which began in February 2026, has increased geopolitical risk in global energy markets and contributed to volatility in oil and gas prices. The war has also disrupted, and could further disrupt, maritime transit, supply chains, and energy infrastructure throughout the Middle East and adjacent waters, including along major shipping routes and chokepoints such as the Strait of Hormuz, a critical route for global oil and liquefied natural gas shipments. The duration and extent of these disruptions, and the timing and extent of any normalization of production, exports, transportation networks, and related supply chains, remain uncertain. Any continuation or further escalation of geopolitical tensions, or continued or increased disruptions to trade routes, supply chains, or energy infrastructure, could affect global supply-demand balances and contribute to further volatility in commodity prices. Such volatility could also affect customer demand, counterparty credit risk and broader macroeconomic conditions. We cannot predict the nature, timing or magnitude of any future effects on our business, financial condition or results of operations.
Our revenues, cash flow, profitability, access to capital, capital expenditures, and liquidity are directly influenced by commodity prices. We use hedging instruments as part of our risk management strategy to reduce the impact of near-term price volatility, mitigate downside exposure, and allow for participation in favorable commodity price movements during periods of higher prices. We also anticipate continuing to operate our business in a volatile market by prioritizing high-return development projects, focusing on cost control measures, and maintaining a strong balance sheet to provide financial, operational and capital spending flexibility under a range of price scenarios. We continue to monitor commodity price trends closely and will modify our plans within our strategy as appropriate. See Part I, Item 1. “Financial Statements — Note 5 — Financial Instruments” for additional information regarding our commodity derivative positions as of September 30, 2026.
Although we cannot predict the occurrence of events that may affect future commodity prices or the degree to which these prices will be affected, the prices for any commodity that we produce will generally approximate current market prices in the geographic region of production.
Inflation of Cost of Goods, Services and Personnel — The war in Iran triggered inflationary pressures in the global economy. In September 2026, the U.S. Federal Reserve raised its benchmark federal funds rate by a quarter of a percentage point to a range of 3.75% to 4.00%. Future changes to the benchmark interest rate remain uncertain.
Impact of Prolonged Increases in Tariffs —We continue to monitor changes in global trade policies, including tariff increases, and the impact on our business while evaluating actions to mitigate the impact on our business, results of operations, and financial condition. The imposition of additional or any prolonged increases in global tariffs could have a material impact on our financial condition and results of operations in fiscal year 2026 and beyond.
Impairment of Oil and Natural Gas Properties — Under the full cost method of accounting, the “ceiling test” under SEC rules and regulations specifies that evaluated and unevaluated properties’ capitalized costs, less accumulated amortization and related deferred income taxes (the “Full Cost Pool”), should be compared to a formulaic limitation (the “Ceiling”) each quarter on a country-by-country basis. If the Full Cost Pool exceeds the Ceiling, an impairment must be recorded. No impairment was recorded during the three months ended September 30, 2026. However, as a result of our ceiling test computations, an impairment of our U.S. oil and natural gas properties was recorded during the nine months ended September 30, 2026 of $145.0 million. At September 30, 2026 our ceiling test computation was based on SEC pricing of $75.79 per Bbl of oil, $3.87 per Mcf of natural gas and $20.35 per Bbl of NGLs. During the three and nine months ended September 30, 2025, we recorded an impairment of $60.2 million and $284.1 million, respectively. See Part I, Item 1. “Financial Statements — Note 3 — Property, Plant and Equipment” for additional information.
Because the ceiling calculation uses trailing twelve-month first day of the month average commodity prices, the effect of increases and decreases in period-over-period prices can significantly impact the ceiling limitation calculation. In addition, other factors that impact the ceiling limitation calculation include, but are not limited to, incremental proved reserves that may be added each period, revisions to previous reserve estimates, capital expenditures, operating costs, depletion expense, and all related tax effects. Depending on fluctuations in these factors, including price changes, we may incur ceiling test impairments in future quarters.
28
There is a significant degree of uncertainty with the assumptions used to estimate the present value of future net cash flows from estimated production of proved oil and gas reserves due to, but not limited to the risk factors referred to in Part I, Item 1A. “Risk Factors” included in our 2025 Annual Report. The discounted present value of our proved reserves is a major component of the Ceiling calculation. Any decrease in pricing, negative change in price differentials, or increase in capital or operating costs could negatively impact the estimated future discounted net cash flows related to our proved oil and natural gas properties.
Financial Assurance Rule Update — On March 9, 2026, BOEM published a new proposed rule entitled “Risk Management and Financial Assurance for OCS Lease and Grant Obligations.” The proposed rule reverts to BOEM’s former policy of considering the financial strength of co-owners and predecessors in title when determining whether supplemental financial assurance is required, and revises the credit rating threshold used for evaluating the financial health of lessees and grantees from BBB- to BB- (S&P Global Ratings) or Baa3 to Ba3 (Moody’s Investor Service Inc.). MMA (the new bureau combining BOEM and BSEE), however, retains the discretion to require financial assurance and/or issue liability orders where appropriate, including if it determines there is a substantial risk of nonperformance of an interest holder’s decommissioning liabilities for which the predecessor is not liable.
While we anticipate that MMA’s proposed rule, if finalized in its current form, would reduce the amount of financial assurance required from certain lessees as compared to the previous rule, the final version and timing of adoption of MMA’s proposed rule remain uncertain. Any future requirements to provide additional or replacement financial assurances under future regulatory actions or rules could require significant use of our capital or restrict liquidity and could materially and adversely affect our financial condition, cash flows, liquidity, and results of operations.
See Part I, Items 1 and 2. “Business and Properties — Government Regulation — BOEM Financial Assurance Requirements” and Part I, Item 1A. “Risk Factors — We may not be able to obtain sufficient surety bonds on reasonably acceptable terms to conduct our business” in our 2025 Annual Report for further background on BOEM’s financial assurance requirements.
Update on National Marine Fisheries Service’s Gulf of America Revised Biological Opinion — In August 2024, the federal district court for the District of Maryland vacated the 2020 Biological Opinion issued by the National Marine Fisheries Service (“NMFS”), related to oil and gas activities in the Gulf of America. On May 20, 2025, NMFS published a new Biological Opinion for the Gulf of America oil and gas program, superseding and replacing all prior biological opinions relating to the program. Two lawsuits were filed opposing the new Biological Opinion, one by several environmental groups (Sierra Club, the Center for Biological Diversity, Friends of the Earth and Turtle Island Restoration Network) who filed in the federal district court for the District of Maryland, and the other by the State of Louisiana, the American Petroleum Institute and Chevron U.S.A. Inc. who filed in the Western Louisiana District Court. On February 20, 2026, the Western Louisiana District Court remanded without vacatur NMFS’ 2025 Biological Opinion, declaring that the Rice’s whale jeopardy finding and the Reasonable and Prudent Alternative are arbitrary, capricious and contrary to law. NMFS was required to complete the remand within 185 days of the Western Louisiana District Court’s order. As a result of the remand, the intervenors in the lawsuit filed in the District of Maryland sought to stay the litigation pending completion of the remand order. On March 31, 2026, the Endangered Species Committee (“ESC”), comprised of the Secretary of the Interior, the Secretary of Agriculture, the Secretary of the Army, the Chair of the Council of Economic Advisers, the Administrator of the Environmental Protection Agency, and the Administrator of the National Oceanic and Atmospheric Administration, held a public meeting to address the Secretary of War’s national security finding that it was necessary to exempt Gulf of America oil and gas activities from requirements of the Endangered Species Act. By unanimous vote, the ESC exempted oil and gas activities in the Gulf of America from Section 7 consultation and Section 7(a)(2) requirements pursuant to Section 7(h) of the Endangered Species Act. On June 24, 2026, the District of Maryland’s federal district court judge issued a decision from the bench to dismiss the challenge to the 2025 Biological Opinion on the basis that it is moot given the ESC’s exemption decision. On the same day, the Maryland court judge issued a written order dismissing the plaintiffs’ case without prejudice for lack of subject-matter jurisdiction. Several separate lawsuits have been filed challenging the ESC’s exemption decision and the underlying national security finding. At this time, the ultimate impact of the ESC decision is uncertain.
See Part II, Item 1A. “Risk Factors” of this Quarterly Report and Part II, Item 1A. “Risk Factors” in our 2025 Annual Report for additional information regarding our risk factors.
29
Results of Operations
Revenue
The information below provides a discussion of, and an analysis of significant variance in, our oil, natural gas and NGL revenues, production volumes and sales prices (in thousands, except per unit data):
|
Three Months Ended September 30, |
|
|
|
Nine Months Ended September 30, |
|
|
|
||||||||||
|
2026 |
|
2025 |
|
Change |
|
2026 |
|
2025 |
|
Change |
|
||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Oil |
$ |
549,800 |
|
$ |
400,210 |
|
$ |
149,590 |
|
$ |
1,578,566 |
|
$ |
1,214,128 |
|
$ |
364,438 |
|
Natural gas |
|
32,139 |
|
|
41,306 |
|
|
(9,167 |
) |
|
116,082 |
|
|
133,456 |
|
|
(17,374 |
) |
NGL |
|
14,052 |
|
|
8,537 |
|
|
5,515 |
|
|
38,466 |
|
|
40,249 |
|
|
(1,783 |
) |
Total revenues |
$ |
595,991 |
|
$ |
450,053 |
|
$ |
145,938 |
|
$ |
1,733,114 |
|
$ |
1,387,833 |
|
$ |
345,281 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Production Volumes: |
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Oil (MBbls) |
|
6,306 |
|
|
6,127 |
|
|
179 |
|
|
18,287 |
|
|
18,095 |
|
|
192 |
|
Natural gas (MMcf) |
|
8,625 |
|
|
12,606 |
|
|
(3,981 |
) |
|
28,117 |
|
|
36,626 |
|
|
(8,509 |
) |
NGL (MBbls) |
|
671 |
|
|
529 |
|
|
142 |
|
|
1,965 |
|
|
2,132 |
|
|
(167 |
) |
Total production volume (MBoe) |
|
8,415 |
|
|
8,757 |
|
|
(342 |
) |
|
24,938 |
|
|
26,331 |
|
|
(1,393 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Daily Production Volumes by Product: |
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Oil (MBblpd) |
|
68.5 |
|
|
66.6 |
|
|
1.9 |
|
|
67.0 |
|
|
66.3 |
|
|
0.7 |
|
Natural gas (MMcfpd) |
|
93.8 |
|
|
137.0 |
|
|
(43.2 |
) |
|
103.0 |
|
|
134.2 |
|
|
(31.2 |
) |
NGL (MBblpd) |
|
7.3 |
|
|
5.8 |
|
|
1.5 |
|
|
7.2 |
|
|
7.8 |
|
|
(0.6 |
) |
Total production volume (MBoepd) |
|
91.5 |
|
|
95.2 |
|
|
(3.7 |
) |
|
91.3 |
|
|
96.5 |
|
|
(5.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Average Sale Price Per Unit: |
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Oil (per Bbl) |
$ |
87.19 |
|
$ |
65.32 |
|
$ |
21.87 |
|
$ |
86.32 |
|
$ |
67.10 |
|
$ |
19.22 |
|
Natural gas (per Mcf) |
$ |
3.73 |
|
$ |
3.28 |
|
$ |
0.45 |
|
$ |
4.13 |
|
$ |
3.64 |
|
$ |
0.49 |
|
NGL (per Bbl) |
$ |
20.94 |
|
$ |
16.14 |
|
$ |
4.80 |
|
$ |
19.58 |
|
$ |
18.88 |
|
$ |
0.70 |
|
Price per Boe |
$ |
70.82 |
|
$ |
51.39 |
|
$ |
19.43 |
|
$ |
69.50 |
|
$ |
52.71 |
|
$ |
16.79 |
|
Price per Boe (including realized commodity derivatives) |
$ |
67.28 |
|
$ |
53.29 |
|
$ |
13.99 |
|
$ |
64.43 |
|
$ |
54.80 |
|
$ |
9.63 |
|
The information below provides an analysis of the change in our oil, natural gas and NGL revenues due to changes in sales prices and production volumes (in thousands):
|
Three Months Ended September 30, 2026 vs 2025 |
|
Nine Months Ended September 30, 2026 vs 2025 |
|
||||||||||||||
|
Price |
|
Volume |
|
Total |
|
Price |
|
Volume |
|
Total |
|
||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Oil |
$ |
137,898 |
|
$ |
11,692 |
|
$ |
149,590 |
|
$ |
351,555 |
|
$ |
12,883 |
|
$ |
364,438 |
|
Natural gas |
|
3,891 |
|
|
(13,058 |
) |
|
(9,167 |
) |
|
13,599 |
|
|
(30,973 |
) |
|
(17,374 |
) |
NGL |
|
3,223 |
|
|
2,292 |
|
|
5,515 |
|
|
1,370 |
|
|
(3,153 |
) |
|
(1,783 |
) |
Total revenues |
$ |
145,012 |
|
$ |
926 |
|
$ |
145,938 |
|
$ |
366,524 |
|
$ |
(21,243 |
) |
$ |
345,281 |
|
Three Months Ended September 30, 2026 and 2025 Volumetric Analysis — Production volumes decreased by 3.7 MBoepd to 91.5 MBoepd. This decrease is primarily attributable to 3.1 MBoepd in production related to the divestiture of a wholly-owned subsidiary that held non-core, gas-weighted and predominantly non-operated Shelf and Gulf Coast properties (the “Shelf and Gulf Coast Divestiture”) compared to the same period in 2025. Additionally, there was a 2.8 MBoepd decline at the Brutus Field, primarily driven by a high-rate gas recompletion, where the well has declined as expected and will be sidetracked to a deeper target in the ongoing Brutus Program. These decreases were partially offset by an increase of 3.0 MBoepd related to incremental production at our Sunspear Field.
Nine Months Ended September 30, 2026 and 2025 Volumetric Analysis — Production volumes decreased by 5.2 MBoepd to 91.3 MBoepd. This decrease is primarily attributable to a 4.2 MBoepd decline at the Brutus Field, driven by factors mentioned above, as well as 1.7 MBoepd in production related to the Shelf and Gulf Coast Divestiture compared to the same period in 2025. These decreases were partially offset by an increase of 3.6 MBoepd related to incremental production at our Sunspear Field.
30
Operating Expenses
Lease Operating Expense
The following table highlights lease operating expense items in total and on a cost per Boe production basis. The information below provides the financial results and an analysis of significant variances in these results (in thousands, except per Boe data):
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
||||||||
|
2026 |
|
2025 |
|
2026 |
|
2025 |
|
||||
Lease operating expenses |
$ |
140,856 |
|
$ |
133,718 |
|
$ |
425,574 |
|
$ |
398,494 |
|
Lease operating expenses per Boe |
$ |
16.74 |
|
$ |
15.27 |
|
$ |
17.07 |
|
$ |
15.13 |
|
Three Months Ended September 30, 2026 and 2025 — Lease operating expense for the three months ended September 30, 2026 increased by approximately $7.1 million, or 5%, primarily due to higher direct operating expenses associated with non-operated properties. The increase was partially offset by lower non-recurring project costs.
Nine Months Ended September 30, 2026 and 2025 — Lease operating expense for the nine months ended September 30, 2026 increased by approximately $27.1 million, or 7%. This was primarily due to an increase in major well workover expenses at the Galapagos Field to return the Genovesa well to production compared to the same period in 2025.
Depreciation, Depletion and Amortization
The following table highlights depreciation, depletion and amortization items. The information below provides the financial results and an analysis of significant variances in these results (in thousands):
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
||||||||
|
2026 |
|
2025 |
|
2026 |
|
2025 |
|
||||
Depreciation, depletion and amortization |
$ |
233,430 |
|
$ |
262,637 |
|
$ |
693,183 |
|
$ |
813,059 |
|
Three Months Ended September 30, 2026 and 2025 — Depreciation, depletion and amortization (“DD&A”) expense for the three months ended September 30, 2026 decreased by approximately $29.2 million, or 11%. This decrease was primarily driven by a decrease of $2.23, or 7%, in the depletion rate on our proved oil and natural gas properties, as well as decreased production volumes of 3.7 MBoepd discussed above. The change in DD&A rate and decreased production volumes between periods caused DD&A expense to decrease by $18.8 million and $10.3 million, respectively.
Nine Months Ended September 30, 2026 and 2025 — DD&A expense for the nine months ended September 30, 2026 decreased by approximately $119.9 million, or 15%. This decrease was primarily driven by a decrease of $3.07, or 10%, in the depletion rate on our proved oil and natural gas properties, as well as decreased production volumes of 5.2 MBoepd discussed above. The change in DD&A rate and decreased production volumes between periods caused DD&A expense to decrease by $76.6 million and $42.9 million, respectively. The decrease in the DD&A rate was primarily attributable to a lower amortization base resulting from impairment charges recorded in prior periods.
General and Administrative Expense
The following table highlights general and administrative expense items in total and on a cost per Boe production basis. The information below provides the financial results and an analysis of significant variances in these results (in thousands, except per Boe data):
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
||||||||
|
2026 |
|
2025 |
|
2026 |
|
2025 |
|
||||
General and administrative expense |
$ |
43,143 |
|
$ |
41,547 |
|
$ |
128,739 |
|
$ |
115,592 |
|
General and administrative expense per Boe |
$ |
5.13 |
|
$ |
4.74 |
|
$ |
5.16 |
|
$ |
4.39 |
|
Three Months Ended September 30, 2026 and 2025 — General and administrative expense was relatively flat for the three months ended September 30, 2026.
Nine Months Ended September 30, 2026 and 2025 — General and administrative expense for the nine months ended September 30, 2026 increased by approximately $13.1 million, or 11%, primarily driven by higher employee related costs compared to the same period in 2025.
31
Miscellaneous
The following table highlights miscellaneous items in total. The information below provides the financial results and an analysis of significant variances in these results (in thousands):
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
||||||||
|
2026 |
|
2025 |
|
2026 |
|
2025 |
|
||||
Accretion expense |
$ |
33,160 |
|
$ |
30,764 |
|
$ |
104,007 |
|
$ |
93,704 |
|
Impairment of oil and natural gas properties |
$ |
— |
|
$ |
60,209 |
|
$ |
145,018 |
|
$ |
284,090 |
|
Other operating (income) expense |
$ |
(11,574 |
) |
$ |
7,272 |
|
$ |
675 |
|
$ |
(1,115 |
) |
Interest expense |
$ |
40,194 |
|
$ |
40,847 |
|
$ |
118,534 |
|
$ |
122,585 |
|
Price risk management activities (income) expense |
$ |
120,576 |
|
$ |
(4,226 |
) |
$ |
263,574 |
|
$ |
(75,228 |
) |
Equity method investment (income) expense |
$ |
65 |
|
$ |
(639 |
) |
$ |
(6,492 |
) |
$ |
37 |
|
Other (income) expense |
$ |
30,051 |
|
$ |
(2,051 |
) |
$ |
20,636 |
|
$ |
(11,282 |
) |
Income tax (benefit) expense |
$ |
47,111 |
|
$ |
(24,204 |
) |
$ |
26,656 |
|
$ |
(60,721 |
) |
Three Months Ended September 30, 2026 and 2025 —
Impairment of oil and natural gas properties — During the three months ended September 30, 2026, we did not record an impairment of our oil and natural gas properties. During the three months ended September 30, 2025, we recorded a $60.2 million impairment of our oil and natural gas properties. See Part I, Item 1. “Financial Statements — Note 3 — Property, Plant and Equipment.” for additional information.
Other Operating (Income) Expense — During the three months ended September 30, 2026, we recorded income of $15.1 million related to multi-year federal royalty refund claims partially offset by a $3.0 million accrual related to a court judgment in a lawsuit. See Part I, Item 1. “Financial Statements — Note 13 — Commitments and Contingencies” for additional information regarding the lawsuit.
Price Risk Management Activities — The expense of $120.6 million for the three months ended September 30, 2026 consists of $90.7 million in non-cash losses from the decrease in the fair value of our open derivative contracts and $29.8 million in cash settlement losses. The income of $4.2 million for the three months ended September 30, 2025 consists of $16.6 million in cash settlement gains partially offset by $12.4 million in non-cash losses from the decrease in the fair value of our open derivative contracts.
These unrealized gains or losses on open derivative contracts relate to production for future periods; however, changes in the fair value of all of our open derivative contracts are recorded as a gain or loss on our Condensed Consolidated Statements of Operations at the end of each reporting period. As a result of the derivative contracts we have on our anticipated production volumes through December 2027, we expect these activities to continue to impact net income (loss) based on fluctuations in market prices for oil and natural gas. See Part I, Item 1. “Financial Statements — Note 5 — Financial Instruments.”
Other (Income) Expense — During the three months ended September 30, 2026, we recorded a $37.4 million loss on extinguishment of debt in conjunction with the redemption of the 9.000% Second-Priority Senior Secured Notes due 2029 (the “9.000% Notes”). See Part I, Item 1. “Financial Statements — Note 7 – Debt” for more information.
Income Tax (Benefit) Expense — During the three months ended September 30, 2026, we recorded $47.1 million of income tax expense compared to $24.2 million of income tax benefit during the three months ended September 30, 2025. See Part I, Item 1. “Financial Statements — Note 10 — Income Taxes” for additional information.
Nine Months Ended September 30, 2026 and 2025 —
Accretion Expense — During the nine months ended September 30, 2026, we recorded $104.0 million of accretion expense compared to $93.7 million during the nine months ended September 30, 2025. The change is primarily due to a higher balance subject to accretion for the nine months ended September 30, 2026.
Impairment of oil and natural gas properties — During the nine months ended September 30, 2026, we recorded a $145.0 million impairment of our oil and natural gas properties. During the nine months ended September 30, 2025, we recorded a $284.1 million impairment of our oil and natural gas properties. See Part I, Item 1. “Financial Statements — Note 3 — Property, Plant and Equipment.” for additional information.
Price Risk Management Activities — The expense of $263.6 million for the nine months ended September 30, 2026 consists of $137.1 million in non-cash losses from the decrease in the fair value of our open derivative contracts and $126.5 million in cash settlement losses. The income of $75.2 million for the nine months ended September 30, 2025 consists of $55.1 million in cash settlement gains and $20.1 million in non-cash gains from the increase in the fair value of our open derivative contracts.
Equity Method Investment (Income) Expense — During the nine months ended September 30, 2026, we recorded equity income of $6.5 million, which includes a $6.8 million gain on the sale of an additional 30.1% equity interest in Talos Energy Mexico 7, S. de R.L. de C.V. (“TEM 7” and the “Incremental Mexico Equity Sale”). See Part I, Item 1. “Financial Statements — Note 6 – Equity Method Investments for additional information.
32
Other (Income) Expense — During the nine months ended September 30, 2026, we recorded a $37.4 million loss on extinguishment of debt in conjunction with the redemption of the 9.000% Notes. See Part I, Item 1. “Financial Statements — Note 7 – Debt” for more information.
Income Tax (Benefit) Expense — During the nine months ended September 30, 2026, we recorded $26.7 million of income tax expense compared to $60.7 million of income tax benefit during the nine months ended September 30, 2025. See Part I, Item 1. “Financial Statements — Note 10 — Income Taxes” for additional information.
Supplemental Non-GAAP Measure
EBITDA, Adjusted EBITDA and Adjusted EBITDA attributable to Talos Energy Inc.
“EBITDA,” “Adjusted EBITDA” and “Adjusted EBITDA attributable to Talos Energy Inc.” are non-GAAP financial measures used to provide management and investors with (i) additional information to evaluate, with certain adjustments, items required or permitted in calculating covenant compliance under our debt agreements, (ii) important supplemental indicators of the operational performance of our business, (iii) additional criteria for evaluating our performance relative to our peers and (iv) supplemental information to investors about certain material non-cash and/or other items that may not continue at the same level in the future. EBITDA, Adjusted EBITDA and Adjusted EBITDA attributable to Talos Energy Inc. have limitations as analytical tools and should not be considered in isolation or as substitutes for analysis of our results as reported under GAAP or as alternatives to net income (loss), operating income (loss) or any other measure of financial performance presented in accordance with GAAP.
We define these as the following:
33
The following table presents a reconciliation of the GAAP financial measure of net income (loss) to Adjusted EBITDA for each of the periods indicated (in thousands):
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
||||||||
|
2026 |
|
2025 |
|
2026 |
|
2025 |
|
||||
Net income (loss) attributable to Talos Energy Inc. |
$ |
(81,244 |
) |
$ |
(95,905 |
) |
$ |
(187,742 |
) |
$ |
(291,710 |
) |
Net income (loss) attributable to noncontrolling interest |
|
185 |
|
|
(3 |
) |
|
568 |
|
|
(3 |
) |
Net income (loss) |
|
(81,059 |
) |
|
(95,908 |
) |
|
(187,174 |
) |
|
(291,713 |
) |
Interest expense |
|
40,194 |
|
|
40,847 |
|
|
118,534 |
|
|
122,585 |
|
Income tax (benefit) expense |
|
47,111 |
|
|
(24,204 |
) |
|
26,656 |
|
|
(60,721 |
) |
Depreciation, depletion and amortization |
|
233,430 |
|
|
262,637 |
|
|
693,183 |
|
|
813,059 |
|
Accretion expense |
|
33,160 |
|
|
30,764 |
|
|
104,007 |
|
|
93,704 |
|
EBITDA |
|
272,836 |
|
|
214,136 |
|
|
755,206 |
|
|
676,914 |
|
Impairment of oil and natural gas properties |
|
— |
|
|
60,209 |
|
|
145,018 |
|
|
284,090 |
|
Transaction and other (income) expenses(1) |
|
(994 |
) |
|
9,253 |
|
|
8,955 |
|
|
3,901 |
|
Decommissioning obligations(2) |
|
(59 |
) |
|
316 |
|
|
318 |
|
|
235 |
|
Derivative fair value (gain) loss(3) |
|
120,576 |
|
|
(4,226 |
) |
|
263,574 |
|
|
(75,228 |
) |
Net cash received (paid) on settled derivative instruments(3) |
|
(29,839 |
) |
|
16,605 |
|
|
(126,455 |
) |
|
55,087 |
|
(Gain) loss on debt extinguishment |
|
37,389 |
|
|
— |
|
|
37,389 |
|
|
— |
|
Non-cash equity-based compensation expense |
|
6,379 |
|
|
4,955 |
|
|
18,124 |
|
|
13,499 |
|
Adjusted EBITDA |
|
406,288 |
|
|
301,248 |
|
|
1,102,129 |
|
|
958,498 |
|
Less: adjustment for noncontrolling interest |
|
221 |
|
|
8 |
|
|
675 |
|
|
8 |
|
Adjusted EBITDA attributable to Talos Energy Inc. |
$ |
406,067 |
|
$ |
301,240 |
|
$ |
1,101,454 |
|
$ |
958,490 |
|
Liquidity and Capital Resources
Our primary sources of liquidity are cash generated by our operations and borrowings under our bank credit facility. Our primary uses of cash are for capital expenditures, acquisitions, operating costs, working capital, debt service, share repurchases, future collateral payments, and general corporate purposes. The cost of borrowing under our bank credit facility is influenced by changes in the federal funds rate. As interest rates increase, it becomes more expensive to borrow money while interest rate cuts make it less expensive to borrow money.
Effective as of the closing of the Coulomb and Na Kika Acquisition, our bank credit facility borrowing base increased from $700.0 million to $850.0 million. Our available liquidity (cash plus available capacity under the bank credit facility) was $1,076.3 million as of September 30, 2026. Letters of credit that are outstanding reduce the available bank credit commitments. The borrowing base in reserve-based lending, which is influenced by banking regulations and guidelines, is a dynamic figure subject to regular redeterminations. Changes in reserve estimations (e.g., lower production forecasts or reduced proved reserves), downward adjustments to the lender's internal price deck (i.e., commodity price expectations), and ongoing production can lead to a reduction in the borrowing base, impacting available liquidity under our bank credit facility. The next redetermination of our borrowing base is expected in the fourth quarter of 2026.
We fund drilling, completions, and development activities primarily through operating cash flows, cash on hand and through borrowings under the bank credit facility, if necessary. Historically, we have funded significant acquisitions with the issuance of senior notes, borrowings under the bank credit facility, and through additional equity issuances. We occasionally adjust our capital budget in response to changing operating cash flow forecasts and market conditions, including the prices of oil, natural gas, and NGLs, acquisition opportunities, and the results of our exploration and development activities. See Part I, Item 1. “Financial Statements — Note 7 — Debt” for additional information.
34
Capital and Other Expenditures — The following is a table of our capital expenditures, excluding acquisitions, for the nine months ended September 30, 2026 (in thousands):
U.S. drilling & completions |
$ |
250,842 |
|
Asset management(1) |
|
38,297 |
|
Seismic and G&G, land, capitalized G&A, and other |
|
70,208 |
|
Total capital expenditures |
|
359,347 |
|
Plugging & abandonment |
|
90,561 |
|
Decommissioning obligations settled(2) |
|
238 |
|
Investment in Mexico |
|
315 |
|
Total capital and other expenditures |
$ |
450,461 |
|
Based on our current level of operations and available cash, we believe our cash flows from operations, combined with availability under the bank credit facility, provide sufficient liquidity to fund the remaining portion of our 2026 capital spending program of $475.0 million to $525.0 million and plugging & abandonment and decommissioning obligations of $135.0 million to $145.0 million. However, our ability to (i) generate sufficient cash flows from operations, (ii) obtain future borrowings under the bank credit facility, and (iii) repay or refinance any of our indebtedness on commercially reasonable terms or at all for any potential future acquisitions, joint ventures or other similar transactions, depends on various operating and economic conditions, many of which are beyond our control. To the extent possible, we have attempted to mitigate certain of these risks (e.g., by entering into oil and natural gas derivative contracts to reduce the financial impact of downward commodity price movements on a substantial portion of our anticipated production), but we could be required to take additional future actions on an opportunistic basis. To address further changes in the financial or commodity markets, future actions may include, without limitation, issuing debt, including secured debt, or issuing equity to directly or independently repurchase or refinance our outstanding indebtedness.
Agreements with Collateral Requirements — We entered into arrangements (“CFSAs”) with our surety providers in the fourth quarter of 2025. The CFSAs require us to post agreed upon amounts of collateral through July 1, 2031. The collateral requirements may be secured by cash or letters of credit which will reduce our liquidity. See Part I, Item 1. “Financial Statements — Note 13 — Commitments and Contingencies” for additional information.
In connection with the closing of the Coulomb and Na Kika Acquisition, we entered into a decommissioning security agreement with Shell to secure the estimated decommissioning obligations associated with our interests in the acquired assets. See Part I, Item 1. “Financial Statements — Note 13 — Commitments and Contingencies” for additional information.
Share Repurchase Program — The Board initially approved a share repurchase program of $100.0 million on March 20, 2023, with subsequent approval of increases in share repurchase capacity of $150.0 million on July 22, 2024, approximately $42.5 million on March 25, 2025, and $157.3 million on April 27, 2026 for a total aggregate repurchase capacity of approximately $449.8 million. Approximately $176.4 million is remaining under the authorized program as of September 30, 2026. During the three and nine months ended September 30, 2026, we repurchased approximately 1.4 million and 4.1 million shares for $23.6 million and $61.8 million, respectively, excluding broker commissions. Since March 2023, in aggregate, we have repurchased 24.1 million shares for approximately $273.4 million excluding broker commissions. The share repurchase program has no set term limits. All repurchased shares are held in treasury.
Repurchases of shares may be made from time to time in the open market, in privately negotiated transactions, or by such other means as will comply with applicable state and federal securities laws. The timing of any repurchases under the share repurchase program will depend on market conditions, contractual limitations and other considerations. The program may be extended, modified, suspended or discontinued at any time, and does not obligate the Company to repurchase any dollar amount or number of shares.
Overview of Cash Flow Activities — The following table summarizes cash flows provided by (used in) each type of activity for the following periods (in thousands):
|
Nine Months Ended September 30, |
|
||||
|
2026 |
|
2025 |
|
||
Operating activities |
$ |
800,432 |
|
$ |
734,046 |
|
Investing activities |
$ |
(784,886 |
) |
$ |
(404,687 |
) |
Financing activities |
$ |
33,255 |
|
$ |
(135,382 |
) |
Operating Activities — Cash flow from operating activities increased $66.4 million in the nine months ended September 30, 2026 compared to the corresponding period in 2025. Key drivers of cash flow from operating activities are commodity prices, production volumes and operating costs as presented and discussed under the subsection entitled “— Results of Operations.”
35
The change between periods is primarily attributable to a $230.7 million increase in cash from earnings after non-cash items, as presented in the Condensed Consolidated Statements of Cash Flows under Part I, Item 1. “Financial Statements.” Additionally, during the nine months ended September 30, 2026, $126.5 million of cash was paid to settle expired commodity derivative instruments compared to $55.1 million of cash received for the corresponding period in 2025.
Investing Activities — Cash flow used in investing activities increased $380.2 million in the nine months ended September 30, 2026 compared to the corresponding period in 2025. During the nine months ended September 30, 2026, we made payments of $440.3 million related to acquisitions, of which $420.3 million was made in connection with the Coulomb and Na Kika Acquisition. During the nine months ended September 30, 2025, we completed the acquisition of an incremental working interest in the Monument oil discovery in the Deepwater U.S. Gulf of America located on certain Walker Ridge lease blocks for $14.8 million and acquired incremental working interests in U.S. Gulf of America Mississippi Canyon blocks 108 and 110 for $33.7 million. During the nine months ended September 30, 2026, we generated $53.9 million from the Incremental Mexico Equity Sale. See Part I, Item 1. “Financial Statements — Note 2 — Acquisitions and Divestitures” for additional information. Capital expenditures increased $32.7 million due to project timing between the current period and the corresponding period in 2025.
Financing Activities — Cash flow provided by (used in) financing activities increased $168.6 million in the nine months ended September 30, 2026 compared to the corresponding period in 2025. On July 13, 2026, we closed an $800.0 million notes offering (discussed below) and fully redeemed the 9.000% Notes for an aggregate payoff of $653.1 million, including a $28.1 million redemption premium. During the nine months ended September 30, 2026, we repurchased $60.8 million of our common stock through our share repurchase program compared to $103.0 million in the corresponding period in 2025. See subsection entitled “— Liquidity and Capital Resources — Share Repurchase Program” for additional information. Additionally, we incurred $24.2 million of deferred financing costs during the nine months ended September 30, 2026, of which $15.4 million related to the notes offering and $8.8 million was associated with our bank credit facility. See Part I, Item 1. “Financial Statements — Note 7 — Debt” for additional information.
Overview of Debt Instruments
8.000% Second-Priority Senior Secured Notes — due July 2034 — The $800.0 million 8.000% Second-Priority Senior Secured Notes due 2034 (the “8.000% Notes”) were issued on July 13, 2026 pursuant to a base indenture, as supplemented by a first supplemental indenture (collectively, the “2034 Indenture”), by and among the Parent Company, Talos Production Inc., as issuer of the 8.000% Notes (“Talos Production” or “Issuer”), the subsidiary guarantors party thereto (together with the Parent Company, the “8.000% Notes Guarantors”), and Wilmington Trust, National Association, as trustee and collateral agent. The 8.000% Notes were offered and sold to qualified institutional buyers pursuant to the exemptions from registration provided by Rule 144A under the Securities Act and to certain non-U.S. persons in accordance with Regulation S under the Securities Act. The 8.000% Notes are secured on a second-priority senior secured basis by liens on substantially the same collateral as the collateral securing the Issuer’s existing first-priority obligations under its bank credit facility. The 8.000% Notes rank equally in right of payment with all of the Issuer’s and the 8.000% Notes Guarantors’ existing and future senior obligations, are senior in right of payment to any obligations of the Issuer and the 8.000% Notes Guarantors’ future debt that is, by its term, expressly subordinated in right of payment to the 8.000% Notes and, to the extent of the value of the collateral, are effectively senior to all existing and future unsecured obligations of the Issuer and the 8.000% Notes Guarantors (other than the Company) and any future obligations of the Issuer and the 8.000% Notes Guarantors that are secured by the collateral on a junior-priority basis. The 8.000% Notes are effectively pari passu with all of the Issuer’s and the 8.000% Notes Guarantors’ existing and future obligations that are secured by the collateral on a second-priority basis including the 9.375% Second-Priority Senior Secured Notes due 2031 and are effectively junior to any existing and future obligations of the Issuer and the 8.000% Notes Guarantors that are secured by the collateral on a senior-priority basis to the 8.000% Notes including indebtedness under the bank credit facility. The 8.000% Notes mature on July 15, 2034 and have interest payable semi-annually each January 15 and July 15, commencing January 15, 2027.
9.000% Second-Priority Senior Secured Notes — due February 2029 — On July 13, 2026, we redeemed the entire outstanding aggregate principal amount of the 9.000% Notes using the proceeds from the issuance of the 8.000% Notes. See Part I, Item 1. “Financial Statements — Note 7 — Debt” for more information.
36
9.375% Second-Priority Senior Secured Notes — due February 2031 — The 9.375% Second-Priority Senior Secured Notes due 2031 (the “9.375% Notes” and, together with the 8.000% Notes, the “Senior Notes”) were issued on February 7, 2024 pursuant to a base indenture, as supplemented by a first and second supplemental indenture (collectively, the “2031 Indenture”), by and among the Parent Company, the Issuer, the subsidiary guarantors party thereto (the “9.375% Notes Guarantors”) and Wilmington Trust, National Association, as trustee and collateral agent. The 9.375% Notes were offered and sold to qualified institutional buyers pursuant to the exemptions from registration provided by Rule 144A under the Securities Act and to certain non-U.S. persons in accordance with Regulation S under the Securities Act. The 9.375% Notes are secured on a second-priority senior secured basis by liens on substantially the same collateral as the collateral securing the Issuer’s existing first-priority obligations under its bank credit facility. The 9.375% Notes rank equally in right of payment with all of the Issuer’s and the 9.375% Notes Guarantors’ existing and future senior obligations, are senior in right of payment to any obligations of the Issuer and the 9.375% Notes Guarantors’ future debt that is, by its term, expressly subordinated in right of payment to the 9.375% Notes and, to the extent of the value of the collateral, are effectively senior to all existing and future unsecured obligations of the Issuer and the 9.375% Notes Guarantors (other than the Company) and any future obligations of the Issuer and the 9.375% Notes Guarantors that are secured by the collateral on a junior-priority basis. The 9.375% Notes are effectively pari passu with all of the Issuer’s and the 9.375% Notes Guarantors’ existing and future obligations that are secured by the collateral on a second-priority basis including the 8.000% Notes and are effectively junior to any existing and future obligations of the Issuer and the 9.375% Notes Guarantors that are secured by the collateral on a senior-priority basis to the 9.375% Notes including indebtedness under the bank credit facility. The 9.375% Notes mature on February 1, 2031 and have interest payable semi-annually each February 1 and August 1, commencing August 1, 2024. See Part I, Item 1. “Financial Statements — Note 7 — Debt” for additional information.
Revolving Reserve-based Credit Facility — matures January 2030 — We maintain a bank credit facility with a syndicate of financial institutions. The borrowing base is redetermined by the lenders at least semi-annually, typically during the second quarter and fourth quarter of each year based on a proved reserves report that we deliver to the administrative agent of the bank credit facility. See Part I, Item 1. “Financial Statements — Note 7 — Debt” for additional information.
Material Cash Requirements — We have various contractual obligations in the normal course of our operations. Some of these obligations may be reflected in our accompanying Condensed Consolidated Financial Statements, while other obligations, such as certain operating leases and capital commitments, are not reflected on our accompanying Condensed Consolidated Financial Statements.
The following discussion summarizes material changes to our contractual obligations from those disclosed in our 2025 Annual Report:
Debt — During July 2026, the $800.0 million 8.000% Notes were issued and a portion of the proceeds were used to redeem the 9.000% Notes as discussed in Part I, Item 1. “Financial Statements — Note 7 — Debt.” As a result, our long-term material cash requirements and contractual obligations disclosed in our 2025 Annual Report have been modified by extending the maturity of the refinanced indebtedness from February 2029 to July 2034. Our remaining estimated interest payments associated with our debt are now $801.8 million compared to $525.5 million disclosed in our 2025 Annual Report primarily due to the increased term of the notes and increased principal outstanding, partially offset by the lower coupon rate.
Vessel Commitments — On July 1, 2026, we entered into a 365-day minimum commitment vessel contract with a financial commitment of approximately $160.0 million. We plan to utilize the vessel for certain Deepwater drilling and completion operations commencing in mid-2027. Other joint owners, to the extent they elect to participate, will be billed for their working interest share of such costs.
Performance Obligations — As of September 30, 2026, we had outstanding performance bonds totaling $1.6 billion primarily related to plugging and abandonment of wells and removal of facilities in the U.S. Gulf of America. Additionally, we had outstanding letters of credit issued under our bank credit facility totaling $183.8 million. Letters of credit that are outstanding reduce the available revolving credit commitments. See Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2025 Annual Report subsection entitled “— Known Trends and Uncertainties — Financial Assurance Requirements” and “— Known Trends and Uncertainties — Financial Assurance Market Outlook” for additional information on BOEM’s supplemental bonding requirements and the potential lack of surety bond capacity to comply with BOEM’s financial assurance requirements, which could have a material adverse effect on our business, properties, results of operations and financial condition.
Critical Accounting Estimates
There have been no changes to our critical accounting estimates from those disclosed in our 2025 Annual Report under Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies and Estimates.”
Recently Adopted Accounting Standards
See Part I, Item 1. “Financial Statements — Note 1 — Organization, Nature of Business and Basis of Presentation.”
37
Recently Issued Accounting Standards
No accounting standards were issued during the quarterly period ended September 30, 2026 that were material to us. In addition, information on Recently Issued Accounting Standards that could potentially impact our consolidated financial statements and related disclosures is incorporated by reference to Part I, Item 1. “Financial Statements — Note 1 — Organization, Nature of Business and Basis of Presentation.”
Item 3. Quantitative and Qualitative Disclosures About Market Risk
For information regarding our exposures to certain market risks, refer to Part II, Item 7A. “Quantitative and Qualitative Disclosures about Market Risk” in our 2025 Annual Report. There have been no material changes from the disclosures presented in our 2025 Annual Report regarding our exposures to certain market risks.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
Our management, with the participation of our principal executive officer and principal financial officer, have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of the end of the period covered by this Quarterly Report. Based on such evaluation, our principal executive officer and principal financial officer have concluded that as of September 30, 2026, our disclosure controls and procedures were effective at a reasonable assurance level.
Our disclosure controls and procedures are designed at a reasonable assurance level to ensure that the information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosures.
Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting identified in management's evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the quarter ended September 30, 2026 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
38
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, the Company is involved in litigation, disputes related to our business, regulatory examinations and administrative proceedings primarily arising in the ordinary course of business in jurisdictions in which the Company does business. Although the outcome of these matters cannot be predicted with certainty, the Company’s management believes none of these matters, either individually or in the aggregate, would have a material effect upon the Company’s financial position; however, an unfavorable outcome could have a material adverse effect on the Company’s results of operations for a specific interim period or year.
Except as described below, there have been no material developments with respect to the information previously reported under Part I, Item 3. “Legal Proceedings” of our 2025 Annual Report.
Update on Equinor lawsuit. As previously disclosed in our 2025 Annual Report, on June 13, 2024, Equinor USA E&P Inc. (f/k/a Statoil USA E&P, Inc., and f/k/a Norsk Hydro USA Oil & Gas, Inc.) (“Equinor”) filed a complaint against Talos ERT LLC (“Talos ERT”) in the U.S. District Court for the Southern District of Texas, seeking to recover its decommissioning and P&A expenses for a certain U.S. Gulf of America lease, Mississippi Canyon 941 (“MC 941 Lease”) acquired from the prior leaseholder, Bennu Oil & Gas, Inc., out of the Bennu Chapter 7 bankruptcy in 2017. Equinor’s claim rests upon a purported indemnity set forth in a 2006 conveyance instrument in which a former affiliate of Equinor, Hydro Gulf of Mexico, LLC (“Hydro GOM”), sold a 25% interest in the MC 941 Lease to Energy Resource Technology GOM, Inc. (“ERT”) (n/k/a Talos ERT). That 25% lease interest was then conveyed to ATP Oil & Gas, Inc. a few months later. The interest was sold several times thereafter, including in 2017, when Equinor reacquired the remainder of the MC 941 Lease, giving it 100% ownership and control thereafter. Equinor commenced production from the MC 941 Lease in 2017 and production continues today. As a result, Equinor filed its lawsuit seeking decommissioning costs not yet incurred and for unknown and unspecified amounts to be paid at some uncertain time in the future for such liabilities. On September 23, 2024, Talos ERT filed an answer denying all material allegations in Equinor’s complaint and asserted a counterclaim for declaratory relief. Talos ERT’s counterclaim relies upon indemnities provided pursuant to subsequent transactions of the 25% interest, which Talos ERT asserts Equinor assumed directly or owes as burdens or obligations that travel with the land that it acquired, burdening each successive owner, such as Equinor. Talos ERT’s counterclaim seeks a declaration that Equinor owes Talos ERT reimbursements for all decommissioning costs and Talos ERT’s legal fees in the litigation. On January 10, 2025, Equinor amended its complaint to add eight legal and equitable claims for recovery against Talos ERT, expanding the scope of the alleged decommissioning obligations to include the Titan floating platform that was placed on location at the MC 941 Lease in 2010, roughly four years after ERT sold its interest in the MC 941 Lease in 2006, and the full cost to plug and abandon all wells on the MC 941 Lease.
In September 2026, the District Court ruled on both parties’ motions to dismiss the other’s claims, dismissing six of the theories asserted by Equinor, leaving only its declaratory relief and breach of contract claims, as well as leaving Talos ERT’s lone claim (for declaratory relief) intact. Talos ERT will continue to vigorously defend against Equinor’s claims and pursue recovery under its counterclaim. The trial is currently scheduled for summer 2027 but may be impacted and changed as discovery continues.
39
Item 1A. Risk Factors
Our business is subject to a variety of risks and uncertainties. These risks are described elsewhere in this Quarterly Report, including in Part I, Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, or in our other filings with the SEC, including Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2025. You should carefully consider the risks and other cautionary statements described in this Quarterly Report, our 2025 Annual Report and the risk factors and other cautionary statements contained in our other SEC filings, which could materially affect our business, financial condition or future results. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or future results. Except as described below and elsewhere in this Quarterly Report, there have been no material changes in our risk factors from those described in our 2025 Annual Report.
Our expansion into international regions, including our recently announced offshore project in Honduras, may expose us to additional political, regulatory, operational and commercial risks that could adversely affect our ability to realize the benefits of our investments.
Our strategy includes pursuing exploration and development opportunities in international basins, including our recently announced offshore project in Honduras as well as our pending offshore Mexico farm-in transaction. Operations in foreign jurisdictions, including offshore Honduras and offshore Mexico, present risks that differ from those associated with our operations in the U.S. Gulf of America. These risks include potential changes and uncertainties in laws, regulations, fiscal requirements or contractual terms; delays in obtaining or maintaining governmental approvals, permits or licenses; political instability and transitions; challenges associated with operating in an underdeveloped offshore basin; limitations in transportation, processing or export infrastructure; local content requirements; and difficulties in attracting qualified service providers and personnel.
In particular, offshore Honduras remains relatively underexplored, and geological interpretations, resource estimates and commercial assumptions may ultimately differ from our current expectations. If we are unable to successfully explore, develop or monetize our interests in Honduras, or if the political, regulatory or economic environment becomes less favorable, we may be unable to realize the anticipated benefits of our investment and exploration efforts in this and other new international regions.
We recently closed the acquisition of certain assets in the U.S. Gulf of America. We may not be able to successfully integrate these assets or other future acquisitions or achieve anticipated benefits.
The success of the Coulomb and Na Kika Acquisition in the U.S. Gulf of America and other pending and future acquisitions will depend, in part, on our ability to effectively integrate acquired assets and interests into our existing portfolio, accurately assess reserves and production performance, manage additional operating and abandonment obligations, and manage any increased leverage or capital requirements associated with these assets. Actual results may differ materially from our expectations, and any failure to realize anticipated benefits or identify liabilities associated with acquired assets could adversely affect our business, financial condition and results of operations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
The following table sets forth information with respect to our repurchase of shares of common stock during the three months ended September 30, 2026 (in thousands, except for the share and per share amounts):
Period |
Total Number of Shares Purchased |
|
Average Price Paid |
|
Total Number of Shares Purchased as Part of Publicly Announced Program(1) |
|
Approximate Dollar Values of Shares that May Yet be Purchased Under the Program |
|
||||
July 1, 2026 - July 31, 2026 |
|
— |
|
$ |
— |
|
|
— |
|
$ |
200,000 |
|
August 1, 2026 - August 31, 2026 |
|
694,213 |
|
$ |
15.73 |
|
|
694,213 |
|
$ |
189,078 |
|
September 1, 2026 - September 30, 2026 |
|
753,653 |
|
$ |
16.85 |
|
|
753,653 |
|
$ |
176,379 |
|
Total |
|
1,447,866 |
|
$ |
16.31 |
|
|
1,447,866 |
|
|
|
|
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
40
Item 5. Other Information
During the three months ended September 30, 2026, no director or officer of the Company
41
Item 6. Exhibits
Exhibit Number |
|
Description |
|
|
|
2.1# |
|
|
|
|
|
3.1 |
|
|
|
|
|
3.2 |
|
|
|
|
|
3.3 |
|
|
|
|
|
3.4 |
|
|
|
|
|
3.5 |
|
|
|
|
|
4.1 |
|
|
|
|
|
4.2 |
|
|
|
|
|
4.3 |
|
|
|
|
|
4.4 |
|
|
|
|
|
4.5 |
|
|
|
|
|
4.6 |
|
|
|
|
|
4.7 |
|
|
|
|
|
4.8
|
|
|
|
|
|
4.9 |
|
|
|
|
|
4.10
|
|
|
|
|
|
10.1
|
|
|
|
|
|
42
10.2†
|
|
Form of Indemnification Agreement (Directors and Officers) (incorporated by reference to Exhibit 10.12 to the Company’s Form 10-K (File No. 001-38497) filed with the SEC on February 29, 2024). |
|
|
|
31.1* |
|
|
|
|
|
31.2* |
|
|
|
|
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32.1** |
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101.INS* |
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Inline XBRL Instance. |
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101.SCH* |
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Inline XBRL Taxonomy Extension Schema With Embedded Linkbase Documents. |
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104* |
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Cover Page Interactive Data File (Embedded within the Inline XBRL document and included in Exhibit 101). |
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* |
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Filed herewith. |
** |
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Furnished herewith. |
# |
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Certain schedules and exhibits to this agreement have been omitted in accordance with Instruction 4 of Item 1.01 of Current Report on Form 8-K and Item 601(a)(5) of Regulation S-K. A copy of any omitted schedule and/or exhibit will be furnished to the Securities and Exchange Commission on request. |
† |
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Identifies management contracts and compensatory plans or arrangements. |
43
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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Talos Energy Inc. |
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Date: |
November 3, 2026 |
By: |
/s/ Zachary B. Dailey |
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Zachary B. Dailey |
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Executive Vice President and Chief Financial Officer |
44
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO RULE 13A-14(A) AND RULE 15D-14(A)
OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
I, Paul Goodfellow, certify that:
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/s/ Paul Goodfellow |
November 3, 2026 |
Paul Goodfellow |
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President and Chief Executive Officer (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO RULE 13A-14(A) AND RULE 15D-14(A)
OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
I, Zachary B. Dailey, certify that:
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/s/ Zachary B. Dailey |
November 3, 2026 |
Zachary B. Dailey |
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Executive Vice President and Chief Financial Officer (Principal Financial Officer) |
Exhibit 32.1
CERTIFICATION OF
CHIEF EXECUTIVE OFFICER AND
CHIEF FINANCIAL OFFICER
UNDER SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002, 18 U.S.C. § 1350
Pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and in connection with the accompanying Quarterly Report on Form 10-Q of Talos Energy Inc. (the “Company”) for the quarterly period ended September 30, 2026 that is being filed concurrently with the Securities and Exchange Commission on the date hereof (the “Report”), Paul Goodfellow, Chief Executive Officer of the Company, and Zachary B. Dailey, Chief Financial Officer of the Company, each certify, to the best of his knowledge, that:
November 3, 2026 |
/s/ Paul Goodfellow |
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Paul Goodfellow |
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President and Chief Executive Officer (Principal Executive Officer) |
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/s/ Zachary B. Dailey |
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Zachary B. Dailey |
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Executive Vice President and Chief Financial Officer (Principal Financial Officer) |