Exhibit 23.1

Consent of Independent Auditors

We consent to the incorporation by reference in the following Registration Statements:

of our report dated April 18, 2024, relating to the consolidated financial statements of QuarterNorth Energy Inc. as of and for the years ended December 31, 2023 and 2022 appearing in this Current Report on Form 8-K/A of Talos Energy Inc.

Houston, Texas

May 3, 2024

Exhibit 23.2

CONSENT OF INDEPENDENT PETROLEUM ENGINEERS AND GEOLOGISTS

We hereby consent to the references to our firm, in the context in which they appear, and to the inclusion in this Current Report on Form 8-K of Talos Energy Inc. (the “Company”) of our reserves reports relating to QuarterNorth Energy LLC, dated March 18, 2024, included as exhibits to this Current Report on Form 8-K of the Company, and to the incorporation by reference of such reports in the Registration Statements (Nos. 333-277867, 333-231925, 333-248754, 333-255489, 333-271232, and 333-265589) on Form S-3 and the Registration Statements (Nos. 333-256554 and 333-225058) on Form S-8 of the Company. We also consent to the reference to us under the heading “Experts” in such Registration Statements.

Houston, Texas

May 3, 2024

Exhibit 99.1

QUARTERNORTH ENERGY INC.

CONSOLIDATED FINANCIAL STATEMENTS

AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022

Report of Independent Auditors

To Management of Talos Energy Inc.,

Opinion

We have audited the consolidated financial statements of QuarterNorth Energy Inc. (the Company), which comprise the consolidated balance sheet as of December 31, 2023 and 2022, and the related consolidated statements of operations, changes in stockholders’ equity and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2023 and 2022, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

Basis for Opinion

We conducted our audits in accordance with auditing standards generally accepted in the United States of America (GAAS). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of the Company and to meet our other ethical responsibilities in accordance with the relevant ethical requirements relating to our audits. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Responsibilities of Management for the Financial Statements

Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free of material misstatement, whether due to fraud or error.

In preparing the financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for one year after the date that the financial statements are available to be issued.

Auditor’s Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free of material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements.

In performing an audit in accordance with GAAS, we:

We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control-related matters that we identified during the audit.

Supplementary Information

Our audits were conducted for the purpose of forming an opinion on the financial statements as a whole. The Supplemental Information on Oil and Natural Gas Operations is presented for purposes of additional analysis and is not a required part of the financial statements. Such information is the responsibility of management. The information has not been subjected to the auditing procedures applied in our audits of the financial statements, and accordingly, we express no opinion on it.

/s/ Ernst & Young LLP

April 18, 2024

Houston, Texas

QUARTERNORTH ENERGY INC

CONSOLIDATED BALANCE SHEET

(In thousands)

The accompanying notes to these consolidated financial statements are an integral part of this statement.

1

QUARTERNORTH ENERGY INC

CONSOLIDATED STATEMENT OF OPERATIONS

(In thousands)

The accompanying notes to these consolidated financial statements are an integral part of this statement.

2

QUARTERNORTH ENERGY INC

CONSOLIDATED STATEMENT OF CASH FLOWS

(In thousands)

The accompanying notes to these consolidated financial statements are an integral part of this statement.

3

QUARTERNORTH ENERGY INC

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

(In thousands, except share amounts)

The accompanying notes to these consolidated financial statements are an integral part of this statement.

4

QUARTERNORTH ENERGY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Except as noted within the context of each footnote disclosure, the dollar amounts presented in the tabular data within these footnote disclosures are in thousands of dollars.

Note 1—Basis of Presentation and Summary of Significant Accounting Policies

Description of Company

QuarterNorth Energy Inc. (“QuarterNorth”, “we”, “us”, “our” or “the Company”) was incorporated in Delaware on June 4, 2021, and amended as of July 16, 2021. On June 4, 2021, the Company formed four indirect wholly owned subsidiaries: QuarterNorth Energy Holding Inc.; QuarterNorth Energy Intermediate Inc.; QuarterNorth Energy LLC; and Mako Buyer 2 LLC. All four entities are Delaware corporations or limited liability companies and were formed in contemplation of the Credit Bid Acquisition (as defined herein) whereby we acquired from Fieldwood Energy Inc. and its debtor affiliates (collectively, “Fieldwood”) certain GOM oil and natural gas properties, pursuant to a purchase and sale agreement. On June 21, 2023, the Company formed QNE Finco LLC as a wholly owned subsidiary. QNE Finco LLC is a Delaware limited liability company, see Note 10 — Debt for additional disclosures.

Business Operations and Strategy

QuarterNorth is an independent oil and natural gas producer with substantially all of its operations in the U.S. Gulf of Mexico (“GOM”). We commenced operations on August 27, 2021, when QuarterNorth Energy LLC purchased certain oil and natural gas properties (the “Credit Bid Acquisition”) from Fieldwood. We are active in the exploration, operations, exploitation, development and acquisition of oil and gas properties. We maintain offices in Houston, Texas (headquarters) and Lafayette, Louisiana, as well as certain other shore-based field locations in Louisiana. We had 205 employees as of December 31, 2023.

We operate our business through ourselves and our consolidated subsidiaries, primarily through QuarterNorth Energy LLC, our main operating subsidiary, which owns all of our oil and gas properties and is operator of record for many of the properties.

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). All intercompany transactions have been eliminated.

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, the reported amounts of revenues and expenses during the reporting period and the reported amounts of proved oil and natural gas reserves. Actual results could differ from those estimates.

Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported balance sheet, results of operations, or cash flows.

In preparing the accompanying consolidated financial statements, we have reviewed, as determined necessary by management, events that have occurred after December 31, 2023, up until the issuance of the consolidated financial statements, which occurred on April 18, 2024.

Accounting Standards Recently Adopted

On January 1, 2023, we adopted Accounting Standards Update (“ASU”) 2016-13 Financial Instruments — Credit losses (Topic 326): Measurement of credit losses on financial instruments. ASU 2016-13 amended Accounting Standards Codification (“ASU”) Topic 326, which changed the recognition of credit losses from an incurred or probable impairment methodology to a current expected credit loss (“CECL”) methodology. The CECL methodology is applicable to the measurement of credit losses related to our trade receivables, among other financial assets. The adoption of this guidance did not have a material effect on the Company’s Consolidated Financial Statements or related disclosures.

5

QUARTERNORTH ENERGY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Summary of Significant Accounting Policies

Accounts Receivable. We sell oil and natural gas to various customers and participate with other parties in the drilling, completion, and operation of oil and natural gas wells. Joint interest and oil and natural gas sales receivables related to our operations are generally unsecured. The purchasers of the Company’s oil and natural gas production consist of independent marketers, major oil and natural gas companies and gas pipeline companies.

Cash, Cash Equivalents, and Restricted Cash. Cash and cash equivalents represent unrestricted cash on hand, demand deposits, and investments with original maturities of three months or less. We consider cash equivalents to include short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

Our restricted cash serves as collateral for certain of our obligations. These restricted funds are generally invested in interest-bearing accounts.

The following table provides a reconciliation of cash and cash equivalents, and restricted cash reported within the Consolidated Balance Sheet that sums to the total of the amounts shown in the Statement of Consolidated Cash Flows.

Short-term investments. Our short-term investments are comprised of U.S. Treasury securities with original maturities greater than three months. Management has both the positive intent and ability to hold these securities until the maturity date and thus considered these securities to be Held-to-maturity. These securities are carried at amortized cost.

Concentration of Credit Risk. We extend credit, primarily in the form of uncollateralized oil and natural gas sales and joint interest owner receivables, to various companies in the oil and natural gas industry, which results in a concentration of credit risk. The concentration of credit risk may be affected by changes in economic or other conditions within the oil and natural gas industry and may accordingly impact our overall credit risk. We believe our joint interest partners specific to our owned and operated properties primarily consist of large independent oil and natural gas companies and the risk of these unsecured receivables is substantially mitigated by the size, reputation and nature of the companies to which we extend credit.

During the year ended December 31, 2023, Shell Trading (US) Co., Exxon Mobil Corp., and Chevron Products Co. accounted for 43%, 28% and 18% of our total revenues, respectively. During the year ended December 31, 2022, Shell Trading (US) Co. and Exxon Mobile Corp. accounted for 41% and 29% of our total revenues, respectively.

In evaluating the current expected credit loss of our accounts receivable, a CECL loss methodology is used to determine the recoverability of receivables. This methodology utilizes historical data, current market conditions, and reasonable and supported forecasts of future economic conditions to determine expected collectability. The following table describes the changes to the allowance for credit losses.

6

QUARTERNORTH ENERGY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

We use commodity derivative contracts to mitigate the effects of commodity price fluctuations. These derivative contracts expose us to counterparty credit risk. Our counterparties are generally major banks, commodity trading firms, or financial institutions. All derivative contracts are executed under master agreements, which allow us, in the event of default, to elect early termination of all contracts with the defaulting counterparty. If we choose to elect early termination, all asset and liability positions with the defaulting counterparty would be net settled at the time of election. We monitor the creditworthiness of our counterparties. However, we are not able to predict sudden changes in our counterparties’ creditworthiness. Should a financial counterparty not perform, we may not realize the benefit of some of our derivative contracts under lower commodity prices, and we may incur a loss.

Consolidation Policy. Our consolidated financial statements include the accounts of majority-owned, controlled subsidiaries. When we do not have the ability to exert significant influence, the cost method is used. Undivided interests in oil and gas joint ventures, pipelines, processing facilities, and certain other assets are consolidated on a proportionate basis.

Contingencies. Certain conditions may exist as of the date our consolidated financial statements are issued, which may result in a loss to us, but which will only be resolved when one or more future events occur or fail to occur. Our management and legal counsel assess such contingent liabilities, and such assessment inherently involves an exercise in judgment.

In assessing loss contingencies related to legal or regulatory matters that are pending against us or unasserted claims that may result in such proceedings, our management, and legal counsel evaluate the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein. If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of liability can be estimated, then the estimated liability would be accrued in our consolidated financial statements. If the assessment indicates that a potentially material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss (if determinable and material), is disclosed.

Liabilities for environmental remediation costs arising from claims, assessments, litigation, fines, and penalties and other sources are charged to expense when it is probable that a liability has been incurred and the amount of the assessment and/or remediation can be reasonably estimated. Management believes we are in material compliance with all applicable federal, state, local and foreign laws and regulations associated with our properties.

Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed.

Derivative Contracts. We recognize derivative contracts at fair value as either assets or liabilities. Changes in fair value are recognized in earnings and included in other income unless designated as a hedging instrument. We have elected not to designate price risk management activities as accounting hedges under applicable accounting guidance. No master netting agreements exist as of December 31, 2023 and 2022. The related cash flow impact of our derivative activities is reflected as cash flows from operating activities.

Fair Value Measurements. Assets and liabilities required to be measured at fair value are categorized within the fair value hierarchy into one of three different levels depending on the observability of the inputs employed in the measurement. Level 1 inputs are quoted prices in active markets for identical assets or liabilities. Level 2 inputs are observable inputs other than quoted prices included within Level 1 for the asset or liability, either directly or indirectly through market-corroborated inputs. Level 3 inputs are unobservable inputs for the asset or liability reflecting significant modifications to observable related market data or our assumptions about pricing by market participants. Refer to Note 14—Fair Value Measurements for a further discussion.

Financing Costs. Costs incurred in connection with the issuance of debt are capitalized and amortized to interest expense over the term of the related debt. If these costs are associated with a related debt issuance, they are netted against the debt instrument in our consolidated balance sheet.

General and Administrative Expense. General and administrative expenses are reported net of recoveries from owners in properties operated by us and net of amounts related to lease operating activities or capitalized pursuant to the full cost method of accounting. During the years ended December 31, 2023 and 2022, we capitalized general and administrative expenses of $23.9 million and $22.1 million, respectively.

7

QUARTERNORTH ENERGY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Income Taxes. We use the liability method of accounting for income taxes in accordance with the Income Taxes Topic of the Accounting Standards Codification. Under this method, deferred tax assets and liabilities are determined by applying tax rates in effect at the end of a reporting period to the cumulative temporary differences between the tax bases of assets and liabilities and their reported amounts in the financial statements.

The effects of changes in tax rates and laws on deferred tax balances are recognized in the period in which the new legislation is enacted. In assessing the need for a valuation allowance on our deferred tax assets, we consider whether it is more likely than not that some portion or all of them will not be realized.

We recognize uncertain tax positions in our financial statements when it is more likely than not that we will sustain the benefit taken or expected to be taken. We classify interest and penalties related to uncertain tax positions in income tax expense. See Note 19—Income Taxes for additional information.

Lease Operating Expense. Lease operating expense includes labor, materials and supplies, repairs, maintenance, transportation, allocated overhead costs, ad valorem taxes and other costs incidental to production net to our ownership interests.

Materials and Supplies. We maintain inventories which include costs of materials, supplies, and production equipment to be used in drilling and abandonment operations, carried at the lower of cost or net realizable value. During the year ended 2022, we incurred a write-down related to materials and supplies of $3.3 million. No write-down was required for the year ended December 31, 2023.

Oil and Natural Gas Properties. We follow the full cost method of accounting for oil and natural gas properties. Under this method, all costs related to the acquisition, exploration, and development of oil and natural gas reserves are capitalized and accumulated in a single cost center representing our activities. Such costs include lease acquisition costs, geological and geophysical expenditures, lease rentals on undeveloped properties, costs of drilling both productive and nonproductive wells, and general and administrative expenses directly related to acquisition, exploration, and development activities, and do not include any costs related to production, general corporate overhead or similar activities.

Under full cost accounting, we may exclude certain unevaluated costs from the amortization base pending determination of whether proved reserves can be assigned to such properties. The costs classified as unevaluated are transferred to the amortization base as the properties are developed, tested and evaluated. At least annually, we test these assets for impairment based on an evaluation of management’s expectations of future pricing, evaluation of lease expiration terms, and planned project development activities. During the years ended December 31, 2023 and 2022, we transferred unevaluated costs of $1.4 million and $0.3 million, respectively, to the amortization base.

Oil and natural gas properties included in the amortization base are amortized using the units-of-production method based on production and estimates of proved reserves quantities. In addition to costs associated with evaluated properties and capitalized Asset Retirement Obligations, the amortization base includes estimated future development costs to be incurred in developing proved reserves as well as estimated plugging and abandonment costs, net of salvage value, related to developing proved reserves. Future development costs related to proved reserves are not recorded as liabilities on the balance sheet, but are part of the calculation of depletion expense.

Our capitalized costs are limited to a ceiling based on the present value of future net revenues from proved reserves, computed using a discount factor of 10 percent, plus the lower of cost or estimated fair value of unproved oil and natural gas properties not being amortized less the related tax effects. Any costs over the ceiling are recognized as a non-cash impairment expense in our consolidated statement of operations and an increase to accumulated depreciation, depletion, and amortization on our consolidated balance sheet. The expense may not be reversed in future periods, even though higher crude oil, natural gas and natural gas liquids prices may subsequently increase the ceiling. We perform this ceiling test calculation each quarter.

We utilize SEC pricing when performing the ceiling test. We also hold prices and costs constant over the life of the reserves, even though actual prices and costs of oil and natural gas are often volatile and may change from period to period. We did not record a ceiling test impairment during the years presented herein.

8

QUARTERNORTH ENERGY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Asset Retirement Obligations (“AROs”). We record the fair value of a liability for a legal obligation to retire a tangible long-lived asset in the period in which the liability is incurred and can be reasonably estimated with the corresponding cost capitalized by increasing the carrying amount of the related long-lived asset. The liability is accreted to its present value each period and the capitalized costs are amortized using the unit-of-production method. The accretion expense is recorded as an operating expense. Estimates of AROs are revised as information about material changes to the liability becomes known. Revisions are recorded as adjustments to existing liabilities and to the carrying amount of the related assets. Settlement gains or losses are charged to oil and natural gas properties. Our AROs relate primarily to the plugging and abandonment of oil and natural gas wells and to the decommissioning of related pipelines, facilities and structures. See Note 11—Asset Retirement Obligations for further information.

Other Property and Equipment. Other property and equipment, which consists primarily of office furniture, equipment, computers and computer software, is stated at cost. Also included in this category are several sets of equipment for plugging and abandoning oil and gas wells. Depreciation on other property and equipment is calculated on the straight-line method over the estimated useful lives of the assets, which range from three to five years.

Other Revenue. We provide services related to certain production handling arrangements and pipeline transportation contracts. For the majority of these contracts, we promise to perform a series of distinct integrated services at a point in time, which is a single performance obligation, and the transaction price includes fixed or variable consideration, or a combination of both. The amount of consideration is determinable at contract inception or at each month’s end based on the value of services provided to the customer in that month. Revenue is recognized at the point specified in the contract when the services are rendered. Payment is generally received from the customer in the month of service or the month following the service. Contracts with customers generally are a combination of month-to-month and multi-year agreements. Other revenue consisted of the following for the years ended December 31.

Turnkey Revenue. We have entered into agreements to plug, abandon, decommission and remove certain third-party assets in the GOM. These services are performed under turnkey arrangements where the transaction price is fixed but, subject to the specific contract, potentially subject to change for certain qualified conditions and adjustment to the overall cost environment at least annually. Revenue is recognized when the Company satisfies the performance obligation at a point in time.

Leases. We primarily lease office spaces, production equipment, and other facilities and equipment. At inception, contracts are reviewed to determine whether the agreement contains a lease. A contract is considered a lease when the arrangement either explicitly or implicitly conveys the right to control the use of the identified property, plant or equipment for a period of time in exchange for consideration. In order to obtain control, we must obtain substantially all of the economic benefits for the use of the identified asset and have the right to direct the use of the identified asset. Leases are evaluated for classification as operating or finance leases at the commencement date of the lease and right-of-use assets and corresponding liabilities are recognized on our consolidated balance sheet based on the present value of future lease payments relating to the use of the underlying asset during the lease term. The discount rate used to determine present value is the rate implicit in the lease unless the rate cannot be determined, in which case an incremental borrowing rate is used. The incremental borrowing rate reflects the estimated rate of interest we would incur over a similar term for an amount equal to the lease payments on a collateralized basis in a similar economic environment.

We have elected to account for lease and non-lease components in our contracts as a single lease component for all asset classes. Lease agreements may include options to renew the lease, terminate the lease or purchase the underlying asset. We determine the lease term at the lease commencement date as the non-cancelable period of the lease, including options to extend or terminate the lease when such an option is reasonably certain to be exercised. Factors we use to assess the reasonable certainty of rights to extend or terminate a lease include current and forecasted drillings plans, anticipated changes in development strategies, historical practice in extending similar contracts and current market conditions. We have elected to not apply the recognition requirements of Topic 842 to leases with durations of twelve months or less (i.e. short-term). See Note 12 — Leases.

9

QUARTERNORTH ENERGY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Revenue Recognition. We recognize revenue from the sale of oil, natural gas, and natural gas liquids when our performance obligations are satisfied. Our contracts with customers are primarily short-term (within a year). Our responsibilities to deliver a unit of crude oil, natural gas liquids, and natural gas under these contracts represent separate, distinct performance obligations. These performance obligations are satisfied at the point in time control of each unit is transferred to the customer. Pricing is primarily determined utilizing a particular pricing or market index, plus or minus adjustments reflecting quality or location differentials.

We record oil and natural gas revenues based upon physical deliveries to our customers, which can be different from our net revenue ownership interest of production. These differences create imbalances that we recognize as a liability only when the estimated remaining recoverable reserves of a property will not be sufficient to enable the under-produced party to recoup its entitled share through production. We do not record receivables for those properties in which we have taken less than our ownership share of production.

Other income. Other income includes income unrelated to our primary oil and gas activities, and other one-time income generated during the year, including income from litigation and litigation related activities.

Note 2—Credit Bid Acquisition

Purchase Price Allocation

We have accounted for the Credit Bid Acquisition as a business combination, using the acquisition method. The following table represents the final allocation of the total purchase price to the identifiable assets acquired and the liabilities assumed based on the fair values as of the Acquisition Date, including measurement period adjustments made during 2022. Those adjustments comprise:

The allocation of the purchase price for this acquisition, for the dates indicated below, is as follows:

10

QUARTERNORTH ENERGY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 3— Accounts Receivable, net

Accounts receivable, net consisted of the following at December 31.

Note 4— Prepaid and Other Current Assets

Prepaid and other current assets consisted of the following at December 31.

Note 5— Oil and Natural Gas Properties

Oil and Natural gas properties consisted of the following at December 31.

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QUARTERNORTH ENERGY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 6— Other Property and Equipment, net

Other property and equipment, net consisted of the following at December 31.

Note 7— Other Assets

Other assets consisted of the following at December 31.

Note 8— Accrued Liabilities

Accrued liabilities consisted of the following at December 31.

Note 9— Derivative contracts

Our principal market risks are our exposure to changes in commodity prices, particularly to the prices of crude oil and natural gas, and nonperformance by our counterparties.

Our revenues are derived principally from the sale of crude oil and natural gas. The prices of crude oil and natural gas are subject to market fluctuations in response to changes in supply, demand, market uncertainty and a variety of additional factors beyond our control. We monitor these risks and enter into commodity derivative contracts to secure a commodity price for a portion of our expected future production that is acceptable at the time of the transaction. We do not enter into derivative contracts for speculative purposes.

The counterparties to our derivative contracts include financial institutions. Our derivative contracts expose us to market and credit risks, and which may, at times, be concentrated with certain counterparties or groups of counterparties. The credit worthiness of our counterparties is subject to continual review. We monitor the nonperformance risk of ourselves and of each of our counterparties and assesses the possibility of whether each counterparty to the derivative contract would default by failing to make any contractually required payments as scheduled in the derivative instrument in determining the fair value.

Our commodity derivative contracts may include, but are not limited to, “swap”, “collar” and “put” positions.

With swaps, we receive an agreed upon fixed price for a specified notional quantity of oil or natural gas and we pay the counterparty a floating price for that same quantity based upon published index prices. Index pricing used is based on grades that we believe best represent the revenue we receive for our underlying physical production. Our swap contracts provide us with protection if market prices decline below the contracted price. If market prices rise above the contracted prices, we will receive less revenue than in the absence of swaps.

12

QUARTERNORTH ENERGY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Collars contain a fixed floor price and a fixed ceiling price. If the published index price exceeds the ceiling price or falls below the floor price, we receive the fixed price and pay the index price. If the index price is between the floor and ceiling prices, no payments are due from either party.

A put option gives the owner the right, but not the obligation, to sell the underlying commodity at a specified price (strike price) within a specific time period. Depending on market conditions, strike prices, and the value of the contracts, we may, at times, purchase put options, which require us to pay premiums. The premiums may be paid when the option is purchased, or deferred until each monthly settlement occurs. The ownership of put options is consistent with our derivative strategy inasmuch as the value of the puts will increase as commodity prices decline, helping to offset the cash flow impact of a decline in realized prices for the underlying commodity. However, if the underlying commodity increases in value, there is a risk that the put option will expire worthless, in which case the net premiums paid would be recognized as a loss.

Commodity derivative contracts outstanding as of December 31, 2023 are shown below:

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QUARTERNORTH ENERGY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

We had derivative financial instruments recorded in our consolidated balance sheet as assets (liabilities) at their respective estimated fair value, as set forth below.

The amount of gain (loss) recognized in “Commodity derivative income (expense)” in our consolidated statement of operations and comprehensive income related to our derivative financial instruments follows.

See Note 14—Fair Value Measurements for additional disclosures related to derivative contracts.

Note 10—Debt

We had the following debt outstanding as of December 31.

First Lien Term Loan (“FLTL”). As amended in 2022, borrowings under the FLTL bear interest at either an alternative base rate (ABR) plus an applicable margin with a 2% ABR floor or Secured Overnight Financing Rate (“SOFR”) plus an applicable margin with a 1.00% SOFR floor. Interest payments are due each quarter, and the maturity date of the loan is December 31, 2023.

The FLTL agreement was amended on June 29, 2023. The amendment simplifies the administrative burden of carrying the loan while continuing the first lien collateral position of the hedge counterparties. QNE FinCo LLC, acquired the existing lenders’ rights and obligations in their capacity as the lender under the agreement and Cantor Fitzgerald Securities was appointed as the successor administrative agent and collateral agent.

14

QUARTERNORTH ENERGY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For contractual purposes, the FLTL credit agreement remains outstanding, but for GAAP purposes the debt is extinguished because the lender is an affiliate of the borrower. Previously unamortized debt issuance costs and the cost of the amendment were charged to interest expense.

Second Lien Term Loan. On August 27, 2021, QuarterNorth Energy Holding Inc., as borrower, and its parent entity and subsidiaries, as guarantors, entered into the Second Lien Term Loan Agreement (“SLTL”), with lenders party thereto and Cantor Fitzgerald Securities, as administrative agent and collateral agent for the lenders. The maturity of the SLTL is August 27, 2026.

Borrowings under the SLTL bear interest at either an ABR plus an applicable margin of 7.00% or LIBOR plus an applicable margin of 8.00%. The Company may, at its sole discretion, elect to pay interest-in-kind (“PIK”), by delivering a PIK notice to the lenders during any PIK election trigger period. The PIK election trigger period is a period in which the borrower and its restricted subsidiaries have less than $75.0 million as of the end of the most recently ended fiscal quarter. Obligations under the SLTL are secured by second liens on substantially all of our assets. The SLTL requires ongoing compliance with affirmative and negative covenants.

QuarterNorth has the right at any time and from time to time to prepay the SLTL in whole or in part, without premium or penalty, in an aggregate principal amount that is an integral multiple of $0.5 million and not less than $1.0 million. During the year ended December 31, 2023, we repaid $100 million of principal resulting in the write-off of a proportionate amount of unamortized debt issuance costs of approximately $1.5 million to interest expense.

Affirmative covenants include, among others, requirements of QuarterNorth relating to: (i) minimum hedging requirements; (ii) the preservation of existence; (iii) the payment of obligations, including taxes; (iv) the maintenance of insurance and books and records; (v) the compliance with laws and material contracts; (vi) compliance with environmental law (vii) use of proceeds; (viii) notice of certain material events; and (ix) certain periodic reporting requirements.

Negative covenants include, among others, restrictions on QuarterNorth’s and its subsidiary guarantors’ ability to, subject in each case to certain exceptions and baskets: (i) create, incur, assume or suffer to exist indebtedness; (ii) create or permit to exist liens on their properties; (iii) merge with or into another person, liquidate or dissolve; (iv) make asset sales; (v) pay cash dividends or other restricted payments; and (vi) enter into transactions with affiliates.

Further, negative covenants in the SLTL restrict QuarterNorth’s ability to engage in business activities other than those, among other things, related to the ownership of interest in QuarterNorth, performing our obligations under other indebtedness documents and receiving restricted payments. On March 22, 2022, the SLTL was amended which, among other things, required the Company to make the restricted payment baskets consistent with the FLTL, as amended.

As of December 31, 2023, QuarterNorth was in compliance with all covenants under its debt agreements.

On January 25, 2024, we repaid the remaining $85 million existing under the SLTL. See Note 20 Subsequent Events.

Note 11—Asset Retirement Obligations

The following table summarizes the activity for our asset retirement obligations for the years ended December 31.

15

QUARTERNORTH ENERGY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 12—Leases

Lease Balances

The following table summarizes the present value of the fixed lease payments recorded as right-of-use assets and liabilities, including the balance sheet presentation, as of December 31.

Lease Costs

The following table presents the components of lease costs incurred during the years ended December 31. The amounts shown are gross and have not been adjusted to reflect amounts recovered or reimbursed from other working interest owners.

Minimum Future Commitments

The following table shows our minimum future commitments related to leases as of December 31, 2023, on an undiscounted basis with a reconciliation to the discounted present value recognized on our consolidated balance sheet.

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QUARTERNORTH ENERGY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Lease Terms and Discount Rate

The following table presents the weighted average remaining lease terms and weighted average discount rate as of December 31.

Supplemental Cash Flow Information

The following table presents supplemental cash flow information related to our leases for the years ended December 31.

Note 13—Stockholders’ Equity

Stock Warrants

In conjunction with the Credit Bid acquisition, the Company issued stock warrants that provide the holder with the right to purchase shares of our common stock. The warrants were valued using a Black-Scholes-Merton option pricing model to derive a relative fair value and are not subject to subsequent remeasurement. The warrants have been classified as equity and are recognized within additional paid-in capital in our consolidated balance sheet. The following table summarizes the warrants issued:

As of December 31, 2023, the holders of the New Money Warrants had exercised 1,854,116 warrants with an exercise price of $0.01.

Note 14—Fair Value Measurements

Derivative Contracts

Our commodity derivative contracts are presented in our consolidated financial statements at fair value. These contracts consist of over-the-counter transactions, which are not traded on a public exchange.

The fair values of our commodity derivative contracts are determined based on inputs that are readily available in public markets or can be derived from information available in publicly quoted markets. Therefore, we have categorized these contracts as Level 2.

We have consistently applied these valuation techniques and believe we have obtained the most accurate information available for the types of derivative contracts we hold.

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QUARTERNORTH ENERGY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table sets forth, by level within the fair value hierarchy, our derivative assets and liabilities measured at fair value on a recurring basis as of December 31.

These derivative assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of the fair value assets and liabilities and their placement within the fair value hierarchy levels.

Business Combination

On August 27, 2021, we acquired certain oil and natural gas properties from Fieldwood, and recorded the assets acquired and liabilities assumed at their acquisition date fair values. See Note 2—Credit Bid Acquisition, for a discussion of the fair value approaches used by the Company and the classification of the estimates within the fair value hierarchy.

Debt

The estimated fair value of our debt, determined using a market approach using estimates provided by an independent financial data services firm (a Level 2 fair value measurement) was as follows at December 31.

We believe the carrying values of cash, accounts receivable, accounts payable, and accrued liabilities included in the accompanying consolidated balance sheet approximate their fair value as of December 31, 2023 and 2022.

Asset Retirement Obligations

We follow the provisions of ASC 820, for nonfinancial assets and liabilities measured at fair value on a non-recurring basis. These provisions apply to the Company’s initial recognition of asset retirement obligations for which fair value is used. The asset retirement obligation estimates are derived from historical costs and management’s expectation of future cost environments; and therefore, the Company has designated these liabilities as Level 3. See Note 11—Asset Retirement Obligations for a reconciliation of the beginning and ending balances of the Company’s asset retirement obligations.

Note 15—Employee Benefits

We sponsor a qualified 401(k) Plan that provides for matching of up to 100% of the first 6% of employee contributions. Employees are immediately 100% vested in their contributions and our matching contributions. Our matching contributions were $1.5 million and $2.3 million for the years ended December 31, 2023 and 2022, respectively.

Note 16—Share-Based Compensation

On April 1, 2022, our board of directors adopted (“the Adoption date”) the QuarterNorth Energy Inc. Equity Incentive Plan (the “Incentive Plan”). The Incentive Plan provides for the grant of stock-based awards to any officer, employee, director, independent contractor, or consultant of the Company or a subsidiary of the Company. A total of 621,689 shares of our common stock have been reserved for issuance through awards under the Incentive Plan. Under certain circumstances to protect against dilution of awards, the administrator of the Incentive Plan may adjust the number of underlying shares with respect to any award.

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QUARTERNORTH ENERGY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company awarded restricted stock units (RSUs) that are time-based awards (“time-based RSUs”) and performance-based restricted stock units (“performance-based RSUs”) that vest at a percentage (i.e., 0% - 100%) based upon certain threshold target levels of proceeds received in connection with a liquidity event.

The time-based RSUs are subject to a three-year vesting requirement. The vesting commencement date is the latter of August 27, 2021 or commencement of employment. If there is an event that results in a change of control of the Company during the vesting period, the time-based RSU vesting will accelerate and occur when that event occurs. The time-based RSUs will expire if a liquidity event has not occurred prior to the seventh anniversary of the grant date. Both time-based RSUs and performance-based RSUs settle upon the occurrence of a liquidity event. As a result of the liquidity event vesting requirement, no compensation cost will be recognized until it is deemed probable that a liquidity event will occur.

The grant date fair value of both the time-based RSUs and performance-based RSUs were determined by a third party valuation expert who used a bottoms-up strategy, utilizing the economic conditions present on the Adoption date, as well as, the projected operating environment of the Company.

The following summarizes the Company’s activity for the years ended December 31.

At December 31, 2023 and 2022, the unrecognized compensation cost from unvested time-based RSUs and performance-based RSUs was indeterminable.

If an employee leaves the Company for “good reason” or is terminated without “cause”, both as defined in the Incentive Plan, any unvested awards are forfeited. If an employee is terminated for “cause” all awards are forfeited. Any share that is not issuable because the related award is forfeited, canceled, or expires without being exercised or otherwise terminates without payment or issuance of shares shall again be available for grant pursuant to an award under the Incentive Plan.

Note 17—Related Party Transactions

During 2022, we had agreements to provide technical, operational, engineering, procurement, construction and installation services, management and administrative services to Fieldwood Mexico. Fees pursuant to these agreements were $2.2 million for the year ended December 31, 2022. They have been recognized in the financial statements as reductions of general and administrative expense. These contracts were terminated at the time of our sale of Fieldwood Mexico.

Note 18—Commitments and Contingencies

Legal Proceedings. From time to time, we may be involved in litigation arising out of the normal course of our business. We maintain insurance coverage applicable to certain litigation, which, subject to applicable deductibles, may reduce our actual liability under any litigation. In management’s opinion, we are not involved in any litigation, the outcome of which would have a material effect on our consolidated financial position, results of operations, or liquidity.

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QUARTERNORTH ENERGY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Firm Commitment. On November 3, 2023, we entered into a rig contract with a commitment of approximately $33 million and which is expected to be utilized in 2024.

Note 19—Income Taxes

Components of income tax expense for the years ended December 31, are as follows:

Our reconciliation of income taxes computed at the U.S. federal statutory tax rate to our income tax expense for the years ended December 31 is as follows:

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of our deferred tax assets and liabilities as of December 31 are:

Accounting for uncertainty in income taxes prescribes a recognition threshold and measurement methodology for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. As of December 31, 2023 and 2022, we had no unrecognized tax benefits.

We file income tax returns in the U.S. federal jurisdiction and in Louisiana and Texas. Tax years that remain subject to examination include 2021 and 2022.

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QUARTERNORTH ENERGY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 20—Subsequent Events

Acquisition of the Company

On January 13, 2024, Talos Energy Inc (“Talos”) and the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”). The Merger Agreement, among other things, provides that the Company will become a wholly owned subsidiary of Talos in exchange for $1.29 billion consisting of approximately $965 million in cash and 24.8 million shares of Talos common stock. The transaction closed on March 4, 2024.

Debt

On January 25, 2024, the Company paid the remaining $85 million in principle due on the Second Lien Term Loan. This payment satisfied all outstanding requirements under this agreement.

Note 21—Supplemental Information on Oil and Natural Gas Operations (Unaudited)

Oil and Natural Gas Reserves

Proved reserves represent estimated quantities of natural gas, crude oil and condensate and natural gas liquids that geological and engineering data demonstrate, with reasonable certainty, to be recoverable in future years from known reservoirs under economic and operating conditions in effect when the estimates were made. Proved developed oil and natural gas reserves are proved reserves that can be expected to be recovered through existing wells and equipment in place and under operating methods being utilized at the time the estimates were made. Users of this information should be aware that the process of estimating quantities of “proved” and “proved developed” oil and natural gas reserves is very complex, requiring significant subjective decisions.

Results of Operations for Oil and Gas Producing Activities

Separate disclosure is not required because our oil- and gas-producing activities represent substantially all of our business activities, and we operate in a single geographic area. See our consolidated statement of operations.

Costs Incurred

The following table reflects the costs incurred in oil and natural gas property acquisition, exploration and development activities for the years ended December 31. Costs incurred also includes capitalized general and administrative expense, acquired asset retirement obligations, new asset retirement obligations established in the current period, as well as increases or decreases to our asset retirement obligations resulting from changes to cost estimates during the current period.

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QUARTERNORTH ENERGY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Capitalized Costs

The following table illustrates the total amount of capitalized costs and accumulated depreciation, depletion and amortization relating to our oil and natural gas properties as of December 31.

The following table sets forth certain information relative to the amortization of our investment in oil and gas properties and the impairment of our oil and gas properties for the years ended December 31.

Proved Reserves

The following information summarizes our net proved reserves of oil (including condensate), natural gas and natural gas liquids as of December 31, 2023 and 2022. All of our oil and natural gas reserves are located in the U.S. Gulf of Mexico.