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Acquisitions and Divestitures | 3 Months Ended
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Mar. 31, 2024
Business Combinations [Abstract] |
Acquisitions and Divestitures | Note 2 — Acquisitions and Divestitures Acquisitions — Business Combinations Acquisitions qualifying as business combinations are accounted for under the acquisition method of accounting, which requires, among other items, that assets acquired and liabilities assumed be recognized on the Consolidated Balance Sheets at their fair values as of the acquisition date. QuarterNorth Acquisition — T he Company executed an agreement and plan of merger, dated as of January 13, 2024, by and among Talos, QuarterNorth Energy Inc. (“QuarterNorth”), Compass Star Merger Sub Inc. and the Equityholder Representatives named therein (the “QuarterNorth Merger Agreement”) to acquire QuarterNorth, a privately-held U.S. Gulf of Mexico exploration and production company (such acquisition, the “QuarterNorth Acquisition”). On March 4, 2024, the Company completed the QuarterNorth Acquisition for consideration consisting of (i) $1,247.4 million in cash and (ii) 24.3 million shares of the Company’s common stock valued at $322.6 million. The cash payment was partially funded with an upsized underwritten public offering of 34.5 million shares of the Company’s common stock, borrowings under the Bank Credit Facility and the New Senior Notes (as defined in Note 7 — Debt). The following table summarizes the purchase price (in thousands except share and per share data):
Shares of Talos common stock |  | 24,349,452 |
Talos common stock price(1) | $ | 13.25 |
Common stock value | $ | 322,630 |
Cash consideration | $ | 1,247,419 |
Total purchase price(2) | $ | 1,570,049 |
(1) Represents the closing price of the Company’s common stock on March 4, 2024, the date of the closing of the QuarterNorth Acquisition. (2) Total purchase price net of $331.4 million cash and cash equivalents acquired at closing is $1,238.7 million. The following table presents the preliminary allocation of the purchase price to the assets acquired and liabilities assumed, based on their fair values on March 4, 2024 (in thousands):
Cash and cash equivalents | $ | 331,374 |
Other current assets |  | 160,978 |
Property and equipment |  | 1,621,507 |
Other long-term assets |  | 20,780 |
Current liabilities: |  |
Current portion of asset retirement obligations |  | (6,748 | )
Other current liabilities |  | (194,278 | )
Long-term liabilities: |  |
Asset retirement obligations |  | (192,771 | )
Deferred tax liabilities |  | (168,481 | )
Other long-term liabilities |  | (2,312 | )
Allocated purchase price | $ | 1,570,049 |
The fair values determined for accounts receivable, accounts payable and other current assets and most current liabilities were generally equivalent to the carrying value due to their short-term nature. The fair value of proved oil and natural gas properties as of the acquisition date is based on estimated proved oil, natural gas and NGL reserves and related discounted future net cash flows incorporating market participant assumptions. Significant inputs to the valuation include estimates of future production volumes, future operating, development and plugging and abandonment costs, future commodity prices, and a weighted average cost of capital discount rate. When estimating the fair value of proved and unproved properties, additional risk adjustments were applied to proved developed non-producing, proved undeveloped and probable reserves to reflect the relative uncertainty of each reserve class. These inputs are classified as Level 3 unobservable inputs, including the underlying commodity price assumptions which are based on the three-year NYMEX forward strip prices, escalated for inflation thereafter, and adjusted for price differentials. The fair value of asset retirement obligations is determined by calculating the present value of estimated future cash flows related to the liabilities. The Company utilizes several assumptions, including a credit-adjusted risk-free interest rate, estimated costs of decommissioning services, estimated timing of when the work will be performed and a projected inflation rate. The fair values of derivative instruments were estimated using a third-party industry standard pricing model which considers various inputs such as quoted forward commodity prices, discount rates, volatility factors and current market and contractual prices for the underlying instruments, as well as other relevant data. The Company is still finalizing the fair value analysis related to the oil and natural gas properties, other well equipment, asset retirement obligations assumed, certain contingent liabilities and deferred tax liabilities arising from the assets acquired and liabilities assumed. The preliminary purchase price allocation will be subject to further refinement as the Company continues to refine its estimates and assumptions based on further information available at the acquisition date. These refinements may result in material changes to the estimated fair value of assets acquired and liabilities assumed. The Company anticipates finalizing the determination of fair values by December 31, 2024. The Company incurred approximately $21.8 million of acquisition-related costs in connection with the QuarterNorth Acquisition exclusive of severance expense, of which $18.8 million was recognized during the three months ended March 31, 2024 and $3.0 million was recognized for the year ended December 31, 2023. These costs were reflected in “General and administrative expense” on the Condensed Consolidated Statements of Operations except for $4.9 million of fees associated with an unutilized bridge loan that was included in “Interest expense” on the Condensed Consolidated Statements of Operations during the three months ended March 31, 2024. Additionally, the Company incurred $14.2 million in severance expense in connection with the QuarterNorth Acquisition for the three months ended March 31, 2024. See Note 9 — Employee Benefits Plans and Share-Based Compensation for additional discussion. The following table presents revenue and net income attributable to the QuarterNorth Acquisition for the period from March 4, 2024 to March 31, 2024:
| Three Months Ended March 31, 2024 |
Revenue | $ | 43,949 |
Net income (loss) | $ | 6,749 |
Pro Forma Financial Information (Unaudited) — The following supplemental pro forma financial information (in thousands, except per common share amounts), presents the condensed consolidated results of operations for the three months ended March 31, 2024 and 2023 as if the QuarterNorth Acquisition had occurred on January 1, 2023. The unaudited pro forma information was derived from historical statements of operations of the Company and QuarterNorth adjusted to include (i) depletion expense applied to the adjusted basis of the oil and natural gas properties acquired, (ii) interest expense to reflect borrowings under the Bank Credit Facility and New Senior Notes, (iii) general and administrative expense adjusted for transaction related costs incurred (including severance), (iv) weighted average basic and diluted shares of common stock outstanding from the issuance of 24.3 million shares of common stock to QuarterNorth and (v) weighted average basic and diluted shares of common stock outstanding from the issuance of 34.5 million shares of common stock from the upsized underwritten public offering in January 2024 that partially funded the cash portion of the QuarterNorth Acquisition. Supplemental pro forma earnings for the three months ended March 31, 2023 were adjusted to include $31.7 million of general and administrative expenses. Supplemental pro forma earnings for the three months ended March 31, 2024 were adjusted to exclude $25.0 million of general and administrative expenses. This information does not purport to be indicative of results of operations that would have occurred had the QuarterNorth Acquisition occurred on January 1, 2023, nor is such information indicative of any expected future results of operations.
| Three Months Ended March 31, |
| 2024 |  | 2023 |
Revenue | $ | 557,201 |  | $ | 482,951 |
Net income (loss) | $ | (110,459 | ) | $ | 74,320 |
Basic net income (loss) per common share | $ | (0.60 | ) | $ | 0.45 |
Diluted net income (loss) per common share | $ | (0.60 | ) | $ | 0.45 |
EnVen Acquisition — On February 13, 2023, the Company completed the acquisition of EnVen Energy Corporation (“EnVen”), a private operator in the Deepwater U.S. Gulf of Mexico (the “EnVen Acquisition,” and the merger agreement related thereto, the “EnVen Merger Agreement”) for consideration consisting of (i) $207.3 million in cash, (ii) 43.8 million shares of the Company’s common stock valued at $832.2 million and (iii) the effective settlement of an accounts receivable balance of $8.4 million. No gain or loss was recognized on settlement as the payable was effectively settled at the recorded amount. The cash payment was partially funded with borrowings under the Bank Credit Facility. The Company incurred approximately $21.8 million of acquisition-related costs in connection with the EnVen Acquisition exclusive of severance expense, of which $12.6 million was recognized during the three months ended March 31, 2023 and reflected in “General and administrative expense” on the Condensed Consolidated Statements of Operations. Additionally, the Company incurred $22.6 million in severance expense in connection with the EnVen Acquisition for the three months ended March 31, 2023. The following table presents revenue and net income (loss) attributable to the EnVen Acquisition for the period from February 13, 2023 to March 31, 2023 (in thousands):
| Three Months Ended March 31, 2023 |
Revenue | $ | 62,059 |
Net income (loss) | $ | (6,090 | )
Pro Forma Financial Information (Unaudited) — The following supplemental pro forma financial information (in thousands, except per common share amounts), presents the condensed consolidated results of operations for the three months ended March 31, 2023 as if the EnVen Acquisition had occurred on January 1, 2022. The unaudited pro forma information was derived from historical statements of operations of the Company and EnVen adjusted to include (i) depletion expense applied to the adjusted basis of the oil and natural gas properties acquired, (ii) interest expense to reflect borrowings under the Bank Credit Facility and to adjust the amortization of the premium of the 11.75% Notes (as defined in Note 7 — Debt), (iii) general and administrative expense adjusted for transaction related costs incurred (including severance), (iv) other income (expense) to adjust the accretion of the discount on the two notes receivable to settle future asset retirement obligations and (v) weighted average basic and diluted shares of common stock outstanding from the issuance of 43.8 million shares of common stock to EnVen. Supplemental pro forma earnings for the three months ended March 31, 2023 were adjusted to exclude $62.6 million of general and administrative expenses. This information does not purport to be indicative of results of operations that would have occurred had the EnVen Acquisition occurred on January 1, 2022, nor is such information indicative of any expected future results of operations (in thousands, except for the per share data).
| Three Months Ended March 31, 2023 |
Revenue | $ | 374,625 |
Net income (loss) | $ | 118,090 |
Basic net income (loss) per common share | $ | 0.93 |
Diluted net income (loss) per common share | $ | 0.92 |
Divestiture Talos Low Carbon Solutions Divestiture — On March 18, 2024, the Company entered into a definitive agreement relating to and subsequently completed the sale of its wholly owned subsidiary, Talos Low Carbon Solutions LLC to TotalEnergies E&P USA, Inc. for a purchase price of $125.0 million plus customary reimbursements and adjustments, combined totaling approximately $142.0 million (the “TLCS Divestiture”). The TLCS Divestiture includes the Company’s entire CCS business including its equity investments in three projects along the U.S. Gulf Coast: Bayou Bend CCS LLC, Harvest Bend CCS LLC, and Coastal Bend CCS LLC. A gain of $86.9 million was recognized on the TLCS Divestiture during the three months ended March 31, 2024, which is presented as “Other operating income (expense)” on the Condensed Consolidated Statements of Operations. The Company incurred approximately $6.7 million of costs in connection with the TLCS Divestiture exclusive of severance expense, of which $6.1 million was recognized during the during the three months ended March 31, 2024 and reflected in “General and administrative expense” on the Condensed Consolidated Statements of Operations. Additionally, the Company incurred $3.7 million in severance expense in connection with the TLCS Divestiture for the three months ended March 31, 2024. See Note 9 — Employee Benefits Plans and Share-Based Compensation for additional discussion.

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- Definition The entire disclosure for business combinations, including leverage buyout transactions (as applicable), and divestitures. This may include a description of a business combination or divestiture (or series of individually immaterial business combinations or divestitures) completed during the period, including background, timing, and assets and liabilities recognized and reclassified or sold. This element does not include fixed asset sales and plant closings. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 805 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//805/tableOfContent Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 205 -SubTopic 20 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//205-20/tableOfContent + Details
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