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 June 30, 2026, the Company had outstanding performance bonds from third party sureties totaling $1.5 billion. The ongoing cost of maintaining these bonds is reflected as “Interest expense” on the Condensed Consolidated Statements of Operations. Additionally, as of June 30, 2026, the Company had letters of credit issued under its bank credit facility totaling $95.7 million. Letters of credit that are outstanding reduce the available revolving credit commitments.

The Company has arrangements with its surety providers that establish limits on the aggregate amount of collateral the Company may be required to post, subject to annual collateral funding commitments. These arrangements also require the Company to incur minimum annual expenditures for plugging and abandonment activities of $90.0 million for each of the three years beginning January 1, 2026 and $45.0 million for each of the two years beginning January 1, 2029.

The table below outlines the estimated collateral funding commitments under the arrangements as of June 30, 2026 (in thousands):


Period	Collateral Funding Commitments
Remaining 2026	$	41,638
2027		42,661
2028		43,166
2029		42,101
2030		35,212
Thereafter		46,749
Total	$	251,527

The collateral funding commitments may be secured by cash or letters of credit which will reduce the Company’s liquidity. Collateral funded with cash will be reflected as “Restricted cash” within the Condensed Consolidated Balance Sheets. The collateral funding commitments, and ultimately any posted cash collateral, will be reduced as plugging and abandonment activities are completed and underlying surety bonds are released.

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 June 30, 2026, the future minimum transportation payments under the Company’s commitments total approximately $40.2 million for years 2026 through 2030. Our production is currently expected to exceed the minimum monthly volume in the periods provided in the agreements.

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 from operations for a specific interim period or year.

Other than as described below, during the six months ended June 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 consummation of an acquisition in March 2024 as discussed in Note 3 – Acquisitions and Divestitures included in the accompanying Notes to Consolidated Financial Statements in the 2025 Annual Report, Talos defended a lawsuit brought by a contractor concerning amounts allegedly owed for drilling operations at several locations in the 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 three months ended June 30, 2026 with a $14.3 million payment by the Company in exchange for a release of the liens and a full liability release by the plaintiff. The settlement, which was previously accrued, is reflected as a component of “Other operating (income) expense” on the Condensed Consolidated Statements of Operations for the six months ended June 30, 2026.

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.

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	$	22,145
Additions		151
Changes in estimate		226
Settlements		(280	)
Decommissioning Obligations at June 30, 2026	$	22,242
Less: Current portion at June 30, 2026		4,543
Long-term portion at June 30, 2026	$	17,699

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.