Talos Energy Profile
Talos Energy Inc. operates as an independent exploration and production company.
The company focuses on safely and efficiently maximizing long-term value through its operations, currently in the United States (‘U.S.’) and offshore Mexico both through oil and gas exploration and production (‘Upstream’) and the development of carbon capture and sequestration (‘CCS’) opportunities.
The company leverages technical and offshore operational expertise in the acquisition, exploration and development of assets in key geological trends that are present in many offshore basins around the world. With a focus on environmental stewardship, the company also utilizes its expertise to explore opportunities to reduce industrial emissions through the company’s CCS initiatives along the coast of the U.S. Gulf of Mexico (‘Gulf Coast’).
Business Strategy
The key elements of the company's strategy include continuously optimizing its existing asset base; conducting development and near-field projects in and around its existing asset footprint; engaging in exploration activities to grow its asset base and potentially unlock significant new resources; utilizing acquisitions and other business development activities to expand its asset base, opportunity set and value creation potential; and maintaining safety, sustainability and corporate responsibility as key principles for operations across all areas of its business.
Upstream Properties
The United States Gulf of Mexico
The company’s area of focus in the United States is the Gulf of Mexico Deepwater. The company’s strategy is concentrated in areas characterized by clearly defined infrastructure, well-known production history and geological well control, which reduces operational and investment risk.
The company’s Deepwater operations in the U.S. Gulf of Mexico provide significant potential growth opportunities through the company’s drilling program. The company primarily focuses its exploitation and exploration efforts around its existing infrastructure.
As of December 31, 2022, the company’s core areas in the United States were as below:
Green Canyon — Green Canyon is a Deepwater region in the Central U.S. Gulf of Mexico and is a key focus area both industry-wide and for the company’s exploration activities. The company operates two production facilities in the region, including a floating production unit, the Helix Producer I (‘HP-I’), that is leased from Helix Energy Solutions Group, Inc. (‘Helix’).
Mississippi Canyon — Mississippi Canyon is a Deepwater region in the eastern portion of the Central U.S. Gulf of Mexico with a track record of prolific production and ongoing exploration success that continues to unlock new resources. The company operates three production facilities in the region and is active as both an operator and non-operating partner in numerous development projects and producing fields.
Shelf and Gulf Coast — The U.S. Gulf of Mexico Shelf (the ‘Shelf’) and Gulf Coast area spans an enormous geographical area across the basin and provides diverse production from numerous operated production facilities. The Shelf area is a producing region of the basin with attractive redevelopment and recovery enhancement opportunities.
Mexico
As of December 31, 2022, the company’s area of focus in Mexico was the Block 7, Zama Unit Area segment located within the Sureste Basin, a prolific proven hydrocarbon province, in the shallow waters off the coast of Mexico’s Tabasco state.
Block 7 — On July 15, 2015, a Talos-led consortium was awarded Block 7 (‘Block 7 Consortium’) with a term of thirty years, starting in September 2015, and extendable for two additional five-year periods. The company’s participation interest in Block 7 is 35% and the company is the operator. The Block 7 Consortium made a significant discovery in Block 7 after drilling the Zama-1 in 2017, less than two years after signing a production sharing contract (‘PSC’) for the block with Mexico's upstream oil and gas regulator, the National Hydrocarbon Commission (‘CNH’). Subsequent to the Zama-1 discovery, the company drilled three additional wells to further appraise the discovery.
Upon conclusion of the three well appraisal program, the company determined that the Zama Field likely extended into a nearby offshore block owned by Petróleos Mexicanos (‘PEMEX’). On July 7, 2020, the company received a notice from Mexico’s Secretaría de Energía (‘SENER’) instructing the Block 7 Consortium and PEMEX to unitize the Zama Field. The Block 7 Consortium and PEMEX engaged a third-party reservoir engineering firm to evaluate initial tract participation within the Zama reservoir, which concluded that the Block 7 Consortium holds 49.6% of the gross interest in the Zama Field and PEMEX holds 50.4%. On July 2, 2021, the company was notified by SENER that it had designated PEMEX as the operator of the Zama unit. During the third quarter of 2021, the company submitted Notices of Dispute (‘Notices of Dispute’) to the Government of Mexico over decisions taken by SENER, including the designation of PEMEX as the operator of a yet-to-be unitized asset. On March 23, 2022, the company received a final Unitization Resolution (the ‘UR’) from SENER regarding the development of the Zama Field. The UR defines the rights and responsibilities of PEMEX and the Block 7 Consortium (together, the ‘Zama Field Participants’) with respect to the development of the Zama Field. On May 26, 2022, the Zama Field Participants ratified the creation of a Unit Operating Committee (‘UOC’), with participation of each party, to oversee the development of the Zama Field. Since then, the company has actively engaged with PEMEX and the rest of the Block 7 Consortium to advance development. The company holds a 17.35% interest in the unitized Zama Field, and the company is working with the rest of the Zama Field Participants towards the finalization of the Zama Field Development Plan for submission to the CNH for final approval.
The PSC forms the basis for the company’s exploration, development and production operations on Block 7. The Block 7 PSC includes a cost recovery feature pursuant to which eligible costs in relation to the minimum work program activities are recoverable in-kind at a rate of 125% of costs from future production volumes. Production volumes are allocated in-kind between the Block 7 Consortium and the United Mexican States on a monthly basis based on the contractual value of the hydrocarbons as defined in the PSC. Up to 60% of the monthly contractual value of the hydrocarbons will be allocated to the Block 7 Consortium to recover eligible costs incurred in petroleum activities.
Carbon Capture & Sequestration
TLCS is leveraging experience with conventional geology and Gulf Coast operations to pursue the development of future CCS projects. Project opportunities are actively being evaluated along the Gulf Coast. Future CCS project opportunities and the associated sequestration sites can generally be categorized into the following: regional hub projects; and point source projects; which TLCS intends to identify, lease, mature and operate.
Regional Hubs — These projects will be large, contiguous sequestration sites located proximally to large industrial emissions centers in which TLCS intends to consolidate carbon emissions from multiple contributing sources and develop large-scale CCS projects. Regional hub projects are characterized by their large size, population of diverse contributing emitters and central proximity to major emitting regions. Regional hub projects under development are as follows:
Bayou Bend CCS — On March 11, 2022, Bayou Bend CCS LLC (‘Bayou Bend’), an equity method investment with Carbonvert, Inc. (‘Carbonvert’), executed definitive lease documentation with the Texas General Land Office, formalizing the Jefferson County carbon sequestration site located in state waters offshore Jefferson County, Texas, near the Beaumont and Port Arthur, Texas industrial corridor.
On May 24, 2022, Bayou Bend executed definitive documentation with Chevron U.S.A., Inc. (‘Chevron’), through its Chevron New Energies division, and closed an expanded venture to jointly develop the Bayou Bend project with Chevron. Under the terms of the transaction, Chevron acquired a 50% membership interest in Bayou Bend. TLCS, Carbonvert and Chevron hold a 25%, 25% and 50% membership interest in Bayou Bend, respectively, and TLCS remains the project’s operator. The three companies have also established an area of mutual interest over the full acreage in the Jefferson County offshore region contemplated in the state of Texas’s original request for proposal, aligning the parties for future expansion opportunities.
River Bend CCS — In February 2022, an agreement was reached to lease acreage along the Mississippi River industrial corridor for a future CCS project. The lease agreement will allow for three sequestration sites near existing pipeline infrastructure that may be used for the project. TLCS will manage the project and be operator of the injection, storage, and monitoring services. TLCS will be supported by its partner, Storegga Geotechnologies Limited (‘Storegga’).
Point Sources — These projects will be bespoke, customized sequestration projects for individual industrial partners to capture and eliminate carbon emissions from singular sources, such as liquefied natural gas (‘LNG’) facilities, manufacturing plants, or power generation facilities, among others. Point source projects are characterized by their smaller footprint, individual emissions source (i.e., one plant) and pore space leases located nearby or on-site to that emissions source. Point source projects under development are as follows:
Coastal Bend CCS — Pursuant to an option agreement with the Port of Corpus Christi Authority (‘PCCA’) executed in February 2022, TLCS and Howard Energy Partners (‘HEP’) are pursuing commercial CCS opportunities on-site at the Port of Corpus Christi. As of December 31, 2022, definitive documentation with HEP remained subject to negotiation of final terms.
Freeport LNG CCS — In November 2021, a letter of intent with an affiliate of Freeport LNG Development, L.P. (‘Freeport LNG’) was executed to develop a CCS point source project immediately adjacent to its existing LNG pre-treatment facilities in Freeport, Texas. The project intends to utilize a Freeport LNG-owned geological sequestration site located less than half a mile from point of capture. This point source project benefits from a dedicated source of CO2 and a secured injection site in close physical proximity. As of December 31, 2022, definitive documentation with Freeport LNG remained subject to negotiation of final terms.
Significant Customers
The company markets substantially all of its oil, natural gas and NGL production from the properties the company operates and those the company does not operate. The company’s customers consist primarily of major oil and gas companies, well-established oil and pipeline companies and independent oil and natural gas producers and suppliers. For the year ended December 31, 2022, 44%, 23% and 11% of the company’s oil, natural gas and NGL revenues were attributable to Shell Trading (US) Company, Valero Energy Corporation, and Chevron Products Company, respectively, which are the customers that individually represented 10% or more of the company’s oil, natural gas and NGL revenues.
Government Regulation
The company’s operations on federal oil and natural gas leases in the U.S. Gulf of Mexico are subject to regulation by the BSEE (Bureau of Safety and Environmental Enforcement), the BOEM (Bureau of Ocean Energy Management), and the Office of Natural Resources Revenue (‘ONRR’), which are all agencies of the U.S. Department of the Interior (‘DOI’).
The company’s oil and gas operations in shallow waters off the coast of Mexico’s Tabasco state are subject to regulation by SENER (Secretaría de Energía), the National Hydrocarbon Commission (CNH) and other Mexican regulatory bodies.
The company’s oil and gas operations in shallow waters off the coast of Mexico’s Tabasco state are subject to regulation by SENER.
The company’s discharges into waters of the United States are limited by the federal Clean Water Act, as amended (‘CWA’), and analogous state laws.
The company conducts operations on oil and natural gas leases in areas where certain species that are protected by the Endangered Species Act, as amended; the Migratory Bird Treaty Act, as amended; and the Marine Mammal Protection Act, as amended are known to exist and where other species that could potentially be protected under these statutes are known to exist.
Other Occupational Safety and Health Act, as amended standards regulate specific worker safety aspects of the company’s operations.
The company’s oil and gas operations in shallow waters off the coast of Mexico’s Tabasco state are subject to regulation by the Mexican National Agency of Industrial Safety and Environmental Protection of the Hydrocarbons Sector (ASEA). The company must obtain ASEA-issued permits and comply with ASEA regulations governing hydrocarbon activities, including requirements for environmental impact and risk assessments, industrial safety, waste management, water and air emissions, operational security and facility decommissioning.
Under the Block 7 PSC, the company are jointly and severally liable for the performance of all obligations under the production sharing contract (PSC), including exploration, appraisal, extraction and abandonment activities and compliance with all environmental regulations, and failure to perform such obligations could result in contractual rescission of the PSC.
Certain offshore gathering and transportation services the company rely upon are subject to limited FERC (Federal Energy Regulatory Commission) regulation and are regulated by the states.
The company’s sales of oil and natural gas are also subject to market manipulation and anti-disruptive requirements under the Commodity Exchange Act (‘CEA’) as amended by the Dodd-Frank Wall Street Reform and Consumer Protection Act (the ‘Dodd-Frank Act’), and regulations promulgated thereunder by the U.S. Commodity Futures Trading Commission (the ‘CFTC’).
The company’s ability to transport and sell such products is dependent on pipelines whose rates, terms and conditions of service are subject to FERC jurisdiction under the Interstate Commerce Act (‘ICA’), and intrastate oil pipeline transportation rates are subject to regulation by state regulatory commissions.
The company have an undivided interest in a pipeline owned by CKB Petroleum, Inc. that is subject to FERC jurisdiction under the ICA, but FERC has granted the company a temporary waiver of the filing and reporting requirements.
The company owns and operates pipelines that are located in the Outer Continental Shelf and are subject to the non-discrimination requirements in the federal Outer Continental Shelf Lands Acts.
History
Talos Energy Inc. was founded in 2011. The company was incorporated in 2017 under the laws of the state of Delaware.
