Talos Energy to increase U.S. Gulf of Mexico oil production with $1.3 billion QuarterNorth Energy acquisition
(WO) – Talos Energy Inc. announced the execution of definitive agreements to acquire QuarterNorth Energy Inc. for $1.29 billion. QuarterNorth is a privately-held U.S. Gulf of Mexico exploration and production company with ownership in several prolific offshore fields.
QuarterNorth's assets will provide additional scale from high-quality deepwater assets with a favorable base decline profile along with attractive future development opportunities.
Consideration for the transaction consists of 24.8 million shares of Talos's common stock and approximately $965 million in cash.
Highlights. The transaction adds a production value of approximately 30,000 boed, expected for the full year 2024, averaging about 75% oil from roughly 95% operated assets. The deal also adds proved reserves of approximately 69 MMboe, with a PV-10 of $1.7 billion.
The transaction includes high margin, low decline output, with low reinvestment rate requirements to sustain production and no meaningful near-term asset retirement obligations ("ARO") conducive to long-term, high free cash flow generation.
QuarterNorth's producing assets include six major fields and are approximately 95% operated and 95% in deepwater. The Transaction is expected to improve Talos's base decline rate by approximately 20%, providing increased production stability and lower reinvestment rates.
QuarterNorth's assets bring significant reserves upside beyond current production from both producing probable zones and near-term development opportunities in 2024 and 2025. The Transaction also brings a high-quality inventory of drilling opportunities that will high-grade Talos's already robust inventory and will immediately compete for capital.
QuarterNorth operates and holds a 50% working interest in the Katmai discovery in the Green Canyon region, producing an estimated combined 27,000 boed gross from two early-life wells. Talos expects the Katmai field to produce over 34,000 boed gross on average with minimal decline over the next several years based on a successful field development plan including two future well locations and a facilities upgrade project in early 2025. QuarterNorth's interest in the Big Bend, Galapagos, Genovesa, and Gunflint fields represent attractive assets, each with strong production histories with nominal declines, and future development potential.
Talos President and Chief Executive Officer Timothy S. Duncan commented, "Today's announcement marks one of Talos's most significant milestones as we build a large-scale offshore exploration and production company. The addition of QuarterNorth's overlapping deepwater portfolio with valuable operated infrastructure will increase Talos's operational breadth and production profile while enhancing our margins and cash flow.”
“This Transaction aligns with Talos's overall strategy of leveraging existing infrastructure and complementary acreage to accelerate shareholder value creation. The pro forma footprint in the U.S. Gulf of Mexico should allow us to capture meaningful operating synergies. The expected financing structure of the Transaction accelerates de-leveraging, immediately improves our credit profile, is accretive on key metrics, and positions us to consider additional capital return initiatives following deleveraging in the near term.”
