Research from Water Tower Research, Water Tower Research

Water Tower Research

Research from Water Tower Research

Water Tower Research is a leading equity research firm that provides research on micro, small and mid cap companies.

Water Tower Research was founded by Wall Street veterans after witnessing a fundamental shift in the investment research industry with the result being a declining knowledge base among investors, a lack of awareness and a shrinking pool of fundamental research being conducted on companies across the small-cap and micro-cap spectrum. The same issues are now increasingly occurring in the mid-cap space. This sea change within the investment community is impacting not only the companies themselves but also current shareholders and potential investors. With significantly less active sell-side sponsorship by Wall Street, a substantial information gap has developed between companies and various constituents in the financial community. The net result is fewer channels for insight and information to flow between companies and investors.

Equity Research Firm

Equity Bottom-Up

<ul><li>We are updating our estimates to reflect actual 2Q24 NYMEX reference prices of $80.66/bbl for oil and $2.32/MMBtu for natural gas.</li><li>We have also increased our 2Q24 lease operating cost estimate to reflect workover activity and bumped our DD&amp;A estimate.</li><li>Talos’s latest guidance and our updated estimates are outlined in Figures 1 – 4.</li></ul>

We are updating our estimates to reflect actual 2Q24 NYMEX reference prices of $80.66/bbl for oil and $2.32/MMBtu for natural gas.We have also increased our 2Q24 lease operating cost estimate to reflect workover activity and bumped our DD&amp;A estimate.Talos’s latest guidance and our updated estimates are outlined in Figures 1 – 4.

Talos Energy Inc. - Estimate Update/Stepping Up to the Plate

<ul><li>1Q24 results will include roughly one month of contribution from the assets acquired in the QuarterNorth transaction, which closed on March 4, 2024.</li><li>The QuarterNorth acquisition added an oil-weighted (~75% oil production) asset base (&gt;95% operated), bolstering Talos’s position in the Mississippi Canyon and Green Canyon areas offshore in the Gulf of Mexico.</li><li>Management expects to realize $50 million of estimated annual run-rate cost synergies by year-end 2024.</li></ul>

1Q24 results will include roughly one month of contribution from the assets acquired in the QuarterNorth transaction, which closed on March 4, 2024.The QuarterNorth acquisition added an oil-weighted (~75% oil production) asset base (&gt;95% operated), bolstering Talos’s position in the Mississippi Canyon and Green Canyon areas offshore in the Gulf of Mexico.Management expects to realize $50 million of estimated annual run-rate cost synergies by year-end 2024.

<div><div><div><div><ul style="list-style-type: disc;"><li><p>Talos’s FY24 operating plan prioritizes free cash flow generation. The midpoint of FY24 production guidance is nearly 40% above FY23 production, while the midpoint of the FY24 upstream capex budget is 7% lower than FY23.</p></li><li><p>Our modeling suggests the combination could generate $479 million of free cash flow in FY24, compared with $3 million in FY23.</p></li><li><p>The anticipated free cash flow waterfall could allow Talos to repay nearly $400 million of borrowings under the existing RBL credit facility. </p></li></ul></div></div></div></div>

Talos’s FY24 operating plan prioritizes free cash flow generation. The midpoint of FY24 production guidance is nearly 40% above FY23 production, while the midpoint of the FY24 upstream capex budget is 7% lower than FY23.Our modeling suggests the combination could generate $479 million of free cash flow in FY24, compared with $3 million in FY23.The anticipated free cash flow waterfall could allow Talos to repay nearly $400 million of borrowings under the existing RBL credit facility. 

Talos Energy Inc. - Targeting Free Cash Flow Waterfall in 2024

<div><div><div><div><ul style="list-style-type: disc;"><li><p>Talos’s current valuation implies a steep discount to net asset value (NAV).</p></li><li><p>Management estimates the company’s year- end 2022 pro forma proved reserves have a gross PV-10 value of ~$5.5 billion (~$4.8 billion net of asset retirement obligations [ARO]) based on oil and natural gas prices of $75/bbl and $3.50/Mcf.</p></li><li><p>Adjusting for March 31, 2023, balance sheet items, leaves an estimated NAV of ~$3.6 billion, or $28.38/share.</p></li></ul></div></div></div></div>

Talos’s current valuation implies a steep discount to net asset value (NAV).Management estimates the company’s year- end 2022 pro forma proved reserves have a gross PV-10 value of ~$5.5 billion (~$4.8 billion net of asset retirement obligations [ARO]) based on oil and natural gas prices of $75/bbl and $3.50/Mcf.Adjusting for March 31, 2023, balance sheet items, leaves an estimated NAV of ~$3.6 billion, or $28.38/share.

Talos Energy, Inc. - Value Creation Catalysts

Equity Capital Markets and Advisory Business, Auctus Advisors

Auctus Advisors

Equity Capital Markets and Advisory Business

Auctus Advisors is a specialist Equity Capital Markets and Advisory business with a focus in the Energy Sector. The partners have complementary skill sets, with decades of experience across Equity Capital Markets, Investment Banking and the Energy industry. We have worked at Société Générale, Canaccord Capital, BMO Capital Markets and Schlumberger. Most recently we have worked together for many years at GMP FirstEnergy. Auctus has been set up at the beginning of a new decade in which we see significant opportunities in the Energy space. Globally, demand for energy is at record levels and continues to grow. Conversely, investment in traditional energy sources has been severely constrained. We believe this imbalance creates opportunities for both companies and investors. Auctus provides Corporate Broking, Equity Research and Investment Banking services.

Thematic (Sector/Industry)

<ul><li>Hartshead Resources (HHR AU)C; target price of A$0.18 per share: On tack for first gas in 2025 – The FDP for Phase I is nearing completion and will be submitted in two weeks.</li><li>Panoro Energy (PEN NO)C; target price of NOK50 per share: Executing on plans.</li><li>Pharos Energy (PHAR LN)C; target price of £0.55 per share: Flow rate at new Vietnam well above expectations.</li></ul>

Hartshead Resources (HHR AU)C; target price of A$0.18 per share: On tack for first gas in 2025 – The FDP for Phase I is nearing completion and will be submitted in two weeks.Panoro Energy (PEN NO)C; target price of NOK50 per share: Executing on plans.Pharos Energy (PHAR LN)C; target price of £0.55 per share: Flow rate at new Vietnam well above expectations.

United States

Teekay Tankers Ltd. provides oil transportation services through a fleet of mid-size tankers, including Suezmax and Aframax crude oil tankers and Long Range 2 product tankers. The Company's vessels are typically employed through a mix of short- or medium-term fixed-rate time charter contracts and spot tanker market trading.

DHT Holdings, Inc. is an independent crude oil tanker company.  The company provides transportation services to oil companies and trades internationally with a fleet of crude oil tankers in the VLCC, Aframax and Suezmax segments.

Sitio Royalties Corp. focuses on investing in mineral and royalty interests in oil basins. The Company acquires, owns, and manages mineral and royalty interests across a diverse set of operators in unconventional basins within the United States with a specific focus on the Permian Basin.

Earthstone Energy, Inc. is a growth-oriented independent energy company engaged in developing and operating oil and gas properties.  The Company's primary assets are located in the Midland Basin of west Texas and the Eagle Ford trend of south Texas.

Callon Petroleum Company is an independent energy company. The Company focused on the acquisition, development, exploration, and operation of oil and gas properties. Callon Petroleum serves customers in the United States.

NextDecade Corporation operates as a liquefied natural gas (LNG) company. The Company focuses on supply and trade of LNG, creation of new natural gas infrastructure, including pipeline and natural gas liquefaction facilities, and treatment of natural gas into LNG, as well as provides technical engineering and design services. NextDecade serves customers worldwide.

Uranium Energy Corporation is a uranium production, development and exploration company. The Company's fully licensed and permitted hobson processing facility is central to all of its projects in South Texas, including the Palangana in-situ recovery project, which is ramping up to full production this year, and the Goliad in-situ recovery project.

Viper Energy Partners LP owns, acquires, exploits, and develops oil and natural gas properties in North America.

Par Pacific Holdings, Inc. operates as a holding company. The Company, through its subsidiaries, owns and operates oil and gas refineries. Par Pacific refines, markets, transports, and distributes crude oil in the United States and Canada.

Kosmos Energy Ltd. provides oil and gas exploration and production services. The Company focuses on discovering new petroleum systems and to grow and mature discovered hydrocarbon basins, as well as development and production projects. Kosmos Energy serves customers worldwide.

Beach Energy Limited explores for, develops, and produces oil and natural gas. The Company holds interests in exploration and production tenements in Australia, USA, Egypt, Tanzania and Papua New Guinea.

Tambang Batubara Bukit Asam Tbk PT provides coal mining activities. The Company offers services including general surveying, exploration, exploitation, production, transportation, and marketing of coal.

Oriental Energy Co., Ltd. manufactures, processes and distributes liquefied petroleum gas (LPG).  The Company produces LPG using oilfield associated gases, mainly including propane and butane. Zhangjiagang's products are mainly used as industrial gas, as well as chemical raw materials.

Chennai Petroleum Corporation Limited refines crude oil and markets petroleum and petrochemical products, including lube oil base stocks, aviation turbine fuel,  propane, propylene and polybutene feedstock.  The Group operates two refineries, the Cauvery Basin Refinery and the Manali Refinery.

SFL Corporation Ltd. owns and charters out ships. The Company operates fleet includes crude oil tankers, bulk and ore vessels, dry bulk carriers, container ships, and jack up oil rigs. SFL serves customers worldwide.

Oil & Gas Development Co. Ltd. explores and develops oil and natural gas properties in Pakistan.

Japan Petroleum Exploration Co., Ltd. explores, develops, and markets petroleum products such as crude oil and natural gas.

The Great Eastern Shipping Company Limited owns and operates cargo ships. The Company's fleet of vessels includes bulk carriers, tankers and offshore supply vessels. The Company also acts as an agent for a number of foreign shipping companies.

Stanmore Coal Ltd. explores for coal in Australia. The Company's interests include a portfolio of coal assets within Queensland's Bowen and Surat Basin coal provinces.

PT Bumi Resources Tbk operates in the exploration and exploitation of coal deposits, including coal mining, and oil exploration activities. The Company offers its services to cement companies and power plants, as well as middle and large scale industrial companies that involve in chemical, mine, and textile businesses. Bumi Resources also has interest in mining gold, silver and copper.

Talos Energy Inc. operates as an oil and gas company. The Company engages in exploration, development, and production of oil and natural gas properties. Talos Energy serves customers worldwide.

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Talos Energy Inc (TALO US)

Talos Energy Inc. - Estimate Update/Stepping Up to the Plate

We are updating our estimates to reflect actual 2Q24 NYMEX reference prices of $80.66/bbl for oil and $2.32/MMBtu for natural gas.

Water Tower Research

Talos Energy Inc. - Estimate Update

1Q24 results will include roughly one month of contribution from the assets acquired in the QuarterNorth transaction, which closed on March 4, 2024.

Water Tower Research

Talos Energy Inc. - Targeting Free Cash Flow Waterfall in 2024

The midpoint of FY24 production guidance is nearly 40% above FY23 production, while the midpoint of the FY24 upstream capex budget is 7% lower than...

Water Tower Research

Talos Energy, Inc. - Value Creation Catalysts

Management estimates the company’s year- end 2022 pro forma proved reserves have a gross PV-10 value of ~$5.5 billion (~$4.8 billion net of asset...

Water Tower Research

Auctus on Friday - 26/05/2023

Hartshead Resources (HHR AU)C; target price of A$0.18 per share: On tack for first gas in 2025 – The FDP for Phase I is nearing completion and will...

Auctus Advisors

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