Talos reduces costs, expects positive free cash flow in 2020
HOUSTON – Talos Energy announced updated full year 2020 financial guidance, inclusive of $170.0 million of reductions in capital, operating and G&A expenses. The company will continue to evaluate additional opportunities to further reduce 2020 costs. Those reductions would be incremental to the $170.0 million already identified.
Talos continues to expect to generate positive free cash flow in 2020 despite the current commodity environment. The company believes that these cost reduction measures, coupled with Talos's low cash cost structure and robust hedge book, allow the company to generate free cash flow in 2020, after capital expenditures and interest expense, in the mid-$20's per barrel average WTI prices for the balance of the year.
The company's updated guidance for 2020 reflects investments in infrastructure-led, short-cycle projects that were previously committed to and that are focused on lowering the lifting cost structure of Talos's assets by adding incremental barrels through existing fixed-cost offshore production facilities, resulting in an increased value of the asset base. Given the ability to utilize existing infrastructure, Talos believes these high margin, low breakeven investments are economic even in the current commodity price environment. Also included in the guidance is a limited, but unchanged, portion of Talos's budget dedicated to the front-end engineering and design work related to our Zama project offshore Mexico.
President and CEO Timothy S. Duncan commented, "I believe Talos is well positioned to successfully navigate the current environment. We have taken immediate and decisive steps to defer certain investments and this updated guidance delivers continued free cash flow generation in a volatile commodity market environment while maintaining abundant collateral value and access to substantial liquidity. We expect to continue to invest in our infrastructure-led short-cycled developments while staying focused on moving Zama forward towards a final investment decision. We believe our 2020 updated capital program will be self-funded in the mid-$20's per barrel of WTI."
Duncan added, "Talos's updated 2020 capital expenditures guidance represents approximately a 34% reduction from the 2019 investments in the same asset base, pro forma for the acquisition we closed in February, while maintaining our focus on safety, meeting our P&A obligations and continuing investments in asset management projects. With these capital reductions plus reductions in operating and G&A expenses, we believe we can continue to generate free cash flow in the current environment. The projects we will retain for the year are those previously committed to, and those that will bolster the stability of our asset base by lowering our lifting costs structure on a per barrel basis. We have already identified the $170.0 million that we are announcing today, and we will continue to look for additional opportunities to further reduce costs. These are not the only spending reduction and costs savings we expect in 2020. We also expect the costs associated with certain services to come down throughout the year, but we are not counting on or including such cost reductions in these assumptions."
Duncan concluded, "We entered this crisis with a track record of consistently generating free cash flow, approximately $600.0 million of liquidity and low leverage, so I firmly believe Talos will not only weather this storm, but will be positioned to be nimble and opportunistic when the market has recovered. I am confident in the long-term outlook for Talos."
