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US Gulf operator Talos Energy to acquire EnVen Energy; provides scale, more infrastructure, overlapping acreage

Highlights

Adds 24,000 boe/d of production to Talos

Companies overlap in US Gulf acreage positions

Talos to stay disciplined in M&A

Small US Gulf of Mexico operator Talos Energy has inked definitive agreements to acquire small privately held EnVen Energy for $1.1 billion, a transaction that bulks the acquiring company in that operating arena and improves its financial profile, Talos' top executive said Sept. 22.

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The transaction expands Talos' US Gulf operations with high margin oil-weighted assets which are "immediately" deleveraging, Talos CEO Tim Duncan said during a webcast to explain the transaction.

The acquisition will provide roughly $170 million of free cash flow, which will provide more optionality to allocate capital, he said.

It also adds 24,000 b/d of EnVen's oil equivalent production, which is 80% oil, boosting by 40% Talos' existing output of 65,000 boe/d in second-quarter 2022. The transaction also increases Talos' gross acreage by 35%, and also its operational scale and diversity, Duncan said.

EnVen's high-margin, oil-weighted assets in key deepwater regions, operated infrastructure and significant overlapping acreage footprint will enhance Talos' ability to accelerate shareholder value creation, Duncan said.

No changes to EnVen's 2022 plan

Talos does not plan to make any changes to EnVen's operations in 2022, but will evaluate the portfolio for 2023 and beyond.

"It is really about flexibility and optionality," he said, adding that the company can allocate a bit more capital per project or add a couple of additional projects but still stay disciplined from a reinvestment standpoint.

Talos operates five production hubs, including Amberjack, Pompano and Ram-Powell, in the Mississippi Canyon, Viosca Knoll and Green Canyon areas of the US Gulf offshore Louisiana. EnVen operates five hubs, largely in the same regions plus the Ewing Bank area. These include the Brutus, Cognac, Lobster, Prince and Neptune producing platforms.

The company has made a dozen acquisitions since it began life in 2012.

Under the terms of the deal, Talos will issue 43.8 million new common shares while paying $212.5 million of cash and assumption of $50 million of net debt at closing ― which should be around year-end 2022.

Pro forma ownership of the combined entity is 66% Talos, 34% EnVen.

Future acquisitions

Management said that although there are plenty of M&A options in the market, Talos will stay disciplined when it comes to acquisitions.

"It's not scale for scale; it's because when scale and diversity, when done the right way, when delivering the right balance sheet makes you a better operator and better counter-party," Duncan said.

The company first announced it was looking for opportunities two years ago, and continues to look, Duncan said, but the company does not want to rush. Any acquisition will have to allow Talos to continue with its strategy to deleverage.

"We are building something for the long haul," he said.

Talos has been public less than five years, but has grown through acquisitions and the drill bit.

It became a public company in 2018 by acquiring Stone Energy, a legacy Gulf operator. And along the way it has acquired interests from larger operators, including BP, ExxonMobil, Murphy Oil, Kosmos Energy, Beacon Offshore Energy and other companies.

In 2017, prior to its becoming a public company, Talos discovered the Zama field offshore Mexico, which at the time was estimated to contain about a billion barrels of oil. But years of discussions over Zama operatorship with Mexican state company Pemex, which owns an adjacent field, are still ongoing.

Reserve estimate for Zama has since been revised downward to 700 million barrels. Talos and Pemex are working to finalize a field development plan for Zama, which lies in shallow waters off the coast of southeast Mexico.

In the last couple of years, Talos has diversified its business to include carbon capture and storage projects. It has inked agreements for several such projects which are in early-stage development.