Talos closes acquisition of Gulf of Mexico assets
Houston-based Talos Energy has closed the acquisition of a broad portfolio of U.S. Gulf of Mexico producing assets, exploration prospects, and acreage from affiliates of ILX Holdings.
The acquisition was closed on February 28, 2020, Talos informed on Monday. The transaction was previously announced on December 10, 2019. At the end of January 2020, Talos completed an important regulatory step towards closing of its acquisition of affiliates of ILX Holdings.
Concurrently with the closing of the transaction, Talos also closed on the increase of its borrowing base to $1.15 billion, the company said on Monday.
After taking into account customary closing adjustments based on an effective date of July 1, 2019, total cash consideration paid by Talos was reduced from $385 million to $291.7 million, as the acquired assets generated approximately $100 million of free cash flow in the eight-month period since effective date, partially offset by a small working capital position acquired in conjunction with one of the assets.
The cash consideration was funded primarily through the company’s revolving credit facility and cash on hand. In addition to the cash consideration, the company delivered 110,000 shares of Series A Convertible Preferred Stock to certain of the sellers. The preferred shares will automatically convert into 11 million common shares on the 20th day following the mailing to investors of the company’s definitive information statement on Schedule 14C related to the transaction.
Concurrently with the closing of the transaction, the borrowing base under Talos’s credit facility was upsized from $950 million to $1.15 billion, effective immediately. Pro forma for the closings, Talos had approximately $600 million of available liquidity. Talos expects to use free cash flow anticipated in 2020 to pay down a portion of the borrowings under the credit facility, even at the current commodity price environment.
The acquired assets’ average production in the fourth quarter of 2019, after accounting for certain downtime, was 18.7 thousand barrels of oil equivalent per day (MBoe/d). The company is currently drilling the Claiborne #3 well and first production is expected at the end of the second quarter of 2020. Also included in the transaction are over 700,000 gross acres, of which 480,000 are primary term.
Talos President and Chief Executive Officer, Timothy S. Duncan, commented, “We are excited to have closed this transaction of high quality, free cash flow generating assets. This acquisition is consistent with Talos’s strategy of acquiring high-margin, oil-weighted assets with significant drilling upside in our core areas. We believe the additional scale and diversity will allow Talos to be even more resilient to commodity price volatility, further allowing us to continue to generate free cash flow in the current commodity environment. Talos is also better positioned to high-grade our drilling inventory, as we continue to pursue our infrastructure-led drilling and measured investment in high-impact exploration. We will continue to be prepared to opportunistically make accretive acquisitions that will make Talos a stronger company and allow us to continue to strengthen our financial position.”
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