The Stone Combination qualified as a business combination and was accounted for under the acquisition method of accounting, which requires, among other items, that assets acquired and liabilities assumed be recognized on the consolidated balance sheet at their fair values as of the acquisition date, May 10, 2018. The fair value measurements of the oil and natural gas properties acquired and asset retirement obligations assumed were derived utilizing an income approach and based, in part, on significant inputs not observable in the market. These inputs represent Level 3 measurements in the fair value hierarchy and include, but are not limited to, estimates of reserves, future operating and development costs, future commodity prices, estimated future cash flows and appropriate discount rates. These inputs required significant judgments and estimates at the time of the valuation.

On May 10, 2018, the Company consummated the Transactions contemplated by the Transaction Agreement and Exchange Agreement, pursuant to which, among other things, Talos Energy LLC and Stone became wholly-owned subsidiaries of the Company. The combination was executed as an all-stock transaction whereby the former stakeholders of Talos Energy LLC held approximately 63% of the Company’s outstanding Common Stock and the former stockholders of Stone held approximately 37% of the Company’s outstanding Common Stock as of the Closing Date.

The purchase price of $732.0 million is based on the closing price of Stone common stock and common warrants immediately prior to closing. The following table summarizes the purchase price (in thousands, except per share data):

Stone Energy common stock - issued and outstanding as of May 9, 2018		20,038
Stone Energy common stock price	$	35.49
Common stock value	$	711,149

Stone Energy common stock warrants - issued and outstanding as of May 9, 2018		3,528
Stone Energy common stock warrants price	$	5.90
Common stock warrants value	$	20,815
Total purchase price	$	731,964

The Company incurred approximately $88.6 million of transaction related costs, of which, $32.5 million was expensed and reflected in general and administrative expense on the consolidated statement of operations. The remaining $56.1 million was the result of (i) $9.3 million in work fees paid to holders of the 11.00% Senior Secured Notes reflected as a debt discount reducing long-term debt on the consolidated balance sheet and (ii) $46.8 million in fees for seismic use agreements for change in control provisions and reflected in proved properties on the consolidated balance sheet.

While the Company has substantially completed the determination of the fair values of the assets acquired and liabilities assumed, the Company is still finalizing the fair value analysis related to oil and natural gas properties acquired by Stone prior to Closing. The Company anticipates finalizing the determination of the fair values by March 31, 2019.

During the third and fourth quarters of 2018, certain adjustments were recorded to reflect new information obtained subsequent to recording the preliminary allocation of the purchase price. Income tax receivables decreased by $5.5 million, trade receivables increased by $1.0 million, other long-term liabilities increased by $2.7 million and unproved properties increased by $7.2 million. Had these adjustments been recorded as of the acquisition date, May 10, 2018, there would have been no corresponding impact to net income subsequent to the acquisition. These adjustments are reflected in the preliminary purchase price allocation table below.

The following table presents the preliminary allocation of the purchase price to the assets acquired and liabilities assumed, based on their fair values on May 10, 2018 (in thousands):

Current assets⁽¹⁾	$	372,760
Property and equipment		883,490
Other long-term assets		18,928
Current liabilities		(130,062	)
Long-term debt		(235,416	)
Other long-term liabilities		(177,736	)
Allocated purchase price	$	731,964

⁽¹⁾	Includes $293.0 million of cash acquired. The fair values of current assets acquired includes trade receivables and joint interest receivables of $43.3 million and $3.5 million, respectively, which the Company expects all to be realizable.

Revenue and net income attributable to the assets acquired in the Stone Combination during the year of December 31, 2018 was $332.9 million $148.5 million, respectively.

The following supplemental pro forma information (in thousands, except per common share amounts), presents the consolidated results of operations for the years ended December 31, 2018 and 2017 as if the Stone Combination had occurred on January 1, 2017. The unaudited pro forma information was derived from historical statements of operations of the Company and Stone and adjusted to include (i) depletion and accretion expense applied to the adjusted basis of the oil and natural gas properties acquired, (ii) interest expense to reflect the debt transactions contemplated by the Exchange Agreement and (iii) general and administrative expense adjusted for transaction related costs incurred. This information does not purport to be indicative of results of operations that would have occurred had the Stone Combination occurred on January 1, 2017, nor is such information indicative of any expected future results of operations.

	Year Ended December 31,
	2018		2017
Revenue	$	1,013,184		712,648
Net income (loss)	$	274,577		(100,980	)
Basic and diluted net income (loss) per common share	$	5.07	$	(1.86	)

Material, non-recurring adjustments included in pro forma net income (loss) above consist of historical Stone results adjusted to exclude a divestiture of oil and natural gas properties during 2017.

Each of the acquisitions below qualified as an asset acquisition that requires, among other items, that the cost of the assets acquired and liabilities assumed to be recognized on the balance sheet by allocating the asset cost on a relative fair value basis. The fair value measurements of the oil and natural gas properties acquired and asset retirement obligations assumed were derived utilizing an income approach and based, in part, on significant inputs not observable in the market. These inputs represent Level 3 measurements in the fair value hierarchy and include, but are not limited to, estimates of reserves, future operating and development costs, future commodity prices, estimated future cash flows and appropriate discount rates. These inputs required significant judgments and estimates by the Company’s management at the time of the valuation. Transaction costs incurred on an asset acquisition are capitalized as a component of the assets acquired and any contingent consideration is recognized as the contingency is resolved.

On August 31, 2018, the Company completed the acquisition of all the issued and outstanding membership interests of Whistler Energy II, LLC (“Whistler”) from Whistler Energy II Holdco, LLC, an affiliate of the Apollo Funds, for $52.6 million ($14.8 million, net of $37.8 million of cash acquired). The $37.8 million of cash acquired consists of $30.8 million of cash collateral posted by Whistler and released by third party surety companies at closing and $7.0 million of cash on hand for working capital purposes. Through the acquisition, the Company acquired all of Whistler’s oil and natural gas assets located in Green Canyon Block 18, Green Canyon Block 69 and Ewing Bank Block 988, including a fixed production platform on Green Canyon Block 18. The Company also assumed the associated asset retirement obligations. The Company refers to the acquisition of all the issued and outstanding membership interests as the “Whistler Acquisition.”

The following table presents the allocation of the purchase price to the assets acquired and liabilities assumed, based on their relative fair values, on August 31, 2018 (in thousands):

Current assets⁽¹⁾	$	45,337
Property and equipment		35,344
Other long-term assets		66
Current liabilities		(4,261	)
Asset retirement obligations		(23,862	)
Allocated purchase price	$	52,624

On December 20, 2016, the Company purchased an additional 15% working interest in the Phoenix Field from Sojitz Energy Venture Inc. (“Sojitz”) for approximately $85.8 million in cash and the assumption of certain asset retirement obligations, subject to customary post-closing adjustments. The purchase price was funded by a $93.8 million ($91.9 million, net of $1.9 million of transaction fees) contribution from the Sponsors. Additionally, the Company entered into a contingent consideration arrangement in the form of an earn-out equal to 5% of the acquired property’s monthly net profit if its realized oil price is greater than $65.00 per Bbl in a given month. The maximum payout under the earn-out is $10.0 million and it has an indefinite life pursuant to the purchase and sale agreement. The Company refers to the acquisition of assets from Sojitz as the “Sojitz Acquisition.”

Through December 31, 2017, the Company recorded $2.5 million in post-closing adjustments related to activity between the effective date and closing date of the acquisition. The following table presents the allocation of the purchase price (inclusive of post-closing adjustments) to the assets acquired and liabilities assumed, based on their relative fair values, on December 20, 2016 (in thousands):


Proved properties	$	77,967
Unproved properties, not subject to amortization		11,133
Other short and long-term assets		2,380
Asset retirement obligations		(3,242	)
Allocated purchase price	$	88,238