10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2019

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from          to

Commission File Number: 001-38497

Talos Energy Inc.

(Exact Name of Registrant as Specified in its Charter)

Delaware	82-3532642
( State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
333 Clay Street, Suite 3300 Houston, TX	77002
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (713) 328-3000

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Common Stock	TALO	NYSE

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☒
Non- accelerated filer	☐	Small reporting company	☐
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

As of August 2, 2019, the registrant had 54,191,931 shares of common stock, $0.01 par value per share, outstanding.

TABLE OF CONTENTS

		Page
GLOSSARY		1
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS		2
PART I – FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Financial Statements	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	31
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	42
Item 4.	Controls and Procedures	42
PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	43
Item 1A.	Risk Factors	43
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	43
Item 3.	Defaults upon Senior Securities	43
Item 4.	Mine Safety Disclosures	43
Item 5.	Other Information	43
Item 6.	Exhibits	44
	Signatures	45

GLOSSARY

Barrel or Bbl. One stock tank barrel, or 42 United States gallons liquid volume.

Boe. One barrel of oil equivalent determined using the ratio of six Mcf of natural gas to one barrel of crude oil or condensate.

Btu. British thermal unit, which is the heat required to raise the temperature of a one-pound mass of water one degree Fahrenheit.

Completion. The installation of permanent equipment for the production of oil or natural gas.

Deepwater. Water depths of more than 600 feet.

Field. An area consisting of a single reservoir or multiple reservoirs all grouped on or related to the same individual geological structural feature or stratigraphic condition.

MBbls. One thousand barrels of crude oil or other liquid hydrocarbons.

MBblpd. One thousand barrels of crude oil or other liquid hydrocarbons per day.

MBoe. One thousand barrels of oil equivalent.

MBoepd. One thousand barrels of oil equivalent per day.

Mcf. One thousand cubic feet of natural gas.

Mcfpd. One thousand cubic feet of natural gas per day.

MMBtu. One million Btus.

MMcf. One million cubic feet of natural gas.

MMcfpd. One million cubic feet of natural gas per day.

NGL. Natural gas liquid. Hydrocarbons which can be extracted from wet natural gas and become liquid under various combinations of increasing pressure and lower temperature. NGLs consist primarily of ethane, propane, butane and natural gasoline.

NYMEX. The New York Mercantile Exchange.

Proved reserves. Proved reserves are those quantities of oil and natural gas, which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible from a given date forward, from known reservoirs and under existing economic conditions, operating methods and government regulations prior to the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether deterministic or probabilistic methods are used for the estimation. The project to extract the hydrocarbons must have commenced or the operator must be reasonably certain that it will commence the project within a reasonable time.

Proved undeveloped reserves. In general, proved reserves that are expected to be recovered from new wells on undrilled acreage or from existing wells where a relatively major expenditure is required for recompletion. The Securities and Exchange Commission provides a complete definition of undeveloped oil and gas reserves in Rule 4-10(a)(31) of Regulation S-X.

SEC. The Securities and Exchange Commission.

SEC pricing. The unweighted average first-day-of-the-month commodity price for crude oil or natural gas for the prior twelve months, adjusted by lease for market differentials (quality, transportation, fees, energy content, and regional price differentials). The Securities and Exchange Commission provides a complete definition of prices in “Modernization of Oil and Gas Reporting” (Final Rule, Release Nos. 33-8995; 34-59192).

Working interest. The operating interest that gives the owner the right to drill, produce and conduct operating activities on the property and a share of production.

1

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

The information in this report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements, other than statements of historical fact included in this report, regarding our strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects, plans and objectives of management are forward-looking statements. When used in this report, the words “could,” “believe,” “anticipate,” “intend,” “estimate,” “expect,” “project,” “forecast,” “may,” “objective,” “plan” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. These forward-looking statements are based on our current expectations and assumptions about future events and are based on currently available information as to the outcome and timing of future events. These forward-looking statements are based on management’s current belief, based on currently available information, as to the outcome and timing of future events. Forward-looking statements may include statements about:

• business strategy;

• reserves;

• exploration and development drilling prospects, inventories, projects and programs;

• our ability to replace the reserves that we produce through drilling and property acquisitions;

• financial strategy, liquidity and capital required for our development program and other capital expenditures;

• realized oil and natural gas prices;

• timing and amount of future production of oil, natural gas and NGLs;

• our hedging strategy and results;

• future drilling plans;

• availability of pipeline connections on economic terms;

• competition, government regulations and political developments;

• our ability to obtain permits and governmental approvals;

• pending legal, governmental or environmental matters;

• our marketing of oil, natural gas and NGLs;

• leasehold or business acquisitions on desired terms;

• costs of developing properties;

• general economic conditions;

• credit markets;

• impact of new accounting pronouncements on earnings in future periods;

• estimates of future income taxes;

• our estimates and forecasts of the timing, number, profitability and other results of wells we expect to drill and other exploration activities;

• uncertainty regarding our future operating results and our future revenues and expenses; and

• plans, objectives, expectations and intentions contained in this report that are not historical.

2

We caution you that these forward-looking statements are subject to numerous risks and uncertainties, most of which are difficult to predict and many of which are beyond our control. These risks include, but are not limited to, commodity price volatility, inflation, lack of availability of drilling and production equipment and services, environmental risks, failure to find, acquire or gain access to other discoveries and prospects or to successfully develop and produce from our current discoveries and prospects, geologic risk, drilling and other operating risks, well control risk, regulatory changes, the uncertainty inherent in estimating reserves and in projecting future rates of production, cash flow and access to capital, the timing of development expenditures and the other risks discussed in “Part I, Item 1A. Risk Factors” of Talos Energy Inc.’s Annual Report for the year ended December 31, 2018.

Reserve engineering is a process of estimating underground accumulations of oil, natural gas and NGLs that cannot be measured in an exact way. The accuracy of any reserve estimate depends on the quality of available data, the interpretation of such data and price and cost assumptions made by reserve engineers. In addition, the results of drilling, testing and production activities may justify upward or downward revisions of estimates that were made previously. If significant, such revisions would change the schedule of any further production and development drilling. Accordingly, reserve estimates may differ significantly from the quantities of oil, natural gas and NGLs that are ultimately recovered.

Should one or more of the risks or uncertainties described herein occur, or should underlying assumptions prove incorrect, our actual results and plans could differ materially from those expressed in any forward-looking statements. All forward-looking statements, expressed or implied, included in this report are expressly qualified in their entirety by this cautionary statement. This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue. All forward-looking statements speak only as of the date of this report. Except as otherwise required by applicable law, we disclaim any duty to update any forward-looking statements, all of which are expressly qualified by the statements in this section, to reflect events or circumstances after the date of this report.

3

TALOS ENERGY INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts)

	June 30, 2019			December 31, 2018
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	89,105		$	139,914
Restricted cash		—			1,248
Accounts receivable
Trade, net		110,504			103,025
Joint interest, net		35,741			20,244
Other		28,828			19,686
Assets from price risk management activities		23,633			75,473
Prepaid assets		38,370			38,911
Income tax receivable		—			10,701
Other current assets		2,085			7,644
Total current assets		328,266			416,846
Property and equipment:
Proved properties		3,925,116			3,629,430
Unproved properties, not subject to amortization		165,041			108,209
Other property and equipment		28,244			33,191
Total property and equipment		4,118,401			3,770,830
Accumulated depreciation, depletion and amortization		(1,879,486	)		(1,719,609	)
Total property and equipment, net		2,238,915			2,051,221
Other long-term assets:
Assets from price risk management activities		5,508			—
Other well equipment inventory		9,914			9,224
Operating lease assets		6,732			—
Other assets		2,700			2,695
Total assets	$	2,592,035		$	2,479,986
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	115,086		$	51,019
Accrued liabilities		186,354			188,650
Accrued royalties		42,651			38,520
Current portion of long-term debt		—			443
Current portion of asset retirement obligations		65,757			68,965
Liabilities from price risk management activities		18,781			550
Accrued interest payable		10,068			10,200
Current portion of operating lease liabilities		1,315			—
Other current liabilities		18,140			22,071
Total current liabilities		458,152			380,418
Long-term liabilities:
Long-term debt, net of discount and deferred financing costs		697,130			654,861
Asset retirement obligations		327,583			313,852
Liabilities from price risk management activities		2,464			—
Operating lease liabilities		15,637			—
Other long-term liabilities		93,028			123,359
Total liabilities		1,593,994			1,472,490
Commitments and contingencies (Note 11)
Stockholders' equity:
Preferred stock, $0.01 par value; 30,000,000 shares authorized; no shares issued or      outstanding as of June 30, 2019 and December 31, 2018		—			—
Common stock $0.01 par value; 270,000,000 shares authorized; 54,191,693 and 54,155,768 shares      issued and outstanding as of June 30, 2019 and December 31, 2018, respectively		542			542
Additional paid-in capital		1,339,507			1,334,090
Accumulated deficit		(342,008	)		(327,136	)
Total stockholders' equity		998,041			1,007,496
Total liabilities and stockholders' equity	$	2,592,035		$	2,479,986

The accompanying notes are an integral part of these condensed consolidated financial statements.

4

TALOS ENERGY INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per common share amounts)

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Revenues and other:
Oil revenue	$	256,908		$	180,161		$	412,587		$	307,854
Natural gas revenue		14,746			16,448			29,193			29,171
NGL revenue		6,645			7,297			11,711			12,731
Other		8,511			—			12,032			—
Total revenue		286,810			203,906			465,523			349,756
Operating expenses:
Direct lease operating expense		37,975			34,060			78,804			58,975
Insurance		4,184			4,259			8,295			6,934
Production taxes		506			564			1,088			955
Total lease operating expense		42,665			38,883			88,187			66,864
Workover and maintenance expense		12,296			17,714			35,315			24,619
Depreciation, depletion and amortization		95,806			67,726			160,393			116,766
Write-down of oil and natural gas properties		12,361			—			12,361			—
Accretion expense		9,945			9,492			19,552			14,252
General and administrative expense		18,865			30,880			36,474			39,460
Total operating expenses		191,938			164,695			352,282			261,961
Operating income		94,872			39,211			113,241			87,795
Interest expense		(24,932	)		(21,678	)		(50,150	)		(41,420	)
Price risk management activities income (expense)		29,990			(91,176	)		(79,589	)		(143,152	)
Other income (expense)		831			(1,269	)		1,264			(1,078	)
Income (loss) before income taxes		100,761			(74,912	)		(15,234	)		(97,855	)
Income tax (expense) benefit		(5,997	)		—			362			—
Net income (loss)	$	94,764		$	(74,912	)	$	(14,872	)	$	(97,855	)
Net income (loss) per common share:
Basic	$	1.75		$	(1.69	)	$	(0.27	)	$	(2.59	)
Diluted	$	1.74		$	(1.69	)	$	(0.27	)	$	(2.59	)
Weighted average common shares outstanding:
Basic		54,178			44,336			54,167			37,826
Diluted		54,451			44,336			54,167			37,826

The accompanying notes are an integral part of these condensed consolidated financial statements.

5

TALOS ENERGY INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN

STOCKHOLDERS’ EQUITY (DEFICIT)

(In thousands, except share amounts)

(Unaudited)

						Additional						Total Stockholders'
	Common Stock					Paid-in			Accumulated			Equity
	Shares			Amounts		Capital			Deficit			(Deficit)
Balance at March 31, 2018		31,244,085		$	312	$	494,180		$	(571,619	)	$	(77,127	)
Cumulative effect adjustment	—				—		—			—			—
Sponsor Debt Exchange		2,874,049			29		101,971			—			102,000
Stone Combination		20,037,634			201		731,763			—			731,964
Equity based compensation	—				—		3,920			—			3,920
Net loss	—				—		—			(74,912	)		(74,912	)
Balance at June 30, 2018		54,155,768		$	542	$	1,331,834		$	(646,531	)	$	685,845
Balance at March 31, 2019		54,155,805		$	542	$	1,336,216		$	(436,772	)	$	899,986
Equity based compensation		45,994			—		3,574			—			3,574
Shares withheld for taxes on equity transactions		(10,106	)		—		(283	)		—			(283	)
Net income	—				—		—			94,764			94,764
Balance at June 30, 2019		54,191,693		$	542	$	1,339,507		$	(342,008	)	$	998,041

						Additional						Total Stockholders'
	Common Stock					Paid-in			Accumulated			Equity
	Shares			Amounts		Capital			Deficit			(Deficit)
Balance at December 31, 2017		31,244,085		$	312	$	493,952		$	(548,351	)	$	(54,087	)
Cumulative effect adjustment	—				—		—			(325	)		(325	)
Sponsor Debt Exchange		2,874,049			29		101,971			—			102,000
Stone Combination		20,037,634			201		731,763			—			731,964
Equity based compensation		—			—		4,148			—			4,148
Net loss	—				—		—			(97,855	)		(97,855	)
Balance at June 30, 2018		54,155,768		$	542	$	1,331,834		$	(646,531	)	$	685,845
Balance at December 31, 2018		54,155,768		$	542	$	1,334,090		$	(327,136	)	$	1,007,496
Equity based compensation		46,047			—		5,700			—			5,700
Shares withheld for taxes on equity transactions		(10,122	)		—		(283	)		—			(283	)
Net loss	—				—		—			(14,872	)		(14,872	)
Balance at June 30, 2019		54,191,693		$	542	$	1,339,507		$	(342,008	)	$	998,041

The accompanying notes are an integral part of these condensed consolidated financial statements.

6

TALOS ENERGY INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Six Months Ended June 30,
	2019			2018
Cash flows from operating activities:
Net loss	$	(14,872	)	$	(97,855	)
Adjustments to reconcile net loss to net cash provided by operating activities
Depreciation, depletion, amortization and accretion expense		179,945			131,018
Write-down of oil and natural gas properties		12,361			—
Amortization of deferred financing costs and original issue discount		2,393			2,607
Equity based compensation, net of amounts capitalized		3,220			1,559
Price risk management activities expense		79,589			143,152
Net cash paid on settled derivative instruments		(12,562	)		(54,056	)
Settlement of asset retirement obligations		(32,206	)		(43,896	)
Changes in operating assets and liabilities:
Accounts receivable		(32,118	)		19,462
Other current assets		12,259			(13,576	)
Accounts payable		23,646			(53,126	)
Other current liabilities		(37,164	)		52,543
Other non-current assets and liabilities, net		(1,870	)		19,279
Net cash provided by operating activities		182,621			107,111
Cash flows from investing activities:
Exploration, development and other capital expenditures		(229,601	)		(140,968	)
Cash (paid for) acquired in acquisitions		(32,916	)		293,001
Proceeds from sale of other property and equipment		5,369			—
Net cash provided by (used in) investing activities		(257,148	)		152,033
Cash flows from financing activities:
Redemption of Senior Notes and other long-term debt		(10,567	)		(25,046	)
Proceeds from Bank Credit Facility		75,000			294,000
Repayment of Bank Credit Facility		(25,000	)		(54,000	)
Repayment of LLC Bank Credit Facility		—			(403,000	)
Other deferred payments		(9,921	)		(17,469	)
Payments of finance lease		(6,759	)		(6,958	)
Employee stock transactions		(283	)		—
Net cash provided by (used in) financing activities		22,470			(212,473	)
Net increase (decrease) in cash, cash equivalents and restricted cash		(52,057	)		46,671
Cash, cash equivalents and restricted cash:
Balance, beginning of period		141,162			33,433
Balance, end of period	$	89,105		$	80,104
Supplemental Non-Cash Transactions:
Capital expenditures included in accounts payable and accrued liabilities	$	165,310		$	38,205
Supplemental Cash Flow Information:
Interest paid, net of amounts capitalized	$	31,413		$	23,635

The accompanying notes are an integral part of these condensed consolidated financial statements.

7

TALOS ENERGY INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2019

(Unaudited)

Note 1 — Formation and Basis of Presentation

Formation and Nature of Business

Talos Energy Inc. (“Talos,” the “Company,” “we,” “us” or “our”) is a technically driven independent exploration and production company focused on safely and efficiently maximizing cash flows and long-term value through our operations in the United States (“U.S.”) Gulf of Mexico and offshore Mexico. As one of the largest public independent producers in the U.S. Gulf of Mexico, we leverage decades of geology, geophysics and offshore operational expertise in acquisition, exploration, exploitation and development of deep and shallow water assets in key geological trends that are present in many offshore basins around the world. Our activities offshore Mexico provide high impact exploration opportunities in an oil rich emerging basin.

Talos was formed in connection with the business combination between Talos Energy LLC and Stone Energy Corporation (“Stone”) that occurred on May 10, 2018, pursuant to which Talos Energy LLC and Stone became indirect wholly-owned subsidiaries of Talos Energy Inc.

Talos Energy LLC

Talos Energy LLC was formed in 2011 and commenced commercial operations on February 6, 2013. Prior to February 6, 2013, Talos Energy LLC incurred certain general and administrative expenses associated with the start-up of its operations.  

On February 3, 2012, Talos Energy LLC completed a transaction with certain funds and other alternative investment vehicles managed by Apollo Management VII, L.P. and Apollo Commodities Management, L.P., with respect to Series I (“Apollo Funds”), and entities controlled by or affiliated with Riverstone Energy Partners V, L.P. (“Riverstone Funds”) and members of management pursuant to which the Talos Energy LLC received a private equity capital commitment.

Stone Combination

On May 10, 2018 (the “Closing Date”), the Company consummated the transactions contemplated by that certain Transaction Agreement dated as of November 21, 2017 (the “Transaction Agreement”), pursuant to which, among other items, each of Stone, Talos Production LLC and Talos Energy LLC became wholly-owned subsidiaries of the Company (the “Stone Combination”). Concurrently with the consummation of the Transaction Agreement, the Company consummated the transactions contemplated by that certain Exchange Agreement, dated as of November 21, 2017 (the “Exchange Agreement”) pursuant to which (i) the Apollo Funds and Riverstone Funds contributed $102.0 million in aggregate principal amount of 9.75% Senior Notes due 2022 issued by Talos Production LLC and Talos Production Finance, Inc. (together, “Talos Issuers”) to the Company in exchange for an aggregate of 2,874,049 shares of Talos common stock; (ii) the holders of second lien bridge loans (“11.00% Bridge Loans”) exchanged such 11.00% Bridge Loans for $172.0 million aggregate principal amount of 11.00% Second-Priority Senior Secured Notes due 2022 of the Talos Issuers (“11.00% Senior Secured Notes”) and (iii) certain holders of 7.50% Senior Secured Notes due 2022 issued by Stone (“7.50% Stone Senior Notes”) exchanged such notes for $137.4 million aggregate principal amount of 11.00% Senior Secured Notes. Prior to the Closing Date, the Company did not conduct any material activities other than those incident to its formation and the matters contemplated by the Transaction Agreement. See Note 2 – Acquisitions for further details regarding the Stone Combination.

Substantially concurrently therewith, the Company consummated an exchange offer and consent solicitation, pursuant to which other holders of the 7.50% Stone Senior Notes exchanged their 7.50% Stone Senior Notes for 11.00% Senior Secured Notes and a cash payment. Approximately $81.5 million in aggregate principal amount of the 7.50% Stone Senior Notes were validly tendered, and approximately $6.1 million in aggregate principal amount of 7.50% Stone Senior Notes remained outstanding as of the Closing Date.

8

Basis of Presentation and Consolidation

The condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Accordingly, certain information and disclosures normally included in complete financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. All intercompany transactions have been eliminated. The unaudited financial statements reflect all adjustments which are of a normal, recurring nature and are necessary to fairly present the financial position, results of operations and cash flows for the interim periods. The results for any interim period are not necessarily indicative of the expected results for the entire year. The Company has evaluated subsequent events through the date the condensed consolidated financial statements were issued. The unaudited financial statements and related notes included in this Quarterly Report on Form 10-Q (this “Quarterly Report”) should be read in conjunction with the Company’s audited Consolidated Financial Statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 (our “2018 Annual Report”).

Talos Energy LLC was considered the accounting acquirer in the Stone Combination under GAAP. Accordingly, the historical financial and operating data of Talos Energy Inc., which covers periods prior to the Closing Date, reflects the assets, liabilities and results of operations of Talos Energy LLC and does not reflect the assets, liabilities and results of operations of Stone. For the periods prior to May 10, 2018, the Company retrospectively adjusted its Statements of Changes in Stockholders’ Equity and the weighted average shares used in determining earnings per share to reflect the number of shares Talos Energy LLC received in the Stone Combination. Beginning on May 10, 2018, common stock is presented to reflect the legal capital of Talos Energy Inc.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements, the reported amounts of revenues and expenses during the reporting periods and the reported amounts of proved oil and natural gas reserves. Actual results could differ from those estimates.

The Company has one reportable segment, exploration and production of oil and natural gas. Substantially all of the Company’s proved reserves and production sales are related to the Company’s operations in the U.S.

Unless otherwise indicated or the context otherwise requires, references in this Quarterly Report to “Talos,”  the “Company,” “we,” “us,” or “our” refer to Talos Energy Inc. and its wholly-owned subsidiaries.

Recently Adopted Accounting Standards

Leases. In February 2016, the Financial Accounting Standards Board issued Accounting Standards Codification 2016-02, Leases (“Topic 842”) requiring an entity to recognize a right-of-use asset representing the right to use an underlying asset for the lease term and a lease liability representing the obligation associated with future lease payments for virtually all leases. The pattern of expense recognition in the income statement is dependent on lease classification as finance or operating. A lease is defined as a contract, or part of a contract, that conveys the right to control the use of identified property, plant or equipment (an identified asset) for a period of time in exchange for consideration. However, Topic 842 does not apply to leases of mineral rights.

On January 1, 2019, the Company adopted Topic 842, using the modified retrospective approach, which does not require an adjustment to comparative-period financial statements. As such, results for reporting periods beginning January 1, 2019 are presented in accordance with Topic 842, while prior period amounts are reported in accordance with previous lease accounting treatment. The Company elected the package of practical expedients permitted under the transition guidance within the new standard, which, among other items, allowed Talos not to reassess whether expired or existing contracts, including land easements, contain a lease or reassess the classification and indirect costs associated with existing or expired leases. On the January 1, 2019 adoption date, the Company recorded a right-of-use asset of approximately $7.3 million and corresponding lease liability of $16.9 million representing the present value of its future operating lease payments. Upon the adoption of Topic 842, lease incentives are presented as a reduction to the right-of-use asset resulting in the difference between the right-of-use asset and lease liability. Adoption of this standard did not require an adjustment to retained earnings and did not impact the condensed consolidated statements of operations, condensed consolidated statements of cash flows or condensed consolidated statements of changes in stockholders’ equity. See Note 4 – Leases for further information.

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Note 2 — Acquisitions

Asset Acquisitions

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 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.

Acquisition of Gunflint Field

On January 11, 2019, the Company completed the acquisition of an approximate 9.6% non-operated working interest in the Gunflint Field located in the Mississippi Canyon area (the “Gunflint Acquisition”) from Samson Offshore Mapleleaf, LLC for $29.6 million ($27.9 million after customary purchase price adjustments).

The following table presents the allocation of the purchase price to the assets acquired and liabilities assumed, based on their relative fair values, on January 11, 2019 (in thousands):

Property and equipment	$	28,912
Asset retirement obligations		(996	)
Allocated purchase price	$	27,916

Acquisition of Whistler Energy II, LLC

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 Apollo Funds (the “Whistler Acquisition”), 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 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 and assumed all of Whistler’s oil and natural gas assets and the associated asset retirement obligations for interests 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 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	)
Other long-term liabilities		(23,862	)
Allocated purchase price	$	52,624

⁽¹⁾ Includes $37.8 million of cash acquired and trade receivables of $3.2 million, which the Company expects all to be realizable.

Business Combinations

Acquisitions qualifying as a business combination are accounted for under the acquisition method of accounting, which requires, among other items, that assets acquired and liabilities assumed be recognized on the condensed consolidated balance sheet at their fair values as of the acquisition date. 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.

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Combination between Talos Energy LLC and Stone Energy Corporation

On May 10, 2018, the Company consummated the transactions contemplated by the Transaction Agreement and the 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 common stock - issued and outstanding as of May 9, 2018		20,038
Stone common stock price	$	35.49
Common stock value	$	711,149
Stone common stock warrants - issued and outstanding as of May 9, 2018		3,528
Stone common stock warrants price	$	5.90
Common stock warrants value	$	20,815
Total purchase price	$	731,964

The following table presents the final 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)	$	372,963
Property and equipment		886,406
Other long-term assets		19,494
Current liabilities		(132,846	)
Long-term debt		(235,416	)
Other long-term liabilities		(178,637	)
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.

The following table presents revenue and net income attributable to the assets acquired in the Stone Combination for the three and six months ended June 30, 2019 and 2018:

	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Revenue	$	113.5	$	69.3	$	216.1	$	69.3
Net income	$	57.1	$	44.4	$	106.4	$	44.4

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Pro Forma Financial Information (Unaudited)

The following supplemental pro forma information (in thousands, except per common share amounts), presents the condensed consolidated statements of operations for the three and six months ended June 30, 2019 and 2018 as if the Stone Combination had occurred on January 1, 2018. The unaudited pro forma information was derived from historical combined 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, 2018, nor is such information indicative of any expected future results of operations.

	Three Months Ended June 30,					Six Months Ended June 30,
	2019		2018			2019			2018
	(As reported)		(Pro Forma)			(As reported)			(Pro Forma)
Revenue	$	286,810	$	244,453		$	465,523		$	471,652
Net income (loss)	$	94,764	$	(45,696	)	$	(14,872	)	$	(51,211	)
Basic net income (loss) per common share	$	1.75	$	(0.84	)	$	(0.27	)	$	(0.95	)
Diluted net income (loss) per common share	$	1.74	$	(0.84	)	$	(0.27	)	$	(0.95	)

Note 3 — Property, Plant and Equipment

Proved Properties. The Company’s interests in proved oil and natural gas properties are located in the U.S., primarily in the Gulf of Mexico deep and shallow waters. The Company follows the full cost method of accounting for its oil and natural gas exploration and development activities.

At June 30, 2019, the Company’s ceiling test computation of its U.S. oil and natural gas properties was based on SEC pricing of $67.16 per Bbl of oil, $2.97 per Mcf of natural gas and $28.85 per Bbl of NGLs. During the three and six months ended June 30, 2019 and 2018, the Company’s ceiling test computation did not result in a write-down of its U.S. oil and natural gas properties.

Unproved Properties. Unproved capitalized costs of oil and natural gas properties excluded from amortization relate to unevaluated properties associated with acquisitions, leases awarded in the U.S. Gulf of Mexico federal lease sales, certain geological and geophysical costs, costs associated with certain exploratory wells in progress and capitalized interest. Unproved properties also include costs associated with the two blocks (Block 2 and Block 7) awarded on September 4, 2015 to the Company together with Sierra Oil & Gas S. de R.L de C.V. (“Sierra”) and Premier Oil Plc (“Premier”), located in the shallow waters off the coast of Mexico’s Veracruz and Tabasco states, by the National Hydrocarbons Commission, Mexico’s upstream regulator. During any period in which unproved properties are assessed as proved or impaired, the associated costs are transferred to the full cost pool and are subject to amortization.

In September 2018, the Company entered into a transaction (the “Hokchi Cross Assignment”) with Hokchi Energy, S.A. de C.V. (“Hokchi”), a subsidiary of Pan American Energy LLC (“PAE”), to cross assign 25% participation interests (“PI”) in each of Block 2 and Block 31. The Company’s assignment of a 25% PI in Block 2 to Hokchi closed on December 21, 2018, and Hokchi’s assignment to the Company closed on May 22, 2019. In addition, Premier exercised its option to reduce its PI in Block 2 to zero and assigned a 5% PI to each of Sierra and Talos. Following the completion of the Hokchi Cross Assignment, Talos owns a 25% PI in each of Block 2 and Block 31, and Hokchi is the operator of the blocks.

As a result of the Company’s evaluation of unproved property located in Block 2 offshore Mexico, specifically future exploratory drilling opportunities, results from exploratory wells drilled during the second quarter of 2019 and the Block 2 production sharing contract’s expiration date, the Company recorded a $12.4 million non-cash impairment presented as “Write-down of oil and natural gas properties” on the condensed consolidated statements of operations.

Capitalized Overhead. General and administrative expense in the Company’s financial statements is reflected net of capitalized overhead. The Company capitalizes overhead costs directly related to exploration, acquisition and development activities. Capitalized overhead for the three and six months ended June 30, 2019 was $7.4 million and $14.0 million, respectively. Capitalized overhead for the three and six months ended June 30, 2018 was $4.5 million and $7.5 million, respectively.

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Asset Retirement Obligations. The discounted asset retirement obligations included “Current portion of asset retirement obligations” and “Asset retirement obligations” on the condensed consolidated balance sheets and the changes to that liability during the six months ended June 30, 2019 were as follows (in thousands):

Asset retirement obligations at December 31, 2018	$	382,817
Fair value of asset retirement obligations assumed		5,047
Obligations settled		(32,206	)
Accretion expense		19,552
Obligations incurred		4,052
Changes in estimate		14,078
Asset retirement obligations at June 30, 2019	$	393,340
Less: Current portion		65,757
Long-term portion	$	327,583

Note 4 — Leases

The Company enters into service contracts and other contractual arrangements for the use of office space, drilling, completion and abandonment equipment (e.g., drilling rigs), production related equipment (e.g., compressors) and other equipment from third-party lessors to support its operations. The Company’s leasing activities as a lessor are negligible. At inception, contracts are reviewed to determine whether the agreement contains a lease. Contracts are considered a lease when the arrangement either explicitly or implicitly conveys the right to control the use of the identified property, plant or equipment for a period of time in exchange for consideration. In order to obtain control, the lessee must obtain substantially all of the economic benefits for the use of the identified asset and have the right to direct the use of the identified asset. To the extent an arrangement is determined to include a lease, it is classified as either an operating or a finance lease, which dictates the pattern of expense recognition in the income statement. The Company has elected to not apply the recognition requirements of Topic 842 to leases with durations of twelve months or less (i.e. short-term).

Upon commencement of a lease, a right-of-use asset and corresponding lease liability are recorded on the consolidated balance sheet for all leases, regardless of classification. The right-of-use asset is initially measured as the lease liability adjusted for any payments made prior to commencement, including any initial direct costs incurred and incentives received. Lease liabilities are initially measured at the present value of future minimum lease payments, excluding variable lease payments, over the lease term. Variable lease payments include changes in index rates, mobilization and demobilization costs related to oil and natural gas equipment and certain reimbursable costs associated with office and building leases that are recognized when incurred. The discount rate used to determine present value is the rate implicit in the lease unless the rate cannot be determined, in which case the incremental borrowing rate is used. The incremental borrowing rate reflects the estimated rate of interest the Company would pay to borrow over a similar term an amount equal to the lease payments on a collateralized basis in a similar economic environment.

The Company has elected to account for lease and non-lease components in its contracts as a single lease component for all asset classes. Lease agreements may include options to renew the lease, terminate the lease or purchase the underlying asset. The Company determines the lease term at lease commencement date as the non-cancelable period of the lease, including options to extend or terminate the lease when such an option is reasonably certain to be exercised. Factors used to assess reasonable certainty of rights to extend or terminate a lease include current and forecasted drillings plans, anticipated changes in development strategies, historical practice in extending similar contracts and current market conditions.

On August 2, 2016, the Company executed a seven-year lease agreement for the use of the Helix Producer 1 (“HP-I”), a dynamically positioned floating production facility that interconnects with the Phoenix Field through a production buoy. Under the terms of the agreement, the Company agreed to pay a $49.0 million annual fixed demand charge for each of the first two years and $45.0 million for each of the five years thereafter.

Prior to implementation, the HP-I lease was accounted for as a capital lease under previous lease accounting treatments. The Company initially recorded a capital lease asset and liability of $124.3 million on its consolidated balance sheet at lease inception. As the HP-I is utilized in the Company’s oil and natural gas development activities, the capital lease asset was included within proved property and depleted as part of the full cost pool. As of December 31, 2018, the balance of the capital lease obligation on the consolidated balance sheet was $93.6 million, of which $14.1 million is included in other current liabilities and $79.5 million is included in other long-term liabilities. Upon adoption of Topic 842, the HP-I capital lease was classified as a finance lease resulting in no change to the amounts recognized on the condensed consolidated balance sheet.

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The Company has operating leases expiring at various dates, principally for office space, drilling rigs, compressors and other equipment necessary to support the Company’s operations. Operating leases are reflected as operating lease assets, current portion of operating lease liabilities and operating lease liabilities on the condensed consolidated balance sheet. The Company’s operating lease liabilities recognized on the balance sheet as of June 30, 2019 was $17.0 million. Costs associated with the Company’s operating leases are either expensed or capitalized depending on how the underlying asset is utilized.

Presented below are disclosures required by Topic 842. The amounts disclosed herein primarily represent costs associated with properties operated by the Company that are presented on a gross basis and do not reflect the Company’s net proportionate share of such amounts. A portion of these costs have been or will be billed to other working interest owners. The Company’s share of these costs is included in property and equipment, lease operating expense or general and administrative expense, as applicable. The components of lease costs were as follows (in thousands):

	Three Months Ended June 30, 2019		Six Months Ended June 30, 2019
Finance lease cost - interest on lease liabilities(1)	$	4,867	$	9,861
Operating lease cost, excluding short-term leases(2)		763		1,526
Short-term lease cost(3)		27,630		64,239
Variable lease cost(4)		3		5
Total lease cost	$	33,263	$	75,631

⁽¹⁾ The HP-I is utilized in the Company’s oil and natural gas development activities and the right-of-use asset was capitalized and included in proved property and depleted as part of the full cost pool. Once items are included in the full cost pool, they are indistinguishable from other proved properties. The capitalized costs within the full cost pool are amortized over the life of the total proved reserved using the unit-of-production method, computed quarterly.

⁽²⁾ Operating lease cost reflect a single lease cost, calculated so that the cost of the lease is allocated over the lease term on a straight-line basis.

⁽³⁾ Short-term lease costs are reported at gross amounts and primarily represent costs incurred for drilling rigs, most of which are short-term contracts not recognized as a right-of-use asset and lease liability on the balance sheet.

⁽⁴⁾ Variable lease costs primarily represent differences between minimum payment obligations and actual operating charges incurred by the Company related to its long-term leases.

The present value of the fixed lease payments recorded as the Company’s right-of-use asset and liability, adjusted for initial direct costs and incentives are as follows (in thousands):

	June 30, 2019
Operating leases:
Operating lease assets	$	6,732
Current portion of operating leases	$	1,315
Operating lease liabilities		15,637
Total operating lease liabilities	$	16,952
Finance leases:
Proved property (1)	$	124,299
Other current liabilities	$	15,697
Other long-term liabilities		71,213
Total finance lease liabilities	$	86,910

⁽¹⁾ The HP-I is utilized in the Company’s oil and natural gas development activities and the right-of-use asset was capitalized and included in proved property and depleted as part of the full cost pool. Once items are included in the full cost pool, they are indistinguishable from other proved properties. The capitalized costs within the full cost pool are amortized over the life of the total proved reserves using the unit-of-production method, computed quarterly.

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Minimum future commitments by year for the Company’s leases as of June 30, 2019 are presented in the table below (in thousands). Such commitments are reflected at undiscounted values and are reconciled to the discounted present value recognized on the balance sheet.

	Operating Leases			Finance Leases
2019 (excluding the six months ended June 30, 2019)	$	906		$	16,629
2020		2,693			33,257
2021		3,447			33,257
2022		3,658			33,257
2023		3,583			13,857
Thereafter		15,218			—
Total lease payments	$	29,505		$	130,257
Less imputed interest		(12,553	)		(43,347	)
Total	$	16,952		$	86,910

	June 30, 2019
Weighted average remaining lease term:
Operating leases	9 years
Finance leases	4 years
Weighted average discount rate:
Operating leases		12.3	%
Finance leases		21.9	%

The table below presents the supplemental cash flow information related to leases for the six months ended June 30, 2019 (in thousands):

Operating cash outflow from finance leases	$	9,861
Financing cash outflow from finance leases	$	6,759
Operating cash outflow from operating leases	$	906
Right-of-use assets obtained in exchange for new finance lease liabilities	$	—
Right-of-use assets obtained in exchange for new operating lease liabilities	$	613

Note 5 — Financial Instruments

The following table presents the carrying amounts and estimated fair values of financial instruments (in thousands): 

	June 30, 2019				December 31, 2018
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
11.00% Second-Priority Senior Secured Notes – due    April 2022(1)	$	382,517	$	413,343	$	381,229	$	362,168
7.50% Senior Secured Notes – due May 2022	$	6,060	$	4,580	$	6,060	$	5,151
Bank Credit Facility – due May 2022(1)	$	308,553	$	315,000	$	257,448	$	265,000
Oil and Natural Gas Derivatives	$	7,896	$	7,896	$	74,923	$	74,923

⁽¹⁾ The carrying amounts are net of discount and deferred financing costs.

As of June 30, 2019 and December 31, 2018, the carrying amounts of cash and cash equivalents, restricted cash, accounts receivable and accounts payable approximate their fair values due to the short-term nature of these instruments.

11.00% Second-Priority Senior Secured Notes – due April 2022. The $390.9 million aggregate principal amount of 11.00% Senior Secured Notes are reported on the condensed consolidated balance sheet as of June 30, 2019 at their carrying value, net of original issue discount and deferred financing costs (see Note 6 – Debt). The fair value of the 11.00% Senior Secured Notes are estimated (representing a Level 1 fair value measurement) using quoted secondary market trading prices.

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7.50% Senior Secured Notes – due May 2022. The $6.1 million aggregate principal amount of 7.50% Stone Senior Notes are reported on the condensed consolidated balance sheet as of June 30, 2019 at their carrying value (see Note 6 – Debt). The fair value of the 7.50% Stone Senior Notes are estimated (representing a Level 1 fair value measurement) using quoted secondary market trading prices.

Bank Credit Facility – due May 2022. In May 2018, in conjunction with the Stone Combination, the Company and Talos Production LLC, our wholly-owned subsidiary, executed a new bank credit facility with an initial borrowing base of $600.0 million (the “Bank Credit Facility”) which is reported on the condensed consolidated balance sheet as of June 30, 2019 at its carrying value net of deferred financing costs (see Note 6 – Debt). The fair value of the Bank Credit Facility is estimated based on the outstanding borrowings under the Bank Credit Facility since it is secured by the Company’s reserves and the interest rates are variable and reflective of market rates (representing a Level 2 fair value measurement).

Oil and natural gas derivatives. The Company attempts to mitigate a portion of its commodity price risk and stabilize cash flows associated with sales of oil and natural gas production through the use of oil and natural gas swaps and costless collars. Swaps are contracts where the Company either receives or pays depending on whether the oil or natural gas floating market price is above or below the contracted fixed price. Costless collars consist of a purchased put option and a sold call option with no net premiums paid to or received from counterparties. Collar contracts typically require payments by the Company if the NYMEX average closing price is above the ceiling price or payments to the Company if the NYMEX average closing price is below the floor price.

The Company has elected not to designate any of its derivative contracts for hedge accounting. Accordingly, commodity derivatives are recorded on the condensed consolidated balance sheets at fair value with settlements of such contracts, and changes in the unrealized fair value, recorded as “Price risk management activities income (expense)” on the condensed consolidated statements of operations in each period.

The following table presents the impact that derivatives, not qualifying as hedging instruments, had on the Company’s condensed consolidated statements of operations (in thousands):

	Three Months Ended June 30,					Six Months Ended June 30,
	2019		2018			2019			2018
Price risk management activities income (expense)(1)	$	29,990	$	(91,176	)	$	(79,589	)	$	(143,152	)

⁽¹⁾ The Company paid $9.5 million and $12.6 million for the three and six months ended June 30, 2019 in net cash settlements, respectively. The Company paid $33.6 million and $54.1 million for the three and six months ended June 30, 2018 in net cash settlements, respectively.

The following table reflects the contracted volumes and weighted average prices the Company will receive under its derivative contracts as of June 30, 2019:

Production Period	Instrument Type	Average Daily Volumes		Weighted Average Swap Price		Weighted Average Put Price		Weighted Average Call Price
Crude Oil – WTI:		(Bbls)		(per Bbl)		(per Bbl)		(per Bbl)
Jul 2019 - Dec 2019	Swap		27,093	$	56.84	$	—	$	—
Jan 2020 - Dec 2020	Swap		8,619	$	56.80	$	—	$	—
Jan 2020 - Dec 2020	Costless collars		7,481	$	—	$	55.00	$	64.23
Natural Gas – Henry Hub NYMEX:		(MMBtu)		(per MMBtu)		(per MMBtu)		(per MMBtu)
Jul 2019 - Dec 2019	Swap		36,840	$	2.89	$	—	$	—
Jan 2020 - Dec 2020	Swap		8,702	$	3.07	$	—	$	—

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The Company’s commodity derivative instruments are measured at fair value based on third-party industry-standard models using various inputs substantially observable in active markets, including forward oil and natural gas price curves, and are therefore classified as Level 2 in the required fair value hierarchy for the periods presented. The following tables provide additional information related to financial instruments measured at fair value on a recurring basis (in thousands):

	June 30, 2019
	Level 1		Level 2			Level 3		Total
Assets:
Oil and natural gas derivatives	$	—	$	29,141		$	—	$	29,141
Liabilities:
Oil and natural gas derivatives		—		(21,245	)		—		(21,245	)
Total net asset	$	—	$	7,896		$	—	$	7,896

	December 31, 2018
	Level 1		Level 2			Level 3		Total
Assets:
Oil and natural gas derivatives	$	—	$	75,473		$	—	$	75,473
Liabilities:
Oil and natural gas derivatives		—		(550	)		—		(550	)
Total net asset	$	—	$	74,923		$	—	$	74,923

Financial Statement Presentation. Derivatives are classified as either current or non-current assets or liabilities based on their anticipated settlement dates. Although the Company has master netting arrangements with its counterparties, the Company presents its derivative financial instruments on a gross basis on its condensed consolidated balance sheets. On derivative contracts recorded as assets in the table below, the Company is exposed to the risk that the counterparties may not perform. The following table presents the fair value of derivative financial instruments at June 30, 2019 and December 31, 2018 (in thousands):

	June 30, 2019				December 31, 2018
	Assets		Liabilities		Assets		Liabilities
Oil and natural gas derivatives:
Current	$	23,633	$	18,781	$	75,473	$	550
Non-current		5,508		2,464		—		—
Total	$	29,141	$	21,245	$	75,473	$	550

Credit Risk. The Company is subject to the risk of loss on its financial instruments as a result of nonperformance by counterparties pursuant to the terms of their contractual obligations. The Company entered into International Swaps and Derivative Association agreements with counterparties to mitigate this risk. The Company also maintains credit policies with regard to its counterparties to minimize overall credit risk. The Company’s assets and liabilities from commodity price risk management activities at June 30, 2019 represent derivative instruments from twelve counterparties; all of which are registered swap dealers that have an “investment grade” (minimum Standard & Poor’s rating of BBB- or better) credit rating, and ten of which are parties under the Company’s Bank Credit Facility. The Company enters into derivatives directly with these counterparties and, subject to the terms of the Company’s Bank Credit Facility, is not required to post collateral or other securities for credit risk in relation to the derivative activities. The Company is subject to the risk of loss on its financial instruments as a result of nonperformance by counterparties pursuant to the terms of their contractual obligations.

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Note 6 — Debt

A summary of the detail comprising the Company’s debt and the related book values for the respective periods presented is as follows (in thousands):

Description	June 30, 2019			December 31, 2018
11.00% Second-Priority Senior Secured Notes – due April 2022	$	390,868		$	390,868
7.50% Senior Secured Notes – due May 2022		6,060			6,060
Bank Credit Facility – due May 2022		315,000			265,000
4.20% Building Loan – due November 2030		—			10,567
Total debt, before discount and deferred financing cost		711,928			672,495
Discount and deferred financing cost		(14,798	)		(17,191	)
Total debt, net of discount and deferred financing cost	$	697,130		$	655,304
Less: current portion of long-term debt		—			(443	)
Long-term debt, net of discount and deferred financing costs	$	697,130		$	654,861

11.00% Second-Priority Senior Secured Notes – due April 2022. The 11.00% Senior Secured Notes were issued pursuant to an indenture dated May 10, 2018. The 11.00% Senior Secured Notes mature April 3, 2022 and have interest payable semi-annually each April 15 and October 15. Prior to May 10, 2020, the Company may, at its option, redeem all or a portion of the 11.00% Senior Secured Notes at 105.5% of the principal amount plus accrued and unpaid interest. Thereafter, the Company may redeem all or a portion of the 11.00% Senior Secured Notes at redemption prices decreasing annually from 102.75% to 100.0% plus accrued and unpaid interest.

The indenture governing the 11.00% Senior Secured Notes applies certain limitations on the Company’s ability and the ability of its subsidiaries to, among other things, (i) incur additional indebtedness or issue certain preferred shares; (ii) pay dividends and make certain other restricted payments; (iii) create restrictions on the payment of dividends or other distributions to the Company from its restricted subsidiaries; (iv) create liens on certain assets to secure debt; (v) make certain investments; (vi) engage in sales of assets and subsidiary stock; (vii) transfer all or substantially all of its assets or enter into merger or consolidation transactions; and (viii) engage in transactions with affiliates. The 11.00% Senior Secured Notes contain customary quarterly and annual reporting, financial and administrative covenants. The Company was in compliance with all debt covenants at June 30, 2019.

7.50% Senior Secured Notes – due May 2022.  The 7.50% Stone Senior Notes represent the remaining $6.1 million of long-term debt assumed in the Stone Combination that were not exchanged for 11.00% Senior Secured Notes and thus remain outstanding. As a result, substantially all of the restrictive covenants relating to the 7.50% Stone Senior Notes have been removed and collateral securing the 7.50% Stone Senior Notes has been released. The 7.50% Stone Senior Notes mature May 31, 2022 and have interest payable semi-annually each May 31 and November 30. Prior to May 31, 2020, the Company may, at its option, redeem all or a portion of the 7.50% Stone Senior Notes at 100% of the principal amount plus accrued and unpaid interest and a make-whole premium. Thereafter, the Company may redeem all or a portion of the 7.50% Stone Senior Notes at redemption prices decreasing annually from 105.625% to 100.0% plus accrued and unpaid interest.

Bank Credit Facility – due May 2022. The Company and Talos Production LLC, our wholly-owned subsidiary, executed the Bank Credit Facility in conjunction with the Stone Combination with a syndicate of financial institutions, with an initial borrowing base of $600.0 million. The Bank Credit Facility matures on May 10, 2022, provided that the Bank Credit Facility mandates a springing maturity that is 120 days prior to May 10, 2022, if greater than $25.0 million of the 11.00% Senior Secured Notes or any permitted refinancing indebtedness in resect thereof is outstanding on such date.  

The Bank Credit Facility bears interest based on the borrowing base usage, at the applicable London InterBank Offered Rate, plus applicable margins ranging from 2.75% to 3.75% or an alternate base rate, based on the federal funds effective rate plus applicable margins ranging from 1.75% to 2.75%. In addition, the Company is obligated to pay a commitment fee of 0.50% on the unfunded portion of the commitments under the Bank Credit Facility. The Bank Credit Facility has certain debt covenants, the most restrictive of which is that the Company must maintain a total debt to EBITDAX Ratio (as defined in the Bank Credit Facility) of no greater than 3.00 to 1.00 each quarter. The Company must also maintain a current ratio no less than 1.00 to 1.00 each quarter. According to the Bank Credit Facility, undrawn commitments are included in current assets in the current ratio calculation. The Bank Credit Facility is secured by substantially all of the oil and natural gas assets of the Company. The Bank Credit Facility is fully and unconditionally guaranteed by the Company and certain of its wholly-owned subsidiaries.

18

The Bank Credit Facility provides for determination of the borrowing base based on the Company’s proved producing reserves and a portion of its proved undeveloped reserves. The borrowing base is redetermined by the lenders at least semi-annually during the second quarter and fourth quarter.

As of June 30, 2019, the Company’s borrowing base was $850.0 million with commitments held at $600.0 million, of which no more than $200 million can be used as letters of credit. The amount the Company is able to borrow with respect to the borrowing base is subject to compliance with the financial covenants and other provisions of the Bank Credit Facility. The Company was in compliance with all debt covenants at June 30, 2019. As of June 30, 2019, the Bank Credit Facility had approximately $269.8 million of undrawn commitments (taking into account $15.2 million letters of credit and $315.0 million drawn from the Bank Credit Facility).

Subsequent event. On July 3, 2019, the Company and Talos Production LLC entered into a Joinder, First Amendment to Credit Agreement, and Borrowing Base Reaffirmation Agreement in which (a) the $850 million borrowing base was reaffirmed, (b) the commitments were increased from $600.0 million to $850.0 million, (c) three additional financial institutions were joined as lenders to the syndicate and (d) certain other amendments were made to the Bank Credit Facility as more particularly described therein.

Building Loan – due November 2030. In connection with the Stone Combination, the Company assumed Stone’s 4.20% term loan maturing on November 20, 2030 (the “Building Loan”). The Building Loan bears interest at a rate of 4.20% per annum and is to be repaid in 180 equal monthly installments of approximately $0.1 million. During June 2019, the Company repaid $10.5 million aggregate remaining principal, plus accrued interest, of the Building Loan using proceeds from the sale of an office building in Lafayette acquired in the Stone Combination and cash on hand. As of June 30, 2019, there is no outstanding balance under the Building Loan.

Note 7 — Employee Benefits Plans and Share-Based Compensation

Stone Severance Plans

The Company maintained the Stone Energy Corporation Executive Severance Plan and Stone Energy Corporation Employee Severance Plan, each a legacy plan of Talos Petroleum LLC (f/k/a Stone Energy Corporation). The plans provided for the payment of severance benefits to certain individuals who, prior to the Stone Combination, were executive officers or employees of Talos Petroleum LLC, in each case upon an involuntary termination within twelve months of the Closing Date. For the three and six months ended June 30, 2019, the Company incurred nil and $0.2 million of severance expenses in relation to the Stone Combination, respectively.  For the three and six months ended June 30, 2018, the company incurred $7.5 million of severance expenses in relation to the Stone Combination. Severance expenses are reflected in general and administrative expense on the consolidated statement of operations. As of June 30, 2019, the Company had no obligations outstanding related to the plans. The plans were terminated in July 2019.  

Talos Energy Inc. Long Term Incentive Plan

Under the Talos Energy Inc. Long Term Incentive Plan (the “LTIP”), the Company may issue, subject to Board approval, grants of options, stock appreciation rights, restricted stock, restricted stock units, stock awards, dividend equivalents, other stock-based awards, cash awards, substitute awards or any combination of the foregoing to employees, directors and consultants. The LTIP authorizes the Company to grant awards of up to 5,415,576 shares of the Company’s common stock.

Restricted Stock Units. During the six months ended June 30, 2019, the Company granted 695,639 restricted stock units (“RSUs”) under the LTIP to employees and non-employees. The following table summarizes RSU activity for the six months ended June 30, 2019:

	Restricted Stock Units			Weighted Average Grant Date Fair Value
Unvested RSUs at December 31, 2018		138,704		$	33.85
Granted		695,639		$	24.46
Vested		(61,495	)	$	34.48
Forfeited		(8,274	)	$	25.91
Unvested RSUs at June 30, 2019		764,574		$	25.35

19

Performance Stock Units. During the six months ended June 30, 2019, the Company granted 218,060 performance stock units (“PSUs”) under the LTIP to employees. The following table summarizes PSU activity for the six months ended June 30, 2019:

	Performance Share Units			Weighted Average Grant Date Fair Value
Unvested PSUs at December 31, 2018		231,542		$	44.47
Granted		218,060		$	33.96
Vested		—		$	—
Forfeited		(2,980	)	$	42.94
Unvested PSUs at June 30, 2019		446,622		$	39.35

The grant date fair value of the PSUs granted during the six months ended June 30, 2019, calculated using a Monte Carlo simulation, was $7.4 million. The following table summarizes the assumptions used to calculate the grant date fair value of the PSUs granted in the six months ended June 30, 2019:

	Grant Date
	March 5, 2019			May 16, 2019
Number of simulations		100,000			100,000
Expected term (in years)		2.8			2.6
Expected volatility		46.9	%		44.8	%
Risk-free interest rate		2.5	%		2.1	%
Dividend yield		—	%		—	%

Share-based Compensation Expense, net.

Share-based compensation expense is reflected as “General administrative expense,” net amounts capitalized to oil and natural gas properties in the consolidated statement of operations. Because of the non-cash nature of share-based compensation, the expensed portion of share-based compensation is added back to net income in arriving at net cash used in or provided by operating activities in the condensed consolidated statement of cash flows. The following table summarizes the stock-based compensation expense for the three and six months ended June 30, 2019 and 2018 (in millions):

	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Share based compensation	$	3.7		$	4.0		$	6.0		$	4.2
Capitalization		(1.7	)		(2.5	)		(2.8	)		(2.6	)
Share based compensation, net capitalization	$	2.0		$	1.5		$	3.2		$	1.6

Note 8 — Income Taxes

Prior to the Stone Combination, Talos Energy LLC was a partnership for U.S. federal income tax purposes and was not subject to U.S. federal income tax or state income tax (in most states) at the entity level. As such, Talos Energy LLC did not recognize U.S. federal income tax expense or state income tax expense in most states. Talos Energy LLC’s operations in the shallow waters off the coast of Mexico were conducted under a different legal form and are subject to foreign income taxes. 

For the three months ended June 30, 2019, the Company recognized income tax expense of $6.0 million for an effective tax rate of 6.0%. The difference between the Company’s effective tax rate of 6.0% and federal statutory income tax rate of 21% is primarily due to a reduction to the Company’s valuation allowance.  For the three months ended June 30, 2018, the Company’s effective tax rate of 0% differed from the federal statutory rate of 21% because the Company recorded a valuation allowance against its deferred tax assets.

For the six months ended June 30, 2019, the Company recognized an income tax benefit of $0.4 million for an effective tax rate of 2.4%. The difference between the Company’s effective tax rate of 2.4% and federal statutory income tax rate of 21% is primarily due to a reduction to the Company’s valuation allowance. For the six months ended June 30, 2018, the Company’s effective tax rate of 0% differed from the federal statutory rate of 21% because the Company recorded a valuation allowance against its deferred tax assets.

20

The Company evaluates and updates the estimated annual effective income tax rate on a quarterly basis based on current and forecasted operating results and tax laws. Consequently, based upon the mix and timing of the Company’s actual earnings compared to annual projections, the effective tax rate may vary quarterly and may make quarterly comparisons not meaningful. The quarterly income tax provision is generally comprised of tax expense on income or benefit on loss at the most recent estimated annual effective tax rate.  The tax effect of discrete items is recognized in the period in which they occur at the applicable statutory rate.

Deferred income tax assets and liabilities are recorded related to net operating losses and temporary differences between the book and tax basis of assets and liabilities expected to produce deductions and income in the future.  The realization of deferred tax assets depends on recognition of sufficient future taxable income in specific tax jurisdictions in which those temporary differences or net operating losses are deductible.  When assessing the need for a valuation allowance on deferred tax assets, the Company considers whether it is more likely than not that some portion or all of them will not be realized.  As June 30, 2019, the Company had a valuation allowance related to federal, state and foreign deferred tax assets.

Note 9 — Income (Loss) Per Share

Basic earnings per share is computed by dividing net income (loss) attributable to common stockholders by the weighted average number of shares of common stock outstanding during the period.  Except when the effect would be antidilutive, diluted earnings per share include the impact of RSUs, PSUs and outstanding warrants.

The following table presents the computation of basic and diluted earnings per share for Talos Energy Inc. (in thousands, except for per share amounts):

	Three Months Ended June 30,					Six Months Ended June 30,
	2019		2018			2019			2018
Net income (loss)	$	94,764	$	(74,912	)	$	(14,872	)	$	(97,855	)
Weighted average common shares outstanding — basic		54,178		44,336			54,167			37,826
Dilutive effect of securities		273		—			—			—
Weighted average common shares outstanding — diluted		54,451		44,336			54,167			37,826
Net income (loss) per common share:
Basic	$	1.75	$	(1.69	)	$	(0.27	)	$	(2.59	)
Diluted	$	1.74	$	(1.69	)	$	(0.27	)	$	(2.59	)
Anti-dilutive potentially issuable securities excluded    from diluted common shares		3,857		3,551			4,739			3,551

For the periods prior to May 10, 2018, the Company retrospectively adjusted the weighted average shares used in determining earnings per share to reflect the number of shares Talos Energy LLC received in the Stone Combination.

Note 10 — Related Party Transactions

Whistler Acquisition. On August 31, 2018, the Company acquired certain properties 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). Included in current assets acquired as of June 30, 2019 is $1.1 million in receivables from an affiliate of the Apollo Funds to reimburse the Company for certain payments made post-closing. See additional details in Note 2 – Acquisitions.

Equity Registration Rights Agreement. On the Closing Date, the Company entered into a Registration Rights Agreement (the “Equity Registration Rights Agreement”) with certain Apollo Funds and Riverstone Funds, certain funds controlled by Franklin Advisers, Inc. (“Franklin”) and certain clients of MacKay Shields LLC (“MacKay Shields”) relating to the registered resale of the Company’s common stock owned by such parties as of Closing. The Company will bear all of the expenses incurred in connection with any offer and sale, while the Apollo Funds, Riverstone Funds, Franklin and MacKay Shields will be responsible for paying underwriting fees, discounts and commissions or similar charges.  Pursuant to the Equity Registration Rights Agreement, on June 4, 2019, the Company filed a registration statement on Form S-3 with the SEC registering the offering of shares of the Company’s common stock by the selling stockholders named therein, which was declared effective by the SEC on June 12, 2019. Fees incurred by the Company in conjunction with the Equity Registration Rights Agreement were $0.1 and $0.7 million for the three and six months ended June 30, 2019, respectively.

21

Legal Fees. The Company has engaged the law firm Vinson & Elkins L.L.P. to provide legal services. An immediate family member of William S. Moss III, our Executive Vice President and General Counsel and one of the Company’s executive officers, is a partner at Vinson & Elkins L.L.P. For the three and six months ended June 30, 2019, we incurred fees of approximately $0.5 million and $1.6 million, respectively, of which $1.0 million remained payable for legal services performed by Vinson & Elkins L.L.P as of June 30, 2019. For the three and six months ended June 30, 2018, we incurred fees of approximately $1.2 million and $2.2 million, respectively.

Service Fee Agreement. Talos Energy LLC entered into service fee agreements with Apollo Funds and Riverstone Funds for the provision of certain management consulting and advisory services. Under each agreement, the Company paid a fee equal to the higher of (i) a certain percentage of earnings before interest, income taxes, depletion, depreciation and amortization and (ii) a fixed fee payable quarterly, provided, however, such fees did not exceed in each case $0.5 million, in aggregate, for any calendar year. For the three and six months ended June 30, 2019, the Company incurred no expense for these services. For the three and six months ended June 30, 2018, the Company incurred approximately $0.4 million and $0.5 million, respectively. These fees are recognized in “General and administrative expense” on the condensed consolidated statements of operations. In connection with the Stone Combination, the service fee agreements were terminated.

Note 11 — Commitments and Contingencies

Performance Obligations

Regulations with respect to offshore operations govern, among other things, engineering and construction specifications for production facilities, safety procedures, plugging and abandonment of wells, removal of facilities and to guarantee the execution of the minimum work program under the Mexico production sharing contracts. As of June 30, 2019, the Company had secured performance bonds totaling approximately $637.5 million. As of June 30, 2019, the Company had $15.2 million in letters of credit issued under its Bank Credit Facility.

Legal Proceedings

The Company is named as a party in certain lawsuits and regulatory proceedings arising in the ordinary course of business. The Company does not expect that these matters, individually or in the aggregate, will have a material adverse effect on its financial condition.

Note 12 — Condensed Consolidating Financial Information

The Company owns no operating assets, has no operations independent of its subsidiaries and owns 100% of the Talos Issuers. The Talos Issuers issued 11.00% Senior Secured Notes on May 10, 2018, which are fully and unconditionally guaranteed, jointly and severally, by the Company and certain of its 100% owned subsidiaries (“Guarantors”) on a senior secured basis. Certain of the Company’s subsidiaries, which are accounted for on a consolidated basis, do not guarantee the 11.00% Senior Secured Notes (“Non-Guarantors”).

The following condensed consolidating financial information presents the financial information of the Company on an unconsolidated stand-alone basis and its combined subsidiary issuers, combined guarantor and combined non-guarantor subsidiaries as of and for the periods indicated. As described in Note 1 – Formation and Basis of Presentation, the Company retrospectively adjusted its consolidated equity to reflect the legal capital of the Company for all periods presented. Such financial information may not necessarily be indicative of the Company’s results of operations, cash flows or financial position had these subsidiaries operated as independent entities.

22

TALOS ENERGY INC.

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF JUNE 30, 2019

(In thousands)

(Unaudited)

	Talos		Talos Issuers			Guarantors			Non- Guarantors			Elimination			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	—	$	56,050		$	3,061		$	29,994		$	—		$	89,105
Restricted cash		—		—			—			—			—			—
Accounts receivable, net
Trade, net		—		—			110,504			—			—			110,504
Joint interest, net		—		—			21,111			14,630			—			35,741
Other		—		2,912			8,457			17,459			—			28,828
Assets from price risk management activities		—		23,633			—			—			—			23,633
Prepaid assets		—		1,989			36,352			29			—			38,370
Income tax receivable		—		—			—			—			—			—
Other current assets		—		—			2,085			—			—			2,085
Total current assets		—		84,584			181,570			62,112			—			328,266
Property and equipment:
Proved properties		—		—			3,925,116			—			—			3,925,116
Unproved properties, not subject to    amortization		—		—			73,806			91,235			—			165,041
Other property and equipment		—		21,551			6,486			207			—			28,244
Total property and equipment		—		21,551			4,005,408			91,442			—			4,118,401
Accumulated depreciation, depletion and    amortization		—		(9,625	)		(1,869,835	)		(26	)		—			(1,879,486	)
Total property and equipment, net		—		11,926			2,135,573			91,416			—			2,238,915
Other long-term assets:
Assets from price risk management activities		—		5,508			—			—			—			5,508
Other well equipment inventory		—		—			9,914			—			—			9,914
Leased assets		—		1,502			3,595			1,635			—			6,732
Investments in subsidiaries		1,001,149		1,636,162			—			—			(2,637,311	)		—
Other assets		305		364			1,963			68			—			2,700
Total assets	$	1,001,454	$	1,740,046		$	2,332,615		$	155,231		$	(2,637,311	)	$	2,592,035
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	—	$	1,331		$	72,737		$	41,018		$	—		$	115,086
Accrued liabilities		—		3,610			160,279			22,465			—			186,354
Accrued royalties		—		—			42,651			—			—			42,651
Current portion of long-term debt		—		—			—			—			—			—
Current portion of asset retirement    obligations		—		—			65,757			—			—			65,757
Liabilities from price risk management    activities		—		18,781			—			—			—			18,781
Accrued interest payable		—		10,029			39			—			—			10,068
Leases liabilities		—		—			775			540			—			1,315
Other current liabilities		—		—			18,140			—			—			18,140
Total current liabilities		—		33,751			360,378			64,023			—			458,152
Long-term debt, net of discount and deferred    financing costs		—		691,069			6,061			—			—			697,130
Asset retirement obligations		—		—			327,583			—			—			327,583
Liabilities from price risk management activities		—		2,464			—			—			—			2,464
Long-term leased liabilities		—		11,613			2,837			1,187			—			15,637
Other long-term liabilities		3,413		—			89,514			101			—			93,028
Total liabilities		3,413		738,897			786,373			65,311			—			1,593,994
Commitments and Contingencies (Note 11)
Stockholders' equity		998,041		1,001,149			1,546,242			89,920			(2,637,311	)		998,041
Total liabilities and stockholders' equity	$	1,001,454	$	1,740,046		$	2,332,615		$	155,231		$	(2,637,311	)	$	2,592,035

23

TALOS ENERGY INC.

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF DECEMBER 31, 2018

(In thousands)

	Talos		Talos Issuers			Guarantors			Non- Guarantors			Elimination			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	—	$	13,541		$	100,801		$	25,572		$	—		$	139,914
Restricted cash		—		—			1,248			—			—			1,248
Accounts receivable, net
Trade, net		—		—			103,025			—			—			103,025
Joint interest, net		—		—			15,870			4,374			—			20,244
Other		—		3,100			9,566			7,020			—			19,686
Assets from price risk management activities		—		75,473			—			—			—			75,473
Prepaid assets		—		1,225			37,639			47			—			38,911
Income tax receivable		—		—			10,701			—			—			10,701
Other current assets		—		—			7,644			—			—			7,644
Total current assets		—		93,339			286,494			37,013			—			416,846
Property and equipment:
Proved properties		—		—			3,629,430			—			—			3,629,430
Unproved properties, not subject to    amortization		—		—			63,104			45,105			—			108,209
Other property and equipment		—		20,670			12,440			81			—			33,191
Total property and equipment		—		20,670			3,704,974			45,186			—			3,770,830
Accumulated depreciation, depletion and    amortization		—		(8,310	)		(1,711,288	)		(11	)		—			(1,719,609	)
Total property and equipment, net		—		12,360			1,993,686			45,175			—			2,051,221
Other long-term assets:
Other well equipment inventory		—		—			9,224			—			—			9,224
Investments in subsidiaries		1,011,359		1,560,922			—			—			(2,572,281	)		—
Other assets		—		364			2,258			73			—			2,695
Total assets	$	1,011,359	$	1,666,985		$	2,291,662		$	82,261		$	(2,572,281	)	$	2,479,986
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	144	$	1,242		$	42,736		$	6,897		$	—		$	51,019
Accrued liabilities		—		4,995			159,491			24,164			—			188,650
Accrued royalties		—		—			38,520			—			—			38,520
Current portion of long-term debt		—		—			443			—			—			443
Current portion of asset retirement    obligations		—		—			68,965			—			—			68,965
Liabilities from price risk management    activities		—		550			—			—			—			550
Accrued interest payable		—		10,162			38			—			—			10,200
Other current liabilities		—		—			22,071			—			—			22,071
Total current liabilities		144		16,949			332,264			31,061			—			380,418
Long-term debt, net of discount and deferred    financing costs		—		638,677			16,184			—			—			654,861
Asset retirement obligations		—		—			313,852			—			—			313,852
Other long-term liabilities		3,719		—			119,432			208			—			123,359
Total liabilities		3,863		655,626			781,732			31,269			—			1,472,490
Commitments and Contingencies (Note 11)
Stockholders' equity		1,007,496		1,011,359			1,509,930			50,992			(2,572,281	)		1,007,496
Total liabilities and stockholders' equity	$	1,011,359	$	1,666,985		$	2,291,662		$	82,261		$	(2,572,281	)	$	2,479,986

24

TALOS ENERGY INC.

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE THREE MONTHS ENDED JUNE 30, 2019

(In thousands)

(Unaudited)

	Talos			Talos Issuers			Guarantors			Non- Guarantors			Elimination			Consolidated
Revenues:
Oil revenue	$	—		$	—		$	256,908		$	—		$	—		$	256,908
Natural gas revenue		—			—			14,746			—			—			14,746
NGL revenue		—			—			6,645			—			—			6,645
Other revenue		—			—			8,511			—			—			8,511
Total revenue		—			—			286,810			—			—			286,810
Operating expenses:		—			—			—			—			—			—
Direct lease operating expense		—			—			37,975			—			—			37,975
Insurance		—			—			4,184			—			—			4,184
Production taxes		—			—			506			—			—			506
Total lease operating expense		—			—			42,665			—			—			42,665
Workover and maintenance expense		—			—			12,296			—			—			12,296
Depreciation, depletion and amortization		—			1,242			94,554			10			—			95,806
Write-down of oil and natural gas properties		—			—			—			12,361			—			12,361
Accretion expense		—			—			9,945			—			—			9,945
General and administrative expense		48			7,626			10,634			557			—			18,865
Total operating (income) expenses		48			8,868			170,094			12,928			—			191,938
Operating income (loss)		(48	)		(8,868	)		116,716			(12,928	)		—			94,872
Interest expense		—			(17,020	)		(7,719	)		(193	)		—			(24,932	)
Price risk management activities income		—			29,990			—			—			—			29,990
Other income (expense)		—			106			765			(40	)		—			831
Income tax (expense) benefit		(6,187	)		—			(294	)		484			—			(5,997	)
Equity earnings (loss) from subsidiaries		100,999			96,791			—			—			(197,790	)		—
Net income (loss)	$	94,764		$	100,999		$	109,468		$	(12,677	)	$	(197,790	)	$	94,764

25

TALOS ENERGY INC.

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE SIX MONTHS ENDED JUNE 30, 2019

(In thousands)

(Unaudited)

	Talos			Talos Issuers			Guarantors			Non- Guarantors			Elimination			Consolidated
Revenues:
Oil revenue	$	—		$	—		$	412,587		$	—		$	—		$	412,587
Natural gas revenue		—			—			29,193			—			—			29,193
NGL revenue		—			—			11,711			—			—			11,711
Other revenue								12,032									12,032
Total revenue		—			—			465,523			—			—			465,523
Operating expenses:
Direct lease operating expense		—			—			78,804			—			—			78,804
Insurance		—			—			8,295			—			—			8,295
Production taxes		—			—			1,088			—			—			1,088
Total lease operating expense		—			—			88,187			—			—			88,187
Workover and maintenance expense		—			—			35,315			—			—			35,315
Depreciation, depletion and amortization		—			1,314			159,064			15			—			160,393
Write-down of oil and natural gas properties		—			—			—			12,361			—			12,361
Accretion expense		—			—			19,552			—			—			19,552
General and administrative expense		385			16,232			19,409			448			—			36,474
Total operating expenses		385			17,546			321,527			12,824			—			352,282
Operating income (loss)		(385	)		(17,546	)		143,996			(12,824	)		—			113,241
Interest expense		—			(33,592	)		(16,237	)		(321	)		—			(50,150	)
Price risk management activities expense		—			(79,589	)		—			—			—			(79,589	)
Other income (expense)		—			187			1,236			(159	)		—			1,264
Income tax (expense) benefit		650			—			(296	)		8			—			362
Equity earnings (loss) from subsidiaries		(15,137	)		115,403			—			—			(100,266	)		—
Net income (loss)	$	(14,872	)	$	(15,137	)	$	128,699		$	(13,296	)	$	(100,266	)	$	(14,872	)

26

TALOS ENERGY INC.

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE THREE MONTHS ENDED JUNE 30, 2018

(In thousands)

(Unaudited)

	Talos			Talos Issuers			Guarantors			Non- Guarantors			Elimination		Consolidated
Revenues:
Oil revenue	$	—		$	—		$	180,161		$	—		$	—	$	180,161
Natural gas revenue		—			—			16,448			—			—		16,448
NGL revenue		—			—			7,297			—			—		7,297
Total revenue		—			—			203,906			—			—		203,906
Operating expenses:
Direct lease operating expense		—			—			34,060			—			—		34,060
Insurance		—			—			4,259			—			—		4,259
Production taxes		—			—			564			—			—		564
Total lease operating expense		—			—			38,883			—			—		38,883
Workover and maintenance expense		—			—			17,714			—			—		17,714
Depreciation, depletion and amortization		—			384			67,341			1			—		67,726
Accretion expense		—			—			9,492			—			—		9,492
General and administrative expense		—			13,804			16,854			222			—		30,880
Total operating expenses		—			14,188			150,284			223			—		164,695
Operating income (loss)		—			(14,188	)		53,622			(223	)		—		39,211
Interest expense		—			(14,399	)		(6,891	)		(388	)		—		(21,678	)
Price risk management activities expense		—			(89,970	)		(1,206	)		—			—		(91,176	)
Other income (expense)		—			(1,358	)		132			(43	)		—		(1,269	)
Equity earnings (loss) from subsidiaries		(74,912	)		45,003			—			—			29,909		—
Net income (loss)	$	(74,912	)	$	(74,912	)	$	45,657		$	(654	)	$	29,909	$	(74,912	)

27

TALOS ENERGY INC.

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE SIX MONTHS ENDED JUNE 30, 2018

(In thousands)

(Unaudited)

	Talos		Talos Issuers			Guarantors			Non- Guarantors			Elimination			Consolidated
Revenues:
Oil revenue	$	—	$	—		$	307,854		$	—		$	—		$	307,854
Natural gas revenue		—		—			29,171			—			—			29,171
NGL revenue		—		—			12,731			—			—			12,731
Total revenue		—		—			349,756			—			—			349,756
Operating expenses:
Direct lease operating expense		—		—			58,975			—			—			58,975
Insurance		—		—			6,934			—			—			6,934
Production taxes		—		—			955			—			—			955
Total lease operating expense		—		—			66,864			—			—			66,864
Workover and maintenance expense		—		—			24,619			—			—			24,619
Depreciation, depletion and amortization		—		725			116,039			2			—			116,766
Accretion expense		—		—			14,252			—			—			14,252
General and administrative expense		—		18,398			20,567			495			—			39,460
Total operating expenses		—		19,123			242,341			497			—			261,961
Operating income (loss)		—		(19,123	)		107,415			(497	)		—			87,795
Interest expense		—		(26,627	)		(13,957	)		(836	)		—			(41,420	)
Price risk management activities expense		—		(139,217	)		(3,935	)		—			—			(143,152	)
Other income (expense)		—		(1,208	)		85			45			—			(1,078	)
Equity earnings (loss) from subsidiaries		—		88,320			—			—			(88,320	)		—
Net income (loss)	$	—	$	(97,855	)	$	89,608		$	(1,288	)	$	(88,320	)	$	(97,855	)

28

TALOS ENERGY INC.

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2019

(In thousands)

(Unaudited)

	Talos			Talos Issuers			Guarantors			Non- Guarantors			Elimination			Consolidated
Cash flows from operating activities:
Net cash provided by (used in)    operating activities	$	(259	)	$	(59,988	)	$	266,802		$	(23,934	)	$	—		$	182,621
Cash flows from investing activities:
Exploration, development, and other capital    expenditures		—			(1,442	)		(207,340	)		(20,819	)		—			(229,601	)
Proceeds from sales of property								5,369									5,369
Cash (paid for) acquired in acquisitions		—			—			(32,916	)		—			—			(32,916	)
Investments in subsidiaries		—			(784,698	)		—			—			784,698			—
Distributions from subsidiaries		—			838,920			—			—			(838,920	)		—
Net cash provided by (used in)    investing activities		—			52,780			(234,887	)		(20,819	)		(54,222	)		(257,148	)
Cash flows from financing activities:
Redemption of Senior Notes and other    long-term debt		—			—			(10,567	)		—			—			(10,567	)
Proceeds from Bank Credit Facility		—			75,000			—			—			—			75,000
Repayment of Bank Credit Facility		—			(25,000	)		—			—			—			(25,000	)
Other deferred payments		—			—			(9,921	)		—			—			(9,921	)
Payments of capital lease		—			—			(6,759	)		—			—			(6,759	)
Capital contributions		259			—			734,939			49,500			(784,698	)		—
Employee stock transaction		—			(283	)		—			—			—			(283	)
Distributions to subsidiary issuer		—			—			(838,595	)		(325	)		838,920			—
Net cash provided by financing    activities		259			49,717			(130,903	)		49,175			54,222			22,470
Net increase (decrease) in cash, cash    equivalents and restricted cash		—			42,509			(98,988	)		4,422			—			(52,057	)
Cash, cash equivalents and restricted cash:
Balance, beginning of period		—			13,541			102,049			25,572			—			141,162
Balance, end of period	$	—		$	56,050		$	3,061		$	29,994		$	—		$	89,105

29

TALOS ENERGY INC.

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2018

(In thousands)

(Unaudited)

	Talos		Talos Issuers			Guarantors			Non- Guarantors			Elimination			Consolidated
Cash flows from operating activities:
Net cash provided by (used in)    operating activities	$	—	$	(54,942	)	$	160,305		$	1,748		$	—		$	107,111
Cash flows from investing activities:
Exploration, development, and other capital    expenditures		—		(20,027	)		(117,667	)		(3,274	)		—			(140,968	)
Cash acquired in acquisitions		—		—			293,001			—			—			293,001
Investments in subsidiaries		—		(384,089	)		—			—			384,089			—
Distributions from subsidiaries		—		677,573			9			—			(677,582	)		—
Net cash provided by (used in)    investing activities		—		273,457			175,343			(3,274	)		(293,493	)		152,033
Cash flows from financing activities:
Redemption of Senior Notes and other    long-term debt		—		(24,977	)		(69	)		—			—			(25,046	)
Proceeds from Bank Credit Facility		—		294,000			—			—			—			294,000
Repayment of Bank Credit Facility		—		(54,000	)		—			—			—			(54,000	)
Repayment of LLC Credit Facility		—		(403,000	)		—			—			—			(403,000	)
Deferred financing costs		—		(17,469	)		—			—			—			(17,469	)
Payments of capital lease		—		—			(6,958	)		—			—			(6,958	)
Capital contributions		—		—			382,089			2,000			(384,089	)		—
Distributions to subsidiaries		—		—			(677,573	)		(9	)		677,582			—
Net cash provided by (used in)    financing activities		—		(205,446	)		(302,511	)		1,991			293,493			(212,473	)
Net increase in cash, cash    equivalents and restricted cash		—		13,069			33,137			465			—			46,671
Cash, cash equivalents and restricted cash:
Balance, beginning of period		—		22,316			9,047			2,070			—			33,433
Balance, end of period	$	—	$	35,385		$	42,184		$	2,535		$	—		$	80,104

Note 13 – Subsequent Events

Debt

For additional information, see Note 6 – Debt.

30

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

Our Business

The following management’s discussion and analysis should be read in conjunction with our Condensed Consolidated Financial Statements and notes thereto in Part I, Item 1 of this Quarterly Report, as well as our audited Consolidated Financial Statements and the notes thereto in our 2018 Annual Report and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations included in “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 2018 Annual Report.

We are a technically driven independent exploration and production company focused on safely and efficiently maximizing cash flows and long-term value through our operations, currently in the United States (“U.S.”) Gulf of Mexico and offshore Mexico. As one of the largest public independent producers in the U.S. Gulf of Mexico, we leverage decades of geology, geophysics and offshore operations expertise towards the acquisition, exploration, exploitation and development of deep and shallow water assets in key geological trends that are present in many offshore basins around the world. Our activities in offshore Mexico provide high impact exploration opportunities in an oil rich emerging basin.

In order to determine the most attractive returns for our drilling program, we employ a disciplined portfolio management approach to stochastically evaluate all of our drilling prospects, whether they are generated organically from our existing acreage or are acquisition or joint venture opportunities. We add to and reevaluate our inventory in order to deploy our capital as efficiently as possible.

Unless otherwise indicated or the context otherwise requires, references in this report to “us,” “we,” “our” or the “Company” are to Talos Energy Inc. and its wholly-owned subsidiaries.

Factors Affecting the Comparability of our Financial Condition and Results of Operations

Stone Combination. On May 10, 2018 (the “Closing Date”), Stone Energy Corporation (“Stone”) and Talos Energy LLC became our wholly-owned subsidiaries (the “Stone Combination”). Prior to the Closing Date, Talos Energy Inc. had not conducted any material activities other than those incident to its formation. Talos Energy LLC is the acquirer of Stone for financial reporting and accounting purposes and considered the accounting acquirer in the Stone Combination under accounting principles generally accepted in the United States of America (“GAAP”). Accordingly, our historical financial and operating data, which covers periods prior to the Closing Date, reflects the assets, liabilities and results of operations of Talos Energy LLC prior to the Closing Date and does not reflect the assets, liabilities and results of operations of Stone prior to the Closing Date. See “Part I, Item 1. Condensed Consolidated Financial Statements – Note 2 – Acquisitions” for more information.

Whistler Acquisition. On August 31, 2018, we 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 Apollo Management VII, L.P. and Apollo Commodities Management, L.P., with respect to Series I (“Apollo Funds”), (the “Whistler Acquisition”) for $52.6 million ($14.8 million net of $37.8 million of cash acquired). See “Part I, Item 1. Condensed Consolidated Financial Statements – Note 2 – Acquisitions” for more information.

Mexico Exchange. On September 11, 2018, we entered into a transaction (the “Hokchi Cross Assignment”) with Hokchi Energy, S.A. de C.V. ("Hokchi"), a subsidiary of Pan American Energy (“PAE”), to cross assign 25% participation interests ("PI") in each of Block 2 and Block 31. Our assignment of a 25% PI in Block 2 to Hokchi closed on December 21, 2018, and Hokchi has assumed operator responsibilities with respect to Block 2. Hokchi’s assignment of Block 31 to us closed on May 22, 2019. In addition, Premier Oil Plc exercised its option to reduce its PI in Block 2 to zero and assigned a 5% PI to each of Sierra and Talos. Following the completion of the Hokchi Cross Assignment, we own a 25% PI in each of Block 2 and Block 31, and Hokchi is the operator of both blocks.

Write-down of oil and natural gas properties. As a result of our evaluation of unproved property located in Block 2 offshore Mexico, specifically future exploratory drilling opportunities, results from exploratory wells drilled during the second quarter of 2019 and the Block 2 production sharing contract’s expiration date, we recorded a non-cash $12.4 million impairment presented as “Write-down of oil and natural gas properties” on the condensed consolidated statements of operations.

31

Gunflint Acquisition. On January 11, 2019, pursuant to a Purchase Sale Agreement with Samson Offshore Mapleleaf, LLC, we acquired an approximate 9.6% non-operated working interest in the Gunflint Field located in the Mississippi Canyon area for $29.6 million ($27.9 million after customary purchase price adjustments). See “Part I, Item 1. Condensed Consolidated Financial Statements – Note 2 – Acquisitions” for more information.

Transaction Expenses. We incurred transaction and restructuring costs associated with the Stone Combination and the integration of the businesses of Stone and Talos Energy LLC that are not reflected in our comparative historical results of operations.

Income Tax Expenses. Prior to the Stone Combination, Talos Energy LLC was a partnership for U.S. federal income tax purposes and was not subject to U.S. federal income tax or state income tax (in most states) at the entity level. As such, Talos Energy LLC did not recognize U.S. federal income tax expense or state income tax expense in most states.  Talos Energy LLC’s operations in the shallow waters off the coast of Mexico were conducted under a different legal form and are subject to foreign income taxes. In connection with the Stone Combination, Talos Energy LLC was contributed to us. We are subject to federal and state income taxes.  We record current income taxes based on estimates of current taxable income and provide for deferred income taxes to reflect estimated future income tax payments and receipts.

Third Party Downtime. We are vulnerable to third party downtime events impacting the transportation, gathering or processing of production. Production from the Phoenix Field is processed through the Helix Producer I (“HP-I”), which is leased from and operated by Helix Energy Solutions Group, Inc. (“Helix”). Helix is required to disconnect and dry-dock the HP-I every two to three years for inspection as required by the United States Coast Guard, during which time we are unable to produce the Phoenix Field.

During the six months ended June 30, 2019, Helix dry-docked the HP-I. After conducting sea trials, production resumed in late March 2019, resulting in a total shut-in period of 57 days. The shut-in resulted in deferred production of 6.6 Mboepd during the six months ended June 30, 2019 when compared to the same period in 2018. For the six months ended June 30, 2019 and 2018, the Phoenix Field produced 13.7 MBoepd and 19.3 MBoepd, respectively.

Known Trends and Uncertainties

Volatility in Oil, Natural Gas and NGL Prices. Historically, the markets for oil and natural gas have been volatile. Our revenue, profitability, access to capital and future rate of growth depends upon the price we receive for our sales of oil, natural gas and NGL production. Oil, natural gas and NGL prices are subject to wide fluctuations in response to relatively minor changes in supply and demand.

BOEM Bonding Requirements. In order to cover the various decommissioning obligations of lessees on the Outer Continental Shelf (“OCS”), Bureau of Ocean Energy Management (“BOEM”) generally requires that lessees post some form of acceptable financial assurances that such obligations will be met, such as surety bonds. The cost of such bonds or other financial assurance can be substantial, and we can provide no assurance that we can continue to obtain bonds or other surety in all cases. As many BOEM regulations are being reviewed by the agency, we may be subject to additional financial assurance requirements in the future. For example, in July 2016, BOEM issued the NTL 2016-N01 (“the 2016 NTL”) to clarify the procedures and guidelines that BOEM Regional Directors use to determine if and when additional financial assurances may be required for OCS leases, right of ways (“ROWs”) and right of use easements (“RUEs”). The 2016 NTL became effective in September 2016, but BOEM subsequently postponed any implementation of the 2016 NTL and has indicated they will be issuing a modified or substitute NTL or a proposed rule. This extension for implementation currently remains in effect. We remain in active discussions with government regulators and industry peers with regard to any future rulemaking and financial assurance requirements. Notwithstanding BOEM’s 2016 NTL, BOEM may also bolster its financial assurance requirements mandated by rule for all companies operating in federal waters. The future cost of compliance with respect to supplemental bonding, including the obligations imposed on us as a result of the 2016 NTL, to the extent implemented, as well as any other future BOEM directives, or any other changes to BOEM’s rules applicable to our or any of our subsidiaries’ properties, could materially and adversely affect our financial condition, cash flows and results of operations.

Deepwater Operations. We have interests in deepwater fields in the Gulf of Mexico. Operations in the deepwater can result in increased operational risks as has been demonstrated by the Deepwater Horizon disaster in 2010. Despite technological advances since this disaster, liabilities for environmental losses, personal injury and loss of life and significant regulatory fines in the event of a disaster could be well in excess of insured amounts and result in significant current losses on our statements of operations as well as going concern issues.

32

Oil Spill Response Plan. We maintain a Regional Oil Spill Response Plan that defines our response requirements, procedures and remediation plans in the event we have an oil spill. Oil Spill Response Plans are generally approved by Bureau of Safety and Environmental Enforcement bi-annually, except when changes are required, in which case revised plans are required to be submitted for approval at the time changes are made. Additionally, these plans are tested and drills are conducted periodically at all levels.

Hurricanes. Since our operations are in the Gulf of Mexico, we are particularly vulnerable to the effects of hurricanes on production. Additionally, affordable insurance coverage for property damage to our facilities for hurricanes has become less effective due to rising retentions and limitations on named windstorm coverage and has been difficult to obtain at times in recent years. Significant hurricane impacts could include reductions and/or deferrals of future oil and natural gas production and revenues, increased lease operating expenses for evacuations and repairs and possible acceleration of plugging and abandonment costs.

Results of Operations

Revenue

The information below provides a discussion of, and an analysis of significant variances in, our oil, natural gas and NGL revenues, production volumes and sales prices for the for the three and six months ended June 30, 2019 and 2018 (in thousands, unless otherwise stated):  

	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Revenues:
Oil revenue	$	256,908	$	180,161	$	412,587	$	307,854
Natural gas revenue		14,746		16,448		29,193		29,171
NGL revenue		6,645		7,297		11,711		12,731
Other revenue		8,511		—		12,032		—
Total revenue	$	286,810	$	203,906	$	465,523	$	349,756
Sales volume data:
Oil production volume (MBbls)		4,006		2,651		6,669		4,682
Oil production volume (MBblpd)		44.0		29.1		36.8		25.9
Natural gas production volume (MMcf)		6,008		5,948		11,192		10,069
Natural gas production volume (MMcfpd)		66.0		65.4		61.8		55.6
NGL production volume (MBbls)		362		273		617		471
NGL production volume (MBblpd)		4.0		3.0		3.4		2.6
Total production volume (Mboe)		5,369		3,915		9,151		6,831
Total production volume (Mboepd)		59.0		43.0		50.6		37.7
Average sale price per unit:
Average oil sales price per Bbl	$	64.13	$	67.96	$	61.87	$	65.75
Average natural gas sale price per Mcf	$	2.45	$	2.77	$	2.61	$	2.90
Average NGL sale price per Bbl	$	18.36	$	26.73	$	18.98	$	27.03
Price per Boe	$	51.83	$	52.08	$	49.56	$	51.20
Price per Boe (including realized commodity derivatives)	$	50.06	$	38.28	$	48.18	$	43.29

Comparison of the Three Months Ended June 30, 2019 and 2018

Total revenue for the three months ended June 30, 2019 was $286.8 million compared to $203.9 million for the three months ended June 30, 2018, an increase of approximately $82.9 million, or 41%.

Oil revenue increased approximately $76.7 million, or 43%, during the three months ended June 30, 2019 compared to the corresponding period in 2018. The change was a result of an increase of $92.1 million from a 14.9 MBblpd increase in production volumes, partially offset by a decrease of $15.3 million due to a $3.83 per Bbl lower price realization. The increase in oil production volumes was primarily attributable to 9.2 MBblpd of production from assets acquired in the Stone Combination and Whistler Acquisition and 5.6 MBblpd from the Tornado 3 well and Boris 3 well in the Phoenix Field, which were completed and commenced production during the second quarter of 2019.

33

Natural gas revenue decreased approximately $1.7 million, or 10%, during the three months ended June 30, 2019 compared to the corresponding period in 2018. The change was a result of a decrease of $1.9 million due to a $0.32 per Mcf lower price realization partially offset by an increase of $0.2 million from a 0.7 MMcfpd increase in production volumes.

NGL revenue decreased approximately $0.7 million, or 9%, during the three months ended June 30, 2019 compared to the corresponding period in 2018. The change was a result of a decrease of $3.0 million due to $8.37 per Bbl lower price realization partially offset by an increase of $2.4 million due to a 1.0 MBoepd increase in production volumes.

Other revenue increased $8.5 million as a result of a multi-year federal royalty refund claim.

Comparison of the Six Months Ended June 30, 2019 and 2018

Total revenue for the six months ended June 30, 2019 was $465.5 million compared to $349.8 million for the six months ended June 30, 2018, an increase of approximately $115.7 million, or 33%.

Oil revenue increased approximately $104.7 million, or 34%, during the six months ended June 30, 2019 compared to the corresponding period in 2018. The change was a result of an increase of $130.6 million from a 10.9 MBblpd increase in production volumes, partially offset by a decrease of $25.9 million due to a $3.88 per Bbl lower price realization. The increased oil production volumes were primarily attributable to 13.6 MBblpd of production from assets acquired in the Stone Combination and Whistler Acquisition and 2.8 MBblpd from the Tornado 3 well and Boris 3 well in the Phoenix Field that were completed and commenced production during the second quarter of 2019, partially offset by a reduction of 5.1 MBblpd of production from the Phoenix Field, primarily resulting from the shut-in of the HP-I for regulatory-mandated dry-dock.

Natural gas revenue was flat during the six months ended June 30, 2019 compared to the corresponding period in 2018. Natural gas revenue was flat as a result of an increase of $3.3 million from a 6.2 MMcfpd increase in volumes, partially offset by a decrease of $3.2 million due to a $0.29 per Mcf lower price realization. The increased natural gas production volumes were primarily attributable to 12.1 MMcfpd of production from assets acquired in the Stone Combination and Whistler Acquisition and 2.3 MMcfpd to the Tornado 3 well and Boris 3 that were completed and commenced production during the second quarter of 2019, partially offset by a reduction of 5.5 Mcfpd of production, resulting from the shut-in of the HP-I for regulatory-mandated dry-dock.

NGL revenue decreased approximately $1.0 million, or 8%, during the six months ended June 30, 2019 compared to the corresponding period in 2018. The change was a result of a decrease of $5.0 million due to $8.05 per Bbl lower price realization, partially offset by an increase of $3.9 million from a 0.8 MBblpd increase in production volumes.

Other revenue increased $12.0 million as a result of a multi-year federal royalty refund claim.

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Operating Expenses

The information below provides the details of our operating expenses for the three and six months ended June 30, 2019 and 2018 (in thousands, except per Boe amounts):

	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Operating expenses:
Lease operating expenses:
Direct lease operating expense	$	37,975	$	34,060	$	78,804	$	58,975
Insurance		4,184		4,259		8,295		6,934
Production taxes		506		564		1,088		955
Total lease operating expense		42,665		38,883		88,187		66,864
Workover and maintenance expense		12,296		17,714		35,315		24,619
Depreciation, depletion and amortization		95,806		67,726		160,393		116,766
Write-down of oil and natural gas properties		12,361		—		12,361		—
Accretion expense		9,945		9,492		19,552		14,252
General and administrative expense		18,865		30,880		36,474		39,460
Total operating expenses	$	191,938	$	164,695	$	352,282	$	261,961
Average cost per Boe:
Lease operating expenses:
Direct lease operating expense	$	7.07	$	8.70	$	8.61	$	8.63
Insurance		0.78		1.09		0.91		1.02
Production taxes		0.10		0.14		0.12		0.14
Total lease operating expenses		7.95		9.93		9.64		9.79
Workover and maintenance expense		2.29		4.52		3.86		3.60
Depreciation, depletion and amortization		17.84		17.30		17.53		17.09
Write-down of oil and natural gas properties		2.30		—		1.35		—
Accretion expense		1.86		2.43		2.13		2.09
General and administrative expense		3.51		7.89		3.99		5.78
Total operating expenses	$	35.75	$	42.07	$	38.50	$	38.35

Comparison of the Three Months Ended June 30, 2019 and 2018

Lease operating expense. Total lease operating expense for three months ended June 30, 2019 was $42.7 million compared to $38.9 million for the three months ended June 30, 2018, an increase of approximately $3.8 million, or 10%. This increase was primarily related to $1.2 million of lease operating expense incurred in connection with assets acquired in the Stone Combination and $1.4 million in connection with the Whistler Acquisition. The remaining $1.2 million increase is attributable to increases in direct expenses and transportation expenses, offset by an increase in process and handling reimbursements. On a per unit basis, lease operating expense decreased $1.98 per Boe.

Workover and maintenance expense. Workover and maintenance expense for the three months ended June 30, 2019 was $12.3 million compared to $17.7 million for the three months ended June 30, 2018, a decrease of approximately $5.4 million, or 31%. The decrease is primarily attributable to a $3.2 million decrease in facility maintenance expense incurred in our South Marsh Island 130 Field in the comparable period.

Depreciation, depletion and amortization. Depreciation, depletion and amortization expense for the three months ended June 30, 2019 was $95.8 million compared to $67.7 million for the three months ended June 30, 2018, an increase of approximately $28.1 million, or 41%. The change is primarily attributable to an increase of $27.6 million of depletion expense as a result of increased production and a $0.49 increase in the depletion rate per Boe.

Write-down of oil and natural gas properties. During the three months ended, June 30, 2019, we recorded a $12.4 million impairment as a result of our evaluation of unproved property located in Block 2 offshore Mexico, specifically future exploratory drilling opportunities, results from exploratory wells drilled during the second quarter of 2019 and the Block 2 production sharing contract’s expiration date.

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General and administrative expense. General and administrative expense for the three months ended June 30, 2019 was $18.9 million compared to $30.9 million for the three months ended June 30, 2018, a decrease of approximately $12.0 million, or 39%. The change is attributable to a decrease of $17.7 million in transaction related costs primarily related to the Stone Combination, partially offset by an increase of $5.7 million in other administrative costs, the majority of which are attributable to expenses related to additional professional services, information technology and compliance that were incurred subsequent to the Stone Combination. On a per unit basis, general and administrative expense decreased $4.38 per Boe.

Comparison of the Six Months Ended June 30, 2019 and 2018

Lease operating expense. Total lease operating expense for six months ended June 30, 2019 was $88.2 million compared to $66.9 million for the six months ended June 30, 2018, an increase of approximately $21.3 million, or 32%. The increase was primarily related to $10.8 million of lease operating expense incurred in connection with assets acquired in the Stone Combination and $3.1 million in the Whistler Acquisition. Additionally, we incurred an increase of $3.2 million in process handling and non-operated expenses primarily attributable to the Gunflint Acquisition and received $1.9 million less in reimbursements under our production handling agreements. On a per unit basis, lease operating expense decreased $0.15 per Boe to $9.64 per Boe.

Workover and maintenance expense. Workover and maintenance expense for the six months ended June 30, 2019 was $35.3 million compared to $24.6 million for the six months ended June 30, 2018, an increase of approximately $10.7 million, or 43%. The change is primarily a result of an increase of $6.9 million in the Phoenix Field from expenditures incurred during regulatory scheduled dry dock of the HP-I, $3.6 million in connection with assets acquired in the Stone Combination and $2.7 million from the Whistler Acquisition.

Depreciation, depletion and amortization. Depreciation, depletion and amortization expense for the six months ended June 30, 2019 was $160.4 million compared to $116.8 million for the six months ended June 30, 2018, an increase of approximately $43.6 million, or 37%. The change is primarily attributable to an increase of $42.6 million of depletion expense as a result of increased production and an $0.36 increase in the depletion rate per Boe.

Write-down of oil and natural gas properties. During the six months ended, June 30, 2019, we recorded a $12.4 million impairment as a result of our evaluation of unproved property located in Block 2 offshore Mexico, specifically future exploratory drilling opportunities, results from exploratory wells drilled during the second quarter of 2019 and the Block 2 Production Sharing Contract’s expiration date.

General and administrative expense. General and administrative expense for the six months ended June 30, 2019 was $36.5 million compared to $39.5 million for the six months ended June 30, 2018, a decrease of approximately $3.0 million, or 8%. The change is attributable to a decrease of $17.1 million in transaction related costs primarily related to the Stone Combination, partially offset by an increase of $5.2 million in employee related costs and $9.4 million in other administrative costs, the majority of which are attributable to expenses related to additional professional services, information technology and compliance that were incurred subsequent to the Stone Combination. On a per unit basis, general and administrative expense decreased $1.79 per Boe.

Other Expenses

The information below provides the details of our other expenses for the three and six months ended June 30, 2019 and 2018 (in thousands):

	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Other expenses:
Interest expense	$	(24,932	)	$	(21,678	)	$	(50,150	)	$	(41,420	)
Price risk management activities expense	$	29,990		$	(91,176	)	$	(79,589	)	$	(143,152	)
Other income (expenses)	$	831		$	(1,269	)	$	1,264		$	(1,078	)
Income tax expense	$	(5,997	)	$	—		$	362		$	—

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Comparison of the Three Months Ended June 30, 2019 and 2018

Price risk management activities. Price risk management activities for the three months ended June 30, 2019 resulted in $30.0 million of income compared to an expense of $91.2 million for the three months ended June 30, 2018. The income of $30.0 million for the three months ended June 30, 2019 consists of $9.5 million in cash settlement losses and $39.5 million in non-cash gains from the increase in the fair value of our open derivative contracts. The expense of $91.2 million for the three months ended June 30, 2018 consists of cash settlement losses of $33.6 million and a $57.5 million in non-cash losses from the decrease in the fair value of our open derivative contracts. These unrealized gains or losses on open derivative contracts relate to production for future periods; however, changes in the fair value of all of our open derivative contracts are recorded as a gain or loss on our condensed consolidated statements of operations at the end of each month.

Income Tax Expense. For the three months ended June 30, 2019, our effective tax rate was 6.0%. Our effective tax rate in 2019 differed from the statutory rate of 21% due to a reduction to the valuation allowance. For the three months ended June 30, 2018, our 0.0% effective tax rate differed from the federal statutory rate of 21% because the Company recorded a valuation allowance for its deferred tax assets.

Comparison of the Six Months Ended June 30, 2019 and 2018

Price risk management activities. Price risk management activities for the six months ended June 30, 2019 resulted in $79.6 million of expense compared to an expense of $143.2 million for the six months ended June 30, 2018. The expense of $79.6 million for the six months ended June 30, 2019 consists of $12.6 million in cash settlement losses and $67.0 million in non-cash losses from the decrease in the fair value of our open derivative contracts. The expense of $143.2 million for the six months ended June 30, 2018 consists of cash settlement losses of $54.1 million and a $89.1 million in non-cash losses from the decrease in the fair value of our open derivative contracts. These unrealized gains or losses on open derivative contracts relate to production for future periods; however, changes in the fair value of all of our open derivative contracts are recorded as a gain or loss on our condensed consolidated statements of operations at the end of each month.

Income Tax Effect. For the six months ended June 30, 2019, our effective tax rate was 2.4%. Our effective tax rate in 2019 differed from the statutory rate of 21% due to a reduction to the valuation allowance. For the six months ended June 30, 2018, our 0.0% effective tax rate differed from the federal statutory rate of 21% because the Company recorded a valuation allowance for its deferred tax assets.

Supplemental Non-GAAP Measure

Adjusted EBITDA

“Adjusted EBITDA” is not a measure of net income (loss) as determined by GAAP. We use this measure as a supplemental measure because we believe it provides meaningful information to our investors. We define Adjusted EBITDA as net income (loss) plus interest expense, income tax expense (benefit), depreciation, depletion and amortization, accretion expense, transaction related costs, the net change in the fair value of derivatives (mark to market effect, net of cash settlements and premiums related to these derivatives), non-cash write-down of oil and natural gas properties and non-cash equity based compensation expense. We believe the presentation of Adjusted EBITDA is important to provide management and investors with (i) additional information to evaluate, with certain adjustments, items required or permitted in calculating covenant compliance under our debt agreements, (ii) important supplemental indicators of the operational performance of our business, (iii) additional criteria for evaluating our performance relative to our peers and (iv) supplemental information to investors about certain material non-cash and/or other items that may not continue at the same level in the future. Adjusted EBITDA has limitations as an analytical tool and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP or as an alternative to net income (loss), operating income (loss) or any other measure of financial performance presented in accordance with GAAP.

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The following table presents a reconciliation of the GAAP financial measure of net income (loss) to Adjusted EBITDA for each of the periods indicated (in thousands, except for Boe data):

	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Reconciliation of net income (loss) to Adjusted    EBITDA:
Net income (loss)	$	94,764		$	(74,912	)	$	(14,872	)	$	(97,855	)
Interest expense		24,932			21,678			50,150			41,420
Income tax expense (benefit)		5,997			—			(362	)		—
Depreciation, depletion and amortization		95,806			67,726			160,393			116,766
Write-down of oil and natural gas properties		12,361			—			12,361			—
Accretion expense		9,945			9,492			19,552			14,252
Loss on debt extinguishment		—			1,408			—			1,408
Transaction related costs		710			18,361			3,203			20,310
Derivative fair value (gain) loss(1)		(29,990	)		91,176			79,589			143,152
Net cash payments on settled derivative    instruments(1)		(9,543	)		(33,643	)		(12,562	)		(54,056	)
Non-cash equity-based compensation expense		1,961			1,489			3,220			1,559
Adjusted EBITDA	$	206,943		$	102,775		$	300,672		$	186,956

⁽¹⁾ The adjustments for the derivative fair value (gain) loss and net cash receipts (payments) on settled derivative instruments have the effect of adjusting net income (loss) for changes in the fair value of derivative instruments, which are recognized at the end of each accounting period because we do not designate commodity derivative instruments as accounting hedges. Thus, these adjustments result in reflecting commodity derivative gains and losses within Adjusted EBITDA on a cash basis during the period the derivatives settled.

Liquidity and Capital Resources

Overview

Our primary sources of liquidity are cash generated by our operations and borrowings under our Bank Credit Facility. Our primary uses of cash are for capital expenditures, working capital, debt service and for general corporate purposes. As of June 30, 2019, our available liquidity (cash plus available capacity under the Bank Credit Facility) was $358.9 million.

As of June 30, 2019, total debt, net of discount and deferred financing costs, was approximately $697.1 million, comprised of our $382.5 million aggregate principal amount of the 11.00% Second-Priority Senior Secured Notes due 2022 (“11.00% Senior Secured Notes”), $6.1 million aggregate principal amount of our 7.50% Senior Secured Notes due 2022 issued by Stone (“7.50% Stone Senior Notes”) and $308.6 million outstanding under our Bank Credit Facility. During June, 2019, we repaid $10.4 million in aggregate remaining principal and accrued interest on the Stone 4.20% term loan maturing on November 20, 2030 (the “Building Loan”). We were in compliance with all debt covenants at June 30, 2019. For additional details on our debt, see “Part I, Item 1. Condensed Consolidated Financial Statements – Note 6 – Debt.”

Based on our current level of operations and available cash, we believe our cash flows from operations, combined with availability under the Bank Credit Facility provide sufficient liquidity to fund our board approved 2019 capital spending budget of $465.0 million to $485.0 million. However, our ability to (i) generate sufficient cash flows from operations or obtain future borrowings under the Bank Credit Facility, and (ii) repay or refinance any of our indebtedness on commercially reasonable terms or at all for any potential future acquisitions, joint ventures or other similar transactions depends on operating and economic conditions, some of which are beyond our control. To the extent possible, we have attempted to mitigate certain of these risks (e.g. by entering into oil and natural gas derivative contracts to reduce the financial impact of downward commodity price movements on a substantial portion of our anticipated production), but we could be required to, or we or our affiliates may from time to time, take additional future actions on an opportunistic basis. To address further changes in the financial and/or commodity markets, future actions may include, without limitation, raising debt, including secured debt, or issuing equity to directly or independently repurchase or refinance our outstanding debt.

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As of June 30, 2019, we had secured performance bonds primarily related to plugging and abandonment of wells and removal of facilities in the United States Gulf of Mexico and to guarantee the completion of the minimum work program under the Mexico production sharing contracts totaling approximately $637.5 million. In July 2016, the BOEM issued the 2016 NTL to clarify the procedures and guidelines the BOEM Regional Directors use to determine if and when additional financial assurances may be required for OCS leases, ROWs and RUEs to meet the BOEM’s estimate of the lessees’ decommissioning obligations. The 2016 NTL became effective in September 2016 and allows qualifying operators to self-insure for an amount up to 10% of their tangible net worth. The 2016 NTL also provides for operators to propose a tailored plan subject to BOEM approval that allows the posting of additional financial assurance over time. However, BOEM has indefinitely delayed beyond June 30, 2017 implementation of the 2016 NTL, except in certain circumstances where there is a substantial risk of nonperformance of the interest holder’s decommissioning liabilities, to allow BOEM time to reconsider a number of regulatory initiatives. We received notice from BOEM in late 2016 ordering us to provide additional financial assurances in the form of additional security in material amounts. We entered into discussions with BOEM regarding the requested security and submitted a proposed tailored plan for the posting of additional financial security to the agency for review. However, as noted, BOEM has indefinitely delayed implementation beyond June 30, 2017 of the 2016 NTL, has rescinded the late December 2016 orders while BOEM reviews its financial assurance program and, to date, has taken no action with respect to our previously submitted proposed tailored plan. We remain in active discussion with our government regulators and industry peers with regard to any future rule making and financial assurance requirements. Notwithstanding the 2016 NTL, BOEM may also increase its financial assurance requirements mandated by rule for all companies operating in federal waters. BOEM could also make new demands for additional financial security in material amounts in the event the agency chooses to implement the 2016 NTL, and such amounts may be material and exceed our capability to provide additional financial assurance. The future cost of compliance with our existing supplemental bonding requirements, including with respect to any tailored plan, the 2016 NTL, as well as any other future directives or any other changes to the BOEM’s rules applicable to us or our subsidiaries’ properties, could materially and adversely affect our financial condition, cash flows and results of operations.

Senior Notes

11.00% Second-Priority Senior Secured Notes – due April 2022. The 11.00% Senior Secured Notes were issued pursuant to an indenture dated May 10, 2018. The 11.00% Senior Secured Notes mature April 3, 2022 and have interest payable semi-annually each April 15 and October 15. Prior to May 10, 2019, we may, at our option, redeem all or a portion of the 11.00% Senior Secured Notes at 100% of the principal amount plus accrued and unpaid interest and a make-whole premium. Thereafter, we may redeem all or a portion of the 11.00% Senior Secured Notes at redemption prices decreasing annually from 105.5% to 100.0% plus accrued and unpaid interest.

7.50% Senior Secured Notes – due May 2022.  The 7.50% Stone Senior Notes represent the remaining $6.1 million of long-term debt assumed in the Stone Combination that were not exchanged for 11.00% Senior Secured Notes and thus remain outstanding. As a result substantially all of the restrictive covenants relating to the 7.50% Stone Senior Notes have been removed and collateral securing the 7.50% Stone Senior Notes has been released. The 7.50% Stone Senior Notes mature May 31, 2022 and have interest payable semi-annually each May 31 and November 30. Prior to May 31, 2020, we may, at our option, redeem all or a portion of the 7.50% Stone Senior Notes at 100% of the principal amount plus accrued and unpaid interest and a make-whole premium. Thereafter, we may redeem all or a portion of the 7.50% Stone Senior Notes at redemption prices decreasing annually from 105.625% to 100.0% plus accrued and unpaid interest.

Bank Credit Facility

The Company and Talos Production LLC, our wholly-owned subsidiary, executed the Bank Credit Facility in conjunction with the Stone Combination with a syndicate of financial institutions, with an initial borrowing base of $600.0 million. The Bank Credit Facility matures on May 10, 2022, provided that the Bank Credit Facility mandates a springing maturity that is 120 days prior to May 10, 2022, if greater than $25.0 million of the 11.00% Senior Secured Notes or any permitted refinancing indebtedness in respect thereof is outstanding on such date.

The Bank Credit Facility provides for determination of the borrowing base based on our proved producing reserves and a portion of our proved undeveloped reserves. The borrowing base is redetermined by the lenders at least semi-annually during the second quarter and fourth quarter.

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As of June 30, 2019, our borrowing base was set at $850.0 million with commitments held at $600.0 million, of which no more than $200 million can be used as letters of credit. The amount that we are able to borrow with respect to the borrowing base is subject to compliance with the financial covenants and other provisions of the Bank Credit Facility. We were in compliance with all debt covenants at June 30, 2019. As of June 30, 2019, the Bank Credit Facility had approximately $269.8 million of undrawn commitments (taking into account $15.2 million letters of credit and $315.0 million drawn from the Bank Credit Facility).

Subsequent event. On July 3, 2019, the Company and Talos Production LLC entered into a Joinder, First Amendment to Credit Agreement, and Borrowing Base Reaffirmation Agreement in which (a) the $850 million borrowing base was reaffirmed, (b) the commitments were increased from $600.0 million to $850.0 million, (c) three additional financial institutions were joined as lenders to the syndicate and (d) certain other amendments were made to the Bank Credit Facility as more particularly described therein.

Building Loan. In connection with the Stone Combination, we assumed Stone’s Building Loan maturing on November 20, 2030. The Building Loan bears interest at a rate of 4.20% per annum and is to be repaid in 180 equal monthly installments of approximately $0.1 million. During June 2019, the Company repaid $10.4 million aggregate remaining principal, plus accrued interest, of the Building Loan using proceeds from the sale of an office building in Lafayette acquired in the Stone Combination and cash on hand. As of June 30, 2019, there is no outstanding balance under the Building Loan.

Overview of Cash Flow Activities

The following table summarizes cash flows provided by (used in) by type of activity, for the following periods (in thousands):

	Six Months Ended June 30,
	2019			2018
Operating activities	$	182,621		$	107,111
Investing activities	$	(257,148	)	$	152,033
Financing activities	$	22,470		$	(212,473	)

Operating Activities. Net cash provided by operating activities increased $75.5 million in the six months ended June 30, 2019 compared to the corresponding period in 2018 primarily attributable to an increase in revenue.

Investing Activities. Net cash (used in) provided by investing activities increased $409.2 million in the six months ended June 30, 2019 compared to the corresponding period in 2018 primarily attributable to an increase in capital expenditures of $88.6 million. Additionally, we paid $32.9 million for acquisitions during the six months ended June 30, 2019 versus receiving $293.0 million for cash acquired for acquisitions during the six months ended June 30, 2018.

Financing Activities. Net cash provided by (used in) financing activities increased $234.9 million in the six months ended June 30, 2019 compared to the corresponding period in 2018. The increase was primarily attributable to receiving net proceeds of approximately $40.0 million from the Bank Credit Facility and other obligations, partially offset by a $10.6 million repayment of the Building Loan for the six months ended June 30, 2019 compared to net repayments of approximately $205.0 million for the comparative period in 2018.

Capital Expenditures. We fund exploration and development activities primarily through operating cash flows, cash on hand and through borrowings under our Bank Credit Facility, if necessary. Historically, we have funded significant property acquisitions through the issuance of senior notes, borrowings under the Bank Credit Facility and through additional equity transactions. We occasionally adjust our capital budget in response to changing operating cash flow forecasts and market conditions, including the prices of oil, natural gas and NGLs, acquisition opportunities and the results of our exploration and development activities.

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The following is a table of our capital expenditures for the six months ended June 30, 2019 (in thousands):

U.S. drilling & completions	$	184,136
Mexico appraisal & exploration		56,260
Asset management		35,031
Seismic and G&G, land, capitalized G&A and other		35,415
Total capital expenditures	$	310,842
Plugging & abandonment		32,206
Total capital expenditures and plugging & abandonment	$	343,048

Capital expenditures and plugging and abandonment for the remainder of 2019 are estimated to be approximately $122.0 million to $142.0 million, which we plan to fund through cash flows from operations and borrowings under our Bank Credit Facility.

Off-Balance Sheet Arrangements

We did not have any off-balance sheet arrangements as of June 30, 2019.

Critical Accounting Policies and Estimates

We consider accounting policies related to oil and natural gas properties, proved reserve estimates, fair value measure of financial instruments, asset retirement obligations, revenue recognition, imbalances and production handling fees, income taxes as critical accounting policies. The policies include significant estimates made by management using information available at the time the estimates are made. However, these estimates could change materially if different information or assumptions were used. There have been no changes to our critical accounting policies which are summarized in the “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” section in our 2018 Annual Report.

Recently Adopted Accounting Standards

See “Part I, Item 1. Condensed Consolidated Financial Statements – Note 1 – Formation and Basis of Presentation” for accounting standards recently adopted by the Company.  

Recently Issued Accounting Standards

See “Part I, Item 1. Condensed Consolidated Financial Statements – Note 1 – Formation and Basis of Presentation” for recently issued accounting standards applicable to the Company.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

For information regarding our exposures to certain market risks, refer to “Item 7A. Quantitative and Qualitative Disclosures about Market Risk” in our 2018 Annual Report. Except as disclosed in this report, there have been no material changes from the disclosures presented in our 2018 Annual Report regarding our exposures to certain market risks.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, our principal executive officer and principal financial officer have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of the end of the period covered by this Quarterly Report.  Our disclosure controls and procedures are designed to ensure that the information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and to ensure that the information we are required to disclose in reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. Based on such evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were effective as of June 30, 2019.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the quarter ended June 30, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II – OTHER INFORMATION

Item 1. Legal Proceedings

There have been no material developments with respect to the information previously reported under Part I, Item 3 of our 2018 Annual Report.

Item 1A. Risk Factors

In addition to the other information set forth in this Quarterly Report, you should carefully consider the risk factors and other cautionary statements described under the heading “Part I, Item 1A. Risk Factors” included in our 2018 Annual Report and the risk factors and other cautionary statements contained in our other SEC filings, which could materially affect our business, financial condition or future results. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or future results. There have been no material changes in our risk factors from those described in our 2018 Annual Report or our other SEC filings.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

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Item 6. Exhibits

Exhibit Number		Description
3.1		Amended and Restated Certificate of Incorporation of Talos Energy Inc. (incorporated by reference to Exhibit 3.1 to Talos Energy Inc.’s Form 8-K12B filed with the SEC on May 16, 2018).
3.2		Amended & Restated Bylaws of Talos Energy Inc. (incorporated by reference to Exhibit 3.2 to Talos Energy Inc.’s Form 8-K12B filed with the SEC on May 16, 2018).
10.1		Offer Letter between Talos Energy Inc. and Shannon Young, dated as of April 13, 2019 (incorporated by referenced to Exhibit 10.1 to Talos Energy Inc.’s Form 8-K filed with the SEC on April 24, 2019).
10.2		Indemnification Agreement (Shannon E. Young III), effective as of May 16, 2019 (incorporated by reference to Exhibit 10.2 to Talos Energy Inc.’s Form 8-K filed with the SEC on April 24, 2019).
10.3		Transition, Separation and Release Agreement between Michael L. Harding II and Talos Energy Operating Company LLC, dated as of June 18, 2019 (incorporated by reference to Exhibit 10.1 to Talos Energy Inc.’s Form 8-K filed with the SEC on June 19, 2019).
10.4		Joinder, First Amendment to Credit Agreement, and Borrowing Base Reaffirmation Agreement, dated as of July 3, 2019, by and among Talos Energy Inc., as holdings, Talos Production LLC, as borrower, each other credit party, JPMorgan Chase Bank, N.A., as administrative agent, each issuing bank, the swingline lender, and the lenders (including the new lenders) party thereto (incorporated by reference to Exhibit 10.1 to Talos Energy Inc.’s Form 8-K filed with the SEC on July 10, 2019).
31.1*		Certification of Chief Executive Officer of Talos Energy Inc. pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*		Certification of Chief Financial Officer of Talos Energy Inc. pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**		Certification of Chief Executive Officer and Chief Financial Officer of Talos Energy Inc. pursuant to 18 U.S.C. § 1350, as adopted pursuant to the Sarbanes-Oxley Act of 2002.
101.INS*		XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH*		XBRL Taxonomy Extension Schema Document
101.CAL*		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*		XBRL Taxonomy Extension Label Linkbase Document
101.PRE*		XBRL Taxonomy Extension Presentation Linkbase Document
*	Filed herewith.
**	Furnished herewith.

44

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		TALOS ENERGY INC.
Date:	August 7, 2019	By:	/s/ Shannon E. Young III
			Shannon E. Young III
			Executive Vice President and Chief Financial Officer
			(Principal Financial Officer and Authorized Signatory)

45

EX-31.1

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO RULE 13A-14(A) AND RULE 15D-14(A)

OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED

I, Timothy S. Duncan, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Talos Energy Inc. (“registrant”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

	/s/ Timothy S. Duncan
August 7, 2019	Timothy S. Duncan
	Chief Executive Officer and President (Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO RULE 13A-14(A) AND RULE 15D-14(A)

OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED

I, Shannon E. Young III, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Talos Energy Inc. (“registrant”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

	/s/ Shannon E. Young III
August 7, 2019	Shannon E. Young III
	Executive Vice President and Chief Financial Officer (Principal Financial Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION OF

CHIEF EXECUTIVE OFFICER AND

CHIEF FINANCIAL OFFICER

UNDER SECTION 906 OF THE

SARBANES OXLEY ACT OF 2002, 18 U.S.C § 1350

Pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and in connection with the accompanying Quarterly Report on Form 10-Q of Talos Energy Inc. (the “Company”) for the quarterly period ended June 30, 2019 that is being filed concurrently with the Securities and Exchange Commission on the date hereof (the “Report”), Timothy S. Duncan, Chief Executive Officer of the Company, and Shannon E. Young III, Chief Financial Officer of the Company, each certify, to the best of his knowledge, that:

i. the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

ii. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

August 7, 2019	/s/ Timothy S. Duncan
	Timothy S. Duncan
	Chief Executive Officer and President
	(Principal Executive Officer)

/s/ Shannon E. Young III

Shannon E. Young III

Executive Vice President and Chief Financial Officer

(Principal Financial Officer)

XML

Document and Entity Information - shares	6 Months Ended
	Jun. 30, 2019	Aug. 02, 2019
Document And Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2019
Document Fiscal Year Focus	2019
Document Fiscal Period Focus	Q2
Trading Symbol	TALO
Entity Registrant Name	Talos Energy Inc.
Entity Small Business	false
Entity Emerging Growth Company	false
Entity Current Reporting Status	Yes
Entity Shell Company	false
Entity File Number	001-38497
Entity Tax Identification Number	823532642
Entity Address, Address Line One	333 Clay Street
Entity Address, Address Line Two	Suite 3300
Entity Address, City or Town	Houston
Entity Address, State or Province	TX
Entity Address, Postal Zip Code	77002
City Area Code	713
Local Phone Number	328-3000
Entity Central Index Key	0001724965
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		54,191,931

XML

CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Current assets:
Cash and cash equivalents	$ 89,105	$ 139,914
Restricted cash		1,248
Accounts receivable
Trade, net	110,504	103,025
Joint interest, net	35,741	20,244
Other	28,828	19,686
Assets from price risk management activities	23,633	75,473
Prepaid assets	38,370	38,911
Income tax receivable		10,701
Other current assets	2,085	7,644
Total current assets	328,266	416,846
Property and equipment:
Proved properties	3,925,116	3,629,430
Unproved properties, not subject to amortization	165,041	108,209
Other property and equipment	28,244	33,191
Total property and equipment	4,118,401	3,770,830
Accumulated depreciation, depletion and amortization	(1,879,486)	(1,719,609)
Total property and equipment, net	2,238,915	2,051,221
Other long-term assets:
Assets from price risk management activities	5,508
Other well equipment inventory	9,914	9,224
Operating lease assets	6,732
Other assets	2,700	2,695
Total assets	2,592,035	2,479,986
Current liabilities:
Accounts payable	115,086	51,019
Accrued liabilities	186,354	188,650
Accrued royalties	42,651	38,520
Current portion of long-term debt		443
Current portion of asset retirement obligations	65,757	68,965
Liabilities from price risk management activities	18,781	550
Accrued interest payable	10,068	10,200
Current portion of operating lease liabilities	1,315
Other current liabilities	18,140	22,071
Total current liabilities	458,152	380,418
Long-term liabilities:
Long-term debt, net of discount and deferred financing costs	697,130	654,861
Asset retirement obligations	327,583	313,852
Liabilities from price risk management activities	2,464
Operating lease liabilities	15,637
Other long-term liabilities	93,028	123,359
Total liabilities	1,593,994	1,472,490
Commitments and contingencies (Note 11)
Stockholders' equity:
Preferred stock, $0.01 par value; 30,000,000 shares authorized; no shares issued or outstanding as of June 30, 2019 and December 31, 2018
Common stock $0.01 par value; 270,000,000 shares authorized; 54,191,693 and 54,155,768 shares issued and outstanding as of June 30, 2019 and December 31, 2018, respectively	542	542
Additional paid-in capital	1,339,507	1,334,090
Accumulated deficit	(342,008)	(327,136)
Total stockholders' equity	998,041	1,007,496
Total liabilities and stockholders' equity	$ 2,592,035	$ 2,479,986

XML

CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares	Jun. 30, 2019	Dec. 31, 2018
Statement Of Financial Position [Abstract]
Preferred stock, par value	$ 0.01	$ 0.01
Preferred stock, shares authorized	30,000,000	30,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value	$ 0.01	$ 0.01
Common stock, shares authorized	270,000,000	270,000,000
Common stock, shares issued	54,191,693	54,155,768
Common stock, shares outstanding	54,191,693	54,155,768

XML

CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) shares in Thousands, $ in Thousands		3 Months Ended		6 Months Ended
		Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Revenues and other:
Total revenue		$ 286,810	$ 203,906	$ 465,523	$ 349,756
Operating expenses:
Workover and maintenance expense		12,296	17,714	35,315	24,619
Depreciation, depletion and amortization		95,806	67,726	160,393	116,766
Write-down of oil and natural gas properties		12,361		12,361
Accretion expense		9,945	9,492	19,552	14,252
General and administrative expense		18,865	30,880	36,474	39,460
Total operating expenses		191,938	164,695	352,282	261,961
Operating income		94,872	39,211	113,241	87,795
Interest expense		(24,932)	(21,678)	(50,150)	(41,420)
Price risk management activities income (expense)	[1]	29,990	(91,176)	(79,589)	(143,152)
Other income (expense)		831	(1,269)	1,264	(1,078)
Income (loss) before income taxes		100,761	(74,912)	(15,234)	(97,855)
Income tax (expense) benefit		(5,997)		362
Net income (loss)		$ 94,764	$ (74,912)	$ (14,872)	$ (97,855)
Net income (loss) per common share:
Basic		$ 1.75	$ (1.69)	$ (0.27)	$ (2.59)
Diluted		$ 1.74	$ (1.69)	$ (0.27)	$ (2.59)
Weighted average common shares outstanding:
Basic		54,178	44,336	54,167	37,826
Diluted		54,451	44,336	54,167	37,826
Oil and Gas Properties
Operating expenses:
Direct lease operating expense		$ 37,975	$ 34,060	$ 78,804	$ 58,975
Insurance		4,184	4,259	8,295	6,934
Production taxes		506	564	1,088	955
Total lease operating expense		42,665	38,883	88,187	66,864
Oil Revenue
Revenues and other:
Revenue		256,908	180,161	412,587	307,854
Natural Gas Revenue
Revenues and other:
Revenue		14,746	16,448	29,193	29,171
NGL Revenue
Revenues and other:
Revenue		6,645	$ 7,297	11,711	$ 12,731
Other
Revenues and other:
Revenue		$ 8,511		$ 12,032

[1] ^{The Company paid $9.5 million and $12.6 million for the three and six months ended June 30, 2019 in net cash settlements, respectively. The Company paid $33.6 million and $54.1 million for the three and six months ended June 30, 2018 in net cash settlements, respectively.}

XML

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) - USD ($) $ in Thousands	Total	Common Stock	Additional Paid-In Capital	Accumulated Deficit
Balance at Dec. 31, 2017	$ (54,087)	$ 312	$ 493,952	$ (548,351)
Balance, shares at Dec. 31, 2017		31,244,085
Cumulative effect adjustment	(325)			(325)
Sponsor Debt Exchange	102,000	$ 29	101,971
Sponsor Debt Exchange, Shares		2,874,049
Stone Combination	731,964	$ 201	731,763
Stone Combination, Shares		20,037,634
Equity based compensation	4,148		4,148
Net income (loss)	(97,855)			(97,855)
Balance at Jun. 30, 2018	685,845	$ 542	1,331,834	(646,531)
Balance, shares at Jun. 30, 2018		54,155,768
Balance at Mar. 31, 2018	(77,127)	$ 312	494,180	(571,619)
Balance, shares at Mar. 31, 2018		31,244,085
Sponsor Debt Exchange	102,000	$ 29	101,971
Sponsor Debt Exchange, Shares		2,874,049
Stone Combination	731,964	$ 201	731,763
Stone Combination, Shares		20,037,634
Equity based compensation	3,920		3,920
Net income (loss)	(74,912)			(74,912)
Balance at Jun. 30, 2018	685,845	$ 542	1,331,834	(646,531)
Balance, shares at Jun. 30, 2018		54,155,768
Balance at Dec. 31, 2018	$ 1,007,496	$ 542	1,334,090	(327,136)
Balance, shares at Dec. 31, 2018	54,155,768	54,155,768
Equity based compensation	$ 5,700		5,700
Equity based compensation, Shares		46,047
Shares withheld for taxes on equity transactions	(283)		(283)
Shares withheld for taxes on equity transactions, Shares		(10,122)
Net income (loss)	(14,872)			(14,872)
Balance at Jun. 30, 2019	$ 998,041	$ 542	1,339,507	(342,008)
Balance, shares at Jun. 30, 2019	54,191,693	54,191,693
Balance at Mar. 31, 2019	$ 899,986	$ 542	1,336,216	(436,772)
Balance, shares at Mar. 31, 2019		54,155,805
Equity based compensation	3,574		3,574
Equity based compensation, Shares		45,994
Shares withheld for taxes on equity transactions	(283)		(283)
Shares withheld for taxes on equity transactions, Shares		(10,106)
Net income (loss)	94,764			94,764
Balance at Jun. 30, 2019	$ 998,041	$ 542	$ 1,339,507	$ (342,008)
Balance, shares at Jun. 30, 2019	54,191,693	54,191,693

XML

CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands		6 Months Ended
		Jun. 30, 2019	Jun. 30, 2018
Cash flows from operating activities:
Net loss		$ (14,872)	$ (97,855)
Adjustments to reconcile net loss to net cash provided by operating activities
Depreciation, depletion, amortization and accretion expense		179,945	131,018
Write-down of oil and natural gas properties		12,361
Amortization of deferred financing costs and original issue discount		2,393	2,607
Equity based compensation, net of amounts capitalized		3,220	1,559
Price risk management activities expense	[1]	79,589	143,152
Net cash paid on settled derivative instruments		(12,562)	(54,056)
Settlement of asset retirement obligations		(32,206)	(43,896)
Changes in operating assets and liabilities:
Accounts receivable		(32,118)	19,462
Other current assets		12,259	(13,576)
Accounts payable		23,646	(53,126)
Other current liabilities		(37,164)	52,543
Other non-current assets and liabilities, net		(1,870)	19,279
Net cash provided by operating activities		182,621	107,111
Cash flows from investing activities:
Exploration, development and other capital expenditures		(229,601)	(140,968)
Cash (paid for) acquired in acquisitions		(32,916)	293,001
Proceeds from sale of other property and equipment		5,369
Net cash provided by (used in) investing activities		(257,148)	152,033
Cash flows from financing activities:
Redemption of Senior Notes and other long-term debt		(10,567)	(25,046)
Proceeds from Bank Credit Facility		75,000	294,000
Repayment of Bank Credit Facility		(25,000)	(54,000)
Other deferred payments		(9,921)	(17,469)
Payments of finance lease		(6,759)	(6,958)
Employee stock transactions		(283)
Net cash provided by (used in) financing activities		22,470	(212,473)
Net increase (decrease) in cash, cash equivalents and restricted cash		(52,057)	46,671
Cash, cash equivalents and restricted cash:
Balance, beginning of period		141,162	33,433
Balance, end of period		89,105	80,104
Supplemental Non-Cash Transactions:
Capital expenditures included in accounts payable and accrued liabilities		165,310	38,205
Supplemental Cash Flow Information:
Interest paid, net of amounts capitalized		$ 31,413	23,635
LLC Bank Credit Facility
Cash flows from financing activities:
Repayment of Bank Credit Facility			$ (403,000)

[1] ^{The Company paid $9.5 million and $12.6 million for the three and six months ended June 30, 2019 in net cash settlements, respectively. The Company paid $33.6 million and $54.1 million for the three and six months ended June 30, 2018 in net cash settlements, respectively.}

XML

Formation and Basis of Presentation

6 Months Ended

Jun. 30, 2019

Organization Consolidation And Presentation Of Financial Statements [Abstract]

Formation and Basis of Presentation

Note 1 — Formation and Basis of Presentation

Formation and Nature of Business

Talos Energy Inc. (“Talos,” the “Company,” “we,” “us” or “our”) is a technically driven independent exploration and production company focused on safely and efficiently maximizing cash flows and long-term value through our operations in the United States (“U.S.”) Gulf of Mexico and offshore Mexico. As one of the largest public independent producers in the U.S. Gulf of Mexico, we leverage decades of geology, geophysics and offshore operational expertise in acquisition, exploration, exploitation and development of deep and shallow water assets in key geological trends that are present in many offshore basins around the world. Our activities offshore Mexico provide high impact exploration opportunities in an oil rich emerging basin.

Talos was formed in connection with the business combination between Talos Energy LLC and Stone Energy Corporation (“Stone”) that occurred on May 10, 2018, pursuant to which Talos Energy LLC and Stone became indirect wholly-owned subsidiaries of Talos Energy Inc.

Talos Energy LLC

Talos Energy LLC was formed in 2011 and commenced commercial operations on February 6, 2013. Prior to February 6, 2013, Talos Energy LLC incurred certain general and administrative expenses associated with the start-up of its operations.  

On February 3, 2012, Talos Energy LLC completed a transaction with certain funds and other alternative investment vehicles managed by Apollo Management VII, L.P. and Apollo Commodities Management, L.P., with respect to Series I (“Apollo Funds”), and entities controlled by or affiliated with Riverstone Energy Partners V, L.P. (“Riverstone Funds”) and members of management pursuant to which the Talos Energy LLC received a private equity capital commitment.

Stone Combination

On May 10, 2018 (the “Closing Date”), the Company consummated the transactions contemplated by that certain Transaction Agreement dated as of November 21, 2017 (the “Transaction Agreement”), pursuant to which, among other items, each of Stone, Talos Production LLC and Talos Energy LLC became wholly-owned subsidiaries of the Company (the “Stone Combination”). Concurrently with the consummation of the Transaction Agreement, the Company consummated the transactions contemplated by that certain Exchange Agreement, dated as of November 21, 2017 (the “Exchange Agreement”) pursuant to which (i) the Apollo Funds and Riverstone Funds contributed $102.0 million in aggregate principal amount of 9.75% Senior Notes due 2022 issued by Talos Production LLC and Talos Production Finance, Inc. (together, “Talos Issuers”) to the Company in exchange for an aggregate of 2,874,049 shares of Talos common stock; (ii) the holders of second lien bridge loans (“11.00% Bridge Loans”) exchanged such 11.00% Bridge Loans for $172.0 million aggregate principal amount of 11.00% Second-Priority Senior Secured Notes due 2022 of the Talos Issuers (“11.00% Senior Secured Notes”) and (iii) certain holders of 7.50% Senior Secured Notes due 2022 issued by Stone (“7.50% Stone Senior Notes”) exchanged such notes for $137.4 million aggregate principal amount of 11.00% Senior Secured Notes. Prior to the Closing Date, the Company did not conduct any material activities other than those incident to its formation and the matters contemplated by the Transaction Agreement. See Note 2 – Acquisitions for further details regarding the Stone Combination.

Substantially concurrently therewith, the Company consummated an exchange offer and consent solicitation, pursuant to which other holders of the 7.50% Stone Senior Notes exchanged their 7.50% Stone Senior Notes for 11.00% Senior Secured Notes and a cash payment. Approximately $81.5 million in aggregate principal amount of the 7.50% Stone Senior Notes were validly tendered, and approximately $6.1 million in aggregate principal amount of 7.50% Stone Senior Notes remained outstanding as of the Closing Date.

Basis of Presentation and Consolidation

The condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Accordingly, certain information and disclosures normally included in complete financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. All intercompany transactions have been eliminated. The unaudited financial statements reflect all adjustments which are of a normal, recurring nature and are necessary to fairly present the financial position, results of operations and cash flows for the interim periods. The results for any interim period are not necessarily indicative of the expected results for the entire year. The Company has evaluated subsequent events through the date the condensed consolidated financial statements were issued. The unaudited financial statements and related notes included in this Quarterly Report on Form 10-Q (this “Quarterly Report”) should be read in conjunction with the Company’s audited Consolidated Financial Statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 (our “2018 Annual Report”).

Talos Energy LLC was considered the accounting acquirer in the Stone Combination under GAAP. Accordingly, the historical financial and operating data of Talos Energy Inc., which covers periods prior to the Closing Date, reflects the assets, liabilities and results of operations of Talos Energy LLC and does not reflect the assets, liabilities and results of operations of Stone. For the periods prior to May 10, 2018, the Company retrospectively adjusted its Statements of Changes in Stockholders’ Equity and the weighted average shares used in determining earnings per share to reflect the number of shares Talos Energy LLC received in the Stone Combination. Beginning on May 10, 2018, common stock is presented to reflect the legal capital of Talos Energy Inc.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements, the reported amounts of revenues and expenses during the reporting periods and the reported amounts of proved oil and natural gas reserves. Actual results could differ from those estimates.

The Company has one reportable segment, exploration and production of oil and natural gas. Substantially all of the Company’s proved reserves and production sales are related to the Company’s operations in the U.S.

Unless otherwise indicated or the context otherwise requires, references in this Quarterly Report to “Talos,”  the “Company,” “we,” “us,” or “our” refer to Talos Energy Inc. and its wholly-owned subsidiaries.

Recently Adopted Accounting Standards

Leases. In February 2016, the Financial Accounting Standards Board issued Accounting Standards Codification 2016-02, Leases (“Topic 842”) requiring an entity to recognize a right-of-use asset representing the right to use an underlying asset for the lease term and a lease liability representing the obligation associated with future lease payments for virtually all leases. The pattern of expense recognition in the income statement is dependent on lease classification as finance or operating. A lease is defined as a contract, or part of a contract, that conveys the right to control the use of identified property, plant or equipment (an identified asset) for a period of time in exchange for consideration. However, Topic 842 does not apply to leases of mineral rights.

On January 1, 2019, the Company adopted Topic 842, using the modified retrospective approach, which does not require an adjustment to comparative-period financial statements. As such, results for reporting periods beginning January 1, 2019 are presented in accordance with Topic 842, while prior period amounts are reported in accordance with previous lease accounting treatment. The Company elected the package of practical expedients permitted under the transition guidance within the new standard, which, among other items, allowed Talos not to reassess whether expired or existing contracts, including land easements, contain a lease or reassess the classification and indirect costs associated with existing or expired leases. On the January 1, 2019 adoption date, the Company recorded a right-of-use asset of approximately $7.3 million and corresponding lease liability of $16.9 million representing the present value of its future operating lease payments. Upon the adoption of Topic 842, lease incentives are presented as a reduction to the right-of-use asset resulting in the difference between the right-of-use asset and lease liability. Adoption of this standard did not require an adjustment to retained earnings and did not impact the condensed consolidated statements of operations, condensed consolidated statements of cash flows or condensed consolidated statements of changes in stockholders’ equity. See Note 4 – Leases for further information.

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Acquisitions

6 Months Ended

Jun. 30, 2019

Business Combinations [Abstract]

Acquisitions

Note 2 — Acquisitions

Asset Acquisitions

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 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.

Acquisition of Gunflint Field

On January 11, 2019, the Company completed the acquisition of an approximate 9.6% non-operated working interest in the Gunflint Field located in the Mississippi Canyon area (the “Gunflint Acquisition”) from Samson Offshore Mapleleaf, LLC for $29.6 million ($27.9 million after customary purchase price adjustments).

The following table presents the allocation of the purchase price to the assets acquired and liabilities assumed, based on their relative fair values, on January 11, 2019 (in thousands):

Property and equipment	$	28,912
Asset retirement obligations		(996	)
Allocated purchase price	$	27,916

Acquisition of Whistler Energy II, LLC

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 Apollo Funds (the “Whistler Acquisition”), 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 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 and assumed all of Whistler’s oil and natural gas assets and the associated asset retirement obligations for interests 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 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	)
Other long-term liabilities		(23,862	)
Allocated purchase price	$	52,624

^{(1) Includes $37.8 million of cash acquired and trade receivables of $3.2 million, which the Company expects all to be realizable.}

Business Combinations

Acquisitions qualifying as a business combination are accounted for under the acquisition method of accounting, which requires, among other items, that assets acquired and liabilities assumed be recognized on the condensed consolidated balance sheet at their fair values as of the acquisition date. 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.

Combination between Talos Energy LLC and Stone Energy Corporation

On May 10, 2018, the Company consummated the transactions contemplated by the Transaction Agreement and the 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 common stock - issued and outstanding as of May 9, 2018		20,038
Stone common stock price	$	35.49
Common stock value	$	711,149
Stone common stock warrants - issued and outstanding as of May 9, 2018		3,528
Stone common stock warrants price	$	5.90
Common stock warrants value	$	20,815
Total purchase price	$	731,964

The following table presents the final 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)	$	372,963
Property and equipment		886,406
Other long-term assets		19,494
Current liabilities		(132,846	)
Long-term debt		(235,416	)
Other long-term liabilities		(178,637	)
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.}

The following table presents revenue and net income attributable to the assets acquired in the Stone Combination for the three and six months ended June 30, 2019 and 2018:

	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Revenue	$	113.5	$	69.3	$	216.1	$	69.3
Net income	$	57.1	$	44.4	$	106.4	$	44.4

Pro Forma Financial Information (Unaudited)

The following supplemental pro forma information (in thousands, except per common share amounts), presents the condensed consolidated statements of operations for the three and six months ended June 30, 2019 and 2018 as if the Stone Combination had occurred on January 1, 2018. The unaudited pro forma information was derived from historical combined 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, 2018, nor is such information indicative of any expected future results of operations.

	Three Months Ended June 30,					Six Months Ended June 30,
	2019		2018			2019			2018
	(As reported)		(Pro Forma)			(As reported)			(Pro Forma)
Revenue	$	286,810	$	244,453		$	465,523		$	471,652
Net income (loss)	$	94,764	$	(45,696	)	$	(14,872	)	$	(51,211	)
Basic net income (loss) per common share	$	1.75	$	(0.84	)	$	(0.27	)	$	(0.95	)
Diluted net income (loss) per common share	$	1.74	$	(0.84	)	$	(0.27	)	$	(0.95	)

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Property, Plant and Equipment

6 Months Ended

Jun. 30, 2019

Oil And Gas Property [Abstract]

Property, Plant and Equipment

Note 3 — Property, Plant and Equipment

Proved Properties. The Company’s interests in proved oil and natural gas properties are located in the U.S., primarily in the Gulf of Mexico deep and shallow waters. The Company follows the full cost method of accounting for its oil and natural gas exploration and development activities.

At June 30, 2019, the Company’s ceiling test computation of its U.S. oil and natural gas properties was based on SEC pricing of $67.16 per Bbl of oil, $2.97 per Mcf of natural gas and $28.85 per Bbl of NGLs. During the three and six months ended June 30, 2019 and 2018, the Company’s ceiling test computation did not result in a write-down of its U.S. oil and natural gas properties.

Unproved Properties. Unproved capitalized costs of oil and natural gas properties excluded from amortization relate to unevaluated properties associated with acquisitions, leases awarded in the U.S. Gulf of Mexico federal lease sales, certain geological and geophysical costs, costs associated with certain exploratory wells in progress and capitalized interest. Unproved properties also include costs associated with the two blocks (Block 2 and Block 7) awarded on September 4, 2015 to the Company together with Sierra Oil & Gas S. de R.L de C.V. (“Sierra”) and Premier Oil Plc (“Premier”), located in the shallow waters off the coast of Mexico’s Veracruz and Tabasco states, by the National Hydrocarbons Commission, Mexico’s upstream regulator. During any period in which unproved properties are assessed as proved or impaired, the associated costs are transferred to the full cost pool and are subject to amortization.

In September 2018, the Company entered into a transaction (the “Hokchi Cross Assignment”) with Hokchi Energy, S.A. de C.V. (“Hokchi”), a subsidiary of Pan American Energy LLC (“PAE”), to cross assign 25% participation interests (“PI”) in each of Block 2 and Block 31. The Company’s assignment of a 25% PI in Block 2 to Hokchi closed on December 21, 2018, and Hokchi’s assignment to the Company closed on May 22, 2019. In addition, Premier exercised its option to reduce its PI in Block 2 to zero and assigned a 5% PI to each of Sierra and Talos. Following the completion of the Hokchi Cross Assignment, Talos owns a 25% PI in each of Block 2 and Block 31, and Hokchi is the operator of the blocks.

As a result of the Company’s evaluation of unproved property located in Block 2 offshore Mexico, specifically future exploratory drilling opportunities, results from exploratory wells drilled during the second quarter of 2019 and the Block 2 production sharing contract’s expiration date, the Company recorded a $12.4 million non-cash impairment presented as “Write-down of oil and natural gas properties” on the condensed consolidated statements of operations.

Capitalized Overhead. General and administrative expense in the Company’s financial statements is reflected net of capitalized overhead. The Company capitalizes overhead costs directly related to exploration, acquisition and development activities. Capitalized overhead for the three and six months ended June 30, 2019 was $7.4 million and $14.0 million, respectively. Capitalized overhead for the three and six months ended June 30, 2018 was $4.5 million and $7.5 million, respectively.

Asset Retirement Obligations. The discounted asset retirement obligations included “Current portion of asset retirement obligations” and “Asset retirement obligations” on the condensed consolidated balance sheets and the changes to that liability during the six months ended June 30, 2019 were as follows (in thousands):

Asset retirement obligations at December 31, 2018	$	382,817
Fair value of asset retirement obligations assumed		5,047
Obligations settled		(32,206	)
Accretion expense		19,552
Obligations incurred		4,052
Changes in estimate		14,078
Asset retirement obligations at June 30, 2019	$	393,340
Less: Current portion		65,757
Long-term portion	$	327,583

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Leases

6 Months Ended

Jun. 30, 2019

Leases [Abstract]

Leases

Note 4 — Leases

The Company enters into service contracts and other contractual arrangements for the use of office space, drilling, completion and abandonment equipment (e.g., drilling rigs), production related equipment (e.g., compressors) and other equipment from third-party lessors to support its operations. The Company’s leasing activities as a lessor are negligible. At inception, contracts are reviewed to determine whether the agreement contains a lease. Contracts are considered a lease when the arrangement either explicitly or implicitly conveys the right to control the use of the identified property, plant or equipment for a period of time in exchange for consideration. In order to obtain control, the lessee must obtain substantially all of the economic benefits for the use of the identified asset and have the right to direct the use of the identified asset. To the extent an arrangement is determined to include a lease, it is classified as either an operating or a finance lease, which dictates the pattern of expense recognition in the income statement. The Company has elected to not apply the recognition requirements of Topic 842 to leases with durations of twelve months or less (i.e. short-term).

Upon commencement of a lease, a right-of-use asset and corresponding lease liability are recorded on the consolidated balance sheet for all leases, regardless of classification. The right-of-use asset is initially measured as the lease liability adjusted for any payments made prior to commencement, including any initial direct costs incurred and incentives received. Lease liabilities are initially measured at the present value of future minimum lease payments, excluding variable lease payments, over the lease term. Variable lease payments include changes in index rates, mobilization and demobilization costs related to oil and natural gas equipment and certain reimbursable costs associated with office and building leases that are recognized when incurred. The discount rate used to determine present value is the rate implicit in the lease unless the rate cannot be determined, in which case the incremental borrowing rate is used. The incremental borrowing rate reflects the estimated rate of interest the Company would pay to borrow over a similar term an amount equal to the lease payments on a collateralized basis in a similar economic environment.

The Company has elected to account for lease and non-lease components in its contracts as a single lease component for all asset classes. Lease agreements may include options to renew the lease, terminate the lease or purchase the underlying asset. The Company determines the lease term at lease commencement date as the non-cancelable period of the lease, including options to extend or terminate the lease when such an option is reasonably certain to be exercised. Factors used to assess reasonable certainty of rights to extend or terminate a lease include current and forecasted drillings plans, anticipated changes in development strategies, historical practice in extending similar contracts and current market conditions.

On August 2, 2016, the Company executed a seven-year lease agreement for the use of the Helix Producer 1 (“HP-I”), a dynamically positioned floating production facility that interconnects with the Phoenix Field through a production buoy. Under the terms of the agreement, the Company agreed to pay a $49.0 million annual fixed demand charge for each of the first two years and $45.0 million for each of the five years thereafter.

Prior to implementation, the HP-I lease was accounted for as a capital lease under previous lease accounting treatments. The Company initially recorded a capital lease asset and liability of $124.3 million on its consolidated balance sheet at lease inception. As the HP-I is utilized in the Company’s oil and natural gas development activities, the capital lease asset was included within proved property and depleted as part of the full cost pool. As of December 31, 2018, the balance of the capital lease obligation on the consolidated balance sheet was $93.6 million, of which $14.1 million is included in other current liabilities and $79.5 million is included in other long-term liabilities. Upon adoption of Topic 842, the HP-I capital lease was classified as a finance lease resulting in no change to the amounts recognized on the condensed consolidated balance sheet.

The Company has operating leases expiring at various dates, principally for office space, drilling rigs, compressors and other equipment necessary to support the Company’s operations. Operating leases are reflected as operating lease assets, current portion of operating lease liabilities and operating lease liabilities on the condensed consolidated balance sheet. The Company’s operating lease liabilities recognized on the balance sheet as of June 30, 2019 was $17.0 million. Costs associated with the Company’s operating leases are either expensed or capitalized depending on how the underlying asset is utilized.

Presented below are disclosures required by Topic 842. The amounts disclosed herein primarily represent costs associated with properties operated by the Company that are presented on a gross basis and do not reflect the Company’s net proportionate share of such amounts. A portion of these costs have been or will be billed to other working interest owners. The Company’s share of these costs is included in property and equipment, lease operating expense or general and administrative expense, as applicable. The components of lease costs were as follows (in thousands):

	Three Months Ended June 30, 2019		Six Months Ended June 30, 2019
Finance lease cost - interest on lease liabilities(1)	$	4,867	$	9,861
Operating lease cost, excluding short-term leases(2)		763		1,526
Short-term lease cost(3)		27,630		64,239
Variable lease cost(4)		3		5
Total lease cost	$	33,263	$	75,631

⁽¹⁾ The HP-I is utilized in the Company’s oil and natural gas development activities and the right-of-use asset was capitalized and included in proved property and depleted as part of the full cost pool. Once items are included in the full cost pool, they are indistinguishable from other proved properties. The capitalized costs within the full cost pool are amortized over the life of the total proved reserved using the unit-of-production method, computed quarterly.

⁽²⁾ Operating lease cost reflect a single lease cost, calculated so that the cost of the lease is allocated over the lease term on a straight-line basis.

⁽³⁾ Short-term lease costs are reported at gross amounts and primarily represent costs incurred for drilling rigs, most of which are short-term contracts not recognized as a right-of-use asset and lease liability on the balance sheet.

⁽⁴⁾ Variable lease costs primarily represent differences between minimum payment obligations and actual operating charges incurred by the Company related to its long-term leases.

The present value of the fixed lease payments recorded as the Company’s right-of-use asset and liability, adjusted for initial direct costs and incentives are as follows (in thousands):

	June 30, 2019
Operating leases:
Operating lease assets	$	6,732
Current portion of operating leases	$	1,315
Operating lease liabilities		15,637
Total operating lease liabilities	$	16,952
Finance leases:
Proved property (1)	$	124,299
Other current liabilities	$	15,697
Other long-term liabilities		71,213
Total finance lease liabilities	$	86,910

⁽¹⁾ The HP-I is utilized in the Company’s oil and natural gas development activities and the right-of-use asset was capitalized and included in proved property and depleted as part of the full cost pool. Once items are included in the full cost pool, they are indistinguishable from other proved properties. The capitalized costs within the full cost pool are amortized over the life of the total proved reserves using the unit-of-production method, computed quarterly.

Minimum future commitments by year for the Company’s leases as of June 30, 2019 are presented in the table below (in thousands). Such commitments are reflected at undiscounted values and are reconciled to the discounted present value recognized on the balance sheet.

	Operating Leases			Finance Leases
2019 (excluding the six months ended June 30, 2019)	$	906		$	16,629
2020		2,693			33,257
2021		3,447			33,257
2022		3,658			33,257
2023		3,583			13,857
Thereafter		15,218			—
Total lease payments	$	29,505		$	130,257
Less imputed interest		(12,553	)		(43,347	)
Total	$	16,952		$	86,910

	June 30, 2019
Weighted average remaining lease term:
Operating leases	9 years
Finance leases	4 years
Weighted average discount rate:
Operating leases		12.3	%
Finance leases		21.9	%

The table below presents the supplemental cash flow information related to leases for the six months ended June 30, 2019 (in thousands):

Operating cash outflow from finance leases	$	9,861
Financing cash outflow from finance leases	$	6,759
Operating cash outflow from operating leases	$	906
Right-of-use assets obtained in exchange for new finance lease liabilities	$	—
Right-of-use assets obtained in exchange for new operating lease liabilities	$	613

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Financial Instruments

6 Months Ended

Jun. 30, 2019

Financial Instruments [Abstract]

Financial Instruments

Note 5 — Financial Instruments

The following table presents the carrying amounts and estimated fair values of financial instruments (in thousands): 

	June 30, 2019				December 31, 2018
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
11.00% Second-Priority Senior Secured Notes – due    April 2022(1)	$	382,517	$	413,343	$	381,229	$	362,168
7.50% Senior Secured Notes – due May 2022	$	6,060	$	4,580	$	6,060	$	5,151
Bank Credit Facility – due May 2022(1)	$	308,553	$	315,000	$	257,448	$	265,000
Oil and Natural Gas Derivatives	$	7,896	$	7,896	$	74,923	$	74,923

^{(1) The carrying amounts are net of discount and deferred financing costs.}

As of June 30, 2019 and December 31, 2018, the carrying amounts of cash and cash equivalents, restricted cash, accounts receivable and accounts payable approximate their fair values due to the short-term nature of these instruments.

11.00% Second-Priority Senior Secured Notes – due April 2022. The $390.9 million aggregate principal amount of 11.00% Senior Secured Notes are reported on the condensed consolidated balance sheet as of June 30, 2019 at their carrying value, net of original issue discount and deferred financing costs (see Note 6 – Debt). The fair value of the 11.00% Senior Secured Notes are estimated (representing a Level 1 fair value measurement) using quoted secondary market trading prices.

7.50% Senior Secured Notes – due May 2022. The $6.1 million aggregate principal amount of 7.50% Stone Senior Notes are reported on the condensed consolidated balance sheet as of June 30, 2019 at their carrying value (see Note 6 – Debt). The fair value of the 7.50% Stone Senior Notes are estimated (representing a Level 1 fair value measurement) using quoted secondary market trading prices.

Bank Credit Facility – due May 2022. In May 2018, in conjunction with the Stone Combination, the Company and Talos Production LLC, our wholly-owned subsidiary, executed a new bank credit facility with an initial borrowing base of $600.0 million (the “Bank Credit Facility”) which is reported on the condensed consolidated balance sheet as of June 30, 2019 at its carrying value net of deferred financing costs (see Note 6 – Debt). The fair value of the Bank Credit Facility is estimated based on the outstanding borrowings under the Bank Credit Facility since it is secured by the Company’s reserves and the interest rates are variable and reflective of market rates (representing a Level 2 fair value measurement).

Oil and natural gas derivatives. The Company attempts to mitigate a portion of its commodity price risk and stabilize cash flows associated with sales of oil and natural gas production through the use of oil and natural gas swaps and costless collars. Swaps are contracts where the Company either receives or pays depending on whether the oil or natural gas floating market price is above or below the contracted fixed price. Costless collars consist of a purchased put option and a sold call option with no net premiums paid to or received from counterparties. Collar contracts typically require payments by the Company if the NYMEX average closing price is above the ceiling price or payments to the Company if the NYMEX average closing price is below the floor price.

The Company has elected not to designate any of its derivative contracts for hedge accounting. Accordingly, commodity derivatives are recorded on the condensed consolidated balance sheets at fair value with settlements of such contracts, and changes in the unrealized fair value, recorded as “Price risk management activities income (expense)” on the condensed consolidated statements of operations in each period.

The following table presents the impact that derivatives, not qualifying as hedging instruments, had on the Company’s condensed consolidated statements of operations (in thousands):

	Three Months Ended June 30,					Six Months Ended June 30,
	2019		2018			2019			2018
Price risk management activities income (expense)(1)	$	29,990	$	(91,176	)	$	(79,589	)	$	(143,152	)

^{(1) The Company paid $9.5 million and $12.6 million for the three and six months ended June 30, 2019 in net cash settlements, respectively. The Company paid $33.6 million and $54.1 million for the three and six months ended June 30, 2018 in net cash settlements, respectively.}

The following table reflects the contracted volumes and weighted average prices the Company will receive under its derivative contracts as of June 30, 2019:

Production Period	Instrument Type	Average Daily Volumes		Weighted Average Swap Price		Weighted Average Put Price		Weighted Average Call Price
Crude Oil – WTI:		(Bbls)		(per Bbl)		(per Bbl)		(per Bbl)
Jul 2019 - Dec 2019	Swap		27,093	$	56.84	$	—	$	—
Jan 2020 - Dec 2020	Swap		8,619	$	56.80	$	—	$	—
Jan 2020 - Dec 2020	Costless collars		7,481	$	—	$	55.00	$	64.23
Natural Gas – Henry Hub NYMEX:		(MMBtu)		(per MMBtu)		(per MMBtu)		(per MMBtu)
Jul 2019 - Dec 2019	Swap		36,840	$	2.89	$	—	$	—
Jan 2020 - Dec 2020	Swap		8,702	$	3.07	$	—	$	—

The Company’s commodity derivative instruments are measured at fair value based on third-party industry-standard models using various inputs substantially observable in active markets, including forward oil and natural gas price curves, and are therefore classified as Level 2 in the required fair value hierarchy for the periods presented. The following tables provide additional information related to financial instruments measured at fair value on a recurring basis (in thousands):

	June 30, 2019
	Level 1		Level 2			Level 3		Total
Assets:
Oil and natural gas derivatives	$	—	$	29,141		$	—	$	29,141
Liabilities:
Oil and natural gas derivatives		—		(21,245	)		—		(21,245	)
Total net asset	$	—	$	7,896		$	—	$	7,896

	December 31, 2018
	Level 1		Level 2			Level 3		Total
Assets:
Oil and natural gas derivatives	$	—	$	75,473		$	—	$	75,473
Liabilities:
Oil and natural gas derivatives		—		(550	)		—		(550	)
Total net asset	$	—	$	74,923		$	—	$	74,923

Financial Statement Presentation. Derivatives are classified as either current or non-current assets or liabilities based on their anticipated settlement dates. Although the Company has master netting arrangements with its counterparties, the Company presents its derivative financial instruments on a gross basis on its condensed consolidated balance sheets. On derivative contracts recorded as assets in the table below, the Company is exposed to the risk that the counterparties may not perform. The following table presents the fair value of derivative financial instruments at June 30, 2019 and December 31, 2018 (in thousands):

	June 30, 2019				December 31, 2018
	Assets		Liabilities		Assets		Liabilities
Oil and natural gas derivatives:
Current	$	23,633	$	18,781	$	75,473	$	550
Non-current		5,508		2,464		—		—
Total	$	29,141	$	21,245	$	75,473	$	550

Credit Risk. The Company is subject to the risk of loss on its financial instruments as a result of nonperformance by counterparties pursuant to the terms of their contractual obligations. The Company entered into International Swaps and Derivative Association agreements with counterparties to mitigate this risk. The Company also maintains credit policies with regard to its counterparties to minimize overall credit risk. The Company’s assets and liabilities from commodity price risk management activities at June 30, 2019 represent derivative instruments from twelve counterparties; all of which are registered swap dealers that have an “investment grade” (minimum Standard & Poor’s rating of BBB- or better) credit rating, and ten of which are parties under the Company’s Bank Credit Facility. The Company enters into derivatives directly with these counterparties and, subject to the terms of the Company’s Bank Credit Facility, is not required to post collateral or other securities for credit risk in relation to the derivative activities. The Company is subject to the risk of loss on its financial instruments as a result of nonperformance by counterparties pursuant to the terms of their contractual obligations.

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Debt

6 Months Ended

Jun. 30, 2019

Debt Disclosure [Abstract]

Debt

Note 6 — Debt

A summary of the detail comprising the Company’s debt and the related book values for the respective periods presented is as follows (in thousands):

Description	June 30, 2019			December 31, 2018
11.00% Second-Priority Senior Secured Notes – due April 2022	$	390,868		$	390,868
7.50% Senior Secured Notes – due May 2022		6,060			6,060
Bank Credit Facility – due May 2022		315,000			265,000
4.20% Building Loan – due November 2030		—			10,567
Total debt, before discount and deferred financing cost		711,928			672,495
Discount and deferred financing cost		(14,798	)		(17,191	)
Total debt, net of discount and deferred financing cost	$	697,130		$	655,304
Less: current portion of long-term debt		—			(443	)
Long-term debt, net of discount and deferred financing costs	$	697,130		$	654,861

11.00% Second-Priority Senior Secured Notes – due April 2022. The 11.00% Senior Secured Notes were issued pursuant to an indenture dated May 10, 2018. The 11.00% Senior Secured Notes mature April 3, 2022 and have interest payable semi-annually each April 15 and October 15. Prior to May 10, 2020, the Company may, at its option, redeem all or a portion of the 11.00% Senior Secured Notes at 105.5% of the principal amount plus accrued and unpaid interest. Thereafter, the Company may redeem all or a portion of the 11.00% Senior Secured Notes at redemption prices decreasing annually from 102.75% to 100.0% plus accrued and unpaid interest.

The indenture governing the 11.00% Senior Secured Notes applies certain limitations on the Company’s ability and the ability of its subsidiaries to, among other things, (i) incur additional indebtedness or issue certain preferred shares; (ii) pay dividends and make certain other restricted payments; (iii) create restrictions on the payment of dividends or other distributions to the Company from its restricted subsidiaries; (iv) create liens on certain assets to secure debt; (v) make certain investments; (vi) engage in sales of assets and subsidiary stock; (vii) transfer all or substantially all of its assets or enter into merger or consolidation transactions; and (viii) engage in transactions with affiliates. The 11.00% Senior Secured Notes contain customary quarterly and annual reporting, financial and administrative covenants. The Company was in compliance with all debt covenants at June 30, 2019.

7.50% Senior Secured Notes – due May 2022.  The 7.50% Stone Senior Notes represent the remaining $6.1 million of long-term debt assumed in the Stone Combination that were not exchanged for 11.00% Senior Secured Notes and thus remain outstanding. As a result, substantially all of the restrictive covenants relating to the 7.50% Stone Senior Notes have been removed and collateral securing the 7.50% Stone Senior Notes has been released. The 7.50% Stone Senior Notes mature May 31, 2022 and have interest payable semi-annually each May 31 and November 30. Prior to May 31, 2020, the Company may, at its option, redeem all or a portion of the 7.50% Stone Senior Notes at 100% of the principal amount plus accrued and unpaid interest and a make-whole premium. Thereafter, the Company may redeem all or a portion of the 7.50% Stone Senior Notes at redemption prices decreasing annually from 105.625% to 100.0% plus accrued and unpaid interest.

Bank Credit Facility – due May 2022. The Company and Talos Production LLC, our wholly-owned subsidiary, executed the Bank Credit Facility in conjunction with the Stone Combination with a syndicate of financial institutions, with an initial borrowing base of $600.0 million. The Bank Credit Facility matures on May 10, 2022, provided that the Bank Credit Facility mandates a springing maturity that is 120 days prior to May 10, 2022, if greater than $25.0 million of the 11.00% Senior Secured Notes or any permitted refinancing indebtedness in resect thereof is outstanding on such date.  

The Bank Credit Facility bears interest based on the borrowing base usage, at the applicable London InterBank Offered Rate, plus applicable margins ranging from 2.75% to 3.75% or an alternate base rate, based on the federal funds effective rate plus applicable margins ranging from 1.75% to 2.75%. In addition, the Company is obligated to pay a commitment fee of 0.50% on the unfunded portion of the commitments under the Bank Credit Facility. The Bank Credit Facility has certain debt covenants, the most restrictive of which is that the Company must maintain a total debt to EBITDAX Ratio (as defined in the Bank Credit Facility) of no greater than 3.00 to 1.00 each quarter. The Company must also maintain a current ratio no less than 1.00 to 1.00 each quarter. According to the Bank Credit Facility, undrawn commitments are included in current assets in the current ratio calculation. The Bank Credit Facility is secured by substantially all of the oil and natural gas assets of the Company. The Bank Credit Facility is fully and unconditionally guaranteed by the Company and certain of its wholly-owned subsidiaries.

The Bank Credit Facility provides for determination of the borrowing base based on the Company’s proved producing reserves and a portion of its proved undeveloped reserves. The borrowing base is redetermined by the lenders at least semi-annually during the second quarter and fourth quarter.

As of June 30, 2019, the Company’s borrowing base was $850.0 million with commitments held at $600.0 million, of which no more than $200 million can be used as letters of credit. The amount the Company is able to borrow with respect to the borrowing base is subject to compliance with the financial covenants and other provisions of the Bank Credit Facility. The Company was in compliance with all debt covenants at June 30, 2019. As of June 30, 2019, the Bank Credit Facility had approximately $269.8 million of undrawn commitments (taking into account $15.2 million letters of credit and $315.0 million drawn from the Bank Credit Facility).

Subsequent event. On July 3, 2019, the Company and Talos Production LLC entered into a Joinder, First Amendment to Credit Agreement, and Borrowing Base Reaffirmation Agreement in which (a) the $850 million borrowing base was reaffirmed, (b) the commitments were increased from $600.0 million to $850.0 million, (c) three additional financial institutions were joined as lenders to the syndicate and (d) certain other amendments were made to the Bank Credit Facility as more particularly described therein.

Building Loan – due November 2030. In connection with the Stone Combination, the Company assumed Stone’s 4.20% term loan maturing on November 20, 2030 (the “Building Loan”). The Building Loan bears interest at a rate of 4.20% per annum and is to be repaid in 180 equal monthly installments of approximately $0.1 million. During June 2019, the Company repaid $10.5 million aggregate remaining principal, plus accrued interest, of the Building Loan using proceeds from the sale of an office building in Lafayette acquired in the Stone Combination and cash on hand. As of June 30, 2019, there is no outstanding balance under the Building Loan.

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Employee Benefits Plans and Share-Based Compensation

6 Months Ended

Jun. 30, 2019

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

Employee Benefits Plans and Share-Based Compensation

Note 7 — Employee Benefits Plans and Share-Based Compensation

Stone Severance Plans

The Company maintained the Stone Energy Corporation Executive Severance Plan and Stone Energy Corporation Employee Severance Plan, each a legacy plan of Talos Petroleum LLC (f/k/a Stone Energy Corporation). The plans provided for the payment of severance benefits to certain individuals who, prior to the Stone Combination, were executive officers or employees of Talos Petroleum LLC, in each case upon an involuntary termination within twelve months of the Closing Date. For the three and six months ended June 30, 2019, the Company incurred nil and $0.2 million of severance expenses in relation to the Stone Combination, respectively.  For the three and six months ended June 30, 2018, the company incurred $7.5 million of severance expenses in relation to the Stone Combination. Severance expenses are reflected in general and administrative expense on the consolidated statement of operations. As of June 30, 2019, the Company had no obligations outstanding related to the plans. The plans were terminated in July 2019.  

Talos Energy Inc. Long Term Incentive Plan

Under the Talos Energy Inc. Long Term Incentive Plan (the “LTIP”), the Company may issue, subject to Board approval, grants of options, stock appreciation rights, restricted stock, restricted stock units, stock awards, dividend equivalents, other stock-based awards, cash awards, substitute awards or any combination of the foregoing to employees, directors and consultants. The LTIP authorizes the Company to grant awards of up to 5,415,576 shares of the Company’s common stock.

Restricted Stock Units. During the six months ended June 30, 2019, the Company granted 695,639 restricted stock units (“RSUs”) under the LTIP to employees and non-employees. The following table summarizes RSU activity for the six months ended June 30, 2019:

	Restricted Stock Units			Weighted Average Grant Date Fair Value
Unvested RSUs at December 31, 2018		138,704		$	33.85
Granted		695,639		$	24.46
Vested		(61,495	)	$	34.48
Forfeited		(8,274	)	$	25.91
Unvested RSUs at June 30, 2019		764,574		$	25.35

Performance Stock Units. During the six months ended June 30, 2019, the Company granted 218,060 performance stock units (“PSUs”) under the LTIP to employees. The following table summarizes PSU activity for the six months ended June 30, 2019:

	Performance Share Units			Weighted Average Grant Date Fair Value
Unvested PSUs at December 31, 2018		231,542		$	44.47
Granted		218,060		$	33.96
Vested		—		$	—
Forfeited		(2,980	)	$	42.94
Unvested PSUs at June 30, 2019		446,622		$	39.35

The grant date fair value of the PSUs granted during the six months ended June 30, 2019, calculated using a Monte Carlo simulation, was $7.4 million. The following table summarizes the assumptions used to calculate the grant date fair value of the PSUs granted in the six months ended June 30, 2019:

	Grant Date
	March 5, 2019			May 16, 2019
Number of simulations		100,000			100,000
Expected term (in years)		2.8			2.6
Expected volatility		46.9	%		44.8	%
Risk-free interest rate		2.5	%		2.1	%
Dividend yield		—	%		—	%

Share-based Compensation Expense, net.

Share-based compensation expense is reflected as “General administrative expense,” net amounts capitalized to oil and natural gas properties in the consolidated statement of operations. Because of the non-cash nature of share-based compensation, the expensed portion of share-based compensation is added back to net income in arriving at net cash used in or provided by operating activities in the condensed consolidated statement of cash flows. The following table summarizes the stock-based compensation expense for the three and six months ended June 30, 2019 and 2018 (in millions):

	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Share based compensation	$	3.7		$	4.0		$	6.0		$	4.2
Capitalization		(1.7	)		(2.5	)		(2.8	)		(2.6	)
Share based compensation, net capitalization	$	2.0		$	1.5		$	3.2		$	1.6

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Income Taxes

6 Months Ended

Jun. 30, 2019

Income Tax Disclosure [Abstract]

Income Taxes

Note 8 — Income Taxes

Prior to the Stone Combination, Talos Energy LLC was a partnership for U.S. federal income tax purposes and was not subject to U.S. federal income tax or state income tax (in most states) at the entity level. As such, Talos Energy LLC did not recognize U.S. federal income tax expense or state income tax expense in most states. Talos Energy LLC’s operations in the shallow waters off the coast of Mexico were conducted under a different legal form and are subject to foreign income taxes. 

For the three months ended June 30, 2019, the Company recognized income tax expense of $6.0 million for an effective tax rate of 6.0%. The difference between the Company’s effective tax rate of 6.0% and federal statutory income tax rate of 21% is primarily due to a reduction to the Company’s valuation allowance.  For the three months ended June 30, 2018, the Company’s effective tax rate of 0% differed from the federal statutory rate of 21% because the Company recorded a valuation allowance against its deferred tax assets.

For the six months ended June 30, 2019, the Company recognized an income tax benefit of $0.4 million for an effective tax rate of 2.4%. The difference between the Company’s effective tax rate of 2.4% and federal statutory income tax rate of 21% is primarily due to a reduction to the Company’s valuation allowance. For the six months ended June 30, 2018, the Company’s effective tax rate of 0% differed from the federal statutory rate of 21% because the Company recorded a valuation allowance against its deferred tax assets.

The Company evaluates and updates the estimated annual effective income tax rate on a quarterly basis based on current and forecasted operating results and tax laws. Consequently, based upon the mix and timing of the Company’s actual earnings compared to annual projections, the effective tax rate may vary quarterly and may make quarterly comparisons not meaningful. The quarterly income tax provision is generally comprised of tax expense on income or benefit on loss at the most recent estimated annual effective tax rate.  The tax effect of discrete items is recognized in the period in which they occur at the applicable statutory rate.

Deferred income tax assets and liabilities are recorded related to net operating losses and temporary differences between the book and tax basis of assets and liabilities expected to produce deductions and income in the future.  The realization of deferred tax assets depends on recognition of sufficient future taxable income in specific tax jurisdictions in which those temporary differences or net operating losses are deductible.  When assessing the need for a valuation allowance on deferred tax assets, the Company considers whether it is more likely than not that some portion or all of them will not be realized.  As June 30, 2019, the Company had a valuation allowance related to federal, state and foreign deferred tax assets.

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Income (Loss) Per Share

6 Months Ended

Jun. 30, 2019

Earnings Per Share [Abstract]

Income (Loss) Per Share

Note 9 — Income (Loss) Per Share

Basic earnings per share is computed by dividing net income (loss) attributable to common stockholders by the weighted average number of shares of common stock outstanding during the period.  Except when the effect would be antidilutive, diluted earnings per share include the impact of RSUs, PSUs and outstanding warrants.

The following table presents the computation of basic and diluted earnings per share for Talos Energy Inc. (in thousands, except for per share amounts):

	Three Months Ended June 30,					Six Months Ended June 30,
	2019		2018			2019			2018
Net income (loss)	$	94,764	$	(74,912	)	$	(14,872	)	$	(97,855	)
Weighted average common shares outstanding — basic		54,178		44,336			54,167			37,826
Dilutive effect of securities		273		—			—			—
Weighted average common shares outstanding — diluted		54,451		44,336			54,167			37,826
Net income (loss) per common share:
Basic	$	1.75	$	(1.69	)	$	(0.27	)	$	(2.59	)
Diluted	$	1.74	$	(1.69	)	$	(0.27	)	$	(2.59	)
Anti-dilutive potentially issuable securities excluded    from diluted common shares		3,857		3,551			4,739			3,551

For the periods prior to May 10, 2018, the Company retrospectively adjusted the weighted average shares used in determining earnings per share to reflect the number of shares Talos Energy LLC received in the Stone Combination.

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Related Party Transactions

6 Months Ended

Jun. 30, 2019

Related Party Transactions [Abstract]

Related Party Transactions

Note 10 — Related Party Transactions

Whistler Acquisition. On August 31, 2018, the Company acquired certain properties 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). Included in current assets acquired as of June 30, 2019 is $1.1 million in receivables from an affiliate of the Apollo Funds to reimburse the Company for certain payments made post-closing. See additional details in Note 2 – Acquisitions.

Equity Registration Rights Agreement. On the Closing Date, the Company entered into a Registration Rights Agreement (the “Equity Registration Rights Agreement”) with certain Apollo Funds and Riverstone Funds, certain funds controlled by Franklin Advisers, Inc. (“Franklin”) and certain clients of MacKay Shields LLC (“MacKay Shields”) relating to the registered resale of the Company’s common stock owned by such parties as of Closing. The Company will bear all of the expenses incurred in connection with any offer and sale, while the Apollo Funds, Riverstone Funds, Franklin and MacKay Shields will be responsible for paying underwriting fees, discounts and commissions or similar charges.  Pursuant to the Equity Registration Rights Agreement, on June 4, 2019, the Company filed a registration statement on Form S-3 with the SEC registering the offering of shares of the Company’s common stock by the selling stockholders named therein, which was declared effective by the SEC on June 12, 2019. Fees incurred by the Company in conjunction with the Equity Registration Rights Agreement were $0.1 and $0.7 million for the three and six months ended June 30, 2019, respectively.

Legal Fees. The Company has engaged the law firm Vinson & Elkins L.L.P. to provide legal services. An immediate family member of William S. Moss III, our Executive Vice President and General Counsel and one of the Company’s executive officers, is a partner at Vinson & Elkins L.L.P. For the three and six months ended June 30, 2019, we incurred fees of approximately $0.5 million and $1.6 million, respectively, of which $1.0 million remained payable for legal services performed by Vinson & Elkins L.L.P as of June 30, 2019. For the three and six months ended June 30, 2018, we incurred fees of approximately $1.2 million and $2.2 million, respectively.

Service Fee Agreement. Talos Energy LLC entered into service fee agreements with Apollo Funds and Riverstone Funds for the provision of certain management consulting and advisory services. Under each agreement, the Company paid a fee equal to the higher of (i) a certain percentage of earnings before interest, income taxes, depletion, depreciation and amortization and (ii) a fixed fee payable quarterly, provided, however, such fees did not exceed in each case $0.5 million, in aggregate, for any calendar year. For the three and six months ended June 30, 2019, the Company incurred no expense for these services. For the three and six months ended June 30, 2018, the Company incurred approximately $0.4 million and $0.5 million, respectively. These fees are recognized in “General and administrative expense” on the condensed consolidated statements of operations. In connection with the Stone Combination, the service fee agreements were terminated.

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Commitments and Contingencies

6 Months Ended

Jun. 30, 2019

Commitments And Contingencies Disclosure [Abstract]

Commitments and Contingencies

Note 11 — Commitments and Contingencies

Performance Obligations

Regulations with respect to offshore operations govern, among other things, engineering and construction specifications for production facilities, safety procedures, plugging and abandonment of wells, removal of facilities and to guarantee the execution of the minimum work program under the Mexico production sharing contracts. As of June 30, 2019, the Company had secured performance bonds totaling approximately $637.5 million. As of June 30, 2019, the Company had $15.2 million in letters of credit issued under its Bank Credit Facility.

Legal Proceedings

The Company is named as a party in certain lawsuits and regulatory proceedings arising in the ordinary course of business. The Company does not expect that these matters, individually or in the aggregate, will have a material adverse effect on its financial condition.

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Condensed Consolidating Financial Information

6 Months Ended

Jun. 30, 2019

Condensed Financial Information Of Parent Company Only Disclosure [Abstract]

Condensed Consolidating Financial Information

Note 12 — Condensed Consolidating Financial Information

The Company owns no operating assets, has no operations independent of its subsidiaries and owns 100% of the Talos Issuers. The Talos Issuers issued 11.00% Senior Secured Notes on May 10, 2018, which are fully and unconditionally guaranteed, jointly and severally, by the Company and certain of its 100% owned subsidiaries (“Guarantors”) on a senior secured basis. Certain of the Company’s subsidiaries, which are accounted for on a consolidated basis, do not guarantee the 11.00% Senior Secured Notes (“Non-Guarantors”).

The following condensed consolidating financial information presents the financial information of the Company on an unconsolidated stand-alone basis and its combined subsidiary issuers, combined guarantor and combined non-guarantor subsidiaries as of and for the periods indicated. As described in Note 1 – Formation and Basis of Presentation, the Company retrospectively adjusted its consolidated equity to reflect the legal capital of the Company for all periods presented. Such financial information may not necessarily be indicative of the Company’s results of operations, cash flows or financial position had these subsidiaries operated as independent entities.

TALOS ENERGY INC.

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF JUNE 30, 2019

(In thousands)

(Unaudited)

	Talos		Talos Issuers			Guarantors			Non- Guarantors			Elimination			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	—	$	56,050		$	3,061		$	29,994		$	—		$	89,105
Restricted cash		—		—			—			—			—			—
Accounts receivable, net
Trade, net		—		—			110,504			—			—			110,504
Joint interest, net		—		—			21,111			14,630			—			35,741
Other		—		2,912			8,457			17,459			—			28,828
Assets from price risk management activities		—		23,633			—			—			—			23,633
Prepaid assets		—		1,989			36,352			29			—			38,370
Income tax receivable		—		—			—			—			—			—
Other current assets		—		—			2,085			—			—			2,085
Total current assets		—		84,584			181,570			62,112			—			328,266
Property and equipment:
Proved properties		—		—			3,925,116			—			—			3,925,116
Unproved properties, not subject to    amortization		—		—			73,806			91,235			—			165,041
Other property and equipment		—		21,551			6,486			207			—			28,244
Total property and equipment		—		21,551			4,005,408			91,442			—			4,118,401
Accumulated depreciation, depletion and    amortization		—		(9,625	)		(1,869,835	)		(26	)		—			(1,879,486	)
Total property and equipment, net		—		11,926			2,135,573			91,416			—			2,238,915
Other long-term assets:
Assets from price risk management activities		—		5,508			—			—			—			5,508
Other well equipment inventory		—		—			9,914			—			—			9,914
Leased assets		—		1,502			3,595			1,635			—			6,732
Investments in subsidiaries		1,001,149		1,636,162			—			—			(2,637,311	)		—
Other assets		305		364			1,963			68			—			2,700
Total assets	$	1,001,454	$	1,740,046		$	2,332,615		$	155,231		$	(2,637,311	)	$	2,592,035
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	—	$	1,331		$	72,737		$	41,018		$	—		$	115,086
Accrued liabilities		—		3,610			160,279			22,465			—			186,354
Accrued royalties		—		—			42,651			—			—			42,651
Current portion of long-term debt		—		—			—			—			—			—
Current portion of asset retirement    obligations		—		—			65,757			—			—			65,757
Liabilities from price risk management    activities		—		18,781			—			—			—			18,781
Accrued interest payable		—		10,029			39			—			—			10,068
Leases liabilities		—		—			775			540			—			1,315
Other current liabilities		—		—			18,140			—			—			18,140
Total current liabilities		—		33,751			360,378			64,023			—			458,152
Long-term debt, net of discount and deferred    financing costs		—		691,069			6,061			—			—			697,130
Asset retirement obligations		—		—			327,583			—			—			327,583
Liabilities from price risk management activities		—		2,464			—			—			—			2,464
Long-term leased liabilities		—		11,613			2,837			1,187			—			15,637
Other long-term liabilities		3,413		—			89,514			101			—			93,028
Total liabilities		3,413		738,897			786,373			65,311			—			1,593,994
Commitments and Contingencies (Note 11)
Stockholders' equity		998,041		1,001,149			1,546,242			89,920			(2,637,311	)		998,041
Total liabilities and stockholders' equity	$	1,001,454	$	1,740,046		$	2,332,615		$	155,231		$	(2,637,311	)	$	2,592,035

TALOS ENERGY INC.

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF DECEMBER 31, 2018

(In thousands)

	Talos		Talos Issuers			Guarantors			Non- Guarantors			Elimination			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	—	$	13,541		$	100,801		$	25,572		$	—		$	139,914
Restricted cash		—		—			1,248			—			—			1,248
Accounts receivable, net
Trade, net		—		—			103,025			—			—			103,025
Joint interest, net		—		—			15,870			4,374			—			20,244
Other		—		3,100			9,566			7,020			—			19,686
Assets from price risk management activities		—		75,473			—			—			—			75,473
Prepaid assets		—		1,225			37,639			47			—			38,911
Income tax receivable		—		—			10,701			—			—			10,701
Other current assets		—		—			7,644			—			—			7,644
Total current assets		—		93,339			286,494			37,013			—			416,846
Property and equipment:
Proved properties		—		—			3,629,430			—			—			3,629,430
Unproved properties, not subject to    amortization		—		—			63,104			45,105			—			108,209
Other property and equipment		—		20,670			12,440			81			—			33,191
Total property and equipment		—		20,670			3,704,974			45,186			—			3,770,830
Accumulated depreciation, depletion and    amortization		—		(8,310	)		(1,711,288	)		(11	)		—			(1,719,609	)
Total property and equipment, net		—		12,360			1,993,686			45,175			—			2,051,221
Other long-term assets:
Other well equipment inventory		—		—			9,224			—			—			9,224
Investments in subsidiaries		1,011,359		1,560,922			—			—			(2,572,281	)		—
Other assets		—		364			2,258			73			—			2,695
Total assets	$	1,011,359	$	1,666,985		$	2,291,662		$	82,261		$	(2,572,281	)	$	2,479,986
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	144	$	1,242		$	42,736		$	6,897		$	—		$	51,019
Accrued liabilities		—		4,995			159,491			24,164			—			188,650
Accrued royalties		—		—			38,520			—			—			38,520
Current portion of long-term debt		—		—			443			—			—			443
Current portion of asset retirement    obligations		—		—			68,965			—			—			68,965
Liabilities from price risk management    activities		—		550			—			—			—			550
Accrued interest payable		—		10,162			38			—			—			10,200
Other current liabilities		—		—			22,071			—			—			22,071
Total current liabilities		144		16,949			332,264			31,061			—			380,418
Long-term debt, net of discount and deferred    financing costs		—		638,677			16,184			—			—			654,861
Asset retirement obligations		—		—			313,852			—			—			313,852
Other long-term liabilities		3,719		—			119,432			208			—			123,359
Total liabilities		3,863		655,626			781,732			31,269			—			1,472,490
Commitments and Contingencies (Note 11)
Stockholders' equity		1,007,496		1,011,359			1,509,930			50,992			(2,572,281	)		1,007,496
Total liabilities and stockholders' equity	$	1,011,359	$	1,666,985		$	2,291,662		$	82,261		$	(2,572,281	)	$	2,479,986

TALOS ENERGY INC.

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE THREE MONTHS ENDED JUNE 30, 2019

(In thousands)

(Unaudited)

	Talos			Talos Issuers			Guarantors			Non- Guarantors			Elimination			Consolidated
Revenues:
Oil revenue	$	—		$	—		$	256,908		$	—		$	—		$	256,908
Natural gas revenue		—			—			14,746			—			—			14,746
NGL revenue		—			—			6,645			—			—			6,645
Other revenue		—			—			8,511			—			—			8,511
Total revenue		—			—			286,810			—			—			286,810
Operating expenses:		—			—			—			—			—			—
Direct lease operating expense		—			—			37,975			—			—			37,975
Insurance		—			—			4,184			—			—			4,184
Production taxes		—			—			506			—			—			506
Total lease operating expense		—			—			42,665			—			—			42,665
Workover and maintenance expense		—			—			12,296			—			—			12,296
Depreciation, depletion and amortization		—			1,242			94,554			10			—			95,806
Write-down of oil and natural gas properties		—			—			—			12,361			—			12,361
Accretion expense		—			—			9,945			—			—			9,945
General and administrative expense		48			7,626			10,634			557			—			18,865
Total operating (income) expenses		48			8,868			170,094			12,928			—			191,938
Operating income (loss)		(48	)		(8,868	)		116,716			(12,928	)		—			94,872
Interest expense		—			(17,020	)		(7,719	)		(193	)		—			(24,932	)
Price risk management activities income		—			29,990			—			—			—			29,990
Other income (expense)		—			106			765			(40	)		—			831
Income tax (expense) benefit		(6,187	)		—			(294	)		484			—			(5,997	)
Equity earnings (loss) from subsidiaries		100,999			96,791			—			—			(197,790	)		—
Net income (loss)	$	94,764		$	100,999		$	109,468		$	(12,677	)	$	(197,790	)	$	94,764

TALOS ENERGY INC.

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE SIX MONTHS ENDED JUNE 30, 2019

(In thousands)

(Unaudited)

	Talos			Talos Issuers			Guarantors			Non- Guarantors			Elimination			Consolidated
Revenues:
Oil revenue	$	—		$	—		$	412,587		$	—		$	—		$	412,587
Natural gas revenue		—			—			29,193			—			—			29,193
NGL revenue		—			—			11,711			—			—			11,711
Other revenue								12,032									12,032
Total revenue		—			—			465,523			—			—			465,523
Operating expenses:
Direct lease operating expense		—			—			78,804			—			—			78,804
Insurance		—			—			8,295			—			—			8,295
Production taxes		—			—			1,088			—			—			1,088
Total lease operating expense		—			—			88,187			—			—			88,187
Workover and maintenance expense		—			—			35,315			—			—			35,315
Depreciation, depletion and amortization		—			1,314			159,064			15			—			160,393
Write-down of oil and natural gas properties		—			—			—			12,361			—			12,361
Accretion expense		—			—			19,552			—			—			19,552
General and administrative expense		385			16,232			19,409			448			—			36,474
Total operating expenses		385			17,546			321,527			12,824			—			352,282
Operating income (loss)		(385	)		(17,546	)		143,996			(12,824	)		—			113,241
Interest expense		—			(33,592	)		(16,237	)		(321	)		—			(50,150	)
Price risk management activities expense		—			(79,589	)		—			—			—			(79,589	)
Other income (expense)		—			187			1,236			(159	)		—			1,264
Income tax (expense) benefit		650			—			(296	)		8			—			362
Equity earnings (loss) from subsidiaries		(15,137	)		115,403			—			—			(100,266	)		—
Net income (loss)	$	(14,872	)	$	(15,137	)	$	128,699		$	(13,296	)	$	(100,266	)	$	(14,872	)

TALOS ENERGY INC.

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE THREE MONTHS ENDED JUNE 30, 2018

(In thousands)

(Unaudited)

	Talos			Talos Issuers			Guarantors			Non- Guarantors			Elimination		Consolidated
Revenues:
Oil revenue	$	—		$	—		$	180,161		$	—		$	—	$	180,161
Natural gas revenue		—			—			16,448			—			—		16,448
NGL revenue		—			—			7,297			—			—		7,297
Total revenue		—			—			203,906			—			—		203,906
Operating expenses:
Direct lease operating expense		—			—			34,060			—			—		34,060
Insurance		—			—			4,259			—			—		4,259
Production taxes		—			—			564			—			—		564
Total lease operating expense		—			—			38,883			—			—		38,883
Workover and maintenance expense		—			—			17,714			—			—		17,714
Depreciation, depletion and amortization		—			384			67,341			1			—		67,726
Accretion expense		—			—			9,492			—			—		9,492
General and administrative expense		—			13,804			16,854			222			—		30,880
Total operating expenses		—			14,188			150,284			223			—		164,695
Operating income (loss)		—			(14,188	)		53,622			(223	)		—		39,211
Interest expense		—			(14,399	)		(6,891	)		(388	)		—		(21,678	)
Price risk management activities expense		—			(89,970	)		(1,206	)		—			—		(91,176	)
Other income (expense)		—			(1,358	)		132			(43	)		—		(1,269	)
Equity earnings (loss) from subsidiaries		(74,912	)		45,003			—			—			29,909		—
Net income (loss)	$	(74,912	)	$	(74,912	)	$	45,657		$	(654	)	$	29,909	$	(74,912	)

TALOS ENERGY INC.

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE SIX MONTHS ENDED JUNE 30, 2018

(In thousands)

(Unaudited)

	Talos		Talos Issuers			Guarantors			Non- Guarantors			Elimination			Consolidated
Revenues:
Oil revenue	$	—	$	—		$	307,854		$	—		$	—		$	307,854
Natural gas revenue		—		—			29,171			—			—			29,171
NGL revenue		—		—			12,731			—			—			12,731
Total revenue		—		—			349,756			—			—			349,756
Operating expenses:
Direct lease operating expense		—		—			58,975			—			—			58,975
Insurance		—		—			6,934			—			—			6,934
Production taxes		—		—			955			—			—			955
Total lease operating expense		—		—			66,864			—			—			66,864
Workover and maintenance expense		—		—			24,619			—			—			24,619
Depreciation, depletion and amortization		—		725			116,039			2			—			116,766
Accretion expense		—		—			14,252			—			—			14,252
General and administrative expense		—		18,398			20,567			495			—			39,460
Total operating expenses		—		19,123			242,341			497			—			261,961
Operating income (loss)		—		(19,123	)		107,415			(497	)		—			87,795
Interest expense		—		(26,627	)		(13,957	)		(836	)		—			(41,420	)
Price risk management activities expense		—		(139,217	)		(3,935	)		—			—			(143,152	)
Other income (expense)		—		(1,208	)		85			45			—			(1,078	)
Equity earnings (loss) from subsidiaries		—		88,320			—			—			(88,320	)		—
Net income (loss)	$	—	$	(97,855	)	$	89,608		$	(1,288	)	$	(88,320	)	$	(97,855	)

TALOS ENERGY INC.

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2019

(In thousands)

(Unaudited)

	Talos			Talos Issuers			Guarantors			Non- Guarantors			Elimination			Consolidated
Cash flows from operating activities:
Net cash provided by (used in)    operating activities	$	(259	)	$	(59,988	)	$	266,802		$	(23,934	)	$	—		$	182,621
Cash flows from investing activities:
Exploration, development, and other capital    expenditures		—			(1,442	)		(207,340	)		(20,819	)		—			(229,601	)
Proceeds from sales of property								5,369									5,369
Cash (paid for) acquired in acquisitions		—			—			(32,916	)		—			—			(32,916	)
Investments in subsidiaries		—			(784,698	)		—			—			784,698			—
Distributions from subsidiaries		—			838,920			—			—			(838,920	)		—
Net cash provided by (used in)    investing activities		—			52,780			(234,887	)		(20,819	)		(54,222	)		(257,148	)
Cash flows from financing activities:
Redemption of Senior Notes and other    long-term debt		—			—			(10,567	)		—			—			(10,567	)
Proceeds from Bank Credit Facility		—			75,000			—			—			—			75,000
Repayment of Bank Credit Facility		—			(25,000	)		—			—			—			(25,000	)
Other deferred payments		—			—			(9,921	)		—			—			(9,921	)
Payments of capital lease		—			—			(6,759	)		—			—			(6,759	)
Capital contributions		259			—			734,939			49,500			(784,698	)		—
Employee stock transaction		—			(283	)		—			—			—			(283	)
Distributions to subsidiary issuer		—			—			(838,595	)		(325	)		838,920			—
Net cash provided by financing    activities		259			49,717			(130,903	)		49,175			54,222			22,470
Net increase (decrease) in cash, cash    equivalents and restricted cash		—			42,509			(98,988	)		4,422			—			(52,057	)
Cash, cash equivalents and restricted cash:
Balance, beginning of period		—			13,541			102,049			25,572			—			141,162
Balance, end of period	$	—		$	56,050		$	3,061		$	29,994		$	—		$	89,105

TALOS ENERGY INC.

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2018

(In thousands)

(Unaudited)

	Talos		Talos Issuers			Guarantors			Non- Guarantors			Elimination			Consolidated
Cash flows from operating activities:
Net cash provided by (used in)    operating activities	$	—	$	(54,942	)	$	160,305		$	1,748		$	—		$	107,111
Cash flows from investing activities:
Exploration, development, and other capital    expenditures		—		(20,027	)		(117,667	)		(3,274	)		—			(140,968	)
Cash acquired in acquisitions		—		—			293,001			—			—			293,001
Investments in subsidiaries		—		(384,089	)		—			—			384,089			—
Distributions from subsidiaries		—		677,573			9			—			(677,582	)		—
Net cash provided by (used in)    investing activities		—		273,457			175,343			(3,274	)		(293,493	)		152,033
Cash flows from financing activities:
Redemption of Senior Notes and other    long-term debt		—		(24,977	)		(69	)		—			—			(25,046	)
Proceeds from Bank Credit Facility		—		294,000			—			—			—			294,000
Repayment of Bank Credit Facility		—		(54,000	)		—			—			—			(54,000	)
Repayment of LLC Credit Facility		—		(403,000	)		—			—			—			(403,000	)
Deferred financing costs		—		(17,469	)		—			—			—			(17,469	)
Payments of capital lease		—		—			(6,958	)		—			—			(6,958	)
Capital contributions		—		—			382,089			2,000			(384,089	)		—
Distributions to subsidiaries		—		—			(677,573	)		(9	)		677,582			—
Net cash provided by (used in)    financing activities		—		(205,446	)		(302,511	)		1,991			293,493			(212,473	)
Net increase in cash, cash    equivalents and restricted cash		—		13,069			33,137			465			—			46,671
Cash, cash equivalents and restricted cash:
Balance, beginning of period		—		22,316			9,047			2,070			—			33,433
Balance, end of period	$	—	$	35,385		$	42,184		$	2,535		$	—		$	80,104

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Subsequent Events

6 Months Ended

Jun. 30, 2019

Subsequent Events [Abstract]

Subsequent Events

Note 13 – Subsequent Events

Debt

For additional information, see Note 6 – Debt.

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Summary of Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2019

Organization Consolidation And Presentation Of Financial Statements [Abstract]

Formation and Nature of Business

Formation and Nature of Business

Talos Energy Inc. (“Talos,” the “Company,” “we,” “us” or “our”) is a technically driven independent exploration and production company focused on safely and efficiently maximizing cash flows and long-term value through our operations in the United States (“U.S.”) Gulf of Mexico and offshore Mexico. As one of the largest public independent producers in the U.S. Gulf of Mexico, we leverage decades of geology, geophysics and offshore operational expertise in acquisition, exploration, exploitation and development of deep and shallow water assets in key geological trends that are present in many offshore basins around the world. Our activities offshore Mexico provide high impact exploration opportunities in an oil rich emerging basin.

Talos was formed in connection with the business combination between Talos Energy LLC and Stone Energy Corporation (“Stone”) that occurred on May 10, 2018, pursuant to which Talos Energy LLC and Stone became indirect wholly-owned subsidiaries of Talos Energy Inc.

Talos Energy LLC

Talos Energy LLC

Talos Energy LLC was formed in 2011 and commenced commercial operations on February 6, 2013. Prior to February 6, 2013, Talos Energy LLC incurred certain general and administrative expenses associated with the start-up of its operations.  

On February 3, 2012, Talos Energy LLC completed a transaction with certain funds and other alternative investment vehicles managed by Apollo Management VII, L.P. and Apollo Commodities Management, L.P., with respect to Series I (“Apollo Funds”), and entities controlled by or affiliated with Riverstone Energy Partners V, L.P. (“Riverstone Funds”) and members of management pursuant to which the Talos Energy LLC received a private equity capital commitment.

Stone Combination

Stone Combination

On May 10, 2018 (the “Closing Date”), the Company consummated the transactions contemplated by that certain Transaction Agreement dated as of November 21, 2017 (the “Transaction Agreement”), pursuant to which, among other items, each of Stone, Talos Production LLC and Talos Energy LLC became wholly-owned subsidiaries of the Company (the “Stone Combination”). Concurrently with the consummation of the Transaction Agreement, the Company consummated the transactions contemplated by that certain Exchange Agreement, dated as of November 21, 2017 (the “Exchange Agreement”) pursuant to which (i) the Apollo Funds and Riverstone Funds contributed $102.0 million in aggregate principal amount of 9.75% Senior Notes due 2022 issued by Talos Production LLC and Talos Production Finance, Inc. (together, “Talos Issuers”) to the Company in exchange for an aggregate of 2,874,049 shares of Talos common stock; (ii) the holders of second lien bridge loans (“11.00% Bridge Loans”) exchanged such 11.00% Bridge Loans for $172.0 million aggregate principal amount of 11.00% Second-Priority Senior Secured Notes due 2022 of the Talos Issuers (“11.00% Senior Secured Notes”) and (iii) certain holders of 7.50% Senior Secured Notes due 2022 issued by Stone (“7.50% Stone Senior Notes”) exchanged such notes for $137.4 million aggregate principal amount of 11.00% Senior Secured Notes. Prior to the Closing Date, the Company did not conduct any material activities other than those incident to its formation and the matters contemplated by the Transaction Agreement. See Note 2 – Acquisitions for further details regarding the Stone Combination.

Substantially concurrently therewith, the Company consummated an exchange offer and consent solicitation, pursuant to which other holders of the 7.50% Stone Senior Notes exchanged their 7.50% Stone Senior Notes for 11.00% Senior Secured Notes and a cash payment. Approximately $81.5 million in aggregate principal amount of the 7.50% Stone Senior Notes were validly tendered, and approximately $6.1 million in aggregate principal amount of 7.50% Stone Senior Notes remained outstanding as of the Closing Date.

Basis of Presentation and Consolidation

Basis of Presentation and Consolidation

The condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Accordingly, certain information and disclosures normally included in complete financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. All intercompany transactions have been eliminated. The unaudited financial statements reflect all adjustments which are of a normal, recurring nature and are necessary to fairly present the financial position, results of operations and cash flows for the interim periods. The results for any interim period are not necessarily indicative of the expected results for the entire year. The Company has evaluated subsequent events through the date the condensed consolidated financial statements were issued. The unaudited financial statements and related notes included in this Quarterly Report on Form 10-Q (this “Quarterly Report”) should be read in conjunction with the Company’s audited Consolidated Financial Statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 (our “2018 Annual Report”).

Talos Energy LLC was considered the accounting acquirer in the Stone Combination under GAAP. Accordingly, the historical financial and operating data of Talos Energy Inc., which covers periods prior to the Closing Date, reflects the assets, liabilities and results of operations of Talos Energy LLC and does not reflect the assets, liabilities and results of operations of Stone. For the periods prior to May 10, 2018, the Company retrospectively adjusted its Statements of Changes in Stockholders’ Equity and the weighted average shares used in determining earnings per share to reflect the number of shares Talos Energy LLC received in the Stone Combination. Beginning on May 10, 2018, common stock is presented to reflect the legal capital of Talos Energy Inc.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements, the reported amounts of revenues and expenses during the reporting periods and the reported amounts of proved oil and natural gas reserves. Actual results could differ from those estimates.

The Company has one reportable segment, exploration and production of oil and natural gas. Substantially all of the Company’s proved reserves and production sales are related to the Company’s operations in the U.S.

Unless otherwise indicated or the context otherwise requires, references in this Quarterly Report to “Talos,”  the “Company,” “we,” “us,” or “our” refer to Talos Energy Inc. and its wholly-owned subsidiaries.

Recently Adopted Accounting Standards

Recently Adopted Accounting Standards

Leases. In February 2016, the Financial Accounting Standards Board issued Accounting Standards Codification 2016-02, Leases (“Topic 842”) requiring an entity to recognize a right-of-use asset representing the right to use an underlying asset for the lease term and a lease liability representing the obligation associated with future lease payments for virtually all leases. The pattern of expense recognition in the income statement is dependent on lease classification as finance or operating. A lease is defined as a contract, or part of a contract, that conveys the right to control the use of identified property, plant or equipment (an identified asset) for a period of time in exchange for consideration. However, Topic 842 does not apply to leases of mineral rights.

On January 1, 2019, the Company adopted Topic 842, using the modified retrospective approach, which does not require an adjustment to comparative-period financial statements. As such, results for reporting periods beginning January 1, 2019 are presented in accordance with Topic 842, while prior period amounts are reported in accordance with previous lease accounting treatment. The Company elected the package of practical expedients permitted under the transition guidance within the new standard, which, among other items, allowed Talos not to reassess whether expired or existing contracts, including land easements, contain a lease or reassess the classification and indirect costs associated with existing or expired leases. On the January 1, 2019 adoption date, the Company recorded a right-of-use asset of approximately $7.3 million and corresponding lease liability of $16.9 million representing the present value of its future operating lease payments. Upon the adoption of Topic 842, lease incentives are presented as a reduction to the right-of-use asset resulting in the difference between the right-of-use asset and lease liability. Adoption of this standard did not require an adjustment to retained earnings and did not impact the condensed consolidated statements of operations, condensed consolidated statements of cash flows or condensed consolidated statements of changes in stockholders’ equity. See Note 4 – Leases for further information.

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Acquisitions (Tables)

6 Months Ended

Jun. 30, 2019

Summary of Revenue and Net Income Attributable to Assets Acquired

The following table presents revenue and net income attributable to the assets acquired in the Stone Combination for the three and six months ended June 30, 2019 and 2018:

	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Revenue	$	113.5	$	69.3	$	216.1	$	69.3
Net income	$	57.1	$	44.4	$	106.4	$	44.4

Gunflint Acquisition

Summary of Allocation of Purchase Price to Assets Acquired and Liabilities Assumed

The following table presents the allocation of the purchase price to the assets acquired and liabilities assumed, based on their relative fair values, on January 11, 2019 (in thousands):

Property and equipment	$	28,912
Asset retirement obligations		(996	)
Allocated purchase price	$	27,916

Whistler Energy II, LLC

Summary of Allocation of Purchase Price to Assets Acquired and Liabilities Assumed

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	)
Other long-term liabilities		(23,862	)
Allocated purchase price	$	52,624

^{(1) Includes $37.8 million of cash acquired and trade receivables of $3.2 million, which the Company expects all to be realizable.}

Stone Energy Corporation

Summary of Allocation of Purchase Price to Assets Acquired and Liabilities Assumed

The following table presents the final 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)	$	372,963
Property and equipment		886,406
Other long-term assets		19,494
Current liabilities		(132,846	)
Long-term debt		(235,416	)
Other long-term liabilities		(178,637	)
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.}

Summary of Purchase Price

The following table summarizes the purchase price (in thousands, except per share data):

Stone common stock - issued and outstanding as of May 9, 2018		20,038
Stone common stock price	$	35.49
Common stock value	$	711,149
Stone common stock warrants - issued and outstanding as of May 9, 2018		3,528
Stone common stock warrants price	$	5.90
Common stock warrants value	$	20,815
Total purchase price	$	731,964

Supplemental Proforma Information

The following supplemental pro forma information (in thousands, except per common share amounts), presents the condensed consolidated statements of operations for the three and six months ended June 30, 2019 and 2018 as if the Stone Combination had occurred on January 1, 2018. The unaudited pro forma information was derived from historical combined 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, 2018, nor is such information indicative of any expected future results of operations.

	Three Months Ended June 30,					Six Months Ended June 30,
	2019		2018			2019			2018
	(As reported)		(Pro Forma)			(As reported)			(Pro Forma)
Revenue	$	286,810	$	244,453		$	465,523		$	471,652
Net income (loss)	$	94,764	$	(45,696	)	$	(14,872	)	$	(51,211	)
Basic net income (loss) per common share	$	1.75	$	(0.84	)	$	(0.27	)	$	(0.95	)
Diluted net income (loss) per common share	$	1.74	$	(0.84	)	$	(0.27	)	$	(0.95	)

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Property, Plant and Equipment (Tables)

6 Months Ended

Jun. 30, 2019

Oil And Gas Property [Abstract]

Schedule of Asset Retirement Obligations

Asset Retirement Obligations. The discounted asset retirement obligations included “Current portion of asset retirement obligations” and “Asset retirement obligations” on the condensed consolidated balance sheets and the changes to that liability during the six months ended June 30, 2019 were as follows (in thousands):

Asset retirement obligations at December 31, 2018	$	382,817
Fair value of asset retirement obligations assumed		5,047
Obligations settled		(32,206	)
Accretion expense		19,552
Obligations incurred		4,052
Changes in estimate		14,078
Asset retirement obligations at June 30, 2019	$	393,340
Less: Current portion		65,757
Long-term portion	$	327,583

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Leases (Tables)

6 Months Ended

Jun. 30, 2019

Leases [Abstract]

Components of Lease Costs

The components of lease costs were as follows (in thousands):

	Three Months Ended June 30, 2019		Six Months Ended June 30, 2019
Finance lease cost - interest on lease liabilities(1)	$	4,867	$	9,861
Operating lease cost, excluding short-term leases(2)		763		1,526
Short-term lease cost(3)		27,630		64,239
Variable lease cost(4)		3		5
Total lease cost	$	33,263	$	75,631

⁽¹⁾ The HP-I is utilized in the Company’s oil and natural gas development activities and the right-of-use asset was capitalized and included in proved property and depleted as part of the full cost pool. Once items are included in the full cost pool, they are indistinguishable from other proved properties. The capitalized costs within the full cost pool are amortized over the life of the total proved reserved using the unit-of-production method, computed quarterly.

⁽²⁾ Operating lease cost reflect a single lease cost, calculated so that the cost of the lease is allocated over the lease term on a straight-line basis.

⁽³⁾ Short-term lease costs are reported at gross amounts and primarily represent costs incurred for drilling rigs, most of which are short-term contracts not recognized as a right-of-use asset and lease liability on the balance sheet.

⁽⁴⁾ Variable lease costs primarily represent differences between minimum payment obligations and actual operating charges incurred by the Company related to its long-term leases.

Schedule of Right-of-Use Asset and Liability, Adjusted for Initial Direct Costs and Incentives

The present value of the fixed lease payments recorded as the Company’s right-of-use asset and liability, adjusted for initial direct costs and incentives are as follows (in thousands):

	June 30, 2019
Operating leases:
Operating lease assets	$	6,732
Current portion of operating leases	$	1,315
Operating lease liabilities		15,637
Total operating lease liabilities	$	16,952
Finance leases:
Proved property (1)	$	124,299
Other current liabilities	$	15,697
Other long-term liabilities		71,213
Total finance lease liabilities	$	86,910

⁽¹⁾ The HP-I is utilized in the Company’s oil and natural gas development activities and the right-of-use asset was capitalized and included in proved property and depleted as part of the full cost pool. Once items are included in the full cost pool, they are indistinguishable from other proved properties. The capitalized costs within the full cost pool are amortized over the life of the total proved reserves using the unit-of-production method, computed quarterly.

Minimum Future Commitments by leases

Minimum future commitments by year for the Company’s leases as of June 30, 2019 are presented in the table below (in thousands). Such commitments are reflected at undiscounted values and are reconciled to the discounted present value recognized on the balance sheet.

	Operating Leases			Finance Leases
2019 (excluding the six months ended June 30, 2019)	$	906		$	16,629
2020		2,693			33,257
2021		3,447			33,257
2022		3,658			33,257
2023		3,583			13,857
Thereafter		15,218			—
Total lease payments	$	29,505		$	130,257
Less imputed interest		(12,553	)		(43,347	)
Total	$	16,952		$	86,910

Schedule of Weighted Average Remaining Lease Term and Discount Rate

	June 30, 2019
Weighted average remaining lease term:
Operating leases	9 years
Finance leases	4 years
Weighted average discount rate:
Operating leases		12.3	%
Finance leases		21.9	%

Supplemental Cash Flow Information Related to Leases

The table below presents the supplemental cash flow information related to leases for the six months ended June 30, 2019 (in thousands):

Operating cash outflow from finance leases	$	9,861
Financing cash outflow from finance leases	$	6,759
Operating cash outflow from operating leases	$	906
Right-of-use assets obtained in exchange for new finance lease liabilities	$	—
Right-of-use assets obtained in exchange for new operating lease liabilities	$	613

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Financial Instruments (Tables)

6 Months Ended

Jun. 30, 2019

Financial Instruments [Abstract]

Schedule of Carrying Amounts and Estimated Fair Values of Financial Instruments

The following table presents the carrying amounts and estimated fair values of financial instruments (in thousands): 

	June 30, 2019				December 31, 2018
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
11.00% Second-Priority Senior Secured Notes – due    April 2022(1)	$	382,517	$	413,343	$	381,229	$	362,168
7.50% Senior Secured Notes – due May 2022	$	6,060	$	4,580	$	6,060	$	5,151
Bank Credit Facility – due May 2022(1)	$	308,553	$	315,000	$	257,448	$	265,000
Oil and Natural Gas Derivatives	$	7,896	$	7,896	$	74,923	$	74,923

^{(1) The carrying amounts are net of discount and deferred financing costs.}

Schedule of Impact that Derivatives not Qualifying as Hedging Instruments in Condensed Consolidated Statements of Operations

The following table presents the impact that derivatives, not qualifying as hedging instruments, had on the Company’s condensed consolidated statements of operations (in thousands):

	Three Months Ended June 30,					Six Months Ended June 30,
	2019		2018			2019			2018
Price risk management activities income (expense)(1)	$	29,990	$	(91,176	)	$	(79,589	)	$	(143,152	)

^{(1) The Company paid $9.5 million and $12.6 million for the three and six months ended June 30, 2019 in net cash settlements, respectively. The Company paid $33.6 million and $54.1 million for the three and six months ended June 30, 2018 in net cash settlements, respectively.}

Schedule of Contracted Volumes and Weighted Average Prices and will Receive Under Derivative Contracts

The following table reflects the contracted volumes and weighted average prices the Company will receive under its derivative contracts as of June 30, 2019:

Production Period	Instrument Type	Average Daily Volumes		Weighted Average Swap Price		Weighted Average Put Price		Weighted Average Call Price
Crude Oil – WTI:		(Bbls)		(per Bbl)		(per Bbl)		(per Bbl)
Jul 2019 - Dec 2019	Swap		27,093	$	56.84	$	—	$	—
Jan 2020 - Dec 2020	Swap		8,619	$	56.80	$	—	$	—
Jan 2020 - Dec 2020	Costless collars		7,481	$	—	$	55.00	$	64.23
Natural Gas – Henry Hub NYMEX:		(MMBtu)		(per MMBtu)		(per MMBtu)		(per MMBtu)
Jul 2019 - Dec 2019	Swap		36,840	$	2.89	$	—	$	—
Jan 2020 - Dec 2020	Swap		8,702	$	3.07	$	—	$	—

Summary of Additional Information Related to Financial Instruments Measured at Fair Value on Recurring Basis

The Company’s commodity derivative instruments are measured at fair value based on third-party industry-standard models using various inputs substantially observable in active markets, including forward oil and natural gas price curves, and are therefore classified as Level 2 in the required fair value hierarchy for the periods presented. The following tables provide additional information related to financial instruments measured at fair value on a recurring basis (in thousands):

	June 30, 2019
	Level 1		Level 2			Level 3		Total
Assets:
Oil and natural gas derivatives	$	—	$	29,141		$	—	$	29,141
Liabilities:
Oil and natural gas derivatives		—		(21,245	)		—		(21,245	)
Total net asset	$	—	$	7,896		$	—	$	7,896

	December 31, 2018
	Level 1		Level 2			Level 3		Total
Assets:
Oil and natural gas derivatives	$	—	$	75,473		$	—	$	75,473
Liabilities:
Oil and natural gas derivatives		—		(550	)		—		(550	)
Total net asset	$	—	$	74,923		$	—	$	74,923

Schedule of Fair Value of Derivative Financial Instruments

The following table presents the fair value of derivative financial instruments at June 30, 2019 and December 31, 2018 (in thousands):

	June 30, 2019				December 31, 2018
	Assets		Liabilities		Assets		Liabilities
Oil and natural gas derivatives:
Current	$	23,633	$	18,781	$	75,473	$	550
Non-current		5,508		2,464		—		—
Total	$	29,141	$	21,245	$	75,473	$	550

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Debt (Tables)

6 Months Ended

Jun. 30, 2019

Debt Disclosure [Abstract]

Summary of Detail Comprising Debt and Related Book Values

A summary of the detail comprising the Company’s debt and the related book values for the respective periods presented is as follows (in thousands):

Description	June 30, 2019			December 31, 2018
11.00% Second-Priority Senior Secured Notes – due April 2022	$	390,868		$	390,868
7.50% Senior Secured Notes – due May 2022		6,060			6,060
Bank Credit Facility – due May 2022		315,000			265,000
4.20% Building Loan – due November 2030		—			10,567
Total debt, before discount and deferred financing cost		711,928			672,495
Discount and deferred financing cost		(14,798	)		(17,191	)
Total debt, net of discount and deferred financing cost	$	697,130		$	655,304
Less: current portion of long-term debt		—			(443	)
Long-term debt, net of discount and deferred financing costs	$	697,130		$	654,861

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Employee Benefits Plans and Share-Based Compensation (Tables)

6 Months Ended

Jun. 30, 2019

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

Schedule of Restricted Stock and Performance Share Units Activity

The following table summarizes RSU activity for the six months ended June 30, 2019:

	Restricted Stock Units			Weighted Average Grant Date Fair Value
Unvested RSUs at December 31, 2018		138,704		$	33.85
Granted		695,639		$	24.46
Vested		(61,495	)	$	34.48
Forfeited		(8,274	)	$	25.91
Unvested RSUs at June 30, 2019		764,574		$	25.35

Schedule of Restricted Stock and Performance Share Units Activity

The following table summarizes PSU activity for the six months ended June 30, 2019:

	Performance Share Units			Weighted Average Grant Date Fair Value
Unvested PSUs at December 31, 2018		231,542		$	44.47
Granted		218,060		$	33.96
Vested		—		$	—
Forfeited		(2,980	)	$	42.94
Unvested PSUs at June 30, 2019		446,622		$	39.35

Summary of Assumptions Used to Calculate the Grant Date Fair Value of PSUs Granted

The following table summarizes the assumptions used to calculate the grant date fair value of the PSUs granted in the six months ended June 30, 2019:

	Grant Date
	March 5, 2019			May 16, 2019
Number of simulations		100,000			100,000
Expected term (in years)		2.8			2.6
Expected volatility		46.9	%		44.8	%
Risk-free interest rate		2.5	%		2.1	%
Dividend yield		—	%		—	%

Summary of Share Based Compensation Expense

The following table summarizes the stock-based compensation expense for the three and six months ended June 30, 2019 and 2018 (in millions):

	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Share based compensation	$	3.7		$	4.0		$	6.0		$	4.2
Capitalization		(1.7	)		(2.5	)		(2.8	)		(2.6	)
Share based compensation, net capitalization	$	2.0		$	1.5		$	3.2		$	1.6

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Income (Loss) Per Share (Tables)

6 Months Ended

Jun. 30, 2019

Earnings Per Share [Abstract]

Summary of Computation of Basic and Diluted Earning Per Share

The following table presents the computation of basic and diluted earnings per share for Talos Energy Inc. (in thousands, except for per share amounts):

	Three Months Ended June 30,					Six Months Ended June 30,
	2019		2018			2019			2018
Net income (loss)	$	94,764	$	(74,912	)	$	(14,872	)	$	(97,855	)
Weighted average common shares outstanding — basic		54,178		44,336			54,167			37,826
Dilutive effect of securities		273		—			—			—
Weighted average common shares outstanding — diluted		54,451		44,336			54,167			37,826
Net income (loss) per common share:
Basic	$	1.75	$	(1.69	)	$	(0.27	)	$	(2.59	)
Diluted	$	1.74	$	(1.69	)	$	(0.27	)	$	(2.59	)
Anti-dilutive potentially issuable securities excluded    from diluted common shares		3,857		3,551			4,739			3,551

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Condensed Consolidating Financial Information (Tables)

6 Months Ended

Jun. 30, 2019

Condensed Financial Information Of Parent Company Only Disclosure [Abstract]

Summary of Condensed Consolidating Financial Information

The following condensed consolidating financial information presents the financial information of the Company on an unconsolidated stand-alone basis and its combined subsidiary issuers, combined guarantor and combined non-guarantor subsidiaries as of and for the periods indicated. As described in Note 1 – Formation and Basis of Presentation, the Company retrospectively adjusted its consolidated equity to reflect the legal capital of the Company for all periods presented. Such financial information may not necessarily be indicative of the Company’s results of operations, cash flows or financial position had these subsidiaries operated as independent entities.

TALOS ENERGY INC.

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF JUNE 30, 2019

(In thousands)

(Unaudited)

	Talos		Talos Issuers			Guarantors			Non- Guarantors			Elimination			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	—	$	56,050		$	3,061		$	29,994		$	—		$	89,105
Restricted cash		—		—			—			—			—			—
Accounts receivable, net
Trade, net		—		—			110,504			—			—			110,504
Joint interest, net		—		—			21,111			14,630			—			35,741
Other		—		2,912			8,457			17,459			—			28,828
Assets from price risk management activities		—		23,633			—			—			—			23,633
Prepaid assets		—		1,989			36,352			29			—			38,370
Income tax receivable		—		—			—			—			—			—
Other current assets		—		—			2,085			—			—			2,085
Total current assets		—		84,584			181,570			62,112			—			328,266
Property and equipment:
Proved properties		—		—			3,925,116			—			—			3,925,116
Unproved properties, not subject to    amortization		—		—			73,806			91,235			—			165,041
Other property and equipment		—		21,551			6,486			207			—			28,244
Total property and equipment		—		21,551			4,005,408			91,442			—			4,118,401
Accumulated depreciation, depletion and    amortization		—		(9,625	)		(1,869,835	)		(26	)		—			(1,879,486	)
Total property and equipment, net		—		11,926			2,135,573			91,416			—			2,238,915
Other long-term assets:
Assets from price risk management activities		—		5,508			—			—			—			5,508
Other well equipment inventory		—		—			9,914			—			—			9,914
Leased assets		—		1,502			3,595			1,635			—			6,732
Investments in subsidiaries		1,001,149		1,636,162			—			—			(2,637,311	)		—
Other assets		305		364			1,963			68			—			2,700
Total assets	$	1,001,454	$	1,740,046		$	2,332,615		$	155,231		$	(2,637,311	)	$	2,592,035
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	—	$	1,331		$	72,737		$	41,018		$	—		$	115,086
Accrued liabilities		—		3,610			160,279			22,465			—			186,354
Accrued royalties		—		—			42,651			—			—			42,651
Current portion of long-term debt		—		—			—			—			—			—
Current portion of asset retirement    obligations		—		—			65,757			—			—			65,757
Liabilities from price risk management    activities		—		18,781			—			—			—			18,781
Accrued interest payable		—		10,029			39			—			—			10,068
Leases liabilities		—		—			775			540			—			1,315
Other current liabilities		—		—			18,140			—			—			18,140
Total current liabilities		—		33,751			360,378			64,023			—			458,152
Long-term debt, net of discount and deferred    financing costs		—		691,069			6,061			—			—			697,130
Asset retirement obligations		—		—			327,583			—			—			327,583
Liabilities from price risk management activities		—		2,464			—			—			—			2,464
Long-term leased liabilities		—		11,613			2,837			1,187			—			15,637
Other long-term liabilities		3,413		—			89,514			101			—			93,028
Total liabilities		3,413		738,897			786,373			65,311			—			1,593,994
Commitments and Contingencies (Note 11)
Stockholders' equity		998,041		1,001,149			1,546,242			89,920			(2,637,311	)		998,041
Total liabilities and stockholders' equity	$	1,001,454	$	1,740,046		$	2,332,615		$	155,231		$	(2,637,311	)	$	2,592,035

TALOS ENERGY INC.

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF DECEMBER 31, 2018

(In thousands)

	Talos		Talos Issuers			Guarantors			Non- Guarantors			Elimination			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	—	$	13,541		$	100,801		$	25,572		$	—		$	139,914
Restricted cash		—		—			1,248			—			—			1,248
Accounts receivable, net
Trade, net		—		—			103,025			—			—			103,025
Joint interest, net		—		—			15,870			4,374			—			20,244
Other		—		3,100			9,566			7,020			—			19,686
Assets from price risk management activities		—		75,473			—			—			—			75,473
Prepaid assets		—		1,225			37,639			47			—			38,911
Income tax receivable		—		—			10,701			—			—			10,701
Other current assets		—		—			7,644			—			—			7,644
Total current assets		—		93,339			286,494			37,013			—			416,846
Property and equipment:
Proved properties		—		—			3,629,430			—			—			3,629,430
Unproved properties, not subject to    amortization		—		—			63,104			45,105			—			108,209
Other property and equipment		—		20,670			12,440			81			—			33,191
Total property and equipment		—		20,670			3,704,974			45,186			—			3,770,830
Accumulated depreciation, depletion and    amortization		—		(8,310	)		(1,711,288	)		(11	)		—			(1,719,609	)
Total property and equipment, net		—		12,360			1,993,686			45,175			—			2,051,221
Other long-term assets:
Other well equipment inventory		—		—			9,224			—			—			9,224
Investments in subsidiaries		1,011,359		1,560,922			—			—			(2,572,281	)		—
Other assets		—		364			2,258			73			—			2,695
Total assets	$	1,011,359	$	1,666,985		$	2,291,662		$	82,261		$	(2,572,281	)	$	2,479,986
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	144	$	1,242		$	42,736		$	6,897		$	—		$	51,019
Accrued liabilities		—		4,995			159,491			24,164			—			188,650
Accrued royalties		—		—			38,520			—			—			38,520
Current portion of long-term debt		—		—			443			—			—			443
Current portion of asset retirement    obligations		—		—			68,965			—			—			68,965
Liabilities from price risk management    activities		—		550			—			—			—			550
Accrued interest payable		—		10,162			38			—			—			10,200
Other current liabilities		—		—			22,071			—			—			22,071
Total current liabilities		144		16,949			332,264			31,061			—			380,418
Long-term debt, net of discount and deferred    financing costs		—		638,677			16,184			—			—			654,861
Asset retirement obligations		—		—			313,852			—			—			313,852
Other long-term liabilities		3,719		—			119,432			208			—			123,359
Total liabilities		3,863		655,626			781,732			31,269			—			1,472,490
Commitments and Contingencies (Note 11)
Stockholders' equity		1,007,496		1,011,359			1,509,930			50,992			(2,572,281	)		1,007,496
Total liabilities and stockholders' equity	$	1,011,359	$	1,666,985		$	2,291,662		$	82,261		$	(2,572,281	)	$	2,479,986

TALOS ENERGY INC.

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE THREE MONTHS ENDED JUNE 30, 2019

(In thousands)

(Unaudited)

	Talos			Talos Issuers			Guarantors			Non- Guarantors			Elimination			Consolidated
Revenues:
Oil revenue	$	—		$	—		$	256,908		$	—		$	—		$	256,908
Natural gas revenue		—			—			14,746			—			—			14,746
NGL revenue		—			—			6,645			—			—			6,645
Other revenue		—			—			8,511			—			—			8,511
Total revenue		—			—			286,810			—			—			286,810
Operating expenses:		—			—			—			—			—			—
Direct lease operating expense		—			—			37,975			—			—			37,975
Insurance		—			—			4,184			—			—			4,184
Production taxes		—			—			506			—			—			506
Total lease operating expense		—			—			42,665			—			—			42,665
Workover and maintenance expense		—			—			12,296			—			—			12,296
Depreciation, depletion and amortization		—			1,242			94,554			10			—			95,806
Write-down of oil and natural gas properties		—			—			—			12,361			—			12,361
Accretion expense		—			—			9,945			—			—			9,945
General and administrative expense		48			7,626			10,634			557			—			18,865
Total operating (income) expenses		48			8,868			170,094			12,928			—			191,938
Operating income (loss)		(48	)		(8,868	)		116,716			(12,928	)		—			94,872
Interest expense		—			(17,020	)		(7,719	)		(193	)		—			(24,932	)
Price risk management activities income		—			29,990			—			—			—			29,990
Other income (expense)		—			106			765			(40	)		—			831
Income tax (expense) benefit		(6,187	)		—			(294	)		484			—			(5,997	)
Equity earnings (loss) from subsidiaries		100,999			96,791			—			—			(197,790	)		—
Net income (loss)	$	94,764		$	100,999		$	109,468		$	(12,677	)	$	(197,790	)	$	94,764

TALOS ENERGY INC.

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE SIX MONTHS ENDED JUNE 30, 2019

(In thousands)

(Unaudited)

	Talos			Talos Issuers			Guarantors			Non- Guarantors			Elimination			Consolidated
Revenues:
Oil revenue	$	—		$	—		$	412,587		$	—		$	—		$	412,587
Natural gas revenue		—			—			29,193			—			—			29,193
NGL revenue		—			—			11,711			—			—			11,711
Other revenue								12,032									12,032
Total revenue		—			—			465,523			—			—			465,523
Operating expenses:
Direct lease operating expense		—			—			78,804			—			—			78,804
Insurance		—			—			8,295			—			—			8,295
Production taxes		—			—			1,088			—			—			1,088
Total lease operating expense		—			—			88,187			—			—			88,187
Workover and maintenance expense		—			—			35,315			—			—			35,315
Depreciation, depletion and amortization		—			1,314			159,064			15			—			160,393
Write-down of oil and natural gas properties		—			—			—			12,361			—			12,361
Accretion expense		—			—			19,552			—			—			19,552
General and administrative expense		385			16,232			19,409			448			—			36,474
Total operating expenses		385			17,546			321,527			12,824			—			352,282
Operating income (loss)		(385	)		(17,546	)		143,996			(12,824	)		—			113,241
Interest expense		—			(33,592	)		(16,237	)		(321	)		—			(50,150	)
Price risk management activities expense		—			(79,589	)		—			—			—			(79,589	)
Other income (expense)		—			187			1,236			(159	)		—			1,264
Income tax (expense) benefit		650			—			(296	)		8			—			362
Equity earnings (loss) from subsidiaries		(15,137	)		115,403			—			—			(100,266	)		—
Net income (loss)	$	(14,872	)	$	(15,137	)	$	128,699		$	(13,296	)	$	(100,266	)	$	(14,872	)

TALOS ENERGY INC.

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE THREE MONTHS ENDED JUNE 30, 2018

(In thousands)

(Unaudited)

	Talos			Talos Issuers			Guarantors			Non- Guarantors			Elimination		Consolidated
Revenues:
Oil revenue	$	—		$	—		$	180,161		$	—		$	—	$	180,161
Natural gas revenue		—			—			16,448			—			—		16,448
NGL revenue		—			—			7,297			—			—		7,297
Total revenue		—			—			203,906			—			—		203,906
Operating expenses:
Direct lease operating expense		—			—			34,060			—			—		34,060
Insurance		—			—			4,259			—			—		4,259
Production taxes		—			—			564			—			—		564
Total lease operating expense		—			—			38,883			—			—		38,883
Workover and maintenance expense		—			—			17,714			—			—		17,714
Depreciation, depletion and amortization		—			384			67,341			1			—		67,726
Accretion expense		—			—			9,492			—			—		9,492
General and administrative expense		—			13,804			16,854			222			—		30,880
Total operating expenses		—			14,188			150,284			223			—		164,695
Operating income (loss)		—			(14,188	)		53,622			(223	)		—		39,211
Interest expense		—			(14,399	)		(6,891	)		(388	)		—		(21,678	)
Price risk management activities expense		—			(89,970	)		(1,206	)		—			—		(91,176	)
Other income (expense)		—			(1,358	)		132			(43	)		—		(1,269	)
Equity earnings (loss) from subsidiaries		(74,912	)		45,003			—			—			29,909		—
Net income (loss)	$	(74,912	)	$	(74,912	)	$	45,657		$	(654	)	$	29,909	$	(74,912	)

TALOS ENERGY INC.

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE SIX MONTHS ENDED JUNE 30, 2018

(In thousands)

(Unaudited)

	Talos		Talos Issuers			Guarantors			Non- Guarantors			Elimination			Consolidated
Revenues:
Oil revenue	$	—	$	—		$	307,854		$	—		$	—		$	307,854
Natural gas revenue		—		—			29,171			—			—			29,171
NGL revenue		—		—			12,731			—			—			12,731
Total revenue		—		—			349,756			—			—			349,756
Operating expenses:
Direct lease operating expense		—		—			58,975			—			—			58,975
Insurance		—		—			6,934			—			—			6,934
Production taxes		—		—			955			—			—			955
Total lease operating expense		—		—			66,864			—			—			66,864
Workover and maintenance expense		—		—			24,619			—			—			24,619
Depreciation, depletion and amortization		—		725			116,039			2			—			116,766
Accretion expense		—		—			14,252			—			—			14,252
General and administrative expense		—		18,398			20,567			495			—			39,460
Total operating expenses		—		19,123			242,341			497			—			261,961
Operating income (loss)		—		(19,123	)		107,415			(497	)		—			87,795
Interest expense		—		(26,627	)		(13,957	)		(836	)		—			(41,420	)
Price risk management activities expense		—		(139,217	)		(3,935	)		—			—			(143,152	)
Other income (expense)		—		(1,208	)		85			45			—			(1,078	)
Equity earnings (loss) from subsidiaries		—		88,320			—			—			(88,320	)		—
Net income (loss)	$	—	$	(97,855	)	$	89,608		$	(1,288	)	$	(88,320	)	$	(97,855	)

TALOS ENERGY INC.

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2019

(In thousands)

(Unaudited)

	Talos			Talos Issuers			Guarantors			Non- Guarantors			Elimination			Consolidated
Cash flows from operating activities:
Net cash provided by (used in)    operating activities	$	(259	)	$	(59,988	)	$	266,802		$	(23,934	)	$	—		$	182,621
Cash flows from investing activities:
Exploration, development, and other capital    expenditures		—			(1,442	)		(207,340	)		(20,819	)		—			(229,601	)
Proceeds from sales of property								5,369									5,369
Cash (paid for) acquired in acquisitions		—			—			(32,916	)		—			—			(32,916	)
Investments in subsidiaries		—			(784,698	)		—			—			784,698			—
Distributions from subsidiaries		—			838,920			—			—			(838,920	)		—
Net cash provided by (used in)    investing activities		—			52,780			(234,887	)		(20,819	)		(54,222	)		(257,148	)
Cash flows from financing activities:
Redemption of Senior Notes and other    long-term debt		—			—			(10,567	)		—			—			(10,567	)
Proceeds from Bank Credit Facility		—			75,000			—			—			—			75,000
Repayment of Bank Credit Facility		—			(25,000	)		—			—			—			(25,000	)
Other deferred payments		—			—			(9,921	)		—			—			(9,921	)
Payments of capital lease		—			—			(6,759	)		—			—			(6,759	)
Capital contributions		259			—			734,939			49,500			(784,698	)		—
Employee stock transaction		—			(283	)		—			—			—			(283	)
Distributions to subsidiary issuer		—			—			(838,595	)		(325	)		838,920			—
Net cash provided by financing    activities		259			49,717			(130,903	)		49,175			54,222			22,470
Net increase (decrease) in cash, cash    equivalents and restricted cash		—			42,509			(98,988	)		4,422			—			(52,057	)
Cash, cash equivalents and restricted cash:
Balance, beginning of period		—			13,541			102,049			25,572			—			141,162
Balance, end of period	$	—		$	56,050		$	3,061		$	29,994		$	—		$	89,105

TALOS ENERGY INC.

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2018

(In thousands)

(Unaudited)

	Talos		Talos Issuers			Guarantors			Non- Guarantors			Elimination			Consolidated
Cash flows from operating activities:
Net cash provided by (used in)    operating activities	$	—	$	(54,942	)	$	160,305		$	1,748		$	—		$	107,111
Cash flows from investing activities:
Exploration, development, and other capital    expenditures		—		(20,027	)		(117,667	)		(3,274	)		—			(140,968	)
Cash acquired in acquisitions		—		—			293,001			—			—			293,001
Investments in subsidiaries		—		(384,089	)		—			—			384,089			—
Distributions from subsidiaries		—		677,573			9			—			(677,582	)		—
Net cash provided by (used in)    investing activities		—		273,457			175,343			(3,274	)		(293,493	)		152,033
Cash flows from financing activities:
Redemption of Senior Notes and other    long-term debt		—		(24,977	)		(69	)		—			—			(25,046	)
Proceeds from Bank Credit Facility		—		294,000			—			—			—			294,000
Repayment of Bank Credit Facility		—		(54,000	)		—			—			—			(54,000	)
Repayment of LLC Credit Facility		—		(403,000	)		—			—			—			(403,000	)
Deferred financing costs		—		(17,469	)		—			—			—			(17,469	)
Payments of capital lease		—		—			(6,958	)		—			—			(6,958	)
Capital contributions		—		—			382,089			2,000			(384,089	)		—
Distributions to subsidiaries		—		—			(677,573	)		(9	)		677,582			—
Net cash provided by (used in)    financing activities		—		(205,446	)		(302,511	)		1,991			293,493			(212,473	)
Net increase in cash, cash    equivalents and restricted cash		—		13,069			33,137			465			—			46,671
Cash, cash equivalents and restricted cash:
Balance, beginning of period		—		22,316			9,047			2,070			—			33,433
Balance, end of period	$	—	$	35,385		$	42,184		$	2,535		$	—		$	80,104

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Formation and Basis of Presentation - Additional Information (Details) $ in Thousands		6 Months Ended	12 Months Ended
	Nov. 21, 2017 USD ($) shares	Jun. 30, 2019 USD ($) Segment	Dec. 31, 2018 USD ($)	Jan. 01, 2019 USD ($)	May 10, 2018 USD ($)
Basis Of Presentation And Schedule Of Accounting Policy [Line Items]
Senior notes, outstading amount		$ 711,928	$ 672,495
Number of reportable segment | Segment		1
Operating lease right-of-use asset		$ 6,732		$ 7,300
Operating lease liability		$ 16,952		$ 16,900
11.00% Second-Priority Senior Secured Notes – due April 2022
Basis Of Presentation And Schedule Of Accounting Policy [Line Items]
Debt instrument interest rate		11.00%	11.00%
Senior notes, maturity date		Apr. 03, 2022	Apr. 03, 2022
Senior Notes | 9.75% Senior Notes
Basis Of Presentation And Schedule Of Accounting Policy [Line Items]
Proceeds from issuance of senior notes	$ 102,000
Debt instrument interest rate	9.75%
Shares issued on exchange agreement | shares	2,874,049
Senior Notes | 9.75% Senior Notes – due July 2022
Basis Of Presentation And Schedule Of Accounting Policy [Line Items]
Senior notes, maturity date		Jul. 31, 2022
Senior Notes | 11.00% Second-Priority Senior Secured Notes – due April 2022
Basis Of Presentation And Schedule Of Accounting Policy [Line Items]
Debt instrument interest rate	11.00%	11.00%
Senior notes, maturity date		Apr. 03, 2022
Senior notes, outstading amount		$ 390,868	$ 390,868
Debt instrument interest rate exchanged percentage					11.00%
Senior Notes | 7.50% Senior Secured Notes due 2022
Basis Of Presentation And Schedule Of Accounting Policy [Line Items]
Debt instrument interest rate	7.50%
Proceeds from Issuance of senior secured notes in exchange of 11% senior secured notes	$ 137,400
Senior notes, principal amount					$ 81,500
Senior notes, outstading amount					$ 6,100
Bridge Loans | 11.00% Bridge Loans
Basis Of Presentation And Schedule Of Accounting Policy [Line Items]
Debt instrument interest rate	11.00%
Proceeds from issuance of bridge loans in exchange of 11% senior secured notes	$ 172,000
Stone Energy Corporation
Basis Of Presentation And Schedule Of Accounting Policy [Line Items]
Closing date of merger agreement		May 10, 2018
Stone Energy Corporation | 11.00% Second-Priority Senior Secured Notes – due April 2022
Basis Of Presentation And Schedule Of Accounting Policy [Line Items]
Debt instrument interest rate		11.00%
Senior notes, maturity date		Apr. 03, 2022
Senior notes, principal amount		$ 390,900

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Acquisitions - Additional Information (Details) - USD ($) $ in Thousands	Jan. 11, 2019	Aug. 31, 2018	May 10, 2018
Stone Energy Corporation Stockholders | Talos Energy Inc.
Business Acquisition [Line Items]
Percentage of voting interest acquired			37.00%
Talos Energy LLC Stakeholders | Talos Energy Inc.
Business Acquisition [Line Items]
Percentage of voting interest acquired			63.00%
Gunflint Acquisition
Business Acquisition [Line Items]
Percentage of voting interest acquired	9.60%
Purchase price	$ 29,600
Customary purchase price adjustments	$ 27,900
Whistler Energy II, LLC
Business Acquisition [Line Items]
Purchase price		$ 52,600
Business acquisition purchase price net		14,800
Available cash acquired		37,800
Business combination cash collateral		30,800
Business combination cash on hand for working capital		$ 7,000
Stone Energy Corporation
Business Acquisition [Line Items]
Purchase price			$ 731,964

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Acquisitions - Summary of Allocation of Purchase Price to Assets Acquired and Liabilities Assumed (Details) - USD ($) $ in Thousands	Jan. 11, 2019	Aug. 31, 2018	May 10, 2018
Gunflint Acquisition
Business Acquisition [Line Items]
Property and equipment	$ 28,912
Asset retirement obligations	(996)
Allocated purchase price	$ 27,916
Whistler Energy II, LLC
Business Acquisition [Line Items]
Current assets		$ 45,337
Property and equipment		35,344
Other long-term assets		66
Current liabilities		(4,261)
Other long-term liabilities		(23,862)
Allocated purchase price		$ 52,624
Stone Energy Corporation
Business Acquisition [Line Items]
Current assets			$ 372,963
Property and equipment			886,406
Other long-term assets			19,494
Current liabilities			(132,846)
Long-term debt			(235,416)
Other long-term liabilities			(178,637)
Allocated purchase price			$ 731,964

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Acquisitions - Summary of Allocation of Purchase Price to Assets Acquired and Liabilities Assumed (Parenthetical) (Details) - USD ($) $ in Millions	Aug. 31, 2018	May 10, 2018
Whistler Energy II, LLC
Business Acquisition [Line Items]
Cash acquired	$ 37.8
Whistler Energy II, LLC | Trade Accounts Receivable
Business Acquisition [Line Items]
Primary fair values of receivables acquired	$ 3.2
Stone Energy Corporation
Business Acquisition [Line Items]
Cash acquired		$ 293.0
Stone Energy Corporation | Trade Accounts Receivable
Business Acquisition [Line Items]
Primary fair values of receivables acquired		43.3
Stone Energy Corporation | Joint Interest Receivables
Business Acquisition [Line Items]
Primary fair values of receivables acquired		$ 3.5

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Acquisitions - Summary of Purchase Price (Details) - USD ($) $ / shares in Units, $ in Thousands	May 10, 2018	Jun. 30, 2019	Dec. 31, 2018	May 09, 2018
Business Acquisition [Line Items]
Common stock value		$ 542	$ 542
Stone Energy Corporation
Business Acquisition [Line Items]
Stone common stock - issued and outstanding as of May 9, 2018				20,038,000
Stone common stock price	$ 35.49
Common stock value	$ 711,149
Stone common stock warrants - issued and outstanding as of May 9, 2018				3,528,000
Stone common stock warrants price	$ 5.90
Common stock warrants value	$ 20,815
Total purchase price	$ 731,964

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Acquisitions - Summary of Revenue and Net Income Attributable to Assets Acquired (Details) - Stone Energy Corporation - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Business Acquisition [Line Items]
Revenue	$ 113,500	$ 69,300	$ 216,100	$ 69,300
Net income	$ 57,100	$ 44,400	$ 106,400	$ 44,400

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Acquisitions - Summary of Supplemental Proforma Information (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Business Acquisition Pro Forma Information [Abstract]
Revenue	$ 286,810	$ 244,453	$ 465,523	$ 471,652
Net income (loss)	$ 94,764	$ (45,696)	$ (14,872)	$ (51,211)
Basic net income (loss) per common share	$ 1.75	$ (0.84)	$ (0.27)	$ (0.95)
Diluted net income (loss) per common share	$ 1.74	$ (0.84)	$ (0.27)	$ (0.95)

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Property, Plant and Equipment - Additional Information (Details)		1 Months Ended	3 Months Ended		6 Months Ended
	Dec. 21, 2018	Sep. 30, 2018	Jun. 30, 2019 USD ($)	Jun. 30, 2018 USD ($)	Jun. 30, 2019 USD ($) $ / bbl $ / Mcf	Jun. 30, 2018 USD ($)	Sep. 04, 2015 LeaseBlock
Property, Plant and Equipment [Line Items]
Write-down of oil and natural gas properties			$ 12,361,000		$ 12,361,000
Unproved properties, number of lease blocks awarded | LeaseBlock							2
Capitalized overhead costs			7,400,000	$ 4,500,000	$ 14,000,000.0	$ 7,500,000
Block 2
Property, Plant and Equipment [Line Items]
Write-down of oil and natural gas properties			12,400,000
Participating interest percentage		25.00%
Block 31
Property, Plant and Equipment [Line Items]
Participating interest percentage		25.00%
Hokchi Cross Assignment | Block 2 | Hokchi
Property, Plant and Equipment [Line Items]
Participating interest percentage	25.00%	25.00%
Hokchi Cross Assignment | Block 31 | Hokchi
Property, Plant and Equipment [Line Items]
Participating interest percentage		25.00%
Premier’s Option Exercise | Block 2
Property, Plant and Equipment [Line Items]
Participating interest percentage		5.00%
Premier’s Option Exercise | Block 2 | Sierra
Property, Plant and Equipment [Line Items]
Participating interest percentage		5.00%
Premier’s Option Exercise | Block 2 | Premier
Property, Plant and Equipment [Line Items]
Reduction in participating interests percentage upon option exercise		0.00%
US
Property, Plant and Equipment [Line Items]
Unweighted average first day of month commodity price for crude oil for prior twelve months | $ / bbl					67.16
Unweighted average first day of month commodity price for natural gas for prior twelve months | $ / Mcf					2.97
Unweighted average first day of month commodity price for natural gas liquids for prior twelve months | $ / bbl					28.85
Write-down of oil and natural gas properties			$ 0	$ 0	$ 0	$ 0

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Property, Plant and Equipment - Schedule of Asset Retirement Obligations (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018	Dec. 31, 2018
Oil And Gas Property [Abstract]
Asset retirement obligations			$ 382,817
Fair value of asset retirement obligations assumed			5,047
Obligations settled			(32,206)
Accretion expense	$ 9,945	$ 9,492	19,552	$ 14,252
Obligations incurred			4,052
Changes in estimate			14,078
Asset retirement obligations	393,340		393,340
Current portion of asset retirement obligations	65,757		65,757		$ 68,965
Long-term portion	$ 327,583		$ 327,583		$ 313,852

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Leases - Additional Information (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Jan. 01, 2019	Dec. 31, 2018	Aug. 02, 2016
Leases [Line Items]
Capital lease obligations			$ 93,600	$ 124,300
Operating lease liability	$ 16,952	$ 16,900
Other Current Liabilities
Leases [Line Items]
Capital lease obligations			14,100
Other Long-term Liabilities
Leases [Line Items]
Capital lease obligations			$ 79,500
Seven Year Lease Agreement
Leases [Line Items]
Lease agreement term				7 years
Agreed to pay annual fixed demand charge, year one				$ 49,000
Agreed to pay annual fixed demand charge, year two				49,000
Agreed to pay annual fixed demand charge, year five and thereafter				$ 45,000

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Leases - Components of Lease Costs (Details) - USD ($) $ in Thousands		3 Months Ended	6 Months Ended
		Jun. 30, 2019	Jun. 30, 2019
Leases [Abstract]
Finance lease cost - interest on lease liabilities	[1]	$ 4,867	$ 9,861
Operating lease cost, excluding short-term leases	[2]	763	1,526
Short-term lease cost	[3]	27,630	64,239
Variable lease cost	[4]	3	5
Total lease cost		$ 33,263	$ 75,631

[1] The HP-I is utilized in the Company’s oil and natural gas development activities and the right-of-use asset was capitalized and included in proved property and depleted as part of the full cost pool. Once items are included in the full cost pool, they are indistinguishable from other proved properties. The capitalized costs within the full cost pool are amortized over the life of the total proved reserved using the unit-of-production method, computed quarterly.

[2] Operating lease cost reflect a single lease cost, calculated so that the cost of the lease is allocated over the lease term on a straight-line basis.

[3] Short-term lease costs are reported at gross amounts and primarily represent costs incurred for drilling rigs, most of which are short-term contracts not recognized as a right-of-use asset and lease liability on the balance sheet.

[4] Variable lease costs primarily represent differences between minimum payment obligations and actual operating charges incurred by the Company related to its long-term leases.

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Leases - Schedule of Right-of-Use Asset and Liability, Adjusted for Initial Direct Costs and Incentives (Details) - USD ($) $ in Thousands		Jun. 30, 2019	Jan. 01, 2019
Operating leases:
Operating lease assets		$ 6,732	$ 7,300
Current portion of operating leases		$ 1,315
Operating Lease, Liability, Current, Statement of Financial Position [Extensible List]		us-gaap:OperatingLeaseLiabilityCurrent
Operating lease liabilities		$ 15,637
Total operating lease liabilities		16,952	$ 16,900
Finance leases:
Proved property	[1]	124,299
Other current liabilities		$ 15,697
Finance Lease, Liability, Current, Statement of Financial Position [Extensible List]		us-gaap:OtherLiabilitiesCurrent
Other long-term liabilities		$ 71,213
Finance Lease, Liability, Noncurrent, Statement of Financial Position [Extensible List]		us-gaap:OtherLiabilitiesNoncurrent
Total finance lease liabilities		$ 86,910

[1] The HP-I is utilized in the Company’s oil and natural gas development activities and the right-of-use asset was capitalized and included in proved property and depleted as part of the full cost pool. Once items are included in the full cost pool, they are indistinguishable from other proved properties. The capitalized costs within the full cost pool are amortized over the life of the total proved reserves using the unit-of-production method, computed quarterly.

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Leases - Minimum Future Commitments by leases (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Jan. 01, 2019
Leases [Abstract]
Operating Leases, 2019 (excluding the six months ended June 30, 2019)	$ 906
Operating Leases, 2020	2,693
Operating Leases, 2021	3,447
Operating Leases, 2022	3,658
Operating Leases, 2023	3,583
Operating Leases, Thereafter	15,218
Operating Leases, Total lease payments	29,505
Operating Leases, Less imputed interest	(12,553)
Operating Leases	16,952	$ 16,900
Finance Leases, 2019 (excluding the six months ended June 30, 2019)	16,629
Finance Leases, 2020	33,257
Finance Leases, 2021	33,257
Finance Leases, 2022	33,257
Finance Leases, 2023	13,857
Finance Leases, Total lease payments	130,257
Finance Leases, Less imputed interest	(43,347)
Finance Leases	$ 86,910

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Leases - Schedule of Weighted Average Remaining Lease Term and Discount Rate (Details)	Jun. 30, 2019
Weighted average remaining lease term:
Operating leases	9 years
Finance leases	4 years
Weighted average discount rate:
Operating leases	12.30%
Finance leases	21.90%

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Leases - Supplemental Cash Flow Information Related to Leases (Details) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018
Cash Paid For Amounts Included In Measurement Of Lease Liabilities [Abstract]
Operating cash outflow from finance leases	$ 9,861
Financing cash outflow from finance leases	6,759	$ 6,958
Operating cash outflow from operating leases	906
Right-of-use assets obtained in exchange for new operating lease liabilities	$ 613

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Financial Instruments - Schedule of Carrying Amounts and Estimated Fair Values of Financial Instruments (Details) - USD ($) $ in Thousands		Jun. 30, 2019	Dec. 31, 2018
Oil and Natural Gas Derivatives
Debt Instrument [Line Items]
Carrying Amount		$ 7,896	$ 74,923
Fair Value		7,896	74,923
11.00% Second-Priority Senior Secured Notes – due April 2022
Debt Instrument [Line Items]
Carrying Amount	[1]	382,517	381,229
Fair Value	[1]	413,343	362,168
7.50% Senior Secured Notes – due May 2022
Debt Instrument [Line Items]
Carrying Amount		6,060	6,060
Fair Value		4,580	5,151
Bank Credit Facility – due May 2022
Debt Instrument [Line Items]
Carrying Amount	[1]	308,553	257,448
Fair Value	[1]	$ 315,000	$ 265,000

[1] ^{The carrying amounts are net of discount and deferred financing costs.}

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Financial Instruments - Schedule of Carrying Amounts and Estimated Fair Values of Financial Instruments (Parenthetical) (Details)	6 Months Ended	12 Months Ended
	Jun. 30, 2019	Dec. 31, 2018
Bank Credit Facility – due May 2022
Debt Instrument [Line Items]
Senior notes, maturity date	May 10, 2022	May 10, 2022
11.00% Second-Priority Senior Secured Notes – due April 2022
Debt Instrument [Line Items]
Debt instrument interest rate	11.00%	11.00%
Senior notes, maturity date	Apr. 03, 2022	Apr. 03, 2022
7.50% Senior Secured Notes – due May 2022
Debt Instrument [Line Items]
Debt instrument interest rate	7.50%	7.50%
Senior notes, maturity date	May 31, 2022	May 31, 2022

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Financial Instruments - Additional Information (Details)	6 Months Ended	12 Months Ended
	Jun. 30, 2019 USD ($) counterparty	Dec. 31, 2018	May 31, 2018 USD ($)	May 10, 2018 USD ($)
Investment Grade Credit Rating
Fair Value Balance Sheet Grouping Financial Statement Captions [Line Items]
Number of counterparties | counterparty	12
11.00% Second-Priority Senior Secured Notes – due April 2022
Fair Value Balance Sheet Grouping Financial Statement Captions [Line Items]
Debt instrument interest rate	11.00%	11.00%
Senior notes, maturity date	Apr. 03, 2022	Apr. 03, 2022
7.50% Senior Secured Notes – due May 2022
Fair Value Balance Sheet Grouping Financial Statement Captions [Line Items]
Debt instrument interest rate	7.50%	7.50%
Senior notes, maturity date	May 31, 2022	May 31, 2022
Senior notes, principal amount				$ 6,100,000
New Bank Credit Facility
Fair Value Balance Sheet Grouping Financial Statement Captions [Line Items]
Senior notes, maturity date	May 10, 2022
Credit facility, maximum borrowing capacity			$ 600,000,000.0
Number of counterparties | counterparty	10
Stone Energy Corporation | 11.00% Second-Priority Senior Secured Notes – due April 2022
Fair Value Balance Sheet Grouping Financial Statement Captions [Line Items]
Debt instrument interest rate	11.00%
Senior notes, maturity date	Apr. 03, 2022
Senior notes, principal amount	$ 390,900,000
Stone Energy Corporation | 7.50% Senior Secured Notes – due May 2022
Fair Value Balance Sheet Grouping Financial Statement Captions [Line Items]
Debt instrument interest rate	7.50%
Senior notes, maturity date	May 31, 2022
Senior notes, principal amount	$ 6,100,000

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Financial Instruments - Schedule of Impact that Derivatives not Qualifying as Hedging Instruments in Condensed Consolidated Statements of Operations (Details) - USD ($) $ in Thousands		3 Months Ended		6 Months Ended
		Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Derivative Instruments And Hedging Activities Disclosure [Abstract]
Price risk management activities income (expense)	[1]	$ 29,990	$ (91,176)	$ (79,589)	$ (143,152)

[1] ^{The Company paid $9.5 million and $12.6 million for the three and six months ended June 30, 2019 in net cash settlements, respectively. The Company paid $33.6 million and $54.1 million for the three and six months ended June 30, 2018 in net cash settlements, respectively.}

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Financial Instruments - Schedule of Impact that Derivatives not Qualifying as Hedging Instruments in Condensed Consolidated Statements of Operations (Parenthetical) (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Derivative Instruments And Hedging Activities Disclosure [Abstract]
Net cash receipts (payments) on settled derivative instruments	$ (9,500)	$ (33,600)	$ (12,562)	$ (54,056)

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Financial Instruments - Schedule of Contracted Volumes and Weighted Average Prices and will Receive Under Derivative Contracts (Details)	6 Months Ended
	Jun. 30, 2019 MMBTU $ / bbl $ / MMBTU bbl
July 2019 - December 2019 | NYMEX | Henry Hub | Swap
Average Sales Price And Production Costs Per Unit Of Production [Line Items]
Instrument Type	Swap
Average Daily Volumes | MMBTU	36,840
Weighted Average Swap Price | $ / MMBTU	2.89
January 2020 - December 2020 | NYMEX | Henry Hub | Swap
Average Sales Price And Production Costs Per Unit Of Production [Line Items]
Instrument Type	Swap
Average Daily Volumes | MMBTU	8,702
Weighted Average Swap Price | $ / MMBTU	3.07
Crude Oil | WTI | July 2019 - December 2019 | Swap
Average Sales Price And Production Costs Per Unit Of Production [Line Items]
Instrument Type	Swap
Average Daily Volumes | bbl	27,093
Weighted Average Swap Price	56.84
Crude Oil | WTI | January 2020 - December 2020 | Swap
Average Sales Price And Production Costs Per Unit Of Production [Line Items]
Instrument Type	Swap
Average Daily Volumes | bbl	8,619
Weighted Average Swap Price	56.80
Crude Oil | WTI | January 2020 - December 2020 | Costless Collars
Average Sales Price And Production Costs Per Unit Of Production [Line Items]
Instrument Type	Costless collars
Average Daily Volumes | bbl	7,481
Weighted Average Put Price	55.00
Weighted Average Call Price	64.23

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Financial Instruments - Summary of Additional Information Related to Financial Instruments Measured at Fair Value on Recurring Basis (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Oil And Natural Gas Swaps
Liabilities:
Total net asset	$ 7,896	$ 74,923
Fair Value on Recurring Basis
Liabilities:
Total net asset	7,896	74,923
Fair Value on Recurring Basis | Oil And Natural Gas Swaps
Assets:
Oil and natural gas derivatives	29,141	75,473
Liabilities:
Oil and natural gas derivatives	(21,245)	(550)
Fair Value on Recurring Basis | Level 2
Liabilities:
Total net asset	7,896	74,923
Fair Value on Recurring Basis | Level 2 | Oil And Natural Gas Swaps
Assets:
Oil and natural gas derivatives	29,141	75,473
Liabilities:
Oil and natural gas derivatives	$ (21,245)	$ (550)

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Financial Instruments - Schedule of Fair Value of Derivative Financial Instruments (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Price Risk Derivatives [Line Items]
Current, Assets	$ 23,633	$ 75,473
Non-current, Assets	5,508
Current, Liabilities	18,781	550
Non-current, Liabilities	2,464
Oil and Natural Gas Derivatives
Price Risk Derivatives [Line Items]
Current, Assets	23,633	75,473
Non-current, Assets	5,508
Assets	29,141	75,473
Current, Liabilities	18,781	550
Non-current, Liabilities	2,464
Liabilities	$ 21,245	$ 550

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Debt - Summary of Detail Comprising Debt and Related Book Values (Details) - USD ($)	Jun. 30, 2019	Dec. 31, 2018
Debt Instrument [Line Items]
Total debt, before discount and deferred financing cost	$ 711,928,000	$ 672,495,000
Discount and deferred financing cost	(14,798,000)	(17,191,000)
Total debt, net of discount and deferred financing cost	697,130,000	655,304,000
Less: current portion of long-term debt		(443,000)
Long-term debt, net of discount and deferred financing costs	697,130,000	654,861,000
4.20% Building Loan - due November 2030
Debt Instrument [Line Items]
Total debt, before discount and deferred financing cost	0
Senior Notes | 11.00% Second-Priority Senior Secured Notes – due April 2022
Debt Instrument [Line Items]
Total debt, before discount and deferred financing cost	390,868,000	390,868,000
Senior Notes | 7.50% Senior Secured Notes – due May 2022
Debt Instrument [Line Items]
Total debt, before discount and deferred financing cost	6,060,000	6,060,000
Bank Credit Facility | Bank Credit Facility – due May 2022
Debt Instrument [Line Items]
Total debt, before discount and deferred financing cost	$ 315,000,000	265,000,000
Building Loan | 4.20% Building Loan - due November 2030
Debt Instrument [Line Items]
Total debt, before discount and deferred financing cost		$ 10,567,000

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Debt - Summary of Detail Comprising Debt and Related Book Values (Parenthetical) (Details)	6 Months Ended	12 Months Ended
	Jun. 30, 2019	Dec. 31, 2018	Nov. 21, 2017
11.00% Second-Priority Senior Secured Notes – due April 2022
Debt Instrument [Line Items]
Debt instrument interest rate	11.00%	11.00%
Senior notes, maturity date	Apr. 03, 2022	Apr. 03, 2022
7.50% Senior Secured Notes – due May 2022
Debt Instrument [Line Items]
Debt instrument interest rate	7.50%	7.50%
Senior notes, maturity date	May 31, 2022	May 31, 2022
Bank Credit Facility – due May 2022
Debt Instrument [Line Items]
Debt instrument interest rate	11.00%
Senior notes, maturity date	May 10, 2022
4.20% Building Loan - due November 2030
Debt Instrument [Line Items]
Debt instrument interest rate	4.20%
Senior notes, maturity date	Nov. 20, 2030
Senior Notes | 11.00% Second-Priority Senior Secured Notes – due April 2022
Debt Instrument [Line Items]
Debt instrument interest rate	11.00%		11.00%
Senior notes, maturity date	Apr. 03, 2022
Senior Notes | 7.50% Senior Secured Notes – due May 2022
Debt Instrument [Line Items]
Debt instrument interest rate	7.50%
Senior notes, maturity date	May 31, 2022
Bank Credit Facility | Bank Credit Facility – due May 2022
Debt Instrument [Line Items]
Senior notes, maturity date	May 10, 2022
Building Loan | 4.20% Building Loan - due November 2030
Debt Instrument [Line Items]
Debt instrument interest rate	4.20%
Senior notes, maturity date	Nov. 30, 2030

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Debt - Additional information (Details)	6 Months Ended	12 Months Ended
	Jun. 30, 2019 USD ($)	Dec. 31, 2018 USD ($)	Jul. 03, 2019 USD ($) Lender	May 10, 2018 USD ($)	Nov. 21, 2017
Debt Instrument [Line Items]
Debt instrument redemption, description	The indenture governing the 11.00% Senior Secured Notes applies certain limitations on the Company’s ability and the ability of its subsidiaries to, among other things, (i) incur additional indebtedness or issue certain preferred shares; (ii) pay dividends and make certain other restricted payments; (iii) create restrictions on the payment of dividends or other distributions to the Company from its restricted subsidiaries; (iv) create liens on certain assets to secure debt; (v) make certain investments; (vi) engage in sales of assets and subsidiary stock; (vii) transfer all or substantially all of its assets or enter into merger or consolidation transactions; and (viii) engage in transactions with affiliates. The 11.00% Senior Secured Notes contain customary quarterly and annual reporting, financial and administrative covenants. The Company was in compliance with all debt covenants at June 30, 2019.
Debt amount outstanding	$ 711,928,000	$ 672,495,000
11.00% Second-Priority Senior Secured Notes – due April 2022
Debt Instrument [Line Items]
Debt instrument maturity date	Apr. 03, 2022	Apr. 03, 2022
Debt instrument, interest rate, stated percentage	11.00%	11.00%
7.50% Senior Secured Notes – due May 2022
Debt Instrument [Line Items]
Debt instrument maturity date	May 31, 2022	May 31, 2022
Debt instrument frequency of periodic payment	semi-annually
Debt instrument payment terms	semi-annually each May 31 and November 30
Debt instrument, face amount				$ 6,100,000
Debt instrument, interest rate, stated percentage	7.50%	7.50%
7.50% Senior Secured Notes – due May 2022 | Maximum
Debt Instrument [Line Items]
Debt instrument, redemption price, percentage	105.625%
7.50% Senior Secured Notes – due May 2022 | Minimum
Debt Instrument [Line Items]
Debt instrument, redemption price, percentage	100.00%
Bank Credit Facility – due May 2022
Debt Instrument [Line Items]
Debt instrument maturity date	May 10, 2022
Debt instrument, face amount	$ 25,000,000.0
Debt instrument, interest rate, stated percentage	11.00%
Credit facility, maximum borrowing capacity	$ 600,000,000.0
Bank credit facility, description	The Bank Credit Facility matures on May 10, 2022, provided that the Bank Credit Facility mandates a springing maturity that is 120 days prior to May 10, 2022, if greater than $25.0 million of the 11.00% Senior Secured Notes or any permitted refinancing indebtedness in resect thereof is outstanding on such date.
Debt instrument springing maturity period	120 days
Commitment fee percentage	0.50%
Credit facility, new maximum borrowing capacity	$ 850,000,000.0
Line of credit facility current commitment	600,000,000.0
Undrawn commitment under credit facility	269,800,000
Letters of credit outstanding amount	15,200,000
Line of credit outstanding amount	315,000,000.0
Bank Credit Facility – due May 2022 | Subsequent Event
Debt Instrument [Line Items]
Credit facility, maximum borrowing capacity			$ 850,000,000
Line of credit facility current commitment			$ 850,000,000.0
Number of additional lenders | Lender			3
Bank Credit Facility – due May 2022 | Letter of Credit
Debt Instrument [Line Items]
Credit facility, maximum borrowing capacity	$ 200,000,000
Bank Credit Facility – due May 2022 | Maximum
Debt Instrument [Line Items]
Debt covenant current ratio	100.00%
Bank Credit Facility – due May 2022 | Maximum | London Interbank Offered Rate
Debt Instrument [Line Items]
Debt Instrument, Basis Spread on Variable Rate	3.75%
Bank Credit Facility – due May 2022 | Maximum | Base Rate
Debt Instrument [Line Items]
Debt Instrument, Basis Spread on Variable Rate	2.75%
Bank Credit Facility – due May 2022 | Minimum
Debt Instrument [Line Items]
Debt covenant current ratio	300.00%
Bank Credit Facility – due May 2022 | Minimum | London Interbank Offered Rate
Debt Instrument [Line Items]
Debt Instrument, Basis Spread on Variable Rate	2.75%
Bank Credit Facility – due May 2022 | Minimum | Base Rate
Debt Instrument [Line Items]
Debt Instrument, Basis Spread on Variable Rate	1.75%
4.20% Building Loan - due November 2030
Debt Instrument [Line Items]
Debt instrument maturity date	Nov. 20, 2030
Debt instrument frequency of periodic payment	180 equal monthly installments
Debt instrument, interest rate, stated percentage	4.20%
Debt instrument, periodic payment	$ 100,000
Repayment of aggregate remaining principal plus accrued interest	10,500
Debt amount outstanding	$ 0
Senior Notes | 11.00% Second-Priority Senior Secured Notes – due April 2022
Debt Instrument [Line Items]
Debt instrument, redemption price, percentage	105.50%
Debt instrument maturity date	Apr. 03, 2022
Debt instrument frequency of periodic payment	semi-annually
Debt instrument payment terms	semi-annually each April 15 and October 15
Debt instrument, interest rate, stated percentage	11.00%				11.00%
Debt amount outstanding	$ 390,868,000	$ 390,868,000
Senior Notes | 11.00% Second-Priority Senior Secured Notes – due April 2022 | Maximum
Debt Instrument [Line Items]
Debt instrument, redemption price, percentage	102.75%
Senior Notes | 11.00% Second-Priority Senior Secured Notes – due April 2022 | Minimum
Debt Instrument [Line Items]
Debt instrument, redemption price, percentage	100.00%
Senior Notes | 7.50% Senior Secured Notes – due May 2022
Debt Instrument [Line Items]
Debt instrument maturity date	May 31, 2022
Debt instrument, interest rate, stated percentage	7.50%
Debt amount outstanding	$ 6,060,000	$ 6,060,000

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Employee Benefits Plans and Share Based Compensation - Additional Information (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Restricted Stock Units
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Share based compensation grants			695,639
Performance Stock Units
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Share based compensation grants			218,060
Share-based compensation grant date fair value	$ 7,400,000		$ 7,400,000
Severance Plan
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Termination period			12 months
Outstanding obligations related to plans	0		$ 0
Plan terminated month and year			2019-07
Severance Plan | General and Administrative Expense | Stone Energy Corporation
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Severance expenses		$ 7,500,000	$ 200,000	$ 7,500,000
Long Term Incentive Plan
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Share-Based Compensation authorized to grant	5,415,576		5,415,576
Long Term Incentive Plan | Restricted Stock Units | Employees and Non-Employees
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Share based compensation grants			695,639
Long Term Incentive Plan | Performance Stock Units | Employees
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Share based compensation grants			218,060

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Employee Benefits Plans and Share-Based Compensation - Schedule of Restricted Stock and Performance Share Units Activity (Details)	6 Months Ended
	Jun. 30, 2019 $ / shares shares
Restricted Stock Units
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Unvested restricted stock units and award begining of the period | shares	138,704
Unvested restricted stock units and award, granted | shares	695,639
Unvested restricted stock units and award, vested | shares	(61,495)
Unvested restricted stock units and award, forfeited | shares	(8,274)
Unvested restricted stock units and award, end of the period | shares	764,574
Unvested weighted average grant date fair value, begining of the period | $ / shares	$ 33.85
Unvested weighted average grant date fair value, granted | $ / shares	24.46
Unvested weighted average grant date fair value, vested | $ / shares	34.48
Unvested weighted average grant date fair value, forfeited | $ / shares	25.91
Unvested weighted average grante date fair value, end of the period | $ / shares	$ 25.35
Performance Stock Units
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Unvested restricted stock units and award begining of the period | shares	231,542
Unvested restricted stock units and award, granted | shares	218,060
Unvested restricted stock units and award, forfeited | shares	(2,980)
Unvested restricted stock units and award, end of the period | shares	446,622
Unvested weighted average grant date fair value, begining of the period | $ / shares	$ 44.47
Unvested weighted average grant date fair value, granted | $ / shares	33.96
Unvested weighted average grant date fair value, forfeited | $ / shares	42.94
Unvested weighted average grante date fair value, end of the period | $ / shares	$ 39.35

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Employee Benefits Plans and Share-Based Compensation - Summary of Assumptions Used to Calculate the Grant Date Fair Value (Details) - Performance Stock Units - Simulation	May 16, 2019	Mar. 05, 2019
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Number of simulations	100,000	100,000
Expected term (in years)	2 years 7 months 6 days	2 years 9 months 18 days
Expected volatility	44.80%	46.90%
Risk-free interest rate	2.10%	2.50%

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Employee Benefits Plans and Share Based Compensation - Summary of Share Based Compensation Expense (Details) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]
Share based compensation	$ 3.7	$ 4.0	$ 6.0	$ 4.2
Capitalization	(1.7)	(2.5)	(2.8)	(2.6)
Share based compensation, net capitalization	$ 2.0	$ 1.5	$ 3.2	$ 1.6

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Income Taxes - Additional Information (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Income Tax Disclosure [Abstract]
Income tax expense (benefit)	$ 5,997		$ (362)
Effective tax rate	6.00%	0.00%	2.40%	0.00%
Federal statutory rate	21.00%	21.00%	21.00%	21.00%

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Income (Loss) Per Share - Summary of Computation of Basic and Diluted Earning Per Share (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Earnings Per Share [Abstract]
Net income (loss)	$ 94,764	$ (74,912)	$ (14,872)	$ (97,855)
Weighted average common shares outstanding — basic	54,178	44,336	54,167	37,826
Dilutive effect of securities	273
Weighted average common shares outstanding — diluted	54,451	44,336	54,167	37,826
Basic	$ 1.75	$ (1.69)	$ (0.27)	$ (2.59)
Diluted	$ 1.74	$ (1.69)	$ (0.27)	$ (2.59)
Anti-dilutive potentially issuable securities excluded from diluted common shares	3,857	3,551	4,739	3,551

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Related Party Transactions - Additional Information (Details) - USD ($)		1 Months Ended	3 Months Ended		6 Months Ended
	Aug. 31, 2018	Aug. 31, 2018	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Related Party Transaction [Line Items]
Net of cash acquired					$ 32,916,000	$ (293,001,000)
Equity Registration Rights Agreement
Related Party Transaction [Line Items]
Fees incurred in conjunction with agreement			$ 100,000		700,000
Vinson & Elkins L.L.P.
Related Party Transaction [Line Items]
Legal fees incurred			500,000	$ 1,200,000	1,600,000	2,200,000
Legal fees payable			1,000,000.0		1,000,000.0
Apollo and Riverstone Funds | Service Fee Agreement | Shareholder Service
Related Party Transaction [Line Items]
Service fee			0	$ 400,000	0	$ 500,000
Apollo and Riverstone Funds | Service Fee Agreement | Shareholder Service | Maximum
Related Party Transaction [Line Items]
Service fee			500,000
Whistler Energy II, LLC
Related Party Transaction [Line Items]
Available cash acquired	$ 37,800,000
Whistler Energy II, LLC | Apollo Funds | Whistler Energy II Holdco, LLC
Related Party Transaction [Line Items]
Business acquisition, date of acquisition agreement		Aug. 31, 2018
Cash acquired		$ 52,600,000
Net of cash acquired		14,800,000
Available cash acquired		$ 37,800,000
Primary fair values of receivables acquired			$ 1,100,000		$ 1,100,000

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Commitments and Contingencies - Additional Information (Details) $ in Millions	Jun. 30, 2019 USD ($)
Bank Credit Facility | Letter of Credit
Loss Contingencies [Line Items]
Credit facility	$ 15.2
Production Sharing Contracts | Mexico
Loss Contingencies [Line Items]
Performance obligations	$ 637.5

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Condensed Consolidating Financial Information - Additional Information (Details)	6 Months Ended
	Jun. 30, 2019	May 10, 2018
Percentage of equity interest	100.00%
11.00% Second-Priority Senior Secured Notes
Debt instrument interest rate		11.00%

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Condensed Consolidating Financial Information - Summary of Condensed Consolidating Financial Position (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Mar. 31, 2019	Dec. 31, 2018	Jun. 30, 2018	Mar. 31, 2018	Dec. 31, 2017
Current assets:
Cash and cash equivalents	$ 89,105		$ 139,914
Restricted cash			1,248
Accounts receivable, net
Trade, net	110,504		103,025
Joint interest, net	35,741		20,244
Other	28,828		19,686
Assets from price risk management activities	23,633		75,473
Prepaid assets	38,370		38,911
Income tax receivable			10,701
Other current assets	2,085		7,644
Total current assets	328,266		416,846
Property and equipment:
Proved properties	3,925,116		3,629,430
Unproved properties, not subject to amortization	165,041		108,209
Other property and equipment	28,244		33,191
Total property and equipment	4,118,401		3,770,830
Accumulated depreciation, depletion and amortization	(1,879,486)		(1,719,609)
Total property and equipment, net	2,238,915		2,051,221
Other long-term assets:
Assets from price risk management activities	5,508
Other well equipment inventory	9,914		9,224
Leased assets	6,732
Other assets	2,700		2,695
Total assets	2,592,035		2,479,986
Current liabilities:
Accounts payable	115,086		51,019
Accrued liabilities	186,354		188,650
Accrued royalties	42,651		38,520
Current portion of long-term debt			443
Current portion of asset retirement obligations	65,757		68,965
Liabilities from price risk management activities	18,781		550
Accrued interest payable	10,068		10,200
Leases liabilities	1,315
Other current liabilities	18,140		22,071
Total current liabilities	458,152		380,418
Long-term debt, net of discount and deferred financing costs	697,130		654,861
Asset retirement obligations	327,583		313,852
Liabilities from price risk management activities	2,464
Long-term leased liabilities	15,637
Other long-term liabilities	93,028		123,359
Total liabilities	1,593,994		1,472,490
Commitments and Contingencies
Stockholders' equity	998,041	$ 899,986	1,007,496	$ 685,845	$ (77,127)	$ (54,087)
Total liabilities and stockholders' equity	2,592,035		2,479,986
Talos
Other long-term assets:
Investments in subsidiaries	1,001,149		1,011,359
Other assets	305
Total assets	1,001,454		1,011,359
Current liabilities:
Accounts payable			144
Total current liabilities			144
Other long-term liabilities	3,413		3,719
Total liabilities	3,413		3,863
Commitments and Contingencies
Stockholders' equity	998,041		1,007,496
Total liabilities and stockholders' equity	1,001,454		1,011,359
Talos Issuers
Current assets:
Cash and cash equivalents	56,050		13,541
Accounts receivable, net
Other	2,912		3,100
Assets from price risk management activities	23,633		75,473
Prepaid assets	1,989		1,225
Total current assets	84,584		93,339
Property and equipment:
Other property and equipment	21,551		20,670
Total property and equipment	21,551		20,670
Accumulated depreciation, depletion and amortization	(9,625)		(8,310)
Total property and equipment, net	11,926		12,360
Other long-term assets:
Assets from price risk management activities	5,508
Leased assets	1,502
Investments in subsidiaries	1,636,162		1,560,922
Other assets	364		364
Total assets	1,740,046		1,666,985
Current liabilities:
Accounts payable	1,331		1,242
Accrued liabilities	3,610		4,995
Liabilities from price risk management activities	18,781		550
Accrued interest payable	10,029		10,162
Total current liabilities	33,751		16,949
Long-term debt, net of discount and deferred financing costs	691,069		638,677
Liabilities from price risk management activities	2,464
Long-term leased liabilities	11,613
Total liabilities	738,897		655,626
Commitments and Contingencies
Stockholders' equity	1,001,149		1,011,359
Total liabilities and stockholders' equity	1,740,046		1,666,985
Guarantors
Current assets:
Cash and cash equivalents	3,061		100,801
Restricted cash			1,248
Accounts receivable, net
Trade, net	110,504		103,025
Joint interest, net	21,111		15,870
Other	8,457		9,566
Prepaid assets	36,352		37,639
Income tax receivable			10,701
Other current assets	2,085		7,644
Total current assets	181,570		286,494
Property and equipment:
Proved properties	3,925,116		3,629,430
Unproved properties, not subject to amortization	73,806		63,104
Other property and equipment	6,486		12,440
Total property and equipment	4,005,408		3,704,974
Accumulated depreciation, depletion and amortization	(1,869,835)		(1,711,288)
Total property and equipment, net	2,135,573		1,993,686
Other long-term assets:
Other well equipment inventory	9,914		9,224
Leased assets	3,595
Other assets	1,963		2,258
Total assets	2,332,615		2,291,662
Current liabilities:
Accounts payable	72,737		42,736
Accrued liabilities	160,279		159,491
Accrued royalties	42,651		38,520
Current portion of long-term debt			443
Current portion of asset retirement obligations	65,757		68,965
Accrued interest payable	39		38
Leases liabilities	775
Other current liabilities	18,140		22,071
Total current liabilities	360,378		332,264
Long-term debt, net of discount and deferred financing costs	6,061		16,184
Asset retirement obligations	327,583		313,852
Long-term leased liabilities	2,837
Other long-term liabilities	89,514		119,432
Total liabilities	786,373		781,732
Commitments and Contingencies
Stockholders' equity	1,546,242		1,509,930
Total liabilities and stockholders' equity	2,332,615		2,291,662
Non-Guarantors
Current assets:
Cash and cash equivalents	29,994		25,572
Accounts receivable, net
Joint interest, net	14,630		4,374
Other	17,459		7,020
Prepaid assets	29		47
Total current assets	62,112		37,013
Property and equipment:
Unproved properties, not subject to amortization	91,235		45,105
Other property and equipment	207		81
Total property and equipment	91,442		45,186
Accumulated depreciation, depletion and amortization	(26)		(11)
Total property and equipment, net	91,416		45,175
Other long-term assets:
Leased assets	1,635
Other assets	68		73
Total assets	155,231		82,261
Current liabilities:
Accounts payable	41,018		6,897
Accrued liabilities	22,465		24,164
Leases liabilities	540
Total current liabilities	64,023		31,061
Long-term leased liabilities	1,187
Other long-term liabilities	101		208
Total liabilities	65,311		31,269
Commitments and Contingencies
Stockholders' equity	89,920		50,992
Total liabilities and stockholders' equity	155,231		82,261
Elimination
Other long-term assets:
Investments in subsidiaries	(2,637,311)		(2,572,281)
Total assets	(2,637,311)		(2,572,281)
Current liabilities:
Commitments and Contingencies
Stockholders' equity	(2,637,311)		(2,572,281)
Total liabilities and stockholders' equity	$ (2,637,311)		$ (2,572,281)

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Condensed Consolidating Financial Information - Summary of Condensed Consolidating Results Of Operations (Details) - USD ($) $ in Thousands		3 Months Ended		6 Months Ended
		Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Revenues:
Total revenue		$ 286,810	$ 203,906	$ 465,523	$ 349,756
Operating expenses:
Workover and maintenance expense		12,296	17,714	35,315	24,619
Depreciation, depletion and amortization		95,806	67,726	160,393	116,766
Write-down of oil and natural gas properties		12,361		12,361
Accretion expense		9,945	9,492	19,552	14,252
General and administrative expense		18,865	30,880	36,474	39,460
Total operating expenses		191,938	164,695	352,282	261,961
Operating income		94,872	39,211	113,241	87,795
Interest expense		(24,932)	(21,678)	(50,150)	(41,420)
Price risk management activities income (expense)	[1]	29,990	(91,176)	(79,589)	(143,152)
Other income (expense)		831	(1,269)	1,264	(1,078)
Income tax (expense) benefit		(5,997)		362
Net income (loss)		94,764	(74,912)	(14,872)	(97,855)
Oil and Gas Properties
Operating expenses:
Direct lease operating expense		37,975	34,060	78,804	58,975
Insurance		4,184	4,259	8,295	6,934
Production taxes		506	564	1,088	955
Total lease operating expense		42,665	38,883	88,187	66,864
Talos
Operating expenses:
General and administrative expense		48		385
Total operating expenses		48		385
Operating income		(48)		(385)
Income tax (expense) benefit		(6,187)		650
Equity earnings (loss) from subsidiaries		100,999	(74,912)	(15,137)
Net income (loss)		94,764	(74,912)	(14,872)
Talos Issuers
Operating expenses:
Depreciation, depletion and amortization		1,242	384	1,314	725
General and administrative expense		7,626	13,804	16,232	18,398
Total operating expenses		8,868	14,188	17,546	19,123
Operating income		(8,868)	(14,188)	(17,546)	(19,123)
Interest expense		(17,020)	(14,399)	(33,592)	(26,627)
Price risk management activities income (expense)		29,990	(89,970)	(79,589)	(139,217)
Other income (expense)		106	(1,358)	187	(1,208)
Equity earnings (loss) from subsidiaries		96,791	45,003	115,403	88,320
Net income (loss)		100,999	(74,912)	(15,137)	(97,855)
Guarantors
Revenues:
Total revenue		286,810	203,906	465,523	349,756
Operating expenses:
Workover and maintenance expense		12,296	17,714	35,315	24,619
Depreciation, depletion and amortization		94,554	67,341	159,064	116,039
Accretion expense		9,945	9,492	19,552	14,252
General and administrative expense		10,634	16,854	19,409	20,567
Total operating expenses		170,094	150,284	321,527	242,341
Operating income		116,716	53,622	143,996	107,415
Interest expense		(7,719)	(6,891)	(16,237)	(13,957)
Price risk management activities income (expense)			(1,206)		(3,935)
Other income (expense)		765	132	1,236	85
Income tax (expense) benefit		(294)		(296)
Net income (loss)		109,468	45,657	128,699	89,608
Guarantors | Oil and Gas Properties
Operating expenses:
Direct lease operating expense		37,975	34,060	78,804	58,975
Insurance		4,184	4,259	8,295	6,934
Production taxes		506	564	1,088	955
Total lease operating expense		42,665	38,883	88,187	66,864
Non-Guarantors
Operating expenses:
Depreciation, depletion and amortization		10	1	15	2
Write-down of oil and natural gas properties		12,361		12,361
General and administrative expense		557	222	448	495
Total operating expenses		12,928	223	12,824	497
Operating income		(12,928)	(223)	(12,824)	(497)
Interest expense		(193)	(388)	(321)	(836)
Other income (expense)		(40)	(43)	(159)	45
Income tax (expense) benefit		484		8
Net income (loss)		(12,677)	(654)	(13,296)	(1,288)
Elimination
Operating expenses:
Equity earnings (loss) from subsidiaries		(197,790)	29,909	(100,266)	(88,320)
Net income (loss)		(197,790)	29,909	(100,266)	(88,320)
Oil Revenue
Revenues:
Revenue		256,908	180,161	412,587	307,854
Oil Revenue | Guarantors
Revenues:
Revenue		256,908	180,161	412,587	307,854
Natural Gas Revenue
Revenues:
Revenue		14,746	16,448	29,193	29,171
Natural Gas Revenue | Guarantors
Revenues:
Revenue		14,746	16,448	29,193	29,171
NGL Revenue
Revenues:
Revenue		6,645	7,297	11,711	12,731
NGL Revenue | Guarantors
Revenues:
Revenue		6,645	$ 7,297	11,711	$ 12,731
Other Revenue
Revenues:
Revenue		8,511		12,032
Other Revenue | Guarantors
Revenues:
Revenue		$ 8,511		$ 12,032

[1] ^{The Company paid $9.5 million and $12.6 million for the three and six months ended June 30, 2019 in net cash settlements, respectively. The Company paid $33.6 million and $54.1 million for the three and six months ended June 30, 2018 in net cash settlements, respectively.}

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Condensed Consolidating Financial Information - Summary of Condensed Consolidating Cash Flows (Details) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018
Cash flows from operating activities:
Net cash provided by (used in) operating activities	$ 182,621	$ 107,111
Cash flows from investing activities:
Exploration, development, and other capital expenditures	(229,601)	(140,968)
Proceeds from sale of other property and equipment	5,369
Cash (paid for) acquired in acquisitions	(32,916)	293,001
Net cash provided by (used in) investing activities	(257,148)	152,033
Cash flows from financing activities:
Redemption of Senior Notes and other long-term debt	(10,567)	(25,046)
Proceeds from Bank Credit Facility	75,000	294,000
Repayment of Bank Credit Facility	(25,000)	(54,000)
Other deferred payments	(9,921)	(17,469)
Deferred financing costs		(17,469)
Payments of capital lease	(6,759)	(6,958)
Employee stock transactions	(283)
Net cash provided by (used in) financing activities	22,470	(212,473)
Net increase (decrease) in cash, cash equivalents and restricted cash	(52,057)	46,671
Cash, cash equivalents and restricted cash:
Balance, beginning of period	141,162	33,433
Balance, end of period	89,105	80,104
LLC Bank Credit Facility
Cash flows from financing activities:
Repayment of Bank Credit Facility		(403,000)
Talos
Cash flows from operating activities:
Net cash provided by (used in) operating activities	(259)
Cash flows from financing activities:
Capital contributions	259
Net cash provided by (used in) financing activities	259
Talos Issuers
Cash flows from operating activities:
Net cash provided by (used in) operating activities	(59,988)	(54,942)
Cash flows from investing activities:
Exploration, development, and other capital expenditures	(1,442)	(20,027)
Investments in subsidiaries	(784,698)	(384,089)
Distributions from subsidiaries	838,920	677,573
Net cash provided by (used in) investing activities	52,780	273,457
Cash flows from financing activities:
Redemption of Senior Notes and other long-term debt		(24,977)
Proceeds from Bank Credit Facility	75,000	294,000
Repayment of Bank Credit Facility	(25,000)	(54,000)
Deferred financing costs		(17,469)
Employee stock transactions	(283)
Net cash provided by (used in) financing activities	49,717	(205,446)
Net increase (decrease) in cash, cash equivalents and restricted cash	42,509	13,069
Cash, cash equivalents and restricted cash:
Balance, beginning of period	13,541	22,316
Balance, end of period	56,050	35,385
Talos Issuers | LLC Bank Credit Facility
Cash flows from financing activities:
Repayment of Bank Credit Facility		(403,000)
Guarantors
Cash flows from operating activities:
Net cash provided by (used in) operating activities	266,802	160,305
Cash flows from investing activities:
Exploration, development, and other capital expenditures	(207,340)	(117,667)
Proceeds from sale of other property and equipment	5,369
Cash (paid for) acquired in acquisitions	(32,916)	293,001
Distributions from subsidiaries		9
Net cash provided by (used in) investing activities	(234,887)	175,343
Cash flows from financing activities:
Redemption of Senior Notes and other long-term debt	(10,567)	(69)
Other deferred payments	(9,921)
Payments of capital lease	(6,759)	(6,958)
Capital contributions	734,939	382,089
Distributions to subsidiary issuer	(838,595)	(677,573)
Net cash provided by (used in) financing activities	(130,903)	(302,511)
Net increase (decrease) in cash, cash equivalents and restricted cash	(98,988)	33,137
Cash, cash equivalents and restricted cash:
Balance, beginning of period	102,049	9,047
Balance, end of period	3,061	42,184
Non-Guarantors
Cash flows from operating activities:
Net cash provided by (used in) operating activities	(23,934)	1,748
Cash flows from investing activities:
Exploration, development, and other capital expenditures	(20,819)	(3,274)
Net cash provided by (used in) investing activities	(20,819)	(3,274)
Cash flows from financing activities:
Capital contributions	49,500	2,000
Distributions to subsidiary issuer	(325)	(9)
Net cash provided by (used in) financing activities	49,175	1,991
Net increase (decrease) in cash, cash equivalents and restricted cash	4,422	465
Cash, cash equivalents and restricted cash:
Balance, beginning of period	25,572	2,070
Balance, end of period	29,994	2,535
Elimination
Cash flows from investing activities:
Investments in subsidiaries	784,698	384,089
Distributions from subsidiaries	(838,920)	(677,582)
Net cash provided by (used in) investing activities	(54,222)	(293,493)
Cash flows from financing activities:
Capital contributions	(784,698)	(384,089)
Distributions to subsidiary issuer	838,920	677,582
Net cash provided by (used in) financing activities	$ 54,222	$ 293,493