Research from Water Tower Research, Water Tower Research

Water Tower Research

Research from Water Tower Research

Water Tower Research is a leading equity research firm that provides research on micro, small and mid cap companies.

Water Tower Research was founded by Wall Street veterans after witnessing a fundamental shift in the investment research industry with the result being a declining knowledge base among investors, a lack of awareness and a shrinking pool of fundamental research being conducted on companies across the small-cap and micro-cap spectrum. The same issues are now increasingly occurring in the mid-cap space. This sea change within the investment community is impacting not only the companies themselves but also current shareholders and potential investors. With significantly less active sell-side sponsorship by Wall Street, a substantial information gap has developed between companies and various constituents in the financial community. The net result is fewer channels for insight and information to flow between companies and investors.

Equity Research Firm

Equity Bottom-Up

<ul><li>1Q24 results will include roughly one month of contribution from the assets acquired in the QuarterNorth transaction, which closed on March 4, 2024.</li><li>The QuarterNorth acquisition added an oil-weighted (~75% oil production) asset base (&gt;95% operated), bolstering Talos’s position in the Mississippi Canyon and Green Canyon areas offshore in the Gulf of Mexico.</li><li>Management expects to realize $50 million of estimated annual run-rate cost synergies by year-end 2024.</li></ul>

1Q24 results will include roughly one month of contribution from the assets acquired in the QuarterNorth transaction, which closed on March 4, 2024.The QuarterNorth acquisition added an oil-weighted (~75% oil production) asset base (&gt;95% operated), bolstering Talos’s position in the Mississippi Canyon and Green Canyon areas offshore in the Gulf of Mexico.Management expects to realize $50 million of estimated annual run-rate cost synergies by year-end 2024.

<div><div><div><div><ul style="list-style-type: disc;"><li><p>Talos’s FY24 operating plan prioritizes free cash flow generation. The midpoint of FY24 production guidance is nearly 40% above FY23 production, while the midpoint of the FY24 upstream capex budget is 7% lower than FY23.</p></li><li><p>Our modeling suggests the combination could generate $479 million of free cash flow in FY24, compared with $3 million in FY23.</p></li><li><p>The anticipated free cash flow waterfall could allow Talos to repay nearly $400 million of borrowings under the existing RBL credit facility. </p></li></ul></div></div></div></div>

Talos’s FY24 operating plan prioritizes free cash flow generation. The midpoint of FY24 production guidance is nearly 40% above FY23 production, while the midpoint of the FY24 upstream capex budget is 7% lower than FY23.Our modeling suggests the combination could generate $479 million of free cash flow in FY24, compared with $3 million in FY23.The anticipated free cash flow waterfall could allow Talos to repay nearly $400 million of borrowings under the existing RBL credit facility. 

Talos Energy Inc. - Targeting Free Cash Flow Waterfall in 2024

<div><div><div><div><ul style="list-style-type: disc;"><li><p>Talos’s current valuation implies a steep discount to net asset value (NAV).</p></li><li><p>Management estimates the company’s year- end 2022 pro forma proved reserves have a gross PV-10 value of ~$5.5 billion (~$4.8 billion net of asset retirement obligations [ARO]) based on oil and natural gas prices of $75/bbl and $3.50/Mcf.</p></li><li><p>Adjusting for March 31, 2023, balance sheet items, leaves an estimated NAV of ~$3.6 billion, or $28.38/share.</p></li></ul></div></div></div></div>

Talos’s current valuation implies a steep discount to net asset value (NAV).Management estimates the company’s year- end 2022 pro forma proved reserves have a gross PV-10 value of ~$5.5 billion (~$4.8 billion net of asset retirement obligations [ARO]) based on oil and natural gas prices of $75/bbl and $3.50/Mcf.Adjusting for March 31, 2023, balance sheet items, leaves an estimated NAV of ~$3.6 billion, or $28.38/share.

Talos Energy, Inc. - Value Creation Catalysts

Technical Analyst, Vermilion Research

Joe Jasper

Technical Analyst

Technical and Quantitative Research

Vermilion Research

Vermilion’s objective is to deliver timely, actionable, and unique technical research to professional investors through the application of our various technical indicators.

Our research strategists seek to highlight securities which we believe are at major inflection points, based on our various technical and quantitative indicators, and offer asymmetric risk/return profiles. Our unique research methodology, centered on relative strength, enables our strategists to deliver superior investment recommendations.

Our process begins by organizing the universe of actively traded stocks into discrete sectors, then into industry groups. We then apply our technical and quantitative tools to identify developing price trends. Once attractive trends are identified within a selected sector or group, we screen for individual stocks which we believe offer the best risk/reward profile. We provide a historical perspective that often reveals, through our long-term charts, how price patterns often repeat themselves over time.

Technical Analysis

<ul>
<li>Over the last two weeks we discussed expectations for an oversold bounce; the bounce has continued. We believe it is possible we've seen the lows for this pause/pullback on SPX.</li>
<li>We see low probability of a meaningful correction if SPX is above 4300-4325 (1.5-year support), but would not be surprised to see another month+ of consolidation between 4325 and 4600.</li>
<li>Shorter-Term, as long as 4460 short-term support holds, we expect a test of 4600. Today we highlight several buys within Energy.</li>
</ul>


Over the last two weeks we discussed expectations for an oversold bounce; the bounce has continued. We believe it is possible we've seen the lows for this pause/pullback on SPX.
We see low probability of a meaningful correction if SPX is above 4300-4325 (1.5-year support), but would not be surprised to see another month+ of consolidation between 4325 and 4600.
Shorter-Term, as long as 4460 short-term support holds, we expect a test of 4600. Today we highlight several buys within Energy.


Bounce Continues; Small-Caps Test 3.5-Year RS Lows; Nasdaq/NYSE Breadth Improving; Buys in Energy

Equity Capital Markets and Advisory Business, Auctus Advisors

Auctus Advisors

Equity Capital Markets and Advisory Business

Auctus Advisors is a specialist Equity Capital Markets and Advisory business with a focus in the Energy Sector. The partners have complementary skill sets, with decades of experience across Equity Capital Markets, Investment Banking and the Energy industry. We have worked at Société Générale, Canaccord Capital, BMO Capital Markets and Schlumberger. Most recently we have worked together for many years at GMP FirstEnergy. Auctus has been set up at the beginning of a new decade in which we see significant opportunities in the Energy space. Globally, demand for energy is at record levels and continues to grow. Conversely, investment in traditional energy sources has been severely constrained. We believe this imbalance creates opportunities for both companies and investors. Auctus provides Corporate Broking, Equity Research and Investment Banking services.

Thematic (Sector/Industry)

<ul><li>Hartshead Resources (HHR AU)C; target price of A$0.18 per share: On tack for first gas in 2025 – The FDP for Phase I is nearing completion and will be submitted in two weeks.</li><li>Panoro Energy (PEN NO)C; target price of NOK50 per share: Executing on plans.</li><li>Pharos Energy (PHAR LN)C; target price of £0.55 per share: Flow rate at new Vietnam well above expectations.</li></ul>

Hartshead Resources (HHR AU)C; target price of A$0.18 per share: On tack for first gas in 2025 – The FDP for Phase I is nearing completion and will be submitted in two weeks.Panoro Energy (PEN NO)C; target price of NOK50 per share: Executing on plans.Pharos Energy (PHAR LN)C; target price of £0.55 per share: Flow rate at new Vietnam well above expectations.

United States

Talos Energy Inc. operates as an oil and gas company. The Company engages in exploration, development, and production of oil and natural gas properties. Talos Energy serves customers worldwide.

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Talos Energy Inc (TALO US)

Talos Energy Inc. - Estimate Update

1Q24 results will include roughly one month of contribution from the assets acquired in the QuarterNorth transaction, which closed on March 4, 2024.

Water Tower Research

Talos Energy Inc. - Targeting Free Cash Flow Waterfall in 2024

The midpoint of FY24 production guidance is nearly 40% above FY23 production, while the midpoint of the FY24 upstream capex budget is 7% lower than...

Water Tower Research

Talos Energy, Inc. - Value Creation Catalysts

Management estimates the company’s year- end 2022 pro forma proved reserves have a gross PV-10 value of ~$5.5 billion (~$4.8 billion net of asset...

Water Tower Research

Bounce Continues; Small-Caps Test 3.5-Year RS Lows; Nasdaq/NYSE Breadth Improving; Buys in Energy

Expectations over the past two weeks for an oversold bounce in $SPX have played out. 4300-4325 (1.5-year support) remains solid floor, but could...

Vermilion Research

Auctus on Friday - 26/05/2023

Hartshead Resources (HHR AU)C; target price of A$0.18 per share: On tack for first gas in 2025 – The FDP for Phase I is nearing completion and will...

Auctus Advisors

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