Exhibit 99.2

Unless the context otherwise requires, references to:

 

•

“Talos,” “we,” “us,” “our,” or the “Company,” refer to Talos Energy Inc., a Delaware corporation, and its subsidiaries;

 

•

“Talos Production” refer to Talos Production Inc., a Delaware corporation;

 

•

“SEC” refer to the U.S. Securities and Exchange Commission;

 

•

“EnVen” refer to EnVen Energy Corporation, a Delaware corporation; and

 

•

“QuarterNorth” refer to QuarterNorth Energy Inc., a Delaware corporation.

 

1

TALOS ENERGY INC.

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

QuarterNorth Acquisition

On January 13, 2024, we entered into a definitive agreement to acquire QuarterNorth, a private operator in the Deepwater U.S. Gulf of Mexico, for consideration consisting of (i) $1,273.9 million in cash and (ii) 24.8 million shares of our common stock (the “QuarterNorth Acquisition,” and such agreement the “QuarterNorth Merger Agreement”). We expect to fund the cash portion of the purchase price for the QuarterNorth Acquisition via borrowings under the Talos Production bank credit facility (the “Bank Credit Facility”), the proceeds from an underwritten equity offering, available cash on hand and, opportunistically to the extent market conditions warrant, other capital markets offerings or other debt financings, as appropriate. The QuarterNorth Acquisition is expected to close in the first quarter of 2024, subject to customary closing conditions.

EnVen Acquisition

On February 13, 2023, we completed the acquisition (the “EnVen Acquisition”) of EnVen, a private operator in the Deepwater U.S. Gulf of Mexico, for consideration consisting of (i) $207.3 million in cash, (ii) 43.8 million shares of the Company’s common stock valued at $832.2 million and (iii) the effective settlement of an accounts receivable balance of $8.4 million.

Other Transaction Accounting Adjustments

The transaction accounting adjustments in the pro forma financial statements for the QuarterNorth Acquisition and EnVen Acquisition consists of those necessary to account for the transactions. Separately, we expect to generate gross proceeds of $300.0 million by issuing shares of our common stock in an underwritten equity offering to partially fund the cash consideration in the QuarterNorth Acquisition. The adjustments related to the issuance of common stock are shown in a separate column as “Equity Financing.”

Pro Forma Presentation

The following unaudited pro forma combined financial statements (which we refer to as the “pro forma financial statements”) have been prepared from the respective historical consolidated financial statements of Talos, EnVen, and QuarterNorth adjusted to give effect to the EnVen Acquisition and QuarterNorth Acquisition and related financing consisting of borrowings under the Bank Credit Facility and planned proceeds from the underwritten equity offering. The unaudited pro forma condensed combined statement of operations for the nine months ended September 30, 2023, and the year ended December 31, 2022, combine the historical consolidated statement of operations of Talos, EnVen, and QuarterNorth, giving effect to the EnVen Acquisition and QuarterNorth Acquisition and related financing as if the transactions had been consummated on January 1, 2022. The unaudited pro forma condensed combined balance sheet combines the historical consolidated balance sheets of Talos and QuarterNorth as of September 30, 2023, giving effect to the QuarterNorth Acquisition and related financing as if the transactions had been consummated on September 30, 2023. The pro forma financial statements contain certain reclassification adjustments to conform the historical EnVen and QuarterNorth financial statement presentation to Talos’s financial statement presentation.

The pro forma financial statements are presented to reflect the EnVen Acquisition and QuarterNorth Acquisition and related financing and do not represent what Talos’s financial position or results of operations would have been had these acquisitions occurred on the dates noted above, nor do they project the financial position or results of operations of the combined company following these acquisitions. The pro forma financial statements are intended to provide information about the continuing impact of the acquisitions and related financing as if the transaction had been consummated earlier. The pro forma adjustments are based on available information and certain assumptions that management believes are factually supportable and are expected to have a continuing impact on Talos’s results of operations. In the opinion of management, all adjustments necessary to present fairly the pro forma financial statements have been made.

Talos used currently available information to determine preliminary fair value estimates for the consideration and its allocation to the QuarterNorth assets acquired and liabilities assumed. The estimates of fair value of QuarterNorth’s assets and liabilities are based on reviews of QuarterNorth’s internally generated financial statements and other due diligence procedures. The assumptions and estimates used to determine the preliminary purchase price allocation and fair value adjustments are described in the notes accompanying the pro forma financial statements.

 

2

The preliminary purchase price allocation is subject to change due to changes in the estimated fair value of QuarterNorth’s identifiable assets acquired and liabilities assumed as of the closing date, which could result from Talos’s additional valuation analysis, reserves estimates, discount rates and other factors.

As a result of the foregoing, the pro forma adjustments are preliminary and subject to change as additional information becomes available and additional analysis is performed. The preliminary pro forma adjustments have been made solely for the purpose of providing the pro forma financial statements presented below. Any increases or decreases in the fair value of assets acquired and liabilities assumed upon completion of the final valuation will result in adjustments to the pro forma balance sheet and if applicable, the pro forma statement of operations. The final purchase price allocation may be materially different than that reflected in the preliminary purchase price allocation presented herein.

The pro forma financial statements have been developed from and should be read in conjunction with the separate historical consolidated financial statements and related notes thereto in Talos’s SEC filings, EnVen’s historical consolidated financial statements and related notes thereto included in the April 12, 2023 current report on Form 8-K, and QuarterNorth’s historical consolidated financial statements and related notes thereto included in this current report on Form 8-K.

 

3

UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET

As of September 30, 2023

(In thousands, except share amounts)

 

		Historical								Transaction Accounting Adjustments
		Talos				QuarterNorth				Reclass Adjustment (a)				Pro Forma Adjustments						Equity Financing				Pro Forma Combined Talos
										(see Note 4)				(see Note 4)						(see Note 5)
ASSETS
Current assets:
Cash and cash equivalents		$	13,631			$	387,722			$	—			$	584,708			(b)		$	287,800			$	—
														$	(1,273,861	)		(d)
Accounts receivable:
Trade, net			181,384				—				83,520				—						—				264,904
Joint interest, net			93,798				—				64,458				—						—				158,256
Other, net			10,744				—				31,511				—						—				42,255
Accounts receivable, net			—				179,489				(179,489	)			—						—				—
Assets from price risk management activities			11,497				—				12				—						—				11,509
Prepaid assets			86,077				—				13,606				—						—				99,683
Other current assets			14,457				40,492				(13,606	)			—						—				41,343
Material and supplies			—				49,166				(49,166	)			—						—				—
Total current assets			411,588				656,869				(49,154	)		$	(689,153	)					287,800				617,950
Property and equipment:
Proved properties			7,691,828				—				1,301,937				(30,513	)		(i)			—				8,963,252
Unproved properties, not subject to amortization			267,297				181,384				—				246,720			(i)			—				695,401
Proved properties, net			—				858,737				(858,737	)			—						—				—
Other property and equipment			33,795				2,667				4,074				—						—				40,536
Total property and equipment			7,992,920				1,042,788				447,274				216,207						—				9,699,189
Accumulated depreciation, depletion and amortization			(3,985,613	)			—				(447,274	)			447,274			(i)			—				(3,985,613	)
Total property and equipment, net			4,007,307				1,042,788				—			$	663,481						—				5,713,576
Other long-term assets:
Restricted cash			101,760				—				—				—						—				101,760
Assets from price risk management activities			4,550				—				65				—						—				4,615
Equity method investments			141,682				—				—				—						—				141,682
Other well equipment inventory			44,643				—				49,166				—						—				93,809
Notes receivable, net			15,805				—				—				—						—				15,805
Operating lease assets			12,313				—				5,836				—						—				18,149
Other assets			13,452				6,704				(5,836	)			—						—				14,320
Total assets		$	4,753,100			$	1,706,361			$	77			$	(25,672	)				$	287,800			$	6,721,666

The accompanying notes are an integral part of the unaudited pro forma condensed combined financial statements.

 

4

UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET

As of September 30, 2023

(In thousands, except share amounts)

 

		Historical								Transaction Accounting Adjustments
		Talos				QuarterNorth				Reclass Adjustment (a)				Pro Forma Adjustments						Equity Financing				Pro Forma Combined Talos
										(see Note 4)				(see Note 4)						(see Note 5)
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	125,557			$	56,860			$	—			$	—					$	—			$	182,417
Accrued liabilities			205,095				122,680				(14,320	)			14,649			(c)			—				331,753
															3,649			(n)
Accrued royalties			54,092				—				14,182				—						—				68,274
Current portion of long-term debt			33,109				—				—				—						—				33,109
Current portion of asset retirement obligations			69,288				10,577				—				—						—				79,865
Liabilities from price risk management activities			55,042				43,711				12				—						—				98,765
Accrued interest payable			30,536				—				138				—						—				30,674
Current portion of operating lease liabilities			2,859				—				1,225				—						—				4,084
Other current liabilities			54,221				2,943				(1,225	)			—						—				55,939
Total current liabilities			629,799				236,771				12				18,298						—				884,880
Long-term liabilities:
Long-term debt			1,018,774				182,060				—				584,708			(b)			—				1,788,482
															2,940			(h)
Asset retirement obligations			747,560				112,732				—				—						—				860,292
Liabilities from price risk management activities			8,981				9,576				65				—						—				18,622
Operating lease liabilities			18,888				—				4,848				—						—				23,736
Other long-term liabilities			267,036				4,848				(4,848	)			143,998			(k)			—				479,042
											68,008
Deferred income taxes			—				68,008				(68,008	)									—				—
Total liabilities			2,691,038				613,995				77				749,944						—				4,055,054
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.01 par value; 30,000,000 shares authorized and no shares issued or outstanding as of September 30, 2023			—				—				—				—						—				—
Common stock $0.01 par value; 270,000,000 shares authorized; 127,480,361 shares (174,486,135 pro forma shares) issued as of September 30, 2023			1,275				—				—				248			(e)			222				1,745
Common stock			—				79				—				(79	)		(f)							—
Additional paid-in capital			2,541,906				978,531				—				(978,531	)		(f)			287,578				3,164,284
															334,800			(e)
Accumulated earnings (deficit)			(433,615	)			113,756				—				(113,756	)		(f)			—				(451,913	)
															(14,649	)		(c)
															(3,649	)		(n)
Treasury stock, at cost; 3,400,000 shares as of September 30, 2023			(47,504	)			—				—				—						—				(47,504	)
Total stockholders’ equity			2,062,062				1,092,366				—				(775,616	)					287,800				2,666,612
Total liabilities and stockholders’ equity		$	4,753,100			$	1,706,361			$	77				(25,672	)				$	287,800			$	6,721,666

The accompanying notes are an integral part of the unaudited pro forma condensed combined financial statements.

 

5

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

For the Nine Months Ended September 30, 2023

(In thousands, except per share amounts)

 

						Historical				Transaction Accounting Adjustments
		Talos pro forma adjusted for EnVen Acquisition				QuarterNorth				Reclass Adjustment (a)				Pro Forma Adjustments						Equity Financing				Pro Forma Combined Talos
		(see Note 2)								(see Note 4)				(see Note 4)						(see Note 5)
Revenues:
Oil		$	1,043,775			$	448,064			$	—			$	—					$	—			$	1,491,839
Natural gas		$	55,704				24,600				—				—						—				80,304
NGL		$	25,491				13,273				—				—						—				38,764
Turnkey revenue			—				87,157				—				(87,157	)		(l)			—				—
Other revenue			—				18,005				—				—						—				18,005
Total revenues			1,124,970				591,099				—				(87,157	)					—				1,628,912
Operating expenses:
Lease operating expense			297,387				115,481				13,492				—						—				426,360
Decommissioning costs of goods sold			—				61,927				—				(61,927	)		(l)			—				—
Production taxes			1,813				—				—				—						—				1,813
Depreciation, depletion and amortization			501,455				155,261				—				(377	)		(j)			—				656,339
Accretion expense			66,244				8,488				—				—						—				74,732
General and administrative expense			162,041				27,314				1,377				—						—				190,732
Insurance expense			—				16,175				(16,175	)			—						—				—
Other operating (income) expense			(55,172	)			11,428				—				—						—				(43,744	)
Total operating expenses			973,768				396,074				(1,306	)			(62,304	)					—				1,306,232
Operating income (loss)			151,202				195,025				1,306				(24,853	)					—				322,680
Interest expense			(136,814	)			(5,769	)			(1,306	)			(35,507	)		(b)			—				(183,052	)
															(3,656	)		(m)
Price risk management activities expense			(10,312	)			(56,562	)			—				—						—				(66,874	)
Equity method investment income			2,938				—				—				—						—				2,938
Other income (expense)			12,107				6,411				—				—						—				18,518
Net income (loss) before income taxes			19,121				139,105				—				(64,016	)					—				94,210
Income tax benefit (expense)			60,742				(30,276	)			—				13,443			(g)			—				43,909
Net income (loss)		$	79,863			$	108,829			$	—			$	(50,573	)				$	—			$	138,119
Net income (loss) per common share:
Basic		$	0.64																					$	0.80
Diluted		$	0.63																					$	0.80
Weighted average common shares outstanding:
Basic			125,358												24,800			(e)			22,206				172,364
Diluted			126,161												24,800			(e)			22,206				173,167

The accompanying notes are an integral part of the unaudited pro forma condensed combined financial statements.

 

6

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

For the Year Ended December 31, 2022

(In thousands, except per share amounts)

 

						Historical				Transaction Accounting Adjustments
		Talos pro forma adjusted for EnVen Acquisition				QuarterNorth				Reclass Adjustment (a)				Pro Forma Adjustments						Equity Financing				Pro Forma Combined Talos
		(see Note 2)								(see Note 4)				(see Note 4)						(see Note 5)
Revenues:
Oil		$	2,007,690			$	709,484			$	—			$	—					$	—			$	2,717,174
Natural gas			274,634				83,066				—				—						—				357,700
NGL			72,891				27,127				—				—						—				100,018
Turnkey revenue			—				70,008				—				(70,008	)		(l)			—				—
Other revenue			—				22,787				—				—						—				22,787
Total revenues			2,355,215				912,472				—				(70,008	)					—				3,197,679
Operating expenses:
Lease operating expense			392,257				158,603				16,060				—						—				566,920
Decommissioning costs of goods sold			—				57,410				—				(57,410	)		(l)			—				—
Production taxes			3,488				—				—				—						—				3,488
Depreciation, depletion and amortization			696,533				223,755				—				(2,463	)		(j)			—				917,825
Accretion expense			79,635				15,835				—				—						—				95,470
General and administrative expense			181,281				20,400				1,697				14,649			(c)			—				221,676
															3,649			(n)
Insurance expense			—				19,198				(19,198	)			—						—				—
Other operating expense			33,902				6,826				—				—						—				40,728
Total operating expenses			1,387,096				502,027				(1,441	)			(41,575	)					—				1,846,107
Operating income			968,119				410,445				1,441				(28,433	)					—				1,351,572
Interest expense			(178,758	)			(20,876	)			(1,441	)			(31,998	)		(b)			—				(237,948	)
															(4,875	)		(m)
Price risk management activities expense			(365,420	)			(98,104	)			—				—						—				(463,524	)
Equity method investment income			14,222				—				—				—						—				14,222
Other income (expense)			38,503				59,891				—				—						—				98,394
Net income (loss) before income taxes			476,666				351,356				—				(65,306	)					—				762,716
Income tax benefit (expense)			(1,130	)			(77,918	)			—				13,714			(g)			—				(65,334	)
Net income (loss)		$	475,536			$	273,438			$	—			$	(51,592	)				$	—			$	697,382
Net income (loss) per common share:
Basic		$	3.77																					$	4.03
Diluted		$	3.73																					$	4.00
Weighted average common shares outstanding:
Basic			126,254												24,800			(e)			22,206				173,260
Diluted			127,483												24,800			(e)			22,206				174,489

The accompanying notes are an integral part of the unaudited pro forma condensed combined financial statements.

 

7

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

Note 1—Basis of Presentation

The Talos historical financial information has been derived from its Annual Report on Form 10-K for the year ended December 31, 2022 and Quarterly Report on Form 10-Q for the nine months ended September 30, 2023. The EnVen historical financial information has been derived from its audited annual financial statements for the year ended December 31, 2022 and unaudited financial statements from January 1, 2023 through February 12, 2023. The QuarterNorth historical financial information have been derived from its audited annual financial statements for the year ended December 31, 2022 and unaudited financial statements for the nine months ended September 30, 2023. Certain EnVen and QuarterNorth historical amounts have been reclassified to conform to Talos’s financial statement presentation. The pro forma financial statements should be read in conjunction with Talos’s, EnVen’s, and QuarterNorth’s historical consolidated financial statements and the notes thereto. EnVen’s historical consolidated financial statements and the notes thereto are included in the April 12, 2023 current report on Form 8-K. QuarterNorth’s historical consolidated financial statements and the notes thereto are included in this current report on Form 8-K. The pro forma balance sheet gives effect to the QuarterNorth Acquisition and related financing consisting of borrowings under the Bank Credit Facility and proceeds from an underwritten equity offering as if they had been completed on September 30, 2023. The pro forma statement of operations gives effect to the EnVen Acquisition and QuarterNorth Acquisition and related financing as if they had been completed on January 1, 2022.

The pro forma adjustments for the EnVen Acquisition and QuarterNorth Acquisition and the related financing are described in the accompanying notes to the pro forma financial statements. The transaction accounting adjustments in the pro forma financial statements for the QuarterNorth Acquisition and EnVen Acquisition consists of those necessary to account for the transactions. Separately, we expect to generate gross proceeds of $300.0 million by issuing shares of our common stock in an underwritten equity offering to partially fund the cash consideration in the QuarterNorth Acquisition. The adjustments related to the issuance of common stock are shown in a separate column as “Equity Financing.”

In the opinion of Talos’s management, all material adjustments have been made that are necessary to present fairly, in accordance with Article 11 of Regulation S-X of the SEC, the pro forma financial statements. The pro forma financial statements do not purport to be indicative of the financial position or results of operations of the combined company that would have occurred if the EnVen Acquisition and QuarterNorth Acquisition and related financing had occurred on the dates indicated, nor are they indicative of Talos’s future financial position or results of operations.

 

8

Note 2—EnVen Acquisition Transaction Accounting Adjustments

The following tables present the unaudited pro forma condensed combined statement of operations for the EnVen Acquisition for the nine months ended September 30, 2023 and the year ended December 31, 2022.

Unaudited Pro Forma Condensed Combined Statement of Operations

For the Nine Months Ended September 30, 2023

(In thousands, except per share amounts)

 

		Historical
		Talos (1)				EnVen (2)				Pro Forma Adjustments						Talos pro forma adjusted for EnVen Acquisition
Revenues:
Oil		$	995,081			$	48,694			$	—					$	1,043,775
Natural gas			53,383				2,321				—						55,704
NGL			24,463				1,028				—						25,491
Total revenues			1,072,927				52,043				—						1,124,970
Operating expenses:
Lease operating expense			286,075				11,312				—						297,387
Production taxes			1,813				—				—						1,813
Depreciation, depletion and amortization			480,476				17,047				3,932			(b)			501,455
Accretion expense			63,430				3,391				(577	)		(c)			66,244
General and administrative expense			121,257				40,784				—						162,041
Other operating expense			(55,172	)			—				—						(55,172	)
Total operating expenses			897,879				72,534				3,355						973,768
Operating income (loss)			175,048				(20,491	)			(3,355	)					151,202
Interest expense			(128,850	)			(6,623	)			204			(d)			(136,814	)
											(1,526	)		(e)
											(19	)		(f)
Price risk management activities expense			(13,668	)			3,356				—						(10,312	)
Equity method investment income			2,938				—				—						2,938
Other income (expense)			10,450				1,555				102			(g)			12,107
Net income (loss) before income taxes			45,918				(22,203	)			(4,594	)					19,121
Income tax benefit (expense)			55,516				4,261				965			(h)			60,742
Net income (loss)		$	101,434			$	(17,942	)		$	(3,629	)				$	79,863
Net income (loss) per common share:
Basic		$	0.86													$	0.64
Diluted		$	0.85													$	0.63
Weighted average common shares outstanding:
Basic			118,459								6,899			(i)			125,358
Diluted			119,262								6,899			(i)			126,161

 

(1)	Represents Talos consolidated results of operations for the nine months ended September 30, 2023, which includes EnVen beginning on February 13, 2023.

(2)	Represents EnVen stand-alone consolidated results of operations for the period from January 1, 2023 to February 12, 2023 conformed to the Talos financial statement presentation.

Talos historical general and administrative (“G&A”) expense above includes approximately $12.8 million of nonrecurring acquisition-related costs in connection with the EnVen Acquisition. Additionally, Talos incurred $24.9 million in severance expense in connection with the EnVen Acquisition that is included in G&A. EnVen historical G&A expense above includes $20.8 million of stock-based compensation due to restricted stock awards that vested and accelerated as a result of the closing of the EnVen Acquisition as well as $12.7 million of nonrecurring transaction costs associated with the EnVen’s merger with Talos.

 

9

Unaudited Pro Forma Condensed Combined Statement of Operations

For the Year Ended December 31, 2022

(In thousands, except per share amounts)

 

		Historical								Transaction Accounting Adjustments
		Talos				EnVen				Reclass Adjustment (a)				Pro Forma Adjustments						Talos pro forma adjusted for EnVen Acquisition
Revenues:
Oil		$	1,365,148			$	—			$	642,542			$	—					$	2,007,690
Natural gas			227,306				—				47,328				—						274,634
NGL			59,526				—				13,365				—						72,891
Oil, natural gas, and NGL revenue			—				703,235				(703,235	)			—						—
Production handling and other income			—				27,505				(27,505	)			—						—
Total revenues			1,651,980				730,740				(27,505	)			—						2,355,215
Operating expenses:
Lease operating expense			308,092				81,394				24,302				—						392,257
											8,939
											(2,965	)
											(27,505	)
Workover, repair, and maintenance			—				24,302				(24,302	)			—						—
Transportation, gathering, and processing costs			—				8,939				(8,939	)			—						—
Production taxes			3,488				—				—				—						3,488
Depreciation, depletion and amortization			414,630				149,441				—				132,462			(b)			696,533
Accretion expense			55,995				26,901				—				(3,261	)		(c)			79,635
General and administrative expense			99,754				78,562				2,965				—						181,281
Other operating expense			33,902				—				—				—						33,902
Total operating expenses			915,861				369,539				(27,505	)			129,201						1,387,096
Operating income (loss)			736,119				361,201				—				(129,201	)					968,119
Interest expense			(125,498	)			(46,446	)			—				2,589			(d)			(178,758	)
															(8,929	)		(e)
															(474	)		(f)
Price risk management activities expense			(272,191	)			(93,229	)			—				—						(365,420	)
Equity method investment income			14,222				—				—				—						14,222
Other income (expense)			31,800				5,203				—				1,500			(g)			38,503
Net income (loss) before income taxes			384,452				226,729				—				(134,515	)					476,666
Income tax benefit (expense)			(2,537	)			(26,841	)			—				28,248			(h)			(1,130	)
Net income (loss)		$	381,915			$	199,888			$	—			$	(106,267	)				$	475,536
Net income (loss) per common share:
Basic		$	4.63																	$	3.77
Diluted		$	4.56																	$	3.73
Weighted average common shares outstanding:
Basic			82,454												43,800			(i)			126,254
Diluted			83,683												43,800			(i)			127,483

Talos historical general and administrative (“G&A”) expense above includes approximately $9.0 million of nonrecurring acquisition-related costs in connection with the EnVen Acquisition. EnVen historical G&A expense above includes $7.3 million of nonrecurring transaction costs associated with the EnVen merger with Talos.

The following adjustments and assumptions were made in the preparation of the unaudited pro forma financial statements:

 

(a)

Reflects reclassifications to the EnVen historical financial statements to conform to Talos’ financial statement presentation.

 

(b)

Reflects changes in depletion that would have been recorded with respect to the allocated fair values attributable to proved oil and natural gas properties acquired as a result of the application of the full cost method of accounting for oil and natural gas activities following the EnVen Acquisition. The pro forma depletion rate for the year ended December 31, 2022 was estimated using the proved property amounts based on the preliminary purchase price allocation and estimates of reserves at December 31, 2022, adjusted for actual production. The pro forma depletion rates were applied to production volumes for the Talos properties and EnVen properties for the respective period. Depreciation, depletion and amortization increased by $132.5 million for the year ended December 31, 2022 and $3.9 for the period from January 1, 2023 to February 12, 2023.

 

(c)

Reflects changes in accretion expense that would have been recorded with respect to the allocated fair values attributable to asset retirement obligations assumed with a decrease to accretion expense of $3.3 million for the year ended December 31, 2022 and a decrease to accretion expense of $0.6 million for the period from January 1, 2023 to February 12, 2023.

 

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(d)

Reflects amortization of the premium associated with senior notes assumed as a reduction to interest expense of $2.6 million for the year ended December 31, 2022 and $0.2 for the period from January 1, 2023 to February 12, 2023.

 

(e)

Reflects an increase in interest expense assuming additional borrowings of $163.2 million under the Bank Credit Facility to fund a portion of the cash consideration. For the year ended December 31, 2022, pro forma interest expense was based on a weighted-average interest rate of 5.47%. For the period from January 1, 2023 to February 12, 2023, pro forma interest expense was based on a weighted-average interest rate of 7.94%. The table below represents the effects of a one-eighth percentage point change in the interest rate on the pro forma interest associated with the additional borrowings (dollars in thousands):

 

		Nine Months Ended September 30, 2023				Year Ended December 31, 2022
Weighted-average interest rate			7.94	%			5.47	%
Interest expense		$	1,526			$	8,929
Weighted-average interest rate—increase 0.125%			8.07	%			5.60	%
Interest expense		$	1,550			$	9,133
Weighted-average interest rate—decrease 0.125%			7.82	%			5.35	%
Interest expense		$	1,502			$	8,725

 

(f)

Reflects accretion of the discount as an increase to interest expense of $0.4 million and less than $0.1 million for the year ended December 31, 2022 and period from January 1, 2023 to February 12, 2023, respectively, associated with a consent solicitation fee of $3.1 million related to Talos Production’s senior notes.

 

(g)

Reflects accretion of discount as an increase to other income (expense) of $1.5 million and $0.1 million for the year ended December 31, 2022 and period from January 1, 2023 to February 12, 2023, respectively, associated with acquired notes receivable.

 

(h)

Reflects the income tax effect of the transaction accounting adjustments presented using the statutory tax rate in effect during the period. Because the tax rates used for these unaudited pro forma condensed combined statement of operations are an estimate, the blended rate will vary from the actual effective rate in periods subsequent to completion of the EnVen Acquisition.

 

(i)

Reflects the increase in shares of Talos common stock resulting from the issuance of shares of Talos common stock to EnVen stockholders to effect the EnVen Acquisition.

Note 3—QuarterNorth Preliminary Acquisition Accounting

Talos has determined it is the accounting acquirer for the QuarterNorth Acquisition which will be accounted for under the acquisition method of accounting for business combinations in accordance with Accounting Standards Codification 805, Business Combinations (“ASC 805”). The allocation of the preliminary estimated purchase price with respect to the QuarterNorth Acquisition is based upon management’s estimates of and assumptions related to the fair values of assets to be acquired and liabilities to be assumed as of September 30, 2023 using currently available information. Due to the fact that the unaudited pro forma combined financial statements have been prepared based on these preliminary estimates, the final purchase price allocation and the resulting effect on Talos’s financial position and results of operations may differ significantly from the pro forma amounts included herein.

The final purchase price allocation for the business combination will be performed subsequent to closing and adjustments to estimated amounts or recognition of additional assets acquired or liabilities assumed may occur as more detailed analyses are completed and additional information is obtained about the facts and circumstances that existed as of the closing date of the QuarterNorth Acquisition. Talos expects to finalize the purchase price allocation as soon as practicable after completing the QuarterNorth Acquisition.

The preliminary purchase price allocation is subject to change due to changes in the estimated fair value of QuarterNorth’s identifiable assets acquired and liabilities assumed as of the closing date of the QuarterNorth Acquisition, which could result from Talos’s additional valuation analysis, reserves estimates, discount rates and other factors.

 

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Preliminary Estimated Purchase Price

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

 

Shares of Talos common stock			24,800
Talos common stock price		$	13.51
Stock consideration		$	335,048
Cash consideration		$	1,273,861
Total purchase price		$	1,608,909

The stock consideration was determined using the closing price of Talos common stock on January 12, 2024. The final stock consideration will be based on the market price of Talos common stock when the QuarterNorth Acquisition is consummated. The following table summarizes the change in stock consideration resulting from a 10% fluctuation in the market price of Talos common stock (in thousands, except per share amounts):

 

		Talos share price				Purchase price (equity portion)
As presented		$	13.51			$	335,048
10% increase			14.86				368,553
10% decrease			12.16				301,543

Preliminary Estimated Purchase Price Allocation

The following table summarizes the allocation of the preliminary estimate of the purchase price to the assets acquired and liabilities assumed (in thousands):

 

Assets Acquired
Current assets:
Cash and cash equivalents		$	387,722
Accounts receivable			179,489
Prepaid expenses and other current assets			40,504
Property and equipment:
Proved properties			1,271,424
Unproved properties, not subject to amortization			428,104
Other property and equipment			6,741
Other long-term assets:
Operating lease assets			5,836
Other well equipment inventory			49,166
Other assets			933
Total assets to be acquired		$	2,369,919
Liabilities assumed
Current liabilities:
Accounts payable			56,860
Accrued liabilities			108,360
Accrued royalties			14,182
Current portion of asset retirement obligations			10,577
Liabilities from price risk management activities			43,723
Accrued interest payable			138
Current portion of operating lease liabilities			1,225
Other current liabilities			1,718
Long-term liabilities:
Long-term debt			185,000
Asset retirement obligations			112,732
Liabilities from price risk management activities			9,641
Operating lease liabilities			4,848
Deferred tax liability			212,006
Total liabilities to be assumed			761,010
Net assets to be acquired		$	1,608,909

 

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