TALO - NYSE

Good morning, ladies and gentlemen, and welcome to the Talos Energy Inc. Fourth Quarter 2024 Earnings Conference Call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Thursday, February 27, 2025. I would now like to turn the conference over to Clay Jeansonne, head of Investor Relations. Thank you, operator.

Good morning, everyone, and welcome to our fourth quarter and full year 2024 earnings conference call. Joining me today to discuss our results are Bill Moss, Interim Chief Executive Officer, Co-President, and General Counsel, Sergio Maiworm, Interim Co-President and Chief Financial Officer, and John Spath, Interim Co-President and Head of Operations. For our prepared remarks, please refer to our fourth quarter 2024 earnings presentation that is available on Talos Energy Inc.'s website under the Investor Relations section for a more detailed look at our results and operations update. Before we start, I'd like to remind you that our remarks will include forward-looking statements subject to various cautionary statements identified in our presentation and earnings release. Actual results may differ materially from those contemplated by the company. Factors that could cause these results to differ materially are set forth in yesterday's press release and our Form 10-K for the period ending December 31, 2024, filed with the SEC. Forward-looking statements are based on assumptions as of today, and we undertake no obligations to update these statements as a result of new information or future events. During this call, we may present GAAP and non-GAAP financial measures. A reconciliation of certain non-GAAP to GAAP measures is included in yesterday's press release, which was furnished with our Form 8-Ks filed with the SEC and is available on our website. And now I'd like to turn the call over to Bill.

Thanks, Clay. Good morning, everyone, and thank you for joining us on our call today. I would like to start by providing some brief introductory remarks. I will then turn the call over to Sergio and John for highlights on our financial performance, operational activities, and outlook. We will then open the call up for questions after our prepared remarks. First, I want to express on behalf of management our appreciation and gratitude to our Talos Energy Inc. employees. Your hard work and dedication and your commitment to safety and protection of the environment over the past year has been unwavering. Thank you for all that you do to drive our success and uphold our values. Next, I want to share how excited we are about Paul Goodfellow joining Talos Energy Inc. as our new CEO. Paul's first day in the office will be this coming Monday, March 3. He brings over three decades of experience in domestic and international operations. His impressive background includes leading Shell's global deepwater business, overseeing Shell's global drilling, completions, and well intervention organization, and serving as a key member of the projects and technology and upstream leadership teams and internal audit function. We are confident that Paul's extensive experience and expertise, especially in deepwater operations, combined with his strategic judgment and proven leadership, will take Talos Energy Inc. to the next level. During his first 100 days at Talos Energy Inc., Paul intends to identify the key drivers of Talos Energy Inc.'s success. He'll be working closely with the leadership team to refine our strategic plan and determine our next steps. And we will announce to you the results of these efforts as soon as they are completed. I will now turn the call over to Sergio to discuss some financial highlights as well as our 2025 operational and financial guide.

Thank you, Bill, and good morning, everyone. Taking a look at our financial performance highlighted in slide four, we're very pleased with our results for the fourth quarter, which demonstrates our focus on operational execution and consistent free cash flow generation. If you turn to slide five, we have consistently exceeded quarterly expectations and free cash flow every quarter throughout 2024. The strong financial performance enabled us to fully repay our credit facility during 2024, reducing our leverage ratio to 0.8 times net debt to EBITDA while finishing the year with a healthy cash position of $108 million. Operationally, we made real progress in our drilling program with the successful drilling of the Katmai West number two well 35% under budget and over a month ahead of schedule. That is a great achievement and a testament to the quality of our team. We have initiated completion operations for the Sun Spirit and expect it to be online in the second quarter. Following that, we plan to complete the Katmai West number two well before drilling the Daenerys exploratory well. John will go into more detail on these operational developments in his remarks. For the fourth quarter, we achieved record production totaling 98.7 thousand barrels of oil equivalent per day, which was 70% oil and including the NGL barrels, a total of 79% liquids. We reported record EBITDA of $362 million for the fourth quarter, which equates to an EBITDA netback margin of about $40 per barrel of oil equivalent. Throughout the past year, we believe we have consistently ranked in the top quartile amongst public E&P companies in netback margin as shown in Slide six. Our CapEx for the quarter was $133 million, and we dedicated an additional $23 million to plugging and abandonment activities during the fourth quarter, which resulted in $164 million in free cash flow. Now I want to touch on our year-end reserves, which were prepared by Netherland and Sewell. We ended 2024 with a larger and more oil-weighted reserve base. This is primarily attributable to our acquisition of QuarterNorth in 2024, which marked a pivotal milestone for Talos Energy Inc., adding more scale and related infrastructure to our portfolio. Talos Energy Inc.'s proved reserves are 194 million barrels of oil equivalent, which is approximately 74% oil. The PV-10 of our proved reserves is approximately $4.2 billion, which is calculated at SEC pricing. Talos Energy Inc. also has significant value beyond our proved reserves, with an additional $3 billion in probable reserves PV-10, also based on SEC prices, so approximately $7.2 billion in total value. Moving on, for the full year of 2024, Talos Energy Inc. produced 92.6 thousand barrels of oil equivalent per day, slightly above the midpoint of our full-year guidance range, which was highly liquids-weighted at 80%. Our total annual EBITDA for 2024 was approximately $1.3 billion. As shown on slide seven, our financial performance enabled us to generate record free cash flow of $511 million. With the increased scale from our previous acquisitions, we have strengthened our asset base and the base business production. This positions us to make the right long-term investments in the business while keeping the base production healthy without requiring outsized capital investments. That increases our capability to consistently generate free cash flow now and in the future. We expect a similar pattern of performance in 2025, and we will discuss our guidance momentarily. With that free cash flow in 2024, we stayed true to our commitment to pay down our debt, and we were able to completely pay off our RBL in the fourth quarter and accumulate a healthy cash balance at year-end. As shown on slide eight, during the year, we reduced our total debt by $550 million, including $125 million paid down during the fourth quarter alone. As I mentioned earlier, we also ended the year with a cash position of $108 million. Our total net debt at year-end stood at approximately $1.1 billion, with no outstanding borrowings on our RBL, and we closed the year with a leverage ratio of 0.8 times net debt to EBITDA. I wanted to point out that the $550 million of debt repayment this year equates to over $3 per share of value appreciation for our shareholders. These milestones reflect our commitment to financial discipline, low leverage, and building a solid foundation for profitable growth. Before turning the call over to John to discuss our operational activities in more detail, I'd like to touch on our production expectation and capital spending plans for 2025. Moving to slide nine. In 2025, we expect to invest between $500 million and $540 million. With that investment, we expect full-year 2025 production of 90 to 95 thousand barrels of oil equivalent per day, of which approximately 69% is expected to be oil and 79% liquids. In addition, we expect to allocate between $100 million and $120 million to P&A and decommissioning activities in 2025. Our capital program reflects a strategic balance across low-risk development, exploitation, and exploration projects. We're also making investments in ordering long lead equipment for projects, including monuments and Ewing Bank 953. Asset management efforts are focused on cost-efficient production adds and enhancements and extending the operational lifespan of fields. Additionally, our ongoing geological and geophysical and land investments aim to refine and continue to bolster our inventory. On slide ten, we provide a more detailed look at 2025 guidance. For cash operating expenses, we expect between $580 million and $610 million, including workover expenses for activities that will increase production throughout the year. For G&A, we project between $120 million and $130 million, including the realization of synergies from the QuarterNorth transaction we completed in 2024. Turning to slide eleven, I want to talk briefly about how we thought about our production guidance for 2025. There are a few items impacting production guidance. As you can see from this waterfall chart, the business currently runs consistently north of 100,000 barrels a day. So the base continues to be very healthy. As is typical for every offshore operator, several large maintenance projects are scheduled later in 2025, which will reduce our production rate for the year but will also ensure safe operations and high uptime throughout the life of those assets. We then account for weather-related downtime, such as hurricanes, and loop current shut-ins, as well as an estimate of unplanned downtime associated with third-party facilities and pipelines. So that leads us to 90,000 to 95,000 barrels of oil equivalent per day in 2025. We have also guided our expectations for the first quarter of 2025. Our assets have been performing quite well during the challenging winter months despite some minor interruptions. We are confident that our production for the quarter will be between 99 and 101 thousand barrels of oil per day. Based on the production and cost profiles laid out in the guidance, we expect to generate significant free cash flow again in 2025. With that, I'll turn the call over to John to address our 2025 drilling plan in more detail.

Thank you, Sergio, and good morning, everyone. Moving to slide twelve and thirteen, our 2025 drilling program is underway utilizing the West Villa drillship. We started the year strong with successful results drilling and evaluating the Katmai West number two well. Following this success, we cased and suspended the well in preparation for completion operations later in the rig campaign. We then mobilized the West Villa to begin completion operations on Sunspear and Green Canyon Block 78. Once we finish the Sunspear completion, the West Villa will return to Katmai West number two to complete the well. After completing both Sunspear and Katmai West number two, we will mobilize to our high-impact Miocene prospect Daenerys, located in Walker Ridge Block 106 and 107. Turning to the Katmai West number two well, which is on slide fourteen of the presentation, drilling commenced in late October 2024, reaching a true vertical depth of 27,000 feet. In early January 2025, we announced successful drilling results encountering over 400 feet of gross hydrocarbon pay with excellent rock properties. The drilling and subsurface teams delivered an outstanding performance drilling the well under budget in approximately 40 days ahead of schedule. This drilling efficiency placed Katmai West number two in the top quartile of similar wells drilled in the Gulf of Mexico. We will begin completion operations on Katmai following Sunspear's completion, with Katmai West number two being completed as a single-zone frac pack with a potential initial production rate of 15,000 to 20,000 BOE per day. First production is anticipated in late second quarter 2025. Katmai Field is a key asset and strategic focus area for us. The strong performance of Katmai West number one well combined with the successful results of Katmai West number two has nearly doubled the proved estimated ultimate recovery of the Katmai West field to approximately 50 million gross BOE. This success reaffirms Talos Energy Inc.'s total resource potential in the Katmai area, which is estimated at approximately 200 million barrels of gross oil equivalent. Talos Energy Inc. holds a 50% working interest in and operates the Katmai field. Additionally, we own and operate 100% of the Tarantula host facility. Last fall, we increased the daily throughput capacity at our Tarantula facility from 27,000 BOE per day to 35,000 BOE per day. Our Tarantula facility will be running at maximum capacity once we bring on Katmai West number two late in the second quarter. Moving to Sunspear Discovery on slide fifteen, we recently started completion operations on Sunspear utilizing the West Villa. The well will be completed as a single-zone frac pack with projected gross production rate estimated between 8,000 to 10,000 BOE per day. The well is being tied back to the Talos Energy Inc.-operated Prince platform, which is currently undergoing upgrades. We own a 48% working interest in Sunspear and expect to achieve first production by the latter part of the second quarter of 2025. Moving on to Daenerys prospect on slide sixteen, following the completions of Sunspear and Katmai West, the West Villa will be mobilized to Walker Ridge 106 and 107 to begin drilling Daenerys prospect, which will be drilled to a total vertical depth of 31,000 feet to evaluate the large middle and lower Miocene four-way structure. Talos Energy Inc. holds a 30% working interest and serves as operator of Daenerys. A successful outcome at Daenerys would further enhance Talos Energy Inc.'s long-term organic growth. Another exciting area for Talos Energy Inc. is the Wilcox trend in the ultra-deep waters of the Gulf of Mexico. Talos Energy Inc. has a significant acreage position in the Lower Wilcox trend, which we believe represents a growth opportunity for Talos Energy Inc. Turning to the Monument Discovery on Slide seventeen, we recently agreed to increase our working interest in Monument from 21.4% to 29.76%. The project, operated by Beacon Offshore Energy, was drilling appraised with two well penetrations and reached FID in February of 2024. We estimate proved and probable gross reserves of approximately 150 million barrels of oil, with production expected to tie back to the Shenandoah production facility, and first production anticipated in late 2026. Additionally, we have identified a promising exploration prospect within the field that could provide an estimated incremental upside of 25 million to 35 million BOE, further enhancing the project's long-term value. Talos Energy Inc. is well-positioned to be a key player in the growing Wilcox play, and we intend to leverage our broader acreage position to drive future production and reserve growth. On a final note, to reiterate Bill's comments, I want to thank all Talos Energy Inc. employees for their dedication and focus in driving our strong 2024 performance while at the same time maintaining our core operating priorities: health and safety of all personnel, protecting the environment, regulatory compliance, and operational excellence. In 2024, we continued to have an outstanding safety record by working approximately 6.6 million man-hours. Notably, Talos Energy Inc. has completed 3 million man-hours since our last reportable incident, reflecting our commitment to a safe and responsible workplace. Additionally, in 2024, Talos Energy Inc. continued to outperform the Gulf of Mexico average in regulatory compliance metrics, which reflects the dedication of our field personnel whose commitment to rigorous safety system testing and proactive facility maintenance ensures we uphold the highest operational standards. This marks the sixth year that Talos Energy Inc. has exceeded industry benchmarks and regulatory compliance. These achievements underscore the collective progress we have made as a company and reflect the hard work and dedication of the entire Talos Energy Inc. team. Our commitment to health and safety, environmental stewardship, regulatory compliance, and operational excellence continues to drive our success. With that, I'll turn the call back over to Sergio to sum up our performance in 2024.

Thank you, John. Before concluding, I want to sum up 2024 and reflect on Talos Energy Inc.'s progress. Slide eighteen presents a scorecard that highlights Talos Energy Inc.'s strong performance and commitment to delivering long-term value for all shareholders. By focusing on capital discipline, operational excellence, and free cash flow generation, we have achieved significant milestones and believe we have laid out a solid foundation for 2025 and beyond. With that, operator, we'll open the line for Q&A.

Thank you. We will now begin the question and answer session. To ask a question, you may press star followed by the number one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing any key. To withdraw your question, please press star followed by the number two. With that, your first question comes from the line of Nate Pendleton with Texas Capital. Please go ahead.

Good morning. Congrats on a great quarter and update. I wanted to start with the question on Katmai. Building on John's prepared remarks, specifically, I wanted to get your perspective on how the field compares to your initial expectations when you acquired the position. And based on what you've learned, do you see any upside to that 200 million barrel potential shown on slide fourteen?

Hey, Nate. No, that's a great question. Thank you for asking that. Look, it's a better field than what we thought we were buying. So it's a fantastic field. We knew it was a fantastic field when we made the QuarterNorth acquisition. But the more we learn about it, the better we feel about QuarterNorth. So I would say it's in line or better than what we thought, and to answer your question, yes. We do see some upside from that 200 million barrels. Right now, we are counting the 200 million barrels from a combination of the west side of the field where we already have two wells and the east side of the field where we have one well producing. There are other aspects of the field that we are currently investigating. We're not ready to talk about, but we do see some upside from that too, for sure.

Got it. That's really exciting. And referencing slide twelve for a moment, it looks like you'll have three projects starting up around mid-year and you have referenced planned downtime during the second half of the year as well. How should we think about the shape of production throughout 2025, and what could an exit rate look like?

Yeah, I mean, let me give you some high-level thoughts on how to think about that. So we don't expect a lot of planned downtime in the first quarter. That's how we're thinking about our production being roughly between 99 and 101 thousand barrels per day. As we start going into the second quarter or the kind of spring months, you don't have as much of the winter storms offshore and you're not yet in hurricane season. So that's where a lot of your maintenance projects happen. So the second quarter should be heavily weighted towards some of those planned downtimes. And as you start getting into the third quarter, you still have some of those planned maintenance, you also have some of the hurricane risking that we are applying to our production. And as we go into the fourth quarter, you have fewer of those planned downtimes or planned maintenance, but you still have a little bit of hurricane risk associated with that. So that's how you should think about the production shape throughout the year.

Got it. Thanks for taking my questions.

Your next question comes from the line of Leo Mariani with ROTH. Please go ahead.

Hi, guys. Wanted to just touch base briefly on the 2025 CapEx here. I know that there were periods of time during 2024 where Talos Energy Inc. had kind of articulated that you might have to kind of spend more money in 2025, that you were modestly undercapitalizing things with the 2024 budget. And now kind of looking at 2025 CapEx, not maybe too dramatically different versus 2024 here. So just kind of wanted to get a sense of whether or not there's been any kind of philosophical shift in terms of the approach to capital, and do you think that the 2025 budget might lead to some modest declines in production in 2026?

Good morning. Thank you for the question. So I think we've communicated throughout 2024, and we were very cautious to caveat that, look, the plans are still ongoing. Right? So none of that was written in stone. We were discussing live as some of the plans were still being formed. I would say the 2025 capital program is heavily influenced by the high efficiency that we're seeing in the West Villa rig. Right? So we are much more efficient in the drilling and completion operations than we thought we were going to be. So that is allowing us to save quite a bit of money on the capital side of things. So we feel like this is the right level of investment for the company. It generates a tremendous amount of free cash flow. As I pointed out in my prepared remarks, the base of the business is very healthy. So it's very early for us to start giving any indication around 2026, but we think that this is the right level of investment for the business to generate the amounts of free cash flow that we should be generating. And that's it. So it's mostly drilling efficiencies that's driving the lower capital than the street was expecting.

Okay. And then, obviously, you guys did a great job on the balance sheet here. I think paying off the debt even maybe a little quicker than expected and ending the year with cash. I'm sure that you guys are somewhat frustrated by the stock price performance here. Just curious as to whether or not, given the health of the balance sheet, you guys might be able to accelerate that buyback program here in 2025.

Yeah, Leo, no. That's a great question. Look. First and foremost, we're very blessed to have a very healthy balance sheet and a very stable business that generates a tremendous amount of free cash flow. So that is a great position to be in. And with Paul coming in and us kind of looking at the strategic planning for the company and refining our strategy, capital allocation priorities are going to be a huge focus as part of that discussion, but I can tell you that capital returns to shareholders are always being considered, and we're going to continue to consider that. So once Paul comes in and we finalize our strategic review, we're going to communicate to the street what our plans are around that.

Alright. I appreciate that. And then just last thing for me here, guys. On Monument, you picked up an extra working interest in that well. Was there a cash outlay associated with that?

I mean, it's an incremental working interest from the interest that we already have. We already own 21.4%. We're increasing it another eight percentage points there in that ownership. So it's incrementally higher. 2025 is still very manageable. It's mostly ordering long lead items. 2026, that's when we're going to actually drill the wells and complete the wells. So it's a marginally higher number, Leo, but it's very, very manageable for us.

Okay. So was there an acquisition cost on that, though?

Yeah. It was about $12 million, plus some closing adjustments as part of the between the effective date and the actual closing.

Okay. Thank you.

Thanks, Leo.

Your next question comes from the line of Tim Bresnan with KeyBanc Capital Markets. Please go ahead.

Hey. Good morning, folks. And thanks for taking my question. As we think about the 2025 outlook, it seems fairly cautious. You know, a maintenance program, heavy field maintenance, and then sort of a goal on free cash flow. So I was wondering if you could speak kind of from the board's perspective. How much of this is not wanting to get aggressive amid a leadership change? How much is, you know, caution on the oil macro? Just kind of curious any insight you can provide on that.

Hey, Tim. Good morning. No, that's a great question. Look. There's a bit of all of that as part of the plan. Right? So we're trying to be cautious about our guidance around production. We do have a very heavy maintenance year. Obviously, hurricane season last year wasn't as impactful to us as it has been in the past, so we're still being very conservative in our estimates for weather-related downtime, but we think that that is the right approach for our production guidance in 2025. So we're comfortable with that. And as the year progresses, if things continue to do better than what we're estimating, we're going to update the street accordingly.

Okay. Okay. That's fair. Some of my other questions have been addressed, but quickly on Daenerys. If the plan is to spud that late in the second quarter, I know you're not the operator. And then just what would that mean in terms of potential timing? On what you does that sound would be maybe a 4Q or 3Q earnings commentary? Just curious on kind of the timeline of data points there.

Yeah. No, for sure. And just to be sure, we are the operators on Daenerys, Tim. So we are. So the plan is to we're now doing the completions on Sunspear. After that is done, we're going to do the completion on Katmai West number two, then we're going to move on to drill Daenerys. So we should start that in the second quarter of 2025, and that is roughly 100 to 120 days of drilling. So it's a pretty long well. So I expect late in the third quarter, early in the fourth quarter, we're going to have some results. So perhaps around third quarter earnings, we're going to be able to speak to the results of that well.

Okay. I appreciate that, man. I got Daenerys and Monument confused, but appreciate all the context. Thank you.

Okay. Thank you.

And your next question comes from the line of Michael Scialla with Stephens. Please go ahead.

Hi. Good morning. I wanted to ask on the planned downtime, the 6,000 BOE a day, what's built into that? Is that the HP1 facility, or can you give us some detail on what all is in there?

Sure. Hey, Mike. Good morning. That's a great question. No, we do not have the HP1 regulatory stop this year. So that happened last year. But we do have a lot of other facilities that require maintenance. And there are some shut-ins related to wells that we're going to actually bring online. For example, in the second quarter, we're going to shut in our Prince facility to connect or to hook up the Sunspear well. We're also going to shut in Tarantula to connect the Katmai West number two. But there are other maintenance projects like on Brutus, on Pompano, and a few others. There's quite a few of those. These four that I mentioned are the largest ones, but there are a few others as well. So it's a little dispersed. There's not one major event. It's a lot of smaller events throughout the year.

Got it. And I wanted to ask if there's any update on that. I think you were looking to sell down your interest at Helm's Deep. I think you wanted to get that to 50% before you drilled. Any update there?

Yeah. We're still working on that. That is still in the works. And as you can see, we actually put it in our presentation as an unnamed well. So Helm's Deep is absolutely under consideration to be drilled this year yet. It might slip into 2026. We are having some other commercial discussions around other wells. So instead of committing to one, we think it's best to leave it as a potential for different ones. So Helm's Deep is being considered still, but there are other wells in our inventory that we feel very confident about as well. So it's all about the commercial discussions that we're having, and as soon as those are finalized, we're going to announce it.

Great. Thank you.

And your next question comes from the line of Jeff Robertson with Water Tower Research. Please go ahead.

Thank you. Sergio, on the West Villa, do you have that through potentially the well that you would drill after Daenerys in terms of the contract?

Hey, Jeff. Good morning. Right now, the contract with the West Villa goes through Daenerys. We have the option to extend that, and there are other rigs available as well in the market. So we're not concerned about actually having a rig secured for the second half of the year to execute that plan. But right now, the contract with the West Villa ends with Daenerys.

The efficiencies that allowed you to drill Katmai West two under budget and in a much shorter number of days, is that from the rig operation or the geology that you encountered while you were drilling the well or a combination of the two?

It's mostly the operations of the rig. The team did a fantastic job of planning everything to a T. So we did a really good job on the planning side of things. We had some time before actually taking possession of the rig to execute a few items before we started drilling. So we feel like the rig operations itself and how the team is planning these activities is what's making the difference.

And on capital allocation, can you just remind us how you think about risking contingent capital for maybe follow-on work at Daenerys or for some of the capital that might be necessitated by success as you think about your future mix between exploration, development, contingent capital, and the opportunity to repurchase shares?

Yeah. No, that's a great question. So obviously, there is a possibility that we might need to spend additional capital within Daenerys. If that is a discovery, we may need to appraise that, and that is all part of the plan. So that is part of the risk or that's the appetite for risk that we have in this business to drill these types of wells is to continue to appraise the well and then develop that. So that is something that we would like to continue to deploy capital into. And then the additional free cash flow that we generate and how we deploy that, whether it's buybacks or making additional investments, we're going to tighten that up as we go along. But these types of projects like Daenerys, we would like to have more of those, not less of those.

Lastly, just on a regulatory front, I know it's still very early in the current administration. Have you seen anything regulatory-wise or permitting-wise that you think will have an impact on your business yet?

Yeah. It's still a little early, Jeff, but we do expect to have more lease sales than we were having over the last four years. That is probably the most impactful change from the previous administration. Having regular lease sales, we're expecting to have two lease sales per year going forward. So that is going to be the most impactful item. We didn't have any issues with permitting. We didn't have any of those issues with the previous administration. But lease sales, that is the one that we're looking forward to the most.

Thank you.

You bet.

Your next question comes from the line of Michael Ferro with Figuring Energy Partners. Please go ahead.

Hi. Good morning. Thanks for having us on this morning.

Good morning.

Like others, we're trying to get an understanding of sort of the 2025 CapEx budget, sort of the puts and takes here. You know, specifically, I'm looking at your slide nine with the pie chart capital allocations. Yeah. The company's spending a pretty good amount of money this year on the long lead equipment for monuments and Ewing Bank 953. I'm just wondering if you could provide some color on where that long lead equipment sits within the pie chart and maybe its associated percentages.

Yeah, Mike. That's a good question. So that is still within the US drilling and completions section of the pie. So that's part of the D&C budget.

Any color on how big that slice is?

We haven't disclosed that publicly, but it's not a significant amount of that pie. It's a good chunk, but it's not the big part of that. It's still relatively minor compared to the actual drilling of the wells, the running of the West Villa. So it's not a significant part of our D&C budget this year. Monument will be a much more significant part of the budget next year once we're actually drilling and completing the wells.

Alright. Understood. That's good color. My follow-up question is just sort of on the West Villa. You know, I believe previously the company was considering utilizing the Conqueror to complete Katmai West two. That's right. And then sending the West Villa to the Daenerys prospect, and it looks like the decision was made to continue utilizing the West Villa for completing the Katmai West well, marginally for the Daenerys spud. But, you know, I was wondering if you could provide a little more information about what went into this decision and why the company felt like this was the best course of action.

No. That's right. That's a great question, Mike. So you're right about that. The Conqueror is also a little delayed. So instead of waiting for the Conqueror to arrive, we decided to rearrange the rig schedule. That actually is another way that we're saving on capital. Instead of running two rigs, we're just running one rig. So that's another big chunk of the capital savings that we have in our budget this year. But that decision was driven by the delay on the Conqueror to arrive. So we have the right to just not take that rig and then just use the West Villa to do all of the operations that we needed. So that's how we came up with that decision.

Alright. Thank you. It's very helpful. Turn it back.

Alright.

Your next question comes from the line of Paul Diamond with CDP. Please go ahead.

Good morning, all. Thanks for taking the call. Just a quick question on given the progress you guys have made on your debt reduction, can you remind us what you all think is kind of the right level of financial gearing, or will that be part of the new strategic review with Paul coming in on Monday?

Hey, Paul. Good morning, and thanks for the question. I would say that we're always refining our views on what's the right balance sheet for us. But I would say today, I feel very, very comfortable with our 0.8 times leverage metric. I don't feel like we need to delever from here. So I feel very comfortable living in this neighborhood.

Understood. And one quick follow-up on Tarantula. With the recent expansion, do you all see any kind of need or potential thoughts around expanding that further? Are you comfortable just kind of letting it run flat out for the foreseeable future?

Yeah. No. Thank you. That's a great question. So with the wells that we have online, we feel very comfortable with the capacity as it is today. That allows us to have production flats to extend that plateau for several years into the future with no decline. But as we mentioned earlier, there are a few other opportunities in the field, perhaps a few more wells that we could drill. And if those wells are successful, then we will look for opportunities to expand the capacity of Tarantula. Right now, the biggest bottleneck in the facility is the flow lines going from the platform to the facility itself. We would also need to expand the topsides once the new flow lines are installed if we were to do that. But that is a pretty significant investment that we need to make in the facilities to do that. So we need to have real conviction that the additional wells will be successful. So these are things that we're studying right now. It's not a decision that we need to make today. But in the future, if those additional wells are successful, that is something that we will look very carefully into.

Understood. Thanks for the clarity. I'll leave it there.

Alright. Thanks, Paul.

And your next question comes from the line of Arun Jayaram with JPMorgan. Please go ahead.

Yeah. Good morning. I wanted to see if you could talk about the path to prove up more resources at Katmai. It looks like you're at 50 million barrels gross. You know, what's the path and what activities you need to do to get to 100 or even beyond that?

Yeah. Hey, Arun. Good morning, and thanks for the question. Now that's an excellent question. And it goes a little bit about how the rules around how you book reserves in a conventional world or in an offshore world. Right? So we can only book the reserves to the lowest known. Unlike our shale friends that once they drill a well, they can book all of those. We cannot do that. We have to book only some of that in PDP. The rest sits in probable. So a lot of it comes down to an economic decision. Right? Do we drill more wells to prove more of that? That doesn't really help us on the economics front, or you just wait for the passage of time. And as you produce some of that, the probabilities will transfer into PDP. So it's a combination of both. Once we continue to evaluate additional drilling opportunities within the Katmai complex, we will drill more wells, and that will prove up more reserves. But with the passage of time and just producing more, those probables will transfer from those 2P back into PDP. And that will happen naturally. So we may not need to actually spend a lot of capital to do it, but we just won't accelerate that booking of reserves. But the production and the actual recoverability of the field doesn't really change whether we book those in proved or not. It's just a kind of a different reserves booking rule for offshore conventional companies versus onshore.

Great. Thanks a lot.

Alright. You bet.

Your next question comes from the line of Neil Mehta with Goldman Sachs. Please go ahead.

Yeah. Good morning, Sergio and team, and it was really a super year for you guys from a free cash flow generation standpoint, but I think the challenge of the stock has been just around a lot of management transition, and it's going to be really good to get some clarity and steadiness on the shift with Paul coming in. And so, Sergio, I'm curious from your perspective, as a leader of the organization, just are the two or three strategic areas that the new leadership team you guys will be focused on to help provide a little bit more clarity around the forward path?

Good morning, Neil, and thank you for this question. That's a great observation. And look, as Bill mentioned earlier on the call, we are very excited to have Paul joining. Paul is a fantastic professional and individual. His background speaks for itself. So we're looking forward to having him as part of the team and working closely with him to refine that strategy. I don't want to get ahead of my skis here and start saying what the priorities are. Let us get together with Paul once he starts next week. We're going to have those conversations. And in the coming weeks and months, we're going to tell you and everybody else what we think the priorities are. But for the time being, we're very excited to have Paul, and I agree we need some stability there, and I think we will have it. I think the team is very excited to have Paul, and I think that is going to be a great addition to the team.

Yeah. Alright. Well, thank you, but it's good to see. The follow-up is just how you guys are thinking about the A&D environment. You've done some really good bolt-on acquisitions here, Sergio. So do you see the opportunity to continue to be a consolidator, recognizing the equity might not be at the optimal cost of capital right now, or do you want to pursue much more of an organic strategy here over the next twelve months?

Yeah. Neil, that's a great question. So I would say this. As we continue to refine our strategy, we will make some kind of bigger decisions after that. Some bolt-on acquisitions, some things that are obviously kind of very easy for us to do. Yes, we'll continue to do that. If there are opportunities for us to do more of the Monument type of projects, yes, we will do that. If there are some additional bolt-ons in the Gulf of Mexico, we will continue to focus on those. But for the time being, as we continue to refine our strategy, I think the focus is going to be on the organic, the project execution, the operational excellence. And look, our balance sheet is in great shape. Right? So depending on the acquisition that we're talking about, we may not need to use any equity to do any of that or very little equity if we were to do anything a little bigger. But bear with us. Let us refine the strategy here. Let's make sure that we know exactly what we should be doing, and we'll move on from there. But we do think that there will be opportunities for us to continue to bolster the portfolio through some bolt-on acquisitions or some even bigger opportunities down the road.

Thank you, Sergio. One quick follow-up on that. Can you just remind us, give us an update on Mexico and the asset sale that you executed in December? I guess that will also be an area I would imagine you guys, the new leadership team, will be focused on is what the long-term strategy is in Mexico, but you did provide an update there in December, so a little color there would be great.

Yeah. That's right. So for sure, we'll continue to refine that as well. We're still in Mexico. We still have an ownership in the

Thank you, Sergio.

Alright. Appreciate it, Neil.

Thank you. And that concludes today's question and answer session. I would like to turn it back to Bill Moss for closing remarks.

Thank you. I want to thank everyone for joining the call today. We're really proud of our results for the fourth quarter. We had a really good 2024, and we're looking forward to continuing that performance into 2025 and to Paul starting next week. So thanks again, everyone, and we'll talk to you soon.