TALO - NYSE

Good morning, ladies and gentlemen, and welcome to the Talos Energy Second Quarter 2025 Earnings Conference Call. [Operator Instructions] This call is being recorded on Thursday, August 7, 2025. I would now like to turn the conference over to Clay Jeansonne. Please go ahead.

Thank you, operator. Good morning, everyone, and welcome to our second quarter 2025 earnings conference call. Joining me today to discuss our results are Paul Goodfellow, President and Chief Executive Officer; and Greg Babcock, Vice President, Chief Accounting Officer and Interim CFO. For our prepared remarks, please refer to our second quarter 2025 earnings presentation that is available on Talos' 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-Q for the period ending June 30th, 2025, 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- K filed with the SEC and is available on our website. And now I'd like to turn the call over to Paul.

Thank you, Clay. Good morning, everyone, and thanks for joining us on our call today. I will begin today with some remarks on our financial and operational results for the quarter. Following that, I will hand over to Greg, who'll provide a brief overview of certain financial items and guidance. Finally, I'll conclude with some closing thoughts before opening the call to Q&A. It's been a very busy but exciting 5 months since I joined Talos. Our strong financial and operational results in the second quarter reflect early progress against our strategy and demonstrate our ability to deliver on our commitments. As shown on Slide 3 of today's presentation, Talos has a solid asset base and a proven history of strong operational performance, and we are well positioned to capitalize on growth opportunities across the Gulf. We will continue to leverage our unique culture, history and strengths to enhance our assets. In short, as I highlighted when I started, my role is to take a very good company and make it great as we execute our strategy and become a leading pure-play offshore E&P company. Our focus is squarely on continuous improvement. Turning to Slide 4. In June, we announced our enhanced corporate strategy designed to fuel our future through 3 strategic pillars focused on the near term, midterm and long term to build upon our strong assets and further strengthen the organization. First, we're focused on improving our business every day. We have some additional details on these key areas of focus on Slide 7, but the key takeaway here is that we have identified and are executing on initiatives designed to generate $100 million of additional free cash flow annually starting in 2026 with approximately $25 million in contributions anticipated by the end of 2025. Second, we'll grow production and cash flow through our continued focus on high-margin projects to further drive our profitability. We will focus on organic growth, and we'll supplement that with disciplined evaluation of bolt-on acquisitions as we demonstrated with the Monument project. We will also maintain a strategic focus on the Gulf of America, while evaluating opportunities in other select conventional deepwater basins as appropriate. And third, we will build a portfolio with scale and longevity by developing projects with significant reserves in the Gulf of America and other conventional basins that fit our technical capabilities. We believe participation in greenfield developments, selectively exploring for large resource potential and acquiring and developing projects with significant reserves and production will be key to our third strategic pillar. Together, executing against these pillars will enable us to build on our core competencies and to grow our cash flow per share and position Talos to create significant value for our shareholders. Through our disciplined capital allocation framework, we remain committed to financial discipline when investing in our business, only pursuing selective accretive growth opportunities, while maintaining a strong balance sheet and returning cash to shareholders. Turning to our strong second quarter results. Please see Slide 5 for a list of our accomplishments that will be discussed later in this call. As I said earlier, we operate great assets in great locations, but the driving force behind our continued success remains the hard work and dedication of our talented workforce. The result was a strong second quarter across the board that helped drive our improved outlook for 2025. In short, this team remains laser-focused on best-in-class execution to drive consistent free cash flow generation that supports our long-term commitment to a consistent return of capital for our shareholders. Simply put, we delivered on our commitments, while prioritizing safety and protecting the environment. As highlighted on Slide 6, second quarter production averaged 93,300 barrels of oil equivalent per day with oil making up 69% of the total. Including NGLs, liquids accounted for 77% of overall production. We outperformed consensus estimates for adjusted EBITDA, posting $294 million for the second quarter. Our strong adjusted EBITDA performance was bolstered by cost savings associated with improving our business everyday initiatives. This equates to an adjusted EBITDA netback margin of approximately $35 per barrel of oil equivalent. And Talos consistently ranks in the top quartile amongst public E&P companies in netback margins, as shown in more detail on Slide 9. Continuing on Slide 6, our CapEx in the second quarter was $126 million, and we spent an additional $29 million on plugging and abandonment or P&A activities. After considering our capital expenditures and P&A spending, we achieved adjusted free cash flow of $99 million for the quarter. During the second quarter, we repurchased 3.8 million shares for a cost of $33 million, bringing total repurchases under the program to $100 million. This fits squarely within our strategy of using up to 50% of our free cash flow to repurchase shares. Despite repurchasing our shares, our continued strong financial results enabled us to continue strengthening the balance sheet by lowering our leverage ratio to 0.7x and to grow our cash balance by 75% from the first quarter to some USD 357 million. The result was an increase in liquidity to $1 billion. Keep in mind that we achieved these improvements in a volatile and declining commodity price environment. Turning to Slide 7. As we discussed in mid-June, I'm impressed with the capabilities and performance of our assets. Having said that, we do believe, and more importantly, have identified and begun to execute on several significant opportunities to further improve our ongoing cash flow. These opportunities are included in our target to collectively generate an additional $100 million in cash flow for the full year 2026 with a sustainable run rate impact beyond that. We're targeting this solely by improving our existing operations through capital efficiency, margin enhancement, commercial opportunities and general organizational improvements. Realizing this expansion of cash flow will require us to focus on how we use capital efficiently across the organization, deliver on high-margin projects, realize commercial excellence and improve an overall high-performance culture, all the while, of course, ensuring we stay laser-focused on safe and efficient operations. As shown on Slide 8, we outline a high-level breakdown of the opportunities we're executing on to achieve our $100 million annual run rate target. On the right side of the slide, we have a detailed list of projects underway to achieve our target of $100 million of additional cash flow. To date, we've executed on $8 million in savings and have a clear path to realize the $25 million in 2025 and our target of $100 million in 2026. The Arnold P&A project is a strong example of our commitment to improving our business every day. Originally budgeted at $52 million gross, this project was successfully completed for under $35 million gross. This achievement was made possible by assembling a multidisciplinary team of experienced Talos employees and fostering close collaboration with the contractor, who shared valuable lessons learned from similar operations. The team reengineered the execution plan, minimizing unplanned downtime and implementing batch processing across the 3 wells to reduce vessel usage, which ultimately drove significant cost savings, demonstrating the ability to do more with less. Lessons learned through this collective process will clearly be applied in future projects. On the commercial front, our marketing team has improved oil and gas price realizations by leveraging our increased volumes and focusing on several key initiatives, including direct sales to end users, extending contract duration and optimized transportation strategies. We believe that this will lead to an uplift of approximately $5 million per year in 2025 alone. Within the organizational improvement work stream, we've simplified our entity structure to make it more efficient, resulting in future cash tax savings. As part of our margin improvement strategy, Talos has increased utilization of internal resources by deploying company personnel and dedicated third-party vessels and helicopters to monitor select offshore unmanned facilities, work that was previously performed by contractors. This transition reduces dependence on the service sector, lowers our operating cost and improves our overall operational efficiency. I'm encouraged by the progress we've made, which reflects our strong performance culture and the team's enthusiasm for this way of working. As mentioned earlier, Talos consistently ranks in the top quartile amongst public E&P companies in netback margins, underscoring the strength of our low-cost oil-weighted asset base. During the second quarter, we delivered on several major operational milestones. As shown on Slide 10, we've updated our drilling schedule for the second half of 2025 and the first half of 2026. Our team continues to work closely with the West Vela crew, creating a high-performance partnership, enabling smooth and efficient operations. Due to the strong performance of the West Vela rig, Talos has extended its use through the first half of 2026. The rig is scheduled to drill the Cardona and CPM wells, followed by a third well that is currently in the final stages of planning. Additionally, we've added the non- operated [ Monterrey] prospect to our portfolio with drilling scheduled to begin early in the new year. Slide 11 lists a couple of our current projects and some of our second quarter accomplishments. This includes initiation of production from our Sunspear and Katmai wells, the spudding of our Daenerys well targeting the high-impact Miocene prospect with drilling results expected in late September and continued advancement of our Monument development project with our first well targeted to spud in the fourth quarter of this year. On Slide 12, we take a closer look at the Katmai West #2 well, which was placed online late in the second quarter as per plan. We delivered the project under budget and ahead of schedule. Total production from the Katmai West and East fields is currently running at approximately 35,000 barrels gross of oil equivalent per day and is expected to remain at that level for several years to come. Production from the Katmai West #2 well is flowing back to Talos' 100% owned and operated Tarantula facility, which is running at maximum nameplate capacity. We currently have an active study underway to evaluate opportunities for increasing near-time production throughput at Tarantula. And as a reminder, Talos holds a 50% working interest in and operates the Katmai field. Turning to Slide 13. First production from the Sunspear discovery was also brought online as planned late in the second quarter of this year. Sunspear is tied back to the Talos-operated Prince platform. We hold a 48% working interest in Sunspear. Initial productive capacity is at the upper end of expectations, although the well is still in the cleanup phase. We recently had to shut in the well due to the early failure of a surface control subsurface safety valve. Of course, we will do a full review with the manufacturer to determine the cause of the failure once we have retrieved the valve and to help ensure this does not happen again. To conduct these remedial operations, the West Vela rig will be mobilized to Sunspear after the drilling of Daenerys, with Sunspear expected to be back online by the end of October of this year. The cost to repair the safety valve and the estimated downtime will affect our annual production guidance by approximately 800 barrels of oil equivalent per day, both of which have been factored into our revised guidance. While I won't get into a lot of detail, Slides 25 through 26 in the appendix of the presentation provide additional information on our Daenerys and Monument projects. We began drilling operations on Daenerys late in the second quarter of this year. Drilling is progressing well and as planned, and we estimate it will take around 100 to 120 days to drill the well with results expected mid to late third quarter of this year. Talos holds a 30% working interest in and serves as the operator of Daenerys. For our Monument project, the large Wilcox oil discovery in the Gulf, we expect to spud our first well at Monument by late fourth quarter of this year with first production anticipated in late '26. In March, we increased our working interest in Monument from 21.4% to just under 29.8%. On Slide 14, we highlight our continued strong safety and environmental performance, which is closely aligned with our operational excellence. This reflects our team's commitment to rigorous safety systems, proactive maintenance and upholding the highest standards of care and performance across Talos. With that, I'll now turn the call over to Greg.

Thank you, Paul, and good morning, everyone. As Paul mentioned, we performed very well in the second quarter, exceeding consensus estimates on adjusted EBITDA and adjusted free cash flow. However, during the quarter, we recorded a noncash impairment of $224 million related to the full cost ceiling test under the SEC guidelines. As a reminder, this test primarily compares the net capitalized cost of our oil and gas properties to the present value of future net cash flows from our proved reserves using a trailing 12-month pricing, which we expect to continue lower in the third quarter of this year. The impairment this quarter was primarily driven by an accumulation of historical nonproductive capital expenditures such as dry holes that did not result in additions to proved reserves. Under the full cost method, these costs remain in the full cost pool and contribute to the ceiling test calculation regardless of technical success. Turning to Slide 15. We've made a modest adjustment to our 2025 capital budget. This reflects the modification of our drilling schedule, the addition of incremental work at Sunspear and better-than-expected drilling efficiencies. The net result is a reduction of approximately $10 million to the overall budget. We now estimate full year capital spending to range between $590 million and $650 million. We remain highly confident in the economic resilience of the key projects that we're advancing, which are estimated to break even at an average oil price of approximately $35 per barrel. On Slide 16, we provide updated guidance for the full year 2025 as well as a first look at our expectations for the third quarter production. We have reduced our operating expense guidance by $25 million, driven primarily by early savings executed on or identified from our improving our business everyday initiative. In short, we are enhancing our full year range of expectations to reflect the second quarter actual results, combined with our full year outlook that includes increased production complemented by lower capital and operational spending. Our new range of anticipated investments of $590 million to $650 million for the full year includes $100 million to $120 million of P&A and decommissioning activities this year. We expect P&A activity to increase in the third quarter before moderating in the fourth quarter. On Slide 17, we include a waterfall presentation showing our methodology and how we arrive at production guidance outlooks. As an offshore operator, we have a number of things, both internally and externally that can impact production guidance, such as maintenance turnaround and weather-related disruptions, including hurricanes and estimated potential unplanned downtime affecting third-party facilities and pipelines. The good news is that due to our detailed planning and strong execution, we've reduced our planned downtime in the first half of 2025, which should more than offset the impact of the Sunspear shut-in. Taking all considerations into account, we now expect production for 2025 to range between 91,000 barrels and 95,000 barrels of oil equivalent per day. Inclusive of potential hurricane downtime and preventative maintenance, we expect our production for the third quarter to be between 86,000 barrels and 90,000 barrels of oil equivalent per day. Our hedge positions, as shown on Slide 18, support our cash flow stability in a fluctuating commodity market. During the second quarter, we capitalized on oil price volatility to strengthen our hedge portfolio. Our current hedge portfolio for the second half of 2025 reflects our typical approach to the hurricane season when we hedge at lower levels. The mark-to-market value of these hedge positions stood at $56 million as of June 30th. Looking at Slide 19, as Paul discussed in his comments, we focus on making strategic long-term investments to cultivate a sustainable asset base that generates robust returns through the cycle, strengthening our balance sheet to prepare to capitalize on opportunities and growing the business through selective accretive expansion initiatives, while consistently returning cash to shareholders. As shown on Slide 20, our strong balance sheet provides us with options and flexibility for the long-term success. At the end of the second quarter, we had $357 million in cash and a leverage ratio of only 0.7x. Talos recently completed its scheduled borrowing base redetermination, resulting in a reduction from $800 million to $700 million in available borrowing capacity under the company's bank credit facility. We are committed to maintaining our strong balance sheet to help ensure we are prepared to capitalize on opportunities that may arise in the current low oil price environment. Our financial framework is built on a balanced 3-pronged approach that targets sustainable investments in the business in high-returning projects to maintain production through the cycle and create value for shareholders. On Slide 21, we provide an update on our share repurchase program, the authorization for which is increased by our Board to $200 million. The expectation is to allocate up to 50% of our annual free cash flow to share buybacks in a programmatic approach. We continue to execute on the program in the second quarter with purchases of $33 million for the period and $100 million cumulatively since the program's inception last year. We continue to believe our shares are significantly undervalued and repurchasing them represents a compelling use of capital. With that, I will now turn it back to Paul for some additional closing comments.

Thanks, Greg. In closing, by continuing to focus on capital discipline, operational excellence and free cash flow generation, we have achieved much success to date in 2025 and have laid a solid foundation for the second half of the year and beyond. Our efforts have and will continue to squarely support our vision for Talos, which is simple: become a leading pure-play offshore E&P company and capitalize on the increasing role offshore and especially deepwater is expected to play in meeting the world's energy needs. We believe Talos is in a unique position to capitalize on this opportunity, and we look forward to keeping everyone appraised on our progress. With that, we'll open the line for Q&A. Thank you.

[Operator Instructions] Your first question comes from Michael Scialla of Stephens.

Paul, I wanted to see how you're thinking about free cash flow priorities now with your leverage at 0.7x, you have almost as much liquidity as total debt. Is there anything more you want to do with the balance sheet at this point? Or do you think buybacks could increase going forward? Or are you saving some dry powder for acquisition opportunities?

Thanks, Michael, for the question. I mean, look, I would put it in the frame of the sort of capital discipline framework that we laid out. That is the lens at which we sort of look at the company in totality. And so how do we sort of make sure that we're investing in the business today, whilst maintaining strength of the balance sheet, returning cash to shareholders as we've spoken about, but also giving ourselves the options to actually add and grow the company through accretive opportunities that we see either in the Gulf or in other basins around the world. And that's exactly what we're doing, and that is the lens at which we will look at the sort of strength of the balance sheet going forward. And I and Greg and the rest of the team here want to make sure that we give ourselves the optionality such that as opportunities come along, we can actually look at those. And if we do find that they sort of meet our requirements from being sort of accretive to the business, but also sort of fulfilling the needs that we have in terms of being sort of adjacent to the skills that we have, then we have got the ability to do that and the ability to do that through various means, either by using the strength of the balance sheet first and foremost or if we choose to go a different route by using, let's say, debt. And so I'd say we'll keep monitoring that. We'll look at it through the lens of the strategy that we put in place, and we sort of shared with you in the middle of June. And I'm sort of very pleased with how the organization has sort of stepped up and started to sort of work along those sort of 3 strategic pillars that we outlined.

I appreciate that detail. I wanted to ask on Slide 10, you did mention a few, I guess, a couple, at least new development projects, and you also mentioned the -- you're hanging on to the West Vela. I wanted to ask you about that decision to maintain that rig and maybe if you could provide some color on those new projects.

Yes. So again, I'd say look at those projects through the sort of the lens of the sort of capital framework that we laid out, and that is all about investing in our base business, leveraging the strength we have within the Gulf of America, making sure we bring forward high- value accretive projects within the portfolio and then execute them via a team that is highly performance focused, both in terms of the execution of the project and in terms of doing it in a safe and environmentally friendly way. And I would say the West Vela rig in combination with the Talos team here has really shown an outstanding level of performance and an outstanding level of collaboration. And that's absolutely the type of partnership that we will continue to forge with the service sector to make sure that we are at sort of the top of the benchmark when it comes to execution. And so, it was a fairly easy choice for us when looking at how to sort of execute the program as we go into 2026 to start with the basis of building off the sort of great performance that we've had. And I will say we've also been able to take advantage of a slight sort of softening in the rig market such that the rate that we have for that rig is certainly below the rate we were paying in the early part of 2025 and comes in now just sort of south of the $400,000 a day mark. So we're sort of very pleased all around, both from a perspective of delivering on the capital framework that we have, doing that with a highly competent and highly performance-focused rig team and then being able to do it at a sort of cost advantage relative to where we were earlier in 2025.

Your next question comes from Tim Rezvan of KeyBanc Capital Markets.

I want to say thank you for the granularity you provided on the cost savings. It's helpful and actually pretty impressive this early on. So thank you for that. The first question I had, there's been recent news about Pemex discussing using

Sure. Let me hand over to Greg to sort of talk about the timing, and then I'll make a few comments on the broader question that you asked, Tim.

Yes. Thanks, Paul. I think we're looking at the timing. We had to refile some paperwork around kind of change in control in the operator in Mexico. That paperwork was filed, restarted some of the clock. We certainly expect that transaction to close here toward the end of the third quarter from a timing perspective.

Thanks, Greg. Look, Tim, to a broader question, no conspiracy theory, the partnership between sort of ourselves and Harbour and Carso, of course, who invested in Talos Mexico is incredibly strong, and we are working with Pemex to progress that project. We feel that the development concept can be somewhat easier, lower cost, simpler than the one that Pemex is putting forward, and we work with Pemex to try and make sure that we sort of develop that project in the most effective from a cost perspective as well as a risk perspective way that we can before we invest in that. And so -- and that is the work that we will continue to do. I think it's a positive that from a Pemex and a country point of view, [ that ]

And then as my follow-up, Paul, you've been in the seat now for 5 months. It's been 2 months since you enrolled your strategic update. I was wondering if you could give a little more clarity on any acquisition targets you're looking at or just basically what the state of the market is for deepwater offshore and what you're seeing?

Thanks, Tim. I'll keep this sort of relatively short. And so I'd say, look, I'm not going to talk about specific opportunities that we're looking at. We are looking at a number of opportunities, both sort of within the Gulf of America as well as on the international front that sort of meet the criteria that we have laid out and both ones that are out in the market as well as the ones that we've identified ourselves, and we'll clearly update you as and if and when those progress. I would say on the broader question relative to sort of where the market is, we continue to see a lot of interest in deepwater, which I think underpins our belief and my belief that we'll see more of a resurgence of interest in offshore and deepwater as a way of sort of providing high-margin, lower cost, low carbon intensity barrels into the energy mix. I think sort of Talos is positioned incredibly well to sort of take advantage of that, both within the Gulf given the sort of incredibly strong operating footprint and ability we have to sort of capture volumes on a relatively short cycle basis and then sort of leveraging that out into other sort of conventional basins within the deepwater theater. And I'll probably sort of leave my comments at that for now, Tim. But thank you for the question.

Your next question comes from Nitin Kumar of Mizuho.

I want to start off the one big beautiful bill, I'm sure name it -- name wrong. It mandates some leases in the Gulf of Mexico and has made some changes. Could you maybe talk us through how is that sort of fitting into your organic growth plans? And as the sort of pure-play Gulf of America company, how do you view those regulations for yourself?

Yes. Thanks, Nitin. I think it's an incredibly positive move in terms of sort of bringing back regular leasing activity. And so we'll have one sort of lease sale towards the end of this year. And then, of course, under that bill, it's mandated for 2 lease sales per year that sort of brings forward at least sort of 80 million acres per lease sale, has reduced sort of royalty rates. And so, those are all clearly sort of positives for us as a focused deepwater operator that clearly has a very, very strong footprint within the Gulf of America. And we will sort of use that as a key sort of pillar and a key sort of lens of activity that underpins the sort of organic activity that we will undertake. And so, we will look to be active participants in those lease sales, of course, looking at the opportunities through the -- through the sort of capital discipline framework that we've spoken about and sort of leveraging the significant technical knowledge base that we have inside the company, leveraging the sort of seismic data and interpretation skills that we have. And so we're very -- well, we look forward to great interest to those lease sales and working that both by ourselves and also in partnership with sort of key partners that we have here within the Gulf.

Great. Appreciate the answer there. My follow-up, Mike, just maybe I'll try Tim's question with a different tack here. You've been here for, I think, 5 months now. You have international experience in your prior role. As you look at Talos today as an organization, you've talked about inorganic growth outside of the Gulf of America. But if you were to look at sort of technology or sort of technical experience, marketing, regulatory experience, finance, are there any areas, where you feel the organization either has underappreciated strengths or maybe some challenges as you look to broaden outside of the Gulf of America?

I think the overall capability of this company is outstanding. And so our task is to work collectively to apply that across the opportunity space that we see in a disciplined and structured way. And whether that's in terms of how we think about quality of investments or whether that's how we think about leveraging the technical expertise that we have, then sort of that is the focus that we will take. Now what I will say is I'm very, very pleased with the organization in terms of recognizing where maybe it doesn't have the organic knowledge of those other basins and its ability to actually go out and bring that knowledge in. And so although we are, at the moment, sort of purely focused on the Gulf of America with

Your next question comes from Nate Pendleton of Texas Capital.

Congrats on the strong quarter. Besides the temporary shut-in at Sunspear, can you provide a little more detail about the drivers behind your improving guidance for the year that you show on Slide 17?

Sure. Maybe I'll make a few comments and Greg, please feel free to add. I would say, Nate, at the simplistic level, actually, if I just take it at a high level, it is because of the focus and dedication that we are showing as a company across every activity that we execute and whether that's capital activity in drilling, whether that is in terms of how we think about the effectiveness and efficiency of our capital spend around production -- sorry, around P&A, whether that's the focus we have on availability and uptime on our facilities, it's the culture of Talos that we're building to look at every activity that we have and ask ourselves the question, is there a way to do that more effectively, more efficiently for higher value. And I think you're starting to see that come through. Now clearly, there are some elements that we have to consider from a planning point of view, such as the unknowns of how large will or how impactful will the hurricane season be. And clearly, we sort of build that into the production forecast that we have. and the same when we think about planned downtime. And I've been very sort of pleased with how the teams have responded to the challenge of how can we move from being a good company to a great company. And I think that's one of the things you started to see come through with a slight change of forecast in our planned downtime is that we already delivered the first half of the year slightly better, and we're playing that through into the second half of the year. But again, I think at the highest level, it really is sort of the laser focus that the organization has in totality on every activity that we do, every dollar that we spend, every opportunity that comes our way.

That's really encouraging commentary. And with the current administration advocating for more offshore development and deregulation, is there any particular policy or set of policies that you feel could be updated to help achieve the administration's goal of increasing production in the Gulf of America?

Look, I think the drive to increase the frequency of leasing, of course, is really important if you think about the front end of the funnel. I think the change around the commingling rules and regulations is absolutely a positive, especially for assets that sort of sit in the mid-life where we can then actually drive the efficiency of that at a greater, greater level. And I think the other lens that I would take on it is not just looking at within the sort of production space, but then thinking about it from a life cycle point of view is can we sort of manage more effectively the abandonment liability and the abandonment process. And that's a conversation that we and others in the industry are actually sort of starting with the administration now, and I think will become a more and more important part of the overall mix given the maturing nature of the Gulf of America.

Your next question comes from Margaret Drefke of Goldman Sachs.

I was just wondering if at first, you could talk a little bit about the low-hanging fruit or near-term targets for the $100 million savings plan beyond those that Talos has already executed on. Which are the buckets, capital efficiency, commercial opportunities, et cetera? Do you think kind of have the clearest line of sight from here?

Thanks, [ Margaret ]. Greg, why don't you make a few comments on that?

Yes, sure. So look, I think first and foremost, the teams, as we went through kind of the planning session as we started thinking through the ideas, we revamped, as Paul's remarks said on the call about how we did the Arnold P&A campaign from a capital efficiency from hopping the stack from one well to the other. I think we've really challenged the team to work through some of that. So the near term, the things we talked about on the call, the offtake agreements on the marketing side, how we think about LOE management and vessel optimization. The next year items, the $100 million is going to be really digging into transportation, logistics, really revamping how we think about the supply chain of the business, how we really think about production optimization and enhancement, really digging into the capital planning so that we can make all of our drilling activities look like Katmai West #2 drilling and continuing the work around procurement and supply chain. And so we've got the layout of the $100 million on Slide 8 in the presentation of kind of what parts of the business we think each of those come from between the commercial opportunities, margin enhancement, capital efficiency and certainly the organizational improvement.

Great. And I appreciate your color on capital allocation thus far on the call. I was just wondering if you could talk a little bit more about your outlook for the cadence of incremental share repurchases from here. Is the $33 million or so you did this quarter a good quarterly run rate? Or what would be the right framework to use to think about share repurchases going forward?

Yes. Look, I think we rolled out our strategy at the latter part of the second quarter, which included our share buyback program and the strategy around the 50% or up to 50% of the free cash flow. As that program or as the strategy began to mature, there was a time we had to be out of the market. We were in the market as soon as we could after we announced our corporate strategy. We were proud of the team's execution on being able to buy back about $33 million in the quarter, which was in the middle of the fairway of what we said with respect to up to 50% of the free cash flow. A couple of comments. I do think we should -- offshore things can be a little lumpier than onshore. As you think about our strategy and how we're going to buy back and how much we're going to buy back, I think you should think about that over what we do over the next couple of quarters, and let's not just focus on this quarter as we rolled out the initial strategy. But ultimately, the basis is centered around the capital allocation framework and making sure that we can stay balanced in investing in the business, maintaining the strong balance sheet we've got and being opportunistic if the accretive opportunity presents itself. But certainly, we continue to find the stock to be attractive at these prices, and we'll continue to execute on that program in the third quarter.

Your next question comes from Phu Pham of ROTH Capital.

So I just have a question about like the shutdown of Sunspear. And can you elaborate more about like the delay of the Marmalard greenfield? Like it's supposed to be in the second quarter, but now I think it pushed out to the mid-third quarter. So can you elaborate more on that?

Yes. Thanks, Phu. So look, on Sunspear, as we said, we -- the well and completion was successfully installed. It was successfully tested. It met all the requirements. We started production. We're in the middle of cleaning the well up. The well looks very promising in terms of the initial data that we have, hence my comments that I see that well sort of performing at the upper end of the expectation range that we have and in regular testing that we have to do on all our wells, the subsurface safety valve failed to hold pressure. Now that's a critical safety valve, and we will not operate without that. Therefore, we have shut the well in. And we will bring the West Vela rig around after we finished operating at Daenerys to pull the tubing, replace that safety valve, run it back into the well and then we'll come straight back on to production. We don't know why that valve has failed at this point in time. Once we get it to surface, we'll work with the supplier and the manufacturer, which is one of the very large service companies to make sure we understand the root cause of that. So incredibly disappointing, but also incredibly proud of how the team has reacted incredibly quickly to allow us to bring a rig to go and intervene and bring that well online. And that, I think, is another example of the benefit of having the type of partnership that we have with the West Vela and the supply chain there to allow us to actually plan for that in the very short amount of time. I think your second question was related to the Marmalard well, which is, of course, we're a non-operated partner there. They have faced some challenges throughout the sort of the drilling and completions, and they're in the completion phase now, and we would hope that, that well will be completed and brought online in the not-too-distant future.

Your next question comes from Michael Furrow of Pickering Energy Partners.

Paul, I just want to hit on one of your last remarks in the previous question regarding the issues around the safety control valve at the Sunspear prospect. Look, issues happen and safety is obviously the #1 priority. My question is, does the repair require a rig with the capabilities like the West Vela? It sounds like that rig has been performing well and the best use would be to keep that rig drilling and instead of returning to make sort of a minor repair. So I'm sure Talos has looked into this and looked into the other options. So could you maybe explain to us why the West Vela seemed like the best option to perform this work?

Sure, Michael. I mean, look, at a gross level, your assumption is correct. So you don't need all the capabilities of the West Vela to go and pull the tubing and replace the safety valve and run it back in. But what you do need is a team that is on the top of its game, can do that incident free. And when you pick up a new rig or a different rig, there's always a time of actually making sure that the team gels and that there's always a risk in terms of unintended errors and mistakes. And so when we looked at it in the round, given the advantaged rate that we could extend the West Vela for the sort of incredible performance that it has, from a value point of view, the best value against risk for us was to go and do this job very quickly and efficiently with the West Vella. And that is the lens through which we sort of look at all the decisions we take in terms of what is the quality decision to give us the highest chance of delivering the outcome that we're after. And the outcome here is to get Sunspear back on production at the lowest cost in the shortest time frame that we can. And the selection of the West Vela met all of those criteria versus alternatives that were out there for us to consider, which, as you rightfully assumed, we did consider.

Thanks, Paul. That's great detail. Look, I completely understand the value of the strong operational team. So just a quick follow-up to that. How long do you think it would take for the West Vela to leave Daenerys, arrive at Sunspear, make the repairs and then return back to Daenerys or Cardona or whatever the next asset is on the deck?

Yes. So we will not leave Daenerys before Daenerys is completed. And we said we're in the process of that well and performance is going very well on Daenerys. And so the timing from when we leave Daenerys to having the well back on production, we forecast within 30 days at this point in time. And I would hope we could do it on the sort of the plus side of that, so less than 30 days, but we have the contingencies sort of planned into that time. And so I think it's prudent that we'll sort of stick with the 30 days from a planning point of view.

We do have a gap between work at Sunspear and before we pick up the rig at Cardona. So there is a space between those 2 operations.

Ladies and gentlemen, we have time for one more question. The last question is going to be for Michael -- sorry, Noel Parks of Tuohy Brothers.

I was just wondering, and I apologize if you touched on this already, but any updated thoughts on your non-operated opportunities, either U.S. or internationally? Wondering if you're seeing any interesting things if prices more or less having stabilized in the 60s has maybe sort of helped bid ask as the summer is worn on. Any thoughts there?

Thanks, Noel. So look, we are -- certainly, we will look at non-operated opportunities, especially if we can sort of bring value to the partnership through the sort of skills and capabilities that we have. We do see some opportunities out in the marketplace for operators looking for partners, both in the Gulf of America and in the international arena as well, where sort of clearly, we could bring our capabilities to bear, I think, to strengthen those partnerships. And so it is all about, I think, as you said, can we do that for the right value. And that's the work that we are in the middle of undertaking on a number of opportunities at the moment. I don't think anything has sort of fundamentally shifted between last quarter and this quarter. We tend to sort of think about price over the mid- to long term given sort of the cycle times of some of the projects, even the sort of very fast subsea tiebacks that a company like Talos can do where we can sort of go from discovery to bringing an opportunity on to production within our controlled infrastructure, sort of less than 24 months means that we do have to sort of think about pricing in sort of slightly longer term, and that's the lens that we'll continue to look at that through within the sort of capital allocation framework that we've touched on a number of times during this call this morning.

There are no further questions at this time. I would hand over the call to Paul Goodfellow for closing remarks. Please proceed.

Thanks, [ Alan ], and thank you all for joining the call this morning for the questions that you've asked and the confidence that you have in Talos. And we look forward to continuing this dialogue with you in the weeks and months ahead. With that, I'll close the call and wish you all a good and safe day. Thank you.