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Talos estimates QuarterNorth’s average daily production for 2024 will be approximately 30,000 boe/d (75% oil), inclusive of planned downtime. QuarterNorth’s producing assets include six major fields and are approximately 95% operated and 95% in deepwater.
QuarterNorth operates and holds a 50% working interest in the Katmai discovery in the Green Canyon region, producing an estimated combined 27,000 boe/d gross from two early-life wells.
Talos expects the Katmai Field to average more than 34,000boe/d gross with minimal decline over the next several years. The estimates are based on a successful field development plan that includes two future well locations and a facilities upgrade project in early 2025. QuarterNorth's also holds interests in the Big Bend, Galapagos, Genovesa and Gunflint fields with “strong production histories with nominal declines,” and future development potential, Talos said in a press release.
Talos will pay for the transaction with a combination of 24.8 million shares of common stock and approximately $965 million in cash. The board of directors of both Talos and QuarterNorth unanimously approved the transaction, which is expected to close by the end of first-quarter 2024, subject to certain customary closing conditions and regulatory approvals.
The transaction is expected to improve Talos' base decline rate by approximately 20%, providing increased production stability and lower reinvestment rates, the company said. The deal will also improve Talos’ balance sheet, with expected year-end 2024 leverage ratio of 1x or less.
Talos President and CEO Timothy S. Duncan called the deal a milestone that will build a large-scale offshore E&P company.
“The addition of QuarterNorth's overlapping deepwater portfolio with valuable operated infrastructure will increase Talos's operational breadth and production profile while enhancing our margins and cash flow,” Duncan said in a press release. “This transaction aligns with Talos' overall strategy of leveraging existing infrastructure and complementary acreage to accelerate shareholder value creation.”
The pro forma footprint in the U.S. GoM should allow Talos to capture meaningful operating synergies, Duncan said. Talos said it expects annual run-rate synergies of approximately $50 million by year-end 2024.
The expected financing structure of the transaction accelerates de-leveraging, immediately improves the company’s credit profile, is accretive on key metrics “and positions us to consider additional capital return initiatives following deleveraging in the near term,” he said.
Talos secured $650 million in bridge financing from a syndicate of banks representing most of the company's reserve-based loan (RBL) lender group. Talos expects to fund a portion of the cash consideration with the RBL and “opportunistically” through debt or equity financings. Talos expects to repay the majority of the RBL funding for the transaction in the next 12 months.
PJT Partners and Greenhill (Mizuho Securities M&A) are serving as lead financial advisers to Talos. J.P. Morgan Securities LLC and Intrepid Partners LLC are also serving as financial advisers. Akin Gump Strauss Hauer & Feld LLP is serving as legal advisor to Talos.
Barclays is serving as financial adviser to QuarterNorth, and Holland & Knight LLP is serving as legal adviser.
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