DENVER—Not everyone may like the Inflation Reduction Act of 2022, but Talos Energy Inc. will take the win.

The bill firms up Gulf of Mexico (GoM) lease auctions, restores blocks the company previously won and enhances tax credits for carbon capture, according to Talos President and CEO Tim Duncan. Speaking at EnerCom’s investor conference on Aug. 9, Duncan said the legislation will restore 10 GoM blocks the Houston-based company won as high bidder in a 2021 auction.

“If I were a pharmaceutic executive, I wouldn’t be up here telling you how much I love this thing,” Duncan said in reference to provisions in the bill intended to lower prescription drug prices. “But we’ve had a lot of questions this year,” he added regarding lease sales in the GoM.

“It’s obviously an enormous resource. It’s a valuable resource to this country,” he said. “We’re talking about energy security, and we certainly wanted lease sales to come back.”

Hart Energy August 2022 - Talos CEO Touts Inflation Bill for Offshore Leases Carbon Capture - Tim Duncan headshot“If I were a pharmaceutic executive, I wouldn’t be up here telling you how much I love this thing. But we’ve had a lot of questions this year [regarding lease sales in the Gulf of Mexico].”—Tim Duncan, Talos Energy Inc.

Duncan also said he welcomed enhancements to carbon tax credits, known as 45Q, including an increase to $85 per ton credit of permanently sequestrated CO₂. The previous 45Q tax credit was $50 per ton.

The enhanced 45Q tax incentive is important to Talos, which in May saw Chevron Corp. acquire a stake in Talos’ offshore carbon capture and sequestration (CCS) hub.

“I think we’re certainly a beneficiary to what happened in Washington over the weekend,” he said. The 45Q tax credit will be “an import part of the broad decarbonization” efforts.

The legislation, which was not supported by Senate Republicans, also reinstates to Talos the Lease Sale 257, which was held in 2021 and awards high bidders their leases. Talos was one of the most active bidders and won 10 blocks totaling more than 57,000 gross acres.

The legislation also requires previously canceled GoM sales to be held and ties future offshore wind lease auctions to oil and gas sales. Increased royalty rates won’t affect the company, since deepwater royalty rates are capped at current rates for 10 years. Talos’ existing 1.3 million gross acres are unaffected by the royalty increases.

Hart Energy August 2022 - Talos CEO Touts Inflation Bill for Offshore Leases Carbon Capture - Investor Presentation Slide
Talos Energy listed maintaining offshore leasing in the Gulf of Mexico as one of the expected benefits to the company if the Inflation Reduction Act of 2022 passes. (Source: Talos Energy Inc. investor presentation)

Duncan said the lease sales serve an important function in GoM development because new operators will often pick up where others have left off.

“These are 10-year leases in deep water. They roll off. Somebody wants to be there on the other side and pick those up,” he said. “So, having predictable lease sales is an extremely important part of our long-term strategy.”

 Duncan also addressed M&A potential in the GoM, saying an “unprecedented” opportunity is coming into focus following a period of volatile commodity prices.

“There’s a lot of stuff on the market,” he said. “When the commodity [prices] are choppy, the bid-ask spread is equally chopping and that means it’s not easy” to transact.

Talos sees more than $100 billion in divestments targeted by supermajors by 2025, as well as the potential for deals with private offshore E&Ps.

Shell Plc and ConocoPhillips Co. are both reportedly exploring the divestiture of assets in the U.S. Gulf of Mexico, according to media. Duncan said he’s seen some movement on the market but whether majors want to sell or not remains to be seen.

“You’re seeing things start to show up on the market with both the majors,” he said. “There’s a couple of packages out there right now.”

Like other major plays onshore, consolidation in the GoM is of equal importance.

“Ultimately, we want to be there in the space, build out the oil and gas side,” Duncan said.