Tim Duncan’s Talos Energy Big Risk With Big Returns


Tim Duncan’s Talos Energy Big Risk With Big Returns

Tim Duncan, Talos Energy’s chief executive, has been negotiating a $2.5 billion merger between Talos Energy and Stone Energy. As risky as it was, this move made Talos Energy a public entity without sacrificing a public offering. Tim Duncan was eager to close the deal. He returned to Texas, settled at his parent’s home, to negotiate with Stone Energy Corporation for several weeks. Some meetings would go until late at night.

Finally, in May, Talos Energy would merge with Stone Energy and Duncan would preside over the oil company that has a yearly revenue of $900 million. Tim Duncan has set all of Talos’ assets around the Gulf of Mexico. Tim Duncan found Talos Energy from an equity funding of $600 million by Riverstone and Apollo. The company offsets the risk involved with the Gulf of Mexico with a balance sheet of $700 million in debt versus its $2.3 billion in assets. Over the years, Talos Energy acquired assets such as Phoenix field for $620 million. Unlike other companies that operate around the Permian Basin using the new technology hydraulic fracturing, Talos Energy uses more traditional methods. Talos takes a chance with wells in U.S. waters and the risky waters of Mexico. Here, Talos produces 48,00 barrels per day.

The gulf is the second biggest oil province in the United States, just behind Permian Basin, pumping nearly 1.6 million barrels each day. Most of the oil is in waters owned by the government, bringing oil royalties to a value of $3 billion to the United States Treasury yearly. However, the Trump administration opened more federal waters for leasing. Nonetheless, drilling in the gulf is still high risk and expensive. Drilling 5 miles down cost $200 million and Bernstein Research says that there is a one-in-three chance that the location will be dry. However, Talos Energy has been more successful than that, having only 7 insufficient wells out of 28 attempts. It would be cheaper if they use hydraulic fracturing, but Duncan refuses to do land drilling. Nonetheless, it would seem that Talos Energy still has a promising future in Mexico’s gulf.

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