SecProbe.io

CORRESP
1
filename1.htm

CORRESP

 December 5, 2022

Division of Corporation Finance

 Office of Energy &
Transportation

 United States Securities and Exchange Commission

100 F Street, N.E.

 Washington, D.C. 20549-3561

Re:
 Talos Energy Inc.

Form 10-K for Fiscal Year Ended December 31, 2021

Form 8-K filed November 3, 2022

File No. No. 001-38497

Ladies and Gentlemen:

 Set forth below are the
responses of Talos Energy Inc. (the “Company” “we,” “us” or “our”) to comments received from the staff of the Division of Corporation Finance (the
“Staff”) of the U.S. Securities and Exchange Commission (the “Commission”) by letter dated November 22, 2022, with respect to the Company’s Form 10-K
for Fiscal Year Ended December 31, 2021 (the “Form 10-K”) and Form 8-K filed with the Commission on November 3, 2022 (the
“Form 8-K”), each under File No. 001-38497.

For your convenience, each response is prefaced by the exact text of the Staff’s corresponding comment in bold, italicized text. All
references to page numbers and captions correspond to the Form 10-K and Form 8-K, respectively, unless otherwise specified.

Form 10-K for Fiscal Year Ended December 31, 2021

Risk Factors

 We are a holding company that
has no material assets other than our ownership of the equity interests of Talos Production Inc., page 60

1.
 You disclose here you are a holding company, and elsewhere you disclose you conduct substantially all of
your operations through subsidiaries. In view of the preceding, please explain to us your consideration of the applicability of Rules 4-08(e), 5-04(c) Schedule I and 12-04 of Regulation S-X to your filing.

RESPONSE: We advise the Staff that we have considered the applicability of Rules 4-08(e), 5-04(c) Schedule I and 12-04 of Regulation S-X to the Form 10-K. With respect to Rule 4-08(e)(3), we advise the Staff of our belief that we have disclosed, to the extent material, the extent and nature of restrictions on the ability of our subsidiaries to transfer funds to us, including on pages F-23 and F-24 of the Form 10-K. In this regard, we advise the Staff that, because we are a

 U.S. Securities and Exchange Commission

December 5, 2022

  Page
 2

holding company (as disclosed in the Form 10-K), the only meaningful cash obligations we have historically accrued relate to tax obligations and relatively
minimal parent-level general and administrative expenses, in each case for which exceptions are included in the applicable subsidiary-level restrictions.

With respect to Schedule I of Rule 5-04 and Rule 12-04 of
Regulation S-X, we acknowledge that while the Company exceeds the 25% threshold for requirement of separate parent-only financial statements, we respectfully submit that because we own no operating assets and
have no material operations, cash flows or liabilities independent of our subsidiaries, a fact that was disclosed on page F-9 in the notes to the consolidated financial statements included in the Form 10-K, we concluded that separate parent-only financial statements are not material nor meaningful to investors. We believe that the current footnote disclosure in the Form
10-K provides the necessary information that is useful to an investor.

 Management’s Discussion and
Analysis of Financial Condition and Results of Operations

 Supplemental Non-GAAP Measure, page 77

2.
 Please expand your description of “Transaction and other expenses” in your reconciliation of
Adjusted EBITDA to quantify and provide further explanation regarding the individual components of this adjustment. As part of your response, tell us more about the nature of the restructuring expenses and cost savings initiatives. This comment is
also applicable to your Form 8-K filed November 3, 2022.

RESPONSE: We advise the Staff that the “Transaction and other expenses” in our reconciliation of Adjusted EBITDA include, as
applicable based on the relevant period, transaction-related expenses, restructuring expenses, cost saving initiatives and other miscellaneous income and expenses that we do not view as a meaningful indicator of our operating performance. With
respect to the restructuring expenses and cost savings initiatives noted in the Staff’s comment, we advise the Staff that such expenses totaled approximately $0.0 million, $2.7 million and $0.9 million for the years ended
December 31, 2019, 2020 and 2021, respectively. With respect to the year ended December 31, 2020 and 2021, we advise the Staff that the $2.7 million and $0.9 million, respectively, cited above included approximately $1.4 million
and $0.2 million, respectively, of legal entity restructuring costs and approximately $1.3 million and $0.7 million, respectively, of severance cost saving initiatives that resulted primarily from the impact of the COVID-19 pandemic.

 To address the Staff’s comment, we undertake in future filings, to the extent
material and appropriate under the circumstances of such filings, to quantify and provide further explanation regarding the individual components of this adjustment. We advise the Staff that if such disclosure had been included in the Form 10-K it would have been substantially similar to the following (disclosure added to reflect our response to this Comment 2 is denoted by underline):

 U.S. Securities and Exchange Commission

December 5, 2022

  Page
 3

 The following table presents a reconciliation of the GAAP financial measure of net income
(loss) to Adjusted EBITDA for each of the periods indicated (in thousands):

Year Ended December 31,

2021

2020

2019

 Net income (loss)

$
(182,952
)

$
(465,605
)

$
58,729

 Interest expense

133,138

99,415

97,847

 Income tax expense (benefit)

(1,635
)

35,583

(36,141
)

 Depreciation, depletion and amortization

395,994

364,346

345,931

 Accretion expense

58,129

49,741

34,389

 EBITDA

402,674

83,480

500,755

 Write-down of oil and natural gas properties

18,123

267,916

12,221

 Transaction and other expenses(1)(2)

26,941

14,917

7,460

 Derivative fair value (gain) loss(3)

419,077

(87,685
)

95,337

 Net cash received (paid) on settled derivative instruments(3)

(290,164
)

143,905

(8,820
)

 (Gain) loss on debt extinguishment

13,225

(1,662
)

132

 Non-cash write-down of other well equipment
inventory

5,606

699

165

 Non-cash equity-based compensation expense

10,992

8,669

6,964

 Adjusted EBITDA

$
606,474

$
430,239

$
614,214

(1)
 Includes transaction related expenses of $4.4 million, $12.2 million and $7.5 million for the years ended
December 31, 2021, 2020 and 2019, respectively.

(2)
 Includes restructuring expenses, cost saving initiatives and other miscellaneous income and that we do not
view as a meaningful indicator of our operating performance. For the year ended December 31, 2021, the amount includes $21.1 million relates to estimated decommissioning obligations primarily as a result of working interest partners or
counterparties of divestiture transactions that were unable to perform the required abandonment obligations due to bankruptcy or insolvency. For the year ended December 31, 2020, the amount includes $1.4 million of legal entity restructuring
costs and $1.3 million of severance related to cost saving initiatives due to the COVID-19 pandemic.

(3)
 The adjustments for the derivative fair value (gains) losses and net cash receipts (payments) on settled
commodity derivative instruments have the effect of adjusting net loss for changes in the fair value of derivative instruments, which are recognized at the end of each accounting period because we do not designate commodity derivative instruments as
accounting hedges. This results in reflecting commodity derivative gains and losses within Adjusted EBITDA on an unrealized basis during the period the derivatives settled.

 U.S. Securities and Exchange Commission

December 5, 2022

  Page
 4

 Similarly, if such disclosure had been included in the Form
8-K it would have been substantially similar to the following (disclosure added to reflect our response to this Comment 1 is denoted by underline):

Three Months Ended

($ thousands, except per Boe)

September 30,
2022

June 30,
2022

March 31,
2022

December 31,
2021

 Reconciliation of net income (loss) to Adjusted EBITDA:

 Net Income (loss)

$
250,465

$
195,141

$
(66,441
)

$
81,012

 Interest expense

29,265

30,776

31,490

33,102

 Income tax expense (benefit)

121

2,607

(472
)

(2,353
)

 Depreciation, depletion and amortization

92,323

104,511

98,340

105,900

 Accretion expense

13,179

14,844

14,377

14,019

 EBITDA

385,353

347,879

77,294

231,680

 Write-down of oil and natural gas properties

—

—

—

18,123

 Transaction and other (income)
expenses(1)(4)(5)

3,239

(5,010
)

(26,532
)

19,710

 Derivative fair value (gain) loss(2)

(114,180
)

64,094

281,219

13,473

 Net cash payments on settled derivative
instruments(2)

(81,162
)

(160,235
)

(127,086
)

(100,912
)

 Non-cash write-down of other well equipment
inventory

—

—

—

5,606

 Non-cash equity-based compensation expense

4,310

4,049

3,318

2,698

 Adjusted EBITDA

197,560

250,777

208,213

190,378

 Add: Net cash payments on settled derivative instruments(2)

81,162

160,235

127,086

100,912

 Adjusted EBITDA excluding hedges

$
278,722

$
411,012

$
335,299

$
291,290

(1)
 Includes transaction-related expenses, decommissioning obligations, and other miscellaneous income and expenses
that we do not view as a meaningful indicator of our operating performance. Transaction-related expenses were $4.5 million, $1.2 million, $1.1 million and $0.5 million
for the three months ended September 30, 2022, June 30, 2022, March 31, 2022 and December 31, 2021, respectively. Decommissioning obligation expense was less than
$0.1 million, $10.2 million, $0.3 million and $14.2 million for the three months ended September 30, 2022, June 30, 2022,
March 31, 2022 and December 31, 2021, respectively. For the three months ended June 30, 2022 there was also a $2.5 million gain related to the settlement of an acquired
imbalance.

(2)
 The adjustments for the derivative fair value (gains) losses and net cash receipts (payments) on settled
commodity derivative instruments have the effect of adjusting net loss for changes in the fair value of derivative instruments, which are recognized at the end of each accounting period because we do not designate commodity derivative instruments as
accounting hedges. This results in reflecting commodity derivative gains and losses within Adjusted EBITDA on an unrealized basis during the period the derivatives settled.

(3)
 One Boe is equal to six Mcf of natural gas or one Bbl of oil or NGLs based on an approximate energy
equivalency. This is an energy content correlation and does not reflect a value or price relationship between the commodities.

(4)
 Includes $27.5 million gain as a result of the settlement agreement to resolve previously pending
litigation that was filed in October 2017 for the three months ended March 31, 2022.

(5)
 Includes a $1.4 million and $13.9 million gain on partial sale of our investment in Bayou Bend for
the three months ended September 30, 2022 and three months ended June 30, 2022, respectively.

 U.S. Securities and Exchange Commission

December 5, 2022

  Page
 5

 Liquidity and Capital Resources, page 78

3.
 Revise your disclosure to clarify the nature of your capital expenditures characterized as “Asset
management.”

 RESPONSE: We acknowledge the Staff’s comment and undertake in future filings, to
the extent material and appropriate under the circumstances of such filings, to provide disclosure clarifying the nature of such capital expenditures. We advise the Staff that if such disclosure had been included in the Form 10-K it would have been substantially similar to the following: “Asset Management consists of capital expenditures for development-related activities primarily associated with recompletions and improvements to
our facilities and infrastructure.”

 Notes to Consolidated Financial Statements

Note 1—Organization, Nature of Business and Basis of Presentation

Basis of Presentation and Consolidation, page F-9

4.
 We note your disclosure that amounts previously included as income in “Other” within
“Revenues and Other” are now reflected in “Other operating (income) expense.” Please expand this disclosure for more specificity with regard to the nature of and reasons for this reclassification.

RESPONSE: We acknowledge the Staff’s comment and undertake in future filings, to the extent material and appropriate under the
circumstances of such filings, to provide expanded disclosure regarding the nature of, and reasons for, this reclassification. We advise the Staff that if such disclosure had been included in the Form 10-K it
would have been substantially similar to the following (disclosure added to reflect our response to this Comment 4 is denoted by underline):

Certain reclassifications have been made to the prior year presentation to conform to the current year presentation. Amounts previously
included as income in “Other” within “Revenues and Other” on the Consolidated Statements of Operations for the years ended December 31, 2020 and 2019 are now reflected in “Other operating (income)
expense” as a component of “Total operating expenses” on the Consolidated Statements of Operations. These balances primarily relate to a multi-year federal royalty refund claim from the ONRR (See Note 2 – Summary of
Significant Accounting Policies). During the year ended December 31, 2021, the Company incurred certain expenditures primarily related to decommissioning obligations (see Note 12 –
Commitments and Contingencies) classified as other operating expense. The reclassification was to combine amounts classified as other operating income and other operating expense into one financial statement line. There was no
impact to operating income (expense), net income (loss) before income taxes or net income (loss) because of these reclassifications.

 U.S. Securities and Exchange Commission

December 5, 2022

  Page
 6

 Note 4. Property, Plant and Equipment

Unproved Properties, page F-18

5.
 Revise to provide disclosure that more clearly describes the current status of your unproved properties,
including the anticipated timing of the inclusion of the costs in the amortization computation. Refer to Rule 4-10(c)(7)(ii) of Regulation S-X.

 RESPONSE: We acknowledge the Staff’s comment and undertake in future filings, to the extent
material and appropriate under the circumstances of such filings, to provide disclosure that clearly describes the current status of the significant properties or projects involved, including the anticipated timing of the inclusion of the costs in
the amortization computation in future filings.

 Note 13 Supplemental Oil and Gas Disclosures (Unaudited)

Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil, Natural Gas and NGL Reserves, page
F-36

6.
 Expand the discussion accompanying the presentation of the standardized measure to clarify, if true, that
all estimated future costs to settle your asset retirement obligations have been included in your calculation of the standardized measure for each period presented. Refer to FASB ASC 932-235-50-36.

 If the estimated future costs to settle
your asset retirement obligations (including the costs related to your proved undeveloped reserves) have not been included, please explain to us your rationale for excluding these costs from your calculation of the standardized measure, or revise
your disclosure to include these costs.

 U.S. Securities and Exchange Commission

December 5, 2022

  Page
 7

 RESPONSE: We advise the Staff that all estimated future
costs to settle asset retirement obligations associated with our proved reserves have been included in our calculation of the standardized measure for each period presented. To address the Staff’s comment, we undertake in future filings to ad