Talos Energy to combine with Stone Energy Corp.

11/27/2017

HOUSTON and LAFAYETTE -- Talos Energy LLC and Stone Energy Corporation have announced that their boards of directors have unanimously approved the combination of Talos and Stone in an all-stock transaction that will create a premier offshore-focused exploration and production company. The company will be named Talos Energy, Inc. and is expected to trade on the New York Stock Exchange ("NYSE”) under the new ticker symbol "TALO.”

Highlights of the combined company will include:

  • Pro forma estimated 2017 average daily production of approximately 47,000 boe;
  • Pro forma proved reserves of 136 MMboe as of June 30, 2017, based on SEC pricing, which are 69% oil and 74% located in the Deepwater Gulf of Mexico;
  • Two recent discoveries, Tornado II and Rampart, provide near-term opportunities for growth;
  • Long-term growth profile, underscored by the historic, world-class Zama oil discovery in the shallow waters of Mexico; and
  • Strong pro forma balance sheet and credit profile, highlighted by low leverage and ample liquidity.

Under the terms of the transaction, each outstanding share of Stone common stock will be exchanged for one share of Talos Energy, Inc. common stock and the current Talos stakeholders will be issued an aggregate of approximately 34.2 million common shares. At closing, Talos stakeholders will own 63% of the combined company, with Stone shareholders owning the remaining 37%. Based on Stone’s stock price of $35.49 on Nov. 20, 2017 and the terms of the proposed transaction, Talos Energy, Inc., will have an initial equity market capitalization of approximately $1.9 billion and an enterprise value of approximately $2.5 billion.

Combination benefits, pro forma position

The combination will create a leading offshore independent E&P company and a leader in the Gulf of Mexico with a large, high quality asset base and leading cost profile. The combined company will have estimated 2017 average daily production of approximately 47 Mboe and proved reserves of 136 MMboe as of June 30, 2017 based on SEC prices.

The combined company will also benefit froma deep inventory of identified exploration and development prospects and a significant acreage footprint in the Gulf of Mexico, including over 1.2 million combined gross acres, of which approximately 160,000 acres is offshore Mexico. The Zama oil discovery, operated by Talos, was the first private sector offshore exploration well in the history of Mexico and was previously disclosed as having between 1.4 billion and 2.0 billion gross barrels of original oil in place. Additionally, the combined company expects to achieve up to $25 million in annual pre-tax synergies from supply chain management and other operational efficiencies by year end 2018.

The new company will have increased financial flexibility, in part through its expected new $1 billion credit facility with an expected $600 million in initial borrowing capacity, and no material long term note maturities until 2022. Upon closing, the combined company’s pro forma unrestricted cash, undrawn credit facility and ability to access public capital markets will provide flexibility to pursue additional attractive growth opportunities. The combined company is expected to have a pro forma net debt-to-2017E EBITDA ratio of 1.4x and approximately $325 million to $375 million in liquidity at closing. Talos Energy, Inc. will be well-positioned as the counterparty of choice for drilling and consolidation opportunities in the Deepwater Gulf of Mexico.

Transaction details

Under the terms of the definitive agreement, Talos and Stone will both become wholly-owned subsidiaries of a new holding company, which at closing will become a publicly traded entity. The new, combined company will be named Talos Energy, Inc. and is expected to trade on the NYSE under the new ticker symbol "TALO.” At closing, Talos stakeholders will own 63% and Stone shareholders will own 37% of the combined company. Outstanding warrants to acquire Stone common stock will become warrants to acquire Talos Energy, Inc. common stock with terms and conditions substantially identical to their existing terms and conditions.

Leadership and corporate governance

Timothy S. Duncan, Talos’s CEO, will be CEO of Talos Energy, Inc. with additional members of current Talos and Stone management serving in other key leadership roles.

The combined company’s board of directors will be comprised of ten members, including six members designated by Talos and four members designated by Stone from its current board of directors.

Neal P. Goldman will serve as non-executive chairman of the board of directors. Talos Energy, Inc. will be headquartered in Houston, with additional offices in Lafayette and New Orleans.

Approvals and shareholder agreements

Completion of the transaction is subject to the approval of Stone shareholders, consent of a majority of the unaffiliated holders of Stone’s 7.50% Senior Secured Notes due 2022 and successful completion of an exchange of the Stone notes for Talos notes, certain regulatory approvals and other customary conditions.

Franklin Advisers, Inc. and MacKay Shields LLC, as investment managers for approximately 53% of the outstanding shares of Stone as of Sept. 30, 2017, have entered into voting agreements to vote in favor of the transaction, subject to certain conditions.

The transaction is expected to close in late first quarter or early second-quarter 2018.

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