Offshore oil and gas exploration and production (E&P) company Talos Energy (NYSE:TALO) announced the acquisition of QuarterNorth Energy, a privately held E&P company. Following the announcement, TALO stock spiked about 8% in the pre-market session on January 16.
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The $1.29 billion deal should enhance TALO’s high-quality deepwater assets, increase free cash flow generation with low reinvestment, and offer attractive future development opportunities.
Further, the company expects the transaction to be immediately accretive to its financials and will likely accelerate the de-leveraging of its balance sheet. Talos expects the deal to be completed in the first quarter of 2024.
Key Highlights of the Deal
Talos Energy will fund the acquisition through a combination of $965 million in cash and the issuance of 24.8 million shares. Talos expects the deal to add to its production capacity, increase production stability, and lower reinvestment rates.
QuarterNorth’s portfolio of assets presents significant potential for reserve growth beyond its existing production. Moreover, the acquired assets bring established reserves totaling approximately 69 million barrels of oil equivalent (MMBoe), valued at a PV-10 (present value of an energy company’s potential future earnings based on its proven reserves) of $1.7 billion.
Furthermore, the deal provides a high-quality inventory of drilling opportunities that will bolster Talos’s portfolio. Moreover, QuarterNorth’s assets require minimal reinvestment to sustain production and have no significant near-term asset retirement obligations. This should boost Talos’s free cash flow generation capabilities.
What is Talos’ Stock Price Target?
Talos Energy stock has spiked in the pre-market session following the acquisition announcement. However, the stock is down over 35% in one year, underperforming the S&P 500’s (SPX) nearly 20% gain. Nonetheless, Wall Street analysts are bullish about TALO’s prospects.
Five analysts cover Talos Energy stock, and all recommend a Buy. Analysts’ average price target of $20.6 implies 52.48% upside potential from current levels.
