Good morning and welcome to the 9th Annual JPMorgan Energy Conference. I'm Zach Parham from the E&P Research Team here at JPMorgan. Up next, we have Talos Energy, an E&P focused on developing assets offshore in the Gulf of Mexico. We're excited to have Talos founder, President, and CEO Tim Duncan here with us today. Prior to founding Talos, Tim was SVP of Business Development and a founder of Phoenix Exploration, which eventually sold to APA. Tim, I'll turn it over to you for a presentation.
Thanks, Zach. I appreciate it. I'll water down here. Thanks for having me. It's always a good conference. We've had some great one-on-ones. Happy that this is also being webcast. And we're going to walk through the slides. We're going to talk a little bit about why we think the offshore story is still a compelling one. And I'm going to go through these slides at a reasonably brisk pace and talk about where the company is in its growth over the last 12 years, where we are today, and where we see the future and the catalysts that we have in the business. Just as a way of background, we started this company with five employees 12 years ago. We've grown to one of the biggest operators in the Gulf of Mexico.
We've stayed out here because we thought, as a company who's built our careers here, still quality opportunities, low-cost M&A, and the model has changed over the years. Right now, it's really about infrastructure. It's about being oil-weighted. It's about buying the right assets and really trying to lower your break-evens based on that infrastructure and what it can do from a margin perspective. Let's kind of walk through how busy it's been just in the last year. So we started the year bringing on two key subsea wells. We're going to talk about that in the context of how it fits our strategy in some slides later. We did what we think is our very best transaction in the history of the company in January called the QuarterNorth transaction. And I'm going to talk about a really exciting catalyst related to that deal.
With that transaction, we funded that 50% equity, 50% debt. So we were in the capital markets doing a primary raise for the transaction, followed up by a debt capital raise that really restructured the entire balance sheet, lowered our cost of capital. That debt is still trading at 107. So the market, I think, sees the value of what we're trying to do there. We closed QuarterNorth within 45 days, so one of the quicker closings, I think, in a very active M&A space. And that's important because we are, as an operator, wanted to make sure we got control and we're going to operate one of the key investments related to these assets that we're going to engage in in the third and fourth quarter. We sold the CCS business. We were one of the earlier movers in carbon storage.
We liked that business, but it was taking time for that to develop because it relies on the customer decarbonizing that petrochemical facility, maybe some other downstream facility. So we decided to go ahead and move on from that position. Quick 2-to-1 in less than 30 months generates a very high IRR. Use that to accelerate debt repayments related to the transaction. And then again, what we talked about in our last earnings calls, we've accelerated the debt repayments. Expect to get the revolver fully paid off at the end of the year. And we've already achieved our leveraged target of 1x by the end of the first quarter. So this is just a little bit of first quarter. I wouldn't dwell on this. We've talked about this in the past, around 80,000 barrels equivalent a day in the first quarter.
We've guided that to 93,000 to 96,000 barrels equivalent a day in the second quarter. Feel good about where that is on where we stand. So you can expect these quarterly EBITDA numbers to go up as well. I think a couple of key things on this page that I would focus on is the oil liquid weighting. I know it's been a little choppy, but we think that's the right commodity to think about being in, particularly it's the right commodity to be in. In the Gulf of Mexico, it leads to higher net back margins. So what we'll show you later is we have some of the highest net back per BOE margins in the Gulf of Mexico. A couple of highlights here in the second quarter, one of the key drivers to where production would be would be this HP-I. It's a floating production facility.
Every 2.5 years, it has to go into dry dock. Happy to report that's back on location. Everything was done in time. So we feel good about where that is. We're making a lot of progress on the synergies related to the transaction. And I'm going to talk about that transaction in a couple of slides and where we see those synergies landing. So look, I put this on here from time to time just to remind me that it's been a journey. Again, as a founder, we started this company with just a couple of employees. The first transaction we did was John Hurst with JPMorgan. It's funny, he was a young banker at Jefferies. Still had the same amount of hair there, John, which bothers me. But he was one of the guys who helped sell that asset to us.
First transaction, first quarter of 2013, slowly growing the business through a combination of attractive M&A and organic development on the portfolio. A couple of things you'll note there. If you go kind of 2015, 2016, I think, remember that commodity crisis and what happened when oil went from in the hundreds to down into the forties and the amount of bankruptcies that happened then. Then in 2020, some of those firms that didn't go bankrupt in 2015 and 2016 found their way in 2020. We've never had any financial distress in this company. We've never breached a financial covenant. We've never had any worries with the RBL. We've done that because we think we have a strategy that works offshore. It's different than onshore. And there's some compare and contrast that's worth doing.
And we can do a little bit of that in Q&A or I can talk through it. But we think that strategy is about being well-weighted, having the infrastructure, and making sure you build an inventory and an acreage position around that infrastructure so you can shorten your cycle times and lower your break-even. So let's walk through why we think that works. A couple of things to remember is the basin is enormous. So if you think about it both geographically and geologically, I think that's what makes the Gulf of Mexico compelling. So a little bit of a cartoon, but what we're trying to show you at scale are the different oil-producing basins and how they can all fit into the Gulf of Mexico geographically. So it's a very large basin with a tremendous amount of midstream infrastructure that ultimately takes it downstream to the Gulf Coast.
It's also the breadth of the geology, I think, is something that's underappreciated. We have producing horizons from 5,000 feet below the ground to 30,000 feet below the ground. What's changed over the years is seismic processing. How can we image that? What we couldn't image 15 years ago, we can now image today. I'm going to show you an opportunity that we're going to drill later this year, maybe early next year, that is really just a result of seismic technology, computing speed, and imaging. But we have a large geographical area, a large breadth of geology, conventional rocks, nothing that we have to frac, that if you can manage that the right way, own the infrastructure, you can recycle new opportunities. This basin has been the second biggest producing oil basin in the country for a sustainable period of time because of these characteristics.
So what does our strategy do? Well, what we're trying to do is do M&A as a means to an end to develop a better drilling inventory. So we start with infrastructure-focused M&A. Then we do some re-imaging around the seismic and some better seismic technology opportunities. Then we build the portfolio, some simple development ideas. Then it moves out into what I would call the bread and butter of step-out exploitation, subsea tiebacks, and then we sprinkle in some high-impact exploration. And our view is you're not getting the benefit of the geology in the Gulf of Mexico if you're not managing the entirety of that risk-reward spectrum. And again, all the risk related to that, the economics related to that is all improved if I own the infrastructure and I'm not having to construct something new.
When we do new construction, we're waiting five years, seven years from first oil. When we do subsea tiebacks, we're waiting 12-24 months for first oil. It's a big difference when you think about the delivery of IRRs. So this, I think, lays it out. It's a little bit of a busy slide, but let me try to make sure you understand kind of what we're looking at. So that light blue, that light kind of blue-gray shade is our seismic. So we have seismic covering the entirety of the Gulf of Mexico. So we can see not only what's interesting to us, we can see a competitor's dry holes and successes as well.
So as we get information on what's happening in the basin, I can send a note down to the guys and say, "Tell me what they just found." And we can look at what somebody just found, and then I can ask the question, "Tell me that if I have something that looks like that." And then they can show me, "Hey, we have something that looks like that in our portfolio as well." So having seismic really is a risk mitigator when you think about exploration offshore. Then what I would focus you on is the yellow dots. The yellow dots is where we operate infrastructure. The blue is our acreage. The green is the capital program for this year. You'll note how all that's aggregated around those yellow dots. We want to make sure we're using that infrastructure.
Not only does that basically fix cost, and so new volumes brings in higher margins on that fixed cost. Occasionally, somebody else might have a discovery, and I can host their volumes and collect a fee for hosting somebody else's volumes because they don't own that infrastructure. So it can act like a midstream asset as well. So again, seismic infrastructure, acreage position, builds out an organic inventory. On the right, you can see the project inventory list. There's years and years of inventory for us to work from. The other thing I would note is it covers that spectrum from development ideas that can happen pretty quickly to bigger exploration ideas. The other thing that's interesting, and I'm going to bring all this home here in a couple of slides, is the decline profiles offshore. These aren't immediate 35%-40% declines.
Typically, because you have good rock properties and good pressures down hole in the reservoir, we've produced these relatively flat for the first with slight declines for the first third of life. So on the left, what you're seeing is the decline profile as a percent of the total production. So you can see it's nominal in the beginning, then it's exponential, and then it levels off. Again, if I showed you one of these onshore, it's declining immediately, which is why that treadmill looks a little different. Our corporate-based decline is 20%-21% versus 35%-40%. Now, that's great. So if you have a development well, it may come online at 1,000 barrels a day, and it has this profile.
But if you have an exploration well, it could come online at 8,000; 9,000; 10,000 barrels a day, 15,000 barrels a day, and still have this profile. So we don't get as many shots on goal. The shots we do get are important shots. So let me show you how this comes together. On the left, if I'm looking at it, if you're looking at the screen, that is a facility that Shell put in in 2000. So it's called the Ram Powell Facility. That was the very first of those. And it cost over $2 billion for Shell to put that in place. We ended up buying it 15 years later for $40 million, and it was producing 5,000 barrels a day. Now, over time, we were able to increase that production.
But then what happened, and really where the strategy comes into play, if you look at the middle, again, the blue dot represents where that facility is located. The darker green represents the production that Shell produced. They produced over 200 million barrels before they sold it to us. It peaked at 60,000 barrels a day. At some point when it declined to about 6,000, 7,000, they were ready to make a trade. That's where we came in as a counterparty that they could trust to be the next owner of that asset because Shell ultimately has that liability. So they need to find a buyer that can manage those obligations and hopefully create some value in the asset.
What we found were two subsea tieback opportunities that either one, Shell didn't identify, or two, they just didn't think they would be material to Shell that could be material to us. That was called Venice and Lime Rock. We drilled both those wells in 2022. We had a discovery. By the end of 2023, they were online, and they added 18,000 barrels equivalent a day. So they averaged 9,000 barrels equivalent a day gross between those wells. So this facility is now seeing the highest production it's seen in 15 years. Again, something that we came in at 1x EBITDA because Shell thought there might have been four years left. So that's the cycle of how the strategy works. And so how are we going to put that in motion this year? Well, we closed QuarterNorth.
Again, I'm going to talk about another example similar to one I just gave that's even more exciting in that transaction. We're ramping up the drilling program, which we'll talk about, and really focusing on execution, focusing on small tactical things, and really primarily paying down that debt and getting that revolver paid off. So let's just quickly on the transaction. If you followed our story, I've talked about this quite a bit. What really makes this one interesting is we bought this at around 2.5x-2.6x EBITDA. And if you look at where some of those onshore metrics are, they're a good multiple higher. They're a good leg higher than that. The other thing I would kind of make sure I leave you with is everything we purchase is underwritten inside those proved reserves. So we're not allocating against production or acreage or locations.
It's all inside those proved reserves. Then anything that's upside to that, that's just upside that we're getting to the transaction. So effectively, we are buying these as if we're only buying midlife assets. But in this particular transaction, what you're going to see is we have a very exciting catalyst and a near-term asset called Katmai. This is a capital program. Won't dwell a lot on that. Low reinvestment rate this year is going to generate a ton of free cash flow. It's why we've talked about we pulled on the revolver at about $550 million, and we expect to get that fully paid off. So to get more than a third of the transaction and most of the debt related to the transaction paid off in the first 10 months of the transaction speaks to the level of cash flow generation that these assets can do.
But when we get into the capital program, you're going to see a nice balance between development projects, exploitation projects, and high-impact projects. This is the rig program. Again, we'll spend a ton of time on that. Venice and Lime Rock, we talked about a couple of the development projects, the Lobster Waterf lood. Take a look at that in the appendix. Another really cool application speaks to the operating team and what we're doing there to extend the life of that asset. But the big catalyst that I'm going to talk about in this presentation, Katmai West and Daenerys. And so let's walk through those. So here's the Katmai area. So this was discovered by Noble before ultimately Noble went to Chevron. It was bought by the company QuarterNorth that we ultimately bought. They drilled the first well in 2016. That was Katmai East.
They drilled the second well, Katmai West, in 2023, early 2023, completed it in the middle of 2023. Those two wells are producing flat 27,000 barrels equivalent a day gross. They're just humming along. Now, as we watch those wells and we look at the withdrawal rate, so the production rate every day against the little bit of pressure decline that we see in these gauges that we have at 28,000 feet, you can do a little calculus, and it does a material balance of how big this could be. That matches the seismic picture. So whenever we see that math match the seismic, we get pretty excited that this might be much bigger than what was initially booked by the SEC rules improved. And so what we're going to try to do is play that out.
So if I take you to the next slide, I'm going to walk through this just a little bit. There's a big geological column that was found in Katmai West. That's producing at 14,000 barrels a day. One well, one completion, flat 14,000 barrels a day. We can do a little mathematics to suggest this could match a geological seismic picture that could be four times bigger than what we initially anticipated and what we underwrote in the transaction. Now, if I go to my reserve auditors, so think of our friends at Netherland, Sewell, they're going to give you that one barrel at a time. And they're just going to have to wait and wait and produce before we can really turn that value into what we think is an easier-to-digest shareholder value by increasing the reserves.
If we go drill a well and our hunch is correct and we open up that big geological column, then all that value gets accelerated, and we can add production next year in 2025. So this is the Katmai West well. This rig is going to show up in the third quarter. We're going to drill this well, hopefully extend that geological column, which is the image on the left, and then book those reserves and see that value come in and then get that increased production in the second quarter of next year. We're able to do all that at that kind of speed for a well that's 28,000 feet because we own the infrastructure.
So what you see in this image is the Katmai West # 1 well, where we're going to drill the Katmai West #2 well , and then where that flows back to a facility called the Tarantula facility that we own 100%. What makes that interesting is that enables us to do this quickly. We'll also get additional fees because our 50% partner will pay us a fee to manage their production as well. So another sliver of revenue that we get on this project. So one of our biggest catalysts for the year. This is another interesting one. So this is a great example of seismic technology not imaging something 15 years ago that it can image today.
So again, not to be too nerdy about geology, but if you go back tens of millions of years in geological time and a lot of sand gets dumped by the rivers down into a hole, so think of sand filling up a hole, and then over geological time, it inverts. And so salt moves in, and this geological structure goes from a low to a high. We call that an inverted structure. This is one of the last big inverted structures in the Gulf of Mexico that we were able to image and pull a partnership together. This is a 200-300 million barrel prospect that we're going to drill. Probably it'll sneak in the next year, but really an exciting project.
I talked to a gentleman the other day that is with a major, and he was moving companies, and the last thing he did, he recommended before he left companies, was to try to get into this prospect. And so it's one we're very excited about and one, again, that with the rig that is going to go drill the Katmai extension that I just discussed, stays with us and goes and drills this opportunity as well. This talks a little bit about what we're trying to do with the debt. The debt levels peaked, as you would expect. Part of the sources and uses of the transaction immediately reduced down by $225 million as a result of free cash flow generation in the first quarter and proceeds from the CCS business. That was the balance at the end of the first quarter. Expect that to go down.
And ultimately, when the revolver pays out, that 1,250 is termed out debt. That termed out debt trades at 107. So as much as I'm frustrated at where the stock trades, and we look forward for that to rebound as we go through earnings and time, obviously, there's a lot of smart people playing in the debt at 107. So kind of happy where that is relative to the market. This is also a couple of slides here on why we think our opportunity set's compelling. And again, I talked through this during the presentation. Being oil-weighted and having infrastructure and not having to pay fees to use someone else's infrastructure ultimately results in a high net back BOE margin. So it's over $40 a BOE. And as you can see, that puts you in the top quartile and top decile of E&P producers.
Obviously, we think the business will run well, if you pick the right locations, get them online with high EBITDA margins, ultimately generates with the right reinvestment rate. Again, the way we've termed out this debt, lowered the cost of debt, gets you a lot of free cash flow yield. Now, part of this is generative against the market cap, but I think it speaks to where the business is right now. It's very free cash flow generative. It gives us a lot of options to what to do as a company. And it certainly makes for a compelling value proposition as an investor. The other way to look at this, so you can look at this two ways. You can look at this on free cash flow generation. Hey, what's the model look like? How do I discount those free cash flows back?
You can think about this as NAV. From an NAV perspective, it's a very high-valued barrel, if you will. So if you look at our reserves at the end of the first quarter, worth close to $6 billion and take out the debt and take out some G&A, you can really look at proved value around $17 a BOE. Now, that's proved. If you remember that Katmai story I told you about, we talked about the value that we could book and then the value that we see outside what we could book in that broader geological structure. Some of those reserves are already probable. Believe it or not, that Katmai extension well has got some reserves not booked probable, some booked probable. This little exercise, and it's a very simplistic NAV exercise. We're not diving through weighted average cost of capital and all those things.
But probables are all outside of that. So the amount of value we see in the system outside our proved value really, I think, creates a compelling value proposition. For us, it's again one of the reasons our collective analyst group has a consistent share price recommendation over $19 as we sit here today under $11. So material upside to the business and something that we'd encourage everybody to take a good hard look at. Again, where we differentiate ourselves, not a lot of folks have prescribed this strategy. We get that. We get it takes a little more explanation. We're happy to provide that. Clay's in the back as our VP of IR. But we think we can build together a really good asset base. Infrastructure in the Gulf matters. There's a lot of it. It's the key to being successful.
We think it generates high margins and free cash flow. We're committed to having low leverage. And look, I would tell you 70% of the basin is owned by four names. Second biggest basin in the country, four names, BP, Chevron, OXY, and who am I forgetting? Shell. And so they control 70% of the production. To the extent Chevron, I certainly can't speak for them, get the Hess deal done and decide that they're going to sell some assets. Shell's not the buyer. They're not buying each other's PDP. They are here to explore. They're here to develop. The basin is still very strategic to all four of those names. They would tell you that in any analyst call. But they're not buying each other's mature production like they would have 20 years ago or maybe like they are in West Texas.
They also may not want to be the last owner of an asset. So somewhere in there is a transaction. And if they look out and say, "Hey, look, who's the counterparty we can trust?" I mean, one thing that's in the appendix that you can look at, I think we've announced prospect swaps with BP and Chevron in the last four months, a big exploration JV with Repsol. We did the CCS trade with TotalEnergies. We are a trusted counterparty. And so our job is to keep our head down, execute, and know that we can maintain that relationship with the guys who ultimately could roll the basin over and know what the opportunity is, again, to be a strategic acquirer for the benefit of building out the right portfolio of organic opportunities. And so that's the strategy that we've employed.
It's the strategy we're going to stick to. It's a strategy that we hope people take time to really understand, flanked against other opportunities in the space. With that, we have a couple of minutes if there's questions.
Yeah, we can open it up to the audience for questions. First, I'll ask one. You completed the acquisition of QuarterNorth earlier this year. Can you just talk about how the integration's going, the synergies you expect to generate from that, and how quickly you'll realize those synergies?
I think because we're basin-centric, and it was our biggest acquisition, but it was our 12th acquisition in 12 years. And in the EnVen acquisition, that was definitely that we did the year before, private company going concern. We were able to pull it together. Again, that's your standard. We got to close down an office.
We got to think about what's the right headcount. We've got to look at how do we think about synergies between transportation costs, insurance. That entire integration, I think, went very well. Now, if we do another one a year later, we still have a leadership team in place. When you think about integration, you have you're standing up a leadership team that's trying to put together functional leaders on each side. And so we were able to do all of that pretty quickly in this one because of the experience of having done one a year earlier. So it ran really well. We got through a lot of the G&A synergies in the first quarter. Some of those will roll off in the second quarter. A lot of the insurance-related, if you can imagine, private capital owns a smaller business with not a lot of assets.
They're going to really ensure the heck out of it. When you put it in a much bigger combined portfolio and you go to the insurance market in London, you can think about a more efficient way to do that. So of that $50 million, probably $6 million or $7 million comes from just that process. That process is closing itself up because we want to get ahead of the hurricane season. So I think we've already affected, I think we talked about in the chart, 30 of the $50 million. We'll get through the rest over the next kind of six to eight months, and then you'll see that stay in the system.
I'll ask a couple more. Can you talk about how you balance exploration with development in the Gulf of Mexico?
Yeah. It's interesting. You don't want to start.
I've seen in the past, and as I mentioned, I've done this my whole career. And there's been strategies where folks can say, "Hey, look, I can buy stuff relatively cheap. I can buy stuff," just give you an example, "at $18 a BOE when oil price or a barrel when oil price is $65, $70, $75." That feels good. But I don't know if I want to explore. I don't know if I want to take the risk of that. Why don't I just acquire? If you're not pulling new volumes in with all that infrastructure that you just bought, then ultimately you become an obligations manager. You have to think about plugging all of the stuff. Not that you can't build a strategy, but that strategy runs out of time. The other strategy that I've seen where somebody says, "Look, I'd love to explore.
There's a ton of opportunity here. I'm going to go explore for that." Cobalt was an example. They did a great job. They found a lot of things. But the time between discovery and revenue generation, they might have been spending the money in a high cost of goods environment. So imagine $400,000 a day rigs, and now the revenue's coming when the commodity suffers at $50. That is not the right relationship, right? So we have found, "Hey, if I can go do low-entry M&A and own the infrastructure, then I don't have to wait five years to install it. I can shorten that cycle times and be less exposed to where the cost of goods relationship is relative to the revenue generation." So we want to start every time we buy a facility with development capital.
How do we take something that we bought and we underwrote five years and extend it to seven or eight? Once we have that time, we can then step back, and we basically draw a 30-mile radius around these facilities. And then we step back, we reprocess and reimage seismic data and look for that next round of exploitation. So call that Venice and Lime Rock or exploration, call that Katmai and Daenerys, that we can then fit into the portfolio. So it's acquired, develop, exploit, explore, basically in that order. But I think if you miss one of those, you've missed the opportunity that the basin delivers.
I'll ask one last question, if you may . The team clearly has a lot of deepwater technical knowledge. Would you think about expanding into other locations internationally, or do you want to stay focused on the Gulf of Mexico?
Look, our primary focus is always the Gulf. I mean, I think because just the depth of our knowledge, we don't have to wonder what extra level of diligence that we need to do about the jurisdiction. I'll be the first to tell you, I may not always love my jurisdiction, even here in the Gulf. But we know it and we understand it. We know the players. We know the operators. I think what we've learned, and even in the lessons in Mexico, is if you're going to go into a different jurisdiction, there's great hydrocarbon systems. We're conventional geologists. We're offshore operators that can travel. But you really have to understand why you're going into the jurisdiction. Do you have a local partner? How do you want to manage that? I think there's some that could be interesting, and then there's a lot that aren't.
And so we just have to be patient. We've dabbled in some data rooms and building our core competency around it. I think as we develop more scale and diversity, we'll have to think about it. But we've never rushed into it. I would tell you, we've done this 12 years. And as much as we've dabbled outside the Gulf, we still bring ourselves back to what we know. And so possibility, but not a mandate.
Thanks, Tim. Appreciate you and the Talos team joining us here at the conference.