TALOS ENERGY INC. (TALO)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Unless otherwise indicated or the context requires otherwise, references in this Quarterly Report to “us,” “we,” “our,” “Talos,” or the “Company” refer to Talos Energy Inc. and its subsidiaries. References to “Parent Company” refer to Talos Energy Inc.

The following discussion and analysis of our financial condition and results of operations is based on, and should be read in conjunction with, our Condensed Consolidated Financial Statements and notes thereto in Part I, Item 1. “Financial Statements” of this Quarterly Report, as well as our audited Consolidated Financial Statements and the notes thereto in our 2025 Annual Report and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations included in Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 2025 Annual Report.

Our Business

We are a technically driven, innovative, independent energy company focused on safely maximizing long-term value through our oil and gas exploration and production (“Upstream”) business in the United States (“U.S.”) Gulf of America and offshore Mexico. We leverage decades of technical and offshore operational expertise to acquire, explore, and produce assets in key geological trends while maintaining a focus on safe and efficient operations, environmental responsibility and community impact.

We combine our technical experience in geology, geophysics and engineering with innovative resource evaluation techniques and seismic imaging expertise to discover new resources. We rely on our operational experience to optimize our assets’ production and reserve recovery, safely and responsibly. Finally, we leverage our commercial and corporate management experience to most effectively allocate our capital to balance risk and reward, grow our business and maximize long-term stockholder value.

Operational Update

Genovesa — During the fourth quarter of 2025, we temporarily shut-in production from the Genovesa well, which ties back to the non-operated Na Kika facility, due to a failure of the surface-controlled subsurface safety valve. We successfully completed the Genovesa workover and returned the well to production late in the second quarter of 2026.

Monument — As recently announced by the operator, the first Monument development well was successfully drilled to its total measured depth of 32,250 feet and encountered approximately 250 feet of net pay confirming pre-drill expectations. Drilling is set to commence on the second development well followed by completion operations on both wells. First oil is expected by late 2026.

Daenerys — The Daenerys appraisal well was spud on July 1, 2026, and operations are progressing according to plan. Results are expected by year-end 2026.

Recent Developments

The following encompasses recent developments since the filing of our Quarterly Report on Form 10-Q for the three months ended March 31, 2026.

Pending Coulomb and Na Kika Acquisition — On June 30, 2026, we entered into a purchase and sale agreement to acquire certain oil and gas properties and related assets in the Mississippi Canyon area of the Gulf of America, including interests in the Na Kika and Coulomb Deepwater producing assets for cash consideration of $850.0 million (net to Talos), subject to customary purchase price adjustments (the “Coulomb and Na Kika Acquisition”). The Coulomb and Na Kika Acquisition is expected to close by the end of 2026. See Part I, Item 1. “Financial Statements — Note 2 — Acquisitions and Divestitures” for additional information.

Credit Agreement Amendments — On June 30, 2026, we entered into the Borrowing Base Redetermination Agreement, Incremental Agreement, and First Amendment to Amended and Restated Credit Agreement (the “First Amendment”). The First Amendment, among other things, reaffirms the borrowing base at $700.0 million as part of the biannual redetermination of the borrowing base, effective upon closing of the First Amendment. The First Amendment also provides for a borrowing base increase from $700.0 million to $850.0 million subject to and effective upon the consummation of the Coulomb and Na Kika Acquisition. On July 22, 2026, contemporaneously with entry into the farm-in transaction discussed below, we entered into a second amendment to our Amended and Restated Credit Agreement (the “Second Amendment”). See Part I, Item 1. “Financial Statements — Note 7 — Debt” for additional information regarding the First Amendment and Second Amendment.

8.000% Second-Priority Senior Secured Notes due July 2034 — The $800.0 million 8.000% Second-Priority Senior Secured Notes due 2034 (the “8.000% Notes”) were issued pursuant to an indenture dated July 13, 2026, by and among the Parent Company, Talos Production Inc., as issuer of the 8.000% Notes (“Talos Production” or “Issuer”), the subsidiary guarantors party thereto (together with the Parent Company, the “8.000% Notes Guarantors”) and Wilmington Trust, National Association, as trustee and collateral agent. See Part I, Item 1. “Financial Statements — Note 7 — Debt” for additional information.

The proceeds from the notes were used to pay related offering fees and expenses and to fund the redemption of all of the outstanding 9.000% Second-Priority Senior Secured Notes due 2029 (the “9.000% Notes”). We intend to use any remaining proceeds to fund a portion of the cash consideration for our pending Coulomb and Na Kika Acquisition.

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Redemption of 9.000% Notes — On July 13, 2026, we redeemed all $625.0 million aggregate principal amount of the 9.000% Notes at 104.500% plus accrued and unpaid interest using the proceeds from the issuance of the 8.000% Notes.

Shelf and Gulf Coast Non-Core Properties Divestment — On July 15, 2026, we divested a wholly-owned subsidiary holding non-core, gas weighted and predominantly non-operated Shelf and Gulf Coast properties pursuant to a purchase and sale agreement. See Part I, Item 1. “Financial Statements — Note 2 — Acquisitions and Divestitures” for additional information.

Offshore Mexico Farm-In Transaction — On July 22, 2026, we entered into a definitive agreement to farm into the Block 29 development located in the Salinas-Sureste Basin in the southern Gulf of Mexico, operated by a Repsol, S.A. subsidiary (the “Offshore Mexico Farm-In Transaction”). The partners expect to progress the project toward a final investment decision in 2027. See Part I, Item 1. “Financial Statements — Note 2 — Acquisitions and Divestitures” for additional information.

Honduras Transaction — On July 29, 2026, we entered into agreements to acquire an 80% operated working interest in an early-phase offshore Honduras project and related seismic evaluation (the “Honduras Transaction”) that provides us access to more than 4 million gross acres. We have closed on a 45% working interest and assumed operatorship. The acquisition of the remaining 35% working interest is subject to approval by Honduras's Secretaría de Energía, which is expected within approximately 90 days. Consideration for the Honduras Transactions includes a reimbursement of sunk costs, a seismic carry, and a contingent discovery bonus. An initial three-dimensional seismic campaign is planned for the second half of 2026.

Factors Affecting the Comparability of our Financial Condition and Results of Operations

No material events, such as acquisitions or divestitures, affected the comparability of our financial condition or results of operations for the periods presented herein. Management does not currently expect any material factors to affect the comparability of our future financial condition or results of operations, other than the Coulomb and Na Kika Acquisition and the debt refinancing discussed above.

Known Trends and Uncertainties

Except as discussed below, there have been no material developments to known trends and uncertainties discussed in our 2025 Annual Report:

Volatility in Oil, Natural Gas and NGL Prices — Oil, natural gas and NGL prices have been, and are expected to continue to be, volatile. The war in Iran, which began in February 2026, has increased geopolitical risk in global energy markets and contributed to volatility in oil and gas prices. The war has also disrupted maritime transit, supply chains and energy infrastructure in the Middle East, including in and around the Strait of Hormuz, a key route for global oil and liquefied natural gas shipments. Diplomatic negotiations have further contributed to uncertainty in global energy markets. While certain actions have supported improved market access and the partial resumption of trade and shipping activity, the timing and extent of any sustained normalization of production, exports, transportation networks and related supply chains remain uncertain. Any deterioration in diplomatic efforts, renewed geopolitical tensions or continued disruptions to trade routes, supply chains or energy infrastructure could affect global supply-demand balances and contribute to further volatility in commodity prices. Such volatility could also affect customer demand, counterparty credit risk and broader macroeconomic conditions. We cannot predict the nature, timing or magnitude of any future effects on our business, financial condition or results of operations.

Our revenues, cash flow, profitability, access to capital, capital expenditures, and liquidity are directly influenced by commodity prices. We use hedging instruments as part of our risk management strategy to reduce the impact of near-term price volatility, mitigate downside exposure, and allow for participation in favorable commodity price movements during periods of higher prices. We also anticipate continuing to operate our business in a volatile market by prioritizing high-return development projects, focusing on cost control measures, and maintaining a strong balance sheet to provide financial, operational and capital spending flexibility under a range of price scenarios. We continue to monitor commodity price trends closely and will modify our plans within our strategy as appropriate. See Part I, Item 1. “Financial Statements — Note 5 — Financial Instruments” for additional information regarding our commodity derivative positions as of June 30, 2026.

Although we cannot predict the occurrence of events that may affect future commodity prices or the degree to which these prices will be affected, the prices for any commodity that we produce will generally approximate current market prices in the geographic region of production.

Inflation of Cost of Goods, Services and Personnel — The war in Iran triggered inflationary pressures in the global economy. The federal funds rate target range is currently set at 3.50% to 3.75%, where it was left unchanged at the U.S. Federal Reserve’s latest meeting. Future changes to the benchmark interest rate remain uncertain in light of geopolitical conditions and recent changes to the membership of the Federal Reserve Board of Governors.

Impact of Prolonged Increases in Tariffs —We continue to monitor changes in global trade policies, including tariff increases, and the impact on our business while evaluating actions to mitigate the impact on our business, results of operations, and financial condition. The imposition of additional or any prolonged increases in global tariffs could have a material impact on our financial condition and results of operations in fiscal year 2026 and beyond.

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Impairment of Oil and Natural Gas Properties — Under the full cost method of accounting, the “ceiling test” under SEC rules and regulations specifies that evaluated and unevaluated properties’ capitalized costs, less accumulated amortization and related deferred income taxes (the “Full Cost Pool”), should be compared to a formulaic limitation (the “Ceiling”) each quar

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations is based on, and should be read in conjunction with our Consolidated Financial Statements and the Notes to Consolidated Financial Statements set forth in Part IV, Item 15. Exhibits and Financial Statement Schedules; Part I, Items 1 and 2. Business and Properties; Part I, Item 1A. Risk Factors; and Part II, Item 7A. Quantitative and Qualitative Disclosures About Market Risk. This discussion and analysis contains forward-looking statements that involve risk and uncertainties. Actual results may differ materially from those anticipated in these forward-looking statements.

This section of this Annual Report generally discusses 2025 and 2024 items and year-to-year comparisons between 2025 and 2024. Discussions of 2023 items and year-to-year comparisons between 2024 and 2023 that are not included in this Annual Report can be found in “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2024 filed with the SEC on February 27, 2025.

Our Business

We are a technically driven, innovative, independent energy company focused on maximizing long-term value through our Upstream business in the U.S. Gulf of America and offshore Mexico. We leverage decades of technical and offshore operational expertise to acquire, explore, and produce assets in key geological trends while maintaining a focus on safe and efficient operations, environmental responsibility and community impact.

We combine our technical experience in geology, geophysics and engineering with innovative resource evaluation techniques and seismic imaging expertise to discover new resources. We rely on our operational experience to optimize our assets’ production and reserve recovery, safely and responsibly. Finally, we leverage our commercial and corporate management experience to most effectively allocate our capital to balance risk and reward, grow our business and maximize long-term stockholder value.

Outlook

In 2026, we anticipate continued commodity price uncertainty, evolving global macroeconomic conditions, regulatory pressures, and shifting external expectations. Outlooks for crude oil and natural gas prices remain mixed, with some industry sources and analysts expecting prices to soften in 2026 while others anticipate improvement over 2025 levels, reflecting the ongoing unpredictability of global energy markets that will continue to influence the importance of maintaining financial and operational flexibility. Fluctuating commodity prices will directly affect our revenues.

We intend to prioritize high-margin oil production in 2026 underpinned by balanced investment in infrastructure-led development, exploration and appraisal, and multi-well development as part of the Monument Project. Capital expenditures guidance for 2026 is expected to range from $500 to $550 million. Abandonment and decommissioning expenditures are expected to range from $100 to $130 million. Non-operated capital expenditures are expected to be 40% of capital expenditures, which is an increase year over year and largely driven by the Monument Project. Approximately 10% of capital expenditures will be allocated to exploration. Production for 2026 is expected to be in the range of 62 to 66 MBopd; 85 to 90 MBoepd.

Tropical Storm Risk’s extended outlook for the 2026 Atlantic hurricane season indicates activity in line with long‑term averages—14 named storms, 7 hurricanes, and 4 major hurricanes. We incorporate expected weather‑related downtime into our operational and financial planning to maintain flexibility and support achievement of production objectives.

Operational Update

CPN — During the first quarter of 2026, we successfully drilled the CPN well with first production expected in the second half of 2026. The CPN well will tie back to our non-operated Na Kika facility. Talos is the operator of CPN and holds a 65% working interest.

Katmai — The Katmai #2 well came online in the second quarter of 2025. The Katmai Field ties back to our operated Tarantula facility. In connection with the Katmai #2 well coming online, the Tarantula gross processing capacity was expanded to 35 MBoepd to accommodate higher volumes. During the fourth quarter of 2025, gross processing capacity at the Tarantula facility was increased to approximately 38 MBoepd. Talos is the operator of the Katmai Field and holds a 50% working interest.

Genovesa — During the fourth quarter of 2025, we temporarily shut-in production from the Genovesa well, which ties back to the non-operated Na Kika facility, due to a failure of the surface-controlled subsurface safety valve resulting in deferred production of approximately 3 MBoepd. We expect the Genovesa well to return to production in the third quarter of 2026 following completion of a planned workover. Talos is the operator of Genovesa and holds a 65% working interest.

Cardona — We successfully drilled and completed the Cardona well in late 2025. Production from the Cardona well ties back to our Pompano facility. Talos is the operator and holds a 65% working interest.

Manta Ray — During the fourth quarter of 2025, we participated in the drilling of the non-operated Manta Ray well. While the well encountered hydrocarbons, it was deemed non-commercial. Talos held a 40% working interest.

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Daenerys — In August 2025, we announced successful drilling results at the Daenerys exploration prospect located on Walker Ridge blocks 106, 107, 150 and 151. The discovery well has been temporarily suspended to preserve its future utility. We plan to spud an appraisal well during the second quarter of 2026 to further define the discovered resource. Talos is the operator of Daenerys and holds a 27% working interest.

Recent Developments

The following encompasses recent developments since the filing of our Annual Report on Form 10-K for year ended December 31, 2024:

Amended and Restated Credit Agreement — On January 20, 2026, we entered into the Amended and Restated Credit Agreement (the “A&R Credit Agreement”) with a syndicate of financial institutions as lenders and JPMorgan Chase Bank, N.A. as administrative agent. The initial borrowing base and the total commitments are each $700 million. The A&R Credit Agreement replaces the Company’s amended credit agreement dated May 10, 2018. See Part IV, Item 15. Exhibits and Financial Statement Schedules — Note 8 — Debt for additional information.

Lease Sale — The Big Beautiful Gulf 1 lease sale was held by BOEM on December 10, 2025. It was the first offshore oil and gas lease sale conducted under the new OBBBA. We emerged as the apparent high bidder on eleven of the twelve lease blocks on which we bid. As of February 17, 2026, we have been awarded eight of the lease blocks for which we were the high bidder and are awaiting BOEM’s award decisions on our remaining high bids.

Surety Arrangements and Collateral Requirements — In early November 2025, we entered into various collateral funding and security arrangements (“CFSAs”) to establish limits on the amount of aggregate collateral that our surety providers can require us to post. In exchange for our agreement to post the required amounts of collateral through July 1, 2031 and spend at least a specified amount on annual plugging and abandonment activities each year through 2030, the surety providers agreed not to (1) require additional collateral in excess of the agreed and scheduled amounts on existing surety bonds; (2) draw on collateral posted for the benefit of the sureties except under limited circumstances; (3) seek remedies for breaches of any surety agreement that are not an “Event of Default” as defined in the primary CFSA; or (4) cancel, or attempt to cancel, existing bonds unless requested by us.

For the three years commencing January 1, 2026 and for the subsequent two years commencing January 1, 2029, we are required to spend $90.0 million and $45.0 million on plugging and abandonment activities on an annual basis, respectively. As of December 31, 2025, our aggregate estimated collateral funding commitments under the CFSAs were $251.7 million through 2031. See Part IV, Item 15. Exhibits and Financial Statement Schedules — Note 15 — Commitments and Contingencies— Performance Obligations” for the estimated collateral funding commitments by year under the CFSAs. Also, see Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Known Trends and Uncertainties — Financial Assurance Market Outlook.”

The CFSAs generally contain certain events of default which, if triggered and not cured by us within the cure period, would terminate the standstill period and provide the sureties their full rights under their respective surety and indemnity agreements, including the right to call collateral. Events of default include, but are not limited to, the failure to maintain liquidity of $200.0 million or above a specified credit rating. However, if an event of default were to occur, it is anticipated we would be in a similar position than if we had not entered into the CFSAs given that the surety providers already have the right to demand collateral under existing surety bonds.

The CFSAs provide a multi-year framework to efficiently address the Company’s collateral commitments and abandonment activities, while strengthening the relationship with our surety providers and supporting our long-term operational strategy.

Acquisition of Incremental Working Interest in Mississippi Canyon Blocks — On July 22, 2025, the Company completed the acquisition of an additional 75.2% and 50% working interest in U.S. Gulf of America Mississippi Canyon blocks 108 and 110, respectively, for $33.7 million of cash paid at closing. Prior to this acquisition, we owned an interest in and operated these developed and producing blocks. See Part IV, Item 15. Exhibits and Financial Statement Schedules — Note 3 — Acquisitions and Divestitures for additional information.

Enhanced Corporate Strategy — On June 17, 2025, we announced an enhanced corporate strategy designed to position the Company as a leading pure-play offshore exploration and production company. The strategy is built on three key pillars. The first pillar targets increased annualized free cash flow by improving our existing operations through capital efficiency, margin enhancement, commercial opportunities and general organizational improvements. The second pillar focuses on growth through high-margin organic projects and selective Deepwater acquisitions. The third pillar aims to build a long-lived and scaled portfolio in the U.S. Gulf of America and potentially other conventional basins. This strategy is underpinned by a disciplined capital allocation framework which prioritizes investing in projects expected to generate robust returns through commodity cycles, returning cash to shareholders, maintaining a strong balance sheet, and growing through selective opportunities.

Chief Financial Officer Transition — On May 16, 2025, Sergio L. Maiworm, Jr. informed the Board of Directors (the “Board”) that he was resigning from his position as Executive Vice President and Chief Financial Officer of the Company, effective as of June 27, 2025. In connection with and following Mr. Maiworm’s resignation, effective as of June 28, 2025, Gregory Babcock was appointed as Interim Chief Financial Officer to serve until a permanent Chief Financial Officer was appointed by the Board. On August 12, 2025,

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the Board appointed Mr. Zachary B. Dailey to serve as the Company’s Executive Vice President and Chief Financial Officer and principal financial officer, effective August 18, 2025.

Acquisition of Incremental Working Interest in Monument O

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