Talos Energy (TALO) Risk Analysis

Our estimates of oil and natural gas reserves are based on judgments and assumptions about prices, costs, capital expenditures, and future production, and complex geological, geophysical, engineering and economic data. Changes in these assumptions, or differences between our interpretations and those of third-parties or regulators, can cause reserve estimates to vary significantly. Actual production, oil and natural gas prices, costs, revenues, taxes, expenses and recoverable reserves may differ from estimates and could materially affect the quantity and value of our reserves. Our reserves may also be affected by production from adjacent properties operated by others. We regularly revise our estimates to reflect new data, production history, results of exploration and development, changes in prices, and production results. See Part I, Items 1 and 2. Business and Properties-Summary of Reserves for further discussion on 2025 changes in estimates of our proved reserves. PV-10 is calculated using the pricing requirements established by the SEC, except it does not include estimated future income taxes, and does not necessarily represent the market value of our proved reserves. Actual future prices and costs used in computing PV-10 may be materially higher or lower. Further, actual future net revenues are affected by factors such as: - capital expenditures and decommissioning costs;- the rate and timing of production;- changes in laws, regulations or taxes;- volume, pricing and duration of our hedging contracts;- market supply and demand for oil and natural gas;- prices we receive for oil and natural gas; and - our actual operating costs in producing oil and natural gas. The timing of both our production and our incurrence of expenses in connection with the development and production of our properties affects the timing of actual future net cash flows from reserves, and thus their actual present value. In addition, the 10% discount factor that we use to calculate the net present value of future net revenues and cash flows may not necessarily be the most appropriate discount factor based on our cost of capital in effect from time to time and the risks associated with our business and the oil and natural gas industry in general. As of December 31, 2025, approximately 22% of our proved reserves were undeveloped and 19% were non-producing. Development of these reserves requires significant capital investment and successful drilling. Actual costs or results may differ from our estimates, and some reserves may not be produced within planned timeframes or at all. Any material inaccuracy in our reserve estimates or related assumptions could adversely affect our business, financial condition, and results of operations.

The offshore surety bond market has undergone a structural shift driven largely by adverse developments in restructurings and bankruptcies of companies operating in the OCS, leading to materially reduced availability of surety bonds as a number of surety companies have exited the offshore surety market. In addition, remaining surety companies generally have a lower risk tolerance which has increased pressure to provide collateral on existing and new surety bonds. As a result, new surety bonds may not be available to us on commercially reasonable terms, including requiring collateral, which may lead to significantly increased costs on our operations. Further, if surety market conditions continue to tighten, there may not be sufficient surety bond capacity available for companies in the OCS which could consequently have a material adverse effect on our ability to conduct and grow our operations in the region. In November 2025, we entered into various collateral and security arrangements with our surety bond providers to limit the amount of collateral we are required to provide on existing surety bonds through 2031. In return for our agreement to post annual collateral commitments and make minimum plugging and abandonment expenditures, our surety providers agreed not to require additional collateral under their existing surety agreements above the agreed upon amounts, draw on letters of credit posted for the sureties' benefit, or cancel any existing surety bonds. The arrangements 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. Please see Part IV, Item 15. Exhibits and Financial Statement Schedules - Note 15 - Commitments and Contingencies for further information about these arrangements, our collateral funding requirements and plugging and abandonment commitments. New surety bonds are not subject to these collateral limits, and we may therefore have to post increased collateral on new bonds. BOEM also requires that lessees demonstrate financial strength and reliability according to its regulations or provide acceptable financial assurances, such as surety bonds, to meet lease obligations, including decommissioning activities on the OCS. In 2024, BOEM adopted a new financial assurance rule that significantly increased supplemental bonding requirements for certain lessees and grant holders conducting operations in the OCS. The final rule was challenged in court by multiple oil and gas industry groups and the states of Mississippi, Louisiana and Texas. The U.S. District Court for the Western District of Louisiana granted a stay of the litigation while the agency pursues efforts to suspend, revise, or rescind the final rule. The court's order temporarily limits full implementation of the final rule by limiting BOEM's ability to seek supplemental financial assurance to cases of sole liability properties and certain non-sole liability properties that are held by owners who are not financially strong, as described in the final rule, and that have no co-owners or predecessors who are financially strong. In May 2025, the DOI announced its intent to revise and develop a new rule that is consistent with the Trump Administration's 2020 proposed rule on financial assurance. Although the specific substance and timing of a revised rule cannot be predicted at this time, it is anticipated that the new revised rule will revert to BOEM's former policy of considering the financial strength of both co-owners and predecessors in title when determining whether supplemental financial assurance is required. Notwithstanding the status of the final rule or a new revised rule, BOEM has stated it will continue to require lessees on the OCS to provide financial assurance in instances where BOEM determines there is a substantial risk of nonperformance of their decommissioning liabilities. Despite expected changes to the BOEM financial assurance rule, we remain subject to existing bonding requirements, and future rules are uncertain. In the future, BOEM could implement new or revised rules that require additional financial assurances in material amounts. BOEM may reject proposals to satisfy any such additional financial assurance coverage and make demands that exceed our capabilities or the availability of surety bonds in the market on acceptable commercial terms. If we cannot provide required assurances on acceptable terms, BOEM could impose penalties, suspend operations, or cancel leases. Surety companies may also demand additional collateral on future surety bonds, which could reduce our liquidity and limit future capital spending. Market conditions and regulatory changes could continue to further affect the availability and costs of future surety bonds, materially impacting our ability to operate on the OCS. After 2031, under our existing and future indemnity agreements, surety companies have the right to demand additional collateral to support currently existing bonds. We cannot provide assurance that we will be able to satisfy future collateral demands. Collateral in the form of cash or letters of credit would negatively impact our liquidity position, and we may be required to seek alternative financing. To the extent we are unable to secure adequate financing, we may be forced to reduce our capital expenditures. See Part I, Items 1 and 2. Business and Properties - Government Regulation - Outer Continental Shelf ("OCS") Regulation for more discussion on orders and regulatory initiatives impacting the oil and natural gas industry on the OCS and Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Known Trends and Uncertainties - Financial Assurance Requirements and - Financial Assurance Market Outlook.

We evaluate factors such as reserve estimates, the timing of recovering reserves, exploration potential, future prices, operating costs and potential environmental and regulatory liabilities, including P&A liabilities and decommissioning obligations when leasing or acquiring oil and gas properties. These assessments are inherently uncertain and may not identify all issues. Reviews may miss defects or liabilities, and we may acquire properties on an "as-is" basis with limited contractual protections. We may face claims related to environmental, title, regulatory, tax, contract, litigation or other matters that were unknown at the time of acquisition. While we may be able to obtain indemnities for certain pre-closing liabilities, these protections are typically limited in scope and duration and often are insufficient to cover the full liability. If sellers or other parties fail to meet their obligations, we could be responsible for significant costs, which could materially and adversely affect our operations, financial condition, and results.